10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission file number 1-3605

KAISER ALUMINUM & CHEMICAL CORPORATION

(Exact name of registrant as specified in its charter)

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

27422 PORTOLA PARKWAY, SUITE 350,

FOOTHILL RANCH, CALIFORNIA 92610-2831

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:

(949) 614-1740

Securities registered pursuant to Section 12(b) of the Act:

		Name of each exchange
Title of each class		on which registered
Cumulative Convertible Preference Stock (par value $100)
	41/8% Series		None
	43/4% (1957 Series)		None
	43/4% (1959 Series)		None
	43/4% (1966 Series)		None

      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, and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

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

      As of February 29, 2005, there were 46,171,365 shares of the common stock of the registrant outstanding, all of which were owned by Kaiser Aluminum Corporation, the parent corporation of the registrant.

Documents Incorporated By Reference

None

NOTE

      Kaiser Aluminum & Chemical Corporation’s Report on Form 10-K filed with the Securities and Exchange Commission includes all exhibits required to be filed with the Report. Copies of this Report on Form 10-K, including only Exhibit 21 of the exhibits listed on pages 129-134 of this Report, are available without charge upon written request. The registrant will furnish copies of the other exhibits to this Report on Form 10-K upon payment of a fee of 25 cents per page. Please contact the office set forth below to request copies of this Report on Form  10-K and for information as to the number of pages contained in each of the exhibits and to request copies of such exhibits:

Corporate Secretary

Kaiser Aluminum & Chemical Corporation

27422 Portola Parkway, Suite 350

Foothill Ranch, California 92610-2831

(949) 614-1740

(i)

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

TABLE OF CONTENTS

			Page
PART I				1
	Item 1.	Business		1
	Item 2.	Properties		17
	Item 3.	Legal Proceedings		18
	Item 4.	Submission of Matters to a Vote of Security Holders		19
PART II				19
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		19
	Item 6.	Selected Financial Data		20
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		40
	Item 8.	Financial Statements and Supplementary Data		41
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		110
	Item 9A.	Controls and Procedures		110
	Item 9B.	Other Information		110
PART III				110
	Item 10.	Directors and Executive Officers of the Registrant		110
	Item 11.	Executive Compensation		113
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		123
	Item 13.	Certain Relationships and Related Transactions		126
	Item 14.	Principal Accountant Fees and Services		126
PART IV				127
	Item 15.	Exhibits and Financial Statement Schedules		127
SIGNATURES				128
INDEX OF EXHIBITS				129
EXHIBIT 21 SUBSIDIARIES				135

(ii)

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

PART I

Item 1. Business

      This Annual Report on Form 10-K (the “Report”) 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 Report (including, but not limited to, Item 1. “Business — Business Operations” “— Competition” “— Environmental Matters,” and “— Factors Affecting Future Performance,” Item 3. “Legal Proceedings,” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). 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. Certain sections of this Report identify other factors that could cause differences between such forward-looking statements and actual results (for example, see Item 1. “Business — Factors Affecting Future Performance”). 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.

General

      Kaiser Aluminum & Chemical Corporation (the “Company”) is a Delaware corporation organized in 1940. The Company is a wholly owned subsidiary of Kaiser Aluminum Corporation (“Kaiser” or “KAC”). The Company’s primary line of business is the production of fabricated aluminum products. In addition, the Company owns a 49% interest in an aluminum smelter in Wales, UK. The Company, Kaiser and certain of the Company’s subsidiaries have filed separate 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”) and are currently managing their businesses as “debtor in possession”. The Company, Kaiser and the subsidiaries 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.

      When the restructuring process began, the Company was an integrated producer in the aluminum industry with operations that included the production and sale of bauxite, alumina, and primary aluminum (the “commodities interests”) and the production of fabricated aluminum products. However, the Company’s strategic reviews indicated that its commodities interests were typically higher cost, required significant capital investment, and exposed the Company to significant volatility and cash consumption during weak pricing environments. As a result, the Company implemented a strategy of focusing on its fabricated products operations and divesting its commodities interests. The Company has sold most of its commodity interests and anticipates completing one additional sale (i.e. the sale of a 20% interest in an Australian alumina refinery) in April 2005.

Business Operations

     •  Fabricated Products Business Unit

      Overview. The Company’s Fabricated products business unit produces rolled, extruded, drawn, and forged aluminum products used principally for aerospace and defense, automotive, consumer durables, electrical, and machinery and equipment end-use applications. The Company’s participation is focused generally in specialty niches of these larger product categories. Over the last three years, the Company’s eleven North American

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fabricated products manufacturing facilities have produced and shipped approximately 400 million pounds of fabricated aluminum products in each year. In general, products manufactured are in one of four broad categories: general engineering (“GE”), aerospace and high strength (“Aero/HS”), automotive (“Auto”), and custom industrial (“CI”).

      A description of the manufacturing processes and category of products at each of the 11 production facilities is shown below:

	Manufacturing
Location	Process	Types of Products
Chandler, Arizona	Drawing	Aero/HS
Greenwood, South Carolina	Forging	Auto
Jackson, Tennessee	Extrusion/Drawing	Aero/HS, GE
London, Ontario	Extrusion	Auto, CI
Los Angeles, California	Extrusion	GE, CI
Newark, Ohio	Extrusion/Rod Rolling	Aero/HS, GE, Conversion products(1)
Richland, Washington	Extrusion	Aero/HS, GE
Richmond, Virginia	Extrusion/Drawing	GE, Auto, CI
Sherman, Texas	Extrusion	Auto, CI
Spokane, Washington	Flat Rolling	Aero/HS, GE
Tulsa, Oklahoma	Extrusion	GE

(1)  Conversion products can undergo one or two additional processing steps before being identified to an end-use application.

      Further discussion is provided below in respect of major types of products produced and the types of manufacturing processes employed.

      As can be seen in the table above, many of the facilities employ the same basic manufacturing process and produce the same type of products. Over the past several years, given the similar economic and other characteristics at each location, the Company has made a significant effort to more tightly integrate the management of its Fabricated products business unit across multiple manufacturing locations, product lines, and target markets to maximize the efficiency of product flow to customers. Purchasing is centralized for a substantial portion of the Fabricated products business unit’s primary aluminum requirements in order to try to maximize price, credit and other benefits. Because many customers purchase a number of different products that are produced at different plants, there has also been substantial integration of the sales force and its management. The Company believes that integration of its operations will allow the Company to capture efficiencies while allowing the plant locations to remain highly focused.

      Industry sales margins for fabricated products fluctuate in response to competitive and market dynamics. However, changes in primary aluminum price typically are passed through to customers, and, where fabricated product shipments are based on firm prices (including the primary aluminum content), the Company’s exposure to metal price fluctuations is mitigated by employing appropriate hedging techniques. For internal reporting purposes, whenever the Fabricated products business unit enters into a firm price contract, it also enters into an “internal hedge” with the Primary aluminum business unit, so that all the metal price risk resides in the Primary aluminum business unit. Results from internal hedging activities between the two business units eliminates in consolidation.

      In a majority of the cases, the operations purchase primary aluminum ingot and recycled and scrap aluminum in varying percentages depending on various market factors including price and availability. Primary aluminum purchased for the Fabricated products business unit is typically based on the Average Midwest Transaction Price (“Midwest Price”), which typically ranges between $.03 to $.075 per pound above the price traded on the London Metal Exchange (“LME”) depending on primary aluminum supply/demand dynamics in North America. Recycled and scrap aluminum are typically purchased at a modest discount to

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ingot prices but can require additional processing. In addition to producing fabricated aluminum products for sale to third parties, certain of the plants provide one another with billet, log or other intermediate material in lieu of purchasing such items from third party suppliers. For example, a substantial majority of the product from the Richland, Washington location is used as base input at the Chandler, Arizona location; the Sherman plant is currently supplying billet and logs to the Tulsa, Oklahoma facility; the Richmond, Virginia plant typically receives some portion of its metal supply from either (or both of) the London, Ontario or Newark, Ohio facilities; and the Newark, Ohio facility also supplies billet and log to the Jackson, Tennessee facility and extruded forge stock to the Greenwood, South Carolina facility.

Types of Products Produced

      General Engineering Products — General engineering products have a wide range of uses and applications, many of which involve further fabrication of these products for numerous transportation and industrial end uses. Demand growth and cyclicality tends to mirror broad economic patterns and industrial activity in North America. A substantial majority of the Company’s GE products are sold to large distributors in North America, with orders often representing standard catalog items shipped with a relatively short lead-time. Key competitive dynamics reflect a variety of factors including product-line breadth, product quality, delivery performance and customer service, in addition to product price. The Company services this market with a nationwide sales force focused on GE and Aero/HS products.

      Aerospace and High Strength Products — Aero/HS products include aerospace, defense, and recreational products, a majority of which are sold to distributors with the remainder being sold directly to customers. Sales are made either under contracts (with terms spanning from one year to several years) or order-by-order basis. The Company serves this market with a North American sales force focused on GE and Aero/HS products and direct sales representatives in Western Europe. The key demand drivers are commercial aircraft builds (which in turn are often reflective of broad economic patterns) and defense spending.

      Automotive Extruded and Forged Products — The Company supplies extruded, drawn, and forged aluminum products for applications in the North American automotive industry. The Company supplies a wide variety of products, including extruded products for anti-lock braking systems, drawn tube for drive shafts, and forgings for suspension control arms and drive train yokes. For some products, the Company performs limited fabrication. Customers primarily include tier-one suppliers to equipment manufacturers. Sales contracts for these products are typically medium to long-term in length. Almost all sales of automotive extruded and forged products occur through direct channels. The key demand drivers have been (a) North American light vehicle builds and (b) increased use of aluminum in vehicles as aluminum displaces steel parts to reduce vehicle weight in response to ever-tightening governmental standards for vehicle emissions.

      Custom Industrial Products — The Company manufactures custom products for many end uses, including consumer durables, electrical, machinery and equipment, and truck trailer applications. A significant portion of the Company’s custom industrial product sales in recent years has been for water heater anodes, truck trailers and electrical/electronic heat exchangers. The Company typically sells custom shapes directly to end-users under medium-term contracts. The Company sells these products using a nationwide direct sales force that works closely with the technical sales organization in pre-sale efforts.

      Concentrations — In 2004, the Fabricated products business unit had approximately 500 customers. The largest and top five customers for fabricated products accounted for approximately 12% and 32%, respectively, of the business unit’s third-party net sales in 2004. See Item 1. “Business — Competition” in this Report. Sales are made directly to end-use customers and distributors by Company sales personnel located in the United States and Europe, and by independent sales agents in Asia, Mexico and the Middle East.

      GE and Aero/HS shipments in recent years have been approximately 50% and 20%, respectively, of total Fabricated products business unit shipments with the remainder being relatively equally split between Auto and CI. However, on a revenue basis, Aero/HS would be approximately double its relative shipment percentage and CI would be approximately half its relative shipment percentage, reflecting the relative pricing of these types of products.

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Types of Manufacturing Processes Employed

      Flat Rolled Products — The traditional manufacturing process for aluminum rolled products uses ingot as the starter material. The ingot is processed through a series of rolling operations, both hot and cold. Finishing steps may include heat treatment, annealing, coating, stretching, leveling or slitting to achieve the desired metallurgical, dimensional and performance characteristics. Aluminum rolled products are manufactured using a variety of alloy mixtures, a range of tempers (hardness), gauges (thickness) and widths, and various coatings and finishes. Rolled aluminum semi-finished products are generally either sheet (under .25 inches in thickness) or plate (up to 15 inches in thickness). The vast majority of the North American market for aluminum rolled products uses (a) “common alloy” material for construction and other applications, and (b) beverage/food can sheet. However, these are products and markets in which the Company chooses not to participate. Rather, the Company has chosen to focus its efforts on “heat treat” products. Heat treat products are distinguished from common alloy products by higher strength and other desired product attributes, which result in higher value added in the market than for most other types of rolled products. The size of this specialized market segment is less than 10% of the total flat-rolled market. The primary end use of heat treat rolled sheet and plate is for aerospace and GE products.

      Extruded Products — The extrusion process typically starts with a cast billet, which is an aluminum cylinder of varying length and diameter. The first step in the process is to heat the billet to an elevated temperature whereby the metal is malleable. The billet is put into an extrusion press and pushed, or extruded, through a die that gives the material the desired two-dimensional cross section. The material is either quenched as it leaves the press, or subjected to a post extrusion heat treatment cycle, to control the material’s physical properties. The extrusion is then straightened by stretching and cut to length before being hardened in aging ovens. The largest end uses of extruded products are in the construction, transportation (including automotive), custom industrial, and general engineering segments. Building products represents the largest end use market for extrusions by a significant amount. However, the Company has chosen to focus its efforts in the production of transportation, general engineering and custom industrial products.

      Forged Products — Forging is a manufacturing process in which metal is pressed, pounded or squeezed under great pressure into high strength parts known as forgings, creating unique property characteristics. Forged parts are heat treated before final shipment to the customer. The end uses are primarily in transportation, where high strength to weight product qualities are valued. The Company’s participation is highly focused on certain types of automotive applications.

Legal Structure

      All of the Company’s fixed assets utilized by the Fabricated products business unit are owned directly by the Company with two exceptions: (1) the London, Ontario facility is owned by Kaiser Aluminum & Chemical of Canada Limited (“KACOCL”), a wholly owned subsidiary, which was one of the Company’s subsidiaries that filed a petition for reorganization under the Code in January 2003, and (2) the Richmond, Virginia facility, which is owned by Kaiser Bellwood Corporation (“Bellwood”), a wholly owned subsidiary of the Company, filed a petition for reorganization in February 2002. The Company does not believe that KACOCL’s or Bellwood’s operations have been adversely affected by the Cases.

• Primary Aluminum Business Unit

      The Primary aluminum business unit, after excluding discontinued operations, has been redefined by management as containing two primary elements: (a) activities related to the Company’s interests in and related to Anglesey Aluminium Limited (“Anglesey”), and (b) primary aluminum hedging-related activities.

      Anglesey. The Company owns a 49% interest in Anglesey, which owns an aluminum smelter at Holyhead, Wales. The smelter has a total annual rated capacity of approximately 135,000 metric tons of which approximately 66,150 metric tons of the annual rated capacity are available to the Company. The Anglesey smelter uses pre-bake technology. The Company supplies 49% of Anglesey’s alumina requirements and purchases 49% of Anglesey’s aluminum output at market related prices. Anglesey produces billet, rolling ingot and sow for the U.K. and European marketplace. The Company sells its share of Anglesey’s output to third

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parties. The price received for sales of production from Anglesey typically approximate the LME price. The Company also realizes a premium (historically between $.05 and $.12 per pound above LME price depending on the product) for sales of value added products such as billet and rolling ingot. Anglesey operates under a power agreement that provides sufficient power to sustain its operations at full capacity through September 2009. Rio Tinto Plc owns the remaining 51% ownership interest in Anglesey. As majority shareholder, Rio Tinto has day-to-day operating responsibility for Anglesey, although certain decisions require unanimous approval of the shareholders.

      Anglesey did not file a petition for reorganization. The Company does not believe Anglesey’s operations have been adversely affected as a result of the Cases as the Debtors received the authority from the Court to fund the Debtors’ cash requirements in respect of Anglesey in the ordinary course of business.

      Hedging. The Company’s share of primary aluminum production from Anglesey is approximately 150,000,000 pounds annually. Because the Company purchases alumina for Anglesey at prices linked to primary aluminum prices, only a portion of the Company’s net revenues associated with Anglesey are exposed to price risk. The Company estimates the net portion of its share of Anglesey production exposed to primary aluminum price risk to be approximately 100,000,000 pounds annually.

      As stated above, 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. However, in certain instances the Company does enter into firm price arrangements. In such instances, the Company does have price risk on its anticipated primary aluminum purchase in respect of the customer’s order. Total fabricated products shipments during 2002, 2003, and 2004 and the shipments for which the Company had price risk were (in millions of pounds) 99.0, 97.6, and 119.0, respectively.

      During the last three years the volume of fabricated products shipments with underlying primary aluminum price risk, were roughly the same as the Company’s net exposure to primary aluminum price risk at Anglesey. As such, the Company considers its access to Anglesey production overall to be a “natural” hedge against any fabricated products firm metal-price risk. For internal reporting purposes, whenever the Fabricated products business unit enters into a firm price contract, the Primary aluminum business unit and Fabricated products business unit segments enter into an “internal hedge” so that all the metal price risk resides in the Primary aluminum business unit. Results from internal hedging activities between the two segments eliminates in consolidation. However, since the volume of fabricated products shipped under firm prices may not match up on a month-to-month basis with expected Anglesey-related primary aluminum shipments, the Company may use third party hedging instruments to eliminate any net remaining primary aluminum price exposure existing at any time.

      Primary aluminum-related hedging activities have been managed centrally on behalf of all of the Company’s business segments to minimize transaction costs, to monitor consolidated net exposures and to allow for increased responsiveness to changes in market factors. Hedging activities are conducted in compliance with a policy approved by the Company’s board of directors, and hedging transactions are only entered into after appropriate approvals are obtained from the Company’s hedging committee (which includes the Company’s chief executive officer and chief financial officer).

• Discontinued Operations

      Prior to 2004, the Company was a major producer of primary aluminum and sold significant amounts of its alumina and primary aluminum production in domestic and international markets. The Company’s strategy was to sell a substantial portion of the alumina and primary aluminum available to it in excess of its internal requirements to third parties. However, as more fully discussed in Note 5 of Notes to Consolidated Financial Statements and below, the Company is selling or has sold all of its commodity-related interests other than its interests in and related to Anglesey.

      Valco. The Company, with Court approval, sold its interests in and related to Volta Aluminium Company Limited (“Valco”) in October 2004. The Company owned a 90% interest in Valco, which owns an aluminum smelter in Ghana. The smelter has a total annual capacity of approximately 200,000 tons of which

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approximately 180,000 tons of the annual capacity was available to the Company. The Company’s share of the primary aluminum was sold to third parties. Valco’s operating level was subject to fluctuations resulting from the amount of hydro-electric power it is allocated by the Volta River Authority. The operating level over the last five years has ranged from none to four out of a total of five potlines. The Valco smelter has been fully curtailed since early in the second quarter of 2003. Valco did not file a petition for reorganization.

      Washington Smelters. The Company owned and operated two aluminum smelters in the State of Washington (the Mead and Tacoma smelters). Both smelters were fully curtailed during the 2002-2004 period. The Company, with Court approval, sold the Tacoma smelter in early 2003 and the Mead facility in the second quarter of 2004.

      KJBC. With Court approval, the Company sold its interests in and related to Kaiser Jamaica Bauxite Company (“KJBC”) on October 1, 2004. KJBC mined bauxite (approximately 4,500,000 tons annually) as an agent for the Company from land that was subject to a mining lease from the Government of Jamaica. The Company held its interest in KJBC through a wholly owned subsidiary, Kaiser Bauxite Company (“KBC”), which was one of the Company’s subsidiaries that filed a petition for reorganization under the Code in January 2003. KJBC did not file a petition for reorganization. Although the Company (through KBC) owned 49% of KJBC, it was entitled to, and generally took, all of KJBC’s bauxite output. A substantial majority of the bauxite mined by KJBC was refined into alumina at the Gramercy facility and the remainder was sold to a third party.

      Gramercy. With Court approval, the Gramercy facility was sold on October 1, 2004. Alumina produced by the Gramercy refinery was primarily sold to third parties. Production at the plant was fully or partially curtailed from July 1999 until January 2002 as a result of an explosion in the digestion area of the plant. Since the end of February 2002, the plant has, except for normal operating variations, generally operated at approximately 100% of its rated annual capacity of 1,250,000 tons.

      Alpart. With Court approval, the Company sold its interests in and related to Alumina Partners of Jamaica (“Alpart”) on July 1, 2004. The Company owned a 65% interest in Alpart. The Company held its interests in Alpart through two wholly owned subsidiaries, Kaiser Jamaica Corporation (“KJC”) and Alpart Jamaica Inc. (“AJI”), which were two of the Company’s wholly owned subsidiaries that filed petitions for reorganization under the Code in January 2003. Alpart did not file a petition for reorganization. Alpart holds bauxite reserves and owns a 1,650,000-ton per year alumina plant located in Jamaica.

      QAL. With Court approval, the Company entered into a contract to sell its interests in and related to Queensland Alumina Limited (“QAL”) in November 2004. The sale is expected to close in April 2005. The Company owns a 20% interest in QAL. The Company holds its interest in QAL through a wholly owned subsidiary, Kaiser Alumina Australia Corporation (“KAAC”), which is one of the Company’s subsidiaries that filed a petition for reorganization under the Code in 2002. QAL, which is located in Queensland, Australia, owns one of the largest and most competitive alumina refineries in the world. The refinery has a total annual production capacity of approximately 3,650,000 tons from which approximately 730,000 tons of the annual production capacity have been available to KAAC. QAL refines bauxite into alumina, essentially on a cost basis, for the account of its shareholders under long-term tolling contracts. In recent years, since the curtailment of the Mead and Tacoma, Washington aluminum smelters, the Company has sold its share of QAL’s production to third parties.

      Commodities Marketing. Given the significance of the Company’s exposure to primary aluminum prices and alumina prices (which typically are linked to primary aluminum prices on a lagged basis) in prior years, the commodity marketing activities were considered a separate business unit. In the accompanying financial statements, the Company has reclassified to discontinued operations all of the primary aluminum hedging results in respect of the commodity-related interests that have been or are expected to be sold and that are also treated as discontinued operations. As stated above, remaining primary aluminum hedging activities related to the Company’s interests in Anglesey and any firm price fabricated product shipments are considered part of the “Primary aluminum business unit”.

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Competition

      The Company markets fabricated aluminum products it manufactures in the United States and abroad. Sales are made both directly and through distributors to a large number of end-use customers. Competition in the sale of fabricated products is based upon quality, availability, price and service, including delivery performance. The Company concentrates its fabricating operations on selected products for which it believes it has production capability, technical expertise, high-product quality, and geographic and other competitive advantages. However, the Company competes with numerous domestic and international fabricators in the sale of fabricated aluminum products. Many of the Company’s competitors have greater financial resources than the Company.

Research and Development

      Expenditures for the Fabricated products business unit’s research and development activities were $1.7 million in 2004, $1.6 million in 2003, and $1.4 million in 2002. The Company estimates that research and development expenditures for the Fabricated products business unit will be approximately $2.7 million in 2005. Research and development facilities in Jackson, Tennessee; Trentwood, Washington; and Newark, Ohio, focus on advanced metallurgical analysis and process technology.

      Expenditures for all other research and development activities were $.4 million in 2004, $1.0 million in 2003 and $.4 million in 2002.

Employees

      At December 31, 2004, the Company employed approximately 2,260 persons, of which approximately 2,200 were employed in the Fabricated products business unit and approximately 60 were employed in Corporate. At December 31, 2003, the Company employed approximately 4,500 persons of which approximately 2,100 were employed in the Fabricated products business unit, approximately 2,300 were employed in the commodities business units and less than 100 were employed in Corporate.

      The table below shows each manufacturing location, the primary union affiliation, if any, and the expiration date for the current union contract.

		Contract
Location	Union	Expiration Date
Chandler, AZ	Non-union		NA
Greenwood, SC	Non-union		NA
Jackson, TN	Non-union		NA
London, Ontario	USW Canada		Feb 2006
Los Angeles, CA	Teamsters		Sept 2006
Newark, OH	USWA		Sept 2005
Richland, WA	Non-union		NA
Richmond, VA	USWA IAM		Oct 2004(1)
Sherman, TX	IAM		Dec 2007
Spokane, WA	USWA		Sept 2005
Tulsa, OK	USWA		Jul 2005

(1)  Contract extended until 30 days after emergence

Environmental Matters

      The Company and its subsidiaries are subject to a wide variety of international, federal, state and local environmental laws and regulations in the United States and Canada with respect to, among other things, air, water, and the handling and disposal of hazardous waste materials. The Company has casting, or remelt, operations at six of its facilities (London, Los Angeles, Newark, Richmond, Sherman, and Spokane) that

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purchase and recycle aluminum scrap in various forms, and purchase primary metal from third parties. Purchased metal is inspected for impurities and other contaminants before introduction into the remelt process. These cast house facilities are subject to air and water environmental regulations, and have in force the necessary permits and inspection and control systems for current and expected operating levels. Manufacturing operations are subject to the same regulations, and have the necessary permits for current and expected operations. Any hazardous materials, which are relatively minor in volume in comparison to the volume of primary aluminum consumed and produced, are shipped offsite to recycling or storage operations, which are approved and periodically audited by the Company’s environmental staff. The Company has also maintained PCB and asbestos removal programs for several years.

      The Company has previously disclosed that, 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 Spokane, 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 regulations at the Trentwood facility and intends to defend any claim or charges, if any should result, vigorously. The Company cannot assess what, if any, impacts this matter may have on the Company’s or Kaiser’s financial statements.

      For additional discussion of this subject, see “Factors Affecting Future Performance”. The Company’s current or past operations subject it to environmental compliance, clean-up and damage claims that may be costly. During the pendency of the Cases, substantially all pending litigation, except certain environmental claims and litigation, against the Debtors is stayed.

Reorganization Proceedings

• Background

      The Company, Kaiser and 24 of the Company’s subsidiaries have filed separate voluntary petitions in the Court for reorganization under Chapter 11 of the Code. 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.

      In addition to the Company and Kaiser, the Debtors include the following subsidiaries: Bellwood, Kaiser Aluminium International, Inc. (“KAII”), Kaiser Aluminum Technical Services, Inc. (“KATSI”), KAAC (and its wholly owned subsidiary, Kaiser Finance Corporation (“KFC”)), KBC, KJC, AJI, KACOCL and fifteen 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 filings in the United States.

      The Debtors found it necessary to file the Cases primarily because of liquidity and cash flow problems of the Company and its subsidiaries that arose 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 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 Debtors’ Cases, the Court, upon motion by the Debtors, authorized the 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 and to continue using the Company’s existing cash management systems. The Debtors also have the right to assume or reject executory contracts existing prior to the Filing

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Date, subject to Court approval and certain other limitations. In this context, “assumption” means that the Debtors agree to perform their obligations and cure certain existing defaults under an executory contract and “rejection” means that the 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.

• Case Administration

      Generally, pre-Filing Date claims, including certain contingent or unliquidated claims, against the 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 bar dates (established by the Court) by which holders of pre-Filing Date claims against the Debtors (other than asbestos-related personal injury claims) could file their claims have passed. Any holder of a claim that was required to file such claim by such bar date and did not do so may be barred from asserting such claim against any of the 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 bar dates do not apply to asbestos-related personal injury claims, for which no bar date has been set.

      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 Court-appointed 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”), 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 (other than AJI, KJC, KAAC and KFC) to June 30, 2005. Exclusivity for AJI, KJC, KAAC and KFC was most recently extended to April 30, 2005. 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.

• Commodity-related and Inactive Subsidiaries

      As stated above, the Company expects that by April 2005 it will have sold all of its commodity-related interests other than its interests in Anglesey. It is anticipated that, as more fully discussed below, the proceeds from the sale of these interests will be distributed primarily to the affected subsidiaries’ creditors pursuant to certain liquidating plans and other agreements. The primary subsidiaries affected by this strategy are AJI, KJC, KAAC, KFC and KBC.

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      During November 2004, four of the Company’s commodity-related subsidiaries (AJI, KJC, KAAC and KFC, collectively, the “Liquidating Subsidiaries”) filed separate joint plans of liquidation and related disclosure statements with the Court. Such plans, together with all amendments filed thereto, are separately referred to as the “AJI/ KJC Plan” and the “KAAC/ KFC Plan” and collectively as the “Liquidating Plans”). Under the Liquidating Plans, the assets of those entities, consisting primarily of the net cash proceeds received (or to be received) by them in connection with the sales of their commodities interests, will be transferred to liquidating trusts, whereupon the Liquidating Subsidiaries will be dissolved. The liquidating trusts will then make distributions to the creditors of the Liquidating Subsidiaries in accordance with the Liquidating Plans. As indicated in the Liquidating Plans, it is currently anticipated that the Liquidating Subsidiaries will have an aggregate of approximately $673.8 million of cash available for distribution to creditors when the Liquidating Plans become effective. The Liquidating Plans outline the specific treatment of creditors and their estimated recoveries in respect of the Liquidating Subsidiaries under several possible scenarios. The Liquidating Plans indicate that, after payment of priority claims, trust expenses (initial reserves for which are expected to be established in the range of $37.0 million to $46.0 million), and payments to the Company under the Intercompany Settlement Agreement (“Intercompany Agreement”) (see discussion below) the Liquidating Subsidiaries anticipate ultimately distributing available cash to the following claimholders in the following amounts (in millions):

Senior Notes and Senior Subordinated Notes	$	390.7 to $421.8
Pension Benefit Guaranty Corporation (“PBGC”)	$	187.6 to $198.5
State of Louisiana Solid Waste Revenue Bonds	$	0.0 to $  8.0

      Under the Liquidating Plans as filed with the Court, $16.0 million of payments are to be made for the benefit of holders of the Company’s 12³/4% Senior Subordinated Notes (the “Sub Notes”) if, and only if, the holders of both (a) the Company’s 9⁷/8% Senior Notes and 10⁷/8% Senior Notes (collectively, the “Senior Notes”) and (b) the Sub Notes, approve the plans. If either the holders of the Senior Notes or the Sub Notes fail to accept the Liquidating Plans, the Court will determine distributions to such holders. Holders of the Parish of St. James, State of Louisiana, Solid Waste Disposal Revenue Bonds (the “Revenue Bonds”) are not allowed a vote on the Liquidating Plans but will receive up to $8.0 million only if the Liquidating Plans are accepted by the Senior Notes and, unless the holders of the Senior Notes agree, all holders of Senior Notes receive the identical treatment under the Liquidating Plans. If the Liquidating Plans are not accepted by the holders of the Senior Notes then, pursuant to the Liquidating Plans, the Court will determine the distributions to 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.

      As previously disclosed, 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 (and in particular the Liquidating Subsidiaries) may not, as a technical matter, be contractually subordinate to the claims of the holders of the Senior Notes against the subsidiary guarantors (including AJI, KJC, KAAC and KFC). A separate group that holds both Sub Notes and the Company’s 9⁷/8% Senior Notes has made a similar assertion, but at the same time, maintains that a portion of the Company’s 9⁷/8% Senior Notes holders’ claims against the subsidiary guarantors are contractually senior to the Sub Notes holders’ claims against the subsidiary guarantors. The effect of such positions, if ultimately sustained, would be that the holders of Sub Notes would be on a par with all or portion of the holders of the Senior Notes in respect of claims against the proceeds from sales of the Company’s interests in and related to the Liquidating Subsidiaries. If both the holders of the Senior Notes and the holders of the Sub Notes do not approve the Liquidating Plans, then the Court will determine the appropriate allocation to these groups under the Liquidating Plans. While the Company cannot currently predict how the Court might rule in such an instance, based on the objections and pleadings filed by the Sub Note Group and the group that holds Sub Notes and the Company’s 9⁷/8% Senior Notes, if the Court were to rule in favor of the Sub Notes, the Company estimates that it is possible that the holders of the Sub Notes could receive between approximately $67.0 million and approximately $215.0 million depending on whether the Sub Notes were determined to rank on par with a portion or all of the Senior Notes. Conversely, if the holders of both the Senior Notes and the Sub Notes do not approve the Liquidating Plans and the Court

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were to rule in favor of the Senior Notes, then it is possible that the holders of the Sub Notes would receive no distributions under Liquidating Plans. 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 (including the Liquidating Subsidiaries). The Company cannot predict, however, the ultimate resolution of the matters raised by the Sub Note Group, or the other 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.

      The Court approved the disclosure statements related to the Liquidating Plans in February 2005 and the Liquidating Subsidiaries are now seeking confirmation of the Liquidating Plans at a confirmation hearing scheduled to be held in April 2005. However, there can be no assurance as to whether or when the Liquidating Plans will be confirmed by the Court or ultimately consummated or, if confirmed and consummated, as to the amount of distributions to be made to individual creditors of the Liquidating Subsidiaries or the Company. The foregoing disclosure is not intended to be, nor should it be construed to be, a solicitation for a vote on the Liquidating Plans. The Liquidating Plans relate exclusively to AJI, KJC, KAAC and KFC and will have no impact on the normal, ongoing operations of the Company’s Fabricated products business unit or other continuing operations.

      The above amounts are net of payments that are to be made by AJI, KJC and KAAC to the Company in respect of pre-petition and post-Filing Date intercompany claims pursuant to the Intercompany Agreement that was approved by the Court in February 2005. The Intercompany Agreement also resolves substantially all other pre-and post-petition intercompany claims between the Debtors. The Intercompany Agreement 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 million in respect of its intercompany claims against AJI, KJC and KAAC. Under the Intercompany Agreement, such payments would be increased or decreased for (1) 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 approximately $21.0 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 $15.0 million range collected by the Company through December 31, 2004); and (c) third party costs and certain limited overhead of the Company’s activities related to the sale of AJI’s, KJC’s and KAAC’s respective interests in and related to Alpart and QAL and (2) any purchase price adjustments (other than incremental amounts related to alumina sales contracts to be transferred) pursuant to the Company’s sale of its interests in Alpart. 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 and $28.0 million in November 2004 as a partial payment of Alpart-related sales proceeds. The Intercompany Agreement calls for the remaining payments to be made in specific increments to the Company at the earlier of the time of the closing of the sale of the Company’s interests in QAL and upon the effective dates of the Liquidating Plans.

      It is anticipated that KBC will be dealt with either separately or in concert with the Company plan of reorganization as more fully discussed below. Sixteen of the Debtors (including KAC) have no material ongoing activities or operations and have no material assets or liabilities other than intercompany claims (which are to be resolved pursuant to the Intercompany Agreement). The Company believes that it is likely that most of these entities will ultimately be merged out of existence or dissolved in some manner.

     • Entities Containing the Fabricated Products and Certain Other Operations

      Claims of creditors, other than claims paid by the Liquidating Subsidiaries under the Liquidating Plans, will have to be satisfied by the assets of the Company, KACOCL, and Bellwood, which generally include the fabricated products plants and their working capital, the interests in and related to Anglesey and proceeds to be received under the Intercompany Agreement.

      The Debtors anticipate that substantially all remaining liabilities of the Debtors as of their Filing Date will be settled under a single joint plan of reorganization to be proposed and voted on in accordance with the provisions of the Code. In working toward a plan of reorganization, as more fully discussed below, the

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remaining Debtors have reached individual agreements with most of the significant creditor constituents in the Cases including the Committees, the Futures’ Representatives, the PBGC, and the appropriate union representatives. However, the ultimate treatment of individual groups of creditors in any such plan of reorganization cannot be determined definitively at this time as such treatment (and the specific recoveries of 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 creditor 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. Further, while the Debtors intend to file and seek confirmation of a joint plan, there can be no assurance as to when the Debtors will file such plan or as to whether any such plan will be confirmed by the Court and consummated.

      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.

      Based on the previously disclosed agreements and understandings reached with key creditor constituents, the Company anticipates that the disclosure statement and plan of reorganization for the Company, Kaiser and other Debtors necessary to ongoing operations will reflect the following principle elements:

      (a) All post-petition and secured claims are expected to either be assumed by the emerging entity or paid at emergence (see Exit Cost discussion below);

      (b) Pursuant to agreements reached with salaried and hourly retirees in early 2004, in return for cancellation of the retiree medical plan, as more fully discussed in Note 9 of Notes to Consolidated Financial Statements, the Company is making certain fixed monthly payments into Voluntary Employee Beneficiary Associations (“VEBAs”) until emergence and then has agreed to make certain variable annual VEBA contributions depending on the emerging entity’s operating results and financial liquidity. In addition, upon emergence the VEBAs are to receive a contribution of 75% of the residual value of the remaining Debtors in the form of newly issued equity in the emerging entity. Residual value in this context means the Company’s remaining value after taking into account: (i) the contributions to the personal injury trust described below; (ii) the satisfaction of administrative, priority and secured claims as per (a) above; (iii) an equity incentive plan; and (iv) the satisfaction of the PBGC’s claim against KACOCL;

      (c) Pursuant to an agreement reached in early 2005, all pending and future asbestos-related personal injury claims, all pending and future silica and coal tar pitch volatiles personal injury claims and all hearing loss claims would be resolved through the formation of one or more trusts to which all such claims would be directed by channeling injunctions that would permanently remove liability for such claims from the Debtors. The trusts would be funded pursuant to statutory requirements and agreements with representatives of the affected parties, using (i) the Debtors’ insurance assets, (ii) $13.0 million in cash from the Company, (iii) 100% of the equity in a Company subsidiary whose sole asset will be a piece of real property that produces modest rental income, and (iv) a portion of the emerging entity’s equity in proportion to approximately $830.0 million of intercompany claims of KFC against the Company that are to be assigned to the trust (which will be satisfied out of the 25% of equity referred to in (d ) below); and

      (d) Other pre-petition claims will receive 25% of the residual value of the remaining Debtors in the form of equity in the emerging entity. Claims that are expected to be within this group include (i) any claims of the Senior Notes, the Sub Notes and PBGC that are not satisfied under the Liquidating Plans, (ii) the approximate $830.0 million of intercompany claims that the Company has agreed to assign to the

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personal injury trust(s) referred to in (c) above, and (iii) all unsecured trade and other claims. Included in this category are approximately $276.0 million of intercompany claims of KFC against the Company that will be a part of the consideration in the Liquidating Trusts.

      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 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 7 of Notes to Consolidated Financial Statements). If payments made to the Company under the Intercompany Agreement together with existing cash resources and borrowing availability under an exit financing facility are not sufficient to pay or otherwise provide for all Exit Costs, the Company and Kaiser 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 an 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 second half of 2005. 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, inherent market-related risks, Court approval for various matters and the 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 American Institute of Certified Professional Accountants (“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 liabilities subject to compromise (that will be relieved upon emergence), comparisons between the current historical financial statements and the financial statements upon emergence may be difficult to make.

Factors Affecting Future Performance

      This section discusses certain factors that could cause actual results to vary, perhaps materially, from the results described in forward-looking statements made in this Report. Forward-looking statements in this Report are not guarantees of future performance and involve significant risks and uncertainties. In addition to

13

the factors identified below, actual results may vary materially from those in such forward-looking statements as a result of a variety of other factors including 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 Report also identifies other factors that could cause such differences. No assurance can be given that these factors are all of the factors that could cause actual results to vary materially from the forward-looking statements.

     •  The Cases and any plan or plans of reorganization may have adverse consequences on the Company and its stakeholders and/or our reorganization from the Cases may not be successful

      Our objective is to achieve the highest possible recoveries for all stakeholders, consistent with our ability to pay and the continuation of our businesses. However, there can be no assurance that we will be able to attain these objectives or achieve a successful reorganization and remain a going concern. While the Company has previously disclosed that it has reached various settlements in respect of the claims of most significant parties in interest and expects that it may be able to emerge from the Cases sometime in the second half of 2005, no assurances can be provided that it will be able to file a plan or that such plan will ultimately be approved by the Court.

      While valuation of the Debtors’ assets and pre-Filing Date claims at this stage of the Cases is subject to inherent uncertainties, the Debtors currently believe that it is likely that their liabilities will be found in the Cases to exceed the fair value of their assets. Therefore, the Debtors currently believe that it is likely that 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. Because of such possibility, the value of the Common Stock is speculative and any investment in the Common Stock would pose a high degree of risk.

      Additionally, while the Debtors operate their businesses as debtors-in-possession pursuant to the Code during the pendency of the Cases, the Debtors will be required to obtain the approval of the Court prior to engaging in any transaction outside the ordinary course of business. In connection with any such approval, creditors and other parties in interest may raise objections to such approval and may appear and be heard at any hearing with respect to any such approval. Accordingly, the Debtors may be prevented from engaging in transactions that might otherwise be considered beneficial to the Company. The Court also has the authority to oversee and exert control over the Debtors’ ordinary course 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 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 7 of Notes to Consolidated Financial Statements). If payments made to the Company under the Intercompany Agreement together with existing cash resources and borrowing availability under an exit financing facility are not sufficient to pay or otherwise provide for all Exit Costs, the Company and Kaiser 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 or be able to negotiate a reasonable alternative. However, no assurances can be given in this regard.

     •  We may not operate profitably in the future

      As discussed more fully below, the results of the Fabricated products business unit are sensitive to a number of market and economic factors outside the Company’s control and the Company competes with companies many of which have substantially greater resources. Our Fabricated products business unit, which is now our core business, reported segment operating income of $33.0 million for the year ended December 31, 2004 compared to segment operating losses of $21.2 million and $21.8 million in the years ended December 31, 2003 and 2002. Operating results for 2004, 2003 and 2002 included non-cash last-in, first-out

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(“LIFO”) inventory charges of $12.1 million, $3.2 million and $3.5 million, respectively. The improved operating results primarily reflect an increase in demand for fabricated aluminum products. There can be no assurances that the Fabricated products business unit will continue to generate a profit or that we will operate profitability in future periods.

     •  Our earnings are sensitive to a number of variables

      Our operating earnings are sensitive to a number of variables over which we have no direct control. Key variables in this regard include general economic conditions and prices for primary aluminum and energy. 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, and aerospace markets. Such changes in demand can directly affect our 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 primary aluminum.

      The price of primary aluminum significantly affects our financial results related to our interests in Anglesey. Primary aluminum prices historically have been subject to significant cyclical price fluctuations. The Company believes the timing of changes in the market price of primary aluminum are largely unpredictable. Since 1993, the average LME transaction price has ranged from approximately $.50 to $1.00 per pound. However, the Company has changed from being a net seller of primary aluminum to a net user of primary aluminum. As such, the Company’s risk is whether it can successfully pass on any metal price increases to its customers. See Item 7A., “Quantitative and Qualitative Disclosures About Market Risks — Sensitivity”, for additional discussion.

      Electric power and natural gas are other important production inputs for use in our facilities and their costs can affect our profitability. Our earnings are also sensitive to foreign exchange rates in respect of our cash commitments to Anglesey.

     •  The Company’s current or past operations subject it to environmental compliance, clean-up and damage claims that have been and continue to be costly

      The operations of the Company’s facilities are regulated by a wide variety of international, federal, state and local environmental laws. These environmental laws regulate, among other things, air and water emissions and discharges; the generation, storage, treatment, transportation and disposal of solid and hazardous waste; and the release of hazardous or toxic substances, pollutants and contaminants into the environment. Compliance with these environmental laws is costly. While legislative, regulatory and economic uncertainties make it difficult for us to project future spending for these purposes, we currently anticipate that in the 2005 - 2006 period, the Company’s environmental capital spending will be approximately $1.0 million per year and that the Company’s operating costs will include pollution control costs totaling approximately $3.1 million per year. However, subsequent changes in environmental laws may change the way the Company must operate and may force the Company to spend more than we currently project.

      Additionally, the Company’s current and former operations can subject it to fines or penalties for alleged breaches of environmental laws and to other actions seeking clean-up or other remedies under these environmental laws. The Company also may be subject to damages related to alleged injuries to health or to the environment, including claims with respect to certain waste disposal sites and the clean-up of sites currently or formerly used by the Company.

      Currently, the Company is subject to certain lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 (“CERCLA”). The Company, along with certain other companies, has been named as a Potentially Responsible Party for clean-up costs at certain third-party sites listed on the National Priorities List under CERCLA. As a result, the Company may be exposed not only to its assessed share of clean-up but also to the costs of others if they are unable to pay.

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      In response to environmental concerns, we have established environmental accruals representing our estimate of the costs we reasonably expect the Company to incur in connection with these matters. At December 31, 2004, the balance of our accruals, which are primarily included in our long-term liabilities, was $58.3 million. We estimate that the annual costs charged to these environmental accruals will be approximately $24.3 million in 2005, $.3 million to $3.2 million per year for the years 2006 through 2009 and an aggregate of approximately $29.2 million thereafter. However, we cannot assure you that the Company’s actual costs will not exceed our current estimates. We believe 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 $20.0 million.

      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 Spokane,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 claim or charges, if any should result, vigorously. The Company cannot assess what, if any, impacts this matter may have on the Company’s or Kaiser’s financial statements.

      See Note 11 of Notes to Consolidated Financial Statements for additional information on environmental matters.

     •  The settlement of the asbestos-related and other personal injury matters may have a major impact on our plan or plans of reorganization

      The Company has been one of many defendants in numerous lawsuits in which the plaintiffs allege that they have injuries caused by, among other things, exposure to asbestos during, or 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 sold more than 20 years ago. The Company has also previously disclosed that certain other personal injury claims had been filed in respect of alleged pre-Filing Date exposure to silica and coal tar pitch volatiles. Due to the Cases, existing lawsuits in respect of all such personal injury claims are stayed and new lawsuits cannot be commenced against us or Kaiser.

      Our December 31, 2004 balance sheet includes a liability for estimated asbestos-related costs of $1,115.0 million, which represents the Company’s estimate of the minimum end of a range of costs. The upper end of the Company’s estimate of costs is approximately $2,400.0 million and the Company is aware that certain constituents have asserted that they believe that actual costs may exceed the top end of the Company’s estimated range, by perhaps a material amount. As a part of any plan of reorganization for the Company and Kaiser, it is likely that an estimation of the Company’s entire asbestos-related liability may occur. Any such estimation will likely result from negotiations between the Company and key creditor constituencies or an estimation process overseen by the Court. It is possible that any resulting estimate of the Company’s asbestos-related liability resulting from either process could exceed, perhaps significantly, the liability amounts reflected in the Company’s consolidated financial statements. The Company’s obligations in respect of the currently pending and future asbestos-related claims will ultimately be resolved as a part of the overall Chapter 11 proceedings. Any adjustments ultimately deemed to be required as a result of the reevaluation of the Company’s asbestos-related liabilities or estimated insurance recoveries could have a material impact on the Company’s future financial statements.

      We believe the Company has insurance coverage for a substantial portion of such asbestos-related costs. Accordingly, our December 31, 2004 balance sheet includes a long-term receivable for estimated insurance recoveries of $967.0 million. We believe that recovery of this amount is probable and additional amounts may be recoverable in the future if additional liability is ultimately determined to exist. However, we cannot assure you that all such amounts will be collected. The timing and amount of future recoveries from the Company’s insurance carriers will depend on the pendency of the Cases and on the resolution of disputes regarding

16

coverage under the applicable insurance policies. Over the past several years, the Company has received a number of rulings in respect of insurance related litigation that it believes supports the amount reflected on the balance sheet. 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 the Company’s insurers is critical to a successful plan of reorganization.

     •  Our profits and cash flows may be adversely impacted by the results of the Company’s hedging programs

      From time to time in the ordinary course of business, the Company enters into hedging transactions to limit its exposure resulting from price risks in respect of primary aluminum prices, energy prices and foreign currency requirements. Entering into such hedging transactions, while reducing or removing our exposure to price risk, may cause our profits and cash flow to be lower than they otherwise would have been.

     •  We operate in a highly competitive industry

      Each of the segments of the aluminum industry in which the Company operates is highly competitive. There are numerous companies who operate in the aluminum industry. Certain of our competitors are substantially larger, have greater financial resources than we do and may have other strategic advantages.

     •  The Company is subject to political and regulatory risks in a number of countries

      The Company facilities operate in the United States, Canada, and the United Kingdom. While we believe the Company’s relationships in the these countries are generally satisfactory, we cannot assure you that future developments or governmental actions in these countries will not adversely affect the Company’s operations particularly or our industry generally. Among the risks inherent in the Company’s operations are unexpected changes in regulatory requirements, unfavorable legal rulings, new or increased taxes and levies, and new or increased import or export restrictions. The Company’s operations outside of the United States are subject to a number of additional risks, including but not limited to currency exchange rate fluctuations, currency restrictions, and nationalization of assets.

Segment and Geographical Area Financial Information

      The information set forth in Note 15 of Notes to Consolidated Financial Statements regarding the Company’s operating segments and geographical areas in which the Company operates is incorporated herein by reference.

Item 2. Properties

      The locations and general character of the principal plants and other materially important physical properties relating to the Company’s operations are described in Item 1 “Business — Business Operations” and those descriptions are incorporated herein by reference. The Company owns in fee or leases all the real estate and facilities used in connection with its business. Plants and equipment and other facilities are generally in good condition and suitable for their intended uses.

      All but three of the Company’s fabricated aluminum production facilities are owned by the Company and/or its subsidiaries. The Chandler, Arizona location is subject to a lease with a primary lease term that expires in 2033. The Company has certain extension rights in respect of the Chandler lease. The Richland, Washington location is subject to a lease with a 2011 expiration date, subject to certain extension rights held by the Company. The Los Angeles location is subject to a lease with a 2009 expiration date, subject to certain extension rights held by the Company.

      In connection with the ongoing reorganization efforts and sale of substantially all of the Company’s commodities interests, the Company has relocated its corporate headquarters and primary place of business from Houston, Texas to Foothill Ranch, California, which is where the Fabricated products business unit was headquartered.

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      The Company’s obligations under the DIP Facility are secured by, among other things, liens on the Company’s domestic plants. See Note 7 of Notes to Consolidated Financial Statements for further discussion.

Item 3. Legal Proceedings

      This section contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. See Item 1 of this Report for cautionary information with respect to such forward-looking statements.

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 the plan of reorganization. See Item 1. “Business — Reorganization Proceedings” for a discussion of the reorganization proceedings. Such discussion is incorporated herein by reference.

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 law 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, impact this matter may have on the Company’s or Kaiser’s financial statements.

Asbestos and Certain Other Personal Injury Claims

      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, or 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 asbestos-related claims were pending. The Company has also previously disclosed that certain other personal injury claims had been filed in respect of alleged pre-Filing Date exposure to silica and coal tar pitch volatiles (approximately 3,900 claims and 300 claims, respectively).

      Due to the Cases, holders of asbestos, silica and coal tar pitch volatile claims are stayed from continuing to prosecute pending litigation and from commencing new lawsuits against the Debtors. 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 and, as described below, to negotiate insurance settlements and prosecute certain actions to clarify policy interpretations in respect of such coverage.

      During the fourth quarter of 2004, the Company updated its estimate of costs expected to be incurred in respect of asbestos, silica and coal tar pitch volatile claims and expected insurance recoveries. The portion of Note 11 of Notes to Consolidated Financial Statements under the heading “Asbestos and Certain Other Personal Injury Claims” is incorporated herein by reference.

Labor Matters

      In connection with the United Steelworkers of America (“USWA”) strike and subsequent lock-out by the Company, certain allegations of Unfair Labor Practices (“ULPs”) were filed by the USWA with the

18

National Labor Relations Board (“NLRB”). As previously disclosed, the Company responded to all such allegations and believed they were without merit.

      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 the union members. 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 million will be allowed. Also, as part of the agreement, the Company agreed to adopt a position of neutrality regarding the unionization of any employees of the reorganized company.

      All material contingencies in respect of the settlement have now been resolved (the last having been resolved in February 2005) and, therefore, the Company recorded a non-cash $175.0 million charge in the fourth quarter of 2004 and an off setting liability. The portion of Note 11 of Notes to Consolidated Financial Statements under the heading “Labor Matters” is incorporated herein by reference.

Hearing Loss Claims

      During February 2004, the Company reached a settlement in principle 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 claims totaling $15.8 million. During the Cases, the Company has received approximately 3,200 additional proofs of claim alleging pre-petition injury due to noise induced hearing loss. It is not known at this time how many, if any, of such claims have merit or at what level such claims might qualify within the parameters established by the above-referenced settlement in principle for the 400 claims. Accordingly, the Company cannot presently determine the impact or value of these claims. However, the Company currently expects that all noise induced hearing loss claims will be transferred, along with certain rights against certain insurance policies, to a separate trust along with the settled hearing loss cases discussed above, whether or not such claims are settled prior to the Company’s emergence from the Cases. The portion of Note 11 of Notes to Consolidated Financial Statements under the heading “Hearing Loss Claims” is incorporated herein by reference.

Other Matters

      Various other lawsuits and claims are pending against the Company. While uncertainties are inherent in the final outcome of such matters and it is presently impossible to determine the actual costs that ultimately may be incurred, management believes that the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

      See Note 11 of Notes to Consolidated Financial Statements for discussion of additional litigation.

Item 4. Submission of Matters to a Vote of Security Holders

      No matter was submitted to a vote of security holders of the Company during the fourth quarter of 2004.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

      There is no established public market for the Company’s Common Stock, which is held solely by Kaiser. The Company has not paid any dividends on its Common Stock during the two most recent fiscal years. In accordance with the Code and the DIP Facility, the Company is currently not permitted to pay any dividends or purchase any of its stock.

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      Kaiser’s non-qualified stock option plans, which are Kaiser’s only stock option plans, have been approved by Kaiser’s stockholders. The number of shares of Common Stock to be issued upon exercise of outstanding options, the weighted average price per share of the outstanding options and the number of shares of Common Stock available for future issuance under Kaiser’s non-qualified stock option plans at December 31, 2004, included under the heading “Incentive Plans” in Note 9 of Notes to Consolidated Financial Statements is incorporated herein by reference.

      See Note 7 of Notes to Consolidated Financial Statements under the heading “Debt Covenants and Restrictions” and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Structure” for additional information, which information is incorporated herein.

Item 6. Selected Financial Data

      Selected financial data for the Company is incorporated herein by reference to the table at page 25 of Management’s Discussion and Analysis of Financial Condition and Results of Operations, to Note 15 of Notes to Consolidated Financial Statements, and to the Five-Year Financial Data on pages 108-109 in this Report.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      This Report 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 “Overview,” “Results of Operations,” “Liquidity and Capital Resources” and “Other Matters”). 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. See Item 1. “Business-Factors Affecting Future Performance.” 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.

Reorganization Proceedings

      Background. The Company, Kaiser and 24 of the Company’s subsidiaries have filed separate voluntary petitions in the Court for reorganization under Chapter 11 of the Code. 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.

      In addition to the Company and Kaiser, the Debtors include the following subsidiaries: 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”)), Kaiser Bauxite Company (“KBC”), Kaiser Jamaica Corporation (“KJC”), Alpart Jamaica Inc. (“AJI”), Kaiser Aluminum & Chemical of Canada Limited (“KACOCL”) and fifteen other entities with limited balances or activities.

      Case Administration. 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 Court-appointed legal representatives for (a) potential future asbestos claimants (the “Asbestos

20

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”), 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 (other than AJI, KJC, KAAC and KFC) to June 30, 2005. Exclusivity for AJI, KJC, KAAC and KFC was most recently extended to April 30, 2005. 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.

      Commodity-related and Inactive Subsidiaries. As previously disclosed, the Company expects that by April 2005 it will have sold all of its commodity-related interests other than its interests in Anglesey. It is anticipated that, as more fully discussed below, the proceeds from the sale of these interests will be distributed primarily to the affected subsidiaries’ creditors pursuant to certain liquidating plans and other agreements. The primary subsidiaries affected by this strategy are AJI, KJC, KAAC, KFC and KBC.

      During November 2004, four of the Company’s commodity-related subsidiaries (AJI, KJC, KAAC and KFC, collectively, the “Liquidating Subsidiaries”) filed separate joint plans of liquidation and related disclosure statements with the Court. Such plans, together with all amendments filed thereto, are separately referred to as the “AJI/ KJC Plan” and the “KAAC/ KFC Plan” and collectively as the “Liquidating Plans”). Under the Liquidating Plans, the assets of those entities, consisting primarily of the net cash proceeds received (or to be received) by them in connection with the sales of their commodities interests, will be transferred to liquidating trusts, whereupon the Liquidating Subsidiaries will be dissolved. The liquidating trusts will then make distributions to the creditors of the Liquidating Subsidiaries in accordance with the Liquidating Plans. As indicated in the Liquidating Plans, it is currently anticipated that the Liquidating Subsidiaries will have an aggregate of approximately $673.8 million of cash available for distribution to creditors when the Liquidating Plans become effective. The Liquidating Plans outline the specific treatment of creditors and their estimated recoveries in respect of the Liquidating Subsidiaries under several possible scenarios. The Liquidating Plans indicate that, after payment of priority claims, trust expenses (initial reserves for which are expected to be established in the range of $37.0 million to $46.0 million), and payments to the Company under the Intercompany Settlement Agreement (“Intercompany Agreement”) (see discussion below) the Liquidating Subsidiaries anticipate ultimately distributing available cash to the following claimholders in the following amounts (in millions):

Senior Notes and Senior Subordinated Notes	$	390.7 to $421.8
PBGC	$	187.6 to $198.5
State of Louisiana Solid Waste Revenue Bonds	$	0.0 to $8.0

      Under the Liquidating Plans as filed with the Court, $16.0 million of payments are to be made for the benefit of holders of the Company’s 12³/4% Senior Subordinated Notes (the “Sub Notes”) if, and only if, the holders of both (a) the Company’s 9⁷/8% Senior Notes and 10⁷/8% Senior Notes (collectively, the “Senior Notes”) and (b) the Sub Notes, approve the plans. If either the holders of the Senior Notes or the Sub Notes fail to accept the Liquidating Plans, the Court will determine distributions to such holders. Holders of the Parish of St. James, State of Louisiana, Solid Waste Disposal Revenue Bonds (the “Revenue Bonds”) are not allowed a vote on the Liquidating Plans but will receive up to $8.0 million only if the Liquidating Plans are accepted by the Senior Notes and, unless the holders of the Senior Notes agree, all holders of Senior Notes receive the identical treatment under the Liquidating Plans. If the Liquidating Plans are not accepted by the holders of the Senior Notes then, pursuant to the Liquidating Plans, the Court will determine the distributions

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to 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.

      As previously disclosed, 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 (and in particular the Liquidating Subsidiaries) may not, as a technical matter, be contractually subordinate to the claims of the holders of the Senior Notes against the subsidiary guarantors (including AJI, KJC, KAAC and KFC). A separate group that holds both Sub Notes and the Company’s 9⁷/8% Senior Notes has made a similar assertion, but at the same time maintains that a portion of the Company’s 9⁷/8% Senior Notes holders’ claims against the subsidiary guarantors are contractually senior to the Sub Notes holders’ claims against the subsidiary guarantors. The effect of such positions, if ultimately sustained, would be that the holders of Sub Notes would be on a par with all or portion of the holders of the Senior Notes in respect of claims against the proceeds from sales of the Company’s interests in and related to the Liquidating Subsidiaries. If both the holders of the Senior Notes and the holders of the Sub Notes do not approve the Liquidating Plans, then the Court will determine the appropriate allocation to these groups under the Liquidating Plans. While the Company cannot currently predict how the Court might rule in such an instance, based on the objections and pleadings filed by the Sub Note Group and the group that holds Sub Notes and the Company’s 9⁷/8% Senior Notes, if the Court were to rule in favor of the Sub Notes, the Company estimates that it is possible that the holders of the Sub Notes could receive between approximately $67.0 million and approximately $215.0 million depending on whether the Sub Notes were determined to rank on par with a portion or all of the Senior Notes. Conversely, if the holders of both the Senior Notes and the Sub Notes do not approve the Liquidating Plans and the Court were to rule in favor of the Senior Notes, then it is possible that the holders of the Sub Notes would receive no distributions under Liquidating Plans. 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 (including the Liquidating Subsidiaries). The Company cannot predict, however, the ultimate resolution of the matters raised by the Sub Note Group or the other 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.

      The Court approved the disclosure statements related to the Liquidating Plans in February 2005 and the Liquidating Subsidiaries are now seeking confirmation of the Liquidating Plans at a confirmation hearing scheduled to be held in April 2005. However, there can be no assurance as to whether or when the Liquidating Plans will be confirmed by the Court or ultimately consummated or, if confirmed and consummated, as to the amount of distributions to be made to individual creditors of the Liquidating Subsidiaries or the Company. The foregoing disclosure is not intended to be, nor should it be construed to be, a solicitation for a vote on the Liquidating Plans. The Liquidating Plans relate exclusively to AJI, KJC, KAAC and KFC and will have no impact on the normal, ongoing operations of the Company’s Fabricated products business unit or other continuing operations.

      The above amounts are net of payments that are to be made by AJI, KJC and KAAC to the Company in respect of pre-petition and post-Filing Date intercompany claims pursuant to the Intercompany Agreement that was approved by the Court in February 2005. The Intercompany Agreement also resolves substantially all other pre-and post-petition intercompany claims between the Debtors. The Intercompany Agreement 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 million in respect of its intercompany claims against AJI, KJC and KAAC. Under the Intercompany Agreement, such payments would be increased or decreased for (1) 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 approximately $21.0 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 $15.0 million range collected by the Company through December 31, 2004); and (c) third party costs and certain limited overhead of the Company’s activities related to the sale of AJI’s, KJC’s and KAAC’s respective interests in and related to Alpart and QAL and (2) any purchase price adjustments (other than incremental amounts

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related to alumina sales contracts to be transferred) pursuant to the Company’s sale of its interests in Alpart. 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 and $28.0 million in November 2004 as a partial payment of Alpart-related sales proceeds. The Intercompany Agreement calls for the remaining payments to be made in specific increments to the Company at the earlier of the time of the closing of the sale of the Company’s interests in QAL and upon the effective dates of the Liquidating Plans.

      It is anticipated that KBC will be dealt with either separately or in concert with the Company plan of reorganization as more fully discussed below. Sixteen of the Debtors (including KAC) have no material ongoing activities or operations and have no material assets or liabilities other than intercompany claims (which are to be resolved pursuant to the Intercompany Agreement). The Company believes that it is likely that most of these entities will ultimately be merged out of existence or dissolved in some manner.

      Entities Containing the Fabricated Products and Certain Other Operations. Claims of creditors, other than claims paid by the Liquidating Subsidiaries under the Liquidating Plans, will have to be satisfied by the assets of the Company, KACOCL, and Bellwood, which generally include the fabricated products plants and their working capital, the interests in and related to Anglesey and proceeds to be received under the Intercompany Agreement.

      The Debtors anticipate that substantially all remaining liabilities of the Debtors as of their Filing Date will be settled under a single joint plan of reorganization to be proposed and voted on in accordance with the provisions of the Code. In working toward a plan of reorganization, as more fully discussed below, the remaining Debtors have reached individual agreements with most of the significant creditor constituents in the Cases including the Committees, the Futures’ Representatives, the PBGC, and the appropriate union representatives. However, the ultimate treatment of individual groups of creditors in any such plan of reorganization cannot be determined definitively at this time as such treatment (and the specific recoveries of 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 creditor 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. Further, while the Debtors intend to file and seek confirmation of a plan, there can be no assurance as to when the Debtors will file such plan or as to whether any such plan will be confirmed by the Court and consummated.

      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.

      Based on the previously disclosed agreements and understandings reached with key creditor constituents, the Company anticipates that the disclosure statement and plan of reorganization for the Company, Kaiser and other Debtors necessary to ongoing operations will reflect the following principle elements:

      (a) All post-petition and secured claims are expected to either be assumed by the emerging entity or paid at emergence (see Exit Cost discussion below);

      (b) Pursuant to agreements reached with salaried and hourly retirees in early 2004, in return for cancellation of the retiree medical plan, as more fully discussed in Note 9 of Notes to Consolidated Financial Statements, the Company is making certain fixed monthly payments into Voluntary Employee Beneficiary Associations (“VEBAs”) until emergence and then has agreed to make certain variable annual VEBA contributions depending on the emerging entity’s operating results and financial liquidity. In addition, upon emergence the VEBAs are to receive a contribution of 75% of the residual value of the

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remaining Debtors in the form of newly issued equity in the emerging entity. Residual value in this context means the Company’s remaining value after taking into account: (i) the contributions to the personal injury trust described below; (ii) the satisfaction of administrative, priority and secured claims as per (a) above; (iii) an equity incentive plan; and (iv) the satisfaction of the PBGC’s claim against KACOCL;

      (c) Pursuant to an agreement reached in early 2005, all pending and future asbestos-related personal injury claims, all pending and future silica and coal tar pitch volatiles personal injury claims and all hearing loss claims would be resolved through the formation of one or more trusts to which all such claims would be directed by channeling injunctions that would permanently remove all liability for such claims from the Debtors. The trusts would be funded pursuant to statutory requirements and agreements with representatives of the affected parties, using (i) the Debtors’ insurance assets, (ii) $13.0 million in cash from the Company, (iii) 100% of the equity in a Company subsidiary whose sole asset will be a piece of real property that produces modest rental income, and (iv) a portion of the emerging entity’s equity in proportion to approximately $830.0 million of intercompany claims of KFC against the Company that are to be assigned to the trust (which will be satisfied out of the 25% of equity referred to in (d ) below); and

      (d) Other pre-petition claims will receive 25% of the residual value of the remaining Debtors in the form of equity in the emerging entity. Claims that are expected to be within this group include (i) any claims of the Senior Notes, the Sub Notes and PBGC that are not satisfied under the Liquidating Plans, (ii) the approximate $830.0 million of intercompany claims that the Company has agreed to assign to the personal injury trust(s) referred to in (c) above, and (iii) all unsecured trade and other claims. Included in this category are approximately $276.0 million of intercompany claims of KFC against the Company that will be a part of the consideration in the Liquidating Trusts.

      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 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 7 of Notes to Consolidated Financial Statements). If payments made to the Company under the Intercompany Agreement together with existing cash resources and borrowing availability under an exit financing facility are not sufficient to pay or otherwise provide for all Exit Costs, the Company, and Kaiser 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 an 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 second half of 2005. 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, inherent market-related risks, Court approval for various matters and the 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.

Overview

      The Company’s primary line of business is the production and sale of fabricated aluminum products. In addition, the Company owns a 49% interest in Anglesey, which owns an aluminum smelter in Holyhead, Wales. Historically, the Company operated in all principal sectors of the aluminum industry including the production and sale of bauxite, alumina and primary aluminum in domestic and international markets. However, as previously disclosed, as a part of the Company’s reorganization efforts, the Company is selling or has sold substantially all of its commodities’ operations other than Anglesey. The balances and results of

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operations in respect of the commodities interests sold or being sold are now considered discontinued operations (see Notes 3 and 5 of Notes to Consolidated Financial Statements). The presentation in the table below restates the segment information for such reclassifications. The amounts remaining in Primary aluminum relate primarily to the Company’s interests in and related to Anglesey and the Company’s primary aluminum hedging-related activities.

      The table below provides selected operational and financial information on a consolidated basis with respect to the Company for the years ended December 31, 2004, 2003 and 2002. The following data should be read in conjunction with the Company’s consolidated financial statements and the notes thereto contained elsewhere herein. See Note 15 of Notes to Consolidated Financial Statements for further information regarding segments.

				Year Ended December 31,
				2004			2003			2002
				(In millions of dollars,
				except shipments and prices)
Shipments (mm lbs):
		Fabricated Products			458.6			372.3			376.3
		Primary Aluminum			156.6			158.7			155.8
					615.2			531.0			532.1
Average Realized Third Party Sales Price (per pound):
		Fabricated Products(1)		$	1.76		$	1.61		$	1.62
		Primary Aluminum		$	.85		$	.71		$	.64
	Net Sales:
		Fabricated Products		$	809.3		$	597.8		$	608.6
		Primary Aluminum			133.1			112.4			100.4
			Total Net Sales	$	942.4		$	710.2		$	709.0
	Segment Operating Income (Loss):(2)
		Fabricated Products(3)		$	33.0		$	(21.2	)	$	(21.8	)
		Primary Aluminum			13.9			6.7			7.4
		Corporate and Other(4)			(71.1	)		(74.5	)		(98.8	)
		Other Operating (Charges) Benefits, Net(5)			(793.2	)		(141.6	)		(31.8	)
			Total Operating Income (Loss)	$	(817.4	)	$	(230.6	)	$	(145.0	)
Discontinued Operations				$	121.3		$	(514.7	)	$	(266.0	)
Net Loss				$	(746.6	)	$	(788.1	)	$	(468.4	)
Capital Expenditures (excluding discontinued operations)				$	7.6		$	8.9		$	10.9

(1)

Average realized prices for the Company’s Fabricated products business unit are subject to fluctuations due to changes in product mix as well as underlying primary aluminum prices and is not necessarily indicative of changes in underlying profitability. See “Business”.

(2)

The Company has changed its segment presentation in 2004 to eliminate the “Eliminations” segment as the primary purpose for such segment was to eliminate intercompany profit on sales by the Primary aluminum and Bauxite and alumina business units substantially all of which are now considered Discontinued operations. Eliminations not representing Discontinued operations are now included in segment results. Operating results for 2003 and 2002 for the Fabricated products business unit reported above include $4.5 and $.4, respectively, previously reported in Eliminations. There is no such elimination required in 2004. Operating results for 2003 and 2002 for the Primary aluminum business unit reported above include $(.4) and $1.3, respectively, previously reported in Eliminations. Operating results for the

25

	Primary aluminum business unit in 2004 are after the elimination of $.9. Also, see Part I, Item 1. “Business — Business Operations” for a discussion of changes to the Primary aluminum business unit.
(3)	Operating results for 2004, 2003 and 2002 include LIFO inventory charges of $12.1, $3.2, and $3.5, respectively.
(4)	Operating results for 2002 include special pension charges of $24.1.
(5)	See Note 6 of Notes to Consolidated Financial Statements for a detailed summary of the components of Other operating (charges) benefits, net and the business segment to which the items relate.

Significant Items

      Market-related Factors. Changes in global, regional, or country-specific economic conditions can have a significant impact on overall demand for aluminum-intensive fabricated products in the aerospace, automotive, distribution, and packaging markets. Such changes in demand can directly affect the Company’s earnings by impacting the overall volume and mix of such products sold.

      Changes in primary aluminum prices also affect the Company’s Primary aluminum business unit and expected earnings under any fixed price fabricated products contracts. However, the impacts of such changes are generally offset by each other or by primary aluminum hedges. The Company’s operating results are also, albeit to a lesser degree, sensitive to changes in prices for power and natural gas and changes in certain foreign exchange rates. All of the foregoing have been subject to significant price fluctuations over recent years. For a discussion of the possible impacts of the reorganization on the Company’s sensitivity to changes in market conditions, see “Quantitative and Qualitative Disclosures About Market Risks, Sensitivity.”

      During 2004, the average LME price per pound of primary aluminum was $.78 per pound. During 2003 and 2002, the average LME price per pound for primary aluminum was $.65 and $.61, respectively. At February 28, 2005, the LME price was approximately $.88 per pound.

      New Credit Arrangement. On February 11, 2005, the Company and Kaiser entered into a new financing agreement with a group of lenders under which the Company was provided with a replacement for the existing post-petition credit facility and a commitment for a multi-year exit financing arrangement upon the Debtors’ emergence from the Chapter 11 proceedings. The new financing agreement:

•  Replaced the existing post-petition credit facility with a new $200.0 million post-petition credit facility (the “DIP Facility”) and

•  Included a commitment, upon the Debtors’ emergence from the Chapter 11 proceedings, for exit financing in the form of a $200.0 million revolving credit facility (the “Revolving Credit Facility”) and a fully drawn term loan (the “Term Loan”) of up to $50.0 million.

      The DIP Facility provides for a secured, revolving line of credit through the earlier of February 11, 2006, the effective date of a plan of reorganization or voluntary termination by the Company. Under the DIP Facility, the Company, Kaiser and certain subsidiaries of the Company are able to borrow amounts by means of revolving credit advances and to have issued letters of credit (up to $60.0 million) in an aggregate amount equal to the lessor of $200.0 million or a borrowing base comprised of eligible accounts receivable, eligible inventory and certain eligible machinery, equipment and real estate, reduced by certain reserves, as defined in the DIP Facility agreement. This amount available under the DIP Facility shall be reduced by $20.0 million if net borrowing availability falls below $40.0 million. Interest on any outstanding borrowings will bear a spread over either a base rate or LIBOR, at the Company’s option.

      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 sale of the Company’s interests in and related to QAL is expected to close in April 2005. Completion of these transactions represents a significant step towards the Company’s planned

26

emergence from Chapter 11 primarily as a fabricated products company. See Note 5 of Notes to Consolidated Financial Statements for details regarding the individual dispositions.

      Significant Charges Associated with the Reorganization Process. The Company has previously disclosed that it has made substantial progress in its reorganization efforts and has reached various agreements with substantially all of the key creditor constituencies as to the value of their claims and the agreed treatment for such claims in any plans of reorganization that is ultimately filed by the Debtors. These agreements have however resulted in a number of significant charges including:

•  Charges related to the sale of commodity interests. These items are classified as “discontinued operations” in the accompanying financial statements. See Note 3 of Notes to Consolidated Financial Statements for additional discussion of these items and amounts.

•  Significant charges related to the termination of certain of the Company’s previous pension and retiree medical plans and other agreements reached with the PBGC, the USWA and certain other labor unions. These items are discussed in Note 9 and Note 11 of Notes to Consolidated Financial Statements.

•  Certain environmental charges associated with various settlements and transactions. See Note 11 of Notes to Consolidated Financial Statements

Additionally, while not resulting in a significant net charge, the Company did substantially increase its recorded liability in respect of asbestos and other personal injury related claims and expected insurance recoveries in respect of such amounts. See Note 11 of Notes to Consolidated Financial Statements

      Environmental Matters. The Company has previously disclosed that, during April 2004, it 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 Spokane, 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 claim or charges, if any should result, vigorously. The Company cannot assess what, if any, impacts this matter may have on the Company’s or Kaiser’s financial statements.

Results of Operations

      Summary. The Company reported a net loss of $746.6 million in 2004, compared to a net loss of $788.1 million for 2003 and a net loss of $468.4 million for 2002.

      Net sales in 2004 totaled $942.4 million compared to $710.2 million in 2003 and $709.0 million in 2002.

2004 as Compared to 2003

      Fabricated Aluminum Products. Net sales of fabricated products increased by 35% during 2004 as compared to 2003 primarily due to a 23% increase in shipments and an 9% increase in average realized prices. Current period shipments were higher than 2003 shipments as a result of improved demand for most of the Company’s fabricated aluminum products, especially aluminum plate for the general engineering market as well as extrusions and forgings for the automotive market. Demand for the Company’s products in the aerospace and high strength market was also markedly higher in 2004 than in 2003. The increase in the average realized price reflects changes in the mix of products sold, stronger demand, and higher underlying metal prices. Extrusion prices are thought to have recovered from the recessionary lows experienced in 2002 and 2003 but are still below prices experienced during peaks in the business cycle. Plate prices increased to near peak-level pricing in response to strong near-term demand.

      Segment operating results (before Other operating charges, net) for 2004 improved over 2003 primarily due to the increased shipment and price levels noted above, improved market conditions and improved cost performance offset, in part, by modestly increased natural gas prices and a $12.1 million non-cash LIFO inventory charge. Operating results for 2003 included increased energy costs, a $3.2 million non-cash LIFO

27

inventory charge, and higher pension related expenses offset, in part, by reductions in overhead and other operating costs as a result of cost cutting initiatives. Segment operating results for 2004 and 2003 include gains(losses) on intercompany hedging activities with the Primary aluminum business unit totaling $8.6 million and $(2.3) million. These amounts eliminate in consolidation.

      Segment operating results for 2003, discussed above, exclude a net gain of approximately $3.9 million from the sale of equipment (see Note 6 of Notes to 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 and primary aluminum hedging-related activities. Third party net sales of primary aluminum increased 18% for 2004 as compared to the same period in 2003 primarily as a result of a 20% increase in third party average realized prices offset by a 1% decrease in third party shipments. The increases in the average realized prices was primarily due to the increases in primary aluminum market prices. Shipments in 2004 were better than comparable prior year primarily due to the timing of shipments.

      Segment operating results (before Other Operating charges, net) for 2004 improved over 2003 primarily due to the increases in prices and shipments discussed above. Segment operating results for 2004 and 2003 include gains (losses) on intercompany hedging activities with the Fabricated products business unit totaling $(8.6) million and $2.3 million. These amounts eliminate in consolidation.

      Segment operating results discussed above for 2003, exclude a pre-Filing Date claim of approximately $3.2 million related to a restructured transmission agreement and a net gain of approximately $9.5 million from the sale of the Tacoma, Washington smelter (see Note 6 of Notes to Consolidated Financial Statements).

      Corporate and Other. Corporate operating expenses represent corporate general and administrative expenses that are not allocated to the Company’s business segments. In 2004, Corporate operating costs were comprised of approximately $21.2 million of expenses related to ongoing operations and approximately $50.1 million of retiree related expenses. In 2003, Corporate operating costs consisted of expenses related to ongoing operations of approximately $39.0 million and $35.0 million of retiree related expenses. The decline in expenses related to ongoing operations from 2003 to 2004 was primarily attributable to lower salary ($1.0 million), retention ($4.0 million) and incentive compensation ($2.5 million) costs (see Notes 11 and 13 of Notes to Consolidated Financial Statements) as well as lower accruals for pension related costs primarily as a result of the December 2003 termination by the PBGC of the Company’s salaried employees pension plan ($2.5 million). The increase in retiree related expenses in 2004 from 2003 reflects management’s decision to allocate to the Corporate segment the excess of post retirement medical costs related to the Fabricated products business unit and Discontinued operations for the period May 1, 2004 through December 31, 2004 over the amount of such segments allocated share of VEBA contributions, offset, in part, by lower pension-related accruals as a result of the December 2003 termination by the PBGC of the Company’s salaried employees pension plan.

      Corporate operating results for 2004, discussed above, exclude pension charges of approximately $310.0 million related to terminated pension plans whose responsibility was assumed by the PBGC, a settlement charge of approximately $175.0 million related to the USWA settlement and settlement charges of approximately $312.5 million related to the termination of the post-retirement medical benefit plans (all of which are included in Other operating charges, net). Corporate operating results for 2003 exclude a pension charge of approximately $121.2 million related to the terminated salaried employees pension plan whose responsibility was assumed by the PBGC, an environmental multi-site settlement charge of $15.7 million and hearing loss claims of $15.8 million (all of which are included in Other operating charges, net).

      As the Company completes the disposition of the commodities interests and prepares for and emerges from the Cases, the Company expects there will be a substantial decline in Corporate and other costs. However, certain of these restructuring activities may have adverse short term cost consequences.

      Discontinued Operations. Discontinued operations include the operating results for Alpart, Gramercy/ KJBC, Valco, QAL and the Mead Facility and gains from the sale of the Company’s interests in and related

28

to these interests (except for the gain on the sale of the Company’s interests in and related to QAL which is expected to be sold in April 2005). Results for discontinued operations for 2004 improved approximately $636.0 million over 2003. Approximately $460.0 million of such improvement resulted from three non-recurring items: (a) the approximate $126.6 million gain on the sale of the Company’s interests in and related to Alpart and the sale of the Mead Facility; (b) the $368.0 million of impairment charges in respect of the Company’s interests in and related to commodities interests in 2003; and (c) $33.0 million of Valco-related impairment charges in 2004. The balance of the improvement primarily resulted from approximately $132.0 million of improved operating results at Alpart, Gramercy/ KJBC and QAL, a substantial majority of which was related to the improvement in average realized alumina prices.

2003 as Compared to 2002

      Fabricated Aluminum Products. Net sales of fabricated products decreased by 2% during 2003 as compared to 2002 primarily as a result of a 1% decrease in shipments. Shipments in 2003 as compared to those of 2002 reflected increased demand in the aerospace and high strength, general engineering, and custom industrial markets, offset by a modest decline in automotive demand and the Company’s exit of the can lid and tab stock and brazing sheet products in the second quarter of 2002 Average realized prices for fabricated products were also modestly weaker in 2003 than in the prior year, reflecting primarily changes in product mix.

      Segment operating results (before Other operating charges, net) for 2003 were worse than 2002 primarily due to increased energy costs (approximately $10.5 million), a $3.2 million LIFO inventory charge, the volume and price factors discussed above, and increased pension related expenses. The foregoing were offset, in part, by reductions in overhead and other operating costs as a result of cost-cutting initiatives. Operating results for 2002 included a $3.5 million LIFO inventory charge partially offset by reductions in overhead and other costs as a result of cost cutting initiatives. Segment operating results for 2003 and 2002 include losses on intercompany hedging activities with the Primary aluminum business unit totaling $2.3 million and $8.3 million. These amounts eliminate in consolidation.

      Segment operating results for 2003, discussed above, exclude a net gain of approximately $3.9 million from the sale of equipment (see Note 6 of Notes to Consolidated Financial Statements). Segment operating results for 2002 excluded other operating costs of $7.9 million incurred in connection with cost reduction initiatives and product line exit. Segment operating results for 2002 also excluded a $1.6 million non-cash LIFO inventory charge associated with the product line exit.

      Primary Aluminum. Third party net sales of primary aluminum increased for 2003 by approximately 12% as compared to the same period in 2002 due to a 11% increase in third party average realized prices and a 2% increase in shipments. The increase in the average realized prices was primarily due to increases in primary aluminum market prices. The increase in third party shipments was primarily due to the timing of shipments.

      Segment operating results (before Other operating charges, net) for 2003 increased from the comparable period in 2002. The increase was primarily due to the increases in prices and shipments discussed above. Segment operating results for 2003 and 2002 include gains on intercompany hedging activities with the Fabricated products business unit totaling $2.3 million and $8.3 million. These amounts eliminate in consolidation.

      Segment operating results for 2003, discussed above, exclude a pre-Filing Date claim of approximately $3.2 million related to a restructured transmission service agreement (see Note 6 of Notes to Consolidated Financial Statements). Segment operating results for 2003 also exclude a net gain of approximately $9.5 million from the sale of the Tacoma, Washington smelter (see Note 6 of Notes to Consolidated Financial Statements).

      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, net) for 2003 as compared to 2002, were lower primarily because corporate expenses in 2002 included special pension settlement charges of approximately $19.9 million, and payments of approximately $4.2 million to a trust in respect of certain management compensation agreements. Corporate

29

salary-related and other overhead costs were lower in 2003 than in 2002 due to job eliminations but these cost improvements were substantially offset by an increase in pension-related expenses. See Note 9 of Notes to Consolidated Financial Statements for a discussion of the special pension settlement charges in 2002.

      Corporate operating results for 2003, discussed above, exclude a pension charge of approximately $121.2 million related to the salaried employees pension plan, an environmental multi-site settlement charge of $15.7 million and hearing loss claims of $15.8 million (all of which are included in Other operating charges, net). Corporate operating results for 2002 excluded a non-cash impairment charge of approximately $20.0 million related to the Company’s non-operating properties (which is included in Other operating charges, net).

      Discontinued Operations. Results for discontinued operations for 2003 were worse than 2002 by approximately $248.7 million. Approximately $152.0 million of such decrease resulted from an increase in impairment charges in respect of the Company’s interests in and related to commodities assets in 2003 ($368.0 million) compared to such impairment charges in 2002 ($214.7 million). The balance of the decrease primarily resulted from (a) higher energy costs at Alpart and Gramercy/ KJBC, (b) increased pension related expenses at Gramercy, (c) a decrease in third party shipments at Valco and charges for end of service benefits due to Valco’s curtailment in 2003, and (d) an increase in the foreign exchange rate. The foregoing was partially offset by increased third party average realized prices, increased third party alumina shipments, lower depreciation expense resulting from the 2002 year-end impairment of the Mead smelter assets and reductions in overhead costs primarily due to the Mead Facility and Valco curtailments.

Liquidity and Capital Resources

      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 their 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 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 2004, Fabricated products operating activities provided approximately $35.0 million of cash (approximately $70.0 million of which was generated from operating results offset by increases in working capital of approximately $35.0 million). This amount compares with 2003 when Fabricated products operating activities provided approximately $30.0 million of cash (substantially all of which was generated from operating results; working capital change was modest) and 2002 when Fabricated products operating activities provided approximately $70.0 million of cash (approximately $30.0 million of which was generated from operations and approximately $40.0 million of which resulted from a decrease in working capital). The increase in cash provided by Fabricated products operating results in 2004 was primarily due to improving demand for fabricated aluminum products. The increase in working capital in 2004 reflects the increase in demand as well as the significant increase in primary aluminum prices. In 2003 cost-cutting initiatives offset reduced product prices and shipments so that cash provided by operations approximated that in 2002. In 2002, the cash provided by working capital reduction was primarily due to reduced demand in the wake of the incidents on September 11, 2001, lower primary aluminum prices, product line exits and lean manufacturing initiatives. The foregoing analysis of fabricated products cash flow excludes 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. See Corporate and other operating activities below.

      Cash flows attributable to the Company’s interests in and related to Anglesey provided approximately $14.0 million, $12.0 million and $17.0 million in 2004, 2003 and 2002, respectively. Higher primary aluminum prices in 2004 caused the cash flows attributable to sales of primary aluminum production from Anglesey to be approximately $2.0 million higher in 2004 than in 2003 and 2002. Dividends of excess cash that had accumulated at Anglesey caused 2002 cash flows to be approximately $1.5 million higher than both 2003 and 2004. The balance of the differences in cash flows between years is primarily attributable to timing of shipments, payments and receipts.

30

      Corporate and other operating activities (including all of the Company’s “legacy” costs) utilized approximately $150.0 million, $100.0 million and $115.0 million of cash in 2004, 2003 and 2002, respectively. Cash outflows from Corporate and other operating activities in 2004, 2003 and 2002 included: (a) approximately $57.0 million, $60.0 million and $55.0 million, respectively, in respect of retiree medical obligations and VEBA funding for all former and current operating units; (b) payments for reorganization costs of approximately $35.0 million, $27.0 million and $14.0 million, respectively; and (c) payments in respect of General and Administrative costs totaling approximately $26.0 million, $27.0 million and $41.0 million, respectively. Corporate operating cash flow in 2003 included asbestos related insurance receipts of approximately $18.0 million. Cash outflows in 2004 also included $27.3 million to settle certain multi-site environmental claims.

      In 2004, Discontinued operation activities provided $64.0 million of cash. This compares with 2003 and 2002 when Discontinued operation activities used $29.5 million and $23.5 million of cash, respectively. The increase in cash provided by Discontinued operations in 2004 over 2003 resulted from improved operating results due primarily to the improvement in average realized alumina prices. The increase in cash used by Discontinued operations in 2003 over 2002 was primarily due to less favorable operating results in part reflecting higher than average fuel oil and natural gas prices. Such adverse operating factors were offset, in part, by increased average realized alumina prices.

      Investing Activities. Total capital expenditures for Fabricated products were $7.6 million, $8.9 million, and $10.2 million in 2004, 2003 and 2002, respectively. The capital expenditures 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 $19.0 million and $22.0 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 business plans, price outlook for metal and other products, its ability to maintain adequate liquidity and other factors.

      Total capital expenditures for Discontinued operations were $3.5 million, $28.3 million and $36.7 million in 2004, 2003 and 2002, respectively (of which $1.0 million, $8.9 million and $9.6 million were funded by the minority partners in certain foreign joint ventures).

      Financing Activities and Liquidity. On February 11, 2005, the Company and Kaiser entered into a new financing agreement with a group of lenders under which the Company was provided with a replacement for the existing post-petition credit facility and a commitment for a multi-year exit financing arrangement upon the Debtors’ emergence from the Chapter 11 proceedings. The new financing agreement:

•  Replaced the existing post-petition credit facility with a new $200.0 million “DIP Facility” and

•  Included a commitment, upon the Debtors’ emergence from the Chapter 11 proceedings, for exit financing in the form of a $200.0 million Revolving Credit Facility and a Term Loan of up to $50.0 million.

      The DIP Facility provides for a secured, revolving line of credit through the earlier of February 11, 2006, the effective date of a plan of reorganization or voluntary termination by the Company. Under the DIP Facility, the Company, Kaiser and certain subsidiaries of the Company are able to borrow amounts by means of revolving credit advances and to have issued letters of credit (up to $60.0 million) in an aggregate amount equal to the lesser of $200.0 million or a borrowing base comprised of eligible accounts receivable, eligible inventory and certain eligible machinery, equipment and real estate, reduced by certain reserves, as defined in the DIP Facility agreement. This amount available under the DIP Facility shall be reduced by $20.0 million if net borrowing availability falls below $40.0 million. Interest on any outstanding borrowings will bear a spread over either a base rate or LIBOR, at the Company’s option.

      The DIP Facility is secured by substantially all of the assets of the Company, Kaiser and the Company’s domestic subsidiaries other than certain amounts related to AJI, KJC, KAAC, and KFC whose assets are, subject to their liquidation plans (see Note 1 of Notes to Consolidated Financial Statements), expected to be distributed to the creditors of those subsidiaries. The DIP Facility is guaranteed by the Company and all of the Company’s material domestic subsidiaries other than AJI, KJC, KAAC, and KFC.

31

      Amounts owed under the DIP Facility may be accelerated under various circumstances more fully described in the DIP Facility agreement, including but not limited to, the failure to make principal or interest payments due under the DIP Facility, breaches of certain covenants, representations and warranties set forth in the DIP Facility agreement, and certain events having a material adverse effect on the business, assets, operations or condition of the Company taken as a whole.

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

      The principal terms of the committed Revolving Credit Facility would generally be the same as or more favorable than the DIP Facility, except that, among other things, the Revolving Credit Facility would close and be available upon the Debtors’ emergence from the Chapter 11 proceedings and would be expected to mature on February 11, 2010. The Term Loan commitment would be expected to close upon the Debtors’ emergence from the Chapter 11 proceedings and would be expected to mature on February 11, 2011.

      The DIP Facility replaced, on February 11, 2005, a post-petition credit facility (the “Replaced Facility”) that the Company and Kaiser entered into on February 12, 2002. Originally, the Replaced Facility provided for revolving credit advances of up to $300.0 million. This amount was reduced to $285.0 million in August 2003 and to $200.0 million in October 2004. The Replaced Facility was amended a number of times during its term as a result of, among other things, reorganization transactions, including disposition of the Company’s commodity-related assets.

      The Company has previously disclosed that in connection with the completion of the previously announced sales of its commodities interests, 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 above the $100.0 million range.

      The Company currently believes that the cash and cash equivalents, cash flows from operations, cash proceeds from the Intercompany Agreement and cash available from the DIP Facility will provide sufficient working capital to allow the Company to meet its obligations during the expected pendency of the Cases. At February 28, 2005, there were no outstanding borrowings under the DIP Facility. While there were only $1.8 million of letters of credit outstanding under the DIP Facility at February 28, 2005, there were approximately $15.9 million of outstanding letters of credit that had been issued under the Replaced Facility for which the Company had deposited cash of $16.7 million as collateral. These outstanding letters of credit are expected to be replaced with letters of credit issued under the DIP Facility, at which time, the applicable cash deposit will be refunded to the Company.

      Commitments and Contingencies. During the pendency of the Cases, substantially all pending litigation against the Debtors, except that relating to certain environmental matters, is stayed. Generally, claims against a Debtor arising from actions or omissions prior to its Filing Date will be satisfied as part of a plan of reorganization. See Note 11 of Notes to Consolidated Financial Statements for a more complete discussion of these matters.

      The Company is subject to a number of environmental laws, to fines or penalties assessed for alleged breaches of the environmental laws, and to claims and litigation based upon such laws. Based on the Company’s evaluation of these and other environmental matters, the Company has established environmental accruals of $58.3 million at December 31, 2004. However, the Company believes that it is reasonably possible that changes in various factors could cause costs associated with these environmental matters to exceed current accruals by amounts that could range, in the aggregate, up to an estimated $20.0 million.

      The Company has previously disclosed that, during April 2004, it was served with a subpoena for documents and has been notified by Federal authorities that they are investigating certain environmental

32

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 claim or charges, if any should result, vigorously. The Company cannot assess what, if any, impacts this matter may have on the Company’s or Kaiser’s financial statements.

      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, or 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 asbestos-related claims were pending. The Company has also previously disclosed that certain other personal injury claims had been filed in respect of alleged pre-Filing Date exposure to silica and coal tar pitch volatiles (approximately 3,900 claims and 300 claims, respectively). Due to the Cases, holders of asbestos, silica and coal tar pitch volatile claims are stayed from continuing to prosecute pending litigation and from commencing new lawsuits against the Debtors. 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 and, as described below, to negotiate insurance settlements and prosecute certain actions to clarify policy interpretations in respect of such coverage. As of December 31, 2004, the Company has established a $1,115.0 million accrual for estimated asbestos, silica and coal tar pitch volatile personal injury claims, before consideration of insurance recoveries. However, the Company believes that substantial recoveries from insurance carriers are probable. Accordingly, as of December 31, 2004, the Company has recorded an estimated aggregate insurance recovery of $967.0 million (determined on the same basis as the asbestos-related cost accrual). 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. See Note 11 for additional discussion of this matter.

      During February 2004, the Company reached a settlement in principle 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 claims totaling $15.8 million. During the Cases, the Company has received approximately 3,200 additional proofs of claim alleging pre-petition injury due to noise induced hearing loss. It is not known at this time how many, if any, of such claims have merit or at what level such claims might qualify within the parameters established by the above-referenced settlement in principle for the 400 claims. Accordingly, the Company cannot presently determine the impact or value of these claims. However, the Company currently expects that all noise induced hearing loss claims will be transferred, along with certain rights against certain insurance policies, to a separate trust along with the settled hearing loss cases discussed above, whether or not such claims are settled prior to the Company’s emergence from the Cases.

Other Matters

      Income Tax Matters. In light of the Cases, the Company has provided valuation allowances for all of its net deferred income tax assets as the Company no longer believes that the “more likely than not” recognition criteria is appropriate. A substantial portion or all of its tax attributes may be utilized to offset any gains that may result from the commodity asset sales and/or cancellation of indebtedness as a part of the Company’s reorganization. See Note 8 of Notes to Consolidated Financial Statements for a discussion of these and other income tax matters.

New Accounting Pronouncements

      The section “New Accounting Pronouncements” from Note 2 of Notes to Consolidated Financial Statements is incorporated herein by reference.

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Critical Accounting Policies

      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 year ended December 31, 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, and do not include possible impacts arising in respect of the Cases. The 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 consolidated financial statements included elsewhere in this Report. For example,

      a. 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 commodities interests, 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 its interests in and related to Alpart, 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.

      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 be 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.

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      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 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 difficult to make.

      2. The Company’s judgments and estimates with respect to commitments and contingencies, in particular: (a) future personal injury 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 assuming that there is no other amount which is more likely to occur.

      During the period 2002-2004, the Company has had two potentially material contingent obligations that were/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 personal injury-related matters. Both of these matters are discussed in Note 11 of Notes to Consolidated Financial Statements and it is important that you read this note.

      As more fully discussed in Note 11 of Notes to Consolidated Financial Statements, we accrued an amount in the fourth quarter of 2004 in respect of the USWA ULP matter. We did not accrue any amount prior to the fourth quarter of 2004 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 and Kaiser’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

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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 11 of Notes to Consolidated Financial Statements. However, this settlement was not recorded at that time as it was still subject to Court approval. The settlement was ultimately approved by the Court in February 2005 and, as a result of the contingency being removed with respect to this item (which arose prior to the December 31, 2004 balance sheet date), a non-cash charge of $175.0 million was reflected in the Company’s consolidated financial statements at December 31, 2004.

      Also, as more fully discussed in Note 11 of Notes to 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, or as a result of, 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. The Company has also previously disclosed that certain other personal injury claims had been filed in respect of alleged pre-Filing Date exposure to silica and coal tar pitch volatiles. Due to the Cases, existing lawsuits in respect of all such personal injury claims are stayed and new lawsuits cannot be commenced against us or the Company. It is difficult to predict the number of claims that will ultimately be made against the Company or the settlement value of such claims. Our December 31, 2004, balance sheet includes a liability for estimated asbestos-related costs of $1,115.0 million, which represents the Company’s estimate of the minimum end of a range of costs. The upper end of the Company’s estimate of costs is approximately $2,400.0 million and the Company is aware that certain constituents have asserted that they believe that actual costs may exceed the top end of the Company’s estimated range, by perhaps a material amount. As a part of any plan of reorganization it is likely that an estimation of the Company’s entire asbestos-related liability may occur. Any such estimation will likely result from negotiations between the Company and key creditor constituencies or an estimation process overseen by the Court. It is possible that any resulting estimate of the Company’s asbestos-related liability resulting from either process could exceed, perhaps significantly, the liability amounts reflected in the Company’s consolidated financial statements.

      We believe the Company has insurance coverage for a substantial portion of such asbestos-related costs. Accordingly, our December 31, 2004 balance sheet includes a long-term receivable for estimated insurance recoveries of $967.0 million. We believe that recovery of this amount is probable and additional amounts may be recoverable in the future if additional liability is ultimately determined to exist. However, we cannot assure you that all such amounts will be collected. The timing and amount of future recoveries from the Company’s insurance carriers will depend on the pendency of the Cases and on the resolution of disputes regarding coverage under the applicable insurance policies. Over the past several years, the Company has received a number of rulings in respect of insurance related litigation that it believes supports the amount reflected on the balance sheet. The trial court may hear additional issues from time to time. Further, depending on the amount of asbestos-related claims ultimately determined to exist, it is possible that the amount of such claims could exceed the amount of additional insurance recoveries available.

      Any adjustments ultimately deemed to be required as a result of the reevaluation of the Company’s asbestos-related liabilities or estimated insurance recoveries could have a material impact on the Company’s future financial statements. However, under an agreed term sheet, all of the Company’s personal injury–related obligations together with the benefits of its insurance policies and certain other consideration are to be transferred into one or more trusts at emergence.

      See Note 11 of Notes to 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) can also have a significant impact on such amounts.

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      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, certain charges have been recorded in 2003 and 2004 in respect of changes in the Company’s pension and post-retirement benefit plans. The PBGC has assumed responsibility for the three largest of the Company’s pension plans. Initially, the Company reflected the effects of these terminations based on the accounting methodologies for continuing plans. This resulted in charges of approximately $121.0 million in 2003 and another $155.0 million in 2004. This methodology was used to record these effects because there were arguments that the ultimate amount of liability could be higher or lower than that resulting from following GAAP for continuing plans, but the ultimate outcome was unknown. Ultimately, in order to advance the Cases, our negotiations with the PBGC resulted in the Company ultimately agreeing to a settlement amount that exceeded the recorded liability by approximately $154.0 million. The settlement was contingent on Court approval. While Court approval was received in January 2005, a charge was reflected in the fourth quarter of 2004 for this settlement as the pension obligations to which the charge related existed at December 31, 2004. Pursuant to the agreement with the PBGC, the Company will continue to sponsor the Company’s remaining pension plans. In addition, as previously disclosed, the Company’s post-retirement medical plans were terminated during 2004 and were replaced with medical coverage through COBRA or the VEBAs. However, definitive, final termination of the previous post-retirement benefit plan was contingent on Court approval of the Intercompany Agreement, which was ultimately received in February 2005. As a result of the removal of the contingency, the Company reflected an approximately $312.5 million charge associated with the termination of the plan at December 31, 2004 as the liability for this existed at the balance sheet date. The amount of the charge relates to amounts previously deferred under GAAP for continuing plans.

      While the amounts involved with the new/remaining plans are substantially less than the amounts in respect of the terminated plans (and thus subject to a lesser amount of expected volatility in amounts) they are, nonetheless, subject to the same sorts of changes and any such changes could be material to continuing operations. See Note 9 of Notes to Consolidated Financial Statements regarding the Company’s pension and post-retirement obligations.

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

      The Company is subject to a number of environmental laws and regulations, to fines or penalties assessed for alleged breaches of such laws and regulations, and to claims and litigation based upon such laws and regulations. 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.

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      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 11 of Notes to Consolidated Financial Statements. Another example discussed in Note 11 of Notes to 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 certain 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.

Contractual Obligations and Commercial Commitments

      The following summarizes the Company’s significant contractual obligations at December 31, 2004 (dollars in millions):

			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)	$	4.0	$	1.2	$	1.2	$	—	$	1.6
Operating leases		6.8		2.1		3.0		1.4		.3
Total cash contractual obligations	$	10.8	$	3.3	$	4.2	$	1.4	$	1.9

(a)  See Note 7 of Notes to Consolidated Financial Statements for information in respect of long-term debt. Long-term debt obligations exclude debt subject to compromise of approximately $847.6 million, which amounts will be dealt with in connection with a plan of reorganization. See Notes 1 and 7 of Notes to Consolidated Financial Statements for additional information about debt subject to compromise.

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

      The Company currently 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 sells its share of QAL’s production to third parties. The shareholders, including the Company, purchased 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 December 31, 2004 was $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 $70.0 million and $100.0 million per year over the past three years. However, as discussed more fully in Note 5 of Notes to Consolidated Financial Statements, the Company’s sale of its interests in and related to QAL is expected to close in April 2005. As a result, the Company’s obligations in respect of its share of the QAL debt

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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 December 31, 2004, outstanding letters of credit under the Replaced Facility were approximately $31.5 million, substantially all of which expire within the next twelve months. The letters of credit relate primarily to environmental, insurance and other activities.

      The Company anticipates that it will provide a defined contribution pension plan in respect of its salaried employees. The Company currently estimates that the total annual cash cost of such plans would be less than $5.0 million and expects such plan implement in the second quarter of 2005.

      Pursuant to the terms of the USWA agreement (see Note 9 of Notes to 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 and years of service. In addition, in connection with the settlement with the PBGC which was approved by the Court in January 2005, the Company will continue to sponsor specific pension plans at four of the Company’s locations and will satisfy the estimated $4.1 million minimum funding contribution. 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 the USWA agreement, which was approved by the Court in February 2005. As provided in the amendment, the Company will be required to pay an additional annual contribution of $1.0 million.

      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 warranties up to $5.0 million which amount has been recorded in long-term liabilities in the accompanying financial statements. The indemnity expires in October 2006.

      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 and other 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 of the Senior Notes, the Sub Notes and PBGC. The agreement was approved by the Court in November 2004 and is expected to close in April 2005.

      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

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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 Intercompany Agreement together with existing cash resources and borrowing availability under the exit financing facilities that are expected to replace the DIP Facility.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      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 12 of Notes to 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 natural gas 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.

Sensitivity

      Primary Aluminum. The Company’s share of primary aluminum production from Anglesey is approximately 150,000,000 pounds annually. Because the Company purchases alumina for Anglesey at prices linked to primary aluminum prices, only a portion of the Company’s net revenues associated with Anglesey are exposed to price risk. The Company estimates the net portion of its share of Anglesey production exposed to primary aluminum price risk to be approximately 100,000,000 pounds annually.

      As stated above, 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. However, in certain instances the Company does enter into firm price arrangements. In such instances, the Company does have price risk on its anticipated primary aluminum purchase in respect of the customer’s order. Total fabricated products shipments during 2002, 2003 and 2004 for which the Company had price risk were (in millions of pounds) 99.0, 97.6, and 119.0, respectively.

      During the last three years the volume of fabricated products shipments with underlying primary aluminum price risk were roughly the same as the Company’s net exposure to primary aluminum price risk at Anglesey. As such, the Company considers its access to Anglesey production overall to be a “natural” hedge against any fabricated products firm metal-price risk. However, since the volume of fabricated products shipped under firm prices may not match up on a month-to-month basis with expected Anglesey-related primary aluminum shipments, the Company may use third party hedging instruments to eliminate any net remaining primary aluminum price exposure existing at any time.

      At December 31, 2004, the fabricated products business held contracts for the delivery of fabricated aluminum products that have the effect of creating price risk on anticipated primary aluminum purchases for the period 2005 -2008 totaling approximately (in millions of pounds): 2005: 104.0, 2006: 41.0, 2007: 38.0, and 2008: 10.0.

      Foreign Currency. The Company from time to time will enter into forward exchange contracts to hedge material cash commitments for foreign currencies. After considering the pending and completed sales of the Company’s commodity interests, the Company’s primary foreign exchange exposure is the Anglesey-related commitment that the Company funds in Great Britain Pound Sterling (“GBP”). The Company estimates that, before consideration of any hedging activities, a US $0.01 increase (decrease) in the value of the GBP results in an approximate $0.5 million (decrease) increase in the Company’s annual pre-tax operating income.

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Item 8.                         Financial Statements and Supplementary Data

	Page
Report of Independent Registered Public Accounting Firm		42
Consolidated Balance Sheets		43
Statements of Consolidated Income (Loss)		44
Statements of Consolidated Stockholders’ Equity (Deficit) and Comprehensive Income (Loss)		45
Statements of Consolidated Cash Flows		46
Notes to Consolidated Financial Statements		47
Quarterly Financial Data (Unaudited)		107
Five-Year Financial Data		108

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(DEBTOR-IN-POSSESSION)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Kaiser Aluminum & Chemical Corporation:

      We have audited the accompanying consolidated balance sheets of Kaiser Aluminum & Chemical Corporation (Debtor-In-Possession) and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income (loss), stockholders’ equity (deficit) and comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Kaiser Aluminum & Chemical Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Note 1, the Company, Kaiser Aluminum Corporation, its parent company, and certain of the Company’s subsidiaries have filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. The accompanying consolidated financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to pre-petition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to stockholder accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations, the effect of any changes that may be made in its business.

      The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 2, the action of filing for reorganization under Chapter 11 of the Federal Bankruptcy Code, losses from operations and stockholders’ capital deficiency raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 1. The financial statements do not include adjustments that might result from the outcome of this uncertainty.

/s/ Deloitte & Touche LLP

Houston, Texas

March 31, 2005

42

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

CONSOLIDATED BALANCE SHEETS

				December 31,
				2004			2003
				(In millions of dollars,
				except share amounts)
ASSETS
Current assets:
		Cash and cash equivalents		$	55.4		$	35.5
		Receivables:
			Trade, less allowance for doubtful receivables of $6.9 and $6.4		97.4			61.4
			Due from affiliate		8.0			12.8
			Other		10.9			11.5
		Inventories			105.3			92.5
		Prepaid expenses and other current assets			19.6			23.8
		Discontinued operations’ current assets			30.6			193.7
			Total current assets		327.2			431.2
Investments in and advances to unconsolidated affiliate					16.7			13.1
Property, plant, and equipment — net					214.6			230.1
Restricted proceeds from sale of commodity interests					280.8			—
Personal injury-related insurance recoveries receivable					967.0			465.4
Other assets					42.5			55.1
	Discontinued operations’ long-term assets				38.9			433.8
			Total	$	1,887.7		$	1,628.7
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Liabilities not subject to compromise —
		Current liabilities:
			Accounts payable	$	50.2		$	34.7
			Accrued interest		.9			.8
			Accrued salaries, wages, and related expenses		48.9			31.6
			Accrued postretirement medical benefit obligation — current portion		—			32.5
			Other accrued liabilities		73.8			29.7
			Payable to affiliate		14.6			11.4
			Long-term debt — current portion		1.2			1.3
			Discontinued operations’ current liabilities		57.7			177.5
			Total current liabilities		247.3			319.5
		Long-term liabilities			32.9			59.4
		Long-term debt			2.8			2.2
		Discontinued operations’ long-term liabilities, including minority interests of $121.1 in 2003			26.4			208.7
					309.4			589.8
Liabilities subject to compromise					3,954.9			2,770.1
Commitments and contingencies
Stockholders’ equity (deficit):
		Preference stock — Cumulative and Convertible, par value $100, authorized 1,000,000 shares, issued and outstanding 8,669 shares			.7			.7
		Common stock, par value $.331/3 cents, authorized 1,000,000 shares; issued and outstanding 46,171,365 shares			15.4			15.4
		Additional capital			2,452.8			2,454.0
		Accumulated deficit			(2,648.3	)		(1,901.7	)
		Accumulated other comprehensive income (loss)			(5.5	)		(107.9	)
		Note receivable from parent			(2,191.7	)		(2,191.7	)
			Total stockholders’ equity (deficit)		(2,376.6	)		(1,731.2	)
			Total	$	1,887.7		$	1,628.7

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

43

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

STATEMENTS OF CONSOLIDATED INCOME (LOSS)

			Year Ended December 31,
			2004			2003			2002
			(In millions of dollars)
Net sales			$	942.4		$	710.2		$	709.0
Costs and expenses:
	Cost of products sold			852.2			681.2			671.4
	Depreciation and amortization			22.3			25.7			32.3
	Selling, administrative, research and development, and general			92.1			92.3			118.5
	Other operating charges (benefits), net			793.2			141.6			31.8
		Total costs and expenses		1,759.8			940.8			854.0
Operating loss				(817.4	)		(230.6	)		(145.0	)
Other income (expense):
	Interest expense (excluding unrecorded contractual interest expense of $95.0 in 2004, $95.0 in 2003 and $84.0 in 2002)			(9.5	)		(9.1	)		(19.0	)
	Reorganization items			(39.0	)		(27.0	)		(33.3	)
	Other — net			4.2			(5.2	)		(.9	)
Loss before income taxes and discontinued operations				(861.7	)		(271.9	)		(198.2	)
Provision for income taxes				(6.2	)		(1.5	)		(4.2	)
Loss from continuing operations				(867.9	)		(273.4	)		(202.4	)
Discontinued operations:
	Loss from discontinued operations, net of income taxes, including minority interests			(5.3	)		(514.7	)		(266.0	)
	Gain from sale of commodity interests			126.6			—			—
Income (loss) from discontinued operations				121.3			(514.7	)		(266.0	)
Net loss			$	(746.6	)	$	(788.1	)	$	(468.4	)

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

44

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY (DEFICIT) AND

COMPREHENSIVE INCOME (LOSS)

												Accumulated
												Other			Note
												Comprehensive			Receivable
		Preference		Common		Additional			Accumulated			Income			From
		Stock		Stock		Capital			Deficit			(Loss)			Parent			Total
		(In millions of dollars)
BALANCE December 31, 2001		$	.7	$	15.4	$	2,437.6		$	(645.2	)	$	(67.3	)	$	(2,175.2	)	$	(434.0	)
	Net loss		—		—		—			(468.4	)		—			—			(468.4	)
	Minimum pension liability adjustment		—		—		—			—			(136.6	)		—			(136.6	)
	Unrealized net decrease in value of derivative instruments arising during the year prior to settlement		—		—		—			—			(12.1	)		—			(12.1	)
	Reclassification adjustment for net realized gains on derivative instruments included in net loss, net		—		—		—			—			(27.9	)		—			(27.9	)
	Comprehensive income (loss)		—		—		—			—			—			—			(645.0	)
	Interest on note receivable to parent		—		—		16.5			—			—			(16.5	)		—
	Contributions for LTIP shares		—		—		.7			—			—			—			.7
BALANCE, December 31, 2002			.7		15.4		2,454.8			(1,113.6	)		(243.9	)		(2,191.7	)		(1,078.3	)
	Net loss		—		—		—			(788.1	)		—			—			(788.1	)
	Minimum pension liability adjustment		—		—		—			—			138.6			—			138.6
	Unrealized net decrease in value of derivative instruments arising during the year		—		—		—			—			(1.6	)		—			(1.6	)
	Reclassification adjustment for net realized gains on derivative instruments included in net loss		—		—		—			—			(1.0	)		—			(1.0	)
	Comprehensive income (loss)		—		—		—			—			—			—			(652.1	)
	Restricted stock cancellations		—		—		(1.0	)		—			—			—			(1.0	)
	Restricted stock accretion		—		—		.2			—			—			—			.2
BALANCE, December 31, 2003			.7		15.4		2,454.0			(1,901.7	)		(107.9	)		(2,191.7	)		(1,731.2	)
	Net loss		—		—		—			(746.6	)		—			—			(746.6	)
	Minimum pension liability adjustment		—		—		—			—			97.9			—			97.9
	Unrealized net increase in value of derivative instruments arising during the year		—		—		—			—			2.1			—			2.1
	Reclassification adjustment for net realized losses on derivative instruments included in net loss		—		—		—			—			2.4			—			2.4
	Comprehensive income (loss)		—		—		—			—			—			—			(644.2	)
	Restricted stock cancellations		—		—		(1.2	)		—			—			—			(1.2	)
BALANCE, December 31, 2004		$	.7	$	15.4	$	2,452.8		$	(2,648.3	)	$	(5.5	)	$	(2,191.7	)	$	(2,376.6	)

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

45

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

STATEMENTS OF CONSOLIDATED CASH FLOWS

					Year Ended December 31,
					2004			2003			2002
					(In millions of dollars)
Cash flows from operating activities:
	Net loss				$	(746.6	)	$	(788.1	)	$	(468.4	)
		Less net income (loss) from discontinued operations				121.3			(514.7	)		(266.0	)
		Net loss from continuing operations				(867.9	)		(273.4	)		(202.4	)
		Adjustments to reconcile net loss from continuing operations to net cash used by continuing operations:
			Non-cash charges in other operating charges			805.3			161.7			38.9
			Depreciation and amortization (including deferred financing costs of $5.8, $4.7 and $3.8, respectively)			28.1			30.4			36.1
			Gains — sale of Tacoma facility in 2003, sale of real estate and miscellaneous equipment in 2002			—			(14.5	)		(3.8	)
			Equity in (income) loss of unconsolidated affiliates, net of distributions			(4.0	)		1.0			2.4
			(Increase) decrease in trade and other receivables			(30.7	)		(13.5	)		7.3
			(Increase) decrease in inventories, excluding LIFO adjustments and other non-cash operating items			(24.5	)		10.7			31.2
			Decrease (increase) in prepaid expenses and other current assets			.8			3.1			(5.9	)
			Increase in accounts payable and accrued interest			16.4			8.1			30.5
			(Decrease) increase in other accrued liabilities			(18.6	)		9.8			13.0
			Increase in payable to affiliates			3.3			.2			.4
			Increase (decrease) in accrued and deferred income taxes			1.7			(4.1	)		.6
			Net cash impact of changes in long-term assets and liabilities			(11.5	)		27.1			22.9
			Net cash provided (used) by discontinued operations			64.0			(29.5	)		(23.5	)
			Other			(.4	)		(4.0	)		.6
				Net cash used by operating activities		(38.0	)		(86.9	)		(51.7	)
Cash flows from investing activities:
	Net proceeds from dispositions: real estate and equipment in 2004, primarily Tacoma facility and interests in office building complex in 2003, primarily Fabricated products’ equipment in 2002					2.3			83.0			28.5
	Capital expenditures					(7.6	)		(8.9	)		(10.9	)
	Net cash provided (used) by discontinued operations; primarily proceeds from sale of commodity interests in 2004 and Alpart-related capital expenditures in 2003 and 2002					356.7			(25.0	)		(33.8	)
				Net cash provided (used) by investing activities		351.4			49.1			(16.2	)
Cash flows from financing activities:
	Financing costs, primarily DIP Facility related					(2.4	)		(4.1	)		(8.8	)
	Net cash used for restricted proceeds from sale of commodity interests and payment of Alpart CARIFA loan of $14.6					(291.1	)		—			—
				Net cash used by financing activities		(293.5	)		(4.1	)		(8.8	)
Net increase (decrease) in cash and cash equivalents during the year						19.9			(41.9	)		(76.7	)
Cash and cash equivalents at beginning of year						35.5			77.4			154.1
Cash and cash equivalents at end of year					$	55.4		$	35.5		$	77.4
Supplemental disclosure of cash flow information:
	Interest paid, net of capitalized interest of $.1, $.2 and $.1				$	3.8		$	4.0		$	5.4
	Less interest paid by discontinued operations, net of capitalized interest of $.9 in 2003 and $1.1 in 2002					(.9	)		(1.2	)		(1.4	)
					$	2.9		$	2.8		$	4.0
	Income taxes paid				$	10.7		$	46.1		$	37.5
	Less income taxes paid by discontinued operations					(10.7	)		(41.3	)		(34.5	)
					$	—		$	4.8		$	3.0

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

46

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions of dollars, except share amounts)

1. Reorganization Proceedings

      Background. 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.

      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 Original Debtors found it necessary to file the Cases primarily because of liquidity and cash flow problems of the Company and its subsidiaries that arose 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.

      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 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.

      The outstanding principal of, and accrued interest on, all debt of the 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 Debtors’ Cases, the Court, upon motion by the Debtors, authorized the 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

47

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

business, subject to certain limitations and to continue using the Company’s existing cash management systems. The 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 Debtors agree to perform their obligations and cure certain existing defaults under an executory contract and “rejection” means that the 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.

      Case Administration. Generally, pre-Filing Date claims, including certain contingent or unliquidated claims, against the 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 bar dates (established by the Court) by which holders of pre-Filing Date claims against the Debtors (other than asbestos-related personal injury claims) could file their claims have passed. Any holder of a claim that was required to file such claim by such bar date and did not do so may be barred from asserting such claim against any of the 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 bar dates do not apply to asbestos-related personal injury claims, for which no bar date has been set.

      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 Court-appointed 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”), 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 (other than AJI, KJC, KAAC and KFC) to June 30, 2005. Exclusivity for AJI, KJC, KAAC and KFC was most recently extended to April 30, 2005. 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.

      Commodity-related and Inactive Subsidiaries. As previously disclosed, the Company expects that by April 2005 it will have sold all of its commodity-related interests other than its interests in Anglesey. It is

48

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

anticipated that, as more fully discussed below, the proceeds from the sale of these interests will be distributed primarily to the affected subsidiaries’ creditors pursuant to certain liquidating plans and other agreements. The primary subsidiaries affected by this strategy are AJI, KJC, KAAC, KFC and KBC.

      During November 2004, four of the Company’s commodity-related subsidiaries (AJI, KJC, KAAC and KFC, collectively, the “Liquidating Subsidiaries”) filed separate joint plans of liquidation and related disclosure statements with the Court. Such plans, together with all amendments filed thereto, are separately referred to as the “AJI/KJC Plan” and the “KAAC/KFC Plan” and collectively as the “Liquidating Plans”). Under the Liquidating Plans, the assets of those entities, consisting primarily of the net cash proceeds received (or to be received) by them in connection with the sales of their commodities interests, will be transferred to liquidating trusts, whereupon the Liquidating Subsidiaries will be dissolved. The liquidating trusts will then make distributions to the creditors of the Liquidating Subsidiaries in accordance with the Liquidating Plans. As indicated in the Liquidating Plans, it is currently anticipated that the Liquidating Subsidiaries will have an aggregate of approximately $673.8 of cash available for distribution to creditors when the Liquidating Plans become effective. The Liquidating Plans outline the specific treatment of creditors and their estimated recoveries in respect of the Liquidating Subsidiaries under several possible scenarios. The Liquidating Plans indicate that, after payment of priority claims, trust expenses (initial reserves for which are expected to be established in the range of $37.0 to $46.0), and payments to the Company under the Intercompany Settlement Agreement (“Intercompany Agreement”) (see discussion below) the Liquidating Subsidiaries anticipate ultimately distributing available cash to the following claimholders in the following amounts:

Senior Notes and Senior Subordinated Notes	$390.7 to $421.8
PBGC	$187.6 to $198.5
State of Louisiana Solid Waste Revenue Bonds	$  0.0 to $  8.0

      Under the Liquidating Plans as filed with the Court, $16.0 of payments are to be made for the benefit of holders of the Company’s 12³/4% Senior Subordinated Notes (the “Sub Notes”) if, and only if, the holders of both (a) the Company’s 9⁷/8% Senior Notes and 10⁷/8% Senior Notes (collectively, the “Senior Notes”) and (b) the Sub Notes, approve the plans. If either the holders of the Senior Notes or the Sub Notes fail to accept the Liquidating Plans, the Court will determine distributions to such holders. Holders of the Parish of St. James, State of Louisiana, Solid Waste Disposal Revenue Bonds (the “Revenue Bonds”) are not allowed a vote on the Liquidating Plans but will receive up to $8.0 only if the Liquidating Plans are accepted by the Senior Notes and, unless the holders of the Senior Notes agree, all holders of the Senior Notes receive the identical treatment under the Liquidating Plans. If the Liquidating Plans are not accepted by the holders of the Senior Notes then, pursuant to the Liquidating Plans, the Court will determine the distributions to 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.

      As previously disclosed, 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 (and in particular the Liquidating Subsidiaries) may not, as a technical matter, be contractually subordinate to the claims of the holders of the Senior Notes against the subsidiary guarantors (including AJI, KJC, KAAC and KFC). A separate group that holds both Sub Notes and the Company’s 9⁷/8% Senior Notes has made a similar assertion, but at the same time, maintains that a portion of the Company’s 9⁷/8% Senior Notes holders’ claims against the subsidiary guarantors are contractually senior to the Sub Notes holders’ claims against the subsidiary guarantors. The effect of such positions, if ultimately sustained, would be that the holders of Sub Notes would be on a par with all or portion of the holders of the Senior Notes in respect of proceeds from sales of the Company’s interests in and related to the Liquidating Subsidiaries. If both the holders of the Senior Notes and the holders of the Sub Notes do not approve the Liquidating Plans, then the Court will determine the

49

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

appropriate allocation to these groups under the Liquidating Plans. While the Company cannot currently predict how the Court might rule in such an instance, based on the objections and pleadings filed by the Sub Note Group and the group that holds Sub Notes and the Company’s 9⁷/8% Senior Notes, if the Court were to rule in favor of the Sub Notes, the Company estimates that it is possible that the holders of the Sub Notes could receive between approximately $67.0 and approximately $215.0 depending on whether the Sub Notes were determined to rank on par with a portion or all of the Senior Notes. Conversely, if the holders of both the Senior Notes and the Sub Notes do not approve the Liquidating Plans and the Court were to rule in favor of the Senior Notes, then it is possible that the holders of the Sub Notes would receive no distributions under Liquidating Plans. 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 (including the Liquidating Subsidiaries). The Company cannot predict, however, the ultimate resolution of the matters raised by the Sub Note Group, or the other 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.

      The Court approved the disclosure statements related to the Liquidating Plans in February 2005 and the Liquidating Subsidiaries are now seeking confirmation of the Liquidating Plans at a confirmation hearing scheduled to be held in April 2005. However, there can be no assurance as to whether or when the Liquidating Plans will be confirmed by the Court or ultimately consummated or, if confirmed and consummated as to the amount of distributions to be made to individual creditors of the Liquidating Subsidiaries or the Company. The foregoing disclosure is not intended to be, nor should it be construed to be, a solicitation for a vote on the Liquidating Plans. The Liquidating Plans relate exclusively to AJI, KJC, KAAC and KFC and will have no impact on the normal, ongoing operations of the Company’s Fabricated products business unit or other continuing operations.

      The above amounts are net of payments that are to be made by AJI, KJC and KAAC to the Company in respect of pre-petition and post-Filing Date intercompany claims pursuant to the Intercompany Agreement that was approved by the Court in February 2005. The Intercompany Agreement also resolves substantially all other pre-and post-petition intercompany claims between the Debtors. The Intercompany Agreement 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 (1) 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 approximately $21.0 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 $15.0 range collected by the Company through December 31, 2004); and (c) third party costs and certain limited overhead of the Company’s activities related to the sale of AJI’s, KJC’s and KAAC’s respective interests in and related to Alpart and QAL and (2) any purchase price adjustments (other than incremental amounts related to alumina sales contracts to be transferred) pursuant to the Company’s sale of its interests in Alpart. 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 and $28.0 in November 2004 as a partial payment of Alpart-related sales proceeds. The Intercompany Agreement calls for the remaining payments to be made in specific increments to the Company at the earlier of the time of the closing of the sale of the Company’s interests in QAL and upon the effective dates of the Liquidating Plans.

      It is anticipated that KBC will be dealt with either separately or in concert with the Company plan of reorganization as more fully discussed below. Sixteen of the Debtors (including KAC) have no material ongoing activities or operations and have no material assets or liabilities other than intercompany claims (which are to be resolved pursuant to the Intercompany Agreement). The Company believes that it is likely that most of these entities will ultimately be merged out of existence or dissolved in some manner.

50

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Entities Containing the Fabricated Products and Certain Other Operations. Claims of creditors, other than claims paid by the Liquidating Subsidiaries under the Liquidating Plans, will have to be satisfied by the assets of the Company, KACOCL, and Bellwood, which generally include the fabricated products plants and their working capital, the interests in and related to Anglesey Aluminium Limited (“Anglesey”) and proceeds to be received under the Intercompany Agreement.

      The Debtors anticipate that substantially all remaining liabilities of the Debtors as of their Filing Date will be settled under a single joint plan of reorganization to be proposed and voted on in accordance with the provisions of the Code. In working toward a plan of reorganization, as more fully discussed below, the remaining Debtors have reached individual agreements with most of the significant creditor constituents in the Cases including the Committees, the Futures’ Representatives, the PBGC, and the appropriate union representatives. However, the ultimate treatment of individual groups of creditors in any such plan of reorganization cannot be determined definitively at this time as such treatment (and the specific recoveries of 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 creditor 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. Further, while the Debtors intend to file and seek confirmation of a plan, there can be no assurance as to when the Debtors will file such a plan or as to whether any such plan will be confirmed by the Court and consummated.

      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.

      Based on the previously disclosed agreements and understandings reached with key creditor constituents, the Company anticipates that the disclosure statement and plan of reorganization for the Company, Kaiser and other Debtors necessary to ongoing operations will reflect the following principle elements:

      (a) All post-petition and secured claims are expected to either be assumed by the emerging entity or paid at emergence (see Exit Cost discussion below);

      (b) Pursuant to agreements reached with salaried and hourly retirees in early 2004, in return for cancellation of the retiree medical plan, as more fully discussed in Note 9, the Company is making certain fixed monthly payments into Voluntary Employee Beneficiary Associations (“VEBAs”) until emergence and then has agreed to make certain variable annual VEBA contributions depending on the emerging entity’s operating results and financial liquidity. In addition, upon emergence the VEBAs are to receive a contribution of 75% of the residual value of the remaining Debtors in the form of newly issued equity in the emerging entity. Residual value in this context means the Company’s remaining value after taking into account: (i) the contributions to the personal injury trust described below; (ii) the satisfaction of administrative, priority and secured claims as per (a) above; (iii) an equity incentive plan; and (iv) the satisfaction of the PBGC’s claim against KACOCL;

      (c) Pursuant to an agreement reached in early 2005, all pending and future asbestos-related personal injury claims, all pending and future silica and coal tar pitch volatiles personal injury claims and all hearing loss claims would be resolved through the formation of one or more trusts to which all such

51

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

claims would be directed by channeling injunctions that would permanently remove all liability for such claims from the Debtors. The trusts would be funded pursuant to statutory requirements and agreements with representatives of the affected parties, using (i) the Debtors’ insurance assets, (ii) $13.0 in cash from the Company, (iii) 100% of the equity in a Company subsidiary whose sole asset will be a piece of real property that produces modest rental income, and (iv) a portion of the emerging entity’s equity in proportion to approximately $830.0 of intercompany claims of KFC against the Company that are to be assigned to the trust (which will be satisfied out of the 25% of equity referred to in (d) below); and

      (d) Other pre-petition claims will receive 25% of the residual value of the remaining Debtors in the form of equity in the emerging entity. Claims that are expected to be within this group include (i) any claims of the Senior Notes, the Sub Notes and PBGC that are not satisfied under the Liquidating Plans, (ii) the approximate $830.0 of intercompany claims that the Company has agreed to assign to the personal injury trust(s) referred to in (c) above, and (iii) all unsecured trade and other claims. Included in this category are approximately $276.0 of intercompany claims of KFC against the Company that will be a part of the consideration in the Liquidating Trusts.

      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 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 7). If payments made to the Company under the Intercompany Agreement together with existing cash resources and borrowing availability under an exit financing facility are not sufficient to pay or otherwise provide for all Exit Costs, the Company and Kaiser 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 an 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 second half of 2005. 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, inherent market-related risks, Court approval for various matters and the 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 American Institute of Certified Professional Accountants (“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

52

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 liabilities subject to compromise (that will be relieved upon emergence), 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:

Condensed Consolidating Balance Sheets

December 31, 2004

							Consolidation/
							Elimination
		Debtors			Non-Debtors		Entries			Consolidated
Current assets		$	294.5		$	2.1	$	—		$	296.6
Discontinued operations’ current assets			30.6			—		—			30.6
Investments in subsidiaries and affiliates			20.9			—		(4.2	)		16.7
Intercompany receivables (payables), net			(4.5	)		4.5		—			—
Property and equipment, net			214.6			—		—			214.6
Restricted proceeds from sale of commodity assets			280.8			—		—			280.8
Personal injury-related insurance recoveries receivable			967.0			—		—			967.0
Other assets			42.5			—		—			42.5
Discontinued operations’ long term assets			38.9			—		—			38.9
		$	1,885.3		$	6.6	$	(4.2	)	$	1,887.7
Liabilities not subject to compromise —
	Current liabilities	$	188.4		$	3.2	$	(2.0	)	$	189.6
	Discontinued operations’ current liabilities		57.7			—		—			57.7
	Long-term liabilities		34.5			1.2		—			35.7
	Discontinued operations’ long-term liabilities		26.4			—		—			26.4
Liabilities subject to compromise			3,954.9			—		—			3,954.9
Stockholders’ equity (deficit)			(2,376.6	)		2.2		(2.2	)		(2,376.6	)
		$	1,885.3		$	6.6	$	(4.2	)	$	1,887.7

53

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Balance Sheets

December 31, 2003

							Consolidation/
							Elimination
		Debtors			Non-Debtors(1)		Entries			Consolidated
Current assets		$	234.6		$	2.9	$	—		$	237.5
Discontinued operations’ current assets			93.5			100.2		—			193.7
Investments in subsidiaries and affiliates			357.0			—		(343.9	)		13.1
Intercompany receivables (payables), net			(5.4	)		5.4		—			—
Property and equipment, net			230.1			—		—			230.1
Personal injury-related insurance recoveries receivable			465.4			—		—			465.4
Other assets			55.1			—		—			55.1
Discontinued operations’ long term assets			(37.2	)		471.0					433.8
		$	1,393.1		$	579.5	$	(343.9	)	$	1,628.7
Liabilities not subject to compromise —
	Current liabilities	$	139.4		$	4.6	$	(2.0	)	$	142.0
	Discontinued operations’ current liabilities		90.8			86.7		—			177.5
	Long-term liabilities		60.0			1.6		—			61.6
	Discontinued operations’ long-term liabilities		64.0			129.1		15.6			208.7
Liabilities subject to compromise			2,770.1			—		—			2,770.1
Stockholders’ equity (deficit)			(1,731.2	)		357.5		(357.5	)		(1,731.2	)
		$	1,393.1		$	579.5	$	(343.9	)	$	1,628.7

(1)  Non-debtors’ discontinued operations’ amounts relate primarily to Alpart and Valco.

54

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Income (Loss)

For the Year Ended December 31, 2004

								Consolidation/
								Elimination
		Debtors			Non-Debtors			Entries		Consolidated
Net sales		$	942.4		$	—		$	—	$	942.4
Costs and expenses —
	Operating costs and expenses		966.1			.5			—		966.6
	Other operating charges (benefits), net		793.2			—			—		793.2
			1,759.3			.5					1,759.8
Operating income (loss)			(816.9	)		(.5	)		—		(817.4	)
Interest expense			(9.5	)		—			—		(9.5	)
All other income (expense), net			(41.2	)		.6			5.8		(34.8	)
Income tax and minority interests			(6.2	)		—			—		(6.2	)
Equity in income of subsidiaries			(52.2	)					52.2		—
Loss from continuing operations			(926.0	)		.1			58.0		(867.9	)
Discontinued operations			179.4			(58.1	)		—		121.3
Net income (loss)		$	(746.6	)	$	(58.0	)	$	58.0	$	(746.6	)

Condensed Consolidating Statements of Income (Loss)

For the Year Ended December 31, 2003

								Consolidation/
								Elimination
		Debtors			Non-Debtors			Entries		Consolidated
Net sales		$	710.2		$	—		$	—	$	710.2
Costs and expenses —
	Operating costs and expenses		798.5			.7			—		799.2
	Other operating charges (benefits), net		141.6			—			—		141.6
			940.1			.7			—		940.8
Operating income (loss)			(229.9	)		(.7	)		—		(230.6	)
Interest expense			(9.1	)		—			—		(9.1	)
All other income (expense), net			(43.6	)		.2			11.2		(32.2	)
Income tax and minority interests			(1.6	)		.1			—		(1.5	)
Equity in income of subsidiaries			(21.2	)		—			21.2		—
Loss from continuing operations			(305.4	)		(.4	)		32.4		(273.4	)
Discontinued operations			(482.7	)		(32.0	)		—		(514.7	)
Net income (loss)		$	(788.1	)	$	(32.4	)	$	32.4	$	(788.1	)

55

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Income (Loss)

For the Year Ended December 31, 2002

								Consolidation/
								Elimination
		Debtors			Non-Debtors			Entries		Consolidated
Net sales		$	709.0		$	—		$	—	$	709.0
Costs and expenses —
	Operating costs and expenses		821.7			.5			—		822.2
	Other operating charges (benefits), net		31.8			—			—		31.8
			853.5			.5			—		854.0
Operating income (loss)			(144.5	)		(.5	)		—		(145.0	)
Interest expense			(19.0	)		—			—		(19.0	)
All other income (expense), net			(44.8	)		.3			10.3		(34.2	)
Income tax and minority interests			(4.0	)		(.2	)		—		(4.2	)
Equity in income of subsidiaries			(2.5	)		—			2.5		—
Loss from continuing operations			(214.8	)		(.4	)		12.8		(202.4	)
Discontinued operations			(253.6	)		(12.4	)		—		(266.0	)
Net income (loss)		$	(468.4	)	$	(12.8	)	$	12.8	$	(468.4	)

56

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2004

								Consolidation/
								Elimination
		Debtors			Non-Debtors			Entries		Consolidated
Net cash provided (used) by:
Operating activities —
	Continuing operations	$	(101.8	)	$	(.2	)	$	—	$	(102.0	)
	Discontinued operations		46.0			18.0			—		64.0
			(55.8	)		17.8			—		(38.0	)
Investing activities —
	Continuing operations		(5.3	)		—			—		(5.3	)
	Discontinued operations		359.6			(2.9	)		—		356.7
			354.3			(2.9	)		—		351.4
Financing activities —
	Continuing operations		(2.4	)		—			—		(2.4	)
	Discontinued operations		(276.5	)		(14.6	)		—		(291.1	)
			(278.9	)		(14.6	)		—		(293.5	)
Net decrease in cash and cash equivalents			19.6			.3			—		19.9
Cash and cash equivalents, beginning of period			35.4			.1			—		35.5
Cash and cash equivalents, end of period		$	55.0		$	.4		$	—	$	55.4

57

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2003

								Consolidation/
								Elimination
		Debtors			Non-Debtors			Entries		Consolidated
Net cash provided (used) by:
Operating activities —
	Continuing operations	$	(56.7	)	$	(.7	)	$	—	$	(57.4	)
	Discontinued operations		(56.8	)		27.3			—		(29.5	)
			(113.5	)		26.6			—		(86.9	)
Investing activities —
	Continuing operations		74.1			—			—		74.1
	Discontinued operations		1.5			(26.5	)		—		(25.0	)
			75.6			(26.5	)		—		49.1
Financing activities —
	Continuing operations		(4.1	)		—			—		(4.1	)
	Discontinued operations		—			—			—		—
			(4.1	)		—			—		(4.1	)
Net decrease in cash and cash equivalents			(42.0	)		.1			—		(41.9	)
Cash and cash equivalents, beginning of period			77.4			—			—		77.4
Cash and cash equivalents, end of period		$	35.4		$	.1		$	—	$	35.5

58

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2002

								Consolidation/
								Elimination
		Debtors			Non-Debtors			Entries		Consolidated
Net cash provided (used) by:
Operating activities —
	Continuing operations	$	(27.8	)	$	(.4	)	$	—	$	(28.2	)
	Discontinued operations		(56.7	)		33.2			—		(23.5	)
			(84.5	)		32.8			—		(51.7	)
Investing activities —
	Continuing operations		18.3			(.7	)		—		17.6
	Discontinued operations		(.2	)		(33.6	)		—		(33.8	)
			18.1			(34.3	)		—		(16.2	)
Financing activities —
	Continuing operations		(8.8	)		—			—		(8.8	)
	Discontinued operations		—			—			—		—
			(8.8	)		—			—		(8.8	)
Net decrease in cash and cash equivalents			(75.2	)		(1.5	)		—		(76.7	)
Cash and cash equivalents, beginning of period			152.6			1.5			—		154.1
Cash and cash equivalents, end of period		$	77.4		$	—		$	—	$	77.4

      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 of reorganization is approved; 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 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.

      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 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.

59

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	December 31,
	2004		2003
Accrued postretirement medical obligation (Note 9)	$	1,042.1	$	685.1
Accrued asbestos and certain other personal injury liabilities (Note 11)		1,115.0		610.0
Debt (Note 7)		847.6		848.2
Accrued pension benefits (Note 9)		625.7		448.0
Unfair labor practice settlement (Note 11)		175.0		—
Accounts payable		29.8		29.4
Accrued interest		47.5		47.5
Accrued environmental liabilities (Note 11)		30.6		43.0
Other accrued liabilities		41.6		58.9
	$	3,954.9	$	2,770.1

(1)	Other accrued liabilities include hearing loss claims of $15.8 at December 31, 2004 and 2003 (see Note 11).
(2)	The above amounts exclude $26.4 in 2004 and $49.9 in 2003 related to discontinued operations. Such amounts were primarily accounts payable.

      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 was approved by the Court in January 2005 (see Note 9), the PBGC will be allowed a $14.0 administrative claim and the Company will contribute an estimated $4.1 to certain hourly pension plans which it will continue to sponsor. Since the PBGC settlement agreement has been approved by the Court, such amounts have been 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 years ended December 31, 2004, 2003 and 2002, reorganization items were as follows:

	Years Ended December 31,
	2004			2003			2002
Professional fees	$	39.0		$	27.5		$	28.8
Accelerated amortization of certain deferred financing costs		—			—			4.5
Interest income		(.8	)		(.8	)		(1.8	)
Other		.8			.3			1.8
	$	39.0		$	27.0		$	33.3

60

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      As required by SOP 90-7, in the first quarter of 2002, the Company recorded the Debtors’ pre-Filing Date debt that is subject to compromise at the allowed amount. Accordingly, the Company accelerated the amortization of debt-related premium, discount and costs attributable to this debt and recorded a net expense of approximately $4.5 in Reorganization items during the first quarter of 2002.

2. Summary of Significant Accounting Policies

      Going Concern. The 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 consolidated financial statements do not include all of the necessary adjustments to 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 which may be made in connection with the Debtors’ capitalizations or operations 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), 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 December 31, 2004 financial statements to the financial statements of the entity upon emergence.

      Principles of Consolidation. The consolidated financial statements include the statements of the Company and its majority owned subsidiaries. The Company is a wholly owned subsidiary of Kaiser, which is a subsidiary of MAXXAM Inc. (“MAXXAM”). The Company has historically operated in all principal aspects of the aluminum industry. However, as discussed above, the Company will emerge from the Chapter 11 proceedings primarily as a fabricated products company. At this time, the Company plans to retain its interests in Anglesey, which owns a primary aluminum smelter.

      The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported 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 operation.

      Investments in 50%-or-less-owned entities are accounted for primarily by the equity method. Intercompany balances and transactions are eliminated.

      Recognition of Sales. Sales are recognized when title, ownership and risk of loss pass to the buyer.

      Cash and Cash Equivalents. The Company considers only those short-term, highly liquid investments with original maturities of 90 days or less to be cash equivalents.

      Inventories. Substantially all product inventories are stated at last-in, first-out (“LIFO”) cost, not in excess of market value. Replacement cost is not in excess of LIFO cost. Other inventories, principally operating supplies and repair and maintenance parts, are stated at the lower of average cost or market.

61

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Inventory costs consist of material, labor, and manufacturing overhead, including depreciation. Inventories, after deducting inventories related to discontinued operations, consist of the following:

		December 31,
		2004		2003
Fabricated products —
	Finished products	$	23.3	$	27.8
	Work in process		42.2		30.1
	Raw materials		27.9		22.8
	Operating supplies and repairs and maintenance parts		11.8		11.7
			105.2		92.4
Commodities — Primary aluminum			.1		.1
		$	105.3	$	92.5

      The above table excludes commodities inventories related to discontinued operations of $8.8 in 2004 and $113.7 in 2003. Inventories related to discontinued operations in 2004 were reduced by a net charge of $1.2 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 (Note 5).

      Inventories were reduced by the following charges during the years ended December 31, 2004, 2003 and 2002.

		2004		2003		2002
Included in cost of products sold:
	LIFO inventory charges	$	12.1	$	3.2	$	3.5
Included in other operating charges (benefits), net (see Note 6):
	Net realizable value charge — Tacoma smelter impairment (Primary Aluminum), net of intersegment profit elimination of Primary Aluminum impairment charges of $2.1		—		—		2.1
	LIFO inventory charges associated with permanent inventory reductions — Product line exit (Fabricated Products)		—		—		1.6
		$	12.1	$	3.2	$	7.2

      The above table excludes LIFO inventory charges related to discontinued operations of $1.6 in 2004, $3.4 in 2003 and $3.5 in 2002. The above table also excludes net realizable value charges related to discontinued operations of $16.5 in 2002. The LIFO inventory charges resulted from reductions in inventory volumes that were in inventory layers with higher costs than current market prices.

      Depreciation. Depreciation is computed principally by the straight-line method at rates based on the estimated useful lives of the various classes of assets. The principal estimated useful lives of land improvements, buildings, and machinery and equipment are 8 to 25 years, 15 to 45 years, and 10 to 22 years, respectively. As more fully discussed in Note 1, upon emergence from the Cases, the Company expects to apply “fresh start” accounting to its consolidated financial statements as required by SOP 90-7. As a result, accumulated depreciation will be reset to zero. With the allocation of the reorganization value to the individual assets and liabilities, it is possible that future depreciation will differ from historical depreciation.

      Stock-Based Compensation. The Company applies the intrinsic value method to account for a stock-based compensation plan whereby compensation cost is recognized only to the extent that the quoted market

62

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

price of the stock at the measurement date exceeds the amount an employee must pay to acquire the stock. No compensation cost has been recognized for this plan as the exercise price of the stock options granted in 2001 were at or above the market price. No stock options were granted in 2004, 2003 and 2002. The pro forma after-tax effect of the estimated fair value of the grants would be to increase the net loss in 2004, 2003, and 2002 by $.3, $.4, and $.6, respectively. The pro forma after tax effect of the estimated fair value of the grants would have resulted in no change in the basic/diluted loss per share for 2004, 2003, and 2002. The fair value of the 2001 stock option grants were estimated using a Black-Scholes option pricing model.

      The pro forma effect of the estimated value of stock options may not be meaningful, because as a part of a plan of reorganization for the Company, it is likely the equity interests of the holders of outstanding options will be cancelled without consideration.

      Other Income (Expense). Amounts included in Other income (expense) in 2004, 2003 and 2002, other than interest expense and reorganization items, included the following pre-tax gains (losses):

	Year Ended December 31,
	2004			2003			2002
Gains on sale of real estate and miscellaneous equipment associated with properties with no operations (Note 5)	$	1.8		$	—		$	3.8
Settlement of outstanding obligations of former affiliate		6.3			—			—
Asbestos and personal injury-related charges (Note 11)		(1.0	)		—			—
Adjustment to environmental liabilities (Note 11)		(1.4	)		(7.5	)		—
All other, net		(1.5	)		2.3			(4.7	)
	$	4.2		$	(5.2	)	$	(.9	)

      The above table excludes pre-tax gains (losses), net related to discontinued operations of $1.0 in 2004, $(1.3) in 2003 and $1.3 in 2002.

      Deferred Financing Costs. Costs incurred to obtain debt financing are deferred and amortized over the estimated term of the related borrowing. Such amortization is included in Interest expense. As a result of the Cases, the unamortized portion of the deferred financing costs related to the Debtors’ unsecured debt was expensed on the Filing Date (see Note 1).

      Goodwill. The Company reviews goodwill for impairment at least annually in the fourth quarter of each year. As of December 31, 2004, unamortized goodwill (related to the Fabricated products business unit) was approximately $11.4 and was included in Other assets in the accompanying consolidated balance sheets. With the allocation of the reorganization value to the individual assets and liabilities (see Note 1), it is possible that the goodwill amount will change.

      Foreign Currency. The Company uses the United States dollar as the functional currency for its foreign operations.

      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 changes 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 exposures and allow for increased responsiveness to changes in market factors.

63

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company recognizes all derivative instruments as assets or liabilities in the balance sheet and measures those instruments at fair value by “marking-to-market” all of its hedging positions at each period-end (see Note 12). Changes in the market value of the Company’s open hedging positions resulting from the mark-to-market process represent unrealized gains or losses. Such unrealized gains or losses will fluctuate, based on prevailing market prices at each subsequent balance sheet date, until the transaction date occurs. These changes are recorded as an increase or reduction in stockholders’ equity through either other comprehensive income or net income, depending on the facts and circumstances with respect to the hedge and its documentation. To the extent that changes in market values of the Company’s hedging positions are initially recorded in Other comprehensive income, such changes reverse out of Other comprehensive income (offset by any fluctuations in other “open” positions) and are recorded in net income (included in Net sales or Cost of products sold, as applicable) when the subsequent physical transactions occur. Additionally, if the level of physical transactions ever falls below the net exposure hedged, “hedge” accounting must be terminated for such “excess” hedges. In such an instance, the mark-to-market changes on such excess hedges would be recorded in the income statement rather than in Other comprehensive income. This did not occur during 2002, 2003 or 2004.

      In general, material fluctuations in Other comprehensive income and Stockholders’ equity will occur in periods of price volatility, despite the fact that the Company’s cash flow and earnings will be “fixed” to the extent hedged. This result is contrary to the intent of the Company’s hedging program, which is to “lock-in” a price (or range of prices) for products sold/used so that earnings and cash flows are subject to reduced risk of volatility.

      Fair Value of Financial Instruments. Given the fact that the fair value of substantially all of the Company’s outstanding indebtedness will be determined as part of the plan of reorganization, it is impracticable and inappropriate to estimate the fair value of these financial instruments at December 31, 2004 and 2003.

      New Accounting Pronouncements. Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123-revised”) was issued in December 2004 and replaces Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. In general terms, SFAS No. 123-revised eliminates the intrinsic value method of accounting for employee stock options and requires a company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost of the award will be recognized as an expense over the period that the employee provides service for the award. SFAS No. 123-revised must be first applied to the Company’s consolidated financial statements beginning July 1, 2005 and applies to all equity instrument awards granted after the effective date. Although the Company has not completed it review of SFAS No. 123-revised, it does not currently believe that the implementation of SFAS No. 123-revised will have a material impact on the Company’s financial statements.

      Statement of Financial Accounting Standards No. 151, Inventory Costs, an Amendment of ARB No. 43, Chapter 4 (“SFAS No. 151”) was issued in November 2004 and is effective for fiscal years beginning after June 15, 2005. SFAS No. 151 amends ARB No. 43, Chapter 4 to clarify that abnormal costs, such as idle facility expenses, freight, handling costs and spoilage, be accounted as current period charges rather than as a portion of inventory costs. The adoption of SFAS No. 151 is not expected to have a material impact on the Company’s financial statements.

      Statement of Financial Accounting Standards No. 153, Exchange of Nonmonetary Assets, an amendment to APB Opinion No. 29 (“SFAS No. 153”), was issued in December 2004 and is effective for all nonmonetary assets exchanges occurring in fiscal years beginning after June 15, 2005. SFAS No. 153 eliminates an exception from the fair value measurement for exchanges of similar productive assets provided

64

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

for in APB Opinion No. 29 and replaces it with a general exception for exchange transactions that do not have commercial substance. The implementation of SFAS No. 153 is not expected to have a material impact on the Company’s financial statements.

      Reclassifications. Certain prior years’ amounts in the consolidated financial statements have been reclassified to conform to the 2004 presentations. The reclassifications had no impact on prior years’ reported net losses.

3. Discontinued Operations

      As part of the Company’s plan to divest certain of its commodity assets, as more fully discussed in Notes 1 and 5, 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”). The Company expects to complete the sale of its interests in and related to QAL in April 2005. All of the foregoing commodity assets that have been or are expected to be sold are collectively referred to as the “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 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 accrued 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 a plan 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, Gramercy/ KJBC and QAL 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 Commodity Interests.

65

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The carrying amounts as of December 31, 2004 and 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:

	December 31, 2004						December 31, 2003
			Primary						Primary
	Alumina		Aluminum				Alumina		Aluminum
	Interests		Interests		Total		Interests		Interests			Total
Current assets	$	30.6	$	—	$	30.6	$	150.6	$	43.1		$	193.7
Property, plant and equipment, net		—		—		—		305.2		77.3			382.5
Investments in affiliates and other		38.9		—		38.9		49.3		2.0			51.3
	$	69.5	$	—	$	69.5	$	505.1	$	122.4		$	627.5
Current liabilities	$	57.3	$	.4	$	57.7	$	116.0	$	61.5		$	177.5
Long-term debt		—		—		—		22.0		—			22.0
Long-term liabilities		—		—		—		16.1		(.4	)		15.7
Liabilities subject to compromise		25.6		.8		26.4		21.9		28.0			49.9
Minority interests		—		—		—		105.9		15.2			121.1
	$	82.9	$	1.2	$	84.1	$	281.9	$	104.3		$	386.2

      Income statement information in respect of the Company’s interest in and related to the sold commodity interests for the years ended December 31, 2004, 2003 and 2002 included in income (loss) from discontinued operations was as follows:

	2004								2003									2002
			Primary									Primary									Primary
	Alumina		Aluminum						Alumina			Aluminum						Alumina			Aluminum
	Interests		Interests			Total			Interests			Interests			Total			Interests			Interests			Total
Net sales	$	546.0	$	.2		$	546.2		$	637.9		$	26.8		$	664.7		$	573.5		$	194.4		$	767.9
Operating income (loss)		53.6		(59.8	)		(6.2	)		(450.1	)		(58.2	)		(508.3	)		(28.5	)		(232.4	)		(260.9	)
Gain on sale of commodity interests		103.2		23.4			126.6			—			—			—			—			—			—
Income (loss) before income taxes and minority interests —		158.2		(35.7	)		122.5			(453.7	)		(57.5	)		(511.2	)		(28.8	)		(232.5	)		(261.3	)
Net income (loss)		142.7		(21.4	)		121.3			(459.9	)		(54.8	)		(514.7	)		(34.7	)		(231.3	)		(266.0	)

(1)	Alumina interests for the year ended December 31, 2003 include Gramercy/ KJBC impairment charges of $368.0 (see Note 5).
(2)	Primary aluminum interests for the years ended December 31, 2004 and 2002 include impairment charges of $33.0 (Valco — Notes 2 and 5) and $214.4 (Mead Facility — Note 5), respectively.

      In connection with its investment in QAL, the Company has entered into several financial commitments consisting of 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 December 31,

66

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. The Company’s share of payments, including operating costs and certain other expenses under the agreements, has generally ranged between $70.0-$100.0 over the past three years. In connection with the QAL sale, the Company’s obligations in respect of its share of QAL’s debt will be assumed by the buyer.

      Contributions to foreign pension plans included in discontinued operations were approximately $12.0 during 2004, including approximately $10.0 of end of service payments in respect of Valco employees. Contributions to foreign pension plans included in discontinued operations in 2003 and 2002 were approximately $9.0 per year.

4. Investment In and Advances To Unconsolidated Affiliate

      Summary financial information is provided below for Anglesey, a 49.0% owned unconsolidated aluminum investment, which owns an aluminum smelter at Holyhead, Wales.

Summary of Financial Position

			December 31,
			2004		2003
Current assets			$	50.7	$	45.1
Non-current assets (primarily property, plant, and equipment, net)				36.3		36.9
	Total assets		$	87.0	$	82.0
Current liabilities			$	15.6	$	21.4
Long-term liabilities				21.6		24.2
Stockholders’ equity				49.8		36.4
		Total liabilities and stockholders’ equity	$	87.0	$	82.0

Summary of Operations

	Year Ended December 31,
	2004			2003			2002
Net sales	$	249.2		$	205.5		$	192.7
Costs and expenses		(223.1	)		(196.5	)		(182.2	)
Provision for income taxes		(7.4	)		(2.6	)		(3.0	)
Net income	$	18.7		$	6.4		$	7.5
Company’s equity in income	$	8.2		$	3.3		$	3.6
Dividends received	$	4.5		$	4.3		$	6.0

      The Company’s equity in income differs from the summary net income due to equity method accounting adjustments.

      At December 31, 2004 and 2003, the Company’s net receivables from Anglesey were $8.0 and $12.8, respectively.

67

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company’s equity in income before income taxes of Anglesey is treated as a reduction (increase) in Cost of products sold. The Company and Anglesey have interrelated operations. The Company provided Anglesey with management services during 2004, 2003 and 2002. Significant activities with Anglesey include the acquisition and processing of alumina into primary aluminum. Purchases from Anglesey were $120.9, $100.0 and $93.9, in the years ended December 31, 2004, 2003 and 2002, respectively. Sales to Anglesey were $23.7, $32.9 and $25.6, in the years ended December 31, 2004, 2003 and 2002, respectively.

5. Property, Plant, and Equipment

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

		December 31,
		2004			2003
Land and improvements		$	8.2		$	8.7
Buildings			63.8			65.3
Machinery and equipment			459.8			454.9
Construction in progress			6.1			8.3
			537.9			537.2
Accumulated depreciation			(323.3	)		(307.1	)
	Property, plant, and equipment, net	$	214.6		$	230.1

      The above tables exclude property, plant and equipment, net of discontinued operations of $382.5 in 2003 (see Note 3).

      During the period from 2002 to 2004, the Company completed several dispositions which are discussed below:

2004 —

•  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, 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 7) and $3.3 of transaction-related costs. The balance of the proceeds are being held in escrow primarily for the benefit of certain 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 3). A net benefit of approximately $1.6 was recorded in December 2004 in respect of the Alpart-related purchase price adjustments. Such amounts are expected to be collected during the second quarter of 2005.

•  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. Such adjustments were insignificant. The transaction was completed at an amount approximating its remaining book value (after impairment charges). A substantial portion of the proceeds were used to satisfy transaction related costs and obligations. As previously reported, the Company had determined

68

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	that the fair values of its interests in and related to Gramercy/ KJBC was below the carrying values of the assets because all offers that had been received for such assets were substantially below the carrying values of the assets. Accordingly, in the fourth quarter of 2003, the Company adjusted the carrying value of its interests in and related to Gramercy/ KJBC to the estimated fair value, which resulted in a non-cash impairment charge of approximately $368.0 (which amount was reflected in discontinued operations — see Note 3). In accordance with SFAS No. 144, 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 3).
•	During 2003, the Company and Valco participated in extensive negotiations with the Government of Ghana (“GoG”) and the Volta River Authority (“VRA”) regarding Valco’s 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 first quarter 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 (which amount was reflected in discontinued operations — see Note 3). As a result, at closing there was no material gain or loss on disposition. In accordance with SFAS No. 144, balances and results of operations related to the Company’s interests in and related to Valco have been reported as discontinued operations in the accompanying financial statements (see Note 3).
•	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 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 7). In accordance with SFAS No. 144, the assets, liabilities and operating results of the Mead Facility have been reported as discontinued operations in the accompanying financial statements (see Note 3).
•	In September 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

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 was included in Prepaid and other current assets 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 in November 2004 and is expected to close in April 2005. A net gain in excess of $300.0 is expected to result from the sale. 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 will be held in escrow for the benefit of KAAC’s creditors until a KAAC liquidation plan is approved by the Court (see Note 1). Because Court approval and all conditions precedent to the sale were met as of December 31, 2004, and because such amounts were material, in accordance with SFAS No. 144, balances and results of operations related to the Company’s interests in and related to QAL have been reported as discontinued operations in the accompanying financial statements (see Note 3).

•

In the ordinary course of business, the Company sold non-operating real estate and certain miscellaneous equipment for total proceeds of approximately $1.9. These transactions resulted in pre-tax gains of $1.8 (included in Other income (expense) — see Note 2).

2003 —

•  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 6). The operating results of the Tacoma facility for 2004, 2003 and 2002 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 (which amount was reflected in Other operating charges (benefits), net — see Note 6). 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.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 product rationalizations (which amounts were reflected in Other operating charges (benefits), net — see Note 6). The equipment that was sold in July 2003 had been previously impaired to a zero basis. 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.

2002 —

•  As previously disclosed, the Company was evaluating its options for minimizing the near-term negative cash flow at its Mead facility and how to optimize the use and/or value of the facilities in connection with its reorganization. The Company conducted a study of the long-term competitive position of the Mead and Tacoma facilities and potential options for these facilities. Once the Company received the preliminary results of the study in the fourth quarter of 2002, it analyzed the findings and met with the USWA and other parties prior to making its determination as to the appropriate action(s). The outcome of the study and the Company’s ongoing work on its reorganization led the Company to indefinitely curtail the Mead facility in January 2003. The curtailment of the Mead facility was due to the continuing unfavorable market dynamics, specifically unattractive long-term power prices and weak primary aluminum prices — both of which are significant impediments for an older smelter with higher-than-average operating costs. The Mead facility was expected to remain completely curtailed unless and until an appropriate combination of reduced power prices, higher primary aluminum prices and other factors occurs. As a result of indefinite curtailment, the Company evaluated the recoverability of the December 31, 2002 carrying value of the Mead facility. The Company determined that the expected future undiscounted cash flows of the smelters was below their carrying value. Accordingly, the Company adjusted the carrying value of its related assets to their estimated fair value, which resulted in a non-cash impairment charge of approximately $138.5 (which amount was reflected in discontinued operations — see Note 3). The estimated fair value was based on anticipated future cash flows discounted at a rate commensurate with the risk involved. Additionally, during December 2002, the Company accrued approximately $58.8 of pension, postretirement benefit and related obligations for the hourly employees who had been on a laid-off status and under the terms of their labor contract are eligible for early retirement because of the indefinite curtailment (which amount was reflected in discontinued operations — see Note 3). The indefinite curtailment of the Mead facility also resulted in a $16.5 net realizable value charge and a $.9 LIFO inventory charge for certain of the inventories at the facility (which amounts were reflected in discontinued operations).

•  In December 2002, with Court approval, the Company sold its Oxnard, California aluminum forging facility because the Company had determined that the facility was not necessary for a successful operation and reorganization of its business. Net proceeds from the sale were approximately $7.4. The sale resulted in a net of loss of $.2 (included in Other operating charges (benefits) net — see Note 6) which included $1.1 of employee benefits and related costs associated with approximately 60 employees that were terminated in December 2002.

•  In June 2002, with Court approval, the Company sold certain of the Trentwood facility equipment, previously associated with the lid and tab stock product lines discussed below, for total proceeds of $15.8, which amount approximated its previously estimated fair value. As a result, the sale did not have a material impact on the Company’s operating results for the year ended December 31, 2002.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•  In the ordinary course of business, the Company sold non-operating real estate and certain miscellaneous equipment for total proceeds of approximately $7.5. These transactions resulted in pre-tax gains of $3.8 (included in Other income (expense) — see Note 2).

6. 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 2004, 2003 and 2002, was as follows:

		Year Ended December 31,
		2004			2003			2002
Pension charge related to terminated pension plans — Corporate (Note 9)		$	(310.0	)	$	(121.2	)	$	—
Charge related to settlement with United Steelworkers of America unfair labor practice allegations — Corporate (Note 11)			(175.0	)		—			—
Settlement charge related to termination of Post-retirement medical benefits plans — Corporate (Note 9)			(312.5	)		—			—
Impairment charges —
	Office complex — Corporate (Note 5)		—			—			(20.0	)
	Washington smelters (Primary Aluminum) (Note 2)		—			—			(2.1	)
Restructuring charges —
	Fabricated Products		—			—			(7.9	)
Restructured transmission service agreement — Primary Aluminum (Note 14)			—			(3.2	)		—
Environmental multi-site settlement — Corporate (Note 11)			—			(15.7	)		—
Hearing loss claims — Corporate (Note 11)			—			(15.8	)		—
Gain on sale of Tacoma facility — Primary Aluminum (Note 5)			—			9.5			—
Gain on sale of equipment, net — Fabricated Products (Note 5)			—			3.9			—
Loss on sale of Oxnard facility — Fabricated Products (Note 5)			—			—			(.2	)
Inventory and net realizable value charges —
	Product line exit charges — Fabricated Products		—			—			(1.6	)
Other			4.3			.9			—
		$	(793.2	)	$	(141.6	)	$	(31.8	)

      The above table excludes other operating (charges) benefits, net related to discontinued operations of $95.2 in 2004, $(369.4) in 2003 and $(219.4) in 2002.

      Restructuring charges in 2002 resulted from the Company’s initiatives to increase cash flow, generate cash and improve the Company’s financial flexibility. Restructuring charges consisted of $7.9 of employee benefit and related costs associated with 25 job eliminations (all of which had been eliminated prior to December 31, 2002).

      The product line exit charge in 2002 relates to a $1.6 LIFO inventory charge which resulted from the Fabricated products segment’s exit from the lid and tab stock and brazing sheet product lines (see Note 2).

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Long-Term Debt

      Long-term debt, after deducting debt related to discontinued operations, consists of the following:

		December 31,
		2004			2003
Secured:
	Post-Petition Credit Agreement	$	—		$	—
	7.6% Solid Waste Disposal Revenue Bonds due 2027		1.6			1.0
	Other borrowings (fixed rate)		2.4			2.5
Unsecured or Undersecured:
	97/8% Senior Notes due 2002, net		172.8			172.8
	107/8% Senior Notes due 2006, net		225.0			225.0
	123/4% Senior Subordinated Notes due 2003		400.0			400.0
	7.6% Solid Waste Disposal Revenue Bonds due 2027		17.4			18.0
	Other borrowings (fixed and variable rates)		32.4			32.4
Total			851.6			851.7
Less — Current portion			(1.2	)		(1.3	)
Pre-Filing Date claims included in subject to compromise (i.e. unsecured debt) (Note 1)			(847.6	)		(848.2	)
Long-term debt		$	2.8		$	2.2

      The above table excludes debt (8¹/4% Alpart CARIFA Loans) related to discontinued operations of $22.0 in 2003.

      On February 11, 2005, the Company and Kaiser entered into a new financing agreement with a group of lenders under which the Company was provided with a replacement for the existing post-petition credit facility and a commitment for a multi-year exit financing arrangement upon the Debtors’ emergence from the Chapter 11 proceedings. The new financing agreement:

•  Replaced the existing post-petition credit facility with a new $200.0 post-petition credit facility (the “DIP Facility”) and

•  Included a commitment, upon the Debtors’ emergence from the Chapter 11 proceedings, for exit financing in the form of a $200.0 million revolving credit facility (the “Revolving Credit Facility”) and a fully drawn term loan (the “Term Loan”) of up to $50.0.

      The DIP Facility provides for a secured, revolving line of credit through the earlier of February 11, 2006, the effective date of a plan of reorganization or voluntary termination by the Company. Under the DIP Facility, the Company, Kaiser and certain subsidiaries of the Company are able to borrow amounts by means of revolving credit advances and to have issued letters of credit (up to $60.0) in an aggregate amount equal to the lessor of $200.0 or a borrowing base comprised of eligible accounts receivable, eligible inventory and certain eligible machinery, equipment and real estate, reduced by certain reserves, as defined in the DIP Facility agreement. This amount available under the DIP Facility shall be reduced by $20.0 if net borrowing availability falls below $40.0. Interest on any outstanding borrowings will bear a spread over either a base rate or LIBOR, at KACC’s option.

      The DIP Facility is secured by substantially all of the assets of the Company, Kaiser and the Company’s subsidiaries other than certain amounts related to AJI, KJC, KAAC, and KFC whose assets are, subject to

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

their liquidation plans (see Note 1), expected to be distributed to the creditors of those subsidiaries. The DIP Facility is guaranteed by the Company and all of the Company’s material domestic subsidiaries other than AJI, KJC, KAAC, and KFC.

      Amounts owed under the DIP Facility may be accelerated under various circumstances more fully described in the DIP Facility agreement, including but not limited to, the failure to make principal or interest payments due under the DIP Facility, breaches of certain covenants, representations and warranties set forth in the DIP Facility agreement, and certain events having a material adverse effect on the business, assets, operations or condition of the Company taken as a whole.

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

      The principal terms of the committed Revolving Credit Facility would be essentially the same as or more favorable than the DIP Facility, except that, among other things, the Revolving Credit Facility would close and be available upon the Debtors’ emergence from the Chapter 11 proceedings and would be expected to mature on February 11, 2010. The Term Loan commitment would be expected to close upon the Debtors’ emergence from the Chapter 11 proceedings and would be expected to mature on February 11, 2011.

      The DIP Facility replaced, on February 11, 2005, a post-petition credit facility (the “Replaced Facility”) that the Company and Kaiser entered into on February 12, 2002. Originally, the Replaced Facility provided for revolving credit advances of up to $300.0. This amount was reduced to $285.0 in August 2003 and to $200.0 in October 2004. The Replaced Facility was amended a number of times during its term as a result of, among other things, reorganization transactions, including disposition of the Company’s commodity-related assets.

      The Company has previously disclosed that in connection with the completion of the previously announced sales of its commodities interests, 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 expected 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 above the $100.0 range.

      At February 28, 2005, there were no outstanding borrowings under the DIP Facility. While there were only $1.8 of letters of credit outstanding under the DIP Facility at February 28, 2005, there were approximately $15.9 of outstanding letters of credit that had been issued under the Replaced Facility for which the Company had deposited cash of $16.7 as collateral. These outstanding letters of credit are expected to be replaced with letters of credit issued under the DIP Facility, at which time, the applicable cash deposit will be refunded to the Company.

      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 5). 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 value of the secured claim was ultimately agreed to be approximately $1.6. As such, the amount of the Solid Waste Bonds considered in Liabilities subject to compromise has been reduced to $17.4. Court approval for the agreed

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

claim value is still pending. However, the Court has approved the reduction of the collateral to approximately $2.3. The Company expects to receive the amount in excess of the Court-approved $2.3 amount during the second quarter of 2005. 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.

      8³/4% 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 Note 5). Upon such payment, the Company’s letter of credit obligation under the DIP Facility securing the loans was cancelled.

      9⁷/8% Notes, 10⁷/8% Notes and 12³/4% Notes. The obligations of the Company with respect to its 9⁷/8% Senior Notes due 2002 (the “9⁷/8% Notes”), its 10⁷/8% Senior Notes due 2006 (the “10⁷/8% Notes”) and its 12³/4% Senior Subordinated Notes due 2003 (the “12³/4% Notes”) are guaranteed, jointly and severally, by certain subsidiaries of KACC.

      Debt Covenants and Restrictions. The indentures governing the 9⁷/8% Notes, the 10⁷/8% Notes and the 12³/4% Notes (collectively, the “Indentures”) restrict, among other things, the Company’s ability to incur debt, undertake transactions with affiliates, and pay dividends. Further, the Indentures provide that the Company must offer to purchase the 9⁷/8% Notes, the 10⁷/8% Notes and the 12³/4% Notes, respectively, upon the occurrence of a Change of Control (as defined therein).

8. Income Taxes

      Income (loss) before income taxes and minority interests by geographic area (excluding discontinued operations) is as follows:

		Year Ended December 31,
		2004			2003			2002
Domestic		$	(885.9	)	$	(286.5	)	$	(226.2	)
Foreign			24.2			14.6			28.0
	Total	$	(861.7	)	$	(271.9	)	$	(198.2	)

      Income taxes are classified as either domestic or foreign, based on whether payment is made or due to the United States or a foreign country. Certain income classified as foreign is also subject to domestic income taxes.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The (provision) benefit for income taxes on income (loss) before income taxes and minority interests (excluding discontinued operations) consists of:

	Federal			Foreign			State			Total
2004 Current	$	—		$	(6.4	)	$	—		$	(6.4	)
Deferred		—			.2			—			.2
Total	$	—		$	(6.2	)	$	—		$	(6.2	)
2003 Current	$	—		$	(1.3	)	$	—		$	(1.3	)
Deferred		—			(.2	)		—			(.2	)
Total	$	—		$	(1.5	)	$	—		$	(1.5	)
2002 Current	$	(.2	)	$	(5.6	)	$	(.3	)	$	(6.1	)
Deferred		3.4			(1.1	)		(.4	)		1.9
Total	$	3.2		$	(6.7	)	$	(.7	)	$	(4.2	)

      A reconciliation between the (provision) benefit for income taxes and the amount computed by applying the federal statutory income tax rate to income (loss) before income taxes and minority interests is as follows:

	Year Ended December 31,
	2004			2003			2002
Amount of federal income tax benefit based on the statutory rate	$	301.7		$	95.2		$	69.4
Increase in valuation allowances		(304.7	)		(98.1	)		(71.6	)
Percentage depletion		5.1			6.4			7.6
Foreign taxes		(6.3	)		(1.5	)		(6.7	)
Other		(2.0	)		(3.5	)		(2.9	)
Provision for income taxes	$	(6.2	)	$	(1.5	)	$	(4.2	)

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Deferred Income Taxes. The components of the Company’s net deferred income tax assets (liabilities) are as follows:

			December 31,
			2004			2003
Deferred income tax assets:
	Postretirement benefits other than pensions		$	396.0		$	268.6
	Loss and credit carryforwards			411.3			356.1
	Pension benefits			243.6			158.1
	Other liabilities			153.7			114.7
	Other			75.0			111.9
	Property, plant and equipment			—			12.1
	Valuation allowances			(1,221.3	)		(1,012.0	)
		Total deferred income tax assets — net		58.3			9.5
Deferred income tax liabilities:
	Property, plant, and equipment			(39.0	)		—
	Other			(22.0	)		(25.7	)
		Total deferred income tax liabilities		(61.0	)		(25.7	)
Net deferred income tax assets (liabilities)(1)			$	(2.7	)	$	(16.2	)

(1)  These deferred income tax liabilities are included in the Consolidated Balance Sheets as of December 31, 2004 and 2003, respectively, in the caption entitled Long-term liabilities.

      For the years ended December 31, 2004, 2003 and 2002, as a result of the Cases, the Company did not recognize U.S. income tax benefits for the losses incurred from its domestic operations (including temporary differences) or any U.S. income tax benefits for foreign income taxes. Instead, the increases in federal and state deferred tax assets as a result of additional net operating losses and foreign taxes generated in 2004, 2003 and 2002 were fully offset by increases in valuation allowances.

      Tax Attributes. At December 31, 2004, the Company had certain tax attributes available to offset regular federal income tax requirements, subject to certain limitations, including net operating loss and general business credit carryforwards of $1,088.3 and $.6, respectively, which expire periodically through 2024 and 2011, respectively, and alternative minimum tax (“AMT”) credit carryforwards of $24.0, which have an indefinite life.

      A substantial portion of the Company’s attributes not used in respect of the sales of the commodities interests would likely be used to offset any gains that may result from the cancellation of indebtedness as a part of the Company’s reorganization. Any tax attributes not utilized by the Company prior to emergence from Chapter 11 may be subject to certain limitations as to their utilization post-emergence.

      Other. In March 2003, the Company paid approximately $22.0 in settlement of certain foreign tax matters in respect of a number of prior periods.

9. Employee Benefit and Incentive Plans

      Historical Pension and Other Postretirement Benefit Plans. The Company and its subsidiaries have historically provided (a) postretirement health care and life insurance benefits to eligible retired employees and their dependents and (b) pension benefit payments to retirement plans. Substantially all employees

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

became eligible for health care and life insurance benefits if they reached retirement age while still working for the Company or its subsidiaries. The Company did not fund the liability for these benefits, which were expected to be paid out of cash generated by operations. The Company reserved the right, subject to applicable collective bargaining agreements, to amend or terminate these benefits. Retirement plans were generally non-contributory for salaried and hourly employees and generally provided for benefits based on formulas which considered such items as length of service and earnings during years of service.

      Reorganization Efforts Affecting Pension and Post Retirement Medical Obligations. The Company has stated since the inception of its Chapter 11 proceedings that legacy items that included its pension and post-retirement benefit plans would have to be addressed before the Company could successfully reorganize. The Company previously disclosed that it did not intend to make any pension contributions in respect of its domestic pension plans during the pendency of the Cases as it believes that virtually all amounts are pre-Filing Date obligations. The Company did not make required accelerated funding payments to its salaried employee retirement plan. As a result, during 2003, the Company engaged in lengthy negotiations with the PBGC, the 1114 Committee and the appropriate union representatives for the hourly employees subject to collective bargaining agreements regarding its plans to significantly modify or terminate these benefits.

      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 the distressed termination of substantially all domestic hourly pension plans. The Company subsequently concluded 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 medical benefit plans, and the termination of 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 (“VEBA”) and active salaried and 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 were subject to certain conditions, including Court approval of the Intercompany Agreement in a form acceptable to the Debtors and the UCC (see Note 1). The ongoing financial impacts of the new and continuing pension plans and the VEBA are discussed below in “Cash Flow”.

      On June 1, 2004, the Court entered an order, subject to certain conditions including final Court approval for the Intercompany Agreement, authorizing the Company to implement termination of its postretirement medical plans as of May 31, 2004 and the Company’s plan to make advance payments to one or more VEBAs. As previously disclosed, pending the resolution of all contingencies in respect of the termination of the existing postretirement medical benefit plan, during the period June 1, 2004 through December 31, 2004 the Company continued to accrue costs based on the existing plan and has treated the VEBA contribution as a reduction of its liability under the plan. However, since the Intercompany Agreement was approved in February 2005 and all other contingencies had already been met, the Company determined that the existing post retirement medical plan should be treated as terminated as of December 31, 2004. This resulted in the Company recognizing a non-cash charge of approximately $312.5 (reflected in Other operating charges (benefits), net — Note 6).

      The PBGC has assumed responsibility for the three largest of the Company’s pension plans, which represented the vast majority of the Company’s net pension obligation including the Company’s Salaried Employees Retirement Plan (in December 2003), the Inactive Pension Plan (in July 2004) and the Kaiser Aluminum Pension Plan (in September 2004). 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, approximately $155.5 in the

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(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

third quarter of 2004 and approximately $154.5 in December 2004. The fourth quarter 2003 and third quarter 2004 charges were determined by the Company based on assumptions that are consistent with the GAAP criteria for valuing ongoing plans. The Company believed this represented a reasonable interim estimation methodology as there were reasonable arguments that could have been made that could have resulted in the final allowed claim amounts being either more or less than that reflected in the financial statements. The December 2004 charge was based on the final agreement with the PBGC which was approved by the Court in January 2005. Pursuant to the agreement with the PBGC, 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 $4.1 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.

Financial Data.

Assumptions

      The following recaps the key assumptions used and the amounts reflected in the Company’s financial statements with respect to the Company’s pension plans and other postretirement benefit plans. In accordance with generally accepted accounting principles, impacts of the changes in the Company’s pension and other postretirement benefit plans discussed above have been reflected in such information.

      The Company uses a December 31 measurement date for the all of its plans.

      Weighted-average assumptions used to determine benefit obligations as of December 31 and net periodic benefit cost for the years ended December 31 are:

		Pension Benefits									Medical/Life Benefits
		2004			2003			2002			2004			2003			2002
Benefit obligations assumptions:
	Discount rate		5.75	%		6.00	%		6.75	%		5.75	%		6.00	%		6.75	%
	Rate of compensation increase		3.00	%		4.00	%		4.00	%		4.00	%		4.00	%		4.00	%
Net periodic benefit cost assumptions:
	Discount rate		5.75	%		6.00	%		6.75	%		6.00	%		6.75	%		7.25	%
	Expected return on plan assets		8.50	%		9.00	%		9.00	%		—			—			—
	Rate of compensation increase		3.00	%		4.00	%		4.00	%		4.00	%		4.00	%		4.00	%

      In 2004, the average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is 9.25% for all participants. The assumed rate of increase is assumed to decline gradually to 5.0% in 2010 for all participants and remain at that level thereafter. In 2003, the average annual assumed rate of increase in the per capita cost of covered benefits was 10.0% for all participants. The assumed rate of increase was assumed to decline gradually to 5.0% in 2010 for all participants and remain at that level thereafter.

      The Company’s overall expected long-term rate of return on assets is 8.5%. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	1% Increase		1% Decrease
Increase (decrease) to total of service and interest cost	$	8.2	$	(7.1	)
Increase (decrease) to the postretirement benefit obligation		111.7		(98.5	)

      As more fully discussed above, all of the Company’s postretirement medical benefit plans have been terminated as a part of the Company’s reorganization efforts. As such, the Company’s obligations with respect to the existing plans are fixed. However, at this time it is not possible to definitely determine the “final” amount of such obligations as the value of such amounts will be subject to negotiations among and between the Company and the constituents of the ongoing Cases and subject to Court approval.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Benefit Obligations and Funded Status

      The following table presents the benefit obligations and funded status of the Company’s pension and other postretirement benefit plans as of December 31, 2004 and 2003, and the corresponding amounts that are included in the Company’s Consolidated Balance Sheets. The following table excludes the pension plan balances and amounts related to Alpart, KJBC and Valco, which operations were sold and the obligations assumed by the buyers (see Note 3). The Company pension plan obligations related to the Gramercy facility were a part of the Terminated Plans and are excluded from the table below.

			Pension Benefits						Medical/Life Benefits
			2004			2003			2004			2003
Change in Benefit Obligation:
	Obligation at beginning of year		$	644.7		$	858.7		$	1,014.0		$	790.1
	Service cost			3.8			8.4			7.0			7.1
	Interest cost			28.6			56.2			58.9			51.3
	Curtailments, settlements and amendments			(609.6	)		(276.4	)		—			—
	Actuarial (gain) loss			(37.0	)		74.5			19.1			225.9
	Benefits paid			(3.3	)		(76.7	)		(57.0	)		(60.4	)
		Obligation at end of year		27.2			644.7			1,042.0			1,014.0
Change in Plan Assets:
	FMV of plan assets at beginning of year			364.1			426.4			—			—
	Actual return on assets			(13.0	)		89.7			—			—
	Employer contributions			2.4			.3			57.0			60.4
	Assets for which contributions transferred to the PBGC			(336.0	)		(75.5	)		—			—
	Benefits paid			(3.3	)		(76.8	)		(57.0	)		(60.4	)
	FMV of plan assets at end of year			14.2			364.1			—			—
	Obligation in excess of plan assets			13.0			280.6			1,042.0			1,014.0
	Unrecognized net actuarial loss			(6.6	)		(140.4	)		—			(421.5	)
	Unrecognized prior service costs			(.5	)		(31.1	)		—			125.2
	Adjustment required to recognize minimum liability			6.8			103.5			—			—
	Estimated net liability to PBGC in respect of Terminated Plans			630.0			201.2			—			—
	Intangible asset and other			1.3			31.9			—			—
		Accrued benefit liability	$	644.0		$	445.7		$	1,042.0		$	717.7

      As discussed more fully in Note 1, the amount of net liability to the PBGC in respect of the Terminated Plans and in respect of the terminated post retirement benefit plan will be resolved pursuant to a plan of reorganization.

      The accumulated benefit obligation for all defined benefit pension plans (other than the Terminated Plans and those plans that are part of discontinued operations) was $26.6 and $29.5 at December 31, 2004 and 2003, respectively.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The projected benefit obligation, aggregate accumulated benefit obligation and fair value of plan assets for continuing pension plans with accumulated benefit obligations in excess of plan assets were $27.2, $26.5 and $14.2, respectively, as of December 31, 2004 and $30.4, $29.5 and $13.7, respectively, as of December 31, 2003.

Components of Net Periodic Benefit Cost —

      The following table presents the components of net periodic benefit cost for the years ended December 31, 2004, 2003 and 2002:

	Pension Benefits									Medical/Life Benefits
	2004			2003			2002			2004			2003			2002
Service cost	$	4.7		$	10.2		$	47.9		$	7.0		$	7.1		$	37.8
Interest cost		30.8			60.7			62.0			58.9			51.3			56.2
Expected return on plan assets		(22.9	)		(38.6	)		(58.0	)		—			—			—
Amortization of prior service cost		2.6			3.6			3.8			(21.7	)		(22.5	)		(23.0	)
Amortization of net (gain) loss		5.0			16.1			6.5			24.6			9.7			11.8
Net periodic benefit costs		20.2			52.0			62.2			68.8			45.6			82.8
Less discontinued operations reported separately		(7.8	)		(15.3	)		(9.2	)		(10.2	)		(11.9	)		(10.5	)
	$	12.4		$	36.7		$	53.0		$	58.6		$	33.7		$	72.3

      The above table excludes pension plan curtailment and settlement costs of $142.4, $122.9 and $26.4 in 2004, 2003 and 2002, respectively. The above table also excludes a post retirement medical plan termination charge of approximately $312.5 in 2004.

      The periodic pension costs associated with the Terminated Plans were $16.9, $46.1 and $20.5 for the years ended December 31, 2004, 2003 and 2002, respectively.

Additional Information

      The increase (decrease) in the minimum liability included in other comprehensive income was $(97.9), $(138.6), and $136.6 for the years ended December 31, 2004, 2003 and 2002, respectively.

Plan Assets

      All pension assets for domestic plans are held in Kaiser Aluminum Pension Master Trust (the “Master Trust”) solely for the benefit of the pension plans’ participants and beneficiaries. Historically, the investment guidelines have been to invest approximately 70% of amounts held by the Master Trust in equity funds with the remaining 30% being invested in fixed income funds. Of the percentage invested in equity funds, approximately 60% has generally been invested in U.S. large capitalization company funds with the remainder being split relatively equally between funds with international equities and funds or private placements investing in U.S. small capitalization company equity securities. However, the Company currently anticipates that the investment guidelines will be revised during 2005 to reflect a more conservative investment strategy with a higher portion of the Master Trusts assets being invested in fixed income funds/securities. This expectation has been reflected in the expected long term rate of return used to compute the December 31, 2004 pension related disclosures contained herein.

      As discussed above, the PBGC assumed responsibility for the Company’s Terminated Plans in December 2003 and the third quarter of 2004. Upon termination, the assets and administration were transferred to the

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

PBGC. The Company’s pension plan weighted average asset allocation of the plans, by asset category, consisted primarily of equity securities of approximately 70% and others of 30% at December 31, 2004 and equity securities of approximately 66%, debt securities of 29% and other of 5% at December 31, 2003. The vast majority of the Company’s pension plan assets are managed by a trustee.

Cash Flow

      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. However, as discussed above in connection with the PBGC settlement agreement, which was approved by the Court in January 2005, the Company will be required to pay $4.1 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’ plan(s) of reorganization.

      The Company anticipates that it will provide a defined contribution pension plan in respect of its salaried employees. The Company expects such plan to be implemented beginning in the second quarter of 2005. The Company currently estimates that the total annual cash cost of such plan would be less than $5.0 and will likely be required to be funded commencing some time in 2005.

      Pursuant to the terms of the USWA agreement (see Note 11), 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 and years of service. The Company believes that similar defined contribution pension plans will be established for non-USWA hourly employees subject to collective bargaining agreements. The Company currently estimates that contributions to all such 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.

      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 at emergence. The amended agreement was approved by the Court in February 2005.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Foreign Plans. Contributions to foreign pension plans (excluding those that are considered part of discontinued operations — see Note 3) were nominal.

Significant Charges in 2004, 2003 and 2002

      In 2004 and 2003, in connection with the Company’s termination of its Terminated Plans (as discussed above), the Company recorded non-cash charges of $310.0 and $121.2, respectively, which amounts have been included in Other operating charges (benefits), net (see Note 6). The charges recorded in the fourth quarter of 2003 and third quarter of 2004 had no material impact on the pension liability associated with the plans since the Company had previously recorded a minimum pension liability, as also required by GAAP, which amount was offset by charges to Stockholders’ equity.

      In 2004, in connection with the termination of the Company’s post-retirement medical plans (as discussed above), the Company recorded a $312.5 non-cash charge, which amount has been included in Other operating charges (benefits), net (see Note 6).

      During 2002, the Company’s Corporate segment recorded charges of $24.1 (included in Corporate selling, administrative, research and development, and general expense), for additional pension expense. The charges were recorded because:

      (1) The lump sum payments from the assets of the Company’s salaried employee pension plan exceeded a stipulated level prescribed by GAAP. Accordingly, a partial “settlement,” as defined by GAAP, was deemed to have occurred. Under GAAP, if a partial “settlement” occurs, a charge must be recorded for a portion of any unrecognized net actuarial losses not reflected in the consolidated balance sheet. The portion of the total unrecognized actuarial losses of the plan ($75.0 at December 31, 2001) that had to be recorded as a charge was the relative percentage of the total projected benefit obligation of the plan ($300.0 at December 31, 2001) settled by the lump sum payments totaling $75.0 in 2002; and

      (2) During 2002, the Company also paid $4.2 into a trust fund in respect of certain obligations attributable to certain non-qualified pension benefits under management compensation agreements. These payments also represented a “settlement” and resulted in a charge of $4.2.

In addition to the foregoing, during 2002, the Primary aluminum segment reflected approximately $58.8 of charges for pension, postretirement medical benefits and related obligations in respect of the indefinite curtailment of the Mead facility. This amount consisted of approximately $29.0 of incremental pension charges and $29.8 of incremental postretirement medical and related charges.

      Postemployment Benefits. The Company has historically provided certain benefits to former or inactive employees after employment but before retirement. However, as a part of the agreements more fully discussed above, such benefits were discontinued in mid-2004.

      Restricted Common Stock. Kaiser has a restricted stock plan, which was one of its stock incentive compensation plans, for its officers and other employees. Pursuant to the plan, approximately 1,181,000 restricted shares of Kaiser’s Common Stock were outstanding as of January 31, 2002. During 2004, 2003 and 2002, approximately 1,113,000 of the unvested restricted shares were cancelled or voluntarily forfeited. As of December 31, 2004, 9,000 restricted shares were outstanding. As part of a plan of reorganization, the Company believes it is likely that these shares will be cancelled without consideration.

      Incentive Plans. The Company has an unfunded incentive compensation program, which provides incentive compensation based on performance against annual plans and over rolling three-year periods. In addition, Kaiser has a “nonqualified” stock option plan and the Company has a defined contribution plan for salaried employees which provides for matching contributions by the Company at the discretion of the board of directors. Given the challenging business environment encountered during 2004, 2003 and 2002 and the

84

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

disappointing results of operations for all years, only modest incentive payments were made and no matching contribution were awarded in respect of either year. The Company’s expense for all of these plans was $1.7, $6.1, and $1.7 for the years ended December 31, 2004, 2003 and 2002, respectively.

      Up to 8,000,000 shares of Kaiser’s Common Stock were initially reserved for issuance under its stock incentive compensation plans. At December 31, 2004, 4,536,855 shares of Common Stock remained available for issuance under those plans. Stock options granted pursuant to the Company’s nonqualified stock option program are to be granted at or above the prevailing market price, generally vest at a rate of 20 - 33% per year, and have a five or ten year term. Information concerning nonqualified stock option plan activity is shown below. The weighted average price per share for each year is shown parenthetically.

	2004			2003			2002
Outstanding at beginning of year ($3.34, $5.63 and $8.37, respectively)		850,140			1,454,861			1,560,707
Expired or forfeited ($7.25, $8.86 and $5.71, respectively)		(40,100	)		(604,721	)		(105,846	)
Outstanding at end of year ($3.14, $3.34, and $5.63, respectively)		810,040			850,140			1,454,861
Exercisable at end of year ($3.04, $3.34, and $6.84, respectively)		781,856			645,659			987,306

      Options exercisable at December 31, 2004 had exercisable prices ranging from $1.72 to $10.06 and a weighted average remaining contractual life of 6.7 years. Given that the average sales price of the Company’s Common Stock is currently in the $.05 per share range, the Company believes it is unlikely any of the stock options will be exercised. Further, as a part of a plan of reorganization, the Company believes that it is likely that the equity interests of the holders of outstanding options will be cancelled without consideration.

10. Stockholders’ Equity

      Preference Stock. The Company has four series of $100 par value Cumulative Convertible Preference Stock (“$100 Preference Stock”) outstanding with annual dividend requirements of between 4¹/8% and 4³/4%. The Company has the option to redeem the $100 Preference Stock at par value plus accrued dividends. The Company does not intend to issue any additional shares of the $100 Preference Stock. By its terms, the $100 Preference Stock can be exchanged for per share cash amounts between $69 - $80. The Company records the $100 Preference Stock at their exchange amounts for financial statement presentation and includes such amounts in minority interests. At December 31, 2004 and 2003, outstanding shares of $100 Preference Stock were 8,669. In accordance with the Code and DIP Facility, the Company is not permitted to repurchase or redeem any of its stock. Further, as a part of a plan of reorganization, the Company believes it is likely that the equity interests of the holders of the $100 Preference Stock will be cancelled without consideration.

      Note Receivable from Parent. The Note receivable from parent bears interest at a fixed rate of 6⁵/8% and matures on December 21, 2020. Accrued interest is accounted for as additional contribution to capital. However, since the Note receivable from parent is unsecured, the accrual of interest was discontinued as of the Filing Date. The payment of the Note receivable from parent and accrued interest will be resolved in connection with the Cases. Under the Intercompany Agreement, the amounts outstanding under the Note receivable from parent will be forgiven in 2005. See Note 1 for a discussion of the Intercompany Agreement.

11. Commitments and Contingencies

      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

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

against a Debtor arising from actions or omissions prior to its Filing Date will be settled in connection with a 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 12), letters of credit, and guarantees. A significant portion of these commitments relate to the Company’s interests in and related to QAL, which are expected to be sold in April 2005 (see Note 3). The Company also has agreements to supply alumina to and to purchase aluminum from Anglesey.

      Minimum rental commitments under operating leases at December 31, 2004, are as follows: years ending December 31, 2005 - $2.1; 2006 - $1.7; 2007 - $1.3; 2008 - $.7; 2009 - $.7; thereafter - $.3. Pursuant to the Code, the Debtors may elect to reject or assume unexpired pre-petition leases. Rental expenses , after excluding rental expenses of discontinued operations, were $3.1, $8.6 and $30.9, for the years ended December 31, 2004, 2003 and 2002, respectively. Rental expenses of discontinued operations were $4.9, $6.6 and $7.4 for the years ended December 31, 2004, 2003 and 2002, respectively.

      Environmental Contingencies. The Company is subject to a number of environmental laws and regulations, to fines or penalties assessed for alleged breaches of the environmental laws, and to claims and litigation based upon such laws and regulations. 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. During the year ended December 31, 2003, the Company recorded charges of $23.2 to increase its environmental accrual. The following table presents the changes in such accruals, which are primarily included in Long-term liabilities, for the years ended December 31, 2004, 2003 and 2002:

	2004			2003			2002
Balance at beginning of period	$	82.5		$	59.1		$	61.2
Additional accruals		8.4			25.6			1.5
Less expenditures		(32.6	)		(2.2	)		(3.6	)
Balance at end of period(1)	$	58.3		$	82.5		$	59.1

(1)  As of December 31, 2004 and 2003, $30.6 and $43.0, respectively, of the environmental accrual was included in Liabilities subject to compromise (see Note 1) and the balance was included in Long-term liabilities.

      These environmental accruals represent the Company’s estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, currently available facts, existing technology, and the Company’s assessment of the likely remediation action to be taken. In the ordinary course, the Company expects that these remediation actions will be taken over the next several years and estimates that annual expenditures to be charged to these environmental accruals will be approximately $24.3 in 2005, $.3 to $3.2 per year for the years 2006 through 2009 and an aggregate of approximately $29.2 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 2009 balance because such amounts are expected to be settled solely in connection with the Debtors’ plan or plans of reorganization.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Approximately $20.2 of the amount provided in 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 have agreed that such claims would be treated as pre-Filing Date unsecured claims (i.e. liabilities subject to compromise). The Company recorded the portion of the $20.2 accrual that relates to locations with operations ($15.7) in Other operating charges (benefits), net (see Note 6). The remainder of the accrual ($4.5), which relates to locations that have not operated for a number of years was recorded in Other income (expense) (see Note 2).

      During 2004 and 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 2). The 2004 accrual resulted from facts and circumstances determined in ordinary course of business. The additional 2003 accruals resulted primarily from additional cost estimation efforts undertaken by the Company in connection with its reorganization efforts. Both the 2004 and 2003 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.

      In June, 2004, the Company reported that it was close to entering settlement agreements with various parties pursuant to which a substantial portion of the unresolved environmental claims could be settled for approximately $25.0 - $30.0. In September 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 to completely settle 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 $20.0 (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 law and requirements at the

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Trentwood facility and intends to defend any claims or charges, if any should result, vigorously. The Company cannot assess what, if any, impact this matter may have on the Company’s or Kaiser’s financial statements.

      Asbestos and Certain Other Personal Injury Claims. 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 or exposure to products containing asbestos produced or sold by the Company or as a result of, employment or association with 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 asbestos-related claims were pending. The Company has also previously disclosed that certain other personal injury claims had been filed in respect of alleged pre-Filing Date exposure to silica and coal tar pitch volatiles (approximately 3,900 claims and 300 claims, respectively).

      Due to the Cases, holders of asbestos, silica and coal tar pitch volatile claims are stayed from continuing to prosecute pending litigation and from commencing new lawsuits against the Debtors. 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 and, as described below, to negotiate insurance settlements and prosecute certain actions to clarify policy interpretations in respect of such coverage.

      The following tables present historical information regarding the Company’s asbestos, silica and coal tar pitch volatiles-related balances and cash flows:

	December 31,
	2004		2003
Liability	$	1,115.0	$	610.1
Receivable (included in Other assets)(1)		967.0		465.4
	$	148.0	$	144.7

	Year Ended December 31,
								Inception
	2004		2003		2002			to Date
Payments made, including related legal costs	$	—	$	—	$	(17.1	)	$	(355.7	)
Insurance recoveries(2)		2.7		18.6		23.3			266.2
	$	2.7	$	18.6	$	6.2		$	(89.5	)

(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. Amounts are stated in nominal dollars and not discounted to present value as the Company cannot currently project the actual timing of payments or insurance recoveries particularly in light of the expected treatment of such items in any plan of reorganization that is ultimately filed. The Company believes that, as of December 31, 2004, it had received all insurance recoveries that it is likely to collect in respect of asbestos-related costs paid. See Note 1.

(2)

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

      As previously disclosed, at the Filing Date, the Company had accrued approximately $610.1 (included in Liabilities Subject to Compromise) in respect of asbestos and other similar personal injury claims. As

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

disclosed, such amount represented the Company’s estimate for current claims and claims expected to be filed over a 10 year period (the longest period the Company believed it could then reasonably estimate) based on, among other things existing claims, assumptions about the 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. The Company also disclosed that there were inherent limitations to such estimates and that the Company’s actual liabilities in respect of such claims could significantly exceed the amounts accrued; that at some point during the reorganization process, the Company expected that an estimation of the Company’s entire asbestos-related liability would occur; and that until such process was complete or the Company had more information, the Company was unlikely to be able to adjust its accruals.

      Over the last year-plus period, the Company has engaged in periodic negotiations with the representatives of the asbestos, silica and coal tar pitch claimants and the Company’s insurers as part of its reorganization efforts. As more fully discussed in Note 1, these efforts resulted in an agreed term sheet in early 2005 between the Company and other key constituents as to the treatment for such claims in any plan(s) of reorganization the Company files. While a formal estimation process has not been completed, now that the Company can reasonably predict the path forward for resolution of these claims and based on the information resulting from the negotiations process, the Company believes it has sufficient information to project a range of likely costs. The Company now estimates that its total liability for asbestos, silica and coal tar pitch volatile personal injury claims is expected to be between approximately $1,100.0 and $2,400.0. However, the Company does not anticipate that other constituents will necessarily agree with this range and the Company anticipates that, as a part of any estimation process that may occur in the Cases, other constituents are expected to disagree with the Company’s estimated range of costs. In particular, the Company is aware that certain informal assertions have been made by representatives for the asbestos, silica and coal tar pitch volatiles claimants that the actual liability may exceed, perhaps significantly, the top end of the Company’s expected range. While the Company cannot reasonably predict what the ultimate amount of such claims will be determined to be, the Company believes that the minimum end of the range is both probable and reasonably estimatable. Accordingly, in accordance with GAAP, the Company recorded an approximate $500.0 charge to increase its accrued liability at December 31, 2004 to the $1,115.0 minimum end of the expected range. Future adjustments to such accruals are possible as the reorganization and/or estimation process proceeds and it is possible that such adjustments will be material.

      As previously disclosed, the Company believes that it has insurance coverage available to recover a substantial portion of its asbestos-related costs and had accrued for expected recoveries totaling approximately $463.1 as of September 30, 2004, after considering the approximately $54.4 of asbestos-related insurance receipts received from the Filing Date through September 30, 2004. As previously disclosed, 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.

      As a part of the negotiation process described above, the Company has continued its efforts with insurers to make clear the amount of insurance coverage expected to be available in respect of asbestos, silica and coal tar pitch personal injury claims. The Company has settled asbestos-related coverage matters with certain of its insurance carriers. However, other carriers have not yet agreed to settlements and disputes with carriers exist. 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 litigation is continuing.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The timing and amount of future insurance recoveries continues to be dependent on the resolution of any disputes regarding coverage under the applicable insurance policies thru the process of negotiations or further litigation. However, the Company believes that substantial recoveries from the insurance carriers are probable. The Company estimates that at December 31, 2004 its remaining solvent insurance coverage was in the range of $1,400.0 - $1,500.0. Further, assuming that actual asbestos, silica and coal tar pitch volatile costs were to be the $1,115.0 amount now accrued (as discussed above) the Company believes that it would be able to recover from insurers amounts totaling approximately $967.0, and, accordingly the Company recorded an approximate $500.0 increase in its personal injury-related insurance receivable. The foregoing estimates are based on, among other things, negotiations, the results of the litigation efforts discussed above 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. While the Company considers the approximate $965.0 amount to be probable (based on the factors cited above) it is possible that facts and circumstances could change and, if such a change were to occur, that a material adjustment to the amount recorded could occur. Additionally, it should be noted that, if through the estimation process or negotiation, it was determined that a significantly higher amount of costs were expected to be paid in respect of asbestos, silica and coal tar pitch volatile claims: (a) any amounts in excess of $1,400.0 - $1,500.0 would likely not be offset by any expected incremental insurance recoveries and (b) it is presently uncertain to what extent additional insurance recoveries would be determined under GAAP to be probable in respect of expected costs between the $1,100.0 amount accrued at December 31, 2004 and total amount of estimated solvent insurance coverage available.

      Since the start of the Cases, 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 have paid certain amounts, pursuant to the terms of that approved escrow agreements, into funds (the “Escrow Funds”) 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 Funds are under the control of the escrow agents, who will make distributions only pursuant to a Court order, the Escrow Funds are not included in the accompanying consolidated balance sheet at December 31, 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 December 31, 2004, the insurers had paid $11.8 into the Escrow Funds. It is possible that settlements with additional insurers will occur. However, no assurance can be given that such settlements will occur.

      Hearing Loss Claims. During February 2004, the Company reached a settlement in principle 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 claims totaling $15.8. As such, the Company recorded a $15.8 charge (in Other operating charges (benefits), net — see Note 6) in 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 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 December 31, 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.

      During the Cases, the Company has received approximately 3,200 additional proofs of claim alleging pre-petition injury due to noise induced hearing loss. It is not known at this time how many, if any, of such claims

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

have merit or at what level such claims might qualify within the parameters established by the above-referenced settlement in principle for the 400 claims. Accordingly, 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 insurance policies, to a separate trust along with the settled hearing loss cases discussed above, whether or not such claims are settled prior to the Company’s emergence from the Cases.

      Labor Matters. In connection with the United Steelworkers of America (“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.

      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. 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. Also, as part of the agreement, the Company agreed to adopt a position of neutrality regarding the unionization of any employees of the reorganized company.

      The settlement was ratified by the union members in February 2004, amended in October 2004, and ultimately approved by the Court in February 2005. Until February 2005, the settlement was also contingent on the Court’s approval of the Intercompany Agreement. However, such contingency was removed when the Court approved the Intercompany Agreement in February 2005. Since all material contingencies in respect of this settlement have been resolved and, since the ULP claim existed as of the December 31, 2004 balance sheet date, the Company recorded a $175.0 non-cash charge in the fourth quarter of 2004 (reflected in Other charges (benefits), net — Note 6).

      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.

12. Derivative Financial Instruments and Related Hedging Programs

      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 has historically entered into hedging transactions from time to time to limit its exposure resulting from (1) its anticipated sales 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 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 are generally designed to lock-in a specified price or range of prices, gains or losses on the derivative contracts

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

utilized in the hedging activities (except the impact of those contracts discussed below which have been marked to market) generally offset at least a portion of any losses or gains, respectively, on the transactions being hedged.

      The Company’s share of primary aluminum production from Anglesey is approximately 150,000,000 pounds annually. Because the Company purchases alumina for Anglesey at prices linked to primary aluminum prices, only a portion of the Company’s net revenues associated with Anglesey are exposed to price risk. The Company estimates the net portion of its share of Anglesey production exposed to primary aluminum price risk to be approximately 100,000,000 pounds annually.

      As stated above, 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. However, in certain instances the Company does enter into firm price arrangements. In such instances, the Company does have price risk on its anticipated primary aluminum purchase in respect of the customer’s order. Total fabricated products shipments during 2002, 2003 and 2004 that contained fixed price terms were (in millions of pounds) 99.0, 97.6 and 119.0, respectively.

      During the last three years the volume of fabricated products shipments with underlying primary aluminum price risk were roughly the same as the Company’s net exposure to primary aluminum price risk at Anglesey. As such, the Company considers its access to Anglesey production overall to be a “natural” hedge against any fabricated products firm metal-price risk. However, since the volume of fabricated products shipped under firm prices may not match up on a month-to-month basis with expected Anglesey-related primary aluminum shipments, the Company may use third party hedging instruments to eliminate any net remaining primary aluminum price exposure existing at any time.

      At December 31, 2004, the fabricated products business held contracts for the delivery of fabricated aluminum products that have the effect of creating price risk on anticipated purchases of primary aluminum for the period 2005 - 2008 totaling approximately (in millions of pounds): 2005: 104.0, 2006: 41.0, 2007: 38.0, and 2008: 10.0.

      The following table summarizes the Company’s material derivative positions at December 31, 2004.

				Notional
				Amount of		Carrying/
				Contracts		Market
Commodity		Period		(mmlbs)		Value
Aluminum —
	Option sale contracts		1/05 through 12/05		64.6	$	(3.0	)
			1/06 through 12/06		47.6		(.5	)
	Fixed priced purchase contracts		1/05 through 12/05		50.1		5.5

      2002. 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 Filing Date. Proceeds from the liquidation totaled approximately $42.2. A net gain of $23.3 associated with these liquidated positions was deferred. The individual hedging gains/losses are being recognized over the period during which the underlying transactions to which the hedges related are expected to occur. As of December 31, 2004, the remaining unamortized amount was a net loss of approximately $.3.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. Key Employee Retention Program

      In June 2002, the Company adopted a key employee retention program (the “KERP”), which was approved by the Court in September 2002. The KERP is a comprehensive program that is designed to provide financial incentives sufficient to retain certain key employees during the Cases. The KERP includes six key elements: a retention plan, a severance plan, a change in control plan, a completion incentive plan, the continuation for certain participants of an existing supplemental employee retirement plan (“SERP”) and a long-term incentive plan. Under the KERP, retention payments commenced in September 2002 and were paid every six months through March 31, 2004, except that 50% of the amounts payable to certain senior officers were withheld until the Debtors emerge from the Cases or as otherwise agreed pursuant to the KERP. The severance and change in control plans, which are similar to the provisions of previous arrangements that existed for certain key employees, generally provide for severance payments of between six months and three years of salary and certain benefits, depending on the facts and circumstances and the level of employee involved. The completion incentive plan generally provided for payments of up to an aggregate of approximately $1.2 to certain senior officers provided that the Debtors emerged from the Cases in 30 months or less from the initial Filing Date. Because the Debtors will emerge from the Cases more than 30 months from the initial Filing Date, the amount of the payments will be reduced accordingly. The SERP generally provides additional non-qualified pension benefits for certain active employees at the time that the KERP was approved, who would suffer a loss of benefits based on Internal Revenue Code limitations, so long as such employees are not subsequently terminated for cause or voluntarily terminate their employment prior to reaching their retirement age. The long-term incentive plan generally provides for incentive awards to key employees based on an annual cost reduction target. Payment of such awards generally will be made: (a) 50% when the Debtors emerge from the Cases and (b) 50% one year from the date the Debtors emerge from the Cases. During 2004, 2003 and 2002, the Company has recorded charges of $1.5, $6.1 and $5.1, respectively (included in Selling, administrative, research and development, and general), related to the KERP.

14. Pacific Northwest Power Matters

      During October 2000, the Company signed an electric power contract with the Bonneville Power Administration (“BPA”) under which the BPA, starting October 1, 2001, was to provide the Company’s operations in the State of Washington with approximately 290 megawatts of power through September 2006. The contract provided the Company with sufficient power to fully operate the Company’s Trentwood facility, as well as approximately 40% of the combined capacity of the Company’s Mead and Tacoma aluminum smelting operations which had been curtailed since the last half of 2000.

      As a part of the reorganization process, the Company concluded that it was in its best interest to reject the BPA contract as permitted by the Code. As such, with the authorization of the Court, the Company rejected the BPA contract on September 30, 2002. The contract rejection gives rise to a pre-petition claim (see Note 1). The BPA has filed a proof of claim for approximately $75.0 in connection with the Cases in respect of the contract rejection. The claim is expected to be settled in the overall context of a plan of reorganization. Accordingly, any payments that may be required as a result of the rejection of the BPA contract are expected to only be made pursuant to a plan of reorganization and upon the Company’s emergence from the Cases. The amount of the BPA claim will be determined either through a negotiated settlement, litigation or a computation of prevailing power prices over the contract period. As the amount of the BPA’s claim in respect of the contract rejection has not been determined, no provision has been made for the claim in the accompanying financial statements. The Company has entered into a rolling short-term contract with an alternate supplier to provide the power necessary to operate its Trentwood facility.

      In addition to the BPA power contract, the Company had a transmission service agreement with the BPA under which the BPA transmitted power to the Company’s Mead, Tacoma and Trentwood facilities. In

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

October 2003, with the approval of the Court, the BPA agreement was restructured. Key aspects of the restructuring included: (a) the existing transmission service agreement was terminated; (b) the Company and the BPA entered into two new transmission service agreements that provide for the transmission of power for the Mead and Trentwood facilities at reduced transmission costs; and (c) the Company and the BPA agreed that the BPA would be allowed to file an unsecured pre-Filing Date claim of approximately $3.2 (which amount has been reflected in Other operating charges, net — see Note 6 in respect of the termination of the existing agreement).

15. Segment and Geographical Area Information

      The Company’s primary line of business is the production of fabricated aluminum products. In addition, the Company owns a 49% interest in Anglesey, which owns an aluminum smelter in Holyhead, Wales. Historically, the Company operated in all principal sectors of the aluminum industry including the production and sale of bauxite, alumina and primary aluminum in domestic and international markets. However, as previously disclosed, as a part of the Company’s reorganization efforts, the Company has completed the sale of substantially all of its commodities operations (other than the Company’s interests in and related to QAL which are expected to be sold in April 2005). The balances and results in respect of such operations are now considered discontinued operations (see Note 3 and 5). The amounts remaining in Primary aluminum relate primarily to the Company’s interests in and related to Anglesey and the Company’s primary aluminum hedging-related activities.

      The Company’s operations are organized and managed by product type. The Company operations, after the discontinued operations reclassification, include two operating segments of the aluminum industry and the corporate segment. The aluminum industry segments include: Fabricated products and Primary aluminum. The Fabricated products group sells value-added products such as heat treat aluminum sheet and plate which are used in a wide range of industrial segments including for the automotive, aerospace and general engineering end-use applications. The Primary aluminum business unit produces commodity grade products as well as value-added products such as rod and billet, for which the Company receives a premium over normal commodity market prices and conducts hedging activities in respect of the Company’s exposure to primary aluminum price risk. The accounting policies of the segments are the same as those described in Note 2. Business unit results are evaluated internally by management before any allocation of corporate overhead and without any charge for income taxes, interest expense or Other operating charges (benefits), net.

      The Company has changed its segment presentation in 2004 to eliminate the “Eliminations” segment as the primary purpose for such segment was to eliminate intercompany profit on sales by the Primary aluminum and Bauxite and alumina business units substantially all of which are now considered Discontinued operations. Eliminations not representing Discontinued operations are now included in segment results.

      Given the significance of the Company’s exposure to primary aluminum prices and alumina prices (which typically are linked to primary aluminum prices on a lagged basis) in prior years, the commodity marketing activities were considered a separate business unit. In the accompanying financial statements, the Company has reclassified to discontinued operations all of the primary aluminum hedging results in respect of the commodity-related interests that have been or are expected to be sold and that are also treated as discontinued operations. As stated above, remaining primary aluminum hedging activities related to the Company’s interests in Anglesey and any firm price fabricated product shipments are considered part of the “Primary aluminum business unit”.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Financial information by operating segment, excluding discontinued operations, at December 31, 2004, 2003 and 2002 is as follows:

		Year Ended December 31,
		2004			2003			2002
Net Sales:
	Fabricated Products	$	809.3		$	597.8		$	608.6
	Primary Aluminum		133.1			112.4			100.4
		$	942.4		$	710.2		$	709.0
Equity in income (loss) of unconsolidated affiliate:
	Primary Aluminum	$	8.2		$	3.3		$	3.6
Segment Operating Income (Loss):(3)(4)
	Fabricated Products(1)	$	33.0		$	(21.2	)	$	(21.8	)
	Primary Aluminum		13.9			6.7			7.4
	Corporate and Other(2)		(71.1	)		(74.5	)		(98.8	)
	Other Operating (Charges) Benefits, Net — Note 6		(793.2	)		(141.6	)		(31.8	)
		$	(817.4	)	$	(230.6	)	$	(145.0	)

(1)	Operating results for 2004, 2003 and 2002 include LIFO inventory charges of $12.1, $3.2 and $3.5, respectively.
(2)	Operating results for 2002 include special pension charges of $24.1.
(3)	Operating results for 2003 and 2002 for the Fabricated products business unit reported above include $4.5 and $.4, respectively, previously reported in Eliminations. There is no such elimination required in 2004. Operating results for 2003 and 2002 for the Primary aluminum business unit reported above include $(.4), and $1.3, respectively, previously reported in Eliminations. Operating results for the Primary aluminum business unit in 2004 are after the elimination of $.9.
(4)	In 2004, the Company chose to reallocate for segment purposes the amount of post-retirement medical costs charged to the business units so that the Corporate segment began to incur the excess of the total expenses over the amount of VEBA contributions allocable to the Fabricated products business unit and Discontinued operations.

		Year Ended December 31,
		2004		2003		2002
Depreciation and amortization(1)
	Fabricated Products	$	21.8	$	22.8	$	27.0
	Primary Aluminum		.2		1.1		1.6
	Corporate and Other		.3		1.8		3.7
		$	22.3	$	25.7	$	32.3
Capital expenditures:(2)
	Fabricated Products	$	7.6	$	8.9	$	10.2
	Corporate and Other		—		—		.7
		$	7.6	$	8.9	$	10.9

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(1)	Depreciation and amortization expense excludes depreciation and amortization expense of discontinued operations of $13.1 in 2004, $47.5 in 2003 and $59.2 in 2002.
(2)	Capital expenditures exclude capital expenditures of discontinued operations of $3.5 in 2004, $28.3 in 2003 and $36.7 in 2002.

		December 31,
		2004		2003
Investments in and advances to unconsolidated affiliate:
	Primary Aluminum	$	16.7	$	13.0
	Corporate and Other		—		.1
		$	16.7	$	13.1
Segment assets:
	Fabricated Products	$	430.0	$	413.5
	Primary Aluminum		95.5		92.5
	Corporate and Other, including restricted proceeds from the sale of commodity interests in 2004 of $280.8		1,292.7		495.2
	Discontinued operations		69.5		627.5
		$	1,887.7	$	1,628.7

			Year Ended
			December 31,
			2004		2003		2002
Income taxes paid:(1)
	Fabricated Products —
		United States	$	—	$	.1	$	.1
		Canada		—		4.7		2.9
			$	—	$	4.8	$	3.0

(1)  Income taxes paid excludes income tax paid by discontinued operations of $10.7 in 2004, $41.3 in 2003 and $34.5 in 2002.

96

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Geographical information for net sales, based on country of origin, and long-lived assets follows:

			Year Ended December 31,
			2004		2003		2002
Net sales to unaffiliated customers:
	Fabricated Products
		United States	$	705.7	$	525.6	$	534.2
		Canada		103.6		72.2		74.4
				809.3		597.8		608.6
	Primary Aluminum
		United States		—		3.8		1.9
		United Kingdom		133.1		108.6		98.5
				133.1		112.4		100.4
			$	942.4	$	710.2	$	709.0

			December 31,
			2004		2003
Long-lived assets:(1)
	Fabricated Products —
		United States	$	193.4	$	207.3
		Canada		17.8		17.9
				211.2		225.2
	Primary Aluminum —
		United Kingdom		16.7		13.0
	Corporate and Other —
		United States		3.4		5.0
			$	231.3	$	243.2

(1)	Long-lived assets include Property, plant, and equipment, net and Investments in and advances to unconsolidated affiliates. Prepared on a going-concern basis — see Note 2.
(2)	Long-lived assets excludes long-lived assets of discontinued operations of $38.9 in 2004 and $426.4 in 2003.

      The aggregate foreign currency gain included in determining net income was immaterial for the years ended December 31, 2004, 2003 and 2002. No single customer accounted for sales in excess of 10% of total revenue in 2004, 2003 and 2002. Export sales were less than 10% of total revenue during the years ended December 31, 2004, 2003 and 2002.

16. Supplemental Guarantor Information

      KAAC, KFC, KJC, AJI, Bellwood and Kaiser Micromill Holding, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC (collectively referred to as the “Micromill Subsidiaries”) are domestic wholly-owned (direct or indirect) subsidiaries of the Company that have provided, joint and several, guarantees of the 9⁷/8% Notes, the 10⁷/8% Notes and the 12³/4% Notes

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(the “Notes”) (see Note 7). Such guarantees are full and unconditional. KJC and AJI and KACC are direct subsidiaries, which serve as holding companies for the Company’s investments in Alpart, which was sold in July 2004, and QAL, which sale is expected to close in April 2005, respectively. KFC is a wholly-owned subsidiary of KAAC, whose principal business is making loans to the Company and its subsidiaries. Bellwood is a wholly-owned subsidiary that holds the Company’s interests in an extrusion plant located in Richmond, Virginia. The Micromill Subsidiaries are domestic wholly-owned (direct or indirect) subsidiaries of the Company which were formed to hold (directly or indirectly) certain of the Company’s interests in the Micromill facilities and related projects, if any. Since the Company sold the Micromill assets in early 2000, the Micromill Subsidiaries’ only asset is an interest in future payments based on subsequent performance and profitability of the Micromill technology. KAAC, KFC, KJC, AJI, Bellwood, KTC and the Micromill Subsidiaries are hereinafter collectively referred to as the Subsidiary Guarantors. All of the Subsidiary Guarantors have filed voluntary petitions for reorganization (see Note 1).

      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.

98

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Balance Sheets

December 31, 2004

				Subsidiary		Other			Eliminating
	Company			Guarantors		Subsidiaries			Entries			Consolidated
ASSETS
Current assets	$	234.7		$	18.8	$	43.1		$	—		$	296.6
Discontinued operations’ current assets		.6			19.0		11.0			—			30.6
Investments in subsidiaries		2,662.0			—		—			(2,662.0	)		—
Intercompany advances receivable (payable)		(2,244.3	)		590.4		1,653.9			—			—
Investments in and advances to unconsolidated affiliate		16.7			—		—			—			16.7
Property and equipment, net		176.0			20.1		18.5			—			214.6
Deferred income taxes		(88.4	)		41.5		46.9			—			—
Restricted proceeds from sale of commodity interests		4.0			271.8		5.0			—			280.8
Personal injury-related insurance recoveries receivable		967.0			—		—			—			967.0
Other assets		42.2			.2		.1			—			42.5
Discontinued operations’ long-term assets		—			38.9		—			—			38.9
	$	1,770.5		$	1,000.7	$	1,778.5		$	(2,662.0	)	$	1,887.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities	$	159.9		$	5.2	$	24.5		$	—		$	189.6
Discontinued operations’ current liabilities		2.1			55.2		.4			—			57.7
Other long-term liabilities		32.9			.9		(.9	)		—			32.9
Long-term debt		2.8			—		—			—			2.8
Discontinued operations’ long-term liabilities		26.4			—		—			—			26.4
Liabilities subject to compromise		3,923.0			18.2		13.7			—			3,954.9
Stockholders’ equity		(2,376.6	)		921.2		1,740.8			(2,662.0	)		(2,376.6	)
	$	1,770.5		$	1,000.7	$	1,778.5		$	(2,662.0	)	$	1,887.7

99

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Balance Sheets

December 31, 2003

				Subsidiary		Other			Eliminating
	Company			Guarantors		Subsidiaries			Entries			Consolidated
ASSETS
Current assets	$	174.8		$	43.9	$	18.8		$	—		$	237.5
Discontinued operations’ current assets		56.8			14.1		122.8			—			193.7
Investments in subsidiaries		2,617.2			174.0		—			(2,791.2	)		—
Intercompany advances receivable (payable)		(2,203.0	)		511.9		1,691.1			—			—
Investments in and advances to unconsolidated affiliates		13.1			—		—			—			13.1
Property and equipment, net		185.1			21.4		23.6			—			230.1
Deferred income taxes		(88.5	)		41.6		46.9			—			—
Personal injury-related insurance recoveries receivable		465.4			—		—			—			465.4
Other assets		54.5			.2		.4			—			55.1
Discontinued operations’ long-term assets		6.5			37.7		389.6			—			433.8
	$	1,281.9		$	844.8	$	2,293.2		$	(2,791.2	)	$	1,628.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities	$	127.7		$	5.1	$	9.2		$	—		$	142.0
Discontinued operations’ current liabilities		33.5			39.0		105.0			—			177.5
Other long-term liabilities		59.1			1.0		(.7	)		—			59.4
Long-term debt		2.2			—		—			—			2.2
Discontinued operations’ long-term liabilities		50.3			11.9		41.0			105.5			208.7
Liabilities subject to compromise		2,740.3			16.0		13.8			—			2,770.1
Stockholders’ equity		(1,731.2	)		771.8		2,124.9			(2,896.7	)		(1,731.2	)
	$	1,281.9		$	844.8	$	2,293.2		$	(2,791.2	)	$	1,628.7

100

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Income (Loss)

For the Year Ended December 31, 2004

					Subsidiary			Other			Eliminating
		Company			Guarantors			Subsidiaries			Entries			Consolidated
Net sales		$	757.6		$	41.2		$	294.8		$	(151.2	)	$	942.4
Costs and expenses:
	Operating costs and expenses		796.8			50.9			270.1			(151.2	)		966.6
	Other operating charges, net		793.2			—			—			—			793.2
Operating income (loss)			(832.4	)		(9.7	)		24.7			—			(817.4	)
Interest expense			(9.5	)		—			—			—			(9.5	)
Reorganization items			(39.0	)		—			—			—			(39.0	)
Other income (expense), net			5.1			—			(.9	)		—			4.2
Provision for income taxes			(3.2	)		—			(3.0	)		—			(6.2	)
Equity in loss of subsidiaries			122.2			—			—			(122.2	)		—
(Loss) from continuing operations			(756.8	)		(9.7	)		20.8			(122.2	)		(867.9	)
Income (loss) from discontinued operations			10.2			130.3			(19.2	)		—			121.3
Net loss		$	(746.6	)	$	120.6		$	1.6		$	(122.2	)	$	(746.6	)

Condensed Consolidating Statements of Income (Loss)

For the Year Ended December 31, 2003

					Subsidiary			Other			Eliminating
		Company			Guarantors			Subsidiaries			Entries			Consolidated
Net sales		$	573.4		$	42.3		$	238.5		$	(144.0	)	$	710.2
Costs and expenses:
	Operating costs and expenses		661.9			55.3			226.0			(144.0	)		799.2
	Other operating charges, net		141.4			.2			—			—			141.6
Operating income (loss)			(229.9	)		(13.2	)		12.5			—			(230.6	)
Interest expense			(9.1	)		—			—			—			(9.1	)
Reorganization items			(27.0	)		—			—						(27.0	)
Other income (expense), net			6.3			(.7	)		(10.8	)		—			(5.2	)
Provision for income taxes			(1.8	)		—			.3			—			(1.5	)
Equity in income (loss) of subsidiaries			(126.9	)		—			—			126.9			—
Loss from continuing operations			(388.4	)		(13.9	)		2.0			126.9			(273.4	)
Loss from discontinued operations			(399.7	)		(78.0	)		(37.0	)		—			(514.7	)
Net Loss		$	(788.1	)	$	(91.9	)	$	(35.0	)	$	126.9		$	(788.1	)

101

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Income (Loss)

For the Year Ended December 31, 2002

					Subsidiary			Other			Eliminating
		Company			Guarantors			Subsidiaries			Entries			Consolidated
Net sales		$	478.2		$	76.3		$	222.7		$	(68.2	)	$	709.0
Costs and expenses:
	Operating costs and expenses		609.7			82.6			198.1			(68.2	)		822.2
	Other operating charges, net		31.8			—			—			—			31.8
Operating income (loss)			(163.3	)		(6.3	)		24.6			—			(145.0	)
Interest expense			(16.6	)		—			(2.4	)		—			(19.0	)
Reorganization items			(33.3	)		—			—			—			(33.3	)
Other income (expense), net			(6.8	)		6.7			(.8	)		—			(.9	)
Provision for income taxes			4.0			(3.3	)		(4.9	)		—			(4.2	)
Equity in income of subsidiaries			12.1			—			—			(12.1	)		—
Loss from continuing operations			(203.9	)		(2.9	)		16.5			(12.1	)		(202.4	)
Loss from discontinued operations			(264.5	)		(21.2	)		19.7			—			(266.0	)
Net loss		$	(468.4	)	$	(24.1	)	$	36.2		$	(12.1	)	$	(468.4	)

102

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2004

					Subsidiary			Other			Eliminating
		Company			Guarantors			Subsidiaries			Entries		Consolidated
Net cash provided (used) by:
Operating activities —
	Continuing operations	$	(122.3	)	$	(8.1	)	$	28.4		$	—	$	(102.0	)
	Discontinued operations		(5.1	)		38.4			30.7			—		64.0
			(127.4	)		30.3			59.1					(38.0	)
Investing activities —
	Continuing operations		(4.5	)		(.3	)		(.5	)		—		(5.3	)
	Discontinued operations		76.0			278.6			2.1			—		356.7
			71.5			278.3			1.6			—		351.4
Financing activities —
	Continued operations		(2.4	)		—			—			—		(2.4	)
	Discontinued operations		—			(271.6	)		(19.5	)		—		(291.1	)
			(2.4	)		(271.6	)		(19.5	)		—		(293.5	)
Intercompany activity			77.6			(37.0	)		(40.6	)		—		—
Net decrease in cash and cash equivalents during the year			19.3			—			.6			—		19.9
Cash and cash equivalents at beginning of year			34.7			—			.8			—		35.5
Cash and cash equivalents at end of year		$	54.0		$	—		$	1.4		$	—	$	55.4

103

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2003

					Subsidiary			Other			Eliminating
		Company			Guarantors			Subsidiaries			Entries		Consolidated
Net cash provided (used) by:
Operating activities —
	Continuing operations	$	(72.3	)	$	(.4	)	$	15.3		$		$	(57.4	)
	Discontinued operations		(40.1	)		34.3			(23.7	)		—		(29.5	)
			(112.4	)		33.9			(8.4	)		—		(86.9	)
Investing activities —
	Continuing operations		69.3			(.1	)		4.9			—		74.1
	Discontinued operations		1.3			—			(26.3	)		—		(25.0	)
			70.6			(.1	)		(21.4	)		—		49.1
Financing activities —
	Continued operations		(4.1	)		—			—			—		(4.1	)
	Discontinued operations		—			—			—			—		—
			(4.1	)		—			—			—		(4.1	)
Intercompany activity			7.4			(33.8	)		26.4			—		—
Net decrease in cash and cash equivalents during the year			(38.5	)		—			(3.4	)		—		(41.9	)
Cash and cash equivalents at beginning of year			73.2			—			4.2			—		77.4
Cash and cash equivalents at end of year		$	34.7		$	—		$	.8		$	—	$	35.5

104

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2002

					Subsidiary			Other			Eliminating
		Company			Guarantors			Subsidiaries			Entries		Consolidated
Net cash provided (used) by:
Operating activities —
	Continuing operations	$	(56.3	)	$	(3.6	)	$	31.7		$	—	$	(28.2	)
	Discontinued operations		(46.1	)		41.9			(19.3	)		—		(23.5	)
			(102.4	)		38.3			12.4			—		(51.7	)
Investing activities-
	Continuing operations		20.1			(1.4	)		(1.1	)		—		17.6
	Discontinued operations		.5			(.6	)		(33.7	)		—		(33.8	)
			20.6			(2.0	)		(34.8	)		—		(16.2	)
Financing activities-
	Continued operations		(8.8	)		—			—			—		(8.8	)
	Discontinued operations		—			—			—			—		—
			(8.8	)		—			—			—		(8.8	)
Intercompany activity			10.4			(35.8	)		25.4			—		—
Net decrease in cash and cash equivalents during the year			(80.2	)		.5			3.0			—		(76.7	)
Cash and cash equivalents at beginning of year			153.4			(.5	)		1.2			—		154.1
Cash and cash equivalents at end of year		$	73.2		$	—		$	4.2		$	—	$	77.4

105

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

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NOTES TO CONDENSED CONSOLIDATING FINANCIAL INFORMATION

      Impact of Cases — During 2004, there were several impacts of the Cases on the Company and the Subsidiary Guarantors. The impacts of the Cases, among other things, include: (a) AJI, KJC, KAAC and KFC filed and are seeking confirmation of Liquidating Plans; (b) intercompany accounts between the Company and its Debtor subsidiaries will be forgiven after certain cash transfers are made as required by the Intercompany Agreement; and (c) certain assertions have been made by holders of the Sub Notes that all or a portion of their claims against the Subsidiary Guarantors may rank on par with holders of the Senior Notes. See Note 1 for further discussion of these impacts of the Cases and other matters.

      Income Taxes — The income tax provisions for the years ended December 31 2004 and 2003 and 2002 relate primarily to foreign income taxes. As a result of the Cases, the Company did not recognize U.S. income tax benefits for the losses incurred from domestic operations (including temporary differences) or any U.S. 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, 2003 and 2002 were offset by equal increases in valuation allowances.

      Foreign Currency — The functional currency of the Company and its subsidiaries is the United States Dollar. As a result of the sale of the Company’s Commodity Interests, pre-tax translation gains (losses) are included in the Company’s and Subsidiary Guarantors’ Discontinued operations. Such amounts for the Company totaled $25.2, $66.8 and $15.8 for the years ended December 31, 2004, 2003 and 2002, respectively. Such amounts for the Subsidiary Guarantors totaled $(25.7), $(68.7) and $16.2 for the years ended December 31, 2004, 2003 and 2002, 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.

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QUARTERLY FINANCIAL DATA (Unaudited)

		Quarter Ended
		March 31,			June 30,			September 30,			December 31,
		(In millions of dollars)
2004
	Net sales	$	210.2		$	230.1		$	244.4		$	257.7
	Operating income (loss)		(10.2	)		(4.4	)		(160.4	)		(642.4	)
	Loss from continuing operations		(22.5	)		(14.8	)		(173.1	)(1)		(657.5	)(2)
	Income (loss) from discontinued operations		(41.4	)		39.0			103.7			20.0
	Net loss		(63.9	)		24.2			(69.4	)		(637.5	)
2003
	Net sales	$	176.1		$	176.3		$	174.5		$	183.3
	Operating income (loss)		(11.7	)		(22.3	)		(36.4	)		(160.2	)
	Loss from continuing operations		(22.3	)		(33.6	)		(51.6	)		(165.9	)(3)
	Loss from discontinued operations		(42.8	)		(27.7	)		(37.0	)		(407.2	)
	Net loss		(65.1	)		(61.3	)		(88.6	)		(573.1	)

(1)	Includes a non-cash pension charge of $155.5 (see Note 6 of Notes to Consolidated Financial Statements).
(2)	Includes a non-cash pension charge of $154.5, a non-cash charge related to termination of post-retirement medical benefits plan of $312.5 and a related non-cash charge of $175.0 related to a settlement with the United Steel Workers of America (see Note 6 of Notes to Consolidated Financial Statements).
(3)	Includes a non-cash pension charge of $121.2 and a non-cash hearing loss claims charge of $15.8 (see Note 6 of Notes to Consolidated Financial Statements).
(4)	Earnings (loss) per share and market price may not be meaningful because, as part of a plan of reorganization, it is likely that the equity interests of the Company’s existing stockholders will be cancelled without consideration.

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FIVE-YEAR FINANCIAL DATA

CONSOLIDATED BALANCE SHEETS

				December 31,
				2004(1)			2003			2002			2001			2000
				(In millions of dollars)
ASSETS
Current assets:
	Cash and cash equivalents			$	55.4		$	35.5		$	77.4		$	154.1		$	30.8
	Receivables				116.3			85.7			67.5			73.3			124.5
	Inventories				105.3			92.5			103.8			138.3			181.9
	Prepaid expenses and other current assets				19.6			23.8			27.0			20.6			88.3
	Discontinued operations’ current assets				30.6			193.7			245.9			379.4			592.8
		Total current assets			327.2			431.2			521.6			765.7			1,018.3
Investments in and advances to unconsolidated affiliate					16.7			13.1			15.2			18.9			21.6
Property, plant, and equipment — net					214.6			230.1			255.3			294.4			321.8
Restricted proceeds from sale of commodity interests					280.8			—			—			—			—
Deferred income taxes					—			—			—			—			452.3
Personal injury-related insurance recoveries receivable					967.0			465.4			484.0			501.2			406.3
Other assets					42.5			55.1			137.7			161.3			144.6
Discontinued operations’ long-term assets					38.9			433.8			816.6			1,008.7			982.5
		Total		$	1,887.7		$	1,628.7		$	2,230.4		$	2,750.2		$	3,347.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities not subject to compromise —
Current liabilities:
		Accounts payable and accruals		$	173.8		$	96.8		$	92.2		$	273.1		$	350.8
		Accrued postretirement medical benefit obligation — current portion			—			32.5			60.2			62.0			58.0
		Payable to affiliate			14.6			11.4			11.1			12.2			13.3
		Long-term debt — current portion			1.2			1.3			.9			173.5			31.6
		Discontinued operations’ current liabilities			57.7			177.5			167.6			282.6			387.7
			Total current liabilities		247.3			319.5			332.0			803.4			841.4
	Long-term liabilities				32.9			59.4			55.7			808.9			524.0
	Accrued postretirement medical benefit obligation				—			—			—			642.2			656.9
	Long-term debt				2.8			2.2			20.7			678.7			901.7
	Discontinued operations’ long-term liabilities, including minority interests				26.4			208.7			226.4			251.0			336.4
					309.4			589.8			636.8			3,184.2			3,260.4
Liabilities subject to compromise					3,954.9			2,770.1			2,673.9			—			—
Stockholders’ equity:
	Preference stock				.7			.7			.7			.7			.7
	Common stock				15.4			15.4			15.4			15.4			15.4
	Additional capital				2,452.8			2,454.0			2,454.8			2,437.6			2,300.8
	Accumulated deficit				(2,648.3	)		(1,901.7	)		(1,113.6	)		(645.2	)		(188.1	)
	Accumulated other comprehensive income (loss)				(5.5	)		(107.9	)		(243.9	)		(67.3	)		(1.8	)
	Note receivable from parent				(2,191.7	)		(2,191.7	)		(2,191.7	)		(2,175.2	)		(2,040.0	)
		Total stockholders’ equity			(2,376.6	)		(1,731.2	)		(1,078.3	)		(434.0	)		87.0
		Total		$	1,887.7		$	1,628.7		$	2,230.4		$	2,750.2		$	3,347.4

(1)  Prepared on a “going concern” basis. See Notes 1 and 2 of Notes to Consolidated Financial Statements for a discussion of the possible impact of the Cases. Also, as more fully discussed in Note 1 of Notes to Consolidated Financial Statements, the Company expects that, upon emergence from the Cases, fresh start accounting would be applied which would adversely affect comparability of the December 31, 2004 balance sheet to the balance sheet of the entity upon emergence.

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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

Five-Year Financial Data

Statements of Consolidated Income (Loss)

				Year Ended December 31,
				2004			2003			2002			2001			2000
				(In millions of dollars, except share amounts)
Net sales(1)				$	942.4		$	710.2		$	709.0		$	889.5		$	1,330.8
Costs and expenses:
		Cost of products sold			852.2			681.2			671.4			823.4			1,175.8
		Depreciation and amortization			22.3			25.7			32.3			32.1			34.2
		Selling, administrative, research and development, and general			92.1			92.3			118.5			93.4			92.1
		Other operating charges (benefits), net			793.2			141.6			31.8			30.1			82.1
			Total costs and expenses		1,759.8			940.8			854.0			979.0			1,384.2
Operating income (loss)					(817.4	)		(230.6	)		(145.0	)		(89.5	)		(53.4	)
Other income (expense):
		Interest expense (excluding unrecorded contractual interest expense of $95.0, $95.0 and $84.0 in 2004, 2003 and 2002, respectively)			(9.5	)		(9.1	)		(19.0	)		(106.2	)		(105.8	)
		Reorganization items			(39.0	)		(27.0	)		(33.3	)		—			—
		Other — net			4.2			(5.2	)		(.9	)		(68.7	)		(17.6	)
Income (loss) before income taxes and discontinued operation					(861.7	)		(271.9	)		(198.2	)		(264.4	)		(176.8	)
(Provision) benefit for income taxes					(6.2	)		(1.5	)		(4.2	)		(521.5	)		23.0
Income (loss) from continuing operations					(867.9	)		(273.4	)		(202.4	)		(785.9	)		(153.8	)
Discontinued operations:
	Income (loss) from discontinued operation, net of income taxes and minority interests				(5.3	)		(514.7	)		(266.0	)		165.3			171.3
	Gain from sale of commodity interests				126.6			—			—			163.6			—
Income (loss) from discontinued operations					121.3			(514.7	)		(266.0	)		328.9			171.3
Net income (loss)				$	(746.6	)	$	(788.1	)	$	(468.4	)	$	(457.0	)	$	17.5

(1)  Prepared on a “going concern” basis. See Notes 1 and 2 of Notes to Consolidated Financial Statements for a discussion of the possible impact of the Cases.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

Item 9A. Controls and Procedures

      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 internal reporting.

Item 9B. Other Information

      None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth certain information, as of March 28, 2005, with respect to the executive officers and directors of the Company and Kaiser. All officers and directors hold office until their respective successors are elected and qualified or until their earlier death, resignation or removal.

Name	Positions and Offices with the Company and Kaiser*
Jack A. Hockema	President, Chief Executive Officer and Director
John Barneson	Senior Vice President and Chief Administrative Officer
Edward F. Houff	Senior Vice President and Chief Restructuring Officer
John M. Donnan	Vice President, Secretary and General Counsel
W. Scott Lamb	Vice President, Investor Relations and Corporate Communications
Daniel D. Maddox	Vice President and Controller
Daniel J. Rinkenberger	Vice President and Treasurer
Kerry A. Shiba	Vice President and Chief Financial Officer
Robert J. Cruikshank	Director
George T. Haymaker, Jr.	Chairman of the Board and Director
Charles E. Hurwitz	Director
Ezra G. Levin	Director
John D. Roach	Director

*  All named individuals hold the same positions and offices with both the Company and Kaiser.

      Jack A. Hockema. Mr. Hockema, age 58, was elected to the position of President and Chief Executive Officer and as a director of the Company and Kaiser in October 2001. He previously served as Executive Vice President and President of Kaiser Fabricated Products of the Company from January 2000 until October 2001, and Executive Vice President of Kaiser from May 2000 until October 2001. He served as Vice President of Kaiser from May 1997 until May 2000. Mr. Hockema was Vice President of the Company and President of

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Kaiser Engineered Products from March 1997 until January 2000. He served as President of Kaiser Extruded Products and Engineered Components from September 1996 to March 1997. Mr. Hockema served as a consultant to the Company and acting President of Kaiser Engineered Components from September 1995 until September 1996. Mr. Hockema was an employee of the Company from 1977 to 1982, working at the Company’s Trentwood facility, and serving as plant manager of its former Union City, California can plant and as operations manager for Kaiser Extruded Products. In 1982, Mr. Hockema left the Company to become Vice President and General Manager of Bohn Extruded Products, a division of Gulf+Western, and later served as Group Vice President of American Brass Specialty Products until June 1992. From June 1992 until September 1996, Mr. Hockema provided consulting and investment advisory services to individuals and companies in the metals industry.

      John Barneson. Mr. Barneson, age 54, was elected to the position of Senior Vice President and Chief Administrative Officer of the Company and Kaiser effective August 2001. He previously served as Vice President and Chief Administrative Officer of the Company and Kaiser from December 1999 through August 2001. He served as Engineered Products Vice President of Business Development and Planning from September 1997 until December 1999. Mr. Barneson served as Flat-Rolled Products Vice President of Business Development and Planning from April 1996 until September 1997. Mr. Barneson has been an employee of the Company since September 1975 and has held a number of staff and operation management positions within the Flat-Rolled and Engineered Products business units.

      Edward F. Houff. Mr. Houff, age 58, was elected to the position of Senior Vice President and Chief Restructuring Officer of the Company and Kaiser effective January 2005. He previously served as Vice President and General Counsel of the Company and Kaiser from April 2002 through December 2004, and Secretary of the Company and Kaiser from October 2002 through December 2004. He served as Acting General Counsel of the Company and Kaiser from February 2002 until April 2002, and Deputy General Counsel for Litigation of the Company and Kaiser from October 2001 until February 2002. Mr. Houff was President and Managing Shareholder of the law firm Church & Houff, P.A. in Baltimore, Maryland from April 1989 through September 2001.

      John M. Donnan. Mr. Donnan, age 44, was elected to the position of Vice President, Secretary and General Counsel of the Company and Kaiser effective January 2005. Mr. Donnan joined the legal staff of the Company and Kaiser in 1993 and was named Deputy General Counsel of the Company and Kaiser in 2000. Prior to joining the Company, Mr. Donnan was an associate in the Houston, Texas office of the law firm of Chamberlain, Hrdlicka, White, Williams & Martin.

      W. Scott Lamb. Mr. Lamb, age 50, was elected Vice President, Investor Relations and Corporate Communications of the Company effective July 1998, and of Kaiser effective September 1998. Mr. Lamb previously served as Director of Investor Relations and Corporate Communications of the Company and Kaiser from June 1997 through July 1998. From July 1995 through June 1997, he served as Director of Investor Relations of the Company and Kaiser, and from January 1995 through July 1995, he served as Director of Public Relations of the Company and Kaiser.

      Daniel D. Maddox. Mr. Maddox, age 45, was elected to the position of Vice President and Controller of the Company effective July 1998, and of Kaiser effective September 1998. He served as Controller, Corporate Consolidation and Reporting of the Company and Kaiser from October 1997 through July 1998 and September 1998, respectively. Mr. Maddox previously served as Assistant Corporate Controller of the Company from June 1997 to September 1997, and of Kaiser from May 1997 to September 1997, and Director External Reporting of the Company from June 1996 to May 1997. Mr. Maddox was with Arthur Andersen LLP from 1982 until joining the Company in June 1996.

      Daniel J. Rinkenberger. Mr. Rinkenberger, age 46, was elected to the position of Vice President and Treasurer of the Company and Kaiser effective January 2005. He previously served as Vice President of Economic Analysis and Planning of the Company and Kaiser from February 2002 through December 2004. He served as Vice President, Planning and Business Development of Kaiser Fabricated Products of the Company from June 2000 through February 2002. Prior to that, he served as Vice President, Finance and

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Business Planning of Kaiser Flat-Rolled Products of the Company from February 1998 to February 2000, and as Assistant Treasurer of the Company and Kaiser from January 1995 through February 1998.

      Kerry A. Shiba. Mr. Shiba, age 50, was elected to the position of Chief Financial Officer of the Company and Kaiser effective April 2004, and Vice President of the Company and Kaiser effective February 2002. He also held the position of Treasurer of the Company and Kaiser from February 2002 through December 2004. Prior to that, Mr. Shiba served as Vice President, Controller and Information Technology of Kaiser Fabricated Products of the Company from January 2000 to February 2002, and as Vice President and Controller of Kaiser Engineered Products of the Company from June 1998 through January 2000. Prior to joining the Company, Mr. Shiba was with the BF Goodrich Company for 16 years, holding various financial positions.

      Robert J. Cruikshank. Mr. Cruikshank, age 74, has served as a director of the Company and Kaiser since January 1994. In addition, Mr. Cruikshank has been a director of MAXXAM since May 1993. Mr. Cruikshank was a Senior Partner in the international public accounting firm of Deloitte & Touche from December 1989 until his retirement in March 1993. Mr. Cruikshank served on the board of directors of Deloitte Haskins & Sells from 1981 to 1985 and as Managing Partner of the Houston, Texas office from June 1974 until its merger with Touche Ross & Co. in December 1989. Mr. Cruikshank also serves as a director of Encysive Pharmaceuticals Inc. (formerly Texas Biotechnology Corp), a biopharmaceutical company; a trust manager of Weingarten Realty Investors; and as advisory director of Compass Bank Houston.

      George T. Haymaker, Jr. Mr. Haymaker, age 67, has been a director of the Company since June 1993, and of Kaiser since May 1993. He was named as non-executive Chairman of the Board of the Company and Kaiser effective October 2001. Mr. Haymaker served as Chairman of the Board and Chief Executive Officer of the Company and Kaiser from January 1994 until January 2000, and as non-executive Chairman of the Board of the Company and Kaiser from January 2000 through May 2001. He served as President of the Company from June 1996 through July 1997, and of Kaiser from May 1996 through July 1997. From May 1993 to December 1993, Mr. Haymaker served as President and Chief Operating Officer of the Company and Kaiser. Mr. Haymaker also is a director of 360networks Corporation, a provider of broadband network services; Flowserve Corporation, a provider of valves, pumps and seals; a director of CII Carbon, LLC., a producer of calcined coke; a director of Hayes Lemmerz International, Inc., a provider of automotive and commercial vehicle components; non-executive Chairman of the Board of Directors of Safelite Glass Corp., a provider of automotive replacement glass; and a director of SCP Pool Corp., a distributor of swimming pool supplies and products. Since July 1987, Mr. Haymaker has been a director, and from February 1992 through March 1993 was President, of Mid-America Holdings, Ltd. (formerly Metalmark Corporation), which is in the business of semi-fabrication of aluminum extrusions.

      Charles E. Hurwitz. Mr. Hurwitz, age 64, has served as a director of the Company since November 1988, and of Kaiser since October 1988. From December 1994 until April 2002, he served as Vice Chairman of the Company. Mr. Hurwitz also has served as a member of the Board of Directors and the Executive Committee of MAXXAM since August 1978 and was elected Chairman of the Board and Chief Executive Officer of MAXXAM in March 1980. From January 1993 to January 1998, he also served MAXXAM as President. Mr. Hurwitz was Chairman of the Board and Chief Executive Officer of Federated Development Company, a Texas corporation, from January 1974 until its merger in February 2002 into Federated Development, LLC (“FDLLC”), a wholly owned subsidiary of Giddeon Holdings, Inc. (“Giddeon Holdings”). Mr. Hurwitz is the President and Director of Giddeon Holdings, a principal stockholder of MAXXAM, which is primarily engaged in the management of investments. Mr. Hurwitz also has been, since its formation in November 1996, Chairman of the Board, President and Chief Executive Officer of MAXXAM Group Holdings Inc., a wholly owned subsidiary of MAXXAM and part of MAXXAM’s forest products operations (“MGHI”).

      Ezra G. Levin. Mr. Levin, age 71, has been a director of the Company since November 1988. He has been a director of Kaiser since July 1991, and a director of MAXXAM since May 1978. Mr. Levin also served as a director of Kaiser from April 1988 to May 1990. Mr. Levin has served as a director of The Pacific Lumber Company since February 1993, and as a manager on the Board of Managers of Scotia Pacific Company LLC

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since June 1998, each of which is a wholly owned subsidiary of MAXXAM and is engaged in forest products operations. Mr. Levin is a member and co-chair of the law firm of Kramer Levin Naftalis & Frankel LLP. He has held leadership roles in various legal and philanthropic capacities and also has served as visiting professor at the University of Wisconsin Law School and Columbia College.

      John D. Roach. Mr. Roach, age 61, has been a director of the Company and Kaiser since April 2002. Since August 2001, Mr. Roach has been the Chairman and Chief Executive Officer of Stonegate International, Inc., a private investment and advisory services firm. From March 1998 to September 2001, Mr. Roach was the Chairman, President and Chief Executive Officer of Builders FirstSource, Inc., a distributor of building products to production homebuilders. From July 1991 to July 1997, Mr. Roach served as Chairman, President and Chief Executive Officer of Fibreboard Corporation. From 1988 to July 1991, he was Executive Vice President of Manville Corporation. Mr. Roach also serves as a director of Material Sciences Corp., a provider of materials-based solutions; PMI Group, Inc., a provider of credit enhancement products and lender services; and URS Corporation, an engineering firm. He is also Executive Chairman of the board of directors of Unidare US Inc., a wholesale supplier of industrial, welding and safety products.

Audit Committee Financial Expert

      The Board of Directors of the Company has determined that each of Messrs. Cruikshank and Roach, members of the Audit Committee of the Company’s Board of Directors, satisfies the Securities and Exchange Commission’s criteria to serve as an “audit committee financial expert.” The Company’s securities currently are not listed on any exchange. However, the Board of Directors has determined that each of Messrs. Cruikshank and Roach meet the independence standards set forth in the listing requirements of both of the New York Stock Exchange and the Nasdaq Stock Market, Inc.

Code of Ethics

      The Company has a Code of Ethics that applies to all of its officers and other employees, including the Company’s principal executive officer, principal financial officer, and the principal accounting officer or controller. A copy of the Code of Ethics is available from the Company, without charge, upon written request to the Company at the address set forth below:

Corporate Secretary

Kaiser Aluminum & Chemical Corporation

27422 Portola Parkway, Suite 350

Foothill Ranch, California 92610-2831

Section 16(a) Beneficial Ownership Reporting Compliance

      Based solely upon a review of the copies of the Forms 3, 4 and 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and written representations from reporting persons that no other Forms 5 were required, the Company believes that there was compliance with all filing requirements that were applicable to its officers, directors and greater than 10% beneficial owners.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

      Although certain plans or programs in which executive officers of the Company participate are jointly sponsored by the Company and Kaiser, executive officers of the Company generally are directly employed and compensated by the Company. The following table sets forth compensation information, cash and non-cash, for each of the Company’s last three completed fiscal years with respect to the Company’s Chief Executive

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Officer and the four most highly compensated executive officers other than the Chief Executive Officer for the year 2004 (collectively referred to as the “Named Executive Officers”).

												Long-Term Compensation
				Annual Compensation								Awards					Payouts
(a)		(b)		(c)		(d)			(e)			(f)			(g)		(h)			(i)
									Other			Restricted			Securities
									Annual			Stock			Underlying		LTIP			All Other
Name and Principal				Salary		Bonus			Compensation			Award(s)			Options/		Payouts			Compensation
Position		Year		($)		($)			($)(1)			($)			SARS #		($)			($)(2)
Jack A. Hockema			2004		730,000		—	(3)		—			-0-			-0-		-0-			182,793	(4)(5)
	President and Chief		2003		730,000		-0-			—			-0-			-0-		-0-			365,000	(4)
	Executive Officer		2002		730,000		-0-			—			116,495	(6)		-0-		236,200	(7)		346,750	(4)
Edward F. Houff			2004		431,250		125,000	(3)		—			-0-			-0-		-0-			100,000	(4)
	Senior Vice President		2003		400,000		125,000			—			-0-			-0-		-0-			200,000	(4)
	and Chief		2002		400,000		125,000			3,439			-0-			-0-		-0-			168,909	(4)(8)
	Restructuring Officer
John Barneson			2004		275,000		—	(3)		—			-0-			-0-		-0-			62,500	(4)
	Senior Vice President		2003		275,000		-0-			—			-0-			-0-		-0-			125,000	(4)
	and Chief		2002		252,500		-0-			72,248	(9)		-0-			-0-		13,627	(7)		233,102	(4)(8)
	Administrative Officer
Kerry A. Shiba			2004		242,500		—	(3)		—			-0-			-0-		-0-			95,000	(4)
	Vice President and		2003		190,000		-0-			—			-0-			-0-		-0-			190,000	(4)
	Chief Financial Officer		2002		187,500		-0-			—			-0-			-0-		54,090	(7)		97,032	(4)(10)
Daniel D. Maddox			2004		200,000		—	(3)		—			-0-			-0-		-0-			100,000	(4)
	Vice President and		2003		200,000		-0-			24,721	(11)		-0-			-0-		-0-			200,000	(4)
	Controller		2002		187,500		-0-			—			-0-			-0-		-0-			130,000	(4)

(1)	Except as otherwise indicated for Mr. Barneson in 2002 and Mr. Maddox in 2003, excludes perquisites and other personal benefits, which in the aggregate amount do not exceed the lesser of either $50,000 or 10% of the total of annual salary and bonus reported for the Named Executive Officer.
(2)	The Company did not contribute amounts to its Supplemental Savings and Retirement Plan and Supplemental Benefits Plan for Named Executive Officers or any other salaried employees for 2002, 2003 or 2004.
(3)	The Company has not completed the calculation of amounts payable for the year 2004 under the Company’s short-term incentive plan. Such amounts will be included in the appropriate column of the Summary Compensation Table next year. For additional information concerning the Company’s short-term incentive plan, see “Employment Contracts, Retention Plan and Agreements and Termination of Employment and Change-in-Control Arrangements — Short-Term Incentive Plan” below.
(4)	Includes retention payments made during 2004, 2003 and 2002, respectively, under the Company’s key employee retention plans in the amount of $182,500, $365,000 and $346,750 for Mr. Hockema; $100,000, $200,000 and $160,000 for Mr. Houff; $62,500, $125,000 and $118,750 for Mr. Barneson; $95,000, $190,000 and $95,000 for Mr. Shiba; and $100,000, $200,000 and $130,000 for Mr. Maddox. In addition to such retention amounts, pursuant to the terms of the Kaiser Aluminum & Chemical Corporation Key Employee Retention Plan, the Company has withheld additional retention payments with respect to the years 2004, 2003 and 2002, respectively, for each of Messrs. Hockema, Houff, and Barneson as follows: $273,500, $547,500 and $273,750 for Mr. Hockema; $150,000, $300,000 and $150,000 for Mr. Houff; and $93,750, $187,500 and $93,750 for Mr. Barneson. Payment of such additional retention amounts generally is subject to, among other conditions, the Company’s emergence from chapter 11 and the timing thereof. For additional information, see discussion under “Employment Contracts, Retention Plan and Agreements and Termination of Employment and Change-in-Control Arrangements — Kaiser Retention Plan and Agreements” below.
(5)	Includes $293 paid to Mr. Hockema for unused allowances under the Company’s benefit program.
(6)	In connection with Mr. Hockema’s promotion to President and Chief Executive Officer, he was granted 95,488 restricted shares of Kaiser’s Common Stock effective as of January 25, 2002, vesting at the rate of 33-1/3% per year, beginning October 11, 2002. The above table includes the value of such restricted shares determined by multiplying the number of shares in the grant by the closing market price of a

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	share of Kaiser’s Common Stock on the New York Stock Exchange on the effective date of the grant. Mr. Hockema elected to cancel all of the restricted shares granted to him in 2002 prior to their respective vesting dates. As of December 31, 2004, Mr. Hockema owned no restricted shares of Kaiser’s Common Stock.
(7)	Amounts reflect the cash awards actually received by Messrs. Hockema, Barneson and Shiba in 2002 under the long-term incentive program for the Company’s Fabricated Products business unit for the rolling three-year performance period 1999-2001.
(8)	Includes moving-related items of $8,909 for Mr. Houff in 2002 and $114,352 for Mr. Barneson in 2002.
(9)	Includes an auto allowance of $28,301 and club membership fees and expenses of $11,215.

(10)	Includes a temporary living allowance of $2,032.
(11)	Includes an auto allowance of $22,217 and personal use of a company car of $2,504.

Option/SAR Grants in Last Fiscal Year

      The Company did not issue any stock options or SARs during the year 2004.

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/ SAR Values

      The table below provides information on an aggregated basis concerning each exercise of stock options during the fiscal year ended December 31, 2004, by each of the Company’s Named Executive Officers, and the 2004 fiscal year-end value of unexercised options. During 2004, the Company did not have any SARs outstanding. The Debtors currently believe that it is likely that the equity interests of Kaiser’s existing stockholders will be cancelled without consideration as part of a plan of reorganization. Upon any such cancellation, any options to purchase Kaiser’s Common Stock from the Company also would be cancelled.

(a)	(b)		(c)		(d)						(e)
					Number of Securities						Value of Unexercised
					Underlying Unexercised						in-the-Money
	Shares				Options/SARs at Fiscal Year						Options/SARs at Fiscal
	Acquired on				End (#)						Year-End ($)
	Exercise		Value
Name	(#)		Realized ($)		Exercisable			Unexercisable			Exercisable			Unexercisable
Jack A. Hockema		-0-		-0-		375,770	(1)		28,184	(1)		—	(2)		—	(2)
Edward F. Houff		-0-		-0-		222,772	(1)		-0-			—	(2)		—	(2)
John Barneson		-0-		-0-		-0-			-0-			-0-			-0-
Kerry A. Shiba		-0-		-0-		-0-			-0-			-0-			-0-
Daniel D. Maddox		-0-		-0-		35,715	(1)		-0-			—	(2)		—	(2)

(1)	Represents shares of Kaiser’s Common Stock underlying stock options.
(2)	No value is shown because the exercise price is higher than the closing price of $0.09 per share of Kaiser’s Common Stock on the OTC Bulletin Board on December 30, 2004.

Long-Term Incentive Plans — Awards in Last Fiscal Year

      During 2002, the Company adopted, and the Court approved as part of the Key Employee Retention Program discussed below, a new cash-based long-term incentive program under which participants became eligible to receive an award based on the attainment by the Company of sustained cost reductions above a stipulated threshold for the period 2002 through emergence from bankruptcy (the “Long-Term Incentive Plan”). The following table and accompanying footnotes further describe the awards that may be earned by the Named Executive Officers under such program. For additional information concerning the Long-Term

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Incentive Plan, see “Employment Contracts, Retention Plan and Agreements and Termination of Employment and Change-in-Control Arrangements — Long-Term Incentive Plan” below.

						Estimated Future Payouts
						Under Non-Stock Price-Based Plans
(a)	(b)		(c)			(d)			(e)			(f)
			Performance
	Number		or Other
	of Shares,		Periods Until
	Units or		Maturation
Name	Other Rights		or Payout			Threshold			Target(1)(3)			Maximum(1)(3)
Jack A. Hockema		N/A		(2	)		(3	)	$	1,500,000		$	4,500,000
Edward F. Houff		N/A		(2	)		(3	)		300,000			900,000
John Barneson		N/A		(2	)		(3	)		350,000			1,050,000
Kerry A. Shiba		N/A		(2	)		(3	)		258,000	(4)		774,000	(4)
Daniel D. Maddox		N/A		(2	)		(3	)		100,000			300,000

(1)	The target and maximum payout amounts in the table are per annum.
(2)	Any awards earned under the program generally are payable in two equal installments — the first on the date that the Company emerges from bankruptcy and the second on the one year anniversary of such date. Any awards earned under the program generally are forfeited if the participant voluntarily terminates his or her employment (other than at normal retirement) or is terminated for cause prior to the scheduled payment date.
(3)	The amount, if any, that may be paid under the program generally shall not be determinable until the end of the performance period.
(4)	The initial target and maximum for Mr. Shiba were $90,000 and $270,000, respectively. These amounts were increased to $250,000 and $750,000, respectively, effective April 2004 in connection with Mr. Shiba’s promotion to Chief Financial Officer, and to the current levels indicated in the table effective January 2005.

Defined Benefit Plans

      Kaiser Retirement Plan. The Company previously maintained a qualified, defined-benefit retirement plan (the “Kaiser Retirement Plan”) for salaried employees of the Company and co-sponsoring subsidiaries who met certain eligibility requirements. Effective December 17, 2003, the Pension Benefit Guaranty Corporation (the “PBGC”) terminated the Kaiser Retirement Plan. As a consequence of such termination, all benefit accruals ceased under the Kaiser Retirement Plan. The table below shows estimated annual retirement benefits payable under the terms of the Kaiser Retirement Plan to participants with the indicated years of credited service. These benefits are reflected (a) without reduction for the limitations imposed by Section 401(a)(17) and Section 415 of the Internal Revenue Code of 1986, as amended (the “Tax Code”) on qualified plans and before adjustment for the Social Security offset, thereby reflecting aggregate benefits to be received, subject to Social Security offsets, under the Kaiser Retirement Plan and the Kaiser Supplemental Benefits Plan (as defined below), and (b) without reduction for the limitation on benefits payable by the PBGC as a result of the involuntary termination of the Kaiser Retirement Plan ($43,977.24 annually for

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retirement at age 65 and $34,742.04 for retirement at age 62, the normal retirement age under the Kaiser Retirement Plan, for plans terminated in 2003).

		Years of Service
Average Annual
Remuneration		15		20		25		30		35
$	250,000	$	56,250	$	75,000	$	93,750	$	112,500	$	131,250
	350,000		78,750		105,000		131,250		157,500		183,750
	450,000		101,250		135,000		168,750		202,500		236,250
	550,000		123,750		165,000		206,250		247,500		288,750
	650,000		146,250		195,000		243,750		292,500		341,250
	750,000		168,750		225,000		281,250		337,500		393,750
	850,000		191,250		255,000		318,750		382,500		446,250
	950,000		213,750		285,000		356,250		427,500		498,750
	1,050,000		236,250		315,000		393,750		472,500		551,250

      The estimated annual retirement benefits shown are based upon the assumptions that the provisions of the Kaiser Retirement Plan prior to the termination by the PBGC and the current Kaiser Supplemental Benefits Plan provisions are in effect, that the participant retires at age 62, and that the retiree receives payments based on a straight-life annuity for his lifetime. Messrs. Hockema, Barneson, Shiba and Maddox had 12.9, 29.8, 6.5, and 8.5 years of credited service, respectively, on December 31, 2004. Mr. Houff is not a participant in either the Kaiser Retirement Plan or the Kaiser Supplemental Benefits Plan. Monthly retirement benefits are determined by multiplying years of credited service (not in excess of 40) by the difference between 1.50% of average monthly compensation for the highest base period (of 36, 48 or 60 consecutive months, depending upon compensation level) in the last 10 years of employment and 1.25% of monthly primary Social Security benefits. Pension compensation covered by the Kaiser Retirement Plan and the Kaiser Supplemental Benefits Plan consisted of salary and bonus. Because of the PBGC limitation on benefits payable from the Kaiser Retirement Plan, the estimated benefits with respect to the Kaiser Retirement Plan for Messrs. Hockema and Barneson for retirement at age 62 are significantly reduced.

      Participants are entitled to retire and receive pension benefits, unreduced for age, upon reaching age 62 or after 30 years of credited service. Full early pension benefits (without adjustment for Social Security offset prior to age 62) are payable to participants who are at least 55 years of age and have completed 10 or more years of pension service (or whose age and years of pension service total 70) and who have been terminated by the Company or an affiliate for reasons of job elimination or partial disability. Participants electing to retire prior to age 62 who are at least 55 years of age and who have completed 10 or more years of pension service (or whose age and years of pension service total at least 70) may receive pension benefits, unreduced for age, payable at age 62 or reduced benefits payable earlier. Participants who terminate their employment after five years or more of pension service, or after age 55 but prior to age 62, are entitled to pension benefits, unreduced for age, commencing at age 62 or, if they have completed 10 or more years of pension service, actuarially reduced benefits payable earlier. For participants with five or more years of pension service or who have reached age 55 and who die, the Kaiser Retirement Plan provides a pension to their eligible surviving spouses. Upon retirement, participants may elect among several payment alternatives.

      As a result of the termination of the Kaiser Retirement Plan by the PBGC, benefits payable to participants will be reduced to a maximum of $34,742.04 annually for retirement at age 62, lower for retirement prior to age 62, and higher for retirements after age 62 up to $43,977.24 at age 65, and participants will not accrue additional benefits. In addition, the PBGC will not make lump-sum payments to participants.

      The Company anticipates that it will provide a defined contribution pension plan in respect of its salaried employees. The Company expects such plan to be implemented in the second quarter of 2005.

      Kaiser Supplemental Benefits Plan. The Company maintains an unfunded, non-qualified Supplemental Benefits Plan (the “Kaiser Supplemental Benefits Plan”), the purpose of which is to restore benefits that would otherwise be paid from the Kaiser Retirement Plan or the Supplemental Savings and Retirement Plan,

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a qualified Section 401(k) plan (the “Kaiser Savings Plan”), were it not for the limitations imposed by Section 401(a)(17) and Section 415 of the Tax Code. The Kaiser Supplemental Benefits Plan will not make up benefits lost with respect to the Kaiser Retirement Plan because of limitations on benefits payable by the PBGC. Participation in the Kaiser Supplemental Benefits Plan is available to all employees of KACC and its subsidiaries whose benefits under the Kaiser Retirement Plan and Kaiser Savings Plan are likely to be affected by such limitations imposed by the Tax Code. Eligible participants are entitled to receive the equivalent of the Kaiser Retirement Plan and Kaiser Savings Plan benefits that they may be prevented from receiving under those plans because of such Tax Code limitations, before considering any impacts of the PBGC termination of the Kaiser Retirement Plan.

      Pursuant to the Kaiser Key Employee Retention Program discussed below, participants under the Kaiser Supplemental Benefits Plan will forfeit their benefits if they voluntarily terminate their employment (other than normal retirement at age 62). Any claims by participants with respect to amounts not paid under the Kaiser Supplemental Benefits Plan either because the claims arose pre-petition or the participant voluntarily terminates employment prior to the Company’s emergence from bankruptcy (other than normal retirement at age 62) will be resolved in the overall context of a plan of reorganization.

      Kaiser Termination Payment Policy. Most full-time salaried employees of the Company are eligible for benefits under an unfunded termination policy if their employment is involuntarily terminated, subject to a number of exclusions. The policy provides for lump-sum payments after termination ranging from one-half month’s salary for less than one year of service graduating to eight months’ salary for 30 or more years of service. As a result of the filing of the Cases, payments under the policy in respect of periods prior to the Filing Date generally cannot be made by the Company. Any claims for such pre-petition amounts will be resolved in the overall context of a plan of reorganization. The Named Executive Officers and certain other participants in the Kaiser Key Employee Retention Plan waived their rights to any payments under the termination policy in connection with their participation in the Kaiser Key Employee Retention Plan.

Director Compensation

      Each of the directors who is not an employee of the Company or Kaiser generally receives an annual base fee for services as a director. The base fee for the year 2004 was $50,000. During 2004, Messrs. Cruikshank, Hurwitz, Levin and Roach each received base compensation of $50,000. Mr. Haymaker’s compensation for 2004 was covered by a separate agreement with the Company and Kaiser, which is discussed below.

      For the year 2004, non-employee directors of the Company and Kaiser who were directors of MAXXAM also received director or committee fees from MAXXAM. In addition, the non-employee Chairman of each of the Company’s and Kaiser’s committees (other than the Audit Committees) was paid a fee of $3,000 per year for services as Chairman. The fee paid to the Chairman of the Audit Committees was $10,000 per year. All non-employee directors also generally received a fee of $1,500 per day for Board meetings attended in person or by phone and $1,500 per day for committee meetings held in person or by phone on a date other than a Board meeting. Non-employee directors members of the Company’s and Kaiser’s Executive Committees not covered by a separate agreement with the Company and Kaiser also were paid a fee of $6,000 per year for such services. In respect of 2004, Messrs. Cruikshank, Hurwitz, Levin and Roach received an aggregate of $19,500, $10,500, $28,500, and $26,500, respectively, in such fees from the Company and Kaiser in the form of cash payments.

      Non-employee directors are eligible to participate in the Kaiser 1997 Omnibus Stock Incentive Plan (the “1997 Omnibus Plan”). During 2004, no awards were made to non-employee directors under such plan.

      Directors are reimbursed for travel and other disbursements relating to Board and committee meetings, and non-employee directors are provided accident insurance in respect of Company-related business travel. Subject to the approval of the Chairman of the Board, directors also generally may be paid ad hoc fees in the amount of $750 per one-half day or $1,500 per day for services other than attending Board and committee meetings that require travel in excess of 100 miles. No such payments were made for 2004.

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      The Company and Kaiser have a deferred compensation program in which all non-employee directors are eligible to participate. By executing a deferred fee agreement, a non-employee director may defer all or part of the fees from the Company and Kaiser for services in such capacity for any calendar year. The deferred fees are credited to a book account and are deemed “invested,” in 25% increments, in two investment choices: in phantom shares of Kaiser’s Common Stock and/or in an account bearing interest calculated using one-twelfth of the sum of the prime rate plus 2% on the first day of each month. If deferred, fees, including all earnings credited to the book account, are paid in cash to the director or beneficiary as soon as practicable following the date the director ceases for any reason to be a member of the Board, either in a lump sum or in a specified number of annual installments not to exceed ten, at the director’s election. No deferral elections were in effect during 2004 and there are no deferral elections currently in effect.

      Fees to directors who also are employees of the Company are deemed to be included in their salary. Directors of the Company were also directors of Kaiser and received the foregoing compensation for acting in both capacities.

      As of January 1, 2004, Mr. Haymaker, the Company and Kaiser entered into an agreement concerning the terms upon which Mr. Haymaker would continue to serve as a director and non-executive Chairman of the Boards of the Company and Kaiser through the earlier of December 31, 2004 and the effective date of the Company’s and Kaiser’s emergence from bankruptcy. For the year 2004, Mr. Haymaker’s base compensation under the agreement was $50,000 for services as a director and $73,000 for services as non-executive Chairman of the Boards of the Company and Kaiser, inclusive of any Board and committee fees otherwise payable. All compensation under the agreement was paid in cash. As of January 1, 2005, Mr. Haymaker, the Company and Kaiser entered into a new agreement extending such terms through the earlier of December 31, 2005 and the effective date of the Company’s and Kaiser’s emergence from bankruptcy.

Employment Contracts, Retention Plan and Agreements and Termination of Employment and Change-in-Control Arrangements

      Employment Agreement with Edward F. Houff. Effective October 1, 2001, Mr. Houff and the Company entered into an employment agreement for the period October 1, 2001 through September 30, 2004. In October 2004, Mr. Houff and the Company amended such agreement extending the term thereof through the earliest of the Company’s emergence from bankruptcy, an agreed termination between Mr. Houff and the Company, and June 30, 2005. Under the terms of the agreement, Mr. Houff’s annual salary is $400,000 per year. The agreement also provides for a guaranteed annual cash bonus of $125,000, pro rated for partial years. Prior to October 2004, the agreement also provided for a possible annual incentive bonus of $125,000. No such annual incentive bonus payments were made.

      Under the agreement, Mr. Houff is entitled to participate in the Company’s Long-Term Incentive Plan. He also is entitled to any payments and benefits payable under his Change in Control Severance Agreement, discussed below. If Mr. Houff’s employment is terminated during the term of his employment agreement, he is entitled to receive all payments and benefits prescribed under the Company’s Key Employee Retention Plan, Severance Plan and Long-Term Incentive Plan, as well as his Change in Control Severance Agreement, plus up to $25,000 in relocation expenses. If such termination is as a result of Mr. Houff’s death or disability, he or his estate, as applicable, also shall receive any base salary, pro-rated guaranteed bonus and unpaid vacation accrued as of the date of his death or disability and any other benefits payable under the Company’s existing benefit plans and policies. For additional information concerning the Company’s Long-Term Incentive Plan, see “Long-Term Incentive Plans — Awards in Last Fiscal Year” above. For additional information concerning the Company’s Key Employee Retention Plan, Severance Plan and Change in Control Severance Agreements, see “Employment Contracts, Retention Plan and Agreements and Termination of Employment and Change-in-Control Arrangements — Kaiser Retention Plan and Agreements, Kaiser Severance Plan and Agreements, and Kaiser Change in Control Severance Program” below.

      Pursuant to Mr. Houff’s employment agreement, he received in 2001 a grant under the 1997 Omnibus Plan of options, valued at the time of grant at $450,000, to purchase 222,772 shares of Kaiser’s Common Stock at an exercise price of $2.625 per share, plus 171,429 restricted shares of Kaiser’s Common Stock, also

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valued at $450,000 at the time of grant, each vesting at the rate of 33¹/3% per year, beginning October 1, 2002. Mr. Houff cancelled all of the restricted shares prior to their scheduled vesting dates.

      Kaiser Key Employee Retention Program. On September 3, 2002, the Court approved a Key Employee Retention Program, consisting of the Long-Term Incentive Plan, the Kaiser Retention Plan, the Kaiser Severance Plan, and the Kaiser Change in Control Severance Program discussed below.

      Kaiser Retention Plan and Agreements. Effective September 3, 2002, the Company adopted the Kaiser Aluminum & Chemical Corporation Key Employee Retention Plan (the “Retention Plan”) and in connection therewith entered into retention agreements with certain key employees, including each of the Named Executive Officers. The Retention Plan replaced the Kaiser Aluminum & Chemical Corporation Retention Plan adopted on January 15, 2002 (the “Prior Plan”).

      In general, awards payable under the Retention Plan to a Named Executive Officer vested, as applicable, on September 30, 2002, March 31, 2003, September 30, 2003 and March 31, 2004 (the “Vesting Dates”). The retention agreements for each Named Executive Officer further provided that if his employment terminated within 90 days following the payment of any award for any reason other than death, disability, retirement on or after age 62 or termination without cause (as defined in the Retention Plan), he would be required to return such payment to the Company. Except with respect to payments of the Withheld Amounts (as defined below) to Messrs. Hockema, Houff and Barneson, such clawback provisions have expired.

      For each of Messrs. Hockema, Houff and Barneson, the amount vested on each of the Vesting Dates was equal to 62.5% of his base salary at the time of grant. Forty percent of the amount vested on each Vesting Date for each of such persons was paid to him in a lump sum on that date. Except as described below, of the remaining 60% of such amount (the “Withheld Amount”), (i) 33¹/3% of such amount is payable to such participant in a lump sum on the date of the Company’s emergence from bankruptcy if he is employed by the Company on that date, (ii) 33¹/3% of such amount is payable to such participant in a lump sum on the first anniversary of the date of the Company’s emergence from bankruptcy if he is employed by the Company on that date, (iii) 16²/3% of such amount is payable to such participant on the date of the Company’s emergence from bankruptcy if the emergence occurs on or prior to August 12, 2005 and he is employed by the Company on that date (such amount is forfeited if the date of the Company’s emergence from bankruptcy occurs after August 12, 2005), and (iv) 16²/3% of the such amount has been forfeited because the date of the Company’s emergence from bankruptcy did not occur on or prior to August 12, 2004. Notwithstanding the foregoing, if the employment of any of Messrs. Hockema, Houff or Barneson is terminated prior to the payment date for any Withheld Amount as a result of his death, disability, retirement from the Company on or after age 62 or the Company’s termination of his employment without cause, he or his estate, as applicable, shall be entitled to receive his Withheld Amount (reduced for any amounts forfeited based on the date of the Company’s emergence from bankruptcy, as described above). For each of Messrs. Shiba and Maddox, the amount that vested on each of the Vesting Dates was equal to 50% of his base salary at the time of grant. One hundred percent of the amount vested by each of Messrs. Shiba and Maddox on each such date was paid to him in a lump sum on that date. No further amounts are payable to Messrs. Shiba or Maddox under the Retention Plan.

      Kaiser Severance Plan and Agreements. Effective September 3, 2002, the Company adopted the Kaiser Aluminum & Chemical Corporation Severance Plan (the “Severance Plan”) in order to provide selected executive officers, including the Named Executive Officers, and other key employees of the Company with appropriate protection in the event of certain terminations of employment. In connection therewith, the Company entered into Severance Agreements (the “Severance Agreements”) with plan participants. The Severance Plan, including the Severance Agreements, along with the Kaiser Aluminum & Chemical Corporation Change in Control Severance Agreements described below, replaced for participants in such plans the Enhanced Severance Protection and Change in Control Benefits Program implemented in 2000. The Severance Plan terminates on the first anniversary of the date the Company emerges from bankruptcy.

      The Severance Plan provides for payment of a severance benefit and continuation of welfare benefits in the event of certain terminations of employment. Participants are eligible for the severance payment and continuation of benefits in the event the participant’s employment is terminated without cause (as defined in

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the Severance Plan) or the participant terminates employment with good reason (as defined in the Severance Plan). The severance payment and continuation of benefits are not available if (i) the participant receives severance compensation or benefit continuation pursuant to a Kaiser Aluminum & Chemical Corporation Change in Control Severance Agreement (as described below), (ii) the participant’s employment is terminated other than without cause or by the participant for good reason, or (iii) the participant declines to sign, or subsequently revokes, a designated form of release. In addition, in consideration for the severance payment and continuation of benefits, a participant will be subject to noncompetition, nonsolicitation and confidentiality restrictions following the participant’s termination of employment with the Company.

      The severance payment payable under the Severance Plan to each of the Named Executive Officers consists of a lump sum cash payment equal to two times (for Messrs. Hockema, Houff and Barneson) or one times (for Messrs. Shiba and Maddox) his base salary. Each of the Named Executive Officers also will be entitled to continued medical, dental, vision, life insurance, and disability benefits for a period of two years (for Messrs. Hockema, Houff and Barneson) or one year (for Messrs. Shiba and Maddox) following termination of employment. Severance payments payable under the Severance Plan are in lieu of any severance or other termination payments provided for under any plan of the Company or any other agreement between the participant and the Company.

      Kaiser Change in Control Severance Program. In 2002, the Company entered into Kaiser Aluminum & Chemical Corporation Change in Control Severance Agreements (the “Change in Control Agreements”) with certain key executives, including the Named Executive Officers, in order to provide them with appropriate protection in the event of a termination of employment in connection with a change in control or (except as noted below) significant restructuring (each as defined in the Change in Control Agreements) of the Company. In connection with the Severance Plan, the Change in Control Agreements replaced the Enhanced Severance Protection and Change in Control Benefits Program implemented in 2000. The Change in Control Agreements terminate on the second anniversary of a change in control of the Company.

      The Change in Control Agreements provide for severance payments and continuation of benefits in the event of certain terminations of employment. The participants are eligible for severance benefits if their employment terminates or constructively terminates due to a change in control during a period that commences ninety (90) days prior to the change in control and ends on the second anniversary of the change in control. Participants (other than Messrs. Hockema, Houff and Barneson) also are eligible for severance benefits if their employment is terminated due to a significant restructuring outside of the period commencing ninety (90) days prior to a change in control and ending on the second anniversary of such change in control. These benefits are not available if (i) the participant voluntarily resigns or retires, other than for good reason (as defined in the Change in Control Agreements), (ii) the participant is discharged for cause (as defined in the Change in Control Agreements), (iii) the participant’s employment terminates as the result of death or disability, (iv) the participant declines to sign, or subsequently revokes, a designated form of release, (v) the participant receives severance compensation or benefit continuation pursuant to the Kaiser Aluminum & Chemical Corporation Severance Plan or any other prior agreement, or (vi) in the case of benefits payable as a result of a significant restructuring, the Company or its successor offers the participant suitable employment in North America in a substantially similar capacity and at his or her current base pay and short-term incentive, regardless of whether the participant accepts or rejects such offer. In addition, in consideration for the severance payment and continuation of benefits, a participant will be subject to noncompetition, nonsolicitation and confidentiality restrictions following his or her termination of employment with the Company.

      Upon a qualifying termination of employment, each of the Named Executive Officers are entitled to receive the following: (i) three times (for Messrs. Hockema, Houff and Barneson) or two times (for Messrs. Shiba and Maddox) the sum of his base pay and most recent short-term incentive target, (ii) a pro-rated portion of his short-term incentive target for the year of termination, and (iii) a pro-rated portion of his long-term incentive target in effect for the year of his termination, provided that such target was achieved. Each of the Named Executive Officers also are entitled to continued medical, dental, life insurance, disability benefits, and perquisites for a period of three years (for Messrs. Hockema, Houff and Barneson) or two years (for Messrs. Shiba and Maddox) after termination of employment with the Company. Each of the Named

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Executive Officers are also entitled to a payment in an amount sufficient, after the payment of taxes, to pay any excise tax due by him under Section 4999 of the Tax Code or any similar state or local tax.

      Severance payments payable under the Change in Control Agreements are in lieu of any severance or other termination payments provided for under any plan of the Company or any other agreement between the Named Executive Officer and the Company.

      Short-Term Incentive Plan. The Company maintains a broad based short-term incentive plan pursuant to which participants, including the Named Executive Officers, may earn cash awards. Awards are determined on a sliding scale based on attainment by the Company of various levels of financial performance calculated using internal measures of controllable continuing operating results. Depending on the level of financial performance, participants may earn up to three times their annual award target. Except as otherwise indicated, the targets under the plan for the Named Executive Officers for each of 2004 and 2005 are as follows: Jack A. Hockema — $500,000; Edward F. Houff — $125,000 (excluding annual guaranteed bonus under Mr. Houff’s employment agreement discussed above); John Barneson — $125,000; Kerry A. Shiba — $90,000 ($95,000 for 2005); and Daniel D. Maddox — $70,000.

      Awards under the plan are paid in the year after they are earned. If a participant’s employment is terminated prior to the end of a plan year as a result of death, disability or retirement, such participant will be entitled to receive a pro rated portion of any award earned through the date of his or her termination of employment. Except as may be provided in a separate agreement with a participant, awards earned under the program are forfeited if a participant is terminated for cause prior to payment, or a participant’s employment is terminated prior to the end of a plan year for any reason other than death, disability or retirement.

      Long-Term Incentive Plan. During 2002, the Company adopted, and the Court approved as part of the Kaiser Aluminum & Chemical Corporation Key Employee Retention Program, a new long-term incentive plan under which key management employees, including the Named Executive Officers, became eligible to receive a cash award based on the attainment by the Company of sustained cost reductions above a stipulated threshold for the period 2002 through the Company’s emergence from bankruptcy. Under the plan, fifteen percent of such cost reductions above the stipulated threshold are placed in a pool to be shared by participants based on their individual target’s percentage of the aggregate target for all participants. A participant’s target percentage may be adjusted upward or downward, within certain limitations, at the discretion of the Company’s Chief Executive Officer. See “Executive Compensation — Long-Term Incentive Plans — Awards for Last Fiscal Year” above for information concerning the target’s for the Named Executive Officers.

      Amounts payable under the plan generally are not determinable until conclusion of the plan. If a participant’s employment is terminated without cause or as a result of death, disability or retirement prior to conclusion of the plan, such participant will be entitled to receive a pro rated portion of any award earned through the date of his or her termination of employment. Awards earned under the program are forfeited if the participant voluntarily terminates his or her employment (other than at normal retirement) or is terminated for cause prior to the scheduled payment date.

      In general, awards payable under the program are payable in two installments — the first on the date that the Company emerges from bankruptcy and the second on the one year anniversary of such date.

      Except as otherwise noted, there are no employment contracts between the Company or any of its subsidiaries and any of the Company’s Named Executive Officers. Similarly, except as otherwise noted, there are not any compensatory plans or arrangements that include payments from the Company or any of its subsidiaries to any of the Company’s Named Executive Officers in the event of any such officer’s resignation, retirement, or any other termination of employment with the Company and its subsidiaries, from a change in control of the Company, or from a change in the Named Executive Officer’s responsibilities following a change in control.

Compensation Committee Interlocks and Insider Participation

      During 2004, Messrs. Cruikshank and Levin (Chairman) and James T. Hackett, who resigned as a director of the Company and Kaiser as of the end of February 2005, were members of the Company’s

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Compensation Policy Committee, and Messrs. Cruikshank and Hackett (Chairman) were members of the Company’s Section 162(m) Compensation Committee.

      No member of the Compensation Policy Committee or the Section 162(m) Compensation Committee of the Board was, during the 2004 fiscal year, an officer or employee of the Company or any of its subsidiaries, or was formerly an officer of the Company or any of its subsidiaries, or had any relationships requiring disclosure by the Company under Item 404 of Regulation S-K.

      During the Company’s 2004 fiscal year, no executive officer of the Company served as (i) a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served on the Compensation Policy Committee or Section 162(m) Compensation Committee of the Company, (ii) a director of another entity, one of whose executive officers served on either of such committees, or (iii) a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served as a director of the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

      As of March 28, 2005, Kaiser owned 100% of the issued and outstanding Common Stock of the Company.

Ownership of Kaiser

      The following table sets forth, as of March 28, 2005, unless otherwise indicated, the beneficial ownership of Kaiser’s Common Stock by (i) those persons known by the Company to own beneficially more than 5% of the shares of the Kaiser’s Common Stock then outstanding, (ii) each of the directors of the Company, (iii) each of the Named Executive Officers, and (iv) all directors and executive officers of the Company and Kaiser as a group. The Debtors currently believe that it is likely that the equity interests of Kaiser’s existing stockholders will be cancelled without consideration as part of a plan of reorganization. See Item 1. “Business — Reorganization Proceedings”, which is incorporated herein by reference, for a discussion of the principle elements that the Company anticipates will be reflected in the disclosure statement and plan of reorganization for the Company, Kaiser and other Debtors necessary to ongoing operations, as such elements pertain to the issuance of equity in the emerging entity.

Name of Beneficial Owner	Title of Class		# of Shares(1)			% of Class
MAXXAM Inc.		Common Stock		50,000,000	(2)		62.8
John Barneson		Common Stock		10,700			*
Robert J. Cruikshank		Common Stock		15,009	(3)		*
George T. Haymaker, Jr.		Common Stock		9,685	(3)		*
Jack A. Hockema		Common Stock		393,621	(3)		*
Edward F. Houff		Common Stock		222,772	(3)		*
Charles E. Hurwitz		Common Stock		-0-	(4)		*
Ezra G. Levin		Common Stock		13,009	(3)		*
Daniel D. Maddox		Common Stock		40,144	(3)		*
John D. Roach		Common Stock		-0-			*
Kerry A. Shiba		Common Stock		-0-			*
All directors and executive officers of the Company as a group (13 persons)		Common Stock		733,922	(5)		*

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*	Less than 1%.
(1)	Unless otherwise indicated, the beneficial owners have sole voting and investment power with respect to the shares listed in the table. Also includes options exercisable within 60 days of March 28, 2005 to acquire such shares.
(2)	Includes 27,938,250 shares beneficially owned by MGHI. The address of MAXXAM is 1330 Post Oak Blvd., Suite 2000, Houston, Texas 77056.
(3)	Includes options exercisable within 60 days of March 28, 2005 to acquire shares of Kaiser’s Common Stock as follows: Mr. Cruikshank — 13,009; Mr. Haymaker — 7,143; Mr. Hockema — 375,770; Mr. Houff — 222,772; Mr. Levin — 13,009; and Mr. Maddox — 35,715.
(4)	Excludes shares owned by MAXXAM. Mr. Hurwitz may be deemed to hold beneficial ownership in Kaiser as a result of his beneficial ownership in MAXXAM.
(5)	Includes options exercisable within 60 days of March 28, 2005, to acquire 690,633 shares of Kaiser’s Common Stock.

Ownership of MAXXAM

      As of March 28, 2005, MAXXAM owned, directly and indirectly, approximately 62.8% of the issued and outstanding Common Stock of Kaiser. The following table sets forth, as of March 28, 2005, unless otherwise indicated, the beneficial ownership, if any, of the common stock and Class A $.05 Non-Cumulative Participating Convertible Preferred Stock (“MAXXAM Preferred Stock”) of MAXXAM by the directors of the Company, the Named Executive Officers, and the directors and the executive officers of the Company and Kaiser as a group:

						% of		% of Combined
Name of Beneficial Owner	Title of Class		# of Shares(1)			Class		Voting Power(2)
Charles E. Hurwitz		Common Stock		3,233,700	(3)(4)		50.9		76.8
		Preferred Stock		707,441	(4)(5)		99.2
Robert J. Cruikshank		Common Stock		4,900	(6)		*		*
Ezra G. Levin		Common Stock		4,900	(6)		*		*
All directors and executive officers as a group (13 persons)		Common Stock		3,243,500	(3)(4)(7)		51.0
		Preferred Stock		707,441	(4)(5)		99.2		76.5

*	Less than 1%
(1)	Unless otherwise indicated, beneficial owners have sole voting and investment power with respect to the shares listed in the table. Includes the number of shares such persons would have received on March 28, 2005, if any, for their exercisable SARs (excluding SARs payable in cash only) exercisable within 60 days of such date if such rights had been paid solely in shares of MAXXAM common stock.
(2)	MAXXAM Preferred Stock is generally entitled to ten votes per share on matters presented to a vote of MAXXAM’s stockholders.
(3)	Includes 2,404,314 shares of MAXXAM common stock owned by Gilda Investments, LLC (“Gilda”), a wholly owned subsidiary of Giddeon Holdings, as to which Mr. Hurwitz indirectly possesses voting and investment power. Mr. Hurwitz serves as the sole director of Giddeon Holdings, and together with members of his immediate family and trusts for the benefit thereof, owns all of the voting shares of Giddeon Holdings. Also includes (a) 46,276 shares of MAXXAM common stock held by the Charles E. Hurwitz 2004 Grantor Retained Annuity Trust; (b) 46,277 shares of MAXXAM common stock held by the Barbara Hurwitz 2004 Grantor Retained Annuity Trust, as to which Mr. Hurwitz disclaims beneficial ownership; (c) 46,500 shares of MAXXAM common stock owned by the Hurwitz Investment Partnership L.P., a limited partnership in which Mr. Hurwitz and his spouse each have a 4.32% general partnership interest, 2,008.8 of which shares were separately owned by Mr. Hurwitz’s spouse prior to their

124

	transfer to such limited partnership and as to which Mr. Hurwitz disclaims beneficial ownership, (d) 256,808 shares of MAXXAM common stock held directly by Mr. Hurwitz, (e) 60,000 shares of MAXXAM common stock owned by Giddeon Portfolio, LLC, which is owned 79% by Gilda and 21% by Mr. Hurwitz, and of which Gilda is the managing member (“Giddeon Portfolio”), (f) options to purchase 21,029 shares of MAXXAM common stock held by Gilda, and (g) options held by Mr. Hurwitz to purchase 352,496 shares of MAXXAM common stock exercisable within 60 days of March 28, 2004.
(4)	Gilda, Giddeon Holdings, Giddeon Portfolio, the Hurwitz Investment Partnership L.P., and Mr. Hurwitz may be deemed a “group” (the “Stockholder Group”) within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended. As of March 28, 2004, in the aggregate, the members of the Stockholder Group owned 3,233,700 shares of MAXXAM common stock and 707,441 shares of MAXXAM Preferred Stock, aggregating approximately 76.5% of the total voting power of MAXXAM. By reason of his relationship with the members of the Stockholder Group, Mr. Hurwitz may be deemed to possess shared voting and investment power with respect to the shares held by the Stockholder Group. The address of Gilda is 1330 Post Oak Blvd., Suite 2000, Houston, Texas 77056. The address of the Stockholder Group is Giddeon Holdings, Inc., 1330 Post Oak Blvd., Suite 2000, Houston, Texas 77056.
(5)	Includes options exercisable by Mr. Hurwitz within 60 days of March 28, 2005, to acquire 45,000 shares of MAXXAM Preferred Stock.
(6)	Includes options exercisable within 60 days of March 28, 2005, to acquire shares of MAXXAM common stock as follows: Mr. Cruikshank — 3,900; and Mr. Levin — 3,900.
(7)	Includes options exercisable within 60 days of March 28, 2005, to acquire 8300 shares of MAXXAM common stock, held by directors and executive officers not in the Stockholder Group.

Equity Compensation Plan Information

      The Debtors currently believe that it is likely that the equity interests of Kaiser’s existing stockholders will be cancelled without consideration as part of a plan of reorganization. However, the following table summarizes the Company’s and Kaiser’s equity compensation plans as of December 31, 2004:

							Number of securities
							remaining available for future
		Number of securities to be					issuance under equity
		issued upon exercise of			Weighted-average exercise		compensation plans
		outstanding options,			price of outstanding options,		(excluding securities reflected
		warrants and rights			warrants and rights		in column (a))
Plan Category		(a)			(b)		(c)
Equity compensation plans approved by security holders			810,040	(1)	$	3.14		4,536,855	(2)
Equity compensation plans not approved by security holders			—			—		—
	Total		810,040		$	3.14		4,536,855

(1)	Represents shares of Kaiser’s Common Stock underlying outstanding stock options.
(2)	Shares are issuable under the 1997 Omnibus Plan. Stock-based awards made under the 1997 Omnibus Plan may be in the form of stock options, stock appreciation rights, restricted stock, performance shares or performance units. Of the shares available for future issuance under the 1997 Omnibus Plan, 1,698,951 may be made in the form of restricted stock.

125

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      None.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      For the years ended December 31, 2004 and 2003, professional services were performed by Deloitte & Touche LLP, the member firms of Deloitte & Touche Tohmatsu, and their respective affiliates.

      Audit and audit-related fees aggregated $1,973,921 and $1,691,971 for the years ended December 31, 2004 and 2003, respectively, and were composed of the following:

Audit Fees

      The aggregate fees billed for audit services for the fiscal years ended December 31, 2004 and 2003 were $1,709,907 and $1,499,632, respectively. These fees relate to the audit of the Company’s annual financial statements, the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q and certain statutory foreign audits.

Audit-Related Fees

      The aggregate fees billed for audit-related services for the fiscal years ended December 31, 2004 and 2003 were $264,014 and $192,339, respectively. These fees relate to Sarbanes-Oxley Act of 2002, Section 404 advisory services, audits of stand-alone financial statements related to a disposition, and audits of certain employee benefit plans for the fiscal year ended December 31, 2004 and 2003.

Tax Fees

      The aggregate fees billed for tax services for the fiscal years ended December 31, 2004 and 2003 were $440,400 and $197,538, respectively. These fees relate to tax compliance, tax advice and tax planning services for the fiscal years ended December 31, 2004 and 2003.

All Other Fees

      There were no fees billed for professional services other than audit fees, audit-related fees and tax service fees for the fiscal year ended December 31, 2004 and 2003.

      All fees for 2003 and 2004 tax and audit-related matters requiring pre-approval by the Audit Committee received such pre-approval.

Audit Committee Pre-Approved Policies and Procedures

      The Audit Committee of the Company’s Board of Directors has adopted policies and procedures in respect of services performed by the independent auditor which are to be pre-approved. The policy requires that each fiscal year, a description of the services — by major category of type of service — that are expected to be performed by the independent auditor in the following fiscal year (the “Services List”) be presented to the Audit Committee for approval.

      In considering the nature of the services to be provided by the independent auditor, the Audit Committee will determine whether such services are compatible with the provision of independent audit services. The Audit Committee will discuss any such services with the independent auditor and Company’s management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the Securities and Exchange Commission to implement the Sarbanes-Oxley Act of 2002, as well as the rules of the American Institute of Certified Public Accountants.

      Any request for audit, audit-related, tax, and other services not contemplated on the Services List must be submitted to the Audit Committee for specific pre-approval and cannot commence until such approval has been granted, except as provided below. Normally, pre-approval is to be provided at regularly scheduled meetings. However, the authority to grant specific pre-approval between meetings, as necessary, is delegated

126

to the Chairman of the Audit Committee. The Chairman must update the Audit Committee at the next regularly scheduled meeting of any services that were granted specific pre-approval.

      As required, the Audit Committee will periodically be provided with and review the status of services and fees incurred year-to-date against the original Service List for such fiscal year as well as the accumulated costs associated with projects pending retroactive approval. Retroactive approval for permissible non-audit services is allowed under the policy subject to certain limitations. Pre-approval is waived if all of the following criteria are met:

      1. The service is not an audit, review or other attest service, except that the management may authorize or incur up to $25,000 in respect of scoping or planning activities by the independent auditor in connection with new or possible attest requirements so long as no formal engagement letter is signed prior to pre-approval by the Audit Committee and audit field work does not begin;

      2. The individual project is not expected to and does not exceed $50,000 and/or the aggregate amount of all such services pending retroactive approval does not exceed $200,000;

      3. Such services were not recognized at the time of the engagement to be non-audit services; and

      4. Such services are brought to the attention of the Audit Committee or its designee at the next regularly scheduled meeting.

PART IV

Item 15. Exhibits and Financial Statement Schedules

		Page
1.	Financial Statements
	Report of Independent Registered Public Accounting Firm		42
	Consolidated Balance Sheets		43
	Statements of Consolidated Income (Loss)		44
	Statements of Consolidated Stockholders’ Equity (Deficit) and Comprehensive Income (Loss)		45
	Statements of Consolidated Cash Flows		46
	Notes to Consolidated Financial Statements		47
	Quarterly Financial Data (Unaudited)		107
	Five-Year Financial Data		108
2.	Financial Statement Schedules

      Financial statement schedules are inapplicable or the required information is included in the Consolidated Financial Statements or the Notes thereto.

3.     Exhibits

      Reference is made to the Index of Exhibits immediately preceding the exhibits hereto (beginning on page 129), which index is incorporated herein by reference.

127

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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.

	KAISER ALUMINUM & CHEMICAL CORPORATION
Date: March 31, 2005	By /s/ Jack A. Hockema Jack A. Hockema President and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: March 31, 2005	/s/ Jack A. Hockema Jack A. Hockema President, Chief Executive Officer and Director (Principal Executive Officer)
Date: March 31, 2005	/s/ Kerry A. Shiba Kerry A. Shiba Vice President and Chief Financial Officer (Principal Financial Officer)
Date: March 31, 2005	/s/ Daniel D. Maddox Daniel D. Maddox Vice President and Controller (Principal Accounting Officer)
Date: March 31, 2005	/s/ George T. Haymaker, Jr. George T. Haymaker, Jr. Chairman of the Board and Director
Date: March 31, 2005	/s/ Robert J. Cruikshank Robert J. Cruikshank Director
Date: March 31, 2005	/s/ Charles E. Hurwitz Charles E. Hurwitz Director
Date: March 31, 2005	/s/ Ezra G. Levin Ezra G. Levin Director
Date: March 31, 2005	/s/ John D. Roach John D. Roach Director

128

INDEX OF EXHIBITS

Exhibit
Number			Description
	2	.1	Purchase Agreement, dated as of June 8, 2004, among Kaiser Aluminum & Chemical Corporation (“KACC”), Kaiser Aluminium International, Inc., Kaiser Bauxite Company (“KBC”), Kaiser Jamaica Corporation and Alpart Jamaica Inc. and Quality Incorporations I Limited (incorporated by reference to Exhibit 2.1 to the Report on Form 8-K, dated as of July 1, 2004, filed by Kaiser Aluminum Corporation (“KAC”), File No. 1-9447).
	2	.2	Purchase Agreement, dated as of May 17, 2004, among KACC, KBC, Gramercy Alumina LLC and St. Ann Bauxite Limited (incorporated by reference to Exhibit 2.1 to the Report on Form 8-K, dated as of October 1, 2004, filed by KAC, File No. 1-9447).
	2	.3	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	.4	Purchase Agreement, dated as of September 22, 2004, between KACC, Kaiser Alumina Australia Corporation (“KAAC”) and Comalco Aluminium Limited (incorporated by reference to Exhibit 2.3 to the Report on Form 10-Q for the quarterly period ended September 30, 2004, filed by KAC, File No. 1-9447).
	2	.5	Agreement to Submit Qualified Bid for QAL, dated as of September 22, 2004, between KACC, KAAC and Glencore AG (incorporated by reference to Exhibit 2.4 to the Report on Form 10-Q for the quarterly period ended September 30, 2004, filed by KAC, File No. 1-9447).
	2	.6	Purchase Agreement, dated as of October 28, 2004, among KACC, KAAC and Alumina & Bauxite Company Ltd. (incorporated by reference to Exhibit 2.5 to the Report on Form 10-Q for the quarterly period ended September 30, 2004, filed by KAC, File No. 1-9447).
	3	.1	Restated Certificate of Incorporation of KACC, dated July 25, 1989 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 dated August 25, 1991, filed by KACC, Registration No. 33-30645).
	3	.2	Certificate of Retirement of KACC, dated February 7, 1990 (incorporated by reference to Exhibit 3.2 to the Report on Form 10-K for the period ended December 31, 1989, filed by KACC, File No. 1-3605).
	3	.3	Amended and Restated By-Laws of KACC, dated October 1, 1997 (incorporated by reference to Exhibit 3.3 to the Report on Form 10-Q for the quarterly period ended September 30, 1997, filed by KACC, File No. 1-3605).
	4	.1	Indenture, dated as of February 1, 1993, among KACC, as Issuer, KAAC, Alpart Jamaica Inc., and Kaiser Jamaica Corporation, as Subsidiary Guarantors, and The First National Bank of Boston, as Trustee, regarding KACC’s 123/4% Senior Subordinated Notes Due 2003 (incorporated by reference to Exhibit 4.1 to the Report on Form 10-K for the period ended December 31, 1992, filed by KACC, File No. 1-3605).
	4	.2	First Supplemental Indenture, dated as of May 1, 1993, to the Indenture, dated as of February 1, 1993 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605).
	4	.3	Second Supplemental Indenture, dated as of February 1, 1996, to the Indenture, dated as of February 1, 1993 (incorporated by reference to Exhibit 4.3 to the Report on Form 10-K for the period ended December 31, 1995, filed by KAC, File No. 1-9447).
	4	.4	Third Supplemental Indenture, dated as of July 15, 1997, to the Indenture, dated as of February 1, 1993 (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1997, filed by KAC, File No. 1-9447).
	4	.5	Fourth Supplemental Indenture, dated as of March 31, 1999, to the Indenture, dated as of February 1, 1993, (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended March 31, 1999, filed by KAC, File No. 1-9447).

129

Exhibit
Number			Description
	4	.6	Indenture, dated as of February 17, 1994, among KACC, as Issuer, KAAC, Alpart Jamaica Inc., Kaiser Jamaica Corporation, and Kaiser Finance Corporation, as Subsidiary Guarantors, and First Trust National Association, as Trustee, regarding KACC’s 97/8% Senior Notes Due 2002 (incorporated by reference to Exhibit 4.3 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447).
	4	.7	First Supplemental Indenture, dated as of February 1, 1996, to the Indenture, dated as of February 17, 1994 (incorporated by reference to Exhibit 4.5 to the Report on Form 10-K for the period ended December 31, 1995, filed by KAC, File No. 1-9447).
	4	.8	Second Supplemental Indenture, dated as of July 15, 1997, to the Indenture, dated as of February 17, 1994 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1997, filed by KAC, File No. 1-9447).
	4	.9	Third Supplemental Indenture, dated as of March 31, 1999, to the Indenture, dated as of February 17, 1994 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended March 31, 1999, filed by KAC, File No. 1-9447).
	4	.10	Indenture, dated as of October 23, 1996, among KACC, as Issuer, KAAC, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and First Trust National Association, as Trustee, regarding KACC’s 107/8% Series B Senior Notes Due 2006 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended September 30, 1996, filed by KAC, File No. 1-9447).
	4	.11	First Supplemental Indenture, dated as of July 15, 1997, to the Indenture, dated as of October 23, 1996 (incorporated by reference to Exhibit 4.3 to the Report on Form 10-Q for the quarterly period ended June 30, 1997, filed by KAC, File No. 1-9447).
	4	.12	Second Supplemental Indenture, dated as of March 31, 1999, to the Indenture, dated as of October 23, 1996 (incorporated by reference to Exhibit 4.3 to the Report on Form 10-Q for the quarterly period ended March 31, 1999, filed by KAC, File No. 1-9447).
	4	.13	Indenture, dated as of December 23, 1996, among KACC, as Issuer, KAAC, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and First Trust National Association, as Trustee, regarding KACC’s 107/8% Series D Senior Notes due 2006 (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-4, dated January 2, 1997, filed by KACC, Registration No. 333-19143).
	4	.14	First Supplemental Indenture, dated as of July 15, 1997, to the Indenture, dated as of December 23, 1996 (incorporated by reference to Exhibit 4.4 to the Report on Form 10-Q for the quarterly period ended June 30, 1997, filed by KAC, File No. 1-9447).
	4	.15	Second Supplemental Indenture, dated as of March 31, 1999, to the Indenture, dated as of December 23, 1996 (incorporated by reference to Exhibit 4.4 to the Report on Form 10-Q for the quarterly period ended March 31, 1999, filed by KAC, File No. 1-9447).
	4	.16	Post-Petition Credit Agreement, dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.44 to the Report on Form 10-K for the period ended December 31, 2001, filed by KAC, File No. 1-9447).
	4	.17	First Amendment to Post-Petition Credit Agreement and Post-Petition Pledge and Security Agreement and Consent of Guarantors, dated as of March 21, 2002, amending the Post-Petition Credit Agreement dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent, and amending a Post-Petition Pledge and Security Agreement dated as of February 12, 2002, among KACC, KAC, certain subsidiaries of KAC and KACC, and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.45 to the Report on Form 10-K for the period ended December 31, 2001, filed by KAC, File No. 1-9447).

130

Exhibit
Number			Description
	4	.18	Second Amendment to Post-Petition Credit Agreement and Consent of Guarantors, dated as of March 21, 2002, amending the Post-Petition Credit Agreement dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.46 to the Report on Form 10-K for the period ended December 31, 2001, filed by KAC, File No. 1-9447).
	4	.19	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, amending the Post-Petition Credit Agreement dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.19 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).
	4	.20	Fourth Amendment to Post-Petition Credit Agreement and Consent of Guarantors, dated as of March 17, 2003, amending the Post-Petition Credit Agreement dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.20 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).
	4	.21	Waiver and Consent with Respect to Post-Petition Credit Agreement, dated October 9, 2002, among KAC, KACC, the financial institutions party to the Post-Petition Credit Agreement, dated as of February 12, 2002, as amended, and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.21 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).
	4	.22	Second Waiver and Consent with respect to Post-Petition Credit Agreement, dated January 13, 2003, among KACC, KAC, the financial institutions party to the Post-Petition Credit Agreement, dated as of February 12, 2002, as amended, and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.22 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).
	4	.23	Waiver Letter with Respect to Post-Petition Credit Agreement, dated March 24, 2003, among KACC, KAC, the financial institutions party to the Post-Petition Credit Agreement, dated as of February 12, 2002, as amended, and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.1 to Report on Form 10-Q for the quarterly period ended March 31, 2003, filed by KAC, File No. 1-9447).
	4	.24	Extension and Modification of Waiver Letter with Respect to Post-Petition Credit Agreement, dated May 5, 2003, among KACC, KAC, the financial institutions party to the Post-Petition Credit Agreement, dated as of February 12, 2002, as amended, and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.1 to Report on Form 10-Q for the quarterly period ended June 30, 2003, filed by KAC, File No. 1-9447).
	4	.25	Fifth Amendment to Post-Petition Credit Agreement, dated June 6, 2003, amending the Post-Petition Credit Agreement dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.2 to Report on Form 10-Q for the quarterly period ended June 30, 2003, filed by KAC, File No. 1-9447).
	4	.26	Sixth Amendment to Post-Petition Credit Agreement, dated August 1, 2003, amending the Post-Petition Credit Agreement dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended September 30, 2003, filed by KAC, File No. 1-9447).
	4	.27	Waiver Letter with Respect to Post-Petition Credit Agreement dated March 29, 2004, amending the Post-Petition Credit Agreement dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.1 to Report on Form 10-Q for the quarterly period ended March 31, 2004, filed by KAC, File No. 1-9447).

131

Exhibit
Number			Description
	4	.28	Waiver Letter with Respect to Post-Petition Credit Agreement dated May 21, 2004, amending the Post-Petition Credit Agreement dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.1 to Report on Form 10-Q for the quarterly period ended June 30, 2004, filed by KAC, File No. 1-9447).
	4	.29	Waiver Letter with Respect to Post-Petition Credit Agreement dated September 29, 2004, amending the Post-Petition Credit Agreement dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.2 to Report on Form 10-Q for the quarterly period ended September 30, 2004, filed by KAC, File No. 1-9447).
	4	.30	Seventh Amendment to Post-Petition Credit Agreement dated October 28, 2004, amending the Post-Petition Credit Agreement dated as of February 12, 2002, among KACC, KAC, certain financial institutions and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 4.1 to Report on Form 10-Q for the quarterly period ended September 30, 2004, filed by KAC, File No. 1-9447).
	4	.31	Secured Super-Priority Debtor-In-Possession Revolving Credit and Guaranty Agreement Among KAC, KACC and certain of their subsidiaries, as Borrowers, and certain Subsidiaries of KAC and KACC, as Guarantors, and certain financial institutions and JP Morgan Chase Bank, National Association, as Administrative Agent, dated as of February 11, 2005 (incorporated by reference to Exhibit 99.1 to Report on Form 8-K, dated as of February 11, 2005, filed by KAC, File No. 1-9447).
	4	.32	Intercompany Note dated as of December 21, 1989, between KAC and KACC (incorporated by reference to Exhibit 10.10 to the Report on Form 10-K for the period ended December 31, 1996, filed by MAXXAM Inc. (“MAXXAM”), File No. 1-3924).
	4	.33	Confirmation of Amendment of Non-Negotiable Intercompany Note, dated as of October 6, 1993, between KAC and KACC (incorporated by reference to Exhibit 10.11 to the Report on Form 10-K for the period ended December 31, 1996, filed by MAXXAM, File No. 1-3924).
	4	.34	Amendment to Non-Negotiable Intercompany Note, dated as of December 11, 2000, between KAC and KACC (incorporated by reference to Exhibit 4.41 to the Report on Form 10-K for the period ended December 31, 2000, filed by KAC, File No. 1-9447).
	4	.35	Senior Subordinated Intercompany Note between KAC and KACC dated February 15, 1994 (incorporated by reference to Exhibit 4.22 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447).
	4	.36	Senior Subordinated Intercompany Note between KAC and KACC dated March 17, 1994 (incorporated by reference to Exhibit 4.23 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447).
			KAC has not filed certain long-term debt instruments not being registered with the Securities and Exchange Commission where the total amount of indebtedness authorized under any such instrument does not exceed 10% of the total assets of KAC and its subsidiaries on a consolidated basis. KAC agrees and undertakes to furnish a copy of any such instrument to the Securities and Exchange Commission upon its request.
	10	.1	Form of indemnification agreement with officers and directors (incorporated by reference to Exhibit (10)(b) to the Registration Statement of KAC on Form S-4, File No. 33-12836).
	10	.2	Tax Allocation Agreement, dated as of June 30, 1993, between KACC and KAC (incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605).
Executive Compensation Plans and Arrangements
[Exhibits 10.3 - 10.21, inclusive]
	10	.3	Kaiser 1997 Omnibus Stock Incentive Plan (incorporated by reference to Appendix A to the Proxy Statement, dated April 29, 1997, filed by KAC, File No. 1-9447).
	10	.4	Non-Executive Chairman of the Boards Agreement, dated November 4, 2002, among KAC, KACC and George T. Haymaker, Jr. (incorporated by reference to Exhibit 10.12 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).

132

Exhibit
Number			Description
	*10	.5	Non-Executive Chairman of the Boards Agreement, dated January 7, 2005, among KAC, KACC and George T. Haymaker, Jr.
	10	.6	Amended Employment Agreement, dated October 1, 2004, between KACC and Edward F. Houff (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the period ended September 30, 2004, filed by KAC, File No. 1-9447).
	10	.7	Stock Option Grant pursuant to the Kaiser 1997 Omnibus Stock Incentive Plan to Jack A. Hockema (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended September 30, 2000, filed by KAC, File No. 1-9447).
	10	.8	Form of Deferred Fee Agreement between KAC, KACC, and directors of KAC and KACC (incorporated by reference to Exhibit 10 to the Report on Form 10-Q for the quarterly period ended March 31, 1998, filed by KAC, File No. 1-9447).
	10	.9	Form of Non-Employee Director Stock Option Grant for options issued commencing January 1, 2001 under the 1997 Kaiser Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended June 30, 2001, filed by KAC, File No. 1-9447).
	10	.10	Form of Stock Option Grant for options issued commencing January 1, 2001 under the 1997 Kaiser Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Report on Form  10-Q for the quarterly period ended June 30, 2001, filed by KAC, File No. 1-9447)
	10	.11	Form of Restricted Stock Agreement for restricted shares issued commencing January 1, 2001 under the 1997 Kaiser Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q for the quarterly period ended June 30, 2001, filed by KAC, File No. 1-9447).
	10	.12	The Kaiser Aluminum & Chemical Corporation Retention Plan, dated January 15, 2002 (the “January 2002 Retention Plan”) (incorporated by reference to Exhibit 10.35 to the Report on Form 10-K for the period ended December 31, 2001, filed by KAC, File No. 1-9447).
	10	.13	The Kaiser Aluminum & Chemical Corporation Key Employee Retention Plan (effective September 3, 2002) (incorporated by reference to Exhibit 10.26 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).
	10	.14	Form of Retention Agreement for the Kaiser Aluminum & Chemical Corporation Key Employee Retention Plan (effective September 3, 2002) for John Barneson, Jack A. Hockema and Edward F. Houff (incorporated by reference to Exhibit 10.27 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).
	10	.15	Form of Retention Agreement for the Kaiser Aluminum & Chemical Corporation Key Employee Retention Plan (effective September 3, 2002) for Certain Executive Officers including Kerry A. Shiba and Daniel D. Maddox (incorporated by reference to Exhibit 10.29 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).
	10	.16	Kaiser Aluminum & Chemical Corporation Severance Plan (effective September 3, 2002) (incorporated by reference to Exhibit 10.30 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).
	10	.17	Form of Severance Agreement for the Kaiser Aluminum & Chemical Corporation Severance Plan (effective September 3, 2002) for John Barneson, Jack A. Hockema, Edward F. Houff, Kerry A. Shiba and Daniel D. Maddox and Certain Other Executive Officers (incorporated by reference to Exhibit 10.31 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).
	10	.18	Form of Kaiser Aluminum & Chemical Corporation Change in Control Severance Agreement for John Barneson, Jack A. Hockema and Edward F. Houff (incorporated by reference to Exhibit 10.32 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).
	10	.19	Form of Kaiser Aluminum & Chemical Corporation Change in Control Severance Agreement for Kerry A. Shiba and Daniel D. Maddox and Certain Other Executive Officers (incorporated by reference to Exhibit 10.33 to the Report on Form 10-K for the period ended December 31, 2002, filed by KAC, File No. 1-9447).

133

Exhibit
Number			Description
	*10	.20	Description of KACC Short-Term Incentive Plan.
	*10	.21	Description of KACC Long-Term Incentive Plan.
	10	.22	Settlement and Release Agreement dated October 5, 2004 by and among the Debtors and the Creditors’ Committee (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the period ended September 30, 2004, filed by KAC, File No. 1-9447).
	*10	.23	Amendment, dated as of January 27, 2005, to Settlement and Release Agreement dated as of October 5, 2004, by and among the Debtors and the Creditors’ Committee.
	10	.24	Settlement Agreement dated October 14, 2004, between KACC and the Pension Benefit Guaranty Corporation (incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q for the period ended September 30, 2004, filed by KAC, File No. 1-9447).
	*21		Significant Subsidiaries of KACC.
	*31	.1	Certification of Jack A. Hockema pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	*31	.2	Certification of Kerry A. Shiba pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	*32	.1	Confirmation of Jack A. Hockema pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	*32	.2	Confirmation of Kerry A. Shiba pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	*99	.1	Third Amended Joint Plan of Liquidation for Alpart Jamaica Inc. and Kaiser Jamaica Corporation, dated February 25, 2005.
	*99	.2	Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code with Respect to the Third Amended Joint Plan of Liquidation for Alpart Jamaica Inc. and Kaiser Jamaica Corporation, dated February 28, 2005.
	*99	.3	Third Amended Joint Plan of Liquidation for Kaiser Alumina Australia Corporation and Kaiser Finance Corporation, dated February 25, 2005.
	*99	.4	Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code with respect to the Third Amended Joint Plan of Liquidation for Kaiser Alumina Australia Corporation and Kaiser Finance Corporation, dated February 28, 2005.

* Filed herewith

134

Exhibit 21

KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES

(Debtor-in-Possession)

SUBSIDIARIES

      Listed below are the principal subsidiaries and affiliates of Kaiser Aluminum & Chemical Corporation, the jurisdiction of their incorporation or organization, and the names under which such subsidiaries do business. The Company’s ownership is indicated for less than wholly owned affiliates. Certain subsidiaries are omitted which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.

	Place of
	Incorporation or
Name	Organization
Continuing entities —
Anglesey Aluminium Limited (49%)		United Kingdom
Kaiser Aluminium International, Inc.(1)		Delaware
Kaiser Aluminum & Chemical of Canada Limited(1)		Ontario
Kaiser Bellwood Corporation(1)		Delaware
Liquidating entities —
Alpart Jamaica Inc.(1)(2)(3)		Delaware
Kaiser Jamaica Corporation(1)(2)(3)		Delaware
Kaiser Alumina Australia Corporation(1)(2)(3)		Delaware
Kaiser Finance Corporation(1)(2)(3)		Delaware

(1)	Filed a voluntary petition for reorganization under the Code.
(2)	Entities that have been materially affected as a result of the commodity asset sales, as discussed more fully in Note 1 and 5 of Notes to Consolidated Financial Statements.
(3)	Entities are being liquidated as more fully discussed in Note 1 of Notes to Consolidated Financial Statements.

135 EX-10.5 2 h23739exv10w5.txt NON-EXECUTIVE CHAIRMAN OF THE BOARDS AGREEMENT Exhibit 10.5 January _7, 2005 Mr. George T. Haymaker, Jr. c/o Kaiser Aluminum & Chemical Corporation 5847 San Felipe, Suite 2500 Houston, Texas 77057 Re: Non-Executive Chairman of the Boards Agreement Dear George: On behalf of the Boards of Directors (the "Boards") of Kaiser Aluminum Corporation ("KAC") and Kaiser Aluminum & Chemical Corporation ("KACC") this letter agreement confirms the terms of our offer to you to continue as the non-executive Chairman of the Boards of KAC and KACC, effective from January 1, 2005. The terms of our offer are as follows: 1. POSITION: The Boards offer to, and upon your acceptance of this agreement do hereby, continue your service in the capacity of non-executive Chairman of the Boards of KAC and KACC. Including your other duties as a Director of the Boards, you are committed to make available up to an average of sixteen (16) hours each calendar month for devotion to the affairs of KAC and KACC as directed by the Chief Executive Officer or by the Boards, with particular focus on assisting with development and implementation of the strategic plan and plan of reorganization for KAC and KACC. 2. TERM: The term of this agreement is for the period January 1, 2005 through the earlier of (i) December 31, 2005 and (ii) the effective date of the "plan(s)" under chapter 11 of the U.S. Bankruptcy Code (the "Code") or the other disposition under the Code of the chapter 11 cases, of KAC and KACC; provided that if the effective date of such plan(s) or other disposition is different for KAC and KACC, the date used for purposes of this clause (ii) shall be the later of such effective dates. The parties have no obligation to renew this agreement at the end of the term. This agreement may be terminated earlier (i) at the sole discretion of the Boards, (ii) by your death or disability (as defined in KAC's Long Term Disability Plan that covers executives and directors of KAC, (iii) for cause (as defined below), (iv) the mutual agreement of the parties hereto, or (v) by you, with sixty days notice to the Boards unless shorter notice is agreed in the sole discretion of the Boards. For purposes of this letter agreement, the term "cause" shall mean: (a) Your conviction for, or plea of nolo contendere to, a felony; or (b) Your commission of an act involving fraud or intentional dishonesty, which act is intended to result in substantial personal enrichment at the expense of KAC or any of its subsidiaries; or (c) Your breach of any material provision of this letter agreement which remains uncorrected for 30 days after written notice from the Boards or the Chief Executive Officer and an opportunity to correct; or Mr. George T. Haymaker, Jr. January 7, 2005 (d) Your knowing and willful misconduct in the performance of your duties, which continues for 30 days after written notice from the Boards or the Chief Executive Officer and which results in material injury to the reputation, business or operation of KAC or any of its subsidiaries. The existence of "cause" shall be determined by an affirmative vote of not less than two-thirds of the members of each of the Boards. If the requisite affirmative vote by two-thirds of the members of each of the Boards is not obtained, this letter agreement may not be terminated for cause. 3. COMPENSATION: (a) Your base fee as a Director of $50,000 per full year shall continue unmodified. The amount earned each quarter is $12,500. Some or all of such compensation may be deferred at your option into a "phantom stock" and/or interest-bearing account to the same extent as other Directors of KAC and KACC are permitted an election to do so pursuant to the Deferred Fee Agreement. Amounts which otherwise would be payable to you during the term of this letter agreement under KAC's and KACC's Directors' compensation policies for attendance at meetings of the Boards and committees thereof and for service as Chairman or a member of such committees shall be deemed to be included in the compensation payable under Paragraph 3.(b) of this letter agreement. (b) Your base fee for services as non-executive Chairman of both Boards will be computed at the rate of $73,000 per full year, which shall be payable in cash, quarterly in arrears, in the first week of the first month following the completion of each calendar quarter in which such compensation is earned. The amount earned each quarter is $18,250.00. Subject to the provisions of paragraph 5 hereof, if this agreement is terminated or expires prior to December 31, 2005, the parties agree that with respect to the final calendar quarter of this letter agreement in which this letter agreement terminates or expires, you shall be entitled to a pro rata portion of the quarterly increment set forth in each of paragraphs 3.(a) and 3.(b) above, determined by multiplying each such increment by a fraction, the numerator of which shall be the number of days in such final calendar quarter prior to the termination or expiration of this letter agreement, and the denominator of which shall be 90. You shall be solely liable and responsible for complying with all laws, rules and regulations regarding timely payment of applicable taxes including, without limitation, federal and state income, self-employment and/or disability taxes that may apply to such compensation. 4. INDEPENDENT CONTRACTOR: The relationship between the parties shall be that of independent contracting parties and shall not constitute or be deemed for any purpose to be that of employer and employee. The Boards and KAC and KACC expressly acknowledge and agree that neither shall have the right to direct you with respect to the means or manner in which you fulfill your obligations and responsibilities under his letter agreement. The Boards and KAC and KACC are solely interested in the results obtained by you in connection with your performance of services required hereunder. 5. TERMINATION: Although your service as non-executive Chairman of the Boards is terminable at the sole discretion of the Boards, if your service as non-executive Chairman of the Boards is terminated by KAC and KACC without cause (as defined above), you will continue to receive the compensation specified under Paragraph 3.(b) of this agreement for the balance of the term of the agreement. However, if your engagement as non-executive Chairman of the Boards is terminated for cause (as defined above) then you will have no right to any compensation under Paragraph 3.(b) of this agreement with respect to any period of time after the date of such termination. During the term of this agreement, you will continue to receive the fees paid under Section 3.(a) of this agreement so long as you remain a Director of KAC and KACC. 6. AMENDMENT; BENEFIT: This letter agreement may not be amended, modified, or supplemented in any respect except by a subsequent written agreement between all of the parties hereto. This letter agreement shall be 2 Mr. George T. Haymaker, Jr. January 7, 2005 binding upon, and shall inure to the benefit of, KAC and its successors and assigns, KACC and its successors and assigns, and you and your heirs, executors, administrators, and personal representatives. 7. GOVERNING LAW: This letter agreement shall be governed and construed in accordance with the laws of the State of Texas, without regard to principles of choice of law. George, the Boards are very pleased that you are willing to continue the duties of non-executive Chairman of the Boards. We look forward to continuing to work with you. If the terms of this offer are acceptable, please sign in the space provided below and return this letter agreement to me. Very truly yours, /s/ John Barneson -------------------------------------- John Barneson Senior Vice President and Chief Administrative Officer The foregoing is agreed to and accepted effective as of January 1, 2005 /s/ George T. Haymaker, Jr. - --------------------------------------- George T. Haymaker, Jr. EX-10.20 3 h23739exv10w20.txt DESCRIPTION OF KACC SHORT-TERM INCENTIVE PLAN Exhibit 10.20 Description of Kaiser Aluminum & Chemical Corporation Short-Term Incentive Plan - ------------------------------------------------------------------------------- The Company maintains a broad based short-term incentive plan pursuant to which participants, including the Named Executive Officers, may earn cash awards. Awards are determined on a sliding scale based on attainment by the Company of various levels of financial performance calculated using internal measures of controllable continuing operating results. Depending on the level of financial performance, participants may earn up to three times their annual award target. Awards under the plan are paid in the year after they are earned. If a participant's employment is terminated prior to the end of a plan year as a result of death, disability or retirement, such participant will be entitled to receive a pro rated portion of any award earned through the date of his or her termination of employment. Except as may be provided in a separate agreement with a participant, awards earned under the program are forfeited if a participant is terminated for cause prior to payment, or a participant's employment is terminated prior to the end of a plan year for any reason other than death, disability or retirement. EX-10.21 4 h23739exv10w21.txt DESCRIPTION OF KACC LONG-TERM INCENTIVE PLAN Exhibit 10.21 Description of Kaiser Aluminum & Chemical Corporation Long-Term Incentive Plan - ------------------------------------------------------------------------------- During 2002, the Company adopted, and the Court approved as part of the Kaiser Aluminum & Chemical Corporation Key Employee Retention Program, a new long-term incentive plan under which key management employees, including the Named Executive Officers, became eligible to receive a cash award based on the attainment by the Company of sustained cost reductions above a stipulated threshold for the period 2002 through the Company's emergence from bankruptcy. Under the plan, fifteen percent of such cost reductions above the stipulated threshold are placed in a pool to be shared by participants based on their individual target's percentage of the aggregate target for all participants. A participant's target percentage may be adjusted upward or downward, within certain limitations, at the discretion of the Company's Chief Executive Officer. Amounts payable under the plan generally are not determinable until conclusion of the plan. If a participant's employment is terminated without cause or as a result of death, disability or retirement prior to conclusion of the plan, such participant will be entitled to receive a pro rated portion of any award earned through the date of his or her termination of employment. Awards earned under the program are forfeited if the participant voluntarily terminates his or her employment (other than at normal retirement) or is terminated for cause prior to the scheduled payment date. In general, awards payable under the program are payable in two installments - the first on the date that the Company emerges from bankruptcy and the second on the one year anniversary of such date. EX-10.23 5 h23739exv10w23.txt AMENDMENT TO SETTLEMENT & RELEASE AGREEMENT EXHIBIT 10.23 AMENDMENT TO SETTLEMENT AND RELEASE AGREEMENT THIS AMENDMENT (the "Amendment") DATED AS OF JANUARY 27, 2005 TO SETTLEMENT AND RELEASE AGREEMENT DATED AS OF OCTOBER 5, 2004 (the "Agreement"), by and among the Debtors(1) and the Creditors' Committee: 1. Section 4.2.f. of the Agreement shall be amended and restated as follows: f. Except as otherwise provided in this Section, the pre-petition intercompany Claim held by KFC against KACC (the "KFC Claim") 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 or plans of reorganization for KACC and/or KAC. 75% of the KFC Claim shall be assigned to the 524(g) trust or master tort trust on the effective date of a plan or plans of reorganization for KACC and/or KAC, provided that such plan or plans provide for the 524(g) trust or master tort trust to receive (a) a cash distribution of no more than $13 million (excluding any proceeds of insurance), (b) no equity distribution from any of the Debtors other than (i) 100% of the stock of KAE Trading, Inc. (which as of the effective date of such plan will own only the property described in the term sheet annexed hereto as Exhibit A) and (ii) stock of KAC in respect of 75% of the KFC Claim and (c) no debt distribution from any of the Debtors (the "Permitted Cash and Equity Trust Distributions"). If a plan or plans of reorganization for KACC and/or KAC are confirmed and become effective which provide for a 524(g) trust or master tort trust to receive cash and equity distributions in excess of the Permitted Cash and Equity Trust Distributions, or a distribution of debt from any Debtor, 75% of the KFC Claim shall not be assigned to the 524(g) trust or master tort trust and the KFC Claim shall be allowed unless the United States on behalf of EPA, DOI, NOAA, or BPA (the "US") files an abjection to the allowance of the KFC Claim within thirty (30) days after the effective date of such a plan or plans. If the US files an objection in accordance with the preceding sentence (which shall be the only circumstance in which the US may file an objection to the KFC Claim), the US may object to the KFC Claim on any basis, including based on any facts relating to the KFC-KACC note, provided, however, that the US may not object to the KFC Claim based on the treatment of intercompany Claims under the Agreement (as amended by the Amendment). The Debtors and the Creditors' Committee expressly reserve their rights to oppose any such Claim objection which shall be adjudicated by the Court. 2. Section 7.7 of the Agreement shall be amended and restated as follows: 7.7 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 - ---------- (1) All terms not otherwise defined herein shall have the meaning set forth in the Agreement. and this Agreement, subject only to the Creditors' Committee filing an application with the Bankruptcy Court. The Debtors and the United States Trustee may object to the reasonableness of any particular fees or expenses sought in such application. 3. This Amendment may be executed in two or more counterparts, in which case this Amendment shall include each such executed and delivered counterpart, each of which shall be deemed to be part of a single instrument. This Amendment may be executed and delivered by facsimile. 4. Except as provided in this Amendment, none of the terms of the Agreement shall be deemed to have been modified or altered in any way. The Agreement, as modified by the Amendment, shall remain in full force and effect. 5. This Amendment shall became effective when the Agreement becomes effective but shall not be effective unless the requisite DIP Lenders and the Agent have consented to this Amendment or such consent is no longer required IN WITNESS WHEREOF, the parties have caused this Amendment 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: Senior Vice President and Chief Restructuring Officer KAISER ALUMINUM & CHEMICAL CORPORATION By: /s/ Edward F. Houff ----------------------------------------- Name: Edward F. Houff Title: Senior Vice President and Chief Restructuring Officer KAISER FINANCE CORPORATION By: /s/ Edward F. Houff ----------------------------------------- Name: Edward F. Houff Title: Senior Vice President and Chief Restructuring Officer 2 KAISER ALUMINA AUSTRALIA CORPORATION By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER ALUMINUM TECHNICAL SERVICES, INC. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER BELLWOOD CORPORATION By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER ALUMINIUM INTERNATIONAL, INC. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER MICROMILL HOLDINGS LLC By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER SIERRA MICROMILLS, LLC. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel 3 KAISER TEXAS SIERRA MICROMILLS, LLC By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER TEXAS MICROMILL HOLDINGS, LLC By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER ALUMINUM PROPERTIES, INC. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel AKRON HOLDING CORP. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel OXNARD FORGE DIE COMPANY, INC. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER ALUMINIUM & CHEMICAL INVESTMENT, INC. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel 4 KAISER CENTER, INC. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel ALWIS LEASING, INC. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel ALPART JAMAICA, INC. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER JAMAICA CORPORATION By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER BAUXITE COMPANY By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER ALUMINUM & CHEMICAL OF CANADA LIMITED By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel 5 KAISER ALUMINUM & CHEMICAL OF CANADA INVESTMENT LIMITED By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAE TRADING, INC. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER CENTER PROPERTIES By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel TEXADA MINES LTD. By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel KAISER EXPORT COMPANY By: /s/ John M. Donnan ----------------------------------------- Name: John M. Donnan Title: Vice President and General Counsel CREDITORS' COMMITTEE By: /s/ Lisa G. Beckerman ----------------------------------------- Name: Lisa G. Beckerman Title: Counsel to the Creditors' Committee 6 Settlement Proposal Subject to Rule 408 of Federal Rules of Evidence KAC PLAN TREATMENT OF PERSONAL INJURY CLAIMS AND DEMANDS A. Creation of PI Trust(s) The KAC plan of reorganization (the "Plan") will provide for the creation of a trust(s) ("PI Trust(s)") that will be funded with the Trust Assets described below and will assume the liability for the Covered PI Claims described below. Appropriate channeling injunctions pursuant to Section 524(g) and Section 105 of the Bankruptcy Code will become effective upon confirmation of the Plan. B. Personal Injury Claims Assumed by PI Trust(s) Each of the four categories of personal injury claims and demands set for the below ("Covered PI Claims") will be assumed by the PI Trust(s), and each will be treated as a separate class under the Plan pursuant to Section 1126 of the Bankruptcy Code. 1. Asbestos Claims and Demands 2. Silica Claims and Demands 3. CTPV Claims and Demands 4. NIHL Claims C. Assets ("Trust Assets") to be Contributed to the PI Trust(s) 1. Proceeds form existing and future postpetition settlements (consummated on or before the effective date of the Plan (the "Effective Date")) of Covered PI Claims' insurance, including the amounts currently held in two separate escrow accounts approved by orders of the Bankruptcy Court entered July 28, 2003 and December 29, 2004. 2. Insurance assets as follows: a. Assignment of rights to proceeds under the Insurance Policies described below as to Covered PI Claims b. Applicable Insurance Policies i. Insurance policies to be defined by schedule - Pre-1985 General Liability Policies - London ships policies - Pre-April 15, 1990 KACC General Liability Policies, except joint MAXXAM policies ii. No right to recover to the extent of any self insurance (i.e., deductibles, SIR, captives) or workers' compensation c. Responsibility for and Right to Control Litigation and Settlement after Plan Consummation i. PI Trust(s) will undertake, at its expense, the continuation of the insurance coverage litigation or any other pursuit of recoveries from insurers for Covered PI Claims, and no additional demands will be made on the Debtors for additional funds or distributions related to the conduct of the insurance coverage litigation or other pursuit or such recoveries, except insofar as any Debtor or affiliate thereof may be required to make a payment (premium, loss or otherwise) in order to satisfy a condition precedent (such as "exhaustion") to coverage, in which case the PI Trust(s) will advance such payment on behalf of the Debtor or affiliate. ii. PI Trust(s) will have right to control the coverage litigation and to settle as to Covered PI Claims under the Insurance Policies. iii. PI Trust(s) will be authorized to proceed in the name of reorganized KAC to the extent required to pursue recoveries under the Insurance Policies. If required by law, e.g., if any of the assignments of rights to insurance proceeds described above are held not to be effective, reorganized KAC will appear in and prosecute actions to pursue recoveries under the applicable insurance policies for the benefit and at the expense of the PI Trust(s). iv. Reorganized KAC will undertake to provide information, including all historical files and records, to the PI Trust(s), as required in the conduct of the coverage litigation or other pursuit of recoveries for Covered PI Claims, subject to reimbursement for expenses. 3. $13 million in cash from KACC. 4. Distributions in respect of an $829,500,000 allowed unsecured prepetition claim against KACC (75% of the US $1.106 billion intercompany claim held by Kaiser Finance Corporation against KACC), which shall be in the form of equity of KAC and shall be made at the same time or times that equity distributions are made to other unsecured creditors of KACC. 5. 100% of the stock of KAE Trading, Inc., which, as of the effective date of the Plan, will own only the Brooklawn property located in Louisiana and the lessor's interest in a lease of such property between KACC and Defense National Stockpile Center (as modified as of October 18, 2002), except that, if, based on an updated environmental and/or appraisal report acceptable to the parties hereto, the Brooklawn property is determined to have zero or negative value, different 2 property acceptable to all the parties hereto shall be substituted for the Brooklawn property, provided that such substitute property shall have a value of $1 million or less. D. Insurance Neutrality The parties hereto will discuss an appropriate insurance neutrality provision for inclusion in the Plan, PI Trust(s) and confirmation order. E. Trust and Trust Distribution Procedures 1. TDPs established for asbestos, silica and CTPV claims and demands 2. Matrix for payment of NTHL claims, with recoveries limited to premises insurance only. 3. TDPs will set forth the requirements for claim submission and resolution, including specific medical criteria, product exposure requirements, claim valuation terms, mechanisms to assure consistency of treatment and conserve assets for future claims. F. Restrictions on Transfer of KAC Equity The parties hereto shall cooperate with each other in formulating restrictions on transfers of reorganized KAC equity and/or share lock-up agreements regarding KAC equity in an effort to prevent an ownership change of reorganized KAC (and to provide a reasonable margin of error for such purpose), and thereby preserve the unlimited use of reorganized KAC's anticipated consolidated federal income tax net operating losses, which restrictions and/or share lock-up agreements shall be acceptable to the parties. G. Conditions Precedent to Plan Court approval of (1) the settlement and release agreement regarding prepetition and postpetition intercompany claims entered into between the Debtors and the Creditors' Committee, (2) the settlement agreement entered into between the Debtors and the PBGC and (3) the amended agreement with the USWA will be conditions precedent to confirmation of the Plan, and the parties hereto agree to use their commercially reasonable best efforts to support prompt approval of each. H. Support of KAC Plan All parties hereto agree to use their commercially reasonable best efforts to support prompt confirmation and consummation of the Plan with the terms described above and the pending plans of reorganization for AJI/KJC and KAAC/KFC, and to not directly or indirectly support efforts by other parties to oppose prompt confirmation of the Plan and these pending plans. The parties hereto acknowledge that there are other terms of the Plan that have not yet been agreed upon by certain parties. The rights of the parties with respect to such other provisions of the Plan, including the right to object to the Plan on the basis of such other provisions, or any provision dividing the Trust Assets described in Paragraph C hereof, are expressly reserved. 3 Amendment of Term Sheet This term sheet may be amended by written amendment acceptable to all the parties hereto. Dated: January 26, 2005 ---------------- Debtors and Debtors in Possession By: Edward F. Houff -------------------------------------------- Title: Senior VP & Chief Restrictionary Officer ----------------------------------------- Unsecured Creditors' Committee By: /s/ Lisa G. Beckerman --------------------------- Title: Counsel for the secured ------------------------ Creditor's Committees United Steelworkers of America By: David A. Foster -------------------------- Title: Director, District #11 ----------------------- Pension Benefit Guaranty Corporation By: /S/ Jim P. Eggeman ------------------------------------ Title: Attorney --------------------------------- Asbestos Claimants' Committee By: /S/ Ronald E. Reinsel ------------------------------------ Title: Attorney for Asbestos --------------------------------- Claimants' Committee Asbestos Future Claimants' Representative NIV on behalf of Michael Murphy --------------------------------------- Silica/CTPV Future Claimants' Representative Anne Ferrazzi --------------------------------------- 5 EX-21 6 h23739exv21.txt SIGNIFICANT SUBSIDIARIES OF KACC EXHIBIT 21 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES (DEBTOR-IN-POSSESSION) SUBSIDIARIES Listed below are the principal subsidiaries and affiliates of Kaiser Aluminum & Chemical Corporation, the jurisdiction of their incorporation or organization, and the names under which such subsidiaries do business. The Company's ownership is indicated for less than wholly owned affiliates. Certain subsidiaries are omitted which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.

PLACE OF INCORPORATION OR NAME ORGANIZATION - ---- ---------------- Continuing entities -- Anglesey Aluminium Limited (49%)............................ United Kingdom Kaiser Aluminium International, Inc.(1)..................... Delaware Kaiser Aluminum & Chemical of Canada Limited(1)............. Ontario Kaiser Bellwood Corporation(1).............................. Delaware Liquidating entities -- Alpart Jamaica Inc.(1)(2)(3)................................ Delaware Kaiser Jamaica Corporation(1)(2)(3)......................... Delaware Kaiser Alumina Australia Corporation(1)(2)(3)............... Delaware Kaiser Finance Corporation(1)(2)(3)......................... Delaware

- --------------- (1) Filed a voluntary petition for reorganization under the Code. (2) Entities that have been materially affected as a result of the commodity asset sales, as discussed more fully in Note 1 and 5 of Notes to Consolidated Financial Statements. (3) Entities are being liquidated as more fully discussed in Note 1 of Notes to Consolidated Financial Statements. EX-31.1 7 h23739exv31w1.htm CERTIFICATION OF JACK A. HOCKEMA PURSUANT 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-K 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 officer 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;
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; and

     5. The registrant’s other certifying officer 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: March 31, 2005	/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.

EX-10.5

                                                                    Exhibit 10.5

                                                                January _7, 2005

Mr. George T. Haymaker, Jr.
c/o Kaiser Aluminum & Chemical Corporation
5847 San Felipe, Suite 2500
Houston, Texas 77057

     Re: Non-Executive Chairman of the Boards Agreement

Dear George:

     On behalf of the Boards of Directors (the "Boards") of Kaiser Aluminum
Corporation ("KAC") and Kaiser Aluminum & Chemical Corporation ("KACC") this
letter agreement confirms the terms of our offer to you to continue as the
non-executive Chairman of the Boards of KAC and KACC, effective from January 1,
2005.

     The terms of our offer are as follows:

     1. POSITION: The Boards offer to, and upon your acceptance of this
agreement do hereby, continue your service in the capacity of non-executive
Chairman of the Boards of KAC and KACC. Including your other duties as a
Director of the Boards, you are committed to make available up to an average of
sixteen (16) hours each calendar month for devotion to the affairs of KAC and
KACC as directed by the Chief Executive Officer or by the Boards, with
particular focus on assisting with development and implementation of the
strategic plan and plan of reorganization for KAC and KACC.

     2. TERM: The term of this agreement is for the period January 1, 2005
through the earlier of (i) December 31, 2005 and (ii) the effective date of the
"plan(s)" under chapter 11 of the U.S. Bankruptcy Code (the "Code") or the other
disposition under the Code of the chapter 11 cases, of KAC and KACC; provided
that if the effective date of such plan(s) or other disposition is different for
KAC and KACC, the date used for purposes of this clause (ii) shall be the later
of such effective dates. The parties have no obligation to renew this agreement
at the end of the term. This agreement may be terminated earlier (i) at the sole
discretion of the Boards, (ii) by your death or disability (as defined in KAC's
Long Term Disability Plan that covers executives and directors of KAC, (iii) for
cause (as defined below), (iv) the mutual agreement of the parties hereto, or
(v) by you, with sixty days notice to the Boards unless shorter notice is agreed
in the sole discretion of the Boards.

     For purposes of this letter agreement, the term "cause" shall mean:

     (a)  Your conviction for, or plea of nolo contendere to, a felony; or

     (b)  Your commission of an act involving fraud or intentional dishonesty,
          which act is intended to result in substantial personal enrichment at
          the expense of KAC or any of its subsidiaries; or

     (c)  Your breach of any material provision of this letter agreement which
          remains uncorrected for 30 days after written notice from the Boards
          or the Chief Executive Officer and an opportunity to correct; or

Mr. George T. Haymaker, Jr.
January 7, 2005

     (d)  Your knowing and willful misconduct in the performance of your duties,
          which continues for 30 days after written notice from the Boards or
          the Chief Executive Officer and which results in material injury to
          the reputation, business or operation of KAC or any of its
          subsidiaries.

The existence of "cause" shall be determined by an affirmative vote of not less
than two-thirds of the members of each of the Boards. If the requisite
affirmative vote by two-thirds of the members of each of the Boards is not
obtained, this letter agreement may not be terminated for cause.

     3. COMPENSATION:

     (a)  Your base fee as a Director of $50,000 per full year shall continue
          unmodified. The amount earned each quarter is $12,500. Some or all of
          such compensation may be deferred at your option into a "phantom
          stock" and/or interest-bearing account to the same extent as other
          Directors of KAC and KACC are permitted an election to do so pursuant
          to the Deferred Fee Agreement. Amounts which otherwise would be
          payable to you during the term of this letter agreement under KAC's
          and KACC's Directors' compensation policies for attendance at meetings
          of the Boards and committees thereof and for service as Chairman or a
          member of such committees shall be deemed to be included in the
          compensation payable under Paragraph 3.(b) of this letter agreement.

     (b)  Your base fee for services as non-executive Chairman of both Boards
          will be computed at the rate of $73,000 per full year, which shall be
          payable in cash, quarterly in arrears, in the first week of the first
          month following the completion of each calendar quarter in which such
          compensation is earned. The amount earned each quarter is $18,250.00.

Subject to the provisions of paragraph 5 hereof, if this agreement is terminated
or expires prior to December 31, 2005, the parties agree that with respect to
the final calendar quarter of this letter agreement in which this letter
agreement terminates or expires, you shall be entitled to a pro rata portion of
the quarterly increment set forth in each of paragraphs 3.(a) and 3.(b) above,
determined by multiplying each such increment by a fraction, the numerator of
which shall be the number of days in such final calendar quarter prior to the
termination or expiration of this letter agreement, and the denominator of which
shall be 90.

     You shall be solely liable and responsible for complying with all laws,
rules and regulations regarding timely payment of applicable taxes including,
without limitation, federal and state income, self-employment and/or disability
taxes that may apply to such compensation.

     4. INDEPENDENT CONTRACTOR: The relationship between the parties shall be
that of independent contracting parties and shall not constitute or be deemed
for any purpose to be that of employer and employee. The Boards and KAC and KACC
expressly acknowledge and agree that neither shall have the right to direct you
with respect to the means or manner in which you fulfill your obligations and
responsibilities under his letter agreement. The Boards and KAC and KACC are
solely interested in the results obtained by you in connection with your
performance of services required hereunder.

     5. TERMINATION: Although your service as non-executive Chairman of the
Boards is terminable at the sole discretion of the Boards, if your service as
non-executive Chairman of the Boards is terminated by KAC and KACC without cause
(as defined above), you will continue to receive the compensation specified
under Paragraph 3.(b) of this agreement for the balance of the term of the
agreement. However, if your engagement as non-executive Chairman of the Boards
is terminated for cause (as defined above) then you will have no right to any
compensation under Paragraph 3.(b) of this agreement with respect to any period
of time after the date of such termination. During the term of this agreement,
you will continue to receive the fees paid under Section 3.(a) of this agreement
so long as you remain a Director of KAC and KACC.

     6. AMENDMENT; BENEFIT: This letter agreement may not be amended, modified,
or supplemented in any respect except by a subsequent written agreement between
all of the parties hereto. This letter agreement shall be


                                        2

Mr. George T. Haymaker, Jr.
January 7, 2005

binding upon, and shall inure to the benefit of, KAC and its successors and
assigns, KACC and its successors and assigns, and you and your heirs, executors,
administrators, and personal representatives.

     7. GOVERNING LAW: This letter agreement shall be governed and construed in
accordance with the laws of the State of Texas, without regard to principles of
choice of law.

     George, the Boards are very pleased that you are willing to continue the
duties of non-executive Chairman of the Boards. We look forward to continuing to
work with you.

     If the terms of this offer are acceptable, please sign in the space
provided below and return this letter agreement to me.

                                          Very truly yours,


                                          /s/ John Barneson
                                          --------------------------------------
                                          John Barneson
                                          Senior Vice President and
                                          Chief Administrative Officer

The foregoing is agreed to and accepted
effective as of January 1, 2005


/s/ George T. Haymaker, Jr.
- ---------------------------------------
George T. Haymaker, Jr.

EX-10.20

                                                                  Exhibit 10.20


Description of Kaiser Aluminum & Chemical Corporation Short-Term Incentive Plan
- -------------------------------------------------------------------------------


         The Company maintains a broad based short-term incentive plan pursuant
to which participants, including the Named Executive Officers, may earn cash
awards. Awards are determined on a sliding scale based on attainment by the
Company of various levels of financial performance calculated using internal
measures of controllable continuing operating results. Depending on the level
of financial performance, participants may earn up to three times their annual
award target.

         Awards under the plan are paid in the year after they are earned. If a
participant's employment is terminated prior to the end of a plan year as a
result of death, disability or retirement, such participant will be entitled to
receive a pro rated portion of any award earned through the date of his or her
termination of employment. Except as may be provided in a separate agreement
with a participant, awards earned under the program are forfeited if a
participant is terminated for cause prior to payment, or a participant's
employment is terminated prior to the end of a plan year for any reason other
than death, disability or retirement.

EX-10.21

                                                                  Exhibit 10.21


Description of Kaiser Aluminum & Chemical Corporation Long-Term Incentive Plan
- -------------------------------------------------------------------------------


         During 2002, the Company adopted, and the Court approved as part of
the Kaiser Aluminum & Chemical Corporation Key Employee Retention Program, a
new long-term incentive plan under which key management employees, including
the Named Executive Officers, became eligible to receive a cash award based on
the attainment by the Company of sustained cost reductions above a stipulated
threshold for the period 2002 through the Company's emergence from bankruptcy.
Under the plan, fifteen percent of such cost reductions above the stipulated
threshold are placed in a pool to be shared by participants based on their
individual target's percentage of the aggregate target for all participants. A
participant's target percentage may be adjusted upward or downward, within
certain limitations, at the discretion of the Company's Chief Executive
Officer.

         Amounts payable under the plan generally are not determinable until
conclusion of the plan. If a participant's employment is terminated without
cause or as a result of death, disability or retirement prior to conclusion of
the plan, such participant will be entitled to receive a pro rated portion of
any award earned through the date of his or her termination of employment.
Awards earned under the program are forfeited if the participant voluntarily
terminates his or her employment (other than at normal retirement) or is
terminated for cause prior to the scheduled payment date.

         In general, awards payable under the program are payable in two
installments - the first on the date that the Company emerges from bankruptcy
and the second on the one year anniversary of such date.

EX-10.23

                                                                   EXHIBIT 10.23

                  AMENDMENT TO SETTLEMENT AND RELEASE AGREEMENT

THIS AMENDMENT (the "Amendment") DATED AS OF JANUARY 27, 2005 TO SETTLEMENT AND
RELEASE AGREEMENT DATED AS OF OCTOBER 5, 2004 (the "Agreement"), by and among
the Debtors(1) and the Creditors' Committee:

     1. Section 4.2.f. of the Agreement shall be amended and restated as
follows:

     f.   Except as otherwise provided in this Section, the pre-petition
          intercompany Claim held by KFC against KACC (the "KFC Claim") 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 or plans of reorganization for KACC and/or KAC. 75% of
          the KFC Claim shall be assigned to the 524(g) trust or master tort
          trust on the effective date of a plan or plans of reorganization for
          KACC and/or KAC, provided that such plan or plans provide for the
          524(g) trust or master tort trust to receive (a) a cash distribution
          of no more than $13 million (excluding any proceeds of insurance), (b)
          no equity distribution from any of the Debtors other than (i) 100% of
          the stock of KAE Trading, Inc. (which as of the effective date of such
          plan will own only the property described in the term sheet annexed
          hereto as Exhibit A) and (ii) stock of KAC in respect of 75% of the
          KFC Claim and (c) no debt distribution from any of the Debtors (the
          "Permitted Cash and Equity Trust Distributions"). If a plan or plans
          of reorganization for KACC and/or KAC are confirmed and become
          effective which provide for a 524(g) trust or master tort trust to
          receive cash and equity distributions in excess of the Permitted Cash
          and Equity Trust Distributions, or a distribution of debt from any
          Debtor, 75% of the KFC Claim shall not be assigned to the 524(g) trust
          or master tort trust and the KFC Claim shall be allowed unless the
          United States on behalf of EPA, DOI, NOAA, or BPA (the "US") files an
          abjection to the allowance of the KFC Claim within thirty (30) days
          after the effective date of such a plan or plans. If the US files an
          objection in accordance with the preceding sentence (which shall be
          the only circumstance in which the US may file an objection to the KFC
          Claim), the US may object to the KFC Claim on any basis, including
          based on any facts relating to the KFC-KACC note, provided, however,
          that the US may not object to the KFC Claim based on the treatment of
          intercompany Claims under the Agreement (as amended by the Amendment).
          The Debtors and the Creditors' Committee expressly reserve their
          rights to oppose any such Claim objection which shall be adjudicated
          by the Court.

     2. Section 7.7 of the Agreement shall be amended and restated as follows:

     7.7  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

- ----------
(1)  All terms not otherwise defined herein shall have the meaning set forth in
     the Agreement.

          and this Agreement, subject only to the Creditors' Committee filing an
          application with the Bankruptcy Court. The Debtors and the United
          States Trustee may object to the reasonableness of any particular fees
          or expenses sought in such application.

     3. This Amendment may be executed in two or more counterparts, in which
case this Amendment shall include each such executed and delivered counterpart,
each of which shall be deemed to be part of a single instrument. This Amendment
may be executed and delivered by facsimile.

     4. Except as provided in this Amendment, none of the terms of the Agreement
shall be deemed to have been modified or altered in any way. The Agreement, as
modified by the Amendment, shall remain in full force and effect.

     5. This Amendment shall became effective when the Agreement becomes
effective but shall not be effective unless the requisite DIP Lenders and the
Agent have consented to this Amendment or such consent is no longer required

     IN WITNESS WHEREOF, the parties have caused this Amendment 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: Senior Vice President and
                                              Chief Restructuring Officer


                                   KAISER ALUMINUM & CHEMICAL CORPORATION


                                   By:    /s/ Edward F. Houff
                                       -----------------------------------------
                                       Name:  Edward F. Houff
                                       Title: Senior Vice President and
                                              Chief Restructuring Officer


                                   KAISER FINANCE CORPORATION


                                   By:    /s/ Edward F. Houff
                                       -----------------------------------------
                                       Name:  Edward F. Houff
                                       Title: Senior Vice President and
                                              Chief Restructuring Officer


                                        2

                                   KAISER ALUMINA AUSTRALIA CORPORATION


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER ALUMINUM TECHNICAL SERVICES, INC.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER BELLWOOD CORPORATION


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER ALUMINIUM INTERNATIONAL, INC.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER MICROMILL HOLDINGS LLC


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER SIERRA MICROMILLS, LLC.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                        3

                                   KAISER TEXAS SIERRA MICROMILLS, LLC


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER TEXAS MICROMILL HOLDINGS, LLC


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER ALUMINUM PROPERTIES, INC.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   AKRON HOLDING CORP.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   OXNARD FORGE DIE COMPANY, INC.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER ALUMINIUM & CHEMICAL INVESTMENT, INC.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                        4

                                   KAISER CENTER, INC.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   ALWIS LEASING, INC.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   ALPART JAMAICA, INC.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER JAMAICA CORPORATION


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER BAUXITE COMPANY


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER ALUMINUM & CHEMICAL OF CANADA LIMITED


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                        5

                                   KAISER ALUMINUM & CHEMICAL OF CANADA
                                   INVESTMENT LIMITED


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAE TRADING, INC.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER CENTER PROPERTIES


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   TEXADA MINES LTD.


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   KAISER EXPORT COMPANY


                                   By: /s/ John M. Donnan
                                       -----------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                   CREDITORS' COMMITTEE


                                   By: /s/ Lisa G. Beckerman
                                       -----------------------------------------
                                       Name: Lisa G. Beckerman
                                       Title: Counsel to the Creditors'
                                              Committee


                                        6

Settlement Proposal Subject to Rule 408
of Federal Rules of Evidence

            KAC PLAN TREATMENT OF PERSONAL INJURY CLAIMS AND DEMANDS

A. Creation of PI Trust(s)

         The KAC plan of reorganization (the "Plan") will provide for the
creation of a trust(s) ("PI Trust(s)") that will be funded with the Trust Assets
described below and will assume the liability for the Covered PI Claims
described below. Appropriate channeling injunctions pursuant to Section 524(g)
and Section 105 of the Bankruptcy Code will become effective upon confirmation
of the Plan.

B. Personal Injury Claims Assumed by PI Trust(s)

         Each of the four categories of personal injury claims and demands set
for the below ("Covered PI Claims") will be assumed by the PI Trust(s), and
each will be treated as a separate class under the Plan pursuant to Section
1126 of the Bankruptcy Code.

         1.       Asbestos Claims and Demands

         2.       Silica Claims and Demands

         3.       CTPV Claims and Demands

         4.       NIHL Claims

C. Assets ("Trust Assets") to be Contributed to the PI Trust(s)

         1.       Proceeds form existing and future postpetition settlements
                  (consummated on or before the effective date of the Plan (the
                  "Effective Date")) of Covered PI Claims' insurance, including
                  the amounts currently held in two separate escrow accounts
                  approved by orders of the Bankruptcy Court entered July 28,
                  2003 and December 29, 2004.

         2.       Insurance assets as follows:

                  a.       Assignment of rights to proceeds under the Insurance
                           Policies described below as to Covered PI Claims

                  b.       Applicable Insurance Policies

                           i.       Insurance policies to be defined by schedule

                                    -       Pre-1985 General Liability Policies

                                    -       London ships policies

                                    -       Pre-April 15, 1990 KACC General
                                            Liability Policies, except joint
                                            MAXXAM policies

                          ii.      No right to recover to the extent of any self
                                   insurance (i.e., deductibles, SIR, captives)
                                   or workers' compensation

                 c.       Responsibility for and Right to Control Litigation and
                          Settlement after Plan Consummation

                          i.      PI Trust(s) will undertake, at its expense,
                                  the continuation of the insurance coverage
                                  litigation or any other pursuit of recoveries
                                  from insurers for Covered PI Claims, and no
                                  additional demands will be made on the Debtors
                                  for additional funds or distributions related
                                  to the conduct of the insurance coverage
                                  litigation or other pursuit or such
                                  recoveries, except insofar as any Debtor or
                                  affiliate thereof may be required to make a
                                  payment (premium, loss or otherwise) in order
                                  to satisfy a condition precedent (such as
                                  "exhaustion") to coverage, in which case the
                                  PI Trust(s) will advance such payment on
                                  behalf of the Debtor or affiliate.

                          ii.     PI Trust(s) will have right to control the
                                  coverage litigation and to settle as to
                                  Covered PI Claims under the Insurance
                                  Policies.

                          iii.    PI Trust(s) will be authorized to proceed in
                                  the name of reorganized KAC to the extent
                                  required to pursue recoveries under the
                                  Insurance Policies. If required by law, e.g.,
                                  if any of the assignments of rights to
                                  insurance proceeds described above are held
                                  not to be effective, reorganized KAC will
                                  appear in and prosecute actions to pursue
                                  recoveries under the applicable insurance
                                  policies for the benefit and at the expense
                                  of the PI Trust(s).

                          iv.     Reorganized KAC will undertake to provide
                                  information, including all historical files
                                  and records, to the PI Trust(s), as required
                                  in the conduct of the coverage litigation or
                                  other pursuit of recoveries for Covered PI
                                  Claims, subject to reimbursement for expenses.

        3.       $13 million in cash from KACC.

        4.       Distributions in respect of an $829,500,000 allowed unsecured
                 prepetition claim against KACC (75% of the US $1.106 billion
                 intercompany claim held by Kaiser Finance Corporation against
                 KACC), which shall be in the form of equity of KAC and shall
                 be made at the same time or times that equity distributions
                 are made to other unsecured creditors of KACC.

        5.       100% of the stock of KAE Trading, Inc., which, as of the
                 effective date of the Plan, will own only the Brooklawn
                 property located in Louisiana and the lessor's interest in
                 a lease of such property between KACC and Defense National
                 Stockpile Center (as modified as of October 18, 2002), except
                 that, if, based on an updated environmental and/or appraisal
                 report acceptable to the parties hereto, the Brooklawn
                 property is determined to have zero or negative value,
                 different


                                       2





                  property acceptable to all the parties hereto shall be
                  substituted for the Brooklawn property, provided that such
                  substitute property shall have a value of $1 million or less.


D.       Insurance Neutrality

         The parties hereto will discuss an appropriate insurance neutrality
provision for inclusion in the Plan, PI Trust(s) and confirmation order.

E.       Trust and Trust Distribution Procedures

         1.       TDPs established for asbestos, silica and CTPV claims and
                  demands

         2.       Matrix for payment of NTHL claims, with recoveries limited to
                  premises insurance only.

         3.       TDPs will set forth the requirements for claim submission and
                  resolution, including specific medical criteria, product
                  exposure requirements, claim valuation terms, mechanisms to
                  assure consistency of treatment and conserve assets for future
                  claims.

F.       Restrictions on Transfer of KAC Equity

         The parties hereto shall cooperate with each other in formulating
restrictions on transfers of reorganized KAC equity and/or share lock-up
agreements regarding KAC equity in an effort to prevent an ownership change of
reorganized KAC (and to provide a reasonable margin of error for such purpose),
and thereby preserve the unlimited use of reorganized KAC's anticipated
consolidated federal income tax net operating losses, which restrictions and/or
share lock-up agreements shall be acceptable to the parties.

G.       Conditions Precedent to Plan

         Court approval of (1) the settlement and release agreement regarding
prepetition and postpetition intercompany claims entered into between the
Debtors and the Creditors' Committee, (2) the settlement agreement entered into
between the Debtors and the PBGC and (3) the amended agreement with the USWA
will be conditions precedent to confirmation of the Plan, and the parties
hereto agree to use their commercially reasonable best efforts to support
prompt approval of each.

H.       Support of KAC Plan

         All parties hereto agree to use their commercially reasonable best
efforts to support prompt confirmation and consummation of the Plan with the
terms described above and the pending plans of reorganization for AJI/KJC and
KAAC/KFC, and to not directly or indirectly support efforts by other parties to
oppose prompt confirmation of the Plan and these pending plans. The parties
hereto acknowledge that there are other terms of the Plan that have not yet
been agreed upon by certain parties. The rights of the parties with respect to
such other provisions of the Plan, including the right to object to the Plan on
the basis of such other provisions, or any provision dividing the Trust Assets
described in Paragraph C hereof, are expressly reserved.





                                       3




          Amendment of Term Sheet

          This term sheet may be amended by written amendment acceptable to all
the parties hereto.

Dated: January 26, 2005
       ----------------

                              Debtors and Debtors in Possession


                              By: Edward F. Houff
                                 --------------------------------------------
                              Title: Senior VP & Chief Restrictionary Officer
                                    -----------------------------------------


                              Unsecured Creditors' Committee



                              By: /s/ Lisa G. Beckerman
                                 ---------------------------
                              Title: Counsel for the secured
                                    ------------------------
                                     Creditor's Committees


                              United Steelworkers of America


                              By: David A. Foster
                                 --------------------------
                              Title: Director, District #11
                                    -----------------------







                                  Pension Benefit Guaranty Corporation


                                  By:  /S/ Jim P. Eggeman
                                     ------------------------------------
                                  Title: Attorney
                                        ---------------------------------


                                  Asbestos Claimants' Committee


                                  By:  /S/  Ronald E. Reinsel
                                     ------------------------------------
                                  Title: Attorney for Asbestos
                                        ---------------------------------
                                         Claimants' Committee


                                  Asbestos Future Claimants' Representative


                                  NIV on behalf of Michael Murphy
                                  ---------------------------------------


                                  Silica/CTPV Future Claimants' Representative


                                  Anne Ferrazzi
                                  ---------------------------------------















                                       5

EX-21

                                                                      EXHIBIT 21

        KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
                             (DEBTOR-IN-POSSESSION)

                                  SUBSIDIARIES

     Listed below are the principal subsidiaries and affiliates of Kaiser
Aluminum & Chemical Corporation, the jurisdiction of their incorporation or
organization, and the names under which such subsidiaries do business. The
Company's ownership is indicated for less than wholly owned affiliates. Certain
subsidiaries are omitted which, considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.



                                                                   PLACE OF
                                                               INCORPORATION OR
NAME                                                             ORGANIZATION
- ----                                                           ----------------
                                                            
Continuing entities --
Anglesey Aluminium Limited (49%)............................   United Kingdom
Kaiser Aluminium International, Inc.(1).....................   Delaware
Kaiser Aluminum & Chemical of Canada Limited(1).............   Ontario
Kaiser Bellwood Corporation(1)..............................   Delaware
Liquidating entities --
Alpart Jamaica Inc.(1)(2)(3)................................   Delaware
Kaiser Jamaica Corporation(1)(2)(3).........................   Delaware
Kaiser Alumina Australia Corporation(1)(2)(3)...............   Delaware
Kaiser Finance Corporation(1)(2)(3).........................   Delaware


- ---------------

(1) Filed a voluntary petition for reorganization under the Code.

(2) Entities that have been materially affected as a result of the commodity
    asset sales, as discussed more fully in Note 1 and 5 of Notes to
    Consolidated Financial Statements.

(3) Entities are being liquidated as more fully discussed in Note 1 of Notes to
    Consolidated Financial Statements.

EX-31.1

exv31w1

EX-31.2

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-K 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 officer 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;
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; and

     5. The registrant’s other certifying officer 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: March 31, 2005	/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.

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

March 31, 2005

     In connection with the Annual Report on Form 10-K by Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the “Company”), for the year ending December 31, 2003 (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.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

March 31, 2005

     In connection with the Annual Report on Form 10-K by Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the “Company”), for the year ending December 31, 2003 (the “Report”), as filed on the date hereof with the Securities and Exchange Commission, the undersigned, John T. La Duc, 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.

EX-99.1

                                                                    EXHIBIT 99.1

                         UNITED STATES BANKRUPTCY COURT
                          FOR THE DISTRICT OF DELAWARE

- ------------------------------x
                              :
In re:                        :
                              :   Chapter 11 Case Nos.
ALPART JAMAICA INC. and       :   03-10144 and 03-10151
KAISER JAMAICA CORPORATION,   :   Jointly Administered Under
                              :   Case No. 02-10429 (JKF)
                              :
            Debtors.          :
                              :
- ------------------------------x

                     THIRD AMENDED JOINT PLAN OF LIQUIDATION
             FOR ALPART JAMAICA INC. AND KAISER JAMAICA CORPORATION

                                        Daniel J. DeFranceschi (DE 2732)
                                        RICHARDS, LAYTON & FINGER, P.A.
                                        One Rodney Square
                                        P.O. Box 551
                                        Wilmington, Delaware 19899
                                        Telephone: (302) 651-7700
                                        Facsimile: (302) 651-7701

                                        - and -

                                        Gregory M. Gordon (TX 08435300)
                                        Henry L. Gompf (TX 08116400)
                                        Troy B. Lewis (TX 12308650)
                                        Daniel P. Winikka (TX 00794873)
                                        JONES DAY
                                        2727 North Harwood
                                        Dallas, Texas 75201
                                        Telephone: (214) 220-3939
                                        Facsimile: (214) 969-5100

                                        ATTORNEYS FOR DEBTORS AND
                                        DEBTORS IN POSSESSION
Dated: February 25, 2005

                                TABLE OF CONTENTS



                                                                                        PAGE
                                                                                        ----
                                                                                  
ARTICLE I     DEFINED TERMS, RULES OF INTERPRETATION AND COMPUTATION OF TIME.........     1
   1.1        Defined Terms..........................................................     1
   1.2        Rules of Interpretation................................................     9
   1.3        Computation of Time....................................................     9
ARTICLE II    CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS...................    10
   2.1        General................................................................    10
   2.2        Administrative Claims..................................................    10
   2.3        Priority Tax Claims....................................................    11
   2.4        Classified Claims......................................................    11
   2.5        7-3/4% SWD Revenue Bond Dispute and Settlement.........................    14
   2.6        Senior Note Indenture Trustee and Ad Hoc Group Counsel Fees and
              Expenses; 7-3/4% SWD Revenue Bond Plaintiffs' Fees.....................    14
   2.7        Allowance of Certain Public Note Claims................................    15
   2.8        Substantive Consolidation..............................................    15
   2.9        Order Granting Substantive Consolidation...............................    15
   2.10       No Effect on Claims Against or Interests in Other Kaiser Debtors.......    15
ARTICLE III   TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES..................    15
   3.1        Executory Contracts and Unexpired Leases to Be Rejected................    15
   3.2        Bar Date for Rejection Damages.........................................    16
ARTICLE IV    RELEASE, LIMITATION OF LIABILITY AND INJUNCTION PROVISIONS.............    16
   4.1        Release of Claims; Limitation of Liability.............................    16
   4.2        Injunctions............................................................    17
   4.3        No Discharge...........................................................    17
ARTICLE V     CRAMDOWN...............................................................    17
ARTICLE VI    CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN......    17
   6.1        Conditions to Confirmation.............................................    17
   6.2        Conditions to the Effective Date.......................................    17
   6.3        Waiver of Conditions to the Confirmation or Effective Date.............    18
ARTICLE VII   MEANS FOR IMPLEMENTATION OF THE PLAN...................................    18
   7.1        Liquidating Transactions...............................................    18
   7.2        Corporate Action.......................................................    18
   7.3        No Revesting of Assets.................................................    18
   7.4        Recourse Solely to Trust Accounts......................................    18
   7.5        Release of Liens.......................................................    18



                                        i

                                TABLE OF CONTENTS
                                   (continued)



                                                                                        PAGE
                                                                                        ----
                                                                                  
   7.6        Exemption from Certain Taxes...........................................    19
ARTICLE VIII  DISTRIBUTION TRUST.....................................................    19
   8.1        Creation...............................................................    19
   8.2        Distribution Trustee...................................................    19
   8.3        Preservation of Causes of Action.......................................    20
   8.4        Reports to be Filed with the Bankruptcy Court..........................    20
   8.5        Payment of Distribution Trust Expenses.................................    21
   8.6        Use of Other Entities..................................................    21
   8.7        Indemnification........................................................    21
   8.8        Tax Treatment..........................................................    21
   8.9        Creation of Trust Accounts.............................................    21
   8.10       Funding of Distribution Trust Expenses Account.........................    22
   8.11       Funding of Priority Claims Trust Account...............................    22
   8.12       Funding of Unsecured Claims Trust Account..............................    23
   8.13       Undeliverable Cash Trust Account.......................................    23
ARTICLE IX    PROVISIONS GOVERNING DISTRIBUTIONS.....................................    23
   9.1        Method of Distributions to Holders of Allowed Claims...................    23
   9.2        Delivery of Distributions..............................................    23
   9.3        Means of Cash Payments.................................................    24
   9.4        Timing and Calculation of Amounts to Be Distributed....................    24
   9.5        Setoffs................................................................    27
   9.6        Compensation and Reimbursement for Services Related to Distributions...    27
   9.7        Payments Limited to Trust Accounts.....................................    27
   9.8        Insufficient Funds.....................................................    27
ARTICLE X     DISPUTED CLAIMS........................................................    28
   10.1       Prosecution of Objections to Claims....................................    28
   10.2       Treatment of Disputed Claims...........................................    28
ARTICLE XI    RETENTION OF JURISDICTION..............................................    28
ARTICLE XII   MISCELLANEOUS PROVISIONS...............................................    29
   12.1       Preservation of Insurance..............................................    29
   12.2       Modification of the Plan...............................................    30
   12.3       Revocation of the Plan.................................................    30
   12.4       Limitation on Certain Actions..........................................    30
   12.5       Severability of Plan Provisions........................................    30



                                       ii

                                TABLE OF CONTENTS
                                   (continued)



                                                                                        PAGE
                                                                                        ----
                                                                                  
   12.6       Notices................................................................    30
   12.7       Successors and Assigns.................................................    31
   12.8       Further Action.........................................................    31
   12.9       Exhibits...............................................................    31



                                       iii

                               TABLE OF EXHIBITS*

Exhibit A -- Distribution Trust Agreement

- ----------
*    The Plan, Disclosure Statement and Distribution Trust Agreement will be
     available on the Document Website promptly following approval of the
     Disclosure Statement by the Bankruptcy Court.


                                       iv

                                  INTRODUCTION

          Alpart Jamaica Inc. ("AJI") and Kaiser Jamaica Corporation ("KJC")
(collectively, the "Debtors") in the above-captioned chapter 11 cases (the
"Chapter 11 Cases") propose the following joint plan of liquidation (the "Plan")
for the resolution of the outstanding claims against and equity interests in the
Debtors.

                                   ARTICLE I

                     DEFINED TERMS, RULES OF INTERPRETATION
                             AND COMPUTATION OF TIME

     1.1  Defined Terms.

          As used in the Plan, capitalized terms have the meanings set forth
below. Any term that is not otherwise defined in the Plan, but that is defined
in the Bankruptcy Code or the Bankruptcy Rules, will have the meaning given to
that term in the Bankruptcy Code or Bankruptcy Rules, as applicable.

     (1) "7-3/4% SWD Revenue Bond Dispute" means Adversary Proceeding No.
04-51165 commenced by the 7-3/4% SWD Revenue Bond Indenture Trustee and certain
holders of 7-3/4% SWD Revenue Bonds in connection with the Kaiser Cases.

     (2) "7-3/4% SWD Revenue Bond Indenture" means the Trust Indenture, dated as
of December 1, 1992, between Parish of St. James, State of Louisiana, and the
7-3/4% SWD Revenue Bond Indenture Trustee, together with all instruments and
agreements related thereto.

     (3) "7-3/4% SWD Revenue Bond Indenture Trustee" means J.P. Morgan Trust
Company, N.A., as successor indenture trustee under the 7-3/4% SWD Revenue Bond
Indenture.

     (4) "7-3/4% SWD Revenue Bonds" means the Parish of St. James, State of
Louisiana, Solid Waste Disposal Revenue Bonds (Kaiser Aluminum Project) Series
1992 issued pursuant to the 7-3/4% SWD Revenue Bond Indenture in an outstanding
principal amount of $20,000,000.

     (5) "9-7/8% Senior Note Claim" means a Claim against a Debtor under or in
respect of one or more 9-7/8% Senior Notes and the 9-7/8% Senior Note Indenture.

     (6) "9-7/8% Senior Note Indenture" means the Indenture, dated as of
February 17, 1994, by and among the Debtors, certain Other Kaiser Debtors
(including KACC) and the 9-7/8% Senior Note Indenture Trustee, as the same may
have been subsequently modified, amended or supplemented, together with all
instruments and agreements related thereto.

     (7) "9-7/8% Senior Note Indenture Trustee" means U.S. Bank National
Association, as successor indenture trustee under the 9-7/8% Senior Note
Indenture.

     (8) "9-7/8% Senior Notes" means the 9-7/8% senior notes due 2002, issued by
KACC pursuant to the 9-7/8% Senior Note Indenture in an outstanding principal
amount of $172,780,000.

     (9) "10-7/8% Senior Note Claim" means a Claim against a Debtor under or in
respect of one or more 10-7/8% Senior Notes and the applicable 10-7/8% Senior
Note Indenture.

     (10) "10-7/8% Senior Note Indentures" means, together, the Indenture, dated
as of October 23, 1996, and the Indenture, dated as of December 23, 1996, in
each case, by and among the Debtors, certain Other Kaiser Debtors (including
KACC) and the 10-7/8% Senior Note Indenture Trustee, as the same may have been
subsequently modified, amended or supplemented, together with all instruments
and agreements related thereto.


                                       1

     (11) "10-7/8% Senior Note Indenture Trustee" means U.S. Bank National
Association, as successor indenture trustee under the 10-7/8% Senior Note
Indentures.

     (12) "10-7/8% Senior Notes" means the 10-7/8% Series B senior notes due
2006 and the 10-7/8% Series D senior notes due 2006, issued by KACC pursuant to
the 10-7/8% Senior Note Indentures in outstanding principal amounts of
$175,000,000 and $50,000,000, respectively.

     (13) "Ad Hoc Group" means the ad hoc group of holders of Senior Notes
comprised of Trilogy Capital, Caspian Capital Partners, Canyon Partners, Citadel
Equity Fund Ltd., Citadel Credit Trading Ltd., Durham Asset Management L.L.C.,
Farallon Capital Management L.L.C. and TCM Spectrum Fund L.P.

     (14) "Administrative Claim" means a Claim for costs and expenses of
administration allowed under sections 503(b), 507(b) or 1114(e)(2) of the
Bankruptcy Code, including: (a) the actual and necessary costs and expenses
incurred after the Petition Date in preserving the respective Estates and
operating the businesses of the Debtors; (b) Professional Fee Claims; and (c) US
Trustee Fees; provided, however, except as provided in the Intercompany Claims
Settlement, Administrative Claims will not include any Intercompany Claim.

     (15) "Administrative Claim Bar Date" means the date by which all requests
for payment of Administrative Claims (other than Professional Fee Claims and US
Trustee Fees) are required to be Filed with the Bankruptcy Court.

     (16) "Administrative Claim Bar Date Order" means the order of the
Bankruptcy Court establishing the Administrative Claim Bar Date.

     (17) "Allowed Claim" means:

     (a)  a Claim that (i) has been listed by a particular Debtor on its
          Schedules as other than disputed, contingent, or unliquidated and (ii)
          is not otherwise a Disputed Claim;

     (b)  a Claim (i) for which a proof of Claim or request for payment of
          Administrative Claim has been Filed by the applicable Bar Date or
          otherwise been deemed timely Filed under applicable law and (ii) that
          is not otherwise a Disputed Claim; or

     (c)  a Claim that is allowed: (i) in any Stipulation of Amount and Nature
          of Claim executed by the applicable Debtor and Claim holder prior to
          the Effective Date and approved by the Bankruptcy Court; (ii) in any
          Stipulation of Amount and Nature of Claim executed by the Distribution
          Trustee and Claim holder after the Effective Date; (iii) in any
          contract, instrument or other agreement or document entered into in
          connection with the Plan prior to the Effective Date and approved by
          the Bankruptcy Court; (iv) in a Final Order; or (v) pursuant to the
          terms of the Plan.

     (18) "Alpart Proceeds" means the net Cash proceeds allocable to AJI and KJC
in the aggregate in connection with the sale of their respective interests in
Alumina Partners of Jamaica Inc. pursuant to the Alpart Purchase Agreement,
after taking into account the costs and expenses of the sale payable by AJI and
KJC in accordance with the Intercompany Claims Settlement and the satisfaction
of any applicable Allowed Secured Claim with a valid and enforceable Lien
against such proceeds.

     (19) "Alpart Purchase Agreement" means that certain Purchase Agreement,
dated as of June 8, 2004, by and among KACC, Kaiser Aluminum International,
Inc., Kaiser Bauxite Company, KJC and AJI and Quality Incorporations I Limited.

     (20) "Ballot" means the form or forms distributed to each holder of an
impaired Claim entitled to vote on the Plan on which the holder indicates
acceptance or rejection of the Plan.

     (21) "Bankruptcy Code" means title 11 of the United States Code, 11 U.S.C.
Sections 101-1130, as now in effect or hereafter amended, as applicable to the
Chapter 11 Cases.


                                       2

     (22) "Bankruptcy Court" means the United States District Court for the
District of Delaware having jurisdiction over the Chapter 11 Cases and, to the
extent of any reference made pursuant to 28 U.S.C. Section 157, the bankruptcy
unit of such District Court.

     (23) "Bankruptcy Rules" means, collectively, the Federal Rules of
Bankruptcy Procedure and the local rules of the Bankruptcy Court, as now in
effect or hereafter amended, as applicable to the Chapter 11 Cases.

     (24) "Bar Date" means the applicable bar date by which a proof of Claim
must be or must have been Filed, as established by order of the Bankruptcy
Court, including the general Bar Date of May 15, 2003.

     (25) "Bar Date Order" means an order of the Bankruptcy Court establishing
Bar Dates for Filing proofs of Claims in the Chapter 11 Cases, as the same may
be amended, modified or supplemented, including the order entered March 17,
2003.

     (26) "Beneficiaries" means the creditors and claimants of the Estates.

     (27) "Business Day" means any day, other than a Saturday, Sunday or "legal
holiday" (as defined in Bankruptcy Rule 9006(a)).

     (28) "Cash" means the legal tender of the United States of America.

     (29) "Chapter 11 Cases" has the meaning set forth in the introductory
paragraph of the Plan.

     (30) "Claim" means a "claim," as defined in section 101(5) of the
Bankruptcy Code, against either Debtor.

     (31) "Claims Objection Bar Date" means, for all Claims, other than those
Claims allowed in accordance with Sections 1.1(17) and 2.7, the latest of: (a)
120 days after the Effective Date; (b) 60 days after the Filing of a proof of
Claim for such Claim; and (c) such other period of limitation for objecting to
such Claim as may be specifically fixed by the Plan, the Confirmation Order or a
Final Order.

     (32) "Claims Report" means, with respect to each Estate, a report certified
by the claims agent for such Estate setting forth: (a) a listing, as of the
Effective Date, of: (i) all Allowed Secured Claims of such Estate; (ii) all
Allowed Administrative Claims of such Estate; (iii) all Allowed Priority Claims
of such Estate, (iv) all Allowed Priority Tax Claims of such Estate; (v) all
Allowed Unsecured Claims of such Estate; and (vi) all Disputed Claims of such
Estate; and (b) for each Claim so listed (i) the name, address and federal
taxpayer identification number or social security number (if known) of the
holder thereof as of the Distribution Record Date and (ii) the amount thereof,
including the amount of unpaid principal and accrued interest (if known).

     (33) "Class" means a class of Claims or Interests, as described in Article
II.

     (34) "Confirmation Date" means the date on which the Bankruptcy Court
enters the Confirmation Order on its docket, within the meaning of Bankruptcy
Rules 5003 and 9021.

     (35) "Confirmation Hearing" means the hearing before the Bankruptcy Court
to consider confirmation of the Plan pursuant to section 1129 of the Bankruptcy
Code, as such hearing may be continued from time to time.

     (36) "Confirmation Order" means the order or orders of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.

     (37) "Contractual Subordination Disputes" means any or all of the following
matters pending in the Kaiser Cases: (i) the 7-3/4% SWD Revenue Bond Dispute;
(ii) the motion filed on August 14, 2004, by the Senior Subordinated Note
Indenture Trustee to determine the classification of the Senior Subordinated
Note Claims under any plan of reorganization filed by the Debtors or the Other
Kaiser Debtors that guaranteed the Senior Subordinated


                                       3

Notes (including the Plan), and (iii) the adversary proceeding filed August 16,
2004, and styled U.S. Bank National Association v. Kaiser Aluminum & Chemical
Corporation, Adv. Pro. No. 04-55115 (JFK).

     (38) "Creditors' Committee" means the official committee of unsecured
creditors of the Debtors and the Other Kaiser Debtors appointed by the US
Trustee pursuant to section 1102 of the Bankruptcy Code in the Kaiser Cases, as
such appointment has been subsequently modified.

     (39) "Debtors" has the meaning set forth in the introductory paragraph of
the Plan.

     (40) "Disbursing Agent" means the Distribution Trustee, in its capacity as
a disbursing agent pursuant to the Plan, or any third party acting as disbursing
agent at the direction of the Distribution Trustee.

     (41) "Disclosure Statement" means the disclosure statement that relates to
the Plan (including all Exhibits), as approved by the Bankruptcy Court pursuant
to section 1125 of the Bankruptcy Code, as the same may be amended, modified or
supplemented.

     (42) "Disputed Claim" means:

     (a)  if no proof of Claim has been Filed by the applicable Bar Date or has
          otherwise been deemed timely Filed under applicable law: (i) a Claim
          that is listed on a Debtor's Schedules as other than disputed,
          contingent or unliquidated, but as to which the applicable Debtor or
          the Distribution Trustee, or prior to the Confirmation Date, any other
          party in interest, has Filed an objection by the Claims Objection Bar
          Date and such objection has not been withdrawn or denied by a Final
          Order; or (ii) a Claim that is listed on a Debtor's Schedules as
          disputed, contingent or unliquidated; or

     (b)  if a proof of Claim or proof of Administrative Claim has been Filed by
          the Bar Date or has otherwise been deemed timely Filed under
          applicable law: (i) a Claim for which no corresponding Claim is listed
          on a Debtor's Schedules; (ii) a Claim for which a corresponding Claim
          is listed on a Debtor's Schedules as other than disputed, contingent
          or unliquidated, but the nature or amount of the Claim as asserted in
          the proof of Claim varies from the nature and amount of such Claim as
          it is listed on the Schedules; (iii) a Claim for which a corresponding
          Claim is listed on a Debtor's Schedules as disputed, contingent or
          unliquidated; or (iv) a Claim for which an objection has been Filed by
          the applicable Debtor or the Distribution Trustee or, prior to the
          Confirmation Date, any other party in interest, by the Claims
          Objection Bar Date, and such objection has not been withdrawn or
          denied by a Final Order.

     (43) "Disputed Claims Reserves" means, with respect to each of the Trust
Accounts, the reserve of Cash retained in such Trust Account to satisfy Disputed
Claims against the Estate of AJI or the Estate of KJC, if, as and when they are
allowed, or, to the extent such Disputed Claims are not allowed, to satisfy
Claims that are allowed in accordance with the terms of the Plan.

     (44) "Distribution Record Date" means the close of business on the
Confirmation Date.

     (45) "Distribution Trust" means the trust established pursuant to the Plan,
among other things, to hold the Distribution Trust Assets and make distributions
pursuant to the Plan.

     (46) "Distribution Trust Agreement" means the trust agreement, to be dated
on or prior to the Effective Date, between the Debtors and the Distribution
Trustee, governing the Distribution Trust, which will be substantially in the
form of Exhibit A to the Plan.

     (47) "Distribution Trust Assets" means collectively: (a) the Trust Accounts
and any Cash held by such Trust Accounts; (b) the rights of the Debtors under or
in respect of the Intercompany Claims Settlement, the Alpart Purchase Agreement
or any causes of action not released by the Plan, including the Recovery
Actions, and any proceeds thereof; and (c) the Alpart Proceeds to the extent
that such funds are not included in (a) or (b).


                                       4

     (48) "Distribution Trust Expenses" means any and all reasonable fees, costs
and expenses incurred by the Distribution Trustee (or any Disbursing Agent,
person, entity or professional engaged by the Distribution Trustee) in
connection with the performance by the Distribution Trustee of its duties under
the Plan or Distribution Trust Agreement.

     (49) "Distribution Trust Expenses Account" means the segregated trust
account to be established and maintained pursuant to Sections 8.9 and 8.10 to
fund the payment of Distribution Trust Expenses.

     (50) "Distribution Trustee" means the trustee selected by the Creditors'
Committee with the consent of the Debtors and identified in the Distribution
Trust Agreement (or any successor trustee), in its capacity as the trustee of
the Distribution Trust.

     (51) "Document Website" means the Internet site with the address
www.kaiseraluminum.com at which the Plan, the Disclosure Statement and all of
the Exhibits and schedules to the Plan and to the Disclosure Statement will be
available, without charge, to any party in interest and the public.

     (52) "Effective Date" means a day, as determined by the Debtors, that is
the Business Day as soon as reasonably practicable after all conditions to the
Effective Date have been satisfied or waived pursuant to the Plan.

     (53) "Equity Claim" means a legal, equitable or contractual Claim arising
from any share or other stock ownership interest in a Debtor, whether or not
transferable or denominated "stock", or similar security, and any options,
warrants, convertible security, liquidation preference or other right to acquire
such shares or other stock ownership interests, including but not limited to
Claims arising from rescission of the purchase or sale of such stock ownership
interests, for damages arising from the purchase or sale of a such stock
ownership interest, or for reimbursement or contribution on account of such
Claim.

     (54) "Estate" means, as to each Debtor, the estate created for that Debtor
in its Chapter 11 Case pursuant to section 541 of the Bankruptcy Code.

     (55) "Executory Contract and Unexpired Lease" means a contract or lease to
which one or both of the Debtors is a party that is subject to assumption,
assumption and assignment or rejection under section 365 of the Bankruptcy Code.

     (56) "Face Amount" means, when used with reference to a Disputed Claim: (a)
the full stated amount claimed by the holder of such Claim in any proof of Claim
Filed by the Bar Date or otherwise deemed timely Filed under applicable law, if
the proof of Claim specifies only a liquidated amount; or (b) if no proof of
Claim has been Filed by the Bar Date or has otherwise been deemed timely Filed
under applicable law, or if the proof of Claim specified an unliquidated amount,
the amount of the Claim (i) acknowledged by the applicable Debtor in any
objection Filed to such Claim or in the Schedules as an undisputed,
noncontingent, and liquidated Claim, (ii) estimated by the Bankruptcy Court
pursuant to section 502(c) of the Bankruptcy Code, (iii) proposed by the
applicable Debtor and approved by the Creditors' Committee prior to the
Effective Date, or (iv) established by the Distribution Trustee on behalf of the
Distribution Trust following the Effective Date; or (c) if neither (a) nor (b)
above are applicable, an amount estimated by the applicable Debtor or the
Distribution Trustee, but such estimated amount will be no less than either (i)
the amount of the claim estimated by the Bankruptcy Court or (ii) the liquidated
portion of the amount claimed by the holder of such Claim in any proof of Claim
Filed by the Bar Date or otherwise deemed timely Filed under applicable law.

     (57) "File," "Filed" or "Filing" means file, filed or filing with the
Bankruptcy Court or its authorized designee in the Chapter 11 Cases.

     (58) "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


                                       5

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.

     (59) "Indenture Trustee" means the 9-7/8% Senior Note Indenture Trustee,
10-7/8% Senior Note Indenture Trustee, Senior Subordinated Note Indenture
Trustee or 7-3/4% SWD Revenue Bond Indenture Trustee, or any successor thereto.

     (60) "Intercompany Claim" means a Claim held by a debtor in the Kaiser
Cases against another debtor in any of the Kaiser Cases.

     (61) "Intercompany Claims Settlement" means the settlement and release
agreement among the debtors in the Kaiser Cases and the Creditors' Committee,
dated as of October 5, 2004, in such form as approved by the Intercompany Claims
Settlement Order.

     (62) "Intercompany Claims Settlement Order" means the order of the
Bankruptcy Court approving the settlement of all claims by debtors in any of the
Kaiser Cases against another debtor in any of the Kaiser Cases pursuant to the
Intercompany Claims Settlement entered on February 1, 2005.

     (63) "Interest" means (a) any share or other stock ownership interest in a
Debtor, whether or not transferable or denominated "stock", or similar security,
and any options, warrants, convertible security, liquidation preference or other
right to acquire such shares or other stock ownership interests and (b) any
Equity Claim.

     (64) "IRC" means the Internal Revenue Code of 1986, as amended.

     (65) "Jamaican Tax Claims" means collectively the Allowed Priority Tax
Claims and Allowed Administrative Claims of the Government of Jamaica
contemplated by Section 8.11(a), if any.

     (66) "KAAC" means Kaiser Alumina Australia Corporation.

     (67) "KAAC/KFC Plan" means the third amended joint plan of liquidation
filed by KAAC and KFC on February 25, 2005, as such plan may be amended,
modified or supplemented from time to time with the consent of the Creditors'
Committee.

     (68) "KACC" means Kaiser Aluminum & Chemical Corporation.

     (69) "Kaiser Cases" means the chapter 11 cases styled "In re Kaiser
Aluminum Corporation, a Delaware Corporation, et al." jointly administered under
Case No. 02-10429 (JKF) in the United States District Bankruptcy Court for the
District of Delaware.

     (70) "KFC" means Kaiser Finance Corporation.

     (71) "Lien" means any mortgage, pledge, deed of trust, assessment, security
interest, lease, adverse claim, levy, charge or other encumbrance of any kind,
including any "lien" as defined in section 101 (37) of the Bankruptcy Code, or a
conditional sale contract, title retention contract or other contract to give
any of the foregoing.

     (72) "Liquidating Transactions" means the transactions set forth in the
first sentence of Section 7.1 to effectuate a liquidation of the Debtors.

     (73) "Other Kaiser Debtor" means any of the debtors in the Kaiser Cases
except the Debtors.

     (74) "Other Unsecured Claim" means an Unsecured Claim other than a Senior
Note Claim, a Senior Subordinated Note Claim or a PBGC Claim.


                                       6

     (75) "Other Unsecured Claims Percentage" means the percentage equaling the
ratio of (a) the aggregate amount of all allowed Other Unsecured Claims to (b)
the sum of (i) the aggregate amount of all allowed Other Unsecured Claims and
(ii) $1,369,073,000.

     (76) "PBGC" means the Pension Benefit Guaranty Corporation.

     (77) "PBGC Claims" means the Claims (excluding any Administrative Claims)
of the PBGC against the Debtors arising from or relating to the pension plans
which were or are maintained by any of the Other Kaiser Debtors in the Kaiser
Cases and guaranteed by the PBGC, as such Claims are allowed pursuant to the
PBGC Settlement Agreement.

     (78) "PBGC Percentage" means (a) 32% less (b) 32% of the Other Unsecured
Claims Percentage.

     (79) "PBGC Settlement Agreement" means the agreement among KACC and the
PBGC, dated as of October 14, 2004.

     (80) "Pending Payments" means identified amounts (excluding undeliverable
Cash) held by the Distribution Trust for distribution to holders of Allowed
Claims in specific amounts as of the date the Distribution Trust receives the
applicable Distribution Trust Assets.

     (81) "Permitted Investment" has the meaning ascribed thereto in the
Distribution Trust Agreement.

     (82) "Petition Date" means January 14, 2003.

     (83) "Plan" means this joint plan of liquidation for the Debtors, to the
extent applicable to either Debtor, and all Exhibits attached hereto or
referenced herein, as any of the same may be amended, modified or supplemented
from time to time.

     (84) "Priority Claim" means a Claim that is entitled to priority in payment
pursuant to section 507(a) of the Bankruptcy Code that is not an Administrative
Claim or a Priority Tax Claim.

     (85) "Priority Claims Trust Account" means the segregated trust account to
be established and maintained by the Distribution Trustee pursuant to Sections
8.9 and 8.11 to satisfy Allowed Secured Claims, Allowed Administrative Claims,
Allowed Priority Claims and Allowed Priority Tax Claims against the Estate of
AJI or the Estate of KJC.

     (86) "Priority Tax Claim" means a Claim arising under U.S. federal, state
or local tax laws that is entitled to priority in payment pursuant to section
507(a)(8) of the Bankruptcy Code.

     (87) "Professional Fee Claims" means the Claims of (a) any professional in
the Chapter 11 Cases pursuant to sections 330 or 1103 of the Bankruptcy Code or
(b) any professional or other entity seeking compensation or reimbursement of
expenses in connection with the Chapter 11 Cases pursuant to sections 503(b)(3),
503(b)(4) or 503(b)(5) of the Bankruptcy Code.

     (88) "Pro Rata Share" means, when used with reference to a distribution to
a holder of an Allowed Claim in a Subclass of Class 3, that share of Cash to be
distributed on account of all Allowed Claims in such Subclass so that the ratio
of (a)(i) the amount of Cash to be distributed on account of the particular
Allowed Claim to (ii) the amount of such Claim, is the same as the ratio of
(b)(i) the aggregate amount of Cash to be distributed on account of all Allowed
Claims in such Subclass to (ii) the aggregate amount of all Allowed Claims in
such Subclass.

     (89) "Public Note Claims" means Claims arising under the Public Notes.

     (90) "Public Note Distributable Consideration" means (a) the Public Note
Percentage of the Cash in the Unsecured Claims Trust Account and (b) Cash in the
amount of the aggregate fees payable under Section 2.6(a) up


                                       7

to an aggregate amount not to exceed $1,500,000 (with such Cash to be allocated
from the Distribution Trust Assets in accordance with Section 8.12(a) prior to
the funding of the Unsecured Claims Trust Account).

     (91) "Public Note Percentage" means (a) 68% less (b) 68% of the Other
Unsecured Claims Percentage.

     (92) "Public Notes" means any of (a) the 9-7/8% Senior Notes, (b) the
10-7/8% Senior Notes, or (c) the Senior Subordinated Notes.

     (93) "Quarterly Distribution Date" means, with respect to distributions
subsequent to the initial distributions pursuant to Section 9.4, the last
Business Day of the month following the end of each calendar quarter after the
Effective Date; provided, however, that if the Effective Date is within 45 days
of the end of a calendar quarter, the first Quarterly Distribution Date will be
the last Business Day of the month following the end of the first calendar
quarter after the calendar quarter in which the Effective Date falls.

     (94) "Recovery Actions" means, collectively and individually, preference
actions, fraudulent conveyance actions, rights of setoff, and other claims or
causes of action under chapter 5 of the Bankruptcy Code and other applicable
bankruptcy or nonbankruptcy law.

     (95) "Schedules" means the schedules of assets and liabilities and the
statements of financial affairs Filed by the Debtors, as required by section 521
of the Bankruptcy Code, as the same may be amended, modified or supplemented by
the Debtors from time to time.

     (96) "Secured Claim" means a Claim that is secured by a Lien on property in
which an Estate has an interest or that is subject to setoff under section 553
of the Bankruptcy Code, to the extent of the value of the Claim holder's
interest in the applicable Estate's interest in such property or to the extent
of the amount subject to setoff, as applicable, as determined pursuant to
sections 506(a) and, if applicable, 1129(b) of the Bankruptcy Code.

     (97) "Senior Note Claims" means 9-7/8% Senior Note Claims and 10-7/8%
Senior Note Claims.

     (98) "Senior Subordinated Note Claim" means a Claim against a Debtor under
or in respect of one or more Senior Subordinated Notes and the Senior
Subordinated Note Indenture.

     (99) "Senior Subordinated Note Indenture" means the Indenture, dated as of
February 1, 1993, by and among the Debtors, certain Other Kaiser Debtors
(including KACC) and the Senior Subordinated Note Indenture Trustee, as the same
may have been subsequently modified, amended or supplemented, together with all
instruments and agreements related thereto.

     (100) "Senior Subordinated Note Indenture Trustee" means Law Debenture
Trust Company of New York, as successor indenture trustee under the Senior
Subordinated Note Indenture.

     (101) "Senior Subordinated Notes" means the 12-3/4% senior subordinated
notes due 2003 issued by KACC, pursuant to the Senior Subordinated Note
Indenture in the outstanding aggregate principal amount of $400,000,000.

     (102) "Settlement Percentage" means the percentage equaling the ratio of
(a) $4,000,000 to (b) 51.42% of the Public Note Percentage of the Cash in the
Unsecured Claims Trust Account.

     (103) "Steering Committee" means a committee comprised of the members of
the Alumina Creditor Subcommittee (as defined in the Intercompany Claims
Settlement) other than any member thereof that is (a) a holder of a Senior
Subordinated Note Claim or (b) the Senior Subordinated Note Indenture Trustee.

     (104) "Stipulation of Amount and Nature of Claim" means a stipulation or
other agreement between the applicable Debtor or Distribution Trustee and a
holder of a Claim or Interest, or an agreed order of the Bankruptcy Court,
establishing the amount and nature of a Claim or Interest.


                                       8

     (105) "Tax" means: (a) any net income, alternative or add-on minimum, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, property, environmental or other tax, assessment or
charge of any kind whatsoever (together in each instance with any interest,
penalty, addition to tax or additional amount) imposed by any U.S. federal,
state, local or foreign taxing authority; or (b) any liability for payment of
any amounts of the foregoing types as a result of being a member of an
affiliated, consolidated, combined or unitary group, or being a party to any
agreement or arrangement whereby liability for payment of any such amounts is
determined by reference to the liability of any other entity.

     (106) "Trust Accounts" means, collectively, the Distribution Trust Expenses
Account, the Priority Claims Trust Account, the Unsecured Claims Trust Account
and the Undeliverable Cash Trust Account.

     (107) "Undeliverable Cash Trust Account" means the segregated trust account
to be established and maintained by the Distribution Trustee pursuant to
Sections 8.9 and 8.13 to hold undeliverable Cash for the benefit of holders of
Allowed Unsecured Claims against the Estate of AJI or the Estate of KJC
otherwise entitled to such distributions.

     (108) "Unsecured Claim" means any Claim that is not an Administrative
Claim, Priority Claim, Priority Tax Claim, Secured Claim or Intercompany Claim
and includes, without limitation, Senior Note Claims, Senior Subordinated Note
Claims and the PBGC Claims.

     (109) "Unsecured Claims Trust Account" means the segregated trust account
to be established and maintained by the Distribution Trustee pursuant to
Sections 8.9 and 8.12 to satisfy Allowed Unsecured Claims against the Estate of
AJI or the Estate of KJC.

     (110) "US Trustee Fees" means all fees and charges assessed against the
Estates under chapter 123 of title 28, United States Code, 28 U.S.C. Sections
1911-1930.

     1.2  Rules of Interpretation.

          For purposes of the Plan, unless otherwise provided herein: (a)
whenever from the context it is appropriate, each term, whether stated in the
singular or the plural, will include both the singular and the plural; (b)
unless otherwise provided in the Plan, any reference in the Plan to a contract,
instrument, release, or other agreement or document being in a particular form
or on particular terms and conditions means that such document will be
substantially in such form or substantially on such terms and conditions; (c)
any reference in the Plan to an existing document or Exhibit Filed or to be
Filed means such document or Exhibit, as it may have been or may be amended,
modified or supplemented pursuant to the Plan or Confirmation Order; (d) any
reference to an entity as a holder of a Claim or Interest includes that entity's
successors and assigns and affiliates; (e) all references in the Plan to
Sections, Articles and Exhibits are references to Sections, Articles and
Exhibits of or to the Plan; (f) the words "herein," "hereunder" and "hereto"
refer to the Plan in its entirety rather than to a particular portion of the
Plan; (g) captions and headings to Articles and Sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the interpretation of the Plan; (h) subject to the provisions of any
certificates of incorporation, by-laws or similar constituent documents or any
contract, instrument, release or other agreement or document entered into or
delivered in connection with the Plan, the rights and obligations arising under
the Plan will be governed by, and construed and enforced in accordance with,
federal law, including the Bankruptcy Code and the Bankruptcy Rules; and (i) the
rules of construction set forth in section 102 of the Bankruptcy Code will
apply.

     1.3  Computation of Time.

          In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) will apply.


                                       9

                                   ARTICLE II

              CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS

     2.1 General. All Claims and Interests, except Administrative Claims and
Priority Tax Claims, are placed in Classes. In accordance with section
1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority Tax Claims
have not been classified and thus are excluded from the Classes. A Claim or
Interest is classified in a particular Class only to the extent that the Claim
or Interest qualifies within the description of that Class and is classified in
other Classes to the extent that any remainder of the Claim or Interest
qualifies within the description of such other Classes.

     (a)  Unimpaired Classes of Claims.

          Class 1 (Priority Claims): Priority Claims against either of the
          Debtors.

          Class 2 (Secured Claims): Secured Claims against either of the
          Debtors.

     (b)  Impaired Classes of Claims and Interests.

          Class 3 (Unsecured Claims): Unsecured Claims against either of the
          Debtors other than Claims otherwise classified under the Plan,
          subclassified as follows:

               Subclass 3A: Senior Note Claims against the Debtors.

               Subclass 3B: Senior Subordinated Note Claims against the Debtors.

               Subclass 3C: PBGC Claims against the Debtors.

               Subclass 3D: Other Unsecured Claims against either of the
               Debtors.

          Class 4 (Intercompany Claims): Intercompany Claims against the
          Debtors.

          Class 5 (Interests in the Debtors): Interests in either of the
          Debtors.

     2.2 Administrative Claims.

     (a) Administrative Claims in General. Except as otherwise provided herein
or unless otherwise agreed by the holder of an Administrative Claim and the
applicable Debtor or the Distribution Trustee, each holder of an Allowed
Administrative Claim will receive, in full satisfaction of its Administrative
Claim, Cash from the Priority Claims Trust Account in an amount equal to the
allowed amount of such Administrative Claim either (a) on or promptly after the
Effective Date or (b) if the Administrative Claim is not allowed as of the
Effective Date, on or promptly after the date that is 30 days after the date on
which (i) an order allowing such Administrative Claim becomes a Final Order or
(ii) a Stipulation of Amount and Nature of Claim is executed by the Distribution
Trustee and the holder of the Administrative Claim. Pursuant to the PBGC
Settlement Agreement, the PBGC has agreed not to assert any Administrative
Claims against the Debtors.

     (b) US Trustee Fees. On or before the Effective Date, Administrative Claims
for fees payable pursuant to 28 U.S.C. Section 1930, as determined by the
Bankruptcy Court at the Confirmation Hearing, will be paid by the applicable
Debtor or the Distribution Trustee in Cash equal to the amount of such
Administrative Claims. All fees payable pursuant to 28 U.S.C. Section 1930 will
be paid by the Distribution Trustee in accordance herewith from the Priority
Claims Trust Account until the closing of the Chapter 11 Cases pursuant to
section 350(a) of the Bankruptcy Code.


                                       10

     (c)  Bar Dates for Administrative Claims.

     (i)  General Bar Date Provisions. As provided in the Administrative Claim
          Bar Date Order, any holder of an Administrative Claim against a Debtor
          that was required to File and serve a request for payment of such
          Administrative Claim and does not File and serve such a request in
          accordance with the Administrative Claim Bar Date Order by the
          Administrative Claim Bar Date, will be forever barred from asserting
          such Administrative Claim against the Debtors, the Distribution
          Trustee or the property of any of them, or the Trust Accounts, and
          such Administrative Claim will be deemed waived and released as of the
          Effective Date. Objections to an Administrative Claim must be Filed by
          the Distribution Trustee and served on the requesting party by the
          later of (A) 45 days after the Effective Date and (B) 60 days after
          the Filing of the request for payment of an Administrative Claim.

     (ii) Bar Dates for Professional Fees. Except as otherwise set forth herein
          or in the Intercompany Claims Settlement, professionals or other
          entities asserting a Professional Fee Claim for services rendered
          solely with respect to the Debtors before the Effective Date must File
          and serve on the Debtors and the Distribution Trustee and such other
          entities who are designated by the Bankruptcy Rules, the Confirmation
          Order or other order of the Bankruptcy Court, an application for final
          allowance of such Fee Claim no later than 60 days after the Effective
          Date. Objections, including any objections by the US Trustee, to any
          Professional Fee Claim must be Filed and served on the Distribution
          Trustee and the requesting party by the later of (A) 90 days after the
          Effective Date and (B) 30 days after the Filing of the applicable
          request for payment of the Professional Fee Claim. To the extent
          necessary, the Confirmation Order will amend and supersede any
          previously entered order of the Bankruptcy Court regarding the payment
          of Professional Fee Claims (other than the Intercompany Claim
          Settlement Order) solely with respect to the Debtors.

          To the extent that any professional has provided services in the
          Kaiser Cases, the Bar Date for Professional Fee Claims in this Section
          2.2(c)(ii) relates only to such professional's fees for services and
          reimbursement of expenses reasonably allocable by such Professional
          solely to the Debtors and not otherwise treated pursuant to the
          Intercompany Claims Settlement Order; Claims relating to such
          professional's fees for services and reimbursement of expenses to the
          Other Kaiser Debtors may be sought against the estates of such Other
          Kaiser Debtors. The failure of a professional to allocate any
          particular charges to the Debtors will not foreclose, waive or affect
          in any way the professional's right to seek allowance and payment of
          such charges from the Other Kaiser Debtors.

     2.3  Priority Tax Claims.

     (a) Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, unless
otherwise agreed by the holder of a Priority Tax Claim and the applicable Debtor
or the Distribution Trustee, each holder of an Allowed Priority Tax Claim will
receive, in full satisfaction of its Priority Tax Claim, the full amount thereof
in Cash, without postpetition interest or penalty, from the Priority Claims
Trust Account as soon as practicable after the later of (i) the Effective Date
and (ii) the date on which the Priority Tax Claim becomes an Allowed Claim.

     (b) Notwithstanding the provisions of Section 2.3(a), the holder of an
Allowed Priority Tax Claim will not be entitled to receive any payment on
account of any penalty arising with respect to or in connection with the Allowed
Priority Tax Claim. Any such Claim or demand for any such penalty (i) will be
subject to treatment in Subclass 3D and (ii) the holder of an Allowed Priority
Tax Claim will not be entitled to assess or attempt to collect such penalty from
the Debtors, the Distribution Trustee, their properties or the Trust Accounts
(other than as the holder of an Allowed Subclass 3D Claim).

     2.4  Classified Claims.

     (a) Class 1 - Priority Claims. On the later of the Effective Date and the
date on which a Priority Tax Claim is allowed, each holder of an Allowed
Priority Claim will, in full and complete settlement and satisfaction of such
Claim, receive either: (i) Cash in the amount of such holder's Allowed Priority
Claim without interest or


                                       11

penalty; or (ii) such other treatment as may be agreed upon in writing by such
holder and the Debtors or the Distribution Trustee. Class 1 is unimpaired under
the Plan. Each holder of an Allowed Priority Claim is conclusively presumed to
have accepted the Plan and is not entitled to vote on the Plan.

     (b) Class 2 - Secured Claims. On the later of the Effective Date and the
date on which a Secured Claim is allowed, each holder of an Allowed Secured
Claim will, in full and complete settlement and satisfaction of such Claim, at
the sole option of the Debtors, receive either (i) Cash in an amount equal to
such Allowed Secured Claim, including such interest as is required to be paid
pursuant to section 506(b) of the Bankruptcy Code; or (ii) the collateral
securing such Allowed Secured Claim and Cash from the Priority Claims Trust
Account an amount equal to such interest as is required to be paid pursuant to
section 506(b) of the Bankruptcy Code. Class 2 is unimpaired under the Plan.
Each holder of an Allowed Secured Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote on the Plan.

     (c) Class 3 - Unsecured Claims. Subclass 3A, Subclass 3B, Subclass 3C and
Subclass 3D are impaired under the Plan and holders of Allowed Claims in each of
such Subclasses are entitled to vote on the appropriate Ballot to accept or
reject the Plan. For voting purposes, each Subclass will vote as a separate
class.

     (i)  Subclass 3A (Senior Note Claims):

          (A)  Plan Accepted by Subclass 3A and Subclass 3B. On the Effective
               Date, if both Subclass 3A and Subclass 3B vote to accept the Plan
               in accordance with section 1126(c) of the Bankruptcy Code, each
               holder of an Allowed Senior Note Claim will, in full and complete
               satisfaction of such Claim, be entitled to receive Cash from the
               Unsecured Claims Trust Account equal to its Pro Rata Share of the
               Public Note Distributable Consideration remaining after first
               giving effect to the following payments on the Effective Date by
               the Distribution Trustee from the Public Note Distributable
               Consideration: (I) the payment to be made to the 7-3/4% SWD
               Revenue Bond Indenture Trustee for the benefit of the holders of
               the 7-3/4% SWD Revenue Bonds pursuant to Section 2.5 and the
               payment of all amounts payable pursuant to Section 2.6(b); (II)
               the payment of all amounts payable pursuant to Section 2.6(a);
               and (III) the payment of $8,000,000 to be made to the Senior
               Subordinated Note Indenture Trustee for the benefit of the
               holders of Senior Subordinated Note Claims. If both Subclass 3A
               and Subclass 3B vote to accept the Plan, as of the Effective Date
               the treatment provided pursuant to this Section 2.4(c)(i)(A) and
               Section 2.4(c)(ii)(A) will be deemed to be in full and complete
               satisfaction of any and all obligations of holders of Senior
               Subordinated Note Claims relating to the contractual
               subordination provisions under the Senior Subordinated Note
               Indenture and any and all claims of holders of Senior Note Claims
               relating to the contractual subordination provisions of the
               Senior Subordinated Note Indenture, as such obligations and
               claims relate to AJI and KJC.

          (B)  Plan Rejected by Subclass 3A or Subclass 3B. If either Subclass
               3A or Subclass 3B fails to accept the Plan in accordance with
               section 1126(c) of the Bankruptcy Code, the obligations of
               holders of Senior Subordinated Note Claims relating to the
               contractual subordination provisions of the Senior Subordinated
               Note Indenture and the claims of holders of Senior Note Claims
               relating to the contractual subordination provisions of the
               Senior Subordinated Note Indenture, as such obligations and
               claims relate to AJI and KJC, will be preserved under the Plan to
               the extent enforceable under section 510(a) of the Bankruptcy
               Code. In such event: (I) the holders of Senior Note Claims will
               not become entitled to receive the distribution described in
               Section 2.4(c)(i)(A); and (II) the Bankruptcy Court will enter an
               order (which will be the Confirmation Order) pursuant to which
               the Bankruptcy Court will determine the respective entitlement of
               the holders of Allowed 9-7/8% Senior Note Claims, Allowed 10-7/8%
               Senior Note Claims, Allowed Senior Subordinated Note Claims and,
               if applicable under Section 2.5(b), 7-3/4% SWD Revenue Bonds to
               the Public Note Distributable Consideration. The distributions
               ultimately made to a holder of an Allowed Senior Note Claim in
               accordance with this Section 2.4(c)(i)(B) will be reduced by such
               holder's proportional share of (x) all amounts


                                       12

               payable pursuant to Section 2.6(a) and (y) if the Bankruptcy
               Court determines that holders of Allowed Senior Subordinated Note
               Claims are not entitled to any portion of the Public Note
               Distributable Consideration, the payment, if any, to be made to
               the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of
               the holders of 7-3/4% SWD Revenue Bonds pursuant to Section 2.5
               (or a reservation in lieu thereof in accordance with Section
               2.5(b)) and any amounts payable pursuant to Section 2.6(b).

     (ii) Subclass 3B (Senior Subordinated Note Claims):

          (A)  Plan Accepted by Subclass 3A and Subclass 3B. On the Effective
               Date, if both Subclass 3A and Subclass 3B vote to accept the Plan
               in accordance with section 1126(c) of the Bankruptcy Code, each
               holder of an Allowed Senior Subordinated Note Claim will, in full
               and complete satisfaction of such Claim, be entitled to receive
               its Pro Rata Share of $8,000,000 in Cash to be paid to the Senior
               Subordinated Note Indenture Trustee as contemplated by clause
               (III) of the first sentence of Section 2.4(c)(i)(A), provided
               that any and all fees or expenses payable to the Senior
               Subordinated Note Indenture Trustee pursuant to the Senior
               Subordinated Note Indenture will, in all events, be payable
               solely from such $8,000,000. If both Subclass 3A and Subclass 3B
               vote to accept the Plan, as of the Effective Date the treatment
               provided pursuant to Section 2.4(c)(i)(A) and this Section
               2.4(c)(ii)(A) will be deemed to be in full and complete
               satisfaction of any and all obligations of holders of Senior
               Subordinated Note Claims relating to the contractual
               subordination provisions under the Senior Subordinated Note
               Indenture and any and all claims of holders of Senior Note Claims
               relating to the contractual subordination provisions of the
               Senior Subordinated Note Indenture, as such obligations and
               claims relate to AJI and KJC.

          (B)  Plan Rejected by Subclass 3A or Subclass 3B. If either Subclass
               3A or Subclass 3B fails to accept the Plan in accordance with
               section 1126(c) of the Bankruptcy Code, the obligations of
               holders of Senior Subordinated Note Claims relating to the
               contractual subordination provisions of the Senior Subordinated
               Note Indenture and the claims of holders of Senior Note Claims
               relating to the contractual subordination provisions of the
               Senior Subordinated Note Indenture, as such obligations and
               claims relate to AJI and KJC, will be preserved under the Plan to
               the extent enforceable under section 510(a) of the Bankruptcy
               Code. In such event: (I) the holders of Senior Subordinated Note
               Claims will not become entitled to receive the distribution
               described in Section 2.4(c)(ii)(A); and (II) the Bankruptcy Court
               will enter an order (which will be the Confirmation Order)
               pursuant to which the Bankruptcy Court will determine the
               respective entitlement of the holders of Allowed 9-7/8% Senior
               Note Claims, Allowed 10-7/8% Senior Note Claims, Allowed Senior
               Subordinated Note Claims and, if applicable under Section 2.5(b),
               7-3/4% SWD Revenue Bonds to the Public Note Distributable
               Consideration. Any distributions ultimately made to a holder of
               an Allowed Senior Subordinated Note Claim in accordance with this
               Section 2.4(c)(ii)(B) may be reduced by such holder's
               proportional share of any and all fees and expenses payable to
               the Senior Subordinated Note Indenture Trustee pursuant to the
               Senior Subordinated Note Indenture, which will, subject to such
               Trustee's right to seek payment by the Debtors of such fees and
               expenses pursuant to section 503(b)(5) of the Bankruptcy Code, be
               payable solely from such distributions.

     (iii) Subclass 3C (PBGC Claims): On the Effective Date, the PBGC as holder
          of the PBGC Claims will, in full and complete satisfaction of such
          Claims, be entitled to receive the PBGC Percentage of the Cash in the
          Unsecured Claims Trust Account.

     (iv) Subclass 3D (Other Unsecured Claims): On the Effective Date, each
          holder of an Allowed Other Unsecured Claim will, in full and complete
          satisfaction of such Claim, be entitled to receive a Pro Rata Share of
          the Other Unsecured Claims Percentage of the Cash in the Unsecured
          Claims Trust Account.


                                       13

     (d) Class 4 - Intercompany Claims. On the Effective Date, each holder of an
Intercompany Claim will be entitled to receive the treatment set forth in the
Intercompany Claims Settlement. Class 4 is impaired under the Plan.
Notwithstanding this treatment of Class 4 Claims, each of the holders of Class 4
Claims will be deemed to have accepted the Plan.

     (e) Class 5 - Interests in the Debtors. No property will be distributed to,
or retained by, KACC as the holder of the Interests on account of such
Interests, and such Interests will be cancelled on the Effective Date.
Notwithstanding this treatment of Class 5 Interests, each of the holders of
Class 5 Interests will be deemed to have accepted the Plan.

     2.5 7-3/4% SWD Revenue Bond Dispute and Settlement.

     (a) Plan Accepted by Subclass 3A. If (i) Subclass 3A votes to accept the
Plan in accordance with section 1126(c) of the Bankruptcy Code and (ii) unless
the holders of Senior Note Claims otherwise agree pursuant to a settlement, all
holders of Allowed Senior Note Claims are entitled under the Plan to identical
treatment in respect of contractual subordination claims under the Senior
Subordinated Note Indenture, then, on the Effective Date, an amount equal to the
Settlement Percentage of the Cash in the Unsecured Claims Trust Account that
would otherwise have been distributed in respect of the Senior Subordinated Note
Claims but which, after giving effect to the contractual subordination
provisions of the Senior Subordinated Note Indenture and pursuant to Sections
2.4(c)(i) and 2.4(c)(ii) but prior to giving effect to any payments under this
Section 2.5, is to be distributed to holders of Senior Note Claims will, in full
and complete satisfaction of the claims of holders of 7-3/4% SWD Revenue Bonds
asserted in the 7-3/4% SWD Revenue Bond Dispute in respect of the Debtors, be
paid to the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of holders
of 7-3/4% SWD Revenue Bonds. Notwithstanding the foregoing, in no event will the
amount paid under this Section 2.5(a), when aggregated with any amount payable
under any comparable provision of the KAAC/KFC Plan, exceed $8,000,000. If the
Debtors do not File a separate motion, the Plan will serve as a motion pursuant
to Bankruptcy Rule 9019 seeking entry of an order approving the foregoing
settlement. Unless an objection to such settlement is made in writing by any
creditor or claimant affected thereby, Filed with the Bankruptcy Court and
served on the parties identified in Section 12.6 on or before April 5, 2005,
such order (which will be the Confirmation Order) may be entered by the
Bankruptcy Court. In the event any such objections are timely Filed, a hearing
with respect thereto will occur at the Confirmation Hearing.

     (b) Plan Rejected by Subclass 3A. If Subclass 3A fails to accept the Plan
in accordance with section 1126(c) of the Bankruptcy Code, the rights, if any,
of the holders of 7-3/4% SWD Revenue Bonds to payments from the Public Note
Distributable Consideration will be as determined in an order of the Bankruptcy
Court (which may be the Confirmation Order) in connection with the
determinations contemplated by Sections 2.4(c)(i)(B) and 2.4(c)(ii)(B); provided
that if the determination with respect to the rights of the holders of 7-3/4%
SWD Revenue Bonds to such payment has not been made by the Bankruptcy Court
prior to the Effective Date, then, in order to ensure the funding of such
payment, on the Effective Date the Distribution Trustee will reserve from the
Public Note Distributable Consideration any amount that may be ordered by the
Bankruptcy Court to be so reserved pending such determination.

     2.6 Senior Note Indenture Trustee and Ad Hoc Group Counsel Fees and
Expenses; 7-3/4% SWD Revenue Bond Plaintiffs' Fees.

     (a) Senior Note Indenture Trustee and Ad Hoc Group Counsel Fees and
Expenses. The fees and expenses of (a) the 9-7/8% Senior Note Indenture Trustee,
(b) the 10-7/8% Senior Note Indenture Trustee, and (c) counsel for the Ad Hoc
Group through the Effective Date will be paid out of the Public Note
Distributable Consideration. No later than two Business Days prior to the
Effective Date, each of the entities to which reference is made in clauses (a),
(b) and (c) of the first sentence of this Section 2.6(a) will furnish to the
Creditors' Committee and the Debtors information in respect of such fees and
expenses incurred and estimated to be incurred through the Effective Date.

     (b) 7-3/4% SWD Revenue Bond Plaintiffs' Fees. If a payment is required to
be made to the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of
holders of 7-3/4% SWD Revenue Bonds under the first sentence of Section 2.5(a),
the reasonable out-of-pocket expenses (including attorneys' fees) incurred and
paid by the plaintiffs in the 7-3/4% SWD Revenue Bond Dispute in connection with
the Chapter 11 Cases and the chapter 11


                                       14

cases of the Other Kaiser Debtors, including in connection with the 7-3/4% SWD
Revenue Bond Dispute, and that certain civil action currently pending before the
United States District Court for the Eastern District of Louisiana styled Paul
J. Guillot, et al. v. Credit Suisse First Boston, LLC, and numbered 03-0797,
will be paid out of the Public Note Distributable Consideration otherwise
payable to holders of Allowed Claims in Subclass 3A; provided, however, that in
no event will the amount paid under this sentence, when aggregated with any
amount payable under any comparable provision of the KAAC/KFC Plan, exceed
$500,000; provided further, however, that nothing in this Section 2.6(b) will
prejudice the rights of such plaintiffs to seek additional recoveries (i) from
amounts otherwise to be paid to or for the benefit of holders of 7-3/4% SWD
Revenue Bonds under the Plan or the KAAC/KFC Plan or (ii) from, or in respect of
amounts otherwise to be paid to or for the benefit of holders of 7-3/4% SWD
Revenue Bonds by, any Other Kaiser Debtor other than KAAC or KFC. No later than
two Business Days prior to the Effective Date, the plaintiffs in the 7-3/4% SWD
Revenue Bond Dispute will furnish to the Creditor's Committee, the Debtors, the
9-7/8% Senior Note Indenture Trustee and the 10-7/8% Senior Note Indenture
Trustee information in respect of such fees and expenses incurred and estimated
to be incurred through the Effective Date.

     2.7 Allowance of Certain Public Note Claims. The 9-7/8% Senior Note Claims
are allowed in the aggregate amount of $196,856,413.06, the 10-7/8% Senior Note
Claims are allowed in the aggregate amount of $255,450,000 and the Senior
Subordinated Note Claims are allowed in the aggregate amount of $478,661,479.17.

     2.8 Substantive Consolidation. In connection with confirmation of the Plan,
the Debtors will seek Bankruptcy Court approval of the substantive consolidation
of the Debtors for the purpose of implementing the Plan, including for purposes
of voting, confirmation and distributions to be made under the Plan. Pursuant to
the relevant order of the Bankruptcy Court: (a) all assets and liabilities of
the Debtors will be deemed merged; (b) all guarantees by, or co-obligations of,
one Debtor in respect of the obligations of the other Debtor will be deemed
eliminated so that any Claim against either Debtor and any guarantee by, or
co-obligation of, the other Debtor and any joint or several liability of either
of the Debtors will be deemed to be one obligation of the consolidated Debtors;
and (c) each and every Claim Filed or to be Filed in the Chapter 11 Case of
either Debtor will be deemed Filed against the consolidated Debtors and will be
deemed one Claim against and a single obligation of the consolidated Debtors.
Such substantive consolidation (other than for the purpose of implementing the
Plan) will not affect the legal and corporate structures of the Debtors, nor
will such substantive consolidation affect or be deemed to affect any
Intercompany Claim in any manner contrary to the Intercompany Claims Settlement,
nor will such substantive consolidation be deemed to affect any Other Kaiser
Debtor or claims against any Other Kaiser Debtor.

     2.9 Order Granting Substantive Consolidation. The Plan will serve as a
motion seeking entry of an order substantively consolidating the Debtors, as
described, and to the limited extent set forth, in Section 2.8. Unless an
objection to such substantive consolidation is made in writing by any creditor
or claimant affected by the Plan, Filed with the Bankruptcy Court and served on
the parties identified in Section 12.6 on or before April 5, 2005, or such other
date as may be fixed by the Bankruptcy Court, the substantive consolidation
order (which will be the Confirmation Order) may be entered by the Bankruptcy
Court. In the event any such objections are timely Filed, a hearing with respect
thereto will occur at the Confirmation Hearing.

     2.10 No Effect on Claims Against or Interests in Other Kaiser Debtors.
Nothing in the Plan will be deemed to affect any person's claim against or
interest in any Other Kaiser Debtor or any of their respective present or former
directors, officers, employees, agents, advisors, attorneys, accountants,
underwriters, investment bankers or other representatives, acting in such
capacity, or any rights, including contractual subordination rights, that any
person may have in respect of any such claim against or interest in any such
Other Kaiser Debtor.

                                   ARTICLE III

              TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

     3.1 Executory Contracts and Unexpired Leases to Be Rejected. On the
Effective Date, except for an Executory Contract or Unexpired Lease that
previously was assumed and assigned or rejected by an order of the Bankruptcy
Court, each Executory Contract and Unexpired Lease entered into by a Debtor
prior to the Petition Date that has not previously expired or terminated
pursuant to its own terms will be rejected pursuant to section 365 of the
Bankruptcy Code. The Confirmation Order will constitute an order of the
Bankruptcy Court approving such rejections, pursuant to section 365 of the
Bankruptcy Code, as of the Effective Date.


                                       15

     3.2 Bar Date for Rejection Damages. Notwithstanding anything in the Bar
Date Order or in the Administrative Bar Date Order to the contrary, if the
rejection of an Executory Contract or Unexpired Lease pursuant to the Plan gives
rise to a Claim by the other party or parties to such contract or lease, such
Claim will be forever barred and will not be enforceable against the Debtors,
the Distribution Trustee, the Debtors' Estates or the Trust Accounts unless a
proof of Claim or request for payment of Administrative Claim is Filed and
served on the Distribution Trustee, pursuant to the procedures specified in the
Confirmation Order, the notice of the entry of the Confirmation Order or another
order of the Bankruptcy Court, no later than 30 days after the Effective Date.

                                   ARTICLE IV

           RELEASE, LIMITATION OF LIABILITY AND INJUNCTION PROVISIONS

     4.1 Release of Claims; Limitation of Liability.

     (a) Releases by the Debtors. As of the Effective Date, for good and
valuable consideration, the adequacy of which is hereby confirmed, the Debtors
on behalf of themselves, their Estates, creditors and Interest holders will be
deemed to release, waive and discharge all claims and rights of any nature in
connection with or related to the Debtors, the Chapter 11 Cases or the Plan
(other than the rights of the Distribution Trustee to enforce the Plan and any
contracts, instruments, releases and other agreements and documents delivered
thereunder, and to pursue objections to and resolve Disputed Claims), whether
liquidated or unliquidated, fixed or contingent, matured or unmatured, known or
unknown, foreseen or unforeseen, then existing or thereafter arising (including,
without limitation, those arising under the Bankruptcy Code), based on any act,
omission or occurrence on or before the Effective Date, against the Creditors'
Committee, its members, any Indenture Trustee, any of the Debtors' present or
former directors or officers, or any of the respective present or former
directors, officers, employees, agents, advisors, attorneys, accountants,
underwriters, investment bankers or other representatives of the Debtors, the
Creditors' Committee, its members, or the Indenture Trustees, acting in such
capacity, except for such Claims or rights based on: (i) acts or omissions of
any such person constituting gross negligence or willful misconduct; (ii) if the
holders of the Senior Subordinated Note Claims are determined by the order
contemplated by Sections 2.4(c)(i)(b) and 2.4(c)(ii)(b) to be entitled to a
distribution in respect to such Claims, acts or omissions of any such person
related to or giving rise to the circumstances underlying any of the Contractual
Subordination Disputes; or (iii) contractual obligations of, or loans owed by,
any such person to a Debtor.

     (b) General Releases by Holders of Claims. Subject to the provisions of
Section 2.10, as of the Effective Date, in consideration for the obligations of
the Debtors and the Distribution Trustee under the Plan and the Cash to be
distributed in connection with the Plan, each holder of a Claim that votes in
favor of the Plan will be deemed to forever release and waive all claims,
obligations, suits, judgments, damages, demands, debts, rights, causes of action
and liabilities (other than the right to enforce the Debtors' or the
Distribution Trustee's obligations under the Plan and the contracts,
instruments, releases and other agreements and documents delivered thereunder),
whether liquidated or unliquidated, fixed or contingent, matured or unmatured,
known or unknown, foreseen or unforeseen, then existing or thereafter arising in
law, equity or otherwise, that are based in whole or in part on any act,
omission, transaction or other occurrence taking place on or prior to the
Effective Date in any way relating to a Debtor, the Chapter 11 Cases or the Plan
that such entity has, had or may have against the Creditors' Committee, its
members, any Indenture Trustee, either Debtor and any of their respective
present or former directors, officers, employees, agents, advisors, attorneys,
accountants, underwriters, investment bankers or other representatives, acting
in such capacity, except for those based on: (i) acts or omissions of any such
person constituting gross negligence or willful misconduct; (ii) if the holders
of the Senior Subordinated Note Claims are determined by the order contemplated
by Sections 2.4(c)(i)(b) and 2.4(c)(ii)(b) to be entitled to a distribution in
respect to such Claims, acts or omissions of any such person related to or
giving rise to the circumstances underlying any of the Contractual Subordination
Disputes; or (iii) contractual obligations of, or loans owed by, any such person
to a Debtor.

     (c) Limitation of Liability. The Debtors, the Distribution Trust, the
Distribution Trustee, the Indenture Trustees and their respective directors,
officers, employees and professionals, acting in such capacity, and the
Creditors' Committee, its members and their respective professionals will
neither have nor incur any liability to any entity for any act taken or omitted
to be taken in connection with or related to the formulation, preparation,
dissemination, implementation, confirmation or consummation of the Plan, the
Disclosure Statement or any contract, instrument, release or other agreement or
document created or entered into, or any other act taken or omitted to be


                                       16

taken, in connection with the Plan; provided, however, that the foregoing
provisions of this Section 4.1 will have no effect on: (i) the liability of any
entity that would otherwise result from the failure to perform or pay any
obligation or liability under the Plan or any contract, instrument, release or
other agreement or document to be entered into or delivered in connection with
the Plan; or (ii) the liability of any entity that would otherwise result from
any such act or omission to the extent that such act or omission is determined
in a Final Order to have constituted gross negligence or willful misconduct.

     4.2 INJUNCTIONS. EXCEPT AS OTHERWISE PROVIDED IN THE PLAN OR THE
CONFIRMATION ORDER, AS OF THE EFFECTIVE DATE, ALL ENTITIES THAT HAVE HELD,
CURRENTLY HOLD OR MAY HOLD A CLAIM OR OTHER DEBT OR LIABILITY OF THE DEBTORS, OR
AN INTEREST OR OTHER RIGHT OF AN EQUITY SECURITY HOLDER WITH RESPECT TO THE
DEBTORS, THAT IS RELEASED, WAIVED, SETTLED OR DEEMED SATISFIED PURSUANT TO THE
PLAN WILL BE PERMANENTLY ENJOINED FROM TAKING ANY OF THE FOLLOWING ACTIONS ON
ACCOUNT OF ANY SUCH CLAIMS, DEBTS, LIABILITIES, INTERESTS OR RIGHTS: (A)
COMMENCING OR CONTINUING IN ANY MANNER ANY ACTION OR OTHER PROCEEDING AGAINST
THE DEBTORS, THE DISTRIBUTION TRUST, THE DISTRIBUTION TRUSTEE OR THE PROPERTY OF
ANY OF THEM OTHER THAN TO ENFORCE ANY RIGHT PURSUANT TO THE PLAN TO A
DISTRIBUTION FROM THE TRUST ACCOUNTS; (B) ENFORCING, ATTACHING, COLLECTING OR
RECOVERING IN ANY MANNER ANY JUDGMENT, AWARD, DECREE OR ORDER AGAINST THE
DEBTORS, THE DISTRIBUTION TRUST OR THE DISTRIBUTION TRUSTEE, OTHER THAN AS
PERMITTED PURSUANT TO (A) ABOVE; (C) CREATING, PERFECTING OR ENFORCING ANY LIEN
OR ENCUMBRANCE AGAINST THE DEBTORS, THE DISTRIBUTION TRUST, THE PROPERTY OF ANY
OF THEM OR THE TRUST ACCOUNTS; (D) ASSERTING A SETOFF, RIGHT OF SUBROGATION OR
RECOUPMENT OF ANY KIND AGAINST ANY DEBT, LIABILITY OR OBLIGATION DUE TO THE
DISTRIBUTION TRUST; AND (E) COMMENCING OR CONTINUING ANY ACTION, IN ANY MANNER,
IN ANY PLACE THAT DOES NOT COMPLY WITH OR IS INCONSISTENT WITH THE PROVISIONS OF
THE PLAN.

     4.3 No Discharge. In accordance with section 1141(d)(3) of the Bankruptcy
Code, the confirmation of the Plan will not discharge either Debtor.

                                    ARTICLE V

                                    CRAMDOWN

     The Debtors request confirmation of the Plan under section 1129(b) of the
Bankruptcy Code with respect to any impaired Class that does not accept the Plan
pursuant to section 1126 of the Bankruptcy Code. The Debtors reserve the right
to modify the Plan to the extent, if any, that confirmation of the Plan pursuant
to section 1129(b) of the Bankruptcy Code requires modification. Subclass 3A,
Subclass 3B, Subclass 3C, and Subclass 3D each constitute a separate class
pursuant to section 1122(a) of the Bankruptcy Code.

                                   ARTICLE VI

                      CONDITIONS PRECEDENT TO CONFIRMATION
                          AND CONSUMMATION OF THE PLAN

     6.1 Conditions to Confirmation. The following are conditions to the
confirmation of the Plan:

     (a) The Confirmation Order shall have been entered on the docket of the
Clerk of the Bankruptcy Court in form and substance acceptable to the Debtors
and the Creditors' Committee;

     (b) All Exhibits to the Plan shall be in form and substance satisfactory to
the Debtors and the Creditors' Committee; and

     (c) The Intercompany Claims Settlement shall have become effective.

     6.2 Conditions to the Effective Date. The following are conditions to the
occurrence of the Effective Date:

     (a) The Confirmation Order shall have become a Final Order;


                                       17

     (b) The Liquidating Transactions shall have been consummated;

     (c) All funds due and owing to or by the Debtors under the Intercompany
Claims Settlement shall have been paid in accordance with its terms;

     (d) The Distribution Trustee shall have been appointed and shall have
accepted such appointment;

     (e) The Distribution Trust Agreement shall have been executed and the Trust
Accounts shall have been established; and

     (f) All other actions, documents, consents and agreements necessary to
implement the Plan shall have been effected, obtained and/or executed.

     6.3 Waiver of Conditions to the Confirmation or Effective Date. The
conditions to confirmation set forth in Section 6.1 and the conditions to the
Effective Date set forth in Section 6.2 may be waived by the Debtors at any time
and without an order of the Bankruptcy Court, with the consent of the Creditors'
Committee.

                                   ARTICLE VII

                      MEANS FOR IMPLEMENTATION OF THE PLAN

     7.1 Liquidating Transactions. On the Effective Date, the Distribution Trust
Assets will be transferred to and vest in the Distribution Trust, free and clear
of Claims, Liens and Interests, except as may be otherwise provided in the
Intercompany Claims Settlement. On or after the Effective Date, the Debtors will
enter into such transactions and will take such actions as may be necessary or
appropriate to merge, dissolve or otherwise terminate the corporate existence of
the Debtors. Notwithstanding the foregoing and regardless of whether the actions
in the preceding sentence have yet been taken with respect to a particular
Debtor, upon the transfer of the Distribution Trust Assets to the Distribution
Trust, the Debtors will be deemed dissolved and their business operations
withdrawn for all purposes without any necessity of filing any document, taking
any further action or making any payment to any governmental authority in
connection therewith.

     7.2 Corporate Action. The following (which will occur and be deemed
effective as of the date specified in the documents effectuating the same or, if
no date is so specified, the Effective Date) will be deemed authorized and
approved in all respects and for all purposes without any requirement of further
action by KACC, as the sole stockholder of each Debtor, by the directors of
either Debtor or by the Distribution Trustee or any other person or entity: (a)
the Liquidating Transactions; (b) the establishment of the Distribution Trust;
(c) the appointment of the Distribution Trustee to act on behalf of the
Distribution Trust; (d) the transfer of the Distribution Trust Assets to the
Distribution Trust; (e) the creation of the Trust Accounts; (f) the distribution
of Cash pursuant to the Plan; (g) the adoption, execution, delivery and
implementation of all contracts, instruments, releases and other agreements or
documents related to any of the foregoing; (h) the adoption, execution and
implementation of the Distribution Trust Agreement; and (i) the other matters
provided for under the Plan involving the corporate structure of either Debtor
or corporate action to be taken by, or required of, either Debtor or the
Distribution Trustee.

     7.3 No Revesting of Assets. On the Effective Date, the property of the
Debtors' Estates will vest in the Distribution Trust to be administered by the
Distribution Trustee in accordance with the Plan and the Distribution Trust
Agreement.

     7.4 Recourse Solely to Trust Accounts. The Liquidating Transactions will
not in any way merge the assets of the Debtors' Estates, including the Trust
Accounts. All Claims against the Debtors are deemed fully satisfied in exchange
for the treatment of such Claims under the Plan, and holders of Allowed Claims
against either Debtor will have recourse solely to the applicable Trust Accounts
for the payment of their Allowed Claims in accordance with the terms of the
Plan.

     7.5 Release of Liens. Except as otherwise provided in the Plan or in any
contract, instrument, release or other agreement or document entered into or
delivered in connection with the Plan, on the Effective Date all


                                       18

Liens against the property of either Estate will be fully released, and all of
the right, title and interest of any holder of such Liens, including any rights
to any collateral thereunder, will attach to and be enforceable solely against
the applicable Distribution Trust Assets held in the applicable Trust Account in
accordance with, and subject to the terms of, the Plan. All such Liens against
the Distribution Trust Assets will be fully released upon the holder of the Lien
receiving its full distribution under the Plan, or upon the Effective Date if
the holder of the Lien is not entitled to any distribution under the Plan.

     7.6 Exemption from Certain Taxes. Pursuant to section 1146(c) of the
Bankruptcy Code, the following will not be subject to any stamp Tax, real estate
transfer Tax, sales or use Tax or similar Tax: (a) any Liquidating Transaction;
(b) the execution and implementation of the Distribution Trust Agreement,
including any transfers to or by the Distribution Trust; or (c) the making or
delivery of any deed or other instrument of transfer under, in furtherance of or
in connection with the Plan, including any merger agreements or agreements of
consolidation, disposition, liquidation or dissolution executed in connection
with any transaction pursuant to the Plan.

                                  ARTICLE VIII

                               DISTRIBUTION TRUST

     8.1 Creation.

     (a) On the Effective Date, the Debtors will enter into the Distribution
Trust Agreement with the Distribution Trustee, thereby creating the Distribution
Trust.

     (b) The Distribution Trust has no objective to, and will not, engage in the
conduct of a trade or business and, subject to the terms of the Distribution
Trust Agreement, will terminate upon completion of its liquidation and
distribution duties.

     (c) The Distribution Trust will be a "representative of the estate" under
section 1123(b)(3)(B) of the Bankruptcy Code.

     8.2 Distribution Trustee.

     (a) The Distribution Trustee, whose identity and address will be disclosed
at least ten days prior to the Confirmation Hearing, will be selected by the
Creditors' Committee with the consent of the Debtors, and will be the exclusive
trustee of the assets of the Distribution Trust for purposes of 31 U.S.C.
Section 3713(b) and 26 U.S.C. Section 6012(b)(3).

     (b) The rights, powers and privileges of the Distribution Trustee (to act
on behalf of the Distribution Trust) will be specified in the Distribution Trust
Agreement and will include, among others, the authority and responsibility to:
(i) accept, preserve, receive, collect, manage, invest, supervise and protect
the Distribution Trust Assets (directly or through one or more third-party
Disbursing Agents), each in accordance with the Plan and the Distribution Trust
Agreement; (ii) liquidate, transfer or otherwise dispose of the Distribution
Trust Assets or any part thereof or any interest therein upon such terms as the
Distribution Trustee determines to be necessary, appropriate or desirable,
pursuant to the procedures for allowing Claims and making distributions
prescribed in the Plan, and otherwise consistent with the terms of the Plan;
(iii) calculate and make distributions of the Distribution Trust Assets to
holders of Allowed Claims pursuant to the procedures for allowing Claims and
making distributions prescribed in the Plan; (iv) review, reconcile, settle or
object to Claims and resolve any such objections as set forth in the Plan and
the Distribution Trust Agreement; (v) comply with the Plan and exercise its
rights and fulfill its obligations thereunder; (vi) investigate and, if
appropriate, pursue any Recovery Actions or other available causes of action
(including any actions previously initiated by the Debtors and pending as of the
Effective Date) and raise any defenses in any adverse actions or counter-claims;
(vii) retain and compensate, without further order of the Bankruptcy Court, the
services of professionals or other persons or entities to represent, advise and
assist the Distribution Trustee in the fulfillment of its responsibilities in
connection with the Plan and the Distribution Trust Agreement; (viii) take such
actions as are necessary, appropriate or desirable, to close the Chapter 11
Cases; (ix) file


                                       19

appropriate Tax returns on behalf of the Distribution Trust and Debtors and pay
Taxes or other obligations owed by the Distribution Trust; (x) exercise the
rights, and fulfill the obligations, of the Debtors under the Alpart Purchase
Agreement; (xi) take such actions as are necessary, appropriate or desirable to
terminate the existence of the Debtors under the laws of Jamaica; and (xii)
terminate the Distribution Trust in accordance with the terms of the Plan and
the Distribution Trust Agreement.

     (c) Except as otherwise provided in the Plan or the Distribution Trust
Agreement, the Distribution Trustee will not be required to obtain the order or
approval of the Bankruptcy Court or any other court of competent jurisdiction
in, or account to the Bankruptcy Court or any other court of competent
jurisdiction for, the exercise of any right, power or privilege conferred under
the Distribution Trust Agreement.

     (d) Except as otherwise provided in the Plan or the Distribution Trust
Agreement, after the Effective Date only the Distribution Trustee, on behalf of
the Distribution Trust, with the prior consent of the Steering Committee, acting
through a majority thereof, will have the authority to File, settle, compromise,
withdraw or litigate to judgment objections to Claims, including pursuant to any
alternative dispute resolution or similar procedures approved by the Bankruptcy
Court. After the Effective Date, the Distribution Trustee, with the prior
consent of the Steering Committee, acting through a majority thereof, may settle
or compromise any Disputed Claim without approval of the Bankruptcy Court in
accordance with the Distribution Trust Agreement.

     (e) Nothing contained in this Section 8.2 will limit the right of the US
Trustee to object to Professional Fee Claims as contemplated by Section 2.2(c).

     8.3 Preservation of Causes of Action. Except as otherwise provided in the
Plan or in any contract, instrument, release or other agreement or document
entered into or delivered in connection with the Plan, in accordance with
section 1123(b) of the Bankruptcy Code, the Distribution Trustee will retain and
may enforce any claims, demands, rights and causes of action that either Debtor
or Estate may hold against any entity, including the Recovery Actions, to the
extent not expressly released under the Plan. Without intending to limit the
generality of the foregoing, the Distribution Trustee will retain the right to
pursue any adversary proceedings available to the Debtors in connection with the
Alpart Purchase Agreement or the Intercompany Claims Settlement.

     8.4 Reports to be Filed with the Bankruptcy Court.

     (a) Within 45 days after the end of each of the first three calendar
quarters of the calendar year, the Distribution Trustee, on behalf of the
Distribution Trust, will File an unaudited report with the Bankruptcy Court
reflecting (i) all Distribution Trust Assets received by the Distribution Trust
during such calendar quarter; (ii) all Distribution Trust Assets held by the
Distribution Trust at the end of such quarter; and (iii) all Distribution Trust
Assets disbursed during such calendar quarter, in each case itemized for the
individual Trust Accounts.

     (b) Within 90 days after the end of each calendar year, the Distribution
Trustee, on behalf of the Distribution Trust, will File an unaudited report with
the Bankruptcy Court reflecting: (i) all Distribution Trust Assets received by
the Distribution Trust during such calendar year; (ii) all Distribution Trust
Assets held by the Distribution Trust at the end of such calendar year; and
(iii) all Distribution Trust Assets disbursed during such calendar year, in each
case itemized for the individual Trust Accounts.

     (c) In the event of developments affecting the Distribution Trust in any
material respect (as determined by the Distribution Trustee in its reasonable
discretion), the Distribution Trustee, on behalf of the Distribution Trust, will
File promptly with the Bankruptcy Court a report describing such development in
reasonable detail.

     (d) Any report required by this Section 8.4 will be in such form as
required or approved by the US Trustee.

     (e) The Distribution Trustee will furnish or otherwise make available to
any then-current Beneficiary, upon written request, a copy of: (a) the most
recent annual receipts/disbursements report referred to in Section 8.4(b); (b)
any quarterly receipts/disbursements report referred to in Section 8.4(a) for
any period


                                       20

subsequent to the period covered by the most recent annual
receipts/disbursements report (or, if no annual receipts/disbursements report
has yet been Filed, for any period subsequent to the Effective Date); or (c) any
current report referred to in Section 8.4(c) Filed subsequent to the period
covered by the most recent annual receipts/disbursements report (or, if no
annual receipts/disbursements report has yet been Filed, subsequent to the
Effective Date).

     8.5 Payment of Distribution Trust Expenses. Except as otherwise ordered by
the Bankruptcy Court, the Distribution Trustee, in its capacity as Disbursing
Agent, will, in its reasonable discretion, pay Distribution Trust Expenses from
the Distribution Trust Expenses Account, without the need for further Bankruptcy
Court approval.

     8.6 Use of Other Entities. The Distribution Trustee, on behalf of the
Distribution Trust, may employ, without further order of the Bankruptcy Court,
other entities to assist in or make distributions required by the Plan and the
Distribution Trust Agreement and may compensate and reimburse the expenses of
those entities, without further order of the Bankruptcy Court, from the
Distribution Trust Expenses Account in accordance with the Distribution Trust
Agreement.

     8.7 Indemnification. The Distribution Trustee and the members of the
Steering Committee will be indemnified as provided in the Distribution Trust
Agreement.

     8.8 Tax Treatment.

     (a) The Distribution Trust is intended to be treated, for U.S. federal
income Tax purposes, in part as a liquidating trust within the meaning of
Treasury Regulations section 301.7701-4(d), for the benefit of the holders of
Allowed Claims entitled to distributions of Pending Payments, and otherwise as
one or more disputed ownership funds within the meaning of Proposed Treasury
Regulations section 1.468B-9(a), as more specifically provided for under the
Distribution Trust Agreement. Accordingly, for all federal income Tax purposes
the transfer of the Distribution Trust Assets to the Distribution Trust will be
treated as: (a) to the extent of Pending Payments, (i) a transfer of the Pending
Payments directly from the Debtors to the holders of such Allowed Claims
followed by (ii) the transfer of such Pending Payments by such holders of
Allowed Claims to the Distribution Trust in exchange for beneficial interests in
the Distribution Trust; and (b) to the extent of amounts that are not Pending
Payments, as a transfer to one or more disputed ownership funds. Accordingly,
the holders of Allowed Claims entitled to distributions of Pending Payments will
be treated for federal income Tax purposes as the grantors and deemed owners of
their respective shares of the Distribution Trust Assets in the amounts of the
Pending Payments and any earnings thereon.

     (b) The Distribution Trustee will be required by the Distribution Trust
Agreement to file federal Tax returns for the Distribution Trust as a grantor
trust with respect to any Pending Payments and as one or more disputed ownership
funds with respect to all other funds or other property held by the Distribution
Trust pursuant to applicable Treasury Regulations, and any income of the
Distribution Trust will be treated as subject to Tax on a current basis. The
Distribution Trust Agreement will provide that the Distribution Trustee will pay
such Taxes from the Distribution Trust Assets as required by law and in
accordance with Section 10.2(c). In addition, the Distribution Trust Agreement
will require consistent valuation by the Distribution Trustee and the
Beneficiaries, for all federal income Tax purposes, of any property held by the
Distribution Trust. The Distribution Trust Agreement will provide that
termination of the trust will occur no later than two years after the Effective
Date, unless the Bankruptcy Court will approve an extension based upon a finding
that such an extension is necessary for the Distribution Trust to complete its
claims resolution and liquidating purpose. The Distribution Trust Agreement also
will limit the investment powers of the Distribution Trustee in accordance with
IRS Rev. Proc. 94-45 and will require the Distribution Trust to distribute at
least annually to the Beneficiaries (as such may have been determined at such
time) its net income (net of any payment of or provision for Taxes), except for
amounts retained as reasonably necessary to maintain the value of the
Distribution Trust Assets or to meet claims and contingent liabilities
(including Disputed Claims).

     8.9 Creation of Trust Accounts. On or prior to the Effective Date, the
Trust Accounts will be established in federally insured United States banks in
the name of the Distribution Trustee or one or more third-party Disbursing
Agents. On the Effective Date, title to each of the Trust Accounts and the
contents thereof will be transferred to and irrevocably vest in the Distribution
Trust.


                                       21

     8.10 Funding of Distribution Trust Expenses Account.

     (a) Initial Funding. No later than ten days prior to the commencement of
the Confirmation Hearing, the Creditors' Committee and the Debtors will agree on
the amount to be funded into the Distribution Trust Expenses Account on the
Effective Date. On the Effective Date, the Distribution Trust Expenses Account
will be funded by the transfer of Cash in such amount from the Distribution
Trust Assets. The Distribution Trustee will act as the Disbursing Agent for the
Distribution Trust Expenses Account.

     (b) Use of Funds. Funds in the Distribution Trust Expenses Account will be
used solely as provided in the Distribution Trust Agreement.

     (c) Subsequent Funding. If the balance of the Distribution Trust Expenses
Account is insufficient to make all payments payable therefrom in accordance
with the terms of the Plan and the Distribution Trust Agreement, additional Cash
may be transferred to the Distribution Trust Expenses Account from the Unsecured
Claims Trust Account (to the extent Cash remains available therein) as provided
in the Distribution Trust Agreement.

     (d) Excess Funds. If the Distribution Trustee determines that the balance
of the Distribution Trust Expenses Account is in excess of the amount that will
be sufficient to make all payments payable therefrom in accordance with the
terms of the Plan and the Distribution Trust Agreement, the Distribution
Trustee, with the consent of the Steering Committee acting through a majority
thereof, may transfer such excess to the Unsecured Claims Trust Account as
provided in the Distribution Trust Agreement.

     8.11 Funding of Priority Claims Trust Account.

     (a) Initial Funding. No later than ten days prior to the commencement of
the Confirmation Hearing, the Creditors' Committee and the Debtors will agree on
the amount to be funded into the Priority Claims Trust Account on the Effective
Date. On the Effective Date, the Priority Claims Trust Account will be funded by
the transfer of Cash in such amount from the Distribution Trust Assets. For
purposes of this Section 8.11, any and all Taxes ultimately determined to be due
and owing from the Debtors to the Government of Jamaica for any taxable period
(including interest and penalties, if any, determined and calculated under
applicable Jamaican law without regard to the provisions of section 502(b)(2) of
the Bankruptcy Code or any other provision of U.S. federal, state or local law)
will be treated as Allowed Priority Tax Claims or Allowed Administrative Claims,
as the case may be, and will be paid in full in Cash in accordance with the
provisions of Section 9.4(a); provided, however, that any liability of the
Debtors to the Australian Tax Office for income or capital gains Taxes for any
period shall not exceed the amount of such Taxes, if any, determined in writing
by the Australian Tax Office to be due and payable for such period.. Until such
determination, any such potential Tax obligation in respect of the Jamaican Tax
Claims will be treated as a Disputed Claim.

     (b) Use of Funds. Cash deposited in the Priority Claims Trust Account will
be used solely as provided in the Distribution Trust Agreement.

     (c) Subsequent Funding. If the balance of the Priority Claim Trust Account
is insufficient to make all payments payable therefrom in accordance with the
terms of the Plan and the Distribution Trust Agreement, additional funds may be
transferred from the Unsecured Claims Trust Account (to the extent Cash remains
available therein) to the Priority Claims Trust Account as provided in the
Distribution Trust Agreement.

     (d) Excess Funds. If the Distribution Trustee determines that the balance
of the Priority Claims Trust Account is in excess of the amount that will be
sufficient to make all payments payable therefrom in accordance with the terms
of the Plan and the Distribution Trust Agreement, the Distribution Trustee, with
the consent of the Steering Committee acting through a majority thereof, may
transfer such excess to the Unsecured Claims Trust Account as provided in the
Distribution Trust Agreement.


                                       22

     8.12 Funding of Unsecured Claims Trust Account.

     (a) Initial Funding. On the Effective Date, after the initial funding of
the Distribution Trust Expenses Account in accordance with Section 8.10(a) and
the initial funding of the Priority Claims Trust Account in accordance with
Section 8.11(a), the Distribution Trustee will (i) allocate from the
Distribution Trust Assets to the Public Note Distributable Consideration Cash in
an amount equal to the fees contemplated by clause (b) of Section 1.1(90), (ii)
pay from the Distribution Trust Assets any payment required under the
Intercompany Settlement Agreement, and (iii) thereafter fund the Unsecured
Claims Trust Account with the remainder of the Distribution Trust Assets, all as
provided in the Distribution Trust Agreement.

     (b) Use of Funds. Cash in the Unsecured Claims Trust Account will be used
solely as provided in the Distribution Trust Agreement.

     (c) Additional Deposits. Any Cash that becomes available to the
Distribution Trust following the Effective Date will be deposited in the
Unsecured Claims Trust Account as provided in the Distribution Trust Agreement.

     8.13 Undeliverable Cash Trust Account. After the Effective Date, if any
distribution to a holder of an Allowed Unsecured Claim is returned to the
Disbursing Agent as undeliverable, the Disbursing Agent will deposit the
undeliverable Cash in the Undeliverable Cash Trust Account. The Disbursing Agent
will hold such funds, in a book-entry sub-account in the Undeliverable Cash
Trust Account, for the benefit of such holder. Until such holder notifies the
Disbursing Agent in writing of its then-current address, as contemplated by
Section 9.2(c), no attempt will be made to deliver subsequent distributions to
such holder and any such distributions that such holder would otherwise be
entitled to receive instead will be transferred from the Unsecured Claims Trust
Account to the Undeliverable Cash Trust Account and credited to such book-entry
sub-account. All Cash held in such book-entry sub-account for the benefit of
such holder will be invested by the Disbursing Agent in a manner consistent with
the investment and deposit guidelines set forth in the Distribution Trust
Agreement. Any income or interest generated from such investment activities will
be held in such book-entry sub-account for the benefit of such holder until such
holder notifies the Disbursing Agent in writing of its then-current address as
contemplated by Section 9.2(c). Subject to Section 9.2(c)(ii), when such holder
notifies the Disbursing Agent in writing of its then-current address as
contemplated by Section 9.2(c), the Disbursing Agent will deliver to such holder
all Cash contained in such book-entry sub-account (net of provision for Taxes).
In the event such holder's right to assert a claim for undeliverable
distributions is forfeited as contemplated by Section 9.2(c)(ii), all Cash
contained in such book-entry sub-account will be transferred from the
Undeliverable Cash Trust Account to the Unsecured Claims Trust Account for
redistribution to holders of Allowed Unsecured Claims entitled to distributions
therefrom.

                                   ARTICLE IX

                       PROVISIONS GOVERNING DISTRIBUTIONS

     9.1 Method of Distributions to Holders of Allowed Claims. The Disbursing
Agent will make all distributions of Cash required under the Plan. The
Disbursing Agent will serve without bond, and may employ or contract with other
entities to assist in, or make the distributions required by, the Plan.

     9.2 Delivery of Distributions.

     (a) Generally. Except as otherwise provided in the Plan, distributions in
respect of Allowed Claims will be made to the holders of such Claims as of the
Distribution Record Date at the addresses set forth in the applicable Claims
Report. Prior to making any distribution to a Beneficiary, the Disbursing Agent
may request written notification of the Beneficiary's federal taxpayer
identification number or social security number if the Disbursing Agent
determines, in its reasonable discretion, that such information (a) is necessary
to fulfill its Tax reporting and withholding obligations and (b) has not been
provided in the applicable Claims Report or otherwise. The Disbursing Agent, in
its reasonable discretion, may suspend distributions to any Beneficiary that has
not provided its federal taxpayer identification number or social security
number, as the case may be, after a request is made pursuant to and in
accordance with the terms of this Section 9.2(a).


                                       23

     (b) Distributions to Holders of Public Note Claims. All distributions to
holders of Allowed Public Note Claims will be made by the Distribution Trustee
to the applicable Indenture Trustee for subsequent distribution to holders of
Allowed Public Note Claims as of the Distribution Record Date.

     (c) Undeliverable Distributions.

     (i)  No Further Attempts at Delivery. If any distribution to a holder of an
          Allowed Unsecured Claim is returned to the Disbursing Agent as
          undeliverable, then unless and until the Disbursing Agent is notified
          in writing of such holder's then-current address: (A) subject to
          Section 9.2(c)(ii), such undeliverable distributions will remain in
          the possession of the Disbursing Agent as provided in Section 8.13 and
          no further attempt will be made to deliver such distribution; and (B)
          no attempt will be made to deliver subsequent distributions to such
          holder and any such distributions that such holder would otherwise be
          entitled to receive instead will be treated as provided in Section
          8.13.

     (ii) Forfeiture and Redistribution. Any holder of an Allowed Unsecured
          Claim that does not assert a claim for an undeliverable distribution
          by delivering to the Disbursing Agent a written notice setting forth
          such holder's then-current address within 180 days after the later of
          (A) the Effective Date and (B) the last date on which a distribution
          was deliverable to the holder will have its claim for undeliverable
          distributions discharged and will be forever barred from asserting
          such claim or any claim for subsequent distributions against the
          Debtors, the Disbursing Agent or the property of any of them,
          including the Trust Accounts, whereupon all Cash contained in the
          book-entry sub-account in the Undeliverable Cash Trust Account created
          for the benefit of such holder will be transferred to the Unsecured
          Claims Trust Account for redistribution to holders of Allowed
          Unsecured Claims entitled to distributions therefrom. For purposes of
          any such redistribution, each Allowed Claim in respect of which a
          claim for undeliverable distributions has been discharged as
          contemplated by this Section 9.2(c)(ii) will be deemed disallowed in
          its entirety.

     (iii) No Requirement to Attempt to Locate Holders. Nothing contained in the
          Plan will require the Debtors or the Disbursing Agent to attempt to
          locate any holder of an Allowed Claim.

     9.3 Means of Cash Payments. Except as otherwise provided in the Plan or the
Distribution Trust Agreement, Cash payments made pursuant to the Plan will be in
United States currency by checks drawn on the applicable Trust Accounts or, at
the option of the Disbursing Agent, by wire transfer from a domestic bank;
provided, however, that Cash payments to foreign holders of Allowed Claims may
be made, at the option of the Disbursing Agent, in such funds and by such means
as are necessary or customary in a particular foreign jurisdiction. If a check
included in a distribution to a holder of an Allowed Unsecured Claim is not
cashed within 180 days of the issuance thereof, the Disbursing Agent will void
such check and such distribution will be treated as undeliverable in accordance
with Section 9.2(c).

     9.4 Timing and Calculation of Amounts to Be Distributed.

     (a) Allowed Claims Other Than Unsecured Claims. On or as promptly as
practicable after the Effective Date, the Disbursing Agent will make
distributions to holders of Secured Claims, Administrative Claims, Priority
Claims and Priority Tax Claims allowed as of the Effective Date. On or as
promptly as practicable after each Quarterly Distribution Date, the Disbursing
Agent will make distributions to holders of Disputed Secured Claims, Disputed
Administrative Claims, Disputed Priority Claims and Disputed Priority Tax Claims
that have become Allowed Claims during the immediately preceding calendar
quarter. Notwithstanding the foregoing, if the Disbursing Agent determines, in
its reasonable discretion, that the amount of any quarterly distribution is too
small to justify the administrative costs associated with such distribution, the
Disbursing Agent may postpone such quarterly distribution until the next
Quarterly Distribution Date. The Disbursing Agent will have no obligation to
notify Beneficiaries if it determines, in its reasonable discretion, that any
quarterly distribution will be postponed.


                                       24

     (b) Allowed Unsecured Claims in Subclass 3A; Certain Payments from the
Public Note Distributable Consideration.

     (i)  Plan Accepted by Subclass 3A and Subclass 3B.

          (A)  If both Subclass 3A and Subclass 3B vote to accept the Plan in
               accordance with section 1126(c) of the Bankruptcy Code, on or as
               promptly as practicable after the Effective Date, the Disbursing
               Agent will: (i) make distributions to holders of Allowed Claims
               in Subclass 3A in accordance with Section 2.4(c)(i)(A); provided
               that the amount of such distributions will be calculated as if
               each Disputed Unsecured Claim in Subclass 3D were an Allowed
               Unsecured Claim in its Face Amount as of the Effective Date; and
               (ii) make the payments to be deducted from the Public Note
               Distributable Consideration as contemplated by clauses (I) and
               (II) of the first sentence of Section 2.4(c)(i)(A).

          (B)  If both Subclass 3A and Subclass 3B vote to accept the Plan in
               accordance with section 1126(c) of the Bankruptcy Code, on or as
               promptly as practicable after each Quarterly Distribution Date,
               the Disbursing Agent will distribute to each holder of an Allowed
               Claim in Subclass 3A a distribution from the Unsecured Claims
               Trust Account (net of provision for Taxes) in an amount equal to:
               (a) the amount of Cash that such holder would have been entitled
               to receive pursuant to the Plan if such Claim and each other
               Unsecured Claim allowed prior to such Quarterly Distribution Date
               had been an Allowed Unsecured Claim as of the Effective Date
               (with such amount to be calculated in the manner described in
               Section 9.4(b)(i)(A)) minus (b) the aggregate amount of Cash
               previously distributed on account of such Claim. Notwithstanding
               the foregoing, if the Disbursing Agent determines, in its
               reasonable discretion, that the amount of any quarterly
               distribution is too small to justify the administrative costs
               associated with such distribution, the Disbursing Agent may
               postpone such quarterly distribution until the next Quarterly
               Distribution Date. The Disbursing Agent will have no obligation
               to notify Beneficiaries if it determines, in its reasonable
               discretion, that any quarterly distribution will be postponed. In
               the event of the disallowance of a Disputed Unsecured Claim in
               Subclass 3D, any amounts held in respect thereof will be released
               from the Disputed Claims Reserve for distribution in accordance
               with this Section 9.4(b)(i) and Section 9.4(d).

     (ii) Plan Rejected by Subclass 3A or Subclass 3B. If either Subclass 3A or
          Subclass 3B fails to accept the Plan in accordance with section
          1126(c) of the Bankruptcy Code, the amount of the Public Note
          Distributable Consideration to which the Bankruptcy Court determines
          the holders of Allowed Claims in Subclass 3A are entitled in respect
          of such Claims will be distributed as provided in an order of the
          Bankruptcy Court and the Disbursing Agent will, contemporaneously or
          as promptly as practicable thereafter, make the payments (or
          reservations for payment) by which such distributions are to be
          reduced in accordance with Section 2.4(a)(i)(B).

     (c) Allowed Unsecured Claims in Subclass 3B.

     (i)  Plan Accepted by Subclass 3A and Subclass 3B. If both Subclass 3A and
          Subclass 3B vote to accept the Plan in accordance with section 1126(c)
          of the Bankruptcy Code, on or as promptly as practicable after the
          Effective Date, the Disbursing Agent will make the payment to the
          Senior Subordinated Note Indenture Trustee as contemplated by clause
          (III) of the first sentence of Section 2.4(c)(i)(A) and Section
          2.4(c)(ii)(A) for subsequent distribution by the Senior Subordinated
          Note Indenture Trustee to the holders of Allowed Claims in Subclass
          3B.

     (ii) Plan Rejected by Subclass 3A or Subclass 3B. If either Subclass 3A or
          Subclass 3B fails to accept the Plan in accordance with section
          1126(c) of the Bankruptcy Code, the amount of the Public Note
          Distributable Consideration, if any, to which the Bankruptcy Court
          determines the holders of Allowed Claims in Subclass 3B are entitled
          in respect of such Claims will be distributed as


                                       25

          provided in an order of the Bankruptcy Court. As contemplated by
          Section 2.4(c)(ii)(B), any such distributions ultimately made to a
          holder of an Allowed Claim in Subclass 3B may be reduced by such
          holder's proportional share of any and all fees and expenses payable
          to the Senior Subordinated Note Indenture Trustee pursuant to the
          Senior Subordinated Note Indenture, which will, subject to such
          Trustee's right to seek payment by the Debtors of such fees and
          expenses pursuant to section 503(b)(5) of the Bankruptcy Code, be
          payable solely from such distributions.

     (d) Allowed Unsecured Claims in Subclass 3C and Subclass 3D.

     (i)  On or as promptly as practicable after the Effective Date, the
          Disbursing Agent will make distributions to holders of Unsecured
          Claims in Subclass 3C and Subclass 3D allowed as of the Effective
          Date; provided that the amount of such distributions will be
          calculated as if each Disputed Unsecured Claim in Subclass 3D were an
          Allowed Unsecured Claim in its Face Amount as of the Effective Date;
          provided further, however, that no distribution will be made on
          account of any Disputed Unsecured Claim in Subclass 3D unless and
          until it becomes an Allowed Unsecured Claim and amounts withheld for
          Disputed Unsecured Claims in Subclass 3D will remain in the Unsecured
          Claims Trust Account as part of the Disputed Claims Reserve.

     (ii) On or as promptly as practicable after each Quarterly Distribution
          Date, the Disbursing Agent will distribute to each holder of an
          Unsecured Claim in Subclass 3C or Subclass 3D allowed prior to such
          Quarterly Distribution Date a distribution from the Unsecured Claims
          Trust Account (net of provision for Taxes) in an amount equal to: (a)
          the amount of Cash that such holder would have been entitled to
          receive pursuant to the Plan if such Claim and each other Unsecured
          Claim allowed prior to such Quarterly Distribution Date had been an
          Allowed Unsecured Claim as of the Effective Date (with such amount to
          be calculated in the manner described in Section 9.4(d)(i)(A)) minus
          (b) the aggregate amount of Cash previously distributed on account of
          such Claim. Notwithstanding the foregoing, if the Disbursing Agent
          determines, in its reasonable discretion, that the amount of any
          quarterly distribution is too small to justify the administrative
          costs associated with such distribution, the Disbursing Agent may
          postpone such quarterly distribution until the next Quarterly
          Distribution Date. The Disbursing Agent will have no obligation to
          notify Beneficiaries if it determines, in its reasonable discretion,
          that any quarterly distribution will be postponed. In the event of the
          disallowance of a Disputed Unsecured Claim in Subclass 3D, any amounts
          held in respect thereof will be released from the Disputed Claims
          Reserve for distribution in accordance with Section 9.4(b)(i) and this
          Section 9.4(d).

     (e) 7-3/4% SWD Revenue Bonds.

     (i)  Plan Accepted by Subclass 3A. If (i) Subclass 3A votes to accept the
          Plan in accordance with section 1126(c) of the Bankruptcy Code and
          (ii) unless the holders of Senior Note Claims otherwise agree pursuant
          to a settlement, all holders of Allowed Senior Note Claims are
          entitled under the Plan to identical treatment in respect of
          contractual subordination claims under the Senior Subordinated Note
          Indenture, then, on or as promptly as practicable on the Effective
          Date the Disbursing Agent will make the payment, if any, to the 7-3/4%
          SWD Revenue Bond Indenture Trustee for the benefit of holders of
          7-3/4% SWD Revenue Bonds pursuant to Section 2.5(a) and pay any
          amounts payable pursuant to Section 2.6(b).

     (ii) Plan Rejected by Subclass 3A. If Subclass 3A fails to accept the Plan
          in accordance with section 1126(c) of the Bankruptcy Code, the amount
          of the Public Note Distributable Consideration, if any, to which the
          Bankruptcy Court determines the holders of 7-3/4% SWD Revenue Bonds
          are entitled will be distributed as provided in an order of the
          Bankruptcy Court.

     (f) Application of Distributions to Holders of Public Note Claims and
7-3/4% SWD Revenue Bonds. All distributions to a holder of an Allowed Public
Note Claim or a holder of a 7-3/4% SWD Revenue Bond will be deemed to apply
first to the principal amount of such Claim or 7-3/4% SWD Revenue Bond until
such principal amount is paid in full, and then the remaining portion of such
distributions, if any, will be deemed to apply to any prepetition accrued
interest included in such Claim or in respect of such 7-3/4% SWD Revenue Bond.


                                       26

     (g) No De Minimis Distributions. The Disbursing Agent will not be required
to distribute Cash to the holder of an Allowed Unsecured Claim if the total
aggregate amount of Cash to be distributed on account of such Claim is less than
$25. Any holder of an Allowed Unsecured Claim on account of which the total
aggregate amount of Cash to be distributed is less than $25 will have its claim
for such distribution deemed satisfied, waived and released and will be forever
barred from asserting any such Claim against the Debtors, the Distribution
Trustee, the Disbursing Agent or the property of any of them, including the
Trust Accounts. Any Cash not distributed with respect to Allowed Unsecured
Claims as a result of the provisions of this Section 9.4(g) will be retained in
the Unsecured Claims Trust Account for redistribution to other holders of
Allowed Unsecured Claims entitled to distributions from the Unsecured Claims
Trust Account.

     (h) Compliance with Tax Requirements. To the extent applicable, the
Disbursing Agent will comply with all Tax withholding and reporting requirements
imposed on it by any governmental unit, and all distributions pursuant to the
Plan will be subject to such withholding and reporting requirements. The
Disbursing Agent will be authorized to take any actions that it determines, in
its reasonable discretion, to be necessary, appropriate or desirable to comply
with such withholding and reporting requirements. Notwithstanding any other
provision of the Plan or the Distribution Trust Agreement, each entity receiving
a distribution of Cash pursuant to the Plan will have sole and exclusive
responsibility for the satisfaction and payment of any Tax obligations imposed
on it by any governmental unit on account of such distribution, including
income, withholding and other Tax obligations.

     9.5 Setoffs. Except with respect to claims of a Debtor released pursuant to
the Plan or any contract, instrument, release, or other agreement or document
entered into or delivered in connection with the Plan, the Distribution Trustee
or any other Disbursing Agent may, pursuant to section 553 of the Bankruptcy
Code or applicable nonbankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim) the claims, rights and causes
of action of any nature that the applicable Debtor may hold against the holder
of such Allowed Claim; provided, however, that neither the failure to effect a
setoff nor the allowance of any Claim hereunder will constitute a waiver or
release by the applicable Debtor of any claims, rights and causes of action that
the Debtor or Debtors may possess against such a Claim holder, which are
preserved under the Plan.

     9.6 Compensation and Reimbursement for Services Related to Distributions.
If the Distribution Trustee employs or contracts with a third-party Disbursing
Agent, such Disbursing Agent will receive, without the need for further
Bankruptcy Court approval, reasonable compensation for such services and
reimbursement of reasonable out-of-pocket expenses incurred in connection with
such services. These payments will be made on terms agreed to with the
Distribution Trustee and will be paid to such Disbursing Agent from funds in the
Distribution Trust Expenses Account. To assist in making distributions under the
Plan, notwithstanding any other provision of the Plan, the applicable Trust
Accounts (other than the Distribution Trust Expenses Account) may be held in the
name of one or more such Disbursing Agents. Any such Disbursing Agent will
invest the Cash in the Trust Accounts as directed by the Distribution Trustee,
who will direct such Disbursing Agent to invest such Cash only in Permitted
Investments; provided, however, that should the Distribution Trustee determine,
in its reasonable discretion, that the administrative costs associated with such
investment will exceed the return on such investment, it may direct such
Disbursing Agent to not invest such Cash.

     9.7 Payments Limited to Trust Accounts. All payments or other distributions
to be made by the Distribution Trustee in accordance with the Plan or the
Distribution Trust Agreement will be made only from the Trust Accounts.

     9.8 Insufficient Funds. Provided that the Disbursing Agent has not acted in
bad faith, engaged in fraud, willful misconduct or gross negligence or breached
its fiduciary duties, if the Distribution Trust Assets at any point prove
insufficient to pay all Beneficiaries of the Priority Claims Trust Account in
full or all Beneficiaries of the Unsecured Claims Trust Account in accordance
with the terms of the Plan, the Disbursing Agent will have no obligation to seek
disgorgement from any Beneficiary, but may seek the guidance of the Bankruptcy
Court or another court of competent jurisdiction.


                                       27

                                    ARTICLE X

                                 DISPUTED CLAIMS

     10.1 Prosecution of Objections to Claims. All objections to Claims must be
Filed and served on the holders of such Claims by the Claims Objection Bar Date,
and, if Filed prior to the Effective Date, such objections will be served on the
parties on the then-applicable service list in the Chapter 11 Cases. If an
objection has not been Filed to a proof of Claim, a scheduled Claim or a request
for payment of Administrative Claim by the applicable Claims Objection Bar Date,
the Claim to which the proof of Claim, scheduled Claim or request for payment of
Administrative Claim relates will be treated as an Allowed Claim if such Claim
has not been allowed earlier.

     10.2 Treatment of Disputed Claims.

     (a) No Payments on Account of Disputed Claims and Disputed Claims Reserves.
Notwithstanding any other provisions of the Plan, no payments or distributions
will be made on account of a Disputed Claim until such Claim becomes an Allowed
Claim. In lieu of distributions under the Plan to holders of Disputed Claims, a
Disputed Claims Reserve will be established on the Effective Date in each Trust
Account, which, in the case of Unsecured Claims in Subclass 3D, will include an
amount equal to the Pro Rata Share of the distribution to which all of the
Disputed Claims in Subclass 3D would be entitled if such Disputed Claim was
allowed in its Face Amount on the Effective Date.

     (b) Recourse. Each holder of a Disputed Claim that ultimately becomes an
Allowed Claim will have recourse only to the undistributed Cash held in the
applicable Trust Account for the satisfaction of such Allowed Claim and not to
any other Trust Account or any assets previously distributed on account of any
Allowed Claim.

     (c) Tax Requirements for Income Generated by Disputed Claim Reserves. The
Distribution Trustee will include in the Tax returns of the Trust Accounts all
items of income, deduction and credit of the Trust Accounts, except to the
extent such items are included in the income of the Beneficiaries of the Trust
Accounts as grantors of grantor trusts. The Distribution Trustee will pay, or
cause to be paid, out of the funds held in applicable Trust Accounts, any Tax
imposed on the Trust Accounts by any governmental unit with respect to income
generated by the funds held in the Trust Accounts. The Distribution Trustee also
will file or cause to be filed any Tax or information return related to the
applicable Trust Account that is required by any governmental unit.

                                   ARTICLE XI

                            RETENTION OF JURISDICTION

          Notwithstanding the entry of the Confirmation Order and the occurrence
of the Effective Date, the Bankruptcy Court will retain all such jurisdiction
over the Chapter 11 Cases after the Effective Date as is legally permissible,
including jurisdiction to:

     (a) Allow, disallow, determine, liquidate, classify, reclassify, estimate
or establish the priority, secured or unsecured status (or proper Plan
classification) of any Claim or Interest, including the resolution of any
request for payment of any Administrative Claim, and the resolution of any
objections to the allowance, priority, or classification of Claims or Interests;

     (b) Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the Plan
for periods ending on or before the Effective Date;

     (c) Resolve any matters related to the assumption, assumption and
assignment or rejection of any Executory Contract or Unexpired Lease to which
either Debtor is a party or with respect to which either Debtor may be liable
and to hear, determine and, if necessary, liquidate any Claims arising
therefrom;

     (d) Ensure that distributions to holders of Allowed Claims are accomplished
pursuant to the provisions of the Plan;


                                       28

     (e) Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters, including the Recovery Actions and
claims of the holders of the 7-3/4% SWD Revenue Bonds in respect of
subordination rights under the Senior Subordinated Note Indenture, and grant or
deny any applications involving the Debtors or the Distribution Trustee that may
be pending on the Effective Date or brought thereafter;

     (f) Enter such orders as may be necessary or appropriate to implement or
consummate the provisions of the Plan and all contracts, instruments, releases
and other agreements or documents entered into or delivered in connection with
the Plan, the Disclosure Statement or the Confirmation Order, including the
Distribution Trust Agreement;

     (g) Resolve any cases, controversies, suits or disputes that may arise in
connection with the Recovery Actions or the consummation, interpretation, or
enforcement of the Plan or any contract, instrument, release, or other agreement
or document that is entered into or delivered pursuant to the Plan (including
the Distribution Trust Agreement), or any entity's rights arising from or
obligations incurred in connection with the Plan or such documents;

     (h) Modify the Plan before or after the Effective Date pursuant to section
1127 of the Bankruptcy Code; modify the Confirmation Order, or any contract,
instrument, release or other agreement or document entered into or delivered in
connection with the Plan, the Disclosure Statement or the Confirmation Order; or
remedy any defect or omission or reconcile any inconsistency in any Bankruptcy
Court order, the Plan, the Disclosure Statement, the Confirmation Order, or any
contract, instrument, release or other agreement or document entered into,
delivered or created in connection with the Plan, the Disclosure Statement or
the Confirmation Order, in such manner as may be necessary or appropriate to
consummate the Plan;

     (i) Issue injunctions, enforce the injunctions contained in the Plan and
the Confirmation Order, enter and implement other orders or take such other
actions as may be necessary or appropriate to restrain interference by any
entity with consummation, implementation or enforcement of the Plan or the
Confirmation Order;

     (j) Enter and implement such orders as are necessary or appropriate if the
Confirmation Order is for any reason or in any respect modified, stayed,
reversed, revoked or vacated or distributions pursuant to the Plan are enjoined
or stayed;

     (k) Determine any other matters that may arise in connection with or relate
to the Plan, the Disclosure Statement, the Confirmation Order, or any contract,
instrument, release or other agreement or document entered into or delivered in
connection with the Plan, the Disclosure Statement or the Confirmation Order;

     (l) Enter a final decree closing the Chapter 11 Cases in accordance with
the Bankruptcy Rules; and

     (m) Determine matters concerning state, local and federal Taxes in
accordance with sections 346, 505 and 1146 of the Bankruptcy Code, including any
Disputed Claims for Taxes.

                                   ARTICLE XII

                            MISCELLANEOUS PROVISIONS

     12.1 Preservation of Insurance.

     (a) Nothing in the Plan will diminish or impair the enforceability of any
insurance policies that may cover Claims against either Debtor.

     (b) Nothing in the Plan or in the Confirmation Order shall preclude any
entity from asserting in any proceeding any and all claims, defenses, rights or
causes of action that it has or may have under or in connection with any
insurance policy or insurance settlement agreement. Nothing in the Plan or the
Confirmation Order shall be deemed to waive any claims, defense, rights or
causes of action that any entity has or may have under the provisions, terms,
conditions, defenses and/or exclusions contained in such policies or
settlements.


                                       29

     (c) Notwithstanding the provisions of Section 12.1(b) and the substantial
consummation of the Plan, in connection with any possible settlements made in
any of the Kaiser Cases which concern any insurance policies, the Bankruptcy
Court shall retain jurisdiction over the Chapter 11 Cases to issue or approve
buybacks of such insurance policies under section 363 of the Bankruptcy Code
and/or to issue or approve injunctions, releases and/or exculpations under the
Bankruptcy Code (including, without limitation, section 105 of the Bankruptcy
Code) for purposes of, inter alia, protecting any such settling insurers against
claims or demands made against the Debtors. In this regard, as between KACC and
the Debtors, KACC will have full and sole right and authority to settle,
release, compromise and enter into buybacks by insurers of insurance policies as
to which the Debtors, or any of them, have or may assert rights as an insured.
The Debtors shall not be entitled to any consideration or other value as a
result of any such exercise of rights by KACC.

     12.2 Modification of the Plan. Subject to the restrictions on modifications
set forth in section 1127 of the Bankruptcy Code, the Debtors reserve the right
to alter, amend or modify the Plan before its substantial consummation, with the
consent of the Creditors' Committee.

     12.3 Revocation of the Plan. The Debtors reserve the right to revoke or
withdraw the Plan prior to the Effective Date, with the consent of the
Creditors' Committee. If the Debtors so revoke or withdraw the Plan, or if
confirmation of the Plan does not occur, the Plan will be null and void in all
respects, and nothing contained in the Plan will: (a) constitute a waiver or
release of any Claims by or against, or any Interests in, the Debtors; or (b)
prejudice in any manner the rights of either Debtor or any other party.

     12.4 Limitation on Certain Actions. Notwithstanding any other provision in
the Plan, the Plan shall not be amended, modified, revoked or withdrawn with the
intent of altering or undermining in any way the Bankruptcy Court's
determination of the respective entitlement of holders of Allowed Claims under
Sections 2.4(c)(i)(B) and 2.4(c)(ii)(B).

     12.5 Severability of Plan Provisions. If, prior to confirmation of the
Plan, any term or provision of the Plan is held by the Bankruptcy Court to be
invalid, void or unenforceable, the Bankruptcy Court will have the power to
alter and interpret such term or provision to make it valid or enforceable to
the maximum extent practicable, consistent with the original purpose of the term
or provision held to be invalid, void or unenforceable, and such term or
provision then will be applicable as altered or interpreted; provided, however,
that any such alteration or interpretation must be in form and substance
acceptable to the Debtors and the Creditors' Committee. Notwithstanding any such
holding, alteration or interpretation, the remainder of the terms and provisions
of the Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order will constitute a judicial determination and will provide
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.

     12.6 Notices. Any pleading, notice, or other document required by the Plan
or Confirmation Order to be served on or delivered to the Debtors, the
Distribution Trustee or the Creditors' Committee must be sent by overnight
delivery service, facsimile transmission, courier service, or messenger to:

     (a) The Debtors:

         Daniel J. DeFranceschi
         RICHARDS, LAYTON & FINGER, P.A.
         One Rodney Square
         P.O. Box 551
         Wilmington, Delaware 19899
         Facsimile: (302) 651-7701


                                       30

         Gregory M. Gordon
         Henry L. Gompf
         Troy B. Lewis
         Daniel P. Winikka
         JONES DAY
         2727 North Harwood Street
         Dallas, Texas 75201
         Facsimile (214) 969-5100

         (Counsel to the Debtors)

     (b) The Distribution Trustee:

         Distribution Trustee
         [The identity and address of the Distribution Trustee to be
         disclosed at least ten days prior to the Confirmation Hearing as
         provided in Section 8.2(a).]

     (c) The Creditors' Committee:

         Lisa G. Beckerman
         AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
         590 Madison Avenue
         New York, NY 10022

         William P. Bowden
         ASHBY & GEDDES
         222 Delaware Avenue
         P.O. Box 1150
         Wilmington, DE 19899

         (Counsel to the Creditors' Committee)

     12.7 Successors and Assigns. The rights, benefits, and obligations of any
entity named or referred to in the Plan will be binding on, and will inure to
the benefit of, any heir, executor, administrator, successor, or assign of such
entity, regardless of whether such entity voted to accept the Plan.

     12.8 Further Action. Nothing contained in the Plan will prevent the Debtors
or the Distribution Trustee from taking such actions as may be necessary to
consummate the Plan, even though such actions may not be specifically provided
for within the Plan.

     12.9 Exhibits. All Exhibits to the Plan are incorporated by reference and
are intended to be an integral part of this document as though fully set forth
in the Plan.


                                       31

Dated: February 25, 2005               Respectfully submitted,

                                       ALPART JAMAICA INC.


                                       By: /s/ John M. Donnan
                                           -------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                       KAISER JAMAICA CORPORATION


                                       By: /s/ John M. Donnan
                                           -------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


COUNSEL:


/s/ Daniel J. DeFranceschi
- -------------------------------------
Daniel J. DeFranceschi (DE 2732)
RICHARDS, LAYTON & FINGER, P.A.
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
Telephone: (302) 651-7700
Facsimile: (302) 651-7701

- - and -

Gregory M. Gordon (TX 08435300)
Henry L. Gompf (TX 08116400)
Troy B. Lewis (TX 12308650)
Daniel P. Winikka (TX 00794873)
JONES DAY
2727 North Harwood Street
Dallas, Texas 75201
Telephone: (214) 220-3939
Facsimile: (214) 969-5100

ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION


                                       32

EX-99.2

                                                                    EXHIBIT 99.2

                         UNITED STATES BANKRUPTCY COURT
                          FOR THE DISTRICT OF DELAWARE

- ------------------------------x
                              :
In re:                        :
                              :   Chapter 11 Case Nos.
ALPART JAMAICA INC. and       :   03-10144 and 03-10151
KAISER JAMAICA CORPORATION,   :   Jointly Administered Under
                              :   Case No. 02-10429 (JKF)
                   Debtors.   :
                              :
- ------------------------------x

                              DISCLOSURE STATEMENT
                 PURSUANT TO SECTION 1125 OF THE BANKRUPTCY CODE
           WITH RESPECT TO THE THIRD AMENDED JOINT PLAN OF LIQUIDATION
             FOR ALPART JAMAICA INC. AND KAISER JAMAICA CORPORATION

                                  Daniel J. DeFranceschi (DE 2732)
                                  RICHARDS, LAYTON & FINGER, P.A.
                                  One Rodney Square
                                  P.O. Box 551
                                  Wilmington, Delaware 19899
                                  Telephone: (302) 651-7700
                                  Facsimile: (302) 651-7701

                                           - and -

                                  Gregory M. Gordon (TX 08435300)
                                  Henry L. Gompf (TX 08116400)
                                  Troy B. Lewis (TX 12308650)
                                  Daniel P. Winikka (TX 00794873)
                                  JONES DAY
                                  2727 North Harwood Street
                                  Dallas, Texas 75201
                                  Telephone: (214) 220-3939
                                  Facsimile: (214) 969-5100

                                  ATTORNEYS FOR DEBTORS AND
                                  DEBTORS IN POSSESSION

Dated: February 28, 2005

                  DISCLOSURE STATEMENT, DATED FEBRUARY 28, 2005

                              SOLICITATION OF VOTES
                               WITH RESPECT TO THE
                     THIRD AMENDED JOINT PLAN OF LIQUIDATION
                                       FOR
               ALPART JAMAICA INC. AND KAISER JAMAICA CORPORATION
      (WHOLLY OWNED SUBSIDIARIES OF KAISER ALUMINUM & CHEMICAL CORPORATION)

                                   ----------

     THE BOARDS OF DIRECTORS OF ALPART JAMAICA INC. ("AJI") AND KAISER JAMAICA
CORPORATION ("KJC" AND, TOGETHER WITH AJI, THE "DEBTORS") BELIEVE THAT THE THIRD
AMENDED JOINT PLAN OF LIQUIDATION FOR ALPART JAMAICA INC. AND KAISER JAMAICA
CORPORATION, DATED FEBRUARY 25, 2005 AND ATTACHED HERETO AS EXHIBIT I (THE
"PLAN"), IS IN THE BEST INTERESTS OF CREDITORS. ALL CREDITORS ENTITLED TO VOTE
ON THE PLAN ARE URGED TO VOTE IN FAVOR THEREOF. A SUMMARY OF THE VOTING
INSTRUCTIONS IS SET FORTH BEGINNING AT PAGE 56 OF THIS DISCLOSURE STATEMENT.
MORE DETAILED INSTRUCTIONS ARE CONTAINED ON THE BALLOTS DISTRIBUTED TO CREDITORS
ENTITLED TO VOTE ON THE PLAN. TO BE COUNTED, YOUR BALLOT MUST BE DULY COMPLETED,
EXECUTED AND RECEIVED BY 5:00 P.M., EASTERN TIME, ON APRIL 5, 2005 OR SUCH OTHER
TIME OR DATE IDENTIFIED ON YOUR BALLOT (THE "VOTING DEADLINE"), UNLESS EXTENDED.

     THE CREDITORS' COMMITTEE HAS INDEPENDENTLY CONCLUDED THAT THE PLAN IS IN
THE BEST INTERESTS OF CREDITORS AND URGES CREDITORS TO VOTE IN FAVOR OF THE
PLAN.

                                   ----------

     THE CONFIRMATION AND EFFECTIVENESS OF THE PROPOSED PLAN ARE SUBJECT TO
MATERIAL CONDITIONS PRECEDENT, SOME OF WHICH MAY NOT BE SATISFIED. SEE "ANSWERS
TO CERTAIN QUESTIONS ABOUT THE PLAN AND DISCLOSURE STATEMENT -- WHAT MUST HAPPEN
BEFORE THE PLAN CAN BE CONSUMMATED?" AND "VOTING AND CONFIRMATION OF THE PLAN --
CONFIRMATION -- ACCEPTANCE OR CRAMDOWN." THERE IS NO ASSURANCE THAT THESE
CONDITIONS WILL BE SATISFIED OR WAIVED.

                                   ----------

     No person is authorized by either of the Debtors in connection with the
Plan or the solicitation of acceptances of the Plan to give any information or
to make any representation other than as contained in this Disclosure Statement
or incorporated by reference or referred to herein, and, if given or made, such
information or representation may not be relied upon as having been authorized
by either of the Debtors. The delivery of this Disclosure Statement will not
under any circumstances imply that the information herein is correct as of any
time subsequent to the date hereof. The Debtors will make available to creditors
entitled to vote on acceptance of the Plan such additional information as may be
required by applicable law prior to the Voting Deadline.

                                   ----------

     ALL CREDITORS ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THIS ENTIRE
DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED HERETO AS EXHIBIT I, PRIOR TO
SUBMITTING BALLOTS PURSUANT TO THIS SOLICITATION.

                                   ----------

     The summaries of the Plan and the other documents contained in this
Disclosure Statement are qualified by reference to the Plan itself, the Exhibit
thereto and other documents summarized herein, all as Filed prior to approval of
this Disclosure Statement.

                                   ----------

     The information contained in this Disclosure Statement, including the
information regarding the history, businesses and operations of the Debtors, is
included for purposes of soliciting acceptances of the Plan, but, as to
contested matters and adversary proceedings, is not to be construed as
admissions or stipulations, but rather as statements made in settlement
negotiations.

                                   ----------

     FORWARD-LOOKING STATEMENTS: THIS DISCLOSURE STATEMENT INCLUDES
FORWARD-LOOKING STATEMENTS BASED LARGELY ON THE CURRENT EXPECTATIONS OF THE
DEBTORS ABOUT FUTURE EVENTS. THE WORDS "BELIEVE," "MAY," "WILL," "ESTIMATE,"
"CONTINUE," "ANTICIPATE," "INTEND," "EXPECT" AND SIMILAR EXPRESSIONS IDENTIFY
THESE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO A NUMBER OF RISKS, UNCERTAINTIES AND ASSUMPTIONS. IN LIGHT OF THESE RISKS AND
UNCERTAINTIES, THE FORWARD-LOOKING EVENTS AND CIRCUMSTANCES DISCUSSED IN THIS
DISCLOSURE STATEMENT MAY NOT OCCUR AND ACTUAL EVENTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS. THE DEBTORS UNDERTAKE
NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

                                   ----------

     THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.

                                   ----------

     ALL CAPITALIZED TERMS IN THIS DISCLOSURE STATEMENT NOT OTHERWISE DEFINED
HEREIN HAVE THE MEANINGS GIVEN TO THEM IN THE PLAN.

                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                         
INTRODUCTION.............................................................     1
ANSWERS TO CERTAIN QUESTIONS ABOUT THE PLAN AND DISCLOSURE STATEMENT.....     4
OVERVIEW OF THE PLAN.....................................................    13
   Introduction..........................................................    13
   Summary of Classes and Treatment of Claims and Interests..............    14
   Guaranty Subordination Dispute........................................    17
   7-3/4% SWD Revenue Bond Dispute.......................................    17
   Sources and Uses of Cash..............................................    18
      Sources of Cash....................................................    18
      Uses of Cash.......................................................    18
   Additional Information Regarding Assertion and Treatment of
      Administrative Claims and Priority Tax Claims......................    22
      Administrative Claims..............................................    22
         Administrative Claims in General................................    22
         US Trustee Fees.................................................    22
         Bar Dates for Administrative Claims.............................    23
      Priority Tax Claims................................................    23
      Reserves for Payment of Certain Potential Administrative Claims
         and Priority Tax Claims.........................................    23
   Senior Note Indenture Trustee and Ad Hoc Group Counsel Fees and
      Expenses; 7-3/4% SWD Revenue Bond Plaintiffs' Fees.................    23
CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS.................    24
   Background............................................................    24
   Chapter 11 Filings of the Other Kaiser Debtors........................    24
   Note Guarantees.......................................................    24
   Pension Funding Obligations; Commencement of the Chapter 11 Cases
      by the Debtors.....................................................    25
OPERATIONS DURING THE CHAPTER 11 CASES...................................    26
   First Day Relief Requested by the Original Debtors....................    26
      Cash Management Order..............................................    26
      Joint Venture Order................................................    27
   First Day Relief Requested by AJI, KJC and the other
      Additional Debtors.................................................    27
   Appointment of the Committees and Future Claimants' Representatives...    27
      Creditors' Committee...............................................    27
      Asbestos Claimants' Committee and Certain Other Appointed
         Representatives.................................................    28
   Assumption and Assignment or Rejection of Executory Contracts
      and Unexpired Leases...............................................    28



                                        i

                                                                         
   Claims Process and Bar Dates..........................................    29
   Postpetition Financing................................................    29
   Strategic Plan to Sell Commodities Assets.............................    29
   The Sale of the Alpart Interests and Liquidation of AJI and KJC.......    30
   Certain Jamaican Tax Matters..........................................    30
   Agreements with Labor Regarding Pension and Retiree Medical Benefits..    30
   PBGC Claims...........................................................    31
   Intercompany Claims Settlement........................................    32
   Guaranty Subordination Dispute........................................    33
   7-3/4% SWD Revenue Bond Dispute.......................................    35
GENERAL INFORMATION CONCERNING THE PLAN..................................    37
   Substantive Consolidation.............................................    37
   Executory Contracts and Unexpired Leases to be Rejected...............    37
   Releases, Limitation of Liability, Injunctions and
      Preservation of Insurance..........................................    38
      Release of Claims and Termination of Interests;
         Limitation of Liability.........................................    38
      Injunctions........................................................    39
      Preservation of Insurance..........................................    39
      No Discharge.......................................................    39
   Means for Implementation of the Plan..................................    40
      Liquidating Transactions...........................................    40
      Corporate Action...................................................    40
      No Revesting of Assets.............................................    40
      Recourse Solely to Trust Accounts..................................    40
      Release of Liens...................................................    40
      Exemption from Certain Taxes.......................................    41
   Distribution Trust....................................................    41
      Creation of the Distribution Trust.................................    41
      Distribution Trust Assets..........................................    41
      Purposes of the Distribution Trust.................................    41
      Tax Treatment......................................................    42
      Trust Accounts.....................................................    42
         Distribution Trust Expenses Account.............................    42
         Priority Claims Trust Account...................................    43
         Unsecured Claims Trust Account..................................    44
         Disputed Claims Reserve.........................................    44
         Undeliverable Cash Trust Account................................    45
         Risks Associated with Funding of Trust Accounts.................    45




                                       ii

                                                                         
      Powers of the Distribution Trustee.................................    45
         General Powers..................................................    45
         Right to Object to Claims.......................................    46
         Right to Pursue Causes of Action................................    47
      Limitation on Liability and Indemnification of
         Distribution Trustee............................................    47
      Removal and Resignation of the Distribution Trustee;
         Filling of Vacancy..............................................    47
      Compensation of the Distribution Trustee...........................    48
      Books and Records; Reports and Tax Filings.........................    48
         Books and Records...............................................    48
         Reports to be Filed with the Bankruptcy Court...................    48
         Tax Returns and Payments........................................    48
      Term of the Distribution Trust.....................................    49
DISTRIBUTIONS UNDER THE PLAN.............................................    49
   Method of Distributions to Holders of Allowed Claims..................    49
   Delivery of Distributions.............................................    49
      Generally..........................................................    49
      Special Provisions for Distributions to Holders of
         Public Note Claims..............................................    50
   Undeliverable or Unclaimed Distributions..............................    50
   Means of Cash Payments................................................    50
   Timing and Calculation of Amounts to Be Distributed...................    51
      Allowed Claims Other Than Unsecured Claims.........................    51
      Allowed Unsecured Claims in Subclass 3A; Certain Payments
         From the Public Note Distributable Consideration................    51
         Plan Accepted by Subclass 3A and Subclass 3B....................    51
         Plan Rejected by Subclass 3A or Subclass 3B.....................    51
      Allowed Unsecured Claims in Subclass 3B............................    52
         Plan Accepted by Subclass 3A and Subclass 3B....................    52
         Plan Rejected by Subclass 3A or Subclass 3B.....................    52
      Allowed Unsecured Claims in Subclass 3C and Subclass 3D............    52
      7-3/4% SWD Revenue Bonds...........................................    52
         Plan Accepted by Subclass 3A....................................    52
         Plan Rejected by Subclass 3A....................................    53
      No De Minimis Distributions........................................    53
      Compliance with Tax Requirements...................................    53
      Setoffs............................................................    53
   Compensation and Reimbursement for Services Related to Distributions..    53
   Payments Limited to Trust Accounts....................................    54




                                       iii

                                                                         
   Insufficient Funds....................................................    54
   Disputed Claims.......................................................    54
      Prosecution of Objections to Claims................................    54
      Treatment of Disputed Claims.......................................    54
VOTING AND CONFIRMATION OF THE PLAN......................................    55
   General...............................................................    55
   Voting Procedures and Requirements....................................    55
   Confirmation Hearing..................................................    56
   Confirmation..........................................................    56
      Acceptance or Cramdown.............................................    57
      Best Interests Test................................................    57
         Generally.......................................................    57
         Liquidation Analysis............................................    58
      Feasibility........................................................    58
      Compliance with Applicable Provisions of the Bankruptcy Code.......    58
      Modification or Revocation of the Plan.............................    58
   Alternatives to Confirmation and Consummation of the Plan.............    59
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN......    59
   General...............................................................    59
   U.S. Federal Income Tax Consequences to Holders of Claims.............    60
      Recognition of Gain or Loss........................................    60
         In General......................................................    60
         Post-Effective Date Cash Distributions..........................    60
         Bad Debt and/or Worthless Securities Deduction..................    61
      Pending Payments...................................................    61
      Payments Other than Pending Payments...............................    61
   Certain Other Tax Consequences for Holders of Claims..................    61
      Receipt of Pre-Effective Date Interest.............................    61
      Installment Method.................................................    61
      Information Reporting and Backup Withholding.......................    62
   Importance of Obtaining Professional Tax Assistance...................    62
APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS...............    62
   General...............................................................    62
   Bankruptcy Code Exemptions from Registration Requirements.............    62




                                       iv

                                                                         
      Initial Offer and Sale.............................................    62
      Subsequent Transfers...............................................    63
ADDITIONAL INFORMATION...................................................    63
RECOMMENDATION AND CONCLUSION............................................    64




                                        v

                                TABLE OF EXHIBITS

Exhibit I  - Third Amended Joint Plan of Liquidation for Alpart Jamaica Inc. and
             Kaiser Jamaica Corporation


                                       vi

                                  INTRODUCTION

     The Debtors are seeking approval of the Plan, a copy of which is attached
hereto as Exhibit I. This Disclosure Statement is submitted by the Debtors in
connection with the solicitation of acceptances of the Plan.

     The confirmation of a plan of reorganization or liquidation, which is the
vehicle for satisfying the rights of holders of claims against and interests in
a debtor, is the overriding purpose of a chapter 11 case. Chapter 11 may be used
to either reorganize or conduct an orderly liquidation of a debtor's business.
The Plan provides for the orderly liquidation and dissolution of the Debtors.
The primary objectives of the Plan are to:

     -    maximize the value of the ultimate recoveries to all creditor groups
          on a fair and equitable basis;

     -    settle, compromise or otherwise dispose of certain Claims and other
          disputes on terms that the Debtors believe to be fair and reasonable
          under the circumstances and in the best interests of their respective
          Estates and creditors and Kaiser Aluminum & Chemical Corporation
          ("KACC"), as the sole stockholder of each Debtor; and

     -    effectuate the orderly liquidation and dissolution of the Debtors.

     The Plan provides for, among other things, (a) the classification and
treatment of Claims and Interests; (b) the establishment of the Distribution
Trust to make distributions in accordance with the Plan; (c) the creation and
administration of the Trust Accounts; and (d) the liquidation of the Debtors.

     PLEASE REFER TO THE CHART BEGINNING ON PAGE 14 OF THIS DISCLOSURE STATEMENT
FOR A SUMMARY OF THE PROPOSED TREATMENT OF EACH CLASS OF CLAIMS AND INTERESTS.

     If the Plan is confirmed and consummated in accordance with its terms,
among other things:

     -    holders of Allowed Administrative Claims, Allowed Priority Tax Claims
          and Allowed Priority Claims in Class 1 will receive Cash from the
          Priority Claims Trust Account in the amount of their respective
          Allowed Claim without interest or penalty;

     -    holders of Allowed 9-7/8% Senior Note Claims and 10-7/8% Senior Note
          Claims in Subclass 3A:

          -    if both Subclass 3A and Subclass 3B vote to accept the Plan, will
               receive from the Unsecured Claims Trust Account their respective
               Pro Rata Share of the Public Note Distributable Consideration
               (i.e., (a) the Public Note Percentage of the Cash in the
               Unsecured Claims Trust Account plus (b) Cash in the amount of the
               aggregate fees payable to the 9-7/8% Senior Note Indenture
               Trustee, the 10-7/8% Senior Note Indenture Trustee and counsel
               for the Ad Hoc Group in accordance with the Plan up to an
               aggregate not to exceed $1.5 million) remaining after first
               giving effect to the following payments by the Distribution
               Trustee from the Public Note Distributable Consideration:

               -    the payment to be made to the 7-3/4% SWD Revenue Bond
                    Indenture Trustee for the benefit of the holders of the
                    7-3/4% SWD Revenue Bonds pursuant to Section 2.5 of the Plan
                    (the "7-3/4% SWD Revenue Bonds Payment");

               -    the payment of the reasonable out-of-pocket expenses
                    (including attorneys' fees) incurred and paid by the
                    plaintiffs in the 7-3/4% SWD Revenue Bond Dispute in
                    connection with the Chapter 11 Cases and the chapter 11
                    cases of the Other Kaiser Debtors, including in connection
                    with the 7-3/4% SWD Revenue Bond Dispute and that certain
                    civil action currently pending before the United States
                    District Court for the Eastern District of Louisiana styled
                    Paul J. Guillot, et al. v. Credit Suisse First Boston, LLC,
                    and numbered 03-0797, in accordance with the Plan, up to an
                    amount which, when aggregated with any amount payable under
                    the comparable provision of the KAAC/KFC Plan, will not
                    exceed $500,000 (the "7-3/4% SWD Revenue Bond Plaintiffs'
                    Expense Payments");

               -    the payment of the aggregate fees and expenses of the 9-7/8%
                    Senior Note Indenture Trustee, the 10-7/8% Senior Note
                    Indenture Trustee and the counsel for the Ad Hoc Group in
                    accordance with the Plan, whether or not in excess of $1.5
                    million (the "Senior Notes Fee Payments"); and

               -    the payment of $8.0 million to be made to the Senior
                    Subordinated Note Indenture Trustee for the benefit of the
                    holders of Senior Subordinated Note Claims; or

          -    if either Subclass 3A or Subclass 3B fails to accept the Plan,
               will receive that portion of the Public Note Distributable
               Consideration to which the Bankruptcy Court determines they are
               entitled, provided the distributions ultimately made to a holder
               of an Allowed Senior Note Claim will be reduced by such holder's
               proportional share of the Senior Notes Fee Payments and, if the
               Bankruptcy Court determines that holders of Allowed Senior
               Subordinated Note Claims are not entitled to any portion of the
               Subclass 3A Distributable Consideration, the 7-3/4% SWD Revenue
               Bond Payment (or a reservation in lieu thereof), if any, and any
               7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments;

     -    holders of Allowed Senior Subordinated Note Claims in Subclass 3B:

          -    if both Subclass 3A and Subclass 3B vote to accept the Plan, will
               receive their respective Pro Rata Share of $8.0 million to be
               paid to the Senior Subordinated Note Indenture Trustee, provided
               that any and all fees or expenses payable to the Senior
               Subordinated Note Indenture Trustee pursuant to the Senior
               Subordinated Note Indenture will, in all events, be payable
               solely from such $8.0 million; or

          -    if either Subclass 3A or Subclass 3B fails to accept the Plan,
               will receive that portion, if any, of the Public Note
               Distributable Consideration to which the Bankruptcy Court
               determines they are entitled, provided any distributions
               ultimately made to a holder of an Allowed Senior Subordinated
               Note Claim may be reduced by such holder's proportional share of
               any and all fees and expenses payable to the Senior Subordinated
               Note Trustee pursuant to the Senior Subordinated Note Indenture,
               which will, subject to such Trustee's right to seek payment by
               the Debtors of such fees and expenses pursuant to section
               503(b)(5) of the Bankruptcy Code, be payable solely from such
               distributions;

     -    Pension Benefit Guaranty Corporation (the "PBGC"), as the holder of
          the PBGC Claims in Subclass 3C, will receive the PBGC Percentage of
          the Cash in the Unsecured Claims Trust Account; and

     -    holders of Allowed Other Unsecured Claim in Subclass 3D will receive
          their respective Pro Rata Share of the Other Unsecured Claims
          Percentage of the Cash in the Unsecured Claims Trust Account.

As the foregoing indicates, in general, all holders of Claims will have
recourse, if any, only to the Cash in the applicable Trust Accounts. The Debtors
will cease to exist as legal entities following consummation of the Plan. See
"Overview of the Plan -- Summary of Classes and Treatment of Claims and
Interests."

     SUBJECT TO THE PROVISIONS OF SECTION 2.10 OF THE PLAN, AS OF THE EFFECTIVE
DATE, IN CONSIDERATION FOR THE OBLIGATIONS OF THE DEBTORS AND THE DISTRIBUTION
TRUSTEE UNDER THE PLAN AND THE CASH TO BE DISTRIBUTED IN CONNECTION WITH THE
PLAN, EACH HOLDER OF A CLAIM THAT VOTES IN FAVOR OF THE PLAN WILL BE DEEMED TO
FOREVER RELEASE AND WAIVE ALL CLAIMS, OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES,
DEMANDS, DEBTS, RIGHTS, CAUSES OF ACTION AND LIABILITIES (OTHER THAN THE RIGHT
TO ENFORCE THE DEBTORS' OR THE DISTRIBUTION TRUSTEE'S OBLIGATIONS UNDER THE PLAN
AND THE CONTRACTS, INSTRUMENTS, RELEASES AND OTHER AGREEMENTS AND DOCUMENTS
DELIVERED THEREUNDER), WHETHER LIQUIDATED OR UNLIQUIDATED, FIXED OR CONTINGENT,
MATURED OR UNMATURED, KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, THEN EXISTING OR
THEREAFTER ARISING IN LAW, EQUITY OR OTHERWISE,


                                       2

THAT ARE BASED IN WHOLE OR IN PART ON ANY ACT, OMISSION, TRANSACTION OR OTHER
OCCURRENCE TAKING PLACE ON OR PRIOR TO THE EFFECTIVE DATE IN ANY WAY RELATING TO
A DEBTOR, THE CHAPTER 11 CASES OR THE PLAN THAT SUCH ENTITY HAS, HAD OR MAY HAVE
AGAINST THE CREDITORS' COMMITTEE, ITS MEMBERS, ANY INDENTURE TRUSTEE, EITHER
DEBTOR AND ANY OF THEIR RESPECTIVE PRESENT OR FORMER DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ADVISORS, ATTORNEYS, ACCOUNTANTS, UNDERWRITERS, INVESTMENT
BANKERS OR OTHER REPRESENTATIVES, ACTING IN SUCH CAPACITY, EXCEPT FOR THOSE
BASED ON: (A) ACTS OR OMISSIONS OF ANY SUCH PERSON CONSTITUTING GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT; (B) IF THE HOLDERS OF THE SENIOR SUBORDINATED NOTE CLAIMS
ARE DETERMINED BY THE ORDER CONTEMPLATED BY SECTIONS 2.4(C)(I)(B) AND
2.4(C)(II)(B) TO BE ENTITLED TO A DISTRIBUTION IN RESPECT TO SUCH CLAIMS, ACTS
OR OMISSIONS OF ANY SUCH PERSON RELATED TO OR GIVING RISE TO THE CIRCUMSTANCES
UNDERLYING ANY OF THE CONTRACTUAL SUBORDINATION DISPUTES; OR (C) CONTRACTUAL
OBLIGATIONS OF, OR LOANS OWED BY, ANY SUCH PERSON TO A DEBTOR. SEE "GENERAL
INFORMATION CONCERNING THE PLAN -- RELEASES, LIMITATION OF LIABILITY, AND
INJUNCTIONS -- RELEASE OF CLAIMS AND TERMINATION OF INTERESTS; LIMITATION OF
LIABILITY."

     EXCEPT AS OTHERWISE PROVIDED IN THE PLAN OR THE CONFIRMATION ORDER, AS OF
THE EFFECTIVE DATE, ALL ENTITIES THAT HAVE HELD, CURRENTLY HOLD OR MAY HOLD A
CLAIM OR OTHER DEBT OR LIABILITY OF THE DEBTORS, OR AN INTEREST OR OTHER RIGHT
OF AN EQUITY SECURITY HOLDER WITH RESPECT TO THE DEBTORS, THAT IS RELEASED,
WAIVED, SETTLED OR DEEMED SATISFIED PURSUANT TO THE PLAN WILL BE PERMANENTLY
ENJOINED FROM TAKING ANY OF THE FOLLOWING ACTIONS ON ACCOUNT OF ANY SUCH CLAIMS,
DEBTS, LIABILITIES, INTERESTS OR RIGHTS: (A) COMMENCING OR CONTINUING IN ANY
MANNER ANY ACTION OR OTHER PROCEEDING AGAINST THE DEBTORS, THE DISTRIBUTION
TRUST OR THE DISTRIBUTION TRUSTEE OR THE PROPERTY OF ANY OF THEM OTHER THAN TO
ENFORCE ANY RIGHT PURSUANT TO THE PLAN TO A DISTRIBUTION FROM THE TRUST
ACCOUNTS; (B) ENFORCING, ATTACHING, COLLECTING OR RECOVERING IN ANY MANNER ANY
JUDGMENT, AWARD, DECREE OR ORDER AGAINST THE DEBTORS, THE DISTRIBUTION TRUST OR
THE DISTRIBUTION TRUSTEE, OTHER THAN AS PERMITTED PURSUANT TO (A) ABOVE; (C)
CREATING, PERFECTING OR ENFORCING ANY LIEN OR ENCUMBRANCE AGAINST THE DEBTORS,
THE DISTRIBUTION TRUST, THE PROPERTY OF ANY OF THEM OR THE TRUST ACCOUNTS; (D)
ASSERTING A SETOFF, RIGHT OF SUBROGATION OR RECOUPMENT OF ANY KIND AGAINST ANY
DEBT, LIABILITY OR OBLIGATION DUE TO THE DISTRIBUTION TRUST; AND (E) COMMENCING
OR CONTINUING ANY ACTION, IN ANY MANNER, IN ANY PLACE THAT DOES NOT COMPLY WITH
OR IS INCONSISTENT WITH THE PROVISIONS OF THE PLAN. SEE "GENERAL INFORMATION
CONCERNING THE PLAN -- LEGAL EFFECTS OF THE PLAN -- RELEASES, LIMITATION OF
LIABILITY, AND INJUNCTIONS -- INJUNCTIONS."

     BY AN ORDER OF THE BANKRUPTCY COURT DATED FEBRUARY 28, 2005, THIS
DISCLOSURE STATEMENT HAS BEEN APPROVED AS CONTAINING "ADEQUATE INFORMATION" FOR
CREDITORS OF THE DEBTORS IN ACCORDANCE WITH SECTION 1125 OF THE BANKRUPTCY CODE.
THE BANKRUPTCY CODE DEFINES "ADEQUATE INFORMATION" AS "INFORMATION OF A KIND,
AND IN SUFFICIENT DETAIL, AS FAR AS IS REASONABLY PRACTICABLE IN LIGHT OF THE
NATURE AND THE HISTORY OF THE DEBTOR AND THE CONDITION OF THE DEBTOR'S BOOKS AND
RECORDS, THAT WOULD ENABLE A HYPOTHETICAL REASONABLE INVESTOR TYPICAL OF HOLDERS
OF CLAIMS OR INTERESTS OF THE RELEVANT CLASS TO MAKE AN INFORMED JUDGMENT ABOUT
THE PLAN ...." 11 U.S.C. SECTION 1125(A)(1).

     THE DEBTORS' BOARDS OF DIRECTORS BELIEVE THAT THE PLAN IS IN THE BEST
INTERESTS OF CREDITORS UNDER THE CIRCUMSTANCES. ALL CREDITORS ENTITLED TO VOTE
ARE URGED TO VOTE IN FAVOR OF THE PLAN BY NO LATER THAN 5:00 P.M., EASTERN TIME,
ON APRIL 5, 2005 OR SUCH OTHER TIME OR DATE IDENTIFIED ON YOUR BALLOT.


                                       3

     The requirements for confirmation of the Plan under the Bankruptcy Code,
including the vote of creditors to accept the Plan and certain of the statutory
findings that must be made by the Bankruptcy Court, are described in "Voting and
Confirmation of the Plan." Confirmation of the Plan and the occurrence of the
Effective Date are also subject to a number of significant conditions, which are
set forth in the Plan and summarized in "Answers To Certain Questions About The
Plan And Disclosure Statement -- What must happen before the Plan can be
consummated?" There is no assurance that these conditions will be satisfied or
waived.

      ANSWERS TO CERTAIN QUESTIONS ABOUT THE PLAN AND DISCLOSURE STATEMENT

     The information presented in the answers to the questions set forth below
is qualified in its entirety by reference to the full text of this Disclosure
Statement, including the Plan attached hereto as Exhibit I. ALL CREDITORS
ENTITLED TO VOTE ON THE PLAN ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THIS
ENTIRE DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED HERETO AS EXHIBIT I,
PRIOR TO SUBMITTING A BALLOT OR BALLOTS TO ACCEPT OR REJECT THE PLAN.

WHAT IS THIS DOCUMENT AND WHY AM I RECEIVING IT?

     On January 14, 2003, AJI and KJC Filed petitions for relief under chapter
11 of the Bankruptcy Code. The reasons the Debtors Filed for such protection are
described under "Certain Events Preceding the Debtors' Chapter 11 Filings." In
connection with their proposed liquidation pursuant to chapter 11, the Debtors
have prepared the Joint Plan of Liquidation attached as Exhibit I to this
Disclosure Statement (i.e., the Plan), which sets forth in detail the proposed
treatment of the Claims of the Debtors' creditors and the Interests of KACC, as
the sole stockholder of the Debtors. This Disclosure Statement describes the
terms of, and certain other material information relating to, the Plan.

     This Disclosure Statement is being delivered to you in connection with the
Debtors' solicitation of votes with respect to the Plan because either (a) you
are the holder of, or have otherwise asserted, a Claim or Claims against either
or both of the Debtors or (b) you are the holder of a 7-3/4% SWD Revenue Bond.
This Disclosure Statement is intended to provide you with information sufficient
to make an informed to decision as to whether to vote to accept or reject the
Plan (to the extent you are eligible to do so).

AM I ELIGIBLE TO VOTE TO ACCEPT OR REJECT THE PLAN?

     You are entitled to vote to accept or reject the Plan only if you hold an
Allowed Unsecured Claim (or an Unsecured Claim which has been temporarily
allowed for voting purposes) against one or both Debtors. In accordance with
section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority
Tax Claims have not been classified and thus are excluded from the Classes, and
if you are a holder of an Administrative Claim or Priority Tax Claim, you are
not eligible to vote with respect to the Plan. If you hold a Priority Claim or a
Secured Claim against either Debtor, because you are receiving Cash or property
equal in value to the allowed amount of such Claim, you are deemed to have
accepted the Plan and may not vote with respect to it. While the Plan includes a
proposed settlement of certain claims asserted by holders of 7-3/4% SWD Revenue
Bonds (see "Operations During the Chapter 11 Cases -- 7-3/4% SWD Revenue Bond
Dispute), such holders do not have Claims against the Debtors and, accordingly,
are not entitled to vote on the Plan. Because such proposed settlement will
affect Other Kaiser Debtors, a motion seeking approval of the settlement will be
Filed, and such holders and other creditors or claimants affected by such
settlement may file an objection to it with the Bankruptcy Court on or prior to
April 5, 2005. See "Voting and Confirmation of the Plan -- Voting Procedures and
Requirements."

WHY SHOULD I VOTE TO ACCEPT THE PLAN?

     The Debtors are, as a result of the sale of their interests in Alumina
Partners of Jamaica, a Delaware general partnership ("Alpart"), no longer
operating entities and possess no assets other than Cash. See "Operations During
the Chapter 11 Cases -- The Sale of the Alpart Interests and Liquidation of AJI
and KJC." As such, the only alternatives to confirmation and consummation of the
Plan are conversion of the Chapter 11 Cases to cases under chapter 7 of the
Bankruptcy Code and the confirmation and consummation of an alternative plan of
liquidation under chapter 11 of the Bankruptcy Code. The Debtors believe that
the confirmation and consummation of the Plan is in the best interests of the
Debtors' stakeholders and is preferable to either alternative.


                                       4

     CHAPTER 7 LIQUIDATION

     The Debtors believe that the Plan provides for the liquidation of the
Debtors in a manner significantly more efficient than would occur in the event
the Chapter 11 Cases were converted to cases under chapter 7 of the Bankruptcy
Code. The Debtors' Estates have already been substantially liquidated and
converted to Cash proceeds, subject only to receipt of the proceeds, if any,
received from the successful prosecution, settlement or collection of Recovery
Actions (the "Recovery Action Proceeds"). The Debtors are not aware of the
existence of any claim against a third party that would constitute a Recovery
Action. Further, the Debtors have been informed that the Creditors' Committee
conducted an analysis of potential preference actions and determined that there
were no viable preference actions concerning payments made by the Debtors. The
Debtors believe that conversion to chapter 7 of the Bankruptcy Code would result
in additional costs relating to the appointment of a chapter 7 trustee, likely
delays in distributions to all creditors who would be entitled to receive a
distribution under the Plan (thus reducing the present value of such
distributions) and diminished recoveries for holders of Allowed Unsecured
Claims. See "Voting and Confirmation of the Plan -- Confirmation -- Best
Interests Test."

     ALTERNATIVE CHAPTER 11 LIQUIDATION

     The Plan has been negotiated by the Debtors and representatives of certain
of the Debtors' most significant creditors, including the Creditors' Committee
(a committee appointed by the Bankruptcy Court to represent the interests of the
Debtors' unsecured creditors), which has independently concluded that the Plan
is in the best interests of creditors. Therefore, the Debtors believe that
negotiating an alternative plan of liquidation under chapter 11 of the
Bankruptcy Code is unlikely to alter significantly the relative treatment of
Claims. The Debtors believe that negotiating such an alternative plan would
result in additional professional costs in connection with such negotiations,
likely delays in distributions to all creditors who would be entitled to receive
a distribution under the Plan (thus reducing the present value of such
distributions) and potentially diminished recoveries for holders of Allowed
Unsecured Claims.

HOW DO I VOTE TO ACCEPT OR REJECT THE PLAN?

     If you are the holder of an Allowed Unsecured Claim (other than a holder of
a Senior Note Claim or Senior Subordinated Note Claim held through a nominee)
against one or both of the Debtors and are, therefore, entitled to vote on the
Plan, complete, execute and return your Ballot or Ballots in accordance with the
instructions to Logan & Company, Inc., 546 Valley Road, Upper Montclair, New
Jersey 07043 (unless another address is set forth on the preaddressed enveloped
provided to you) on or prior to 5:00 P.M. Eastern Time, on April 5, 2005 (unless
another time or date is identified on your Ballot). If your vote is not received
by that time and date, it will not be counted. If you are the holder of a Senior
Note Claim or Senior Subordinated Note Claim held in the name of a broker,
dealer, commercial bank, trust company or other nominee, you must complete and
deliver to such nominee the Ballot or Ballots provided to such holder in order
to vote on the Plan; we urge you to deliver such Ballot or Ballots to your
nominee holder or holders no later than the date identified on such Ballot or
Ballots in order to ensure that your vote will be counted. If you are entitled
to vote and you did not receive a Ballot, received a damaged Ballot or lost your
Ballot, please call the Debtors' voting agent, Logan & Company, at (973)
509-3190. See "Voting and Confirmation of the Plan -- Voting Procedures and
Requirements."

WHAT IF I'M ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN AND DON'T?

     In general, within any particular Class of Claims, only those holders who
actually vote to accept or reject the Plan will affect whether the Plan is
accepted by the requisite holders of Claims in such Class. In order for the Plan
to be accepted by each Subclass of Class 3 (Unsecured Claims), the holders
representing at least two-thirds in dollar amount and a majority in number of
Allowed Claims in each such Subclass held by holders of such Claims who actually
vote to accept or reject the Plan must vote to accept the Plan. Thus, if you
hold an Unsecured Claim, your failure to vote in respect of such Claim will
count as neither a vote for acceptance nor a vote for rejection of the Plan. See
"Voting and Confirmation of the Plan -- Confirmation -- Acceptance or Cramdown."


                                       5

WHAT HAPPENS IF THE PLAN IS NOT ACCEPTED BY EACH CLASS ENTITLED TO VOTE ON THE
PLAN?

     If the holders of each Class of Claims entitled to vote on the Plan (i.e.,
Subclass 3A, Subclass 3B, Subclass 3C and Subclass 3D) reject the Plan, the Plan
will not be confirmed or consummated in its present form. However, as long as
the requisite holders of Claims in at least one such Subclass vote to accept the
Plan, the Debtors may seek confirmation pursuant to the "cramdown" provisions of
the Bankruptcy Code (which will require a determination by the Bankruptcy Court
that that the Plan is "fair and equitable" and "does not discriminate unfairly"
as to each nonaccepting Subclass). The Debtors believe that the Plan satisfies
the "cramdown" provisions of the Bankruptcy Code and, in any case, have reserved
the right to modify the Plan to the extent that confirmation thereunder requires
modification. See "Voting and Confirmation of the Plan -- Confirmation --
Acceptance or Cramdown."

WHAT WILL I ACTUALLY RECEIVE IN RESPECT OF MY CLAIM IF THE PLAN IS CONFIRMED AND
GOES EFFECTIVE?

     If you are the holder of an Allowed Claim against either Debtor, what you
will actually receive, if anything, in respect of such Claim will depend on the
classification of that Claim. For detailed information about the classification
and treatment of creditors under the Plan, see "Overview of the Plan -- Summary
of Classes and Treatment of Claims and Interests."

     Unlike the holders of Allowed Administrative Claims, Allowed Priority Tax
Claims, Allowed Priority Claims or Allowed Secured Claims against the Debtors,
holders of Allowed Claims in Subclass 3A, Subclass 3B, Subclass 3C and Subclass
3D will not receive Cash or property in an amount equal to 100% of the amount of
their Claims.

     HOLDERS OF ALLOWED SENIOR NOTE CLAIMS IN SUBCLASS 3A

          If the Plan is accepted by both Subclass 3A and Subclass 3B

     If both Subclass 3A and Subclass 3B vote to accept the Plan, a holder of an
Allowed Senior Note Claim will be entitled to a distribution of its Pro Rata
Share of the Public Note Distributable Consideration remaining after first
giving effect to certain payments by the Distribution Trustee from the Public
Note Distributable Consideration as discussed below. For purposes of the Plan,
(a) the term "Public Note Distributable Consideration" means (i) the Public Note
Percentage of the Cash in the Unsecured Claims Trust Account and (ii) Cash in
the amount of the Senior Notes Fee Payments, up to an aggregate amount not to
exceed $1.5 million (with such amount to be deducted from the Distribution Trust
Assets before the funding of the Unsecured Claims Trust Account); (b) the term
"Public Note Percentage" means (i) 68% less (ii) 68% of the Other Unsecured
Claims Percentage; (c) the term "Other Unsecured Claims Percentage" means the
percentage equal to the ratio of (i) the aggregate amount of all Allowed Other
Unsecured Claims to (ii) the sum of (A) the aggregate amount of all Allowed
Other Unsecured Claims and (B) $1,369,073,000; and (d) the term "Pro Rata Share"
means, when used with reference to a distribution to a holder of an Allowed
Claim in a Subclass of Class 3, that share of the Cash to be distributed on
account of all Allowed Claims in such Subclass so that the ratio of (i)(A) the
amount of Cash to be distributed on account of the particular Allowed Claim to
(B) the amount of such Allowed Claim, is the same as the ratio of (ii)(A) the
aggregate amount of Cash to be distributed on account of all Allowed Claims in
such Subclass to (B) the aggregate amount of all Allowed Claims in such
Subclass.

     The Unsecured Claims Trust Account will be funded with the Debtors' Cash
remaining after (a) the payment of reasonable fees, costs and expenses incurred
by the Distribution Trustee in connection with the performance of its duties in
accordance with the Plan and the Distribution Trust Agreement; (b) the
distribution of Cash in accordance with the Plan to holders of Claims having a
higher priority than Claims in Subclass 3A, Subclass 3B, Subclass 3C or Subclass
3D; (c) an allowance for the allocation to, and payment from, the Public Note
Distributable Consideration of the Senior Notes Fee Payments, up to an aggregate
amount not to exceed $1.5 million; and (d) any payment required to be made by
the Debtors to KACC in accordance with the Intercompany Claim Settlement
("Intercompany Settlement Payments"). After the Public Note Distributable
Consideration is calculated as described above, to determine the Cash to be
distributed to holders of Senior Note Claims, the following payments must first
be deducted from the Public Note Distributable Consideration:


                                       6

     -    the 7-3/4% SWD Revenue Bonds Payment;

     -    the 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments;

     -    the Senior Notes Fee Payments, whether or not in excess of $1.5
          million; and

     -    the payment of the $8.0 million to be made to the Senior Subordinated
          Note Indenture Trustee for the benefit of the holders of Senior
          Subordinated Note Claims.

     Accordingly, if the Plan is accepted by both Subclass 3A and Subclass 3B,
the recovery by holders of Allowed Senior Note Claims will depend upon a number
of factors, including:

     -    the amount of Cash ultimately available to the Estates of the Debtors;

     -    the amount of Distribution Trust Expenses;

     -    the amount of Allowed Secured Claims, Allowed Administrative Claims,
          Allowed Priority Claims and Allowed Priority Tax Claims;

     -    the amount of the 7-3/4% SWD Revenue Bonds Payment;

     -    the amount of the 7-3/4% SWD Revenue Bond Plaintiffs' Expense
          Payments;

     -    the amount of the Senior Notes Fee Payments;

     -    the amount of the Intercompany Settlement Payments, if any; and

     -    the aggregate amount of Allowed Other Unsecured Claims, if any.

See "Overview of the Plan -- Sources and Uses of Cash" for the Debtors' current
estimates of Cash available for distribution to holders of Allowed Senior Note
Claims.

     Pursuant to the KAAC/KFC Plan, if holders of the Senior Note Claims and the
Senior Subordinated Note Claims vote to accept the KAAC/KFC Plan, then an
additional $8.0 million will be paid to the Senior Subordinated Note Indenture
Trustee for the benefit of holders of Senior Subordinated Note Claims, with such
amount to be paid from consideration that would otherwise be distributed to
holders of Allowed Senior Note Claims under the KAAC/KFC Plan.

          If the Plan is rejected by either Subclass 3A or Subclass 3B

     If either Subclass 3A or Subclass 3B fails to accept the Plan, the holders
of 9-7/8% Senior Note Claims and 10-7/8% Senior Note Claims in Subclass 3A will
receive that portion of the Public Note Distributable Consideration to which the
Bankruptcy Court determines they are entitled in respect of such Claims. The
distributions ultimately made to a holder of an Allowed Senior Note Claim will
be reduced by such holder's proportional share of:

     -    the Senior Notes Fee Payments;

     -    any 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments; and

     -    if the Bankruptcy Court determines that holders of Allowed Senior
          Subordinated Note Claims are not entitled to any portion of the Public
          Note Distributable Consideration, the 7-3/4% SWD Revenue Bond Payment
          (or reservation in lieu thereof), if any. See "-- What will I receive
          in respect of my 7-3/4% SWD Revenue Bond if the Plan is confirmed and
          goes effective and when will I receive it?"

In such event, the recovery by holders of Allowed Senior Notes Claims will
depend on the determination of the Bankruptcy Court with respect to the relative
entitlement of the holders of Senior Note Claims and Senior Subordinated Note
Claims to the Public Note Distributable Consideration, as well as the factors
listed above. See "Overview of the Plan -- Sources and Uses of Cash" for the
Debtors' current estimates of Cash available for distribution to holders of
Allowed Senior Note Claims and Allowed Senior Subordinated Note Claims.


                                       7

     HOLDERS OF ALLOWED SENIOR SUBORDINATED NOTE CLAIMS IN SUBCLASS 3B

          If the Plan is accepted by both Subclass 3A and Subclass 3B

     If both Subclass 3A and Subclass 3B vote to accept the Plan, a holder of an
Allowed Senior Subordinated Note Claim will receive its Pro Rata Share of $8.0
million (less any fees or expenses payable to the Senior Subordinated Note
Trustee pursuant to the Senior Subordinated Note Indenture).

     Pursuant to the KAAC/KFC Plan, if holders of the Senior Note Claims and the
Senior Subordinated Note Claims vote to accept the KAAC/KFC Plan, then an
additional $8.0 million will be paid to the Senior Subordinated Note Indenture
Trustee for the benefit of holders of Senior Subordinated Note Claims, with such
amount to be paid from consideration that would otherwise be distributed to
holders of Allowed Senior Note Claims under the KAAC/KFC Plan.

          If the Plan is rejected by either Subclass 3A or Subclass 3B

     If either Subclass 3A or Subclass 3B fails to accept the Plan, the holders
of Senior Subordinated Note Claims in Subclass 3B will receive that portion, if
any, of the Public Note Distributable Consideration to which the Bankruptcy
Court determines they are entitled in respect of such Claims, provided any
distributions ultimately made to a holder of an Allowed Senior Subordinated Note
Claim may be reduced by such holder's proportional share of any and all fees and
expenses payable to the Senior Subordinated Note Trustee pursuant to the Senior
Subordinated Note Indenture, which will, subject to such Trustee's right to seek
payment by the Debtors of such fees and expenses pursuant to section 503(b)(5)
of the Bankruptcy Code, be payable solely from such distributions. Accordingly,
as with the recoveries by holders of Allowed Senior Notes Claims in the scenario
in which either the Subclass 3A or Subclass 3B fails to accept the Plan, the
recovery by the holders of Allowed Senior Subordinated Note Claims in this
situation will depend on a number of factors, including:

     -    the amount of Cash ultimately available to the Estates of the Debtors;

     -    the amount of Distribution Trust Expenses;

     -    the amount of Allowed Secured Claims, Allowed Administrative Claims,
          Allowed Priority Claims and Allowed Priority Tax Claims;

     -    the amount of the Intercompany Settlement Payments, if any;

     -    the aggregate amount of Allowed Other Unsecured Claims, if any; and

     -    the determination of the Bankruptcy Court with respect to the relative
          entitlement of the holders of 9-7/8% Senior Note Claims, 10-7/8%
          Senior Note Claims and Senior Subordinated Note Claims to the Public
          Note Distributable Consideration.

See "Overview of the Plan -- Sources and Uses of Cash" for the Debtors' current
estimates of Cash available for distribution to holders of Allowed Senior Note
Claims and Allowed Senior Subordinated Note Claims.

     THE PBGC, AS THE HOLDER OF THE PBGC CLAIMS IN SUBCLASS 3C

     The PBGC, as holder of the PBGC Claims in Subclass 3C, will receive the
PBGC Percentage of the Cash in the Unsecured Claims Trust Account. For purposes
of the Plan, the term "PBGC Percentage" means (a) 32% less (b) 32% of the Other
Unsecured Claims Percentage. (The treatment of the PBGC Claims in Subclass 3C is
not in conformity with the terms of the PBGC Settlement Agreement because under
the terms of the Plan the PBGC will actually receive slightly less than 32% of
the aggregate distributions being made to Subclasses 3A, 3B and 3C; however, the
PBGC has consented to the treatment of the PBGC Claims in Subclass 3C provided
in the Plan.)

     Accordingly, as with the recoveries by holders of Allowed Senior Note
Claims discussed above, the recovery by the PBGC, as the holder of the PBGC
Claims, will depend upon a number of factors, including:


                                       8

     -    the amount of Cash ultimately available to the Estates of the Debtors;

     -    the amount of Distribution Trust Expenses;

     -    the amount of Allowed Secured Claims, Allowed Administrative Claims,
          Allowed Priority Claims and Allowed Priority Tax Claims;

     -    the amount of the Intercompany Settlement Payments, if any; and

     -    the aggregate amount of Allowed Other Unsecured Claims, if any.

See "Overview of the Plan -- Sources and Uses of Cash" for the Debtors' current
estimates of Cash available for distribution to the PBGC in respect of the PBGC
Claims in Subclass 3C.

     HOLDERS OF OTHER UNSECURED CLAIMS IN SUBCLASS 3D

     A holder of an Allowed Other Unsecured Claim will receive its Pro Rata
Share of the Other Unsecured Claims Percentage of the Cash in the Unsecured
Claims Trust Account.

     Accordingly, as with the recoveries by holders of Senior Note Claims and by
the PBGC as the holder of the PBGC Claims discussed above, the recoveries by
holder of Other Unsecured Claims will depend upon a number of factors,
including:

     -    the amount of Cash ultimately available to the Estates of the Debtors;

     -    the amount of Distribution Trust Expenses;

     -    the amount of Allowed Secured Claims, Allowed Administrative Claims,
          Allowed Priority Claims and Allowed Priority Tax Claims;

     -    the amount of the Intercompany Settlement Payments, if any.

Although several Other Unsecured Claims have been asserted, the Debtors do not
believe that any of those Claims constitute allowable Claims; however, no
assurance can be given that all such Claims will be disallowed in their
entirety. See "Overview of the Plan -- Sources and Uses of Cash."

WHAT WILL I RECEIVE IF MY CLAIM IS DISPUTED?

     No distributions will be made in respect of any Claim that is Disputed
until that Claim becomes an Allowed Claim, if ever. See "Distributions Under the
Plan -- Treatment of Disputed Claims."

IS THERE A PARTICULAR RECORD DATE FOR DETERMINING WHO WILL BE ENTITLED TO
RECEIVE DISTRIBUTIONS UNDER THE PLAN IN RESPECT OF AN ALLOWED CLAIM?

     Under the Plan, distributions in respect of an Allowed Claim will be made
only to the holder of that Claim as of the close of business on the Confirmation
Date (the "Distribution Record Date"). Neither the Debtors nor the Distribution
Trustee will recognize any purported transfer of a Claim following the
Distribution Record Date.

WHEN WILL I RECEIVE WHAT I AM ENTITLED TO RECEIVE IN RESPECT OF MY CLAIM IF THE
PLAN IS CONFIRMED AND GOES EFFECTIVE?

     HOLDERS OF ALLOWED CLAIMS OTHER THAN UNSECURED CLAIMS

     If you are the holder of an Administrative Claim, a Priority Tax Claim, a
Priority Claim or a Secured Claim that is allowed as of the Effective Date, you
will receive the distribution to which you are entitled under the Plan on
account of such Claim on or promptly after the Effective Date. If you are the
holder of a Secured Claim, Administrative Claim, a Priority Tax Claim, a
Priority Claim or a Secured Claim that is a Disputed Claim as of the Effective
Date, to the extent such Claim becomes an Allowed Claim after the Effective
Date, you should receive the


                                       9

distribution to which you are entitled under the Plan on or promptly after the
Quarterly Distribution Date next following the date on which such Claim is
allowed.

     HOLDERS OF ALLOWED UNSECURED CLAIMS IN SUBCLASS 3A

     If you are the holder of a Senior Note Claim and the Plan is accepted by
both Subclass 3A and Subclass 3B, you will receive an initial distribution on
account of such Claim on or promptly after the Effective Date. The amount of
initial distributions to be made to holders of Senior Note Claims that are
allowed as of the Effective Date will be calculated as if each Disputed Other
Unsecured Claim were an Allowed Other Unsecured Claim in its Face Amount as of
the Effective Date. In addition, on or promptly after each Quarterly
Distribution Date, you may receive an additional distribution on account of such
Claim in an amount equal to: (a) the amount of Cash that you would have been
entitled to receive pursuant to the Plan if such Claim and each other Unsecured
Claims allowed prior to such Quarterly Distribution Date had been allowed as of
the Effective Date minus (b) the aggregate amount of Cash previously distributed
to you on account of such Claim. See "Distributions Under the Plan -- Timing and
Calculation of Amounts to Be Distributed." All distributions to holders of
Senior Note Claims under the Plan will be made by the Distribution Trustee to
the applicable Indenture Trustee, which will thereafter forward such
distributions to such holders in due course.

     If you are the holder of an Allowed Senior Note Claim and the Plan is not
accepted by either Subclass 3A or Subclass 3B, the timing of the distribution to
which you will be entitled in respect of such Claim will depend upon when the
Bankruptcy Court makes the determination contemplated by the Plan to be made in
such circumstance.

     HOLDERS OF ALLOWED UNSECURED CLAIMS IN SUBCLASS 3B

     If you are the holder of an Allowed Senior Subordinated Note Claim and the
Plan is accepted by both Subclass 3A and Subclass 3B, you will receive the
distribution to which you are entitled under the Plan on account of such Claim
on or promptly after the Effective Date as described in this paragraph. On the
Effective Date, the Senior Subordinated Note Indenture Trustee will receive a
Cash payment in the amount of $8.0 million for the benefit of the holders of the
Allowed Senior Subordinated Note Claims. The Senior Subordinated Note Indenture
Trustee is entitled to deduct its fees and expenses from such payment prior to
making distributions to holders of Senior Subordinated Note Claims. In due
course following the Effective Date, the Senior Subordinated Note Indenture
Trustee will distribute to each holder of an Allowed Senior Subordinated Note
Claim its Pro Rata Share of such payment as reduced by any fees and expenses so
deducted. See "Distributions Under the Plan -- Timing and Calculation of Amounts
to Be Distributed."

     If you are the holder of an Allowed Senior Subordinated Note Claim and the
Plan is not accepted by either Subclass 3A or Subclass 3B, the timing of the
distribution, if any, to which you may be entitled in respect of such Claim will
depend upon when the Bankruptcy Court makes the determination contemplated by
the Plan to be made in such circumstance.

     HOLDERS OF ALLOWED UNSECURED CLAIMS IN SUBCLASS 3C AND SUBCLASS 3D

     If you are the holder of the PBGC Claims or an Other Unsecured Claim that
is allowed as of the Effective Date, you will receive an initial distribution on
account of such Claim on or promptly after the Effective Date. The amount of
initial distributions to be made to holders of the PBGC Claims and Other
Unsecured Claims that are allowed as of the Effective Date will be calculated as
if each Disputed Other Unsecured Claim were an Allowed Other Unsecured Claim in
its Face Amount as of the Effective Date. If you are the holder of an Other
Unsecured Claim that is a Disputed Claim as of the Effective Date, to the extent
such Claim becomes an Allowed Claim after the Effective Date, you should receive
an initial distribution on account of such Claim on or promptly after the
Quarterly Distribution Date next following the date on which such Claim was
allowed. In addition, on or promptly after each Quarterly Distribution Date, if
you are the holder of the PBGC Claims or an Other Unsecured Claim and have
already received your initial distribution in respect of such Claim, you may
receive an additional distribution on account of such Claim in an amount equal
to: (a) the amount of Cash that you would have been entitled to receive pursuant
to the Plan if such Claim and each other Unsecured Claims allowed prior to such
Quarterly Distribution Date had been allowed as of the Effective Date minus (b)
the aggregate amount of Cash previously


                                       10

distributed to you on account of such Claim. See "Distributions Under the Plan
- -- Timing and Calculation of Amounts to Be Distributed."

WHAT WILL I RECEIVE IN RESPECT OF MY 7-3/4% SWD REVENUE BOND IF THE PLAN IS
CONFIRMED AND GOES EFFECTIVE AND WHEN WILL I RECEIVE IT?

     If (a) Subclass 3A votes to accept the Plan and (b) unless the holders of
Senior Note Claims otherwise agree pursuant to a settlement, all holders of
Allowed Senior Note Claims are entitled under the Plan to identical treatment in
respect of contractual subordination claims under the Senior Subordinated Note
Indenture, then, on the Effective Date, an amount equal to the Settlement
Percentage of the Cash in the Unsecured Claims Trust Account that would
otherwise have been distributed in respect of the Senior Subordinated Note
Claims but which, after giving effect to the contractual subordination
provisions of the Senior Subordinated Note Indenture and pursuant to Sections
2.4(c)(i) and 2.4(c)(ii) of the Plan (but prior to giving effect to any 7-3/4%
SWD Revenue Bond Payment), is to be distributed to holders of Senior Note Claims
will be paid to the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of
the holders of the 7-3/4% SWD Revenue Bonds pursuant to Section 2.5 of the Plan
(i.e., the 7-3/4% SWD Revenue Bond Payment). For purposes of the Plan, the term
"Settlement Percentage" means the percentage equaling the ratio of (a)
$4,000,000 to (b) 51.42% of the Public Note Percentage of the Cash in the
Unsecured Claims Trust Account. Notwithstanding the foregoing, in no event will
the amount so paid, when aggregated with any amount payable under any comparable
provision of the KAAC/KFC Plan, exceed $8.0 million. If the Debtors do not File
a separate motion, the Plan will serve as a motion pursuant to Bankruptcy Rule
9019 seeking entry of an order approving the settlement described above. Unless
an objection to such settlement is made in writing by any creditor or claimant
affected thereby, Filed with the Bankruptcy Court and served on the parties
identified in Section 12.6 of the Plan on or before April 5, 2005, such order
(which will be the Confirmation Order) may be entered by the Bankruptcy Court.
In the event any such objections are timely Filed, a hearing with respect
thereto will occur at the Confirmation Hearing.

     If Subclass 3A fails to accept the Plan in accordance with section 1126(c)
of the Bankruptcy Code, the rights, if any, of the holders of 7-3/4% SWD Revenue
Bonds to payments from the Public Note Distributable Consideration will be as
determined by an order of the Bankruptcy Court (which may be the Confirmation
Order) in connection with its determination of the relative entitlement of the
holders of Senior Note Claims and Senior Subordinated Note Claims to the Public
Note Distributable Consideration; provided that if the determination with
respect to the rights of the holders of 7-3/4% SWD Revenue Bonds to such payment
has not been made by the Bankruptcy Court prior to the Effective Date, then, in
order to ensure the funding of such payment, on the Effective Date the
Distribution Trustee will reserve from the Public Note Distributable
Consideration any amount that may be ordered by the Bankruptcy Court to be so
reserved pending such determination.

     Any payment described above (i.e., the 7-3/4% SWD Revenue Bond Payment)
would be made to the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit
of the holders of 7-3/4% SWD Revenue Bonds. The 7-3/4% SWD Revenue Bond
Indenture Trustee is entitled to deduct its fees and expenses from any such
payment prior to making distributions to holders of 7-3/4% SWD Revenue Bonds.
However, if the 7-3/4% SWD Revenue Bond Payment is required to be made to the
7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of the holders of the
7-3/4% SWD Revenue Bonds pursuant to Section 2.5(a) of the Plan, then the 7-3/4%
SWD Revenue Bond Plaintiffs' Expense Payments will made out of the Public Note
Distributable Consideration otherwise payable to holders of Allowed Senior Note
Claims, up to an amount which, when aggregated with any amount payable under the
comparable provision of the KAAC/KFC Plan, does not exceed $500,000. Fees and
expenses in excess of such amount may be deducted from amounts otherwise payable
to or for the benefit of the holders of 7-3/4% SWD Revenue Bonds. Nothing in the
Plan will prejudice the rights of the plaintiffs in the 7-3/4% SWD Revenue Bond
Dispute to seek recoveries (a) from amounts otherwise to be paid to or for the
benefit of holders of 7-3/4% SWD Revenue Bonds under the Plan or the KAAC/KFC
Plan or (b) from, or in respect of amounts otherwise to be paid to or for the
benefit of holders of 7-3/4% SWD Revenue Bonds by, any other Kaiser Debtor other
than KAAC or KFC. In due course following its receipt of any such payment, the
7-3/4% SWD Revenue Bond Indenture Trustee will distribute to each holder of
7-3/4% SWD Revenue Bonds its proportionate share of any such payment, as reduced
by any fees and expenses so deducted.

     See "Operations During the Chapter 11 Cases -- 7-3/4% SWD Revenue Bond
Dispute."


                                       11

WILL MY RIGHTS AGAINST THE OTHER KAISER DEBTORS BE AFFECTED BY THE PLAN?

     Nothing in the Plan will be deemed to affect any person's claim against or
interest in any of the debtors in the Kaiser Cases except the Debtors (the
"Other Kaiser Debtors") or any of their respective present or former directors,
officers, employees, agents, advisors, attorneys, accountants, underwriters,
investment bankers or other representatives, acting in such capacity, or any
rights, including contractual subordination rights, that any person may have in
respect of any such claim against or interest in any such Other Kaiser Debtor.

WHAT WILL MY TAX CONSEQUENCES BE IF THE PLAN IS CONSUMMATED?

     For a summary of certain potential U.S. federal income Tax consequences of
the Plan, see "Certain Federal Income Tax Consequences of Consummation of the
Plan." The summary contained in this Disclosure Statement does not contain any
information with respect to potential state, local or foreign Tax consequences
to creditors of the Debtors. For these reasons and others, including because Tax
consequences are in many cases uncertain and may vary depending on a creditor's
individual circumstances, the discussion of the Tax consequences of the Plan
contained in this Disclosure Statement is not intended in any way to be Tax
advice - or otherwise to be a substitute for careful Tax planning with a
professional. You are urged to consult with your own Tax advisor regarding the
U.S. federal, state, local and foreign Tax consequences of the Plan.

WHAT MUST HAPPEN BEFORE THE PLAN CAN BE CONSUMMATED?

     In order for the Plan to be effective, certain events must occur. The Plan
contains conditions to both the confirmation of and the effectiveness of the
Plan.

     CONFIRMATION

     The Debtors and Creditors' Committee have agreed that, before the
Bankruptcy Court can confirm the Plan, each of the following must have occurred
(or the requirement that it have occurred must have been waived in accordance
with the Plan):

     -    the Confirmation Order must have been entered on the docket of the
          Clerk of the Bankruptcy Court in form and substance acceptable to the
          Debtors and the Creditors' Committee;

     -    all Exhibits to the Plan must be in form and substance satisfactory to
          the Debtors and the Creditors' Committee; and

     -    the Intercompany Claims Settlement must be effective.

In addition, there are a number of substantial confirmation requirements under
the Bankruptcy Code that must be satisfied for the Plan to be confirmed,
including either the acceptance of the Plan by the requisite holders of Claims
in each of Subclass 3A, Subclass 3B, Subclass 3C and Subclass 3D (i.e.,
acceptance by holders of at least two-thirds in dollar amount and a majority in
number of Claims held by holders actually voting) or, if the Plan is not
accepted by each such Subclass of Class 3, the acceptance of the Plan by the
requisite holders of Claims in at least one such Subclass and the determination
by the Bankruptcy Court that the Plan is "fair and equitable" and "does not
discriminate unfairly" as to each nonaccepting Subclass. See "Voting and
Confirmation of the Plan -- Confirmation."

     EFFECTIVENESS

     In addition, the Debtors and Creditors' Committee have agreed that the Plan
will not be consummated until each of the following has occurred (or the
requirement that it occur has been waived in accordance with the Plan):

     -    the Confirmation Order must have become a Final Order;

     -    the Liquidating Transactions must have been consummated;


                                       12

     -    all funds due and owing to or by the Debtors under the Intercompany
          Claims Settlement must have been paid in accordance with its terms;

     -    the Distribution Trustee must have been appointed and must have
          accepted such appointment;

     -    the Distribution Trust Agreement must have been executed and the Trust
          Accounts must have been established; and

     -    all other actions, documents, consents and agreements necessary to
          implement the Plan must have been effected, obtained and/or executed.

WHEN WILL THE PLAN BE CONFIRMED? WHEN WILL THE PLAN BE EFFECTIVE?

     CONFIRMATION

     A hearing in the Bankruptcy Court relating to the confirmation of the Plan
is currently scheduled for April 13, 2005. This hearing may be continued or
adjourned, however, and even if it is held, there is no guaranty that the
Bankruptcy Court will find that the requirements of the Bankruptcy Code with
respect to confirmation have been met. See "Voting and Confirmation of the Plan
- -- Confirmation Hearing" and "Voting and Confirmation of the Plan --
Confirmation." In addition, the additional conditions to confirmation set forth
in the Plan must be satisfied or waived in accordance with the Plan before the
Plan can be confirmed. Thus, there is no way to predict with any certainty when,
if ever, confirmation will actually occur.

     EFFECTIVE DATE

     Even if the Plan is confirmed on April 13, 2005, there are a number of
additional conditions which must be satisfied or waived before the Plan can be
consummated. While the Debtors have assumed an Effective Date of April 30, 2005
for purposes of this Disclosure Statement, no assurance can be given as to if or
when the Effective Date will actually occur.

WHAT WILL HAPPEN TO AJI AND KJC IF THE PLAN IS CONSUMMATED?

     The Debtors will be liquidated if the Plan is consummated. Because the
interests of each of the Debtors in Alpart have been sold, the Debtors no longer
have any material ongoing activities or operations. Thus, upon the transfer of
the Distribution Trust Assets to the Distribution Trust, the Debtors will be
dissolved and their assets will be distributed in accordance with the Plan. See
"General Information Concerning the Plan -- Means for Implementation of the Plan
- -- Liquidating Transactions."

WHAT HAPPENS IF THE PLAN ISN'T CONFIRMED OR DOESN'T BECOME EFFECTIVE?

     The Debtors expect that all of the conditions to confirmation of the Plan
or the Effective Date will be satisfied (or waived in accordance with the Plan).
However, there is no guaranty that the Plan will be consummated. Although the
Debtors intend to take all acts reasonably necessary to satisfy the conditions
to the confirmation of the Plan and the Effective Date that are within the
Debtors' control, if, for any reason, the Plan is not confirmed or the Effective
Date does not occur, the Debtors may be forced to convert the Chapter 11 Cases
to cases under chapter 7 of the Bankruptcy Code or propose an alternative plan
of liquidation under chapter 11 of the Bankruptcy Code.

                              OVERVIEW OF THE PLAN

INTRODUCTION

     The following is a brief overview of certain material provisions of the
Plan. This overview is qualified in its entirety by reference to the provisions
of the Plan, which is attached hereto as Exhibit I, and the Distribution Trust
Agreement, which is an Exhibit thereto. See "Additional Information." For a
description of certain other significant terms and provisions of the Plan, see
"General Information Concerning the Plan" and "Distributions Under the Plan."


                                       13

SUMMARY OF CLASSES AND TREATMENT OF CLAIMS AND INTERESTS

     The table below summarizes: (a) the classification of Claims and Interests;
(b) the estimated aggregate amount of Claims in each of Class 1, Class 2 and
Subclass 3D; (c) the actual aggregate amount of Allowed Claims in each of
Subclass 3A, Subclass 3B and Subclass 3C; (d) the aggregate amount and nature of
distributions to holders of Claims or Interests in each Class; and (e) the
estimated percentage recovery for each of Subclass 3A, Subclass 3B and Subclass
3C. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims and Priority Tax Claims have not been classified and thus are excluded
from the Classes. For a discussion of certain additional matters related to
Administrative Claims and Priority Tax Claims, see " -- Additional Information
Regarding Assertion and Treatment of Administrative Claims and Priority Tax
Claims." The estimated aggregate amount of Claims set forth in the table below
with respect to each of Class 1, Class 2 and Subclass 3D is based on the
Debtors' estimate of the maximum aggregate amounts of such Claims that the
Debtors believe will be allowed.

     Each "Estimated Aggregate Claims Amount" shown in the table below is based
upon the Debtors' preliminary review of Claims Filed on or before the May 15,
2003 general Bar Date and the Debtors' books and records and may be
substantially revised following the completion of a further analysis of the
Claims Filed. See "Operations During the Chapter 11 Cases -- Claims Process and
Bar Dates." In addition, certain Disputed Claims that the Debtors do not believe
are allowable ultimately may be allowed by the Bankruptcy Court.

     The "Estimated Percentage Recovery" shown in the table with respect to
Subclass 3C is the quotient of the estimated Cash to be distributed to the PBGC,
as the holder of Allowed Claims in that Subclass, divided by the aggregate
amount of Allowed Claims in such Subclass. The recoveries for holders of Allowed
Claims in both Subclass A and Subclass 3B will vary depending on, among other
things, whether both Subclass 3A and Subclass 3B accept the Plan and, if either
Subclass 3A or Subclass 3B fails to accept the Plan, the determination of the
Bankruptcy Court with respect to the relative entitlement of the holders of
Senior Note Claims and Senior Subordinated Note Claims to the Public Note
Distributable Consideration. See "-- Sources and Uses of Cash" below for
estimates of the percentage recovery for Subclass 3A and Subclass 3B in four
different scenarios. See "Answers to Certain Questions About the Plan and
Disclosure Statement -- What will I actually receive if the Plan is confirmed
and goes effective?" for a discussion of other factors that may affect the
recoveries of holders of Allowed Unsecured Claims.



   DESCRIPTION AND AMOUNT OF CLAIMS
   OR INTERESTS AGAINST THE DEBTORS                     TREATMENT
   --------------------------------                     ---------
                                     
- -    Class 1 - Priority Claims:         Unimpaired. On the later of the
     Claims against either of the       Effective Date and the date on which a
     Debtors entitled to priority in    Priority Claims is allowed, each holder
     payment pursuant to section        of an Allowed Priority Claim will be
     507(a) of the Bankruptcy Code      entitled to receive either (a) Cash from
     that are not Administrative        the Priority Claims Trust Account in the
     Claims or Priority Tax Claims.     amount of such holder's Allowed Priority
                                        Claim without interest or penalty or (b)
                                        such other treatment as may be agreed
                                        upon in writing by such holder and the
                                        Debtors or the Distribution Trustee.

     Estimated Aggregate Claims
     Amount: $0

- -    Class 2 - Secured Claims: Claims   Unimpaired. On the later of the
     against either of the Debtors      Effective Date and the date on which a
     secured by a Lien on property in   Secured Claim is allowed, each holder of
     which such Debtor's Estate has     an Allowed Secured Claim will be
     an interest or that is subject     entitled to receive either (a) Cash from
     to setoff under section 533 of     the Priority Claims Trust Account in an
     the Bankruptcy Code, to the        amount equal to such Allowed Secured
     extent of the value of the Claim   Claim, including such interest as is
     holder's interest in such          required to be paid pursuant to section
     Estate's interest in such          506(b) of the Bankruptcy Code, or (b)
     property or to the extent of the   the collateral securing such Allowed
     amount subject to setoff, as       Secured Claim and Cash from the Priority
     applicable, as determined          Claims Trust Account in an amount equal
     pursuant to section 506(a) and,    to such interest as is required to be
     if applicable, section 1129(b)     paid pursuant to section 506(b) of the
     of the Bankruptcy Code.            Bankruptcy Code.

     Estimated Aggregate Claims
     Amount: $0



                                       14



   DESCRIPTION AND AMOUNT OF CLAIMS
   OR INTERESTS AGAINST THE DEBTORS                     TREATMENT
   --------------------------------                     ---------
                                     
- -    Subclass 3A - Senior Note          Impaired; depends on whether the Plan is
     Claims: Claims against either of   accepted by both Subclass 3A and
     the Debtors under or in respect    Subclass 3B.
     of either (x) the 9-7/8% Senior
     Notes and the 9-7/8% Senior Note   On the Effective Date, if both Subclass
     Indenture or (y) the 10-7/8%       3A and Subclass 3B vote to accept the
     Senior Notes and the 10-7/8%       Plan, each holder of an Allowed Senior
     Senior Note Indentures.            Note Claim will be entitled to receive
                                        Cash from the Unsecured Claims Trust
                                        Account equal to its Pro Rata Share of
                                        the Public Note Distributable
                                        Consideration remaining after first
                                        giving effect to the following payments
                                        on the Effective Date by the
                                        Distribution Trustee from the Public
                                        Note Distributable Consideration: (a)
                                        the payment to be made to the 7-3/4% SWD
                                        Revenue Bond Indenture Trustee for the
                                        benefit of the holders of the 7-3/4% SWD
                                        Revenue Bonds in accordance with the
                                        Plan (i.e., the 7-3/4% SWD Revenue Bond
                                        Payment) and the payment of all fees and
                                        expenses payable to the plaintiffs in
                                        the 7-3/4% SWD Revenue Bond Dispute in
                                        accordance with the Plan (i.e., the
                                        7-3/4% SWD Revenue Bond Plaintiffs'
                                        Expense Payments); (b) the payment of
                                        all fees and expenses payable to the
                                        9-7/8% Senior Note Indenture Trustee,
                                        the 10-7/8% Senior Note Indenture
                                        Trustee and the counsel for the Ad Hoc
                                        Group in accordance with the Plan (i.e.,
                                        the Senior Notes Fee Payments); and (c)
                                        the payment of $8.0 million to be made
                                        to the Senior Subordinated Note
                                        Indenture Trustee for the benefit of the
                                        holders of Senior Subordinated Note
                                        Claims.

                                        If either Subclass 3A or Subclass 3B
                                        fails to accept the Plan: (a) the
                                        holders of Senior Note Claims will not
                                        become entitled to receive the
                                        distribution described in the
                                        immediately preceding paragraph; and (b)
                                        the Bankruptcy Court will enter an order
                                        (which will be the Confirmation Order)
                                        pursuant to which the Bankruptcy Court
                                        will determine the respective
                                        entitlement of the holders of Allowed
                                        9-7/8% Senior Note Claims, Allowed
                                        10-7-8% Senior Note Claims, Allowed
                                        Senior Subordinated Note Claims and, if
                                        applicable under Section 2.5(b) of the
                                        Plan, 7-3/4% SWD Revenue Bonds to the
                                        Public Note Distributable Consideration.
                                        The distributions ultimately made to a
                                        holder of an Allowed Senior Note Claim
                                        as described in this paragraph will be
                                        reduced by such holder's proportional
                                        share of the Senior Notes Fee Payments
                                        and, if the Bankruptcy Court determines
                                        that holders of Allowed Senior
                                        Subordinated Note Claims are not
                                        entitled to any portion of the Public
                                        Note Distributable Consideration, any
                                        7-3/4% SWD Revenue Bond Payment (or a
                                        reservation in lieu thereof in
                                        accordance with the Plan) and the 7-3/4%
                                        SWD Revenue Bond Plaintiffs' Expense
                                        Payments.

     Aggregate Allowed Claims Amount:   Estimated Percentage Recovery: Varies
     $452,306,413.06                    (see "--Sources and Uses of Cash")




                                       15



   DESCRIPTION AND AMOUNT OF CLAIMS
   OR INTERESTS AGAINST THE DEBTORS                     TREATMENT
   --------------------------------                     ---------
                                     
- -    Subclass 3B - Senior               Impaired; depends on whether the Plan is
     Subordinated Note Claims: Claims   accepted by both Subclass 3A and
     against either of the Debtors      Subclass 3B.
     under or in respect of the
     Senior Subordinated Notes and      On the Effective Date, if both Subclass
     the Senior Subordinated Note       3A and Subclass 3B vote to accept the
     Indenture.                         Plan, each holder of an Allowed Senior
                                        Subordinated Note Claim will be entitled
                                        to receive its Pro Rata Share of $8.0
                                        million in Cash to be paid to the Senior
                                        Subordinated Note Indenture Trustee,
                                        provided that any and all fees or
                                        expenses payable to the Senior
                                        Subordinated Note Indenture Trustee
                                        pursuant to the Senior Subordinated Note
                                        Indenture will, in all events, be
                                        payable solely from such $8.0 million.

                                        If either Subclass 3A or Subclass 3B
                                        fails to accept the Plan: (a) the
                                        holders of Senior Subordinated Note
                                        Claims will not become entitled to
                                        receive the distribution described in
                                        the immediately preceding paragraph; and
                                        (b) the Bankruptcy Court will enter an
                                        order (which will be the Confirmation
                                        Order) pursuant to which the Bankruptcy
                                        Court will determine the respective
                                        entitlement of the holders of Allowed
                                        9-7/8% Senior Note Claims, Allowed
                                        10-7-8% Senior Note Claims, Allowed
                                        Senior Subordinated Note Claims and, if
                                        applicable under Section 2.5(b) of the
                                        Plan, 7-3/4% SWD Revenue Bonds to the
                                        Public Note Distributable Consideration.
                                        Any distributions ultimately made to a
                                        holder of an Allowed Senior Subordinated
                                        Note Claim as described in the
                                        immediately preceding sentence may be
                                        reduced by such holder's proportional
                                        share of any and all fees and expenses
                                        payable to the Senior Subordinated Note
                                        Indenture Trustee pursuant to the Senior
                                        Subordinated Note Indenture, which will,
                                        subject to such Trustee's right to seek
                                        payment by the Debtors of such fees and
                                        expenses pursuant to section 503(b)(5)
                                        of the Bankruptcy Code, be payable
                                        solely from such distributions.

     Aggregate Allowed Claims Amount:   Estimated Percentage Recovery: Varies
     $478,661,479.17                    (see "--Sources and Uses of Cash")

- -    Subclass 3C - PBGC Claims:         Impaired. On the Effective Date, the
     Claims (other than                 PBGC as holder of the PBGC Claims will
     Administrative Claims) of the      be entitled to receive the PBGC
     PBGC against either of the         Percentage of the Cash in the Unsecured
     Debtors arising from, or           Claims Trust Account.
     relating to, the pension plans
     which were or are maintained by
     any of the Other Kaiser Debtors
     in the Kaiser Cases and
     guaranteed by the PBGC.

     Allowed Claim Amount:              Estimated Percentage Recovery: 13.2% to
     $616,000,000.00                    13.7%

- -    Subclass 3D - Other Unsecured      Impaired. On the Effective Date, each
     Claims: Claims against either of   holder of an Allowed Other Unsecured
     the Debtors that are not           Claim will be entitled to receive a Pro
     Administrative Claims, Priority    Rata Share of the Other Unsecured Claims
     Claims, Priority Tax Claims,       Percentage of the Cash in the Unsecured
     Secured Claims, Intercompany       Claims Trust Account.
     Claims, Senior Note Claims,
     Senior Subordinated Note Claims
     or the PBGC Claims.

     Estimated Aggregate Claims
     Amount: $0

- -    Class 4 - Intercompany Claims:     Impaired. On the Effective Date, each
     Claims held by any Other Kaiser    holder of an Intercompany Claim will be
     Debtor against either of the       entitled to receive the treatment set
     Debtors.                           forth in the Intercompany Claims
                                        Settlement.

- -    Class 5 - Interests in the         Impaired. No property will be
     Debtors: Stock ownership           distributed to, or retained by, KACC as
     interests in either of the         the holder of the Interests on account
     Debtors, or rights to acquire      of such Interests, and such Interests
     the same, and any Claim arising    will be canceled on the Effective Date.
     therefrom.



                                       16

GUARANTY SUBORDINATION DISPUTE

     Litigation relating to the relative priority of holders of Senior Note
Claims and holders of Senior Subordinated Note Claims to payments by certain
subsidiaries of KACC that guaranteed the Senior Notes and the Senior
Subordinated Notes, including the Debtors (i.e., the Guaranty Subordination
Dispute), is currently pending before the Bankruptcy Court. See "Operations
During the Chapter 11 Cases -- Guaranty Subordination Dispute." The Plan
contains the following proposed settlement of the Guaranty Subordination
Dispute: If both Subclass 3A and Subclass 3B vote to accept the Plan, a holder
of an Allowed Senior Subordinated Note Claim will receive its Pro Rata Share of
$8.0 million (less any fees or expenses payable to the Senior Subordinated Note
Trustee pursuant to the Senior Subordinated Note Indenture) and a holder of an
Allowed Senior Note Claim will receive its Pro Rata Share of the Public Note
Distributable Consideration remaining after giving effect to the payment of the
$8.0 million to be made to the holders of Senior Subordinated Note Claims, the
7-3/4% SWD Revenue Bond Payment, the 7-3/4% SWD Revenue Bond Plaintiffs' Expense
Payment and the Senior Notes Fee Payments. If either Subclass 3A or Subclass 3B
fails to accept the Plan, the Bankruptcy Court will resolve the Guaranty
Subordination Dispute with respect to the Debtors and determine the
distributions from the Public Note Distributable Consideration to be made to the
holders of Claims in Subclass 3A and any distributions from the Public Note
Distributable Consideration to be made to holders of Claims in Subclass 3B. In
such event, the distributions ultimately made to a holder of an Allowed Senior
Note Claim will be reduced by such holder's proportional share of the Senior
Notes Fee Payments and, if the Bankruptcy Court determines that holders of
Allowed Senior Subordinated Note Claims are not entitled to any portion of the
Subclass 3A Distributable Consideration, the 7-3/4% SWD Revenue Bond Payment (or
reservation in lieu thereof), if any, and any 7-3/4% SWD Revenue Bond
Plaintiffs' Expense Payment. Similarly, any distributions ultimately made to a
holder of an Allowed Senior Subordinated Note Claim may be reduced by such
holder's proportional share of any and all fees and expenses payable to the
Senior Subordinated Note Trustee pursuant to the Senior Subordinated Note
Indenture. If the Bankruptcy Court is required to resolve the Guaranty
Subordination Dispute as described above, parties involved in that litigation
could appeal the Bankruptcy Court's ruling and request a stay that, if granted,
would prohibit, pending the conclusion of any such appeal, the distribution of
some or all of the Public Note Distributable Consideration to be distributed to
holders of Claims in Subclass 3A or Subclass 3B in accordance with such ruling.

     Similarly, pursuant to the KAAC/KFC Plan, if holders of both the Senior
Note Claims and the Senior Subordinated Note Claims vote to accept the KAAC/KFC
Plan, then an additional $8.0 million will be paid to the Senior Subordinated
Note Indenture Trustee for the benefit of holders of Senior Subordinated Note
Claims (resulting in aggregate consideration of $16.0 million if the Plan is
also accepted by the holders of the Senior Note Claims and the Senior
Subordinated Note Claims), with such amount to be paid from consideration that
would otherwise be distributed to holders of Allowed Senior Note Claims under
the KAAC/KFC Plan, and the holders of Senior Note Claims would receive a
specified percentage of the Cash and other property available for distribution
to the holders of unsecured claims (less certain payments or reservations of
payment therefrom). If the holders of the Senior Note Claims or the Senior
Subordinated Note Claims fail to accept the KAAC/KFC Plan, the Bankruptcy Court
would resolve the Guaranty Subordination Dispute with respect to KAAC and KFC
and determine the distributions to be made to the holders of Senior Note Claims
and any distributions to be made to holders of Senior Subordinated Note Claims
under the KAAC/KFC Plan.

7-3/4% SWD REVENUE BOND DISPUTE

     If (a) Subclass 3A votes to accept the Plan in accordance with section
1126(c) of the Bankruptcy Code and (b) unless the holders of Senior Note Claims
otherwise agree pursuant to a settlement, all holders of Allowed Senior Note
Claims are entitled under the Plan to identical treatment in respect of
contractual subordination claims under the Senior Subordinated Note Indenture,
then, on the Effective Date, an amount equal to the Settlement Percentage of the
Cash in the Unsecured Claims Trust Account that would otherwise have been
distributed in respect of the Senior Subordinated Note Claims but which, after
giving effect to the contractual subordination provisions of the Senior
Subordinated Note Indenture and pursuant to Sections 2.4(c)(i) and 2.4(c)(ii) of
the Plan (but prior to giving effect to any 7-3/4% SWD Revenue Bond Payment), is
to be distributed to holders of Senior Note Claims will, in full and complete
satisfaction of the claims of holders of 7-3/4% SWD Revenue Bonds asserted in
the 7-3/4% SWD Revenue Bond Dispute in respect of the Debtors, be paid to the
7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of holders of 7-3/4%
SWD Revenue Bonds pursuant to Section 2.5 of the Plan (i.e., the 7-3/4% SWD
Revenue Bond Payment). Notwithstanding the foregoing, in no event will the
amount so paid, when aggregated


                                       17

with any amount payable under any comparable provision of the KAAC/KFC Plan,
exceed $8.0 million. If the Debtors do not File a separate motion, the Plan will
serve as a motion pursuant to Bankruptcy Rule 9019 seeking entry of an order
approving the settlement described above. Unless an objection to such settlement
is made in writing by any creditor or claimant affected thereby, Filed with the
Bankruptcy Court and served on the parties identified in Section 12.6 of the
Plan on or before April 5, 2005, such order (which will be the Confirmation
Order) may be entered by the Bankruptcy Court. In the event any such objections
are timely Filed, a hearing with respect thereto will occur at the Confirmation
Hearing.

     If Subclass 3A fails to accept the Plan in accordance with section 1126(c)
of the Bankruptcy Code, the rights, if any, of the holders of 7-3/4% SWD Revenue
Bonds to payments from the Public Note Distributable Consideration will be as
determined in an order of the Bankruptcy Court (which may be the Confirmation
Order) in connection with the determinations contemplated by Sections
2.4(c)(i)(B) and 2.4(c)(ii)(B) of the Plan; provided that if the determination
with respect to the rights of the holders of 7-3/4% SWD Revenue Bonds to such
payment has not been made by the Bankruptcy Court prior to the Effective Date,
then, in order to ensure the funding of such payment, on the Effective Date the
Distribution Trustee will reserve from the Public Note Distributable
Consideration any amount that may be ordered by the Bankruptcy Court to be so
reserved pending such determination.

     See "Operations During the Chapter 11 Cases -- 7-3/4% SWD Revenue Bond
Dispute."

SOURCES AND USES OF CASH

     SOURCES OF CASH

     The Cash available in the Debtors' Estates to fund the Plan will come from:
(a) the net Cash proceeds received by the Debtors in connection with the sale of
their interests in Alpart pursuant to the Alpart Purchase Agreement (after
taking into account the costs and expenses of such sale payable by the Debtors
in accordance with the Intercompany Claims Settlement), together with any
interest thereon and earnings from the investment thereof (the "Alpart
Proceeds"); (b) the net Cash proceeds allocable to Kaiser Bauxite Company
("KBC") from the sale of its interests in and related to Kaiser Jamaica Bauxite
Company ("KJBC") and KACC's alumina refinery in Gramercy, Louisiana (together,
the "Gramercy/KJBC Interests") received by the Debtors pursuant to the
Intercompany Claims Settlement (after taking into account the reimbursement of
KACC for 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 Intercompany Claims Settlement), together with any interest thereon and
earnings from the investment thereof (the "KBC Proceeds"); and (c) the Recovery
Action Proceeds. See "Operations During the Chapter 11 Cases -- The Sale of the
Alpart Interests and Liquidation of AJI and KJC" and "Operations During the
Chapter 11 Cases -- Intercompany Claims Settlement."

     The Debtors currently estimate that, as of the Effective Date (which, for
this purpose, is assumed to occur on April 30, 2005), the Alpart Proceeds will
be approximately $273.8 million and the KBC Proceeds will be approximately $4.0
million. The Debtors are not aware of any Recovery Actions (and the Creditors'
Committee has independently determined that there are no viable preference
actions concerning payments made by the Debtors) and, accordingly, it has been
assumed that the Recovery Action Proceeds will be zero.

     USES OF CASH

     As more fully described below, the Debtors' Cash as of the Effective Date
will be used to (a) fund the Distribution Trust Expenses Account to enable the
Distribution Trustee to pay Distribution Trust Expenses; (b) fund the Priority
Claims Trust Account to enable the Distribution Trustee to pay the Allowed
Administrative Claims, Allowed Priority Tax Claims, Allowed Priority Claims and
Allowed Secured Claims in accordance with the Plan; (c) provide for up to $1.5
million of the Senior Notes Fee Payments; (d) make any Intercompany Settlement
Payments; and (e) then fund the Unsecured Claims Trust Account with any
remaining Cash. The Debtors and the Creditors' Committee currently anticipate
that available Cash will be applied initially as follows (in millions):


                                       18

                                                                             
Estimated Available Cash ....................................................   $          277.8

   Estimated Funding of Distribution Trust Expenses Account .................             ($ 1.0)
   Estimated Funding of Priority Claims Trust Account .......................   ($12.5) - ($17.5)*
   Estimated Senior Notes Fee Payments ......................................             ($ 1.5)
   Estimated Intercompany Settlement Payments ...............................   $      0 - ($4.0)
                                                                                ----------------
Estimated Cash Remaining to Initially Fund Unsecured Claims Trust Account ...   $ 253.8 - $262.8
                                                                                ----------------



- ----------
*    Includes funding for Allowed Administrative Claims, including Professional
     Fee Claims, and Allowed Priority Tax Claims.

     The Debtors and Creditors' Committee will agree no later than ten days
prior to the Confirmation Hearing on the actual amount of the Debtors' Cash to
be used for the initial funding of the Distribution Trust Expenses Account in
order to ensure the payment of Distribution Trust Expenses. The actual amount of
Distribution Trust Expenses to be incurred prior to termination of the
Distribution Trust may vary materially from the amount of such initial funding.
If the Distribution Trustee at any time determines that the Cash balance of the
Distribution Trust Expenses Account is insufficient to make all payments payable
therefrom in accordance with the terms of the Plan and the Distribution Trust
Agreement, the Distribution Trustee may transfer additional Cash from the
Unsecured Claims Trust Account (to the extent Cash remains available therein) to
the Distribution Expenses Account. If, on the other hand, the Distribution
Trustee determines that the Cash balance of the Distribution Trust Expenses
Account is in excess of the amount that will be sufficient to make all payments
payable therefrom in accordance with the terms of the Plan and the Distribution
Trust Agreement, the Distribution Trustee, with the consent of the Steering
Committee, may transfer such excess Cash to the Unsecured Claims Trust Account.

     The Debtors and Creditors' Committee will agree no later than ten days
prior to the Confirmation Hearing on the actual amount of the Debtors' Cash to
be used for the initial funding of the Priority Claims Trust Account in order to
ensure the payment of Allowed Administrative Claims, Allowed Priority Tax
Claims, Allowed Priority Claims and Allowed Secured Claims. Under the
Intercompany Claims Settlement, the Debtors are responsible for, among other
things, (a) the payment of third-party costs that are incurred after June 30,
2004 solely in connection with the administration of the Chapter 11 Cases and
(b) the payment of all foreign Taxes, transfer Taxes and recording fees payable
by the Debtors as a result of the sale of their interests in Alpart and all
other foreign Taxes payable by the Debtors. Accordingly, the initial funding of
the Priority Claims Trust Account will include a reserve for the payment of
Professional Fee Claims and a reserve for the payment of Taxes that may be
assessed against the Debtors by the Government of Jamaica as a result of the
sale by the Debtors of their interests in Alpart or otherwise (which will be
treated as Priority Tax Claims or Administrative Claims, as the case may be).
See "Operations During the Chapter 11 Cases -- Certain Jamaican Tax Matters."
The actual amounts of Allowed Administrative Claims, Allowed Priority Tax
Claims, Allowed Priority Claims and Allowed Secured Claims could vary materially
from the amount of the initial funding of the Priority Claims Trust Account. If
at any time the Distribution Trustee determines that the Cash balance of the
Priority Claims Trust Account is insufficient to make all payments payable
therefrom in accordance with the terms of the Plan and the Distribution Trust
Agreement, the Distribution Trustee will transfer an amount equal to the
shortfall from the Unsecured Claims Trust Account (to the extent Cash remains
available therein) to the Priority Claims Trust Account. If, on the other hand,
the Distribution Trustee determines that the Cash balance of the Priority Claims
Trust Account is in excess of the amount that will be sufficient to make all
payments payable therefrom in accordance with the terms of the Plan and the
Distribution Trust Agreement, the Distribution Trustee, with the consent of the
Steering Committee, may transfer such excess Cash to the Unsecured Claims Trust
Account.

     The Debtors and the Creditors' Committee currently estimate that the Senior
Notes Fee Payments will be $1.5 million in the aggregate. The actual aggregate
amount of the Senior Notes Fee Payments may vary from such amount. To the extent
the actual aggregate amount of the Senior Notes Fee Payments is less than $1.5
million, the amount of Cash available for distribution to holders of Senior Note
Claims, Senior Subordinated Claims, the PBGC Claims and Other Unsecured Claims
will increase by that difference. To the extent the Senior Notes Fee Payments
exceed $1.5 million, such excess will be paid solely from Cash otherwise
available for distribution to holders of Senior Note Claims.


                                       19

     The Debtors and the Creditors' Committee currently estimate that the
Intercompany Settlement Payments will be between zero and $4.0 million.

     Based on the various estimates indicated above, the Debtors and the
Creditors' Committee currently estimate that the Unsecured Claims Trust Account
initially will be funded with an aggregate of $253.8 million to $262.8 million.
No assurance can be given (a) that the actual amount of Cash to be used for the
funding of the Distribution Trust Expenses Account or the Priority Claims Trust
Account or the Senior Notes Fee Payments or Intercompany Settlement Payments
will not vary from the estimates thereof indicated above, (b) that the initial
funding of the Distribution Trust Expenses Account and the Priority Claims Trust
Account will be made in the amount of the estimates indicated above, or (c)
that, regardless of the amount of initial funding of such Trust Accounts, the
actual payments payable therefrom will not vary from the amount of such initial
funding, increasing Cash ultimately available for distribution from the
Unsecured Claims Trust Account to the extent actual payments are less than such
initial funding and decreasing Cash ultimately available for distribution from
the Unsecured Claims Trust Account to the extent actual payments are greater
than such initial funding.

     Based on the various estimates indicated above and assuming there are no
Allowed Unsecured Claims, the aggregate Cash ultimately to be distributed to the
PBGC, as the holder of the PBGC Claims, would be $81.2 million to $84.1 million,
and $172.6 million to $178.7 million would remain available for distribution to
holders of Senior Note Claims and Senior Subordinated Note Claims and, if
applicable, holders of 7-3/4% SWD Revenue Bonds. The aggregate Cash ultimately
to be distributed to holders of Senior Note Claims and Senior Subordinated Note
Claims depends on, among other things, whether Subclass 3A and Subclass 3B vote
to accept the Plan and, if either Subclass 3A or Subclass 3B fails to accept the
Plan, the outcome of the Guaranty Subordination Dispute. See "Operations During
the Chapter 11 Cases -- Guaranty Subordination Dispute." The chart below
indicates, based on the various estimates indicated above and assuming there are
no Allowed Other Unsecured Claims, the aggregate Cash ultimately to be
distributed to holders of Senior Note Claims and Senior Subordinated Note Claims
in each of the following four scenarios: (a) Subclass 3A and Subclass 3B vote to
accept the Plan ("Scenario A"); (b) Subclass 3A or Subclass 3B fails to accept
the Plan and the Bankruptcy Court rules in favor of the 9-7/8% Senior Note
Indenture Trustee, the 10-7/8% Senior Note Indenture Trustee and the Ad Hoc
Group (collectively, the "Senior Note Parties") in the Guaranty Subordination
Dispute such that the Senior Subordinated Note Claims are subordinated to the
Senior Note Claims ("Scenario B"); (c) Subclass 3A or Subclass 3B fails to
accept the Plan and the Bankruptcy Court rules in favor of the Senior
Subordinated Note Indenture Trustee in the Guaranty Subordination Dispute such
that the Senior Subordinated Note Claims and the Senior Note Claims are treated
on a pari passu basis ("Scenario C"); and (d) Subclass 3A or Subclass 3B fails
to accept the Plan and the Bankruptcy Court rules in favor of Liverpool Limited
Partnership, a holder of 9-7/8% Senior Notes and Senior Subordinated Notes
("Liverpool"), on all positions asserted by Liverpool in the Guaranty
Subordination Dispute such that the Senior Subordinated Note Claims are
ultimately determined by the Bankruptcy Court to be subordinated, but only to
$100 million of the current principal amount of the 9-7/8% Senior Notes and not
to any of the 10-7/8% Senior Notes ("Scenario D") (in each case, in millions).


                                       20



                                                Estimated Aggregate Cash Distribution
                                       ------------------------------------------------------
                                       Scenario A*   Scenario B*    Scenario C   Scenario D**
                                       -----------   -----------   -----------   ------------
                                                                     
10-7/8% Senior Note Claims .........   $90.9-$94.3   $95.2-$98.7   $47.4-$49.0    $47.4-$49.0
9-7/8% Senior Note Claims ..........   $70.0-$72.7   $73.4-$76.0   $36.5-$37.8    $95.6-$95.7
Senior Subordinated Note Claims ....   $       8.0            --   $88.7-$91.9    $29.6-$34.0


- ----------
*    Assumes that (a) Subclass 3A accepts the Plan and (b) unless the holders of
     Senior Note Claims otherwise agree pursuant to a settlement, all holders of
     Allowed Senior Note Claims are entitled under the Plan to identical
     treatment in respect of contractual subordination claims under the Senior
     Subordinated Note Indenture, and the recoveries of holders of Senior Note
     Claims reflect reductions of $3.6 million to $3.7 million in Scenario A and
     $4.0 million in Scenario B for payment of the 7-3/4% SWD Revenue Bond
     Payment, but do not reflect the 7-3/4% SWD Revenue Bond Plaintiffs' Expense
     Payments, which could be up to $0.5 million. See "Operations During the
     Chapter 11 Cases -- 7-3/4% SWD Revenue Bond Dispute."

**   The estimated recoveries were calculated based on the assumption that
     Liverpool prevails on each of its currently asserted positions. If
     Liverpool does not prevail on certain of these positions, the estimated
     distributions to the 9-7/8% Senior Note Claims would be reduced.
     Calculation of the contractual subordination payments includes claims for
     postpetition interest and an allocation of such payments proportionally
     between the Debtors, on the one hand, and KAAC, on the other hand, based on
     the estimated value distributable in respect of Public Note Claims under
     each of the Plan and the KAAC/KFC Plan.

Although the Debtors and the Creditors' Committee believe that no Other
Unsecured Claims will ultimately be allowed, in the event Other Unsecured Claims
that have been asserted are not disallowed prior to the Effective Date, Disputed
Claims Reserves would have to be established in respect of Subclass 3D, thereby
further reducing the initial Cash distributions to be made to holders of Senior
Note Claims, to holders of Senior Subordinated Note Claims in certain
circumstances and to the PBGC. See "General Information Concerning the Plan --
Means for Implementation of the Plan -- Trust Accounts."

     The chart below indicates, based on the estimated Cash distributions
indicated above, the estimated percentage recovery by holders of Senior Note
Claims and Senior Subordinated Note Claims in each of Scenario A, Scenario B,
Scenario C and Scenario D (computed as the quotient of the estimated Cash to be
distributed to all holders of the applicable Claims divided by the aggregate
amounts of such Claims allowed pursuant to Section 2.7 of the Plan).


                                       21



                                               Estimated Aggregate Cash Distribution
                                       -----------------------------------------------------
                                       Scenario A*   Scenario B*   Scenario C   Scenario D**
                                       -----------   -----------   ----------   ------------
                                                                    
10-7/8% Senior Note Claims .........   35.6%-36.9%   37.3%-38.6%   18.5%-19.2%   18.5%-19.2%
9-7/8% Senior Note Claims ..........   35.6%-36.9%   37.3%-38.6%   18.5%-19.2%   48.6%-48.6%
Senior Subordinated Note Claims ....          1.7%           --    18.5%-19.2%     6.2%-7.1%


- ----------
*    Assumes that (a) Subclass 3A accepts the Plan and (b) unless the holders of
     Senior Note Claims otherwise agree pursuant to a settlement, all holders of
     Allowed Senior Note Claims are entitled under the Plan to identical
     treatment in respect of contractual subordination claims under the Senior
     Subordinated Note Indenture, and the recoveries of holders of Senior Note
     Claims reflect reductions of $3.6 million to $3.7 million in Scenario A and
     $4.0 million in Scenario B for payment of the 7-3/4% SWD Revenue Bond
     Payment, but do not reflect the 7-3/4% SWD Revenue Bond Plaintiffs' Expense
     Payments, which could be up to $0.5 million. See "Operations During the
     Chapter 11 Cases -- 7-3/4% SWD Revenue Bond Dispute."

**   The estimated recoveries were calculated based on the assumption that
     Liverpool prevails on each of its currently asserted positions. If
     Liverpool does not prevail on certain of these positions, the estimated
     distributions to the 9-7/8% Senior Note Claims would be reduced.
     Calculation of the contractual subordination payments includes claims for
     postpetition interest and an allocation of such payments proportionally
     between the Debtors, on the one hand, and KAAC, on the other hand, based on
     estimated the value distributable in respect of Public Note Claims under
     each of the Plan and the KAAC/KFC Plan.

ADDITIONAL INFORMATION REGARDING ASSERTION AND TREATMENT OF ADMINISTRATIVE
CLAIMS AND PRIORITY TAX CLAIMS

     ADMINISTRATIVE CLAIMS

          Administrative Claims in General

     Except as otherwise provided in the Plan or unless otherwise agreed by the
holder of an Administrative Claim and the applicable Debtor or the Distribution
Trustee, each holder of an Allowed Administrative Claim will receive, in full
satisfaction of its Administrative Claim, Cash from the Priority Claims Trust
Account in an amount equal to the allowed amount of such Administrative Claim
either: (a) on or promptly after the Effective Date or (b) if the Administrative
Claim is not allowed as of the Effective Date, on or promptly after the date
that is 30 days after the date on which (i) an order allowing such
Administrative Claim becomes a Final Order or (ii) a Stipulation of Amount and
Nature of Claim is executed by the Distribution Trustee and the holder of the
Administrative Claim.

     Administrative Claims include Claims for costs and expenses of
administration allowed under sections 503(b), 507(b) or 1114(e)(2) of the
Bankruptcy Code, including (a) the actual and necessary costs and expenses
incurred after the Petition Date in preserving the respective Estates and
operating the business of each of the Debtors; (b) Professional Fee Claims; and
(c) US Trustee Fees. Except as provided in the Intercompany Claims Settlement,
no Intercompany Claim will constitute an Administrative Claim, and pursuant to
the PBGC Settlement Agreement, the PBGC has agreed not to assert any
Administrative Claims against the Debtors.

          US Trustee Fees

     On or before the Effective Date, Administrative Claims for fees payable
pursuant to 28 U.S.C. Section 1930, as determined by the Bankruptcy Court at the
Confirmation Hearing, will be paid by the applicable Debtor or the Distribution
Trustee in Cash equal to the amount of such Administrative Claims. All fees
payable pursuant to 28 U.S.C. Section 1930 will be paid by the Distribution
Trustee in accordance with the Plan from the Priority Claims Trust Account until
the closing of the Chapter 11 Cases pursuant to section 350(a) of the Bankruptcy
Code.


                                       22

          Bar Dates for Administrative Claims

     As provided in the Administrative Claim Bar Date Order, any holder of an
Administrative Claim against a Debtor that was required to File and serve a
request for payment of such Administrative Claim and that does not File and
serve such a request in accordance with the Administrative Claim Bar Date Order
by the Administrative Claim Bar Date, will be forever barred from asserting such
Administrative Claim against the Debtors, the Distribution Trustee or the
property of any of them, or the Trust Accounts, and such Administrative Claim
will be deemed waived and released as of the Effective Date. Objections to an
Administrative Claim must be Filed by the Distribution Trustee and served on the
requesting party by the later of (a) 45 days after the Effective Date and (b) 60
days after the Filing of the request for payment of an Administrative Claim.

     Except as otherwise set forth in the Plan or in the Intercompany Claims
Settlement, professionals or other entities asserting a Professional Fee Claim
for services rendered solely with respect to the Debtors before the Effective
Date must File and serve on the Debtors and the Distribution Trustee and such
other entities who are designated by the Bankruptcy Rules, the Confirmation
Order or other order of the Bankruptcy Court an application for final allowance
of such Fee Claim no later than 60 days after the Effective Date. Objections,
including any objections by the US Trustee, to any Professional Fee Claim must
be Filed and served on the Distribution Trustee and the requesting party by the
later of (a) 90 days after the Effective Date and (b) 30 days after the Filing
of the applicable request for payment of the Professional Fee Claim. To the
extent necessary, the Confirmation Order will amend and supersede any previously
entered order of the Bankruptcy Court regarding the payment of Professional Fee
Claims (other than the Intercompany Claim Settlement Order) solely with respect
to the Debtors.

     To the extent that any professional has provided services in the Kaiser
Cases, the Bar Date for Professional Fee Claims in Section 2.2 of the Plan
relates only to such professional's fees for services and reimbursement of
expenses reasonably allocable by such professional solely to the Debtors and not
otherwise treated pursuant to the Intercompany Claims Settlement Order; Claims
relating to such professional's fees for services and reimbursement of expenses
to the Other Kaiser Debtors may be sought against the estates of such Other
Kaiser Debtors. The failure of a professional to allocate any particular charges
to the Debtors will not foreclose, waive or affect in any way the professional's
right to seek allowance and payment of such charges from the Other Kaiser
Debtors.

     PRIORITY TAX CLAIMS

     Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, unless otherwise
agreed by the holder of a Priority Tax Claim and the applicable Debtor or the
Distribution Trustee, each holder of an Allowed Priority Tax Claim will receive,
in full satisfaction of its Priority Tax Claim, the full amount thereof in Cash,
without postpetition interest or penalty, from the Priority Claims Trust Account
as soon as practicable after the later of (a) the Effective Date and (b) the
date on which the Priority Tax Claim becomes an Allowed Claim. Notwithstanding
the foregoing, the holder of an Allowed Priority Tax Claim will not be entitled
to receive any payment on account of any penalty arising with respect to or in
connection with the Allowed Priority Tax Claim. Any such Claim or demand for any
such penalty (a) will be subject to treatment in Subclass 3D and (b) the holder
of an Allowed Priority Tax Claim will not be entitled to assess or attempt to
collect such penalty from the Debtors, the Distribution Trustee, their
properties or the Trust Accounts (other than as the holder of a Subclass 3D
Claim).

     RESERVES FOR PAYMENT OF CERTAIN POTENTIAL ADMINISTRATIVE CLAIMS AND
PRIORITY TAX CLAIMS

     As part of the initial funding of the Priority Claims Trust Accounts, the
Debtors will include reserves for payments in respect of certain potential
Administrative Claims and Priority Tax Claims. For a description of such
potential Claims, see "Operations During the Chapter 11 Cases -- Certain
Jamaican Tax Matters."

SENIOR NOTE INDENTURE TRUSTEE AND AD HOC GROUP COUNSEL FEES AND EXPENSES; 7-3/4%
SWD REVENUE BOND PLAINTIFFS' FEES

     The Senior Notes Fee Payments will be made out of the Public Note
Distributable Consideration. No later than two Business Days prior to the
Effective Date, each of the 9-7/8% Senior Note Indenture Trustee, the 10-7/8%
Senior Note Indenture Trustee and counsel for the Ad Hoc Group must furnish to
the Creditors' Committee and the


                                       23

Debtors information in respect of such fees and expenses incurred and estimated
to be incurred through the Effective Date.

     In addition, if the 7-3/4% SWD Revenue Bond Payment is required to be made
under the first sentence of Section 2.5(a) of the Plan, the 7-3/4% SWD Revenue
Bond Plaintiffs' Expense Payments will be made out of the Public Note
Distributable Consideration otherwise payable to holders of Allowed Claims in
Subclass 3A; provided, however, that in no case will the amount of the 7-3/4%
SWD Revenue Bond Plaintiffs' Expense Payment, when aggregated with any
comparable amount payable under the KAAC/KFC Plan, exceed $500,000; provided
further, however, that nothing in the Plan will prejudice the rights of such
plaintiffs to seek additional recoveries (i) from amounts otherwise to be paid
to or for the benefit of holders of 7-3/4% SWD Revenue Bonds under the Plan or
the KAAC/KFC Plan or (ii) from, or in respect of amounts otherwise to be paid to
or for the benefit of holders of 7-3/4% SWD Revenue Bonds by, any Other Kaiser
Debtor other than KAAC or KFC. No later than two Business Days prior to the
Effective Date, the plaintiffs in the 7-3/4% SWD Revenue Bond Dispute must
furnish to the Creditors' Committee, the Debtors, the 9-7/8% Senior Note
Indenture Trustee and the 10-7/8% Senior Note Indenture Trustee information in
respect of such fees and expenses incurred and estimated to be incurred through
the Effective Date.

            CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS

BACKGROUND

     Kaiser Aluminum Corporation ("KAC"), through its wholly owned subsidiary
KACC and the subsidiaries of KACC, has historically been one of the leading
international producers and marketers of alumina, primary aluminum and
fabricated aluminum products, operating worldwide in all principal aspects of
the aluminum industry - the mining of bauxite, the refining of bauxite into
alumina, the production of primary aluminum from alumina and the manufacture of
both fabricated and semi-fabricated aluminum products. Both Debtors are direct
wholly owned subsidiaries of KACC and, until July 1, 2004, collectively owned
65% of Alpart, a general partnership formed by the Debtors and Hydro Aluminium
Jamaica a.s. ("Hydro") for the purpose of mining bauxite, processing it into
alumina and delivering the resulting alumina to its partners. The Debtors sold
their respective interests in Alpart to Quality Incorporation I Limited
("Quality"), an affiliate of Hydro, on July 1, 2004, as part of the overall
disposition by KAC and its subsidiaries of their commodity businesses.
Immediately thereafter, Glencore International AG ("Glencore") purchased 100% of
the equity interests in Quality. For a discussion of the sale by the Debtors of
their interests in Alpart, see "Operations During the Chapter 11 Cases -- The
Sale of the Alpart Interests and Liquidation of AJI and KJC."

CHAPTER 11 FILINGS OF THE OTHER KAISER DEBTORS

     On February 12, 2002 (the "2002 Petition Date"), KAC, KACC and 13 of their
subsidiaries Filed for relief under chapter 11 of the Bankruptcy Code. On March
15, 2002, two additional affiliates of KAC and KACC commenced their respective
chapter 11 cases (collectively with the 15 previously-filed debtors, the
"Original Debtors"). The filing of these cases was necessitated by the liquidity
and cash flow problems that arose in late 2001 and early 2002. KAC and its
subsidiaries were 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, KAC and its subsidiaries had become
increasingly burdened by asbestos litigation and growing legacy obligations for
retiree medical and pension costs. The confluence of these factors created
continuing operating losses and negative cash flows, which resulted in lower
credit ratings and an inability to access the capital markets. Notwithstanding
the filing of these cases, the Debtors did not File for relief under chapter 11
of the Bankruptcy Code until January 14, 2003. For a description of such Filing,
see "-- Pension Funding Obligations; Commencement of the Chapter 11 Cases by the
Debtors."

NOTE GUARANTEES

     The Debtors, together with certain other subsidiaries of KACC, are
guarantors of KACC's obligations under the 9-7/8% Senior Note Indenture and
10-7/8% Senior Note Indentures (collectively, the "Senior Notes Indentures") and
the Senior Subordinated Note Indenture (collectively with the Senior Notes
Indentures, the "Public Note Indentures"). Upon the commencement of KACC's
chapter 11 case, the debt issued pursuant to each Public


                                       24

Note Indenture was accelerated and the trustee under each Public Note Indenture
had the right to proceed to collect on the debt issued pursuant to such Public
Note Indenture. It was not yet clear on the 2002 Petition Date that a filing by
the Debtors for protection under chapter 11 of the Bankruptcy Code would be in
the best interests of the Debtors' constituents, but the enforcement of the
Debtors' guarantees of the 9-7/8% Senior Notes, 10-7/8% Senior Notes and Senior
Subordinated Notes would likely have necessitated such a filing. Thus, in
connection with their chapter 11 filings, the Original Debtors sought and
obtained an injunction enjoining the holders of 9-7/8% Senior Notes, 10-7/8%
Senior Notes and Senior Subordinated Notes from seeking to enforce such
guarantees (which injunction was subsequently mooted by the commencement of the
Chapter 11 Cases). During the Chapter 11 Cases, certain litigation was initiated
involving the relative rights of the holders of the Senior Subordinated Notes
and the holders of the 9-7/8% Senior Notes and the 10-7/8% Senior Notes. See
"Operations During the Chapter 11 Cases -- Guaranty Subordination Dispute."
Litigation was also initiated in order to determine the rights of the 7-3/4% SWD
Revenue Bonds in relation to the Senior Subordinated Notes. See "Operations
During the Chapter 11 Case -- 7-3/4% SWD Revenue Bond Dispute."

PENSION FUNDING OBLIGATIONS; COMMENCEMENT OF THE CHAPTER 11 CASES BY THE DEBTORS

     Originally, a total of eight pension plans were sponsored by KACC and one
of its subsidiaries for the benefit of their employees. Most likely as a result
of public disclosure regarding the potential termination of the Kaiser pension
plans and increasing concern over the continuing uncertain status of the Kaiser
pension plans, beginning in November 2002, a higher than average number of
salaried employees retired and opted for a lump-sum distribution from the Kaiser
Aluminum Salaried Employees Retirement Plan (the "Salaried Pension Plan"). The
resulting increase in the aggregate amount of lump-sum distributions from the
Salaried Pension Plan combined with a reduction in the level of the Salaried
Pension Plan's liquid assets and the ratio of the plan's assets over current
liabilities, in each case below the statutory limit as of January 1, 2003,
triggered a "Liquidity Shortfall" under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the IRC. As a result, KACC was required
by statute to make an additional contribution in the amount of $17.0 million to
the Salaried Pension Plan on January 15, 2003, but KACC determined prior to that
date that it was not in the best interest of its estate to make such
contribution. Under ERISA, upon the failure of a plan sponsor to make a
statutory contribution to the pension plan of which it is the sponsor, a lien
enforceable by the PBGC automatically arises against all of the assets of that
plan sponsor and each member of the sponsor's "controlled group" (which, in the
case of KACC, is all entities of which KACC owns 80% or more, including the
Debtors). As there was an automatic stay in effect in the chapter 11 cases of
the Original Debtors, neither the additional funding requirement nor the
creation of such a lien posed an issue for the Original Debtors. However, the
imposition or perfection of such a lien or other enforcement action by the PBGC
against the Debtors, had the Debtors not Filed for protection under chapter 11
of the Bankruptcy Code, could have:

     -    detrimentally affected the business operations of the Debtors;

     -    triggered adverse Tax consequences, resulting in additional taxable
          income in the Debtors' U.S. consolidated Tax return;

     -    caused an event of default under the Original Debtors' then-existing
          postpetition financing arrangement; and

     -    irretrievably altered the relative priorities of creditor Claims by
          elevating the PBGC Claims above the other unsecured creditors' Claims
          (even though the PBGC Claims were treated as general unsecured
          prepetition claims in the chapter 11 cases of the Original Debtors).

Accordingly, on the Petition Date, AJI, KJC and seven additional affiliates of
KAC (AJI, KJC and such additional affiliates collectively, the "Additional
Debtors") Filed petitions for relief. The PBGC, as was expected, Filed several
proofs of Claims against the Debtors. See "Operations During the Chapter 11
Cases -- PBGC Claims" for further information.


                                       25

                     OPERATIONS DURING THE CHAPTER 11 CASES

FIRST DAY RELIEF REQUESTED BY THE ORIGINAL DEBTORS

     On the 2002 Petition Date, the Original Debtors Filed a number of motions
and other pleadings (collectively, the "2002 First Day Motions"). Certain of the
most significant 2002 First Day Motions are briefly described below. The 2002
First Day Motions were designed to meet the Original Debtors' goals of:

     -    continuing their and their nondebtor subsidiaries' operations with as
          little disruption and loss of productivity as possible;

     -    maintaining the confidence and support of the Original Debtors' and
          their nondebtor subsidiaries' customers, employees, vendors,
          suppliers, service providers, contractors and other key groups;

     -    maintaining good relations in the communities served by the Original
          Debtors' and their nondebtor subsidiaries' businesses; and

     -    obtaining necessary postpetition financing.

The 2002 First Day Motions included:

     -    motions relating to case administration included the appointment of
          counsel, the appointment of a claims and noticing agent, and the
          approval of interim compensation procedures for professionals;

     -    a motion seeking authority to pay prepetition wages and other benefits
          to or on behalf of the Original Debtors' employees and independent
          contractors;

     -    a motion seeking authority to retain and pay ordinary course
          professionals;

     -    a motion seeking authority to continue the Original Debtors' workers'
          compensation insurance programs and pay certain prepetition workers'
          compensation claims, premiums and related expenses;

     -    a motion seeking authority to pay or honor prepetition obligations to
          customers;

     -    a motion seeking authority to pay prepetition claims of certain
          critical vendors and service providers;

     -    a motion seeking approval of (a) the Original Debtors' cash management
          system; (b) certain intercompany transactions with and transfers to
          affiliates; (c) the use of existing bank accounts, business forms, and
          investment and deposit guidelines; and (d) the priority of
          postpetition Intercompany Claims, as discussed below under "-- Cash
          Management Order"; and

     -    a motion seeking approval to continue funding certain joint venture
          affiliates, including Alpart, as discussed below under "-- Joint
          Venture Order".

All of the 2002 First Day Motions ultimately were granted on the 2002 Petition
Date or shortly thereafter.

     CASH MANAGEMENT ORDER

     Prior to the 2002 Petition Date, the Original Debtors utilized certain
centralized cash management systems in the day-to-day operation of their
businesses. These cash management systems included an overall centralized cash
management system maintained by KACC, as well as certain cash management
subsystems maintained by certain of their subsidiaries and business units. These
cash management systems provided well-established mechanisms for the collection,
concentration, management and disbursement of funds used in the Original
Debtors' businesses.

     On February 13, 2002, the Bankruptcy Court entered an interim order
authorizing the Original Debtors to maintain these systems on a postpetition
basis and, on July 23, 2002, entered a final order authorizing the continued


                                       26

use and maintenance of the centralized cash management system (the "Cash
Management Order"). In addition, the Cash Management Order authorized the
Original Debtors to continue their ordinary course transactions with, and
transfers of Cash to, their nondebtor affiliates (which, prior to the Petition
Date, included the Debtors). In connection with this relief, the Cash Management
Order accorded superpriority status to any Intercompany Claims among the
Original Debtors and nondebtor affiliates that arose after the 2002 Petition
Date as a result of the intercompany transactions made through the Original
Debtors' cash management system.

     JOINT VENTURE ORDER

     As of the 2002 Petition Date, much of the bauxite, alumina and primary
aluminum utilized by KACC and its subsidiaries was produced at overseas
facilities owned through five nondebtor joint venture affiliates, of which KACC
held, directly or indirectly, less than a 100% ownership interest (collectively,
the "Joint Ventures"). Alpart, described above in "Certain Events Preceding the
Debtors' Chapter 11 Cases -- Background," was one of the Joint Ventures. Certain
of the Original Debtors were obligated to purchase products from the Joint
Ventures and to fund the Joint Ventures' cash costs for raw materials, labor and
other operational costs, as well as capital expenditures, Taxes, debt service
and working capital. Failure to purchase products from, or fund the costs of, a
Joint Venture would have been a default under the relevant Joint Venture
agreements, which, in turn, could have lead to the forfeiture of the Original
Debtors' interests in the Joint Venture. As a consequence, the Original Debtors
sought and obtained an interim order dated February 13, 2002 authorizing them to
continue ordinary course transactions with, and pay prepetition claims of, the
Joint Ventures and, on July 23, 2002, obtained a final order authorizing them to
do so (the "Joint Venture Order").

FIRST DAY RELIEF REQUESTED BY AJI, KJC AND THE OTHER ADDITIONAL DEBTORS

     On the Petition Date, AJI, KJC and the other Additional Debtors Filed
motions for relief (collectively, the "2003 First Day Motions"), the most
material of which are briefly described below. The 2003 First Day Motions were
designed to meet the Additional Debtors' goals of:

     -    continuing their operations with as little disruption and loss of
          productivity as possible;

     -    maintaining the confidence and support of the Additional Debtors'
          customers, employees, vendors, suppliers, service providers,
          contractors and other key groups; and

     -    extending certain relief granted under the 2002 First Day Motions to
          the Additional Debtors.

The 2003 First Day Motions included:

     -    motions relating to case administration, the Filing of a consolidated
          list of creditors and appointment of a claims and noticing agent;

     -    a motion to extend the relief granted in the Cash Management Order to
          each of the Additional Debtors;

     -    a motion to allow Kaiser Aluminum & Chemical of Canada Limited, a
          solvent Canadian corporation and a subsidiary of KACC, to continue,
          without interruption, the Canadian operations, including the payment
          of prepetition claims in the ordinary course; and

     -    a motion to extend the relief granted in the Joint Venture Order to
          AJI, KJC and KBC.

All of the 2003 First Day Motions were granted on the Petition Date or shortly
thereafter.

APPOINTMENT OF THE COMMITTEES AND FUTURE CLAIMANTS' REPRESENTATIVES

     CREDITORS' COMMITTEE

     On February 25, 2002, the US Trustee appointed the Creditors' Committee.
The Creditors' Committee acts as such in all of the Kaiser Cases (including the
Chapter 11 Cases). The membership of the Creditors' Committee


                                       27

has been amended three times during the Kaiser Cases; the current members of,
and advisors to, the Creditors' Committee are:

                                                             
COMMITTEE MEMBERS:                                              COUNSEL:

J.P. Morgan Trust Company, N.A., as Indenture Trustee           Lisa G. Beckerman, Esq.
6525 West Campus Oval Road                                      Akin, Gump, Strauss, Hauer & Feld, L.L.P.
New Albany, OH 43054                                            590 Madison Avenue
                                                                New York, NY 10022
Law Debenture Trust Company of New York, as Indenture Trustee
767 Third Avenue, 31st Floor                                    William P. Bowden, Esq.
New York, NY 10017                                              Ashby & Geddes
                                                                222 Delaware Avenue
U.S. Bank National Association, as Indenture Trustee            P.O. Box 1150
180 East 5th Street                                             Wilmington, DE 19899
St. Paul, MN 55101
                                                                FINANCIAL ADVISORS:
United Steelworkers of America
Five Gateway Center                                             Amit R. Patel
Pittsburgh, PA 15222                                            Houlihan Lokey Howard & Zukin
                                                                1930 Century Park West
Pension Benefit Guaranty Corporation                            Los Angeles, CA 90067
1200 K Street, N.W.
Washington, D.C. 20005
                                                                ASBESTOS EXPERTS:
Farallon Capital Management LLC
1 Maritime Plaza, Suite 1325                                    Charles E. Bates
San Francisco, CA 94111                                         Bates White & Ballantine
                                                                2001 K Street, N.W., Suite 700
Dwight Asset Management Company                                 Washington, D.C. 20006
100 Bank Street
Burlington, VT 05401



     ASBESTOS CLAIMANTS' COMMITTEE AND CERTAIN OTHER APPOINTED REPRESENTATIVES

     On February 25, 2002, the US Trustee appointed a statutory committee of
asbestos claimants (the "Asbestos Claimants' Committee"). On January 27, 2003,
the Bankruptcy Court entered an order appointing Martin J. Murphy as legal
representative for future asbestos claimants (the "Future Asbestos Claimants'
Representative"). On August 26, 2003, the Bankruptcy Court entered an order
appointing an official committee of retired employees (the "Retirees'
Committee"). On June 22, 2004, the Bankruptcy Court entered an order appointing
a legal representative for future silica and coal tar pitch volatile claimants
(the "Future Silica Claimants' Representative"). While each of these
appointments has been made in the administratively consolidated chapter 11 cases
of the Original Debtors and Additional Debtors, the Debtors do not believe that
they have any liability with respect to the claims that are the subject of the
respective roles of the Asbestos Claimants' Committee, the Future Asbestos
Claimants' Representative or the Future Silica Claimants' Representative and no
Claims in respect thereof have been asserted (other than several Claims asserted
by insurance carriers that are being challenged by the Debtors and that are
expected to be disallowed).

ASSUMPTION AND ASSIGNMENT OR REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES

     As debtors in possession, the Debtors have the right under section 365 of
the Bankruptcy Code, subject to the approval of the Bankruptcy Court, to assume,
assume and assign, or reject executory contracts and unexpired leases. Section
365 of the Bankruptcy Code provides generally that a debtor may assume, assume
and assign, or reject an executory contract at any time before the confirmation
of a plan of reorganization, but the Bankruptcy Court, on the request of a party
in interest, may order the debtor to determine whether to assume or reject a


                                       28

particular executory contract within a specified period of time. In addition,
section 365 of the Bankruptcy Code further provides that a debtor is given until
60 days after the date of commencement of its bankruptcy to decide whether to
assume, assume and assign, or reject an unexpired lease of nonresidential real
property. This period may be extended for "cause."

     On April 11, 2002, the Bankruptcy Court entered an order granting the
Original Debtors' motion to extend the time within which they may assume, assume
and assign, or reject an unexpired lease of nonresidential property until the
Confirmation Date to allow them to evaluate further their executory contracts
and unexpired leases. On April 17, 2003, the Bankruptcy Court entered an order
granting the same relief to the AJI, KJC and the other Additional Debtors.

     As described below in "-- The Sale of the Alpart Interests and Liquidation
of AJI and KJC," the interests of AJI and KJC in Alpart have been sold and all
executory contracts related to Alpart have been assumed and assigned in
connection therewith. The Debtors do not believe they have any material
executory contracts or unexpired leases that were not assumed and assigned in
connection with the sale of their interests in Alpart, but, in any case, any
remaining executory contracts of AJI and KJC will be deemed rejected pursuant to
the Plan.

CLAIMS PROCESS AND BAR DATES

     In May 2002, the Original Debtors filed their Schedules, identifying the
assets and liabilities of their respective estates. These Schedules have been
amended from time to time subsequent to these initial filings. In March 2003,
AJI, KJC and the other Additional Debtors filed their respective Schedules. The
Bankruptcy Court set the following bar dates for the filing of proofs of claim
in the Kaiser Cases: (a) January 31, 2003 as the last date by which holders of
prepetition claims against the Original Debtors (other than asbestos-related
personal injury, noise-induced hearing loss and coal tar pitch volatiles claims)
could file their claims; (b) May 15, 2003 as the last date by which holders of
prepetition claims against AJI, KJC and the other Additional Debtors (other than
asbestos-related personal injury, noise-induced hearing loss and coal tar pitch
volatiles claims) could file their claims; and (c) February 29, 2004 as the last
date by which holders of noise-induced hearing loss and coal tar pitch volatiles
prepetition claims against KACC could file their claims. No bar date has been
established for the filing of asbestos-related personal injury claims.

POSTPETITION FINANCING

     On the 2002 Petition Date, the Original Debtors entered into a postpetition
financing agreement arranged by Bank of America, N.A. and, in March 2003, the
Additional Debtors (including the Debtors) were added as co-guarantors. That
financing facility provided for a secured, revolving line of credit through
February 13, 2005. On February 11, 2005, the Bankruptcy Court approved a
replacement financing agreement for certain of the Other Kaiser Debtors. The
replacement facility was arranged by J.P. Morgan Securities Inc. and provides
for a secured, revolving line of credit in the principal amount of $200.0
million through the earlier of February 11, 2006, the effective date of a plan
of reorganization for the Other Kaiser Debtors or the voluntary termination of
the financing facility by the Other Kaiser Debtors. Because the Debtors have
liquidated their assets and have no working operations, the Debtors are not
parties to the replacement financing agreement and the lenders under the
replacement financing agreement have no Liens on the Cash held by the Debtors.

STRATEGIC PLAN TO SELL COMMODITIES ASSETS

     In September 2002, KAC and KACC prepared a strategic plan for their
business operations. That plan envisioned the sale of some or all of their
bauxite, alumina and primary aluminum assets and the reorganization around their
fabricated products business. Thereafter, the strategic plan was shared with the
Creditors' Committee, the Asbestos Claimants' Committee and the Future Asbestos
Claimants' Representative. After these parties completed considerable due
diligence, they each indicated that they did not oppose the strategic plan.

     In furtherance of the strategic plan, the Debtors and the Other Kaiser
Debtors have sold or are in the process of selling their interests in the Joint
Ventures other than Anglesey Aluminium Limited. On July 1, 2004 the Debtors sold
their interests in Alpart. See " -- The Sale of the Alpart Interests and
Liquidation of AJI and KJC." In


                                       29

October 2004, KACC sold the Gramercy/KJBC Interests for approximately $23.0
million, subject to certain adjustments. Pursuant to the Intercompany Claims
Settlement described below, approximately $4.0 million of the proceeds from that
sale will be allocated to the Debtors' Estates. Also in October 2004, certain of
the Other Kaiser Debtors sold their interests in Volta Aluminium Company
Limited, which owns a primary aluminum smelter on the coast of Ghana. In
November 2004, the Bankruptcy Court approved the sale of KAAC's interests in and
related to Queensland Alumina Limited, an Australian corporation that owns an
alumina refinery in Queensland, Australia.

THE SALE OF THE ALPART INTERESTS AND LIQUIDATION OF AJI AND KJC

     Following an extensive marketing process that spanned more than seven
months, in January 2004, the Debtors and certain of the Other Kaiser Debtors
filed a motion (the "Sale Motion") to approve the sale of their respective
interests in Alpart to Glencore AG (or, if Hydro exercised its right of first
refusal ("RFR") with respect to such proposed sale, to Hydro), for $165.0
million, subject to certain adjustments. On March 23, 2004, the Open Joint Stock
Company Russian Aluminium ("RUSAL") Filed an objection to the Sale Motion,
stating that it was willing to purchase the interests in Alpart for $215.0
million. On April 6, 2004, the Bankruptcy Court entered an order (the "Bidding
Procedures Order") authorizing the termination of the purchase agreement with
Glencore AG and approving bidding procedures for an auction of the Debtors'
interests in Alpart. The Bidding Procedures Order included a preservation of
Hydro's RFR to purchase the interests in Alpart subsequent to the auction. An
auction was held pursuant to the Bidding Procedures Order on April 20, 2004, and
Rual Trade Limited ("Rual"), a subsidiary of RUSAL, with a bid of approximately
$331.7 million, subject to certain adjustments, was determined to be the
successful bidder. On May 25, 2004, Hydro exercised its contractual RFR to
acquire the interests in Alpart and simultaneously announced that it intended to
re-sell those interests to Glencore AG for the same price that Hydro was paying
to exercise its RFR. On May 26, 2004, the Debtors and certain of the Other
Kaiser Debtors filed a motion requesting that the auction for the interests in
Alpart be re-opened, or, in the alternative, that the Bankruptcy Court authorize
the sale of such interests to Hydro in accordance with the terms of Hydro's RFR.
On June 4, 2004, the Bankruptcy Court ordered the sale of the interests in
Alpart to Hydro. The sale of such interests to Quality, an affiliate of Hydro,
for approximately $331.7 million, subject to certain adjustments, was completed
on July 1, 2004, and immediately thereafter Glencore purchased 100% of the
equity interests in Quality.

     The Debtors estimate that, after payment of the costs and expenses of the
sale payable by the Debtors in accordance with the Intercompany Claims
Settlement, the Alpart Proceeds will be approximately $274.4 million as of the
Effective Date.

CERTAIN JAMAICAN TAX MATTERS

     The Government of Jamaica (the "GOJ") could assert that the Debtors owe
Taxes for one or more Taxable periods through the Effective Date, including
Taxes resulting from the sale of the Debtors' interest in Alpart. Pursuant to
the Alpart Purchase Agreement, transfer or stamp Taxes arising from the sale of
such interests were the responsibility of the buyer and the buyer has paid such
Taxes.

     The Plan provides that any and all Taxes ultimately determined to be due
and owing from either Debtor to the GOJ for any taxable period (including
interest and penalties, if any) will be treated as Allowed Priority Tax Claims
(if they relate to prepetition periods) or Allowed Administrative Claims (if
they relate to the administrative period) (collectively, the "Jamaican Tax
Claims"), and will be paid in full in Cash from the Priority Claims Trust
Account following the determination of the amount or amounts of any such Tax
liability. (Until this determination has been made, any potential Tax obligation
will be treated under the Plan as a Disputed Claim.) Interest and penalties
associated with any such Tax liability will be determined and calculated for
purposes of the Plan under applicable Jamaican law.

AGREEMENTS WITH LABOR REGARDING PENSION AND RETIREE MEDICAL BENEFITS

     In January 2004, KACC and one of the Other Kaiser Debtors filed motions
with the Bankruptcy Court for a distress termination of all of their domestic
hourly pension plans and to terminate or substantially modify postretirement
medical obligations for both salaried and certain hourly employees. KACC
subsequently reached agreements (collectively, the "Legacy Liability
Agreements") with the Retirees' Committee and representatives from the unions
representing the hourly employees of KACC. The Legacy Liability Agreements
provided for the


                                       30

termination of existing salaried and hourly retiree benefit plans (including
medical) and provided salaried and hourly retirees with an opportunity either to
pay premiums for continued medical coverage under the Consolidated Omnibus
Budget Reconciliation Act of 1985 (i.e., COBRA continuation coverage) or to
elect coverage pursuant to voluntary employee beneficiary association trusts, to
which KACC has, and will continue to contribute, a certain amount of Cash and to
which KAC will contribute a certain portion of the equity it issues upon the
consummation of its chapter 11 plan. Under the Legacy Liability Agreements, the
parties also agreed to the termination of their then-existing hourly pension
plans and to the terms of one or more replacement pension plans.

     During the first half of 2004, the Bankruptcy Court entered orders
approving each of the Legacy Liability Agreements, subject to certain
conditions, including Bankruptcy Court approval of the Intercompany Claims
Settlement (described below) in a form acceptable to the Debtors, the Other
Kaiser Debtors and the Creditors' Committee. On June 1, 2004, the Bankruptcy
Court entered an order making the Legacy Liability Agreements effective,
notwithstanding that the Intercompany Claims Settlement had not then been agreed
upon or approved, and authorizing the Other Kaiser Debtors to proceed with the
implementation of those agreements, subject to certain termination rights
granted to the Creditors' Committee. As a result of the PBGC Settlement
Agreement (described below), KACC and the United Steelworkers of America,
AFL-CIO-CLC later agreed to certain modifications of their Legacy Liability
Agreement, which the Bankruptcy Court approved on November 8, 2004, subject to
finalization of a form of order. The Bankruptcy Court entered the order on
February 1, 2005.

PBGC CLAIMS

     The PBGC is a wholly owned United States government corporation that
administers the defined benefit pension plan termination insurance program under
ERISA. Pursuant to federal statute, KACC and each member of its controlled group
are jointly and severally liable to the PBGC for amounts that KACC is required
to contribute to any of the Kaiser pension plans. The controlled group includes
each of AJI and KJC, as well as all of the Other Kaiser Debtors.

     In January 2003, the PBGC filed claims against Debtors and the Other Kaiser
Debtors on behalf of each of the eight Kaiser pension plans, which included: (a)
claims for estimated unfunded benefit liabilities, totaling approximately $620.0
million; (b) unliquidated claims for missed statutory insurance premiums; and
(c) a $17.1 million claim for minimum funding contributions related to the
Salaried Pension Plan and unliquidated claims for minimum funding contributions
related to the remaining Kaiser pension plans.

     Although the Bankruptcy Court, in conjunction with approving the Legacy
Liability Agreements, had determined that the financial requirements for a
distress termination of certain of the pension plans had been satisfied and had
authorized the implementation of replacement defined contribution plans as
negotiated in the Legacy Liability Agreements, the termination of the pension
plans and implementation of the replacements plans remained subject to the
PBGC's determination that the statutory requirements had been satisfied. In
March 2004, the PBGC appealed the Bankruptcy Court's ruling that the Debtors and
the Other Kaiser Debtors had met the financial requirements for a distress
termination with respect to certain of the Kaiser pension plans. The PBGC also
informed the Debtors and the Other Kaiser Debtors that it believed that the
replacement pension plans negotiated in the Legacy Liability Agreements did not
comply with the PBGC's policies.

     On October 14, 2004, the Debtors and the Other Kaiser Debtors entered into
the PBGC Settlement Agreement, pursuant to which the PBGC approved the
termination of the largest of the Kaiser pension plans that had not previously
been terminated (two of the Kaiser pension plans had been terminated by the PBGC
prior to that date) and KACC retained, and agreed to continue, the remaining
smaller pension plans. In addition, the PBGC Settlement Agreement provides for,
among other things: (a) the PBGC's issuance of a letter indicating that it
intends to take no action with respect to the replacement pension plans; (b) the
payment by KACC of amounts necessary to satisfy the minimum funding requirements
under applicable law for the retained pension plans; (c) the allowance of
administrative claims in the aggregate amount of $14.0 million against the Other
Kaiser Debtors (including KACC) with the exception of the Debtors; and (d) the
allowance of unsecured claims against the Debtors and the Other Kaiser Debtors
for $616.0 million for unfunded benefit liabilities under the terminated plans
and statutory premiums, provided that the PBGC's recovery from the Estates of
the Debtors in respect of the PBGC Claims is limited to the PBGC Percentage of
the Cash in the Unsecured Claims Trust. On January 25, 2005, the Bankruptcy
Court entered an order approving the PBGC Settlement Agreement. On February 3,
2005, the Senior Subordinated


                                       31

Note Indenture Trustee Filed a notice of appeal in respect of such order and a
notice of appeal of the Bankruptcy Court's order denying its motion for
reconsideration of the Bankruptcy Court's stay of the Senior Subordinated Note
Indenture Trustee's objection to certain PBGC Claims. See "Overview of the Plan
- -- Summary of Classes and Treatment of Claims and Interests" for a description
of the treatment of the PBGC Claims.

INTERCOMPANY CLAIMS SETTLEMENT

     The operations of KAC and its subsidiaries, which included transactions
with foreign joint ventures and the use of a centralized cash management system,
gave rise to a significant number of intercompany transactions, which were
accounted for as intercompany receivables and payables. Because many of the
intercompany accounts reflected an aggregate of activity over many years, the
account balances for these intercompany receivables and payables in many cases
were substantial, in some cases aggregating more than a $1.0 billion. In
addition to the complex nature of the transactions and the significant amounts
involved, there were numerous legal theories and arguments that could be
advanced to support varying treatments of all or a portion of these intercompany
account balances or to apply principles of setoff or recoupment to eliminate or
substantially reduce certain of these intercompany account balances. Issues also
existed with respect to postpetition Intercompany Claims, including, among other
issues: (a) whether to "synchronize" the petition dates for the Original Debtors
and the Additional Debtors or otherwise how to treat Intercompany Claims that
arose after the commencement of the chapter 11 cases of the Original Debtors in
2002 but prior to the commencement of chapter 11 cases of the Additional Debtors
in 2003; and (b) how certain costs or services funded by KACC but accruing to
the benefit of the Debtors and Other Kaiser Debtors as well (e.g., professional
fees and costs incurred in the chapter 11 cases and overhead costs) should be
allocated among the Debtors and the Other Kaiser Debtors.

     On October 5, 2004, the Debtors, the Other Kaiser Debtors and the
Creditors' Committee entered into a settlement and release agreement which
resolves all of these issues (i.e., the Intercompany Claims Settlement), thereby
eliminating the potential costs, uncertainties and potential delays that could
have resulted had each of these issues been left for resolution through
litigation. On October 14, 2004, the Debtors, the Other Kaiser Debtors and the
Creditors' Committee jointly Filed a motion to approve the Intercompany Claims
Settlement (the "Joint Motion"). Objections to the Joint Motion were Filed by
numerous parties, many of which were resolved by a January 27, 2005 amendment to
the Intercompany Claims Settlement. The Bankruptcy Court entered an order
approving the Intercompany Claims Settlement on February 1, 2005, which order
was modified on February 15, 2005.

     The material terms of the Intercompany Claims Settlement (as amended)
specifically relating to the Debtors include, among others, the following:

     -    upon the effectiveness of the Intercompany Claims Settlement, various
          offsets and transfers will be effected, with the ultimate economic
          effect that Intercompany Claims held by or against the Debtors will be
          released, except as otherwise described below;

     -    upon the closing of the sale of the Debtors' interests in Alpart, KACC
          was entitled to, and received, Cash proceeds of approximately $43.0
          million;

     -    KACC will have an Allowed Administrative Claim against the Debtors in
          the amount of $22.0 million, subject to certain adjustments, including
          reductions to the extent KACC received positive net cash flow from the
          Debtors from January 1, 2004 through June 30, 2004;

     -    if the Plan becomes effective on or before April 30, 2005, the Debtors
          will pay an additional $2.5 million to KACC;

     -    upon the effectiveness of the Intercompany Claims Settlement, the
          Debtors will receive $4.0 million, less certain cost reimbursements to
          KACC in respect of KBC, from the proceeds of the sale of the
          Gramercy/KJBC Interests;

     -    the Debtors are responsible for the payment of third-party costs of
          administration of the Chapter 11 Cases incurred after June 30, 2004;
          and


                                       32

     -    the Debtors are responsible for all foreign Taxes, transfer Taxes and
          recording fees payable by the Debtors as a result of the sale of their
          interests in Alpart and all other foreign taxes payable by them,
          whether for current or prior years.

For a detailed discussion of the Intercompany Claims Settlement, see the Joint
Motion, and for a summary thereof, see the supplemental notice regarding the
hearing on the Joint Motion (the "Supplemental Notice"), which was served on all
parties in interest on December 27-28, 2004. The Joint Motion and the
Supplemental Notice, as well as the January 27, 2005 amendment to the
Intercompany Claims Settlement, are available to the public over the Internet on
the Document Website (www.kaiseraluminum.com).

     The Intercompany Claims Settlement does not affect any claim by either
Debtor against any of its non-debtor affiliates or by any such affiliate against
a Debtor. However, the Debtors are not aware of the existence of any such
claims.

GUARANTY SUBORDINATION DISPUTE

     In 1993, KACC issued $400.0 million of the Senior Subordinated Notes, which
were guaranteed by certain KACC subsidiaries, including the Debtors (such
guaranty being referred to herein as the "Subsidiary Guaranty"). The Senior
Subordinated Note Indenture contains, among other things, a detailed definition
of "Senior Indebtedness," debt subordination provisions and guaranty provisions.
Under the Senior Subordinated Note Indenture, holders of the Senior Subordinated
Notes agreed "that all direct or indirect payments or distributions on or with
respect to the Notes...is [sic]...subordinated...to the prior payment in
full...of all Senior Indebtedness of the Company" and (b) "that all payments
pursuant to [the Subsidiary Guaranty] are...subordinated...to the prior payment
in full...of all Senior Indebtedness of such [s]ubsidiary [g]uarantor."

     On August 16, 2004, the Senior Subordinated Note Indenture Trustee filed a
motion (the "Guaranty Subordination Classification Motion") with the Bankruptcy
Court to determine the classification of the Senior Subordinated Note Claims
under any plans of reorganization filed by the Debtors and the Other Kaiser
Debtors that made the Subsidiary Guaranty. The Guaranty Subordination
Classification Motion asserted that the obligations to the holders of 9-7/8%
Senior Notes and 10-7/8% Senior Notes in respect of the Subsidiary Guaranty do
not constitute "Senior Indebtedness" under the applicable definitions in the
Senior Subordinated Note Indenture and that, accordingly, the obligations on the
guaranty of the Senior Subordinated Notes (i.e., the Subsidiary Guaranty) and
the guaranties of the 9-7/8% Senior Notes and 10-7/8% Senior Notes are entitled
to pari passu distributions under plans of reorganization filed by the Debtors
and the Other Kaiser Debtors that made the Subsidiary Guaranty (including the
Plan).

     On September 3, 2004, the Senior Note Parties filed a complaint (the
"Guaranty Subordination Adversary Proceeding") with the Bankruptcy Court seeking
a declaration that any payment rights of the Senior Subordinated Note Claims are
subordinate to the Senior Note Claims, or, alternatively, a reformation of the
Senior Subordinated Note Indenture to provide that the Senior Subordinated Note
Claims are junior to the Senior Note Claims. Pursuant to the Bankruptcy Court's
order, on October 8, 2004, the Debtors and the Other Kaiser Debtors filed their
response to the Guaranty Subordination Classification Motion and an answer in
the Guaranty Subordination Adversary Proceeding (together with the Guaranty
Subordination Classification Motion, the "Guaranty Subordination Dispute") and
the Creditors' Committee filed its response to the Guaranty Subordination
Classification Motion. In their respective responses, the Debtors, the Other
Kaiser Debtors and the Creditors' Committee both supported the interpretation
advanced by the Senior Note Parties. The Senior Note Parties also filed
responses opposing the Guaranty Subordination Classification Motion. Liverpool
also Filed a response to the Guaranty Subordination Classification Motion,
asserting that only $100.0 million of the obligations to the holders of the
9-7/8% Senior Notes in respect of the Subsidiary Guaranty, plus associated
interest and fees, constitute "Senior Indebtedness" under the Senior
Subordinated Note Indenture based on the fact that there was a reduction of
$100.0 million in the credit commitment under KACC's senior credit facility at
the time the Subsidiary Guaranty was made. Liverpool therefore contends that,
other than the Subsidiary Guaranty obligations in respect of $100.0 million of
the principal amount of the 9-7/8% Senior Notes, the 10-7/8% Senior Notes, the
9-7/8% Senior Notes and the Senior Subordinated Notes are entitled to pari passu
distributions under the Plan.


                                       33

     In connection with the Guaranty Subordination Dispute and the 7-3/4% SWD
Revenue Bond Dispute (see "-- 7-3/4% SWD Revenue Bond Dispute"), the Senior
Subordinated Note Indenture Trustee has asserted that, even if such disputes are
ultimately resolved by the Bankruptcy Court in favor of the holders of Senior
Note Claims, under the terms of the Senior Subordinated Note Indenture,
including, but not limited to, the charging lien provisions thereunder, the
Senior Subordinated Note Indenture Trustee will be entitled to the payment of
its fees and expenses (including the fees and expenses of the Senior
Subordinated Note Indenture Trustee's professionals) from any funds otherwise
distributable to the holders of Senior Note Claims pursuant to the subordination
provisions of the Senior Subordinated Note Indenture, without prejudice to the
Senior Subordinated Note Indenture Trustee's right to assert, inter alia, that
its fees and expenses constitute an administrative expense claim within the
purview of sections 503 and 507 of the Bankruptcy Code. The Debtors do not agree
with that assertion and believe, in such circumstances, that the contractual
subordination provisions of the Senior Subordinated Note Indenture require the
payment to holders of Senior Note Claims of all amounts that would otherwise be
payable to or for the benefit of holders of Senior Subordinated Note Claims
absent such provisions and that the Debtors are not required to make any payment
in respect of the fees and expenses of the Senior Subordinated Note Indenture
Trustee; if, however, the Bankruptcy Court determines that the assertion of the
Senior Subordinated Note Indenture Trustee is correct, the ultimate recoveries
to holders of Senior Note Claims may be reduced.

     On October 25, 2004, the Bankruptcy Court held a status conference on the
Guaranty Subordination Dispute and ordered the parties to attempt to
consensually resolve the Guaranty Subordination Dispute, as well as the 7-3/4%
SWD Revenue Bond Dispute, through mediation. On November 18, 2004, the parties
participated in a day-long mediation. To date, the parties to the Guaranty
Subordination Dispute have not reached a settlement, although the mediator has
not, as yet, terminated the mediation proceedings. No further mediation sessions
are currently scheduled.

     On December 2, 2004, the Senior Subordinated Note Indenture Trustee Filed a
motion in the Guaranty Subordination Adversary Proceeding requesting that the
Bankruptcy Court order the parties to file briefs regarding the Guaranty
Subordination Dispute by January 10, 2005, and hold an oral summary judgment
argument on January 24, 2005.

     On December 10, 2004, the Debtors, the Other Kaiser Debtors and the Senior
Note Parties Filed a joint motion to stay the Guaranty Subordination Adversary
Proceeding and the 7-3/4% SWD Revenue Bond Dispute pending the completion of the
confirmation process for plans of liquidation for the Debtors, KAAC and KFC and
requesting that the Guaranty Subordination Dispute be adjudicated in connection
with confirmation of such plans if the proposed settlement of the dispute
included in each such plan was not accepted. On the same date, Liverpool Filed a
motion requesting that the Bankruptcy Court either (a) consolidate litigation
concerning the Guaranty Subordination Dispute or (b) permit Liverpool to
intervene as a defendant in the Guaranty Subordination Adversary Proceeding.

     On January 24, 2005, the Bankruptcy Court stayed the Guaranty Subordination
Adversary Proceeding and ruled that the Guaranty Subordination Dispute and
7-3/4% SWD Revenue Bond Dispute will be adjudicated in connection with the
confirmation of the plans of liquidation for the Debtors, KAAC and KFC. The
confirmation hearing for the Plan and KAAC/KFC Plan is currently scheduled for
April 13, 2005 and may be continued from time to time.

     The Plan contains the following proposed settlement of the Guaranty
Subordination Dispute as it relates to the Debtors: If both Subclass 3A and
Subclass 3B vote to accept the Plan, a holder of an Allowed Senior Subordinated
Note Claim will receive its Pro Rata Share of $8.0 million (less any fees or
expenses payable to the Senior Subordinated Note Trustee pursuant to the Senior
Subordinated Note Indenture) and a holder of an Allowed Senior Note Claim will
receive its Pro Rata Share of the Public Note Distributable Consideration
remaining after giving effect to the payment of the $8.0 million to be made to
the holders of Senior Subordinated Note Claims, the 7-3/4% SWD Revenue Bond
Payment, the 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payment and the Senior
Notes Fee Payments. If either Subclass 3A or Subclass 3B fails to accept the
Plan, the Bankruptcy Court will resolve the Guaranty Subordination Dispute with
respect to the Debtors and determine the distributions to be made to the holders
of Claims in Subclass 3A from the Public Note Distributable Consideration and
any distributions to be made to holders of Claims in Subclass 3B from the Public
Note Distributable Consideration. In such event, the distributions ultimately
made to a holder of an Allowed Senior Note Claim will be reduced by such
holder's


                                       34

proportional share of the Senior Notes Fee Payments and, if the Bankruptcy Court
determines that holders of Allowed Senior Subordinated Note Claims are not
entitled to any portion of the Subclass 3A Distributable Consideration, the
7-3/4% SWD Revenue Bond Payment (or reservation in lieu thereof), if any, and
any 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payment. Similarly, any
distributions ultimately made to a holder of an Allowed Senior Subordinated Note
Claim may be reduced by such holder's proportional share of any and all fees and
expenses payable to the Senior Subordinated Note Trustee, pursuant to the Senior
Subordinated Note Indenture. If the Bankruptcy Court is required to resolve the
Guaranty Subordination Dispute as described above, parties involved in that
litigation could appeal the Bankruptcy Court's ruling and request a stay that,
if granted, would prohibit, pending the conclusion of any such appeal, the
distribution of some or all of the Public Note Distributable Consideration to be
distributed to holders of Claims in Subclass 3A or Subclass 3B in accordance
with such ruling.

     Similarly, pursuant to the KAAC/KFC Plan, if holders of both the Senior
Note Claims and the Senior Subordinated Note Claims vote to accept the KAAC/KFC
Plan, then an additional $8.0 million will be paid to the Senior Subordinated
Note Indenture Trustee for the benefit of holders of Senior Subordinated Note
Claims (resulting in aggregate consideration of $16.0 million if the Plan is
also accepted by the holders of the Senior Note Claims and the Senior
Subordinated Note Claims), with such amount to be paid from consideration that
would otherwise be distributed to holders of Allowed Senior Note Claims under
the KAAC/KFC Plan, and the holders of Senior Note Claims would receive a
specified percentage of the Cash and other property available for distribution
to the holders of unsecured claims (less certain payments or reservations of
payment therefrom). If the holders of the Senior Note Claims or the Senior
Subordinated Note Claims fail to accept the KAAC/KFC Plan, the Bankruptcy Court
would resolve the Guaranty Subordination Dispute with respect to KAAC and KFC
and determine the distributions to be made to the holders of Senior Note Claims
and any distributions to be made to holders of Senior Subordinated Note Claims
under the KAAC/KFC Plan.

7-3/4% SWD REVENUE BOND DISPUTE

     The 7-3/4% SWD Revenue Bonds Indenture Trustee has asserted entitlement to
receive any direct or indirect payment or distribution on or with respect to the
Senior Subordinated Notes. The Debtors are guarantors of the Senior Subordinated
Notes but are not guarantors of the 7-3/4% SWD Revenue Bonds.

     On January 13, 2004, the 7-3/4% SWD Revenue Bonds Indenture Trustee and
certain holders of the 7-3/4% SWD Revenue Bonds (collectively, the "7-3/4% SWD
Revenue Bond Plaintiffs") filed an adversary proceeding (i.e., the 7-3/4% SWD
Revenue Bond Dispute) against the Senior Subordinated Note Indenture Trustee and
KACC. This adversary proceeding is currently pending before the Bankruptcy
Court. At issue is whether KACC properly designated the 7-3/4% SWD Revenue Bonds
as senior indebtedness under the Senior Subordinated Note Indenture or whether
the 7-3/4% SWD Revenue Bonds are otherwise entitled to treatment as senior
indebtedness vis-a-vis the Senior Subordinated Notes. It is the position of the
7-3/4% SWD Revenue Bond Plaintiffs that the holders of the 7-3/4% SWD Revenue
Bonds have subordination claims in respect of any distributions on the Senior
Subordinated Notes under the Plan. In response to the complaint, KACC stated
that it had not been able to confirm that it provided the Senior Subordinated
Note Indenture Trustee with a written designation that the 7-3/4% SWD Revenue
Bonds constitute senior indebtedness, which designation would subordinate the
indebtedness under the Senior Subordinated Notes to the indebtedness under the
7-3/4% SWD Revenue Bonds.

     On March 26, 2004, the Senior Subordinated Note Indenture Trustee filed a
motion to dismiss the 7-3/4% SWD Revenue Bond Dispute for failure to join
necessary parties such as the Senior Note Indenture Trustee. On May 4, 2004, the
7-3/4% SWD Revenue Bond Plaintiffs filed a motion for summary judgment,
requesting that the Bankruptcy Court either: (a) declare that KACC be deemed to
have submitted the appropriate designation of senior indebtedness; (b) order
KACC to designate the 7-3/4% SWD Revenue Bonds as senior indebtedness; or (c)
declare that the 7-3/4% SWD Revenue Bonds are senior in terms of payment
priority to the Senior Subordinated Notes. Shortly thereafter, the Senior
Subordinated Note Trustee filed a motion to stay all proceedings pending the
Bankruptcy Court's decision on the motion to dismiss the 7-3/4% SWD Revenue Bond
Dispute. KACC subsequently joined the motion to stay proceedings.

     On October 25, 2004, the Bankruptcy Court held a status conference on the
7-3/4% SWD Revenue Bond Dispute and ordered the parties to attempt to
consensually resolve the 7-3/4% SWD Revenue Bond Dispute, as well


                                       35

as the Guaranty Subordination Dispute, through mediation. On November 18, 2004,
the parties to the 7-3/4% SWD Revenue Bond Dispute participated in a day-long
mediation but failed to reach a settlement.

     On November 29, 2004, the Bankruptcy Court entered orders permitting the
Senior Note Indenture Trustee to intervene as a defendant in the proceeding and
denying the Senior Subordinated Note Indenture Trustee's motion to dismiss the
7-3/4% SWD Revenue Bond Dispute.

     On December 10, 2004, the Debtors, the Other Kaiser Debtors and the Senior
Note Parties Filed a joint motion to stay the 7-3/4% SWD Revenue Bond Dispute
and the Guaranty Subordination Adversary Proceeding pending the completion of
the confirmation process for plans of liquidation for the Debtors, KAAC and KFC
and requesting that the 7-3/4% SWD Revenue Bond Dispute be adjudicated, along
with the Guaranty Subordination Dispute if necessary, in connection with the
confirmation of such plans.

     On December 17, 2004, the Senior Subordinated Note Indenture Trustee filed
an answer in the 7-3/4% SWD Revenue Bond Dispute that included, among other
things: (a) a counterclaim for declaratory judgment that the 7-3/4% SWD Revenue
Bonds are not senior to the Senior Subordinated Notes; (b) a counterclaim
against the 7-3/4% SWD Revenue Bond Plaintiffs for reimbursement of legal
expenses incurred by the Senior Subordinated Note Indenture Trustee; (c) a cross
claim against KACC for indemnification in the amount of any judgment that may be
rendered in favor of the 7-3/4% SWD Revenue Bond Plaintiffs against the Senior
Subordinated Note Indenture Trustee; and (d) a complaint against certain of the
Debtors and Other Kaiser Debtors for indemnification in the amount of any
judgment that may be rendered in favor of the 7-3/4% SWD Revenue Bond Plaintiffs
against the Senior Subordinated Note Indenture Trustee.

     On January 24, 2005, the Bankruptcy Court stayed the 7-3/4% SWD Revenue
Bond Dispute and ruled that the 7-3/4% SWD Revenue Bond Dispute and the Guaranty
Subordination Dispute will be adjudicated in connection with the confirmation of
the plans of liquidation for the Debtors, KAAC and KFC. The confirmation hearing
for the Plan and KAAC/KFC Plan is currently scheduled for April 13, 2005 and may
be continued from time to time.

     In connection with the development and proposal of the Plan,
representatives of certain of the holders of Senior Note Claims and 7-3/4% SWD
Revenue Bonds entered into negotiations in an attempt to reach a settlement in
respect of the 7-3/4% SWD Revenue Bond Dispute. In early February, such
representatives reached an agreement on a proposed settlement of that Dispute.
Such settlement, as it relates to the Debtors, is reflected in the Plan as
follows: If (a) Subclass 3A votes to accept the Plan in accordance with section
1126(c) of the Bankruptcy Code and (b) unless the holders of Senior Note Claims
otherwise agree pursuant to a settlement, all holders of Allowed Senior Note
Claims are entitled under the Plan to identical treatment in respect of
contractual subordination claims under the Senior Subordinated Note Indenture,
then, on the Effective Date, an amount equal to the Settlement Percentage of the
Cash in the Unsecured Claims Trust Account that would otherwise have been
distributed in respect of the Senior Subordinated Note Claims but which, after
giving effect to the contractual subordination provisions of the Senior
Subordinated Note Indenture and pursuant to Sections 2.4(c)(i) and 2.4(c)(ii) of
the Plan (but prior to giving effect to any 7-3/4% SWD Revenue Bond Payment), is
to be paid to holders of Senior Note Claims will, in full and complete
satisfaction of the claims of holders of 7-3/4% SWD Revenue Bonds asserted in
the 7-3/4% SWD Revenue Bond Dispute in respect of the Debtors, be paid to the
7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of holders of 7-3/4%
SWD Revenue Bonds (i.e., the 7-3/4% SWD Revenue Bond Payment). Notwithstanding
the foregoing, in no event will the amount so paid, when aggregated with any
amount payable under any comparable provision of the KAAC/KFC Plan, exceed $8.0
million. If the Debtors do not File a separate motion, the Plan will serve as a
motion pursuant to Bankruptcy Rule 9019 seeking entry of an order approving the
settlement described elsewhere in this Disclosure Statement. Unless an objection
to such settlement is made in writing by any creditor or claimant affected
thereby, Filed with the Bankruptcy Court and served on the parties identified in
Section 12.6 of the Plan on or before April 5, 2005, such order (which will be
the Confirmation Order) may be entered by the Bankruptcy Court. In the event any
such objections are timely Filed, a hearing with respect thereto will occur at
the Confirmation Hearing. If Subclass 3A fails to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, the rights, if any, of the holders
of 7-3/4% SWD Revenue Bonds to payments from the Public Note Distributable
Consideration will be as determined in an order of the Bankruptcy Court (which
may be the Confirmation Order) in connection with the determinations
contemplated by Sections 2.4(c)(i)(B) and 2.4(c)(ii)(B) of the Plan; provided
that if the determination with respect to the rights of the holders of 7-3/4%
SWD Revenue Bonds to such payment has not been made by the Bankruptcy Court
prior to the


                                       36

Effective Date, then, in order to ensure the funding of such payment, on the
Effective Date the Distribution Trustee will reserve from the Public Note
Distributable Consideration any amount that may be ordered by the Bankruptcy
Court to be so reserved pending such determination. See "Overview of the Plan --
7-3/4% SWD Revenue Bond Dispute."

     The proposed settlement also contemplates that similar provisions will be
included in the KAAC/KFC Plan and that, under any plan of reorganization for
KACC, the holders of claims against KACC in respect of the 7-3/4% SWD Revenue
Bonds and the Senior Notes will share pro rata in any contractual subordination
recoveries pursuant to the Senior Subordinated Note Indenture.

                     GENERAL INFORMATION CONCERNING THE PLAN

     THE FOLLOWING IS A SUMMARY OF SOME OF THE SIGNIFICANT ELEMENTS OF THE PLAN.
THIS DISCLOSURE STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION SET FORTH IN THE PLAN ATTACHED HERETO AS EXHIBIT I AND THE
EXHIBIT THERETO.

SUBSTANTIVE CONSOLIDATION

     In connection with confirmation of the Plan, the Debtors will seek
Bankruptcy Court approval of the substantive consolidation of the Debtors for
the purpose of implementing the Plan, including for purposes of voting,
confirmation and distributions to be made under the Plan. Pursuant to the
relevant order of the Bankruptcy Court: (a) all assets and liabilities of the
Debtors will be deemed merged; (b) all guarantees by, or co-obligations of, one
Debtor in respect of the obligations of the other Debtor will be deemed
eliminated so that any Claim against either Debtor and any guarantee by, or
co-obligation of, the other Debtor and any joint or several liability of either
of the Debtors will be deemed to be one obligation of the consolidated Debtors;
and (c) each and every Claim Filed or to be Filed in the Chapter 11 Case of
either Debtor will be deemed Filed against the consolidated Debtors and will be
deemed one Claim against and a single obligation of the consolidated Debtors.
Such substantive consolidation (other than for the purpose of implementing the
Plan) will not affect the legal and corporate structures of the Debtors, nor
will such substantive consolidation affect or be deemed to affect any
Intercompany Claim in any manner contrary to the Intercompany Claims Settlement,
nor will such substantive consolidation be deemed to affect any Other Kaiser
Debtor or claims against any Other Kaiser Debtor. Because the Debtors have the
same joint creditors, creditors of the Debtors would receive exactly the same
distributions on their Claims whether or not the Debtors are substantively
consolidated. Accordingly, substantive consolidation is being sought solely for
administrative convenience.

     The Plan will serve as a motion seeking entry of an order substantively
consolidating the Debtors, as described, and to the limited extent set forth in,
the immediately preceding paragraph. Unless an objection to such substantive
consolidation is made in writing by any creditor or claimant affected by the
Plan, Filed with the Bankruptcy Court and served on the parties entitled to
notice thereof pursuant to the Plan on or before April 5, 2005, or such other
date as may be fixed by the Bankruptcy Court, the substantive consolidation
order (which will be the Confirmation Order) may be entered by the Bankruptcy
Court. In the event any such objections are timely Filed, a hearing with respect
thereto will occur at the Confirmation Hearing.

EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED

     On the Effective Date, except for an Executory Contract or Unexpired Lease
that previously was assumed and assigned or rejected by an order of the
Bankruptcy Court, each Executory Contract and Unexpired Lease entered into by a
Debtor prior to the Petition Date that has not previously expired or terminated
pursuant to its own terms will be rejected pursuant to section 365 of the
Bankruptcy Code. The Confirmation Order will constitute an order of the
Bankruptcy Court approving such rejections, pursuant to section 365 of the
Bankruptcy Code, as of the Effective Date.

     Notwithstanding anything in the Bar Date Order or in the Administrative
Claim Bar Date Order to the contrary, if the rejection of an Executory Contract
or Unexpired Lease pursuant to the Plan gives rise to a Claim by


                                       37

the other party or parties to such contract or lease, such Claim will be forever
barred and will not be enforceable against the Debtors, the Distribution
Trustee, the Debtors' Estates or the Trust Accounts unless a proof of Claim or
request for payment of Administrative Claim is Filed and served on the
Distribution Trustee, pursuant to the procedures specified in the Confirmation
Order, the notice of the entry of the Confirmation Order or another order of the
Bankruptcy Court, no later than 30 days after the Effective Date.

RELEASES, LIMITATION OF LIABILITY, INJUNCTIONS AND PRESERVATION OF INSURANCE

     RELEASE OF CLAIMS AND TERMINATION OF INTERESTS; LIMITATION OF LIABILITY

     SUBJECT TO THE PROVISIONS OF SECTION 2.10 OF THE PLAN, AS OF THE EFFECTIVE
DATE, IN CONSIDERATION FOR THE OBLIGATIONS OF THE DEBTORS AND THE DISTRIBUTION
TRUSTEE UNDER THE PLAN AND THE CASH TO BE DISTRIBUTED IN CONNECTION WITH THE
PLAN, EACH HOLDER OF A CLAIM THAT VOTES IN FAVOR OF THE PLAN WILL BE DEEMED TO
FOREVER RELEASE AND WAIVE ALL CLAIMS, OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES,
DEMANDS, DEBTS, RIGHTS, CAUSES OF ACTION AND LIABILITIES (OTHER THAN THE RIGHT
TO ENFORCE THE DEBTORS' OR THE DISTRIBUTION TRUSTEE'S OBLIGATIONS UNDER THE PLAN
AND THE CONTRACTS, INSTRUMENTS, RELEASES AND OTHER AGREEMENTS AND DOCUMENTS
DELIVERED THEREUNDER), WHETHER LIQUIDATED OR UNLIQUIDATED, FIXED OR CONTINGENT,
MATURED OR UNMATURED, KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, THEN EXISTING OR
THEREAFTER ARISING IN LAW, EQUITY OR OTHERWISE, THAT ARE BASED IN WHOLE OR IN
PART ON ANY ACT, OMISSION, TRANSACTION OR OTHER OCCURRENCE TAKING PLACE ON OR
PRIOR TO THE EFFECTIVE DATE IN ANY WAY RELATING TO A DEBTOR, THE CHAPTER 11
CASES OR THE PLAN THAT SUCH ENTITY HAS, HAD OR MAY HAVE AGAINST THE CREDITORS'
COMMITTEE, ITS MEMBERS, ANY INDENTURE TRUSTEE, EITHER DEBTOR AND ANY OF THEIR
RESPECTIVE PRESENT OR FORMER DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ADVISORS,
ATTORNEYS, ACCOUNTANTS, UNDERWRITERS, INVESTMENT BANKERS OR OTHER
REPRESENTATIVES, ACTING IN SUCH CAPACITY, EXCEPT FOR THOSE BASED ON: (A) ACTS OR
OMISSIONS OF ANY SUCH PERSON CONSTITUTING GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT; (B) IF THE HOLDERS OF THE SENIOR SUBORDINATED NOTE CLAIMS ARE
DETERMINED BY THE ORDER CONTEMPLATED BY SECTIONS 2.4(C)(I)(B) AND 2.4(C)(II)(B)
TO BE ENTITLED TO A DISTRIBUTION IN RESPECT TO SUCH CLAIMS, ACTS OR OMISSIONS OF
ANY SUCH PERSON RELATED TO OR GIVING RISE TO THE CIRCUMSTANCES UNDERLYING ANY OF
THE CONTRACTUAL SUBORDINATION DISPUTES; OR (C) CONTRACTUAL OBLIGATIONS OF, OR
LOANS OWED BY, ANY SUCH PERSON TO A DEBTOR. FOR PURPOSES OF THE PLAN,
"CONTRACTUAL SUBORDINATION DISPUTES" MEANS ANY OR ALL OF THE FOLLOWING MATTERS
PENDING IN THE KAISER CASES: (A) THE 7-3/4% SWD REVENUE BOND DISPUTE; (B) THE
MOTION FILED ON AUGUST 14, 2004, BY THE SENIOR SUBORDINATED NOTE INDENTURE
TRUSTEE TO DETERMINE THE CLASSIFICATION OF THE SENIOR SUBORDINATED NOTE CLAIMS
UNDER ANY PLAN OF REORGANIZATION FILED BY THE DEBTORS OR THE OTHER KAISER
DEBTORS THAT GUARANTEED THE SENIOR SUBORDINATED NOTES (INCLUDING THE PLAN); AND
(C) THE ADVERSARY PROCEEDING FILED AUGUST 16, 2004, AND STYLED U.S. BANK
NATIONAL ASSOCIATION V. KAISER ALUMINUM & CHEMICAL CORPORATION, ADV. PRO. NO.
04-55115 (JFK).

     As of the Effective Date, for good and valuable consideration, the adequacy
of which is confirmed by the Plan, the Debtors on behalf of themselves, their
Estates, creditors and Interest holders will be deemed to release, waive and
discharge all claims and rights of any nature in connection with or related to
the Debtors, the Chapter 11 Cases or the Plan (other than the rights of the
Distribution Trustee to enforce the Plan and any contracts, instruments,
releases and other agreements and documents delivered thereunder, and to pursue
objections to and resolve Disputed Claims), whether liquidated or unliquidated,
fixed or contingent, matured or unmatured, known or unknown, foreseen or
unforeseen, then existing or thereafter arising (including, without limitation,
those arising under the Bankruptcy Code), based on any act, omission or
occurrence on or before the Effective Date, against the Creditors' Committee,
its members, any Indenture Trustee, any of the Debtors' present or former
directors or officers, or any of the respective present or former directors,
officers, employees, agents, advisors, attorneys, accountants, underwriters,
investment bankers or other representatives of the Debtors, the Creditors'
Committee, its members, or the Indenture Trustees, acting in such capacity,
except for such Claims or rights based on: (a) acts or omissions of any such
person constituting gross negligence or willful misconduct; (b) if the holders
of the Senior Subordinated Note Claims are determined by the order contemplated
by Sections 2.4(c)(i)(B) and 2.4(c)(ii)(B) to be entitled to a distribution in
respect to such Claims, acts or omissions of any such person related to or
giving rise to the circumstances underlying any of the Contractual Subordination
Disputes; or (c) contractual obligations of, or loans owed by, any such person
to a Debtor.

     The Debtors, the Distribution Trust, the Distribution Trustee, the
Indenture Trustees and their respective directors, officers, employees and
professionals, acting in such capacity, and the Creditors' Committee, its
members and their respective professionals will neither have nor incur any
liability to any entity for any act taken or omitted


                                       38

to be taken in connection with or related to the formulation, preparation,
dissemination, implementation, confirmation or consummation of the Plan, this
Disclosure Statement, or any contract, instrument, release or other agreement or
document created or entered into, or any other act taken or omitted to be taken,
in connection with the Plan; such provisions will have no effect on: (a) the
liability of any entity that would otherwise result from the failure to perform
or pay any obligation or liability under the Plan or any contract, instrument,
release or other agreement or document to be entered into or delivered in
connection with the Plan; or (b) the liability of any entity that would
otherwise result from any such act or omission to the extent that such act or
omission is determined in a Final Order to have constituted gross negligence or
willful misconduct.

     INJUNCTIONS

     EXCEPT AS OTHERWISE PROVIDED IN THE PLAN OR THE CONFIRMATION ORDER, AS OF
THE EFFECTIVE DATE, ALL ENTITIES THAT HAVE HELD, CURRENTLY HOLD OR MAY HOLD A
CLAIM OR OTHER DEBT OR LIABILITY OF THE DEBTORS, OR AN INTEREST OR OTHER RIGHT
OF AN EQUITY SECURITY HOLDER WITH RESPECT TO THE DEBTORS, THAT IS RELEASED,
WAIVED, SETTLED OR DEEMED SATISFIED PURSUANT TO THE PLAN WILL BE PERMANENTLY
ENJOINED FROM TAKING ANY OF THE FOLLOWING ACTIONS ON ACCOUNT OF ANY SUCH CLAIMS,
DEBTS, LIABILITIES, INTERESTS OR RIGHTS: (A) COMMENCING OR CONTINUING IN ANY
MANNER ANY ACTION OR OTHER PROCEEDING AGAINST THE DEBTORS, THE DISTRIBUTION
TRUST, THE DISTRIBUTION TRUSTEE OR THE PROPERTY OF ANY OF THEM OTHER THAN TO
ENFORCE ANY RIGHT PURSUANT TO THE PLAN TO A DISTRIBUTION FROM THE TRUST
ACCOUNTS; (B) ENFORCING, ATTACHING, COLLECTING OR RECOVERING IN ANY MANNER ANY
JUDGMENT, AWARD, DECREE OR ORDER AGAINST THE DEBTORS, THE DISTRIBUTION TRUST OR
THE DISTRIBUTION TRUSTEE, OTHER THAN AS DESCRIBED IN (A) ABOVE; (C) CREATING,
PERFECTING OR ENFORCING ANY LIEN OR ENCUMBRANCE AGAINST THE DEBTORS, THE
DISTRIBUTION TRUST, THE PROPERTY OF ANY OF THEM OR THE TRUST ACCOUNTS; (D)
ASSERTING A SETOFF, RIGHT OF SUBROGATION OR RECOUPMENT OF ANY KIND AGAINST ANY
DEBT, LIABILITY OR OBLIGATION DUE TO THE DISTRIBUTION TRUST; AND (E) COMMENCING
OR CONTINUING ANY ACTION, IN ANY MANNER, IN ANY PLACE THAT DOES NOT COMPLY WITH
OR IS INCONSISTENT WITH THE PROVISIONS OF THE PLAN.

     PRESERVATION OF INSURANCE

     Nothing in the Plan will diminish or impair the enforceability of any
insurance policies that may cover Claims against either Debtor.

     Nothing in the Plan or in the Confirmation Order shall preclude any entity
from asserting in any proceeding any and all claims, defenses, rights or causes
of action that it has or may have under or in connection with any insurance
policy or insurance settlement agreement. Nothing in the Plan or the
Confirmation Order shall be deemed to waive any claims, defense, rights or
causes of action that any entity has or may have under the provisions, terms,
conditions, defenses and/or exclusions contained in such policies or
settlements.

     Notwithstanding the provisions of the foregoing paragraph and the
substantial consummation of the Plan, in connection with any possible
settlements made in any of the Kaiser Cases which concern any insurance
policies, the Bankruptcy Court shall retain jurisdiction over the Chapter 11
Cases to issue or approve buybacks of such insurance policies under section 363
of the Bankruptcy Code and/or to issue or approve injunctions, releases and/or
exculpations under the Bankruptcy Code (including, without limitation, section
105 of the Bankruptcy Code) for purposes of, inter alia, protecting any such
settling insurers against claims or demands made against the Debtors. In this
regard, as between KACC and the Debtors, KACC will have full and sole right and
authority to settle, release, compromise and enter into buybacks by insurers of
insurance policies as to which the Debtors, or any of them, have or may assert
rights as an insured. The Debtors shall not be entitled to any consideration or
other value as a result of any such exercise of rights by KACC.

     NO DISCHARGE

     In accordance with section 1141(d)(3) of the Bankruptcy Code, the
confirmation of the Plan will not discharge either Debtor.


                                       39

MEANS FOR IMPLEMENTATION OF THE PLAN

     LIQUIDATING TRANSACTIONS

     On the Effective Date, the Distribution Trust Assets will be transferred to
and vest in the Distribution Trust, free and clear of Claims, Liens and
Interests, except as may be otherwise provided in the Intercompany Claims
Settlement. On or after the Effective Date, the Debtors will enter into such
transactions and will take such actions as may be necessary or appropriate to
merge, dissolve or otherwise terminate the corporate existence of the Debtors.
Notwithstanding the foregoing and regardless of whether the actions in the
preceding sentence have yet been taken with respect to a particular Debtor, upon
the transfer of the Distribution Trust Assets to the Distribution Trust, the
Debtors will be deemed dissolved and their business operations withdrawn for all
purposes without any necessity of filing any document, taking any further action
or making any payment to any governmental authority in connection therewith.

     CORPORATE ACTION

     The following (which will occur and be deemed effective as of the date
specified in the documents effectuating the same or, if no date is so specified,
the Effective Date) will be deemed authorized and approved in all respects and
for all purposes without any requirement of further action by KACC, as the sole
stockholder of each Debtor, by the directors of either Debtor or by the
Distribution Trustee or any other person or entity:

     -    the Liquidating Transactions;

     -    the establishment of the Distribution Trust;

     -    the appointment of the Distribution Trustee to act on behalf of the
          Distribution Trust;

     -    the transfer of the Distribution Trust Assets to the Distribution
          Trust;

     -    the creation of the Trust Accounts;

     -    the distribution of Cash pursuant to the Plan;

     -    the adoption, execution, delivery and implementation of all contracts,
          instruments, releases and other agreements or documents related to any
          of the foregoing;

     -    the adoption, execution and implementation of the Distribution Trust
          Agreement; and

     -    the other matters provided for under the Plan involving the corporate
          structure of either Debtor or corporate action to be taken by, or
          required of, either Debtor or the Distribution Trustee.

     NO REVESTING OF ASSETS

     The property of the Debtors' Estates will not revest in the Debtors on or
after the Effective Date but will vest in the Distribution Trust to be
administered by the Distribution Trustee in accordance with the Plan and the
Distribution Trust Agreement.

     RECOURSE SOLELY TO TRUST ACCOUNTS

     The Liquidating Transactions will not in any way merge the assets of the
Debtors' Estates, including the Trust Accounts. All Claims against the Debtors
are deemed fully satisfied in exchange for the treatment of such Claims under
the Plan, and holders of Allowed Claims against either Debtor will have recourse
solely to the applicable Trust Accounts for the payment of their Allowed Claims
in accordance with the terms of the Plan.

     RELEASE OF LIENS

     Except as otherwise provided in the Plan or in any contract, instrument,
release or other agreement or document entered into or delivered in connection
with the Plan, on the Effective Date all Liens against the property


                                       40

of either Estate will be fully released, and all of the right, title and
interest of any holder of such Liens, including any rights to any collateral
thereunder, will attach to and be enforceable solely against the applicable
Distribution Trust Assets held in the applicable Trust Account in accordance
with, and subject to the terms of, the Plan. All such Liens against the
Distribution Trust Assets will be fully released upon the holder of the Lien
receiving its full distribution under the Plan, or upon the Effective Date if
the holder of the Lien is not entitled to any distribution under the Plan.

     EXEMPTION FROM CERTAIN TAXES

     Pursuant to section 1146(c) of the Bankruptcy Code, the following will not
be subject to any stamp Tax, real estate transfer Tax, sales or use Tax or
similar Tax: (a) any Liquidating Transaction; (b) the execution and
implementation of the Distribution Trust Agreement, including any transfers to
or by the Distribution Trust; or (c) the making or delivery of any deed or other
instrument of transfer under, in furtherance of or in connection with the Plan,
including any merger agreements or agreements of consolidation, disposition,
liquidation or dissolution executed in connection with any transaction pursuant
to the Plan.

DISTRIBUTION TRUST

     CREATION OF THE DISTRIBUTION TRUST

     On the Effective Date, the Debtors and the Distribution Trustee will enter
into the Distribution Trust Agreement, thereby creating the Distribution Trust.

     The Distribution Trustee, whose identity and address will be disclosed at
least ten days prior to the Confirmation Hearing, will be selected by the
Creditors' Committee with the consent of the Debtors, and will be the exclusive
trustee of the assets of the Distribution Trust for purposes of 31 U.S.C.
Section 3713(b) and 26 U.S.C. Section 6012(b)(3), as well as the "representative
of the estate" of each of the Debtors under section 1123(b)(3)(B) of the
Bankruptcy Code.

     On the Effective Date, the Debtors will transfer to the Distribution Trust
all the Distribution Trust Assets then owned by the Estates, whereupon title to
such Distribution Trust Assets will irrevocably vest in the Distribution Trust,
free and clear of Claims, Liens and Interests.

     DISTRIBUTION TRUST ASSETS

     The Distribution Trust Assets include: (a) the Trust Accounts and any Cash
held by such Trust Accounts; (b) the rights of the Debtors under or in respect
of the Intercompany Claims Settlement, the Alpart Purchase Agreement or any
causes of action not released by the Plan, including the Recovery Actions, and
any proceeds thereof; and (c) the Alpart Proceeds to the extent that such funds
are not included in the foregoing clauses (a) and (b).

     PURPOSES OF THE DISTRIBUTION TRUST

     The Distribution Trust will be established pursuant to the Distribution
Trust Agreement for the following purposes and no other:

     -    collecting, maintaining and administering any Distribution Trust
          Assets for the benefit of the creditors and claimants of the Estates
          (collectively, the "Beneficiaries");

     -    liquidating (including objecting to Claims and determining the proper
          recipients and amounts of distributions to be made from the
          Distribution Trust) and distributing the Distribution Trust Assets for
          the benefit of the Beneficiaries who are determined to hold Allowed
          Claims as expeditiously as reasonably possible;

     -    pursuing available causes of action, including Recovery Actions;

     -    closing the Chapter 11 Cases; and


                                       41

     -    otherwise implementing the Plan and completing the dissolution of the
          Debtors;

all in accordance with the Plan and the Distribution Trust Agreement. The
Distribution Trust will have no objective to, and will not, engage in the
conduct of a trade or business and will terminate upon the completion of its
liquidation and distribution duties pursuant to the terms of the Distribution
Trust Agreement.

     TAX TREATMENT

     The Distribution Trust is intended to be treated, for U.S. federal income
Tax purposes, in part as a liquidating trust within the meaning of Treasury
Regulations section 301.7701-4(d), for the benefit of the holders of Allowed
Claims entitled to distributions of Pending Payments (as defined below), and
otherwise as one or more disputed ownership funds within the meaning of Proposed
Treasury Regulations section 1.468B-9(a), as more specifically provided for
under the Distribution Trust Agreement. Accordingly, for all federal income Tax
purposes the transfer of Distribution Trust Assets to the Distribution Trust
will be treated as: (a) to the extent of identified amounts (excluding
undeliverable Cash) held by the Distribution Trust for distribution to holders
of Allowed Claims in specific amounts as of the date the Distribution Trust
receives the applicable Distribution Trust Assets ("Pending Payments"), a
transfer of the Pending Payments directly from the Debtors to the holders of
such Allowed Claims followed by the transfer of such Pending Payments by the
holders of Allowed Claims to the Distribution Trust in exchange for beneficial
interests in the Distribution Trust; and (b) to the extent of amounts that are
not Pending Payments, as a transfer to one or more disputed ownership funds. The
holders of Allowed Claims entitled to distributions of Pending Payments will be
treated for federal income Tax purposes as the grantors and deemed owners of
their respective shares of the Distribution Trust Assets in the amounts of the
Pending Payments and any earnings thereon.

     The Distribution Trustee will be required by the Distribution Trust
Agreement to file federal Tax returns for the Distribution Trust as a grantor
trust with respect to any Pending Payments and as one or more disputed ownership
funds with respect to all other funds or other property held by the Distribution
Trust pursuant to applicable Treasury Regulations, and any income of the
Distribution Trust will be treated as subject to Tax on a current basis. The
Distribution Trust Agreement will provide that the Distribution Trustee will pay
such Taxes from the Distribution Trust Assets as required by law and in
accordance with the provisions of the Plan described in "Distributions Under the
Plan -- Treatment of Disputed Claims." In addition, the Distribution Trust
Agreement will require consistent valuation by the Distribution Trustee and the
Beneficiaries, for all federal income Tax purposes, of any property held by the
Distribution Trust. The Distribution Trust Agreement will provide that
termination of the trust will occur no later than two years after the Effective
Date, unless the Bankruptcy Court approves an extension based upon a finding
that such an extension is necessary for the Distribution Trust to complete its
claims resolution and liquidating purpose. The Distribution Trust Agreement also
will limit the investment powers of the Distribution Trustee in accordance with
IRS Rev. Proc. 94-45 and will require the Distribution Trust to distribute at
least annually to the Beneficiaries (as such may have been determined at such
time) its net income (net of any payment of or provision for Taxes), except for
amounts retained as reasonably necessary to maintain the value of the
Distribution Trust Assets or to meet Claims and contingent liabilities
(including Disputed Claims).

     TRUST ACCOUNTS

     On or prior to the Effective Date, the Trust Accounts will be established
in federal insured United States banks in the name of the Distribution Trustee
or one or more third-party Disbursing Agents. On the Effective Date, the Trust
Accounts and the contents thereof will be transferred to, and irrevocably vest
in, the Distribution Trust.

          Distribution Trust Expenses Account

     No later than ten days prior to the commencement of the Confirmation
Hearing, the Creditors' Committee and the Debtors will agree on the amount to be
funded into the Distribution Trust Expenses Account on the Effective Date. On
the Effective Date, the Distribution Trust Expenses Account will be funded by
the transfer of Cash in such amount from the Distribution Trust Assets. The
Distribution Trustee will act as the Disbursing Agent for the Distribution Trust
Expenses Account. See "Overview of the Plan -- Sources and Uses of Cash."


                                       42

     Except as otherwise ordered by the Bankruptcy Court, the Distribution
Trustee, in its capacity as Disbursing Agent, will, in its reasonable
discretion, pay Distribution Trust Expenses from the Distribution Trust Expenses
Account, without the need for further Bankruptcy Court approval. Cash in the
Distribution Trust Expenses Account will also be used to pay Taxes owing in
respect of any amounts included in the Distribution Trust Expenses Account in
accordance with the Distribution Trust Agreement. At least five Business Days
prior to making any payment from the Distribution Trust Expenses Account, the
Distribution Trustee will provide the Steering Committee with a notice setting
forth the amount and nature of such payment, with such notice to be accompanied
by supporting documentation in reasonable detail.

     If, at any time after the initial funding of the Distribution Trust
Expenses Account as contemplated above, the Distribution Trustee determines, in
its reasonable discretion, that the Cash balance of the Distribution Trust
Expenses Account will be insufficient to make all payments payable therefrom in
accordance with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee may transfer from the Unsecured Claims Trust Account (to
the extent Cash remains available therein) to the Distribution Trust Expenses
Account Cash in an aggregate amount determined by the Distribution Trustee, in
its reasonable discretion, to be necessary to ensure that the Cash balance of
the Distribution Trust Expenses Account will be sufficient to make all such
payments. To the fullest extent possible, any transfer described in this
paragraph will be accomplished in a manner intended to avoid or minimize any
adverse impact on the ability to make full distributions to holders of Allowed
Secured Claims, Allowed Administrative Claims, Allowed Priority Claims and
Allowed Priority Tax Claims or distributions to holders of Allowed Unsecured
Claims in accordance with the terms of the Plan.

     If, at any time after the initial funding of the Distribution Trust
Expenses Account as contemplated above, the Distribution Trustee determines that
the Cash balance of the Distribution Trust Expenses Account is in excess of the
amount that will be sufficient to make all payments payable therefrom in
accordance with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee, with the consent of the Steering Committee, acting through
a majority thereof, may transfer such excess Cash to the Unsecured Claims Trust
Account.

          Priority Claims Trust Account

     No later than ten days prior to the commencement of the Confirmation
Hearing, the Creditors' Committee and the Debtors will agree on the amount to be
funded into the Priority Claims Trust Account on the Effective Date. On the
Effective Date, the Priority Claims Trust Account will be funded by the transfer
of Cash in such amount from the Distribution Trust Assets. For purposes of the
funding of the Priority Claims Trust Account, any and all Taxes ultimately
determined to be due and owing from the Debtors to the Government of Jamaica for
any taxable period (including interest and penalties, if any, determined and
calculated under applicable Jamaican law without regard to the provisions of
section 502(b)(2) of the Bankruptcy Code or any other provision of U.S. federal,
state or local law) will be treated as Allowed Priority Tax Claims or Allowed
Administrative Claims, as the case may be, and will be paid in full in Cash in
accordance with the Plan following the determination of the amount or amounts of
such Tax liability. Until such determination, any such potential Tax obligation
in respect of the Jamaican Tax Claims will be treated as a Disputed Claim. See
"Overview of the Plan -- Sources and Uses of Cash" and "Operations During the
Chapter 11 Cases -- Certain Jamaican Tax Matters."

     Cash in the Priority Claims Trust Account will be used by the Distribution
Trustee only to (a) satisfy Allowed Administrative Claims, Allowed Priority Tax
Claims, Allowed Priority Claims and Allowed Secured Claims against the Estate of
AJI or the Estate of KJC in accordance with the terms of the Plan and (b) pay
Taxes owing in respect of any amounts included in the Priority Claims Trust
Account in accordance with the Distribution Trust Agreement.

     If, at any time after the initial funding of the Priority Claims Trust
Account as contemplated above, the Distribution Trustee determines, in its
reasonable discretion, that the Cash balance of the Priority Claims Trust
Account is insufficient to make all payments payable therefrom in accordance
with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee will transfer from the Unsecured Claims Trust Account (to
the extent Cash remains available therein) to the Priority Claims Trust Account
Cash in an amount determined by the Distribution Trustee, in its reasonable
discretion, to be necessary to ensure that the Cash balance of the Priority
Claims Trust Account will be sufficient to so make all such payments. To the
fullest extent possible, any transfer


                                       43

described in this paragraph will be accomplished in a manner intended to avoid
or minimize any adverse impact on the ability to make distributions to holders
of Allowed Unsecured Claims in accordance with the Plan.

     If, at any time after the initial funding of the Priority Claims Trust
Account described above, the Distribution Trustee determines that the Cash
balance of the Priority Claims Trust Account is in excess of the amount that
will be sufficient to make all payments payable therefrom in accordance with the
Plan and the Distribution Trust Agreement, the Distribution Trustee, with the
consent of the Steering Committee, acting through a majority thereof, may
transfer such excess Cash to the Unsecured Claims Trust Account.

          Unsecured Claims Trust Account

     On the Effective Date, after the initial funding of the Distribution Trust
Expenses Account as described in "Distribution Trust Expenses Account" above and
the initial funding of the Priority Claims Trust Account as described in
"Priority Claims Trust Account" above, the Distribution Trustee will (a) from
the Distribution Trust Assets, (i) make an allowance for the allocation to the
Public Note Distributable Consideration of, and pay therefrom, an amount equal
to the aggregate fees payable to the Senior Note Parties pursuant to the Plan up
to an aggregate amount not to exceed $1.5 million (i.e., up to $1.5 million of
the Senior Notes Fee Payments) and (ii) make any Intercompany Settlement
Payments and (b) thereafter fund the Unsecured Claims Trust Account with the
remainder of the Distribution Trust Assets, all as provided in the Distribution
Trust Agreement.

     Cash in the Unsecured Claims Trust Account will be used by the Distribution
Trustee only to (a) satisfy Allowed Unsecured Claims against the Estate of AJI
or the Estate of KJC in accordance with the terms of the Plan, (b) pay amounts
to be deducted from the Public Note Distributable Consideration in accordance
with the terms of the Plan (except the extent allowance has been made therefor
as described in clause (a)(i) in the immediately preceding paragraph), and (c)
pay Taxes owing in respect of any amounts included in the Unsecured Claims Trust
Account.

          Disputed Claims Reserve

     It is currently contemplated that, on the Effective Date, in connection
with the initial funding of the Priority Claims Trust Account as described
above, the Distribution Trustee will designate, with the consent of the
Creditors' Committee and KACC, a specified portion of such initial funding as a
Disputed Claims Reserve to be retained in such Trust Account to satisfy any
Disputed Administrative Claims, Disputed Priority Tax Claims, Disputed Priority
Claims and Disputed Secured Claims against the Estate of AJI or the Estate of
KJC in accordance with the Plan, if, as and when they are allowed or, to the
extent such Disputed Claims are not allowed, to satisfy Claims that are allowed
in accordance with the terms of the Plan. In connection with any subsequent
transfer of Cash to the Priority Claims Trust Account as described above, the
Distribution Trustee will designate amounts so transferred, to the extent they
are not identified as Pending Payments, as Disputed Claims Reserves to be
retained in such Trust Account to satisfy Disputed Administrative Claims,
Disputed Priority Tax Claims, Disputed Priority Claims and Disputed Secured
Claims against the Estate of AJI or the Estate of KJC in accordance with the
Plan, if, as and when they are allowed or, to the extent such Disputed Claims
are not allowed, to satisfy Claims that are allowed in accordance with the terms
of the Plan.

     Further, it is contemplated that on the Effective Date, in connection with
the initial funding of the Unsecured Claims Trust Account as contemplated above,
the Distribution Trustee will designate a specified portion of such initial
funding as a Disputed Claims Reserve to be retained in such Trust Account to
satisfy any Disputed Unsecured Claims against the Estate of AJI of the Estate of
KJC in accordance with the terms of the Plan, if, as and when they are allowed
or, to the extent such Disputed Claims are not allowed, to satisfy Claims that
are allowed in accordance with the terms of the Plan. In connection with any
subsequent transfers of Cash to the Unsecured Claims Trust Account in accordance
with the Distribution Trust Agreement, the Distribution Trustee will designate
all amounts so transferred, to the extent not identified as Pending Payments, as
Disputed Claims Reserves to be retained in such Trust Account to satisfy the
Disputed Unsecured Claims against the Estate of AJI or the Estate of KJC in
accordance with the terms of the Plan, if, as and when they are allowed or, to
the extent such Disputed Claims are not allowed, to satisfy Claims that are
allowed in accordance with the terms of the Plan.


                                       44

     Any Cash that becomes available to the Distribution Trust, following the
Effective Date, including as a result of the receipt of any income or interest
generated by the investment of Cash held in the Unsecured Claims Trust Account,
will be deposited in the Unsecured Claims Trust Account.

          Undeliverable Cash Trust Account

     After the Effective Date, if any distribution to a holder of an Allowed
Unsecured Claim is returned to the Distribution Trustee as undeliverable, the
Distribution Trustee will deposit the undeliverable Cash in the Undeliverable
Cash Trust Account. The Distribution Trustee will hold such funds, in a
book-entry sub-account in the Undeliverable Cash Trust Account, for the benefit
of such holder. Until such holder notifies the Distribution Trustee in writing
of its then-current address, as contemplated by the Distribution Trust Agreement
no attempt will be made to deliver subsequent distributions to such holder and
any such distributions that such holder would otherwise be entitled to receive
instead will be transferred from the Unsecured Claims Trust Account to the
Undeliverable Cash Trust Account and credited to such book-entry sub-account.
All Cash held in such book-entry sub-account for the benefit of such holder will
be invested by the Distribution Trustee in a manner consistent with the
investment and deposit guidelines set forth in the Distribution Trust Agreement.
Any income or interest generated from such investment activities will be held in
such book-entry sub-account for the benefit of such holder until such holder
notifies the Distribution Trustee in writing of its then-current address, as
contemplated by the Distribution Trust Agreement. Subject to the provisions of
the Distribution Trust Agreement relating to the forfeiture of certain
undeliverable distributions, when such holder notifies the Distribution Trustee
in writing of its then-current address as contemplated by the Distribution Trust
Agreement, the Distribution Trustee will deliver to such holder all Cash
contained in such book-entry sub-account (net of provision for Taxes owing in
respect of amounts included in such book-entry sub-account in accordance with
the Distribution Trust Agreement). In the event such holder's right to assert a
claim for undeliverable distributions is forfeited as contemplated by the
Distribution Trust Agreement, all Cash contained in such book-entry sub-account
will be transferred from the Undeliverable Cash Trust Account to the Unsecured
Claims Trust Account for redistribution to holders of Allowed Unsecured Claims
entitled to distributions therefrom. See "Distributions Under the Plan --
Undeliverable or Unclaimed Distributions."

          Risks Associated with Funding of Trust Accounts

     A holder of a Disputed Claim that ultimately becomes an Allowed Claim will
have recourse only to the undistributed Cash held in the Disputed Claim Reserve
of the applicable Trust Account (net of Taxes on such Disputed Claim Reserves)
for the satisfaction of such Allowed Claims and not to any other Trust Account
or any assets previously distributed on account of any Allowed Claim.

     The funding of the Distribution Trust Expenses Account and the Priority
Claims Trust Account will be based on the Debtors' estimates of the amount of
liabilities to be funded from these Trust Accounts. There is no assurance that
these estimates will be accurate and, despite the Debtors' best efforts, it is
possible that the Cash in these Trust Accounts may be insufficient to satisfy
the Distribution Trust Expenses and/or the Allowed Administrative Claims,
Allowed Priority Tax Claims, Allowed Priority Claims and Allowed Secured Claims
against the Debtors' Estates. Although the Plan provides certain mechanisms to
further fund any deficiencies in these Trust Accounts, it is possible that
insufficient Cash may be available to fund any deficiency. Based on information
currently available, the Debtors do not believe that these risks are material.

     POWERS OF THE DISTRIBUTION TRUSTEE

          General Powers

     The Distribution Trustee will have only the rights, powers and privileges
to act on behalf of the Distribution Trust expressly provided in the Plan and
the Distribution Trust Agreement. The Distribution Trustee will be empowered to,
among other things:

     -    execute all agreements, instruments and other documents and effect all
          other actions necessary to implement the Plan;


                                       45

     -    establish, maintain and administer the Trust Accounts;

     -    accept, preserve, receive, collect, manage, invest, supervise and
          protect the Distribution Trust Assets (directly or through one or more
          third-party Disbursing Agents), each in accordance with the Plan and
          the Distribution Trust Agreement;

     -    liquidate, transfer or otherwise dispose of the Distribution Trust
          Assets or any part thereof or any interest therein upon such terms as
          the Distribution Trustee determines to be necessary, appropriate or
          desirable, pursuant to the procedures for allowing Claims and making
          distributions prescribed in the Plan, and otherwise consistent with
          the terms of the Plan;

     -    calculate and make distributions of the Distribution Trust Assets to
          holders of Allowed Claims pursuant to the procedures for allowing
          Claims and making distributions prescribed in the Plan;

     -    comply with the Plan and exercise its rights and fulfill its
          obligations thereunder;

     -    review, reconcile, settle or object to Claims and resolve any such
          objections as set forth in the Plan and the Distribution Trust
          Agreement;

     -    investigate and, if appropriate, pursue any Recovery Actions or other
          available causes of action (including any actions previously initiated
          by the Debtors and pending as of the Effective Date) and raise any
          defenses in any adverse actions or counterclaims;

     -    retain and compensate, without further order of the Bankruptcy Court,
          the services of professionals or other persons or entities to
          represent, advise and assist the Distribution Trustee in the
          fulfillment of its responsibilities in connection with the Plan and
          the Distribution Trust Agreement;

     -    take such steps as are necessary, appropriate or desirable to
          coordinate with representatives of the estates of the Other Kaiser
          Debtors;

     -    take such actions as are necessary, appropriate or desirable to close
          the Chapter 11 Cases;

     -    file appropriate Tax returns on behalf of the Distribution Trust and
          Debtors and pay Taxes or other obligations owed by the Distribution
          Trust;

     -    exercise the rights, and fulfill the obligations of, the Debtors under
          the Alpart Purchase Agreement;

     -    pay all Distribution Trust Expenses using the Distribution Trust
          Expenses Account;

     -    execute, deliver and perform such other agreements and documents or
          exercise such other powers and duties as the Distribution Trustee
          determines, in its reasonable discretion, to be necessary, appropriate
          or desirable to accomplish and implement the purposes and provisions
          of the Distribution Trust as set forth in the Plan and the
          Distribution Trust Agreement;

     -    take such actions as are necessary, appropriate or desirable to
          terminate the existence of the Debtors under the laws of Jamaica; and

     -    terminate the Distribution Trust in accordance with the terms of the
          Plan and Distribution Trust Agreement.

     Except as otherwise provided in the Plan or the Distribution Trust
Agreement, the Distribution Trustee will not be required to obtain the order or
approval of the Bankruptcy Court or any other court of competent jurisdiction
in, or account to the Bankruptcy Court or any other court of competent
jurisdiction for, the exercise of any right, power or privilege conferred under
the Distribution Trust Agreement.

          Right to Object to Claims

     Except as otherwise provided in the Plan or the Distribution Trust
Agreement, after the Effective Date only the Distribution Trustee, on behalf of
the Distribution Trust, with the prior consent of the Steering Committee,


                                       46

acting through a majority thereof, will have the authority to File, settle,
compromise, withdraw or litigate to judgment objections to Claims, including
pursuant to any alternative dispute resolution or similar procedures approved by
the Bankruptcy Court. After the Effective Date, the Distribution Trustee, with
the prior consent of the Steering Committee, acting through a majority thereof,
may settle or compromise any Disputed Claim without approval of the Bankruptcy
Court in accordance with the Distribution Trust Agreement. The grant of
authority to the Distribution Trustee described above will not limit the right
of the US Trustee to object to Professional Fee Claims as contemplated by
Section 2.1(c) of the Plan.

          Right to Pursue Causes of Action

     Except as otherwise provided in the Plan or in any contract, instrument,
release or other agreement or document entered into or delivered in connection
with the Plan, in accordance with section 1123(b) of the Bankruptcy Code, the
Distribution Trustee will retain and may enforce any claims, demands, rights and
causes of action that either Debtor or Estate may hold against any entity,
including the Recovery Actions, to the extent not expressly released under the
Plan. In particular, the Distribution Trustee will retain the right to pursue
any adversary proceedings available to the Debtors in connection with the Alpart
Purchase Agreement or the Intercompany Claims Settlement.

     LIMITATION ON LIABILITY AND INDEMNIFICATION OF DISTRIBUTION TRUSTEE

     In exercising its rights under the Distribution Trust Agreement, the
Distribution Trustee will be obligated to use the same degree of care and skill
as an individual of ordinary prudence, discretion and judgment would exercise or
use in such individual's own affairs. The Distribution Trustee, however, will
incur no liability for any action taken or omitted to be taken in connection
with the Plan or the Distribution Trust Agreement except liability that would
otherwise result from (a) a failure to perform or pay any obligation or
liability thereunder or (b) an act or omission that is determined in a Final
Order to have constituted bad faith, fraud, willful misconduct, gross negligence
or a breach of its fiduciary duties.

     The Distribution Trustee and the members of the Steering Committee will be
indemnified by the Distribution Trust from the Distribution Trust Expenses Trust
Account for any losses, claims, damages, liabilities or expenses, including
reasonable attorneys' fees, disbursements and related expenses, that the
Distribution Trustee may incur or to which the Distribution Trustee may become
subject in connection with any action, suit, proceeding or investigation brought
by or threatened against the Distribution Trustee on account of the acts or
omissions of the Distribution Trustee in its capacity as such, provided that the
Distribution Trust will not be liable to indemnify the Distribution Trustee for
any act or omission constituting bad faith, fraud, willful misconduct, gross
negligence or a breach of its fiduciary duties. The Distribution Trustee will be
entitled to obtain advances from the Distribution Trust Expenses Account to
cover expenses of defending itself in any action brought against it as a result
of actions or omissions, actual or alleged, of the Distribution Trustee in its
capacity as such, so long as the Distribution Trustee provides an undertaking to
repay the amounts so advanced to the Distribution Expenses Trust Account upon
the entry of a Final Order finding that the Distribution Trustee was not
entitled to indemnity.

     REMOVAL AND RESIGNATION OF THE DISTRIBUTION TRUSTEE; FILLING OF VACANCY

     The Distribution Trustee may be removed at any time by Final Order of the
Bankruptcy Court. Such removal will be effective as specified in such Final
Order.

     The Distribution Trustee may resign at any time by giving the Bankruptcy
Court at least 30 days' written notice of its intention to do so. Such
resignation will be effective on the latest of: (a) the date specified in the
notice; (b) the date that is 30 days after the notice is delivered; (c) the date
the Distribution Trustee delivers a full and complete accounting of assets
received, disbursed and held to the Bankruptcy Court; and (d) the date the
successor Distribution Trustee accepts its appointment as such.

     The Indenture Trustees and the PBGC together will identify a successor
Distribution Trustee to fill any vacancy and request the Bankruptcy Court's
approval of the identity and terms of engagement of such successor


                                       47

Distribution Trustee. The Distribution Trust Agreement will provide for a
dispute resolution mechanism in the event that the Indenture Trustees and the
PBGC cannot agree on a successor Distribution Trustee.

     COMPENSATION OF THE DISTRIBUTION TRUSTEE

     The Distribution Trustee will receive fair and reasonable compensation for
its services, with such compensation to be paid from the Distribution Trust
Expenses Account. In addition, reasonable costs, expenses and obligations
incurred by the Distribution Trustee in administering the Distribution Trust, in
carrying out its other responsibilities under the Distribution Trust Agreement,
or in any manner connected, incidental or related thereto will be paid, at the
direction of the Distribution Trustee, from the Distribution Trust Expenses
Account.

     BOOKS AND RECORDS; REPORTS AND TAX FILINGS

          Books and Records

     The Distribution Trustee will maintain books and records containing a
description of all property from time to time constituting the Distribution
Trust Assets (which assets will be valued consistently for all federal income
Tax purposes) and an accounting of all receipts and disbursements. Such books
and records will be open to inspection by any Beneficiary or the Bankruptcy
Court at any reasonable time during normal business hours. The fiscal year of
the Distribution Trust will be the calendar year.

          Reports to be Filed with the Bankruptcy Court

     Within 45 days after the end of each of the first three calendar quarters
of the calendar year, the Distribution Trustee will File an unaudited report
with the Bankruptcy Court reflecting: (a) all Distribution Trust Assets received
by the Distribution Trust during such calendar quarter; (b) all Distribution
Trust Assets held by the Distribution Trust at the end of such quarter; and (c)
all Distribution Trust Assets disbursed during such calendar quarter, in each
case itemized for the individual Trust Accounts (a "Quarterly
Receipts/Disbursements Report").

     Within 90 days after the end of each calendar year, the Distribution
Trustee will File an unaudited report with the Bankruptcy Court reflecting: (a)
all Distribution Trust Assets received by the Distribution Trust during such
calendar year; (b) all Distribution Trust Assets held by the Distribution Trust
at the end of such calendar year; and (c) all Distribution Trust Assets
disbursed during such calendar year, in each case itemized for the individual
Trust Accounts (an "Annual Receipts/Disbursements Report").

     In the event of developments affecting the Distribution Trust in any
material respect (as determined by the Distribution Trustee in its reasonable
discretion), the Distribution Trustee will File promptly with the Bankruptcy
Court a report describing such development in reasonable detail (a "Current
Report").

     The Distribution Trustee will furnish or otherwise make available to any
then-current Beneficiary, upon written request, a copy of: (a) the most recent
Annual Receipts/Disbursements Report; (b) any Quarterly Receipts/Disbursements
Report for any period subsequent to the period covered by the most recent Annual
Receipts/Disbursements Report (or, if no Annual Receipts/Disbursements Report
has yet been Filed, for any period subsequent to the Effective Date); or (c) any
Current Report Filed subsequent to the period covered by the most recent Annual
Receipts/Disbursements Report (or, if no Annual Receipts/Disbursements Report
has yet been Filed, subsequent to the Effective Date).

          Tax Returns and Payments

     The Distribution Trustee will be responsible for filing all foreign, U.S.
federal, state and local Tax returns for the Distribution Trust and Debtors and
for the timely preparation and distribution to the Beneficiaries of any
necessary foreign, U.S. federal, state or local information returns.
Notwithstanding any other provision of the Distribution Trust Agreement, the
Distribution Trustee will not be obligated to deliver any such information
returns to holders of Disputed Claims in their capacity as such.


                                       48

     The Distribution Trustee will timely file Tax returns for the Trust
Accounts as a grantor trust and/or a liquidating trust under Treasury
Regulations section 1.671-1(a) and/or Treasury Regulations section 301.7701-4(d)
and related regulations with respect to Pending Payments. Pursuant to such
provisions, for federal income Tax purposes the Distribution Trustee will
allocate to Beneficiaries entitled to receive Pending Payments their pro rata
shares of any income or loss of the Trust Accounts, and such Beneficiaries will
be subject to Tax on the Trust Accounts' taxable income on a current basis.

     With respect to the Trust Accounts (excluding amounts constituting Pending
Payments), the Distribution Trustee will timely (a) file such income Tax and
other returns and statements as are required to comply with (i) the applicable
provisions of the IRC and the Treasury Regulations promulgated thereunder,
including the requirements set forth in Proposed Treasury Regulations section
1.468B-9(c)(1) and (ii) any applicable state and local law and the regulations
promulgated thereunder and (b) pay from the applicable Trust Account any Taxes
reported as owing on such returns and statements.

     TERM OF THE DISTRIBUTION TRUST

     The Distribution Trust will terminate upon:

     -    the payment of all costs, expenses and obligations incurred in
          connection with administering the Distribution Trust;

     -    the distribution of all remaining Distribution Trust Assets and/or
          proceeds therefrom in accordance with the provisions of the Plan, the
          Confirmation Order and the Distribution Trust Agreement;

     -    the closure of the Chapter 11 Cases; and

     -    the completion of any necessary or appropriate reports, Tax returns or
          other documentation.

     If the Distribution Trust has not been previously terminated as described
above, on the second anniversary of the Effective Date, unless otherwise
extended by the Bankruptcy Court due to the Distribution Trust's necessity to
complete its claims resolution and liquidating purpose, and provided such
extension does not adversely affect the status of the Distribution Trust for
federal income Tax or federal securities law purposes, the Distribution Trustee
will distribute all of the Distribution Trust Assets to the Beneficiaries in
accordance with the Plan and the Distribution Trust Agreement.

                          DISTRIBUTIONS UNDER THE PLAN

METHOD OF DISTRIBUTIONS TO HOLDERS OF ALLOWED CLAIMS

     The Distribution Trustee will make all distributions of Cash required under
the Plan. The Distribution Trustee will serve without bond and may employ or
contract with other entities to assist in, or make the distributions required
by, the Plan and the Distribution Trust Agreement. Unless the context otherwise
requires, all references to the Distribution Trustee contained in this section
will be deemed to be references to the Distribution Trustee in its capacity as
Disbursing Agent and, in the event the Distribution Trustee employs or contracts
with one or more other entities to assist in, or make the distributions required
by, the Plan and the Distribution Trust Agreement as contemplated by the
immediately preceding sentence, to any such third-party Disbursing Agent in its
capacity as such. Notwithstanding the foregoing, the Distribution Trustee will
act as the Disbursing Agent for the Distribution Expenses Trust Account.

DELIVERY OF DISTRIBUTIONS

     GENERALLY

     Except as otherwise provided in the Plan, distributions in respect of
Allowed Claims will be made to holders of such Claims as of the Distribution
Record Date at the addresses set forth in the applicable Claims Report. Prior to
making any distribution to a Beneficiary, the Distribution Trustee may request
written notification of the


                                       49

Beneficiary's federal taxpayer identification number or social security number
if the Distribution Trustee determines, in its reasonable discretion, that such
information (a) is necessary to fulfill its Tax reporting and withholding
obligations and (b) has not been provided in the applicable Claims Report or
otherwise. The Distribution Trustee, in its reasonable discretion, may suspend
distributions to any Beneficiary that has not provided its federal taxpayer
identification number or social security number, as the case may be, after a
request is made as described in this paragraph.

     SPECIAL PROVISIONS FOR DISTRIBUTIONS TO HOLDERS OF PUBLIC NOTE CLAIMS

     All distributions to holders of Allowed Public Note Claims will be made by
the Distributing Trustee to the applicable Indenture Trustee for subsequent
distribution to holders of the Allowed Public Note Claims as of the Distribution
Record Date.

UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS

     If any distribution to a holder of an Allowed Unsecured Claim is returned
to the Distribution Trustee as undeliverable, then unless and until the
Distribution Trustee is notified in writing of such holder's then-current
address: (a) subject to the provisions described in the immediately following
paragraph, such undeliverable distributions will remain in the possession of the
Distribution Trustee as provided in the Plan and no further attempt will be made
to deliver such distribution; and (b) no attempt will be made to deliver
subsequent distributions to such holder and any such distributions that such
holder would otherwise be entitled to receive instead will be transferred from
the Unsecured Claims Trust Account to the Undeliverable Cash Trust Account where
it will be held in a book-entry sub-account for the benefit of such holder. See
"General Information Concerning the Plan -- Distribution Trust -- Distribution
Trust Accounts -- Undeliverable Cash Trust Accounts."

     Any holder of an Allowed Unsecured Claim that does not assert a claim for
an undeliverable distribution by delivering to the Distribution Trustee a
written notice setting forth such holder's then-current address within 180 days
after the later of (a) the Effective Date and (b) the last date on which a
distribution was deliverable to the holder will have its claim for undeliverable
distributions discharged and will be forever barred from asserting such claim or
any claim for subsequent distributions against the Debtors, the Distribution
Trustee or the property of any of them, including the Trust Accounts, whereupon
all Cash contained in the book-entry sub-account in the Undeliverable Cash Trust
Account created for the benefit of such holder will be transferred to the
Unsecured Claims Trust Account for redistribution to holders of Allowed
Unsecured Claims entitled to distributions therefrom. For purposes of any such
redistribution, each Allowed Claim in respect of which a claim for undeliverable
distributions has been discharged will be deemed disallowed in its entirety.

     Nothing contained in the Plan will require the Debtors or the Distribution
Trustee to attempt to locate any holder of an Allowed Claim.

MEANS OF CASH PAYMENTS

     Except as otherwise provided in the Plan or the Distribution Trust
Agreement, Cash payments made pursuant to the Plan will be in United States
currency by checks drawn on the applicable Trust Accounts or, at the option of
the Distribution Trustee, by wire transfer from a domestic bank; provided,
however, that Cash payments to foreign holders of Allowed Claims may be made, at
the option of the Distribution Trustee, in such funds and by such means as are
necessary or customary in a particular foreign jurisdiction. If a check included
in a distribution to a holder of an Allowed Unsecured Claim is not cashed within
180 days of the issuance thereof, the Distribution Trustee will void such check
and such distribution will be treated as undeliverable as described in
"Undeliverable or Unclaimed Distributions" above.


                                       50

TIMING AND CALCULATION OF AMOUNTS TO BE DISTRIBUTED

     ALLOWED CLAIMS OTHER THAN UNSECURED CLAIMS

     On or as promptly as practicable after the Effective Date, the Distribution
Trustee will make distributions to holders of Secured Claims, Administrative
Claims, Priority Claims and Priority Tax Claims allowed as of the Effective
Date. On or as promptly as practicable after each Quarterly Distribution Date,
the Distribution Trustee will make distributions to holders of Disputed Secured
Claims, Disputed Administrative Claims, Disputed Priority Claims and Disputed
Priority Tax Claims that have become Allowed Claims during the immediately
preceding calendar quarter. The Quarterly Distribution Date will be on the last
Business Day of the month following the end of each calendar quarter after the
Effective Date, except that if the Effective Date is within 45 days of the end
of a calendar quarter, the first Quarterly Distribution Date will be the last
Business Day of the month following the end of the first calendar quarter after
the calendar quarter in which the Effective Date falls. Notwithstanding the
foregoing, if the Distribution Trustee determines, in its reasonable discretion,
that the amount of any quarterly distribution is too small to justify the
administrative costs associated with such distribution, the Distribution Trustee
may postpone such quarterly distribution until the next Quarterly Distribution
Date. The Distribution Trustee will have no obligation to notify Beneficiaries
if it determines, in its reasonable discretion, that any quarterly distribution
will be postponed.

     ALLOWED UNSECURED CLAIMS IN SUBCLASS 3A; CERTAIN PAYMENTS FROM THE PUBLIC
     NOTE DISTRIBUTABLE CONSIDERATION

          Plan Accepted by Subclass 3A and Subclass 3B

     If both Subclass 3A and Subclass 3B vote to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, on or as promptly as practicable
after the Effective Date, the Distribution Trustee will: (a) make distributions
to holders of Allowed Claims in Subclass 3A in accordance with Section
2.4(c)(i)(A) of the Plan; provided that the amount of such distributions will be
calculated as if each Disputed Unsecured Claim in Subclass 3D were an Allowed
Unsecured Claim in its Face Amount as of the Effective Date; and (b) make the
payments to be deducted from the Public Note Distributable Consideration as
contemplated by clauses (I) and (II) of the first sentence of Section
2.4(c)(i)(A) of the Plan.

     If both Subclass 3A and Subclass 3B vote to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, on or as promptly as practicable
after each Quarterly Distribution Date, the Distribution Trustee will distribute
to each holder of an Allowed Claim in Subclass 3A a distribution from the
Unsecured Claims Trust Account (net of provision for Taxes) in an amount equal
to: (a) the amount of Cash that such holder would have been entitled to receive
pursuant to the Plan if such Claim and each other Unsecured Claim allowed prior
to such Quarterly Distribution Date had been an Allowed Unsecured Claim as of
the Effective Date (with such amount to be calculated in the manner described in
the immediately preceding paragraph) minus (b) the aggregate amount of Cash
previously distributed on account of such Claim. Notwithstanding the foregoing,
if the Distribution Trustee determines, in its reasonable discretion, that the
amount of any quarterly distribution is too small to justify the administrative
costs associated with such distribution, the Distribution Trustee may postpone
such quarterly distribution until the next Quarterly Distribution Date. The
Distribution Trustee will have no obligation to notify Beneficiaries if it
determines, in its reasonable discretion, that any quarterly distribution will
be postponed. In the event of the disallowance of a Disputed Unsecured Claim in
Subclass 3D, any amounts held in respect thereof will be released from the
Disputed Claims Reserve for distribution as described in this paragraph and "--
Allowed Unsecured Claims in Subclass 3C and Subclass 3D."

          Plan Rejected by Subclass 3A or Subclass 3B

     If either Subclass 3A or Subclass 3B fails to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, the amount of the Public Note
Distributable Consideration to which the Bankruptcy Court determines the holders
of Allowed Claims in Subclass 3A are entitled in respect of such Claims will be
distributed as provided in an order of the Bankruptcy Court and the Distribution
Trustee will, contemporaneously or as promptly as practicable thereafter, make
the payments (or reservations for payment) by which such distributions are to be
reduced in accordance with Section 2.4(a)(i)(B) of the Plan.


                                       51

     ALLOWED UNSECURED CLAIMS IN SUBCLASS 3B

          Plan Accepted by Subclass 3A and Subclass 3B

     If both Subclass 3A and Subclass 3B vote to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, on or as promptly as practicable
after the Effective Date, the Distribution Trustee will make the payment to the
Senior Subordinated Note Indenture Trustee as contemplated by clause (III) of
the first sentence of Section 2.4(c)(i)(A) of the Plan and Section 2.4(c)(ii)(A)
of the Plan for subsequent distribution by the Senior Subordinated Note
Indenture Trustee to the holders of Allowed Claims in Subclass 3B.

          Plan Rejected by Subclass 3A or Subclass 3B

     If either Subclass 3A or Subclass 3B fails to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, the amount of the Public Note
Distributable Consideration, if any, to which the Bankruptcy Court determines
the holders of Allowed Claims in Subclass 3B are entitled in respect of such
Claims will be distributed as provided in an order of the Bankruptcy Court. As
contemplated by Section 2.4(c)(ii)(B) of the Plan, any such distributions
ultimately made to a holder of an Allowed Claim in Subclass 3B may be reduced by
such holder's proportional share of any and all fees and expenses payable to the
Senior Subordinated Note Indenture Trustee pursuant to the Senior Subordinated
Note Indenture, which will, subject to such Trustee's right to seek payment by
the Debtors of such fees and expenses pursuant to section 503(b)(5) of the
Bankruptcy Code, be payable solely from such distributions.

     ALLOWED UNSECURED CLAIMS IN SUBCLASS 3C AND SUBCLASS 3D

     On or as promptly as practicable after the Effective Date, the Distribution
Trustee will make distributions to holders of Unsecured Claims in Subclass 3C
and Subclass 3D allowed as of the Effective Date; provided that the amount of
such distributions will be calculated as if each Disputed Unsecured Claim in
Subclass 3D were an Allowed Unsecured Claim in its Face Amount as of the
Effective Date; provided further, however, that no distribution will be made on
account of any Disputed Unsecured Claim in Subclass 3D unless and until it
becomes an Allowed Unsecured Claim and amounts withheld for Disputed Unsecured
Claims in Subclass 3D will remain in the Unsecured Claims Trust Account as part
of the Disputed Claims Reserve.

     On or as promptly as practicable after each Quarterly Distribution Date,
the Distribution Trustee will distribute to each holder of an Unsecured Claim in
Subclass 3C or Subclass 3D allowed prior to such Quarterly Distribution Date a
distribution from the Unsecured Claims Trust Account (net of provision for
Taxes) in an amount equal to: (a) the amount of Cash that such holder would have
been entitled to receive pursuant to the Plan if such Claim and each other
Unsecured Claim allowed prior to such Quarterly Distribution Date had been an
Allowed Unsecured Claim as of the Effective Date (with such amount to be
calculated in the manner described in the immediately preceding paragraph) minus
(b) the aggregate amount of Cash previously distributed on account of such
Claim. Notwithstanding the foregoing, if the Distribution Trustee determines, in
its reasonable discretion, that the amount of any quarterly distribution is too
small to justify the administrative costs associated with such distribution, the
Distribution Trustee may postpone such quarterly distribution until the next
Quarterly Distribution Date. The Distribution Trustee will have no obligation to
notify Beneficiaries if it determines, in its reasonable discretion, that any
quarterly distribution will be postponed. In the event of the disallowance of a
Disputed Unsecured Claim in Subclass 3D, any amounts held in respect thereof
will be released from the Disputed Claims Reserve for distribution as described
in this paragraph and "-- Allowed Unsecured Claims in Subclass 3C and Subclass
3D -- Plan Accepted by Subclass 3A and Subclass 3B."

     7-3/4% SWD REVENUE BONDS

          Plan Accepted by Subclass 3A

     If (a) Subclass 3A votes to accept the Plan in accordance with section
1126(c) of the Bankruptcy Code and (b) unless the holders of Senior Note Claims
otherwise agree pursuant to a settlement, all holders of Allowed Senior Note
Claims are entitled under the Plan to identical treatment in respect of
contractual subordination claims under


                                       52

the Senior Subordinated Note Indenture, then, on or as promptly as practicable
on the Effective Date, the Distribution Trustee will make the payment, if any,
to the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of holders of
7-3/4% SWD Revenue Bonds pursuant to Section 2.5(a) of the Plan and pay any
amounts payable pursuant to Section 2.6(b) of the Plan.

          Plan Rejected by Subclass 3A

     If Subclass 3A fails to accept the Plan in accordance with section 1126(c)
of the Bankruptcy Code, the amount of the Public Note Distributable
Consideration, if any, to which the Bankruptcy Court determines the holders of
7-3/4% SWD Revenue Bonds are entitled will be distributed as provided in an
order of the Bankruptcy Court.

     NO DE MINIMIS DISTRIBUTIONS

     The Distribution Trustee will not be required to distribute Cash to the
holder of an Allowed Unsecured Claim if the total aggregate amount of Cash to be
distributed on account of such Claim is less than $25. Any holder of an Allowed
Unsecured Claim on account of which the total aggregate amount of Cash to be
distributed is less than $25 will have its Claim for such distribution deemed
satisfied, waived and released and will be forever barred from asserting any
such Claim against the Debtors, the Distribution Trustee or the property of any
of them, including the Trust Accounts. Any Cash not distributed with respect to
Allowed Unsecured Claims as a result of the provisions described in this
paragraph will be retained in the Unsecured Claims Trust Account for
redistribution to other holders of Allowed Unsecured Claims entitled to
distributions from the Unsecured Claims Trust Account.

     COMPLIANCE WITH TAX REQUIREMENTS

     To the extent applicable, the Distribution Trustee will comply with all Tax
withholding and reporting requirements imposed on it by any governmental unit,
and all distributions pursuant to the Plan will be subject to such withholding
and reporting requirements. The Distribution Trustee will be authorized to take
any actions that it determines, in its reasonable discretion, to be necessary,
appropriate or desirable to comply with such withholding and reporting
requirements. Notwithstanding any other provision of the Plan or the
Distribution Trust Agreement, each entity receiving a distribution of Cash
pursuant to the Plan will have sole and exclusive responsibility for the
satisfaction and payment of any Tax obligations imposed on it by any
governmental unit on account of such distribution, including income, withholding
and other Tax obligations.

     SETOFFS

     Except with respect to claims of a Debtor released pursuant to the Plan or
any contract, instrument, release or other agreement or document entered into or
delivered in connection with the Plan, the Distribution Trustee may, pursuant to
section 553 of the Bankruptcy Code or applicable nonbankruptcy law, set off
against any Allowed Claim and the distributions to be made pursuant to the Plan
on account of such Claim (before any distribution is made on account of such
Claim) the claims, rights and causes of action of any nature that the applicable
Debtor may hold against the holder of such Allowed Claim; provided, however,
that neither the failure to effect a setoff nor the allowance of any Claim will
constitute a waiver or release by the applicable Debtor of any claims, rights
and causes of action that the Debtor or Debtors may possess against such a Claim
holder, which are preserved under the Plan.

COMPENSATION AND REIMBURSEMENT FOR SERVICES RELATED TO DISTRIBUTIONS

     If the Distribution Trustee employs or contracts with a third-party
Disbursing Agent, such Disbursing Agent will receive, without the need for
further Bankruptcy Court approval, reasonable compensation for such services and
reimbursement of reasonable out-of-pocket expenses incurred in connection with
such services. These payments will be made on terms agreed to with the
Distribution Trustee and will be paid to such Disbursing Agent from funds in the
Distribution Trust Expenses Account. To assist in making distributions under the
Plan, notwithstanding any other provision of the Distribution Trust Agreement,
the applicable Trust Accounts (other than the Distribution Trust Expenses
Account) may be held in the name of one or more such Disbursing Agents. Any such
Disbursing Agent will invest the Cash in the Trust Accounts as directed by the
Distribution Trustee, who will


                                       53

direct such Disbursing Agent to invest such Cash only in Permitted Investments;
provided, however, that should the Distribution Trustee determine, in its
reasonable discretion, that the administrative costs associated with such
investment will exceed the return on such investment, it may direct such
Disbursing Agent to not invest such Cash.

PAYMENTS LIMITED TO TRUST ACCOUNTS

     All payments or other distributions to be made by the Distribution Trustee
in accordance with the Plan or the Distribution Trust Agreement will be made
only from the Trust Accounts.

INSUFFICIENT FUNDS

     Provided that the Distribution Trustee has not acted in bad faith, engaged
in fraud, willful misconduct or gross negligence, or breached its fiduciary
duties, if the Distribution Trust Assets at any point prove insufficient to pay
all Beneficiaries of the Priority Claims Trust Account in full or all
Beneficiaries of the Unsecured Claims Trust Account in accordance with the terms
of the Plan, the Distribution Trustee will have no obligation to seek
disgorgement from any Beneficiary, but may seek the guidance of the Bankruptcy
Court or another court of competent jurisdiction.

DISPUTED CLAIMS

     PROSECUTION OF OBJECTIONS TO CLAIMS

     All objections to Claims must be Filed and served on the holders of such
Claims by the Claims Objection Bar Date, and, if Filed prior to the Effective
Date, such objections will be served on the parties on the then-applicable
service list in the Chapter 11 Cases. If an objection has not been Filed to a
proof of Claim, a scheduled Claim or a request for payment of Administrative
Claim by the applicable Claims Objection Bar Date, the Claim to which the proof
of Claim, scheduled Claim or request for payment of Administrative Claim relates
will be treated as an Allowed Claim if such Claim has not been allowed earlier.

     TREATMENT OF DISPUTED CLAIMS

     Notwithstanding any other provisions of the Plan, no payments or
distributions will be made on account of a Disputed Claim until such Claim
becomes an Allowed Claim. In lieu of distributions under the Plan to holders of
Disputed Claims, a Disputed Claims Reserve will be established on the Effective
Date in each Trust Account, which, in the case of Unsecured Claims in Subclass
3D, will include an amount equal to the Pro Rata Share of the distribution to
which all of the Disputed Claims in Subclass 3D would be entitled to if each
such Disputed Claim was allowed in its Face Amount on the Effective Date.

     Each holder of a Disputed Claim that ultimately becomes an Allowed Claim
will have recourse only to the undistributed Cash held in the applicable Trust
Account for the satisfaction of such Allowed Claim and not to any other Trust
Account or any assets previously distributed on account of any Allowed Claim.

     The Distribution Trustee will include in the Tax returns of the Trust
Accounts all items of income, deduction and credit of the Trust Accounts, except
to the extent such items are included in the income of the Beneficiaries of the
Trust Accounts as grantors of grantor trusts. The Distribution Trustee will pay,
or cause to be paid, out of the funds held in applicable Trust Accounts, any Tax
imposed on the Trust Accounts by any governmental unit with respect to income
generated by the funds held in the Trust Accounts. The Distribution Trustee also
will file or cause to be filed any Tax or information return related to the
applicable Trust Account that is required by any governmental unit.


                                       54

                       VOTING AND CONFIRMATION OF THE PLAN

GENERAL

     To confirm the Plan, the Bankruptcy Code requires that the Bankruptcy Court
make a series of findings concerning the Plan and the Debtors, including that:

     -    the Plan has classified Claims and Interests in a permissible manner;

     -    the Plan complies with the applicable provisions of the Bankruptcy
          Code;

     -    the Debtors comply with the applicable provisions of the Bankruptcy
          Code;

     -    the Debtors, as proponents of the Plan within the meaning of section
          1129 of the Bankruptcy Code, have proposed the Plan in good faith and
          not by any means forbidden by law;

     -    the disclosure required by section 1125 of the Bankruptcy Code has
          been made;

     -    the Plan has been accepted by the requisite votes of creditors and
          equity interest holders, except to the extent that "cramdown" is
          available under section 1129(b) of the Bankruptcy Code;

     -    the Plan is in the "best interests" of all holders of Claims or
          Interests in an impaired Class (that is, that such creditors will
          receive at least as much pursuant to the Plan as they would receive or
          retain in a chapter 7 liquidation);

     -    the Plan is feasible (that is, there is a reasonable prospect that the
          Debtors will be able to perform their obligations under the Plan); and

     -    all fees and expenses payable under 28 U.S.C. Section 1930, as
          determined by the Bankruptcy Court at the Confirmation Hearing, have
          been paid, or the Plan provides for the payment of such fees on the
          Effective Date.

VOTING PROCEDURES AND REQUIREMENTS

     Pursuant to the Bankruptcy Code, only classes of claims against, or equity
interests in, a debtor that are "impaired" under the terms of that debtor's plan
are entitled to vote to accept or reject the Plan. A class is "impaired" if the
legal, equitable or contractual rights attaching to the claims or equity
interests of that class are modified, other than by curing defaults and
reinstating maturity. Classes of claims that are not impaired are not entitled
to vote on a plan and are conclusively presumed to have accepted that plan.
Classes of claims or equity interests that receive no distributions under a plan
are not entitled to vote on that plan and are deemed to have rejected that plan
unless such class otherwise indicates acceptance. Only Class 3 is entitled to
vote on the Plan and each Subclass of Class 3 constitutes a separate class for
that purpose. For a summary of the classification of Claims and Interests
pursuant to the Plan, together with an indication of whether each Class of
Claims or Interests is impaired or unimpaired under the terms of the Plan, see
"Overview of the Plan -- Summary of Classes and Treatment of Claims and
Interests."

     ALTHOUGH THE 7-3/4% SWD REVENUE BOND INDENTURE TRUSTEE MAY RECEIVE A
PAYMENT FOR THE BENEFIT OF THE HOLDERS OF THE 7-3/4% SWD REVENUE BONDS IN
ACCORDANCE WITH THE PLAN, HOLDERS OF 7-3/4% SWD REVENUE BONDS DO NOT HAVE CLAIMS
AGAINST THE DEBTORS AND, ACCORDINGLY, ARE NOT ENTITLED TO VOTE ON THE PLAN.
BECAUSE SUCH PROPOSED SETTLEMENT WILL AFFECT OTHER KAISER DEBTORS, A MOTION
SEEKING APPROVAL OF THE SETTLEMENT WILL BE FILED, AND SUCH HOLDERS AND OTHER
CREDITORS OR CLAIMANTS AFFECTED BY SUCH SETTLEMENT MAY FILE AN OBJECTION TO IT
WITH THE BANKRUPTCY COURT ON OR PRIOR TO APRIL 5, 2005. SEE "OPERATIONS DURING
THE CHAPTER 11 CASES -- 7-3/4% SWD REVENUE BOND DISPUTE" FOR MORE INFORMATION
REGARDING THE 7-3/4% SWD REVENUE BONDS AND THE PROPOSED SETTLEMENT.

     Pursuant to section 502 of the Bankruptcy Code and Bankruptcy Rule 3018,
the Bankruptcy Court may estimate and temporarily allow a Claim for voting or
other purposes. By order of the Bankruptcy Court, certain vote


                                       55

tabulation rules have been approved that temporarily allow or disallow certain
Claims for voting purposes only. These tabulation rules are described in the
solicitation materials provided with your Ballot.

     VOTING ON THE PLAN BY EACH HOLDER OF AN IMPAIRED CLAIM ENTITLED TO VOTE ON
THE PLAN IS IMPORTANT. IF YOU HOLD MULTIPLE UNSECURED CLAIMS, YOU MAY RECEIVE
MORE THAN ONE BALLOT. YOU SHOULD COMPLETE, SIGN AND RETURN EACH BALLOT YOU
RECEIVE.

     PLEASE CAREFULLY FOLLOW ALL OF THE INSTRUCTIONS CONTAINED ON THE BALLOT OR
BALLOTS PROVIDED TO YOU. ALL BALLOTS MUST BE COMPLETED AND RETURNED IN
ACCORDANCE WITH THE INSTRUCTIONS PROVIDED.

     TO BE COUNTED, YOUR BALLOT OR BALLOTS MUST BE ACTUALLY RECEIVED BY 5:00
P.M., EASTERN TIME, ON APRIL 5, 2005 (OR SUCH OTHER TIME AND DATE IDENTIFIED ON
YOUR BALLOT OR BALLOTS) AT THE ADDRESS SET FORTH ON THE PREADDRESSED ENVELOPE
PROVIDED TO YOU. IT IS OF THE UTMOST IMPORTANCE TO THE DEBTORS THAT YOU VOTE
PROMPTLY TO ACCEPT THE PLAN.

     A HOLDER OF A 9-7/8% SENIOR NOTE, A 10-7/8% SENIOR NOTE OR A SENIOR
SUBORDINATED NOTE HELD IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST
COMPANY OR OTHER NOMINEE MUST COMPLETE AND DELIVER TO SUCH NOMINEE THE BALLOT OR
BALLOTS PROVIDED TO SUCH HOLDER IN ORDER TO VOTE ON THE PLAN. SUCH HOLDERS ARE
URGED TO DELIVER SUCH BALLOT OR BALLOTS TO THEIR RESPECTIVE NOMINEE HOLDERS NO
LATER THAN THE DATE IDENTIFIED ON SUCH BALLOT OR BALLOTS IN ORDER TO ENSURE THAT
THEIR VOTE WILL BE COUNTED.

     VOTES CANNOT BE TRANSMITTED ORALLY. ACCORDINGLY, YOU ARE URGED TO RETURN
YOUR SIGNED AND COMPLETED BALLOT PROMPTLY.

     IF YOU ARE ENTITLED TO VOTE AND YOU DID NOT RECEIVE A BALLOT, RECEIVED A
DAMAGED BALLOT OR LOST YOUR BALLOT, PLEASE CALL THE DEBTORS' VOTING AGENT, LOGAN
& COMPANY, AT (973) 509-3190.

CONFIRMATION HEARING

     The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a
hearing on whether the Debtors have fulfilled the requirements of section 1129
of the Bankruptcy Code relating to the confirmation of the Plan. The
Confirmation Hearing has been scheduled for April 13, 2005 at 9:00 a.m. before
the Honorable Judith K. Fitzgerald, Chief United States Bankruptcy Judge for the
Western District of Pennsylvania and visiting United States Bankruptcy Judge for
the District of Delaware, in the Judge's usual courtroom at the U.S. Bankruptcy
Court for the District of Delaware, 824 Market Street, Wilmington, Delaware
19801. The Confirmation Hearing may be continued or adjourned from time to time
by the Bankruptcy Court without further notice, except for an announcement of
the continued or adjourned date made at the Confirmation Hearing. Any objection
to confirmation of the Plan must be made in writing and must specify in detail
the name and address of the objector, all grounds for the objection and the
amount of the Claim or Interest held by the objector. Any such objections must
be Filed and served upon the persons designated in the notice of the
Confirmation Hearing, in the manner and by the deadline described in such
notice.

CONFIRMATION

     At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan
only if all of the applicable requirements of section 1129 of the Bankruptcy
Code are satisfied. Among the requirements for confirmation of a plan with
respect to a debtor are that the plan:


                                       56

     -    is accepted by the requisite holders of claims and equity interests in
          each impaired class of such debtor or, if not so accepted, has been
          accepted by the requisite holders of at least one impaired class and
          is "fair and equitable" and "does not discriminate unfairly" as to
          each nonaccepting class;

     -    is either accepted by, or is in the "best interests" of, each holder
          of a claim or equity interest in each impaired class of such debtor;

     -    is feasible; and

     -    complies with the other applicable provisions of the Bankruptcy Code.

     Subject to the conditions set forth in the Plan, a determination by the
Bankruptcy Court that the Plan, as it applies to a particular Estate, is not
confirmable pursuant to section 1129 of the Bankruptcy Code will not limit or
affect: (a) the confirmability of the Plan as it applies to the other Estate; or
(b) the Debtors' ability to modify the Plan, as it applies to such Estate, to
satisfy the provisions of section 1129(b) of the Bankruptcy Code.

     ACCEPTANCE OR CRAMDOWN

     A plan is accepted by an impaired class of claims if holders of at least
two-thirds in dollar amount and a majority in number of claims of that class
vote to accept the plan. Only those holders of claims who actually vote (and are
entitled to vote) to accept or to reject a plan count in this tabulation.
Section 1129(b) of the Bankruptcy Code contains so-called "cramdown" provisions
pursuant to which a plan may be confirmed even if it is not accepted by all
impaired classes, as long as at least one impaired class of claims has accepted
it and the Bankruptcy Court finds that it is "fair and equitable" and "does not
discriminate unfairly" as to each nonaccepting class. The "fair and equitable"
standard, also known as the "absolute priority rule," requires, among other
things, that unless a dissenting class of unsecured claims receives full
compensation for the aggregate allowed amount of such claims, no holder of an
allowed claim in any class junior to such class may receive or retain any
property on account of such claim. The "fair and equitable" standard has also
been interpreted to prohibit any class of claims senior to a dissenting class
from receiving under a plan more than 100% of the aggregate allowed amount of
such claims. The requirement that a plan not "discriminate unfairly" means,
among other things, that a dissenting class of claims must be treated
substantially equally with respect to other classes of claims of equal rank. The
Debtors do not believe that the Plan unfairly discriminates against any Class
that may not accept or otherwise consent to the Plan. The Debtors believe that
the Plan is "fair and equitable" and "does not discriminate unfairly" as to each
impaired Class entitled to vote upon the Plan. The Debtors may seek confirmation
of the Plan under the "cramdown" provisions with respect to any impaired Class
that does not accept the Plan (and have reserved the right to modify the Plan to
the extent that confirmation of the Plan under such provisions requires
modification).

     BEST INTERESTS TEST

          Generally

     Notwithstanding acceptance of a plan by each impaired class (or
satisfaction of the "cramdown" provisions of the Bankruptcy Code in lieu
thereof), for a plan to be confirmed, the Bankruptcy Court must determine that
the plan is in the best interest of each holder of a claim who is in an impaired
class and has not voted to accept the plan. Accordingly, if an impaired class
does not unanimously accept a plan, the best interests test requires the
Bankruptcy Court to find that the plan provides to each member of such impaired
class a recovery on account of the class member's claim that has a value, as of
the date such plan is consummated, at least equal to the value of the
distribution that such class member would receive if the debtors proposing such
plan were liquidated under chapter 7 of the Bankruptcy Code on such date. The
Debtors have considered the effect that the conversion of the Chapter 11 Cases
to cases under chapter 7 of the Bankruptcy Code would have and have concluded
that Plan provides for the liquidation of the Debtors in a manner significantly
more efficient than would occur in the event the Chapter 11 Cases were converted
to cases under chapter 7 of the Bankruptcy Code. The Debtors' Estates have
already been substantially liquidated and converted to Cash proceeds, subject
only to receipt of any Recovery Action Proceeds. The Debtors are not aware of
the existence of any claim against a third party that would constitute a
Recovery Action. Further, the Debtors have been informed that the Creditors'
Committee conducted an analysis of potential preference actions and determined
that there were no viable preference actions concerning payments made by the
Debtors. The Debtors believe that conversion to chapter 7 of the Bankruptcy Code
would result in: (a) additional


                                       57

costs relating to the appointment of a chapter 7 trustee; (b) likely delays in
distributions to creditors entitled to receive a distribution under the Plan;
and (c) diminished recoveries for Class 3. The Debtors therefore believe that
the Plan satisfies the best interests test for each class of impaired Claims.

          Liquidation Analysis

     Because the liquidation value of each Debtor is limited to the amount of
Cash held or to be held in each Debtor's Trust Accounts, the Debtors'
liquidation analysis focused on the additional costs and the diminution in value
to the Debtors' Estates that would occur if the Chapter 11 Cases were converted
to cases under chapter 7 of the Bankruptcy Code. That is, in the event of a
conversion of the Chapter 11 Cases to cases under chapter 7 of the Bankruptcy
Code, the liquidation value available to holders of Unsecured Claims and
Interests would be reduced by: (a) the costs, fees and expenses of the
liquidation, as well as other administrative expenses of the Debtors' chapter 7
cases; (b) unpaid Administrative Claims of the Chapter 11 Cases; and (c)
Priority Claims and Priority Tax Claims.

     The Debtors' costs of liquidation in chapter 7 cases would include, among
other things, the compensation of a trustee or trustees, as well as counsel and
other professionals retained by such trustees. The trustees and any newly
retained professionals would have to expend considerable time and effort to
review and understand the issues raised by the liquidation of the Debtors,
thereby duplicating the efforts of the Debtors and their professionals and
resulting in the incurrence of fees and expenses anticipated to exceed
materially the fees and expenses that would be incurred by the Distribution
Trustee and its professionals under the Plan. The trustee's fees in any chapter
7 case, which could be as much as 3% of the assets in the Debtors' Estates under
section 326 of the Bankruptcy Code (or approximately $9.0 million in the
aggregate), also are anticipated to exceed the fees to be paid to the
Distribution Trustee. Moreover, since any newly retained professionals would
lack the institutional knowledge of the facts and circumstances underlying
Claims and Recovery Actions, it is likely that Disputed Claims would be settled
at higher amounts and Recovery Actions at lower amounts, thereby resulting in
lower recoveries to holders of Unsecured Claims. Finally, due to the lack of
familiarity with the Debtors of any trustees appointed in the chapter 7 cases,
distributions in the chapter 7 cases likely would be made substantially later
than the Effective Date assumed in connection with the Plan and this delay would
reduce the present value of distributions to creditors, including holders of
Unsecured Claims. In light of the foregoing, the Debtors believe that creditors
will receive greater and more expeditious distributions under the Plan than they
would receive through a chapter 7 liquidation. The Plan is, therefore, in the
best interests of each Claim holder.

     FEASIBILITY

     Section 1129(a)(11) of the Bankruptcy Code requires that confirmation of a
plan not be likely to be followed by the liquidation, or the need for further
financial reorganization, of the debtors proposing such plan or any successor to
such debtors (unless such liquidation or reorganization is proposed in the
plan). The Plan provides for the liquidation of the Debtors and the distribution
of Cash to holders of Allowed Claims in accordance with the priority scheme of
the Bankruptcy Code and the terms of the Plan. The ability of the Debtors to
make the distributions described in the Plan is based solely on the amount of
Cash held, or to be held, in the Trust Accounts, and does not depend on future
earnings of the Debtors. Accordingly, the Debtors believe that the Plan
satisfies the feasibility requirements of the Bankruptcy Code.

     COMPLIANCE WITH APPLICABLE PROVISIONS OF THE BANKRUPTCY CODE

     Section 1129(a)(1) of the Bankruptcy Code requires that a plan comply with
the applicable provisions of the Bankruptcy Code. The Debtors have considered
each of these provisions in the development of the Plan and believe that the
Plan complies with all provisions of the Bankruptcy Code.

     MODIFICATION OR REVOCATION OF THE PLAN

     Subject to the restrictions on modifications set forth in section 1127 of
the Bankruptcy Code, the Debtors reserve the right to alter, amend or modify the
Plan before its substantial consummation, with the consent of the Creditors'
Committee.


                                       58

     The Debtors reserve the right to revoke or withdraw the Plan prior to the
Effective Date, with the consent of the Creditors' Committee. If the Debtors so
revoke or withdraw the Plan, or if confirmation of the Plan does not occur, the
Plan will be null and void in all respects, and nothing contained in the Plan
will: (a) constitute a waiver or release of any Claims by or against, or any
Interests in, the Debtors; or (b) prejudice in any manner the rights of either
Debtor or any other party.

     Notwithstanding the provisions of the Plan described above, the Plan may
not be amended, modified, revoked or withdrawn with the intent of altering or
undermining in any way the Bankruptcy Court's determination of the respective
entitlement of holders of Allowed Claims under Sections 2.4(c)(i)(B) and
2.4(c)(ii)(B) of the Plan.

ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN

     Because the Debtors are not operating entities and possess no assets other
than Cash, the only alternatives to confirmation and consummation of the Plan
are a conversion of the Chapter 11 Cases to cases under chapter 7 of the
Bankruptcy Code and the confirmation and consummation of an alternative plan of
liquidation under chapter 11 of the Bankruptcy Code.

     The Debtors believe that, in a liquidation under chapter 7, before
creditors received any distribution, additional administrative expenses involved
in the appointment of a trustee, and the retention of professionals to assist
such trustee, would cause a diminution in the value of the Debtors' Estates. The
Debtors believe that conversion of the Chapter 11 Cases to chapter 7 would,
therefore, result in (a) significant delay in distributions to all creditors who
would have received a distribution under the Plan and (b) diminished recoveries
for Class 3. See "-- Confirmation -- Best Interests Test."

     The Debtors believe that, because the Plan has been negotiated by the
Debtors and representatives of certain of the Debtors' most significant
creditors, including the Creditors' Committee, negotiating an alternative plan
of liquidation under chapter 11 of the Bankruptcy Code is unlikely to alter
significantly the relative treatment of the Claims. The Debtors believe that
negotiating such an alternative plan would result in additional costs to the
Debtors relating to the retention of professionals to represent the Debtors and
their significant creditors in connection with such negotiations, resulting in a
diminution in the value of the Debtors' Estates. The Debtors believe that the
consummation of an alternative plan of liquidation under chapter 11 of the
Bankruptcy Code would also result in (a) likely delays in distributions to all
creditors who would be entitled to receive a distribution under the Plan (thus
reducing the present value of such distributions) and (b) potentially diminished
recoveries for Class 3.

     THE DEBTORS AND THE CREDITORS' COMMITTEE BELIEVE THAT THE PLAN AFFORDS
GREATER BENEFITS TO CREDITORS THAN EITHER LIQUIDATION UNDER CHAPTER 7 OF THE
BANKRUPTCY CODE OR THE CONSUMMATION OF AN ALTERNATIVE PLAN OF LIQUIDATION UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE.

     CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN

GENERAL

     A DESCRIPTION OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
IS PROVIDED BELOW. THE DESCRIPTION IS BASED ON THE IRC, TREASURY REGULATIONS
ISSUED THEREUNDER, JUDICIAL DECISIONS AND INTERNAL REVENUE SERVICE ("IRS") AND
ADMINISTRATIVE DETERMINATIONS, ALL AS IN EFFECT ON THE DATE HEREOF. CHANGES IN
ANY OF THESE AUTHORITIES OR IN THE INTERPRETATION THEREOF, ANY OF WHICH MAY HAVE
RETROACTIVE EFFECT, MAY CAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
PLAN TO DIFFER MATERIALLY FROM THE CONSEQUENCES DESCRIBED BELOW.

     THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ARE COMPLEX AND ARE
SUBJECT TO SIGNIFICANT UNCERTAINTIES. NO RULING HAS BEEN REQUESTED FROM THE IRS;
NO OPINION HAS BEEN REQUESTED FROM COUNSEL CONCERNING ANY U.S. TAX


                                       59

CONSEQUENCE OF THE PLAN; AND NO TAX OPINION IS GIVEN BY THIS DISCLOSURE
STATEMENT.

     THE DESCRIPTION DOES NOT COVER ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO THE DEBTORS OR HOLDERS OF CLAIMS. FOR EXAMPLE, THE
DESCRIPTION DOES NOT ADDRESS ISSUES OF SPECIAL CONCERN TO CERTAIN TYPES OF
TAXPAYERS, SUCH AS DEALERS IN SECURITIES, LIFE INSURANCE COMPANIES, FINANCIAL
INSTITUTIONS, TAX EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS, NOR DOES IT
ADDRESS TAX CONSEQUENCES TO HOLDERS OF INTERESTS IN THE DEBTORS. IN ADDITION,
THE DESCRIPTION IS LIMITED TO U.S. FEDERAL INCOME TAX CONSEQUENCES AND DOES NOT
DISCUSS STATE, LOCAL OR FOREIGN TAX CONSEQUENCES.

     FOR THESE REASONS, THE DESCRIPTION THAT FOLLOWS IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING AND PROFESSIONAL TAX ADVICE BASED UPON THE INDIVIDUAL
CIRCUMSTANCES OF EACH HOLDER OF A CLAIM OR INTEREST. HOLDERS OF CLAIMS OR
INTERESTS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE U.S.
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN.

U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CLAIMS

     The federal income Tax consequences of the Plan to a holder of a Claim will
depend, in part, on: (a) whether the holder reports income on the accrual or
cash basis; (b) whether the holder has previously taken a bad debt deduction or
worthless security deduction with respect to the Claim; (c) whether the holder's
Claim is allowed or disputed at the Effective Date; (d) whether the holder
receives distributions under the Plan in more than one taxable year; and (e)
whether the holder receives distributions with respect to its Claim under one or
more plans of reorganization or liquidation of an Other Kaiser Debtor in
addition to the Plan.

     RECOGNITION OF GAIN OR LOSS

          In General

     In general, a holder of a Claim should recognize gain or loss equal to the
amount realized under the Plan in respect of its Claim less the holder's basis
in the Claim. Any gain or loss recognized in the exchange may be long-term or
short-term capital gain or loss or ordinary income or loss, depending upon the
nature of the Claim and the holder, the length of time the holder held the Claim
and whether the Claim was acquired at a market discount. If the holder realizes
a capital loss, its deduction of the loss may be subject to limitation. The
holder's aggregate Tax basis for any property received under the Plan generally
will equal the amount realized. The holder's amount realized generally will
equal the sum of the Cash and the fair market value of any other property
received (or deemed received) by the holder under the Plan on the Effective Date
or subsequent distribution date, less the amount (if any) allocable to Claims
for interest, as discussed below.

          Post-Effective Date Cash Distributions

     Because certain holders of Allowed Claims (including Disputed Claims that
ultimately become Allowed Claims) may receive Cash distributions subsequent to
the Effective Date in respect of Claims held against the Debtors, including
claims against Other Kaiser Debtor(s) as well as the Debtors, the imputed
interest provisions of the IRC may apply to treat a portion of such
distributions as imputed interest. Additionally, because such distributions may
be made to such holders after the initial distribution, any loss and a portion
of any gain realized by such holder may be deferred. All such holders are urged
to consult their Tax advisors regarding the possible application of (or ability
to elect out of) the "installment method" of reporting gain that may be
recognized by such holder in respect of its Claims.


                                       60

          Bad Debt and/or Worthless Securities Deduction

     A holder who, under the Plan, receives in respect of a Claim an amount less
than the holder's Tax basis in the Claim may be entitled in the year of receipt
(or in an earlier or later year) to a bad debt deduction in some amount under
section 166(a) of the IRC or a worthless securities deduction under section
165(g) of the IRC. The rules governing the timing, character and amount of bad
debt and/or worthless securities deductions place considerable emphasis on the
facts and circumstances of the holder, the obligor and the instrument with
respect to which a deduction is claimed. Holders of Claims, therefore, are urged
to consult their Tax advisors with respect to their ability to take such a
deduction.

     PENDING PAYMENTS

     Cash that a Trust Account holds as a Pending Payment after the Effective
Date should be deemed to have been paid to the holder of the Claim entitled to
receive such Pending Payment on the date that the Distribution Trust received it
and to have been contributed by such holder to the Trust Account as a grantor
and beneficiary of the Distribution Trust. Thus, the holder should recognize
gain or loss based upon the amount deemed received and contributed to the Trust
Account on the Effective Date, and any income subsequently realized by the Trust
Account with respect to such Pending Payment will be reported by the Trustee as
income of the grantor-beneficiary in the year realized, prior to the actual
distribution of the Pending Payment to the holder of the Allowed Claim. The
actual receipt of the Pending Payments from the Trust Account will not be a
taxable event.

     PAYMENTS OTHER THAN PENDING PAYMENTS

     If any payment other than a Pending Payment is to be made out of a Trust
Account, such payment will not be deemed to have been made to any recipient
until, and to the extent that, the amount to which the payee is entitled has
been determined and distributed. Any income realized by the Trust Account prior
to such time will be reported by the Distribution Trustee as income of and
taxable to the Trust Account.

CERTAIN OTHER TAX CONSEQUENCES FOR HOLDERS OF CLAIMS

     RECEIPT OF PRE-EFFECTIVE DATE INTEREST

     In general, a Claim holder that was not previously required to include in
its taxable income any accrued but unpaid pre-Effective Date interest on the
Claim may be required to take such amount into income as taxable interest. A
Claim holder that was previously required to include in its taxable income any
accrued but unpaid pre-Effective Date interest on the Claim may be entitled to
recognize a deductible loss to the extent that such interest is not satisfied
under the Plan. The Plan provides that all distributions to a holder of an
Allowed Public Note Claim or a holder of a 7-3/4% SWD Revenue Bond will be
deemed to apply first to the principal amount of such Claim or such 7-3/4% SWD
Revenue Bond until such principal amount is paid in full, and then the remaining
portion of such distributions, if any, will be deemed to apply to any
prepetition accrued interest included in such Claim or in respect of such 7-3/4%
SWD Revenue Bond. There is no assurance, however, that the IRS will respect this
treatment and will not determine that all or a portion of amounts distributed to
holders of Allowed Public Note Claims or 7-3/4% SWD Revenue Bonds is properly
allocable to prepetition interest. Each such holder is urged to consult its tax
advisor regarding the tax treatment of its distributions under the Plan and the
deductibility of any accrued but unpaid interest for federal income tax
purposes.

     INSTALLMENT METHOD

     A holder of a Claim constituting an installment obligation for Tax purposes
may be required to recognize currently any gain remaining with respect to the
obligation if, pursuant to the Plan, the obligation is considered to be
satisfied at other than its face value, distributed, transmitted, sold, or
otherwise disposed of within the meaning of section 453B of the IRC.


                                       61

     INFORMATION REPORTING AND BACKUP WITHHOLDING

     All distributions under the Plan will be subject to applicable federal
income Tax reporting and withholding. The IRC imposes "backup withholding" on
certain "reportable" payments to certain taxpayers, including payments of
interest. Under the IRC's backup withholding rules, a holder of a Claim may be
subject to backup withholding with respect to distributions or payments made
pursuant to the Plan, unless the holder: (a) comes within certain exempt
categories (which generally include corporations) and, when required,
demonstrates this fact; or (b) provides a correct taxpayer identification number
and certifies under penalty of perjury that the taxpayer identification number
is correct and that the taxpayer is not subject to backup withholding because of
a failure to report all dividend and interest income. Backup withholding is not
an additional Tax, but merely an advance payment that may be refunded to the
extent it results in an overpayment of Tax. A holder of a Claim may be required
to establish an exemption from backup withholding or to make arrangements with
respect to the payment of backup withholding.

IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE

     THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN U.S.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN, AND IS NOT A SUBSTITUTE FOR CAREFUL
TAX PLANNING WITH A TAX PROFESSIONAL. THE ABOVE DISCUSSION IS FOR INFORMATION
PURPOSES ONLY AND IS NOT TAX ADVICE. THE TAX CONSEQUENCES ARE IN MANY CASES
UNCERTAIN AND MAY VARY DEPENDING ON A HOLDER'S INDIVIDUAL CIRCUMSTANCES.
ACCORDINGLY, HOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS ABOUT THE U.S.
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN.

          APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS

GENERAL

     No registration statement will be filed under the Securities Act of 1933,
as amended, 15 U.S.C. Sections 77a-77aa (the "Securities Act"), or any state
securities laws with respect to the offer and distribution under the Plan of the
beneficial interests in the Distribution Trust (which may be deemed to
constitute "securities" and are treated as such for purposes of the following
discussion). The Debtors believe that the provisions of section 1145(a)(1) of
the Bankruptcy Code exempt the offer and distribution of such securities under
the Plan from federal and state securities registration requirements.

BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS

     INITIAL OFFER AND SALE

     Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of
securities under a plan of reorganization from registration under the Securities
Act and state securities laws if three principal requirements are satisfied: (a)
the securities must be offered and sold under a plan of reorganization and must
be securities of the debtor, an affiliate participating in a joint plan with the
debtor or a successor to the debtor under the plan; (b) the recipients of the
securities must hold a prepetition or administrative expense claim against the
debtor or an interest in the debtor or such affiliate; and (c) the securities
must be issued entirely in exchange for the recipient's claim against or
interest in the debtor or principally in such exchange and partly for cash or
property. The Debtors believe that the offer and sale of the beneficial
interests in the Distribution Trust under the Plan satisfy the requirements of
section 1145(a)(1) of the Bankruptcy Code and, therefore, are exempt from
registration under the Securities Act and state securities laws.


                                       62

     SUBSEQUENT TRANSFERS

     The beneficial interests in the Distribution Trust will be non-certificated
and non-transferable (except by will or under the laws of descent and
distribution). Therefore, holders of beneficial interests in the Distribution
Trust will not be able to voluntarily transfer such securities to other
entities.

                             ADDITIONAL INFORMATION

     Any statements in this Disclosure Statement concerning the provisions of
any document are not necessarily complete, and in each instance reference is
made to such document for the full text thereof. The Plan, this Disclosure
Statement and the Distribution Trust Agreement will be available on the Document
Website promptly following approval of this Disclosure Statement by the
Bankruptcy Court.


                                       63

                          RECOMMENDATION AND CONCLUSION

     For all of the reasons set forth in this Disclosure Statement, the Debtors
believe that the confirmation and consummation of the Plan is preferable to all
other alternatives. Consequently, the Debtors urge all holders of Claims in
voting Classes to vote to accept the Plan and to evidence their acceptance by
duly completing and returning their Ballots so that they will be received on or
before the Voting Deadline.

Dated: February 28, 2005               Respectfully submitted,

                                       ALPART JAMAICA INC.


                                       By: /s/ John M. Donnan
                                           ------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                       KAISER JAMAICA CORPORATION


                                       By: /s/ John M. Donnan
                                           ------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel

COUNSEL:


/s/ Daniel J. DeFranceschi
- -------------------------------------
Daniel J. DeFranceschi (DE 2732)
RICHARDS, LAYTON & FINGER, P.A.
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
Telephone: (302) 651-7700
Facsimile: (302) 651-7701

     - and -

Gregory M. Gordon (TX 08435300)
Henry L. Gompf (TX 08116400)
Troy B. Lewis (TX 12308650)
Daniel P. Winikka (TX 00794873)
JONES DAY
2727 North Harwood Street
Dallas, Texas 75201
Telephone: (214) 220-3939
Facsimile: (214) 969-5100

ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION


                                       64

                                    EXHIBIT I

                   THIRD AMENDED JOINT PLAN OF LIQUIDATION FOR
               ALPART JAMAICA INC. AND KAISER JAMAICA CORPORATION

EX-99.3

                                                                    EXHIBIT 99.3

                         UNITED STATES BANKRUPTCY COURT
                          FOR THE DISTRICT OF DELAWARE

- ---------------------------------------x
                                       :
In re:                                 :
                                       :   Chapter 11 Case Nos.
KAISER ALUMINA AUSTRALIA               :   02-10432 and 02-10438
CORPORATION                            :
and                                    :
KAISER FINANCE CORPORATION,            :   Jointly Administered Under
                                       :   Case No. 02-10429 (JKF)
                Debtors.               :
                                       :
- ---------------------------------------x

                     THIRD AMENDED JOINT PLAN OF LIQUIDATION
                    FOR KAISER ALUMINA AUSTRALIA CORPORATION
                         AND KAISER FINANCE CORPORATION

                                        Daniel J. DeFranceschi (DE 2732)
                                        RICHARDS, LAYTON & FINGER, P.A.
                                        One Rodney Square
                                        P.O. Box 551
                                        Wilmington, Delaware 19899
                                        Telephone: (302) 651-7700
                                        Facsimile: (302) 651-7701

                                        - and -

                                        Gregory M. Gordon (TX 08435300)
                                        Henry L. Gompf (TX 08116400)
                                        Troy B. Lewis (TX 12308650)
                                        Daniel P. Winikka (TX 00794873)
                                        JONES DAY
                                        2727 North Harwood
                                        Dallas, Texas 75201
                                        Telephone: (214) 220-3939
                                        Facsimile: (214) 969-5100

                                        ATTORNEYS FOR DEBTORS AND
                                        DEBTORS IN POSSESSION
Dated: February 25, 2005

                                TABLE OF CONTENTS



                                                                                 PAGE
                                                                                 ----
                                                                              
ARTICLE I      DEFINED TERMS, RULES OF INTERPRETATION AND COMPUTATION
               OF TIME........................................................     1
   1.1         Defined Terms..................................................     1
   1.2         Rules of Interpretation........................................     9
   1.3         Computation of Time............................................    10

ARTICLE II     CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS...........    10
   2.1         General........................................................    10
   2.2         Administrative Claims..........................................    10
   2.3         Priority Tax Claims............................................    12
   2.4         Classified Claims..............................................    12
   2.5         7-3/4% SWD Revenue Bond Dispute and Settlement.................    14
   2.6         Senior Note Indenture Trustee and Ad Hoc Group Counsel Fees
                  and Expenses; 7-3/4% SWD Revenue Bond Plaintiffs' Fees......    15
   2.7         Allowance of Certain Public Note Claims........................    15
   2.8         Substantive Consolidation......................................    15
   2.9         Order Granting Substantive Consolidation.......................    15
   2.10        KFC Claim against KACC.........................................    16
   2.11        No Effect on Claims Against or Interests in Other Kaiser
               Debtors........................................................    16

ARTICLE III    TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES..........    16
   3.1         Executory Contracts and Unexpired Leases to Be Rejected........    16
   3.2         Bar Date for Rejection Damages.................................    16

ARTICLE IV     RELEASE, LIMITATION OF LIABILITY AND INJUNCTION
               PROVISIONS.....................................................    16
   4.1         Release of Claims; Limitation of Liability.....................    16
   4.2         Injunctions....................................................    17
   4.3         No Discharge...................................................    18

ARTICLE V      CRAMDOWN.......................................................    18

ARTICLE VI     CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION
               OF THE PLAN....................................................    18
   6.1         Conditions to Confirmation.....................................    18
   6.2         Conditions to the Effective Date...............................    18
   6.3         Waiver of Conditions to the Confirmation or Effective Date.....    18

ARTICLE VII    MEANS FOR IMPLEMENTATION OF THE PLAN...........................    19
   7.1         Liquidating Transactions.......................................    19
   7.2         Corporate Action...............................................    19
   7.3         No Revesting of Assets.........................................    19
   7.4         Recourse Solely to Trust Accounts..............................    19



                                        i

                                TABLE OF CONTENTS
                                   (continued)



                                                                                 PAGE
                                                                                 ----
                                                                              
   7.5         Release of Liens...............................................    19
   7.6         Exemption from Certain Taxes...................................    19

ARTICLE VIII   DISTRIBUTION TRUST.............................................    20
   8.1         Creation.......................................................    20
   8.2         Distribution Trustee...........................................    20
   8.3         Preservation of Causes of Action...............................    21
   8.4         Reports to be Filed with the Bankruptcy Court..................    21
   8.5         Payment of Distribution Trust Expenses.........................    22
   8.6         Use of Other Entities..........................................    22
   8.7         Indemnification................................................    22
   8.8         Tax Treatment..................................................    22
   8.9         Creation of Trust Accounts.....................................    22
   8.10        Funding of Distribution Trust Expenses Account.................    22
   8.11        Funding of Priority Claims Trust Account.......................    23
   8.12        Funding of Unsecured Claims Trust Account......................    24
   8.13        Undeliverable Property Trust Account...........................    24

ARTICLE IX     PROVISIONS GOVERNING DISTRIBUTIONS.............................    24
   9.1         Method of Distributions to Holders of Allowed Claims...........    24
   9.2         Delivery of Distributions......................................    24
   9.3         Means of Cash Payments.........................................    25
   9.4         Timing and Calculation of Amounts to Be Distributed............    25
   9.5         Setoffs........................................................    28
   9.6         Compensation and Reimbursement for Services Related to
                  Distributions...............................................    28
   9.7         Payments Limited to Trust Accounts.............................    29
   9.8         Insufficient Assets............................................    29
   9.9         Distributions of Securities....................................    29

ARTICLE X      DISPUTED CLAIMS................................................    29
   10.1        Prosecution of Objections to Claims............................    29
   10.2        Treatment of Disputed Claims...................................    29

ARTICLE XI     RETENTION OF JURISDICTION......................................    30

ARTICLE XII    MISCELLANEOUS PROVISIONS.......................................    31
   12.1        Preservation of Insurance......................................    31
   12.2        Modification of the Plan.......................................    31
   12.3        Revocation of the Plan.........................................    31



                                       ii

                                TABLE OF CONTENTS
                                   (continued)



                                                                                 PAGE
                                                                                 ----
                                                                              
   12.4        Limitation on Certain Actions..................................    31
   12.5        Severability of Plan Provisions................................    32
   12.6        Notices........................................................    32
   12.7        Successors and Assigns.........................................    33
   12.8        Further Action.................................................    33
   12.9        Exhibits.......................................................    33



                                       iii

                               TABLE OF EXHIBITS*

Exhibit A -- Distribution Trust Agreement

- ----------
*    The Plan, Disclosure Statement and Distribution Trust Agreement will be
     available on the Document Website promptly following approval of the
     Disclosure Statement by the Bankruptcy Court.


                                       iv

                                  INTRODUCTION

          Kaiser Alumina Australia Corporation ("KAAC") and Kaiser Finance
Corporation ("KFC") (collectively, the "Debtors") in the above-captioned chapter
11 cases (the "Chapter 11 Cases") propose the following joint plan of
liquidation (the "Plan") for the resolution of the outstanding claims against
and equity interests in the Debtors.

                                    ARTICLE I

                     DEFINED TERMS, RULES OF INTERPRETATION
                             AND COMPUTATION OF TIME

     1.1  Defined Terms.

          As used in the Plan, capitalized terms have the meanings set forth
below. Any term that is not otherwise defined in the Plan, but that is defined
in the Bankruptcy Code or the Bankruptcy Rules, will have the meaning given to
that term in the Bankruptcy Code or Bankruptcy Rules, as applicable.

     (1) "7-3/4% SWD Revenue Bond Dispute" means Adversary Proceeding No.
04-51165 commenced by the 7-3/4% SWD Revenue Bond Indenture Trustee and certain
holders of 7-3/4% SWD Revenue Bonds in connection with the Kaiser Cases.

     (2) "7-3/4% SWD Revenue Bond Indenture" means the Trust Indenture, dated as
of December 1, 1992, between Parish of St. James, State of Louisiana, and the
7-3/4% SWD Revenue Bond Indenture Trustee, together with all instruments and
agreements related thereto.

     (3) "7-3/4% SWD Revenue Bond Indenture Trustee" means J.P. Morgan Trust
Company, N.A., as successor indenture trustee under the 7-3/4% SWD Revenue Bond
Indenture.

     (4) "7-3/4% SWD Revenue Bonds" means the Parish of St. James, State of
Louisiana, Solid Waste Disposal Revenue Bonds (Kaiser Aluminum Project) Series
1992 issued pursuant to the 7-3/4% SWD Revenue Bond Indenture in an outstanding
principal amount of $20,000,000.

     (5) "9-7/8% Senior Note Claim" means a Claim against a Debtor under or in
respect of one or more 9-7/8% Senior Notes and the 9-7/8% Senior Note Indenture.

     (6) "9-7/8% Senior Note Indenture" means the Indenture, dated as of
February 17, 1994, by and among the Debtors, certain Other Kaiser Debtors
(including KACC) and the 9-7/8% Senior Note Indenture Trustee, as the same may
have been subsequently modified, amended or supplemented, together with all
instruments and agreements related thereto.

     (7) "9-7/8% Senior Note Indenture Trustee" means U.S. Bank National
Association, as successor indenture trustee under the 9-7/8% Senior Note
Indenture.

     (8) "9-7/8% Senior Notes" means the 9-7/8% senior notes due 2002, issued by
KACC pursuant to the 9-7/8% Senior Note Indenture in an outstanding principal
amount of $172,780,000.

     (9) "10-7/8% Senior Note Claim" means a Claim against a Debtor under or in
respect of one or more 10-7/8% Senior Notes and the applicable 10-7/8% Senior
Note Indenture.

     (10) "10-7/8% Senior Note Indentures" means, together, the Indenture, dated
as of October 23, 1996, and the Indenture, dated as of December 23, 1996, in
each case, by and among the Debtors, certain Other Kaiser Debtors (including
KACC) and the 10-7/8% Senior Note Indenture Trustee, as the same may have been
subsequently modified, amended or supplemented, together with all instruments
and agreements related thereto.


                                       1

     (11) "10-7/8% Senior Note Indenture Trustee" means U.S. Bank National
Association, as successor indenture trustee under the 10-7/8% Senior Note
Indentures.

     (12) "10-7/8% Senior Notes" means the 10-7/8% Series B senior notes due
2006 and the 10-7/8% Series D senior notes due 2006, issued by KACC pursuant to
the 10-7/8% Senior Note Indentures in outstanding principal amounts of
$175,000,000 and $50,000,000, respectively.

     (13) "Ad Hoc Group" means the ad hoc group of holders of Senior Notes
comprised of Trilogy Capital, Caspian Capital Partners, Canyon Partners, Citadel
Equity Fund Ltd., Citadel Credit Trading Ltd., Durham Asset Management L.L.C.,
Farallon Capital Management L.L.C. and TCM Spectrum Fund L.P.

     (14) "Administrative Claim" means a Claim for costs and expenses of
administration allowed under sections 503(b), 507(b) or 1114(e)(2) of the
Bankruptcy Code, including: (a) the actual and necessary costs and expenses
incurred after the Petition Date in preserving the respective Estates and
operating the businesses of the Debtors; (b) Professional Fee Claims; and (c) US
Trustee Fees; provided, however, except as provided in the Intercompany Claims
Settlement, Administrative Claims will not include any Intercompany Claim.

     (15) "Administrative Claim Bar Date" means the date by which all requests
for payment of Administrative Claims (other than Professional Fee Claims and US
Trustee Fees) are required to be Filed with the Bankruptcy Court.

     (16) "Administrative Claim Bar Date Order" means the order of the
Bankruptcy Court establishing the Administrative Claim Bar Date.

     (17) "Allowed Claim" means:

     (a)  a Claim that (i) has been listed by a particular Debtor on its
          Schedules as other than disputed, contingent, or unliquidated and (ii)
          is not otherwise a Disputed Claim;

     (b)  a Claim (i) for which a proof of Claim or request for payment of
          Administrative Claim has been Filed by the applicable Bar Date or
          otherwise been deemed timely Filed under applicable law and (ii) that
          is not otherwise a Disputed Claim; or

     (c)  a Claim that is allowed: (i) in any Stipulation of Amount and Nature
          of Claim executed by the applicable Debtor and Claim holder prior to
          the Effective Date and approved by the Bankruptcy Court; (ii) in any
          Stipulation of Amount and Nature of Claim executed by the Distribution
          Trustee and Claim holder after the Effective Date; (iii) in any
          contract, instrument or other agreement or document entered into in
          connection with the Plan prior to the Effective Date and approved by
          the Bankruptcy Court; (iv) in a Final Order; or (v) pursuant to the
          terms of the Plan.

     (18) "AJI" means Alpart Jamaica Inc.

     (19) "AJI/KJC Plan" means the third amended joint plan of liquidation filed
by AJI and KJC on February 25, 2005, as such plan may be amended, modified or
supplemented from time to time with the consent of the Creditors' Committee.

     (20) "Australian Tax Claims" means collectively the Allowed Priority Tax
Claims and Allowed Administrative Claims of the Government of Australia
contemplated by Section 8.11(a), if any.

     (21) "Ballot" means the form or forms distributed to each holder of an
impaired Claim entitled to vote on the Plan on which the holder indicates
acceptance or rejection of the Plan.

     (22) "Bankruptcy Code" means title 11 of the United States Code, 11 U.S.C.
Sections 101-1130, as now in effect or hereafter amended, as applicable to the
Chapter 11 Cases.


                                       2

     (23) "Bankruptcy Court" means the United States District Court for the
District of Delaware having jurisdiction over the Chapter 11 Cases and, to the
extent of any reference made pursuant to 28 U.S.C. Section 157, the bankruptcy
unit of such District Court.

     (24) "Bankruptcy Rules" means, collectively, the Federal Rules of
Bankruptcy Procedure and the local rules of the Bankruptcy Court, as now in
effect or hereafter amended, as applicable to the Chapter 11 Cases.

     (25) "Bar Date" means the applicable bar date by which a proof of Claim
must be or must have been Filed, as established by order of the Bankruptcy
Court, including the general Bar Date of January 31, 2003.

     (26) "Bar Date Order" means an order of the Bankruptcy Court establishing
Bar Dates for Filing proofs of Claims in the Chapter 11 Cases, as the same may
be amended, modified or supplemented, including the order entered October 29,
2002.

     (27) "Beneficiaries" means the creditors and claimants of the Estates.

     (28) "Business Day" means any day, other than a Saturday, Sunday or "legal
holiday" (as defined in Bankruptcy Rule 9006(a)).

     (29) "Cash" means the legal tender of the United States of America.

     (30) "Chapter 11 Cases" has the meaning set forth in the introductory
paragraph of the Plan.

     (31) "Claim" means a "claim," as defined in section 101(5) of the
Bankruptcy Code, against either Debtor.

     (32) "Claims Objection Bar Date" means, for all Claims, other than those
Claims allowed in accordance with Sections 1.1(17) and 2.7, the latest of: (a)
120 days after the Effective Date; (b) 60 days after the Filing of a proof of
Claim for such Claim; and (c) such other period of limitation for objecting to
such Claim as may be specifically fixed by the Plan, the Confirmation Order or a
Final Order.

     (33) "Claims Report" means, with respect to each Estate, a report certified
by the claims agent for such Estate setting forth: (a) a listing, as of the
Effective Date, of: (i) all Allowed Secured Claims of such Estate; (ii) all
Allowed Administrative Claims of such Estate; (iii) all Allowed Priority Claims
of such Estate, (iv) all Allowed Priority Tax Claims of such Estate; (v) all
Allowed Unsecured Claims of such Estate; and (vi) all Disputed Claims of such
Estate; and (b) for each Claim so listed (i) the name, address and federal
taxpayer identification number or social security number (if known) of the
holder thereof as of the Distribution Record Date and (ii) the amount thereof,
including the amount of unpaid principal and accrued interest (if known).

     (34) "Class" means a class of Claims or Interests, as described in Article
II.

     (35) "Confirmation Date" means the date on which the Bankruptcy Court
enters the Confirmation Order on its docket, within the meaning of Bankruptcy
Rules 5003 and 9021.

     (36) "Confirmation Hearing" means the hearing before the Bankruptcy Court
to consider confirmation of the Plan pursuant to section 1129 of the Bankruptcy
Code, as such hearing may be continued from time to time.

     (37) "Confirmation Order" means the order or orders of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.

     (38) "Contractual Subordination Disputes" means any or all of the following
matters pending in the Kaiser Cases: (i) the 7-3/4% SWD Revenue Bond Dispute;
(ii) the motion filed on August 14, 2004, by the Senior Subordinated Note
Indenture Trustee to determine the classification of the Senior Subordinated
Note Claims under any plan of reorganization filed by the Debtors or the Other
Kaiser Debtors that guaranteed the Senior Subordinated


                                       3

Notes (including the Plan), and (iii) the adversary proceeding filed August 16,
2004, and styled U.S. Bank National Association v. Kaiser Aluminum & Chemical
Corporation, Adv. Pro. No. 04-55115 (JFK).

     (39) "Creditors' Committee" means the official committee of unsecured
creditors of the Debtors and the Other Kaiser Debtors appointed by the US
Trustee pursuant to section 1102 of the Bankruptcy Code in the Kaiser Cases, as
such appointment has been subsequently modified.

     (40) "Debtors" has the meaning set forth in the introductory paragraph of
the Plan.

     (41) "Disbursing Agent" means the Distribution Trustee, in its capacity as
a disbursing agent pursuant to the Plan, or any third party acting as disbursing
agent at the direction of the Distribution Trustee.

     (42) "Disclosure Statement" means the disclosure statement that relates to
the Plan (including all Exhibits), as approved by the Bankruptcy Court pursuant
to section 1125 of the Bankruptcy Code, as the same may be amended, modified or
supplemented.

     (43) "Disputed Claim" means:

     (a)  if no proof of Claim has been Filed by the applicable Bar Date or has
          otherwise been deemed timely Filed under applicable law: (i) a Claim
          that is listed on a Debtor's Schedules as other than disputed,
          contingent or unliquidated, but as to which the applicable Debtor or
          the Distribution Trustee, or prior to the Confirmation Date, any other
          party in interest, has Filed an objection by the Claims Objection Bar
          Date and such objection has not been withdrawn or denied by a Final
          Order; or (ii) a Claim that is listed on a Debtor's Schedules as
          disputed, contingent or unliquidated; or

     (b)  if a proof of Claim or proof of Administrative Claim has been Filed by
          the Bar Date or has otherwise been deemed timely Filed under
          applicable law: (i) a Claim for which no corresponding Claim is listed
          on a Debtor's Schedules; (ii) a Claim for which a corresponding Claim
          is listed on a Debtor's Schedules as other than disputed, contingent
          or unliquidated, but the nature or amount of the Claim as asserted in
          the proof of Claim varies from the nature and amount of such Claim as
          it is listed on the Schedules; (iii) a Claim for which a corresponding
          Claim is listed on a Debtor's Schedules as disputed, contingent or
          unliquidated; or (iv) a Claim for which an objection has been Filed by
          the applicable Debtor or the Distribution Trustee or, prior to the
          Confirmation Date, any other party in interest, by the Claims
          Objection Bar Date, and such objection has not been withdrawn or
          denied by a Final Order.

     (44) "Disputed Claims Reserves" means, with respect to each of the Trust
Accounts, the reserve of Cash (and any other property) retained in such Trust
Account to satisfy Disputed Claims against the Estate of KAAC or the Estate of
KFC, if, as and when they are allowed, or, to the extent such Disputed Claims
are not allowed, to satisfy Claims that are allowed in accordance with the terms
of the Plan.

     (45) "Distribution Record Date" means the close of business on the
Confirmation Date.

     (46) "Distribution Trust" means the trust established pursuant to the Plan,
among other things, to hold the Distribution Trust Assets and make distributions
pursuant to the Plan.

     (47) "Distribution Trust Agreement" means the trust agreement, to be dated
on or prior to the Effective Date, between the Debtors and the Distribution
Trustee, governing the Distribution Trust, which will be substantially in the
form of Exhibit A to the Plan.

     (48) "Distribution Trust Assets" means collectively: (a) the Trust Accounts
and any Cash (and any other property) held by such Trust Accounts; (b) the
rights of the Debtors under or in respect of the Intercompany Claims Settlement,
the QAL Purchase Agreement or any causes of action not released by the Plan,
including the


                                       4

Recovery Actions, and any proceeds thereof; and (c) the QAL Proceeds to the
extent that such funds are not included in (a) or (b).

     (49) "Distribution Trust Expenses" means any and all reasonable fees, costs
and expenses incurred by the Distribution Trustee (or any Disbursing Agent,
person, entity or professional engaged by the Distribution Trustee) in
connection with the performance by the Distribution Trustee of its duties under
the Plan or Distribution Trust Agreement.

     (50) "Distribution Trust Expenses Account" means the segregated trust
account to be established and maintained pursuant to Sections 8.9 and 8.10 to
fund the payment of Distribution Trust Expenses.

     (51) "Distribution Trustee" means the trustee selected by the Creditors'
Committee with the consent of the Debtors and identified in the Distribution
Trust Agreement (or any successor trustee), in its capacity as the trustee of
the Distribution Trust.

     (52) "Document Website" means the Internet site with the address
www.kaiseraluminum.com at which the Plan, the Disclosure Statement and all of
the Exhibits and schedules to the Plan and to the Disclosure Statement will be
available, without charge, to any party in interest and the public.

     (53) "Effective Date" means a day, as determined by the Debtors, that is
the Business Day as soon as reasonably practicable after all conditions to the
Effective Date have been satisfied or waived pursuant to the Plan.

     (54) "Equity Claim" means a legal, equitable or contractual Claim arising
from any share or other stock ownership interest in a Debtor, whether or not
transferable or denominated "stock", or similar security, and any options,
warrants, convertible security, liquidation preference or other right to acquire
such shares or other stock ownership interests, including but not limited to
Claims arising from rescission of the purchase or sale of such stock ownership
interests, for damages arising from the purchase or sale of a such stock
ownership interest, or for reimbursement or contribution on account of such
Claim.

     (55) "Estate" means, as to each Debtor, the estate created for that Debtor
in its Chapter 11 Case pursuant to section 541 of the Bankruptcy Code.

     (56) "Executory Contract and Unexpired Lease" means a contract or lease to
which one or both of the Debtors is a party that is subject to assumption,
assumption and assignment or rejection under section 365 of the Bankruptcy Code.

     (57) "Face Amount" means, when used with reference to a Disputed Claim: (a)
the full stated amount claimed by the holder of such Claim in any proof of Claim
Filed by the Bar Date or otherwise deemed timely Filed under applicable law, if
the proof of Claim specifies only a liquidated amount; or (b) if no proof of
Claim has been Filed by the Bar Date or has otherwise been deemed timely Filed
under applicable law, or if the proof of Claim specified an unliquidated amount,
the amount of the Claim (i) acknowledged by the applicable Debtor in any
objection Filed to such Claim or in the Schedules as an undisputed,
noncontingent, and liquidated Claim, (ii) estimated by the Bankruptcy Court
pursuant to section 502(c) of the Bankruptcy Code, (iii) proposed by the
applicable Debtor and approved by the Creditors' Committee prior to the
Effective Date, or (iv) established by the Distribution Trustee on behalf of the
Distribution Trust following the Effective Date; or (c) if neither (a) nor (b)
above are applicable, an amount estimated by the applicable Debtor or the
Distribution Trustee, but such estimated amount will be no less than either (i)
the amount of the claim estimated by the Bankruptcy Court or (ii) the liquidated
portion of the amount claimed by the holder of such Claim in any proof of Claim
Filed by the Bar Date or otherwise deemed timely Filed under applicable law.

     (58) "File," "Filed" or "Filing" means file, filed or filing with the
Bankruptcy Court or its authorized designee in the Chapter 11 Cases.

     (59) "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


                                       5

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.

     (60) "Indenture Trustee" means the 9-7/8% Senior Note Indenture Trustee,
10-7/8% Senior Note Indenture Trustee, Senior Subordinated Note Indenture
Trustee or 7-3/4% SWD Revenue Bond Indenture Trustee, or any successor thereto.

     (61) "Intercompany Claim" means a Claim held by a debtor in the Kaiser
Cases against another debtor in any of the Kaiser Cases.

     (62) "Intercompany Claims Settlement" means the settlement and release
agreement among the debtors in the Kaiser Cases and the Creditors' Committee,
dated as of October 5, 2004, in such form as approved by the Intercompany Claims
Settlement Order.

     (63) "Intercompany Claims Settlement Order" means the order of the
Bankruptcy Court approving the settlement of all claims by debtors in any of the
Kaiser Cases against another debtor in any of the Kaiser Cases pursuant to the
Intercompany Claims Settlement entered on February 1, 2005.

     (64) "Interest" means (a) any share or other stock ownership interest in a
Debtor, whether or not transferable or denominated "stock", or similar security,
and any options, warrants, convertible security, liquidation preference or other
right to acquire such shares or other stock ownership interests and (b) any
Equity Claim.

     (65) "IRC" means the Internal Revenue Code of 1986, as amended.

     (66) "KACC" means Kaiser Aluminum & Chemical Corporation.

     (67) "Kaiser Cases" means the chapter 11 cases styled "In re Kaiser
Aluminum Corporation, a Delaware Corporation, et al." jointly administered under
Case No. 02-10429 (JKF) in the United States District Bankruptcy Court for the
District of Delaware.

     (68) "KFC Claim" means the general unsecured claim of KFC against KACC in
the amount of $1,106,000,000 to be treated in accordance with Section 4.2.f of
the Intercompany Claims Settlement.

     (69) "KJC" means Kaiser Jamaica Corporation.

     (70) "Lien" means any mortgage, pledge, deed of trust, assessment, security
interest, lease, adverse claim, levy, charge or other encumbrance of any kind,
including any "lien" as defined in section 101 (37) of the Bankruptcy Code, or a
conditional sale contract, title retention contract or other contract to give
any of the foregoing.

     (71) "Liquidating Transactions" means the transactions set forth in the
first sentence of Section 7.1 to effectuate a liquidation of the Debtors.

     (72) "Other Kaiser Debtor" means any of the debtors in the Kaiser Cases
except the Debtors.

     (73) "Other Unsecured Claim" means an Unsecured Claim other than a Senior
Note Claim, a Senior Subordinated Note Claim or a PBGC Claim.

     (74) "Other Unsecured Claims Percentage" means the percentage equaling the
ratio of (a) the aggregate amount of all allowed Other Unsecured Claims to (b)
the sum of (i) the aggregate amount of all allowed Other Unsecured Claims and
(ii) $1,237,237,000.


                                       6

     (75) "PBGC" means the Pension Benefit Guaranty Corporation.

     (76) "PBGC Claims" means the Claims (excluding any Administrative Claims)
of the PBGC against the Debtors arising from or relating to the pension plans
which were or are maintained by any of the Other Kaiser Debtors in the Kaiser
Cases and guaranteed by the PBGC, as such Claims are allowed pursuant to the
PBGC Settlement Agreement.

     (77) "PBGC Percentage" means (a) 32% less (b) 32% of the Other Unsecured
Claims Percentage.

     (78) "PBGC Settlement Agreement" means the agreement among KACC and the
PBGC, dated as of October 14, 2004.

     (79) "Pending Payments" means identified amounts (excluding undeliverable
Cash) held by the Distribution Trust for distribution to holders of Allowed
Claims in specific amounts as of the date the Distribution Trust receives the
applicable Distribution Trust Assets.

     (80) "Permitted Investment" has the meaning ascribed thereto in the
Distribution Trust Agreement.

     (81) "Petition Date" means February 12, 2002.

     (82) "Plan" means this joint plan of liquidation for the Debtors, to the
extent applicable to either Debtor, and all Exhibits attached hereto or
referenced herein, as any of the same may be amended, modified or supplemented
from time to time.

     (83) "Priority Claim" means a Claim that is entitled to priority in payment
pursuant to section 507(a) of the Bankruptcy Code that is not an Administrative
Claim or a Priority Tax Claim.

     (84) "Priority Claims Trust Account" means the segregated trust account to
be established and maintained by the Distribution Trustee pursuant to Sections
8.9 and 8.11 to satisfy Allowed Secured Claims, Allowed Administrative Claims,
Allowed Priority Claims and Allowed Priority Tax Claims against the Estate of
KAAC or the Estate of KFC.

     (85) "Priority Tax Claim" means a Claim arising under U.S. federal, state
or local tax laws that is entitled to priority in payment pursuant to section
507(a)(8) of the Bankruptcy Code.

     (86) "Professional Fee Claims" means the Claims of (a) any professional in
the Chapter 11 Cases pursuant to sections 330 or 1103 of the Bankruptcy Code or
(b) any professional or other entity seeking compensation or reimbursement of
expenses in connection with the Chapter 11 Cases pursuant to sections 503(b)(3),
503(b)(4) or 503(b)(5) of the Bankruptcy Code.

     (87) "Pro Rata Share" means, when used with reference to a distribution to
a holder of an Allowed Claim in a Subclass of Class 3, that share of Cash or
other property to be distributed on account of all Allowed Claims in such
Subclass so that the ratio of (a)(i) the amount of Cash or other property to be
distributed on account of the particular Allowed Claim to (ii) the amount of
such Claim, is the same as the ratio of (b)(i) the aggregate amount of Cash or
other property to be distributed on account of all Allowed Claims in such
Subclass to (ii) the aggregate amount of all Allowed Claims in such Subclass.

     (88) "Public Note Claims" means Claims arising under the Public Notes.

     (89) "Public Note Distributable Consideration" means the Public Note
Percentage of the Cash and other property in the Unsecured Claims Trust Account.

     (90) "Public Note Percentage" means (a) 68% less (b) 68% of the Other
Unsecured Claims Percentage.


                                       7

     (91) "Public Notes" means any of (a) the 9-7/8% Senior Notes, (b) the
10-7/8% Senior Notes, or (c) the Senior Subordinated Notes.

     (92) "QAL" means Queensland Australia Limited, an Australian corporation.

     (93) "QAL Proceeds" means the net Cash proceeds to KAAC in connection with
the sale of its interests in QAL pursuant to the QAL Purchase Agreement, after
taking into account the costs and expenses of the sale payable by KAAC in
accordance with the Intercompany Claims Settlement and the satisfaction of any
applicable Allowed Secured Claim with a valid and enforceable Lien against such
proceeds.

     (94) "QAL Purchase Agreement" means that certain Purchase Agreement, dated
as of October 28, 2004, by and among Alumina & Bauxite Company Ltd., KACC and
KAAC or, in the event such agreement is terminated, the purchase agreement
entered into by and among Pegasus Queensland Acquisition Pty Limited and/or
Glencore AG and KACC and KAAC, as contemplated by the Bankruptcy Court's order
dated November 8, 2004.

     (95) "Quarterly Distribution Date" means, with respect to distributions
subsequent to the initial distributions pursuant to Section 9.4, the last
Business Day of the month following the end of each calendar quarter after the
Effective Date; provided, however, that if the Effective Date is within 45 days
of the end of a calendar quarter, the first Quarterly Distribution Date will be
the last Business Day of the month following the end of the first calendar
quarter after the calendar quarter in which the Effective Date falls.

     (96) "Recovery Actions" means, collectively and individually, preference
actions, fraudulent conveyance actions, rights of setoff, and other claims or
causes of action under chapter 5 of the Bankruptcy Code and other applicable
bankruptcy or nonbankruptcy law.

     (97) "Retained Portion of the KFC Claim" means the portion of the KFC Claim
retained by KFC after giving effect to Section 4.2.f of the Intercompany Claims
Settlement.

     (98) "Schedules" means the schedules of assets and liabilities and the
statements of financial affairs Filed by the Debtors, as required by section 521
of the Bankruptcy Code, as the same may be amended, modified or supplemented by
the Debtors from time to time.

     (99) "Secured Claim" means a Claim that is secured by a Lien on property in
which an Estate has an interest or that is subject to setoff under section 553
of the Bankruptcy Code, to the extent of the value of the Claim holder's
interest in the applicable Estate's interest in such property or to the extent
of the amount subject to setoff, as applicable, as determined pursuant to
sections 506(a) and, if applicable, 1129(b) of the Bankruptcy Code.

     (100) "Senior Note Claims" means 9-7/8% Senior Note Claims and 10-7/8%
Senior Note Claims.

     (101) "Senior Subordinated Note Claim" means a Claim against a Debtor under
or in respect of one or more Senior Subordinated Notes and the Senior
Subordinated Note Indenture.

     (102) "Senior Subordinated Note Indenture" means the Indenture, dated as of
February 1, 1993, by and among the Debtors, certain Other Kaiser Debtors
(including KACC) and the Senior Subordinated Note Indenture Trustee, as the same
may have been subsequently modified, amended or supplemented, together with all
instruments and agreements related thereto.

     (103) "Senior Subordinated Note Indenture Trustee" means Law Debenture
Trust Company of New York, as successor indenture trustee under the Senior
Subordinated Note Indenture.

     (104) "Senior Subordinated Notes" means the 12-3/4% senior subordinated
notes due 2003 issued by KACC, pursuant to the Senior Subordinated Note
Indenture in the outstanding aggregate principal amount of $400,000,000.


                                       8

     (105) "Settlement Percentage" means the percentage equaling the ratio of
(a) $4,000,000 to (b) 50.78% of the Public Note Percentage of the Cash in the
Unsecured Claims Trust Account.

     (106) "Steering Committee" means a committee comprised of the members of
the Alumina Creditor Subcommittee (as defined in the Intercompany Claims
Settlement) other than any member thereof that is (a) a holder of a Senior
Subordinated Note Claim or (b) the Senior Subordinated Note Indenture Trustee.

     (107) "Stipulation of Amount and Nature of Claim" means a stipulation or
other agreement between the applicable Debtor or Distribution Trustee and a
holder of a Claim or Interest, or an agreed order of the Bankruptcy Court,
establishing the amount and nature of a Claim or Interest.

     (108) "Tax" means: (a) any net income, alternative or add-on minimum, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, property, environmental or other tax, assessment or
charge of any kind whatsoever (together in each instance with any interest,
penalty, addition to tax or additional amount) imposed by any U.S. federal,
state, local or foreign taxing authority; or (b) any liability for payment of
any amounts of the foregoing types as a result of being a member of an
affiliated, consolidated, combined or unitary group, or being a party to any
agreement or arrangement whereby liability for payment of any such amounts is
determined by reference to the liability of any other entity.

     (109) "Trust Accounts" means, collectively, the Distribution Trust Expenses
Account, the Priority Claims Trust Account, the Unsecured Claims Trust Account
and the Undeliverable Property Trust Account.

     (110) "Undeliverable Property Trust Account" means the segregated trust
account to be established and maintained by the Distribution Trustee pursuant to
Sections 8.9 and 8.13 to hold undeliverable Cash or other property for the
benefit of holders of Allowed Unsecured Claims against the Estate of KAAC or the
Estate of KFC otherwise entitled to such distributions.

     (111) "Unsecured Claim" means any Claim that is not an Administrative
Claim, Priority Claim, Priority Tax Claim, Secured Claim or Intercompany Claim
and includes, without limitation, Senior Note Claims, Senior Subordinated Note
Claims and the PBGC Claims.

     (112) "Unsecured Claims Trust Account" means the segregated trust account
to be established and maintained by the Distribution Trustee pursuant to
Sections 8.9 and 8.12 to satisfy Allowed Unsecured Claims against the Estate of
KAAC or the Estate of KFC.

     (113) "US Trustee Fees" means all fees and charges assessed against the
Estates under chapter 123 of title 28, United States Code, 28 U.S.C. Sections
1911-1930.

     1.2 Rules of Interpretation.

          For purposes of the Plan, unless otherwise provided herein: (a)
whenever from the context it is appropriate, each term, whether stated in the
singular or the plural, will include both the singular and the plural; (b)
unless otherwise provided in the Plan, any reference in the Plan to a contract,
instrument, release, or other agreement or document being in a particular form
or on particular terms and conditions means that such document will be
substantially in such form or substantially on such terms and conditions; (c)
any reference in the Plan to an existing document or Exhibit Filed or to be
Filed means such document or Exhibit, as it may have been or may be amended,
modified or supplemented pursuant to the Plan or Confirmation Order; (d) any
reference to an entity as a holder of a Claim or Interest includes that entity's
successors and assigns and affiliates; (e) all references in the Plan to
Sections, Articles and Exhibits are references to Sections, Articles and
Exhibits of or to the Plan; (f) the words "herein," "hereunder" and "hereto"
refer to the Plan in its entirety rather than to a particular portion of the
Plan; (g) captions and headings to Articles and Sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the interpretation of the Plan; (h) subject to the provisions of any
certificates of incorporation, by-laws or similar constituent documents or any
contract, instrument, release or other agreement or document entered into or
delivered in connection with the Plan, the rights and obligations arising under
the Plan will


                                       9

be governed by, and construed and enforced in accordance with, federal law,
including the Bankruptcy Code and the Bankruptcy Rules; and (i) the rules of
construction set forth in section 102 of the Bankruptcy Code will apply.

     1.3 Computation of Time.

          In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) will apply.

                                   ARTICLE II

              CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS

     2.1 General. All Claims and Interests, except Administrative Claims and
Priority Tax Claims, are placed in Classes. In accordance with section
1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority Tax Claims
have not been classified and thus are excluded from the Classes. A Claim or
Interest is classified in a particular Class only to the extent that the Claim
or Interest qualifies within the description of that Class and is classified in
other Classes to the extent that any remainder of the Claim or Interest
qualifies within the description of such other Classes.

     (a)  Unimpaired Classes of Claims.

          Class 1 (Priority Claims): Priority Claims against either of the
          Debtors.

          Class 2 (Secured Claims): Secured Claims against either of the
          Debtors.

     (b)  Impaired Classes of Claims and Interests.

          Class 3 (Unsecured Claims): Unsecured Claims against either of the
          Debtors other than Claims otherwise classified under the Plan,
          subclassified as follows:

               Subclass 3A: Senior Note Claims against the Debtors.

               Subclass 3B: Senior Subordinated Note Claims against the Debtors.

               Subclass 3C: PBGC Claims against the Debtors.

               Subclass 3D: Other Unsecured Claims against either of the
               Debtors.

          Class 4 (Intercompany Claims): Intercompany Claims against the
          Debtors.

          Class 5 (Interests in the Debtors): Interests in either of the
          Debtors.

     2.2  Administrative Claims.

     (a) Administrative Claims in General. Except as otherwise provided herein
or unless otherwise agreed by the holder of an Administrative Claim and the
applicable Debtor or the Distribution Trustee, each holder of an Allowed
Administrative Claim will receive, in full satisfaction of its Administrative
Claim, Cash from the Priority Claims Trust Account in an amount equal to the
allowed amount of such Administrative Claim either (a) on or promptly after the
Effective Date or (b) if the Administrative Claim is not allowed as of the
Effective Date, on or promptly after the date that is 30 days after the date on
which (i) an order allowing such Administrative Claim becomes a Final Order or
(ii) a Stipulation of Amount and Nature of Claim is executed by the Distribution
Trustee and the holder of the Administrative Claim.

     (b) US Trustee Fees. On or before the Effective Date, Administrative Claims
for fees payable pursuant to 28 U.S.C. Section 1930, as determined by the
Bankruptcy Court at the Confirmation Hearing, will be paid by


                                       10

the applicable Debtor or the Distribution Trustee in Cash equal to the amount of
such Administrative Claims. All fees payable pursuant to 28 U.S.C. Section 1930
will be paid by the Distribution Trustee in accordance herewith from the
Priority Claims Trust Account until the closing of the Chapter 11 Cases pursuant
to section 350(a) of the Bankruptcy Code.

     (c) Bar Dates for Administrative Claims.

     (i)  General Bar Date Provisions. As provided in the Administrative Claim
          Bar Date Order, any holder of an Administrative Claim against a Debtor
          that was required to File and serve a request for payment of such
          Administrative Claim and does not File and serve such a request in
          accordance with the Administrative Claim Bar Date Order by the
          Administrative Claim Bar Date, will be forever barred from asserting
          such Administrative Claim against the Debtors, the Distribution
          Trustee or the property of any of them, or the Trust Accounts, and
          such Administrative Claim will be deemed waived and released as of the
          Effective Date. Objections to an Administrative Claim must be Filed by
          the Distribution Trustee and served on the requesting party by the
          later of (A) 45 days after the Effective Date and (B) 60 days after
          the Filing of the request for payment of an Administrative Claim.

     (ii) Bar Dates for Professional Fees. Except as otherwise set forth herein
          or in the Intercompany Claims Settlement, professionals or other
          entities asserting a Professional Fee Claim for services rendered
          solely with respect to the Debtors before the Effective Date must File
          and serve on the Debtors and the Distribution Trustee and such other
          entities who are designated by the Bankruptcy Rules, the Confirmation
          Order or other order of the Bankruptcy Court, an application for final
          allowance of such Fee Claim no later than 60 days after the Effective
          Date. Objections, including any objections by the US Trustee, to any
          Professional Fee Claim must be Filed and served on the Distribution
          Trustee and the requesting party by the later of (A) 90 days after the
          Effective Date and (B) 30 days after the Filing of the applicable
          request for payment of the Professional Fee Claim. To the extent
          necessary, the Confirmation Order will amend and supersede any
          previously entered order of the Bankruptcy Court regarding the payment
          of Professional Fee Claims (other than the Intercompany Claim
          Settlement Order) solely with respect to the Debtors.

          To the extent that any professional has provided services in the
          Kaiser Cases, the Bar Date for Professional Fee Claims in this Section
          2.2(c)(ii) relates only to such professional's fees for services and
          reimbursement of expenses reasonably allocable by such Professional
          solely to the Debtors and not otherwise treated pursuant to the
          Intercompany Claims Settlement Order; Claims relating to such
          professional's fees for services and reimbursement of expenses to the
          Other Kaiser Debtors may be sought against the estates of such Other
          Kaiser Debtors. The failure of a professional to allocate any
          particular charges to the Debtors will not foreclose, waive or affect
          in any way the professional's right to seek allowance and payment of
          such charges from the Other Kaiser Debtors.

     (d) QAL Purchase Agreement. From and after the Effective Date, any amounts
payable by KAAC under the QAL Purchase Agreement, including any amounts that
become payable in respect of indemnification claims, will be paid in full in
Cash from the Priority Claims Trust Account in accordance with the applicable
provisions of the QAL Purchase Agreement. The Distribution Trust will have no
claim against KACC, for contribution or otherwise, as a result of any such
payment.

     (e) PBGC Administrative Claim. Pursuant to paragraph 10 of the PBGC
Settlement Agreement, the PBGC will have an Allowed Administrative Claim against
KAAC and KFC and, on the Effective Date, if neither KACC nor any of the Other
Kaiser Debtors has paid to the PBGC $14,000,000 in full as required by Section
7.10 of the Intercompany Claims Settlement, then the PBGC will receive, in full
satisfaction of such Allowed Administrative Claim, Cash from the Priority Claims
Trust Account in the amount of $14,000,000 less any portion of such amount that
has been previously paid to the PBGC by KACC or any of the Other Kaiser Debtors.


                                       11

     2.3 Priority Tax Claims.

     (a) Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, unless
otherwise agreed by the holder of a Priority Tax Claim and the applicable Debtor
or the Distribution Trustee, each holder of an Allowed Priority Tax Claim will
receive, in full satisfaction of its Priority Tax Claim, the full amount thereof
in Cash, without postpetition interest or penalty, from the Priority Claims
Trust Account as soon as practicable after the later of (i) the Effective Date
and (ii) the date on which the Priority Tax Claim becomes an Allowed Claim.

     (b) Notwithstanding the provisions of Section 2.3(a), the holder of an
Allowed Priority Tax Claim will not be entitled to receive any payment on
account of any penalty arising with respect to or in connection with the Allowed
Priority Tax Claim. Any such Claim or demand for any such penalty (i) will be
subject to treatment in Subclass 3D and (ii) the holder of an Allowed Priority
Tax Claim will not be entitled to assess or attempt to collect such penalty from
the Debtors, the Distribution Trustee, their properties or the Trust Accounts
(other than as the holder of an Allowed Subclass 3D Claim).

     2.4 Classified Claims.

     (a) Class 1 - Priority Claims. On the later of the Effective Date and the
date on which a Priority Tax Claim is allowed, each holder of an Allowed
Priority Claim will, in full and complete settlement and satisfaction of such
Claim, receive either: (i) Cash in the amount of such holder's Allowed Priority
Claim without interest or penalty; or (ii) such other treatment as may be agreed
upon in writing by such holder and the Debtors or the Distribution Trustee.
Class 1 is unimpaired under the Plan. Each holder of an Allowed Priority Claim
is conclusively presumed to have accepted the Plan and is not entitled to vote
on the Plan.

     (b) Class 2 - Secured Claims. On the later of the Effective Date and the
date on which a Secured Claim is allowed, each holder of an Allowed Secured
Claim will, in full and complete settlement and satisfaction of such Claim, at
the sole option of the Debtors, receive either (i) Cash in an amount equal to
such Allowed Secured Claim, including such interest as is required to be paid
pursuant to section 506(b) of the Bankruptcy Code; or (ii) the collateral
securing such Allowed Secured Claim and Cash from the Priority Claims Trust
Account an amount equal to such interest as is required to be paid pursuant to
section 506(b) of the Bankruptcy Code. Class 2 is unimpaired under the Plan.
Each holder of an Allowed Secured Claim is conclusively presumed to have
accepted the Plan and is not entitled to vote on the Plan.

     (c) Class 3 - Unsecured Claims. Subclass 3A, Subclass 3B, Subclass 3C and
Subclass 3D are impaired under the Plan and holders of Allowed Claims in each of
such Subclasses are entitled to vote on the appropriate Ballot to accept or
reject the Plan. For voting purposes, each Subclass will vote as a separate
class.

     (i)  Subclass 3A (Senior Note Claims):

          (A)  Plan Accepted by Subclass 3A and Subclass 3B. On the Effective
               Date, if both Subclass 3A and Subclass 3B vote to accept the Plan
               in accordance with section 1126(c) of the Bankruptcy Code, each
               holder of an Allowed Senior Note Claim will, in full and complete
               satisfaction of such Claim, be entitled to receive Cash and other
               property from the Unsecured Claims Trust Account equal to its Pro
               Rata Share of the Public Note Distributable Consideration
               remaining after first giving effect to the following payments on
               the Effective Date by the Distribution Trustee from the Public
               Note Distributable Consideration: (I) the payment to be made to
               the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of
               the holders of the 7-3/4% SWD Revenue Bonds pursuant to Section
               2.5 and the payment of all amounts payable pursuant to Section
               2.6(b); (II) the payment of all amounts payable pursuant to
               Section 2.6(a); and (III) the payment of $8,000,000 to be made to
               the Senior Subordinated Note Indenture Trustee for the benefit of
               the holders of Senior Subordinated Note Claims. If both Subclass
               3A and Subclass 3B vote to accept the Plan, as of the Effective
               Date the treatment provided pursuant to this Section 2.4(c)(i)(A)
               and Section 2.4(c)(ii)(A) will be deemed to be in full and
               complete satisfaction of any and all obligations of holders of
               Senior Subordinated Note Claims relating to the contractual
               subordination provisions under the Senior Subordinated Note


                                       12

               Indenture and any and all claims of holders of Senior Note Claims
               relating to the contractual subordination provisions of the
               Senior Subordinated Note Indenture, as such obligations and
               claims relate to KAAC and KFC.

          (B)  Plan Rejected by Subclass 3A or Subclass 3B. If either Subclass
               3A or Subclass 3B fails to accept the Plan in accordance with
               section 1126(c) of the Bankruptcy Code, the obligations of
               holders of Senior Subordinated Note Claims relating to the
               contractual subordination provisions of the Senior Subordinated
               Note Indenture and the claims of holders of Senior Note Claims
               relating to the contractual subordination provisions of the
               Senior Subordinated Note Indenture, as such obligations and
               claims relate to KAAC and KFC, will be preserved under the Plan
               to the extent enforceable under section 510(a) of the Bankruptcy
               Code. In such event: (I) the holders of Senior Note Claims will
               not become entitled to receive the distribution described in
               Section 2.4(c)(i)(A); and (II) the Bankruptcy Court will enter an
               order (which will be the Confirmation Order) pursuant to which
               the Bankruptcy Court will determine the respective entitlement of
               the holders of Allowed 9-7/8% Senior Note Claims, Allowed 10-7/8%
               Senior Note Claims, Allowed Senior Subordinated Note Claims and,
               if applicable under Section 2.5(b), 7-3/4% SWD Revenue Bonds to
               the Public Note Distributable Consideration. The distributions
               ultimately made to a holder of an Allowed Senior Note Claim in
               accordance with this Section 2.4(c)(i)(B) will be reduced by such
               holder's proportional share of (x) all amounts payable pursuant
               to Section 2.6(a) and (y) if the Bankruptcy Court determines that
               holders of Allowed Senior Subordinated Note Claims are not
               entitled to any portion of the Public Note Distributable
               Consideration, the payment, if any, to be made to the 7-3/4% SWD
               Revenue Bond Indenture Trustee for the benefit of the holders of
               7-3/4% SWD Revenue Bonds pursuant to Section 2.5 (or a
               reservation in lieu thereof in accordance with Section 2.5(b))
               and any amounts payable pursuant to Section 2.6(b).

     (ii) Subclass 3B (Senior Subordinated Note Claims):

          (A)  Plan Accepted by Subclass 3A and Subclass 3B. On the Effective
               Date, if both Subclass 3A and Subclass 3B vote to accept the Plan
               in accordance with section 1126(c) of the Bankruptcy Code, each
               holder of an Allowed Senior Subordinated Note Claim will, in full
               and complete satisfaction of such Claim, be entitled to receive
               its Pro Rata Share of $8,000,000 in Cash to be paid to the Senior
               Subordinated Note Indenture Trustee as contemplated by clause
               (III) of the first sentence of Section 2.4(c)(i)(A), provided
               that any and all fees or expenses payable to the Senior
               Subordinated Note Indenture Trustee pursuant to the Senior
               Subordinated Note Indenture will, in all events, be payable
               solely from such $8,000,000. If both Subclass 3A and Subclass 3B
               vote to accept the Plan, as of the Effective Date the treatment
               provided pursuant to Section 2.4(c)(i)(A) and this Section
               2.4(c)(ii)(A) will be deemed to be in full and complete
               satisfaction of any and all obligations of holders of Senior
               Subordinated Note Claims relating to the contractual
               subordination provisions under the Senior Subordinated Note
               Indenture and any and all claims of holders of Senior Note Claims
               relating to the contractual subordination provisions of the
               Senior Subordinated Note Indenture, as such obligations and
               claims relate to KAAC and KFC.

          (B)  Plan Rejected by Subclass 3A or Subclass 3B. If either Subclass
               3A or Subclass 3B fails to accept the Plan in accordance with
               section 1126(c) of the Bankruptcy Code, the obligations of
               holders of Senior Subordinated Note Claims relating to the
               contractual subordination provisions of the Senior Subordinated
               Note Indenture and the claims of holders of Senior Note Claims
               relating to the contractual subordination provisions of the
               Senior Subordinated Note Indenture, as such obligations and
               claims relate to KAAC and KFC, will be preserved under the Plan
               to the extent enforceable under section 510(a) of the Bankruptcy
               Code. In such event: (I) the holders of Senior Subordinated Note
               Claims will not become entitled to receive the distribution
               described in Section 2.4(c)(ii)(A); and (II) the Bankruptcy Court
               will enter an order (which will be the Confirmation Order)


                                       13

               pursuant to which the Bankruptcy Court will determine the
               respective entitlement of the holders of Allowed 9-7/8% Senior
               Note Claims, Allowed 10-7/8% Senior Note Claims, Allowed Senior
               Subordinated Note Claims and, if applicable under Section 2.5(b),
               7-3/4% SWD Revenue Bonds to the Public Note Distributable
               Consideration. Any distributions ultimately made to a holder of
               an Allowed Senior Subordinated Note Claim in accordance with this
               Section 2.4(c)(ii)(B) may be reduced by such holder's
               proportional share of any and all fees and expenses payable to
               the Senior Subordinated Note Indenture Trustee pursuant to the
               Senior Subordinated Note Indenture, which will, subject to such
               Trustee's right to seek payment by the Debtors of such fees and
               expenses pursuant to section 503(b)(5) of the Bankruptcy Code, be
               payable solely from such distributions.

     (iii) Subclass 3C (PBGC Claims): On the Effective Date, the PBGC as holder
          of the PBGC Claims will, in full and complete satisfaction of such
          Claims, be entitled to receive the PBGC Percentage of the Cash and,
          subject to Section 2.10, other property in the Unsecured Claims Trust
          Account.

     (iv) Subclass 3D (Other Unsecured Claims): On the Effective Date, each
          holder of an Allowed Other Unsecured Claim will, in full and complete
          satisfaction of such Claim, be entitled to receive a Pro Rata Share of
          the Other Unsecured Claims Percentage of the Cash and, subject to
          Section 2.10, other property in the Unsecured Claims Trust Account.

     (d) Class 4 - Intercompany Claims. On the Effective Date, each holder of an
Intercompany Claim will be entitled to receive the treatment set forth in the
Intercompany Claims Settlement. Class 4 is impaired under the Plan.
Notwithstanding this treatment of Class 4 Claims, each of the holders of Class 4
Claims will be deemed to have accepted the Plan.

     (e) Class 5 - Interests in the Debtors. No property will be distributed to,
or retained by, KACC as the holder of the Interests in KAAC on account of such
Interests or KAAC as the holder of Interests in KFC on account of such
Interests, and such Interests will be cancelled on the Effective Date.
Notwithstanding this treatment of Class 5 Interests, each of the holders of
Class 5 Interests will be deemed to have accepted the Plan.

     2.5 7-3/4% SWD Revenue Bond Dispute and Settlement.

     (a) Plan Accepted by Subclass 3A. If (i) Subclass 3A votes to accept the
Plan in accordance with section 1126(c) of the Bankruptcy Code and (ii) unless
the holders of Senior Note Claims otherwise agree pursuant to a settlement, all
holders of Allowed Senior Note Claims are entitled under the Plan to identical
treatment in respect of contractual subordination claims under the Senior
Subordinated Note Indenture, then, on the Effective Date, an amount equal to the
Settlement Percentage of the Cash in the Unsecured Claims Trust Account that
would otherwise have been distributed in respect of the Senior Subordinated Note
Claims but which, after giving effect to the contractual subordination
provisions of the Senior Subordinated Note Indenture and pursuant to Sections
2.4(c)(i) and 2.4(c)(ii) but prior to giving effect to any payments under this
Section 2.5, is to be distributed to holders of Senior Note Claims will, in full
and complete satisfaction of the claims of holders of 7-3/4% SWD Revenue Bonds
asserted in the 7-3/4% SWD Revenue Bond Dispute in respect of the Debtors, be
paid to the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of holders
of 7-3/4% SWD Revenue Bonds. Notwithstanding the foregoing, in no event will the
amount paid under this Section 2.5(a), when aggregated with any amount payable
under any comparable provision of the AJI/KJC Plan, exceed $8,000,000. If the
Debtors do not File a separate motion, the Plan will serve as a motion pursuant
to Bankruptcy Rule 9019 seeking entry of an order approving the foregoing
settlement. Unless an objection to such settlement is made in writing by any
creditor or claimant affected thereby, Filed with the Bankruptcy Court and
served on the parties identified in Section 12.6 on or before April 5, 2005,
such order (which will be the Confirmation Order) may be entered by the
Bankruptcy Court. In the event any such objections are timely Filed, a hearing
with respect thereto will occur at the Confirmation Hearing.

     (b) Plan Rejected by Subclass 3A. If Subclass 3A fails to accept the Plan
in accordance with section 1126(c) of the Bankruptcy Code, the rights, if any,
of the holders of 7-3/4% SWD Revenue Bonds to payments from the Public Note
Distributable Consideration will be as determined in an order of the Bankruptcy
Court (which may be the Confirmation Order) in connection with the
determinations contemplated by


                                       14

Sections 2.4(c)(i)(B) and 2.4(c)(ii)(B); provided that if the determination with
respect to the rights of the holders of 7-3/4% SWD Revenue Bonds to such payment
has not been made by the Bankruptcy Court prior to the Effective Date, then, in
order to ensure the funding of such payment, on the Effective Date the
Distribution Trustee will reserve from the Public Note Distributable
Consideration any amount that may be ordered by the Bankruptcy Court to be so
reserved pending such determination.

     2.6 Senior Note Indenture Trustee and Ad Hoc Group Counsel Fees and
Expenses; 7-3/4% SWD Revenue Bond Plaintiffs' Fees.

     (a) Senior Note Indenture Trustee and Ad Hoc Group Counsel Fees and
Expenses. The fees and expenses of (a) the 9-7/8% Senior Note Indenture Trustee,
(b) the 10-7/8% Senior Note Indenture Trustee, and (c) counsel for the Ad Hoc
Group through the Effective Date will be paid out of the Public Note
Distributable Consideration. No later than two Business Days prior to the
Effective Date, each of the entities to which reference is made in clauses (a),
(b) and (c) of the first sentence of this Section 2.6(a) will furnish to the
Creditors' Committee and the Debtors information in respect of such fees and
expenses incurred and estimated to be incurred through the Effective Date.

     (b) 7-3/4% SWD Revenue Bond Plaintiffs' Fees. If a payment is required to
be made to the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of
holders of 7-3/4% SWD Revenue Bonds under the first sentence of Section 2.5(a),
the reasonable out-of-pocket expenses (including attorneys' fees) incurred and
paid by the plaintiffs in the 7-3/4% SWD Revenue Bond Dispute in connection with
the Chapter 11 Cases and the chapter 11 cases of the Other Kaiser Debtors,
including in connection with the 7-3/4% SWD Revenue Bond Dispute, and that
certain civil action currently pending before the United States District Court
for the Eastern District of Louisiana styled Paul J. Guillot, et al. v. Credit
Suisse First Boston, LLC, and numbered 03-0797, will be paid out of the Public
Note Distributable Consideration otherwise payable to holders of Allowed Claims
in Subclass 3A, provided, however, that in no event will the amount paid under
this sentence, when aggregated with any amount payable under any comparable
provision of the AJI/KJC Plan, exceed $500,000; provided further, however, that
nothing in this Section 2.6(b) will prejudice the rights of such plaintiffs to
seek additional recoveries (i) from amounts otherwise to be paid to or for the
benefit of holders of 7-3/4% SWD Revenue Bonds under the Plan or the AJI/KJC
Plan or (ii) from, or in respect of amounts otherwise to be paid to or for the
benefit of holders of 7-3/4% SWD Revenue Bonds by, any Other Kaiser Debtor other
than AJI or KJC. No later than two Business Days prior to the Effective Date,
the plaintiffs in the 7-3/4% SWD Revenue Bond Dispute will furnish to the
Creditors' Committee, the Debtors, the 9-7/8% Senior Note Indenture Trustee and
the 10-7/8% Senior Note Indenture Trustee information in respect of such fees
and expenses incurred and estimated to be incurred through the Effective Date.

     2.7 Allowance of Certain Public Note Claims. The 9-7/8% Senior Note Claims
are allowed in the aggregate amount of $181,168,828.96, the 10-7/8% Senior Note
Claims are allowed in the aggregate amount of $232,952,343.77 and the Senior
Subordinated Note Claims are allowed in the aggregate amount of $427,200,000.

     2.8 Substantive Consolidation. In connection with confirmation of the Plan,
the Debtors will seek Bankruptcy Court approval of the substantive consolidation
of the Debtors for the purpose of implementing the Plan, including for purposes
of voting, confirmation and distributions to be made under the Plan. Pursuant to
the relevant order of the Bankruptcy Court: (a) all assets and liabilities of
the Debtors will be deemed merged; (b) all guarantees by, or co-obligations of,
one Debtor in respect of the obligations of the other Debtor will be deemed
eliminated so that any Claim against either Debtor and any guarantee by, or
co-obligation of, the other Debtor and any joint or several liability of either
of the Debtors will be deemed to be one obligation of the consolidated Debtors;
and (c) each and every Claim Filed or to be Filed in the Chapter 11 Case of
either Debtor will be deemed Filed against the consolidated Debtors and will be
deemed one Claim against and a single obligation of the consolidated Debtors.
Such substantive consolidation (other than for the purpose of implementing the
Plan) will not affect the legal and corporate structures of the Debtors, nor
will such substantive consolidation affect or be deemed to affect any
Intercompany Claim in any manner contrary to the Intercompany Claims Settlement,
nor will such substantive consolidation be deemed to affect any Other Kaiser
Debtor or claims against any Other Kaiser Debtor.

     2.9 Order Granting Substantive Consolidation. The Plan will serve as a
motion seeking entry of an order substantively consolidating the Debtors, as
described, and to the limited extent set forth, in Section 2.8. Unless an
objection to such substantive consolidation is made in writing by any creditor
or claimant affected by the


                                       15

Plan, Filed with the Bankruptcy Court and served on the parties identified in
Section 12.6 on or before April 5, 2005, or such other date as may be fixed by
the Bankruptcy Court, the substantive consolidation order (which will be the
Confirmation Order) may be entered by the Bankruptcy Court. In the event any
such objections are timely Filed, a hearing with respect thereto will occur at
the Confirmation Hearing.

     2.10 KFC Claim against KACC. Notwithstanding anything to the contrary
herein, no distributions in respect of the Retained Portion of the KFC Claim
will be made, and the Retained Portion of the KFC Claim will be held in the
Unsecured Claims Trust Account, until receipt by the Distribution Trustee of
distributions in respect thereof from KACC pursuant to a confirmed plan of
reorganization of KACC or otherwise and then in-kind distributions consisting of
the property received by the Distribution Trustee from KACC in respect of the
Retained Portion of the KFC Claim will be made in accordance with the terms of
the Plan. Section 4.2.f of the Intercompany Claims Settlement is, and will be,
determinative of the ownership rights in the KFC Claim.

     2.11 No Effect on Claims Against or Interests in Other Kaiser Debtors.
Nothing in the Plan, including the acceptance or rejection of the Plan by
Subclass 3A or Subclass 3B, will be deemed to affect any person's claim against
or interest in any Other Kaiser Debtor or any of their respective present or
former directors, officers, employees, agents, advisors, attorneys, accountants,
underwriters, investment bankers or other representatives, acting in such
capacity, or any rights, including contractual subordination rights, that any
person may have in respect of any such claim against or interest in any such
Other Kaiser Debtor.

                                   ARTICLE III

              TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

     3.1 Executory Contracts and Unexpired Leases to Be Rejected. On the
Effective Date, except for an Executory Contract or Unexpired Lease that
previously was assumed and assigned or rejected by an order of the Bankruptcy
Court, each Executory Contract and Unexpired Lease entered into by a Debtor
prior to the Petition Date that has not previously expired or terminated
pursuant to its own terms will be rejected pursuant to section 365 of the
Bankruptcy Code. The Confirmation Order will constitute an order of the
Bankruptcy Court approving such rejections, pursuant to section 365 of the
Bankruptcy Code, as of the Effective Date.

     3.2 Bar Date for Rejection Damages. Notwithstanding anything in the Bar
Date Order or in the Administrative Bar Date Order to the contrary, if the
rejection of an Executory Contract or Unexpired Lease pursuant to the Plan gives
rise to a Claim by the other party or parties to such contract or lease, such
Claim will be forever barred and will not be enforceable against the Debtors,
the Distribution Trustee, the Debtors' Estates or the Trust Accounts unless a
proof of Claim or request for payment of Administrative Claim is Filed and
served on the Distribution Trustee, pursuant to the procedures specified in the
Confirmation Order, the notice of the entry of the Confirmation Order or another
order of the Bankruptcy Court, no later than 30 days after the Effective Date.

                                   ARTICLE IV

           RELEASE, LIMITATION OF LIABILITY AND INJUNCTION PROVISIONS

     4.1 Release of Claims; Limitation of Liability.

     (a) Releases by the Debtors. As of the Effective Date, for good and
valuable consideration, the adequacy of which is hereby confirmed, the Debtors
on behalf of themselves, their Estates, creditors and Interest holders will be
deemed to release, waive and discharge all claims and rights of any nature in
connection with or related to the Debtors, the Chapter 11 Cases or the Plan
(other than the rights of the Distribution Trustee to enforce the Plan and any
contracts, instruments, releases and other agreements and documents delivered
thereunder, and to pursue objections to and resolve Disputed Claims), whether
liquidated or unliquidated, fixed or contingent, matured or unmatured, known or
unknown, foreseen or unforeseen, then existing or thereafter arising (including,
without limitation, those arising under the Bankruptcy Code), based on any act,
omission or occurrence on or before the Effective Date, against the Creditors'
Committee, its members, any Indenture Trustee, any of the Debtors' present or
former directors or officers, or any of the respective present or former
directors, officers, employees, agents, advisors, attorneys, accountants,
underwriters, investment bankers or other representatives of the Debtors, the


                                       16

Creditors' Committee, its members, or the Indenture Trustees, acting in such
capacity, except for such Claims or rights based on: (i) acts or omissions of
any such person constituting gross negligence or willful misconduct; (ii) if the
holders of the Senior Subordinated Note Claims are determined by the order
contemplated by Sections 2.4(c)(i)(b) and 2.4(c)(ii)(b) to be entitled to a
distribution in respect to such Claims, acts or omissions of any such person
related to or giving rise to the circumstances underlying any of the Contractual
Subordination Disputes; or (iii) contractual obligations of, or loans owed by,
any such person to a Debtor.

     (b) GENERAL RELEASES BY HOLDERS OF CLAIMS. SUBJECT TO THE PROVISIONS OF
SECTION 2.11, AS OF THE EFFECTIVE DATE, IN CONSIDERATION FOR THE OBLIGATIONS OF
THE DEBTORS AND THE DISTRIBUTION TRUSTEE UNDER THE PLAN AND THE CASH AND OTHER
PROPERTY TO BE DISTRIBUTED IN CONNECTION WITH THE PLAN, EACH HOLDER OF A CLAIM
THAT VOTES IN FAVOR OF THE PLAN WILL BE DEEMED TO FOREVER RELEASE AND WAIVE ALL
CLAIMS, OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES, DEMANDS, DEBTS, RIGHTS, CAUSES
OF ACTION AND LIABILITIES (OTHER THAN THE RIGHT TO ENFORCE THE DEBTORS' OR THE
DISTRIBUTION TRUSTEE'S OBLIGATIONS UNDER THE PLAN AND THE CONTRACTS,
INSTRUMENTS, RELEASES AND OTHER AGREEMENTS AND DOCUMENTS DELIVERED THEREUNDER),
WHETHER LIQUIDATED OR UNLIQUIDATED, FIXED OR CONTINGENT, MATURED OR UNMATURED,
KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, THEN EXISTING OR THEREAFTER ARISING IN
LAW, EQUITY OR OTHERWISE, THAT ARE BASED IN WHOLE OR IN PART ON ANY ACT,
OMISSION, TRANSACTION OR OTHER OCCURRENCE TAKING PLACE ON OR PRIOR TO THE
EFFECTIVE DATE IN ANY WAY RELATING TO A DEBTOR, THE CHAPTER 11 CASES OR THE PLAN
THAT SUCH ENTITY HAS, HAD OR MAY HAVE AGAINST THE CREDITORS' COMMITTEE, ITS
MEMBERS, ANY INDENTURE TRUSTEE, EITHER DEBTOR AND ANY OF THEIR RESPECTIVE
PRESENT OR FORMER DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ADVISORS, ATTORNEYS,
ACCOUNTANTS, UNDERWRITERS, INVESTMENT BANKERS OR OTHER REPRESENTATIVES, ACTING
IN SUCH CAPACITY, EXCEPT FOR THOSE BASED ON: (I) ACTS OR OMISSIONS OF ANY SUCH
PERSON CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT; (II) IF THE HOLDERS
OF THE SENIOR SUBORDINATED NOTE CLAIMS ARE DETERMINED BY THE ORDER CONTEMPLATED
BY SECTIONS 2.4(C)(I)(B) AND 2.4(C)(II)(B) TO BE ENTITLED TO A DISTRIBUTION IN
RESPECT TO SUCH CLAIMS, ACTS OR OMISSIONS OF ANY SUCH PERSON RELATED TO OR
GIVING RISE TO THE CIRCUMSTANCES UNDERLYING ANY OF THE CONTRACTUAL SUBORDINATION
DISPUTES; OR (III) CONTRACTUAL OBLIGATIONS OF, OR LOANS OWED BY, ANY SUCH PERSON
TO A DEBTOR.

     (c) Limitation of Liability. The Debtors, the Distribution Trust, the
Distribution Trustee, the Indenture Trustees and their respective directors,
officers, employees and professionals, acting in such capacity, and the
Creditors' Committee, its members and their respective professionals will
neither have nor incur any liability to any entity for any act taken or omitted
to be taken in connection with or related to the formulation, preparation,
dissemination, implementation, confirmation or consummation of the Plan, the
Disclosure Statement or any contract, instrument, release or other agreement or
document created or entered into, or any other act taken or omitted to be taken,
in connection with the Plan; provided, however, that the foregoing provisions of
this Section 4.1 will have no effect on: (i) the liability of any entity that
would otherwise result from the failure to perform or pay any obligation or
liability under the Plan or any contract, instrument, release or other agreement
or document to be entered into or delivered in connection with the Plan; or (ii)
the liability of any entity that would otherwise result from any such act or
omission to the extent that such act or omission is determined in a Final Order
to have constituted gross negligence or willful misconduct.

     4.2 INJUNCTIONS. EXCEPT AS OTHERWISE PROVIDED IN THE PLAN OR THE
CONFIRMATION ORDER, AS OF THE EFFECTIVE DATE, ALL ENTITIES THAT HAVE HELD,
CURRENTLY HOLD OR MAY HOLD A CLAIM OR OTHER DEBT OR LIABILITY OF THE DEBTORS, OR
AN INTEREST OR OTHER RIGHT OF AN EQUITY SECURITY HOLDER WITH RESPECT TO THE
DEBTORS, THAT IS RELEASED, WAIVED, SETTLED OR DEEMED SATISFIED PURSUANT TO THE
PLAN WILL BE PERMANENTLY ENJOINED FROM TAKING ANY OF THE FOLLOWING ACTIONS ON
ACCOUNT OF ANY SUCH CLAIMS, DEBTS, LIABILITIES, INTERESTS OR RIGHTS: (A)
COMMENCING OR CONTINUING IN ANY MANNER ANY ACTION OR OTHER PROCEEDING AGAINST
THE DEBTORS, THE DISTRIBUTION TRUST, THE DISTRIBUTION TRUSTEE OR THE PROPERTY OF
ANY OF THEM OTHER THAN TO ENFORCE ANY RIGHT PURSUANT TO THE PLAN TO A
DISTRIBUTION FROM THE TRUST ACCOUNTS; (B) ENFORCING, ATTACHING, COLLECTING OR
RECOVERING IN ANY MANNER ANY JUDGMENT, AWARD, DECREE OR ORDER AGAINST THE
DEBTORS, THE DISTRIBUTION TRUST OR THE DISTRIBUTION TRUSTEE, OTHER THAN AS
PERMITTED PURSUANT TO (A) ABOVE; (C) CREATING, PERFECTING OR ENFORCING ANY LIEN
OR ENCUMBRANCE AGAINST THE DEBTORS, THE DISTRIBUTION TRUST, THE PROPERTY OF ANY
OF THEM OR THE TRUST ACCOUNTS; (D) ASSERTING A SETOFF, RIGHT OF SUBROGATION OR
RECOUPMENT OF ANY KIND AGAINST ANY DEBT, LIABILITY OR OBLIGATION DUE TO THE
DISTRIBUTION TRUST; AND (E) COMMENCING OR CONTINUING ANY ACTION, IN ANY MANNER,
IN ANY PLACE THAT DOES NOT COMPLY WITH OR IS INCONSISTENT WITH THE PROVISIONS OF
THE PLAN.


                                       17

     4.3 No Discharge. In accordance with section 1141(d)(3) of the Bankruptcy
Code, the confirmation of the Plan will not discharge either Debtor.

                                    ARTICLE V

                                    CRAMDOWN

     The Debtors request confirmation of the Plan under section 1129(b) of the
Bankruptcy Code with respect to any impaired Class that does not accept the Plan
pursuant to section 1126 of the Bankruptcy Code. The Debtors reserve the right
to modify the Plan to the extent, if any, that confirmation of the Plan pursuant
to section 1129(b) of the Bankruptcy Code requires modification. Subclass 3A,
Subclass 3B, Subclass 3C, and Subclass 3D each constitute a separate class
pursuant to section 1122(a) of the Bankruptcy Code.

                                   ARTICLE VI

                      CONDITIONS PRECEDENT TO CONFIRMATION
                          AND CONSUMMATION OF THE PLAN

     6.1 Conditions to Confirmation. The following are conditions to the
confirmation of the Plan:

     (a) The Confirmation Order shall have been entered on the docket of the
Clerk of the Bankruptcy Court in form and substance acceptable to the Debtors
and the Creditors' Committee;

     (b) All Exhibits to the Plan shall be in form and substance satisfactory to
the Debtors and the Creditors' Committee; and

     (c) The Intercompany Claims Settlement shall have become effective.

     6.2 Conditions to the Effective Date. The following are conditions to the
occurrence of the Effective Date:

     (a) The Confirmation Order shall have become a Final Order;

     (b) The sale of the interests in QAL pursuant to the QAL Purchase Agreement
shall have been consummated;

     (c) The Creditors' Committee and the Debtors shall have agreed upon the
amount of the reserves contemplated by Section 8.10(a) and Section 8.11(a);

     (d) The Liquidating Transactions shall have been consummated;

     (e) All funds due and owing to or by the Debtors under the Intercompany
Claims Settlement shall have been paid in accordance with its terms;

     (f) The Distribution Trustee shall have been appointed and shall have
accepted such appointment;

     (g) The Distribution Trust Agreement shall have been executed and the Trust
Accounts shall have been established; and

     (h) All other actions, documents, consents and agreements necessary to
implement the Plan shall have been effected, obtained and/or executed.

     6.3 Waiver of Conditions to the Confirmation or Effective Date. The
conditions to confirmation set forth in Section 6.1 and the conditions to the
Effective Date set forth in Section 6.2 may be waived by the Debtors at any time
and without an order of the Bankruptcy Court, with the consent of the Creditors'
Committee.


                                       18

                                   ARTICLE VII

                      MEANS FOR IMPLEMENTATION OF THE PLAN

     7.1 Liquidating Transactions. On the Effective Date, the Distribution Trust
Assets will be transferred to and vest in the Distribution Trust, free and clear
of Claims, Liens and Interests, except as may be otherwise provided in the
Intercompany Claims Settlement. On or after the Effective Date, the Debtors will
enter into such transactions and will take such actions as may be necessary or
appropriate to merge, dissolve or otherwise terminate the corporate existence of
the Debtors. Notwithstanding the foregoing and regardless of whether the actions
in the preceding sentence have yet been taken with respect to a particular
Debtor, upon the transfer of the Distribution Trust Assets to the Distribution
Trust, the Debtors will be deemed dissolved and their business operations
withdrawn for all purposes without any necessity of filing any document, taking
any further action or making any payment to any governmental authority in
connection therewith.

     7.2 Corporate Action. The following (which will occur and be deemed
effective as of the date specified in the documents effectuating the same or, if
no date is so specified, the Effective Date) will be deemed authorized and
approved in all respects and for all purposes without any requirement of further
action by KACC, as the sole stockholder of KAAC, by KAAC, as the sole
stockholder of KFC, by the directors of either Debtor or by the Distribution
Trustee or any other person or entity: (a) the Liquidating Transactions; (b) the
establishment of the Distribution Trust; (c) the appointment of the Distribution
Trustee to act on behalf of the Distribution Trust; (d) the transfer of the
Distribution Trust Assets to the Distribution Trust; (e) the creation of the
Trust Accounts; (f) the distribution of Cash and other property pursuant to the
Plan; (g) the adoption, execution, delivery and implementation of all contracts,
instruments, releases and other agreements or documents related to any of the
foregoing; (h) the adoption, execution and implementation of the Distribution
Trust Agreement; and (i) the other matters provided for under the Plan involving
the corporate structure of either Debtor or corporate action to be taken by, or
required of, either Debtor or the Distribution Trustee.

     7.3 No Revesting of Assets. On the Effective Date, the property of the
Debtors' Estates will vest in the Distribution Trust to be administered by the
Distribution Trustee in accordance with the Plan and the Distribution Trust
Agreement.

     7.4 Recourse Solely to Trust Accounts. The Liquidating Transactions will
not in any way merge the assets of the Debtors' Estates, including the Trust
Accounts. All Claims against the Debtors are deemed fully satisfied in exchange
for the treatment of such Claims under the Plan, and holders of Allowed Claims
against either Debtor will have recourse solely to the applicable Trust Accounts
for the payment of their Allowed Claims in accordance with the terms of the
Plan.

     7.5 Release of Liens. Except as otherwise provided in the Plan or in any
contract, instrument, release or other agreement or document entered into or
delivered in connection with the Plan, on the Effective Date all Liens against
the property of either Estate will be fully released, and all of the right,
title and interest of any holder of such Liens, including any rights to any
collateral thereunder, will attach to and be enforceable solely against the
applicable Distribution Trust Assets held in the applicable Trust Account in
accordance with, and subject to the terms of, the Plan. All such Liens against
the Distribution Trust Assets will be fully released upon the holder of the Lien
receiving its full distribution under the Plan, or upon the Effective Date if
the holder of the Lien is not entitled to any distribution under the Plan.

     7.6 Exemption from Certain Taxes. Pursuant to section 1146(c) of the
Bankruptcy Code, the following will not be subject to any stamp Tax, real estate
transfer Tax, sales or use Tax or similar Tax: (a) any Liquidating Transaction;
(b) the execution and implementation of the Distribution Trust Agreement,
including any transfers to or by the Distribution Trust; or (c) the making or
delivery of any deed or other instrument of transfer under, in furtherance of or
in connection with the Plan, including any merger agreements or agreements of
consolidation, disposition, liquidation or dissolution executed in connection
with any transaction pursuant to the Plan.


                                       19

                                  ARTICLE VIII

                               DISTRIBUTION TRUST

     8.1 Creation.

     (a) On the Effective Date, the Debtors will enter into the Distribution
Trust Agreement with the Distribution Trustee, thereby creating the Distribution
Trust.

     (b) The Distribution Trust has no objective to, and will not, engage in the
conduct of a trade or business and, subject to the terms of the Distribution
Trust Agreement, will terminate upon completion of its liquidation and
distribution duties.

     (c) The Distribution Trust will be a "representative of the estate" under
section 1123(b)(3)(B) of the Bankruptcy Code.

     8.2 Distribution Trustee.

     (a) The Distribution Trustee, whose identity and address will be disclosed
at least ten days prior to the Confirmation Hearing, will be selected by the
Creditors' Committee with the consent of the Debtors, and will be the exclusive
trustee of the assets of the Distribution Trust for purposes of 31 U.S.C.
Section 3713(b) and 26 U.S.C. Section 6012(b)(3).

     (b) The rights, powers and privileges of the Distribution Trustee (to act
on behalf of the Distribution Trust) will be specified in the Distribution Trust
Agreement and will include, among others, the authority and responsibility to:
(i) accept, preserve, receive, collect, manage, invest, supervise and protect
the Distribution Trust Assets (directly or through one or more third-party
Disbursing Agents), each in accordance with the Plan and the Distribution Trust
Agreement; (ii) liquidate, transfer or otherwise dispose of the Distribution
Trust Assets or any part thereof or any interest therein upon such terms as the
Distribution Trustee determines to be necessary, appropriate or desirable,
pursuant to the procedures for allowing Claims and making distributions
prescribed in the Plan, and otherwise consistent with the terms of the Plan;
(iii) calculate and make distributions of the Distribution Trust Assets to
holders of Allowed Claims pursuant to the procedures for allowing Claims and
making distributions prescribed in the Plan; (iv) review, reconcile, settle or
object to Claims and resolve any such objections as set forth in the Plan and
the Distribution Trust Agreement; (v) comply with the Plan and exercise its
rights and fulfill its obligations thereunder; (vi) investigate and, if
appropriate, pursue any Recovery Actions or other available causes of action
(including any actions previously initiated by the Debtors and pending as of the
Effective Date) and raise any defenses in any adverse actions or counter-claims;
(vii) retain and compensate, without further order of the Bankruptcy Court, the
services of professionals or other persons or entities to represent, advise and
assist the Distribution Trustee in the fulfillment of its responsibilities in
connection with the Plan and the Distribution Trust Agreement; (viii) take such
actions as are necessary, appropriate or desirable, to close the Chapter 11
Cases; (ix) file appropriate Tax returns on behalf of the Distribution Trust and
Debtors and pay Taxes or other obligations owed by the Distribution Trust; (x)
exercise the rights, and fulfill the obligations of KAAC under the QAL Purchase
Agreement, including with respect to any claim for indemnification; (xi) take
such actions as are necessary, appropriate or desirable to terminate the
existence of the Debtors under the laws of Australia or any political
subdivision thereof; (xii) take such actions as are necessary, appropriate or
desirable with respect to the Retained Portion of the KFC Claim; and (xiii)
terminate the Distribution Trust in accordance with the terms of the Plan and
the Distribution Trust Agreement.

     (c) Except as otherwise provided in the Plan or the Distribution Trust
Agreement, the Distribution Trustee will not be required to obtain the order or
approval of the Bankruptcy Court or any other court of competent jurisdiction
in, or account to the Bankruptcy Court or any other court of competent
jurisdiction for, the exercise of any right, power or privilege conferred under
the Distribution Trust Agreement.

     (d) Except as otherwise provided in the Plan or the Distribution Trust
Agreement, after the Effective Date only the Distribution Trustee, on behalf of
the Distribution Trust, with the prior consent of the Steering


                                       20

Committee, acting through a majority thereof, will have the authority to File,
settle, compromise, withdraw or litigate to judgment objections to Claims,
including pursuant to any alternative dispute resolution or similar procedures
approved by the Bankruptcy Court. After the Effective Date, the Distribution
Trustee, with the prior consent of the Steering Committee, acting through a
majority thereof, may settle or compromise any Disputed Claim without approval
of the Bankruptcy Court in accordance with the Distribution Trust Agreement.

     (e) Except as otherwise provided in the Plan or the Distribution Trust
Agreement after the Effective Date only the Distribution Trustee, on behalf of
the Distribution Trust as holder of the Retained Portion of the KFC Claim, with
the prior consent of the Steering Committee, acting through a majority thereof,
will have the authority to accept or reject a plan of reorganization for KACC.

     (f) Nothing contained in this Section 8.2 will limit the right of the US
Trustee to object to Professional Fee Claims as contemplated by Section 2.2(c).

     8.3 Preservation of Causes of Action. Except as otherwise provided in the
Plan or in any contract, instrument, release or other agreement or document
entered into or delivered in connection with the Plan, in accordance with
section 1123(b) of the Bankruptcy Code, the Distribution Trustee will retain and
may enforce any claims, demands, rights and causes of action that either Debtor
or Estate may hold against any entity, including the Recovery Actions, to the
extent not expressly released under the Plan. Without intending to limit the
generality of the foregoing, the Distribution Trustee will retain the right to
pursue any adversary proceedings available to the Debtors in connection with the
QAL Purchase Agreement or the Intercompany Claims Settlement.

     8.4 Reports to be Filed with the Bankruptcy Court.

     (a) Within 45 days after the end of each of the first three calendar
quarters of the calendar year, the Distribution Trustee, on behalf of the
Distribution Trust, will File an unaudited report with the Bankruptcy Court
reflecting (i) all Distribution Trust Assets received by the Distribution Trust
during such calendar quarter; (ii) all Distribution Trust Assets held by the
Distribution Trust at the end of such quarter; and (iii) all Distribution Trust
Assets disbursed during such calendar quarter, in each case itemized for the
individual Trust Accounts.

     (b) Within 90 days after the end of each calendar year, the Distribution
Trustee, on behalf of the Distribution Trust, will File an unaudited report with
the Bankruptcy Court reflecting: (i) all Distribution Trust Assets received by
the Distribution Trust during such calendar year; (ii) all Distribution Trust
Assets held by the Distribution Trust at the end of such calendar year; and
(iii) all Distribution Trust Assets disbursed during such calendar year, in each
case itemized for the individual Trust Accounts.

     (c) In the event of developments affecting the Distribution Trust in any
material respect (as determined by the Distribution Trustee in its reasonable
discretion), the Distribution Trustee, on behalf of the Distribution Trust, will
File promptly with the Bankruptcy Court a report describing such development in
reasonable detail.

     (d) Any report required by this Section 8.4 will be in such form as
required or approved by the US Trustee.

     (e) The Distribution Trustee will furnish or otherwise make available to
any then-current Beneficiary, upon written request, a copy of: (a) the most
recent annual receipts/disbursements report referred to in Section 8.4(b); (b)
any quarterly receipts/disbursements report referred to in Section 8.4(a) for
any period subsequent to the period covered by the most recent annual
receipts/disbursements report (or, if no annual receipts/disbursements report
has yet been Filed, for any period subsequent to the Effective Date); or (c) any
current report referred to in Section 8.4(c) Filed subsequent to the period
covered by the most recent annual receipts/disbursements report (or, if no
annual receipts/disbursements report has yet been Filed, subsequent to the
Effective Date).


                                       21

     8.5 Payment of Distribution Trust Expenses. Except as otherwise ordered by
the Bankruptcy Court, the Distribution Trustee, in its capacity as Disbursing
Agent, will, in its reasonable discretion, pay Distribution Trust Expenses from
the Distribution Trust Expenses Account, without the need for further Bankruptcy
Court approval.

     8.6 Use of Other Entities. The Distribution Trustee, on behalf of the
Distribution Trust, may employ, without further order of the Bankruptcy Court,
other entities to assist in or make distributions required by the Plan and the
Distribution Trust Agreement and may compensate and reimburse the expenses of
those entities, without further order of the Bankruptcy Court, from the
Distribution Trust Expenses Account in accordance with the Distribution Trust
Agreement.

     8.7 Indemnification. The Distribution Trustee and the members of the
Steering Committee will be indemnified as provided in the Distribution Trust
Agreement.

     8.8 Tax Treatment.

     (a) The Distribution Trust is intended to be treated, for U.S. federal
income Tax purposes, in part as a liquidating trust within the meaning of
Treasury Regulations section 301.7701-4(d), for the benefit of the holders of
Allowed Claims entitled to distributions of Pending Payments, and otherwise as
one or more disputed ownership funds within the meaning of Proposed Treasury
Regulations section 1.468B-9(a), as more specifically provided for under the
Distribution Trust Agreement. Accordingly, for all federal income Tax purposes
the transfer of the Distribution Trust Assets to the Distribution Trust will be
treated as: (a) to the extent of Pending Payments, (i) a transfer of the Pending
Payments directly from the Debtors to the holders of such Allowed Claims
followed by (ii) the transfer of such Pending Payments by such holders of
Allowed Claims to the Distribution Trust in exchange for beneficial interests in
the Distribution Trust; and (b) to the extent of amounts that are not Pending
Payments, as a transfer to one or more disputed ownership funds. Accordingly,
the holders of Allowed Claims entitled to distributions of Pending Payments will
be treated for federal income Tax purposes as the grantors and deemed owners of
their respective shares of the Distribution Trust Assets in the amounts of the
Pending Payments and any earnings thereon.

     (b) The Distribution Trustee will be required by the Distribution Trust
Agreement to file federal Tax returns for the Distribution Trust as a grantor
trust with respect to any Pending Payments and as one or more disputed ownership
funds with respect to all other funds or other property held by the Distribution
Trust pursuant to applicable Treasury Regulations, and any income of the
Distribution Trust will be treated as subject to Tax on a current basis. The
Distribution Trust Agreement will provide that the Distribution Trustee will pay
such Taxes from the Distribution Trust Assets as required by law and in
accordance with Section 10.2(c). In addition, the Distribution Trust Agreement
will require consistent valuation by the Distribution Trustee and the
Beneficiaries, for all federal income Tax purposes, of any property held by the
Distribution Trust. The Distribution Trust Agreement will provide that
termination of the trust will occur no later than two years after the Effective
Date, unless the Bankruptcy Court will approve an extension based upon a finding
that such an extension is necessary for the Distribution Trust to complete its
claims resolution and liquidating purpose. The Distribution Trust Agreement also
will limit the investment powers of the Distribution Trustee in accordance with
IRS Rev. Proc. 94-45 and will require the Distribution Trust to distribute at
least annually to the Beneficiaries (as such may have been determined at such
time) its net income (net of any payment of or provision for Taxes), except for
amounts retained as reasonably necessary to maintain the value of the
Distribution Trust Assets or to meet claims and contingent liabilities
(including Disputed Claims).

     8.9 Creation of Trust Accounts. On or prior to the Effective Date, the
Trust Accounts will be established in federally insured United States banks in
the name of the Distribution Trustee or one or more third-party Disbursing
Agents. On the Effective Date, title to each of the Trust Accounts and the
contents thereof will be transferred to and irrevocably vest in the Distribution
Trust.

     8.10 Funding of Distribution Trust Expenses Account.

     (a) Initial Funding. Prior to the Effective Date, the Creditors' Committee
and the Debtors will agree on the amount to be funded into the Distribution
Trust Expenses Account on the Effective Date. On the Effective Date, the
Distribution Trust Expenses Account will be funded by the transfer of Cash in
such amount from the


                                       22

Distribution Trust Assets. The Distribution Trustee will act as the Disbursing
Agent for the Distribution Trust Expenses Account.

     (b) Use of Funds. Funds in the Distribution Trust Expenses Account will be
used solely as provided in the Distribution Trust Agreement.

     (c) Subsequent Funding. If the balance of the Distribution Trust Expenses
Account is insufficient to make all payments payable therefrom in accordance
with the terms of the Plan and the Distribution Trust Agreement, additional Cash
may be transferred to the Distribution Trust Expenses Account from the Unsecured
Claims Trust Account (to the extent Cash remains available therein) as provided
in the Distribution Trust Agreement.

     (d) Excess Funds. If the Distribution Trustee determines that the balance
of the Distribution Trust Expenses Account is in excess of the amount that will
be sufficient to make all payments payable therefrom in accordance with the
terms of the Plan and the Distribution Trust Agreement, the Distribution
Trustee, with the consent of the Steering Committee acting through a majority
thereof, may transfer such excess to the Unsecured Claims Trust Account as
provided in the Distribution Trust Agreement.

     8.11 Funding of Priority Claims Trust Account.

     (a) Initial Funding. Prior to the Effective Date, the Creditors' Committee
and the Debtors will agree on the amount to be funded into the Priority Claims
Trust Account on the Effective Date. On the Effective Date, the Priority Claims
Trust Account will be funded by the transfer of Cash in such amount from the
Distribution Trust Assets. For purposes of this Section 8.11, any and all
amounts that become payable by KAAC under the QAL Purchase Agreement, including
amounts that become payable in respect of indemnification claims, will be
treated as Allowed Administrative Claims and will be paid in full in Cash in
accordance with the applicable provisions of the QAL Purchase Agreement. For
purposes of this Section 8.11, any and all Taxes determined to be due and owing
from the Debtors to the Australian Tax Office for any taxable period (including
interest and penalties, if any, determined and calculated under applicable
Australian law without regard to the provisions of section 502(b)(2) of the
Bankruptcy Code or any other provision of U.S. federal, state or local law) will
be treated as Allowed Priority Tax Claims or Allowed Administrative Claims, as
the case may be, and will be paid in full in Cash in accordance with the
provisions of Section 9.4(a); provided, however, that any liability of the
Debtors to the Australian Tax Office for income or capital gains Taxes for any
period shall not exceed the amount of such Taxes, if any, determined in writing
by the Australian Tax Office to be due and payable for such period. Until such
determination, any Claim for Taxes by the Australian Tax Office will be treated
as a Disputed Claim.

     (b) Use of Funds. Cash deposited in the Priority Claims Trust Account will
be used solely as provided in the Distribution Trust Agreement.

     (c) Subsequent Funding. If the balance of the Priority Claim Trust Account
is insufficient to make all payments payable therefrom in accordance with the
terms of the Plan and the Distribution Trust Agreement, additional funds may be
transferred from the Unsecured Claims Trust Account (to the extent Cash remains
available therein) to the Priority Claims Trust Account as provided in the
Distribution Trust Agreement.

     (d) Excess Funds. If the Distribution Trustee determines that the balance
of the Priority Claims Trust Account is in excess of the amount that will be
sufficient to make all payments payable therefrom in accordance with the terms
of the Plan and the Distribution Trust Agreement, the Distribution Trustee, with
the consent of the Steering Committee acting through a majority thereof, may
transfer such excess to the Unsecured Claims Trust Account as provided in the
Distribution Trust Agreement; provided, however, no amounts included in the
Priority Claims Trust Account in connection with any potential obligation under
the QAL Purchase Agreement for which KAAC and KACC are jointly and severally
liable may be so transferred without the consent of KACC until the applicable
survival period with respect to such obligation has expired.


                                       23

     8.12 Funding of Unsecured Claims Trust Account.

     (a) Initial Funding. On the Effective Date, after the initial funding of
the Distribution Trust Expenses Account in accordance with Section 8.10(a) and
the initial funding of the Priority Claims Trust Account in accordance with
Section 8.11(a), the Distribution Trustee will (i) pay from the Distribution
Trust Assets any payment required under the Intercompany Settlement Agreement
and (ii) thereafter fund the Unsecured Claims Trust Account with the remainder
of the Distribution Trust Assets, including the Retained Portion of the KFC
Claim, all as provided in the Distribution Trust Agreement.

     (b) Use of Cash and Other Property. Cash and other property in the
Unsecured Claims Trust Account will be used solely as provided in the
Distribution Trust Agreement.

     (c) Additional Deposits. Any Cash or other property that becomes available
to the Distribution Trust following the Effective Date will be deposited in the
Unsecured Claims Trust Account as provided in the Distribution Trust Agreement.

     8.13 Undeliverable Property Trust Account. After the Effective Date, if any
distribution to a holder of an Allowed Unsecured Claim is returned to the
Disbursing Agent as undeliverable, the Disbursing Agent will deposit the
undeliverable Cash or other property in the Undeliverable Property Trust
Account. The Disbursing Agent will hold such funds and property, in a book-entry
sub-account in the Undeliverable Property Trust Account, for the benefit of such
holder. Until such holder notifies the Disbursing Agent in writing of its
then-current address, as contemplated by Section 9.2(c), no attempt will be made
to deliver subsequent distributions to such holder and any such distributions
that such holder would otherwise be entitled to receive instead will be
transferred from the Unsecured Claims Trust Account to the Undeliverable
Property Trust Account and credited to such book-entry sub-account. Any
dividends or other distributions on account of undeliverable securities held in
such book-entry sub-account will also be held in such book-entry sub-account for
the benefit of such holder until such holder notifies the Disbursing Agent in
writing of its then-current address as contemplated by Section 9(c). All Cash
(including dividends or other distributions on account of undeliverable
securities) held in such book-entry sub-account for the benefit of such holder
will be invested by the Disbursing Agent in a manner consistent with the
investment and deposit guidelines set forth in the Distribution Trust Agreement.
Any income or interest generated from such investment activities will be held in
such book-entry sub-account for the benefit of such holder until such holder
notifies the Disbursing Agent in writing of its then-current address as
contemplated by Section 9.2(c). Subject to Section 9.2(c)(ii), when such holder
notifies the Disbursing Agent in writing of its then-current address as
contemplated by Section 9.2(c), the Disbursing Agent will deliver to such holder
all Cash and other property contained in such book-entry sub-account (net of
provision for Taxes). In the event such holder's right to assert a claim for
undeliverable distributions is forfeited as contemplated by Section 9.2(c)(ii),
all Cash and other property contained in such book-entry sub-account will be
transferred from the Undeliverable Property Trust Account to the Unsecured
Claims Trust Account for redistribution to holders of Allowed Unsecured Claims
entitled to distributions therefrom.

                                   ARTICLE IX

                       PROVISIONS GOVERNING DISTRIBUTIONS

     9.1 Method of Distributions to Holders of Allowed Claims. The Disbursing
Agent will make all distributions of Cash and other property required under the
Plan. The Disbursing Agent will serve without bond, and may employ or contract
with other entities to assist in, or make the distributions required by, the
Plan.

     9.2 Delivery of Distributions.

     (a) Generally. Except as otherwise provided in the Plan, distributions in
respect of Allowed Claims will be made to the holders of such Claims as of the
Distribution Record Date at the addresses set forth in the applicable Claims
Report. Prior to making any distribution to a Beneficiary, the Disbursing Agent
may request written notification of the Beneficiary's federal taxpayer
identification number or social security number if the Disbursing Agent
determines, in its reasonable discretion, that such information (a) is necessary
to fulfill its Tax reporting and withholding obligations and (b) has not been
provided in the applicable Claims Report or otherwise.


                                       24

The Disbursing Agent, in its reasonable discretion, may suspend distributions to
any Beneficiary that has not provided its federal taxpayer identification number
or social security number, as the case may be, after a request is made pursuant
to and in accordance with the terms of this Section 9.2(a).

     (b) Distributions to Holders of Public Note Claims. All distributions to
holders of Allowed Public Note Claims will be made by the Distribution Trustee
to the applicable Indenture Trustee for subsequent distribution to holders of
Allowed Public Note Claims as of the Distribution Record Date.

     (c) Undeliverable Distributions.

     (i)  No Further Attempts at Delivery. If any distribution to a holder of an
          Allowed Unsecured Claim is returned to the Disbursing Agent as
          undeliverable, then unless and until the Disbursing Agent is notified
          in writing of such holder's then-current address: (A) subject to
          Section 9.2(c)(ii), such undeliverable distributions will remain in
          the possession of the Disbursing Agent as provided in Section 8.13 and
          no further attempt will be made to deliver such distribution; and (B)
          no attempt will be made to deliver subsequent distributions to such
          holder and any such distributions that such holder would otherwise be
          entitled to receive instead will be treated as provided in Section
          8.13.

     (ii) Forfeiture and Redistribution. Any holder of an Allowed Unsecured
          Claim that does not assert a claim for an undeliverable distribution
          by delivering to the Disbursing Agent a written notice setting forth
          such holder's then-current address within 180 days after the later of
          (A) the Effective Date and (B) the last date on which a distribution
          was deliverable to the holder will have its claim for undeliverable
          distributions discharged and will be forever barred from asserting
          such claim or any claim for subsequent distributions against the
          Debtors, the Disbursing Agent or the property of any of them,
          including the Trust Accounts, whereupon all Cash and other property
          contained in the book-entry sub-account in the Undeliverable Property
          Trust Account created for the benefit of such holder will be
          transferred to the Unsecured Claims Trust Account for redistribution
          to holders of Allowed Unsecured Claims entitled to distributions
          therefrom. For purposes of any such redistribution, each Allowed Claim
          in respect of which a claim for undeliverable distributions has been
          discharged as contemplated by this Section 9.2(c)(ii) will be deemed
          disallowed in its entirety.

     (iii) No Requirement to Attempt to Locate Holders. Nothing contained in the
          Plan will require the Debtors or the Disbursing Agent to attempt to
          locate any holder of an Allowed Claim.

     9.3 Means of Cash Payments. Except as otherwise provided in the Plan or the
Distribution Trust Agreement, Cash payments made pursuant to the Plan will be in
United States currency by checks drawn on the applicable Trust Accounts or, at
the option of the Disbursing Agent, by wire transfer from a domestic bank;
provided, however, that Cash payments to foreign holders of Allowed Claims may
be made, at the option of the Disbursing Agent, in such funds and by such means
as are necessary or customary in a particular foreign jurisdiction. If a check
included in a distribution to a holder of an Allowed Unsecured Claim is not
cashed within 180 days of the issuance thereof, the Disbursing Agent will void
such check and such distribution will be treated as undeliverable in accordance
with Section 9.2(c).

     9.4 Timing and Calculation of Amounts to Be Distributed.

     (a) Allowed Claims Other Than Unsecured Claims. On or as promptly as
practicable after the Effective Date, the Disbursing Agent will make
distributions to holders of Secured Claims, Administrative Claims, Priority
Claims and Priority Tax Claims allowed as of the Effective Date. On or as
promptly as practicable after each Quarterly Distribution Date, the Disbursing
Agent will make distributions to holders of Disputed Secured Claims, Disputed
Administrative Claims, Disputed Priority Claims and Disputed Priority Tax Claims
that have become Allowed Claims during the immediately preceding calendar
quarter. Notwithstanding the foregoing, if the Disbursing Agent determines, in
its reasonable discretion, that the amount of any quarterly distribution is too
small to justify the administrative costs associated with such distribution, the
Disbursing Agent may postpone such


                                       25

quarterly distribution until the next Quarterly Distribution Date. The
Disbursing Agent will have no obligation to notify Beneficiaries if it
determines, in its reasonable discretion, that any quarterly distribution will
be postponed.

     (b) Allowed Unsecured Claims in Subclass 3A; Certain Payments from the
Public Note Distributable Consideration.

     (i)  Plan Accepted by Subclass 3A and Subclass 3B.

          (A)  If both Subclass 3A and Subclass 3B vote to accept the Plan in
               accordance with section 1126(c) of the Bankruptcy Code, on or as
               promptly as practicable after the Effective Date, the Disbursing
               Agent will: (i) make distributions to holders of Allowed Claims
               in Subclass 3A in accordance with Section 2.4(c)(i)(A); provided
               that the amount of such distributions will be calculated as if
               each Disputed Unsecured Claim in Subclass 3D were an Allowed
               Unsecured Claim in its Face Amount as of the Effective Date; and
               (ii) make the payments to be deducted from the Public Note
               Distributable Consideration as contemplated by clauses (I) and
               (II) of the first sentence of Section 2.4(c)(i)(A).

          (B)  If both Subclass 3A and Subclass 3B vote to accept the Plan in
               accordance with section 1126(c) of the Bankruptcy Code, on or as
               promptly as practicable after each Quarterly Distribution Date,
               the Disbursing Agent will distribute to each holder of an Allowed
               Claim in Subclass 3A a distribution from the Unsecured Claims
               Trust Account (net of provision for Taxes) in an amount equal to:
               (a) the amount of Cash and other property that such holder would
               have been entitled to receive pursuant to the Plan if such Claim
               and each other Unsecured Claim allowed prior to such Quarterly
               Distribution Date had been an Allowed Unsecured Claim as of the
               Effective Date (with such amount to be calculated in the manner
               described in Section 9.4(b)(i)(A)) minus (b) the aggregate amount
               of Cash and other property previously distributed on account of
               such Claim. Notwithstanding the foregoing, if the Disbursing
               Agent determines, in its reasonable discretion, that the amount
               of any quarterly distribution is too small to justify the
               administrative costs associated with such distribution, the
               Disbursing Agent may postpone such quarterly distribution until
               the next Quarterly Distribution Date. The Disbursing Agent will
               have no obligation to notify Beneficiaries if it determines, in
               its reasonable discretion, that any quarterly distribution will
               be postponed. In the event of the disallowance of a Disputed
               Unsecured Claim in Subclass 3D, any amounts held in respect
               thereof will be released from the Disputed Claims Reserve for
               distribution in accordance with this Section 9.4(b)(i) and
               Section 9.4(d).

     (ii) Plan Rejected by Subclass 3A or Subclass 3B. If either Subclass 3A or
          Subclass 3B fails to accept the Plan in accordance with section
          1126(c) of the Bankruptcy Code, the amount of the Public Note
          Distributable Consideration to which the Bankruptcy Court determines
          the holders of Allowed Claims in Subclass 3A are entitled in respect
          of such Claims will be distributed as provided in an order of the
          Bankruptcy Court and the Disbursing Agent will, contemporaneously or
          as promptly as practicable thereafter, make the payments (or
          reservations for payment) by which such distributions are to be
          reduced in accordance with Section 2.4(a)(i)(B).

     (c) Allowed Unsecured Claims in Subclass 3B.

     (i)  Plan Accepted by Subclass 3A and Subclass 3B. If both Subclass 3A and
          Subclass 3B vote to accept the Plan in accordance with section 1126(c)
          of the Bankruptcy Code, on or as promptly as practicable after the
          Effective Date, the Disbursing Agent will make the payment to the
          Senior Subordinated Note Indenture Trustee as contemplated by clause
          (III) of the first sentence of Section 2.4(c)(i)(A) and Section
          2.4(c)(ii)(A) for subsequent distribution by the Senior Subordinated
          Note Indenture Trustee to the holders of Allowed Claims in Subclass
          3B.


                                       26

     (ii) Plan Rejected by Subclass 3A or Subclass 3B. If either Subclass 3A or
          Subclass 3B fails to accept the Plan in accordance with section
          1126(c) of the Bankruptcy Code, the amount of the Public Note
          Distributable Consideration, if any, to which the Bankruptcy Court
          determines the holders of Allowed Claims in Subclass 3B are entitled
          in respect of such Claims will be distributed as provided in an order
          of the Bankruptcy Court. As contemplated by Section 2.4(c)(ii)(B), any
          such distributions ultimately made to a holder of an Allowed Claim in
          Subclass 3B may be reduced by such holder's proportional share of any
          and all fees and expenses payable to the Senior Subordinated Note
          Indenture Trustee pursuant to the Senior Subordinated Note Indenture,
          which will, subject to such Trustee's right to seek payment by the
          Debtors of such fees and expenses pursuant to section 503(b)(5) of the
          Bankruptcy Code, be payable solely from such distributions.

     (d) Allowed Unsecured Claims in Subclass 3C and Subclass 3D.

     (i)  On or as promptly as practicable after the Effective Date, the
          Disbursing Agent will make distributions to holders of Unsecured
          Claims in Subclass 3C and Subclass 3D allowed as of the Effective
          Date; provided that the amount of such distributions will be
          calculated as if each Disputed Unsecured Claim in Subclass 3D were an
          Allowed Unsecured Claim in its Face Amount as of the Effective Date;
          provided further, however, that no distribution will be made on
          account of any Disputed Unsecured Claim in Subclass 3D unless and
          until it becomes an Allowed Unsecured Claim and amounts withheld for
          Disputed Unsecured Claims in Subclass 3D will remain in the Unsecured
          Claims Trust Account as part of the Disputed Claims Reserve.

     (ii) On or as promptly as practicable after each Quarterly Distribution
          Date, the Disbursing Agent will distribute to each holder of an
          Unsecured Claim in Subclass 3C or Subclass 3D allowed prior to such
          Quarterly Distribution Date a distribution from the Unsecured Claims
          Trust Account (net of provision for Taxes) in an amount equal to: (a)
          the amount of Cash and other property that such holder would have been
          entitled to receive pursuant to the Plan if such Claim and each other
          Unsecured Claim allowed prior to such Quarterly Distribution Date had
          been an Allowed Unsecured Claim as of the Effective Date (with such
          amount to be calculated in the manner described in Section
          9.4(d)(i)(A)) minus (b) the aggregate amount of Cash and other
          property previously distributed on account of such Claim.
          Notwithstanding the foregoing, if the Disbursing Agent determines, in
          its reasonable discretion, that the amount of any quarterly
          distribution is too small to justify the administrative costs
          associated with such distribution, the Disbursing Agent may postpone
          such quarterly distribution until the next Quarterly Distribution
          Date. The Disbursing Agent will have no obligation to notify
          Beneficiaries if it determines, in its reasonable discretion, that any
          quarterly distribution will be postponed. In the event of the
          disallowance of a Disputed Unsecured Claim in Subclass 3D, any amounts
          held in respect thereof will be released from the Disputed Claims
          Reserve for distribution in accordance with Section 9.4(b)(i) and this
          Section 9.4(d).

     (e) 7-3/4% SWD Revenue Bonds.

     (i)  Plan Accepted by Subclass 3A. If (i) Subclass 3A votes to accept the
          Plan in accordance with section 1126(c) of the Bankruptcy Code and
          (ii) unless the holders of Senior Note Claims otherwise agree pursuant
          to a settlement, all holders of Allowed Senior Note Claims are
          entitled under the Plan to identical treatment in respect of
          contractual subordination claims under the Senior Subordinated Note
          Indenture, then, on or as promptly as practicable on the Effective
          Date, the Disbursing Agent will make the payment, if any, to the
          7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of holders
          of 7-3/4% SWD Revenue Bonds pursuant to Section 2.5(a) and pay any
          amounts payable pursuant to Section 2.6(b).

     (ii) Plan Rejected by Subclass 3A. If Subclass 3A fails to accept the Plan
          in accordance with section 1126(c) of the Bankruptcy Code, the amount
          of the Public Note Distributable Consideration, if any, to which the
          Bankruptcy Court determines the holders of 7-3/4% SWD Revenue Bonds
          are entitled will be distributed as provided in an order of the
          Bankruptcy Court.


                                       27

     (f) Application of Distributions to Holders of Public Note Claims and
7-3/4% SWD Revenue Bonds. All distributions to a holder of an Allowed Public
Note Claim or a holder of a 7-3/4% SWD Revenue Bond will be deemed to apply
first to the principal amount of such Claim or 7-3/4% SWD Revenue Bond until
such principal amount is paid in full, and then the remaining portion of such
distributions, if any, will be deemed to apply to any prepetition accrued
interest included in such Claim or in respect of such 7-3/4% SWD Revenue Bond.

     (g) No De Minimis Distributions. The Disbursing Agent will not be required
to distribute Cash to the holder of an Allowed Unsecured Claim if the total
aggregate amount of Cash to be distributed on account of such Claim is less than
$25. Any holder of an Allowed Unsecured Claim on account of which the total
aggregate amount of Cash to be distributed is less than $25 will have its claim
for such distribution deemed satisfied, waived and released and will be forever
barred from asserting any such Claim against the Debtors, the Distribution
Trustee, the Disbursing Agent or the property of any of them, including the
Trust Accounts. Any Cash not distributed with respect to Allowed Unsecured
Claims as a result of the provisions of this Section 9.4(g), including dividends
or other distributions made on account of securities held in the Unsecured
Claims Trust Account, will be retained in the Unsecured Claims Trust Account for
redistribution to other holders of Allowed Unsecured Claims entitled to
distributions from the Unsecured Claims Trust Account.

     (h) Compliance with Tax Requirements. To the extent applicable, the
Disbursing Agent will comply with all Tax withholding and reporting requirements
imposed on it by any governmental unit, and all distributions pursuant to the
Plan will be subject to such withholding and reporting requirements. The
Disbursing Agent will be authorized to take any actions that it determines, in
its reasonable discretion, to be necessary, appropriate or desirable to comply
with such withholding and reporting requirements, including but not limited to
requiring recipients to fund the payment of such withholding as a condition to
delivery or entering into arrangements for the sale (subject to any applicable
restrictions or transfer) of non-Cash property otherwise to be distributed to a
recipient subject to a withholding requirement in order to generate net proceeds
(together with any Cash included in such distribution) sufficient to fund the
payment of any such withholding. Notwithstanding any other provision of the Plan
or the Distribution Trust Agreement, each entity receiving a distribution of
Cash or other property pursuant to the Plan will have sole and exclusive
responsibility for the satisfaction and payment of any Tax obligations imposed
on it by any governmental unit on account of such distribution, including
income, withholding and other Tax obligations.

     9.5 Setoffs. Except with respect to claims of a Debtor released pursuant to
the Plan or any contract, instrument, release, or other agreement or document
entered into or delivered in connection with the Plan, the Distribution Trustee
or any other Disbursing Agent may, pursuant to section 553 of the Bankruptcy
Code or applicable nonbankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim) the claims, rights and causes
of action of any nature that the applicable Debtor may hold against the holder
of such Allowed Claim; provided, however, that neither the failure to effect a
setoff nor the allowance of any Claim hereunder will constitute a waiver or
release by the applicable Debtor of any claims, rights and causes of action that
the Debtor or Debtors may possess against such a Claim holder, which are
preserved under the Plan.

     9.6 Compensation and Reimbursement for Services Related to Distributions.
If the Distribution Trustee employs or contracts with a third-party Disbursing
Agent, such Disbursing Agent will receive, without the need for further
Bankruptcy Court approval, reasonable compensation for such services and
reimbursement of reasonable out-of-pocket expenses incurred in connection with
such services. These payments will be made on terms agreed to with the
Distribution Trustee and will be paid to such Disbursing Agent from funds in the
Distribution Trust Expenses Account. To assist in making distributions under the
Plan, notwithstanding any other provision of the Plan, the applicable Trust
Accounts (other than the Distribution Trust Expenses Account) may be held in the
name of one or more such Disbursing Agents. Any such Disbursing Agent will
invest the Cash in the Trust Accounts as directed by the Distribution Trustee,
who will direct such Disbursing Agent to invest such Cash only in Permitted
Investments; provided, however, that should the Distribution Trustee determine,
in its reasonable discretion, that the administrative costs associated with such
investment will exceed the return on such investment, it may direct such
Disbursing Agent to not invest such Cash.


                                       28

     9.7 Payments Limited to Trust Accounts. All payments or other distributions
to be made by the Distribution Trustee in accordance with the Plan or the
Distribution Trust Agreement will be made only from the Trust Accounts.

     9.8 Insufficient Assets. Provided that the Disbursing Agent has not acted
in bad faith, engaged in fraud, willful misconduct or gross negligence or
breached its fiduciary duties, if the Distribution Trust Assets at any point
prove insufficient to pay all Beneficiaries of the Priority Claims Trust Account
in full or all Beneficiaries of the Unsecured Claims Trust Account in accordance
with the terms of the Plan, the Disbursing Agent will have no obligation to seek
disgorgement from any Beneficiary, but may seek the guidance of the Bankruptcy
Court or another court of competent jurisdiction.

     9.9 Distributions of Securities.

     (a) Voting of Securities. Pending the distribution of any voting
securities, the Distribution Trustee will cause all such securities held in the
Trust Accounts to be (i) represented in person or by proxy at each meeting at
which the holder of such securities is entitled to vote, (ii) voted in any
election of directors for the nominees recommended by the board of directors of
the issuer of such securities, and (iii) voted with respect to any other matter
as recommended by the board of directors of the issuer of such securities.

     (b) Dividends and Distributions. Any distribution of securities will
include, to the extent applicable: (i) any dividends or other distributions that
were previously paid to the Distribution Trust in respect of the securities
included in such distribution; and (ii) any income or interest generated by the
investment of such dividends or other distributions (net of provision for Taxes
owing in respect of such amounts in accordance with Section 10.2(c)).

     (c) No Fractional Securities. Notwithstanding any provision of the Plan,
only whole numbers of securities will be distributed. When any distribution on
account of an Allowed Unsecured Claim would otherwise result in the distribution
of a number of securities that is not a whole number, the number of securities
to be so distributed will be rounded to a whole number on an equitable basis to
be determined by the Distribution Trustee in order to ensure that all such
securities are distributed and are so distributed only in whole numbers.

                                    ARTICLE X

                                 DISPUTED CLAIMS

     10.1 Prosecution of Objections to Claims. All objections to Claims must be
Filed and served on the holders of such Claims by the Claims Objection Bar Date,
and, if Filed prior to the Effective Date, such objections will be served on the
parties on the then-applicable service list in the Chapter 11 Cases. If an
objection has not been Filed to a proof of Claim, a scheduled Claim or a request
for payment of Administrative Claim by the applicable Claims Objection Bar Date,
the Claim to which the proof of Claim, scheduled Claim or request for payment of
Administrative Claim relates will be treated as an Allowed Claim if such Claim
has not been allowed earlier.

     10.2 Treatment of Disputed Claims.

     (a) No Payments on Account of Disputed Claims and Disputed Claims Reserves.
Notwithstanding any other provisions of the Plan, no payments or distributions
will be made on account of a Disputed Claim until such Claim becomes an Allowed
Claim. In lieu of distributions under the Plan to holders of Disputed Claims, a
Disputed Claims Reserve will be established on the Effective Date in each Trust
Account, which, in the case of Unsecured Claims in Subclass 3D, will include an
amount equal to the Pro Rata Share of the distribution to which all of the
Disputed Claims in Subclass 3D would be entitled if such Disputed Claim was
allowed in its Face Amount on the Effective Date.

     (b) Recourse. Each holder of a Disputed Claim that ultimately becomes an
Allowed Claim will have recourse only to the undistributed Cash held in the
applicable Trust Account for the satisfaction of such Allowed Claim and not to
any other Trust Account or any assets previously distributed on account of any
Allowed Claim.


                                       29

     (c) Tax Requirements for Income Generated by Disputed Claim Reserves. The
Distribution Trustee will include in the Tax returns of the Trust Accounts all
items of income, deduction and credit of the Trust Accounts, except to the
extent such items are included in the income of the Beneficiaries of the Trust
Accounts as grantors of grantor trusts. The Distribution Trustee will pay, or
cause to be paid, out of the funds held in applicable Trust Accounts, any Tax
imposed on the Trust Accounts by any governmental unit with respect to income
generated by the funds held in the Trust Accounts. The Distribution Trustee also
will file or cause to be filed any Tax or information return related to the
applicable Trust Account that is required by any governmental unit.

                                   ARTICLE XI

                            RETENTION OF JURISDICTION

          Notwithstanding the entry of the Confirmation Order and the occurrence
of the Effective Date, the Bankruptcy Court will retain all such jurisdiction
over the Chapter 11 Cases after the Effective Date as is legally permissible,
including jurisdiction to:

     (a) Allow, disallow, determine, liquidate, classify, reclassify, estimate
or establish the priority, secured or unsecured status (or proper Plan
classification) of any Claim or Interest, including the resolution of any
request for payment of any Administrative Claim, and the resolution of any
objections to the allowance, priority, or classification of Claims or Interests;

     (b) Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the Plan
for periods ending on or before the Effective Date;

     (c) Resolve any matters related to the assumption, assumption and
assignment or rejection of any Executory Contract or Unexpired Lease to which
either Debtor is a party or with respect to which either Debtor may be liable
and to hear, determine and, if necessary, liquidate any Claims arising
therefrom;

     (d) Ensure that distributions to holders of Allowed Claims are accomplished
pursuant to the provisions of the Plan;

     (e) Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters, including the Recovery Actions and
claims of the holders of the 7-3/4% SWD Revenue Bonds in respect of
subordination rights under the Senior Subordinated Note Indenture, and grant or
deny any applications involving the Debtors or the Distribution Trustee that may
be pending on the Effective Date or brought thereafter;

     (f) Enter such orders as may be necessary or appropriate to implement or
consummate the provisions of the Plan and all contracts, instruments, releases
and other agreements or documents entered into or delivered in connection with
the Plan, the Disclosure Statement or the Confirmation Order, including the
Distribution Trust Agreement;

     (g) Resolve any cases, controversies, suits or disputes that may arise in
connection with the Recovery Actions or the consummation, interpretation, or
enforcement of the Plan or any contract, instrument, release, or other agreement
or document that is entered into or delivered pursuant to the Plan (including
the Distribution Trust Agreement), or any entity's rights arising from or
obligations incurred in connection with the Plan or such documents;

     (h) Modify the Plan before or after the Effective Date pursuant to section
1127 of the Bankruptcy Code; modify the Confirmation Order, or any contract,
instrument, release, or other agreement or document entered into or delivered in
connection with the Plan, the Disclosure Statement or the Confirmation Order; or
remedy any defect or omission or reconcile any inconsistency in any Bankruptcy
Court order, the Plan, the Disclosure Statement, the Confirmation Order, or any
contract, instrument, release or other agreement or document entered into,
delivered or created in connection with the Plan, the Disclosure Statement or
the Confirmation Order, in such manner as may be necessary or appropriate to
consummate the Plan;


                                       30

     (i) Issue injunctions, enforce the injunctions contained in the Plan and
the Confirmation Order, enter and implement other orders or take such other
actions as may be necessary or appropriate to restrain interference by any
entity with consummation, implementation or enforcement of the Plan or the
Confirmation Order;

     (j) Enter and implement such orders as are necessary or appropriate if the
Confirmation Order is for any reason or in any respect modified, stayed,
reversed, revoked or vacated or distributions pursuant to the Plan are enjoined
or stayed;

     (k) Determine any other matters that may arise in connection with or relate
to the Plan, the Disclosure Statement, the Confirmation Order, or any contract,
instrument, release or other agreement or document entered into or delivered in
connection with the Plan, the Disclosure Statement or the Confirmation Order;

     (l) Enter a final decree closing the Chapter 11 Cases in accordance with
the Bankruptcy Rules; and

     (m) Determine matters concerning state, local and federal Taxes in
accordance with sections 346, 505 and 1146 of the Bankruptcy Code, including any
Disputed Claims for Taxes.

                                  ARTICLE XII

                            MISCELLANEOUS PROVISIONS

     12.1 Preservation of Insurance.

     (a) Nothing in the Plan will diminish or impair the enforceability of any
insurance policies that may cover Claims against either Debtor.

     (b) Nothing in the Plan or in the Confirmation Order shall preclude any
entity from asserting in any proceeding any and all claims, defenses, rights or
causes of action that it has or may have under or in connection with any
insurance policy or insurance settlement agreement. Nothing in the Plan or the
Confirmation Order shall be deemed to waive any claims, defense, rights or
causes of action that any entity has or may have under the provisions, terms,
conditions, defenses and/or exclusions contained in such policies or
settlements.

     (c) Notwithstanding the provisions of Section 12.1(b) and the substantial
consummation of the Plan, in connection with any possible settlements made in
any of the Kaiser Cases which concern any insurance policies, the Bankruptcy
Court shall retain jurisdiction over the Chapter 11 Cases to issue or approve
buybacks of such insurance policies under section 363 of the Bankruptcy Code
and/or to issue or approve injunctions, releases and/or exculpations under the
Bankruptcy Code (including, without limitation, section 105 of the Bankruptcy
Code) for purposes of, inter alia, protecting any such settling insurers against
claims or demands made against the Debtors. In this regard, as between KACC and
the Debtors, KACC will have full and sole right and authority to settle,
release, compromise and enter into buybacks by insurers of insurance policies as
to which the Debtors, or any of them, have or may assert rights as an insured.
The Debtors shall not be entitled to any consideration or other value as a
result of any such exercise of rights by KACC.

     12.2 Modification of the Plan. Subject to the restrictions on modifications
set forth in section 1127 of the Bankruptcy Code, the Debtors reserve the right
to alter, amend or modify the Plan before its substantial consummation, with the
consent of the Creditors' Committee.

     12.3 Revocation of the Plan. The Debtors reserve the right to revoke or
withdraw the Plan prior to the Effective Date, with the consent of the
Creditors' Committee. If the Debtors so revoke or withdraw the Plan, or if
confirmation of the Plan does not occur, the Plan will be null and void in all
respects, and nothing contained in the Plan will: (a) constitute a waiver or
release of any Claims by or against, or any Interests in, the Debtors; or (b)
prejudice in any manner the rights of either Debtor or any other party.

     12.4 Limitation on Certain Actions. Notwithstanding any other provision in
the Plan, the Plan shall not be amended, modified, revoked or withdrawn with the
intent of altering or undermining in any way the Bankruptcy


                                       31

Court's determination of the respective entitlement of holders of Allowed Claims
under Sections 2.4(c)(i)(B) and 2.4(c)(ii)(B).

     12.5 Severability of Plan Provisions. If, prior to confirmation of the
Plan, any term or provision of the Plan is held by the Bankruptcy Court to be
invalid, void or unenforceable, the Bankruptcy Court will have the power to
alter and interpret such term or provision to make it valid or enforceable to
the maximum extent practicable, consistent with the original purpose of the term
or provision held to be invalid, void or unenforceable, and such term or
provision then will be applicable as altered or interpreted; provided, however,
that any such alteration or interpretation must be in form and substance
acceptable to the Debtors and the Creditors' Committee. Notwithstanding any such
holding, alteration or interpretation, the remainder of the terms and provisions
of the Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order will constitute a judicial determination and will provide
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.

     12.6 Notices. Any pleading, notice, or other document required by the Plan
or Confirmation Order to be served on or delivered to the Debtors, the
Distribution Trustee or the Creditors' Committee must be sent by overnight
delivery service, facsimile transmission, courier service, or messenger to:

     (a)  The Debtors:

          Daniel J. DeFranceschi
          RICHARDS, LAYTON & FINGER, P.A.
          One Rodney Square
          P.O. Box 551
          Wilmington, Delaware 19899
          Facsimile: (302) 651-7701

          Gregory M. Gordon
          Henry L. Gompf
          Troy B. Lewis
          Daniel P. Winikka
          JONES DAY
          2727 North Harwood Street
          Dallas, Texas 75201
          Facsimile (214) 969-5100

          (Counsel to the Debtors)

     (b)  The Distribution Trustee:

          Distribution Trustee
          [The identity and address of the Distribution Trustee to be disclosed
          at least ten days prior to the Confirmation Hearing as provided in
          Section 8.2(a).]

     (c)  The Creditors' Committee:

          Lisa G. Beckerman
          AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
          590 Madison Avenue
          New York, NY 10022


                                       32

          William P. Bowden
          ASHBY & GEDDES
          222 Delaware Avenue
          P.O. Box 1150
          Wilmington, DE 19899

          (Counsel to the Creditors' Committee)

     12.7 Successors and Assigns. The rights, benefits, and obligations of any
entity named or referred to in the Plan will be binding on, and will inure to
the benefit of, any heir, executor, administrator, successor, or assign of such
entity, regardless of whether such entity voted to accept the Plan.

     12.8 Further Action. Nothing contained in the Plan will prevent the Debtors
or the Distribution Trustee from taking such actions as may be necessary to
consummate the Plan, even though such actions may not be specifically provided
for within the Plan.

     12.9 Exhibits. All Exhibits to the Plan are incorporated by reference and
are intended to be an integral part of this document as though fully set forth
in the Plan.


                                       33

Dated: February 25, 2005               Respectfully submitted,

                                       KAISER ALUMINA AUSTRALIA CORPORATION


                                       By: /s/ John M. Donnan
                                           -------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


                                       KAISER FINANCE CORPORATION


                                       By: /s/ John M. Donnan
                                           -------------------------------------
                                       Name: John M. Donnan
                                       Title: Vice President and General Counsel


COUNSEL:


/s/ Daniel J. DeFranceschi
- ------------------------------------
Daniel J. DeFranceschi (DE 2732)
RICHARDS, LAYTON & FINGER
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
Telephone: (302) 651-7700
Facsimile: (302) 651-7701

- -and-

Gregory M. Gordon (TX 08435300)
Henry L. Gompf (TX 08116400)
Troy B. Lewis (TX 12308650)
Daniel P. Winikka (TX 00794873)
JONES DAY
2727 North Harwood Street
Dallas, Texas 75201
Telephone: (214) 220-3939
Facsimile: (214) 969-5100

ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION


                                       34

EX-99.4

                                                                    EXHIBIT 99.4

                         UNITED STATES BANKRUPTCY COURT
                          FOR THE DISTRICT OF DELAWARE

- -----------------------------------------x
                                         :
In re:                                   :
                                         :   Chapter 11 Case Nos.
KAISER ALUMINA AUSTRALIA CORPORATION and :   02-10432 and 02-10438
KAISER FINANCE CORPORATION,              :   Jointly Administered Under
                                         :   Case No. 02-10429 (JKF)
   Debtors.                              :
                                         :
- -----------------------------------------x

                              DISCLOSURE STATEMENT
                 PURSUANT TO SECTION 1125 OF THE BANKRUPTCY CODE
           WITH RESPECT TO THE THIRD AMENDED JOINT PLAN OF LIQUIDATION
                    FOR KAISER ALUMINA AUSTRALIA CORPORATION
                         AND KAISER FINANCE CORPORATION

                                        Daniel J. DeFranceschi (DE 2732)
                                        RICHARDS, LAYTON & FINGER, P.A.
                                        One Rodney Square
                                        P.O. Box 551
                                        Wilmington, Delaware 19899
                                        Telephone: (302) 651-7700
                                        Facsimile: (302) 651-7701

                                        - and -

                                        Gregory M. Gordon (TX 08435300)
                                        Henry L. Gompf (TX 08116400)
                                        Troy B. Lewis (TX 12308650)
                                        Daniel P. Winikka (TX 00794873)
                                        JONES DAY
                                        2727 North Harwood Street
                                        Dallas, Texas 75201
                                        Telephone: (214) 220-3939
                                        Facsimile: (214) 969-5100

                                        ATTORNEYS FOR DEBTORS AND
                                        DEBTORS IN POSSESSION

Dated: February 28, 2005

                  DISCLOSURE STATEMENT, DATED FEBRUARY 28, 2005

                              SOLICITATION OF VOTES
                               WITH RESPECT TO THE
                     THIRD AMENDED JOINT PLAN OF LIQUIDATION
                                       FOR
       KAISER ALUMINA AUSTRALIA CORPORATION AND KAISER FINANCE CORPORATION
      (WHOLLY OWNED SUBSIDIARIES OF KAISER ALUMINUM & CHEMICAL CORPORATION)

                                   ----------

     THE BOARDS OF DIRECTORS OF KAISER ALUMINA AUSTRALIA CORPORATION ("KAAC")
AND KAISER FINANCE CORPORATION ("KFC" AND, TOGETHER WITH KAAC, THE "DEBTORS")
BELIEVE THAT THE THIRD AMENDED JOINT PLAN OF LIQUIDATION FOR KAISER ALUMINA
AUSTRALIA CORPORATION AND KAISER FINANCE CORPORATION, DATED FEBRUARY 25, 2005
AND ATTACHED HERETO AS EXHIBIT I (THE "PLAN") IS IN THE BEST INTERESTS OF
CREDITORS. ALL CREDITORS ENTITLED TO VOTE ON THE PLAN ARE URGED TO VOTE IN FAVOR
THEREOF. A SUMMARY OF THE VOTING INSTRUCTIONS IS SET FORTH BEGINNING AT PAGE 61
OF THIS DISCLOSURE STATEMENT. MORE DETAILED INSTRUCTIONS ARE CONTAINED ON THE
BALLOTS DISTRIBUTED TO CREDITORS ENTITLED TO VOTE ON THE PLAN. TO BE COUNTED,
YOUR BALLOT MUST BE DULY COMPLETED, EXECUTED AND RECEIVED BY 5:00 P.M., EASTERN
TIME, ON APRIL 5, 2005 OR SUCH OTHER TIME OR DATE IDENTIFIED ON YOUR BALLOT (THE
"VOTING DEADLINE"), UNLESS EXTENDED.

     THE CREDITORS' COMMITTEE HAS INDEPENDENTLY CONCLUDED THAT THE PLAN IS IN
THE BEST INTERESTS OF CREDITORS AND URGES CREDITORS TO VOTE IN FAVOR OF THE
PLAN.

                                   ----------

     THE CONFIRMATION AND EFFECTIVENESS OF THE PROPOSED PLAN ARE SUBJECT TO
MATERIAL CONDITIONS PRECEDENT, SOME OF WHICH MAY NOT BE SATISFIED. SEE "ANSWERS
TO CERTAIN QUESTIONS ABOUT THE PLAN AND DISCLOSURE STATEMENT -- WHAT MUST HAPPEN
BEFORE THE PLAN CAN BE CONSUMMATED?" AND "VOTING AND CONFIRMATION OF THE PLAN --
CONFIRMATION -- ACCEPTANCE OR CRAMDOWN." THERE IS NO ASSURANCE THAT THESE
CONDITIONS WILL BE SATISFIED OR WAIVED.

                                   ----------

     No person is authorized by either of the Debtors in connection with the
Plan or the solicitation of acceptances of the Plan to give any information or
to make any representation other than as contained in this Disclosure Statement
or incorporated by reference or referred to herein, and, if given or made, such
information or representation may not be relied upon as having been authorized
by either of the Debtors. The delivery of this Disclosure Statement will not
under any circumstances imply that the information herein is correct as of any
time subsequent to the date hereof. The Debtors will make available to creditors
entitled to vote on acceptance of the Plan such additional information as may be
required by applicable law prior to the Voting Deadline.

                                   ----------

     ALL CREDITORS ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THIS ENTIRE
DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED HERETO AS EXHIBIT I, PRIOR TO
SUBMITTING BALLOTS PURSUANT TO THIS SOLICITATION.

                                   ----------

     The summaries of the Plan and the other documents contained in this
Disclosure Statement are qualified by reference to the Plan itself, the Exhibit
thereto and other documents summarized herein, all as Filed prior to approval of
this Disclosure Statement.

                                   ----------

     The information contained in this Disclosure Statement, including the
information regarding the history, businesses and operations of the Debtors, is
included for purposes of soliciting acceptances of the Plan, but, as to
contested matters and adversary proceedings, is not to be construed as
admissions or stipulations, but rather as statements made in settlement
negotiations.

                                   ----------

     FORWARD-LOOKING STATEMENTS: THIS DISCLOSURE STATEMENT INCLUDES
FORWARD-LOOKING STATEMENTS BASED LARGELY ON THE CURRENT EXPECTATIONS OF THE
DEBTORS ABOUT FUTURE EVENTS. THE WORDS "BELIEVE," "MAY," "WILL," "ESTIMATE,"
"CONTINUE," "ANTICIPATE," "INTEND," "EXPECT" AND SIMILAR EXPRESSIONS IDENTIFY
THESE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO A NUMBER OF RISKS, UNCERTAINTIES AND ASSUMPTIONS. IN LIGHT OF THESE RISKS AND
UNCERTAINTIES, THE FORWARD-LOOKING EVENTS AND CIRCUMSTANCES DISCUSSED IN THIS
DISCLOSURE STATEMENT MAY NOT OCCUR AND ACTUAL EVENTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS. THE DEBTORS UNDERTAKE
NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

                                   ----------

     THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.

                                   ----------

     ALL CAPITALIZED TERMS IN THIS DISCLOSURE STATEMENT NOT OTHERWISE DEFINED
HEREIN HAVE THE MEANINGS GIVEN TO THEM IN THE PLAN.

                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                         
INTRODUCTION.............................................................     1
ANSWERS TO CERTAIN QUESTIONS ABOUT THE PLAN AND DISCLOSURE STATEMENT.....     4
OVERVIEW OF THE PLAN.....................................................    14
   Introduction..........................................................    14
   Summary of Classes and Treatment of Claims and Interests..............    15
   Guaranty Subordination Dispute........................................    19
   7-3/4% SWD Revenue Bond Dispute.......................................    19
   Sources and Uses of Cash..............................................    20
      Sources of Cash....................................................    20
      Uses of Cash.......................................................    20
   KFC Claim Against KACC................................................    24
   Additional Information Regarding Assertion and Treatment of
      Administrative Claims and Priority Tax Claims......................    25
      Administrative Claims..............................................    25
         Administrative Claims in General................................    25
         US Trustee Fees.................................................    25
         Bar Dates for Administrative Claims.............................    26
         QAL Purchase Agreement..........................................    26
         Intercompany Claims Settlement Payments.........................    26
         PBGC Administrative Claim.......................................    26
      Priority Tax Claims................................................    27
      Reserves for Payment of Certain Potential Administrative Claims
         and Priority Tax Claims.........................................    27
   Senior Note Indenture Trustee and Ad Hoc Group Counsel Fees and
      Expenses; 7-3/4% SWD Revenue Bond Plaintiffs' Fees.................    27
CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS.................    27
   Background............................................................    27
   Note Guarantees.......................................................    28
OPERATIONS DURING THE CHAPTER 11 CASES...................................    28
   First Day Relief......................................................    28
      Cash Management Order..............................................    29
      Joint Venture Order................................................    29
   Bankruptcy Petitions of the 2003 Debtors..............................    30
   Appointment of the Committees and Future Claimants' Representatives...    30
      Creditors' Committee...............................................    30
      Asbestos Claimants' Committee and Certain Other Appointed
         Representatives.................................................    31



                                        i

                                TABLE OF CONTENTS
                                   (continued)



                                                                            PAGE
                                                                            ----
                                                                         
   Assumption and Assignment or Rejection of Executory Contracts and
      Unexpired Leases...................................................    31
   Claims Process and Bar Dates..........................................    31
   Postpetition Financing................................................    32
   Strategic Plan to Sell Commodities Assets.............................    32
   The Sale of the QAL Interests and Liquidation of KAAC.................    32
   Certain Australian Tax Matters........................................    33
   Agreements with Labor Regarding Pension and Retiree Medical Benefits..    34
   PBGC Claims...........................................................    34
   Intercompany Claims Settlement........................................    35
   Guaranty Subordination Dispute........................................    36
   7-3/4% SWD Revenue Bond Dispute.......................................    39
GENERAL INFORMATION CONCERNING THE PLAN..................................    40
   Substantive Consolidation.............................................    40
   KFC Claim against KACC................................................    41
   Executory Contracts and Unexpired Leases to be Rejected...............    41
   Releases, Limitation of Liability, Injunctions and Preservation of
      Insurance..........................................................    41
      Release of Claims and Termination of Interests; Limitation of
         Liability.......................................................    41
      Injunctions........................................................    43
      Preservation of Insurance..........................................    43
      No Discharge.......................................................    43
   Means for Implementation of the Plan..................................    43
      Liquidating Transactions...........................................    43
      Corporate Action...................................................    44
      No Revesting of Assets.............................................    44
      Recourse Solely to Trust Accounts..................................    44
      Release of Liens...................................................    44
      Exemption from Certain Taxes.......................................    45
   Distribution Trust....................................................    45
      Creation of the Distribution Trust.................................    45
      Distribution Trust Assets..........................................    45
      Purposes of the Distribution Trust.................................    45
      Tax Treatment......................................................    46
      Trust Accounts.....................................................    46
         Distribution Trust Expenses Account.............................    46
         Priority Claims Trust Account...................................    47



                                       ii

                                TABLE OF CONTENTS
                                   (continued)



                                                                            PAGE
                                                                            ----
                                                                         
         Unsecured Claims Trust Account..................................    48
         Disputed Claims Reserve.........................................    48
         Undeliverable Property Trust Account............................    49
         Risks Associated with Funding of Trust Accounts.................    49
      Powers of the Distribution Trustee.................................    50
         General Powers..................................................    50
         Right to Object to Claims.......................................    51
         Right to Pursue Causes of Action................................    51
         Right to Vote the Retained Portion of the KFC Claim.............    51
      Limitation on Liability and Indemnification of Distribution
         Trustee.........................................................    51
      Removal and Resignation of the Distribution Trustee; Filling of
         Vacancy.........................................................    52
      Compensation of the Distribution Trustee...........................    52
      Books and Records; Reports and Tax Filings.........................    52
         Books and Records...............................................    52
         Reports to be Filed with the Bankruptcy Court...................    52
         Tax Returns and Payments........................................    53
      Term of the Distribution Trust.....................................    53
DISTRIBUTIONS UNDER THE PLAN.............................................    54
   Method of Distributions to Holders of Allowed Claims..................    54
   Delivery of Distributions.............................................    54
      Generally..........................................................    54
      Special Provisions for Distributions to Holders of Public Note
         Claims..........................................................    54
   Undeliverable or Unclaimed Distributions..............................    54
   Means of Cash Payments................................................    55
   Timing and Calculation of Amounts to Be Distributed...................    55
      Allowed Claims Other Than Unsecured Claims.........................    55
      Allowed Unsecured Claims in Subclass 3A; Certain Payments From the
         Public Note Distributable Consideration.........................    55
         Plan Accepted by Subclass 3A and Subclass 3B....................    55
         Plan Rejected by Subclass 3A or Subclass 3B.....................    56
      Allowed Unsecured Claims in Subclass 3B............................    56
         Plan Accepted by Subclass 3A and Subclass 3B....................    56
         Plan Rejected by Subclass 3A or Subclass 3B.....................    56
      Allowed Unsecured Claims in Subclass 3C and Subclass 3D............    56
      7-3/4% SWD Revenue Bonds...........................................    57
         Plan Accepted by Subclass 3A....................................    57



                                       iii

                                TABLE OF CONTENTS
                                   (continued)



                                                                            PAGE
                                                                            ----
                                                                         
         Plan Rejected by Subclass 3A....................................    57
      No De Minimis Distributions........................................    57
      Compliance with Tax Requirements...................................    58
      Setoffs  ..........................................................    58
   Compensation and Reimbursement for Services Related to Distributions..    58
   Payments Limited to Trust Accounts....................................    58
   Insufficient Assets...................................................    58
   Distributions of Securities...........................................    59
   Disputed Claims.......................................................    59
      Prosecution of Objections to Claims................................    59
      Treatment of Disputed Claims.......................................    59
VOTING AND CONFIRMATION OF THE PLAN......................................    60
   General...............................................................    60
   Voting Procedures and Requirements....................................    60
   Confirmation Hearing..................................................    61
   Confirmation..........................................................    61
      Acceptance or Cramdown.............................................    62
      Best Interests Test................................................    62
         Generally.......................................................    62
         Liquidation Analysis............................................    63
      Feasibility........................................................    63
      Compliance with Applicable Provisions of the Bankruptcy Code.......    63
      Modification or Revocation of the Plan.............................    64
   Alternatives to Confirmation and Consummation of the Plan.............    64
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN......    64
   General...............................................................    64
   U.S. Federal Income Tax Consequences to Holders of Claims.............    65
      Recognition of Gain or Loss........................................    65
         In General......................................................    65
         Post-Effective Date Cash Distributions..........................    65
         Bad Debt and/or Worthless Securities Deduction..................    66
      Pending Payments...................................................    66
      Payments Other than Pending Payments...............................    66
   Certain Other Tax Consequences for Holders of Claims..................    66
      Receipt of Pre-Effective Date Interest.............................    66



                                       iv

                                TABLE OF CONTENTS
                                   (continued)



                                                                            PAGE
                                                                            ----
                                                                         
      Installment Method.................................................    66
      Information Reporting and Backup Withholding.......................    67
   Importance of Obtaining Professional Tax Assistance...................    67
APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS...............    67
   General...............................................................    67
   Bankruptcy Code Exemptions from Registration Requirements.............    67
      Initial Offer and Sale.............................................    67
      Subsequent Transfers...............................................    68
ADDITIONAL INFORMATION...................................................    68
RECOMMENDATION AND CONCLUSION............................................    69



                                        v

                                TABLE OF EXHIBITS

           
Exhibit I -   Third Amended Joint Plan of Liquidation for Kaiser Alumina
              Australia Corporation and Kaiser Finance Corporation




                                       vi

                                  INTRODUCTION

     The Debtors are seeking approval of the Plan, a copy of which is attached
hereto as Exhibit I. This Disclosure Statement is submitted by the Debtors in
connection with the solicitation of acceptances of the Plan.

     The confirmation of a plan of reorganization or liquidation, which is the
vehicle for satisfying the rights of holders of claims against and interests in
a debtor, is the overriding purpose of a chapter 11 case. Chapter 11 may be used
to either reorganize or conduct an orderly liquidation of a debtor's business.
The Plan provides for the orderly liquidation and dissolution of the Debtors.
The primary objectives of the Plan are to:

     -    maximize the value of the ultimate recoveries to all creditor groups
          on a fair and equitable basis;

     -    settle, compromise or otherwise dispose of certain Claims and other
          disputes on terms that the Debtors believe to be fair and reasonable
          under the circumstances and in the best interests of their respective
          Estates and creditors and Kaiser Aluminum & Chemical Corporation
          ("KACC"), as the sole stockholder of KAAC, and KAAC, as the sole
          stockholder of KFC; and

     -    effectuate the orderly liquidation and dissolution of the Debtors.

     The Plan provides for, among other things, (a) the classification and
treatment of Claims and Interests; (b) the establishment of the Distribution
Trust to make distributions in accordance with the Plan; (c) the creation and
administration of the Trust Accounts; and (d) the liquidation of the Debtors.

     PLEASE REFER TO THE CHART BEGINNING ON PAGE 15 OF THIS DISCLOSURE STATEMENT
FOR A SUMMARY OF THE PROPOSED TREATMENT OF EACH CLASS OF CLAIMS AND INTERESTS.

     If the Plan is confirmed and consummated in accordance with its terms,
among other things:

     -    holders of Allowed Administrative Claims, Allowed Priority Tax Claims
          and Allowed Priority Claims in Class 1 will receive Cash from the
          Priority Claims Trust Account in the amount of their respective
          Allowed Claim without interest or penalty;

     -    holders of Allowed 9-7/8% Senior Note Claims and 10-7/8% Senior Note
          Claims in Subclass 3A:

          -    if both Subclass 3A and Subclass 3B vote to accept the Plan, will
               receive from the Unsecured Claims Trust Account their respective
               Pro Rata Share of the Public Note Distributable Consideration
               (i.e., the Public Note Percentage of the Cash and other property
               in the Unsecured Claims Trust Account) remaining after first
               giving effect to the following payments by the Distribution
               Trustee from the Public Note Distributable Consideration:

               -    the payment to be made to the 7-3/4% SWD Revenue Bond
                    Indenture Trustee for the benefit of the holders of the
                    7-3/4% SWD Revenue Bonds pursuant to Section 2.5 of the Plan
                    (the "7-3/4% SWD Revenue Bonds Payment");

               -    the payment of the reasonable out-of-pocket expenses
                    (including attorneys' fees) incurred and paid by the
                    plaintiffs in the 7-3/4% SWD Revenue Bond Dispute in
                    connection with the Chapter 11 Cases and the chapter 11
                    cases of the Other Kaiser Debtors, including in connection
                    with the 7-3/4% SWD Revenue Bond Dispute and that certain
                    civil action currently pending before the United States
                    District Court for the Eastern District of Louisiana styled
                    Paul J. Guillot, et al. v. Credit Suisse First Boston, LLC,
                    and numbered 03-0797 in accordance with the Plan up to an
                    amount which, when aggregated with any amount payable under
                    the comparable provision of the AJI/KJC Plan, will not
                    exceed $500,000 (the "7-3/4% SWD Revenue Bond Plaintiffs'
                    Expense Payments");

               -    to the extent not otherwise paid under the AJI/KJC Plan, the
                    payment of the aggregate fees and expenses of the 9-7/8%
                    Senior Note Indenture Trustee, the 10-7/8% Senior Note
                    Indenture Trustee and the counsel for the Ad Hoc Group in
                    accordance with the Plan (the "Senior Notes Fee Payments");
                    and

               -    the payment of $8.0 million to be made to the Senior
                    Subordinated Note Indenture Trustee for the benefit of the
                    holders of Senior Subordinated Note Claims; or

          -    if either Subclass 3A or Subclass 3B fails to accept the Plan,
               will receive that portion of the Public Note Distributable
               Consideration to which the Bankruptcy Court determines they are
               entitled, provided the distributions ultimately made to a holder
               of an Allowed Senior Note Claim will be reduced by such holder's
               proportional share of the Senior Notes Fee Payments and, if the
               Bankruptcy Court determines that holders of Allowed Senior
               Subordinated Note Claims are not entitled to any portion of the
               Subclass 3A Distributable Consideration, the 7-3/4% SWD Revenue
               Bond Payment (or a reservation in lieu thereof), if any, and any
               7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments;

     -    holders of Allowed Senior Subordinated Note Claims in Subclass 3B:

          -    if both Subclass 3A and Subclass 3B vote to accept the Plan, will
               receive their respective Pro Rata Share of $8.0 million to be
               paid to the Senior Subordinated Note Indenture Trustee, provided
               that any and all fees or expenses payable to the Senior
               Subordinated Note Indenture Trustee pursuant to the Senior
               Subordinated Note Indenture will, in all events, be payable
               solely from such $8.0 million; or

          -    if either Subclass 3A or Subclass 3B fails to accept the Plan,
               will receive that portion, if any, of the Public Note
               Distributable Consideration to which the Bankruptcy Court
               determines they are entitled, provided any distributions
               ultimately made to a holder of an Allowed Senior Subordinated
               Note Claim may be reduced by such holder's proportional share of
               any and all fees and expenses payable to the Senior Subordinated
               Note Trustee pursuant to the Senior Subordinated Note Indenture,
               which will, subject to such Trustee's right to seek payment by
               the Debtors of such fees and expenses pursuant to section
               503(b)(5) of the Bankruptcy Code, be payable solely from such
               distributions;

     -    Pension Benefit Guaranty Corporation (the "PBGC"), as the holder of
          the PBGC Claims in Subclass 3C, will receive the PBGC Percentage of
          the Cash and other property in the Unsecured Claims Trust Account; and

     -    holders of Allowed Other Unsecured Claim in Subclass 3D will receive
          their respective Pro Rata Share of the Other Unsecured Claims
          Percentage of the Cash and other property in the Unsecured Claims
          Trust Account.

As the foregoing indicates, in general, all holders of Claims will have
recourse, if any, only to the Cash and other property in the applicable Trust
Accounts. The Debtors will cease to exist as legal entities following
consummation of the Plan. See "Overview of the Plan -- Summary of Classes and
Treatment of Claims and Interests."

     SUBJECT TO THE PROVISIONS OF SECTION 2.11 OF THE PLAN, AS OF THE EFFECTIVE
DATE, IN CONSIDERATION FOR THE OBLIGATIONS OF THE DEBTORS AND THE DISTRIBUTION
TRUSTEE UNDER THE PLAN AND THE CASH TO BE DISTRIBUTED IN CONNECTION WITH THE
PLAN, EACH HOLDER OF A CLAIM THAT VOTES IN FAVOR OF THE PLAN WILL BE DEEMED TO
FOREVER RELEASE AND WAIVE ALL CLAIMS, OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES,
DEMANDS, DEBTS, RIGHTS, CAUSES OF ACTION AND LIABILITIES (OTHER THAN THE RIGHT
TO ENFORCE THE DEBTORS' OR THE DISTRIBUTION TRUSTEE'S OBLIGATIONS UNDER THE PLAN
AND THE CONTRACTS, INSTRUMENTS, RELEASES AND OTHER AGREEMENTS AND DOCUMENTS
DELIVERED THEREUNDER), WHETHER LIQUIDATED OR UNLIQUIDATED, FIXED


                                       2

OR CONTINGENT, MATURED OR UNMATURED, KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN,
THEN EXISTING OR THEREAFTER ARISING IN LAW, EQUITY OR OTHERWISE, THAT ARE BASED
IN WHOLE OR IN PART ON ANY ACT, OMISSION, TRANSACTION OR OTHER OCCURRENCE TAKING
PLACE ON OR PRIOR TO THE EFFECTIVE DATE IN ANY WAY RELATING TO A DEBTOR, THE
CHAPTER 11 CASES OR THE PLAN THAT SUCH ENTITY HAS, HAD OR MAY HAVE AGAINST THE
CREDITORS' COMMITTEE, ITS MEMBERS, ANY INDENTURE TRUSTEE, EITHER DEBTOR AND ANY
OF THEIR RESPECTIVE PRESENT OR FORMER DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ADVISORS, ATTORNEYS, ACCOUNTANTS, UNDERWRITERS, INVESTMENT BANKERS OR OTHER
REPRESENTATIVES, ACTING IN SUCH CAPACITY, EXCEPT FOR THOSE BASED ON: (A) ACTS OR
OMISSIONS OF ANY SUCH PERSON CONSTITUTING GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT; (B) IF THE HOLDERS OF THE SENIOR SUBORDINATED NOTE CLAIMS ARE
DETERMINED BY THE ORDER CONTEMPLATED BY SECTIONS 2.4(C)(I)(B) AND 2.4(C)(II)(B)
TO BE ENTITLED TO A DISTRIBUTION IN RESPECT TO SUCH CLAIMS, ACTS OR OMISSIONS OF
ANY SUCH PERSON RELATED TO OR GIVING RISE TO THE CIRCUMSTANCES UNDERLYING ANY OF
THE CONTRACTUAL SUBORDINATION DISPUTES; OR (C) CONTRACTUAL OBLIGATIONS OF, OR
LOANS OWED BY, ANY SUCH PERSON TO A DEBTOR. SEE "GENERAL INFORMATION CONCERNING
THE PLAN -- RELEASES, LIMITATION OF LIABILITY, AND INJUNCTIONS -- RELEASE OF
CLAIMS AND TERMINATION OF INTERESTS; LIMITATION OF LIABILITY."

     EXCEPT AS OTHERWISE PROVIDED IN THE PLAN OR THE CONFIRMATION ORDER, AS OF
THE EFFECTIVE DATE, ALL ENTITIES THAT HAVE HELD, CURRENTLY HOLD OR MAY HOLD A
CLAIM OR OTHER DEBT OR LIABILITY OF THE DEBTORS, OR AN INTEREST OR OTHER RIGHT
OF AN EQUITY SECURITY HOLDER WITH RESPECT TO THE DEBTORS, THAT IS RELEASED,
WAIVED, SETTLED OR DEEMED SATISFIED PURSUANT TO THE PLAN WILL BE PERMANENTLY
ENJOINED FROM TAKING ANY OF THE FOLLOWING ACTIONS ON ACCOUNT OF ANY SUCH CLAIMS,
DEBTS, LIABILITIES, INTERESTS OR RIGHTS: (A) COMMENCING OR CONTINUING IN ANY
MANNER ANY ACTION OR OTHER PROCEEDING AGAINST THE DEBTORS, THE DISTRIBUTION
TRUST OR THE DISTRIBUTION TRUSTEE OR THE PROPERTY OF ANY OF THEM OTHER THAN TO
ENFORCE ANY RIGHT PURSUANT TO THE PLAN TO A DISTRIBUTION FROM THE TRUST
ACCOUNTS; (B) ENFORCING, ATTACHING, COLLECTING OR RECOVERING IN ANY MANNER ANY
JUDGMENT, AWARD, DECREE OR ORDER AGAINST THE DEBTORS, THE DISTRIBUTION TRUST OR
THE DISTRIBUTION TRUSTEE, OTHER THAN AS PERMITTED PURSUANT TO (A) ABOVE; (C)
CREATING, PERFECTING OR ENFORCING ANY LIEN OR ENCUMBRANCE AGAINST THE DEBTORS,
THE DISTRIBUTION TRUST, THE PROPERTY OF ANY OF THEM OR THE TRUST ACCOUNTS; (D)
ASSERTING A SETOFF, RIGHT OF SUBROGATION OR RECOUPMENT OF ANY KIND AGAINST ANY
DEBT, LIABILITY OR OBLIGATION DUE TO THE DISTRIBUTION TRUST; AND (E) COMMENCING
OR CONTINUING ANY ACTION, IN ANY MANNER, IN ANY PLACE THAT DOES NOT COMPLY WITH
OR IS INCONSISTENT WITH THE PROVISIONS OF THE PLAN. SEE "GENERAL INFORMATION
CONCERNING THE PLAN -- LEGAL EFFECTS OF THE PLAN -- RELEASES, LIMITATION OF
LIABILITY, AND INJUNCTIONS -- INJUNCTIONS."

     BY AN ORDER OF THE BANKRUPTCY COURT DATED FEBRUARY 28, 2005, THIS
DISCLOSURE STATEMENT HAS BEEN APPROVED AS CONTAINING "ADEQUATE INFORMATION" FOR
CREDITORS OF THE DEBTORS IN ACCORDANCE WITH SECTION 1125 OF THE BANKRUPTCY CODE.
THE BANKRUPTCY CODE DEFINES "ADEQUATE INFORMATION" AS "INFORMATION OF A KIND,
AND IN SUFFICIENT DETAIL, AS FAR AS IS REASONABLY PRACTICABLE IN LIGHT OF THE
NATURE AND THE HISTORY OF THE DEBTOR AND THE CONDITION OF THE DEBTOR'S BOOKS AND
RECORDS, THAT WOULD ENABLE A HYPOTHETICAL REASONABLE INVESTOR TYPICAL OF HOLDERS
OF CLAIMS OR INTERESTS OF THE RELEVANT CLASS TO MAKE AN INFORMED JUDGMENT ABOUT
THE PLAN . . . ." 11 U.S.C. SECTION 1125(A)(1).

     THE DEBTORS' BOARDS OF DIRECTORS BELIEVE THAT THE PLAN IS IN THE BEST
INTERESTS OF CREDITORS UNDER THE CIRCUMSTANCES. ALL CREDITORS ENTITLED TO


                                       3

VOTE ARE URGED TO VOTE IN FAVOR OF THE PLAN BY NO LATER THAN 5:00 P.M., EASTERN
TIME, ON APRIL 5, 2005 OR SUCH OTHER TIME OR DATE IDENTIFIED ON YOUR BALLOT.

     The requirements for confirmation of the Plan under the Bankruptcy Code,
including the vote of creditors to accept the Plan and certain of the statutory
findings that must be made by the Bankruptcy Court, are described in "Voting and
Confirmation of the Plan." Confirmation of the Plan and the occurrence of the
Effective Date are also subject to a number of significant conditions, which are
set forth in the Plan and summarized in "Answers To Certain Questions About The
Plan And Disclosure Statement -- What must happen before the Plan can be
consummated?" There is no assurance that these conditions will be satisfied or
waived.

      ANSWERS TO CERTAIN QUESTIONS ABOUT THE PLAN AND DISCLOSURE STATEMENT

     The information presented in the answers to the questions set forth below
is qualified in its entirety by reference to the full text of this Disclosure
Statement, including the Plan attached hereto as Exhibit I. ALL CREDITORS
ENTITLED TO VOTE ON THE PLAN ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THIS
ENTIRE DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED HERETO AS EXHIBIT I,
PRIOR TO SUBMITTING A BALLOT OR BALLOTS TO ACCEPT OR REJECT THE PLAN.

WHAT IS THIS DOCUMENT AND WHY AM I RECEIVING IT?

     On February 12, 2002, KACC and KFC, along with their parent companies and
certain of their affiliates, filed petitions for relief under chapter 11 of the
Bankruptcy Code. The reasons the Debtors Filed for such protection are described
under "Certain Events Preceding the Debtors' Chapter 11 Filings." In connection
with their proposed liquidation pursuant to chapter 11, the Debtors have
prepared the Joint Plan of Liquidation attached as Exhibit I to this Disclosure
Statement (i.e., the Plan), which sets forth in detail the proposed treatment of
the Claims of the Debtors' creditors and the Interests of KACC, as the sole
stockholder of KAAC, and KAAC, as the sole stockholder of KFC. This Disclosure
Statement describes the terms of, and certain other material information
relating to, the Plan.

     This Disclosure Statement is being delivered to you in connection with the
Debtors' solicitation of votes with respect to the Plan because either (a) you
are the holder of, or have otherwise asserted, a Claim or Claims against either
or both of the Debtors or (b) you are the holder of a 7-3/4% SWD Revenue Bond.
This Disclosure Statement is intended to provide you with information sufficient
to make an informed to decision as to whether to vote to accept or reject the
Plan (to the extent you are eligible to do so).

AM I ELIGIBLE TO VOTE TO ACCEPT OR REJECT THE PLAN?

     You are entitled to vote to accept or reject the Plan only if you hold an
Allowed Unsecured Claim (or an Unsecured Claim which has been temporarily
allowed for voting purposes) against one or both Debtors. In accordance with
section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority
Tax Claims have not been classified and thus are excluded from the Classes, and
if you are a holder of an Administrative Claim or Priority Tax Claim, you are
not eligible to vote with respect to the Plan. If you hold a Priority Claim or a
Secured Claim against either Debtor, because you are receiving Cash or property
equal in value to the allowed amount of such Claim, you are deemed to have
accepted the Plan and may not vote with respect to it. While the Plan includes a
proposed settlement of certain claims asserted by holders of 7-3/4% SWD Revenue
Bonds (see "Operations During the Chapter 11 Cases -- 7-3/4% SWD Revenue Bond
Dispute), such holders do not have Claims against the Debtors and, accordingly,
are not entitled to vote on the Plan. Because such proposed settlement will
affect Other Kaiser Debtors, a motion seeking approval of the settlement will be
Filed, and such holders and other creditors or claimants affected by such
settlement may file an objection to it with the Bankruptcy Court on or prior to
April 5, 2005. See "Voting and Confirmation of the Plan -- Voting Procedures and
Requirements."

WHY SHOULD I VOTE TO ACCEPT THE PLAN?

     KAAC has entered into an agreement to sell its interests in QAL and, upon
the consummation of such sale, will no longer be an operating entity. See
"Operations During the Chapter 11 Cases -- The Sale of the QAL


                                       4

Interests and Liquidation of KAAC." Following such sale, KAAC's only remaining
assets will be Cash and its Interest in its wholly owned non-operating
subsidiary, KFC. KFC is not an operating company and has no material assets
other than its claim against KACC described below. See "-- KFC Claim Against
KACC." As such, the only alternatives to confirmation and consummation of the
Plan are conversion of the Chapter 11 Cases to cases under chapter 7 of the
Bankruptcy Code and the confirmation and consummation of an alternative plan of
liquidation under chapter 11 of the Bankruptcy Code. The Debtors believe that
the confirmation and consummation of the Plan is in the best interests of the
Debtors' stakeholders and is preferable to either alternative.

     CHAPTER 7 LIQUIDATION

     The Debtors believe that the Plan provides for the liquidation of the
Debtors in a manner significantly more efficient than would occur in the event
the Chapter 11 Cases were converted to cases under chapter 7 of the Bankruptcy
Code. KFC has no material assets other than a claim against KACC, which will be
subject to treatment under KACC's plan of reorganization and, upon consummation
of the sale of KAAC's interests in QAL (the "QAL Interests"), KAAC's Estate will
have been substantially liquidated and converted to Cash proceeds, subject only
to receipt of the proceeds, if any, received from the successful prosecution,
settlement, or collection of Recovery Actions (the "Recovery Action Proceeds").
The Debtors are not aware of the existence of any claim against a third party
that would constitute a Recovery Action. Further, the Debtors have been informed
that the Creditors' Committee conducted an analysis of potential preference
actions and determined that there were no viable preference actions concerning
payments made by the Debtors. The Debtors believe that conversion to chapter 7
of the Bankruptcy Code would result in additional costs relating to the
appointment of a chapter 7 trustee, likely delays in distributions to all
creditors who would be entitled to receive a distribution under the Plan (thus
reducing the present value of such distributions) and diminished recoveries for
holders of Allowed Unsecured Claims. See "Voting and Confirmation of the Plan --
Confirmation -- Best Interests Test."

     ALTERNATIVE CHAPTER 11 LIQUIDATION

     The Plan has been negotiated by the Debtors and representatives of certain
of the Debtors' most significant creditors, including the Creditors' Committee
(a committee appointed by the Bankruptcy Court to represent the interests of the
Debtors' unsecured creditors), which has independently concluded that the Plan
is in the best interests of creditors. Therefore, the Debtors believe that
negotiating an alternative plan of liquidation under chapter 11 of the
Bankruptcy Code is unlikely to alter significantly the relative treatment of
Claims. The Debtors believe that negotiating such an alternative plan would
result in additional professional costs in connection with such negotiations,
likely delays in distributions to all creditors who would be entitled to receive
a distribution under the Plan (thus reducing the present value of such
distributions) and potentially diminished recoveries for holders of Allowed
Unsecured Claims.

HOW DO I VOTE TO ACCEPT OR REJECT THE PLAN?

     If you are the holder of an Allowed Unsecured Claim (other than a holder of
a Senior Note Claim or Senior Subordinated Note Claim held through a nominee)
against one or both of the Debtors and are, therefore, entitled to vote on the
Plan, complete, execute and return your Ballot or Ballots in accordance with the
instructions to Logan & Company, Inc., 546 Valley Road, Upper Montclair, New
Jersey 07043 (unless another address is set forth on the preaddressed enveloped
provided to you) on or prior to 5:00 P.M. Eastern Time, on April 5, 2005 (unless
another time or date is identified on your Ballot). If your vote is not received
by that time and date, it will not be counted. If you are the holder of a Senior
Note Claim or Senior Subordinated Note Claim held in the name of a broker,
dealer, commercial bank, trust company or other nominee, you must complete and
deliver to such nominee the Ballot or Ballots provided to such holder in order
to vote on the Plan; we urge you to deliver such Ballot or Ballots to your
nominee holder or holders no later than the date identified on such Ballot or
Ballots in order to ensure that your vote will be counted. If you are entitled
to vote and you did not receive a Ballot, received a damaged Ballot or lost your
Ballot, please call the Debtors' voting agent, Logan & Company, at (973)
509-3190. See "Voting and Confirmation of the Plan -- Voting Procedures and
Requirements."


                                       5

WHAT IF I'M ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN AND DON'T?

     In general, within any particular Class of Claims, only those holders who
actually vote to accept or reject the Plan will affect whether the Plan is
accepted by the requisite holders of Claims in such Class. In order for the Plan
to be accepted by each Subclass of Class 3 (Unsecured Claims), the holders
representing at least two-thirds in dollar amount and a majority in number of
Allowed Claims in each such Subclass held by holders of such Claims who actually
vote to accept or reject the Plan must vote to accept the Plan. Thus, if you
hold an Unsecured Claim, your failure to vote in respect of such Claim will
count as neither a vote for acceptance nor a vote for rejection of the Plan. See
"Voting and Confirmation of the Plan -- Confirmation -- Acceptance or Cramdown."

WHAT HAPPENS IF THE PLAN IS NOT ACCEPTED BY EACH CLASS ENTITLED TO VOTE ON THE
PLAN?

     If the holders of each Class of Claims entitled to vote on the Plan (i.e.,
Subclass 3A, Subclass 3B, Subclass 3C and Subclass 3D) reject the Plan, the Plan
will not be confirmed or consummated in its present form. However, as long as
the requisite holders of Claims in at least one such Subclass vote to accept the
Plan, the Debtors may seek confirmation pursuant to the "cramdown" provisions of
the Bankruptcy Code (which will require a determination by the Bankruptcy Court
that that the Plan is "fair and equitable" and "does not discriminate unfairly"
as to each nonaccepting Subclass). The Debtors believe that the Plan satisfies
the "cramdown" provisions of the Bankruptcy Code and, in any case, have reserved
the right to modify the Plan to the extent that confirmation thereunder requires
modification. See "Voting and Confirmation of the Plan -- Confirmation --
Acceptance or Cramdown."

WHAT WILL I ACTUALLY RECEIVE IN RESPECT OF MY CLAIM IF THE PLAN IS CONFIRMED AND
GOES EFFECTIVE?

     If you are the holder of an Allowed Claim against either Debtor, what you
will actually receive, if anything, in respect of such Claim will depend on the
classification of that Claim. For detailed information about the classification
and treatment of creditors under the Plan, see "Overview of the Plan -- Summary
of Classes and Treatment of Claims and Interests."

     Unlike the holders of Allowed Administrative Claims, Allowed Priority Tax
Claims, Allowed Priority Claims or Allowed Secured Claims against the Debtors,
holders of Allowed Claims in Subclass 3A, Subclass 3B, Subclass 3C and Subclass
3D will not receive Cash or property in an amount equal to 100% of the amount of
their Claims.

     HOLDERS OF ALLOWED SENIOR NOTE CLAIMS IN SUBCLASS 3A

          If the Plan is accepted by both Subclass 3A and Subclass 3B

     If both Subclass 3A and Subclass 3B vote to accept the Plan, a holder of an
Allowed Senior Note Claim will be entitled to a distribution of its Pro Rata
Share of the Public Note Distributable Consideration remaining after first
giving effect to certain payments by the Distribution Trustee from the Public
Note Distributable Consideration as discussed below. For purposes of the Plan,
(a) the term "Public Note Distributable Consideration" means the Public Note
Percentage of the Cash and other property in the Unsecured Claims Trust Account;
(b) the term "Public Note Percentage" means (i) 68% less (ii) 68% of the Other
Unsecured Claims Percentage; (c) the term "Other Unsecured Claims Percentage"
means the percentage equal to the ratio of (i) the aggregate amount of all
Allowed Other Unsecured Claims to (ii) the sum of (A) the aggregate amount of
all Allowed Other Unsecured Claims and (B) $1,237,237,000; and (d) the term "Pro
Rata Share" means, when used with reference to a distribution to a holder of an
Allowed Claim in a Subclass of Class 3, that share of the Cash or other property
to be distributed on account of all Allowed Claims in such Subclass so that the
ratio of (i)(A) the amount of Cash or other property to be distributed on
account of the particular Allowed Claim to (B) the amount of such Allowed Claim,
is the same as the ratio of (ii)(A) the aggregate amount of Cash or other
property to be distributed on account of all Allowed Claims in such Subclass to
(B) the aggregate amount of all Allowed Claims in such Subclass.

     The Unsecured Claims Trust Account will be funded with the Debtors' Cash
remaining after (a) the payment of reasonable fees, costs and expenses incurred
by the Distribution Trustee in connection with the


                                       6

performance of its duties in accordance with the Plan and the Distribution Trust
Agreement; (b) the distribution of Cash or property in accordance with the Plan
to holders of Claims having a higher priority than Claims in Subclass 3A,
Subclass 3B, Subclass 3C or Subclass 3D; and (c) any payment required to be made
by the Debtors to KACC in accordance with the Intercompany Claim Settlement
("Intercompany Settlement Payments"). In addition, the Unsecured Claims Trust
Account will hold the Retained Portion of the KFC Claim and, when received, any
distributions ultimately made by KACC in respect of the Retained Portion of the
KFC Claim. After the Public Note Distributable Consideration is calculated as
described above, to determine the Cash and other property to be distributed to
holders of Senior Note Claims, the following payments must first be deducted
from the Public Note Distributable Consideration:

     -    the 7-3/4% SWD Revenue Bonds Payment;

     -    the 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments;

     -    the Senior Notes Fee Payments; and

     -    the payment of the $8.0 million to be made to the Senior Subordinated
          Note Indenture Trustee for the benefit of the holders of Senior
          Subordinated Note Claims.

Notwithstanding anything contained in the Plan to the contrary, no distributions
in respect of the Retained Portion of the KFC Claim will be made, and the
Retained Portion of the KFC Claim will be held in the Unsecured Claims Trust
Account, until receipt by the Distribution Trustee of distributions in respect
thereof from KACC pursuant to a confirmed plan of reorganization of KACC or
otherwise; upon receipt from KACC of such distributions in respect of the
Retained Portion of the KFC Claim, in-kind distributions consisting of the
property so received by the Distribution Trustee from KACC will be made to
holders of Allowed Claims in Subclass 3A, Subclass 3C and Subclass 3D in
accordance with the terms of the Plan.

     Accordingly, if the Plan is accepted by both Subclass 3A and Subclass 3B,
the recovery by holders of Allowed Senior Note Claims will depend upon a number
of factors, including:

     -    the amount of Cash ultimately available to the Estates of the Debtors;

     -    the amount of Distribution Trust Expenses;

     -    the amount of Allowed Secured Claims, Allowed Administrative Claims,
          Allowed Priority Claims and Allowed Priority Tax Claims;

     -    the amount of the 7-3/4% SWD Revenue Bonds Payment;

     -    the amount of the 7-3/4% SWD Revenue Bond Plaintiffs' Expense
          Payments;

     -    the amount of the Senior Notes Fee Payments;

     -    the amount of the Intercompany Settlement Payments, if any;

     -    the aggregate amount of Allowed Other Unsecured Claims, if any; and

     -    the value of any property distributed by KACC in respect of the
          Retained Portion of the KFC Claim.

See "Overview of the Plan -- Sources and Uses of Cash" for the Debtors' current
estimates of Cash available for distribution to holders of Allowed Senior Note
Claims.


                                       7

     Pursuant to the AJI/KJC Plan, if holders of the Senior Note Claims and the
Senior Subordinated Note Claims vote to accept the AJI/KJC Plan, then an
additional $8.0 million will be paid to the Senior Subordinated Note Indenture
Trustee for the benefit of holders of Senior Subordinated Note Claims, with such
amount to be paid from consideration that would otherwise be distributed to
holders of Allowed Senior Note Claims under the AJI/KJC Plan.

          If the Plan is rejected by either Subclass 3A or Subclass 3B

     If either Subclass 3A or Subclass 3B fails to accept the Plan, the holders
of 9-7/8% Senior Note Claims and 10-7/8% Senior Note Claims in Subclass 3A will
receive that portion of the Public Note Distributable Consideration to which the
Bankruptcy Court determines they are entitled in respect of such Claims. The
distributions ultimately made to a holder of an Allowed Senior Note Claim will
be reduced by such holder's proportional share of:

     -    the Senior Notes Fee Payments;

     -    any 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments; and

     -    if the Bankruptcy Court determines that holders of Allowed Senior
          Subordinated Note Claims are not entitled to any portion of the Public
          Note Distributable Consideration, the 7-3/4% SWD Revenue Bond Payment
          (or reservation in lieu thereof), if any. See "-- What will I receive
          in respect of my 7-3/4% SWD Revenue Bond if the Plan is confirmed and
          goes effective and when will I receive it?"

In such event, the recovery by holders of Allowed Senior Notes Claims will
depend on the determination of the Bankruptcy Court with respect to the relative
entitlement of the holders of Senior Note Claims and Senior Subordinated Note
Claims to the Public Note Distributable Consideration, as well as the factors
listed above. See "Overview of the Plan -- Sources and Uses of Cash" for the
Debtors' current estimates of Cash available for distribution to holders of
Allowed Senior Note Claims and Allowed Senior Subordinated Note Claims.

     HOLDERS OF ALLOWED SENIOR SUBORDINATED NOTE CLAIMS IN SUBCLASS 3B

          If the Plan is accepted by both Subclass 3A and Subclass 3B

     If both Subclass 3A and Subclass 3B vote to accept the Plan, a holder of an
Allowed Senior Subordinated Note Claim will receive its Pro Rata Share of $8.0
million (less any fees or expenses payable to the Senior Subordinated Note
Trustee pursuant to the Senior Subordinated Note Indenture).

     Pursuant to the AJI/KJC Plan, if holders of the Senior Note Claims and the
Senior Subordinated Note Claims vote to accept the AJI/KJC Plan, then an
additional $8.0 million will be paid to the Senior Subordinated Note Indenture
Trustee for the benefit of holders of Senior Subordinated Note Claims, with such
amount to be paid from consideration that would otherwise be distributed to
holders of Allowed Senior Note Claims under the AJI/KJC Plan.

          If the Plan is rejected by either Subclass 3A or Subclass 3B

     If either Subclass 3A or Subclass 3B fails to accept the Plan, the holders
of Senior Subordinated Note Claims in Subclass 3B will receive that portion, if
any, of the Public Note Distributable Consideration to which the Bankruptcy
Court determines they are entitled in respect of such Claims, provided any
distributions ultimately made to a holder of an Allowed Senior Subordinated Note
Claim may be reduced by such holder's proportional share of any and all fees and
expenses payable to the Senior Subordinated Note Trustee pursuant to the Senior
Subordinated Note Indenture, which will, subject to such Trustee's right to seek
payment by the Debtors of such fees and expenses pursuant to section 503(b)(5)
of the Bankruptcy Code, be payable solely from such distributions. Accordingly,
as with the recoveries by holders of Allowed Senior Notes Claims in the scenario
in which either the Subclass 3A or Subclass 3B fails to accept the Plan, the
recovery by the holders of Allowed Senior Subordinated Note Claims in this
situation will depend on a number of factors, including:


                                       8

     -    the amount of Cash ultimately available to the Estates of the Debtors;

     -    the amount of Distribution Trust Expenses;

     -    the amount of Allowed Secured Claims, Allowed Administrative Claims,
          Allowed Priority Claims and Allowed Priority Tax Claims;

     -    the amount of the Intercompany Settlement Payments, if any;

     -    the aggregate amount of Allowed Other Unsecured Claims, if any;

     -    the value of any property distributed by KACC in respect of the
          Retained Portion of the KFC Claim; and

     -    the determination of the Bankruptcy Court with respect to the relative
          entitlement of the holders of 9-7/8% Senior Note Claims, 10-7/8%
          Senior Note Claims and Senior Subordinated Note Claims to the Public
          Note Distributable Consideration.

See "Overview of the Plan -- Sources and Uses of Cash" for the Debtors' current
estimates of Cash available for distribution to holders of Allowed Senior Note
Claims and Allowed Senior Subordinated Note Claims.

     THE PBGC, AS THE HOLDER OF THE PBGC CLAIMS IN SUBCLASS 3C

     The PBGC, as holder of the PBGC Claims in Subclass 3C, will receive the
PBGC Percentage of the Cash in the Unsecured Claims Trust Account. For purposes
of the Plan, the term "PBGC Percentage" means (a) 32% less (b) 32% of the Other
Unsecured Claims Percentage.

     Accordingly, as with the recoveries by holders of Allowed Senior Note
Claims discussed above, the recovery by the PBGC, as the holder of the PBGC
Claims, will depend upon a number of factors, including:

     -    the amount of Cash ultimately available to the Estates of the Debtors;

     -    the amount of Distribution Trust Expenses;

     -    the amount of Allowed Secured Claims, Allowed Administrative Claims,
          Allowed Priority Claims and Allowed Priority Tax Claims;

     -    the amount of the Intercompany Settlement Payments, if any;

     -    the aggregate amount of Allowed Other Unsecured Claims, if any; and

     -    the value of any property distributed by KACC in respect of the
          Retained Portion of the KFC Claim.

See "Overview of the Plan -- Sources and Uses of Cash" for the Debtors' current
estimates of Cash available for distribution to the PBGC in respect of the PBGC
Claims in Subclass 3C.

     HOLDERS OF OTHER UNSECURED CLAIMS IN SUBCLASS 3D

     A holder of an Allowed Other Unsecured Claim will receive its Pro Rata
Share of the Other Unsecured Claims Percentage of the Cash in the Unsecured
Claims Trust Account.


                                       9

     Accordingly, as with the recoveries by holders of Senior Note Claims and by
the PBGC as the holder of the PBGC Claims discussed above, the recoveries by
holder of Other Unsecured Claims will depend upon a number of factors,
including:

     -    the amount of Cash ultimately available to the Estates of the Debtors;

     -    the amount of Distribution Trust Expenses;

     -    the amount of Allowed Secured Claims, Allowed Administrative Claims,
          Allowed Priority Claims and Allowed Priority Tax Claims;

     -    the amount of the Intercompany Settlement Payments, if any; and

     -    the value of any property distributed by KACC in respect of the
          Retained Portion of the KFC Claim.

Although several Other Unsecured Claims have been asserted, the Debtors believe
that such Claims are either de minimis in amount or will not constitute
allowable Claims; however, no assurance can be given that all Claims that the
Debtors believe not to be allowable will be disallowed in their entirety. See
"Overview of the Plan -- Sources and Uses of Cash."

WHAT WILL I RECEIVE IF MY CLAIM IS DISPUTED?

     No distributions will be made in respect of any Claim that is Disputed
until that Claim becomes an Allowed Claim, if ever. See "Distributions Under the
Plan -- Treatment of Disputed Claims."

IS THERE A PARTICULAR RECORD DATE FOR DETERMINING WHO WILL BE ENTITLED TO
RECEIVE DISTRIBUTIONS UNDER THE PLAN IN RESPECT OF AN ALLOWED CLAIM?

     Under the Plan, distributions in respect of an Allowed Claim will be made
only to the holder of that Claim as of the close of business on the Confirmation
Date (the "Distribution Record Date"). Neither the Debtors nor the Distribution
Trustee will recognize any purported transfer of a Claim following the
Distribution Record Date.

WHEN WILL I RECEIVE WHAT I AM ENTITLED TO RECEIVE IN RESPECT OF MY CLAIM IF THE
PLAN IS CONFIRMED AND GOES EFFECTIVE?

     HOLDERS OF ALLOWED CLAIMS OTHER THAN UNSECURED CLAIMS

     If you are the holder of an Administrative Claim, a Priority Tax Claim, a
Priority Claim or a Secured Claim that is allowed as of the Effective Date, you
will receive the distribution to which you are entitled under the Plan on
account of such Claim on or promptly after the Effective Date. If you are the
holder of a Secured Claim, Administrative Claim, a Priority Tax Claim, a
Priority Claim or a Secured Claim that is a Disputed Claim as of the Effective
Date, to the extent such Claim becomes an Allowed Claim after the Effective
Date, you should receive the distribution to which you are entitled under the
Plan on or promptly after the Quarterly Distribution Date next following the
date on which such Claim is allowed.

     HOLDERS OF ALLOWED UNSECURED CLAIMS IN SUBCLASS 3A

     If you are the holder of a Senior Note Claim and the Plan is accepted by
both Subclass 3A and Subclass 3B, you will receive an initial distribution on
account of such Claim on or promptly after the Effective Date. The amount of
initial distributions to be made to holders of Senior Note Claims that are
allowed as of the Effective Date will be calculated as if each Disputed Other
Unsecured Claim were an Allowed Other Unsecured Claim in its Face Amount as of
the Effective Date. In addition, on or promptly after each Quarterly
Distribution Date, you may receive an additional distribution on account of such
Claim in an amount equal to: (a) the amount of Cash and other


                                       10

property that you would have been entitled to receive pursuant to the Plan if
such Claim and each other Unsecured Claims allowed prior to such Quarterly
Distribution Date had been allowed as of the Effective Date minus (b) the
aggregate amount of Cash and other property previously distributed to you on
account of such Claim. See "Distributions Under the Plan -- Timing and
Calculation of Amounts to Be Distributed." All distributions to holders of
Senior Note Claims under the Plan will be made by the Distribution Trustee to
the applicable Indenture Trustee, which will thereafter forward such
distributions to such holders in due course.

     If you are the holder of an Allowed Senior Note Claim and the Plan is not
accepted by either Subclass 3A or Subclass 3B, the timing of the distribution to
which you will be entitled in respect of such Claim will depend upon when the
Bankruptcy Court makes the determination contemplated by the Plan to be made in
such circumstance.

     HOLDERS OF ALLOWED UNSECURED CLAIMS IN SUBCLASS 3B

     If you are the holder of an Allowed Senior Subordinated Note Claim and the
Plan is accepted by both Subclass 3A and Subclass 3B, you will receive the
distribution to which you are entitled under the Plan on account of such Claim
on or promptly after the Effective Date as described in this paragraph. On the
Effective Date, the Senior Subordinated Note Indenture Trustee will receive a
Cash payment in the amount of $8.0 million for the benefit of the holders of the
Allowed Senior Subordinated Note Claims. The Senior Subordinated Note Indenture
Trustee is entitled to deduct its fees and expenses from such payment prior to
making distributions to holders of Senior Subordinated Note Claims. In due
course following the Effective Date, the Senior Subordinated Note Indenture
Trustee will distribute to each holder of an Allowed Senior Subordinated Note
Claim its Pro Rata Share of such payment as reduced by any fees and expenses so
deducted. See "Distributions Under the Plan -- Timing and Calculation of Amounts
to Be Distributed."

     If you are the holder of an Allowed Senior Subordinated Note Claim and the
Plan is not accepted by either Subclass 3A or Subclass 3B, the timing of the
distribution, if any, to which you may be entitled in respect of such Claim will
depend upon when the Bankruptcy Court makes the determination contemplated by
the Plan to be made in such circumstance.

     HOLDERS OF ALLOWED UNSECURED CLAIMS IN SUBCLASS 3C AND SUBCLASS 3D

     If you are the holder of the PBGC Claims or an Other Unsecured Claim that
is allowed as of the Effective Date, you will receive an initial distribution on
account of such Claim on or promptly after the Effective Date. The amount of
initial distributions to be made to holders of the PBGC Claims and Other
Unsecured Claims that are allowed as of the Effective Date will be calculated as
if each Disputed Other Unsecured Claim were an Allowed Other Unsecured Claim in
its Face Amount as of the Effective Date. If you are the holder of an Other
Unsecured Claim that is a Disputed Claim as of the Effective Date, to the extent
such Claim becomes an Allowed Claim after the Effective Date, you should receive
an initial distribution on account of such Claim on or promptly after the
Quarterly Distribution Date next following the date on which such Claim was
allowed. In addition, on or promptly after each Quarterly Distribution Date, if
you are the holder of the PBGC Claims or an Other Unsecured Claim and have
already received your initial distribution in respect of such Claim, you may
receive an additional distribution on account of such Claim in an amount equal
to: (a) the amount of Cash and other property that you would have been entitled
to receive pursuant to the Plan if such Claim and each other Unsecured Claims
allowed prior to such Quarterly Distribution Date had been allowed as of the
Effective Date minus (b) the aggregate amount of Cash and other property
previously distributed to you on account of such Claim. See "Distributions Under
the Plan -- Timing and Calculation of Amounts to Be Distributed."

WHAT WILL I RECEIVE IN RESPECT OF MY 7-3/4% SWD REVENUE BOND IF THE PLAN IS
CONFIRMED AND GOES EFFECTIVE AND WHEN WILL I RECEIVE IT?

     If (a) Subclass 3A votes to accept the Plan and (b) unless the holders of
Senior Note Claims otherwise agree pursuant to a settlement, all holders of
Allowed Senior Note Claims are entitled under the Plan to identical treatment in
respect of contractual subordination claims under the Senior Subordinated Note
Indenture, then, on the Effective Date, an amount equal to the Settlement
Percentage of the Cash in the Unsecured Claims Trust Account that would
otherwise have been distributed in respect of the Senior Subordinated Note
Claims but which, after


                                       11

giving effect to the contractual subordination provisions of the Senior
Subordinated Note Indenture and pursuant to Sections 2.4(c)(i) and 2.4(c)(ii) of
the Plan (but prior to giving effect to any 7-3/4% SWD Revenue Bond Payment), is
to be distributed to holders of Senior Note Claims will be paid to the 7-3/4%
SWD Revenue Bond Indenture Trustee for the benefit of the holders of the 7-3/4%
SWD Revenue Bonds pursuant to Section 2.5 of the Plan (i.e., the 7-3/4% SWD
Revenue Bond Payment). For purposes of the Plan, the term "Settlement
Percentage" means the percentage equaling the ratio of (a) $4,000,000 to (b)
50.78% of the Public Note Percentage of the Cash in the Unsecured Claims Trust
Account. Notwithstanding the foregoing, in no event will the amount so paid,
when aggregated with any amount payable under any comparable provision of the
AJI/KJC Plan, exceed $8.0 million. If the Debtors do not File a separate motion,
the Plan will serve as a motion pursuant to Bankruptcy Rule 9019 seeking entry
of an order approving the settlement described above. Unless an objection to
such settlement is made in writing by any creditor or claimant affected thereby,
Filed with the Bankruptcy Court and served on the parties identified in Section
12.6 of the Plan on or before April 5, 2005, such order (which will be the
Confirmation Order) may be entered by the Bankruptcy Court. In the event any
such objections are timely Filed, a hearing with respect thereto will occur at
the Confirmation Hearing.

     If Subclass 3A fails to accept the Plan in accordance with section 1126(c)
of the Bankruptcy Code, the rights, if any, of the holders of 7-3/4% SWD Revenue
Bonds to payments from the Public Note Distributable Consideration will be as
determined by an order of the Bankruptcy Court (which may be the Confirmation
Order) in connection with its determination of the relative entitlement of the
holders of Senior Note Claims and Senior Subordinated Note Claims to the Public
Note Distributable Consideration; provided that if the determination with
respect to the rights of the holders of 7-3/4% SWD Revenue Bonds to such payment
has not been made by the Bankruptcy Court prior to the Effective Date, then, in
order to ensure the funding of such payment, on the Effective Date the
Distribution Trustee will reserve from the Public Note Distributable
Consideration any amount that may be ordered by the Bankruptcy Court to be so
reserved pending such determination.

     Any payment described above (i.e., the 7-3/4% SWD Revenue Bond Payment)
would be made to the 7-3/4% SWD Revenue Bond Indenture Trustee for the benefit
of the holders of 7-3/4% SWD Revenue Bonds. The 7-3/4% SWD Revenue Bond
Indenture Trustee is entitled to deduct its fees and expenses from any such
payment prior to making distributions to holders of 7-3/4% SWD Revenue Bonds.
However, if the 7-3/4% SWD Revenue Bond Payment is required to be made to the
7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of the holders of the
7-3/4% SWD Revenue Bonds pursuant to Section 2.5(a) of the Plan, then the 7-3/4%
SWD Revenue Bond Plaintiffs' Expense Payments will made out of the Public Note
Distributable Consideration otherwise payable to holders of Allowed Senior Note
Claims, up to an amount which, when aggregated with any amount payable under the
comparable provision of the AJI/KJC Plan, does not exceed $500,000. Fees and
expenses in excess of such amount may be deducted from amounts otherwise payable
to or for the benefit of holders of 7-3/4% SWD Revenue Bonds. Nothing in the
Plan will prejudice the rights of the plaintiffs in the 7-3/4% SWD Revenue Bond
Dispute to seek recoveries (a) from amounts otherwise to be paid to or for the
benefit of holders of 7-3/4% SWD Revenue Bonds under the Plan or the AJI/KJC
Plan or (b) from, or in respect of amounts otherwise to be paid to or for the
benefit of holders of 7-3/4% SWD Revenue Bonds by, any Other Kaiser Debtor other
than AJI or KJC. In due course following its receipt of any such payment, the
7-3/4% SWD Revenue Bond Indenture Trustee will distribute to each holder of
7-3/4% SWD Revenue Bonds its proportionate share of any such payment, as reduced
by any fees and expenses so deducted.

     See "Operations During the Chapter 11 Cases -- 7-3/4% SWD Revenue Bond
Dispute."

WILL MY RIGHTS AGAINST THE OTHER KAISER DEBTORS BE AFFECTED BY THE PLAN?

     Nothing in the Plan, including acceptance or rejection of the Plan by
Subclass 3A or Subclass 3B, will be deemed to affect any person's claim against
or interest in any of the debtors in the Kaiser Cases except the Debtors (the
"Other Kaiser Debtors") or any of their respective present or former directors,
officers, employees, agents, advisors, attorneys, accountants, underwriters,
investment bankers or other representatives, acting in such capacity, or any
rights, including contractual subordination rights, that any person may have in
respect of any such claim against or interest in any such Other Kaiser Debtor.


                                       12

WHAT WILL MY TAX CONSEQUENCES BE IF THE PLAN IS CONSUMMATED?

     For a summary of certain potential U.S. federal income Tax consequences of
the Plan, see "Certain Federal Income Tax Consequences of Consummation of the
Plan." The summary contained in this Disclosure Statement does not contain any
information with respect to potential state, local or foreign Tax consequences
to creditors of the Debtors. For these reasons and others, including because Tax
consequences are in many cases uncertain and may vary depending on a creditor's
individual circumstances, the discussion of the Tax consequences of the Plan
contained in this Disclosure Statement is not intended in any way to be Tax
advice - or otherwise to be a substitute for careful Tax planning with a
professional. You are urged to consult with your own Tax advisor regarding the
U.S. federal, state, local and foreign Tax consequences of the Plan.

WHAT MUST HAPPEN BEFORE THE PLAN CAN BE CONSUMMATED?

     In order for the Plan to be effective, certain events must occur. The Plan
contains conditions to both the confirmation of and the effectiveness of the
Plan.

     CONFIRMATION

     The Debtors and Creditors' Committee have agreed that, before the
Bankruptcy Court can confirm the Plan, each of the following must have occurred
(or the requirement that it have occurred must have been waived in accordance
with the Plan):

     -    the Confirmation Order must have been entered on the docket of the
          Clerk of the Bankruptcy Court in form and substance acceptable to the
          Debtors and the Creditors' Committee;

     -    all Exhibits to the Plan must be in form and substance satisfactory to
          the Debtors and the Creditors' Committee; and

     -    the Intercompany Claims Settlement must be effective.

In addition, there are a number of substantial confirmation requirements under
the Bankruptcy Code that must be satisfied for the Plan to be confirmed,
including either the acceptance of the Plan by the requisite holders of Claims
in each of Subclass 3A, Subclass 3B, Subclass 3C and Subclass 3D (i.e.,
acceptance by holders of at least two-thirds in dollar amount and a majority in
number of Claims held by holders actually voting) or, if the Plan is not
accepted by each such Subclass of Class 3, the acceptance of the Plan by the
requisite holders of Claims in at least one such Subclass and the determination
by the Bankruptcy Court that the Plan is "fair and equitable" and "does not
discriminate unfairly" as to each nonaccepting Subclass. See "Voting and
Confirmation of the Plan -- Confirmation."

     EFFECTIVENESS

     In addition, the Debtors and Creditors' Committee have agreed that the Plan
will not be consummated until each of the following has occurred (or the
requirement that it occur has been waived in accordance with the Plan):

     -    the Confirmation Order must have become a Final Order;

     -    the sale of the QAL Interests pursuant to the QAL Purchase Agreement
          must have been consummated;

     -    the Creditors' Committee and the Debtors must have agreed upon the
          amount of the reserves contemplated by Section 8.10(a) and Section
          8.11(a) of the Plan (see "Overview of the Plan -- Sources and Uses of
          Cash");

     -    the Liquidating Transactions must have been consummated;


                                       13

     -    all funds due and owing to or by the Debtors under the Intercompany
          Claims Settlement must have been paid in accordance with its terms;

     -    the Distribution Trustee must have been appointed and must have
          accepted such appointment;

     -    the Distribution Trust Agreement must have been executed and the Trust
          Accounts must have been established; and

     -    all other actions, documents, consents and agreements necessary to
          implement the Plan must have been effected, obtained and/or executed.

WHEN WILL THE PLAN BE CONFIRMED? WHEN WILL THE PLAN BE EFFECTIVE?

     CONFIRMATION

     A hearing in the Bankruptcy Court relating to the confirmation of the Plan
is currently scheduled for April 13, 2005. This hearing may be continued or
adjourned, however, and even if it is held, there is no guaranty that the
Bankruptcy Court will find that the requirements of the Bankruptcy Code with
respect to confirmation have been met. See "Voting and Confirmation of the Plan
- -- Confirmation Hearing" and "Voting and Confirmation of the Plan --
Confirmation." In addition, the additional conditions to confirmation set forth
in the Plan must be satisfied or waived in accordance with the Plan before the
Plan can be confirmed. Thus, there is no way to predict with any certainty when,
if ever, confirmation will actually occur.

     EFFECTIVE DATE

     Even if the Plan is confirmed on April 13, 2005, there are a number of
additional conditions which must be satisfied or waived before the Plan can be
consummated. While the Debtors have assumed an Effective Date of April 30, 2005
for purposes of this Disclosure Statement, no assurance can be given as to if or
when the Effective Date will actually occur.

WHAT WILL HAPPEN TO KAAC AND KFC IF THE PLAN IS CONSUMMATED?

     The Debtors will be liquidated if the Plan is consummated. Once the QAL
Interests have been sold, the Debtors will no longer have any material ongoing
activities or operations. Thus, upon the transfer of the Distribution Trust
Assets to the Distribution Trust, the Debtors will be dissolved and their assets
will be distributed in accordance with the Plan. See "General Information
Concerning the Plan -- Means for Implementation of the Plan -- Liquidating
Transactions."

WHAT HAPPENS IF THE PLAN ISN'T CONFIRMED OR DOESN'T BECOME EFFECTIVE?

     The Debtors expect that all of the conditions to confirmation of the Plan
or the Effective Date will be satisfied (or waived in accordance with the Plan).
However, there is no guaranty that the Plan will be consummated. Although the
Debtors intend to take all acts reasonably necessary to satisfy the conditions
to the confirmation of the Plan and the Effective Date that are within the
Debtors' control, if, for any reason, the Plan is not confirmed or the Effective
Date does not occur, the Debtors may be forced to convert the Chapter 11 Cases
to cases under chapter 7 of the Bankruptcy Code or propose an alternative plan
of liquidation under chapter 11 of the Bankruptcy Code.

                              OVERVIEW OF THE PLAN

INTRODUCTION

     The following is a brief overview of certain material provisions of the
Plan. This overview is qualified in its entirety by reference to the provisions
of the Plan, which is attached hereto as Exhibit I, and the Distribution Trust
Agreement, which is an Exhibit thereto. See "Additional Information." For a
description of certain other


                                       14

significant terms and provisions of the Plan, see "General Information
Concerning the Plan" and "Distributions Under the Plan."

SUMMARY OF CLASSES AND TREATMENT OF CLAIMS AND INTERESTS

     The table below summarizes: (a) the classification of Claims and Interests;
(b) the estimated aggregate amount of Claims in each of Class 1, Class 2 and
Subclass 3D; (c) the actual aggregate amount of Allowed Claims in each of
Subclass 3A, Subclass 3B and Subclass 3C; (d) the aggregate amount and nature of
distributions to holders of Claims or Interests in each Class; and (e) the
estimated percentage recovery for each of Subclass 3A, Subclass 3B and Subclass
3C. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims and Priority Tax Claims have not been classified and thus are excluded
from the Classes. For a discussion of certain additional matters related to
Administrative Claims and Priority Tax Claims, see " -- Additional Information
Regarding Assertion and Treatment of Administrative Claims and Priority Tax
Claims." The estimated aggregate amount of Claims set forth in the table below
with respect to each of Class 1, Class 2 and Subclass 3D is based on the
Debtors' estimate of the maximum aggregate amounts of such Claims that the
Debtors believe will be allowed.

     Each "Estimated Aggregate Claims Amount" shown in the table below is based
upon the Debtors' preliminary review of Claims Filed on or before the January
31, 2003 general Bar Date and the Debtors' books and records and may be
substantially revised following the completion of a further analysis of the
Claims Filed. See "Operations During the Chapter 11 Cases -- Claims Process and
Bar Dates." In addition, certain Disputed Claims that the Debtors do not believe
are allowable ultimately may be allowed by the Bankruptcy Court.

     The "Estimated Percentage Recovery" shown in the table with respect to
Subclass 3C is the quotient of the estimated Cash to be distributed to the PBGC,
as the holder of Allowed Claims in that Subclass, divided by the aggregate
amount of Allowed Claims in such Subclass. The recoveries for holders of Allowed
Claims in both Subclass A and Subclass 3B will vary depending on, among other
things, whether both Subclass 3A and Subclass 3B accept the Plan and, if either
Subclass 3A or Subclass 3B fails to accept the Plan, the determination of the
Bankruptcy Court with respect to the relative entitlement of the holders of
Senior Note Claims and Senior Subordinated Note Claims to the Public Note
Distributable Consideration. See "-- Sources and Uses of Cash" below for
estimates of the percentage recovery for Subclass 3A and Subclass 3B in four
different scenarios. See "Answers to Certain Questions About the Plan and
Disclosure Statement -- What will I actually receive if the Plan is confirmed
and goes effective?" for a discussion of other factors that may affect the
recoveries of holders of Allowed Unsecured Claims.

     It is presently anticipated that, pursuant to the Legacy Liability
Agreements (as defined below) and the Intercompany Claims Settlement, the holder
or holders of the KFC Claim will receive an aggregate of approximately one-third
of 25% of the residual value of reorganized KACC after the satisfaction of any
and all administrative, priority and secured claims against KACC and after
taking into account, among other things, the satisfaction of claims of the PBGC
against Kaiser Aluminum & Chemical of Canada Limited and any use of KACC assets
to settle asbestos, silica and other tort claims against KACC. See "Operations
During the Chapter 11 Cases -- Agreements with Labor Regarding Pension and
Retiree Medical Benefits" and "-- Intercompany Claims Settlement." The portion
of the KFC Claim which KFC will ultimately retain will depend upon the amount of
Cash and other property which the master tort trust established in connection
with the plan or plans of reorganization or Kaiser Aluminum Corporation ("KAC")
and/or KACC receives pursuant to those plans. Because no plan or plans of
reorganization for KAC or KACC have yet been proposed and the residual value of
reorganized KACC has not yet been determined, no "Estimated Percentage Recovery"
shown in the table below reflects any value for distributions that may
ultimately be made to KFC in respect of the Retained Portion of the KFC Claim.
See "-- KFC Claim Against KACC."


                                       15



         DESCRIPTION AND AMOUNT OF CLAIMS
         OR INTERESTS AGAINST THE DEBTORS                               TREATMENT
         --------------------------------                               ---------
                                                  
- -    Class 1 - Priority Claims: Claims against       Unimpaired. On the later of the Effective Date and
     either of the Debtors entitled to priority in   the date on which a Priority Claims is allowed,
     payment pursuant to section 507(a) of the       each holder of an Allowed Priority Claim will be
     Bankruptcy Code that are not Administrative     entitled to receive either (a) Cash from the
     Claims or Priority Tax Claims.                  Priority Claims Trust Account in the amount of
                                                     such holder's Allowed Priority Claim without
                                                     interest or penalty or (b) such other treatment as
                                                     may be agreed upon in writing by such holder and
                                                     the Debtors or the Distribution Trustee.

     Estimated Aggregate Claims Amount: $0

- -    Class 2 - Secured Claims: Claims against        Unimpaired. On the later of the Effective Date and
     either of the Debtors secured by a Lien on      the date on which a Secured Claim is allowed, each
     property in which such Debtor's Estate has an   holder of an Allowed Secured Claim will be
     interest or that is subject to setoff under     entitled to receive either (a) Cash from the
     section 533 of the Bankruptcy Code, to the      Priority Claims Trust Account in an amount equal
     extent of the value of the Claim holder's       to such Allowed Secured Claim, including such
     interest in such Estate's interest in such      interest as is required to be paid pursuant to
     property or to the extent of the amount         section 506(b) of the Bankruptcy Code, or (b) the
     subject to setoff, as applicable, as            collateral securing such Allowed Secured Claim and
     determined pursuant to section 506(a) and, if   Cash from the Priority Claims Trust Account in an
     applicable, section 1129(b) of the Bankruptcy   amount equal to such interest as is required to be
     Code.                                           paid pursuant to section 506(b) of the Bankruptcy
                                                     Code.

     Estimated Aggregate Claims Amount: $0



                                       16



        DESCRIPTION AND AMOUNT OF CLAIMS
        OR INTERESTS AGAINST THE DEBTORS                                TREATMENT
        --------------------------------                                ---------
                                                  
- -    Subclass 3A - Senior Note Claims: Claims        Impaired; depends on whether the Plan is accepted
     against either of the Debtors under or in       by both Subclass 3A and Subclass 3B.
     respect of either (x) the 9-7/8% Senior Notes
     and the 9-7/8% Senior Note Indenture or (y)     On the Effective Date, if both Subclass 3A and
     the 10-7/8% Senior Notes and the 10-7/8%        Subclass 3B vote to accept the Plan, each holder
     Senior Note Indentures.                         of an Allowed Senior Note Claim will be entitled
                                                     to receive Cash from the Unsecured Claims Trust
                                                     Account equal to its Pro Rata Share of the Public
                                                     Note Distributable Consideration remaining after
                                                     first giving effect to the following payments on
                                                     the Effective Date by the Distribution Trustee
                                                     from the Public Note Distributable Consideration:
                                                     (a) the payment to be made to the 7-3/4% SWD
                                                     Revenue Bond Indenture Trustee for the benefit of
                                                     the holders of the 7-3/4% SWD Revenue Bonds in
                                                     accordance with the Plan (i.e., the 7-3/4% SWD
                                                     Revenue Bond Payment) and the payment of all fees
                                                     and expenses payable to the plaintiffs in the
                                                     7-3/4% SWD Revenue Bond Dispute in accordance with
                                                     the Plan (i.e., the 7-3/4% SWD Revenue Bond
                                                     Plaintiffs' Expense Payments); (b) the payment of
                                                     all fees and expenses payable to the 9-7/8% Senior
                                                     Note Indenture Trustee, the 10-7/8% Senior Note
                                                     Indenture Trustee and the counsel for the Ad Hoc
                                                     Group in accordance with the Plan (i.e., the
                                                     Senior Notes Fee Payments); and (c) the payment of
                                                     $8.0 million to be made to the Senior Subordinated
                                                     Note Indenture Trustee for the benefit of the
                                                     holders of Senior Subordinated Note Claims.

                                                     If either Subclass 3A or Subclass 3B fails to
                                                     accept the Plan: (a) the holders of Senior Note
                                                     Claims will not become entitled to receive the
                                                     distribution described in the immediately
                                                     preceding paragraph; and (b) the Bankruptcy Court
                                                     will enter an order (which will be the
                                                     Confirmation Order) pursuant to which the
                                                     Bankruptcy Court will determine the respective
                                                     entitlement of the holders of Allowed 9-7/8%
                                                     Senior Note Claims, Allowed 10-7/8% Senior Note
                                                     Claims, Allowed Senior Subordinated Note Claims
                                                     and, if applicable under Section 2.5(b) of the
                                                     Plan, 7-3/4% SWD Revenue Bonds to the Public Note
                                                     Distributable Consideration. The distributions
                                                     ultimately made to a holder of an Allowed Senior
                                                     Note Claim as described in this paragraph will be
                                                     reduced by such holder's proportional share of the
                                                     Senior Notes Fee Payments and, if the Bankruptcy
                                                     Court determines that holders of Allowed Senior
                                                     Subordinated Note Claims are not entitled to any
                                                     portion of the Public Note Distributable
                                                     Consideration, any 7-3/4% SWD Revenue Bond Payment
                                                     (or a reservation in lieu thereof in accordance
                                                     with the Plan) and the 7-3/4% SWD Revenue Bond
                                                     Plaintiffs' Expense Payments.

     Aggregate Allowed Claims Amount:                Estimated Percentage Recovery: Varies (see
     $414,121,172.73                                 "--Sources and Uses of Cash")



                                       17



        DESCRIPTION AND AMOUNT OF CLAIMS
        OR INTERESTS AGAINST THE DEBTORS                                TREATMENT
        --------------------------------                                ---------
                                                  
- -    Subclass 3B - Senior Subordinated Note          Impaired; depends on whether the Plan is accepted
     Claims: Claims against either of the Debtors    by both Subclass 3A and Subclass 3B.
     under or in respect of the Senior
     Subordinated Notes and the Senior               On the Effective Date, if both Subclass 3A and
     Subordinated Note Indenture.                    Subclass 3B vote to accept the Plan, each holder
                                                     of an Allowed Senior Subordinated Note Claim will
                                                     be entitled to receive its Pro Rata Share of $8.0
                                                     million in Cash to be paid to the Senior
                                                     Subordinated Note Indenture Trustee, provided that
                                                     any and all fees or expenses payable to the Senior
                                                     Subordinated Note Indenture Trustee pursuant to
                                                     the Senior Subordinated Note Indenture will, in
                                                     all events, be payable solely from such $8.0
                                                     million.

                                                     If either Subclass 3A or Subclass 3B fails to
                                                     accept the Plan: (a) the holders of Senior
                                                     Subordinated Note Claims will not become entitled
                                                     to receive the distribution described in the
                                                     immediately preceding paragraph; and (b) the
                                                     Bankruptcy Court will enter an order (which will
                                                     be the Confirmation Order) pursuant to which the
                                                     Bankruptcy Court will determine the respective
                                                     entitlement of the holders of Allowed 9-7/8%
                                                     Senior Note Claims, Allowed 10-7/8% Senior Note
                                                     Claims, Allowed Senior Subordinated Note Claims
                                                     and, if applicable under Section 2.5(b) of the
                                                     Plan, 7-3/4% SWD Revenue Bonds to the Public Note
                                                     Distributable Consideration. Any distributions
                                                     ultimately made to a holder of an Allowed Senior
                                                     Subordinated Note Claim as described in the
                                                     immediately preceding sentence may be reduced by
                                                     such holder's proportional share of any and all
                                                     fees and expenses payable to the Senior
                                                     Subordinated Note Indenture Trustee pursuant to
                                                     the Senior Subordinated Note Indenture, which
                                                     will, subject to such Trustee's right to seek
                                                     payment by the Debtors of such fees and expenses
                                                     pursuant to section 503(b)(5) of the Bankruptcy
                                                     Code, be payable solely from such distributions.

     Aggregate Allowed Claims Amount:                Estimated Percentage Recovery: Varies (see
     $427,200,000.00                                 "--Sources and Uses of Cash")

- -    Subclass 3C - PBGC Claims: Claims (other than   Impaired. On the Effective Date, the PBGC as
     Administrative Claims) of the PBGC against      holder of the PBGC Claims will be entitled to
     either of the Debtors arising from, or          receive the PBGC Percentage of the Cash and,
     relating to, the pension plans which were or    subject to Section 2.10 of the Plan, other
     are maintained by any of the Other Kaiser       property in the Unsecured Claims Trust Account.
     Debtors in the Kaiser Cases and guaranteed by
     the PBGC.

     Allowed Claim Amount:  $616,000,000.00          Estimated Percentage Recovery: 17.3% to 18.6%

- -    Subclass 3D - Other Unsecured Claims: Claims    Impaired. On the Effective Date, each holder of an
     against either of the Debtors that are not      Allowed Other Unsecured Claim will be entitled to
     Administrative Claims, Priority Claims,         receive a Pro Rata Share of the Other Unsecured
     Priority Tax Claims, Secured Claims,            Claims Percentage of the Cash and, subject to
     Intercompany Claims, Senior Note Claims,        Section 2.10 of the Plan, other property in the
     Senior Subordinated Note Claims or the PBGC     Unsecured Claims Trust Account.
     Claims.

     Estimated Aggregate Claims Amount:  $0

- -    Class 4 - Intercompany Claims: Claims held by   Impaired. On the Effective Date, each holder of an
     any Other Kaiser Debtor against either of the   Intercompany Claim will be entitled to receive the
     Debtors.                                        treatment set forth in the Intercompany Claims
                                                     Settlement.

- -    Class 5 - Interests in the Debtors: Stock       Impaired. No property will be distributed to, or
     ownership interests in either of the Debtors,   retained by, KACC as the holder of the Interests
     or rights to acquire the same, and any Claim    in KAAC on account of such Interests or KAAC as
     arising therefrom.                              the holder of the Interests in KFC on account of
                                                     such Interests, and such Interests will be
                                                     canceled on the Effective Date.



                                       18

GUARANTY SUBORDINATION DISPUTE

     Litigation relating to the relative priority of holders of Senior Note
Claims and holders of Senior Subordinated Note Claims to payments by certain
subsidiaries of KACC that guaranteed the Senior Notes and the Senior
Subordinated Notes, including the Debtors (i.e., the Guaranty Subordination
Dispute), is currently pending before the Bankruptcy Court. See "Operations
During the Chapter 11 Cases -- Guaranty Subordination Dispute." The Plan
contains the following proposed settlement of the Guaranty Subordination
Dispute: If both Subclass 3A and Subclass 3B vote to accept the Plan, a holder
of an Allowed Senior Subordinated Note Claim will receive its Pro Rata Share of
$8.0 million (less any fees or expenses payable to the Senior Subordinated Note
Trustee pursuant to the Senior Subordinated Note Indenture) and a holder of an
Allowed Senior Note Claim will receive its Pro Rata Share of the Public Note
Distributable Consideration remaining after giving effect to the payment of the
$8.0 million to be made to the holders of Senior Subordinated Note Claims, the
7-3/4% SWD Revenue Bond Payment, the 7-3/4% SWD Revenue Bond Plaintiffs' Expense
Payment and the Senior Notes Fee Payments. If either Subclass 3A or Subclass 3B
fails to accept the Plan, the Bankruptcy Court will resolve the Guaranty
Subordination Dispute with respect to the Debtors and determine the
distributions from the Public Note Distributable Consideration to be made to the
holders of Claims in Subclass 3A and any distributions from the Public Note
Distributable Consideration to be made to holders of Claims in Subclass 3B. In
such event, the distributions ultimately made to a holder of an Allowed Senior
Note Claim will be reduced by such holder's proportional share of the Senior
Notes Fee Payments and, if the Bankruptcy Court determines that holders of
Allowed Senior Subordinated Note Claims are not entitled to any portion of the
Subclass 3A Distributable Consideration, the 7-3/4% SWD Revenue Bond Payment (or
reservation in lieu thereof), if any, and any 7-3/4% SWD Revenue Bond
Plaintiffs' Expense Payment. Similarly, any distributions ultimately made to a
holder of an Allowed Senior Subordinated Note Claim may be reduced by such
holder's proportional share of any and all fees and expenses payable to the
Senior Subordinated Note Trustee pursuant to the Senior Subordinated Note
Indenture. If the Bankruptcy Court is required to resolve the Guaranty
Subordination Dispute as described above, parties involved in that litigation
could appeal the Bankruptcy Court's ruling and request a stay that, if granted,
would prohibit, pending the conclusion of any such appeal, the distribution of
some or all of the Public Note Distributable Consideration to be distributed to
holders of Claims in Subclass 3A or Subclass 3B in accordance with such ruling.

     Similarly, pursuant to the AJI/KJC Plan, if holders of both the Senior Note
Claims and the Senior Subordinated Note Claims vote to accept the AJI/KJC Plan,
then an additional $8.0 million will be paid to the Senior Subordinated Note
Indenture Trustee for the benefit of holders of Senior Subordinated Note Claims
(resulting in aggregate consideration of $16.0 million if the Plan is also
accepted by the holders of the Senior Note Claims and the Senior Subordinated
Note Claims), with such amount to be paid from consideration that would
otherwise be distributed to holders of Allowed Senior Note Claims under the
AJI/KJC Plan, and the holders of Senior Note Claims would receive a specified
percentage of the Cash available for distribution to the holders of unsecured
claims (less certain payments or reservations of payment therefrom). If the
holders of the Senior Note Claims or the Senior Subordinated Note Claims fail to
accept the AJI/KJC Plan, the Bankruptcy Court would resolve the Guaranty
Subordination Dispute with respect to AJI and KJC and determine the
distributions to be made to the holders of Senior Note Claims and any
distributions to be made to holders of Senior Subordinated Note Claims under the
AJI/KJC Plan.

7-3/4% SWD REVENUE BOND DISPUTE

     If (a) Subclass 3A votes to accept the Plan in accordance with section
1126(c) of the Bankruptcy Code and (b) unless the holders of Senior Note Claims
otherwise agree pursuant to a settlement, all holders of Allowed Senior Note
Claims are entitled under the Plan to identical treatment in respect of
contractual subordination claims under the Senior Subordinated Note Indenture,
then, on the Effective Date, an amount equal to the Settlement Percentage of the
Cash in the Unsecured Claims Trust Account that would otherwise have been
distributed in respect of the Senior Subordinated Note Claims but which, after
giving effect to the contractual subordination provisions of the Senior
Subordinated Note Indenture and pursuant to Sections 2.4(c)(i) and 2.4(c)(ii) of
the Plan (but prior to giving effect to any 7-3/4% SWD Revenue Bond Payment), is
to be distributed to holders of Senior Note Claims will, in full and complete
satisfaction of the claims of holders of 7-3/4% SWD Revenue Bonds asserted in
the 7-3/4% SWD Revenue Bond Dispute in respect of the Debtors, be paid to the
7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of holders of 7-3/4%
SWD Revenue Bonds pursuant to Section 2.5 of the Plan (i.e., the 7-3/4% SWD
Revenue Bond Payment). Notwithstanding the foregoing, in no event will the
amount so paid, when aggregated


                                       19

with any amount payable under any comparable provision of the AJI/KJC Plan,
exceed $8.0 million. If the Debtors do not File a separate motion, the Plan will
serve as a motion pursuant to Bankruptcy Rule 9019 seeking entry of an order
approving the settlement described above. Unless an objection to such settlement
is made in writing by any creditor or claimant affected thereby, Filed with the
Bankruptcy Court and served on the parties identified in Section 12.6 of the
Plan on or before April 5, 2005, such order (which will be the Confirmation
Order) may be entered by the Bankruptcy Court. In the event any such objections
are timely Filed, a hearing with respect thereto will occur at the Confirmation
Hearing.

     If Subclass 3A fails to accept the Plan in accordance with section 1126(c)
of the Bankruptcy Code, the rights, if any, of the holders of 7-3/4% SWD Revenue
Bonds to payments from the Public Note Distributable Consideration will be as
determined in an order of the Bankruptcy Court (which may be the Confirmation
Order) in connection with the determinations contemplated by Sections
2.4(c)(i)(B) and 2.4(c)(ii)(B) of the Plan; provided that if the determination
with respect to the rights of the holders of 7-3/4% SWD Revenue Bonds to such
payment has not been made by the Bankruptcy Court prior to the Effective Date,
then, in order to ensure the funding of such payment, on the Effective Date the
Distribution Trustee will reserve from the Public Note Distributable
Consideration any amount that may be ordered by the Bankruptcy Court to be so
reserved pending such determination.

     See "Operations During the Chapter 11 Cases -- 7-3/4% SWD Revenue Bond
Dispute."

SOURCES AND USES OF CASH

     SOURCES OF CASH

     The Cash available in the Debtors' Estates to fund the Plan will come from:
(a) the net Cash proceeds to be received by the Debtors in connection with the
sale of the QAL Interests pursuant to the QAL Purchase Agreement (after taking
into account the costs and expenses of the sale payable by KAAC in accordance
with the Intercompany Claims Settlement), together with any interest thereon and
earnings from the investment thereof, (the "QAL Proceeds"); and (b) the Recovery
Action Proceeds. See "Operations During the Chapter 11 Cases -- The Sale of the
QAL Interests and Liquidation of KAAC" and "Operations During the Chapter 11
Cases -- Intercompany Claims Settlement."

     The Debtors currently estimate that, as of the Effective Date, the QAL
Proceeds will be approximately $396.0 million. The Debtors are not aware of any
Recovery Actions (and the Creditors' Committee has independently determined that
there are no viable preference actions concerning payments made by the Debtors)
and, accordingly, it has been assumed that the Recovery Action Proceeds will be
zero.

USES OF CASH

     As more fully described below, the Debtors' Cash as of the Effective Date
(which, for this purpose, is assumed to occur on April 30, 2005) will be used to
(a) fund the Distribution Trust Expenses Account to enable the Distribution
Trustee to pay Distribution Trust Expenses; (b) fund the Priority Claims Trust
Account to enable the Distribution Trustee to pay the Allowed Administrative
Claims, Allowed Priority Tax Claims, Allowed Priority Claims and Allowed Secured
Claims in accordance with the Plan; (c) make any Intercompany Settlement
Payments; and (d) then fund the Unsecured Claims Trust Account with any
remaining Cash. The Debtors and the Creditors' Committee currently anticipate
that available Cash will be applied initially as follows (in millions):


                                       20

                                                              
Estimated Available Cash......................................   $396.0

   Estimated Funding of Distribution Trust Expenses Account...   ($1.0)
   Estimated Funding of Priority Claims Trust Account.........   ($21.0) - ($25.0)*
   Estimated Net Intercompany Settlement Payments.............   ($26.5) - ($37.5)**

                                                                 ----------------
Estimated Cash Remaining to Initially Fund Unsecured Claims
   Trust Account..............................................   $332.5 - $347.5
                                                                 ================



- ----------
*    Includes reserves of $4.0 million to $7.0 million for Professional Fee
     Claims, reserves of $10.0 million for potential indemnity claims under the
     QAL Purchase Agreement, reserves of $6.0 million for payment of alternative
     minimum Tax and reserves of $1.0 million to $2.0 million for payment of a
     portion of service fees of financial advisors, but does not include any
     reserves for payments to the Australian Tax Office in respect of the sale
     of the QAL Interests or the payment of the $14.0 million Allowed
     Administrative Claims of the PBGC. Currently, the Debtors are not aware of
     any facts which would give rise to a claim for indemnification under the
     QAL Purchase Agreement and believe that the reserves in respect of such
     potential indemnity claims will ultimately be transferred into the
     Unsecured Claims Trust Account and be available for distribution to holders
     of Allowed Unsecured Claims. See "Operations During the Chapter 11 Cases--
     The Sale of QAL Interests and Liquidation of KAAC." The Debtors do not
     believe any payments to the Australian Tax Office should be required;
     however, it is possible that the Australian Tax Office could take a
     different position. If, prior to the Effective Date, it has not been
     definitively determined that no such payments will be required, the funding
     of the Priority Claims Trust Account will include reserves for potential
     payments to the Australian Tax Office, and such reserves could be material
     in amount. See "Operations During the Chapter 11 Cases-- Certain Australian
     Tax Matters." It is anticipated that, as contemplated by the Intercompany
     Claims Settlement, KACC will pay to the PBGC the $14.0 million aggregate
     amount of the PBGC's Allowed Administrative Claim prior to the Effective
     Date and, accordingly, such Claim will not be required to be paid from the
     Priority Claims Trust Account. See "-- Additional Information Regarding
     Assertion and Treatment of Administrative Claims and Priority Tax Claims --
     Administrative Claims -- PBGC Administrative Claim" and "Operations During
     the Chapter 11 Cases -- PBGC Claims."

**   Reflects an aggregate of $47.5 million in Intercompany Settlement Payments
     reduced by estimated net credits of approximately $10.0 million to $21.0
     million in the aggregate as provided in the Intercompany Claims Settlement.

     Prior to the Effective Date, the Debtors and Creditors' Committee will
agree on the actual amount of the Debtors' Cash to be used for the initial
funding of the Distribution Trust Expenses Account in order to ensure the
payment of Distribution Trust Expenses. The actual amount of Distribution Trust
Expenses to be incurred prior to termination of the Distribution Trust may vary
materially from the amount of such initial funding. If the Distribution Trustee
at any time determines that the Cash balance of the Distribution Trust Expenses
Account is insufficient to make all payments payable therefrom in accordance
with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee may transfer additional Cash from the Unsecured Claims
Trust Account (to the extent Cash remains available therein) to the Distribution
Expenses Account. If, on the other hand, the Distribution Trustee determines
that the Cash balance of the Distribution Trust Expenses Account is in excess of
the amount that will be sufficient to make all payments payable therefrom in
accordance with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee, with the consent of the Steering Committee, may transfer
such excess Cash to the Unsecured Claims Trust Account.

     Prior to the Effective Date, the Debtors and Creditors' Committee will
agree on the actual amount of the Debtors' Cash to be used for the initial
funding of the Priority Claims Trust Account in order to ensure the payment of
Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Priority
Claims and Allowed Secured Claims. Under the Intercompany Claims Settlement, the
Debtors are responsible for, among other things, (a) the payment of third-party
costs that are incurred after June 30, 2004 solely in connection with the
administration of the


                                       21

Chapter 11 Cases, (b) the payment of all foreign Taxes, transfer Taxes and
recording fees payable by KAAC as a result of the sale of the QAL Interests and
all other foreign Taxes payable by the Debtors, (c) the payment of 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 QAL Purchase Agreement,
(d) the payment of any alternative minimum Tax due as a result of the sale by
AJI and KJC of their interests in Alumina Partners of Jamaica ("Alpart") and the
sale of the QAL Interests, and (e) a portion of the success fees of the
financial advisors retained by KACC and its affiliates and by the Creditors'
Committee. Accordingly, the initial funding of the Priority Claims Trust Account
will include reserves for such items as determined by the Debtors and the
Creditors' Committee. See "Operations During the Chapter 11 Cases -- The Sale of
the QAL Interests and Liquidation of KAAC," "Operations During the Chapter 11
Cases -- Intercompany Claims Settlement," and "Operations During the Chapter 11
Cases -- Certain Australian Tax Matters." The actual amounts of Allowed
Administrative Claims, Allowed Priority Tax Claims, Allowed Priority Claims and
Allowed Secured Claims could vary materially from the amount of the initial
funding of the Priority Claims Trust Account. If at any time the Distribution
Trustee determines that the Cash balance of the Priority Claims Trust Account is
insufficient to make all payments payable therefrom in accordance with the terms
of the Plan and the Distribution Trust Agreement, the Distribution Trustee will
transfer an amount equal to the shortfall from the Unsecured Claims Trust
Account (to the extent Cash remains available therein) to the Priority Claims
Trust Account. If, on the other hand, the Distribution Trustee determines that
the Cash balance of the Priority Claims Trust Account is in excess of the amount
that will be sufficient to make all payments payable therefrom in accordance
with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee, with the consent of the Steering Committee, may transfer
such excess Cash to the Unsecured Claims Trust Account.

     The Debtors and the Creditors' Committee currently estimate that, assuming
the Effective Date occurs on or prior to June 30, 2005, the Intercompany
Settlement Payments will be $47.5 million and that approximately $10.0 million
to $21.0 million will be credited against the Intercompany Settlement Payments.
Accordingly, it is projected that net Intercompany Settlement Payments will be
approximately $26.5 million to $37.5 million.

     Assuming (a) aggregate actual payments from the Distribution Trust Expenses
Account are $1.0 million (the amount with which such account is estimated to be
initially funded), (b) aggregate actual payments from the Priority Claims Trust
Expenses Account are between $11.0 million (which assumes that the $10.0 million
to be initially reserved for payments in respect of potential claims for
indemnification under the QAL Purchase Agreement is ultimately released in its
entirety for distribution to holders of Allowed Unsecured Claims) and $25.0
million (which assumes that the $10.0 million to be initially reserved for
payments in respect of potential claims for indemnification under the QAL
Purchase Agreement is used in its entirety to make such payments and,
accordingly, that no portion thereof is ever released for distribution to
holders of Allowed Unsecured Claims), (c) aggregate actual Intercompany
Settlement Payments are between $26.5 million and $37.5 million (as estimated
above), the Debtors and the Creditors' Committee currently estimate that the
Unsecured Claims Trust Account ultimately would be funded with an aggregate of
$332.5 million to $357.5 million. No assurance can be given (a) that the actual
amount of Cash to be used for funding the Distribution Trust Expenses Account or
the Priority Claims Trust Account or the actual amount of Intercompany
Settlement Payments and related credits will not vary materially from the
estimates thereof indicated above, (b) that the initial funding of the
Distribution Trust Expenses Account and the Priority Claims Trust Account will
be made in the amount of the estimates indicated above, or (c) that, regardless
of the amount of initial funding of such Trust Accounts, the actual payments
payable therefrom will not vary materially from the amount of such initial
funding, increasing Cash ultimately available for distribution from the
Unsecured Claims Trust Account to the extent actual payments are less than such
initial funding and decreasing Cash ultimately available for distribution from
the Unsecured Claims Trust Account to the extent actual payments are greater
than such initial funding. In particular, no assurance can be given (a) that
actual funding of the Priority Claims Trust Account will not materially exceed
the estimates indicated above after taking into account any reserves that may
ultimately be required in connection with payments potentially due to the
Australian Tax Office in respect of the sale of the QAL Interests, which
reserves could be material in amount, (b) as to whether any payments will
ultimately be required to be made from the Priority Claims Trust Account to the
Australian Tax Office in respect of the sale of the QAL Interests, or (c) if
such payments in respect of the sale of the QAL Interests are ultimately
required, as to the amount thereof. Nor can any assurance be given (a) as to
whether any of the $10.0 million reserved for payments in respect of potential
claims for indemnification under the QAL Purchase Agreement will be released for
distribution to holders of Allowed Unsecured Claims or (b) if any of such
reserve is ultimately released for distribution to holders of Allowed Unsecured
Claims, as to the amount so released. See "Operations During the Chapter 11
Cases -- Certain Australian Tax Matters."


                                       22

     Based on the various estimates indicated above and assuming there are no
Allowed Unsecured Claims, the aggregate Cash ultimately to be distributed to the
PBGC, as the holder of the PBGC Claims, would be $106.4 million to $114.4
million, and $226.1 million to $243.1 million would remain available for
distribution to holders of Senior Note Claims and Senior Subordinated Note
Claims and, if applicable, holders of 7-3/4% SWD Revenue Bonds. The aggregate
Cash ultimately to be distributed to holders of Senior Note Claims and Senior
Subordinated Note Claims depends on, among other things, whether Subclass 3A and
Subclass 3B vote to accept the Plan and, if either Subclass 3A or Subclass 3B
fails to accept the Plan, the outcome of the Guaranty Subordination Dispute. See
"Operations During the Chapter 11 Cases -- Guaranty Subordination Dispute." The
chart below indicates, based on the various estimates indicated above and
assuming there are no Allowed Other Unsecured Claims, the aggregate Cash
ultimately to be distributed to holders of Senior Note Claims and Senior
Subordinated Note Claims in each of the following four scenarios: (a) Subclass
3A and Subclass 3B vote to accept the Plan ("Scenario A"); (b) Subclass 3A or
Subclass 3B fails to accept the Plan and the Bankruptcy Court rules in favor of
the 9-7/8% Senior Note Indenture Trustee, the 10-7/8% Senior Note Indenture
Trustee and the Ad Hoc Group (collectively, the "Senior Note Parties") in the
Guaranty Subordination Dispute such that the Senior Subordinated Note Claims are
subordinated to the Senior Note Claims ("Scenario B"); (c) Subclass 3A or
Subclass 3B fails to accept the Plan and the Bankruptcy Court rules in favor of
the Senior Subordinated Note Indenture Trustee in the Guaranty Subordination
Dispute such that the Senior Subordinated Note Claims and the Senior Note Claims
are treated on a pari passu basis ("Scenario C"); and (d) Subclass 3A or
Subclass 3B fails to accept the Plan and the Bankruptcy Court rules in favor of
Liverpool Limited Partnership, a holder of 9-7/8% Senior Notes and Senior
Subordinated Notes ("Liverpool"), on all positions asserted by Liverpool in the
Guaranty Subordination Dispute such that the Senior Subordinated Note Claims are
ultimately determined by the Bankruptcy Court to be subordinated, but only to
$100 million of the current principal amount of the 9-7/8% Senior Notes and not
to any of the 10-7/8% Senior Notes ("Scenario D") (in each case, in millions).



                                                  Estimated Aggregate Cash Distribution
                                      -------------------------------------------------------------
                                       Scenario A*     Scenario B*      Scenario C     Scenario D**
                                      -------------   -------------   -------------   -------------
                                                                          
10-7/8% Senior Note Claims ........   $120.6-$130.1   $124.9-$134.5   $  62.6-$67.3   $  62.6-$67.3
9-7/8% Senior Note Claims .........   $ 93.8-$101.2   $ 97.2-$104.6   $  48.7-$52.3   $126.2-$131.3
Senior Subordinated Note Claims ...   $         8.0              --   $114.8-$123.4   $  37.3-$44.7


- ----------
*    Assumes that (a) Subclass 3A accepts the Plan and (b) unless the holders
     of Senior Note Claims otherwise agree pursuant to a settlement, all holders
     of Allowed Senior Note Claims are entitled under the Plan to identical
     treatment in respect of contractual subordination claims under the Senior
     Subordinated Note Indenture, and the recoveries of holders of Senior Note
     Claims reflect reductions of $3.7 million in Scenario A and $4.0 million in
     Scenario B for payment of the 7-3/4% SWD Revenue Bond Payment, but do not
     reflect the 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments, which
     could be up to $0.5 million. See "Operations During the Chapter 11 Cases --
     7-3/4% SWD Revenue Bond Dispute."

**   The estimated recoveries were calculated based on the assumption that
     Liverpool prevails on each of its currently asserted positions. If
     Liverpool does not prevail on certain of these positions, the estimated
     distributions to the 9-7/8% Senior Note Claims would be reduced.
     Calculation of the contractual subordination payments includes claims for
     postpetition interest and an allocation of such payments proportionally
     between KAAC, on the one hand, and AJI and KJC, on the other hand, based on
     the estimated value distributable in respect of Public Note Claims under
     each of the Plan and the AJI/KJC Plan.

Although the Debtors and the Creditors' Committee believe that either no Other
Unsecured Claims will ultimately be allowed or any Allowed Other Unsecured
Claims will be de minimis, in the event Other Unsecured Claims that have been
asserted are not disallowed prior to the Effective Date, Disputed Claims
Reserves would have to be established in respect of Subclass 3D, thereby further
reducing the initial Cash distributions to be made to holders of Senior


                                       23

Note Claims, to holders of Senior Subordinated Note Claims in certain
circumstances and to the PBGC. See "General Information Concerning the Plan --
Means for Implementation of the Plan -- Trust Accounts."

     The chart below indicates, based on the estimated Cash distributions
indicated above, the estimated percentage recovery by holders of Senior Note
Claims and Senior Subordinated Note Claims in each of Scenario A, Scenario B,
Scenario C and Scenario D (computed as the quotient of the estimated Cash to be
distributed to all holders of the applicable Claims divided by the aggregate
amounts of such Claims allowed pursuant to Section 2.7 of the Plan).



                                              Estimated Aggregate Cash Distribution
                                      -----------------------------------------------------
                                      Scenario A*   Scenario B*   Scenario C   Scenario D**
                                      -----------   -----------   ----------   ------------
                                                                   
10-7/8% Senior Note Claims ........   51.8%-55.9%   53.6%-57.7%   26.9%-28.9%   26.9%-28.9%
9-7/8% Senior Note Claims .........   51.8%-55.9%   53.6%-57.7%   26.9%-28.9%   69.6%-72.4%
Senior Subordinated Note Claims ...          1.9%           --    26.9%-28.9%    8.7%-10.5%


- ----------
*    Assumes that (a) Subclass 3A accepts the Plan and (b) unless the holders of
     Senior Note Claims otherwise agree pursuant to a settlement, all holders of
     Allowed Senior Note Claims are entitled under the Plan to identical
     treatment in respect of contractual subordination claims under the Senior
     Subordinated Note Indenture, and the recoveries of holders of Senior Note
     Claims reflect reductions of $3.7 million in Scenario A and $4.0 million in
     Scenario B for payment of the 7-3/4% SWD Revenue Bond Payment, but do not
     reflect the 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payments, which
     could be up to $0.5 million. See "Operations During the Chapter 11 Cases--
     7-3/4% SWD Revenue Bond Dispute."

**   The estimated recoveries were calculated based on the assumption that
     Liverpool prevails on each of its currently asserted positions. If
     Liverpool does not prevail on certain of these positions, the estimated
     distributions to the 9-7/8% Senior Note Claims would be reduced.
     Calculation of the contractual subordination payments includes claims for
     postpetition interest and an allocation of such payments proportionally
     between KAAC, on the one hand, and AJI and KJC, on the other hand, based on
     the estimated value distributable in respect of Public Note Claims under
     each of the Plan and the AJI/KJC Plan.

KFC CLAIM AGAINST KACC

     The KFC Claim is a general unsecured claim held by KFC against KACC in the
amount of $1.106 billion. Under the Intercompany Claims Settlement, the KFC
Claim will, subject to certain rights of the United States government to object,
be allowed in such amount and will receive the same treatment as allowed general
unsecured claims under any plan of reorganization of KACC. It is presently
anticipated that, pursuant to the Legacy Liability Agreements and the
Intercompany Claims Settlement, the holder or holders of the KFC Claim will
receive an aggregate of approximately one-third of 25% of the residual value of
reorganized KACC after the satisfaction of any and all administrative, priority
and secured claims against KACC and after taking into account, among other
things, the satisfaction of claims of the PBGC against Kaiser Aluminum &
Chemical of Canada Limited any use of KACC assets to settle asbestos, silica and
other tort claims against KACC. See "Operations During the Chapter 11 Cases --
Agreements with Labor Regarding Pension and Retiree Medical Benefits" and "--
Intercompany Claims Settlement." Because no plan of reorganization for KACC has
yet been proposed and the residual value of reorganized KACC has not yet been
determined, no assurance can be given as to whether or when any distribution
will be made in respect of the KFC Claim or, if a distribution is made, as to
the value thereof.

     Seventy-five percent of the KFC Claim will be assigned by KFC to a master
tort trust established in connection with the plan or plans of reorganization
for KAC and KACC on the effective date of such plan or plans if such plan or
plans provide that such master tort trust or trusts will receive no more than
the following:


                                       24

     -    a Cash distribution of $13.0 million or less; and

     -    the stock of KAE Trading, Inc. (an Other Kaiser Debtor, the sole asset
          of which will be, as of the effective date of such plan or plans,
          certain real property located in Louisiana and rights under a related
          lease or other property having a value not greater than $1.0 million)
          and no other equity interests.

If a plan or plans of reorganization for KAC and KACC which provide that such
master tort trust or trusts will receive more than the Cash and other property
listed above are confirmed and become effective, KFC will be entitled to retain
the entire KFC Claim, and, in such circumstance, the United States, on behalf of
certain agencies thereof, will be permitted to object to the allowance of the
KFC Claim within 30 days after the effective date of such plan or plans. While
no plan or plans of reorganization for KAC or KACC have yet been proposed, the
Debtors believe that such master tort trust or trusts will receive no more than
the Cash and other property listed above and, as a consequence, KFC will be
entitled to retain only 25% of the KFC Claim and the United States will not be
permitted to object to the allowance thereof.

     Under the Plan, no distribution in respect of the Retained Portion of the
KFC Claim will be made, and the Retained Portion of the KFC Claim will be held
in the Unsecured Claims Trust Account, until receipt by the Distribution Trustee
of distributions in respect thereof from KACC pursuant to a confirmed plan of
reorganization of KACC or otherwise, and then in-kind distributions consisting
of the property received by the Distribution Trustee from KACC in respect of the
Retained Portion of the KFC Claim will be made to holders of Allowed Claims in
Subclass 3A, Subclass 3C and Subclass 3D in accordance with the terms of the
Plan.

ADDITIONAL INFORMATION REGARDING ASSERTION AND TREATMENT OF ADMINISTRATIVE
CLAIMS AND PRIORITY TAX CLAIMS

     ADMINISTRATIVE CLAIMS

          Administrative Claims in General

     Except as otherwise provided in the Plan or unless otherwise agreed by the
holder of an Administrative Claim and the applicable Debtor or the Distribution
Trustee, each holder of an Allowed Administrative Claim will receive, in full
satisfaction of its Administrative Claim, Cash from the Priority Claims Trust
Account in an amount equal to the allowed amount of such Administrative Claim
either (a) on or promptly after the Effective Date or (b) if the Administrative
Claim is not allowed as of the Effective Date, on or promptly after the date
that is 30 days after the date on which (i) an order allowing such
Administrative Claim becomes a Final Order or (ii) a Stipulation of Amount and
Nature of Claim is executed by the Distribution Trustee and the holder of the
Administrative Claim.

     Administrative Claims include Claims for costs and expenses of
administration allowed under sections 503(b), 507(b) or 1114(e)(2) of the
Bankruptcy Code, including: (a) the actual and necessary costs and expenses
incurred after the Petition Date in preserving the respective Estates and
operating the business of each of the Debtors; (b) Professional Fee Claims; and
(c) US Trustee Fees. Except as provided in the Intercompany Claims Settlement,
no Intercompany Claim will constitute an Administrative Claim.

          US Trustee Fees

     On or before the Effective Date, Administrative Claims for fees payable
pursuant to 28 U.S.C. Section 1930, as determined by the Bankruptcy Court at the
Confirmation Hearing, will be paid by the applicable Debtor or the Distribution
Trustee in Cash equal to the amount of such Administrative Claims. All fees
payable pursuant to 28 U.S.C. Section 1930 will be paid by the Distribution
Trustee in accordance with the Plan from the Priority Claims Trust Account until
the closing of the Chapter 11 Cases pursuant to section 350(a) of the Bankruptcy
Code.


                                       25

          Bar Dates for Administrative Claims

     As provided in the Administrative Claim Bar Date Order, any holder of an
Administrative Claim against a Debtor that was required to File and serve a
request for payment of such Administrative Claim and that does not File and
serve such a request in accordance with the Administrative Claim Bar Date Order
by the Administrative Claim Bar Date, will be forever barred from asserting such
Administrative Claim against the Debtors, the Distribution Trustee or the
property of any of them, or the Trust Accounts, and such Administrative Claim
will be deemed waived and released as of the Effective Date. Objections to an
Administrative Claim must be Filed by the Distribution Trustee and served on the
requesting party by the later of (a) 45 days after the Effective Date and (b) 60
days after the Filing of the request for payment of an Administrative Claim.

     Except as otherwise set forth in the Plan or in the Intercompany Claims
Settlement, professionals or other entities asserting a Professional Fee Claim
for services rendered solely with respect to the Debtors before the Effective
Date must File and serve on the Debtors and the Distribution Trustee and such
other entities who are designated by the Bankruptcy Rules, the Confirmation
Order or other order of the Bankruptcy Court an application for final allowance
of such Fee Claim no later than 60 days after the Effective Date. Objections,
including any objections by the US Trustee, to any Professional Fee Claim must
be Filed and served on the Distribution Trustee and the requesting party by the
later of (a) 90 days after the Effective Date and (b) 30 days after the Filing
of the applicable request for payment of the Professional Fee Claim. To the
extent necessary, the Confirmation Order will amend and supersede any previously
entered order of the Bankruptcy Court regarding the payment of Professional Fee
Claims (other than the Intercompany Claim Settlement Order) solely with respect
to the Debtors.

     To the extent that any professional has provided services in the Kaiser
Cases, the Bar Date for Professional Fee Claims in Section 2.2 of the Plan
relates only to such professional's fees for services and reimbursement of
expenses reasonably allocable by such professional solely to the Debtors and not
otherwise treated pursuant to the Intercompany Claims Settlement Order; Claims
relating to such professional's fees for services and reimbursement of expenses
to the Other Kaiser Debtors may be sought against the estates of such Other
Kaiser Debtors. The failure of a professional to allocate any particular charges
to the Debtors will not foreclose, waive or affect in any way the professional's
right to seek allowance and payment of such charges from the Other Kaiser
Debtors.

          QAL Purchase Agreement

     From and after the Effective Date, any amounts payable by KAAC under the
QAL Purchase Agreement, including any amounts that become payable in respect of
indemnification claims, will be paid in full in Cash from the Priority Claims
Trust Account in accordance with the applicable provisions of the QAL Purchase
Agreement. The Distribution Trust will have no claim against KACC, for
contribution or otherwise, as a result of any such payment. "Operations During
the Chapter 11 Cases -- The Sale of the QAL Interests and Liquidation of KAAC."

          Intercompany Claims Settlement Payments

     From and after the Effective Date, certain obligations, including
obligations relating to success fees of financial advisors retained by the
Debtors and the Creditors' Committee, alternative minimum Tax due as a result of
the sale of the QAL Interests and AJI and KJC's interests in Alpart, foreign
Taxes, transfer Taxes and recording fees payable by KAAC as a result of the sale
of the QAL Interests and third-party costs incurred after June 30, 2004 solely
in connection with the Chapter 11 Cases and the chapter 11 cases of AJI and KJC,
will be paid in full in Cash from the Priority Claims Trust Account in
accordance with the applicable provisions of the Intercompany Claims Settlement.
See "Operations During the Chapter 11 Cases -- Intercompany Claims Settlement."

          PBGC Administrative Claim

     Pursuant to paragraph 10 of the PBGC Settlement Agreement, the PBGC will
have an Allowed Administrative Claim against KAAC and KFC and, on the Effective
Date, if neither KACC nor any of the Other Kaiser Debtors has paid to the PBGC
$14.0 million in full as required by Section 7.10 of the Intercompany Claims
Settlement, then the PBGC will receive, in full satisfaction of such Allowed
Administrative Claim, Cash from the Priority Claims Trust Account in the amount
of $14.0 million less any portion of such amount that has been


                                       26

previously paid to the PBGC by KACC or any of the Other Kaiser Debtors. It is
anticipated that KACC will pay to the PBGC the $14.0 million aggregate amount of
such Allowed Administrative Claims prior to the Effective Date. See "Operations
During the Chapter 11 Cases -- PBGC Claims."

     PRIORITY TAX CLAIMS

     Pursuant to section 1129(a)(9)(C) of the Bankruptcy Code, unless otherwise
agreed by the holder of a Priority Tax Claim and the applicable Debtor or the
Distribution Trustee, each holder of an Allowed Priority Tax Claim will receive,
in full satisfaction of its Priority Tax Claim, the full amount thereof in Cash,
without postpetition interest or penalty, from the Priority Claims Trust Account
as soon as practicable after the later of (a) the Effective Date and (b) the
date on which the Priority Tax Claim becomes an Allowed Claim. Notwithstanding
the foregoing, the holder of an Allowed Priority Tax Claim will not be entitled
to receive any payment on account of any penalty arising with respect to or in
connection with the Allowed Priority Tax Claim. Any such Claim or demand for any
such penalty (a) will be subject to treatment in Subclass 3D and (b) the holder
of an Allowed Priority Tax Claim will not be entitled to assess or attempt to
collect such penalty from the Debtors, the Distribution Trustee, their
properties or the Trust Accounts (other than as the holder of a Subclass 3D
Claim).

     RESERVES FOR PAYMENT OF CERTAIN POTENTIAL ADMINISTRATIVE CLAIMS AND
     PRIORITY TAX CLAIMS

     As part of the initial funding of the Priority Claims Trust Accounts, the
Debtors will include reserves for payments in respect of certain potential
Administrative Claims and, in certain circumstances, Priority Tax Claims. See
"Overview of the Plan -- Sources and Uses of Cash."

SENIOR NOTE INDENTURE TRUSTEE AND AD HOC GROUP COUNSEL FEES AND EXPENSES; 7-3/4%
SWD REVENUE BOND PLAINTIFFS' FEES

     The Senior Notes Fee Payments will be made out of the Public Note
Distributable Consideration. No later than two Business Days prior to the
Effective Date, each of the 9-7/8% Senior Note Indenture Trustee, the 10-7/8%
Senior Note Indenture Trustee and counsel for the Ad Hoc Group must furnish to
the Creditors' Committee and the Debtors information in respect of such fees and
expenses incurred and estimated to be incurred through the Effective Date.

     In addition, if the 7-3/4% SWD Revenue Bond Payment is required to be made
under the first sentence of Section 2.5(a) of the Plan, the 7-3/4% SWD Revenue
Bond Plaintiffs' Expense Payments will be made out of the Public Note
Distributable Consideration otherwise payable to holders of Allowed Claims in
Subclass 3A; provided, however, that in no case will the amount of the 7-3/4%
SWD Revenue Bond Plaintiffs' Expense Payment, when aggregated with any
comparable amount payable under the AJI/KJC Plan, exceed $500,000; provided
further, however, that nothing in the Plan will prejudice the rights of such
plaintiffs to seek additional recoveries (i) from amounts otherwise to be paid
to or for the benefit of holders of 7-3/4% SWD Revenue Bonds under the Plan or
the AJI/KJC Plan or (ii) from, or in respect of amounts otherwise to be paid to
or for the benefit of holders of 7-3/4% SWD Revenue Bonds by, any Other Kaiser
Debtor other than AJI or KJC. No later than two Business Days prior to the
Effective Date, the plaintiffs in the 7-3/4% SWD Revenue Bond Dispute must
furnish to the Creditors' Committee, the Debtors, the 9-7/8% Senior Note
Indenture Trustee and the 10-7/8% Senior Note Indenture Trustee information in
respect of such fees and expenses incurred and estimated to be incurred through
the Effective Date.

          CERTAIN EVENTS PRECEDING THE DEBTORS' CHAPTER 11 FILINGS

BACKGROUND

     KAC, through its wholly owned subsidiary KACC and the subsidiaries of KACC,
has historically been one of the leading international producers and marketers
of alumina, primary aluminum and fabricated aluminum products, operating
worldwide in all principal aspects of the aluminum industry - the mining of
bauxite, the refining of bauxite into alumina, the production of primary
aluminum from alumina and the manufacture of both fabricated and semi-fabricated
aluminum products. KAAC is a direct wholly owned subsidiary of KACC. KAAC
currently owns a 20% interest in QAL, an Australian corporation that operates an
alumina refinery at Gladstone in


                                       27

Queensland, but has entered into an agreement to sell such interests (i.e., the
QAL Interests) (which agreement and sale were approved by an order of the
Bankruptcy Court dated November 8, 2004). For a discussion of the sale by KAAC
of the QAL Interests, see "Operations During the Chapter 11 Cases -- The Sale of
the QAL Interests and Liquidation of KAAC." KFC is a direct wholly owned
subsidiary of KAAC and operates to coordinate financing for QAL. KFC's only
assets are Intercompany Claims against certain Other Kaiser Debtors, including
the $1.106 billion Intercompany Claim against KACC (i.e., the KFC Claim), the
majority of which KFC may be required to assign to a master tort trust
established in connection with the plan or plans of reorganization of KAC and/or
KACC. For further information about the KFC Claim, see "Overview of the Plan --
KFC Claims Against KACC" and "Operations During the Chapter 11 Cases --
Intercompany Claims Settlement."

     On February 12, 2002 (the "Petition Date"), KAC, KACC and 13 of their
subsidiaries, including the Debtors, Filed for relief under chapter 11 of the
Bankruptcy Code. On March 15, 2002, two additional affiliates (collectively with
the previously-Filed debtors, the "Original Debtors") of KAC and KACC commenced
their respective chapter 11 cases. Nine other affiliates (collectively, the
"2003 Debtors") commenced their voluntary chapter 11 cases on January 14, 2003.
The Filing of these cases was necessitated by the liquidity and cash flow
problems that arose in late 2001 and early 2002. KAC and its subsidiaries were
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, KAC and its subsidiaries had become increasingly burdened by
asbestos litigation and growing legacy obligations for retiree medical and
pension costs. The confluence of these factors created continuing operating
losses and negative cash flows, which resulted in lower credit ratings and an
inability to access the capital markets.

NOTE GUARANTEES

     The Debtors, together with certain other subsidiaries of KACC, are
guarantors of KACC's obligations under the 9-7/8% Senior Note Indenture and
10-7/8% Senior Note Indentures (collectively, the "Senior Notes Indentures") and
the Senior Subordinated Note Indenture (collectively with the Senior Notes
Indentures, the "Public Note Indentures"). Upon the commencement of KACC's
chapter 11 case, the debt issued pursuant to each Public Note Indenture was
accelerated and the trustee under each Public Note Indenture had the right to
proceed to collect on the debt issued pursuant to such Public Note Indenture.
During the Chapter 11 Cases, certain litigation was initiated involving the
relative rights of the holders of the Senior Subordinated Notes and the holders
of the 9-7/8% Senior Notes and the 10-7/8% Senior Notes. See "Operations During
the Chapter 11 Cases -- Guaranty Subordination Dispute." Litigation was also
initiated in order to determine the rights of the 7-3/4% SWD Revenue Bonds in
relation to the Senior Subordinated Notes. See "Operations During the Chapter 11
Case -- 7-3/4% SWD Revenue Bond Dispute."

                     OPERATIONS DURING THE CHAPTER 11 CASES

FIRST DAY RELIEF

     On the Petition Date, the Original Debtors Filed a number of motions and
other pleadings (collectively, the "First Day Motions"). Certain of the most
significant First Day Motions are briefly described below. The First Day Motions
were designed to meet the Original Debtors' goals of:

     -    continuing their and their nondebtor subsidiaries' operations with as
          little disruption and loss of productivity as possible;

     -    maintaining the confidence and support of the Original Debtors' and
          their nondebtor subsidiaries' customers, employees, vendors,
          suppliers, service providers, contractors and other key groups;

     -    maintaining good relations in the communities served by the Original
          Debtors and their nondebtor subsidiaries' businesses; and

     -    obtaining necessary postpetition financing.


                                       28

The First Day Motions included:

     -    motions relating to case administration included the appointment of
          counsel, the appointment of a claims and noticing agent, and the
          approval of interim compensation procedures for professionals;

     -    a motion seeking authority to pay prepetition wages and other benefits
          to or on behalf of the Original Debtors' employees and independent
          contractors;

     -    a motion seeking authority to retain and pay ordinary course
          professionals;

     -    a motion seeking authority to continue the Original Debtors' workers'
          compensation insurance programs and pay certain prepetition workers'
          compensation claims, premiums and related expenses;

     -    a motion seeking authority to pay or honor prepetition obligations to
          customers;

     -    a motion seeking authority to pay prepetition claims of certain
          critical vendors and service providers;

     -    a motion seeking approval of (a) the Original Debtors' cash management
          system; (b) certain intercompany transactions with and transfers to
          affiliates; (c) the use of existing bank accounts, business forms, and
          investment and deposit guidelines; and (d) the priority of
          postpetition Intercompany Claims, as discussed below under "-- Cash
          Management Order"; and

     -    a motion seeking approval to continue funding certain joint venture
          affiliates, including QAL, as discussed below under "-- Joint Venture
          Order".

All of the First Day Motions ultimately were granted on the Petition Date or
shortly thereafter.

     CASH MANAGEMENT ORDER

     Prior to the Petition Date, the Original Debtors utilized certain
centralized cash management systems in the day-to-day operation of their
businesses. These cash management systems included an overall centralized cash
management system maintained by KACC, as well as certain cash management
subsystems maintained by certain of their subsidiaries and business units. These
cash management systems provided well-established mechanisms for the collection,
concentration, management and disbursement of funds used in the Original
Debtors' businesses.

     On February 13, 2002, the Bankruptcy Court entered an interim order
authorizing the Original Debtors to maintain these systems on a postpetition
basis and, on July 23, 2002, entered a final order authorizing the continued use
and maintenance of the centralized cash management system (the "Cash Management
Order"). In addition, the Cash Management Order authorized the Original Debtors
to continue their ordinary course transactions with, and transfers of Cash to,
their nondebtor affiliates. In connection with this relief, the Cash Management
Order accorded superpriority status to any Intercompany Claims among the
Original Debtors and nondebtor affiliates that arose after the Petition Date as
a result of the intercompany transactions made through the Original Debtors'
cash management system.

     JOINT VENTURE ORDER

     As of the Petition Date, much of the bauxite, alumina and primary aluminum
utilized by KACC and its subsidiaries was produced at overseas facilities owned
through five nondebtor joint venture affiliates, of which KACC held, directly or
indirectly, less than a 100% ownership interest (collectively, the "Joint
Ventures"). QAL, described above in "Certain Events Preceding the Debtors'
Chapter 11 Cases -- Background," was one of the Joint Ventures. Certain of the
Original Debtors were obligated to purchase products from the Joint Ventures and
to fund the Joint Ventures' cash costs for raw materials, labor and other
operational costs, as well as capital expenditures,


                                       29

Taxes, debt service and working capital. Failure to purchase products from, or
fund the costs of, a Joint Venture would have been a default under the relevant
Joint Venture agreements, which, in turn, could have lead to the forfeiture of
the Original Debtors' interests in the Joint Venture. As a consequence, the
Original Debtors sought and obtained an interim order dated February 13, 2002
authorizing them to continue ordinary course transactions with, and pay
prepetition claims of, the Joint Ventures and, on July 23, 2002, obtained a
final order authorizing them to do so (the "Joint Venture Order").

BANKRUPTCY PETITIONS OF THE 2003 DEBTORS

     The 2003 Debtors commenced their respective chapter 11 cases in order to,
among other reasons, protect their assets against statutory liens that might
have arisen and been enforced by the PBGC against them as a result of KACC's
failure to make a $17.0 million contribution to its salaried employee retirement
plan in January 2003 as required under the Employee Retirement Income Security
Act of 1974, as amended. In connection with these filings, the Bankruptcy Court
authorized 2003 Debtors to continue to make payments in the normal course of
business (including payments of pre-Filing date amounts), including payments of
wages and benefits, payments for items such as materials, supplies and freight
and payments of taxes. The Bankruptcy Court also extended the relief provided
under the Cash Management Order and Joint Venture Order to the 2003 Debtors.

APPOINTMENT OF THE COMMITTEES AND FUTURE CLAIMANTS' REPRESENTATIVES

     CREDITORS' COMMITTEE

     On February 25, 2002, the US Trustee appointed the Creditors' Committee.
The Creditors' Committee acts as such in all of the Kaiser Cases (including the
Chapter 11 Cases). The membership of the Creditors' Committee has been amended
three times during the Kaiser Cases; the current members of, and advisors to,
the Creditors' Committee are:

                                    
COMMITTEE MEMBERS:                     COUNSEL:

J.P. Morgan Trust Company, N.A.,       Lisa G. Beckerman, Esq.
as Indenture Trustee                   Akin, Gump, Strauss, Hauer & Feld, L.L.P.
6525 West Campus Oval Road             590 Madison Avenue
New Albany, OH 43054                   New York, NY 10022

Law Debenture Trust Company of New     William P. Bowden, Esq.
York, as Indenture Trustee             Ashby & Geddes
767 Third Avenue, 31st Floor           222 Delaware Avenue
New York, NY 10017                     P.O. Box 1150
                                       Wilmington, DE 19899
U.S. Bank National Association,
as Indenture Trustee                   FINANCIAL ADVISORS:
180 East 5th Street
St. Paul, MN 55101                     Amit R. Patel
                                       Houlihan Lokey Howard & Zukin
United Steelworkers of America         1930 Century Park West
Five Gateway Center                    Los Angeles, CA 90067
Pittsburgh, PA 15222
                                       ASBESTOS EXPERTS:
Pension Benefit Guaranty Corporation
1200 K Street, N.W.                    Charles E. Bates
Washington, D.C. 20005                 Bates White & Ballantine
                                       2001 K Street, N.W., Suite 700
Farallon Capital Management LLC        Washington, D.C. 20006
1 Maritime Plaza, Suite 1325
San Francisco, CA 94111




                                       30

Dwight Asset Management Company
100 Bank Street
Burlington, VT 05401

     ASBESTOS CLAIMANTS' COMMITTEE AND CERTAIN OTHER APPOINTED REPRESENTATIVES

     On February 25, 2002, the US Trustee appointed a statutory committee of
asbestos claimants (the "Asbestos Claimants' Committee"). On January 27, 2003,
the Bankruptcy Court entered an order appointing Martin J. Murphy as legal
representative for future asbestos claimants (the "Future Asbestos Claimants'
Representative"). On August 26, 2003, the Bankruptcy Court entered an order
appointing an official committee of retired employees (the "Retirees'
Committee"). On June 22, 2004, the Bankruptcy Court entered an order appointing
a legal representative for future silica and coal tar pitch volatile claimants
(the "Future Silica Claimants' Representative"). While each of these
appointments has been made in the administratively consolidated chapter 11 cases
of the Original Debtors and Additional Debtors, the Debtors do not believe that
they have any liability with respect to the claims that are the subject of the
respective roles of the Asbestos Claimants' Committee, the Future Asbestos
Claimants' Representative or the Future Silica Claimants' Representative and no
Claims in respect thereof have been asserted (other than several Claims asserted
by insurance carriers that are being challenged by the Debtors and that are
expected to be disallowed).

ASSUMPTION AND ASSIGNMENT OR REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES

     As debtors in possession, the Debtors have the right under section 365 of
the Bankruptcy Code, subject to the approval of the Bankruptcy Court, to assume,
assume and assign, or reject executory contracts and unexpired leases. Section
365 of the Bankruptcy Code provides generally that a debtor may assume, assume
and assign, or reject an executory contract at any time before the confirmation
of a plan of reorganization, but the Bankruptcy Court, on the request of a party
in interest, may order the debtor to determine whether to assume or reject a
particular executory contract within a specified period of time. In addition,
section 365 of the Bankruptcy Code further provides that a debtor is given until
60 days after the date of commencement of its bankruptcy to decide whether to
assume, assume and assign, or reject an unexpired lease of nonresidential real
property. This period may be extended for "cause."

     On April 11, 2002, the Bankruptcy Court entered an order granting the
Original Debtors' motion to extend the time within which they may assume, assume
and assign, or reject an unexpired lease of nonresidential property until the
Confirmation Date to allow them to evaluate further their executory contracts
and unexpired leases. On April 17, 2003, the Bankruptcy Court entered an order
granting the same relief to the 2003 Debtors.

     As described below in "-- The Sale of the QAL Interests and Liquidation of
KAAC," the QAL Interests have been sold and all executory contracts related to
QAL have been assumed and assigned in connection therewith. KAAC does not
believe it has any material executory contracts or unexpired leases that will
not be assumed and assigned in connection with the sale of the QAL Interests,
but, in any case, any remaining executory contracts of KAAC will be deemed
rejected pursuant to the Plan.

CLAIMS PROCESS AND BAR DATES

     In May 2002, the Debtors and thirteen of the Other Kaiser Debtors filed
their Schedules, identifying the assets and liabilities of their respective
estates. These Schedules have been amended from time to time subsequent to these
initial filings. In March 2003, the 2003 Debtors filed their respective
Schedules. The Bankruptcy Court set the following bar dates for the filing of
proofs of claim in the Kaiser Cases: (a) January 31, 2003 as the last date by
which holders of prepetition claims against the Original Debtors (other than
asbestos-related personal injury, noise-induced hearing loss and coal tar pitch
volatiles claims) could file their claims; (b) May 15, 2003 as the last date by
which holders of prepetition claims against the 2003 Debtors (other than
asbestos-related personal injury, noise-induced hearing loss and coal tar pitch
volatiles claims) could file their claims; and (c) February 29, 2004 as the last
date by which holders of noise-induced hearing loss and coal tar pitch volatiles
prepetition claims against KACC could file their claims. No bar date has been
established for the filing of asbestos-related personal injury claims.


                                       31

POSTPETITION FINANCING

     On the Petition Date, the Original Debtors (including the Debtors) entered
into a postpetition financing agreement arranged by Bank of America, N.A. and,
in March 2003, the 2003 Debtors were added as co-guarantors. That financing
facility provided for a secured, revolving line of credit through February 13,
2005. On February 11, 2005, the Bankruptcy Court approved a replacement
financing agreement for certain of the Other Kaiser Debtors. The replacement
facility was arranged by J.P. Morgan Securities Inc. and provides for a secured,
revolving line of credit in the principal amount of $200.0 million through the
earlier of February 11, 2006, the effective date of a plan of reorganization for
the Other Kaiser Debtors or the voluntary termination of the financing facility
by the Other Kaiser Debtors. Because the Debtors will be liquidating their
assets and will have no working operations, the Debtors are not parties to the
replacement financing agreement and the lenders under the replacement financing
agreement have no Liens on the Cash held by the Debtors.

STRATEGIC PLAN TO SELL COMMODITIES ASSETS

     In September 2002, KAC and KACC prepared a strategic plan for their
business operations. That plan envisioned the sale of some or all of their
bauxite, alumina and primary aluminum assets and the reorganization around their
fabricated products business. Thereafter, the strategic plan was shared with the
Creditors' Committee, the Asbestos Claimants' Committee and the Future Asbestos
Claimants' Representative. After these parties completed considerable due
diligence, they each indicated that they did not oppose the strategic plan.

     In furtherance of the strategic plan, the Debtors and the Other Kaiser
Debtors have sold or are in the process of selling their interests in the Joint
Ventures other than Anglesey Aluminium Limited. In July 2004, KACC, KJC, AJI and
certain of their affiliates sold their interests in Alpart for approximately
$331.7 million, subject to certain adjustments. In October 2004, KACC sold its
alumina refinery in Gramercy, Louisiana and the interests of Kaiser Bauxite
Company in and related to Kaiser Jamaica Bauxite Company for consideration of
approximately $23.0 million, subject to certain adjustments. Also in October
2004, certain of the Other Kaiser Debtors sold their interests in Volta
Aluminium Company Limited, which owns a primary aluminum smelter on the coast of
Ghana. In November 2004, the Bankruptcy Court approved the sale of KAAC's
interests in and related to QAL, which operates an alumina refinery in
Queensland, Australia that is one of the most competitive refineries in the
world. The QAL Interests consist of: (a) ownership of 20% of the outstanding
shares of QAL; and (b) rights and obligations under a variety of contracts to
which KACC, KAAC and/or Kaiser Aluminium International, Inc. ("KAII") are
parties, including financing, bauxite supply and alumina sales contracts. See "
- -- The Sale of the QAL Interests and Liquidation of KACC."

THE SALE OF THE QAL INTERESTS AND LIQUIDATION OF KAAC

     Following an extensive marketing process that included providing notices to
Comalco Limited ("Comalco"), another stockholder of QAL entitled a right of
first opportunity ("RFO") if at any time KACC wished to sell or otherwise
dispose of all or any part of the QAL Interests, in June 2004, KACC, KAAC and
KAII filed a motion (the "First Sale Motion") to approve the sale of the QAL
Interests pursuant to an action with a reserve price of $525.0 million. No bids
were received for the QAL Interests and in August 2004 the First Sale Motion was
withdrawn.

     Shortly thereafter, KACC approached Comalco and other potential purchasers
to continue the sale process for the QAL Interests. On September 23, 2004, KACC,
KAAC and KAII filed motions to approve a two-pronged approach to the sale of the
QAL Interests. First, KACC signed a "stalking horse" agreement to sell the QAL
Interests to Comalco Aluminium Limited, a subsidiary of Comalco, for a base
price of $308.0 million in Cash plus purchase of certain alumina and bauxite
inventories and subject to certain working capital adjustments, and the
assumption of KACC's obligations in respect of approximately $60.0 million of
QAL debt. Pursuant to the agreement, all existing alumina sales contracts and
other agreements relating to QAL would be transferred to Comalco Aluminium
Limited. The agreement was supplemented by a letter agreement in which Comalco
Aluminium Limited's parent companies agree that execution of the stalking horse
agreement satisfied - or that such parties otherwise waived - rights that they
would otherwise have had under the RFO and further contained certain
understandings in respect to the exercise of transfer consent rights (the
"Letter Agreement."). Unless waived or satisfied, these rights could have
potentially delayed the sale process for a significant period of time, during
which


                                       32

delay the market value of the QAL Interests could have decreased, thereby
reducing recoveries to creditors and jeopardizing the closing of any sale of the
QAL Interests. The stalking horse agreement also includes a provision for KACC's
payment of a termination fee of $11.0 million (the "Termination Fee") to Comalco
Aluminium Limited upon the sale of the QAL Interests pursuant to the auction
process if Comalco Aluminium Limited was not the ultimate purchaser.

     Separately, KACC negotiated an agreement with Glencore AG ("Glencore")
whereby Glencore agreed that its wholly owned subsidiary, Pegasus Queensland
Acquisition Pty Limited ("Pegasus"), would submit a qualified auction bid for
the QAL Interests, with a base price of $400.0 million in Cash and otherwise on
the terms and conditions of the stalking horse agreement described above. KACC
agreed to pay to Glencore a fee of approximately $7.7 million (the "Glencore
Fee") upon submission of that qualified bid. On September 28, 2004, the
Bankruptcy Court approved the motions to select Comalco Aluminium Limited as the
stalking horse bidder in an auction for the QAL Interests and to approve the
Termination Fee and Glencore Fee. An auction was held on October 28, 2004.
Pegasus timely submitted its bid and received the Glencore Fee and Alumina &
Bauxite Company Ltd. ("ABC Ltd."), an affiliate of RUSAL Holding Ltd., was
selected as the successful bidder, with a bid with a base price of $401.0
million in Cash and otherwise on terms similar to the stalking horse agreement
described above.

     Following the auction, ABC Ltd., KACC and KAAC entered into a definitive
purchase agreement reflecting such bid, which agreement is subject to customary
closing conditions, including receipt of required governmental approvals and
third-party consents. The agreement contains customary representations and
warranties for a transaction involving the sale of a minority stake. Under the
agreement, KACC and KAAC agreed to indemnify ABC Ltd. from, among other things,
breaches of such representations and warranties. Subject to certain limited
exceptions, the maximum liability of KACC and KAAC for indemnification in
respect of breaches of representations and warranties is $10.0 million. The
Intercompany Claims Settlement provides that KAAC will satisfy any such
indemnification or other obligations under the QAL Purchase Agreement and, in
such event, will have no claim against KACC for contribution.

     By an order dated November 8, 2004, the Bankruptcy Court approved the
purchase agreement with ABC Ltd. and the transactions contemplated thereby and
authorized KACC and KAAC, in the event such agreement is terminated, to enter
into the purchase agreement submitted by Pegasus with its bid and to consummate
the transactions contemplated thereby. The closing of the sale of the QAL
Interests is expected to occur during the first quarter of 2005.

     In December 2004, Comalco Aluminium Limited's parent companies indicated
that they were not yet prepared to consent to the sale of the QAL Interests
because of purported issues surrounding ABC Ltd.'s ability to guarantee its
obligations to QAL. Subsequently, Comalco Aluminium Limited's parent companies
requested a number of amendments to QAL-related agreements as a condition to
granting their consent to the sale. As a consequence, KAAC and KACC Filed a
motion to enforce the Letter Agreement with Comalco Aluminium Limited's parent
companies (the "Enforcement Motion"). A hearing to consider the Enforcement
Motion is scheduled for March 21, 2005.

CERTAIN AUSTRALIAN TAX MATTERS

     The Australian Tax Office could assert that the Debtors owe Taxes for one
or more taxable periods through Effective Date, including Taxes resulting from
the sale of the QAL Interests. The Debtors believe that a Claim for Taxes
resulting from the sale of the QAL Interests is unlikely because they believe
that the sale price to be received pursuant to the QAL Purchase Agreement will
not be sufficient to produce taxable gain under Australian Tax laws; however, no
assurance can be given (a) that the Australian Tax Office will not take a
different position and assert a Claim that the Debtors owe Taxes as a result of
the sale of the QAL Interests or (b) that if the Australian Tax Office does
assert such a Claim, as to the amount of such Claim, which could be material, or
as to the amount of Taxes, if any, that may ultimately be determined to be due
and owing to the Australian Tax Office in connection with such Claim. The Plan
provides that any and all Taxes determined to be due and owing to the Australian
Tax Office from either Debtor to the Australian Tax Office for any taxable
period (including interest and penalties, if any) will be treated as Allowed
Priority Tax Claims (if they relate to prepetition periods) or Allowed
Administrative Claims (if they relate to the administrative period), and will be
paid in full in Cash from the Priority Claims Trust Account


                                       33

following the determination of the amount or amounts of such Tax liabilities.
Interest and penalties associated with any such Tax liability will be determined
and calculated for purposes of the Plan under applicable Australian law. (Until
this determination has been made, any Claim for Taxes by the Australian Tax
Office will be treated under the Plan as a Disputed Claim.) See "Overview of the
Plan -- Sources and Uses of Cash."

AGREEMENTS WITH LABOR REGARDING PENSION AND RETIREE MEDICAL BENEFITS

     In January 2004, KACC and one of the Other Kaiser Debtors filed motions
with the Bankruptcy Court for a distress termination of all of their domestic
hourly pension plans and to terminate or substantially modify postretirement
medical obligations for both salaried and certain hourly employees. KACC
subsequently reached agreements (collectively, the "Legacy Liability
Agreements") with the Retirees' Committee and representatives from the unions
representing the hourly employees of KACC. The Legacy Liability Agreements
provided for the termination of existing salaried and hourly retiree benefit
plans (including medical) and provided salaried and hourly retirees with an
opportunity either to pay premiums for continued medical coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (i.e., COBRA continuation
coverage) or to elect coverage pursuant to voluntary employee beneficiary
association trusts, to which KACC has, and will continue to contribute, a
certain amount of Cash and to which KAC will contribute a certain portion of the
equity it issues upon the consummation of its chapter 11 plan. Under the Legacy
Liability Agreements, the parties also agreed to the termination of their
then-existing hourly pension plans and to the terms of one or more replacement
pension plans.

     During the first half of 2004, the Bankruptcy Court entered orders
approving each of the Legacy Liability Agreements, subject to certain
conditions, including Bankruptcy Court approval of the Intercompany Claims
Settlement (described below) in a form acceptable to the Debtors, the Other
Kaiser Debtors and the Creditors' Committee. On June 1, 2004, the Bankruptcy
Court entered an order making the Legacy Liability Agreements effective,
notwithstanding that the Intercompany Claims Settlement had not then been agreed
upon or approved, and authorizing the Other Kaiser Debtors to proceed with the
implementation of those agreements, subject to certain termination rights
granted to the Creditors' Committee. As a result of the PBGC Settlement
Agreement (described below), KACC and the United Steelworkers of America,
AFL-CIO-CLC later agreed to certain modifications of their Legacy Liability
Agreement, which the Bankruptcy Court approved on November 8, 2004, subject to
finalization of a form of order. The Bankruptcy Court entered the order on
February 1, 2005.

PBGC CLAIMS

     The PBGC is a wholly owned United States government corporation that
administers the defined benefit pension plan termination insurance program under
ERISA. Pursuant to federal statute, KACC and each member of its controlled group
are jointly and severally liable to the PBGC for amounts that KACC is required
to contribute to any of the Kaiser pension plans. The controlled group includes
each of KAAC and KFC, as well as all of the Other Kaiser Debtors.

     In January 2003, the PBGC filed claims against Debtors and the Other Kaiser
Debtors on behalf of each of the eight Kaiser pension plans, which included: (a)
claims for estimated unfunded benefit liabilities, totaling approximately $620.0
million; (b) unliquidated claims for missed statutory insurance premiums; and
(c) a $17.1 million claim for minimum funding contributions related to the
salaried pension plan and unliquidated claims for minimum funding contributions
related to the remaining Kaiser pension plans.

     Although the Bankruptcy Court, in conjunction with approving the Legacy
Liability Agreements, had determined that the financial requirements for a
distress termination of certain of the pension plans had been satisfied and had
authorized the implementation of replacement defined contribution plans as
negotiated in the Legacy Liability Agreements, the termination of the pension
plans and implementation of the replacements plans remained subject to the
PBGC's determination that the statutory requirements had been satisfied. In
March 2004, the PBGC appealed the Bankruptcy Court's ruling that the Debtors and
the Other Kaiser Debtors had met the financial requirements for a distress
termination with respect to certain of the Kaiser pension plans. The PBGC also
informed the Debtors and the Other Kaiser Debtors that it believed that the
replacement pension plans negotiated in the Legacy Liability Agreements did not
comply with the PBGC's policies.


                                       34

     On October 14, 2004, the Debtors and the Other Kaiser Debtors entered into
the PBGC Settlement Agreement, pursuant to which the PBGC approved the
termination of the largest of the Kaiser pension plans that had not previously
been terminated (two of the Kaiser pension plans had been terminated by the PBGC
prior to that date) and KACC retained, and agreed to continue, the remaining
smaller pension plans. In addition, the PBGC Settlement Agreement provides for,
among other things: (a) the PBGC's issuance of a letter indicating that it
intends to take no action with respect to the replacement pension plans; (b) the
payment by KACC of amounts necessary to satisfy the minimum funding requirements
under applicable law for the retained pension plans; (c) the allowance of
administrative claims in the aggregate amount of $14.0 million against the
Debtors and the Other Kaiser Debtors with the exception of AJI and KJC; and (d)
the allowance of unsecured claims against the Debtors and the Other Kaiser
Debtors for $616.0 million for unfunded benefit liabilities under the terminated
plans and statutory premiums, provided that the PBGC's recovery from the Estates
of the Debtors in respect of the PBGC Claims is limited to the PBGC Percentage
of the Cash or other property in the Unsecured Claims Trust. On January 25,
2005, the Bankruptcy Court entered an order approving the PBGC Settlement
Agreement. On February 3, 2005, the Senior Subordinated Note Indenture Trustee
Filed a notice of appeal in respect of such order and a notice of appeal of the
Bankruptcy Court's order denying its motion for reconsideration of the
Bankruptcy Court's stay of the Senior Subordinated Note Indenture Trustee's
objection to certain PBGC Claims. See "Overview of the Plan -- Summary of
Classes and Treatment of Claims and Interests" for a description of the
treatment of the PBGC Claims.

INTERCOMPANY CLAIMS SETTLEMENT

     The operations of KAC and its subsidiaries, which included transactions
with foreign joint ventures and the use of a centralized cash management system,
gave rise to a significant number of intercompany transactions, which were
accounted for as intercompany receivables and payables. Because many of the
intercompany accounts reflected an aggregate of activity over many years, the
account balances for these intercompany receivables and payables in many cases
were substantial, in some cases aggregating more than a $1.0 billion. In
addition to the complex nature of the transactions and the significant amounts
involved, there were numerous legal theories and arguments that could be
advanced to support varying treatments of all or a portion of these intercompany
account balances or to apply principles of setoff or recoupment to eliminate or
substantially reduce certain of these intercompany account balances. Issues also
existed with respect to postpetition Intercompany Claims, including, among other
issues: (a) whether to "synchronize" the petition dates for the Original Debtors
and the Additional Debtors or otherwise how to treat Intercompany Claims that
arose after the commencement of the chapter 11 cases of the Original Debtors in
2002 but prior to the commencement of chapter 11 cases of the 2003 Debtors; and
(b) how certain costs or services funded by KACC but accruing to the benefit of
the Debtors and Other Kaiser Debtors as well (e.g., professional fees and costs
incurred in the chapter 11 cases and overhead costs) should be allocated among
the Debtors and the Other Kaiser Debtors.

     On October 5, 2004, the Debtors, the Other Kaiser Debtors and the
Creditors' Committee entered into a settlement and release agreement which
resolves all of these issues (i.e., the Intercompany Claims Settlement), thereby
eliminating the potential costs, uncertainties and potential delays that could
have resulted had each of these issues been left for resolution through
litigation. On October 14, 2004, the Debtors, the Other Kaiser Debtors and the
Creditors' Committee jointly Filed a motion to approve the Intercompany Claims
Settlement (the "Joint Motion"). Objections to the Joint Motion were Filed by
numerous parties, many of which were resolved by a January 27, 2005 amendment to
the Intercompany Claims Settlement. The Bankruptcy Court entered an order
approving the Intercompany Claims Settlement on February 1, 2005, which order
was modified on February 15, 2005.

     The material terms of the Intercompany Claims Settlement (as amended)
specifically relating to the Debtors include, among others, the following:

     -    upon the effectiveness of the Intercompany Claims Settlement, various
          offsets and transfers will be effected, with the ultimate economic
          effect that Intercompany Claims held by or against the Debtors will be
          released except as otherwise described below;

     -    KACC will have an Allowed Administrative Claim against KAAC in the
          amount of $45.0 million, subject to certain adjustments, including
          reductions (a) to the extent that KACC receives positive


                                       35

          net cash flow from KACC after June 30, 2004 and prior to the closing
          of the sale of the QAL Interests, (b) in respect of KACC's
          reimbursement Claim for payment of the Glencore Fee, and (c) to the
          extent that positive net cash flow from Alpart is not set off against
          amounts otherwise owed to KACC by AJI and KJC under the Intercompany
          Claims Settlement, which reductions are expected to reduce such Claim
          to $24.0 million to $35.0 million;

     -    if the Plan becomes effective on or before June 30, 2005, KAAC will
          pay an additional $2.5 million to KACC;

     -    KAAC is responsible for a portion of the success fees of the financial
          advisors retained by the Debtors and the Creditors' Committee and any
          alternative minimum Tax due as a result of the sale of AJI and KJC's
          interests in Alpart and the sale of the QAL Interests and any foreign
          Taxes, transfer Taxes and recording fees payable by KAAC as a result
          of the sale of the QAL Interests and the Debtors are responsible for
          all other foreign taxes payable by them, whether for current or prior
          years;

     -    seventy-five percent of KFC's unsecured claim against KACC in respect
          of certain intercompany loans (i.e., the KFC Claim) will be assigned
          by KFC to a master tort trust or trusts on the effective date of a
          plan or plans of reorganization for KAC and KACC if such plan or plans
          provide that such master tort trust or trusts will receive no more
          than: (a) a Cash distribution of $13.0 million or less and (b) the
          stock of KAE Trading, Inc. (an Other Kaiser Debtor, the sole asset of
          which will be, as of the effective date of such plan or plans, certain
          real property located in Louisiana and rights under a related lease or
          other property having a value not greater than $1.0 million);

     -    the KFC Claim will be allowed in the amount of $1.106 billion (subject
          to the right of the United States, on behalf of certain agencies
          thereof, to object to such allowance within 30 days after the
          effective date of a plan or plans of reorganization for KAC and KACC,
          if the master tort trust or trusts do not receive 75% of the KFC Claim
          as described above) and will receive the same treatment as allowed
          general unsecured claims under any plan of reorganization for KACC;
          and

     -    the Debtors are responsible for the payment of third-party costs of
          administration of the Chapter 11 Cases incurred after June 30, 2004.

For a detailed discussion of the Intercompany Claims Settlement, see the Joint
Motion, and for a summary thereof, see the supplemental notice regarding the
hearing on the Joint Motion (the "Supplemental Notice"), which was served on all
parties in interest on December 27-28, 2004. The Joint Motion and the
Supplemental Notice, as well as the January 27, 2005 amendment to the
Intercompany Claims Settlement, are available to the public over the Internet on
the Document Website (www.kaiseraluminum.com).

     The Intercompany Claims Settlement does not affect any claim by either
Debtor against any of its non-debtor affiliates or by any such affiliate against
a Debtor. The only such claim of which the Debtors are aware is a claim of less
than $5,000 against KAAC by Kaiser Australia Pty, Ltd., a non-debtor,
wholly-owned subsidiary of KACC; the Debtors anticipate that this claim will be
waived by Kaiser Australia Pty, Ltd. on the Effective Date.

GUARANTY SUBORDINATION DISPUTE

     In 1993, KACC issued $400.0 million of the Senior Subordinated Notes, which
were guaranteed by certain KACC subsidiaries, including the Debtors (such
guaranty being referred to herein as the "Subsidiary Guaranty"). The Senior
Subordinated Note Indenture contains, among other things, a detailed definition
of "Senior Indebtedness," debt subordination provisions and guaranty provisions.
Under the Senior Subordinated Note Indenture, holders of the Senior Subordinated
Notes agreed "that all direct or indirect payments or distributions on or with
respect to the Notes...is [sic]...subordinated...to the prior payment in
full...of all Senior Indebtedness of the Company" and (b) "that all payments
pursuant to [the Subsidiary Guaranty] are...subordinated...to the prior payment
in full...of all Senior Indebtedness of such [s]ubsidiary [g]uarantor."


                                       36

     On August 16, 2004, the Senior Subordinated Note Indenture Trustee filed a
motion (the "Guaranty Subordination Classification Motion") with the Bankruptcy
Court to determine the classification of the Senior Subordinated Note Claims
under any plans of reorganization filed by the Debtors and the Other Kaiser
Debtors that made the Subsidiary Guaranty. The Guaranty Subordination
Classification Motion asserted that the obligations to the holders of 9-7/8%
Senior Notes and 10-7/8% Senior Notes in respect of the Subsidiary Guaranty do
not constitute "Senior Indebtedness" under the applicable definitions in the
Senior Subordinated Note Indenture and that, accordingly, the obligations on the
guaranty of the Senior Subordinated Notes (i.e., the Subsidiary Guaranty) and
the guaranties of the 9-7/8% Senior Notes and 10-7/8% Senior Notes are entitled
to pari passu distributions under plans of reorganization filed by the Debtors
and the Other Kaiser Debtors that made the Subsidiary Guaranty (including the
Plan).

     On September 3, 2004, the Senior Note Parties filed a complaint (the
"Guaranty Subordination Adversary Proceeding") with the Bankruptcy Court seeking
a declaration that any payment rights of the Senior Subordinated Note Claims are
subordinate to the Senior Note Claims, or, alternatively, a reformation of the
Senior Subordinated Note Indenture to provide that the Senior Subordinated Note
Claims are junior to the Senior Note Claims. Pursuant to the Bankruptcy Court's
order, on October 8, 2004, the Debtors and the Other Kaiser Debtors filed their
response to the Guaranty Subordination Classification Motion and an answer in
the Guaranty Subordination Adversary Proceeding (together with the Guaranty
Subordination Classification Motion, the "Guaranty Subordination Dispute") and
the Creditors' Committee filed its response to the Guaranty Subordination
Classification Motion. In their respective responses, the Debtors, the Other
Kaiser Debtors and the Creditors' Committee both supported the interpretation
advanced by the Senior Note Parties. The Senior Note Parties also filed
responses opposing the Guaranty Subordination Classification Motion. Liverpool
also Filed a response to the Guaranty Subordination Classification Motion,
asserting that only $100.0 million of the obligations to the holders of the
9-7/8% Senior Notes in respect of the Subsidiary Guaranty, plus associated
interest and fees, constitute "Senior Indebtedness" under the Senior
Subordinated Note Indenture based on the fact that there was a reduction of
$100.0 million in the credit commitment under KACC's senior credit facility at
the time the Subsidiary Guaranty was made. Liverpool therefore contends that,
other than the Subsidiary Guaranty obligations in respect of $100.0 million of
the principal amount of the 9-7/8% Senior Notes, the 10-7/8% Senior Notes, the
9-7/8% Senior Notes and the Senior Subordinated Notes are entitled to pari passu
distributions under the Plan.

     In connection with the Guaranty Subordination Dispute and the 7-3/4% SWD
Revenue Bond Dispute (see "-- 7-3/4% SWD Revenue Bond Dispute"), the Senior
Subordinated Note Indenture Trustee has asserted that, even if such disputes are
ultimately resolved by the Bankruptcy Court in favor of the holders of Senior
Note Claims, under the terms of the Senior Subordinated Note Indenture,
including, but not limited to, the charging lien provisions thereunder, the
Senior Subordinated Note Indenture Trustee will be entitled to the payment of
its fees and expenses (including the fees and expenses of the Senior
Subordinated Note Indenture Trustee's professionals) from any funds otherwise
distributable to the holders of Senior Note Claims pursuant to the subordination
provisions of the Senior Subordinated Note Indenture, without prejudice to the
Senior Subordinated Note Indenture Trustee's right to assert, inter alia, that
its fees and expenses constitute an administrative expense claim within the
purview of sections 503 and 507 of the Bankruptcy Code. The Debtors do not agree
with that assertion and believe, in such circumstances, that the contractual
subordination provisions of the Senior Subordinated Note Indenture require the
payment to holders of Senior Note Claims of all amounts that would otherwise be
payable to or for the benefit of holders of Senior Subordinated Note Claims
absent such provisions and that the Debtors are not required to make any payment
in respect of the fees and expenses of the Senior Subordinated Note Indenture
Trustee; if, however, the Bankruptcy Court determines that the assertion of the
Senior Subordinated Note Indenture Trustee is correct, the ultimate recoveries
to holders of Senior Note Claims may be reduced.

     On October 25, 2004, the Bankruptcy Court held a status conference on the
Guaranty Subordination Dispute and ordered the parties to attempt to
consensually resolve the Guaranty Subordination Dispute, as well as the 7-3/4%
SWD Revenue Bond Dispute, through mediation. On November 18, 2004, the parties
participated in a day-long mediation. To date, the parties to the Guaranty
Subordination Dispute have not reached a settlement, although the mediator has
not, as yet, terminated the mediation proceedings. No further mediation sessions
are currently scheduled.

     On December 2, 2004, the Senior Subordinated Note Indenture Trustee Filed a
motion in the Guaranty Subordination Adversary Proceeding requesting that the
Bankruptcy Court order the parties to file briefs regarding


                                       37

the Guaranty Subordination Dispute by January 10, 2005, and hold an oral summary
judgment argument on January 24, 2005.

     On December 10, 2004, the Debtors, the Other Kaiser Debtors and the Senior
Note Parties Filed a joint motion to stay the Guaranty Subordination Adversary
Proceeding and the 7-3/4% SWD Revenue Bond Dispute pending the completion of the
confirmation process for plans of liquidation for the Debtors, AJI and KJC and
requesting that the Guaranty Subordination Dispute be adjudicated in connection
with confirmation of such plans if the proposed settlement of the dispute
included in each such plan was not accepted. On the same date, Liverpool Filed a
motion requesting that the Bankruptcy Court either (a) consolidate litigation
concerning the Guaranty Subordination Dispute or (b) permit Liverpool to
intervene as a defendant in the Guaranty Subordination Adversary Proceeding.

     On January 24, 2005, the Bankruptcy Court stayed the Guaranty Subordination
Adversary Proceeding and ruled that the Guaranty Subordination Dispute and
7-3/4% SWD Revenue Bond Dispute will be adjudicated in connection with the
confirmation of the plans of liquidation for the Debtors, AJI and KJC. The
confirmation hearing for the Plan and AJI/KJC Plan is currently scheduled for
April 13, 2005 and may be continued from time to time.

     The Plan contains the following proposed settlement of the Guaranty
Subordination Dispute as it relates to the Debtors: If both Subclass 3A and
Subclass 3B vote to accept the Plan, a holder of an Allowed Senior Subordinated
Note Claim will receive its Pro Rata Share of $8.0 million (less any fees or
expenses payable to the Senior Subordinated Note Trustee pursuant to the Senior
Subordinated Note Indenture) and a holder of an Allowed Senior Note Claim will
receive its Pro Rata Share of the Public Note Distributable Consideration
remaining after giving effect to the payment of the $8.0 million to be made to
the holders of Senior Subordinated Note Claims, the 7-3/4% SWD Revenue Bond
Payment, the 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payment and the Senior
Notes Fee Payments. If either Subclass 3A or Subclass 3B fails to accept the
Plan, the Bankruptcy Court will resolve the Guaranty Subordination Dispute with
respect to the Debtors and determine the distributions to be made to the holders
of Claims in Subclass 3A from the Public Note Distributable Consideration and
any distributions to be made to holders of Claims in Subclass 3B from the Public
Note Distributable Consideration. In such event, the distributions ultimately
made to a holder of an Allowed Senior Note Claim will be reduced by such
holder's proportional share of the Senior Notes Fee Payments and, if the
Bankruptcy Court determines that holders of Allowed Senior Subordinated Note
Claims are not entitled to any portion of the Subclass 3A Distributable
Consideration, the 7-3/4% SWD Revenue Bond Payment (or reservation in lieu
thereof), if any, and any 7-3/4% SWD Revenue Bond Plaintiffs' Expense Payment.
Similarly, any distributions ultimately made to a holder of an Allowed Senior
Subordinated Note Claim may be reduced by such holder's proportional share of
any and all fees and expenses payable to the Senior Subordinated Note Trustee,
pursuant to the Senior Subordinated Note Indenture. If the Bankruptcy Court is
required to resolve the Guaranty Subordination Dispute as described above,
parties involved in that litigation could appeal the Bankruptcy Court's ruling
and request a stay that, if granted, would prohibit, pending the conclusion of
any such appeal, the distribution of some or all of the Public Note
Distributable Consideration to be distributed to holders of Claims in Subclass
3A or Subclass 3B in accordance with such ruling.

     Similarly, pursuant to the AJI/KJC Plan, if holders of both the Senior Note
Claims and the Senior Subordinated Note Claims vote to accept the AJI/KJC Plan,
then an additional $8.0 million will be paid to the Senior Subordinated Note
Indenture Trustee for the benefit of holders of Senior Subordinated Note Claims
(resulting in aggregate consideration of $16.0 million if the Plan is also
accepted by the holders of the Senior Note Claims and the Senior Subordinated
Note Claims), with such amount to be paid from consideration that would
otherwise be distributed to holders of Allowed Senior Note Claims under the
AJI/KJC Plan, and the holders of Senior Note Claims would receive a specified
percentage of the Cash available for distribution to the holders of unsecured
claims (less certain payments or reservations of payment therefrom). If the
holders of the Senior Note Claims or the Senior Subordinated Note Claims fail to
accept the AJI/KJC Plan, the Bankruptcy Court would resolve the Guaranty
Subordination Dispute with respect to AJI and KJC and determine the
distributions to be made to the holders of Senior Note Claims and any
distributions to be made to holders of Senior Subordinated Note Claims under the
AJI/KJC Plan.


                                       38

7-3/4% SWD REVENUE BOND DISPUTE

     The 7-3/4% SWD Revenue Bonds Indenture Trustee has asserted entitlement to
receive any direct or indirect payment or distribution on or with respect to the
Senior Subordinated Notes. The Debtors are guarantors of the Senior Subordinated
Notes but are not guarantors of the 7-3/4% SWD Revenue Bonds.

     On January 13, 2004, the 7-3/4% SWD Revenue Bonds Indenture Trustee and
certain holders of the 7-3/4% SWD Revenue Bonds (collectively, the "7-3/4% SWD
Revenue Bond Plaintiffs") filed an adversary proceeding (i.e., the 7-3/4% SWD
Revenue Bond Dispute) against the Senior Subordinated Note Indenture Trustee and
KACC. This adversary proceeding is currently pending before the Bankruptcy
Court. At issue is whether KACC properly designated the 7-3/4% SWD Revenue Bonds
as senior indebtedness under the Senior Subordinated Note Indenture or whether
the 7-3/4% SWD Revenue Bonds are otherwise entitled to treatment as senior
indebtedness vis-a-vis the Senior Subordinated Notes. It is the position of the
7-3/4% SWD Revenue Bond Plaintiffs that the holders of the 7-3/4% SWD Revenue
Bonds have subordination claims in respect of any distributions on the Senior
Subordinated Notes under the Plan. In response to the complaint, KACC stated
that it had not been able to confirm that it provided the Senior Subordinated
Note Indenture Trustee with a written designation that the 7-3/4% SWD Revenue
Bonds constitute senior indebtedness, which designation would subordinate the
indebtedness under the Senior Subordinated Notes to the indebtedness under the
7-3/4% SWD Revenue Bonds.

     On March 26, 2004, the Senior Subordinated Note Indenture Trustee filed a
motion to dismiss the 7-3/4% SWD Revenue Bond Dispute for failure to join
necessary parties such as the Senior Note Indenture Trustee. On May 4, 2004, the
7-3/4% SWD Revenue Bond Plaintiffs filed a motion for summary judgment,
requesting that the Bankruptcy Court either: (a) declare that KACC be deemed to
have submitted the appropriate designation of senior indebtedness; (b) order
KACC to designate the 7-3/4% SWD Revenue Bonds as senior indebtedness; or (c)
declare that the 7-3/4% SWD Revenue Bonds are senior in terms of payment
priority to the Senior Subordinated Notes. Shortly thereafter, the Senior
Subordinated Note Trustee filed a motion to stay all proceedings pending the
Bankruptcy Court's decision on the motion to dismiss the 7-3/4% SWD Revenue Bond
Dispute. KACC subsequently joined the motion to stay proceedings.

     On October 25, 2004, the Bankruptcy Court held a status conference on the
7-3/4% SWD Revenue Bond Dispute and ordered the parties to attempt to
consensually resolve the 7-3/4% SWD Revenue Bond Dispute, as well as the
Guaranty Subordination Dispute, through mediation. On November 18, 2004, the
parties to the 7-3/4% SWD Revenue Bond Dispute participated in a day-long
mediation but failed to reach a settlement.

     On November 29, 2004, the Bankruptcy Court entered orders permitting the
Senior Note Indenture Trustee to intervene as a defendant in the proceeding and
denying the Senior Subordinated Note Indenture Trustee's motion to dismiss the
7-3/4% SWD Revenue Bond Dispute.

     On December 10, 2004, the Debtors, the Other Kaiser Debtors and the Senior
Note Parties Filed a joint motion to stay the 7-3/4% SWD Revenue Bond Dispute
and the Guaranty Subordination Adversary Proceeding pending the completion of
the confirmation process for plans of liquidation for the Debtors, AJI and KJC
and requesting that the 7-3/4% SWD Revenue Bond Dispute be adjudicated, along
with the Guaranty Subordination Dispute if necessary, in connection with the
confirmation of such plans.

     On December 17, 2004, the Senior Subordinated Note Indenture Trustee filed
an answer in the 7-3/4% SWD Revenue Bond Dispute that included, among other
things: (a) a counterclaim for declaratory judgment that the 7-3/4% SWD Revenue
Bonds are not senior to the Senior Subordinated Notes; (b) a counterclaim
against the 7-3/4% SWD Revenue Bond Plaintiffs for reimbursement of legal
expenses incurred by the Senior Subordinated Note Indenture Trustee; (c) a cross
claim against KACC for indemnification in the amount of any judgment that may be
rendered in favor of the 7-3/4% SWD Revenue Bond Plaintiffs against the Senior
Subordinated Note Indenture Trustee; and (d) a complaint against certain of the
Debtors and Other Kaiser Debtors for indemnification in the amount of any
judgment that may be rendered in favor of the 7-3/4% SWD Revenue Bond Plaintiffs
against the Senior Subordinated Note Indenture Trustee.


                                       39

     On January 24, 2005, the Bankruptcy Court stayed the 7-3/4% SWD Revenue
Bond Dispute and ruled that the 7-3/4% SWD Revenue Bond Dispute and the Guaranty
Subordination Dispute will be adjudicated in connection with the confirmation of
the plans of liquidation for the Debtors, AJI and KJC. The confirmation hearing
for the Plan and AJI/KJC Plan is currently scheduled for April 13, 2005 and may
be continued from time to time.

     In connection with the development and proposal of the Plan,
representatives of certain of the holders of Senior Note Claims and 7-3/4% SWD
Revenue Bonds entered into negotiations in an attempt to reach a settlement in
respect of the 7-3/4% SWD Revenue Bond Dispute. In early February, such
representatives reached an agreement on a proposed settlement of that Dispute.
Such settlement, as it relates to the Debtors, is reflected in the Plan as
follows: If (a) Subclass 3A votes to accept the Plan in accordance with section
1126(c) of the Bankruptcy Code and (b) unless the holders of Senior Note Claims
otherwise agree pursuant to a settlement, all holders of Allowed Senior Note
Claims are entitled under the Plan to identical treatment in respect of
contractual subordination claims under the Senior Subordinated Note Indenture,
then, on the Effective Date, an amount equal to the Settlement Percentage of the
Cash in the Unsecured Claims Trust Account that would otherwise have been
distributed in respect of the Senior Subordinated Note Claims but which, after
giving effect to the contractual subordination provisions of the Senior
Subordinated Note Indenture and pursuant to Sections 2.4(c)(i) and 2.4(c)(ii) of
the Plan (but prior to giving effect to any 7-3/4% SWD Revenue Bond Payment), is
to be paid to holders of Senior Note Claims will, in full and complete
satisfaction of the claims of holders of 7-3/4% SWD Revenue Bonds asserted in
the 7-3/4% SWD Revenue Bond Dispute in respect of the Debtors, be paid to the
7-3/4% SWD Revenue Bond Indenture Trustee for the benefit of holders of 7-3/4%
SWD Revenue Bonds (i.e., the 7-3/4% SWD Revenue Bond Payment). Notwithstanding
the foregoing, in no event will the amount so paid, when aggregated with any
amount payable under any comparable provision of the AJI/KJC Plan, exceed $8.0
million. If the Debtors do not File a separate motion, the Plan will serve as a
motion pursuant to Bankruptcy Rule 9019 seeking entry of an order approving the
settlement described elsewhere in this Disclosure Statement. Unless an objection
to such settlement is made in writing by any creditor or claimant affected
thereby, Filed with the Bankruptcy Court and served on the parties identified in
Section 12.6 of the Plan on or before April 5, 2005, such order (which will be
the Confirmation Order) may be entered by the Bankruptcy Court. In the event any
such objections are timely Filed, a hearing with respect thereto will occur at
the Confirmation Hearing. If Subclass 3A fails to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, the rights, if any, of the holders
of 7-3/4% SWD Revenue Bonds to payments from the Public Note Distributable
Consideration will be as determined in an order of the Bankruptcy Court (which
may be the Confirmation Order) in connection with the determinations
contemplated by Sections 2.4(c)(i)(B) and 2.4(c)(ii)(B) of the Plan; provided
that if the determination with respect to the rights of the holders of 7-3/4%
SWD Revenue Bonds to such payment has not been made by the Bankruptcy Court
prior to the Effective Date, then, in order to ensure the funding of such
payment, on the Effective Date the Distribution Trustee will reserve from the
Public Note Distributable Consideration any amount that may be ordered by the
Bankruptcy Court to be so reserved pending such determination. See "Overview of
the Plan -- 7-3/4% SWD Revenue Bond Dispute."

     The proposed settlement also contemplates that similar provisions will be
included in the AJI/KJC Plan and that, under any plan of reorganization for
KACC, the holders of claims against KACC in respect of the 7-3/4% SWD Revenue
Bonds and the Senior Notes will share pro rata in any contractual subordination
recoveries pursuant to the Senior Subordinated Note Indenture.

                     GENERAL INFORMATION CONCERNING THE PLAN

     THE FOLLOWING IS A SUMMARY OF SOME OF THE SIGNIFICANT ELEMENTS OF THE PLAN.
THIS DISCLOSURE STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION SET FORTH IN THE PLAN ATTACHED HERETO AS EXHIBIT I AND THE
EXHIBIT THERETO.

SUBSTANTIVE CONSOLIDATION

     In connection with confirmation of the Plan, the Debtors will seek
Bankruptcy Court approval of the substantive consolidation of the Debtors for
the purpose of implementing the Plan, including for purposes of voting,
confirmation and distributions to be made under the Plan. Pursuant to the
relevant order of the Bankruptcy Court: (a) all assets and liabilities of the
Debtors will be deemed merged; (b) all guarantees by, or co-obligations of, one


                                       40

Debtor in respect of the obligations of the other Debtor will be deemed
eliminated so that any Claim against either Debtor and any guarantee by, or
co-obligation of, the other Debtor and any joint or several liability of either
of the Debtors will be deemed to be one obligation of the consolidated Debtors;
and (c) each and every Claim Filed or to be Filed in the Chapter 11 Case of
either Debtor will be deemed Filed against the consolidated Debtors and will be
deemed one Claim against and a single obligation of the consolidated Debtors.
Such substantive consolidation (other than for the purpose of implementing the
Plan) will not affect the legal and corporate structures of the Debtors, nor
will such substantive consolidation affect or be deemed to affect any
Intercompany Claim in any manner contrary to the Intercompany Claims Settlement,
nor will such substantive consolidation be deemed to affect any Other Kaiser
Debtor or claims against any Other Kaiser Debtor. Because the Debtors have
virtually the same joint creditors, creditors of the Debtors would receive
exactly the same distributions on their Claims whether or not the Debtors are
substantively consolidated. Accordingly, substantive consolidation is being
sought solely for administrative convenience.

     The Plan will serve as a motion seeking entry of an order substantively
consolidating the Debtors, as described, and to the limited extent set forth in,
the immediately preceding paragraph. Unless an objection to such substantive
consolidation is made in writing by any creditor or claimant affected by the
Plan, Filed with the Bankruptcy Court and served on the parties entitled to
notice thereof pursuant to the Plan on or before April 5, 2005, or such other
date as may be fixed by the Bankruptcy Court, the substantive consolidation
order (which will be the Confirmation Order) may be entered by the Bankruptcy
Court. In the event any such objections are timely Filed, a hearing with respect
thereto will occur at the Confirmation Hearing.

KFC CLAIM AGAINST KACC

     Notwithstanding anything to the contrary in the Plan, no distributions in
respect the Retained Portion of the KFC Claim will be deemed made (and the
Retained Portion of the KFC Claim will be held in the Unsecured Claims Trust
Account) until receipt of by the Distribution Trustee of distributions in
respect thereof from KACC pursuant to a confirmed plan of reorganization of KACC
or otherwise and then in-kind distributions consisting of the property received
by the Distribution Trustee from KACC in respect of the Retained Portion of the
KFC Claim will be made to holders of Allowed Claims in Subclass 3A, Subclass 3C
and Subclass 3D in accordance with the terms of the Plan. Section 4.2.f of the
Intercompany Claims Settlement is, and will be, determinative of the ownership
rights in the KFC Claim. See "Operations During the Chapter 11 Cases --
Intercompany Claims Settlement."

EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED

     On the Effective Date, except for an Executory Contract or Unexpired Lease
that previously was assumed and assigned or rejected by an order of the
Bankruptcy Court, each Executory Contract and Unexpired Lease entered into by a
Debtor prior to the Petition Date that has not previously expired or terminated
pursuant to its own terms will be rejected pursuant to section 365 of the
Bankruptcy Code. The Confirmation Order will constitute an order of the
Bankruptcy Court approving such rejections, pursuant to section 365 of the
Bankruptcy Code, as of the Effective Date.

     Notwithstanding anything in the Bar Date Order or in the Administrative
Claim Bar Date Order to the contrary, if the rejection of an Executory Contract
or Unexpired Lease pursuant to the Plan gives rise to a Claim by the other party
or parties to such contract or lease, such Claim will be forever barred and will
not be enforceable against the Debtors, the Distribution Trustee, the Debtors'
Estates or the Trust Accounts unless a proof of Claim or request for payment of
Administrative Claim is Filed and served on the Distribution Trustee, pursuant
to the procedures specified in the Confirmation Order, the notice of the entry
of the Confirmation Order or another order of the Bankruptcy Court, no later
than 30 days after the Effective Date.

RELEASES, LIMITATION OF LIABILITY, INJUNCTIONS AND PRESERVATION OF INSURANCE

     RELEASE OF CLAIMS AND TERMINATION OF INTERESTS; LIMITATION OF LIABILITY

     SUBJECT TO THE PROVISIONS OF SECTION 2.11 OF THE PLAN, AS OF THE EFFECTIVE
DATE, IN CONSIDERATION FOR THE OBLIGATIONS OF THE DEBTORS AND THE DISTRIBUTION
TRUSTEE UNDER THE PLAN AND THE CASH OR OTHER PROPERTY TO BE


                                       41

DISTRIBUTED IN CONNECTION WITH THE PLAN, EACH HOLDER OF A CLAIM THAT VOTES IN
FAVOR OF THE PLAN WILL BE DEEMED TO FOREVER RELEASE AND WAIVE ALL CLAIMS,
OBLIGATIONS, SUITS, JUDGMENTS, DAMAGES, DEMANDS, DEBTS, RIGHTS, CAUSES OF ACTION
AND LIABILITIES (OTHER THAN THE RIGHT TO ENFORCE THE DEBTORS' OR THE
DISTRIBUTION TRUSTEE'S OBLIGATIONS UNDER THE PLAN AND THE CONTRACTS,
INSTRUMENTS, RELEASES AND OTHER AGREEMENTS AND DOCUMENTS DELIVERED THEREUNDER),
WHETHER LIQUIDATED OR UNLIQUIDATED, FIXED OR CONTINGENT, MATURED OR UNMATURED,
KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, THEN EXISTING OR THEREAFTER ARISING IN
LAW, EQUITY OR OTHERWISE, THAT ARE BASED IN WHOLE OR IN PART ON ANY ACT,
OMISSION, TRANSACTION OR OTHER OCCURRENCE TAKING PLACE ON OR PRIOR TO THE
EFFECTIVE DATE IN ANY WAY RELATING TO A DEBTOR, THE CHAPTER 11 CASES OR THE PLAN
THAT SUCH ENTITY HAS, HAD OR MAY HAVE AGAINST THE CREDITORS' COMMITTEE, ITS
MEMBERS, ANY INDENTURE TRUSTEE, EITHER DEBTOR AND ANY OF THEIR RESPECTIVE
PRESENT OR FORMER DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ADVISORS, ATTORNEYS,
ACCOUNTANTS, UNDERWRITERS, INVESTMENT BANKERS OR OTHER REPRESENTATIVES, ACTING
IN SUCH CAPACITY, EXCEPT FOR THOSE BASED ON: (A) ACTS OR OMISSIONS OF ANY SUCH
PERSON CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT; (B) IF THE HOLDERS
OF THE SENIOR SUBORDINATED NOTE CLAIMS ARE DETERMINED BY THE ORDER CONTEMPLATED
BY SECTIONS 2.4(C)(I)(B) AND 2.4(C)(II)(B) TO BE ENTITLED TO A DISTRIBUTION IN
RESPECT TO SUCH CLAIMS, ACTS OR OMISSIONS OF ANY SUCH PERSON RELATED TO OR
GIVING RISE TO THE CIRCUMSTANCES UNDERLYING ANY OF THE CONTRACTUAL SUBORDINATION
DISPUTES; OR (C) CONTRACTUAL OBLIGATIONS OF, OR LOANS OWED BY, ANY SUCH PERSON
TO A DEBTOR. FOR PURPOSES OF THE PLAN, "CONTRACTUAL SUBORDINATION DISPUTES"
MEANS ANY OR ALL OF THE FOLLOWING MATTERS PENDING IN THE KAISER CASES: (A) THE
7-3/4% SWD REVENUE BOND DISPUTE; (B) THE MOTION FILED ON AUGUST 14, 2004, BY THE
SENIOR SUBORDINATED NOTE INDENTURE TRUSTEE TO DETERMINE THE CLASSIFICATION OF
THE SENIOR SUBORDINATED NOTE CLAIMS UNDER ANY PLAN OF REORGANIZATION FILED BY
THE DEBTORS OR THE OTHER KAISER DEBTORS THAT GUARANTEED THE SENIOR SUBORDINATED
NOTES (INCLUDING THE PLAN); AND (C) THE ADVERSARY PROCEEDING FILED AUGUST 16,
2004, AND STYLED U.S. BANK NATIONAL ASSOCIATION V. KAISER ALUMINUM & CHEMICAL
CORPORATION, ADV. PRO. NO. 04-55115 (JFK).

     As of the Effective Date, for good and valuable consideration, the adequacy
of which is confirmed by the Plan, the Debtors on behalf of themselves, their
Estates, creditors and Interest holders will be deemed to release, waive and
discharge all claims and rights of any nature in connection with or related to
the Debtors, the Chapter 11 Cases or the Plan (other than the rights of the
Distribution Trustee to enforce the Plan and any contracts, instruments,
releases and other agreements and documents delivered thereunder, and to pursue
objections to and resolve Disputed Claims), whether liquidated or unliquidated,
fixed or contingent, matured or unmatured, known or unknown, foreseen or
unforeseen, then existing or thereafter arising (including, without limitation,
those arising under the Bankruptcy Code), based on any act, omission or
occurrence on or before the Effective Date, against the Creditors' Committee,
its members, any Indenture Trustee, any of the Debtors' present or former
directors or officers, or any of the respective present or former directors,
officers, employees, agents, advisors, attorneys, accountants, underwriters,
investment bankers or other representatives of the Debtors, the Creditors'
Committee, its members, or the Indenture Trustees, acting in such capacity,
except for such Claims or rights based on: (a) acts or omissions of any such
person constituting gross negligence or willful misconduct; (b) if the holders
of the Senior Subordinated Note Claims are determined by the order contemplated
by Sections 2.4(c)(i)(B) and 2.4(c)(ii)(B) to be entitled to a distribution in
respect to such Claims, acts or omissions of any such person related to or
giving rise to the circumstances underlying any of the Contractual Subordination
Disputes; or (c) contractual obligations of, or loans owed by, any such person
to a Debtor.

     The Debtors, the Distribution Trust, the Distribution Trustee, the
Indenture Trustees and their respective directors, officers, employees and
professionals, acting in such capacity, and the Creditors' Committee, its
members and their respective professionals will neither have nor incur any
liability to any entity for any act taken or omitted to be taken in connection
with or related to the formulation, preparation, dissemination, implementation,
confirmation or consummation of the Plan, this Disclosure Statement, or any
contract, instrument, release or other agreement or document created or entered
into, or any other act taken or omitted to be taken, in connection with the
Plan; such provisions will have no effect on: (a) the liability of any entity
that would otherwise result from the failure to perform or pay any obligation or
liability under the Plan or any contract, instrument, release or other agreement
or document to be entered into or delivered in connection with the Plan; or (b)
the liability of any entity that would otherwise result from any such act or
omission to the extent that such act or omission is determined in a Final Order
to have constituted gross negligence or willful misconduct.


                                       42

     INJUNCTIONS

     EXCEPT AS OTHERWISE PROVIDED IN THE PLAN OR THE CONFIRMATION ORDER, AS OF
THE EFFECTIVE DATE, ALL ENTITIES THAT HAVE HELD, CURRENTLY HOLD OR MAY HOLD A
CLAIM OR OTHER DEBT OR LIABILITY OF THE DEBTORS, OR AN INTEREST OR OTHER RIGHT
OF AN EQUITY SECURITY HOLDER WITH RESPECT TO THE DEBTORS, THAT IS RELEASED,
WAIVED, SETTLED OR DEEMED SATISFIED PURSUANT TO THE PLAN WILL BE PERMANENTLY
ENJOINED FROM TAKING ANY OF THE FOLLOWING ACTIONS ON ACCOUNT OF ANY SUCH CLAIMS,
DEBTS, LIABILITIES, INTERESTS OR RIGHTS: (A) COMMENCING OR CONTINUING IN ANY
MANNER ANY ACTION OR OTHER PROCEEDING AGAINST THE DEBTORS, THE DISTRIBUTION
TRUST, THE DISTRIBUTION TRUSTEE OR THE PROPERTY OF ANY OF THEM OTHER THAN TO
ENFORCE ANY RIGHT PURSUANT TO THE PLAN TO A DISTRIBUTION FROM THE TRUST
ACCOUNTS; (B) ENFORCING, ATTACHING, COLLECTING OR RECOVERING IN ANY MANNER ANY
JUDGMENT, AWARD, DECREE OR ORDER AGAINST THE DEBTORS, THE DISTRIBUTION TRUST OR
THE DISTRIBUTION TRUSTEE, OTHER THAN AS DESCRIBED IN (A) ABOVE; (C) CREATING,
PERFECTING OR ENFORCING ANY LIEN OR ENCUMBRANCE AGAINST THE DEBTORS, THE
DISTRIBUTION TRUST, THE PROPERTY OF ANY OF THEM OR THE TRUST ACCOUNTS; (D)
ASSERTING A SETOFF, RIGHT OF SUBROGATION OR RECOUPMENT OF ANY KIND AGAINST ANY
DEBT, LIABILITY OR OBLIGATION DUE TO THE DISTRIBUTION TRUST; AND (E) COMMENCING
OR CONTINUING ANY ACTION, IN ANY MANNER, IN ANY PLACE THAT DOES NOT COMPLY WITH
OR IS INCONSISTENT WITH THE PROVISIONS OF THE PLAN.

     PRESERVATION OF INSURANCE

     Nothing in the Plan will diminish or impair the enforceability of any
insurance policies that may cover Claims against either Debtor.

     Nothing in the Plan or in the Confirmation Order shall preclude any entity
from asserting in any proceeding any and all claims, defenses, rights or causes
of action that it has or may have under or in connection with any insurance
policy or insurance settlement agreement. Nothing in the Plan or the
Confirmation Order shall be deemed to waive any claims, defense, rights or
causes of action that any entity has or may have under the provisions, terms,
conditions, defenses and/or exclusions contained in such policies or
settlements.

     Notwithstanding the provisions of the foregoing paragraph and the
substantial consummation of the Plan, in connection with any possible
settlements made in any of the Kaiser Cases which concern any insurance
policies, the Bankruptcy Court shall retain jurisdiction over the Chapter 11
Cases to issue or approve buybacks of such insurance policies under section 363
of the Bankruptcy Code and/or to issue or approve injunctions, releases and/or
exculpations under the Bankruptcy Code (including, without limitation, section
105 of the Bankruptcy Code) for purposes of, inter alia, protecting any such
settling insurers against claims or demands made against the Debtors. In this
regard, as between KACC and the Debtors, KACC will have full and sole right and
authority to settle, release, compromise and enter into buybacks by insurers of
insurance policies as to which the Debtors, or any of them, have or may assert
rights as an insured. The Debtors shall not be entitled to any consideration or
other value as a result of any such exercise of rights by KACC.

     NO DISCHARGE

     In accordance with section 1141(d)(3) of the Bankruptcy Code, the
confirmation of the Plan will not discharge either Debtor.

MEANS FOR IMPLEMENTATION OF THE PLAN

     LIQUIDATING TRANSACTIONS

     On the Effective Date, the Distribution Trust Assets will be transferred to
and vest in the Distribution Trust, free and clear of Claims, Liens and
Interests, except as may be otherwise provided in the Intercompany Claims
Settlement. On or after the Effective Date, the Debtors will enter into such
transactions and will take such actions as may be necessary or appropriate to
merge, dissolve or otherwise terminate the corporate existence of the Debtors.
Notwithstanding the foregoing and regardless of whether the actions in the
preceding sentence have yet been taken with respect to a particular Debtor, upon
the transfer of the Distribution Trust Assets to the Distribution Trust, the
Debtors will be deemed dissolved and their business operations withdrawn for all
purposes without any necessity of


                                       43

filing any document, taking any further action or making any payment to any
governmental authority in connection therewith.

     CORPORATE ACTION

     The following (which will occur and be deemed effective as of the date
specified in the documents effectuating the same or, if no date is so specified,
the Effective Date) will be deemed authorized and approved in all respects and
for all purposes without any requirement of further action by KACC, as the sole
stockholder of KAAC, by KAAC, as the sole stockholder of KFC, by the directors
of either Debtor or by the Distribution Trustee or any other person or entity:

     -    the Liquidating Transactions;

     -    the establishment of the Distribution Trust;

     -    the appointment of the Distribution Trustee to act on behalf of the
          Distribution Trust;

     -    the transfer of the Distribution Trust Assets to the Distribution
          Trust;

     -    the creation of the Trust Accounts;

     -    the distribution of Cash and other property pursuant to the Plan;

     -    the adoption, execution, delivery and implementation of all contracts,
          instruments, releases and other agreements or documents related to any
          of the foregoing;

     -    the adoption, execution and implementation of the Distribution Trust
          Agreement; and

     -    the other matters provided for under the Plan involving the corporate
          structure of either Debtor or corporate action to be taken by, or
          required of, either Debtor or the Distribution Trustee.

     NO REVESTING OF ASSETS

     The property of the Debtors' Estates will not revest in the Debtors on or
after the Effective Date but will vest in the Distribution Trust to be
administered by the Distribution Trustee in accordance with the Plan and the
Distribution Trust Agreement.

     RECOURSE SOLELY TO TRUST ACCOUNTS

     The Liquidating Transactions will not in any way merge the assets of the
Debtors' Estates, including the Trust Accounts. All Claims against the Debtors
are deemed fully satisfied in exchange for the treatment of such Claims under
the Plan, and holders of Allowed Claims against either Debtor will have recourse
solely to the applicable Trust Accounts for the payment of their Allowed Claims
in accordance with the terms of the Plan.

     RELEASE OF LIENS

     Except as otherwise provided in the Plan or in any contract, instrument,
release or other agreement or document entered into or delivered in connection
with the Plan, on the Effective Date all Liens against the property of either
Estate will be fully released, and all of the right, title and interest of any
holder of such Liens, including any rights to any collateral thereunder, will
attach to and be enforceable solely against the applicable Distribution Trust
Assets held in the applicable Trust Account in accordance with, and subject to
the terms of, the Plan. All such Liens against the Distribution Trust Assets
will be fully released upon the holder of the Lien receiving its full
distribution under the Plan, or upon the Effective Date if the holder of the
Lien is not entitled to any distribution under the Plan.


                                       44

     EXEMPTION FROM CERTAIN TAXES

     Pursuant to section 1146(c) of the Bankruptcy Code, the following will not
be subject to any stamp Tax, real estate transfer Tax, sales or use Tax or
similar Tax: (a) any Liquidating Transaction; (b) the execution and
implementation of the Distribution Trust Agreement, including any transfers to
or by the Distribution Trust; or (c) the making or delivery of any deed or other
instrument of transfer under, in furtherance of or in connection with the Plan,
including any merger agreements or agreements of consolidation, disposition,
liquidation or dissolution executed in connection with any transaction pursuant
to the Plan.

DISTRIBUTION TRUST

     CREATION OF THE DISTRIBUTION TRUST

     On the Effective Date, the Debtors and the Distribution Trustee will enter
into the Distribution Trust Agreement, thereby creating the Distribution Trust.

     The Distribution Trustee, whose identity and address will be disclosed at
least ten days prior to the Confirmation Hearing, will be selected by the
Creditors' Committee with the consent of the Debtors, and will be the exclusive
trustee of the assets of the Distribution Trust for purposes of 31 U.S.C.
Section 3713(b) and 26 U.S.C. Section 6012(b)(3), as well as the "representative
of the estate" of each of the Debtors under section 1123(b)(3)(B) of the
Bankruptcy Code.

     On the Effective Date, the Debtors will transfer to the Distribution Trust
all the Distribution Trust Assets then owned by the Estates, whereupon title to
such Distribution Trust Assets will irrevocably vest in the Distribution Trust,
free and clear of Claims, Liens and Interests.

     DISTRIBUTION TRUST ASSETS

     The Distribution Trust Assets include: (a) the Trust Accounts and any Cash
(and any other property) held by such Trust Accounts; (b) the rights of the
Debtors under or in respect of the Intercompany Claims Settlement, the QAL
Purchase Agreement or any causes of action not released by the Plan, including
the Recovery Actions, and any proceeds thereof; and (c) the QAL Proceeds to the
extent that such funds are not included in the foregoing clauses (a) and (b).

     PURPOSES OF THE DISTRIBUTION TRUST

     The Distribution Trust will be established pursuant to the Distribution
Trust Agreement for the following purposes and no other:

     -    collecting, maintaining and administering any Distribution Trust
          Assets for the benefit of the creditors and claimants of the Estates
          (collectively, the "Beneficiaries");

     -    liquidating (including objecting to Claims and determining the proper
          recipients and amounts of distributions to be made from the
          Distribution Trust) and distributing the Distribution Trust Assets for
          the benefit of the Beneficiaries who are determined to hold Allowed
          Claims as expeditiously as reasonably possible;

     -    pursuing available causes of action, including Recovery Actions;

     -    closing the Chapter 11 Cases; and

     -    otherwise implementing the Plan and completing the dissolution of the
          Debtors;


                                       45

all in accordance with the Plan and the Distribution Trust Agreement. The
Distribution Trust will have no objective to, and will not, engage in the
conduct of a trade or business and will terminate upon the completion of its
liquidation and distribution duties pursuant to the terms of the Distribution
Trust Agreement.

     TAX TREATMENT

     The Distribution Trust is intended to be treated, for U.S. federal income
Tax purposes, in part as a liquidating trust within the meaning of Treasury
Regulations section 301.7701-4(d), for the benefit of the holders of Allowed
Claims entitled to distributions of Pending Payments (as defined below), and
otherwise as one or more disputed ownership funds within the meaning of Proposed
Treasury Regulations section 1.468B-9(a), as more specifically provided for
under the Distribution Trust Agreement. Accordingly, for all federal income Tax
purposes the transfer of Distribution Trust Assets to the Distribution Trust
will be treated as: (a) to the extent of identified amounts (excluding
undeliverable Cash) held by the Distribution Trust for distribution to holders
of Allowed Claims in specific amounts as of the date the Distribution Trust
receives the applicable Distribution Trust Assets ("Pending Payments"), a
transfer of the Pending Payments directly from the Debtors to the holders of
such Allowed Claims followed by the transfer of such Pending Payments by the
holders of Allowed Claims to the Distribution Trust in exchange for beneficial
interests in the Distribution Trust; and (b) to the extent of amounts that are
not Pending Payments, as a transfer to one or more disputed ownership funds. The
holders of Allowed Claims entitled to distributions of Pending Payments will be
treated for federal income Tax purposes as the grantors and deemed owners of
their respective shares of the Distribution Trust Assets in the amounts of the
Pending Payments and any earnings thereon.

     The Distribution Trustee will be required by the Distribution Trust
Agreement to file federal Tax returns for the Distribution Trust as a grantor
trust with respect to any Pending Payments and as one or more disputed ownership
funds with respect to all other funds or other property held by the Distribution
Trust pursuant to applicable Treasury Regulations, and any income of the
Distribution Trust will be treated as subject to Tax on a current basis. The
Distribution Trust Agreement will provide that the Distribution Trustee will pay
such Taxes from the Distribution Trust Assets as required by law and in
accordance with the provisions of the Plan described in "Distributions Under the
Plan -- Treatment of Disputed Claims." In addition, the Distribution Trust
Agreement will require consistent valuation by the Distribution Trustee and the
Beneficiaries, for all federal income Tax purposes, of any property held by the
Distribution Trust. The Distribution Trust Agreement will provide that
termination of the trust will occur no later than two years after the Effective
Date, unless the Bankruptcy Court approves an extension based upon a finding
that such an extension is necessary for the Distribution Trust to complete its
claims resolution and liquidating purpose. The Distribution Trust Agreement also
will limit the investment powers of the Distribution Trustee in accordance with
IRS Rev. Proc. 94-45 and will require the Distribution Trust to distribute at
least annually to the Beneficiaries (as such may have been determined at such
time) its net income (net of any payment of or provision for Taxes), except for
amounts retained as reasonably necessary to maintain the value of the
Distribution Trust Assets or to meet Claims and contingent liabilities
(including Disputed Claims).

     TRUST ACCOUNTS

     On or prior to the Effective Date, the Trust Accounts will be established
in federal insured United States banks in the name of the Distribution Trustee
or one or more third-party Disbursing Agents. On the Effective Date, the Trust
Accounts and the contents thereof will be transferred to, and irrevocably vest
in, the Distribution Trust.

          Distribution Trust Expenses Account

     Prior to the Effective Date, the Creditors' Committee and the Debtors will
agree on the amount to be funded into the Distribution Trust Expenses Account on
the Effective Date. On the Effective Date, the Distribution Trust Expenses
Account will be funded by the transfer of Cash in such amount from the
Distribution Trust Assets. The Distribution Trustee will act as the Disbursing
Agent for the Distribution Trust Expenses Account. See "Overview of the Plan --
Sources and Uses of Cash."

     Except as otherwise ordered by the Bankruptcy Court, the Distribution
Trustee, in its capacity as Disbursing Agent, will, in its reasonable
discretion, pay Distribution Trust Expenses from the Distribution Trust Expenses
Account, without the need for further Bankruptcy Court approval. Cash in the
Distribution Trust


                                       46

Expenses Account will also be used to pay Taxes owing in respect of any amounts
included in the Distribution Trust Expenses Account in accordance with the
Distribution Trust Agreement. At least five Business Days prior to making any
payment from the Distribution Trust Expenses Account, the Distribution Trustee
will provide the Steering Committee with a notice setting forth the amount and
nature of such payment, with such notice to be accompanied by supporting
documentation in reasonable detail.

     If, at any time after the initial funding of the Distribution Trust
Expenses Account as contemplated above, the Distribution Trustee determines, in
its reasonable discretion, that the Cash balance of the Distribution Trust
Expenses Account will be insufficient to make all payments payable therefrom in
accordance with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee may transfer from the Unsecured Claims Trust Account (to
the extent Cash remains available therein) to the Distribution Trust Expenses
Account Cash in an aggregate amount determined by the Distribution Trustee, in
its reasonable discretion, to be necessary to ensure that the Cash balance of
the Distribution Trust Expenses Account will be sufficient to make all such
payments. To the fullest extent possible, any transfer described in this
paragraph will be accomplished in a manner intended to avoid or minimize any
adverse impact on the ability to make full distributions to holders of Allowed
Secured Claims, Allowed Administrative Claims, Allowed Priority Claims and
Allowed Priority Tax Claims or distributions to holders of Allowed Unsecured
Claims in accordance with the terms of the Plan.

     If, at any time after the initial funding of the Distribution Trust
Expenses Account as contemplated above, the Distribution Trustee determines that
the Cash balance of the Distribution Trust Expenses Account is in excess of the
amount that will be sufficient to make all payments payable therefrom in
accordance with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee, with the consent of the Steering Committee, acting through
a majority thereof, may transfer such excess Cash to the Unsecured Claims Trust
Account.

          Priority Claims Trust Account

     Prior to the Effective Date, the Creditors' Committee and the Debtors will
agree on the amount to be funded into the Priority Claims Trust Account on the
Effective Date. On the Effective Date, the Priority Claims Trust Account will be
funded by the transfer of Cash in such amount from the Distribution Trust
Assets. For purposes of the funding of the Priority Claims Trust Account, any
and all amounts that become payable by KAAC under the QAL Purchase Agreement,
including amounts that become payable in respect of indemnification claims, will
be treated as Allowed Administrative Claims and will be paid in full in Cash in
accordance with the applicable provisions of the QAL Purchase Agreement. For
purposes of the funding of the Priority Claims Trust Account, any and all Taxes
determined to be due and owing from the Debtors to the Australian Tax Office for
any taxable period (including interest and penalties, if any, determined and
calculated under applicable Australian law without regard to the provisions of
section 502(b)(2) of the Bankruptcy Code or any other provision of U.S. federal,
state or local law) will be treated as Allowed Priority Tax Claims or Allowed
Administrative Claims, as the case may be, and will be paid in full in Cash in
accordance with the provisions of the Plan described below in "Distributions
Under the Plan -- Timing Calculation of Amounts to Be Distributed -- Allowed
Claims Other Than Unsecured Claims in Subclass 3A, Subclass 3B and Subclass 3D;
Certain Payments From the Public Note Distributable Consideration", provided,
however, that any liability of the Debtors to the Australian Tax Office for
income or capital gains Taxes for any period shall not exceed the amount of such
Taxes, if any, determined in writing by the Australian Tax Office to be due and
payable for such period. Until such determination, any Claim for Taxes by the
Australian Tax Office will be treated as a Disputed Claim. See "Overview of the
Plan -- Sources and Uses of Cash" and "Operations During the Chapter 11 Cases --
Certain Australian Tax Matters."

     Cash in the Priority Claims Trust Account will be used by the Distribution
Trustee only to (a) satisfy Allowed Administrative Claims, Allowed Priority Tax
Claims, Allowed Priority Claims and Allowed Secured Claims against the Estate of
KAAC or the Estate of KFC in accordance with the terms of the Plan and (b) pay
Taxes owing in respect of any amounts included in the Priority Claims Trust
Account in accordance with the Distribution Trust Agreement.

     If, at any time after the initial funding of the Priority Claims Trust
Account as contemplated above, the Distribution Trustee determines, in its
reasonable discretion, that the Cash balance of the Priority Claims Trust
Account is insufficient to make all payments payable therefrom in accordance
with the terms of the Plan and the Distribution Trust Agreement, the
Distribution Trustee will transfer from the Unsecured Claims Trust Account (to


                                       47

the extent Cash remains available therein) to the Priority Claims Trust Account
Cash in an amount determined by the Distribution Trustee, in its reasonable
discretion, to be necessary to ensure that the Cash balance of the Priority
Claims Trust Account will be sufficient to so make all such payments. To the
fullest extent possible, any transfer described in this paragraph will be
accomplished in a manner intended to avoid or minimize any adverse impact on the
ability to make distributions to holders of Allowed Unsecured Claims in
accordance with the Plan.

     If, at any time after the initial funding of the Priority Claims Trust
Account described above, the Distribution Trustee determines that the Cash
balance of the Priority Claims Trust Account is in excess of the amount that
will be sufficient to make all payments payable therefrom in accordance with the
Plan and the Distribution Trust Agreement, the Distribution Trustee, with the
consent of the Steering Committee, acting through a majority thereof, may
transfer such excess Cash to the Unsecured Claims Trust Account, except that no
amounts included in the Priority Claims Trust Account in connection with any
potential obligation under the QAL Purchase Agreement for which KAAC and KACC
are jointly and severally liable may be so transferred without the consent of
KACC until the applicable survival period with respect to such obligation has
expired.

          Unsecured Claims Trust Account

     On the Effective Date, after the initial funding of the Distribution Trust
Expenses Account as described in "Distribution Trust Expenses Account" above and
the initial funding of the Priority Claims Trust Account as described in
"Priority Claims Trust Account" above, the Distribution Trustee will (a) from
the Distribution Trust Assets, make any Intercompany Settlement Payments and (b)
thereafter fund the Unsecured Claims Trust Account with the remainder of the
Distribution Trust Assets, including the Retained Portion of the KFC Claim, all
as provided in the Distribution Trust Agreement.

     Cash and other property in the Unsecured Claims Trust Account will be used
by the Distribution Trustee only to (a) satisfy Allowed Unsecured Claims against
the Estate of KAAC or the Estate of KFC in accordance with the terms of the
Plan, (b) pay amounts to be deducted from the Public Note Distributable
Consideration in accordance with the terms of the Plan, and (c) pay Taxes owing
in respect of any amounts included in the Unsecured Claims Trust Account.

          Disputed Claims Reserve

     It is currently contemplated that, on the Effective Date, in connection
with the initial funding of the Priority Claims Trust Account as described
above, the Distribution Trustee will designate, with the consent of the
Creditors' Committee and KACC, a specified portion of such initial funding as a
Disputed Claims Reserve to be retained in such Trust Account to satisfy any
Disputed Administrative Claims, Disputed Priority Tax Claims, Disputed Priority
Claims and Disputed Secured Claims against the Estate of KAAC or the Estate of
KFC in accordance with the Plan, if, as and when they are allowed or, to the
extent such Disputed Claims are not allowed, to satisfy Claims that are allowed
in accordance with the terms of the Plan. In connection with any subsequent
transfer of Cash to the Priority Claims Trust Account as described above, the
Distribution Trustee will designate amounts so transferred, to the extent they
are not identified as Pending Payments, as Disputed Claims Reserves to be
retained in such Trust Account to satisfy Disputed Administrative Claims,
Disputed Priority Tax Claims, Disputed Priority Claims and Disputed Secured
Claims against the Estate of KAAC or the Estate of KFC in accordance with the
Plan, if, as and when they are allowed or, to the extent such Disputed Claims
are not allowed, to satisfy Claims that are allowed in accordance with the terms
of the Plan.

     Further, it is contemplated that on the Effective Date, in connection with
the initial funding of the Unsecured Claims Trust Account as contemplated above,
the Distribution Trustee will designate a specified portion of such initial
funding as a Disputed Claims Reserve to be retained in such Trust Account to
satisfy any Disputed Unsecured Claims against the Estate of KAAC of the Estate
of KFC in accordance with the terms of the Plan, if, as and when they are
allowed or, to the extent such Disputed Claims are not allowed, to satisfy
Claims that are allowed in accordance with the terms of the Plan. In connection
with any subsequent transfers of Cash to the Unsecured Claims Trust Account in
accordance with the Distribution Trust Agreement, the Distribution Trustee will
designate all amounts so transferred, to the extent not identified as Pending
Payments, as Disputed Claims Reserves to be retained in such Trust Account to
satisfy the Disputed Unsecured Claims against the Estate of KAAC or the Estate


                                       48

of KFC in accordance with the terms of the Plan, if, as and when they are
allowed or, to the extent such Disputed Claims are not allowed, to satisfy
Claims that are allowed in accordance with the terms of the Plan.

     Any Cash or other property that becomes available to the Distribution Trust
following the Effective Date, including as a result of (a) the receipt of any
non-Cash property in respect of the Retained Portion of the KFC Claim, (b) the
receipt of any dividends or other distributions on account of securities held in
the Unsecured Claims Trust Account, or (c) the receipt of any income or interest
generated by the investment of Cash held in the Unsecured Claims Trust Account,
will be deposited in the Unsecured Claims Trust Account.

          Undeliverable Property Trust Account

     After the Effective Date, if any distribution to a holder of an Allowed
Unsecured Claim is returned to the Distribution Trustee as undeliverable, the
Distribution Trustee will deposit the undeliverable Cash or other property in
the Undeliverable Property Trust Account. The Distribution Trustee will hold
such funds and property, in a book-entry sub-account in the Undeliverable
Property Trust Account, for the benefit of such holder. Until such holder
notifies the Distribution Trustee in writing of its then-current address, as
contemplated by the Distribution Trust Agreement, no attempt will be made to
deliver subsequent distributions to such holder and any such distributions that
such holder would otherwise be entitled to receive instead will be transferred
from the Unsecured Claims Trust Account to the Undeliverable Property Trust
Account and credited to such book-entry sub-account. Any dividends or other
distributions on account of undeliverable securities held in such book-entry
sub-account will also be held in such book-entry sub-account for the benefit of
such holder until such holder notifies the Distribution Trustee in writing of
its then-current address. All Cash (including dividends or other distributions
on account of undeliverable securities) held in such book-entry sub-account for
the benefit of such holder will be invested by the Distribution Trustee in a
manner consistent with the investment and deposit guidelines set forth in the
Distribution Trust Agreement. Any income or interest generated from such
investment activities will be held in such book-entry sub-account for the
benefit of such holder until such holder notifies the Distribution Trustee in
writing of its then-current address as contemplated by the Distribution Trust
Agreement. Subject to the provisions of the Distribution Trust Agreement
relating to the forfeiture of certain undeliverable distributions, when such
holder notifies the Distribution Trustee in writing of its then-current address
as contemplated by the Distribution Trust Agreement, the Distribution Trustee
will deliver to such holder all Cash and other property contained in such
book-entry sub-account (net of provision for Taxes owing in respect of amounts
included in such book-entry sub-account in accordance with the Distribution
Trust Agreement). In the event such holder's right to assert a claim for
undeliverable distributions is forfeited as contemplated by the Distribution
Trust Agreement, all Cash and other property contained in such book-entry
sub-account will be transferred from the Undeliverable Property Trust Account to
the Unsecured Claims Trust Account for redistribution to holders of Allowed
Unsecured Claims entitled to distributions therefrom. See "Distributions Under
the Plan -- Undeliverable or Unclaimed Distributions."

          Risks Associated with Funding of Trust Accounts

     A holder of a Disputed Claim that ultimately becomes an Allowed Claim will
have recourse only to the undistributed Cash held in the Disputed Claim Reserve
of the applicable Trust Account (net of Taxes on such Disputed Claim Reserves)
for the satisfaction of such Allowed Claims and not to any other Trust Account
or any assets previously distributed on account of any Allowed Claim.

     The funding of the Distribution Trust Expenses Account and the Priority
Claims Trust Account will be based on the Debtors' estimates of the amount of
liabilities to be funded from these Trust Accounts. There is no assurance that
these estimates will be accurate and, despite the Debtors' best efforts, it is
possible that the Cash in these Trust Accounts may be insufficient to satisfy
the Distribution Trust Expenses and/or the Allowed Administrative Claims,
Allowed Priority Tax Claims, Allowed Priority Claims and Allowed Secured Claims
against the Debtors' Estates. Although the Plan provides certain mechanisms to
further fund any deficiencies in these Trust Accounts, it is possible that
insufficient Cash may be available to fund any deficiency. Based on information
currently available, the Debtors do not believe that these risks are material.


                                       49

     POWERS OF THE DISTRIBUTION TRUSTEE

          General Powers

     The Distribution Trustee will have only the rights, powers and privileges
to act on behalf of the Distribution Trust expressly provided in the Plan and
the Distribution Trust Agreement. The Distribution Trustee will be empowered to,
among other things:

     -    execute all agreements, instruments and other documents and effect all
          other actions necessary to implement the Plan;

     -    establish, maintain and administer the Trust Accounts;

     -    accept, preserve, receive, collect, manage, invest, supervise and
          protect the Distribution Trust Assets (directly or through one or more
          third-party Disbursing Agents), each in accordance with the Plan and
          the Distribution Trust Agreement;

     -    liquidate, transfer or otherwise dispose of the Distribution Trust
          Assets or any part thereof or any interest therein upon such terms as
          the Distribution Trustee determines to be necessary, appropriate or
          desirable, pursuant to the procedures for allowing Claims and making
          distributions prescribed in the Plan, and otherwise consistent with
          the terms of the Plan;

     -    calculate and make distributions of the Distribution Trust Assets to
          holders of Allowed Claims pursuant to the procedures for allowing
          Claims and making distributions prescribed in the Plan;

     -    comply with the Plan and exercise its rights and fulfill its
          obligations thereunder;

     -    review, reconcile, settle or object to Claims and resolve any such
          objections as set forth in the Plan and the Distribution Trust
          Agreement;

     -    investigate and, if appropriate, pursue any Recovery Actions or other
          available causes of action (including any actions previously initiated
          by the Debtors and pending as of the Effective Date) and raise any
          defenses in any adverse actions or counterclaims;

     -    retain and compensate, without further order of the Bankruptcy Court,
          the services of professionals or other persons or entities to
          represent, advise and assist the Distribution Trustee in the
          fulfillment of its responsibilities in connection with the Plan and
          the Distribution Trust Agreement;

     -    take such steps as are necessary, appropriate or desirable to
          coordinate with representatives of the estates of the Other Kaiser
          Debtors;

     -    take such actions as are necessary, appropriate or desirable to close
          the Chapter 11 Cases;

     -    file appropriate Tax returns on behalf of the Distribution Trust and
          Debtors and pay Taxes or other obligations owed by the Distribution
          Trust;

     -    exercise the rights and fulfill the obligations of KAAC under the QAL
          Purchase Agreement, including with respect to any claim for
          indemnification;

     -    pay all Distribution Trust Expenses using the Distribution Trust
          Expenses Account;


                                       50

     -    execute, deliver and perform such other agreements and documents or
          exercise such other powers and duties as the Distribution Trustee
          determines, in its reasonable discretion, to be necessary, appropriate
          or desirable to accomplish and implement the purposes and provisions
          of the Distribution Trust as set forth in the Plan and the
          Distribution Trust Agreement;

     -    take such actions as are necessary, appropriate or desirable to
          terminate the existence of the Debtors under the laws of Australia or
          any political subdivision thereof;

     -    take such actions as are necessary, appropriate or desirable with
          respect to the Retained Portion of the KFC Claim ; and

     -    terminate the Distribution Trust in accordance with the terms of the
          Plan and Distribution Trust Agreement.

     Except as otherwise provided in the Plan or the Distribution Trust
Agreement, the Distribution Trustee will not be required to obtain the order or
approval of the Bankruptcy Court or any other court of competent jurisdiction
in, or account to the Bankruptcy Court or any other court of competent
jurisdiction for, the exercise of any right, power or privilege conferred under
the Distribution Trust Agreement.

          Right to Object to Claims

     Except as otherwise provided in the Plan or the Distribution Trust
Agreement, after the Effective Date only the Distribution Trustee, on behalf of
the Distribution Trust, with the prior consent of the Steering Committee, acting
through a majority thereof, will have the authority to File, settle, compromise,
withdraw or litigate to judgment objections to Claims, including pursuant to any
alternative dispute resolution or similar procedures approved by the Bankruptcy
Court. After the Effective Date, the Distribution Trustee, with the prior
consent of the Steering Committee, acting through a majority thereof, may settle
or compromise any Disputed Claim without approval of the Bankruptcy Court in
accordance with the Distribution Trust Agreement. The grant of authority to the
Distribution Trustee described above will not limit the right of the US Trustee
to object to Professional Fee Claims as contemplated by Section 2.1(c) of the
Plan.

          Right to Pursue Causes of Action

     Except as otherwise provided in the Plan or in any contract, instrument,
release or other agreement or document entered into or delivered in connection
with the Plan, in accordance with section 1123(b) of the Bankruptcy Code, the
Distribution Trustee will retain and may enforce any claims, demands, rights and
causes of action that either Debtor or Estate may hold against any entity,
including the Recovery Actions, to the extent not expressly released under the
Plan. In particular, the Distribution Trustee will retain the right to pursue
any adversary proceedings available to the Debtors in connection with the QAL
Purchase Agreement or the Intercompany Claims Settlement.

          Right to Vote the Retained Portion of the KFC Claim

     Except as otherwise provided in the Plan or the Distribution Trust
Agreement, after the Effective Date only the Distribution Trustee, on behalf of
the Distribution Trust as holder of the Retained Portion of the KFC Claim, with
the prior consent of the Steering Committee, acting through a majority thereof,
will have the authority to accept or reject a plan of reorganization for KACC.

     LIMITATION ON LIABILITY AND INDEMNIFICATION OF DISTRIBUTION TRUSTEE

     In exercising its rights under the Distribution Trust Agreement, the
Distribution Trustee will be obligated to use the same degree of care and skill
as an individual of ordinary prudence, discretion and judgment would exercise or
use in such individual's own affairs. The Distribution Trustee, however, will
incur no liability for any action taken or omitted to be taken in connection
with the Plan or the Distribution Trust Agreement except liability that would
otherwise result from (a) a failure to perform or pay any obligation or
liability thereunder or (b) an act or


                                       51

omission that is determined in a Final Order to have constituted bad faith,
fraud, willful misconduct, gross negligence or a breach of its fiduciary duties.

     The Distribution Trustee and the members of the Steering Committee will be
indemnified by the Distribution Trust from the Distribution Trust Expenses Trust
Account for any losses, claims, damages, liabilities or expenses, including
reasonable attorneys' fees, disbursements and related expenses, that the
Distribution Trustee may incur or to which the Distribution Trustee may become
subject in connection with any action, suit, proceeding or investigation brought
by or threatened against the Distribution Trustee on account of the acts or
omissions of the Distribution Trustee in its capacity as such, provided that the
Distribution Trust will not be liable to indemnify the Distribution Trustee for
any act or omission constituting bad faith, fraud, willful misconduct, gross
negligence or a breach of its fiduciary duties. The Distribution Trustee will be
entitled to obtain advances from the Distribution Trust Expenses Account to
cover expenses of defending itself in any action brought against it as a result
of actions or omissions, actual or alleged, of the Distribution Trustee in its
capacity as such, so long as the Distribution Trustee provides an undertaking to
repay the amounts so advanced to the Distribution Expenses Trust Account upon
the entry of a Final Order finding that the Distribution Trustee was not
entitled to indemnity.

     REMOVAL AND RESIGNATION OF THE DISTRIBUTION TRUSTEE; FILLING OF VACANCY

     The Distribution Trustee may be removed at any time by Final Order of the
Bankruptcy Court. Such removal will be effective as specified in such Final
Order.

     The Distribution Trustee may resign at any time by giving the Bankruptcy
Court at least 30 days' written notice of its intention to do so. Such
resignation will be effective on the latest of: (a) the date specified in the
notice; (b) the date that is 30 days after the notice is delivered; (c) the date
the Distribution Trustee delivers a full and complete accounting of assets
received, disbursed and held to the Bankruptcy Court; and (d) the date the
successor Distribution Trustee accepts its appointment as such.

     The Indenture Trustees and the PBGC together will identify a successor
Distribution Trustee to fill any vacancy and request the Bankruptcy Court's
approval of the identity and terms of engagement of such successor Distribution
Trustee. The Distribution Trust Agreement will provide for a dispute resolution
mechanism in the event that the Indenture Trustees and the PBGC cannot agree on
a successor Distribution Trustee.

     COMPENSATION OF THE DISTRIBUTION TRUSTEE

     The Distribution Trustee will receive fair and reasonable compensation for
its services, with such compensation to be paid from the Distribution Trust
Expenses Account. In addition, reasonable costs, expenses and obligations
incurred by the Distribution Trustee in administering the Distribution Trust, in
carrying out its other responsibilities under the Distribution Trust Agreement,
or in any manner connected, incidental or related thereto will be paid, at the
direction of the Distribution Trustee, from the Distribution Trust Expenses
Account.

     BOOKS AND RECORDS; REPORTS AND TAX FILINGS

          Books and Records

     The Distribution Trustee will maintain books and records containing a
description of all property from time to time constituting the Distribution
Trust Assets (which assets will be valued consistently for all federal income
Tax purposes) and an accounting of all receipts and disbursements. Such books
and records will be open to inspection by any Beneficiary or the Bankruptcy
Court at any reasonable time during normal business hours. The fiscal year of
the Distribution Trust will be the calendar year.

          Reports to be Filed with the Bankruptcy Court

     Within 45 days after the end of each of the first three calendar quarters
of the calendar year, the Distribution Trustee will File an unaudited report
with the Bankruptcy Court reflecting: (a) all Distribution Trust Assets received
by the Distribution Trust during such calendar quarter; (b) all Distribution
Trust Assets held by the


                                       52

Distribution Trust at the end of such quarter; and (c) all Distribution Trust
Assets disbursed during such calendar quarter, in each case itemized for the
individual Trust Accounts (a "Quarterly Receipts/Disbursements Report").

     Within 90 days after the end of each calendar year, the Distribution
Trustee will File an unaudited report with the Bankruptcy Court reflecting: (a)
all Distribution Trust Assets received by the Distribution Trust during such
calendar year; (b) all Distribution Trust Assets held by the Distribution Trust
at the end of such calendar year; and (c) all Distribution Trust Assets
disbursed during such calendar year, in each case itemized for the individual
Trust Accounts (an "Annual Receipts/Disbursements Report").

     In the event of developments affecting the Distribution Trust in any
material respect (as determined by the Distribution Trustee in its reasonable
discretion), the Distribution Trustee will File promptly with the Bankruptcy
Court a report describing such development in reasonable detail (a "Current
Report").

     The Distribution Trustee will furnish or otherwise make available to any
then-current Beneficiary, upon written request, a copy of: (a) the most recent
Annual Receipts/Disbursements Report; (b) any Quarterly Receipts/Disbursements
Report for any period subsequent to the period covered by the most recent Annual
Receipts/Disbursements Report (or, if no Annual Receipts/Disbursements Report
has yet been Filed, for any period subsequent to the Effective Date); or (c) any
Current Report Filed subsequent to the period covered by the most recent Annual
Receipts/Disbursements Report (or, if no Annual Receipts/Disbursements Report
has yet been Filed, subsequent to the Effective Date).

          Tax Returns and Payments

     The Distribution Trustee will be responsible for filing all foreign, U.S.
federal, state and local Tax returns for the Distribution Trust and Debtors and
for the timely preparation and distribution to the Beneficiaries of any
necessary foreign, U.S. federal, state or local information returns.
Notwithstanding any other provision of the Distribution Trust Agreement, the
Distribution Trustee will not be obligated to deliver any such information
returns to holders of Disputed Claims in their capacity as such.

     The Distribution Trustee will timely file Tax returns for the Trust
Accounts as a grantor trust and/or a liquidating trust under Treasury
Regulations section 1.671-1(a) and/or Treasury Regulations section 301.7701-4(d)
and related regulations with respect to Pending Payments. Pursuant to such
provisions, for federal income Tax purposes the Distribution Trustee will
allocate to Beneficiaries entitled to receive Pending Payments their pro rata
shares of any income or loss of the Trust Accounts, and such Beneficiaries will
be subject to Tax on the Trust Accounts' taxable income on a current basis.

     With respect to the Trust Accounts (excluding amounts constituting Pending
Payments), the Distribution Trustee will timely (a) file such income Tax and
other returns and statements as are required to comply with (i) the applicable
provisions of the IRC and the Treasury Regulations promulgated thereunder,
including the requirements set forth in Proposed Treasury Regulations section
1.468B-9(c)(1) and (ii) any applicable state and local law and the regulations
promulgated thereunder and (b) pay from the applicable Trust Account any Taxes
reported as owing on such returns and statements.

     TERM OF THE DISTRIBUTION TRUST

     The Distribution Trust will terminate upon:

     -    the payment of all costs, expenses and obligations incurred in
          connection with administering the Distribution Trust;

     -    the distribution of all remaining Distribution Trust Assets and/or
          proceeds therefrom in accordance with the provisions of the Plan, the
          Confirmation Order and the Distribution Trust Agreement;

     -    the closure of the Chapter 11 Cases; and


                                       53

     -    the completion of any necessary or appropriate reports, Tax returns or
          other documentation.

     If the Distribution Trust has not been previously terminated as described
above, on the second anniversary of the Effective Date, unless otherwise
extended by the Bankruptcy Court due to the Distribution Trust's necessity to
complete its claims resolution and liquidating purpose, and provided such
extension does not adversely affect the status of the Distribution Trust for
federal income Tax or federal securities law purposes, the Distribution Trustee
will distribute all of the Distribution Trust Assets to the Beneficiaries in
accordance with the Plan and the Distribution Trust Agreement.

                          DISTRIBUTIONS UNDER THE PLAN

METHOD OF DISTRIBUTIONS TO HOLDERS OF ALLOWED CLAIMS

     The Distribution Trustee will make all distributions of Cash and other
property required under the Plan. The Distribution Trustee will serve without
bond and may employ or contract with other entities to assist in, or make the
distributions required by, the Plan and the Distribution Trust Agreement. Unless
the context otherwise requires, all references to the Distribution Trustee
contained in this section will be deemed to be references to the Distribution
Trustee in its capacity as Disbursing Agent and, in the event the Distribution
Trustee employs or contracts with one or more other entities to assist in, or
make the distributions required by, the Plan and the Distribution Trust
Agreement as contemplated by the immediately preceding sentence, to any such
third-party Disbursing Agent in its capacity as such. Notwithstanding the
foregoing, the Distribution Trustee will act as the Disbursing Agent for the
Distribution Expenses Trust Account.

DELIVERY OF DISTRIBUTIONS

     GENERALLY

     Except as otherwise provided in the Plan, distributions in respect of
Allowed Claims will be made to holders of such Claims as of the Distribution
Record Date at the addresses set forth in the applicable Claims Report. Prior to
making any distribution to a Beneficiary, the Distribution Trustee may request
written notification of the Beneficiary's federal taxpayer identification number
or social security number if the Distribution Trustee determines, in its
reasonable discretion, that such information (a) is necessary to fulfill its Tax
reporting and withholding obligations and (b) has not been provided in the
applicable Claims Report or otherwise. The Distribution Trustee, in its
reasonable discretion, may suspend distributions to any Beneficiary that has not
provided its federal taxpayer identification number or social security number,
as the case may be, after a request is made as described in this paragraph.

     SPECIAL PROVISIONS FOR DISTRIBUTIONS TO HOLDERS OF PUBLIC NOTE CLAIMS

     All distributions to holders of Allowed Public Note Claims will be made by
the Distributing Trustee to the applicable Indenture Trustee for subsequent
distribution to holders of the Allowed Public Note Claims as of the Distribution
Record Date.

UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS

     If any distribution to a holder of an Allowed Unsecured Claim is returned
to the Distribution Trustee as undeliverable, then unless and until the
Distribution Trustee is notified in writing of such holder's then-current
address: (a) subject to the provisions described in the immediately following
paragraph, such undeliverable distributions will remain in the possession of the
Distribution Trustee as provided in the Plan and no further attempt will be made
to deliver such distribution; and (b) no attempt will be made to deliver
subsequent distributions to such holder and any such distributions that such
holder would otherwise be entitled to receive instead will be transferred from
the Unsecured Claims Trust Account to the Undeliverable Property Trust Account
where it will be held in a book-entry sub-account for the benefit of such
holder. See "General Information Concerning the Plan -- Distribution Trust --
Distribution Trust Accounts -- Undeliverable Cash Trust Accounts."


                                       54

     Any holder of an Allowed Unsecured Claim that does not assert a claim for
an undeliverable distribution by delivering to the Distribution Trustee a
written notice setting forth such holder's then-current address within 180 days
after the later of (a) the Effective Date and (b) the last date on which a
distribution was deliverable to the holder will have its claim for undeliverable
distributions discharged and will be forever barred from asserting such claim or
any claim for subsequent distributions against the Debtors, the Distribution
Trustee or the property of any of them, including the Trust Accounts, whereupon
all Cash and other property contained in the book-entry sub-account in the
Undeliverable Property Trust Account created for the benefit of such holder will
be transferred to the Unsecured Claims Trust Account for redistribution to
holders of Allowed Unsecured Claims entitled to distributions therefrom. For
purposes of any such redistribution, each Allowed Claim in respect of which a
claim for undeliverable distributions has been discharged will be deemed
disallowed in its entirety.

     Nothing contained in the Plan will require the Debtors or the Distribution
Trustee to attempt to locate any holder of an Allowed Claim.

MEANS OF CASH PAYMENTS

     Except as otherwise provided in the Plan or the Distribution Trust
Agreement, Cash payments made pursuant to the Plan will be in United States
currency by checks drawn on the applicable Trust Accounts or, at the option of
the Distribution Trustee, by wire transfer from a domestic bank; provided,
however, that Cash payments to foreign holders of Allowed Claims may be made, at
the option of the Distribution Trustee, in such funds and by such means as are
necessary or customary in a particular foreign jurisdiction. If a check included
in a distribution to a holder of an Allowed Unsecured Claim is not cashed within
180 days of the issuance thereof, the Distribution Trustee will void such check
and such distribution will be treated as undeliverable as described in
"Undeliverable or Unclaimed Distributions" above.

TIMING AND CALCULATION OF AMOUNTS TO BE DISTRIBUTED

     ALLOWED CLAIMS OTHER THAN UNSECURED CLAIMS

     On or as promptly as practicable after the Effective Date, the Distribution
Trustee will make distributions to holders of Secured Claims, Administrative
Claims, Priority Claims and Priority Tax Claims allowed as of the Effective
Date. On or as promptly as practicable after each Quarterly Distribution Date,
the Distribution Trustee will make distributions to holders of Disputed Secured
Claims, Disputed Administrative Claims, Disputed Priority Claims and Disputed
Priority Tax Claims that have become Allowed Claims during the immediately
preceding calendar quarter. The Quarterly Distribution Date will be on the last
Business Day of the month following the end of each calendar quarter after the
Effective Date, except that if the Effective Date is within 45 days of the end
of a calendar quarter, the first Quarterly Distribution Date will be the last
Business Day of the month following the end of the first calendar quarter after
the calendar quarter in which the Effective Date falls. Notwithstanding the
foregoing, if the Distribution Trustee determines, in its reasonable discretion,
that the amount of any quarterly distribution is too small to justify the
administrative costs associated with such distribution, the Distribution Trustee
may postpone such quarterly distribution until the next Quarterly Distribution
Date. The Distribution Trustee will have no obligation to notify Beneficiaries
if it determines, in its reasonable discretion, that any quarterly distribution
will be postponed.

     ALLOWED UNSECURED CLAIMS IN SUBCLASS 3A; CERTAIN PAYMENTS FROM THE PUBLIC
     NOTE DISTRIBUTABLE CONSIDERATION

          Plan Accepted by Subclass 3A and Subclass 3B

     If both Subclass 3A and Subclass 3B vote to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, on or as promptly as practicable
after the Effective Date, the Distribution Trustee will: (a) make distributions
to holders of Allowed Claims in Subclass 3A in accordance with Section
2.4(c)(i)(A) of the Plan; provided that the amount of such distributions will be
calculated as if each Disputed Unsecured Claim in Subclass 3D were an Allowed
Unsecured Claim in its Face Amount as of the Effective Date; and (b) make the


                                       55

payments to be deducted from the Public Note Distributable Consideration as
contemplated by clauses (I) and (II) of the first sentence of Section
2.4(c)(i)(A) of the Plan.

     If both Subclass 3A and Subclass 3B vote to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, on or as promptly as practicable
after each Quarterly Distribution Date, the Distribution Trustee will distribute
to each holder of an Allowed Claim in Subclass 3A a distribution from the
Unsecured Claims Trust Account (net of provision for Taxes) in an amount equal
to: (a) the amount of Cash and other property that such holder would have been
entitled to receive pursuant to the Plan if such Claim and each other Unsecured
Claim allowed prior to such Quarterly Distribution Date had been an Allowed
Unsecured Claim as of the Effective Date (with such amount to be calculated in
the manner described in the immediately preceding paragraph) minus (b) the
aggregate amount of Cash and other property previously distributed on account of
such Claim. Notwithstanding the foregoing, if the Distribution Trustee
determines, in its reasonable discretion, that the amount of any quarterly
distribution is too small to justify the administrative costs associated with
such distribution, the Distribution Trustee may postpone such quarterly
distribution until the next Quarterly Distribution Date. The Distribution
Trustee will have no obligation to notify Beneficiaries if it determines, in its
reasonable discretion, that any quarterly distribution will be postponed. In the
event of the disallowance of a Disputed Unsecured Claim in Subclass 3D, any
amounts held in respect thereof will be released from the Disputed Claims
Reserve for distribution as described in this paragraph and "-- Allowed
Unsecured Claims in Subclass 3C and Subclass 3D."

          Plan Rejected by Subclass 3A or Subclass 3B

     If either Subclass 3A or Subclass 3B fails to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, the amount of the Public Note
Distributable Consideration to which the Bankruptcy Court determines the holders
of Allowed Claims in Subclass 3A are entitled in respect of such Claims will be
distributed as provided in an order of the Bankruptcy Court and the Distribution
Trustee will, contemporaneously or as promptly as practicable thereafter, make
the payments (or reservations for payment) by which such distributions are to be
reduced in accordance with Section 2.4(a)(i)(B) of the Plan.

     ALLOWED UNSECURED CLAIMS IN SUBCLASS 3B

          Plan Accepted by Subclass 3A and Subclass 3B

     If both Subclass 3A and Subclass 3B vote to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, on or as promptly as practicable
after the Effective Date, the Distribution Trustee will make the payment to the
Senior Subordinated Note Indenture Trustee as contemplated by clause (III) of
the first sentence of Section 2.4(c)(i)(A) of the Plan and Section 2.4(c)(ii)(A)
of the Plan for subsequent distribution by the Senior Subordinated Note
Indenture Trustee to the holders of Allowed Claims in Subclass 3B.

          Plan Rejected by Subclass 3A or Subclass 3B

     If either Subclass 3A or Subclass 3B fails to accept the Plan in accordance
with section 1126(c) of the Bankruptcy Code, the amount of the Public Note
Distributable Consideration, if any, to which the Bankruptcy Court determines
the holders of Allowed Claims in Subclass 3B are entitled in respect of such
Claims will be distributed as provided in an order of the Bankruptcy Court. As
contemplated by Section 2.4(c)(ii)(B) of the Plan, any such distributions
ultimately made to a holder of an Allowed Claim in Subclass 3B may be reduced by
such holder's proportional share of any and all fees and expenses payable to the
Senior Subordinated Note Indenture Trustee pursuant to the Senior Subordinated
Note Indenture, which will, subject to such Trustee's right to seek payment by
the Debtors of such fees and expenses pursuant to section 503(b)(5) of the
Bankruptcy Code, be payable solely from such distributions.

     ALLOWED UNSECURED CLAIMS IN SUBCLASS 3C AND SUBCLASS 3D

     On or as promptly as practicable after the Effective Date, the Distribution
Trustee will make distributions to holders of Unsecured Claims in Subclass 3C
and Subclass 3D allowed as of the Effective Date; provided that the amount of
such distributions will be calculated as if each Disputed Unsecured Claim in
Subclass 3D were an


                                       56

Allowed Unsecured Claim in its Face Amount as of the Effective Date; provided
further, however, that no distribution will be made on account of any Disputed
Unsecured Claim in Subclass 3D unless and until it becomes an Allowed Unsecured
Claim and amounts withheld for Disputed Unsecured Claims in Subclass 3D will
remain in the Unsecured Claims Trust Account as part of the Disputed Claims
Reserve.

     On or as promptly as practicable after each Quarterly Distribution Date,
the Distribution Trustee will distribute to each holder of an Unsecured Claim in
Subclass 3C or Subclass 3D allowed prior to such Quarterly Distribution Date a
distribution from the Unsecured Claims Trust Account (net of provision for
Taxes) in an amount equal to: (a) the amount of Cash and other property that
such holder would have been entitled to receive pursuant to the Plan if such
Claim and each other Unsecured Claim allowed prior to such Quarterly
Distribution Date had been an Allowed Unsecured Claim as of the Effective Date
(with such amount to be calculated in the manner described in the immediately
preceding paragraph) minus (b) the aggregate amount of Cash and other property
previously distributed on account of such Claim. Notwithstanding the foregoing,
if the Distribution Trustee determines, in its reasonable discretion, that the
amount of any quarterly distribution is too small to justify the administrative
costs associated with such distribution, the Distribution Trustee may postpone
such quarterly distribution until the next Quarterly Distribution Date. The
Distribution Trustee will have no obligation to notify Beneficiaries if it
determines, in its reasonable discretion, that any quarterly distribution will
be postponed. In the event of the disallowance of a Disputed Unsecured Claim in
Subclass 3D, any amounts held in respect thereof will be released from the
Disputed Claims Reserve for distribution as described in this paragraph and "--
Allowed Unsecured Claims in Subclass 3C and Subclass 3D -- Plan Accepted by
Subclass 3A and Subclass 3B."

     7-3/4% SWD REVENUE BONDS

          Plan Accepted by Subclass 3A

     If (a) Subclass 3A votes to accept the Plan in accordance with section
1126(c) of the Bankruptcy Code and (b) unless the holders of Senior Note Claims
otherwise agree pursuant to a settlement, all holders of Allowed Senior Note
Claims are entitled under the Plan to identical treatment in respect of
contractual subordination claims under the Senior Subordinated Note Indenture,
then, on or as promptly as practicable on the Effective Date the Distribution
Trustee will make the payment, if any, to the 7-3/4% SWD Revenue Bond Indenture
Trustee for the benefit of holders of 7-3/4% SWD Revenue Bonds pursuant to
Section 2.5(a) of the Plan and pay any amounts payable pursuant to Section
2.6(b) of the Plan.

          Plan Rejected by Subclass 3A

     If Subclass 3A fails to accept the Plan in accordance with section 1126(c)
of the Bankruptcy Code, the amount of the Public Note Distributable
Consideration, if any, to which the Bankruptcy Court determines the holders of
7-3/4% SWD Revenue Bonds are entitled will be distributed as provided in an
order of the Bankruptcy Court.

     NO DE MINIMIS DISTRIBUTIONS

     The Distribution Trustee will not be required to distribute Cash to the
holder of an Allowed Unsecured Claim if the total aggregate amount of Cash to be
distributed on account of such Claim is less than $25. Any holder of an Allowed
Unsecured Claim on account of which the total aggregate amount of Cash to be
distributed is less than $25 will have its Claim for such distribution deemed
satisfied, waived and released and will be forever barred from asserting any
such Claim against the Debtors, the Distribution Trustee or the property of any
of them, including the Trust Accounts. Any Cash not distributed with respect to
Allowed Unsecured Claims as a result of the provisions described in this
paragraph, including dividends or other distributions made on account of
securities in the unsecured Claims Account, will be retained in the Unsecured
Claims Trust Account for redistribution to other holders of Allowed Unsecured
Claims entitled to distributions from the Unsecured Claims Trust Account.


                                       57

     COMPLIANCE WITH TAX REQUIREMENTS

     To the extent applicable, the Distribution Trustee will comply with all Tax
withholding and reporting requirements imposed on it by any governmental unit,
and all distributions pursuant to the Plan will be subject to such withholding
and reporting requirements. The Distribution Trustee will be authorized to take
any actions that it determines, in its reasonable discretion, to be necessary,
appropriate or desirable to comply with such withholding and reporting
requirements, including but not limited to requiring recipients to fund the
payment of such withholding as a condition to delivery or entering into
arrangements for the sale (subject to any applicable restrictions or transfer)
of non-Cash property otherwise to be distributed to a recipient subject to a
withholding requirement in order to generate net proceeds (together with any
Cash included in such distribution) sufficient to fund the payment of any such
withholding. Notwithstanding any other provision of the Plan or the Distribution
Trust Agreement, each entity receiving a distribution of Cash pursuant to the
Plan will have sole and exclusive responsibility for the satisfaction and
payment of any Tax obligations imposed on it by any governmental unit on account
of such distribution, including income, withholding and other Tax obligations.

     SETOFFS

     Except with respect to claims of a Debtor released pursuant to the Plan or
any contract, instrument, release or other agreement or document entered into or
delivered in connection with the Plan, the Distribution Trustee may, pursuant to
section 553 of the Bankruptcy Code or applicable nonbankruptcy law, set off
against any Allowed Claim and the distributions to be made pursuant to the Plan
on account of such Claim (before any distribution is made on account of such
Claim) the claims, rights and causes of action of any nature that the applicable
Debtor may hold against the holder of such Allowed Claim; provided, however,
that neither the failure to effect a setoff nor the allowance of any Claim will
constitute a waiver or release by the applicable Debtor of any claims, rights
and causes of action that the Debtor or Debtors may possess against such a Claim
holder, which are preserved under the Plan.

COMPENSATION AND REIMBURSEMENT FOR SERVICES RELATED TO DISTRIBUTIONS

     If the Distribution Trustee employs or contracts with a third-party
Disbursing Agent, such Disbursing Agent will receive, without the need for
further Bankruptcy Court approval, reasonable compensation for such services and
reimbursement of reasonable out-of-pocket expenses incurred in connection with
such services. These payments will be made on terms agreed to with the
Distribution Trustee and will be paid to such Disbursing Agent from funds in the
Distribution Trust Expenses Account. To assist in making distributions under the
Plan, notwithstanding any other provision of the Distribution Trust Agreement,
the applicable Trust Accounts (other than the Distribution Trust Expenses
Account) may be held in the name of one or more such Disbursing Agents. Any such
Disbursing Agent will invest the Cash in the Trust Accounts as directed by the
Distribution Trustee, who will direct such Disbursing Agent to invest such Cash
only in Permitted Investments; provided, however, that should the Distribution
Trustee determine, in its reasonable discretion, that the administrative costs
associated with such investment will exceed the return on such investment, it
may direct such Disbursing Agent to not invest such Cash.

PAYMENTS LIMITED TO TRUST ACCOUNTS

     All payments or other distributions to be made by the Distribution Trustee
in accordance with the Plan or the Distribution Trust Agreement will be made
only from the Trust Accounts.

INSUFFICIENT ASSETS

     Provided that the Distribution Trustee has not acted in bad faith, engaged
in fraud, willful misconduct or gross negligence, or breached its fiduciary
duties, if the Distribution Trust Assets at any point prove insufficient to pay
all Beneficiaries of the Priority Claims Trust Account in full or all
Beneficiaries of the Unsecured Claims Trust Account in accordance with the terms
of the Plan, the Distribution Trustee will have no obligation to seek
disgorgement from any Beneficiary, but may seek the guidance of the Bankruptcy
Court or another court of competent jurisdiction.


                                       58

DISTRIBUTIONS OF SECURITIES

     Pending the distribution of any voting securities, the Distribution Trustee
will cause all such securities held in the Trust Accounts to be (a) represented
in person or by proxy at each meeting at which the holder of such securities is
entitled to vote, (b) voted in any election of directors for the nominees
recommended by the board of directors of the issuer of such securities, and (c)
voted with respect to any other matter as recommended by the board of directors
of the issuer of such securities.

     Any distribution of securities will include, to the extent applicable: (a)
any dividends or other distributions that were previously paid to the
Distribution Trust in respect of the securities included in such distribution;
and (b) any income or interest generated by the investment of such dividends or
other distributions (net of provision for Taxes owing in respect of such amounts
in accordance with Section 10.2(c)) of the Plan.

     Notwithstanding any provision of the Plan, only whole numbers of securities
will be distributed. When any distribution on account of an Allowed Unsecured
Claim would otherwise result in the distribution of a number of securities that
is not a whole number, the number of securities to be so distributed will be
rounded to a whole number on an equitable basis to be determined by the
Distribution Trustee in order to ensure that all such securities are distributed
and are so distributed only in whole numbers.

DISPUTED CLAIMS

     PROSECUTION OF OBJECTIONS TO CLAIMS

     All objections to Claims must be Filed and served on the holders of such
Claims by the Claims Objection Bar Date, and, if Filed prior to the Effective
Date, such objections will be served on the parties on the then-applicable
service list in the Chapter 11 Cases. If an objection has not been Filed to a
proof of Claim, a scheduled Claim or a request for payment of Administrative
Claim by the applicable Claims Objection Bar Date, the Claim to which the proof
of Claim, scheduled Claim or request for payment of Administrative Claim relates
will be treated as an Allowed Claim if such Claim has not been allowed earlier.

     TREATMENT OF DISPUTED CLAIMS

     Notwithstanding any other provisions of the Plan, no payments or
distributions will be made on account of a Disputed Claim until such Claim
becomes an Allowed Claim. In lieu of distributions under the Plan to holders of
Disputed Claims, a Disputed Claims Reserve will be established on the Effective
Date in each Trust Account, which, in the case of Unsecured Claims in Subclass
3D, will include an amount equal to the Pro Rata Share of the distribution to
which all of the Disputed Claims in Subclass 3D would be entitled to if each
such Disputed Claim was allowed in its Face Amount on the Effective Date.

     Each holder of a Disputed Claim that ultimately becomes an Allowed Claim
will have recourse only to the undistributed Cash held in the applicable Trust
Account for the satisfaction of such Allowed Claim and not to any other Trust
Account or any assets previously distributed on account of any Allowed Claim.

     The Distribution Trustee will include in the Tax returns of the Trust
Accounts all items of income, deduction and credit of the Trust Accounts, except
to the extent such items are included in the income of the Beneficiaries of the
Trust Accounts as grantors of grantor trusts. The Distribution Trustee will pay,
or cause to be paid, out of the funds held in applicable Trust Accounts, any Tax
imposed on the Trust Accounts by any governmental unit with respect to income
generated by the funds held in the Trust Accounts. The Distribution Trustee also
will file or cause to be filed any Tax or information return related to the
applicable Trust Account that is required by any governmental unit.


                                       59

                       VOTING AND CONFIRMATION OF THE PLAN

GENERAL

     To confirm the Plan, the Bankruptcy Code requires that the Bankruptcy Court
make a series of findings concerning the Plan and the Debtors, including that:

     -    the Plan has classified Claims and Interests in a permissible manner;

     -    the Plan complies with the applicable provisions of the Bankruptcy
          Code;

     -    the Debtors comply with the applicable provisions of the Bankruptcy
          Code;

     -    the Debtors, as proponents of the Plan within the meaning of section
          1129 of the Bankruptcy Code, have proposed the Plan in good faith and
          not by any means forbidden by law;

     -    the disclosure required by section 1125 of the Bankruptcy Code has
          been made;

     -    the Plan has been accepted by the requisite votes of creditors and
          equity interest holders, except to the extent that "cramdown" is
          available under section 1129(b) of the Bankruptcy Code;

     -    the Plan is in the "best interests" of all holders of Claims or
          Interests in an impaired Class (that is, that such creditors will
          receive at least as much pursuant to the Plan as they would receive or
          retain in a chapter 7 liquidation);

     -    the Plan is feasible (that is, there is a reasonable prospect that the
          Debtors will be able to perform their obligations under the Plan); and

     -    all fees and expenses payable under 28 U.S.C. Section 1930, as
          determined by the Bankruptcy Court at the Confirmation Hearing, have
          been paid, or the Plan provides for the payment of such fees on the
          Effective Date.

VOTING PROCEDURES AND REQUIREMENTS

     Pursuant to the Bankruptcy Code, only classes of claims against, or equity
interests in, a debtor that are "impaired" under the terms of that debtor's plan
are entitled to vote to accept or reject the Plan. A class is "impaired" if the
legal, equitable or contractual rights attaching to the claims or equity
interests of that class are modified, other than by curing defaults and
reinstating maturity. Classes of claims that are not impaired are not entitled
to vote on a plan and are conclusively presumed to have accepted that plan.
Classes of claims or equity interests that receive no distributions under a plan
are not entitled to vote on that plan and are deemed to have rejected that plan
unless such class otherwise indicates acceptance. Only Class 3 is entitled to
vote on the Plan and each Subclass of Class 3 constitutes a separate class for
that purpose. For a summary of the classification of Claims and Interests
pursuant to the Plan, together with an indication of whether each Class of
Claims or Interests is impaired or unimpaired under the terms of the Plan, see
"Overview of the Plan -- Summary of Classes and Treatment of Claims and
Interests."

     ALTHOUGH THE 7-3/4% SWD REVENUE BOND INDENTURE TRUSTEE MAY RECEIVE A
PAYMENT FOR THE BENEFIT OF THE HOLDERS OF THE 7-3/4% SWD REVENUE BONDS IN
ACCORDANCE WITH THE PLAN, HOLDERS OF 7-3/4% SWD REVENUE BONDS DO NOT HAVE CLAIMS
AGAINST THE DEBTORS AND, ACCORDINGLY, ARE NOT ENTITLED TO VOTE ON THE PLAN.
BECAUSE SUCH PROPOSED SETTLEMENT WILL AFFECT OTHER KAISER DEBTORS, A MOTION
SEEKING APPROVAL OF THE SETTLEMENT WILL BE FILED, AND SUCH HOLDERS AND OTHER
CREDITORS OR CLAIMANTS AFFECTED BY SUCH SETTLEMENT MAY FILE AN OBJECTION TO IT
WITH THE BANKRUPTCY COURT ON OR PRIOR TO APRIL 5, 2005. SEE "OPERATIONS DURING
THE CHAPTER 11 CASES -- 7-3/4% SWD REVENUE BOND DISPUTE" FOR MORE INFORMATION
REGARDING THE 7-3/4% SWD REVENUE BONDS AND THE PROPOSED SETTLEMENT.


                                       60

     Pursuant to section 502 of the Bankruptcy Code and Bankruptcy Rule 3018,
the Bankruptcy Court may estimate and temporarily allow a Claim for voting or
other purposes. By order of the Bankruptcy Court, certain vote tabulation rules
have been approved that temporarily allow or disallow certain Claims for voting
purposes only. These tabulation rules are described in the solicitation
materials provided with your Ballot.

     VOTING ON THE PLAN BY EACH HOLDER OF AN IMPAIRED CLAIM ENTITLED TO VOTE ON
THE PLAN IS IMPORTANT. IF YOU HOLD MULTIPLE UNSECURED CLAIMS, YOU MAY RECEIVE
MORE THAN ONE BALLOT. YOU SHOULD COMPLETE, SIGN AND RETURN EACH BALLOT YOU
RECEIVE.

     PLEASE CAREFULLY FOLLOW ALL OF THE INSTRUCTIONS CONTAINED ON THE BALLOT OR
BALLOTS PROVIDED TO YOU. ALL BALLOTS MUST BE COMPLETED AND RETURNED IN
ACCORDANCE WITH THE INSTRUCTIONS PROVIDED.

     TO BE COUNTED, YOUR BALLOT OR BALLOTS MUST BE ACTUALLY RECEIVED BY 5:00
P.M., EASTERN TIME, ON APRIL 5, 2005 (OR SUCH OTHER TIME AND DATE IDENTIFIED ON
YOUR BALLOT OR BALLOTS) AT THE ADDRESS SET FORTH ON THE PREADDRESSED ENVELOPE
PROVIDED TO YOU. IT IS OF THE UTMOST IMPORTANCE TO THE DEBTORS THAT YOU VOTE
PROMPTLY TO ACCEPT THE PLAN.

     A HOLDER OF A 9-7/8% SENIOR NOTE, A 10-7/8% SENIOR NOTE OR A SENIOR
SUBORDINATED NOTE HELD IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST
COMPANY OR OTHER NOMINEE MUST COMPLETE AND DELIVER TO SUCH NOMINEE THE BALLOT OR
BALLOTS PROVIDED TO SUCH HOLDER IN ORDER TO VOTE ON THE PLAN. SUCH HOLDERS ARE
URGED TO DELIVER SUCH BALLOT OR BALLOTS TO THEIR RESPECTIVE NOMINEE HOLDERS NO
LATER THAN THE DATE IDENTIFIED ON SUCH BALLOT OR BALLOTS IN ORDER TO ENSURE THAT
THEIR VOTE WILL BE COUNTED.

     VOTES CANNOT BE TRANSMITTED ORALLY. ACCORDINGLY, YOU ARE URGED TO RETURN
YOUR SIGNED AND COMPLETED BALLOT PROMPTLY.

     IF YOU ARE ENTITLED TO VOTE AND YOU DID NOT RECEIVE A BALLOT, RECEIVED A
DAMAGED BALLOT OR LOST YOUR BALLOT, PLEASE CALL THE DEBTORS' VOTING AGENT, LOGAN
& COMPANY, AT (973) 509-3190.

CONFIRMATION HEARING

     The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a
hearing on whether the Debtors have fulfilled the requirements of section 1129
of the Bankruptcy Code relating to the confirmation of the Plan. The
Confirmation Hearing has been scheduled for April 13, 2005 at 9:00 a.m. before
the Honorable Judith K. Fitzgerald, Chief United States Bankruptcy Judge for the
Western District of Pennsylvania and visiting United States Bankruptcy Judge for
the District of Delaware, in the Judge's usual courtroom at the U.S. Bankruptcy
Court for the District of Delaware, 824 Market Street, Wilmington, Delaware
19801. The Confirmation Hearing may be continued or adjourned from time to time
by the Bankruptcy Court without further notice, except for an announcement of
the continued or adjourned date made at the Confirmation Hearing. Any objection
to confirmation of the Plan must be made in writing and must specify in detail
the name and address of the objector, all grounds for the objection and the
amount of the Claim or Interest held by the objector. Any such objections must
be Filed and served upon the persons designated in the notice of the
Confirmation Hearing, in the manner and by the deadline described in such
notice.

CONFIRMATION

     At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan
only if all of the applicable requirements of section 1129 of the Bankruptcy
Code are satisfied. Among the requirements for confirmation of a plan with
respect to a debtor are that the plan:


                                       61

     -    is accepted by the requisite holders of claims and equity interests in
          each impaired class of such debtor or, if not so accepted, has been
          accepted by the requisite holders of at least one impaired class and
          is "fair and equitable" and "does not discriminate unfairly" as to
          each nonaccepting class;

     -    is either accepted by, or is in the "best interests" of, each holder
          of a claim or equity interest in each impaired class of such debtor;

     -    is feasible; and

     -    complies with the other applicable provisions of the Bankruptcy Code.

     Subject to the conditions set forth in the Plan, a determination by the
Bankruptcy Court that the Plan, as it applies to a particular Estate, is not
confirmable pursuant to section 1129 of the Bankruptcy Code will not limit or
affect: (a) the confirmability of the Plan as it applies to the other Estate; or
(b) the Debtors' ability to modify the Plan, as it applies to such Estate, to
satisfy the provisions of section 1129(b) of the Bankruptcy Code.

     ACCEPTANCE OR CRAMDOWN

     A plan is accepted by an impaired class of claims if holders of at least
two-thirds in dollar amount and a majority in number of claims of that class
vote to accept the plan. Only those holders of claims who actually vote (and are
entitled to vote) to accept or to reject a plan count in this tabulation.
Section 1129(b) of the Bankruptcy Code contains so-called "cramdown" provisions
pursuant to which a plan may be confirmed even if it is not accepted by all
impaired classes, as long as at least one impaired class of claims has accepted
it and the Bankruptcy Court finds that it is "fair and equitable" and "does not
discriminate unfairly" as to each nonaccepting class. The "fair and equitable"
standard, also known as the "absolute priority rule," requires, among other
things, that unless a dissenting class of unsecured claims receives full
compensation for the aggregate allowed amount of such claims, no holder of an
allowed claim in any class junior to such class may receive or retain any
property on account of such claim. The "fair and equitable" standard has also
been interpreted to prohibit any class of claims senior to a dissenting class
from receiving under a plan more than 100% of the aggregate allowed amount of
such claims. The requirement that a plan not "discriminate unfairly" means,
among other things, that a dissenting class of claims must be treated
substantially equally with respect to other classes of claims of equal rank. The
Debtors do not believe that the Plan unfairly discriminates against any Class
that may not accept or otherwise consent to the Plan. The Debtors believe that
the Plan is "fair and equitable" and "does not discriminate unfairly" as to each
impaired Class entitled to vote upon the Plan. The Debtors may seek confirmation
of the Plan under the "cramdown" provisions with respect to any impaired Class
that does not accept the Plan (and have reserved the right to modify the Plan to
the extent that confirmation of the Plan under such provisions requires
modification).

     BEST INTERESTS TEST

          Generally

     Notwithstanding acceptance of a plan by each impaired class (or
satisfaction of the "cramdown" provisions of the Bankruptcy Code in lieu
thereof), for a plan to be confirmed, the Bankruptcy Court must determine that
the plan is in the best interest of each holder of a claim who is in an impaired
class and has not voted to accept the plan. Accordingly, if an impaired class
does not unanimously accept a plan, the best interests test requires the
Bankruptcy Court to find that the plan provides to each member of such impaired
class a recovery on account of the class member's claim that has a value, as of
the date such plan is consummated, at least equal to the value of the
distribution that such class member would receive if the debtors proposing such
plan were liquidated under chapter 7 of the Bankruptcy Code on such date. The
Debtors have considered the effect that the conversion of the Chapter 11 Cases
to cases under chapter 7 of the Bankruptcy Code would have and have concluded
that Plan provides for the liquidation of the Debtors in a manner significantly
more efficient than would occur in the event the Chapter 11 Cases were converted
to cases under chapter 7 of the Bankruptcy Code. KFC has no material assets
other than a claim against KACC which will be subject to treatment under KACC's
plan of reorganization and, upon consummation of the sale of the QAL Interests,
KAAC's Estate will have been substantially liquidated and converted to Cash
proceeds, subject only to receipt of any Recovery Action Proceeds. The Debtors
are not aware of


                                       62

the existence of any claim against a third party that would constitute a
Recovery Action. Further, the Debtors have been informed that the Creditors'
Committee conducted an analysis of potential preference actions and determined
that there were no viable preference actions concerning payments made by the
Debtors. The Debtors believe that conversion to chapter 7 of the Bankruptcy Code
would result in: (a) additional costs relating to the appointment of a chapter 7
trustee; (b) likely delays in distributions to creditors entitled to receive a
distribution under the Plan; and (c) diminished recoveries for Class 3. The
Debtors therefore believe that the Plan satisfies the best interests test for
each class of impaired Claims.

          Liquidation Analysis

     Because the liquidation value of each Debtor is limited to the amount of
Cash or other property held or to be held in each Debtor's Trust Accounts, the
Debtors' liquidation analysis focused on the additional costs and the diminution
in value to the Debtors' Estates that would occur if the Chapter 11 Cases were
converted to cases under chapter 7 of the Bankruptcy Code. That is, in the event
of a conversion of the Chapter 11 Cases to cases under chapter 7 of the
Bankruptcy Code, the liquidation value available to holders of Unsecured Claims
and Interests would be reduced by: (a) the costs, fees and expenses of the
liquidation, as well as other administrative expenses of the Debtors' chapter 7
cases; (b) unpaid Administrative Claims of the Chapter 11 Cases; and (c)
Priority Claims and Priority Tax Claims.

     The Debtors' costs of liquidation in chapter 7 cases would include, among
other things, the compensation of a trustee or trustees, as well as counsel and
other professionals retained by such trustees. The trustees and any newly
retained professionals would have to expend considerable time and effort to
review and understand the issues raised by the liquidation of the Debtors,
thereby duplicating the efforts of the Debtors and their professionals and
resulting in the incurrence of fees and expenses anticipated to exceed
materially the fees and expenses that would be incurred by the Distribution
Trustee and its professionals under the Plan. The trustee's fees in any chapter
7 case, which could be as much as 3% of the assets in the Debtors' Estates under
section 326 of the Bankruptcy Code (or approximately $12.0 million in the
aggregate), also are anticipated to exceed the fees to be paid to the
Distribution Trustee. Moreover, since any newly retained professionals would
lack the institutional knowledge of the facts and circumstances underlying
Claims and Recovery Actions, it is likely that Disputed Claims would be settled
at higher amounts and Recovery Actions at lower amounts, thereby resulting in
lower recoveries to holders of Unsecured Claims. Finally, due to the lack of
familiarity with the Debtors of any trustees appointed in the chapter 7 cases,
distributions in the chapter 7 cases likely would be made substantially later
than the Effective Date assumed in connection with the Plan and this delay would
reduce the present value of distributions to creditors, including holders of
Unsecured Claims. In light of the foregoing, the Debtors believe that creditors
will receive greater and more expeditious distributions under the Plan than they
would receive through a chapter 7 liquidation. The Plan is, therefore, in the
best interests of each Claim holder.

     FEASIBILITY

     Section 1129(a)(11) of the Bankruptcy Code requires that confirmation of a
plan not be likely to be followed by the liquidation, or the need for further
financial reorganization, of the debtors proposing such plan or any successor to
such debtors (unless such liquidation or reorganization is proposed in the
plan). The Plan provides for the liquidation of the Debtors and the distribution
of Cash to holders of Allowed Claims in accordance with the priority scheme of
the Bankruptcy Code and the terms of the Plan. The ability of the Debtors to
make the distributions described in the Plan is based solely on the amount of
Cash held, or to be held, in the Trust Accounts, and does not depend on future
earnings of the Debtors. Accordingly, the Debtors believe that the Plan
satisfies the feasibility requirements of the Bankruptcy Code.

     COMPLIANCE WITH APPLICABLE PROVISIONS OF THE BANKRUPTCY CODE

     Section 1129(a)(1) of the Bankruptcy Code requires that a plan comply with
the applicable provisions of the Bankruptcy Code. The Debtors have considered
each of these provisions in the development of the Plan and believe that the
Plan complies with all provisions of the Bankruptcy Code.


                                       63

     MODIFICATION OR REVOCATION OF THE PLAN

     Subject to the restrictions on modifications set forth in section 1127 of
the Bankruptcy Code, the Debtors reserve the right to alter, amend or modify the
Plan before its substantial consummation, with the consent of the Creditors'
Committee.

     The Debtors reserve the right to revoke or withdraw the Plan prior to the
Effective Date, with the consent of the Creditors' Committee. If the Debtors so
revoke or withdraw the Plan, or if confirmation of the Plan does not occur, the
Plan will be null and void in all respects, and nothing contained in the Plan
will: (a) constitute a waiver or release of any Claims by or against, or any
Interests in, the Debtors; or (b) prejudice in any manner the rights of either
Debtor or any other party.

     Notwithstanding the provisions of the Plan described above, the Plan may
not be amended, modified, revoked or withdrawn with the intent of altering or
undermining in any way the Bankruptcy Court's determination of the respective
entitlement of holders of Allowed Claims under Sections 2.4(c)(i)(B) and
2.4(c)(ii)(B) of the Plan.

ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN

     Because the Debtors are not operating entities and possess no assets other
than Cash, the only alternatives to confirmation and consummation of the Plan
are a conversion of the Chapter 11 Cases to cases under chapter 7 of the
Bankruptcy Code and the confirmation and consummation of an alternative plan of
liquidation under chapter 11 of the Bankruptcy Code.

     The Debtors believe that, in a liquidation under chapter 7, before
creditors received any distribution, additional administrative expenses involved
in the appointment of a trustee, and the retention of professionals to assist
such trustee, would cause a diminution in the value of the Debtors' Estates. The
Debtors believe that conversion of the Chapter 11 Cases to chapter 7 would,
therefore, result in (a) significant delay in distributions to all creditors who
would have received a distribution under the Plan and (b) diminished recoveries
for Class 3. See "-- Confirmation -- Best Interests Test."

     The Debtors believe that, because the Plan has been negotiated by the
Debtors and representatives of certain of the Debtors' most significant
creditors, including the Creditors' Committee, negotiating an alternative plan
of liquidation under chapter 11 of the Bankruptcy Code is unlikely to alter
significantly the relative treatment of the Claims. The Debtors believe that
negotiating such an alternative plan would result in additional costs to the
Debtors relating to the retention of professionals to represent the Debtors and
their significant creditors in connection with such negotiations, resulting in a
diminution in the value of the Debtors' Estates. The Debtors believe that the
consummation of an alternative plan of liquidation under chapter 11 of the
Bankruptcy Code would also result in (a) likely delays in distributions to all
creditors who would be entitled to receive a distribution under the Plan (thus
reducing the present value of such distributions) and (b) potentially diminished
recoveries for Class 3.

     THE DEBTORS AND THE CREDITORS' COMMITTEE BELIEVE THAT THE PLAN AFFORDS
GREATER BENEFITS TO CREDITORS THAN EITHER LIQUIDATION UNDER CHAPTER 7 OF THE
BANKRUPTCY CODE OR THE CONSUMMATION OF AN ALTERNATIVE PLAN OF LIQUIDATION UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE.

       CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF CONSUMMATION OF THE PLAN

GENERAL

     A DESCRIPTION OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
IS PROVIDED BELOW. THE DESCRIPTION IS BASED ON THE IRC, TREASURY REGULATIONS
ISSUED THEREUNDER, JUDICIAL DECISIONS AND INTERNAL REVENUE SERVICE ("IRS") AND
ADMINISTRATIVE DETERMINATIONS, ALL AS IN EFFECT ON THE DATE HEREOF. CHANGES IN
ANY OF THESE AUTHORITIES OR IN THE INTERPRETATION THEREOF, ANY OF WHICH MAY HAVE
RETROACTIVE EFFECT, MAY CAUSE THE U.S. FEDERAL INCOME


                                       64

TAX CONSEQUENCES OF THE PLAN TO DIFFER MATERIALLY FROM THE CONSEQUENCES
DESCRIBED BELOW.

     THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ARE COMPLEX AND ARE
SUBJECT TO SIGNIFICANT UNCERTAINTIES. NO RULING HAS BEEN REQUESTED FROM THE IRS;
NO OPINION HAS BEEN REQUESTED FROM COUNSEL CONCERNING ANY U.S. TAX CONSEQUENCE
OF THE PLAN; AND NO TAX OPINION IS GIVEN BY THIS DISCLOSURE STATEMENT.

     THE DESCRIPTION DOES NOT COVER ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO THE DEBTORS OR HOLDERS OF CLAIMS. FOR EXAMPLE, THE
DESCRIPTION DOES NOT ADDRESS ISSUES OF SPECIAL CONCERN TO CERTAIN TYPES OF
TAXPAYERS, SUCH AS DEALERS IN SECURITIES, LIFE INSURANCE COMPANIES, FINANCIAL
INSTITUTIONS, TAX EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS, NOR DOES IT
ADDRESS TAX CONSEQUENCES TO HOLDERS OF INTERESTS IN THE DEBTORS. IN ADDITION,
THE DESCRIPTION IS LIMITED TO U.S. FEDERAL INCOME TAX CONSEQUENCES AND DOES NOT
DISCUSS STATE, LOCAL OR FOREIGN TAX CONSEQUENCES.

     FOR THESE REASONS, THE DESCRIPTION THAT FOLLOWS IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING AND PROFESSIONAL TAX ADVICE BASED UPON THE INDIVIDUAL
CIRCUMSTANCES OF EACH HOLDER OF A CLAIM OR INTEREST. HOLDERS OF CLAIMS OR
INTERESTS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE U.S.
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN.

U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CLAIMS

     The federal income Tax consequences of the Plan to a holder of a Claim will
depend, in part, on: (a) whether the holder reports income on the accrual or
cash basis; (b) whether the holder has previously taken a bad debt deduction or
worthless security deduction with respect to the Claim; (c) whether the holder's
Claim is allowed or disputed at the Effective Date; (d) whether the holder
receives distributions under the Plan in more than one taxable year; and (e)
whether the holder receives distributions with respect to its Claim under one or
more plans of reorganization or liquidation of an Other Kaiser Debtor in
addition to the Plan.

     RECOGNITION OF GAIN OR LOSS

          In General

     In general, a holder of a Claim should recognize gain or loss equal to the
amount realized under the Plan in respect of its Claim less the holder's basis
in the Claim. Any gain or loss recognized in the exchange may be long-term or
short-term capital gain or loss or ordinary income or loss, depending upon the
nature of the Claim and the holder, the length of time the holder held the Claim
and whether the Claim was acquired at a market discount. If the holder realizes
a capital loss, its deduction of the loss may be subject to limitation. The
holder's aggregate Tax basis for any property received under the Plan generally
will equal the amount realized. The holder's amount realized generally will
equal the sum of the Cash and the fair market value of any other property
received (or deemed received) by the holder under the Plan on the Effective Date
or subsequent distribution date, less the amount (if any) allocable to Claims
for interest, as discussed below.

          Post-Effective Date Cash Distributions

     Because certain holders of Allowed Claims (including Disputed Claims that
ultimately become Allowed Claims) may receive Cash distributions subsequent to
the Effective Date in respect of Claims held against the Debtors, including
claims against Other Kaiser Debtor(s) as well as the Debtors, the imputed
interest provisions of the IRC may apply to treat a portion of such
distributions as imputed interest. Additionally, because such distributions may
be made to such holders after the initial distribution, any loss and a portion
of any gain realized by such holder may be deferred. All such holders are urged
to consult their Tax advisors regarding the possible


                                       65

application of (or ability to elect out of) the "installment method" of
reporting gain that may be recognized by such holder in respect of its Claims.

          Bad Debt and/or Worthless Securities Deduction

     A holder who, under the Plan, receives in respect of a Claim an amount less
than the holder's Tax basis in the Claim may be entitled in the year of receipt
(or in an earlier or later year) to a bad debt deduction in some amount under
section 166(a) of the IRC or a worthless securities deduction under section
165(g) of the IRC. The rules governing the timing, character and amount of bad
debt and/or worthless securities deductions place considerable emphasis on the
facts and circumstances of the holder, the obligor and the instrument with
respect to which a deduction is claimed. Holders of Claims, therefore, are urged
to consult their Tax advisors with respect to their ability to take such a
deduction.

     PENDING PAYMENTS

     Cash or property that a Trust Account holds as a Pending Payment after the
Effective Date should be deemed to have been paid to the holder of the Claim
entitled to receive such Pending Payment on the date that the Distribution Trust
received it and to have been contributed by such holder to the Trust Account as
a grantor and beneficiary of the Distribution Trust. Thus, the holder should
recognize gain or loss based upon the amount deemed received and contributed to
the Trust Account on the Effective Date, and any income subsequently realized by
the Trust Account with respect to such Pending Payment will be reported by the
Trustee as income of the grantor-beneficiary in the year realized, prior to the
actual distribution of the Pending Payment to the holder of the Allowed Claim.
The actual receipt of the Pending Payments from the Trust Account will not be a
taxable event.

     PAYMENTS OTHER THAN PENDING PAYMENTS

     If any payment other than a Pending Payment is to be made out of a Trust
Account, such payment will not be deemed to have been made to any recipient
until, and to the extent that, the amount to which the payee is entitled has
been determined and distributed. Any income realized by the Trust Account prior
to such time will be reported by the Distribution Trustee as income of and
taxable to the Trust Account.

CERTAIN OTHER TAX CONSEQUENCES FOR HOLDERS OF CLAIMS

     RECEIPT OF PRE-EFFECTIVE DATE INTEREST

     In general, a Claim holder that was not previously required to include in
its taxable income any accrued but unpaid pre-Effective Date interest on the
Claim may be required to take such amount into income as taxable interest. A
Claim holder that was previously required to include in its taxable income any
accrued but unpaid pre-Effective Date interest on the Claim may be entitled to
recognize a deductible loss to the extent that such interest is not satisfied
under the Plan. The Plan provides that all distributions to a holder of an
Allowed Public Note Claim or a holder of a 7-3/4% SWD Revenue Bond will be
deemed to apply first to the principal amount of such Claim or such 7-3/4% SWD
Revenue Bond until such principal amount is paid in full, and then the remaining
portion of such distributions, if any, will be deemed to apply to any
prepetition accrued interest included in such Claim or in respect of such 7-3/4%
SWD Revenue Bond. There is no assurance, however, that the IRS will respect this
treatment and will not determine that all or a portion of amounts distributed to
holders of Allowed Public Note Claims or 7-3/4% SWD Revenue Bonds is properly
allocable to prepetition interest. Each such holder is urged to consult its tax
advisor regarding the tax treatment of its distributions under the Plan and the
deductibility of any accrued but unpaid interest for federal income tax
purposes.

     INSTALLMENT METHOD

     A holder of a Claim constituting an installment obligation for Tax purposes
may be required to recognize currently any gain remaining with respect to the
obligation if, pursuant to the Plan, the obligation is considered to be
satisfied at other than its face value, distributed, transmitted, sold, or
otherwise disposed of within the meaning of section 453B of the IRC.


                                       66

     INFORMATION REPORTING AND BACKUP WITHHOLDING

     All distributions under the Plan will be subject to applicable federal
income Tax reporting and withholding. The IRC imposes "backup withholding" on
certain "reportable" payments to certain taxpayers, including payments of
interest. Under the IRC's backup withholding rules, a holder of a Claim may be
subject to backup withholding with respect to distributions or payments made
pursuant to the Plan, unless the holder: (a) comes within certain exempt
categories (which generally include corporations) and, when required,
demonstrates this fact; or (b) provides a correct taxpayer identification number
and certifies under penalty of perjury that the taxpayer identification number
is correct and that the taxpayer is not subject to backup withholding because of
a failure to report all dividend and interest income. Backup withholding is not
an additional Tax, but merely an advance payment that may be refunded to the
extent it results in an overpayment of Tax. A holder of a Claim may be required
to establish an exemption from backup withholding or to make arrangements with
respect to the payment of backup withholding.

IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE

     THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN U.S.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN, AND IS NOT A SUBSTITUTE FOR CAREFUL
TAX PLANNING WITH A TAX PROFESSIONAL. THE ABOVE DISCUSSION IS FOR INFORMATION
PURPOSES ONLY AND IS NOT TAX ADVICE. THE TAX CONSEQUENCES ARE IN MANY CASES
UNCERTAIN AND MAY VARY DEPENDING ON A HOLDER'S INDIVIDUAL CIRCUMSTANCES.
ACCORDINGLY, HOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS ABOUT THE U.S.
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN.

           APPLICABILITY OF CERTAIN FEDERAL AND STATE SECURITIES LAWS

GENERAL

     No registration statement will be filed under the Securities Act of 1933,
as amended, 15 U.S.C. Sections 77a-77aa (the "Securities Act"), or any state
securities laws with respect to the offer and distribution under the Plan of the
beneficial interests in the Distribution Trust (which may be deemed to
constitute "securities" and are treated as such for purposes of the following
discussion). The Debtors believe that the provisions of section 1145(a)(1) of
the Bankruptcy Code exempt the offer and distribution of such securities under
the Plan from federal and state securities registration requirements.

BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS

     INITIAL OFFER AND SALE

     Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of
securities under a plan of reorganization from registration under the Securities
Act and state securities laws if three principal requirements are satisfied: (a)
the securities must be offered and sold under a plan of reorganization and must
be securities of the debtor, an affiliate participating in a joint plan with the
debtor or a successor to the debtor under the plan; (b) the recipients of the
securities must hold a prepetition or administrative expense claim against the
debtor or an interest in the debtor or such affiliate; and (c) the securities
must be issued entirely in exchange for the recipient's claim against or
interest in the debtor or principally in such exchange and partly for cash or
property. The Debtors believe that the offer and sale of the beneficial
interests in the Distribution Trust under the Plan satisfy the requirements of
section 1145(a)(1) of the Bankruptcy Code and, therefore, are exempt from
registration under the Securities Act and state securities laws.


                                       67

     SUBSEQUENT TRANSFERS

     The beneficial interests in the Distribution Trust will be non-certificated
and non-transferable (except by will or under the laws of descent and
distribution). Therefore, holders of beneficial interests in the Distribution
Trust will not be able to voluntarily transfer such securities to other
entities.

                             ADDITIONAL INFORMATION

     Any statements in this Disclosure Statement concerning the provisions of
any document are not necessarily complete, and in each instance reference is
made to such document for the full text thereof. The Plan, this Disclosure
Statement and the Distribution Trust Agreement will be available on the Document
Website promptly following approval of this Disclosure Statement by the
Bankruptcy Court.


                                       68

                          RECOMMENDATION AND CONCLUSION

     For all of the reasons set forth in this Disclosure Statement, the Debtors
believe that the confirmation and consummation of the Plan is preferable to all
other alternatives. Consequently, the Debtors urge all holders of Claims in
voting Classes to vote to accept the Plan and to evidence their acceptance by
duly completing and returning their Ballots so that they will be received on or
before the Voting Deadline.

Dated: February 28, 2005                Respectfully submitted,

                                        KAISER ALUMINA AUSTRALIA CORPORATION


                                        By: /s/ John M. Donnan
                                            ------------------------------------
                                        Name: John M. Donnan
                                        Title: Vice President and
                                               General Counsel


                                        KAISER FINANCE CORPORATION


                                        By: /s/ John M. Donnan
                                            ------------------------------------
                                        Name: John M. Donnan
                                        Title: Vice President and
                                               General Counsel


COUNSEL:


/s/ Daniel J. DeFranceschi
- ------------------------------------
Daniel J. DeFranceschi (DE 2732)
RICHARDS, LAYTON & FINGER, P.A.
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
Telephone: (302) 651-7700
Facsimile: (302) 651-7701

- - and -

Gregory M. Gordon (TX 08435300)
Henry L. Gompf (TX 08116400)
Troy B. Lewis (TX 12308650)
Daniel P. Winikka (TX 00794873)
JONES DAY
2727 North Harwood Street
Dallas, Texas 75201
Telephone: (214) 220-3939
Facsimile: (214) 969-5100

ATTORNEYS FOR DEBTORS AND
DEBTORS IN POSSESSION


                                       69

                                    EXHIBIT I

                   THIRD AMENDED JOINT PLAN OF LIQUIDATION FOR
       KAISER ALUMINA AUSTRALIA CORPORATION AND KAISER FINANCE CORPORATION