-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, r0KodEBx9uwkwd8iJWrGSrg/BFtnNrMAaUzbPXE/f6Nkaqvygu60n5Rd34Mddb3w 5bREq13QutK0r22rIaUzXA== 0000900421-94-000011.txt : 19940404 0000900421-94-000011.hdr.sgml : 19940404 ACCESSION NUMBER: 0000900421-94-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER ALUMINUM CORP CENTRAL INDEX KEY: 0000811596 STANDARD INDUSTRIAL CLASSIFICATION: 3334 IRS NUMBER: 943030279 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-09447 FILM NUMBER: 94519451 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE STE 2600 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7139757600 FORMER COMPANY: FORMER CONFORMED NAME: KAISERTECH LTD DATE OF NAME CHANGE: 19901122 10-K 1 KAISER ALUMINUM CORPORATION FORM 10-K ================================================================= FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1993 Commission file number 1-9447 KAISER ALUMINUM CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-3030279 (State of Incorporation) (I.R.S. Employer Identification No.) 5847 SAN FELIPE, SUITE 2600, HOUSTON, TEXAS 77057-3010 Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 267-3777 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ---------------------------- ---------------------- Common Stock, $.01 par value New York Stock Exchange $.65 Depositary shares, each New York Stock Exchange representing ownership of one-tenth of a share of Series A Mandatory Conversion Premium Dividend Preferred Stock Series A Mandatory Conversion Premium None Dividend Preferred Stock, $.05 par value 8.255% PRIDES, Convertible Preferred New York Stock Exchange Stock, $.05 par value 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 _ X__ No ____ 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. ___ As of March 21, 1994, there were 58,095,599 shares of the common stock of the registrant outstanding. Based upon New York Stock Exchange closing prices on March 21, 1994, the aggregate market value of the registrant's common stock, $.65 depositary shares, and 8.255% PRIDES held by non-affiliates was $313.0 million. Certain portions of the registrant's annual report to shareholders for the fiscal year ended December 31, 1993, are incorporated by reference into Parts I, II, and IV of this Report on Form 10-K. Certain portions of the registrant's definitive proxy statement to be filed not later than 120 days after the close of the registrant's fiscal year are incorporated by reference into Part III of this Report on Form 10-K. ====================================================================== NOTE Kaiser Aluminum 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 28 - 33 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 other exhibits and to request copies of such exhibits: Corporate Secretary Kaiser Aluminum Corporation 5847 San Felipe, Suite 2600 Houston, Texas 77057-3010 (i) KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ------------------------------------------------------------------- T A B L E O F C O N T E N T S Page ---- PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . 1 ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . 14 ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . . 18 PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . 19 ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . 19 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . 19 PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . 19 ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 19 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . 19 PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . .20 SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . 28 EXHIBIT 21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 (ii) KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- PART I ITEM 1. BUSINESS Industry Overview Primary aluminum is produced by the refining of bauxite (the major aluminum-bearing ore) into alumina (the intermediate material) and the reduction of alumina into primary aluminum. Approximately two pounds of bauxite are required to produce one pound of alumina, and approximately two pounds of alumina are required to produce one pound of primary aluminum. Aluminum's valuable physical properties include its light weight, corrosion resistance, thermal and electrical conductivity, and high tensile strength. Demand The packaging and transportation industries are the principal consumers of aluminum in the United States, Japan, and Western Europe. In the packaging industry, which accounted for approximately 22% of consumption in 1992, aluminum's recyclability and weight advantages have enabled it to gain market share from steel and glass, primarily in the beverage container area. The aluminum packaging market in the United States, Japan, and Western Europe grew at a rate of approximately 4.0% per year during the period 1982-1992, and total United States aluminum beverage can shipments increased at a rate of approximately 2.5% in 1993, 1.5% in 1992, and 3.9% in 1991. Nearly all beer cans and approximately 95% of the soft drink cans manufactured for the United States market are made of aluminum. Despite the flat demand currently being experienced in the can stock market, growth in the packaging area is generally expected to continue in the 1990s due to general population increase and to further penetration of the beverage can market in Western Europe and Japan, where aluminum cans are a substantially lower percentage of the total beverage container market than in the United States. In the transportation industry, which accounted for approximately 28% of aluminum consumption in the United States, Japan, and Western Europe in 1992, automotive manufacturers use aluminum instead of steel or copper for an increasing number of components, including radiators, wheels, and engines, in order to meet more stringent environmental and fuel efficiency requirements through vehicle weight reduction. Management believes that sales of aluminum to the transportation industry have considerable growth potential due to projected increases in the use of aluminum in automobiles. According to industry sources, aluminum content in United States automobiles nearly doubled in the last 15 years to an average of 191 pounds per vehicle and the amount of aluminum consumed in the manufacture of Japanese automobiles more than doubled from 1983 to 1990. Management believes that the use of aluminum in automobiles in the United States and Japan will approximately double between 1991 and 2006. Supply As of year-end 1993, Western world aluminum capacity from 109 smelting facilities was approximately 16.4 million tons* per year. Net exports of aluminum from the Commonwealth of Independent States (the "C.I.S.") increased substantially from 1990 levels during the period from 1991 through 1993 and have contributed to a significant increase in London Metal Exchange stocks of primary aluminum. --------------------- * All references to tons in this Report refer to metric tons of 2,204.6 pounds. - 1 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) Based upon information currently available, Kaiser Aluminum Corporation (the "Company") believes that only moderate additions will be made during 1994-1995 to Western world alumina and primary aluminum production capacity; however, due to the decline of primary aluminum prices since January 1, 1991, and other factors, curtailments or permanent shutdowns have been announced, to management's knowledge, with respect to approximately three million tons of primary aluminum production capacity. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends." The increases in alumina capacity during 1994-1995 will come from incremental expansions of existing refineries and not from new plants, which generally require a four to five-year design, engineering, and construction period. Recent Industry Trends The aluminum industry has been cyclical and market prices of alumina and primary aluminum have been volatile from time to time. During 1989, tight supply conditions for alumina and strong demand for primary aluminum resulted in unusually high spot prices for alumina. During 1990, a moderate surplus of alumina supply developed due to new alumina production from two facilities restarted in prior years (including the Company's Alpart refinery) and increased production at other refineries. Furthermore, curtailments of primary aluminum production in response to declining ingot prices have increased the surplus of alumina supply. Since 1990, spot prices of alumina have declined substantially due to these factors and slow economic growth in major aluminum consuming countries. Contract prices for deliveries of alumina in 1993 were in a lower range than the ranges applicable during the past several years. As a result of these factors and the continuing expansion of existing alumina refineries during 1992-1993, the current surplus of alumina is expected to continue. During 1989 and 1990, primary aluminum smelters throughout the world operated at near capacity levels. This factor, combined with increased production from smelter capacity additions during 1989 and 1990, resulted in a reduction of the market price of primary aluminum from 1988 peak prices. Additions to smelter capacity in 1991, 1992, and 1993, continued high operating rates in the Western world, and slow economic growth in major aluminum consuming countries, as well as exports from the C.I.S. have contributed to an oversupply of primary aluminum and a significant increase in primary aluminum inventories in the world. If Western world production and exports from the C.I.S. continue at current levels, primary aluminum inventory levels are expected to increase further in 1994. The foregoing factors have contributed to a significant reduction in the market price of primary aluminum, and may continue to adversely affect the market price of primary aluminum in the future. The average price of primary aluminum was at historic lows in real terms for the year ended 1993. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends." Government officials from the European Union, the United States, Canada, Norway, Australia, and the Russian Federation met in a multilateral conference in January 1994 to discuss the current excess global supply of primary aluminum. All participants have ratified as a trade agreement the resulting Memorandum which provides, in part, for (i) a reduction in Russian Federation primary aluminum production by 300,000 tons per year within three months of the date of ratification of the Memorandum and an additional 200,000 tons within the following three months, (ii) improved availability of comprehensive data on Russian aluminum production, and (iii) certain assistance to the Russian aluminum industry. A Russian Federation Trade Ministry official has publicly stated that the output reduction would remain in effect for 18 months to two years, provided that other worldwide production cutbacks occur, existing trade restrictions on aluminum are eliminated, and no new trade restrictions on aluminum are imposed. The Memorandum does not require specific levels of production cutbacks by other producing nations. The Memorandum was finalized at a second meeting of the participants held at the end of February 1994. - 2 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) The Company General The Company is a direct subsidiary of MAXXAM Inc. ("MAXXAM"). The Company, through its subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"), operates 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 fabricated (including semi-fabricated) aluminum products. In addition to the production utilized by KACC in its operations, KACC sells significant amounts of alumina and primary aluminum in the domestic and international markets. In 1993, KACC produced approximately 2,826,600 tons of alumina, of which approximately 71% was sold to third parties, and produced 436,200 tons of primary aluminum, of which approximately 56% was sold to third parties. KACC is also a major domestic supplier of fabricated aluminum products. In 1993, KACC shipped approximately 373,200 tons of fabricated aluminum products to third parties, which accounted for approximately 6% of the total tonnage of United States domestic shipments in 1993. A majority of KACC's fabricated products are used by customers as components in the manufacture and assembly of finished end-use products. The following table sets forth total shipments and intracompany transfers of KACC's alumina, primary aluminum, and fabricated aluminum operations: Year Ended December 31, ------------------------------ 1993 1992 1991 ------ ------ ------ (in thousands of tons) ALUMINA: Shipments to Third Parties 1,997.5 2,001.3 1,945.9 Intracompany Transfers 807.5 878.2 884.2 PRIMARY ALUMINUM: Shipments to Third Parties 242.5 355.4 340.6 Intracompany Transfers 233.6 224.4 199.6 FABRICATED ALUMINUM PRODUCTS: Shipments to Third Parties 373.2 343.6 314.2 Business Strategy KACC has made significant changes in the mix of products sold to customers by disposing of selected assets, restarting and increasing its percentage ownership interest in the Alumina Partners of Jamaica ("Alpart") alumina refinery, and increasing production of alumina at Gramercy, Louisiana, and Queensland Alumina Limited ("QAL") in Australia. The percentage of KACC's alumina production sold to third parties increased from approximately 35% in 1987 to approximately 71% in 1993, and the percentage of its primary aluminum production sold to third parties increased from approximately 20% in 1987 to approximately 56% in 1993. KACC has concentrated its fabricated products operations on the beverage container market (which historically has been recession- resistant); high value-added, heat-treated sheet and plate products for the aerospace industry; hubs, wheels and other products for the truck, trailer and shipping container industry; parts for air bag canisters and other automotive components; and distributor markets for a variety of semifabricated aluminum products. Since January 1, - 3 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) 1989, KACC has constructed four new fabrication facilities and has modernized and expanded others, with the objective of reducing manufacturing costs and expanding sales in selected product markets in which KACC has production expertise, high-quality capability, and geographic and other competitive advantages. KACC has taken steps to control and reduce costs, improve the efficiency and increase the capacity of its alumina and primary aluminum production and fabricating operations, modernize its facilities, and streamline and decentralize its management structure to reduce corporate overhead and shift decision-making and accountability to its business units. In October 1993, KACC announced that it is restructuring its flat-rolled products operation at its Trentwood plant in Spokane, Washington, to reduce that facility's annual operating costs. This effort is in response to overcapacity in the aluminum rolling industry, flat demand in the U. S. can stock market, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which have resulted in declining prices in Trentwood's key markets. The Trentwood restructuring is expected to result in annual cost savings of at least $50.0 million after it has been fully implemented (which is expected to occur by the end of 1995). See "- Production Operations - Fabricated Products - Flat-Rolled Products". Primary aluminum production at KACC's Mead and Tacoma smelters was curtailed in 1993 because of a power reduction imposed by the Bonneville Power Administration (the "BPA") which reduced the operating rates for those smelters. See "- Primary Aluminum Products." Furthermore, KACC announced on February 24, 1994, that it will curtail approximately 9.3% of its annual production capacity currently available from its primary aluminum smelters. KACC has also attempted to lessen its exposure to possible future declines in the market prices of alumina and primary aluminum by entering into fixed and variable rate power and fuel supply contracts, and a labor contract with the United Steelworkers of America (the "USWA") which provides for semi-variable compensation with respect to approximately 73% of KACC's domestic hourly work force. See "- Production Operations" and "- Employees." Sensitivity to Prices and Hedging Programs The Company's earnings are sensitive to changes in the prices of alumina, primary aluminum, and fabricated aluminum products, and also depend to a significant degree upon the volume and mix of all products sold by KACC. Through its variable cost structures, forward sales, and hedging programs, KACC has attempted to mitigate its exposure to possible further declines in the market prices of alumina and primary aluminum while retaining the ability to participate in favorable pricing environments that may materialize. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends - Sensitivity to Prices and Hedging Programs." Production Operations The Company's operations are conducted through KACC's decentralized business units which compete throughout the aluminum industry. o The Alumina Business Unit, which mines bauxite and obtains additional bauxite tonnage under long term contracts, produced approximately 8% of Western world alumina in 1993. During 1993, KACC utilized approximately 82% of its bauxite production at its alumina refineries and the remainder was either sold to third - 4 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) parties or tolled into alumina by a third party. In addition, during 1993 KACC utilized approximately 29% of its alumina for internal purposes and sold the remainder to third parties. KACC's share of total Western world alumina capacity was 8% in 1993. o The Primary Aluminum Products Business Unit operates two domestic smelters wholly owned by KACC and two foreign smelters in which KACC holds significant ownership interests. In 1993, KACC utilized approximately 44% of its primary aluminum for internal purposes and sold the remainder to third parties. KACC's share of total Western world primary aluminum capacity was 3% in 1993. o Fabricated products are manufactured by three Business Units - Flat-Rolled Products, Extruded Products (including rod and bar), and Forgings - which manufacture a variety of fabricated products (including body, lid, and tab stock for beverage containers, sheet and plate products, screw machine stock, redraw rod, forging stock, truck wheels and hubs, air bag canisters, and other forgings and extruded products) and operate plants located in principal marketing areas of the United States and Canada. Substantially all of the primary aluminum utilized in KACC's fabricated products operations is obtained internally, with the balance of the metal utilized in its fabricated products operations obtained from scrap metal purchases. In 1993, KACC shipped approximately 373,200 tons of fabricated aluminum products to third parties, which accounted for approximately 6% of the total tonnage of United States domestic fabricated shipments for such year. Alumina ------- The following table lists KACC's bauxite mining and alumina refining facilities as of December 31, 1993:
Annual Production Total Capacity Annual Company Available to Production Activity Facility Location Ownership the Company Capacity -------- -------- -------- --------- ------------ ---------- (tons) (tons) Bauxite Mining KJBC(1) Jamaica 49% 4,500,000 4,500,000 Alpart(2) Jamaica 65% 2,275,000 3,500,000 --------- --------- 6,775,000 8,000,000 ========= ========= Alumina Refining Gramercy Louisiana 100% 1,000,000 1,000,000 Alpart Jamaica 65% 943,000 1,450,000 QAL Australia 28.3% 934,000 3,300,000 --------- --------- 2,877,000 5,750,000 ========= =========
-------------------------- (1) Although KACC owns 49% of Kaiser Jamaica Bauxite Company, it has the right to receive all of such entity's output. (2) Alpart bauxite is refined into alumina at the Alpart refinery. Bauxite mined in Jamaica by Kaiser Jamaica Bauxite Company ("KJBC") is refined into alumina at KACC's plant at Gramercy, Louisiana, or is sold to third parties. In 1979, the Government of Jamaica granted KACC a mining lease - 5 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) for the mining of bauxite sufficient to supply KACC's then-existing Louisiana alumina refineries at their annual capacities of 1,656,000 tons per year until January 31, 2020. Alumina from the Gramercy plant is sold to third parties. KACC has entered into a series of medium- term contracts for the supply of natural gas to the Gramercy plant. The price of such gas varies based upon certain spot natural gas prices, with floor and ceiling prices applicable to approximately one- half of the delivered gas. KACC has, however, established a fixed price for a portion of the delivered gas through a hedging program. Alpart holds bauxite reserves and owns an alumina plant located in Jamaica. KACC has a 65% interest in Alpart and Hydro Aluminium a.s. ("Hydro") owns the remaining 35% interest. KACC has management responsibility for the facility on a fee basis. KACC and Hydro have agreed to be responsible for their proportionate shares of Alpart's costs and expenses. Alpart began a program of modernization and expansion of its facilities in 1991. As a part of that program, the capacity of the Alpart alumina refinery has been increased to 1,450,000 tons per year as of December 31, 1992. In 1981, the Government of Jamaica granted Alpart a mining lease covering bauxite reserves sufficient to operate the Alpart plant until December 31, 2019. In connection with the expansion program, the Alpart partners have entered into an agreement with the Government of Jamaica designed to assure that sufficient reserves of bauxite will be available to Alpart to operate its refinery, as it has been expanded and as it may be expanded through the year 2024 (to a capacity of 2,000,000 tons per year). In mid-1990, Alpart entered into a five-year agreement for the supply of substantially all of its fuel oil, the refinery's primary energy source. In February 1992, the term of this agreement was extended to 1996 and the quantity of fuel oil to be supplied was increased. The price for 80% of the initial quantity remains fixed at a price which prevailed in the fourth quarter of 1989; the price for 80% of the increased quantity is fixed at a negotiated price; and the price for the balance of the initial and increased quantities was based upon certain spot fuel oil prices plus transportation costs. Alpart has purchased all of the quantities of fuel oil which could be purchased based upon certain spot fuel oil prices under both the initial and extended agreements. KACC holds a 28.3% interest in QAL, which owns the largest and one of the most efficient alumina refineries in the world, located in Queensland, Australia. QAL refines bauxite into alumina, essentially on a cost basis, for the account of its stockholders pursuant to long- term tolling contracts. The stockholders, including KACC, purchase bauxite from another QAL stockholder pursuant to long-term supply contracts. KACC has contracted to take approximately 751,000 tons per year of capacity or pay standby charges. KACC is unconditionally obligated to pay amounts calculated to service its share ($73.6 million at December 31, 1993) of certain debt of QAL, as well as other QAL costs and expenses, including bauxite shipping costs. QAL's annual production capacity is approximately 3,300,000 tons, of which approximately 934,000 tons are available to KACC. KACC's principal customers for bauxite and alumina consist of large and small domestic and international aluminum producers that purchase bauxite and reduction-grade alumina for use in their internal refining and smelting operations and trading intermediaries who resell raw materials to end-users. In 1993, KACC sold all of its bauxite to one customer, and sold alumina to 13 customers, the largest and top five of which accounted for approximately 22% and 79% of such sales, respectively. Among alumina producers, the Company believes KACC is now the world's second largest seller of alumina to third parties. KACC's strategy is to sell a substantial portion of the bauxite and alumina available to it in excess of its internal refining and smelting requirements pursuant to forward sales contracts. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends - Sensitivity to Prices and Hedging Programs." Marketing and sales efforts are conducted by executives of the Alumina Business Unit and KACC. - 6 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) Primary Aluminum Products ------------------------- The following table lists KACC's primary aluminum smelting facilities as of December 31, 1993:
Annual Total Capacity Annual 1993 Company Available Rated Operating Location Facility Ownership the Company Capacity Rate -------- -------- --------- ----------- -------- --------- (tons) (tons) Domestic Washington Mead 100% 200,000 200,000 80% Washington Tacoma 100% 73,000 73,000 77% ------- ------- Subtotal 273,000 273,000 ------- ------- International Ghana Valco 90% 180,000 200,000 88% Wales, United Anglesey 49% 55,000 112,000 112% ------- ------- Subtotal 235,000 312,000 ------- ------- Total 508,000 585,000 ======= =======
KACC owns two smelters located at Mead and Tacoma, Washington, where alumina is processed into primary aluminum. The Mead facility uses pre-bake technology and produces primary aluminum, almost all of which is used at KACC's Trentwood fabricating facility and the balance of which is sold to third parties. The Tacoma plant uses Soderberg technology and produces primary aluminum and high-grade, continuous- cast, redraw rod, which currently commands a premium price in excess of the price of primary aluminum. Both smelters have achieved significant production efficiencies in recent years through retrofit technology, cost controls, and semi-variable wage and power contracts, leading to increases in production volume and enhancing their ability to compete with newer smelters. At the Mead plant, KACC has converted to welded anode assemblies to increase energy efficiency, reduced the number of anodes used in the smelting process, changed from pencil to liquid pitch to produce carbon anodes which achieved environmental and operating savings, and engaged in efforts to increase production through the use of improved, higher-efficiency reduction cells. Electrical power represents an important production cost for KACC at its Mead and Tacoma smelters. The electricity supply contracts between the BPA and KACC expire in 2001. The electricity contracts between the BPA and its direct service industry customers (which consist of 15 energy intensive companies, principally aluminum producers, including KACC) permit the BPA to interrupt up to 25% of the amount of power which it normally supplies to such customers. Both the Mead and Tacoma plants operated at approximately full rated capacity during 1991-1992, but operated at less than rated capacity throughout 1993. As a result of drought conditions, in January 1993 the BPA reduced the amount of power it normally supplies to its direct service industry customers. In response to such reduction, KACC removed three reduction potlines from production (two at the Mead smelter and one at the Tacoma smelter) and purchased substitute power in the first quarter of 1993 at increased costs. Despite the temporary availability of such power through July 1993, KACC operated its Mead and Tacoma smelters at the reduced operating rates introduced in January 1993, and operated its Trentwood fabrication facility without any curtailment of its production. The Company currently anticipates that in 1994, KACC will operate the Mead and Tacoma smelters at rates which do not exceed the current operating rates of 75% of full capacity for such smelters. The BPA has recently notified its direct service industry customers that it intends to restore full power through July 31, 1994. - 7 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) Through June 1996, KACC pays for power on a basis which varies, within certain limits, with the market price of primary aluminum, and thereafter KACC will pay for power at variable rates to be negotiated. During 1993, KACC paid for power under its power supply contract with the BPA at the floor rate. Effective October 1, 1993, an increase in the base rate the BPA charges to its direct service industry customers for electricity was adopted which will increase KACC's production costs at the Mead and Tacoma smelters by approximately $15.0 million per year (approximately $9.1 million per year based on KACC's current operating rate of approximately 75% of full capacity). The rate increase generally is expected to remain in effect for two years. In the event that the BPA's revenues fall below certain levels prior to April 1994, the BPA may impose up to a 10% surcharge on the base rate it charges to its direct service industry customers, effective during the period from October 1994 through October 1995 (which would increase KACC's production costs at the Mead and Tacoma smelters by approximately $9.1 million per year based on KACC's current operating rate of approximately 75% of full capacity). In addition, in order to comply with certain federal laws and regulations applicable to endangered fish species, the BPA may be required in the future to reduce its power generation and to purchase substitute power (at greater expense) from other sources. KACC manages, and holds a 90% interest in, the Volta Aluminum Limited ("Valco") aluminum smelter in Ghana. The Valco smelter uses pre-bake technology and processes alumina supplied by KACC and the other participant into primary aluminum under long-term tolling contracts which provide for proportionate payments by the participants in amounts intended to pay not less than all of Valco's operating and financing costs. KACC's share of the primary aluminum is sold to third parties. Power for the Valco smelter is supplied under an agreement which expires in 1997, subject to Valco's right to extend the agreement for 20 years. The agreement indexes the price of two-thirds of the contract quantity to the market price of primary aluminum and fixes the price for the remainder. The agreement also provides for a review and adjustment of the base power rate and the price index every five years. The Valco smelter restarted production early in 1985 after being closed for more than two years due to lack of rainfall and the resultant hydroelectricity shortage. The Company believes that there has been sufficient rainfall and water storage such that an adequate supply of electricity for the Valco plant at its current operating rate is probable for at least one year. KACC has a 49% interest in the Anglesey Aluminium Limited ("Anglesey") aluminum smelter and port facility at Holyhead, Wales. The Anglesey smelter uses pre-bake technology. KACC supplies 49% of Anglesey's alumina requirements and purchases 49% of Anglesey's aluminum output. KACC sells its share of Anglesey's output to third parties. Power for the Anglesey aluminum smelter is supplied under an agreement which expires in 2001. KACC has developed and installed proprietary retrofit technology in all of its smelters. This technology -- which includes the redesign of the cathodes and anodes that conduct electricity through reduction cells, improved "feed" systems that add alumina to the cells, and a computerized system that controls energy flow in the cells -- enhances KACC's ability to compete more effectively with the industry's newer smelters. KACC is actively engaged in efforts to license this technology and sell technical and managerial assistance to other producers worldwide, and may participate in joint ventures or similar business partnerships which employ KACC's technical and managerial knowledge. Pursuant to various arrangements, KACC's technology has been installed in aluminum smelters located in West Virginia, Ohio, Missouri, Kentucky, Sweden, Germany, India, Australia, New Zealand, Ghana, the C.I.S., and the United Kingdom. See "-- Research and Development." KACC's principal primary aluminum customers consist of large trading intermediaries and metal brokers, who resell primary aluminum to fabricated product manufacturers, and large and small international aluminum fabricators. In 1993, KACC sold the approximately 56% of its primary aluminum production not utilized for internal purposes to approximately 50 customers, the largest and top five of which accounted for approximately 44% and 64% of such sales, respectively. Marketing and sales efforts are conducted by a small staff located at the business unit's headquarters in - 8 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) Pleasanton, California, and by senior executives of KACC who participate in the structuring of major sales transactions. A majority of the business unit's sales are based upon long-term relationships with metal merchants and end-users. Fabricated Products ------------------- KACC manufactures and markets fabricated aluminum products for the packaging, transportation, construction, and consumer durables markets in the United States and abroad. Sales in these markets are made directly and through distributors to a large number of customers, both domestic and foreign. In 1993, seven domestic beverage container manufacturers constituted the leading customers for KACC's fabricated products and accounted for approximately 19% of the Company's sales revenue. KACC's fabricated products compete with those of numerous domestic and foreign producers and with products made with steel, copper, glass, plastic, and other materials. Product quality, price, and availability are the principal competitive factors in the market for fabricated aluminum products. KACC has refocused its fabricated products operations to concentrate on selected products in which KACC has production expertise, high quality capability, and geographic and other competitive advantages. Flat-Rolled Products - The Flat-Rolled Products Business Unit, the largest of KACC's fabricated products businesses, operates the Trentwood sheet and plate mill at Spokane, Washington. The Trentwood facility is KACC's largest fabricating plant and accounted for substantially more than one-half of KACC's 1993 fabricated products shipments. The business unit supplies the beverage container market (producing body, lid, and tab stock), the aerospace market, and the tooling plate, heat-treated alloy and common alloy coil markets, both directly and through distributors. KACC announced in October 1993 that it is restructuring its flat-rolled products operation at its Trentwood plant to reduce that facility's annual operating costs. This effort is in response to overcapacity in the aluminum rolling industry, flat demand in the U.S. can stock market, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which have resulted in declining prices in Trentwood's key markets. The Trentwood restructuring is expected to result in annual cost savings of at least $50.0 million after it has been fully implemented (which is expected to occur by the end of 1995). In connection with the restructuring, Trentwood completed an organizational streamlining that included a reduction of approximately 80 salaried employees. In addition, KACC has reached an agreement with the USWA that will reduce the total number of hourly employees at Trentwood by approximately 300 employees, or about 25%, by the end of 1995. The agreement with the USWA also includes a commitment by KACC to spend up to $50.0 million of capital at Trentwood over three years, provided that goals on cost reduction and profitability are met or exceeded. KACC's flat-rolled products are sold primarily to beverage container manufacturers located in the western United States where KACC has a transportation advantage. Quality of products for the beverage container industry, timeliness of delivery, and price are the primary bases on which KACC competes. The Company believes that KACC's capital improvements at Trentwood have enhanced the quality of KACC's products for the beverage container industry and the capacity and efficiency of KACC's manufacturing operations. The Company believes that KACC is one of the highest quality producers of aluminum beverage can stock in the world. In 1993, the Flat-Rolled Products Business Unit had 22 foreign and domestic can stock customers, the majority of which were beverage can manufacturers (including seven of the eight major domestic beverage can manufacturers) and the balance of which were brewers. The largest and top five of such customers accounted for approximately 25% and 56%, respectively, of the business unit's sales revenue. In 1993, the business unit shipped products to over 200 customers in the aerospace, transportation, and industrial ("ATI") markets, most of which were distributors who sell - 9 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) to a variety of industrial end-users. The top five customers in the ATI markets for flat-rolled products accounted for approximately 10% of the business unit's sales revenue. The marketing staff for the Flat-Rolled Products Business Unit is headquartered in Pleasanton, California, and is also located at the Trentwood facility. Sales are made directly to customers (including distributors) from ten sales offices located throughout the United States. International customers are served by a sales office in the Netherlands and by independent sales agents in Asia and Latin America. See also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Trends - Sensitivity to Prices and Hedging Programs - Aluminum Processing" for a discussion of demand for fabricated products in the aerospace market. Extruded Products - The Extruded Products Business Unit is headquartered in Dallas, Texas, and operates soft-alloy extrusion facilities in Los Angeles, California; Santa Fe Springs, California; Sherman, Texas; and London, Ontario, Canada; a cathodic protection business located in Tulsa, Oklahoma, that also extrudes both aluminum and magnesium; and rod and bar facilities in Newark, Ohio, and Jackson, Tennessee, which produce screw machine stock, redraw rod, forging stock, and billet. Each of the soft-alloy extrusion facilities has fabricating capabilities and provides finishing services. The Extruded Products Business Unit's major markets are in the transportation industry, to which it provides extruded shapes for automobiles, trucks, trailers, cabs, and shipping containers, and distribution, durable goods, defense, building and construction, ordnance, and electrical markets. In 1993, the Extruded Products Business Unit had over 900 customers for its products, the largest and top five of which accounted for approximately 6% and 19%, respectively, of its sales revenue. Sales are made directly from plants as well as marketing locations across the United States. Forgings - The Forgings Business Unit operates forging facilities at Erie, Pennsylvania; Oxnard, California; and Greenwood, South Carolina; and a machine shop at Greenwood, South Carolina. The Forgings Business Unit is one of the largest producers of aluminum forgings in the United States and is a major supplier of high-quality forged parts to customers in the automotive, commercial vehicle, and ordnance markets. The high strength-to-weight properties of forged aluminum make it particularly well suited for automotive applications. The Forgings Business Unit entered the castings business by purchasing the assets of Winters Industries, which supplies cast aluminum engine manifolds to the automobile, truck, and marine markets. The casting production facilities include two foundries and a machining facility in Ohio. KACC has recently implemented a plan to discontinue its castings operations at these facilities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Results of Operations - Aluminum Processing." In 1993, the Forgings Business Unit had over 500 customers for its products, the largest and top five of which accounted for approximately 20% and 57%, respectively, of the Forgings Business Unit's sales revenue. The Forgings Business Unit's headquarters is located in Erie, Pennsylvania, and additional sales, marketing, and engineering groups are located in the midwestern and western United States. Competition Aluminum products compete in many markets with steel, copper, glass, plastic, and numerous other materials. Within the aluminum business, KACC competes with both domestic and foreign producers of bauxite, alumina, and primary aluminum, and with domestic and foreign fabricators. KACC's principal competitors in the sale of alumina include Alcoa of Australia Ltd., Billiton International Metals B.V., Clarendon Ltd., and Pechiney S.A. In addition to the foregoing, KACC competes with most aluminum producers in the production of primary aluminum. Many of KACC's competitors have greater financial resources than KACC. In addition, the C.I.S. has been supplying large quantities of primary aluminum to the Western world. - 10 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) Primary aluminum and, to some degree, alumina are commodities with generally standard qualities, and competition in the sale of these commodities is based primarily upon price, quality, and availability. The Company believes that, assuming the current relationship between worldwide supply and demand for alumina and primary aluminum does not change materially, the loss of any one of KACC's customers, including intermediaries, would not have a material adverse effect on the Company's business or operations. KACC also competes with a wide range of domestic and international fabricators in the sale of fabricated aluminum products. Competition in the sale of fabricated products is based upon quality, availability, price, and service, including delivery performance. KACC concentrates its fabricating operations on selected products in which KACC has production expertise, high quality capability, and geographic and other competitive advantages. Research and Development KACC conducts research and development activities principally at three facilities dedicated to that purpose - the Center for Technology ("CFT") in Pleasanton, California; the Primary Aluminum Products Division Technology Center ("DTC") adjacent to the Mead smelter in Washington; and the Alumina Development Laboratory ("ADL") at the Gramercy, Louisiana refinery. Net expenditures for Company-sponsored research and development activities were $18.5 million in 1993, $13.5 million in 1992, and $11.4 million in 1991. KACC's research staff totaled 160 at December 31, 1993. KACC estimates that research and development net expenditures will be in the range of approximately $17 - $19 million in 1994. CFT concentrates its research and development efforts on flat-rolled products while providing specialized services to KACC's other business units. Its activities include development of can stock products and aircraft sheet and plate products, and process improvements directed at efficiency and quality. In can stock, CFT works to optimize the product's metallurgy, surface characteristics, coatings, and lubrication. CFT also offers research and development, technical services, and selected proprietary technology for license or sale to third parties. CFT provided technology and technical assistance to Samyang Metal Co. Ltd. in building an aluminum rolling mill in Yongju, Korea. CFT also is engaged in cooperative research and development projects with Furukawa Electric Co., Ltd., Pechiney Rhenalu, and Kawasaki Steel Corporation of Japan, with respect to the ground transportation market. DTC maintains specialized laboratories and a miniature carbon plant where experiments with new anode and cathode technology are performed. DTC supports KACC's primary aluminum smelters, concentrating on the development of cost-effective technical innovations and equipment and process improvements. Energy savings of approximately 10% have been achieved at smelters utilizing proprietary DTC developed technologies (which are employed in both retrofit and new construction applications), such as improved cathode and anode design and insulation, modified electrolyte chemistry, distributive microprocessor control, and modified cell magnetics. Other proprietary DTC retrofit technologies, such as redesigned reduction cells, have helped KACC's older smelters achieve competitiveness with more recently constructed facilities. KACC is actively engaged in efforts to license this technology and sell technical and managerial assistance to other producers worldwide. Pursuant to various arrangements, KACC's technology has been installed in aluminum smelters located in West Virginia, Ohio, Missouri, Kentucky, Sweden, Germany, India, Australia, New Zealand, Ghana, and the United Kingdom. KACC has entered into agreements with respect to the Krasnoyarsk smelter located in Russia pursuant to which KACC has licensed certain of its technology for use in such facility and agreed to provide purchasing services in obtaining western-sourced technology and equipment to be used in such facility. These agreements were entered into in November 1990, and the services under them are expected to be completed in 1994. In addition, KACC has entered into - 11 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) agreements with respect to the Nadvoitsy smelter located in Russia and the Korba smelter of the Bharat Aluminum Co. Ltd., located in India, pursuant to which KACC has licensed certain of its technology for use in such facilities. The agreements relating to the Nadvoitsy and Korba smelters were entered into in 1993, and the services under such agreements are expected to be completed in 1995 and 1994, respectively. ADL has developed technologies which have improved alumina refinery efficiency. These include a high capacity thickener process used in the separation of alumina from bauxite slurry, plant conversion designs that enable alumina refineries to convert from the production of fine alumina to the preferred coarser "sandy" alumina, technology that enables refineries to process different qualities of bauxite, and computer-aided instrumentation systems to improve process efficiencies and energy use in alumina refineries. KACC is actively pursuing the licensing of alumina refinery technology worldwide. KACC's technology is in use in alumina refineries in the Americas, Australia, India, and Europe. KACC's technology sales and revenue from technical assistance to third parties were $12.8 million in 1993, $14.1 million in 1992, and $10.9 million in 1991. Employees During 1993, KACC employed an average of approximately 10,220 persons, compared with an average of approximately 10,130 employees in 1992, and approximately 9,970 employees in 1991. At December 31, 1993, KACC's work force was approximately 10,029, including a domestic work force of approximately 5,930, of whom approximately 4,150 were paid at an hourly rate. Most hourly paid domestic employees are covered by collective bargaining agreements with various labor unions. Approximately 73% of such employees are covered by a master agreement (the "Labor Contract") with the USWA which expires on October 31, 1994. The Labor Contract covers KACC's plants in Spokane (Trentwood), Mead, and Tacoma, Washington; Gramercy, Louisiana; and Newark, Ohio. The Labor Contract provides for floor level wages at all covered plants. In addition, for workers covered by the Labor Contract at the Mead and Newark plants, for any quarterly period when the average Midwest U.S. transaction price of primary aluminum is $.54 per pound or above, a bonus payment is made. The amount of the quarterly bonus payment changes incrementally with each full cent change in the price of primary aluminum between $.54 per pound and $.61 per pound, remains constant when the price is $.61 or more per pound but is below $.74 per pound, changes incrementally again with each full cent change in the price between $.74 per pound and $.81 per pound, and remains at the ceiling when the price is $.81 per pound or more. Workers covered by the Labor Contract at the Trentwood, Tacoma, and Gramercy plants may receive quarterly bonus payments based on various indices of productivity, efficiency, and other aspects of specific plant performance, as well as, in certain cases, the price of alumina or primary aluminum. The particular quarterly bonus variable compensation formula currently applicable at each plant will remain applicable for the remainder of the contract term. Pursuant to the Labor Contract, base wage rates were raised $.50 per hour in 1990 and were raised an additional $.50 per hour effective November 1, 1993. Each of the employees covered by the Labor Contract has received $2,000 in lump-sum signing and special bonuses. In addition, in the first quarter of 1991 KACC acquired up to $4,000 of preference stock held in the stock bonus plan for the benefit of approximately 80% of the employees covered by the Labor Contract - 12 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) and in February 1994 acquired an additional $2,000 of such preference stock held in the stock bonus plan for the benefit of substantially the same employees. In the first quarter of 1991, KACC acquired up to $4,000 of preference stock which had been held for the benefit of each of certain salaried employees, and in February 1994 acquired an additional $2,000 of such preference stock held in the stock bonus plan for the benefit of substantially the same employees. The February 1994 acquisitions of preference stock were in the aggregate amount of $5.4 million. The Company considers KACC's employee relations to be satisfactory. Environmental Matters The Company and KACC are subject to a wide variety of international, state, and local environmental laws and regulations ("Environmental Laws") which continue to be adopted and amended. The Environmental Laws regulate, among other things, air and water emissions and discharges; the generation, storage, treatment, transportation, and disposal of solid and hazardous waste; the release of hazardous or toxic substances, pollutants and contaminants into the environment; and, in certain instances, the environmental condition of industrial property prior to transfer or sale. In addition, the Company and KACC are subject to various federal, state, and local workplace health and safety laws and regulations ("Health Laws"). From time to time, KACC is subject, with respect to its current and former operations, to fines or penalties assessed for alleged breaches of the Environmental and Health Laws and to claims and litigation brought by federal, state or local agencies and by private parties seeking remedial or other enforcement action under the Environmental and Health Laws or damages related to alleged injuries to health or to the environment, including claims with respect to certain waste disposal sites and the remediation of sites presently or formerly operated by KACC. See "LEGAL PROCEEDINGS." KACC is currently subject to a number of lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"). KACC, along with several other entities, has been named as a Potentially Responsible Party ("PRP") for remedial costs at certain third-party sites listed on the National Priorities List under CERCLA and, in certain instances, may be exposed to joint and several liability for those costs or damages to natural resources. KACC's Mead, Washington facility has been listed on the National Priorities List under CERCLA. In addition, in connection with certain of its asset sales, KACC has indemnified the purchasers of assets with respect to certain liabilities (and associated expenses) resulting from acts or omissions arising prior to such dispositions, including environmental liabilities. While the ultimate extent of KACC's liability for pending or potential fines, penalties, remedial costs, claims, and litigation relating to environmental and health and safety matters cannot be determined at this time and, in light of evolving case law relating to insurance coverage for environmental claims, management is unable to determine definitively the extent of such coverage, management currently believes that the resolution of these matters (even without giving effect to potential insurance recovery) should not have a material adverse effect on the Company's consolidated financial position or results of operations. Environmental capital spending was $12.6 million in 1993, $13.1 million in 1992, and $11.2 million in 1991. Annual operating costs for pollution control, not including corporate overhead or depreciation, were approximately $22.4 million in 1993, $21.6 million in 1992, and $17.8 million in 1991. Legislative, regulatory, and economic uncertainties make it difficult to project future spending for these purposes. However, the Company currently anticipates that in the 1994- 1995 period, environmental capital spending will be within the range of approximately $7.0 - $20.0 million per year, and operating costs for pollution control will be within the range of $20.0 - $22.0 million per year. These expenditures will be made to assure compliance with applicable Environmental Laws and are expected to include, among other things, additional "red mud" disposal facilities and improved levees at the Gramercy, Louisiana refinery (which are being financed by the industrial revenue bonds); bath crushing improvements, baking furnace modernization, and - 13 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 1. BUSINESS (continued) improved calcining controls at the Mead, Washington facility; new and continuing environmental projects at the Trentwood, Washington facility; and environmental projects required under the Clean Air Act Amendments of 1990. In addition, $7.2 million in cash expenditures in 1993, $9.6 million in 1992, and $14.0 million in 1991 were charged to previously established reserves relating to environmental cost. Approximately $7.0 million is expected to be charged to such reserves in 1994. Note 10 of the Notes to Consolidated Financial Statements contained in the Company's 1993 Annual Report to Shareholders (the "Annual Report") is incorporated herein by reference. ITEM 2. PROPERTIES The locations and general character of the principal plants, mines, and other materially important physical properties relating to KACC's operations are described in "ITEM 1. BUSINESS," and those descriptions are incorporated herein by reference. KACC owns in fee or leases all the real estate and facilities used in connection with its business. Plants and equipment and other facilities are generally in good condition and suitable for their intended uses, subject to changing environmental requirements. Although KACC's domestic aluminum smelters and alumina facility were initially designed early in KACC's history, they have been modified frequently over the years to incorporate technological advances in order to improve efficiency, increase capacity, and achieve energy savings. The Company believes that KACC's domestic plants are cost competitive on an international basis. Due to KACC's variable cost structure, the plants' operating costs are relatively lower in periods of low primary aluminum prices and relatively higher in periods of high primary aluminum prices. The Company's obligations under the Credit Agreement entered into on February 17, 1994, which replaced the Company's prior credit agreement, are secured by, among other things, mortgages on KACC's major domestic plants (other than the Gramercy alumina plant). See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Financial Condition and Capital Spending." ITEM 3. LEGAL PROCEEDINGS Aberdeen Pesticide Dumps Site Matter The Aberdeen Pesticide Dumps Site, listed on the Superfund National Priorities List, is composed of five separate sites around the town of Aberdeen, North Carolina. These sites (collectively, the "Sites") include the Farm Chemicals Site, Twin Sites, Fairway Six Site, McIver Dump Site and the Route 211 Site. The Sites are of concern to the United States Environmental Protection Agency (the "EPA") because of their past use as either pesticide formulation facilities or pesticide disposal areas from approximately the mid 1930s through the late 1980s. The United States originally filed a cost recovery complaint (as amended, the "Complaint") in the United States District Court for the Middle District of North Carolina, Rockingham Division, No. C-89-23 1 -R, against five defendants on March 31, 1989, and subsequently amended its complaint to add another ten defendants on February 6, 1991, and another four defendants on August 1, 1991. Neither the Company nor KACC were defendants named in the Complaint. The Complaint seeks reimbursement for past and future response costs and a determination of liability of the defendants - 14 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 3. LEGAL PROCEEDINGS (continued) under Section 107 of CERCLA. On or about October 2, 1991, KACC, along with approximately 17 other parties, was served with third party complaints from four of the defendants named in the Complaint (the "Third Party Plaintiffs") alleging claims arising under various theories of contribution and indemnity. On October 22, 1992, the United States filed a motion for leave to file an amended complaint naming KACC as a first party defendant in its cost recovery action. On February 16, 1993, the court granted that motion. The EPA has performed a Remedial Investigation/Feasibility Study and issued a Record of Decision ("ROD") dated September 30, 1991, for the Sites. The major remedy selected for the five Sites in the ROD consisted of excavation of contaminated soil treatment of the contaminated soil at a single location utilizing thermal treatment and placement of the treated material back into the areas of excavation. The estimated cost of such remedy for the five Sites is approximately $32 million. Other possible remedies described in the ROD included on- site incineration and on-site ash disposal at an estimated cost of approximately $53 million, and off-site incineration and disposal at an estimated cost of approximately $222 million. The Company understands that the EPA is also investigating contamination of groundwater at the Sites. The EPA has stated that it has incurred past costs at the Sites in the range of $7.5 - $8 million as of February 9, 1993, and alleges that response costs will continue to be incurred in the future. On May 20, 1993, the EPA issued three unilateral Administrative Orders under Section 106(a) of CERCLA ordering the respondents, including KACC, to perform the remedial design and remedial action described in the ROD for the Farm Chemicals Site (EPA Docket No. 93-13-C), Twin Sites (EPA Docket No. 93-14-C) and Fairway Six Site (EPA Docket No. 93-15-C). The estimated cost as set forth in the ROD for the remedial action at the three Sites is approximately $27 million. In addition to KACC, respondents named in the Administrative Orders for all three Sites include J.M. Taylor, Grower Service Corporation, E.I. DuPont de Nemours & Co., Olin Corporation, UCI Holdings, Inc., PPG Industries, Inc., and Union Carbide Corporation. Ciba-Geigy Corporation, Hercules, Inc., Mobil Oil Corporation, Shell Oil Company, The Boots Company (USA), Inc., Nor-Am Chemical Co., George D. Anderson, Farm Chemicals, Inc., Partners In The Pits, Ltd., Dan F. Maples, Pits Management Corp., Maples Golf Construction, Inc., Yadco of Pinehurst, Inc. and Robert Trent Jones are named as respondents for one or two of the Sites. KACC has entered into an Agreement in Principle with certain of the respondents to participate jointly in responding to the Administrative Orders, to share costs incurred on an interim basis, and to seek to reach a final allocation of costs through agreement or to allow such final allocation and determination of liability to be made by the United States District Court. A definitive PRP Participation Agreement is currently awaiting execution by the group. By letter dated July 6, 1993, KACC has notified the EPA of its ongoing participation with such group of respondents which, as a group, are intending to comply with the Administrative Orders to the extent consistent with applicable law. By letters dated December 30, 1993, the EPA notified KACC of its potential liability for, and requested that KACC, along with certain other companies, undertake or agree to finance, groundwater remediation at certain of the Sites. With respect to the Farm Chemicals and Twin Sites, in addition to KACC, the EPA issued such letters to J.M. Taylor, Grower Services Corporation, Farm Chemicals, Inc., E.I. DuPont de Nemours and Company, Olin Corporation, UCI Holdings, Inc., Union Carbide Corporation, Miles, Inc., Mobil Oil Corporation, Shell Oil Company, Hercules, Inc., The Boots Company (USA), Inc., Nor-Am Chemical Company, and Ciba-Geigy Corporation. With respect to the Fairway Six Site, in addition to KACC, the EPA issued such letters to J.M. Taylor, G.D. Anderson, Grower Service Corporation, Partners in Pits, Dan Maples, Pits Management Corporation, Maples Golf Construction, Inc., Yadco of Pinehurst Inc., Robert Trent Jones, E.I. DuPont de Nemours and Company, Olin Corporation, UCI Holdings, Inc., Union Carbide Corporation, Miles, Inc., Ciba-Geigy Corporation, and Hercules, Inc. The ROD-selected remedy for the groundwater remediation selected by the EPA includes extraction, on site treatment by coagulation, flocculation, - 15 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 3. LEGAL PROCEEDINGS (continued) precipitation, air stripping, GAC absorption, and discharge on site for the Farm Chemicals/Twin Sites and extraction, on-site treatment by GAC absorption and discharge on-site for the Fairway Six Site. The EPA has estimated the total present worth cost, including 30 years of operation and maintenance, at $11,849,757. KACC, along with other notified parties, plans to meet with representatives of the EPA to discuss whether an agreement to perform this remediation is possible. Based upon the information presently available to it, the Company is unable to determine whether KACC has any liability with respect to any of the Sites or, if there is any liability, the amount thereof. Two government witnesses have testified that KACC acquired pesticide products from the operator of the formulation site over a two to three year period. KACC has been unable to confirm the accuracy of this testimony. United States of America v. Kaiser Aluminum & Chemical Corporation On February 8, 1989, a civil action was filed by the United States Department of Justice at the request of the EPA against KACC in the United States District Court for the Eastern District of Washington, Case No. C-89-106-CLQ. The complaint alleged that emissions from certain stacks at KACC's Trentwood facility in Spokane, Washington intermittently violated the opacity standard contained in the Washington State Implementation Plan ("SIP"), approved by the EPA under the federal Clean Air Act. The complaint sought injunctive relief, including an order that KACC take all necessary action to achieve compliance with the Washington SIP opacity limit and the assessment of civil penalties of not more than $25,000 per day. In the course of the litigation, questions arose as to whether the observers who recorded the alleged exceedances were qualified under the Washington SIP to read opacity. In July 1990, KACC and the Department of Justice agreed to a voluntary dismissal of the action. At that time, however, the EPA had arranged for increased surveillance of the Trentwood facility by consultants and the EPA's personnel. From May 1990 through May 1991, these observers recorded approximately 130 alleged exceedances of the SIP opacity rule. Justice Department representatives have stated their intent to file a second lawsuit against KACC based on the opacity observations recorded during that period. The second lawsuit has not yet been filed. Instead, KACC has entered into negotiations with the EPA to resolve the claims against KACC through a consent decree. Although the EPA and KACC have made substantial progress in negotiating the terms of the consent decree, key issues remain to be resolved. Anticipated elements of any settlement would include a commitment by KACC to improve the emission control equipment at the Trentwood facility and a civil penalty assessment against KACC, in an amount to be determined. At this time, the Company cannot predict the likelihood that the EPA and KACC will reach an agreement upon the terms of a consent decree. In the event that the negotiations are not successful the matter likely would be resolved in federal court. Catellus Development Corporation v. Kaiser Aluminum & Chemical Corporation and James L. Ferry & Son, Inc. On January 7, 1991, the City of Richmond, et al. (the "Plaintiffs") filed a Second Amended Complaint for Damages and Declaratory Relief against the United States of America, the United States Maritime Administration and Santa Fe Land Corporation (now known as Catellus Development Corporation ("Catellus")) (collectively, the "Defendants") alleging, among other things, that the Defendants caused or allowed hazardous substances, pollutants, contaminants, debris, and other solid wastes to be discharged, deposited, disposed of or released on certain property located in Richmond, California (the "Property") formerly owned by Catellus and leased to (i) KACC for the purpose of - 16 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 3. LEGAL PROCEEDINGS (continued) shipbuilding activities conducted by KACC on behalf of the United States during World War II, and (ii) subsequent tenants thereafter. Plaintiffs allege, among other things, that (i) the Defendants are jointly and severally liable for response costs and natural resources damages under CERCLA, (ii) Defendant United States of America is liable on grounds of negligence for damages under the Federal Tort Claims Act, and (iii) Defendant Catellus is strictly liable on grounds of negligence for such discharge, deposit, disposal or release. Certain of the Plaintiffs have alleged that they had incurred or expect to incur costs and damages in the amount of approximately $49 million, in the aggregate. On or about September 23, 1992, the Plaintiffs filed a Third Amended Complaint, alleging, among other things, that (i) the Defendants are jointly and severally liable for response costs, declaratory relief, and natural resources damages under CERCLA; (ii) Defendant United States of America is liable on grounds of negligence, continuing trespass, and continuing nuisance for damages under the Federal Tort Claims Act; (iii) Defendant Catellus is strictly liable on grounds of continuing nuisance, continuing trespass, and negligence for such discharge, deposit, disposal or release; (iv) Catellus is liable to indemnify Plaintiffs; and (v) Catellus is liable for fraudulent concealment of the alleged contamination. On February 20, 1991, Catellus filed a third party complaint (the "Third Party Complaint") against KACC and James L. Ferry & Son, Inc. ("Ferry") in the United States District Court for the Northern District of California, Case No. C-89-2935 DLJ. The Third Party Complaint was served on KACC as of April 12, 1991. The Third Party Complaint alleges that, if the allegations of the Plaintiffs are true, then KACC and Ferry (which is alleged to have performed certain excavation activities on the Property and, as a result thereof, to have released contaminants on the Property and to have arranged for the transportation, treatment, and disposal of such contaminants) are liable for Catellus' response costs and damages under CERCLA and damages under other theories of negligence and nuisance and, in the case of KACC, waste. Catellus seeks (i) contribution from KACC and Ferry, jointly and severally, for its costs and damages pursuant to CERCLA; (ii) indemnity from KACC and Ferry for any liability or judgment imposed upon it; (iii) indemnity from KACC and Ferry for reasonable attorneys fees and costs incurred by it; (iv) damages for the injury to its interest in the Property; and (v) treble damages from KACC pursuant to California Code of Civil Procedure Section 732. On June 4, 1991, Catellus served on KACC a first amended third party complaint which alleges, in addition to the allegations of the Third Party Complaint, that KACC and/or a predecessor in interest to KACC is also liable for Catellus' damages, if any, on the basis of alleged contractual indemnities contained in certain former leases of the Property. The Third Party Complaint was amended on or about October 26, 1992. The amended Third Party Complaint alleges that, if the allegations of the Plaintiffs are true, then KACC and Ferry are liable for (i) Catellus' response costs and natural resources damage under CERCLA; (ii) damages under theories of negligence, trespass and nuisance; (iii) indemnity (equitable and contractual); and (iv) attorneys fees under California Code of Civil Procedure Section 1021.6. By letter dated October 26, 1992, counsel for certain underwriters at Lloyd's London and certain London Market insurance companies ("London Insurers") advised that the London Insurers agreed to reimburse KACC for defense expenses in the third party action filed by Catellus, subject to a full reservation of rights. The Plaintiffs filed a motion for leave to file a Third Amended Complaint which would have added KACC as a first party defendant. This motion was denied. On October 26, 1992, the Plaintiffs served a separate Complaint against KACC for damages and declaratory relief. The claims asserted by the Plaintiffs are for (i) recovery of costs, natural resources damages, and declaratory relief under CERCLA; (ii) damages for injury to the Property arising from negligence, - 17 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 3. LEGAL PROCEEDINGS (continued) (iii) damages under a theory of strict liability; (iv) continuing nuisance and continuing trespass; (v) equitable indemnity; (vi) response costs incurred by the Richmond Redevelopment Agency under California Health & Safety Code Section 33459.4; and (vii) declaratory relief on the state claims. This matter has been tendered to the London Insurers. Picketville Road Landfill Matter On July 1, 1991, the EPA served on KACC and 13 other PRPs a Unilateral Administrative Order For Remedial Design and Remedial Action (the "Order") at the Picketville Road Landfill site in Jacksonville, Florida. The EPA seeks remedial design and remedial action pursuant to CERCLA from some, but apparently not all, PRPs based upon a Record of Decision outlining remedial cleanup measures to be undertaken at the site adopted by the EPA on September 28, 1990. The site was operated as a municipal and industrial waste landfill from 1968 to 1977 by the City of Jacksonville. KACC was first notified by the EPA on January 17, 1991, that wastes from one of KACC's plants may have been transported to and deposited in the site. In its Record of Decision, the EPA estimated that the total capital, operations, and maintenance costs of its elected remedy for the site would be approximately $9.9 million. In addition, the EPA has reserved the right to seek recovery of its costs incurred relating to the Order, including, but not limited to, reimbursement of the EPA's cost of response. Through negotiations with the EPA and other PRPs, KACC has reached an agreement with such PRPs under which KACC will fund $146,700 of the cost of the remedial action (unless remedial costs exceed $19 million in which event the settlement agreement will be re-opened). The implementation of the foregoing agreement is subject to continuing discussions among the EPA, the other PRPs, and KACC. Asbestos-related Litigation KACC is a defendant in a number of lawsuits in which the plaintiffs allege that certain of their injuries were caused by exposure to asbestos during, and as a result of, their employment with KACC or to products containing asbestos produced or sold by KACC. The lawsuits generally relate to products KACC has not manufactured for at least 15 years. The number of such lawsuits instituted against KACC increased substantially in 1993 and management believes the number of such lawsuits will continue to increase at a greater annualized rate than in prior years. For additional information see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Financial Condition and Capital Spending - Asbestos Contingencies." Various other lawsuits and claims are pending against KACC. Management believes that resolution of the lawsuits and claims made against KACC, including matters discussed above, will not have a material adverse effect on the Company's consolidated financial position or results of operations. 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 1993. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS From January 1, 1991, through July 17, 1991, there was no established public trading market for the Company's common stock, which was indirectly owned 100% by MAXXAM. On July 18, 1991, the Company issued 7,250,000 shares of common stock, and since that time the Company's common stock has been traded on the New York Stock Exchange. The number of record holders of the Company's common stock at March 21, 1994 was 117. The stock - 18 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (continued) symbol is KLU. Page 62 of the Annual Report, and the information in Note 9 of the Note to Consolidated Financial Statements under the heading "Dividends on Common Stock" at page 54 of the Annual Report, are incorporated herein by reference. The Company has paid a $.05 per share common stock dividend each quarter since its initial public offering of the stock in July 1991, through the fourth quarter of 1992. The Company does not expect to declare a common stock dividend until aluminum prices strengthen. The Indentures and the 1994 Credit Agreement (Exhibits 4.1 through 4.4 to this Report) contain restrictions on the ability of the Company to pay dividends on or make distributions on account of the Company's common stock and restrictions on the ability of the Company's subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. Exhibits 4.1 through 4.4 to this Report; Note 6 of the Notes to Consolidated Financial Statements at pages 39-42 of the Annual Report; and the information under the heading "Financial Condition and Capital Spending - Capital Structure" at pages 23-25 of the Annual Report, are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected financial data for the Company is incorporated herein by reference to the table at page 3 of this Report; to the table at page 20 of the Annual Report; in the discussion under the heading "Results of Operations" at page 21 of the Annual Report; to Note 1 of the Notes to Consolidated Financial Statements at pages 35-37 of the Annual Report; and to pages 60-61 of the Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Pages 20-30 of the Annual Report are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages 31-59 and page 62 of the Annual Report, Schedules II, V, VI, IX, and X to this Report, and the Report of Independent Public Accountants with respect to such Schedules, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Information required under Part III (Items 10, 11, 12, and 13) has been omitted from this Report since the Company intends to file with the Securities and Exchange Commission, not later than 120 days after the close of its fiscal year, a definitive proxy statement pursuant to Regulation 14A which involves the election of directors. - 19 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Index to Financial Statements and Schedules 1. Financial Statements -------------------- The Consolidated Financial Statements of the Company, the Notes to Consolidated Financial Statements, the Report of Independent Public Accountants, and Quarterly Financial Data are included on pages 31-59 and 62 of the Annual Report. 2. Financial Statement Schedule Page ----------------------------- ---- Report of Independent Public Accountants . . . . . . . . 21 Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties . . . . . . . . . . 22 Schedule V - Consolidated Property, Plant, and Equipment . . . . . . . . . . . . . . . 23 Schedule VI - Accumulated Depreciation, Depletion, and Amortization of Consolidated Property, Plant, and Equipment. . . . . 24 Schedule IX - Consolidated Short-Term Borrowings. . . 25 Schedule X - Supplementary Consolidated Income Statement Information . . . . . . . . . 26 All other 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 28), which index is incorporated herein by reference. (b) Reports on Form 8-K No Report on Form 8-K was filed by the Company during the last quarter of the period covered by this Report. (c) Exhibits Reference is made to the Index of Exhibits immediately preceding the exhibits hereto (beginning on page 28), which index is incorporated herein by reference. - 20 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited, in accordance with generally accepted auditing standards, the financial statements included in Kaiser Aluminum Corporation and subsidiaries annual report to shareholders incorporated by reference in this Form 10-K and have issued our report thereon dated February 24, 1994. Our report on the financial statements includes an explanatory paragraph with respect to the change in methods of accounting for postretirement benefits other than pensions, postemployment benefits, and income taxes in 1993 as discussed in Note 1 of the Notes to Consolidated Financial Statements. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index at Item 14(a)2. above are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Houston, Texas February 24, 1994 - 21 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE II - ----------------------------------------------------------------------
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES (In millions of dollars) Balance at Deductions End of Year Balance at ----------------------- ---------------- Beginning Amounts Amounts Not Name of Debtor of Year Additions Collected Written Off Current Current -------------- ----------- --------- --------- ----------- ------- ------- 1993 ---- None 1992 ---- J. A. Bonn (1) $.1 $.1 1991 ---- J. M. Seidl(2) $1.3 1.3 J. A. Bonn (1) .1 $ .1 (1) This note bears interest at 7.09% per annum and is due on the earlier of demand, the termination of Mr. Bonn's employment, or on June 30, 1994. The interest is payable quarterly. The note is secured by real estate owned by Mr. Bonn. The full amount of the note was paid in March 1992. (2) The note of $1.0, together with its accrued interest (at 8.9% per annum), was transferred to the Company by MAXXAM in September 1991 and was subsequently paid off in cash.
- 22 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE V - -----------------------------------------------------------------------------
CONSOLIDATED PROPERTY, PLANT, AND EQUIPMENT (In millions of dollars) Balance at Other Balance at Beginning Changes End of Description of Year Additions Retirements Add (Deduct) Year ----------- ---------- --------- ----------- ------------ -------- Year ended December 31, 1993: Land $ 84.8 $ 1.8 $ 5.1 $ 91.7 Land improvements 39.0 1.0 3.4 43.4 Buildings 155.0 5.9 $ (.7) 24.2 184.4 Machinery and equipment 1,010.7 63.4 (15.7) 164.6 1,223.0 Leasehold improvements 9.1 .7 (.3) .9 10.4 Construction in progress 70.3 (5.1) (.3) 64.9 -------- -------- -------- -------- -------- Total $1,368.9 $ 67.7 $ (17.0) $ 198.2(1) $1,617.8 ======== ======== ======== ======== ======== Year ended December 31, 1992: Land $ 49.5 $ 11.0 $ 24.3 $ 84.8 Land improvements 33.7 5.5 (.2) 39.0 Buildings 135.3 16.6 $(.2) 3.3 155.0 Machinery and equipment 925.7 94.6 (4.8) (4.8) 1,010.7 Leasehold improvements 5.8 3.3 9.1 Construction in progress 87.5 (16.6) (.1) (.5) 70.3 -------- -------- -------- -------- -------- Total $1,237.5 $ 114.4 $ (5.1) $ 22.1(2) $1,368.9 ======== ======== ======== ======== ======== Year ended December 31, 1991: Land $ 43.3 $ 1.4 $ (.2) $ 5.0 $ 49.5 Land improvements 27.7 1.8 4.2 33.7 Buildings 123.5 5.9 (.7) 6.6 135.3 Machinery and equipment 866.7 71.6 (6.0) (6.6) 925.7 Leasehold improvements 5.0 .7 .1 5.8 Construction in progress 52.4 36.7 (.1) (1.5) 87.5 -------- -------- -------- -------- -------- Total $1,118.6 $ 118.1 $ (7.0) $ 7.8 $1,237.5 ======== ======== ======== ======== ======== (1) Consists principally of the initial impact of adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," as of January 1, 1993, which required the Company to restate certain assets to their pre-tax amounts from their net-of-tax amounts originally recorded in connection with the acquisition by MAXXAM in October 1988. (2) Consists principally of reclassifications from other current and long-term assets to property, plant, and equipment.
- 23 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE VI - -----------------------------------------------------------------------------
ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF CONSOLIDATED PROPERTY, PLANT, AND EQUIPMENT (In millions of dollars) Balance at Other Balance at Beginning Changes End of Description of Year Additions Retirements Add (Deduct) Year ----------- ---------- --------- ----------- ----------- ------- Year ended December 31, 1993: Depletable land $ 1.5 $ .6 $ 1.4 $ 3.5 Land improvements 6.3 2.1 1.4 9.8 Buildings 30.7 8.4 $ (.1) 7.2 46.2 Machinery and equipment 261.2 85.4 (5.1) 49.9 391.4 Leasehold improvements 2.4 .6 (.1) .3 3.2 ------ ------ ------ ------ ------ Total $302.1 $ 97.1 $ (5.3) $ 60.2(1) $454.1 ====== ====== ====== ====== ====== Year ended December 31, 1992: Depletable land $ 1.2 $ .3 $ 1.5 Land improvements 4.8 1.6 $ (.1) 6.3 Buildings 21.9 7.3 $ (.1) 1.6 30.7 Machinery and equipment 193.2 70.5 (1.1) (1.4) 261.2 Leasehold improvements 1.9 .6 (.1) 2.4 ------ ------ ------ ------ ------ Total $223.0 $ 80.3 $ (1.2) nil $302.1 ====== ====== ====== ====== ====== Year ended December 31, 1991: Depletable land $ .7 $ .5 $ 1.2 Land improvements 3.5 1.1 $ .2 4.8 Buildings 14.6 6.5 $ (.1) .9 21.9 Machinery and equipment 128.3 64.5 (1.6) 2.0 193.2 Leasehold improvements 1.2 .6 .1 1.9 ------ ------ ------ ------ ------ Total $148.3 $ 73.2 $ (1.7) $ 3.2 $223.0 ====== ====== ====== ====== ====== (1) Consists principally of the initial impact of adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," as of January 1, 1993, which required the Company to restate certain assets to their pre-tax amounts from their net-of-tax amounts originally recorded in connection with the acquisition by MAXXAM in October 1988.
- 24 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE IX - ----------------------------------------------------------------------------
CONSOLIDATED SHORT-TERM BORROWINGS (In millions of dollars) Maximum Average Weighted Weighted Amounts Amount Average Category of Balance Average Outstanding Outstanding Interest Rate Aggregate Short- at End of Interest During During the During the Terms Borrowings Year Rate the Year Year(1) Year(2) ---------------- --------- -------- ----------- ----------- ------------- Bank borrowings(3) 1993 $ .5 8.0% $ 18.5 $ 6.2 4.5% 1992 4.8 4.8 52.8 29.6 4.7 1991 6.3 4.9 50.6 29.2 7.0 (1) Based on outstanding borrowings at the end of each month. (2) Based on outstanding borrowings and weighted average interest rates at the end of each month. (3) Short-term bank borrowings are made available on an uncommitted basis and no fee is charged. Maturities generally range from one to ten days with no formal provisions for the extension of maturities. Interest rates are based upon short-term prevailing rates.
- 25 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE X ----------------------------------------------------------------------
SUPPLEMENTARY CONSOLIDATED INCOME STATEMENT INFORMATION(1) (In millions of dollars) Charged to Costs and Expenses Year End December 31, ----------------------------- 1993 1992 1991 ---- ---- ---- Maintenance and repairs $168.9 $147.0 $161.4 ====== ====== ====== Taxes, other than payroll and income taxes - production levy on bauxite $ 27.9 $ 31.5 $ 34.0 ====== ====== ====== (1) The amounts for amortization of intangible assets and preoperating costs and similar deferrals, royalties, and advertising costs are not reported as these items did not exceed 1% of sales and revenues.
- 26 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES - ---------------------------------------------------------------------- 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 CORPORATION Date: March 30, 1994 By George T. Haymaker, Jr. ---------------------------- George T. Haymaker, Jr. Chairman of the Board 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 30, 1994 George T. Haymaker, Jr. --------------------------------- George T. Haymaker, Jr. Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: March 30, 1994 John T. La Duc --------------------------------- John T. La Duc Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 30, 1994 Charlie Alongi --------------------------------- Charlie Alongi Controller (Principal Accounting Officer) Date: March 30, 1994 Robert J. Cruikshank --------------------------------- Robert J. Cruikshank Director Date: March 30, 1994 Charles E. Hurwitz --------------------------------- Charles E. Hurwitz Director Date: March 30, 1994 Ezra G. Levin --------------------------------- Ezra G. Levin Director Date: March 30, 1994 Robert Marcus --------------------------------- Robert Marcus Director Date: March 30, 1994 Paul D. Rusen --------------------------------- Paul D. Rusen Director - 27 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES - ---------------------------------------------------------------------- INDEX OF EXHIBITS Exhibit Number Description - ------ ----------- 3.1 Restated Certificate of Incorporation of Kaiser Aluminum Corporation (The "Company" or "KAC"), dated February 21, 1991 (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registration Statement on Form S-1, dated June 11, 1991 filed by KAC, Registration No. 33-37895). 3.2 By-laws of KAC, amended as of February 26, 1991 (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to the Registration Statement on Form S-1, dated June 11, 1991, filed by KAC, Registration No. 33-37895). 4.1 Indenture, dated as of February 1, 1993, among Kaiser Aluminum & Chemical Corporation ("KACC"), as Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., and Kaiser Jamaica Corporation, as Subsidiary Guarantors, and The First National Bank of Boston, as Trustee, regarding KACC's 12-3/4% Senior Subordinated Notes Due 2003 (incorporated by reference to Exhibit 4.1 to 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 (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 Indenture, dated as of February 17, 1994, among KACC, as Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, and Kaiser Finance Corporation, as Subsidiary Guarantors, and First Trust National Association as Trustee, regarding KACC's 9-7/8% Senior Notes Due 2002. *4.4 Credit Agreement, dated as of February 17, 1994, among KAC, KACC, the financial institutions a party thereto, BankAmerica Business Credit, Inc., as Agent, and certain financial institutions. 4.5 Credit Agreement, dated as of December 13, 1989 (the "1989 Credit Agreement"), among KACC, KAC, the financial institutions a party thereto, Bank of America National Trust and Savings Association, as Agent, and Mellon Bank, N.A., as Collateral Agent (incorporated by reference to Exhibit 4.3 to Amendment No. 5 to the Registration Statement on Form S-1, dated December 13, 1989, filed by KACC Registration No. 33-30645). 4.6 First Amendment to the 1989 Credit Agreement, dated as of April 17, 1990 (incorporated by reference to Exhibit 4.2 of the Report on Form 10-Q for the quarterly period ended September 30, 1990, of MAXXAM, Inc. ("MAXXAM") filed November 6, 1990, File No. 1-3924). 4.7 Second Amendment to the 1989 Credit Agreement, dated as of September 17, 1990 (incorporated by reference to Exhibit 4.3 of the Report on Form 10-Q for the quarterly period ended September 30, 1990, of MAXXAM, filed November 6, 1990, File No. 1-3924). 4.8 Third Amendment to the 1989 Credit Agreement, dated as of December 7, 1990 (incorporated by reference to Exhibit 4.6 to Amendment No. 1 to the Registration Statement on Form S-1, dated February 13, 1991, filed by KAC, Registration No. 33-37895). - 28- KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES ---------------------------------------------------------------------- Exhibit Number Description ------- ----------- 4.9 Fourth Amendment to the 1989 Credit Agreement, dated as of April 19, 1991 (incorporated by reference to Exhibit 4.1 of the Report on Form 10-Q for the quarterly period ended March 31, 1991, filed by KACC, File No. 1-3605). 4.10 Fifth Amendment to the 1989 Credit Agreement, dated as of March 13, 1992 (incorporated by reference to Exhibit 4.8 to Form 10-K for the period ended December 31, 1991, filed by KAC, File No. 1-9447). 4.11 Seventh Amendment to the 1989 Credit Agreement, dated as of November 6, 1992 (incorporated by reference to Exhibit 4.10 to Amendment No. 5 to the Registration Statement on Form S-2, dated January 22, 1993, filed by KACC, Registration No. 33-48260). 4.12 Eighth Amendment to the 1989 Credit Agreement, dated as of January 7, 1993 (incorporated by reference to Exhibit 4.12 to Amendment No. 5 to the Registration Statement on Form S-2, dated January 22, 1993, filed by KACC, Registration No. 33-48260). 4.13 Ninth Amendment to 1989 Credit Agreement, dated as of May 19, 1993 including the form of Intercompany Note annexed as an Exhibit thereto (incorporated by reference to Exhibit 4.10 to Amendment No. 2 to the Registration Statement on form S-1, dated June 22, 1993, filed by KACC, Registration No. 33-49555). 4.14 Tenth Amendment to 1989 Credit Agreement, dated as of July 23,1993 (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-3, dated August 26, 1993, filed by KACC, Registration No. 33-50097). 4.15 Eleventh Amendment to 1989 Credit Agreement, dated as of August 27, 1993 (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-3, dated October 13, 1993, filed by KAC, Registration No. 33-50581). 4.16 Twelfth Amendment to 1989 Credit Agreement, dated as of December 20, 1993 (incorporated by reference to Exhibit 4.15 to Amendment No. 3 to the Registration Statement on Form S-2, dated February 8, 1994, filed by KACC, Registration No. 33-50097). 4.17 Certificate of Designation of Series A Mandatory Conversion Premium Dividend Preferred Stock of KAC, dated June 28, 1993 (incorporated by reference to Exhibit 4.3 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KAC, File No. 1-9447). 4.18 Deposit Agreement between KAC and The First National Bank of Boston, dated as of June 30, 1993 (incorporated by reference to Exhibit 4.4 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KAC, File No. 1-9447). 4.19 Intercompany Note between KAC and KACC (incorporated by reference to Exhibit 4.2 to Amendment No. 5 to the Registration Statement on Form S-1, dated December 13, 1989, filed by KACC, Registration No. 33-30645). - 29 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES - ---------------------------------------------------------------------- Exhibit Number Description ------- ----------- 4.20 Senior Subordinated Intercompany Note between KACC and MAXXAM, dated January 14, 1993 (incorporated by reference to Exhibit 4.13 to Amendment No. 5 to the Registration Statement on Form S-2, dated January 22, 1993, filed by KACC, Registration No. 33-48260). *4.21 Certificate of Designation of KAC's 8.255% Preferred Redeemable Increased Dividend Equity Securities, dated February 17, 1994. *4.22 Senior Subordinated Intercompany Note between KAC and KACC dated February 15, 1994. *4.23 Senior Subordinated Intercompany Note between KAC and KACC dated March 17, 1994. *4.24 Senior Subordinated Intercompany Note between KAC and KACC dated June 30, 1993. 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 between MAXXAM and KACC (incorporated by reference to Exhibit 10.21 to Amendment No. 6 to the Registration Statement on Form S-1, dated December 14, 1989, filed by KACC, Registration No. 33-30645). 10.3 Tax Allocation Agreement between KAC and MAXXAM (incorporated by reference to Exhibit 10.23 to Amendment No. 2 to the Registration Statement on Form S-1, dated June 11, 1991, filed by KAC, Registration No. 33-37895). 10.4 Tax Allocation Agreement, dated as of June 30, 1993, between KACC and KAC (incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). 10.5 Amended and Restated Alumina Supply Agreement, dated as of October 11, 1989 (incorporated by reference to Exhibit 10.19 to Amendment No. 3 to the Registration Statement on Form S-1, dated November 14, 1989, filed by KACC, Registration No. 33-30645). 10.6 Assumption Agreement, dated as of October 28, 1988 (incorporated by reference to Exhibit HHH to the Final Amendment to the Schedule 13D of MAXXAM Group Inc. and others in respect of the Common Stock of KAC, par value $.33-1/3 per share). 10.7 Agreement, dated as of June 30, 1993, between KAC and MAXXAM (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). - 30 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES - ---------------------------------------------------------------------- Exhibit Number Description ------- ----------- Executive Compensation Plans and Arrangements ---------------------------------------------- 10.8 KACC's Bonus Plan (incorporated by reference to Exhibit 10.25 to Amendment No. 6 to the Registration Statement on Form S-1, dated December 14, 1989, filed by KACC, Registration No. 33-30645). 10.9 KaiserTech Limited Long Term Incentive Plan, dated June 2, 1989 (incorporated by reference to Exhibit 10.14 to Form 10-K for the period ended December 31, 1989, filed by KACC, File No. 1-3605). 10.10 Amendment No. 2 to KaiserTech Limited Long Term Incentive Plan, dated as of December 18, 1991 (incorporated by reference to Exhibit 10.7 to Form 10-K for the period ended December 31, 1991, filed by KAC, File No. 1-9447). 10.11 Amendment No. 3 to Kaiser Aluminum Long Term Incentive Plan, dated as of December 31, 1991 (incorporated by reference to Exhibit 10.8 to Form 10-K for the period ended December 31, 1991, filed by KAC, File No. 1-9447). 10.12 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). 10.13 Kaiser Aluminum Middle Management Long-Term Incentive Plan, dated June 25, 1990, as amended (incorporated by reference to Exhibit 10.22 to Amendment No. 1 to the Registration Statement on Form S-1, dated February 13, 1991, filed by KAC, Registration No. 33-37895). 10.14 Employment Agreement, dated April 1, 1993, among KAC, KACC, and George T. Haymaker, Jr. (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarterly period ended March 31, 1993, filed by KAC, File No. 1-9447). 10.15 Employment Agreement, dated as of October 1, 1992, among KAC, KACC and A. Stephens Hutchcraft, Jr. (incorporated by reference to Exhibit 10.15 to Amendment No. 5 to the Registration Statement on Form S-2, dated January 22, 1993, filed by KACC, Registration No. 33-48260). 10.16 Severance Agreement, dated July 1, 1985, between KACC and A. Stephens Hutchcraft, Jr., as amended (incorporated by reference to Exhibit (10)(f) to Form 10-K for the period ended December 31, 1988, filed by KACC, File No. 1-3605). 10.17 Amendment, dated October 31, 1989, to the Severance Agreement of A. Stephens Hutchcraft, Jr. referenced in Exhibit 10.16 above (incorporated by reference to Exhibit 10.24 to Amendment No. 5 to the Registration Statement on Form S-1, dated December 13, 1989, filed by KACC, Registration No. 33-30645). 10.18 Consulting Agreement, dated November 19, 1993 between KACC and A. Stephens Hutchcraft, Jr. (incorporated by reference to MAXXAM's Annual Report on Form 10-K for the period ended December 31, 1993, File No. 1-3924; the "MAXXAM 1993 Form 10-K"). - 31 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES - ---------------------------------------------------------------------- Exhibit Number Description ------- ----------- 10.19 Employment Agreement, dated September 26, 1990, between KACC, MAXXAM and John T. La Duc (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Registration Statement on Form S-1, dated February 13, 1991, filed by KAC, Registration No. 33-37895). 10.20 Employment Agreement, dated as of August 22, 1990, among KACC, MAXXAM and Robert W. Irelan (incorporated by reference to Exhibit 10.2 of the Report on Form 10-Q for the quarterly period ended March 31, 1991, filed by KACC, File No. 1-3605). 10.21 Promissory Note, dated October 4, 1990, by Robert W. Irelan and Barbara M. Irelan to KACC (incorporated by reference to Exhibit 10.54 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924). 10.22 Real Estate Lien Note, dated October 4, 1990, by Robert W. Irelan and Barbara M. Irelan to KACC and related Deed of Trust (incorporated by reference to Exhibit 10.55 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924). 10.23 Employment Agreement, dated as of March 8, 1990, between MAXXAM and Anthony R. Pierno (incorporated by reference to Exhibit 10.28 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924). 10.24 Promissory Note, dated February 1, 1989, by Anthony R. Pierno and Beverly J. Pierno to MAXXAM (incorporated by reference to Exhibit 10.30 to Form 10-K for the period ended December 31, 1988, filed by MAXXAM, File No. 1-3924). 10.25 Promissory Note, dated July 19, 1990, by Anthony R. Pierno to MAXXAM (incorporated by reference to Exhibit 10.31 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924). 10.26 Commercial Guaranty, dated February 22, 1993, executed by MAXXAM in favor of Charter National Bank-Houston, with respect to a loan from Charter National Bank-Houston to Anthony R. Pierno (incorporated herein by reference to Exhibit 10.27 to Form 10-K for the period ended December 31, 1992, filed by KAC,File No. 1-9447). 10.27 Commercial Guaranty, dated January 24, 1994, between MAXXAM and Charter National Bank-Houston, in respect of a loan from Charter National Bank-Houston to Anthony R. Pierno and a related letter agreement (incorporated by reference to the MAXXAM 1993 Form 10-K). 10.28 Employment Agreement, dated as of March 8, 1990, between MAXXAM and Byron L. Wade (incorporated by reference to Exhibit 10.50 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924). 10.29 Promissory Note, dated July 20, 1993, between MAXXAM and Byron L. Wade (incorporated by reference to the MAXXAM 1993 Form 10-K). - 32 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES - ---------------------------------------------------------------------- Exhibit Number Description ------ ----------- 10.30 Employment Agreement, dated as of July 1, 1991, by and among MAXXAM,KACC and Joseph A. Bonn (incorporated by reference to Exhibit 10.23 to Form 10-K for the period ended December 31, 1991, filed by KACC, File No. 1-3605). 10.31 Agreement, dated December 20, 1991, between KAC and Joseph A. Bonn (incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q for the quarterly period ended March 31, 1992, filed by KAC, File No. 1-9447). 10.32 Employment Agreement, dated August 20, 1993, between KACC and Robert E. Cole (incorporated by reference to the MAXXAM 1993 Form 10-K). *13 Pages 20-30 and 32-62 of KAC's Annual Report to shareholders for the year ended December 31, 1993 which are incorporated by reference into this Report. *21 Significant subsidiaries of KAC. *99 Report of Independent Public Accountants. ---------- *Filed herewith - 33 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES - ---------------------------------------------------------------------- SUBSIDIARIES Listed below are the principal subsidiaries of Kaiser Aluminum Corporation and the jurisdiction of their incorporation or organization. Certain subsidiaries are omitted which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
Place of Name or Organization Incorporation -------------------- ------------- Alpart Jamaica Inc. . . . . . . . . . . . . . . . Delaware Alumina Partners of Jamaica (partnership) . . . . . Delaware Anglesey Aluminium Limited . . . . . . . . . . . . United Kingdom Kaiser Alumina Australia Corporation . . . . . . . Delaware Kaiser Aluminium Europe (U.K.) Limited . . . . . . United Kingdom Kaiser Aluminium International, Inc. . . . . . . . Delaware Kaiser Aluminum & Chemical Corporation . . . . . . Delaware Kaiser Aluminum & Chemical International N.V. . . . Netherlands Antilles Kaiser Aluminum & Chemical of Canada Limited. . . . Ontario Kaiser Aluminum Technical Services, Inc . . . . . . California Kaiser Bauxite Company . . . . . . . . . . . . . . Nevada Kaiser Center, Inc. . . . . . . . . . . . . . . . . California Kaiser Center Properties (partnership) . . . . . . California Kaiser Finance Corporation . . . . . . . . . . . . Delaware Kaiser Jamaica Bauxite Company (partnership). . . . Jamaica Kaiser Jamaica Corporation . . . . . . . . . . . . Delaware Queensland Alumina Limited. . . . . . . . . . . . . Queensland Strombus International Insurance Company, Ltd . . . Bermuda Trochus Insurance Company, Ltd. . . . . . . . . . . Bermuda Volta Aluminium Company Limited. . . . . . . . . . Ghana
- 34 - PAGE> KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES - ---------------------------------------------------------------------- PRODUCTION AND RESEARCH FACILITIES (100% owned unless otherwise noted) Alumina and Bauxite Fabricated Products Gramercy, Louisiana Flat Rolled Products -------------------- Alumina Partners of Jamaica, Trentwood, Washington (Alpart), Jamaica (65%) Kaiser Jamaica Bauxite Company (KJBC), Jamaica (49%) Extruded Products, including Rod and Bar ---------------------------- Queensland Alumina Limited (QAL), Jackson, Tennessee Australia (28.3%) Los Angeles, California Alumina Development Laboratory, Santa Fe Springs, California Gramercy, Louisiana Newark, Ohio Sherman, Texas Tulsa, Oklahoma Kaiser Aluminum & Chemical of Canada Limited, Primary Products London, Ontario, Canada Mead, Washington Forgings Tacoma, Washington -------- Anglesey Aluminium Limited, Alliance, Ohio Wales (49%) Canton, Ohio Volta Aluminium Company Limited (Valco), Erie, Pennsylvania Ghana (90%) Greenwood, South Carolina, Division Technology Center, Forge Mead, Washington Greenwood, South Carolina, Machine Shop Center for Technology Oxnard, California Pleasanton, California - 35 - EX-4 2 EXHIBIT 4.3 TO KAISER ALUMINUM 1993 FORM 10-K 1 EXECUTION COPY ========================================================== KAISER ALUMINUM & CHEMICAL CORPORATION, as Issuer, KAISER ALUMINA AUSTRALIA CORPORATION, ALPART JAMAICA INC., KAISER FINANCE CORPORATION and KAISER JAMAICA CORPORATION, as Subsidiary Guarantors, AND FIRST TRUST NATIONAL ASSOCIATION as Trustee ---------------------------------------------------------------------- INDENTURE Dated as of February 17, 1994 ---------------------------------------------------------------------- $225,000,000 9 % Senior Notes due 2002 ========================================================== 2 RECONCILIATION AND TIE SHEET* between PROVISIONS OF THE TRUST INDENTURE ACT OF 1939 and INDENTURE DATED AS OF FEBRUARY 17, 1994 between KAISER ALUMINUM & CHEMICAL CORPORATION KAISER ALUMINA AUSTRALIA CORPORATION, ALPART JAMAICA INC., KAISER FINANCE CORPORATION and KAISER JAMAICA CORPORATION and FIRST TRUST NATIONAL ASSOCIATION, TRUSTEE Sections Sections of of Act Indenture - -------- ------- 310(a)(1). . . . . . . . . . . . . . . . . . 7.09 310(a)(2). . . . . . . . . . . . . . . . . . 7.09 310(a)(3). . . . . . . . . . . . . . . . . . Inapplicable 310(a)(4). . . . . . . . . . . . . . . . . . Inapplicable 310(a)(5). . . . . . . . . . . . . . . . . . 7.09 310(b) . . . . . . . . . . . . . . . . . . . 7.08, 7.10 310(c) . . . . . . . . . . . . . . . . . . . Inapplicable 311(a) . . . . . . . . . . . . . . . . . . . 7.13(a), 7.13(c) 311(b) . . . . . . . . . . . . . . . . . . . 7.13(b), 7.13(c) 311(c) . . . . . . . . . . . . . . . . . . . Inapplicable 312(a) . . . . . . . . . . . . . . . . . . . 5.01, 5.02(a) 312(b) . . . . . . . . . . . . . . . . . . . 5.02(b) 312(c) . . . . . . . . . . . . . . . . . . . 5.02(c) 313(a) . . . . . . . . . . . . . . . . . . . 5.04(a) 313(b)(1). . . . . . . . . . . . . . . . . . Inapplicable 313(b)(2). . . . . . . . . . . . . . . . . . 5.04(b) 313(c) . . . . . . . . . . . . . . . . . . . 5.04(c) 313(d) . . . . . . . . . . . . . . . . . . . 5.04(d) 314(a)(1). . . . . . . . . . . . . . . . . . 5.03(a) 314(a)(2). . . . . . . . . . . . . . . . . . 5.03(b) 314(a)(3). . . . . . . . . . . . . . . . . . 5.03(c) 314(a)(4). . . . . . . . . . . . . . . . . . 5.03(d) 314(b) . . . . . . . . . . . . . . . . . . . Inapplicable 314(c)(1). . . . . . . . . . . . . . . . . . 14.05 i 3 314(c)(2). . . . . . . . . . . . . . . . . . 14.05 314(c)(3). . . . . . . . . . . . . . . . . . Inapplicable 314(d) . . . . . . . . . . . . . . . . . . . Inapplicable 314(e) . . . . . . . . . . . . . . . . . . . 14.05 314(f) . . . . . . . . . . . . . . . . . . . Omitted 315(a) . . . . . . . . . . . . . . . . . . . 7.01 315(b) . . . . . . . . . . . . . . . . . . . 6.07 315(c) . . . . . . . . . . . . . . . . . . . 7.01 315(d) . . . . . . . . . . . . . . . . . . . 7.01 315(e) . . . . . . . . . . . . . . . . . . . 6.08 316(a)(1). . . . . . . . . . . . . . . . . . 6.06, 8.04 316(a)(2). . . . . . . . . . . . . . . . . . Omitted 316(b) . . . . . . . . . . . . . . . . . . . 6.04 316(c) . . . . . . . . . . . . . . . . . . . 8.05 317(a) . . . . . . . . . . . . . . . . . . . 6.02 317(b) . . . . . . . . . . . . . . . . . . . 4.04(a) 318(a) . . . . . . . . . . . . . . . . . . . 14.07 318(c) . . . . . . . . . . . . . . . . . . . 14.07 _________________________ *This Reconciliation and Tie Sheet is not a part of the Indenture. ii 4 TABLE OF CONTENTS
Page ARTICLE ONE DEFINITIONS SECTION 1.01. Certain terms defined . . . . . . . . . . . . . . . 9 SECTION 1.02. References are to Indenture . . . . . . . . . . . . .29 SECTION 1.03. Other definitions . . . . . . . . . . . . . . . . . .29 ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES SECTION 2.01. Designation, amount, authentication and delivery of Notes . . . . . . . . . . . . . . . . . 31 SECTION 2.02. Form of Notes and Trustee's certificate . . . . . . . 31 SECTION 2.03. Date of Notes and denominations . . . . . . . . . . . 31 SECTION 2.04. Execution of Notes. . . . . . . . . . . . . . . . . . 32 SECTION 2.05. Exchange and transfer of Notes. . . . . . . . . . . . 32 SECTION 2.06. Temporary Notes . . . . . . . . . . . . . . . . . . . 33 SECTION 2.07. Mutilated, destroyed, lost or stolen Notes. . . . . . 33 SECTION 2.08. Cancellation of surrendered Notes . . . . . . . . . . 34 ARTICLE THREE REDEMPTION AND PURCHASES OF NOTES SECTION 3.01. Redemption prices . . . . . . . . . . . . . . . . . . 34 SECTION 3.02. Notice of redemption; selection of Notes. . . . . . . 34 SECTION 3.03. When Notes called for redemption become due and payable . . . . . . . . . . . . . . . . . . 35 SECTION 3.04. Cancellation of redeemed Notes. . . . . . . . . . . . 36 SECTION 3.05. Purchase of Notes at option of the holder upon Change of Control. . . . . . . . . . . . . . . 36 SECTION 3.06. Effect of Change of Control Purchase Notice . . . . . 38 SECTION 3.07. Deposit of Change of Control Purchase Price . . . . . 39 SECTION 3.08. Covenant to comply with securities laws upon purchase of Notes . . . . . . . . . . . . . . . . . 39 SECTION 3.09. Repayment to the Company. . . . . . . . . . . . . . . 39 ARTICLE FOUR PARTICULAR COVENANTS OF THE COMPANY SECTION 4.01. Payments on the Notes . . . . . . . . . . . . . . . . 39 SECTION 4.02. Maintenance of office or agency for registration of transfer, exchange and payment of Notes. . . . . . 39 SECTION 4.03. Appointment to fill a vacancy in the office of Trustee . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 4.04. Provision as to paying agent. . . . . . . . . . . . . 40 SECTION 4.05. Maintenance of corporate existence. . . . . . . . . . 41 SECTION 4.06. Officers' Certificate as to default and statement as to compliance. . . . . . . . . . . . . . . . . . 41 SECTION 4.07. Usury laws. . . . . . . . . . . . . . . . . . . . . . 42 SECTION 4.08. Restrictions on transactions with Affiliates. . . . . 42 iii 5 SECTION 4.09. Limitations on Restricted Payments and Restricted Investments . . . . . . . . . . . . . . 43 SECTION 4.10. Limitation on Indebtedness and Preferred Stock. . . . 47 SECTION 4.11. Limitation on Liens . . . . . . . . . . . . . . . . . 50 SECTION 4.12. Subsidiary guarantees, etc. . . . . . . . . . . . . . 52 SECTION 4.13. Limitation on dividends and other payment restrictions affecting Subsidiaries . . . . . . . . 54 SECTION 4.14. Limitation on Asset Sales . . . . . . . . . . . . . . 54 ARTICLE FIVE NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE SECTION 5.01. Company to furnish Trustee information as to names and addresses of noteholders . . . . . . . . . . . 57 SECTION 5.02. Preservation and disclosure of lists.. . . . . . . . 57 SECTION 5.03. Reports by the Company. . . . . . . . . . . . . . . .58 SECTION 5.04. Reports by the Trustee. . . . . . . . . . . . . . . .59 ARTICLE SIX REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON EVENT OF DEFAULT SECTION 6.01. Events of Default defined . . . . . . . . . . . . . .60 SECTION 6.02. Payment of Notes on default; suit therefor. . . . . .62 SECTION 6.03. Application of moneys collected by Trustee. . . . . .63 SECTION 6.04. Limitation on suits by holders of Notes . . . . . . .63 SECTION 6.05. Proceedings by Trustee; remedies cumulative and continuing; delay or omission not waiver of default. . . . . . . . . . . . . . . . . . . . .64 SECTION 6.06. Rights of holders of majority in principal amount of Notes to direct Trustee and to waive defaults . . .64 SECTION 6.07. Trustee to give notice of defaults known to it, but may withhold in certain circumstances. . . . . . . 65 SECTION 6.08. Requirement of an undertaking to pay certain suits under the Indenture or against the Trustee. . . . . . . . . . . . . . . . . . . . 65 SECTION 6.09. Waiver of stay or extension laws. . . . . . . . . . .65 ARTICLE SEVEN CONCERNING THE TRUSTEE SECTION 7.01. Duties and responsibilities of Trustee. . . . . . . .66 SECTION 7.02. Reliance on documents, opinions, etc. . . . . . . . .67 SECTION 7.03. No responsibility for recitals, etc . . . . . . . . .67 SECTION 7.04. Trustee, paying agent or Note registrar may own Notes . . . . . . . . . . . . . . . . . . . . .68 SECTION 7.05. Moneys received by Trustee to be held in trust without interest. . . . . . . . . . . . . . . . . .68 SECTION 7.06. Compensation and expenses of Trustee. . . . . . . . .68 SECTION 7.07. Right of Trustee to rely on Officers' Certificate where no other evidence specifically prescribed. . 68 SECTION 7.08. Conflicting interest of Trustee . . . . . . . . . .. 69 iv 6 SECTION 7.09. Requirements for eligibility of Trustee . . . . . . .73 SECTION 7.10. Resignation or removal of Trustee . . . . . . . . . .73 SECTION 7.11. Acceptance by successor to Trustee; notice of succession of a Trustee. . . . . . . . . . . . . . 74 SECTION 7.12. Successor to Trustee by merger, consolidation or succession to business; notice by Trustee of change in its location . . . . . . . . . . . . . . 75 SECTION 7.13. Limitations on rights of Trustee as a creditor. . . .75 ARTICLE EIGHT CONCERNING THE NOTEHOLDERS SECTION 8.01. Evidence of action by noteholders . . . . . . . . . .78 SECTION 8.02. Proof of execution of instruments and of holding of Notes. . . . . . . . . . . . . . . . . .79 SECTION 8.03. Who may be deemed owners of Notes . . . . . . . . . .79 SECTION 8.04. Notes owned by Company or controlled by controlling persons disregarded for certain purposes. . . . . .79 SECTION 8.05. Record date for action by noteholders . . . . . . . .79 SECTION 8.06. Instruments executed by noteholders bind future holders. . . . . . . . . . . . . . . . . . .80 ARTICLE NINE NOTEHOLDERS' MEETINGS SECTION 9.01. Purposes for which meetings may be called . . . . . .80 SECTION 9.02. Manner of calling meetings; record date . . . . . . .81 SECTION 9.03. Call of meeting by Company or noteholders . . . . . .81 SECTION 9.04. Who may attend and vote at meetings . . . . . . . . .81 SECTION 9.05. Regulations . . . . . . . . . . . . . . . . . . . . .81 SECTION 9.06. Manner of voting at meetings and record to be kept. .82 SECTION 9.07. Exercise of rights of Trustee and noteholders not to be hindered or delayed. . . . . . . . . . . . . . .82 ARTICLE TEN SUPPLEMENTAL INDENTURES SECTION 10.01. Purposes for which supplemental indentures may be entered into without consent of noteholders. . .83 SECTION 10.02. Modification of Indenture with consent of holders of a majority in principal amount of Notes. . . . . ..83 SECTION 10.03. Effect of supplemental indentures . . . . . . . . . .84 SECTION 10.04. Notes may bear notation of changes by supplemental indentures. . . . . . . . . . . . . . . . . . . . .84 SECTION 10.05. Officers' Certificate and Opinion of Counsel. . . . .85 ARTICLE ELEVEN CONSOLIDATION, MERGER AND SALE SECTION 11.01. Company may consolidate, etc., on certain terms . . .85 SECTION 11.02. Successor corporation to be substituted . . . . . . .86 SECTION 11.03. Opinion of Counsel. . . . . . . . . . . . . . . . . .86 v 7 ARTICLE TWELVE SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 12.01. Satisfaction and discharge of Indenture . . . . . . .87 SECTION 12.02. Application by Trustee of funds deposited for payment of Notes. . . . . . . . . . . . . . . . . .87 SECTION 12.03. Repayment of moneys held by paying agent. . . . . . .88 SECTION 12.04. Repayment of moneys held by Trustee . . . . . . . . .88 SECTION 12.05. Reinstatement . . . . . . . . . . . . . . . . . . . .88 ARTICLE THIRTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 13.01. Incorporators, stockholders, officers and directors of Company exempt from individual liability. . . . 88 ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS SECTION 14.01. Successors and assigns of Company bound by Indenture . . . . . . . . . . . . . . . . . . . . .89 SECTION 14.02. Acts of board, committee or officer of successor corporation valid . . . . . . . . . . . . . . . . .89 SECTION 14.03. Required notices or demands may be served by mail; waiver. . . . . . . . . . . . . . . . . . . .89 SECTION 14.04. Indenture and Notes to be construed in accordance with the laws of the State of New York. . . . . . .90 SECTION 14.05. Evidence of compliance with conditions precedent. . .90 SECTION 14.06. Payments due on Saturdays, Sundays and holidays . . .90 SECTION 14.07. Provisions required by Trust Indenture Act of 1939 to control. . . . . . . . . . . . . . . . . . . . .91 SECTION 14.08. Provisions of the Indenture and Notes for the sole benefit of the parties and the noteholders. . . . .91 SECTION 14.09. Severability. . . . . . . . . . . . . . . . . . . . .91 SECTION 14.10. Indenture may be executed in counterparts; acceptance by Trustee. . . . . . . . . . . . . . . . . . . . .91 SECTION 14.11. Article and Section headings. . . . . . . . . . . . .91 SECTION 14.12. No Adverse Interpretation of Other Instruments. . . .91 ARTICLE FIFTEEN GUARANTEE OF NOTES SECTION 15.01. Guarantee . . . . . . . . . . . . . . . . . . . . . .91 SECTION 15.02. Guarantee senior in respect of Subordinated Notes . .92 SECTION 15.03. Subsidiary Guarantors may consolidate, etc., on certain terms . . . . . . . . . . . . . . . . . . .92 SECTION 15.04. Application of certain terms and provisions to the Subsidiary Guarantors. . . . . . . . . . . . . . ..93 SECTION 15.05. Release of Guarantee. . . . . . . . . . . . . . . . .94 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
vi 8 SCHEDULE A - SCHEDULE OF LIENS SECURING INDEBTEDNESS IN EXCESS OF $5,000,000 SCHEDULE B - REAL PROPERTY CONSTITUTING PERMITTED COLLATERAL vii 9 THIS INDENTURE, dated as of the 17th day of February, 1994, between KAISER ALUMINUM & CHEMICAL CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (hereinafter referred to as the "Company"), as Issuer, KAISER ALUMINA AUSTRALIA CORPORATION, KAISER FINANCE CORPORATION, ALPART JAMAICA INC. and KAISER JAMAICA CORPORATION, as Subsidiary Guarantors, and FIRST TRUST NATIONAL ASSOCIATION, a national banking association (hereinafter referred to as the "Trustee"), as Trustee. W I T N E S S E T H: - - - - - - - WHEREAS, the Company has duly authorized an issue of its 9 % Senior Notes due February 15, 2002 (hereinafter referred to as the "Notes"), for an aggregate principal amount of up to two hundred twenty five million dollars ($225,000,000), to be issued as registered Notes without coupons, to be authenticated by the certificate of the Trustee, to be payable on February 15, 2002, and to be redeemable and purchasable as hereinafter provided; and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; WHEREAS, the payment of the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on, the Notes is hereby expressly designated, and the monetary obligations of the Company under the Notes shall hereafter constitute for all purposes, Senior Indebtedness of the Company under the terms of the Subordinated Note Indenture (as hereinafter defined); WHEREAS, the Guarantee (as hereinafter defined) of each Subsidiary Guarantor in respect of the Notes is hereby expressly designated, and the monetary obligations of such Subsidiary Guarantor under the Notes shall hereafter constitute for all purposes Senior Indebtedness of such Subsidiary Guarantor under the terms of the Subordinated Note Indenture, to the extent that such Subsidiary Guarantor is a guarantor under the Subordinated Note Indenture; WHEREAS, the Company has duly delivered written notice to the trustee under the Subordinated Note Indenture designating the Notes and the Guarantee as Senior Indebtedness thereunder; WHEREAS, the Notes and the Trustee's certificate of authentication to be borne by the Notes are to be substantially in the following forms, respectively: [FORM OF FACE OF NOTE] No. [Principal Amount] Issue Date: CUSIP 483008 AE 8 KAISER ALUMINUM & CHEMICAL CORPORATION 9 % SENIOR NOTE DUE 2002 KAISER ALUMINUM & CHEMICAL CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Company"), for value received, hereby promises to pay to ____________________, or registered assigns, the principal sum of ____________________ DOLLARS on February 15, 2002, at the office or agency of the Company in the Borough of Manhattan, the City of New York, State of New York, in such coin or currency of The 10 United States of America as at the time of payment is legal tender for the payment of public and private debts, and to pay to the registered holder hereof, as hereinafter provided, interest on said principal sum at the rate per annum specified in the title of this Note, in like coin or currency, semiannually on February 15 and August 15 in each year. Interest shall accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from February 17, 1994. The interest so payable on any February 15 or August 15 will, subject to certain exceptions provided in the Indenture hereinafter referred to, be paid to the person in whose name this Note is registered at the close of business on the February 1 or August 1, as the case may be, next preceding such February 15 or August 15 whether or not such February 1 or August 1 is Business Day. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Payment of interest shall be made at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, by check mailed by first-class mail to the address of the person entitled thereto at such address as shall appear on the registry books of the Company. As provided in the Indenture, this Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of such State. Reference is made to the further provisions of this Note set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. IN WITNESS WHEREOF, KAISER ALUMINUM & CHEMICAL CORPORATION has caused this instrument to be duly executed under its corporate seal. Dated KAISER ALUMINUM & CHEMICAL CORPORATION By: ___________________ Name: Title: [Corporate Seal] Attest: ________________________________ Secretary 2 11 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Notes described in the within-mentioned Indenture. FIRST TRUST NATIONAL ASSOCIATION as Trustee By: ___________________________ Authorized Signatory [FORM OF REVERSE OF NOTE] KAISER ALUMINUM & CHEMICAL CORPORATION 9 % SENIOR NOTE DUE 2002 This Note is one of a duly authorized issue of Notes of the Company known as its 9 % Senior Notes due 2002 (herein referred to as the "Notes"), limited to an aggregate principal amount of two hundred twenty five million dollars ($225,000,000), all issued or to be issued under and pursuant to an indenture, dated as of February 17, 1994 (herein referred to as the "Indenture"), duly executed and delivered between the Company, the Subsidiary Guarantors (as defined in the Indenture) and First Trust National Association, as trustee (herein referred to as the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company, the Subsidiary Guarantors and the holders of the Notes. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal amount of this Note plus any accrued interest to the date of acceleration may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture provides that in certain events such declaration and its consequences may be waived by the holders of a majority of the aggregate principal amount of the Notes then outstanding or outstanding on the record date, if any, fixed therefor in accordance with the provisions of the Indenture. It is also provided in the Indenture that the holders of a majority of the aggregate principal amount of the Notes at the time or on any such record date outstanding may on behalf of the holders of all of the Notes waive, prior to such declaration, any past default under the Indenture and its consequences, except a default in the payment of the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on any of the Notes or a default in respect of a covenant or provision in the Indenture which under Article Ten of the Indenture cannot be modified or amended without the consent of the holder of each outstanding Note. Payment of the Notes is guaranteed on a senior basis by Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Finance Corporation and Kaiser Jamaica Corporation and, under certain circumstances set forth in the Indenture, may be guaranteed by certain other Subsidiaries and Non-Affiliate Joint Ventures of the Company. Under certain circumstances set forth in the Indenture, each 3 12 of the Subsidiary Guarantors may be released from their respective obligations under the Indenture and the Notes. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority of the aggregate principal amount of the Notes then outstanding or outstanding on the record date, if any, fixed therefor in accordance with the provisions of the Indenture, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided, however, that, as provided in Section 10.02 of the Indenture, without the consent of each holder of an outstanding Note affected, no such supplemental indenture shall, inter alia, (i) extend the stated maturity of ----- ---- any Note, reduce the interest rate, extend the time or alter the manner of payment of interest thereon, or reduce the principal amount thereof, or alter the timing of or reduce any premium payable upon the redemption thereof, or reduce the amount payable thereon in the event of acceleration or the amount thereof payable in bankruptcy, or (ii) reduce the aforesaid percentage of aggregate principal amount of Notes, the consent of the holders of which is required for any such supplemental indenture. Any such consent or waiver by the registered holder of this Note (unless effectively revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders of this Note and of any Note issued in exchange or substitution herefor, irrespective of whether or not any notation of such consent or waiver is made upon this Note or such other Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on this Note at the place, at the respective times, at the rate and in the currency herein prescribed. The Notes are issuable as fully registered Notes without coupons in denominations of $1,000 and any integral multiple of $1,000. At the office or agency to be maintained by the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, Notes may be exchanged for a like aggregate principal amount of Notes in other authorized denominations, without payment of any charge other than a sum sufficient to reimburse the Company for any tax or other governmental charge incident thereto. Principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on this Note are payable at the office or agency of the Company referred to on the face hereof, except that, at the option of the Company, payment of interest hereon may be made by check mailed by first-class mail to the address of the person entitled thereto at such address as shall appear on the registry books of the Company. The Notes are subject to redemption on or after February 15, 1998, at the option of the Company, in whole or in part on any date prior to maturity, upon mailing by first-class mail a notice of such redemption not less than 15 nor more than 60 days prior to the date fixed for redemption to the holders of Notes to be redeemed in whole or in part at their addresses as they shall appear upon the registry books of the Company, all as provided in the Indenture. Any such notice which is mailed in the manner hereinabove provided shall be conclusively presumed to have been duly given, whether or not the holder receives the notice. The table below shows the redemption prices (expressed as a percentage of principal amount) on the dates shown below. If redeemed during the 12-month period beginning February 15, the redemption price shall be: 4 13 Redemption Year Price ---- ---------- 1998 . . . . . . . . . . . . . . . . . . . .104.125% 1999 . . . . . . . . . . . . . . . . . . . .102.750% 2000 . . . . . . . . . . . . . . . . . . . .101.375% 2001 and thereafter . . . . . . . . . . . . .100.000% in each case together with accrued and unpaid interest to (but not including) the date fixed for redemption. Subject to the terms and conditions of the Indenture, if any Change of Control (as defined in the Indenture) occurs on or prior to maturity, the Company shall offer to purchase from each holder all or any part of the holder's Notes for which a Change of Control Purchase Notice shall have been delivered as provided in the Indenture and not withdrawn, on the date that is 30 Business Days after the occurrence of such Change of Control (the "Change of Control Purchase Date"), for a Change of Control Purchase Price equal to 101% of the principal amount thereof plus accrued interest to (but not including) the Change of Control Purchase Date, which Change of Control Purchase Price shall be paid in cash. Holders have the right to withdraw any Change of Control Purchase Notice by delivering to the Trustee a written notice of withdrawal in accordance with the provisions of the Indenture. If cash sufficient to pay the Change of Control Purchase Price of all Notes or portions thereof to be purchased on the Change of Control Purchase Date is deposited with the Trustee as of the Change of Control Purchase Date, interest shall cease to accrue (whether or not this Note is delivered to the Trustee or any other office or agency maintained for such purpose) on such Notes (or portions thereof) on and after the Change of Control Purchase Date, and the holders thereof shall have no other rights as such (other than the right to receive the Change of Control Purchase Price, upon surrender of such Notes). Subject to the terms and conditions of the Indenture, the Company shall apply the Net Cash Proceeds (as defined in the Indenture) of Asset Sales (as defined in the Indenture), under certain circumstances described in the Indenture, to (x) the prepayment of Indebtedness (as defined in the Indenture) in respect of or under the Credit Agreement (as defined in the Indenture) and the Specified Pari Passu Indebtedness (as defined in the Indenture) unless the holders thereof elect not to receive such prepayment and (y) an offer to purchase (an "Asset Sale Offer") the then outstanding Notes, on any Business Day occurring no later than 175 days after the receipt by the Company (or any of its Subsidiaries, if applicable) of such Net Cash Proceeds, at a price equal to 100% of the principal amount thereof together with accrued interest, if any, to but not including the Asset Sale Purchase Date (as defined in the Indenture). Such Asset Sale Offer with respect to the Notes shall be in an aggregate principal amount (the "Asset Sale Offer Amount") equal to the Net Cash Proceeds (rounded down to the nearest $1,000) from the Asset Sales to which the Asset Sale Offer relates multiplied by a fraction, the numerator of which is the principal amount of the Notes outstanding (determined as of the close of business on the day immediately preceding the date notice of such Asset Sale Offer is mailed) and the denominator of which is the principal amount of the Notes outstanding plus the aggregate principal amount of Indebtedness under the Credit Agreement and the Specified Pari Passu Indebtedness outstanding (determined as of the close of business on the day immediately preceding the date notice of such Asset Sale Offer is mailed). If (x) no Indebtedness is outstanding in respect of or under the Credit Agreement or the Specified Pari Passu Indebtedness or (y) the holders of such Indebtedness entitled to 5 14 receive payment elect not to receive the payments provided for in the previous sentence, or (z) the application of such Net Cash Proceeds results in the complete prepayment of such Indebtedness, then in each case any remaining portion of such Net Cash Proceeds will be required to be applied to an Asset Sale Offer to purchase the Notes. Upon surrender of this Note, the transfer of this Note is registrable by the registered holder hereof in person or by his attorney duly authorized in writing on the registry books of the Company at the office or agency to be maintained by the Company referred to on the face hereof, subject to the terms of the Indenture but without payment of any charge other than a sum sufficient to reimburse the Company for any tax or other governmental charge incident thereto. Upon any such registration of transfer, a new Note or Notes of authorized denomination or denominations, for the same aggregate principal amount, will be issued to the transferee in exchange herefor. Prior to due presentation for registration of transfer, the Company, the Trustee, any paying agent and any Note registrar may deem and treat the person in whose name this Note shall be registered upon the registry books of the Company as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of or on account of the principal hereof, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Note registrar shall be affected by any notice to the contrary. All such payments shall be valid and effectual to satisfy and discharge the liability on this Note to the extent of the sum or sums so paid. No recourse shall be had for the payment of the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or the interest on this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 6 15 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to: ------------------ ------------------ (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: ___________________ Your Signature: (Sign exactly as your name(s) appear(s) on the Note) Signature Guarantee: _____________________________________ (bank, trust company or member firm of the New York Stock Exchange) 7 16 OPTION OF HOLDER TO ELECT PURCHASE Upon an offer by the Company to purchase all or any part of this Note pursuant to Section 3.05 or 4.14 of the Indenture, please check the appropriate box below if you wish to elect to have all or any part of this Note so purchased. Section 3.05___ Section 4.14___ If you wish to have only part of this Note purchased by the Company pursuant to Section 3.05 or Section 4.14 of the Indenture, state the principal amount you elect to have purchased: $___________________ Date: _____________ Signature: ______________________ ______________________ (Sign exactly as your name(s) appear(s) on the face of this Note) Signature Guarantee: ___________________________________ (bank, trust company or member firm of the New York Stock Exchange) 8 17 AND WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute these presents a valid indenture and agreement according to its terms, have been done and performed, and the execution and delivery of this Indenture and the issuance hereunder of the Notes have in all respects been duly authorized, and the Company, in the exercise of the legal right and power vested in it, executes and delivers this Indenture and proposes to make, execute, issue and deliver the Notes; THEREFORE, in consideration of the premises and of the purchase and acceptance of the Notes by the holders thereof, the Company, each Subsidiary Guarantor and the Trustee each covenants and agrees, for the equal and proportionate benefit of the respective holders from time to time of the Notes, as follows: ARTICLE ONE DEFINITIONS SECTION 1.01. Certain terms defined. The terms defined in ---------------------- this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires), for all purposes of this Indenture and of any indenture supplemental hereto, shall have the respective meanings specified in this Section 1.01. All other terms used in this Indenture which are defined in the Trust Indenture Act of 1939 (as defined herein) or which are by reference therein defined in the Securities Act of 1933 (as defined herein) (except as herein otherwise expressly provided or unless the context otherwise requires) shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as they were in force at the date of the execution and delivery of this Indenture. 14 1/4% Senior Subordinated Notes: The term "14 1/4% Senior ---------------------------------- Subordinated Notes" shall mean the Company's 14 1/4% Senior Subordinated Notes Due 1995, as amended, which were retired in 1993 and are no longer outstanding as of the date of this Indenture. 14 1/4% Senior Subordinated Note Indenture: The term "14 ------------------------------------------- 1/4% Senior Subordinated Note Indenture" shall mean the 14 1/4% Senior Subordinated Note Indenture, dated as of December 21, 1989, among the Company, as issuer, the parties named therein as and, if applicable, thereafter becoming, subsidiary guarantors, and The Bank of New York, a New York banking corporation, as trustee, as amended or supplemented from time to time in accordance with the terms thereof. Affiliate: The term "Affiliate" shall mean any other Person ---------- directly or indirectly controlling or controlled by or under direct or indirect common control with a specified Person; provided, however, that the term Affiliate shall not (other than - -------- ------- for purposes of Section 3.07) include the Company, any Subsidiary of the Company or any Non-Affiliate Joint Venture of the Company so long as no Affiliate of the Company has any direct or indirect interest therein, except through the Company and/or its Subsidiaries and/or its Non-Affiliate Joint Ventures. For the purpose of this definition, control when used with respect to any ------- specified Person means the possession of the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have ----------- ---------- meanings correlative to the foregoing. The fact that an Affiliate of a Person is a partner of a law firm that renders services to such Person or its Affiliates does not (other than for purposes of Section 3.07) mean that the law firm is an Affiliate of such Person. 9 18 AJI: The term "AJI" shall mean Alpart Jamaica Inc., a ---- Delaware corporation, and its successors. Alpart: The term "Alpart" shall mean Alumina Partners of ------- Jamaica, a Delaware general partnership, and its successors. Asset Sale: The term "Asset Sale" shall mean any sale, ----------- transfer or other disposition (including, without limitation, dispositions pursuant to a merger, consolidation or sale and leaseback transaction) of any assets (other than cash or Cash Equivalents) on or after the date of the initial issuance of the Notes by the Company or any of its Subsidiaries to any Person other than the Company or any of its Subsidiaries or any Non- Affiliate Joint Venture; provided, however, that solely for the -------- ------- purposes of the definition of Consolidated Cash Flow Available for Fixed Charges, the term Asset Sale shall exclude dispositions pursuant to a sale and leaseback transaction if the lease under such sale and leaseback transaction is required to be classified and accounted for as a Capitalized Lease Obligation; and provided, further, that the term Asset Sale shall not include a - -------- ------- Refinancing Sale and Leaseback Transaction; and provided, -------- further, that the following sales, transfers or other - ------- dispositions of assets shall not be an "Asset Sale" hereunder: (A) in the ordinary course of business of the Company and its Subsidiaries, (B) in a single transaction or group of related transactions, the gross proceeds of which (exclusive of indemnities) do not exceed $10,000,000 (such proceeds, to the extent non-cash, to be determined in good faith by the Board of Directors of the Company), (C) resulting from the creation, incurrence or assumption of (but not any foreclosure with respect to) any Lien not prohibited by Section 4.11, (D) in connection with any consolidation or merger of the Company or any Subsidiary Guarantor or sale of all or substantially all of the property of the Company or any Subsidiary Guarantor in compliance with the provisions of Article Eleven, Section 15.03(a) or Section 15.03(b)(i) hereof, as the case may be, (E) by a Subsidiary to its stockholders not prohibited by this Indenture, (F) which are Restricted Investments or Restricted Payments permitted by Section 4.09, or (G) which consist of extensions, modifications, renewals or exchanges of Restricted Investments pursuant to clause (b) of the definition thereof, so long as neither the Company nor any of its Subsidiaries receives any cash proceeds as a result of such transaction. Attributable Debt: The term "Attributable Debt" shall mean, ------------------ with respect to a Refinancing Sale and Leaseback Transaction, as of the date of consummation of such transaction, the greater of (a) the Fair Market Value of the property subject to such Refinancing Sale and Leaseback Transaction and (b) the present value (discounted at the interest rate borne by the Notes, compounded semi-annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Refinancing Sale and Leaseback Transaction (including any period for which such lease has been extended). Bank: The term "Bank" shall mean any of the financial ----- institutions that are, or from time to time become, lenders under the Credit Agreement. 10 19 Bank Agent: The term "Bank Agent" shall mean BankAmerica ----------- Business Credit, Inc., as agent under the Credit Agreement, and any successor agent appointed under the Credit Agreement or any agent under any agreement or agreements pursuant to which Indebtedness under the Credit Agreement has been Refinanced (or successively Refinanced) and as to whom the Company has notified the Trustee and the noteholders pursuant to the terms of this Indenture. Bank Guarantors: The term "Bank Guarantors" shall mean each ---------------- of the following Persons, as long as such Person guarantees any Indebtedness under the Credit Agreement: Akron Holding Company, an Ohio corporation, Kaiser Aluminum & Chemical Investment, Inc., a Delaware corporation, Kaiser Aluminum Properties, Inc., a Delaware corporation, Kaiser Aluminum Technical Services, Inc., a California corporation, Oxnard Forge Die Company, Inc., a California corporation, Kaiser Aluminium International, Inc., a Delaware corporation, KAC, KFC, each of their respective successors, each Subsidiary Guarantor and each Non-Recourse Guarantor so long as such Non-Recourse Guarantor does not constitute a Subsidiary Guarantor and would not be required to become a Subsidiary Guarantor hereunder. Board of Directors: The term "Board of Directors," when ------------------- used with reference to the Company, shall mean the Board of Directors of the Company, or the executive committee of the Board of Directors of the Company, or any other duly authorized committee of the Board of Directors of the Company. Board Resolution: The term "Board Resolution" shall mean, ----------------- with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. Business Day: The term "Business Day" shall mean a day ------------- other than a Saturday, a Sunday or a day in The City of New York, New York, Houston, Texas or San Francisco, California on which banking institutions are authorized or obligated by law, regulation or executive order to be closed. Capital Stock: The term "Capital Stock" shall mean, with -------------- respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of capital stock, partnership interests or other undivided ownership interests in such Person, and warrants, options and similar rights (other than debt securities convertible into capital stock) to acquire such capital stock, partnership interests or other undivided ownership interests in such Person. Capitalized Lease Obligations: The term "Capitalized Lease ------------------------------ Obligations" shall mean, with respect to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other agreement conveying the right to use) real or personal property, which obligations are required to be classified and accounted for as a capital lease obligation on a balance sheet of such Person under GAAP and, for purposes of this Indenture, the amount of such obligations at any date shall be the amount of the liability thereof at such date, determined in accordance with GAAP. CARIFA Financing: The term "CARIFA Financing" shall mean ----------------- the $60,000,000 CBI Industrial Revenue Bonds, Caribbean Basin Projects Financing Authority CBI Industrial Revenue Bonds 1991 Series A and Series B (Alumina Partners of Jamaica Project) issued pursuant to that certain Bond Purchase Agreement dated as of December 1, 1991, among the Caribbean Basin Projects Financing Authority, Alumina Partners of Jamaica and PaineWebber Incorporated of Puerto Rico, and any letters of credit supporting such bonds. 11 20 Cash Equivalents: The term "Cash Equivalents" shall mean, ----------------- with respect to any Person: (A) Government Securities having maturities of not more than one year from the date of acquisition, (B) certificates of deposit of any commercial bank incorporated under the laws of the United States, or any state, territory or commonwealth thereof, of recognized standing having capital and unimpaired surplus in excess of $100,000,000 and whose short-term commercial paper rating at the time of acquisition is at least A-2 or the equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by Moody's Investors Services, Inc. (any such bank, an "Approved Bank"), which certificates of deposit have maturities of not more than one year from the date of acquisition, (C) repurchase obligations with a term of not more than 31 days for underlying securities of the types described in clauses (A) , (B) and (D) of this definition entered into with any Approved Bank, (D) commercial paper or finance company paper issued by any Person incorporated under the laws of the United States, or any state thereof, and rated at least A-2 or the equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by Moody's Investors Services, Inc., and in each case maturing not more than one year from the date of acquisition, and (E) investments in money market funds that are registered under the Investment Company Act of 1940, which have net assets of at least $100,000,000 and at least 85% of whose assets consist of investments or other obligations of the type described in clauses (A) through (D) above. Center for Technology: The term "Center for Technology" ---------------------- shall mean the Company's facilities located in Pleasanton, California. Commission: The term "Commission" shall mean the United ----------- States Securities and Exchange Commission. Common Stock: The term "Common Stock" shall mean the ------------- Company's common stock, par value $.01 per share, as it exists on the date of this Indenture. Company: The term "Company" shall mean Kaiser Aluminum & -------- Chemical Corporation, a Delaware corporation, and, subject to the provisions of Article Eleven, shall also include its successors and assigns. Consolidated Amortization Expense: The term "Consolidated ---------------------------------- Amortization Expense" shall mean, with respect to any Person for any period, the amortization expense (including without limitation goodwill, deferred financing charges and other intangible items) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. Consolidated Cash Flow Available for Fixed Charges: The --------------------------------------------------- term "Consolidated Cash Flow Available for Fixed Charges" shall mean (without duplication), with respect to any Person for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Fixed Charges, (iii) Consolidated Income Tax Expense (other than income taxes (including credits) with respect to items of Net Income not included in the definition of Consolidated Net Income), (iv) Consolidated Depreciation Expense, (v) Consolidated Amortization Expense and (vi) any other non-cash items reducing Consolidated Net Income, minus any non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for such Person and its Subsidiaries in accordance with GAAP; provided, however, -------- ------- 12 21 that (x) if, during such period, such Person or any of its Subsidiaries shall have engaged in any Asset Sale, Consolidated Cash Flow Available for Fixed Charges of such Person and its Subsidiaries for such period shall be reduced by an amount equal to the Consolidated Cash Flow Available for Fixed Charges (if positive) directly attributable to the assets that are the subject of such Asset Sale for such period, or increased by an amount equal to the Consolidated Cash Flow Available for Fixed Charges (if negative) directly attributable to the assets that are the subject of such Asset Sale for such period and (y) if, during such period, such Person or any of its Subsidiaries shall have acquired any material assets out of the ordinary course of business, Consolidated Cash Flow Available for Fixed Charges shall be calculated on a pro forma basis as if such asset acquisition and related financing had occurred at the beginning of such period. Consolidated Depreciation Expense: The term "Consolidated ---------------------------------- Depreciation Expense" shall mean, with respect to any Person for any period, the depreciation and depletion expense (including without limitation the amortization expense associated with Capitalized Lease Obligations) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. Consolidated Fixed Charge Coverage Ratio: The term ----------------------------------------- "Consolidated Fixed Charge Coverage Ratio" shall mean, with respect to any Person as of the date of the transactions giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such Person for the four fiscal quarters immediately prior to the Transaction Date for which financial information in respect thereof is available to (ii) the aggregate Consolidated Fixed Charges of such Person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter to be accrued during such period (based upon the pro forma amount of Indebtedness to be outstanding on the Transaction Date), assuming for the purposes of this measurement that the interest rates on which floating interest rate obligations of such Person are based equal such rates in effect on the Transaction Date; provided, however, that -------- ------- if the Company or any of its Subsidiaries has incurred Interest Hedging Obligations which would have the effect of changing the interest rate on any Indebtedness for such four quarter period (or any portion thereof), the resulting rate shall be used for such four quarter period or portion thereof; and provided, -------- further, that any Consolidated Fixed Charges with respect to - ------- Indebtedness incurred or for which such Person otherwise becomes liable during the fiscal quarter in which the Transaction Date occurs shall be calculated as if such Indebtedness was so incurred on the first day of the fiscal quarter in which the Transaction Date occurs. Consolidated Fixed Charges: The term "Consolidated Fixed --------------------------- Charges" shall mean (without duplication), with respect to any Person for any period, the sum of: (i) the interest expense of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (less, to the extent included therein, (a) the portion of the interest expense required to be funded or economically borne by the Company's minority partners in the Company's joint ventures and (b) interest expense related to the PIK Note), (ii) all fees, commissions, discounts and other charges of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, with respect to letters of credit and bankers' acceptances and the costs (net of benefits) associated with Interest Hedging Obligations, (iii) the aggregate amount of dividends paid or other similar distributions made by such Person and its Subsidiaries during such period with respect to preferred stock (including preference stock) of such Person or its Subsidiaries determined on a consolidated basis in accordance with GAAP, and 13 22 (iv) amortization or write-off of debt discount in connection with any Indebtedness of such Person and its Subsidiaries, determined on a consolidated basis in accordance with GAAP (excluding, to the extent otherwise included, (A) the amortization or write-off of any deferred financing costs in connection with the amendment or refinancing of the Credit Agreement and the Old Credit Agreement and/or the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes and (B) the amortization or write-off of any debt discount and the premiums paid in excess of the principal amount in connection with the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes). Consolidated Income Tax Expense: The term "Consolidated -------------------------------- Income Tax Expense" shall mean (without duplication), with respect to any Person for any period, the aggregate of the income tax expense (net of applicable credits) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. Consolidated Net Income: The term "Consolidated Net Income" ------------------------ shall mean, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period taken as a single accounting period, all as determined on a consolidated basis in accordance with GAAP, excluding (in each case to the extent otherwise included): (i) extraordinary gains but not extraordinary losses and excluding gains from extinguishment of debt, (ii) the Net Income of any Person that is not a Subsidiary of such Person or that is accounted for on the equity method of accounting, except to the extent of the amount of dividends or other distributions (other than dividends or distributions of Capital Stock) actually paid to such Person or any of its Subsidiaries by such other Person during such period, (iii) except to the extent included by clause (ii), the Net Income of any Person accrued prior to the date it becomes a Subsidiary of such Person or is merged into or consolidated with such Person or any of its Subsidiaries or that Person's assets are acquired by such Person or any of its Subsidiaries, (iv) the Net Income of any Subsidiary of such Person during such period (A) to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such Net Income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or (B) in the case of a foreign Subsidiary or a Subsidiary with significant foreign source income, to the extent such Net Income has not been distributed to such Person and such distribution would result in a material tax liability not otherwise deducted from the calculation of Consolidated Net Income whether or not such deduction is required by GAAP, (v) net after tax gains from Asset Sales (but not excluding the net after tax losses from Asset Sales) and (vi) interest income arising from the Existing Intercompany Note, except to the extent such interest income is actually received by the Company in cash; provided, however, that: - -------- ------- (1) in determining Consolidated Net Income with respect to the Company there shall be disregarded (a) any charge with respect to premiums paid in excess of the principal amount in connection with the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes and (b) the 14 23 amortization or write-off of any unamortized deferred financing costs and debt discount (other than original issue discount with respect to Indebtedness Incurred after the date hereof) in connection with the amendment or refinancing of the Credit Agreement and the Old Credit Agreement and/or the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes, and (2) the Net Income of each of the Specified Parties otherwise included in the Consolidated Net Income of the Company shall not be subject to any of the limitations contained in clauses (ii) and (iv)(B) of this definition so long as the Company's cash management and intercompany practices with respect to such entity, as the case may be, for such period are consistent with past practice. Consolidated Net Worth: The term "Consolidated Net Worth" ----------------------- shall mean, with respect to any Person as of any date, the total stockholders' equity of such Person as of such date plus the amount of Indebtedness outstanding under the PIK Note as of such date, less, to the extent otherwise included, amounts attributable to Redeemable Stock and, in the case of the Company, the amount attributable to the Existing Intercompany Note, in each case determined on a consolidated basis in accordance with GAAP; provided, however, that in determining Consolidated Net -------- ------- Worth with respect to the Company there shall be disregarded: (i) any charge with respect to premiums paid in excess of the principal amount in connection with the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes and (ii) the amortization or write-off of any unamortized deferred financing costs or debt discount (other than original issue discount with respect to Indebtedness Incurred after the date hereof) in connection with the amendment or refinancing of the Credit Agreement and the Old Credit Agreement and/or the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes. Credit Agreement: The term "Credit Agreement" shall mean ----------------- that certain Credit Agreement, dated as of February 15, 1994, among the Company, KAC, the financial institutions that are, or from time to time become, parties thereto, BankAmerica Business Credit, Inc., as agent, including all related notes, collateral documents and guarantees, and any agreement (including all related notes, collateral documents and guarantees) pursuant to which Indebtedness thereunder has been Refinanced (or successively Refinanced), in each case as any of the same has been or may be amended, supplemented, restated, restructured or otherwise modified from time to time (in each case, in whole or in part). Currency Hedging Obligation: The term "Currency Hedging ---------------------------- Obligation" with respect to any Person shall mean the monetary obligations of such Person pursuant to any foreign exchange contract, currency swap agreement, option or futures contract, forward contract or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in currency values. Defaulting Equity Owner: The term "Defaulting Equity Owner" ------------------------ shall mean, with respect to any Permitted Entity, any Equity Owner who causes an Equity Owner Default. Equity Owner: The term "Equity Owner" shall mean, with ------------- respect to any Permitted Entity, any holder of an Ownership Interest in such Permitted Entity. Equity Owner Default: The term "Equity Owner Default" shall --------------------- mean, with respect to any issuance of Permitted Entity Securities to the Equity Owners of a Permitted Entity, the failure by one or more of such Equity Owners to acquire such Permitted Entity Securities in an amount corresponding to at least its Ownership Interest of such Permitted Entity and, as a result thereof, such Equity Owner 15 24 becomes subject to, directly or indirectly, a dilution of its interest in the future net income of such Permitted Entity and/or a penalty pursuant to the terms of the governing documents of such Permitted Entity. Event of Default: The term "Event of Default" shall mean ----------------- any event specified in Section 6.01, continued for the period of time, if any, and after the giving of notice, if any, therein designated. Exchange Act: The term "Exchange Act" shall mean the ------------- Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder. Existing Intercompany Note: The term "Existing Intercompany --------------------------- Note" shall mean the Non-Negotiable Intercompany Note, dated December 21, 1989, issued by KAC to the Company in an initial principal amount of $818,585,280, as such Non-Negotiable Intercompany Note may be amended. Fair Market Value: The term "Fair Market Value" shall mean, ------------------ with respect to any property other than cash, the fair market value of such property as determined in good faith by the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution; provided, however, that, in the -------- ------- event the Company makes a payment in the form of or otherwise transfers property other than cash to, or receives property other than cash from, an Affiliate in an amount in excess of $10,000,000, the Company, in addition, shall have received an opinion from an independent investment banking firm of national standing selected by the Company to the effect that the Board of Director's determination of fair market value is fair. GAAP: The term "GAAP" shall mean generally accepted ----- accounting principles as in effect on December 31, 1992, and used in the preparation of the Company's consolidated balance sheet at such date and the Company's statements of consolidated income and cash flows for the year then ended, but in any event (i) giving effect to, but excluding the effect of any one-time charge related to the implementation of, Statement of Financial Accounting Standards No. 106 (Employers' Accounting for Postretirement Benefits Other Than Pensions) and (ii) giving effect to Statement of Financial Accounting Standards No. 109 (Accounting for Income Taxes). Government Securities: The term "Government Securities" ---------------------- shall mean direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged. Guarantee: The term "Guarantee" shall mean, with respect to ---------- any Subsidiary Guarantor, the guarantee of such Subsidiary Guarantor set forth in Article Fifteen. Improvements: The term "Improvements" shall mean any ------------- accessories, accessions, additions, attachments, substitutions, replacements, improvements, parts and other property now or hereafter affixed to any U.S. Fixed Assets or used in connection therewith. Indebtedness: The term "Indebtedness" shall mean, with ------------- respect to any Person at any date, any of the following (without duplication): (a) the principal amount of all obligations (unconditional or contingent) of such Person for borrowed money (whether or not recourse is to the whole of the assets of such person or only to a portion thereof) and the principal amount of all obligations (unconditional or contingent) of such Person evidenced 16 25 by debentures, notes or other similar instruments (including, without limitation, reimbursement obligations with respect to letters of credit and bankers' acceptances); (b) all obligations of such Person to pay the deferred purchase price of property or services, except (x) accounts payable and other current liabilities arising in the ordinary course of business and (y) compensation, pension obligations and other obligations arising from employee benefits and employee arrangements; (c) Capitalized Lease Obligations of such Person; (d) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed or guaranteed by such Person; (e) preferred stock (including preference stock) that is Redeemable Stock (the amount of the Indebtedness in respect of such preferred stock to be equal to the aggregate liquidation value thereof); (f) all Indebtedness of others guaranteed by such Person; (g) pension obligations and other similar obligations arising from employee benefits, to the extent unfunded and assumed by such Person after the date of the initial issuance of the Notes in the acquisition, by such Person, of the assets or Capital Stock of another Person ("Assumed Pension Obligations"); and (h) all obligations under Refinancing Sale and Leaseback Transactions; and the amounts thereof shall be the outstanding balance of any such unconditional obligations as described in clauses (a) through (f) (other than clause (d)), and the maximum liability of any such contingent obligations at such date (other than with respect to clause (d)) and, in the case of clause (d), the lesser of the fair market value at such date of any asset subject to any Lien securing the Indebtedness of others and the amount of the Indebtedness secured and, in the case of clause (g), the amount of Assumed Pension Obligations shall be the amount determined by the Company in good faith as evidenced by a certificate of the Chief Financial Officer of the Company delivered to the Trustee and, in the case of clause (h), the Attributable Debt with respect to such Refinancing Sale and Leaseback Transactions; provided, however, that Indebtedness shall not include: - -------- ------- (A) the obligations of such Person and/or any of its Subsidiaries to purchase or sell goods, services or technology utilized in their bauxite, aluminum and alumina business and related extensions thereof, including on a take-or-pay basis, pursuant to agreements entered into in the ordinary course of business consistent with past practice, or to fund or guarantee the obligations of National Refractories & Minerals Corporation or any of its Affiliates in an aggregate principal amount at any time outstanding not exceeding $7,500,000; (B) obligations of such Person arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, provided that such obligations are -------- extinguished within two Business Days of their incurrence (or, in the case of foreign overdrafts, within five Business Days of their incurrence) unless covered by an overdraft credit line; (C) obligations of such Person resulting from the endorsement of negotiable instruments for collection in the ordinary course of business; 17 26 (D) Indebtedness consisting of letters of credit to the extent collateralized by cash or Cash Equivalents; and (E) Liens on assets of KAAC granted to secure Indebtedness of QAL, provided that such Liens are (i) in existence on the date -------- of this Indenture, (ii) similar in all material respects to Liens in existence on the date of this Indenture or (iii) not on assets consisting of cash, Cash Equivalents or fixed assets and such assets are used or to be used in connection with the business of QAL. Indenture: The term "Indenture" shall mean this instrument ---------- as originally executed, or, if amended or supplemented as herein provided, as so amended or supplemented. Interest Hedging Obligation: The term "Interest Hedging ---------------------------- Obligation" with respect to any Person shall mean the monetary obligations of such Person pursuant to any interest rate swap agreement, interest rate collar agreement, interest rate cap agreement, options or futures contract, forward contract or other agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates. KAAC: The term "KAAC" shall mean Kaiser Alumina Australia ----- Corporation, a Delaware corporation, and its successors. KAC: The term "KAC" shall mean Kaiser Aluminum Corporation, ---- a Delaware corporation, and its successors. KFC: The term "KFC" shall mean Kaiser Finance Corporation, ---- a Delaware corporation, and its successors. KJC: The term "KJC" shall mean Kaiser Jamaica Corporation, ---- a Delaware corporation, and its successors. Lien: The term "Lien" shall mean, with respect to any asset ----- of any Person, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). Maximum Secured Amount: The term "Maximum Secured Amount" ----------------------- shall mean, at any time (i) $300,000,000, plus (ii) Net ---- Betterments at such time, plus (iii) the outstanding amount of ---- Indebtedness relating to the CARIFA Financing secured by a Lien on Permitted Collateral, but in no event more than $43,000,000, minus (iv) in the event of a sale of Permitted Collateral which - ----- is subject to a Lien permitted by clause (i) of Section 4.11(b) of this Indenture, the amount, if any, of the net proceeds thereof required to be applied to a permanent repayment or commitment reduction in respect of the Indebtedness secured by such Lien, minus (v) in the event of the Refinancing of any ----- Indebtedness secured by a Lien permitted by clause (i) of Section 4.11(b), the lesser of (A) the amount of Indebtedness, if any, not secured by Permitted Collateral which Refinances, in whole or in part, such Indebtedness secured by a Lien permitted by clause (i) of Section 4.11(b) of this Indenture and (B) the amount, if any, by which the Maximum Secured Amount immediately prior to such Refinancing, in whole or in part, of such Indebtedness secured by a Lien permitted by clause (i) of Section 4.11(b) of this Indenture exceeds the aggregate amount of Indebtedness which is secured by a Lien on Permitted Collateral permitted by clause (i) or clause (viii)(a) of Section 4.11(b) of this Indenture after giving effect to such Refinancing. 18 27 MAXXAM: The term "MAXXAM" shall mean MAXXAM Inc., a ------- Delaware corporation, and its successors. Net Betterments: The term "Net Betterments" shall mean the ---------------- amount, if any, by which capital expenditures (determined in accordance with GAAP) by the Company or any of its Subsidiaries in respect of the Permitted Collateral on a cumulative basis for the period from the date hereof through the date of determination exceeds depreciation (determined in accordance with GAAP) in respect of the Permitted Collateral on a cumulative basis for such period (provided, however, that with respect to any -------- ------- Permitted Collateral existing at the time of the merger of a subsidiary of MAXXAM with and into KAC on October 28, 1988 (the "Merger"), the depreciation shall be the historical depreciation before adjustments to reflect the acquisition of the Company in the Merger), but in no event less than zero, provided, that in -------- the event any Permitted Collateral ceases to constitute Permitted Collateral in accordance with the definition thereof, only the amount of Net Betterments in respect of such Permitted Collateral at such time shall be included in any subsequent calculation of Net Betterments and provided, further, that (a) Improvements -------- ------- which are subject to a Lien permitted by clause (iv), (v) or (vi) of Section 4.11(b) and (b) U.S. Fixed Assets to the extent subject to a Lien permitted by clause (ix) of Section 4.11(b) shall not be included in the determination of Net Betterments. Net Cash Proceeds: The term "Net Cash Proceeds" shall mean ------------------ cash payments received (but if received in a currency other than United States dollars, such payments shall not be deemed received until the earliest time at which such currency is, or could freely be, converted into United States dollars) by or on behalf of the Company and/or any of its Subsidiaries (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise or the cash realization of any non-cash proceeds of any Asset Sale, but, in each case, only as and when, and to the extent, received) from an Asset Sale, in each case and without duplication, net of: (i) all legal, title and recording tax expenses, commissions, consulting fees, investment banking, broker's and accounting fees and expenses and fees and expenses incurred in obtaining regulatory approvals in connection with such Asset Sale, (ii) the amounts of (A) any repayments of debt secured, directly or indirectly, by Liens on the assets which are the subject of such Asset Sale or (B) any repayments of debt associated with such assets which is due by reason of such Asset Sale (i.e., such disposition is permitted by the terms of the ---- instruments evidencing or applicable to such debt, or by the terms of a consent granted thereunder, on the condition that the proceeds (or portion thereof) of such disposition be applied to such debt), provided, that this clause (B) shall not apply with -------- respect to any U.S. Fixed Assets which do not constitute Permitted Collateral, and, in the case of clauses (A) and (B), other fees, expenses and other expenditures, in each case, reasonably incurred as a consequence of such repayment of debt (whether or not such fees, expenses or expenditures are then due and payable or made, as the case may be), (iii) all amounts deemed appropriate by the Company (as evidenced by a signed certificate of the Chief Financial Officer of the Company delivered to the Trustee) to be provided as a reserve, in accordance with GAAP ("GAAP Reserves"), against any liabilities associated with such assets which are the subject of such Asset Sale, (iv) all foreign, federal, state and local taxes payable (including taxes reasonably estimated to be payable) in connection with or as a result of such Asset Sale, and (v) with respect to Asset Sales by Subsidiaries of the Company, the portion of such cash payments attributable to Persons holding a minority interest in such Subsidiary; 19 28 provided, in each such case, that such fees and expenses and - -------- other amounts are not payable to an Affiliate of the Company (except for amounts payable pursuant to the Tax Sharing Agreements), and provided, further, that required redemptions of -------- ------- existing preferred stock (including preference stock) of the Company outstanding on the date hereof or issued pursuant to collective bargaining arrangements and related employee benefit arrangements in effect on the date hereof, in each case, from Persons other than Affiliates of the Company, shall be deemed to be a fee, expense or other expenditure of such Asset Sale. Notwithstanding the foregoing, Net Cash Proceeds shall not include proceeds received in a foreign jurisdiction from an Asset Sale of an asset located outside the United States to the extent: (i) such proceeds cannot under applicable law be transferred to the United States or (ii) such transfer would result (in the good faith determination of the Board of Directors of the Company set forth in a Board Resolution) in a foreign tax liability that would be materially greater than if such Asset Sale occurred in the United States; provided that if, as, and to the extent that any of such proceeds - -------- may lawfully be (in the case of clause (i)) or are (in the case of clause (ii)) transferred to the United States, such proceeds shall be deemed to be cash payments that are subject to the terms of this definition of Net Cash Proceeds. Subject to the provisions of the next preceding sentence, Net Cash Proceeds shall also include: (i) cash distributions actually received by or on behalf of the Company or any of its Subsidiaries from any Non-Affiliate Joint Venture of the Company representing the proceeds of a transaction by such Non-Affiliate Joint Venture that would constitute an Asset Sale if such Non-Affiliate Joint Venture were a Subsidiary of the Company and (ii) the amount of any reversal of GAAP Reserves (but only as and when, and to the extent, reversed) which amount is otherwise a deduction from Net Cash Proceeds. Net Income: The term "Net Income" shall mean, with respect ----------- to any Person for any period, the net income (loss) of such Person for such period determined in accordance with GAAP. Non-Affiliate Joint Venture: The term "Non-Affiliate Joint ---------------------------- Venture" shall mean any joint venture, partnership or other Person (other than the Company or a Subsidiary of the Company) in which the Company and/or its Subsidiaries have an ownership interest equal to or greater than 5% and in which no Affiliate of the Company has a direct or an indirect ownership interest other than by virtue of the direct or indirect ownership interest in such Non-Affiliate Joint Venture held (in the aggregate) by the Company and/or one or more of its Subsidiaries, provided that -------- such Non-Affiliate Joint Venture is engaged in one or more of the lines of business in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures are engaged in as of the date of this Indenture or reasonably related extensions of such lines. Non-Defaulting Equity Owner: The term "Non-Defaulting ---------------------------- Equity Owner" shall mean, with respect to any Permitted Entity, any Equity Owner that is not a Defaulting Equity Owner. Non-Recourse Guarantor: The term "Non-Recourse Guarantor" ----------------------- shall mean a Subsidiary of the Company that guarantees any Indebtedness under the Credit Agreement, provided that such -------- guarantee is non-recourse to the assets of such Subsidiary other than to intercompany Indebtedness owed, or from time to time owing, by the Company to such Subsidiary, and all monetary proceeds therefrom. 20 29 Note or Notes; outstanding: The terms "Note" or "Notes" --------------------------- shall mean any Note or Notes, as the case may be, authenticated and delivered under this Indenture. The term "outstanding," when used with reference to Notes, shall, subject to the provisions of Section 8.04, mean, as of any particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except (a) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Notes, or portions thereof, for which the payment of principal, interest, any redemption price, any Change of Control Purchase Price or any Asset Sale Purchase Price in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent), provided that such Notes -------- shall have reached their stated maturity or, if such Notes are to be or may be redeemed or purchased prior to the maturity thereof, notice of such redemption or purchase shall have been given as in Article Three provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Notes in lieu of or in substitution for which other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.07, unless proof satisfactory to the Trustee is presented that any such Notes are held by bona fide holders in due course. Noteholder; registered holder: The terms "noteholder," ------------------------------ "holder of Notes," "registered holder" or other similar term shall mean any person who shall at the time be the registered holder of any Note or Notes on the registry books of the Company kept for that purpose in accordance with the provisions of this Indenture. Officers' Certificate: The term "Officers' Certificate" ---------------------- shall mean a certificate of the Company signed on behalf of the Company by the Chairman of the Board, the President or any Vice President and by the Chief Financial Officer, the Controller, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. Each such certificate shall include the statements provided for in Section 14.05 if and to the extent required by the provisions thereof. Old Credit Agreement: The term "Old Credit Agreement" shall --------------------- mean that certain Credit Agreement, dated as of December 13, 1989, among the Company, KAC, the financial institutions party thereto, Bank of America National Trust and Savings Association, as agent, and Mellon Bank, N.A., as collateral agent, which was replaced by the Credit Agreement. Opinion of Counsel: The term "Opinion of Counsel" shall ------------------- mean an opinion in writing signed by legal counsel, who may be an employee of, or of counsel to, the Company and who shall be reasonably satisfactory to the Trustee. Each such opinion shall include the statements provided for in Section 14.05 if and to the extent required by the provisions thereof. Ownership Interest: The term "Ownership Interest" shall ------------------- mean, with respect to any Equity Owner of a Permitted Entity at the time of the determination thereof, the proportion held at such time by such Equity Owner of the outstanding Permitted Entity Securities of such Permitted Entity that are last entitled to payment upon liquidation or dissolution as provided in the governing instruments of such Permitted Entity or pursuant to an agreement among the Equity Owners of such Permitted Entity. 21 30 Permitted Collateral: The term "Permitted Collateral" shall --------------------- mean real property (as set forth in Schedule B hereto), plant and equipment of the Company or any of its Subsidiaries located in the United States of America which, as of the date of issuance of the Notes, secures Indebtedness under the Credit Agreement (whether or not the Liens on such real property, plant or equipment are perfected at such time), together with any Improvements thereto or thereon, any real property that is contiguous to or structurally related to such real property (the "Contiguous Property") and any real property, plant or equipment, whether owned on the date of the issuance of the Notes or thereafter acquired, located or used at any time after the date of issuance of the Notes at a facility (other than the Company's Gramercy alumina refinery) owned, leased, occupied or used by the Company or any of its Subsidiaries as of the date of issuance of the Notes or on any Contiguous Property, and any proceeds thereof, provided, that notwithstanding anything to the contrary -------- contained in this Indenture, any Permitted Collateral which is released from all Liens thereon securing Indebtedness and which does not become subject to a new Lien within 60 days of such release securing Indebtedness which Refinances any of the Indebtedness (in whole or in part) previously secured by such Permitted Collateral shall not thereafter constitute "Permitted Collateral" under the Indenture. Permitted Dividend Encumbrance: The term "Permitted Dividend ------------------------------- Encumbrance" shall mean, with respect to any Person, any consensual encumbrances or restrictions on the ability of such Person to pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness owed to the Company or any Subsidiaries of the Company (or, in the case of a Permitted Entity, to its Equity Owners) or to make loans or advances or transfer any of its assets to the Company or any Subsidiary of the Company (or, in the case of a Permitted Entity, to its Equity Owners) existing under or by reason of any of: (i) this Indenture; (ii) Indebtedness permitted under Section 4.10(b)(ii); (iii) Indebtedness or other obligations in existence on the date of this Indenture and customary rights of first refusal with respect to the Company's and its Subsidiaries' interests in their respective Subsidiaries, Non-Affiliate Joint Ventures and Permitted Entities; (iv) applicable law and agreements with foreign governments with respect to assets located in their jurisdictions; (v) (A) customary provisions restricting (i) the subletting or assignment of any lease or (ii) the transfer of copyrighted or patented materials, (B) provisions in agreements that restrict the assignment of such agreements or rights thereunder or (C) provisions of a customary nature contained in the terms of Capital Stock restricting the payment of dividends and the making of distributions on Capital Stock; (vi) Indebtedness or other obligations of any other Person acquired (whether pursuant to a purchase of stock or assets) (including any Non-Affiliate Joint Venture of the Company or Permitted Entity that becomes a Subsidiary of the Company) or applicable to any assets at the time such Person or assets were acquired by the Company, its Subsidiaries or a Permitted Entity, in each case which Indebtedness and obligations (A) were not created in anticipation of such acquired Person becoming a Subsidiary of the Company or a Permitted Entity, as the case may be, or such assets being acquired by the Company, its Subsidiaries or such Permitted Entity, as the case may be, and (B) which encumbrances and restrictions are not applicable to any Person or the property or assets of any Person other than the Person or the property or assets of the Person so acquired (including the Capital Stock of such Person) 22 31 or any newly organized entity formed to effect such acquisition and, in each case, the monetary proceeds thereof; (vii) encumbrances and restrictions with respect to such Person imposed in connection with an agreement for the sale or disposition of such Person or its assets; (viii) encumbrances and restrictions applicable only to (A) Alpart and its assets and Capital Stock with respect to Indebtedness permitted to be Incurred by Alpart pursuant to Section 4.10(a), (B) Alpart, KJC and AJI and their respective assets and Capital Stock with respect to Indebtedness permitted to be Incurred pursuant to Section 4.10(b)(iii), (C) KAAC and its assets and Capital Stock with respect to Indebtedness permitted to be Incurred pursuant to Section 4.10(b)(iv) and (D) the Person that Incurred such Indebtedness and such Person's assets and Capital Stock with respect to Indebtedness permitted to be Incurred pursuant to Section 4.10(b)(viii) or (ix); in each case provided, that the Board of Directors of the Company has - -------- determined in good faith that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (ix) Indebtedness of a Person that was a Subsidiary at the time of Incurrence and the Incurrence of which Indebtedness is permitted by Section 4.10, provided that such encumbrances and -------- restrictions apply only to such Subsidiary and its assets, and provided, further, that the Board of Directors of the Company has - -------- ------- determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (x) the subordination of (A) any Indebtedness owed by the Company or any of its Subsidiaries to the Company or any other Subsidiary to (B) any other Indebtedness of the Company or any of its Subsidiaries, provided (A) such other Indebtedness is -------- permitted under this Indenture and (B) the Board of Directors of the Company has determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (xi) the subordination of (A) any Indebtedness owed by a Permitted Entity to its Equity Owners or any other Person to (B) any other Indebtedness of such Permitted Entity, provided (I) -------- such other Indebtedness, at the time of the Incurrence thereof, is permitted by the definition of Permitted Entity and (II) the Board of Directors of the Company has determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (xii) Refinancing Indebtedness that is otherwise permitted in connection with any Refinanced Indebtedness, provided that, in -------- the case of all Refinancing Indebtedness other than Refinancing Indebtedness Incurred with respect to Indebtedness permitted under Section 4.10(b)(ii), any such encumbrances or restrictions shall not be materially less favorable to the holders of the Notes; and (xiii) the sale or other disposition of property subject to a Lien securing Indebtedness, provided that such Lien and such -------- Indebtedness are otherwise permitted by this Indenture. Permitted Entity: The term "Permitted Entity" shall mean ----------------- any Person (other than a Subsidiary Guarantor) designated as such by a Board Resolution and as to which: (i) the Company, any Subsidiary Guarantor or any Permitted Entity own all or a portion of the Permitted Entity Securities of such Person; 23 32 (ii) no more than 10 unaffiliated Equity Owners own of record any Permitted Entity Securities of such Person; (iii) at all times, each Equity Owner owns a proportion of each class of Permitted Entity Securities of such Person outstanding equal to such Equity Owner's Ownership Interest at such time, other than as a result of an Equity Owner Default; (iv) no Indebtedness or preferred stock (including preference stock) is or has been Incurred by such Person that is outstanding other than (x) Permitted Entity Securities held by Equity Owners and/or (y) if such Person is a Subsidiary of the Company, Indebtedness permitted to be Incurred by such Subsidiary at the time of the Incurrence thereof under Sections 4.10(b)(v) and 4.10(b)(xiii); (v) there exist no consensual encumbrances or restrictions on the ability of such Person to (x) pay dividends or make any other distributions to its Non-Defaulting Equity Owners or (y) make loans or advances or transfer any of its assets to its Non- Defaulting Equity Owners, in each case other than Permitted Dividend Encumbrances of such Permitted Entity; (vi) the Company, any Subsidiary Guarantor or any Permitted Entity has the right at any time (whether by agreement, operation of law or otherwise) to (A) require the Permitted Entity that it owns an Ownership Interest in to dissolve, liquidate or wind up its affairs (subject to any right of the other Equity Owners and/or such Permitted Entity to acquire all of the Permitted Entity Securities owned by such Equity Owner) and, subject to applicable law, to distribute its remaining assets to its Equity Owners after payment to creditors or (B) have all of the Permitted Entity Securities that it owns purchased by such Permitted Entity and/or other Equity Owners; and (vii) the business engaged by such Person is one in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures were engaged on the date of this Indenture or reasonably related thereto or is the business of holding or disposing of Permitted Entity Securities. Permitted Entity Securities: The term "Permitted Entity ---------------------------- Securities" shall mean, with respect to any Permitted Entity, any Capital Stock or Indebtedness (whether or not a security) of such Permitted Entity, other than Indebtedness permitted to be Incurred by such Permitted Entity pursuant to clause (iv)(y) of the definition of Permitted Entity, but in any event including Permitted Indebtedness described in clause (b) of the definition thereof. Permitted Indebtedness: The term "Permitted Indebtedness" ----------------------- shall mean: (a) Indebtedness and preferred stock (including preference stock) of the Company and its Subsidiaries existing on the date of this Indenture, including, but not limited to, the Subordinated Notes; (b) Indebtedness (including Redeemable Stock) owed or issued by the Company to a Subsidiary or owed or issued by a Subsidiary to the Company, any other Subsidiary of the Company or to any other holder of Capital Stock of such Subsidiary in proportion to such holder's ownership interest in such Subsidiary; (c) Indebtedness and preferred stock (including preference stock) of a Permitted Entity to the extent not prohibited by clause (iii) or clause (iv)(x) of the definition thereof; (d) Indebtedness of the Company and its Subsidiaries by reason of entering into indemnification agreements and guarantees in connection with the disposition of assets, provided that the -------- Indebtedness 24 33 with respect to such indemnification agreements and guarantees shall be limited to the amount of the net proceeds of such disposition; (e) guarantees, letters of credit and indemnity agreements relating to performance and surety bonds incurred in the ordinary course of business; (f) Indebtedness of a Subsidiary of the Company (including undrawn amounts under lines of credit that are subsequently drawn upon) issued, assumed or guaranteed by such Subsidiary prior to the date upon which such Subsidiary becomes a Subsidiary of the Company (excluding Indebtedness incurred by such entity in connection with, or in contemplation of, its becoming a Subsidiary of the Company), provided that such Indebtedness and -------- the holders thereof do not, at any time, have direct or indirect recourse to any property or assets of the Company and its Subsidiaries other than the property and assets of such acquired entity and its Subsidiaries, including the Capital Stock thereof, or any newly organized entity formed to effect such acquisition, and, in each case, the monetary proceeds thereof; (g) Indebtedness incurred by the Company in connection with the purchase, redemption, retirement or other acquisition by the Company of the USWA Preferred Stock outstanding on the date hereof (plus additional shares of such USWA Preferred Stock issued as dividends thereon or on such shares issued as dividends); (h) Indebtedness of the Company and its captive wholly owned insurance Subsidiaries in respect of letters of credit in an aggregate amount not to exceed at any one time outstanding $20,000,000 issued for the account of the Company or such Subsidiaries in support of certain self-insurance and reinsurance obligations entered into from time to time by the Company or such captive wholly owned insurance Subsidiaries of the Company; (i) Indebtedness consisting of industrial revenue bonds and related indemnity agreements; and (j) prior to the merger of the Company and KAC, Indebtedness in respect of the Preferred Dividend Intercompany Notes. Person: The term "Person" shall mean any individual, ------- corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. PIK Note: The term "PIK Note" shall mean that certain PIK --------- Note issued by the Company to a subsidiary of MAXXAM on December 15, 1992, in the principal amount of $2.5 million, bearing interest at a rate equal to 12% per annum and due on June 30, 1995. Preferred Dividend Intercompany Notes: The term "Preferred -------------------------------------- Dividend Intercompany Notes" shall mean (i) the intercompany note in respect of the Series A Shares, (ii) the intercompany note in respect of the PRIDES and (iii) any other intercompany note representing a loan by KAC to the Company from the proceeds of an offering of preferred stock by KAC which loan shall have a term not in excess of five years from the date of issuance and shall be in an amount equal to the aggregate dividends scheduled to accrue on such preferred stock during the term thereof and payable at approximately the same times and in approximately the same amounts as such dividends are payable, provided, that -------- (a) the aggregate amount of all such intercompany notes referred to in this clause (iii) shall not exceed $50,000,000 at any one time outstanding and (b) the remaining net proceeds from such preferred stock offering shall have been used by KAC to make a capital contribution to (or to purchase common stock of) the Company. 25 34 Preferred Stock ($100): The term "Preferred Stock ($100)" ----------------------- shall mean the Company's 4 % Preference Stock, par value $100 per share, 4 % Preference Stock (1957 Series), par value $100 per share, 4 % Preference Stock (1959 Series), par value $100 per share, and 4 % Preference Stock (1966 Series), par value $100 per share. Principal; principal amount: The terms "principal" or ---------------------------- "principal amount" of a Note shall mean the principal amount of such Note as set forth on the face of such Note. Prospectus: The term "Prospectus" shall mean that certain ----------- prospectus dated February 10, 1994, relating to the offering by the Company of the Notes. QAL: The term "QAL" shall mean Queensland Alumina Limited, ---- a Queensland, Australia corporation, and its successors. Redeemable Stock: The term "Redeemable Stock" shall mean, ----------------- with respect to any Person, any preferred Capital Stock of such Person, that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, in whole or in part, pursuant to a sinking fund obligation or otherwise, or, at the option of the holder thereof, is redeemable in whole or in part, or is exchangeable into a security of a Person other than the issuer of such Capital Stock that is owned by such Person or its Subsidiaries or into indebtedness of, or that is owned by, such Person or its Subsidiaries, in each case on or prior to the scheduled maturity date of the Notes. Refinance: The term "Refinance" shall mean to renew, ---------- extend, refund, replace, restructure, refinance, amend or modify any Indebtedness. The term "Refinancing" shall have a correlative meaning. Refinancing Sale and Leaseback Transaction: The term ------------------------------------------- "Refinancing Sale and Leaseback Transaction" shall mean any sale and leaseback transaction with respect to which the Attributable Debt is at least $100,000,000, and which is designated by the Company as a Refinancing Sale and Leaseback Transaction in a notice to the Trustee pursuant to the terms hereof, which notice shall indicate the Attributable Debt with respect to such Refinancing Sale and Leaseback Transaction. Responsible Officer: The term "responsible officer," when -------------------- used with respect to the Trustee, shall mean any officer in its principal corporate trust office and every other officer and assistant officer to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject. Restricted Investment: The term "Restricted Investment" ---------------------- shall mean, with respect to any Person: (i) any amount paid, or any property transferred, in each case, directly or indirectly by such Person for Capital Stock or other securities of, or as a contribution to, any Affiliate of the Company; (ii) any direct or indirect loan or advance by such Person to any Affiliate of the Company other than accounts receivable of such Person relating to the purchase and sale of inventory, goods or services arising in the ordinary course of business; (iii) any direct or indirect guarantee by such Person of any obligations, contingent or otherwise, of any Affiliate of the Company; and 26 35 (iv) the acquisition by such Person of, or any investment by such Person in, any Capital Stock or similar interest of any other Person (other than the Company); provided, however, that the following shall not be Restricted - -------- ------- Investments: (a) investments in or acquisitions of Capital Stock or similar interests in any Person (other than a Person in which Affiliates of the Company have an interest other than through the Company, its Subsidiaries and its Non-Affiliate Joint Ventures) that: (I) is or becomes, at the time of the acquisition thereof, a Subsidiary of the Company and is or is to be primarily engaged in an operating business or (II) is, at the time of the acquisition thereof, engaged or to be engaged primarily in businesses in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures were engaged on the date of this Indenture or reasonably related extensions thereof, provided that such --------- securities are not, at the time of the acquisition thereof (without regard to any exchanges, modifications or other changes thereto subsequent to such acquisition), registered under the Exchange Act; (b) Restricted Investments of such Person existing as of the date of this Indenture and any extension, modification or renewal of such Restricted Investment (but not increases thereof, other than as a result of the accrual or accretion of interest or original issue discount pursuant to the terms of such Restricted Investment), or any Restricted Investment made in connection with an exchange of such Restricted Investment with the issuer thereof; (c) investments in or acquisitions of Permitted Entity Securities of any Permitted Entity; (d) transactions with officers or directors of the Company or any Subsidiary of the Company entered into in the ordinary course of business (including compensation or employee benefit arrangements with any officer or director of the Company or any Subsidiary of the Company); (e) investments in or acquisitions of Capital Stock or similar interests in Persons (other than Affiliates of the Company) received in the bankruptcy or reorganization of or by such Person or any exchange of such investment with the issuer thereof or taken in settlement of or other resolution of claims or disputes, and, in each case, extensions, modifications and renewals thereof; and (f) investments in Persons (other than Affiliates of the Company) received by such Person as consideration from Asset Sales to the extent not prohibited by Section 4.14 (including, for the purposes of this definition, those sales, transfers and other dispositions described in clause (B) and the transactions described in clause (D) of such definition) or any exchange of such investment with the issuer thereof, and extensions, modifications and renewals thereof. Securities Act of 1933: The term "Securities Act of 1933" ----------------------- shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder. Significant Subsidiary: The term "Significant Subsidiary" ----------------------- shall have the meaning assigned to that term under Regulation S-X of the Securities Act as in effect on the date of this Indenture; provided, however, that (i) each Subsidiary Guarantor on the date - -------- ------- of this Indenture shall be deemed to be a Significant Subsidiary of the Company for so long as such Subsidiary is a Subsidiary Guarantor and (ii) 27 36 each of VALCO, KAAC and Alpart, and each Subsidiary of the Company that, directly or indirectly, holds an interest in VALCO, Alpart or QAL, and each Subsidiary Guarantor that becomes a Subsidiary Guarantor after the date of this Indenture (so long as such Subsidiary Guarantor is a Subsidiary Guarantor) shall be deemed to be a Significant Subsidiary if it (singly, or, in the case of VALCO, Alpart or QAL, together with the other Subsidiaries of the Company that hold an interest in such entity) meets the total assets test of the term "Significant Subsidiary" under Regulation S-X as in effect on the date of this Indenture, but substituting 5% in such test for 10%. Specified Parties: The term "Specified Parties" shall mean ------------------ each of AJI, Alpart, KAAC, KJC, VALCO, Kaiser Aluminium International, Inc., a Delaware corporation, and its successors, Kaiser Bauxite Company, a Nevada corporation, and its successors, Kaiser Jamaica Bauxite Company, a Jamaican partnership, and its successors, and Queensland Alumina Security Corporation, a Delaware corporation, and its successors. Subordinated Notes: The term "Subordinated Notes" shall ------------------- mean the Company's 12 3/4% Senior Subordinated Notes due 2003, as amended from time to time, issued pursuant to the Subordinated Note Indenture. Subordinated Note Indenture: The term "Subordinated Note ---------------------------- Indenture" shall mean the indenture, dated as of February 1, 1993, among the Company, as issuer, the parties named therein as and, if applicable, thereafter becoming guarantors, and The First National Bank of Boston, a national banking association, as trustee, as amended or supplemented from time to time in accordance with the terms thereof. Subsidiary: The term "Subsidiary" shall mean any ----------- corporation or other entity of which more than 50% of the equity interest (which for a corporation shall be the outstanding stock having ordinary voting power to elect a majority of the Board of Directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned (either alone or through Subsidiaries or together with Subsidiaries) by the Company or another Subsidiary; provided, -------- however, that Queensland Alumina Security Corporation, a Delaware - ------- corporation, shall be deemed not to be a Subsidiary of the Company or any of its Subsidiaries and shall be deemed to be a Non-Affiliate Joint Venture (for as long as it meets the definition of Non-Affiliate Joint Venture and for as long as its operations remain substantially the same), and provided, further, -------- ------- that, for purposes of the definitions of Asset Sale and Net Cash Proceeds and for purposes of Section 4.14, each of Alpart and VALCO, so long as it is not a wholly owned Subsidiary, shall be deemed not to be a Subsidiary of the Company or any of its Subsidiaries and shall be deemed to be a Non-Affiliate Joint Venture of the Company (for as long as it meets the definition of Non-Affiliate Joint Venture). For purposes of this definition, any directors' qualifying shares shall be disregarded in determining the ownership of a Subsidiary. Subsidiary Guarantors: The term "Subsidiary Guarantors" ---------------------- shall mean the Persons from time to time named as Subsidiary Guarantors in this Indenture or that become Subsidiary Guarantors hereunder, and each of their respective successors, provided, -------- however, that in the event that a Subsidiary Guarantor is - ------- released from its Guarantee in accordance with the terms of this Indenture, such Subsidiary Guarantor shall without any further action no longer be a Subsidiary Guarantor for any purpose of this Indenture or the Notes. On the date of this Indenture, the Subsidiary Guarantors are AJI, KFC, KAAC and KJC. Tax Sharing Agreements: The term "Tax Sharing Agreements" ----------------------- shall mean, collectively, the tax-sharing agreement between the Company and KAC, dated as of June 30, 1993, and the tax-sharing 28 37 agreement between the Company and MAXXAM, dated as of December 21, 1989, as each is described in the Prospectus and as each may be amended in accordance with Section 4.08(b)(x) of this Indenture. Trust Indenture Act of 1939: The term "Trust Indenture Act ---------------------------- of 1939" shall mean the Trust Indenture Act of 1939 as it was in force at the date of this Indenture, except as provided by Article Ten. Trustee; principal office: The term "Trustee" shall mean -------------------------- First Trust National Association, a national banking association, until a successor replaces it in accordance with the provisions of Article Seven. The term "principal office of the Trustee" shall mean the office of the Trustee at which at any particular time its corporate trust business may be principally administered, which office at the date hereof is located at First Trust Center, 180 East 5th Street, St. Paul, Minnesota 55101. U.S. Fixed Assets: The term "U.S. Fixed Assets" shall mean, ------------------ at any time, any real property, plant or equipment of the Company or any of its Subsidiaries located at such time in the United States of America, now owned or hereafter acquired, together with any fixed assets that are Improvements thereto or thereon and any fixed assets that are proceeds thereof. USWA Preferred Stock: The term "USWA Preferred Stock" shall --------------------- mean the shares of the Company's Cumulative (1985 Series A) Preference Stock and shares of the Company's Cumulative (1985 Series B) Preference Stock that have been or may in the future be issued in connection with the Kaiser Aluminum USWA Employee Stock Ownership Plan and/or the Kaiser Aluminum Salaried Employee Stock Ownership Plan. VALCO: The term "VALCO" shall mean Volta Aluminium Company ------ Limited, a Ghanaian corporation, and its successors. SECTION 1.02. References are to Indenture. Unless the ---------------------------- context otherwise requires, all references herein to "Articles," "Sections" and other subdivisions refer to the corresponding Articles, Sections and other subdivisions of this Indenture, and the words "herein," "hereof," hereby," "hereunder" and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision hereof. SECTION 1.03. Other definitions. ------------------ The following terms are defined in the referenced section of this Indenture and have the meaning set forth therein for all purposes in this Indenture (except as otherwise expressly provided or unless the context otherwise requires): Term Defined in Section "applicants" . . . . . . . . . . . . . . . 5.02(b) "Asset Sale Offer" . . . . . . . . . . . . 4.14(b) "Asset Sale Offer Amount". . . . . . . . . 4.14(b) "Asset Sale Purchase Date" . . . . . . . . 4.14(b) "Asset Sale Purchase Notice" . . . . . . . 4.14(b) "Asset Sale Purchase Price". . . . . . . . 4.14(b) "Change of Control". . . . . . . . . . . . 3.05(a) "Change of Control Purchase Date". . . . . 3.05(a) "Change of Control Purchase Notice". . . . 3.05(c) "Change of Control Purchase Price" . . . . 3.05(a) 29 38 "Controlled Non-Affiliate Joint Venture" . 4.09(a) "Incur". . . . . . . . . . . . . . . . . . 4.10(a) "Notice of Default". . . . . . . . . . . . 6.01(c) "Other Indebtedness" . . . . . . . . . . . 4.10(c) "PRIDES" . . . . . . . . . . . . . . . . . 4.09(b)(IX) "record date". . . . . . . . . . . . . . . 2.03 "Refinanced Indebtedness". . . . . . . . . 4.10(b)(vi) "Refinancing Indebtedness" . . . . . . . . 4.10(b)(vi) "Restricted Payment" . . . . . . . . . . . 4.09(a) "Series A Shares". . . . . . . . . . . . . 4.09(b)(IX) "Specified Pari Passu Indebtedness". . . . 4.14(b) "surviving corporation". . . . . . . . . . 11.01(a) "Twenty-Five Million Threshold". . . . . . 4.14(c) "Voting Stock" . . . . . . . . . . . . . . 3.05(a) The following terms are defined in the referenced section of this Indenture and have the meaning set forth therein for purposes provided therein, and such definitions are limited to those sections of the Indenture specifically referenced:
Defined in Definition Limited Term Section to Section ---- ----------- ------------------- "amount" . . . . . . . .7.08(d). . . . . . . . . 7.08 "cash transaction" . . .7.13(c). . . . . . . . . 7.13 "Company". . . . . . . .7.08(d). . . . . . . . . 7.08 "Company". . . . . . . .7.13(c). . . . . . . . . 7.13 "defaults" . . . . . . .6.07 . . . . . . . . . . 6.07 "defaults" . . . . . . .7.13(c). . . . . . . . . 7.13 "director" . . . . . . .7.08(d). . . . . . . . . 7.08 "dividends". . . . . . .7.13(a). . . . . . . . . 7.13(a) "executive officer". . .7.08(d). . . . . . . . . 7.08 "in default" . . . . . .7.08(c). . . . . . . . . 7.08(c)(6), (7) (8) and (9) "other indenture securities" . . . . . . . . . . 7.13(c) . 7.13 "outstanding". . . . . . . . . . . . . . . . . . 7.08(d) 7.08 "person" . . . . . . . .7.08(d). . . . . . . . . 7.08 "security" . . . . . . .7.08(c). . . . . . . . . 7.08(c)(6), (7) (8) and (9) "security" . . . . . . .7.08(d). . . . . . . . . 7.08 (other than 7.08(c)(6), (7), (8) and (9)) "self liquidating paper"7.13(c). . . . . . . . . 7.13 "trust". . . . . . . . .7.08(d). . . . . . . . . 7.08 "voting security". . . .7.08(d). . . . . . . . . 7.08
30 39 ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES SECTION 2.01. Designation, amount, authentication and ---------------------------------------- delivery of Notes. The Notes shall be designated as the - ----------------- Company's 9 % Senior Notes due 2002. Notes for an aggregate principal amount of two hundred twenty five million dollars ($225,000,000), upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes to or upon the written order of the Company, signed by its Chairman of the Board, President or a Vice President, without any further corporate action by the Company. The aggregate principal amount of Notes authorized by this Indenture is limited to two hundred twenty five million dollars ($225,000,000), and, except as provided in this Section 2.01 and in Section 2.07, the Company shall not execute and the Trustee shall not authenticate or deliver Notes in excess of such aggregate principal amount. Nothing contained in this Section 2.01 or elsewhere in this Indenture, or in the Notes, is intended to or shall limit execution by the Company or authentication or delivery by the Trustee of Notes under the circumstances contemplated by Sections 2.05, 2.06, 2.07, 3.03, 3.05 and 10.04. SECTION 2.02. Form of Notes and Trustee's certificate. The ---------------------------------------- definitive Notes and the Trustee's certificate of authentication to be borne by the Notes shall be substantially in the form set forth in the Recitals of this Indenture, which are part of this Indenture, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the officers executing the same may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Notes may be listed, or to conform to usage. SECTION 2.03. Date of Notes and denominations. The Notes -------------------------------- shall bear interest at the rate per annum of 9 %, payable semi- annually on February 15 and August 15, shall mature on February 15, 2002 and shall be issuable as registered Notes without coupons in denominations of $1,000 and any integral multiple thereof. The person in whose name any Note is registered at the close of business on any record date (as hereinbelow defined) with respect to any interest payment date shall be entitled to receive the interest payable thereon on such interest payment date notwithstanding the cancellation of such Note upon any registration of transfer or exchange thereof subsequent to such record date and prior to such interest payment date, unless such Note shall have been redeemed on a date fixed for redemption subsequent to such record date and prior to such interest payment date, or unless an Event of Default shall have occurred and be continuing as the result of a default in the payment of interest due on such interest payment date on any Note, in which case such defaulted interest shall be paid to the person in whose name such Note (or any Note or Notes issued upon registration of transfer or exchange thereof) is registered on the record date for the payment of such defaulted interest. The principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on the Notes shall be payable at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02; provided, however, that payment of interest may be made at the option of the Company by check mailed by first-class mail to the address of the person entitled thereto as such address shall appear on the registry books of the Company. The term "record date" as used in this Section 2.03 with respect to any interest payment date shall mean the close of business on the February 1 or August 1, as 31 40 the case may be, next preceding such interest payment date, whether or not such February 1 or August 1 is a Business Day, and such term, as used in this Section 2.03, with respect to the payment of any defaulted interest shall mean the tenth day next preceding the date fixed by the Company for the payment of defaulted interest whether or not a Business Day, but in no case shall such record date be less than ten days after notice thereof shall have been mailed by or on behalf of the Company to all registered holders of Notes at their addresses. The Notes shall be dated the date of their authentication. Except as provided in the next sentence, interest shall accrue on the Notes from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from February 17, 1994. Each Note authenticated between the record date for any interest payment date and such interest payment date shall be dated the date of its authentication but shall bear interest from such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, then any Note so authenticated shall bear interest from the February 15 or August 15, as the case may be, next preceding the date of such Note to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on the Notes, from February 17, 1994. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. SECTION 2.04. Execution of Notes. The Notes shall be ------------------- signed on behalf of the Company, manually or in facsimile, by its Chairman of the Board or its President or a Vice President under its corporate seal (which may be in facsimile) reproduced thereon and attested, manually or in facsimile, by its Secretary or an Assistant Secretary. Only such Notes as shall bear thereon a certificate of authentication substantially in the form hereinbefore recited, signed manually by the Trustee, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such signature by the Trustee upon any Note executed by the Company shall be conclusive evidence that the Note so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company whose signature appears on any of the Notes, manually or in facsimile, shall cease to be such officer before such Notes so signed shall have been authenticated and delivered by the Trustee, such Notes nevertheless may be authenticated and delivered as though the person whose signature appears on such Notes had not ceased to be such officer of the Company; and any Note may be signed, and the corporate seal reproduced thereon may be attested, on behalf of the Company, manually or in facsimile, by persons as, at the actual date of the execution of such Note, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such officer. SECTION 2.05. Exchange and transfer of Notes. Notes may be ------------------------------- exchanged for a like aggregate principal amount of Notes in other authorized denominations. Notes to be exchanged shall be surrendered at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, and the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor the Note or Notes which the noteholder making the exchange shall be entitled to receive. The Company shall keep, at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, a register or registers in which, subject to such reasonable regulations as it may prescribe, the Company shall register Notes and shall register the transfer of Notes as in this Article Two provided. Upon surrender for registration of transfer of any Note at such office or agency, 32 41 the Company shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Note or Notes for a like aggregate principal amount. All Notes presented or surrendered for exchange, registration of transfer, redemption, purchase or payment shall, if so required by the Company or the Trustee or any Note registrar (if other than the Trustee), be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company and the Trustee or the Note registrar (if other than the Trustee), duly executed by the registered holder or by his attorney duly authorized in writing and, in every case, each Note presented or surrendered for registration of transfer shall be accompanied by the assignment form attached to the Notes, duly executed by the registered holder or by his attorney duly authorized in writing. No service charge shall be made for any exchange or registration of transfer of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. The Company shall not be required to issue, register the transfer of or exchange any Notes for a period of fifteen days next preceding any date for the selection of Notes to be redeemed. The Company shall not be required to register the transfer of or exchange any Note called or being called for redemption except, in the case of any Note to be redeemed in part, the portion thereof not to be so redeemed. The Company shall not be required to register the transfer of or exchange any Note in respect of which a Change of Control Purchase Notice or an Asset Sale Purchase Notice has been given (unless such notice has been withdrawn in accordance with Section 3.06 or 4.14) except, in the case of any Note to be purchased in part, the portion thereof not to be so purchased. SECTION 2.06. Temporary Notes. Pending the preparation of ---------------- definitive Notes, the Company may execute and the Trustee shall authenticate and deliver temporary Notes (printed, lithographed or typewritten) of any authorized denomination and substantially in the form of the definitive Notes, but with or without a recital of specific redemption prices and with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Company. Temporary Notes may contain such reference to any provisions of the Indenture as may be appropriate. Every temporary Note shall be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Notes. Without unnecessary delay the Company will execute and deliver to the Trustee definitive Notes and thereupon any or all temporary Notes may be surrendered in exchange therefor, at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, and the Trustee shall authenticate and deliver in exchange for such temporary Notes an equal aggregate principal amount of definitive Notes. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture, and shall be subject to the same provisions hereof, as definitive Notes authenticated and delivered hereunder. SECTION 2.07. Mutilated, destroyed, lost or stolen Notes. ------------------------------------------- In case any temporary or definitive Note shall become mutilated or be destroyed, lost or stolen, the Company, in the case of any mutilated Note shall, and in the case of any destroyed, lost or stolen Note may, execute, and upon its request the Trustee shall authenticate and deliver, a new Note bearing a number, letter or other distinguishing symbol not contemporaneously outstanding in exchange and substitution for the mutilated Note, or in lieu of and in substitution for the Note so destroyed, lost or stolen, or, instead of issuing a substituted Note, if any such Note shall have matured or shall be about to mature or shall have been selected for redemption or if the Company shall have received a Change of Control Purchase Notice or an Asset Sale Purchase Notice in respect of any such Note (unless such notice has been withdrawn in accordance with Section 3.06 or 4.14), the Company may pay the same without surrender thereof except in the case of a mutilated Note. In every case the applicant for a substituted Note or for such payment shall furnish to the 33 42 Company and to the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and to the Trustee evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. The Trustee may authenticate any such substituted Note and deliver the same, or the Trustee or any paying agent of the Company may make any such payment, upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Note, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. Every substituted Note issued pursuant to the provisions of this Section 2.07 shall constitute an additional contractual obligation of the Company whether or not the destroyed, lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. All Notes shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.08. Cancellation of surrendered Notes. All Notes ---------------------------------- surrendered for the purpose of payment, redemption, purchase by the Company at the option of the holder, exchange, substitution or registration of transfer, shall, if surrendered to the Company or any paying agent or Note registrar, be delivered to the Trustee and the same, together with Notes surrendered to the Trustee for cancellation, shall be cancelled by it, and no Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall destroy cancelled Notes and shall deliver certificates of destruction thereof to the Company. If the Company shall purchase or otherwise acquire any of the Notes, however, such purchase or acquisition shall not operate as a payment, redemption or satisfaction of the indebtedness represented by such Notes unless and until the Company, at its option, shall deliver or surrender the same to the Trustee for cancellation. ARTICLE THREE REDEMPTION AND PURCHASES OF NOTES SECTION 3.01. Redemption prices. The Company may, at its ------------------ option, redeem at any time all or from time to time any part of the Notes, on any date prior to maturity at the redemption prices specified in the Notes, together with accrued and unpaid interest thereon to but excluding the date fixed for redemption and in the manner set forth in this Article Three. The Company, however, shall not have the right to redeem any of the Notes prior to February 15, 1998. SECTION 3.02. Notice of redemption; selection of Notes. In ----------------------------------------- case the Company shall desire to exercise such right to redeem all or, as the case may be, any part of the Notes in accordance with the right reserved so to do, the Company, or, at the Company's request, the Trustee in the name and at the expense of the Company, shall fix a date for redemption and give notice of such redemption to holders of the Notes to be redeemed as hereinafter in this Section 3.02 provided. Notice of redemption shall be given to the holders of Notes to be redeemed as a whole or in part by mailing by first-class mail a notice of such redemption not less than fifteen nor more than sixty days 34 43 prior to the date fixed for redemption to their last addresses as they shall appear upon the registry books of the Company, but any failure to give such notice by mailing to the holder of any Note designated for redemption as a whole or in part, or any defect therein, shall not affect the validity of the proceedings for the redemption of any other Notes. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives the notice. Each such notice of redemption shall specify the total principal amount to be redeemed, the date fixed for redemption and the redemption price at which Notes are to be redeemed, and shall state that payment of the redemption price of the Notes to be redeemed will be made at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, upon presentation and surrender of such Notes, that interest accrued to but not including the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon will cease to accrue and that the only remaining right of the noteholder is to receive payment of the redemption price plus such accrued interest upon surrender. If less than all the Notes are to be redeemed, the notice of redemption to each holder also shall state the aggregate principal amount of Notes to be redeemed and shall identify the Notes of such holder to be redeemed. In case any Note is redeemed in part only, the notice which relates to such Note shall state the portion of the principal amount thereof to be redeemed (which shall be $1,000 or an integral multiple thereof), and shall state that on and after the date fixed for redemption, upon surrender of such Note, the holder will receive, without charge, a new Note or Notes of authorized denominations in the principal amount thereof remaining unredeemed. Each notice shall give the name and address of each paying agent. On or prior to the date fixed for redemption specified in the notice of redemption given as provided in this Section 3.02, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 4.04(c)) an amount of money sufficient to redeem on the date fixed for redemption all the Notes or portions of Notes so called for redemption (other than Notes or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation) at the applicable redemption price, together with accrued interest to but not including the date fixed for redemption. If less than all the Notes then outstanding are to be redeemed, the Company shall give the Trustee, at least twenty-five days (or such shorter period acceptable to the Trustee) in advance of the date fixed for redemption, notice of the aggregate principal amount of Notes to be redeemed, and thereupon the Trustee shall select in such manner as it shall deem appropriate and fair, in its discretion, the Notes or portions thereof to be redeemed and shall thereafter promptly notify the Company of the Notes or portions thereof to be redeemed within a sufficient period of time in order that the notice provision in Section 3.02 may be satisfied. SECTION 3.03. When Notes called for redemption become due -------------------------------------------- and payable. If the giving of notice of redemption shall have - ----------- been completed as provided in Section 3.02, the Notes or portions of Notes specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to (but not including) the date fixed for redemption, and on and after such date fixed for redemption (unless the Company shall default in the payment of such Notes at the redemption price, together with interest accrued to (but not including) the date fixed for redemption) interest on the Notes or portions of Notes so called for redemption shall cease to accrue whether or not such Notes are presented for payment and such Notes or portions thereof shall be deemed not to be outstanding hereunder and shall not be entitled to any right or benefit hereunder 35 44 except to receive payment of the redemption price plus accrued interest to but not including the redemption date. On presentation and surrender of such Notes for redemption at said place of payment in said notice specified on or after the date fixed for redemption, the said Notes shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued to (but not including) the date fixed for redemption. If the date fixed for redemption is an interest payment date, such payment shall not include accrued interest, which interest shall be paid in the usual manner otherwise provided for herein. Upon presentation of any Note which is redeemed in part only, the Company shall execute and register and the Trustee shall authenticate and deliver to the holder thereof at the expense of the Company, a new Note or Notes in principal amount equal to the unredeemed portion of the Note so presented. SECTION 3.04. Cancellation of redeemed Notes. All Notes ------------------------------- surrendered to the Trustee, upon redemption pursuant to the provisions of this Article Three, shall be forthwith cancelled by it. SECTION 3.05. Purchase of Notes at option of the holder ------------------------------------------ upon Change of Control. - ---------------------- (a) If on or prior to maturity, there shall have occurred a Change of Control, the Company shall offer to purchase each Note at a purchase price in cash equal to 101% of the principal amount thereof plus interest accrued to (but not including) the Change of Control Purchase Date (the "Change of Control Purchase Price"), on the date that is thirty Business Days after the occurrence of the Change of Control (the "Change of Control Purchase Date"), subject to the satisfaction by or on behalf of the holder of the requirements set forth in Section 3.05(c). Following a Change of Control, the Company shall not be obligated to purchase any Notes pursuant to this Section 3.05(a) or give any notice under Section 3.05(b) with respect to any subsequent Change of Control. The Company's obligation to purchase Notes as provided hereunder shall for all purposes hereof be satisfied by, and shall cease upon, the deposit of funds with the Trustee as provided for in Section 3.07. A "Change of Control" shall be deemed to have occurred at such time as MAXXAM, directly or indirectly, shall cease to have (other than by reason of the existence of a Lien but including by reason of the foreclosure of or other realization upon a Lien) direct or indirect sole beneficial ownership (as defined under Regulation 13d-3 of the Exchange Act as in effect on the date of this Indenture) of at least 40% of the total Voting Stock, on a fully diluted basis, of the Company; provided, however, that such ownership by MAXXAM, directly or indirectly, of 30% or greater, but less than 40%, of the total Voting Stock, on a fully diluted basis, of the Company shall not be a Change of Control if MAXXAM, through direct representation or through persons nominated by it, controls a majority of the Board of Directors of the Company necessary to effectuate any actions by the Board of Directors of the Company; and provided, further, that the foregoing minimum percentages shall be deemed not satisfied if any person or group (as defined in Section 13(d)(3) of the Exchange Act as in effect on the date of this Indenture) shall, directly or indirectly, own more of the total Voting Stock entitled to vote generally in the election of directors of the Company than MAXXAM. "Voting Stock" means, with respect to any person, the capital stock of such person having general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). (b) Within ten Business Days after the occurrence of a Change of Control, the Company shall mail a written notice of Change of Control by first-class mail to the Trustee and to each holder (and to beneficial owners as required by applicable law, including without limitation, Rule 13e-4 of the Exchange Act, if applicable) and shall cause a copy of such notice to be published in a daily newspaper of national 36 45 circulation. The notice shall include a form of Change of Control Purchase Notice (as described below) to be completed by the holder and shall state: (1) the events causing a Change of Control and the date of such Change of Control; (2) the date by which the Change of Control Purchase Notice pursuant to this Section 3.05 must be given; (3) the Change of Control Purchase Date; (4) the Change of Control Purchase Price; (5) the name and address of the Trustee and the office or agency referred to in Section 4.02; (6) that the Notes must be surrendered to the Trustee or the office or agency referred to in Section 4.02 to collect payment; (7) that the Change of Control Purchase Price for any Note as to which a Change of Control Purchase Notice has been duly given and not withdrawn will be paid promptly following the later of the Change of Control Purchase Date and the time of surrender of such Note as described in (6); (8) the procedures the holder must follow to exercise rights under this Section 3.05 and a brief description of those rights; and (9) the procedures for withdrawing a Change of Control Purchase Notice. (c) To accept the offer to purchase Notes described in Section 3.05(a), a holder must deliver a written notice of purchase (a "Change of Control Purchase Notice") to the Trustee or to the office or agency referred to in Section 4.02 at any time prior to the close of business on the Business Day immediately preceding the Change of Control Purchase Date, stating: (1) the name of the holder, the principal amount of Notes, the certificate number or numbers of the Note or Notes which the holder will deliver to be purchased and a statement that the offer to purchase is being accepted; (2) the portion of the principal amount of the Note which the holder will deliver to be purchased, which portion must be $1,000 or an integral multiple thereof; and (3) that such Note shall be purchased on the Change of Control Purchase Date pursuant to the terms and conditions specified in the Notes. The delivery of the Note, by hand or by registered mail prior to, on or after the Change of Control Purchase Date (together with all necessary endorsements), to the Trustee or to the office or agency referred to in Section 4.02 shall be a condition to the receipt by the holder of the Change of Control Purchase Price therefor; provided, however, that such Change of Control Purchase Price shall be so paid pursuant to this Section 3.05 only if the Note so delivered to the Trustee or such office or agency shall conform in all respects to the description thereof set forth in the related Change of Control Purchase Notice; and provided, further that the Company shall have no obligation to purchase any Notes 37 46 with respect to which the Change of Control Purchase Notice has not been received by the Company prior to the close of business on the Business Day immediately preceding the Change of Control Purchase Date. In the event that the offer to purchase described in Section 3.05(a) shall be accepted in accordance with the terms hereof, the Company shall purchase from the holder thereof, pursuant to this Section 3.05, a portion of a Note if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Note also apply to the purchase of such portion of such Note. Any purchase by the Company contemplated pursuant to the provisions of this Section 3.05 shall be consummated by the delivery by the Trustee or other paying agent of the consideration to be received by the holder promptly following the later of the Change of Control Purchase Date and the time of delivery of the Note. Notwithstanding anything herein to the contrary, any holder delivering to the Trustee or to the office or agency referred to in Section 4.02, the Change of Control Purchase Notice contemplated by this Section 3.05(c) shall have the right to withdraw such Change of Control Purchase Notice by delivery of a written notice of withdrawal to the Trustee or to such office or agency in accordance with Section 3.06 at any time prior to the close of business on the Business Day next preceding the Change of Control Purchase Date. SECTION 3.06. Effect of Change of Control Purchase Notice. -------------------------------------------- Upon receipt by the Company of the Change of Control Purchase Notice specified in Section 3.05(c), the holder of the Note in respect of which such Change of Control Purchase Notice was given shall (unless such Change of Control Purchase Notice is withdrawn as specified in the following paragraph) thereafter be entitled to receive solely the Change of Control Purchase Price with respect to such Note. Such Change of Control Purchase Price shall be due and payable as of the Change of Control Purchase Date and shall be paid to such holder promptly following the later of (x) the Change of Control Purchase Date (provided the conditions in Section 3.05(c), as applicable, have been satisfied) and (y) the date of delivery of such Note to the Trustee or to the office or agency referred to in Section 4.02 by the holder thereof in the manner required by Section 3.05(c). A Change of Control Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Trustee or to the office or agency referred to in Section 4.02 at any time on or prior to the close of business on the Business Day next preceding the Change of Control Purchase Date, specifying: (1) the certificate number or numbers of the Note or Notes in respect of which such notice of withdrawal is being submitted; (2) the principal amount of the Note or Notes with respect to which such notice of withdrawal is being submitted; and (3) the principal amount, if any, of such Note or Notes which remains subject to the original Change of Control Purchase Notice, and which has been or will be delivered for purchase by the Company. There shall be no purchase of any Notes pursuant to Section 3.05 if there has occurred (prior to, on or after, as the case may be, the giving, by the holders of such Notes, of the required Change of 38 47 Control Purchase Notice), and is continuing an Event of Default (other than a default in the payment of the Change of Control Purchase Price with respect to such Notes). SECTION 3.07. Deposit of Change of Control Purchase Price. -------------------------------------------- On or prior to the Change of Control Purchase Date, the Company shall deposit with the Trustee (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as paying agent, shall segregate and hold in trust as provided in Section 4.04(c)) an amount of cash in immediately available funds sufficient to pay the aggregate Change of Control Purchase Price of all the Notes or portions thereof which are to be purchased on the Change of Control Purchase Date. Upon such deposit, the Company shall be deemed to have satisfied its obligations to purchase Notes pursuant to Section 3.05. If cash sufficient to pay the Change of Control Purchase Price of all Notes or portions thereof to be purchased on the Change of Control Purchase Date is deposited with the Trustee as of the Change of Control Purchase Date, interest shall cease to accrue (whether or not any such Note is delivered to the Trustee or any other office or agency maintained for such purpose) on such Notes (or portions thereof) on and after the Change of Control Purchase Date, and the holders thereof shall have no other rights as such (other than the right to receive the Change of Control Purchase Price, upon surrender of such Notes). SECTION 3.08. Covenant to comply with securities laws upon --------------------------------------------- purchase of Notes. In connection with any offer to purchase or - ------------------ any purchase of securities under Section 3.05 hereof, the Company shall (i) comply with Section 14(e) under the Exchange Act (or any successor provision thereof), if applicable, and (ii) otherwise comply with all Federal and state securities laws regulating the purchase of the Notes so as to permit the rights and obligations under Section 4.05 to be exercised in the time and in the manner specified in Sections 4.05 and 4.06. SECTION 3.09. Repayment to the Company. The Trustee shall ------------------------- return to the Company any cash, together with interest or dividends, if any, thereon (subject to the provisions of Section 7.05) held by it for the payment of the Change of Control Purchase Price of the Notes that remain unclaimed as provided in Section 12.04 hereof; provided, however, that to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 3.07 exceeds the aggregate Change of Control Purchase Price of the Notes or portions thereof to be purchased on the Change of Control Purchase Date, then promptly after the Change of Control Purchase Date, the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon (subject to the provisions of Section 7.05). ARTICLE FOUR PARTICULAR COVENANTS OF THE COMPANY The Company covenants as follows: SECTION 4.01. Payments on the Notes. The Company will duly ---------------------- and punctually pay or cause to be paid the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on each of the Notes at the time and place such amounts may become due and payable and in the manner provided in the Notes and this Indenture. SECTION 4.02. Maintenance of office or agency for ------------------------------------ registration of transfer, exchange and payment of Notes. So long - -------------------------------------------------------- as any of the Notes shall remain outstanding, the Company will maintain an office or agency in the Borough of Manhattan, City of New York, State of New York, where the Notes may be surrendered for exchange or registration of transfer as in this Indenture provided, and where notices and demands to or upon the Company in respect to the Notes or of this Indenture may be served, 39 48 and where the Notes may be presented or surrendered for payment, redemption or purchase. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, -------- however, that no such designation or rescission shall in any - ------- manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, City of New York, State of New York for such purposes. The Company will give to the Trustee notice of the location of any such office or agency and of any change of location thereof. In case the Company shall fail to maintain any such office or agency or shall fail to give such notice of the location or of any change in the location thereof, such surrenders, presentations and demands may be made and notices may be served at the principal office of the Trustee in St. Paul, Minnesota, and the Company hereby appoints the Trustee its agent to receive at the aforesaid office all such surrenders, presentations, notices and demands. SECTION 4.03. Appointment to fill a vacancy in the office -------------------------------------------- of Trustee. The Company, whenever necessary to avoid or fill a - ---------- vacancy in the office of Trustee, will appoint, in the manner provided in Section 7.10, a Trustee, so that there shall at all times be a Trustee hereunder. SECTION 4.04. Provision as to paying agent. ----------------------------- (a) If the Company shall appoint a paying agent other than the Trustee, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 4.04, (1) that it will hold all sums held by it as such agent for the payment of the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on the Notes (whether such sums have been paid to it by the Company or by any other obligor on the Notes) in trust for the benefit of the holders of the Notes, and will notify the Trustee of the receipt of sums to be so held, (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on the Notes when the same shall be due and payable, and (3) that it will at any time during the continuance of any Event of Default specified in subsection (a) or (b) of Section 6.01, upon the written request of the Trustee, deliver to the Trustee all sums so held in trust by it. If any obligations under the Credit Agreement are outstanding, the Company will notify the Bank Agent of the name and address of any paying agent other than the Company or the Trustee. (b) If the Company shall not act as its own paying agent, it will, prior to each due date of the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on any Notes, deposit with such paying agent a sum sufficient to pay the principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest so becoming due, such sum to be held in trust for the benefit of the holders of Notes entitled to such principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of its failure so to act. (c) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest 40 49 on the Notes, set aside, segregate and hold in trust for the benefit of the persons entitled thereto, a sum sufficient to pay such principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest so becoming due and will notify the Trustee of any failure to take such action. (d) Anything in this Section 4.04 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by it, or by any paying agent hereunder, as required by this Section 4.04, such sums to be held by the Trustee upon the trusts herein contained. (e) Anything in this Section 4.04 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 4.04 is subject to the provisions of Sections 12.03 and 12.04. SECTION 4.05. Maintenance of corporate existence. So long ----------------------------------- as any of the Notes shall remain outstanding, the Company will at all times (except as otherwise provided or permitted in this Section 4.05 or elsewhere in this Indenture) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each Subsidiary; provided, however, that nothing herein shall -------- ------- require the Company to continue the corporate existence of any Subsidiary other than a Subsidiary Guarantor (so long as any such Subsidiary is a Subsidiary Guarantor) if in the judgment of the Company it shall be necessary, advisable or in the interest of the Company to discontinue the same; and provided, further, that -------- ------- any Subsidiary Guarantor may: (a) merge or consolidate with or into the Company or any other Subsidiary Guarantor or transfer all or substantially all of its property to the Company or any other Subsidiary Guarantor; (b) merge or consolidate with or into any other Person or transfer all or substantially all of its property to any other Person as provided in Section 15.03; and (c) liquidate or dissolve under the laws of its jurisdiction of formation, provided that such Subsidiary -------- Guarantor is wholly owned directly by the Company and/or another Subsidiary Guarantor. SECTION 4.06. Officers' Certificate as to default and ---------------------------------------- statement as to compliance. The Company will, so long as any of - --------------------------- the Notes are outstanding: (a) deliver to the Trustee, promptly upon becoming aware of any Event of Default or any event which after the passage of time or notice would become an Event of Default, an Officers' Certificate specifying such event or Event of Default; (b) deliver to the Trustee within one hundred and twenty days after the end of each fiscal year of the Company, beginning with the fiscal year ending December 31, 1994, a statement as to compliance signed on behalf of the Company by the Chairman of the Board or the President or any Vice President and by the Chief Financial Officer, Treasurer or Controller of the Company stating as to each signer thereof that: (1) a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision, and (2) to the best of his knowledge, based on such review, there is no Event of Default or event which with notice or the passage of time would become an Event of Default which has occurred and is continuing, or, if there is such an event or Event of Default, specifying each such event or Event of Default known to him and the nature and status thereof; and 41 50 (c) deliver to the Trustee within five days after becoming aware of the occurrence thereof written notice of any acceleration which, with the giving of notice and the lapse of time, would be an Event of Default within the meaning of Section 6.01(d). SECTION 4.07. Usury laws. The Company, to the extent it ----------- may lawfully do so, will not voluntarily claim, and will actively resist any attempts to claim, the benefit of any usury laws against any holder of the Notes. SECTION 4.08. Restrictions on transactions with Affiliates. --------------------------------------------- (a) The Company shall not, and shall not permit any of its Subsidiaries or its Non-Affiliate Joint Ventures to, enter into any transaction or series of related transactions with any Affiliate of the Company, unless: (i) the terms thereof are no less favorable to the Company, such Subsidiary or such Non-Affiliate Joint Venture, as the case may be, than those that could reasonably be expected to be obtained in a comparable transaction with an unrelated Person, (ii) such transaction or series of related transactions shall have been approved as meeting such standard, in good faith, by a majority of the independent members of the Board of Directors of the Company evidenced by a Board Resolution and (iii) if the amount of such transaction or the aggregate amount of such series of related transactions is greater than $10,000,000, the Company, such Subsidiary and/or such Non-Affiliate Joint Venture, as the case may be, shall have received an opinion that such transaction or series of related transactions is fair to the Company, such Subsidiary and/or such Non-Affiliate Joint Venture, as the case may be, from a financial point of view, from an independent investment banking firm of national standing selected by the Company. The Company shall deliver to the Trustee, within 60 days after the end of each fiscal quarter of the Company, an Officers' Certificate which (x) shall specify the aggregate dollar amount of transactions (other than transactions referred to in Section 4.08(b)) with Affiliates of the Company occurring during such fiscal quarter, and (y) with respect to any transaction with an Affiliate of the Company, or series of related transactions (other than transactions referred to in Section 4.08(b)) with Affiliates of the Company, occurring during such fiscal quarter, shall briefly describe such transaction or transactions. (b) The provisions contained in the foregoing paragraphs of this Section 4.08 shall not apply to: (i) the making of any Restricted Payments and Restricted Investments otherwise permitted by Section 4.09 (other than 4.09(b)(IV)), (ii) the making of payments permitted by the Tax Sharing Agreements, (iii) the making of payments to MAXXAM for reimbursement for actual services provided thereby to the Company or its Subsidiaries or Non-Affiliate Joint Ventures based on actual costs and an allocable share of overhead expenses, (iv) compensation (in the form of reasonable director's fees and reimbursement or advancement of reasonable out-of-pocket expenses) paid to any director of the Company or its Subsidiaries or Non-Affiliate Joint Ventures for services rendered in such person's capacity as 42 51 a director and indemnification and directors' and officers' liability insurance in connection therewith, (v) compensation, indemnification and other benefits paid or made available to officers and employees of the Company or its Subsidiaries or Non-Affiliate Joint Ventures for services actually rendered, comparable to those generally paid or made available by entities engaged in the same or similar businesses (including reimbursement or advancement of reasonable out-of-pocket expenses and directors' and officers' liability insurance), (vi) loans to officers, directors and employees of the Company or its Subsidiaries for business or personal purposes and other loans and advances to such officers, directors and employees for travel, entertainment, moving and other relocation expenses, in each case made in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries, (vii) any amendment to the Existing Intercompany Note that extends the maturity thereof or reduces the interest rate thereon, or any other amendment thereto that does not materially adversely affect the holders of the Notes, (viii) the dividend by the Company of all or any portion of the Existing Intercompany Note and accrued interest thereon, (ix) any merger, consolidation, transfer or sale permitted by Section 11.01(b), and (x) any amendment to the Tax Sharing Agreements, provided that a majority of the independent members of the --------- Board of Directors of the Company evidenced by a Board Resolution determines that such amendment would not materially adversely affect the holders of the Notes. SECTION 4.09. Limitations on Restricted Payments and --------------------------------------- Restricted Investments. - ----------------------- (a) The Company shall not, directly or indirectly, (i) declare or pay any dividend or make any distribution in respect of its Capital Stock (other than dividends payable in Capital Stock of the Company other than Redeemable Stock), (ii) make or permit any of its Subsidiaries to make any payment on account of the purchase, redemption or other acquisition or retirement of any Capital Stock of the Company other than through the issuance solely of Capital Stock of the Company (other than Redeemable Stock) or rights thereto, provided that any Subsidiary of the -------- Company may purchase Capital Stock of the Company from the Company or from any other Subsidiary of the Company (which purchase shall not be a Restricted Payment or a Restricted Investment), (iii) make or permit any of its Subsidiaries to make any voluntary purchase, redemption or other acquisition or retirement for value of any Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligations under its Guarantee, as the case may be, other than purchases, redemptions or other acquisitions or retirements of Permitted Indebtedness described in clause (b) of the definition thereof or purchases, redemptions or other acquisitions otherwise permitted by the terms hereof, (each of the foregoing in clauses (i), (ii) and (iii) a "Restricted Payment"), (iv) to the extent the Company or its Subsidiaries exercise actual control over a Non-Affiliate Joint Venture existing on the date of this Indenture or formed or acquired after the date of this Indenture (each a "Controlled Non-Affiliate Joint Venture"), permit such Controlled Non- Affiliate Joint Venture to make any Restricted Investment or (v) make or permit any of its Subsidiaries to make any Restricted Investment, unless at the time of, and after giving effect to, each such Restricted Payment or Restricted Investment: 43 52 (A) no Event of Default (and no event that, after notice or lapse of time or both, would become an Event of Default) shall have occurred and be continuing (or would occur and be continuing after giving effect thereto); and (B) the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1; and (C) the sum of: (x) the aggregate amount expended for all Restricted Payments after December 31, 1992, and (y) the aggregate amount of Restricted Investments (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) (in each case, the amount expended for such Restricted Payments and Restricted Investments or the amount of any Restricted Investments returned, if paid or returned in property other than in cash or a sum certain guaranteed, to be the Fair Market Value of such property), would not exceed the sum of: (I) 50% of the Consolidated Net Income of the Company (or, if the aggregate Consolidated Net Income of the Company for any such period shall be a deficit, minus 100% of such deficit) accrued on a cumulative basis for the period (taken as one accounting period) from January 1, 1993 to the end of the Company's most recently ended fiscal quarter for which financial statements are available at the time such Restricted Payment or Restricted Investment is being made, and (II) the aggregate net proceeds, including the Fair Market Value of property other than cash, received by the Company as capital contributions to the Company after December 31, 1992, or from the issue or sale (other than to a Non-Affiliate Joint Venture or to a Subsidiary of the Company), after December 31, 1992, of Capital Stock other than Redeemable Stock (including Capital Stock, other than Redeemable Stock, issued upon the conversion of, or in exchange for, indebtedness or Redeemable Stock, and including upon exercise of warrants or options or other rights to purchase such Capital Stock, issued after December 31, 1992), or from the issue or sale, after December 31, 1992 of any debt or other security of the Company convertible or exercisable into such Capital Stock that has been so converted or exercised; provided, however, that in no event shall the Company make, or - -------- ------- permit any of its Subsidiaries to make, a Restricted Payment or Restricted Investment pursuant to this Section 4.09(a) to or in MAXXAM or any Affiliate of MAXXAM if, after giving effect thereto, (A) the aggregate amount of all Restricted Payments and Restricted Investments (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries 44 53 or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) made pursuant to this Section 4.09(a) in any calendar year to or in MAXXAM or any Affiliate of MAXXAM, less (B) the aggregate amount of such Restricted Payments and Restricted Investments made to or in KAC in such calendar year which are distributed or paid within thirty days thereafter by KAC to its holders of Common Stock other than MAXXAM and any Affiliate of MAXXAM, would exceed (C) $75,000,000; and provided, further, that -------- ------- notwithstanding the foregoing, the Company may make any such Restricted Payment or Restricted Investment to or in MAXXAM or any Affiliate of MAXXAM if, after giving pro forma effect thereto, the Company's senior debt rating would be Baa3 (or the equivalent) or better by Moody's Investor Services, Inc. (or a successor rating agency) or BBB- (or the equivalent) or better by Standard & Poor's Corporation (or a successor rating agency). (b) The foregoing provisions of this Section 4.09 shall not be violated by reason of the following Restricted Payments: (I) the payment of any dividend or distribution or the redemption of any securities within 60 days after the date of declaration of such dividend or distribution or the giving of the formal notice by the Company of such redemption, if at said date of declaration of such dividend or distribution or the giving of the formal notice of such redemption, such dividend, distribution or redemption would have complied with Section 4.09(a); (II) the retirement of any shares of the Company's Capital Stock by exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Non- Affiliate Joint Venture or to a Subsidiary of the Company) of other shares of its Capital Stock other than Redeemable Stock or out of the proceeds of a substantially concurrent capital contribution to the Company, provided, however, --------- -------- that, to the extent the proceeds are so used, a sale of Capital Stock or capital contribution permitted by this clause (II) shall be excluded in determining the aggregate net proceeds received by the Company referred to under clause (II) of Section 4.09(a); (III) the payments provided for by clauses (ii), (iii), (iv) and (v) and the transactions described in clauses (vi), (vii), (viii) and (ix) (so long as, in the case of clause (ix), immediately following such transaction, the Consolidated Net Worth of the entity that survives such transaction is not materially lower than the Consolidated Net Worth of the Company immediately prior to such transaction) of Section 4.08(b); (IV) the voluntary purchase, redemption or other acquisition or retirement for value of Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, to the extent that the aggregate amount expended (exclusive of amounts expended pursuant to clauses (V) and (VIII) of this Section 4.09(b)) for all such voluntary purchases, redemptions or other acquisitions or retirements after the date hereof (the amount expended for such purchases, redemptions or other acquisitions or retirements, if paid in property other than in cash or a sum certain guaranteed, to be the Fair Market Value of such property) does not exceed the aggregate net proceeds, including the Fair Market Value of property other than cash, received by the Company or any Subsidiary Guarantor from the issue or sale (other than an issuance or sale to the Company or a Non-Affiliate Joint Venture or Subsidiary of the Company), after the date hereof, of Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or such Subsidiary Guarantor's obligation under its Guarantee, as the case may be, and that is otherwise permitted to be incurred pursuant to this Indenture, provided that, to the --------- extent the proceeds of Indebtedness so subordinated to the Notes or any Subsidiary 45 54 Guarantor's obligation under its Guarantee, as the case may be, are so used, the net proceeds of issuance of any such Indebtedness upon conversion into Capital Stock shall not be included in determining the aggregate net proceeds received by the Company referred to under clause (II) of Section 4.09(a); (V) the voluntary purchase, redemption or other acquisition or retirement for value of any Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, by exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Non-Affiliate Joint Venture or to a Subsidiary of the Company) of Capital Stock (other than Redeemable Stock) of the Company, provided, however, that, to the extent the proceeds are so --------- -------- used, the issuance of Capital Stock as permitted by this clause (V) shall not be included in determining the aggregate net proceeds received by the Company referred to under clause (II) of Section 4.09(a); (VI) the payment of dividends on, and the purchase, redemption, retirement or other acquisition of, the USWA Preferred Stock or the Preferred Stock ($100), provided that -------- no such payment is made, directly or indirectly, to an Affiliate of the Company; (VII) the payment to KAC of an amount not to exceed $300,000 in any fiscal year for the payment of KAC's reasonable out-of-pocket expenses, provided that no part of --------- such amount is paid directly or indirectly to any other Affiliate of the Company and that, at the time of each such payment, the Company is in compliance with clause (A) of Section 4.09(a); (VIII) Restricted Payments and Restricted Investments after February 1, 1993, other than Restricted Payments and Restricted Investments permitted by Section 4.09(a) or clauses (I) through (VII) of Section 4.09(b), in an aggregate amount such that the sum of: (x) the aggregate amount expended for all such Restricted Payments after February 1, 1993 made pursuant to this clause (VIII); and (y) the aggregate amount of all Restricted Investments made after February 1, 1993 pursuant to this clause (VIII) (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) (in each case, the amount expended for such Restricted Payments and Restricted Investments or the amount of any Restricted Investments returned, if paid or returned in property other than in cash or a sum certain guaranteed, to be the Fair Market Value of such property) would not exceed $50,000,000, provided that at the time of --------- each such Restricted Payment or Restricted Investment made pursuant to this clause (VIII), no Event of Default (and no event that, after notice or lapse of time or both, would become an Event of Default) shall have occurred and be continuing (or would occur and be continuing after giving effect thereto); and provided, further, that in no event -------- ------- shall the Company make, or permit any of its Subsidiaries to make, a 46 55 Restricted Payment or Restricted Investment pursuant to this clause (VIII) to or in MAXXAM or any Affiliate of MAXXAM if, after giving effect thereto, (A) the aggregate amount of all Restricted Payments and Restricted Investments (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries or any Controlled Non- Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) made pursuant to this clause (VIII) to or in MAXXAM or any Affiliate of MAXXAM, less (B) the aggregate amount of such Restricted Payments and Restricted Investments made to or in KAC which are distributed or paid within thirty days thereafter by KAC to its holders of Common Stock other than MAXXAM and Affiliates of MAXXAM, would exceed (C) $20,000,000; and (IX) in the event that the Company merges with or into KAC and the Preferred Dividend Intercompany Notes are extinguished, the payment of dividends on shares of KAC's Preferred Redeemable Increased Dividend Equity Securities, 8.255% PRIDES, Convertible Preferred Stock (the "PRIDES") or shares of KAC's Series A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A Shares") and any other preferred stock of KAC the proceeds of which gave rise to a Preferred Dividend Intercompany Note, in an aggregate amount not to exceed the outstanding principal amount of such Preferred Dividend Intercompany Notes at the time of such merger. No payments and other transfers made under clauses (II) through (VII) and (IX) of this Section 4.09(b) shall reduce the amount available for Restricted Payments and Restricted Investments under Section 4.09(a); payments and other transfers made under clauses (I) and (VIII) of this Section 4.09(b) shall reduce the amount available for Restricted Payments and Restricted Investments under Section 4.09(a). SECTION 4.10. Limitation on Indebtedness and Preferred ----------------------------------------- Stock. - ------ (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or become liable with respect to, or extend the maturity of or become liable for the payment of, contingently or otherwise (collectively "Incur"), any preferred stock (including preference stock) or Indebtedness, except that, without duplication, the Company, the Subsidiary Guarantors and Alpart may Incur preferred stock (including preference stock) or Indebtedness (including, without duplication, guarantees of Indebtedness of the Company and its Subsidiaries otherwise permitted by this Indenture) if after giving effect thereto and the receipt and application of the proceeds therefrom, and assuming that the full amount of Indebtedness permitted to be Incurred under Section 4.10(b)(ii) (after taking into account any reduction in such amount as set forth in such Section 4.10(b)(ii)) has been Incurred (assuming, for purposes of this calculation, an interest rate on such additional Indebtedness equal to the weighted average interest rate on the Indebtedness then outstanding under Section 4.10(b)(ii)), the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1; provided, however, that Indebtedness of Alpart Incurred -------- ------- pursuant to this clause (a) shall not exceed an aggregate of $150,000,000 at any one time outstanding, plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness. (b) Notwithstanding the foregoing paragraph (a) of this Section 4.10, the following shall be permitted: 47 56 (i) the Company and the Subsidiary Guarantors may Incur Indebtedness in respect of the Notes; (ii) the Company and the Subsidiary Guarantors may Incur Indebtedness (without duplication), and the Bank Guarantors may guarantee such Indebtedness, under the Credit Agreement, in connection with Refinancing Sale and Leaseback Transactions or otherwise in an aggregate amount at any one time outstanding not to exceed $325,000,000, as reduced from time to time by any permanent reduction in such amount as set forth in a Board Resolution; (iii) (A) Alpart may Incur Indebtedness in an aggregate amount not to exceed $150,000,000 at any one time outstanding and (B) the Company, KJC and AJI (without duplication) may Incur Indebtedness in an aggregate amount not to exceed at any one time outstanding the product of (I) $150,000,000 multiplied by (II) the Company's then percentage ownership interest in Alpart; provided, however, --------- -------- that the aggregate Indebtedness (without duplication) Incurred pursuant to clauses (A) and (B) of this clause (b)(iii) may not exceed $150,000,000 at any one time outstanding; and provided, further, that in each case the --------- ------- proceeds of such Indebtedness are used solely for capital improvements and expenditures, expansion and working capital with respect to Alpart and/or to reimburse the partners of Alpart for advances to Alpart used solely for capital improvements and expenditures, expansion and working capital with respect to Alpart, plus in each case an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness; (iv) the Company and/or KAAC (without duplication) may Incur Indebtedness in an amount not to exceed $75,000,000 at any one time outstanding, the proceeds of which are used solely for capital improvements and expenditures, expansion and working capital with respect to QAL and/or to reimburse the stockholders of QAL for advances to QAL used solely for capital improvements and expenditures, expansion and working capital with respect to QAL, plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness; (v) VALCO may Incur Indebtedness, and the Company may guarantee such Indebtedness, in an aggregate amount (without duplication) not to exceed $25,000,000 at any one time outstanding, the proceeds of which are used solely for capital improvements and expenditures, expansion and working capital with respect to VALCO and/or to reimburse the shareholders of VALCO for advances to VALCO used solely for capital improvements and expenditures, expansion and working capital, plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness; (vi) the Company and its Subsidiaries may Incur Indebtedness ("Refinancing Indebtedness") that serves to Refinance, in whole or in part, the Indebtedness permitted by clauses (a) and (b) of this Section 4.10 (the "Refinanced Indebtedness"), or any one or more successive Refinancings of any thereof; provided, however, that: --------- -------- (A) such Refinancing Indebtedness is in an aggregate amount not to exceed the aggregate amount of such Refinanced Indebtedness (including accrued interest thereon and undrawn amounts under credit arrangements otherwise permitted to be Incurred pursuant to this Indenture), the amount of any premium required to be paid in connection with such Refinancing pursuant to the terms of such Refinanced Indebtedness or the amount of any reasonable and customary premium determined by the Company to be necessary to accomplish such Refinancing by means of a redemption, tender offer, 48 57 privately negotiated transaction, defeasance or other similar transaction, and an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Refinancing Indebtedness; (B) neither the Company nor any of its Subsidiaries is an obligor of such Refinancing Indebtedness, except to the extent that such Person (I) was an obligor of such Refinanced Indebtedness or (II) is otherwise permitted, at the time such Refinancing Indebtedness is Incurred, to be an obligor of such Refinancing Indebtedness; and (C) in the case of any Refinanced Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, such Refinancing Indebtedness (I) has a final maturity and weighted average maturity at least as long as such Refinanced Indebtedness and (II) is subordinated (pursuant to its terms) in right and priority of payment to the Notes or such Subsidiary Guarantor's obligation under its Guarantee, as the case may be, at least to the same extent as such Refinanced Indebtedness; (vii) the Company may Incur Capitalized Lease Obligations not exceeding $50,000,000 at any one time outstanding in connection with the sale and leaseback of all or a portion of the Company's interest in the Center for Technology, provided that the Net Cash Proceeds therefrom --------- are applied as provided by Section 4.14; (viii) the Company and its Subsidiaries may Incur Indebtedness, without duplication, the proceeds of which are used solely to finance the construction, acquisition or the acquisition and retrofitting of an aluminum smelter or smelters or related facilities (or interests therein) and the reasonable fees and expenses in connection with the Incurrence of such Indebtedness, in an amount not to exceed $150,000,000 in any fiscal year (without cumulation of unused amounts to successive years); (ix) the Company and its Subsidiaries may Incur Indebtedness, the proceeds of which are used solely to finance the construction or acquisition of a fabrication plant or plants or related facilities and the reasonable fees and expenses in connection with the Incurrence of such Indebtedness, in an aggregate amount not to exceed $25,000,000 in any fiscal year (without cumulation of unused amounts to successive years); (x) the Company and its Subsidiaries may Incur preferred stock (including preference stock) that is not Redeemable Stock; provided, however, that in the case of --------- -------- preferred stock (including preference stock) Incurred by any Subsidiary of the Company that is not a Subsidiary Guarantor, such preferred stock shall be issued pro rata to --- ---- the holders of Capital Stock of such Subsidiary; (xi) the Company and its Subsidiaries may Incur preferred stock (including preferred stock and preference stock that is Redeemable Stock), provided that such --------- preferred stock or preference stock is issued to the Company, any of its Subsidiaries or pro rata to the holders of Capital Stock of any such Subsidiary; (xii) the Company and its Subsidiaries may Incur Permitted Indebtedness; and (xiii) the Company and its Subsidiaries may Incur Indebtedness in an amount at any one time outstanding not to exceed $75,000,000, provided that the amount of such --------- Indebtedness that 49 58 may be Incurred by Subsidiaries of the Company (other than Subsidiary Guarantors that are not Permitted Entities) shall not exceed $25,000,000 at any one time outstanding, and provided, further, that, to the extent -------- ------- any such Indebtedness is Incurred from a Bank or an affiliate thereof, the Bank Guarantors may guarantee such Indebtedness. (c) Notwithstanding the foregoing, no Subsidiary of the Company shall assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company or a Subsidiary Guarantor (other than such Subsidiary) ("Other Indebtedness") which is subordinated (pursuant to its terms) in right and priority of payment to any other Indebtedness of the Company or such Subsidiary Guarantor unless such Subsidiary also assumes, guarantees or otherwise becomes liable with respect to the Notes on a substantially similar basis for so long as such Subsidiary is liable with respect to such Other Indebtedness; provided, however, that if such Other Indebtedness is - -------- ------- subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, any such assumption, guarantee or other liability of such Subsidiary with respect to such Other Indebtedness shall be subordinated to such Subsidiary's assumption, guarantee or other liability with respect to the Notes to the same extent as such subordinated Indebtedness is subordinated to the Notes or such Subsidiary Guarantor's obligation under its Guarantee, as the case may be; and provided, further, that this paragraph shall not be -------- ------- applicable to any assumption, guarantee or other liability of any Subsidiary of the Company which existed at the time such Person became a Subsidiary of the Company and was not Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company, or any Refinancing Indebtedness in connection therewith complying with Section 4.10(b)(vi) (provided, that the guarantee of such Refinancing Indebtedness is -------- on substantially the same terms as the guarantee of the Refinanced Indebtedness). In the event that any Subsidiary of the Company (other than a Subsidiary Guarantor) is required to guarantee the Notes pursuant to the next preceding sentence, the Company shall cause such Subsidiary to (a) execute and deliver to the Trustee a supplemental indenture in form and substance reasonably satisfactory to the Trustee pursuant to which such Subsidiary shall be named as an additional Subsidiary Guarantor for so long as such Subsidiary Guarantor is so obligated with respect to such Other Indebtedness and (b) deliver to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee that such supplemental indenture has been duly executed and delivered by such Person. (d) For the purpose of determining compliance with this Section 4.10, in the event that any Indebtedness is permitted to be Incurred pursuant to more than one clause of Section 4.10(b), the Incurrence of such Indebtedness shall not limit the amount of Indebtedness otherwise permitted to be Incurred, and shall not be required to be included, under more than one such clause. SECTION 4.11. Limitation on Liens. -------------------- (a) The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of their respective U.S. Fixed Assets to secure, directly or indirectly, any Indebtedness, unless the Notes are equally and ratably secured on a senior basis for so long as such secured Indebtedness is so secured. (b) Notwithstanding anything to the contrary, this Section 4.11 shall not prohibit: (i) Liens on the Permitted Collateral securing outstanding Indebtedness permitted by this Indenture in an aggregate principal amount not to exceed the Maximum Secured Amount at the time such Indebtedness is Incurred; 50 59 (ii) Liens in existence on the date of the issuance of the Notes after giving effect thereto which Liens, if such Liens secure a single or related items of Indebtedness in a principal amount in excess of $5,000,000, are referred to in Schedule A hereto; (iii) Liens in favor of the Company or any Subsidiary Guarantor; (iv) Liens on U.S. Fixed Assets of a person existing at the time such person is merged into or consolidated with the Company or any Subsidiary of the Company, provided, that -------- such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any other U.S. Fixed Assets of the Company or any Subsidiary of the Company; (v) Liens on U.S. Fixed Assets existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided, that such Liens were in existence prior --------- to the contemplation of such acquisition and do not extend to any other U.S. Fixed Assets of the Company or any Subsidiary of the Company; (vi) Liens securing Indebtedness permitted by clauses (vii), (viii) and (ix) of Section 4.10(b), provided, that --------- such Liens do not extend to any U.S. Fixed Assets other than the Center for Technology in the case of clause (vii), the applicable aluminum smelter or smelters and related facilities in the case of clause (viii) and the applicable fabrication plant or plants and related facilities in the case of clause (ix), and, in each case, together with any Improvements thereto or thereon and any proceeds thereof; (vii) Liens securing Indebtedness permitted by clause (e) of the definition of Permitted Indebtedness; (viii) Liens securing the Indebtedness permitted by clauses (iii), (iv) or (v) of Section 4.10(b) provided that --------- such Liens do not extend to any U.S. Fixed Assets other than (a) Permitted Collateral (in which case the principal amount of such Indebtedness shall be included in the calculation of the Maximum Secured Amount for purposes of clause (i) of this paragraph and such Liens shall only be permitted if the requirements of clause (i) are satisfied) and (b) the Capital Stock and assets of Alpart, KJC and AJI in the case of clause (iii), the Capital Stock and assets of KAAC in the case of clause (iv), and the Capital Stock and assets of VALCO in the case of clause (v), plus, in each case, the proceeds thereof; (ix) Liens securing Indebtedness consisting of Capitalized Lease Obligations, mortgage financings, industrial revenue bonds or other monetary obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or installation of U.S. Fixed Assets used in the business of the Company and its Subsidiaries, or repairs, additions or Improvements to such U.S. Fixed Assets, provided, that such --------- Liens (a) secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such U.S. Fixed Assets or repair, addition or Improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness), (b) do not extend to any other U.S. Fixed Assets (other than Improvements thereto or thereon and any proceeds thereof) of the Company or any Subsidiary of the Company (and, in the case of a repair, addition or Improvement, such Lien extends only to the U.S. Fixed Assets (and Improvements thereto or thereon) repaired, added to or improved), and (c) secure Indebtedness incurred no later than 180 days after the acquisition or final completion of such construction, repair, addition or Improvement; 51 60 (x) Liens securing any Refinancings (in whole or in part) of any Indebtedness secured by the Liens described in clauses (ii), (iv), (v), (vi), (viii) or (ix) of this paragraph, and any successive Refinancings of any thereof (together with any increased amount of such Indebtedness specifically permitted pursuant to Section 4.10(b) to cover the reasonable fees and expenses incurred in connection with a Refinancing)), provided that each such Lien (unless --------- otherwise permitted by this paragraph) does not extend to any additional U.S. Fixed Assets (other than Improvements thereto or thereon and any proceeds thereof); (xi) Liens on U.S. Fixed Assets securing Indebtedness in an aggregate principal amount not to exceed $10,000,000; and (xii) Liens on any U.S. Fixed Assets consisting of easements, covenants, restrictions, exceptions, reservations and similar matters which do not materially impair the use of such U.S. Fixed Assets for the uses for which it is held and which Liens are granted to secure Indebtedness secured by Liens permitted by the foregoing clauses (i) through (xi). (c) For purposes of this Section 4.11, the Notes will be considered equally and ratably secured on a senior basis with any other Lien if the Lien securing the Notes is of at least equal priority and covers the same U.S. Fixed Assets as such other Lien, provided, that if the Indebtedness secured by such -------- other Lien is expressly subordinated in right and priority of payment by its terms to the Notes, the Lien securing the Notes will be senior to such other Lien. (d) For the purpose of determining compliance with this Section 4.11, in the event that any Lien is permitted pursuant to more than one clause of Section 4.11(b), such Lien shall not limit any other Lien otherwise permitted, and shall not be required to be included under more than one such clause. SECTION 4.12. Subsidiary guarantees, etc. ---------------------------- (a) If the Company or any Subsidiary Guarantor shall transfer or cause to be transferred, in one or a series of related transactions, any property or assets (including, without limitation, businesses, divisions, real property, assets or equipment) to any Subsidiary of the Company or to any Non- Affiliate Joint Venture of the Company, the Company shall cause such transferee Subsidiary or Non-Affiliate Joint Venture to (i) execute and deliver to the Trustee a supplemental indenture in form and substance reasonably satisfactory to the Trustee pursuant to which such transferee Subsidiary or Non-Affiliate Joint Venture shall be named as an additional Subsidiary Guarantor and (ii) deliver to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee that such supplemental indenture has been duly executed and delivered by such Person. (b) The provisions set forth in the immediately preceding paragraph shall not apply to the following transfers of property or assets by the Company or any Subsidiary Guarantor: (A) transfers of property or assets (other than cash) to Subsidiaries of the Company and Non-Affiliate Joint Ventures, provided that such transfer is made in exchange -------- for cash in an amount equal to the Fair Market Value of such property or assets; (B) transfers of property or assets to Subsidiary Guarantors; (C) the use of the proceeds of Indebtedness described in Sections 4.10(b)(iii), (iv), (v), (viii) and (ix); 52 61 (D) transfers to Alpart of the proceeds of Indebtedness described in Section 4.10(a) to the extent that Alpart is an obligor or guarantor of such Indebtedness; (E) the provision of, and the payment for, goods and services, working capital and technology to Subsidiaries of the Company and Non-Affiliate Joint Ventures in each case in the ordinary course of the businesses in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures were engaged on the date of this Indenture or reasonably related extensions thereof; (F) transfers of assets to a Subsidiary of the Company immediately prior to the sale of such Subsidiary; (G) transfers of cash or Cash Equivalents to Non- Affiliate Joint Ventures engaged or to be engaged in the business of bauxite mining and/or alumina refining and/or aluminum smelting and/or fabrication and/or reasonably related extensions thereof; (H) transfers of cash, Cash Equivalents, property or other assets to a Permitted Entity in exchange for Permitted Entity Securities of such Permitted Entity if, immediately after giving effect to such transfer, such Permitted Entity remains a Permitted Entity; (I) transfers of Capital Stock or other equity interests to the issuer of such Capital Stock or other equity interests such that immediately after giving effect to such transfer and related transfers, the proportional beneficial ownership by the transferor of the class of Capital Stock or equity interests so transferred is not reduced; and (J) other transfers of assets, provided that the -------- aggregate amount thereof (if other than cash, such amount shall be the Fair Market Value of such asset at the time of such transfer), less the aggregate amount of such assets returned to the Company or any Subsidiary Guarantor (if returned other than in cash, the amount of such assets shall be the Fair Market Value of such assets at the time so returned), does not exceed, in the aggregate, the greater of (i) $25,000,000 or (ii) 5% of the Company's Consolidated Net Worth, calculated after giving effect to such transfers and returns. (c) If any of the Company's existing or future Subsidiaries (other than a Bank Guarantor) or existing or future Non-Affiliate Joint Ventures shall guarantee, directly or indirectly, or become a direct obligor with respect to, Indebtedness under the Credit Agreement or any Refinancings thereof, the Company shall cause each such Subsidiary or Non-Affiliate Joint Venture to (A) execute and deliver to the Trustee a supplemental indenture in form and substance reasonably satisfactory to the Trustee pursuant to which such Subsidiary or Non-Affiliate Joint Venture shall be named as an additional Subsidiary Guarantor for as long as such Subsidiary or Non-Affiliate Joint Venture is so obligated with respect to such Indebtedness and (B) deliver to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee that such supplemental indenture has been duly executed and delivered by such Person. (d) Sections 4.12(a) and (b) shall not apply to any Restricted Investment or Restricted Payment otherwise permitted by Section 4.09. (e) The Company shall not permit any Permitted Entity to cease to be a Permitted Entity except: (i) pursuant to a liquidation or dissolution of such Permitted Entity or a transfer of all or substantially all of the properties and assets of such Permitted Entity to its Equity Owners in 53 62 proportion to their interests, including by way of merger or consolidation of such Permitted Entity with or into its sole Equity Owner; (ii) pursuant to a sale in compliance with Section 4.14 of all of the Permitted Entity Securities of such Permitted Entity held directly or indirectly by the Company or any Subsidiary Guarantor; or (iii) if such Permitted Entity becomes a Subsidiary Guarantor. (f) Notwithstanding anything in this Section 4.12 to the contrary, VALCO shall be permitted to merge with or into, or distribute substantially all of its assets and liabilities to, a Permitted Entity, provided that, at the time of such merger or -------- distribution, such Permitted Entity has no more than $50,000 of assets other than Capital Stock or other similar interests in VALCO. Upon the consummation of any transaction contemplated by this clause (f), the entity surviving such merger or distribution shall not be required (i) to become a Subsidiary Guarantor pursuant to this Section 4.12 or (ii) if such entity has no assets except as contemplated in this clause (f) or meets the conditions of clause (e) of this Section 4.12, to remain a Permitted Entity pursuant to the this Section 4.12. SECTION 4.13. Limitation on dividends and other payment ------------------------------------------ restrictions affecting Subsidiaries. The Company shall not, and - ----------------------------------- shall not permit its Subsidiaries to, create or otherwise suffer to exist any consensual encumbrances or restrictions on the ability of any Subsidiary to pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness owed to the Company or any Subsidiaries of the Company or to make loans or advances or transfer any of its assets to the Company or any Subsidiary of the Company; provided, however that this -------- ------- Section 4.13 shall not prohibit Permitted Dividend Encumbrances. SECTION 4.14. Limitation on Asset Sales. -------------------------- (a) The Company shall not, and shall not permit any of its Subsidiaries to, consummate any Asset Sale unless at least 75% of the consideration therefor received by the Company or such Subsidiary (exclusive of indemnities) is in the form of cash or Cash Equivalents, provided that this sentence shall not apply to -------- the sale or disposition of assets as a result of a foreclosure (or a secured party taking ownership of such assets in lieu of foreclosure) or as a result of an involuntary proceeding in which the Company cannot, directly or through its Subsidiaries, direct the type of proceeds received. The amount of (i) any liabilities of the Company or any Subsidiary of the Company that are actually assumed by the transferee in such Asset Sale, or for which the Company and its Subsidiaries are fully released, shall be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or its Subsidiaries and (ii) any notes or other obligations received by the Company or any Subsidiary of the Company from such transferee that are immediately converted (or are converted within thirty days of the related Asset Sale) by the Company or such Subsidiary into cash shall be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or its Subsidiaries. (b) The Company shall apply any Net Cash Proceeds received after the date of this Indenture to (A) the prepayment of Indebtedness in respect of or under the Credit Agreement and any other Indebtedness of the Company (other than the Notes) entitled to receive payment pursuant to the terms thereof (excluding Indebtedness that is subordinated by its terms to the Notes or the Guarantee thereof) (the "Specified Pari Passu Indebtedness"), unless the holders thereof elect not to receive such prepayment and (B) an offer to purchase (an "Asset Sale Offer") the then outstanding Notes, on any Business Day occurring no later than 175 days after the receipt by the Company (or any of its Subsidiaries, if 54 63 applicable) of such Net Cash Proceeds (the "Asset Sale Purchase Date," which date shall be deferred to the extent necessary to permit the Asset Sale Offer to remain open for the period required by applicable law), at a price (the "Asset Sale Purchase Price") equal to 100% of the principal amount thereof together with accrued interest, if any, to but not including the Asset Sale Purchase Date pursuant to the provisions set forth below. Such Asset Sale Offer with respect to the Notes shall be in an aggregate principal amount (the "Asset Sale Offer Amount") equal to the Net Cash Proceeds (rounded down to the nearest $1,000) from the Asset Sales to which the Asset Sale Offer relates multiplied by a fraction, the numerator of which is the principal amount of the Notes outstanding (determined as of the close of business on the day immediately preceding the date notice of such Asset Sale Offer is mailed) and the denominator of which is the principal amount of the Notes outstanding plus the aggregate principal amount of Indebtedness under the Credit Agreement and the Specified Pari Passu Indebtedness outstanding (determined as of the close of business on the day immediately preceding the date notice of such Asset Sale Offer is mailed). If (x) no Indebtedness is outstanding in respect of or under the Credit Agreement or the Specified Pari Passu Indebtedness or (y) the holders of such Indebtedness entitled to receive payment elect not to receive the payments provided for in the previous sentence, or (z) the application of such Net Cash Proceeds results in the complete prepayment of such Indebtedness, then in each case any remaining portion of such Net Cash Proceeds will be required to be applied to an Asset Sale Offer to purchase the Notes. (c) Notice of an Asset Sale Offer shall be mailed by the Company to all holders at their last registered address within 145 days of the receipt by the Company or any of its Subsidiaries of such Net Cash Proceeds. The Asset Sale Offer shall remain open from the time of mailing until the last Business Day before the Asset Sale Purchase Date, but in no event for a period less than twenty-four days or less than that required by applicable law. The notice shall state: (1) that the Asset Sale Offer is being made pursuant to this Section 4.14; (2) the Asset Sale Offer Amount, the purchase price and the Asset Sale Purchase Date; (3) the name and address of the Trustee and that Notes must be surrendered to the Trustee to collect the purchase price; (4) that any Note not tendered or accepted for payment will continue to accrue interest; (5) that any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest on and after the Asset Sale Purchase Date; (6) that each holder electing to have a Note purchased pursuant to an Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note (the "Asset Sale Purchase Notice") completed, to the Trustee at the address specified in the notice at least five Business Days before the Asset Sale Purchase; (7) that holders will be entitled to withdraw their election if the Trustee receives, not later than one Business Day prior to the Asset Sale Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Notes the holder delivered for purchase, the certificate number of each Note the holder delivered for purchase and a statement that such holder is withdrawing his, her or its election to have such Notes purchased; 55 64 (8) that if Notes in a principal amount in excess of the Asset Sale Offer Amount are surrendered pursuant to the Asset Sale Offer, the Company shall purchase Notes on a pro ---- rata basis (with such adjustments as may be deemed ---- appropriate by the Company so that only Notes in denominations of $1,000 or integral multiples thereof shall be acquired); and (9)(x) that Notes may be purchased in whole or in part (in denominations of $1,000 or integral multiples thereof) and (y) that holders whose Notes are purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. On or before the Asset Sale Purchase Date, the Company shall (i) accept for payment Notes (having denominations of $1,000 or integral multiples thereof) surrendered pursuant to the Asset Sale Offer (on a pro rata basis if required pursuant to paragraph --- ---- (c)(8) above), (ii) deposit by 10:30 a.m. New York City time, on the Asset Sale Purchase Date, with the Trustee money in immediately available funds sufficient to pay the Asset Sale Purchase Price of all Notes or portions thereof so accepted and (iii) deliver Notes so accepted to the Trustee together with an Officers' Certificate stating the Notes or portions thereof accepted for payment by the Company. The Trustee shall promptly mail or deliver to holders of Notes so accepted payment in an amount equal to the purchase price, and the Company shall execute and the Trustee shall promptly authenticate and mail or deliver to such holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered to the holder thereof. The Company will publicly announce the results of the Asset Sale Offer on, or as soon as practicable after, the Asset Sale Purchase Date. Notwithstanding the foregoing, the Company shall not be required to make an Asset Sale Offer until the aggregate amount of Net Cash Proceeds so to be applied pursuant to this Section 4.14 exceeds $25,000,000 (the "Twenty-Five Million Threshold") and then the total amount of such Net Cash Proceeds shall be required to be so applied in accordance with this Section 4.14. The Company may credit against its obligation to offer to repurchase Notes pursuant to this Section 4.14 the principal amount of Notes acquired or held by the Company subsequent to the date of the Asset Sale giving rise to such Asset Sale Offer and surrendered for cancellation or redeemed or called for redemption subsequent to such date and not previously used to satisfy any obligation of the Company to redeem or offer to purchase Notes. In no event shall any Net Cash Proceeds that are applied to an Asset Sale Offer be required to be applied to more than one Asset Sale Offer. (d) Notwithstanding the provisions of clauses (a) and (b) of this Section 4.14, the Company shall have no obligation to make an Asset Sale Offer pursuant to this Section 4.14 if, and to the extent, the Company or any of its Subsidiaries commits within 140 days of the receipt of such Net Cash Proceeds to reinvest (whether by acquisition of an existing business or expansion, including, without limitation, capital expenditures) such Net Cash Proceeds in one or more of the lines of business (including capital expenditures) in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures were engaged on the date of this Indenture or reasonably related extensions of such lines of business, provided that such Net Cash Proceeds are substantially -------- so utilized no later than the last day of the twelfth consecutive month (or, in the event the amount of such Net Cash Proceeds from a single Asset Sale or series of related Asset Sales exceeds $200,000,000, the twenty-fourth consecutive month) following the month in which such Net Cash Proceeds are received. (e) Notwithstanding the foregoing, if an Asset Sale consists of a sale of (i) all or a portion of the property, plant or equipment of the Company's Gramercy alumina refinery, whether now owned or hereafter acquired, or any proceeds thereof or (ii) any U.S. Fixed Assets acquired after the date of this Indenture which do not constitute Permitted Collateral, the Company shall make an Asset Sale Offer with the Net Cash Proceeds received from such Asset Sale (without regard to the Twenty-Five Million 56 65 Threshold) to the extent the Company has not committed within 140 days of the receipt of such Net Cash Proceeds to reinvest (whether by acquisition of an existing business or expansion, including, without limitation, capital expenditures) such Net Cash Proceeds in U.S. Fixed Assets (other than Permitted Collateral), provided that such Net Cash Proceeds are substantially so utilized no later than the last day of the twelfth consecutive month (or, in the event the amount of such Net Cash Proceeds from a single Asset Sale or series of related Asset Sales exceeds $200,000,000, the twenty-fourth consecutive month) following the month in which such Net Cash Proceeds are received. ARTICLE FIVE NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE SECTION 5.01. Company to furnish Trustee information as to --------------------------------------------- names and addresses of noteholders. The Company will furnish or - ----------------------------------- cause to be furnished to the Trustee: (a) semi-annually, not more than fifteen days after each record date for the payment of interest, a list, in such form as the Trustee may reasonably require, of the names and addresses of the noteholders as of such record date as the case may be, and (b) at such other times as the Trustee may request in writing, within thirty days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than fifteen days prior to the time such list is furnished; provided, however, that so long as the Trustee is the Note registrar, no such list shall be required to be furnished. Any such list may be dated as of a date not more than fifteen days prior to the time such information is furnished or caused to be furnished, and need not include information received after such date. SECTION 5.02. Preservation and disclosure of lists. ------------------------------------- (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Notes (1) contained in the most recent list furnished to it as provided in Section 5.01 and (2) received by it in the capacity of paying agent (if so acting) or Note registrar. The Trustee may destroy any list furnished to it as provided in Section 5.01 upon receipt of a new list so furnished. (b) In case three or more holders of Notes (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Note for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Notes on required on the part of the Trustee, such Subsidiary Guarantor, the Company or any holder of the Notes, provided that any -------- guarantee of such Subsidiary Guarantor with respect to the Credit Agreement and the Subordinated Notes, and any renewals, extensions, refundings, replacements, restructurings or refinancings, amendments and modifications thereof, if any, has been or is simultaneously released. At the request of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing such release. (d) Upon the release of any Subsidiary Guarantor from its Guarantee pursuant to any provision of this Indenture, each other Subsidiary Guarantor not so released shall remain liable for the full amount of principal of, and interest on, the Notes as and to the extent provided in this Indenture. 94 103 IN WITNESS WHEREOF, each of KAISER ALUMINUM & CHEMICAL CORPORATION, KAISER ALUMINA AUSTRALIA CORPORATION, ALPART JAMAICA INC., KAISER FINANCE CORPORATION and KAISER JAMAICA CORPORATION has caused this Indenture to be signed and acknowledged by its Chairman of the Board, its President or one of its Vice Presidents, and its corporate seal to be affixed hereunto, and the same to be attested by one of its Vice Presidents; and FIRST TRUST NATIONAL ASSOCIATION has caused this Indenture to be signed and acknowledged by one of its Vice Presidents or Assistant Vice Presidents, has caused its corporate seal to be affixed hereunto, and the same to be attested by one of its Assistant Secretaries, all as of the day and year first written above. KAISER ALUMINUM & CHEMICAL CORPORATION By: __________________________________________ John T. La Duc Vice President and Chief Financial Officer [SEAL] Attest: ___________________ Assistant Secretary KAISER ALUMINA AUSTRALIA CORPORATION By: __________________________________________ John T. La Duc Vice President and Chief Financial Officer [SEAL] Attest: ___________________ Assistant Secretary ALPART JAMAICA INC. By: __________________________________________ John T. La Duc Vice President and Chief Financial Officer [SEAL] Attest: ___________________ Assistant Secretary 95 104 KAISER FINANCE CORPORATION By: __________________________________________ John T. La Duc Vice President and Chief Financial Officer [SEAL] Attest: ___________________ Assistant Secretary KAISER JAMAICA CORPORATION By: __________________________________________ John T. La Duc Vice President and Chief Financial Officer [SEAL] Attest: ___________________ Assistant Secretary FIRST TRUST NATIONAL ASSOCIATION as Trustee By: ____________________________ Name: Title: [SEAL] Attest: ___________________ Assistant Secretary 96 EX-4 3 EXHIBIT 4.4 TO KAISER ALUMINUM 1993 10-K 1 EXECUTION COPY $250,000,000 CREDIT AGREEMENT dated as of February 15, 1994 between KAISER ALUMINUM & CHEMICAL CORPORATION, KAISER ALUMINUM CORPORATION, CERTAIN FINANCIAL INSTITUTIONS, and BANKAMERICA BUSINESS CREDIT, INC., as Agent 2 TABLE OF CONTENTS PAGE ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 4 1.2. Use of Defined Terms. . . . . . . . . . . . . . . . . . . . 39 1.3. Cross-References. . . . . . . . . . . . . . . . . . . . . . 39 1.4. Accounting and Financial Determinations and Other Terms . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE II COMMITMENTS AND BORROWING PROCEDURES 2.1. Commitments . . . . . . . . . . . . . . . . . . . . . . . . 40 2.1.1. Revolving Commitment . . . . . . . . . . . . . . 40 2.1.2. Swingline Commitment . . . . . . . . . . . . . . 41 2.1.3. Lenders Not Required To Make Loans or Issue Letters of Credit . . . . . . . . . . . 42 2.1.4. Borrowing Base Determinations. . . . . . . . . . 42 2.2. Reduction of Revolving Commitment Amount. . . . . . . . . . 43 2.3. Borrowing Procedure . . . . . . . . . . . . . . . . . . . . 43 2.4. Agent's Books and Records; Monthly Statements . . . . . . . 44 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST, AND FEES 3.1. Repayments. . . . . . . . . . . . . . . . . . . . . . . . . 45 3.2. Voluntary Prepayments . . . . . . . . . . . . . . . . . . . 45 3.3. Mandatory Prepayments . . . . . . . . . . . . . . . . . . . 46 3.3.1. Prepayment Under, or Cash Collateralization of, Revolving Commitment . . . . . . . . . . . . . . . . . . . 46 3.3.2. Cash Dominion. . . . . . . . . . . . . . . . . . 47 3.3.3. Acceleration . . . . . . . . . . . . . . . . . . 47 3.4. Interest Provisions . . . . . . . . . . . . . . . . . . . . 48 3.4.1. Rates. . . . . . . . . . . . . . . . . . . . . . 48 3.4.2. Continuation and Conversion Elections. . . . . . . . . . . . . . . . . . . . 50 3.4.3. Funding. . . . . . . . . . . . . . . . . . . . . 51 3.4.4. Default Rates. . . . . . . . . . . . . . . . . . 51 3.4.5. Interest Payment Dates . . . . . . . . . . . . . 52 3.5. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 3.5.1. Commitment Fee . . . . . . . . . . . . . . . . . 52 3.5.2. Audit Fees . . . . . . . . . . . . . . . . . . . 52 3.5.3. Other Fees . . . . . . . . . . . . . . . . . . . 53 i 3 PAGE ---- ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS 4.1. Illegality. . . . . . . . . . . . . . . . . . . . . . . . . 53 4.2. Deposits Unavailable. . . . . . . . . . . . . . . . . . . . 54 4.3. Increased Costs, etc. . . . . . . . . . . . . . . . . . . . 54 4.4. Funding Losses. . . . . . . . . . . . . . . . . . . . . . . 54 4.5. Increased Capital Costs . . . . . . . . . . . . . . . . . . 55 4.6. Taxes, etc. . . . . . . . . . . . . . . . . . . . . . . . . 55 4.7. Payments, Computations, etc . . . . . . . . . . . . . . . . 57 4.8. Sharing of Payments . . . . . . . . . . . . . . . . . . . . 59 4.9. Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . 59 4.10. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 60 4.11. Change of Lending Office, Replacement of Lender, etc . . . . . . . . . . . . . . . . . . . . . . . . 60 4.12. Computation of Additional Amounts Due . . . . . . . . . . . 61 ARTICLE V LETTERS OF CREDIT 5.1. Requests. . . . . . . . . . . . . . . . . . . . . . . . . . 62 5.2. Issuance and Extensions . . . . . . . . . . . . . . . . . . 63 5.3. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 64 5.4. Other Lenders' Participation. . . . . . . . . . . . . . . . 64 5.5. Disbursements . . . . . . . . . . . . . . . . . . . . . . . 65 5.6. Reimbursement . . . . . . . . . . . . . . . . . . . . . . . 66 5.7. Mandatory Payment to Agent of Letter of Credit Outstandings. . . . . . . . . . . . . . . . . . . . . . . . 66 5.8. L/C Collateral Account. . . . . . . . . . . . . . . . . . . 66 5.8.1. Deposit. . . . . . . . . . . . . . . . . . . . . 66 5.8.2. Investment . . . . . . . . . . . . . . . . . . . 67 5.8.3. Application of Funds . . . . . . . . . . . . . . 67 5.8.4. Fees . . . . . . . . . . . . . . . . . . . . . . 68 5.9. Nature of Reimbursement Obligations . . . . . . . . . . . . 68 5.10. Indemnification by Lenders. . . . . . . . . . . . . . . . . 69 ARTICLE VI PARENT GUARANTOR 6.1. Parent Guaranty . . . . . . . . . . . . . . . . . . . . . . 69 6.2. Renewal, etc. of Obligations; Waiver. . . . . . . . . . . . 69 6.3. No Impairment, etc. . . . . . . . . . . . . . . . . . . . . 70 6.4. Reinstatement; Subrogation. . . . . . . . . . . . . . . . . 70 ARTICLE VII CONDITIONS TO EXTENSIONS OF CREDIT 7.1. Initial Credit Extension. . . . . . . . . . . . . . . . . . 71 7.1.1. Resolutions, etc . . . . . . . . . . . . . . . . 71 7.1.2. Insurance. . . . . . . . . . . . . . . . . . . . 72 7.1.3. Payment of Outstanding ii 4 PAGE ---- Indebtedness; Existing Letters of Credit . . . . . . . . . . . . . . . . . . . . . 72 7.1.4. Parent Pledge Agreement. . . . . . . . . . . . . 72 7.1.5. Company Pledge Agreement . . . . . . . . . . . . 73 7.1.6. Security Agreements. . . . . . . . . . . . . . . 73 7.1.7. Company Trademark Security Agreement; Company Patent Security Agreement. . . . . . . . . . . . . . . . . . . . 74 7.1.8. Company Mortgages; Company Deeds of Trust. . . . . . . . . . . . . . . . . . . . . . 74 7.1.9. Subsidiary Guaranty. . . . . . . . . . . . . . . 75 7.1.10. Subsidiary Pledge Agreement. . . . . . . . . . . 75 7.1.11. Intercompany Note Pledge Agreement . . . . . . . 76 7.1.12. Opinions of Counsel. . . . . . . . . . . . . . . 76 7.1.13. Closing Fees, Expenses, etc. . . . . . . . . . . 76 7.1.14. Environmental Reports. . . . . . . . . . . . . . 76 7.1.15. Investment Account Letter. . . . . . . . . . . . 76 7.1.16. Sufficient Quantities, etc . . . . . . . . . . . 77 7.1.17. Availability . . . . . . . . . . . . . . . . . . 77 7.1.18. Issuance of Senior Debt and Equity . . . . . . . 77 7.1.19. Cash Management Arrangements . . . . . 77 7.2. All Credit Extensions . . . . . . . . . . . . . . . . . . . 77 7.2.1. Compliance with Warranties, No Default, etc . . . . . . . . . . . . . . . . . . 78 7.2.2. Credit Request; Borrowing Base Certificate. . . . . . . . . . . . . . . . . . . 79 7.2.3. Satisfactory Legal Form. . . . . . . . . . . . . 80 7.3. Conditions Subsequent . . . . . . . . . . . . . . . . . . . 80 ARTICLE VIII REPRESENTATIONS AND WARRANTIES 8.1. Organization, etc . . . . . . . . . . . . . . . . . . . . . 80 8.2. Due Authorization, Non-Contravention, etc . . . . . . . . . 81 8.3. Government Approval, Regulation, etc. . . . . . . . . . . . 81 8.4. Validity, etc . . . . . . . . . . . . . . . . . . . . . . . 82 8.5. Financial Information . . . . . . . . . . . . . . . . . . . 82 8.6. No Material Adverse Effect. . . . . . . . . . . . . . . . . 83 8.7. Absence of Default or Violation of Law. . . . . . . . . . . 83 8.8. Litigation, etc . . . . . . . . . . . . . . . . . . . . . . 84 8.9. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 84 8.10. Ownership of Properties . . . . . . . . . . . . . . . . . . 84 8.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 8.12. Pension and Welfare Plans . . . . . . . . . . . . . . . . . 85 8.13. Environmental Warranties. . . . . . . . . . . . . . . . . . 85 8.14. Regulations G, U, and X . . . . . . . . . . . . . . . . . . 87 8.15. Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . 87 8.16. Senior Indebtedness . . . . . . . . . . . . . . . . . . . . 87 8.17. Accuracy of Information . . . . . . . . . . . . . . . . . . 88 8.18. Joint Venture Contingent Liabilities. . . . . . . . . . . . 89 8.19. Mortgaged Property. . . . . . . . . . . . . . . . . . . . . 89 iii 5 PAGE ---- ARTICLE IX COVENANTS 9.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . . 89 9.1.1. Financial Information, Reports, Notices, etc. . . . . . . . . . . . . . . . . . 89 9.1.2. Compliance with Laws, etc. . . . . . . . . . . . 92 9.1.3. Maintenance of Properties. . . . . . . . . . . . 93 9.1.4. Insurance. . . . . . . . . . . . . . . . . . . . 93 9.1.5. Books and Records; Audits; Confidentiality. . . . . . . . . . . . . . . . . 95 9.1.6. Environmental Covenant . . . . . . . . . . . . . 97 9.1.7. Performance of Instruments . . . . . . . . . . . 98 9.1.8. Maintenance of Collateral. . . . . . . . . . . . 98 9.1.9. Collateral Reporting . . . . . . . . . . . . . . 98 9.1.10. Delivery; Further Assurances . . . . . . . . . . 99 9.1.11. Real Property; Title Policies; Surveys. . . . . . . . . . . . . . . . . . . . .101 9.1.12. Intercompany Demand Notes. . . . . . . . . . . .103 9.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . .103 9.2.1. Business Activities. . . . . . . . . . . . . . .103 9.2.2. Indebtedness . . . . . . . . . . . . . . . . . .103 9.2.3. Liens. . . . . . . . . . . . . . . . . . . . . .107 9.2.4. Financial Condition. . . . . . . . . . . . . . .110 9.2.5. Investments. . . . . . . . . . . . . . . . . . .111 9.2.6. Restricted Payments, etc . . . . . . . . . . . .113 9.2.7. Capital Expenditures.. . . . . . . . . . . . . .116 9.2.8. Rental Obligations . . . . . . . . . . . . . . .117 9.2.9. Take or Pay Contracts. . . . . . . . . . . . . .117 9.2.10. Consolidation, Merger, etc . . . . . . . . . . .117 9.2.11. Asset Dispositions . . . . . . . . . . . . . . .118 9.2.12. Sale or Discount of Receivables. . . . . . . . .119 9.2.13. Restrictions on Actions under Certain Agreements . . . . . . . . . . . . . . .120 9.2.14. Transactions with Affiliates . . . . . . . . . .121 9.2.15. Negative Pledges, etc. . . . . . . . . . . . . .122 9.2.16. Sale-Leaseback Transactions. . . . . . . . . . .123 9.2.17. Change of Location or Name . . . . . . . . . . .123 9.2.18. Intercompany Transfers of Property . . . . . . .123 9.2.19. Inconsistent Agreements. . . . . . . . . . . . .124 9.2.20. Transfer of Collateral . . . . . . . . . . . . .124 ARTICLE X EVENTS OF DEFAULT 10.1. Listing of Events of Default. . . . . . . . . . . . . . . .125 10.1.1. Non-Payment of Obligations . . . . . . . . . . .125 10.1.2. Breach of Warranty . . . . . . . . . . . . . . .125 10.1.3. Non-Performance of Certain Covenants and Obligations. . . . . . . . . . . .125 10.1.4. Non-Performance of Certain iv 6 PAGE ---- Covenants and Obligations. . . . . . . . . . . .125 10.1.5. Non-Performance of Other Covenants and Obligations. . . . . . . . . . . . . . . . .126 10.1.6. Default on Other Indebtedness. . . . . . . . . .126 10.1.7. Judgments. . . . . . . . . . . . . . . . . . . .126 10.1.8. Pension Plans. . . . . . . . . . . . . . . . . .127 10.1.9. Change in Control. . . . . . . . . . . . . . . .127 10.1.10. Bankruptcy, Insolvency, etc. . . . . . . . . . .127 10.1.11. Subordinated Debt and Senior Debt. . . . . . . .128 10.1.12. Impairment of Certain Documents. . . . . . . . .128 10.2. Action if Bankruptcy. . . . . . . . . . . . . . . . . . . .128 10.3. Action if Other Event of Default. . . . . . . . . . . . . .128 ARTICLE XI THE ADMINISTRATIVE AGENT 11.1. Appointment; Actions. . . . . . . . . . . . . . . . . . . .129 11.2. Funding Reliance, etc . . . . . . . . . . . . . . . . . . .131 11.3. Exculpation . . . . . . . . . . . . . . . . . . . . . . . .132 11.4. Successors. . . . . . . . . . . . . . . . . . . . . . . . .133 11.5. Credit Extensions by the Agent. . . . . . . . . . . . . . .134 11.6. Credit Decisions. . . . . . . . . . . . . . . . . . . . . .134 11.7. Copies, etc . . . . . . . . . . . . . . . . . . . . . . . .134 11.8. Designation of Additional Agents. . . . . . . . . . . . . .135 11.9. Certain Releases. . . . . . . . . . . . . . . . . . . . . .135 11.10. Approval of Loan Documents. . . . . . . . . . . . . . . . .136 ARTICLE XII MISCELLANEOUS PROVISIONS 12.1. Waivers, Amendments, etc. . . . . . . . . . . . . . . . . .136 12.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . .138 12.3. Payment of Costs and Expenses . . . . . . . . . . . . . . .138 12.4. Indemnification . . . . . . . . . . . . . . . . . . . . . .139 12.5. Survival. . . . . . . . . . . . . . . . . . . . . . . . . .140 12.6. Severability. . . . . . . . . . . . . . . . . . . . . . . .141 12.7. Headings. . . . . . . . . . . . . . . . . . . . . . . . . .141 12.8. Execution in Counterparts, Effectiveness, etc . . . . . . .141 12.9. Governing Law; Submission to Jurisdiction . . . . . . . . .141 12.10. Successors and Assigns. . . . . . . . . . . . . . . . . . .143 12.11. Sale and Transfer of Credit Extensions and Commitments; Participations in Credit Extensions and Commitments. . . . . . . . . . . . . . . . .143 12.11.1. Assignments. . . . . . . . . . . . . . . . . . .143 12.11.2. Participations . . . . . . . . . . . . . . . . .144 12.12. Other Transactions. . . . . . . . . . . . . . . . . . . . .145 12.13. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . .145 12.14. Final Agreement, etc. . . . . . . . . . . . . . . . . . . .145 v 7 EXHIBITS Exhibit A-1(a) Borrowing Request - Revolving Loan Borrowing Exhibit A-1(b) Borrowing Request - Swingline Borrowings Exhibit A-2 Continuation/Conversion Notice Exhibit B Revolving L/C Request Exhibit C-1 Certificate as to Senior Debt Exhibit C-2 Certificate as to Parent Guarantor Preferred Stock Exhibit D-1 Borrowing Base Certificate Exhibit D-2 Compliance Certificate Exhibit E-1 Parent Pledge Agreement Exhibit E-2 Parent Security Agreement Exhibit F-1 Company Pledge Agreement Exhibit F-2 Company Security Agreement Exhibit F-3 Company Patent Security Agreement Exhibit F-4 Company Trademark Security Agreement Exhibit G Collection Bank Agreement Exhibit H Concentration Bank Agreement Exhibit I-1 Company Deed of Trust Exhibit I-2 Company Mortgage Exhibit J Subsidiary Guaranty Exhibit K-1 Subsidiary Pledge Agreement Exhibit K-2 Subsidiary Security Agreement Exhibit K-3 Intercompany Note Pledge Agreement Exhibit L-1 Opinion of Outside Counsel to Company Exhibit L-2 Opinion of Inside Counsel to Company Exhibit L-3 Opinion of Special Patent Counsel to Company Exhibit L-4 Opinions of Local Counsel Exhibit L-5 Opinion of Counsel to Agent Exhibit M Assignee Agreement to be bound Exhibit N Investment Account Letter Exhibit O-1 Intercompany Demand Note Exhibit O-2 Intercompany Demand Note Exhibit O-3 Intercompany Demand Note Exhibit 0-4 Intercompany Demand Note Exhibit 0-5 Intercompany Demand Note Exhibit P-1 Equity Proceeds Note Exhibit P-2 Equity Proceeds Note Exhibit Q Form of Confidentiality Agreement Exhibit R Form of RTZ Aluminum Holdings Limited Letter Exhibit S Form of Flood Plain Status Letter SCHEDULES Schedule I Pledged Subsidiaries and Joint Venture Affiliates (Company Pledge Agreement) Schedule II Mortgaged Real Property (Company Mortgage and Deed of Trust) Schedule III Subsidiaries executing the Subsidiary Guaranty Schedule IV Subsidiaries executing the Subsidiary Pledge Agreement and the Subsidiary Security Agreement Schedule V Pledged Subsidiaries (Subsidiary Pledge Agreement) vii 8 Schedule VI Intercompany Demand Notes (Subsidiary Pledge Agreement) Schedule VII Subsidiaries executing Intercompany Note Pledge Agreement Schedule VIII Intercompany Demand Notes (Intercompany Note Pledge Agreement) Schedule IX Existing Letters of Credit Schedule X Local Counsel Schedule XI Other Material Subsidiaries Schedule XII Existing Investments Schedule XIII Certain Intercompany Debt viii 9 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of February 15, 1994, is between KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation (the "Company"), KAISER ALUMINUM CORPORATION, a ------- Delaware corporation (the "Parent Guarantor"), the various ---------------- financial institutions that are or may from time to time become parties hereto pursuant to the terms hereof (collectively, the "Lenders" and, individually, a "Lender"), and BANKAMERICA ------- ------ BUSINESS CREDIT, INC., a Delaware corporation, as agent (in such capacity, together with its successors and assigns in such capacity, the "Agent") for the Lenders. ----- W I T N E S S E T H: WHEREAS, the Company, a direct Subsidiary of the Parent Guarantor, is engaged, directly and through its various Subsidiaries and Joint Venture Affiliates, in the business of the mining of bauxite, the refining of bauxite into alumina, the production of primary aluminum and semi-fabricated and fabricated aluminum products, and the sale of bauxite, alumina, primary aluminum, and semi-fabricated and fabricated aluminum products to direct customers and distributors; and WHEREAS, the Company desires to obtain Commitments from the Lenders pursuant to which Loans and other Credit Extensions, in a maximum aggregate principal amount at any one time outstanding not to exceed $250,000,000, will be made to or for the account of the Company from time to time prior to the Revolving Commitment Termination Date; and WHEREAS, each Lender, severally and for itself alone, is willing, on the terms and subject to the conditions hereinafter set forth (including Article VII), to extend its ----------- Commitments and make its Loans and other Credit Extensions to or for the account of the Company; and WHEREAS, the proceeds of any Loans made on the Initial Borrowing Date will be applied by the Company, together with other funds, to make payment in full of all Indebtedness of the Company identified in Item 1 ("Indebtedness to be Paid") of the ------ ----------------------- Disclosure Schedule; and WHEREAS, in order to induce the Lenders to enter into this Agreement and to extend their respective Commitments and make the Loans and other Credit Extensions, the Parent Guarantor has agreed to unconditionally guarantee all obligations of the Company hereunder and under the other Loan Documents; and WHEREAS, on the terms and subject to the conditions hereof, on or prior to the Initial Borrowing Date, the following transactions shall occur as provided below: 10 (a) as security for the Company's Obligations, the Company shall execute and deliver to the Agent, on behalf of the Secured Lenders: (i) the Company Security Agreement, granting to the Agent, on behalf of the Secured Lenders, a security interest in the Company's personal property described therein; (ii) the Company Pledge Agreement, pledging to the Agent, on behalf of the Secured Lenders; (A) all of the issued and outstanding shares of capital stock of each first-tier, Domestic Subsidiary of the Company listed on Schedule I ---------- hereto; (B) the percentage of the issued and outstanding shares of capital stock of each first- tier, non-Domestic Subsidiary or Joint Venture Affiliate of the Company listed on such Schedule I ---------- set forth opposite the name of such Subsidiary or Joint Venture Affiliate; (C) the KT Note; and (D) all other promissory notes or other debt instruments held by the Company; and (iii) the Company Mortgages and Company Deeds of Trust, mortgaging to the Agent (or one or more trustees therefor) and granting to the Agent (or one or more trustees therefor), on behalf of the Secured Lenders, a security interest in all real property of the Company listed on Schedule II hereto. ----------- (b) as security for the Parent Guarantor's Obligations under the Parent Guaranty, the Parent Guarantor shall execute and deliver to the Agent, on behalf of the Secured Lenders: (i) the Parent Security Agreement, granting to the Agent, on behalf of the Secured Lenders, a security interest in the Parent Guarantor's personal property described therein; and (ii) the Parent Pledge Agreement, pledging to the Agent, on behalf of the Secured Lenders: (A) all of the issued and outstanding shares of capital stock of the Company held by the Parent Guarantor; and (B) all promissory notes or other debt 2 11 instruments (other than the Equity Proceeds Notes) held by the Parent Guarantor; (c) each Subsidiary of the Company listed on Schedule III hereto shall execute and deliver to the Agent, ------------ the Subsidiary Guaranty, guaranteeing the Company's Obligations and each other such Subsidiary's Obligations under the Subsidiary Guaranty; (d) as security for such Subsidiary's Obligations under the Subsidiary Guaranty, each Subsidiary of the Company listed on Schedule IV hereto shall execute and ----------- deliver to the Agent, on behalf of the Secured Lenders, the Subsidiary Pledge Agreement, pledging to the Agent, on behalf of the Secured Lenders: (i) all of the issued and outstanding shares of capital stock of each first-tier, Domestic Subsidiary of such Subsidiary listed on Schedule V hereto; ---------- (ii) the percentage of the issued and outstanding shares of capital stock of each first-tier, non- Domestic Subsidiary of such Subsidiary listed on such Schedule V set forth opposite the name of such ---------- Subsidiary; (iii) any Intercompany Demand Note held by such Subsidiary listed on Schedule VI hereto; and ----------- (iv) all other promissory notes or other debt instruments held by such Subsidiary; (e) as security for such Subsidiary's Obligations under the Subsidiary Guaranty, each Subsidiary of the Company listed on Schedule IV hereto shall execute and ----------- deliver to the Agent the Subsidiary Security Agreement, granting to the Agent, on behalf of the Secured Lenders, a security interest in such Subsidiary's personal property described therein; and (f) each Subsidiary of the Company listed on Schedule -------- VII hereto which is not otherwise a party to the --- Subsidiary Pledge Agreement shall execute and deliver to the Agent, on behalf of the Secured Lenders, the Intercompany Note Pledge Agreement, pledging to the Agent, on behalf of the Secured Lenders, any Intercompany Demand Note held by such Subsidiary listed on Schedule VIII hereto; ------------- NOW, THEREFORE, the parties hereto agree as follows: 3 12 ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms when ------------- used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Account" means any present or future right to payment for ------- goods sold or leased or for services rendered, whether due or to become due, whether now existing or hereafter arising and whether or not it has been earned by performance. "Account Debtor" means each Person obligated in any way on -------------- an Account. "Adjusted Capital Expenditures" means, for any period, ----------------------------- (a) Capital Expenditures for such period (exclusive of capitalized interest) minus - ----- (b) that portion of Capital Expenditures for such period (exclusive of capitalized interest) attributable to any Subsidiary of the Company which is equal to (i) the proportionate direct or indirect ownership of Persons other than the Company and its Subsidiaries of the voting stock of, or partnership interest in, such Subsidiary or (ii) if the economic burden of such Capital Expenditures is borne or to be borne by minority owners of such Subsidiary (other than the Company and its Subsidiaries) in a proportion other than the proportion of their direct or indirect ownership of the voting stock of, or partnership interest in, such Subsidiary, the proportionate share of the economic burden of such Capital Expenditures borne or to be borne by such minority owners. "Affected Lender" is defined in Section 4.11(b). --------------- --------------- "Affiliate" means, with respect to any Person, any other --------- Person which, directly or indirectly, controls, is controlled by, or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power to (a) vote 20% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of a majority of directors or managing general partners; 4 13 (b) vote sufficient securities of any class to control the election of one or more directors or managing general partners; or (c) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agent" is defined in the preamble. ----- -------- "Agreement" means, on any date, this Credit Agreement as --------- originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "AJI" means Alpart Jamaica Inc., a Delaware corporation. --- "ALPART" means Alumina Partners of Jamaica, a Delaware ------ general partnership. "Anglesey" means Anglesey Aluminium Limited, a United -------- Kingdom corporation. "Asset Disposition" means any sale, transfer, lease which is ----------------- accounted for as a sale under GAAP, contribution, conveyance, or other disposition (other than the grant of a Lien), in any case made after the Initial Borrowing Date, of any Property of the Company or any of its Subsidiaries to any Person. "Assignee Agreement to be Bound" means an Assignee Agreement ------------------------------ to be Bound in substantially the form of Exhibit M attached --------- hereto. "Assignee Lender" is defined in Section 12.11.1. --------------- --------------- "Authorized Officer" means, with respect to any Obligor, ------------------ those of its officers whose signatures and incumbency shall have been certified to the Agent and the Lenders pursuant to Section 7.1.1(a). - ---------------- "Bank of America" means Bank of America National Trust and --------------- Savings Association, a national banking association, in its individual capacity. "Bank of America Rate" is defined in "Reference Rate". -------------------- -------------- "Borrowing" means the Revolving Loans made by all Lenders on --------- the same Business Day pursuant to the same Borrowing Request in accordance with Section 2.1.1 or the Swingline Loan made by ------------- Business Credit pursuant to a Borrowing Request in accordance with Section 2.1.3. ------------- 5 14 "Borrowing Base" means, at any time, -------------- (a) an amount equal to 85% of the Net Amount of Eligible Accounts as at such time plus - ---- (b) the lesser of (i) $175,000,000 and (ii) 65% of all Eligible Inventory as at such time minus - ----- (c) all reserves, including any reserves for sales, excise or similar taxes in respect of Eligible Accounts and any reserves for rental expenses, processing fees or other expenses relating to Eligible Inventory located at premises not owned by the Company or KAII, which the Agent, after consultation with the Company, in its commercially reasonable discretion deems necessary or desirable to maintain with respect to the Company's account, including any amounts which the Agent may be obligated to pay in the future for the account of the Company; provided, however, that (i) the Net Amount of Eligible Accounts - -------- ------- of KAII included in the Borrowing Base shall at no time exceed 20% of the Net Amount of Eligible Accounts included in the Borrowing Base, (ii) the Net Amount of Eligible Accounts of the Company owed by Foreign Account Debtors included in the Borrowing Base shall at no time exceed 5% of the Net Amount of Eligible Accounts of the Company included in the Borrowing Base and (iii) Convertor Inventory that is located on the premises of a third party included in the Borrowing Base shall at no time exceed 5% of Eligible Inventory included in the Borrowing Base; and provided further that the limitation set forth in clause (i) may, - -------- ------- ---------- to the extent approved by the Agent in its sole discretion, be increased by the amount, expressed in dollars, of any unused amount of the Net Amount of Eligible Accounts of the Company owed by Foreign Account Debtors permitted to be included in the Borrowing Base under clause (ii). ----------- "Borrowing Base Calculation Date" means, with respect to the ------------------------------- delivery date of any Borrowing Base Certificate, the last day of the preceding month or the last day of the next preceding month, as the case may be. "Borrowing Base Certificate" means a certificate duly -------------------------- executed on behalf of the Company by a Financial Authorized Officer of the Company in substantially the form of Exhibit D-1 ----------- attached hereto. "Borrowing Request" means a loan request and certificate ----------------- duly executed by an Authorized Officer of the Company, (a) in respect of any Borrowing of Revolving Loans, in substantially the form of Exhibit A-1(a) attached hereto, or (b) in respect of any -------------- 6 15 Borrowing of Swingline Loans, in substantially the form of Exhibit A-1(b) attached hereto. - -------------- "Business Credit" means BankAmerica Business Credit, Inc., a --------------- Delaware corporation. "Business Day" means any day which is ------------ (a) neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York or in San Francisco, California; and (b) relative to the making, continuing, converting, prepaying, or repaying of any LIBO Rate Loans, also a day on which dealings in Dollars are carried on in the London interbank market. "Canadian Subsidiaries" means Kaiser Aluminum & Chemical --------------------- Canada Investment Limited, an Ontario corporation, and Kaiser Canada. "Capital Expenditures" means, for any period, the aggregate -------------------- expenditures of the Company and its Subsidiaries on a consolidated basis for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures (including the aggregate amount of all Capitalized Lease Liabilities incurred during such period); provided, however, that any repurchase or leaseback by the - -------- ------- Company of a facility sold by the Company in connection with the issuance of industrial revenue bonds by a state, municipality or other subdivision of the United States of America or any department, agency, public corporation or other instrumentality thereof shall not in any event be deemed to be a Capital Expenditure. "Capitalized Lease Liabilities" means all monetary ----------------------------- obligations of the Company or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, would be classified as a capitalized lease, and, for purposes of this Agreement and each other Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Cash Equivalent Investment" means, at any time: -------------------------- (a) any evidence of Indebtedness, maturing not more than one year after such time, issued or guaranteed by the United States Government; (b) any certificate of deposit or bankers' acceptance, maturing not more than one year after such time, which is 7 16 issued or accepted by either (i) a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000; (ii) any Lender; or (iii) with respect to certificates of deposit that do not exceed $10,000,000 in the aggregate outstanding at any time, any other commercial banking institution; (c) commercial paper rated A-1 or better by Standard & Poor's Corporation or Prime-1 or better by Moody's Investors Service, Inc.; (d) repurchase agreements with respect to any of the foregoing, with any bank or trust company referred to above in clause (b) or with any nationally recognized securities ---------- dealer having total capital and surplus and undivided profits of not less than $500,000,000; or (e) investments in the Goldman, Sachs & Co. Institutional Liquid Assets fund and other money market funds which have substantially similar investment policies. "CERCLA" means the Comprehensive Environmental Response, ------ Compensation and Liability Act of 1980, as amended or otherwise modified from time to time. "CERCLIS" means the Comprehensive Environmental Response ------- Compensation Liability Information System List. "Change in Control" means the occurrence of any of the ----------------- following events: (a) MAXXAM not owning (other than by reason of the existence of a Lien or other encumbrance but including by reason of the foreclosure of or other realization upon a Lien or other encumbrance) direct or indirect sole beneficial ownership (as defined under Regulation 13d-3 of the Securities Exchange Act of 1934 as in effect on the date of this Agreement) of at least 51% of the total common equity, on a fully diluted basis, of the Parent Guarantor or the Company; or (b) MAXXAM, through direct representation or through persons nominated by it, not controlling a majority of the Board of Directors of the Parent Guarantor or the Company necessary to effectuate any actions by the Board of Directors of the Parent Guarantor or the Company; or (c) any person or group (as defined in Section 13(d)(3) of the ---------------- Securities Exchange Act of 1934 as in effect on the date of this Agreement), directly or indirectly, owning more of the total voting power entitled to vote generally in the election of directors of the Parent Guarantor or the Company than MAXXAM; or (d) Charles Hurwitz, members of his immediate family and trusts 8 17 for the benefit thereof (each such person, including Mr. Hurwitz and any trustee of such trusts, being herein called a "Beneficiary") not having (other than by reason of death, ----------- incapacity, bankruptcy, reorganization, insolvency or similar proceeding or in connection with the resolution of any litigation outstanding as of the date of the Subordinated Indenture or any similar litigation or the existence of a Lien but including by reason of the foreclosure of or other realization upon a Lien or other encumbrance) direct or indirect sole beneficial ownership (as defined under Regulation 13d-3 of the Securities Exchange Act of 1934 as in effect on the date of this Agreement) of at least the Minimum Percentage (defined below) of the total equity of MAXXAM, other than as a result of new issuances of equity securities by MAXXAM to third parties (other than to a third party who is not a Beneficiary and who controls MAXXAM). "Minimum Percentage" means that percentage obtained by ------------------ multiplying (i) the percentage of the total equity of MAXXAM, directly or indirectly, beneficially owned by the Beneficiaries as of the date of the Subordinated Indenture and (ii) 80%. "Code" means the Internal Revenue Code of 1986, as amended, ---- reformed, or otherwise modified from time to time. "Collateral" means all Property and rights on or in which a ---------- Lien is granted to the Agent (or to any agent, trustee, or other Person acting on the Agent's behalf) pursuant to this Agreement, any of the Collateral Documents, or any other Instruments provided for herein or therein or delivered or to be delivered hereunder or thereunder or in connection herewith or therewith, as any of the foregoing may be amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Collateral Documents" means, collectively, the Parent -------------------- Collateral Documents, the Company Collateral Documents, the Subsidiary Collateral Documents, the Collection Bank Agreements, the Concentration Bank Agreement, and each other Instrument or document pursuant to which a Lien is granted to the Agent (or perfected in favor of the Agent) (or to or in favor of any agent, trustee, or other Person acting on the Agent's behalf) as security for any of the Obligations, as any of the foregoing may be amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Collection Bank" means any bank at which the Company --------------- maintains a collection or lockbox account or other similar collection arrangement. "Collection Bank Agreement" means any agreement between the ------------------------- Company, the Agent, and any Collection Bank and delivered pursuant to Section 7.1.19, in substantially the form of -------------- Exhibit G attached hereto, as any such agreement may be amended, - --------- supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof, including 9 18 pursuant to Section 7.3. ----------- "Collection Deposit Account" has the meaning set forth in -------------------------- the Collection Bank Agreement. "Commitment" means, as the context may require, a Lender's ---------- Revolving Commitment, or Business Credit's Swingline Commitment. "Commitment Termination Event" means ---------------------------- (a) any Event of Default described in clauses (a) ----------- through (e) of Section 10.1.10 with respect to the Company --- --------------- shall have occurred; or (b) any other Event of Default shall have occurred and be continuing and the Agent, acting at the direction of the Majority Lenders, gives written notice to the Company pursuant to clause (a) of Section 10.3 that the Commitments ---------- ------------ have been terminated. "Company" is defined in the preamble. ------- -------- "Company Collateral Documents" means the Company Pledge ---------------------------- Agreement, the Company Security Agreement, the Company Patent Security Agreement, the Company Trademark Security Agreement, each Company Deed of Trust, each Company Mortgage, and the Louisiana Security Documents. "Company Deed of Trust" means any deed of trust executed and --------------------- delivered by the Company pursuant to Section 7.1.8, each in ------------- substantially the form of Exhibit I-1 attached hereto, as ----------- amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Company Mortgage" means any mortgage executed and delivered ---------------- by the Company pursuant to Section 7.1.8, each in substantially ------------- the form of Exhibit I-2 attached hereto, as amended, ----------- supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Company Patent Security Agreement" means the patent --------------------------------- security agreement executed and delivered by the Company pursuant to Section 7.1.7, in substantially the form of Exhibit F-3 ------------- ----------- attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Company Pledge Agreement" means the pledge agreement ------------------------ executed and delivered by the Company pursuant to Section 7.1.5, ------------- in substantially the form of Exhibit F-1 attached hereto, as ----------- amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Company Security Agreement" means the security agreement -------------------------- 10 19 executed and delivered by the Company pursuant to Section 7.1.6, ------------- in substantially the form of Exhibit F-2 attached hereto, as ----------- amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Company Trademark Security Agreement" means the trademark ------------------------------------ security agreement executed and delivered by the Company pursuant to Section 7.1.7, in substantially the form of Exhibit F-4 ------------- ----------- attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Compliance Certificate" means a certificate of the Company ---------------------- duly executed by a Financial Authorized Officer of the Company, in substantially the form of Exhibit D-2 attached hereto, with ----------- such changes as the Agent and the Company may from time to time agree upon for purposes of monitoring the Company's compliance herewith. "Concentration Account" is defined in the Concentration Bank --------------------- Agreement. "Concentration Bank Agreement" means an agreement between ---------------------------- the Company, the Agent, and Bank of America, as concentration bank, and delivered pursuant to Section 7.1.19, in substantially -------------- the form of Exhibit H attached hereto, as amended, supplemented, --------- restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof, including pursuant to Section 7.3. - ----------- "Confidential Information" is defined in clause (c) of ------------------------ ---------- Section 9.1.5. - ------------- "Contingent Liability" means any agreement, undertaking, or -------------------- arrangement by which any Person guarantees, endorses, agrees to purchase, or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the debt, obligation, or other liability of any other Person (other than by endorsements of Instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum outstanding principal amount, if larger) of the debt, obligation, or other liability guaranteed thereby. "Continuation/Conversion Notice" means a notice of ------------------------------ continuation or conversion and certificate duly executed by an Authorized Officer of the Company, in substantially the form of Exhibit A-2 attached hereto. - ----------- 11 20 "Controlled Group" means all members of a controlled group ---------------- of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Company, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Convertor Inventory" means raw materials, work-in-process ------------------- or other goods delivered to a third party pursuant to a bailment arrangement with such third party under which such Inventory is to be processed, improved or otherwise altered by such third party. "Credit Extension" means ---------------- (a) any disbursement of Revolving Loans by the Lenders; (b) any disbursement of Swingline Loans by Business Credit; or (c) any issuance or extension by an Issuer Bank of a Letter of Credit. "Credit Request" means any Borrowing Request or Revolving -------------- L/C Request. "Deconsolidation Tax Allocation Agreement" means the Tax ---------------------------------------- Allocation Agreement dated June 30, 1993 between the Company and the Parent Guarantor a copy of which has been delivered to the Agent and the Lenders prior to the date hereof, as amended from time to time with the written consent of the Agent. "Default" means any Event of Default or any condition, ------- occurrence, or event which, after notice or lapse of time or both, would constitute an Event of Default. "Disbursement" means any payment or disbursement made under ------------ a Letter of Credit by the Issuer Bank thereof to the beneficiary thereunder. "Disbursement Date" is defined in clause (a) of Section 5.5. ----------------- ---------- ----------- "Disclosure Schedule" means the Disclosure Schedule dated as ------------------- of February 15, 1994 delivered by the Company to the Agent and each Lender prior to the execution and delivery of this Agreement, as it may be amended, supplemented, or otherwise modified from time to time by the Company with the prior written consent of the Agent. "Distributions" is defined in clause (a) of Section 9.2.6. ------------- ---------- ------------- "Dollar" and the sign "$" mean lawful money of the United ------ States. 12 21 "Domestic Office" means, with respect to any Lender, the --------------- office of such Lender designated as such below its signature hereto, or designated in the Assignee Agreement to be Bound pursuant to which such Lender became a party hereto, or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by written notice from such Lender, as the case may be, to each other Person party hereto. "Domestic Subsidiary" means a Subsidiary that is created or ------------------- organized in or under the laws of the United States, any state thereof, or the District of Columbia. "EBITDA" means, for any Fiscal Quarter, an amount equal to: ------ (a) Net Income for such Fiscal Quarter (including extraordinary gains and extraordinary losses, in each case as determined in accordance with GAAP); plus - ---- (b) the aggregate amount deducted, in determining Net Income for such Fiscal Quarter, in respect of all foreign, federal, state, and local income taxes of the Company and its Subsidiaries, calculated on a consolidated basis in accordance with GAAP; plus - ---- (c) the aggregate amount of interest expense (excluding amortization of deferred financing costs and, to the extent not paid in cash, interest on the PIK Note and the Equity Proceeds Notes) of the Company and its Subsidiaries for such Fiscal Quarter, calculated on a consolidated basis in accordance with GAAP, minus the amount ----- of interest income of the Company and its Subsidiaries which was included in the calculation of Net Income for such Fiscal Quarter in accordance with GAAP; plus - ---- (d) the aggregate amount of depreciation expense of the Company and its Subsidiaries for such Fiscal Quarter, calculated on a consolidated basis in accordance with GAAP; plus - ---- (e) the aggregate amount of amortization expense of the Company and its Subsidiaries for such Fiscal Quarter, calculated on a consolidated basis in accordance with GAAP; plus - ---- (f) the aggregate amount of the noncash portion of the 13 22 FAS 106 charge of the Company and its Subsidiaries calculated on a consolidated basis in accordance with GAAP; minus - ----- (g) that portion of the amounts set forth in clauses (b), (c), (d), (e), and (f) above attributable to ----------- --- --- --- --- (i) the proportionate direct or indirect ownership of Persons other than the Company and its Subsidiaries of the voting stock of, or partnership interest in, any Subsidiary or (ii) if the economic burden of the amounts set forth in clauses (b), (c), (d), (e) and (f) above is borne or to be ----------- --- --- --- --- borne by minority owners of such Subsidiary (other than the Company and its Subsidiaries) in a proportion other than the proportion of their direct or indirect ownership of the voting stock of, or partnership interest in, such Subsidiary, the proportionate share of the economic burden of such amounts borne or to be borne by such minority owners. "Effective Date" is defined in Section 12.8. -------------- ------------ "Eligible Account" means, at any time, all Accounts of the ---------------- Company and KAII that are not ineligible as the basis for Credit Extensions, based on the following criteria and on such other criteria as the Agent may, after consultation with the Company, from time to time establish in its commercially reasonable discretion. Without intending to limit the Agent's discretion to establish other criteria of eligibility pursuant to the preceding sentence, Eligible Accounts shall not include any Account: (a) which, except in the case of Product Swaps, does not represent a bona fide sale or lease and delivery of goods of or rendition of services by the Company or KAII in the ordinary course of the Company's or KAII's business, as the case may be, or which is not for a liquidated amount payable by the Account Debtor thereon on the terms set forth in the invoice therefor; (b) which represents a Progress Billing other than Progress Billings in an amount not to exceed $5,000,000 in the aggregate; (c) which represents a sale on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, repurchase or return basis, other than, in each case, a Product Swap or an Account that represents the balance of an Account Debtor's minimum annual purchase commitment to the Company provided that the documents relating to such Account provide that title to the Inventory purchased by the Account Debtor and held by the Company has passed to the Account Debtor; (d) which is evidenced by a promissory note or other 14 23 instrument or by chattel paper; (e) with respect to which more than 90 days, in the case of an Account as to which National Southwire is the Account Debtor, have elapsed since the date of the original invoice therefor or with respect to which more than 65 days, in the case of all other Accounts, have elapsed since the date of the original invoice therefor; (f) which is not evidenced by an invoice rendered to the Account Debtor, which is evidenced by an invoice dated more than 60 days after the date of shipment to the Account Debtor or which is evidenced by an invoice dated more than 60 days after the date of performance of the relevant service for the Account Debtor; (g) owed by an Account Debtor which is a director, officer, shareholder, employee or Affiliate of the Company or KAII; (h) if the aggregate dollar amount of all Accounts owed by the Account Debtor thereon exceeds 5% (15% in respect of Accounts owed by the Account Debtors identified in Item 11 ("Major Account Debtors") of the Disclosure --------------------- Schedule, as such Item may be amended from time to time by the Agent, in its commercially reasonable judgment, after consultation with the Company, to add or delete Account Debtors) of the aggregate amount of all Accounts at such time, but only to the extent of such excess; (i) which is owed by an Account Debtor which, at the time of any determination of Eligible Accounts, owes any amount with respect to any Account that has been outstanding more than 60 days past the due date, other than amounts which in total do not exceed 20% of the aggregate of all Accounts owing by such Account Debtor and which are the subject of bona fide disputes between such Account Debtor --------- and the Company or KAII; (j) which are owed by the government of the United States of America, or any department, agency, public corporation, or other instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as amended, and any other steps necessary to perfect the Agent's Security Interest therein, have been complied with to the Agent's reasonable satisfaction with respect to such Account; (k) which is owed by any state, municipality, or other political subdivision of the United States of America, or any department, agency, public corporation, or other instrumentality thereof and as to which the Agent determines that the Agent's Security Interest therein is not or cannot be perfected; 15 24 (l) except as provided in clause (j) above, as to ---------- which either the perfection, enforceability, or validity of the Security Interest in such Account, or the Agent's right or ability to obtain direct payment to the Agent of the Proceeds of such Account, is governed by any federal, state, or local statutory requirements other than those of the Uniform Commercial Code; (m) with respect to which, in whole or in part, a check, promissory note, draft, trade acceptance or other instrument for the payment of money has been received, presented for payment and returned uncollected for any reason; (n) which is owed by an Account Debtor to which the Company or KAII is indebted in any way unless the Account Debtor has entered into an agreement acceptable to the Agent in its commercially reasonable judgment to waive setoff rights; or if the Account Debtor thereon has disputed liability, asserted a right of setoff or made any claim with respect to such Account; but in each such case only to the extent of such indebtedness, setoff, dispute, or claim; (o) as to which any one or more of the following events has occurred with respect to the Account Debtor on such Account: death or judicial declaration of incompetency of an Account Debtor who is an individual; the filing by or against the Account Debtor of a request or petition in a proceeding that is then pending for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or similar laws of the United States, any state or territory thereof, or any foreign jurisdiction, now or hereafter in effect; the making of any general assignment by the Account Debtor for the benefit of creditors in a proceeding that is then pending; the appointment of a receiver or trustee for the Account Debtor or for any of the assets of the Account Debtor, including the appointment of or taking possession by a "custodian," as defined in the Federal Bankruptcy Code in a proceeding that is then pending; the institution by or against the Account Debtor of any other type of insolvency proceeding (under the bankruptcy laws of the United States or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of affairs of, the Account Debtor in a proceeding that is then pending; the nonpayment generally by the Account Debtor of its debts as they become due; or the cessation of the business of the Account Debtor as a going concern; (p) if the Agent believes in its commercially reasonable judgment that the prospect of collection of such Account is impaired or that the Account may not be paid by 16 25 reason of the Account Debtor's financial inability to pay; (q) which is owed by an Account Debtor which the Agent, in its commercially reasonable judgment, otherwise deems to be uncreditworthy; (r) which is owed by a Foreign Account Debtor; except to the extent that such Account (i) is secured or payable by a letter of credit or acceptance, (ii) insured under foreign credit insurance, on terms and conditions satisfactory to the Agent in its commercially reasonable discretion, or (iii) is owed by an Account Debtor identified in Item 12 ------- ("Major Foreign Account Debtors") of the Disclosure ----------------------------- Schedule, as such Item may be amended from time to time by the Agent, in its commercially reasonable judgment, after consultation with the Company, to add or delete Account Debtors; (s) which is not payable in the United States other than Accounts in an aggregate amount not to exceed $2,000,000 payable in the United Kingdom; (t) which is not payable in Dollars, other than Accounts in an aggregate amount not to exceed $2,000,000 payable in Pounds Sterling, unless the Company or KAII, as the case may be, has executed an appropriate Hedging Agreement acceptable to the Agent with respect thereto; (u) which represents a rebilling of an Account Debtor for a discount or other adjustment inappropriately applied to an Account by such Account Debtor; and (v) which has arisen from Inventory which, at the time of the determination of Eligible Accounts, constituted Eligible Inventory. "Eligible Assignee" is defined in Section 4.11(b). ----------------- --------------- "Eligible Inventory" means, at any time, any Inventory of ------------------ the Company arising in the ordinary course of the Company's business that: (a) is not, in the reasonable opinion of the Agent, obsolete or unmerchantable; (b) is located in the United States or in route to the United States; provided that such Inventory is insured in accordance with the Company's normal practice and to the reasonable satisfaction of the Agent, title to such Inventory has passed to the Company and, in the case of Inventory in route to the United States, is evidenced by a negotiable bill of lading that has been delivered to the Agent; 17 26 (c) upon which the Agent has a first priority perfected Security Interest; (d) is not stores Inventory, Tolling Inventory, repair and maintenance Inventory, or Inventory delivered to the Company on consignment; (e) is not ineligible as the basis for Credit Extensions based on such other criteria as the Agent may, after consultation with the Company, from time to time establish in its commercially reasonable discretion; and (f) has not given rise to any Account which, at the time of the determination of Eligible Inventory, constituted an Eligible Account. "Environmental Laws" means all applicable federal, state, or ------------------ local statutes, laws, ordinances, codes, rules, regulations, requirements, and guidelines (including consent decrees and administrative orders to which the Company, any of its Subsidiaries, or any Obligor is subject) relating to protection of the environment or human health or imposing liability or standards of conduct concerning any Hazardous Material, as any of the foregoing may be from time to time amended or supplemented. "Environmental Reports" means the "Environmental --------------------- Assessments" report, dated January, 1994, prepared by Kennedy/Jenks/Chilton, copies of which have been delivered to the Agent and each Lender prior to the date hereof. "Equity Proceeds Notes" means the Amended and Restated --------------------- Senior Subordinated Intercompany Note dated June 30, 1993, in the principal amount of $37,796,752.50, issued by the Company in the form of Exhibit P-1 attached hereto, the Senior Subordinated Intercompany Note of the Company, dated the Initial Borrowing Date, in substantially the form of Exhibit P-2 attached hereto, and one or more Senior Subordinated Intercompany Notes issued by the Company after the Initial Borrowing Date, in substantially the form of Exhibit P-3 attached hereto, in an aggregate principal amount not to exceed 50% of the net proceeds of all offerings of securities of the Parent Guarantor consummated after the Initial Borrowing Date if the net proceeds of such offerings are loaned to, contributed to, or used to purchase the stock of, the Company, as each such promissory note may be amended or otherwise modified from time to time in accordance with the provisions hereof. "ERISA" means the Employee Retirement Income Security Act of ----- 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Event of Cash Dominion" means (a) the occurrence of a ---------------------- 18 27 Default and the continuance of such Default for five consecutive days after delivery by the Agent, in its sole discretion or at the request of the Majority Lenders, of written notice thereof to the Company or (b) the occurrence of any of the following events and the delivery by the Agent as required under Section 11.1(e) of written notice thereof to the Company: (i) the Revolving Commitment Availability is less than $40,000,000 at any time or (ii) the Revolving Commitment Availability is less than $50,000,000 for three consecutive Business Days. An Event of Cash Dominion shall terminate, provided no Default shall have occurred and be continuing, if the Revolving Commitment Availability is greater than $50,000,000 for each day during a period of three consecutive months and the Agent delivers written notice as required under Section 11.1(e) of such termination to the Company. "Event of Default" is defined in Section 10.1. ---------------- ------------ "Executive Officers" means, with respect to any corporation, ------------------ such corporation's chairman, president, chief financial officer, treasurer, any vice president, any attorney in the office of the Company's general counsel, and any officer who performs a similar policy-making function for such corporation. "Existing Letters of Credit" means the letters of credit -------------------------- listed on Schedule IX hereto. ----------- "Federal Funds Rate" means, for any period, a fluctuating ------------------ interest rate per annum equal (for each day during such period) to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Bank of America from three federal funds brokers of recognized standing selected by it. "Fee Letter" is defined in Section 3.5.3. ---------- ------------- "Financial Authorized Officer" means, with respect to any ---------------------------- Obligor, those of its Authorized Officers who occupy the offices of chief financial officer, chief accounting officer, controller, assistant controller, treasurer, or assistant treasurer. "Fiscal Quarter" means any quarter of a Fiscal Year. -------------- "Fiscal Year" means any period of twelve consecutive ----------- calendar months ending on the last day of December; references to 19 28 a Fiscal Year with a number corresponding to any calendar year (e.g., the "1994 Fiscal Year") refer to the Fiscal Year ending on ---- the last day of December of such calendar year. The current fiscal year of the Company will end on December 31, 1994. "Foreign Account Debtor" means an Account Debtor which (i) ---------------------- does not maintain its chief executive office and principal place of business in the United States; or (ii) is not organized under the laws of the United States or any state thereof; or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof. "F.R.S. Board" means the Board of Governors of the Federal ------------ Reserve System or any successor thereto. "Fundamental Loan Documents" means this Agreement, the -------------------------- Company Collateral Documents, the Subsidiary Guaranty, the Subsidiary Collateral Documents, the Parent Guaranty and the Parent Collateral Documents. "Furukawa" means Furukawa Kaiser Forged Products Company, a -------- corporation organized under the laws of Japan. "GAAP" means generally accepted accounting principles as set ---- forth in the opinions and pronouncements of the Securities and Exchange Commission and the Accounting Principles Board of the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board and in such other statements and pronouncements by such other Person as may be approved by a significant segment of the accounting profession and concurred in by the independent certified public accountants certifying the relevant audited financial statement. "Hazardous Material" means ------------------ (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous, or toxic chemical, material, or substance regulated under or within the meaning of any other Environmental Law. "Hedging Agreement" means (a) any interest rate swap, cap, ----------------- or collar agreement or similar arrangement entered into by any Person and any financial institution to protect such Person 20 29 against interest rate risk and (b) any agreement or arrangement entered into by any Person and any financial institution to protect such Person against fluctuations in currency exchange rates. "Hedging Obligations" means, with respect to any Person, all ------------------- liabilities of such Person under any Hedging Agreement or other interest rate or currency swap agreements, interest rate or currency cap agreements, and interest rate or currency collar agreements, and all other agreements or arrangements designed to protect such Person against interest rate risk or fluctuations in currency exchange rates. "herein", "hereof", "hereto", "hereunder", and similar terms ------ ------ ------ --------- contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph, or provision of this Agreement or such other Loan Document. "Highest Lawful Rate" is defined in clause (b) of ------------------- ---------- Section 3.4.6. - ------------- "Impermissible Qualification" means, with respect to the --------------------------- opinion or certification of any independent public accountant as to any financial statement of any Obligor, any qualification, emphasis point, or exception to such opinion or certification (a) which is of a "going concern" or similar nature; (b) which relates to the limited scope of examination of matters relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause such Obligor to be in default of any of its obligations under Section 9.2.4. ------------- "including" means including without limiting the generality --------- of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit ------- ------- a general statement which is followed by or referable to an enumeration of specific matters to matters similar to the matters specifically mentioned. "Indebtedness" means, with respect to any Person, without ------------ duplication: (a) all obligations of such Person in respect of principal for borrowed money, all obligations of such Person in respect of principal (including the principal amount of any obligation incurred in lieu of the cash payment of 21 30 interest) evidenced by bonds, debentures, notes, or other similar instruments and all obligations of such Person in respect of interest on borrowed money or obligations evidenced by bonds, debentures, notes, or other similar instruments to the extent accrued and unpaid for a period exceeding seven months; (b) all obligations, contingent or otherwise, relative to the face or stated amount (as reduced from time to time) of all letters of credit (including the Letters of Credit), whether or not drawn, and bankers' acceptances issued and outstanding for the account of such Person; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (d) net liabilities of such Person in respect of Hedging Obligations which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) all obligations of such Person to pay the deferred purchase price of Property (except trade accounts payable and other current liabilities arising in the ordinary course of business); (f) all obligations listed in clauses (a) through (e) ----------- --- secured by a Lien on Property owned or being purchased by such Person (including Indebtedness arising under conditional sales or other title retention agreements), whether or not such Indebtedness shall have been assumed by such Person or is limited in recourse; (g) any Redeemable Stock issued by such Person; (h) all Contingent Liabilities of such Person in respect of any Indebtedness of any other Person; and (i) all advance payments to such Person of more than $5,000,000 in the aggregate from any single customer of such Person relating to the delivery of goods or the performance of services by such Person (other than advance payments to the extent held in segregated accounts), but only to the extent that such payments originally were received more than six months before the date on which such Person was required to deliver such goods or perform such services, and which have not yet been earned by such delivery or performance; provided, however, the obligations of any Person arising from the - -------- ------- honoring by a bank or other financial institution of a check, draft, or similar Instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the 22 31 ordinary course of business shall not constitute Indebtedness; provided that such obligations are extinguished within two - -------- Business Days of their incurrence (or, in the case of foreign overdrafts, within five Business Days of their incurrence) unless covered by an overdraft credit line. "Indemnified Liability" and "Indemnified Liabilities" are --------------------- ----------------------- defined in Section 12.4. ------------ "Indemnified Parties" is defined in Section 12.4. ------------------- ------------ "Indemnified Persons" is defined in clause (b) of ------------------- ---------- Section 11.1. - ------------ "Initial Borrowing Date" means the date on which the initial ---------------------- Credit Extensions are made. "Instrument" means any contract, agreement, indenture, ---------- mortgage, document, or writing (whether by formal agreement, letter or otherwise) under which any obligation is evidenced, assumed, or undertaken, or any Lien (or right or interest therein) is granted or perfected. "Intercompany Demand Note" means an intercompany demand ------------------------ revolving note, in substantially the form, with appropriate insertions, of (i) Exhibit O-1 attached hereto, in the case of ----------- any such note issued by the Company in favor of any Person other than KAAC or KFC, (ii) Exhibit 0-2 attached hereto, in the case --- of any such note issued by the Company in favor of KAAC, (iii) Exhibit 0-3 attached hereto, in the case of any such note issued --- by the Company in favor of KFC, and (iv) Exhibit O-4 attached --- hereto, in the case of any such note issued in favor of KFC by any Subsidiary of the Company, or (v) Exhibit O-5 attached --- hereto, in the case of any such note issued by KFC in favor of KAAC, in each case, endorsed, pledged, and delivered by the Person in whose favor such promissory note was written to the Agent, on behalf of the Secured Lenders, pursuant to the Subsidiary Pledge Agreement or the Intercompany Note Pledge Agreement, as each such promissory note may be amended, endorsed, or otherwise modified from time to time in accordance with the provisions hereof, and also means any other promissory note accepted from time to time in substitution therefor or renewal thereof, in accordance with the provisions hereof. "Intercompany Note Pledge Agreement" means the intercompany ---------------------------------- note pledge agreement executed and delivered by certain Subsidiaries of the Company pursuant to Section 7.1.11 or 9.1.12, -------------- ------ as the case may be, in substantially the form of Exhibit K-3 ----------- attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Interest Coverage Ratio" means, for any period, the ratio ----------------------- of 23 32 (a) (i) the sum of EBITDA for all of the Fiscal Quarters comprising such period minus (ii) the aggregate ----- Adjusted Capital Expenditures for all of the Fiscal Quarters comprising such period to - -- (b) (i) the aggregate amount of interest expense (excluding amortization of deferred financing costs and, to the extent not paid in cash, interest on the PIK Note and the Equity Proceeds Notes) of the Company and its Subsidiaries for all of the Fiscal Quarters comprising such period, calculated on a consolidated basis in accordance with GAAP, minus (ii) the amount of interest income of the ----- Company and its Subsidiaries which was included in the calculation of Net Income, in accordance with GAAP, for all of the Fiscal Quarters comprising such period, minus (iii) ----- that portion of the amount set forth in clause (i) above ---------- attributable to (A) the proportionate direct or indirect ownership of Persons other than the Company and its Subsidiaries of the voting stock of, or partnership interest in, any Subsidiary or (B) if the economic burden of the amount set forth in clause (i) above is borne or to be borne ---------- by minority owners of such Subsidiary (other than the Company and its Subsidiaries) in a proportion other than the proportion of their direct or indirect ownership of the voting stock of, or partnership interest in, such Subsidiary, the proportionate share of the economic burden of such amount borne or to be borne by such minority owners. "Interest Period" means, with respect to any LIBO Rate Loan, --------------- the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 3.4.2 and ending on (but ----------- ----- excluding, for purposes of determining accrued interest) the day which numerically corresponds to such date one, two, three, or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), as the Company may select in its relevant notice pursuant to Section 2.3 or 3.4.2; provided, however, that - ----------- ----- -------- ------- (a) no more than seven different Interest Periods may be in effect at one time with respect to all Revolving Loans; (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period may end later than the date set 24 33 forth in clause (a) of the definition of "Stated Maturity ---------- --------------- Date". ---- "Inventory" means goods (whether consisting of whole goods, --------- spare parts or components), merchandise, and other personal property, wherever located, to be furnished under any contract of service or held for sale or lease, all raw materials, work-in- process, finished goods, returned goods, and materials and supplies of any kind, nature or description which are or might be used or consumed in the Company's business or used in connection with the manufacture, packing, shipping, advertising, selling, or finishing of such goods, merchandise, and such other personal property, and all documents of title or other documents representing them. "Investment" means, with respect to any Person, ---------- (a) any loan or advance made by such Person to any other Person (excluding commission, travel, relocation, and similar advances) and any purchase or other acquisition made by such Person of any bond, debenture, note, or similar instrument of any other Person; and (b) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of Property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such Property. "Issuer Bank" means any Affiliate, office, branch, or agency ----------- of Bank of America, or any other Lender, which has agreed to issue and has issued one or more Letters of Credit at the request (such request to be made with the consent of the Company, which consent shall not be unreasonably delayed or withheld) of the Agent. "Issuer Party" and "Issuer Parties" are defined in ------------ -------------- Section 5.10. - ------------ "Joint Venture Affiliate" means QAL, KJBC, Anglesey, ----------------------- Furukawa, and any other Person (a) which is not a Subsidiary of the Company, (b) in which the Company or its Subsidiaries own an equity interest of more than 5% (and in which no Restricted Affiliate has an equity interest, other than through a direct or indirect ownership interest in the Company), and (c) which supplies or processes bauxite, alumina, or aluminum to or for the Company or any of its Subsidiaries or sells to third parties bauxite, alumina, aluminum or aluminum products purchased from the Company or any of its Subsidiaries. 25 34 "KAII" means Kaiser Aluminium International, Inc., a ---- Delaware corporation. "KATSI" means Kaiser Aluminum Technical Services, Inc., a ----- California corporation. "KBC" means Kaiser Bauxite Company, a Nevada corporation. --- "KEC" means Kaiser Export Company, a Delaware corporation. --- "KFC" means Kaiser Finance Corporation, a Delaware --- corporation. "Kaiser Canada" means Kaiser Aluminum & Chemical of Canada ------------- Limited, an Ontario corporation. "KJBC" means Kaiser Jamaica Bauxite Company, a Jamaica ---- partnership. "KAAC" means Kaiser Alumina Australia Corporation, a ---- Delaware corporation. "KJC" means Kaiser Jamaica Corporation, a Delaware corpora --- tion. "KT Note means the promissory note dated December 21, 1989, ------- as amended by Amendment dated as of July 1, 1993, executed by the Parent Guarantor and delivered to the Company, a copy of which has been delivered to the Agent and each Lender prior to the date hereof, and endorsed, delivered, and pledged to the Agent, on behalf of the Secured Lenders, pursuant to the Company Pledge Agreement or the Subsidiary Pledge Agreement, as such promissory note may be amended, endorsed, or otherwise modified from time to time in accordance with the provisions hereof, and also means any other promissory note accepted from time to time in substitution therefor or renewal thereof, in accordance with the provisions hereof. "L/C Collateral Account" is defined in Section 5.8.1. ---------------------- ------------- "Lenders" is defined in the preamble. ------- -------- "Letter of Credit" is defined in Section 5.1 and includes ---------------- ----------- the Existing Letters of Credit. "Letter of Credit Outstandings" means, at any time, an ----------------------------- amount equal to the sum of (a) the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit plus - ---- (b) the then aggregate amount of all unpaid and 26 35 outstanding Reimbursement Obligations with respect to issued and outstanding Letters of Credit. "LIBO Rate" means, relative to any Interest Period, the rate --------- of interest determined by the Agent to be the rate per annum at which Dollar deposits in immediately available funds are offered to Bank of America in the London interbank market as at or about 11:00 a.m., London time, two Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period, and in an amount approximately equal to the amount of each LIBO Rate Loan to which such Interest Period applies and for a period equal to such Interest Period. "LIBO Rate Loan" means all or any portion of a Loan bearing -------------- interest, at all times during an Interest Period applicable to such Loan or portion thereof, at a fixed rate determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" means, relative to any ---------------------------- Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate ------------------------------- (Reserve Adjusted) 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for each LIBO Rate Loan to which such Interest Period applies will be determined by the Agent. "LIBOR Office" means, with respect to any Lender, the ------------ office, if any, of such Lender designated as such below its signature hereto, or designated in the Assignee Agreement to be Bound pursuant to which such Lender became a party hereto, or such other office of a Lender as designated from time to time by written notice from such Lender to the Company and the Agent, whether or not outside the United States, which shall be making or maintaining LIBO Rate Loans of such Lender hereunder. "LIBOR Reserve Percentage" means, relative to any Interest ------------------------ Period, a percentage (expressed as a decimal) equal to the daily average during such Interest Period of the percentages in effect on each day of such Interest Period, as prescribed by the F.R.S. Board, for determining the maximum aggregate reserve requirements (including any emergency, supplemental, or other marginal reserve requirement) applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other applicable regulation issued from time to time by the F.R.S. Board which prescribes reserve requirements applicable to "Eurocurrency Liabilities" as currently defined in Regulation D having a term approximately equal or comparable to such Interest Period. 27 36 "Lien" means any security interest, mortgage, pledge, ---- hypothecation, assignment for security purposes, deposit arrangement for security purposes, encumbrance, lien (statutory or other), or other similar arrangement of any kind or nature. "Loan" means, as the context may require, a Revolving Loan ---- of any type, or a Swingline Loan. "Loan Document" means this Agreement, all Letters of Credit, ------------- each Credit Request, the Subsidiary Guaranty, the Collateral Documents, and each other agreement, document, or Instrument executed and delivered or to be executed and delivered by the Parent Guarantor, the Company, or any Subsidiary of the Parent Guarantor or the Company in connection with this Agreement, as any and all of the foregoing may be amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof, but excluding, however, the Intercompany Demand Notes, the KT Note and the Equity Proceeds Notes. "Majority Lenders" means, at any time, Lenders having at ---------------- least 51% of the Revolving Commitments. "Materially Adverse Effect" means, relative to any ------------------------- occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), a materially adverse effect on: (a) the assets of or the then-existing or projected business, revenues, financial condition, or operations, of the Parent Guarantor, the Company, any other Obligor which is a Significant Subsidiary, any Joint Venture Affiliate (other than KJBC), ALPART, or VALCO; or (b) the ability of the Parent Guarantor, the Company, or any other Obligor which is a Significant Subsidiary to perform any of its payment or other material obligations under this Agreement or any other Loan Document to which it is a party. "MAXXAM" means MAXXAM Inc., a Delaware corporation (formerly ------ known as MCO Holdings, Inc.). "Minimum Net Worth" means $410,000,000 plus 50% of Net ----------------- Income (but not loss) for each Fiscal Quarter of the Company commencing with the Fiscal Quarter ending March 31, 1997. "Net Amount of Eligible Accounts" means the gross amount of ------------------------------- Eligible Accounts less the sum of (a) all returns, discounts, claims, credits, and allowances of any nature at any time issued in respect thereof, (b) all unapplied advance payments or deposits in respect thereof, (c) and all credits relating to Accounts of National Southwire with respect to which more than 90 days have elapsed since the date of the original issuance of the 28 37 credit memo therefor and all credits relating to Accounts of all other Account Debtors with respect to which more than 65 days have elapsed since the date of the original issuance of the credit memo therefor. "Net Disposition Proceeds" means, with respect to any Asset ------------------------ Disposition by the Company or any Subsidiary of the Company, the excess of (a) the sum of (i) the gross cash proceeds received by the Company or such Subsidiary from such disposition plus ---- (ii) immediately upon receipt thereof by the Company or such Subsidiary, the gross cash proceeds in respect of principal from or in respect of any promissory note or deferred payment obligations or other security taken in connection with such disposition (including as a result of any sale or other disposition of any such note, obligations, or security, or as a result of any financing with respect thereto) minus ----- (b) the sum of (i) all legal, consulting, brokerage, investment banking, and accounting fees and disbursements and all governmental fees incurred (or reasonably expected to be incurred) in connection with such sale that, in any case, except for payments for legal fees and expenses to a law firm of which an Affiliate of the Company is a member, are not payable to Affiliates of the Company plus ---- (ii) all taxes actually paid or to be paid in connection with such sale plus ---- (iii) to the extent the proceeds described in clause (a) are applied (or to be applied with ---------- reasonable promptness) in payment thereof, all Indebtedness secured, directly or indirectly (i.e., ---- such disposition is permitted by the terms of the Instruments evidencing or applicable to such Indebtedness, or by the terms of a consent granted thereunder, only on the condition that the proceeds of such disposition be applied to such Indebtedness), by such Property. 29 38 "Net Income" means, for any period, all amounts which, in ---------- conformity with GAAP, would be included under net income on a consolidated income statement of the Company and its Subsidiaries for such period; provided that there shall be excluded (a) the -------- income (or loss) of any Person (other than a Subsidiary of the Company) in which any other Person (other than the Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Subsidiaries by such Person during such period, (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Company or is merged into or consolidated with the Company or any of its Subsidiaries or that Person's assets are acquired by the Company or any of its Subsidiaries, (c) the income of any Subsidiary of the Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, and (d) any after-tax gains or losses attributable to Asset Dispositions or returned surplus assets of any Pension Plan. "Net Worth" means the consolidated net worth of the Company --------- and its Subsidiaries, calculated in accordance with GAAP; provided, however, that (a) the cumulative effect, in an amount - -------- ------- not to exceed $508,000,000, of the changes in accounting principles attributable to the adoption of FAS 106, 109 and 112 recorded in the first Fiscal Quarter of the 1993 Fiscal Year, shall be excluded, and (b) the effect of any issuance after the Initial Borrowing Date of any class of the capital stock of the Company or any of its Subsidiaries shall be excluded. "Nonrecourse Indebtedness" means, with respect to any ------------------------ Person, Indebtedness that is nonrecourse to the credit of such Person. "Non-United States Person" means a Person who is not (a) a ------------------------ citizen or resident of the United States, (b) a corporation, partnership, or other entity created or organized under the laws of the United States, or (c) an estate or trust the income of which is subject to United States federal income taxation regardless of its source. "Obligations" means all obligations (monetary or otherwise) ----------- of the Company and each other Obligor arising under or in connection with this Agreement, the Letters of Credit, and each other Loan Document. "Obligor" means the Parent Guarantor, the Company and each ------- of their Subsidiaries obligated under any Loan Document. "Organic Document" means, with respect to any Obligor, its ---------------- articles or certificate of incorporation, its by-laws, and all shareholder agreements, voting trusts, and similar arrangements 30 39 applicable to any of its authorized shares of capital stock. "Parent Collateral Documents" means the Parent Pledge --------------------------- Agreement and the Parent Security Agreement. "Parent Guarantor Preferred Stock" means preferred stock of -------------------------------- any class or series issued by the Parent Guarantor. "Parent Guarantor" is defined in the preamble. ---------------- -------- "Parent Guaranty" is defined in Section 6.1. --------------- ----------- "Parent Pledge Agreement" means the pledge agreement ----------------------- executed and delivered by the Parent Guarantor pursuant to Section 7.1.4, in substantially the form of Exhibit E-1 attached - ------------- ----------- hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Parent Security Agreement" means the security agreement ------------------------- executed and delivered by the Parent Guarantor pursuant to Section 7.1.6, in substantially the form of Exhibit E-2 attached - ------------- ----------- hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Participant" is defined in Section 12.11.2. ----------- --------------- "PBGC" means the Pension Benefit Guaranty Corporation and ---- any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is ------------ defined in section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), of which the Company or any corporation, trade, or business that is, along with the Company, a member of a Controlled Group, is a contributing sponsor, as such term is defined in section 4001(a)(13) of ERISA, or to which any Controlled Group member has a reasonable possibility of any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, with respect to any Lender, the ---------- percentage set forth opposite its name on the signature pages of this Agreement, or set forth in the Assignee Agreement to be Bound pursuant to which such Lender became a party hereto, as such percentage may be adjusted from time to time pursuant to Assignee Agreement(s) to be Bound executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 12.11.1. --------------- "Person" means any natural person, corporation, firm, ------ association, government, governmental agency, or any other 31 40 entity, whether acting in an individual, fiduciary, or other capacity. "PIK Note" means the Senior Subordinated Intercompany Note -------- of the Company dated December 15, 1992, as amended on the Initial Borrowing Date, executed by the Company in the original principal amount of $2,500,000, a copy of which has been delivered to the Agent and each Lender prior to the date hereof, as such promissory note may be amended or otherwise modified from time to time in accordance with the provisions hereof . "Plan" means any Pension Plan or Welfare Plan. ---- "Pledge Agreement(s)" means, individually, the Parent Pledge ------------------- Agreement, the Company Pledge Agreement, the Intercompany Note Pledge Agreement, or the Subsidiary Pledge Agreement, as the context may require, and, collectively, the Parent Pledge Agreement, the Company Pledge Agreement, the Intercompany Note Pledge Agreement, and the Subsidiary Pledge Agreement. "Preferred Stock (USWA)" means shares of the Company's ---------------------- Cumulative (1985 Series A) Preference Stock and shares of the Company's Cumulative (1985 Series B) Preference Stock which have been or may in the future be issued in connection with the Kaiser Aluminum USWA Employee Stock Ownership Plan or the Kaiser Aluminum Salaried Employee Stock Ownership Plan. "Proceeds" means all products and proceeds (as defined in -------- the Uniform Commercial Code) of any Collateral, and all proceeds of such proceeds and products, including all cash and credit balances, all payments under any indemnity, warranty, or guaranty payable with respect to any Collateral, all awards for taking by eminent domain, all proceeds of fire or other insurance, and all money and other Property obtained as a result of any claims against third parties or any legal action or proceeding with respect to Collateral. "Product Swap" means an agreement by the Company or KAII to ------------ deliver bauxite, alumina or aluminum products to or on behalf of an Account Debtor in exchange for (i) an agreement by such Account Debtor to deliver like or related products to or on behalf of the Company or KAII, as the case may be, and (ii) the payment of cash in the ordinary course of business on ordinary trade terms. "Progress Billing" means any invoice for goods sold or ---------------- leased or services rendered under a contract or agreement pursuant to which the Account Debtor's obligation to pay such invoice is conditioned upon the completion of any further performance by the Company or KAII under the contract or agreement. "Property" means any interest in any kind of property or -------- asset, whether real, personal or mixed or tangible or intangible. 32 41 "QAL" means Queensland Alumina Limited, a Queensland, --- Australia corporation. "Quarterly Payment Date" means the last day of each March, ---------------------- June, September, and December or, if any such day is not a Business Day, the next succeeding Business Day. "Redeemable Stock" means any equity security or option or ---------------- warrant related thereto that by its terms or otherwise is required to be purchased or redeemed, or is redeemable at the option of the holder thereof, in either case at any time prior to March 31, 1999. "Reference Rate" means the higher of (a) the Federal Funds -------------- Rate plus one-half of one percent (1/2%) and (b) the rate of interest (the "Bank of America Rate") publicly announced from -------------------- time to time by Bank of America in San Francisco, California, as its reference rate. The Bank of America Rate is a rate set by Bank of America based upon various factors including Bank of America's cost and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans, which loans may be priced at, above, or below the Bank of America Rate. Any change in the Bank of America Rate shall take effect at the opening of business on the day specified in the public announcement of such change. "Reference Rate Loan" means all or any portion of a Loan ------------------- bearing interest at a fluctuating rate determined by reference to the Reference Rate. "Reimbursement Obligation" is defined in Section 5.6. ------------------------ ----------- "Release" means a "release", as such term is defined in ------- CERCLA. "Required Lenders" means, at any time, Lenders having at ---------------- least 67% of the Revolving Commitments. "Restated Certificate of Incorporation" means the restated ------------------------------------- certificate of incorporation of the Company dated July 25, 1989. "Restricted Affiliate" means the Parent Guarantor, MAXXAM, -------------------- and any Affiliate of either thereof (in each case other than the Company, its Subsidiaries which are not Restricted Subsidiaries, any Joint Venture Affiliate, and any Subsidiary of a Joint Venture Affiliate in which neither the Parent Guarantor, MAXXAM, nor any Affiliate of either thereof (other than the Company, its Subsidiaries which are not Restricted Subsidiaries, or any Joint Venture Affiliate) has any equity interest other than through a direct or indirect ownership interest in the Company). "Restricted Subsidiary" means any Subsidiary of the Company --------------------- in which a Restricted Affiliate has an interest, other than through such Restricted Affiliate's direct or indirect ownership 33 42 interest in the Company. "Revolving Commitment" is defined in clause (b) of -------------------- ---------- Section 2.1.1. - ------------- "Revolving Commitment Amount" is defined in clause (b) of --------------------------- ---------- Section 2.1.1. - ------------- "Revolving Commitment Availability" means, at any time, the --------------------------------- excess of (a) the lesser of (i) the Revolving Commitment Amount at such time and (ii) the Borrowing Base as in effect at such time over - ---- (b) the Revolving Credit Outstandings at such time. "Revolving Commitment Termination Date" means the earliest ------------------------------------- of (a) March 31, 1994 (unless the Initial Borrowing Date shall have occurred before the close of business, San Francisco time, on such date); (b) February 15, 1999; (c) the date on which the Revolving Commitment Amount is reduced to zero pursuant to Section 2.2; and ----------- (d) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (a), (b), ---------- --- (c), or (d), the Revolving Commitment of each Lender and the - --- --- Swingline Commitment of Business Credit shall terminate automatically and without any further action. "Revolving Credit Outstandings" means, at any time, the sum ----------------------------- of (a) the aggregate outstanding principal amount of all Revolving Loans at such time, (b) the aggregate outstanding principal amount of all Swingline Loans at such time, and (c) the Letter of Credit Outstandings at such time. "Revolving L/C Request" means a request and certificate, --------------------- duly executed by an Authorized Officer of the Company, in substantially the form of Exhibit B attached hereto, which --------- request shall include a duly completed application for the issuance or extension of a standby or commercial letter of credit in the form specified from time to time by the proposed Issuer Bank of a Letter of Credit, as such application may be amended, supplemented, restated, or otherwise modified from time to time. Each Revolving L/C Request shall specify, among other things, the 34 43 date on which the proposed Letter of Credit is to be issued and whether such Letter of Credit shall be transferable in whole or in part. All Revolving L/C Requests and all documents submitted by the Company in support of Revolving L/C Requests shall be in form and substance satisfactory to the relevant Issuer Bank. "Revolving Loans" is defined in clause (a)(i) of --------------- ------------- Section 2.1.1. - ------------- "Secured Lenders" means the Agent, each Lender and each --------------- Issuer Bank, together with any successors and assigns thereto. "Security Agreement(s)" means, individually, the Parent --------------------- Security Agreement, the Company Security Agreement, or the Subsidiary Security Agreement, as the context may require, and, collectively, the Parent Security Agreement, the Company Security Agreement, and the Subsidiary Security Agreement. "Security Interest" means, collectively, the Liens granted ----------------- to the Agent, on behalf of the Secured Lenders, in the Collateral pursuant to the Collateral Documents. "Senior Debt" means Indebtedness of the Company or any of ----------- its Subsidiaries under the Senior Notes, the Senior Indenture, or any guaranty of such Indebtedness. "Senior Debt Instruments" means the Senior Notes, the Senior ----------------------- Indenture, and all other Instruments and agreements executed and delivered by the Company or any of its Subsidiaries in connection therewith. "Senior Indenture" means the indenture dated as of ---------------- February 17, 1994 between the Company, and KFC, KAAC, AJI and KJC, as Subsidiary Guarantors, and First Trust National Association, as trustee, pursuant to which the Senior Notes were issued, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the terms of such indenture and this Agreement. "Senior Notes" means the 9-7/8% Senior Notes due 2002 in a ------------ principal amount not exceeding $225,000,000 issued by the Company pursuant to the Senior Indenture, as amended, supplemented, restated or otherwise modified from time to time in accordance with the terms of the Senior Indenture and this Agreement and all other promissory notes accepted from time to time in substitution therefor or renewal thereof in accordance with the terms of the Senior Indenture and this Agreement. "Significant Subsidiary" means each Subsidiary of the ---------------------- Company that (a) is designated with an asterisk in Item 2 ------ ("Existing Subsidiaries") of the Disclosure Schedule; --------------------- 35 44 (b) accounted for at least 5% of consolidated revenues of the Company and its Subsidiaries from sales to third parties for the four Fiscal Quarters of the Company ending on the last day of the last Fiscal Quarter of the Company immediately preceding the date as of which any such determination is made; or (c) has assets (other than assets which are eliminated in consolidation) which represent at least 5% of the consolidated assets of the Company and its Subsidiaries as of the last day of the last Fiscal Quarter of the Company immediately preceding the date as of which any such determination is made, all of which, with respect to clauses (b) and (c), shall be as ----------- --- included in the consolidated financial statements of the Company for the period, or as of the date, in question. "Solvent" means, with respect to any Person at any time, a ------- condition under which (a) the fair saleable value of such Person's assets is, at such time, greater than the total amount of such Person's liabilities (including contingent and unliquidated liabilities) at such time; (b) such Person is able to pay all of its liabilities as such liabilities mature; and (c) such Person does not have unreasonably small capital with which to conduct its business. For purposes of this definition (i) the amount of a Person's contingent or unliquidated liabilities at any time shall be that amount which, in light of all the facts and circumstances then existing, represents the amount which can reasonably be expected to become an actual or matured liability; (ii) the "fair saleable value" of an asset shall be the amount which may be realized within a reasonable time either through collection or sale of such asset at its regular market value; and (iii) the "regular market value" of an asset shall be the amount which a capable and diligent business person could obtain for such asset from an interested buyer who is willing to purchase such asset under ordinary selling conditions. "Stated Amount" of each Letter of Credit means the "stated ------------- amount" or "face amount" (or other similar term) of such Letter 36 45 of Credit, as defined therein. "Stated Expiry Date" is defined in clause (b)(ii) of ------------------ -------------- Section 5.1. - ----------- "Stated Maturity Date" means (a) in the case of any -------------------- Revolving Loan, February 15, 1999, and (b) in the case of any Swingline Loan, the earlier of (i) the seventh calendar day following the date such Swingline Loan is made or (ii) February 15, 1999. "Subordinated Debt" means Indebtedness of the Company or any ----------------- of its Subsidiaries under the Subordinated Notes, the Subordinated Indenture, or any guaranty of such Indebtedness. "Subordinated Debt Instruments" means the Subordinated ----------------------------- Notes, the Subordinated Indenture, and all other Instruments and agreements executed and delivered by the Company or any of its Subsidiaries in connection therewith. "Subordinated Indenture" means the indenture dated as of ---------------------- February 1, 1993 between the Company, and KAAC, AJI and KJC, as Subsidiary Guarantors, and The First National Bank of Boston, as trustee, pursuant to which the Subordinated Notes were issued, as supplemented to make KFC an additional Subsidiary Guarantor (as such term is defined therein), and as the same may be further amended, supplemented, restated, or otherwise modified from time to time in accordance with the terms of such indenture and this Agreement. "Subordinated Notes" means the 12 3/4% Senior Subordinated ------------------ Notes due 2003 in a principal amount not exceeding $400 million issued by the Company pursuant to the Subordinated Indenture, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the terms of the Subordinated Indenture and this Agreement and all other promissory notes accepted from time to time in substitution therefor or renewal thereof in accordance with the terms of the Subordinated Indenture and this Agreement. "Subsidiary" means, with respect to any Person, any ---------- corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), or any other entity of which more than 50% of the equity securities or other ownership interest, is or are at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. Any determination of whether a Subsidiary is directly or indirectly "wholly-owned" by any Person shall be made after disregarding (a) any shares of such Subsidiary held by the officers, employees, or directors of 37 46 such Subsidiary and (b) any shares of such Subsidiary held by Restricted Affiliates. "Subsidiary Collateral Documents" means the Subsidiary ------------------------------- Pledge Agreement, the Subsidiary Security Agreement, and the Intercompany Note Pledge Agreement. "Subsidiary Guaranty" means the guaranty executed and ------------------- delivered by any Subsidiary of the Company pursuant to Section 7.1.9, in substantially the form of Exhibit J attached - ------------- --------- hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Subsidiary Pledge Agreement" means the pledge agreement --------------------------- executed and delivered by any Subsidiary of the Company pursuant to Section 7.1.10, in substantially the form of Exhibit K-1 -------------- ----------- attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Subsidiary Security Agreement" means the security agreement ----------------------------- executed and delivered by any Subsidiary of the Company pursuant to Section 7.1.6, in substantially the form of Exhibit K-2 ------------- ----------- attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Swingline Commitment" is defined in Section 2.1.2. -------------------- ------------- "Swingline Loans" is defined in Section 2.1.2. --------------- ------------- "Tax Allocation Agreement" means the Tax Allocation ------------------------ Agreement dated December 21, 1989, between the Company and MAXXAM, a copy of which has been delivered to the Agent and the Lenders prior to the date hereof, as amended from time to time with the prior written consent of the Agent. "Taxes" is defined in clause (a) of Section 4.6. ----- ---------- ----------- "Tolling Inventory" means raw materials, work-in-process or ----------------- other goods delivered to the Company by a third person pursuant to a bailment arrangement with the Company under which such Inventory is to be processed, improved, or otherwise altered by the Company. "Transfer Agreement" means the Transfer Agreement dated as ------------------ of December 21, 1989, between the Parent Guarantor and the Company, a copy of which has been delivered to the Agent and the Lenders prior to the date hereof, as amended, supplemented, restated, or otherwise modified from time to time with the prior written consent of the Agent. "type" means, relative to any Revolving Loan, the portion ---- 38 47 thereof, if any, being maintained as a Reference Rate Loan or a LIBO Rate Loan. "Uniform Commercial Code" means the Uniform Commercial Code ----------------------- (or any successor statute) of the State of New York or, to the extent relevant to the perfection or enforcement of security interests, the Uniform Commercial Code (or any successor statute) of any other state the laws of which are required by Section 9-103 thereof to be applied in connection with the issue - ------------- of perfection or enforcement of security interests. "United States" or "U.S." means the United States of ------------- ---- America, its fifty States, and the District of Columbia. "VALCO" means Volta Aluminium Company Limited, a Ghanaian ----- corporation. "Welfare Plan" means a "welfare plan", as such term is ------------ defined in section 3(1) of ERISA. SECTION 1.2. Use of Defined Terms. Unless otherwise -------------------- defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each Credit Request, Continuation/Conversion Notice, Borrowing Base Certificate, Compliance Certificate, Loan Document, notice, and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, ---------------- references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section, or definition to any clause are references to such clause of such Article, Section, or definition. SECTION 1.4. Accounting and Financial Determinations and ------------------------------------------- Other Terms. Unless otherwise specified, all accounting terms - ----------- used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with GAAP applied on a basis consistent with those used in the preparation of the financial statements for the period ending December 31, 1993 to be furnished to the Lenders under this Agreement; provided, however, that if there is any ----------------- change in GAAP subsequent to December 31, 1993 the Agent and the Company shall each have the right to notify the other party that the Required Lenders or the Company, as the case may be, wish to incorporate the effect of any such change in GAAP on the operation of any covenant contained in Article IX or on the Borrowing Base, the Interest Coverage Ratio for purposes of Section 3.4.1 or any other provision hereof. In the event that - ------------- 39 48 the party receiving such notice agrees with such request to incorporate the effect of any such change, thereafter the Company's compliance with such covenant, the Borrowing Base, the Interest Coverage Ratio and all other calculations in respect of any other provision hereof will be determined on the basis of GAAP including such change. ARTICLE II COMMITMENTS AND BORROWING PROCEDURES SECTION 2.1. Commitments. On the terms and subject to the ----------- conditions of this Agreement (including Article VII), each ----------- Lender, severally and for itself alone, agrees to make Revolving Loans and other Credit Extensions, and Business Credit agrees to make Swingline Loans, pursuant to the Commitments described in this Section 2.1. ----------- SECTION 2.1.1. Revolving Commitment. -------------------- (a) From time to time on any Business Day occurring during the period commencing on the Initial Borrowing Date, and continuing to (but not including) the Revolving Commitment Termination Date, each Lender will (i) make Loans (relative to such Lender, its "Revolving Loans") to the Company equal to such --------------- Lender's Percentage of the aggregate amount of Revolving Loans requested by the Company pursuant to Section 2.3(a) to be made on such Business Day, and -------------- (ii) (A) in the case of any Issuer Bank, issue Letters of Credit for the account of the Company, for the benefit of the Company or any Subsidiary of the Company, or (B) in the case of each other Lender, participate in such Letters of Credit, in each case in accordance with Article V. --------- (b) The Revolving Credit Outstandings at any time shall not exceed the lesser of (x) $250,000,000 (such amount, as it may be reduced from time to time pursuant to Section 2.2, ----------- being herein called the "Revolving Commitment Amount") and (y) --------------------------- the Borrowing Base as then in effect. The Commitment of each Lender to make Revolving Loans and to issue or participate in Letters of Credit is herein referred to as its "Revolving --------- Commitment". - ---------- (c) On the terms and subject to the conditions hereof, the Company may from time to time (i) borrow, prepay, and reborrow Revolving Loans and (ii) request the issuance of Letters of Credit, allow Letters of Credit to expire undrawn or, if drawn upon, repay Reimbursement Obligations relative thereto and request the issuance of new Letters of Credit. 40 49 SECTION 2.1.2. Swingline Commitment. -------------------- (a) From time to time on any Business Day occurring during the period commencing on the Initial Borrowing Date, and continuing to (but not including) the Revolving Commitment Termination Date, Business Credit will make a portion of the Revolving Commitment available to the Company by making Loans ("Swingline Loans") to the Company in an aggregate amount not to --------------- exceed $25,000,000 outstanding at any one time, notwithstanding the fact that such Borrowings may exceed Business Credit's Revolving Commitment. The Commitment of Business Credit to make Swingline Loans from time to time is herein referred to as its "Swingline Commitment." -------------------- (b) Business Credit at any time in its sole and absolute discretion may require each other Lender on one Business Day's notice to make a Revolving Loan in an amount equal to such Lender's Percentage of the aggregate amount of Swingline Loans outstanding on the date notice is given. In the event that Revolving Loans are made by Lenders other than Business Credit under the immediately preceding sentence, each such Lender shall deposit with the Agent same day funds in an amount equal to such Lender's Percentage of such Revolving Loans. Such deposit will be made to an account which the Agent shall specify from time to time by written notice to the Lenders. The proceeds of such Revolving Loans shall be immediately applied to repay the outstanding Swingline Loans and the Company authorizes the Agent to charge its account with Bank of America (up to the amount available in such account) in order to immediately pay Business Credit the amount of such Swingline Loans to the extent amounts received from other Lenders are not sufficient to repay in full the outstanding Swingline Loans. If any portion of any such amount paid to Business Credit should be recovered by or on behalf of the Company from Business Credit in bankruptcy, by assignment for the benefit of creditors, or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by Section 4.8. ----------- (c) Each Lender's obligation to make the Revolving Loans referred to in clause (b) shall be absolute and ---------- unconditional and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Business Credit, the Company, or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default; (iii) any adverse change in the condition (financial or otherwise) of the Company; (iv) any breach of this Agreement by the Company or any other Lender; or (v) any other circumstance, happening, or event whatsoever, whether or not similar to any of the foregoing. (d) Interest on each Swingline Loan shall accrue to Business Credit from the date of making such Swingline Loan to and including the earlier of (i) the date prior to the day on which payment of such Swingline Loan is made by the Company or 41 50 (ii) the date prior to the day of receipt by the Agent from any Lender of its Percentage of any Revolving Loans made to repay such Swingline Loan; provided that, from and after the date of -------- the making of any such Revolving Loans, interest shall accrue on such Lender's Percentage of any such Revolving Loans for the account of such Lender. SECTION 2.1.3 Lenders Not Required To Make Loans or Issue ------------------------------------------- Letters of Credit. - ----------------- (a) No Lender shall be required to make any Revolving Loan or issue (in the case of the relevant Issuer Bank) any Letter of Credit and Business Credit shall not be required to make any Swingline Loan, if, after giving effect thereto, the Revolving Credit Outstandings would exceed the lesser of (x) the Borrowing Base as then in effect and (y) the Revolving Commitment Amount as then in effect; and (b) the Issuer Bank shall not be required to issue any Letter of Credit if, after giving effect thereto, the Letter of Credit Outstandings would exceed $125,000,000. SECTION 2.1.4. Borrowing Base Determinations. ----------------------------- (a) Except during the continuance of an Event of Cash Dominion, the Company will furnish to the Agent, on or before the 12th Business Day of each month and on the date of the delivery of (i) any Borrowing Request requesting the making of Revolving Loans, or (ii) any Revolving L/C Request, a Borrowing Base Certificate setting forth the Company's calculation of the Borrowing Base (with supporting calculations in reasonable detail) as of the last day of the preceding calendar month (or, if the Credit Request described in clause (i) or (ii) is ---------- ---- delivered on or after the first day of any month but before the 12th Business Day of such month (or, if earlier, the date the Borrowing Base Certificate required to be delivered during such month is actually delivered), as of the last day of the next preceding calendar month) and certifying (A) that the information contained in such Borrowing Base Certificate is true and complete in all material respects, (B) that, except as is disclosed in such Borrowing Base Certificate, the Company has no reason to believe that there has been a material reduction in the Borrowing Base from the Borrowing Base Calculation Date for such Borrowing Base Certificate to the date on which such Borrowing Base Certificate is delivered, (C) if a Credit Request is being delivered in connection with the delivery of such Borrowing Base Certificate, that as of the date of such Borrowing Base Certificate, the Revolving Credit Outstandings do not (and, 42 51 after giving effect to the making of all Loans, or the issuance of all Letters of Credit, if any, being requested in conjunction with the delivery of such Borrowing Base Certificate, will not) exceed the Borrowing Base which was in effect on the Borrowing Base Calculation Date for such Borrowing Base Certificate, and (D) as to such other matters as the Agent may reasonably request, (b) During the continuance of an Event of Cash Dominion, the Company will furnish to the Agent at least weekly, on or before the third day of each week, a collateral summary report duly executed on behalf of the Company by a Financial Authorized Officer of the Company setting forth sales, credit memos, collections, discounts and outstanding Loans as of the most recent practicable date. During the continuance of an Event of Cash Dominion, the Borrowing Base will be determined by the Agent, after consultation with the Company, each day on the basis of such relevant information as the Agent deems appropriate to consider in calculating the actual Borrowing Base, including the collateral summary reports and such other information regarding the Accounts of the Company and KAII and the Inventory of the Company as the Agent shall obtain from the Company and KAII pursuant to Section 9.1.9 or otherwise. ------------- SECTION 2.2. Reduction of Revolving Commitment Amount. The ---------------------------------------- Company may, from time to time on any Business Day occurring after the Initial Borrowing Date, voluntarily reduce the unutilized portion of the Revolving Commitment Amount; provided, -------- however, that (a) all such reductions that involve prepayments of - ------- LIBO Rate Loans shall require at least three Business Days prior notice to the Agent, (b) all other reductions, including any such reductions that involve prepayments of Reference Rate Loans, shall require at least one Business Days prior notice to the Agent, (c) each such reduction shall be permanent, and (d) any such partial reduction of the Revolving Commitment Amount that involves prepayments of LIBO Rate Loans shall be in an amount of not less than $5,000,000. All notices referred to in the foregoing sentence shall be given prior to 10:00 a.m., San Francisco time, on the day of such notice. SECTION 2.3. Borrowing Procedure. ------------------- (a) By delivering a Borrowing Request to the Agent on or before 10:00 a.m., San Francisco time, on a Business Day, the Company, on advance notice of at least (i) three Business Days, in the case of any disbursement of LIBO Rate Loans, or (ii) one Business Day, in the case of any disbursement of Reference Rate Loans, but in no case more than five Business Days, may from time to time request that the Lenders make a disbursement of Revolving Loans. Each request for a disbursement of Reference Rate Loans 43 52 shall specify an aggregate principal amount of at least $1,000,000 and integral multiples of $1,000,000 in excess thereof, and each request for a disbursement of LIBO Rate Loans shall specify an aggregate principal amount of at least $5,000,000 and integral multiples of $1,000,000 in excess thereof. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the Loans of the type(s) and Interest Period(s) specified in such Borrowing Request and shall be made on the Business Day specified in such Borrowing Request. The Agent shall promptly notify each Lender by telephone (promptly confirmed in writing) of any such Borrowing Request on the day such Borrowing Request is received by the Agent. Subject to Section 2.1.3, prior to 9:30 a.m., San ------------- Francisco time, on the Business Day specified in such Borrowing Request, each Lender shall deposit with the Agent same day funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Agent shall specify from time to time by written notice to the Lenders. To the extent funds are received from the Lenders by 9:30 a.m., San Francisco time, on any Business Day, the Agent shall deposit such funds into the Company's account number 12339- 11101 at Bank of America not later than 10:30 a.m., San Francisco time, on such Business Day. No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. (b) By delivering a Borrowing Request to the Agent on or before 1:00 p.m., San Francisco time, on a Business Day, the Company may from time to time request that Business Credit make a disbursement of a Swingline Loan. Each request for a disbursement of a Swingline Loan shall specify an aggregate principal amount of at least $500,000 and integral multiples of $10,000 in excess thereof. All Swingline Loans shall be Reference Rate Loans and no Swingline Loan may be outstanding for more than seven calendar days. Business Credit shall deposit same day funds in an amount equal to the requested Swingline Loan into the Company's account number 12339-11101 at Bank of America not later than 3:00 p.m., San Francisco time, on such Business Day. (c) In lieu of delivering the above-described Borrowing Requests, the Company may give the Agent telephone notice by the required time of any proposed Borrowing; provided that such notice shall be promptly confirmed in writing by delivery of a Borrowing Request on or prior to the proposed borrowing date. Each telephone request for a Revolving Loan or a Swingline Loan shall be conclusively presumed to be made by a Person authorized by the Company to do so and crediting a Revolving Loan or a Swingline Loan to the Company's deposit account shall conclusively establish the obligation of the Company to repay such Revolving Loan or Swingline Loan as provided herein. SECTION 2.4. Agent's Books and Records; Monthly Statements. --------------------------------------------- 44 53 The Agent will charge all Revolving Loans, Swingline Loans and, as and when they become due and payable, other monetary Obligations to a loan account of the Company maintained by the Agent. All fees, commissions, costs, expenses, and other charges under or pursuant to the Loan Documents not paid when due may, at the Agent's option, be charged as Revolving Loans to the Company's loan account as of the date due from the Company or the date paid or incurred by the Agent, as the case may be. The Company agrees that the Agent's books and records showing the monetary Obligations and the transactions pursuant to this Agreement and the other Loan Documents shall be admissible in any action or proceeding arising therefrom, and shall constitute prima facie proof thereof, irrespective of whether any Obligation - ----- ----- is also evidenced by a promissory note or other instrument. The Agent will provide to the Company a monthly statement of Loans, payments, and other transactions pursuant to this Agreement. Such statement shall be deemed correct, accurate, and binding on the Company and as an account stated (except for reversals and reapplications of payments made as provided in Section 4.7 and ----------- corrections of errors discovered by the Agent), unless the Company notifies the Agent in writing to the contrary within 60 days after such statement is rendered. In the event a timely written notice of objection is given by the Company, only the items to which exception is expressly made will be considered to be disputed by the Company. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST, AND FEES SECTION 3.1. Repayments. The Company shall repay in full ---------- the unpaid principal amount of each Loan upon the Stated Maturity Date therefor. SECTION 3.2. Voluntary Prepayments. Prior to repayment in --------------------- full of each Loan pursuant to Section 3.1, and except during the ----------- continuance of an Event of Cash Dominion, the Company may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, without premium or penalty (except as may be required by Section 4.4), of the outstanding principal amount of ----------- the Loans; provided, however, that -------- ------- (a) if any such prepayment of any LIBO Rate Loan is made on any day other than the last day of the Interest Period for such Loan the Company shall comply with the provisions of Section 4.4; ----------- (b) all such voluntary partial prepayments of LIBO Rate Loans (i) shall be in an aggregate amount of not less than $5,000,000 and integral multiples of $1,000,000 in excess thereof, unless such prepayment is a prepayment of the entire outstanding principal amount of LIBO Loans of all 45 54 Lenders, and (ii) shall be applied pro rata to such LIBO --- ---- Rate Loans of all Lenders; (c) all such voluntary partial prepayments of Reference Rate Loans shall be, in the case of Revolving Loans, in an aggregate amount of not less than $1,000,000 and integral multiples of $1,000,000 in excess thereof, unless such prepayment is a prepayment of the entire outstanding principal amount of Reference Rate Loans of all Lenders, and, in the case of Swingline Loans, in an aggregate amount of not less than $250,000 and integral multiples of $10,000 in excess thereof, unless such prepayment is a prepayment of the entire outstanding principal amount of Swingline Loans; (d) all such voluntary partial prepayments of Reference Rate Loans shall be applied first to Swingline Loans and then pro rata to the Reference Rate Loans of all --- ---- Lenders; (e) all such voluntary prepayments of LIBO Rate Loans shall require at least five Business Days prior written notice to the Agent; (f) all such voluntary prepayments of Reference Rate Loans that are Revolving Loans shall require at least one but no more than five Business Days prior written notice to the Agent; and (g) all such voluntary prepayments of Reference Rate Loans that are Swingline Loans may be made without any prior written notice. SECTION 3.3. Mandatory Prepayments. Prior to repayment in --------------------- full of each Loan pursuant to Section 3.1, the Company shall make ----------- mandatory prepayments, without premium or penalty (except as may be required by Section 4.4), in accordance with this Section 3.3. ----------- ----------- SECTION 3.3.1. Prepayment Under, or Cash Collateralization ------------------------------------------- of, Revolving Commitment. Except during the continuance of an - ------------------------ Event of Cash Dominion, the Company shall, on the second Business Day after the date of delivery of any Borrowing Base Certificate indicating that the Revolving Credit Outstandings on the date of such Borrowing Base Certificate exceed the Borrowing Base as shown on such Certificate, make a mandatory prepayment of the then aggregate outstanding principal amount of all Swingline Loans and, if all Swingline Loans have been prepaid, shall make a mandatory prepayment of the then aggregate outstanding principal amount of all Revolving Loans (or a repayment of outstanding Reimbursement Obligations with respect to Letters of Credit), and, if all Revolving Loans and such Reimbursement Obligations have been prepaid or repaid, shall furnish cash collateral with respect to undrawn and outstanding Letters of Credit, in an aggregate amount equal to such excess. If the Company shall fail 46 55 to deliver a Borrowing Base Certificate when due hereunder and the Agent determines that the Revolving Credit Outstandings on the date such Borrowing Base Certificate was due exceeded the Borrowing Base, as of the last day of the preceding month, the Company shall on the second Business Day after receipt of notice from the Agent, make a mandatory prepayment of the then aggregate outstanding principal amount of all Swingline Loans and, if all Swingline Loans have been prepaid, shall make a mandatory prepayment of the then aggregate outstanding principal amount of all Revolving Loans (or a repayment of outstanding Reimbursement Obligations with respect to Letters of Credit), and, if all Revolving Loans have been prepaid, shall furnish cash collateral with respect to Letters of Credit, in an aggregate amount equal to such excess. On the terms and subject to the conditions hereof, the Company may reborrow amounts applied to the prepayment of Swingline Loans and Revolving Loans pursuant to this Agreement. SECTION 3.3.2. Cash Dominion. During the continuance of an ------------- Event of Cash Dominion (a) all collected funds on deposit in the Concentration Account pursuant to the Concentration Bank Agreement shall be applied on a daily basis to the prepayment of the then aggregate outstanding principal amount of all Swingline Loans and, if all Swingline Loans have been prepaid, to the prepayment of the then aggregate outstanding principal amount of all Revolving Loans; (b) on any day on which Revolving Credit Outstandings exceed the Borrowing Base, as calculated as of such date, the Company shall make a mandatory prepayment of the then aggregate outstanding principal amount of all Swingline Loans, and, if all Swingline Loans have been prepaid, shall make a mandatory prepayment of the then aggregate outstanding principal amount of all Revolving Loans (or a repayment of outstanding Reimbursement Obligations with respect to Letters of Credit), and, if all Revolving Loans have been prepaid, shall furnish cash collateral with respect to Letters of Credit, in an aggregate amount equal to such excess; and (c) the Company shall deposit, or cause to be deposited in the Concentration Account (unless deposited in a Collection Deposit Account or remitted or paid directly to the Agent) (i) all remittances and payments received by the Company in respect of Accounts (except Accounts payable by Subsidiaries and Joint Venture Affiliates paid by accounting entries), Instruments (other than Intercompany Demand Notes), and sales of Inventory for cash and all prepayments, deposits, and other advance payments in respect of sales of Inventory; (ii) all Net Disposition Proceeds received from any Asset Disposition; and (iii) all tax refunds, insurance proceeds and other amounts received from third parties. On the terms and subject to the conditions hereof, the Company may reborrow amounts applied to the prepayment of Swingline Loans and Revolving Loans pursuant to this Agreement. SECTION 3.3.3. Acceleration. The Company shall, ------------ immediately upon any acceleration of the Stated Maturity Date of any Loans pursuant to Section 10.2 or Section 10.3, repay all ------------ ------------ 47 56 Loans which are so accelerated. SECTION 3.4. Interest Provisions. Interest on the ------------------- outstanding principal amount of Loans shall accrue and be payable in accordance with this Section 3.4, in each case computed on the ----------- basis of the actual number of days elapsed in a 360-day year. SECTION 3.4.1. Rates. The Company shall pay interest on ----- the unpaid principal amount of each Revolving Loan and Swingline Loan made to the Company from time to time outstanding as follows: (a) if any portion of the unpaid principal amount of such Loan is a Reference Rate Loan, the Company shall pay interest on such portion at a rate per annum equal to the sum of (i) the Reference Rate from time to time in effect and (ii) a margin of 1-1/2%; and (b) if any portion of the unpaid principal amount of such Loan is a LIBO Rate Loan, during each Interest Period applicable thereto, the Company shall pay interest on such portion at a rate per annum equal to the sum of (i) the LIBO Rate (Reserve Adjusted) for such Interest Period and (ii) a margin of 3-1/4%; provided, however, that, - -------- ------- (i) so long as no Default shall have occurred and be continuing, if as of the last day of any Fiscal Quarter, commencing with the second Fiscal Quarter of the 1995 Fiscal Year, the Interest Coverage Ratio for the four Fiscal Quarter period ended on such last day is greater than or equal to 1.25 to 1.00 but less than 1.50 to 1.00, and the Agent receives a Compliance Certificate pursuant to clause (c) of Section 9.1.1 to such effect, then, for each ---------- ------------- day during the Fiscal Quarter in which such Compliance Certificate is required to be delivered, the margins set forth in clauses (a) and (b) above and any fees payable ----------- --- pursuant to clause (a)(ii) of Section 5.3 (in each case -------------- ----------- without giving effect to any previous increase or reduction pursuant to this proviso) shall each be reduced by 1/2 of 1% per annum; and (ii) so long as no Default shall have occurred and be continuing, if as of the last day of any Fiscal Quarter, commencing with the second Fiscal Quarter of the 1995 Fiscal Year, the Interest Coverage Ratio for the four Fiscal Quarter period ended on such last day is greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.00, and the Agent receives a Compliance Certificate pursuant to clause (c) of Section 9.1.1 to such effect, then, for each ---------- ------------- day during the Fiscal Quarter in which such Compliance Certificate is required to be delivered, the margins set forth in clauses (a) and (b) above and any fees payable ----------- --- 48 57 pursuant to clause (a)(ii) of Section 5.3 (in each case -------------- ----------- without giving effect to any previous increase or reduction pursuant to this proviso) shall each be reduced by 1% per annum; and (iii) so long as no Default shall have occurred and be continuing, if as of the last day of any Fiscal Quarter, commencing with the second Fiscal Quarter of the 1995 Fiscal Year, the Interest Coverage Ratio for the four Fiscal Quarter period ended on such last day is greater than or equal to 2.00 to 1.00, and the Agent receives a Compliance Certificate pursuant to clause (c) of Section 9.1.1 to such ---------- ------------- effect, then, for each day during the Fiscal Quarter in which such Compliance Certificate is required to be delivered, the margins set forth in clauses (a) and (b) ----------- --- above and any fees payable pursuant to clause (a)(ii) of -------------- Section 5.3 (in each case without giving effect to any ----------- previous increase or reduction pursuant to this proviso) shall each be reduced by 1-1/2% per annum. Prior to the date in any Fiscal Quarter on which the Agent receives the Compliance Certificate which is required to be delivered during such Fiscal Quarter, the interest margin and letter of credit fees shall be the same as were applicable to the immediately preceding Fiscal Quarter. If such Compliance Certificate shall indicate that such interest margin or letter of credit fees should be increased pursuant to this proviso, the Company shall, on the date of delivery of such Compliance Certificate, pay to the Agent for the account of those Lenders which received underpayment thereof an amount equal to the difference between (A) the aggregate amount of interest and letter of credit fees which would theretofore have been payable during such Fiscal Quarter had such increase been made on the first day of such Fiscal Quarter and (B) the amounts of interest and letter of credit fees which were actually paid during such Fiscal Quarter. If such Compliance Certificate shall indicate that the Company paid more interest or letter of credit fees than would have been required if any reduction therein required by this proviso had commenced on the first day of such Fiscal Quarter, any such excess payment shall be credited to future payments of interest or letter of credit fees, as the case may be, payable to those Lenders which received over-payments thereof and, if the Company shall not have received full credit for any such excess payment from any Lender at the time when such Lender's Commitments hereunder terminate and all monetary Obligations owing to such Lender are paid in full, then such Lender shall pay to the Company any such excess payment, without interest, at such time. In the event that any accountant's report delivered pursuant to clause (b)(iii) of Section 9.1.1 shall indicate any --------------- ------------- miscomputation of the Interest Coverage Ratio in any Compliance Certificate, if such accountant's report shall indicate that the interest margin or letter of credit fees should have been 49 58 increased pursuant to this proviso for any Fiscal Quarter during the relevant Fiscal Year, the Company shall, within ten Business Days after such accountant's report is delivered, pay the Agent, for the account of the Lenders, additional interest on the Loans and letter of credit fees for the Letters of Credit in an aggregate amount equal to the excess of (A) the aggregate amount of interest which would have been payable on the Loans and letter of credit fees which would have been payable on the Letters of Credit for any period of time if the Compliance Certificate in respect of the Fiscal Quarter in question had shown the same Interest Coverage Ratio for the four Fiscal Quarter period ended on the last day of such Fiscal Quarter as did such accountant's report, over (B) the aggregate of the interest which was actually paid on the Loans and the letter of credit fees which were actually paid on the Letters of Credit in respect of such period of time. If such accountant's report shall indicate that the Company paid more interest or letter of credit fees than would have been required if any reduction therein had commenced on the first day of any Fiscal Quarter during the relevant Fiscal Year, any such excess payment shall be credited to future payments of interest or letter of credit fees, as the case may be, payable to those Lenders which received over-payments thereof and, if the Company shall not have received full credit for any such excess payment from any Lender at the time when such Lender's Commitments hereunder terminate and all monetary Obligations owing to such Lender are paid in full, then such Lender shall pay to the Company any such excess payment, without interest, at such time. Upon termination of the Lenders' Commitments hereunder, no further retroactive adjustments shall be made to the interest or letter of credit fees paid during the term of this Agreement. All LIBO Rate Loans shall bear interest from (and including) the first day of the applicable Interest Period to (but excluding) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan; provided, -------- however, that any margin reduction or increase resulting from the - ------- Interest Coverage Ratio test set forth in this Section 3.4.1 ------------- shall become effective at any time during any Interest Period. SECTION 3.4.2. Continuation and Conversion Elections. By ------------------------------------- delivering a Continuation/Conversion Notice to the Agent on or before 10:00 a.m., San Francisco time, on a Business Day, the Company may from time to time irrevocably elect, on (a) not less than three nor more than five Business Days notice (in the case of continuations of or conversions into LIBO Rate Loans), or (b) not less than one nor more than five Business Days notice (in the case of conversions into Reference Rate Loans) 50 59 that all or any portion of any outstanding Revolving Loan be (i) converted into a LIBO Rate Loan, (ii) converted into a Reference Rate Loan, or (iii) continued as a LIBO Rate Loan. All conversions of Revolving Loans that are Reference Rate Loans shall be made pro rata among all such Reference Rate Loans of all --- ---- Lenders. All conversions or continuations of Revolving Loans that are LIBO Rate Loans shall be made pro rata among all such --- ---- LIBO Rate Loans of all Lenders. In the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan within the time periods specified above before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Reference Rate Loan. No portion of the outstanding principal amount of any Revolving Loan may be continued as, or be converted into, a LIBO Rate Loan during the continuation of any Event of Default. No Swingline Loans may be converted into a LIBO Rate Loan. SECTION 3.4.3. Funding. Each Lender may, if it so elects, ------- fulfill its obligation to make, continue, or convert any LIBO Rate Loan hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, -------- however, that such LIBO Rate Loan shall nonetheless be deemed to - ------- have been made and to be held by such Lender, and the obligation of the Company to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate, or international banking facility. In addition, the Company hereby consents and agrees that, for purposes of any determination to be made for purposes of Section 4.2, 4.3, or ----------- --- 4.4, it shall be conclusively assumed that each Lender elected to - --- fund all LIBO Rate Loans by purchasing Dollar deposits in the London interbank eurodollar market. SECTION 3.4.4. Default Rates. During the continuation of ------------- any Event of Default, (a) the Company shall pay interest (after as well as before judgment) on the principal amount of all Loans outstanding to it at a rate per annum which is determined by increasing each of the interest rates set forth in clauses (a) and (b) of Section 3.4.1 by 2% per annum; ----------- --- ------------- (b) the letter of credit fees payable pursuant to clause (a)(ii) of Section 5.3 shall be increased by 2% per -------------- ----------- annum for all Letters of Credit; and (c) the Company shall pay interest on any other Obligations which are then due and payable (other than Reimbursement Obligations which are accruing interest pursuant to Section 5.5) to the extent permitted by ----------- applicable law, at a rate per annum equal to the Reference Rate plus 3-1/2%. 51 60 SECTION 3.4.5. Interest Payment Dates. Interest accrued on ---------------------- each Loan shall be payable (a) with respect to Reference Rate Loans, in arrears on the first day of each month; (b) with respect to LIBO Rate Loans, (i) except during the continuance of any Event of Default, on the last day of each applicable Interest Period and, if such Interest Period shall exceed three months, on the day which numerically corresponds to the first day of such Interest Period and falls in the third month thereafter (or, if there is no such numerically corresponding date, on the last Business Day of such third month) and (ii) during the continuance of an Event of Default, in arrears on the first day of each month; and (c) on that portion of any Loan the Stated Maturity Date of which is accelerated pursuant to Section 10.2 or ------------ Section 10.3, immediately upon such acceleration. ------------ Interest accrued on Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.5. Fees. The Company and the Parent Guarantor, ---- jointly and severally, agree to pay the fees set forth in this Section 3.5. - ----------- SECTION 3.5.1. Commitment Fee. The Company and the Parent -------------- Guarantor, jointly and severally, agree to pay to the Agent for the account of each Lender, for the period (including any portion thereof when any of its Commitments are suspended by reason of the Company's inability to satisfy any condition of Article VII) ----------- commencing on the Effective Date and continuing through the Revolving Commitment Termination Date, a commitment fee at the rate of 1/2 of 1% per annum on such Lender's Percentage of the sum of the average daily unused portion of the Revolving Commitment Amount. Such commitment fees shall be payable by the Company in arrears on each Quarterly Payment Date, commencing with the first such day following the Effective Date, and on the Revolving Commitment Termination Date. SECTION 3.5.2. Audit Fees. The Company and the Parent ---------- Guarantor, jointly and severally, agree to pay to the Agent an audit fee equal to $500 per day per auditor (whether or not such auditor is an employee of the Agent) for each audit of the Collateral undertaken pursuant to Section 9.1.5 and to pay all ------------- out-of-pocket expenses of each auditor incurred in connection with such Collateral audits; provided, however, that, except -------- ------- during the continuance of an Event of Cash Dominion, the Company and the Parent Guarantor shall not be required to pay for more 52 61 than one collateral audit during any 180-day period and, during the continuance of an Event of Cash Dominion, shall not be required to pay for more than one collateral audit during any 90- day period. SECTION 3.5.3. Other Fees. The Company and the Parent ---------- Guarantor, jointly and severally, agree to pay to the Agent certain other fees set forth in clause (iii) of the confidential ------------ letter dated January 24, 1994 from Bank of America to the Company (the "Fee Letter") for retention by the Agent as set forth in the ---------- Fee Letter. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. Illegality. ---------- (a) If any Lender shall determine (which determination shall, upon written notice thereof to the Company and the other Lenders, be conclusive and binding on the Company) that the introduction of or any change in (or in the interpretation of) any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to make, continue, or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of all Lenders to make, continue, maintain, or convert any such Loans shall, upon such determination, forthwith be suspended until such Lender shall notify the Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans shall automatically convert into Reference Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. (b) If any Lender shall determine (which determination shall, upon written notice thereof to the Company and the other Lenders, be conclusive and binding on the Company) that the introduction of or any change in (or in the interpretation of) any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to issue or amend (in the case of an Issuer Bank) or to participate in (in the case of each other Lender) any additional Letters of Credit, the obligations of all Lenders so to issue, amend, or participate in additional Letters of Credit shall, upon such determination, forthwith terminate, and the Agent shall, by written notice to the Company and each Lender, declare that such obligations have so terminated. If circumstances subsequently change so that such affected Lender shall determine that it is no longer so affected, such obligations shall, upon such determination (and telephonic notice thereof immediately confirmed in writing to the Agent, each other Lender, and the Company), forthwith be reinstated, and 53 62 the Agent shall, by written notice to the Company and each Lender, declare that such obligations have been so reinstated. SECTION 4.2. Deposits Unavailable. If the Agent shall have -------------------- reasonably determined that (a) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to Bank of America in the relevant market; or (b) by reason of circumstances affecting Bank of America's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans, then, upon written notice from the Agent to the Company and the Lenders, the obligations of all Lenders under Section 2.3 and ----------- Section 3.4.2 to make or continue any Loans as, or to convert any - ------------- Loans into, LIBO Rate Loans shall forthwith be suspended until the Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased Costs, etc. The Company agrees to -------------------- reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, issuing, maintaining, or participating in the Letters of Credit, or making, continuing, or maintaining (or of its obligation to make, continue, or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans. Such Lender shall promptly notify the Agent and the Company in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount as well as the calculation of such additional amount. Such additional amounts shall be payable by the Company directly to such Lender within 15 days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Company. SECTION 4.4. Funding Losses. In the event any Lender shall -------------- incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue, or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.1, 3.2, 3.3, or 3.4.2 ----------- --- --- ----- or otherwise, 54 63 (b) any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor (other than as a result of a determination pursuant to Section 4.1 or ----------- 4.2), or --- (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/ Conversion Notice therefor (other than as a result of a determination pursuant to Section 4.1 or 4.2), ----------- --- then, upon the written notice of such Lender to the Company (with a copy to the Agent), the Company shall, within 15 days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Company. SECTION 4.5. Increased Capital Costs. If any change in, or ----------------------- the introduction, adoption, effectiveness, interpretation, reinterpretation, or phase-in of, any law or regulation, directive, guideline, decision, or request (whether or not having the force of law) of any court, central bank, regulator, or other governmental authority affects or would affect the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender, and such Lender determines (in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Commitments or the Credit Extensions (including the disbursement of Loans and the issuance of or participation in Letters of Credit) made by such Lender is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon written notice from time to time by such Lender to the Company, with a copy to the Agent, the Company shall, within 15 days of its receipt of such notice, pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Company. In determining such amount, such Lender may use any method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable, subject in each case to Section 4.12. ------------ SECTION 4.6. Taxes, etc. ---------- (a) All payments by the Company and each other Obligor to the Agent or any Lender in respect of any Obligation shall be made without any setoff or counterclaim, and free and clear of and without deduction or withholding for or on account of, any present or future Taxes now or hereafter 55 64 imposed on the Agent or any Lender with respect to such payments by any governmental or other authority, except to the extent that such deduction or withholding is compelled by law. As used herein, the term "Taxes" shall include all ----- excise and other taxes of whatever nature imposed on the Agent or any Lender with respect to, or arising out of, such payments or the transactions contemplated hereby (other than taxes generally assessed on the net income of the Agent or any Lender, as the case may be, by the government of the country, or any political subdivision or taxing authority thereof or therein, in which the Agent or such Lender is incorporated or in which such Lender's Domestic Office or such Lender's LIBOR Office is located) as well as all levies, imposts, duties, charges, or fees of whatever nature. If any Obligor is compelled by law to make any such deduction or withholding it will: (i) pay to the relevant authorities the full amount required to be so withheld or deducted; (ii) (except to the extent that such deduction or withholding results from the breach, by the recipient of a payment, of its agreement contained in clause (b) ---------- below, or would not be required if such recipient's representation and warranty contained in clause (b) ---------- below were true) pay such additional amounts as may be necessary in order that the net amount received by the Agent and each Lender, after such deduction or withholding (including any required deduction or withholding on such additional amounts) shall equal the amount such payee would have received had no such deduction or withholding been made; and (iii) promptly forward to the Agent (for delivery to such payee) an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authorities. Moreover, if any Taxes are directly asserted against the Agent or any Lender with respect to any payment made in respect of, or arising out of, any Obligation, such payee may pay such Taxes, and each Obligor which is obligated to pay such Obligation agrees promptly to pay such additional amount (including any penalties, interest or expenses) as may be necessary in order that the net amount received by such payee after the payment of such taxes (including any Taxes on such additional amount) shall equal the amount such payee would have received had no such Taxes been asserted (except to the extent that such Taxes result from the breach, by such payee, of its agreement contained in clause (b) below or would not be asserted if such payee's ---------- representation and warranty contained in clause (b) below ---------- were true). For purposes of this Section 4.6, a ----------- distribution hereunder by the Agent or any Lender to or for 56 65 the account of any Lender shall be deemed to be a payment by the applicable Obligor. (b) Each Lender which is a Non-United States Person agrees (to the extent it is permitted to do so under the laws and any applicable double taxation treaties of the United States, the jurisdiction of such Lender's incorporation, and the jurisdictions in which such Lender's Domestic Office and such Lender's LIBOR Office are located) to execute and deliver to the Agent for delivery to the Company, before the first scheduled payment date in each year, either (i) three United States Internal Revenue Service Forms 1001 or (ii) three United States Internal Revenue Service Forms 4224 together with three United States Internal Revenue Service Forms W-9, or any successor forms, as appropriate, properly completed and claiming complete or partial, as the case may be, exemption from withholding and deduction of United States federal Taxes. Each Lender which is a Non-United States Person represents and warrants to each Obligor and to the Agent that, at the date of this Agreement, (i) its Domestic Office and its LIBOR Office are entitled to receive payments of principal, interest, Reimbursement Obligations, and fees hereunder and under the other Loan Documents without deduction or withholding for or on account of any Taxes imposed by the United States or any political subdivision thereof and (ii) it is permitted to take the actions described in the preceding sentence under the laws and any applicable double taxation treaties of the jurisdictions specified in the preceding sentence. Each Lender which is a Non-United States Person further agrees that, to the extent any form claiming complete or partial exemption from withholding and deduction of United States federal Taxes delivered under this clause (b) is found to be ---------- incomplete or incorrect in any material respect, such Lender shall (to the extent it is permitted to do so under the laws and any double taxation treaties of the United States, the jurisdiction of its incorporation, and the jurisdictions in which its Domestic Office and its LIBOR Office are located) execute and deliver to the Agent a complete and correct replacement form. (c) Each Lender agrees to use reasonable efforts to change its Domestic Office or LIBOR Office to avoid or to minimize any amounts otherwise payable under clause (a) of ---------- this Section 4.6, in each case solely if such change can be ----------- made in a manner so that such Lender, in its sole determination, suffers no legal, economic, or regulatory disadvantage. SECTION 4.7. Payments, Computations, etc. --------------------------- (a) Unless otherwise expressly provided, all payments by the Company pursuant to this Agreement or any other Loan Document shall be made by the Company to the Agent for the 57 66 pro rata account of the Lenders entitled to receive such --- ---- payment. Except for Proceeds received directly by the Agent, all such payments required to be made to the Agent shall be made, without setoff, deduction or counterclaim, not later than 9:30 a.m., San Francisco time, or, with respect to payments which are to be funded by other Credit Extensions, 10:30 a.m., San Francisco time, in either case on the date due, in same day or immediately available funds, to such account as the Agent shall specify from time to time by written notice to the Company. Funds received after that time shall be deemed to have been received by the Agent on the next succeeding Business Day. The Agent shall promptly remit to each Lender such Lender's share, if any, of such payments received by the Agent not later than 9:30 a.m., San Francisco time, or 10:30 a.m., San Francisco time, as applicable, for the account of such Lender in same day funds on the day received. If the Agent fails so to remit such funds to such Lender, the Agent shall pay to such Lender interest on the amount of such Lender's share of such payments at the daily average Federal Funds Rate for each day on which such failure continues excluding the day on which such remittance is made. All interest and commitment fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (b) of the definition of the term ---------- "Interest Period" with respect to LIBO Rate Loans) be made --------------- on the next succeeding Business Day and such extension of time shall be included in computing interest, if any, in connection with such payment. (b) If after receipt of any payment of, or Proceeds applied to the payment of, all or any part of the Obligations, the Lenders, the Issuer Bank, or the Agent is for any reason compelled to surrender such payment or Proceeds to any Person, because such payment or Proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible set off, or a diversion of trust funds, or for any other reason, the Obligations or part thereof intended to be satisfied shall be revived and continue and this Agreement shall continue in full force as if such payment or Proceeds had not been received by the Lenders, the Issuer Bank, or the Agent; and the Company shall be liable to the Lenders, the Issuer Bank, and the Agent, and hereby does indemnify the Lenders, the Issuer Bank, and the Agent and hold the Lenders, the Issuer Bank, and the Agent harmless for, the amount of such payment or Proceeds surrendered. The provisions of this Section 4.7 ----------- shall be and remain effective notwithstanding any contrary action which may have been taken by the Lenders, the Issuer Bank, and the Agent in reliance upon such payment or 58 67 Proceeds, and any such contrary action so taken shall be without prejudice to the rights of the Lenders, the Issuer Bank, and the Agent under this Agreement and shall be deemed to have been conditioned upon such payment or Proceeds having become final and irrevocable. SECTION 4.8. Sharing of Payments. If any Lender shall ------------------- obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff, or otherwise) on account of any Letter of Credit it has issued or in which it is a participant, or on account of any Loan (other than pursuant to the terms of Sections 4.3, 4.4, 4.5, and 4.6) in each case in ------------ --- --- --- excess of its pro rata share of payments then or therewith --- ---- obtained by all Lenders, such Lender shall purchase from the other Lenders such participations in the Letters of Credit in which they have participated or they have issued, or in Loans made by them, as the case may be, as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if -------- ------- all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender to - -- (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Company agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 4.8 may, to the fullest extent ----------- permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as ----------- fully as if such Lender were the direct creditor of the Company in the amount of such participation. If under any applicable bankruptcy, insolvency, or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 4.8 ----------- applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.8 to share in the benefits of any recovery on such - ----------- secured claim. SECTION 4.9. Setoff. Each Lender shall, with the prior ------ written consent of the Required Lenders, during the continuance of any Event of Default, have the right to appropriate and apply 59 68 to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Company hereby grants to each Lender a continuing security interest in, any and all balances, credits, deposits, accounts, or moneys of the Company then or thereafter maintained with such Lender, excluding any specifically designated trust account; provided, -------- however, that any such appropriation and application shall be - ------- subject to the provisions of Section 4.8. Each Lender agrees ----------- promptly to notify the Company and the Agent after any such setoff and application made by such Lender; provided, however, -------- ------- that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section 4.9 are in addition to other rights and ----------- remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. SECTION 4.10. Use of Proceeds. The Company shall apply the --------------- proceeds of each Loan and shall use each Letter of Credit in accordance with the fourth recital and for general corporate and ------ ------- working capital purposes of the Company and its Subsidiaries. No proceeds of any Loan and no Letter of Credit will be used to purchase or carry (a) any equity security not issued by the Company of a class which is registered pursuant to Section 12 of ---------- the Securities Exchange Act of 1934, or (b) any "margin stock", as defined in F.R.S. Board Regulation U. SECTION 4.11. Change of Lending Office, Replacement of ---------------------------------------- Lender, etc. - ----------- (a) Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 4.1, 4.3, ----------- --- or 4.5 with respect to such Lender, it will, if requested by --- the Company and to the extent permitted by law or by the relevant governmental authority, in consultation with the Agent, for a period of thirty days use reasonable efforts in good faith to avoid the illegality or to avoid or minimize the increase in costs or reduction in payments resulting from such event (including using reasonable efforts to change its Domestic Office or LIBOR Office); provided that -------- such avoidance or minimization can be made in such a manner so that such Lender, in its sole determination, suffers no legal, economic, or regulatory disadvantage. (b) If any Lender (an "Affected Lender") shall --------------- make a determination under Section 4.1 or shall make a ----------- demand for payment under Section 4.3, 4.5, or 4.6, and ----------- --- --- the Company shall find a Lender or other entity capable of being an Assignee Lender under Section 12.11.1 (an --------------- "Eligible Assignee") which offers in writing to ----------------- (i) purchase all, but not less than all, Loans of and Reimbursement Obligations owed (directly or by way of participation) to such Affected Lender, 60 69 (ii) purchase a 100% participation in all obligations of such Affected Lender in respect of all Letters of Credit issued or participated in by such Affected Lender, and (iii) assume all the Commitments of such Affected Lender, in each case without recourse for the full amount thereof on a specified date, together with accrued and unpaid interest and commitment fees thereon to the date of purchase, and all other amounts owing to such Affected Lender hereunder and under the other Loan Documents, and such Eligible Assignee tenders the purchase price of such amounts on such specified date, and if, in the sole determination of such Affected Lender, its acceptance of such offer would be permitted by law and all relevant governmental authorities and would not result in any legal, economic, or regulatory disadvantage to such Affected Lender, then the Company shall be excused from the payment of any increased costs claimed by such Affected Lender under any of such Sections accruing after the first interest payment date pursuant to Section 3.4.5 for each ------------- Loan of such Affected Lender on or following such specified date, if the Affected Lender demanding payment under any such Section declines such purchase offer. If such Affected Lender shall accept such purchase offer, upon consummation of such purchase in accordance with Section 12.11.1, such --------------- Affected Lender shall cease to be a Lender hereunder. Any reasonable expenses actually incurred by such Affected Lender or the Agent under this Section 4.11 shall be paid by ------------ the Company upon delivery to the Company of a certificate as to the amount of such expenses, which certificate shall in the absence of manifest error be conclusive and binding. SECTION 4.12. Computation of Additional Amounts Due. In ------------------------------------- determining any additional amounts due from the Company under Section 4.3, 4.4, or 4.5 hereof, each Lender shall act reasonably - ----------- --- --- and in good faith and will, to the extent that the increased costs or reductions in amounts received or receivable relate to such Lender's loans generally and are not specifically attributable to the Loans hereunder, use averaging and attribution methods which are reasonable and equitable and which cover all loans similar to the Loans made by such Lender whether or not the loan documentation for such other loans permits such Lender to receive increased costs of the type described in such Sections of this Agreement. 61 70 ARTICLE V LETTERS OF CREDIT SECTION 5.1. Requests. -------- (a) By delivering to the Agent and the relevant Issuer Bank one or more Revolving L/C Requests on or before 10:00 a.m., San Francisco time, at least three (or such shorter period as may be agreed among the Company, the Agent, and such Issuer Bank), but not more than eight, Business Days before the proposed date of issuance, the Company may request that such Issuer Bank issue, on any Business Day on or after the Initial Borrowing Date and prior to the Revolving Commitment Termination Date, irrevocable standby or commercial letters of credit for its account (each such letter of credit, as it may be amended, supplemented, extended, restated, or modified from time to time, a "Letter ------ of Credit"). Each Letter of Credit and Revolving L/C --------- Request shall be acceptable as to form, substance, beneficiary, and purpose to the Agent and such Issuer Bank in their sole and absolute discretion, and each Letter of Credit shall be used by the Company in each case solely for the purposes described in Section 4.10. ------------ (b) Upon receipt of a Revolving L/C Request under clause (a), the Agent shall promptly notify the Lenders in ---------- writing thereof. The Issuer Bank is under no obligation to issue any Letter of Credit if (i) any order, judgment or decree of any governmental authority shall by its terms purport to enjoin or restrain the Issuer Bank from issuing such Letter of Credit; or any law applicable to the Issuer Bank or any request or directive from any governmental authority with jurisdiction over the Issuer Bank shall prohibit or request that the Issuer Bank refrain from the issuance of letters of credit generally or such Letter of Credit in particular; (ii) the Stated Amount thereof (A) when added to the Letter of Credit Outstandings immediately prior to the issuance of such Letter of Credit, would exceed $125,000,000; (iii) such Letter of Credit is not stated to expire on a date (its "Stated Expiry Date") no later ------------------ than the tenth Business Day immediately preceding February 15, 1999; (iv) such Letter of Credit requires the Issuer Bank thereof to make payment to any beneficiary thereof prior to the third Business Day after a conforming demand for payment is made thereunder; or 62 71 (v) such Letter of Credit does not provide for the presentation of drafts payable at sight; and (c) The Issuer Bank will make available to the beneficiary thereunder (with a copy to the Agent) the original of each Letter of Credit which it issues in accordance with the Revolving L/C Request therefor and will notify the beneficiary thereof (with a copy to the Agent) of any extension of the Stated Expiry Date thereof pursuant to Section 5.2. ----------- (d) On the Initial Borrowing Date, the Existing Letters of Credit shall automatically be deemed to be Letters of Credit and shall be subject to all the terms and conditions of this Agreement and the Company's reimbursement obligations in respect of the Existing Letters of Credit shall automatically be deemed to have been satisfied by the incurrence of its Reimbursement Obligations, pursuant to this Article V, in respect of the Letters of Credit; provided that the Agent shall have received satisfactory -------- evidence that each issuer of the Existing Letters of Credit shall have consented to the termination of such reimbursement obligations in respect of the Existing Letters of Credit. SECTION 5.2. Issuance and Extensions. ----------------------- (a) Subject to the terms and conditions of this Agreement (including Article VII), each Issuer Bank shall ----------- issue Letters of Credit in accordance with the Revolving L/C Requests made therefor. By delivery to an Issuer Bank and the Agent of a Revolving L/C Request at least three Business Days but not more than 45 days prior to the Stated Expiry Date of any Letter of Credit, the Company may request such Issuer Bank to extend the Stated Expiry Date of such Letter of Credit for an additional period. Unless otherwise directed by the Agent in accordance with Section 7.2, no ----------- Issuer Bank shall issue, or extend the Stated Expiry Date of, any Letter of Credit if it shall have received from any Obligor, the Agent, or any Lender actual notice of a then- continuing Default or of any other failure to satisfy any of the conditions precedent to Credit Extensions set forth in Article VII. ----------- (b) Notwithstanding any provision of any Revolving L/C Request to the contrary, it is understood that in the event of any conflict between the terms of any such Revolving L/C Request and the terms of this Agreement, the terms of this Agreement shall control with respect to events of default, representations and warranties, and covenants, except that such Revolving L/C Request may provide for further warranties and covenants relating specifically to the transaction or affairs underlying the relevant Letter of Credit. The terms and conditions of this Agreement shall be 63 72 deemed to be incorporated by reference into each Revolving L/C Request regardless of whether expressly so stated in such Revolving L/C Request. SECTION 5.3. Fees and Expenses. ----------------- (a) The Company agrees to pay to the Agent with respect to each Letter of Credit, (i) for the account of the Issuer Bank, a fronting fee equal to three-eighths of 1% per annum on the average daily aggregate Letter of Credit Outstandings (excluding, however, in the case of fees payable under this clause (a)(i), that portion of Letter of Credit ------------- Outstandings constituting Reimbursement Obligations accruing interest pursuant to Section 5.5), and ----------- (ii) for the account of the Lenders, pro rata --- ---- according to their respective Percentages, a letter of credit fee of 3% per annum (subject to adjustment as provided in Section 3.4.1 and 3.4.4) on the average daily ------------- ----- aggregate Letter of Credit Outstandings (excluding, however, in the case of fees payable under this clause (a)(ii), that -------------- portion of Letter of Credit Outstandings constituting Reimbursement Obligations accruing interest pursuant to Section 5.5) under or with respect to all Letters of Credit ----------- accruing, as to each Letter of Credit (other than the Existing Letters of Credit), from and including the date of issuance thereof to and excluding the earlier of the date such Letter of Credit is drawn in full, expires, or is terminated and the Revolving Commitment Termination Date and, as to each Existing Letter of Credit, from and including the Initial Borrowing Date to and excluding the earlier of the date such Existing Letter of Credit is drawn in full, expires, or is terminated and the Revolving Commitment Termination Date. (b) Such fronting and letter of credit fees shall be computed for the actual number of days elapsed on the basis of a 360-day year and shall be payable in arrears on each Quarterly Payment Date for the period ending on (but excluding) such Quarterly Payment Date and on the Revolving Commitment Termination Date. The Company further agrees to pay to the Agent for the account of each Issuer Bank all customary administrative fees and expenses of such Issuer Bank in connection with the issuance and maintenance of each Letter of Credit issued by it. SECTION 5.4. Other Lenders' Participation. Concurrently ---------------------------- with the issuance of each Letter of Credit in accordance with the terms and conditions of this Agreement, and on the Initial Borrowing Date with respect to the Existing Letters of Credit, the Issuer Bank thereof shall be deemed to have sold and 64 73 transferred to each other Lender, and each other Lender shall be deemed irrevocably and unconditionally to have purchased and received from such Issuer Bank, without recourse, representation, or warranty, an undivided interest and participation, to the extent of such other Lender's Percentage, in such Letter of Credit and the Company's Reimbursement Obligations with respect thereto, and each Lender shall, to the extent of its Percentage, be entitled to receive from the Agent a ratable portion of the letter of credit fees received by the Agent pursuant to clause (a)(ii) of Section 5.3 with respect to each Letter of - -------------- ----------- Credit. Each Lender shall, to the extent of its Percentage, be responsible to reimburse promptly such Issuer Bank for Reimbursement Obligations which have not been reimbursed by the Company in accordance with Section 5.5. Each Lender's obligation ----------- to reimburse the Issuer Bank under this Section shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or other right which such Lender may have against the Issuer Bank, the Company or any other Person or, subject to Section 7.2, the occurrence or continuance of a Default or an Event of Default; provided, -------- however, that nothing herein shall adversely affect the right of - ------- any Lender to commence any proceeding against an Issuer Bank for any wrongful Disbursement made by such Issuer Bank under a Letter o Credit as a result of acts or omissions constituting gross negligence or willful misconduct on the part of the Issuer Bank. SECTION 5.5. Disbursements. ------------- (a) Each Issuer Bank will notify the Company and the Agent in writing promptly of the presentment of any demand for payment under any Letter of Credit issued by such Issuer Bank, together with notice of the date (the "Disbursement ------------ Date") such payment shall be made. On the terms and subject ---- to the conditions of such Letter of Credit and this Agreement, the Issuer Bank shall make such payment to the beneficiary (or its designee) of such Letter of Credit. Prior to 10:30 a.m., San Francisco time, on the Disbursement Date, the Company will reimburse such Issuer Bank for all amounts which it has disbursed or is required to disburse under such Letter of Credit on such Disbursement Date. To the extent such Issuer Bank is not reimbursed in full in accordance with the foregoing sentence of this clause (a), ---------- the Company's Reimbursement Obligation shall accrue interest at a rate per annum equal to the Reference Rate from time to time in effect plus a margin of 3-1/2% per annum, payable on demand. (b) Upon notice by the Issuer Bank to the Company of any Disbursement pursuant to clause (a) of this Section 5.5, ---------- ----------- the Lenders (including such Issuer Bank) shall, upon satisfaction by the Company of the conditions in Section 7.2 ----------- or the waiver of the conditions of Section 7.2 by the Agent ----------- as permitted therein, and to the extent that the Revolving Commitment is then available, fund the Reimbursement 65 74 Obligation therefor by making Revolving Loans as provided in Section 2.1.1 (without giving effect to such Reimbursement ------------- Obligation for purposes of determining the Revolving Commitment Availability). SECTION 5.6. Reimbursement. The Company's obligation (a ------------- "Reimbursement Obligation") under Section 5.5 to reimburse an ------------------------ ----------- Issuer Bank with respect to each Disbursement (including interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim, or defense to payment which the Company may have or have had against a beneficiary or transferee of any Letter of Credit (or any Person or Persons for whom any such transferee may be acting) or against the Agent or any Lender, including any defense based upon the failure of any Disbursement to conform to the terms of the applicable Letter of Credit (if, in the Issuer Bank's good faith opinion, such Disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of such Disbursement or the legality, validity, form, regularity, or enforceability of such Letter of Credit; provided, -------- however, that nothing herein shall adversely affect the right of - ------- the Company to commence any proceeding against an Issuer Bank for any wrongful Disbursement made by such Issuer Bank under a Letter of Credit as a result of acts or omissions constituting gross negligence or willful misconduct on the part of such Issuer Bank. SECTION 5.7. Mandatory Payment to Agent of Letter of Credit ---------------------------------------------- Outstandings. The Company agrees that, upon the occurrence of - ------------ any event described in Section 10.2 or any termination of the ------------ Commitments pursuant to Section 10.3, it will immediately, upon ------------ written notice from the Agent, acting at the direction of the Majority Lenders, pay to the Agent in Dollars and in immediately available funds an amount equal to the then aggregate Letter of Credit Outstandings. Any amounts so received by the Agent pursuant to the provisions of the foregoing sentence, after application against outstanding Reimbursement Obligations, shall be deposited by the Agent into the L/C Collateral Account pursuant to Section 5.8.1. ------------- SECTION 5.8. L/C Collateral Account. ---------------------- SECTION 5.8.1. Deposit. The Agent shall deposit all funds ------- paid by the Company to the Agent pursuant to Section 3.3.1 as ------------- cash collateral and Section 5.7 (to the extent required to be ----------- deposited in the L/C Collateral Account) to the credit of a deposit account owned by the Agent (the "L/C Collateral -------------- Account"). As security for the payment of all Obligations, the - ------- Company hereby grants, conveys, assigns, pledges, sets over, and transfers to the Agent, and creates in the Agent's favor a lien on and security interest in, all money, instruments, and securities at any time held in or acquired in connection with the L/C Collateral Account, together with all proceeds thereof, for the benefit of the Secured Lenders. The Company shall not have any right to withdraw or to cause the Agent to withdraw any funds 66 75 deposited in the L/C Collateral Account. At any time and from time to time, upon the Agent's request, the Company promptly shall execute and deliver any and all such further instruments and documents (including financing statements and bond powers executed in blank) as may be necessary, appropriate, or desirable in the Agent's judgment to obtain the full benefits (including perfection and priority) of the security interest created or intended to be created by this Section 5.8.1 and of the rights ------------- and powers herein granted. The Company shall not create or suffer to exist any Lien on any amounts or investments held in the L/C Collateral Account other than the Lien granted under this Section 5.8.1. - ------------- SECTION 5.8.2. Investment. The Company, no more than three ---------- times in any calendar month, may direct the Agent to invest the funds held in the L/C Collateral Account (so long as the aggregate amount of such funds exceeds any relevant minimum investment requirement) in one or more certificates of deposit issued by the Person which is then acting as Agent or by Bank of America, with such maturities as the Company may specify, pending application of such funds on account of Reimbursement Obligations or on account of other Obligations, as the case may be. In the absence of any such direction from the Company, the Agent shall invest the funds held in the L/C Collateral Account in one or more certificates of deposit issued by the Person which is then acting as Agent or by Bank of America with maturities not to exceed 30 days, unless the aggregate amount of such funds which are not then otherwise invested is less than the smallest certificate of deposit offered by such Person, in which case the Agent shall have no obligation to invest such funds. All such investments shall be made in the Agent's name. The Company recognizes that any losses or taxes with respect to such investments shall be borne solely by the Company, and the Company agrees to hold the Agent and the Lenders harmless from any such losses or taxes. Unless the Company otherwise makes direct payment, the Agent shall liquidate any investment held in the L/C Collateral Account in order to apply the proceeds of such investment on account of Reimbursement Obligations (or on account of other Obligations, as the case may be) without regard to whether such investment has matured and without liability for any penalties or other fees incurred (with respect to which the Company hereby fully indemnifies the Agent) as a result of such application. SECTION 5.8.3. Application of Funds. The Agent shall apply -------------------- funds in the L/C Collateral Account (a) on account of Reimbursement Obligations when the same become due and payable if and to the extent that the Company fails directly to pay such Reimbursement Obligations, (b) if there are Letter of Credit Outstandings, and the balance of the L/C Collateral Account exceeds the aggregate Letter of Credit Outstandings for five consecutive Business Days, on account of the Obligations (other than Reimbursement Obligations) in such order as the Agent may elect to the extent of such excess on the day of application, and 67 76 (c) after the date on which all Letters of Credit shall have expired and the Company finally shall have paid in full all outstanding Reimbursement Obligations, on account of the other Obligations in such order as the Agent may elect if the Agent shall have received actual notice of the occurrence of an Event of Default on or before such date which is continuing on such date. Except in the case described in clause (c) above, the ---------- Agent shall release all funds and transfer all investments remaining in the L/C Collateral Account to the Company within five Business Days after the date on which all Letters of Credit shall have expired and the Company finally shall have paid in full all outstanding Reimbursement Obligations. If the Agent resigns, the outgoing Agent and the new Agent shall effect a transfer to the new Agent of all of the outgoing Agent's right, title, and interest in and to the L/C Collateral Account concurrently with the effectiveness of such resignation. SECTION 5.8.4. Fees. The Company shall pay to the Agent ---- fees customarily charged by the Agent with respect to the maintenance of accounts similar to the L/C Collateral Account. SECTION 5.9. Nature of Reimbursement Obligations. The ----------------------------------- Company shall assume all risks of the acts, omissions, or misuse of any Letter of Credit by the beneficiary thereof. Neither any Issuer Bank nor the Agent or any Lender (except to the extent of its own gross negligence or willful misconduct) shall be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged; (b) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any Instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; (d) errors, omissions, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; or (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under a Letter of Credit or of the proceeds thereof. 68 77 None of the foregoing shall affect, impair, or prevent the vesting of any of the rights or powers granted any Issuer Bank, the Agent, or any Lender hereunder. In furtherance and extension and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by such Issuer Bank in good faith shall be binding upon the Company and each Lender and shall not put such Issuer Bank under any resulting liability to the Company or any Lender, except to the extent incurred by such Issuer Bank's gross negligence or willful misconduct. SECTION 5.10. Indemnification by Lenders. The Lenders -------------------------- severally agree to indemnify each Issuer Bank (acting in its capacity as such) and each officer, director, employee, agent, and Affiliate of each Issuer Bank (collectively, the "Issuer ------ Parties" and individually, an "Issuer Party"), ratably according - ------- ------------ to their respective Percentages, to the extent not reimbursed by the Company, from and against any and all actions, causes of action, suits, losses, liabilities, damages, and expenses which may at any time (including at any time following the payment of any of the Reimbursement Obligations) be imposed on, incurred by, or asserted against such Issuer Party in any way relating to or arising out of the issuance of, transfer of, or payment or failure to pay under any Letter of Credit issued in accordance with the terms of this Agreement or the use of proceeds of any payment made under any Letter of Credit issued in accordance with the terms of this Agreement; provided, that no Lender shall be -------- liable for the payment to such Issuer Party of any portion of such actions, causes of action, suits, losses, liabilities, damages, and expenses which have arisen by reason of such Issuer Party's gross negligence or willful misconduct. ARTICLE VI PARENT GUARANTOR SECTION 6.1. Parent Guaranty. In consideration for the --------------- Lenders extending the Commitments, the Parent Guarantor hereby unconditionally guarantees, as primary obligor and not merely as surety, the due and punctual payment and performance of all Obligations of the Company when due according to their terms (whether by required prepayment, declaration, demand, or otherwise). The foregoing guaranty is herein referred to as the "Parent Guaranty". --------------- SECTION 6.2. Renewal, etc. of Obligations; Waiver. The ------------------------------------ Parent Guarantor agrees that the Obligations of the Company may be extended or renewed, in whole or in part, without notice to or further assent from the Parent Guarantor and that it will remain bound upon the Parent Guaranty notwithstanding any extension, renewal, or other alteration of any Obligation. The Parent Guarantor waives presentation to, demand of, payment from, and protest of any Obligation to the Company and also waives notice of protest for nonpayment. The obligations of the Parent 69 78 Guarantor under the Parent Guaranty shall not be affected by (a) the failure of the Agent, any Lender, any Issuer Bank, or any other holder of any Obligation of the Company: (i) to assert any claim or demand, or to enforce any right or remedy against the Company under the provisions of this Agreement or any other Loan Document or otherwise; or (ii) to exercise any right or remedy against any other guarantor of any Obligations; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment, or modification of any of the terms or provisions of this Agreement or any other Transaction Document; or (d) the release of any of the security held by any Lender for any Obligations. The Parent Guarantor further agrees that the Parent Guaranty constitutes a guaranty of payment when due and not of collection and waives any right to require that any resort be had by the Agent, any Lender, any Issuer Bank, or any other holder of any Obligation of the Company to any of the security held for payment of any Obligation or to any balance of any deposit account or credit on its books in favor of the Company or any other Person. SECTION 6.3. No Impairment, etc. The obligations of the ------------------ Parent Guarantor under the Parent Guaranty shall not be subject to any reduction, limitation, impairment, or termination for any reason, including any claim of waiver, release, surrender, alteration, or compromise, and shall not be subject to any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality, or unenforceability of the Obligations of the Company or otherwise. Without limiting the generality of the foregoing, the obligations of the Parent Guarantor under the Parent Guaranty shall not be discharged or impaired or otherwise affected by the failure of the Agent, any Lender, or any other holder of any Obligation of the Company to assert any claim or demand or to enforce any remedy under this Agreement or any other Transaction Document, by any waiver or modification of any thereof, by any default, failure, or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Parent Guarantor, or would otherwise operate as a discharge of the Parent Guarantor as a matter of law or equity. SECTION 6.4. Reinstatement; Subrogation. The Parent -------------------------- Guarantor agrees that the Parent Guaranty shall continue to be 70 79 effective or be reinstated, as the case may be, if, at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by the Agent, any Lender, or any other holder of any Obligation of the Company upon the bankruptcy or reorganization of any Obligor or otherwise. The Parent Guarantor hereby expressly waives, to the fullest extent permitted by law, all rights of the Parent Guarantor against the Company, arising out of any payment by the Parent Guarantor under the Parent Guaranty, or any exercise of remedies under the Parent Pledge Agreement or the Parent Security Agreement, whether arising by way of any right of subrogation, contribution, reimbursement, indemnity, or otherwise and agrees that, if, and to the extent that, any such rights may not be waived under applicable law, it will contribute such rights to the Company as a capital contribution concurrently with the arising of such rights. ARTICLE VII CONDITIONS TO EXTENSIONS OF CREDIT SECTION 7.1. Initial Credit Extension. The obligations of ------------------------ the Lenders and the Issuer Bank to make Credit Extensions on the Initial Borrowing Date shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 7.1. ----------- SECTION 7.1.1. Resolutions, etc. The Agent shall have ---------------- received from each Obligor: (a) a certificate, in form and substance satisfactory to the Agent and the Lenders, dated the Initial Borrowing Date, of its Secretary or Assistant Secretary as to (i) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Agreement and each other Loan Document to be executed by it; (ii) the incumbency and signatures of those of its officers authorized to act with respect to this Agreement, and each other Loan Document to be executed by it; and (iii) each of its Organic Documents, certified in a manner satisfactory to the Agent, upon which certificate the Agent and each Lender may conclusively rely until it shall have received a further certificate of the Secretary or Assistant Secretary of such Obligor canceling or amending such prior certificate; (b) a good standing certificate (or other equivalent 71 80 document or certificate satisfactory to the Agent and the Lenders) certified by the secretary of state (or other appropriate government official) in the jurisdiction of such Obligor's incorporation; and (c) such other documents (certified, if requested) as the Agent or any Lender (acting through the Agent) may reasonably request with respect to any Organic Document. SECTION 7.1.2. Insurance. The Agent shall have received a --------- letter dated as of a recent date from Alexander & Alexander comparing the insurance coverage currently maintained by the Parent Guarantor, the Company and its Subsidiaries to the insurance coverage described in the "Insurance Program Review" dated October 1989, prepared by Tillinghast, a copy of which has been delivered to the Agent and each Lender prior to the date hereof. The Agent shall have received evidence in the form of a certificate of the Company, executed by an Authorized Officer, that all insurance policies and coverages required pursuant to Section 9.1.4, Section 7(j) of each Security Agreement and - ------------- ------------ Section 1.7 of each Company Mortgage and Company Deed of Trust - ----------- are in effect, together with certificates of insurance in form and substance satisfactory to the Agent, including evidence satisfactory to the Agent that the Agent has been named as loss payee under such policies as and to the extent required by each Security Agreement and each Company Mortgage and Company Deed of Trust and the insurance coverage described in such certificates shall be satisfactory to the Agent. SECTION 7.1.3. Payment of Outstanding Indebtedness; ------------------------------------ Existing Letters of Credit. Each item of Indebtedness of the - -------------------------- Company identified in Item 1 ("Indebtedness to be Paid") of the ------ ----------------------- Disclosure Schedule, together with all interest accrued thereon and all prepayment premiums and other amounts payable in connection therewith, shall have been paid in full or fully defeased. Each other item of Indebtedness of the Company or of the Parent Guarantor shall have been disclosed in Item 4 ------ ("Ongoing Indebtedness") of the Disclosure Schedule or shall -------------------- otherwise be permitted by Section 9.2.2, and each holder whose ------------- Indebtedness is secured shall be designated in such Item 4 with ------ an asterisk. In addition, the Agent shall have received evidence, satisfactory to the Agent, that each issuer of the Existing Letters of Credit shall have consented to the termination of the Company's reimbursement obligations in respect of the Existing Letters of Credit. SECTION 7.1.4. Parent Pledge Agreement. The Agent shall ----------------------- have received the Parent Pledge Agreement, dated the Initial Borrowing Date, duly executed by the Parent Guarantor and the Agent, and the Agent shall have received (a) the certificates evidencing all of the issued and 72 81 outstanding shares of capital stock of the Company owned by the Parent Guarantor (accompanied by undated stock powers duly executed in blank) and (b) any promissory notes or other debt instruments required to be delivered pursuant to the Parent Guarantor Pledge Agreement, endorsed (which endorsement may be on an allonge) to the order of the Agent. ------- SECTION 7.1.5. Company Pledge Agreement. The Agent shall ------------------------ have received the Company Pledge Agreement, dated the Initial Borrowing Date, duly executed by the Company and the Agent, and the Agent shall have received (a) the certificates evidencing (i) all of the issued and outstanding shares of capital stock of each Domestic Subsidiary of the Company which is listed on Schedule I ---------- attached hereto, and (ii) the percentage of the issued and outstanding shares of capital stock of each corporation listed on such Schedule I which is not a Domestic Subsidiary ---------- set forth opposite the name of such corporation, which certificates shall in each case be accompanied by undated stock powers duly executed in blank; (b) the KT Note, duly executed by the Parent Guarantor and endorsed to the order of the Agent; and (c) all promissory notes or other debt instruments held by the Company which have a face amount in excess of $100,000, in each case endorsed (which endorsement may be on an allonge) to the order of the Agent. ------- SECTION 7.1.6. Security Agreements. The Agent shall have ------------------- received the Parent Security Agreement, duly executed by the Parent Guarantor and the Agent, the Company Security Agreement, duly executed by the Company and the Agent, and the Subsidiary Security Agreement, duly executed by each Subsidiary of the Company which is listed on Schedule IV hereto and the Agent, in ----------- each case dated the Initial Borrowing Date, and the Agent shall have received (a) duly executed financing statements (Form UCC-1), naming the Parent Guarantor, the Company, or such Subsidiary, as the case may be, as the debtor and the Agent as the secured party, or other similar instruments or documents, suitable for filing under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the reasonable opinion of the Agent, desirable to perfect the security interests of the Agent in the Collateral granted pursuant to the Security Agreements (other than fixtures which are not attached to the real property covered by a Company Mortgage or Company Deed of Trust) to the extent that perfection may be accomplished by filing under the Uniform Commercial Code in any state in the United States or 73 82 the District of Columbia; and (b) with such exceptions as may have been approved by the Agent, certified copies of Requests for Information or Copies (Form UCC-11) (or similar search reports certified by a party reasonably acceptable to the Agent), dated a date reasonably near the Initial Borrowing Date, listing all effective financing statements which name the Parent Guarantor, the Company, or any such Subsidiary (under any present name and any previous names) as debtor and which are filed in the jurisdictions in which filings were or are to be made pursuant to clause (a), together with copies of such ---------- financing statements. SECTION 7.1.7. Company Trademark Security Agreement; ------------------------------------- Company Patent Security Agreement. The Agent shall have received - --------------------------------- the Company Trademark Security Agreement and the Company Patent Security Agreement, in each case duly executed by the Company and the Agent and dated the Initial Borrowing Date. SECTION 7.1.8. Company Mortgages; Company Deeds of Trust. ----------------------------------------- The Agent shall have received Company Mortgages or Company Deeds of Trust, as required by the Agent, duly executed by the Company, with respect to the real property listed on Schedule II hereto, ----------- together with (a) evidence of the completion of all recordings and filings of the Company Mortgages and the Company Deeds of Trust as may be necessary or, in the reasonable opinion of the Agent, desirable to effectively create a valid, perfected, first-priority mortgage or deed of trust Lien on, and security interest in, the properties purported to be covered thereby (or evidence that provision entirely satisfactory to the Agent and its counsel for the recording and filing thereof and for the payment of all fees, taxes, and other expenses in connection therewith has been made); (b) with respect to each piece of real property covered by a Company Mortgage or a Company Deed of Trust, one ALTA (except with respect to real property in Texas which shall be governed by a TLTA policy) lender's form title insurance policy in form reasonably satisfactory to the Agent, insuring that on the Effective Date, the Company owns a fee interest in the real property and that the Company Mortgage or Company Deed of Trust, as the case may be, is a valid, perfected, first-priority Lien on the real property, which policies shall be issued to the Agent in amounts reasonably satisfactory to the Agent by a title insurance company reasonably satisfactory to the Agent in an aggregate amount of $125,000,000 for all such policies covering all such properties, which amount shall be allocated to such properties as set forth on Schedule II ----------- hereto, and each reinsured in amounts and with insurance companies as reasonably required by the Agent, subject to no 74 83 exceptions other than such exceptions as are acceptable to the Agent, and containing endorsements in form and substance satisfactory to the Agent; provided, however, during the -------- ------- term of the Loan, the Agent and the Required Lenders may require other endorsements to the title insurance policies as may reasonably be required by any amendments to this Agreement, in connection with any release of any real property from the Lien of any Company Mortgage or Company Deed of Trust or any surrender of any Company Mortgage or Company Deed of Trust; (c) legible copies of all recorded documents noted as exceptions in such title insurance policies; (d) certified copies of all leases (including ground leases) and, as to certain properties identified by the Agent, other contracts materially affecting such real property, as requested by the Agent; (e) certified rent rolls as to each property in a form and scope satisfactory to the Agent; (f) certified copies of all licenses, approvals, and permits (including certificates indicating that certificates of occupancy were issued) from federal, state, local, and other governmental authorities materially affecting such real property that are reasonably requested by the Agent or any Lender (acting through the Agent); (g) affidavits from the Company satisfactory to title insurers; and (h) such other approvals, consents, waivers, opinions (including opinions of local counsel to the Company as to the compliance of the mortgaged properties with zoning restrictions or documents as the Agent or any Lender (acting through the Agent) may reasonably request. SECTION 7.1.9. Subsidiary Guaranty. The Agent shall have ------------------- received the Subsidiary Guaranty, dated the Initial Borrowing Date, duly executed by each Subsidiary of the Company which is listed on Schedule III hereto. ------------ SECTION 7.1.10. Subsidiary Pledge Agreement. The Agent --------------------------- shall have received the Subsidiary Pledge Agreement, dated the Initial Borrowing Date, duly executed by each Subsidiary of the Company listed on Schedule IV hereto and by the Agent, and the ----------- Agent shall have received (a) the certificates evidencing all of the shares of capital stock required to be pledged pursuant to the Subsidiary Pledge Agreement, which certificates shall in each case be accompanied by undated stock powers duly executed in blank; 75 84 (b) each Intercompany Demand Note held by each such Subsidiary, endorsed to the order of the Agent by such Subsidiary; and (c) all promissory notes or other debt instruments held by each such Subsidiary which have a face amount in excess of $100,000, in each case endorsed (which endorsement may be on an allonge) to the order of the Agent. ------- SECTION 7.1.11. Intercompany Note Pledge Agreement. The ---------------------------------- Agent shall have received the Intercompany Note Pledge Agreement, dated the Initial Borrowing Date, duly executed by each Subsidiary of the Company listed on Schedule VII hereto which is ------------ not otherwise a party to the Subsidiary Pledge Agreement and by the Agent, and the Agent shall have received each Intercompany Demand Note held by each such Subsidiary, endorsed to the order of the Agent. SECTION 7.1.12. Opinions of Counsel. The Agent shall have ------------------- received opinions, dated the Initial Borrowing Date and addressed to the Agent and all Lenders, from (a) Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, special outside counsel to the Obligors, in substantially the form of Exhibit L-1 attached hereto; ----------- (b) Anthony R. Pierno Esq., general counsel of the Company, in substantially the form of Exhibit L-2 attached ----------- hereto; (c) Andrew Barlay, Esq., special patent and trademark counsel to the Obligors, in substantially the form of Exhibit L-3 attached hereto; ----------- (d) the local counsel listed in Schedule X hereto, in ---------- substantially the forms set forth in Exhibit L-4 attached ----------- hereto; and (e) O'Melveny & Myers, counsel to the Agent, in substantially the form of Exhibit L-5 attached hereto. ----------- SECTION 7.1.13. Closing Fees, Expenses, etc. The Agent --------------------------- shall have received for its own account all fees, costs, and expenses due and payable pursuant to Sections 3.5.3 and 12.3, if -------------- ---- then invoiced. SECTION 7.1.14. Environmental Reports. The Agent shall --------------------- have received the Environmental Reports, in form, scope and substance satisfactory to all Lenders, with respect to substantially all of the domestic real property owned by the Company or any of its Subsidiaries. SECTION 7.1.15. Investment Account Letter. The Agent shall ------------------------- have received a letter, in substantially the form of Exhibit N --------- 76 85 attached hereto, with such changes as may be approved by the Agent, duly executed by each Person with which the Company or the Parent Guarantor maintains any account for investment in Cash Equivalent Investments permitted hereunder. SECTION 7.1.16. Sufficient Quantities, etc. The Agent shall -------------------------- have received duly executed multiple original counterparts of each Loan Document required to be executed and delivered pursuant to this Section 7.1 (other than financing or termination ----------- statements, stock certificates or stock powers, and such other documents where the Agent has not required delivery of counterparts) for the Agent and each Lender together with such additional executed counterparts as the Agent may reasonably request for filing or recordation purposes. SECTION 7.1.17. Availability. Following the making of the ------------ initial Loans on the Initial Borrowing Date, the Revolving Commitment Availability (calculated as though the Existing Letters of Credit were issued on the Initial Borrowing Date) shall be at least $180,000,000. SECTION 7.1.18. Issuance of Senior Debt and Equity. The ---------------------------------- Company shall have issued the Senior Debt and the Parent Guarantor shall have issued Parent Guarantor Preferred Stock, the aggregate gross proceeds of which shall be at least $250,000,000. In addition, the Parent Guarantor shall have made a capital contribution to the Company, purchased shares of capital stock of the Company or made an intercompany loan to the Company, or any combination thereof, in an aggregate amount equal to the cash proceeds received by the Parent Guarantor from the issuance of such Parent Guarantor Preferred Stock, net of all underwriting discounts and commissions and all legal, accounting and other fees and expenses incurred in connection with the public offering of such Parent Guarantor Preferred Stock. The Agent shall have received certificates in substantially the form of Exhibit C-1 ----------- and C-2 attached hereto, dated the Initial Borrowing Date, of an --- Authorized Officer of the Company as to the satisfaction of the conditions set forth in this Section 7.1.18. -------------- SECTION 7.1.19. Cash Management Arrangements. The Agent ---------------------------- shall have received each Collection Bank Agreement and the Concentration Bank Agreement, duly executed by the Company, and, respectively, each Collection Bank, and Bank of America, as concentration bank, together with such other documents, releases, and agreements as reasonably required by the Agent or any Lender (acting through the Agent) in connection with perfecting its Lien in the accounts established thereby. SECTION 7.2. All Credit Extensions. The obligation of each --------------------- Lender to fund any Loan on the occasion of any Borrowing (including the initial Borrowing), the obligation of Business Credit to fund any Swingline Loan, and the obligation of any Issuer Bank to issue any Letter of Credit, as the case may be, shall, except as provided in Section 2.1.3(b), be subject to the ---------------- 77 86 prior or concurrent satisfaction (or waiver) of each of the conditions precedent set forth in this Section 7.2. ----------- Notwithstanding the foregoing, the Lenders acknowledge and agree that during the continuance of an Event of Cash Dominion, unless and until the Agent receives written instructions from the Majority Lenders during the continuance of an Event of Cash Dominion to cease making Swingline Loans and Revolving Loans and instructing Issuer Banks to issue Letters of Credit (a) the Agent, acting in its sole and absolute discretion, pursuant to Section 12.1(b), may waive the conditions of this Section 7.2 and - --------------- ----------- continue to make Revolving Loans and Swingline Loans, provided that the Revolving Credit Outstandings after giving effect to such Loans do not exceed the Borrowing Base, and instruct the applicable Issuer Bank to issue Letters of Credit notwithstanding the existence of a Default and (b) if the Agent, acting in its sole and absolute discretion, has determined that it is in the best interests of the Lenders to continue to fund, the Lenders shall be obligated to continue to make Revolving Loans and to reimburse the Agent for Swingline Loans and shall be deemed to have purchased and received an undivided interest in Letters of Credit made or issued. SECTION 7.2.1. Compliance with Warranties, No Default, etc. ------------------------------------------- Both immediately before and immediately after giving effect to any Credit Extension (but, if any default of the nature referred to in Section 10.1.5 shall have occurred with respect to any -------------- other Indebtedness, without giving effect to the application, directly or indirectly, of the proceeds of such Credit Extension) the following statements shall be true and correct: (a) the representations and warranties set forth in Article VIII (excluding, however, in the case of Borrowings ------------ other than the Borrowing made on the Initial Borrowing Date, those contained in Sections 8.8 and 8.13 and the last ------------ ---- sentence of Section 8.12) and in each of the other Loan ------------ Documents shall be true and correct in all material respects with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date), except that after the Initial Borrowing Date, for purposes of this clause (a), the words "has a reasonable possibility of ---------- having a Materially Adverse Effect" which appear in Sections 8.7 and 8.10 shall be deemed to read "could ------------ ---- reasonably be expected to have a Materially Adverse Effect" and the words "has no reasonable possibility of having a Materially Adverse Effect" which appear in Section 8.1 shall ----------- be deemed to read "could not reasonably be expected to have a Materially Adverse Effect"; (b) except as disclosed by the Company to the Agent and the Lenders in Item 3 ("Litigation") or Item 8 ------ ---------- ------ ("Environmental Matters") of the Disclosure Schedule or in --------------------- the Environmental Reports 78 87 (i) no labor controversy, litigation, arbitration, or governmental proceeding, or governmental investigation known to the Company's Executive Officers (including any litigation or governmental proceeding or such governmental investigation with respect to any environmental matter) shall be pending or, to the knowledge of the Company's Executive Officers, after due inquiry, threatened against the Parent Guarantor, the Company, or any of their Subsidiaries which has a reasonable possibility of having a Materially Adverse Effect or which purports to affect the legality, validity, or enforceability of this Agreement, or any other Transaction Document; and (ii) no development shall have occurred in any labor controversy, litigation, arbitration, or governmental proceeding, or governmental investigation known to the Company's Executive Officers (including any litigation or governmental proceeding or such governmental investigation with respect to any environmental matter) disclosed in Item 3 ------ ("Litigation") or Item 8 ("Environmental Matters") of ---------- ------ --------------------- the Disclosure Schedule or in the Environmental Reports which has a reasonable possibility of having a Materially Adverse Effect; provided, however, that after the Initial Borrowing Date, -------- ------- the words "has a reasonable possibility of having a Materially Adverse Effect" which appear in clauses (i) and ----------- (ii) of this clause (b) shall be deemed to read "could --- ---------- reasonably be expected to have a Materially Adverse Effect"; and (c) no Default shall have then occurred and be continuing; and neither the Parent Guarantor, the Company, any of their Subsidiaries, nor any other Obligor shall be in violation of any law, governmental regulation, or court order or decree where such violation has a reasonable possibility of having a Materially Adverse Effect; provided, -------- however, that after the Initial Borrowing Date, the words ------- "has a reasonable possibility of having a Materially Adverse Effect" which appear in this clause (c) shall be deemed to ---------- read "could reasonably be expected to have a Materially Adverse Effect". SECTION 7.2.2. Credit Request; Borrowing Base Certificate. ------------------------------------------ The Agent shall have received a Credit Request, and, in connection with any request for any Revolving Loan or the issuance of any Letter of Credit other than during the continuance of an Event of Cash Dominion, a Borrowing Base Certificate delivered pursuant to Section 2.4.1 for such Credit ------------- Extension. The delivery of a Credit Request and the acceptance by the Company of the proceeds of such Credit Extension shall constitute a representation and warranty by the Company that, on 79 88 the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof), except as contemplated by the last sentence of Section 7.2, the statements made in Section 7.2.1 are ----------- ------------- true and correct. SECTION 7.2.3. Satisfactory Legal Form. All documents ----------------------- executed or submitted pursuant hereto by or on behalf of the Parent Guarantor, the Company, any of the Company's Subsidiaries, or any other Obligor shall be reasonably satisfactory in form and substance to the Agent and its counsel and the Agent and its counsel shall have received all information, approvals, opinions, documents, or instruments as the Agent or its counsel may reasonably request. SECTION 7.3. Conditions Subsequent. Within 60 days of the --------------------- Initial Borrowing Date, the Collection Bank Agreements and the Concentration Bank Agreement shall be amended to provide for such procedures and protections as the Agent reasonably requests related to the occurrence of an Event of Cash Dominion and the Company, each Collection Bank and Bank of America shall have executed such other documents, releases, and agreements as reasonably required by the Agent. ARTICLE VIII REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Agent to enter into this Agreement, and to induce the Lenders to extend their Commitments and to make Credit Extensions hereunder, the Parent Guarantor represents and warrants (and the Company, to the extent that any such representation and warranty shall be applicable to the Company, its Subsidiaries, or any of its or their Properties, also represents and warrants) unto the Agent and each Lender as set forth in this Article VIII. ------------ SECTION 8.1. Organization, etc. Each of the Obligors, the ----------------- Canadian Subsidiaries, VALCO, QAL, Anglesey, ALPART, KJBC, and each other Significant Subsidiary of the Company is a corpora- tion, partnership, or other entity validly organized and existing and (in the case of non-Domestic Subsidiaries and Joint Venture Affiliates, to the extent that "good standing" is recognized under applicable law) in good standing under the laws of the jurisdiction of its incorporation or organization, as the case may be; is duly qualified to do business and (in the case of non- Domestic Subsidiaries and Joint Venture Affiliates, to the extent that "good standing" is recognized under applicable law) in good standing as a foreign corporation, partnership, or other entity in each jurisdiction where the nature of its business or activities requires such qualification; and has full corporate, partnership, or other organizational power and authority and holds all requisite governmental licenses, permits, and other 80 89 approvals to own, lease, and operate its Properties and to conduct its business substantially as now being operated and conducted, except where the failure to be so qualified and in good standing or to have such power, authority, licenses, permits, and other approvals has no reasonable possibility of having a Materially Adverse Effect. The Parent Guarantor, the Company, each Subsidiary of the Company, and each Obligor (a) has full corporate power and authority to enter into and perform its respective obligations under this Agreement, and the other Loan Documents and (b) holds all requisite governmental licenses, permits, and other approvals to enter into and perform its respective obligations under this Agreement, and the other Loan Documents. SECTION 8.2. Due Authorization, Non-Contravention, etc. ----------------------------------------- The execution, delivery, and performance by each Obligor of the Loan Documents to which such Obligor is a party are within such Obligor's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene such Obligor's Organic Documents; (b) contravene any contractual restriction where such a contravention has a reasonable possibility of having a Materially Adverse Effect, or contravene any law or governmental regulation or court decree or order binding on or affecting such Obligor; or (c) result in, or require the creation or imposition of, any Lien on any of such Obligor's properties, other than pursuant to the Loan Documents. SECTION 8.3. Government Approval, Regulation, etc. No ------------------------------------ authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery, or performance by any Obligor of any Loan Document to which it is a party, except for the filing or recording of financing statements, the Company Mortgages, Company Deeds of Trust, Company Patent Security Agreement, Company Trademark Security Agreement, any actions required outside of the United States (with respect to Collateral located outside of the United States or Collateral consisting of stock of foreign issuers), notations on documents of title, and actions required under the Federal Assignment of Claims Act of 1940 in order to perfect the security interests of the Agent in the Collateral. None of the Parent Guarantor, the Company, or any of their Subsidiaries is subject to regulation as an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 81 90 SECTION 8.4. Validity, etc. This Agreement, and all other ------------- Loan Documents executed by the Company will, on the due execution and delivery hereof and thereof by all parties hereto and thereto, constitute the legal, valid, and binding obligations of the Company enforceable against the Company in accordance with their respective terms; this Agreement and each other Loan Document executed by the Parent Guarantor will, on the due execution hereof and thereof by all parties hereto and thereto, constitute the legal, valid, and binding obligations of the Parent Guarantor enforceable against the Parent Guarantor in accordance with their respective terms; and each Loan Document executed pursuant hereto by each other Obligor will, on the due execution and delivery thereof by such Obligor and by all other parties thereto, constitute the legal, valid, and binding obligation of such Obligor enforceable against such Obligor in accordance with its terms; in each case, however, except as enforceability may be limited by bankruptcy, insolvency, or other similar laws of general application relating to or affecting the enforcement of creditors' rights generally, and by general principles of equity. SECTION 8.5. Financial Information. --------------------- (a) The consolidated balance sheet of the Company and its Subsidiaries as of December 31, 1992 and the related statements of consolidated income and consolidated cash flows for the year then ended present fairly the financial position of the Company and its Subsidiaries at December 31, 1992 and the results of their operations and their cash flows for the year then ended in conformity with GAAP. The consolidated balance sheet of the Company and its Subsidiaries as of September 30, 1993 and the related statements of consolidated income and consolidated statement of cash flows for the nine months then ended present fairly (subject to normal year-end adjustments) the financial position of the Company and its Subsidiaries at September 30, 1993 and the results of their operations and their cash flows for the nine months then ended in conformity with GAAP for interim financial information. (b) The consolidated balance sheet of the Parent Guarantor and its Subsidiaries as of December 31, 1992 and the related statements of consolidated income and consolidated cash flows for the year then ended present fairly the financial position of the Parent Guarantor and its Subsidiaries at December 31, 1992 and the results of their operations and their cash flows for the year then ended in conformity with GAAP. The consolidated balance sheet of the Parent Guarantor and its Subsidiaries as of September 30, 1993 and the related statements of consolidated income and consolidated statement of cash flows for the nine months then ended present fairly (subject to normal year-end adjustments) the financial position of the Parent Guarantor and its Subsidiaries at September 30, 1993 82 91 and the results of their operations and their cash flows for the nine months then ended in conformity with GAAP for interim financial information. (c) The financial statements and projections of the Company dated December 28, 1993 and January 26, 1994 were prepared on the basis of the estimates and assumptions stated therein and represented, at each such date, the Company's good faith forecasts and projections of its future financial performance prepared after duly diligent investigations; such estimates, assumptions, projections, and forecasts were fair and reasonable, and reflected the Company's estimates of the most likely future financial results and condition of the Company, in the light of business conditions existing at the date thereof; and any such estimates, assumptions, projections, and forecasts, if prepared as of the date of this Agreement, would contain estimates of the future financial performance of the Company which would not materially and adversely differ from the respective estimates contained in the financial projections and forecasts. As of the date hereof and, in connection with the initial Credit Extension, as of the Initial Borrowing Date, no material developments have occurred since January 26, 1994 which would lead the Company to believe that such projections and forecasts, taken as a whole, are not reasonably attainable, subject to the uncertainties and approximations inherent in any projections. It is understood by the Agent and the Lenders that all of the estimates and assumptions on which such projections and forecasts are based may not prove to be correct, that actual future financial performance may vary from that projected, and that nothing contained in this clause (c) shall be ---------- construed as a warranty, or guarantee, of future financial performance. SECTION 8.6. No Material Adverse Effect. -------------------------- (a) For purposes of Credit Extensions to be made on the Initial Borrowing Date, no event or events have occurred since September 30, 1993 which, individually or in the aggregate, have had or have a reasonable possibility of having a Materially Adverse Effect. (b) For purposes of Credit Extensions requested to be made after the Initial Borrowing Date, no event or events have occurred since the Initial Borrowing Date which, individually or in the aggregate, have had or could reasonably be expected to have a Materially Adverse Effect. SECTION 8.7. Absence of Default or Violation of Law. No -------------------------------------- Obligor nor any Subsidiary thereof is (a) in default in the payment of (or in the performance of any material obligation applicable to) any Indebtedness outstanding in a principal amount exceeding $10,000,000 or (b) in violation of any law, 83 92 governmental regulation, or court decree or order where such violation has a reasonable possibility of having a Materially Adverse Effect. SECTION 8.8. Litigation, etc. There is no pending or, to --------------- the knowledge, after due inquiry, of the Executive Officers of the Parent Guarantor or the Company, threatened labor controversy, litigation, action, or proceeding affecting the Parent Guarantor, the Company, or any of their Subsidiaries or Joint Venture Affiliates, or any of their respective Properties, or revenues, which has a reasonable possibility of having a Materially Adverse Effect or which purports to affect the legality, validity, or enforceability of this Agreement, or any other Loan Document, except as disclosed in Item 3 ("Litigation") ------ ---------- or Item 8 ("Environmental Matters") of the Disclosure Schedule or ------ --------------------- in the Environmental Reports. SECTION 8.9. Subsidiaries. ------------ (a) The Parent Guarantor has no Subsidiaries except the Company and its Subsidiaries. The Company has no Subsidiaries, except those Subsidiaries (i) which are identified in Item 2 ("Existing ------ -------- Subsidiaries") of the Disclosure Schedule; or ------------ (ii) which have been formed or acquired in accordance with Section 9.2.5 or 9.2.10. ------------- ------ (b) Other than as set forth in Schedule XI hereto, as ----------- of the Initial Borrowing Date neither the Parent Guarantor nor the Company has any Subsidiaries having total assets greater than $1,000,000 (exclusive of assets eliminated in consolidation) other than those Subsidiaries set forth in Schedules III, IV and VII hereto. ------------- -- --- SECTION 8.10. Ownership of Properties. ----------------------- (a) The Parent Guarantor, the Company, and each of their Subsidiaries owns good title to all of its Properties, of any nature whatsoever, which are material to the Parent Guarantor, the Company, and their Subsidiaries as a whole or which, in the case of Properties owned by the Company or any of its Significant Subsidiaries, are material to the Company or such Significant Subsidiary, in each case free and clear of all Liens or material claims except for "Permitted Exceptions" (as defined in the Company Mortgages and Company Deeds of Trust) or as permitted pursuant to Section 9.2.3. ------------- (b) The Parent Guarantor, the Company, and each of their Subsidiaries owns (or is licensed to use) and possesses all such patents, trademarks, trade names, service marks, and copyrights as the Parent Guarantor and the 84 93 Company consider necessary for the conduct of its business and the business of its Subsidiaries as now conducted without, individually or in the aggregate, any infringement or alleged infringement upon rights of other Persons which has a reasonable possibility of having a Materially Adverse Effect. SECTION 8.11. Taxes. The Parent Guarantor, the Company, and ----- each of their Domestic Subsidiaries and their other Significant Subsidiaries have filed all federal, state, and all other material tax returns and reports required by law to have been filed by it and have paid or caused to be paid all material taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books. SECTION 8.12. Pension and Welfare Plans. During the twelve- ------------------------- consecutive-month period prior to the date of the execution and delivery of this Agreement and prior to the date of each Credit Extension hereunder, no actions have been taken by the Parent Guarantor, the Company, any member of their Controlled Groups, or any other Person (with the requisite authority to act) to terminate any Pension Plan that has insufficient assets to satisfy all benefit liabilities thereunder (within the meaning of Section 4001(a)(16) of ERISA), and no contribution failure has - ------------------- occurred with respect to any Pension Plan sponsored or maintained by any Controlled Group member sufficient to give rise to a Lien on assets of any Controlled Group member under section 302(f) of ERISA, which failure has not been cured within 30 days of the applicable due date. With respect to any Pension Plan, neither the Parent Guarantor, the Company, nor any of their Subsidiaries has failed in any material respect to comply with applicable provisions of ERISA and the Code and any regulations, rulings, or notices issued thereunder. Item 7 ("Employee Benefit Plans") of ------ ---------------------- the Disclosure Schedule lists all Welfare Plans of the Parent Guarantor, the Company, or any of their Domestic Subsidiaries and sets forth the Company's estimate of the expected aggregate contributions of the Parent Guarantor, the Company, and their Domestic Subsidiaries to Pension Plans for the 1992 and 1993 Fiscal Years and the aggregate expected costs of the Parent Guarantor, the Company and their Domestic Subsidiaries for medical benefits for the 1992 and 1993 Fiscal Years under Welfare Plans. SECTION 8.13. Environmental Warranties. Except as set forth ------------------------ in Item 8 ("Environmental Matters") of the Disclosure Schedule or ------ --------------------- in the Environmental Reports: (a) all facilities and Property (including underlying groundwater) owned, operated, or leased by the Parent Guarantor, the Company, or any of their Subsidiaries have been, and continue to be, owned, operated, or leased by the 85 94 Parent Guarantor, the Company, and their Subsidiaries in material compliance with all Environmental Laws; (b) there are no pending or, to the knowledge of the Parent Guarantor's or the Company's Executive Officers, after due inquiry, threatened (i) claims, complaints, notices, or requests for information received by the Parent Guarantor, the Company, or any of their Subsidiaries, from any federal, state, or local governmental agency or authority, or from any Person which has commenced a legal proceeding against the Parent Guarantor, the Company, or any of their respective Subsidiaries, with respect to any alleged violation of any Environmental Law, or (ii) complaints, notices, or inquiries to the Parent Guarantor, the Company, or any of their Subsidiaries, from any federal, state, or local governmental agency or authority, or from any Person which has commenced a legal proceeding against the Parent Guarantor, the Company, or any of their respective Subsidiaries, regarding potential liability under any Environmental Law; (c) there have been no Releases of Hazardous Materials at, on, into or under any Property now or previously owned, operated, or leased by the Parent Guarantor, the Company, or any of their Subsidiaries that, singly or in the aggregate, have a reasonable possibility of having a Materially Adverse Effect; (d) the Parent Guarantor, the Company, and their Subsidiaries have been issued and are in material compliance with all permits, certificates, approvals, licenses, and other authorizations relating to environmental matters and necessary for their businesses; (e) no Property now or previously owned, operated, or leased by the Parent Guarantor, the Company, or any of their Subsidiaries is listed or, to the knowledge of the Parent Guarantor's or the Company's Executive Officers, after due inquiry, proposed for listing (with respect to owned Property only) on the National Priorities List pursuant to CERCLA or on the CERCLIS or, to the best knowledge and belief of the Parent Guarantor's and the Company's Executive Officers, on any similar state list of sites requiring investigation or clean-up; (f) there are no underground storage tanks (as defined in 40 C.F.R. Section 280.1, as the same may be amended, modified, supplemented, or replaced from time to time), active or abandoned, including petroleum storage tanks, on or under 86 95 any Property now or previously owned or leased by the Parent Guarantor, the Company, or any of their Subsidiaries that, singly or in the aggregate, have a reasonable possibility of having a Materially Adverse Effect; (g) none of the Parent Guarantor, the Company, or any of their Subsidiaries has, to the best knowledge and belief of each Executive Officer of the Company, transported or arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state, or local enforcement actions or other investigations which has a reasonable possibility of leading to material claims against the Parent Guarantor, the Company or such Subsidiary thereof for any remedial work, damage to natural resources, or personal injury, including claims under CERCLA; and (h) there are no polychlorinated biphenyls or friable asbestos present at any real property now or previously owned or leased by the Parent Guarantor, the Company, or any of their Subsidiaries that, singly or in the aggregate, have a reasonable possibility of having a Materially Adverse Effect. SECTION 8.14. Regulations G, U, and X. No Obligor is ----------------------- engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Credit Extension will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation G, U, or X. Terms for which meanings are provided in F.R.S. Board Regulation G, U, or X or any regulations substituted therefor, as from time to time in effect, are used in this Section 8.14 with such ------------ meanings. SECTION 8.15. Solvency. On and as of the date of each -------- Credit Extension, both before and after giving effect to (a) all Indebtedness (including the Loans and the Letters of Credit) being incurred, assumed, or guaranteed, and (b) Liens created by the Company in connection therewith, but in no case regarding the KT Note as an asset of the Company, the Company and the Parent Guarantor will each be Solvent. SECTION 8.16. Senior Indebtedness. ------------------- (a) The monetary Obligations of the Company hereunder and under the other Loan Documents constitute "Senior Indebtedness" of the Company under clause (i) --------- of the 87 96 definition of the term "Senior Indebtedness" and, to the extent that such monetary Obligations constitute "Obligations" (as defined in the Subordinated Indenture), "Specified Senior Debt" described in clause ------ (i)(A) of the definition of such term under the terms ------ of the Subordinated Indenture; the monetary Obligations of KFC, KAAC, AJI and KJC under the Loan Documents constitute "Senior Indebtedness" of such corporations under clause (i) ---------- of the definition of the term "Senior Indebtedness" and, to the extent that such monetary Obligations constitute "Obligations" (as defined in the Subordinated Indenture), "Guarantor Specified Senior Debt" described in clause (i)(A) ------------- of the definition of such term of such corporations under the terms of the Subordinated Indenture; the subordination provisions of the Subordinated Indenture are enforceable against the holders of the Subordinated Debt; and the Agent and the Lenders will be entitled to the benefits of such subordination provisions. (b) The monetary Obligations of the Company hereunder and under the other Loan Documents constitute "Senior Indebtedness of the Company" (as defined in the PIK Note) under the terms of the PIK Note; the subordination provisions of the PIK Note are enforceable against the holder of the PIK Note; and the Agent and the Lenders will be entitled to the benefits of such subordination provisions of the PIK Note. (c) The monetary Obligations of the Company hereunder and under the other Loan Documents constitute (or, in the case of any Equity Proceeds Note issued after the date hereof, will constitute) "Senior Indebtedness of the Company" (as defined in each Equity Proceeds Note) under the terms of each Equity Proceeds Note; the subordination provisions of each Equity Proceeds Note are enforceable (or, in the case of any Equity Proceeds Notes issued after the date hereof, will be enforceable) against the holder of such note; and the Agent and the Lenders will be entitled to the benefits of such subordination provisions of each Equity Proceeds Note. SECTION 8.17. Accuracy of Information. All factual ----------------------- information heretofore or contemporaneously furnished by or on behalf of any Obligor in writing to the Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished in writing by or on behalf of any Obligor to the Agent or any Lender pursuant to or in connection with any Loan Document will be, true and accurate in every material respect on the date as of which such information is dated or certified, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances then prevailing. 88 97 SECTION 8.18. Joint Venture Contingent Liabilities. Item 11 ------------------------------------ ------- ("Joint Venture Contingent Liabilities") of the Disclosure ------------------------------------ Schedule contains a fair summary of the types of the material Contingent Liabilities of the Company and its Subsidiaries in respect of the businesses, operations, and financial obligations of VALCO, ALPART, Anglesey, KJBC, and QAL. SECTION 8.19. Mortgaged Property. The real property and ------------------ improvements which are mortgaged by the Company Mortgages and Company Deeds of Trust, as the case may be, constitute, as of the date of this Agreement, all of the real property and improvements owned or leased by the Company or any of its Subsidiaries which comprise, or are part of, or are used in the operations of, or are located contiguous to, the respective plants of the Company which are located at the locations listed on Schedule II hereto, ----------- except for certain unimproved property which is located contiguous to the Company's facilities at Newark, Ohio, Mead, Washington and Greenwood County, South Carolina, but will not be so mortgaged. Such unimproved property (a) is not a part of or used in the operations of the Company's plants in Newark, Ohio, Mead, Washington or Greenwood County, South Carolina which are to be mortgaged to the Agent, and (b) does not have any material structures or improvements located on it. ARTICLE IX COVENANTS SECTION 9.1. Affirmative Covenants. The Parent Guarantor --------------------- agrees (and the Company, to the extent that any such agreement of the Parent Guarantor shall be applicable to the Company, any of its Subsidiaries, or any of its or their properties, also agrees) with the Agent and each Lender that, until all Commitments have terminated, no Letters of Credit are outstanding, and all outstanding monetary Obligations have been paid in full: SECTION 9.1.1. Financial Information, Reports, Notices, --------------------------------------- etc. The Company will furnish, or will cause to be furnished, to - --- the Agent, for itself and for delivery to the Lenders, copies of the following financial statements, reports, notices, and information: (a) within 50 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Company, consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such Fiscal Quarter and consolidated and consolidating statements of income of the Company and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter and a consolidated statement of cash flows of the Company and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal 89 98 Quarter, certified (subject to normal year-end adjustments) on behalf of the Company by a Financial Authorized Officer of the Company; (b) within 95 days after the end of each Fiscal Year of the Company, (i) a copy of the annual audit report for such Fiscal Year for the Company and its Subsidiaries, including therein a consolidated balance sheet as at the close of such Fiscal Year, and related consolidated statements of income and cash flows for such Fiscal Year, of the Company and its Subsidiaries, in each case audited (without any Impermissible Qualification) by Arthur Andersen & Co. or other independent public accountants acceptable to the Agent and the Required Lenders, (ii) a consolidating balance sheet at the close of such Fiscal Year, and a related consolidating statement of income for such Fiscal Year, of the Company and its Subsidiaries, certified on behalf of the Company by a Financial Authorized Officer of the Company, and (iii) a report from the accountants referred to in clause (i), containing a computation prepared ---------- by the Company of each of the financial covenants contained in Section 9.2.4 as at the end of such Fiscal Year, and, ------------- commencing with the 1995 Fiscal Year, of the Interest Coverage Ratio as of the end of each Fiscal Quarter of such Fiscal Year (except the first Fiscal Quarter of the 1995 Fiscal Year), which report shall specify that it has been prepared using the procedures specified in the letter dated February 14, 1994 from Arthur Andersen & Co. to the Agent, a copy of which has been delivered to each Lender, and reporting that, in making the audit necessary for the signing of such annual report by such accountants, they have not become aware of any material miscomputation by the Company of such financial covenants, or of the Interest Coverage Ratio as of the end of each of such Fiscal Quarters, or of any Default or Event of Default that has occurred and is continuing, or, if they have become aware of such miscomputation, Default, or Event of Default, describing such miscomputation, Default, or Event of Default; (c) as soon as available and in any event within 50 days (or, in the case of the fourth Fiscal Quarter of any Fiscal Year, 95 days) after the end of each Fiscal Quarter, (i) a Compliance Certificate, executed on behalf of the Company by a Financial Authorized Officer of the Company, showing (in reasonable detail and with appropriate calculations and computations in all respects satisfactory to the Agent) compliance with the financial covenants set forth in Section 9.2.4 and, commencing with the second ------------- Fiscal Quarter of the 1995 Fiscal Year, the calculation of the Interest Coverage Ratio for the four Fiscal Quarter Period ended on the last day of such Fiscal Quarter and (ii) a detail schedule of Inventory by site (in substantially the form currently produced by the Company, with such changes as 90 99 to which the Agent may consent, such consent not to be unreasonably withheld); (d) as soon as possible and in any event within three Business Days after an Executive Officer of the Parent Guarantor or the Company shall have become aware of the occurrence of (i) any Default, a statement on behalf of the Company by the chief financial Authorized Officer of the Company setting forth details of such Default and the action which the Company and/or the relevant other Obligor has taken and proposes to take with respect thereto, or (ii) any (A) default or event of default (however denominated) under any Subordinated Debt Instrument (B) default or event of default (however denominated) under any Senior Debt Instrument or (C) default or event of default (however denominated) under any agreement relating to any Joint Venture Affiliate, ALPART, or VALCO or any other material document or agreement to which the Company or any of its Significant Subsidiaries is a party, in each case where such a default or event of default has a reasonable possibility of having a Materially Adverse Effect, notice and a description in reasonable detail thereof; (e) as soon as possible and in any event within three Business Days after (i) the occurrence of any material adverse development with respect to any labor controversy, litigation, action, or proceeding described in Section 8.8 ----------- or (ii) the commencement of any labor controversy, litigation, action, or proceeding of the type described in Section 8.8, written notice thereof and copies of all ----------- material documentation relating thereto; (f) promptly after the sending or filing thereof, copies of all publicly available reports which the Parent Guarantor or the Company sends to any of its security holders, and all publicly available reports and registration statements which the Parent Guarantor or the Company or any of their Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; (g) as soon as possible and in any event within three Business Days after an Executive Officer of the Parent 91 100 Guarantor or the Company shall have become aware of the taking of any action by the Company or any other Person to terminate any Pension Plan that has insufficient assets to satisfy all benefit liabilities thereunder (within the meaning of Section 4001(a)(16) of ERISA), or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien against assets of any Controlled Group member under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could reasonably be expected to result in the requirement that the Company or any Controlled Group member furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event relating to any Pension Plan with respect to which there is a reasonable possibility of the incurrence by the Company, the Parent Guarantor or any of their Subsidiaries of any liability, fine, or penalty which would have a Materially Adverse Effect, or any material increase in the contingent liability of the Company with respect to any post-retirement Welfare Plan benefit excluding liabilities occurring solely by operation of any generally applicable law enacted after the date of this Agreement, written notice thereof and copies of all material documentation relating thereto; (h) (i) promptly upon receipt thereof, a copy of all notices, documents, or other Instruments received by the Company pursuant to any Subordinated Debt Instrument or any Senior Debt Instrument and not otherwise required to be delivered hereunder and (ii) concurrently with the delivery thereof, a copy of all notices, documents, or other Instruments delivered by the Company pursuant to any Subordinated Debt Instrument or any Senior Debt Instrument and not otherwise required to be delivered hereunder; (i) no later than five Business Days after the approval thereof by the Company's Board of Directors, a copy of the annual business plan, budget, and updated business projections of the Company and its Subsidiaries, and upon the delivery to the Agent of any financial statements relating to a Fiscal Quarter included in such plan, budget, or projections, a summary comparing the Company's actual financial performance during such Fiscal Quarter to that provided in such plan, budget, or projections; and (j) such other information respecting the condition or operations, financial or otherwise, of the Parent Guarantor, the Company, or any of their Subsidiaries as any Lender (acting through the Agent) may from time to time reasonably request. SECTION 9.1.2. Compliance with Laws, etc. The Parent ------------------------- Guarantor and the Company will, and will cause each of their Subsidiaries to, comply in all respects with all applicable laws, rules, regulations, and orders (except for such noncompliance 92 101 which could not reasonably be expected to have a Materially Adverse Effect), including (and subject to the foregoing exception): (a) subject to Section 9.2.10, the maintenance and -------------- preservation of its corporate existence under the laws of its jurisdiction of incorporation or organization, as the case may be, and its qualification as a foreign corporation, partnership, or other entity in each jurisdiction where the nature of its business requires such qualification; and (b) the payment, before the same become delinquent, of all taxes, assessments, and governmental charges imposed upon it or upon its Property, except to the extent being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books. SECTION 9.1.3. Maintenance of Properties. The Parent ------------------------- Guarantor and the Company will, and will cause each of their Significant Subsidiaries to, maintain, preserve, protect, and keep their material properties in good repair, working order, and condition (ordinary wear and tear excepted), and make necessary and proper repairs, renewals, and replacements so that their business carried on in connection therewith may be properly conducted at all times unless the Parent Guarantor or the Company determines in the exercise of its good faith business judgment that the continued maintenance of any such properties is no longer economically desirable. SECTION 9.1.4. Insurance. --------- (a) The Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained with financially sound and reputable insurance companies (including, consistent with past practice, insurance companies affiliated with the Company, insurance with respect to their Properties and business (including business interruption insurance, fire insurance and public liability insurance) in such amounts, of such character and against such risks as are usually maintained by companies engaged in the same or similar business or having comparable properties, and in any case having a coverage which is not materially less than the insurance of such type maintained by the Company and its Subsidiaries on the date of this Agreement, provided, that to the extent that any of the -------- insurance required by this clause (a) ceases to be available ---------- at commercially reasonable rates, the Company may effect substitute insurance coverage therefor in accordance with prudent standards then being followed by other companies engaged in the same or similar business or having comparable properties. In addition, the Company will maintain flood insurance on each Property subject to a Company Deed of Trust or Company Mortgage to the extent such Property is 93 102 eligible for the National Flood Insurance Program. In the event that the Company wishes to effect substitute coverage pursuant to the foregoing proviso, it will (i) notify the ------- Agent of such intent as soon as reasonably practicable, and (ii) in any event not less than three Business Days prior to the termination of the coverage for which substitution is to be made, furnish the Agent with a report of the Company describing in reasonable detail the nature of such substitute coverage and the reasons why the Company believes that such substitute coverage is appropriate. (b) The Company will cause: (i) the Agent and the Lenders to be named as an additional insured, for a total coverage of $10,000,000 for all such Persons, under the public liability policies of the Company and its Subsidiaries; and (ii) the Agent to be named as loss payee under all insurance policies of the Company and its Subsidiaries that have executed the Subsidiary Security Agreement covering loss of or damage to Property (pursuant to loss payable clauses satisfactory to the Agent), and will, (A) as soon as practicable after effecting any insurance policies of the Company or any of its Subsidiaries (other than ALPART or VALCO) (and, with respect to any such policies which are replacements for other insurance policies which are required hereby, and which are terminating, in any event within three Business Days after such termination), furnish the Agent with an insurance broker's certificate or binder in respect of such policies or replacement policies; (B) if a replacement insurance policy for an insurance policy which is required hereby and which is terminating has not been effected prior to the third Business Day before such termination, furnish the Agent on such third Business Day a report of the Company describing in reasonable detail the status of such replacement policies; (C) upon request of the Agent, furnish to the Agent copies of all insurance policies at any time maintained by the Parent Guarantor, the Company and each Subsidiary of the Company executing a Security Agreement and furnish to the Agent with copies for each Lender, on or prior to the 15th day of July of each year, a certificate of an Authorized Officer of the Company setting forth the nature and extent of all insurance maintained by the Company, and its 94 103 Significant Subsidiaries in accordance with this Section 9.1.4 (and which, in the case of a certificate ------------- of a broker, were placed through such broker); and (D) furnish to the Agent with copies for each Lender, on or prior to the 15th day of July of each year, a letter dated as of a recent date from the Company's insurance broker or brokers comparing the insurance coverage then maintained by the Parent Guarantor, the Company and its Subsidiaries to the insurance coverage described in the most recent such letter delivered pursuant to this clause (D) or ---------- pursuant to Section 7.1 (in the case of the first such ----------- delivery). SECTION 9.1.5. Books and Records; Audits; Confidentiality. ------------------------------------------ (a) Each of the Parent Guarantor and the Company will, and will cause each of its Significant Subsidiaries to, maintain at all times proper and complete (in all material respects) books, records and accounts, in which complete and timely (in all material respects) entries are made, which reflect all of its business affairs and transactions in accordance with GAAP. The Company will and will cause KAII to maintain at all times books and records pertaining to the Collateral in such detail, form and scope as the Agent shall reasonably require, including records, to the extent normally maintained in accordance with accepted accounting principles, of (i) all payments received and all credits and extensions granted with respect to the Accounts, (ii) the return, rejection, repossession, stoppage in transit, loss, damage or destruction of any Inventory, and (iii) all other dealings affecting the Collateral. (b) Each of the Parent Guarantor and the Company will permit the Agent, and any Lender who wishes to accompany the Agent, or any representatives thereof, at all reasonable times and intervals (and at any time during the continuance of an Event of Default or an Event of Cash Dominion), on reasonable notice during ordinary business hours, to have access to examine, audit, make extracts from and inspect the Company's and KAII's records, files, and books of account and the Collateral and to discuss the Company's and KAII's affairs with the Company's and KAII's officers and management and the independent public accountant for the Company, KAII, and the Parent Guarantor (and each of the Parent Guarantor and the Company hereby authorizes such independent public accountant to discuss the Parent Guarantor's, the Company's, or KAII's financial matters with the Agent and with each Lender or its representatives). The Company will, and will cause KAII to, deliver to the Agent, to the extent reasonably requested, any instrument necessary for the Agent to obtain records from any service bureau maintaining records for the Company or KAII. The Agent may, 95 104 at the Company's expense, make copies of all of the Company's and KAII's books and records, or require the Company or KAII to deliver such copies to the Agent. The Agent may, without expense to the Agent, use such of the Company's and KAII's personnel, supplies, and premises as may be reasonably necessary for maintaining or enforcing the Security Interest. In addition, subject to the provisions of Section 3.5.2, the Parent Guarantor and the Company shall ------------- pay the reasonable fees of any independent public accountant incurred in connection with the Agent's exercise of its rights pursuant to this Section 9.1.5. ------------- (c) Subject to the provisions of the next paragraph, the Agent, each Lender, and each prospective purchaser of or participant in any part of any Loan, Commitment, or any other interest under this Agreement, each severally and for itself alone, agrees to maintain all Confidential Information (as defined below) obtained by it in connection with its rights under this Agreement or the other Loan Documents, including its rights of access contained in this Section 9.1.5 and information supplied pursuant to ------------- Section 9.1.1, confidential and not disclose the same to any Person who is not an officer, director, employee, legal counsel, or authorized agent or advisor of the Agent, or any such Lender or any purchaser or prospective purchaser of or participant in all or any part of any Loan, Commitment, or any other interest under this Agreement pursuant to the provisions of Section 12.11.2 who shall --------------- agree, by executing a letter agreement substantially in the form attached hereto as Exhibit Q, to be bound by the --------- provisions of this clause (c). The Agent, each Lender, and ---------- each other Person bound hereby shall not use any Confidential Information except for purposes relating to this Agreement, the other Loan Documents, or otherwise in connection with its status as a creditor or potential creditor of the Company pursuant to the transactions contemplated hereby or thereby. The term "Confidential ------------ Information" shall mean information specifically labelled ----------- or identified as "Confidential" furnished by or on behalf of the Company to the Agent, any Lender, or other Person exercising rights hereunder and any information or documents (whether or not specifically labeled or identified as "Confidential") obtained pursuant to Section 9.1.5(b) by the Agent, any Lender or other Person ---------------- exercising rights hereunder, but shall not include any such information which (a) has become or hereafter becomes available to the public other than as a result of a disclosure by the Agent, any Lender, or other Person exercising rights hereunder or required to be bound hereby, or (b) was or became available to the Agent, any Lender, or other Person exercising rights hereunder or required to be bound hereby on a non-confidential basis prior to its disclosure by the Company, its representatives, or its agents, or (c) becomes available to the Agent, any Lender, or other Person exercising rights hereunder or required to 96 105 be bound hereby on a non-confidential basis from a source other than the Company, its representatives, or its agents or another Lender or other Person exercising rights hereunder or required to be bound hereby. The restrictions set forth in the preceding paragraph shall not prevent the disclosure by the Agent, any Lender, or any other Person required to be bound hereby of any such information (i) with the prior written consent of the Company or as expressly contemplated by this Agreement or any other Loan Document; (ii) upon order of any court or administrative agency of competent jurisdiction, to the extent required by such order and not effectively stayed on appeal or otherwise, or as otherwise required by law; (iii) in connection with any litigation or other legal proceeding at law, in equity, or in bankruptcy to which the Parent Guarantor or the Company or any Subsidiary of either thereof and the Agent, such Lender, or other Person are parties; or (iv) to any Affiliate of any Lender who shall agree, by executing a letter agreement substantially in the form attached hereto as Exhibit Q, to be bound by --------- the provisions of this clause (c); ---------- provided, however, that, in the case of any intended -------- ------- disclosure under clause (ii), the Agent, the relevant ----------- Lender, or other Person shall (unless otherwise required by applicable law) give the Company not less than five Business Days prior notice (or such shorter period as may be reasonable or required by any court or agency under the circumstances), specifying the Confidential Information involved and stating such Person's intention to disclose such Confidential Information (including the manner and extent of such disclosure) in order to allow the Company an opportunity to seek an appropriate protective order. SECTION 9.1.6. Environmental Covenant. The Parent ---------------------- Guarantor and the Company will, and will cause each of their Subsidiaries to, (a) use and operate all of their respective facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses, and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws; 97 106 (b) (i) as soon as possible and in any event no later than 15 Business Days after an Executive Officer of the Company shall have become aware of the receipt thereof, notify the Agent and provide copies of all written claims, complaints, notices, or inquiries by a governmental or regulatory authority, or any Person which has commenced a legal proceeding against the Parent Guarantor, the Company, or any of their Subsidiaries, relating to compliance by the Company or its Subsidiaries with, or potential liability of the Company or its Subsidiaries under, Environmental Laws; and (ii) with reasonable diligence cure all environmental defects and conditions which are the subject of any actions and proceedings against the Parent Guarantor, the Company, or any of their Subsidiaries relating to compliance with Environmental Laws, except to the extent that such actions and proceedings (or the obligation of the Parent Guarantor, the Company, or any such Subsidiary to cure such defects and conditions) are being contested by the Parent Guarantor, the Company or any of their Subsidiaries in good faith by appropriate proceedings; and (c) provide such information, access, and certifications which the Agent may reasonably request from time to time to evidence compliance with this Section 9.1.6. ------------- SECTION 9.1.7. Performance of Instruments. Each of the -------------------------- Parent Guarantor and the Company will, and will cause each of their Subsidiaries to, perform promptly and faithfully all of their Obligations under each Loan Document to which it is or is to be a party, subject to any applicable grace periods. SECTION 9.1.8. Maintenance of Collateral. The Parent ------------------------- Guarantor and the Company will, and will cause their Subsidiaries having an interest in any Property which is, or is intended to be, Collateral to, (a) acquire and maintain such Property in a manner that will enable the Parent Guarantor, the Company, or such Subsidiary, as the case may be, to cause such Property to be subject to the Liens of the Collateral Documents; and (b) obtain the consent or approval of any Person whose consent or approval is required for the grant of Liens by the Parent Guarantor, the Company, or any such Subsidiary in any such Property. SECTION 9.1.9. Collateral Reporting. Except during the -------------------- continuance of an Event of Cash Dominion, the Company will, and will cause KAII to, provide the Agent with the following 98 107 documents, in form and scope satisfactory to the Agent, on a monthly basis: (a) an accounts receivable summary aging report together with a reconciliation to the previous month's accounts receivable summary aging report; (b) a reconciliation of the account receivable summary aging report to the accounts receivable general ledger; (c) a monthly listing of delinquent accounts in excess of $100,000 that are thirty days past the due date or sixty-five days past the invoice date, (d) monthly inventory summary reports by category in respect of the Inventory of the Company, (e) monthly inventory summary reports by location in respect of the Inventory of the Company; and (f) certificates of an officer of the Company certifying on behalf of the Company as to the foregoing. During the continuance of an Event of Cash Dominion, the Company will, and will cause KAII to, continue to provide the Agent with the documents described in clauses (a) ----------- through (f) above. In addition, the Company will, and will cause - ----------- KAII to, provide the Agent with the following documents immediately upon any written request therefor by the Agent: (a) copies of shipping and delivery documents; (b) copies of invoices, customer statements, credit memos, remittance advises and reports, and deposit slips; (c) copies of purchase orders, invoices, and delivery documents for Inventory of the Company acquired by the Company; and (d) such other reports as to the Collateral as the Agent shall request from time to time. If any of the Company's or KAII's records or reports of the Collateral are prepared by an accounting service or other agent, the Company hereby authorizes such service or agent to deliver such records, reports, and related documents to the Agent. SECTION 9.1.10. Delivery; Further Assurances. The Parent ---------------------------- Guarantor and the Company will, and will cause each of their wholly owned Subsidiaries to, at the expense of the Company, (a) without any request by the Agent, within 10 Business Days after the receipt thereof, deliver or cause to be delivered to the Agent, in due form for transfer (i.e., ---- endorsed in blank or, if appropriate, accompanied by duly executed blank stock or bond powers), all equity securities having a value, and all debt instruments (other than the Equity Proceeds Notes, which shall not constitute Collateral) having face amounts, in excess of $100,000, at any time representing all or any of the Collateral, in due form for transfer (i.e., endorsed in blank or, if --- appropriate, accompanied by duly executed blank bond powers); (b) upon forming or acquiring any Subsidiary, immediately notify the Agent of such formation or acquisition, and if requested by the Agent at the request of the Required Lenders, unless such Subsidiary is acquired or formed by a Subsidiary of the Company which is not a Domestic Subsidiary, (i) pledge and deliver to the Agent pursuant to 99 108 the Company Pledge Agreement or the Subsidiary Pledge Agreement, as the case may be, certificates evidencing all of the issued and outstanding capital stock of such Subsidiary owned directly or indirectly by the Company (or, if such Subsidiary is not a Domestic Subsidiary, 65% of such capital stock) accompanied by undated stock powers duly executed in blank or pledge to the Agent pursuant to the Company Pledge Agreement, the Subsidiary Pledge Agreement, the Company Security Agreement, or the Subsidiary Security Agreement, as the case may be, all of the Company's or such Subsidiary's general or limited partnership interest in such Subsidiary; (ii) if such pledgor is a Subsidiary of the Company, cause such pledgor to execute and deliver to the Agent a counterpart of the Subsidiary Guaranty and such other items of documentation as shall be necessary in order for such pledgor to assume the obligations under the Subsidiary Guaranty (and such pledgor, if a Subsidiary of the Company, may thereupon become a "Subsidiary Guarantor" (under and as defined in the Subordinated Indenture or the Senior Indenture) if and to the extent required to become a "Subsidiary Guarantor" by Section 5.12(c) of the Subordinated --------------- Indenture or Section 4.10(b)(ii) of the Senior ------------------- Indenture); and (iii) cause such Subsidiary to deliver to the Agent such evidence of due execution, and such other information with respect to its Organic Documents and contractual obligations, and as to the Collateral in which it has an interest, as the Agent may request, and to take all action necessary or as the Agent may request to create, preserve, perfect, confirm, and validate the Liens created or purported to be created by such Collateral Documents; (c) if any Subsidiary of the Company is required to grant a Lien to the Agent over any interest in real property pursuant to clause (b) of Section 9.1.11, and if requested ---------- -------------- by the Agent at the request of the Required Lenders, (i) cause such Subsidiary to execute and deliver to the Agent a counterpart of the Subsidiary Guaranty and such other items of documentation as shall be necessary in order for such Subsidiary to assume the obligations under the Subsidiary Guaranty (and such Subsidiary may thereupon become a "Subsidiary Guarantor" (under and as defined in the Subordinated Indenture or the Senior Indenture) if and to the extent required to become a "Subsidiary Guarantor" by Section 5.12(c) of the Subordinated Indenture or --------------- Section 4.10(b)(ii) of the Senior Indenture), ------------------- 100 109 (ii) cause such Subsidiary to execute and deliver to the Agent counterparts of the Subsidiary Security Agreement, the Subsidiary Pledge Agreement, and such other items of documentation as shall be necessary in order for such Subsidiary to assume the obligations under the Subsidiary Security Agreement and the Subsidiary Pledge Agreement, and (iii) cause such Subsidiary to deliver to the Agent such evidence of due execution, and such other information with respect to its Organic Documents and contractual obligations, and as to the Collateral in which it has an interest, as the Agent may request, and to take all action necessary or as the Agent may request to create, preserve, perfect, confirm, and validate the Liens created or purported to be created by such Collateral Documents; (d) upon the opening of any account for investment in Cash Equivalent Investments permitted hereunder by the Company or any Obligor which has executed the Subsidiary Security Agreement, promptly notify the Agent thereof and promptly deliver a letter, in substantially the form of one of the letters contained in Exhibit N attached hereto, with --------- such changes as the Agent may approve, duly executed by the Person with which the Company or such Subsidiary maintains such account; (e) upon request of the Agent, furnish or cause to be furnished to the Agent such opinions of counsel, and other documents with respect to the Collateral as the Agent may reasonably specify; and (f) upon request of the Agent, forthwith execute and deliver or cause to be executed and delivered to the Agent, in due form for filing or recording (and pay the cost of filing or recording the same in all public offices deemed necessary by the Agent), such assignments, security agreements, pledge agreements, consents, waivers, financing statements, stock or bond powers, and other documents, and do such other acts and things, all as the Agent may from time to time request, to establish and maintain to the satisfaction of the Agent valid perfected Liens in all Collateral (free of all other Liens, claims, and rights of third parties whatsoever, except for Liens, claims, and rights permitted by Section 9.2.3), provided, that the ------------- -------- Company shall not be required to register itself in Ghana or the United Kingdom for this purpose. SECTION 9.1.11. Real Property; Title Policies; Surveys. As -------------------------------------- further security for the payment of the Obligations, the Parent Guarantor and the Company will, and will cause their Subsidiaries to: 101 110 (a) obtain and maintain the consent or approval of any Person whose consent or approval is required to the granting of a Lien on any interest in real property which is, or is required by the terms of this Agreement to be, subject to a mortgage or deed of trust in favor of the Agent; and (b) concurrently with or promptly after the purchase or acquisition by the Company or any such Subsidiary of, or the formation or acquisition by the Company or any such Subsidiary of any Subsidiary with an interest in, any real property (including all improvements) which is located in the United States and which is structurally related to, or which is located contiguous to, real property upon which there is an existing Lien in favor of the Agent pursuant to a Company Mortgage or Company Deed of Trust, (i) execute, acknowledge, and deliver to the Agent a mortgage or deed of trust (or, if appropriate, an amendment or supplement to an existing mortgage or deed of trust), in such form and substance, and in such number of counterparts, as the Agent may reasonably require, mortgaging and granting a security interest in such interest in real property; (ii) obtain, with respect to each such interest in real property, a title insurance policy (in amounts reasonably satisfactory to the Agent) with respect to, a survey of, and such other documents relating to, such real property, in each case conforming to the requirements of Section 7.1.8; ------------- (iii) cause such mortgage or deed of trust to be duly recorded or filed to create a valid, perfected, first-priority mortgage or deed of trust lien on, and security interest in the property purported to be covered thereby, and pay all fees, taxes, and other expenses in connection therewith; and (iv) deliver to the Agent such other items of documentation with respect to any of the foregoing as the Agent shall reasonably request (including certificates as to incumbency, resolutions, and opinions of counsel in all relevant jurisdictions). At the request of the Agent, the Company will cause (and, in any event, the Company shall be permitted to cause) any real property which is required to be mortgaged pursuant to clause (b) of this ---------- Section 9.1.11 and which is owned by a Subsidiary of the Company, - -------------- to be transferred to the Company prior to the execution and delivery of such mortgage or deed of trust, as applicable. The Agent and the Required Lenders shall have the right, in their sole and absolute discretion, to accept or reject any such real property interest offered pursuant to this Section 9.1.11. -------------- 102 111 SECTION 9.1.12. Intercompany Demand Notes. Within 60 days ------------------------- after the last day of any Fiscal Quarter as of which the aggregate outstanding Indebtedness of the Company to any wholly owned Domestic Subsidiary of the Company exceeds $10,000,000, the Company will, if the same has not previously been done, (a) execute and deliver to such Subsidiary an Intercompany Demand Note payable to such Subsidiary, and (b) cause such Subsidiary to execute and deliver the Intercompany Note Pledge Agreement and to pledge such note to the Agent pursuant to the Intercompany Note Pledge Agreement. SECTION 9.2. Negative Covenants. The Parent Guarantor ------------------ agrees (and the Company, to the extent that any such agreement of the Parent Guarantor shall be applicable to the Company, any of its Subsidiaries, or any of its or their properties, also agrees) with the Agent and each Lender that, until all Commitments have terminated, no Letters of Credit are outstanding, and all outstanding monetary Obligations have been paid in full: SECTION 9.2.1. Business Activities. The Parent Guarantor ------------------- will not engage in any other business activity other than ownership of the Company and such activities as may be incidental or related thereto including the offering and sale of securities of the Parent Guarantor. The Company will not, and will not permit any of its Subsidiaries to, engage in any business activity, except those described in the first recital, those in ------------- which the Company and its Subsidiaries are engaged on the Effective Date, and such activities as may be incidental or related thereto or reasonably related extensions thereof. SECTION 9.2.2. Indebtedness. The Parent Guarantor and the ------------ Company will not, and will not permit any of their Subsidiaries to, create, incur, assume, or suffer to exist or otherwise become or be liable in respect of any Indebtedness, other than the following: (a) In the case of the Parent Guarantor, the Company, and their Subsidiaries, (i) Indebtedness in respect of this Agreement and the other Loan Documents; (ii) Indebtedness identified in Item 1 ------ ("Indebtedness to be Paid") of the Disclosure Schedule, ----------------------- provided that the conditions set forth in Section 7.1.3 ------------- in respect of payment of such Indebtedness shall be satisfied on the Initial Borrowing Date; and (iii) Indebtedness existing as of the Effective Date which is identified in Item 4 ("Ongoing ------ ------- Indebtedness") of the Disclosure Schedule; ------------ 103 112 (b) In the case of the Company and its Subsidiaries, (i) Indebtedness of the Company in respect of the Senior Debt, and Contingent Obligations of AJI, KJC, KFC and KAAC as a "Subsidiary Guarantor" (under and as defined in the Senior Indenture) in respect of the Senior Debt; (ii) subject to Section 9.2.18, Indebtedness -------------- owing from (A) the Company to any wholly-owned Subsidiary of the Company (other than KAAC) which (if required by Section 9.1.12) is evidenced by an -------------- Intercompany Demand Note which has been pledged to the Agent pursuant to the Intercompany Note Pledge Agreement or the Subsidiary Pledge Agreement, (B) any wholly-owned Subsidiary of the Company to the Company, provided that such Indebtedness is not evidenced by any -------- instrument, (C) any wholly-owned Subsidiary of the Company to any other wholly-owned Subsidiary of the Company, provided that with respect to any such -------- Indebtedness to KFC or any such Indebtedness of KFC to KAAC, such Indebtedness is evidenced by an Intercompany Demand Note which has been pledged to the Agent pursuant to the Subsidiary Pledge Agreement or the Intercompany Note Pledge Agreement, and provided, -------- further, that with respect to any such Indebtedness ------- other than to KFC (or of KFC to KAAC), such Indebtedness is not evidenced by any instrument, (D) VALCO or ALPART to the Company, its Subsidiaries, or Persons (other than the Company, its Subsidiaries or any Restricted Affiliate) having an equity interest in VALCO or ALPART, as the case may be, (E) the Company or its Subsidiaries to VALCO or ALPART, or (F) the Company to KAAC, provided that any such Indebtedness (other -------- than Indebtedness in respect of accounts payable and other current liabilities, in each case arising in the ordinary course of business out of the purchase by the Company of alumina from KAAC) shall be evidenced by an Intercompany Demand Note which has been pledged to the Agent pursuant to the Subsidiary Pledge Agreement and Indebtedness in respect of such accounts payable and other current liabilities shall not be evidenced by any instrument; (iii) Indebtedness of the Company, KJC, AJI and KAAC (including, without duplication, Contingent Liabilities in respect of Indebtedness) in an aggregate amount (excluding any such Indebtedness identified in Item 4 ("Ongoing Indebtedness") of the Disclosure ------ -------------------- Schedule) not to exceed $150,000,000 in respect of ALPART, $75,000,000 in respect of QAL and $25,000,000 in respect of VALCO; provided, however, that for -------- ------- purposes of calculating the aggregate amount of Indebtedness of the Company and its Subsidiaries 104 113 outstanding pursuant to this clause (b)(iii), there --------------- shall be subtracted from the total amount of Indebtedness of non-wholly-owned Subsidiaries an amount equal to (A) that portion of such Indebtedness attributable to the proportionate direct or indirect ownership of Persons other than the Company and its Subsidiaries of the voting stock of, or partnership interest in, such Subsidiary or (B) if the economic burden of such Indebtedness is borne or to be borne by minority owners of such Subsidiary (other than the Company and its Subsidiaries) in a proportion other than the proportion of their direct or indirect ownership of the voting stock of, or partnership interest in, such Subsidiary, the proportionate share of the economic burden of such Indebtedness borne or to be borne by such minority owners; (iv) Indebtedness incurred by the Company in connection with the purchase, redemption, retirement, or other acquisition by the Company of the Preferred Stock (USWA) outstanding on the date hereof (plus additional shares of such Preferred Stock (USWA) issued as dividends thereon or on such shares issued as dividends) to the extent the purchase, redemption, retirement, or acquisition thereof is required by the Code and such Indebtedness is issued to the then holders of or beneficial owners of such shares of Preferred Stock (USWA); (v) Indebtedness of the Company in an amount not exceeding $5,000,000 at any time outstanding in respect of the guaranty by the Company of the obligations of National Refractories & Minerals Corporation under the Revolving Credit and Term Loan Agreement dated as of April 30, 1985 (as the same has been and may hereafter be amended, modified, supplemented, restated, confirmed or replaced from time to time) among Congress Financial Corporation (Western), National Refractories & Minerals Corporation, National Refractories & Minerals, Inc. and National Refractories Holding Co.; (vi) the obligation of the Company to make advances not exceeding $2,500,000 to National Refractories & Minerals Corporation under the Standby Revolving Credit and Security Agreement and Guaranty dated as of April 30, 1985 (as the same has been and may hereafter be amended, modified, supplemented, restated, confirmed or replaced from time to time) among the Company, National Refractories & Minerals Corporation, National Refractories & Minerals, Inc. and National Refractories Holding Co.; (vii) the guaranty by the Company of the payment of certain shutdown, supplemental unemployment, 105 114 pension, and retiree health and life insurance benefits as provided under the Agreement dated February 2, 1989 (as the same has been or may be amended, supplemented, restated, modified, confirmed, or replaced from time to time) between the Company and the United Steelworkers of America relating to the sale by the Company of its smelter and rolling mill in Ravenswood, West Virginia, to Ravenswood Acquisition Corporation; (viii) the obligations of the Company and any of its Subsidiaries to purchase or sell goods, services, or technology utilized in their bauxite, alumina, and aluminum business and related extensions thereof, including on a take-or-pay basis, pursuant to agreements entered into the ordinary course of business consistent with past practice; (ix) the obligations of QAL in respect of charters of vessels; (x) Indebtedness of the Company in respect of unsecured Hedging Obligations; (xi) Indebtedness of the Company and its Subsidiaries (other than KAAC, AJI, KJC and KAII) in respect of letters of credit (including any such letters of credit identified in Item 4 ("Ongoing ------ ------- Indebtedness") of the Disclosure Schedule) in an ------------ aggregate amount not to exceed $15,000,000 at any one time outstanding issued for the account of the Company or any of its Subsidiaries in support of certain self- insurance and reinsurance obligations; (xii) Indebtedness of the Company in respect of the Redeemable Stock referred to in clause (i) or (ii) ---------- ---- of Section 9.2.6(a); ---------------- (xiii) Indebtedness of the Company under the Equity Proceeds Notes; (xiv) Nonrecourse Indebtedness of Subsidiaries of the Company that are not Obligors, the proceeds of which are used to finance the construction, acquisition or retrofitting of aluminum smelters, alumina refineries, or fabrication plants, including, in either case, related facilities or interests therein; (xv) Indebtedness of the Company in an aggregate principal amount not to exceed $25,000,000 outstanding at any one time (excluding any such Indebtedness identified in Item 4 ("Ongoing Indebtedness") of the ------ -------------------- Disclosure Schedule) incurred in connection with one or more industrial revenue bond financings; 106 115 (xvi) Indebtedness of KAAC in the form of Liens on assets of KAAC and its Subsidiaries securing the obligations of QAL; and (xvii) other Indebtedness of the Company and its Subsidiaries (other than KAAC, AJI, KJC and KAII) in an aggregate principal amount not to exceed $30,000,000 outstanding at any one time; and (c) in the case of the Parent Guarantor, Indebtedness arising under the KT Note and Contingent Liabilities of the Parent Guarantor in respect of any Indebtedness of the Company incurred pursuant to clause (b) (other than ---------- subclause (xv) thereof) above. SECTION 9.2.3. Liens. The Parent Guarantor will not ----- create, incur, assume, or suffer to exist any Lien over any of its Properties, revenues, or assets, whether now owned or hereafter acquired, except for Liens of the type described in clauses (a), (b), (e), and (h) of this Section 9.2.3. The - ----------- --- --- --- ------------- Company will not, and will not permit any of its Subsidiaries to, create, incur, assume, or suffer to exist any Lien upon any of its Properties, revenues, or assets, whether now owned or hereafter acquired, other than the following: (a) Liens securing payment of the Obligations granted pursuant to any Loan Document; (b) Until the Initial Borrowing Date, Liens securing payment of Indebtedness of the type permitted and described in clause (a)(ii) of Section 9.2.2; -------------- ------------- (c) Liens granted prior to the Effective Date and identified in Item 5 ("Ongoing Liens") of the Disclosure ------ ------------- Schedule; (d) Liens granted to secure payment of Indebtedness permitted by clause (b)(xvii) of Section 9.2.2 on any ---------------- ------------- Property (other than Accounts and Inventory) created at the time of the acquisition of such Property in order to secure payment of the purchase price thereof or in order to secure any loan incurred for the purpose of financing such acquisition, and any Lien to which any Property is subject at the time of its acquisition (including Property of a Subsidiary at the time it becomes a Subsidiary), provided that the principal amount of the Indebtedness secured by any such Lien does not exceed 80% of the cost of such Property (except in the case of Liens on the Property of a Subsidiary at the time it becomes a Subsidiary) and that no such Lien may extend to other property, together with refundings or extensions of the foregoing for amounts not exceeding the principal amount of the Indebtedness so refunded or extended and secured only by the Property theretofore securing the same; 107 116 (e) Liens for taxes, assessments, or other governmental charges or levies to the extent that payment thereof shall not at the time be required in accordance with the provisions of Section 9.1.2; ------------- (f) Liens of carriers, warehousemen, mechanics, workmen, repairmen, vendors, materialmen, and landlords and other similar Liens incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings, and deposits or Liens to obtain the release of any such Lien; (g) Liens and deposits incurred or made in the ordinary course of business in connection with worker's compensation, unemployment insurance, or other forms of governmental insurance or benefits, or in connection with, or to secure performance of, bids, tenders, statutory obligations, and leases (other than, in each of such cases, for borrowed money or the obtaining of advances or credit) entered into in the ordinary course of business, or to secure obligations on surety or appeal bonds, and other Liens and deposits for purposes of like nature in the ordinary course of business; (h) judgment Liens or similar awards in existence less than 15 days after the entry thereof or with respect to which execution has been stayed, or the payment of which is covered (subject to a customary deductible) by insurance; (i) mineral leases, easements, covenants, restrictions, exceptions, or reservations in any Property of the Company or any Subsidiary of the Company which do not materially impair the use of such Property for the purposes for which it is held; (j) zoning laws and ordinances, and rights reserved to or vested in any municipality or government or proper authority to control or regulate any Property of the Company or its Subsidiaries, or to use such Property in any manner which does not materially impair the use of such Property for the purposes for which it is held by the Company or such Subsidiary; (k) undetermined or inchoate Liens incident to construction, maintenance, or current operations and Liens and charges incident to such construction, maintenance, or operations which have been filed of record but which are being contested in good faith by appropriate proceedings; (l) Liens reserved in leases for rent and to assure compliance with the lease terms covering solely Property kept at the leased premises and rights of lessees to Property being leased from the Company or any of its Subsidiaries; 108 117 (m) Liens on any Property in which the Company or any of its Subsidiaries has a leasehold estate, easement, right of way, or similar interest and to which such interest is or may become subject, and the rights reserved to the lessors or grantors thereof, and to their successors and assigns, under applicable law or the instrument creating such interest; (n) Liens on the Company's or any of its Subsidiary's rights under agreements with respect to spot, forward, future and option transactions, entered into in the ordinary course of business, involving (or, in the case of futures and options, for or relating to) the purchase and sale of aluminum, alumina, or bauxite or on the transaction accounts in which such transactions are effected securing the Company's or such Subsidiary's obligations under such agreements; (o) minor defects and irregularities in the title to any Property which do not in the aggregate materially impair the use of such Property for the purposes for which it is held; (p) Liens on Property of ALPART securing Indebtedness in respect of ALPART permitted by clause (b)(iii) of --------------- Section 9.2.2 and Liens on Property of VALCO securing ------------- Indebtedness in respect of VALCO permitted by clause (b)(iii) of Section 9.2.2; --------------- ------------- (q) Liens on Property of KAAC or its Subsidiaries securing Indebtedness of KAAC in respect of QAL permitted by clause (b)(iii) of Section 9.2.2; --------------- ------------- (r) Liens on Property of Subsidiaries of the Company that are not Obligors securing Nonrecourse Indebtedness; provided, however, that no such Lien may extend to Property -------- ------- other than the Property constructed, acquired or retrofitted with the proceeds of such Nonrecourse Indebtedness or the capital stock of entities formed to hold such interests; (s) Liens on cash securing letters of credit in an amount not to exceed $15,000,000 at any one time outstanding; (t) Liens on Property (other than Accounts and Inventory) of the Company securing Indebtedness permitted by Section 9.2.2(b)(xv); -------------------- (u) Liens covering portions of the proceeds of Asset Dispositions, which are held in escrow in connection with such Asset Dispositions; (v) Liens on Property (other than Accounts and Inventory) of the Company securing Indebtedness permitted by 109 118 clause (b)(iv) of Section 9.2.2; and -------------- ------------- (w) other Liens on Property (other than Accounts and Inventory) of the Company and its Subsidiaries incidental to the conduct of the business of the Company and its Subsidiaries or the ownership of their Property which were not incurred in connection with borrowed money or the obtaining of advances or credit and which do not in the aggregate materially detract from the value of their Property or materially impair the use thereof in the operation of their business and which, in any event, do not secure obligations aggregating in excess of $5,000,000. SECTION 9.2.4. Financial Condition. The Company will not ------------------- permit: (a) Net Worth. The Company shall not permit Net Worth as of the end of any Fiscal Quarter set forth below to be less than the correlative amount indicated: Fiscal Quarter Net Worth -------------- --------- First Fiscal Quarter of 1994 $450,000,000 Second Fiscal Quarter of 1994 $433,000,000 Third Fiscal Quarter of 1994 $416,000,000 Fourth Fiscal Quarter of 1994 $400,000,000 First Fiscal Quarter of 1995 $396,000,000 Second Fiscal Quarter of 1995 $392,000,000 Third Fiscal Quarter of 1995 $388,000,000 Fourth Fiscal Quarter of 1995 $385,000,000 First Fiscal Quarter of 1996 $391,000,000 Second Fiscal Quarter of 1996 $397,000,000 Third Fiscal Quarter of 1996 $404,000,000 Fourth Fiscal Quarter of 1996 $410,000,000 First Fiscal Quarter of 1997 Minimum Net Worth and each Fiscal Quarter thereafter (b) Interest Coverage Ratio. The Company shall not permit the Interest Coverage Ratio (i) for the one Fiscal Quarter period ending March 31, 1996 to be less than 1.1 to 1.0, (ii) for the two Fiscal Quarter period ending June 30, 1996 to be less than 1.2 to 1.0, (iii) for the three Fiscal Quarter period ending September 30, 1996 to be less than 1.3 to 1.0, and (iv) for the four Fiscal Quarter period ending on the last day of each of the Fiscal Quarters set forth below to be less than the correlative ratio indicated: Date Ratio ---- ----- Fourth Fiscal Quarter of 1996 1.4 to 1.0 First Fiscal Quarter of 1997 1.5 to 1.0 Second Fiscal Quarter of 1997 1.7 TO 1.0 Third Fiscal Quarter of 1997 1.8 to 1.0 Fourth Fiscal Quarter of 1997 2.0 to 1.0 110 119 and each Fiscal Quarter thereafter SECTION 9.2.5. Investments. The Parent Guarantor will not ----------- make, incur, assume, or suffer to exist any Investment except for its ownership or purchase of the shares of capital stock of the Company, Cash Equivalent Investments, and Equity Proceeds Notes. The Company will not, and will not permit any of its Subsidiaries to, make, incur, assume, or suffer to exist any Investment in any other Person, other than the following: (a) Investments existing on the Effective Date and identified in Item 6 ("Ongoing Investments") of the Disclosure ------ ------------------- Schedule; (b) Cash Equivalent Investments; (c) subject to Section 9.2.18, without duplication, -------------- Indebtedness which is an Investment permitted by clause (b)(ii) of Section 9.2.2; -------------- ------------- (d) Investments made pursuant to the arrangements described in clauses (b)(v) and (b)(vi) of Section 9.2.2, and -------------- ------- ------------- deposits permitted by clause (g) of Section 9.2.3; ---------- ------------- (e) subject to Section 9.2.18, Investments in the -------------- ordinary course of business in the Company and its Subsidiaries (other than Investments made prior to October 1, 1993 by any Obligor (other than KBC and KEC) in KBC, KEC or any Subsidiary of the Company that is not an Obligor); (f) provided no Default or Event of Default under Section 10.1.1 shall have occurred and be continuing, -------------- Investments made after September 30, 1993 in the ordinary course of business in QAL, Anglesey, KJBC and Furukawa; (g) Investments which are Capital Expenditures permitted by Section 9.2.7; ------------- (h) Investments of cash held in escrow accounts required pursuant to the terms of any contract or agreement between the Parent Guarantor, the Company, or any of its Subsidiaries and any Person as in effect on the Effective Date (including escrows in existence on the Effective Date) which are listed on Schedule XII hereto; ------------ (i) Investments received in connection with Asset Dispositions, and Investments in escrows established in connection with Asset Dispositions which are permitted hereby; (j) trade credit extended in the ordinary course of business (including such credit represented by any bond, note, debenture, or similar instrument) and advance payments, made in the ordinary course of business, under contracts for the 111 120 purchase of goods or the receipt of services, and loans and advances made to any Person in connection with the purchase of assets by such Person for lease by such Person to the Company or any of its Subsidiaries to the extent that such leases are otherwise permitted hereunder; (k) Investments in the form of advance payments in connection with spot, forward, future and option transactions, entered into in the ordinary course of business, involving (or, in the case of futures and options, for or relating to) the purchase and sale of aluminum, alumina, or bauxite; (l) Investments acquired in the settlement or other resolution of disputes with any Person or of debts; (m) Investments of any Person which are in existence at the time such Person becomes a Subsidiary of the Company and which, in the case of any such Investments which would breach any provision of this Agreement if made directly by the Company, (i) were not entered into in contemplation of such Person becoming a Subsidiary of the Company, and (ii) do not constitute more than 20% of the assets of such Person at the time such Person becomes a Subsidiary of the Company; (n) any Investments (other than Investments in MAXXAM or any Affiliate (other than the Company, its Subsidiaries which are not Restricted Subsidiaries, or any Joint Venture Affiliate) of MAXXAM) not otherwise permissible hereunder in an aggregate amount not to exceed $20,000,000 at any time outstanding; (o) provided (i) no Default or Event of Default shall have occurred and be continuing (or would occur after giving effect to such Investment) and (ii) that the Interest Coverage Ratio is greater than 2.0 to 1, Investments in Subsidiaries and Joint Venture Affiliates not otherwise permissible hereunder in an aggregate amount not to exceed (A) the sum of: (1) 50% of Net Income (or, if Net Income for any such period shall be a deficit, minus 100% of such deficit) accrued on a cumulative basis for the period (taken as one accounting period) from January 1, 1994 to the end of the Company's most recently ended Fiscal Quarter, and (2) the aggregate net proceeds, including the fair market value of Property other than cash, received by the Company as capital contributions (other than from 112 121 a Joint Venture Affiliate or a Subsidiary of the Company) to the Company after December 31, 1993, or from the issue or sale (other than to a Joint Venture Affiliate or to a Subsidiary of the Company), after December 31, 1993, of capital stock other than Redeemable Stock (including capital stock, other than Redeemable Stock, issued upon the conversion of, or in exchange for, Indebtedness or Redeemable Stock, and including upon exercise of warrants or options or other rights to purchase such capital stock, issued after December 31, 1993), or from the issue or sale, after December 31, 1993 of any debt or other security of the Company convertible or exercisable into such capital stock that has been so converted or exercised; minus ----- (B) the aggregate amount of Investments then outstanding pursuant to clause (n); and ---------- (p) extensions and renewals of Investments permitted by clauses (a), (h), (i), (j), (l) and (m) of ----------- --- --- --- --- --- this Section 9.2.5, ------------- provided that the principal amount thereof is not increased. SECTION 9.2.6. Restricted Payments, etc. ------------------------ (a) The Company and the Parent Guarantor will not declare, pay, or make any dividend or distribution (in cash, Property, or obligations) on any shares of any class of capital stock (now or hereafter outstanding) of the Company or the Parent Guarantor or on any warrants, options, or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Company or the Parent Guarantor (excluding dividends or distributions payable in its common stock (other than Redeemable Stock) or warrants to purchase its common stock or splitups or reclassifications of its common stock into additional or other shares of its common stock) or apply, or permit any of their respective Subsidiaries to apply, any of its funds, or Property to the purchase, redemption, sinking fund, or other retirement, or agree, or permit any of their respective Subsidiaries to agree, to purchase or redeem, any shares of any class of capital stock (now or hereafter outstanding) of the Company or the Parent Guarantor, or warrants, options, or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Company or the Parent Guarantor (all of the foregoing non-excluded dividends, distributions, application of funds or Property, purchases, redemption and similar payments collectively being herein called "Distributions") except that ------------- (i) the Company shall be permitted to purchase, redeem, retire, or otherwise acquire and to declare, pay, or make dividends or other distributions on its 4-1/8% 113 122 Preference Stock, par value $100 per share, 4-3/4% Preference Stock (1957 Series), par value $100 per share, 4-3/4% Preference Stock (1959 Series), par value $100 per share, and 4-3/4% Preference Stock (1966 Series), par value $100 per share, in each case only in accordance with the terms of the Restated Certificate of Incorporation, and in each case unless (A) an Event of Default shall have occurred and be continuing and (B) the Company shall have been instructed by the Agent in writing not to make any such Distribution; (ii) the Company shall be permitted to purchase, redeem, retire, or otherwise acquire and to declare, pay, or make dividends or other distributions on any shares of the Preferred Stock (USWA), in each case unless (A) an Event of Default shall have occurred and be continuing and (B) the Company shall have been instructed by the Agent in writing not to make any such Distribution; (iii) the Company shall be permitted to pay for the benefit of, or to reimburse, the Parent Guarantor for the reasonable out-of-pocket expenses actually incurred (and documented as such) by the Parent Guarantor for services rendered to the Parent Guarantor by Persons who are not Affiliates or employees of the Parent Guarantor, MAXXAM, the Company or any of their respective Subsidiaries (provided that payments of legal fees and expenses to a law firm of which an Affiliate of the Company is a member shall be permitted) in connection with the registration, issuance or sale of securities of the Parent Guarantor to the extent that the net proceeds of such issuance or sale are used by the Parent Guarantor to make a loan or capital contribution to, or purchase securities of, the Company; (iv) the Company shall be permitted to make Distributions to the Parent Guarantor of all or a portion of the KT Note and accrued interest thereon; (v) provided no Default shall have occurred and be continuing (or will have occurred and be continuing immediately following such Distribution), the Company shall be permitted to make Distributions to the Parent Guarantor in each Fiscal Quarter in an aggregate amount not exceeding the dividends payable by the Parent Guarantor during such Fiscal Quarter in respect of all then outstanding shares of the Parent Guarantor Preferred Stock minus the amount of any payments made during such ----- Fiscal Quarter on the Equity Proceeds Notes; (vi) the Parent Guarantor shall be permitted to make Distributions to the holders of any outstanding shares of the Parent Guarantor Preferred Stock (or 114 123 depositary shares in respect thereof) in an amount not to exceed the payments received or receivable from time to time by the Parent Guarantor from the Company under clause (v) of this Section 9.2.6(a) and in respect of the ---------- ---------------- Equity Proceeds Notes; and (vii) the Parent Guarantor shall be permitted to convert shares of the Parent Guarantor Preferred Stock (or depositary shares in respect thereof) into the common stock of the Parent Guarantor or redeem shares of the Parent Guarantor Preferred Stock (or depositary shares in respect thereof) in exchange for the common stock of the Parent Guarantor plus an amount in cash equal to all ---- amounts payable by the Parent Guarantor in respect of accrued and unpaid dividends in connection with such conversion or redemption, in each case in accordance with the Certificate of Designations governing such shares of Parent Guarantor Preferred Stock (or the Depositary Agreement in respect of such depositary shares). (b) The Company will not, and will not permit any of its Subsidiaries to, (i) make any payment or prepayment of principal of, or any prepayment of interest on, any Subordinated Debt (including pursuant to Section 4.05, 4.06, or 4.07 of the ------------------ ---- Subordinated Indenture) or make any payment of interest on, or any payment in respect of, any Subordinated Debt which would violate the subordination provisions of such Subordinated Debt; (ii) subject to Section 9.2.18, make any prepayment -------------- of principal of, or any prepayment of interest on, any other Indebtedness (other than Indebtedness owing from the Company or any Subsidiary to any Subsidiary not listed on Schedule XIII hereto or to any Joint Venture ------------- Affiliate); provided, however, that the Company may -------- ------- prepay the principal of or interest on Indebtedness in respect of this Agreement, the Company may repay Indebtedness in connection with the refinancing of all or substantially all of such Indebtedness and the Company may prepay Indebtedness in an amount not to exceed $10,000,000 in the aggregate (such $10,000,000 to be computed, as of any time, based on prepayments made prior to such time which, if made at such time, would be prepayments); (iii) make any payment or prepayment of principal of, or interest on, the PIK Note; provided, however, that -------- ------- if no Event of Cash Dominion shall have occurred and be continuing (or will have occurred immediately following such payment) and provided no Default shall have occurred and be continuing (or would occur as a result of such payment) the Company may repay the PIK Note at or after 115 124 the maturity thereof; (iv) redeem, purchase, or defease any Subordinated Debt, any Senior Debt, the PIK Note or any Equity Proceeds Note; (v) make any payment or prepayment of principal of, or interest on, the Equity Proceeds Notes except that the Company may pay principal and interest from time to time on the Equity Proceeds Notes in accordance with the provisions of the Equity Proceeds Notes, subject to the subordination provisions thereof; provided, however, that -------- ------- if any Equity Proceeds Note is issued in connection with the issuance of Parent Guarantor Preferred Stock that is convertible into shares of the common stock of the Parent Guarantor, immediately upon the conversion of all of such shares of the Parent Guarantor Preferred Stock (or depositary shares in respect thereof) into shares of the common stock of the Parent Guarantor pursuant to the Certificate of Designations governing such shares of the Parent Guarantor Preferred Stock (or the Depositary Agreement in respect of such depositary shares), (A) the Company shall, after the payment of all amounts payable by the Parent Guarantor in respect of accrued and unpaid dividends in connection with such conversion and in accordance with the terms of such Equity Proceeds Note, defer further principal and interest payments on such Equity Proceeds Note until such time as no Senior Indebtedness of the Company (as defined in such Equity Proceeds Note) under or in connection with this Agreement or the other Loan Documents or any refinancing of such Senior Indebtedness of the Company is then outstanding and (B) the Parent Guarantor shall, after all amounts payable by the Parent Guarantor in respect of accrued and unpaid dividends in connection with such conversion have been paid, if requested by the Agent, with the written consent of the Required Lenders, deliver such Equity Proceeds Note to the Company as a capital contribution and the Company shall immediately cancel such Equity Proceeds Note; or (vi) make any payment of principal of or interest on the Indebtedness listed on Schedule XIII hereto. ------------- (c) The Company and the Parent Guarantor will not, and will not permit any of their respective Subsidiaries to, make any deposit for any of the foregoing purposes. SECTION 9.2.7. Capital Expenditures. The Company will not, -------------------- and will not permit any of its Subsidiaries to, make Adjusted Capital Expenditures in any Fiscal Year set forth below in an aggregate amount in excess of the sum of (a) the Base Amount set forth below opposite such Fiscal Year plus (b) in the case of each ---- Fiscal Year commencing with the 1995 Fiscal Year the Carryover 116 125 Amount applicable to such Fiscal Year: Fiscal Year Base Amount ----------- ----------- 1994 $60,000,000 1995 $70,000,000 1996 $75,000,000 1997 $80,000,000 1998 $90,000,000 The "Carryover Amount" applicable to any Fiscal Year is equal to ---------------- (i) the sum of the Base Amounts applicable to all periods set forth which end prior to the Fiscal Year for which the Carryover Amount is being calculated minus (ii) the aggregate amount of Adjusted Capital Expenditures which were actually made by the Company and its Subsidiaries during the 1994 Fiscal Year and during each Fiscal Year thereafter prior to the Fiscal Year for which such Carryover Amount is being calculated; provided, however, that the Carryover -------- ------- Amount shall not exceed $10,000,000 for the 1995 Fiscal Year, $20,000,000 for the 1996 Fiscal Year and $30,000,000 for any Fiscal Year thereafter. SECTION 9.2.8. Rental Obligations. The Company will not, ------------------ and will not permit any of its Subsidiaries to, enter into at any time any arrangement which does not create a Capitalized Lease Liability and which involves the leasing by the Company or any of its Subsidiaries for terms which exceed, or when added to the term of any extension which may be made at the sole option of the Company or any such Subsidiary might exceed, one year from any lessor of any Property (or any interest therein), except such arrangements which, together with all other such arrangements which shall then be in effect, will not require the payment of an aggregate amount of rentals by the Company and its Subsidiaries on a consolidated basis (excluding escalations resulting from a rise in the consumer price or similar index) in excess, for any Fiscal Year of $35,000,000; provided, however, that any calculation made -------- ------- for purposes of this Section 9.2.8 shall exclude any amounts ------------- required to be expended for maintenance and repairs, insurance, taxes, assessments, and other similar charges. SECTION 9.2.9. Take or Pay Contracts. The Company will not, --------------------- and will not permit any of its Subsidiaries to, enter into or be a party to any arrangement for the purchase of materials, supplies, other Property, or services if such arrangement by its express terms requires that payment be made by the Company or such Subsidiary regardless of whether such materials, supplies, other Property, or services are delivered or furnished to it, except those set forth in Item 9 ("Take or Pay and Similar Contracts") of ------ --------------------------------- the Disclosure Schedule. SECTION 9.2.10. Consolidation, Merger, etc. The Parent -------------------------- Guarantor and the Company will not, and will not permit any of their Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other corporation, except that if no 117 126 Default or Event of Default shall occur and be continuing or shall exist at the time of any such merger or consolidation or immediately thereafter and after giving effect thereto, (a) any Subsidiary of the Company may liquidate or dissolve into or may merge or consolidate with or into the Company if the Company is the surviving corporation; (b) any Subsidiary of the Company may liquidate or dissolve into or may merge or consolidate with or into any wholly-owned Subsidiary of the Company that is an Obligor if the Obligor is the surviving corporation; (c) any Subsidiary of the Company that is not an Obligor may liquidate or dissolve or merge or consolidate with or into any other Subsidiary of the Company that is not an Obligor; (d) the Parent Guarantor may, with the prior written consent of the Required Lenders, merge with and into the Company and, provided that the Parent Guarantor shall assume all of the Obligations of the Company under this Agreement and the other Loan Documents, the Company may, with the prior written consent of the Required Lenders, merge with and into the Parent Guarantor; and (e) the Company and its Subsidiaries may engage in Asset Dispositions permitted by Section 9.2.11. -------------- Notwithstanding the foregoing, neither the Company nor any Subsidiary may engage in any such transaction unless at least five (or, in the case of any such transaction involving the Company or any other Obligor, 30) Business Days prior thereto, or such shorter period as shall be acceptable to the Agent, the Company shall have delivered to the Agent a description of the proposed transaction, in reasonable detail, and a certificate signed by an Authorized Officer certifying that such transaction will not result in a Default or an Event of Default. SECTION 9.2.11. Asset Dispositions. The Company will not, ------------------ and will not permit any of its Subsidiaries to, make any Asset Disposition, other than the following: (a) the Company and its Subsidiaries may dispose of cash or Cash Equivalent Investments; (b) subject to Section 9.2.18, the Company or any -------------- wholly-owned Subsidiary of the Company may dispose of its assets to the Company or any wholly-owned Subsidiary of the Company; (c) the Company and its Subsidiaries may dispose of Inventory in the ordinary course of business; (d) the Company and its Subsidiaries may license 118 127 technology or know-how on a nonexclusive basis in the ordinary course of business; (e) ALPART or VALCO may dispose of any of their respective assets for fair value; (f) subject to Section 9.2.2(xv) the Company may dispose of a facility that is subsequently repurchased or leased by the Company in connection with the issuance of industrial revenue bonds by a state, municipality or other subdivision of the United States of America or any department, agency, public corporation or other instrumentality thereof; (g) the Company and its Subsidiaries may dispose of assets with a fair market value of less than $250,000 (in a single transaction or related series of transactions) in the ordinary course of business; (h) the Company may dispose of any of its assets in connection with the leaseback of such assets by the Company or any of its Subsidiaries, provided that such leaseback is otherwise permitted hereunder and such Asset Disposition occurs not later than twelve months after such assets are placed in service; (i) transfers of Property permitted by Section 9.2.12 -------------- and Section 9.2.18; and -------------- (j) if no Default or Event of Default shall have occurred and be continuing or shall occur after giving effect thereto, the Company and its Subsidiaries may dispose of assets, in addition to those dispositions permitted in clauses (a) through (h) above; provided the fair market value ----------- --- -------- of the assets disposed of pursuant to this Section 9.2.11(g) ----------------- does not exceed $25,000,000 in any Fiscal Year. Notwithstanding the foregoing, the Company will not, and will not permit any of its Subsidiaries to, take any action which would require an "Asset Sale Offer" (under and as defined in the Subordinated Indenture) to be made pursuant to Section 5.16(b) of --------------- the Subordinated Indenture or to violate the provisions of Section 5.12 of the Subordinated Indenture or Section 4.12 of the - ------------ ------------ Senior Indenture. In addition, notwithstanding the foregoing, the Company will not, and will not permit any of its Subsidiaries, to make any Asset Disposition of Accounts (other than pursuant to Section 9.2.12) or any Asset Disposition of any other Property if, - -------------- after giving effect to such Asset Disposition, the Revolving Credit Outstandings immediately following such Asset Disposition will exceed the Borrowing Base. SECTION 9.2.12. Sale or Discount of Receivables. The Company ------------------------------- will not, and will not permit any of its Subsidiaries to, directly or indirectly, sell, sell with recourse, discount or otherwise sell for less than the face value thereof, any of its notes or accounts 119 128 receivable; provided, however, that the Company and its -------- ------- Subsidiaries may sell, sell with recourse, discount or otherwise sell for less than the face value thereof, to any Lender or Lenders, (a) any accounts receivable arising in connection with any sale of product for delivery outside the United States which accounts receivable are secured by a letter of credit provided the discount on such accounts receivable secured by a letter of credit is not greater than that necessary to reflect the time value of money and (b) any notes or accounts receivable arising in connection with any sale of product for delivery in the Commonwealth of Independent States provided the aggregate amount of all such accounts receivable does not exceed $10,000,000 in any calendar month. SECTION 9.2.13. Restrictions on Actions under Certain ------------------------------------- Agreements. Neither the Parent Guarantor nor the Company will - ---------- (a) consent to any amendment, supplement, or other modification of any of the terms or provisions contained in, or applicable to, any document or instrument evidencing or governing any Subordinated Debt or any Senior Debt, the PIK Note or any Equity Proceeds Note other than any amendment, supplement, or other modification which extends the date or reduces the amount of any required repayment or any amendment, supplement or modification of the PIK Note or any Equity Proceeds Note that is consented to in writing by the Agent; (b) designate any other Indebtedness as "Specified Senior Debt" under the Subordinated Indenture or designate or permit any Subsidiary of the Company to designate any other Indebtedness of such Subsidiary as "Guarantor Specified Senior Debt" under the Subordinated Indenture; (c) take, or permit any of its Subsidiaries to take any action, or permit, or allow any of its Subsidiaries to permit, to exist any condition, which in any such case would require (i) the Company to cause any of its present or future Subsidiaries (other than KAAC, AJI, KFC and KJC, and except as otherwise provided in clauses (b) and (c) of Section 9.1.10 ----------- --- -------------- and clause (b)(i) of Section 9.2.2), or which would directly ------------- ------------- require any such Subsidiary, to guarantee or otherwise become liable in respect of any Subordinated Debt or Senior Debt, or (ii) the Company or any Subsidiary of the Company to provide collateral security in respect of any Subordinated Debt or Senior Debt; (d) make any offer to prepay, redeem, defease or repurchase any Subordinated Debt or Senior Debt; (e) fail to deliver any certificate and opinion permitted to be given to the trustee under clauses (a) and (b) ----------- --- of Section 16.14 of the Subordinated Indenture with respect to ------------- any "Subsidiary Guarantor" (under and as defined in the Subordinated Indenture) or to deliver any certificate and 120 129 opinion permitted to be given to the trustee under clauses (a) ----------- and (b) of Section 15.05 of the Senior Indenture with respect --- ------------- to any "Subsidiary Guarantor" (under and as defined in the Senior Indenture); and (f) consent to any amendment, supplement or other modification of any of the terms or provisions contained in, or applicable to, any document or instrument evidencing or governing the Parent Guarantor Preferred Stock (or depositary shares in respect thereof) if such amendment, supplement or other modification would have a Materially Adverse Effect. SECTION 9.2.14. Transactions with Affiliates. The Company ---------------------------- will not, and will not permit any of its Subsidiaries to, enter into, or cause, suffer, or permit to exist any transaction, arrangement, or contract with any Affiliate of the Company (other than the Company, its Subsidiaries which are not Restricted Subsidiaries, Joint Venture Affiliates, and any Subsidiary of a Joint Venture Affiliate in which neither the Parent Guarantor, MAXXAM nor any Affiliate of either thereof (other than the Company, its Subsidiaries which are not Restricted Subsidiaries, or any Joint Venture Affiliate) has any equity interest other than through a direct or indirect ownership interest in the Company) requiring, constituting or involving any payments or other transfers of Property to be made by the Company or any Subsidiary to or for the benefit of, or pursuant to which the Company or any of its Subsidiaries incurs a Contingent Liability in respect of any obligation of, or incurs a contractual obligation for the benefit of, any Affiliate of the Company (other than Persons described in the previous parenthetical of this sentence). Notwithstanding the foregoing provisions of this Section 9.2.14, (a) directors, officers, and employees of the - -------------- Company and its Subsidiaries may render services to the Company and its Subsidiaries which are not Restricted Subsidiaries for compensation and other benefits comparable to those generally paid by corporations engaged in the same or similar businesses for the same or similar services; (b) the transactions provided for in, and the loan evidenced by, the KT Note shall be permitted; (c) the performance of the Tax Allocation Agreement, the Deconsolidation Tax Allocation Agreement and the Transfer Agreement shall be permitted, except that the Company shall not be permitted to make any cash payments to MAXXAM or any other Affiliate pursuant to the Tax Allocation Agreement but MAXXAM may offset amounts owing to it under the Tax Allocation Agreement against amounts owed by MAXXAM under the Tax Allocation Agreement and the Company may make cash payments to MAXXAM pursuant to the Tax Allocation Agreement if such payments are required as a result of any audit of the tax returns of MAXXAM and such payments do not exceed the payments made by MAXXAM to the Company, subsequent to the date hereof, pursuant to the Tax Allocation Agreement; (d) the Company may make payments to MAXXAM for any Fiscal year in respect of (i) services actually rendered to the Company during such Fiscal Year by employees of MAXXAM, and (ii) the Company's allocable share of MAXXAM's overhead 121 130 expenses during such Fiscal Year which are attributable to employees of the Company who are located at MAXXAM's corporate headquarters, provided that the charges for such services are fully -------- documented and that the aggregate amount of such payments made by the Company to MAXXAM for any Fiscal Year does not exceed the aggregate amount of payments made to the Company by MAXXAM for similar purposes for any Fiscal Year by more than $1,500,000; (e) subject to Section 9.2.10, a merger or other combination between -------------- the Company and the Parent Guarantor shall be permitted; (f) Distributions permitted by Section 9.2.6 shall be permitted; (g) ------------- transactions between ALPART or VALCO and Persons who own an equity interest in ALPART or VALCO shall be permitted; (h) continuation of performance under agreements entered into with Persons who were not then Affiliates shall be permitted (but excluding, however, any renegotiation, extension, or modification of such agreements after such Person has become, or is anticipated to become, an Affiliate), provided that such agreement was not entered into in connection - -------- with or in anticipation of such Person becoming an Affiliate of the Company; (i) payments of legal fees and expenses to a law firm of which an Affiliate of the Company is a member shall be permitted; (j) the Company may provide services and facilities to the Parent Guarantor in connection with activities of the Parent Guarantor that are permitted by the first sentence of Section 9.2.1 in ------------- exchange for payment of its actual costs (allocated in good faith where appropriate) of providing such services and facilities; (k) any amendment to the KT Note that extends the maturity thereof or reduces the interest rate thereon shall be permitted; (l) performance of the PIK Note and any Equity Proceeds Note in accordance with the provisions of Section 9.2.6 shall be permitted; ------------- and (m) the issuance of any Equity Proceeds Note shall be permitted. For purposes of this Section 9.2.14, the term "Affiliate" -------------- shall not be deemed to include employee benefit plans, and trusts in connection therewith, for the benefit of employees of the Company and its Subsidiaries. SECTION 9.2.15. Negative Pledges, etc. The Parent Guarantor --------------------- and the Company will not, and will not permit any of their Subsidiaries (other than ALPART and VALCO) to, enter into any agreement (excluding this Agreement, any other Loan Document, and any agreement governing any Indebtedness permitted either by clause (a)(iii) of Section 9.2.2 as in effect on the Effective - --------------- ------------- Date, or by clause (b)(xv) of Section 9.2.2 as to the assets -------------- ------------- financed with the proceeds of such Indebtedness) (a) prohibiting the creation or assumption of any Lien securing the Obligations of the Company and its Subsidiaries upon its Properties, revenues, or assets which constitute Collateral, or over any properties, revenues, or assets which, if acquired after the Effective Date would be required to be subjected to a Lien in favor of the Agent pursuant to Section 9.1.10 or 9.1.11 or over any other real -------------- ------ property owned in fee by the Company or any such Subsidiary on the Effective Date, or (b) specifically prohibiting the Parent Guarantor, the Company, or any other Obligor from amending or 122 131 otherwise modifying this Agreement or any other Loan Document to which it is a party; provided, however, that the execution and -------- ------- delivery of the Senior Indenture shall not be deemed to breach clause (a) of this Section 9.2.15. - ---------- -------------- SECTION 9.2.16. Sale-Leaseback Transactions. The Company --------------------------- will not, and will not permit any of its Subsidiaries to, directly or indirectly, become liable as lessee or guarantor or other surety with respect to any lease (whether an operating or capital lease) of any Property, whether now owned or hereafter acquired, (a) which the Company or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person or (b) which the Company or any of its Subsidiaries intends to use for substantially the same purpose as any other Property which has been or is to be sold or transferred by the Company or such Subsidiary to any Person in connection with such lease, except (i) any Capitalized Lease Liabilities permitted under Section 9.2.2 or (ii) any consolidated ------------- lease expense resulting therefrom that would be permitted under Section 9.2.8. - ------------- SECTION 9.2.17. Change of Location or Name. Each of the -------------------------- Parent Guarantor and the Company will not, nor will either permit any of its Subsidiaries listed on Schedule IV hereto to, change ----------- (a) the location of its principal place of business, chief executive office, major executive office, chief place of business, or its records concerning its business and financial affairs; or (b) its name or the name under or by which it conducts its business, in each case without first giving the Agent at least 30 days, or such shorter period as shall be acceptable to the Agent, prior written notice thereof and taking any and all actions which the Agent may request to maintain and preserve all Liens in favor of the Agent granted pursuant to the Collateral Documents; provided, -------- however, that notwithstanding the foregoing, each of the Parent - ------- Guarantor and the Company will not, and will not permit any such Subsidiary to, change the location of its principal place of business, chief executive office, chief place of business, or its records concerning its business and financial affairs (i) to Louisiana or Tennessee, or (ii) from the contiguous continental United States to any place outside the contiguous continental United States. SECTION 9.2.18. Intercompany Transfers of Property. The ---------------------------------- Parent Guarantor and the Company will not, and will not permit any Obligor (other than KBC or KEC) to, transfer or cause to be transferred, in one or a series of related transactions any Property of the Parent Guarantor, the Company or any such Subsidiary to any Subsidiary of the Company or to any Joint Venture 123 132 Affiliate, except: (i) any Obligor may transfer, and pay for, goods, services, working capital and technology (other than Accounts) to Subsidiaries of the Company and Joint Venture Affiliates in the ordinary course of business and may license technology or know-how to Subsidiaries of the Company and Joint Venture Affiliates in the ordinary course of business; provided, in -------- each case, that after giving effect to such transfer the Revolving Credit Outstandings immediately following such transfer will not exceed the Borrowing Base; (ii) any Obligor may transfer Property (other than cash and Accounts) to Subsidiaries and Joint Venture Affiliates, provided that such transfer is made in exchange for cash in an -------- amount equal to the fair market value of such Property; (iii) any Obligor may transfer Property (other than Accounts) to any other Obligor (other than KBC and KEC); (iv) the use of the proceeds of Indebtedness incurred by the Company, KJC, AJI and KAAC by ALPART, QAL and VALCO pursuant to Section 9.2.2(b)(iii); --------------------- (v) transfers of capital stock or other equity interests to the issuer of such capital stock or other equity interests such that immediately after giving effect to such transfer and related transfers, the proportional beneficial ownership by the transferor of the class of capital stock or equity interests so transferred is not reduced; (vi) Investments permitted by Sections 9.2.5(f) and ----------------- 9.2.5(o); and -------- (vii) other transfers of Property (other than Accounts); provided that the aggregate amount thereof (if other than cash, such amount shall be the fair market value of such asset at the time of such transfer), less the aggregate amount of such Property returned to the Company or any Obligor (if returned other than in cash, the amount of such Property shall be the fair market value thereof at the time so returned), does not exceed, in the aggregate, the greater of (A) $25,000,000 or (B) 5% of the Company's Net Worth, calculated after giving effect to such transfers and returns. SECTION 9.2.19. Inconsistent Agreements. The Parent ----------------------- Guarantor and the Company will not, and will not permit any of its Subsidiaries to, enter into any material agreement (other than the Senior Debt Instruments) containing any provision which would be violated or breached by any Credit Extension or by the performance by the Parent Guarantor or the Company or any other Obligor of its obligations hereunder or under any Loan Document. SECTION 9.2.20. Transfer of Collateral. The Company will ---------------------- 124 133 not, and will not permit any of its Subsidiaries to, transfer to the Company's Gramercy alumina refinery any equipment owned on the Initial Borrowing Date and not located or used at, or in transit to, the Company's Gramercy alumina refinery on the Initial Borrowing Date. ARTICLE X EVENTS OF DEFAULT SECTION 10.1. Listing of Events of Default. Each of the ---------------------------- following events or occurrences described in this Section 10.1 ------------ shall constitute an "Event of Default". ---------------- SECTION 10.1.1. Non-Payment of Obligations. The Company -------------------------- shall default in the payment or prepayment when due of any principal of or interest on any Loan or Reimbursement Obligation; or the Company shall default (and such default shall continue unremedied for a period of five days) in the payment when due of any commitment or letter of credit fee payable hereunder. SECTION 10.1.2. Breach of Warranty. Any representation, ------------------ warranty, or certification of the Parent Guarantor, the Company, or any other Obligor made or deemed to be made hereunder or in any other Loan Document to which it is or is to become a party or any other writing or certificate furnished by or on behalf of the Parent Guarantor, the Company, or any other Obligor to the Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article VII) is or shall be incorrect when ----------- made in any material respect. SECTION 10.1.3. Non-Performance of Certain Covenants and ---------------------------------------- Obligations. The Parent Guarantor, the Company, or any Obligor - ----------- shall default in the due performance and observance of any of its respective obligations under Sections 3.3.2(b) and (c), 9.2.4, ----------------- --- ----- 9.2.6 or 9.2.7 of this Agreement. - ----- ----- SECTION 10.1.4. Non-Performance of Certain Covenants and ---------------------------------------- Obligations. The Parent Guarantor, the Company, or any other - ----------- Obligor shall default in the due performance and observance of any of its respective obligations under (a) Section 9.2 (other than Sections 9.2.4, 9.2.6 and ------------------------------------------------- 9.2.7), 9.1.4, or 9.1.9 or clause (a) of Section 9.1.5 ------------------------------------------------------ of this Agreement, (b) Section 1.2, 1.4, 1.5, 1.7, 1.10, 1.11, 1.15, 1.17, ----------- --- --- --- ---- ---- ---- ---- 1.19, 1.20.1, or 1.21 of any Company Mortgage or Company Deed ---- ------ ---- of Trust, (c) Section 6(e), 7(h), 7(i), 7(j), 7(l), 7(r), or 10 of ------------ ---- ---- ---- ---- ---- -- the Company Security Agreement, 125 134 (d) Section 7(h), 7(i), 7(j), 7(k) or 10 of the Parent ------------ ---- ---- ---- -- Security Agreement, (e) Section 7(h), 7(i), 7(j), 7(l) or 10 of the ------------ ---- ---- ---- -- Subsidiary Security Agreement, (f) Section 4.1 or 4.2 of the Company Pledge Agreement, ----------- --- the Parent Pledge Agreement, or the Subsidiary Pledge Agreement, or (g) Section 4.1 of the Intercompany Note Pledge ----------- Agreement, and such default shall continue unremedied for a period of five days after written notice thereof shall have been given by the Agent to the Company. SECTION 10.1.5. Non-Performance of Other Covenants and -------------------------------------- Obligations. Any Obligor shall default in the due performance and - ----------- observance of any other agreement contained herein, or in any other Loan Document to which it is or is to become a party, and such default shall continue unremedied for a period of 30 days after written notice thereof shall have been given by the Company to the Agent or to the Company by the Agent. SECTION 10.1.6. Default on Other Indebtedness. A default ----------------------------- shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 10.1.1) -------------- of the Parent Guarantor, the Company, any of their Subsidiaries, or any Joint Venture Affiliate having an aggregate principal amount in excess of $20,000,000 or, in the case of Indebtedness of Joint Venture Affiliates, having an aggregate principal amount for which the Parent Guarantor, the Company, or any of their Subsidiaries is contingently liable in excess of $20,000,000; or a default shall occur in the performance or observance of any obligation or condition with respect to any such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or to permit the holder or holders thereof, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 10.1.7. Judgments. A final judgment which, --------- together with other outstanding final judgments against the Company and its Significant Subsidiaries, exceeds an aggregate of $20,000,000 (to the extent such judgments are not covered by valid and collectible insurance from solvent unaffiliated insurers) shall be entered against the Company and/or any of its Significant Subsidiaries and (a) within 30 days after entry thereof, judgments exceeding such amount shall not have been discharged, settled, bonded or execution thereof stayed pending appeal or, within 30 days after the expiration of any such stay, such judgments exceeding such amount shall not have been discharged, settled, bonded or execution thereof stayed or (b) an enforcement proceeding 126 135 shall have been commenced (and not discharged, settled, bonded or execution thereof stayed) by any creditor upon judgments exceeding such amount. SECTION 10.1.8. Pension Plans. Any of the following ------------- events shall occur with respect to any Pension Plan (a) the taking of any action by the Parent Guarantor, the Company, any member of their Controlled Groups, or any other Person (with the requisite authority to act) to terminate a Pension Plan if, as a result of such termination, the Parent Guarantor, the Company, or any such member could reasonably expect to, or in the case of liability arising under section 4063 or section 4069 of ERISA, there is a reasonable likelihood that it could be required to, make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $10,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien against assets of any Controlled Group member under Section 302(f) of ERISA in an amount in excess of $1,000,000, which failure has not been completely cured within 30 days of the applicable due date. SECTION 10.1.9. Change in Control. Any Change in Control ----------------- shall occur. SECTION 10.1.10. Bankruptcy, Insolvency, etc. The Parent --------------------------- Guarantor, the Company, any Significant Subsidiary, any other Obligor, or any Joint Venture Affiliate (other than KJBC) shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator, or other custodian for the Parent Guarantor, the Company, any Significant Subsidiary, any other Obligor, or any such Joint Venture Affiliate or any Property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent, or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator, or other custodian for the Parent Guarantor, the Company, any Significant Subsidiary, any other Obligor, or any such Joint Venture Affiliate or for a substantial part of the Property of any thereof, and, in the case of any such Person other than the Company, such trustee, receiver, sequestrator, or other custodian shall not be discharged within 60 days; 127 136 (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up, or liquidation proceeding, in respect of the Parent Guarantor or of the Company; (e) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up, or liquidation proceeding, in respect of any Significant Subsidiary, any other Obligor (other than the Parent Guarantor or the Company), or any such Joint Venture Affiliate, and, if such case or proceeding is not commenced by such Person, such case or proceeding shall be consented to or acquiesced in by such Person or shall result in the entry of an order for relief or shall remain for 60 days undismissed; or (f) take any corporate action authorizing, or in furtherance of, any of the foregoing. SECTION 10.1.11. Subordinated Debt and Senior Debt. The --------------------------------- Company shall be required, pursuant to the terms of any Subordinated Debt Instrument or any Senior Debt Instrument, or shall offer, to redeem, repurchase, prepay, or defease any Subordinated Debt or any Senior Debt. SECTION 10.1.12. Impairment of Certain Documents. Except ------------------------------- as otherwise expressly permitted in any Loan Document, any of the Fundamental Loan Documents shall terminate or cease in whole or in part to be the legally valid, binding, and enforceable obligation of the relevant Obligor, or such Obligor or any Person acting for or on behalf of such Obligor contests such validity, binding effect, or enforceability, or purports to revoke any Fundamental Loan Document, or any asset or item of Property purported to be secured by any Collateral Document ceases to be so secured and continues not to be secured for ten Business Days after written notice thereof has been given to such Obligor by the Agent. SECTION 10.2. Action if Bankruptcy. If any Event of Default -------------------- described in clauses (a) through (e) of Section 10.1.10 shall occur ----------- --- --------------- with respect to the Company, the outstanding principal amount of all outstanding Loans and all other Obligations shall automatically be and become immediately due and payable, without notice, demand or presentment and the Company shall pay to the Agent in Dollars and immediately available funds an amount equal to the then aggregate Letter of Credit Outstandings in accordance with Section 5.7. - ----------- SECTION 10.3. Action if Other Event of Default. If any Event -------------------------------- of Default (other than any Event of Default described in clauses (a) through (e) of Section 10.1.10 with respect to the - ----------- --- --------------- Company) shall occur for any reason, whether voluntary or involuntary, and be continuing, 128 137 (a) the Agent shall, upon the direction of the Majority Lenders, (i) by written notice to the Company declare the Commitments terminated, whereupon the Commitments of each Lender will thereupon terminate immediately and any fees payable hereunder shall become due and payable without notice of any kind; (ii) by written notice to the Company declare all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand, or presentment and the Company shall pay to the Agent in Dollars and immediately available funds an amount equal to the then aggregate Letter of Credit Outstandings in accordance with Section 5.7; or ----------- (iii) terminate any Letter of Credit which may be terminated in accordance with its terms; and (b) the Agent shall, upon the direction of the Majority Lenders, and may, in its sole and absolute discretion, (i) reduce the Revolving Commitment Availability or one or more of the elements thereof; or (ii) decline to permit the issuance of additional Letters of Credit or the extension of the Stated Expiry Date of any outstanding Letter of Credit. Each and every right, power, and remedy provided herein or in any other Loan Document shall be cumulative and shall be in addition to every other right, power, and remedy provided herein or in any other Loan Document or provided under applicable law. ARTICLE XI THE ADMINISTRATIVE AGENT SECTION 11.1. Appointment; Actions. -------------------- (a) Each Lender hereby appoints Business Credit as its Agent under and for purposes of this Agreement, each of the other Loan Documents and the Collateral Documents. Each Lender irrevocably authorizes, and each assignee of any Lender shall be deemed to authorize, the Agent to act on behalf of such Lender under this Agreement, each of the other Loan Documents and the Collateral Documents and, in the absence of other written instructions received from time to time by the Agent from the Majority Lenders or, as required by the Credit 129 138 Agreement, the Required Lenders or all of the Lenders (with which instructions the Agent agrees that it will comply, except as otherwise provided in this Section 11.1), each Lender irrevocably authorizes the Agent to take such actions on its behalf and to exercise such powers hereunder and thereunder as are in each case specifically delegated to or required of the Agent by the terms hereof or thereof, together with such powers as may be reasonably incidental thereto. Each Lender agrees that no Lender shall have any right individually to seek to realize upon the security granted by or any guaranty provided by any Collateral Document, it being understood and agreed that such rights and remedies may be exercised solely by the Agent for the benefit of the Lenders in accordance with the terms of this Agreement and the Collateral Documents. (b) The Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any other Loan Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. Notwithstanding the foregoing, the Lenders acknowledge that the Agent is authorized to exercise its discretion in taking certain actions and exercising certain powers under this Agreement, including determining which Accounts and Inventory constitute Eligible Accounts and Eligible Inventory, determining the Revolving Commitment Availability pursuant to Section 10.3, ------------ and during the continuance of an Event of Cash Dominion, continuing to make Credit Extensions in accordance with and subject to the provisions of Section 7.2. Each Lender hereby ----------- irrevocably indemnifies and agrees to indemnify (which indemnity shall survive any termination of this Agreement) the Agent, and each of its officers, directors, employees and agents (collectively, the "Indemnified Persons"), pro rata ------------------- --- ---- according to such Lender's Percentage, from and against any and all liabilities, demands, judgments, obligations, losses, damages, claims, costs, or expenses of any kind or nature whatsoever (including those relating to the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings, or otherwise) of this Agreement, and the other Loan Documents) which may at any time be imposed on, incurred by, or asserted against, any of the Indemnified Persons in any way relating to or arising out of this Agreement, or any other Loan Document, including reasonable attorneys' fees and allocated costs of in-house counsel, and as to which the Agent is not reimbursed by the Company; provided, however, that no -------- ------- Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs, or expenses of any Indemnified Person which have resulted from such Indemnified Person's gross negligence or willful misconduct. The Agent shall not be required to take any 130 139 action, make any inquiry, or request any document hereunder, or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement, or any other Loan Document, unless (i) if it has requested instructions from the Lenders as to such action, it shall have received such instructions from the Required Lenders (or, if required by this Agreement, all the Lenders or the Majority Lenders, as the case may be) and (ii) it is indemnified hereunder to its satisfaction. If any indemnity in favor of the Agent shall be or become inadequate, in the determination of the Agent, the Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. The agreements in this clause (c) shall survive the termination of the Commitments ---------- and the Letters of Credit and the repayment of the Loans and other Obligations. (c) The Company hereby requests the Agent to, and each Lender hereby instructs the Agent to, and the Agent agrees to, deliver to the Company on the Initial Borrowing Date, for delivery by the Company to R.T.Z. Aluminum Holdings Limited, a letter in the form of Exhibit R attached hereto. --------- (d) The Company hereby requests the Agent to, and each Lender hereby instructs the Agent to, and the Agent agrees to, deliver to the Company on the Initial Borrowing Date, a letter regarding the flood plain status of the properties covered by the Company Mortgages and the Company Deeds of Trust, in the form of Exhibit S attached hereto. --------- (e) The Agent hereby agrees that it will promptly give the Company notice of the occurrence of either of the following events: (i) the Revolving Commitment Availability is less than $40,000,000 at any time or (ii) the Revolving Commitment Availability is less than $50,000,000 for three consecutive Business Days and provided no Default shall have occurred and be continuing, will promptly give notice to the Company in the event that, thereafter, the Revolving Commitment Availability is greater than $50,000,000 for each day during a period of three consecutive months. In addition, the Agent hereby agrees to advise the other Lenders on or prior to the notification of the other Lenders by the Agent of any Borrowing Request delivered during the continuance of an Event of Default in the event that it has determined to waive any of the conditions of Section 7.2 during the continuance of such ----------- Event of Default. SECTION 11.2. Funding Reliance, etc. --------------------- (a) Unless the Agent shall have been notified by telephone and such notice shall have been confirmed in writing by any Lender by 5:00 p.m., San Francisco time, on the 131 140 Business Day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Agent may assume that such Lender has made such amount available to the Agent and, in reliance upon such assumption, make available to the Company a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Agent, such Lender and the Company severally agree to repay the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Agent made such amount available to the Company to the date such amount is repaid to the Agent, at the interest rate(s) applicable at the time to Loans comprising such Borrowing in the case of the Company and at the daily average Federal Funds Rate in the case of any Lender. (b) Unless the Agent shall have been notified by telephone and such notice shall have been confirmed in writing by the Company by 5:00 p.m., San Francisco time, on the day prior to the due date of any Obligation, that any Obligor will not make the full amount of all payments scheduled to be made by it on such due date, the Agent may assume that such Obligor has made such amount available to the Agent and, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of such amount. If the Agent makes --- ---- any such amount available to any Lender, but such amount was not in fact made available by or on behalf of such Obligor to the Agent on such due date, such Lender shall pay to the Agent on demand the amount previously made available to such Lender, together with interest on such amount at the daily average Federal Funds Rate for the number of days from and including the date on which such Lender received such amount to the date on which such amount becomes immediately available to the Agent, and together with such other compensatory amounts as may be required to be paid by such Lender to the Agent pursuant to the Rules for Interbank Compensation of the Council on International Banking or the Clearinghouse Compensation Committee, as the case may be, as in effect from time to time. A statement of the Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive, in the absence of manifest error. If such amount is not in fact made available to the Agent by such Lender within two Business Days after the date on which such Lender is (i) informed by the Agent that such amount was not made available to the Agent by or on behalf of such Obligor, and (ii) requested by the Agent to refund such amount to the Agent, then the Agent shall be entitled to recover on demand an amount calculated in the manner specified in the second preceding sentence of this clause (b) after substituting the ---------- term "Reference Rate" for the term "Federal Funds Rate". SECTION 11.3. Exculpation. ----------- (a) No Indemnified Person shall be liable to any Lender 132 141 for any action taken or omitted to be taken by such Indemnified Person under this Agreement or any other Loan Document or in connection herewith or therewith (except for such Indemnified Person's own willful misconduct or gross negligence), nor responsible for any recitals, statements, representations or warranties herein or therein, nor for the effectiveness, genuineness, enforceability, validity, or due execution of this Agreement or any other Loan Document, nor for the creation, perfection, or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, condition, value, or sufficiency of any collateral security, nor to make any inquiry respecting the performance by any Obligor of its obligations hereunder or under any other Loan Document. Each Indemnified Person shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement, or writing which such Indemnified Person believes to be genuine and to have been presented by a proper Person, and shall not be liable to any Lender or any Obligor for the consequences of such reliance. (b) The Agent shall be deemed not to have knowledge of the occurrence of a Default or an Event of Default (other than, in the case of the Agent, an Event of Default arising under Section 10.1.1), or any breach of any of the Loan -------------- Documents unless, in each case, it shall have received written notice thereof from a Lender or from the Company. No Indemnified Person shall be responsible or liable for any shortage, discrepancy, damage, loss, or destruction of any part of the Collateral, wherever the same may be located and regardless of the cause thereof, unless the same shall happen through its own gross negligence or willful misconduct. No Indemnified Person shall, under any circumstances or any event whatsoever, have any liability for any error or omission or delivery of any kind made in the settlement, collection, or payment of any of the Collateral or of any instrument received in payment therefor or for any damage resulting therefrom other than as a result of its own gross negligence or willful misconduct. SECTION 11.4. Successors. The Agent may resign as such at ---------- any time upon at least 30 days' prior written notice to the Company and all Lenders. If the Agent at any time shall resign, the Required Lenders may appoint another Lender or a commercial banking institution organized under the laws of the United States (or any state thereof) or a United States branch or agency of a foreign commercial banking institution, and having a combined capital and surplus of at least $500,000,000 as a successor Agent which shall thereupon become the Agent hereunder. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be one of the Lenders or one of such commercial banking institutions. 133 142 Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges, and duties of the retiring Agent and the retiring Agent shall be discharged from any further duties and obligations under or in connection with this Agreement and any Loan Document. In addition, in the event that Business Credit resigns as the Agent, Bank of America shall be discharged from any duties and obligations under or in connection with this Agreement and any Loan Documents that were delegated to Bank of America by Business Credit in its capacity as Agent. After the resignation hereunder of a retiring Agent, the provisions of (a) this Article XI shall inure to its benefit as to ---------- any actions taken or omitted to be taken by it while it was the Agent under this Agreement; and (b) Sections 12.3 and 12.4 shall continue to inure to ------------- ---- its benefit. SECTION 11.5. Credit Extensions by the Agent. Business ------------------------------ Credit and its successor as Agent shall have the same rights and powers with respect to (a) the Loans made by it or any of its Affiliates and (b) Letters of Credit issued (or participated in) by it or any of its Affiliates as any other Lender and may exercise the same as if it were not the Agent. The terms "Lender" and "Lenders" as used herein shall include the Agent in its individual capacity. SECTION 11.6. Credit Decisions. Each Lender acknowledges ---------------- that it has, independently of the Agent, and each other Lender, and based on such Lender's review of the financial information of the Company and such other documents, information, and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of the Agent, and each other Lender, and based on such other documents, information, and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 11.7. Copies, etc. The Agent shall give prompt ----------- written notice to each Lender of each notice or request required or permitted to be given to the Agent by any Obligor pursuant to the terms of this Agreement or any other Loan Document (unless concurrently delivered to the Lenders by or on behalf of such Obligor pursuant to the terms hereof). The Agent will promptly distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Agent from the Company for distribution to the Lenders by the Agent in accordance with the terms of this Agreement and the other Loan 134 143 Documents. SECTION 11.8. Designation of Additional Agents. Whenever the -------------------------------- Agent shall deem it necessary or prudent in order either to conform to any law of any jurisdiction in which all or any part of the Collateral shall be situated or to make any claim or bring any suit with respect to the Collateral or the Collateral Documents, or in the event that the Agent shall have been requested to do so by the Required Lenders, the Agent and to the extent necessary, the Parent Guarantor and the Company, shall (and the Company shall cause each other Obligor to) execute and deliver a supplemental agreement and all other instruments and agreements necessary or proper to constitute another bank or trust company, or one or more Persons approved by the Agent, either to act as Agent or agents with respect to all or any part of the Collateral, in any such case with such powers of the Agent as may be provided in such supplemental agreement, and to vest in such bank, trust company or Person as such Agent or separate trustee, as the case may be, any Property, title, right, or power of the Agent deemed necessary or advisable by the Agent. SECTION 11.9. Certain Releases. ---------------- (a) To the extent that the Agent becomes concerned that the exercise of any remedies or any action taken or omitted to be taken by it in connection with any Collateral shall subject it to the possibility of any liability, cost, or expense which it deems to be significant, arising under any law, rules, or regulations relating to hazardous or toxic wastes or materials, the Agent may, without liability to any Lender or other party to this Agreement or any other Loan Document, or any other Person, decline to accept, abandon, forfeit, or release such Collateral regardless of any effect such declination, abandonment, forfeiture, or release may have upon the Lenders, or otherwise, if either (i) the Agent is requested to decline to accept, abandon, forfeit, or release such Collateral by the Required Lenders or (ii) the Agent is not, within 30 days after making a specific proposal therefor, specifically indemnified to its satisfaction by the Required Lenders or insured to its satisfaction by a third party or parties for any liability, costs, and expenses which might result therefrom. (b) In addition, if the Agent becomes concerned that the inclusion of certain Property in the Collateral is not in the best interests of the Agent or the Lenders, either because of potential adverse legal implications (including the potential effects of California's "one form of action", "anti-deficiency" and related rules of law which may apply in connection with real property located in California) or potential liabilities, costs, or expenses which the Agent deems to be significant that may be imposed upon a Person secured by such Collateral, the Agent may, without liability to any Lender or other party to this Agreement or any other 135 144 Loan Document, or any other Person, decline to accept, abandon, forfeit, or release such Collateral regardless of any effect such declination, abandonment, forfeiture, or release may have upon the Lenders or otherwise unless (i) the Agent is requested to do otherwise by the Required Lenders and (ii) the Agent is, within 30 days after making a specific proposal therefor, specifically indemnified to its satisfaction by the Required Lenders or insured to its satisfaction by a third party or parties for any liability, costs, and expenses which might result therefrom. SECTION 11.10. Approval of Loan Documents. Each of the -------------------------- Lenders hereby approves the forms of the Loan Documents attached as Exhibits to this Agreement and hereby authorizes the Agent on its behalf to accept from the Company and the other Obligors, as the case may be, and, authorizes the Agent to execute and deliver as Agent, the Collateral Documents in substantially the form of such Exhibits, with such changes, additions, or deletions as the Agent, in its sole and absolute discretion, may approve as necessary or appropriate to accomplish the purposes of such Loan Documents. Each of the Lenders also authorizes the Agent to accept, or execute and deliver, such additional documents, in form and substance satisfactory to the Agent in its sole and absolute discretion, in connection with the initial Borrowing or any subsequent Borrowing as the Agent, in its sole and absolute discretion, may approve as necessary or appropriate to accomplish the purposes of the Loan Documents. Each of the Lenders further authorizes the Agent, in its sole and absolute discretion, to approve the form and content of all certificates, opinions, collateral, financing statements, and other documents delivered to it at or in connection with the initial Borrowing or any subsequent Borrowing as the Agent, in its sole and absolute discretion, may deem necessary or appropriate. Whenever the Agent is permitted to consent to any matter hereunder, the Agent shall have the right, in its sole discretion, to consult with any or all of the other Lenders prior to providing or refraining from providing any such consent. ARTICLE XII MISCELLANEOUS PROVISIONS SECTION 12.1. Waivers, Amendments, etc. ------------------------ (a) The provisions of this Agreement and of each other Loan Document may from time to time be amended or modified, if such amendment or modification is in writing and consented to by the Company or the Obligor(s) party thereto (as the case may be) and the Required Lenders; and the provisions of this Agreement may be waived by the Required Lenders or by the Agent acting with the consent of the Required Lenders; provided, however, that no such amendment, modification, or waiver which would: 136 145 (i) modify this Section 12.1, change the ------------ definition of "Required Lenders" or "Majority ---------------- Lenders," increase any Revolving Commitment Amount or modify any requirement hereunder that any particular action be taken by all the Lenders, the Required Lenders or the Majority Lenders shall be effective unless consented to by each Lender; (ii) increase the Percentage of any Lender, reduce any fees described in Article III payable to ----------- any Lender, or extend any Lender's Commitment Termination Date shall be made without the consent of such Lender; (iii) extend the due date for, or reduce the amount of, any scheduled repayment of principal of or interest on any Loan or any Reimbursement Obligation, or reduce the principal amount of or rate of interest on any Loan or reduce the amount of any Reimbursement Obligation, shall be made without the consent of the Lender which made such Loan or participated in such Letter of Credit, or each Lender which issued or is participating in the Letter of Credit with respect to which such Reimbursement Obligation is owed, as the case may be; (iv) release all, substantially all, or any material portion of the Collateral (except for releases in connection with dispositions of assets which are permitted hereunder or under any Loan Document, and releases which are required by the Collateral Documents) without the consent of Lenders holding at least 100% of the then aggregate outstanding principal amount of the Revolving Credit Outstandings or, if no such principal amount is then outstanding, Lenders having at least 100% of the Revolving Commitments; (v) affect adversely the interests, rights, or obligations of the Agent qua Agent, shall be made --- without the consent of the Agent; or (vi) modify any Letter of Credit or any Revolving L/C Request without the consent of the relevant Issuer Bank. (b) Notwithstanding the foregoing, during the continuance of an Event of Cash Dominion, the Agent may, at any time thereafter, in its sole and absolute discretion, continue to make Revolving Loans and Swingline Loans and instruct the applicable Issuer Bank to issue Letters of Credit in accordance with and subject to the provisions of Section 7.2. ----------- 137 146 (c) No failure or delay on the part of the Agent, any Lender, any Issuer Bank, or the holder of any of the Obligations in exercising any power, right, or remedy under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right, or remedy preclude any other or further exercise thereof or the exercise of any other power, right, or remedy. No notice to or demand on the Company or any Obligor in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Agent, any Lender, any Issuer Bank, or the holder of any of the Obligations under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. (d) Each of the Parent Guarantor and the Company hereby waives demand, presentment for payment, protest, notice of protest, notice of acceleration (except as otherwise provided herein), or of intention to accelerate the maturity of any of the Loans, diligence in collecting, the bringing of any suit against any party and any notice of or defense on account of any extensions, renewals, partial payments, or any changes in any of the terms, provisions, and covenants of this Agreement, or any other Loan Document, or any releases or substitutions of any security, or any delay, indulgence, or other act of any trustee or any other Person under or in connection with this Agreement, or any other Loan Document whether before or after maturity. SECTION 12.2. Notices. Except as otherwise provided herein ------- or in any other Loan Document, all notices and other communica- tions provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile (followed promptly thereby by mailing of such notice or communication) and addressed, delivered, or transmitted to such party at its address, telex, or facsimile number set forth below its signature hereto, or set forth in the Assignee Agreement to be Bound pursuant to which such party became a party hereto, or at such other address, telex, or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if delivered by hand or if sent by mail or by overnight courier properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes). SECTION 12.3. Payment of Costs and Expenses. The Parent ----------------------------- Guarantor and the Company, jointly and severally, agree to pay on demand all expenses of the Agent (including the reasonable fees and out-of-pocket expenses of counsel to the Agent and of local counsel, if any, who may be retained by counsel to the Agent and 138 147 the allocated costs of in-house counsel) in connection with (a) the negotiation, preparation, execution, and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements, or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, (b) the filing, recording, refiling, and rerecording of the Collateral Documents (including financing statements or similar documentation) and all amendments, supplements, and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed, recorded, refiled, or rerecorded by the terms hereof or of the Collateral Documents, and (c) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document. The Parent Guarantor and the Company, jointly and severally, further agree to pay, and to save the Agent and the Lenders harmless from all liability for, any stamp, recording, or similar taxes which may be payable in connection with the execution or delivery of this Agreement, the Credit Extensions hereunder, the issuance of the Letters of Credit, or the execution and delivery of any other Loan Documents. The Parent Guarantor and the Company, jointly and severally, also agree to reimburse the Agent and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by the Agent or such Lender in connection with the enforcement of any Obligations and to reimburse the Agent upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by the Agent in connection with the negotiation of any restructuring or "work-out," whether or not consummated, of any Obligations. SECTION 12.4. Indemnification. In consideration of the --------------- execution and delivery of this Agreement by the Agent and each Lender, and the extension of the Commitments, the Company hereby indemnifies, exonerates, and holds the Agent (in its capacity as the Agent) and each Lender and each of their respective officers, directors, employees, and agents (collectively, the "Indemnified ----------- Parties") free and harmless from and against any and all actions, - ------- causes of action, suits, losses, costs, liabilities, and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified ----------- Liabilities" and, individually, an "Indemnified Liability"), - ----------- --------------------- incurred by the Indemnified Parties or any of them as result of, arising out of, or relating to 139 148 (a) any transaction or goods financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Credit Extension; (b) the entering into, issuance, acceptance, or performance of or participation in this Agreement and any other Loan Document by any of the Indemnified Parties (including any unsuccessful action brought by or on behalf of the Company or any other Obligor as the result of any determination by the Majority Lenders pursuant to Article VII ----------- not to make any Credit Extension); (c) any investigation, litigation, or proceeding related to any acquisition or proposed acquisition by the Parent Guarantor, the Company, or any of their Subsidiaries or Joint Venture Affiliates of all or any portion of the stock or assets of any Person, whether or not such Indemnified Party is party thereto; (d) any investigation, litigation, or proceeding related to any environmental cleanup, audit, compliance, or other matter relating to the protection of the environment or the Release by the Parent Guarantor, the Company or any of their Subsidiaries or Joint Venture Affiliates of any Hazardous Material; or (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging, or releases from, any real property owned or operated by the Parent Guarantor, the Company, or any of their Subsidiaries or Joint Venture Affiliates of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses, or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Company or such Subsidiary, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or willful misconduct, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Each Indemnified Party, as soon as reasonably practicable, shall notify the Agent of the commencement of any legal proceeding by any third Person under which any Indemnified Liability might arise. The Agent shall notify the Company of any such commencement promptly after the Agent receives its notice. The Company shall have the option to participate in the defense of all claims under which any Indemnified Liability might arise, but the Company shall not have the option to compel any Indemnified Party to employ counsel of the Company's choosing. SECTION 12.5. Survival. The obligations of the Company -------- 140 149 under Sections 4.3, 4.4, 4.5, 4.6, 4.7, 12.3, and 12.4, and the ------------ --- --- --- --- ---- ---- obligations of the Lenders under Sections 4.8, 11.1 and 11.2, shall ------------------ ---- in each case survive any termination of this Agreement. The representations and warranties made by each Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document notwithstanding any investigation. SECTION 12.6. Severability. Any provision of this Agreement ------------ or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 12.7. Headings. The various headings of this Agree -------- ment and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 12.8. Execution in Counterparts, Effectiveness, etc. --------------------------------------------- This Agreement may be executed by the parties hereto in several counterparts and by the different parties on separate counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective on the date (the "Effective Date") -------------- when counterparts hereof executed on behalf of the Parent Guarantor, the Company, the Agent, and each Lender (or notice thereof satisfactory to the Agent) shall have been received by the Agent and notice thereof shall have been given by the Agent to the Parent Guarantor, the Company, and each Lender. SECTION 12.9. Governing Law; Submission to Jurisdiction. ------------------------------------------ (a) THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT (EXCEPT TO THE EXTENT THAT SUCH OTHER LOAN DOCUMENT CONTAINS A CONTRARY EXPRESS CHOICE OF LAWS PROVISION) SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO CONFLICTS OF LAWS. (b) THE PARENT GUARANTOR AND THE COMPANY HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL AND STATE OF NEW YORK COURTS LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK, NEW YORK FOR ALL PURPOSES OF OR IN CONNECTION WITH THIS AGREEMENT, AND ALL OTHER LOAN DOCUMENTS, PROVIDED, HOWEVER, THAT NOTHING IN THIS -------- ------- SECTION 12.9 SHALL AFFECT EITHER THE AGENT'S OR ANY LENDER'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE PARENT GUARANTOR, THE COMPANY, OR THEIR RESPECTIVE PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS. 141 150 (c) UNTIL SUCH TIME AS THE AGENT AND THE LENDERS SHALL HAVE RECEIVED FINAL PAYMENT OF THE FULL AMOUNT OF ALL OBLIGATIONS AND PERFORMANCE OF ALL OBLIGATIONS, AND ALL LETTERS OF CREDIT SHALL HAVE EXPIRED, THE PARENT GUARANTOR AND THE COMPANY HEREBY IRREVOCABLY DESIGNATE AND APPOINT KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL, CURRENTLY LOCATED AT 919 THIRD AVENUE, NEW YORK, NEW YORK 10022 (ATTENTION: EZRA LEVIN), AS THEIR AGENT TO ACCEPT AND ACKNOWLEDGE ON THEIR BEHALF ANY AND ALL PROCESS WHICH MAY BE SERVED IN CONNECTION WITH ANY SUIT, ACTION, OR PROCEEDING OF THE NATURE REFERRED TO IN THE PRECEDING PARAGRAPH. THE PARENT GUARANTOR AND THE COMPANY EACH HEREBY ACKNOWLEDGE THAT, TO THE FULLEST EXTENT PERMITTED BY LAW, SUCH SERVICE SHALL BE EFFECTIVE AND BINDING SERVICE ON IT IN EVERY RESPECT REGARDLESS OF WHETHER IT SHALL BE DOING OR SHALL HAVE AT ANY TIME DONE BUSINESS IN THE STATE OF NEW YORK. (d) THE PARENT GUARANTOR AND THE COMPANY HEREBY AGREE TO TAKE ANY AND ALL ACTION THAT MAY BE NECESSARY TO ENSURE THAT AT ALL TIMES DURING THE TERM OF THIS AGREEMENT THERE SHALL BE AN AGENT IN NEW YORK DESIGNATED AND APPOINTED BY THEM FOR THE PURPOSE DESCRIBED ABOVE, TO MAINTAIN SUCH DESIGNATION AND APPOINTMENT OF SUCH AGENT IN FULL FORCE AND EFFECT FOR THE TERM OF THIS AGREEMENT, AND TO DELIVER PROMPTLY TO THE AGENT AT SUCH TIMES AS THE AGENT MAY REQUEST EVIDENCE IN WRITING OF SUCH AGENT'S ACCEPTANCE OF SUCH APPOINTMENT. (e) THE PARENT GUARANTOR AND THE COMPANY HEREBY CONSENT TO PROCESS BEING SERVED IN ANY SUIT, ACTION, OR PROCEEDING OF THE NATURE REFERRED TO ABOVE EITHER (I) BY THE MAILING OF A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO ITS RESPECTIVE ADDRESS SHOWN BELOW ITS SIGNATURE HERETO OR (II) BY SERVING A COPY THEREOF UPON THE PERSON SPECIFIED ABOVE AS THE AUTHORIZED AGENT FOR SERVICE OF PROCESS FOR THE PARENT GUARANTOR AND THE COMPANY (TO THE EXTENT PERMITTED BY APPLICABLE LAW, REGARDLESS OF WHETHER THE APPOINTMENT OF SUCH AGENT FOR SERVICE OF PROCESS FOR ANY REASON SHALL PROVE TO BE INEFFECTIVE OR SUCH AGENT FOR SERVICE OF PROCESS SHALL ACCEPT OR ACKNOWLEDGE SUCH SERVICE); PROVIDED, HOWEVER, THAT, TO THE EXTENT LAWFUL AND PRACTICABLE, -------- ------- WRITTEN NOTICE OF SAID SERVICE UPON SAID AGENT SHALL BE MAILED BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO THE PARENT GUARANTOR OR THE COMPANY, AS APPLICABLE, AT ITS RESPECTIVE ADDRESS SHOWN BELOW ITS SIGNATURE HERETO. THE PARENT GUARANTOR AND THE COMPANY AGREE THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW, (I) SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT, ACTION, OR PROCEEDING AND (II) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO IT. NOTHING HEREIN SHALL AFFECT EITHER THE AGENT'S OR ANY BANK'S RIGHT TO SERVE PROCESS IN OR TO BRING PROCEEDINGS AGAINST THE PARENT GUARANTOR OR THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. 142 151 SECTION 12.10. Successors and Assigns. This Agreement shall ---------------------- be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, -------- however, that: - ------- (a) neither the Parent Guarantor nor the Company may assign or transfer their rights or obligations hereunder without the prior written consent of the Agent and all Lenders; and (b) the rights of sale, assignment, and transfer of the Lenders are subject to Section 12.11. ------------- SECTION 12.11. Sale and Transfer of Credit Extensions and ------------------------------------------ Commitments; Participations in Credit Extensions and Commitments. - ---------------------------------------------------------------- Each Lender may assign, or sell participations in, its Credit Extensions and Commitments to one or more other Persons in accordance with this Section 12.11. ------------- SECTION 12.11.1. Assignments. Any Lender, ----------- (a) with the written consents of the Company and the Agent (which consents shall not be unreasonably delayed or withheld and which consent, in the case of the Company, shall be deemed to have been given in the absence of a written notice delivered by the Company to the Agent on or before the fifth Business Day after receipt by the Company of such Lender's request for consent, stating, in reasonable detail, the reasons why the Company proposes to withhold such consent) may at any time assign and delegate to one or more Affiliates of such Lender (if such Lender is not to remain liable for the performance of its Affiliate's obligations hereunder or under any other applicable Loan Document), (b) with the written consents of the Company (which consent shall not be unreasonably delayed or withheld) and the Agent (which consent may be withheld for any reason) may at any time assign and delegate to one or more other banks, savings and loan associations, commercial finance companies and other similar financial institutions, and (c) with written notice to the Company and the Agent, but without the consent of the Company or the Agent, may assign and delegate to any other Lender or to one or more Affiliates of such Lender (if such Lender remains liable for the performance of its Affiliate's obligations hereunder and under any other applicable Loan Document) (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or any --------------- fraction of such Lender's total Credit Extensions and Revolving Commitment (which assignment and delegation shall be of a constant, and not a varying, percentage of all the assigning Lender's Credit 143 152 Extensions and Commitments); provided, however, that the aggregate -------- ------- principal amount of the portion of the Revolving Commitment so assigned to any Assignee Lender shall be not less than $20,000,000, unless such assignment covers all of such Lender's interests and obligations hereunder and under the Loan Documents; and provided, -------- further, that any such Assignee Lender will comply, if applicable, - ------- with the provisions contained in clause (b) of Section 4.6; and ---------- ----------- provided, further, that the Parent Guarantor, the Company, each - -------- ------- other Obligor and the Agent shall be entitled to continue to deal solely and directly with such assigning Lender in connection with the interests so assigned and delegated to an Assignee Lender until (i) written notice of such assignment and delegation, together with payment instructions, addresses, and related information with respect to such Assignee Lender, shall have been given to the Company and the Agent by such Lender and such Assignee Lender, (ii) such Assignee Lender shall have executed and delivered to the Company and the Agent an Assignee Agreement to be Bound, accepted by the Agent, and (iii) the processing fees described below shall have been paid. From and after the date that the Agent accepts such Assignee Agreement to be Bound (subject to clauses (a) and (b) above), ----------- --- (A) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender pursuant to such Assignee Agreement to be Bound, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (B) the assigning Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it pursuant to such Assignee Agreement to be Bound, shall be released from its obligations which are not then due and payable hereunder and under the other Loan Documents. Accrued interest, and accrued fees, in respect of the rights and obligations that have been assigned, shall be paid as provided in the Assignee Agreement to be Bound. Accrued interest and accrued fees shall be paid at the same time or times provided in this Agreement. Such assigning Lender or such Assignee Lender must also pay a processing fee to the Agent upon delivery of any Assignee Agreement to be Bound in the amount of $3500. Any attempted assignment and delegation not made in accordance with this Section 12.11.1 shall be null and void. - --------------- SECTION 12.11.2. Participations. Any Lender may at any -------------- time sell to one or more financial institutions (each of such financial institutions being herein called a "Participant") ----------- participating interests in any of the Credit Extensions, Commitments, or other interests or obligations of such Lender hereunder; provided, however, that -------- ------- 144 153 (a) no participation contemplated in this Section 12.11.2 shall relieve such Lender from its Commitments --------------- or its other obligations hereunder or under any other Loan Document, (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations, (c) the Parent Guarantor, the Company, each other Obligor, and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents, and (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document. SECTION 12.12. Other Transactions. Nothing contained herein ------------------ shall preclude the Agent or any Lender from engaging in any debt or equity transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Company or any of its Affiliates in which the Company or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 12.13. WAIVER OF JURY TRIAL. -------------------- THE AGENT, THE LENDERS, THE PARENT GUARANTOR, AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR OTHER ACTIONS OF THE AGENT, THE LENDERS, THE PARENT GUARANTOR, OR THE COMPANY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. THE PARENT GUARANTOR AND THE COMPANY EACH ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTATION, OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. SECTION 12.14. Final Agreement, etc. This written loan -------------------- agreement, together with the other Loan Documents, represents the final agreement between the parties with respect to the subject matter hereof and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties with 145 154 respect to the subject matter hereof. The inclusion in this Agreement or any Loan Document of provisions not included in, or the deletion of provisions previously included in, prior drafts of this Agreement or such other Loan Document shall not be considered in interpreting the final executed version of this Agreement or such other Loan Document. 146 155 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. KAISER ALUMINUM & CHEMICAL CORPORATION By /s/ Name Printed: John T. La Duc Title: Vice President Address: 6177 Sunol Drive Pleasanton, CA 94566 Attn: Treasurer With a copy to: 5847 San Felipe Suite 2600 Houston, Texas 77087 Telephone No.: 713-267-3777 Facsimile No.: 713-267-3710 Telex No.: None Attention: Treasurer Sig. 1 156 KAISER ALUMINUM CORPORATION By /s/ Name Printed: John T. La Duc Title: Vice President Address: 5847 San Felipe Suite 2600 Houston, Texas 77087 Telephone No.: 713-267-3777 Facsimile No.: 713-267-3710 Telex No.: None Attention: Kris Vasan, Treasurer Sig. 2 157 PERCENTAGE LENDERS - ---------- ------- 30% BANKAMERICA BUSINESS CREDIT, INC. By /s/ Name Printed: Joyce White Title: Senior Vice President Domestic Office: Two North Lake Avenue Suite 400 Pasadena, California 91101 Telephone No.: 818-397-1800 Facsimile No.: 818-796-3358 Telex No.: None Attention: Vice President LIBOR Office: Same as domestic Address for payments: Two North Lake Avenue Suite 400 Pasadena, Califorina 91101 Attention: Operations Officer Ref: Kaiser Aluminum Sig. 3 158 PERCENTAGE CONGRESS FINANCIAL CORPORATION (WESTERN) - ---------- 26% By /s/ Name Printed: Vicky Balmot Title: Senior Vice President Domestic Office: 225 South Lake Avenue Office #1000 Pasadena, CA 91101 Attention: William Davis Senior Vice President Telephone No.: 818-304-4972 Facsimile No.: 818-304-4969 Telex No.: None LIBOR Office: 1133 Avenue of the Americas New York, NY 10036 Attention: Tony Razon Address for payments: Chemical Bank 55 Water Street New York, New York 10041 (ABA 021-000128) (#322-020-530) Ref: Kaiser Aluminum Sig. 4 159 PERCENTAGE LA SALLE NATIONAL BANK - ---------- 6% By /s/ Name Printed: Douglas C. Colletti Title: Vice President Domestic Office: 120 S. La Salle Street 5th Floor Chicago, IL 60603 Telephone No.: 312-750-6123 Facsimile No.: 312-750-6450 Telex No.: None Payments/Settlements: Telephone No.: 312-781-8424 Facsimile No.: 312-750-6528 LIBOR Office: Same as domestic Address for payments: La Salle National Bank 120 S. La Salle Street 5th Floor Chicago, IL 60603 ABA 071-000-505 G/L Acct: 1378000 Attention: Carolyn Sanford Ref: Kaiser Aluminum Sig. 5 160 PERCENTAGE CIT GROUP/BUSINESS CREDIT, INC. - ---------- 6% By /s/ Name Printed: Steven R. Bellah Title: Vice President Domestic Office: CIT Group/Business Credit, Inc. 2110 Walnut Hill Lane Irving, Texas 75038 Telephone No.: 214-580-2763 Facsimile No.: 214-550-9035 Telex No.: None Attention: Regional Manager LIBOR Office: Same as domestic Address for payments: Same as domestic Attention: Regional Manager Ref: Kaiser Aluminum Sig. 6 161 PERCENTAGE TRANSAMERICA BUSINESS CREDIT CORPORATION - ---------- 8% By /s/ Name Printed: Laura Cushing Title: Senior Account Executive Domestic Office: Same as Address for payments Telephone No.: 312-864-3976 Facsimile No.: 312-380-6169 Telex No.: None Attention: Laura Cushing LIBOR Office: Same as domestic Address for payments: 8750 West Bryn Mawr Ave. Suite 720 Chicago, Illinois 60631 Attention: Keith Mason Ref: Kaiser Aluminum Sig. 7 162 PERCENTAGE BANK OF AMERICA NATIONAL TRUST AND - ---------- SAVINGS ASSOCIATION 10% By /s/ Name Printed: James MacGregor Title: Vice President Domestic Office: 555 California Street 41st Floor San Francisco, California 94104 Telephone No.: 415-622-8512 Facsimile No.: 415-622-4585 Telex No.: None LIBOR Office: Same as domestic Address for payments: Bank of America A/C Administration Unit 5693 1850 Gateway Boulevard Concord, California 94520 Attention: Account Administrator Ref: Kaiser Aluminum Loan repayment Sig. 8 163 PERCENTAGE HELLER FINANCIAL, INC. - ---------- 8% By /s/ Name Printed: John Buff Title: Vice President Domestic 101 Park Avenue Office: New York, NY 10178 Telephone No.: 212-880-7174 Facsimile No.: 212-880-2060 Telex No.: None Attention: Richard Peller LIBOR Office: same as domestic Address for payments: First National Bank of Chicago ABA #71000013 For Credit to: Heller Business Credit Account #5298695 Ref: Kaiser Sig. 9 164 PERCENTAGE NATIONAL WESTMINSTER BANK PLC 6% By /s/ Name Printed: Peter K. Doherty Title: Vice President Domestic Office: National Westminster Bank Plc North American Mining & Metals Office 175 Water Street 29th Floor New York, NY 10038 Telephone No.: 212-602-4327 Facsimile No.: 212-602-4402 Telex No.: None Attention: Peter K. Doherty LIBOR Office: National Westminster Bank Plc Nassau Branch 175 Water Street 19th Floor New York, NY 10038 Address for payments: National Westminister Bank Plc New York Branch 175 Water Street 19th Floor New York, NY 10038 Attention: Margaret Beardsley Ref: Kaiser Aluminum - Line 12 Sig. 10 165 AGENT ----- BANKAMERICA BUSINESS CREDIT, INC. By /s/ Name Printed: Joyce White Title: Senior Vice President Office: Two North Lake Avenue Suite 400 Pasadena, CA 91101 Telephone No.: 818-397-1800 Facsimile No.: 818-796-3358 Telex No.: None Attention: Vice President Sig. 11 EX-4 4 EXHIBIT 4.21 KAISER ALUMINUM 1993 10-K 1 CERTIFICATE OF DESIGNATIONS OF 8.255% PRIDES, CONVERTIBLE PREFERRED STOCK OF KAISER ALUMINUM CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware Kaiser Aluminum Corporation (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, hereby certifies that the following resolutions were duly adopted by the Board of Directors of the Corporation pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Corporation, which authorizes the issuance of up to 20,000,000 shares of Preferred Stock, par value $.05 per share, at a meeting of the Board of Directors duly held on January 26, 1994: RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of its Restated Certificate of Incorporation and by- laws, the issue of a series of Preferred Stock, par value $.05 per share, of this Corporation is hereby authorized and the designation, powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof shall be as follows: Section 1. Designation and Amount. The series of ---------------------- Preferred Stock shall be designated as "8.255% PRIDES, Convertible Preferred Stock" (the "PRIDES"). The PRIDES are Preferred Redeemable Increased Dividend Equity Securities. The authorized number of shares constituting such series shall be 9,200,000. The shares of PRIDES shall rank on a parity with the Corporation's Series A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A Stock") in respect of the payment of dividends and the distribution of assets upon Liquidation (as defined in paragraph (a) of Section 5). Section 2. Dividends. --------- (a) In respect of the period beginning on and including February 17, 1994 and ending on and including December 30, 1997 (the "Preferred Period"), the holders of outstanding shares of PRIDES will be entitled to receive, subject ------ to the rights of holders of the Series A Stock and holders of other classes or series of stock which may from time to time be issued by the Corporation ranking on a parity with or senior to the PRIDES in respect of dividends, and when, as and if declared by the Board of Directors out of funds legally available therefor, cumulative preferential cash dividends at the per share rate of $.2425 per quarter for each of the quarters ending on March 30, June 29, September 29 and December 30 of each year and no more, payable in arrears on each March 31, June 30, September 30 and December 31, respectively (each such date being hereinafter referred to as a "Preferred Dividend Payment Date"); provided, however, that, with respect to any dividend period during which a redemption 2 occurs, the Corporation may, at its option, declare accrued dividends on the shares of PRIDES to (but not including), and pay such accrued dividends on, the date fixed for redemption, in which case such dividends shall be payable to the holders of shares of PRIDES as of the record date for such dividend payment and shall not be included in the calculation of the related Call Price (as defined in clause (ii) of paragraph (i) of Section 3). The first dividend shall be for the period from and including the first day of the Preferred Period to and including March 30, 1994 and will be paid on March 31, 1994. If any Preferred Dividend Payment Date shall not be a business day (as defined in clause (i) of paragraph (i) of Section 3), then the Preferred Dividend Payment Date shall be on the next succeeding day that is a business day. Each such dividend will be payable to holders of record as they appear on the books of the Corporation or any transfer agent for the shares of PRIDES on such record dates, not less than 10 nor more than 50 days preceding the payment dates thereof, as shall be fixed by the Board of Directors. Dividends on the shares of PRIDES in respect of the Preferred Period shall accrue on a daily basis commencing on and including the first day of the Preferred Period and accrued dividends for each quarterly dividend period or portion thereof shall accumulate, to the extent not paid, on the Preferred Dividend Payment Date first following the quarter or portion thereof for which they accrue. Except as otherwise provided in Section 3(a) or in the first proviso at the end of Section 3(j)(2), accumulated unpaid dividends shall not bear interest. Dividends on the shares of PRIDES shall accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Dividends in arrears for any past quarterly dividend periods may be declared and paid at any time without reference to any regular Preferred Dividend Payment Date to holders of record on such date, not exceeding 50 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends (or cash amounts equal to accrued and unpaid dividends) payable on the shares of PRIDES for any period shorter than a quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Dividends on the shares of PRIDES shall cease to accrue as of the close of business on the earlier of (i) the last day of the Preferred Period or, subject to the provisions of the penultimate sentence of Section 3(b), (ii) the day immediately prior to their earlier redemption. (b) So long as any shares of PRIDES or a Deposit Deficit (as defined in paragraph (a) of Section 3) are outstanding, except as set forth in the next succeeding sentence (unless a Deposit Deficit is outstanding), no dividends shall be declared or paid or set apart for payment on, and no other distribution shall be ordered or made on (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, stock ranking junior to the shares of PRIDES in respect of dividends and the distribution of assets upon Liquidation), nor (except for redemptions or conversions of the shares of PRIDES pursuant to paragraph (a), (b) or (c) of Section 3) shall any sum or sums be set aside for, in a sinking fund or otherwise, or applied to the purchase, redemption or other acquisition for value of, the shares of PRIDES, Series A Stock or any other class or series of stock which may from time to time be issued by the Corporation ranking on a parity with or junior to the shares of PRIDES in respect of dividends or the distribution of assets upon Liquidation (or, if any Deposit Deficit is outstanding, any class or series of stock of the Corporation), unless all cumulative dividends accumulated on the shares of PRIDES shall have been or shall contemporaneously be declared and paid in full or shall be declared and a sum sufficient for the payment in full thereof set apart for such payment on the shares of PRIDES (or, if any Deposit Deficit is outstanding, unless such Deposit Deficit and all accrued interest thereon shall have been paid in full). When dividends are not paid in full, as aforesaid, upon the shares of PRIDES and any other class or series of stock of the Corporation ranking on a parity with the shares of PRIDES in respect of dividends, all dividends declared upon shares of PRIDES and any other stock of the Corporation ranking on a parity with the shares of PRIDES in respect of dividends (including the Series A Stock) shall be declared pro rata so that the amount of dividends declared per share on the shares of PRIDES and such other stock shall in all cases 2 3 bear to each other the same ratio that accrued and unpaid dividends per share on the shares of PRIDES and such other stock bear to each other. Holders of shares of PRIDES shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends as herein provided. Section 3. Redemptions or Conversions. -------------------------- (a) Mandatory Conversion on Mandatory Conversion Date. ------------------------------------------------- Unless earlier called for redemption or converted in accordance with the provisions hereof, on December 31, 1997 or, if such date is not a business day, the next succeeding day that is a business day (the "Mandatory Conversion Date"), each outstanding share of PRIDES shall, without additional notice to holders thereof, convert automatically ("Mandatory Conversion") into: (i) fully paid and non-assessable shares of common stock of the Corporation (the "Common Stock") at the Common Equivalent Rate (as defined herein) in effect on the Mandatory Conversion Date; plus (ii) the right to receive an amount in cash equal to all accrued and unpaid dividends on such share of PRIDES (other than previously declared dividends payable to a holder of record as of a prior date) to and including the last day of the Preferred Period, whether or not earned or declared, out of funds legally available therefor. The "Common Equivalent Rate" shall initially be one share of Common Stock for each share of PRIDES and shall be subject to adjustment as set forth in paragraphs (d) and (e) of this Section 3. If an amount equal to all accrued and unpaid dividends on the shares of PRIDES described in clause (ii) above (the "Required Dividend Amount") is not deposited with a bank or trust company in accordance with Section 3(j)(2) on or prior to the Mandatory Conversion Date (the amount, if any, by which the Required Dividend Amount exceeds the amount so deposited in respect of the Required Dividend Amount being herein called the "Deposit Deficit"), the Corporation shall, out of funds legally available therefor, as promptly as practicable following the Mandatory Conversion Date, deposit cash with a bank or trust company in accordance with Section 3(j)(2) in an amount equal to the Deposit Deficit plus an amount equal to interest at the rate of 11% per annum on the Deposit Deficit from time to time outstanding from and including the Mandatory Conversion Date to but not including the date the Deposit Deficit is reduced to zero; provided, that so long as a Deposit Deficit is outstanding, no class or series of stock thereafter issued by the Corporation shall rank senior to the claims of the holders of the shares of PRIDES on the Mandatory Conversion Date with regard to the Required Dividend Amount and interest thereon as and to the extent provided in the first proviso at the end of Section 3(j)(2). (b) Right to Call for Redemption. Shares of PRIDES ---------------------------- are not redeemable by the Corporation before December 31, 1996 (the "Initial Redemption Date"). At any time and from time to time on or after that date until and including the last day of the Preferred Period, the Corporation shall have the right to call, in whole or in part, the outstanding shares of PRIDES for redemption (subject to the notice provisions set forth in paragraph (j) of this Section 3). On the redemption date, the Corporation shall deliver to the holders thereof in exchange for each such share called for redemption the greater of: 3 4 (i) a number of fully paid and non- assessable shares of Common Stock determined by dividing the Call Price in effect on the redemption date by the Current Market Price (as defined in clause (v) of paragraph (d) of this Section 3) per share of Common Stock determined as of the second Trading Date (as defined in clause (v) of paragraph (i) of this Section 3) immediately preceding the Notice Date (as defined in clause (iv) of paragraph (i) of this Section 3); or (ii) .8333 of a share of Common Stock (subject to adjustment in the same manner as the Optional Conversion Rate (as defined in paragraph (c) of this Section 3) is adjusted). If all shares of Common Stock described in the preceding sentence are not deposited with a bank or trust company in accordance with Section 3(j)(2) on or prior to the redemption date, such redemption shall not be effective. If fewer than all the outstanding shares of PRIDES are to be called for redemption, shares to be redeemed shall be selected by the Corporation from outstanding shares of PRIDES by lot or pro rata (as nearly as may be practicable without creating fractional shares) or by any other method determined by the Board of Directors of the Corporation in its sole discretion to be equitable. (c) Optional Conversion. Shares of PRIDES are ------------------- convertible, at the option of the holders thereof ("Optional Conversion"), at any time or from time to time, before the Mandatory Conversion Date, unless previously redeemed, into shares of Common Stock at a rate of .8333 of a share of Common Stock for each share of PRIDES (the "Optional Conversion Rate"), subject to adjustment as set forth in paragraphs (d) and (e) of this Section 3. The right of Optional Conversion of shares of PRIDES called for redemption shall terminate immediately before the close of business on the day prior to any redemption date with respect to such shares. Optional Conversion of shares of PRIDES may be effected by delivering certificates evidencing such shares of PRIDES, together with written notice of conversion and, if required by the Corporation, a proper assignment of such certificates to the Corporation or in blank (and, if applicable as provided in the following paragraph, cash payment of an amount equal to the dividends attributable to the current quarterly dividend period payable on such shares), to the office of the transfer agent for the shares of PRIDES or to any other office or agency maintained by the Corporation for that purpose and otherwise in accordance with Optional Conversion procedures established by the Corporation. Each Optional Conversion shall be deemed to have been effected immediately before the close of business on the date on which the foregoing requirements shall have been satisfied. The Optional Conversion shall be at the Optional Conversion Rate in effect at such time and on such date. Holders of shares of PRIDES at the close of business on a record date for any payment of declared dividends shall be entitled to receive the dividend payable on such shares of PRIDES on the corresponding dividend payment date notwithstanding the Optional Conversion of such shares of PRIDES following such record date and on or prior to such dividend payment date. However, shares of PRIDES surrendered for Optional Conversion after the close of business on a record date for any payment of declared dividends and before the opening of business on the next succeeding dividend payment date must be accompanied by payment in cash of an amount equal to the dividends attributable to the current quarterly dividend period payable on such shares on such next succeeding dividend payment date (unless such shares of PRIDES are subject to redemption on a redemption date between such record date established for such dividend payment date and such dividend payment date). Except as provided above, upon any Optional Conversion of shares of PRIDES, the Corporation shall make no payment of or 4 5 allowance for unpaid dividends, whether or not in arrears, on such shares of PRIDES as to which Optional Conversion has been effected or for previously declared dividends or distributions on the shares of Common Stock issued upon Optional Conversion. (d) Common Equivalent Rate and Optional Conversion ---------------------------------------------- Rate Adjustments. The Common Equivalent Rate and the Optional - ---------------- Conversion Rate are each subject to adjustment from time to time as provided below in this paragraph (d). All adjustments to the Common Equivalent Rate and the Optional Conversion Rate shall be calculated to the nearest 1/100th of a share of Common Stock (with 5/1000 of a share being rounded to the next lower 1/100 of a share). (i) If the Corporation shall either: (1) pay a dividend or make a distribution with respect to Common Stock in shares of Common Stock, (2) subdivide or split its outstanding shares of Common Stock into a greater number of shares, (3) combine its outstanding shares of Common Stock into a smaller number of shares, or (4) issue by reclassification of its shares of Common Stock any shares of common stock of the Corporation then, in any such event, the Common Equivalent Rate and the Optional Conversion Rate in effect immediately prior thereto shall each be adjusted so that the holder of a share of PRIDES shall be entitled to receive, on the conversion of such share of PRIDES, the number of shares of Common Stock of the Corporation which such holder would have owned or been entitled to receive after the happening of any of the events described above had such share of PRIDES been converted at the Common Equivalent Rate (in the case of a Mandatory Conversion) or the Optional Conversion Rate (in the case of an Optional Conversion), as applicable, in effect immediately prior to the happening of such event or the record date therefor, whichever is earlier. Such adjustment shall become effective immediately after the close of business on the record date for determination of stockholders entitled to receive such dividend or distribution in the case of a dividend or distribution and shall become effective immediately after the effective time in case of a subdivision, split, combination or reclassification. Any shares of Common Stock issuable in payment of a dividend or distribution shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend or distribution for purposes of calculating the number of outstanding shares of Common Stock under clauses (ii) and (iii) below. (ii) If the Corporation shall issue rights or warrants to all holders of its Common Stock entitling them (for a period not exceeding 45 days from the date of such issuance) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price per share of the Common Stock on the day five business days prior to the record date for the determination of stockholders entitled to receive such rights or warrants, then in each case the Common Equivalent Rate and the Optional Conversion Rate shall each be adjusted by multiplying (I) the Common Equivalent Rate 5 6 or the Optional Conversion Rate, as applicable, in effect immediately prior thereto by (II) a fraction, of which the numerator shall be (A) the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus (B) the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be (A) the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus (B) the number of additional shares of Common Stock which the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at the Current Market Price per share of the Common Stock on the day five business days prior to the record date for determining stockholders entitled to receive such rights or warrants (determined by multiplying such total number of shares by the exercise price of such rights or warrants and dividing the product so obtained by such Current Market Price). Shares of Common Stock owned by or held for the account of the Corporation or another company of which a majority of the shares entitled to vote in the election of directors are held, directly or indirectly, by the Corporation shall not be deemed to be outstanding for purposes of such computation. Such adjustment shall be made successively whenever any such rights or warrants are issued and shall become effective immediately after the close of business on the record date for the determination of stockholders entitled to receive such rights or warrants. To the extent that any rights or warrants referred to in this clause (ii) expire unexercised, the Common Equivalent Rate and the Optional Conversion Rate shall each be readjusted to the Common Equivalent Rate and the Optional Conversion Rate, respectively, which would then be in effect had the adjustment made upon the issuance of such rights or warrants been made upon the basis of the issuance of only the number of rights or warrants actually exercised. (iii) If the Corporation shall pay a dividend or make a distribution to all holders of its Common Stock of evidences of its indebtedness or other assets (including shares of capital stock of the Corporation but excluding any cash dividends or distributions (other than Extraordinary Cash Distributions (as defined in this clause (iii)) and excluding any distributions and dividends referred to in clause (i) above), or shall distribute to all holders of its Common Stock rights or warrants to subscribe for or purchase securities of the Corporation or any of its subsidiaries (other than those referred to in clause (ii) above), the Common Equivalent Rate and the Optional Conversion Rate shall each be adjusted by multiplying (I) the Common Equivalent Rate or the Optional Conversion Rate, as applicable, in effect immediately prior to the date of such dividend or distribution by (II) a fraction, of which the numerator shall be the Current Market Price per share of Common Stock on the day five business days prior to the record date for the determination of stockholders entitled to receive such dividend or distribution, and of which the denominator shall be such Current Market Price per share of Common Stock less either (A) the fair market value (as determined by the Board of Directors of the Corporation, whose determination shall, if made in good faith, be conclusive) as of the day five business days prior to such record date of the portion of the assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, applicable to one share of Common Stock, or (B) if applicable, the amount of the Extraordinary Cash Distributions. Such adjustment shall become effective immediately after the close of business on the record date for the determination of stockholders entitled to receive such dividend or distribution. The term "Extraordinary Cash Distribution" means, with respect to any cash dividend or distribution paid on any date, 6 7 the amount, if any, by which (I) all cash dividends and cash distributions on the Common Stock paid during the consecutive 12-month period ending on and including such date (other than cash dividends and cash distributions for which an adjustment to the Common Equivalent Rate and the Optional Conversion Rate was previously made) exceeds, on a per share of Common Stock basis,(II) 10% of the average of the daily Closing Prices (as defined in clause (iii) of paragraph (i) of this Section 3) of the Common Stock over such consecutive 12-month period. (iv) Anything in this Section 3 to the contrary notwithstanding, the Corporation shall be entitled to make such upward adjustments in the Common Equivalent Rate, the Optional Conversion Rate or the Call Price, in addition to those required by this Section 3, as the Corporation in its sole discretion shall determine to be advisable, in order that any stock dividends, subdivision or split of shares, distribution of rights to purchase stock or securities, or a distribution of securities convertible into or exchangeable for stock (or any transaction which could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as amended) hereafter made by the Corporation to its stockholders shall not be taxable. If the Corporation determines that such an adjustment to the Common Equivalent Rate, the Optional Conversion Rate or the Call Price should be made, an adjustment shall be made effective as of such date as is determined by the Board of Directors of the Corporation. The determination of the Board of Directors of the Corporation as to whether an adjustment to the Common Equivalent Rate, the Optional Conversion Rate or the Call Price should be made pursuant to the foregoing provisions of this clause (iv), and if so, as to what adjustment should be made and when, shall be conclusive, final and binding on the Corporation and all stockholders of the Corporation. (v) As used in this Section 3, the Current Market Price per share of Common Stock on any date of determination shall be the lesser of (A) the average of the daily Closing Prices for the fifteen consecutive Trading Dates ending on and including the date of determination of the Current Market Price, or (B) the Closing Price for the date of determination of the Current Market Price; provided, however, that, for the purposes of calculating the Current Market Price in connection with any redemption of the PRIDES, if any adjustment of the Common Equivalent Rate pursuant to paragraph (d) or paragraph (e) of this Section 3 is effective as of any date during the period beginning on the first day of such fifteen-day period and ending on the date on which shares of PRIDES are to be redeemed, then the Current Market Price as determined pursuant to the foregoing will be adjusted to the extent appropriate to reflect such adjustment. If the Current Market Price is adjusted pursuant to the immediately preceding proviso as a result of the effectiveness of an adjustment of the Common Equivalent Rate but the event requiring an adjustment of the Common Equivalent Rate does not occur prior to the redemption of the PRIDES, then the Corporation may in its sole discretion elect to defer the following until the occurrence of such event: (1) issuing to the holder of any shares of PRIDES surrendered for redemption the additional shares of Common Stock issuable upon such redemption over and above the shares of Common Stock issuable upon such redemption on the basis of the Current Market Price prior to adjustment; and 7 8 (2) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to paragraph (g) of this Section 3. (vi) Before taking any action that would cause an adjustment to the Common Equivalent Rate or the Optional Conversion Rate that would cause the Corporation to issue shares of Common Stock for consideration below the then par value (if any) of theCommon Stock upon conversion or redemption of the PRIDES, the Corporation shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Common Equivalent Rate or Optional Conversion Rate. (vii) No adjustment in the Common Equivalent Rate or the Optional Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least 1% in such rate; provided, however, that any adjustments which by reason of this clause (vii) are not required to be (and are not) made shall be carried forward and taken into account in any subsequent adjustment. (viii) In any case in which paragraph (d) of this Section 3 shall require that an adjustment in the Common Equivalent Rate or the Optional Conversion Rate as a result of any event become effective after the close of business on a record date, and the date of a conversion pursuant to paragraph (a) or (c) of this Section 3 occurs after such record date but before the occurrence of such event, the Corporation may in its sole discretion elect to defer the following until the occurrence of such event: (1) issuing to the holder of any shares of PRIDES surrendered for conversion the additional shares of Common Stock issuable upon such conversion over and above the shares of Common Stock issuable upon such conversion on the basis of the Common Equivalent Rate or the Optional Conversion Rate, as applicable, prior to adjustment; and (2) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to paragraph (g) of this Section 3. (ix) Before redeeming any shares of PRIDES, the Corporation shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock upon such redemption. (e) Adjustment for Certain Mergers and Other ---------------------------------------- Transactions. In case of any consolidation or merger to which the - ------------ Corporation is a party (other than a consolidation or merger in which the Corporation is the surviving or continuing corporation and in which the shares of Common Stock outstanding immediately before the merger or consolidation remain unchanged and other than a KACC Merger (as defined in clause (iii) of paragraph (c) of Section 4)), or in the case of any sale or transfer to another corporation of the property of the Corporation as an entirety or substantially as an entirety, or in the case of a statutory exchange of securities with another corporation (other than in connection with a merger or acquisition), each share of PRIDES shall, after consummation of such transaction, be subject to (i) conversion at the option of the holder into the kind and amount of securities, cash, or other property receivable upon consummation of such transaction by a holder of the number of 8 9 shares of Common Stock into which such share of PRIDES might have been converted immediately before consummation of such transaction, (ii) conversion on the Mandatory Conversion Date into the kind and amount of securities, cash, or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock into which such share of PRIDES would have been converted if the conversion on the Mandatory Conversion Date had occurred immediately before the date of consummation of such transaction, plus the right to receive cash in an amount equal to all accrued and unpaid dividends on such share of PRIDES (other than previously declared dividends payable to a holder of record as of a prior date), and (iii) redemption on any redemption date on or after the Initial Redemption Date in exchange for the kind and amount of securities, cash, or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock that would have been issuable at the Call Price in effect on such redemption date upon a redemption of such share of PRIDES immediately before consummation of such transaction, assuming that, if the Notice Date for such redemption is not before such transaction, the Notice Date had been the date of such transaction; and assuming in each case that such holder of shares of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash, or other property receivable upon consummation of such transaction (provided that, if the kind or amount of securities, cash, or other property receivable upon consummation of such transaction is not the same for each non-electing share, then the kind and amount of securities, cash, or other property receivable upon consummation of such transaction for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). The kind and amount of securities into or for which the shares of PRIDES shall be convertible or redeemable after consummation of such transaction shall be subject to adjustment as described in Section 3(d) following the date of consummation of such transaction. The Corporation may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. (f) Notice of Adjustments, Etc. Whenever the Common --------------------------- Equivalent Rate and the Optional Conversion Rate are adjusted as herein provided, the Corporation shall: (i) forthwith compute the adjusted Common Equivalent Rate and the adjusted Optional Conversion Rate in accordance with this Section 3 and prepare a certificate signed by the Chief Executive Officer, the Chairman, the President, any Vice President or the Treasurer of the Corporation setting forth the adjusted Common Equivalent Rate and the adjusted Optional Conversion Rate, the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon which such adjustment is based and file such certificate forthwith with the transfer agent or agents for the PRIDES and the Common Stock; (ii) make a prompt public announcement stating that the Common Equivalent Rate and the Optional Conversion Rate have been adjusted and setting forth the adjusted Common Equivalent Rate and the adjusted Optional Conversion Rate; and (iii) mail a notice stating that the Common Equivalent Rate and the Optional Conversion Rate have been adjusted, the facts requiring such adjustment and upon which such adjustment is based and setting forth the adjusted Common Equivalent Rate and the adjusted Optional Conversion Rate to the holders of record of the outstanding shares of PRIDES at or prior to the time the Corporation mails an interim statement to its stockholders covering the quarter-yearly period during which the facts requiring such adjustment occurred, but in any event within 45 days of the end of such quarter- yearly period. 9 10 In case, at any time while any of the shares of PRIDES are outstanding, (i) the Corporation shall declare a dividend (or any other distribution) on its Common Stock, excluding any cash dividends other than Extraordinary Cash Distributions; or (ii) the Corporation shall authorize the issuance to all holders of its Common Stock of rights or warrants to subscribe for or purchase shares of its Common Stock or of any other subscription rights or warrants; or (iii) the Corporation shall authorize any reclassification of its Common Stock (other than a subdivision or combination thereof) or any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required (except for a merger of the Corporation into one of its subsidiaries solely for the purpose of changing the corporate domicile of the Corporation to another state of the United States and in connection with which there is no substantive change in the rights or privileges of any securities of the Corporation other than changes resulting from differences in the corporate statutes of the state the Corporation was then domiciled in and the new state of domicile), or the sale or transfer of all or substantially all of the assets of the Corporation; then the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the shares of PRIDES, and shall cause to be mailed to the holders of record of the outstanding shares of PRIDES, at least 10 days (or such shorter period, if any, as may be practicable in the case of an action described in clause (iii)) before the date hereinafter specified in clause (A) or (B) below (or the earlier of the dates hereinafter specified, in the event that more than one date is specified), a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (B) the date on which any such reclassification, consolidation, merger, sale or transfer is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property (including cash), if any, deliverable upon such reclassification, consolidation, merger, sale or transfer. The failure to give or receive the notice required by the preceding sentence or any defect therein shall not affect the legality or validity of any such dividend, distribution, right or warrant or other action. (g) No Fractional Shares. No fractional shares of --------------------- Common Stock shall be issued upon redemption or conversion of any shares of the PRIDES. In lieu of any fractional share otherwise issuable in respect of the aggregate number of shares of the PRIDES of any holder that are redeemed or converted on any redemption date or upon Mandatory Conversion or Optional Conversion, such holder shall be entitled to receive an amount in cash (computed to the nearest cent) equal to the same fraction of the (i) Current Market Price of the Common Stock (determined as of the second Trading Date immediately preceding the Notice Date) in the case of redemption, or (ii) Closing Price of the Common Stock determined (A) as of the fifth Trading Date immediately preceding the Mandatory Conversion Date, in the case of Mandatory Conversion, or (B) as of the second Trading Date immediately preceding the effective date of conversion, in the case of an Optional Conversion by a holder. If more than one share of PRIDES shall be surrendered for conversion or redemption at one time by or for the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the PRIDES so surrendered or redeemed. 10 11 (h) Cancellation. All shares of PRIDES which shall ------------ have been issued and reacquired in any manner by the Corporation (excluding, until the Corporation elects to retire them, shares which are held as treasury shares but including shares redeemed, shares purchased and retired and shares converted into shares of Common Stock or exchanged for shares of any other class of stock) shall be retired and cancelled and the Board of Directors shall cause to be taken all action necessary to restore such sharesto the status of authorized but unissued shares of Preferred Stock without designation as to series or class, and such shares may thereafter be issued, but not as shares of PRIDES. (i) Definitions. As used herein, ----------- (i) the term "business day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close or a day which is or is declared a national or New York holiday; (ii) The "Call Price" of each share of PRIDES shall be the sum of (x) $11.9925 on and after the Initial Redemption Date, to and including March 30, 1997; $11.9319 on and after March 31, 1997, to and including June 29, 1997; $11.8713 on and after June 30, 1997, to and including September 29, 1997; $11.8106 on and after September 30, 1997, to and including November 29, 1997; and $11.75 on and after November 30, 1997, to and including December 30, 1997; and (y) all accrued and unpaid dividends thereon to but not including the date fixed for redemption (other than previously declared dividends payable to a holder of record as of a prior date); (iii) the term "Closing Price" on any day shall mean the closing sales price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked quotations regular way, in each case on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if not listed or admitted to trading on any national securities exchange, the average of the high bid and low asked quotations of the Common Stock in the over- the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similarly generally accepted reporting service, or, if no such quotations are available, the fair market value of the Common Stock as determined by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Corporation for that purpose; (iv) the term "Notice Date" with respect to any notice given by the Corporation in connection with a redemption of shares of PRIDES shall be the date on which first occurs either the public announcement of such redemption or the commencement of the mailing of such notice to the holders of the shares of PRIDES in accordance with paragraph (j) of this Section 3; (v) the term "Trading Date" shall mean a date on which the New York Stock Exchange (or any successor to such Exchange) is open for the transaction of business. 11 12 (j) Procedures Regarding Redemption or Mandatory -------------------------------------------- Conversion. - ---------- (1) The Corporation will provide notice of any redemption of shares of PRIDES to holders of record of the PRIDES to be redeemed not less than 15 nor more than 60 days prior to the date fixed for such redemption. Such notice shall be provided by mailing notice of such redemption first class postage prepaid, to each holder of record of the shares of PRIDES to be redeemed at such holder's address as it appears on the stock register of the Corporation; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of PRIDES to be redeemed except as to the holder to which the Corporation has failed to give said notice of redemption or except as to the holder whose notice of redemption was defective. A public announcement of any call for redemption shall be made by the Corporation before, or at the time of, the mailing of such notice of redemption. Each such mailed notice shall state, as appropriate, the following: (i) the redemption date; (ii) the number of shares of PRIDES to be redeemed and, if less than all the shares held by any holder are to be redeemed, the number of such shares to be redeemed; (iii) the Call Price, the number of shares of Common Stock per share of PRIDES deliverable upon redemption and the Current Market Price used to calculate such number of shares of Common Stock; (iv) the place or places where certificates for such shares are to be surrendered for redemption; (v) that the Corporation is depositing with a bank or trust company, on or before the redemption date, the shares of Common Stock payable by the Corporation pursuant to this Section 3 and the proposed date of such deposit; and (vi) that dividends on shares of PRIDES to be redeemed will cease to accrue on the day immediately prior to the redemption date unless the Corporation shall default in delivering the shares of Common Stock payable by the Corporation pursuant to Section 3(b) at the time and place specified in such notice. (2) The Corporation's obligation to deliver shares of Common Stock and cash, if any, in accordance with paragraphs (a) and (b) of this Section 3 shall be deemed fulfilled if, on or before a redemption date or the Mandatory Conversion Date, the Corporation shall deposit, with a bank or trust company having an office or agency and doing business in the Borough of Manhattan in New York City and having a capital and surplus of at least $50,000,000, such shares of Common Stock and cash, if any, as are required to be delivered by the Corporation pursuant to this Section 3 upon the occurrence of the related redemption or Mandatory Conversion, in trust for the account of the holders of the shares to be redeemed or converted (and so as to be and continue to be available therefor), with irrevocable instructions and authority to such bank or trust company that such shares and funds be delivered upon redemption or conversion of the shares of PRIDES so called for redemption or subject to conversion. Any shares of Common Stock and cash, if any, so deposited and unclaimed by the holders of shares of PRIDES at the end of two years after such redemption or conversion date (together with any interest thereon not theretofore paid to the Corporation which shall be allowed by the bank or trust 12 13 company with which such deposit was made) shall be paid by such bank or trust company to the Corporation (or its successor), after which the holder or holders of such shares of PRIDES so redeemed or converted shall look only to the Corporation (or its successor) for delivery of such shares of Common Stock and cash, if any. Each holder of shares of PRIDES to be redeemed or converted shall surrender the certificates evidencing such shares to the Corporation at the place designated in the notice of such redemption (or, in the case of a conversion pursuant to paragraph (a) of this Section 3, the principal executive offices of the Corporation or at such other place as may be designated by the Corporation (or its successor) in a written notice mailed to the holders of record of the PRIDES) and shall thereupon be entitled to receive certificates evidencing shares of Common Stock and cash, if any, payable pursuant to paragraph (a) or (b), as the case may be, of this Section 3, following such surrender and following the date of such redemption or conversion. In case fewer than all the shares represented by any such surrendered certificates are called for redemption, a new certificate shall be issued at the expense of the Corporation representing the unredeemed shares. If (A) shares of PRIDES are called for redemption and, on the date fixed for redemption, shares of Common Stock necessary for the redemption shall have been deposited with a bank or trust company as provided above or (B) shares of PRIDES have been converted pursuant to paragraph (a) of this Section 3, then, notwithstanding that the certificates evidencing any shares of PRIDES so called for redemption or converted shall not have been surrendered, the shares represented thereby so called for redemption or converted shall be deemed no longer outstanding and all rights with respect to the shares so called for redemption or converted shall forthwith cease and terminate, except for the right of the holders to receive the shares of Common Stock and cash, if any, payable pursuant to this Section 3, without interest upon surrender of their certificates therefor, provided, that if any cash payable upon the surrender of certificates evidencing shares of PRIDES that have been converted pursuant to paragraph (a) of this Section 3 is not paid when due, the obligation to pay such cash shall bear interest at the rate of 11% per annum; and provided further that holders of shares of PRIDES at the close of business on a record date for any payment of dividends on shares of PRIDES shall be entitled to receive the dividends payable on such shares on the corresponding dividend payment date notwithstanding the redemption or conversion of such shares following such record date and on or before such corresponding dividend payment date. Holders of shares of PRIDES that are redeemed or converted in a Mandatory Conversion shall not be entitled to receive dividends declared and paid on shares of Common Stock issuable on such redemption or Mandatory Conversion, and such shares of Common Stock shall not be entitled to vote, until such shares of Common Stock are issued upon the surrender of the certificates representing such shares of PRIDES and upon such surrender such holders shall be entitled to receive such dividends declared and paid on such shares of Common Stock subsequent to the redemption date or Mandatory Conversion Date, as applicable. (k) Reservation of Shares. The Corporation shall at --------------------- all times reserve and keep available, free from preemptive rights, out of authorized but unissued shares of Common Stock, the maximum number of shares of Common Stock into which all shares of PRIDES from time to time outstanding are convertible pursuant to paragraph (a) or (c) of this Section 3, but shares of Common Stock held in treasury of the Corporation may, in its discretion, be delivered upon any conversion of shares of PRIDES. (l) Timing. The holders of shares of PRIDES at the ------ close of business on a record date for the payment of dividends shall be entitled to receive the dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption or conversion thereof subsequent to such record date and on or before such corresponding dividend payment date. (m) Partial Redemption. In no event shall the ------------------ Corporation redeem less than all the outstanding shares of PRIDES pursuant to paragraph (b) of this Section 3 unless full cumulative dividends 13 14 shall have been paid or declared and set apart for payment upon all outstanding shares of PRIDES for all past dividend periods. (n) Taxes. The Corporation shall pay any and all ----- documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on the redemption or conversion of shares of PRIDES pursuant to this Section 3; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the registered holder of the shares of PRIDES redeemed or converted or to be redeemed or converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (o) Listing. The Corporation shall endeavor to list ------- the shares of Common Stock required to be delivered upon redemption or conversion of the shares of PRIDES, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery. (p) Multiple Shares Surrendered. If more than one --------------------------- share shall be surrendered for redemption or conversion at one time by the same holder, the number of full shares of Common Stock issuable upon such redemption or conversion thereof shall be computed on the basis of the aggregate number of shares of PRIDES so surrendered. (q) Compliance with Laws. Prior to the delivery of -------------------- any securities which the Corporation shall be obligated to deliver upon redemption or conversion of the PRIDES, the Corporation shall endeavor to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to delivery thereof by, any governmental authority. (r) Survival of Certain Provisions. So long as a ------------------------------ Deposit Deficit is outstanding, the provisions of this Certificate of Designations contained in Sections 2(b), 3(a) and 3(j)(2) regarding a Deposit Deficit shall continue in full force and effect and shall not thereafter be amended, notwithstanding that no shares of PRIDES remain outstanding. Section 4. Voting Rights. ------------- (a) Except as otherwise provided by paragraph (b) or (c) of this Section 4 or as required by law, the holders of shares of PRIDES shall have 4/5 of a vote in respect of each share of PRIDES held as to all matters voted upon by the stockholders of the Corporation and shall vote together with the holders of the Common Stock and together with the holders of any other classes or series of stock who are entitled to vote in such manner and not as a separate class. (b) In the event that dividends on the shares of PRIDES or any other series of Preferred Stock shall be in arrears and unpaid for six quarterly dividend periods, or if any series of Preferred Stock (other than the PRIDES) shall be entitled for any other reason to exercise voting rights, separate from the Common Stock, to elect any directors of the Corporation ("Preferred Stock Directors"), the holders of the shares of PRIDES (voting separately as a class with holders of all other series of Preferred Stock upon which like voting rights have been conferred and are exercisable), with each share 14 15 of PRIDES entitled to one vote on this and other matters in which Preferred Stock votes as a group, shall be entitled to vote for the election of two directors of the Corporation, such directors to be in addition to the number of directors constituting the Board of Directors immediately before the accrual of such right. Such right, when vested, shall continue until all cumulative dividends accumulated and payable on the shares of PRIDES and such other series of Preferred Stock shall have been paid in full and the right of any other series of Preferred Stock to exercise voting rights, separate from the Common Stock, to elect Preferred Stock Directors shall terminate or have terminated, and, when so paid and any such termination occurs or has occurred, such right of the holders of the shares of PRIDES shall cease. The term of office of any director elected by the holders of the shares of PRIDES and such other series shall terminate on the earlier of (i) the next annual meeting of stockholders at which a successor shall have been elected and qualified or (ii) the termination of the right of holders of the shares of PRIDES and such other series to vote for such directors. (c) So long as any shares of PRIDES remain outstanding, the consent of the holders of at least two-thirds of all such shares voting on such matter (voting separately as a class) given in person or by proxy, at any special or annual meeting called for such purpose, or by written consent as permitted by law and the Certificate of Incorporation and By- laws, shall be necessary to permit, effect or validate any one or more of the following: (i) The amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Certificate of Incorporation or of the resolutions contained in this Certificate of Designations which would materially and adversely affect any right, preference, privilege or voting power of the PRIDES or of the holders thereof, provided, however, that any such amendment, alteration or repeal that would authorize, create or issue any additional shares of stock (whether or not already authorized) ranking senior to, on a parity with or junior to the PRIDES as to dividends or as to the distribution of assets upon Liquidation, shall be deemed not to materially and adversely affect such rights, preferences, privileges or voting power. (ii) Notwithstanding anything in clause (i) above to the contrary, the issuance of shares of any class or series of stock, or any security convertible at the option of the holder thereof into shares of any class or series of stock, ranking senior to the PRIDES as to dividends or as to the distribution of assets upon Liquidation. (iii) The consummation of a merger or consolidation of the Corporation with Kaiser Aluminum & Chemical Corporation ("KACC"), a Delaware corporation (a "KACC Merger"), if (A) each outstanding share of PRIDES, upon the effectiveness of the KACC Merger, neither remains outstanding nor is converted into one share of preferred stock of the surviving corporation ("KACC Preferred Stock"), identical as near as practicable to a share of PRIDES (including in respect of accrued dividends and the listing on a national securities exchange of such KACC Preferred Stock), convertible into and redeemable for shares of common stock of the surviving corporation, (B) such shares of KACC Preferred Stock (if issued in the KACC Merger) are not to be deposited with a bank or trust company substantially in accordance with Section 3(j)(2) upon or prior to the effectiveness of the KACC Merger or (C) the covenants in the debt instruments of the surviving corporation of the KACC Merger, at the time of the KACC Merger, prohibit the payment of any of the dividends on the PRIDES or the KACC Preferred Stock, as the case may be, in accordance with the terms thereof through and including the day immediately prior to the Mandatory Conversion Date. In the event of a KACC Merger for which the consent of the holders of the PRIDES voting as a class is not obtained, (x) the Corporation shall deliver to the transfer agent or agents for the PRIDES and the Common Stock a certificate 15 16 signed on behalf of the Corporation by the Chief Financial Officer of the Corporation to the effect that such consent is not required and (y) so long as any shares of PRIDES or KACC Preferred Stock, as the case may be, remain outstanding, the surviving corporation of the KACC Merger shall not thereafter amend its debt instruments so as to prohibit the payment of any of the dividends on the PRIDES or KACC Preferred Stock, as the case may be, in accordance with the terms thereof through and including the day immediately prior to the Mandatory Conversion Date, without the consent of the holders of at least two-thirds of the shares of the PRIDES or the KACC Preferred Stock, as the case may be, voting thereon (voting separately as a class). (iv) The amendment of any of the provisions of the Intercompany Note (as such term is defined in the Prospectus, dated February 10, 1994, relating to the PRIDES) in a manner that materially adversely affects the Corporation as the holder of such Intercompany Note or the holders of the PRIDES. (v) The consummation of a merger or consolidation of the Corporation with any other corporation, unless each holder of shares of PRIDES immediately preceding such merger or consolidation shall receive or continue to hold in the surviving corporation the same number of shares, with substantially the same rights and preferences (except as contemplated by Section 3(e)), as correspond to the shares of PRIDES so held. The foregoing voting provisions set forth in this paragraph (c) shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, (1) all outstanding shares of PRIDES shall have been redeemed or converted pursuant to paragraph (a), (b) or (c) of Section 3 or (2) (x) all outstanding shares of PRIDES are scheduled to be redeemed or converted pursuant to paragraph (a) or (b) of Section 3 within two months, (y) sufficient shares of the Common Stock and cash, if any, necessary for such redemption or conversion shall have been deposited with a bank or trust company in accordance with Section 3(j)(2) and (z) a KACC Merger is not consummated prior to such redemption or conversion. Section 5. Liquidation Rights. ------------------ (a) Subject to the rights of holders of Series A Stock and holders of any class or series of stock which the Corporation may in the future issue which ranks senior to, or on a parity with, the PRIDES in respect of a distribution of assets upon the liquidation, dissolution or winding-up of the affairs of the Corporation, whether voluntary or involuntary (such event, a "Liquidation"), the holders of shares of PRIDES shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders, whether from capital, surplus or earnings, before any distribution or payment is made to holders of Common Stock of the Corporation or on any other class or series of stock of the Corporation ranking junior as to assets distributable upon Liquidation to the shares of PRIDES, liquidating distributions in the amount of $11.75 per share, plus an amount equal to all dividends accrued and unpaid thereon, whether or not earned or declared (including dividends accumulated and unpaid), to the date of Liquidation; but such holders shall not be entitled to any further payment. If, upon any Liquidation, the assets of the Corporation or proceeds thereof distributable among the holders of the shares of PRIDES shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of stock ranking on a parity with the PRIDES in respect of a distribution of assets upon Liquidation, then such assets or proceeds thereof shall be distributed among the holders of shares of PRIDES and any such other stock ratably in accordance with the respective amounts which would be payable on such shares of PRIDES and any such other stock if all amounts payable thereon were paid in full. For the purposes hereof, neither the consolidation or merger of the 16 17 Corporation with one or more corporations nor the sale, lease or transfer by the Corporation of all or any part of its assets shall be deemed a Liquidation. (b) Subject to the rights of holders of shares of any class or series of stock ranking on a parity with or senior to the PRIDES in respect of the distribution of assets upon Liquidation, and after payment shall have been made in full to the holders of PRIDES, as provided in this Section 5, but not prior thereto, any other class or series of stock ranking junior to the PRIDES in respect of the distribution of assets upon Liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the PRIDES shall not be entitled to share therein. (c) Written notice of any Liquidation, stating the payment date or dates when and the place or places where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than 15 days (to the extent practicable) prior to any payment date stated therein, to the holders of record of the PRIDES at their respective addresses as the same shall appear on the books of the Corporation or any transfer agent for the PRIDES. Section 6. Record Holders. The Corporation and the -------------- transfer agent for the PRIDES may deem and treat the record holder of any share of PRIDES as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations to be signed in its name and on its behalf on this 17th day of February, 1994 by an officer of the Corporation who acknowledges that this Certificate of Designations is the act of the Corporation and that to the best of his knowledge, information and belief and under penalties for perjury, all matters and facts contained in this Certificate of Designations with respect to authorization and approval thereof are true in all material respects. KAISER ALUMINUM CORPORATION --------------------------- Name: John T. La Duc Title: Vice President ATTEST: - ------------------------------ Name: John Wm. Niemand, II Title: Assistant Secretary 17 EX-4 5 EXHIBIT 4.22 TO KAISER ALUMINUM 1993 10-K 1 SENIOR SUBORDINATED INTERCOMPANY NOTE February 15, 1994 FOR VALUE RECEIVED, the undersigned, Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order of Kaiser Aluminum Corpora- tion, a Delaware corporation (the "Payee"), the principal sum of THIRTY MILLION FORTY-EIGHT THOUSAND FOUR HUNDRED AND FORTY-FOUR DOLLARS ($30,048,444), which shall be due and payable as hereinafter provided. 1. This Note shall not bear interest. This Note shall be payable in quarterly installments on March 30, June 29, September 29 and December 30 of each year, commencing March 30, 1994, and ending December 30, 1997, the first such quarterly installment to be in the amount of $948,444 and each remaining quarterly installment to be in the amount of $1,940,000. 2. The entire unpaid principal amount of this Note shall be due and payable on December 30, 1997. Notwithstanding the foregoing provisions of this Note, in the event that all shares of 8.255% PRIDES, Convertible Preferred Stock (the "PRIDES") of the Payee are redeemed or are converted into shares of the common stock of the Payee pursuant to the Certificate of Designations governing such shares of PRIDES, the Company may, after all amounts payable by the Payee in respect of accrued and unpaid dividends in connection with 2 such redemption or conversion have been paid, defer further principal and interest payments on this Note until such time as no Specified Senior Debt (as defined in Section 7(c) of this Note) is then outstanding. 3. The Company shall make each payment hereunder not later than 5:00 p.m. (New York City time) on the day when due in lawful money of the United States of America to the holder of this Note by delivery of a certified or bank cashier's check in the amount of such payment or, at such holder's option, by wire transfer of immediately available funds. 4. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or a public or bank holi- day or the equivalent for banks generally under the laws of the State of New York (any other day being a "Business Day"), such payment may be made on the next succeeding Business Day. 5. The Company shall have the right to prepay the principal amount of this Note, in whole or in part, at any time or from time to time, without premium or penalty, but with inte- rest on the portion of the principal amount so prepaid accrued to the date of prepayment. This Note is an Equity Proceeds Note (as such term is defined in the Credit Agreement dated as of February 15, 1994 between Kaiser Aluminum Corporation, the Company, certain financial institutions, and BankAmerica Business Credit, Inc., as agent (in such capacity the "Agent"), as the same has been, or may hereafter be, amended, supplemented, restated, or otherwise modified from time to time (the "Credit Agreement")). -2- 3 6. In case one or more of the following events of default shall have occurred and be continuing: (a) the Company fails to pay any installment of prin- cipal of, or interest on, this Note when due, whether or not payment is prohibited by the provisions of Section 7 of this Note; or (b) a court having jurisdiction in the premises shall have entered a decree or order for relief against the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for all or any substan- tial part of its property, or ordering the winding-up or liquida- tion of its affairs, and such decree or order shall have remained unstayed and in effect for a period of ninety consecutive days; or (c) the Company shall have commenced a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have consented to the entry of an order for relief in an involuntary case under any such law, or shall have consented to the appointment of or taking posses- sion by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or for all or any substantial part of its property, or shall have made an assignment for the benefit of creditors, or shall have taken any corporate action in furtherance of any of the foregoing; -3- 4 then, in the case of an event specified in clause (a), unless the principal of this Note shall have already become due and payable, the holder of this Note by notice to the Company in writing may at its option declare the principal amount and accrued interest to the date of declaration of this Note to be due and payable immediately. Upon any such declaration, the same shall become and shall be immediately due and payable, provided that any pay- ment pursuant to such acceleration shall be subject to Section 7(g) of this Note. If an event specified in clause (b) or (c) above occurs, such amount shall ipso facto become and be immedi- ately due and payable without any declaration or other act on the part of the holder, but subject to Section 7(g) of this Note. 7. (a) The Company, for itself, its successors and assigns, covenants and agrees, and the Payee (and each other holder of this Note), by its acceptance hereof, likewise cov- enants and agrees, for the benefit of all present and future holders of Senior Indebtedness of the Company (as defined in Section 7(h) of this Note), that all direct or indirect payments or distributions on or with respect to this Note, whether pursu- ant to the terms of this Note or upon acceleration or otherwise, including, without limitation, by way of or on account of a "Claim" (as defined hereinbelow) or the payment of the principal of and interest on this Note, is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full in cash or cash equiva- lents of all Senior Indebtedness of the Company (including, without limitation, interest that would accrue but for the occurrence of any proceeding of the kind referred to in the introductory clause of -4- 5 Section 7(b) of this Note, whether or not such interest is an allowable claim in such proceeding). (b) Upon any direct or indirect payment or distribu- tion of assets or securities of the Company of any kind or char- acter, whether in cash, property or securities, upon any dissolu- tion, winding up, liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, reorganization, receivership or other proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of the Company or otherwise, (i) the holders of all Senior Indebtedness of the Company shall be entitled to receive payment in full in cash or cash equivalents of such Senior Indebtedness of the Company (in- cluding, without limitation, interest that would accrue but for the occurrence of any such proceeding whether or not such inter- est is an allowable claim in such proceeding) before the holder of this Note shall be entitled to receive any direct or indirect payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, with respect to this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of any claim against the Company for rescission of the issuance of this Note or for monetary damages from, or in connec- tion with, the issuance of this Note, or for reimbursement or contribution on account of such a claim (a "Claim"), or the pay- ment of principal of or interest on this Note; and -5- 6 (ii) any direct or indirect payment or distribu- tion of assets or securities of the Company of any kind or character, whether in cash, property or securities, to which the holder of this Note would be entitled except for the provisions of this Section 7 shall be paid by the Company or by any liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness of the Company or their representative or representatives, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness of the Company held or represented by each, to the extent necessary to make payment in full in cash or cash equivalents of all Senior Indebtedness of the Company (including, without limitation, interest that would accrue but for the occurrence of any such proceeding whether or not such interest is an allowable claim in such proceeding) remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness of the Company; and (iii) in the event that, notwithstanding the fore- going, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the holder of this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, includ- ing by way of or on account of a Claim, or the payment of princi- pal of or interest on this Note, before all Senior Indebtedness of the Company is paid in full in cash or cash equivalents, such payment or distribution shall be received and held in trust for and paid over to the holders of such Senior Indebtedness of the Company or their representative or representatives, ratably as aforesaid, for application to -6- 7 the payment of all Senior Indebtedness of the Company remaining unpaid until all such Senior Indebtedness of the Company shall have been paid in full in cash or cash equivalents, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness of the Company. The consolidation of the Company with, or the merger of the Company into, another corporation or other entity or the liquidation or dissolution of the Company following the sale or conveyance of its property or assets as an entirety, or substan- tially as an entirety, to another corporation or other entity shall not be deemed a dissolution, winding up, liquidation or reorganization of the Company for the purposes of this Section 7. Subject to the payment in full in cash or cash equivalents of all Senior Indebtedness of the Company, the holder of this Note shall be subrogated (without any duty on the part of the holders of Senior Indebtedness of the Company to warrant, create, effectuate, preserve or protect such subrogation) to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions of cash, property or securities of the Company applicable to Senior Indebtedness of the Company until the principal of and interest on this Note shall be paid in full and, for the purpose of such subrogation, no payments or distributions to the holders of Senior Indebtedness of the Com- pany of cash, property or securities otherwise distributable to the holder of this Note shall, as between the Company, its cre- ditors other than the holders of Senior Indebtedness of the Company, and the holder of this Note, be deemed to be a payment by the Company to the holders of or on account of the Senior Indebtedness of the Company. It is understood that the provi- sions of this Section 7 are and are intended solely -7- 8 for the purpose of defining the relative rights of the holder of this Note, on the one hand, and the holders of Senior Indebtedness of the Company, on the other hand. Nothing contained in this Section 7 or elsewhere in this Note is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the holder of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holder of this Note the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms, or to affect the relative rights of the holder of this Note and creditors of the Company other than the holders of Senior Indebtedness of the Company, nor shall anything herein prevent the holder of this Note from exercising all remedies otherwise permitted by appli- cable law upon default under this Note, subject to the rights, if any, under this Section 7 of the holders of Senior Indebtedness of the Company in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Section 7, the holder of this Note shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature described in this Section are pending or upon a certificate of the liquidating trustee or agent or other person making any distribution to the holder of this Note for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebted- ness of the Company and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 7. -8- 9 (c) No direct or indirect payments or distributions by or on behalf of the Company on or with respect to this Note (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note) shall be made if, at the time of such payment or distribution, there exists a default in the payment of all or any portion of any Senior Indebtedness of the Company (other than a payment default to the extent it relates to those items described in clause (i)(B) of the definition of "Senior Indebtedness" contained in the Subordinated Indenture (as the term Subordinated Indenture is defined in the Credit Agreement) or a payment default to the extent it relates to those items of Senior Indebtedness of the Company referred to in clause (ii)(B) of Section 7(h)), and such payment default (other than to the extent it relates to those items described in clause (i)(B) of the definition of "Senior Indebtedness" contained in the Subordinated Indenture) shall not have been cured or waived or the benefits of this sentence waived in writing by or on behalf of the holders of such Senior Indebtedness of the Company. In addition, during the continuance of any other default with respect to the obligations of the Company referred to in clause (i) of Section 7(h) (the "Specified Senior Debt") that would permit (or would so permit with the passage of time or giving of notice or both) the acceleration of the maturity of such Specified Senior Debt, no direct or indirect payments or distributions by or on behalf of the Company on or with respect to this Note may be made (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note) for a period (the "Payment Blockage Period") commencing on the date of receipt by the holder of this Note of notice of such default -9- 10 specifying that such notice is a Payment Blockage Notice from the Agent under the Credit Agreement, or, if such default results from the acceleration of this Note, commencing on the earlier of the date of receipt of such notice by the holder of this Note or the date of such acceleration, and ending on the earliest of (a) 179 days thereafter, (b) the date on or as of which (i) such default has been cured or waived, (ii) the Company has delivered to the holder of this Note an Officers' Certificate (as herein- after defined) to such effect and (iii) the Agent under the Credit Agreement shall have endorsed on such Officers' Certifi- cate that it does not object to the form or substance of such Officers' Certificate, provided, that if such -------- default has been cured or waived, the Company shall promptly notify the holder of this Note of such cure or waiver and the Agent under the Credit Agreement shall promptly endorse such notice, and (c) the date on or as of which the Agent under the Credit Agreement shall have consented in writing to the termination of such Payment Blockage Period. Notwithstanding the foregoing, in no event (a) may the total number of days during which any Payment Blockage Period or Payment Blockage Periods may be in effect during any 360 consecutive day period exceed 179 days in the aggregate or (b) will payments or distributions be prohibited by this Section 7(c) if (i) any of the Company's 12- 3/4% Senior Subordinated Notes due 2003 shall then be outstanding and (ii) payments and distributions are not then prohibited under Sections 3.03 and (if, at the time, there are any "Subsidiary Guarantors" (as such term is defined in the Subordinated Indenture)) 16.04 of the Subordinated Indenture. No default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to Specified Senior Debt and was known at the time of commencement thereof to the Agent under the Credit Agreement shall be, or be made, the -10- 11 basis for the commencement of a second Payment Blockage Period by the Agent under the Credit Agreement whether or not within a period of 360 consecutive days, unless such default shall have been cured or waived for a period of not less than 90 consecutive days. As used herein, the term "Officers' Certificate" shall mean a certificate of the Company signed on behalf of the Company by the Chairman of the Board, the President or any Vice President and by the Chief Financial Officer, the Controller, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. In the event that, notwithstanding the foregoing, the Company shall make any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to the holder of this Note prohibited by the fore- going provisions of this Section 7(c) (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note), then and in any such event such payment or distribution shall, to the extent permitted by law, be received and held in trust for the benefit of and be paid over and delivered forthwith to the holders of the Senior Indebtedness of the Company or their representative or representatives. The provisions of this Section 7(c) shall not apply to any payment with respect to which Section 7(b) would be applicable. -11- 12 (d) Except as provided in clause (b) or (c) above, nothing contained in this Note shall affect the obligation of the Company to make, or prevent the Company from making, at any time, payments of principal or interest on this Note. (e) The holder of this Note shall take such action as may be necessary or appropriate to effectuate the subordination as provided in this Section 7, including, without limitation, in the event of any dissolution, winding up, liquidation or bank- ruptcy reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon a general assign- ment for the benefit of creditors or any other similar remedy or otherwise) tending towards liquidation of the business and assets of the Company, the immediate filing of a claim for the unpaid balance of this Note in the form required in such proceedings and using its best efforts to cause such claim to be approved. If the holder of this Note does not file a proper claim or proof of debt in the form required in such proceedings prior to 30 days before the expiration of the time to file such claim or claims, the holders of Senior Indebtedness of the Company (or their representative or representatives) are hereby authorized to file an appropriate claim for and on behalf of the holder of this Note. Nothing herein shall be deemed to authorize the holders of Senior Indebtedness of the Company to authorize or consent to or accept or adopt on behalf of the holder of this Note any plan of reorganization, arrangement, adjustment or composition affecting this Note or the rights of the holder of this Note, or to autho- rize the holders of Senior Indebtedness of the Company to vote in respect of the claim of the holder of this Note in any such proceeding. In the event that the provisions of this Section 7 shall at the time prohibit payments to the -12- 13 holder of this Note, no holder of this Note shall waive, forgive or cancel any monetary obligation, or any claim before a bankruptcy court, under or with respect to this Note or any Claim. (f) No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Note, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The holders of Senior Indebtedness of the Company may at any time and from time to time, without the consent of or notice to the holder of this Note, without incurring responsibility to the holder of this Note and without impairing or releasing or otherwise affecting the rights of any holder of Senior Indebtedness of the Company or the respective liabilities or obligations of the Company or the holder this Note or in any way altering or affecting any of the provisions of this Section 7: (1) change the amount, manner, place or terms of pay- ment or change or extend the time of payment of or renew, refinance, modify, alter or restructure the terms of the Senior Indebtedness of the Company or any document or in- strument evidencing or governing such Senior Indebtedness of the Company in any manner or enter into or amend in any manner any other agreement relating to Senior Indebtedness of the Company or any security therefor; -13- 14 (2) sell, exchange, release or otherwise deal with any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, Senior Indebtedness of the Company and otherwise deal freely with the Company; (3) release anyone (including any guarantor) liable in any manner for the payment or collection of Senior Indebted- ness of the Company; (4) exercise or refrain from exercising any rights against the Company and others (including any guarantor), including releasing, selling or exchanging any security; (5) apply any sums by whomsoever paid or however realized to the Senior Indebtedness of the Company; or (6) take any other action which otherwise might be deemed to impair the rights of the holder of this Note. No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liabilities or obligation under or in respect of, or of any of the terms, covenants or conditions of any indenture or other instrument under which any Senior Indebtedness of the Company is outstanding or of such Senior Indebtedness of the Company, whether or not in accordance with the provisions of any applicable document, shall in any way alter or affect any of the provisions of this Section 7. As long as any Senior Indebtedness of the Company is outstanding, no -14- 15 amendment to, or any waiver of the provisions of, this Section 7 which adversely affects the rights of the holders of Senior Indebtedness of the Company under this Section 7 shall be effective against the holders of Senior Indebtedness of the Company who have not consented thereto. (g) If payment of the Note is accelerated because of an event of default as provided in Section 6 of this Note, the Company shall promptly notify the Agent under the Credit Agree- ment, and the trustee under the indenture (the "Senior Indenture") governing the Company's 9-7/8% Senior Notes due February 15, 2002 (the "Senior Notes"), of the acceleration. The Company may not pay the Note until five Business Days after the Agent under the Credit Agreement and the trustee under the Senior Indenture receive such notice (if any Senior Indebtedness of the Company remains outstanding) and thereafter may pay this Note only if this Note otherwise permits the payment at that time. (h) The term "Senior Indebtedness of the Company" shall mean (i) all monetary obligations of the Company under the Credit Agreement, including all related notes, collateral docu- ments, and guarantees, in each case, as any of the same has been or may be amended, supplemented, restated or otherwise modified from time to time (in each case in whole or in part) and any refundings, refinancings, replacements or restructurings of such monetary obligations that individually or in the aggregate provide, at one time, the source of repayment for at least fifty percent of the then outstanding aggregate amount of all monetary obligations of the Company under the Credit Agreement, and (ii) (A) all principal of, premium, if any, and interest on the Senior Notes, and (B) all other monetary obligations -15- 16 of the Company under the Senior Notes or the Senior Indenture, in each case, as the same may be amended, supplemented, restated or otherwise modified from time to time. 8. All powers and remedies given to the holder of this Note shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the holder of this Note, by judicial pro- ceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Note, and no delay or omission of the holder of this Note to exercise any right or power accruing upon any default hereunder shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein. 9. This Note shall be binding upon the Company and its successors and assigns, and the terms and provisions of this Note shall inure to the benefit of Payee, the holders of Senior Indebtedness of the Company and their respective successors and assigns, including subsequent holders hereof. 10. The terms and provisions of this Note are sever- able, and if any term or provision shall be determined to be superseded, illegal, invalid or otherwise unenforceable in whole or in part pursuant to applicable law by a governmental authority having jurisdiction, such determination shall not in any manner impair or otherwise affect the validity, legality or enforce- ability of that term or provision in any other jurisdiction or any of the remaining terms and provisions of this Note in any jurisdiction. -16- 17 11. Presentment for payment, notice of dishonor, protest, notice of protest and any other notice are hereby waived. This Note shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to principles of conflict of laws. 12. No amendment, modification or waiver of any term or provision of this Note, nor consent to any departure by the Company herefrom, shall be effective unless the same shall be in writing and signed by the holder of this Note, and then such waiver, modification or consent shall be effective only in the specific instance and for the specific purpose for which given. 13. Nothing in this Note, expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto and the holders of Senior Indebtedness of the Company, any legal or equitable right, remedy or claim under or in respect of this Note, or under any covenant, condition or provision herein contained; all its covenants, conditions and provisions being for the sole benefit of the Company, the holder of this Note and the holders of Senior Indebtedness of the Company. IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered to the Payee on the date and year first above written. KAISER ALUMINUM & CHEMICAL CORPORATION By: Name: John T. La Duc Title: Vice President -17- EX-4 6 EXHIBIT 4.23 TO KAISER ALUMINUM 1993 10-K 1 SENIOR SUBORDINATED INTERCOMPANY NOTE March 17, 1994 FOR VALUE RECEIVED, the undersigned, Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order of Kaiser Aluminum Corporation, a Delaware corporation (the "Payee"), the principal sum of THREE MILLION TWO HUNDRED THIRTEEN THOUSAND FIVE HUNDRED THIRTY THREE DOLLARS ($3,213,533), which shall be due and payable as hereinafter provided. 1. This Note shall not bear interest. This Note shall be payable in quarterly installments on March 30, June 29, September 29 and December 30 of each year, commencing March 30, 1994, and ending December 30, 1997 quarterly installment to be in the amount of $207,471. 2. The entire unpaid principal amount of this Note shall be due and payable on December 30, 1997. Notwithstanding the foregoing provisions of this Note, in the event that all shares of 8.255% PRIDES, Convertible Preferred Stock (the "PRIDES") of the Payee are redeemed or are converted into shares of the common stock of the Payee pursuant to the Certificate of Designations governing such shares of PRIDES, the Company may, after all amounts payable by the Payee in respect of accrued and unpaid dividends in connection with such redemption or conversion have been paid, defer further principal and interest payments on this Note until such time as no Specified Senior Debt (as defined in Section 7(c) of this Note) is then outstanding. 2 3. The Company shall make each payment hereunder not later than 5:00 p.m. (New York City time) on the day when due in lawful money of the United States of America to the holder of this Note by delivery of a certified or bank cashier's check in the amount of such payment or, at such holder's option, by wire transfer of immediately available funds. 4. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or a public or bank holi- day or the equivalent for banks generally under the laws of the State of New York (any other day being a "Business Day"), such payment may be made on the next succeeding Business Day. 5. The Company shall have the right to prepay the principal amount of this Note, in whole or in part, at any time or from time to time, without premium or penalty, but with inte- rest on the portion of the principal amount so prepaid accrued to the date of prepayment. This Note is an Equity Proceeds Note (as such term is defined in the Credit Agreement dated as of February 15, 1994 between Kaiser Aluminum Corporation, the Company, certain financial institutions, and BankAmerica Business Credit, Inc., as agent (in such capacity the "Agent"), as the same has been, or may hereafter be, amended, supplemented, restated, or otherwise modified from time to time (the "Credit Agreement")). 6. In case one or more of the following events of default shall have occurred and be continuing: -2- 3 (a) the Company fails to pay any installment of prin- cipal of, or interest on, this Note when due, whether or not payment is prohibited by the provisions of Section 7 of this Note; or (b) a court having jurisdiction in the premises shall have entered a decree or order for relief against the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for all or any substan- tial part of its property, or ordering the winding-up or liquida- tion of its affairs, and such decree or order shall have remained unstayed and in effect for a period of ninety consecutive days; or (c) the Company shall have commenced a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have consented to the entry of an order for relief in an involuntary case under any such law, or shall have consented to the appointment of or taking posses- sion by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or for all or any substantial part of its property, or shall have made an assignment for the benefit of creditors, or shall have taken any corporate action in furtherance of any of the foregoing; then, in the case of an event specified in clause (a), unless the principal of this Note shall have already become due and payable, the holder of this Note by notice to the Company in writing may at its option declare the principal amount and accrued interest to the date of declaration of this Note to be due and payable immediately. Upon any such declaration, the -3- 4 same shall become and shall be immediately due and payable, provided that any payment pursuant to such acceleration shall be subject to Section 7(g) of this Note. If an event specified in clause (b) or (c) above occurs, such amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the holder, but subject to Section 7(g) of this Note. 7. (a) The Company, for itself, its successors and assigns, covenants and agrees, and the Payee (and each other holder of this Note), by its acceptance hereof, likewise cov- enants and agrees, for the benefit of all present and future holders of Senior Indebtedness of the Company (as defined in Section 7(h) of this Note), that all direct or indirect payments or distributions on or with respect to this Note, whether pursu- ant to the terms of this Note or upon acceleration or otherwise, including, without limitation, by way of or on account of a "Claim" (as defined hereinbelow) or the payment of the principal of and interest on this Note, is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full in cash or cash equiva- lents of all Senior Indebtedness of the Company (including, without limitation, interest that would accrue but for the occurrence of any proceeding of the kind referred to in the introductory clause of Section 7(b) of this Note, whether or not such interest is an allowable claim in such proceeding). (b) Upon any direct or indirect payment or distribu- tion of assets or securities of the Company of any kind or char- acter, whether in cash, property or securities, upon any dissolu- tion, winding up, liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, reorganization, receivership or other proceedings or -4- 5 upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of the Company or otherwise, (i) the holders of all Senior Indebtedness of the Company shall be entitled to receive payment in full in cash or cash equivalents of such Senior Indebtedness of the Company (in- cluding, without limitation, interest that would accrue but for the occurrence of any such proceeding whether or not such inter- est is an allowable claim in such proceeding) before the holder of this Note shall be entitled to receive any direct or indirect payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, with respect to this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of any claim against the Company for rescission of the issuance of this Note or for monetary damages from, or in connec- tion with, the issuance of this Note, or for reimbursement or contribution on account of such a claim (a "Claim"), or the pay- ment of principal of or interest on this Note; and (ii) any direct or indirect payment or distribu- tion of assets or securities of the Company of any kind or character, whether in cash, property or securities, to which the holder of this Note would be entitled except for the provisions of this Section 7 shall be paid by the Company or by any liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness of the Company or their representative or representatives, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness of the Company held or represented by each, to -5- 6 the extent necessary to make payment in full in cash or cash equivalents of all Senior Indebtedness of the Company (including, without limitation, interest that would accrue but for the occur- rence of any such proceeding whether or not such interest is an allowable claim in such proceeding) remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness of the Company; and (iii) in the event that, notwithstanding the fore- going, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the holder of this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, includ- ing by way of or on account of a Claim, or the payment of princi- pal of or interest on this Note, before all Senior Indebtedness of the Company is paid in full in cash or cash equivalents, such payment or distribution shall be received and held in trust for and paid over to the holders of such Senior Indebtedness of the Company or their representative or representatives, ratably as aforesaid, for application to the payment of all Senior Indebtedness of the Company remaining unpaid until all such Senior Indebtedness of the Company shall have been paid in full in cash or cash equivalents, after giving effect to any concur- rent payment or distribution to the holders of such Senior Indebtedness of the Company. The consolidation of the Company with, or the merger of the Company into, another corporation or other entity or the liquidation or dissolution of the Company following the sale or conveyance of its property or assets as an entirety, or substan- tially as an entirety, to another corporation or other entity shall not be deemed a dissolution, winding up, -6- 7 liquidation or reorganization of the Company for the purposes of this Section 7. Subject to the payment in full in cash or cash equivalents of all Senior Indebtedness of the Company, the holder of this Note shall be subrogated (without any duty on the part of the holders of Senior Indebtedness of the Company to warrant, create, effectuate, preserve or protect such subrogation) to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions of cash, property or securities of the Company applicable to Senior Indebtedness of the Company until the principal of and interest on this Note shall be paid in full and, for the purpose of such subrogation, no payments or distributions to the holders of Senior Indebtedness of the Com- pany of cash, property or securities otherwise distributable to the holder of this Note shall, as between the Company, its cre- ditors other than the holders of Senior Indebtedness of the Company, and the holder of this Note, be deemed to be a payment by the Company to the holders of or on account of the Senior Indebtedness of the Company. It is understood that the provi- sions of this Section 7 are and are intended solely for the purpose of defining the relative rights of the holder of this Note, on the one hand, and the holders of Senior Indebtedness of the Company, on the other hand. Nothing contained in this Section 7 or elsewhere in this Note is intended to or shall im- pair, as between the Company, its creditors other than the hold- ers of Senior Indebtedness of the Company, and the holder of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holder of this Note the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms, or to affect the relative rights of the holder of this Note and creditors of the Company other than the holders of Senior Indebtedness of the Company, nor shall anything herein prevent the holder of this Note from -7- 8 exercising all remedies otherwise permitted by applicable law upon default under this Note, subject to the rights, if any, under this Section 7 of the holders of Senior Indebtedness of the Company in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Section 7, the holder of this Note shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature described in this Section are pending or upon a certificate of the liquidating trustee or agent or other person making any distribution to the holder of this Note for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebted- ness of the Company and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 7. (c) No direct or indirect payments or distributions by or on behalf of the Company on or with respect to this Note (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note) shall be made if, at the time of such payment or distribution, there exists a default in the payment of all or any portion of any Senior Indebtedness of the Company (other than a payment default to the extent it relates to those items described in clause (i)(B) of the definition of "Senior Indebtedness" contained in the Subordinated Indenture (as the term Subordinated Indenture is defined in the Credit Agreement) or a payment default to the extent it relates to those items of Senior Indebtedness of the Company referred to in clause (ii)(B) of Section 7(h)), and such payment default (other -8- 9 than to the extent it relates to those items described in clause (i)(B) of the definition of "Senior Indebtedness" contained in the Subordinated Indenture) shall not have been cured or waived or the benefits of this sentence waived in writing by or on behalf of the holders of such Senior Indebtedness of the Company. In addition, during the continuance of any other default with respect to the obligations of the Company referred to in clause (i) of Section 7(h) (the "Specified Senior Debt") that would permit (or would so permit with the passage of time or giving of notice or both) the acceleration of the maturity of such Specified Senior Debt, no direct or indirect payments or distributions by or on behalf of the Company on or with respect to this Note may be made (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note) for a period (the "Payment Blockage Period") commencing on the date of receipt by the holder of this Note of notice of such default specifying that such notice is a Payment Blockage Notice from the Agent under the Credit Agreement, or, if such default results from the acceleration of this Note, commencing on the earlier of the date of receipt of such notice by the holder of this Note or the date of such acceleration, and ending on the earliest of (a) 179 days thereafter, (b) the date on or as of which (i) such default has been cured or waived, (ii) the Company has delivered to the holder of this Note an Officers' Certificate (as hereinafter defined) to such effect and (iii) the Agent under the Credit Agreement shall have endorsed on such Officers' Certificate that it does not object to the form or substance of such Officers' Certificate, provided, that if such -------- default has been cured or waived, the Company shall promptly notify the holder of this Note of such cure or waiver and the Agent under the Credit Agreement shall promptly endorse such notice, and -9- 10 (c) the date on or as of which the Agent under the Credit Agreement shall have consented in writing to the termination of such Payment Blockage Period. Notwithstanding the foregoing, in no event (a) may the total number of days during which any Payment Blockage Period or Payment Blockage Periods may be in effect during any 360 consecutive day period exceed 179 days in the aggregate or (b) will payments or distributions be prohibited by this Section 7(c) if (i) any of the Company's 12-3/4% Senior Subordinated Notes due 2003 shall then be outstanding and (ii) payments and distributions are not then prohibited under Sections 3.03 and (if, at the time, there are any "Subsidiary Guarantors" (as such term is defined in the Subordinated Indenture)) 16.04 of the Subordinated Indenture. No default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to Specified Senior Debt and was known at the time of commencement thereof to the Agent under the Credit Agreement shall be, or be made, the basis for the commencement of a second Payment Blockage Period by the Agent under the Credit Agreement whether or not within a period of 360 consecutive days, unless such default shall have been cured or waived for a period of not less than 90 consecutive days. As used herein, the term "Officers' Certificate" shall mean a certificate of the Company signed on behalf of the Company by the Chairman of the Board, the President or any Vice President and by the Chief Financial Officer, the Controller, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. In the event that, notwithstanding the foregoing, the Company shall make any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to the holder of this Note prohibited by the fore- going provisions of this -10- 11 Section 7(c) (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note), then and in any such event such payment or distribution shall, to the extent permitted by law, be received and held in trust for the benefit of and be paid over and delivered forthwith to the holders of the Senior Indebtedness of the Company or their representative or representatives. The provisions of this Section 7(c) shall not apply to any payment with respect to which Section 7(b) would be appli- cable. (d) Except as provided in clause (b) or (c) above, nothing contained in this Note shall affect the obligation of the Company to make, or prevent the Company from making, at any time, payments of principal or interest on this Note. (e) The holder of this Note shall take such action as may be necessary or appropriate to effectuate the subordination as provided in this Section 7, including, without limitation, in the event of any dissolution, winding up, liquidation or bank- ruptcy reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon a general assign- ment for the benefit of creditors or any other similar remedy or otherwise) tending towards liquidation of the business and assets of the Company, the immediate filing of a claim for the unpaid balance of this Note in the form required in such proceedings and using its best efforts to cause such claim to be approved. If the holder of this Note does not file a proper claim or proof of debt in the form required in such proceedings prior to 30 days before the expiration of the time to file such claim or claims, the -11- 12 holders of Senior Indebtedness of the Company (or their repre- sentative or representatives) are hereby authorized to file an appropriate claim for and on behalf of the holder of this Note. Nothing herein shall be deemed to authorize the holders of Senior Indebtedness of the Company to authorize or consent to or accept or adopt on behalf of the holder of this Note any plan of reorganization, arrangement, adjustment or composition affecting this Note or the rights of the holder of this Note, or to autho- rize the holders of Senior Indebtedness of the Company to vote in respect of the claim of the holder of this Note in any such proceeding. In the event that the provisions of this Section 7 shall at the time prohibit payments to the holder of this Note, no holder of this Note shall waive, forgive or cancel any monetary obligation, or any claim before a bankruptcy court, under or with respect to this Note or any Claim. (f) No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Note, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The holders of Senior Indebtedness of the Company may at any time and from time to time, without the consent of or notice to the holder of this Note, without incurring responsibility to the holder of this Note and without impairing or releasing or otherwise affecting the rights of any holder of Senior Indebtedness of the Company or the respective liabilities or obligations of the Company or the holder this Note or in any way altering or affecting any of the provisions of this Section 7: -12- 13 (1) change the amount, manner, place or terms of pay- ment or change or extend the time of payment of or renew, refinance, modify, alter or restructure the terms of the Senior Indebtedness of the Company or any document or in- strument evidencing or governing such Senior Indebtedness of the Company in any manner or enter into or amend in any manner any other agreement relating to Senior Indebtedness of the Company or any security therefor; (2) sell, exchange, release or otherwise deal with any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, Senior Indebtedness of the Company and otherwise deal freely with the Company; (3) release anyone (including any guarantor) liable in any manner for the payment or collection of Senior Indebted- ness of the Company; (4) exercise or refrain from exercising any rights against the Company and others (including any guarantor), including releasing, selling or exchanging any security; (5) apply any sums by whomsoever paid or however realized to the Senior Indebtedness of the Company; or (6) take any other action which otherwise might be deemed to impair the rights of the holder of this Note. -13- 14 No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liabilities or obligation under or in respect of, or of any of the terms, covenants or conditions of any indenture or other instrument under which any Senior Indebtedness of the Company is outstanding or of such Senior Indebtedness of the Company, whether or not in accordance with the provisions of any applicable document, shall in any way alter or affect any of the provisions of this Section 7. As long as any Senior Indebtedness of the Company is outstanding, no amendment to, or any waiver of the provisions of, this Section 7 which adversely affects the rights of the holders of Senior Indebtedness of the Company under this Section 7 shall be effective against the holders of Senior Indebtedness of the Company who have not consented thereto. (g) If payment of the Note is accelerated because of an event of default as provided in Section 6 of this Note, the Company shall promptly notify the Agent under the Credit Agree- ment, and the trustee under the indenture (the "Senior Indenture") governing the Company's 9-7/8% Senior Notes due February 15, 2002 (the "Senior Notes"), of the acceleration. The Company may not pay the Note until five Business Days after the Agent under the Credit Agreement and the trustee under the Senior Indenture receive such notice (if any Senior Indebtedness of the Company remains outstanding) and thereafter may pay this Note only if this Note otherwise permits the payment at that time. (h) The term "Senior Indebtedness of the Company" shall mean (i) all monetary obligations of the Company under the Credit Agreement, including all related notes, collateral docu- ments, and guarantees, in each case, as any of the same has been or may be -14- 15 amended, supplemented, restated or otherwise modified from time to time (in each case in whole or in part) and any refundings, refinancings, replacements or restructurings of such monetary obligations that individually or in the aggregate provide, at one time, the source of repayment for at least fifty percent of the then outstanding aggregate amount of all monetary obligations of the Company under the Credit Agreement, and (ii) (A) all principal of, premium, if any, and interest on the Senior Notes, and (B) all other monetary obligations of the Company under the Senior Notes or the Senior Indenture, in each case, as the same may be amended, supplemented, restated or otherwise modified from time to time. 8. All powers and remedies given to the holder of this Note shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the holder of this Note, by judicial pro- ceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Note, and no delay or omission of the holder of this Note to exercise any right or power accruing upon any default hereunder shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein. 9. This Note shall be binding upon the Company and its successors and assigns, and the terms and provisions of this Note shall inure to the benefit of Payee, the holders of Senior Indebtedness of the Company and their respective successors and assigns, including subsequent holders hereof. 10. The terms and provisions of this Note are sever- able, and if any term or provision shall be determined to be superseded, illegal, invalid or otherwise unenforceable in -15- 16 whole or in part pursuant to applicable law by a governmental authority having jurisdiction, such determination shall not in any manner impair or otherwise affect the validity, legality or enforceability of that term or provision in any other jurisdiction or any of the remaining terms and provisions of this Note in any jurisdiction. 11. Presentment for payment, notice of dishonor, protest, notice of protest and any other notice are hereby waived. This Note shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to principles of conflict of laws. 12. No amendment, modification or waiver of any term or provision of this Note, nor consent to any departure by the Company herefrom, shall be effective unless the same shall be in writing and signed by the holder of this Note, and then such waiver, modification or consent shall be effective only in the specific instance and for the specific purpose for which given. -16 17 13. Nothing in this Note, expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto and the holders of Senior Indebtedness of the Company, any legal or equitable right, remedy or claim under or in respect of this Note, or under any covenant, condition or provision herein contained; all its covenants, conditions and provisions being for the sole benefit of the Company, the holder of this Note and the holders of Senior Indebtedness of the Company. IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered to the Payee on the date and year first above written. KAISER ALUMINUM & CHEMICAL CORPORATION By: ------------------------ Name: Anthony R. Pierno Title: Vice President and General Counsel -17- EX-4 7 EXHIBIT 4.24 TO KAISER ALUMINUM 1993 10-K 1 SENIOR SUBORDINATED INTERCOMPANY NOTE June 30, 1993 FOR VALUE RECEIVED, the undersigned, Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order of Kaiser Aluminum Corpora- tion, a Delaware corporation (the "Payee"), the principal sum of THIRTY SEVEN MILLION SEVEN HUNDRED NINETY SIX THOUSAND SEVEN HUNDRED FIFTY-TWO AND 50/100 DOLLARS ($37,796,752.50), which shall be due and payable as hereinafter provided. 1. This Note shall not bear interest. This Note shall be payable in quarterly installments on March 30, June 29, September 29 and December 30 of each year, commencing September 29, 1993, and ending June 29, 1996, each such quarterly install- ment to be in the amount of $3,149,729.38. 2. The entire unpaid principal amount of this Note shall be due and payable on June 29, 1996. Notwithstanding the foregoing provisions of this Note, in the event that all shares of Series A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A Stock") of the Payee are converted into shares of the common stock of the Payee pursuant 2 to the Certificate of Designations governing such shares of Series A Stock, the Company may, after all amounts payable by the Payee in respect of accrued and unpaid dividends in connection with such conversion have been paid, defer further principal and interest payments on this Note until such time as no Specified Senior Debt (as defined in Section 7(c) of this Note) is then outstanding. 3. The Company shall make each payment hereunder not later than 5:00 p.m. (New York City time) on the day when due in lawful money of the United States of America to the holder of this Note by delivery of a certified or bank cashier's check in the amount of such payment or, at such holder's option, by wire transfer of immediately available funds. 4. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or a public or bank holi- day or the equivalent for banks generally under the laws of the State of New York (any other day being a "Business Day"), such payment may be made on the next succeeding Business Day. 5. The Company shall have the right to prepay the principal amount of this Note, in whole or in part, at any time or from time to time, without premium or penalty, but with inte- rest on the portion of the principal amount so prepaid accrued to the date of prepayment. This Note is the Equity Proceeds Note -2- 3 issued pursuant to the requirements of the Credit Agreement dated as of December 13, 1989 between Kaiser Aluminum Corporation (formerly named KaiserTech Limited), the Company, certain financial institutions, Bank of America National Trust and Savings Association, as agent, and Mellon Bank, N.A., as collateral agent, as the same has been, or may hereafter be, amended, supplemented, restated, or otherwise modified from time to time (the "Credit Agreement"). 6. In case one or more of the following events of default shall have occurred and be continuing: (a) the Company fails to pay any installment of prin- cipal of, or interest on, this Note when due, whether or not payment is prohibited by the provisions of Section 7 of this Note; or (b) a court having jurisdiction in the premises shall have entered a decree or order for relief against the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for all or any substan- tial part of its property, or ordering the winding-up or liquida- tion of its affairs, and such decree or order shall have remained unstayed and in effect for a period of ninety consecutive days; or -3- 4 (c) the Company shall have commenced a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have consented to the entry of an order for relief in an involuntary case under any such law, or shall have consented to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or for all or any substantial part of its property, or shall have made an assignment for the benefit of creditors, or shall have taken any corporate action in furtherance of any of the foregoing; then, in the case of an event specified in clause (a), unless the principal of this Note shall have already become due and payable, the holder of this Note by notice to the Company in writing may at its option declare the principal amount and accrued interest to the date of declaration of this Note to be due and payable immediately. Upon any such declaration, the same shall become and shall be immediately due and payable, provided that any pay- ment pursuant to such acceleration shall be subject to Section 7(g) of this Note. If an event specified in clause (b) or (c) above occurs, such amount shall ipso facto become and be immedi- ately due and payable without any declaration or other act on the part of the holder, but subject to Section 7(g) of this Note. 7. (a) The Company, for itself, its successors and assigns, covenants and agrees, and the Payee (and each other holder of this Note), by its acceptance hereof, likewise cov- -4- 5 enants and agrees, for the benefit of all present and future holders of Senior Indebtedness of the Company (as defined in Section 7(h) of this Note), that all direct or indirect payments or distributions on or with respect to this Note, whether pursu- ant to the terms of this Note or upon acceleration or otherwise, including, without limitation, by way of or on account of a "Claim" (as defined hereinbelow) or the payment of the principal of and interest on this Note, is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full in cash or cash equiva- lents of all Senior Indebtedness of the Company (including, without limitation, interest that would accrue but for the occurrence of any proceeding of the kind referred to in the introductory clause of Section 7(b) of this Note, whether or not such interest is an allowable claim in such proceeding). (b) Upon any direct or indirect payment or distribu- tion of assets or securities of the Company of any kind or char- acter, whether in cash, property or securities, upon any dissolu- tion, winding up, liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, reorganization, receivership or other proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of the Company or otherwise, (i) the holders of all Senior Indebtedness of the Company shall be entitled to receive payment in full in cash or -5- 6 cash equivalents of such Senior Indebtedness of the Company (in- cluding, without limitation, interest that would accrue but for the occurrence of any such proceeding whether or not such inter- est is an allowable claim in such proceeding) before the holder of this Note shall be entitled to receive any direct or indirect payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, with respect to this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of any claim against the Company for rescission of the issuance of this Note or for monetary damages from, or in connec- tion with, the issuance of this Note, or for reimbursement or contribution on account of such a claim (a "Claim"), or the pay- ment of principal of or interest on this Note; and (ii) any direct or indirect payment or distribu- tion of assets or securities of the Company of any kind or character, whether in cash, property or securities, to which the holder of this Note would be entitled except for the provisions of this Section 7 shall be paid by the Company or by any liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness of the Company or their representative or representatives, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness of the -6- 7 Company held or represented by each, to the extent necessary to make payment in full in cash or cash equivalents of all Senior Indebtedness of the Company (including, without limitation, interest that would accrue but for the occurrence of any such proceeding whether or not such interest is an allowable claim in such proceeding) remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness of the Company; and (iii) in the event that, notwithstanding the fore- going, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the holder of this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, includ- ing by way of or on account of a Claim, or the payment of princi- pal of or interest on this Note, before all Senior Indebtedness of the Company is paid in full in cash or cash equivalents, such payment or distribution shall be received and held in trust for and paid over to the holders of such Senior Indebtedness of the Company or their representative or representatives, ratably as aforesaid, for application to the payment of all Senior Indebtedness of the Company remaining unpaid until all such Senior Indebtedness of the Company shall have been paid in full in cash or cash equivalents, after giving effect to any concur- rent payment or distribution to the holders of such Senior Indebtedness of the Company. -7- 8 The consolidation of the Company with, or the merger of the Company into, another corporation or other entity or the liqui- dation or dissolution of the Company following the sale or conveyance of its property or assets as an entirety, or substan- tially as an entirety, to another corporation or other entity shall not be deemed a dissolution, winding up, liquidation or reorganization of the Company for the purposes of this Section 7. Subject to the payment in full in cash or cash equiva- lents of all Senior Indebtedness of the Company, the holder of this Note shall be subrogated (without any duty on the part of the holders of Senior Indebtedness of the Company to warrant, create, effectuate, preserve or protect such subrogation) to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions of cash, property or securities of the Company applicable to Senior Indebtedness of the Company until the principal of and interest on this Note shall be paid in full and, for the purpose of such subrogation, no payments or distributions to the holders of Senior Indebtedness of the Com- pany of cash, property or securities otherwise distributable to the holder of this Note shall, as between the Company, its cre- ditors other than the holders of Senior Indebtedness of the Company, and the holder of this Note, be deemed to be a payment by the Company to the holders of or on account of the Senior Indebtedness of the Company. It is understood that the provi- sions of this Section 7 are and are intended solely for the -8- 9 purpose of defining the relative rights of the holder of this Note, on the one hand, and the holders of Senior Indebtedness of the Company, on the other hand. Nothing contained in this Section 7 or elsewhere in this Note is intended to or shall im- pair, as between the Company, its creditors other than the hold- ers of Senior Indebtedness of the Company, and the holder of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holder of this Note the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms, or to affect the relative rights of the holder of this Note and creditors of the Company other than the holders of Senior Indebtedness of the Company, nor shall anything herein prevent the holder of this Note from exer- cising all remedies otherwise permitted by applicable law upon default under this Note, subject to the rights, if any, under this Section 7 of the holders of Senior Indebtedness of the Company in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Section 7, the holder of this Note shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature described in this Section are pending or upon a certificate of the liquidating trustee or agent or other person making any distribution to the holder of this Note for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebted- -9- 10 ness of the Company and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 7. (c) No direct or indirect payments or distributions by or on behalf of the Company on or with respect to this Note (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note) shall be made if, at the time of such payment or distribution, there exists a default in the payment of all or any portion of any Senior Indebtedness of the Company (other than a payment default to the extent it relates to those items described in clause (i)(B) of the definition of "Senior Indebtedness" contained in the Subordinated Indenture (as the term Subordinated Indenture is defined in the Credit Agreement)), and such payment default (other than to the extent it relates to those items described in clause (i)(B) of the definition of "Senior Indebtedness" con- tained in the Subordinated Indenture) shall not have been cured or waived or the benefits of this sentence waived in writing by or on behalf of the holders of such Senior Indebtedness of the Company. In addition, during the continuance of any other default with respect to the obligations of the Company referred to in clause (i) of Section 7(h) (the "Specified Senior Debt") that would permit (or would so permit with the passage of time or giving of notice or both) the acceleration of the -10- 11 maturity of such Specified Senior Debt, no direct or indirect payments or distributions by or on behalf of the Company on or with respect to this Note may be made (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note) for a period (the "Payment Blockage Period") commencing on the date of receipt by the holder of this Note of notice of such default specifying that such notice is a Payment Blockage Notice from the Agent under the Credit Agree- ment, or, if such default results from the acceleration of this Note, commencing on the earlier of the date of receipt of such notice by the holder of this Note or the date of such accelera- tion, and ending on the earliest of (a) 179 days thereafter, (b) the date on or as of which (i) such default has been cured or waived, (ii) the Company has delivered to the holder of this Note an Officers' Certificate (as hereinafter defined) to such effect and (iii) the Agent under the Credit Agreement shall have endorsed on such Officers' Certificate that it does not object to the form or substance of such Officers' Certificate, provided, -------- that if such default has been cured or waived, the Company shall promptly notify the holder of this Note of such cure or waiver and the Agent under the Credit Agreement shall promptly endorse such notice, and (c) the date on or as of which the Agent under the Credit Agreement shall have consented in writing to the termination of such Payment Blockage Period. Notwithstanding the foregoing, in no event (a) may the total -11- 12 number of days during which any Payment Blockage Period or Payment Blockage Periods may be in effect during any 360 consecutive day period exceed 179 days in the aggregate or (b) will payments or distributions be prohibited by this Section 7(c) if (i) any of the Company's 12- 3/4% Senior Subordinated Notes due 2003 shall then be outstanding and (ii) payments and distributions are not then prohibited under Sections 3.03 and (if, at the time, there are any "Subsidiary Guarantors" (as such term is defined in the Subordinated Indenture)) 16.04 of the Subordinated Indenture. No default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to Specified Senior Debt and was known at the time of commencement thereof to the Agent under the Credit Agreement shall be, or be made, the basis for the commencement of a second Payment Blockage Period by the Agent under the Credit Agreement whether or not within a period of 360 consecutive days, unless such default shall have been cured or waived for a period of not less than 90 consecutive days. As used herein, the term "Officers' Certificate" shall mean a certificate of the Company signed on behalf of the Company by the Chairman of the Board, the President or any Vice President and by the Chief Financial Officer, the Controller, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. -12- 13 In the event that, notwithstanding the foregoing, the Company shall make any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to the holder of this Note prohibited by the fore- going provisions of this Section 7(c) (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note), then and in any such event such payment or distribution shall, to the extent permitted by law, be received and held in trust for the benefit of and be paid over and delivered forthwith to the holders of the Senior Indebtedness of the Company or their representative or representatives. The provisions of this Section 7(c) shall not apply to any payment with respect to which Section 7(b) would be appli- cable. (d) Except as provided in clause (b) or (c) above, nothing contained in this Note shall affect the obligation of the Company to make, or prevent the Company from making, at any time, payments of principal or interest on this Note. (e) The holder of this Note shall take such action as may be necessary or appropriate to effectuate the subordination as provided in this Section 7, including, without limitation, in the event of any dissolution, winding up, liquidation or bank- ruptcy reorganization of the Company (whether in bankruptcy, -13- 14 insolvency or receivership proceedings or upon a general assign- ment for the benefit of creditors or any other similar remedy or otherwise) tending towards liquidation of the business and assets of the Company, the immediate filing of a claim for the unpaid balance of this Note in the form required in such proceedings and using its best efforts to cause such claim to be approved. If the holder of this Note does not file a proper claim or proof of debt in the form required in such proceedings prior to 30 days before the expiration of the time to file such claim or claims, the holders of Senior Indebtedness of the Company (or their representative or representatives) are hereby authorized to file an appropriate claim for and on behalf of the holder of this Note. Nothing herein shall be deemed to authorize the holders of Senior Indebtedness of the Company to authorize or consent to or accept or adopt on behalf of the holder of this Note any plan of reorganization, arrangement, adjustment or composition affecting this Note or the rights of the holder of this Note, or to autho- rize the holders of Senior Indebtedness of the Company to vote in respect of the claim of the holder of this Note in any such proceeding. In the event that the provisions of this Section 7 shall at the time prohibit payments to the holder of this Note, no holder of this Note shall waive, forgive or cancel any monetary obligation, or any claim before a bankruptcy court, under or with respect to this Note or any Claim. -14- 15 (f) No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Note, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The holders of Senior Indebtedness of the Company may at any time and from time to time, without the consent of or notice to the holder of this Note, without incurring responsibility to the holder of this Note and without impairing or releasing or otherwise affecting the rights of any holder of Senior Indebtedness of the Company or the respective liabilities or obligations of the Company or the holder this Note or in any way altering or affecting any of the provisions of this Section 7: (1) change the amount, manner, place or terms of pay- ment or change or extend the time of payment of or renew, refinance, modify, alter or restructure the terms of the Senior Indebtedness of the Company or any document or in- strument evidencing or governing such Senior Indebtedness of the Company in any manner or enter into or amend in any manner any other agreement relating to Senior Indebtedness of the Company or any security therefor; -15- 16 (2) sell, exchange, release or otherwise deal with any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, Senior Indebtedness of the Company and otherwise deal freely with the Company; (3) release anyone (including any guarantor) liable in any manner for the payment or collection of Senior Indebted- ness of the Company; (4) exercise or refrain from exercising any rights against the Company and others (including any guarantor), including releasing, selling or exchanging any security; (5) apply any sums by whomsoever paid or however realized to the Senior Indebtedness of the Company; or (6) take any other action which otherwise might be deemed to impair the rights of the holder of this Note. No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liabilities or obligation under or in respect of, or of any of the terms, covenants or conditions of any indenture or other instrument under which any Senior Indebtedness of the Company is outstanding or of such Senior Indebtedness of the Company, whether or not in accordance with the provisions of any applicable document, shall in any way alter or affect any of the provisions of this Section 7. As long as -16- 17 the Credit Agreement is in effect, no amendment to, or any waiver of the provisions of, this Section 7 which adversely affects the rights of the holders of Senior Indebtedness of the Company under this Section 7 shall be effective against the holders of Senior Indebtedness of the Company who have not consented thereto. (g) If payment of the Note is accelerated because of an event of default as provided in Section 6 of this Note, the Company shall promptly notify the Agent under the Credit Agree- ment of the acceleration. The Company may not pay the Note until five Business Days after the Agent under the Credit Agreement receives such notice (if any Specified Senior Debt remains outstanding) and thereafter may pay this Note only if this Note otherwise permits the payment at that time. (h) The term "Senior Indebtedness of the Company" shall mean (i) all monetary obligations of the Company under the Credit Agreement, including all related notes, collateral docu- ments, and guarantees, in each case, as any of the same has been or may be amended, supplemented, restated or otherwise modified from time to time (in each case in whole or in part) and any refundings, refinancings, replacements or restructurings of such monetary obligations that individually or in the aggregate provide, at one time, the source of repayment for at least fifty percent of the then outstanding aggregate amount of all monetary obligations of the Company under the Credit Agreement. -17- 18 8. All powers and remedies given to the holder of this Note shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the holder of this Note, by judicial pro- ceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Note, and no delay or omission of the holder of this Note to exercise any right or power accruing upon any default hereunder shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein. 9. This Note shall be binding upon the Company and its successors and assigns, and the terms and provisions of this Note shall inure to the benefit of Payee, the holders of Senior Indebtedness of the Company and their respective successors and assigns, including subsequent holders hereof. 10. The terms and provisions of this Note are sever- able, and if any term or provision shall be determined to be superseded, illegal, invalid or otherwise unenforceable in whole or in part pursuant to applicable law by a governmental authority having jurisdiction, such determination shall not in any manner impair or otherwise affect the validity, legality or enforce- ability of that term or provision in any other jurisdiction or any of the remaining terms and provisions of this Note in any jurisdiction. -18- 19 11. Presentment for payment, notice of dishonor, pro- test, notice of protest and any other notice are hereby waived. This Note shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to principles of conflict of laws. 12. No amendment, modification or waiver of any term or provision of this Note, nor consent to any departure by the Company herefrom, shall be effective unless the same shall be in writing and signed by the holder of this Note, and then such waiver, modification or consent shall be effective only in the specific instance and for the specific purpose for which given. 13. Nothing in this Note, expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto and the holders of Senior Indebted- ness of the Company, any legal or equitable right, remedy or claim under or in respect of this Note, or under any covenant, condition or provision herein contained; all its covenants, conditions and provisions being for the sole benefit of the Company, the holder of this Note and the holders of Senior Indebtedness of the Company. -19- 20 IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered to the Payee on the date and year first above written. KAISER ALUMINUM & CHEMICAL CORPORATION By: -------------------------- Name: Byron L. Wade Title: Vice President, Secretary, and Deputy General Counsel -20- EX-99 8 EXHIBIT 99 TO KAISER ALUMINUM 1993 10-K To the Stockholders and the Board of Directors of Kaiser Aluminum Corporation: We have audited the accompanying consolidated balance sheets of Kaiser Aluminum Corporation (a Delaware corporation) and subsidiaries as of December 31, 1993 and 1992, and the related statements of consolidated income and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kaiser Aluminum Corporation and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As explained in Note 1 of the Notes to Consolidated Financial Statements, effective January 1, 1993, the Company changed its methods of accounting for postretirement benefits other than pensions, postemployment benefits, and income taxes. ARTHUR ANDERSEN & CO. Houston, Texas February 24, 1994 EX-13 9 EXHIBIT 13 TO KAISER ALUMINUM 1993 10-K KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------------------------------------------- Kaiser Aluminum Corporation ("Kaiser" or the "Company"), through its wholly owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"), operates in two business segments: bauxite and alumina, and aluminum processing. Intracompany shipments and sales are excluded from the information set forth below.
Year Ended December 31, -------------------------------------- (In millions of dollars, except shipments and prices) 1993 1992 1991 -------------------------------------------------------------------------------------------------------------- Shipments: (000 tons) (1) Alumina 1,997.5 2,001.3 1,945.9 Aluminum products: Primary aluminum 242.5 355.4 340.6 Fabricated products 373.2 343.6 314.2 -------- -------- -------- Total aluminum products 615.7 699.0 654.8 ======== ======== ======== Average realized sales price: Alumina (per ton) $ 169 $ 195 $ 240 Primary aluminum (per pound) .56 .66 .72 Net sales: Bauxite and alumina: Alumina $ 338.2 $ 390.8 $ 466.5 Other (2)(3) 85.2 75.7 84.3 -------- -------- -------- Total bauxite and alumina 423.4 466.5 550.8 -------- -------- -------- Aluminum processing: Primary aluminum 301.7 515.0 538.5 Fabricated products 981.4 913.7 898.9 Other (3) 12.6 13.9 12.6 -------- -------- -------- Total aluminum processing 1,295.7 1,442.6 1,450.0 -------- -------- -------- Total net sales $1,719.1 $1,909.1 $2,000.8 ======== ======== ======== Operating income (loss): Bauxite and alumina $ (4.5) $ 62.6 $ 150.0 Aluminum processing (46.3) 104.9 150.2 Corporate (72.6) (77.6) (84.2) -------- -------- -------- Total operating income (loss) $ (123.4) $ 89.9 $ 216.0 ======== ======== ======== Income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles $ (208.5) $ 32.1 $ 142.4 ======== ======== ======== Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles $ (123.1) $ 26.9 $ 108.4 Extraordinary loss on early extinguishment of debt, net of tax benefit of $11.2 (21.8) Cumulative effect of changes in accounting principles, net of tax benefit of $237.7 (507.3) -------- -------- --------- Net income (loss) $ (652.2) $ 26.9 $ 108.4 ======== ======== ======== Capital expenditures $ 67.7 $ 114.4 $ 118.1 ========= ======== =========
(1) All references to tons refer to metric tons of 2,204.6 pounds. (2) Includes net sales of bauxite. (3) Includes the portion of net sales attributable to minority interests in consolidated subsidiaries. - 20 - Results of Operations The Company's operating results are sensitive to changes in prices of alumina, primary aluminum, and fabricated aluminum products, and also depend to a significant degree upon the volume and mix of all products sold. The previous table provides selected operational and financial information on a consolidated basis with respect to the Company for the years ended December 31, 1993, 1992, and 1991. As an integrated aluminum producer, the Company uses a portion of its bauxite, alumina, and primary aluminum production for additional processing at certain of its other facilities. Net Sales Bauxite and Alumina -- Revenue from net sales of bauxite and alumina to third parties was $423.4 million in 1993, compared with $466.5 million in 1992 and $550.8 million in 1991. Revenue from alumina decreased 13% to $338.2 million in 1993 from $390.8 million in 1992 because of lower average realized prices. Revenue from alumina decreased 16% to $390.8 million in 1992 from $466.5 million in 1991 as significantly lower average realized prices more than offset a 3% increase in alumina shipments, which was principally attributable to increased production at all three of Kaiser's refineries. The remainder of the segment's sales revenues were from sales of bauxite, which remained about the same throughout the three years, and the portion of sales of alumina attributable to the minority interest in Alumina Partners of Jamaica ("Alpart"). Aluminum Processing -- Revenue from net sales to third parties for the aluminum processing segment was $1,295.7 million in 1993, compared with $1,442.6 million in 1992 and $1,450.0 million in 1991. The bulk of the segment's sales represents Kaiser's primary aluminum and fabricated aluminum products, with the remainder attributable to the portion of sales of primary aluminum related to the minority interest in Volta Aluminium Company Limited. Revenue from primary aluminum decreased 41% to $301.7 million in 1993 from $515.0 million in 1992 because of lower shipments and lower average realized prices. Shipments of primary aluminum to third parties were approximately 39% of total aluminum products shipments in 1993, compared with approximately 51% in 1992. Revenue from primary aluminum decreased 4% to $515.0 million in 1992 from $538.5 million in 1991, as an 8% decrease in average realized prices more than offset a 4% increase in primary aluminum shipments. Shipments of primary aluminum to third parties were approximately 51% of total aluminum products shipments in 1992, compared with approximately 52% in 1991. Revenue from fabricated aluminum products increased 7% to $981.4 million in 1993 from $913.7 million in 1992, principally due to increased shipments of most fabricated aluminum products, partially offset, to a lesser extent, by a decrease in average realized prices of most of these products. Revenue from fabricated aluminum products increased 2% to $913.7 million in 1992 from $898.9 million in 1991, primarily because lower average realized prices were more than offset by a 9% increase in shipments of fabricated aluminum products. - 21 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ----------------------------------------------------------------------- Operating Income (Loss) The Company had an operating loss of $123.4 million in 1993, compared with income of $89.9 million in 1992 and $216.0 million in 1991. In the fourth quarter of 1993, the Company recorded a pre-tax charge of approximately $35.8 million related to the restructuring charges (see Note 3 of the Notes to Consolidated Financial Statements) and a pre- tax charge of $19.4 million ($29.0 million in the fourth quarter of 1992) because of a reduction in the carrying value of its inventories caused principally by prevailing lower prices for alumina, primary aluminum, and fabricated products. Bauxite and Alumina -- This segment's operating loss in 1993 was $4.5 million, compared with income of $62.6 million in 1992 and $150.0 million in 1991. In 1993 compared with 1992, operating income was adversely affected principally due to a decrease in average realized prices for alumina, which more than offset above-market prices for virtually all of its excess alumina sold forward in prior periods under long-term contracts. In 1992 compared to 1991, operating income was adversely affected by a decrease in average realized prices for alumina, which more than offset higher alumina shipments and above- market prices for significant quantities of alumina sold forward in prior periods under long-term contracts. Aluminum Processing -- This segment's operating loss was $46.3 million in 1993, compared with income of $104.9 million in 1992. This decrease was caused principally by reduced shipments and lower average realized prices of primary aluminum products which more than offset increased shipments of fabricated products. In 1993, KACC implemented a restructuring plan for its flat-rolled products operation at its Trentwood plant in response to overcapacity in the aluminum rolling industry, flat demand in the U.S. can stock markets, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which have resulted in declining prices in Trentwood's key markets. Additionally, KACC implemented a plan to discontinue its casting operations, which include three facilities located in Ohio. This entire restructuring is expected to be completed by the end of 1995 and will affect approximately 670 employees. The pre-tax charge for this restructuring of $35.8 million includes $25.2 million for pension, severance, and other termination benefits; $4.7 million for a writedown of the casting facilities to net realizable value; $3.3 million for estimated 1994 casting operating losses until the date of closure or sale; and $2.6 million for various other items. The Trentwood restructuring is expected to result in annual cost savings of at least $50.0 million after it has been fully implemented. Other contributing factors were lower production at the Company's smelters in the Pacific Northwest in 1993 as a result of the removal of three reduction potlines from production at those smelters in January 1993 in response to the Bonneville Power Administration's (the "BPA") reduction during the first quarter of 1993 of the amount of power it normally provides to the Company, and the increased cost of substitute power in such quarter. In 1993, the Company's average realized price from sales of primary aluminum was approximately $.56 per pound, compared to the average Midwest United States transaction price of approximately $.54 per pound during such period. In both 1993 and 1992, the Company realized above-market prices for significant quantities of primary aluminum sold forward in prior periods under long-term contracts. Operating income for the aluminum processing segment was $104.9 million in 1992, a decrease of 30% from $150.2 million in 1991. Operating income in 1992 was adversely affected by a decrease in average realized prices for primary aluminum and most fabricated aluminum products, partially offset by increased shipments. In both 1992 and 1991, the Company realized above-market prices for significant quantities of primary aluminum sold forward in prior periods under long-term contracts. - 22 - Corporate -- Corporate operating expenses of $72.6 million, $77.6 million, and $84.2 million in 1993, 1992, and 1991, respectively, represented corporate general and administrative expenses which were not allocated to segments. Income (Loss) Before Extraordinary Loss and Cumulative Effect of Changes in Accounting Principles Loss before extraordinary loss and cumulative effect of changes in accounting principles in 1993 was $123.1 million, compared with income of $26.9 million in 1992. This decrease resulted from the lower operating income previously described and approximately $10.8 million of other pre-tax charges, principally related to establishing additional litigation and environmental reserves. Other income remained about the same in 1992 and 1991, as approximately $14.0 million of income for non-recurring adjustments to previously recorded liabilities and reserves in the fourth quarter of 1992 approximately equaled the receipt of a $12.0 million fee in the first quarter of 1991 from the Company's minority partner in Alpart in consideration for the execution of an expansion agreement for the Alpart alumina refinery. Income before extraordinary loss and cumulative effect of changes in accounting principles in 1992 was $26.9 million, a decrease of 75% from $108.4 million in 1991. This decrease resulted from the lower operating income previously described, partially offset by an increase in other income principally due to approximately $14.0 million of income for non-recurring adjustments to previously recorded liabilities and reserves in the fourth quarter of 1992. Net Income (Loss) The Company reported a net loss of $652.2 million or $11.47 per common share in 1993, compared with net income of $26.9 million or $.47 per common share in 1992 and $108.4 million or $2.03 per common share in 1991. The principal reasons for the earnings decline in 1993 compared with 1992 were the cumulative effect of changes in accounting principles of $507.3 million related to the adoption of Statements of Financial Accounting Standards No. 106, 112, and 109 (see Note 1 of the Notes to Consolidated Financial Statements), the extraordinary loss on early extinguishment of debt of $21.8 million, and the operating losses described above. The principal reason for the earnings decline in 1992 compared with 1991 was the decrease in average realized prices for alumina, primary aluminum, and most fabricated products, partially offset by an increase in shipments of such products. Financial Condition and Capital Spending Capital Structure On February 17, 1994, the Company and KACC entered into a credit agreement with BankAmerica Business Credit, Inc. (as agent for itself and other lenders), the Bank of America National Trust and Savings Association, and certain other lenders (the "1994 Credit Agreement"). The 1994 Credit Agreement replaced the credit agreement entered into in December 1989 by the Company and KACC with a syndicate of commercial banks and other financial institutions (as amended, the "1989 Credit Agreement") and consists of a $250.0 million five-year secured, revolving line of credit, scheduled to mature in 1999. KACC is able to borrow under the facility by means of revolving credit advances and letters of credit (up to $125.0 million) in an aggregate amount equal to the lesser of $250.0 million or a borrowing base relating to eligible accounts receivable plus eligible inventory. The Company - 23 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ----------------------------------------------------------------------- will record a pre-tax extraordinary loss of approximately $8.3 million in the first quarter of 1994, consisting primarily of the write-off of unamortized deferred financing costs related to the 1989 Credit Agreement. As of February 24, 1994, the amount outstanding under the 1994 Credit Agreement was $67.4 million of letters of credit. The 1994 Credit Agreement is unconditionally guaranteed by the Company and by all significant subsidiaries of KACC which were guarantors of KACC's obligations under the 1989 Credit Agreement. Loans under the 1994 Credit Agreement bear interest at a rate per annum, at KACC's election, equal to (i) a Reference Rate (as defined) plus 1-1/2% or (ii) LIBO Rate (Reserve Adjusted) plus 3-1/4%. After June 30, 1995, the interest rate margins applicable to borrowings under the 1994 Credit Agreement may be reduced by up to 1-1/2% (non-cumulatively), based upon a financial test, determined quarterly. The 1994 Credit Agreement requires KACC to maintain certain financial covenants and places restrictions on the Company's and KACC's ability to, among other things, incur debt and liens, make investments, pay common stock dividends, undertake transactions with affiliates, make capital expenditures, and enter into unrelated lines of business. The 1994 Credit Agreement is secured by, among other things, (i) mortgages on KACC's major domestic plants (excluding the Gramercy plant); (ii) subject to certain exceptions, liens on the accounts receivable, inventory, equipment, domestic patents and trademarks, and substantially all other personal property of KACC and certain of its subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser; and (iv) pledges of all of the stock of a number of KACC's wholly owned domestic subsidiaries, pledges of a portion of the stock of certain foreign subsidiaries, and pledges of a portion of the stock of certain partially owned foreign affiliates. On February 17, 1994, the Company consummated the public offering of 8,000,000 shares of its 8.255% PRIDES, Convertible Preferred Stock (the "PRIDES"). The net proceeds from the sale of the shares of PRIDES were approximately $90.6 million. The Company used such net proceeds to make a non-interest bearing loan to KACC in a principal amount equal to $30.0 million (the aggregate dividends scheduled to accrue on the shares of PRIDES from the issuance date until December 31, 1997, the date on which the outstanding PRIDES will be mandatorily converted into shares of the Company's common stock), evidenced by an intercompany note, and used the balance of such net proceeds to make a capital contribution to KACC in the amount of approximately $60.6 million. In connection with the PRIDES offering, the Company granted the underwriters an over allotment option for up to 1,200,000 of such shares. Concurrent with the offering of the PRIDES, on February 17, 1994, KACC issued $225.0 million of its 9-7/8% Senior Notes due 2002 (the "Senior Notes"). The net proceeds of the offering of the Senior Notes were used to reduce outstanding borrowings under the Revolving Credit Facility of the 1989 Credit Agreement immediately prior to the effectiveness of the 1994 Credit Agreement and for working capital and general corporate purposes. The offering of the PRIDES, the concurrent issuance of the Senior Notes, and the replacement of the 1989 Credit Agreement are the final steps of a comprehensive refinancing plan which the Company and KACC began in January 1993 which extended the maturities of the Company's outstanding indebtedness, enhanced its liquidity, and raised new equity capital. - 24 - At December 31, 1993, the Company's total consolidated indebtedness was $729.4 million, compared to $795.8 million at December 31, 1992. As of December 31, 1992, the Company's long-term indebtedness consisted principally of $321.7 million aggregate amount of the 14- 1/4% Senior Subordinated Notes due 1995 (the "14-1/4% Notes") and the 1989 Credit Agreement. KACC refinanced the 14-1/4% Notes through the issuance in February 1993 of $400.0 million aggregate principal amount of the 12-3/4% Senior Subordinated Notes due 2003 (the "12-3/4% Notes"). The net proceeds from the sale of the 12-3/4% Notes were used to retire $321.7 million aggregate principal amount of, and pay premiums on, the 14-1/4% Notes, to prepay $18.0 million of the term loan under the 1989 Credit Agreement, and to reduce outstanding borrowings under the Revolving Credit Facility of the 1989 Credit Agreement. These transactions resulted in a pre-tax extraordinary loss of approximately $33.0 million in the first quarter of 1993 ($21.8 million after taxes), consisting primarily of the write-off of unamortized discount and deferred financing costs related to the 14- 1/4% Notes and the payment of premiums on the 14-1/4% Notes. The obligations of KACC with respect to the Senior Notes and the 12- 3/4% Notes are guaranteed, jointly and severally, by certain subsidiaries of KACC. The indentures governing the Senior Notes and the 12-3/4% Notes restrict, among other things, KACC's ability, and the 1994 Credit Agreement restricts, among other things, Kaiser's and KACC's ability, to incur debt, undertake transactions with affiliates, and pay dividends. To increase its equity capital, the Company consummated a public offering of its $.65 Depositary Shares in June 1993, each representing one-tenth of a share of Series A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A Shares") pursuant to which it realized net cash proceeds of approximately $119.3 million. In connection with the offering of the $.65 Depositary Shares, the Company made a non- interest bearing loan to KACC in the principal amount of $37.8 million (the aggregate dividends scheduled to accrue on the Series A Shares from the issuance date until the date on which the outstanding Series A Shares mandatorily convert into shares of the Company's common stock). The loan is evidenced by an intercompany note which matures on June 29, 1996, and is payable in quarterly installments. As of December 31, 1993, the aggregate principal amount of such intercompany note was $31.5 million. Cash from Operations Cash provided by operations was $24.2 million in 1993, compared with $26.3 million in 1992 and $135.0 million in 1991. The decrease in 1992 compared with 1991 was primarily because of the decline in net income and a $66.3 million decrease in previously withdrawn equity resulting from the excess of current market value over the premiums paid in certain option contracts. Capital Expenditures The Company's capital expenditures of approximately $300.2 million (of which $42.6 million was funded by the Company's minority partners in certain foreign joint ventures) during the three years ended December 31, 1993, were made primarily to improve production efficiency, reduce operating costs, expand capacity at existing facilities, and construct new facilities. Total consolidated capital expenditures were $67.7 million in 1993, compared with $114.4 million in 1992 and $118.1 million in 1991 (of which $9.4, $17.1, and $16.1 million were funded by the minority partners in certain foreign joint ventures in 1993, 1992, and 1991, respectively). Total consolidated capital expenditures (of which approximately 5% is expected to be funded by the minority partners in certain foreign joint ventures) are expected to be in the range of $50.0 to $75.0 million per year in the years 1994-1996. - 25 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ----------------------------------------------------------------------- Debt Service and Capital Expenditure Requirements The Company expects that it will be able to satisfy its debt service and capital expenditure requirements through at least December 31, 1995, from cash flows generated by operations and, to the extent necessary, from borrowings under the 1994 Credit Agreement. Dividends and Distributions The declaration and payment of dividends by the Company and KACC on their shares of common stock is subject to certain covenants contained in the 1994 Credit Agreement and, in the case of KACC, the Senior Note Indenture and the 12-3/4% Note Indenture. The 1994 Credit Agreement does not permit the Company or KACC to pay any dividends on their common stock. The declaration and payment of dividends by the Company on the shares of the Series A Shares and the PRIDES is expressly permitted by the terms of the 1994 Credit Agreement to the extent the Company receives payments on the intercompany notes or certain other permitted distributions from KACC. Other Obligations In December 1992, KACC entered into an installment sale agreement (the "Sale Agreement") with the Parish of St. James, Louisiana (the "Louisiana Parish"), pursuant to which the Louisiana Parish issued $20.0 million aggregate principal amount of its 7-3/4% Bonds due August 1, 2022 (the "Bonds"), to finance the construction of certain solid waste disposal facilities at KACC's Gramercy plant. The proceeds from the sale of the Bonds were deposited into a construction fund and may be withdrawn, from time to time, pursuant to the terms of the Sale Agreement and the Bond indenture. At December 31, 1993, $10.8 million remained in the construction fund. The Sale Agreement requires KACC to make payments to the Louisiana Parish in installments due on the dates and in the amounts required to permit the Louisiana Parish to satisfy all of its payment obligations under the Bonds. The Company has historically participated in various raw material joint ventures outside the United States. At December 31, 1993, the Company was unconditionally obligated for $73.6 million of indebtedness of one such joint venture affiliate. Environmental Contingencies The Company and KACC are subject to a wide variety of environmental laws and regulations and to fines or penalties assessed for alleged breaches of the environmental laws and to claims and litigation based upon such laws. KACC is currently subject to a number of lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and, along with certain other entities, has been named as a potentially responsible party for remedial costs at certain third-party sites listed on the National Priorities List under CERCLA. Based upon KACC's evaluation of these and other environmental matters, KACC has established environmental accruals primarily related to potential solid waste disposal and soil and groundwater remediation matters. The following table presents the changes in such accruals, which are primarily included in Long-term liabilities, for the years ended December 31, 1993, 1992, and 1991:
(In millions of dollars) 1993 1992 1991 --------------------------------------------------------------------- Balance at beginning of period $46.4 $51.5 $57.7 Additional amounts 1.7 4.5 7.8 Less expenditures (7.2) (9.6) (14.0) ----- ----- ----- Balance at end of period $40.9 $46.4 $51.5 ===== ===== =====
- 26 - These environmental accruals represent KACC's estimate of costs reasonably expected to be incurred based upon presently enacted laws and regulations, currently available facts, existing technology, and KACC's assessment of the likely remediation action to be taken. KACC expects that these remediation actions will be taken over the next several years and estimates that expenditures to be charged to the environmental accrual will be approximately $4.0 to $8.0 million for the years 1994 through 1998 and an aggregate of approximately $12.8 million thereafter. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established, or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals by amounts which cannot presently be estimated. While uncertainties are inherent in the ultimate outcome of these matters and it is impossible to presently determine the actual costs that ultimately may be incurred, management believes that the resolution of such uncertainties should not have a material adverse effect upon the Company's consolidated financial position or results of operations. Asbestos Contingencies KACC is a defendant in a number of lawsuits in which the plaintiffs allege that certain of their injuries were caused by exposure to asbestos during, and as a result of, their employment with KACC or to products containing asbestos produced or sold by KACC. The lawsuits generally relate to products KACC has not manufactured for at least 15 years. At year-end 1993, the number of such lawsuits pending was approximately 23,400 (approximately 11,400 of which were received in 1993). The number of such lawsuits instituted against KACC increased substantially in 1993, and management believes the number of such lawsuits will continue at approximately the same rate for the next few years. In connection with such litigation, during 1993, 1992, and 1991, KACC made cash payments for settlement and other related costs of $7.0, $7.1, and $6.1 million, respectively. Based upon prior experience, KACC estimates annual future cash payments in connection with such litigation of approximately $8.0 to $13.0 million for the years 1994 through 1998, and an aggregate of approximately $88.4 million thereafter through 2006. Based upon past experience and reasonably anticipated future activity, KACC has established an accrual for estimated asbestos-related costs for claims filed and estimated to be filed and settled through 2006. The Company does not presently believe there is a reasonable basis for estimating such costs beyond 2006 and, accordingly, no accrual has been recorded for such costs which may be incurred. This accrual was calculated based upon the current and anticipated number of asbestos-related claims, the prior timing and amounts of asbestos-related payments, the current state of case law related to asbestos claims, the advice of counsel, and the anticipated effects of inflation and discounting at an estimated risk- free rate (5.25% at December 31, 1993). Accordingly, an accrual of $102.8 million for asbestos-related expenditures is included primarily in Long-term liabilities at December 31, 1993. The aggregate amount of the undiscounted liability at December 31, 1993, of $141.5 million, before considerations for insurance recoveries, reflects an increase of $56.6 million from the prior year, resulting primarily from an increase in claims filed during 1993 and the Company's belief that the number of such lawsuits will continue at approximately the same rate for the next few years. - 27 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ----------------------------------------------------------------------- The Company believes that KACC has insurance coverage available to recover a substantial portion of its asbestos-related costs. While claims for recovery from one of KACC's insurance carriers are currently subject to pending litigation and other carriers have raised certain defenses, the Company believes, based upon prior insurance- related recoveries in respect of asbestos-related claims, existing insurance policies, and the advice of counsel, that substantial recoveries from the insurance carriers are probable. Accordingly, estimated insurance recoveries of $94.0 million determined on the same basis as the asbestos-related cost accrual are recorded primarily in Other assets as of December 31, 1993. Based upon the factors discussed in the two preceding paragraphs, management currently believes that there is no more than a remote possibility (under generally accepted accounting principles) that the Company's asbestos-related costs net of related insurance recoveries exceed those accrued as of December 31, 1993, and, accordingly, that the resolution of such uncertainties and the incurrence of such net costs should not have a material adverse effect upon the Company's consolidated financial position or results of operations. Income Tax Matters Tax Attribute Carryforwards At December 31, 1993, Kaiser had certain tax attribute carryforwards which may be utilized, subject to certain limitations, to reduce future income tax liabilities. See Note 7 of the Notes to Consolidated Financial Statements for a discussion of the effects upon the Company's tax attribute carryforwards and carrybacks resulting from the offering of the Company's $.65 Depositary Shares in June 1993. Deferred Income Tax Assets As discussed in Note 7 of the Notes to Consolidated Financial Statements, the Company's net deferred income tax assets as of December 31, 1993, were $206.8 million. Approximately $82.4 million of these net deferred income tax assets relate to the benefit of loss and credit carryforwards, net of valuation allowances. The Company evaluated all appropriate factors to determine the proper valuation allowances for these carryforwards, including any limitations concerning their use and the year the carryforwards expire, as well as the levels of taxable income necessary for utilization. For example, full valuation allowances were provided for certain credit carryforwards that expire in the near term. With regard to future levels of income, the Company believes, based on the cyclical nature of its business, its history of prior operating earnings, and its expectations for future years, that it will more likely than not generate sufficient taxable income to realize the benefit attributable to the loss and credit carryforwards for which valuation allowances were not provided. The remaining portion of the Company's net deferred income tax assets at December 31, 1993, is approximately $124.4 million. A principal component of this amount is the tax benefit associated with the accrual for postretirement benefits other than pensions. The future tax deductions with respect to the turnaround of this accrual will occur over a 30- to 40-year period. If such deductions create or increase a net operating loss in any one year, the Company has the ability to carry forward such loss for 15 taxable years. For these reasons, the Company believes a long-term view of profitability is appropriate and has concluded that this net deferred income tax asset will more likely than not be realized despite the recent decline in profitability. - 28 - Trends Exports from the Commonwealth of Independent States ("C.I.S."), additions to smelter capacities during the past several years, continued high operating rates, and other factors have contributed to a significant increase in primary aluminum inventories in the Western world. If Western world production and exports from the C.I.S. continue at current levels, primary aluminum inventory levels will increase further in 1994. The foregoing factors, among others, have contributed to a significant reduction in the market price of primary aluminum, and may continue to adversely affect the market price of primary aluminum in the future. Government officials from the European Union, the United States of America, Canada, Norway, Australia, and the Russian Federation met in a multilateral conference in January 1994 to discuss the current excess global supply of primary aluminum. All six participating governments have ratified as a trade agreement the resulting Memorandum which provides, in part, for (i) a reduction in Russian Federation primary aluminum production by 300,000 tons per year within three months of ratification of the Memorandum and an additional 200,000 tons within the following three months, (ii) improved availability of comprehensive data on Russian aluminum production, and (iii) certain assistance to the Russian aluminum industry. A Russian Federation Trade Ministry official has publicly stated that the output reduction would remain in effect for 18 months to two years, provided that other worldwide production cutbacks occur, existing trade restrictions on aluminum are eliminated, and no new trade restrictions on aluminum are imposed. The Memorandum does not require specific levels of production cutbacks by other producing nations. There can be no assurance that the implementation of the Memorandum will adequately address the current oversupply of primary aluminum. If the Company's average realized sales prices in 1994 for substantial quantities of its primary aluminum and alumina were based on the current market price of primary aluminum, the Company would continue to sustain net losses in 1994, which would be expected to approximate the loss in 1993 ($81.5 million) before extraordinary loss and cumulative effect of changes in accounting principles, restructuring charges, reduction in the carrying value of inventories, and additions to litigation and environmental reserves as described in Notes 1 and 3 of the Notes to Consolidated Financial Statements. Effective October 1, 1993, an increase in the base rate the BPA charges to its direct service industry customers for electricity was adopted, which will increase the Company's production costs at the Mead and Tacoma smelters by approximately $15.0 million per year (approximately $11.3 million per year, based on the current operating rate of approximately 75% of full capacity). The rate increase is generally expected to remain in effect for two years. Sensitivity to Prices and Hedging Programs The Company's earnings are sensitive to changes in the prices of alumina, primary aluminum, and fabricated aluminum products, and also depend to a significant degree upon the volume and mix of all products sold. Consequently, the Company has developed strategies to mitigate its exposure to possible further declines in the market prices of alumina and primary aluminum while retaining the ability to participate in favorable pricing environments that may materialize. - 29 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) ----------------------------------------------------------------------- Alumina -- The Company has sold forward substantially all of the alumina available to it in excess of its projected internal smelting requirements for 1994, and a substantial portion of such excess alumina for 1995. Approximately 95% of 1994 sales and virtually all of 1995 sales were made at prices indexed to future prices of primary aluminum. Approximately 75% of 1994 sales were made at prices indexed to future prices of primary aluminum, but with minimum prices that exceed the Company's estimated cash production costs. The remainder of 1994 sales were made either at fixed prices that exceed the Company's estimated cash production costs, or are subject to prices indexed to future prices of primary aluminum but without minimum prices. Approximately 85% of 1995 sales were made at prices indexed to future prices of primary aluminum, but with minimum prices that exceed the Company's estimated cash production costs. Aluminum Processing -- As of the date of this report, the Company has sold forward at fixed prices approximately 75% of its primary aluminum in excess of its projected internal fabrication requirements in 1994 and approximately 55% of such surplus in 1995 at fixed prices that exceed the current market price of primary aluminum. Hedging programs already in place would allow the Company to participate in higher market prices, should they materialize, for approximately 40% of the Company's excess primary aluminum sold forward in 1994, and 100% of the Company's excess primary aluminum sold forward in 1995. In response to the low price of primary aluminum caused by the current surplus, a number of companies have closed smelting facilities. In addition, in response to certain power reductions undertaken by the BPA in the Pacific Northwest, a number of companies (including the Company) have curtailed or shut down production capacities at their smelter facilities in the Pacific Northwest. Furthermore, after continued assessment of its production levels in light of market prices, industry inventory levels, production costs, and user demand, on February 25, 1994, the Company announced that in April 1994 it will curtail approximately 9.3% of its primary aluminum current annual production capacity. Fabricated aluminum prices, which vary considerably among products, are heavily influenced by changes in the price of primary aluminum and generally lag behind primary aluminum prices for periods of up to six months. A significant portion of the Company's fabricated product shipments consist of body, lid, and tab stock for the beverage container market. The Company may not be able to receive increases in primary aluminum prices from its can stock customers as promptly as in the recent past because of competition from other aluminum producers and because of excess supply in the industry. The Company also ships fabricated products to customers in the aerospace market. Aluminum demand in the aerospace market is decreasing as a result of the structural contraction of the defense industry caused by the end of the Cold War. In addition, the commercial aerospace market is experiencing a cyclical downturn in business due to the recent economic recessions in the United States, Canada, Australia, and the United Kingdom, and slow economic growth in other countries. - 30 - To the Stockholders and the Board of Directors of Kaiser Aluminum Corporation: We have audited the accompanying consolidated balance sheets of Kaiser Aluminum Corporation (a Delaware corporation) and subsidiaries as of December 31, 1993 and 1992, and the related statements of consolidated income and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kaiser Aluminum Corporation and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As explained in Note 1 of the Notes to Consolidated Financial Statements, effective January 1, 1993, the Company changed its methods of accounting for postretirement benefits other than pensions, postemployment benefits, and income taxes. ARTHUR ANDERSEN & CO. Houston, Texas February 24, 1994 - 31 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS -----------------------------------------------------------------------
December 31, -------------------- (In millions of dollars, except share amounts) 1993 1992 ------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 14.7 $ 19.1 Receivables: Trade, less allowance for doubtful receivables of $2.9 in 1993 and $3.0 in 1992 156.1 174.0 Other 78.6 96.0 Inventories 426.9 439.9 Prepaid expenses and other current assets 60.7 37.0 -------- -------- Total current assets 737.0 766.0 Investments in and advances to unconsolidated affiliates 183.2 150.1 Property, plant, and equipment -- net 1,163.7 1,066.8 Deferred income taxes 210.8 Other assets 233.2 189.7 -------- -------- Total $2,527.9 $2,172.6 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 126.3 $ 136.6 Accrued interest 23.6 4.6 Accrued salaries, wages, and related expenses 56.1 84.4 Accrued postretirement benefit obligation -- current portion 47.6 Other accrued liabilities 133.2 121.0 Payable to affiliates 62.4 78.4 Short-term borrowings .5 4.8 Long-term debt -- current portion 8.7 25.9 -------- -------- Total current liabilities 458.4 455.7 Long-term liabilities 501.8 281.7 Accrued postretirement benefit obligation 713.1 Long-term debt 720.2 765.1 Minority interests 105.0 104.9 Stockholders' equity: Preferred stock, par value $.05, authorized 20,000,000 shares; Series A Convertible, stated value $.10, issued and outstanding, 1,938,295 and nil in 1993 and 1992 .2 Common stock, par value $.01, authorized 100,000,000 shares; issued and outstanding, 58,095,599 and 57,327,279 shares in 1993 and 1992 .6 .6 Additional capital 425.9 288.5 Retained earnings (accumulated deficit) (375.7) 282.8 Additional minimum pension liability (21.6) (6.7) -------- -------- Total stockholders' equity 29.4 565.2 -------- -------- Total $2,527.9 $2,172.6 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. - 32 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME (LOSS) ----------------------------------------------------------------------
Year Ended December 31, ---------------------------------- (In millions of dollars, except share amounts) 1993 1992 1991 ------------------------------------------------------------------------------------------------------------ Net sales $1,719.1 $1,909.1 $2,000.8 -------- -------- -------- Costs and expenses: Cost of products sold 1,587.7 1,619.3 1,594.2 Depreciation 97.1 80.3 73.2 Selling, administrative, research and development, and general 121.9 119.6 117.4 Restructuring of operations 35.8 -------- -------- -------- Total costs and expenses 1,842.5 1,819.2 1,784.8 -------- -------- -------- Operating income (loss) (123.4) 89.9 216.0 Other income (expense): Interest and other income -- net (.9) 20.9 20.3 Interest expense (84.2) (78.7) (93.9) -------- -------- -------- Income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles (208.5) 32.1 142.4 Credit (provision) for income taxes 86.9 (5.3) (32.4) Minority interests (1.5) .1 (1.6) -------- -------- -------- Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles (123.1) 26.9 108.4 Extraordinary loss on early extinguishment of debt, net of tax benefit of $11.2 (21.8) Cumulative effect of changes in accounting principles, net of tax benefit of $237.7 (507.3) -------- -------- -------- Net income (loss) $ (652.2) $ 26.9 $ 108.4 ======== ======== ======== Per common and common equivalent share: Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles $ (2.25) $ .47 $ 2.03 Extraordinary loss (.38) Cumulative effect of changes in accounting principles (8.84) -------- -------- -------- Net income (loss) $ (11.47) $ .47 $ 2.03 ======== ======== ======== Weighted average common and common equivalent shares outstanding (000) 57,423 57,250 53,297 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. - 33 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS -----------------------------------------------------------------------
Year Ended December 31, ------------------------------- (In millions of dollars) 1993 1992 1991 ---------------------------------------------------------------------------------------------------------- Cash flow from operating activities: Net income (loss) $(652.2) $ 26.9 $ 108.4 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 97.1 80.3 73.2 Amortization of deferred financing costs and discount on long-term debt 11.2 11.5 10.7 Non-cash postretirement benefit expenses other than pensions 19.2 Restructuring of operations 35.8 Minority interests 1.5 (.1) 1.6 Extraordinary loss on early extinguishment of debt -- net 21.8 Cumulative effect of changes in accounting principles -- net 507.3 (Decrease) increase in accrued and deferred income taxes (96.4) 3.5 10.1 Equity in losses of unconsolidated affiliates 3.3 1.9 19.5 Recognition of previously deferred income from a forward alumina sale (.6) (25.7) (42.0) Increase (decrease) in accrued interest 19.2 (.3) (1.9) Incurrence of financing costs (12.7) (5.5) (5.9) Increase in receivables (6.1) (57.8) (2.5) Decrease in inventories 13.0 58.7 25.3 Decrease (increase) in prepaid expenses and other current assets 7.4 7.6 (38.3) Increase (decrease) in accounts payable, payable to affiliates, and accrued liabilities 47.4 (93.9) (29.6) Other 8.0 19.2 6.4 ------- ------- ------- Net cash provided by operating activities 24.2 26.3 135.0 ------- ------- ------- Cash flows from investing activities: Net proceeds from disposition of property and investments 13.1 26.1 8.8 Capital expenditures (67.7) (114.4) (118.1) ------- ------- ------- Net cash used for investing activities (54.6) (88.3) (109.3) ------- ------- ------- Cash flow from financing activities: Repayments of long-term debt, including revolving credit (1,134.5) (221.4) (533.3) Borrowings of long-term debt, including revolving credit 1,068.1 303.8 575.9 Borrowings from MAXXAM Group Inc. (see supplemental disclosure below) 15.0 Tender premiums and other costs of early extinguishment of debt (27.1) Net short-term (payments) borrowings (4.3) (1.5) 6.7 Borrowing (prepayment) of notes to parent 2.5 (100.2) Dividends paid (6.3) (11.4) (55.7) Capital stock issued 119.3 .6 93.2 Redemption of minority interests' preference stock (4.2) (7.3) (20.4) ------- ------- ------- Net cash provided by (used for) financing activities 26.0 65.3 (33.8) ------- ------- ------- Net increase (decrease) in cash and cash equivalents during the year (4.4) 3.3 (8.1) Cash and cash equivalents at beginning of year 19.1 15.8 23.9 ------- ------- ------- Cash and cash equivalents at end of year $ 14.7 $ 19.1 $ 15.8 ======= ======= ======= Supplemental disclosure of cash flow information: Interest paid, net of capitalized interest $ 53.7 $ 68.1 $ 81.7 Income taxes paid 13.5 1.8 20.9 Tax allocation payments to MAXXAM 28.0 39.1 Supplemental disclosure of non-cash financing activities: Contribution to capital of notes payable to parent together with accrued interest $ 53.9 Exchange of the borrowings from MAXXAM Group Inc. for capital stock $ 15.0
The accompanying notes to consolidated financial statements are an integral part of these statements. - 34 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ---------------------------------------------------------------------- 1. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the statements of Kaiser Aluminum Corporation ("Kaiser" or the "Company") and its majority owned subsidiaries. Investments in 50%-or-less-owned entities are accounted for primarily by the equity method. Intercompany balances and transactions are eliminated. The Company is a subsidiary of MAXXAM Inc. ("MAXXAM"), and conducts its operations through its wholly owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC"). Certain reclassifications of prior-year information were made to conform to the current presentation. Changes in Accounting Principles The Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"), and Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"), as of January 1, 1993. The costs of postretirement benefits other than pensions and postemployment benefits are now accrued over the period employees provide services to the date of their full eligibility for such benefits. Previously, such costs were expensed as actual claims were incurred. The cumulative effect of the changes in accounting principles for the adoption of SFAS 106 and SFAS 112 were recorded as charges to results of operations of $497.7 and $7.3, net of related income taxes of $234.2 and $3.5, respectively. The new accounting standards had no effect on the Company's cash outlays for postretirement or postemployment benefits, nor did these one-time charges affect the Company's compliance with its existing debt covenants. The Company reserves the right, subject to applicable collective bargaining agreements and applicable legal requirements, to amend or terminate these benefits. The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), as of January 1, 1993. The adoption of SFAS 109 changes the Company's method of accounting for income taxes to an asset and liability approach from the deferral method prescribed by Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes" ("APB 11"). The asset and liability approach requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Under this method, deferred income tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. The cumulative effect of the change in accounting principle reduced the Company's results of operations by $2.3. Cash and Cash Equivalents The Company considers only those short-term, highly liquid investments with original maturities of 90 days or less to be cash equivalents. Inventories Substantially all product inventories are stated at last-in, first-out ("LIFO") cost, not in excess of market. Replacement cost is not in excess of LIFO cost. Other inventories, principally operating supplies and repair and maintenance parts, are stated at the lower of average cost or market. Inventory costs consist of material, labor, and manufacturing overhead, including depreciation. Inventories consist of the following: - 35 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ----------------------------------------------------------------------
December 31, ---------------- 1993 1992 ----------------------------------------------------------------------- Finished fabricated products $ 83.7 $ 91.2 Primary aluminum and work in process 141.4 128.7 Bauxite and alumina 94.0 107.4 Operating supplies and repair and maintenance parts 107.8 112.6 ------ ------ $426.9 $439.9 ====== ======
The Company recorded pre-tax charges of approximately $19.4 in 1993 and $29.0 in 1992 because of a reduction in the carrying values of its inventories caused principally by prevailing lower prices for alumina, primary aluminum, and fabricated products. The 1992 amount includes a LIFO inventory liquidation of $10.2. Depreciation Depreciation is computed principally by the straight-line method at rates based upon the estimated useful lives of the various classes of assets. The principal estimated useful lives by class of assets are: ----------------------------------------------------------------------- Land improvements 8 to 25 years Buildings 15 to 45 years Machinery and equipment 10 to 22 years Other Income Other income in 1993 includes approximately $10.8 of pre-tax charges related principally to establishing additional litigation and environmental reserves in the fourth quarter. Other income in 1992 includes approximately $14.0 of pre-tax income for non-recurring adjustments to previously recorded liabilities and reserves in the fourth quarter. Included in interest and other income in 1991 is the receipt of a $12.0 fee in the first quarter from the Company s minority partner in consideration for the execution of an expansion agreement for the Alumina Partners of Jamaica ("Alpart") alumina refinery. The agreement provides for a program of expansion and modernization of Alpart at the existing ownership interest of 65% for KACC and 35% for KACC's minority partner. The prior expansion agreement provided for expansion rights of 75% for KACC and 25% for KACC's minority partner. Futures Contracts and Options The Company periodically enters into forward foreign exchange, commodity futures, and commodity and currency option contracts, which are primarily accounted for as hedges of its revenues and costs. The gains and losses on these contracts are reflected in earnings concurrently with the hedged revenues or costs. The cash flows from these contracts are classified in a manner consistent with the underlying nature of the transactions. At December 31, 1993, the net fair market value of the Company's position in these contracts was not material. Deferred Financing Costs Costs incurred to obtain debt financing are deferred and amortized over the estimated term of the related borrowing. Foreign Currency The Company uses the United States dollar as the functional currency for its foreign operations. - 36 - (In millions of dollars, except share amounts) ----------------------------------------------------------------------- Fair Value of Financial Instruments Unless otherwise disclosed, the carrying amount of all financial instruments is a reasonable estimate of fair value. Net Income per Common and Common Equivalent Share Net income per common and common equivalent share is computed based on the weighted average number of common and common equivalent shares outstanding during each period. For the year ended December 31, 1993, common stock equivalents of 19,382,950 attributable to the Series A Convertible Preferred Stock and 584,300 attributable to nonqualified stock options (see Note 9) were excluded from the calculation of weighted average shares because they were antidilutive. Dividends on the Series A Convertible Preferred Stock ($6.3 for the year ended December 31, 1993) are deducted from net income (added to net loss) for the purpose of calculating net income (loss) per common and common equivalent share. 2. Pro Forma Financial Information On February 17, 1994, the Company completed an equity offering of preferred stock (see Note 9), and KACC completed a refinancing which included the issuance of $225.0 of Senior Notes and the signing of the 1994 Credit Agreement (see Note 6). The following unaudited pro forma information reflects the effects of these transactions as if they had occurred on December 31, 1993. ----------------------------------------------------------------------- Current assets $ 843.6 Non-current assets 1,800.1 Current liabilities 454.2 Long-term debt 755.7 Stockholders' equity 113.8 3. Restructuring of Operations In 1993, KACC implemented a restructuring plan for its flat-rolled products operation at its Trentwood plant in response to overcapacity in the aluminum rolling industry, flat demand in the U.S. can stock markets, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which have resulted in declining prices in Trentwood's key markets. Additionally, KACC implemented a plan to discontinue its casting operations, which include three facilities located in Ohio. This entire restructuring is expected to be completed by the end of 1995 and will affect approximately 670 employees. The pre-tax charge for this restructuring of $35.8 includes $25.2 for pension, severance, and other termination benefits; $4.7 for a writedown of the casting facilities to net realizable value; $3.3 for estimated 1994 casting operating losses until the date of closure or sale; and $2.6 for various other items. 4. Investments In and Advances To Unconsolidated Affiliates Summary combined financial information is provided below for unconsolidated aluminum investments, most of which supply and process raw materials. The investees are Queensland Alumina Limited ("QAL") (28.3% owned), Anglesey Aluminium Limited ("Anglesey") (49.0% owned), and Kaiser Jamaica Bauxite Company (49.0% owned). The equity in earnings (losses) before income taxes of such operations are treated as a reduction (increase) in cost of products sold. At December 31, 1993 and 1992, KACC's net receivables from these affiliates were not material. - 37 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ------------------------------------------------------------------------ (In millions of dollars, except share amounts) ------------------------------------------------------------------------
Summary of Combined Financial Position December 31, ------------------- 1993 1992 ------------------------------------------------------------------------- Current assets $312.3 $295.0 Property, plant, and equipment -- net 371.1 389.4 Other assets 46.3 49.9 ------ ------ Total assets $729.7 $734.3 ====== ====== Current liabilities $130.4 $132.8 Long-term debt 290.0 275.0 Other liabilities 17.8 20.0 Stockholders' equity 291.5 306.5 ------ ------ Total liabilities and stockholders' equity $729.7 $734.3 ====== ======
Summary of Combined Operations
Year Ended December 31, ------------------------------- 1993 1992 1991 ------------------------------- Net sales $ 510.3 $ 586.6 $ 589.0 Costs and expenses (527.2) (586.7) (630.7) Provision for income taxes 1.9 6.9 9.5 ------- ------- ------- Net income (loss) $ (15.0) $ 6.8 $ (32.2) ======= ======= ======= Company's equity in losses $ (3.3) $ (1.9) $ (19.5) ======= ======= =======
The Company's equity in losses differs from the summary net income (loss) due to various percentage ownerships in the entities and equity method accounting adjustments. At December 31, 1993, KACC's investment in its unconsolidated affiliates exceeded its equity in their net assets by approximately $80.7. The Company is amortizing this amount over a 12-year period, which results in an annual amortization charge of approximately $11.9. The Company and its affiliates have interrelated operations. KACC provides some of its affiliates with services such as financing, management, and engineering. Significant activities with affiliates include the acquisition and processing of bauxite, alumina, and primary aluminum. Purchases from these affiliates were $206.6, $219.4 and $238.7 in the years ended December 31, 1993, 1992, and 1991, respectively. No dividends were received from investees in the three years ended December 31, 1993. See Note 7 for the impact of the adoption of SFAS 109 in 1993. - 38 - (In millions of dollars, except share amounts) ------------------------------------------------------------------------ 5. Property, Plant, and Equipment The major classes of property, plant, and equipment are as follows:
December 31, ---------------------- 1993 1992 - ------------------------------------------------------------------------------ Land and improvements $ 135.1 $ 123.8 Buildings 194.8 164.1 Machinery and equipment 1,223.0 1,010.7 Construction in progress 64.9 70.3 -------- -------- 1,617.8 1,368.9 Accumulated depreciation 454.1 302.1 -------- -------- Property, plant, and equipment -- net $1,163.7 $1,066.8 ======== ========
See Note 7 for the impact of the adoption of SFAS 109 in 1993. 6. Long-Term Debt Long-term debt and its maturity schedule are as follows:
December 31, 1999 --------------- and 1993 1992 1994 1995 1996 1997 1998 After Total Total --------------------------------------------------------------------------------------------------------------- 1989 Credit Agreement (6.59% at December 31, 1993) Revolving Credit Facility $188.0 $188.0 $290.0 Term Loan 36.6 Pollution Control and Solid Waste Disposal Facilities Obligations (6.00%-7.75%) $ 1.1 $ 1.2 $ 1.2 $ 1.3 $ 1.3 33.1 39.2 40.0 Alpart CARIFA Loan (fixed and variable rates) 60.0 60.0 60.0 Alpart Term Loan (8.95%) 6.3 6.2 6.3 6.2 25.0 31.3 12-3/4% Senior Subordinated Notes 400.0 400.0 14-1/4% Senior Subordinated Notes 320.5 Other borrowings (fixed and variable rates) 1.3 3.7 1.5 1.5 7.8 .9 16.7 12.6 ------ ------ ------ ------ ------ ------ ------ ------ Total $ 8.7 $ 11.1 $ 9.0 $ 9.0 $ 9.1 $682.0 728.9 791.0 ====== ====== ====== ====== ====== ====== Less current portion 8.7 25.9 ------ ------ Long-term debt $720.2 $765.1 ====== ======
1994 Credit Agreement On February 17, 1994, the Company and KACC entered into a credit agreement with BankAmerica Business Credit, Inc. (as agent for itself and other lenders), Bank of America National Trust and Savings Association, and certain other lenders (the "1994 Credit Agreement"). The 1994 Credit Agreement replaced the 1989 Credit Agreement (as defined below) and consists of a $250.0 five-year secured, revolving line of credit, scheduled to mature in 1999. The Company is able to borrow under the facility by means of revolving credit advances and letters of credit (up to $125.0) in an aggregate amount equal to the lesser of $250.0 or a borrowing base relating to eligible accounts - 39 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ---------------------------------------------------------------------- receivable plus eligible inventory. The Company will record a pre-tax extraordinary loss of approximately $8.3 in the first quarter of 1994, consisting primarily of the write-off of unamortized deferred financing costs related to the 1989 Credit Agreement. As of February 24, 1994, the amount outstanding under the 1994 Credit Agreement was $67.4 of letters of credit. The 1994 Credit Agreement is unconditionally guaranteed by the Company and by all significant subsidiaries of KACC which were guarantors of KACC's obligations under the 1989 Credit Agreement. Loans under the 1994 Credit Agreement bear interest at a rate per annum, at KACC's election, equal to (i) a Reference Rate (as defined) plus 1-1/2% or (ii) LIBO Rate (Reserve Adjusted) plus 3-1/4%. After June 30, 1995, the interest rate margins applicable to borrowings under the 1994 Credit Agreement may be reduced by up to 1-1/2% (non-cumulatively), based upon a financial test, determined quarterly. The 1994 Credit Agreement requires KACC to maintain certain financial covenants and places restrictions on the Company's and KACC's ability to, among other things, incur debt and liens, make investments, pay common stock dividends, undertake transactions with affiliates, make capital expenditures, and enter into unrelated lines of business. The 1994 Credit Agreement is secured by, among other things, (i) mortgages on KACC's major domestic plants (excluding the Gramercy plant); (ii) subject to certain exceptions, liens on the accounts receivable, inventory, equipment, domestic patents and trademarks, and substantially all other personal property of KACC and certain of its subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser; and (iv) pledges of all of the stock of a number of KACC's wholly owned domestic subsidiaries, pledges of a portion of the stock of certain foreign subsidiaries, and pledges of a portion of the stock of certain partially owned foreign affiliates. The 1989 Credit Agreement The Company and KACC entered into a credit agreement with a syndicate of commercial banks and other financial institutions. This agreement was composed of a Revolving Credit Facility, a five-year Term Loan, and certain other agreements (as amended, the "1989 Credit Agreement"). The obligations of KACC in respect of the credit facilities were guaranteed by Kaiser, and by a number of wholly owned subsidiaries of KACC. The Revolving Credit Facility under the 1989 Credit Agreement provided for loans not to exceed the lesser of $350.0 or a borrowing base relating to the amount of eligible accounts receivable and eligible inventory of KACC and certain of its subsidiaries. Up to $50.0 of availability under the Revolving Credit Facility could have been used for letters of credit. As of December 31, 1993, $113.6 of borrowing capacity was unused under the Revolving Credit Facility of the 1989 Credit Agreement (of which $12.8 could also have been used for letters of credit). The five-year Term Loan component of the 1989 Credit Agreement, which was originally to be repaid in ten equal semi-annual installments commencing May 31, 1990, was prepaid in June 1993. Senior Notes Concurrent with the offering by the Company of its 8.255% PRIDES, Convertible Preferred Stock (the "PRIDES") on February 17, 1994 (see Note 9), KACC issued $225.0 of its 9-7/8% Senior Notes due 2002 (the "Senior Notes"). The net proceeds of the offering of the Senior Notes were used to reduce outstanding borrowings under the Revolving Credit Facility of the 1989 Credit Agreement immediately prior to the effectiveness of the 1994 Credit Agreement and for working capital and general corporate purposes. Senior Subordinated Notes On February 1, 1993, KACC issued $400.0 of 12-3/4% Senior Subordinated Notes due 2003 (the "12-3/4% Notes"). The net proceeds from the sale of the 12-3/4% Notes were used to retire the 14-1/4% Senior Subordinated Notes due 1995 (the "14-1/4% Notes"), to prepay $18.0 of the Term Loan, and to reduce outstanding borrowings under the Revolving Credit - 40 - (In millions of dollars, except share amounts) ----------------------------------------------------------------- Facility. These transactions resulted in a pre-tax extraordinary loss of approximately $33.0 in the first quarter of 1993, consisting primarily of the write-off of unamortized discount and deferred financing costs related to the 14-1/4% Notes and the payment of premiums on the 14-1/4% Notes. The obligations of KACC with respect to the Senior Notes and the 12-3/4% Notes are guaranteed, jointly and severally, by certain subsidiaries of KACC. The indentures governing the Senior Notes and the 12-3/4% Notes restrict, among other things, KACC's ability, and the 1994 Credit Agreement restricts, among other things, Kaiser's and KACC's ability, to incur debt, undertake transactions with affiliates, and pay dividends. Gramercy Revenue Bonds In December 1992, KACC entered into an installment sale agreement (the "Sale Agreement") with the Parish of St. James, Louisiana (the "Louisiana Parish"), pursuant to which the Louisiana Parish issued $20.0 aggregate principal amount of its 7-3/4% Bonds due August 1, 2022 (the "Bonds") to finance the construction of certain solid waste disposal facilities at KACC's Gramercy plant. The proceeds from the sale of the Bonds were deposited into a construction fund and may be withdrawn, from time to time, pursuant to the terms of the Sale Agreement and the Bond indenture. At December 31, 1993, $10.8 remained in the construction fund. The Sale Agreement requires KACC to make payments to the Louisiana Parish in installments due on the dates and in the amounts required to permit the Louisiana Parish to satisfy all of its payment obligations under the Bonds. Alpart CARIFA Loan In December 1991, Alpart entered into a loan agreement with the Caribbean Basin Projects Financing Authority ("CARIFA") under which CARIFA loaned Alpart the proceeds from the issuance of CARIFA's industrial revenue bonds. The terms of the loan parallel the bonds' repayment terms. The $38.0 aggregate principal amount of Series A bonds matures on June 1, 2008. The Series A bonds bear interest at a floating rate of 87% of the applicable LIBID Rate (LIBOR less 1/8 of 1%) on $37.5 of the principal amount (2.9% at December 31, 1993) with the remaining $.5 bearing interest at a fixed rate of 6.35%. The $22.0 aggregate principal amount of Series B bonds matures on June 1, 2007, and bears interest at a fixed rate of 8.25%. Proceeds from the sale of the bonds were used by Alpart to refinance interim loans from the partners in Alpart, to pay eligible project costs for the expansion and modernization of its alumina refinery and related port and bauxite mining facilities, and to pay certain costs of issuance. Under the terms of the loan agreement, Alpart must remain a qualified recipient for Caribbean Basin Initiative funds as defined in applicable laws. Alpart has agreed to indemnify bondholders of CARIFA for certain tax payments that could result from events, as defined, that adversely affect the tax treatment of the interest income on the bonds. Alpart's obligations under the loan agreement are secured by a $64.2 letter of credit guaranteed by the partners in Alpart (of which $22.5 is guaranteed by the Company s minority partner in Alpart). Capitalized Interest Interest capitalized in 1993, 1992, and 1991 was $3.4, $4.4, and $4.2, respectively. Restricted Net Assets of Subsidiary Certain debt instruments restrict the ability of KACC to transfer assets, make loans and advances, and pay dividends to the Company. The assets of KACC, which are substantially all of the Company's assets, are restricted. - 41 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ---------------------------------------------------------------------- Fair Value Disclosure The fair value of the Company's long-term debt was approximately $734.1 and $806.8 at December 31, 1993 and 1992, respectively. For 1993, the fair value of the 12-3/4% Notes was estimated using the market value of such notes, or $401.0. For 1992, the estimated fair value of the 14-1/4% Notes was the amount used to retire the 14-1/4% Notes in February 1993, or $347.8. The fair value of all other long-term debt is based upon discounting the future cash flows using the current rate for debt of similar maturities and terms. 7. Income Taxes The adoption of SFAS 109 as of January 1, 1993, as discussed in Note 1, required the Company to restate certain assets and liabilities to their pre-tax amounts from their net-of-tax amounts originally recorded in connection with the acquisition by MAXXAM in October 1988. The restatement of the assigned values with respect to certain assets and liabilities recorded as a result of the acquisition and the recomputation of deferred income tax liabilities under SFAS 109 resulted in: (i) an increase of $144.6 in the net carrying value of property, plant, and equipment; (ii) an increase of $47.8 in investments in and advances to unconsolidated affiliates; (iii) an increase of $126.1 in deferred income tax liabilities (a substantial portion of which has been netted against deferred income tax assets on the Consolidated Balance Sheet); (iv) a decrease of $2.5 in other assets; (v) an increase of $56.0 in long-term liabilities; and (vi) an increase of $10.1 in other liabilities. As a result of restating the assets and liabilities, as described above, the loss before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles for the year ended December 31, 1993, was increased by $9.3. Concurrent with the adoption of SFAS 109, the Company implemented changes in its accounting method for postretirement benefits and postemployment benefits pursuant to SFAS 106 and SFAS 112 (see Notes 1 and 8). The pre-tax cumulative effect of changes in accounting principles relating to SFAS 106 and SFAS 112 was a charge of $742.7. These accounting principles changes resulted in the recognition of deferred income tax assets of $237.7, net of valuation allowances. Income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles by geographic area is as follows:
Year Ended December 31, ----------------------------- 1993 1992 1991 ------------------------------------------------------------------- Domestic $(232.0) $ (77.6) $ 16.2 Foreign 23.5 109.7 126.2 ------- ------ ------ Total $(208.5) $ 32.1 $142.4
======= ======= ====== - 42 - (In millions of dollars, except share amounts) ---------------------------------------------------------------------- The credit (provision) for income taxes on income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles consists of:
Federal Foreign State Total ---------------------------------------------------------------------------- 1993 Current $ 12.6 $ (7.9) $ (.1) $ 4.6 Deferred 68.5 12.0 1.8 82.3 ------ ------ ------ ------ Total $ 81.1 $ 4.1 $ 1.7 $ 86.9 ====== ====== ====== ====== 1992 Current $ (9.7) $(11.4) $ (.1) $(21.2) Deferred 13.1 3.3 (.5) 15.9 ------ ------ ------ ------ Total $ 3.4 $ (8.1) $ (.6) $ (5.3) ====== ====== ====== ====== 1991 Current $(25.3) $ (8.9) $ (1.1) $(35.3) Deferred 1.9 (1.4) 2.4 2.9 ------ ------ ------ ------- Total $(23.4) $(10.3) $ 1.3 $(32.4) ====== ====== ====== ======
The Omnibus Budget Reconciliation Act of 1993 (the "Act"), enacted on August 10, 1993, retroactively increased the maximum federal statutory income tax rate from 34% to 35% for periods beginning on or after January 1, 1993. The 1993 federal deferred credit for income taxes of $68.5 includes $29.2 for the benefit of operating loss carryforwards generated in 1993 and includes a $3.4 benefit for increasing net deferred income tax assets (liabilities) as of the date of enactment of the Act due to the increase in the federal statutory income tax rate. The deferred credit for income taxes for the years ended December 31, 1992 and 1991, as computed under APB 11, results from the following timing differences:
Year Ended December 31, -------------------- 1992 1991 ----------------------------------------------------------------------------------------- Undistributed earnings or losses of foreign and unconsolidated affiliates $ 12.3 $ 12.4 Inventory costing differences 5.5 (5.9) Revision of prior years' tax estimates 2.9 8.7 Net federal and foreign tax loss and credit carryforwards utilized and other foreign tax items (.9) Depreciation (5.4) (7.8) Other .6 (3.6) ------ ------ Total $ 15.9 $ 2.9 ====== ======
A reconciliation between the credit (provision) for income taxes and the amount computed by applying the federal statutory income tax rate to income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles is as follows: - 43 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ----------------------------------------------------------------------
Year Ended December 31, ---------------------------- 1993 1992 1991 -------------------------------------------------------------------------------------------------- Amount of federal income tax based upon the statutory rate $73.0 $(10.9) $(48.4) Percentage depletion 6.4 6.3 6.0 Revision of prior years' tax estimates and other changes in valuation allowances 3.9 2.9 8.7 Increase in net deferred income tax assets due to tax rate change 3.4 Financial reporting/tax basis differences (3.0) 6.4 Losses and expenses for which no federal tax benefit was recognized (3.8) Foreign taxes, net of federal tax benefit (2.6) (.4) .2 Other 2.8 (.2) (1.5) ----- ----- ------ Credit (provision) for income taxes $86.9 $(5.3) $(32.4) ===== ===== ======
As shown in the Statement of Consolidated Income (Loss) for the year ended December 31, 1993, the Company reported an extraordinary loss related to the early extinguishment of debt. The Company reported the loss, net of related current federal income taxes, of $11.2, which approximated the federal statutory rate in effect on the date the transaction occurred. The related deferred income tax benefits recorded by the Company in respect of SFAS 106 and SFAS 112 were recorded at the federal statutory rate in effect on the date the accounting standards were adopted before giving effect to certain valuation allowances. At December 31, 1993 and 1992, the Company recorded charges to equity for additional minimum pension liabilities pursuant to Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"). The Company recorded the charges net of related deferred federal and state income taxes of $8.7 at December 31, 1993, and $3.6 at December 31, 1992, which approximated the federal and state statutory rates. After giving effect to the adoption of SFAS 106, SFAS 109, and SFAS 112, the components of the Company's net deferred income tax assets were as follows:
December 31, January 1, 1993 1993 (date of adoption) --------------------------------------------------------------------------------------------------- Deferred income tax assets: Postretirement benefits other than pensions $ 285.4 $ 270.8 Loss and credit carryforwards 142.6 83.3 Other liabilities 105.2 98.8 Pensions 60.6 45.8 Foreign and state deferred income tax liabilities 33.0 44.4 Property, plant, and equipment 23.1 22.6 Other 10.5 18.6 Valuation allowances (133.5) (103.7) ------- ------- Total deferred income tax assets -- net 526.9 480.6 ------- ------- Deferred income tax liabilities: Property, plant, and equipment (224.4) (218.3) Investments in and advances to unconsolidated affiliates (60.6) (60.9) Inventories (14.8) (18.6) Other (20.3) (28.7) -------- ------- Total deferred income tax liabilities (320.1) (326.5) ------- ------- Net deferred income tax assets $ 206.8 $ 154.1 ======= =======
- 44 - (In millions of dollars, except share amounts) ---------------------------------------------------------------------- The valuation allowances listed above relate primarily to loss and credit carryforwards and postretirement benefits other than pensions. As of December 31, 1993, approximately $82.4 of the net deferred income tax assets listed above relate to the benefit of loss and credit carryforwards, net of valuation allowances. The Company evaluated all appropriate factors to determine the proper valuation allowances for these carryforwards, including any limitations concerning their use and the year the carryforwards expire, as well as the levels of taxable income necessary for utilization. For example, full valuation allowances were provided for certain credit carryforwards that expire in the near term. With regard to future levels of income, the Company believes, based on the cyclical nature of its business, its history of prior operating earnings, and its expectations for future years, that it will more likely than not generate sufficient taxable income to realize the benefit attributable to the loss and credit carryforwards for which valuation allowances were not provided. The remaining portion of the Company's net deferred income tax assets at December 31, 1993, is approximately $124.4. A principal component of this amount is the tax benefit associated with the accrual for postretirement benefits other than pensions. The future tax deductions with respect to the turnaround of this accrual will occur over a 30- to 40-year period. If such deductions create or increase a net operating loss in any one year, the Company has the ability to carry forward such loss for 15 taxable years. For these reasons, the Company believes a long-term view of profitability is appropriate and has concluded that this net deferred income tax asset will more likely than not be realized despite the recent decline in profitability. Certain of the deferred income tax assets and liabilities listed above are included on the Consolidated Balance Sheet in the captions entitled Receivables, Prepaid expenses and other current assets, Other accrued liabilities, and Long-term liabilities. The Company and its subsidiaries were included in the consolidated federal income tax returns of MAXXAM for the period from October 28, 1988, through December 31, 1992. The taxable income and loss and tax credits for the Company and its subsidiaries for the period January 1, 1993, through June 30, 1993, will be included in the 1993 MAXXAM consolidated federal income tax return. As a consequence of the issuance of the Depositary Shares on June 30, 1993, as discussed in Note 9, the Company and its subsidiaries are no longer included in the consolidated federal income tax return of MAXXAM. The Company and its subsidiaries have become members of a new consolidated return group of which the Company is the common parent corporation (the "New Kaiser Tax Group"). The New Kaiser Tax Group will file a consolidated federal income tax return for taxable periods beginning on or after July 1, 1993. The tax allocation agreement between the Company and MAXXAM (the "Company Tax Allocation Agreement") and the tax allocation agreement between KACC and MAXXAM (the "KACC Tax Allocation Agreement") (collectively, the "Tax Allocation Agreements"), terminated pursuant to their terms, effective for taxable periods beginning after June 30, 1993. Any unused federal income tax attribute carryforwards under the terms of the Tax Allocation Agreements were eliminated and are not available to offset federal income tax liabilities for taxable periods beginning on or after July 1, 1993. Upon the filing of MAXXAM's 1993 consolidated federal income tax return, the tax attribute carryforwards of the MAXXAM consolidated return group as of December 31, 1993, will be apportioned in part to the New Kaiser Tax Group, based upon the provisions of the relevant consolidated return regulations. It is estimated that the benefit of such tax attribute carryforwards apportioned to the New Kaiser Tax Group will approximate or exceed the benefit of tax attribute carryforwards eliminated under the Tax Allocation Agreements. To the extent the New Kaiser Tax Group generates unused tax losses or tax credits for periods beginning on or after July 1, 1993, such amounts will not be available to obtain refunds of amounts paid by the Company or KACC to MAXXAM for periods ending on or before June 30, 1993, pursuant to the Tax Allocation Agreements. - 45 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ---------------------------------------------------------------------- KACC and MAXXAM entered into the KACC Tax Allocation Agreement, which became effective as of October 28, 1988. Under the terms of the KACC Tax Allocation Agreement, MAXXAM computed the federal income tax liability for KACC and its subsidiaries (collectively, the "Subgroup") as if the Subgroup were a separate affiliated group of corporations which was never connected with MAXXAM. During 1991, the Company and MAXXAM entered into the Company Tax Allocation Agreement which became effective as of January 1, 1991. Under the terms of the Company Tax Allocation Agreement, MAXXAM computed a tentative federal income tax liability for the Company as if it and its subsidiaries, including KACC and its subsidiaries, were a separate affiliated group of corporations which was never connected with MAXXAM. The federal income tax liability of the Company is the difference between the tentative federal income tax liability and the liability computed under the KACC Tax Allocation Agreement. The provisions of the Tax Allocation Agreements will continue to govern for periods ended prior to July 1, 1993. Therefore, payments or refunds may still be required by or payable to the Company or KACC under the terms of their respective tax allocation agreements for periods ended prior to July 1, 1993, due to the final resolution of audits, amended returns, and related matters with respect to such periods. However, the 1994 Credit Agreement prohibits the payment by KACC to MAXXAM of any amounts due under the KACC Tax Allocation Agreement, except for certain payments that are required as a result of audits and only to the extent of any amounts paid after February 17, 1994, by MAXXAM to KACC under the KACC Tax Allocation Agreement. As of December 31, 1993, MAXXAM owed the Company approximately $.1 and owed KACC approximately $11.6 under the terms of their respective tax allocation agreements. 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. The following table presents the Company's tax attributes for federal income tax purposes as of December 31, 1993. The amounts of such attributes may change based upon the final 1993 tax returns. The utilization of certain of these tax attributes are subject to limitations:
Expiring Through ---------------------------------------------------------------------------------------- Regular tax attribute carryforwards: Current year net operating loss $ 83.4 2008 Prior year net operating losses 54.9 2006 General business tax credits 41.6 2006 Foreign tax credits 19.8 1998 Alternative minimum tax credits 15.3 Indefinite Alternative minimum tax attribute carryforwards: Current year net operating loss $ 56.0 2008 Prior year net operating losses 24.0 2002 Foreign tax credits 12.0 1998
8. Employee Benefit and Incentive Plans Retirement Plans Retirement plans are non-contributory for salaried and hourly employees and generally provide for benefits based on a formula which considers length of service and earnings during years of service. The Company's funding policies meet or exceed all regulatory requirements. - 46 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ---------------------------------------------------------------------- Employee pension benefit plans funded status and amounts included in the Company's Consolidated Balance Sheets are as follows:
Plans with Accumulated Benefits Exceeding Assets(1) December 31, -------------------- 1993 1992 ---------------------------------------------------------------------------------------- Accumulated benefit obligation: Vested employees $(705.0) $(663.5) Nonvested employees (40.1) (49.6) ------- ------- Accumulated benefit obligation (745.1) (713.1) Additional amounts related to projected salary increases (45.5) (33.7) ------- ------- Projected benefit obligation (790.6) (746.8) Plan assets (principally fixed income obligations and common stocks) at fair value 569.8 572.5 ------- ------- Plan assets less than projected benefit obligation (220.8) (174.3) Unrecognized net losses 75.7 34.7 Unrecognized net obligations 1.6 2.6 Unrecognized prior-service cost 16.9 15.9 Adjustment required to recognize minimum liability (47.7) (25.3) ------- ------- Accrued pension obligation included in the Consolidated Balance Sheets (principally in long-term liabilities) $(174.3) $(146.4) ======= =======
(1) Includes plans with assets exceeding accumulated benefits by approximately $.1 and $.4 in 1993 and 1992, respectively. The Company also recorded $13.7 of additional pension obligation (not included in the amounts above) as part of the restructuring reserve (see Note 3). SFAS No. 87 requires recognition of a minimum pension liability for unfunded plans. At December 31, 1993 and 1992, the Company recorded an after-tax charge to equity of $14.9 and $6.7, respectively, for the excess of the minimum liability over the unrecognized net obligation and prior-service cost. The components of net periodic pension cost are:
Year Ended December 31, ------------------------------ 1993 1992 1991 ---------------------------------------------------------------------------------------- Service cost -- benefits earned during the period $10.8 $ 11.0 $ 9.8 Interest cost on projected benefit obligation 59.2 58.8 59.3 Return on assets: Actual gain (70.3) (26.3) (100.1) Deferred gain (loss) 15.9 (31.2) 49.9 Net amortization and deferral 2.3 2.1 .3 ------ ------ ------ Net periodic pension cost $ 17.9 $ 14.4 $ 19.2 ====== ====== ======
- 47 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ---------------------------------------------------------------------- Assumptions used to value obligations at year-end, and to determine the net periodic pension cost in the subsequent year are:
1993 1992 1991 ---------------------------------------------------------------------------------------- Discount rate 7.50% 8.25% 8.25% Expected long-term rate of return on assets 10.00% 10.00% 10.00% Rate of increase in compensation levels 5.00% 5.00% 5.00%
Postretirement Benefits Other Than Pensions Kaiser adopted SFAS 106 to account for postretirement benefits other than pensions effective January 1, 1993 (see Note 1). The Company and its subsidiaries provide postretirement health care and life insurance benefits to retired employees. Substantially all employees may become eligible for those benefits if they reach retirement age while still working for the Company or its subsidiaries. These benefits are provided through contracts with various insurance carriers. The Company has not funded the liability for these benefits. The Company changed certain salaried retiree group insurance benefits effective January 1, 1994, to provide for additional cost-sharing features, such as reducing certain reimbursements and requiring future retiree contributions which will lower salaried retiree medical expenses. The Company's accrued postretirement benefit obligation is composed of the following:
December 31, 1993 ---------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $(629.3) Active employees eligible for postretirement benefits (35.1) Active employees not eligible for postretirement benefits (128.3) ------- Accumulated postretirement benefit obligation (792.7) Unrecognized net losses 67.0 Unrecognized prior-service costs (35.0) ------ Accrued postretirement benefit obligation $(760.7) =======
The components of net periodic postretirement benefit cost are:
Year Ended December 31, 1993 --------------------------------------------------------------------------------------- Service cost $ 7.1 Interest cost 58.5 ----- Net periodic postretirement benefit cost $65.6 =====
The 1994 annual assumed rates of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) are 9.5% and 8.0% for retirees under 65 and over 65, respectively, and are assumed to decrease gradually to 5.25% in 2006 and remain at that level thereafter. The health care cost trend rate has a significant effect on the amounts reported. A one percentage point increase in the assumed health care cost trend rate would increase the accumulated - 48 - (In millions of dollars, except share amounts) ---------------------------------------------------------------------- postretirement benefit obligation as of December 31, 1993, by approximately $96.0 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1993 by approximately $9.5. The weighted average discount rate used to determine the accumulated postretirement benefit obligation at December 31, 1993, was 7.5%. Postemployment Benefits Kaiser adopted the new accounting standard on postemployment benefits effective January 1, 1993 (see Note 1). The Company provides certain benefits to former or inactive employees after employment but before retirement. Incentive Plans Effective January 1, 1989, the Company and KACC adopted an unfunded Long-Term Incentive Plan (the "LTIP") for certain key employees of the Company, KACC, and their consolidated subsidiaries. All compensation vested as of December 31, 1992, under the LTIP, as amended in 1991 and 1992, has been paid to the participants in cash or common stock of the Company as of December 31, 1993. Under the LTIP, as amended, 764,092 shares were distributed to participants during 1993, which will generally vest at the rate of 25% per year. The Company will record the related expense of $6.5 over the four-year period ending December 31, 1996. Effective January 1, 1990, KACC adopted an unfunded Middle Management Long-Term Incentive Plan. KACC also has a supplemental savings and retirement plan for salaried employees under which the participants contribute a percentage of their base salaries. The Company's expense for the above plans was $5.3, $6.6, and $6.5 for the years ended December 31, 1993, 1992, and 1991, respectively. - 49 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ---------------------------------------------------------------------- 9. Stockholders' Equity and Minority Interests Changes in stockholders' equity and minority interests were:
Minority Interests Stockholders Equity ---------------------- ------------------------------------------------- Retained Earnings Additional Redeemable (Accu- Minimum Preference Preferred Common Additional mulated Pension Stock Other Stock Stock Capital Deficit) Liability ------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1991 $ 47.8 $ 75.4 $ .5 $140.9 $214.6 Net income 108.4 Redeemable preference stock: Accretion 7.2 Stock redemption (20.2) Dividends on common stock (55.7) Conversions (3,262 preference shares into cash) (.2) Common stock issued .1 93.1 Capital contribution 53.9 Minority interest in majority-owned subsidiaries (1.1) ------ ----- ------ ------ ------ BALANCE, DECEMBER 31, 1991 34.8 74.1 .6 287.9 267.3 Net income 26.9 Redeemable preference stock: Accretion 5.1 Stock redemption (7.1) Dividends on common stock (11.4) Conversions (2,405 preference shares into cash) (.2) Common stock issued .6 Minority interest in majority-owned subsidiaries (1.8) Additional minimum pension liability $ (6.7) ----- ----- ------ ------ ------ ------ BALANCE, DECEMBER 31, 1992 32.8 72.1 .6 288.5 282.8 (6.7) Net loss (652.2) Redeemable preference stock: Accretion 4.8 Stock redemption (4.0) Conversions (1,967 preference shares into cash) (.2) Common stock issued 3.3 Preferred stock issued $ .2 134.1 Dividend on preferred stock (6.3) Minority interest in majority-owned subsidiaries (.5) Additional minimum pension liability (14.9) ------ ------ ------ ------ ------ ------ ------ BALANCE, DECEMBER 31, 1993 $ 33.6 $ 71.4 $ .2 $ .6 $425.9 $(375.7) $(21.6) ====== ====== ====== ====== ====== ======= ======
- 50 - (In millions of dollars, except share amounts) ---------------------------------------------------------------------- Redeemable Preference Stock In March 1985, KACC entered into a three-year agreement with the United Steelworkers of America ("USWA") whereby shares of a new series of "Cumulative (1985 Series A) Preference Stock" would be issued to an employee stock ownership plan in exchange for certain elements of wages and benefits. Concurrently, a similar plan was established for certain nonbargaining employees which provided for the issuance of "Cumulative (1985 Series B) Preference Stock." Series A Stock and Series B Stock ("Series A and B Stock") each have a par value of $1 per share and a liquidation and redemption value of $50 per share plus accrued dividends, if any. For financial reporting purposes, Series A and B Stock were recorded at fair market value when issued, based on independent appraisals, with a corresponding charge to compensation cost. Carrying values have been increased each year to recognize accretion of redemption values and, in certain years, there have been other increases for reasons described below. Issuances and redemptions of Series A and B Stock are shown below.
1993 1992 1991 ------------------------------------------------------------------------------------ Shares: Beginning of year 1,163,221 1,305,550 1,718,051 Issued 1,868 Redeemed (81,673) (142,329) (414,369) --------- --------- --------- End of year 1,081,548 1,163,221 1,305,550 ========= ========= =========
No additional Series A or B Stock will be issued based on compensation earned in 1992 or subsequent years. While held by the plan trustee, Series B Stock is entitled to cumulative annual dividends, when and as declared by the Board of Directors, payable in stock or in cash at the option of KACC on or after March 1, 1991, in respect to years commencing January 1, 1990, based on a formula tied to KACC's income before tax from aluminum operations. When distributed to plan participants (generally upon separation from KACC), the Series A and B stocks are entitled to an annual cash dividend of $5 per share, payable quarterly, when and as declared by the Board of Directors. Redemption fund agreements require KACC to make annual payments by March 31 each year based on a formula tied to consolidated net income until the redemption funds are sufficient to redeem all Series A and B Stock. On an annual basis, the minimum payment is $4.3 and the maximum payment is $7.3. In March 1992 and 1993, KACC contributed $7.0 and $4.3 for the years 1991 and 1992, respectively, and will contribute $4.3 in March 1994 for 1993. Under the USWA labor contract effective November 1, 1990, KACC was obligated to offer to purchase up to 80 shares of Series A Stock from each active participant in 1991 at a price equal to its redemption value of $50 per share. KACC also agreed to offer to purchase up to an additional 40 shares from each participant in 1994. The employees may elect to receive their shares, accept cash, or place the proceeds into KACC's 401(k) savings plan. Under separate action, KACC also offered to purchase 80 shares of Series B stock from active participants in 1991 and 40 shares in 1994. Under the provisions of these contracts, in February 1994, KACC purchased $4.6 and $.8 of the Series A and B stock, respectively. The Series A and B Stock is distributed in the event of death, retirement, or in other specified circumstances. KACC may also redeem such stock at $50 per share plus accrued dividends, if any. At the option of the plan participant, the trustee shall redeem stock distributed from the plans at redemption value to the extent funds are available in the - 51 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ---------------------------------------------------------------------- redemption fund. Under the Tax Reform Act of 1986, at the option of the plan participant, KACC must purchase distributed shares earned after December 31, 1985, at redemption value on a five-year installment basis, with interest at market rates. The obligation of KACC to make such installment payments must be secured. The Series A and B Stock is entitled to the same voting rights as KACC common stock and to certain additional voting rights under certain circumstances, including the right to elect, along with other KACC preference stockholders, two directors whenever accrued dividends have not been paid on two annual dividend payment dates, or when accrued dividends in an amount equivalent to six full quarterly dividends are in arrears. The Series A and B Stock restricts the ability of KACC to redeem or pay dividends on common stock if KACC is in default on any dividends payable on the Series A and B Stock. Preference Stock KACC Cumulative Convertible Preference Stock, $100 par value ("$100 Preference Stock"), restricts acquisition of junior stock and payment of dividends. At December 31, 1993, such provisions were less restrictive as to the payment of cash dividends than the 1989 Credit Agreement provisions. KACC has the option to redeem the $100 Preference Stocks at par value plus accrued dividends. KACC does not intend to issue any additional shares of the $100 Preference Stocks. The 4-1/8% and 4-3/4% (1957 Series, 1959 Series, and 1966 Series) $100 Preference Stock can be exchanged for per share cash amounts of $69.30, $77.84, $78.38, and $76.46, respectively. KACC records the $100 Preference Stock at their exchange amounts for financial statement presentation and the Company includes such amounts in minority interests. The outstanding shares of KACC preference stock were:
December 31, ------------------- 1993 1992 ------------------------------------------------------------------------------- 4-1/8% 3,921 4,110 4-3/4% (1957 Series) 2,623 3,054 4-3/4% (1959 Series) 13,605 14,607 4-3/4% (1966 Series) 3,890 4,235
Preferred Stock Series A Convertible - On June 30, 1993, Kaiser issued 17,250,000 of its $.65 Depositary Shares (the "Depositary Shares"), each representing one-tenth of a share of Series A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A Shares"). In connection with the issuance of the Depositary Shares, MAXXAM Group Inc. ("MGI"), a wholly owned subsidiary of MAXXAM, exchanged a $15.0 promissory note of KACC (the "MAXXAM Note") for an additional 2,132,950 Depositary Shares. The net cash proceeds from the sale of Depositary Shares were approximately $119.3. Kaiser used approximately $37.8 of such net proceeds to make a non-interest bearing loan to KACC evidenced by an intercompany note, which matures on June 29, 1996, and is payable in quarterly installments. The intercompany note is designed to provide sufficient funds to Kaiser to enable it to make dividend payments on the Series A Shares until June 30, 1996, the date on which the outstanding Series A Shares are mandatorily converted into shares of the Company's common stock. Kaiser used approximately $81.5 of such net proceeds and the MAXXAM Note to make a capital contribution to KACC. KACC used approximately $13.7 of the funds it received from Kaiser to prepay the remaining balance of the Term Loan under - 52 - (In millions of dollars, except share amounts) ------------------------------------------------------------------- the 1989 Credit Agreement and $105.6 of such funds to reduce outstanding borrowings under the Revolving Credit Facility of the 1989 Credit Agreement. The owners of Depositary Shares are entitled to receive (when, as, and if the Board of Directors declares dividends on the Series A Shares) cumulative preferential cash dividends from the date of issue, accruing at the rate of $.65 per annum for each of the Depositary Shares, payable quarterly in arrears on the last day of each March, June, September and December, commencing September 30, 1993. Holders of Depositary Shares (based on the voting rights of the Series A Shares) have one vote for each Depositary Share held of record, except as required by law, and are entitled to vote with the holders of common stock on all matters submitted to a vote of common stockholders. On June 30, 1996, each of the outstanding Depositary Shares will automatically convert (upon the automatic conversion of the Series A Shares) into (i) one share of common stock, plus (ii) the right to receive an amount in cash equal to the accrued and unpaid dividends payable with respect to such Depositary Share. Automatic conversion of the outstanding Depositary Shares (and the Series A Shares) will occur upon certain mergers or consolidations of the Company (as defined). At any time or from time to time prior to June 30, 1996, the Company may call the outstanding Depositary Shares (by calling the Series A Shares) for redemption, in whole or in part, at a call price per Depositary Share initially equal to $12.46, declining by $.0018 on each day following the date of issue to $10.624 on April 30, 1996, and equal to $10.51 thereafter, payable in shares of common stock having an aggregate Current Market Price (as defined) equal to the applicable call price, plus an amount in cash equal to all accrued and unpaid dividends payable with respect to such Depositary Share. PRIDES Convertible - On February 17, 1994, the Company consummated the public offering of 8,000,000 shares of the PRIDES. The net proceeds from the sale of the shares of PRIDES were approximately $90.6. The Company used such net proceeds to make a non-interest bearing loan to KACC in a principal amount equal to $30.0 (the aggregate dividends scheduled to accrue on the shares of PRIDES from the issuance date until December 31, 1997, the date on which the outstanding PRIDES are mandatorily converted into shares of the Company's common stock), evidenced by an intercompany note, and used the balance of such net proceeds to make a capital contribution to KACC in the amount of approximately $60.6. Holders of shares of PRIDES are entitled to receive (when, as, and if the Board of Directors declares dividends on the PRIDES) cumulative preferential cash dividends at a rate per annum of 8.255% of the per share offering price (equivalent to $.97 per annum for each share of PRIDES), from the date of initial issuance, payable quarterly in arrears on the last day of each March, June, September, and December of each year. Holders of shares of PRIDES have a 4/5 vote for each share held of record and, except as required by law, are entitled to vote together with the holders of common stock and together with the holders of any other classes or series of stock (including the Series A Shares) who are entitled to vote in such manner on all matters submitted to a vote of common stockholders. On December 31, 1997, unless either previously redeemed or converted at the option of the holder, each of the outstanding shares of PRIDES will mandatorily convert into (i) one share of the Company's common stock, subject to adjustment in certain events, and (ii) the right to receive an amount in cash equal to all accrued and unpaid dividends thereon (other than previously declared dividends payable to a holder of record on a prior date). Shares of PRIDES are not redeemable prior to December 31, 1996. At any time and from time to time on or after December 31, 1996, the Company may redeem any or all of the outstanding shares of PRIDES. Upon any such redemption, each holder will receive, in exchange for each share of PRIDES, the number of shares of common stock equal to (A) the sum of (i) $11.9925, declining after December 31, 1996, to $11.75 until December 31, 1997, plus, - 53 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ---------------------------------------------------------------------- in the event the Company does not elect to pay cash dividends to the redemption date, (ii) all accrued and unpaid dividends thereon divided by (B) the Current Market Price (as defined) on the applicable date of determination, but in no event less than .8333 of a share of common stock, subject to adjustment in certain events. At any time prior to December 31, 1997, unless previously redeemed, each share of PRIDES is convertible at the option of the holder thereof into .8333 of a share of common stock (equivalent to a conversion price of $14.10 per share of common stock), subject to adjustment in certain events. The number of shares of common stock a holder will receive upon redemption, and the value of the shares received upon conversion, will vary depending on the market price of the common stock from time to time. Common Stock On July 18, 1991, the Company issued 7,250,000 shares of its common stock for net proceeds of approximately $93.2. Three-fourths of the net proceeds from the offering were used by the Company to prepay a portion of the promissory notes of the Company (see "Dividends on Common Stock" below) with accrued interest, payable to its parent. The remaining balance of such notes payable to parent that were not prepaid with the net proceeds of the offering, together with accrued interest, were contributed to the stockholders' equity of the Company. The remaining one-fourth of the net proceeds from the offering was used by Kaiser to purchase common stock of KACC. KACC reduced its Term Loan by an amount equal to the proceeds it received from Kaiser. Stock Incentive Plan In 1993, the Company adopted the Kaiser 1993 Omnibus Stock Incentive Plan. A total of 2,500,000 shares of Kaiser common stock are reserved for awards or for payment of rights granted under the Plan. Six Company executives have received grants of 764,092 shares under the LTIP for benefits generally earned but not vested as of December 31, 1992 (see Note 8). In 1993, the stockholders approved the award of 584,300 shares as "nonqualified stock options" to members of management other than those participating in the LTIP. These options will generally vest at the rate of 20% per year over the next five years, commencing May 18, 1994. The exercise price of these shares is $7.25 per share, the quoted market price at the date of grant. Dividends on Common Stock On January 31, September 16, and December 16, 1991, the Company declared and paid dividends on common stock of $50.0, $2.9, and $2.8, respectively. The Company paid cash dividends on common stock of $2.9 in each quarter of 1992. As required under the 1989 Credit Agreement, on December 15, 1992, KACC issued a Pay-in-Kind Note (the "PIK Note") to MGI in the principal amount of $2.5, representing the entire amount of the dividend received by MGI in respect of the shares of the Company's common stock which it owned. The PIK Note bears interest, compounded semiannually, at a rate equal to 12% per annum, and is due and payable, together with accrued interest thereon, on June 30, 1995. The indentures governing the Senior Notes and the 12-3/4% Notes restrict, among other things, KACC's ability, and the 1994 Credit Agreement restricts, among other things, Kaiser's and KACC's ability, to incur debt, undertake transactions with affiliates, and pay dividends. Under the most restrictive of these covenants, neither the Company nor KACC is currently permitted to pay dividends on its common stock. At December 31, 1993, 28,000,000 shares of the Company's common stock owned by MAXXAM were pledged as security for debt issued by MGI, consisting of $100.0 aggregate principal amount of 11-1/4% Senior Secured Notes due 2003 and $126.7 aggregate principal amount of 12-1/4% Senior Secured Discount Notes due 2003. - 54 - (In millions of dollars, except share amounts) ---------------------------------------------------------------------- 10. Commitments and Contingencies Commitments The Company has financial commitments, including purchase agreements, tolling arrangements, forward foreign exchange contracts, forward sales contracts, letters of credit, and guarantees. Purchase agreements and tolling arrangements include agreements to supply alumina to Anglesey and to purchase aluminum from that company. Similarly, KACC has long-term agreements for the purchase and tolling of bauxite into alumina in Australia by QAL. These obligations expire in 2008. Under the agreements, KACC is unconditionally obligated to pay its proportional share of debt, operating costs, and certain other costs of QAL. The aggregate minimum amount of required future principal payments at December 31, 1993, is $73.6, due in 1997. The KACC share of payments, including operating costs and certain other expenses under the agreement, was $86.7, $99.2, and $107.6 for the years ended December 31, 1993, 1992, and 1991, respectively. Minimum rental commitments under operating leases at December 31, 1993, are as follows: years ending December 31, 1994 -- $24.3; 1995 -- $23.2; 1996 -- $22.3; 1997 -- $21.8; 1998 -- $23.4; thereafter -- $243.2. The future minimum rentals receivable under noncancelable subleases was $90.7 at December 31, 1993. Rental expenses were $29.0, $26.2, and $23.3 for the years ended December 31, 1993, 1992, and 1991, respectively. Environmental Contingencies The Company and KACC are subject to a wide variety of environmental laws and regulations and to fines or penalties assessed for alleged breaches of the environmental laws and to claims and litigation based upon such laws. KACC is currently subject to a number of lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and, along with certain other entities, has been named as a potentially responsible party for remedial costs at certain third-party sites listed on the National Priorities List under CERCLA. Based upon the Company's evaluation of these and other environmental matters, the Company has established environmental accruals primarily related to potential solid waste disposal and soil and groundwater remediation matters. The following table presents the changes in such accruals, which are primarily included in Long-term liabilities, for the years ended December 31, 1993, 1992, and 1991:
1993 1992 1991 ---------------------------------------------------------------------------------- Balance at beginning of period $ 46.4 $ 51.5 $ 57.7 Additional amounts 1.7 4.5 7.8 Less expenditures (7.2) (9.6) (14.0) ------ ------ ------ Balance at end of period $ 40.9 $ 46.4 $ 51.5 ====== ====== ======
These environmental accruals represent the Company's estimate of costs reasonably expected to be incurred based upon presently enacted laws and regulations, currently available facts, existing technology, and the Company's assessment of the likely remediation action to be taken. The Company expects that these remediation actions will be taken over - 55 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) ---------------------------------------------------------------------- (In millions of dollars, except share amounts) ---------------------------------------------------------------------- the next several years and estimates that expenditures to be charged to the environmental accrual will be approximately $4.0 to $8.0 for the years 1994 through 1998 and an aggregate of approximately $12.8 thereafter. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established, or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals by amounts which cannot presently be estimated. While uncertainties are inherent in the ultimate outcome of these matters and it is impossible to presently determine the actual costs that ultimately may be incurred, management believes that the resolution of such uncertainties should not have a material adverse effect upon the Company's consolidated financial position or results of operations. Asbestos Contingencies KACC is a defendant in a number of lawsuits in which the plaintiffs allege that certain of their injuries were caused by exposure to asbestos during, and as a result of, their employment with KACC or to products containing asbestos produced or sold by KACC. The lawsuits generally relate to products KACC has not manufactured for at least 15 years. At year-end 1993, the number of such lawsuits pending was approximately 23,400 (approximately 11,400 of which were received in 1993). The number of such lawsuits instituted against KACC increased substantially in 1993, and management believes the number of such lawsuits will continue at approximately the same rate for the next few years. In connection with such litigation, during 1993, 1992, and 1991, KACC made cash payments for settlement and other related costs of $7.0, $7.1, and $6.1, respectively. Based upon prior experience, the Company estimates annual future cash payments in connection with such litigation of approximately $8.0 to $13.0 for the years 1994 through 1998, and an aggregate of approximately $88.4 thereafter through 2006. Based upon past experience and reasonably anticipated future activity, the Company has established an accrual for estimated asbestos-related costs for claims filed and estimated to be filed and settled through 2006. The Company does not presently believe there is a reasonable basis for estimating such costs beyond 2006 and, accordingly, no accrual has been recorded for such costs which may be incurred. This accrual was calculated based upon the current and anticipated number of asbestos-related claims, the prior timing and amounts of asbestos-related payments, the current state of case law related to asbestos claims, the advice of counsel, and the anticipated effects of inflation and discounting at an estimated risk-free rate (5.25% at December 31, 1993). Accordingly, an accrual of $102.8 for asbestos-related expenditures is included primarily in Long-term liabilities at December 31, 1993. The aggregate amount of the undiscounted liability at December 31, 1993, of $141.5, before considerations for insurance recoveries, reflects an increase of $56.6 from the prior year, resulting primarily from an increase in claims filed during 1993 and the Company's belief that the number of such lawsuits will continue at approximately the same rate for the next few years. The Company believes that KACC has insurance coverage available to recover a substantial portion of its asbestos-related costs. While claims for recovery from one of KACC's insurance carriers are currently subject to pending litigation and other carriers have raised certain defenses, the Company believes, based upon prior insurance-related recoveries in respect of asbestos-related claims, existing insurance policies, and the advice of counsel, that substantial recoveries from the insurance carriers are probable. Accordingly, estimated insurance recoveries of $94.0, determined on the same basis as the asbestos-related cost accrual, are recorded primarily in Other assets as of December 31, 1993. - 56 - (In millions of dollars, except share amounts) ------------------------------------------------------------------- Based upon the factors discussed in the two preceding paragraphs, management currently believes that there is no more than a remote possibility (under generally accepted accounting principles) that the Company's asbestos-related costs net of related insurance recoveries exceed those accrued as of December 31, 1993, and, accordingly, that the resolution of such uncertainties and the incurrence of such net costs should not have a material adverse effect upon the Company's consolidated financial position or results of operations. Other Contingencies The Company is involved in various other claims, lawsuits, and other proceedings relating to a wide variety of matters. While uncertainties are inherent in the ultimate outcome of such matters and it is 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 upon the Company's consolidated financial position or results of operations. 11. Segment and Geographical Area Information Sales and transfers among geographic areas are made on a basis intended to reflect the market value of products. The aggregate foreign currency gain included in determining net income was $4.9, $12.0, and $1.2 for the years ended December 31, 1993, 1992, and 1991, respectively. There were no sales of more than 10% of total revenue to a single customer for the year ended December 31, 1993. Sales to a single customer were $135.3 and $155.9 of bauxite and alumina and $144.9 and $160.9 of aluminum processing for the years ended December 31, 1992, and 1991, respectively. Export sales were less than 10% of total revenue during the years ended December 31, 1993, 1992, and 1991. - 57 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ------------------------------------------------------------------ (In millions of dollars, except share amounts) ------------------------------------------------------------------- Financial information by industry segment at December 31, 1993 and 1992, and for the years ended December 31, 1993, 1992, and 1991, is as follows:
Year Ended Bauxite & Aluminum December 31, Alumina Processing Corporate Total ---------------------------------------------------------------------------------------------------------- Net sales to unaffiliated customers 1993 $ 423.4 $1,295.7 $1,719.1 1992 466.5 1,442.6 1,909.1 1991 550.8 1,450.0 2,000.8 Intersegment sales 1993 $ 129.4 $ 129.4 1992 179.9 179.9 1991 194.6 194.6 Equity in earnings (losses) of 1993 $ (2.5) $ (.8) $ (3.3) unconsolidated affiliates 1992 1.8 (3.7) (1.9) 1991 (4.4) (15.1) (19.5) Operating income (loss) 1993 $ (4.5) $ (46.3) $ (72.6) $ (123.4) 1992 62.6 104.9 (77.6) 89.9 1991 150.0 150.2 (84.2) 216.0 Effect of changes in accounting principles on operating income (loss) SFAS 106 1993 $ (2.0) $ (16.1) $ (1.1) $ (19.2) SFAS 109 1993 (7.7) (7.8) .3 (15.2) Depreciation 1993 $ 35.3 $ 59.9 $ 1.9 $ 97.1 1992 29.8 49.0 1.5 80.3 1991 26.4 46.0 .8 73.2 Capital expenditures 1993 $ 35.3 $ 31.2 $ 1.2 $ 67.7 1992 50.8 39.4 24.2 114.4 1991 51.1 64.8 2.2 118.1 Investment in and advances to 1993 $ 151.5 $ 30.7 $ 1.0 $ 183.2 unconsolidated affiliates 1992 136.2 12.5 1.4 150.1 Identifiable assets 1993 $ 734.0 $1,214.9 $ 579.0 $2,527.9 1992 715.7 1,165.9 291.0 2,172.6
- 58 - (In millions of dollars, except share amounts) ------------------------------------------------------------------- Geographical area information relative to operations is summarized as follows:
Year Ended Other December 31, Domestic Caribbean Africa Foreign Eliminations Total ----------------------------------------------------------------------------------------------------------------------- Net sales to unaffiliated customers 1993 $1,230.5 $ 96.5 $207.5 $184.6 $1,719.1 1992 1,359.6 92.9 263.5 193.1 1,909.1 1991 1,383.8 149.6 269.2 198.2 2,000.8 Sales and transfers among 1993 $ 92.3 $ 79.6 $(171.9) geographic areas 1992 111.8 93.5 (205.3) 1991 116.4 112.3 (228.7) Equity in losses of 1993 $ (3.3) $ (3.3) unconsolidated affiliates 1992 (1.9) (1.9) 1991 (19.5) (19.5) Operating income (loss) 1993 $ (159.8) $ (2.0) $ 34.1 $ 4.3 $ (123.4) 1992 (25.3) 18.4 78.8 18.0 89.9 1991 59.7 47.8 72.1 36.4 216.0 Investment in and advances to 1993 $ 1.0 $ 30.5 $151.7 $ 183.2 unconsolidated affiliates 1992 1.4 29.5 119.2 150.1 Identifiable assets 1993 $1,758.0 $360.4 $223.0 $186.5 $2,527.9 1992 1,374.9 358.3 227.5 211.9 2,172.6
- 59 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES FIVE-YEAR FINANCIAL DATA CONSOLIDATED BALANCE SHEETS -----------------------------------------------------------------------
December 31, ---------------------------------------------------- (In millions of dollars) 1993 1992 1991 1990 1989 --------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 14.7 $ 19.1 $ 15.8 $ 23.9 $ 95.1 Receivables 234.7 270.0 218.8 227.5 262.9 Inventories 426.9 439.9 498.6 523.9 511.1 Prepaid expenses and other current assets 60.7 37.0 84.0 36.1 6.6 Assets held for sale 51.1 -------- -------- -------- -------- -------- Total current assets 737.0 766.0 817.2 811.4 926.8 Investments in and advances to unconsolidated affiliates 183.2 150.1 161.9 184.5 187.8 Property, plant, and equipment -- net 1,163.7 1,066.8 1,014.5 970.3 936.0 Deferred income taxes 210.8 Other assets 233.2 189.7 140.5 152.3 80.3 -------- -------- -------- -------- -------- Total $2,527.9 $2,172.6 $2,134.1 $2,118.5 $2,130.9 ======== ======== ======== ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accruals $ 339.7 $ 351.4 $ 461.6 $ 432.1 $ 526.9 Accrued postretirement benefit obligation -- current portion 47.6 Payable to affiliates 62.4 78.4 87.1 82.4 60.7 Long-term debt -- current portion 8.7 25.9 26.3 32.5 139.0 -------- -------- -------- -------- -------- Total current liabilities 458.4 455.7 575.0 547.0 726.6 Long-term liabilities 501.8 281.7 212.9 310.8 321.1 Accrued postretirement benefit obligation 713.1 Long-term debt 720.2 765.1 681.5 631.5 655.8 Note payable to parent 150.0 Minority interests 105.0 104.9 108.9 123.2 135.1 Stockholders' Equity: Preferred stock .2 Common stock .6 .6 .6 .5 Additional capital 425.9 288.5 287.9 140.9 141.4 Retained earnings (accumulated deficit) (375.7) 282.8 267.3 214.6 150.9 Additional minimum pension liability (21.6) (6.7) -------- -------- -------- -------- -------- Total stockholders' equity 29.4 565.2 555.8 356.0 292.3 -------- -------- -------- -------- -------- Total $2,527.9 $2,172.6 $2,134.1 $2,118.5 $2,130.9 ======== ======== ======== ======== ======= Debt-to-capital ratio(1) 81.3 54.1 51.5 51.1(2) 64.9
(1) Total debt as a ratio of total debt, deferred income taxes, minority interests, and stockholders' equity. (2) Excludes the effect of a $150.0 dividend paid in the form of an intercompany promissory note to parent. - 60 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES FIVE-YEAR FINANCIAL DATA STATEMENTS OF CONSOLIDATED INCOME (LOSS) -----------------------------------------------------------------------
Year Ended December 31, ---------------------------------------------------- (In millions of dollars, except share amounts) 1993 1992 1991 1990 1989 ----------------------------------------------------------------------------------------------------- Net sales $1,719.1 $1,909.1 $2,000.8 $2,095.0 $2,192.7 -------- -------- -------- -------- -------- Costs and expenses: Cost of products sold 1,587.7 1,619.3 1,594.2 1,525.2 1,545.6 Depreciation 97.1 80.3 73.2 70.5 62.3 Selling, administrative, research and development, and general 121.9 119.6 117.4 123.2 119.7 Restructuring of operations 35.8 --------- -------- -------- -------- -------- Total costs and expenses 1,842.5 1,819.2 1,784.8 1,718.9 1,727.6 --------- -------- -------- -------- -------- Operating income (loss) (123.4) 89.9 216.0 376.1 465.1 Other income (expense): Interest and other income -- net (.9) 20.9 20.3 17.6 53.4 Interest expense (84.2) (78.7) (93.9) (96.6) (207.0) -------- -------- -------- -------- -------- Income (loss) before income taxes, minority interests, extraordinary loss and cumulative effect of changes in accounting principles (208.5) 32.1 142.4 297.1 311.5 Credit (provision) for income taxes 86.9 (5.3) (32.4) (75.6) (100.1) Minority interests (1.5) .1 (1.6) (7.8) (9.3) -------- -------- -------- -------- -------- Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles (123.1) 26.9 108.4 213.7 202.1 Extraordinary loss on early extinguishment of debt, net of tax benefit of $11.2 (21.8) Cumulative effect of changes in accounting principles, net of tax benefit of $237.7 (507.3) -------- -------- -------- -------- -------- Net income (loss) $ (652.2) $ 26.9 $ 108.4 $ 213.7 $ 202.1 ======== ======== ======== ======== ======== Per common share: Net income (loss) $ (11.47) $ .47 $ 2.03 $ 4.27 $ 4.04 Dividends declared .20 1.10 3.00 - 61 - KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES QUARTERLY FINANCIAL DATA (UNAUDITED) ------------------------------------------------------------------------------------------------------
Quarter Ended ------------------------------------------------------ (In millions of dollars, except share amounts) March 31 June 30 September 30 December 31 ------------------------------------------------------------------------------------------------------- 1993 Net sales $442.6 $432.2 $428.4 $415.9 Operating loss 9.7 14.2 17.5 82.0(1) Net loss 545.7(2) 19.4 21.0 66.1(3) Per common share: Net loss 9.52 .34 .42 1.20 Market price: High 9-7/8 8 8-5/8 10-1/2 Low 7-3/8 6-3/8 6-5/8 6-7/8 Close 7-1/2 7-7/8 7-7/8 9 1992 Net sales $463.7 $490.9 $458.5 $496.0 Operating income 29.5 29.6 26.6 4.2(4) Net income 8.4 12.0 3.9 2.6(5) Per common share: Net income .15 .21 .06 .05 Dividends declared .05 .05 .05 .05 Market price: High 14-3/4 14-1/4 11 9-1/2 Low 10-1/8 10-1/4 7-5/8 6-7/8 Close 13-3/4 10-7/8 7-7/8 8-5/8 (1) Includes pre-tax charges of approximately $35.8 related to the restructuring of operations and $19.4 because of a reduction in the carrying value of inventories. (2) Includes $507.3 after-tax charge for the cumulative effect of changes in accounting principles and $21.8 after-tax charge for extraordinary loss on early extinguishment of debt. (3) Includes a pre-tax charge of approximately $10.8 principally related to establishing of additional litigation and environmental reserves. (4) Includes a pre-tax charge of approximately $29.0 because of a reduction in the carrying value of inventories. (5) Includes approximately $14.0 of pre-tax income for non-recurring adjustments to previously recorded liabilities and reserves.
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