e10vq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ

At October 31, 2004, the registrant had 46,171,365 shares of Common Stock outstanding.

The accompanying notes to interim consolidated financial statements are an integral part of these statements.

Kaiser Aluminum & Chemical Corporation (the “Company”), its parent company, Kaiser Aluminum Corporation (“Kaiser” or “KAC”), and 24 of the Company’s subsidiaries have filed separate voluntary petitions in the United States Bankruptcy Court for the District of Delaware (the “Court”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Code”); the Company, Kaiser and 15 of the Company’s subsidiaries (the “Original Debtors”) filed in the first quarter of 2002 and nine additional Company subsidiaries (the “Additional Debtors”) filed in the first quarter of 2003. The Original Debtors and Additional Debtors are collectively referred to herein as the “Debtors” and the Chapter 11 proceedings of these entities are collectively referred to herein as the “Cases.” For purposes of this Report, the term “Filing Date” means, with respect to any particular Debtor, the date on which such Debtor filed its Case. None of the Company’s non-U.S. joint ventures are included in the Cases. The Cases are being jointly administered. The Debtors are managing their businesses in the ordinary course as debtors-in-possession subject to the control and administration of the Court.

Original Debtors. During the first quarter of 2002, the Original Debtors filed separate voluntary petitions for reorganization. The wholly owned subsidiaries of the Company included in such filings were: Kaiser Bellwood Corporation (“Bellwood”), Kaiser Aluminium International, Inc. (“KAII”), Kaiser Aluminum Technical Services, Inc. (“KATSI”), Kaiser Alumina Australia Corporation (“KAAC”) (and its wholly owned subsidiary, Kaiser Finance Corporation (“KFC”)) and ten other entities with limited balances or activities.

The necessity for filing the Cases by the Original Debtors was attributable to the liquidity and cash flow problems of the Company and its subsidiaries arising in late 2001 and early 2002. The Company was facing significant near-term debt maturities at a time of unusually weak aluminum industry business conditions, depressed aluminum prices and a broad economic slowdown that was further exacerbated by the events of September 11, 2001. In addition, the Company had become increasingly burdened by asbestos litigation and growing legacy obligations for retiree medical and pension costs. The confluence of these factors created the prospect of continuing operating losses and negative cash flows, resulting in lower credit ratings and an inability to access the capital markets.

The outstanding principal of, and accrued interest on, all debt of the Original Debtors became immediately due and payable upon commencement of the Cases. However, the vast majority of the claims in existence at the Filing Date (including claims for principal and accrued interest and substantially all legal proceedings) are stayed (deferred) during the pendency of the Cases. In connection with the filing of the Original Debtors’ Cases, the Court, upon motion by the Original Debtors, authorized the Original Debtors to pay or otherwise honor certain unsecured pre-Filing Date claims, including employee wages and benefits and customer claims in the ordinary course of business, subject to certain limitations. In July 2002, the Court also issued a final order authorizing the Company to fund the cash requirements of its foreign joint ventures in the ordinary course of business and to continue using the Company’s existing cash management systems. The Original Debtors also have the right to assume or reject executory contracts existing prior to the Filing Date, subject to Court approval and certain other limitations. In this context, “assumption” means that the Original Debtors agree to perform their obligations and cure certain existing defaults under an executory contract and “rejection” means that the Original Debtors are relieved from their obligations to perform further under an executory contract and are subject only to a claim for damages for the breach thereof. Any claim for damages resulting from the rejection of a pre-Filing Date executory contract is treated as a general unsecured claim in the Cases.

Generally, pre-Filing Date claims, including certain contingent or unliquidated claims, against the Original Debtors will fall into two categories: secured and unsecured. Under the Code, a creditor’s claim is

treated as secured only to the extent of the value of the collateral securing such claim, with the balance of such claim being treated as unsecured. Unsecured and partially secured claims do not accrue interest after the Filing Date. A fully secured claim, however, does accrue interest after the Filing Date until the amount due and owing to the secured creditor, including interest accrued after the Filing Date, is equal to the value of the collateral securing such claim. The Court set January 31, 2003 as the last date by which holders of pre-Filing Date claims against the Original Debtors (other than asbestos-related personal injury claims and certain hearing loss and other claims) could file their claims. Any holder of a claim that was required to file such claim by January 31, 2003 and did not do so may be barred from asserting such claim against any of the Original Debtors and, accordingly, may not be able to participate in any distribution in any of the Cases on account of such claim. The Company has not yet completed its analysis of all of the proofs of claim to determine their validity. However, during the course of the Cases, certain matters in respect of the claims have been resolved. Material provisions in respect of claim settlements are included in the accompanying financial statements and are fully disclosed elsewhere herein. The January 31, 2003 bar date does not apply to asbestos-related personal injury claims, for which the Original Debtors reserve the right to establish a separate bar date at a later time. A separate bar date for certain hearing loss and coal tar pitch volatiles claims was reset to February 29, 2004.

Additional Debtors. On January 14, 2003, the Additional Debtors filed separate voluntary petitions for reorganization. The wholly owned subsidiaries included in such filings were: Kaiser Bauxite Company (“KBC”), Kaiser Jamaica Corporation (“KJC”), Alpart Jamaica Inc. (“AJI”), Kaiser Aluminum & Chemical of Canada Limited (“KACOCL”) and five other entities with limited balances or activities. Ancillary proceedings in respect of KACOCL and two Additional Debtors were also commenced in Canada simultaneously with the January 14, 2003 filings.

The Cases filed by the Additional Debtors were commenced, among other reasons, to protect the assets held by these Debtors against possible statutory liens that might have arisen and been enforced by the Pension Benefit Guaranty Corporation (“PBGC”) primarily as a result of the Company’s failure to meet a $17.0 accelerated funding requirement to its salaried employee retirement plan in January 2003 (see Note 9 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 for additional information regarding the accelerated funding requirement). The filing of the Cases by the Additional Debtors had no impact on the Company’s day-to-day operations.

In connection with the Additional Debtors’ filings, the Court authorized the Additional Debtors to continue to pay or otherwise honor certain pre-Filing Date claims, including employee wages and benefits, and customer and vendor claims in the ordinary course of business. The Court also approved the Additional Debtors’ continued participation in the Company’s existing cash management systems and routine intercompany transactions involving, among other transactions, the transfer of materials and supplies among subsidiaries and affiliates.

In March 2003, the Court set May 15, 2003 as the last date by which holders of pre-Filing Date claims against the Additional Debtors (other than asbestos-related personal injury claims and certain hearing loss, coal tar pitch volatiles and other claims) could file their claims. Any holder of a claim that was required to file such claim by May 15, 2003 and did not do so may be barred from asserting such claim against any of the Additional Debtors and, accordingly, may not be able to participate in any distribution in any of the Cases on account of such claim. The Company has not yet completed its analysis of all of the proofs of claim to determine their validity. However, during the course of the Cases, certain matters in respect of the claims have been resolved. Material provisions in respect of claim settlements are included in the accompanying financial statements and are fully disclosed elsewhere herein.

All Debtors. Two creditors’ committees, one representing the unsecured creditors (the “UCC”) and the other representing the asbestos claimants (the “ACC”), have been appointed as official committees in the Cases and, in accordance with the provisions of the Code, have the right to be heard on all matters that come before the Court. In August 2003, the Court approved the appointment of a committee of salaried retirees (the “1114 Committee” and, together with the UCC and the ACC, the “Committees”) with whom the Debtors have negotiated necessary changes, including the modification or termination, of certain retiree benefits (such as medical and insurance) under Section 1114 of the Code. The Committees, together with the legal representatives for (a) potential future asbestos claimants (the “Asbestos Futures’ Representative”) and (b) potential future silica and coal tar pitch volatile claimants (the “Silica/ CTPV Futures’ Representative” and, collectively with the Asbestos Futures’ Representative, the “Futures’ Representatives”) that have been appointed in the Cases, have played and will continue to play important roles in the Cases and in the negotiation of the terms of any plan or plans of reorganization. The Debtors are required to bear certain costs and expenses for the Committees and the Futures’ Representatives, including those of their counsel and other advisors.

As provided by the Code, the Debtors had the exclusive right to propose a plan of reorganization for 120 days following the initial Filing Date. The Court has subsequently approved several extensions of the exclusivity period for all Debtors. Most recently, the Court approved an extension of exclusivity as to all Debtors to February 28, 2005, but the approved order provides that exclusivity can be terminated earlier with respect to AJI, KJC, KBC and KAAC, the four entities that own or owned certain of the Company commodity-related interests in Jamaica, which have been sold/monetized, and in Australia, which, are currently expected to be sold in early 2005, in accordance with the terms of an intercompany settlement agreement (the “Intercompany Agreement”) that is pending before the Court. Additional extensions may be sought. However, no assurance can be given that any such future extension requests will be granted by the Court. If the Debtors fail to file a plan of reorganization during the exclusivity period, or if such plan is not accepted by the requisite numbers of creditors and equity holders entitled to vote on the plan, other parties in interest in the Cases may be permitted to propose their own plan(s) of reorganization for the Debtors.

The Debtors anticipate that substantially all liabilities of the Debtors as of their Filing Date will be settled under more than one plan of reorganization to be proposed and voted on in accordance with the provisions of the Code. As more fully described below, a joint plan was filed by AJI and KJC in November 2004. Although the Debtors intend to file and seek confirmation of additional plans, there can be no assurance as to when the Debtors will file such additional plans or as to whether any such plan or plans will be confirmed by the Court and consummated.

In working toward one or more plans of reorganization, the Debtors have been, and continue to be, engaged in discussions with each of their key constituencies, including the Committees, the Futures’ Representatives, the PBGC, and the appropriate union representatives. The ultimate treatment of individual groups of creditors in any such plans of reorganization cannot be determined definitively at this time. The ultimate treatment of and recoveries to individual creditors is dependent on, among other things, the total amount of claims against the Debtors as ultimately determined by the Court, the priority of the applicable claims, the outcome of ongoing discussions with the key constituencies, the amount of value available for distribution in respect of claims and the completion of the plan confirmation process consistent with applicable bankruptcy law.

to inherent uncertainties, the Debtors currently believe that, in the aggregate, it is likely that their liabilities will be found to significantly exceed the fair value of their assets. Therefore, the Debtors currently believe that, with limited exceptions, it is likely that substantially all pre-Filing Date claims will be settled at less than 100% of their face value and the equity interests of the Company’s stockholders will be cancelled without consideration. Further, the Debtors believe that it is likely that: (a) the claims of pre-petition creditors that are given certain priorities by statute or have the benefit of guarantees or other contractual or structural seniority will likely receive substantially greater recoveries than pre-petition creditors that have no such priorities or seniority; and (b) all pending and future asbestos-related personal injury claims are likely to be resolved through the formation, pursuant to a plan of reorganization, of a statutory trust to which all claims would be directed by a channeling injunction that would permanently remove all asbestos liability from the Debtors. A similar trust arrangement is anticipated in respect of pending and future silica and coal tar pitch volatiles personal injury claims. A separate trust arrangement is anticipated for hearing loss claims. The trusts would be funded pursuant to statutory requirements and agreements with representatives of the affected parties, using the Debtors’ insurance assets and certain other consideration that has yet to be agreed. No assurances can be provided that the foregoing will ultimately be included in any plan(s) of reorganization the Debtors may file. Further, while the Debtors believe it is possible to successfully reorganize their operations and emerge from Chapter 11 in the first half of 2005, their ability to do so is subject to inherent market-related risks as well as successful negotiation and Court approval for the treatment of creditors consistent with applicable bankruptcy law.

The Debtors’ Cases are being administered on a consolidated basis. In fact, however, there are separate Cases for each Debtor or twenty-six Cases in total. The Company believes that the impacts of the Cases and any plans of reorganization proposed for individual Debtors will depend on each Debtor’s specific circumstances and the differing interests that creditors have in respect of such entities.

A substantial majority of the claims in the Cases are against the Company. These include claims in respect of substantially all of the Debtors’ debt obligations, obligations in respect of pension and retiree medical benefits, asbestos-related and personal injury claims, and known environmental obligations. As such, all of these claimholders will have claims against the Company that, except as further described below, will have to be satisfied by the Company’s assets, which generally include the fabricated products plants (other than the London, Ontario, Canada and Richmond, Virginia extrusion facilities, which are owned by separate subsidiaries that are also Debtors), the interests in Anglesey Aluminium Limited (“Anglesey”), which are not currently expected to be sold, and the Company’s interest in and related to the alumina refinery located in Gramercy, Louisiana (“Gramercy”) and Volta Aluminium Company Limited (“Valco”), which have been sold for nominal net proceeds (see Note 4). the Company’s assets also include certain intercompany receivables from certain of its Debtor subsidiaries for funding provided to its joint venture affiliates.

significant portion of the Company’s consolidated asset value. For example, noteholders have claims against each of AJI and KJC which together hold in escrow substantially all of the net proceeds from the sale of the Company’s interests in Alumina Partners of Jamaica (“Alpart”) (see Note 4) and KAAC, which owns the Company’s interests in Queensland Alumina Limited (“QAL”), as a result of AJI, KJC and KAAC having been subsidiary guarantors of the Company’s Senior Notes (as defined below) and Sub Notes (as defined below). Additionally, the PBGC, pursuant to statute, has joint and several claims against the Company and all entities which are 80% or more owned by the Company referred to as “Controlled Group Members”). Controlled Group Members include each of AJI, KJC and KAAC, as well as all of the other Debtors. The only other significant claims against AJI, KJC and KAAC are intercompany claims related to funding provided to these entities by the Company. As such, it is likely that the vast majority of the value realized in respect of the Company’s interests in Alpart and QAL is likely to be for the benefit of the noteholders and the PBGC.

As discussed above, the Company has stated that it expects that pre-Filing Date claims that have the benefit of contractual or structural seniority will receive substantially greater recoveries than pre-Filing Date claims that have no such seniority. Accordingly, it has been the Company’s expectation that the holders of the Company’s 9 7/8% Senior Notes and 10 7/8% Senior Notes (collectively, the “Senior Notes”) will receive substantially greater recoveries than the holders of claims in respect of the Company’s 12 3/4% Senior Subordinated Notes (the “Sub Notes”). However, a group of holders of the Sub Notes (the “Sub Note Group”) has formed an unofficial committee to represent all holders of Sub Notes and retained its own legal counsel. The Sub Note Group is asserting that the Sub Note holders’ claims against the Subsidiary Guarantors (such as AJI, KJC and KAAC) may not, as a technical matter, be contractually subordinate to the claims of holders of the Senior Notes. The effect of such position, if ultimately sustained, would be that the holders of Sub Notes would be on a par with the holders of the Senior Notes in respect of proceeds from sales of the Company’s interests in and related to Alpart and QAL. This position, if accepted by the Court, would materially increase the recoveries to the holders of the Sub Notes and materially decrease the recoveries to the holders of the Senior Notes. The Company believes that the intent of the indentures in respect of the Senior Notes and the Sub Notes was to subordinate the claims of the Sub Note holders in respect of the Subsidiary Guarantors. The Company cannot predict, however, the ultimate resolution of the matters raised by the Sub Note Group, when any such resolution will occur, or what impact any such resolution may have on the Company, the Cases or distributions to affected noteholders.

In order to resolve the question of what consideration from any sale or other disposition of AJI, KJC and/or KAAC, or their respective assets, should be for the benefit of the Company and its claimholders (in respect of the Company’s intercompany claims against such entities), the Intercompany Agreement was reached between the UCC and the Company and filed with the Court in October 2004. The Intercompany Agreement is also intended to resolve substantially all other pre-and post-petition intercompany claims between the Debtors. Evidentiary hearings in respect of the Intercompany Agreement are expected to begin in early 2005. The Intercompany Agreement, which is subject to approval by the Court, provides, among other things, for payments of cash by AJI, KJC and KAAC from the sale of their respective interests in and related to Alpart and QAL to the Company of at least $90.0 in respect of its intercompany claims against AJI, KJC and KAAC. Under the Intercompany Agreement, such payments would be increased or decreased for any net cash flows funded by or collected by the Company related to: (a) the Company’s interests in and related to Alpart from January 1, 2004 through July 1, 2004 (estimated to be between $20.0-$25.0 collected by the Company); (b) the Company’s interests in and related to QAL from July 1, 2004 through KAAC’s emergence from Chapter 11 (estimated to be in the $5.0 range collected by the Company through September 30, 2004); and (c) certain third party costs and certain limited overhead of the Company’s

activities related to AJI, KJC, KBC, KAAC and KFC. As provided under the Intercompany Agreement, the Company was reimbursed for approximately $14.5 of payments made in the third quarter of 2004 to retire Alpart-related debt. The Intercompany Agreement calls for the remaining payments, other than $28.0 already made available to the Company but not paid to the Company at October 31, 2004 pending finalization of the latest amendment to the DIP Facility, to be made in specific increments to the Company at the emergence of AJI, KJC and KAAC from Chapter 11. The Company expects that all remaining proceeds from the sale of Alpart and QAL are likely to be held in escrow for the benefit of creditors until the applicable subsidiaries emerge from the Cases. The ACC, the Futures’ Representatives and others have filed objections to the Intercompany Agreement and no assurances can be provided as to whether the Intercompany Agreement will be approved by the Court.

On November 1, 2004, AJI and KJC filed a joint plan of liquidation and related disclosure statement (the “AJI/KJC Plan”) with the Court. Under the proposed AJI/KJC Plan, the assets of those entities, consisting primarily of the net proceeds received by them in connection with the sale of their interests in Alpart, will be transferred to a liquidation trust, whereupon AJI and KJC will be dissolved. The liquidating trustee will then make distributions of cash to the creditors of AJI and KJC in accordance with such plan. As indicated in the AJI/KJC Plan, it is currently anticipated that AJI and KJC will have approximately $278.4 of cash available for distribution to creditors when the plan becomes effective. Of the cash available for distribution, $20.0 is expected to be retained, subject to certain terms and conditions, in a cash collateral account securing the Post-Petition Credit Agreement until such financing is terminated. The AJI/KJC Plan outlines the specific treatment and expected recoveries of AJI and KJC creditors. The AJI/KJC Plan indicates that, assuming the holders of the Sub Notes accept the plan and after payment of priority claims and trust expenses (initial reserves for which are expected to be established in the range of $15.0 to $20.0), AJI and KJC anticipate ultimately distributing cash as follows:

The $8.0 payment to be made for the benefit of holders of the Company’s Sub Notes will be made if, and only if, such holders approve the plan. In addition, the plan provides that the Court will determine the amount, if any, to be paid in respect of the Parish of St. James, State of Louisiana, Solid Waste Disposal Revenue Bonds (the “Revenue Bonds”). Any amounts paid in respect of the Sub Notes and the Revenue Bonds will be paid from amounts that otherwise would be distributed to holders of the Senior Notes. The disclosure statement also indicates that it is currently anticipated that the plan of liquidation for KAAC, which owns the Company’s interests in QAL, will provide for an additional $8.0 payment to the holders of Sub Notes if, and only if, such holders of the Sub Notes vote to accept that plan. As described in the AJI/KJC Plan, the plan and disclosure statement will be subject to approval by the Court, and the plan will be subject to a vote by certain creditors. The Company anticipates that certain creditors are likely to challenge the proposed AJI/ KJC Plan. The effectiveness of the AJI/KJC Plan is expressly conditioned on Court approval of the Intercompany Agreement. This disclosure is not intended to be, nor should it be construed to be, a solicitation for a vote on the AJI/KJC Plan. The AJI/KJC Plan filed relates exclusively to AJI and KJC and will have no impact on the normal, ongoing operation of the Company’s fabricated aluminum products business or other operations.

As discussed above, because each Debtor entity has different creditors and claim amounts and each Debtor has different assets, the Company currently anticipates that the recoveries of individual creditors will differ depending on the Debtor entity against which a given creditor has a claim. Another factor affecting creditor recoveries will be whether or not intercompany claims are resolved pursuant to the Intercompany

Agreement, which was jointly filed by the Debtors and the UCC, or some other proposal. Certain holders of claims and other stakeholders, in the their Court filings objecting to approval of the Intercompany Agreement, have raised a question as to whether all of the individual Debtors should be substantively consolidated, which is specifically prohibited by the Intercompany Agreement. In this context, “substantive consolidation” would mean that the separate corporate existences of the individual Debtor entities would be ignored and all Debtors would be treated as a single enterprise for purposes of the treatment of creditors’ claims in a single plan of reorganization. The Company does not believe that substantive consolidation of all Debtors is appropriate. However, no assurances can be given as to whether a formal substantive consolidation motion will be made by one or more stakeholders or how the Court might rule on any such motion if such motion were made. The Company believes that, if a substantive consolidation motion seeking to treat all Debtors as a single entity were made and ultimately approved by the Court, recoveries by creditors who hold claims at Debtor entities where there are otherwise fewer competing claims (e.g., AJI, KJC and KAAC) could be significantly and adversely affected as compared to their likely recoveries if the individual Debtor entities (e.g. AJI, KJC and KAAC) were permitted (as is intended under the Intercompany Agreement) to file separate plans of reorganization and distribute their value only to the creditors of those entities. It is also possible that the filing and any potential litigation of such a substantive consolidation motion that might occur could delay the Company’s emergence.

At emergence from Chapter 11, the Company will have to pay or otherwise provide for a material amount of claims. Such claims include accrued but unpaid professional fees, priority pension, tax and environmental claims, secured claims, and certain post-petition obligations (collectively, “Exit Costs”). The Company currently estimates that its Exit Costs will be in the range of $60.0 to $80.0. The Company’s estimate of Exit Costs is less than that estimated in prior periods due in large part to the payment of approximately $27.3 of environmental costs in October 2004 (see Note 7). The Company currently expects to fund such Exit Costs using the proceeds to be received under the Intercompany Agreement together with existing cash resources and available borrowing availability under an exit financing facility that would replace the current Post-Petition Credit Agreement (see Note 5). If payments made to the Company under the Intercompany Agreement together with borrowing availability under an exit financing facility are not sufficient to pay or otherwise provide for all Exit Costs, the Company, Kaiser and some or all of the Company’s other Debtor subsidiaries will not be able to emerge from Chapter 11 unless and until sufficient funding can be obtained. Management believes it will be able to successfully resolve any issues that may arise in respect of the Intercompany Agreement and/or exit financing facility or be able to negotiate a reasonable alternative. However, no assurances can be given in this regard.

The Company expects that, when the Company and Kaiser ultimately file a plan or plans of reorganization, it is likely to reflect the Company’s strategic vision for emergence from Chapter 11: (a) a standalone going concern with manageable leverage and financial flexibility, improved cost structure and competitive strength; (b) a company positioned to execute its long-standing vision of market leadership and growth in fabricated products; (c) a company that delivers a broad product offering and leadership in service and quality for its customers and distributors; and (d) a company with continued ownership of those commodity assets that have the potential to generate significant cash at steady-state metal prices and/or which provide a strategic hedge against the fabricated products business’ needs for primary aluminum. While the Company intends to continue to pursue a standalone fabricated products company emergence strategy, from time to time the Debtors may also evaluate other reorganization strategies, consistent with the Debtors’ responsibility to maximize the recoveries for its stakeholders.

disclosure statement and a plan or plans of reorganization before the end of 2004. However, the Company’s ability to do so and to ultimately emerge from the Cases is subject to a number of factors, including, among others, confirmation of a plan of reorganization in accordance with the applicable bankruptcy law and, accordingly, no assurances can be given as to whether or when any plan or plans of reorganization will ultimately be filed or confirmed.

Financial Statement Presentation. The accompanying consolidated financial statements have been prepared in accordance with AICPA Statement of Position 90-7 (“SOP 90-7”), Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, and on a going concern basis, which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. However, as a result of the Cases, such realization of assets and liquidation of liabilities are subject to a significant number of uncertainties.

Upon emergence from the Cases, the Company expects to apply “fresh start” accounting to its consolidated financial statements as required by SOP 90-7. Fresh start accounting is required if: (1) a debtor’s liabilities are determined to be in excess of its assets and (2) there will be a greater than 50% change in the equity ownership of the entity. As previously disclosed, the Company expects both such circumstances to apply. As such, upon emergence, the Company will restate its balance sheet to equal the reorganization value as determined in its plan(s) of reorganization and approved by the Court. Additionally, items such as accumulated depreciation, accumulated deficit and accumulated other comprehensive income (loss) will be reset to zero. The Company will allocate the reorganization value to its individual assets and liabilities based on their estimated fair value at the emergence date. Typically such items as current liabilities, accounts receivable, and cash will be reflected at values similar to those reported prior to emergence. Items such as inventory, property, plant and equipment, long-term assets and long-term liabilities are more likely to be significantly adjusted from amounts previously reported. Because fresh start accounting will be adopted at emergence, and because of the significance of the pending and completed asset sales and liabilities subject to compromise (that will be relieved upon emergence), meaningful comparisons between the current historical financial statements and the financial statements upon emergence may be difficult to make.

Financial Information. Condensed consolidating financial statements of the Debtors and non-Debtors are set forth below:


(1)	Discontinued operations’ long-term assets for debtors include intercompany payables to non-Debtors of $99.3 and $82.9 as of September 30, 2004 and December 31, 2003, respectively.

Classification of Liabilities as “Liabilities Not Subject to Compromise” Versus “Liabilities Subject to Compromise.” Liabilities not subject to compromise include: (1) liabilities incurred after the Filing Date of the Cases; (2) pre-Filing Date liabilities that the Debtors expect to pay in full, including priority tax and employee claims and certain environmental liabilities, even though certain of these amounts may not be paid until a plan or plans of reorganization is effective; and (3) pre-Filing Date liabilities that have been approved for payment by the Court and that the Debtors expect to pay (in advance of a plan or plans of reorganization) over the next twelve-month period in the ordinary course of business, including certain employee related items (salaries, vacation and medical benefits), claims subject to a currently existing collective bargaining agreement, and certain postretirement medical and other costs associated with retirees (however, see Note (2) to the table below).

Liabilities subject to compromise refer to all other pre-Filing Date liabilities of the Debtors. The amounts of the various categories of liabilities that are subject to compromise are set forth below. These amounts represent the Company’s estimates of known or probable pre-Filing Date claims that are likely to be resolved in connection with the Cases. Such claims remain subject to future adjustments. Further, the Debtors currently believe that, with limited exceptions, it is likely that substantially all pre-Filing Date claims will be settled at less than 100% of their face value and the equity interests of the Company’s stockholders will be cancelled without consideration.

The amounts subject to compromise at September 30, 2004 and December 31, 2003 consisted of the following items:


(1)	Accrued salaries, wages and related expenses represent estimated minimum pension contributions that, absent the Cases, would have otherwise been payable. Amounts as of September 30, 2004 and December 31, 2003 include approximately $100.0 associated with estimated special liquidity and other pension contributions that were not made. See Note 11 in respect to the Company’s pension contributions to its domestic pension plans as well as the possibility of incremental pension liabilities that may ultimately be recognized.

(2)	In February 2004, the Company concluded an agreement with the 1114 Committee and union representatives that represent the vast majority of the hourly employees that provides for the termination of the existing salaried and hourly postretirement benefit plans, subject to certain conditions. The Company included postretirement medical obligations expected to be paid in respect of periods through May 31, 2004 in the accompanying balance sheet at September 30, 2004 and December 31, 2003, as liabilities not subject to compromise. Such amounts total $1.1 at September 30, 2004 and $32.5 at December 31, 2003 (see Note 9 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 for additional information about termination of postretirement benefit plans). The Company is no longer making payments in respect of retiree medical (other than VEBA payments as defined in Note 11). See Note 11 for additional discussions regarding the retiree medical plan.

(3)	Long-term liabilities include hearing loss claims of $15.8 at September 30, 2004 and December 31, 2003 (see Note 7), environmental liabilities of $50.0 at September 30, 2004 and December 31, 2003 (see Note 7) and asbestos liabilities of $480.0 at September 30, 2004 and December 31, 2003 (see Note 7).

The classification of liabilities “not subject to compromise” versus liabilities “subject to compromise” is based on currently available information and analysis. As the Cases proceed and additional information and analysis is completed or, as the Court rules on relevant matters, the classification of amounts between these

two categories may change. The amount of any such changes could be significant. Additionally, as the Company evaluates the proofs of claim filed in the Cases, adjustments will be made for those claims that the Company believes will probably be allowed by the Court. The amount of such claims could be significant. For example, pursuant to the PBGC settlement agreement, which is subject to Court approval (see Note 11), the PBGC will be allowed a $14.0 administrative claim and the Company will contribute an estimated $4.4 to certain hourly pension plans which it will continue to sponsor. Assuming that the PBGC settlement agreement is approved by the Court, such amounts would be reclassified from liabilities subject to compromise to liabilities not subject to compromise.

Reorganization Items. Reorganization items under the Cases are expense or income items that are incurred or realized by the Company because it is in reorganization. These items include, but are not limited to, professional fees and similar types of expenses incurred directly related to the Cases, loss accruals or gains or losses resulting from activities of the reorganization process, and interest earned on cash accumulated by the Debtors because they are not paying their pre-Filing Date liabilities. For the quarter and nine month periods ended September 30, 2004 and 2003, reorganization items were as follows:

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Going Concern. The interim consolidated financial statements of the Company have been prepared on a “going concern” basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business; however, as a result of the commencement of the Cases, such realization of assets and liquidation of liabilities are subject to a significant number of uncertainties. Specifically, the interim consolidated financial statements do not present: (a) the realizable value of assets on a liquidation basis or the availability of such assets to satisfy liabilities, (b) the amount which will ultimately be paid to settle liabilities and contingencies which may be allowed in the Cases, or (c) the effect of any changes that may occur in connection with the Debtors’ capitalizations or operations of the Debtors as a result of a plan of reorganization. Because of the ongoing nature of the Cases, the discussions and consolidated financial statements contained herein are subject to material uncertainties.

Additionally, as discussed above (see Financial Statement Presentation in Note 1), the Company believes that it would, upon emergence, apply fresh start accounting to its consolidated financial statements which would also adversely impact the comparability of the September 30, 2004 financial statements to the financial statements of the entity upon emergence.

Principles of Consolidation. The Company is a wholly owned subsidiary of Kaiser, which is a subsidiary of MAXXAM Inc. (“MAXXAM).

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the rules and regulations of the Securities and

Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by GAAP for complete financial statements. 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 unless otherwise noted, necessary for a fair statement of the results for the interim periods presented.

The preparation of financial statements in accordance with GAAP 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 amounts 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 operations.

Operating results for the quarter and nine month periods ended September 30, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

Discontinued Operations. As part of the Company’s plan to divest certain of its commodity assets, as more fully discussed in Notes 1 and 4, the Company completed the sale of its interests in and related to Alpart, Gramercy, Kaiser Jamaica Bauxite Company(“KJBC”), Valco and the Mead facility and certain related property (the “Mead Facility”) (collectively, the “sold commodity interests”). In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), the assets, liabilities, operating results and gains from sale of the Company’s interests in and related to the sold commodity interests have been reported as discontinued operations in the accompanying financial statements.

Under SFAS No. 144, only those assets, liabilities and operating results that are being sold/discontinued are treated as “discontinued operations”. In the case of the sale of Gramercy/ KJBC and the Mead Facility, the buyers did not assume such items as workers compensation, pension or postretirement benefit obligations in respect of the former employees of these facilities. As discussed more fully in Note 1, the Company expects that retained obligations will generally be resolved in the context of any plan or plans of reorganization. As such, the balances related to such obligations are still included in the consolidated financial statements. Because the Company owned a 65% interest in Alpart, Alpart’s balances and results of operations were fully consolidated into the Company’s consolidated financial statements. Accordingly, the amounts reflected below for Alpart include the 35% interest in Alpart owned by Hydro Aluminium as. (“Hydro”). Hydro’s share of the net investment in Alpart is reflected as minority interest.

The balances and operating results associated with the Company’s interests in and related to Alpart and Gramercy/ KJBC were previously included in the Bauxite and Alumina business segment and the balances and operating results associated with the Company’s interests in and related to Valco and the Mead Facility were previously included in the Primary Aluminum business segment. The Company has also reported as discontinued operations the portion of the Commodity Marketing external hedging activities that were attributable to the Company’s interests in and related to Alpart, Gramercy/ KJBC and Valco.

The carrying amounts as of September 30, 2004 and December 31, 2003 of the assets and liabilities in respect of the Company’s interest in and related to the sold commodity interests included in discontinued operations were as follows:

Income statement information in respect of the Company’s interest in and related to the sold commodity interests for the quarter and nine month periods ended September 30, 2004 and 2003 included in income (loss) from discontinued operations was as follows:


(1)	Primary Aluminum interests for the nine months ended September 30, 2004 includes a Valco-related impairment charge of $33.0 (see Notes 3 and 4).

Derivative Financial Instruments. Hedging transactions using derivative financial instruments are primarily designed to mitigate the Company’s exposure to changes in prices for certain of the products which the Company sells and consumes and, to a lesser extent, to mitigate the Company’s exposure to change in foreign currency exchange rates. the Company does not utilize derivative financial instruments for trading or other speculative purposes. The Company’s derivative activities are initiated within guidelines established by management and approved by the Company’s board of directors. Hedging transactions are executed centrally on behalf of all of the Company’s business segments to minimize transaction costs, monitor consolidated net exposure and allow for increased responsiveness to changes in market factors.

See Notes 2 and 13 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 for additional information regarding derivative financial instruments.

The classification of inventories, after deducting inventories related to discontinued operations, is as follows:

The above tables exclude commodities inventories related to discontinued operations of $50.8 in 2004 and $103.6 in 2003. Inventories related to discontinued operations in 2004 have been reduced by a net charge of $1.2 in the first quarter of 2004 to write-down certain alumina inventories to their estimated net realizable value as a result of the Company’s sale of its interests in and related to Valco (see Notes 2 and 4).

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.

The major classes of property, plant, and equipment, after deducting property, plant and equipment, net related to discontinued operations, are as follows:

The above tables exclude property, plant and equipment, net of discontinued operations of $41.9 in 2004 and $382.5 in 2003 (see Note 2).

The following discusses the divestiture activities of certain of the Company’s commodity assets during the nine month period ended September 30, 2004 and year ended December 31, 2003.


	•	As previously disclosed, on July 1, 2004, with Court approval, the Company completed the sale of its interests in and related to Alpart for a base purchase price of $295.0 plus certain adjustments of approximately $20.0. The transaction resulted in a gross sales price of approximately $315.0, subject to certain post-closing adjustments, which have not yet been determined, and a pre-tax gain of approximately $101.6. Offsetting the cash proceeds were approximately $14.5 of payments made by the Company to fund the prepayment of the Company’s share of the Alpart-related debt (see Note 5) and $3.3 of transaction-related costs. The balance of the proceeds are being held in escrow primarily for the benefit of certain secured and other creditors as outlined in the AJC/ KJC Plan. In accordance with SFAS No. 144, balances and results of operations related to the Company’s interests and related to Alpart have been reported as discontinued operations in the accompanying financial statements (see Note 2).

	•	In May 2004, the Company entered into an agreement to sell its interests in and related to the Gramercy facility and KJBC. The sale closed on October 1, 2004 with Court approval. Net proceeds from the sale were approximately $23.0, subject to various closing and post closing adjustments. A substantial portion of the proceeds is likely to be used or reserved to satisfy transaction related costs and obligations. The Company’s interests in and related to the Gramercy facility and KJBC have been reported as discontinued operations in the accompanying financial statements (see Note 2). The Company currently expects any gain or loss on the sale to be relatively modest.


	•	As more fully discussed in Note 14 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, during 2003, the Company and Valco participated in extensive negotiations with the GoG and the Volta River Authority (“VRA”) regarding the power situation and other matters. Such negotiations did not result in a resolution of such matters. However, as an outgrowth of such negotiations, the Company and the GoG entered into a Memorandum of Understanding (“MOU”) in December 2003 pursuant to which the Company would sell its 90% interest in and related to Valco to the GoG. The Company collected $5.0 pursuant to the MOU. However, a new financial agreement was reached in May 2004 and the MOU was amended. Under the revised financial terms, the Company was to retain the $5.0 already paid by the GoG and $13.0 more was to be paid by the GoG as full and final consideration for the transaction at closing. The Company also agreed to fund certain end of service benefits of Valco employees (estimated to be approximately $9.8) which the GoG was to assume under the original MOU. The agreement was approved by the Court on September 29, 2004. The sale closed on October 29, 2004. As the revised purchase price under the amended MOU was well below the Company’s recorded value for Valco, the Company recorded a non-cash impairment charge of $31.8 in its March 31, 2004 financial statements to reduce the carrying value of its interests in and related to Valco at March 31, 2004 to the amount of the expected proceeds. The Company’s interests in and related to Valco have been reported as discontinued operations in the accompanying financial statements (see Note 2). The Company currently expects any gain or loss on the sale to be relatively modest.

	•	In June 2004, with Court approval, the Company completed the sale of the Mead Facility for approximately $7.4 plus assumption of certain site-related liabilities. The sale, which was approved by the Court, closed in June 2004. The sale resulted in net proceeds of approximately $6.2 and a pre-tax gain of approximately $23.4. The pre-tax gain includes the impact from the sale of certain non-operating land in the first quarter of 2004 that was adjacent to the Mead Facility. The pre-tax gain on the sale of this property had been deferred pending the finalization of the sale of the Mead Facility and transfer of the site-related liabilities. Proceeds from the sale of the Mead Facility totaling $4.0 are being held in escrow as Restricted proceeds from sale of commodity interests until the value of the secured claim of the holders of the 7.6% solid waste disposal revenue bonds is determined by the Court (see Note 5). The assets, liabilities and operating results of the Mead Facility have been reported as discontinued operations in the accompanying financial statements (see Note 2).

	•	On September 27, 2004, the Court approved a motion to hold an auction in October 2004 in respect of the Company’s interests in and related to QAL and approved certain bidding procedures. The motion outlined a two-prong approach to ensure that an auction would take place. First the Company signed a “stalking horse” agreement to sell its interest in and related to QAL to Comalco Aluminium Limited (“Comalco”), one of its partners in QAL, for a base price of $308.0 cash plus purchase of the Company’s alumina and bauxite inventories, and subject to certain working capital adjustments and the assumption of the Company’s obligations in respect of approximately $60.0 of QAL debt (see Note 7). The Company would also transfer its existing alumina sales contracts and other agreements related to QAL. The agreement was supplemented by a letter agreement in which Comalco’s parent companies agreed that the execution of the stalking horse agreement satisfied, or that such parties otherwise waived, certain rights that they would otherwise have under an existing agreement with the Company. The stalking horse agreement also included a provision for a payment of a termination fee of $11.0 to Comalco upon the sale of the Company’s interests in QAL pursuant to the auction process if Comalco is not the ultimate purchaser. Separately, the Company entered into an agreement with Glencore AG (“Glencore”), whereby Glencore obligated itself to submit a bid of $400.0 in cash plus the other


		payments and adjustments described above. The Company paid Glencore a fee of $7.7 in September 2004 upon submission of its qualified bid which amount has been included in the September 30, 2004 balance sheet as a deferred charge. The auction occurred in October 2004 and, after consultation with the UCC and others, the Company entered into an agreement with the successful bidder to sell its interests in and related to QAL under the same terms as the Comalco agreement described above for a base price of approximately $401.0. The agreement was approved by the Court on November 8, 2004. The Company has targeted a closing date for the transaction during the first quarter of 2005. However, the transaction is subject to a number of approvals including from QAL’s lenders and the Australian government. The Glencore bid and related purchase obligation remains in effect until the earlier of the closing of a transaction with another party or at least mid-April 2005. As described in Note 1, the Company expects that a substantial majority of the proceeds from the sale of the Company’s interests in and related to QAL would be held in escrow for the benefit of KAAC’s creditors until a plan for KAAC can be filed and approved by the Court. Note 12 contains information regarding the pro forma effects on the Company’s historical financial statement information presented herein assuming that the sale of the Company’s interests in and related to QAL are ultimately sold.


	•	In January 2003, the Court approved the sale of the Tacoma facility to the Port of Tacoma (the “Port”). Gross proceeds from the sale, before considering approximately $4.0 of proceeds being held in escrow pending the resolution of certain environmental and other issues, were approximately $12.1. The Port also agreed to assume the on-site environmental remediation obligations. The sale closed in February 2003. The sale resulted in a pre-tax gain of approximately $9.5 (which amount was reflected in Other operating charges (benefits), net — see Note 9). The operating results of the Tacoma facility for 2004 and 2003 have not been reported as discontinued operations in the accompanying Statements of Consolidated Income (Loss) because such amounts were not material.

	•	The Company had a long-term liability, net of estimated subleases income, on an office complex in Oakland, California, in which the Company had not maintained offices for a number of years, but for which it was responsible for lease payments as master tenant through 2008 under a sale-and-leaseback agreement. The Company also held an investment in certain notes issued by the owners of the building (which were included in Other assets). In October 2002, the Company entered into a contract to sell its interests and obligations in the office complex. As the contract amount was less than the asset’s net carrying value (included in Other assets), the Company recorded a non-cash impairment charge in 2002 of approximately $20.0. The sale was approved by the Court in February 2003 and closed in March 2003. Net cash proceeds were approximately $61.1.

	•	In July 2003, with Court approval, the Company sold certain equipment at the Trentwood facility that was no longer required as a part of past product rationalizations. Proceeds from the sale were approximately $7.0, resulting in a net gain of approximately $5.0 after considering sale-related costs. The gain on the sale of this equipment has been netted against additional impairment charges of approximately $1.1 associated with equipment to be abandoned or otherwise disposed of primarily as a result of production rationalizations (which amounts were reflected in Other operating charges (benefits), net — see Note 9). The equipment that was sold in July 2003 had been impaired to a zero basis in the fourth quarter of 2001. The impairment was based on information available at that time and the expectation that proceeds from the eventual sale of the equipment would be fully offset by sale-related costs to be borne by the Company.

Debt, after deducting debt related to discontinued operations, consists of the following:

The above tables exclude debt (8 1/4% Alpart CARIFA Loans) related to discontinued operations of $22.0 in 2003.

Post-Petition Credit Agreement. On February 12, 2002, the Company and Kaiser entered into a post-petition credit agreement (the “DIP Facility”), with a group of lenders for debtor-in-possession financing. In March 2003, certain of the Additional Debtors were added as co-guarantors and the DIP Facility lenders received super-priority status with respect to certain of the Additional Debtors’ assets. The DIP Facility provides for a secured, revolving line of credit through the earlier of February 13, 2005, the effective date of a plan of reorganization or voluntary termination by the Company. Under the DIP Facility, the Company is able to borrow amounts by means of revolving credit advances and to have issued for its benefit letters of credit (up to $100.0) in an aggregate amount equal to the lesser of $200.0 or a borrowing base relating to eligible accounts receivable, eligible inventory and a fixed asset subcomponent, reduced by certain reserves, as defined in the DIP Facility agreement. The DIP Facility is guaranteed by the Company and certain significant subsidiaries of the Company. Interest on any outstanding borrowings will bear a spread over either a base rate or LIBOR, at the Company’s option. As of September 30, 2004, $148.0 was available to the Company under the DIP Facility (of which up to $94.6 could be used for additional letters of credit) and no borrowings were outstanding under the revolving credit facility.

The DIP Facility requires the Company to comply with certain covenants and places restrictions on the Company’s, Kaiser’s and the Company’s subsidiaries’ ability to, among other things, incur debt and liens, make investments, pay dividends, sell assets, undertake transactions with affiliates, make capital expenditures, and enter into unrelated lines of business.

Company’s interest in and related to QAL and formal approval of the sales of Alpart, Gramercy/ KJBC and Valco that had been previously approved through limited waivers that were to expire on October 31, 2004; (3) a reset of the availability of the fixed asset subcomponent of the borrowing base to $50.0; (4) reduction of the commitment amount of the DIP Facility from $285.0 to $200.0; (5) reduction of the maximum letters of credit amount from $125.0 to $100.0; and (6) a requirement for lender approval in respect of any agreement for settlement or release of intercompany claims except an agreement in form and substance identical to the Intercompany Agreement.

The Company has previously disclosed that in connection with the amendment and the completion of the previously announced commodity asset sales, it expects that the amount of borrowing base available under the DIP Facility would be adequate to support the Company’s liquidity requirements through the remainder of the Cases. This belief is based on the fact that it was the commodity assets that subjected the Company to the most variability and exposure from both a price risk basis as well as from an operating perspective. While there can be no assurances, based on recent primary aluminum prices and recent market conditions for fabricated aluminum products, the Company currently expects availability under the DIP Facility to remain near or above the $100.0 range.

The DIP Facility is currently scheduled to expire in February 2005. As discussed in Note 1, the Company currently believes it is unlikely that it will emerge from the Cases until sometime in the first half of 2005. As such, it may be necessary for the Company to extend the DIP Facility or make alternative financing arrangements. While the Company believes that if necessary, it would be successful in negotiating an extension to the DIP Facility or adequate alternative financing arrangements, no assurances can be given in this regard.

7.6% Solid Waste Disposal Revenue Bonds. The 7.6% solid waste disposal revenue bonds (the “Solid Waste Bonds”) were secured by certain (but not all) of the facilities and equipment at the Mead Facility which was sold in June 2004 (see Note 4). The Company believes that the value of the collateral that secured the Solid Waste Bonds was in the $1.0 range and, as a result, has reclassified $18.0 of the Solid Waste Bonds balance to Liabilities subject to compromise (see Note 1). However, in connection with the sale of the Mead Facility, $4.0 of the proceeds were placed in escrow for the benefit of the holders of the Solid Waste Bonds until the value of the secured claim of the bondholders is determined by the Court. The Company expects that the value of the secured claim will be resolved during early 2005 either through a negotiated resolution or a process of litigation. As the Solid Waste Bonds were not a part of the Mead Facility sale transaction, they were not reported as discontinued operations in the accompanying Consolidated Balance Sheets.

8 1/4% Alpart CARIFA Loans. In December 1991, Alpart entered into a loan agreement with the Caribbean Basin Projects Financing Authority (“CARIFA”). Alpart’s obligations under the loan agreement were secured by two letters of credit aggregating $23.5. The Company was a party to one of the two letters of credit in the amount of $15.3 in respect of its 65% ownership interest in Alpart. Alpart also 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.

Pursuant to the CARIFA loan agreement, the Alpart CARIFA financing was repaid in connection with the sale of the Company’s interests in and related to Alpart, which were sold on July 1, 2004 (see Notes 1 and 4). Upon such payment, the Company’s letter of credit obligation under the DIP Facility securing the loans was cancelled.

In accordance with SFAS No. 144, the CARIFA loans balance of $22.0 as of December 31, 2003 has been reported as discontinued operations in the accompanying financial statements (see Note 2).

The income tax (provision) benefit for the quarters ended September 30, 2004 and 2003, the nine month periods ended September 30, 2004 and 2003, relates primarily to foreign income taxes. For the quarter and nine month periods ended September 30, 2004 and 2003, as a result of the Cases, the Company did not recognize any U.S. income tax benefit for the losses incurred from its domestic operations (including temporary differences) or any U.S. income tax benefit for foreign income taxes. Instead, the increases in federal and state deferred tax assets as a result of additional net operating losses and foreign tax credits generated in 2004 and 2003 were fully offset by increases in valuation allowances. See Note 8 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 for additional information regarding the Deferred Tax Assets and Valuation Allowances.

The reported amounts are net of income tax (provision) benefit related to discontinued operations of $.4 and $.9 for the quarters ended September 30, 2004 and 2003, respectively, and $(6.9) and $.9, for the nine month periods ended September 30, 2004 and 2003, respectively.

Impact of Reorganization Proceedings. During the pendency of the Cases, substantially all pending litigation, except certain environmental claims and litigation, against the Debtors is stayed. Generally, claims against a Debtor arising from actions or omissions prior to its Filing Date will be settled in connection with its plan of reorganization.

Commitments. The Company has a variety of financial commitments, including purchase agreements, tolling arrangements, forward foreign exchange and forward sales contracts (see Note 8), 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 are scheduled to expire in 2008. Under the agreements, the Company is unconditionally obligated to pay its proportional share (20%) of debt, operating costs, and certain other costs of QAL. The Company’s share of the aggregate minimum amount of required future principal payments as of September 30, 2004, was $60.0 which amount matures in varying amounts during the 2005 to 2008 period. The Company’s share of QAL’s debt increased by approximately $8.0 during 2003 as additional drawdowns on QAL financing (the Company’s share $40.0) more than offset the Company’s share ($32.0) of QAL’s debt principal payment. During July 2002, the Company made payments of approximately $29.5 to QAL to fund the Company’s share of QAL’s scheduled debt maturities. The Company’s share of payments, including operating costs and certain other expenses under the agreements, has generally ranged between $70-$100 over the past three years. However, as discussed more fully in Notes 1 and 4, the Company has entered into an agreement to sell its interests in QAL and, in connection with the sale, the Company’s obligations in respect of its share of QAL’s debt will be assumed by the buyer. The Company also has agreements to supply alumina to and to purchase aluminum from Anglesey.

Minimum rental commitments under operating leases at December 31, 2003, are as follows: years ending December 31, 2004 — $7.5; 2005 — $4.7; 2006 — $2.1; 2007 — $.3; 2008 — $.2; thereafter — $.7. Pursuant to the Code, the Debtors may elect to reject or assume unexpired pre-petition leases. At this time, no final decisions have been made as to which significant pre-petition leases will be accepted or rejected (see Note 1). Rental expenses were $15.2, $38.3 and $41.0, for the years ended December 31, 2003, 2002 and 2001, respectively.

Environmental Contingencies. The Company and Kaiser are 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 claims 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. At September 30, 2004, the balance of such accruals was $91.5 (of which $50.0 was included in Liabilities subject to compromise — see Note 1). These environmental accruals represent the Company’s estimate of costs reasonably expected to be incurred in the ordinary course of business 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. In the ordinary course, the Company expects that these remediation actions would be taken over the next several years and estimates that annual expenditures to be charged to these environmental accruals will be approximately $25.4 in 2004, $2.2 to $4.3 per year for the years 2005 through 2008 and an aggregate of approximately $45.7 thereafter. Approximately $20.2 of the adjustments to the environmental liabilities in 2003 (see below) that applied to non-owned property sites has been included in the after 2008 balance because such amounts are expected to be settled solely in connection with the Debtors’ plan or plans of reorganization.

The September 30, 2004 accrual balance includes approximately $23.2 that was provided during the third quarter of 2003. Approximately $20.2 of the amount provided in the third quarter of 2003 relates to the previously disclosed multi-site settlement agreement with various federal and state governmental regulatory authorities and other parties in respect of the Company’s environmental exposure at a number of non-owned sites. Under this agreement, among other things, the Company agreed to claims at such sites totaling $25.6 ($20.2 greater than amounts that had previously been accrued for these sites) and, in return, the governmental regulatory authorities agreed that such claims would be treated as pre-Filing Date unsecured claims (i.e. liabilities subject to compromise). The Company recorded in the third quarter of 2003 the portion of the $20.2 accrual that relates to locations with active operations ($15.7) in Other operating charges (benefits), net (see Note 9). The remainder of the accrual ($4.5), which related to locations that have not operated for a number of years was recorded in the third quarter of 2003 in Other income (expense) (see Note 9).

During the second quarter of 2004 and the third quarter of 2003, the Company also provided additional accruals totaling approximately $1.4 and $3.0, respectively, associated with certain Company-owned properties with no current operations (recorded in Other income (expense)) (see Note 9). The June 2004 accrual resulted from facts and circumstances determined in the ordinary course of business. The additional September 2003 accruals resulted primarily from additional cost estimation efforts undertaken by the Company in connection with its reorganization efforts. Both the June 2004 and September 2003 additional accruals were recorded as liabilities not subject to compromise as they relate to properties owned by the Company.

The Company has previously disclosed that it is possible that its assessment of environmental accruals could increase because it may be in the interests of all stakeholders to agree to increased amounts to, among other things, achieve a claim treatment that is favorable and to expedite the reorganization process. The September 2003 multi-site settlement is one example of such a situation.

received. During October 2004, the Company paid approximately $27.3 to resolve these liabilities. The amounts paid approximated the amount of liabilities recorded and did not result in any material net gain or loss.

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 $24.0 (a majority of which are estimated to relate to owned sites that are likely not subject to compromise). As the resolution of these matters is subject to further regulatory review and approval, no specific assurance can be given as to when the factors upon which a substantial portion of this estimate is based can be expected to be resolved. However, the Company is currently working to resolve certain of these matters.

The Company believes that it has insurance coverage available to recover certain incurred and future environmental costs. However, no amounts have been accrued in the financial statements with respect to such potential recoveries.

Other Environmental Matters. During April 2004, the Company was served with a subpoena for documents and has been notified by Federal authorities that they are investigating certain environmental compliance issues with respect to the Company’s Trentwood facility in the State of Washington. The Company is undertaking its own internal investigation of the matter through specially retained counsel to ensure that it has all relevant facts regarding Trentwood’s compliance with applicable environmental laws. The Company believes it is in compliance with all applicable environmental laws and requirements at the Trentwood facility and intends to defend any claims or charges, if any should result, vigorously. The Company cannot assess what, if any, impacts this matter may have on the Company’s financial statements.

Asbestos Contingencies. The Company has been one of many defendants 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 sold for more than 20 years. As of the initial Filing Date, approximately 112,000 claims were pending. The lawsuits are currently stayed by the Cases.

Due to the Cases, holders of asbestos claims are stayed from continuing to prosecute pending litigation and from commencing new lawsuits against the Debtors. However, during the pendency of the Cases, the Company expects additional asbestos claims will be filed as part of the claims process. A separate creditors’ committee representing the interests of the asbestos claimants, the ACC, has been appointed. The Debtors’ obligations with respect to present and future asbestos claims will be resolved pursuant to a plan of reorganization.

The Company has accrued a liability for estimated asbestos-related costs for claims filed to date and an estimate of claims to be filed through 2011. At September 30, 2004, the balance of such accrual was $610.1, all of which was included in Liabilities subject to compromise (see Note 1). The Company’s estimate is based on the Company’s view, at September 30, 2004, of the current and anticipated number of asbestos-related claims, the timing and amounts of asbestos-related payments, the status of ongoing litigation and settlement initiatives, and the advice of Wharton Levin Ehrmantraut & Klein, P.A., with respect to the current state of the law related to asbestos claims. However, there are inherent uncertainties involved in estimating asbestos-related costs and the Company’s actual costs could exceed the Company’s estimates due to changes in facts and circumstances after the date of each estimate. Further, while the Company does not presently believe

there is a reasonable basis for estimating asbestos-related costs beyond 2011 and, accordingly, no accrual has been recorded for any costs which may be incurred beyond 2011, the Company expects that the plan of reorganization process may require an estimation of the Company’s entire asbestos-related liability, which may go beyond 2011, and that such costs could be substantial.

The Company believes that it has insurance coverage available to recover a substantial portion of its asbestos-related costs. Although the Company has settled asbestos-related coverage matters with certain of its insurance carriers, other carriers have not yet agreed to settlements and disputes with carriers exist. The timing and amount of future recoveries from these insurance carriers will depend on the pendency of the Cases and on the resolution of any disputes regarding coverage under the applicable insurance policies. The Company believes that substantial recoveries from the insurance carriers are probable and additional amounts may be recoverable in the future if additional claims are added. The Company reached this conclusion after considering its prior insurance-related recoveries in respect of asbestos-related claims, existing insurance policies, and the advice of Heller Ehrman White & McAuliffe LLP with respect to applicable insurance coverage law relating to the terms and conditions of those policies. During 2000, the Company filed suit in San Francisco Superior Court against a group of its insurers, which suit was thereafter split into two related actions. Additional insurers were added to the litigation in 2000 and 2002. During October 2001, June 2003, February 2004 and April 2004, the court ruled favorably on a number of policy interpretation issues. Additionally, one of the favorable October 2001 rulings was affirmed in February 2002 by an intermediate appellate court in response to a petition from the insurers. The rulings did not result in any changes to the Company’s estimates of its current or future asbestos-related insurance recoveries. The trial court may hear additional issues from time to time. Given the expected significance of probable future asbestos-related payments, the receipt of timely and appropriate payments from its insurers is critical to a successful plan of reorganization and the Company’s long-term liquidity.

The following tables present historical information regarding the Company’s asbestos-related balances and cash flows:

(1)

The asbestos-related receivable was determined on the same basis as the asbestos-related cost accrual. However, no assurances can be given that the Company will be able to project similar recovery percentages for future asbestos-related claims or that the amounts related to future asbestos-related claims will not exceed the Company’s aggregate insurance coverage. As of September 30, 2004 and December 31, 2003, $3.8 and $6.1, respectively, of the receivable amounts relate to costs paid. The remaining receivable amounts relate to costs that are expected to be paid by the Company in the future.


(2)	Excludes certain amounts paid by insurers into a separate escrow account (in respect of future settlements) more fully disclosed below.

During the pendency of the Cases, all asbestos litigation is stayed. As a result, the Company does not expect to make any asbestos payments in the near term. Despite the Cases, the Company continues to pursue insurance collections in respect of asbestos-related amounts paid prior to its Filing Date.

Management continues to monitor claims activity, the status of lawsuits (including settlement initiatives), legislative developments, 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. Additional asbestos-related claims are likely to be asserted as a part of the Chapter 11 process. Management cannot at this time reasonably predict the ultimate number of such claims or the amount of the associated liability. However, it is likely that such amounts could exceed, perhaps significantly, the liability amounts reflected in the Company’s consolidated financial statements, which (as previously stated) is only reflective of an estimate of claims through 2011. The Company’s obligations in respect of the currently pending and future asbestos-related claims will ultimately be determined (and resolved) as a part of the overall Chapter 11 proceedings. It is anticipated that resolution of these matters could be a lengthy process. Management will continue to periodically reassess its asbestos-related liabilities and estimated insurance recoveries as the Cases proceed. However, absent unanticipated developments such as asbestos-related legislation, material developments in other asbestos-related proceedings or in the Company’s Chapter 11 proceedings, it is not anticipated that the Company will have sufficient information to reevaluate its asbestos-related obligations and estimated insurance recoveries until later in the Cases. Any adjustments ultimately deemed to be required as a result of any reevaluation of the Company’s asbestos-related liabilities or estimated insurance recoveries could have a material impact on the Company’s future financial statements.

The Company has entered into settlement agreements with several of the insurers whose asbestos-related obligations are primarily in respect of future asbestos claims. These settlement agreements were approved by the Court. In accordance with the Court approval, the insurers are to pay certain amounts, pursuant to the terms of an escrow agreement, into a fund (the “Escrow Fund”) in which the Company has no interest, but which amounts will be available for the ultimate settlement of the Company’s asbestos-related claims. Because the Escrow Fund is under the control of the escrow agent, who will make distributions only pursuant to a Court order, the Escrow Fund is not included in the accompanying consolidated balance sheet at September 30, 2004. In addition, since neither the Company nor Kaiser received any economic benefit or suffered any economic detriment and have not been relieved of any asbestos-related obligation as a result of the receipt of the escrow funds, neither the asbestos-related receivable nor the asbestos-related liability have been adjusted as a result of these transactions. As of September 30, 2004, the insurers had paid $10.0 into the Escrow Fund. It is possible that settlements with additional insurers will occur. However, no assurance can be given that such settlements will occur.

Labor Matters. In connection with the United Steelworkers of America (the “USWA”) strike and subsequent lock-out by the Company, which was settled in September 2000, certain allegations of unfair labor practices (“ULPs”) were filed with the National Labor Relations Board (“NLRB”) by the USWA. As previously disclosed, the Company responded to all such allegations and believed that they were without merit. Twenty-two of twenty-four allegations of ULPs previously brought against the Company by the USWA have been dismissed. A trial before an administrative law judge for the two remaining allegations concluded in September 2001. In May 2002, the administrative law judge ruled against the Company in respect of the two remaining ULP allegations and recommended that the NLRB award back wages, plus interest, less any earnings of the workers during the period of the lockout. The administrative law judge’s ruling did not contain

any specific amount of proposed award and was not self-executing. The USWA filed a proof of claim for $240.0 in the Cases in respect of this matter.

In January 2004, as part of its settlement with the USWA with respect to pension and retiree medical benefits, the Company and the USWA agreed to settle their case pending before the NLRB, subject to approval of the NLRB General Counsel and the Court and ratification by union members. The settlement was subsequently ratified by the union members in February 2004. Further, the settlement with respect to retiree medical and pension benefits and the NLRB case has been approved by the Court subject to certain conditions. The agreement may be terminated by the USWA, the Company or the UCC in certain circumstances (see Note 9 of Notes of Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003). Under the terms of the agreement, solely for the purposes of determining distributions in connection with the reorganization, an unsecured pre-petition claim in the amount of $175.0 will be allowed. As more fully discussed in Note 11, the USWA settlement was amended in October 2004 and such settlement is subject to certain contingencies. As such, the settlement has not been deemed “probable” and, thus this amount was not reflected in the Company’s consolidated financial statements at September 30, 2004.

However, the charge and an offsetting liability associated with the settlement of this matter will be reflected in the Company’s consolidated financial statements if and when the agreement with the USWA is ultimately approved by the Court. Also, as part of the agreement, the Company agreed, among other things, to adopt a position of neutrality regarding the unionization of any employees of the reorganized company.

Settled Hearing Loss Claims. During February 2004, the Company reached a settlement in respect of 400 claims, which alleged that certain individuals who were employees of the Company, principally at a facility previously owned and operated by the Company in Louisiana, suffered hearing loss in connection with their employment. Under the terms of the settlement, which is still subject to Court approval, the claimants will be allowed pre-petition claims totaling $15.8. As such, the Company recorded a $15.8 charge (in Other operating charges (benefits), net) in the fourth quarter of 2003 and a corresponding obligation (included in Liabilities subject to compromise — see Note 1). However, no cash payments by the Company are required in respect of these amounts. Rather the settlement agreement contemplates that, at emergence, these claims will be transferred to a separate trust along with certain rights against certain corresponding insurance policies of the Company and that such insurance policies will be the sole source of recourse to the claimants. While the Company believes that the insurance policies are of value, no amounts have been reflected in the Company’s financial statements at September 30, 2004 in respect of such policies as the Company could not with the level of certainty necessary determine the amount of recoveries that were probable.

Other Personal Injury Claims. The Company has received other personal injury claims related to noise induced hearing loss (approximately 2,900 claims) and exposure to silica and coal tar pitch volatiles (approximately 3,900 claims and 300 claims, respectively). The Company believes that all such claims are pre-petition claims that will be resolved by the Cases. The Company cannot presently determine the impact or value of these claims. However, the Company currently expects that all such claims will be transferred, along with certain rights against certain corresponding insurance policies, to a separate trust along with (similar to) the settled hearing loss cases discussed above, whether or not such claims are settled prior to the Company’s emergence from the Cases.

Other Contingencies. The Company is involved in various other claims, lawsuits, and other proceedings relating to a wide variety of matters related to past or present operations. 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.

In conducting its business, the Company has historically used various instruments, including forward contracts and options, to manage the risks arising from fluctuations in aluminum prices, energy prices and exchange rates. The Company entered into hedging transactions from time to time to limit its exposure resulting from (1) its anticipated sales of alumina, primary aluminum, and fabricated aluminum products, net of expected purchase costs for items that fluctuate with aluminum prices, (2) the energy price risk from fluctuating prices for natural gas, fuel oil and diesel oil used in its production process, and (3) foreign currency requirements with respect to its cash commitments with foreign subsidiaries and affiliates. As the Company’s hedging activities were generally designed to lock-in a specified price or range of prices, gains or losses on the derivative contracts utilized in the hedging activities generally offset at least a portion of any losses or gains, respectively, on the transactions being hedged.

After considering completed sales of Alpart, Gramercy/ KJBC and Valco, and assuming that the Company’s interests in and related to QAL are sold (and that Anglesey remains a part of the emerging entity), the Company would no longer be a net seller of alumina and aluminum. Rather, net sales of primary aluminum by Anglesey (reduced partially by the equivalent primary aluminum impact of its alumina requirements) would only offset a portion of the primary aluminum requirements of the fabricated products business. As such, the emerging entity would be a net consumer of primary aluminum. However, the Company’s pricing of fabricated aluminum products is generally intended to lock-in a conversion margin (representing the value added from the fabrication process(es)) and to pass metal price risk on to its customers. While the fabricated aluminum products business does from time to time, enter into fixed price arrangements (that include the primary aluminum price component), in such instances, the Company may use third party hedging instruments to eliminate price exposure or may consider the related metal price risk as being offset by (as a notional (internal) hedge) primary aluminum to be produced at Anglesey. At September 30, 2004, the fabricated products business held contracts for the delivery of fabricated aluminum products that have the effect of fixing or capping the metal price component of those contracts during the last quarter of 2004 and for the period 2005 — 2008 totaling approximately (in 000 pounds of primary aluminum): 2004: 34,000, 2005: 84,000, 2006: 35,000, 2007: 34,000, and 2008: 10,000.

The following table summarizes the Company’s material derivative positions at September 30, 2004.


(a)	The percentage hedged will depend on when and if the possible disposition of the Company’s interest in and related to QAL actually occurs.

The Company anticipates that, subject to prevailing economic conditions, it may enter into additional hedging transactions with respect to primary aluminum prices and foreign currency values to protect the interests of its constituents. However, no assurance can be given as to when or if the Company will enter into such additional hedging activities.

As of September 30, 2004, the Company had sold forward a vast majority of the alumina available to it in excess of its projected internal smelting requirements for the remainder of 2004 and for 2005 and 2006 at prices indexed to future prices of primary aluminum. The Company anticipates that such contracts will be sold/ transferred as a part of the ongoing commodity asset disposition process. However, no assurance can be provided in this respect.

Other Operating (Charges) Benefits, Net. The income (loss) impact associated with other operating (charges) benefits, net, after deducting other operating (charges) benefits, net related to discontinued operations, for the quarter and nine month periods ended September 30, 2004 and 2003, was as follows (the business segment to which the item is applicable is indicated):

The above tables exclude other operating (charges) benefits, net related to discontinued operations of $101.0 for the quarter ended September 30, 2004 and $92.5 and $(1.4) for the nine month periods ended September 30, 2004 and 2003, respectively.

Other Income (Expense). Other income (expense) for the quarter and nine month periods ended September 30, 2004 includes a gain of approximately $1.9 on the sale of non-operating real estate. Other income (expense) for the nine month period ended September 30, 2004 also includes a gain of approximately $6.3 which resulted from the settlement of outstanding obligations of a former affiliate offset, in part, by a $1.4 adjustment to the environmental liabilities (see Note 7). Other income (expense) for the quarter and nine month periods ended September 30, 2003, included adjustments to the environmental liabilities of approximately $7.5 (see Note 7). Other income (expense) for the nine month period ended September 30, 2003, also included approximately $1.7 of adverse foreign currency exchange impacts associated with a foreign tax settlement.

The Company has historically used a portion of its bauxite and alumina production for additional processing at its downstream facilities. Transfers between business units are made at estimated market prices. The accounting policies of the segments are the same as those described in Note 2 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Business unit results are evaluated internally by management before any allocation of corporate overhead and without any charge for income taxes or interest expense. See Note 17 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

As a result of the completed sales of the Company’s interests in and related to Alpart, Gramercy/ KJBC, Valco and the Mead Facility, the balances and results of operations in respect of such assets/ interests are now considered discontinued operations (see Note 2). The presentation below restates the Bauxite and Alumina and Primary Aluminum segments related amounts for such reclassifications. The amounts remaining in Bauxite and Alumina relate almost entirely to the Company’s interest in and related to QAL which are expected to be sold during the first quarter of 2005. The amounts remaining in Primary Aluminum relate almost entirely to the Company’s interests in and related to Anglesey that the Company currently expects to retain.

Financial information by operating segment, after the discontinued operations’ reclassification, for the quarter and nine month periods ended September 30, 2004 and 2003 is as follows:


(a)	Depreciation and amortization expense excludes depreciation and amortization expense of discontinued operations (related to Alpart and Gramercy/ KJBC) of $.1 and $9.9 for the quarters ended September 30, 2004 and 2003, respectively, and $9.1 and $29.7 for the nine month periods ended September 30, 2004 and 2003, respectively (see Note 2).

(b)	Income taxes paid by discontinued operations during the quarters ended September 30, 2004 and 2003, were $2.7 and $4.0, respectively, and during the nine month periods ended September 30, 2004 and 2003, were $4.5 and $16.5, respectively.

The decline in 2004 depreciation and amortization expense in the Bauxite and Alumina segment is primarily the result of the significant impairment charge of Gramercy/ KJBC recorded in the fourth quarter of 2003. The decline in the year-to-date 2004 depreciation and amortization expense in the Primary Aluminum segment is primarily due to the impairment charge of Valco recorded in the first quarter of 2004.

The decrease in taxes paid in 2004 was primarily due to the payment in the first quarter of 2003 of $22.0 of foreign income taxes related to prior years.

Historical Pension Plans. The PBGC assumed responsibility for the Company’s Salaried Employees Retirement Plan in December 2003. During the third quarter of 2004, the PBGC assumed responsibility for the Company’s Inactive Pension Plan, which covers certain former hourly employees at locations that were sold or discontinued a number of years ago, and the Company’s Kaiser Aluminum Pension Plan, which covers active and retired employees at certain locations who are represented by the USWA. The Salaried Employees Retirement Plan, the Inactive Pension Plan and the Kaiser Aluminum Pension Plan are hereinafter collectively referred to as the “Terminated Plans”. The PBGC’s assumption of the Terminated Plans resulted in the Company recognizing non-cash pension charges of approximately $121.2 in the fourth quarter of 2003 and approximately $155.5 in the third quarter of 2004 (see Note 9 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003). The amount of the charges recorded and the expected liability to the PBGC currently recorded in the Company’s financial statements have been determined by the Company based on assumptions that are consistent with the GAAP criteria for valuing ongoing plans as more fully discussed in Note 9 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The Company believes this represents a reasonable interim estimation methodology as there are reasonable arguments that may be made that could result in the final allowed claim amounts being either more or less than that reflected in the financial statements.

However, in October 2004, the Company executed a settlement agreement with the PBGC under which the Company and the PBGC agreed, among other things, that: (a) the Company will continue to sponsor the Company’s remaining pension plans (which primarily are in respect of hourly employees at Fabricated Products facilities) and will satisfy the estimated $4.4 minimum funding contribution for these plans after the settlement agreement is approved by the Court; (b) the PBGC will have an allowed post-petition administrative claim of $14.0, which is expected to be paid upon the consummation of a plan of reorganization for the Company or the consummation of a plan for KAAC, whichever comes first; and (c) the PBGC will have allowed pre-petition unsecured claims in respect of the Terminated Plans in the amount of $616.0, which will be resolved in a plan or plans of reorganization provided that the PBGC’s cash recovery from proceeds of the Company’s sale of its interests in and related to Alpart and QAL will be limited to 32% of the net proceeds distributable to holders of the Company’s Senior Notes, Sub Notes and the PBGC. The PBGC settlement agreement is subject to Court approval. Court hearings on the PBGC settlement agreement are expected to be conducted in early 2005. Objections have been filed to the settlement and no assurances can be provided as to the outcome.

The amount of pension liability related to the Terminated Plans that was recorded in the consolidated balance sheet at September 30, 2004 was approximately $476.0 based on the interim methodology described above. This compares to the $630.0 total claim amount agreed to by the Company in the October 2004 PBGC settlement. The Company has not recorded the full value of the PBGC settlement as, given the contested nature of the settlement and the requirement for Court approval, such settlement was not determined to be “probable”, which is the criteria for recognition under GAAP. If the PBGC settlement agreement is approved, the Company would be required to record a non-cash charge of approximately $154.0.

New Accounting Pronouncement. Statement of Financial Accounting Standards No. 132 (revised), Employers’ Disclosure about Pensions and Other Postretirement Benefits (“SFAS No. 132 (revised)”) was issued and was effective in the fourth quarter of 2003. SFAS No. 132 (revised) requires, beginning with the first quarter of 2004, the disclosure of (1) the amount of the net periodic pension and other postretirement benefits costs recognized during the quarter and year-to-date periods and (2) the total amount of employers’ contributions paid, and expected to be paid during 2004.

The following table presents the components of net periodic benefit costs for the quarter and nine month periods ended September 30, 2004 and 2003:

The periodic pension costs associated with the Terminated Plans were $5.3 and $11.5 for the quarters ended September 30, 2004 and 2003, and $16.9 and $34.5 for the nine month periods ended September 30, 2004 and 2003, respectively.

As discussed more fully below, on June 1, 2004, the Court entered an order, subject to certain conditions, authorizing the Company to implement termination of its postretirement medical plan as of May 31, 2004 and the Company’s plan to make advance payments to one or more Voluntary Employee Beneficiary Associations (each a “VEBA”). As previously disclosed, pending the resolution of all contingencies in respect of the termination of the existing postretirement medical benefit plan, the Company has continued to accrue costs based on the existing plan and has treated the VEBA contribution as a reduction of its liability under the plan.

See Note 9 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 for key assumptions with respect to the Company’s pension plans and other postretirement benefit plans.

Domestic Plans. As previously discussed, the Company, since filing the Chapter 11 proceedings, has not made any further significant contributions to any of its domestic pension plans. As discussed above, if the PBGC settlement is ultimately approved by the Court, the Company will be required to pay $4.4 in respect of minimum funding contributions for retained pension plans and will be required to pay approximately $14.0 at the earlier of the emergence of the Company or KAAC in respect of post-petition administrative claims of the PBGC. Any other payments to the PBGC are expected to be limited to recoveries under the Debtors’ plans of reorganization.

Upon emergence from Chapter 11 proceedings, the Company anticipates that it will provide some form of defined contribution pension plan in respect of its salaried employees. Any such plans ultimately adopted will be subject to a number of approvals. The Company currently estimates that the total annual cash cost of such plans would be less than $5.0 and, if approved, would likely be required to be funded commencing some time in 2005.

Pursuant to the terms of the USWA agreement (see Note 7), the Company will be required to make annual contributions into the Steelworkers Pension Trust on the basis of one dollar per USWA employee hour worked. In addition, the Company will institute a defined contribution pension plan for active USWA employees. The Company contributions to the plan will range from eight hundred dollars to twenty-four hundred dollars per employee per year, depending on age. The Company currently estimates that contributions to the new USWA plan and the retained hourly pension plans will range from $3.0 to $6.0 per year.

As a replacement for the Company’s previous postretirement benefit plans, the Company agreed to contribute certain amounts to one or more VEBA’s. Such contributions are to include:


	•	An amount not to exceed $36.0 and payable on emergence from the Chapter 11 proceedings so long as the Company’s liquidity (i.e. cash plus borrowing availability) is at least $50.0 after considering such payments. To the extent that less than the full $36.0 is paid and the Company’s interests in Anglesey are subsequently sold, a portion of such sales proceeds, in certain circumstances, will be used to pay the shortfall.


	•	On an annual basis, 10% of the first $20.0 of annual cash flow, as defined, plus 20% of annual cash flow, as defined, in excess of $20.0. Such annual payments shall not exceed $20.0 and will also be limited (with no carryover to future years) to the extent that the payments do not cause the Company’s liquidity to be less than $50.0.

	•	Advances of $3.1 in June 2004 and $1.9 per month thereafter until the Company emerges from the Cases. Any advances made pursuant to such agreement will constitute a credit toward the $36.0 maximum contribution due upon emergence.

On June 1, 2004, the Court approved an order making the agreements regarding pension and postretirement medical benefits effective on June 1, 2004 notwithstanding that the Intercompany Agreement was not effective as of that date. However, the Court order provided that if the Debtors and the UCC had not signed the Intercompany Agreement and filed a motion seeking the approval of such agreement by June 30, 2004, the UCC would have the right (but not the requirement) at any time thereafter to direct the Debtors to terminate the USWA agreement and other agreements to terminate postretirement medical benefits 60 days from the date of the UCC notice.

In October 2004, the Company entered into an amendment to the USWA agreement to satisfy certain technical requirements for the follow-on hourly pension plans discussed above. The Company also agreed to pay an additional $1.0 to the VEBA after the satisfaction of various conditions. The amended agreement is subject to Court approval. The Company currently anticipates that the Court will approve the amended agreement in November 2004.

While the Intercompany Agreement has been signed and filed with the Court, because the USWA agreement can be terminated by the USWA or the Company if the Intercompany Agreement is not approved by the Court, or by the UCC under certain conditions, the Company cannot conclude that termination of the retiree medical program is “probable”. Therefore, as discussed above, the Company continues to accrue for costs under the retiree medical program and treat VEBA contributions as a reduction of that liability.

Foreign Plans. Contributions to foreign pension plans were approximately $9.8 and $9.0 during 2003 and 2002, respectively, and primarily related to the Company’s interests in commodity assets being considered for sale. As a result of the sales of the Company’s investments in such assets, future contributions to foreign pension plans will decline to a nominal amount, beginning in the fourth quarter of 2004.

As discussed in Note 4, subsequent to September 30, 2004, the Company received Court approval to sell its interest in and related to QAL. The transaction is currently expected to close during the first quarter of 2005. While no assurances can be provided in respect of the closing of the QAL disposition, the Company believes that such disposition is “probable”. Accordingly, the Company is providing condensed consolidating balance sheet, income (loss) and cash flow information for the periods presented in these financial statements. This pro forma financial information has been prepared to summarize the consolidated financial position, consolidated results of operations and consolidated cash flows of the Company as if the QAL disposition had occurred at the end of the indicated period in the case of the pro forma condensed consolidated balance sheet information and at the beginning of the indicated periods in the case of the pro forma condensed consolidating income (loss) and pro forma condensed consolidated cash flow information.

The following information does not purport to be indicative of financial position or results of operations of the Company as of such date or for such periods, nor are they indicative of future results. Furthermore, this pro forma financial information does not reflect changes which will or may occur as a result of the sale of the Company’s interests in and related to QAL, the ongoing Cases and other matters.

(1)

The pro forma negative cash balance assumes the hypothetical disposition of all of the sold commodity interests as of January 1, 2004 and that cash flow from those operations would, therefore, not have been available to the Company. However, this negative amount does not consider impacts of the Intercompany Agreement, the impacts of the Cases or availability under the DIP Facility. See Notes 1 and 5 for discussion of these matters.

Pro Forma Adjustments:


(a)	For purposes of the pro forma balance sheet information presented above, the Company has assumed that the closing dates of Gramercy/ KJBC, Valco and QAL disposition transactions occurred as of the respective balance sheet date. As such, the Company has reflected the full amount of the proceeds from these transactions as a restricted asset in the pro forma balance sheet information.

(b)	For purposes of the pro forma income (loss) information presented above, the Company has assumed that approximately 25% of its derivative hedging activities in the quarter and nine month periods ended September 30, 2004 and 2003 related to the Company’s interests in and related to QAL.

Certain domestic, wholly-owned (direct or indirect) subsidiaries of the Company (hereinafter collectively referred to as the Subsidiary Guarantors) have provided, joint and several, guarantees of the 9 7/8% Senior Notes, the 10 7/8% Senior Notes, due 2006 and the 12 3/4% Senior Subordinated Notes (the “Notes”). Such guarantees are full and unconditional. See Note 18 of Notes to Consolidated Financial Statements in the Company’s Form 10-K for the year ended December 31, 2003 for a more complete discussion regarding the Subsidiary Guarantors and their operations.

The accompanying financial information presents consolidating balance sheets, statements of income (loss) and statements of cash flows showing separately the Company, Subsidiary Guarantors, other subsidiaries and eliminating entries. Other subsidiaries’ discontinued operations include Alpart and the related discontinued operations of KAII. Subsidiary Guarantors’ discontinued operations include the discontinued operations of AJI, KJC, KBC and Valco. See Note 2 for additional information with regard to discontinued

operations. Certain reclassifications of prior year information were made to conform to the current presentation.

Income Taxes — The income tax provision (benefit) for the quarter and nine month periods ended September 30, 2004 and 2003, relate primarily to foreign income taxes. For the quarter and nine month periods ended September 30, 2004 and 2003, as a result of the Cases, the Company did not recognize any U.S. income tax benefit for the losses incurred from domestic operations (including temporary differences) or any U.S. income tax benefit for foreign income taxes. Instead, the increases in federal and state deferred tax assets as a result of additional net operating losses and foreign tax credits generated in 2004 and 2003 were offset by equal increases in valuation allowances.

Foreign Currency — The functional currency of the Company and its subsidiaries is the United States Dollar, and accordingly, pre-tax translation gains (losses) are included in the Company’s and Subsidiary Guarantors’ operating income (loss) and other income (expense), net balances. Such amounts for the Company totaled $7.1 and $3.5 for the quarters ended September 30, 2004 and 2003, respectively, and $(11.2) and $41.6 for the nine month periods ended September 30, 2004 and 2003, respectively. Such amounts for the Subsidiary Guarantors totaled $(7.4) and $(3.6) for the quarters ended September 30, 2004 and 2003, respectively, and $11.8 and $(43.0) for the nine month periods ended September 30, 2004 and 2003, respectively.

Debt Covenants and Restrictions — The Indentures contain restrictions on the ability of the Company’s subsidiaries to transfer funds to the Company in the form of dividends, loans or advances.

This section should be read in conjunction with the response to Part I, Item 1, of this Report.

This section contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this section (see, for example, “Recent Events and Developments,” “Results of Operations,” and “Liquidity and Capital Resources”). Such statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. These factors include the effectiveness of management’s strategies and decisions, general economic and business conditions, developments in technology, new or modified statutory or regulatory requirements, and changing prices and market conditions. This section and Part I, Item 1. “Business — Factors Affecting Future Performance” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, each identify other factors that could cause actual results to vary. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.

Kaiser Aluminum & Chemical Corporation (the “Company”), its parent company, Kaiser Aluminum Corporation (“Kaiser” or “KAC”), and 24 of the Company’s subsidiaries have filed separate voluntary petitions with United States Bankruptcy Court for the District of Delaware (the “Court”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Code”). The Company, Kaiser and 15 of the Company’s subsidiaries (the “Original Debtors”) filed in the first quarter of 2002 and nine additional Company subsidiaries (the “Additional Debtors”) filed in the first quarter of 2003. The Original Debtors and Additional Debtors are collectively referred to herein as the “Debtors” and the Chapter 11 proceedings of these entities are collectively referred to herein as the “Cases.” For purposes of this Report, the term “Filing Date” shall mean, with respect to any particular Debtor, the date on which such Debtor filed its Case. None of the Company’s non-U.S. joint ventures are included in the Cases. The Cases are being jointly administered. The Debtors are managing their businesses in the ordinary course as debtors-in-possession subject to the control and administration of the Court.

As provided by the Code, the Debtors had the exclusive right to propose a plan of reorganization for 120 days following the initial Filing Date. The Court has subsequently approved several extensions of the exclusivity period for all Debtors. Most recently, the Court approved an extension of exclusivity as to all Debtors to February 28, 2005, but the approved order provides that exclusivity can be terminated earlier with respect to AJI, KJC, KBC and KAAC, the four entities that own or owned certain of the Company commodity-related interests in Jamaica, which have been sold/monetized, and in Australia, which are currently expected to be sold in early 2005, in accordance with the terms of an intercompany settlement agreement (the “Intercompany Agreement”) that is pending before the Court. Additional extensions may be sought. However, no assurance can be given that any such future extension requests will be granted by the Court. If the Debtors fail to file a plan of reorganization during the exclusivity period, or if such plan is not accepted by the requisite numbers of creditors and equity holders entitled to vote on the plan, other parties in interest in the Cases may be permitted to propose their own plan(s) of reorganization for the Debtors.

The Debtors anticipate that substantially all liabilities of the Debtors as of their Filing Date will be settled under more than one plan of reorganization to be proposed and voted on in accordance with the provisions of the Code. As more fully discussed below, a joint plan was filed by AJI and KJC in November 2004. Although the Debtors intend to file and seek confirmation of additional plans, there can be no assurance as to when the Debtors will file such additional plans or as to whether any such plan or plans will be confirmed by the Court and consummated.

In working toward one or more plans of reorganization, the Debtors have been, and continue to be, engaged in discussions with each of their key constituencies, including the unsecured creditors committee (the

“UCC”), the asbestos claimants committee (the “ACC”) and a committee of salaried retirees (the “1114 Committee” and, together with the UCC and the ACC, the “Committees”), the legal representatives for potential future asbestos claimants (the “Asbestos Futures’ Representative”) and potential future silica and coal tar pitch volatile claimants (the “Silica/ CTPV Futures’ Representative” and, collectively with the Asbestos Futures’ Representative, the “Futures’ Representatives”), the Pension Benefit Guaranty Corporation (the “PBGC”) and the appropriate union representatives. The ultimate treatment of individual groups of creditors in any such plans of reorganization cannot be determined definitively at this time. The ultimate treatment of and recoveries to individual creditors is dependent on, among other things, the total amount of claims against the Debtors as ultimately determined by the Court, the priority of the applicable claims, the outcome of ongoing discussions with the key constituencies, the amount of value available for distribution in respect of claims and the completion of the plan confirmation process consistent with applicable bankruptcy law.

The Debtors’ objective is to achieve the highest possible recoveries for all stakeholders, consistent with the Debtors’ abilities to pay, and to continue the operations of their core businesses. However, there can be no assurance that the Debtors will be able to attain these objectives or achieve a successful reorganization. While valuation of the Debtors’ assets and estimation of pre-Filing Date claims at this stage of the Cases are subject to inherent uncertainties, the Debtors currently believe that, in the aggregate, it is likely that their liabilities will be found to significantly exceed the fair value of their assets. Therefore, the Debtors currently believe that, with limited exceptions, it is likely that substantially all pre-Filing Date claims will be settled at less than 100% of their face value and the equity interests of the Company’s stockholders will be cancelled without consideration. Further, the Debtors believe that it is likely that: (a) the claims of pre-petition creditors that are given certain priorities by statute or have the benefit of guarantees or other contractual or structural seniority will likely receive substantially greater recoveries than pre-petition creditors that have no such priorities or seniority; and (b) all pending and future asbestos-related personal injury claims are likely to be resolved through the formation, pursuant to a plan of reorganization, of a statutory trust to which all claims would be directed by a channeling injunction that would permanently remove all asbestos liability from the Debtors. A similar trust arrangement is anticipated in respect of pending and future silica and coal tar pitch volatiles personal injury claims. A separate trust arrangement is anticipated for hearing loss claims. The trusts would be funded pursuant to statutory requirements and agreements with representatives of the affected parties, using the Debtors’ insurance assets and certain other consideration that has yet to be agreed. No assurances can be provided that the foregoing will ultimately be included in any plan(s) of reorganization the Debtors may file. Further, while the Debtors believe it is possible to successfully reorganize their operations and emerge from Chapter 11 in the first half of 2005, their ability to do so is subject to inherent market-related risks as well as successful negotiation and Court approval for the treatment of creditors consistent with the applicable bankruptcy law.

The Debtors’ Cases are being administered on a consolidated basis. In fact, however, there are separate cases for each Debtor or twenty-six Cases in total. The Company believes that the impacts of the Cases and any plans of reorganization proposed for individual Debtors will depend on each Debtor’s specific circumstances and the differing interests that creditors have in respect of such entities.

A substantial majority of the claims in the Cases are against the Company. These include claims in respect of substantially all of the Debtors’ debt obligations, obligations in respect of pension and retiree medical benefits, asbestos-related and personal injury claims, and known environmental obligations. As such, all of these claimholders will have claims against the Company that, except as further described below, will have to be satisfied by the Company’s assets, which generally include the fabricated products plants (other than the London, Ontario, Canada and Richmond, Virginia extrusion facilities, which are owned by separate subsidiaries that are also Debtors), the interests in Anglesey Aluminum Limited (“Anglesey”), which are not currently expected to be sold, and the Company’s interest in and related to the alumina refinery located in Gramercy, Louisiana (“Gramercy”) and Volta Aluminium Company Limited (“Valco”), which have been sold for nominal net proceeds (see Note 4 of Notes to Interim Consolidated Financial Statements). The Company’s assets also include certain intercompany receivables from certain of its Debtor subsidiaries for funding provided to its joint venture affiliates.

In general, except as described below, there are a relatively modest number or amount of third party trade and other claims against the Company’s other Debtor subsidiaries. Sixteen of the Debtors (including KAC) have no material ongoing activities or operations and have no material assets or liabilities other than intercompany items. The Company believes that it is likely that most, if not all, of these entities will ultimately be merged out of existence or dissolved in some manner. The remaining Debtor subsidiaries (which include AJI, KJC, KAAC, Kaiser Aluminium International, Inc., (“KAII”), Kaiser Aluminum & Chemical of Canada Limited (“KACOCL”), Kaiser Bauxite Company (“KBC”), Kaiser Bellwood Corporation (“Bellwood”), Kaiser Aluminum Technical Services, Inc. (“KATSI”) and Kaiser Finance Corporation (“KFC”)) own certain extrusion facilities or act largely as intermediaries between the Company and certain of its other subsidiaries and joint venture affiliates or interact with third parties on behalf of the Company and its joint venture affiliates. As such, the vast majority of the pre-petition claims against such entities are related to intercompany activities. However, certain of those entities holding claims against the Company also have claims against certain Company subsidiaries that own or owned the Company’s interests in joint venture affiliates and which represent a significant portion of the Company’s consolidated asset value. For example, noteholders have claims against each of AJI and KJC which together hold in escrow substantially all of the net proceeds from the sale of the Company’s interest in Aluminum Partners of Jamaica (“Alpart”), and KAAC, which owns the Company’s interests in Queensland Alumina Limited (“QAL”), as a result of AJI, KJC and KAAC having been subsidiary guarantors of the Company’s Senior Notes (as defined below) and Sub Notes (as defined below). Additionally, the PBGC, pursuant to statute, has joint and several claims against the Company and all entities which are 80% or more owned by the Company (referred to as “Controlled Group Members”). Controlled Group Members include each of AJI, KJC and KAAC, as well as all of the other Debtors. The only other significant claims against AJI, KJC and KAAC are intercompany claims related to funding provided to these entities by the Company. As such, it is likely that the vast majority of the value realized in respect of the Company’s interests in Alpart and QAL is likely to be for the benefit of the noteholders and the PBGC.

As discussed above, the Company has stated that it expects that pre-Filing Date claims that have the benefit of contractual or structural seniority will receive substantially greater recoveries than pre-Filing Date claims that have no such seniority. Accordingly, it has been the Company’s expectation that the holders of the Company’s 9 7/8% Senior Notes and 10 7/8% Senior Notes (collectively, the “Senior Notes”) will receive substantially greater recoveries than the holders of claims in respect of the Company’s 12 3/4% Senior Subordinated Notes (the “Sub Notes”). However, a group of holders of the Sub Notes (the “Sub Note Group”) has formed an unofficial committee to represent all holders of Sub Notes and retained its own legal counsel. The Sub Note Group is asserting that the Sub Note holders’ claims against the Subsidiary Guarantors (such as AJI, KJC and KAAC) may not, as a technical matter, be contractually subordinate to the claims of holders of the Senior Notes. The effect of such position, if ultimately sustained, would be that the holders of Sub Notes would be on a par with the holders of the Senior Notes in respect of proceeds from sales of the Company’s interests in and related to Alpart and QAL. This position, if accepted by the Court, would materially increase the recoveries to the holders of the Sub Notes and materially decrease the recoveries to the holders of the Senior Notes. The Company believes that the intent of the indentures in respect of the Senior Notes and the Sub Notes was to subordinate the claims of the Sub Note holders in respect of the Subsidiary Guarantors. The Company cannot predict, however, the ultimate resolution of the matters raised by the Sub Note Group, when any such resolution will occur, or what impact such resolution may have on the Company, the Cases or distributions to affected noteholders.

KJC and KAAC. Under the Intercompany Agreement, such payments would be increased or decreased for any net cash flows funded by or collected by the Company related to: (a) the Company’s interests in and related to Alpart from January 1, 2004 through July 1, 2004 (estimated to be between $20.0 million – $25.0 million collected by the Company); (b) the Company’s interests in and related to QAL from July 1, 2004 through KAAC’s emergence from Chapter 11 (estimated to be in the $5.0 million range collected by the Company through September 30, 2004); and (c) certain third party costs and certain limited overhead of the Company’s activities related to AJI, KJC, KBC, KAAC and KFC. As provided under the Intercompany Agreement, the Company was reimbursed for approximately $14.5 million of payments made in the third quarter of 2004 to retire Alpart-related debt. The Intercompany Agreement calls for the remaining payments, other than $28.0 million already made available to the Company but not yet paid to the Company as of October 31, 2004 pending finalization of the latest amendment to the DIP Facility, to be made in specific increments to the Company at the emergence of AJI, KJC and KAAC from Chapter 11. The Company expects that all remaining proceeds from the sale of Alpart and QAL are likely to be held in escrow for the benefit of creditors until the applicable subsidiaries emerge from the Cases. The ACC, the Futures’ Representatives and others have filed objections to the Intercompany Agreement and no assurances can be provided as to whether the Intercompany Agreement will be approved by the Court.

On November 1, 2004, AJI and KJC filed a joint plan of liquidation and related disclosure statement (the “AJI/ KJC Plan”) with the Court. Under the proposed AJI/ KJC Plan, the assets of those entities, consisting primarily of the net proceeds received by them in connection with the sale of their interests in Alpart, will be transferred to a liquidation trust, whereupon AJI and KJC will be dissolved. The liquidating trustee will then make distributions of cash to the creditors of AJI and KJC in accordance with such plan. As indicated in the AJI/ KJC Plan, it is currently anticipated that AJI and KJC will have approximately $278.4 million of cash available for distribution to creditors when the plan becomes effective. Of the cash available for distribution, $20.0 million is expected to be retained, subject to certain terms and conditions, in a cash collateral account securing the Post-Petition Credit Agreement until such financing is terminated. The AJI/ KJC Plan outlines the specific treatment and expected recoveries of AJI and KJC creditors. The AJI/ KJC Plan indicates that, assuming the holders of the Sub Notes accept the plan and after payment of priority claims and trust expenses (initial reserves for which are expected to be established in the range of $15.0 million to $20.0 million ), AJI and KJC anticipate ultimately distributing cash as follows (in millions):

The $8.0 million payment to be made for the benefit of holders of the Company’s Sub Notes will be made if, and only if, such holders approve the plan. In addition, the plan provides that the Court will determine the amount, if any, to be paid in respect of the Parish of St. James, State of Louisiana, Solid Waste Disposal Revenue Bonds (the “Revenue Bonds”). Any amounts paid in respect of the Sub Notes and the Revenue Bonds will be paid from amounts that otherwise would be distributed to holders of the Senior Notes. The disclosure statement also indicates that it is currently anticipated that the plan of liquidation for KAAC, which owns the Company’s interests in QAL, will provide for an additional $8.0 million payment to the holders of Sub Notes if, and only if, such holders of the Sub Notes vote to accept that plan. As described in the AJI/KJC Plan, the plan and disclosure statement will be subject to approval by the Court, and the plan will be subject to a vote by certain creditors. The Company anticipates that certain creditors are likely to challenge the proposed AJI/ KJC Plan. The effectiveness of the AJI/ KJC Plan is expressly conditioned on Court approval of the Intercompany Agreement. This disclosure is not intended to be, nor should it be construed to be, a solicitation for a vote on the AJI/ KJC Plan. The AJI/ KJC Plan filed relates exclusively to AJI and KJC and will have no impact on the normal, ongoing operation of the Company’s fabricated aluminum products business or other operations.

At emergence from Chapter 11, the Company will have to pay or otherwise provide for a material amount of claims. Such claims include accrued but unpaid professional fees, priority pension, tax and environmental claims, secured claims, and certain post-petition obligations (collectively, “Exit Costs”). The Company currently estimates that its Exit Costs will be in the range of $60.0 million to $80.0 million. The Company’s estimate of Exit Costs is less than that estimated in prior periods due in large part to the payment of approximately $27.3 million of environmental costs in October 2004 (see Note 7). The Company currently expects to fund such Exit Costs using the proceeds to be received under the Intercompany Agreement together with existing cash resources and available borrowing availability under an exit financing facility that would replace the current Post-Petition Credit Agreement (see Note 5). If payments made to the Company under the Intercompany Agreement together with borrowing availability under an exit financing facility are not sufficient to pay or otherwise provide for all Exit Costs, the Company, Kaiser and some or all of the Company’s other Debtor subsidiaries will not be able to emerge from Chapter 11 unless and until sufficient funding can be obtained. Management believes it will be able to successfully resolve any issues that may arise in respect of the Intercompany Agreement and/or and exit financing facility or be able to negotiate a reasonable alternative. However, no assurances can be given in this regard.

The Company believes that it is not likely that it will emerge from the Cases until sometime in the first half of 2005. The Company continues to push for an aggressive pace that would allow it to file a disclosure statement and a plan or plans of reorganization before the end of 2004. However, the Company’s ability to do so and to ultimately emerge from the Cases is subject to a number of factors, including, among others, confirmation of a plan of reorganization in accordance with the applicable bankruptcy law and, accordingly, no assurances can be given as to whether or when any plan or plans of reorganization will ultimately be filed or confirmed.

Liquidity/ Negative Cash Flow. Cash and cash equivalents decreased by $3.7 million during the first nine months of 2004. The net decrease resulted from cash used by operating activities ($7.4 million) and financing activities ($314.6 million) — see Note 4 of Notes to Interim Consolidated Financial Statements) offset by net cash generated from investing activities of $318.3 million (primarily an increase in restricted proceeds from sale of commodity interests — see Note 4 of Notes to Interim Consolidated Financial Statements). The cash used by operating activities during the first nine months of 2004 was primarily the result of increases in working capital requirements (primarily inventory) associated with improving demand and higher primary aluminum prices in the fabricated products segment. These increases were offset by cash generated from operating results most of which were increases associated with discontinued operations. Results of Operations and Liquidity and Capital Resources provides further information regarding segment cash flows.

During the first nine months of 2003, cash and cash equivalents decreased $29.4 million. The net decrease resulted from cash used in operating activities ($81.3 million) and financing activities ($4.0 million) offset by cash generated from investing activities of $55.9 million (see Note 4 of Notes to Interim Consolidated Financial Statements). The $81.3 million of cash and cash equivalents used by operating activities included the following significant items: (a) asbestos-related insurance recoveries of $17.8 million, (b) the Company’s share of QAL’s net borrowings of $11.0 million in the second and third quarters of 2003 that reduced the Company’s cash requirements to fund QAL, (c) benefit from decreases in receivables and inventories of $20.0 million due to Valco potline curtailment in excess of lost earnings, (d) a foreign income tax payment related to prior periods of $22.0 million and (e) end of service benefit payments totaling approximately $12.8 million in connection with Valco potline curtailments. The balance of the cash and cash equivalents used in operating activities in 2003 (approximately $95.3 million) resulted from a combination of adverse market factors in the business segments in which the Company operated including (a) primary aluminum prices that were below long-term averages, (b) a weak demand for fabricated metal products, particularly aerospace products, (c) higher than average power, fuel oil and natural gas prices and (d) significant expenditures in respect of retiree medical and reorganization costs.

At October 31, 2004, the Company had cash and cash equivalents of approximately $31.0 million and estimated availability under the DIP Facility’s borrowing base to be approximately $125.0 million. At October 31, 2004, there were no outstanding borrowings under the revolving credit facility and there were outstanding letters of credit of approximately $30.9 million.

On October 28, 2004, the Company and the DIP lenders completed an amendment to the DIP Facility. The amendment was approved by the Court on October 28, 2004. The major provisions of the amendment included: (1) a financial covenant was reset based on current forecasts; (2) approval of the sale of the Company’s interest in and related to QAL and formal approval of the sales of Alpart, Gramercy/ KJBC and Valco that had been previously approved through limited waivers that were set to expire on October 31, 2004; (3) a reset of the availability of the fixed asset subcomponent of the borrowing base to $50.0 million; (4) reduction of the commitment amount of the DIP Facility from $285.0 million to $200.0 million; (5) reduction of the maximum letters of credit amount from $125.0 million to $100.0 million; and (6) a requirement for lender approval in respect of any agreement for settlement or release of intercompany claims except an agreement in form and substance identical to the Intercompany Agreement.

from the Cases until sometime in the first half of 2005. As such, it may be necessary for the Company to extend the DIP Facility or make alternative financing arrangements. While the Company believes that if necessary, it would be successful in negotiating an extension to the DIP Facility or adequate alternative financing arrangements, no assurances can be given in this regard.

Disposition of Commodity-Related Assets. In connection with the previously disclosed plan to explore and, if appropriate, dispose of the Company’s commodity-related interests, the Company has completed the disposition of its interests in and related to: (a) the Tacoma, Washington smelter in February, 2003, (b) the Mead, Washington smelter in June 2004, (c) Alpart in July 2004, (d) Gramercy/ KJBC in October 2004 and (e) Valco in October 2004. The only remaining commodity assets which the Debtors currently anticipate selling are the interests in and related to QAL, which are expected to be sold in the first quarter of 2005. Completion of these transactions represent a significant step towards the Company’s planned emergence from Chapter 11 primarily as a fabricated products company. See Note 4 of Notes to Interim Consolidated Financial Statements for details regarding the individual dispositions.

Benefit (Legacy) Cost Matters. The Company has previously disclosed since the Filing Date that pension and retiree medical obligations were significant factors that would have to be addressed during the reorganization process.

The PBGC assumed responsibility for the Company’s Salaried Employees Retirement Plan in December 2003. During the third quarter of 2004, the PBGC assumed responsibility for the Company’s Inactive Pension Plan, which covers certain former hourly employees at locations that were sold or discontinued a number of years ago, and the Company’s Kaiser Aluminum Pension Plan, which covers active and retired employees at certain locations who are represented by the USWA. The Salaried Employees Retirement Plan, the Inactive Pension Plan and the Kaiser Aluminum Pension Plan are hereinafter collectively referred to as the “Terminated Plans”. The PBGC assumptions of the Terminated Plans resulted in the Company’s recognizing non-cash pension charges of approximately $121.2 million in the fourth quarter of 2003 and approximately $155.5 million in the third quarter of 2004. The amount of the charges recorded and the expected liability to the PBGC currently recorded in the Company’s financial statements, have been determined by the Company based on assumptions that are consistent with the GAAP criteria for valuing ongoing plans, as more fully discussed in Notes 9 of Notes to Consolidated Financial Statements in the Company’s Form 10-K for the year ended December 31, 2003. The Company believes this represents a reasonable interim estimation methodology, as there are reasonable arguments that may be made that could result in the final allowed claim amounts being either more or less than that reflected in the financial statements.

However, in October 2004, the Company executed a settlement agreement with the PBGC under which the Company and the PBGC agreed, among other things, that: (a) the Company will continue to sponsor the Company’s remaining plans (which primarily are in respect of hourly employees at Fabricated Products facilities) and will satisfy the estimated $4.4 million minimum funding contribution for these plans after the settlement agreement is approved by the Court; (b) the PBGC will have an allowed post-petition administrative claim of $14.0 million, which is expected to be paid upon the consummation of a plan of reorganization for the Company or the consummation of a plan for KAAC, whichever comes first and; (c) the PBGC will have allowed pre-petition unsecured claims in respect of the Terminated Plans in the amount of $616.0 million, which will be resolved in a plan or plans of reorganization provided that the PBGC’s cash recovery from proceeds of the Company’s sale of its interests in and related to Alpart and QAL will be limited to 32% of the net proceeds distributable to holders of the Company’s Senior Notes, Sub Notes and the PBGC. The PBGC settlement agreement is subject to Court approval. Court hearings on the PBGC settlement agreement are expected to be conducted in early 2005. Objections have been filed to the settlement and no assurances can be provided as to the outcome.

The amount of pension liability related to the Terminated Plans that was recorded in the consolidated balance sheet at September 30, 2004 was approximately $476.0 million based on the interim methodology described above. This compares to the claims $630.0 million total agreed to by the Company in the October 2004 settlement. The Company has not recorded the full value of the PBGC settlement, as given the contested nature of the settlement and the requirement for Court approval, such settlement was not determined to be

In January 2004, the Company filed motions with the Court to terminate or substantially modify postretirement medical obligations for both salaried and certain hourly employees and for a distress termination of substantially all domestic hourly pension plans. The Company subsequently reached agreements with the 1114 Committee and union representatives that represent the vast majority of the Company’s hourly employees. The agreements provide for the termination of existing salaried and hourly postretirement benefit plans, such as medical, and the termination of substantially all existing hourly pension plans. Under the agreements, salaried and hourly retirees would be provided an opportunity for continued medical coverage through COBRA or a proposed Voluntary Employee Beneficiary Association (a “VEBA”) and active hourly employees would be provided with an opportunity to participate in one or more replacement pension plans and/or defined contribution plans. The agreements with the 1114 Committee and certain of the unions have been approved by the Court, but are subject to certain conditions, including Court approval of the Intercompany Agreement in a form acceptable to the Debtors and the UCC.

As a replacement for the Company’s current postretirement benefit plans, the Company agreed to contribute certain amounts to one or more VEBAs. Such contributions are to include:


	•	An amount not to exceed $36.0 million and payable on emergence from the Chapter 11 proceedings so long as the Company’s liquidity (i.e. cash plus borrowing availability) is at least $50.0 million after considering such payments. To the extent that less than the full $36.0 million is paid and the Company’s interests in Anglesey are subsequently sold, a portion of such sales proceeds, in certain circumstances, will be used to pay the shortfall.

	•	On an annual basis, 10% of the first $20.0 million of annual cash flow, as defined, plus 20% of annual cash flow, as defined, in excess of $20.0 million. Such annual payments shall not exceed $20.0 million and will also be limited (with no carryover to future years) to the extent that the payments do not cause the Company’s liquidity to be less than $50.0 million. Advances of $3.1 million in June 2004 and $1.9 million per month thereafter until the Company emerges from the Cases. Any advances made pursuant to such agreement will constitute a credit toward the $36.0 million maximum contribution due upon emergence.

On June 1, 2004, the Court approved an order making the agreements regarding pension and postretirement medical benefits effective on June 1, 2004 notwithstanding that the Intercompany Agreement was not effective as of that date. However, the Court order provided that if Debtor and the UCC had not signed the Intercompany Agreement and filed a motion seeking the approval of such agreement by June 30, 2004, the UCC would have the right (but not the requirement) at any time thereafter to direct the Debtors to terminate the USWA agreement and other agreements to terminate postretirement medical benefits 60 days from the date of the UCC notice.

In October 2004, the Company entered into an amendment to the USWA agreement, to satisfy certain technical requirements for the follow-on hourly pension plans discussed above. The Company also agreed to pay an additional $1.0 million to the VEBA at emergence. The amended agreement is subject to Court approval. The Company currently anticipates that the Court will approve the amended agreement in November 2004.

Environmental Matters. The Company has previously disclosed that it is possible that its assessment of environmental accruals could increase because it may be in the interests of all stakeholders to agree to increased amounts to, among other things, achieve a claim treatment that is favorable and to expedite the reorganization process. The September 2003 multi-site settlement is one example of such a situation (see Note 7 of Notes to Interim Financial Statement for a discussion of the multi-site settlement). In the

Company’s Quarterly Report on From 10-Q for the quarter ended June 30, 2004, the Company reported that it was close to entering agreements with various parties pursuant to which a substantial portion of the unresolved environmental claims could be resolved for approximately $25.0 million — $30.0 million. In the third quarter of 2004, agreements with the affected parties were reached and Court approval for such agreements was received. During October 2004, the Company paid approximately $27.3 million to resolve these liabilities. The amounts paid approximated the amount of liabilities recorded and did not result in any material net gain or loss.

As an integrated aluminum producer, the Company has historically used a portion of its bauxite, alumina, and primary aluminum production for additional processing at certain of its downstream facilities. However, as previously disclosed, as a part of a plan of reorganization, the Company expects that it will emerge from its Chapter 11 proceedings primarily as a fabricated products company. Intersegment transfers are valued at estimated market prices. The following table provides selected operational and financial information on a consolidated basis, after discontinued operations reclassifications with respect to the Company for the quarter and nine month periods ended September 30, 2004 and 2003. The following data should be read in conjunction with the Company’s interim consolidated financial statements and the notes thereto contained elsewhere herein. See Note 17 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, for further information regarding segments.

Interim results are not necessarily indicative of those for a full year. Average realized prices for the Company’s Fabricated products segment are not presented in the following table as such prices are subject to fluctuations due to changes in product mix.

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. Primary aluminum prices have historically been subject to significant cyclical price fluctuations. See Notes 2 and 8 of Notes to Interim Consolidated Financial Statements for a discussion of the Company’s hedging activities.

Changes in global, regional, or country-specific economic conditions can have a significant impact on overall demand for aluminum-intensive fabricated products in the transportation, distribution, packaging, and other markets. Such changes in demand can directly affect the Company’s earnings by impacting the overall volume and mix of such products sold. To the extent that these end-use markets weaken, demand can also diminish for what the Company sometimes refers to as the “upstream” products: alumina and primary aluminum.

During the nine months ended September 30, 2003, the average London Metal Exchange transaction price (“LME price”) per pound of primary aluminum was $.64 per pound. During the nine months ended September 30, 2004, the average LME price was $.76 per pound. The average LME price for primary aluminum for the week ended October 29, 2004 was $.81 per pound.

Quarter and Nine Months Ended September 30, 2004, Compared to Quarter and Nine Months Ended September 30, 2003

The Company reported a net loss of $69.4 million for the quarter ended September 30, 2004, compared to a net loss of $88.6 million for the same period in 2003. For the nine months ended September 30, 2004, the Company reported a net loss of $109.0 million compared to a net loss of $215.0 million for the same period in 2003.

Net sales in the third quarter of 2004 totaled $281.8 million compared to $203.1 million in the third quarter of 2003. Net sales for the nine-month period ended September 30, 2004, totaled $792.7 million compared to $613.2 million for the nine-month period ended September 30, 2003.

Fabricated Products. Net sales of fabricated products increased by 42% during the third quarter of 2004 as compared to the same period in 2003, primarily due to a 24% increase in shipments and a 14% increase in average realized prices. For the nine-month period ended September 30, 2004, net sales of fabricated products increased by approximately 31% as compared to the same period in 2003, primarily due to a 21% increase in shipments and a 8% increase in average realized prices. Current period shipments were higher than comparable 2003 period shipments as a result of improving demand for fabricated aluminum products. The increases in the average realized prices reflects increased product prices due to increases in primary aluminum prices and improving margins offset, in part, by changes in the mix of products sold.

Segment operating results (before other operating charges (benefits) net) for the quarter and nine month periods ended September 30, 2004, improved over the comparable periods in 2003 primarily due to the improved market conditions and improved cost performance offset, in part, by modestly increased natural gas prices.

Segment operating results, discussed above, for the quarter and nine month period ended September 30, 2003, exclude a net gain of approximately $3.9 million from the sale of equipment. (See Note 4 of Notes to Interim Consolidated Financial Statements).

Primary Aluminum. After restating Mead and Valco-related activities to “discontinued operations,” the activities of the Primary Aluminum business unit consist essentially of the Company’s interests in and related to Anglesey. Third party net sales of primary aluminum increased 33% for the third quarter of 2004 as compared to the same period in 2003 primarily as a result of a 22% increase in third party average realized prices and a 10% increase in third party shipments. For the nine month period ended September 30, 2004, third party net sales increased 27% as compared to the same period in 2003 as a result of a 20% increase in third party average realized prices and a 4% increase in third party shipments. The increases in the average realized prices were primarily due to the increases in primary aluminum market prices. Shipments in the

Segment operating results (before Other Operating charges, net) for the quarter and nine month period ended September 30, 2004, improved over the comparable periods in 2003 primarily due to the increases in prices and shipments discussed above offset in part by higher production costs resulting from adverse changes in the foreign exchange rates in respect of the Company’s interests in and related to QAL.

Segment operating results discussed above, for the quarter and nine month periods ended September 30, 2003, exclude a pre-Filing Date claim of approximately $3.2 million related to a restructured transmission agreement. Segment operating results for the nine month period ended September 30, 2003 also excludes a net gain of approximately $9.5 million from the sale of the Tacoma facility (see Note 4 of Notes to Interim Consolidated Financial Statements).

Bauxite and Alumina. After restating Alpart and Gramercy/ KJBC-related activities to “discontinued operations”, the activities of the Bauxite and alumina business unit consist essentially of the Company’s interests in and related to QAL. Third party net sales of alumina increased by 32% during the third quarter of 2004, as compared to the same period in 2003, primarily due to a 26% increase in third party average realized prices and a 6% increase in third party shipments. For the nine month period ended September 30, 2004, third party net sales of alumina increased by approximately 24% as compared to the same period in 2003, primarily due to a 27% increase in third party average realized prices and a 3% increase in third party shipments. The increases in average realized prices were due to increases in aluminum market prices to which the Company’s third-party aluminum sales contracts are linked. Shipments in the quarter and nine month period ended September 30, 2004 were different than the comparable 2003 periods due primarily to the timing of shipments.

Segment operating results for the quarter and nine month periods ended September 2004, were better than comparable periods in 2003 primarily due to the increases in prices and shipments discussed above.

Commodities Marketing. Information regarding the Commodity Marketing business unit has been restated as more fully discussed in Note 2 of Notes to Interim Consolidated Financial Statements to reclassifying the hedging activities attributable to the interests in and related to Alpart, Gramercy/ KJBC and Valco to discontinued operations. Net sales for this segment represent net settlements with third-party brokers. Operating income represents the combined effect of such net settlements and any premium costs associated with maturing options. The minimum and (maximum) price of the hedges in any given period is primarily the result of the timing of the execution of the hedges contract.

Segment operating results for the quarter and nine month periods ended September 30, 2004, were worse than the comparable periods in 2003 primarily due to (a) hedging net gains from first quarter 2002 that were being amortized over the original hedging periods as the underlying purchases/sales occurred becoming fully amortized by year end 2003 and (b) hedging premiums related to hedging positions in respect of quarter and nine month periods in 2004 being higher than net hedging revenues realized.

Eliminations. Eliminations of Intersegment profit vary from period to period depending on fluctuations in market prices as well as the amount and timing of the affected segments’ production and sales.

Corporate and Other. Corporate operating expenses represent corporate general and administrative expenses which are not allocated to the Company’s business segments. Corporate operating expenses (before Other operating charges (benefits) net) in the quarter ended September 30, 2004 were higher than in the comparable periods in 2003 as increased retiree medical costs more than offset lower pension costs resulting from the December 2003 termination of the salaried employees retirement plan and lower payroll-related and other overhead costs. For the nine month period ended September 30, 2004, Corporate operating costs were lower than the comparable 2003 period as lower pension costs and lower payroll-related and other overhead costs were only partially offset by increased retiree medical costs.

Corporate operating results for the quarter and nine month periods ended September 30, 2004, discussed above, exclude pension charges of approximately $155.5 million related to pension plans whose responsibility was assumed by the PBGC in the third quarter of 2004. Corporate operating results for the quarter and nine month periods ended September 30, 2003, exclude an environmental multi-site settlement charge of $15.7 million.

Corporate and other costs for the quarters ended September 30, 2004 and 2003 include pension and other post-retirement benefits of $15.9 million and $9.3 million, respectively, and Corporate and other costs for the nine month periods ended September 30, 2004 and 2003, include pension and other post-retirement benefits of $33.9 million and $27.2 million, respectively. Once the disposition of commodity interests is complete and the Company emerges from the Cases, the Company expects a substantial decline in Corporate and other costs.

Discontinued Operations. Discontinued operations includes the operating results for Alpart, Gramercy/ KJBC, Valco and the Mead Facility and gain from the sale of the Company’s interest in and related to Alpart and the Mead Facility, which were sold during the first nine months of 2004.

Results for discontinued operations for the quarter ended September 30, 2004 improved approximately $137.0 million from the comparable period 2003. Approximately $102.0 million of such improvement resulted from the gain on the sale of the Company’s interests in and related to Alpart. The balance of the improvement primarily resulted from approximately $11.0 million of improved operating results at Alpart and $20.0 of improved operating results at Gramercy/ KJBC. A substantial majority of the improvement in results at Gramercy/ KJBC related to the improvement in the average realized alumina prices. Alpart had no operating results in the third quarter of 2004 as it was sold on July 1, 2004, as compared to the third quarter of 2003 when Alpart experienced a loss of approximately $11.0 million due to weak operating performance and lower alumina prices.

Results for discontinued operations for the nine month period ended September 30, 2004 improved approximately $208.0 million over the comparable 2003 period. Approximately $90.0 million of such improvement resulted from the approximate $102.0 million gain on the sale of the Company’s interests in and related to Alpart and the $23.0 million gain on the sale of the Mead Facility, offset by approximately $33.0 million of impairment charges in respect of the Company’s interests in and related to Valco. The balance of the improvement primarily resulted from approximately $50.0 million of improved operating results at both Alpart and Gramercy/ KJBC, a substantial majority of which was related to the improvement in average realized alumina prices.

As a result of the filing of the Cases, claims against the Debtors for principal and accrued interest on secured and unsecured indebtedness existing on the Filing Date are stayed while the Debtors continue business operations as debtors-in-possession, subject to the control and supervision of the Court. See Note 1 of Notes to Interim Consolidated Financial Statements for additional discussion of the Cases. At this time, it is not possible to predict the effect of the Cases on the businesses of the Debtors.

Operating Activities. In the first nine months of 2004, Fabricated products operating activities provided $12.7 million of cash. This amount compares with the first nine months of 2003 when Fabricated products operating activities provided $15.5 million of cash. The reduction in cash provided by Fabricated products in 2004 was primarily due to increases in working capital associated with improving demand for fabricated aluminum products and an increase in primary aluminum prices offset by improved operating results. Cash provided by Fabricated products operations in 2003 was largely due to cost cutting initiatives which offset reduced product prices and shipments. All of the foregoing exclude consideration of pension and retiree cash payments made by the Company on behalf of current and former employees of the Fabricated products facilities. Such amounts are part of the “legacy” costs that the Company internally categorizes as a corporate cash outflow. As more fully discussed in Benefit (Legacy) Cost Matters, the Company expects that substantially all such benefits related to previously existing benefit plans are likely to be cancelled as part of the reorganization process.

In the first nine months of 2004, Commodities and Corporate operating activities used $20.1 million of cash. This amount compares with the first nine months of 2003 when Commodities and Corporate operating activities used $96.8 million of cash, which amount includes the following significant items: (a) asbestos-related insurance recoveries of $17.8 million; (b) a foreign income tax payment related to prior periods of $22.0 million; and (c) end of service benefits payments totaling approximately $12.8 million in connection with the Valco potline curtailments. The reduction in net cash used by Commodities and Corporate operating activities in 2004 over 2003 resulted primarily from improved results in the Bauxite and alumina segment

(approximately $120.0 million) as a result of the operating factors discussed above. This improvement was partially offset by: (a) less cash generated by the Primary aluminum segment (approximately $10.0 million), primarily as a result of Valco being fully curtailed in the first nine months of 2004 versus having had partial operations during the first nine months of 2003; and (b) increased cash outflow in the Corporate and other segment of approximately $35.0 million attributable to higher hedging related costs, reorganization costs and other miscellaneous costs.

Net cash used by Commodities and Corporate operating activities in 2003 resulted from a combination of adverse market factors, primarily in the commodities business segments, including: (a) primary aluminum prices that were below long-term averages, (b) higher than average fuel oil and natural gas prices, and (c) significant expenditures in respect of reorganization costs.

Investing Activities. Total capital expenditures for Fabricated products during the first nine months ended September 30, 2004 were $4.5 million. Total capital expenditures for Commodities (including Alpart, Gramercy/ KJBC and Valco reported as discontinued operations) and Corporate during the first nine months ended September 30, 2004 were $3.4 million. The capital expenditures during the nine months ended September 30, 2004 were made primarily to improve production efficiency, reduce operating costs and expand capacity at existing facilities.

Total capital expenditures for Fabricated products are currently expected to be between $15.0 million and $25.0 million per year in each of 2005 and 2006. The level of capital expenditures may be adjusted from time to time depending on the Company’s price outlook for metal and other products, the Company’s ability to assure future cash flows through the Company’s financial position and other factors.

Financing Activities and Liquidity. On February 12, 2002, the Company and Kaiser entered into the DIP Facility which provides for a secured, revolving line of credit through the earlier of February 13, 2005, the effective date of a plan of reorganization or voluntary termination by the Company. In March 2003, certain of the Additional Debtors were added as co-guarantors and the DIP Facility lenders received super priority status with respect to certain of the Additional Debtors’ assets. The Company is able to borrow under the DIP Facility by means of revolving credit advances and to issue letters of credit (up to $100.0 million) in an aggregate amount equal to the lesser of $200.0 million or a borrowing base relating to eligible accounts receivable, eligible inventory and eligible fixed assets reduced by certain reserves, as defined in the DIP Facility agreement. The DIP Facility is guaranteed by the Company and certain significant subsidiaries of the Company. Interest on any outstanding borrowings will bear a spread over either a base rate or LIBOR, at the Company’s option. In accordance with the Code and the DIP Facility, the Company and Kaiser are not permitted to pay any dividends or purchase any of their common and preference stock.

On October 28, 2004, the Company and the DIP lenders completed an amendment to the DIP Facility. The amendment was approved by the Court on October 28, 2004. The major provisions of the amendment included: (1) a financial covenant was reset based on current forecasts; (2) approval of the sale of the Company’s interest in and related to QAL and formal approval of the sales of Alpart, Gramercy/ KJBC and Valco that had been previously approved through limited waivers that were set to expire on October 31, 2004; (3) a reset of the availability of the fixed asset subcomponent of the borrowing base to $50.0 million; (4) reduction of the commitment amount of the DIP Facility from $285.0 million to $200.0 million; (5) reduction of the maximum letters of credit amount to from $125.0 million to $100.0 million; and (6) a requirement for lender approval in respect of any agreement for settlement or release of intercompany claims except an agreement in form and substance identical to the Intercompany Agreement.

most variability and exposure from both a price risk basis as well as from an operating perspective. While there can be no assurances, based on recent primary aluminum prices and recent market conditions for fabricated aluminum products, the Company currently expects availability under the DIP Facility to remain near or above the $100.0 million range.

The DIP Facility is currently scheduled to expire in February 2005. As discussed in Note 1 of Notes to Interim Consolidated Financial Statements, the Company currently believes it is unlikely that it will emerge from the Cases until sometime in the first half of 2005. As such, it may be necessary for the Company to extend the DIP Facility or make alternative financing arrangements. While the Company believes that if necessary, it would be successful in negotiating an extension to the DIP Facility or adequate alternative financing arrangements, no assurances can be given in this regard.

The Company currently believes that the cash and cash equivalents of $31.9 million at September 30, 2004, cash flows from operations, cash proceeds from the sale of assets that are ultimately determined not to be an important part of the reorganized entity and availability under the DIP Facility or alternative financing arrangements will provide sufficient liquidity to allow the Company to meet its obligations during the pendency of the Cases. At October 31, 2004, there were no outstanding borrowings under the revolving credit facility and there were outstanding letters of credit of approximately $30.9 million. As of October 31, 2004, $125.0 million (of which $69.1 million could be used for additional letters of credit) was estimated to be available to the Company under the DIP Facility.

Critical accounting policies are those that are both very important to the portrayal of the Company’s financial condition and results, and require management’s most difficult, subjective, and/or complex judgments. Typically, the circumstances that make these judgments difficult, subjective and/or complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. While the Company believes that all aspect of its financial statements should be studied and understood in assessing its current (and expected future) financial condition and results, the Company believes that the accounting policies that warrant additional attention include:

1. The consolidated financial statements as of and for the quarter and nine month periods ending September 30, 2004 have been prepared on a “going concern” basis in accordance with AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, (“SOP 90-7”), and do not include possible impacts arising in respect of the Cases. The interim consolidated financial statements included elsewhere in this Report do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or the effect on existing stockholders’ equity that may result from any plans, arrangements or other actions arising from the Cases, or the possible inability of the Company to continue in existence. Adjustments necessitated by such plans, arrangements or other actions could materially change the interim consolidated financial statements included elsewhere in this Report. For example,

a. If the Company were to decide to sell certain assets not deemed a critical part of a reorganized Kaiser, such asset sales could result in gains or losses (depending on the asset sold) and such gains or losses could be significant. This is because, under generally accepted accounting principles (“GAAP”), assets to be held and used are evaluated for recoverability differently than assets to be sold or disposed of. Assets to be held and used are evaluated based on their expected undiscounted future net cash flows. So long as the Company reasonably expects that such undiscounted future net cash flows for each asset will exceed the recorded value of the asset being evaluated, no impairment is required. However, if plans to sell or dispose of an asset or group of assets meet a number of specific criteria, then, under GAAP, such assets should be considered held for sale/disposition and their recoverability should be evaluated, for each asset, based on expected consideration to be received upon disposition. Sales or dispositions at a particular time will be affected by, among other things, the existing industry and general economic circumstances as well as the Company’s own circumstances, including whether or not assets will (or must) be sold on an accelerated or more extended timetable. Such circumstances may cause the expected value in a sale


	or disposition scenario to differ materially from the realizable value over the normal operating life of assets, which would likely be evaluated on long-term industry trends.

	As previously disclosed, while the Company had stated that it was considering the possibility of disposing of one or more of its commodity facilities, the Company, through the third quarter of 2003, still considered all of its commodity assets as “held for use,” as no definite decisions had been made regarding the disposition of such assets. However, based on additional negotiations with prospective buyers and discussions with key constituents, the Company concluded that dispositions of Gramercy/ KJBC and Valco were possible and, therefore, that recoverability should be considered differently as of December 31, 2003 and subsequent periods. As a result of the change in status, the Company recorded impairment charges of approximately $33.0 million in the first quarter of 2004 and $368.0 million in the fourth quarter of 2003. The actual amount of gain or loss may differ from these amounts as a result of closing adjustments and other matters.

	b. Additional pre-Filing Date claims may be identified through the proof of claim reconciliation process and may arise in connection with actions taken by the Debtors in the Cases. For example, while the Debtors consider rejection of the Bonneville Power Administration (“BPA”) contract to have been in the Company’s best long-term interests, such rejection may increase the amount of pre-Filing Date claims by approximately $75.0 million based on the BPA’s proof of claim filed in connection with the Cases in respect of the contract rejection.

	c. As more fully discussed below, the amount of pre-Filing Date claims ultimately allowed by the Court in respect of contingent claims and benefit obligations may be materially different from the amounts reflected in the Consolidated Financial Statements.

	While valuation of the Company’s assets and pre-Filing Date claims at this stage of the Cases is subject to inherent uncertainties, the Company currently believes that it is likely that its liabilities will be found in the Cases to exceed the fair value of its assets. Therefore, the Company currently believes that, with limited exceptions, it is likely that substantially all pre-Filing Date claims will be paid at less than 100% of their face value and the equity interests of the Company’s stockholders will be cancelled without consideration.

	Additionally, upon emergence from the Cases, the Company expects to apply “fresh start” accounting to its consolidated financial statements as required by SOP 90-7. Fresh start accounting is required if: (1) a debtor’s liabilities are determined to be in excess of its assets and (2) there will be a greater than 50% change in the equity ownership of the entity. As previously disclosed, the Company expects both such circumstances to apply. As such, upon emergence, the Company will restate its balance sheet to equal the reorganization value as determined in its plan of reorganization and approved by the Court. Additionally, items such as accumulated depreciation, accumulated deficit and accumulated other comprehensive income (loss) will be reset to zero. The Company will allocate the reorganization value to its individual assets and liabilities based on their estimated fair value at the emergence date. Typically such items as current liabilities, accounts receivable, and cash will be reflected at values similar to those reported prior to emergence. Items such as inventory, property, plant and equipment, long-term assets and long-term liabilities are more likely to be significantly adjusted from amounts previously reported. Because fresh start accounting will be adopted at emergence, and because of the significance of the pending and completed asset sales and liabilities subject to compromise (that will be relieved upon emergence), meaningful comparison between the current historical financial statements and the financial statements upon emergence may be to difficult to make.


	2. The Company’s judgments and estimates with respect to commitments and contingencies, in particular: (a) future asbestos related costs and obligations as well as estimated insurance recoveries, and (b) possible liability in respect of claims of unfair labor practices (“ULPs”) which were not resolved as a part of the Company’s September 2000 labor settlement.

	Valuation of legal and other contingent claims is subject to a great deal of judgment and substantial uncertainty. Under GAAP, companies are required to accrue for contingent matters in their financial


	statements only if the amount of any potential loss is both “probable” and the amount (or a range) of possible loss is “estimatable.” In reaching a determination of the probability of an adverse ruling in respect of a matter, the Company typically consults outside experts. However, any such judgments reached regarding probability are subject to significant uncertainty. The Company may, in fact, obtain an adverse ruling in a matter that it did not consider a “probable” loss and which, therefore, was not accrued for in its financial statements. Additionally, facts and circumstances in respect of a matter can change causing key assumptions that were used in previous assessments of a matter to change. It is possible that amounts at risk in respect of one matter may be “traded off” against amounts under negotiations in a separate matter. Further, in estimating the amount of any loss, in many instances a single estimation of the loss may not be possible. Rather, the Company may only be able to estimate a range for possible losses. In such event, GAAP requires that a liability be established for at least the minimum end of the range.

	The Company has had two potentially material contingent obligations that are subject to significant uncertainty and variability in their outcome: (a) the United Steelworkers of America’s (“USWA”) ULP claim, and (b) the net obligation in respect of asbestos-related matters. Both of these matters are discussed in Note 7 of Notes to Interim Consolidated Financial Statements and it is important that you read this note.

	As more fully discussed in Note 7 of Notes to Interim Consolidated Financial Statements, we have not accrued any amount in our September 30, 2004 financial statements in respect of the USWA ULP matter. We did not accrue any amount in the past as we did not consider the loss to be “probable.” Our assessment had been that the possible range of loss in this matter was anywhere from zero to $250.0 million based on the proof of claims filed (and other information provided) by the National Labor Relations Board (“NLRB”) and USWA in connection with the Company’s reorganization proceedings. While the Company continues to believe that the ULP charges were without merit, during January 2004, the Company agreed to allow a claim in favor of the USWA in the amount of the $175.0 million as a compromise and in return for the USWA agreeing to substantially reduce and/or eliminate certain benefit payments as more fully discussed in Note 9 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. As the agreement to settle this matter was contingent on NLRB and Court approval and ratification by union members, this amount was not reflected in the Company’s consolidated financial statements at September 30, 2004. However, the charge and an offsetting liability associated with the settlement of this matter will be reflected in the Company’s consolidated financial statements if and when the agreement with the USWA is ultimately approved by the Court.

	Also, as more fully discussed in Note 7 of Notes to Interim Consolidated Financial Statements, the Company is one of many defendants in personal injury claims by large number of persons who assert that their injuries were caused by, among other things, exposure to asbestos during their employment or association with the Company or by exposure to products containing asbestos last produced or sold by the Company more than 20 years ago. It is difficult to predict the number of claims that will ultimately be made against the Company or the settlement value of such claims. As of September 30, 2004, the Company had recorded an obligation for approximately $610.1 million in respect of pending and an estimate of possible future asbestos claims through 2011. The Company did not accrue for amounts past 2011 because the Company believed that significant uncertainty existed in trying to estimate any such amounts. However, it is possible that a different number of claims will be made through 2011 and that the settlement amounts during this period may differ and that this will cause the actual amounts to differ materially from the Company’s estimate. Further, the Company expects that, during its reorganization process, an estimate will have to be made in respect of its exposure to asbestos-related claims after 2011 and that such amounts could be substantial. Due to the Cases, holders of asbestos claims are stayed from continuing to prosecute pending litigation and from commencing new lawsuits against the Debtors. However, during the pendency of the Cases, the Company expects additional asbestos claims will be asserted as part of the claims process. A separate creditors’ committee representing the interests of the asbestos claimants, the ACC, has been appointed. The Debtors’ obligations with respect to present and future asbestos claims will be resolved pursuant to a plan of reorganization.


	The Company believes that it has insurance coverage in respect of its asbestos-related exposures and that substantial recoveries in this regard are probable. At September 30, 2004, the Company had recorded a receivable for approximately $463.1 million in respect of expected insurance recoveries related to existing claims and the estimate future claims through 2011. However, the actual amount of insurance recoveries may differ from the amount recorded and the amount of such differences could be material. Further, depending on the amount of asbestos-related claims ultimately determined to exist (including those in the periods after 2011), it is possible that the amount of such claims could exceed the amount of additional insurance recoveries available.

	See Note 7 of Notes to Interim Consolidated Financial Statements for a more complete discussion of these matters.

	3. The Company’s judgments and estimates in respect of its employee benefit plans.

	Pension and post-retirement medical obligations included in the consolidated balance sheet are based on assumptions that are subject to variation from year-to-year. Such variations can cause the Company’s estimate of such obligations to vary significantly. Restructuring actions (such as the indefinite curtailment of the Mead smelter in January 2003) can also have a significant impact on such amounts.

	For pension obligations, the most significant assumptions used in determining the estimated year-end obligation are the assumed discount rate and long-term rate of return (“LTRR”) on pension assets. Since recorded pension obligations represent the present value of expected pension payments over the life of the plans, decreases in the discount rate (used to compute the present value of the payments) will cause the estimated obligations to increase. Conversely, an increase in the discount rate will cause the estimated present value of the obligations to decline. The LTRR on pension assets reflects the Company’s assumption regarding what the amount of earnings will be on existing plan assets (before considering any future contributions to the plans). Increases in the assumed LTRR will cause the projected value of plan assets available to satisfy pension obligations to increase, yielding a reduced net pension obligation. A reduction in the LTRR reduces the amount of projected net assets available to satisfy pension obligations and, thus, causes the net pension obligation to increase.

	For post-retirement obligations, the key assumptions used to estimate the year-end obligations are the discount rate and the assumptions regarding future medical costs increases. The discount rate affects the post-retirement obligations in a similar fashion to that described above for pension obligations. As the assumed rate of increase in medical costs goes up, so does the net projected obligation. Conversely, if the rate of increase is assumed to be smaller, the projected obligation will decline.

	As more fully discussed in Note 9 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, certain of the Company’s material pension and medical benefit plans are being (or have been) terminated as a part of the Company’s reorganization efforts.

	In preparing the Company’s financial statements at September 30, 2004, the Company has reflected its obligations in respect of the Terminated Plans using assumptions consistent with those used in accordance with GAAP for ongoing plans. The Company believes that this represents a reasonable estimation methodology. The Company currently believes that there are arguments that it can make that the final allowed claim amounts should be less than that reflected in the financial statements. The Company also expects that certain constituents will assert that the value of their obligations is in excess of the amounts reflected in the financial statements.

	See Note 9 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, and Recent Events and Developments, Benefit (Legacy) Cost Matters above for information regarding the Company’s pension and post-retirement obligations. Actual results may differ from the assumptions made in computing the estimated September 30, 2004 obligations and such differences may be material.

	4. The Company’s judgments and estimates in respect to environmental commitments and contingencies.


	The Company and Kaiser are subject to a number of environmental laws and regulations (“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 claims 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. These environmental accruals represent the Company’s estimate of costs reasonably expected to be incurred on a going concern basis in the ordinary course of business 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. However, making estimates of possible environmental remediation costs is subject to inherent uncertainties. 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.

	An example of how environmental accruals could change is provided by the multi-site agreement discussed in Note 7 of Notes to Interim Consolidated Financial Statements. Another example discussed in Note 7 of Notes to Interim Consolidated Financial Statements is the agreements ultimately reached with the parties and approved by the Court in October 2004 pursuant to which the Company resolved environment obligations in return for cash payments totaling approximately $27.3 million. As a means of expediting the reorganization process and to assure treatment of the claims under a plan of reorganization that is favorable to the Debtors and their stakeholders, it may be in the best interests of the stakeholders for the Company to agree to claim amounts in excess of previous accruals, which were based on an ordinary course, going concern basis.

The following summarizes the Company’s significant contractual obligations at September 30, 2004, after discontinued operations reclassifications, (dollars in millions):

The following paragraphs summarize the Company’s off-balance sheet arrangements.

The Company owns a 20% interest in QAL, which owns one of the largest and most competitive alumina refineries in the world, located in Queensland, Australia. QAL refines bauxite into alumina, essentially on a cost basis, for the account of its shareholders under long-term tolling contracts. The Company currently sells its share of QAL’s production to third parties. The shareholders, including the Company, purchase bauxite from another QAL shareholder under long-term purchase contracts. These tolling and purchase contracts are scheduled to 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 Company’s share of the

aggregate minimum amount of future principal payments as of September 30, 2004 is $60.0 million, which will mature in varying amounts from 2005 to 2008. The Company’s share of QAL’s scheduled debt principal repayment in July 2003 was funded with additional QAL borrowings. The Company’s share of payments, including operating costs and certain other expenses under the agreements, has generally ranged between $70 million and $100 million per year over the past three years. However, as discussed more fully in Notes 1 and 4 of Notes to Interim Consolidated Financial Statements, the Company is selling its interests in QAL. When the Company’s interest in QAL are sold, the Company’s obligations in respect of its share of the QAL debt will be assumed by the buyer. The Company has agreements to supply alumina to and to purchase aluminum from Anglesey, a 49.0%-owned aluminum smelter in Holyhead, Wales.

As of September 30, 2004, outstanding letters of credit under the DIP Facility were approximately $30.4 million, substantially all of which expire within the next twelve months. The letters of credit relate primarily to environmental, insurance and other activities.

Upon emergence from Chapter 11 proceedings, the Company anticipates that it will provide a form of defined contribution pension plan in respect of its salaried employees. Any such plans ultimately adopted will be subject to a number of approvals. The Company currently estimates that the total annual cash cost of such plans would be less than $5.0 million and, if approved, would likely be required to be funded commencing some time in 2005.

Pursuant to the terms of the USWA agreement (see Note 7 of Notes to Interim Consolidated Financial Statements), the Company will be required to make annual contributions into the Steelworkers Pension Trust on the basis of one dollar per USWA employee per hour worked. In addition, the Company will institute a defined contribution pension plan for active USWA employees. The Company contributions to the plan will range from eight hundred dollars to twenty-four hundred dollars per employee per year, depending on age. In addition, in connection with the settlement with the PBGC, the Company will continue to sponsor specific pension plans at four of the Company’s locations and will satisfy the estimated $4.4 million minimum funding standard when the settlement agreement is approved by the Court. The Company currently estimates that contributions to all such plans will range from $3.0 million to $6.0 million per year.

As a replacement for the Company’s current postretirement benefit plans, the Company agreed to contribute certain amounts to one or more VEBAs. Such contributions are to include:


	•	An amount not to exceed $36.0 million and payable on emergence from the Chapter 11 proceedings so long as the Company’s liquidity (i.e. cash plus borrowing availability) is at least $50.0 million after considering such payments. To the extent that less than the full $36.0 million is paid and the Company’s interests in Anglesey are subsequently sold, a portion of such sales proceeds, in certain circumstances, will be used to pay the shortfall.

	•	On an annual basis, 10% of the first $20.0 million of annual cash flow, as defined, plus 20% of annual cash flow, as defined, in excess of $20.0 million. Such annual payments shall not exceed $20.0 million and will also be limited (with no carryover to future years) to the extent that the payments do not cause the Company’s liquidity to be less than $50.0 million.

	•	Advances of $3.1 million in June 2004 and $1.9 million per month thereafter until the Company emerges from the Cases. Any advances made pursuant to such agreement will constitute a credit toward the $36.0 million maximum contribution due upon emergence.

On June 1, 2004, the Court approved an order making the agreements regarding pension and postretirement medical benefits effective on June 1, 2004 notwithstanding that the Intercompany Agreement was not effective as of that date. In October 2004, the Company entered into an amendment to USWA agreement, which is subject to Court approval. As provided in the amendment, the Company will be required to pay an additional annual contribution of $1.0 million. The amended agreement is expected to be approved by the Court in November 2004. However, the USWA, the Company and the UCC retain the right to terminate the agreement if the Intercompany Agreement is not approved by the Court.

In connection with the sale of the Gramercy facility and KJBC, the Company indemnified the buyer against losses suffered by the buyer that result from any breaches of certain seller representations and

In November 2004, the Company entered into an agreement to sell its interest in and related to QAL. Gross proceeds from the sale are expected to be approximately $401.0 million, subject to various working capital adjustments and the assumption of the Company’s obligations in respect of approximately $60.0 million of QAL debt. The vast majority of the value realized in respect of the Company’s interests in and related to QAL is likely to be for the benefit of holders by the Senior Notes, the Sub Notes and PBGC. The agreement was approved by the Court on November 8, 2004 and is expected to close in the first quarter of 2005, but is subject to a number of approvals including from QAL’s lenders and the Australian government.

At emergence from Chapter 11, the Company will have to pay or otherwise provide for a material amount of claims. Such claims include accrued but unpaid professional fees, priority tax and environmental claims, secured claims, and certain post-petition obligations (collectively, “Exit Costs”). The Company currently estimates that its Exit Costs will be in the range of $60.0 million to $80.0 million. The Company expects to fund such Exit Costs using the proceeds to be received under the proposed Intercompany Agreement together with existing cash resources and available liquidity under an exit financing facility that will replace the current Post-Petition Credit Agreement (see Note 5 of Notes to Interim Consolidated Financial Statements). Given the material portion of the Exit Costs represented by the expected Intercompany Agreement payments, such payments are a critical element for the Company’s successful emergence from the Cases. If the proposed Intercompany Agreement were not ultimately approved by the Court or otherwise put into effect or a reasonable alternative were not negotiated, it is unlikely that the Company or its other debtor subsidiaries will be able to emerge from Chapter 11. Management believes it will be able to successfully resolve any issues that may arise in respect of the proposed Intercompany Agreement or be able to negotiate a reasonable alternative. However, no assurances can be given in this regard. An exit financing facility to replace the current Post-Petition Credit Agreement is also critical for the Company’s successful emergence from the Cases.

The Company’s operating results 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. As discussed more fully in Notes 2 and 8 of Notes to Interim Consolidated Financial Statements, the Company historically has utilized hedging transactions to lock-in a specified price or range of prices for certain products which it sells or consumes in its production process and to mitigate the Company’s exposure to changes in foreign currency exchange rates. However, because the agreements underlying the Company’s hedging positions provided that the counterparties to the hedging contracts could liquidate the Company’s hedging positions if the Company filed for reorganization, the Company chose to liquidate these positions in advance of the initial Filing Date. The Company has only completed limited hedging activities since the Filing Date (see below). The Company anticipates that, subject to prevailing economic conditions, it may enter into additional hedging transactions with respect to primary aluminum prices and foreign currency values to protect the interests of its constituents. However, no assurance can be given as to when or if the Company will enter into such additional hedging activities.

Alumina and Primary Aluminum. The Company has historically been exposed to commodity price risks and opportunities in respect of alumina and primary aluminum production in excess of internal requirements that has been sold in domestic and international markets. The Company’s hedging transactions have been intended to provide price risk management in respect of the net exposure of earnings resulting from (i) anticipated sales of alumina, primary aluminum and fabricated aluminum products, less (ii) expected purchases of certain items, such as aluminum scrap, rolling ingot, and bauxite, whose prices fluctuate with the price of primary aluminum. As of September 30, 2004, the Company had options covering substantially all of the Company’s net hedgeable volume for the fourth quarter of 2004 (at a strike price of approximately $1.75 per pound).

After considering completed sales of Alpart, Gramercy/ KJBC and Valco and assuming that the Company’s interests in QAL are sold (and that Anglesey remains a part of the emerging entity), the Company

would no longer be a net seller of alumina and aluminum. Rather, net sales of primary aluminum by Anglesey (reduced partially by the equivalent primary aluminum impact of its alumina requirements) would only offset a portion of the primary aluminum requirements of the fabricated products business. As such, the emerging entity would be a net consumer of primary aluminum. However, the Company’s pricing of fabricated aluminum products is generally intended to lock-in a conversion margin (representing the value added from the fabrication process(es)) and to pass metal price risk on to its customers. While the fabricated aluminum products business does from time to time, enter into fixed price arrangements (that include the primary aluminum price component), in such instances, the Company may use third party hedging instruments to eliminate price exposure or may consider the related metal price risk as being offset by (as a notional (internal) hedge) primary aluminum to be produced at Anglesey. At September 30, 2004, the fabricated products business held contracts for the delivery of fabricated aluminum products that have the effect of fixing or capping the metal price component of those contracts during the last quarter of 2004 and for the period 2005 - 2008 totaling approximately (in 000 pounds of primary aluminum): 2004: 34,000, 2005: 84,000, 2006: 35,000, 2007: 34,000, and 2008: 10,000.

Foreign Currency. The Company enters into forward exchange contracts to hedge material cash commitments for foreign currencies. The Company’s primary foreign exchange exposure is related to the Company’s Australian Dollar (A$) commitments in respect of activities associated with QAL. The Company estimates that, before consideration of any hedging activities, a US $0.01 increase (decrease) in the value of the A$ results in an approximate $1.5 million (decrease) increase in the Company’s annual pre-tax operating income.

Evaluation of Disclosure Controls and Procedures. An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was performed as of the end of the period covered by this Report under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation. Additionally, no changes in the Company’s internal controls over financial reporting have occurred during the Company’s most recently completed quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Reference is made to Part I, Item 3. “LEGAL PROCEEDINGS” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 for information concerning material legal proceedings with respect to the Company.

Environmental Settlements. The Company has previously disclosed that is possible that its assessment of environmental accruals could increase because it may be in the interests of all stakeholders to agree to increased amounts to, among other things, achieve a claim treatment that is favorable and to expedite the reorganization process.

In the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, the Company reported that it was close to entering agreements with various parties pursuant to which a substantial portion of the unresolved environmental claims could be resolved for approximately $25.0 million - $30.0 million. In the third quarter of 2004, agreements with the affected parties were reached and Court approval for such agreements was received. During October 2004, the Company has paid approximately $27.3 million to resolve these liabilities. The amounts paid approximated the amount of liabilities recorded and did not result in any material net gain or loss.

Other Environmental Matters. During April 2004, the Company was served with a subpoena for documents and has been notified by Federal authorities that they are investigating certain environmental compliance issues with respect of the Company’s Trentwood facility in the State of Washington. The Company is undertaking its own internal investigation of the matter through specially retained counsel to ensure that it has all relevant facts regarding Trentwood’s compliance with applicable environmental laws. The Company believes it is in compliance with all applicable environmental laws and requirements at the Trentwood facility and intends to defend any claims or charges, if any should result, vigorously. The Company cannot assess what, if any, impacts this matter may have on the Company’s financial statements.

Other Personal Injury Claims. The Company has received other personal injury claims related to noise induced hearing loss (approximately 2,900 claims) and exposure to silica and coal tar pitch volatiles (approximately 3,900 claims and 300 claims, respectively). The Company believes that all such claims are pre-petition claims that will be resolved by the Cases. The Company cannot presently determine the impact or value of these claims. However, the Company currently expects that all such claims will be transferred, along with certain rights against certain corresponding insurance policies, to a separate trust along with (similar to) the settled hearing loss cases, whether or not such claims are settled prior to the Company’s emergence from the Cases.


*	Filed herewith. Schedules are omitted from the agreements filed as Exhibits 2.1 through 2.5; however, the Company will furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, who have signed this report on behalf of the registrant as the principal financial officer and principal accounting officer of the registrant, respectively.


	By:	/s/ KERRY A. SHIBA



	Kerry A. Shiba
	Vice President and Chief Financial Officer
	(Principal Financial Officer)

	KAISER ALUMINUM & CHEMICAL CORPORATION


	By:	/s/ DANIEL D. MADDOX



	Daniel D. Maddox
	Vice President and Controller
	(Principal Accounting Officer)


*	Filed herewith. Schedules are omitted from the agreements filed as Exhibits 2.1 through 2.5; however, the Company will furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.

EX-2.3 2 h20077exv2w3.txt PURCHASE AGREEMENT DATED SEPTEMBER 22, 2004 EXECUTION VERSION Exhibit 2.3 PURCHASE AGREEMENT ------------------------------------ COMALCO ALUMINIUM LIMITED AND KAISER ALUMINUM & CHEMICAL CORPORATION AND KAISER ALUMINA AUSTRALIA CORPORATION DATED AS OF SEPTEMBER 22 2004 TABLE OF CONTENTS

-i- EXHIBIT INDEX Exhibit Title - ------- ----- A Kaiser Alumina B Kaiser Bauxite C QAL Net Working Capital D Kaiser Alumina Sales Contracts E Kaiser Assignment and Assumption Agreement F KAII Assignment and Assumption Agreement G Alumina Supply Agreement H Tax Values of QAL Assets I [Intentionally Omitted] J-1 Knowledge of Kaiser and KACC J-2 Knowledge of Buyer K Document Escrow Agreement L Assumed Interests and Obligations M Form of Guarantee N Bidding and Auction Procedures Schedules - --------- 13.1(j) Certain Matters Related to the Kaiser Alumina Sales Contracts 13.1(r) Special Notices 13.2(e) Financial Statements of QAL 13.2(f) Conduct of Business of QAL 13.2(g) QAL Compliance with Laws 13.2(h) QAL Litigation DATE September 22, 2004 PARTIES 1. COMALCO ALUMINIUM LIMITED, ABN 51 009 679 127, a Queensland corporation, of 25th Floor, 12 Creek Street, Brisbane, Queensland, Australia, (BUYER); 2. KAISER ALUMINUM & CHEMICAL CORPORATION, ABN 47 908 052 437, a Delaware corporation, of Suite 2500, 5847 San Felipe, Houston, Texas, USA (KACC); and 3. KAISER ALUMINA AUSTRALIA CORPORATION, ABN 15 009 757 546, a Delaware corporation, of Suite 2500, 5847 San Felipe, Houston, Texas, USA (KAISER). Buyer, KACC and Kaiser are sometimes referred to herein collectively as the PARTIES. RECITAL Buyer has agreed to purchase, and Kaiser and KACC have agreed to sell, the Assets Sold (as hereinafter defined), and Buyer has agreed to assume the Assumed Interests and Obligations (as hereinafter defined), on the terms and conditions of this AGREEMENT. Page 1 NOW THEREFORE, in consideration of the foregoing premises, and the respective representations, warranties, covenants and agreements set forth herein, and intending to be legally bound hereby, the Parties agree as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 In this Agreement, except as provided in Clause 22 or unless the context otherwise requires the following terms have the meanings set forth below: 2001 ASSIGNMENT AND ASSUMPTION AGREEMENT means the Assignment and Assumption Agreement - Consent, dated August 31, 2001, among the Participants and QAL. 2001 PURCHASE AGREEMENT means the Purchase Agreement, dated June 15, 2001, among Comalco, CAL, Kaiser and KACC. ACT has the meaning set forth in Clause 10.1(a). ADJUSTMENT DATE has the meaning set forth in Clause 9(a). AGREEMENT BETWEEN PARENTS means the Agreement No. 1 Between Parents dated as of February 15, 1990, among KACC, Comalco, RTL and others. AGREEMENT COLLATERAL TO SHARE PURCHASE AGREEMENT means the Agreement Collateral to Share Purchase Agreement dated October 14, 1982 between RTL, KACC and Comalco. ALQUEEN means Alcan Queensland Pty. Limited, a Queensland corporation. ALUMINA PURCHASE PRICE has the meaning set forth in Clause 4.2. ALUMINA SUPPLY AGREEMENT has the meaning set forth in Clause 8.3(e). ASSETS SOLD means the Shares in QAL, the Kaiser Alumina and the Kaiser Bauxite. Page 2 ASSUMED DEBT ADJUSTMENT has the meaning set forth in Clause 3(b). ASSUMED INTERESTS AND OBLIGATIONS means each interest, right and obligation of Kaiser and KACC, as applicable, as at the Effective Date in, to and under each of: (a) the Participants Agreement, including their respective obligations in respect of Bauxite Shipping Charge Credit Allowances; (b) the Agreement Between Parents; (c) the Gladstone Tolling Contracts, including their respective obligations in respect of Credit Allowances, Alternative Depreciation Credit Allowances and Gladstone Tolling Charge Prepayments; (d) all Gladstone Bauxite Supply Agreements; (e) the QAL Financing Agreements; (f) the Interest Reimbursement Agreement; (g) Article 5.1 of the Agreement Collateral to Share Purchase Agreement; (h) the 2001 Purchase Agreement; and (i) the 2001 Assignment and Assumption Agreement; but not including any obligations under such agreements to the extent such obligations are to be paid or performed on or prior to the Effective Date. AUCTION has the meaning set forth in the Bidding and Auction Procedures. AUCTION TRANSACTION has the meaning set forth in Clause 18.1(b)(v). Page 3 AUDITED FINANCIAL STATEMENTS means the financial statements of QAL as at December 31, 2003 and for the year then ended, including a statement of financial performance, a statement of financial position and a statement of cash flows, all as audited by PriceWaterhouseCoopers. AUSTRALIAN DOLLARS or A$ means lawful money of the Commonwealth of Australia. BACKUP BIDDER has the meaning set forth in the Bidding and Auction Procedures. BALANCE SHEET DATE means December 31, 2003. BANKRUPTCY CASES means the cases of Kaiser, KACC and certain of their affiliates under chapter 11 of the Bankruptcy Code, which have been consolidated for procedural purposes only and are being administered jointly by the Bankruptcy Court as Case No. 02-10429 (JKF). BANKRUPTCY CODE means chapter 11 of title 11 of the United States Code (as now in effect or hereafter amended). BANKRUPTCY COURT means the United States Bankruptcy Court for the District of Delaware. BANKRUPTCY COURT HEARING has the meaning set forth in Clause 12.8. BANKRUPTCY LAWS means the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, as amended, and the local rules of the Bankruptcy Court. BANKRUPTCY PLEADINGS means all pleadings relating to this Agreement filed with the Bankruptcy Court by Kaiser, KACC or any other Person. BASE SHARE PRICE means US$308,000,000. Page 4 BASKET has the meaning set forth in Clause 15.11(a). BAUXITE INVENTORY CHARGE means, in relation to each BOL Grade comprising the Kaiser Bauxite (referred to as the RELEVANT BAUXITE for the purpose of this definition), the aggregate of: (a) the purchase price and any royalty payments paid or payable in respect of the Relevant Bauxite under the Gladstone Bauxite Supply Agreements, as most recently invoiced prior to the Effective Date, or, if not invoiced prior to the Effective Date, as invoiced under the preliminary invoices or preliminary royalty invoices (as applicable) delivered under Clause 6.1(b)(iii); and (b) the amount of the Bauxite Shipping Charges paid or payable by Kaiser in respect of the Relevant Bauxite under the Participants Agreement in cash (net of any applicable Bauxite Shipping Charge Credit Allowances). BIDDING AND AUCTION PROCEDURES means the bidding and auction procedures attached to this Agreement as Exhibit N, as the same may be modified from time to time by agreement of the Parties. BIDDING AND AUCTION PROCEDURES ORDER has the meaning set forth in Clause 12.8. BOL GRADE means that part of a Grade of bauxite that can be identified by reference to the month of issue of a bill of lading in respect of it. BREAKUP FEE has the meaning set forth in Clause 18.3. BUSINESS DAY means a day on which the major trading banks are open for business in New York, New York, Wilmington, Delaware and Houston, Texas, USA. Page 5 BUYER has the meaning set forth on the first page of this Agreement, or if not Comalco, the Successful Bidder or Backup Bidder, as applicable. BUYER ENTITY means an entity in respect of which Buyer is treated as a division or part for the purposes of Tax. BUYER INDEMNIFIED PARTIES has the meaning set forth in Clause 15.1. BUYER INDEMNITY PAYMENT means any payment made or which may be required to be made by Kaiser and/or KACC to the Buyer Indemnified Parties under Clause 15.4. BUYER'S PARENT means Comalco. CAL means Comalco Aluminium Limited, ABN 51 009 679 127, a Queensland corporation. CLASS A ORDINARY SHARES has the meaning set forth in Clause 13.2(a). CLASS B ORDINARY SHARES has the meaning set forth in Clause 13.2(a). CLASS C ORDINARY SHARES has the meaning set forth in Clause 13.2(a). CLASS D ORDINARY SHARES has the meaning set forth in Clause 13.2(a). CLOSING has the meaning set forth in Clause 8.1. CLOSING BALANCE SHEET has the meaning set forth in Clause 6.1(a)(i). CLOSING DATE has the meaning set forth in Clause 8.1. COMALCO means Comalco Limited, ABN 37 004 502 694, a Victorian corporation. COMALCO ALUMINA SUPPLY AGREEMENT has the meaning set forth in Clause 4.4. Page 6 COMMENCEMENT DATE means the date of entry of the Sale Approval Order; provided that if the Backup Bidder becomes the Buyer hereunder, Commencement Date (including for purposes of Clauses 18.1(b)(i) and 18.1(c)(i)) means the date on which Kaiser and KACC notify the Backup Bidder that it has become the Buyer in lieu of the Successful Bidder. CONSORTIUM DOCUMENTS means: (a) the Participants Agreement; (b) the Agreement Collateral to Share Purchase Agreement; (c) the Agreement Between Parents; (d) the Gladstone Tolling Contracts; (e) the Gladstone Bauxite Supply Agreements; (f) the QAL Financing Agreements; (g) the Constitution of QAL; and (h) the 2001 Assignment and Assumption Agreement. DE MINIMIS THRESHOLD has the meaning set forth in Clause 15.11(a). DEFENDING PARTY has the meaning set forth in Clause 12.4. DEPOSIT has the meaning set forth in Clause 4A.1. DEPOSIT ESCROW AGENT means the escrow agent named in the Deposit Escrow Agreement. DEPOSIT ESCROW AGREEMENT means an escrow agreement relating to the Deposit, by and among Kaiser, KACC, Buyer and Deposit Escrow Agent, to be executed and delivered on Page 7 or prior to the date on which Buyer is required to make the Deposit pursuant to Clause 4A.1. DIP FACILITY means the Post-Petition Credit Agreement, dated as of February 12, 2002, as amended, among KACC, Kaiser Aluminum Corporation, certain financial institutions party thereto and Bank of America, N.A., as Agent. DOCUMENT ESCROW AGENT means the escrow agent named in the Document Escrow Agreement. DOCUMENT ESCROW AGREEMENT means an escrow letter in the form of Exhibit K. EFFECTIVE DATE means 11:59 p.m. at Gladstone, Queensland on the last day of the calendar month in which the last of the conditions precedent referred to in Clauses 10.1, 11.1, 11.2 and 11.3 is satisfied or duly waived and on which the sale of the Assets Sold under this Agreement is to take effect (or such later date requested by a Party and agreed to by the other Parties prior to that date). ESTIMATED BAUXITE RECEIVABLES has the meaning set forth in Clause 5.1(b). ESTIMATED PURCHASE PRICE has the meaning set forth in Clause 5.1. EXCESS ALUMINA means, in the event of Kaiser's termination of the Comalco Alumina Supply Agreement pursuant to Article 4.3(f) thereof with effect prior to December 31, 2005, the number of metric tonnes of alumina produced at QAL's Gladstone plant after the Effective Date that would have been delivered to Comalco under the Comalco Alumina Supply Agreement had such agreement not been so terminated. EXCESS KAISER ALUMINA CONSIDERATION means the US$ amount obtained by calculating, for each calendar month in which delivery of Excess Alumina would have been required Page 8 under the Comalco Alumina Supply Agreement, an amount equal to 3.50% of the product of (x) the forward LME price (in US$) on the Effective Date for the calendar month prior to such calendar month for delivery, and (y) the number of metric tonnes of Excess Alumina that would have been delivered in such calendar month, and adding all such US$ amounts together. FINAL BAUXITE RECEIVABLES has the meaning set forth in Clause 6.1(c). FINAL KAISER ALUMINA PRICE has the meaning set forth in Clause 6.1(b)(v). FINAL KAISER BAUXITE PRICE has the meaning set forth in Clause 6.1(b)(iv). FINAL ORDER means an order or judgment of the Bankruptcy Court, or other court of competent jurisdiction, as entered on the docket in any Bankruptcy Case or the docket of any other court of competent jurisdiction, that has not been reversed, stayed, modified or amended, and as to which the time to appeal or seek certiorari or move for a new trial, reargument or rehearing has expired, and no appeal or petition for certiorari or other proceedings for a new trial, reargument or rehearing has been timely taken, or as to which any appeal that has been taken or any petition for certiorari that has been timely filed has been withdrawn or resolved by the highest court to which the order or judgment was appealed or from which certiorari was sought or the new trial, reargument or rehearing shall have been denied or resulted in no modification of such order. FINAL PURCHASE PRICE has the meaning set forth in Clause 6.2. GENERAL TRUST DEED means the agreement identified as number 2 in Section IV of Exhibit L. Page 9 GLADSTONE BAUXITE SUPPLY AGREEMENTS means the agreements and other documents identified in Section III of Exhibit L. GLADSTONE CREDIT ALLOWANCES means Credit Allowances, Alternative Depreciation Credit Allowances, Bauxite Shipping Charge Credit Allowances and Alumina Delivery Charge Credit Allowances. GLADSTONE TOLLING CONTRACTS means the agreements and other documents identified in Section II of Exhibit L. GOVERNMENTAL ENTITY means any federal, state, local, municipal, foreign or other government or any provincial, departmental or political subdivision thereof, or any entity, body or authority exercising or entitled to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority or power of any nature, or any court, department, commission, board, bureau, agency, instrumentality or administrative body of any of the foregoing, including any arbitral body. GRADE means any one of the following grades of bauxite supplied under the Gladstone Bauxite Supply Agreements: (a) trihydrate bauxite; (b) Grade `A' monohydrate bauxite; (c) Grade `C' monohydrate bauxite; and (d) Grade `D' monohydrate bauxite. GST AMOUNT means the amount payable by Buyer to Kaiser under Clause 22.3 in consequence of Buyer's purchase of the Kaiser Bauxite and the Kaiser Alumina reduced by the amount payable by Kaiser to Buyer under Clause 22.3 in consequence of the Page 10 assumption by Buyer of Gladstone Credit Allowances. For the purposes of the meaning of GST Amount, no amount shall be payable by Kaiser to Buyer under Clause 22.3 in consequence of the assumption by Buyer of Gladstone Credit Allowances if before the Closing Date the Commissioner of Taxation issues a final ruling or similar final determination which, in the reasonable opinion of Buyer, would result in no GST (as defined for the purposes of Clause 22) being imposed on that assumption. INDEMNIFICATION CLAIM has the meaning set forth in Clause 15.12(a). INDEMNIFIED PARTY has the meaning set forth in Clause 15.12(a). INDEMNIFYING PARTY has the meaning set forth in Clause 15.12(a). INTEREST REIMBURSEMENT AGREEMENT means the (i) Financing Agreement dated as of March 30, 2001 among QAL, Kaiser, KACC, Pechiney Limited, Pechiney, CAL, Comalco, Alqueen and Alcan Inc., (ii) the Addendum to Financing Agreement, dated July 24, 2003, among QAL, Kaiser, KACC, Pechiney Limited, Pechiney, CAL, Comalco, Alqueen and Alcan Inc. and (iii) the Addendum No. 2 to Financing Agreement, dated July 24, 2003, among QAL, Kaiser, KACC, Pechiney Limited, Pechiney, CAL, Comalco, Alqueen and Alcan Inc. KACC has the meaning set forth on the first page of this Agreement. KACC SHARE IN QAL means the Class A Ordinary Share in QAL held by KACC in trust for Kaiser. KAII means Kaiser Aluminium International, Inc. KAII ASSIGNMENT AND ASSUMPTION AGREEMENT has the meaning set forth in Clause 7.4(b). Page 11 KAISER has the meaning set forth on the first page of this Agreement. KAISER ALUMINA means the alumina produced by QAL for the account of Kaiser and/or KACC at calcination on or prior to the Effective Date. A pro forma calculation of the Kaiser Alumina, assuming the Closing occurred on December 31, 2003 is contained in Exhibit A. KAISER ALUMINA SALES CONTRACTS has the meaning set forth in Clause 7.2. KAISER ASSIGNMENT AND ASSUMPTION AGREEMENT has the meaning set forth in Clause 7.4(a). KAISER BAUXITE means each BOL Grade delivered to Kaiser under its Gladstone Bauxite Supply Agreements and not processed into Kaiser Alumina by QAL on or prior to the Effective Date (whether on board ship, in stock or in process) determined on the basis on which Exhibit B has been prepared. KAISER ENTITY means an entity in respect of which Kaiser is treated as a division or part for the purposes of Tax. KAISER INDEMNIFIED PARTIES has the meaning set forth in Clause 15.2. KAISER INDEMNITY PAYMENT means any payment made or which may be required to be made by Buyer to Kaiser under Clause 15.6. KAISER SHARES IN QAL means 442,399 of the Class A Ordinary Shares in QAL held and beneficially owned by Kaiser. KAISER'S SHARE OF QAL'S BORROWINGS means, at any time, the aggregate principal amount which would be payable by Kaiser as Gladstone Tolling Charge Prepayments (or, in the case of any Gladstone Tolling Charge Prepayment not denominated in US Dollars, Page 12 converted to US Dollars at its US Dollar Equivalent on the date two Business Days prior to the Effective Date) if the maturity of the aggregate principal amount of all borrowings by QAL evidenced by Debentures were accelerated pursuant to section 7.02 of the General Trust Deed. KNOWLEDGE, with respect to Kaiser and KACC, means the actual knowledge, information and belief of the individuals listed on Exhibit J-1 having made all reasonable inquiries, and with respect to Buyer, means the actual knowledge, information and belief of the individuals listed on Exhibit J-2 having made all reasonable inquiries. LENDER CONSENT has the meaning set forth in Clause 11.1(d). LIABILITY means all costs, claims, charges, losses, damages, expenses, penalties and liabilities of any kind whether actual, contingent or prospective, including any reduction, limitation or restriction in the ability of a Person to claim a Tax Offset Item. LIBOR means the overnight rate displayed on the Reuters screen LIBOR01 page on the Effective Date (or, if that rate is not displayed on the Effective Date, the last such rate displayed prior to the Effective Date), applicable to US Dollars. LIEN means, with respect to any property or asset, any mortgage, lien, claim, pledge, security interest or other encumbrance thereon. LME means the average London Metal Exchange 3-month price for 99.7% aluminum ingot in US Dollars per metric tonne for the calendar month immediately preceding the month in which the Effective Date occurs as reported by Platt's Metal Week. If the LME ceases to be published, the Parties shall agree on a substitute index intended to reflect the market price of primary aluminum ingot on a basis essentially similar to the LME. Page 13 NOTICE OF CLAIM has the meaning set forth in Clause 15.12(a)(i). ORDINARY SHARES has the meaning set forth in Clause 13.2(a). PARENT GUARANTEE means a guarantee and indemnity in the form of Exhibit M. PARTICIPANTS AGREEMENT means the agreements and other documents identified in Section I of Exhibit L. PARTICIPANTS CONSENT means the consent of the parties to the Participants Agreement (other than Kaiser and KACC) to the transfer of the Shares in QAL and the assumption and assignment of the Assumed Interests and Obligations pursuant to Section 30(D) of the Participants Agreement. PARTIES has the meaning set forth on the first page of this Agreement. PAYEE has the meaning set forth in Clause 22.4. PECHINEY LIMITED means Aluminium Pechiney Australia Pty. Limited, a New South Wales corporation. PERSON means any individual, corporation, trust, partnership, limited liability company, unincorporated body or other entity. PRELIMINARY KAISER ALUMINA PRICE has the meaning set forth in Clause 5.1(c). PRELIMINARY KAISER BAUXITE PRICE has the meaning set forth in Clause 5.1(b). PRIOR TAX has the meaning set forth in Clause 15.6(a). PROCEEDINGS has the meaning set forth in Clause 12.4. QAL means Queensland Alumina Limited, ABN 98 009 725 044. Page 14 QAL FINANCING AGREEMENTS means the agreements and other documents identified in Section IV of Exhibit L. QAL NET WORKING CAPITAL means the amount of the net working capital of QAL on the Effective Date determined in accordance with the accounting standards applied to the Audited Financial Statements and otherwise on the basis on which Exhibit C has been prepared, by reference to the Closing Balance Sheet. QAL NET WORKING CAPITAL ADJUSTMENT has the meaning set forth in Clause 3(a). QAL PURCHASE PRICE has the meaning set forth in Clause 3. RECIPIENT has the meaning set forth in Clause 22.3(a)(i). RTL means Rio Tinto Limited, a Victorian corporation formerly known as CRA Limited. SALE APPROVAL MOTION means the motion seeking approval of the Sale Approval Order, as described in Clause 12.10. SALE PROCESS AND APPROVAL MOTION has the meaning set forth in Clause 12.7. SALE APPROVAL ORDER has the meaning set forth in Clause 12.10. SET-OFF AMOUNT means, where (i) Buyer has been notified by Kaiser and KACC that it is the Backup Bidder pursuant to the Bidding and Auction Procedures and is subsequently notified by Kaiser and KACC that they wish to consummate the Transaction with Buyer in lieu of the Successful Bidder, and (ii) the Base Share Price is equal to or greater than US$400,000,000, an amount equal to US$2,000,000 for each full 30 calendar day period (reduced pro rata for any lesser number of calendar days), beginning on the date that is 151 calendar days following the date of entry of the Sale Approval Order (as such term is Page 15 defined in the Bidding and Auction Procedures) and ending on the Effective Date (inclusive of both such dates). SHARES IN QAL means the Kaiser Shares in QAL and the KACC Share in QAL. SUCCESSFUL BIDDER has the meaning set forth in the Bidding and Auction Procedures. SUPPLIER has the meaning set forth in Clause 22.3(a)(i). TAX means any tax, duty, charge or levy imposed now or at any future date under the laws of Australia or any other country, including income tax, capital gains tax, payroll tax, fringe benefits tax, PAYG liability, sales tax, GST, customs duty and stamp duty, and also includes any associated penalties, fines or interest. TAX INVOICE has the meaning assigned to such term in the A New Tax System (Goods and Services Tax) Act 1999 (Cth). TAX OFFSET ITEM means any deduction, loss, credit, rebate, allowance, refund, set-off or other relief which may reduce, limit or defer a liability to Tax. TAX REFUND has the meaning set forth in Clause 15.6(b). TAX RETURN means any return, declaration, report, claim for refund, information return or other document (including any related or supporting estimates, elections, schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Tax or the administration of any legislation relating to any Tax. TITLE CLAIMS means legal proceedings brought in any court of competent jurisdiction that is not a United States federal or state court seeking (i) damages from Buyer, or (ii) to impose a Lien upon the Shares in QAL, or (iii) to challenge or divest Buyer's legal or Page 16 beneficial ownership of the Shares in QAL, if success in such proceedings would render any of the representations and warranties made by Kaiser or KACC in Clauses 13.1(a) to (c) not being true and correct in all material respects on the date of this Agreement or on and as of the Closing Date. TRADE PRACTICES ACT means the TRADE PRACTICES ACT 1974 (Cth). TRANSACTION means the sale of the Assets Sold, the assumption of the Assumed Interests and Obligations and other liabilities, and the other transactions contemplated by this Agreement. TREASURER has the meaning set forth in Clause 10.1(a). TWENTY SECOND SUPPLEMENTAL TRUST DEED means the agreement identified as number 3 in Section IV of Exhibit L. UNISTAR ALUMINA SALES CONTRACT means the agreement identified as number 3 on Exhibit D. UNISTAR PAYMENT has the meaning set forth in Clause 4.3. US DOLLARS or US$ means lawful money of the United States of America. US DOLLAR EQUIVALENT means, as at any date, the equivalent in US Dollars of an amount in Australian dollars converted at the rate displayed at or about 10:30 am (Melbourne time) on such date on the Reuters screen HSRA page. WORKING CAPITAL CEILING AMOUNT means A$35,000,000. WORKING CAPITAL FLOOR AMOUNT means A$15,000,000. Page 17 1.2 In this Agreement, unless the context otherwise requires, capitalized terms not otherwise defined herein have the meanings assigned to such terms in the Participants Agreement. 1.3 Headings are for convenience only and do not affect interpretation. The following rules apply unless the context requires otherwise. (a) The singular includes the plural and conversely. (b) A gender includes all genders. (c) If a word or phrase is defined, its other grammatical forms have a corresponding meaning. (d) A reference to a person, corporation, trust, partnership, limited liability company or unincorporated body or other entity includes any of them. (e) A reference to a Clause, Exhibit or Schedule is a reference to a Clause of, or an Exhibit or Schedule to, this Agreement. Disclosures made in any Clause, Exhibit or Schedule that are responsive to the requirements of any other Clause, Exhibit or Schedule are deemed to be incorporated therein by reference. (f) A reference to an agreement or document (including a reference to this Agreement) is to the agreement or document as amended, varied, supplemented, novated or replaced. (g) A reference to a party to this Agreement or another agreement or document includes the party's successors and permitted substitutes or assigns. (h) A reference to legislation or to a provision of legislation includes a modification, amendment or re-enactment of it, a legislative provision substituted for it and a rule, regulation or statutory instrument issued under it. Page 18 (i) A reference to WRITING includes a facsimile transmission and any means of reproducing words in a tangible and permanently visible form. (j) The term INCLUDING means including without limitation. 2. PURCHASE AND SALE OF ASSETS SOLD Subject to, and on the basis of, the representations, warranties and agreements contained in this Agreement, Buyer agrees to purchase from Kaiser and KACC, and Kaiser and KACC agree to sell to Buyer, the Assets Sold with effect from the Effective Date. For the avoidance of doubt, the intention of the Parties is that all incidents of ownership, including income, expenses and other results of operations represented by Kaiser's and KACC's proportionate ownership interest in QAL, except for certain specific financial arrangements set forth in this Agreement, shall be vested in Kaiser and KACC prior to the Effective Date and shall be vested in Buyer from and after the Effective Date. 3. PURCHASE PRICE FOR THE SHARES IN QAL The purchase price for the Shares in QAL (the QAL PURCHASE PRICE) will be the Base Share Price, adjusted as follows: (a) plus or minus the US Dollar Equivalent (determined on the date two Business Days prior to the date payment adjustment is to be made under Clause 9) of 20% of the amount by which the actual QAL Net Working Capital (computed in accordance with Clause 6): (i) exceeds the Working Capital Ceiling Amount; or (ii) is less than the Working Capital Floor Amount; and Page 19 (If the actual QAL Net Working Capital exceeds the Working Capital Ceiling Amount, an amount equal to 20.0% of such excess amount will be added to the Base Share Price in computing the QAL Purchase Price. If the actual QAL Net Working Capital is less than the Working Capital Floor Amount, an amount equal to 20.0% of such difference will be deducted from the Base Share Price in computing the QAL Purchase Price (QAL NET WORKING CAPITAL ADJUSTMENT).) (b) plus the US Dollar amount, if any, by which Kaiser's Share of QAL's Borrowings immediately prior to the Effective Date (including obligations classified as current portion of long term debt) is less than US$60,000,000, determined on a dollar-for-dollar basis (ASSUMED DEBT ADJUSTMENT). 4. PURCHASE PRICE FOR KAISER BAUXITE, KAISER ALUMINA AND OTHER ITEMS 4.1 The purchase price per dry metric tonne for the Kaiser Bauxite will be the aggregate of the Bauxite Inventory Charge for each BOL Grade comprising the Kaiser Bauxite, calculated on the assumption that bauxite is processed into alumina on a `first in first out' basis for each BOL Grade and on the basis on which Exhibit B has been prepared. 4.2 The purchase price for the Kaiser Alumina will be 12.5% of LME per metric tonne, calculated on the basis on which Exhibit A was prepared (the ALUMINA PURCHASE PRICE). 4.3 If the Effective Date occurs on or before Kaiser's shipment of 36,800 metric tonnes of alumina during the fourth quarter of 2004 under the Unistar Alumina Sales Contract, Buyer will pay to Kaiser at the Closing US$1,786,000. If the Effective Date occurs after shipment of a portion (but less than all) of such 36,800 metric tonnes of alumina, Buyer will pay to Kaiser at the Closing US$1,050,000 plus an amount equal to US$20 Page 20 multiplied by the number of metric tonnes of alumina remaining to be shipped during 2004 under such contract. If the Effective Date occurs after shipment of such 36,800 metric tonnes of alumina but prior to Kaiser's shipment of all or a portion of 105,000 metric tonnes of alumina during 2005 under such contract, Buyer will pay to Kaiser an amount equal to US$10 multiplied by the number of metric tonnes of alumina remaining to be shipped during 2005 under such contract. The amount determined in accordance with this Article 4.3 is referred to herein as the UNISTAR PAYMENT. 4.4 If Kaiser notifies Comalco on or before the Effective Date that Kaiser has elected to terminate the Kaiser Alumina Sales Agreement identified as item number 1 on Exhibit D (the COMALCO ALUMINA SUPPLY AGREEMENT) pursuant to Article 4.3(f) thereof such that the effective date of termination is prior to December 31, 2005, Buyer will pay the Excess Kaiser Alumina Consideration to Kaiser. 4A. DEPOSIT 4A.1 Within two business days after the entry of the Bidding and Auction Procedures Order, Buyer shall make a good faith deposit in the amount of US$29,000,000. If (i) there is no Auction, on the first Business Day after entry of the Sale Approval Order, or (ii) there is an Auction and Buyer is the Successful Bidder, on the first Business Day after completion of the Auction, or (iii) if there is an Auction and Buyer is the Backup Bidder, on the first Business Day after the Commencement Date (as applicable to the Backup Bidder), then in any such case Buyer shall pay an additional deposit of US$11,000,000, for a total deposit of US$40,000,000 (collectively, the DEPOSIT). Buyer shall make the Deposit via wire transfer of immediately available funds to the account set forth in the Page 21 Deposit Escrow Agreement. Application of the Deposit shall be subject to the terms and provisions of this Agreement and the Deposit Escrow Agreement. 4A.2. Upon the Closing, KACC and Buyer shall deliver a joint written notice to the Deposit Escrow Agent directing the release of the Deposit to Sellers for application to the payment of the Estimated Purchase Price and Kaiser shall deliver a written notice to the Document Escrow Agent directing the release of the Documents in accordance with paragraph 3(b) of the Document Escrow Agreement. 4A.3. Upon termination of this Agreement pursuant to Clause 18.1(b)(ii), KACC and Buyer shall deliver a joint written notice to the Deposit Escrow Agent directing the release of the Deposit to the Sellers as liquidated damages and Kaiser shall deliver a written notice to the Document Escrow Agent directing the release and destruction of the Documents in accordance with paragraph 3(b) of the Document Escrow Agreement. 4A.4. Upon termination of this Agreement pursuant to any provision other than Clause 18.1(b)(ii), KACC and Buyer shall deliver a joint written notice to the Deposit Escrow Agent directing the release of the Deposit to the Buyer and Kaiser shall deliver a written notice to the Document Escrow Agent directing the release and destruction of the Documents in accordance with paragraph 3(b) of the Document Escrow Agreement. 5. ESTIMATED PURCHASE PRICE 5.1 On the Closing Date, Buyer will pay to Kaiser, by wire transfer of immediately available funds, an amount on account of the purchase price for the Assets Sold (the ESTIMATED PURCHASE PRICE) equal to: (a) in respect of the Shares in QAL, the Base Share Price, less the Deposit, less the Set-Off Amount (if any); plus Page 22 (b) in respect of the Kaiser Bauxite, A$6,000,000 (converted to US Dollars at its US Dollar Equivalent on the date two Business Days prior to the Closing Date); provided, however, that at least 10 days prior to the Effective Date Kaiser and KACC shall deliver to Buyer a written statement in the form of Exhibit B stating the estimated Australian dollar amount of the Kaiser Bauxite as of the Effective Date (the PRELIMINARY KAISER BAUXITE PRICE) offset by a reasonable estimate of the amount due including GST (as defined for the purposes of Clause 22) to Buyer for bauxite invoiced but not paid (the ESTIMATED BAUXITE RECEIVABLES) and the amount stated in such written statement, if different, will be substituted for such A$6,000,000 amount; plus (c) in respect of the Kaiser Alumina, US$6,000,000; provided, however, that at least 10 days prior to the Effective Date, Kaiser and KACC shall deliver to Buyer a written statement which states the number of metric tonnes of Kaiser Alumina that Kaiser and KACC estimate will exist on the Effective Date, calculated on the basis on which Exhibit A was prepared, multiplied by an amount in US$ equal to the Alumina Purchase Price (the PRELIMINARY KAISER ALUMINA PRICE) and the amount stated in such written statement, if different, will be substituted for such US$6,000,000 amount; plus (d) on account of the GST Amount, A$1,800,000 (converted to US Dollars at its US Dollar Equivalent on the date two Business Days prior to the Closing Date); provided, however, that at least 10 days prior to the Effective Date Kaiser and KACC shall deliver to Buyer a written statement updating the estimated GST Amount to reflect any changes to the estimated Preliminary Kaiser Bauxite Price Page 23 in Clause 5.1(b) and the estimated Preliminary Kaiser Alumina Price in Clause 5.1(c), such written statement to also contain an estimate of the balance of the Gladstone Credit Allowances as at the Effective Date unless at least 10 days prior to the Effective Date, Buyer has delivered a written statement to Kaiser and KACC stating that the Commissioner of Taxation has issued a final ruling or similar final determination which, in Buyer's opinion results in no GST (as defined for the purposes of Clause 22) being imposed on that assumption. The estimated GST Amount determined from such written statements will be substituted for such A$1,800,000 amount. (For the purpose of estimating the GST Amount included in this Clause 5.1(d) to be A$1,800,000, it is assumed that the GST payable by Kaiser to Buyer under Clause 22.3 in consequence of the assumption by Buyer of the Gladstone Credit Allowances is zero.); plus (e) A$0 as an estimate of the amount payable in respect of the QAL Net Working Capital Adjustment referred to in Clause 3(a); provided however that at least 10 days prior to the Effective Date Kaiser and KACC shall deliver to Buyer a written statement specifying the amount of the QAL Net Working Capital Adjustment that would be made if the Effective Date had occurred on the last day of the previous calendar month and the amount stated in such written statement, if different, will be substituted for such A$0 amount; plus (f) US$0 as an estimate of the amount payable in respect of the Assumed Debt Adjustment referred to in Clause 3(b); plus (g) the Unistar Payment, if applicable, plus any GST payable in accordance with Clause 22, if applicable; plus Page 24 (h) the Excess Kaiser Alumina Consideration, if applicable, plus any GST payable in accordance with Clause 22, if applicable. 5.2 The Estimated Purchase Price will bear interest from, but not including, the Effective Date to, and including, the day immediately preceding the Closing Date, calculated at LIBOR. 6. FINAL PURCHASE PRICE 6.1 As soon as practicable, and in any event within 30 days, following the Effective Date: (a) the Parties will cause QAL to prepare and deliver to the Parties: (i) a balance sheet for QAL as at the Effective Date (the CLOSING BALANCE SHEET) containing line items, notes and schedules similar to those included in the Audited Financial Statements, but in any event setting forth specifically the amount of the Gladstone Credit Allowances and, to the extent practicable, prepared in accordance with Australian generally accepted accounting principles without giving effect to any changes therein that may have occurred after December 31, 2003, and on a basis consistent with the Audited Financial Statements; (ii) a computation of each BOL Grade comprising the Kaiser Bauxite as at the Effective Date, detailing each BOL Grade and relevant delivery months and whether such bauxite is in stockpile, in transit or in process (in the form of Exhibit B); (iii) [INTENTIONALLY OMITTED]; Page 25 (iv) a computation of the QAL Net Working Capital as at the Effective Date (in the form of Exhibit C); and a computation of the amount of the QAL Net Working Capital Adjustment calculated in the manner set forth in Clause 3(a); (v) a computation of Kaiser's Share of QAL's Borrowings immediately prior to the Effective Date; (vi) a computation of the Assumed Debt Adjustment; and (vii) a computation of the component referred to in paragraph (b) of the definition of Bauxite Inventory Charge for each BOL Grade comprising the Kaiser Bauxite, determined in accordance with such paragraph (b) and Clause 4.1, showing the amount paid and the amount payable in respect of the Kaiser Bauxite (in the form in Exhibit B). All computations in this Clause 6.1(a) shall be set out in reasonable detail and, as applicable, include particulars of the applicable Bauxite Shipping Charges. In addition, Kaiser, KACC and Buyer will jointly request that QAL make all computations as of the Effective Date on the basis that the Effective Date will be treated as if it were a financial year end date of QAL. Any costs charged by QAL in preparing the Closing Balance Sheet and computations referred to in this Clause 6.1(a) will be borne equally by Kaiser and Buyer. (b) Kaiser will prepare (or cause to be prepared) and deliver to Buyer: (i) a computation of the component referred to in paragraph (a) of the definition of Bauxite Inventory Charge for each BOL Grade comprising Page 26 the Kaiser Bauxite, determined in accordance with that paragraph and Clause 4.1 (in the form of Exhibit B), such computation to be set out in reasonable detail and to include particulars of the BOL Grades comprising the Kaiser Bauxite; (ii) a computation of the GST Amount, such computation to be set out in reasonable detail; (iii) all preliminary invoices and preliminary royalty invoices relating to Kaiser Bauxite which are delivered by CAL to Kaiser or KACC prior to the Effective Date and, where relevant, if the month in which the Effective Date occurs is not the last month in a calendar quarter, a preliminary royalty invoice in respect of the period since the end of the preceding calendar quarter until the end of the month in which the Effective Date occurs, which invoices will be used in the calculation referred to in Clause 6.1(c); and (iv) a calculation of the Kaiser Bauxite as of the Effective Date in the form of Exhibit B, which shall indicate, based upon the principles contained in Clause 4.1 and this Clause 6 and otherwise on a basis consistent with the calculation of the Preliminary Kaiser Bauxite Price set forth in Clause 5.1, the final purchase price for the Kaiser Bauxite (the FINAL KAISER BAUXITE PRICE). If the Final Kaiser Bauxite Price exceeds the Preliminary Kaiser Bauxite Price, Buyer will pay Kaiser an amount equal to the difference as part of the payment adjustment to be made under Clause 9. If the Preliminary Kaiser Bauxite Price exceeds the Final Kaiser Bauxite Price, Page 27 Kaiser will pay Buyer an amount equal to the difference as part of the payment adjustment to be made under Clause 9; (v) a calculation of the Kaiser Alumina as of the Effective Date in the form of Exhibit A, based on information contained in the "blue book" of QAL financial and operating information prepared by QAL management for the month ending on the Effective Date, which shall indicate, based upon the principles contained in this Clause 6, the final purchase price for the Kaiser Alumina (the FINAL KAISER ALUMINA PRICE). If the Final Kaiser Alumina Price exceeds the Preliminary Kaiser Alumina Price, Buyer will pay Kaiser an amount equal to the difference as part of the payment adjustment to be made under Clause 9. If the Preliminary Kaiser Alumina Price exceeds the Final Kaiser Alumina Price, Kaiser will pay Buyer an amount equal to the difference as part of the payment adjustment to be made under Clause 9; and (vi) a computation of the amount by which the QAL Net Working Capital Adjustment computed by QAL in accordance with Clause 6.1(a)(iv) exceeds or is less than the estimated amount thereof determined in accordance with Clause 5.1(e). If the amount of the QAL Net Working Capital Adjustment as so computed exceeds the estimated amount paid pursuant to Clause 5.1(e), Buyer shall pay an amount equal to the difference to Kaiser and KACC as part of the payment adjustment to be made under Clause 9. If the amount of the QAL Net Working Capital Adjustment as so computed is less than the estimated amount paid Page 28 pursuant to Clause 5.1(e), Kaiser and KACC shall pay an amount equal to the difference to Buyer as part of the adjustment to be made under Clause 9. (c) Buyer will prepare (or cause to be prepared) and deliver to Kaiser a computation of the amount due including GST (as defined for purposes of Clause 22) to Buyer from Kaiser as at the Effective Date for bauxite invoiced but not paid (the FINAL BAUXITE RECEIVABLES), such computation to be set out in reasonable detail. If the Final Bauxite Receivables exceeds the Estimated Bauxite Receivables, Kaiser will pay Buyer an amount equal to the difference as part of the payment adjustment to be made under Clause 9. If the Estimated Bauxite Receivables exceeds the Final Bauxite Receivables, Buyer will pay Kaiser an amount equal to the difference as part of the payment adjustment to be made under Clause 9. 6.2 The final purchase price for the Assets Sold and the GST Amount (the FINAL PURCHASE PRICE), will be computed in accordance with Clauses 3, 4, 5.1 and 22 based on the Closing Balance Sheet and on the computations and invoices delivered under Clause 6.1. For the avoidance of doubt, the Parties agree that there will be no purchase price adjustment due to implementation of changes in Australian accounting standards that may have occurred after December 31, 2003, including without limitation any such changes described in the Note appearing in Exhibit C. 6.3 If there is any dispute between the Parties as to the content or methodology of the Closing Balance Sheet or any computation delivered or to be made under this Clause 6, either Buyer or Kaiser may refer the matter to QAL's independent, external auditors. Any determination made by QAL's independent, external auditors will be conclusive and Page 29 binding on the Parties (in the absence of manifest error). The costs of any such determination will be borne equally by Kaiser and Buyer. 7. ASSUMED INTERESTS AND OBLIGATIONS 7.1 In connection with the sale of the Shares in QAL, with effect on and from the Effective Date, Kaiser and KACC hereby agree to assign to Buyer, and Buyer hereby agrees to accept and assume, all of the Assumed Interests and Obligations; it being understood that there are no cure amounts owed with respect to the agreements comprising the Assumed Interests and Obligations. To the extent that any cure amounts shall be determined to be due and owing pursuant to Section 365 of the Bankruptcy Code, Kaiser and KACC shall pay any such cure amounts. 7.2 Additionally, as of the Effective Date, Kaiser and KACC will cause KAII to assign to Buyer, and Buyer will assume all of KAII's obligations under the contracts listed on Exhibit D attached hereto (KAISER ALUMINA SALES CONTRACTS) subject to third party consents or acknowledgements in accordance with Clause 11.1(e); it being understood that there are no cure amounts owed with respect to the Kaiser Alumina Sales Contracts. To the extent that any cure amounts shall be determined to be due and owing pursuant to Section 365 of the Bankruptcy Code, Kaiser and KACC shall pay any such cure amounts. The Parties agree, however, that the rights assigned to Buyer under this Clause 7.2 shall not include the right to receive payment on trade receivables in respect of alumina inventory shipped prior to the Effective Date. In the event that Buyer receives payment in respect of any such trade receivables, it shall as soon as practicable remit such payment to KAII. Kaiser and KACC will cause KAII to ensure that no amendments are made to the Kaiser Alumina Sales Contracts without obtaining the prior written consent of Buyer; Page 30 provided, however that no provision of this Clause 7.2 shall prohibit either Kaiser or KACC from taking actions in the ordinary course of business with respect to any such agreement or document so long as the economic effect of such actions does not extend beyond the Effective Date. 7.3 It is agreed, for the avoidance of doubt, that no consideration is payable by Buyer to Kaiser in respect of any rights forming part of the Assumed Interests and Obligations or under Kaiser Alumina Sales Contracts agreed to be assigned to Buyer under this Agreement or assigned to Buyer under the Kaiser Assignment and Assumption Agreement and the KAII Assignment and Assumption Agreement, as applicable. 7.4 The assignments and assumptions described in this Clause 7 will be made: (a) in respect of Clause 7.1, under an assignment and assumption agreement in the form of Exhibit E (the KAISER ASSIGNMENT AND ASSUMPTION AGREEMENT) to be delivered on the Closing Date; and (b) in respect of Clause 7.2, under an assignment and assumption agreement in the form of Exhibit F (the KAII ASSIGNMENT AND ASSUMPTION AGREEMENT) to be delivered on the Closing Date. 7.5 Kaiser and KACC agree with the Buyer that between the date of execution of this Agreement and the Effective Date: (a) neither of them will, and they will procure that KAII does not, enter into any new contracts for the sale of Kaiser Alumina in addition to those listed in Exhibit D; and Page 31 (b) neither of them will agree to any amendments being made to, or to any of the underlying documents which evidence, the Assumed Interests and Obligations without the prior written approval of the Buyer; if the economic effect of any such new contracts or amendments would extend beyond the Effective Date. 8. CLOSING 8.1 The closing (the CLOSING) of the sale of the Assets Sold and the assumption of the Assumed Interests and Obligations will occur on the Effective Date if the Effective Date is a Business Day, or on the Business Day immediately following the Effective Date if the Effective Date is not a Business Day, at 11:00 am at the offices of Sullivan & Cromwell LLC, 125 Broad Street, New York, New York, unless Buyer and Kaiser agree otherwise. The actual date on which the Closing is to occur is referred to as the CLOSING DATE. 8.2 (a) Each of Kaiser and KACC (and Buyer, if it is a Participant or an affiliate of a Participant) will in the period between the date of signing this Agreement and the Closing Date use its commercially reasonable efforts to ensure that QAL conducts its business in the ordinary course of business consistent with past practices. (b) Each of KACC and Kaiser will ensure that deliveries of alumina by QAL to Kaiser under Article 17 of the Participants Agreement are made so as to ensure that on the Effective Date there is a positive quantity of Kaiser Alumina. Page 32 8.3 On the Closing Date: (a) Kaiser will deliver to Buyer: (i) a share certificate in respect of the Kaiser Shares in QAL; (ii) an instrument of transfer of the Kaiser Shares in QAL in registrable form duly executed by Kaiser and dated as of the Effective Date; and (iii) Tax Invoices as defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (TAX INVOICE) in respect of the taxable supplies made by Kaiser under this Agreement. (b) KACC will deliver to Buyer: (i) a share certificate for the KACC Share in QAL; (ii) an instrument of transfer of the KACC Share in QAL in registrable form duly executed by KACC and dated as of the Effective Date; and (iii) the Confidentiality Agreements referred to in Clause 12.13. (c) Buyer will deliver to Kaiser a Tax Invoice in respect of Buyer's assumption of the Gladstone Credit Allowances, if applicable. (d) The Parties will deliver the Kaiser Assignment and Assumption Agreement, as specified in Clause 7.4(a). (e) Buyer and KACC or its designee will deliver the Alumina Supply Agreement (the ALUMINA SUPPLY AGREEMENT), in the form of Exhibit G; (f) Buyer will deliver and KACC will procure KAII to deliver, the KAII Assignment and Assumption Agreement as specified in Clause 7.4(b). Page 33 (g) Buyer will procure Buyer's Parent to deliver the Parent Guarantee. (h) Kaiser and KACC will, by memorandum referred to in Article 40(a) of the Constitution of QAL, remove from office each director of QAL which they have appointed pursuant to such Article 40(a). (i) KACC will deliver the assignment of all of KACC's rights and the delegation of all of KACC's obligations under each of the Confidentiality Agreements to Buyer. (j) the Parties shall deliver, in form and substance reasonable satisfactory to Buyer: (i) the assignments to, and assumption by Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC, respectively, under the QAL Financing Agreements (other than obligations to be paid or performed prior to the Effective Date); and (ii) the assignments to, and assumption by Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC under the documents and other agreements listed on Exhibit L, and the documents and other agreements identified in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations and, in the case of KAII, the Kaiser Alumina Sales Contracts. (k) Upon the taking of the actions referred to in Clauses 8.3(a) to (j): (i) Buyer will deliver to Kaiser the Estimated Purchase Price (with interest as applicable) in US Dollars by wire transfer of immediately available funds Page 34 to the account(s) notified to Buyer by Kaiser no later than three Business Days prior to the Closing Date; and (ii) KACC and Buyer will instruct the Deposit Escrow Agent to release the Deposit in accordance with Section 1.2 of the Deposit Escrow Agreement. 8.4 All the actions taken as required by Clause 8.3 will be deemed to be taken simultaneously on the Closing Date, and no one such action will be deemed to be completed until all such actions are completed. No such action will have effect, and the Closing will be deemed not to have occurred, until Kaiser has received verification of receipt of the amounts mentioned in Clauses 8.3(k). On receipt of such verification, Kaiser will immediately notify Buyer and will instruct the Document Escrow Agent to release the documents held by it in escrow. 8.5 The documents mentioned in Clause 8.3 will, after delivery under Clause 8.3, be held in escrow by the Document Escrow Agent, until released as contemplated by Clause 8.4 and provided for in the Document Escrow Agreement. 8.6 Once the Closing has occurred as contemplated by Clause 8.4, it will be deemed to have occurred as of the Effective Date. 8.7 At Buyer's request, Kaiser and KACC will do all other acts and things reasonably within their power to have Buyer registered as the holder of the Shares in QAL on the Closing Date. As between Kaiser, KACC and Buyer, ownership of the Shares in QAL will, if the Closing occurs, be transferred to Buyer with effect as of the Effective Date notwithstanding that the legal transfer of the Shares in QAL may be registered by QAL at a later date. Page 35 8.8 Following entry of the Sale Approval Order, the Parties will as promptly as practicable, and will use their respective commercially reasonable efforts to cause QAL to, do all other acts and things necessary or advisable such that, as of the Effective Date, all third party consents in respect of the agreements and other documents identified in Exhibit L and the agreements and other documents identified in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations shall have been obtained. 9. POST CLOSING (a) The Final Purchase Price for the Assets Sold including the final GST Amount, will be computed as provided in Clause 6.2 and any payment adjustment necessary to reflect the aggregate net differences between: (i) the Base Share Price and the QAL Purchase Price (which includes the QAL Net Working Capital Adjustment and the Assumed Debt Adjustment); (ii) the Preliminary Kaiser Bauxite Price and the Final Kaiser Bauxite Price, as provided in Clause 6.1(b); (iii) the Preliminary Kaiser Alumina Price and the Final Kaiser Alumina Price; and (iv) the Estimated Bauxite Receivables and the Final Bauxite Receivables; will, subject to Clause 9(b), be made by Kaiser or Buyer, as applicable, following written demand therefor sent no earlier than the date 30 days after the Effective Date, or, if that is not a Business Day, on the next Business Day (the ADJUSTMENT DATE). If the final GST Amount determined in accordance with Clause 6.1(b)(ii) Page 36 differs from the amount paid under Clause 5.1(d), then the Parties will issue GST adjustment notes as may be necessary to enable them to satisfy their respective GST obligations on the Adjustment Date. (b) In the event of a dispute being referred to QAL's independent, external auditors as provided in Clause 6.3, any necessary payment adjustment with respect to the amount disputed will be made on the date seven days after the final determination of such dispute by QAL's independent, external auditors, or if that is not a Business Day, on the next Business Day. (c) For the purposes of determining differences under paragraph (a) any amount computed or expressed in Australian Dollars will be converted to its US Dollar Equivalent on the date which is two Business Days prior to the Adjustment Date. (d) As between Buyer and Kaiser, Buyer will be responsible for paying any Bauxite Shipping Charges referred to in Exhibit B. (e) [INTENTIONALLY OMITTED] (f) If the Final Purchase Price including the final GST Amount determined in accordance with Clause 9(a) exceeds the Estimated Purchase Price, Buyer shall pay the undisputed amount of such difference by wire transfer in immediately available funds to an account designated by Kaiser no later than 10 Business Days after Kaiser's written demand for such payment. If the Final Purchase Price including the final GST Amount is less than the Estimated Purchase Price, Kaiser shall pay the undisputed amount of such difference to Buyer by wire transfer in immediately available funds no later than 10 Business Days after Buyer's written Page 37 demand for such payment. Neither Kaiser nor Buyer may make a demand for payment of such difference, written or otherwise, prior to the expiration of the time period referenced in Clause 9(a). Payment of any disputed amounts related to the determination of the Final Purchase Price including the final GST Amount shall be governed by the provisions of Clause 9(b). 10. FOREIGN ACQUISITIONS AND TAKEOVERS ACT 10.1 Except for this Clause 10 and the other Clauses referred to in Clause 10.3, the provisions of this Agreement will not be binding unless and until either: (a) the Treasurer of the Commonwealth of Australia (the TREASURER) has not made an order under Part II of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the ACT) (other than an interim order under Section 22 of the Act which has expired) within the time limit specified in Section 26 of the Act; or (b) a notice in writing is issued by or on behalf of the Treasurer (without any term or condition which Buyer considers unacceptable) stating or to the effect that the Australian Government does not object to Buyer entering into this Agreement or acquiring an interest in the Shares in QAL, (whichever first occurs) in respect of a notice given by Buyer under that Act in relation to this Agreement. 10.2 Buyer will give the notice by it under the Act in relation to this Agreement mentioned in Clause 10.1 within 10 Business Days after the date of execution of this Agreement. 10.3 Except for this Clause 10, and Clauses 1, 17, 18.3, 19, 20, 21, 22, 23, 24, 25, 27, 28 and 29, the provisions of this Agreement will be null and void and of no further effect if this Agreement does not become binding under this Clause. Page 38 11. OTHER CONDITIONS PRECEDENT 11.1 The obligations of the Parties to consummate the transactions contemplated by this Agreement will be subject to the fulfillment on or prior to the Closing Date of the following conditions precedent (except to the extent they are waived by both Buyer and Kaiser and KACC): (a) the obtaining of: (i) written advice from the Australian Competition and Consumer Commission that it does not propose to intervene in the transfer of the Shares in QAL; (ii) approvals, consents or authorisations from Governmental Entities under applicable competition legislation (such as the US Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended), or other applicable laws or regulations that may limit or restrict the ability of the Parties to consummate the transactions contemplated by this Agreement, if any; and (iii) any approvals, consents or authorisations of Governmental Entities for the transactions contemplated by this Agreement made necessary by a change in applicable law after the date of the Agreement, except where the failure to obtain any such authorisation would not be reasonably likely to have, individually or in the aggregate, a material adverse effect on the ability of the Parties to consummate the transactions contemplated by this Agreement or on the value of the Shares in QAL or the interests and rights included in the Assumed Interests and Obligations, the Alumina Supply Agreement or in the Kaiser Alumina Sales Contracts, taken as a whole; Page 39 (b) the Sale Approval Order shall have been entered and not stayed; (c) there shall be no order, writ, injunction or decree of any Governmental Entity on any of the Parties prohibiting, and there shall be no actions, suits or proceedings pending in, before or by any Governmental Entity (other than an action, suit or proceeding which Buyer determines, in good faith and after consultation with external counsel, is without merit), seeking to prohibit, or challenging the validity of, the transactions contemplated by this Agreement; (d) consents to the transactions contemplated by this Agreement necessary under the DIP Facility (the LENDER CONSENT) shall have been obtained; (e) consents or acknowledgements from the other parties thereto that are necessary, if any, under the Kaiser Alumina Sales Contracts shall have been obtained; and (f) the Participants Consent shall have been received. 11.2 Buyer's obligations to consummate the transactions contemplated by this Agreement will (unless waived by Buyer) be conditional upon the following: (a) the representations and warranties of Kaiser and KACC in Clause 13 being true and correct in all material respects on the date of this Agreement and on and as of the Effective Date with the same force and effect as if made on and as of that date, except for: (i) changes contemplated by this Agreement; (ii) those representations and warranties which address matters only as of a particular date (which shall be true and correct as of such date); or Page 40 (iii) to the extent that failure of a representation and warranty (which was not actually known by Kaiser or KACC to be incorrect on the date of execution of this Agreement) to be so true and correct as of the Effective Date would not be reasonably likely to have, individually or in the aggregate, a material adverse effect on the ability of Kaiser and KACC to consummate the transactions contemplated by this Agreement or on (x) the value of the Shares in QAL, (y) the interests and rights included in the Assumed Interests and Obligations, taken as a whole, or (z) the Kaiser Alumina Sales Contracts, taken as a whole, and each of Kaiser and KACC having delivered to Buyer a certificate to that effect, dated as of the Effective Date, signed by a principal financial or accounting officer of Kaiser and KACC in form and substance reasonably satisfactory to Buyer; (b) each of Kaiser and KACC having performed or complied with all provisions of this Agreement to be performed or complied with by it on or prior to the Closing Date except where the failure to so have performed or complied would not be reasonably likely to have, individually or in the aggregate, a material adverse effect on (w) the ability of Kaiser or KACC to consummate the transactions contemplated in this Agreement, (x) the value of the Shares in QAL, (y) the interests and rights included in the Assumed Interests and Obligations, taken as a whole, or (z) the interests and rights under the Kaiser Alumina Sales Contracts, taken as a whole; Page 41 (c) since the date hereof, there not having occurred any material adverse change in the business of QAL (including its assets) except for any changes: (i) resulting from changes in general economic or market conditions or changes that generally affect: (A) the production of and market for alumina and/or aluminium generally; or (B) businesses of the same type as the business conducted by QAL; or (ii) in the general level of expenditures required, necessary or desirable to be made in the operation of the business of QAL as it is currently being carried on; (d) the directors of QAL having duly resolved (subject only to production of the documents referred to in Clause 8.3(a)(i) and (ii) and 8.3(b)(i) and (ii), the payment of stamp duty on the documents referred to in Clauses 8.3(a)(ii) and 8.3(b)(ii) and the occurrence of the Closing) to register the transfer of the Shares in QAL, to cancel the existing share certificates for the Shares in QAL, and to issue a new share certificate for the Shares in QAL in the name of Buyer; (e) no administrator having been appointed for QAL, no step preliminary to the appointment of an administrator having been taken, no application or order having been made or proceedings commenced or resolution having passed or proposed in a notice of meeting or application having been made to the court for the winding up, deregistration or dissolution of QAL, nor shall QAL have entered into any arrangement, compromise or composition with or assignment for the benefit of its Page 42 creditors and QAL shall not be insolvent within the meaning of Section 95A of the Corporations Act 2001 of Australia; and (f) receipt (in form and substance reasonably satisfactory to Buyer) of: (i) all consents required from the General Trustee and/or the Special Trustee (as defined in the Twenty Second Supplemental Trust Deed) for the delivery of the Kaiser Assignment and Assumption Agreement; (ii) consents to the assignment to, and assumption by the Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC, respectively, under the QAL Financing Agreements (other than obligations to be paid or performed prior to the Effective Date); and (iii) such other consents as Buyer deems reasonably necessary for the assignment to, and assumption by the Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC under the documents and other agreements listed on Exhibit L, and the documents and other agreements identified in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations and, in the case of KAII, the Kaiser Alumina Sales Contracts. 11.3 Kaiser's and KACC's obligations to consummate the transactions contemplated by this Agreement will (unless waived by Kaiser) be conditional upon the following: (a) the representations and warranties of Buyer contained in Clause 14 being true and correct in all material respects on the date of this Agreement, and on and as of the Effective Date as if made on and as of that date, except for: Page 43 (i) changes contemplated by this Agreement; (ii) those representations and warranties which address matters only as of a particular date (which shall be true and correct as of such date); or (iii) to the extent that failure of a representation and warranty (which was not actually known by Buyer to be incorrect on the date of execution of this Agreement) to be so true and correct as of the Effective Date would not be reasonably likely to have, individually or in the aggregate, a material adverse effect on the ability of Buyer to consummate the transactions contemplated by this Agreement, or on the value of the consideration to be received by Kaiser and KACC under this Agreement, and Buyer having delivered to Kaiser a certificate to that effect, dated as of the Effective Date, signed by a principal financial or accounting officer of Buyer in form and substance reasonably satisfactory to KACC; (b) Buyer having performed or complied with all provisions of this Agreement to be performed or complied with by it on or prior to the Closing Date except where the failure to so have performed or complied would not be reasonably likely to have, individually or in the aggregate, a material adverse effect on the ability of Buyer to consummate the transactions contemplated in this Agreement, or on the value of the consideration to be received by Kaiser and KACC under this Agreement; and Page 44 (c) Buyer shall have paid to Kaiser, via wire transfer of immediately available funds, an amount equal to the Estimated Purchase Price, and Kaiser shall have received the Deposit from the Deposit Escrow Agent; and (d) receipt of: (i) all consents required from the General Trustee and/or the Special Trustee (as defined in the Twenty Second Supplemental Trust Deed) for the delivery of the Kaiser Assignment and Assumption Agreement; (ii) consents, in form and substance reasonably satisfactory to Kaiser and KACC, to the assignment to, and assumption by the Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC, respectively, under the QAL Financing Agreements (other than obligations to be paid or performed prior to the Effective Date); and (iii) such other consents as Kaiser, KACC and KAII deem reasonably necessary for the assignment to, and assumption by the Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC under the documents and other agreements listed on Exhibit L, and the documents and other agreements identified in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations and, in the case of KAII, the Kaiser Alumina Sales Contracts. 12. FURTHER ASSURANCES AND OTHER MATTERS RELATING TO CONDITIONS PRECEDENT 12.1 Each of the Parties will use its commercially reasonable efforts to procure the satisfaction of all conditions precedent applicable to such Party, and will use its commercially Page 45 reasonable efforts to assist the other Parties in procuring the satisfaction of all conditions precedent applicable to such other Parties. 12.2 Each Party will use its commercially reasonable efforts to obtain, as promptly as practicable, all approvals, consents and authorisations of all Governmental Entities that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement (including those referred to in Clauses 10.1 and 11.1(a)) including responding to any inquiries, requests for additional information or other communications received from any Governmental Entity in connection with any such approvals, consents and authorisations. 12.3 Notwithstanding that a Party is not a Party which is obliged to use its commercially reasonable efforts to obtain an approval, consent or authorisation referred to in Clause 12.2, it will, to the extent reasonably requested, cooperate with the Parties which are so obliged with a view to obtaining such approval, consent or authorisation. 12.4 If prior to Closing any actions, suits or proceedings commenced against any Party (DEFENDING PARTY) or any other party, in any court, before or by any Governmental Entity, or before any arbitrator, seek to prohibit, or challenging the validity of, any of the transactions contemplated by this Agreement (PROCEEDINGS): (a) the Defending Party will diligently and in good faith defend the Proceedings against it and the Parties will co-operate in the defense of the Proceedings; (b) if the Proceedings are against a party other than a Party, the Parties will cooperate with a view to the Proceedings being properly defended; and Page 46 (c) all reasonable legal costs and expenses incurred by any Party (after consultation with the other Parties) in performing its obligations under paragraph (a) or (b) will be borne equally between the Parties, except that KACC and Kaiser shall bear all of their own costs and expenses and any costs and expenses of KAII related to obtaining the entry of the Sale Process and Approval Motion, the Sale Approval Motion and the Sale Approval Order. 12.5 Each Party will take all necessary action to cause the conditions precedent referred to in Clauses 11.1, 11.2 and 11.3 to be satisfied as promptly as practicable, but in any event such that the Effective Date occurs no later than February 1, 2005. 12.6 Buyer will apply to the Australian Competition and Consumer Commission for the written advice referred to in Clause 11.1(a)(i) within 10 Business Days after the date of execution of this Agreement. 12.7 Promptly after execution of this Agreement, KACC and Kaiser shall file a motion with the Bankruptcy Court (the SALE PROCESS AND APPROVAL MOTION) (which shall be if necessary an expedited or emergency motion) seeking, among other things, (i) approval of the Bidding and Auction Procedures, (ii) authorizing the sale of the Assets Sold and the other transactions contemplated by this Agreement to the Successful Bidder or Backup Bidder in the event of an Auction or to Buyer without conducting an Auction if no Qualified Bid is received and (iii) scheduling a hearing on the approval of the Sale Approval Order. The terms and conditions of the Sale Process and Approval Motion shall be reasonably satisfactory to Kaiser, KACC and Buyer. 12.8 Promptly after the filing of the Sale Process and Approval Motion, KACC and Kaiser shall use their commercially reasonable efforts to obtain a hearing (the BANKRUPTCY COURT Page 47 HEARING) thereon at the earliest permissible date on which the Bankruptcy Court will hear the matter but in any event no later than September 27, 2004. Upon obtaining a hearing date, KACC and Kaiser shall give notice of the Sale Process and Approval Motion and the Bankruptcy Court Hearing as and when required by applicable provisions of the Bankruptcy Laws and orders of the Bankruptcy Court. KACC and Kaiser shall promptly deliver to Buyer a copy of that notice and shall provide Buyer with copies of any and all objections or other Bankruptcy Pleadings relating to the Sale Process and Approval Motion promptly after KACC and Kaiser's receipt thereof. KACC and Kaiser shall use their commercially reasonable efforts to obtain the prompt entry of an order of the Bankruptcy Court approving the Bidding and Auction Procedures (the BIDDING AND AUCTION PROCEDURES ORDER) in form and substance reasonably acceptable to Kaiser, KACC and Buyer. Buyer shall use commercially reasonable efforts to assist KACC and Kaiser with responding to, and providing evidence with respect to, objections or challenges to the transactions contemplated by this Agreement. 12.9 Upon completion of the Auction, if Buyer is not the Successful Bidder or the Backup Bidder, Buyer hereby consents and agrees that (i) this Agreement may be terminated by Kaiser and KACC at any time thereafter as provided in Clause 18.1(b)(v) and (ii) the Auction Transaction may be consummated by Kaiser and KACC with the Successful Bidder or the Backup Bidder on the terms agreed pursuant to the Bidding and Auction Procedures, subject only to payment of the Breakup Fee as provided in Clause 18.3 and the Bidding and Auction Procedures Order; provided, however, that if Buyer is a party to the Participants Agreement, nothing in this Clause 12.9 or otherwise in this Agreement shall constitute or be deemed to constitute a waiver of the Buyer's consent rights under Page 48 Article 30(D) of the Participants Agreement or any rights pursuant to Section 365 of the Bankruptcy Code, including the right to demand adequate assurance of future performance from other parties to any assigned contract to which Buyer is a party. 12.10 If Buyer is the Successful Bidder, or if Kaiser and KACC do not receive any competing bids that conform to the Bidding and Auction Procedures, Kaiser and KACC will promptly seek the entry of an order of the Bankruptcy Court, the terms and conditions of which shall be reasonably satisfactory to Kaiser, KACC and Buyer (the SALE APPROVAL ORDER), which shall provide, among other things, that (i) the transfers of the Assets Sold by Kaiser and KACC to Buyer pursuant to this Agreement (A) are legal, valid and effective transfers of the Assets Sold, (B) vest or will vest Buyer with all right, title and interest of Kaiser and KACC in and to the Assets Sold and to the other transactions contemplated by this Agreement free and clear of any claims (as that term is defined in Section 101(5) of the Bankruptcy Code), interests, obligations, rights, mortgages, pledges, security interests, liens, charges, judgments, demands and other encumbrances (including any right of setoff, recoupment, netting or deduction accrued up to the Closing Date), whether absolute or contingent, matured or not mature, in law or in equity pursuant to Section 363(f) of the Bankruptcy Code, except as specifically provided or contemplated herein, and (C) constitute transfer for reasonably equivalent value and fair consideration under the Bankruptcy Code; (ii) the transactions contemplated in this Agreement are undertaken by Buyer and Kaiser and KACC at arm's length, without collusion, and in good faith in accordance with the provisions of Sections 363 and 365, including Section 363(m) of the Bankruptcy Code; (iii) Kaiser and KACC have complied with the notice requirements of Rules 2002, 6004, 5005 and 9014 of the Federal Rules of Page 49 Bankruptcy Procedure and any applicable rules of the Bankruptcy Court with respect to the transactions contemplated by this Agreement; and (iv) Kaiser and KACC have satisfied all the requirements of, and are authorized, pursuant to Section 363(b) and 365 of the Bankruptcy Code, to enter into this Agreement and consummate the transactions contemplated herein. 12.11 If in accordance with the Bidding Procedures, Buyer is determined to be the Successful Bidder, Kaiser and KACC shall (A) actively support, not oppose, and not object to, and use their commercially reasonable efforts to seek and obtain the approval of the Sale Approval Order and (B) cooperate with Buyer and its representatives in connection with seeking entry of the Sale Approval Order. Buyer shall use commercially reasonable efforts to assist Kaiser and KACC with responding to, and providing evidence with respect to, objections or challenges to the transactions contemplated by this Agreement. 12.12 Buyer, on the one hand, and KACC and Kaiser, on the other hand, shall, in respect of QAL, Kaiser's and KACC's ownership interest therein or the transactions contemplated by the Agreement: (a) provide each other with any assistance that may reasonably be requested by any of them in connection with the preparation of any Tax Return, audit or other examination by any taxing authority or judicial or administrative proceedings relating to liability for Taxes in respect of QAL, the respective ownership interests of the Parties therein and the transactions contemplated by this Agreement, (b) each retain and provide the others with any records or other information that may be relevant to that Tax Return, audit, examination or proceeding, and Page 50 (c) provide each other with any final determination of any such audit, examination or proceeding that affects any amount required to be shown on any Tax Return of the other for any period. Without limiting the generality of the foregoing, Buyer, on the one hand, and KACC and Kaiser, on the other hand, shall retain, until the applicable statutes of limitations (including any extensions) have expired, copies of all records or information that may be relevant to Tax Returns filed by any other Party for all Tax periods or portions thereof ending before or including the Closing Date. 12.13 KACC has previously entered into certain confidentiality agreements with Persons (including Buyer) that expressed interest in consummating the Transaction (collectively, the CONFIDENTIALITY AGREEMENTS). Copies of all such Confidentiality Agreements, redacted in order not to disclose the names of the other parties thereto, have been provided to Buyer. Between the date of this Agreement and the Closing Date, KACC shall not enter into any additional such Confidentiality Agreements except pursuant to the Bidding and Auction Procedures. Any additional Confidentiality Agreements must be substantially in the form of the existing Confidentiality Agreements. Upon the occurrence of the Closing, KACC shall assign to Buyer all of its rights and delegate all of its obligations under each of such Confidentiality Agreements, and Buyer shall accept such assignment of rights and shall assume and perform all of such obligations of KACC under each of such Confidentiality Agreements. 13. REPRESENTATIONS AND WARRANTIES BY KAISER AND KACC 13.1 Kaiser and KACC each represents and warrants to the Buyer as follows: Page 51 (a) each of Kaiser and KACC has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, except where the failure to be in good standing will not adversely affect the ability of Kaiser and KACC to perform all of their respective obligations hereunder, and, following receipt of all necessary approvals of the Bankruptcy Court, will have duly authorized, executed and delivered this Agreement and will have all necessary power and authority to perform all of its obligations hereunder; (b) Subject to receipt of consents under the DIP Facility, Kaiser is the legal and beneficial owner, free from Liens, of the Kaiser Shares in QAL (except as otherwise provided in the Consortium Documents), Kaiser will be the legal and beneficial owner, free from Liens, of the Kaiser Shares in QAL, the Kaiser Bauxite and the Kaiser Alumina on the Effective Date (except as otherwise provided in the Consortium Documents), Kaiser will, if the Closing occurs, transfer to Buyer legal and beneficial ownership of the Kaiser Shares in QAL, the Kaiser Bauxite and the Kaiser Alumina, and there are no outstanding options, warrants or other rights to subscribe for or acquire from Kaiser the Kaiser Shares in QAL, the Kaiser Bauxite and the Kaiser Alumina (except as otherwise provided in the Consortium Documents); (c) Subject to receipt of consents under the DIP Facility, KACC is the legal owner and Kaiser is the beneficial owner, free from Liens, of the KACC Share in QAL (except as otherwise provided in the Consortium Documents), KACC will be the legal owner and Kaiser will be the beneficial owner, free from Liens, of the KACC Share in QAL on the Effective Date (except as otherwise provided in the Page 52 Consortium Documents), KACC and Kaiser will, if the Closing occurs, transfer to Buyer legal and beneficial ownership of the KACC Share in QAL, and there are no outstanding options, warrants or other rights to subscribe for or acquire from KACC or Kaiser the KACC Share in QAL (except as otherwise provided in the Consortium Documents); (d) Kaiser and KACC are the beneficial owners, free from Liens (except as otherwise provided in the Consortium Documents), of their respective interests in the agreements and other documents identified on Exhibit L and in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations and Kaiser and KACC will, if the Closing occurs, transfer to Buyer good title to the extent of the Assumed Interests and Obligations; (e) neither the execution, delivery or performance of this Agreement by Kaiser or KACC or the agreements referred to in Clauses 8.3(d), (e) and (f) by Kaiser, KACC or KAII, nor the consummation by Kaiser, KACC or KAII of the transactions contemplated hereby or thereby, will (i) assuming all necessary approvals, consents or authorisations from Governmental Entities referred to in Clauses 11.1(a) and 11.1(b) are obtained, conflict with, violate or result in a breach of any material judgment, decree, award or order of any court, other competent tribunal or arbitrator applicable to Kaiser, KACC or KAII; or (ii) conflict with, or result in a breach of, any provision of the charter or by-laws of Kaiser or KACC or of any material agreement, contract or commitment to which Kaiser, KACC or KAII is a party or by which it is Page 53 bound, or constitute a default thereunder (assuming the receipt of the Lender Consent), which conflict, breach or default would impair its ability to comply with the material terms and conditions of this Agreement or the agreements referred to in Clauses 8.3(d), (e) and (f) or to consummate the transactions contemplated hereby or thereby; (f) there are no actions, suits, proceedings or governmental investigations pending or, to the Knowledge of either Kaiser or KACC, threatened against or affecting Kaiser, KACC or KAII which might reasonably be expected to impair materially their respective ability to comply with the terms and conditions of this Agreement or the agreements referred to in Clauses 8.3(d), (e) or (f) or to consummate the transactions contemplated hereby or thereby. (g) Kaiser has: (i) a Project Percentage of 20.0%; (ii) an Initial Plant Call Capacity Percentage of 31.1198%; (iii) a First Expanded Plant Call Capacity Percentage of 12.2593%; (iv) a Second Expanded Plant Call Capacity Percentage of 15.0884%; (v) a Third Expanded Plant Call Capacity Percentage of 16.5408%; and (vi) a Fourth Expanded Plant Call Capacity Percentage of 20.0%; (h) Exhibit H sets out information supplied by QAL to Kaiser as to the written down tax values of QAL's assets as of December 31, 2003 (in relation to the Assumed Interests and Obligations) in respect of each Plant in accordance with Appendix B Page 54 of the Participants Agreement, and to the Knowledge of Kaiser, Exhibit H is accurate in all material respects; (i) neither Kaiser nor KACC is in material default in the performance of any of its material obligations under the agreements and other documents identified on Exhibit L and in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations, including its obligations to make or guarantee advances to QAL on open book account or pay Gladstone Credit Allowances; (j) Except as disclosed in Schedule 13.1(j), KAII is not in breach of, or in default under, any of the Kaiser Alumina Sales Contracts, and, to the Knowledge of KACC and Kaiser, no other party to a Kaiser Alumina Sales Contract is in breach thereof or default thereunder, except where any such breaches or defaults would not have, individually or in the aggregate, a material adverse effect on the benefits to be realized by KAII, or the obligations of KAII under, the Kaiser Alumina Sales Contracts. (k) Kaiser has no Working Capital Loans or Improvement Notes; (l) since January 1, 2003, Kaiser has not elected to use the delivery method referred to in Article 13(C)(ii) of the Participants Agreement; (m) there is no current reduction by Kaiser of the rate at which QAL is to toll bauxite into alumina for it under Article 14(A) of the Participants Agreement, and Kaiser has not currently elected to take Available Option Tonnage under Article 14(C) of the Participants Agreement; Page 55 (n) Kaiser has not incurred any Standby Tonnage which may currently be recalled under Article 16(A) of the Participants Agreement; (o) Kaiser has not requested any Alumina Delivery Special Facilities under Article 17(L) of the Participants Agreement in respect of which Alumina Delivery Charges are currently payable; (p) Kaiser has given no notice under Article 21 of the Participants Agreement; (q) Kaiser has given no notice under Article 34(A) of the Participants Agreement; (r) Kaiser is not a Defaulting Participant and, except as set forth on Schedule 13.1(r), it has not received any Special Notice from QAL under Article 35 of the Participants Agreement; and (s) there is no current dispute between QAL and Kaiser or KACC under or in respect of the Gladstone Agreements. 13.2 With respect to QAL, each of Kaiser and KACC represents and warrants to Buyer, to its Knowledge, as follows: (a) as of the date of this Agreement, the authorized capital stock of QAL consists of (i) 442,400 Class A ordinary shares (CLASS A ORDINARY SHARES), (ii) 473,122 Class B ordinary shares (CLASS B ORDINARY SHARES), (iii) 442,400 Class C ordinary shares (CLASS C ORDINARY SHARES), and (iv) 854,078 Class D Ordinary Shares (CLASS D ORDINARY SHARES and, together with the Class A Ordinary Shares, Class B Ordinary Shares and Class C Ordinary Shares, the ORDINARY SHARES); (b) all of the Ordinary Shares have been issued and are outstanding and fully paid; Page 56 (c) there are no outstanding subscriptions, options, rights, warrants, convertible securities or other agreements or commitments obligating QAL to issue any additional shares of capital stock of any class or any other securities of any kind; (d) QAL does not own, directly or indirectly, any capital stock or equity securities or have any direct or indirect equity ownership interest in any Person; (e) attached as Schedule 13.2(e) are the Audited Financial Statements of QAL. The Audited Financial Statements (x) have been prepared in accordance with the books and records of QAL, (y) are presented in accordance with the Corporations Act 2001 in Australia, Accounting Standards and other mandatory financial reporting requirements in Australia, and the Corporations Regulations 2001, and (z) give a true and fair view, as required by the Corporations Act 2001, of the financial position of QAL as at December 31, 2003, and of its performance for the year ended on that date; (f) since the Balance Sheet Date, except as listed or described on Schedule 13.2(f), (i) QAL has not conducted its business in a manner outside the ordinary course of business in any material respect, and (ii) no event has occurred that would reasonably be expected to have a material adverse effect on the business, assets or condition (financial or otherwise) of QAL; (g) except as listed or described on Schedule 13.2(g), QAL's conduct of its business is in compliance with all applicable legislation, except where noncompliance would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business of QAL (including its assets); Page 57 (h) except as listed or described on Schedule 13.2(h), there are no civil, criminal or administrative actions or suits pending or threatened against QAL, arising out of or relating to the conduct of QAL's business or otherwise pertaining to or affecting the Assets Sold that would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business of QAL (including its assets), if decided adversely. 13.3 In addition to the express limitations on certain of the representations and warranties of Kaiser and KACC herein as being to their Knowledge, all of Kaiser and KACC's representations and warranties in this Agreement are limited and qualified, and the ability of Buyer to bring any claim under this Agreement whether under Clause 15.1 or otherwise, are prohibited by matters which were disclosed to Buyer or came to the Knowledge of Buyer prior to the execution of this Agreement as a result of Buyer's investigation of the Assets Sold, the Assigned Interests and Obligations or the Kaiser Alumina Sales Contracts. 13.4 Without affecting Clause 15.1, no claim may be made by Buyer in respect of any representation or warranty by Kaiser or KACC contained in this Agreement, or the certificate required by Clause 11.2(a), after the date twelve (12) months after the Effective Date. 14. REPRESENTATIONS AND WARRANTIES BY BUYER 14.1 Buyer represents and warrants to and agrees with Kaiser and KACC as follows: (a) Buyer has been duly incorporated and is validly existing as a corporation under the laws of Queensland and has duly authorized, executed and delivered this Page 58 Agreement and has all necessary power and authority to perform all of its obligations hereunder. (b) neither the execution, delivery or performance of this Agreement or the agreements referred to in Clauses 8.3(d), (e) and (f) by Buyer, nor the consummation by Buyer of the transactions contemplated hereby or thereby, will (i) assuming all necessary approvals, consents or governmental authorisations from Governmental Entities referred to in Clause 10.1 and Clause 11.1(a) are obtained, conflict with, violate or result in a breach of any judgment, decree, award or order of any court, other competent tribunal or arbitrator applicable to Buyer; or (ii) conflict with, or result in a breach of, any of the terms, conditions or provisions of the organizational documents of Buyer, or of any agreement, contract or commitment to which Buyer is a party or by which it is bound, or constitute a default thereunder, which conflict, breach or default would materially impair its ability to comply with the material terms and conditions of this Agreement or the agreements referred to in Clause 8.3(d), (e) and (f) or to consummate the transactions contemplated hereby or thereby; (c) there are no actions, suits, proceedings or governmental investigations pending or, to the Knowledge of Buyer, threatened against or affecting Buyer which might reasonably be expected to impair materially its ability to comply with the terms and conditions of this Agreement or the agreements referred to in Clauses 8.3(d), (e) and (f) or to consummate the transactions contemplated hereby or thereby; and Page 59 (d) to the best Knowledge of Buyer, no administrator has been appointed to Buyer, no step preliminary to the appointment of an administrator has been taken, no application or order has been made or proceedings commenced or resolution been passed or proposed in a notice of meeting or application been made to the court for the winding up, deregistration or dissolution of Buyer, nor has Buyer entered into any arrangement, compromise or composition with or assignment for the benefit of its creditors and Buyer is not insolvent within the meaning of Section 95A of the Corporations Act 2001 of Australia. 14.2 Buyer acknowledges that: (a) Buyer or its representatives have been furnished with all information regarding Kaiser, KACC, QAL, QAL's business, the Assets Sold, the Assumed Interests and Obligations and the Kaiser Alumina Sales Contracts that Buyer has requested; (b) Buyer has had an opportunity to make any inspections of QAL's facilities that Buyer has desired and to ask questions of and receive answers from Kaiser, KACC and their respective representatives regarding Kaiser, KACC, QAL, QAL's business, the Assets Sold, the Assumed Interests and Obligations and the Kaiser Alumina Sales Contracts; and (c) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THERE ARE NO REPRESENTATIONS OR WARRANTIES OF ANY KIND (INCLUDING ANY REPRESENTATIONS OR WARRANTIES AS TO THE QUALITY OR FITNESS OF THE ASSETS SOLD FOR THEIR INTENDED PURPOSES OR ANY PARTICULAR PURPOSE), EXPRESSED OR IMPLIED, WITH RESPECT TO KAISER, KACC, QAL, QAL'S BUSINESS, THE ASSETS SOLD, THE ASSUMED INTERESTS AND OBLIGATIONS OR THE KAISER ALUMINA SALES CONTRACTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, Page 60 KAISER AND KACC MAKE NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO (I) ANY PROJECTIONS, ESTIMATES OR BUDGETS DELIVERED TO OR MADE AVAILABLE TO BUYER OR ITS REPRESENTATIVES RELATING TO THE FUTURE RESULTS OF OPERATIONS, CASH FLOWS OR FINANCIAL CONDITION (OR ANY COMPONENT OF ANY OF THEM) OF QAL OR QAL'S BUSINESS OR (II) ANY OTHER INFORMATION OR DOCUMENTS MADE AVAILABLE TO BUYER OR ITS REPRESENTATIVES REGARDING KAISER, KACC, QAL, QAL'S BUSINESS, THE ASSETS SOLD, THE ASSUMED INTERESTS AND OBLIGATIONS OR THE KAISER ALUMINA SALES CONTRACTS. Buyer further acknowledges that this Agreement is subject to any applicable order or act of the Bankruptcy Court. 14.3 Buyer has unencumbered cash on hand or has or will have credit arrangements with financially responsible third parties, or a combination thereof, in an aggregate amount sufficient, when combined with the Deposit, to enable it to pay the Final Purchase Price including the final GST Amount and all fees and expenses payable by it in connection with this Agreement and the transactions contemplated hereby. 14.4 Without affecting Clause 15.2, no claim may be made by Kaiser or KACC in respect of any representation and warranty by Buyer contained in this Agreement, or the certificate required by Clause 11.3(a), after the date eighteen (18) months after the Effective Date. 15. INDEMNITIES 15.1 Each of Kaiser and KACC hereby indemnifies and agrees to hold harmless Buyer and its officers, directors, partners, managers, members, representatives, employees, agents, successors and assigns (BUYER INDEMNIFIED PARTIES) from and against all Liabilities Page 61 (including reasonable legal fees and expenses, accounting fees and investigation costs) arising directly or indirectly from or in connection with: (a) any failure by Kaiser or KACC to perform or comply with this Agreement or the Kaiser Assignment and Assumption Agreement, or any failure by KAII to perform or comply with the KAII Assignment and Assumption Agreement; or (b) any breach by Kaiser or KACC of any representation or warranty in Clause 13. No claim may be made under this Clause 15.1 after the date eighteen (18) months after the Effective Date or with respect to performance or compliance with this Agreement, the Kaiser Assignment and Assumption Agreement, or the KAII Assignment and Assumption Agreement, the date on which such performance or compliance is required by the terms thereof, if later. 15.2 Buyer hereby indemnifies and agrees to hold harmless Kaiser and KACC and their respective officers, directors, partners, managers, members, representatives, employees agents, successors and assigns (including any creditors and creditors' representatives pursuant to the Bankruptcy Cases) (KAISER INDEMNIFIED PARTIES) from and against all Liabilities (including reasonable legal fees and expenses, accounting fees and investigation costs) arising directly or indirectly from or in connection with: (a) any failure by Buyer to perform or fully comply with this Agreement (other than Liabilities governed by Clause 15.3); or (b) any breach by Buyer of any representation or warranty in Clause 14. Page 62 No claim may be made under this Clause 15.2 after the date eighteen (18) months after the Effective Date or with respect to performance or compliance with this Agreement, the date on which such performance or compliance is required by the terms hereof, if later. 15.3 Buyer hereby indemnifies and agrees to hold the Kaiser Indemnified Parties harmless from and against all Liabilities (including reasonable legal fees and expenses, accounting fees and investigation costs) arising directly or indirectly from any breach by Buyer, on or after the Effective Date of any of its obligations under the Kaiser Assignment and Assumption Agreement or the KAII Assignment and Assumption Agreement, or the failure of Buyer to pay, discharge or perform any of the obligations included in the Assumed Interests and Obligations. It is expressly understood and agreed that the indemnity obligation set forth in this Clause 15.3 will survive forever, regardless of any applicable statute of limitations or otherwise. 15.4 Each of Kaiser and KACC hereby indemnifies and agrees to hold the Buyer Indemnified Parties harmless from any Liability (including reasonable legal fees and expenses, accounting fees and investigation costs) incurred by Buyer after the Effective Date in respect of any Tax payable by QAL in relation to the operations, acts or omissions of QAL before the Effective Date (except to the extent the Tax was accrued in the accounts of QAL as at the Effective Date or was otherwise taken into account by QAL before the Effective Date), but only to the extent that the Liability relates to Buyer's purchase of the Shares in QAL or the Assumed Interests and Obligations. 15.5 If an amount payable under Clause 15.4: (a) arises because of a reduction in QAL's ability to fully claim a Tax Offset Item at one time, but QAL can claim the Tax Offset Item at different points in time; or Page 63 (b) relates to the payment of Tax by QAL for which it can claim a Tax Offset Item, then the amount payable under Clause 15.4 will be reduced by an amount calculated by discounting the Tax Offset Item which QAL can claim, multiplied by the applicable corporate tax rate, to its net present value at the time for payment under Clause 15.4 at LIBOR and apportioning that amount to reflect Buyer's purchase of the Shares in QAL, the Assumed Interests and Obligations, or the Kaiser Alumina Sales Contracts. 15.6 If: (a) QAL has paid Tax on or before the Effective Date in relation to operations, acts or omissions on or before the Effective Date (PRIOR TAX); and (b) after the Effective Date, QAL receives a refund of any Prior Tax paid (TAX REFUND), then Buyer will pay Kaiser an amount representing the benefit to Buyer of the Tax Refund, but only to the extent that the benefit relates to Buyer's purchase of the Shares in QAL or the Assumed Interests and Obligations and only to the extent that the Tax Refund was not disclosed in the accounts of QAL as at the Effective Date. 15.7 In addition to any Buyer Indemnity Payment under Clause 15.4, Kaiser will pay, and KACC will ensure that Kaiser pays, to Buyer a once-only gross up payment equal to the additional income or capital gains taxes payable by Buyer or a Buyer Entity as a result of its receipt of the Buyer Indemnity Payment or any additional income or capital gains taxes that would have been payable by Buyer or a Buyer Entity had a Tax Offset Item not been applied by Buyer or the Buyer Entity to reduce or limit a liability to such tax. Page 64 15.8 In addition to any Kaiser Indemnity Payment under Clause 15.6, Buyer will pay to Kaiser a once-only gross up payment equal to the additional income or capital gains taxes payable by Kaiser or a Kaiser Entity as a result of its receipt of the Kaiser Indemnity Payment or any additional income or capital gains taxes that would have been payable by Kaiser or a Kaiser Entity had a Tax Offset Item not been applied by Kaiser or the Kaiser Entity to reduce or limit a liability to such tax. 15.9 The calculations required for the purposes of Clauses 15.4 to 15.8 inclusive will be prepared by QAL's independent, external tax accountants and submitted to Kaiser and Buyer for review. If Kaiser or Buyer dispute any such calculation, they will confer to try to resolve the dispute. If Kaiser and Buyer cannot resolve such dispute, Kaiser and Buyer will refer the matter to an agreed firm of tax accountants (or if they do not agree, and at the request of Buyer or Kaiser, to a firm of tax accountants practicing nationally in Australia or internationally nominated by the President of the Institute of Chartered Accountants in Australia or his nominee) to act as an independent expert. Any determination made by the independent expert will be conclusive and binding on the Parties (in the absence of manifest error). The costs of the original calculations and any subsequent determination will be borne equally by Kaiser and Buyer. 15.10 Any payment required by Clauses 15.4 to 15.9 inclusive will be made 30 days after the final determination of any such payment, or if that is not a Business Day, on the next Business Day. No cash payment will be made to a Party under Clauses 15.4 to 15.9 unless and then only to the extent that the cumulative amount owing to it under Clauses 15.4 to 15.9 inclusive, net of the cumulative amount owing by it under Clauses 15.4 to 15.9 inclusive, exceeds US$1,000,000. For that purpose, any such Page 65 payment will be converted to US Dollars at its US Dollar Equivalent on the date two Business Days prior to the date on which it is to be paid. 15.11 Notwithstanding anything to the contrary contained in this Agreement: (a) no Buyer Indemnified Party shall be entitled to receive any amount in respect of breaches of representations and warranties made by Kaiser or KACC in Clause 13.1(d) to (s) (inclusive) and Clause 13.2 of this Agreement except to the extent, and only to the extent, that (i) the amount of such Liabilities in respect of a single inaccuracy or breach exceeds US$250,000 (DE MINIMIS THRESHOLD) and (ii) the aggregate amount of all such Liabilities incurred by the Buyer Indemnified Parties, exclusive of any and all such Liabilities for which indemnification is not available as a result of Clause (i), exceeds US$500,000 (BASKET), in which case Kaiser and KACC will only be liable for that excess. The aggregate liability of Kaiser and KACC with respect to Liabilities incurred by Buyer Indemnified Parties as a result of breaches of representations and warranties made by Kaiser or KACC in (i) Clause 13.1(a) to (c) other than Title Claims, (ii) Clause 13.1(d) to (s) (inclusive) and (iii) Clause 13.2 shall not exceed US$10,000,000. The aggregate liability of Kaiser and KACC with respect to Liabilities incurred by Buyer Indemnified Parties as a result of breaches of representations and warranties made by Kaiser and KACC in Clause 13.1(a) to (c) in respect of Title Claims shall not exceed the Final Purchase Price (excluding any GST payable on relevant supplies). (b) no Buyer Indemnified Party shall be entitled to indemnification from Kaiser or KACC for any Liabilities (i) unless and until Buyer and its affiliates have Page 66 pursued to final conclusion all claims for insurance available with respect to those Liabilities and (ii) to the extent of the amount of insurance recovered by Buyer or its affiliates with respect to those Liabilities. (c) no Kaiser Indemnified Party shall be entitled to receive any amount in respect of breaches of representations and warranties made by Buyer in this Agreement except to the extent, and only to the extent, that (i) the amount of Liabilities in respect of a single inaccuracy or breach exceeds the De Minimis Threshold and (ii) the aggregate amount of all Liabilities incurred by the Kaiser Indemnified Parties, exclusive of any and all Liabilities for which indemnification is not available as a result of Clause (i), exceeds the Basket amount, in which case Buyer will only be liable for that excess. The aggregate liability of Buyer with respect to Liabilities incurred by Kaiser Indemnified Parties as a result of breaches of representations and warranties shall not exceed US$10,000,000. (d) no Kaiser Indemnified Party shall be entitled to indemnification from Buyer for any Liabilities (i) unless and until Kaiser and its affiliates have pursued to final conclusion all claims for insurance available with respect to those Liabilities and (ii) to the extent of the amount of insurance recovered by Kaiser or its affiliates with respect to those Liabilities. 15.12 (a) If a Party (an INDEMNIFIED PARTY) becomes aware after the Effective Date of any fact, circumstance or matter which gives rise to or could give rise to a claim by such Indemnified Party against any other Party (an INDEMNIFYING PARTY) under any indemnity in this Clause 15 (an INDEMNIFICATION CLAIM) the Indemnified Party will: Page 67 (i) promptly give the Indemnifying Party a notice (NOTICE OF CLAIM) full details of the fact, circumstance or matter giving rise to the Indemnification Claim, and the Indemnified Party's calculation or estimation of the loss suffered; (ii) until giving the Notice of Claim, take reasonable steps to mitigate any loss which does or may give rise to a claim against the Indemnified Party for which indemnification may be sought; (iii) not make any admission of liability, agreement or compromise with any person in relation to the fact, circumstance or matter without first consulting with and obtaining the approval of the Indemnifying Party (such approval not to be unreasonably withheld); (iv) give the Indemnifying Party and its professional advisers reasonable assistance to enable it and its professional advisers to assess the fact, circumstance or matter and its consequences and the loss suffered by the Indemnified Party; and (v) at the Indemnifying Party's expense, take all action in good faith and with due diligence that the Indemnifying Party (acting reasonably and in consultation with the Indemnified Party) directs to avoid, remedy or mitigate the consequences of the fact, circumstances or matter including disputing, defending, appealing or compromising legal proceedings. (b) The Indemnifying Party will indemnify the Indemnified Party against any Liability incurred by the Indemnified Party in respect of action taken by the Page 68 Indemnified Party at the direction of the Indemnifying Party under Clause 15.12(a)(v). (c) Delay by an Indemnified Party to give a Notice of Claim to the Indemnifying Party as required under Clause 15.12(a)(i) shall not relieve the Indemnifying Party from any liability that it may have to an Indemnified Party hereunder to the extent the Indemnifying Party is not prejudiced by such delay. (d) A Notice of Claim shall be given by the Buyer Indemnified Parties with respect to all Indemnification Claims satisfying the De Minimis Threshold, whether or not the Basket has been reached. (e) The Indemnified Party will furnish to the Indemnifying Party such information (in reasonable detail) it may have with respect to such Indemnification Claim (including copies of any summons, complaint or other pleading that may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same). (f) In the event any Indemnification Claim set forth in the Notice of Claim is a claim asserted against an Indemnified Party by a third party, the Indemnifying Party will be entitled to meaningfully participate in the defense of such claim and, upon delivery by the Indemnifying Party to the Indemnified Party of written notice, the Indemnifying Party may assume and control the defense thereof with counsel of its choice, and thereafter the Indemnifying Party will not be liable to the Indemnified Party hereunder for any fees of other counsel subsequently accrued by the Indemnified Party in connection with the defense thereof. In the event a Notice of Claim is delivered under this Clause 15, the Indemnifying Party and the Page 69 Indemnified Party will cooperate fully with each other in connection with the defense, negotiation or settlement of the Indemnification Claim covered by such Notice of Claim. If the Indemnifying Party assumes the defense of an action, (i) the Indemnified Party will be entitled to participate therein at its sole cost and expense and (ii) no settlement or compromise thereof may be effected by the Indemnified Party without the consent of the Indemnifying Party, such consent not to be unreasonably withheld. If the Indemnifying Party does not assume the defense of an action, no compromise or settlement thereof may be effected at the expense of the Indemnifying Party without the consent of the Indemnifying Party, such consent not to be unreasonably withheld. 15.13 No Indemnifying Party shall have any liability under any provision of this Agreement for any Liabilities to the extent, but only to the extent, that such Liabilities relate to actions taken or omitted to be taken by the Indemnified Party after the Closing to the extent the Indemnified Party knew or reasonably should have known that its actions taken or omitted to be taken could reasonably be expected to give rise to Liabilities, and in no event shall any Indemnifying Party be liable for punitive, consequential, special, indirect, incidental or exemplary damages, whether for lost profits, lost revenues, injury to property, injury to reputation, loss of data, loss of use or otherwise. 15.14 Each Indemnified Party acknowledges and agrees that the sole and exclusive remedy of its respective Indemnified Parties from and after the Closing with respect to Liabilities and any and all claims for any breach or liability under this Agreement or any other agreement, instrument or certificate executed or entered into in connection herewith or otherwise relating to the subject matter of this Agreement and the transactions Page 70 contemplated hereby shall be solely in accordance with, and limited by, the indemnification provisions set forth in this Clause 15. In furtherance of the foregoing, each Indemnified Party hereby waives on its own behalf and on behalf of each other applicable Buyer Indemnified Party, to the fullest extent permitted under applicable legislation, any and all rights, claims and causes of action it or they may have against the Indemnifying Parties and their respective officers, directors, partners, managers, members, representatives, employees, agents, successors and assigns (including, in the case of Kaiser and KACC, the creditors and creditors' representatives pursuant to the Bankruptcy Cases) arising under or based upon any legislation. 16. CURRENCY CONVERSIONS Where any amount under this Agreement is computed or expressed in Australian Dollars, for the purposes of any payment or adjustment that amount will be converted to its US Dollar Equivalent on the date two Business Days prior to the time for payment or adjustment as provided for in this Agreement. 17. GOVERNING LAW; SUBMISSION 17.1 The governing law of this Agreement is the internal law of the State of New York, USA, without regard to principles of conflict of laws. 17.2 (a) The Bankruptcy Court will have jurisdiction over any dispute arising out of or related to the transactions contemplated by this Agreement through the date of entry of the order approving the final decree in the last of the Bankruptcy Cases to be resolved. The parties to this Agreement consent to the exclusive jurisdiction of the Bankruptcy Court (and of the appropriate appellate courts therefrom) in any Page 71 such dispute or action related thereto, and irrevocably waive, to the fullest extent permitted by applicable legislation, any objection that they may now or hereafter have to the laying of the venue of any such dispute in the Bankruptcy Court or that any such dispute brought in the Bankruptcy Court has been brought in an inconvenient forum. (b) Subject to the consent to the jurisdiction of the Bankruptcy Court described in Clause 17.2(a), each of the Parties irrevocably submits to the non-exclusive jurisdiction of the United States District Court for the Southern District of the State of New York, or if such court refuses to accept or does not have subject matter jurisdiction, then to the Supreme Court of the State of New York sitting in the County of New York, and the appellate courts having jurisdiction of appeals from such courts, over any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby (but not in respect of any other matter) and each Party hereby irrevocably agrees that (without prejudice to the jurisdiction of any other court) all claims in respect of such dispute or any action related thereto may be heard and determined in such courts. The Parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the Parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law. Page 72 (c) Each of the Parties hereto hereby consents to process being served by any Party to this Agreement in any suit, action or proceeding by the mailing of a copy thereof in accordance with the provisions of Clause 25. 18. TERMINATION 18.1 This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) By mutual written consent of Kaiser and KACC, on the one hand, and Buyer, on the other hand. (b) By Kaiser and KACC upon written notice to Buyer, (i) if the Closing has not occurred on or before 150 days after the Commencement Date for any reason other than a material breach of this Agreement by Kaiser or KACC, (ii) so long as neither Kaiser nor KACC is then in material breach of any of their respective representations, warranties or covenants in this Agreement, if Buyer is in material breach of any of its representations, warranties or covenants contained in this Agreement and such breach shall be incapable of being cured, or if capable of being cured, shall not have been cured within 30 calendar days following delivery to Buyer of written notice of such breach (specifying in reasonable detail the claimed breach and demand of its cure or satisfaction), (iii) if termination is directed pursuant to an order of the Bankruptcy Court or permitted pursuant to the terms of the Bidding and Auction Procedures, (iv) if the Sale Approval Order has not become a Final Order by (A) the date that is 30 calendar days after the date on which Sale Approval Order is entered, provided that such termination right can only be exercised until the 40th calendar day after the Sale Approval Order is Page 73 entered, or (B) such later date as is agreed to in writing by the Parties; or (v) if Buyer is not the Successful Bidder pursuant to the Bidding and Auction Procedures and Kaiser and KACC determine to enter into the Transaction with the Successful Bidder (such transaction, an AUCTION TRANSACTION); it being expressly understood that, even in the circumstance contemplated by clause (v), if Buyer is the Backup Bidder, Buyer shall remain bound by the terms of this Agreement until the earlier of (A) delivery by KACC and Kaiser to Buyer of a written termination notice in accordance with this Clause 18.1(b), or (B) delivery by Buyer to Kaiser and KACC of a termination notice in accordance with Clause 18.1(c)(v). Buyer hereby acknowledges that in the circumstance contemplated by clause (v) of the immediately preceding sentence, (i) KACC and Kaiser may, prior to any termination of this Agreement by Kaiser and KACC under Clause 18.1(b)(v) (but without prejudice to Buyer's right to terminate this Agreement under Clause 18.1(c)(v)), enter into an agreement with the Successful Bidder with respect to the Auction Transaction and (ii) KACC and Kaiser are not required to deliver to Buyer a written termination notice until the consummation of the Auction Transaction. (c) By Buyer, upon written notice to Kaiser and KACC, (i) if the Closing has not occurred on or before 150 days after the Commencement Date for any reason other than a material breach of this Agreement by Buyer, (ii) so long as Buyer is not then in material breach of any of its representations, warranties or covenants contained in this Agreement, if Kaiser or KACC are in material breach of any of their respective representations, warranties or covenants contained in this Page 74 Agreement and such breach shall be incapable of being cured, or if capable of being cured, shall not have been cured within 30 calendar days following delivery to Kaiser and KACC of written notice of such breach (specifying in reasonable detail the claimed breach and demand of its cure or satisfaction), (iii) if termination is directed pursuant to an order of the Bankruptcy Court or permitted pursuant to the terms of the Bidding and Auction Procedures, (iv) if the Sale Approval Order has not become a Final Order by (A) the date that is 30 calendar days after the date on which the Sale Approval Order is entered, provided that such termination right can only be exercised until the 40th calendar day after the Sale Approval Order is entered, or (B) such later date as is agreed to in writing by the Parties; or (v) if Buyer is the Backup Bidder and Kaiser and KACC have not within 160 days after the date the Sale Approval Order is entered notified the Backup Bidder that it has become the Buyer in lieu of the Successful Bidder; provided that in such event the Buyer shall not be entitled to receive a Breakup Fee; (vi) if the Bidding and Auction Procedures are not approved by court order by the earlier of (A) the date on which the final Bankruptcy Court hearing to approve the Bidding and Auction Procedures is held, or (B) October 15, 2004; or (vii) if the Breakup Fee is not approved by court order by the earlier of (A) the date on which the final Bankruptcy Court hearing to approve the Bidding and Auction Procedures is held, or (B) October 15, 2004. 18.2 In the event of the termination of this Agreement pursuant to Clause 18.1, this Agreement, except for the provisions of this Clause 18.2 and Clauses 1, 17, 18.3, 19, 20, 21, 22, 23, 24, 25, 27, 28 and 29, will forthwith become null and void and have no effect, Page 75 without any liability on the part of any Party to this Agreement or their respective affiliates. Nothing in this Clause 18 will, however, relieve any Party to this Agreement of liability for breach of this Agreement occurring prior to that termination or for breach of any provision of this Agreement which specifically survives termination hereunder. Moreover, notwithstanding the termination of this Agreement, the Deposit Escrow Agreement shall remain in full force and effect in accordance with its terms, including with respect to the distributions of the escrow funds held thereunder. Nothing in this Agreement shall require that the Bankruptcy Court approve the termination of this Agreement in order for such termination to be effective. 18.3 Subject to the provisions of any applicable order of the Bankruptcy Court, unless this Agreement is terminated pursuant to Clause 18.1(b)(ii) or 18.1(c)(v) hereof, if Kaiser and KACC subsequently consummate an Auction Transaction with the Successful Bidder or Backup Bidder (other than Buyer or an affiliate of Buyer), Kaiser and KACC shall pay to Buyer promptly (and, in any event, within five Business Days) following the consummation of such Auction Transaction an amount equal to US$11,000,000 (the BREAKUP FEE), and any GST payable in accordance with Clause 22, if applicable. 18.4 The Breakup Fee and any associated GST until paid in full shall constitute an administrative expense of Kaiser's and KACC's bankruptcy estates in their Bankruptcy Cases under Sections 503(b) and 507(a)(i) of the Bankruptcy Code and shall be paid to the Buyer as and when due as described in Clause 18.3. Page 76 19. STAMP DUTIES; WITHHOLDING TAXES 19.1 Any stamp duties or like taxes payable on, or in connection with, or any transaction pursuant to, this Agreement will be borne in full by Buyer along with any associated penalties, fines, or interest. 19.2 All payments by Buyer to Kaiser or KACC under this Agreement shall be net of any deduction or withholding for or on account of any Australian withholding Tax in respect of capital or revenue gains, that Buyer is required by law to collect and remit to the Australian Taxation Office, and Buyer is not required to pay any amount to Kaiser or KACC for or on account of any such Tax deducted or withheld. The Parties acknowledge and agree that the amount of assumed Gladstone Credit Allowances subject to such withholding Tax, if any, shall be calculated in accordance with Clause 6.1(a)(i). 20. COSTS Each Party shall bear its own costs in connection with the negotiation, preparation and execution of this Agreement. 21. OTHER INTERESTS Nothing in this Agreement affects any rights or obligations which any Party may have against, or to, any other Party other than as set forth herein or (if the Closing occurs) as set forth in the Kaiser Assignment and Assumption Agreement, the KAII Assignment and Assumption Agreement and as provided for in the Alumina Supply Agreement. Page 77 22. GOODS AND SERVICES TAX 22.1 Words or expressions used in this Clause 22 which are defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) or, if not so defined, then which are defined in the Trade Practices Act 1974 (Cth), have the same meaning in this Clause. 22.2 The Parties acknowledge that all amounts payable under, or in connection with, this Agreement are expressed on a GST exclusive basis. 22.3 (a) Despite any other provision in this Agreement: (i) if a Party (in this clause, a SUPPLIER) makes a Taxable Supply to another Party (RECIPIENT) under or in connection with this Agreement (including a Taxable Supply under or in connection with Exhibits E and F as executed); and (ii) GST is imposed on the Taxable Supply; then the Recipient must pay to the Supplier the amount expressed in this Agreement as payable for that Taxable Supply plus an additional amount in respect of the GST payable by the Supplier on that Taxable Supply, or where no amount is expressed to be payable, an additional amount equal to the GST payable by Supplier on that Taxable Supply. (b) The amount of GST which is payable with respect to any GST exclusive consideration must be paid to the Supplier by the Recipient without requirement for demand, at the same time as the GST exclusive consideration is payable or to be provided. Page 78 22.4 If an amount that would otherwise be payable under this Agreement is calculated by reference to or otherwise relates to a cost, expense or other amount incurred by a Party (PAYEE), then that amount will be reduced by the amount of any Input Tax Credit to which the Payee is entitled in respect of that amount. The Payee will be assumed to be entitled to a full Input Tax Credit unless it demonstrates that its entitlement is otherwise prior to the date on which the payment must be made. 22.5 The Supplier will provide a Tax Invoice and any necessary adjustment notes and, if reasonably requested by the Recipient, reasonable evidence that the Supplier is registered for GST. Any payment under this Clause 22 shall be conditioned upon the receipt by Recipient of a Tax Invoice or tax adjustment note, as applicable. 22.6 If any Party is required to pay an amount to another Party under this Agreement, then it will be entitled to set-off any amount payable to it by the other Party under Clause 22.3 against such amount. 22.7 If an additional amount is paid by the Recipient pursuant to Clause 22.3(a) (the GST SUM) and it is subsequently determined by the Commissioner of Taxation (at the request of any Party or otherwise) that the supply to which the GST sum relates is not a Taxable Supply, the Supplier must immediately refund the GST sum to the Recipient. 23. DISCLOSURES 23.1 The Parties acknowledge that certain disclosures in relation to the terms of this Agreement will be required in connection with the filing of or obtaining Bankruptcy Court approval of the Sale Approval Motion or the Sale Approval Order, and the Parties will cooperate in respect of such disclosure. Page 79 23.2 The Parties will cooperate as to the timing and contents of the media releases in respect of this Agreement previously agreed by the Parties to be issued promptly after execution of this Agreement. 24. COUNTERPARTS This Agreement may be executed in any number of counterparts. All counterparts will be taken to constitute one instrument. 25. NOTICES Any notice or other communication required or permitted to be given under the terms of this Agreement must be faxed or delivered to the other Party at the address shown below and will be effective and deemed received: (a) if faxed, when received; (b) if delivered via overnight courier service, on the day delivered; or (c) if personally delivered, when delivered: If to KACC or Kaiser, to: KAISER ALUMINUM & CHEMICAL CORPORATION Suite 2500 5847 San Felipe Houston, Texas 77057 Attention: General Counsel Facsimile: 1 (713) 267-3702 Page 80 with copies (which shall not constitute notice) to: JONES DAY 2727 North Harwood Dallas, Texas 75201 Attention: Tony Stewart, Esq. Facsimile: 1 (214) 969-5100 and OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF KAISER ALUMINUM & CHEMICAL CORPORATION c/o Akin Gump Strauss Hauer & Feld LLP 590 Madison Avenue New York, New York 10022 Attention: Lisa G. Beckerman, Esq. Facsimile: 1 (212) 872-1002 If to Buyer: COMALCO ALUMINIUM LIMITED 25th Floor 12 Creek Street Brisbane, Queensland 4000 Australia Attention: Corporate Secretary Facsimile: 61 7 3867 1651 Page 81 or to such other person(s) at such address or addresses as may be designated by written notice to the other Parties. 26. [INTENTIONALLY OMITTED] 27. ENTIRE AGREEMENT This Agreement and the Confidentiality Agreement executed by the Buyer as of 18 February 2004 and the Deposit Escrow Agreement constitute the entire agreement of the Parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, between the Parties with respect to the subject matter hereof. 28. ASSIGNMENT This Agreement may not be assigned without the express written consent of KACC and Buyer (which consent may be granted or withheld in the sole discretion of KACC or Buyer, as applicable). 29. AMENDMENT This Agreement may not be amended or modified except by an instrument in writing signed by, or on behalf of, the Parties. EXECUTED Each attorney executing this Agreement states that he or she has no notice of revocation or suspension of his or her power of attorney. Page 82 BUYER SIGNED for and on behalf of COMALCO ALUMINIUM LIMITED by its appointed attorney in the presence of: /s/Allen Isaacson - Attorney In Fact - ------------------------------------------------------ ATTORNEY'S SIGNATURE Allen Isaacson - ------------------------------------------------------ PRINT NAME KACC SIGNED for and on behalf of KAISER ALUMINUM & CHEMICAL CORPORATION by its duly authorized officer in the presence of: /s/Edward F. Houff - ------------------------------------------------------ OFFICER'S SIGNATURE Edward F. Houff - Vice President - ------------------------------------------------------ PRINT NAME AND TITLE KAISER SIGNED for and on behalf of KAISER ALUMINA AUSTRALIA CORPORATION by its duly authorized officer in the presence of: /s/Edward F. Houff - ------------------------------------------------------ OFFICER'S SIGNATURE Edward F. Houff - Vice President - ------------------------------------------------------ PRINT NAME AND TITLE EX-2.4 3 h20077exv2w4.txt AGREEMENT TO SUBMIT QUALIFIED BID FOR QAL Exhibit 2.4 GLENCORE AG Baarermattstrasse 3 CH-6341, Baar SWITZERLAND September 22, 2004 Kaiser Aluminum & Chemical Corporation Suite 2500 5847 San Felipe Houston, Texas 77057 Kaiser Alumina Australia Corporation Suite 2500 5847 San Felipe Houston, Texas 77057 Re: Agreement to Submit Qualified Bid for QAL Interests Gentlemen: We refer to the draft Purchase Agreement dated September 22, 2004 ("Purchase Agreement") which is being entered into by and among Comalco Aluminium Limited, a Queensland corporation ("CAL"), Kaiser Aluminum & Chemical Corporation, a Delaware corporation ("KACC"), and Kaiser Alumina Australia Corporation, a Delaware corporation ("Kaiser"), a copy of which is attached hereto as Appendix A. We also refer to (i) the draft Expedited Motion of Debtors and Debtors in Possession for (i) an Order Approving (a) Bidding Procedures for the Sale of Their Interests in and Related to Queensland Alumina Limited and (b) Certain Bid Protections with Respect to the Sale, and (ii) a Separate Order Authorizing Them to (a) Enter Into Purchase Agreement, (b) Sell Their Interests in and Related to Queensland Alumina Limited Free and Clear of Liens, Claims and Encumbrances, and (c) Assume and Assign Related Executory Contracts (the "Bidding Procedures Motion"), a copy of which is attached hereto as Appendix B; and (ii) the draft Expedited Motion of Debtors and Debtors in Possession for an Order (i) Approving the Entry Into an Overbid Agreement and (ii) Authorizing Them to Pay a Threshold Qualified Bid Fee in Connection With the Sale of Their Interests in and Related to Queensland Alumina Limited (the "Qualified Bid Fee Motion"), a copy of which is attached hereto as Appendix C. Unless otherwise indicated, all capitalized terms used but not defined in this letter shall have the meanings ascribed to them in the Purchase Agreement, the Bidding Procedures Motion or the Qualified Bid Fee Motion, as applicable. The undersigned acknowledges that KACC and Kaiser have informed the undersigned that they are entering into the Purchase Agreement with CAL and will file the Bidding Procedures Motion and the Qualified Bid Fee Motion together in reliance upon the undersigned's execution, delivery and performance of this letter agreement ("Agreement"). The undersigned confirms that it has completed its due diligence investigation with respect to the QAL Interests and hereby agrees, on the terms and conditions stated in this Agreement, to submit, through its indirectly wholly owned subsidiary, Pegasus Queensland Acquisition Pty Limited ("Pegasus"), a Qualified Bid to purchase the QAL Interests conforming to all requirements described in the Bidding Procedures Motion and including a Base Share Price of US$400 million. Without limiting the generality of the foregoing agreement, the form of Qualified Bidder Sale Documentation and related materials that shall be submitted as part of the Qualified Bid described herein shall be (i) the mark-up of the Purchase Agreement and the Exhibits and Schedules thereto attached hereto as Appendix D; (ii) a copy of the agreement described in the immediately preceding subclause executed by Pegasus; and (iii) an executed copy of the certificate attached hereto as Appendix E, setting forth certain statements of the undersigned relating to the Qualified Bid described herein. In addition to the foregoing, simultaneously with the submission of such Qualified Bid, the undersigned will make a deposit in the amount of $40,000,000 (the "Bid Deposit") in accordance with the terms of the Bidding Procedures Motion and an escrow agreement ("Escrow Agreement") to be entered into among Pegasus, KACC, Kaiser and Wilmington Trust Company, as escrow agent (the "Escrow Agent"), substantially in the form attached hereto as Appendix F. Kaiser and KACC hereby confirm that the delivery by the undersigned and Pegasus respectively, of the documents described in the preceding paragraph, together with the financial information previously provided to Lazard Freres & Co. LLC ("Lazard"), will, upon payment of the Bid Deposit to the Escrow Agent, constitute a Qualified Bid. Accordingly, the parties hereto acknowledge and agree that Clause 1.2.1 of the Escrow Agreement is not applicable. Furthermore, simultaneously with the execution and delivery of this Agreement, Lazard will deliver to the undersigned a written notice confirming that the undersigned, acting through Pegasus as described in this Agreement, is a Qualified Bidder. The undersigned hereby agrees to submit through Pegasus a Qualified Bid as described in the second paragraph of this Agreement within two business days after the Bankruptcy Court's entry of an order in the form annexed to Appendix C approving the Qualified Bid Fee Motion (the "Qualified Bid Fee Order") and simultaneously with the undersigned's receipt of the Qualified Bid Fee described in the following paragraph; provided that the Qualified Bid Fee Order is entered on or before October 15, 2004, or such later date as the parties agree. Such Qualified Bid shall remain binding for the period of time specified in the Bidding Procedures. Kaiser and KACC agree to use their respective commercially reasonable best efforts such that the Bankruptcy Court hearing on the Bidding Procedures Motion and the Qualified Bid Fee Motion occurs on September 27, 2004, or if not on such date, in any event on the first available Bankruptcy Court hearing date that occurs on or before October 15, 2004, if any. Furthermore, Kaiser and KACC agree not to amend the Bidding Procedures as set forth in the Bidding Procedures Motion prior to the entry of the Bankruptcy Court order approving such motion. In consideration of the undersigned's agreement to submit through Pegasus a Qualified Bid as described in the second paragraph of this Agreement, Kaiser and KACC shall, subject to the Bankruptcy Court's entry of the Qualified Bid Fee Order, jointly and severally pay or cause the payment to the undersigned of the Qualified Bid Fee in the amount of US$7,680,000 (plus any Australian goods and services tax legally required to be paid) within two business days after -2- the Bankruptcy Court's entry of the Qualified Bid Fee Order. The Qualified Bid Fee shall be deemed earned by the undersigned immediately upon submission of the Qualified Bid, shall be final and non-refundable, and shall not be subject to avoidance for any reason whatsoever. For the avoidance of doubt, the parties acknowledge that the effectiveness of this Agreement is subject to the Bankruptcy Court's timely entry of the Qualified Bid Fee Order. If the Bankruptcy Court does not timely enter the Qualified Bid Fee Order, Kaiser and KACC shall not be obligated to pay the Qualified Bid Fee and the undersigned shall not be obligated to submit through Pegasus a Qualified Bid as described herein, although the undersigned, Pegasus or any of their respective affiliates shall have the right to do so. The undersigned acknowledges that Kaiser and KACC are entering into the Purchase Agreement with CAL in reliance upon the undersigned's agreement to submit through Pegasus a Qualified Bid for the QAL Interests as described in the second paragraph of this Agreement. Accordingly, if the Qualified Bid Fee Order is timely entered and the undersigned fails to submit such Qualified Bid, the undersigned agrees that the sole quantum of damages that will be suffered by Kaiser and KACC is equal to US$400 million less the higher of (i) the Base Share Price stated in the Purchase Agreement with CAL and (ii) the Base Share Price contained in any Successful Bid that is approved by the Bankruptcy Court following the Auction. Finally, we refer to the letter agreement among Kaiser, KACC, Comalco Limited and Rio Tinto Limited, a copy of which is attached as Exhibit B to the Bidding Procedures Motion. The undersigned agrees to cooperate with Kaiser and KACC to enable Kaiser and KACC to timely provide to CAL and Comalco such information relating to the undersigned and Pegasus as may be reasonably required for the purposes stated in the penultimate paragraph of such letter agreement. The parties agree that the governing law of this Agreement is the internal law of the State of New York, USA, without regard to principles of conflict of laws, and submit to the jurisdiction of the courts as set forth in Appendix G in any dispute arising out of or related to the transactions contemplated by this Agreement. If the foregoing accurately sets forth your understanding of the agreement between us, please so indicate by signing below. Sincerely, Glencore AG By: /s/ Steven J. Rejsman --------------------------------- Name: Steven J. Rejsman Title: Authorized Signatory -3- ACKNOWLEDGED AND AGREED: Kaiser Aluminum & Chemical Corporation By: /s/ Edward F. Houff ----------------------------------- Name: Edward F. Houff Title: Vice President Kaiser Alumina Australia Corporation By: /s/ Edward F. Houff ----------------------------------- Name: Edward F. Houff Title: Vice President -4- Appendix A Comalco Purchase Agreement Appendix B Bidding Procedures Motion Appendix C Qualified Bid Fee Motion Appendix D Qualified Bidder Sale Documentation Appendix E Qualified Bid Certification Reference is hereby made to the Expedited Motion of Debtors and Debtors in Possession for (i) an Order Approving (a) Bidding Procedures for the Sale of Their Interests in and Related to Queensland Alumina Limited and (b) Certain Bid Protections with respect to the Sale, and (ii) a Separate Order Authorizing Them to (a) Enter Into Purchase Agreement, (b) Sell Their Interests in and Related to Queensland Alumina Limited Free and Clear of Liens, Claims and Encumbrances, and (c) Assume and Assign Related Executory Contracts (the "Bidding Procedures Motion"), filed by the Debtors (as such term is defined in the Bidding Procedures Motion) with the United States Bankruptcy Court for the District of Delaware on September 22, 2004. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Bidding Procedures Motion. In connection with the submission by the undersigned, through its indirectly wholly owned subsidiary, Pegasus Queensland Acquisition Pty Limited ("Pegasus") of a Qualified Bid to purchase the QAL Interests in accordance with the procedures set forth in the Bidding Procedures Motion, the undersigned hereby certifies that: 1. The undersigned is prepared to cause Pegasus to enter into the transaction immediately upon completion of the Auction if the undersigned is the Successful Bidder by executing a revised Qualified Bidder Agreement (to the extent necessary if the Qualified Bidder Agreement is modified at the Auction) and consummating the transaction not later than 150 days following the entry of the Sale Approval Order. 2. The Qualified Bidder Sale Documentation submitted by the undersigned as part of its Qualified Bid shall remain binding during the applicable period described in "Return of Deposits" in the Bidding Procedures Motion. 3. Except for the letter agreement dated September 22, 2004 among the undersigned and the Sellers, there are no arrangements between the undersigned or any of its affiliates, on the one hand, and any unaffiliated third parties, including affiliates of Sellers, relating to the undersigned's Qualified Bid, or to participation by such third parties in the Auction, or to ownership or operation of the Assets Sold, such as joint venture agreements, with other potential bidders (except for the agreements and contracts described in the definition of Assumed Interests and Obligations). 4. Notwithstanding that the entity submitting the Qualified Bidder Documentation with respect to the Qualified Bid is Pegasus, the undersigned is financially responsible for such Qualified Bid and guarantees performance by Pegasus of the terms thereof. Dated as of ______________, 2004. Glencore AG By:_____________________________ Name: Title: Appendix F Form of Bidder Escrow Agreement Appendix G Submission to Jurisdiction (a) The Bankruptcy Court will have jurisdiction over any dispute arising out of or related to the transactions contemplated by this Agreement through the date of entry of the order approving the final decree in the later of the Bankruptcy Cases of Kaiser of KACC to be resolved. The parties to this Agreement consent to the exclusive jurisdiction of the Bankruptcy Court (and of the appropriate appellate courts therefrom) in any such dispute or action related thereto, and irrevocably waive, to the fullest extent permitted by applicable legislation, any objection that they may now or hereafter have to the laying of the venue of any such dispute in the Bankruptcy Court or that any such dispute brought in the Bankruptcy Court has been brought in an inconvenient forum. (b) Subject to the consent to the jurisdiction of the Bankruptcy Court described in Clause (a), each of the parties to this Agreement irrevocably submits to the non-exclusive jurisdiction of the United States District Court for the Southern District of the State of New York, or if such court refuses to accept or does not have subject matter jurisdiction, then to the Supreme Court of the State of New York sitting in the County of New York, and the appellate courts having jurisdiction of appeals from such courts, over any dispute arising out of or relating to this Agreement or any of the transactions contemplated thereby (but not in respect of any other matter) and each of the parties to this Agreement hereby irrevocably agrees that (without prejudice to the jurisdiction of any other court) all claims in respect of such dispute or any action related thereto may be heard and determined in such courts. The parties to this Agreement hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties to this Agreement agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law. EX-2.5 4 h20077exv2w5.txt PURCHASE AGREEMENT, DATED AS OF OCTOBER 28, 2004 EXECUTION VERSION Exhibit 2.5 PURCHASE AGREEMENT ------------------------------------ ALUMINA & BAUXITE COMPANY LTD. AND KAISER ALUMINUM & CHEMICAL CORPORATION AND KAISER ALUMINA AUSTRALIA CORPORATION DATED AS OF OCTOBER 28, 2004 TABLE OF CONTENTS

-i- EXHIBIT INDEX Exhibit Title - ------- ----- A Kaiser Alumina B Kaiser Bauxite C QAL Net Working Capital D Kaiser Alumina Sales Contracts E Kaiser Assignment and Assumption Agreement F KAII Assignment and Assumption Agreement G Alumina Supply Agreement H Tax Values of QAL Assets I [Intentionally Omitted] J-1 Knowledge of Kaiser and KACC J-2 Knowledge of Buyer K Document Escrow Agreement L Assumed Interests and Obligations M Form of Guarantee N Bidding and Auction Procedures Schedules - --------- 13.1(j) Certain Matters Related to the Kaiser Alumina Sales Contracts 13.1(r) Special Notices 13.2(e) Financial Statements of QAL 13.2(f) Conduct of Business of QAL 13.2(g) QAL Compliance with Laws 13.2(h) QAL Litigation DATE October 28, 2004 PARTIES 1. ALUMINA & BAUXITE COMPANY LTD., a British Virgin Islands company, of Premises of Commonwealth Trust Limited, Drake Chambers, Tortola, British Virgin Islands (BUYER); 2. KAISER ALUMINUM & CHEMICAL CORPORATION, ABN 47 908 052 437, a Delaware corporation, of Suite 2500, 5847 San Felipe, Houston, Texas, USA (KACC); and 3. KAISER ALUMINA AUSTRALIA CORPORATION, ABN 15 009 757 546, a Delaware corporation, of Suite 2500, 5847 San Felipe, Houston, Texas, USA (KAISER). Buyer, KACC and Kaiser are sometimes referred to herein collectively as the PARTIES. RECITAL Buyer has agreed to purchase, and Kaiser and KACC have agreed to sell, the Assets Sold (as hereinafter defined), and Buyer has agreed to assume the Assumed Interests and Obligations (as hereinafter defined), on the terms and conditions of this AGREEMENT. Page 1 NOW THEREFORE, in consideration of the foregoing premises, and the respective representations, warranties, covenants and agreements set forth herein, and intending to be legally bound hereby, the Parties agree as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 In this Agreement, except as provided in Clause 22 or unless the context otherwise requires the following terms have the meanings set forth below: 2001 ASSIGNMENT AND ASSUMPTION AGREEMENT means the Assignment and Assumption Agreement - Consent, dated August 31, 2001, among the Participants and QAL. 2001 PURCHASE AGREEMENT means the Purchase Agreement, dated June 15, 2001, among Comalco, CAL, Kaiser and KACC. ACT has the meaning set forth in Clause 10.1(a). ADJUSTMENT DATE has the meaning set forth in Clause 9(a). AGREEMENT BETWEEN PARENTS means the Agreement No. 1 Between Parents dated as of February 15, 1990, among KACC, Comalco, RTL and others. AGREEMENT COLLATERAL TO SHARE PURCHASE AGREEMENT means the Agreement Collateral to Share Purchase Agreement dated October 14, 1982 between RTL, KACC and Comalco. ALQUEEN means Alcan Queensland Pty. Limited, a Queensland corporation. ALUMINA PURCHASE PRICE has the meaning set forth in Clause 4.2. ALUMINA SUPPLY AGREEMENT has the meaning set forth in Clause 8.3(e). ASSETS SOLD means the Shares in QAL, the Kaiser Alumina and the Kaiser Bauxite. Page 2 ASSUMED DEBT ADJUSTMENT has the meaning set forth in Clause 3(b). ASSUMED INTERESTS AND OBLIGATIONS means each interest, right and obligation of Kaiser and KACC, as applicable, as at the Effective Date in, to and under each of: (a) the Participants Agreement, including their respective obligations in respect of Bauxite Shipping Charge Credit Allowances; (b) the Agreement Between Parents; (c) the Gladstone Tolling Contracts, including their respective obligations in respect of Credit Allowances, Alternative Depreciation Credit Allowances and Gladstone Tolling Charge Prepayments; (d) all Gladstone Bauxite Supply Agreements; (e) the QAL Financing Agreements; (f) the Interest Reimbursement Agreement; (g) Article 5.1 of the Agreement Collateral to Share Purchase Agreement; (h) the 2001 Purchase Agreement; and (i) the 2001 Assignment and Assumption Agreement; but not including any obligations under such agreements to the extent such obligations are to be paid or performed on or prior to the Effective Date. ASSUMPTION RULING has the meaning set forth in the definition of GST Amount. AUCTION has the meaning set forth in the Bidding and Auction Procedures. AUCTION TRANSACTION has the meaning set forth in Clause 18.1(b)(v). Page 3 AUDITED FINANCIAL STATEMENTS means the financial statements of QAL as at December 31, 2003 and for the year then ended, including a statement of financial performance, a statement of financial position and a statement of cash flows, all as audited by PriceWaterhouseCoopers. AUSTRALIAN DOLLARS or A$ means lawful money of the Commonwealth of Australia. BACKUP BIDDER has the meaning set forth in the Bidding and Auction Procedures. BALANCE SHEET DATE means December 31, 2003. BANKRUPTCY CASES means the cases of Kaiser, KACC and certain of their affiliates under chapter 11 of the Bankruptcy Code, which have been consolidated for procedural purposes only and are being administered jointly by the Bankruptcy Court as Case No. 02-10429 (JKF). BANKRUPTCY CODE means chapter 11 of title 11 of the United States Code (as now in effect or hereafter amended). BANKRUPTCY COURT means the United States Bankruptcy Court for the District of Delaware. BANKRUPTCY LAWS means the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, as amended, and the local rules of the Bankruptcy Court. BANKRUPTCY PLEADINGS means all pleadings relating to this Agreement filed with the Bankruptcy Court by Kaiser, KACC or any other Person. BASE SHARE PRICE means US$401,000,000. BASKET has the meaning set forth in Clause 15.11(a). Page 4 BAUXITE INVENTORY CHARGE means, in relation to each BOL Grade comprising the Kaiser Bauxite (referred to as the RELEVANT BAUXITE for the purpose of this definition), the aggregate of: (a) the purchase price and any royalty payments paid or payable in respect of the Relevant Bauxite under the Gladstone Bauxite Supply Agreements, as most recently invoiced prior to the Effective Date, or, if not invoiced prior to the Effective Date, as invoiced under the preliminary invoices or preliminary royalty invoices (as applicable) delivered under Clause 6.1(b)(iii); and (b) the amount of the Bauxite Shipping Charges paid or payable by Kaiser in respect of the Relevant Bauxite under the Participants Agreement in cash (net of any applicable Bauxite Shipping Charge Credit Allowances). BIDDING AND AUCTION PROCEDURES means the bidding and auction procedures attached to this Agreement as Exhibit N, as the same may be modified from time to time by agreement of the Parties. BOL GRADE means that part of a Grade of bauxite that can be identified by reference to the month of issue of a bill of lading in respect of it. BUSINESS DAY means a day on which the major trading banks are open for business in New York, New York, Wilmington, Delaware and Houston, Texas, USA. BUYER has the meaning set forth on the first page of this Agreement. BUYER ENTITY means an entity in respect of which Buyer is treated as a division or part for the purposes of Tax. BUYER INDEMNIFIED PARTIES has the meaning set forth in Clause 15.1. Page 5 BUYER INDEMNITY PAYMENT means any payment made or which may be required to be made by Kaiser and/or KACC to the Buyer Indemnified Parties under Clause 15.4. BUYER'S PARENT means RUSAL Holding. CAL means Comalco Aluminium Limited, ABN 51 009 679 127, a Queensland corporation. CLASS A ORDINARY SHARES has the meaning set forth in Clause 13.2(a). CLASS B ORDINARY SHARES has the meaning set forth in Clause 13.2(a). CLASS C ORDINARY SHARES has the meaning set forth in Clause 13.2(a). CLASS D ORDINARY SHARES has the meaning set forth in Clause 13.2(a). CLOSING has the meaning set forth in Clause 8.1. CLOSING BALANCE SHEET has the meaning set forth in Clause 6.1(a)(i). CLOSING DATE has the meaning set forth in Clause 8.1. COMALCO means Comalco Limited, ABN 37 004 502 694, a Victorian corporation. COMALCO ALUMINA SUPPLY AGREEMENT has the meaning set forth in Clause 4.4. COMMENCEMENT DATE means the date of entry of the Sale Approval Order; provided that if the Backup Bidder becomes the Buyer hereunder, Commencement Date (including for purposes of Clauses 18.1(b)(i) and 18.1(c)(i)) means the date on which Kaiser and KACC notify the Backup Bidder that it has become the Buyer in lieu of the Successful Bidder. CONFIDENTIALITY AGREEMENTS has the meaning set forth in Clause 12.10. CONSORTIUM DOCUMENTS means: Page 6 (a) the Participants Agreement; (b) the Agreement Collateral to Share Purchase Agreement; (c) the Agreement Between Parents; (d) the Gladstone Tolling Contracts; (e) the Gladstone Bauxite Supply Agreements; (f) the QAL Financing Agreements; (g) the Constitution of QAL; and (h) the 2001 Assignment and Assumption Agreement. DE MINIMIS THRESHOLD has the meaning set forth in Clause 15.11(a). DEFENDING PARTY has the meaning set forth in Clause 12.4. DEPOSIT has the meaning set forth in Clause 4A.1. DEPOSIT ESCROW AGENT means the escrow agent named in the Deposit Escrow Agreement. DEPOSIT ESCROW AGREEMENT means an escrow agreement relating to the Deposit, by and among Kaiser, KACC, Buyer and Deposit Escrow Agent, to be executed and delivered on or prior to the date on which Buyer is required to make the Deposit pursuant to Clause 4A.1. DIP FACILITY means the Post-Petition Credit Agreement, dated as of February 12, 2002, as amended, among KACC, Kaiser Aluminum Corporation, certain financial institutions party thereto and Bank of America, N.A., as Agent. Page 7 DOCUMENT ESCROW AGENT means the escrow agent named in the Document Escrow Agreement. DOCUMENT ESCROW AGREEMENT means an escrow letter in the form of Exhibit K. EFFECTIVE DATE means 11:59 p.m. at Gladstone, Queensland on the last day of the calendar month in which the last of the conditions precedent referred to in Clauses 10.1, 11.1, 11.2 and 11.3 is satisfied or duly waived and on which the sale of the Assets Sold under this Agreement is to take effect (or such later date requested by a Party and agreed to by the other Parties prior to that date). ESTIMATED BAUXITE RECEIVABLES has the meaning set forth in Clause 5.1(b). ESTIMATED PURCHASE PRICE has the meaning set forth in Clause 5.1. EXCESS ALUMINA means, in the event of Kaiser's termination of the Comalco Alumina Supply Agreement pursuant to Article 4.3(f) thereof with effect prior to December 31, 2005, the number of metric tonnes of alumina produced at QAL's Gladstone plant after the Effective Date that would have been delivered to Comalco under the Comalco Alumina Supply Agreement had such agreement not been so terminated. EXCESS KAISER ALUMINA CONSIDERATION means the US$ amount obtained by calculating, for each calendar month in which delivery of Excess Alumina would have been required under the Comalco Alumina Supply Agreement, an amount equal to 3.50% of the product of (x) the forward LME price (in US$) on the Effective Date for the calendar month prior to such calendar month for delivery, and (y) the number of metric tonnes of Excess Alumina that would have been delivered in such calendar month, and adding all such US$ amounts together. Page 8 FINAL BAUXITE RECEIVABLES has the meaning set forth in Clause 6.1(c). FINAL KAISER ALUMINA PRICE has the meaning set forth in Clause 6.1(b)(v). FINAL KAISER BAUXITE PRICE has the meaning set forth in Clause 6.1(b)(iv). FINAL ORDER means an order or judgment of the Bankruptcy Court, or other court of competent jurisdiction, as entered on the docket in any Bankruptcy Case or the docket of any other court of competent jurisdiction, that has not been reversed, stayed, modified or amended, and as to which the time to appeal or seek certiorari or move for a new trial, reargument or rehearing has expired, and no appeal or petition for certiorari or other proceedings for a new trial, reargument or rehearing has been timely taken, or as to which any appeal that has been taken or any petition for certiorari that has been timely filed has been withdrawn or resolved by the highest court to which the order or judgment was appealed or from which certiorari was sought or the new trial, reargument or rehearing shall have been denied or resulted in no modification of such order. FINAL PURCHASE PRICE has the meaning set forth in Clause 6.2. GENERAL TRUST DEED means the agreement identified as number 2 in Section IV of Exhibit L. GLADSTONE BAUXITE SUPPLY AGREEMENTS means the agreements and other documents identified in Section III of Exhibit L. GLADSTONE CREDIT ALLOWANCES means Credit Allowances, Alternative Depreciation Credit Allowances, Bauxite Shipping Charge Credit Allowances and Alumina Delivery Charge Credit Allowances. Page 9 GLADSTONE TOLLING CONTRACTS means the agreements and other documents identified in Section II of Exhibit L. GOVERNMENTAL ENTITY means any federal, state, local, municipal, foreign or other government or any provincial, departmental or political subdivision thereof, or any entity, body or authority exercising or entitled to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority or power of any nature, or any court, department, commission, board, bureau, agency, instrumentality or administrative body of any of the foregoing, including any arbitral body. GRADE means any one of the following grades of bauxite supplied under the Gladstone Bauxite Supply Agreements: (a) trihydrate bauxite; (b) Grade `A' monohydrate bauxite; (c) Grade `C' monohydrate bauxite; and (d) Grade `D' monohydrate bauxite. GST AMOUNT means the amount payable by Buyer to Kaiser under Clause 22.4 in consequence of Buyer's purchase of the Kaiser Bauxite and the Kaiser Alumina reduced by the amount payable by Kaiser to Buyer under Clause 22.4 in consequence of the assumption by Buyer of Gladstone Credit Allowances. For the purposes of the meaning of GST Amount, no amount shall be payable by Kaiser to Buyer under Clause 22.4 in consequence of the assumption by Buyer of Gladstone Credit Allowances if before the Effective Date the Commissioner of Taxation issues a final ruling or similar final Page 10 determination (the ASSUMPTION RULING) which would result in no GST (as defined for the purposes of Clause 22) being imposed on that assumption. INDEMNIFICATION CLAIM has the meaning set forth in Clause 15.12(a). INDEMNIFIED PARTY has the meaning set forth in Clause 15.12(a). INDEMNIFYING PARTY has the meaning set forth in Clause 15.12(a). INTEREST REIMBURSEMENT AGREEMENT means the (i) Financing Agreement dated as of March 30, 2001 among QAL, Kaiser, KACC, Pechiney Limited, Pechiney, CAL, Comalco, Alqueen and Alcan Inc., (ii) the Addendum to Financing Agreement, dated July 24, 2003, among QAL, Kaiser, KACC, Pechiney Limited, Pechiney, CAL, Comalco, Alqueen and Alcan Inc. and (iii) the Addendum No. 2 to Financing Agreement, dated July 24, 2003, among QAL, Kaiser, KACC, Pechiney Limited, Pechiney, CAL, Comalco, Alqueen and Alcan Inc. KACC has the meaning set forth on the first page of this Agreement. KACC SHARE IN QAL means the Class A Ordinary Share in QAL held by KACC in trust for Kaiser. KAII means Kaiser Aluminium International, Inc. KAII ASSIGNMENT AND ASSUMPTION AGREEMENT has the meaning set forth in Clause 7.4(b). KAISER has the meaning set forth on the first page of this Agreement. KAISER ALUMINA means the alumina produced by QAL for the account of Kaiser and/or KACC at calcination on or prior to the Effective Date. A pro forma calculation of the Page 11 Kaiser Alumina, assuming the Closing occurred on December 31, 2003 is contained in Exhibit A. KAISER ALUMINA SALES CONTRACTS has the meaning set forth in Clause 7.2. KAISER ASSIGNMENT AND ASSUMPTION AGREEMENT has the meaning set forth in Clause 7.4(a). KAISER BAUXITE means each BOL Grade delivered to Kaiser under its Gladstone Bauxite Supply Agreements and not processed into Kaiser Alumina by QAL on or prior to the Effective Date (whether on board ship, in stock or in process) determined on the basis on which Exhibit B has been prepared. KAISER ENTITY means an entity in respect of which Kaiser is treated as a division or part for the purposes of Tax. KAISER INDEMNIFIED PARTIES has the meaning set forth in Clause 15.2. KAISER INDEMNITY PAYMENT means any payment made or which may be required to be made by Buyer to Kaiser under Clause 15.6. KAISER SHARES IN QAL means 442,399 of the Class A Ordinary Shares in QAL held and beneficially owned by Kaiser. KAISER'S SHARE OF QAL'S BORROWINGS means, at any time, the aggregate principal amount which would be payable by Kaiser as Gladstone Tolling Charge Prepayments (or, in the case of any Gladstone Tolling Charge Prepayment not denominated in US Dollars, converted to US Dollars at its US Dollar Equivalent on the date two Business Days prior to the Effective Date) if the maturity of the aggregate principal amount of all borrowings Page 12 by QAL evidenced by Debentures were accelerated pursuant to section 7.02 of the General Trust Deed. KNOWLEDGE, with respect to Kaiser and KACC, means the actual knowledge, information and belief of the individuals listed on Exhibit J-1 having made all reasonable inquiries, and with respect to Buyer, means the actual knowledge, information and belief of the individuals listed on Exhibit J-2 having made all reasonable inquiries. LENDER CONSENT has the meaning set forth in Clause 11.1(d). LIABILITY means all costs, claims, charges, losses, damages, expenses, penalties and liabilities of any kind whether actual, contingent or prospective, including any reduction, limitation or restriction in the ability of a Person to claim a Tax Offset Item. LIBOR means the overnight rate displayed on the Reuters screen LIBOR01 page on the Effective Date (or, if that rate is not displayed on the Effective Date, the last such rate displayed prior to the Effective Date), applicable to US Dollars. LIEN means, with respect to any property or asset, any mortgage, lien, claim, pledge, security interest or other encumbrance thereon. LME means the average London Metal Exchange 3-month price for 99.7% aluminum ingot in US Dollars per metric tonne for the calendar month immediately preceding the month in which the Effective Date occurs as reported by Platt's Metal Week. If the LME ceases to be published, the Parties shall agree on a substitute index intended to reflect the market price of primary aluminum ingot on a basis essentially similar to the LME. NOTICE OF CLAIM has the meaning set forth in Clause 15.12(a)(i). ORDINARY SHARES has the meaning set forth in Clause 13.2(a). Page 13 PARENT GUARANTEE means a guarantee and indemnity in the form of Exhibit M. PARTICIPANTS AGREEMENT means the agreements and other documents identified in Section I of Exhibit L. PARTICIPANTS CONSENT means the consent of the parties to the Participants Agreement (other than Kaiser and KACC) to the transfer of the Shares in QAL and the assumption and assignment of the Assumed Interests and Obligations pursuant to Section 30(D) of the Participants Agreement. PARTIES has the meaning set forth on the first page of this Agreement. PAYEE has the meaning set forth in Clause 22.4. PECHINEY LIMITED means Aluminium Pechiney Australia Pty. Limited, a New South Wales corporation. PERSON means any individual, corporation, trust, partnership, limited liability company, unincorporated body or other entity. PRELIMINARY KAISER ALUMINA PRICE has the meaning set forth in Clause 5.1(c). PRELIMINARY KAISER BAUXITE PRICE has the meaning set forth in Clause 5.1(b). PRIOR TAX has the meaning set forth in Clause 15.6(a). PROCEEDINGS has the meaning set forth in Clause 12.4. QAL means Queensland Alumina Limited, ABN 98 009 725 044. QAL FINANCING AGREEMENTS means the agreements and other documents identified in Section IV of Exhibit L. Page 14 QAL NET WORKING CAPITAL means the amount of the net working capital of QAL on the Effective Date determined in accordance with the accounting standards applied to the Audited Financial Statements and otherwise on the basis on which Exhibit C has been prepared, by reference to the Closing Balance Sheet. QAL NET WORKING CAPITAL ADJUSTMENT has the meaning set forth in Clause 3(a). QAL PURCHASE PRICE has the meaning set forth in Clause 3. RECIPIENT has the meaning set forth in Clause 22.3(a)(i). RTL means Rio Tinto Limited, a Victorian corporation formerly known as CRA Limited. RUSAL HOLDING means RUSAL Holding Ltd., a British Virgin Islands company. SALE APPROVAL ORDER has the meaning set forth in Clause 12.7. SET-OFF AMOUNT means, where (i) Buyer has been notified by Kaiser and KACC that it is the Backup Bidder pursuant to the Bidding and Auction Procedures and is subsequently notified by Kaiser and KACC that they wish to consummate the Transaction with Buyer in lieu of the Successful Bidder, and (ii) the Base Share Price is equal to or greater than US$400,000,000, an amount equal to US$2,000,000 for each full 30 calendar day period (reduced pro rata for any lesser number of calendar days), beginning on the date that is 151 calendar days following the date of entry of the Sale Approval Order (as such term is defined in the Bidding and Auction Procedures) and ending on the Effective Date (inclusive of both such dates). SHARES IN QAL means the Kaiser Shares in QAL and the KACC Share in QAL. SUCCESSFUL BIDDER has the meaning set forth in the Bidding and Auction Procedures. Page 15 SUPPLIER has the meaning set forth in Clause 22.4(a)(i). TAX means any tax, duty, charge or levy imposed now or at any future date under the laws of Australia or any other country, including income tax, capital gains tax, payroll tax, fringe benefits tax, PAYG liability, sales tax, GST, customs duty and stamp duty, and also includes any associated penalties, fines or interest. TAX INVOICE has the meaning assigned to such term in the A New Tax System (Goods and Services Tax) Act 1999 (Cth). TAX OFFSET ITEM means any deduction, loss, credit, rebate, allowance, refund, set-off or other relief which may reduce, limit or defer a liability to Tax. TAX REFUND has the meaning set forth in Clause 15.6(b). TAX RETURN means any return, declaration, report, claim for refund, information return or other document (including any related or supporting estimates, elections, schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Tax or the administration of any legislation relating to any Tax. TITLE CLAIMS means legal proceedings brought in any court of competent jurisdiction that is not a United States federal or state court seeking (i) damages from Buyer, or (ii) to impose a Lien upon the Shares in QAL, or (iii) to challenge or divest Buyer's legal or beneficial ownership of the Shares in QAL, if success in such proceedings would render any of the representations and warranties made by Kaiser or KACC in Clauses 13.1(a) to (c) not being true and correct in all material respects on the date of this Agreement or on and as of the Closing Date. Page 16 TOGC GST RULING has the meaning set forth in Clause 22.2(b). TRADE PRACTICES ACT means the TRADE PRACTICES ACT 1974 (Cth). TRANSACTION means the sale of the Assets Sold, the assumption of the Assumed Interests and Obligations and other liabilities, and the other transactions contemplated by this Agreement. TREASURER has the meaning set forth in Clause 10.1(a). TWENTY SECOND SUPPLEMENTAL TRUST DEED means the agreement identified as number 3 in Section IV of Exhibit L. UNISTAR ALUMINA SALES CONTRACT means the agreement identified as number 3 on Exhibit D. UNISTAR PAYMENT has the meaning set forth in Clause 4.3. US DOLLARS or US$ means lawful money of the United States of America. US DOLLAR EQUIVALENT means, as at any date, the equivalent in US Dollars of an amount in Australian dollars converted at the rate displayed at or about 10:30 am (Melbourne time) on such date on the Reuters screen HSRA page. WORKING CAPITAL CEILING AMOUNT means A$35,000,000. WORKING CAPITAL FLOOR AMOUNT means A$15,000,000. 1.2 In this Agreement, unless the context otherwise requires, capitalized terms not otherwise defined herein have the meanings assigned to such terms in the Participants Agreement. 1.3 Headings are for convenience only and do not affect interpretation. The following rules apply unless the context requires otherwise. Page 17 (a) The singular includes the plural and conversely. (b) A gender includes all genders. (c) If a word or phrase is defined, its other grammatical forms have a corresponding meaning. (d) A reference to a person, corporation, trust, partnership, limited liability company or unincorporated body or other entity includes any of them. (e) A reference to a Clause, Exhibit or Schedule is a reference to a Clause of, or an Exhibit or Schedule to, this Agreement. Disclosures made in any Clause, Exhibit or Schedule that are responsive to the requirements of any other Clause, Exhibit or Schedule are deemed to be incorporated therein by reference. (f) A reference to an agreement or document (including a reference to this Agreement) is to the agreement or document as amended, varied, supplemented, novated or replaced. (g) A reference to a party to this Agreement or another agreement or document includes the party's successors and permitted substitutes or assigns. (h) A reference to legislation or to a provision of legislation includes a modification, amendment or re-enactment of it, a legislative provision substituted for it and a rule, regulation or statutory instrument issued under it. (i) A reference to WRITING includes a facsimile transmission and any means of reproducing words in a tangible and permanently visible form. (j) The term INCLUDING means including without limitation. Page 18 2. PURCHASE AND SALE OF ASSETS SOLD Subject to, and on the basis of, the representations, warranties and agreements contained in this Agreement, Buyer agrees to purchase from Kaiser and KACC, and Kaiser and KACC agree to sell to Buyer, the Assets Sold with effect from the Effective Date. For the avoidance of doubt, the intention of the Parties is that all incidents of ownership, including income, expenses and other results of operations represented by Kaiser's and KACC's proportionate ownership interest in QAL, except for certain specific financial arrangements set forth in this Agreement, shall be vested in Kaiser and KACC prior to the Effective Date and shall be vested in Buyer from and after the Effective Date. 3. PURCHASE PRICE FOR THE SHARES IN QAL The purchase price for the Shares in QAL (the QAL PURCHASE PRICE) will be the Base Share Price, adjusted as follows: (a) plus or minus the US Dollar Equivalent (determined on the date two Business Days prior to the date payment adjustment is to be made under Clause 9) of 20% of the amount by which the actual QAL Net Working Capital (computed in accordance with Clause 6): (i) exceeds the Working Capital Ceiling Amount; or (ii) is less than the Working Capital Floor Amount; and (If the actual QAL Net Working Capital exceeds the Working Capital Ceiling Amount, an amount equal to 20.0% of such excess amount will be added to the Base Share Price in computing the QAL Purchase Price. If the actual QAL Net Working Capital is less than the Working Capital Floor Amount, an amount equal Page 19 to 20.0% of such difference will be deducted from the Base Share Price in computing the QAL Purchase Price (QAL NET WORKING CAPITAL ADJUSTMENT).) (b) plus the US Dollar amount, if any, by which Kaiser's Share of QAL's Borrowings immediately prior to the Effective Date (including obligations classified as current portion of long term debt) is less than US$60,000,000, determined on a dollar-for-dollar basis (ASSUMED DEBT ADJUSTMENT). 4. PURCHASE PRICE FOR KAISER BAUXITE, KAISER ALUMINA AND OTHER ITEMS 4.1 The purchase price per dry metric tonne for the Kaiser Bauxite will be the aggregate of the Bauxite Inventory Charge for each BOL Grade comprising the Kaiser Bauxite, calculated on the assumption that bauxite is processed into alumina on a `first in first out' basis for each BOL Grade and on the basis on which Exhibit B has been prepared. 4.2 The purchase price for the Kaiser Alumina will be 12.5% of LME per metric tonne, calculated on the basis on which Exhibit A was prepared (the ALUMINA PURCHASE PRICE). 4.3 If the Effective Date occurs on or before Kaiser's shipment of 36,800 metric tonnes of alumina during the fourth quarter of 2004 under the Unistar Alumina Sales Contract, Buyer will pay to Kaiser at the Closing US$1,786,000. If the Effective Date occurs after shipment of a portion (but less than all) of such 36,800 metric tonnes of alumina, Buyer will pay to Kaiser at the Closing US$1,050,000 plus an amount equal to US$20 multiplied by the number of metric tonnes of alumina remaining to be shipped during 2004 under such contract. If the Effective Date occurs after shipment of such 36,800 metric tonnes of alumina but prior to Kaiser's shipment of all or a portion of 105,000 metric tonnes of alumina during 2005 under such contract, Buyer will pay to Kaiser an Page 20 amount equal to US$10 multiplied by the number of metric tonnes of alumina remaining to be shipped during 2005 under such contract. The amount determined in accordance with this Article 4.3 is referred to herein as the UNISTAR PAYMENT. 4.4 If Kaiser notifies Comalco on or before the Effective Date that Kaiser has elected to terminate the Kaiser Alumina Sales Agreement identified as item number 1 on Exhibit D (the COMALCO ALUMINA SUPPLY AGREEMENT) pursuant to Article 4.3(f) thereof such that the effective date of termination is prior to December 31, 2005, Buyer will pay the Excess Kaiser Alumina Consideration to Kaiser. 4A. DEPOSIT 4A.1 Buyer shall make a good faith deposit in the amount of US$40,000,000 (the DEPOSIT) in accordance with the terms of the Deposit Escrow Agreement and Bidding and Auction Procedures. Buyer shall make the Deposit via wire transfer of immediately available funds to the account set forth in the Deposit Escrow Agreement. Application of the Deposit shall be subject to the terms and provisions of this Agreement and the Deposit Escrow Agreement. 4A.2. Upon the Closing, KACC and Buyer shall deliver a joint written notice to the Deposit Escrow Agent directing the release of the Deposit to Sellers for application to the payment of the Estimated Purchase Price and Kaiser shall deliver a written notice to the Document Escrow Agent directing the release of the Documents in accordance with paragraph 3(b) of the Document Escrow Agreement. 4A.3. Upon termination of this Agreement pursuant to Clause 18.1(b)(ii), KACC and Buyer shall deliver a joint written notice to the Deposit Escrow Agent directing the release of the Deposit to the Sellers as liquidated damages and Kaiser shall deliver a written notice Page 21 to the Document Escrow Agent directing the release and destruction of the Documents in accordance with paragraph 3(b) of the Document Escrow Agreement. 4A.4. Upon termination of this Agreement pursuant to any provision other than Clause 18.1(b)(ii), KACC and Buyer shall deliver a joint written notice to the Deposit Escrow Agent directing the release of the Deposit to the Buyer and Kaiser shall deliver a written notice to the Document Escrow Agent directing the release and destruction of the Documents in accordance with paragraph 3(b) of the Document Escrow Agreement. 5. ESTIMATED PURCHASE PRICE 5.1 On the Closing Date, Buyer will pay to Kaiser, by wire transfer of immediately available funds, an amount on account of the purchase price for the Assets Sold (the ESTIMATED PURCHASE PRICE) equal to: (a) in respect of the Shares in QAL, the Base Share Price, less the Deposit, less the Set-Off Amount (if any); plus (b) in respect of the Kaiser Bauxite, A$6,000,000 (converted to US Dollars at its US Dollar Equivalent on the date two Business Days prior to the Closing Date); provided, however, that at least 10 days prior to the Effective Date Kaiser and KACC shall deliver to Buyer a written statement in the form of Exhibit B stating the estimated Australian dollar amount of the Kaiser Bauxite as of the Effective Date (the PRELIMINARY KAISER BAUXITE PRICE) offset by a reasonable estimate of the amount due including GST (as defined for the purposes of Clause 22), if any, to CAL for bauxite invoiced but not paid (the ESTIMATED BAUXITE RECEIVABLES) and the amount stated in such written statement, if different, will be substituted for such A$6,000,000 amount; plus Page 22 (c) in respect of the Kaiser Alumina, US$6,000,000; provided, however, that at least 10 days prior to the Effective Date, Kaiser and KACC shall deliver to Buyer a written statement which states the number of metric tonnes of Kaiser Alumina that Kaiser and KACC estimate will exist on the Effective Date, calculated on the basis on which Exhibit A was prepared, multiplied by an amount in US$ equal to the Alumina Purchase Price (the PRELIMINARY KAISER ALUMINA PRICE) and the amount stated in such written statement, if different, will be substituted for such US$6,000,000 amount; plus (d) on account of the GST Amount, A$1,800,000 (converted to US Dollars at its US Dollar Equivalent on the date two Business Days prior to the Closing Date); provided, however, that at least 10 days prior to the Effective Date Kaiser and KACC shall deliver to Buyer a written statement updating the estimated GST Amount to reflect any changes to the estimated Preliminary Kaiser Bauxite Price in Clause 5.1(b) and the estimated Preliminary Kaiser Alumina Price in Clause 5.1(c), such written statement to also contain an estimate of the balance of the Gladstone Credit Allowances as at the Effective Date unless at least 10 days prior to the Effective Date, Buyer has delivered a written statement to Kaiser and KACC stating that the Commissioner of Taxation has issued the Assumption Ruling which results in no GST (as defined for the purposes of Clause 22) being imposed on that assumption. The estimated GST Amount, if any, determined from such written statements will be substituted for such A$1,800,000 amount. (For the purpose of estimating the GST Amount included in this Clause 5.1(d) to be A$1,800,000, it is assumed that the GST payable by Kaiser to Buyer under Page 23 Clause 22.4 in consequence of the assumption by Buyer of the Gladstone Credit Allowances is zero.). Notwithstanding the foregoing, if (i) the TOGC GST Ruling has been received by Buyer and written notice thereof has been received by Kaiser or KACC within the 10 days prior to the Effective Date or (ii) the Assumption Ruling has been received by Kaiser or KACC within the 10 days prior to the Effective Date, the estimated GST Amount shall be adjusted to take into account the determinations made under those rulings; plus (e) A$0 as an estimate of the amount payable in respect of the QAL Net Working Capital Adjustment referred to in Clause 3(a); provided however that at least 10 days prior to the Effective Date Kaiser and KACC shall deliver to Buyer a written statement specifying the amount of the QAL Net Working Capital Adjustment that would be made if the Effective Date had occurred on the last day of the previous calendar month and the amount stated in such written statement, if different, will be substituted for such A$0 amount; plus (f) US$0 as an estimate of the amount payable in respect of the Assumed Debt Adjustment referred to in Clause 3(b); plus (g) the Unistar Payment, if applicable, plus any GST payable in accordance with Clause 22, if applicable; plus (h) the Excess Kaiser Alumina Consideration, if applicable, plus any GST payable in accordance with Clause 22, if applicable. Page 24 5.2 The Estimated Purchase Price will bear interest from, but not including, the Effective Date to, and including, the day immediately preceding the Closing Date, calculated at LIBOR. 6. FINAL PURCHASE PRICE 6.1 As soon as practicable, and in any event within 30 days, following the Effective Date: (a) the Parties will cause QAL to prepare and deliver to the Parties: (i) a balance sheet for QAL as at the Effective Date (the CLOSING BALANCE SHEET) containing line items, notes and schedules similar to those included in the Audited Financial Statements, but in any event setting forth specifically the amount of the Gladstone Credit Allowances and, to the extent practicable, prepared in accordance with Australian generally accepted accounting principles without giving effect to any changes therein that may have occurred after December 31, 2003, and otherwise on a basis consistent with the Audited Financial Statements; (ii) a computation of each BOL Grade comprising the Kaiser Bauxite as at the Effective Date, detailing each BOL Grade and relevant delivery months and whether such bauxite is in stockpile, in transit or in process (in the form of Exhibit B); (iii) [INTENTIONALLY OMITTED]; (iv) a computation of the QAL Net Working Capital as at the Effective Date (in the form of Exhibit C); and a computation of the amount of the QAL Page 25 Net Working Capital Adjustment calculated in the manner set forth in Clause 3(a); (v) a computation of Kaiser's Share of QAL's Borrowings immediately prior to the Effective Date; (vi) a computation of the Assumed Debt Adjustment; and (vii) a computation of the component referred to in paragraph (b) of the definition of Bauxite Inventory Charge for each BOL Grade comprising the Kaiser Bauxite, determined in accordance with such paragraph (b) and Clause 4.1, showing the amount paid and the amount payable in respect of the Kaiser Bauxite (in the form in Exhibit B). All computations in this Clause 6.1(a) shall be set out in reasonable detail and, as applicable, include particulars of the applicable Bauxite Shipping Charges and the applicable Bauxite Shipping Charge Credit Allowances. In addition, Kaiser, KACC and Buyer will jointly request that QAL make all computations as of the Effective Date on the basis that the Effective Date will be treated as if it were a financial year end date of QAL. Any costs charged by QAL in preparing the Closing Balance Sheet and computations referred to in this Clause 6.1(a) will be borne equally by Kaiser and Buyer. (b) Kaiser will prepare (or cause to be prepared) and deliver to Buyer: (i) a computation of the component referred to in paragraph (a) of the definition of Bauxite Inventory Charge for each BOL Grade comprising the Kaiser Bauxite, determined in accordance with that paragraph and Page 26 Clause 4.1 (in the form of Exhibit B), such computation to be set out in reasonable detail and to include particulars of the BOL Grades comprising the Kaiser Bauxite; (ii) unless the TOGC GST Ruling and the Assumption Ruling were issued prior to the Effective Date, a computation of the GST Amount, such computation to be set out in reasonable detail and to take into account the determinations made under the TOGC GST Ruling and the Assumption Ruling, if received; (iii) all preliminary invoices and preliminary royalty invoices relating to Kaiser Bauxite which are delivered by CAL to Kaiser or KACC prior to the Effective Date and, where relevant, if the month in which the Effective Date occurs is not the last month in a calendar quarter, a preliminary royalty invoice in respect of the period since the end of the preceding calendar quarter until the end of the month in which the Effective Date occurs, which invoices will be used in the calculation referred to in Clause 6.1(c); and (iv) a calculation of the Kaiser Bauxite as of the Effective Date in the form of Exhibit B, which shall indicate, based upon the principles contained in Clause 4.1 and this Clause 6 and otherwise on a basis consistent with the calculation of the Preliminary Kaiser Bauxite Price set forth in Clause 5.1, the final purchase price for the Kaiser Bauxite (the FINAL KAISER BAUXITE PRICE). If the Final Kaiser Bauxite Price exceeds the Preliminary Kaiser Bauxite Price, Buyer will pay Kaiser an amount equal to the difference as Page 27 part of the payment adjustment to be made under Clause 9. If the Preliminary Kaiser Bauxite Price exceeds the Final Kaiser Bauxite Price, Kaiser will pay Buyer an amount equal to the difference as part of the payment adjustment to be made under Clause 9; (v) a calculation of the Kaiser Alumina as of the Effective Date in the form of Exhibit A, based on information contained in the "blue book" of QAL financial and operating information prepared by QAL management for the month ending on the Effective Date, which shall indicate, based upon the principles contained in this Clause 6, the final purchase price for the Kaiser Alumina (the FINAL KAISER ALUMINA PRICE). If the Final Kaiser Alumina Price exceeds the Preliminary Kaiser Alumina Price, Buyer will pay Kaiser an amount equal to the difference as part of the payment adjustment to be made under Clause 9. If the Preliminary Kaiser Alumina Price exceeds the Final Kaiser Alumina Price, Kaiser will pay Buyer an amount equal to the difference as part of the payment adjustment to be made under Clause 9; and (vi) a computation of the amount by which the QAL Net Working Capital Adjustment computed by QAL in accordance with Clause 6.1(a)(iv) exceeds or is less than the estimated amount thereof determined in accordance with Clause 5.1(e). If the amount of the QAL Net Working Capital Adjustment as so computed exceeds the estimated amount paid pursuant to Clause 5.1(e), Buyer shall pay an amount equal to the difference to Kaiser and KACC as part of the payment adjustment to be Page 28 made under Clause 9. If the amount of the QAL Net Working Capital Adjustment as so computed is less than the estimated amount paid pursuant to Clause 5.1(e), Kaiser and KACC shall pay an amount equal to the difference to Buyer as part of the adjustment to be made under Clause 9. (c) Buyer and Kaiser will jointly request CAL to prepare (or cause to be prepared) and deliver to Kaiser a computation of the amount due including GST (as defined for purposes of Clause 22) to CAL from Kaiser as at the Effective Date for bauxite invoiced but not paid (the FINAL BAUXITE RECEIVABLES), such computation to be set out in reasonable detail. If the Final Bauxite Receivables exceeds the Estimated Bauxite Receivables, Kaiser will pay Buyer an amount equal to the difference as part of the payment adjustment to be made under Clause 9. If the Estimated Bauxite Receivables exceeds the Final Bauxite Receivables, Buyer will pay Kaiser an amount equal to the difference as part of the payment adjustment to be made under Clause 9. 6.2 The final purchase price for the Assets Sold and, if applicable, the GST Amount (the FINAL PURCHASE PRICE), will be computed in accordance with Clauses 3, 4, 5.1 and 22 based on the Closing Balance Sheet and on the computations and invoices delivered under Clause 6.1. For the avoidance of doubt, the Parties agree that there will be no purchase price adjustment due to implementation of changes in Australian accounting standards that may have occurred after December 31, 2003, including without limitation any such changes described in the Note appearing in Exhibit C. Page 29 6.3 If there is any dispute between the Parties as to the content or methodology of the Closing Balance Sheet or any computation delivered or to be made under this Clause 6, either Buyer or Kaiser may refer the matter to QAL's independent, external auditors. Any determination made by QAL's independent, external auditors will be conclusive and binding on the Parties (in the absence of manifest error). The costs of any such determination will be borne equally by Kaiser and Buyer. 7. ASSUMED INTERESTS AND OBLIGATIONS 7.1 In connection with the sale of the Shares in QAL, with effect on and from the Effective Date, Kaiser and KACC hereby agree to assign to Buyer, and Buyer hereby agrees to accept and assume, all of the Assumed Interests and Obligations; it being understood that there are no cure amounts owed with respect to the agreements comprising the Assumed Interests and Obligations. To the extent that any cure amounts shall be determined to be due and owing pursuant to Section 365 of the Bankruptcy Code, Kaiser and KACC shall pay any such cure amounts. 7.2 Additionally, as of the Effective Date, Kaiser and KACC will cause KAII to assign to Buyer, and Buyer will assume all of KAII's obligations under the contracts listed on Exhibit D attached hereto (KAISER ALUMINA SALES CONTRACTS) subject to third party consents or acknowledgements in accordance with Clause 11.1(e); it being understood that there are no cure amounts owed with respect to the Kaiser Alumina Sales Contracts. To the extent that any cure amounts shall be determined to be due and owing pursuant to Section 365 of the Bankruptcy Code, Kaiser and KACC shall pay any such cure amounts. The Parties agree, however, that the rights assigned to Buyer under this Clause 7.2 shall not include the right to receive payment on trade receivables in respect of alumina Page 30 inventory shipped prior to the Effective Date. In the event that Buyer receives payment in respect of any such trade receivables, it shall as soon as practicable remit such payment to KAII. Kaiser and KACC will cause KAII to ensure that no amendments are made to the Kaiser Alumina Sales Contracts without obtaining the prior written consent of Buyer; provided, however that no provision of this Clause 7.2 shall prohibit either Kaiser or KACC from taking actions in the ordinary course of business with respect to any such agreement or document so long as the economic effect of such actions does not extend beyond the Effective Date. 7.3 It is agreed, for the avoidance of doubt, that no consideration is payable by Buyer to Kaiser or KACC in respect of any rights forming part of the Assumed Interests and Obligations or under Kaiser Alumina Sales Contracts agreed to be assigned to Buyer under this Agreement or assigned to Buyer and Buyer's Parent under the Kaiser Assignment and Assumption Agreement and to Buyer under the KAII Assignment and Assumption Agreement, as applicable. 7.4 The assignments and assumptions described in this Clause 7 will be made: (a) in respect of Clause 7.1, under an assignment and assumption agreement in the form of Exhibit E (the KAISER ASSIGNMENT AND ASSUMPTION AGREEMENT) to be delivered on the Closing Date; and (b) in respect of Clause 7.2, under an assignment and assumption agreement in the form of Exhibit F (the KAII ASSIGNMENT AND ASSUMPTION AGREEMENT) to be delivered on the Closing Date. Page 31 7.5 Kaiser and KACC agree with the Buyer that between the date of execution of this Agreement and the Effective Date: (a) neither of them will, and they will procure that KAII does not, enter into any new contracts for the sale of Kaiser Alumina in addition to those listed in Exhibit D; and (b) neither of them will agree to any amendments being made to, or to any of the underlying documents which evidence, the Assumed Interests and Obligations without the prior written approval of the Buyer; if the economic effect of any such new contracts or amendments would extend beyond the Effective Date. 8. CLOSING 8.1 The closing (the CLOSING) of the sale of the Assets Sold and the assumption of the Assumed Interests and Obligations will occur on the Effective Date if the Effective Date is a Business Day, or on the Business Day immediately following the Effective Date if the Effective Date is not a Business Day, at 11:00 am at the offices of the Deposit Escrow Agent, unless Buyer and Kaiser agree otherwise. The actual date on which the Closing is to occur is referred to as the CLOSING DATE. 8.2 (a) Each of Kaiser and KACC (and Buyer, if it is a Participant or an affiliate of a Participant) will in the period between the date of signing this Agreement and the Closing Date use its commercially reasonable efforts to ensure that QAL conducts its business in the ordinary course of business consistent with past practices. Page 32 (b) Each of KACC and Kaiser will ensure that deliveries of alumina by QAL to Kaiser under Article 17 of the Participants Agreement are made so as to ensure that on the Effective Date there is a positive quantity of Kaiser Alumina. 8.3 On the Closing Date: (a) Kaiser will deliver to Buyer: (i) a share certificate in respect of the Kaiser Shares in QAL; (ii) an instrument of transfer of the Kaiser Shares in QAL in registrable form duly executed by Kaiser and dated as of the Effective Date; and (iii) Tax Invoices as defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (TAX INVOICE) in respect of the taxable supplies made by Kaiser under this Agreement unless the TOGC GST Ruling has been issued prior to the Effective Date; and (iv) a letter of resignation from each director appointed by Kaiser or KACC to the board of directors of QAL and from each member appointed to represent either Kaiser or KACC on each committee of the board of directors of QAL together with a memorandum in writing nominating those directors of Buyer as advised by Buyer to Kaiser or KACC at least 10 days prior to the Effective Date to the board of directors of QAL in compliance with Article 40(a) of the Articles of Association of QAL. (b) KACC will deliver to Buyer: (i) a share certificate for the KACC Share in QAL; Page 33 (ii) an instrument of transfer of the KACC Share in QAL in registrable form duly executed by KACC and dated as of the Effective Date; and (iii) the Confidentiality Agreements referred to in Clause 12.10. (c) Buyer will deliver to Kaiser a Tax Invoice in respect of Buyer's assumption of the Gladstone Credit Allowances, if applicable. (d) The Parties will deliver the Kaiser Assignment and Assumption Agreement, as specified in Clause 7.4(a). (e) Buyer and KACC or its designee will deliver the Alumina Supply Agreement (the ALUMINA SUPPLY AGREEMENT), in the form of Exhibit G; (f) Buyer will deliver and KACC will procure KAII to deliver, the KAII Assignment and Assumption Agreement as specified in Clause 7.4(b). (g) Buyer will procure Buyer's Parent to deliver the Parent Guarantee. (h) The parties shall deliver all of the consents received pursuant to Clauses 11.1(e), 11.2(f) and 11.3(d). (i) KACC will deliver the assignment of all of KACC's rights and the delegation of all of KACC's obligations under each of the Confidentiality Agreements to Buyer. (j) the Parties shall deliver, in form and substance reasonable satisfactory to Buyer: (i) the assignments to, and assumption by Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC, respectively, under Page 34 the QAL Financing Agreements (other than obligations to be paid or performed prior to the Effective Date); and (ii) the assignments to, and assumption by Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC under the documents and other agreements listed on Exhibit L, and the documents and other agreements identified in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations and, in the case of KAII, the Kaiser Alumina Sales Contracts. (k) Upon the taking of the actions referred to in Clauses 8.3(a) to (j): (i) Buyer will deliver to Kaiser the Estimated Purchase Price (with interest as applicable) in US Dollars by wire transfer of immediately available funds to the account(s) notified to Buyer by Kaiser no later than three Business Days prior to the Closing Date; and (ii) KACC and Buyer will instruct the Deposit Escrow Agent to release the Deposit in accordance with Section 1.2 of the Deposit Escrow Agreement. 8.4 All the actions taken as required by Clause 8.3 will be deemed to be taken simultaneously on the Closing Date, and no one such action will be deemed to be completed until all such actions are completed. No such action will have effect, and the Closing will be deemed not to have occurred, until Kaiser has received verification of receipt of the amounts mentioned in Clauses 8.3(k). On receipt of such verification, Kaiser will immediately notify Buyer and will instruct the Document Escrow Agent to release the documents held by it in escrow. Page 35 8.5 The documents mentioned in Clause 8.3 will, after delivery under Clause 8.3, be held in escrow by the Document Escrow Agent, until released as contemplated by Clause 8.4 and provided for in the Document Escrow Agreement. 8.6 Once the Closing has occurred as contemplated by Clause 8.4, it will be deemed to have occurred as of the Effective Date. 8.7 At Buyer's request, Kaiser and KACC will do all other acts and things reasonably within their power to have Buyer registered as the holder of the Shares in QAL on the Closing Date. As between Kaiser, KACC and Buyer, ownership of the Shares in QAL will, if the Closing occurs, be transferred to Buyer with effect as of the Effective Date notwithstanding that the legal transfer of the Shares in QAL may be registered by QAL at a later date. 8.8 Following entry of the Sale Approval Order, the Parties will as promptly as practicable, and will use their respective commercially reasonable efforts to cause QAL to, do all other acts and things necessary or advisable such that, as of the Effective Date, all third party consents in respect of the agreements and other documents identified in Exhibit L and the agreements and other documents identified in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations shall have been obtained. 9. POST CLOSING (a) The Final Purchase Price for the Assets Sold including the final GST Amount, if any, will be computed as provided in Clause 6.2 and any payment adjustment necessary to reflect the aggregate net differences between: Page 36 (i) the Base Share Price and the QAL Purchase Price (which includes the QAL Net Working Capital Adjustment and the Assumed Debt Adjustment); (ii) the Preliminary Kaiser Bauxite Price and the Final Kaiser Bauxite Price, as provided in Clause 6.1(b); (iii) the Preliminary Kaiser Alumina Price and the Final Kaiser Alumina Price; and (iv) the Estimated Bauxite Receivables and the Final Bauxite Receivables; will, subject to Clause 9(b), be made by Kaiser or Buyer, as applicable, following written demand therefor sent no earlier than the date 30 days after the Effective Date, or, if that is not a Business Day, on the next Business Day (the ADJUSTMENT DATE). If the final GST Amount determined in accordance with Clause 6.1(b)(ii) differs from the amount paid under Clause 5.1(d), if any, then the Parties will issue GST adjustment notes as may be necessary to enable them to satisfy their respective GST obligations on the Adjustment Date. (b) In the event of a dispute being referred to QAL's independent, external auditors as provided in Clause 6.3, any necessary payment adjustment with respect to the amount disputed will be made on the date seven days after the final determination of such dispute by QAL's independent, external auditors, or if that is not a Business Day, on the next Business Day. Page 37 (c) For the purposes of determining differences under paragraph (a) any amount computed or expressed in Australian Dollars will be converted to its US Dollar Equivalent on the date which is two Business Days prior to the Adjustment Date. (d) As between Buyer and Kaiser, Buyer will be responsible for paying any Bauxite Shipping Charges referred to in Exhibit B. (e) [INTENTIONALLY OMITTED] (f) If the Final Purchase Price including the final GST Amount, if applicable, determined in accordance with Clause 9(a) exceeds the Estimated Purchase Price, Buyer shall pay the undisputed amount of such difference by wire transfer in immediately available funds to an account designated by Kaiser no later than 10 Business Days after Kaiser's written demand for such payment. If the Final Purchase Price including the final GST Amount, if applicable, is less than the Estimated Purchase Price, Kaiser shall pay the undisputed amount of such difference to Buyer by wire transfer in immediately available funds no later than 10 Business Days after Buyer's written demand for such payment. Neither Kaiser nor Buyer may make a demand for payment of such difference, written or otherwise, prior to the expiration of the time period referenced in Clause 9(a). Payment of any disputed amounts related to the determination of the Final Purchase Price including the final GST Amount, if applicable, shall be governed by the provisions of Clause 9(b). Page 38 10. FOREIGN ACQUISITIONS AND TAKEOVERS ACT 10.1 Except for this Clause 10 and the other Clauses referred to in Clause 10.3, the provisions of this Agreement will not be binding unless and until either: (a) the Treasurer of the Commonwealth of Australia (the TREASURER) has not made an order under Part II of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the ACT) (other than an interim order under Section 22 of the Act which has expired) within the time limit specified in Section 26 of the Act; or (b) a notice in writing is issued by or on behalf of the Treasurer (without any term or condition which Buyer considers unacceptable) stating or to the effect that the Australian Government does not object to Buyer entering into this Agreement or acquiring an interest in the Shares in QAL, (whichever first occurs) in respect of a notice given by Buyer under that Act in relation to this Agreement. 10.2 Buyer will give the notice by it under the Act in relation to this Agreement mentioned in Clause 10.1 within 10 Business Days after the date of execution of this Agreement. 10.3 Except for this Clause 10, and Clauses 1, 17, 19, 20, 21, 23, 24, 25, 27, 28 and 29, the provisions of this Agreement will be null and void and of no further effect if this Agreement does not become binding under this Clause. 11. OTHER CONDITIONS PRECEDENT 11.1 The obligations of the Parties to consummate the transactions contemplated by this Agreement will be subject to the fulfillment on or prior to the Closing Date of the following conditions precedent (except to the extent they are waived by both Buyer and Kaiser and KACC): Page 39 (a) the obtaining of: (i) written advice from the Australian Competition and Consumer Commission that it does not propose to intervene in the transfer of the Shares in QAL; (ii) approvals, consents or authorisations from Governmental Entities under applicable competition legislation (such as the US Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended), or other applicable laws or regulations that may limit or restrict the ability of the Parties to consummate the transactions contemplated by this Agreement, if any; and (iii) any approvals, consents or authorisations of Governmental Entities for the transactions contemplated by this Agreement made necessary by a change in applicable law after the date of the Agreement, except where the failure to obtain any such authorisation would not be reasonably likely to have, individually or in the aggregate, a material adverse effect on (w) the ability of the Parties to consummate the transactions contemplated by this Agreement, or (x) the value of the Shares in QAL, or (y) the interests and rights included in the Assumed Interests and Obligations, or (z) the interests and rights, taken as a whole, under the Kaiser Alumina Sales Contracts; (b) the Sale Approval Order shall have been entered and not stayed; (c) there shall be no order, writ, injunction or decree of any Governmental Entity on any of the Parties prohibiting, and there shall be no actions, suits or proceedings Page 40 pending in, before or by any Governmental Entity (other than an action, suit or proceeding which Buyer determines, in good faith and after consultation with external counsel, is without merit), seeking to prohibit, or challenging the validity of, the transactions contemplated by this Agreement; (d) consents to the transactions contemplated by this Agreement necessary under the DIP Facility (the LENDER CONSENT) shall have been obtained; (e) consents or acknowledgements from the other parties thereto that are necessary, if any, under the Kaiser Alumina Sales Contracts shall have been obtained; and (f) the Participants Consent shall have been received. 11.2 Buyer's obligations to consummate the transactions contemplated by this Agreement will (unless waived by Buyer) be conditional upon the following: (a) the representations and warranties of Kaiser and KACC in Clause 13 being true and correct in all material respects on the date of this Agreement and on and as of the Effective Date with the same force and effect as if made on and as of that date, except for: (i) changes contemplated by this Agreement; (ii) those representations and warranties which address matters only as of a particular date (which shall be true and correct as of such date); or (iii) to the extent that failure of a representation and warranty (which was not actually known by Kaiser or KACC to be incorrect on the date of execution of this Agreement) to be so true and correct as of the Effective Date would not be reasonably likely to have, individually or in the Page 41 aggregate, a material adverse effect on (w) the ability of Kaiser and KACC to consummate the transactions contemplated by this Agreement, or (x) the value of the Shares in QAL, or (y) the interests and rights included in the Assumed Interests and Obligations, or (z) the interests and rights, taken as a whole, under the Kaiser Alumina Sales Contracts, and each of Kaiser and KACC having delivered to Buyer a certificate to that effect, dated as of the Effective Date, signed by a principal financial or accounting officer of Kaiser and KACC in form and substance reasonably satisfactory to Buyer; (b) each of Kaiser and KACC having performed or complied with all provisions of this Agreement to be performed or complied with by it on or prior to the Closing Date except where the failure to so have performed or complied would not be reasonably likely to have, individually or in the aggregate, a material adverse effect on (w) the ability of Kaiser or KACC to consummate the transactions contemplated in this Agreement, or (x) on the value of the Shares in QAL, or (y) the interests and rights included in the Assumed Interests and Obligations, or (z) the interests and rights, taken as a whole, under the Kaiser Alumina Sales Contracts; (c) since the date hereof, there not having occurred any material adverse change in the business of QAL (including its assets) except for any changes: (i) resulting from changes in general economic or market conditions or changes that generally affect: Page 42 (A) the production of and market for alumina and/or aluminium generally; or (B) businesses of the same type as the business conducted by QAL; or (ii) in the general level of expenditures required, necessary or desirable to be made in the operation of the business of QAL as it is currently being carried on; (d) the directors of QAL having duly resolved (i) (subject only to production of the documents referred to in Clause 8.3(a)(i) and (ii) and 8.3(b)(i) and (ii), the payment of stamp duty on the documents referred to in Clauses 8.3(a)(ii) and 8.3(b)(ii) and the occurrence of the Closing) to register the transfer of the Shares in QAL, to cancel the existing share certificates for the Shares in QAL, and to issue a new share certificate for the Shares in QAL in the name of Buyer; and (ii) to accept the resignation(s) of the directors appointed by Kaiser or KACC and to accept the written memorandum by Kaiser and/or KACC of the directors nominated by the Buyer; (e) no administrator having been appointed for QAL, no step preliminary to the appointment of an administrator having been taken, no application or order having been made or proceedings commenced or resolution having passed or proposed in a notice of meeting or application having been made to the court for the winding up, deregistration or dissolution of QAL, nor shall QAL have entered into any arrangement, compromise or composition with or assignment for the benefit of its creditors and QAL shall not be insolvent within the meaning of Section 95A of the Corporations Act 2001 of Australia; and Page 43 (f) receipt (in form and substance reasonably satisfactory to Buyer) of: (i) all consents required from the General Trustee and/or the Special Trustee (as defined in the Twenty Second Supplemental Trust Deed) for the delivery of the Kaiser Assignment and Assumption Agreement; (ii) consents to the assignment to, and assumption by the Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC, respectively, under the QAL Financing Agreements (other than obligations to be paid or performed prior to the Effective Date); and (iii) such other consents as Buyer deems reasonably necessary for the assignment to, and assumption by the Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC under the documents and other agreements listed on Exhibit L, and the documents and other agreements identified in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations and, in the case of KAII, the Kaiser Alumina Sales Contracts. 11.3 Kaiser's and KACC's obligations to consummate the transactions contemplated by this Agreement will (unless waived by Kaiser) be conditional upon the following: (a) the representations and warranties of Buyer contained in Clause 14 being true and correct in all material respects on the date of this Agreement, and on and as of the Effective Date as if made on and as of that date, except for: (i) changes contemplated by this Agreement; Page 44 (ii) those representations and warranties which address matters only as of a particular date (which shall be true and correct as of such date); or (iii) to the extent that failure of a representation and warranty (which was not actually known by Buyer to be incorrect on the date of execution of this Agreement) to be so true and correct as of the Effective Date would not be reasonably likely to have, individually or in the aggregate, a material adverse effect on the ability of Buyer to consummate the transactions contemplated by this Agreement, or on the value of the consideration to be received by Kaiser and KACC under this Agreement, and Buyer having delivered to Kaiser a certificate to that effect, dated as of the Effective Date, signed by a principal financial or accounting officer of Buyer in form and substance reasonably satisfactory to KACC; (b) Buyer having performed or complied with all provisions of this Agreement to be performed or complied with by it on or prior to the Closing Date except where the failure to so have performed or complied would not be reasonably likely to have, individually or in the aggregate, a material adverse effect on the ability of Buyer to consummate the transactions contemplated in this Agreement, or on the value of the consideration to be received by Kaiser and KACC under this Agreement; and (c) Buyer shall have paid to Kaiser, via wire transfer of immediately available funds, an amount equal to the Estimated Purchase Price, and Kaiser shall have received the Deposit from the Deposit Escrow Agent; and Page 45 (d) receipt of: (i) all consents required from the General Trustee and/or the Special Trustee (as defined in the Twenty Second Supplemental Trust Deed) for the delivery of the Kaiser Assignment and Assumption Agreement; (ii) consents, in form and substance reasonably satisfactory to Kaiser and KACC, to the assignment to, and assumption by the Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC, respectively, under the QAL Financing Agreements (other than obligations to be paid or performed prior to the Effective Date); and (iii) such other consents as Kaiser, KACC and KAII deem reasonably necessary for the assignment to, and assumption by the Buyer and/or Buyer's Parent, as applicable, of all the obligations of Kaiser and KACC under the documents and other agreements listed on Exhibit L, and the documents and other agreements identified in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations and, in the case of KAII, the Kaiser Alumina Sales Contracts. 12. FURTHER ASSURANCES AND OTHER MATTERS RELATING TO CONDITIONS PRECEDENT 12.1 Each of the Parties will use its commercially reasonable efforts to procure the satisfaction of all conditions precedent applicable to such Party, and will use its commercially reasonable efforts to assist the other Parties in procuring the satisfaction of all conditions precedent applicable to such other Parties. Page 46 12.2 Each Party will use its commercially reasonable efforts to obtain, as promptly as practicable, all approvals, consents and authorisations of all Governmental Entities that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement (including those referred to in Clauses 10.1 and 11.1(a)) including responding to any inquiries, requests for additional information or other communications received from any Governmental Entity in connection with any such approvals, consents and authorisations. 12.3 Notwithstanding that a Party is not a Party which is obliged to use its commercially reasonable efforts to obtain an approval, consent or authorisation referred to in Clause 12.2, it will, to the extent reasonably requested, cooperate with the Parties which are so obliged with a view to obtaining such approval, consent or authorisation. 12.4 If prior to Closing any actions, suits or proceedings commenced against any Party (DEFENDING PARTY) or any other party, in any court, before or by any Governmental Entity, or before any arbitrator, seek to prohibit, or challenging the validity of, any of the transactions contemplated by this Agreement (PROCEEDINGS): (a) the Defending Party will diligently and in good faith defend the Proceedings against it and the Parties will co-operate in the defense of the Proceedings; (b) if the Proceedings are against a party other than a Party, the Parties will cooperate with a view to the Proceedings being properly defended; and (c) all reasonable legal costs and expenses incurred by any Party (after consultation with the other Parties) in performing its obligations under paragraph (a) or (b) will be borne equally between the Parties, except that KACC and Kaiser shall bear all Page 47 of their own costs and expenses and any costs and expenses of KAII related to obtaining the entry of the Sale Process and Approval Motion, the Sale Approval Motion and the Sale Approval Order. 12.5 Each Party will take all necessary action to cause the conditions precedent referred to in Clauses 11.1, 11.2 and 11.3 to be satisfied as promptly as practicable, but in any event such that the Closing Date occurs no later than February 1, 2005. 12.6 Buyer will apply to the Australian Competition and Consumer Commission for the written advice referred to in Clause 11.1(a)(i) within 10 Business Days after the date of execution of this Agreement. 12.7 If Buyer is the Successful Bidder, Kaiser and KACC will promptly seek the entry of an order of the Bankruptcy Court, the terms and conditions of which shall be reasonably satisfactory to Kaiser, KACC and Buyer (the SALE APPROVAL ORDER), which shall provide, among other things, that (i) the transfers of the Assets Sold by Kaiser and KACC to Buyer pursuant to this Agreement (A) are legal, valid and effective transfers of the Assets Sold, (B) vest or will vest Buyer with all right, title and interest of Kaiser and KACC in and to the Assets Sold and to the other transactions contemplated by this Agreement free and clear of any claims (as that term is defined in Section 101(5) of the Bankruptcy Code), interests, obligations, rights, mortgages, pledges, security interests, liens, charges, judgments, demands and other encumbrances (including any right of setoff, recoupment, netting or deduction accrued up to the Closing Date), whether absolute or contingent, matured or not mature, in law or in equity pursuant to Section 363(f) of the Bankruptcy Code, except as specifically provided or contemplated herein, and (C) constitute transfer for reasonably equivalent value and fair consideration under Page 48 the Bankruptcy Code; (ii) the transactions contemplated in this Agreement are undertaken by Buyer and Kaiser and KACC at arm's length, without collusion, and in good faith in accordance with the provisions of Sections 363 and 365, including Section 363(m) of the Bankruptcy Code; (iii) Kaiser and KACC have complied with the notice requirements of Rules 2002, 6004, 5005 and 9014 of the Federal Rules of Bankruptcy Procedure and any applicable rules of the Bankruptcy Court with respect to the transactions contemplated by this Agreement; and (iv) Kaiser and KACC have satisfied all the requirements of, and are authorized, pursuant to Section 363(b) and 365 of the Bankruptcy Code, to enter into this Agreement and consummate the transactions contemplated herein. 12.8 If in accordance with the Bidding Procedures, Buyer is determined to be the Successful Bidder, Kaiser and KACC shall (A) actively support, not oppose, and not object to, and use their commercially reasonable efforts to seek and obtain the approval of the Sale Approval Order and (B) cooperate with Buyer and its representatives in connection with seeking entry of the Sale Approval Order. Buyer shall use commercially reasonable efforts to assist Kaiser and KACC with responding to, and providing evidence with respect to, objections or challenges to the transactions contemplated by this Agreement. 12.9 Buyer, on the one hand, and KACC and Kaiser, on the other hand, shall, in respect of QAL, Kaiser's and KACC's ownership interest therein or the transactions contemplated by the Agreement: (a) provide each other with any assistance that may reasonably be requested by any of them in connection with the preparation of any Tax Return, audit or other examination by any taxing authority or judicial or administrative proceedings relating to liability for Taxes in respect of QAL, the respective ownership Page 49 interests of the Parties therein and the transactions contemplated by this Agreement, (b) each retain and provide the others with any records or other information that may be relevant to that Tax Return, audit, examination or proceeding, and (c) provide each other with any final determination of any such audit, examination or proceeding that affects any amount required to be shown on any Tax Return of the other for any period. Without limiting the generality of the foregoing, Buyer, on the one hand, and KACC and Kaiser, on the other hand, shall retain, until the applicable statutes of limitations (including any extensions) have expired, copies of all records or information that may be relevant to Tax Returns filed by any other Party for all Tax periods or portions thereof ending before or including the Closing Date. 12.10 KACC has previously entered into certain confidentiality agreements with Persons (including Buyer) that expressed interest in consummating the Transaction (collectively, the CONFIDENTIALITY AGREEMENTS). Copies of all such Confidentiality Agreements, redacted in order not to disclose the names of the other parties thereto, have been provided to Buyer. Between the date of this Agreement and the Closing Date, KACC shall not enter into any additional such Confidentiality Agreements except pursuant to the Bidding and Auction Procedures. Any additional Confidentiality Agreements must be substantially in the form of the existing Confidentiality Agreements. Upon the occurrence of the Closing, KACC shall assign to Buyer all of its rights and delegate all of its obligations under each of such Confidentiality Agreements, and Buyer shall accept Page 50 such assignment of rights and shall assume and perform all of such obligations of KACC under each of such Confidentiality Agreements. 12.11 Kaiser and KACC shall after execution of this Agreement and up to the Effective Date: (a) promptly place into the data room maintained for the purposes of the Transaction, a copy of (i) each notice of meeting of the shareholders of QAL, along with all accompanying papers; (ii) each notice of meeting of the board of directors of QAL and of any committee of the board of directors of QAL, along with all accompanying papers; and (iii) copies of all accounts, including all management accounts, and of all management reports issued by QAL; (b) promptly on all decisions required to be made at any shareholders meeting of QAL or at any meeting of the board of directors of QAL and of any committee of the board of directors of QAL, consult with and (i) to the extent consistent with such directors' fiduciary duties vote in accordance with the directions of the Buyer which in any way (x) impact upon the Transaction; (y) relate to operational and financial policy matters of QAL on, and from, the Effective Date; and (z) any decision which requires either all, or three fourths, of the voting power of the board of directors of QAL; and (ii) on all other decisions, take into account the views of the Buyer; (c) promptly notify Buyer of the occurrence of any event that, to the Knowledge of Kaiser or KACC, is expected to lead to a breach of any representation or warranty set out in Clause 13; and Page 51 (d) promptly notify the Buyer in writing of all events, circumstances, facts and occurrences of which Kaiser or KACC has received written notice which challenge the transactions contemplated hereby or the entry of the Sale Approval Order. Kaiser and/or KACC shall promptly notify Buyer of the commencement of any investigation, inquiry or review of which Kaiser or KACC has received written notice by any Governmental Entity with respect to QAL or if any such Governmental Entity notifies Kaiser or KACC in writing that it contemplates such investigation, inquiry or review, to the Knowledge of either Kaiser or KACC becomes contemplated. 12.12 Between the date of this Agreement and the date on which Kaiser and KACC have duly performed their respective obligations hereunder, Kaiser and KACC shall take such actions as are necessary to provide that their respective plans of reorganization or plans of liquidation in conjunction with the Bankruptcy Cases will not alter the rights and obligations of the Parties under this Agreement, or affect the validity and continuing force and effect of this Agreement. 12.13 For a period of twenty-four (24) months following the Closing Date, neither Kaiser nor KACC shall without the prior written consent of Buyer, reveal or make accessible to any Person (other than disclosures of information to the statutory committee of unsecured creditors appointed in the Bankruptcy Cases for purposes of dealing with any disputes relating to the transactions contemplated by this Agreement) any confidential information relating to the Assets Sold. For purposes of this Clause 12.13, the term "confidential information" shall not include information (a) which is already available to the public or becomes available to the public other than as a result of a breach of this Clause 12.13, (b) Page 52 which is the proprietary information of Kaiser or KACC, or (c) which is used by Kaiser or KACC or any of their Affiliates in conjunction with any of its or their respective businesses. Notwithstanding the foregoing, Kaiser or KACC may disclose such confidential information to the extent required to comply with any valid or effective subpoena or order issued by a Governmental Entity, with applicable law or regulation or with any requirement of any exchange upon which the securities of any of Kaiser or KACC or any of their Affiliates are traded; provided that in the event Kaiser or KACC receives any such request or demand to disclose all or any part of the confidential information, such party shall promptly notify Buyer of the existence and terms of such request or demand, and, at Buyer's request and reasonable expense, shall cooperate with buyer to obtain a protective order or other appropriate remedy to maintain the confidentiality of such information; and, provided further, if such party is required to disclose confidential information for any such reason, such party shall disclose only such portion thereof which, in the opinion of its legal counsel, it is legally required to disclose, and shall use its commercially reasonable efforts to obtain confidential treatment of such disclosed information. 13. REPRESENTATIONS AND WARRANTIES BY KAISER AND KACC 13.1 Kaiser and KACC each represents and warrants to the Buyer as follows: (a) each of Kaiser and KACC has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, except where the failure to be in good standing will not adversely affect the ability of Kaiser and KACC to perform all of their respective obligations hereunder, and, following receipt of all necessary approvals of the Bankruptcy Court, will have Page 53 duly authorized, executed and delivered this Agreement and will have all necessary power and authority to perform all of its obligations hereunder; (b) Subject to receipt of consents under the DIP Facility, Kaiser is the legal and beneficial owner, free from Liens, of the Kaiser Shares in QAL (except as otherwise provided in the Consortium Documents), Kaiser will be the legal and beneficial owner, free from Liens, of the Kaiser Shares in QAL, the Kaiser Bauxite and the Kaiser Alumina on the Effective Date (except as otherwise provided in the Consortium Documents), Kaiser will, if the Closing occurs, transfer to Buyer legal and beneficial ownership of the Kaiser Shares in QAL, the Kaiser Bauxite and the Kaiser Alumina, and there are no outstanding options, warrants or other rights to subscribe for or acquire from Kaiser the Kaiser Shares in QAL, the Kaiser Bauxite and the Kaiser Alumina (except as otherwise provided in the Consortium Documents); (c) Subject to receipt of consents under the DIP Facility, KACC is the legal owner and Kaiser is the beneficial owner, free from Liens, of the KACC Share in QAL (except as otherwise provided in the Consortium Documents), KACC will be the legal owner and Kaiser will be the beneficial owner, free from Liens, of the KACC Share in QAL on the Effective Date (except as otherwise provided in the Consortium Documents), KACC and Kaiser will, if the Closing occurs, transfer to Buyer legal and beneficial ownership of the KACC Share in QAL, and there are no outstanding options, warrants or other rights to subscribe for or acquire from KACC or Kaiser the KACC Share in QAL (except as otherwise provided in the Consortium Documents); Page 54 (d) Kaiser and KACC are the beneficial owners, free from Liens (except as otherwise provided in the Consortium Documents), of their respective interests in the agreements and other documents identified on Exhibit L and in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Interests and Obligations and Kaiser and KACC will, if the Closing occurs, transfer to Buyer good title to the extent of the Assumed Interests and Obligations; (e) neither the execution, delivery or performance of this Agreement by Kaiser or KACC or the agreements referred to in Clauses 8.3(d), (e), (f), (i) and (j) by Kaiser, KACC or KAII, nor the consummation by Kaiser, KACC or KAII of the transactions contemplated hereby or thereby, will (i) assuming all necessary approvals, consents or authorisations from Governmental Entities referred to in Clauses 11.1(a) and 11.1(b) are obtained, conflict with, violate or result in a breach of any material judgment, decree, award or order of any court, other competent tribunal or arbitrator applicable to Kaiser, KACC or KAII; or (ii) conflict with, or result in a breach of, any provision of the charter or by-laws of Kaiser or KACC or of any material agreement, contract or commitment to which Kaiser, KACC or KAII is a party or by which it is bound, or constitute a default thereunder (assuming the receipt of the Lender Consent), which conflict, breach or default would impair its ability to comply with the material terms and conditions of this Agreement or the agreements referred to in Clauses 8.3(d), (e), (f), (i) or (j) or to consummate the transactions contemplated hereby or thereby; Page 55 (f) there are no actions, suits, proceedings or governmental investigations pending or, to the Knowledge of either Kaiser or KACC, threatened against or affecting Kaiser, KACC or KAII which might reasonably be expected to impair materially their respective ability to comply with the terms and conditions of this Agreement or the agreements referred to in Clauses 8.3(d), (e), (f), (i) or (j) or to consummate the transactions contemplated hereby or thereby. (g) Kaiser has: (i) a Project Percentage of 20.0%; (ii) an Initial Plant Call Capacity Percentage of 31.1198%; (iii) a First Expanded Plant Call Capacity Percentage of 12.2593%; (iv) a Second Expanded Plant Call Capacity Percentage of 15.0884%; (v) a Third Expanded Plant Call Capacity Percentage of 16.5408%; and (vi) a Fourth Expanded Plant Call Capacity Percentage of 20.0%; (h) Exhibit H sets out information supplied by QAL to Kaiser as to the written down tax values of QAL's assets as of December 31, 2003 (in relation to the Assumed Interests and Obligations) in respect of each Plant in accordance with Appendix B of the Participants Agreement, and to the Knowledge of Kaiser, Exhibit H is accurate in all material respects; (i) neither Kaiser nor KACC is in material default in the performance of any of its material obligations under the agreements and other documents identified on Exhibit L and in Clauses (b), (f), (g), (h) and (i) of the definition of Assumed Page 56 Interests and Obligations, including its obligations to make or guarantee advances to QAL on open book account or pay Gladstone Credit Allowances; (j) Except as disclosed in Schedule 13.1(j), KAII is not in breach of, or in default under, any of the Kaiser Alumina Sales Contracts, and, to the Knowledge of KACC and Kaiser, no other party to a Kaiser Alumina Sales Contract is in breach thereof or default thereunder, except where any such breaches or defaults would not have, individually or in the aggregate, a material adverse effect on the benefits to be realized by KAII, or the obligations of KAII under, the Kaiser Alumina Sales Contracts. (k) Kaiser has no Working Capital Loans or Improvement Notes; (l) since January 1, 2003, Kaiser has not elected to use the delivery method referred to in Article 13(C)(ii) of the Participants Agreement; (m) there is no current reduction by Kaiser of the rate at which QAL is to toll bauxite into alumina for it under Article 14(A) of the Participants Agreement, and Kaiser has not currently elected to take Available Option Tonnage under Article 14(C) of the Participants Agreement; (n) Kaiser has not incurred any Standby Tonnage which may currently be recalled under Article 16(A) of the Participants Agreement; (o) Kaiser has not requested any Alumina Delivery Special Facilities under Article 17(L) of the Participants Agreement in respect of which Alumina Delivery Charges are currently payable; (p) Kaiser has given no notice under Article 21 of the Participants Agreement; Page 57 (q) Kaiser has given no notice under Article 34(A) of the Participants Agreement; (r) Kaiser is not a Defaulting Participant and, except as set forth on Schedule 13.1(r), it has not received any Special Notice from QAL under Article 35 of the Participants Agreement; and (s) there is no current dispute between QAL and Kaiser or KACC under or in respect of the Gladstone Agreements. 13.2 With respect to QAL, each of Kaiser and KACC represents and warrants to Buyer, to its Knowledge, as follows: (a) as of the date of this Agreement, the authorized capital stock of QAL consists of (i) 442,400 Class A ordinary shares (CLASS A ORDINARY SHARES), (ii) 473,122 Class B ordinary shares (CLASS B ORDINARY SHARES), (iii) 442,400 Class C ordinary shares (CLASS C ORDINARY SHARES), and (iv) 854,078 Class D Ordinary Shares (CLASS D ORDINARY SHARES and, together with the Class A Ordinary Shares, Class B Ordinary Shares and Class C Ordinary Shares, the ORDINARY SHARES); (b) all of the Ordinary Shares have been issued and are outstanding and fully paid; (c) there are no outstanding subscriptions, options, rights, warrants, convertible securities or other agreements or commitments obligating QAL to issue any additional shares of capital stock of any class or any other securities of any kind; (d) QAL does not own, directly or indirectly, any capital stock or equity securities or have any direct or indirect equity ownership interest in any Person; (e) attached as Schedule 13.2(e) are the Audited Financial Statements of QAL. The Audited Financial Statements (x) have been prepared in accordance with the Page 58 books and records of QAL, (y) are presented in accordance with the Corporations Act 2001 in Australia, Accounting Standards and other mandatory financial reporting requirements in Australia, and the Corporations Regulations 2001, and (z) give a true and fair view, as required by the Corporations Act 2001, of the financial position of QAL as at December 31, 2003, and of its performance for the year ended on that date; (f) since the Balance Sheet Date, except as listed or described on Schedule 13.2(f), (i) QAL has not conducted its business in a manner outside the ordinary course of business in any material respect, and (ii) no event has occurred that would reasonably be expected to have a material adverse effect on the business, assets or condition (financial or otherwise) of QAL; (g) except as listed or described on Schedule 13.2(g), QAL's conduct of its business is in compliance with all applicable legislation, except where noncompliance would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business of QAL (including its assets); (h) except as listed or described on Schedule 13.2(h), there are no civil, criminal or administrative actions or suits pending or threatened against QAL, arising out of or relating to the conduct of QAL's business or otherwise pertaining to or affecting the Assets Sold that would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business of QAL (including its assets), if decided adversely. 13.3 In addition to the express limitations on certain of the representations and warranties of Kaiser and KACC herein as being to their Knowledge, all of Kaiser and KACC's Page 59 representations and warranties in this Agreement are limited and qualified, and the ability of Buyer to bring any claim under this Agreement whether under Clause 15.1 or otherwise, are prohibited by matters which were disclosed to Buyer or came to the Knowledge of Buyer prior to the execution of this Agreement as a result of Buyer's investigation of the Assets Sold, the Assigned Interests and Obligations or the Kaiser Alumina Sales Contracts. 13.4 Without affecting Clause 15.1, no claim may be made by Buyer in respect of any representation or warranty by Kaiser or KACC contained in this Agreement, or the certificate required by Clause 11.2(a), after the date twelve (12) months after the Effective Date. 14. REPRESENTATIONS AND WARRANTIES BY BUYER 14.1 Buyer represents and warrants to and agrees with Kaiser and KACC as follows: (a) Buyer has been duly incorporated and is validly existing as a company under the laws of the British Virgin Islands and has duly authorized, executed and delivered this Agreement and has all necessary power and authority to perform all of its obligations hereunder. (b) neither the execution, delivery or performance of this Agreement or the agreements referred to in Clauses 8.3(d), (e), (f), (i) and (j) by Buyer, nor the consummation by Buyer of the transactions contemplated hereby or thereby, will (i) assuming all necessary approvals, consents or governmental authorisations from Governmental Entities referred to in Clause 10.1 and Clause 11.1(a) are obtained, conflict with, violate or result in a breach of any judgment, Page 60 decree, award or order of any court, other competent tribunal or arbitrator applicable to Buyer; or (ii) conflict with, or result in a breach of, any of the terms, conditions or provisions of the organizational documents of Buyer, or of any agreement, contract or commitment to which Buyer is a party or by which it is bound, or constitute a default thereunder, which conflict, breach or default would materially impair its ability to comply with the material terms and conditions of this Agreement or the agreements referred to in Clause 8.3(d), (e), (f), (i) and (j) or to consummate the transactions contemplated hereby or thereby; (c) there are no actions, suits, proceedings or governmental investigations pending or, to the Knowledge of Buyer, threatened against or affecting Buyer which might reasonably be expected to impair materially its ability to comply with the terms and conditions of this Agreement or the agreements referred to in Clauses 8.3(d), (e), (f), (i) and (j) or to consummate the transactions contemplated hereby or thereby; and (d) to the best Knowledge of Buyer, no administrator has been appointed to Buyer, no step preliminary to the appointment of an administrator has been taken, no application or order has been made or proceedings commenced or resolution been passed or proposed in a notice of meeting or application been made to the court for the winding up, deregistration or dissolution of Buyer, nor has Buyer entered into any arrangement, compromise or composition with or assignment for the Page 61 benefit of its creditors and Buyer is not insolvent within the meaning of Section 95A of the Corporations Act 2001 of Australia. 14.2 Buyer acknowledges that: (a) Buyer or its representatives have been furnished with all information regarding Kaiser, KACC, QAL, QAL's business, the Assets Sold, the Assumed Interests and Obligations and the Kaiser Alumina Sales Contracts that has been placed into the data room maintained for the purposes of the Transaction; (b) Buyer has had an opportunity to make any inspections of QAL's facilities that Buyer has desired and to ask questions of and receive answers from Kaiser, KACC and their respective representatives regarding Kaiser, KACC, QAL, QAL's business, the Assets Sold, the Assumed Interests and Obligations and the Kaiser Alumina Sales Contracts; and (c) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THERE ARE NO REPRESENTATIONS OR WARRANTIES OF ANY KIND (INCLUDING ANY REPRESENTATIONS OR WARRANTIES AS TO THE QUALITY OR FITNESS OF THE ASSETS SOLD FOR THEIR INTENDED PURPOSES OR ANY PARTICULAR PURPOSE), EXPRESSED OR IMPLIED, WITH RESPECT TO KAISER, KACC, QAL, QAL'S BUSINESS, THE ASSETS SOLD, THE ASSUMED INTERESTS AND OBLIGATIONS OR THE KAISER ALUMINA SALES CONTRACTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, KAISER AND KACC MAKE NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO (I) ANY PROJECTIONS, ESTIMATES OR BUDGETS DELIVERED TO OR MADE AVAILABLE TO BUYER OR ITS REPRESENTATIVES RELATING TO THE FUTURE RESULTS OF OPERATIONS, CASH FLOWS OR FINANCIAL CONDITION (OR ANY COMPONENT OF ANY OF THEM) OF QAL OR QAL'S Page 62 BUSINESS OR (II) ANY OTHER INFORMATION OR DOCUMENTS MADE AVAILABLE TO BUYER OR ITS REPRESENTATIVES REGARDING KAISER, KACC, QAL, QAL'S BUSINESS, THE ASSETS SOLD, THE ASSUMED INTERESTS AND OBLIGATIONS OR THE KAISER ALUMINA SALES CONTRACTS. Buyer further acknowledges that this Agreement is subject to any applicable order or act of the Bankruptcy Court. 14.3 Buyer has unencumbered cash on hand or has or will have credit arrangements with financially responsible third parties, or a combination thereof, in an aggregate amount sufficient, when combined with the Deposit, to enable it to pay the Final Purchase Price including the final GST Amount, if applicable, and all fees and expenses payable by it in connection with this Agreement and the transactions contemplated hereby. 14.4 Without affecting Clause 15.2, no claim may be made by Kaiser or KACC in respect of any representation and warranty by Buyer contained in this Agreement, or the certificate required by Clause 11.3(a), after the date eighteen (18) months after the Effective Date. 15. INDEMNITIES 15.1 Each of Kaiser and KACC hereby indemnifies and agrees to hold harmless Buyer and its officers, directors, partners, managers, members, representatives, employees, agents, successors and assigns (BUYER INDEMNIFIED PARTIES) from and against all Liabilities (including reasonable legal fees and expenses, accounting fees and investigation costs) arising directly or indirectly from or in connection with: Page 63 (a) any failure by Kaiser or KACC to perform or comply with this Agreement or the Kaiser Assignment and Assumption Agreement, or any failure by KAII to perform or comply with the KAII Assignment and Assumption Agreement; or (b) any breach by Kaiser or KACC of any representation or warranty in Clause 13. No claim may be made under this Clause 15.1 after the date eighteen (18) months after the Effective Date or with respect to performance or compliance with this Agreement, the Kaiser Assignment and Assumption Agreement, or the KAII Assignment and Assumption Agreement, the date on which such performance or compliance is required by the terms thereof, if later. 15.2 Buyer hereby indemnifies and agrees to hold harmless Kaiser and KACC and their respective officers, directors, partners, managers, members, representatives, employees agents, successors and assigns (including any creditors and creditors' representatives pursuant to the Bankruptcy Cases) (KAISER INDEMNIFIED PARTIES) from and against all Liabilities (including reasonable legal fees and expenses, accounting fees and investigation costs) arising directly or indirectly from or in connection with: (a) any failure by Buyer to perform or fully comply with this Agreement (other than Liabilities governed by Clause 15.3); or (b) any breach by Buyer of any representation or warranty in Clause 14. No claim may be made under this Clause 15.2 after the date eighteen (18) months after the Effective Date or with respect to performance or compliance with this Agreement, the date on which such performance or compliance is required by the terms hereof, if later. Page 64 15.3 Buyer hereby indemnifies and agrees to hold the Kaiser Indemnified Parties harmless from and against all Liabilities (including reasonable legal fees and expenses, accounting fees and investigation costs) arising directly or indirectly from any breach by Buyer, on or after the Effective Date of any of its obligations under the Kaiser Assignment and Assumption Agreement or the KAII Assignment and Assumption Agreement, or the failure of Buyer to pay, discharge or perform any of the obligations included in the Assumed Interests and Obligations. It is expressly understood and agreed that the indemnity obligation set forth in this Clause 15.3 will survive forever, regardless of any applicable statute of limitations or otherwise. 15.4 Each of Kaiser and KACC hereby indemnifies and agrees to hold the Buyer Indemnified Parties harmless from any Liability (including reasonable legal fees and expenses, accounting fees and investigation costs) incurred by Buyer after the Effective Date in respect of any Tax payable by QAL in relation to the operations, acts or omissions of QAL before the Effective Date (except to the extent the Tax was accrued in the accounts of QAL as at the Effective Date or was otherwise taken into account by QAL before the Effective Date), but only to the extent that the Liability relates to Buyer's purchase of the Shares in QAL or the Assumed Interests and Obligations. 15.5 If an amount payable under Clause 15.4: (a) arises because of a reduction in QAL's ability to fully claim a Tax Offset Item at one time, but QAL can claim the Tax Offset Item at different points in time; or (b) relates to the payment of Tax by QAL for which it can claim a Tax Offset Item, Page 65 then the amount payable under Clause 15.4 will be reduced by an amount calculated by discounting the Tax Offset Item which QAL can claim, multiplied by the applicable corporate tax rate, to its net present value at the time for payment under Clause 15.4 at LIBOR and apportioning that amount to reflect Buyer's purchase of the Shares in QAL, the Assumed Interests and Obligations, or the Kaiser Alumina Sales Contracts. 15.6 If: (a) QAL has paid Tax on or before the Effective Date in relation to operations, acts or omissions on or before the Effective Date (PRIOR TAX); and (b) after the Effective Date, QAL receives a refund of any Prior Tax paid (TAX REFUND), then Buyer will pay Kaiser an amount representing the benefit to Buyer of the Tax Refund, but only to the extent that the benefit relates to Buyer's purchase of the Shares in QAL or the Assumed Interests and Obligations and only to the extent that the Tax Refund was not disclosed in the accounts of QAL as at the Effective Date. 15.7 In addition to any Buyer Indemnity Payment under Clause 15.4, Kaiser will pay, and KACC will ensure that Kaiser pays, to Buyer a once-only gross up payment equal to the additional income or capital gains taxes payable by Buyer or a Buyer Entity as a result of its receipt of the Buyer Indemnity Payment or any additional income or capital gains taxes that would have been payable by Buyer or a Buyer Entity had a Tax Offset Item not been applied by Buyer or the Buyer Entity to reduce or limit a liability to such tax. 15.8 In addition to any Kaiser Indemnity Payment under Clause 15.6, Buyer will pay to Kaiser a once-only gross up payment equal to the additional income or capital gains taxes Page 66 payable by Kaiser or a Kaiser Entity as a result of its receipt of the Kaiser Indemnity Payment or any additional income or capital gains taxes that would have been payable by Kaiser or a Kaiser Entity had a Tax Offset Item not been applied by Kaiser or the Kaiser Entity to reduce or limit a liability to such tax. 15.9 The calculations required for the purposes of Clauses 15.4 to 15.8 inclusive will be prepared by QAL's independent, external tax accountants and submitted to Kaiser and Buyer for review. If Kaiser or Buyer dispute any such calculation, they will confer to try to resolve the dispute. If Kaiser and Buyer cannot resolve such dispute, Kaiser and Buyer will refer the matter to an agreed firm of tax accountants (or if they do not agree, and at the request of Buyer or Kaiser, to a firm of tax accountants practicing nationally in Australia or internationally nominated by the President of the Institute of Chartered Accountants in Australia or his nominee) to act as an independent expert. Any determination made by the independent expert will be conclusive and binding on the Parties (in the absence of manifest error). The costs of the original calculations and any subsequent determination will be borne equally by Kaiser and Buyer. 15.10 Any payment required by Clauses 15.4 to 15.9 inclusive will be made 30 days after the final determination of any such payment, or if that is not a Business Day, on the next Business Day. No cash payment will be made to a Party under Clauses 15.4 to 15.9 unless and then only to the extent that the cumulative amount owing to it under Clauses 15.4 to 15.9 inclusive, net of the cumulative amount owing by it under Clauses 15.4 to 15.9 inclusive, exceeds US$1,000,000. For that purpose, any such payment will be converted to US Dollars at its US Dollar Equivalent on the date two Business Days prior to the date on which it is to be paid. Page 67 15.11 Notwithstanding anything to the contrary contained in this Agreement: (a) no Buyer Indemnified Party shall be entitled to receive any amount in respect of breaches of representations and warranties made by Kaiser or KACC in Clause 13.1(d) to (s) (inclusive) and Clause 13.2 of this Agreement except to the extent, and only to the extent, that (i) the amount of such Liabilities in respect of a single inaccuracy or breach exceeds US$250,000 (DE MINIMIS THRESHOLD) and (ii) the aggregate amount of all such Liabilities incurred by the Buyer Indemnified Parties, exclusive of any and all such Liabilities for which indemnification is not available as a result of Clause (i), exceeds US$500,000 (BASKET), in which case Kaiser and KACC will only be liable for that excess. The aggregate liability of Kaiser and KACC with respect to Liabilities incurred by Buyer Indemnified Parties as a result of breaches of representations and warranties made by Kaiser or KACC in (i) Clause 13.1(a) to (c) other than Title Claims, (ii) Clause 13.1(d) to (s) (inclusive) and (iii) Clause 13.2 shall not exceed US$10,000,000. The aggregate liability of Kaiser and KACC with respect to Liabilities incurred by Buyer Indemnified Parties as a result of breaches of representations and warranties made by Kaiser and KACC in Clause 13.1(a) to (c) in respect of Title Claims shall not exceed the Final Purchase Price (excluding any GST payable on relevant supplies). (b) no Buyer Indemnified Party shall be entitled to indemnification from Kaiser or KACC for any Liabilities (i) unless and until Buyer and its affiliates have pursued to final conclusion all claims for insurance available with respect to those Page 68 Liabilities and (ii) to the extent of the amount of insurance recovered by Buyer or its affiliates with respect to those Liabilities. (c) no Kaiser Indemnified Party shall be entitled to receive any amount in respect of breaches of representations and warranties made by Buyer in this Agreement except to the extent, and only to the extent, that (i) the amount of Liabilities in respect of a single inaccuracy or breach exceeds the De Minimis Threshold and (ii) the aggregate amount of all Liabilities incurred by the Kaiser Indemnified Parties, exclusive of any and all Liabilities for which indemnification is not available as a result of Clause (i), exceeds the Basket amount, in which case Buyer will only be liable for that excess. The aggregate liability of Buyer with respect to Liabilities incurred by Kaiser Indemnified Parties as a result of breaches of representations and warranties shall not exceed US$10,000,000. (d) no Kaiser Indemnified Party shall be entitled to indemnification from Buyer for any Liabilities (i) unless and until Kaiser and its affiliates have pursued to final conclusion all claims for insurance available with respect to those Liabilities and (ii) to the extent of the amount of insurance recovered by Kaiser or its affiliates with respect to those Liabilities. 15.12 (a) If a Party (an INDEMNIFIED PARTY) becomes aware after the Effective Date of any fact, circumstance or matter which gives rise to or could give rise to a claim by such Indemnified Party against any other Party (an INDEMNIFYING PARTY) under any indemnity in this Clause 15 (an INDEMNIFICATION CLAIM) the Indemnified Party will: Page 69 (i) promptly give the Indemnifying Party a notice (NOTICE OF CLAIM) full details of the fact, circumstance or matter giving rise to the Indemnification Claim, and the Indemnified Party's calculation or estimation of the loss suffered; (ii) until giving the Notice of Claim, take reasonable steps to mitigate any loss which does or may give rise to a claim against the Indemnified Party for which indemnification may be sought; (iii) not make any admission of liability, agreement or compromise with any person in relation to the fact, circumstance or matter without first consulting with and obtaining the approval of the Indemnifying Party (such approval not to be unreasonably withheld); (iv) give the Indemnifying Party and its professional advisers reasonable assistance to enable it and its professional advisers to assess the fact, circumstance or matter and its consequences and the loss suffered by the Indemnified Party; and (v) at the Indemnifying Party's expense, take all action in good faith and with due diligence that the Indemnifying Party (acting reasonably and in consultation with the Indemnified Party) directs to avoid, remedy or mitigate the consequences of the fact, circumstances or matter including disputing, defending, appealing or compromising legal proceedings. (b) The Indemnifying Party will indemnify the Indemnified Party against any Liability incurred by the Indemnified Party in respect of action taken by the Page 70 Indemnified Party at the direction of the Indemnifying Party under Clause 15.12(a)(v). (c) Delay by an Indemnified Party to give a Notice of Claim to the Indemnifying Party as required under Clause 15.12(a)(i) shall not relieve the Indemnifying Party from any liability that it may have to an Indemnified Party hereunder to the extent the Indemnifying Party is not prejudiced by such delay. (d) A Notice of Claim shall be given by the Buyer Indemnified Parties with respect to all Indemnification Claims satisfying the De Minimis Threshold, whether or not the Basket has been reached. (e) The Indemnified Party will furnish to the Indemnifying Party such information (in reasonable detail) it may have with respect to such Indemnification Claim (including copies of any summons, complaint or other pleading that may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same). (f) In the event any Indemnification Claim set forth in the Notice of Claim is a claim asserted against an Indemnified Party by a third party, the Indemnifying Party will be entitled to meaningfully participate in the defense of such claim and, upon delivery by the Indemnifying Party to the Indemnified Party of written notice, the Indemnifying Party may assume and control the defense thereof with counsel of its choice, and thereafter the Indemnifying Party will not be liable to the Indemnified Party hereunder for any fees of other counsel subsequently accrued by the Indemnified Party in connection with the defense thereof. In the event a Notice of Claim is delivered under this Clause 15, the Indemnifying Party and the Page 71 Indemnified Party will cooperate fully with each other in connection with the defense, negotiation or settlement of the Indemnification Claim covered by such Notice of Claim. If the Indemnifying Party assumes the defense of an action, (i) the Indemnified Party will be entitled to participate therein at its sole cost and expense and (ii) no settlement or compromise thereof may be effected by the Indemnified Party without the consent of the Indemnifying Party, such consent not to be unreasonably withheld. If the Indemnifying Party does not assume the defense of an action, no compromise or settlement thereof may be effected at the expense of the Indemnifying Party without the consent of the Indemnifying Party, such consent not to be unreasonably withheld. 15.13 No Indemnifying Party shall have any liability under any provision of this Agreement for any Liabilities to the extent, but only to the extent, that such Liabilities relate to actions taken or omitted to be taken by the Indemnified Party after the Closing to the extent the Indemnified Party knew or reasonably should have known that its actions taken or omitted to be taken could reasonably be expected to give rise to Liabilities, and in no event shall any Indemnifying Party be liable for punitive, consequential, special, indirect, incidental or exemplary damages, whether for lost profits, lost revenues, injury to property, injury to reputation, loss of data, loss of use or otherwise. 15.14 Each Indemnified Party acknowledges and agrees that the sole and exclusive remedy of its respective Indemnified Parties from and after the Closing with respect to Liabilities and any and all claims for any breach or liability under this Agreement or any other agreement, instrument or certificate executed or entered into in connection herewith or otherwise relating to the subject matter of this Agreement and the transactions Page 72 contemplated hereby shall be solely in accordance with, and limited by, the indemnification provisions set forth in this Clause 15. In furtherance of the foregoing, each Indemnified Party hereby waives on its own behalf and on behalf of each other applicable Buyer Indemnified Party, to the fullest extent permitted under applicable legislation, any and all rights, claims and causes of action it or they may have against the Indemnifying Parties and their respective officers, directors, partners, managers, members, representatives, employees, agents, successors and assigns (including, in the case of Kaiser and KACC, the creditors and creditors' representatives pursuant to the Bankruptcy Cases) arising under or based upon any legislation. 16. CURRENCY CONVERSIONS Where any amount under this Agreement is computed or expressed in Australian Dollars, for the purposes of any payment or adjustment that amount will be converted to its US Dollar Equivalent on the date two Business Days prior to the time for payment or adjustment as provided for in this Agreement. 17. GOVERNING LAW; SUBMISSION 17.1 The governing law of this Agreement is the internal law of the State of New York, USA, without regard to principles of conflict of laws. 17.2 (a) The Bankruptcy Court will have jurisdiction over any dispute arising out of or related to the transactions contemplated by this Agreement through the date of entry of the order approving the final decree in the last of the Bankruptcy Cases to be resolved. The parties to this Agreement consent to the exclusive jurisdiction of the Bankruptcy Court (and of the appropriate appellate courts therefrom) in any Page 73 such dispute or action related thereto, and irrevocably waive, to the fullest extent permitted by applicable legislation, any objection that they may now or hereafter have to the laying of the venue of any such dispute in the Bankruptcy Court or that any such dispute brought in the Bankruptcy Court has been brought in an inconvenient forum. (b) Subject to the consent to the jurisdiction of the Bankruptcy Court described in Clause 17.2(a), each of the Parties irrevocably submits to the non-exclusive jurisdiction of the United States District Court for the Southern District of the State of New York, or if such court refuses to accept or does not have subject matter jurisdiction, then to the Supreme Court of the State of New York sitting in the County of New York, and the appellate courts having jurisdiction of appeals from such courts, over any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby (but not in respect of any other matter) and each Party hereby irrevocably agrees that (without prejudice to the jurisdiction of any other court) all claims in respect of such dispute or any action related thereto may be heard and determined in such courts. The Parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the Parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law. Page 74 (c) Each of the Parties hereto hereby consents to process being served by any Party to this Agreement in any suit, action or proceeding by the mailing of a copy thereof in accordance with the provisions of Clause 25. 18. TERMINATION 18.1 This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) By mutual written consent of Kaiser and KACC, on the one hand, and Buyer, on the other hand. (b) By Kaiser and KACC upon written notice to Buyer, (i) if the Closing has not occurred on or before 150 days after the Commencement Date for any reason other than a material breach of this Agreement by Kaiser or KACC, (ii) so long as neither Kaiser nor KACC is then in material breach of any of their respective representations, warranties or covenants in this Agreement, if Buyer is in material breach of any of its representations, warranties or covenants contained in this Agreement and such breach shall be incapable of being cured, or if capable of being cured, shall not have been cured within 30 calendar days following delivery to Buyer of written notice of such breach (specifying in reasonable detail the claimed breach and demand of its cure or satisfaction), (iii) if termination is directed pursuant to an order of the Bankruptcy Court or permitted pursuant to the terms of the Bidding and Auction Procedures, (iv) if the Sale Approval Order has not become a Final Order by (A) the date that is 30 calendar days after the date on which Sale Approval Order is entered, provided that such termination right can only be exercised until the 40th calendar day after the Sale Approval Order is Page 75 entered, or (B) such later date as is agreed to in writing by the Parties; or (v) if Buyer is not the Backup Bidder pursuant to the Bidding and Auction Procedures and Kaiser and KACC determine to enter into the Transaction with the Successful Bidder (such transaction, an AUCTION TRANSACTION); it being expressly understood that in such event Buyer shall remain bound by the terms of this Agreement until the earlier of (A) delivery by KACC and Kaiser to Buyer of a written termination notice in accordance with this Clause 18.1(b), or (B) delivery by Buyer to Kaiser and KACC of a termination notice in accordance with Clause 18.1(c)(v). Buyer hereby acknowledges that in the circumstance contemplated by clause (v) of the immediately preceding sentence, (i) KACC and Kaiser may, prior to any termination of this Agreement by Kaiser and KACC under Clause 18.1(b)(v) (but without prejudice to Buyer's right to terminate this Agreement under Clause 18.1(c)(v)), enter into an agreement with the Successful Bidder with respect to the Auction Transaction and (ii) KACC and Kaiser are not required to deliver to Buyer a written termination notice until the consummation of the Auction Transaction. (c) By Buyer, upon written notice to Kaiser and KACC, (i) if the Closing has not occurred on or before 150 days after the Commencement Date for any reason other than a material breach of this Agreement by Buyer, (ii) so long as Buyer is not then in material breach of any of its representations, warranties or covenants contained in this Agreement, if Kaiser or KACC are in material breach of any of their respective representations, warranties or covenants contained in this Agreement and such breach shall be incapable of being cured, or if capable of Page 76 being cured, shall not have been cured within 30 calendar days following delivery to Kaiser and KACC of written notice of such breach (specifying in reasonable detail the claimed breach and demand of its cure or satisfaction), (iii) if termination is directed pursuant to an order of the Bankruptcy Court or permitted pursuant to the terms of the Bidding and Auction Procedures, (iv) if the Sale Approval Order has not become a Final Order by (A) the date that is 30 calendar days after the date on which the Sale Approval Order is entered, provided that such termination right can only be exercised until the 40th calendar day after the Sale Approval Order is entered, or (B) such later date as is agreed to in writing by the Parties; or (v) if Buyer is the Backup Bidder and Kaiser and KACC have not within 160 days after the date the Sale Approval Order is entered notified the Backup Bidder that it has become the Buyer in lieu of the Successful Bidder. 18.2 In the event of the termination of this Agreement pursuant to Clause 18.1, this Agreement, except for the provisions of this Clause 18.2 and Clauses 1, 17, 19, 20, 21, 23, 24, 25, 27, 28 and 29, will forthwith become null and void and have no effect, without any liability on the part of any Party to this Agreement or their respective affiliates. Nothing in this Clause 18 will, however, relieve any Party to this Agreement of liability for breach of this Agreement occurring prior to that termination or for breach of any provision of this Agreement which specifically survives termination hereunder. Moreover, notwithstanding the termination of this Agreement, the Deposit Escrow Agreement shall remain in full force and effect in accordance with its terms, including with respect to the distributions of the escrow funds held thereunder. Nothing in this Page 77 Agreement shall require that the Bankruptcy Court approve the termination of this Agreement in order for such termination to be effective. 19. STAMP DUTIES; WITHHOLDING TAXES 19.1 Any stamp duties or like taxes payable on, or in connection with, or any transaction pursuant to, this Agreement will be borne in full by Buyer along with any associated penalties, fines, or interest. 19.2 All payments by Buyer to Kaiser or KACC under this Agreement shall be net of any deduction or withholding for or on account of any Australian withholding Tax in respect of capital or revenue gains, that Buyer is required by law to collect and remit to the Australian Taxation Office, and Buyer is not required to pay any amount to Kaiser or KACC for or on account of any such Tax deducted or withheld. The Parties acknowledge and agree that the amount of assumed Gladstone Credit Allowances subject to such withholding Tax, if any, shall be calculated in accordance with Clause 6.1(a)(i). 20. COSTS Each Party shall bear its own costs in connection with the negotiation, preparation and execution of this Agreement. 21. OTHER INTERESTS Nothing in this Agreement affects any rights or obligations which any Party may have against, or to, any other Party other than as set forth herein or (if the Closing occurs) as set forth in the Kaiser Assignment and Assumption Agreement, the KAII Assignment and Assumption Agreement and as provided for in the Alumina Supply Agreement. Page 78 22. GOODS AND SERVICES TAX 22.1 Words or expressions used in this Clause 22 which are defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) or, if not so defined, then which are defined in the Trade Practices Act 1974 (Cth), have the same meaning in this Clause. 22.2 (a) The Parties agree that the supplies made by Kaiser and KACC to Buyer under this Agreement constitute the supply of a going concern as defined in Section 38-325 of A New Tax System (Goods and Services Tax) Act 1999 (Cth). (b) Subject to Clause 22.2(c), Buyer will, at Buyer's expense and within 25 business days of execution of this Agreement, apply to the Australian Taxation Office for a GST private ruling (TOGC GST RULING) that Section 38-325 applies to the supplies made under this Agreement. (c) Not later than 15 business days after the execution of this Agreement, Buyer shall provide to Kaiser and KACC a draft of the application for the TOGC GST Ruling which Buyer proposes to submit to the Australian Taxation Office in accordance with Clause 22.2(b) together with an outline of all the documents referred to in or contemplated by this Agreement or which Buyer proposes to submit with the application. Buyer must incorporate into the draft application such amendments as Kaiser and KACC may reasonably require before it is submitted to the Australian Taxation Office (including in relation to the documents to be submitted with the application). Page 79 (d) If, despite Clause 22.2(a), any of the supplies made by either Kaiser and KACC to Buyer under this Agreement do not constitute the supply of a going concern or the TOGC GST Ruling has not been received by Buyer and written notice thereof has not been received by Kaiser or KACC prior to the Effective Date, then Clauses 22.3 through 22.8 will apply. 22.3 If GST is due from Buyer pursuant to Clause 22.2(d), Buyer shall pay such amount, together with any penalties and interest thereon, to Kaiser and/or KACC on demand no later than the earlier of: (a) the Closing Date and the Adjustment Date, if applicable; (b) the seventh day after the Australian Taxation Office has issued a ruling that (or to the effect that) GST is payable on the provision of any of the supplies by Kaiser or KACC to Buyer under this Agreement; or (c) the seventh day after the Australian Taxation Office has notified Buyer that GST is payable on the provision of any of the supplies made by Kaiser or KACC to Buyer under this Agreement. 22.4 (a) Except as otherwise specifically provided herein, the Parties acknowledge that all amounts payable under, or in connection with, this Agreement are expressed on a GST exclusive basis. (i) if a Party (in this clause, a SUPPLIER) makes a Taxable Supply to another Party (RECIPIENT) under or in connection with this Agreement (including a Page 80 Taxable Supply under or in connection with Exhibits E and F as executed); and (ii) GST is imposed on the Taxable Supply; then the Recipient must pay to the Supplier the amount expressed in this Agreement as payable for that Taxable Supply plus an additional amount in respect of the GST payable by the Supplier on that Taxable Supply, or where no amount is expressed to be payable, an additional amount equal to the GST payable by the Supplier on that Taxable Supply. (b) The amount of GST which is payable with respect to any GST exclusive consideration must be paid to the Supplier by the Recipient without requirement for demand, at the same time as the GST exclusive consideration is payable or to be provided. 22.5 If an amount that would otherwise be payable under this Agreement is calculated by reference to or otherwise relates to a cost, expense or other amount incurred by a Party (PAYEE), then that amount will be reduced by the amount of any Input Tax Credit to which the Payee is entitled in respect of that amount. The Payee will be assumed to be entitled to a full Input Tax Credit unless it demonstrates that its entitlement is otherwise prior to the date on which the payment must be made. 22.6 The Supplier will provide a Tax Invoice and any necessary adjustment notes and, if reasonably requested by the Recipient, reasonable evidence that the Supplier is registered for GST. Any payment under this Clause 22 shall be conditioned upon the receipt by Recipient of a Tax Invoice or tax adjustment note, as applicable. Page 81 22.7 If any Party is required to pay an amount to another Party under this Agreement, then it will be entitled to set-off any amount payable to it by the other Party under Clause 22.4 against such amount. 22.8 If an additional amount is paid by the Recipient pursuant to Clause 22.4(a) (the GST SUM) and it is subsequently determined by the Commissioner of Taxation (at the request of any Party or otherwise) that the supply to which the GST sum relates is not a Taxable Supply, the Supplier must immediately refund the GST sum to the Recipient. 23. DISCLOSURES 23.1 The Parties acknowledge that certain disclosures in relation to the terms of this Agreement will be required in connection with the filing of or obtaining Bankruptcy Court approval of the Sale Approval Motion or the Sale Approval Order, and the Parties will cooperate in respect of such disclosure. 23.2 The Parties will cooperate as to the timing and contents of the media releases in respect of this Agreement previously agreed by the Parties to be issued promptly after execution of this Agreement. 24. COUNTERPARTS This Agreement may be executed in any number of counterparts. All counterparts will be taken to constitute one instrument. 25. NOTICES Any notice or other communication required or permitted to be given under the terms of this Agreement must be faxed or delivered to the other Party at the address shown below and will be effective and deemed received: Page 82 (a) if faxed, when received; (b) if delivered via overnight courier service, on the day delivered; or (c) if personally delivered, when delivered: If to KACC or Kaiser, to: KAISER ALUMINUM & CHEMICAL CORPORATION Suite 2500 5847 San Felipe Houston, Texas 77057 Attention: General Counsel Facsimile: 1 (713) 267-3702 with copies (which shall not constitute notice) to: JONES DAY 2727 North Harwood Dallas, Texas 75201 Attention: Tony Stewart, Esq. Facsimile: 1 (214) 969-5100 Page 83 and OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF KAISER ALUMINUM & CHEMICAL CORPORATION c/o Akin Gump Strauss Hauer & Feld LLP 590 Madison Avenue New York, New York 10022 Attention: Lisa G. Beckerman, Esq. Facsimile: 1 (212) 872-1002 If to Buyer: ALUMINA & BAUXITE COMPANY LTD. Premises of Commonwealth Trust Limited Drake Chambers, Tortola, British Virgin Islands Attention: Natalia Bogush Facsimile: +350 75982 with copies (which shall not constitute notice) to: SKADDEN, ARPS, SLATE, MEAGHER & FLOM (UK) LLP 40 Bank Street, Canary Wharf London E14 5DS, U.K. Attention: N. Lynn Hiestand, Esq. Facsimile: +(44-20) 7072-7120 Page 84 or to such other person(s) at such address or addresses as may be designated by written notice to the other Parties. 26. [INTENTIONALLY OMITTED] 27. ENTIRE AGREEMENT This Agreement, the Confidentiality Agreement executed by Open Joint Stock Company Russian Aluminium, an entity related to Buyer and Buyer's Parent, and the Deposit Escrow Agreement constitute the entire agreement of the Parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, between the Parties with respect to the subject matter hereof. 28. ASSIGNMENT This Agreement may not be assigned without the express written consent of KACC and Buyer (which consent may be granted or withheld in the sole discretion of KACC or Buyer, as applicable). 29. AMENDMENT This Agreement may not be amended or modified except by an instrument in writing signed by, or on behalf of, the Parties. EXECUTED Each attorney executing this Agreement states that he or she has no notice of revocation or suspension of his or her power of attorney. Page 85 BUYER SIGNED for and on behalf of ALUMINA & BAUXITE COMPANY LTD. by its appointed duly authorized officer in the presence of: /s/ Natalia Bogush - ---------------------------------------------------- OFFICER'S SIGNATURE Natalia Bogush, Director - ---------------------------------------------------- PRINT NAME KACC SIGNED for and on behalf of KAISER ALUMINUM & CHEMICAL CORPORATION by its duly authorized officer in the presence of: /s/ Edward F. Houff - ---------------------------------------------------- OFFICER'S SIGNATURE Edward F. Houff, Vice President, Secretary and General Counsel - --------------------------------------------------------------- PRINT NAME AND TITLE KAISER SIGNED for and on behalf of KAISER ALUMINA AUSTRALIA CORPORATION by its duly authorized officer in the presence of: /s/ Edward F. Houff - -------------------------------------------------------------- OFFICER'S SIGNATURE Edward F. Houff, Vice President, Secretary and General Counsel - -------------------------------------------------------------- PRINT NAME AND TITLE EX-4.1 5 h20077exv4w1.txt WAIVER LETTER WITH RESPECT TO POST-PETITION CREDIT AGREEMENT Exhibit 4.1 [Bank of America Letterhead] September 29, 2004 Kaiser Aluminum & Chemical Corporation 5847 San Felipe, Suite 2500 Houston, Texas 77057 Attention: Kerry A. Shiba, Vice President, Chief Financial Officer and Treasurer Re: Kaiser Aluminum & Chemical Corporation $285,000,000 Post-Petition Credit Agreement Dear Mr. Shiba: Reference is made to (i) that certain $285,000,000 Post-Petition Credit Agreement, dated as of February 12, 2002 (as amended, the "Credit Agreement"), among Kaiser Aluminum & Chemical Corporation, Kaiser Aluminum Corporation, Bank of America, N.A., and the other lenders that are or may from time to time become parties to the Credit Agreement and (ii) that certain Amended and Restated Purchase Agreement, dated as of April 20, 2004, among Kaiser Aluminum & Chemical Corporation, Kaiser Aluminium International, Inc., Kaiser Bauxite Company, Kaiser Jamaica Corporation and Alpart Jamaica, Inc. and RUAL Trade Limited, as amended by the Amendment to Amended and Restated Purchase Agreement, dated as of April 26, 2004 (as so amended, the "RUAL Purchase Agreement"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings given to such terms in the Credit Agreement. In consideration for the agreements between the Obligors and the Lenders set forth herein, but subject to the conditions set forth herein, the Agent and the Lenders hereby (A) waive, through and including the Sale Waiver Termination Date (as defined below), any noncompliance with the provisions of Section 9.2.11 of the Credit Agreement restricting the sale of the interests of the Company, KAII, KBC, AJI and KJC (collectively, the "Sellers") in or related to ALPART, which interests are comprised of (x) each Seller's entire right, title and interest in, to and under ALPART, including all right, title and interest of such Seller in, to and under the partnership agreement of ALPART and (y) the rights of the Sellers in, to and under the "Other Purchased Assets" as described on Schedule A hereto (collectively, the "Sale"); provided, however, that such waiver shall be limited solely to permit the transactions contemplated under (i) the RUAL Purchase Agreement, (ii) if the RUAL Purchase Agreement is terminated, any purchase agreement that may be entered into between the Sellers and Glencore AG and Glencore Alumina Jamaica II Limited or an affiliate thereof (collectively, "Glencore") reflecting Glencore's final bid at the auction held pursuant to the Bidding Procedures (as defined in the RUAL Purchase Agreement) that does not provide for any greater Contingent Liabilities of the Debtors than are provided for in the RUAL Purchase Agreement and provides for a cash purchase price payable by Glencore to the Sellers in at least the amount reflected in Glencore's final bid (the "Glencore Purchase Agreement"), or (iii) if Hydro Aluminum Jamaica a.s. exercises its right of first refusal, a purchase agreement (the "Hydro Purchase Agreement" and, collectively with the RUAL Purchase Agreement and the Glencore Purchase Agreement, the "Purchase Agreements") on substantially the same terms (except for nonmaterial changes resulting from changes in parties) as the RUAL Purchase Agreement or the Glencore Purchase Agreement, as applicable, (B) waive, through and including the Sale Waiver Termination Date, any restriction in Section 9.2 of the Credit Agreement that would prohibit the repayment of the Indebtedness of ALPART owed to the Caribbean Basin Projects Financing Authority in the manner contemplated by the RUAL Purchase Agreement, including, without limitation, the making of the Carifa Repayment Loans (as defined in the RUAL Purchase Agreement) so long as the Company is immediately repaid in full in cash out of the proceeds of the Sale for any Carifa Repayment Loans made by the Company (including, without limitation, any loans made by the Company, the proceeds of which will be used to satisfy any letter of credit reimbursement obligations in connection with the Carifa Debt, as defined in the RUAL Purchase Agreement), and (C) extend the effectiveness of the prior limited waiver, dated March 29, 2004 (the "EBITDA Limited Waiver"), through and including the EBITDA Waiver Termination Date (defined below), with respect to the minimum EBITDA test in Section 9.2.4 of the Credit Agreement for the measurement periods ending December 31, 2003 and March 31, 2004 and, if Section 9.2.4(b) of the Credit Agreement is then applicable, March 31, 2004, April 30, 2004 and May 31, 2004. Notwithstanding the foregoing, the limited waivers in clauses (A) and (B) of this paragraph shall be effective only through the earliest of (x) prior to the closing of the Sale, the earlier of the date that (i) none of the Purchase Agreements is in effect or (ii) any material term of the then currently effective Purchase Agreement is modified in a manner materially adverse to the Debtors, (y) after the consummation of the Sale, the earliest of the date that (i) the Sale closes if the proceeds of the Sale (excluding the amounts to be repaid to the Company for any Carifa Repayment Loans made by the Company (including, without limitation, any loans made by the Company, the proceeds of which will be used to satisfy any letter of credit reimbursement obligations in connection with the Carifa Debt)) are not wired directly from the buyer to the Blocked Accounts (defined below) on such date, (ii) a Debtor files a motion (other than a motion to approve a Seventh Amendment (defined below) agreed to and executed by the Lenders), or a Debtor otherwise seeks, to use any cash in the Blocked Accounts, (iii) any other Person files such a motion or otherwise seeks to use any cash in the Blocked Accounts and the Debtors fail to object thereto in good faith and in a timely manner, (iv) the Bankruptcy Court enters an order authorizing the use or withdrawal of any cash in the Blocked Accounts or (v) any amounts are withdrawn from the Blocked Accounts other than in accordance with the terms of a Seventh Amendment agreed to and executed by the Lenders, or (z) June 30, 2004 (such earliest date, the "Sale Waiver Termination Date"); provided, however, the Sale Waiver Termination Date shall not occur under clause (z) above if (i) on or before June 30, 2004, the Debtors shall have filed a motion with the Bankruptcy Court seeking authority to (a) pursuant to section 364(c)(2) of the Bankruptcy Code, grant the Agent, for its benefit and benefit of the Secured Lenders, first-priority Liens on the proceeds of the Sale (excluding the amounts to be repaid to the Company for any Carifa Repayment Loans made by the Company (including, without limitation, any loans made by the Company, the proceeds of which will be used to satisfy any letter of credit reimbursement obligations in connection with the Carifa Debt)) and (b) pay the Agent and the Lenders a $500,000 fee (the "Waiver Fee") as compensation for the limited waivers provided for herein (the "Lien Motion") and (ii) on or before July 30, 2004, (a) the Lien Motion shall have been approved by the Bankruptcy Court (pursuant to a final order that is satisfactory to Agent in its sole discretion) and (b) the Waiver Fee shall have been paid to the Agent and the Lenders. Notwithstanding the foregoing or anything else herein to the contrary, the limited waiver in clause (C) of this paragraph shall be effective only through June 30, 2004 (the "EBITDA Waiver Termination Date"); provided, however, that (x) the EBITDA Waiver Termination Date shall be automatically extended to July 30, 2004 if the Debtors shall have filed the Lien Motion with the Bankruptcy Court on or before June 30, 2004, and (y) if the EBITDA Waiver Termination Date is so extended, the effectiveness of the EBITDA Limited Waiver with respect to the minimum EBITDA test in Section 9.2.4 of the Credit Agreement shall likewise be extended to apply to the measurement period ending on June 30, 2004. The parties hereto anticipate entering into a Seventh Amendment to the Credit Agreement (the "Seventh Amendment") to effect a more comprehensive and permanent modification of the Credit Agreement to permit the transactions contemplated hereby and provide for the modifications of certain covenants contained in the Credit Agreement. If the Waiver Fee is paid to the Agent and the Lenders pursuant to the preceding paragraph, the entire amount thereof shall be credited to and applied against any amendment or similar fees payable by the Obligors to the Agent and the Lenders under the Seventh Amendment. The foregoing limited waivers shall be null and void ab initio and an Event of Default shall immediately occur: (i) in the case of the waiver contained in clause (C) of the preceding paragraph, on the EBITDA Waiver Termination Date and (ii) in the case of the waivers contained in clauses (A) and (B) of the preceding paragraph, on the earlier of (x) the Sale Waiver Termination Date, if the same has occurred due to the occurrence of any event described in clause (y) or clause (z) of the penultimate sentence of the preceding paragraph (but giving effect to the proviso at the end of such clause (z)), and (y) the date the Sale is closed, if the Sale Waiver Termination Date has occurred due to the occurrence of an event described in clause (x)(ii) of the penultimate sentence of the preceding paragraph, unless, in the case of either clause (i) or clause (ii) above, on or prior to such dates, the Obligors and the Lenders shall have entered into, and the Bankruptcy Court shall have entered an order (which order shall have become a final order not later than July 15, 2004) approving the Seventh Amendment agreed to and executed by the Lenders. The Obligors and the Lenders hereby agree that (i) as a condition to the continued effectiveness of the limited waivers contained herein, the proceeds of the Sale less the aggregate amount of the Carifa Repayment Loans (including, without limitation, any loans made by the Company, the proceeds of which will be used to satisfy any letter of credit reimbursement obligations in connection with the Carifa Debt) shall be deposited, and remain on deposit at all times pending further order of the Bankruptcy Court, in one or more blocked accounts with Agent (collectively, the "Blocked Accounts") pursuant to blocked account agreements in form and substance satisfactory to the Agent, from which Blocked Accounts no Obligor or any other party (other than the Agent) shall have the right to withdraw funds and (ii) until the Sale Waiver Termination Date, (a) the definition of the term "PPE Subcomponent Reduction" shall exclude the Net Disposition Proceeds from the Sale and (b) the Sale shall not count against the $25,000,000 basket referred to in clause (i) of Section 9.2.11 of the Credit Agreement. This limited waiver shall be limited precisely as written and shall not be deemed or otherwise construed to constitute a waiver of any other Default or Event of Default, amend or modify any provision of any Loan Document or constitute a course of dealing or any other basis for altering the Obligations of any Obligor. Except as expressly waived hereby, the Credit Agreement and the other Loan Documents, including the Liens granted thereunder, shall remain in full force and effect, and all terms and provisions thereof are hereby ratified and confirmed. This limited waiver shall be effective only if and when signed by, and when counterparts hereof shall have been delivered to the Agent (by hand delivery, mail or telecopy) by, the Company, the Parent Guarantor, each Subsidiary Guarantor and the Lenders holding at least 86% of the Revolving Credit Outstandings. This limited waiver may be executed by one or more of the parties on any number of separate counterparts (including by telecopy), all of which taken together shall constitute by one and the same instrument. This limited waiver 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 to the extent not preempted by federal bankruptcy law, provided that the Agent and the Lenders shall retain all rights arising under federal law. If you have any questions about this letter, please contact me at the number above. Sincerely, Bank of America, N.A., as Agent /s/Robert M. Dalton --------------------------------------- Name: Robert M. Dalton Title: Vice President cc: Kaiser - General Counsel AGREED AND CONSENTED TO as of this 21st day of May, 2004 BANK OF AMERICA, N.A. By: /s/Robert M. Dalton ------------------------ Name: Robert M. Dalton Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/John Dale ------------------------ Name: John Dale Title: Duly Authorized Signatory WELLS FARGO FOOTHILL, INC. By: /s/Eunnie Kim ------------------------ Name: Eunnie Kim Title: Vice President THE CIT GROUP/BUSINESS CREDIT, INC. By: /s/Grant Weiss ------------------------ Name: Grant Weiss Title: Vice President MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By: /s/Michele Kouatchis ------------------------ Name: Michele Kouatchis Title: Director PNC BANK, NATIONAL ASSOCIATION By: /s/Sandra Sha Kenyon ------------------------ Name: Sandra Sha Kenyon Title: Vice President GMAC COMMERCIAL FINANCE, LLC By: /s/Thomas Brent ------------------------ Name: Thomas Brent Title: Vice President KAISER ALUMINUM CORPORATION By: /s/David A. Cheadle ------------------------ Name: David A. Cheadle Title: Assistant Treasurer KAISER ALUMINUM & CHEMICAL CORPORATION By: /s/David A. Cheadle ------------------------ Name: David A. Cheadle Title: Assistant Treasurer AKRON HOLDING CORPORATION ALPART JAMAICA INC. KAISER ALUMINA AUSTRALIA CORPORATION KAISER BELLWOOD CORPORATION KAISER ALUMINUM & CHEMICAL INVESTMENT, INC. KAISER ALUMINIUM INTERNATIONAL, INC. KAISER ALUMINUM PROPERTIES, INC. KAISER ALUMINUM TECHNICAL SERVICES, INC. KAISER FINANCE CORPORATION KAISER JAMAICA CORPORATION KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS, LLC KAISER TEXAS SIERRA MICROMILLS, LLC KAISER TEXAS MICROMILL HOLDINGS, LLC OXNARD FORGE DIE COMPANY, INC. ALWIS LEASING LLC KAISER BAUXITE COMPANY KAISER CENTER, INC. KAISER CENTER PROPERTIES KAE TRADING, INC. KAISER EXPORT COMPANY By: /s/David A. Cheadle ------------------------ Name: David A. Cheadle Title: Assistant Treasurer SCHEDULE A "OTHER PURCHASED ASSETS" 1. all assets and property of every kind and nature that are owned by ALPART, including alumina and other inventory, or by its partners as tenants in common for the use and benefit of ALPART and all other assets and property owned by any Seller or any affiliate of any Seller and used exclusively in ALPART's business; 2. 5,000 shares of common stock, par value $1.00 per share ("Alpart Farms Common Stock"), of Alpart Farms (Jamaica), Ltd., a Delaware corporation, owned by KBC; 3. 5,000 shares of Alpart Farms Common Stock owned by the Company; 4. all shares of Alpart Farms Common Stock acquired after the date of the RUAL Purchase Agreement and prior to the closing date of the Sale by any Seller or any affiliate of any Seller; 5. the loan made by the Company to ALPART in the original principal amount of $22,100,000 as evidenced by that certain Promissory Note dated March 1, 2001; 6. the loan to be made by the Company to ALPART on or prior to the closing date of the Sale in the original principal amount of 65% of the Carifa Repayment Loan, as evidenced by a promissory note; 7. amounts due from ALPART to its partners for funds advanced to ALPART to cover costs of operations, including interest, but excluding depreciation; and 8. contracts (a) by and among ALPART and the partners of ALPART related to the operation of ALPART, (b) by and among the Company and its affiliates and the Government of Jamaica related to the Company's fiscal system in Jamaica and (c) alumina supply contracts by and between KAII and third parties related to the sale of alumina produced at ALPART. EX-4.2 6 h20077exv4w2.txt SEVENTH AMENDMENT TO POST-PETITION CREDIT AGREEMENT Exhibit 4.2 SEVENTH AMENDMENT TO POST-PETITION CREDIT AGREEMENT, AMENDMENT TO SUBSIDIARY GUARANTY, CONSENT OF GUARANTORS AND ACKNOWLEDGMENT AND AGREEMENT OF AJI, KJC, KFC, KAAC AND KBC This SEVENTH AMENDMENT TO POST-PETITION CREDIT AGREEMENT, AMENDMENT TO SUBSIDIARY GUARANTY, CONSENT OF GUARANTORS AND ACKNOWLEDGMENT AND AGREEMENT OF AJI, KJC, KFC, KAAC AND KBC (this "Amendment") is dated as of October 28, 2004, and entered into by and among KAISER ALUMINUM CORPORATION, a Delaware corporation, as debtor and debtor-in-possession (the "Parent Guarantor"), KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation, as debtor and debtor-in-possession (the "Company"), the banks and other financial institutions signatory hereto that are parties as Lenders to the Credit Agreement referred to below (the "Lenders"), BANK OF AMERICA, N.A., as agent (in such capacity, the "Agent") for the Lenders, GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital") as Documentation Agent, THE CIT GROUP/BUSINESS CREDIT, INC. ("CIT"), as Co-Syndication Agent, WELLS FARGO FOOTHILL, INC. (fka Foothill Capital Corporation) ("Foothill"), as Co-Syndication Agent (GE Capital, CIT and Foothill, collectively, the "Co-Agents"), and solely with respect to the provisions of Section 1.12 of this Amendment (and Section 9.1.21 of the Credit Agreement, as defined below and amended hereby), BANK OF AMERICA, N.A. ("Bank of America"), in its capacity as depository bank with respect to the Cash Collateral Accounts (as hereinafter defined and, in such capacity, "Depository Bank"). RECITALS WHEREAS, the Parent Guarantor, the Company, the Lenders, and the Agent have entered into that certain Post-Petition Credit Agreement dated as of February 12, 2002, as amended by that certain First Amendment to Post-Petition Credit Agreement and Post-Petition Pledge and Security Agreement and Consent of Guarantors dated as of March 21, 2002, that certain Second Amendment to Post-Petition Credit Agreement and Consent of Guarantors dated as of March 21, 2002, that certain Third Amendment to Post-Petition Credit Agreement, Second Amendment to Post-Petition Pledge and Security Agreement and Consent of Guarantors dated as of December 19, 2002, that certain Fourth Amendment to Post-Petition Credit Agreement and Consent of Guarantors dated as of March 17, 2003, that certain Consent and Fifth Amendment to Post-Petition Credit Agreement and Consent of Guarantors dated as of June 6, 2003, and that certain Sixth Amendment to Post-Petition Credit Agreement and Consent of Guarantors dated as of August 1, 2003, and as further modified by that certain Waiver and Consent with Respect to Post-Petition Credit Agreement dated as of October 9, 2002, that certain Second Waiver and Consent With Respect to Post-Petition Credit Agreement dated as of January 13, 2003, and limited waivers dated March 24, 2003, May 5, 2003, March 29, 2004, May 21, 2004, July 29, 2004, and September 29, 2004 (as so amended and modified, the "Credit Agreement"; capitalized terms used in this Amendment without definition shall have the meanings given such terms in the Credit Agreement); and WHEREAS, the Company has requested that the Lenders agree to amend certain provisions of the Credit Agreement and the Lenders are willing to agree to such amendments on the terms and conditions set forth herein; NOW THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the Parent Guarantor, the Company, the Lenders, the Agent and, with respect to Section 1.12 hereof, Bank of America, as Depository Bank, agree as follows: 1. AMENDMENTS TO CREDIT AGREEMENT. Subject to the conditions and upon the terms set forth in this Amendment, the Credit Agreement is hereby amended as follows: 1.1 Amendments to Section 1.1 (Definitions). (a) The following definition of "2004 Financial Forecast" is added in proper alphabetical order: ""2004 Financial Forecast" means the financial forecast on a monthly basis for the fiscal period ending December 31, 2004, prepared by the Company's management and delivered to the Agent and the Lenders on May 5, 2004." (b) The definitions of "Actual VALCO EBITDA Amount", "Forecast VALCO EBITDA Amount," "Kaiser Center Assets," "Mead Charges," "VALCO Adjusted Net Earnings from Operations," and "VALCO PPE Reduction" are deleted in their entirety. (c) The definition of "Adjusted Net Earnings from Operations" is deleted in its entirety and replaced with the following: ""Adjusted Net Earnings from Operations" means, with respect to any fiscal period of the Company, the Company's consolidated net income after provision for income taxes for such fiscal period, as determined in accordance with GAAP and reported on the consolidated financial statements for such period, excluding the consolidated impact of any and all of the following included in such consolidated net income (without duplication): (a) gain or loss in an amount greater than $150,000 arising from the sale of any capital assets; (b) gain arising from any write-up in the book value of any asset; (c) earnings of any Person, substantially all the assets of which have been acquired in any manner, to the extent realized by such other Person prior to the date of acquisition; (d) earnings of any Person (other than a Subsidiary of the Company) in which the Company or any of its Subsidiaries has an ownership interest to the extent that such earnings exceed the sum of (i) the amount received in cash by the Company and its Subsidiaries and (ii) $3,000,000; (e) earnings of any Person to which assets of the Company or any of its Subsidiaries shall have been sold, transferred or disposed of, or into which the Company or any of its Subsidiaries shall have been merged, or which has been a party with the Company or any of its Subsidiaries to any consolidation or other form of reorganization, prior to the date of such transaction; (f) gain arising from the acquisition of debt or equity securities of the Company or any of its Subsidiaries from cancellation or forgiveness of Indebtedness; (g) gain arising from extraordinary items, as determined in 2 accordance with GAAP, or from any other non-recurring transaction resulting in gain in an amount greater than $150,000; (h) any gain that arises from the reversal of expenses in respect of power payments to the extent reflected in the Financial Forecast; (i) non-cash LIFO inventory valuation charges in aggregate amounts not to exceed $20,000,000 after May 31, 2004; (j) non-cash pension expenses in aggregate amounts not to exceed $68,000,000 in Fiscal Year 2004; (k) non-cash special charges relating to pension expenses in aggregate amounts not to exceed $25,000,000 in any Fiscal Year; (l) non-cash impairment charges relating to fixed assets or Investments in aggregate amounts not to exceed $100,000,000 after May 31, 2004, except for any such charges which reduce the book value of any Eligible Fixed Asset to an amount less than the OLV In-Place Value of such Eligible Fixed Asset (such exception to apply only to the amount by which the book value of such Eligible Fixed Asset is less than such OLV In-Place Value as a result of such charges); (m) non-cash charges related to the write down of the value of Inventory located outside the United States in aggregate amounts not to exceed $10,000,000 after May 31, 2004; and (n) the recording of accruals for the following items, but only to the extent that such accruals are non-cash during the term of this Agreement and arise solely out of pre-petition liabilities: (i) in aggregate amounts not to exceed $80,000,000 after May 31, 2004, in respect of the rejection of the Bonneville Power Administration contract, (ii) in aggregate amounts not to exceed $250,000,000 after May 31, 2004, in respect of the unfair labor practices claims arising in connection with the United Steelworkers of America strike and subsequent lockout, (iii) in aggregate amounts not to exceed $250,000,000 after May 31, 2004, in respect of liabilities to the PBGC relating to Pension Plans, (iv) in aggregate amounts not to exceed $400,000,000 after May 31, 2004, in respect of curtailment or settlement charges related to retiree medical obligations, (v) all claims relating to liabilities for asbestos exposure and any other personal injury claims intended to ultimately be settled as a part of a Plan of Reorganization by transferring the liability and certain rights against certain insurance policies to a trust and (vi) other pre-petition liabilities in aggregate amounts not to exceed $100,000,000 after May 31, 2004." (d) The following definitions of "ALPART Claims," "ALPART Collateral" and "ALPART Plan Event" are added in proper alphabetical order: ""ALPART Claims" means the Agent's and the Secured Lenders' superpriority secured claims against AJI and KJC in the amount of $20,000,000 (plus an amount equal to the interest accruing on and investments of, and the earnings on and proceeds of investments of, the ALPART Collateral)." ""ALPART Collateral" means $20,000,000 (plus an amount equal to the interest accruing thereon and investments thereof, and the earnings on and proceeds of investments with respect thereto) of the Net Disposition Proceeds from the sale of AJI's and KJC's interests in ALPART, which amount is deposited in Cash Collateral Accounts as security for the Obligations under the Loan Documents, and all interest accruing on and investments of, and the earnings on and proceeds of investments of, such amount." 3 ""ALPART Plan Event" means the effective date of a Subsidiary Plan for AJI/KJC, which plan shall provide for cash payment to the Company and deposits to Cash Collateral Accounts and confirmation of guaranty obligations (if applicable) upon such effective date in the amounts and as otherwise required by Section 9.1.19." (e) The definition of "Availability Reserve" is deleted in its entirety and replaced with the following: ""Availability Reserve" means a reserve against availability under the Borrowing Base in an amount equal to the lesser of (i) $20,000,000 and (ii) ten percent (10%) of the Revolving Commitment Amount." (f) The definition of "Borrowing Base" is amended to delete clauses (b) and (c) thereof in their entirety and to replace them with the following: "(b) (i) the lesser of (A) $125,000,000 and (B) 65% of all Eligible Inventory as at such time or (ii) at any time following Agent's receipt of a satisfactory appraisal pursuant to Section 9.1.18(a), the least of (A) $125,000,000, (B) 65% of all Eligible Inventory as at such time and (C) 85% of the Net Recovery Percentage (as determined by the most recent Inventory appraisal delivered to the Agent pursuant to Section 9.1.18(a)) of all Eligible Inventory as at such time; plus (c) the lesser of (i) $50,000,000 and (ii) 50% of the OLV In-Place Value of Eligible Fixed Assets (such lesser number, the "PPE Subcomponent"); provided, that the PPE Subcomponent shall be permanently reduced in an amount equal to each PPE Subcomponent Reduction; and provided further that the PPE Subcomponent shall at no time be less than zero." (g) The definition of "Carve-Out Reserve" is amended to insert the following before the final period of the first sentence thereof: "; provided that the Carve-Out Reserve shall not include Professional Fees specifically relating to the administration of the Bankruptcy Cases of AJI, KJC, KFC, KAAC or KBC incurred after June 30, 2004, which costs shall be charged to AJI, KJC, KAAC (both on behalf of itself and KFC) or KBC, as applicable, and paid by such estate or estates." (h) The following definitions of "Cash Collateral Accounts" and "Claims" are added in the proper alphabetical order: ""Cash Collateral Accounts" means each of those certain blocked deposit and/or securities accounts established with Bank of America, N.A., by the Company, AJI, KJC, KAAC, KBC and any other Obligor receiving the ALPART Collateral, the QAL Collateral, the KACC Available Amount or the KBC 4 Allocable Amount, which accounts are subject to the exclusive dominion and control of the Agent, for its benefit and the benefit of the Secured Lenders, and held as Collateral for the Obligations, all pursuant to documentation in form and substance satisfactory to the Agent in its sole discretion." ""Claims" has the meaning set forth in Section 101(5) of the Bankruptcy Code." (i) The definition of "Eligible Fixed Assets" is amended to insert "identified on Schedule I hereto" immediately after "manufacturing facility" in the second line thereof. (j) The definition of "Excluded Assets" is amended to add the following at the end thereof: "Notwithstanding anything herein or in any other Loan Document to the contrary, "Excluded Assets" shall not include the ALPART Collateral or the QAL Collateral, or the proceeds of any Asset Disposition of the VALCO Interests or the Gramercy/KJBC Interests." (k) The definition of "Final Order" is deleted in its entirety and replaced with the following: ""Final Order" means the Third Amended and Restated Final Order Authorizing Secured Post-Petition Financing on a Super Priority Basis Pursuant to 11 U.S.C. Sections 363, 364, and 507(b) and Granting Relief from the Automatic Stay Pursuant to 11 U.S.C. Section 362 entered in the Bankruptcy Cases approving the Seventh Amendment and the granting of Liens as provided therein, and as the same may hereafter be further amended, supplemented or otherwise modified, in each case with the prior written consent of the Agent." (l) The following definitions of "Gramercy/KJBC Debt," "Gramercy/KJBC Interests" and "Gramercy/KJBC Proceeds" are added in proper alphabetical order: ""Gramercy/KJBC Debt" means an amount equal to the Indebtedness owing to the Company or any other Obligor by KJBC that is not indefeasibly repaid in full in cash immediately upon an Asset Disposition of the Gramercy/KJBC Interests." ""Gramercy/KJBC Interests" means the Company's or any other Obligor's interests in (i) the real property and other assets associated with the facility in Gramercy, Louisiana and/or (ii) KJBC or the assets of KJBC." ""Gramercy/KJBC Proceeds" means (i) the amount of Net Disposition Proceeds from an Asset Disposition with respect to the Gramercy/KJBC Interests, to the extent such proceeds are received by the Company or any other Obligor, net of (ii) any amounts required by any governmental authority or regulatory body or 5 by the terms of any agreement or contract with any Person relating to the Gramercy/KJBC Interests or by an order of the Bankruptcy Court to pay, or deposited into escrow to pay, liabilities associated with such assets and business (in each case for so long as such proceeds remain in escrow or the same have been applied to such liabilities); provided that no amounts shall be netted from the full Net Disposition Proceeds pursuant to this clause (ii) until the Agent has received a written request from the Company for such netting, describing (and providing documentation, as applicable) the requirements of such governmental authority or regulatory body, or terms and requirements of any such agreement or contract with any Person, in each case with respect to such payments or escrowed funds and the liabilities relating thereto, and the same in each case are reasonably acceptable to the Agent (including without limitation as to amounts)." (m) The following definition of "KACC Available Amount" is added in proper alphabetical order: ""KACC Available Amount" means the $28,000,000 deposited in a Cash Collateral Account in the name of the Company established at Bank of America, N.A., in connection with the consummation of the sale of the interests in ALPART." (n) The following definition of "KBC Allocable Amount" is added in proper alphabetical order: ""KBC Allocable Amount" means the portion of the Net Disposition Proceeds from an Asset Disposition of the Gramercy/KJBC Interests that is allocable to KBC pursuant to the Settlement and Release Agreement or, if the Settlement Effective Date has not occurred, then pursuant to the Purchase Agreement dated as of May 17, 2004, for the sale of the Gramercy/KJBC Interests." (o) The definition of "Maximum Letter of Credit Amount" is amended to change the number "$125,000,000" to "$100,000,000". (p) The following definition of "Minimum Aggregate Proceeds Collateral" is added in proper alphabetical order: ""Minimum Aggregate Proceeds Collateral" means the aggregate of the ALPART Collateral and the QAL Collateral; provided that (i) prior to a QAL Triggering Event, the Minimum Aggregate Proceeds Collateral shall consist of (x) the ALPART Collateral, maintained in Cash Collateral Accounts in accordance herewith, plus (y) the QAL Claims, and (ii) after the occurrence of a QAL Triggering Event, the Minimum Aggregate Proceeds Collateral shall consist of the ALPART Collateral and the QAL Collateral, in each case maintained in Cash Collateral Accounts in accordance herewith." (q) The definition of "New Domestic Debtor" is deleted in its entirety and replaced with the following: 6 ""New Domestic Debtor" means, each of Alwis, KAE Trading, Kaiser Center Properties, KBC, KCI and KEC, and "New Domestic Debtors" means all of them collectively." (r) The definition of "OLV In-Place Value" is deleted in its entirety and replaced with the following: ""OLV In-Place Value" means the appraised value of the Eligible Fixed Assets then owned, reduced by such Environmental Compliance Reserve, if any, as the Agent, after consultation with the Company, deems appropriate in its commercially reasonable discretion." (s) The definition of "Permitted Asset Dispositions" is deleted in its entirety and replaced with the following: ""Permitted Asset Dispositions" means (i) an Asset Disposition of the QAL Interests so long as (a) the QAL Collateral is immediately deposited in the applicable Cash Collateral Accounts at Bank of America, N.A., by the purchaser of the QAL Interests upon consummation of such sale and maintained on deposit thereafter in accordance with Sections 9.1.20 and 9.1.21, (b) the Debtors are released from any further obligation to make Investments with respect to QAL and from any Contingent Liabilities with respect to QAL other than such indemnification and post-closing obligations and liabilities as are customarily found in purchase agreements and agreed with the ultimate purchaser of the QAL Interests and set forth in the definitive documentation therefor; provided that the aggregate amount of such indemnification and post-closing obligations and liabilities for which the Company reasonably believes the Debtors may be liable shall not exceed an amount that is reasonably acceptable to the Required Lenders, all as set forth in a letter agreement between the Company and the Agent (acting at the direction of the Required Lenders), to be entered into prior to the execution and delivery of a purchase agreement relating to the QAL Interests, and (c) all Net Disposition Proceeds from such Asset Disposition shall be allocated to KAAC, the Company and/or KAII; (ii) an Asset Disposition of the VALCO Interests; provided that the terms of any such Asset Disposition and disposition of the proceeds thereof are substantially as generally described to the Agent and the Lenders prior to the effective date of the Seventh Amendment; and (iii) an Asset Disposition of the Gramercy/KJBC Interests pursuant to the Purchase Agreement dated as of May 17, 2004, among the Company, KBC, Gramercy Alumina LLC and St. Ann Bauxite Limited which was approved by the Bankruptcy Court on July 19, 2004." (t) The definition of "PPE Subcomponent Reduction" is deleted in its entirety and replaced with the following: ""PPE Subcomponent Reduction" shall mean an amount equal to (a) the aggregate of all Net Disposition Proceeds received by the Parent Guarantor, the Company or any Subsidiary from any Asset Dispositions effected after the effective date of the Sixth Amendment, except (1) Asset Dispositions permitted 7 under Sections 9.2.11(a), (b), (c), (d), (f) and (i); (2) sales of Accounts owned by the Company, KAII or Kaiser Bellwood; (3) the Asset Disposition of the interests in ALPART and certain assets owned by ALPART, the sellers of interests in ALPART or their affiliates in the transaction that closed on July 1, 2004; and (4) except as hereinafter provided, Permitted Asset Dispositions; provided that in the case of any Asset Disposition by a less than wholly owned Subsidiary, only the proportionate amount of Net Disposition Proceeds received in connection therewith which corresponds to the Company's direct or indirect percentage ownership interest in such Subsidiary shall be included in a PPE Subcomponent Reduction; plus (b) after the occurrence of a Threshold Event, an amount equal to $5,000,000 upon each such occurrence, provided that (i) any reductions under this clause (b) shall occur no more frequently than once each calendar month and (ii) the aggregate reductions under this clause (b) shall not cause the PPE Subcomponent to be less than $25,000,000; plus (c) at any time on or after the date on which the first reduction of the PPE Subcomponent under clause (b) above has occurred, (1) if an Asset Disposition of the Gramercy/KJBC Interests has occurred or a Subsidiary Plan for KBC has been confirmed, an amount equal to the greater of (i) the KBC Allocable Amount and (ii) $3,000,000, plus an amount equal to 50% of the Gramercy/KJBC Proceeds (excluding the KBC Allocable Amount) in excess of $3,000,000, plus (2) if an Asset Disposition of the VALCO Interests has occurred, an amount equal to $7,000,000, plus an amount equal to 50% of the VALCO Proceeds in excess of $7,000,000, in each case whether such proceeds were received prior to or after a reduction of the PPE Subcomponent pursuant to clause (b); provided that any reductions pursuant to this clause (c) shall be effective on the later of (x) the Threshold Event giving rise to a reduction under clause (b) above and (y)(A) the consummation of such Asset Disposition or confirmation of such Subsidiary Plan (as applicable) and (B) thereafter upon receipt of any subsequent cash payment on notes or deferred payment obligations or purchase price adjustments pursuant to clause (i) of the following proviso; provided further that (i) any reductions based on the Gramercy/KJBC Proceeds or the VALCO Proceeds, as applicable, under this clause (c) shall be made only to the extent such proceeds are received directly by the Company or any other Obligor, or any Affiliate of an Obligor, in cash or cash equivalents, including in respect of cash payments on any promissory notes received as part of the consideration for such Asset Disposition and in respect of cash payments of deferred payment obligations or purchase price adjustments received as consideration in such Asset Disposition, and (ii) any subsequent repayment of the Gramercy/KJBC Debt or the VALCO Debt, as applicable, shall not increase or otherwise affect the PPE Subcomponent, nor shall it reduce or otherwise affect the PPE Subcomponent Reduction; plus (d) an amount equal to 100% of the Indebtedness owing to the Company or any other Obligor by AJI, KJC and/or KAAC, as applicable, pursuant to the Settlement and Release Agreement (whether or not the Settlement Effective Date has occurred) that is not indefeasibly repaid in full in cash by (1) AJI and KJC immediately upon, or in connection with, an ALPART Plan Event or (2) KAAC immediately upon, or in connection with, a QAL Plan Event; plus (e) an amount equal to 100% of the 8 Indebtedness owing to the Company or any other Obligor by QAL that is not indefeasibly repaid in full in cash by QAL immediately upon a QAL Sale Event." (u) The following definitions of "QAL Claims," "QAL Collateral," "QAL Interests," "QAL Plan Event," "QAL Sale Event" and "QAL Triggering Event" are added in the proper alphabetical order: ""QAL Claims" means the Agent's and the Secured Lenders' superpriority secured claims against KAAC in the amount of (i) the Obligations prior to the Settlement Effective Date and (ii) after the Settlement Effective Date, $40,000,000 (plus interest, if any, accruing on and investments of, and earnings on and proceeds of investments of, the QAL Collateral after a QAL Triggering Event)." ""QAL Collateral" means the Net Disposition Proceeds of a QAL Sale Event and any other distributions in respect of the QAL Interests (including pursuant to a plan of reorganization or liquidation or the Settlement and Release Agreement); provided that following the occurrence of both the Settlement Effective Date and a QAL Triggering Event in accordance with the terms and provisions of this Agreement, the QAL Collateral shall be fixed at a principal amount of $40,000,000, and shall include such amount, interest accruing thereon and all investments thereof, and earnings on and proceeds of investments with respect thereto." ""QAL Interests" means the ownership interests of the Company, KAAC and any other Obligor in QAL, certain contracts, rights and interests or loans owned by any Obligor relating to QAL, and any inventory held at QAL and owned by any Obligor." ""QAL Plan Event" means the effective date of a Subsidiary Plan for KAAC, which plan shall provide for cash payments to the Company and deposits to Cash Collateral Accounts upon such effective date in the amounts required by Section 9.1.20." ""QAL Sale Event" means the consummation of an Asset Disposition of the QAL Interests." ""QAL Triggering Event" means either a QAL Sale Event or a QAL Plan Event." (v) The definition of "Secured Guarantor" is deleted in its entirety and replaced with the following: ""Secured Guarantor" means each of Kaiser Bellwood, KAII, Parent Guarantor, Akron, KAAC, KACI, KAP, KATSI, KBC, KFC, KMH, KSM, Oxnard, Texas Holdings, Texas Sierra, AJI and KJC, and "Secured Guarantors" means all of them, collectively." 9 (w) The following definition of "Settlement and Release Agreement" is added in proper alphabetical order: ""Settlement and Release Agreement" means the Settlement and Release Agreement dated as of October 5, 2004, among the Obligors and the Unsecured Creditors' Committee, in the form attached as Exhibit A to the Seventh Amendment." (x) The following definition of "Settlement Effective Date" is added in proper alphabetical order: ""Settlement Effective Date" means the date on which the Settlement and Release Agreement becomes effective in accordance with its terms; provided that for purposes of the following definitions and sections: "KBC Allocable Amount" "QAL Claims" "QAL Collateral" Section 9.1.20 the Settlement Effective Date shall be deemed not to have occurred if the Approval Order (as defined in the Settlement and Release Agreement) is overturned, vacated or otherwise reversed on appeal." (y) The following definition of "Seventh Amendment" is added in the proper alphabetical order: ""Seventh Amendment" means the Seventh Amendment to Post-Petition Credit Agreement, Amendment to Subsidiary Guaranty and Consent of Guarantors and Acknowledgment and Agreement of AJI, KJC, KFC, KAAC and KBC, dated as of ___________, 2004, by and among the Parent Guarantor, the Company, the Lenders, the Agent, the Co-Agents and, with respect to Section 1.12 thereof, Bank of America, N.A., as depository bank for the Cash Collateral Accounts, and acknowledged by AJI, KJC, KFC, KAAC and KBC." (z) The following definition of "Subsidiary Plan" is added in proper alphabetical order: "Subsidiary Plan" means a separate standalone plan or plans of reorganization or liquidation for AJI, KJC, KAAC, KFC and/or KBC as applicable." (aa) The following definitions of "Threshold" and "Threshold Event" are added in proper alphabetical order: ""Threshold" means, as of any date of determination, an amount equal to 85% of the Borrowing Base attributable to the sum of (i) amounts included under 10 clause (a) of the definition of Borrowing Base and (ii) amounts included under clause (b) of the definition of Borrowing Base." "Threshold Event" means at any time after August 31, 2004, the earlier to occur of either of the following events: (x) Revolving Credit Outstandings exceed the Threshold for five (5) consecutive Business Days or (y) Revolving Credit Outstandings exceed the Threshold for any five (5) Business Days in any calendar month; provided that with respect to Section 9.2.4, the time period for determining whether a "Threshold Event" shall have occurred shall be, in the case of clause (x) above, three (3) consecutive Business Days and, in the case of clause (y) above, any three (3) Business Days." (bb) The following definition of "Unsecured Creditors Committee" is added in proper alphabetical order: ""Unsecured Creditors' Committee" means the Official Committee of Unsecured Creditors which was appointed in the Bankruptcy Cases on February 22, 2002, as such appointment may be amended from time to time." (cc) The definition of "Unsecured Guarantor" is deleted in its entirety and replaced with the following: "Unsecured Guarantor" means each of the New Domestic Debtors (other than KBC) and "Unsecured Guarantors" means all of them, collectively. (dd) The following definitions of "VALCO Debt," "VALCO Interests" and "VALCO Proceeds" are added in proper alphabetical order: ""VALCO Debt" means an amount equal to the Indebtedness owing to the Company or any other Obligor by VALCO that is not indefeasibly repaid in full in cash upon an Asset Disposition of the VALCO Interests." ""VALCO Interests" means the Company's or any other Obligor's ownership interests in VALCO and any alumina inventory held at VALCO and owned by the Company or any other Obligor." ""VALCO Proceeds" means (i) the Net Disposition Proceeds from the sale or other disposition of the VALCO Interests, to the extent such proceeds are received by the Company or any other Obligor, net of (ii) any amounts required by any governmental authority or regulatory body or by the terms of any agreement or contract with any Person relating to the VALCO Interests or by an order of the Bankruptcy Court to pay, or deposited into escrow to pay, liabilities associated with such assets and business (in each case for so long as such proceeds remain in escrow or the same have been applied to such liabilities; provided that no amounts shall be netted from the full Net Disposition Proceeds pursuant to this clause (ii) until the Agent has received a written request from the Company for such netting, describing (and providing documentation, as applicable) the requirements of such governmental authority or regulatory body, 11 or terms and requirements of any such agreement or contract with any Person, in each case with respect to such payments or escrowed funds and the liabilities relating thereto, and the same in each case are reasonably acceptable to the Agent (including without limitation as to amounts)." 1.2 AMENDMENT TO SECTION 2.1.1 (REVOLVING COMMITMENT). Section 2.1.1(b) of the Credit Agreement is amended (i) to delete the reference to "$285,000,000" in clause (x) thereof and to replace it with "$200,000,000" and (ii) to delete the two references in the last sentence of such Section to the "Sixth Amendment" and replace them with "Seventh Amendment". 1.3 AMENDMENT TO SECTION 3.5.1 (COMMITMENT FEE). Section 3.5.1 of the Credit Agreement is amended to delete the reference to "1/2 of 1% per annum" and replace it with "0.625% per annum". 1.4 AMENDMENT TO SECTION 7.4 (ALL CREDIT EXTENSIONS). Section 7.4 of the Credit Agreement is amended to delete the first sentence thereof and to replace it with the following: "The obligation of each Lender to fund any Loan on the occasion of any Credit Extension (including the initial Credit Extension), the obligation of Agent to fund any Swingline Loan, the obligation of any Issuer Bank to issue any Letter of Credit and the obligation of Agent to consent to the withdrawal of the KACC Available Amount from a Cash Collateral Account, as the case may be, shall, except as provided in Sections 2.1.2(b) and (c), be subject to the prior or concurrent satisfaction (or waiver) of each of the conditions precedent set forth in this Section 7.4." 1.5 AMENDMENT TO SECTION 8.1 (ORGANIZATION, ETC.). Section 8.1 of the Credit Agreement is amended to delete the first sentence thereof and to replace it with the following: "Each of (i) the Obligors, (ii) the Canadian Subsidiaries, (iii) Anglesey, (iv) prior to a QAL Sale Event, QAL, (v) prior to a sale of the VALCO Interests, VALCO, and (vi) each other Significant Subsidiary of the Company is a corporation, partnership, or other entity validly organized and existing and (in the case of non-Domestic Subsidiaries and Joint Venture Affiliates, to the extent that "good standing" is recognized under applicable law) in good standing under the laws of the jurisdiction of its incorporation or organization, as the case may be; is duly qualified to do business and (in the case of non-Domestic Subsidiaries and Joint Venture Affiliates, to the extent that "good standing" is recognized under applicable law) in good standing as a foreign corporation, partnership, or other entity in each jurisdiction where the nature of its business or activities requires such qualification; and has full corporate, partnership, or other organizational power and authority and holds all requisite governmental licenses, permits, and other approvals to own, lease, and operate its Properties and to conduct its business substantially as now being operated and conducted, except where the failure to be so qualified and in good standing or to have such power, authority, 12 licenses, permits, and other approvals has no reasonable possibility of having a Materially Adverse Effect." 1.6 AMENDMENT TO SECTION 8.5 (FINANCIAL INFORMATION). Section 8.5 of the Credit Agreement is amended to add the following clause (d) at the end thereof: "(d) The 2004 Financial Forecast was prepared on the basis of the estimates and assumptions stated therein and represented, at May 5, 2004, the Company's good faith forecasts and projections of its future financial performance prepared after duly diligent investigations; and such 2004 Financial Forecast, if prepared as of the effective date of the Seventh Amendment, would contain estimates of the future financial performance of the Company and its Subsidiaries which would not materially and adversely differ from the respective estimates contained in the 2004 Financial Forecast. As of the effective date of the Seventh Amendment, no material developments have occurred since May 5, 2004, which would lead the Company to believe that such 2004 Financial Forecast, taken as a whole, is not reasonably attainable, subject to the uncertainties and approximations inherent in any projections. It is understood by the Agent and the Lenders that all of the estimates and assumptions on which such 2004 Financial Forecast is based may not prove to be correct, that actual future financial performance may vary from that projected, and that nothing contained in this clause (d) shall be construed as a warranty, or guarantee, of future financial performance." 1.7 AMENDMENT TO SECTION 8.18 (JOINT VENTURE CONTINGENT LIABILITIES). Section 8.18 of the Credit Agreement is deleted in its entirety and replaced with the following: "SECTION 8.18. JOINT VENTURE CONTINGENT LIABILITIES. Item 10 ("Joint Venture Contingent Liabilities") of the Disclosure Schedule contains a fair summary of the types of the material Contingent Liabilities of the Company and its Subsidiaries in respect of the businesses, operations, and financial obligations of (i) Anglesey, (ii) prior to a QAL Sale Event, QAL, and (iii) prior to a sale of the VALCO Interests, VALCO." 1.8 AMENDMENT TO SECTION 9.1.1 (FINANCIAL INFORMATION, REPORTS, NOTICES, ETC.). Section 9.1.1 of the Credit Agreement is amended to add the following clause (o) at the end thereof: "(o) as soon as available, but in any event no later than (x) if a Threshold Event has occurred or is reasonably expected to occur as a result of any of the following, or if the Revolving Credit Outstandings exceed the Threshold or are reasonably expected to exceed the Threshold after giving effect to any of the following, five (5) Business Days prior thereto, and (y) otherwise, as soon as available but in no event later than one (1) Business Day thereafter: (i) any Asset Disposition of the QAL Interests or the VALCO Interests or (ii) any ALPART Plan Event, a QAL Plan Event or the effective date of a Subsidiary Plan for KBC or KFC, the Company shall deliver to the Agent a schedule setting forth (1) if an 13 Asset Disposition, a detailed description (including an itemized schedule) of the use of sale proceeds with respect thereto, (2) in any case, a schedule of all Indebtedness and liabilities owing to any (other) Obligor by the subject (or owner, as applicable) of such Asset Disposition or Subsidiary Plan, as applicable, and (3) a schedule of all such Indebtedness and liabilities that shall remain unpaid after consummation of such Asset Disposition or effective date of such Subsidiary Plan, as applicable, together with a certificate of a Financial Authorized Officer of the Company certifying to the Agent and the Lenders that such matters are true and correct in all material respects." 1.9 AMENDMENT TO SECTION 9.1.18 (INVENTORY APPRAISALS). Section 9.1.18 of the Credit Agreement is amended by (a) deleting the caption thereto in its entirety and replacing it with "SECTION 9.1.18. (APPRAISALS)." and (b) inserting "(a)" immediately prior to the text thereof and (c) adding a new paragraph (b) to read as follows: "(b) If at any time the Revolving Credit Outstandings exceed eighty percent (80%) of the Borrowing Base, the Agent may, at its option and at the expense of the Company, obtain an updated appraisal of the Net Recovery Percentage of Eligible Fixed Assets to establish the OLV In-Place Value, which appraisal shall be from an appraisal firm satisfactory to Agent and shall be in scope, form and substance satisfactory to Agent; provided that such updated appraisal will be required no more frequently than once in every 180-day period, unless a Default or an Event of Default shall have occurred and be continuing, in which case the Agent may require more frequent appraisals, but in any event no more frequently than monthly." 1.10 ADDITION OF SECTION 9.1.19 (ALPART COLLATERAL). A new Section 9.1.19 is added to the Credit Agreement to read as follows: "SECTION 9.1.19 ALPART COLLATERAL. (a) Prior to an ALPART Plan Event, the ALPART Collateral shall, at all times, (i) serve as Collateral for the Obligations and (ii) be deposited in Cash Collateral Accounts of AJI and KJC, free and clear of Liens, claims and encumbrances other than first-priority Liens in favor of Agent for its benefit and the benefit of the Secured Lenders, and claims which are junior to the Agent's and the Secured Lenders' claims. (b) After an ALPART Plan Event, the ALPART Collateral shall, at all times, (i) serve as Collateral for the Obligations and (ii) be deposited in Cash Collateral Accounts of AJI, KJC and/or the Company, free and clear of Liens, claims and encumbrances other than first-priority Liens in favor of Agent for its benefit and the benefit of the Secured Lenders, the Lien permitted by Section 9.2.3(z) and claims which are junior to the Agent's and the Secured Lenders' claims." 14 1.11 ADDITION OF SECTION 9.1.20 (QAL TRIGGERING EVENT PAYMENTS). A new Section 9.1.20 is added to the Credit Agreement to read as follows: "9.1.20 QAL TRIGGERING EVENT PAYMENTS. Upon the occurrence of a QAL Triggering Event, the following payments will be made from the Net Disposition Proceeds of an Asset Disposition of the QAL Interests if a QAL Sale Event has occurred, or from payments to the Company in respect of a Subsidiary Plan for KAAC if a QAL Plan Event has occurred, and, in either case, deposited in a Cash Collateral Account of the applicable Obligor, free and clear of Liens, claims and encumbrances other than first-priority Liens in favor of Agent for its benefit and the benefit of the Secured Lenders, the Lien permitted by Section 9.2.3(z), and claims which are junior to the Agent's and the Secured Lenders' claims: (a) Upon a QAL Sale Event, the QAL Collateral shall be deposited by KAAC and/or such other Obligor, as applicable, in a Cash Collateral Account of such Obligor(s); and (b) Upon a QAL Plan Event, the QAL Collateral shall be paid to the Company and deposited in a Cash Collateral Account of the Company and upon such deposit, any amounts held by the Agent pursuant to the preceding clause (a) (if any) shall be released as such Obligor(s) direct Agent in writing. For purposes of clarification, until the Settlement Effective Date, (i) any and all proceeds from any Asset Disposition of the QAL Interests received by KAAC, the Company or any other Secured Guarantor and (ii) any and all amounts paid by KAAC to the Company or any other Secured Guarantor in connection with a QAL Plan Event, in each case, shall be part of the Collateral and subject to the Lien in favor of the Agent, for the benefit of itself and the Secured Lenders. After the Settlement Effective Date, the QAL Collateral shall serve as Collateral for the Obligations." 1.12 ADDITION OF SECTION 9.1.21 (CASH COLLATERAL ACCOUNTS; GRANT OF SECURITY INTERESTS). The following Section 9.1.21 is added to the Credit Agreement: "SECTION 9.1.21 CASH COLLATERAL ACCOUNTS; GRANT OF SECURITY INTERESTS. (a) Agent shall deposit all funds paid to Agent pursuant to Sections 9.1.19, 9.1.20 and 9.2.18 and the KACC Available Amount as cash collateral to the credit of a Cash Collateral Account owned by the applicable Obligor. As security for the payment of all Obligations, the Company hereby grants, conveys, assigns, pledges, sets over, and transfers to the Agent, and creates in the Agent's favor, a first-priority Lien on and security interest in the ALPART Collateral, the QAL Collateral, the KBC Allocable Amount, the Cash Collateral Accounts and all money, instruments, securities, financial assets, investment property and other property at any time deposited in, held in, credited to or acquired in connection with the Cash Collateral Accounts, together with all proceeds of any of the foregoing (including without limitation dividends payable in cash or stock and 15 shares or other proceeds of conversions or splits of any securities in the Cash Collateral Accounts), and all interest accruing thereon and investments thereof, and earnings on and proceeds of investments with respect thereto, for the benefit of the Agent and the Secured Lenders. The Company shall cause each of AJI, KJC, KAAC, KBC and each other Obligor, as applicable, to execute and deliver to the Agent a security agreement or cash collateral account agreement in form and substance satisfactory to the Agent pursuant to which each of AJI, KJC, KAAC, KBC and/or such other Obligor shall, as security for the payment of all Guarantied Obligations (as defined in the Subsidiary Guaranty), grant, convey, assign, pledge, set over, and transfer to the Agent, and create in the Agent's favor, a first-priority Lien on and security interest in the ALPART Collateral, the QAL Collateral, the KBC Allocable Amount, the Cash Collateral Accounts and all money, instruments, securities, financial assets, investment property and other property at any time deposited in, held in, credited to or acquired in connection with the Cash Collateral Accounts, together with all proceeds of any of the foregoing (including without limitation dividends payable in cash or stock and shares or other proceeds of conversions or splits of any securities in the Cash Collateral Accounts), and all interest accruing thereon and investments thereof, and earnings on and proceeds of investments with respect thereto, for the benefit of the Agent and the Secured Lenders. None of the Company, AJI, KJC, KAAC, KBC or any other Obligor shall have any right to withdraw or to cause the Agent to withdraw any funds deposited in the Cash Collateral Accounts, except that, (w) upon satisfaction of the conditions set forth in Section 7.4, the Company may request that Agent permit withdrawal of amounts up to the then-outstanding KACC Available Amount and the Agent will permit such withdrawal, (x) funds on deposit in any deposit or securities accounts of AJI and KJC maintained at Bank of America, N.A., or its affiliates, other than the ALPART Collateral, may be withdrawn by AJI and KJC (and, at the request of AJI or KJC, the Agent will take any action reasonably necessary to permit such withdrawal) to pay the Professional Fees specifically relating to the Bankruptcy Cases of AJI, KJC and KBC or to make distributions under a Subsidiary Plan for AJI and KJC; provided that with respect to KBC, any withdrawal shall only be to the extent that the Company has not previously advanced funds for the Professional Fees of KBC pursuant to Section 9.2.14 hereof, (y) the ALPART Collateral and the QAL Collateral may be transferred from the Cash Collateral Accounts of AJI, KJC and KAAC, as applicable, to Cash Collateral Accounts of the Company in accordance with Sections 9.1.19 and 9.1.20 hereof and (z) the KBC Allocable Amount may be transferred to AJI and/or KJC in accordance with Section 9.2.18 hereof. Amounts held in the Cash Collateral Accounts may be invested from time to time in Cash Equivalent Investments as directed by the applicable Obligor and at such Obligor's sole investment risk, but held in the name of the Agent. At any time and from time to time, upon the Agent's request, the Company promptly shall, and shall cause AJI, KJC, KAAC, KBC and each other Obligor, as applicable, to, execute and deliver any and all such further instruments and documents (including financing statements and bond powers executed in blank) as may be necessary, appropriate, or desirable in the Agent's judgment to obtain the full 16 benefits (including perfection and priority) of this Section 9.1.21 and of the rights and powers herein granted. None of the Company, AJI, KJC, KAAC, KBC or any other Obligor shall create or suffer to exist any Lien on any amounts or investments held in the Cash Collateral Accounts other than (i) the first-priority Liens granted under this Section 9.1.21 and the Acknowledgment and Agreement of AJI, KJC, KFC, KAAC and KBC executed in connection with the Seventh Amendment and (ii) the junior Liens permitted under Section 9.2.3(z). Notwithstanding anything herein or in any other Loan Document to the contrary, neither the Agent nor any Secured Lender shall be under any obligation to marshal any assets in favor of any Obligor or any other party or against or in payment of any or all of the Obligations, including without limitation the Cash Collateral Accounts or any money, instruments, securities, financial assets, investment property or other property at any time deposited in, held in, credited to or acquired in connection with the Cash Collateral Accounts or any proceeds thereof. Each of the Agent, the Company, AJI, KJC, KAAC, KBC, each other Obligor and, by its execution of a counterpart of the Seventh Amendment, Bank of America, N.A., as depository bank with respect to the Cash Collateral Accounts, agree that Bank of America, N.A., will comply with all instructions and entitlement orders originated by the Agent directing disposition of the funds and investments in the Cash Collateral Accounts without further consent by the Company, AJI, KJC, KAAC, KBC or any other Obligor, and the Agent shall have sole and exclusive dominion and control over the Cash Collateral Accounts. (b) On or at any time after the Settlement Effective Date, AJI and KJC may request that the Agent permit withdrawal from any deposit or securities accounts maintained by AJI and KJC at Bank of America, N.A., or its affiliates any amounts on deposit in excess of the amount of the ALPART Collateral and the Agent will permit such withdrawal; provided that if the Approval Order (as defined in the Settlement and Release Agreement) is overturned, vacated or otherwise reversed on appeal, all rights of withdrawal of AJI and KJC pursuant to this clause (b) shall terminate immediately. (c) AJI, KJC, KAAC, KBC and any other Obligor, as applicable, shall pay to Bank of America, N.A., fees and investment charges, if any, charged by Bank of America, N.A., or its affiliates with respect to the Cash Collateral Accounts and other deposit or securities accounts, which charges (if any) shall be consistent with those customarily charged by Bank of America, N.A., with respect to the maintenance of accounts similar to the Cash Collateral Accounts." 1.13 AMENDMENT TO SECTION 9.2.3 (LIENS). Section 9.2.3 of the Credit Agreement is amended: (a) to delete clause (t) thereof and to replace it with the following: "(t) Liens consisting of rights to (but not a security interest in) proceeds of Asset Dispositions held in escrow in connection with such Asset Disposition;" 17 (b) to delete the word "and" at the end of clause (x), (c) to delete the period at the end of clause (y) and replace it with "; and" and (d) to add the following clause (z) at the end of such Section: "(z) if all or any portion of the ALPART Collateral and/or QAL Collateral is, pursuant to the Settlement and Release Agreement, transferred by AJI, KJC and/or KAAC to the Company in connection with a ALPART Plan Event and/or QAL Plan Event, a Lien in favor of AJI, KJC and/or KAAC, as applicable, on the ALPART Collateral and/or QAL Collateral, as applicable, securing (and solely to the extent of) any such amount(s) so transferred, which Lien is junior and subordinate to the Lien in favor of the Agent and the Secured Lenders and is subject to an intercreditor agreement, in form and substance satisfactory to the Agent in its sole discretion." 1.14 AMENDMENT TO SECTION 9.2.4 (MINIMUM EBITDA). Section 9.2.4 of the Credit Agreement is deleted in its entirety and replaced with the following: "SECTION 9.2.4 MINIMUM EBITDA. Commencing with the first month in which a Threshold Event occurs and continuing through the then-remaining term of this Agreement, the Company and its Subsidiaries, on a consolidated basis, shall have a minimum EBITDA of not less than the following amounts, measured as of the last day of such month and each month thereafter for the period specified below:

The minimum EBITDA amounts set forth above include the expected EBITDA amounts attributable to the Gramercy/KJBC Interests, the QAL Interests and the VALCO Interests for each month in the period from October 1, 2004 through December 31, 2004, as agreed in writing by the Company and the Required Lenders prior to the effective date of the Seventh Amendment (the "Attributable EBITDA Amounts"). Upon consummation of a QAL Triggering Event and/or an Asset Disposition of the Gramercy/KJBC Interests and/or the VALCO Interests, the minimum EBITDA amounts set forth above for each period ending after the QAL Triggering Event or such Asset Disposition is consummated will automatically be reduced by an amount equal to the product of (i) the Attributable EBITDA Amount attributable to the Gramercy/KJBC Interests, the QAL Interests and/or the VALCO Interests, respectively, for the applicable period, times (ii) a fraction, the numerator of which is the number of days remaining in such period and the denominator of which is the total number of days in such period. All 18 reductions to the minimum EBITDA amounts pursuant to the foregoing sentence will be cumulative for all such Asset Dispositions." 1.15 AMENDMENT TO SECTION 9.2.11 (ASSET DISPOSITIONS). Section 9.2.11 of the Credit Agreement is amended to delete the last sentence of such Section. 1.16 AMENDMENT TO SECTION 9.2.14 (TRANSACTIONS WITH AFFILIATES). Section 9.2.14 of the Credit Agreement is amended to add the following paragraph immediately after the second paragraph of that Section: "Notwithstanding any other provision of this Agreement, on and after the effective date of the Seventh Amendment, the Company will not, and will not permit any of its Subsidiaries to, enter into, or cause, suffer or permit to exist any transaction, arrangement, or contract between any Obligor and any of AJI, KJC, KFC, ALPART, KAAC, KBC and/or QAL requiring, constituting or involving any payments or other transfers of Property to be made by any Obligor to or for the benefit of, or pursuant to which any Obligor incurs a Contingent Liability in respect of any obligation of, or incurs a contractual obligation for the benefit of, AJI, KJC, KFC, ALPART, KAAC, KBC and/or QAL other than transactions, arrangements and contracts entered into in the ordinary course of business consistent with past practice and on a basis no less favorable to any Obligor than would be obtained in an arm's length transaction with a Person that is not an Affiliate of such Obligor; provided that the foregoing shall not restrict or otherwise be deemed to prohibit (i) the transactions contemplated under the Seventh Amendment and consummated in accordance therewith (including, without limitation, those transactions set forth in the definition of "Permitted Asset Dispositions,") or (ii) the transactions under the Settlement and Release Agreement (whether or not the Settlement Effective Date has occurred); and provided further that all costs and expenses (including Professional Fees) relating to the Bankruptcy Cases of AJI, KJC, KFC, KAAC and KBC incurred after June 30, 2004, shall be payable only by AJI, KJC, KAAC (on behalf of itself and KFC) and KBC (or by AJI and/or KJC on behalf of KBC), as applicable, and shall not be charged to or paid by any other Obligor or assessed against the Collateral, except that (a) the Company may advance payments for Professional Fees of KFC and KAAC incurred after June 30, 2004, but prior to the occurrence of a QAL Triggering Event and shall be reimbursed for such payments immediately upon a QAL Triggering Event from the Net Disposition Proceeds (other than the QAL Collateral) of a QAL Sale Event or distributions (other than the QAL Collateral) to the Company pursuant to a Subsidiary Plan for KAAC, and (b) the Company may advance payments for Professional Fees of KBC incurred after June 30, 2004, but prior to the closing of the Asset Disposition of the Gramercy/KJBC Interests, and the Company shall be reimbursed for such payments (with interest at a rate equal to the sum of (x) the Reference Rate from time to time in effect and (y) a margin of 1-1/2%) immediately (and in any event prior to the transfer of any portion of the KBC Allocable Amount, or the making of any other distributions or transfers, to AJI and/or KJC) from the KBC Allocable Amount prior to the transfer of such amount to AJI and/or KJC pursuant to Section 9.2.18 hereof; 19 provided that KACC shall not be obligated to pay Professional Fees of KBC in excess of the KBC Allocable Amount; provided further that all costs and expenses (including Professional Fees) incurred by KBC after the Asset Disposition of the Gramercy/KJBC Interests shall be charged to KBC and payable by KBC's estate or, if necessary, by AJI and KJC out of funds other than the ALPART Collateral." 1.17 AMENDMENT TO SECTION 9.2.18 (INTERCOMPANY TRANSFERS OF PROPERTY). Section 9.2.18 of the Credit Agreement is amended to add the following clause (ix) at the end thereof: "(ix) in connection with an Asset Disposition with respect to the Gramercy/KJBC Interests in compliance with this Agreement, the KBC Allocable Amount may be transferred by KBC to AJI and/or KJC in accordance with the terms of the Settlement and Release Agreement; provided that the foregoing permitted transfer shall only take place after making any required reimbursement to the Company pursuant to Section 9.2.14 (together with interest thereon as provided therein), and the amount so transferred shall be reduced accordingly by all such amounts; provided further that until such permitted transfer, the KBC Allocable Amount shall be Collateral and deposited and maintained in a Cash Collateral Account of KBC; provided further that the KBC Allocable Amount shall not (a) exceed $7,000,000 or (b) be funded directly or indirectly from the proceeds of any Loans. Neither KBC nor any other Obligor shall have any right to withdraw any funds deposited in such account except as provided in the immediately preceding sentence or to reimburse the Company in accordance with Section 9.2.14 (together with interest thereon as provided therein)." 1.18 AMENDMENT TO SECTION 9.2.20 (ADDITIONAL INVESTMENTS IN PERSONS OTHER THAN DEBTORS). Section 9.2.20 of the Credit Agreement is deleted in its entirety and replaced with the following: "SECTION 9.2.20 ADDITIONAL INVESTMENTS IN PERSONS OTHER THAN DEBTORS. Notwithstanding anything to the contrary contained in Sections 9.2.2, 9.2.5 and 9.2.18 hereof, after the effective date of the Seventh Amendment, the Company and the Parent Guarantor shall not (or apply to the Bankruptcy Court to do so), and will not permit any Guarantor to (or permit any Guarantor to apply to the Bankruptcy Court to), make any cash Investments in, or incur any Contingent Liabilities to pay the Indebtedness of, any Person other than a Debtor except (i) Investments and Contingent Liabilities to the extent reflected in the 2004 Financial Forecast (other than with respect to Investments in, and Contingent Liabilities incurred on behalf of, QAL); provided that solely with respect to Investments in, and Contingent Liabilities incurred on behalf of, QAL (and without duplication of any amounts in the 2004 Financial Forecast), the Company may make Investments in KAAC or QAL, and KAAC may make Investments in QAL, in each case, solely to pay capital expenditures of QAL in an aggregate amount not to exceed $15,000,000 in Fiscal Year 2004; provided further that upon a QAL 20 Triggering Event, any Investments in, or Contingent Liabilities incurred on behalf of, KAAC or QAL on or after June 30, 2004, shall be immediately repaid in full in cash by QAL and KAAC to the respective Obligor, (ii) Investments made in, or Contingent Liabilities incurred on behalf of, Anglesey or VALCO not reflected in the 2004 Financial Forecast in an amount not to exceed $10,000,000 per annum (so long as, after giving effect to any Investment made or Contingent Liability incurred pursuant to this clause (ii), an Event of Cash Dominion shall not have occurred and be continuing by reason thereof), and (iii) Investments in or Contingent Liabilities in respect of Kaiser Aluminum and Chemical of Canada Limited not reflected in the 2004 Financial Forecast for the purpose of Capital Expenditures not to exceed $5,000,000 per annum, in each case to the extent permitted under Section 9.2.7. Notwithstanding the foregoing or anything in the 2004 Financial Forecast to the contrary, the Company and the Parent Guarantor shall not (or apply to the Bankruptcy Court to do so), and will not permit any Guarantor to (or permit any Guarantor to apply to the Bankruptcy Court to), make any cash Investments in, or incur any Contingent Liabilities to pay the Indebtedness of (i) ALPART, AJI, KJC or KFC, (ii) on and following a QAL Triggering Event, QAL or KAAC, (iii) on and after an Asset Disposition of the VALCO Interests, VALCO, and (iv) KJBC or KBC." 1.19 ADDITION OF SECTION 9.2.25 (SETTLEMENT AND RELEASE AGREEMENT). A new Section 9.2.25 is added to read as follows: "SECTION 9.2.25 SETTLEMENT AND RELEASE AGREEMENT. The Obligors shall not enter into any agreement for the settlement or release of intercompany claims except an agreement in form and substance identical to the Settlement and Release Agreement, with such modifications thereto (or to the Settlement and Release Agreement, as applicable) as may be approved by the Agent and the Lenders holding at least 86% of the then aggregate outstanding principal amount of the Revolving Credit Outstandings or, if no such principal amount is then outstanding, Lenders having at least 86% of the Revolving Commitments. In the case of any inconsistency between the Settlement and Release Agreement and the Seventh Amendment (and this Agreement as amended thereby), the provisions of the Seventh Amendment (and this Agreement as amended thereby) shall control." 1.20 AMENDMENT TO SECTION 10.1.3 (NON-PERFORMANCE OF CERTAIN COVENANTS AND OBLIGATIONS). Section 10.1.3 is amended to insert "9.1.1 or" before "9.2.20" in the sixth line thereof. 1.21 AMENDMENT TO SECTION 10.1.10 (BANKRUPTCY CASES). Section 10.1.10 is amended to (a) add the following clauses: "(i) any Debtor files a motion seeking to use any cash collateral held by the Agent or withdraw any amounts from any Cash Collateral Account (including to fund any adjustments to the net cash proceeds received with respect to a QAL 21 Triggering Event), except as provided in Sections 9.1.21 and 9.2.18, or any other Person files such a motion and the Debtors fail to object thereto in good faith and in a timely manner, or (j) an order is entered by the Bankruptcy Court authorizing use of such cash collateral described in the preceding clause (i), or, except as provided in Sections 7.4 and 9.1.21 with respect to the KACC Available Amount or except as provided in Sections 9.1.21(b) and 9.2.18, withdrawal of any amounts from any Cash Collateral Account, other than to transfer to another Cash Collateral Account as expressly permitted by this Agreement, or (k) a QAL Triggering Event occurs and the Minimum Aggregate Proceeds Collateral are less than $60,000,000; or (l) a Plan(s) of Reorganization with respect to all Debtors is not filed on or before February 13, 2005, or any such Plan of Reorganization filed with respect to the Debtors does not provide for termination of all Revolving Commitments and indefeasible payment in full in cash of all Obligations (and cancellation of all Letters of Credit or provision of cash collateral or a Supporting Letter of Credit for all Letters of Credit in accordance with the requirements of this Agreement) on or before the effective date of such Plan(s) of Reorganization, or any such Plan of Reorganization with respect to the Company does not include an agreement that (i) with respect to any amounts effectively loaned to the Company (such amounts, the "Affiliate Loans") by any of AJI, KJC and/or KAAC (or any other Person, as applicable) (each of the foregoing for purposes of this Section 10.1.10(l), an "Affiliate Lender") in accordance with the Settlement and Release Agreement, such Affiliate Loans shall be capped at a maximum of $55,000,000, and (ii) if the repayment of any portion of such Affiliate Loans cannot be paid at the time of consummation of such Plan of Reorganization (due to insufficient liquid assets of the Company), then the repayment of such portion of the Affiliate Loan shall be deferred until such time, not later than eighteen (18) months after the effective date of such Plan of Reorganization, as reasonably determined by the Company and the Unsecured Creditors Committee in conjunction with such Plan of Reorganization, at which time such claim shall be paid in full together with interest at the rate of twelve percent (12%) per annum." And (b) to add the following proviso at the end of clause (c): "provided, however, that separate Subsidiary Plans may be proposed by (i) AJI and KJC, jointly, so long as such Subsidiary Plan (x) provides that AJI and KJC shall each affirm their Subsidiary Guaranty (or execute a replacement guaranty that is satisfactory to Agent in its sole discretion) in an amount equal to the portion of the ALPART Collateral that has not been transferred to a Cash Collateral Account of the Company pursuant to such Subsidiary Plan, (y) provides that the ALPART Collateral shall remain in Cash Collateral Accounts maintained by AJI, KJC and/or the Company until the Obligations are indefeasibly repaid in full in cash and the Agreement is terminated and (z) is consistent with the terms 22 of the Settlement and Release Agreement (whether or not the Settlement Effective Date has occurred), (ii) KAAC so long as such Subsidiary Plan (x) provides for a cash payment (from funds that do not directly or indirectly come from borrowings under the Loan Documents) to the Company upon the effective date of such Subsidiary Plan in an amount equal to the QAL Collateral and the deposit thereof in a Cash Collateral Account in accordance herewith, (y) provides for a cash payment (from funds that do not directly or indirectly come from borrowings under the Loan Documents) to the Company in an amount equal to the Professional Fees and disbursements paid by the Company on behalf of KAAC and KFC pursuant to Section 9.2.14 and (z) is consistent with the terms of the Settlement and Release Agreement (whether or not the Settlement Effective Date has occurred), (iii) KBC, so long as (x) a cash payment (from funds that do not directly or indirectly come from borrowings under the Loan Documents) is made to the Company in an amount equal to the Professional Fees and disbursements paid by the Company on behalf of KBC pursuant to Section 9.2.14 and not previously reimbursed (together with interest thereon as provided therein) and (y) such Subsidiary Plan is consistent with the terms of the Settlement and Release Agreement (whether or not the Settlement Effective Date has occurred), and (iv) KFC, so long as such Subsidiary Plan is consistent with the terms of the Settlement and Release Agreement (whether or not the Settlement Effective Date has occurred); provided further that, in the case of clauses (i) and (ii) above, the Debtors shall have been released from any further obligation to make Investments with respect to, or incur any Contingent Liabilities with respect to, ALPART or QAL (as applicable) and, in the case of a Subsidiary Plan for AJI and KJC, all claims of AJI and KJC against the Company or any other Obligor are released and discharged (other than such claims as are contemplated in the Settlement and Release Agreement, subject to Section 10.1.10(l) hereof);" 1.22 ADDITION OF SECTION 10.1.13 (EXCESS PAYMENT TO PBGC). A new Section 10.1.13 is added to read as follows: "SECTION 10.1.13 EXCESS PAYMENT TO PBGC. Any Obligor, or any other Person on behalf of any Obligor, shall make any payment to the PBGC (or any other third-party, including without limitation a replacement Plan) with respect to any Claims of the PBGC (including without limitation any Claims under Section 365 or 503 of the Bankruptcy Code) which payment, when aggregated with all such other similar payments made prior to or concurrently therewith, shall cause the aggregate of all such payments to exceed $25,000,000; provided, however, that after the Settlement Effective Date, each of AJI, KJC and KAAC may make such payments in connection with its Subsidiary Plan so long as such payments are not (i) funded directly or indirectly from the proceeds of any Loans or (ii) made from the Collateral, including without limitation the ALPART Collateral or the QAL Collateral." 1.23 AMENDMENT TO SECTION 12.3 (PAYMENT OF COSTS AND EXPENSES). The last paragraph of Section 12.3 of the Credit Agreement is amended to add at the end of such Section "or the definition of Borrowing Base." 23 1.24 AMENDMENT TO TABLE OF CONTENTS (SCHEDULES). Page vii of the Table of Contents is amended to replace "Schedule I [Intentionally Omitted]" with "Schedule I Eligible Fixed Assets". 1.25 ADDITION OF SCHEDULE I (ELIGIBLE FIXED ASSETS). A new Schedule I (Eligible Fixed Assets) is added to the Credit Agreement in the form of Schedule I (Eligible Fixed Assets) hereto. 2. AMENDMENT TO SUBSIDIARY GUARANTY. Reference is made to (i) that certain Subsidiary Guaranty dated as of February 12, 2002, made by certain Subsidiaries of the Company, including, inter alia, AJI, KJC, KAAC and KFC, in favor of the Agent (as amended prior to the date hereof, the "Original Guaranty"), and (ii) that certain Subsidiary Guaranty dated as of March 17, 2003, made by certain Subsidiaries of the Company, including, inter alia, AJI, KJC and KBC, in favor of the Agent (as amended prior to the date hereof, the "Additional Guaranty"). Subject to the conditions and upon the terms set forth in this Amendment, the Subsidiary Guaranty is hereby amended as follows: 2.1 ADDITION OF SECTION 2.11 (LIMITATIONS ON RECOURSE AS TO CERTAIN SUBSIDIARIES) TO THE ORIGINAL GUARANTY. A new Section 2.11 is added to the Original Guaranty to read as follows: "SECTION 2.11 LIMITATIONS ON RECOURSE AS TO CERTAIN SUBSIDIARIES. Notwithstanding anything herein to the contrary, the following limitations on recourse to AJI, KJC, KFC and KAAC under this Guaranty shall apply: (a) The recourse liability of AJI and KJC under this Guaranty shall be limited, on an aggregate basis, to an amount equal to the ALPART Claims; provided that AJI's and KJC's liability under this Guaranty, including with respect to this Section 2.11(a), shall continue to be joint and several at all times. (b) After the occurrence of the Settlement Effective Date in compliance with the terms and conditions of the Credit Agreement, the recourse liability of KAAC under this Guaranty shall be limited to the QAL Claims. (c) After the occurrence of both the Settlement Effective Date and a QAL Plan Event and transfer of the QAL Collateral to the Company in compliance with the terms of the Credit Agreement, KAAC shall have no liability under this Guaranty. (d) After the occurrence of both the Settlement Effective Date and the effective date of a Subsidiary Plan for KFC, KFC shall have no liability under this Guaranty. Notwithstanding anything herein or in any other Loan Document to the contrary, the Settlement Effective Date shall be deemed not to have occurred, and the limitations and releases of this Section 2.11 shall be of no force or effect and 24 deemed void ab initio, if the Approval Order (as defined in the Settlement and Release Agreement) is overturned, vacated or otherwise reversed on appeal." 2.2 ADDITION OF SECTION 2.11 (LIMITATIONS ON RECOURSE AS TO CERTAIN SUBSIDIARIES) TO THE ADDITIONAL GUARANTY. A new Section 2.11 is added to the Additional Guaranty to read as follows: "SECTION 2.11 LIMITATIONS ON RECOURSE AS TO CERTAIN SUBSIDIARIES. Notwithstanding anything herein to the contrary, the following limitations on recourse of AJI, KJC and KBC under this Guaranty shall apply: (a) The recourse liability of AJI and KJC under this Guaranty shall be limited, on an aggregate basis, to an amount equal to the ALPART Claims; provided that AJI's and KJC's liability under this Guaranty, including with respect to this Section 2.11(a), shall continue to be joint and several at all times. (b) After the occurrence of both the Settlement Effective Date and the effective date of a Subsidiary Plan for KBC, KBC shall have no liability under this Guaranty. Notwithstanding anything herein or in any other Loan Document to the contrary, the Settlement Effective Date shall be deemed not to have occurred, and the limitations and releases of this Section 2.11 shall be of no force or effect and deemed void ab initio, if the Approval Order (as defined in the Settlement and Release Agreement) is overturned, vacated or otherwise reversed on appeal." 3. RELEASE OF CLAIMS. Following the Settlement Effective Date, each of the Agent and each Secured Lender agrees to, and hereby does, release any and all claims arising under the Credit Agreement and the other Loan Documents and held by the Agent or such Secured Lender as against AJI, KJC, KFC, KAAC and/or KBC, as applicable, but, with respect to AJI, KJC and KAAC, only to the extent such claim is in excess of the ALPART Claims and/or the QAL Claims, as applicable, all as more fully and expressly provided herein (and in the Credit Agreement, as amended hereby), and subject to all of the conditions and terms hereof and thereof; provided, however, the releases provided for in this Section 3 shall not apply to (i) KAAC until the occurrence of a QAL Triggering Event and the deposit of the QAL Collateral in the Cash Collateral Accounts as required by the Credit Agreement, as amended hereby, (ii) KBC until the effective date of a Subsidiary Plan for KBC in accordance with the terms of the Credit Agreement, as amended hereby, and (iii) KFC until the effective date of a Subsidiary Plan for KFC in accordance with the terms of the Credit Agreement, as amended hereby. Notwithstanding anything herein or in any other Loan Document to the contrary, the Settlement Effective Date shall be deemed not to have occurred, and the limitations and releases of this Section 3 shall be of no force or effect and deemed void ab initio, if the Approval Order (as defined in the Settlement and Release Agreement) is overturned, vacated or otherwise reversed on appeal. 4. REPRESENTATIONS AND WARRANTIES OF PARENT GUARANTOR AND THE COMPANY. Each of the Parent Guarantor and the Company represents and 25 warrants to each Lender and the Agent that the following statements are true, correct and complete: 4.1 POWER AND AUTHORITY. Each of the Parent Guarantor, the Company and each other Obligor has all corporate or other organizational power and authority to enter into this Amendment and, as applicable, the Consent of Guarantors attached hereto (the "Consent"), and to carry out the transactions contemplated by, and to perform its obligations under or in respect of, the Credit Agreement, as amended hereby. 4.2 DUE AUTHORIZATION, NON-CONTRAVENTION. The execution, delivery and performance by the applicable Obligor of this Amendment and the Consent and the performance of the obligations of each Obligor under or in respect of the Credit Agreement as amended hereby have been duly authorized by all necessary corporate or other organizational action, and do not (a) contravene such Obligor's Organic Documents, (b) contravene any contractual restriction entered into after the Petition Date where such a contravention has a reasonable possibility of having a Materially Adverse Effect, or contravene any law or governmental regulation or court order binding on or affecting such Obligor, or (c) result in, or require the creation or imposition of, any Lien on any of such Obligor's properties. 4.3 EXECUTION, DELIVERY AND ENFORCEABILITY. This Amendment and the Consent have been duly executed and delivered by each Obligor which is a party thereto and constitute the legal, valid and binding obligations of such Obligor, enforceable in accordance with their terms. 4.4 NO DEFAULT OR EVENT OF DEFAULT. After giving effect to this Amendment, no event has occurred and is continuing or will result from the execution and delivery of this Amendment or the Consent that would constitute a Default or an Event of Default. 4.5 REPRESENTATIONS AND WARRANTIES, ETC. All of the conditions set forth in Section 7.4 of the Credit Agreement, giving effect to this Amendment, have been met on and as of the date hereof and as of the effective date of this Amendment. 5. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. This Amendment shall be effective only if and when (a) this Amendment has been signed by, and when counterparts hereof shall have been delivered to the Agent (by hand delivery, mail or telecopy) by, the Parent Guarantor, the Company and all Lenders, and counterparts of the Consent have been delivered to the Agent by the Parent Guarantor and each Subsidiary Guarantor; (b) each of AJI, KJC, KFC, KAAC and KBC shall have executed and delivered to the Agent an acknowledgement confirming its obligations under this Amendment and the agreements set forth herein; (c) this Amendment shall have been approved by the Bankruptcy Court in the Chapter 11 Cases pursuant to the Final Order, all in form and substance satisfactory to the Agent and its counsel and on notice satisfactory to them, in each case in their sole discretion, and the Agent shall have received a copy of the Final Order entered by the Bankruptcy Court, which order shall have become final; (d) the Company has paid to the Agent, for the ratable benefit of the Lenders, an amendment fee equal to 0.00875 times the Revolving Commitment Amount (after giving effect to this Amendment); (e) the Company has paid to the Agent and the Lenders, as applicable, all fees and expenses due to the Agent and the Lenders 26 under the Loan Documents; and (f) each of the Company, AJI, KJC, KFC, KAAC and KBC shall have executed and delivered to the Agent agreements (including control agreements), in form and substance satisfactory to the Agent, (i) granting to the Agent Liens on the ALPART Collateral, the QAL Collateral, the KBC Allocable Amount, the Cash Collateral Accounts and all funds, instruments, securities, financial assets, investment property and other property deposited therein, held therein, credited thereto or acquired in connection therewith and (ii) perfecting the same. 6. EFFECT OF AMENDMENT; RATIFICATION. This Amendment is a Loan Document. From and after the date on which this Amendment becomes effective, all references in the Loan Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby, and to the Subsidiary Guaranty shall mean the Subsidiary Guaranty as amended hereby. Except as expressly amended hereby, the Credit Agreement and the other Loan Documents, including the Liens and superpriority claims granted thereunder, shall remain in full force and effect, and all terms and provisions thereof are hereby ratified and confirmed. Each of the Parent Guarantor and the Company confirms that as amended hereby, each of the Loan Documents is in full force and effect. 7. APPLICABLE LAW. THE VALIDITY, INTERPRETATIONS AND ENFORCEMENT OF THIS AMENDMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS AMENDMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. 8. COMPLETE AGREEMENT. This Amendment sets forth the complete agreement of the parties in respect of any amendment to any of the provisions of any Loan Document. The execution, delivery and effectiveness of this Amendment do not constitute a waiver of any Default or Event of Default, amend or modify any provision of any Loan Document except as expressly set forth herein or constitute a course of dealing or any other basis for altering the Obligations of any Obligor. 9. CAPTIONS; COUNTERPARTS. The catchlines and captions herein are intended solely for convenience of reference and shall not be used to interpret or construe the provisions hereof. This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts (including by telecopy), all of which taken together shall constitute but one and the same instrument. 10. GENERAL RELEASE. By signing below and/or the Consent of Guarantors hereto and/or the Acknowledgment and Agreement of AJI, KJC, KFC, KAAC and KBC hereto, each of the Company and the other Obligors, on behalf of itself and each other Obligor, and each of their respective predecessors, successors and assigns, hereby fully, finally, irrevocably, forever and unconditionally releases, discharges and acquits the Agent, each of the Secured Lenders, and each of the foregoing's officers, employees and agents, from all Released Claims (as hereinafter defined). As used herein the term "Released Claims" means all claims of the Company and the other Obligors, on the one hand, against the Agent or any Secured Lender, on the other hand, including but not limited to all claims, demands, obligations, liabilities, 27 indebtedness, responsibilities, disputes, breaches of contract, breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance, cause or causes of action (whether at law or in equity), debts, sums of money, accounts, compensations, contracts, controversies, promises, damages, costs, rights of offset, losses and expenses, of every type, kind, nature, description or character, known and unknown, whensoever arising and occurring at any time up to and through the date hereof, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, matured or unmatured, fixed or contingent, which in any way arise out of, are connected with or relate to this Amendment or any of the other Loan Documents (including as amended hereby) or any transactions thereunder or the administration of the lender-borrower relationship provided in the Loan Documents. Each of the parties hereto intends that the foregoing releases shall be effective as a full and final accord and satisfaction of Released Claims, and each of the Company and the other Obligors hereby agrees, represents and warrants that, to the extent permitted by applicable law, the matters released herein are not limited to matters which are known or disclosed. In this connection, each of the Company and the other Obligors hereby agrees, represents and warrants that it realizes and acknowledges that (a) factual matters now existing and unknown to it may have given or may hereafter give rise to Released Claims which are presently unknown, unsuspected, unliquidated, unmatured and/or contingent, (b) such Released Claims may be unknown, unsuspected, unliquidated, unmatured and/or contingent due to ignorance, oversight, error, negligence or otherwise, and (c) if such Released Claims had been known, suspected, liquidated, matured and/or unconditional, its decision to enter into this release may have been materially affected. Each of the Company and the other Obligors further agrees, represents and warrants that this release has been negotiated and agreed upon in view of these realizations. Nevertheless, each of the Company and the other Obligors hereby intends to release, discharge, and acquit each other of and from any such unknown, unsuspected, unliquidated, unmatured and/or contingent Released Claims which are in any way set forth in or related to the matters identified hereinabove. [signature pages follow] 28 IN WITNESS WHEREOF, each of the undersigned has duly executed this Seventh Amendment to Post-Petition Credit Agreement, Amendment to Guaranties and Consent of Guarantors as of the date set forth above. "PARENT GUARANTOR" KAISER ALUMINUM CORPORATION By: /s/David A. Cheadle -------------------------------- Name: David A. Cheadle Title: Assistant Treasurer "THE COMPANY" KAISER ALUMINUM & CHEMICAL CORPORATION By: /s/David A. Cheadle -------------------------------- Name: David A. Cheadle Title: Assistant Treasurer BANK OF AMERICA, N.A., as the Agent and a Lender By: /s/Robert M. Dalton -------------------------------- Name: Robert M. Dalton Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent and as a Lender By: /s/James O'Donnell -------------------------------- Name: James O'Donnell Title: Duly Authorized Signatory WELLS FARGO FOOTHILL, INC. (fka Foothill Capital Corporation), as Co-Syndication Agent and as a Lender By: /s/Eunnie Kim -------------------------------- Name: Eunnie Kim Title: Vice President S-1 THE CIT GROUP/BUSINESS CREDIT, INC., as Co-Syndication Agent and as a Lender By: /s/Grant Weiss -------------------------------- Name: Grant Weiss Title: Vice President MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., as a Lender By: /s/Emily L. Koehn -------------------------------- Name: Emily L. Koehn Title: Assistant Vice President PNC BANK, NATIONAL ASSOCIATION, as a Lender By: /s/Sandra Sha Kenyon -------------------------------- Name: Sandra Sha Kenyon Title: Vice President GMAC COMMERCIAL FINANCE, LLC, as successor by merger to GMAC Business Credit, LLC, as a Lender By: /s/Thomas Brent -------------------------------- Name: Thomas Brent Title: Vice President S-2 BANK OF AMERICA, N.A., as Depository Bank for the Cash Collateral Accounts, solely with respect to Section 1.12 of the foregoing Amendment (and Section 9.1.21 of the Credit Agreement, as amended hereby) By: ___________________________________ Name: ___________________________________ Title:___________________________________ S-3 CONSENT OF GUARANTORS Each of the undersigned is a Guarantor of the Obligations of the Company under the Credit Agreement and each other Loan Document and hereby (a) consents to the foregoing Amendment, (b) acknowledges that notwithstanding the execution and delivery of the foregoing Amendment, the obligations of each of the undersigned Guarantors are not impaired or affected and the Parent Guaranty and the Subsidiary Guaranties, as amended by the Amendment, continue in full force and effect, and (c) ratifies the Parent Guaranty or the Subsidiary Guaranty or Guaranties, each as amended by the Amendment, to which it is a party, as applicable, and each of the Loan Documents, as amended by the Amendment, to which it is a party and further ratifies the Security Interests (if any) and superpriority claims granted by it to the Agent for its benefit and the benefit of the Secured Lenders. [signatures following; remainder of page intentionally left blank] IN WITNESS WHEREOF, each of the undersigned has executed and delivered this CONSENT OF GUARANTORS as of the date first set forth above. AKRON HOLDING CORPORATION ALPART JAMAICA INC. KAISER ALUMINA AUSTRALIA CORPORATION KAISER BELLWOOD CORPORATION KAISER ALUMINUM & CHEMICAL INVESTMENT, INC. KAISER ALUMINIUM INTERNATIONAL, INC. KAISER ALUMINUM PROPERTIES, INC. KAISER ALUMINUM TECHNICAL SERVICES, INC. KAISER FINANCE CORPORATION KAISER JAMAICA CORPORATION KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS, LLC KAISER TEXAS SIERRA MICROMILLS, LLC KAISER TEXAS MICROMILL HOLDINGS, LLC OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINUM CORPORATION ALWIS LEASING LLC KAISER BAUXITE COMPANY KAISER CENTER, INC. KAISER CENTER PROPERTIES KAE TRADING, INC. KAISER EXPORT COMPANY By ___________________________________ Name: ___________________________________ Title:___________________________________ S-1 ACKNOWLEDGEMENT AND AGREEMENT OF AJI, KJC, KFC, KAAC AND KBC Each of the undersigned Obligors has reviewed the foregoing Amendment, and the Loan Documents to be amended thereby, and as of the date first set forth above (i) acknowledges and agrees to the agreements set forth in the Amendment and the Loan Documents, as amended by the Amendment, and (ii) confirms and agrees to be bound by its respective obligations under the Amendment and the Loan Documents as amended thereby, including without limitation such Obligor's obligation to make the deposits into the respective Cash Collateral Accounts contemplated by and in accordance with Sections 9.1.19, 9.1.20, 9.1.21 and 9.2.18 as applicable, of the Credit Agreement (as amended by the Amendment). In furtherance of the foregoing, each of the undersigned Obligors, as security for the payment of all Guaranteed Obligations (as defined in each Subsidiary Guaranty to which such Obligor is a party), hereby grants, conveys, assigns, pledges, sets over, and transfers to the Agent, and creates in the Agent's favor, a first-priority Lien on and security interest in all of such Obligor's right title and interest in (and whether now or hereafter existing) the ALPART Collateral, the QAL Collateral, the KBC Allocable Amount, the Cash Collateral Accounts and all money, instruments, securities, financial assets, investment property and other property at any time deposited in, held in, credited to or acquired in connection with the Cash Collateral Accounts, together with all proceeds of any of the foregoing (including without limitation dividends payable in cash or stock and shares or other proceeds of conversions or splits of any securities in the Cash Collateral Accounts), and all interest accruing thereon and investments thereof, and earnings on and proceeds of investments with respect thereto, for the benefit of the Agent and the Secured Lenders. IN WITNESS WHEREOF, each of the undersigned has executed and delivered this ACKNOWLEDGEMENT AND AGREEMENT OF AJI, KJC, KFC, KAAC and KBC as of the date first set forth above ALPART JAMAICA INC. KAISER ALUMINA AUSTRALIA CORPORATION KAISER FINANCE CORPORATION KAISER JAMAICA CORPORATION KAISER BAUXITE CORPORATION By: ___________________________________ Name: Title: SCHEDULE A to SEVENTH AMENDMENT TO POST-PETITION CREDIT AGREEMENT, AMENDMENT TO SUBSIDIARY GUARANTY, CONSENT OF GUARANTORS AND ACKNOWLEDGEMENT AND AGREEMENT OF AJI, KJC, KFC, KAAC AND KBC

SCHEDULE I (ELIGIBLE FIXED ASSETS) Trentwood Works West Euclid Avenue Trentwood, Washington Bellwood Extrusion 1901 Reymet Road Richmond, Virginia Greenwood 1508 Highway 246 South Greenwood, South Carolina Tennalum 309 Industrial Drive Jackson, Tennessee Los Angeles 6250 East Bandini Boulevard Los Angeles, California Newark 600 Kaiser Drive Heath, Ohio Sherman 4300 Highway 75 South Sherman, Texas Tulsa 4111 South 74th Avenue Tulsa, Oklahoma Richland 2425 Stevens Drive Richland, Washington EXHIBIT A Settlement and Release Agreement [attached] EX-10.1 7 h20077exv10w1.txt AMENDED EMPLOYMENT AGREEMENT - EDWARD F. HOUFF _ EXHIBIT 10.1 AMENDED EMPLOYMENT AGREEMENT This Amended Agreement (the "AGREEMENT") is made effective for the period from October 1, 2004 through the earlier of the Company's emergence from bankruptcy, an agreed termination between the Company and Executive, and June 30, 2005, (such term being hereinafter referred to as the "EMPLOYMENT PERIOD"), between Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "COMPANY"), and Edward F. Houff (the "EXECUTIVE"). WHEREAS, the Company desires to secure the services of Executive as Vice President, Secretary, General Counsel and Chief Restructuring Officer of the Company, and Executive desires to perform such services for the Company, on the terms and conditions as set forth herein; NOW THEREFORE, in consideration of the premises and of the covenants and agreements set forth below, it is mutually agreed as follows: 1. Effective Date, Term and Duties. The term of employment of Executive by the Company hereunder shall be as described above (the "Employment Period") unless earlier terminated pursuant to Section 4. 1.1. Executive shall have such duties as the Company may from time to time prescribe consistent with his position as Vice President, Secretary, General Counsel and Chief Restructuring Officer (the "SERVICES"). 1.2. Executive shall report directly to the Chief Executive Officer of the Company. 1.3. Executive shall devote his full time, attention, energies and best efforts to the business of the Company. 1.4. The Company shall maintain an office for Executive in Houston, Texas. 2. Compensation. The Company shall pay and Executive shall accept as full consideration for the Services compensation consisting of the following: 2.1. Base Salary. Effective October 1, 2004, $400,000 per year base salary, payable in installments in accordance with the Company's normal payroll practices, less such deductions or withholdings required by law. 2.2. Annual Bonus. A guaranteed annual cash bonus of $125,000, pro-rated for any partial years. The guaranteed bonus is semi-monthly. 2.3. Long-Term Compensation. Payable in accordance with the Long Term Incentive Plan approved by the Bankruptcy Court in connection with the Company's chapter 11 proceedings ("LTI Plan"). 3. Benefits and other Perquisites during Employment Period. Executive will be eligible to participate in the Company's employee benefit plans of general application, including, without limitation, those plans covering pension, 401(k) savings, medical, disability, sick leave and life insurance in accordance with the rules established for individual participation in any such plan and under applicable law. Executive will be 1 eligible for vacation as follows: 20 days per year unless Company vacation policy is greater. Executive will receive the following other perquisites: Company car or equivalent cash allowance; wireless telephone and PDA equipment and service; laptop computer for business and personal use; business class accommodations for overseas flights; reimbursement for monthly club membership dues; reserved parking space and payment of parking costs. Executive will receive such other benefits as the Company generally provides to other employees of comparable position and experience. 4. Benefits Upon Termination. If Executive's employment is terminated during the Employment Period then Executive will be entitled to receive all payments and benefits prescribed under the Company's Key Employee Retention Plan effective September 3, 2002 ("KERP"), Severance Plan effective September 3, 2002 ("Severance Plan"), Change in Control Severance Agreement dated November 18, 2002 ("CIC Agreement), and the LTI Plan, as applicable, plus up to $25,000 in relocation expenses. These payments and benefits will be in lieu of any other severance or termination payment or benefits provided in Company's policies. 4.1. Termination by Reason of Death or Disability. The Executive's employment shall terminate automatically upon Executive's death during the Employment Period. In the event of Executive's death or disability (see below) during the Employment Period, the Company shall pay to Executive or Executive's estate any base salary, pro-rated guaranteed bonus and unpaid vacation accrued as of the date of Executive's death or disability and any other benefits payable under the Company's then existing benefit plans and policies in accordance with such plans and policies in effect on the date of death or disability an in accordance with applicable law, including but not limited to those payments and benefits available to Executive under the KERP, the Severance Plan, the CIC Agreement and the Change in Control Severance Agreement dated November 18, 2003 and the LTI Plan, as applicable. In the event that during the term of this Agreement, Executive is unable to perform his job due to disability (as determined under the Company's long-term disability insurance program) for 6 months in any 12 month period, the Company may, at its discretion, terminate Executive's employment with the Company and Executive shall be entitled to receive the benefits set forth in this section 4.2. 5. Change in Control. Change in Control payments and benefits shall be payable and made available in accordance with the CIC Agreement. 6. Dispute Resolution. The Company and Executive agree that any dispute regarding the interpretation or enforcement of this Agreement shall be decided by a confidential, final and binding arbitration conducted by Judicial Arbitration and Mediation Services ("JAMS") under the then existing JAMS rules, rather than by litigation in court, trial by jury, administrative proceeding or in any other forum. 7. Cooperation with the Company After Termination of the Employment Period. Following termination of the Employment Period by Executive, Executive shall fully cooperate with the Company in all matters relating 2 to the winding up of his pending work on behalf of the Company and the orderly transfer of any such pending work to other employees of the Company as may be designated by the Company. 8. Confidentiality; Return of Property. Executive acknowledges that the Employee Invention and Confidential Information Agreement executed by Executive, attached hereto as Exhibit A shall continue in effect. 9. General 9.1. Waiver. Neither party shall, by mere lapse of time, without giving notice or taking action hereunder, be deemed to have waived any breach by the other of any of the provisions of this Agreement. Further, the waiver by either party of a particular breach of this Agreement by the other shall neither be construed as, nor constitute, a continuing waiver of such breach or of other breaches by the same or any other provision of this Agreement. 9.2. Severability. If for any reason a court of competent jurisdiction or arbitrator finds any provision of this Agreement to be unenforceable, the provision shall be deemed amended as necessary to conform to applicable laws or regulations, or if it cannot be so amended without materially altering the intention of the parties, the remainder of the Agreement shall continue in full force and effect as if the offending provision were not contained herein. 9.3. No Mitigation. Executive shall have no duty to mitigate the Company's obligation with respect to the termination payments set forth in Sections 4 and 5 by seeking other employment following a termination of his employment, nor shall such termination payments be subject to offset or reductions by reason of any compensation received by Executive from such other employment. The Company's obligations to make payments under sections 4 or 5 shall not terminate in the event Executive accepts other full-time employment. 9.4. Notices. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be considered effective upon personal service or upon depositing such notice in the U.S. Mail, postage prepaid, return receipt requested and addressed to the Chairman of the Board of the Company at its principal corporate address, and to Executive at his most recent address shown on the Company's corporate records, or at any other address which he may specify in any appropriate notice to the Company. 9.5. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together constitutes one and the same instrument and in making proof hereof it shall not be necessary to produce or account for more than one such counterpart. 9.6. Entire Agreement. The parties hereto acknowledge that each has read this Agreement, understands it, and agrees to be bound by its terms. The parties further agree that this Agreement (combined with the KERP, Severance Plan, CIC Agreement and LTI Plan, as those agreements have been made applicable to Executive in the individual agreements executed by Executive) constitute the complete and exclusive 3 statement of the agreement between the parties and supercede all proposals (oral or written), understandings, representations, conditions, covenants and all other communications between the parties relating to the subject matter hereof. 9.7. Governing Law. This Agreement shall be governed by the Law of the State of Texas. 9.8. Assignment and Successors. The Company shall not assign its rights and obligations under this Agreement without the express advance approval of Executive; provided, however, that nothing herein shall prohibit an assignment by the Company of its rights and obligations pursuant to the terms of the KERP, Severance Plan, CIC Agreement and/or LTI Plan. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. 9.9. The person executing this Agreement on behalf of the Company warrants and represents his/her authority to execute this Agreement and bind the Company, its successors and assigns. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. KAISER ALUMINUM & CHEMICAL CORPORATION EXECUTIVE By: /s/John Barneson By:/s/Edward F. Houff -------------------------- -------------------- Edward F. Houff 4 EX-10.2 8 h20077exv10w2.txt SETTLEMENT AND RELEASE AGREEMENT DATED OCTOBER 5, 2004 EXHIBIT 10.2 SETTLEMENT AND RELEASE AGREEMENT THIS SETTLEMENT AND RELEASE AGREEMENT (this "AGREEMENT") is dated as of October 5, 2004, by and among the Debtors (as defined below), and the Creditors' Committee (as defined below, and together with the Debtors, the "PARTIES"); with reference to the following background: A. On February 12, 2002, the Original Debtors(1) commenced voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the District of Delaware. B. On February 13, 2002, the Bankruptcy Court (the "Court") entered (i) an interim order authorizing the Original Debtors to continue transactions with, and pay pre-petition claims of, nondebtor joint venture affiliates and (ii) an interim order (a) approving cash management system, certain intercompany transactions with nondebtor affiliates and use of existing bank accounts and business forms; (b) granting interim approval of investment and deposit guidelines; and (c) according administrative expense status to all post-petition intercompany claims. C. On March 15, 2002, Kaiser Center, Inc. and Alwis Leasing LLC (collectively, the "MARCH 15 DEBTORS") commenced voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the District of Delaware. D. On July 23, 2002, the Court entered an order, as modified by that certain order of the Bankruptcy Court dated January 15, 2003, authorizing the Debtors, inter alia to continue transactions with, and pay pre-petition claims of, non-debtor joint venture affiliates (the "Final JV Order"). On July 22, 2002, the Court entered an order, as modified by that certain order of the Bankruptcy Court dated January 15, 2003, authorizing the Debtors, inter alia, to continue to use their pre-petition cash management systems and granting super priority administrative expense status to all post-petition intercompany transfers (the "Final Cash Management Order"). E. On October 29, 2002, the Court entered an order approving a stipulation (the "AJI and KJC Stipulation") by and among the Debtors, U.S. Bank National Association ("U.S. Bank"), as indenture trustee for the Senior Notes, and State Street Bank and Trust ("State Street"), as indenture trustee for the Subordinated Notes. - ---------- (1) Kaiser Aluminum Corporation ("KAC"), Kaiser Aluminum & Chemical Corporation ("KACC"), Kaiser Finance Corporation ("KFC"), Kaiser Alumina Australia Corporation ("KAAC"), Kaiser Aluminum Technical Services, Inc., Kaiser Bellwood Corporation ("Bellwood"), Kaiser Aluminium International, Inc. ("KAII"), Kaiser Micromill Holdings LLC ("KMH"), Kaiser Sierra Micromills, LLC ("KSM"), Kaiser Texas Sierra Micromills, LLC ("KTSM"), Kaiser Texas Micromill Holdings LLC ("KTMH"), Kaiser Aluminum Properties, Inc., Akron Holding Corp., Oxnard Forge Die Company, Inc. and Kaiser Aluminum & Chemical Investment, Inc. (collectively, the "ORIGINAL DEBTORS"). 1 F. On January 14, 2003, Alpart Jamaica, Inc. ("AJI"), Kaiser Jamaica Corporation ("KJC"), Kaiser Bauxite Company ("KBC"), Kaiser Aluminum & Chemical of Canada Limited ("KACOCL"), Kaiser Aluminum & Chemical Canada Investment Limited, KAE Trading, Inc., Kaiser Center Properties, Kaiser Export Company and Texada Mines Ltd. (collectively, the "JANUARY 14 DEBTORS") commenced voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the District of Delaware. G. The Debtors have each alleged Claims (as defined below) against other Debtors, for amounts arising out of, based upon, or relating to, among other things, the Final Cash Management Order, the Final JV Order and the AJI and KJC Stipulation and pre-petition and post-petition intercompany transfers. H. The Parties desire to avoid the cost and uncertainty of prosecution and defense of the alleged Claims, and by this Agreement intend in good faith to resolve all such Claims without the necessity of trial and without admitting any liability, obligation, matter or thing whatsoever other than as expressly stated herein. NOW, THEREFORE, in consideration of the mutual agreements contained herein, together with other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties hereto agree as follows: 1. DEFINITIONS 1.1. "ALPART" means Alumina Partners of Jamaica. 1.2. "ALPART CAPITAL EXPENDITURES" means cash amounts contributed by AJI and KJC to Alpart for capital spending from January 1, 2004 through the date of the Alpart Closing. See Exhibit A for an illustrative example. 1.3. "ALPART CLOSING" means July 1, 2004, the date of the closing of the sale of the Alpart interests by AJI and KJC and other related assets by KACC, KAII and KBC to Quality Incorporations I Limited, pursuant to the asset purchase agreement dated June 8, 2004 (the "APA"). 1.4. "ALPART INVENTORY" means the change from January 1, 2004 through the Alpart Closing in the value of alumina that would be exchanged by Hydro Aluminum Jamaica a.s. and AJI and KJC, to result in the amounts of alumina inventory at Alpart indirectly owned by Hydro Aluminum Jamaica a.s. and AJI and KJC being in the percentages of 35% and 65%, respectively ("Partnership Ratios"). The value of alumina will be based on the average of the three preceding months' production charges multiplied by the excess or shortfall in tonnage to achieve the Partnership Ratios. See Exhibit B for an illustrative example. 1.5. "ALPART MODIFIED WORKING CAPITAL" means the change from January 1, 2004 through the Alpart Closing in AJI and KJC's share of current assets (including certain accounts receivable and prepaid expenses) at Alpart less their share of current liabilities (including certain accounts payable, accrued salaries, wages and other accrued liabilities) at Alpart (excluding the 2 amounts due to partner accounts, Partner Note and CARIFA Debt). See Exhibit C for an illustrative example. 1.6. "ALPART NET CASH FLOW" means Alpart Net Profit minus Alpart Capital Expenditures and plus or minus Alpart Working Capital Funding. See Exhibit D for an illustrative example. 1.7. "ALPART NET PROFIT" means (a) the revenues that would have been generated during the period from January 1, 2004 through the Alpart Closing from the sale of Alpart-sourced alumina (i) by KAII to third parties and (ii) to KACC for use at Anglesey at 12.5% of LME (which sale of Alpart-sourced alumina by KAII under (i) and (ii) shall equal 100% of the alumina sold excluding the Alpart Inventory, and to the extent the Alpart-sourced alumina is not used at Anglesey the revenue will be recorded at actual realized prices) minus (b) 65% of the production charges invoiced to the partners of Alpart minus (c) taxes due and payable by AJI and KJC on the revenues generated from the sale of the Alpart alumina. See Exhibit E for an illustrative example. 1.8. "ALPART WORKING CAPITAL FUNDING" means the sum of Alpart Inventory and Alpart Modified Working Capital. 1.9. "ALUMINA CREDITOR SUBCOMMITTEE" means a subcommittee of the Creditors' Committee consisting of U.S. Bank, Pension Benefit Guaranty Corporation (the "PBGC"), Farallon Capital, Law Debenture Trust Company of New York and one holder of Subordinated Notes if one is appointed to the Creditors' Committee and is willing to serve on the Alumina Creditor Subcommittee. The Alumina Creditor Subcommittee's activities shall be governed by the terms of the by-laws of the Creditors' Committee. 1.10. "ALUMINA REPLACEMENT PURCHASES" means all US dollars advanced (or exchanged into Australian dollars and advanced) by KACC or KAII to KAAC and US dollars paid by KACC or KAII on behalf of KAAC during the period from July 1, 2004 through the QAL Closing related to purchases of alumina (such purchased alumina to be "Replacement Alumina") to satisfy KAII's contracts to supply third parties where such contracts would normally have been supplied with KAAC's alumina from QAL. See Exhibit F for an illustrative example. 1.11. "APPROVAL ORDER" means the order of the Bankruptcy Court authorizing and approving the terms in this Agreement which shall, inter alia, prohibit substantive consolidation other than in accordance with Section 5 of this Agreement. 1.12. "BANK ACCOUNT PREFUNDING" means the US dollar equivalent as of June 30, 2004 of the Australian dollar balance on June 30, 2004 in KAAC's bank accounts at Bank of America and National Australia Bank. 1.13. "BANKRUPTCY COURT" or "COURT" means the United States Bankruptcy Court for the District of Delaware. 1.14. "BAUXITE FUNDINGS" means all US dollars advanced (or exchanged into Australian dollars and advanced) by KACC to KAAC during the period from July 1, 2004 3 through the QAL Closing related to payments of (a) bauxite invoices from third parties and (b) bauxite royalties paid strictly in accordance with past practices. See Exhibit F for an illustrative example. 1.15. "CARIFA DEBT" has the meaning set forth in the APA. 1.16. "CLAIM" or "CLAIMS" has the meaning set forth in 11 U.S.C. Section 101(5). 1.17. "CREDITORS' COMMITTEE" means the Official Committee of Unsecured Creditors which was appointed on February 22, 2002, as such appointment has been amended from time to time. 1.18. "DEBTORS" means collectively, the Original Debtors, the March 15 Debtors and the January 14 Debtors. 1.19. "DEBT REPAYMENT FUNDINGS" means all US dollars advanced (or exchanged into Australian dollars and advanced) by KACC to KAAC and US dollars paid by KACC on behalf of KAAC during the period from July 1, 2004 through the QAL Closing related to repayment of principal on the QAL Series X and Series Z Loans. Since there are no required principal repayments due on the QAL Series X and Series Z Loans until July 2005, this amount is expected to be zero. See Exhibit F for an illustrative example. 1.20. "DIP FINANCING FACILITY" means the debtor-in-possession credit facility, as amended, with Bank of America (the "Agent"), as Agent for itself and the other DIP Lenders which was originally approved by the Bankruptcy Court on a final basis pursuant to an order dated March 19, 2002. 1.21. "DIP LENDERS" means the lenders who have agreed to make loans pursuant to the DIP Financing Facility. 1.22. "DIRECT KAAC COST FUNDINGS" means all US dollars advanced (or exchanged into Australian dollars and advanced) by KACC to KAAC and US dollars paid by KACC on behalf of KAAC during the period from July 1, 2004 through the QAL Closing related to payment of miscellaneous direct costs of KAAC, but excluding any items covered in Sections 7.5 and 7.8, paid strictly in accordance with past practices. See Exhibit F for an illustrative example. 1.23. "EFFECTIVE DATE" means the last day of the month in which the Approval Order becomes a Final Order; provided, however, that the Debtors and the Creditors' Committee may jointly elect in writing to waive the requirement that the Approval Order become a Final Order in which case the Effective Date shall be the last day of the month in which the Debtors and the Creditors' Committee file a notice with the Court declaring the Agreement effective; except that, if the notice is filed with the Court less than two business days prior to the last day of the month, the Effective Date shall be the last day of the next succeeding month. 1.24. "EXCLUDED CLAIMS" means the Claims described in Sections 4.2, 6.1, 6.2, 6.3, 7.5, 7.6, 7.7, 7.8, 7.10 and 10.1, the KACC/AJI Remaining Claim, the KACC/KJC Remaining Claim, the AJI/KJC Rights of Reimbursement and the KAAC Rights of Reimbursement. 4 1.25. "FINAL ORDER" means an order of the Bankruptcy Court as to which no appeal is pending and the applicable time for appeal has passed. 1.26. "GLENCORE AUCTION FEE" means any fee paid by KACC to Glencore arising from Glencore's obligation under the Agreement to Submit Qualified Bid for QAL Interests, dated September 22, 2004. 1.27. "GRAMERCY REVENUE BONDS" means the $20 million Parish of St. James, State of Louisiana, Solid Waste Disposal Revenue Bonds (Kaiser Aluminum Project) Series 1992. 1.28. "INVENTORY FINANCING AGREEMENT" means the Inventory Financing Agreement made between KAAC and KACC effective January 1, 1990 as amended by further agreement effective January 1, 1996. 1.29. "INTEREST DIFFERENTIAL FUNDINGS" means all US dollars advanced (or exchanged into Australian dollars and advanced) by KACC to KAAC and US dollars paid by KACC on behalf of KAAC during the period from July 1, 2004 through the QAL Closing related to payment to other QAL partners of interest subsidies on QAL Series X and Series Z Loans paid strictly in accordance with past practices. See Exhibit F for an illustrative example. 1.30. "KAAC TAX FUNDINGS" means all US dollars advanced (or exchanged into Australian dollars and advanced) by KACC to KAAC during the period from July 1, 2004 through the QAL Closing to permit KAAC to pay Australian income taxes, GST, and other taxes. See Exhibit F for an illustrative example. 1.31. "PARTNER NOTE" means the note given by KACC to Alpart in principal amount of $21,100,000.00 as evidenced by the certain Promissory Note dated May 1, 2001. 1.32. "QAL" means Queensland Alumina Limited. 1.33. "QAL CASH CALL FUNDINGS" means all US dollars advanced (or exchanged into Australian dollars and advanced) by KACC to KAAC during the period from July 1, 2004 through the QAL Closing related to cash call notices from QAL for costs associated with tolling fees (including capital spending programs) and costs of shipping bauxite to the refinery paid strictly in accordance with past practices. See Exhibit F for an illustrative example. 1.34. "QAL CLOSING" means the earlier of the date of the closing of the sale of the QAL interests by KAAC or the effective date of a confirmed standalone plan of reorganization for KAAC. 1.35. "QAL NET CASH FLOW" means QAL Revenues less: (a) QAL Cash Call Fundings, (b) Bauxite Fundings, (c) KAAC Tax Fundings, (d) Direct KAAC Cost Fundings, (e) Interest Differential Fundings, (f) Debt Repayment Fundings, (g) Alumina Replacement Purchases, (h) the Bank Account Prefunding, (i) the Glencore Auction Fee and (j) any amount payable by KAAC under Section 7.5. See Exhibit F for an illustrative example. 1.36. "QAL REVENUES" means the revenues generated during the period from July 1, 2004 through the QAL Closing from the sale by KAII to third parties at actual realized prices of 5 (a) KAAC's alumina sourced from QAL and (b) Replacement Alumina. Sales under (a) and (b) shall equal 100% of the QAL alumina sold. Sales under (a) and changes in inventory at QAL shall equal 100% of KAAC's share of QAL production during the period from July 1, 2004 through the QAL Closing. See Exhibit F for an illustrative example. 1.37. "QAL TRIGGERING EVENT" means (y) a sale of (a) the ownership interests in QAL owned by KAAC and KACC, (b) certain bauxite and alumina inventory held at QAL owned by KAAC and (c) certain contracts, rights and interests relating to QAL (the "QAL Sale") or (z) the effective date of a confirmed separate standalone plan of reorganization for KAAC, which plan provides for cash payments to KACC upon such consummation in the amounts set forth in Section 4.2.c.i, 10.1.c and 10.1.d. 1.38. "RELEASED CLAIMS" means any and all Claims of a Releasing Party against the party being released, other than Excluded Claims, arising at any time from the beginning of the world to the Effective Date, whether pre- or post-petition, including without limitation, Claims: (a) arising under the Final Cash Management Order, the Final JV Order and the AJI and KJC Stipulation; (b) arising under or related to intercompany transfers; (c) related to the allocation among the Debtors of professional fees and expenses, overhead expenses, or costs relating to the DIP Financing Facility; (d) for contribution, reimbursement or subrogation against a Debtor related to or arising out of Claims of third parties(whether or not affirmatively asserted) against any of the Releasing Parties who are or are alleged to be co-obligors as to such Claims, whether as a result of equity, contract (including guarantees), or statute, including, without limitation, Claims arising as a result of being within the same "controlled group" under the Employment Retirement Income Security Act of 1974 (ERISA); and (e) based upon, relating to, or arising from the negotiation, documentation, and execution of the terms and conditions contained in this Agreement, or any of the documents contemplated by this Agreement. 1.39. "RELEASED PARTY" or "RELEASED PARTIES" means the Debtor(s). 1.40. "RELEASING PARTY" or "RELEASING PARTIES" means the Debtor(s). 1.41. "SENIOR NOTES" means collectively (a) the 9-7/8 % senior notes due 2002 issued under that certain indenture dated as of February 17, 1994, as such indenture has been amended and supplemented from time to time, between KACC, KAAC, AJI, KJC, KFC, KMH, KSM, KTSM, KTMH and Bellwood (collectively, the "Kaiser Note Obligors") and U.S. Bank as successor indenture trustee, (b) the 10-7/8 % Series B senior notes due 2006 issued under that certain indenture dated as of October 23, 1996, as such indenture has been amended and supplemented from time to time, between the Kaiser Note Obligors and U.S. Bank as successor indenture trustee, and (c) the 10-7/8 % Series D senior notes due 2006 issued under that certain indenture dated as of December 23, 1996, as such indenture has been amended and supplemented from time to time, between the Kaiser Note Obligors and U.S. Bank as successor indenture trustee. 1.42. "SUBORDINATED NOTES" means the 12-3/4 % senior subordinated notes due 2003 issued under that certain indenture dated as of February 1, 1993, as such indenture has been amended and supplemented from time to time, between the Kaiser Note Obligors and Law Debenture Trust Company of New York as successor indenture trustee. 6 2. MUTUAL RELEASE OF CLAIMS 2.1. As of the Effective Date, after giving effect to all of the transactions described in Section 4.1, each of the Releasing Parties hereby forever releases and discharges each of the Released Parties from any and all Released Claims that each such Releasing Party may have against each of the Released Parties. 2.2. As of the Effective Date, after giving effect to all of the transactions described in Section 4.1, each of the Releasing Parties hereby forever releases and discharges any and all past, present or future officers and directors of all of the Debtors from those Claims, arising at any time from the beginning of the world to the Effective Date, whether pre- or post-petition: (a) arising under the Final Cash Management Order, the Final JV Order and the AJI and KJC Stipulation; (b) arising under or related to intercompany transfers; (c) related to the allocation among the Debtors of professional fees and expenses, overhead expenses, or costs relating to the DIP Financing Facility; (d) based upon, relating to, or arising from the negotiation, documentation, and execution of the terms and conditions contained in this Agreement, or any of the documents delivered to implement this Agreement (collectively, Sections 2.2(a), (b), (c) and (d) constitute the "Released Matters"); and (e) for contribution, reimbursement or subrogation related to or arising out of Claims of third parties concerning the Released Matters (whether or not affirmatively asserted) against any of the Releasing Parties who are or are alleged to be co-obligors as to such Claims, whether as a result of equity, contract (including guarantees), or statute, including, without limitation, Claims arising as a result of being within the same "controlled group" under the Employment Retirement Income Security Act of 1974 (ERISA)(collectively with Sections 2.2(a), (b), (c) and (d), the "Officer and Director Released Claims"). 2.3. Each of the Parties hereby acknowledges that the term Claim shall be construed broadly. 3. COVENANT NOT TO SUE 3.1. As of the Effective Date, after giving effect to all of the transactions described in Section 4.1, each Releasing Party hereby covenants not to sue, including seeking any injunctive relief against, any of the Released Parties, based upon, relating to, or arising from, any and all Released Claims that such Releasing Party may have against the Released Parties. 3.2. As of the Effective Date, after giving effect to all of the transactions described in Section 4.1, each of the Releasing Parties hereby covenants not to sue any and all past or present officers and directors of any of the Debtors, based upon any Officer and Director Released Claims. 3.3. The Approval Order shall permanently enjoin all Releasing Parties from prosecuting any Released Claims or the Claims released pursuant to Sections 4.2.h., 6.1, and 7.5 of this Agreement against the Released Parties. 4. INTERCOMPANY CLAIMS 4.1. On the Effective Date, the following will occur: 7 a. In complete release and discharge of the existing intercompany Claim held by AJI against KAII, KAII will transfer to AJI a portion of the existing intercompany Claim held by KAII against KACC in an amount equal to the intercompany Claim held by AJI against KAII. b. In complete release and discharge of the existing intercompany Claim held by KBC against AJI, AJI will transfer to KBC a portion of the intercompany Claim held by AJI against KACC that was transferred to AJI by KAII in Section 4.1.a. in an amount equal to the intercompany Claim held by KBC against AJI. c. The intercompany Claim held by AJI against KACC after giving effect to the transactions described in Sections 4.1.a. and 4.1.b shall be offset against the existing intercompany Claim held by KACC against AJI. The net remaining balance of the intercompany Claim held by KACC against AJI (the "KACC/AJI Remaining Claim"), if any, shall remain outstanding until the occurrence of the events described in Section 4.2.b. d. In complete release and discharge of the existing intercompany Claim held by KJC against KAII, KAII will transfer to KJC a portion of the existing intercompany Claim held by KAII against KACC in an amount equal to the intercompany Claim held by KJC against KAII. e. In complete release and discharge of the existing intercompany Claim held by KBC against KJC, KJC will transfer to KBC a portion of the intercompany Claim held by KJC against KACC that was transferred to KJC by KAII in Section 4.1.d. in an amount equal to the intercompany Claim held by KJC against KAII. f. The intercompany Claim held by KJC against KACC after giving effect to the transactions described in Sections 4.1.d. and 4.1.e shall be offset against the existing intercompany Claim held by KACC against KJC. The net remaining balance of the intercompany Claim held by KACC against KJC (the "KACC/KJC Remaining Claim"), if any, shall remain outstanding until the occurrence of the events described in Section 4.2.b. g. In partial release and discharge of the existing intercompany Claim held by Bellwood against KACC (with the balance being released under Section 2 of this Agreement) simultaneously with the payment in accordance with Sections 4.1.h. and 4.1.i., KACC will pay to Bellwood in cash an amount equal to the postpetition intercompany obligation owing by Bellwood to KACOCL immediately prior to the Effective Date. h. In partial release and discharge of the existing intercompany Claim held by KACOCL against Bellwood (with the balance being released under Section 2 of this Agreement) simultaneously with the payment in accordance with Sections 4.1.g. and 4.1.i., Bellwood will pay to KACOCL in cash an amount equal to the amount of cash paid by KACC to Bellwood pursuant to Section 4.1.g. 8 i. In complete release and discharge of the existing intercompany Claim held by KACC against KACOCL, simultaneously with the payment in accordance with Sections 4.1.g. and 4.1.h., KACOCL will pay to KACC in cash an amount equal to the pre- and post-petition intercompany obligation owing by KACOCL to KACC immediately prior to the Effective Date. Of the amount that KACOCL will net pursuant to Section 4.1.h. and this Section 4.1.i., $2.5 million will be deemed to be full payment of the amount due to KACOCL from KACC pursuant to Section 4.2.g. KACOCL shall retain $2.5 million pursuant to Sections 4.1.h. and 4.1.i. Any amount in excess of $2.5 million shall be transferred by KACOCL to KACC, simultaneously with the payment in accordance with Sections 4.1.g. and 4.1.h. 4.2. In consideration of the foregoing releases and covenants, the following Claims between the Debtors will be settled and resolved as follows: a. At the Alpart Closing, KACC received and retained the cash proceeds allocated to KACC in the amount of $42,549,058.33. In addition, at the Alpart Closing, KACC caused an $11.2 million payment in lieu of alumina (the "Alumina Payment"), as per the terms of the APA, to be deposited in the AJI and KJC owned cash collateral accounts at Bank of America (as described in Section 10.1.b. and in the Seventh Amendment). b. Upon the consummation of a plan or plans of reorganization for AJI and KJC: i. KACC shall have an allowed superpriority administrative Claim against AJI and KJC (junior only to the superpriority Claims of the DIP Lenders and which shall be deemed to have been granted as of the Effective Date (notwithstanding the reference above to consummation of a plan or plans of reorganization for AJI and KJC) and which shall survive any conversion of the Chapter 11 cases of AJI and/or KJC to Chapter 7 and be entitled to priority in accordance with Section 726(b) of the Bankruptcy Code) in the amount of $22 million or such other greater or lesser amount after giving effect to the adjustment described in Section 6.3 and any credit provided for in Section 7.10 to the extent that AJI and/or KJC paid the PBGC Administrative Claim (the "AJI/KJC Settlement Payment"), in addition to the $42,549,058.33 under Section 4.2.a. In the event that the adjustment described in Section 6.3 and any credit provided for in Section 7.10 to the extent that AJI and/or KJC paid the PBGC Administrative Claim results in a negative adjustment that exceeds $22 million in the aggregate, the excess of such adjustment over $22 million will be deemed to be a credit which shall be applied to the amount owed by KAAC to KACC under Section 4.2.c.i. (the "Excess Credit"). The AJI/KJC Settlement Payment shall be paid pursuant to a Court approved plan or plans of reorganization for AJI and KJC by first transferring the amount of the AJI/KJC Settlement Payment or a portion thereof from the funds, if any, deposited in the AJI/KJC owned cash collateral accounts described in Section 10.1.b. to a KACC owned cash collateral account at Bank of 9 America, as Agent for itself and the other DIP Lenders, as replacement security for the DIP Financing Facility, and then by paying to KACC in cash any amount owed in excess of the amounts deposited in such AJI/KJC owned cash collateral accounts. In addition, AJI and KJC shall pay $2.5 million to KACC upon consummation of a plan or plans of reorganization, if a plan or plans of reorganization for AJI and KJC, acceptable in form and substance to the Creditors' Committee and the Debtors, is/are confirmed and effective on or before January 31, 2005, which date shall be extended to April 30, 2005 if the Debtors file a plan or plans of reorganization for AJI and KJC that contains a proposed resolution of the pending litigation regarding the subordination or lack thereof of the Subordinated Notes' Claims against the guarantors. ii. AJI and KJC shall acquire rights of reimbursement against KACC (the "AJI/KJC Rights of Reimbursement") in the amount of any payments made by AJI and KJC pursuant to a plan or plans of reorganization for AJI and KJC to creditors of AJI and KJC which are also creditors of KACC pursuant to any guarantee obligations or otherwise. iii. The AJI/KJC Rights of Reimbursement shall be offset against any KACC/AJI Remaining Claim and/or KACC/KJC Remaining Claim, respectively. Any AJI/KJC Rights of Reimbursement remaining after giving effect to the setoff provided by this Section 4.2.b.iii. shall be discharged pursuant to or in connection with the consummation of the AJI/KJC plan of reorganization. c. Upon the consummation of a plan of reorganization for KAAC: i. KACC shall have an allowed superpriority administrative Claim against KAAC (junior only to the superpriority Claims of the DIP Lenders and which shall be deemed to have been granted as of the Effective Date(notwithstanding the reference above to consummation of a plan of reorganization for KAAC) and which will survive any conversion of the Chapter 11 case of KAAC to Chapter 7 and be entitled to priority in accordance with Section 726(b) of the Bankruptcy Code) in the amount of $45 million or such other greater or lesser amount after giving effect to the adjustments described in Section 6.2, the Excess Credit provided for in Section 4.2.b.i. and any credit provided for in Section 7.10 (the "KAAC Settlement Payment"). The KAAC Settlement Payment shall be paid pursuant to a Court approved plan of reorganization for KAAC by first transferring the amount of the KAAC Settlement Payment or a portion thereof from the funds, if any, deposited in the KAAC owned cash collateral account described in Sections 10.1.c. and 10.1.d. to a KACC owned cash collateral account at Bank of America, as Agent for itself and the other DIP Lenders, as replacement security for the DIP Financing Facility, and then by paying in cash any amount owed to KACC in excess of the amounts deposited in such KAAC owned cash collateral account. 10 In addition, KAAC shall pay $2.5 million to KACC upon consummation of a plan of reorganization, if the plan of reorganization for KAAC, acceptable in form and substance to the Creditors' Committee and the Debtors, is confirmed and effective on or before March 31, 2005, which date shall be extended until: a) June 30, 2005 if the Debtors file a plan of reorganization for KAAC that contains a proposed resolution of the pending litigation regarding the subordination or lack thereof of the Subordinated Notes' Claims against the guarantors; b) July 31, 2005, if the Debtors enter into a stalking horse agreement to sell the QAL interests with any party other than Comalco Limited and Comalco Aluminium Limited ("Comalco"). ii. If KAAC makes payments to creditors of KAAC that are also creditors of KACC pursuant to any guarantee obligations or otherwise, the maximum recoveries which can be received by those creditors from KACC on account of the allowed amount of their Claims (which allowed amount of their Claims shall not be reduced by any such payments) shall be reduced by the amount of payments made by KAAC. KAAC shall acquire rights of reimbursement against KACC (the "KAAC Rights of Reimbursement") in the amount of any payments made by KAAC pursuant to a plan of reorganization for KAAC to creditors of KAAC which are also creditors of KACC pursuant to any guarantee obligations or otherwise. iii. Based upon the payments that KAAC makes to creditors of KAAC that are also creditors of KACC, the pre-petition intercompany Claims of KACC against KAAC relating to the Inventory Financing Agreement shall be satisfied. This shall be achieved by offsetting the KAAC Rights of Reimbursement against the portion of the pre-petition intercompany Claim of KACC against KAAC relating to the Inventory Financing Agreement. The KAAC Right of Reimbursement remaining after giving effect to the setoff provided in this Section 4.2.c.iii. shall be discharged pursuant to or in connection with the consummation of the KAAC plan of reorganization. d. AJI and KJC, pro rata based on their ownership interests in Alpart, shall have allowed superpriority administrative Claims against KBC (junior only to the superpriority Claims of the DIP Lenders and which shall be deemed to have been granted as of the Effective Date and which will survive any conversion of the Chapter 11 case of KBC to Chapter 7 and be entitled to priority in accordance with Section 726(b) of the Bankruptcy Code) in the amount of $5 million. The Parties agree that the net proceeds (the "KBC Net Proceeds") allocable to KBC from the sale of the Debtors' alumina refinery in Gramercy, Louisiana and the Debtors' interests in and related to Kaiser Jamaica Bauxite Company (the "Gramercy/KJBC Interests") shall be $5 million: provided, however, that if a motion to approve this Agreement is filed with the Court before or within ten (10) business days after the United Steelworkers of America, AFL-CIO ratifies proposed modifications to the 1113/1114 agreement that was approved by the 11 Court's orders entered on February 5, 2004 and June 1, 2004, the KBC Net Proceeds shall be $4 million, and the remaining net proceeds from the sale of the Gramercy/KJBC Interests, including the $1 million, shall be allocable to KACC. KACC may pay the professional fees and expenses of KBC incurred after July 1, 2004 and prior to the closing of the sale of the Gramercy/KJBC Interests in accordance with the Seventh Amendment. Upon the later of the Effective Date or the closing of the sale of the Gramercy/KJBC Interests, the KBC Net Proceeds (after reimbursement of KACC for any such professional fees and expenses) will be paid to AJI and KJC (pro rata based on the ownership interests of each in Alpart) in satisfaction of AJI and KJC's allowed administrative Claims against KBC, for distribution pursuant to AJI's and KJC's plan or plans of reorganization. In the event that substantially all of the assets of KBC are not sold, AJI and KJC shall receive payment of their allowed administrative Claims in full in cash upon consummation of a plan of reorganization for KBC, unless a motion to approve this Agreement is filed with the Court before or within ten (10) business days after the United Steelworkers of America, AFL-CIO ratifies proposed modifications to the 1113/1114 agreement that was approved by the Court's orders entered on February 5, 2004 and June 1, 2004, in which case AJI and KJC will accept payment of $ 4 million in cash upon consummation of a plan of reorganization for KBC as full payment of their allowed administrative Claims; provided, however, that no such consideration shall be obtained, directly or indirectly, from the proceeds of loans made by the DIP Lenders under the DIP Financing Facility. e. All of the proceeds realized from the sale of KACC's interests in Volta Aluminum Company Limited ("Valco") to the Government of Ghana ("GOG") will be retained by KACC. Nothing in this Agreement shall otherwise affect any Court order or Canadian Court order staying the PBGC from seeking to enforce its claims against any Debtor or non-Debtor affiliate of KACC. f. The pre-petition intercompany Claim held by KFC against KACC shall be allowed as a valid enforceable pre-petition unsecured Claim in the amount of $1.106 billion and shall receive the same treatment as allowed general unsecured Claims (excluding retiree medical Claims) under any plan of reorganization for KACC. g. Upon the consummation of a plan of reorganization for KAAC and the receipt by KACC of the KAAC Settlement Payment, KACC will pay KACOCL $2.5 million in cash less any amounts deemed paid by KACC to KACOCL pursuant to Section 4.1.i. h. The treatment described herein will be in full satisfaction and resolution of any and all Claims between the Debtors as of the Effective Date, whether arising pre-petition or post-petition, except as otherwise provided in this Agreement. 12 5. SUBSTANTIVE CONSOLIDATION OF ESTATES 5.1. None of the estates of any of the Debtors shall be substantively consolidated under any plan of reorganization, order of the Court or otherwise, except that (a) the estates of KACC and Bellwood, (b) the estates of KACC and KAC, and (c) the estates of AJI and KJC may be substantively consolidated pursuant to a plan or plans of reorganization for such Debtors confirmed by the Court. 5.2. Notwithstanding the foregoing, additional Debtors (excluding KAAC, AJI, KJC, KBC, KFC, KACOCL and KAII) may be substantively consolidated with KACC pursuant to a plan of reorganization for KACC confirmed by the Court if, prior to such substantive consolidation, (a) the total amount of allowable administrative and priority Claims, as estimated by the Debtors and the Creditors' Committee, against such additional Debtors does not exceed $100,000 in the aggregate (excluding the Claims of the PBGC) and the total amount of allowable pre-petition unsecured Claims, as estimated by the Debtors and the Creditors' Committee, against such additional Debtors does not exceed $7,500,000 in the aggregate (excluding the Claims of the PBGC, the Claims relating to the Senior Notes and the Claims relating to the Subordinated Notes); and (b) the liquidation value of the assets of each such additional Debtor is less than $1 million. 5.3. Notwithstanding sections 5.1 and 5.2, additional Debtors may be substantively consolidated with the consent of the Creditors' Committee. 6. FINAL CASH MANAGEMENT AND FINAL JV ORDERS 6.1. The Approval Order shall provide for the termination, effective on the Effective Date, of the grant of any superpriority Claim under the Final Cash Management Order and the Final JV Order for any transfers occurring between the Debtors on or after the Effective Date (other than described in Sections 4.2, 6.2, 6.3, 7.5, 7.6, 7.7, 7.8, 7.10 and 10.1). The Debtors shall be authorized to continue to use any common cash management systems but, except as provided in this Section and Sections 6.2, 6.3, 7.5, 7.6, 7.7, 7.8, 7.10 and 10.1 below, no Claims shall arise from the use of the common cash management system or any other post-Effective Date transfers (of goods or services) among the Obligors (as defined in the DIP Financing Facility). Notwithstanding the foregoing provisions of this Section 6.1, intercompany payables and receivables shall be recorded in accordance with past practice for all relevant tax and accounting purposes with respect to all transactions occurring between and among the Debtors from and after the Effective Date; provided, however, except as otherwise provided herein, such intercompany payables and receivables will not be taken into account in determining creditor recoveries, including for purposes of valuing any Debtor or determining the amount of distributions to be made to any creditor, nor will there be any consideration distributed on account of such intercompany payables and receivables pursuant to a plan or plans of reorganization for the Debtors. Any post-Effective Date transfers between any of the Obligors and any other Debtors who are not Obligors or KAAC, KFC, AJI and/or KJC shall be done at arms-length and consistent with the DIP Financing Facility. 6.2. Upon entry of the Approval Order, the Final Cash Management Order and the Final JV Order shall be modified with respect to KAAC to include a provision requiring the 13 approval of the Creditors' Committee (i) of any modifications to any current material agreements between KAAC and any third party, (ii) before KAAC enters into any new material agreement with any third party, or (iii) of any transactions between KAAC and any other Debtors outside the ordinary course of business or on terms more favorable than those offered to third parties. For purposes of this Section, any "material" agreement includes an agreement for the purchase or sale of goods or services with a cost in excess of $100,000. Notwithstanding the foregoing, the Debtors and the Creditors' Committee may make adjustments to the QAL Net Cash Flow that are mutually acceptable to the Parties, with the consent of the DIP Lenders. Any positive QAL Net Cash Flow which is not held by KAAC at the time of the QAL Closing shall be offset against KAAC's payment obligation to KACC described in Section 4.2.c. If KAAC repays the Glencore Auction Fee through the QAL Net Cash Flow, such repayment shall satisfy KAAC's obligations under paragraph three of the order entered by the Court on September 28, 2004 approving the Glencore Auction Fee. In the event that the QAL Net Cash Flow is less than zero, which negative QAL Net Cash Flow is financed by KACC or any other Obligors under the DIP Financing Facility, KAAC shall (a) make a payment to KACC in the amount of the remaining balance of the Glencore Auction Fee in full in cash at the time of the QAL Closing from proceeds of the QAL Sale and (b) make a payment to KACC in the amount of such negative QAL Net Cash Flow excluding the Glencore Auction Fee upon the effective date of a confirmed plan of reorganization for KAAC. In the event that the Debtors and the Creditors' Committee cannot agree upon the calculation of QAL Net Cash Flow, the Debtors and the Creditors' Committee agree that either may submit the dispute to BDO Seidman LLP ("BDO"), which shall resolve the dispute and whose decision shall be final and binding upon the Parties. The Party submitting such dispute for resolution to BDO shall concurrently notify the other Party of such submission. Within 10 days thereafter each Party shall furnish to BDO and the other Party any information it wishes BDO to consider in making its determination. The Parties agree to request that BDO make its determination within 30 days of the initial submission of the dispute and agree to afford BDO reasonable access to such information and otherwise to cooperate with BDO as BDO may request in order to facilitate prompt resolution of the dispute. In the event BDO declines to act in respect of such dispute, the Parties shall promptly agree on a substitute accounting firm to which to submit the dispute. 6.3. The positive Alpart Net Cash Flow shall be offset against AJI and KJC's payment obligations to KACC described in Section 4.2.b. Notwithstanding the foregoing, the Debtors and the Creditors' Committee may make adjustments to the Alpart Net Cash Flow that are mutually acceptable to the Parties. 7. POST-EFFECTIVE DATE CASE ADMINISTRATION 7.1. The Debtors will continue to provide each other with such assistance as may reasonably be requested by any of them in connection with the completion and filing of any governmental form, preparation of any tax return, any audit or other examination by any taxing authority, any judicial or administrative proceedings related to liability for taxes, or the defense or prosecution of any Claim, for which another Debtor possesses relevant information. Each Debtor will retain and provide the others with any records or information that may be relevant to such return, audit, examination, proceeding or determination. No reimbursement shall be permitted for any assistance provided under this Section, except as described in Section 7.5. 14 7.2. The Debtors have entered into an asset purchase agreement with Comalco for the sale of the QAL interests, dated September 22, 2004, and an agreement with Pegasus Queensland Acquisition Pty Limited ("Pegasus") whereby Pegasus will submit a Qualified Overbid, dated September 22, 2004. The Creditors' Committee and its members expressly reserve their respective rights to object to the approval of the sale of the QAL interests (but the Creditors' Committee has no objection to the approval of the bidding procedures and the fees being sought in connection with the asset purchase agreement with Comalco and the agreement with Pegasus so long as both agreements are approved by the Court) pursuant to the agreement with Comalco, the agreement with Pegasus or otherwise. The Debtors will not enter into any other agreement, or seek authorization from the Court (other than with respect to the aforementioned agreements with Comalco and Pegasus), to sell KAAC's ownership interest in QAL unless the Alumina Creditor Subcommittee shall have consented to the Debtors' entry into such agreement or request for such authorization from the Court, unless a Default (as defined in the DIP Financing Facility) or an Event of Default (as defined in the DIP Financing Facility) has occurred and is continuing. 7.3. KAAC, KFC, AJI and KJC will file plans of reorganization acceptable in form and substance to the Debtors and the Creditors' Committee (which must include provisions for payments required to be made pursuant to this Agreement) and the Creditors' Committee and the Debtors will cooperate so that such plans of reorganization may be filed and confirmed as expeditiously as possible. The Debtors agree that they will file such plan or plans of reorganization, in a form and substance acceptable to the Debtors and the Creditors' Committee, for KAAC, KFC AJI and KJC within ten business days after (a) approval of this Agreement by the Court and the Alpart Closing and the QAL Closing, respectively, or (b) such earlier date after the execution of the Agreement as the Creditors' Committee shall direct in writing (which date shall be no earlier than thirty-five days after the filing of a motion seeking Court approval of the Agreement). In the event the Debtors fail to file the plan or plans of reorganization with respect to KAAC, KFC, AJI and/or KJC in accordance with the preceding sentence (including by reason of an inability of the Debtors and the Creditors' Committee to agree upon the terms of a plan or plans of reorganization), the exclusivity period for such Debtor(s) shall automatically terminate. The Creditors' Committee and the Debtors will cooperate so that plans of reorganization may be filed for KAC, KACC and the other Debtors and confirmed as expeditiously as possible. 7.4. The proceeds of the Alpart sale allocable to AJI and KJC in the aggregate amount of $264,668,660.41 are on deposit in segregated escrow accounts for the benefit of the creditors of AJI and KJC (subject, however, to the provisions of Section 10.1.b.), which will be blocked accounts, pending confirmation of a plan or plans of reorganization for AJI and KJC. 7.5. Except as expressly provided below, KACC will pay all of the costs relating to the administration of all of the Debtors' bankruptcy cases, including, but not limited to, professional fees, the fees and expenses associated with the DIP Financing Facility and all corporate overhead. Except as provided in the DIP Financing Facility, none of the other Debtors will be responsible for any such costs and none of these costs will be allocated or charged to the estates of the other Debtors, provided, however, that: a. In the event that there are any third party costs (including consulting fees and expenses paid to Joe Bonn) that are incurred solely in connection with the administration of the bankruptcy cases of AJI, KJC, KBC, KFC and/or KAAC and which are incurred after June 30, 15 2004 (excluding all success fees of any financial advisors or any monthly fees creditable against any such success fees, which fees are addressed in Section 7.8 below), such costs shall be charged to AJI, KJC, KBC, KFC or KAAC, as applicable, and will be paid by such estate or estates (except that such amounts may be paid by KACC in its sole discretion and reimbursed by such estate or estates in accordance with the terms of the Seventh Amendment and any such fees incurred by KBC prior to the closing of the sale of the Gramercy/KJBC Interests which were not paid prior to the payment of AJI and KJC's allowed administrative Claims against KBC shall be paid by AJI and KJC) and shall not be included in the Carve-out (as defined in the DIP Financing Facility). Notwithstanding the foregoing, AJI and KJC shall pay all foreign taxes, transfer taxes and recording fees payable by AJI and KJC as a result of the sale of the interests in Alpart and KAAC shall pay all foreign taxes, transfer taxes and recording fees payable by KAAC as a result of the QAL Sale. AJI, KJC, KBC, KFC and/or KAAC shall also pay all foreign taxes payable by each such Debtor, whether for current or prior tax years, and KAAC shall pay any amount determined to be payable to the purchaser of the QAL interests in respect of any indemnity or other claims of such purchaser under the asset purchase agreement. KAAC shall pay 50% of the fees and expenses of BDO incurred in connection with the services described in section 6.2. b. In respect of corporate business unit overhead, beginning July 1, 2004 and continuing until the earlier of consummation of a plan of reorganization for KAAC or the QAL Closing, KACC may charge KAAC each month, and KAAC shall pay, amounts pursuant to the Cost Reimbursement Agreement between KACC and KAAC, dated as of January 1, 1994 and amended effective January 1, 2004. However, the amounts to be paid by KAAC pursuant to Section 7.5.b. shall not exceed $200,000 per month. 7.6. The consolidated net operating losses and any other tax attributes of the Debtors will be utilized in accordance with applicable law to the fullest extent possible to reduce the tax liabilities resulting from the sale of the interests in Alpart and QAL. No intercompany tax receivable or intercompany tax payable will result from such utilization of the consolidated net operating losses or any other tax attributes of the Debtors. KAAC will pay any alternative minimum tax due as a result of the sale of the Alpart interests and the sale of the QAL interests. 7.7. On the Effective Date or, in the case of fees and expenses that are subject to dispute, two business days following the consensual resolution of such dispute or a ruling on such dispute by the Bankruptcy Court, KACC shall pay, in cash, the reasonable fees and expenses of each of the members of the Creditors' Committee (including indenture trustee fees and the fees and expenses of counsel of such members) incurred in connection with the negotiation, execution and approval of the settlement contained in this Agreement and this Agreement. The Debtors reserve their right to challenge the reasonableness of any such fees or expenses. 7.8. AJI and KJC (unless the plan or plans of liquidation provide otherwise) and KAAC shall be jointly and severally liable for and agree to pay: a. Lazard Freres & Co., LLC ("Lazard") Restructuring Fee. As set forth in the Application for Order under 11 U.S.C. Sections 327(a) and 328(a) and Fed. R. Bankr. P. 2014(a) and 2016 Authorizing Employment and Retention of Lazard Freres & Co. LLC as Financial Advisors and Investment Bankers for Debtors-in-Possession, Nunc Pro Tunc to the Petition Date and the 16 exhibits thereto (the "Lazard Application") and approved by Court order dated March 19, 2002 (the "Lazard Order"), Lazard is entitled to the greater amount of a Restructuring Fee (equal to $7.0 million) or a Business Combination Fee, minus certain credits for monthly fees. AJI, KJC and KAAC shall be jointly and severally liable for, and agree to pay, any amounts by which the aggregate amount of the Business Combination Fee exceeds $7.0 million (before any crediting of the monthly fees), minus a $250,000 credit for the fees relating to the sale of the Debtors' alumina refinery in Gramercy, Louisiana and the Debtors' interests in and related to Kaiser Jamaica Bauxite Company and excluding any Business Combination Fee payable as a result of the sale of the Debtors' interest in Anglesey and any further sales of assets by KACC, Bellwood and/or KACOCL. b. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan") Transaction Fee. As set forth in the Official Committee of Unsecured Creditors' Application for Order Authorizing the Employment, Nunc Pro Tunc, to February 28, 2002, of Houlihan Lokey Howard & Zukin Financial Advisors, Inc. as Financial Advisor Pursuant to Sections 328 and 1103(a) of the Bankruptcy Code and the exhibits thereto (the "Houlihan Application") and approved by Court order dated May 7, 2002 (the "Houlihan Order"), Houlihan is entitled to a Transaction Fee, minus certain credits for monthly fees. AJI, KJC and KAAC shall be jointly and severally liable for and agree to pay, after applicable crediting for the monthly fees as set forth in the Houlihan Application and required by the Houlihan Order, any amount of the Transaction Fee that exceeds $5.0 million. 7.9 Nothing contained herein shall preclude KACC's rights to sell any or all of its remaining assets and KACC expressly reserves all of its rights to sell any such assets. 7.10 KACC shall be responsible for paying the PBGC's allowed administrative Claim (the "PBGC Administrative Claim") in full and in cash. KACC agrees that it will make such payment upon the earlier of consummation of a plan of reorganization for KACC or consummation of a plan of reorganization for KAAC (the "PBGC Payment Date"). In the event that such payment is not timely made by KACC, and KAAC, AJI and/or KJC must pay the PBGC Administrative Claim in whole or in part, AJI and/or KJC may, at their election, and KAAC shall, credit the amount of such payment against any amounts owed to KACC under Section 4.2.b.i. of this Agreement or Section 4.2.c.i. of this Agreement, as applicable, and to the extent that such payment shall exceed the amounts owed to KACC, such excess amount shall be paid by KACC to KAAC. KAAC, AJI and/or KJC may demand payment from KACC of such amount, which payment shall be made within five (5) business days of receipt of such demand, with interest accruing at the rate of 12% per annum from and after the PBGC Payment Date. If KACC is still in federal bankruptcy proceedings, KAAC, AJI and/or KJC, as applicable, shall have allowed superpriority administrative Claims against KACC (junior only to the superpriority Claims of the DIP Lenders and which will survive any conversion of the Chapter 11 case of KAAC to Chapter 7 and be entitled to priority in accordance with Section 726(b) of the Bankruptcy Code) in the amount of such payment, together with interest at the rate of 12% per annum. 8. RETIREE MEDICAL SETTLEMENT 8.1 The Creditors' Committee supports the amended and restated 1113/1114 settlement with the United Steelworkers of America, AFL-CIO. 17 9. CONDITIONS TO EFFECTIVENESS 9.1. The agreements and releases set forth in this Agreement shall not be effective unless and until each of the following conditions is satisfied: a. The Court shall have entered the Approval Order. b. The DIP Financing Facility shall have been amended by the Seventh Amendment in a manner satisfactory to the Creditors' Committee, and the Seventh Amendment must have been approved by the Court. The terms of this Agreement shall have been consented to by the DIP Lenders. c. The Approval Order shall be a Final Order; provided, however, that the Debtors and the Creditors' Committee may agree to waive this condition. 10. DIP FINANCING FACILITY MODIFICATIONS 10.1. Notwithstanding anything in this Agreement to the contrary: a. The DIP Lenders shall consent to the sale of Alpart, QAL, Valco and the Gramercy/KJBC Interests, subject to certain conditions being satisfied as set forth in the Seventh Amendment to the DIP Financing Facility (the "Seventh Amendment"). The Seventh Amendment shall contain all of the modifications described herein and certain other modifications and provisions which are not described herein. In the case of any inconsistency between this Agreement and the Seventh Amendment, the terms of the Seventh Amendment shall control. b. Until the Effective Date, the DIP Lenders and the Agent will retain all of their existing rights under the guaranty by AJI and KJC (the "AJI/KJC Guaranty") and shall have a perfected first priority security interest in the net cash proceeds from the sale of Alpart and a superpriority Claim against KACC, AJI and KJC with respect to such cash proceeds and distributions (the "Alpart Collateral"). After (i) the Alpart Closing and (ii) the Effective Date have both occurred, the Alpart Collateral will be capped at $48 million plus any interest earned thereon, $28 million of which has been paid to KACC and deposited in a KACC-owned cash collateral account at Bank of America, as Agent for itself and the other post-petition lenders under the DIP Financing Facility, subject to application to repay any outstanding loans and to KACC's right to withdraw the balance of such amounts as long as the conditions for borrowing under Section 7.4 of the DIP Financing Facility have been satisfied at the time of withdrawal (the "KACC Available Amount"). The first $20 million of the Alpart Collateral (which will include the Alumina Payment) (the "Alpart Cash Collateral Payment") has been deposited by the purchaser of Alpart in AJI and KJC owned cash collateral accounts at Bank of America, as Agent for itself and the other post-petition lenders under the DIP Financing Facility, and may not be withdrawn by AJI, KJC or KACC until the termination of the DIP Financing Facility and the indefeasible 18 payment in full in cash of all of the obligations under the DIP Financing Facility (such funds may be withdrawn by Agent for the benefit of the DIP Lenders at any time after a Default or Event of Default under the DIP Financing Facility). The Agent and the DIP Lenders will have a perfected first priority lien on these funds and all interest, earnings and proceeds thereof. To the extent that funds are transferred from the AJI/KJC cash collateral accounts to an account owned by KACC in accordance with Section 4.2.b.i. hereof, Bank of America, as Agent for itself and the other DIP Lenders under the DIP Financing Facility, shall retain a first priority security interest in the transferred funds and AJI and KJC will have a perfected silent second lien on these funds. After termination of the DIP Financing Facility and indefeasible payment in full of the DIP Financing Facility, AJI/KJC shall receive any and all interest generated by holding these monies in the AJI/KJC owned cash collateral accounts with respect to any funds that are returned to AJI/KJC. The remaining proceeds of the Alpart sale after making these deposits will be held in escrow separately for the benefit of the creditors of AJI/KJC (other than the Agent and the DIP Lenders). c. Until the Effective Date, the DIP Lenders and the Agent will retain all of their existing rights under the guaranty by KAAC (the "KAAC Guaranty") and shall have a perfected first priority security interest in the net cash proceeds from the sale of QAL and a superpriority Claim against KACC and KAAC with respect to such cash proceeds and distributions (the "QAL Proceeds Collateral"). After the Effective Date occurs, but before the occurrence of a QAL Triggering Event, the Agent and the DIP Lenders' recourse under the KAAC Guaranty will be capped at $40 million. Upon the occurrence of (i) the Effective Date and (ii) the QAL Sale, $40 million of QAL Proceeds Collateral will be paid from the purchaser of the QAL interests to a KAAC-owned cash collateral account at Bank of America, as Agent for itself and the other DIP Lenders, and may not be withdrawn by KAAC or KACC until the termination of the DIP Financing Facility and the indefeasible payment in full in cash of all of the obligations under the DIP Financing Facility (such funds may be withdrawn by Agent for the benefit of the DIP Lenders at any time after a Default or Event of Default under the DIP Financing Facility) . The Agent and the DIP Lenders will have a perfected first priority lien on these funds and all interest, earnings and proceeds thereof. To the extent that funds are transferred from the KAAC cash collateral account to an account owned by KACC in accordance with Section 4.1.c.i. hereof, Bank of America, as Agent for itself and the other DIP Lenders under the DIP Financing Facility, shall retain a first priority security interest in the transferred funds and KAAC will have a perfected silent second lien on these funds. After termination of the DIP Financing Facility and indefeasible payment in full of the DIP Financing Facility, KAAC shall receive any and all interest generated by holding these monies in the KAAC owned cash collateral accounts with respect to any funds that are returned to KAAC. The remaining proceeds of the QAL Sale after making these deposits will be held in escrow separately for the benefit of the creditors of KAAC (other than the Agent and the DIP Lenders). 19 d. Upon the occurrence prior to a QAL Sale of (i) the Effective Date and (ii) the effective date of a confirmed standalone plan of reorganization for KAAC, $40 million of cash from KAAC that is not obtained directly or indirectly from the proceeds of loans made by the DIP Lenders under the DIP Financing Facility will be paid to a KAAC-owned cash collateral account at Bank of America, as Agent for itself and the other DIP Lenders, and may not be withdrawn by KAAC or KACC until the termination of the DIP Financing Facility and the indefeasible payment in full in cash of all of the obligations under the DIP Financing Facility (such funds may be withdrawn by Agent for the benefit of the DIP Lenders at any time after a Default or Event of Default under the DIP Financing Facility). The Agent and the DIP Lenders will have a perfected first priority lien on these funds and all interest, earnings and proceeds thereof. To the extent that funds are transferred from the KAAC cash collateral account to an account owned by KACC in accordance with Section 4.1.c.i hereof, Bank of America, as Agent for itself and the other DIP Lenders under the DIP Financing Facility, shall retain a first priority security interest in the transferred funds and KAAC will have a perfected silent second lien on these funds. After termination of the DIP Financing Facility and indefeasible payment in full of the DIP Financing Facility, KAAC shall receive any and all interest generated by holding these monies in the KAAC owned cash collateral accounts with respect to any funds that are returned to KAAC. e. At all times, the minimum cash collateral must be $60 million combined for the Alpart Collateral (excluding the KACC Available Amount) and QAL Proceeds Collateral; provided that after the Alpart Closing but before the occurrence of a QAL Triggering Event, the minimum collateral shall consist of (i) the Alpart Cash Collateral Payment and (ii) the KAAC Guaranty. f. Upon the termination of the DIP Financing Facility and the indefeasible payment in full in cash of all of the obligations under the DIP Financing Facility, the funds maintained in the cash collateral accounts at Bank of America, as Agent for itself and the other DIP Lenders, under the DIP Financing Facility, described in: (i) Section 10.1.b. (excluding the KACC Available Amount) that have not been utilized by the Agent to pay off the DIP Financing Facility after the occurrence of a Default or an Event of Default under the DIP Financing Facility shall be utilized to pay the AJI/KJC Settlement Payment to KACC or, in the case where there is an Excess Credit or a credit under Section 7.10, to pay the KAAC Settlement Payment to KACC, and the balance of the funds shall be remitted to AJI and KJC; and (ii) Sections 10.1.c. and 10.1.d. that have not been utilized by the Agent to pay off the DIP Financing Facility after the occurrence of a Default or an Event of Default under the DIP Financing Facility shall be utilized to pay the KAAC Settlement Payment to KACC and the balance of the funds shall be remitted to KAAC. g. AJI, KJC and/or KAAC shall have an allowed superpriority administrative Claim or Claims against KACC (junior only to the superpriority Claims of the DIP Lenders which will survive any conversion of the Chapter 11 case of KACC to 20 Chapter 7 and be entitled to priority in accordance with Section 726(b) of the Bankruptcy Code) in the amount of any QAL Proceeds Collateral or Alpart Collateral which would be payable to AJI, KJC and/or KAAC after payment of the AJI/KJC Settlement Payment and the KAAC Settlement Payment that has been applied by the Agent or the DIP Lenders after the occurrence of a Default or Event of Default to the payment of the Obligations (as defined in the DIP Financing Facility) to the extent of any such offset. Such superpriority administrative Claim or Claims shall be capped at $55 million. In the event that such superpriority administrative Claim or Claims cannot be paid at the time of consummation of plan of reorganization for KACC (due to insufficient liquid assets of KACC), such superpriority administrative Claim or Claims shall be paid no later than eighteen months after consummation of such plan of reorganization, at which time such superpriority administrative Claim or Claims shall be paid in full together with interest at the rate of 12% per annum. h. Neither KACC nor any other Obligor shall make any Debt Repayment Fundings prior to July, 2005. i. If the DIP Financing Facility has been indefeasibly paid in full and the Commitments (as defined in the DIP Financing Facility) shall have terminated, Section 10.1 shall be null and void and shall be of no force and effect, except for any Claims, liens and rights granted to AJI, KJC and/or KAAC in section 10.1 which shall survive and remain in full force and effect. 11. DISCLAIMER OF ALL REPRESENTATIONS AND WARRANTIES 11.1. Except as provided in Section 11.2, the Parties make no representations or warranties to the other Parties, whether express or implied or by operation of law of otherwise. No other agreements or understandings between or among any of the other Parties relating to the disputes referred to and compromised by this Agreement exist except as set forth in this Agreement or the Approval Order. Each Party acknowledges that it has (a) not relied upon any statement, representation or warranty, express or implied, by any other entity, person or Party not expressly set forth herein in deciding to execute this Agreement and make the releases provided herein, and (b) entered into this Agreement based upon its own judgment, opinions, knowledge and conclusions. 11.2. The Debtors represent and warrant to the Creditors' Committee that they have disclosed to the Creditors' Committee all known material liabilities of each Debtor. The Creditors' Committee acknowledges that it has had access to and has reviewed the schedules filed by the Debtors with the Court, the Claims database maintained by Logan & Co. for the Debtors, monthly operating reports filed by the Debtors with the Court, and Securities and Exchange Commission filings. 11.3. Nothing in this agreement shall affect, limit, impair or discharge any guarantee of the Senior Notes, the Subordinated Notes or the Gramercy Revenue Bonds issued by a Debtor, to the extent the holders of Senior Notes, the Subordinated Notes or the Gramercy Revenue Bonds hold a valid guarantee Claim against a Debtor. 21 12. APPLICABLE LAW/JURISDICTION 12.1. This Agreement shall be governed in all respects, including validity, interpretation, and effect, by the laws of the State of New York, without giving effect to the principles of conflicts of law thereof. The Court shall have exclusive jurisdiction to resolve any disputes regarding the interpretation or implementation of this Agreement. 13. BINDING AGREEMENT 13.1 The terms and conditions of this Agreement shall be binding on all Parties to this Agreement and any and all parties receiving notice of the motion seeking entry of the Approval Order. 14. ENTIRE AGREEMENT; COUNTERPARTS; AND HEADINGS 14.1. This Agreement constitutes the entire agreement among the Parties and supersedes all prior and contemporaneous agreements, representations, warranties, and understandings of the Parties, whether oral, written, or implied, as to the subject matter hereof. No supplement, modification, or amendment of this Agreement, or the Approval Order, or waiver of rights hereunder shall be binding unless executed in writing by the Party affected thereby. 14.2. This Agreement may be executed in two or more counterparts, in which case this Agreement shall include each such executed and delivered counterpart, each of which shall be deemed to be a part of a single instrument. This Agreement may be executed and delivered by facsimile. 14.3. The Section headings appearing herein are for convenience and reference and shall not be deemed to govern, limit, modify or in any manner affect the scope, meaning or intent of the provisions of this Agreement. 15. AMENDMENT; WAIVER 15.1. Except as provided otherwise herein, this Agreement may not be amended, nor may any rights or breach hereunder be waived, except by an instrument in writing signed by the parties hereto. 22 IN WITNESS WHEREOF, the parties have caused this Settlement and Release Agreement to be executed as of the day and year first above written. KAISER ALUMINUM CORPORATION By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER ALUMINUM & CHEMICAL CORPORATION By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER FINANCE CORPORATION By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER ALUMINA AUSTRALIA CORPORATION By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER ALUMINUM TECHNICAL SERVICES, INC. By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER BELLWOOD CORPORATION By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President 23 KAISER ALUMINUM INTERNATIONAL, INC. By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER MICROMILL HOLDINGS LLC By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER SIERRA MICROMILLS, LLC By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER TEXAS SIERRA MICROMILLS, LLC By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER TEXAS MICROMILL HOLDINGS, LLC By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER ALUMINUM PROPERTIES, INC. By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President AKRON HOLDING CORP. By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President 24 OXNARD FORGE DIE COMPANY, INC. By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER ALUMINUM & CHEMICAL INVESTMENT, INC. By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER CENTER, INC. By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President ALWIS LEASING LLC By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President ALPART JAMAICA, INC. By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER JAMAICA CORPORATION By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President 25 KAISER BAUXITE COMPANY By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER ALUMINUM & CHEMICAL OF CANADA LIMITED By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER ALUMINUM & CHEMICAL OF CANADA INVESTMENT LIMITED By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAE TRADING, INC. By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER CENTER PROPERTIES By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President KAISER EXPORT COMPANY By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President TEXADA MINES, LTD. By: /s/ Edward F. Houff ------------------------- Name: Edward F. Houff Title: Vice President 26 CREDITORS' COMMITTEE By: By:/s/ Lisa G. Beckerman ----------------------- Name: Lisa G. Beckerman Title: Counsel 27 EX-10.3 9 h20077exv10w3.txt SETTLEMENT AGREEMENT DATED OCTOBER 14, 2004 Exhibit 10.3 KAISER/PBGC SETTLEMENT October 14, 2004 Kaiser Aluminum & Chemical Corporation ("Kaiser") and the Pension Benefit Guaranty Corporation ("PBGC") agree to the following terms: 1. After the USWA ratifies the amended and restated agreement under sections 1113 and 1114 of the Bankruptcy Code with Kaiser, PBGC will make its decision on whether to approve the distress termination of the Kaiser Aluminum Pension ("KAP") Plan, and will notify Kaiser of its determination. If the ratification occurs prior to September 30, 2004, PBGC will notify Kaiser of PBGC's determination on or before September 30, 2004. If Kaiser signs the trusteeship agreement (the "Trusteeship Agreement"), the form of which is annexed hereto as Exhibit A, on or before September 30, 2004, then, pursuant to IRC Section 7527(d)(2), PBGC will certify to the IRS that eligible KAP participants are receiving PBGC benefits commencing in October 2004. If the USWA ratification occurs on September 30, 2004 or thereafter, PBGC will notify Kaiser of PBGC's determination within two business days of the date of ratification. If Kaiser signs the Trusteeship Agreement, then, pursuant to IRC Section 7527(d)(2), PBGC will certify to the IRS that eligible KAP participants are receiving PBGC benefits commencing in the month immediately following the month in which such agreement is signed by Kaiser. 2. Kaiser will continue to sponsor the following plans: a. Kaiser Aluminum Los Angeles Extrusion Pension Plan b. Kaiser Center Garage Pension Plan c. Kaiser Aluminum Tulsa Pension Plan d. Kaiser Aluminum Bellwood Pension Plan e. Kaiser Aluminum Sherman Pension Plan On the later of (a) five business days after bankruptcy court approval of this agreement or (b) 30 days after the effective date of the Intercompany Claims Settlement between Kaiser and the Official Committee of Unsecured Creditors, Kaiser will satisfy the minimum funding standard under IRC Section 412 for all five retained pension plans. Kaiser will also insure that the minimum funding standard is satisfied during the remainder of the Debtors' Chapter 11 proceedings, which proceedings are pending in the United States Bankruptcy Court, District of Delaware, Case Number 02-10429 (jointly administered). Kaiser agrees that it will not seek reimbursement of any minimum funding payments for any retained pension plan from any of the other Debtors' estates. 3. The appeal of the Bankruptcy Court Order finding that Kaiser satisfied the reorganization test as to all plans (other than Garage) will be dismissed. 4. PBGC will issue a no-action letter with respect to the salaried defined contribution plan, the USWA defined contribution plan, and the SPT plan (collectively, the "Replacement Plans"), in the form annexed hereto as Exhibit B. 5. Kaiser, PBGC and USWA agree that, prior to July 1, 2009, the Replacement Plans will not increase benefits (contribution levels) and that Kaiser will not establish or contribute to a defined benefit plan (other than SPT) with respect to bargaining locations previously covered by the USWA Plan. 6. The directed assets and the remaining assets of the Master Trust will be addressed in a side letter reasonably acceptable to both parties. 7. PBGC agrees to a full release of all claims against Valco, and the form of such release is annexed hereto as Exhibit C. 8. It is anticipated that reorganized Kaiser will make an election under applicable tax laws that will permit it to retain and utilize fully Kaiser's U.S. net operating loss carryovers (the "NOLs") following the effectiveness of Kaiser's plan of reorganization. PBGC acknowledges that, in order to ensure that reorganized Kaiser will retain and be able to utilize fully the NOLs as contemplated by such election, the equity securities to be issued in connection with the plan of reorganization will have to be subject to certain restrictions on transfer intended to avoid an ownership change following the effectiveness of the plan of reorganization that would trigger limitations on reorganized Kaiser's ability to utilize the NOLs under applicable tax laws. PBGC will agree to restrictions on the transfer of the equity securities to be received by it pursuant to Kaiser's plan of reorganization so long as the restrictions applicable to such securities are no more restrictive than those applicable to the equity securities to be received by the voluntary employee benefit association trust established for the benefit of retirees represented by the USWA. 9. PBGC's claims for unfunded benefit liabilities and premiums shall be treated as allowed general unsecured claims against all the Debtors in the amount determined under the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") and PBGC's regulations, which the Debtors and PBGC agree is $630 million, less the amount in paragraph 10 below, provided that PBGC's recovery at the estates of AJI/KJC and KAAC/KFC will be limited to 32% of the net distributable proceeds payable in the aggregate to holders of senior notes, holders of junior notes and PBGC under confirmed plans of reorganization. 10. PBGC shall have an allowed administrative claim against all the Debtors other than AJI and KJC in the amount of $14 million, which claim shall be joint and several against all the Debtors other than AJI and KJC. 11. Kaiser will affirmatively support the agreed PBGC claim amounts, described above, against any challenge, including the objection filed by Law Debenture Trust Company in Kaiser's jointly-administered proceeding. -2- 12. This agreement is subject to approval of the bankruptcy court presiding over Kaiser's Chapter 11 case, although PBGC shall take the actions described in paragraph 1 hereof whether or not bankruptcy court approval has been obtained by the applicable dates. IN WITNESS WHEREOF, the parties have caused this document to be executed by the duly authorized persons whose signature appears below on the date appearing opposite their names. PENSION BENEFIT GUARANTY CORPORATION Dated: October 15, 2004 /s/ Robert Joy ----------------------------------------------- By: Robert Joy Its: Acting Deputy Executive Director and Chief Operating Officer KAISER ALUMINUM & CHEMICAL CORPORATION Dated: October 14, 2004 /s/ John Barneson ----------------------------------------------- By: John Barneson Its: Chief Administrative Officer and Senior Vice President -3- EX-31.1 10 h20077exv31w1.txt CERTIFICATION OF JACK A. HOCKEMA PURSUAN TO SECTION 302 Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Jack A. Hockema, certify that: 1. I have reviewed this report on Form 10-Q of Kaiser Aluminum & Chemical Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [text omitted in accordance with SEC transition instructions set forth in SEC Release No. 34-47986] for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [paragraph omitted in accordance with SEC transition instructions set forth in SEC Release No. 34-47986] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2004 /s/ Jack A. Hockema ----------------------- Jack A. Hockema Chief Executive Officer A signed original of this written statement required by Section 302 has been provided to Kaiser Aluminum & Chemical Corporation and will be retained by Kaiser Aluminum & Chemical Corporation and furnished to the Securities and Exchange Commission or its staff upon request. 74 EX-31.2 11 h20077exv31w2.txt CERTIFICATION OF KERRY A. SHIBA PURSUANT TO SECTION 302 Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kerry A. Shiba, certify that: 1 I have reviewed this report on Form 10-Q of Kaiser Aluminum & Chemical Corporation; 2 Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3 Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4 The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [text omitted in accordance with SEC transition instructions set forth in SEC Release No. 34-47986] for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [paragraph omitted in accordance with SEC transition instructions set forth in SEC Release No. 34-47986] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2004 /s/ Kerry A. Shiba ----------------------- Kerry A. Shiba Chief Financial Officer A signed original of this written statement required by Section 302 has been provided to Kaiser Aluminum & Chemical Corporation and will be retained by Kaiser Aluminum & Chemical Corporation and furnished to the Securities and Exchange Commission or its staff upon request. 75 EX-32.1 12 h20077exv32w1.txt CERTIFICATION OF JACK A. HOCKEMA PURSUANT TO SECTION 906 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 November 12, 2004 In connection with the Quarterly Report on Form 10-Q by Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), for the period ending September 30, 2004 (the "Report"), as filed on the date hereof with the Securities and Exchange Commission, the undersigned, Jack A. Hockema, Chief Executive Officer of the Company, does hereby certify, pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to such officer's knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. IN WITNESS WHEREOF, the undersigned has executed this certification as of the date first above written. /s/ Jack A. Hockema ------------------------ Jack A. Hockema Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Kaiser Aluminum & Chemical Corporation and will be retained by Kaiser Aluminum & Chemical Corporation and furnished to the Securities and Exchange Commission or its staff upon request. 76 EX-32.2 13 h20077exv32w2.txt CERTIFICATION OF KERRY A. SHIBA PURSUANT TO SECTION 906 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 November 12, 2004 In connection with the Quarterly Report on Form 10-Q by Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), for the period ending September 30, 2004 (the "Report"), as filed on the date hereof with the Securities and Exchange Commission, the undersigned, Kerry A. Shiba, Chief Financial Officer of the Company, does hereby certify, pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to such officer's knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. IN WITNESS WHEREOF, the undersigned has executed this certification as of the date first above written. /s/ Kerry A. Shiba ----------------------------- Kerry A. Shiba Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Kaiser Aluminum & Chemical Corporation and will be retained by Kaiser Aluminum & Chemical Corporation and furnished to the Securities and Exchange Commission or its staff upon request. 77 -----END PRIVACY-ENHANCED MESSAGE-----


Delaware		94-0928288
(State of incorporation)		(I.R.S. Employer Identification No.)

5847 San Felipe, Suite 2500, Houston, Texas		77057-3268 (Zip Code)
(Address of principal executive offices)


PART I -- FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II -- OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits
SIGNATURE
EXHIBIT INDEX


				September 30,			December 31,
				2004			2003


				(Unaudited)
				(In millions of dollars)
ASSETS
Current assets:
	Cash and cash equivalents			$	31.9		$	35.6
	Receivables:
		Trade, less allowance for doubtful receivables of $6.5 and $6.4			105.7			65.4
		Other			10.8			25.0
	Inventories				131.4			102.6
	Prepaid expenses and other current assets				36.6			23.9
	Discontinued operations’ current assets				96.0			178.7

			Total current assets		412.4			431.2
Investments in and advances to unconsolidated affiliates					55.5			50.9
Property, plant, and equipment — net					217.7			230.1
Restricted proceeds from sale of commodity interests					302.6			—
Other assets					488.1			520.5
Discontinued operations’ long-term assets					49.7			396.0

			Total	$	1,526.0		$	1,628.7


LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)
Liabilities not subject to compromise —
	Current liabilities:
		Accounts payable		$	48.4		$	40.1
		Accrued interest			.9			.8
		Accrued salaries, wages, and related expenses			32.9			31.6
		Accrued postretirement medical benefit obligation — current portion			1.1			32.5
		Other accrued liabilities			70.6			32.6
		Payable to affiliates			45.8			43.6
		Long-term debt — current portion			1.2			1.3
		Discontinued operations’ current liabilities			109.1			137.0

			Total current liabilities		310.0			319.5
	Long-term liabilities				44.5			59.4
	Long-term debt				2.2			2.2
	Discontinued operations’ long-term liabilities, including minority interests of $13.9 and $121.1				54.2			195.6

					410.9			576.7
Liabilities subject to compromise					2,856.0			2,783.2
Commitments and contingencies
Stockholders’ equity (deficit):
	Preference stock				.7			.7
	Common stock				15.4			15.4
	Additional capital				2,453.6			2,454.0
	Accumulated deficit				(2,010.8	)		(1,901.7	)
	Accumulated other comprehensive income (loss)				(8.1	)		(107.9	)
	Less: Note receivable from parent				(2,191.7	)		(2,191.7	)

		Total stockholders’ equity (deficit)			(1,740.9	)		(1,731.2	)

			Total	$	1,526.0		$	1,628.7



			Quarter Ended						Nine Months Ended
			September 30,						September 30,

			2004			2003			2004			2003


			(Unaudited)
			(In millions of dollars)
Net sales			$	281.8		$	203.1		$	792.7		$	613.2

Costs and expenses:
	Cost of products sold			245.3			189.7			700.7			570.6
	Depreciation and amortization			5.9			6.3			16.9			20.3
	Selling, administrative, research and development, and general			26.8			25.0			68.2			73.1
	Other operating charges (benefits), net			154.7			15.0			154.7			4.7

		Total costs and expenses		432.7			236.0			940.5			668.7

Operating loss				(150.9	)		(32.9	)		(147.8	)		(55.5	)
Other income (expense):
	Interest expense (excluding unrecorded contractual interest expense of $23.7 for both quarters and $71.2 for both nine-month periods)			(2.3	)		(2.5	)		(6.4	)		(7.1	)
	Reorganization items			(10.0	)		(5.4	)		(28.9	)		(20.2	)
	Other — net			1.3			(6.7	)		5.2			(8.7	)

Loss before income taxes and discontinued operations				(161.9	)		(47.5	)		(177.9	)		(91.5	)
Provision for income taxes				(4.7	)		(1.4	)		(13.5	)		(5.8	)

Loss from continuing operations				(166.6	)		(48.9	)		(191.4	)		(97.3	)

Discontinued operations:
	Loss from discontinued operations, net of income taxes, including minority interests			(4.4	)		(39.7	)		(42.7	)		(117.7	)
	Gain from sale of commodity interests			101.6			—			125.0			—

Income (loss) from discontinued operations				97.2			(39.7	)		82.3			(117.7	)

Net loss			$	(69.4	)	$	(88.6	)	$	(109.1	)	$	(215.0	)


												Accumulated
												Other			Note
												Comprehensive			Receivable
		Preference		Common		Additional			Accumulated			Income			From
		Stock		Stock		Capital			Deficit			(Loss)			Parent			Total

BALANCE, December 31, 2003		$	.7	$	15.4	$	2,454.0		$	(1,901.7	)	$	(107.9	)	$	(2,191.7	)	$	(1,731.2	)
	Net loss		—		—		—			(109.1	)		—			—			(109.1	)
	Minimum pension liability adjustment during the quarter ended September 30, 2004		—		—		—			—			96.7			—			96.7
	Unrealized net increase in value of derivative instruments arising during the period (including net increase in value of $1.2 for the quarter ended September 30, 2004)		—		—		—			—			2.0			—			2.0
	Reclassification adjustment for net realized losses on derivative instruments included in net loss (including net realized losses of $.3 for the quarter ended September 30, 2004)		—		—		—			—			1.1			—			1.1

	Comprehensive income (loss)		—		—		—			—			—			—			(9.3	)
	Restricted stock cancellations		—		—		(.4	)		—			—			—			(.4	)

BALANCE, September 30, 2004		$	.7	$	15.4	$	2,453.6		$	(2,010.8	)	$	(8.1	)	$	(2,191.7	)	$	(1,740.9	)


							Consolidation/
							Elimination
		Debtors			Non-Debtors		Entries			Consolidated

Current assets		$	313.7		$	2.7	$	—		$	316.4
Discontinued operations’ current assets			58.7			37.3		—			96.0
Investments in subsidiaries and affiliates			170.2			—		(114.7	)		55.5
Intercompany receivables (payables), net			(4.9	)		4.9		—			—
Property and equipment, net			217.7			—		—			217.7
Restricted proceeds from sale of commodity assets			302.6			—		—			302.6
Other assets			488.1			—		—			488.1
Discontinued operations’ long-term assets(1)			(92.2	)		141.9		—			49.7

		$	1,453.9		$	186.8	$	(114.7	)	$	1,526.0

Liabilities not subject to compromise —
	Current liabilities	$	198.3		$	4.6	$	(2.0	)	$	200.9
	Discontinued operations’ current liabilities		66.8			42.3		—			109.1
	Long-term liabilities		45.3			1.4		—			46.7
	Discontinued operations’ long-term liabilities		28.4			11.9		13.9			54.2
Liabilities subject to compromise			2,856.0			—		—			2,856.0
Stockholders’ equity (deficit)			(1,740.9	)		126.6		(126.6	)		(1,740.9	)

		$	1,453.9		$	186.8	$	(114.7	)	$	1,526.0



	September 30, 2004						December 31, 2003

			Primary						Primary
	Alumina		Aluminum				Alumina		Aluminum
	Interests		Interests		Total		Interests		Interests			Total

Current assets (primarily receivables and inventories)	$	58.7	$	37.3	$	96.0	$	135.6	$	43.1		$	178.7
Property, plant and equipment, net		.5		41.4		41.9		305.2		77.3			382.5
Other assets		5.9		1.9		7.8		11.5		2.0			13.5

	$	65.1	$	80.6	$	145.7	$	452.3	$	122.4		$	574.7

Current liabilities	$	56.0	$	53.1	$	109.1	$	75.5	$	61.5		$	137.0
Long-term debt		—		—		—		22.0		—			22.0
Long-term liabilities		2.4		11.9		14.3		16.1		(.4	)		15.7
Liabilities subject to compromise		26.0		—		26.0		21.4		15.4			36.8
Minority interest		—		13.9		13.9		105.9		15.2			121.1

	$	84.4	$	78.9	$	163.3	$	240.9	$	91.7		$	332.6


	Nine Months Ended		Inception
	September 30, 2004		To Date

Payments made, including related legal costs	$	—	$	(355.7	)
Insurance recoveries(2)		2.3		265.8

	$	2.3	$	(89.9	)


	*	All references to tons in this report refer to metric tons of 2,204.6 pounds.



	Quarter Ended September 30,												Nine Months Ended September 30,


	Pension						Medical/Life												Medical/Life
	Benefits						Benefits						Pension Benefits						Benefits

	2004			2003			2004			2003			2004			2003			2004			2003

Service cost	$	1.5		$	2.6		$	1.7		$	1.8		$	4.9		$	7.8		$	5.2		$	5.3
Interest cost		9.2			15.2			14.8			12.8			31.2			45.6			44.2			38.5
Expected return on plan assets		(6.6	)		(9.7	)		—			—			(22.7	)		(29.1	)		—			—
Amortization of prior service cost		.9			.9			(5.3	)		(5.6	)		2.7			2.7			(16.3	)		(16.9	)
Amortization of net (gain) loss		1.4			4.0			6.1			2.4			5.0			12.0			18.5			7.3

Net periodic benefit costs		6.4			13.0			17.3			11.4			21.1			39.0			51.6			34.2
Less discontinued operations reported separately		(2.7	)		(3.6	)		(1.2	)		(3.0	)		(8.0	)		(10.8	)		(9.9	)		(8.9	)

	$	3.7		$	9.4		$	16.1		$	8.4		$	13.1		$	28.2		$	41.7		$	25.3


					Disposition
					of QAL			Pro Forma
		Historical			Interests			Adjustments			Pro Forma

Current assets		$	316.4		$	(31.8	)	$	—		$	284.6
Discontinued operations’ current assets			96.0			31.8			(127.8	)		—
Investments in and advance to unconsolidated affiliates			55.5			(38.1	)		—			17.4
Property, plant and equipment, net			217.7			—			—			217.7
Restricted proceeds from sale of commodity interests			302.6			—			427.2			729.8
Other assets			488.1			—			—			488.1
Discontinued operations’ long-term assets			49.7			38.1			(87.8	)		—

		$	1,526.0		$	—		$	211.6		$	1,737.6

Liabilities not subject to compromise —
	Current liabilities	$	200.9		$	(40.7	)	$	—		$	160.2
	Discontinued operations’ current liabilities		109.1			40.7			(149.8	)		—
	Long-term liabilities		46.7			—			—			46.7
	Discontinued operations’ long-term liabilities		54.2			.4			(54.6	)		—
Liabilities subject to compromise			2,856.0			(.4	)		—			2,855.6
Stockholders’ equity (deficit)			(1,740.9	)		—			416.0			(1,324.9	)

		$	1,526.0		$	—		$	211.6		$	1,737.6


				Subsidiary		Other			Eliminating
	Company			Guarantors		Subsidiaries			Entries			Consolidated

ASSETS
Current assets	$	233.6		$	39.2	$	43.6		$	—		$	316.4
Discontinued operations’ current assets		50.4			—		45.6			—			96.0
Investments in subsidiaries		2,770.6			—		—			(2,770.6	)		—
Intercompany advances receivable (payable)		(2,353.1	)		597.0		1,756.1			—			—
Investments in and advances to unconsolidated affiliates		17.4			38.1		—			—			55.5
Property and equipment, net		178.9			20.6		18.2			—			217.7
Deferred income taxes		(88.5	)		41.6		46.9			—			—
Restricted proceeds from sale of commodity interests		32.1			270.5		—			—			302.6
Other assets		487.8			.3		—			—			488.1
Discontinued operations’ long-term assets		.6			—		49.1			—			49.7

	$	1,329.8		$	1,007.3	$	1,959.5		$	(2,770.6	)	$	1,526.0


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities	$	142.9		$	45.6	$	12.4		$	—		$	200.9
Discontinued operations’ current liabilities		29.5			10.5		69.1			—			109.1
Other long-term liabilities		45.1			1.0		(1.6	)		—			44.5
Long-term debt		2.2			—		—			—			2.2
Discontinued operations’ long-term liabilities		27.2			—		27.0			—			54.2
Liabilities subject to compromise		2,823.8			18.4		13.8			—			2,856.0
Stockholders’ equity (deficit)		(1,740.9	)		931.8		1,838.8			(2,770.6	)		(1,740.9	)

	$	1,329.8		$	1,007.3	$	1,959.5		$	(2,770.6	)	$	1,526.0


	*Notes to Condensed Consolidating Financial Information*


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*



			Payments Due in

			Less Than		2-3		4-5		More Than
Contractual Obligations	Total		1 Year		Years		Years		5 Years

Long-term debt, including capital lease of $2.4(a)	$	3.4	$	1.2	$	1.4	$	.8	$	—
Operating leases		15.5		7.5		6.8		.5		.7

Total cash contractual obligations	$	18.9	$	8.7	$	8.2	$	1.3	$	.7


Item 1.	*Financial Statements*


(a)		See Note 5 of Notes to Interim Consolidated Financial Statements for information in respect of long-term debt. Long-term debt obligations exclude debt subject to compromise of approximately $848.2 million, which amounts will be dealt with in connection with a plan of reorganization. See Notes 1 and 5 of Notes to Interim Consolidated Financial Statements for additional information about debt subject to compromise.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*


Exhibit
Number			Description

	2	.1	Purchase Agreement, dated as of May 17, 2004, among Kaiser Aluminum & Chemical Corporation (“KACC”), Kaiser Bauxite Company (“KBC”), Gramercy Alumina LLC and St. Ann Bauxite Limited (incorporated by reference to Exhibit 2.01 to the Report on Form 8-K, dated as of September 30, 2004, filed by Kaiser Aluminum Corporation (“KAC”), File No. 1-9447).
	2	.2	Purchase Agreement, dated as of October 29, 2004, between KACC, and the Government of Ghana (incorporated by reference to Exhibit 2.1 to the Report on Form 8-K, dated as of October 29, 2004, filed by KAC, File No. 1-9447).
	*2	.3	Purchase Agreement, dated as of September 22, 2004, between KACC, Kaiser Alumina Australia Corporation (“KAAC”) and Comalco Aluminium Limited.
	*2	.4	Agreement to Submit Qualified Bid for QAL, dated as of September 22, 2004, between KACC, KAAC and Glencore AG.
	*2	.5	Purchase Agreement, dated as of October 28, 2004, among KACC, KAAC and Alumina & Bauxite Company Ltd.