As filed with the Securities and Exchange Commission on March 31, 1999
Registration No. 333-72245
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
Amendment No. 1
to
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------
Form S-4
GOLDEN NORTHWEST ALUMINUM, INC.
(Exact name of registrant as specified in its charter)
Oregon 3334 93-1249606
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Form S-4
NORTHWEST ALUMINUM COMPANY
(Exact name of registrant as specified in its charter)
Oregon 3334 93-0905834
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Form S-4
NORTHWEST ALUMINUM SPECIALTIES, INC.
(Exact name of registrant as specified in its charter)
Oregon 3334 93-1019176
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
<PAGE>
Form S-4
NORTHWEST ALUMINUM TECHNOLOGIES, LLC
(Exact name of registrant as specified in its charter)
Washington 3334 93-1196863
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Form S-4
GOLDENDALE HOLDING COMPANY
(Exact name of registrant as specified in its charter)
-------------------
Delaware 3334 91-1785763
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Form S-4
GOLDENDALE ALUMINUM COMPANY
(Exact name of registrant as specified in its charter)
Delaware 3334 91-1380241
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
BRETT E. WILCOX
President
Golden Northwest Aluminum, Inc.
Northwest Aluminum Company
Northwest Aluminum Specialties, Inc.
Northwest Aluminum Technologies, LLC
Goldendale Holding Company
Goldendale Aluminum Company
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
<PAGE>
It is respectfully requested that the Commission send copies of all notices,
orders and communications to:
ROBERT J. MOORMAN
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
(503) 224-3380
-------------------
Approximate date of commencement of proposed sale to the public: As
promptly as practicable after this registration statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
-------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such a date as the Commission, acting pursuant to said
Section 8(a), may determine.
===============================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 31, 1999
PROSPECTUS
GOLDEN NORTHWEST ALUMINUM, INC.
Exchange Offer for
$150,000,000
12% First Mortgage Notes due 2006
Guaranteed by
Northwest Aluminum Company Goldendale Holding Company
Northwest Aluminum Specialties, Inc. Goldendale Aluminum Company
Northwest Aluminum Technologies, LLC
Key Terms of Exchange Offer
o Expires 5:00 p.m., New York City o Tenders of outstanding notes may be
time, _________, 1999, unless withdrawn any time before the
extended expiration of the exchange offer
o Not subject to any conditions o The exchange of notes will not
other than the exchange offer be a taxable exchange for United
does not violate law or any States federal income tax purposes
interpretation of the staff
of the Securities and Exchange o The terms of the notes to be issued
Commission are identical to the outstanding
notes, except for certain transfer
o All outstanding notes that are restrictions and registration rights
validly tendered and not validly of the outstanding notes
withdrawn will be exchanged
This investment involves risks. See the Risk Factors section beginning on page
13.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the notes to be distributed in the exchange offer, nor
have any of these organizations determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
_____________________, 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Summary ....................................................... 3
Risk Factors ............................................................. 13
The Exchange Offer ....................................................... 26
Description of Notes ..................................................... 36
Selected Consolidated Financial Data ..................................... 86
Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 88
Business ................................................................. 102
Management ............................................................... 117
Executive Compensation ................................................... 120
Certain Transactions ..................................................... 122
Description of Other Indebtedness and Goldendale Preferred Stock ......... 124
Description of Capital Stock ............................................. 127
Material United States Federal Income Tax Consequences ................... 128
Plan of Distribution ..................................................... 129
Legal Matters ............................................................ 129
Experts .................................................................. 129
Change of Accountants .................................................... 130
Additional Information ................................................... 130
Index to Financial Statements ............................................ F-1
We have also included a table of contents in the "Description of Notes"
section because of that section's length. That table of contents can be found on
page 36.
2
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary contains basic information about this exchange offer.
It may not contain all the information that is important to you. For a more
complete understanding of the exchange offer, we encourage you to read this
entire document.
The Exchange Offer
On December 21, 1998, we completed a private offering of 12% First Mortgage
Notes due 2006. The notes were sold for a total purchase price of $150,000,000.
The notes are
o secured by a first priority security interest in substantially all of
our and our subsidiaries' real property, plant, equipment and other
assets and a pledge of all of the capital stock of our subsidiaries,
and
o guaranteed by our subsidiaries Northwest Aluminum Company, Northwest
Aluminum Specialties, Inc., Northwest Aluminum Technologies, LLC,
Goldendale Holding Company and Goldendale Aluminum Company.
We entered into a registration rights agreement with the initial purchasers
in the private offering in which we agreed to deliver to you this prospectus and
to complete the exchange offer by May 20, 1999. This exchange offer entitles you
to exchange your notes for notes with identical terms that are registered with
the Securities and Exchange Commission. If the exchange offer is not completed
by May 20, 1999, the interest rate on the notes will be increased to 12.25% per
year. You should read the discussion under the heading "The Exchange Offer"
beginning on page 26 and "Description of Notes" beginning on page for further
information about the registered notes.
We believe the notes issued in the exchange offer may be resold by you
without compliance with the registration and prospectus delivery requirements of
the Securities Act of 1933, subject to certain conditions. You should read the
discussion under the heading "The Exchange Offer" beginning on page 26 for
further information regarding the exchange offer and resale of notes.
Registration Rights Agreement You are entitled to exchange your notes for
registered notes with substantially identical
terms. The exchange offer is intended to
satisfy these rights. After the exchange
offer is complete, you will no longer be
entitled to any exchange or registration
rights for your notes.
3
<PAGE>
The Exchange Offer We are offering to exchange $1,000 principal
amount of 12% First Mortgage Notes due 2006
of Golden Northwest Aluminum, Inc. that have
been registered under the Securities Act of
1933 for each $1,000 principal amount of its
outstanding 12% First Mortgage Notes due 2006
which were issued in December 1998 in a
private offering. In order to be exchanged,
an outstanding note must be properly tendered
and accepted. All outstanding notes that are
validly tendered and not validly withdrawn
will be exchanged for registered notes.
There are $150 million principal amount of
notes outstanding.
We will issue registered notes promptly after
the expiration of the exchange offer.
Resales We believe the notes issued in the exchange
offer may be offered for resale, resold and
otherwise transferred by you without
compliance with the registration and
prospectus delivery provisions of the
Securities Act of 1933 provided that
o the notes received in the exchange offer
are acquired in the ordinary course of
your business
o you are not participating, do not intend
to participate, and have no arrangement
or understanding with any person to
participate in the distribution of the
notes issued to you in the exchange
offer, and
o you are not an affiliate of ours.
4
<PAGE>
Each broker-dealer issued notes in the
exchange offer for its own account in
exchange for notes acquired by the
broker-dealer as a result of market-making or
other trading activities must acknowledge
that it will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in
connection with any resale of the notes
issued in the exchange offer. A broker-dealer
may use this prospectus for an offer to
resell, resale or other retransfer of the
notes issued to it in the exchange offer.
Expiration Date The exchange offer will expire at 5:00 p.m.,
New York City time, _____________, 1999,
unless we decide to extend the expiration
date. If we extend the exchange offer, the
longest we could keep the offer open would be
until _______, 1999, which is 90 days after
the exchange offer is first made.
Conditions to the
Exchange Offer The exchange offer is not subject to any
condition other than the exchange offer does
not violate law or any interpretation of the
staff of the Securities and Exchange
Commission.
Procedures for Tendering
Outstanding Notes
Held in the Form of
Book-Entry Interests The outstanding notes were issued as global
securities in bearer form without interest
coupons. The outstanding notes were deposited
with U.S. Trust Company, National Association
when they were issued. U.S. Trust Company
issued a certificateless depositary interest
in each note, which represents a 100%
interest in the note, to The Depository Trust
Company. Beneficial interests in the notes,
which are held by participants in DTC through
the without certificates or interests that
are represented only on records and not by
certificates, which we will refer to as notes
held in book-entry form, are shown on, and
transfers of the notes can be made only
through, records maintained in book-entry
form by DTC and its participants.
5
<PAGE>
If you are a holder of a note held in the
form of a book-entry interest and you wish to
tender your book-entry interest for exchange
in the exchange offer, you must transmit to
U.S. Trust Company, as exchange agent, before
the expiration date of the exchange offer:
either
o a properly completed and executed letter
of transmittal, which accompanies this
prospectus, or a facsimile of the letter
of transmittal, including all other
documents required by the letter of
transmittal, to the exchange agent at
the address on the cover page of the
letter of transmittal;
or
o a computer-generated message transmitted
by means of DTC's Automated Tender Offer
Program system and received by the
exchange agent and forming a part of a
confirmation of book entry transfer in
which you acknowledge and agree to be
bound by the terms of the letter of
transmittal;
and, either
o a timely confirmation of book-entry
transfer of your outstanding notes into
the exchange agent's account at DTC,
according to the procedure for
book-entry transfers described in this
prospectus under the heading "The
Exchange Offer -- Book-Entry Transfer"
beginning on page 31, must be received
by the exchange agent on or prior to the
expiration date;
or
o the documents necessary for compliance
with the guaranteed delivery procedures
described below.
6
<PAGE>
Procedures for Tendering
Certificated Notes If you are a holder of a beneficial interest
in the outstanding notes, you are entitled to
receive, in exchange for your beneficial
interest, certificated notes which are in
equal principal amounts to your beneficial
interest. As of this date, however, no
certificated notes were issued and
outstanding. If you acquire certificated
notes before the expiration date of the
exchange offer, you must tender your
registered notes under the procedures
described in this prospectus under the
heading "The Exchange Offer-- Procedures for
Tendering Notes" beginning on page 28.
Special Procedures for
Beneficial Owners If you are the owner of a beneficial interest
and your name does not appear on a security
position listing of DTC as the holder of that
interest or if you are a beneficial owner of
certificated notes that are registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee and you wish
to tender that interest or certificated notes
in the exchange offer, you should contact the
person in whose name your interest or
certificated notes are registered promptly
and instruct such person to tender on your
behalf.
Guaranteed Delivery
Procedures If you wish to tender your notes and time
will not permit your required documents to
reach the exchange agent by the expiration
date of the exchange offer, or the procedure
for book-entry transfer cannot be completed
on time or certificates for registered notes
cannot be delivered on time, you may tender
your notes according to the procedures
described in this prospectus under the
heading "The Exchange Offer-- Guaranteed
Delivery Procedures" beginning on page 32.
Withdrawal Rights You may withdraw the tender of your notes
at any time before 5:00 p.m. New York City
time on ___________, 1999.
7
<PAGE>
U.S. Federal Income Tax
Consequences The exchange of notes will not be a taxable
exchange for U.S. federal income tax
purposes. You will not recognize any taxable
gain or loss or any interest income as a
result of the exchange.
Exchange Agent U.S. Trust Company, National Association is
serving as exchange agent for the exchange
offer.
Summary of the Terms of the Exchange Notes
The form and terms of the notes to be issued in the exchange offer are the
same as the form and terms of outstanding notes except that the notes to be
issued in the exchange offer will be registered under the Securities Act of 1933
and, accordingly, will not bear legends restricting their transfer. The notes
issued in the exchange offer will evidence the same debt as the outstanding
notes, and both the outstanding notes and the notes to be issued are governed by
the same indenture.
Total Amount $150,000,000 total principal amount of 12%
First Mortgage Notes due 2006 of Golden
Northwest Aluminum, Inc.
Maturity December 15, 2006.
Interest Annual rate - 12% Payment frequency - every
six months on June 15 and December 15 First
payment - June 15, 1999.
Optional Redemption On or after December 15, 2002 we may redeem
some or all of the notes at any time at the
redemption prices listed in the section
"Description of Notes" under the heading
"Optional Redemption."
8
<PAGE>
Assets Pledged to Secure Notes To secure these notes, we
(1) granted a first priority security
interest in substantially all of our
subsidiaries' real property, plant and
equipment and some other assets,
excluding, among other things, the
tolling agreements with Hydro and
Glencore and our subsidiaries'
inventory, accounts receivable and other
rights to payment and related
intangibles and
(2) pledged all of the stock we own in our
direct and indirect subsidiaries.
We granted the same security to Hydro under
our note purchase agreement with Hydro. The
interest in assets and stock securing the
notes is senior to the interest in assets and
stock securing the Hydro notes. See
"Description of Notes -- Security" beginning
on page 39.
Subsidiary Guarantors Each of our direct or indirect wholly owned
subsidiaries has jointly and severally
guaranteed the notes. The guarantees are full
and unconditional. If we cannot make payments
on the notes when they are due, the guarantor
subsidiaries must make them.
Ranking These notes and the subsidiary guarantees are
referred to as senior debts because they are
not, by their terms, ranked behind any of our
other indebtedness in right of payment. In
other words, they are not subordinated to any
of our other indebtedness. They rank ahead of
all our current and future indebtedness and
the current and future indebtedness of our
subsidiaries if the indebtedness is expressly
subordinated to the notes.
9
<PAGE>
These notes and the subsidiary guarantees:
o rank equally with other senior debt
o rank ahead of all of the subordinated
debt with Hydro and
o rank below indebtedness to the extent of
any collateral securing it.
Mandatory Sinking Fund
or Redemption Generally, we are not required to redeem the
notes or make payments from a fund whose
assets and their earnings are earmarked to
repay the notes.
Change of Control If our ownership structure materially
changes, we must offer to buy any or all the
notes you wish to sell. We must pay you 101%
of the total principal amount of the notes,
plus accrued and unpaid interest, on the date
we buy the notes.
Basic Covenants of the Indenture We will issue the exchange notes under our
indenture with U.S. Trust Company, National
Association. Among other things, the
indenture restricts our ability and the
ability of our subsidiaries to:
o make some payments and investments
o become liable for additional
indebtedness
o create liens o agree to payment
restrictions affecting subsidiaries
o engage in mergers and asset sales
o conduct our business
o engage in transactions with our
affiliates and some subsidiaries and
o make issuances and sales of capital
stock of our wholly owned subsidiaries.
10
<PAGE>
For more information, see "Description of
Notes --Material Covenants" beginning on page
43.
Where You Can Reach Us
Our mailing address is 3313 West Second Street, The Dalles, Oregon 97058.
Our telephone number is (541) 296-6161.
The New Credit Facility
In addition to offering the notes, our subsidiaries repaid and terminated
their prior credit facility with BankBoston, N.A. and entered into a new credit
agreement with BankBoston and others. Under the new agreement, our subsidiaries
may borrow up to $75 million on a revolving basis. The obligations under the new
credit agreement are secured by inventory, accounts receivable and other rights
to payment and related intangibles of the subsidiaries. For more information
about this revolving credit facility, see"Management's Discussion and Analysis
of Financial Condition and Results of Operation -- Liquidity and Capital
Resources" on page 94 and "Description of Other Indebtedness and Goldendale
Preferred Stock" on page .
Risk Factors
You should carefully consider the information under the caption "Risk
Factors" beginning on page and all other information in this document before
tendering your notes in the exchange offer.
11
<PAGE>
Summary Consolidated Historical Financial Information
The summary consolidated historical financial information below was derived
from the Consolidated Financial Statements beginning on page F-1. This summary
should be read together with these sections and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 94.
Our summary consolidated historical financial information includes the accounts
of Northwest Aluminum Company and Northwest Aluminum Specialties, Inc., both of
which report on a September 30 fiscal year, and Northwest Aluminum Technologies,
LLC, which reports on a calendar year, for all periods presented. They also
include the accounts of Goldendale Holding Company and Goldendale Aluminum
Company, which report on a calendar year, from May 22, 1996, the date it was
acquired by our sole shareholder.
<TABLE>
<CAPTION>
Year Ended
----------
December 31, December 31, December 31,
1996 1997 1998
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues $ 373,038 $ 497,872 $ 470,850
Cost of revenues 329,739 438,299 443,251
General and administrative expenses 9,746 15,327 15,600
Depreciation and amortization 13,584 19,069 20,371
Operating income 33,553 44,246 11,999
Net income (loss) 18,905 18,495 (4,853)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
Consolidated Balance Sheet Data: -----------------
<S> <C>
Cash and cash equivalents $ 37,633
Working capital 78,392
Total assets 366,128
Total debt 170,000
Goldendale Holding Company Preferred Stock 29,663
Total shareholder's equity 77,516
</TABLE>
12
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making the
decision whether to exchange the notes.
Substantial Leverage -- Our substantial indebtedness could adversely affect our
financial health and prevent us from fulfilling our obligations under the notes.
We have a significant amount of debt. The following tables show certain
important credit statistics:
December 31, 1998
-----------------
Total liabilities ........................ $258,949,000
Shareholders' equity ..................... $77,516,000
Debt to equity ratio...................... 3.34x
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1998
----------------- -----------------
<S> <C> <C>
Ratio of earnings to fixed
charges ................ 2.1x 0.8x
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example, it could or will
o make it more difficult for us to satisfy our obligations under
these notes
o increase our vulnerability to general adverse economic and
industry conditions
o limit our ability to fund future working capital, capital
expenditures, research and development and other general
corporate requirements
o require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby reducing
our cash flow available to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes
o limit our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate
o place us at a competitive disadvantage compared to our
competitors that have less debt
13
<PAGE>
o with the financial and other restrictive covenants in our
indebtedness, among other things, limit our ability to borrow
additional funds. Failing to comply with those covenants could
result in an event of default which, if not cured or waived,
could have a material adverse effect on us.
See "Description of Other Indebtedness and Goldendale Preferred Stock --
Revolving Credit Facility," "Description of Other Indebtedness and Goldendale
Preferred Stock -- Hydro Subordinated Debt" and "Description of Notes -- Offer
to Purchase the Notes."
Additional Borrowings Available -- Despite current indebtedness levels, we and
our subsidiaries may still be able to borrow more money. This could further
exacerbate the risks described above.
We and our subsidiaries may be able to take on substantial additional
indebtedness in the future. The indenture does not prohibit us or our
subsidiaries from doing so. Our credit facility permits total borrowings up to
$75 million, and those borrowings would rank equally with the notes and the
subsidiary guarantees. Our subordinated note purchase agreement with Hydro also
allows us to borrow up to an additional $10 million in some circumstances. This
debt would be subordinate to the notes and the subsidiary guarantees. The
indenture also permits us and our subsidiaries to take on other debt. If
aluminum prices remain at the February 28, 1998 level of $0.54 per pound, we
anticipate borrowing approximately $30 million under our revolving credit
facility and no additional funds from Hydro in 1999. If aluminum prices increase
substantially, we anticipate borrowing approximately $10 million under the
revolver and $10 million from Hydro in 1999. If new debt is added to our and our
subsidiaries' current debt levels, the related risks that we and they now face
could intensify.
See "Selected Consolidated Financial Data," "Description of Other
Indebtedness and Goldendale Preferred Stock -- Revolving Credit Facility,"
"Description of Other Indebtedness and Goldendale Preferred Stock -- Hydro
Subordinated Debt" and "Description of Notes -- Offer to Purchase the Notes."
Ability to Service Debt -- To service our indebtedness, we will require a
significant amount of cash. Our ability to generate cash depends on many factors
beyond our control.
Our ability to make payments on or to refinance our indebtedness, including
these notes, and to fund planned capital expenditures and research and
development efforts, will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
14
<PAGE>
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under our credit facility will be adequate to meet our
future liquidity needs for at least the next few years. We do not assure you,
however, that our business will generate sufficient cash flow from operations,
that anticipated cost savings and operating improvements will be realized on
schedule or that future borrowings will be available to us under our credit
facility in an amount sufficient to enable us to pay our indebtedness, including
these notes, or to fund our other liquidity needs. We may need to refinance all
or a portion of our indebtedness, including these notes on or before maturity.
We do not assure you we will be able to refinance any of our indebtedness,
including our credit facility and these notes, on commercially reasonable terms
or at all.
Sensitivity to Prices -- Our revenues and earnings are heavily affected by the
price of primary aluminum.
Low prices for primary aluminum could adversely affect our revenues and
earnings. One of our primary sources of revenue, tolling fees on primary
aluminum products is tied to the price of aluminum on the London Metals
Exchange. Decreases in the LME price have a substantial adverse effect on our
revenues and earnings because we are unable to expand our volume of production
and the costs of our smelter operations are largely fixed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Operations."
Primary aluminum prices historically have been subject to significant
cyclical price fluctuations. We believe the timing of changes in the market
price of aluminum largely are unpredictable. Price fluctuations are affected by
numerous factors beyond our control, including
o the overall demand for, and worldwide supply of, primary aluminum
o the availability and price of competing commodities
o international economic trends
o currency exchange rate fluctuations
o expectations of inflation
o actions of commodity market participants
o consumption and demand patterns and
o political events in major producing countries.
Over the ten year period between January 1, 1988 and December 31, 1997, the
three-month LME price of aluminum has ranged between a low of approximately
$0.47 per pound to a high of approximately $1.26 per pound. During this period
prices averaged $0.73 per pound. From January 1, 1998 through December 31, 1998,
the three-month LME price of aluminum averaged $0.63 per pound. At February 28,
1999, the LME price for primary aluminum was $0.54 per pound.
15
<PAGE>
As a result of the decline in the price for primary aluminum, our 1998 revenue
was lower than it was in 1997 and we reported a loss in 1998 as compared to
income in 1997 and we do not assure you revenue or income will return to
historic levels. In addition, because fluctuations in the price for aluminum are
largely unpredictable, we do not assure you future fluctuations or declines will
not be severe or prolonged.
Holding Company Structure -- We are a holding company. As a result, we are
dependent on our operating subsidiaries for the cash flow needed to repay the
notes.
Our company does not conduct any of its own operations, but rather serves
as a holding company for our operating subsidiaries. As a result, we are
dependent on distributions of the earnings of our subsidiaries through
dividends, advances or payments on account of intercompany obligations to pay
our debts, including the notes. Moreover, in the future, some new or existing
subsidiaries may not be required to repay the notes or make funds available to
us so that we may do so. In addition, a subsidiary's ability to make
distributions to us is subject to state laws and contractual or other
restrictions. Distributions also depend on results of operations of the
subsidiaries and are subject to various business considerations. See
"Description of Other Indebtedness and Goldendale Preferred Stock."
We have been a holding company only since December 1998. Our subsidiaries,
although under common ownership since May 1996, generally have operated as
independent businesses with separate boards of directors, executive management,
operations, financing, financial reporting and employees. Our subsidiaries may
continue to operate relatively autonomously for a period of time as we evaluate
and develop appropriate practices and procedures for our consolidated company.
As a result, we can provide you with only limited operating information about
our company as a combined organization. We may experience difficulties in the
implementation of a holding company structure and commencement of operations on
a consolidated basis, including
o staffing and allocation of management resources
o integration of operating and financial functions, systems and
reporting and
o establishment of consolidated practices and procedures.
Effective Subordination -- Our obligation to repay you is subordinate to other
lenders' rights to any collateral securing the lenders' loans to us. Proceeds
from the sale of the collateral will be used to pay those lenders before they
are used to repay you.
Although the notes are equal or senior in rank to all of our indebtedness,
a lender's right to any collateral securing its loan ranks ahead of our
obligation to repay you on the notes. The subsidiaries' guarantees are also
effectively subordinated to a lender's right to collateral. Our credit agreement
with BankBoston is secured by our subsidiaries' accounts receivable, inventory
and some related intangibles. As a result, BankBoston will be entitled to any
proceeds of these assets up to the amount of money owed to it before any of
those proceeds can be used to repay you. At December 31, 1998, the notes were
not effectively
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subordinate to any secured indebtedness. The indenture permits us and our
subsidiaries to place liens on some of our assets. These liens may, for example,
secure purchase money indebtedness. The notes and the guarantees will be
effectively subordinated to this purchase money indebtedness and other
obligations secured by these liens. See "Description of Notes -- Ranking of
Notes and Guarantees."
Restrictions Imposed by the Terms of Our Indebtedness -- The terms of our
indebtedness place several restrictions on our ability to operate our business
that could result in our inability to repay the notes.
The indenture contains restrictions on how we operate our business. These
restrictions limit, among other things, our ability and the ability of our
subsidiaries to
o take on additional indebtedness
o pay dividends
o make certain other restricted payments
o create liens
o issue or sell stock of some of our subsidiaries
o apply net proceeds from certain asset sales
o merge with another person
o sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of our assets or o enter into transactions with
affiliates.
Our other loan agreements, including our credit agreement with BankBoston, now
contain and will contain in the future similar restrictive covenants and will
require us to satisfy certain financial condition tests. Our ability to meet
these financial tests could be affected by events beyond our control, and we do
not assure you we will meet those tests.
If we fail to comply with a restrictive covenant or a financial test, that
failure could result in an event of default. On the occurrence of an event of
default, the lenders could declare all amounts outstanding to be immediately due
and payable. They also could proceed against the collateral granted to them to
secure that indebtedness. An event of default under other indebtedness may
constitute an event of default under the indenture. If any of our other
indebtedness becomes immediately due and payable, our assets may not be
sufficient to repay all of our indebtedness, including the notes.
Restrictive covenants and financial tests limit our operating and financial
flexibility. As a result, our ability to respond to changing business and
economic conditions and to secure additional financing, if needed, may be
significantly restricted, and we may be prevented from engaging in transactions
that might otherwise be considered beneficial to us. See "Description of Notes
-- Material Covenants."
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Other Secured Creditors -- The collateral securing our indebtedness to
BankBoston will not be available to you until that indebtedness has been repaid.
The indenture permits us to borrow up to $90.0 million from other lenders.
Relying on this provision, we entered into a credit agreement with BankBoston,
NA that allows us to borrow up to $75.0 million on a revolving basis. These
borrowings are secured by our and our subsidiaries' accounts receivable,
inventory and related intangibles. Accordingly, these items will not be
available to you if we become the subject of bankruptcy or if we settle the
affairs of the Company by selling and distributing the assets or proceeds from
the assets until the money we owe to BankBoston is paid in full. We could owe
BankBoston up to $75.0 million plus interest and expenses. Our accounts
receivable represented $47.3 million, and our inventory represented $55.1
million, each on December 31, 1998, and are among our most liquid assets.
Limitations on the Collateral and the Guarantees -- The value of the collateral
securing the debt under the notes is limited and may be insufficient to repay
the notes if we are in bankruptcy.
The pledge of the stock of our subsidiaries and the pledge of the real
property, plant and equipment of our subsidiaries provide only limited security
for the notes, in part because most of these assets are illiquid. Our
subsidiaries' inventory, accounts receivable and related intangibles, including
tolling agreements, are pledged to secure our obligations under our credit
agreement with BankBoston. Any contracts, agreements, licenses and other
instruments related to the real property collateral that by their express terms
prohibit their assignment or the granting of a security interest in them are
excluded from the collateral securing the notes.
The collateral securing the notes was not appraised when the notes were
offered. Accounting for depreciation, the combined book value on December 31,
1998 of our property, plant and equipment serving as collateral for the notes
was approximately $117.5 million. Depending on market and economic conditions
and the availability of buyers, the sale value of the collateral may be
substantially different from its book value. Its value could also be affected if
agreements and licenses necessary to operate our property, plant and equipment
are not in place after bankruptcy. Some of these agreements and licenses are not
pledged to secure the notes or guarantees of the subsidiaries and may be not
included in the collateral for the notes. Accordingly, if we default on the
notes, we do not assure you the indenture trustee would receive enough money
from the sale of the collateral to repay you. Once the collateral has been sold,
your claims against our remaining assets to repay any amounts still outstanding
under the notes would be unsecured and would be subject to state fraudulent
conveyance laws. See "-- Fraudulent Conveyance Matters," "-- Holding Company
Structure" and "-- Effective Subordination."
At least some of the collateral is illiquid and its market value may not be
easy to ascertain. The collateral may not be saleable. Even if it is saleable,
substantial delays could
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be encountered in its liquidation. Moreover, some of the collateral may have
liens or rights and easements granted to other parties attached to it, and these
parties could exercise rights and remedies against those assets. These actions
could adversely affect the value of the collateral and the ability of the
trustee to foreclose on it.
The indenture may permit us to release collateral without the substituting
other collateral in its place. See "Description of Notes -- Security."
If a bankruptcy case is commenced by or against us before the indenture
trustee has repossessed and disposed of the collateral, the right to
repossession and disposal on a default by us could be significantly impaired. In
the case of real property collateral, state law restrictions also could
significantly impair the trustee's rights. See "-- Material Limitations under
State Law" and "-- Material Bankruptcy Limitations."
The indenture trustee, on your behalf, has entered into an intercreditor
agreement with BankBoston. Among other things, the agreement allows BankBoston
to enter any of our facilities to collect accounts receivable and to remove,
sell or dispose of inventory after the trustee has obtained possession and
control of our facilities that serve as collateral for the notes. BankBoston
also may store its collateral on our premises. BankBoston's right to enter the
premises and use the collateral could delay the liquidation of the collateral.
Material Limitations under State Law -- Oregon and Washington state laws may
limit your ability to pursue our company for unpaid amounts under the notes and
to make the notes immediately due and payable.
Under Oregon and Washington law, a creditor holding a trust deed on real
property, like the mortgage on our real property and improvements securing the
notes, may enforce the lien through a judicial foreclosure or a non-judicial
sale. If the creditor proceeds by nonjudicial sale, the creditor may not enforce
any unpaid portion of the indebtedness as a personal liability of the debtor.
The creditor would, however, be entitled to proceed against any other collateral
pledged as security for the debt. Additionally, a guarantor is not liable for a
deficiency judgment in Oregon and may limit its liability for a deficiency
judgment in Washington to the difference between the outstanding debt and the
value of the property sold by the trustee. Accordingly, if the trustee elects to
proceed by non-judicial sale of our real property collateral located in Oregon
or Washington, the law of those states could preclude recourse by you or the
trustee against us and may limit or eliminate your recourse against our
guarantor subsidiaries.
With some exceptions, we are generally prohibited under the indenture from
creating liens on (1) the collateral or (2) any other property unless the notes
are also secured by the liens. The indenture also provides that you or the
trustee can declare the notes immediately due and payable if the prohibition
against creating liens is breached and the breach is not remedied within 30 days
after we are given written notice of it. Under some court cases, to do this, you
may need to demonstrate that enforcement is reasonably necessary to protect
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against impairment of your security or to protect against an increased risk of
default. Although these court decisions may have been at least partially
preempted by federal laws, the scope of this preemption is uncertain.
Accordingly, an Oregon or Washington court could prevent you or the trustee from
declaring a default and making the notes immediately due and payable because of
a breach of this covenant. Such a decision could have a material adverse effect
on your ability to enforce the covenant. See "Description of Notes -- Material
Covenants -- Limitations on Liens" and "Description of Notes -- Defaults and
Certain Rights on Default."
Material Bankruptcy Limitations -- The ability of the trustee to liquidate the
collateral could be impaired if a bankruptcy case is commenced by or against us.
If a bankruptcy case is commenced by or against us or our subsidiaries
before the trustee repossesses and disposes of the collateral, the trustee's
right to do so after we have defaulted on the repayment of the notes will likely
be significantly impaired. Under federal bankruptcy laws, a secured creditor
cannot repossess its security from a debtor in a bankruptcy case or dispose of
security repossessed from the debtor without the bankruptcy court's approval.
Moreover, as long as the secured creditor is given adequate protection, federal
bankruptcy laws permit the debtor to continue to retain and use collateral even
though the debtor is in default under the applicable debt instruments. The
meaning of the term "adequate protection" varies according to circumstances, but
it is intended to protect the value of the secured creditor's interest in the
collateral. If the value of the collateral is diminished by the creditor's
inability to repossess it or dispose of it or by its use by the debtor, adequate
protection may include cash payments or the granting of additional security, as
the court may determine in its discretion. Generally, adequate protection
payments are not required to be paid by a debtor to a secured creditor unless
the bankruptcy court determines that the value of the secured creditor's
interest in the collateral is declining during the pendency of the bankruptcy
case. Given the lack of a precise definition of the term "adequate protection"
and the broad discretionary powers of a bankruptcy court, we do not predict how
long payments under the notes or the guarantees could be delayed following
commencement of a bankruptcy case, nor can we predict whether or when the
trustee could repossess or dispose of the collateral or whether or to what
extent holders of the notes would be compensated for any delay in payment or
loss of value of the collateral through the requirement of adequate protection.
In a federal bankruptcy case, the court has the power to confirm a plan for
the reorganization of the debtor over the objection of creditors. Among other
things, such a plan may change the interest rate and payment terms on
obligations of the debtor. Thus, if we were involved in a bankruptcy case, a
bankruptcy court could approve a reorganization plan that modifies the interest
rate or payment terms on the notes.
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Fraudulent Conveyance Matters -- Federal and state statutes allow courts, under
specific circumstances, to void guarantees and require noteholders to return
payments received from guarantors.
Under federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee could be voided if, among other things, the
guarantor, at the time it took on the indebtedness evidenced by its guarantee
o received less than reasonably equivalent value or fair
consideration for the guarantee, and
o was insolvent or rendered insolvent because it made the
guarantee, or
o was engaged in a business or transaction for which the
guarantor's remaining assets constituted unreasonably small
capital, or
o intended to become liable for, or believed that it would become
liable for, debts beyond its ability to pay the debts as they
mature.
In addition, any payment by that guarantor under its guarantee could be voided
and required to be returned to the guarantor or to a fund for the benefit of the
creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending on the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if
o the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets, or
o the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
become absolute and mature, or it could not pay its debts as they
become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of these notes, will not be insolvent, will not have unreasonably
small capital for the business in which it is engaged and will not have become
liable for debts beyond its ability to pay the debts as they mature. We do not
assure you, however, as to what standard a court would apply in making these
determinations or that a court would agree with our conclusions in this regard.
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Risk to Secured Lenders under Environmental Laws -- Federal and state
environmental laws may decrease the value of the collateral securing the notes
and may result in you being liable for environmental clean-up costs at our
facilities.
Our facilities at Goldendale and The Dalles are classified in the same
manner as similar aluminum smelters and casthouses in the industry as generating
hazardous waste materials, and we have been required to undertake actions to
remediate environmental conditions at these facilities. The notes and guarantees
are secured by liens on real property that may be subject to known and
unforeseen environmental risks, and these risks may reduce or eliminate the
value of the real property as collateral for the notes. Moreover, under federal
environmental laws, a secured lender may be obligated to remediate or may be
liable for the costs of remediating releases or threatened releases of hazardous
substances at a mortgaged property. There may be similar risks under various
state laws and common law theories. The costs of environmental remediation are
often substantial. See "Business -- Environmental and Health Matters."
The state of the law is unclear as to whether and under what circumstances
the obligation to remediate or the liability for remediation costs can be
imposed on a secured lender. Under federal environmental laws, a lender may be
liable if the lender or its agents or employees have participated in the
management of the operations of the debtor, even though the environmental damage
or threat was caused by a third party, a prior owner, a current owner or an
operator other than the lender. A lender would be excluded from liability,
however, if it is a person "who without participating in the management of the
facility, holds indicia of ownership primarily to protect his security
interest." This secured creditor exemption protects a holder of a security
interest, but generally only to the extent the holder is acting to protect its
security interest in the facility or property. If a lender's activities begin to
encroach on the actual management of the facility or property, the lender faces
potential liability under federal environmental laws. Similarly, when a lender
forecloses and takes title to a contaminated facility or property, the lender
becomes liable in various circumstances, including when it
o holds the facility or property as an investment, including leasing the
facility or property to a third party
o fails to market the property in a timely fashion or
o fails to properly address environmental conditions at the property or
facility.
Under the laws of some states, failure to perform required remediation may
give rise to a lien on the property to ensure the reimbursement of the costs of
such remediation. This type of lien is commonly referred to as a superlien. All
subsequent liens on such property are subordinated to a superlien. In some
states, even previously recorded liens are subordinated to a superlien. In these
states, the security interest of a creditor in any collateral that is subject to
a superlien could be adversely affected. While Oregon law provides for a
superlien, the lien does not have priority over previously recorded liens. As
noted above, however, the costs which any purchaser of the property might be
liable for in
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remediating environmental conditions could reduce or eliminate the value of the
property as security for the notes and the guarantees.
Before taking some actions, the trustee may request that you provide for
its reimbursement for any of its costs, expenses and liabilities. Cleanup costs
could become a liability of the trustee, and, if you agreed to provide for the
trustee's costs, expenses and liabilities, you could be required to help repay
those costs. In addition, rather than acting through the trustee, you may in
some circumstances act directly to pursue a remedy under the indenture. If you
exercise that right, you could be considered to be a lender and be subject to
the risks discussed above.
Technological Improvements -- Our smelters are based on a technology which is
generally not used in the design of newer smelters and our continued
competitiveness depends on our ability to operate efficiently.
The design of our smelters is based on a technology that is not generally
used in the design of newer smelters. The newer smelter design has certain
advantages and may permit primary aluminum production at a lower cost. To date,
we have been able to compete because of the implementation of
efficiency-enhancing technology at our smelters, cost-competitive wages and low
power costs. Our ability to compete in the future will depend in part on our
continued ability to rely on these factors. We do not assure you this reliance
will be possible in the future. In addition, we intend to invest approximately
$75.0 million in the facilities investment program. The facilities investment
program may not produce technological improvements or other benefits, and the
additional casthouse capacity may not be fully utilized. See "Business --
Operations" and "Business -- Facilities Investment Program."
The aluminum industry is increasingly affected by advances in technology.
Our ability to compete successfully may depend on the extent to which we are
able to implement and exploit technological changes. Our failure to develop,
anticipate or respond to these changes could have a material adverse effect on
our company.
Electricity Costs -- Large increases in the cost of electricity could have a
material adverse effect on us.
Electricity is one of the largest cost inputs and can vary significantly
from smelter to smelter. Electricity costs, accordingly, can affect
significantly the relative competitiveness of primary aluminum smelters. Large
increases in the cost of electricity could adversely affect our earnings.
Approximately 60% of our electricity requirements for the next two-and-a-half
years will be provided by the BPA at pre-determined prices. The remaining 40% of
our required electricity, however, is provided by direct purchase of bulk
electric power at negotiated rates from various power marketers, including BPA,
Avista Energy, PacifiCorp, Portland General Electric, Illinova Energy, Duke
Energy and Avista Utilities. Accordingly,
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we are subject to risks associated with the market price of electricity.
Numerous short-term and long-term developments can affect electricity prices,
including
o worldwide demand for fossil fuels
o changing environmental standards
o the overall economic activity in the United States and the Pacific
Northwest and
o weather temperature and precipitation.
As a result of the high percentage of hydroelectric power in the electricity
supply of the Pacific Northwest, electricity prices in the region tend to be
sensitive to drought conditions that reduce the availability of low cost
hydroelectric power. See "Business --Power Contracts."
Sources of Alumina -- We have been insulated from changes in the price of
alumina because of our tolling agreements with Hydro and Glencore. The loss of
either of these agreements would subject us to the risks associated with buying
raw materials on the open market.
We obtain all of our raw materials from outside suppliers. Our alumina
requirements are met under agreements with our tolling partners, Hydro and
Glencore. Our tolling agreement with Hydro has been extended to December 2011.
Our tolling agreement with Glencore will expire on December 31, 1999, and we do
not intend to renew it. Without either of these tolling agreements, we will be
required to purchase alumina on the open market at prevailing prices. We do not
assure you we will have the financial capacity to finance such open market
purchases. In addition, without a long-term tolling contract, any limitation in
the supply or any increased cost of alumina could have a material adverse effect
on our operations and financial condition. See "Business --Suppliers."
Dependence on Key Personnel -- Our management has been a key to our past success
and the loss of any member of our management, especially Brett Wilcox, could
have a material adverse effect on our operations.
Our operating subsidiaries are dependent on their senior management and Mr.
Wilcox, our President. The failure to retain Mr. Wilcox or a number of our
senior management without appropriate replacements being hired could have a
material adverse effect on us. See "Management."
Dependence on Key Customers -- Our business has been highly dependent on our
tolling partners for revenue and any change in the status of these customers
could have a material adverse effect on our business.
Each of our smelter facilities is dependent on a single customer. Through
their respective tolling agreements, Hydro and Glencore accounted for
approximately 58% of our
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revenue in fiscal 1997 and approximately 57% of our revenue in fiscal 1998. We
plan to let our tolling agreement with Glencore expire at the end of 1999. The
expiration of the Glencore tolling agreement will eliminate the revenue and
gross margin we derive from tolling aluminum for Glencore. We do not assure you
that we will be able to maintain a strong relationship with Glencore after the
agreement expires. If we lose either of these customers, either of them decide
for any reason to materially decrease the amount of primary or value-added
aluminum products they buy from us or either of them significantly change their
manner of doing business, our business could be adversely affected. See
"Business -- Operations."
Credit Risk -- Because we do not require collateral to secure customer
receivables, our company is susceptible to the risk that our customers will not
pay significant balances.
When we sell products, we generally do not require collateral as security
for customer receivables. Our subsidiaries have significant balances owing from
customers that operate in cyclical industries and under leveraged conditions
that may impair the collectibility of these receivables. For example, in the
third quarter of fiscal 1998, we recorded a write-off of a long-term receivable
from a value-added aluminum products customer of approximately $1.5 million. In
other words, we do not expect to receive that money from that customer. Failure
to collect a significant portion of amounts due on these receivables could have
a material adverse effect on our results of operations or financial condition.
Financing Change of Control Offer -- We may not have the ability to raise the
funds necessary to finance the change of control offer required by the
indenture.
On the occurrence of certain specific kinds of change of control events we
will be required to offer to repurchase all outstanding notes. However, it is
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of notes or that restrictions in our
credit facility will not allow such repurchases. In addition, certain important
corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a "Change of Control" under the
indenture. See "Description of Notes -- Offer to Purchase the Notes."
This prospectus includes forward-looking statements including, in
particular, the statements about the Company's plans, strategies and prospects
under the headings "Prospectus Summary," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business." Although we
believe that our plans, intentions and expectations reflected in or suggested by
these forward-looking statements are reasonable, we give no assurance these
plans, intentions or expectations will be achieved. Important factors that could
cause actual results to differ materially from the forward-looking statements we
make in this prospectus are described above and elsewhere in this prospectus.
All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the preceding cautionary
statements.
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THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Your Notes
We sold your notes on December 21, 1998 to BancBoston Robertson Stephens
Inc. and Libra Investments, Inc. under a purchase agreement dated December 14,
1998. Upon the terms and subject to the conditions stated in this prospectus and
in the accompanying letter of transmittal, we will accept for exchange any and
all your notes that are properly tendered on or before the expiration date of
the exchange offer and not withdrawn as permitted below. The expiration date
will be at 5:00 p.m., New York City time, on ____________, 1999. If we extend
the period of time for which the exchange offer is open, the expiration date
will be the latest time and date to which the exchange offer is extended. The
longest we could extend the offer would be until ________, 1999 which is 90 days
after the exchange offer commences.
As of the date of this prospectus, $150,000,000 total principal amount of
the notes was outstanding. We are sending this prospectus, together with the
letter of transmittal, on or about the date stated on the cover page to you at
the addresses listed in the security register in connection with notes
maintained by the trustee. Our obligation to accept notes for exchange in the
exchange offer is subject to certain conditions.
We reserve the right, at any time or from time to time, to extend the
period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any notes, by mailing written notice of any extension
to you as described below. During any extension, all notes previously tendered
will remain subject to the exchange offer and may be accepted for exchange by
us. Any notes not accepted for exchange for any reason will be returned without
expense to the tendering holder of the notes as promptly as practicable after
the expiration or termination of the exchange offer.
Notes tendered in the exchange offer must be $1,000 in principal amount or
any integral multiple of $1,000.
We will mail written notice of any extension, amendment, non-acceptance or
termination to the holders of the notes as promptly as practicable. Any notice
will be mailed to the holders of record of the notes no later than 9:00 a.m. New
York City time, on the next business day after the previously scheduled
expiration date or other event giving rise to the notice requirement.
Registration Rights; Additional Interest
We have agreed with BancBoston Robertson Stephens Inc. and Libra
Investments, Inc., for your benefit and at our cost, to use our best efforts to
cause this registration statement of which this prospectus is a part to be
declared effective under the Securities Act not later than April 20, 1999. Upon
the effectiveness of the registration statement, we will
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promptly offer the new notes in exchange for surrender of the notes. We will
keep this offer open for not less than 20 business days after the date notice of
the offer is mailed to you and use our best efforts to cause the offer to be
completed no later than May 20, 1999. For each note surrendered to us in the
offer, the holder of the note will receive a new note having a principal amount
equal to that of the surrendered note. Interest on each new note will accrue
from the last interest payment date on which interest was paid on the note
surrendered in exchange for the new note or, if no interest has been paid on the
note, from the date of its original issue.
In general, if you wish to exchange the notes for new notes in the offer,
you will be required to represent that any new notes you receive will be
acquired in the ordinary course of your business, that you are not our
affiliate, as defined in Rule 405 of the Securities Act, and that at the time of
the commencement of the offer, you have no arrangement or understanding with any
person to participate in the distribution, within the meaning of the Securities
Act, of the new notes, or if you are participating in a distribution of the new
notes, that you will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If applicable law or interpretations of the staff of the SEC do not permit
us to effect such an offer, if the offer is not completed by May 20, 1999, or if
any holder of notes notifies us within 20 business days after completion of the
offer that the holder was prohibited by applicable law or SEC policy from
participating in the offer, or that the holder may not resell the new notes
acquired by it in the offer without delivering a prospectus and that the
prospectus contained in the registration statement is not appropriate or
available for such resales or that the holder is a broker-dealer and holds notes
acquired directly from us or one of our affiliates, we will, at our cost,
(1) as promptly as practicable, but no later than 60 days after the
satisfaction of any of those conditions, file a shelf registration
statement covering resales of the notes or the new notes, depending on
which is outstanding,
(2) use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act as promptly as
practicable, but no later than 120 days after the satisfaction of any
of those conditions, and
(3) keep the shelf registration statement effective for two years after
its effective date or a shorter period that will terminate when all
notes or new notes covered by the shelf registration statement have
been sold under the shelf registration statement.
In some circumstances, we have the right to suspend the effectiveness of the
shelf registration statement for limited periods. If a shelf registration
statement is filed, we will provide to each holder for whom such shelf
registration statement was filed copies of the prospectus which is part of the
shelf registration statement, notify each such holder when the
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shelf registration statement has become effective and take certain other actions
required to permit unrestricted resales of the notes or the new notes. A holder
selling these notes or new notes under the shelf registration statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the registration rights
agreement that are applicable to the holder.
If
(1) the registration statement has not been declared effective by April
20, 1999;
(2) the offer has not been completed by May 20, 1999;
(3) a shelf registration statement is required to be filed and is not
filed within the time specified for filing in the registration rights
agreement or is not declared effective within the time specified for
effectiveness in the registration rights agreement; or
(4) after either the registration statement or the shelf registration
statement has been declared effective, the registration statement
thereafter ceases to be effective or fails to be usable for its
intended purpose in connection with resales of notes or new notes
during the periods specified in the registration rights agreement,
additional interest will accrue on the notes and the new notes from and
including the date on which any registration default occurs but excluding the
date on which all registration defaults have been cured. Additional interest
will accrue at a rate of 0.25% per year during the 90-day period immediately
following the occurrence of any registration default and will increase by 0.25%
per year at the commencement of each subsequent 90-day period, but additional
interest will not accrue at a rate in excess of 1.0% per year. Following the
cure of all registration defaults, the accrual of additional interest will
cease.
Procedure for Tendering Notes
Your tender of notes to us as described below and our acceptance of the
notes will constitute a binding agreement between you and us upon the terms and
subject to the conditions stated in this document and in the accompanying letter
of transmittal. Except as explained below, a holder who wishes to tender notes
for exchange in the exchange offer must transmit a properly completed and
executed letter of transmittal, together with all other documents required by
the letter of transmittal, to U.S. Trust Company, National Association at the
address listed below under "-- Exchange Agent" on or before the expiration date.
In addition,
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(1) certificates for the notes must be received by U.S. Trust along with
the letter of transmittal, or
(2) a timely confirmation of a book-entry transfer of the notes, if this
procedure is available, into U.S. Trust's account at The Depository
Trust Company according to the procedure for book-entry transfer
described below, must be received by U.S. Trust before the expiration
date, or
(3) you must comply with the guaranteed delivery procedures described
below.
The method of delivery of the notes, letters of transmittal and all other
required documents is at your election and risk. If the delivery is by mail, we
recommend registered mail, properly insured, with return receipt requested, be
used in all cases. You should allow sufficient time to assure timely delivery.
No letters of transmittal or notes should be sent to us.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the notes surrendered for exchange are tendered
(1) by a registered holder of the notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or
(2) for the account of an eligible institution.
An "eligible institution" is an eligible guarantor institution, such as a bank,
stockbroker, national securities exchange, registered securities association,
savings and loan association or credit union with membership in a signature
medallion program under Rule 17Ad-15 of the Securities Exchange Act of 1934. If
signatures on a letter of transmittal or a notice of withdrawal are required to
be guaranteed, the guarantees must be by an eligible institution. If notes are
registered in the name of a person other than the person signing the letter of
transmittal, the notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by us in our sole discretion, properly executed
by the registered holder, with the signature guaranteed by an eligible
institution.
All questions about the validity, form, eligibility, including time of
receipt, and acceptance of notes tendered will be determined by us in our sole
discretion, which determination shall be final and binding. We reserve the
absolute right to reject any and all tenders of any particular notes not
properly tendered or not to accept any particular notes if acceptance might, in
our judgment or the judgment of our counsel, be unlawful. We also reserve the
absolute right in our sole discretion to waive any defects or irregularities or
conditions of the exchange offer as to any particular notes either before or
after the expiration date. This includes the right to waive the ineligibility of
any holder who seeks to
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tender notes in the exchange offer. The interpretation of the terms and
conditions of the exchange offer as to any particular notes either before or
after the expiration date by us shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of notes
for exchange must be cured within a reasonable period of time that we shall
determine. Neither we, U.S. Trust nor any other person shall be under any duty
to give notification of any defect or irregularity in any tender of notes for
exchange, nor will any of us be liable for any reason for failure to give any
notification.
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of notes, the notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the notes.
If the letter of transmittal or any notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
these persons should so indicate when signing, and unless waived by us, proper
evidence satisfactory to us of their authority to so act must be submitted with
the letter of transmittal.
By tendering notes, if you are not a broker-dealer, you must acknowledge
you are not engaged in, and do not intend to engage in, a distribution of new
notes. If you are our affiliate, as defined under Rule 405 of the Securities
Act, or are engaged in or intend to engage in or have any arrangement with any
person to participate in the distribution of the new notes to be acquired in the
exchange offer, you
(1) could not rely on the applicable interpretations of the staff of the
SEC and
(2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in the exchange
offer must acknowledge that it will deliver a prospectus in connection with any
resale of the new notes. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
considered to have admitted that it is an underwriter within the meaning of the
Securities Act.
Acceptance of Notes for Exchange; Delivery of New Notes
We will accept, promptly after the expiration date, all notes properly
tendered and will issue the new notes promptly after acceptance of the notes.
For each note accepted for exchange, the holder of the note will receive a new
note having a principal amount equal to that of the surrendered note. The new
notes will bear interest from the most recent date to which interest has been
paid on the notes or, if no interest has been paid on the notes, from December
15, 1998. Accordingly, if the relevant record date for interest payment occurs
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after the completion of the exchange offer, registered holders of new notes on
the record date will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid, from December 15,
1998. If, however, the relevant record date for interest payment occurs before
the completion of the exchange offer, registered holders of notes on the record
date will receive interest accruing from the most recent date to which interest
has been paid or, if no interest has been paid, from December 15, 1998. Notes
accepted for exchange will cease to accrue interest from and after the date of
completion of the exchange offer, except as explained in the immediately
preceding sentence. If your notes are accepted for exchange, you will not
receive any payment of interest on the notes otherwise payable on any interest
payment date the record date for which occurs on or after completion of the
exchange offer.
In all cases, issuance of new notes for notes that are accepted for
exchange in the exchange offer will be made only after timely receipt
by U.S. Trust of
(1) certificates for the notes or a timely book-entry confirmation of the
notes into U.S. Trust's account at The Depository Trust Company,
(2) a properly completed and executed letter of transmittal and
(3) all other required documents.
If any tendered notes are not accepted for any reason described in the terms and
conditions of the exchange offer or if certificates representing notes are
submitted for a greater principal amount than the holder desires to exchange,
certificates representing the unaccepted or non-exchanged notes will be returned
without expense to the tendering holder of the notes as promptly as practicable
after the expiration or termination of the exchange offer. If notes are tendered
by book-entry transfer into U.S. Trust's account at The Depository Trust Company
according to the book-entry transfer procedures described below, the
non-exchanged notes will be credited to an account maintained with The
Depository Trust Company.
Book-Entry Transfer
U.S. Trust will make a request to establish an account for the notes at The
Depository Trust Company for purposes of the exchange offer within two business
days after the date of this document, and any financial institution that is a
participant in The Depository Trust Company's systems may make book-entry
delivery of notes by causing The Depository Trust Company to transfer the notes
into U.S. Trust's account at The Depository Trust Company. Although delivery of
notes may be effected through book-entry transfer at The Depository Trust
Company, the letter of transmittal or a facsimile of it, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by U.S. Trust at the address listed below under "
- --Exchange Agent" on or prior to the expiration date or you must comply with the
guaranteed delivery procedures described below.
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Guaranteed Delivery Procedures
If you desire to tender your notes and your notes are not immediately
available, or time will not permit your notes or other required documents to
reach U.S. Trust before the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(1) the tender is made through an eligible institution,
(2) before the expiration date, U.S. Trust receives from the eligible
institution a properly completed and executed letter of transmittal or
a facsimile of it and notice of guaranteed delivery, substantially in
the form provided by us, stating your name and address and the amount
of notes tendered, stating that the tender is being made and
guaranteeing that within five New York Stock Exchange trading days
after the date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered notes, in proper form for
transfer, or a book-entry confirmation, and any other documents
required by the letter of transmittal will be deposited by the
eligible institution with U.S. Trust and
(3) the certificates for all physically tendered notes, in proper form for
transfer, or a book-entry confirmation, and all other documents
required by the letter of transmittal, are received by U.S. Trust
within five New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery.
Withdrawal Rights
Tenders of notes may be withdrawn at any time before 5:00 p.m., New York
City time, on the expiration date.
For a withdrawal to be effective, a written or facsimile notice of
withdrawal must be received by U.S. Trust at the address listed below under "--
Exchange Agent." Any notice of withdrawal must
o specify the name of the person having tendered the notes to be
withdrawn,
o identify the notes to be withdrawn, including the principal amounts of
such notes, and
o where certificates for notes have been transmitted, specify the name
in which such notes are registered, if different from that of the
withdrawing holder.
If certificates for notes have been delivered or otherwise identified to U.S.
Trust, then, prior to the release of the certificates, the withdrawing holder
must also submit the serial numbers
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of the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an eligible institution unless the holder is an
eligible institution. If notes have been tendered according to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at The Depository Trust Company to be credited
with the withdrawn notes and otherwise comply with the procedures of the
facility. All questions about the validity, form and eligibility of the notices
will be determined by us and our determination will be final and binding on all
parties. Certificates for any notes so withdrawn will not be considered to have
been validly tendered for purposes of the exchange offer. Any notes that have
been tendered but which are not exchanged for any reason will be returned to the
holder of the notes without cost to the holder as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. In the
case of notes tendered by book-entry transfer into U.S. Trust's account at The
Depository Trust Company according to the book-entry transfer procedures
described above, the notes will be credited to an account maintained with The
Depository Trust Company for the notes. Properly withdrawn notes may be
retendered by following one of the procedures described under "-- Procedure for
Tendering Notes" above at any time on or before the expiration date.
Exchange Agent
U.S. Trust Company, National Association has been appointed as the exchange
agent for the exchange offer. All executed letters of transmittal should be
directed to the exchange agent at the address below. Questions and requests for
assistance, requests for additional copies of this document or of the letter of
transmittal and requests for notices of guaranteed delivery should be directed
to the exchange agent, addressed as follows:
By Hand up to 4:30 P.M.:
U.S. Trust Company of California, N.A.
c/o United States Trust Company of New York
111 Broadway, Lower Level
New York, New York 10006
Attn: Corporate Trust and Agency Services
By Overnight Courier and by Hand after 4:30 P.M.:
U.S. Trust Company of California, N.A.
c/o United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attn: Corporate Trust and Agency Services
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By Facsimile:
U.S. Trust Company of California
(212) 420-6155
Confirm Facsimile by Telephone:
(800) 225-2398
Delivery of the letter of transmittal to a different address or transmission of
instructions via a different facsimile number does not constitute a valid
delivery of the letter of transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer.
Transfer Taxes
You will not be obligated to pay any transfer tax in connection with the
exchange, except if you instruct us to register new notes in the name of, or
request that notes not tendered or not accepted in the exchange offer be
returned to, a person other than you, you will be responsible for the payment of
any applicable transfer tax.
Appraisal Rights
You will not have dissenters' rights or appraisal rights in connection with
the exchange offer.
Consequences of Failure to Exchange Notes
If you do not exchange their notes for new notes in the exchange offer, you
will continue to be subject to the restrictions on transfer of the notes. In
general, the notes may not be offered or sold unless registered under the
Securities Act, except under an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act and applicable state
securities laws. We do not anticipate that we will register the existing notes
under the Securities Act. Based on interpretations by the staff of the SEC
issued to third parties, new notes issued in the exchange offer in exchange for
notes may be offered for resale, resold or otherwise transferred by holders of
the new notes, other than any holder that is our affiliate within the meaning of
Rule 405 under the Securities Act, without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the new
notes are acquired in the ordinary course of the holders' business and the
holders have no arrangement with any person to participate in the distribution
of the new
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notes. If you are not a broker-dealer, you must acknowledge you are not engaged
in, and do not intend to engage in, a distribution of new notes. If you are our
affiliate, are engaged in or intend to engage in or have any arrangement or
understanding related to the distribution of the new notes to be acquired in the
exchange offer, you
(1) could not rely on the applicable interpretations of the staff of the
SEC and
(2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange for
notes must acknowledge that the notes were acquired by the broker-dealer as a
result of market-making activities or other trading activities and that it will
deliver a prospectus in connection with any resale of the new notes. See "Plan
of Distribution." In addition, to comply with the securities laws of certain
jurisdictions, if applicable, it may be necessary to qualify for sale or to
register the new notes prior to offering or selling the new notes. We do not
intend to take any action to register or qualify the new notes for resale in any
of these jurisdictions.
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DESCRIPTION OF NOTES
Table of Contents
This table of contents only covers the "Description of Notes" section. The
table of contents for the entire prospectus is on the inside front cover.
Page
----
Introduction.............................................................. 37
Brief Description of the Notes and the Guarantees......................... 37
Principal, Maturity and Interest.......................................... 38
Methods of Receiving Payments on the Notes................................ 38
Paying Agent and Registrar for the Notes.................................. 38
Transfer and Exchange..................................................... 38
Security ................................................................. 39
The Subsidiary Guarantees................................................. 40
Ranking of Notes and Guarantees........................................... 41
Material Bankruptcy Limitations........................................... 41
Optional Redemption....................................................... 42
Offer to Purchase the Notes............................................... 42
Selection and Notice...................................................... 43
Material Covenants........................................................ 43
Limitations on Indebtedness.......................................... 43
Limitations on Restricted Payments, Restricted Investments and
Unrestricted Subsidiary Investments............................. 46
Restrictions on Transactions with Affiliates and Unrestricted
Subsidiaries.................................................... 51
Limitations on Liens................................................. 52
Subsidiary Guarantees................................................ 54
Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries.......................................... 54
Limitations on Asset Sales........................................... 57
Limitations on Unrestricted Subsidiaries............................. 57
Conduct of Business.................................................. 57
Limitations on Issuances and Sales of Capital Stock of Subsidiaries.. 57
Payment for Consent.................................................. 58
Maintenance of Corporate Existence................................... 58
Maintenance of Insurance............................................. 58
SEC Reports.......................................................... 58
Merger............................................................... 58
No Amendment to Subordination Provisions............................. 60
Release of Collateral..................................................... 60
Defaults and Certain Rights on Default.................................... 60
Modification of Indenture or Security Agreements.......................... 61
Legal Defeasance and Covenant Defeasance.................................. 63
Concerning the Trustee.................................................... 64
Governing Law ............................................................ 66
Definitions ............................................................ 67
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Introduction
You can find the definitions of some of the terms used in this description
under the subheading "Definitions." In this description, the word "Company"
refers only to Golden Northwest Aluminum, Inc. and not to any of its
subsidiaries.
The Company will issue the new notes under an indenture among itself, the
guarantors and U.S. Trust Company, National Association, as trustee. The terms
of the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939. The security
agreements referred to under the subcaption "Security" also define the terms of
the security interests and pledges that will secure the notes.
Brief Description of the Notes and the Guarantees
The Notes
These notes
o are general obligations of the Company
o are secured by a first priority security interest in
substantially all of the Company's directly and indirectly owned
subsidiaries' real property, plant and equipment and some other
assets and by a senior pledge of the capital stock of the
Company's directly and indirectly owned subsidiaries
o have a right to be paid in full before any future subordinated
Indebtedness of the Company and
o are fully and unconditionally guaranteed by the guarantors.
The Guarantees
These notes are guaranteed by the following subsidiaries of the Company:
Goldendale Holding Company
Goldendale Aluminum Company
Northwest Aluminum Company
Northwest Aluminum Specialties, Inc.
Northwest Aluminum Technologies, LLC.
These guarantees
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o are general obligations of each guarantor and
o must be paid before any future subordinated Indebtedness of each
guarantor.
As of the date of the indenture, all of our subsidiaries were "Restricted
Subsidiaries." Under the circumstances described below under the subheading
"Subsidiary Guarantees," however, we will be permitted to designate some of our
subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants in the indenture and will not
guarantee or secure the notes.
Principal, Maturity and Interest
The Company will issue notes with a maximum total principal amount of $150
million in denominations of $1,000 and integral multiples of $1,000. The notes
will mature on December 15, 2006.
Interest on the notes will accrue at the rate of 12% per year and will be
payable semi-annually in arrears on June 15 and December 15, commencing on June
15, 1999. The Company will make each interest payment to the holders of record
of these notes on the immediately preceding May 30 and November 30.
Interest on these notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Methods of Receiving Payments on the Notes
If a holder has given wire transfer instructions to the Company, the
Company will make all principal, premium and interest payments on those notes
under those instructions. All other payments on these notes will be made at the
office or agency of the paying agent and registrar in New York unless the
Company elects to make interest payments by check mailed to a holder at the
address specified in the register of holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. The Company
may change the paying agent or registrar without prior notice to the holders of
the notes, and the Company or any of its Subsidiaries may act as paying agent or
registrar.
Transfer and Exchange
A holder may transfer or exchange notes by following the requirements of
the indenture. The registrar and the trustee may require a holder, among other
things, to furnish
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appropriate endorsements and transfer documents and the Company may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
The Company is not required to transfer or exchange any note selected for
redemption or to transfer or exchange any note for a period of 15 days before a
selection of notes to be redeemed. The registered holder of a note will be
treated as the owner of it for all purposes.
Security
Our obligations under the notes and guarantees are secured under the
security agreements by
(1) a first priority security interest in substantially all of the real
property, plant and equipment of our existing Subsidiaries, other than
the Excluded Property, and some of our other assets (collectively, the
"PP&E"); the PP&E excludes, however, the Tolling Agreements,
inventory, accounts receivable and other rights to payment and related
intangibles and proceeds, all of which are security for the revolving
credit agreement and
(2) a pledge (the "Pledge") of all of the issued and outstanding Capital
Stock of our direct or indirect Subsidiaries, all income, benefits and
rights derived from that Capital Stock and all related proceeds
(collectively, the "Pledged Shares" and together with the PP&E, the
"Collateral").
These security interests and Pledge have been granted to the trustee as
collateral agent on your behalf to secure the payment and performance of our
obligations under the indenture and the notes and the obligations of our
Subsidiaries under the guarantees.
The Indebtedness under the Hydro Agreement is also secured by the
Collateral, but Hydro's security interest and pledge ranks junior to the
security interest and Pledge securing the notes and guarantees. Hydro's right to
exercise remedies on the Collateral is restricted. Upon the occurrence of an
Event of Default and during the time it continues, the trustee may foreclose on
the Collateral and exercise other rights and remedies available against the
Pledged Shares.
If the guarantee of any Subsidiary guarantor is released as described under
"-- The Subsidiary Guarantees," any security interest of the trustee in the
Collateral, including the Pledge of the Pledged Shares issued by the Subsidiary,
also will be released without any further action by us, the trustee, the
Subsidiary, any other Subsidiary or any holder of the notes. The trustee will
deliver appropriate releases of the security agreements and certificates
evidencing the Pledged Shares, together with any related stock powers, to us.
Any Liens on the Collateral securing the Indebtedness under the Hydro agreement
and/or some other Indebtedness, however, must be released. At our request, the
trustee will execute and deliver an instrument evidencing the release.
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The Subsidiary Guarantees
The guarantors have jointly and severally guaranteed the Company's
obligations under these notes. The guarantees are full and unconditional. If the
Company fails to make required payments on the notes following a demand for
payment by the trustee, the trustee can proceed against either or both the
Company and the guarantors for payment of the amounts due. The obligations of
each guarantor under its Subsidiary Guarantee will be limited as necessary to
prevent that Subsidiary Guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors -- Fraudulent Conveyance Matters."
A Subsidiary's guarantee may be released in one of two ways:
(1) If all of the capital stock of the guarantor is sold to a Person other
than the Company, a Subsidiary, an Unrestricted Subsidiary or an
Affiliate or
(2) If the Company designates the guarantor as an Unrestricted Subsidiary.
In either case, any guarantee or other obligation that the guarantor has for
Indebtedness or Refinancing Indebtedness under the Credit Agreement or the Hydro
Agreement must be released either before or at the same time as the release of
the guarantee of the notes. See "-- Material Covenants -- Limitations on Asset
Sales." "Incur" and "Refinancing Indebtedness" are defined on pages 43 and 44.
Under certain circumstances, the Company will be able to designate
Restricted Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not be "Subsidiaries" for purposes of the indenture and will not be subject
to most of the restrictive covenants in the indenture. The Company currently has
no Unrestricted Subsidiaries. When a Subsidiary is designated as an Unrestricted
Subsidiary in compliance with the terms of the indenture, the obligations of the
Subsidiary under its guarantee will be released without any further action on
the part of the trustee, the Company, the Subsidiary, any other Subsidiary of
the Company or any holder of the notes. For such a release to occur, however,
any obligations of the Subsidiary on Indebtedness under the Credit Agreement,
and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive
Refinancing, of that Indebtedness, and any guarantee by such Subsidiary of the
Indebtedness under the Hydro Agreement, and/or any Refinancing Indebtedness
Incurred in any Refinancing, or successive Refinancing, of that Indebtedness,
must also be released. In addition, upon the designation of a Subsidiary as an
Unrestricted Subsidiary, the Collateral Agent will release any Collateral of the
Unrestricted Subsidiary in the manner contemplated by the security agreements.
Again, this release is only possible if the Collateral is also released from the
Hydro Agreement and all Collateral for the Credit Agreement is also released.
The trustee will deliver written evidence any release of a Subsidiary from
its guarantee at the request of the Company. Upon the release of any Subsidiary,
the other Subsidiaries of the Company not so released will remain liable for the
Company's obligations
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under the notes and the Subsidiaries' guarantee as and to the extent provided in
the indenture.
Ranking of Notes and Guarantees
The payment of principal, premium and interest, if any, on the notes and
guarantees will rank senior in right and priority of payment to all Indebtedness
of the Company or any of its Subsidiaries that by its terms is expressly
subordinated to the notes. Subordinated debt includes the Indebtedness under the
Hydro Agreement and the related guarantees by the Subsidiaries of the Hydro
debt. The notes and the guarantees will rank equally in right and priority of
payment with all other unsubordinated Indebtedness of the Company or any of its
Subsidiaries, which includes the Indebtedness of the Subsidiaries of the Company
under the Credit Agreement. Holders of secured obligations of the Company and
its Subsidiaries, however, including the financial institutions party to the
Credit Agreement but excluding the holder of the Indebtedness under the Hydro
Agreement, will have claims to the assets securing these obligations that are
prior to the claims of the holders of the notes.
Material Bankruptcy Limitations
The Company is a holding company. It conducts substantially all of its
business through its guarantor Subsidiaries. Holders of the notes will be
creditors of each Subsidiary guarantor by virtue of its guarantee and the Lien
granted to the holders of the notes on the Subsidiary's assets. Nonetheless, in
the event of the bankruptcy of a Subsidiary guarantor, the Subsidiary's
obligations under its guarantee and any Liens on the Subsidiaries' assets may be
subject to avoidance under state and federal fraudulent transfer and conveyance
laws. Among other things, these obligations may be avoided if a court concludes
that the obligations were acquired for less than fair consideration or
reasonably equivalent value at a time when the Subsidiary
(1) was insolvent,
(2) was rendered insolvent, or
(3) was left with inadequate capital to conduct its business or debts that
were beyond its ability to pay as they matured.
A court could conclude that a Subsidiary guarantor did not receive fair
consideration or reasonably equivalent value to the extent that the total amount
of its liability under its guarantee exceeds the economic benefits it receives
from the offering of the notes. The obligations of each Subsidiary guarantor
under its guarantee and any Liens on the Subsidiaries' assets will be limited in
a manner intended to avoid fraudulent transfer or conveyance concerns under
applicable law. We do not assure you, however, a court would give the holders of
the notes the benefit of these provisions.
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If the obligations of a Subsidiary guarantor under its guarantee or any
Lien granted to the holders of the notes are avoided, holders of notes would
have to look to the assets of the Company and any remaining Subsidiaries of the
Company for payment. We do not assure you such assets would be sufficient to pay
the notes.
Optional Redemption
The Company may not redeem the notes before December 15, 2002. On or after
December 15, 2002, the Company may redeem all or a part of the notes, on not
less than 15 nor more than 60 days notice, at the redemption prices, which are
expressed as a percentage of principal amount below, plus accrued and unpaid
interest, if any, to the applicable redemption date, if redeemed during the
12-month period beginning December 15, of the years indicated below:
Redemption
Year Price
---- ----------
2002.................... 108.000%
2003.................... 105.333%
2004.................... 102.667%
2005 and thereafter..... 100.000%
Offer to Purchase the Notes
Under the indenture, if any Change of Control of the Company occurs on or
before maturity, the Company will be required to make an offer to purchase from
each holder all or any part of the holder's notes. If only a part is purchased,
the Company will purchase the notes in multiples of $1,000. To be eligible to
receive this payment, a holder of the notes must deliver and not withdraw a
Change of Control Purchase Notice to the Company as provided in the indenture.
The purchase date will occur 30 business days after the Change of Control (the
"Change of Control Purchase Date"). The purchase price will be paid in cash and
will equal 101% of the principal amount plus accrued and unpaid interest to the
Change of Control Purchase Date (the "Change of Control Purchase Price").
Some of the circumstances that would require the Company to make an offer
to repurchase the notes on a Change of Control would also constitute an event of
default under the Credit Agreement and the Hydro Agreement. In the event of such
a default, the obligations of the Company under those agreements could be
declared due and payable. In addition, the repurchase of the notes on a Change
of Control could result in defaults under the Credit Agreement. See "Risk
Factors -- Financing Change of Control Offer."
Under some circumstances, the indenture will require the Company to make an
offer to purchase specified portions of the notes if the Company has available
Net Cash Proceeds as a result of Asset Sales. See "-- Material Covenants --
Limitations on Asset Sales." The Company's ability to pay cash to the holders of
notes upon a Change of Control or Asset Sale may be limited by the Company's
then existing financial resources.
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The indenture will require the Company to comply with all applicable
federal securities laws, including Rule 14e-1 under the Exchange Act, in
connection with any repurchase of notes upon a Change of Control or Asset Sales.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption on a pro rata basis, by lot or by any method
the trustee decides is fair and appropriate. No notes of $1,000 or less will be
redeemed in part. Notices of redemption will be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
notes to be redeemed at its registered address. Notices of redemption may not be
conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount to be
redeemed. A new note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the holder of the note upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
Material Covenants
Limitations on Indebtedness
The Company will not, and will not permit any of its Subsidiaries to
create, acquire, issue, assume, guarantee or become liable in connection with,
or extend the maturity of or become liable for the payment of, contingently or
otherwise (collectively, "Incur"), any Indebtedness. The Company and the
Subsidiaries, however, Incur Indebtedness, including guarantees, if, after
giving effect to the Incurrence and the receipt and application of the proceeds
from the Incurrence, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.0 to 1, in the case of Indebtedness Incurred before December
15, 2001, and 2.25 to 1, in the case of Indebtedness Incurred on or after
December 15, 2001.
The paragraph above does not prohibit the following:
(1) Indebtedness Incurred by the Company and its Subsidiaries under the
notes;
(2) Indebtedness Incurred by any of the Subsidiaries of the Company under
the Credit Agreement in a total principal amount at any one time
outstanding not to exceed the greater of (a) $90,000,000 or (b) the
then amount of the Borrowing Base; letters of credit and bankers'
acceptances are treated as having a principal amount equal to the
maximum reimbursement obligations under them;
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(3) Indebtedness Incurred by the Company under the Hydro Agreement in a
total original principal amount not to exceed $30,000,000, and
guarantees by the Subsidiaries of the Company of this Indebtedness;
(4) Indebtedness Incurred by any of the Subsidiaries of the Company
payable solely to the Company or any Wholly Owned Subsidiary;
(5) Indebtedness Incurred by a Person before the date on which it becomes
a Subsidiary of the Company, other than Indebtedness Incurred by the
Person as part of, or in contemplation of, it becoming a Subsidiary of
the Company, provided that the holders of this Indebtedness do not
have at any time any recourse to any property or assets of the Company
and its Subsidiaries other than the property and assets of the
acquired Person and its Subsidiaries;
(6) Indebtedness ("Refinancing Indebtedness") Incurred by the Company or
any of its Subsidiaries that serves to Refinance, in whole or in part,
any Indebtedness permitted by this paragraph (other than by clause (4)
or (8)) or by the immediately preceding full paragraph (the
"Refinanced Indebtedness"), or any one or more successive Refinancings
of any of the Indebtedness; provided, however, that:
(a) the total Refinancing Indebtedness does not exceed the total
Refinanced Indebtedness, including accrued interest, the amount
of any premium required to be paid as part of the Refinancing
under the terms of the Refinanced Indebtedness or the amount of
any reasonable and customary premium determined by the Company to
be necessary to accomplish the Refinancing by means of a
redemption, tender offer, privately negotiated transaction or
other similar transaction, and an amount equal to the reasonable
fees and expenses in connection with the Incurrence of the
Refinancing Indebtedness;
(b) neither the Company nor any of its Subsidiaries is an obligor of
the Refinancing Indebtedness, except to the extent that such
Person
(I) was an obligor of the Refinanced Indebtedness or
(II) is otherwise permitted, at the time the Refinancing
Indebtedness is Incurred, to be an obligor of the
Refinancing Indebtedness; and
(c) in the case of any Refinanced Indebtedness that is subordinated
by its terms in right and priority of payment to the notes or any
Guarantee, the Refinancing Indebtedness
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(I) has a final maturity and weighted average maturity at least
as long as the Refinanced Indebtedness and
(II) is subordinated by its terms in right and priority of
payment to the notes or the guarantee at least to the same
extent as such Refinanced Indebtedness;
(7) Indebtedness in a total original principal amount not to exceed
$15,000,000 Incurred by the Company, Northwest Aluminum Company or
Northwest Aluminum Specialties to fund capital improvements projects
at Northwest or Specialties, and guarantees by the Subsidiaries of the
Company of this Indebtedness, provided that the Indebtedness and the
guarantees are subordinated in right and priority of payment to the
notes and the guarantees on terms no less favorable to the holders of
the notes than those applicable to the Indebtedness under and
guarantees of the Hydro Agreement as in effect on the date of the
indenture, and further provided that this Indebtedness has a final
maturity date no earlier than one year following the stated maturity
of the notes and provides for payments of principal and interest on
terms no less favorable to the holders of the notes than those
contained in the Hydro Agreement;
(8) Indebtedness Incurred by the Company or any of its Subsidiaries under
Aluminum Hedging Obligations entered into in the ordinary course of
business and not for speculative purposes in reasonable relation to
the Company's or the Subsidiary's business; and
(9) other Indebtedness Incurred by the Company in a total combined
principal amount which does not exceed $5,000,000 at any time
outstanding, and guarantees by Subsidiaries of the Company of this
Indebtedness.
The Board of Directors of the Company may designate an Unrestricted
Subsidiary to be a Subsidiary of the Company, provided that the conditions
specified in the definition of "Unrestricted Subsidiary" are met. A
redesignation will be treated as an Incurrence by the Company or its
Subsidiaries of the Indebtedness of the redesignated Subsidiary, to the extent
that the Indebtedness does not already constitute Indebtedness of the Company or
any of its Subsidiaries for purposes of this covenant as of the date of the
redesignation.
Any Indebtedness of any other Person existing at the time the Person
becomes a Subsidiary of the Company or secured by a Lien on any assets acquired
by the Company or any Subsidiary of the Company will be considered, for purposes
of this covenant, other than clause (5) above, to be Incurred at the time the
Person becomes a Subsidiary or at the time the assets are acquired.
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The Company will not, and will not permit any of its Subsidiaries to, Incur
any Indebtedness that is subordinated by its terms in right and priority of
payment to any other Indebtedness of the Company or its Subsidiaries unless the
Indebtedness is also subordinated by its terms in right and priority of payment
to the notes and the guarantees on substantially identical terms. No
Indebtedness of the Company or any Subsidiary of the Company will be considered
to be subordinated in right and priority of payment to any other Indebtedness of
the Company or the Subsidiary solely by virtue of being unsecured or
unguaranteed.
Limitations on Restricted Payments, Restricted Investments and Unrestricted
Subsidiary Investments
The Company will not
(1) declare or pay any dividend or make any distribution on, or permit any
of its Subsidiaries to declare or pay any dividend or make any
distribution on, its Capital Stock, other than dividends payable in
Capital Stock of the Company which is not Disqualified Stock, provided
that any Subsidiary of the Company may pay dividends or make
distributions to the Company or any other Wholly Owned Subsidiary,
(2) 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 or any of its Subsidiaries, provided that
any Subsidiary of the Company may purchase Capital Stock of the
Subsidiary from the Company or any Wholly Owned Subsidiary and the
purchase will not be a Restricted Payment or a Restricted Investment,
(3) make or permit any of its Subsidiaries to make any principal payment
on, or any prepayment, purchase, redemption or other acquisition or
retirement for value of, any Indebtedness of the Company or any of its
Subsidiaries that is subordinated by its terms in right and priority
of payment to the notes or any guarantee, provided that any Subsidiary
of the Company may pay, prepay, purchase, redeem or otherwise acquire
or retire any of the Indebtedness of the Subsidiary payable to the
Company or any other Wholly Owned Subsidiary (each of the payments
described in clauses (1), (2) and (3), a "Restricted Payment"),
(4) make or permit any of its Subsidiaries to make any Restricted
Investment, or
(5) make or permit any of its Subsidiaries to make any Unrestricted
Subsidiary Investment, unless at the time of, and immediately after
giving effect to, each Restricted Payment, Restricted Investment or
Unrestricted Subsidiary Investment:
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(a) there is no existing or pending Event of Default; and
(b) the Consolidated Fixed Charge Coverage Ratio of the Company is
greater than 2.0 to 1 until December 15, 2001, and 2.25 to 1
after December 15, 2001; and
(c) the sum of:
(I) the total amount expended for all Restricted Payments after
the date of the indenture,
(II) the total amount expended for all Restricted Investments
after the date of the indenture minus (A) to the extent any
Restricted Investment made after the date of the indenture
is sold for or otherwise liquidated or repaid in cash, the
lesser of the cash return of capital for the Restricted
Investment, minus the cost of disposal, if any, and the
initial amount of the Restricted Investment, and (B) the
amount of any guarantee or similar contingent obligation
that constitutes a Restricted Investment made after the date
of the indenture, to the extent it has been released, and
(III) the total amount of Unrestricted Subsidiary Investments
Outstanding
would not exceed the sum of:
(IV) 50% of the Consolidated Net Income of the Company, or, if
the total Consolidated Net Income of the Company for any
period is a deficit, minus 100% of the deficit, accrued on a
cumulative basis for the period, taken as one accounting
period, from January 1, 1999 to the end of the Company's
most recently ended fiscal quarter for which financial
statements are available at the time the Restricted Payment,
Restricted Investment or Unrestricted Subsidiary Investment
is being made,
(V) the total net proceeds, including the Fair Market Value of
property other than cash, received by the Company as capital
contributions to the Company, other than from a Subsidiary
or an Unrestricted Subsidiary of the Company, after the date
of the indenture, or from the issue or sale, other than to a
Subsidiary or an Unrestricted Subsidiary of the Company,
after the date of the indenture, of Capital Stock of the
Company other than Disqualified Stock, excluding any net
proceeds of a Qualified
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Equity Offering to the extent used to redeem any part of the
notes, or from the issue or sale, other than to a Subsidiary
or an Unrestricted Subsidiary of the Company, after the date
of the indenture, of any debt or other security of the
Company convertible into or exercisable for such Capital
Stock that has been so converted or exercised, and
(VI) 50% of any dividends or other distributions consisting of
cash received by the Company or a Wholly Owned Subsidiary
after the date of the indenture from any Unrestricted
Subsidiary to the extent that these dividends or other
distributions are not required to reduce the amount of the
Unrestricted Subsidiary Investments Outstanding to zero.
In each case, the amount expended for Restricted Payments, Restricted
Investments and Unrestricted Subsidiary Investments, if paid in property other
than in cash or a sum certain guaranteed, will be the Fair Market Value of the
property.
The preceding provisions will not be violated by:
(1) the payment of any dividend or distribution or the redemption of any
securities within 60 days after the date of declaration of the
dividend or distribution or the giving of the formal notice by the
Company of the redemption, if at the date of declaration of the
dividend or distribution or the giving of the formal notice of the
redemption, the dividend, distribution or redemption would have been
permitted;
(2) 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 Subsidiary or an Unrestricted Subsidiary of the
Company, of other shares of its Capital Stock other than Disqualified
Stock or out of the proceeds of a substantially concurrent capital
contribution to the Company, other than by a Subsidiary or an
Unrestricted Subsidiary of the Company; provided, however, that, to
the extent the proceeds are so used, the sale of Capital Stock or
capital contribution will be excluded in determining the total net
proceeds received by the Company referred to under clause 5(c)(V) of
the preceding full paragraph;
(3) the payments provided for by clauses (2) and (3) of the second
paragraph under "-- Restrictions on Transactions with Affiliates and
Unrestricted Subsidiaries";
(4) principal payments on, or any prepayment, purchase, redemption or
other acquisition or retirement for value of, Indebtedness of the
Company or any of its Subsidiaries that is subordinated by its terms
in right and priority of
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payment to the notes or any guarantee with the proceeds from the
substantially concurrent Incurrence of any Refinancing Indebtedness
permitted by clause (6) of the second paragraph described under "--
Limitations on Indebtedness," other than Refinancing Indebtedness
payable to the Company or any of its Subsidiaries or Unrestricted
Subsidiaries; provided, however, that, to the extent the proceeds are
so used, the proceeds, upon any conversion of the Refinancing
Indebtedness into Capital Stock, will not be included in determining
the total net proceeds received by the Company referred to under
clause 5(c)(V) of the preceding full paragraph;
(5) principal payments on, or any prepayment, purchase, redemption or
other acquisition or retirement for value of, any Indebtedness of the
Company or any of its Subsidiaries that is subordinated by its terms
in right and priority of payment to the notes or any guarantee by
exchange for, or out of the proceeds of, the substantially concurrent
sale, other than to a Subsidiary or an Unrestricted Subsidiary of the
Company, of Capital Stock of the Company other than Disqualified Stock
or out of the proceeds of a substantially concurrent capital
contribution to the Company, other than by a Subsidiary or an
Unrestricted Subsidiary of the Company; provided, however, that, to
the extent the proceeds are so used, the sale of Capital Stock or
capital contribution will be excluded in determining the total net
proceeds received by the Company referred to under clause 5(c)(V) of
the preceding full paragraph;
(6) (a) from time to time during or following the end of any fiscal
quarter during which the Company is an "S Corporation" within the
meaning of Section 1361 of the Internal Revenue Code of 1986, a
"qualified subchapter S subsidiary" within the meaning of Section
1361(b)(3)(B) of the Code, or a Person who has elected to be
taxed as a pass-through entity or otherwise ignored for federal
income tax purposes, cash distributions by the Company to its
shareholders in an amount equal to the maximum amount sufficient
to cover payment of the expected federal and state income taxes
attributable to the direct or indirect ownership of the Company's
common stock, based on the highest federal and state income tax
rates that could be applicable to any holder of such common
stock, as determined through the end of the fiscal quarter in
question plus any penalties or interest, and
(b) if, subsequent to any year in which the Company or any Subsidiary
of the Company was an "S Corporation," a "qualified subchapter S
subsidiary" or a Person who has elected to be taxed as a
pass-through entity or otherwise ignored for federal income tax
purposes, any taxing authority or court shall finally determine,
including by way of settlement or stipulation, that additional
federal or state income taxes or any penalties or interest are
payable by the holders of the Company's
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or the Subsidiary's common stock for income of the Company or the
Subsidiary during that year, cash distributions to the holders in
an additional amount sufficient to pay the additional federal or
state income taxes plus any penalties or interest;
provided, however, that, in the case of either clause (a) or (b), in
no event shall amounts so distributed after the date of the indenture
for any year exceed the actual amount of federal and state income
taxes, including any penalties or interest, or additional income
taxes, including any penalties or interest, for the year on the income
attributable to the ownership of the Company's or the Subsidiary's
common stock; provided, further, that for purposes of clause 5(c)(IV)
in the full preceding paragraph, Consolidated Net Income of the
Company shall be reduced by an amount equal to any cash distributions
made to pay any penalties or interest in connection with any federal
and state income taxes under these clauses (6)(a) or (b);
(7) the repurchase by Goldendale Holding Company of shares of its
preferred stock outstanding on the date of the indenture; provided,
however, that the total amount paid to repurchase such preferred stock
does not exceed $30,500,000, plus any accrued and unpaid dividends;
and provided, further, that, immediately after giving effect to the
repurchase there is no existing or pending Event of Default, and the
Company could take on $1.00 of Indebtedness under the first paragraph
of the covenant described under "-- Limitations on Indebtedness"; and
(8) the making by the Company or any Subsidiary of the Company of
Restricted Payments in addition to those permitted by any other clause
of this paragraph or by the first full paragraph of this covenant in a
total amount not exceeding $1,000,000.
No payments and other transfers made under clauses (2) through (7), except
as provided in clause (6), of the preceding paragraph will reduce the amount
available for Restricted Payments, Restricted Investments and Unrestricted
Subsidiary Investments under the first full paragraph of this covenant. Payments
made under clause (1) or (8) and as specified in clause (6) of the preceding
paragraph will reduce the amount available for Restricted Payments, Restricted
Investments and Unrestricted Subsidiary Investments under the first full
paragraph of this covenant.
The Company's board of directors may designate a Subsidiary as an
Unrestricted Subsidiary if
(1) after the designation, no Event of Default exists,
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(2) after the designation, the Company could take on $1.00 of Indebtedness
as described in the first paragraph of "-- Material Covenants --
Limitations on Indebtedness,"
(3) the Subsidiary does not own any stock of the Company or another
Subsidiary of the Company at the time of or after the designation and
(4) the Subsidiary is not a party to any transaction with the Company or
another Subsidiary of the Company at the time of designation unless
the transaction is permitted as described under "-- Material Covenants
-- Restrictions on Transactions with Affiliates and Unrestricted
Subsidiaries."
In addition, the Unrestricted Subsidiary Investments discussed below must be
permitted for the designation to be allowed. All outstanding Unrestricted
Subsidiary Investments in a Subsidiary that has been designated as an
Unrestricted Subsidiary will be Unrestricted Subsidiary Investments Outstanding
at the time of the designation. These Unrestricted Subsidiary Investments
Outstanding will reduce the amounts available for Restricted Payments,
Restricted Investments and Unrestricted Subsidiary Investments as described
under the first full paragraph of this section. These Unrestricted Subsidiary
Investments which will be deemed to have been made when the designation occurs,
will be equal to the greater of
(1) the net book value of the Unrestricted Subsidiary Investments when the
designation occurs and
(2) the Fair Market Value of the Unrestricted Subsidiary Investments when
the designation occurs.
Restrictions on Transactions with Affiliates and Unrestricted Subsidiaries
The Company will not, and will not permit any of its Subsidiaries to, enter
into any transaction or series of related transactions with any Affiliate or
Unrestricted Subsidiary of the Company, unless
(1) the terms of the transaction are no less favorable to the Company or
the Subsidiary than those that could reasonably be expected to be
obtained in a comparable transaction with an unrelated Person,
(2) if the amount of the transaction or the total amount of a series of
related transactions is greater than $1,000,000, the transaction or
series of related transactions shall have been approved as meeting
such standard, in good faith, by a majority of the disinterested
members of the Board of Directors of the Company, as evidenced by a
resolution of the Board of Directors of the Company, and
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(3) if the amount of the transaction or the total amount of a series of
related transactions is greater than $5,000,000, the Company or the
Subsidiary shall have received an opinion that the transaction or
series of related transactions is fair to the Company or the
Subsidiary from a financial point of view, from an independent
investment banking, appraisal or accounting firm of national standing
selected by the Company, which, in the good faith judgment of the
Board of Directors of the Company, is qualified to perform this task.
The provisions contained in the preceding paragraph will not apply to
(1) the making of any Restricted Payments, Restricted Investments and
Unrestricted Subsidiary Investments otherwise permitted by the
covenant described under "-- Limitations on Restricted Payments,
Restricted Investments and Unrestricted Subsidiary Investments,"
(2) 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 for services
rendered in that Person's capacity as a director and indemnification
and directors' and officers' liability insurance provided in
connection with the position of director, and
(3) compensation, reimbursement of expenses and amounts arising from
liabilities related to corporate affairs and other benefits paid or
provided to officers and employees of the Company or its Subsidiaries
for services rendered consistent with the Company's practices on the
date of the indenture or comparable to those generally paid or
provided by entities engaged in the same or similar businesses,
including reimbursement or advancement of reasonable out-of-pocket
business expenses and the provision of directors' and officers'
liability insurance.
Limitations on Liens
The Company will not, and will not permit any of its Subsidiaries to,
create, become liable for, assume or allow to exist any Lien upon any of its
assets, including without limitation the Pledged Shares, to secure any
Indebtedness or obligations other than the notes, unless the notes are equally
and proportionately secured on a senior basis for so long as the secured
Indebtedness or obligations are so secured.
There will not, however, be any prohibitions against:
(1) Liens on the assets of the Subsidiaries of the Company, other
than the Collateral, securing Indebtedness under the Credit
Agreement permitted by clause (2) of the second paragraph of
the covenant described under "-- Limitations on Indebtedness";
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(2) Liens on the Collateral securing Indebtedness under the Hydro
Agreement permitted by clause (3) of the second paragraph of
the covenant described under "-- Limitations on Indebtedness,"
provided that these Liens are subordinated to the Liens on the
Collateral on terms substantially identical to those in effect
on the date of the indenture;
(3) Liens in favor of the Company or any Wholly Owned Subsidiary;
(4) Liens on assets of a Person existing at the time the Person is
merged into or with the Company or any Subsidiary of the
Company, provided that these Liens were not created in
connection with or in contemplation of the merger and do not
extend to any other assets, other than Improvements to or on
those assets and any proceeds of these assets, of the Company
or any Subsidiary of the Company;
(5) Liens on assets existing at the time of acquisition of the
assets by the Company or any Subsidiary of the Company,
provided that these Liens were not created in connection with
or in contemplation of the acquisition and do not extend to
any other assets, other than Improvements to or on those
assets and any proceeds of these assets, of the Company or any
Subsidiary of the Company;
(6) Liens securing Refinancing Indebtedness permitted by clause
(6) of the second paragraph of the covenant described under
"-- Limitations on Indebtedness" and Incurred to Refinance, or
successively Refinance, any Indebtedness secured by Liens
permitted by this paragraph, other than by clause (3) or (8)
of this paragraph, provided that the Liens securing the
Refinancing Indebtedness are not attached to any assets, which
may be by category or type. of the Company or any Subsidiary
of the Company other than those securing the Indebtedness so
Refinanced;
(7) Permitted Liens; and
(8) Liens on assets of the Company or the Subsidiaries, other than
the Pledged Shares, in addition to those permitted by clauses
(1) through (7), securing Indebtedness or obligations in a
total amount at any time outstanding not exceeding $5,000,000.
The notes will be considered equally and proportionately 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 assets as the other Lien, provided that, if the
Indebtedness or obligations secured by the other Lien are expressly subordinated
in right and priority of payment by their terms to the notes or any guarantee,
the Lien securing the notes shall be senior to the other Lien.
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Subsidiary Guarantees
The indenture provides that, if any Person becomes a Subsidiary of the
Company after the date of the indenture, including as a result of any merger or
other acquisition or any designation by the Board of Directors of the Company,
the Company will
(1) execute and deliver to the trustee, and cause each Person, and, in the
event the Company owns any of the Capital Stock of the Person
indirectly through one or more other Subsidiaries of the Company, each
of the other Subsidiaries, to execute and deliver to the trustee, a
supplemental indenture complying with the requirements of the
indenture satisfactory in form to the trustee under which
(a) the Person will be named as an additional Subsidiary of the
Company subject as such to the terms of the indenture, including
without limitation the provisions described under "-- The
Subsidiary Guarantees," and
(b) all of the issued and outstanding Capital Stock of the Person
owned by the Company or any Subsidiary of the Company together
with all income, benefits and rights derived from the Capital
Stock and all proceeds from it will become subject to the Pledge
under the indenture, and
(2) deliver or cause the Subsidiaries to deliver to the trustee all
certificates evidencing the Capital Stock, properly endorsed or
accompanied by properly executed stock powers satisfactory in form to
the trustee.
Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit its Subsidiaries to, create or
otherwise allow to exist any consensual restrictions on the ability of any
Subsidiary of the Company to pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness owed to the Company or any other
Subsidiary of the Company or to make loans or advances or transfer any of its
assets to the Company or any other Subsidiary of the Company; provided, however,
that these restrictions shall not prohibit Permitted Dividend Encumbrances.
Limitations on Asset Sales
The Company will not, and will not permit any of its Subsidiaries to,
consummate any Asset Sale unless the Company or the Subsidiary receives
consideration in connection with the Asset Sale at least equal to the Fair
Market Value of the assets sold, transferred or otherwise disposed of and at
least 75% of the consideration from the Asset Sale received by the Company or
the Subsidiary, exclusive of agreements for reimbursement for loss or
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liability, 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 any liabilities of the Company or any Subsidiary of the
Company, other than contingent liabilities and liabilities that are by their
terms subordinated in right and priority of payment to the notes or any
guarantee, that are actually assumed by the transferee in the Asset Sale under a
customary agreement that substitutes the transferee as a party and releases the
Company and its Subsidiaries from further liability will be treated as cash for
purposes of determining the percentage of cash consideration received by the
Company or its Subsidiaries.
The Company will apply any Net Cash Proceeds received after the date of the
indenture to
(1) the prepayment of any Indebtedness of the Company, other than the
notes or the Indebtedness under the Credit Agreement or any
Refinancing Indebtedness Incurred in any Refinancing or successive
Refinancing, entitled to receive payment under its terms, excluding
Indebtedness that by its terms is subordinated in right and priority
of payment to the notes or any guarantee (the "Specified Pari Passu
Indebtedness"), unless those holders elect not to receive the
prepayment; provided that, in the event any of the Indebtedness was
Incurred under a revolving credit arrangement, the prepayment shall be
accompanied by a permanent reduction of the commitment, and
(2) an offer to purchase (an "Asset Sale Offer") the then outstanding
notes on any business day occurring no later than 305 days after the
receipt by the Company or any of its Subsidiaries of the 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 of
the outstanding notes together with accrued and unpaid interest, if
any, to the Asset Sale Purchase Date under the provisions described
below.
An Asset Sale Offer for the notes will be in a total 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 the Asset Sale Offer is mailed, and the denominator
of which is the principal amount of the notes outstanding plus the total
principal amount of Specified Pari Passu Indebtedness outstanding, determined as
of the close of business on the day immediately preceding the date notice of the
Asset Sale Offer is mailed. If
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(1) no Specified Pari Passu Indebtedness is outstanding or
(2) the holders of this Indebtedness entitled to receive payment elect not
to receive the payments provided for in the previous sentence, or
(3) the application of such Net Cash Proceeds results in the complete
prepayment of this 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.
Notice of an Asset Sale Offer will be mailed by the Company to all holders
at their last registered address within 275 days of the receipt by the Company
or any of its Subsidiaries of any 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 the greater of
(1) 24 days or
(2) that required by applicable law.
The notice shall state, among other things,
(1) that holders will be entitled to withdraw their election if the
trustee receives, not later than one business day before the Asset
Sale Purchase Date, a telegram, telex, facsimile transmission or
letter stating 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 the
holder is withdrawing his, her or its election to have the notes
purchased and
(2) that if notes in a principal amount in excess of the Asset Sale Offer
Amount are surrendered under the Asset Sale Offer, the Company shall
purchase notes on a pro rata basis, with adjustments the Company
considers appropriate so that only notes in denominations of $1,000 or
integral multiples of $1,000 will be acquired.
The Company will not be required to make an Asset Sale Offer until the
total amount of Net Cash Proceeds to be applied under this covenant exceeds
$10,000,000, and then the total amount of such Net Cash Proceeds shall be
required to be applied as required by this covenant. In no event will any Net
Cash Proceeds that are applied to an Asset Sale Offer be required to be applied
to more than one Asset Sale Offer.
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The Company will have no obligation to make an Asset Sale Offer if, and to
the extent, the Company or any of its Subsidiaries commits within 270 days of
the receipt of any Net Cash Proceeds to reinvest, whether by acquisition of an
existing business or expansion, including without limitation capital
expenditures, the Net Cash Proceeds in one or more of the lines of business,
including capital expenditures, in which the Company or its Subsidiaries were
engaged on the date of the indenture or any business reasonably related to those
lines of business, provided that the Net Cash Proceeds are substantially used
for those purposes or committed to be used for those purposes no later than 365
days following receipt of the Net Cash Proceeds.
Limitations on Unrestricted Subsidiaries
The Company will not permit any of its Unrestricted Subsidiaries to
guarantee or otherwise provide credit support for any Indebtedness of the
Company or any of its Subsidiaries.
Conduct of Business
The Company will not, and will not permit any of its Subsidiaries to,
engage in any businesses other than lines of business in which the Company or
any of its Subsidiaries is engaged on the date of the indenture and any business
reasonably related to those lines of business, as determined in good faith by
the Company's Board of Directors.
Limitations on Issuances and Sales of Capital Stock of Subsidiaries
The Company will not, and will not permit any of its Subsidiaries to, sell,
transfer or otherwise dispose of any Capital Stock of any Subsidiary to any
Person if as a result of the sale, transfer or disposition the Subsidiary will
cease to be a Subsidiary, and will provide further that any permitted sale,
transfer or disposition will comply with the terms of the indenture, including
without limitation the covenant described under "-- Limitations on Asset Sales."
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries or
Unrestricted Subsidiaries to pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any holder of a note for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture, the notes or any guarantee, unless the consideration is
offered to be paid or is paid to all holders of the notes that so consent, waive
or agree to amend in the time frame described in the solicitation documents
relating to the consent, waiver or amendment.
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Maintenance of Corporate Existence
Except as otherwise provided or permitted in the indenture, the Company
will at all times 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 of the Company; provided, however, that any Wholly
Owned Subsidiary may liquidate or dissolve as provided by the laws of the state
where it was formed.
Maintenance of Insurance
Until the notes have been paid in full, the Company and the Subsidiary
guarantors will, and will cause their Subsidiaries to, have and maintain in
effect insurance with responsible carriers against risks and in amounts as is
customarily carried by similar businesses with terms and provisions that are
customarily carried by similar businesses of similar size, including, without
limitation, property and casualty.
SEC Reports
The Company will file with the trustee, within 15 days after it is required
to file them with the Securities and Exchange Commission, copies of the annual
reports and of the information, documents and other reports, or copies of such
portions of any of these materials as the SEC may by rules and regulations
prescribe, that the Company is required to file with the SEC under Section 13 or
15(d) of the Securities Exchange Act of 1934. If the Company is not subject to
the requirements of Section 13 or 15(d) of the Securities Exchange Act, the
Company shall nonetheless file with the trustee copies of annual reports and
information, documents and other reports that it would file if it were subject
to the requirements of Section 13 or 15(d) of the Securities Exchange Act. In
addition, the Company and its Subsidiaries will agree that, for so long as any
Restricted Securities remain outstanding, they will furnish to the holders of
the notes and to securities analysts and prospective investors, upon request,
the information required to be delivered under Rule 144A(d)(4) under the
Securities Act of 1933.
Merger
The Company will not merge with or into any other entity or sell or convey,
or permit any of its Subsidiaries to sell or convey, all or substantially all of
the Company's property, determined on a consolidated basis for the Company and
its Subsidiaries, to any other entity, whether in a single transaction or a
series of related transactions. The entity formed by or surviving any such
merger, or to which such sale or conveyance shall have been made, whether the
Company or such other entity, shall be referred to as the "surviving
corporation." The Company may take these actions if
(1) immediately after giving effect to such merger, sale or conveyance,
there is no existing or pending Event of Default,
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(2) the surviving corporation is a corporation organized under the laws of
the United States or any of its individual states,
(3) immediately after giving effect to the merger, sale or conveyance, the
surviving corporation could take on $1.00 of Indebtedness under the
first paragraph of the covenant described under "-- Limitations on
Indebtedness,"
(4) the surviving corporation if other than the Company expressly assumes
the obligations of the Company under the notes and the indenture by
supplemental indenture complying with the requirements of the
indenture satisfactory in form to the trustee,
(5) the surviving corporation if other than the Company expressly assumes
the obligations of the Company under the security agreements and the
registration rights agreement and
(6) immediately after giving effect to the merger, sale or conveyance, the
surviving corporation has a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of the Company immediately prior to
the transaction.
Except as explained in the immediately succeeding paragraph, no Subsidiary
of the Company, other than a Subsidiary the guarantee of which is to be released
in any transaction complying with the covenant described under "-- Limitations
on Asset Sales," will merge with or into any other entity, unless
(1) immediately after giving effect to the merger, there is no existing or
pending Event of Default,
(2) the surviving corporation is a Subsidiary of the Company organized
under the laws of the United States or any of its individual states,
(3) immediately after giving effect to the merger, the Company could take
on $1.00 of Indebtedness under the first paragraph of the covenant
described under "-- Limitations on Indebtedness,"
(4) the surviving corporation if other than the Subsidiary expressly
assumes the obligations of the Subsidiary under the security
agreements and the indenture, including the obligations of the
Subsidiary under its guarantee, by supplemental indenture complying
with the requirements of the indenture satisfactory in form to the
trustee, and
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(5) immediately after giving effect to the merger, the surviving
corporation has a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Subsidiary immediately prior to such
transaction.
Notwithstanding the immediately preceding paragraph,
(1) a Wholly Owned Subsidiary of the Company may merge with or into the
Company, provided that the Company is the surviving corporation, and
(2) a Wholly Owned Subsidiary of the Company may merge with or into any
other Wholly Owned Subsidiary.
No Amendment to Subordination Provisions
Without the consent of the Holders of at least a majority of the total
principal amount of the notes then outstanding, the Company will not amend,
modify or alter the Hydro Agreement in any way that will
(1) increase the rate of or change the time for payment of interest on any
Hydro Subordinated Debt,
(2) increase the principal of, advance the final maturity date of or
shorten the Weighted Average Life to Maturity of any Hydro
Subordinated Debt and
(3) alter the redemption provisions or the price or terms at which the
Company is required to offer to purchase the Hydro Subordinated Debt.
The Company also will not agree or consent to or take any other act to affect
the subordination of the Hydro Subordinated Debt relative to the notes.
Release of Collateral
Under the security agreements, the Collateral of a Subsidiary may be
released in one of three ways:
(1) If all of the capital stock of the guarantor is sold to a Person other
than the Company, a Subsidiary, an Unrestricted Subsidiary or an
Affiliate,
(2) If the Collateral is sold to a Person other than the Company, a
Subsidiary, an Unrestricted Subsidiary or an Affiliate or
(3) If the Company designates the guarantor as an Unrestricted Subsidiary.
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Defaults and Certain Rights on Default
Each of the following is an Event of Default:
(1) a default in the payment of principal, Change of Control Purchase
Price, Asset Sale Purchase Price or premium for the notes when due and
payable,
(2) a default for 30 days in payment of any installment of interest on any
of the notes,
(3) a failure on the part of the Company to observe or perform in any
material respect the provisions described under "--Material Covenants
-- Limitations on Indebtedness," "-- Material Covenants -- Limitations
on Restricted Payments, Restricted Investments and Unrestricted
Subsidiary Investments," "-- Material Covenants -- Limitations on
Liens," "--Material Covenants -- Limitations on Asset Sales," "--
Material Covenants -- Merger," "-- Material Covenants -- No Amendment
to Subordination Provisions" or "-- Offer to Purchase the Notes,"
(4) a failure on the part of the Company to observe or perform in any
material respect any other of the covenants or agreements on the part
of the Company in the notes or in the indenture for a period of 60
days after the date on which written notice of the failure, which
notice must specify the failure, demand it be remedied and state that
the notice is a "Notice of Default," shall have been given to the
Company by the trustee by registered or certified mail, which notice
the trustee may give at its discretion and will give upon receipt of
requests to do so by the holders of at least 25% of the total
principal amount of the notes at the time outstanding, or to the
Company and the trustee by registered or certified mail by the holders
of at least 25% of the total principal amount of the notes at the time
outstanding,
(5) a default under any mortgage, indenture or instrument under which
there may be issued, secured or evidenced any Indebtedness of the
Company or any of its Subsidiaries, whether the Indebtedness now
exists or shall be created after the date of the indenture, which
default
(a) in the case of a failure to make payment on any Indebtedness,
shall not have been waived, cured or otherwise ceased to exist
before the expiration of the applicable grace period for the
Indebtedness, or
(b) in the case of any default other than a payment default referred
to in clause (a), shall have resulted in the Indebtedness
becoming or being declared due and payable before the date on
which it would otherwise
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have become due and payable, provided that the total principal
amount of all Indebtedness which is in default exists exceeds
$10,000,000;
(6) a breach by the Company or any guarantor of any material
representation or warranty listed in the security agreements, or,
subject to notice and grace periods provided for in the applicable
security agreements, a default by the Company or any guarantor in the
performance of any covenant in the security agreements, or a
repudiation by the Company or any guarantor of its obligations under
the security agreements or the unenforceability of the security
agreements against the Company or any guarantor for any reason;
(7) a final judgment which, together with other outstanding final
judgments against the Company and its Subsidiaries, exceeds a total of
$10,000,000, to the extent the judgments are not covered by valid and
collectible insurance from solvent unaffiliated insurers or
uncontested reimbursement of the judgment from solvent unaffiliated
parties, shall be entered against the Company and/or its Subsidiaries
and, within 60 days after entry of the final judgment, judgments
exceeding that amount shall not have been paid or the execution of the
judgments stayed pending appeal or, within 60 days after the
expiration of any stay, the judgments exceeding such amount shall not
have been paid or execution of those judgments further stayed;
(8) certain events of bankruptcy, insolvency, receivership or
reorganization of the Company or any of its Subsidiaries and
(9) other than a valid release of a guarantee as described under "-- The
Subsidiary Guarantees," a guarantee having been held unenforceable or
invalid for any Subsidiary of the Company by a final non-appealable
order or judgment issued by a court or having ceased for any reason to
be in full force and effect for any Subsidiary of the Company, or any
Subsidiary of the Company or any Person acting by or on behalf of any
Subsidiary of the Company having denied or refused to abide by its
obligations under a guarantee.
In the case of any Event of Default occurring by reason of any intentional
action or inaction taken or not taken by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the notes under the optional
redemption provisions of the indenture, an equivalent premium will also become
and be immediately due and payable to the extent permitted by law when the notes
become immediately due and payable. If an Event of Default occurs before
December 15, 2002 by reason of any intentional action or inaction taken or not
taken by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the notes prior to December 15, 2002, then the
premium specified in the indenture will also become immediately due and payable
to the extent permitted by law upon the notes becoming immediately due and
payable.
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If an Event of Default occurs and continues, either the trustee or the
holders of at least 25% of the total principal amount of the notes then
outstanding may declare the entire principal of and interest on the notes to be
due and payable immediately. Upon the occurrence of certain events of
bankruptcy, insolvency, receivership or reorganization, principal of and
interest on the notes will become due and payable without necessity of action on
the part of the trustee or the holders of the notes. The holders of a majority
of the total principal amount of the notes then outstanding may waive any past
default under the indenture and all of its consequences on behalf of the holders
of all of the notes. This is not the case if the notes become immediately due
and payable automatically as a result of certain events of bankruptcy,
insolvency, receivership or reorganization. Nor is this the case if a default in
the payment of principal of, premium, if any, Change of Control Purchase Price,
Asset Sale Purchase Price or interest on any of the notes, other than solely as
a result of the notes becoming immediately due and payable, or a default under
any covenant or provision of the indenture which under the provisions described
in "-- Modification of the Indenture or Security Agreements" cannot be modified
or amended without the consent of the holder of each outstanding note. In the
case of any waiver, the Company, the trustee and the holders of the notes will
be restored to their former positions and rights under the indenture; but no
waiver shall extend to any subsequent or other default or impair any right
consequent on such default.
Modification of Indenture or Security Agreements
With the consent of the holders of not less than a majority in total
principal amount of the outstanding notes, the trustee and the Company may
execute a supplemental indenture to add provisions to, or change in any manner
or eliminate any provisions of, the indenture or modify in any manner the rights
of the holders of the notes; provided, however, that, without the consent of
each holder of an outstanding note affected, no such supplemental indenture will
(1) extend the stated maturity of any note, reduce the rate at which
interest accrues on any note, extend the time or alter the manner of
payment of interest on any note, reduce the principal amount of any
note, alter the timing of or reduce any premium payable upon the
redemption of any note, change the currency in which any payments are
made on or in connection with any note, change the ranking or
seniority of any note, or reduce the amount payable on any note in the
event it becomes immediately due and payable or the amount of any note
payable in bankruptcy, or
(2) reduce the percentage of total principal amount of notes the consent
of the holders of which is required for any supplemental indenture.
The Company and the trustee may, without the consent of any holder of the notes,
amend or supplement the indenture for certain limited purposes, including to
cure any ambiguity or to correct any defect or inconsistency in the indenture or
to comply with any requirements of
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the Commission in order to effect or maintain the qualification of the indenture
under the Trust Indenture Act. Without the consent of the holders of not less
than 66 2/3% of the total principal amount of the outstanding notes, the
Collateral Agent and the Company cannot
(1) amend the security agreements or
(2) release any of the Collateral from a Lien or the security agreements,
except under the provisions of a Lien or the security agreements.
Legal Defeasance and Covenant Defeasance
The Company may, at its option, elect to have its obligations arising under
the outstanding notes and the obligations of its Subsidiaries, including under
any guarantees, discharged ("Legal Defeasance"). This Legal Defeasance means
that the Company will be considered to have paid and discharged the entire
indebtedness represented, and the indenture will cease to be of further effect
as to all outstanding notes and guarantees, except as to
(1) rights of holders of the notes to receive payments on the principal
of, premium, if any, and interest on the notes when the payments are
due from the trust funds;
(2) the Company's obligations arising under such notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes, and the maintenance of an office or agency for payment
and money for security payments held in trust;
(3) the rights, powers, trust, duties, and immunities of the trustee, and
the Company's obligations in connection with the trustee; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and its Subsidiaries arising under certain covenants
that are described in the indenture released ("Covenant Defeasance") and
subsequently any omission to comply with these obligations will not constitute
an Event of Default under the terms of the notes. If a Covenant Defeasance
occurs, certain events, not including non-payment, guarantees, bankruptcy,
receivership, reorganization and insolvency events, described under "-- Defaults
and Certain Rights on Default" will no longer constitute an Event of Default
under the terms of the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) the Company must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of the notes, U.S. legal tender, Government
Securities or a
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combination of all of these, in amounts that will be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on
the notes on the stated date for payment or on the redemption date of
the principal or installment of principal of, premium, if any, or
interest on the notes, and the holders of notes must have a perfected
security interest in the trust;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that
(a) the Company has received from, or there has been published by the
Internal Revenue Service, a ruling or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based on that change the opinion of counsel shall
confirm that, the holders of the notes will not recognize income,
gain or loss for federal income tax purposes as a result of the
Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would
have been the case if the Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the trustee an opinion of counsel in the United States reasonably
acceptable to such trustee confirming that the holders of the notes
will not recognize income, gain or loss for federal income tax
purposes as a result of the Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if the Covenant Defeasance had
not occurred;
(4) there is no existing or pending Event of Default on the date of the
deposit or, in so far as bankruptcy, insolvency, receivership or
reorganization are concerned, at any time between the date of the
deposit and the 91st day after the date of the deposit and the Company
shall have delivered to the trustee an opinion of counsel, subject to
the qualifications and exceptions as the trustee decides are
appropriate, to the effect that, assuming no intervening bankruptcy of
the Company between the date of deposit and the 91st day following the
deposit and that no holder of the notes is an insider of the Company,
after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors rights generally;
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(5) the Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, the indenture
or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;
(6) the Company shall have delivered to the trustee an Officers'
Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the notes over any other
creditors of the Company or any of its Subsidiaries or with the intent
of defeating, hindering, delaying or defrauding any other creditors of
the Company or any of its Subsidiaries or others; and
(7) the Company shall have delivered to the trustee an Officers'
Certificate and an opinion of counsel, each stating that the Company
has complied with the conditions precedent provided for in, in the
case of the Officers' Certificate, (1) through (6) and, in the case of
the opinion of counsel, clauses (1), regarding the validity and
perfection of the security interest, and (5) of this paragraph.
If the funds deposited with the trustee to effect Covenant Defeasance are
insufficient to pay the principal of, premium, if any, and interest on the notes
when due, or if the transfer of the funds to the trustee is avoided as a
preferential transfer, a fraudulent transfer, or otherwise, then the obligations
of the Company and the Subsidiary guarantors under the indenture will be revived
and no Covenant Defeasance will be considered to have occurred.
Concerning the Trustee
U.S. Trust Company, National Association, is the trustee under the
indenture and has been appointed by the Company as registrar and paying agent
with regard to the notes.
The holders of a majority in principal amount of the outstanding notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the trustee, subject to some exceptions.
The indenture provides that if an Event of Default occurs, and is not cured, the
trustee will be required, in the exercise of its power, to use the degree of
care of a prudent person in the conduct of his or her own affairs. Subject to
these provisions, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any holder of notes,
unless a holder shall have offered to the trustee security and a promise to
reimburse it against any loss, liability or expense and then only to the extent
required by the terms of the indenture.
Governing Law
The indenture provides that it and the notes are governed by, and construed
under, the laws of the State of New York without giving effect to applicable
principles of conflicts
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of law to the extent that the application of the law of another jurisdiction
would be required thereby.
Definitions
Listed below are defined terms used in the indenture.
"Affiliate" means any other Person in any way controlling or controlled by
or under direct or indirect common control with a specified Person. For the
purpose of this definition, "control" when used in relation to any specified
Person means the possession of the power to direct the management and policies
of that Person, in any way, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings similar to and based on this meaning of "control."
"Aluminum Hedging Obligations" means monetary obligations of a Person under
any options or futures contract, forward contract or other agreement or
arrangement designed to protect that Person or any of its Subsidiaries against
fluctuations in prices of aluminum or raw materials related to the production of
aluminum.
"Asset Sale" means
(1) any sale, transfer or other disposition, such as dispositions as part
of a merger or sale and leaseback transaction, of any assets, other
than cash or Cash Equivalents, on or after the date of the indenture
by the Company or any of its Subsidiaries to any Person other than the
Company or a Wholly Owned Subsidiary, and
(2) the issuance by any Subsidiary of the Company on or after the date of
the indenture of its Capital Stock to any Person other than the
Company or a Wholly Owned Subsidiary;
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 as part of a sale and leaseback transaction if the lease
under the sale and leaseback transaction is required to be classified and
accounted for as a Capitalized Lease Obligation; and provided, further, that the
following sales, transfers or other dispositions of assets will not be an "Asset
Sale":
(a) sales of inventory in the ordinary course of business of the
Company and its Subsidiaries;
(b) o trade-ins of any used equipment on replacement equipment or
o sales, transfers or other dispositions of property no longer
necessary for or useful in the proper conduct of the
business of
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the Company and its Subsidiaries, the gross proceeds of
which sales, transfers or other dispositions do not exceed
$1,000,000 during any 12-month period; provided that the
amount of the proceeds, to the extent consisting of property
other than cash, to be the Fair Market Value of such
property;
(3) transfers or other dispositions resulting from the creation,
Incurrence or assumption of any Lien not prohibited as described under
"-- Material Covenants -- Limitations on Liens";
(4) sales in the ordinary course of business of accounts receivable as to
which collection is doubtful based on past practice;
(5) sales, transfers or other dispositions in connection with any merger
of the Company or any of its Subsidiaries or sale or conveyance of all
or substantially all of the property of the Company, determined on a
consolidated basis, in compliance with the description under "--
Material Covenants -- Merger";
(6) sales, transfers or other dispositions which are Restricted
Investments, Restricted Payments or Unrestricted Subsidiary
Investments permitted as described under "-- Material Covenants --
Limitations on Restricted Payments, Restricted Investments and
Unrestricted Subsidiary Investments";
(7) sales, transfers or other dispositions of the 105 megawatt General
Electric steam turbine generator and related generator power
transformers and other related assets held for sale by Goldendale
Aluminum Company on the date of the indenture; and
(8) the surrender or waiver of contract rights, or settlement, release or
surrender of contract, tort or other claims of any kind.
"Attributable Debt" means, as of the date of completion of a sale and
leaseback transaction, the greater of
(1) the Fair Market Value of the property subject to the sale and
leaseback transaction and
(2) 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, including
extensions, included in the sale and leaseback transaction.
"Borrowing Base" means, at any time, the sum of
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(1) up to 85% of the then book value net of reserves of the eligible
accounts of the Company and its Subsidiaries on a consolidated basis
arising from the sale of inventory in the ordinary course of business,
plus
(2) up to 75% of the then book value of the eligible finished aluminum
inventory of the Company and its Subsidiaries on a consolidated basis,
plus
(3) up to 50% of the eligible other inventory of the Company and its
Subsidiaries on a consolidated basis, all as determined under GAAP.
"Capital Stock" means any and all shares, interests, participations or
other equivalents of capital stock, partnership or member interests or other
undivided ownership interests in a Person, and warrants, options or similar
rights, other than, except for purposes of the description under "-- Material
Covenants -- Subsidiary Guarantees" and "-- Security," debt securities
convertible into Capital Stock, to acquire the Capital Stock, partnership or
member interests or other undivided ownership interests in that Person.
"Capitalized Lease Obligations" means the obligations of a 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
that Person under GAAP; and, for purposes of the indenture, the amount of these
obligations at any date shall be the amount of the liability at that date,
determined under GAAP.
"Cash Equivalents" means
(1) Government Securities having maturities of not more than one year from
the date of acquisition,
(2) certificates of deposit of any commercial bank incorporated under the
laws of the United States, or any State, territory or commonwealth of
the United States, 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,
(3) repurchase obligations with a term of not more than 31 days for
underlying securities of the types described in clauses (1), (2) and
(4) of this definition entered into with any Approved Bank,
(4) commercial paper or finance company paper issued by any Person
incorporated under the laws of the United States, or any State of the
United States, and
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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
(5) investments in money market funds that are registered under the
Investment Company Act of 1940 that 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 (1) through (4)
above.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition, in one or
a series of related transactions, of all substantially all of the
assets of the Company and its Subsidiaries taken as a whole to any
"person" as that term is used in Section 13(d)(3) of the Securities
Exchange Act other than the Company and/or one or more Wholly Owned
Subsidiaries,
(2) the adoption of a plan relating to the complete settlement of the
Company's affairs and the end of its legal existence,
(3) the completion of any transaction as a result of which Brett E. Wilcox
is no longer the sole beneficial owner of at least a majority of the
Voting Stock of the Company, provided that an event will not
constitute a "change of control" if Brett E. Wilcox
(a) is the sole beneficial owner of at least 35% of the Voting Stock
of the Company, and
(b) is the Chief Executive Officer of the Company and
(c) has the sole right to elect a majority of the Board of Directors
of the Company which right is not subject to revocation,
termination or expiration prior to the scheduled maturity of the
notes;
provided, further, that the immediately preceding exception will not
be available if any other "person," as defined in paragraph (1) above,
is the beneficial owner of 35% or more of the Voting Stock of the
Company or
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not continuing directors. For purposes of
this provision, "continuing directors" means, as of any date of
determination, any member of the Board of Directors of the Company who
(a) was a member of the Board of Directors on the date of the
indenture or
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(b) was nominated for election or elected or appointed to the Board
of Directors by the Board of Directors of the Company at a time
when a majority of the Board, excluding any member whose service
terminated as result of death, consisted of continuing directors.
"Consolidated Amortization Expense" means, for any Person for any period,
the amortization expense of that Person and its Subsidiaries for the period,
determined on a consolidated basis under GAAP.
"Consolidated Cash Flow Available for Fixed Charges" means, for any Person
for any period, the sum of the amounts for the period of
(1) Consolidated Net Income, including, for this purpose only, the Net
Income of any Unrestricted Subsidiary, to the extent paid or
distributed in cash to the Company or one of its Subsidiaries,
(2) Consolidated Fixed Charges to the extent they have reduced
Consolidated Net Income,
(3) Consolidated Income Tax Expense other than income taxes and credits
for items of Net Income not included in the definition of Consolidated
Net Income,
(4) Consolidated Depreciation Expense,
(5) Consolidated Amortization Expense, and
(6) any other non-cash items reducing Consolidated Net Income except for
any non-cash expense to the extent it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period or amortization
of a prepaid cash expense that was paid in a prior period, minus any
non-cash items increasing Consolidated Net Income, all as determined
on a consolidated basis for the Person and its Subsidiaries under
GAAP;
provided, however, that
(1) if, during that period or subsequent to the period and on or before
the relevant Transaction Date, as defined below, the Person or any of
its Subsidiaries shall have engaged in any Asset Sale, Consolidated
Cash Flow Available for Fixed Charges of the Person and its
Subsidiaries for the period will be reduced by an amount equal to any
positive Consolidated Cash Flow Available for Fixed Charges directly
attributable to the assets that are the subject of the Asset Sale for
the period, or increased by an amount equal to any negative
Consolidated
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Cash Flow Available for Fixed Charges directly attributable to the
assets that are the subject of the Asset Sale for the period and
(2) if, during that period or subsequent to the period and on or before
the relevant Transaction Date, the 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 will be
calculated on a pro forma basis as if the asset acquisition and
related financing had occurred at the beginning of the period.
"Consolidated Depreciation Expense" means, for any Person for any period,
the depreciation and depletion expense of that Person and its Subsidiaries for
the period, determined on a consolidated basis under GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, for 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
(1) the total amount of Consolidated Cash Flow Available for Fixed Charges
of that Person for the four fiscal quarters immediately preceding the
Transaction Date for which financial information is available (the
"Four Quarter Period") to
(2) the total Consolidated Fixed Charges of the Person for the Four
Quarter Period.
For purposes of this calculation,
(1) any Indebtedness other than Indebtedness Incurred under a revolving
credit facility in effect on a pro forma basis on the Transaction Date
Incurred, repaid, redeemed, repurchased or otherwise discharged during
the Four Quarter Period or subsequent to the Four Quarter Period and
on or before the Transaction Date, including without limitation
Indebtedness giving rise to the need to make these calculations, will
be considered to have been Incurred or discharged on the first day of
the Four Quarter Period so that there will be considered to have been
outstanding during the entire Four Quarter Period an amount of
Indebtedness equal to the amount outstanding on a pro forma basis on
the Transaction Date and so that no Indebtedness that is not
outstanding on a pro forma basis on the Transaction Date will be
considered to have been outstanding during any part of the Four
Quarter Period,
(2) any Indebtedness under a revolving credit facility in effect on a pro
forma basis on the Transaction Date will be considered to have been
outstanding during the entire Four Quarter Period in an amount equal
to the average daily
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balance of the Indebtedness during the period commencing on the first
day of the Four Quarter Period and ending on the Transaction Date, and
(3) Consolidated Fixed Charges attributable to interest accrued at a
variable rate will be computed as if the rate in effect on the
Transaction Date had been the applicable rate for the entire Four
Quarter Period, unless the Person or any of its Subsidiaries is a
party to any Interest Hedging Obligations that will remain in effect
for the 12-month period immediately following the Transaction Date and
that have the effect of fixing such rate, in which case the fixed rate
shall be used.
"Consolidated Fixed Charges" means, for any Person for any period, the sum
of:
(1) the interest expense of that Person and its Subsidiaries for the
period, determined on a consolidated basis under GAAP;
(2) all fees, commissions, discounts and other charges of that Person and
its Subsidiaries for the period, determined on a consolidated basis
under GAAP, for letters of credit and bankers' acceptances and the
costs, net of benefits, associated with Interest Hedging Obligations
of the Person and its Subsidiaries for the period;
(3) the total amount of dividends or other similar distributions accrued
by that Person and its Subsidiaries during the period related to
preferred stock of the Person or its Subsidiaries determined on a
consolidated basis under GAAP; and
(4) amortization or write-off of the interest represented by the
difference between the price paid for a debt security and its face or
maturity amount for the period in connection with any Indebtedness of
that Person and its Subsidiaries, determined on a consolidated basis
under GAAP.
"Consolidated Income Tax Expense" means, for any Person for any period, the
income tax expense, net of credits, of that Person and its Subsidiaries for the
period, determined on a consolidated basis under GAAP, and, in the case of the
Company, any distributions of income made for the period described under clause
(6) of the second paragraph under "-- Material Covenants --Limitations on
Restricted Payments, Restricted Investments and Unrestricted Subsidiary
Investments."
"Consolidated Net Income" means, for any Person for any period, the total
of the Net Income of that Person and its Subsidiaries for the period taken as a
single accounting period, all as determined on a consolidated basis under GAAP,
excluding:
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(1) the Net Income, but not loss, of any Person that is not a Subsidiary
of the Person or that is accounted for on the equity method of
accounting, except to the extent of the amount of dividends or other
distributions of other than Capital Stock actually paid in cash to the
Person or any of its Subsidiaries by the other Person during such
period;
(2) except to the extent included by clause (1), the Net Income of any
Person accrued before the date it becomes a Subsidiary of the Person
or is merged into the Person or any of its Subsidiaries or that
Person's assets are acquired by the Person or any of its Subsidiaries;
(3) the Net Income of any Subsidiary of the Person during the period
(a) to the extent that the declaration or payment of dividends or
similar distributions by the Subsidiary of the Net Income is not
at the time permitted or 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
its shareholders or
(b) in the case of a foreign Subsidiary or a Subsidiary with
significant foreign source income, to the extent the Net Income
has not been distributed to the Person and the distribution would
result in a material tax liability not otherwise deducted from
the calculation of Consolidated Net Income whether or not the
deduction is required by GAAP;
(4) the Net Income of any Unrestricted Subsidiary, whether or not paid or
distributed to the Company or one of its Subsidiaries; and
(5) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" means, for any Person as of any date, the
total shareholders' equity of that Person as of the date less, to the extent
otherwise included, amounts attributable to Disqualified Stock, in each case
determined on a consolidated basis under GAAP.
"Credit Agreement" means the Credit Agreement, dated December 21, 1998, by
and among Northwest Aluminum Company, Northwest Aluminum Specialties, Inc.,
Goldendale Holding Company, Goldendale Aluminum Company, Northwest Aluminum
Technologies, LLC, the financial institutions that are, or from time to time
become, parties, and BankBoston N.A., as administrative agent, providing for
revolving credit borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection with the Credit
Agreement, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time.
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"Disqualified Stock" means
(1) except as explained in clause (2) below, for any Person, Capital Stock
of that Person that by its terms, or by the terms of any security into
which it is convertible or for which it is exercisable or
exchangeable, is, or upon the happening of an event or a passage of
time would be, required to be redeemed or repurchased by the Person or
any of its Subsidiaries, in whole or in part, on or before the
scheduled maturity date that is 91 days after the maturity of the
notes, and
(2) for any Subsidiary of a Person, any Capital Stock other than common
stock with no special rights and no preference, privileges, or
redemption or repayment provisions.
"Excluded Property" means the real property at Goldendale, Washington and
The Dalles, Oregon, including improvements, that is not integral to the
Company's operations and not subject to the Liens of the security agreements.
"Fair Market Value" means, for any property other than cash, the fair
market value of the property as determined in good faith by the Board of
Directors of the Company, whose determination shall be evidenced by a
resolution; provided, however, that, if the Company or a Subsidiary of 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 of the
Company or an Unrestricted Subsidiary in an amount in excess of $5,000,000, the
Company or a Subsidiary of the Company, in addition, shall have received an
opinion from an independent investment banking, appraisal or accounting firm of
national standing selected by the Company, which, in the good faith judgment of
the Board of Directors, is qualified to perform this task, to the effect that
the Board of Directors' determination of fair market value is fair.
"GAAP" means generally accepted accounting principles described and
explained in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in other
statements by any other entity as may be approved by a significant segment of
the accounting profession of the United States, as in effect on the date of the
indenture.
"Government Securities" means securities issued or directly and fully
guaranteed or insured by the United States of America or any of its agencies;
provided that the full faith and credit of the United States of America is
pledged in support of the security.
"Hydro Agreement" means the Subordinated Note Purchase Agreement, dated
December 21, 1998, between the Company and Norsk Hydro USA, Inc., including all
related notes, collateral documents and guarantees.
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"Improvements" means any accessories, accessions, additions, attachments,
substitutions, replacements, improvements, parts and other property now or later
affixed to or used in connection with any assets.
"Indebtedness" means, for any Person at any date, any of the following:
(1) all obligations of that Person for borrowed money and all obligations
of the Person evidenced by debentures, notes or other similar
instruments or representing reimbursement or similar obligations
related to Aluminum Hedging Obligations;
(2) all obligations of the Person to pay the deferred purchase price of
property or services, except
(a) accounts payable and other accrued expenses arising in the
ordinary course of business, and
(b) obligations to pay employee compensation or other employee
benefits except as provided in clause (7) below;
(3) Capitalized Lease Obligations of the Person;
(4) all Indebtedness of others secured by a Lien on any asset of the
Person, whether or not the Indebtedness is assumed or guaranteed by
the Person;
(5) all Disqualified Stock of such Person;
(6) all Indebtedness of others guaranteed by such Person;
(7) all pension and other similar obligations of such Person arising from
employee benefits, to the extent unfunded ("Unfunded Pension
Obligations"); and
(8) all obligations under sale and leaseback transactions;
and the amounts of Indebtedness will be, in the case of clauses (1) through (3)
and (6), the outstanding balance of any of the unconditional obligations, or the
accumulated value of the unconditional obligations in the case of Indebtedness
issued with original issue discount, together with any interest that is more
than 30 days past due and the maximum liability of any of the contingent
obligations at that date, and, in the case of clause (4), the lesser of the Fair
Market Value at that 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 (5), the greater of the maximum liquidation value of the
Disqualified Stock and the maximum redemption price of the Disqualified Stock,
and, in the case of clause (7), the amount of the Unfunded Pension Obligations
determined by the Company in good faith as evidenced by a certificate
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of the Chief Financial Officer of the Company delivered to the trustee, and, in
the case of clause (8), the Attributable Debt; provided, however, that
Indebtedness shall not include obligations of the Person resulting from the
endorsement of negotiable instruments for collection in the ordinary course of
business.
"Interest" means interest payable on the notes at the rate stated in the
terms of the notes, plus any additional interest payable by the Company and the
Subsidiaries on the notes under the registration rights agreement.
"Interest Hedging Obligations" means for any Person, the monetary
obligations of that Person under 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 the
Person or any of its Subsidiaries against fluctuations in interest rates.
"Lien" means any mortgage, lien, pledge, charge, security interest or claim
of any kind on any asset, whether or not filed, recorded or otherwise perfected
under applicable law.
"Net Cash Proceeds" means cash payments received, except that if received
in a currency other than U.S. dollars, these payments will not be treated as if
they have been received until the earliest time at which the currency is, or
could freely be, converted into U.S. dollars, by or on behalf of the Company
and/or any of its Subsidiaries from an Asset Sale, in each case net of:
(1) all legal, title and recording tax expenses, commissions, consulting
fees, investment banking, broker's and accounting fees and expenses,
and all other fees and expenses in obtaining regulatory approvals in
connection with the Asset Sale;
(2) the amounts of any repayments of Indebtedness secured by Liens on the
assets which are the subject of the Asset Sale, other than
Indebtedness under the Credit Agreement or Refinancing Indebtedness
Incurred to Refinance, or successively Refinance, Indebtedness under
the Credit Agreement, and other fees, expenses and other expenditures
reasonably incurred as a consequence of the repayment of Indebtedness,
whether or not the fees, expenses or expenditures are then due and
payable or made;
(3) all foreign, federal, state and local taxes payable in connection with
or as a result of the Asset Sale;
(4) for Asset Sales by any Subsidiary of the Company, the portion of the
cash payments attributable to Persons holding a minority interest in
the Subsidiary; and
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(5) any amounts paid on term loans outstanding under the Credit Agreement
or any Refinancing Indebtedness Incurred to Refinance or successively
Refinance the term loans;
provided, in each case, that the fees and expenses and other amounts are not
payable to an Affiliate or an Unrestricted Subsidiary of the Company. Net Cash
Proceeds, however, will not include proceeds received in a foreign jurisdiction
from an Asset Sale of an asset located outside the United States to the extent
(y) the proceeds cannot under applicable law be transferred to the United
States or
(z) the transfer would result, in the good faith determination of the
Board of Directors of the Company stated in a resolution, in a foreign
tax liability that would be materially greater than if the Asset Sale
occurred in the United States;
provided that if, as, and to the extent that any of the proceeds may lawfully
be, in the case of clause (y), or are, in the case of clause (z), transferred to
the United States, the proceeds will be considered 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 will also include
cash distributions actually received by or on behalf of the Company or any of
its Subsidiaries from any Unrestricted Subsidiary representing the proceeds of a
transaction by the Unrestricted Subsidiary that would constitute an Asset Sale
if the Unrestricted Subsidiary were a Subsidiary of the Company.
"Net Income" means, for any Person for any period, the net income or loss
of that Person for the period determined under GAAP, less, in the case of the
Company, the amount of any distributions of income made for the period under
clause (6) of the second paragraph under "-- Material Covenants -- Limitations
on Restricted Payments, Restricted Investments and Unrestricted Subsidiary
Investments."
"Permitted Dividend Encumbrance" means, for any Person, any consensual
restriction on the ability of that Person to pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness owed to the Company
or any of its Subsidiaries or to make loans or advances or transfer any of its
assets to the Company or any of its Subsidiaries existing under or by reason of
any of:
(1) the indenture;
(2) the Credit Agreement;
(3) applicable law;
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(4) customary provisions in agreements that restrict the assignment of the
agreements or its rights or the subletting of any assets leased under
the agreements;
(5) customary restrictions on the transfer of assets imposed by any
agreement for the sale of a Person or its assets before its
completion, provided that the restrictions apply only to the assets of
the Person or the assets to be sold;
(6) agreements governing Refinancing Indebtedness that is otherwise
permitted in connection with any Refinanced Indebtedness, provided
that no liens or other similar restrictions will be materially less
favorable to the holders of the notes than those contained in the
agreements governing the Refinanced Indebtedness;
(7) customary restrictions on the sale or other disposition of property
subject to a Lien securing Indebtedness, provided that the Lien and
the Indebtedness are otherwise permitted by the indenture, and
(8) the Hydro Agreement to the extent it incorporates provisions of the
indenture.
"Permitted Lien" means
(1) Liens imposed by governmental authorities for taxes, assessments or
other charges not yet subject to penalty or which are being contested
in good faith and by appropriate proceedings, if adequate reserves are
maintained on the books of the Company or its Subsidiary under GAAP;
(2) statutory liens of carriers, warehousemen, mechanics, material men,
landlords, repairmen or other similar Liens arising by operation of
law in the ordinary course of business provided that
(a) the underlying obligations are not overdue for a period of more
than 60 days, or
(b) the Liens are being contested in good faith and by appropriate
proceedings and adequate reserves are maintained on the books of
the Company or its Subsidiary under GAAP;
(3) Liens securing the performance of bids, trade contracts, other than
for borrowed money, operating leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a similar
nature acquired in the ordinary course of business that do not, singly
or combined, materially detract from the value of the assets of the
Company and its Subsidiaries or interfere with the ordinary conduct of
the business of the Company and its Subsidiaries, taken as a whole;
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(4) easements, rights-of-way, zoning, and other similar restrictions or
title defects which, singly or combined, do not in any case materially
detract from the value of the property subject to them or interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries;
(5) Liens arising by operation of law in connection with judgments, only
to the extent, for an amount and for a period that will not result in
an Event of Default;
(6) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security legislation;
(7) leases or subleases granted to other Persons in the ordinary course of
business not materially interfering with the conduct of the business
of the Company or any of its Subsidiaries or materially detracting
from the value of the respective assets of the Company or any of its
Subsidiaries;
(8) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by the
Company or any of its Subsidiaries in the ordinary course of business;
(9) purchase money Liens on assets that
(a) are purchased by the Company or its Subsidiaries after the date
of the indenture and
(b) are used or useful in the Company's or its Subsidiaries'
businesses,
provided that these Liens
(x) secure an amount not exceeding 100% of the purchase price of the
assets acquired,
(y) secure Indebtedness that is permitted to be Incurred by the
covenant described under "-- Material Covenants -- Limitations on
Indebtedness," and
(z) do not extend, contingently or otherwise, to any property or
assets other than those being purchased on the date in question;
(10) Liens arising solely by virtue of any statutory or common law
provision relating to bankers' liens or other rights and remedies as
to deposit accounts or other funds maintained with the creditor
depository institution, provided that
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(a) the deposit account is not a dedicated cash collateral account
and is not subject to restriction against access by the Company
or any of its Subsidiaries in excess of those stated in
regulations published by the Federal Reserve Board and
(b) the deposit is not intended by the Company or any of its
Subsidiaries to provide collateral to the depository institution
and
(11) Liens securing any Indebtedness Incurred under clause (7) under "--
Material Covenants -- Limitations on Indebtedness;" provided that the
Liens are subordinated in right and priority of payment to the notes
and the guarantees on terms no less favorable to the holders of the
notes than those applicable to the security interests and pledge under
the Hydro Agreement.
"Refinance" means to renew, extend, refund, replace, restructure,
refinance, amend or modify any Indebtedness. The term "Refinancing" shall have a
meaning based on this meaning of "refinance."
"registration rights agreement" means the registration rights agreement
among the Company, its Subsidiaries and the Initial Purchasers, entered into on
December 21, 1998.
"Restricted Investment" means
(1) the acquisition by any Person of, or the investment by the Person in,
any Capital Stock, Indebtedness or other securities of, or the making
by the Person of any capital contribution to, any other Person other
than the Company or any Unrestricted Subsidiary,
(2) any loan or advance by the Person to any other Person, other than the
Company, any Wholly Owned Subsidiary or any Unrestricted Subsidiary,
other than accounts receivable of the Person relating to the purchase
and sale of inventory, goods or services arising in the ordinary
course of business,
(3) any guarantee by the Person of any obligations, contingent or
otherwise, of any other Person, other than the Company, any Wholly
Owned Subsidiary or any Unrestricted Subsidiary,
(4) any provision of credit support by the Persons to or on behalf of any
other Person, other than the Company, any Wholly Owned Subsidiary or
any Unrestricted Subsidiary, and
(5) any obligation or liability of the Person to subscribe for additional
Capital Stock or other securities of any other Person, other than the
Company or any Unrestricted Subsidiary, or to maintain or preserve the
financial condition of
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any other Person, other than the Company or any Unrestricted
Subsidiary, or to cause any such other Person to achieve any specified
levels of operating results;
provided, however, that the following shall not be Restricted Investments:
(a) investments in Cash Equivalents;
(b) investments in or acquisitions of Capital Stock of any Person, other
than a Person in which Affiliates of the Company have an interest
other than through the Company, its Subsidiaries or its Unrestricted
Subsidiaries, that is or becomes, at the time of the acquisition, a
Wholly Owned Subsidiary;
(c) Restricted Investments of the Person existing as of the date of the
indenture and any extension, modification or renewal of the Restricted
Investment, but not increases of the Restricted Investment, other than
as a result of the accrual or accretion of interest or original issue
discount under the terms of the Restricted Investment;
(d) investments in or acquisitions of Capital Stock or other securities of
Persons, other than Affiliates of the Company, received in the
bankruptcy or reorganization of or by the Person or taken in
settlement of or other resolution of claims or disputes against or
with the Person, and extensions, modifications and renewals in each
case; and
(e) investments in Persons, other than Affiliates of the Company, received
by the Person as consideration in Asset Sales, including, for the
purposes of this definition, those sales, transfers and other
dispositions described in clause (2)(b) and in clause (5) of such
definition, to the extent not prohibited by the provisions described
under "-- Material Covenants -- Limitations on Asset Sales," and
extensions, modifications and renewals of those investments.
"security agreements" means the Deeds of Trust, Assignment of Rents and
Leases, Security Agreement and Fixture Filing, the Security Agreement, the
Pledge Agreement, the Collateral Assignment of Patents and Trademarks, the
Collateral Assignments of Licenses, Permits, Approvals and Contracts, Uniform
Commercial Code financing statements, and the other agreements, documents and
filings that may be necessary or desirable to evidence or perfect the security
interests and Pledge of the Collateral Agent in the Collateral.
"Subsidiary" means, in relation to any Person, any corporation or other
entity of which more than 50% of the outstanding Voting Stock is at the time
owned, either alone or through its Subsidiaries or together with its
Subsidiaries, by that Person. For purposes of this definition, any directors'
qualifying shares will be disregarded in determining the ownership of a
Subsidiary. Notwithstanding anything to the contrary contained in this
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document, no Unrestricted Subsidiary will be considered to be a Subsidiary of
the Company or of any Subsidiary or Subsidiaries of the Company.
"Tolling Agreements" means the Tolling Agreement, dated May 22, 1996, by
and between Goldendale Aluminum Company and Hydro Aluminum Louisville, Inc. and
the Tolling Agreement, dated September 15, 1986, by and between Northwest
Aluminum Company and Glencore, Ltd.
"Unrestricted Subsidiary" means each of the Subsidiaries of the Company,
other than Northwest Aluminum Company and Goldendale Aluminum Company, the lines
of business currently operated by which will in no event be transferred to or
held by an Unrestricted Subsidiary, or any entity that is to become a Subsidiary
of the Company, designated as an "Unrestricted Subsidiary" by the Board of
Directors of the Company; but only if
(1) immediately after giving effect to the designation, no Event of
Default, or event that, after notice or lapse of time, or both, would
become an Event of Default, shall exist,
(2) immediately after giving effect to the designation, the Company could
Incur $1.00 of Indebtedness as described in the first paragraph under
"-- Material Covenants -- Limitations on Indebtedness,"
(3) the Subsidiary does not own, at the time of the designation or at any
time after the designation, any Capital Stock of the Company or any
other Subsidiary of the Company, and
(4) the Subsidiary is not, at the time of the designation, party to any
transaction or series of related transactions with the Company or any
other Subsidiary of the Company, unless the transaction or series of
related transactions, if entered into immediately after such
designation, would be permitted by the provisions of the covenant
described above under "-- Material Covenants -- Restrictions on
Transactions with Affiliates and Unrestricted Subsidiaries."
The Board of Directors of the Company may designate an Unrestricted Subsidiary
to be a Subsidiary, but only if
(1) immediately after giving effect to the redesignation, no Event of
Default, or event that, after notice or lapse of time, or both, would
become an Event of Default, will exist, and
(2) immediately after giving effect to the such redesignation, the Company
could Incur $1.00 of Indebtedness as described under the first
paragraph under "-- Material Covenants -- Limitations on
Indebtedness."
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Any designation or redesignation by the Board of Directors of the Company will
be evidenced to the trustee by filing with the trustee a certified copy of the
Board resolution giving effect to the designation or redesignation and an
Officers' Certificate certifying that the designation or redesignation complied
with these conditions.
"Unrestricted Subsidiary Investment" means, for the Company or any
Subsidiary of the Company (each Person being referred to in this definition as
the "Investor"),
(1) the acquisition by the Investor of, or the investment by the Investor
in, any Capital Stock, Indebtedness or other securities of, or the
making by the Investor of any capital contribution to, an Unrestricted
Subsidiary,
(2) any loan or advance by the Investor to an Unrestricted Subsidiary
other than accounts receivable of the Investor relating to the
purchase and sale of inventory, goods or services arising in the
ordinary course of business,
(3) any guarantee by the Investor of any obligations, contingent or
otherwise, of an Unrestricted Subsidiary,
(4) any provision of credit support by the Investor to or on behalf of an
Unrestricted Subsidiary,
(5) any Incurrence of Indebtedness by an Unrestricted Subsidiary, if a
default on such Indebtedness would permit, upon notice, lapse of time
or both, any holder of any Indebtedness of the Investor, other than
the notes, to declare a default on such Indebtedness of the Investor
or cause the payment of the Indebtedness to become immediately due and
payable before its stated maturity, and
(6) any obligation or liability of the Investor to subscribe for
additional Capital Stock or other securities of an Unrestricted
Subsidiary or to maintain or preserve an Unrestricted Subsidiary's
financial condition or to cause an Unrestricted Subsidiary to achieve
any specified levels of operating results.
"Unrestricted Subsidiary Investments Outstanding" means, at any time of
determination, the amount, if any, by which
(1) the sum of all Unrestricted Subsidiary Investments made by the Company
or any Subsidiary of the Company after the date of the indenture
exceeds
(2) the amount of all dividends and distributions received by the Company
or a Subsidiary of the Company from Unrestricted Subsidiaries in cash
during the period that these Persons were Unrestricted Subsidiaries,
and all repayments in cash from these Unrestricted Subsidiaries to the
Company or one of its
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Subsidiaries of loans or advances from the Company or any of its
Subsidiaries to the Unrestricted Subsidiaries during the period that
the Persons were Unrestricted Subsidiaries, any other reduction
received by the Company or a Subsidiary of the Company in cash of
Unrestricted Subsidiary Investments in the Unrestricted Subsidiaries
during the period that the Persons were Unrestricted Subsidiaries, and
any reductions of Unrestricted Subsidiary Investments in such
Unrestricted Subsidiaries of the kind referred to in clauses (3)
through (6) of the definition of Unrestricted Subsidiary Investment;
provided that the amount of Unrestricted Subsidiary Investments Outstanding
shall at no time be a negative amount.
"Voting Stock" means the Capital Stock of any Person having general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of the 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.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the products obtained by multiplying
(a) the sum of the amounts of each then remaining installment
payment, payment from a fund whose assets and proceeds are
earmarked for the repayment of any Indebtedness, payments on
series of Indebtedness as they come due, or other required
payments of principal, including payment at final maturity, by
(b) the number of years, calculated to the nearest one-twelfth, that
will elapse between that date and the making of the payment, by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means a Subsidiary of the Company all of the
outstanding Capital Stock of which is at the time owned, either alone or through
Wholly Owned Subsidiaries or together with Wholly Owned Subsidiaries, by the
Company. For purposes of this definition, any directors' qualifying shares and,
at all times before January 1, 2002, the Series A preferred stock of Goldendale
outstanding on the date of the indenture shall be disregarded in determining the
ownership of a Wholly Owned Subsidiary.
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below includes the
accounts of Northwest Aluminum Company, Northwest Aluminum Technologies and
Northwest Aluminum Specialties for all periods presented. It also includes the
accounts of Goldendale Holding Company and Goldendale Aluminum Company from May
22, 1996, the date Goldendale was acquired by Brett Wilcox, our sole
shareholder.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------
Aug. 28, Sept. 3, Dec. 31, Dec. 31, Dec. 31,
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $ 208,462 $ 289,693 $ 373,038 $ 497,872 $ 470,850
Cost of revenues 200,284 256,211 329,739 438,299 443,251
General and administrative expenses 5,073 8,293 9,746 15,327 15,600
Interest expense (832) (948) (9,454) (16,723) (14,180)
Other income (expense), net 76 (545) 1,442 4,246 1,889
Income (loss) before income taxes 2,349 23,696 25,541 31,769 (292)
Income tax expense -- -- 6,636 13,274 3,009
Net income (loss) 2,349 23,696 18,905 18,495 (3,301)
Net income (loss) per share of common
stock-- pro forma 2,349 23,696 16,686 14,847 (8,501)
Ratio of earnings to fixed charges 3.8x 26.0x 2.8x 2.1x 0.8x
Balance Sheet Data:
Cash and cash equivalents $ 419 $ 1,066 $ 6,345 $ 1,251 37,633
Working capital 20,861 43,512 61,908 36,398 78,392
Total assets 98,336 113,656 350,815 347,011 366,128
Total long-term debt 17,977 3,000 185,441 134,941 170,000
Goldendale Holding Company Preferred Stock 29,663 29,663
Total shareholders' equity 60,629 80,325 103,615 115,680 77,516
Other Data:
EBITDA $ 11,290 $ 32,900 $ 47,137 $ 63,315 32,370
Net cash provided by (used in) operating (6,502) 24,827 29,854 56,092 28,738
Net cash used in investing activities (1,165) (5,203) (19,149) (7,091) (18,718)
Net cash provided by (used in) financing 7,490 (18,977) (4,775) (54,095) 26,362
Increase (decrease) in cash and cash (177) 647 5,930 (5,094) 36,382
</TABLE>
EBITDA represents operating income before deductions for depreciation and
amortization. EBITDA has been presented because we believe it is commonly used
by investors to analyze operating performance and to determine a company's
ability to take on additional indebtedness or service indebtedness. EBITDA
should not be considered in isolation or as a substitute for net income, cash
flow from operations or any other measure of income or cash flow that is
prepared as generally accepted accounting principles require, or as a measure of
a company's profitability or liquidity. In addition, our definition of EBITDA
may not be identical to similarly entitled measures used by other companies. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in this
prospectus.
For purposes of the computation of the ratio of earnings to fixed
charges, fixed charges consist of interest expense, amortization of deferred
financing costs and dividends accrued on the Goldendale preferred stock.
Earnings consist of income before income taxes plus fixed charges.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to reading this section, you should read the Consolidated
Financial Statements that begin on page F-1 of this prospectus. That section
contains all of our detailed financial information including our results of
operations.
Basis of Presentation
We were incorporated in the state of Oregon in June 1998 for the purposes
of becoming the holding company of Northwest Aluminum Company, Northwest
Aluminum Specialties, Inc., Northwest Aluminum Technologies, LLC and Goldendale
Holding Company and its wholly owned subsidiary, Goldendale Aluminum Company.
For purposes of this section only, the term "Northwest" refers to Northwest
Aluminum Company, Specialties and Technologies collectively and the term
"Goldendale" refers to Goldendale Holding Company and Goldendale Aluminum
Company. The consolidated financial statements include the accounts of Northwest
for all periods presented and the accounts of Goldendale from May 22, 1996, the
date Goldendale was acquired by Brett Wilcox. We, along with Goldendale and
Technologies, report on a December 31 fiscal year basis. Northwest and
Specialties report on a September 30 fiscal year basis. Included in accrued
expenses at December 31, 1998 is $418, representing the portion of intercompany
advances which do not eliminate due to the differing year ends. All other
significant intercompany accounts and transactions have been eliminated. We do
not believe seasonal or other factors materially affect the consolidation of
these differing fiscal periods.
Overview
General
Our revenue comes from two primary sources:
(1) fees received from smelting alumina into aluminum and casting that
aluminum into primary and value-added aluminum products under tolling
contracts with Hydro and Glencore, and
(2) the sale of non-tolled value-added aluminum products to other
customers.
Revenues for the conversion of alumina and processing of aluminum under tolling
arrangements are recognized upon completion of the tolling process. Under the
tolling arrangements, alumina suppliers deliver their alumina to us. The alumina
is converted to aluminum in reduction cells by putting it in liquid form by
dissolving it in an "electrolyte" solution and then passing electric current
through the electrolyte to separate the alumina into its two parts, aluminum and
oxygen. This process is continuous and is nearly instantaneous
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as the alumina is dissolved in the electrolyte. The tolling process is
considered complete when the molten aluminum is withdrawn from the cells.
Revenues from the sale of aluminum products are recognized upon shipment.
Because our tolling fees are a fixed percentage of prices of aluminum on
the London Metals Exchange, the amount of revenue from tolling activities varies
depending on market aluminum prices, especially LME prices and gross smelter
production volumes. The amount of revenue from non-tolled value-added sales
varies depending on market aluminum prices, demand for our value-added products
and the pricing premiums we are able to realize for these products. Our revenues
from non-tolled value-added products may not be as strongly affected by lower
LME prices as is the case with tolling fees because of increased demand for
value-added products at lower prices.
The aluminum industry is highly cyclical, with market prices fluctuating
widely based on global supply and demand factors, most of which are beyond our
control. As shown below, for 1998, the average LME price per pound of aluminum
was lower than the average price in any of the three previous years. The average
three-month LME prices per pound of aluminum over the last four years were as
follows:
Price Per
Year Ended December 31, Pound
----------------------- ---------
1995................. $ 0.83
1996................. $ 0.70
1997................. $ 0.74
1998................. $ 0.63
We believe the current market price for aluminum is depressed due primarily
to the softening in the economies of several Eastern Europe, Pacific Rim and
South American countries, which has cast concern on the prospects for future
demand from these important aluminum consumption regions. Recent LME prices have
fluctuated around $0.53 per pound and the timing of an increase in aluminum
prices is uncertain. As of December 31, 1998, the three-month LME price per
pound of aluminum was $0.56. Accordingly, we believe our cash flow and earnings
in the near term will be significantly lower than amounts reported for
comparable prior periods.
Our cash flow and earnings are highly sensitive to aluminum prices because
production costs are largely fixed. At low market aluminum prices, we are able
to reduce some variable costs, but most of the production costs of primary
aluminum are constant in the short term, and therefore declines in market prices
will cause declines in earnings. Conversely, increased market aluminum prices
will cause increases in earnings. For these reasons we strive to maintain full
plant utilization, which reduces the average cost per pound of aluminum.
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<PAGE>
To reduce our reliance on market-priced primary aluminum and to improve
overall profitability, we have pursued a strategy of increasing both our
"tolled" and "non-tolled" value-added production through specialty casting and
processing operations. Through these operations, we are able to realize premiums
over market LME prices, the amount of which varies with the degree of
value-added content of the product and uniqueness of the product in the
marketplace. Our volume of value-added production has increased significantly
over the past decade relative to the volume of our primary production. Our
continued investment in value-added production operations is designed to further
increase our value-added production capabilities. As a consequence of this
strategy, the volume of non-tolled value-added production at Northwest has grown
from 153.7 million pounds in 1993 to 270.5 million pounds in 1998. As a result
of this growth, we purchase at market prices more primary aluminum for further
processing by Northwest into non-tolled value-added products than we produce for
Glencore under the tolling contract. The Glencore tolling contract allowed us to
operate our smelter at The Dalles at full capacity while we were developing
value-added products. The success of our non-tolled products, however, has
reduced the importance of this contract, and we will not renew it when it
expires in December 1999. The effect of this non-renewal will be to eliminate
the revenue and gross margin we derive from tolling aluminum for Glencore. This
may be more than offset by an increase in gross margin from the sale of
non-tolled products, because the underlying cost for primary aluminum will be
our own production cost rather than the market price. We do not assure you,
however, that we will be able to realize any increased gross margin upon
expiration of the Glencore tolling agreement.
Financial Effect of the Goldendale Acquisition.
On May 22, 1996, Brett Wilcox, our sole shareholder, acquired Goldendale
through a leveraged buyout. The transaction was recorded under the purchase
method of accounting, requiring us to step up the basis of fixed assets acquired
by approximately $46.0 million and record goodwill of approximately $101.0
million. The acquisition of Goldendale affects the comparability of our
historical consolidated results of operations beginning in 1996. As required
under purchase accounting, the results of Goldendale's operations are included
in the historical consolidated financial statements only for periods following
the acquisition date; accordingly, Goldendale's results of operations are
included for only part of 1996. Our reported annual depreciation and
amortization expense increased by approximately $9.0 million as a result of the
step up in the basis in the fixed assets and goodwill. Additionally, interest
expense increased as a result of indebtedness taken on in the acquisition.
Finally, unlike Northwest, Goldendale is subject to corporate income taxes.
Northwest has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code and Technologies is a limited liability company taxed as a
partnership. Accordingly, income tax expense related to Goldendale has been
reflected on our historical combined financial statements for all periods
following the acquisition.
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The Business Combination
On December 18, 1998, Brett Wilcox contributed to Golden Northwest
Aluminum, Inc. his membership interest in Technologies and all of the
outstanding shares of common stock of Northwest, Specialties and Goldendale.
This business combination is treated for accounting purposes as a combination of
entities under common control in a manner similar to a pooling of interests. The
business combination has not had and we do not expect it to have a significant
impact on our financial position, results of operations or cash flows. In
accordance with generally accepted accounting principles, however, the amount
recorded as Goldendale preferred stock has been reclassified and recorded as a
minority interest of our company.
Results of Operations
The following table sets forth consolidated statement of income data as a
percentage of revenues for 1996, 1997 and 1998.
<TABLE>
<CAPTION>
Year Ended
December 31,
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of revenues 88.4% 88.0% 94.1%
------ ------ ------
Gross margin 11.6% 12.0% 5.9%
General and administrative expenses 2.6% 3.1% 3.3%
------ ------ ------
Operating income 9.0% 8.9% 2.6%
Interest expense (2.5)% (3.4)% (3.0)%
Other income (expense), net 0.3% 0.9% 0.4%
------ ------ ------
Net other expenses (2.2)% (2.5)% (2.6)%
------ ----- ------
Income before income taxes 6.8% 6.4% 0%
Income tax expense 1.8% 2.7% 0.7%
------ ----- ------
Income (loss) before extraordinary item 5.0% 3.7% (0.7)%
Extraordinary item 0% 0% (0.3)%
------ ----- ------
Net income (loss) 5.0% 3.7% (1.0)%
------ ------ ------
</TABLE>
1998 Compared to 1997
Primary and value-added aluminum produced under tolling contracts decreased
less than 1%, from 530.4 million pounds in 1997 to 526.3 million pounds in 1998.
Shipments of non-tolled value-added aluminum products were 263.9 million pounds
and 270.5 million pounds for 1997 and 1998, respectively. The increase in
non-tolled value-added products resulted from an increase in shipments of
value-added billet produced at Northwest.
Revenues decreased from $497.9 million in 1997 to $470.9 million in 1998, a
decrease of 5.4%. Revenues from tolling contracts decreased 8.2% from $290.2
million in 1997 to $266.3 million in 1998, primarily due to the decrease in
market aluminum prices in
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1998. Sales of non-tolled value-added products decreased slightly from $207.7
million in 1997 to $204.6 million in 1998, due to the decrease in market
aluminum prices in 1998, but offset by the increase in shipments of those
products.
Gross margin decreased from $59.6 million in 1997 to $27.6 million in 1998,
a decrease of 53.7%. As a percentage of revenues, gross margin declined from
12.0% to 5.9%. Gross margin declined due primarily to the decreased market
prices of aluminum. To the extent aluminum prices remain at their current level,
we expect to continue to have lower gross margins and, consequentially,
diminished levels of earnings. In addition, power costs increased as a result of
contractual terms in the power contract with the BPA, which increased the amount
of power required to be purchased at predetermined prices from BPA. Power costs
in 1998 have been at rates we expect to continue through 2001.
General and administrative expenses increased slightly from $15.3 million
in 1997 to $15.6 million in 1998. As a percentage of revenues, general and
administrative expenses increased from 3.1% to 3.3%. The increase resulted
primarily from the $1.5 million write-off of a long-term trade receivable. This
write-off related to a long-term trade receivable from a long-standing customer
which has experienced liquidity problems and with whom we continue to conduct
business. We routinely perform evaluations of the financial condition of this
and other customers as part of our normal credit process.
Interest expense decreased from $16.7 million in 1997 to $14.2 million in
1998, or 15.0%, primarily as a result of the lower average level of debt
outstanding in 1998. In December 1998, we completed an offering of $150 million
of 12% first mortgage notes. Additionally, we borrowed $20 million under a note
purchase agreement with Hydro. As a result of these borrowings, we anticipate a
significant increase in interest expense in 1999. We used some of the proceeds
from the first mortgage notes to retire our previous credit facilities with
BankBoston. As a result of the debt extinguishment in 1998, we incurred an
extraordinary loss of $1.6 million, which represented the unamortized balance of
deferred finance costs associated with the retired debt.
Income tax expense decreased from $13.3 million in 1997 to $3.0 million in
1998, or 77.4%, primarily as a result of a decrease in Goldendale's taxable
income.
As a result of the foregoing factors, we reported a net loss of $4.9
million in 1998 versus net income of $18.5 million in 1997.
1997 Compared to 1996
The results of operations for 1997 reflect the inclusion of the results of
Goldendale's operations for the entire year of 1997, as compared with an
approximately seven-month period for 1996.
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Primary and valued added aluminum produced under tolling contracts
increased from 315.7 million pounds in 1996 to 530.4 million pounds in 1997,
generating $165.3 million in 1996 and $290.2 million in 1997. This increase
resulted primarily from the inclusion of a full year of operations of Goldendale
in 1997 as compared to a partial year in 1996 and the Hydro tolling agreement,
effective January 1, 1997, under which Goldendale agreed to utilize 100% of its
capacity to produce tolled product for Hydro. Shipments of non-tolled
value-added aluminum products decreased from 274.1 million pounds in 1996 to
263.9 million pounds in 1997, as a result of the shift from non-tolled
value-added product to tolled product at Goldendale. This was partially offset
by the increased sales at Northwest of 44.2 million pounds of non-tolled
value-added product. Revenues from these products totaled $207.7 million in both
1997 and 1996.
Revenues increased from $373.0 million in 1996 to $497.9 million in 1997,
an increase of 33.5%. The increase in revenues resulted primarily from the
inclusion of a full year of operations of Goldendale in 1997 and from increased
volumes of tolled and non-tolled product at Goldendale and Northwest.
Gross margin increased from $43.3 million in 1996 to $59.6 million in 1997,
an increase of 37.6%. As a percentage of revenues, gross margin increased
slightly between the two years, from 11.6% in 1996 to 12.0% in 1997. The
increase in gross margin resulted primarily from the inclusion of a full year of
operations of Goldendale in 1997 and from increased volumes of tolled and
non-tolled product at Goldendale and Northwest.
General and administrative expenses increased from $9.7 million in 1996 to
$15.3 million in 1997, an increase of 57.3%. The increase resulted primarily
from the inclusion of Goldendale for the entire year of 1997. As a percentage of
revenues, general and administrative expenses increased slightly from 2.6% to
3.1%.
Interest expense increased from $9.5 million in 1996 to $16.7 million in
1997. This increase of 76.9% was primarily a result of a full year of
indebtedness incurred as a result of the Goldendale acquisition, partially
offset by our continued pay down of our previous credit facility with BankBoston
using cash flow from operations and asset sales.
Other income increased from $1.4 million in 1996 to $4.2 million in 1997
primarily as a result of a $2.6 million gain recognized by us on the sale of two
power generation turbines in 1997.
Income tax expense increased from $6.6 million in 1996 to $13.3 million in
1997 primarily as a result of an increase in taxable income reported by
Goldendale and the inclusion of Goldendale for the entire year in 1997.
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Liquidity and Capital Resources
Historically, our cash and capital requirements have been satisfied through
cash generated from operating activities and borrowings under our primary credit
facilities. Before December 21, 1998, Goldendale and Northwest operated under
independent credit facilities which were scheduled to mature in 2001 and
consisted of total borrowings at December 21, 1998 of $125.2 million under term
loans and revolving credit facilities. See Note 5 to the Consolidated Financial
Statements. We repaid these credit facilities with proceeds from the sale of the
notes.
Our new credit facility with BankBoston is a $75.0 million senior secured
revolving credit facility collateralized by all of the inventory, accounts
receivable and other rights to payment of our subsidiaries. Availability under
the revolving line of credit is controlled by a borrowing base formula based on
eligible receivables and inventory, and there must always be at least $15
million available for borrowing at any given time. Based on this formula, the
net availability under the revolving line of credit was approximately $50.5
million at December 31, 1998. We had no amounts outstanding under this credit
facility at December 31, 1998. See "Description of Other Indebtedness and
Goldendale Preferred Stock."
Our liquidity and capital needs relate primarily to payment of principal
and interest on borrowings, capital expenditures, including our facilities
investment program, and distributions to our sole shareholder to pay income
taxes. Subject to reasonable market aluminum prices, we will require
approximately $11.0 million in 1999 for the facilities investment program, most
of which will be used in the third and fourth quarters. The first stage of the
facilities investment program consists of an expansion of the Goldendale
casthouse, and a 30-cell demonstration of new cell line technology. We have
borrowed $20.0 million from Hydro under a note purchase agreement to partially
finance this facilities investment program. Our liquidity and capital needs also
relate to working capital and other general corporate requirements, including
the incremental working capital needs anticipated in connection with the
potential termination of the Glencore tolling agreement in December 1999.
Additionally, the Goldendale preferred stock became redeemable at our discretion
after December 31, 1998. We anticipate that the funds necessary to redeem the
Goldendale preferred stock would be drawn from our revolving credit facility
with BankBoston. The initial redemption price for the Goldendale preferred stock
will be $30.4 million plus any accrued but unpaid dividends, which totaled $9.5
million at December 31, 1998. We are also upgrading our management information
systems, including hardware and software, to a fully integrated enterprise
resource planning system. Northwest and Goldendale are executing a transition to
the SAP R/3 enterprise resource planning system. Costs incurred and capitalized
to date have amounted to approximately $2.0 million and will total approximately
$6.0 to $7.5 million at completion. Furthermore, we are subject to a number of
contingencies and uncertainties, including a potential income tax deficiency.
Out statement of cash flows for the periods indicated is summarized below:
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<PAGE>
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1996 1997 1998
------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Net cash provided by
operating activities............................... $29,854 $56,092 $28,738
Net cash used in investing
activities......................................... (19,149) (7,091) (18,718)
Net cash provided by (used in)
financing activities............................... ( 4,775) (54,095) 26,362
Increase (decrease) in cash
and cash equivalents............................... 5,930 (5,094) 36,382
</TABLE>
Net cash provided by operating activities was $29.9 million, $56.1 million
and $28.7 million for 1996, 1997 and 1998. The net cash provided by operating
activities during 1998 of $19.1 million, was primarily attributable to our net
loss, as adjusted for non-cash charges. The decrease in accounts receivable,
inventories and accounts payable was primarily due to the decrease in market
aluminum prices in 1998. The net cash provided by operating activities during
1997 was primarily attributable to net income, as adjusted for non-cash charges,
of $43.1 million, and an increase in accounts payable and accrued expenses of
$26.6 million, offset by an increase in inventories of $9.5 million. The
increase in inventories and accounts payable was due to a temporary modification
of the Glencore metal repurchase terms which allowed us to extend the timing of
payments due Glencore. The net cash provided by operating activities during 1996
was primarily attributable to net income, as adjusted for non-cash charges, of
$36.1 million, and a decrease in inventories of $22.3 million. Offsetting was a
decrease in accounts payable and accrued expenses of $20.7 million and an
increase in accounts receivable and other assets of $8.3 million. The decrease
in inventories and accounts payable was primarily due to Goldendale's
restructuring of its tolling agreement with Hydro whereby Hydro committed to
usage of the entire Goldendale facility, significantly reducing our requirements
to purchase and hold our own inventory.
Net cash used in investing activities was $18.7 million in 1998, compared
to net cash used in investing activities of $7.1 million in 1997 and $19.1
million in 1996. Cash used in investing activities in 1998 was primarily
attributable to capital expenditures of $19.0 million. Cash used in investing
activities in 1997 primarily resulted from proceeds of $12.8 million received by
us through the sale of certain of our power generation assets, offset by capital
expenditures of $14.3 million and combined advances to our shareholder and a
related company of $5.6 million. Cash used in investing activities in 1996 was
primarily attributable to capital expenditures of $19.9 million.
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Net cash provided by financing activities was $26.4 million in 1998,
compared to net cash used in financing activities of $54.1 million in 1997, and
$4.8 million in 1996. Net cash provided from financing activities in 1998 was
primarily attributable to $38.9 million of net proceeds from the first mortgage
notes, offset by $12.6 million in net repayments on our credit facilities and
deferred compensation notes. Net cash used in financing activities in 1997 was
primarily attributable to $50.5 million in net repayments on our credit facility
and $2.9 million paid in dividends. Net cash used in financing activities in
1996 was primarily attributable to $47.1 million in net borrowings under our
credit facility offset by $67.6 million paid in dividends to our shareholder.
Annual dividends paid to our shareholder approximated his personal liability for
federal and state income taxes related to Northwest's operations. In 1996
additional dividends of $44.5 million were paid to our shareholder that were
used in the acquisition of Goldendale.
We believe cash flow from operations, available borrowings under our
revolving credit facility and under our note purchase agreement with Hydro and
cash on hand will provide adequate funds for our foreseeable working capital
needs, planned capital expenditures and debt service and other obligations
through 2000.
Our ability to fund operations, make planned capital expenditures, such as
our facilities investment program, make principal and interest payments on the
notes, and remain in compliance with all of the financial covenants under our
debt agreements will be dependent on our future operating performance. Our
future operating performance is dependent on a number of factors, including
aluminum prices, many of which are beyond our control. These factors include
prevailing economic conditions and financial, competitive, regulatory and other
factors affecting our business and operations, and may be dependent on the
availability of borrowings under our revolving credit facility or other
borrowings. We do not assure you our cash flow from operations, together with
other sources of liquidity, will be adequate.
o to make required payments of principal and interest on the notes and
our other debt
o to finance anticipated capital expenditures
o to fund working capital requirements or
o to fund the possible redemption of all outstanding shares of the
Goldendale preferred stock.
If we do not have sufficient available resources to repay any of our
indebtedness when it becomes due and payable, we may need to refinance the
indebtedness. We do not assure you refinancing would be available or available
on reasonable terms.
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Seasonality and Inflation
Our results of operations can be affected by seasonal factors, such as
substantial increases in the cost of electricity in the fall and winter. We do
not believe inflation has had a material effect on the consolidated financial
statements for the periods presented.
Effect of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Our adoption of SFAS No. 130 on January 1, 1998 had no
impact on our financial position.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
Disclosures about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the new way that public enterprises report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. As we operate within a single aggregated segment,
production of aluminum, our adoption of SFAS No. 131 in 1998 did not have a
significant impact on our financial position.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers'
Disclosures about Pensions and other Postretirement Benefits, which standardizes
the disclosure requirements for pension and other postretirement benefits. We do
not expect the adoption of SFAS No. 132 to affect materially our current
disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value.
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If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of
(1) the changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk or
(2) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized as income in the period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Based on our
current and planned future activities relative to derivative instruments, we
believe that the adoption of SFAS No. 133 on January 1, 2000 will not have a
significant effect on our financial statements.
In October 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 134 ("SFAS No. 134"), Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise, which effectively changes the
way mortgage banking firms account for certain securities and other interests
they retain after securitizing mortgage loans that were held for sale. The
adoption of SFAS No. 134 is not expected to have a material impact on our
financial position.
In February 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 135 ("SFAS No. 135"), Rescission of
Financial Accounting Standards Board No. 75 ("SFAS No. 75") and Technical
Corrections. SFAS No. 135 rescinds SFAS No. 75 and amends Statement of Financial
Accounting Standards Board No. 35. SFAS No. 135 also amends other existing
authoritative literature to make various technical corrections, clarify
meanings, or describe applicability under changed conditions. SFAS No. 135 is
effective for financial statements issued for fiscal years ending after February
15, 1999. We believe that the adoption of SFAS No. 135 will not have a
significant effect on our financial statements.
Year 2000 Compliance
The following is a discussion of our year 2000 compliance status.
Goldendale
Goldendale has reviewed its business and processing systems and determined
that the majority of the systems are already year 2000 compliant. Goldendale has
been working with a consultant and an internal committee of managers and
employees to address the scope of the year 2000 issue and implement any
necessary solutions. Although Goldendale believes the majority of its business
and processing systems are already year 2000 compliant,
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Goldendale is upgrading its enterprise resource planning system. We have chosen
ERP system software, and we have begun evaluating the best implementation for
our specific applications.
Goldendale has made, and will continue to update, inquiries of customers
and suppliers on which the operations of the business are critically dependent
to determine their year 2000 readiness. The analysis of the responses from
customers and suppliers received so far indicates substantial compliance with
year 2000 issues. In our assessment to date, there will not be a material affect
if there is a disruption in our relationships with vendors or suppliers, who are
not year 2000 compliant. However, a contingency plan is being developed to deal
with the worst case scenario.
Goldendale's year 2000 compliance analysis to date has identified its
inventory system as year 2000 deficient. Goldendale is upgrading the ERP system
software and is also developing software upgrades to the present inventory
system in case the ERP system upgrade is delayed beyond January 1, 2000. Until
the upgrade is complete, Goldendale will continue to gather information and
assess the possibilities of disruption to its operations, liquidity, and
financial condition posed by the year 2000 problem.
In the last year, Goldendale has expended nearly $100,000 on its year 2000
review and has budgeted $3.5 million over the next two years to upgrade and
further integrate its business and process systems to maintain year 2000
compliance.
Northwest
Northwest has retained outside experts to review its year 2000 readiness
and make recommendations on how to become year 2000 compliant. To date,
Northwest's major business systems have been reviewed and tested for year 2000
compliance. The majority of all critical business systems are year 2000
compliant since the latest implementation of an SAP R/3 enterprise resource
planning system. The business systems included are sales, accounting,
purchasing, production, inventory management and plant maintenance. We have
completed about 90% of the testing of Northwest's remaining information
technology systems, including process systems, as well as the non-information
technology systems for year 2000 compliance. We have identified some of
Northwest's non-information technology systems as non-year 2000 compliant. We
have adopted a plan with varying priorities based on how critical the system is
and all critical systems will be in compliance by mid-1999. Some minor systems
may remain non-compliant but are not critical to business operation and will be
completed before year-end.
Northwest is making inquiries of its customers and suppliers to determine
the potential effect of their year 2000 readiness on its operations. To date,
Northwest has contacted all vendors/suppliers and found that most who are
non-compliant plan to be compliant by mid-1999. Quarterly updates have been
conducted and will continue through the remainder of the year. Alternatively,
critical supplies will be acquired to prevent, where
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possible, relationship disruption from interfering with business operation. One
critical raw material, electricity, is sole sourced from the Bonneville Power
Administration for delivery and cannot be otherwise obtained. BPA has assured us
that it is year 2000 compliant; however BPA does not guarantee an
interruption-free supply. Northwest is also making inquiries of its customers
with the initial review to be completed by mid-year.
Northwest is developing a contingency plan for year 2000 non-compliance by
vendors and customers. The plan completion date is mid-1999.
Over the past year, Northwest has spent approximately $2 million on its
year 2000 review and implementation of solutions to identified year 2000
problems. Many of those expenditures have been used to upgrade computer systems
and not solely to resolve potential year 2000 problems. Northwest expects to
spend another $500,000 to $2 million to complete its system upgrade and to
resolve its year 2000 compliance issues. A contingency plan is under development
to deal with a worst case year 2000 problem.
Interest Rate Risk Management
We have entered into an interest rate swap agreement, which covers $20.0
million of notional principal amount at January 25, 1999 and which expires in
2003, to manage our exposure to interest rate risk on a portion of our variable
rate borrowings. The fixed interest rate paid by us is 6.4%. Although we are
exposed to loss on the interest rate swap in the event of nonperformance by the
counterparties, we believe the likelihood of nonperformance is remote.
Employee Benefit Plan Matters
The qualified retirement plans of Northwest and Goldendale have been
reviewed by an outside consultant to determine whether those plans meet
discrimination and coverage requirements. The review was based on 1997 data we
supplied to the consultant, and we believe the data was reliable and complete
enough to produce reasonably accurate results. Based on its review, the
consultant concluded that the plans are in compliance by a narrow numerical
margin. The plans must satisfy the requirements each year.
We plan to conduct more testing before the end of 1999. Outcome of the
testing is difficult to predict because the test is complex and includes
employees of entities controlled by Brett Wilcox whose businesses are unrelated
to our business. We believe if the test is failed Northwest or Goldendale may be
able to redesign their plans to pass without material costs or adverse
consequences. Alternatively, the qualified retirement benefits for companies
other than Northwest or Goldendale may need to be enhanced. If those entities
are financially unable to implement such a remedy, the tax qualification under
Section 401(a) of the Internal Revenue Code of 1986 of the plans of Northwest
and Goldendale could be jeopardized. If a plan fails and the enhancement of
benefits of other entities is the necessary
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remedy, we believe the entities responsible for those remedies will be able to
provide adequate enhanced benefits.
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BUSINESS
Our company, through its three primary operating subsidiaries, Goldendale
Aluminum Company, Northwest Aluminum Company and Northwest Aluminum Specialties,
Inc., is a leading producer of primary aluminum and selected specialty
engineered high quality value-added aluminum products. Our revenue comes from
two main sources: fees received from tolling alumina into aluminum and sales of
value-added aluminum products. At our two facilities on the Columbia River east
of Portland, Oregon, we operate two primary aluminum smelters with combined
production capacity of 250,000 metric tons, making us one of the five largest
primary aluminum producers in the United States. We produce primary aluminum
under tolling agreements with Hydro Aluminum Louisville, Inc. and Glencore,
Ltd., two large international industrial and trading companies. In conjunction
with our smelter operations, we operate three casthouses that produce a range of
value-added aluminum products, including our proprietary line of direct-cast,
small diameter, alloyed billet products.
We sell value-added billet and related products directly for extrusion for
further processing into final products such as fire extinguishers, automobile
air bag canisters, golf club heads, bicycle frames and a variety of automotive
and aircraft parts. We believe our cost competitive position, strategic
relationships, investment in new smelting and casting technologies and mix of
higher-margin, value-added products are key competitive advantages and have been
primary determinants of our historical profitability.
We believe we rank among the lower cost aluminum producers in the United
States. We attribute our historical profitability to a number of factors
including access to and innovative procurement of low-cost hydroelectric power,
technical innovation at the plant level, good labor relations and low levels of
corporate overhead.
Operations
We conduct our business and derive revenue through two principal business
activities: the production of primary aluminum under tolling contracts and the
production of value-added specialty aluminum products under tolling contracts
and for direct sales.
Production of Primary Aluminum
Our subsidiaries operate two aluminum smelters in The Dalles, Oregon and
Goldendale, Washington. The smelters have the capacity to produce approximately
250,000 metric tons of primary aluminum per year. A metric ton is equal to
2,204.6 pounds. These smelters consist of 826 vertical pin Soderberg technology
reduction cells organized into five pot lines. The smelters use advanced
conservation technology, computer control procedures and environmental control
equipment to enhance their efficiency. Capital investment in the facilities by
us and the smelters' previous owners over the life of the facilities,
competitive wage rates, access to low cost hydroelectric power, low overhead and
tolling agreements that
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insured full smelter utilization have also contributed to the smelters'
efficiency. The efficiency of the smelters allows us to maintain a competitive
cost position relative to other industry participants, many of which are
significantly larger than we are. Our operating efficiencies and competitive
cost position allowed us to maintain positive operating earnings through
industry cycles in the last dozen years, including the 1992-1993 industry down
cycle.
Smelting Methods. Smelting, which involves the reduction of alumina to
aluminum ingot, is an electrolytic process. Raw alumina is dissolved in an
electrolytic bath in large cells, or pots, which are insulated with brick and
lined with carbon. The cell lining acts as the negative cathode, and a carbon
block, which is partially immersed in the electrolytic bath serves as a positive
anode. The carbon anode is composed of petroleum coke and coal tar pitch and is
consumed in the smelting process, as oxygen released from alumina in the
reduction process binds with the carbon to form carbon dioxide. Because of the
high cost of removing metallic impurities from aluminum, careful attention must
be given to avoiding impurity introduction by way of the raw materials used in
the anode manufacturing process. Petroleum coke and coal tar pitch are used as
the carbon and binder sources because of their relatively high purity. Gases and
particulate matter are collected in the hood around the lower rim of the anode
casing and are passed through the smelter's air and water purification systems.
Molten aluminum is drawn from the bottom of the cell, and, typically, poured
into molds as unalloyed metal, or sow, or routed into holding furnaces where
various alloying ingredients may be added before casting into plate, slab, logs
or ingot.
The world's aluminum smelters are evenly split between two basic anode
technologies, Soderberg and pre-bake. The two processes differ only in the
fabrication and connection of the carbon anode. Most recently constructed
smelters use pre-bake technology, which has certain inherent advantages relative
to Soderberg technology and may permit primary aluminum production at a lower
cost, albeit at a higher initial investment.
Soderberg anodes are baked by utilizing waste heat from the smelting cell
and, as such, are referred to as self-baking. A steel casing or mold six to
eight meters by two meters containing the coke aggregate and coal tar pitch
mixture is mounted over the smelting cell and its contents bake as they progress
toward the electrolytic bath. The carbon mass is allowed to slip through the
casing at the rate of its oxidation in the electrolytic bath. In the vertical
spike version of the Soderberg cell, electrical contact is made by steel tipped
aluminum spikes entering from the top. They are pulled by a special tool and
reset as their tips approach the electrolytic bath surface due to consumption of
the anode. In the horizontal spike version of the Soderberg cell the
steel-aluminum spikes enter through the side of the casing instead of through
the top. They must be removed and reset as the anode is consumed.
Pre-bake anodes are formed by blending sized petroleum coke aggregate and
coal tar pitch, molding it into blocks complete with preformed electrical
connection sockets by hydraulic pressing or vibration forming, and firing in
oil- or gas-fired ceramic-lined ring furnace pits. A typical block is 70 cm
wide, 125 cm long and 50 cm high. Electrical
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contact and physical support is obtained through aluminum or copper rods welded
or bolted to steel stubs. The stubs are set in the anode sockets and molten cast
iron is poured around them to produce a strong joint with low electrical
resistance.
Goldendale Smelter. The smelter in Goldendale, Washington was built in
1971, making it the most recently constructed aluminum smelter in the Pacific
Northwest, and was expanded in 1981. The total annual production capacity of the
Goldendale smelter is 168,000 metric tons of primary aluminum output. The
Goldendale smelter employs vertical pin Soderberg technology and consists of 526
reduction cells organized into three pot lines. The Goldendale smelter has
undergone a number of technology upgrades during its lifetime. These upgrades
have resulted in a significant improvement in production efficiencies over the
years as measured by energy consumption, carbon consumption and cell life.
The Goldendale smelter was constructed from engineering plans based on
Hydro's Karmoy, Norway facility, and as such is similar in terms of layout,
smelter design and operating processes. The Goldendale smelter was also designed
to operate in tandem with our smelter located in The Dalles, Oregon.
Northwest Smelter. Located across the Columbia river and approximately 35
miles west of the Goldendale smelter, our smelter in The Dalles produces primary
aluminum. Built in 1958, The Dalles smelter consists of 300 vertical pin
Soderberg reduction cells organized into two pot lines. The smelter's production
capacity is about 82,000 metric tons of primary aluminum per year.
We also operate a carbon plant at The Dalles facility. The plant produces
approximately 40,000 metric tons of carbon briquettes, which are consumed during
the alumina reduction process. We have surplus capacity in the plant and
recently have begun selling briquettes to a non-affiliated aluminum producer.
Tolling Agreements. Each of Northwest Aluminum Company and Goldendale
Aluminum Company is party to a tolling agreement relating to the production of
primary aluminum and value-added products.
The Hydro Tolling Agreement. Goldendale and Hydro Aluminum Louisville, Inc.
entered into a ten-year contract effective January 1, 1997. The Hydro tolling
agreement has been extended another five years, until December 2011.
Under the terms of the Hydro tolling agreement, Goldendale must use its
smelter exclusively to produce at least 157,000 metric tons of aluminum annually
from the alumina supplied to it by Hydro, and Hydro is required to supply
sufficient alumina to enable Goldendale to produce that amount of aluminum.
Hydro supplies the alumina at no cost to Goldendale, and at all times the
alumina and aluminum inventory is owned by Hydro. Goldendale bears the entire
cost of unloading and storing the alumina and transporting it to the smelter
from Goldendale's unloading facility. Hydro pays a tolling fee to Goldendale for
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converting the alumina to aluminum based on a percentage of the price of
aluminum on the London Metals Exchange. Pursuant to its tolling agreement with
Hydro, Goldendale receives an additional tolling fee for casting the aluminum
into value-added "casthouse products" such as extrusion billet, foundry "T" or
sheet ingot. In addition, Goldendale shares premiums that Hydro is able to
realize on sales of value-added products in the market. Hydro is required to
place orders for at least 70,000 metric tons of value-added products each year.
The tolling agreement also specifies quality and efficiency requirements. If the
products or production schedules do not meet the required specifications, the
parties have agreed to work together to identify and correct the problem;
however, Hydro may terminate the agreement if Goldendale's production were to
continue to fall below the product or schedule specifications.
The Hydro agreement also requires Goldendale to use any additional smelter
capacity resulting from the installation of new point feeder technology under
the facilities investment program exclusively to produce aluminum products for
Hydro, subject to some maximum volumes. Hydro is required to supply sufficient
alumina to enable Goldendale to produce the additional volume. However, Hydro's
commitment to place orders for value-added products remains at 70,000 metric
tons and has not been increased to reflect the additional casthouse capacity
expected to result from the facilities investment program. Hydro has informed us
that it will utilize the additional casthouse capacity. Hydro would like to
receive more of the primary aluminum produced at the Goldendale smelter in the
form of billet rather than ingot. In contrast to ingot, billet is a casthouse
product. If Hydro's demand for billet does not use the full capacity of the
Goldendale casthouse, we anticipate using the excess capacity to cast primary
aluminum from the smelter at The Dalles into commodity billet for other
value-added customers.
The Glencore Tolling Agreement. Northwest entered into a tolling contract
with Glencore, Ltd. in September 1986, which was extended through December 1999.
Under the Glencore tolling agreement, Glencore provides alumina to Northwest for
conversion into primary aluminum. Glencore must supply enough alumina to support
the full production capacity of the Northwest smelter, and Northwest must use
its best efforts to produce 82,000 metric tons of aluminum ingot and other
finished products for Glencore in exchange for a tolling fee based on a certain
percentage of the London Metals Exchange price for aluminum. Northwest bears the
cost of unloading and storing the Glencore alumina and transporting it from
Portland to the Northwest smelter.
Northwest has the right to buy back part of the metal supplied to Glencore,
which Northwest uses in its value-added operations. Due to the growth of its
value-added operations, Northwest has increased its purchases of primary
aluminum from Glencore and now purchases more primary aluminum from Glencore
than the production capacity of the Northwest smelter. Glencore's tolling
contract allowed us to operate The Dalles smelter at full capacity while we had
no developed market for our smelter production. The success of our non-tolled
products, however, has reduced the importance of this contract, and we will not
renew the tolling contract when it expires in December 1999. We have, however,
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entered into a letter of intent with Glencore to have Glencore supply the
smelter at The Dalles with all of its alumina requirements from October 1, 1999
to December 31, 2004.
Unloading Facilities. We receive raw alumina at our Portland, Oregon
unloading facility. The facility is served by a ship channel maintained by the
U.S. Army Corps of Engineers. Three steel silos are located on the property with
the capacity to store 42,000 metric tons of alumina. Alumina is delivered to the
facility by ship and is then transferred into silos for short-term storage and
delivered to our smelters by rail. The unloading facility has sufficient
capacity to handle our unloading and storage requirements.
Production of Value-added Specialty Aluminum Products
We operate a value-added production operation which blends primary aluminum
produced at both our smelters, which is purchased from Hydro and Glencore, and
by other aluminum producers and various alloys into a variety of value-added
products, including proprietary small diameter billet ("SDB") and related
products. Our SDB products are cast directly from molten aluminum in a process
that eliminates the expense associated with the extrusion process typically
required to manufacture SDB products. Our SDB products are frequently
manufactured to customer specifications, and, as such, can be priced to provide
us with enhanced margins relative to commodity aluminum products. Since
Northwest Aluminum Specialties began its value-added operations in the early
1990s, the business has grown to represent a significant percentage of our total
revenues. Our SDB products are typically forged or extruded by our customers
into end use forms which include fire extinguishers, automobile air bag
canisters, golf club heads, bicycle frames and a variety of automotive and
aircraft parts.
In late 1996, Specialties added a new billet machining operation which
allows us to manufacture SDB in any diameter between 2 inches and 5 inches,
within extremely tight engineering tolerances. Bar sawing capabilities were also
added that allow us to deliver cut billet "pucks" that meet customer
specifications. These new capabilities have led to additional business and
opportunities that we believe will allow us to continue to increase the size of
our value-added aluminum business and enhance the average premium received.
Our value-added standard extrusion billet and hot molten metal products
that are not produced under tolling arrangements are sold at the Midwest market
price, which includes a premium of $.03 to $.05 per pound over the London Metals
Exchange price, plus a premium of between $.06 and $.13 per pound. Our specialty
extrusion billet, hot closed die forging, cold impact forging and semi-solid
forging are sold at the Midwest market price plus a premium of between $.13 and
$.81 per pound.
Facilities Investment Program
Both we and previous owners of our facilities periodically have made major
investments in new plant and equipment. From 1978 to 1981, Martin Marietta
Corporation
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made a major investment in both smelters by implementing new anode and cathode
technology, modernizing electrical and environmental control systems and adding
the third cell line at the Goldendale smelter. In 1991 and 1997 Northwest
Aluminum Specialties added new casting capability.
We are undertaking the facilities investment program to expand capacity and
enhance operating efficiency. With the financial and technical support of Hydro,
we plan to expand the casthouse at Goldendale and upgrade the cell lines at
Goldendale and, possibly, at The Dalles. We have borrowed $20.0 million from
Hydro under a note purchase agreement to partially finance the facilities
investment program. We intend to implement the facilities investment program
over the next five years, in two stages.
In the first stage, we plan to modernize the Goldendale casthouse and
complete a demonstration of its new cell line technology. The Goldendale
casthouse expansion is designed to increase the facility's capacity to produce
value-added billet from 13 million pounds per month to an initial capacity of 22
million pounds per month, with the option to expand capacity to over 30 million
pounds per month. The additional value-added production will be sold by Hydro
under the tolling agreement, with the same sharing of market premiums in excess
of costs. As discussed below, our share of any incremental earnings from the
facilities investment program will be used to repay the debt owed to Hydro.
Hydro has informed us that its own U.S. extrusion plants should be able to use
this additional capacity. The expansion is underway, and we expect it to take 18
months to complete and to cost approximately $13.0 million.
The first stage will also include a 12 to 18-month demonstration of the
planned cell line improvements in a 30-cell section at Goldendale. Conversion of
this section and the demonstration are budgeted to cost less than $7.0 million.
Cell improvements include pointfeeders to control alumina additions, magnetic
compensation to stabilize cell operations, cathode redesign to optimize heat
balance, new computer controls and other related technologies. The technology
for the cell line improvements has been licensed from Hydro, which already has
implemented these changes at a similar smelter in Norway. Based upon Hydro's
experience, we expect the improvements to increase smelter production, reduce
average unit costs of production, increase production efficiencies and
significantly reduce air emissions.
We plan to begin the second stage of converting the remaining cells at both
smelters when we complete the demonstration of our cell line upgrades and obtain
all necessary permits. The conversion can be performed cell by cell, with
minimal disruption of operations, and can be accelerated or slowed for market or
other reasons. We estimate that conversion of the remaining cells at both
smelters will cost approximately $55 million. Hydro has agreed, subject to
certain conditions, to provide an additional $10.0 million of subordinated
financing if we decide to convert the remaining cells at Goldendale. We expect
the remaining $45 million, and any additional costs of the facilities investment
program, will be funded through cash from operations and borrowings under our
revolving credit facility.
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Research and Development and Intellectual Property
We have traditionally placed emphasis on innovation and research and
development. We have laboratory facilities dedicated to environmental
compliance, quality testing and research and development. We engage in several
research and development activities designed to improve earnings by increasing
value-added margins or reducing costs. Expenditures for activities designated as
research and development were $1,194,000 in 1998, $544,000 in 1997 and $898,000
in 1996. We also have received grants from state and federal governments for
certain research and development activities.
Our research and development encompasses five broad initiatives:
o First, we undertake research and development to develop new alloys and
casting and homogenizing practices that improve the characteristics of
metal sold to customers. We endeavor to protect our proprietary
interest in our products and processes by filing patent applications
where appropriate and otherwise by seeking to protect them as trade
secrets. This research has resulted in several proprietary products
and an issued patent for a new alloy.
o Second, we have focused research in the area of semi-solid
metalworking ("SSM"). SSM is intended to give automotive and other
parts the physical properties of forgings with the production cost of
die castings. We have obtained a patent for the casting and
transformation of aluminum to produce SSM parts.
o Third, we have undertaken an initiative to develop a process to
recycle Spent Pot Lining ("SPL"). We believe this process may allow
SPL to be recycled into several marketable products rather than being
treated and land filled at a significant cost. We have been notified
that a patent will be granted for this process.
o Fourth, our subsidiary, Northwest Aluminum Technologies, has acquired
and expects to develop a new technology to smelt aluminum in a low
temperature bath using inert metallic anodes and titanium dioxide
cathodes. In our pursuit of this technology, we have acquired four
patents and intend to file additional patent applications. We also
have received two grants from the U.S. government to fund additional
research to develop new smelting technologies. o Fifth, we engage in
several other research and development projects to continuously
improve our smelting and casting operations.
We have seven patents and two trademarks. We have set out a description and
the termination date of each in the following table.
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Description of Patent or Trademark Termination Date
- ---------------------------------- ----------------
A patent for a method and apparatus for the
electrolytic reduction of alumina......................... October 25, 2014
A patent for the electrolytic reduction of alumina........ August 31, 2008
A patent for the electrolytic reduction of alumina........ February 13, 2010
A patent for a point feeder and a method for
Soderberg aluminum reduction cells........................ October 4, 2010
A patent for non-consumable anode and lining for
aluminum electrolytic reduction cell...................... April 17, 2012
A patent for casting, thermal transformation and
semi-solid forming of aluminum alloys..................... April 14, 2015
A patent for a high strength aluminum alloy............... September 12, 2014
A trademark for "Direct Forge", the name under
which Northwest Aluminum Specialties markets its
small diameter billet..................................... December 15, 2002;
automatically renewed
for subsequent 10 year
terms if still in use
A trademark for "Direct Form"............................. April 18, 2007;
automatically renewed
for subsequent 10 year
terms if still in use
Sales and Marketing
Through their tolling agreements, Hydro and Glencore are our largest
customers, accounting for 37% and 19% of our revenues in fiscal 1998 and 40% and
18% of our revenues for 1997. We directly sell value-added aluminum products to
approximately 100 extruders, forgers, casters, traders and other customers
throughout the United States and abroad. Northwest Aluminum Company's Vice
President of Sales and Marketing oversees a small sales and customer service
group that makes and supports these direct sales.
Suppliers
The major raw materials we use are alumina, petroleum coke and coal tar
pitch, aluminum ingot, scrap aluminum and alloying elements and electricity. We
obtain our raw materials either through annual contracts or on the spot market.
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Alumina consumed in the production of aluminum is supplied by Glencore and
Hydro under the tolling agreements. We have entered into a letter of intent with
Glencore to have Glencore supply the smelter at The Dalles with all of its
alumina requirements from October 1, 1999 to December 31, 2004. We do not assure
you as to the timing or the terms of an agreement resulting from the letter of
intent.
The other raw materials involved in the reduction of alumina are petroleum
coke, coal tar pitch and carbon lining. Petroleum coke is used to make anodes
and carbon lining and is sourced locally from a large producer of quality coke,
which is one of several suppliers. Coal tar pitch is available from several
suppliers. Carbon lining, which acts as the cathode in the smelting cells, is
purchased from various suppliers.
We annually purchase aluminum to supplement our smelter production. In
addition to buying back the approximately 82,000 metric tons of our own
production from Glencore, we purchase approximately 45,000 metric tons from
other producers, including Hydro, at market prices in the form of primary ingot,
primary molten metal and scrap metal. Primary suppliers include Hydro, Vanalco
and Alcoa. The other major inputs in the making of aluminum products are
alloying elements, such as magnesium and silicon, which are provided by various
suppliers.
Power Contracts
Because electricity is both necessary for the manufacturing of aluminum and
the single largest cost of making primary aluminum, the availability and pricing
of electricity and access to transmission is crucial to our operations.
Approximately 80% of all power produced or consumed in the Pacific Northwest is
delivered over the transmission system of the BPA. Both The Dalles smelter and
Goldendale smelter are connected directly to the main high voltage transmission
grid of BPA. Each plant has a 20-year transmission agreement with BPA, expiring
in April 2015, for transmission capacity which we believe is sufficient to meet
both plants' existing and projected energy needs. These transmission agreements
obligate BPA to offer Goldendale Aluminum Company and Northwest Aluminum Company
a new transmission agreement upon the expiration of the current agreements.
Moreover, the transmission agreements also obligate BPA to act as agent for
Goldendale and Northwest to obtain transmission services over other transmission
systems if requested. With the exception of limited rights to restrict
transmission service in the event of certain threats to system stability, the
transmission agreements obligate BPA to provide Goldendale and Northwest with
the same open access transmission available to utilities and power companies
under the rules of the Federal Energy Regulatory Commission.
Goldendale and Northwest are buying energy from BPA under a five-year power
sale agreement through which approximately 60% of each plant's energy needs are
contractually secured at predetermined prices through September 30, 2001. The
published annual average rate for power from BPA is 2.2 cents per kilowatt-hour.
The power sale agreement allows us to schedule our purchases in different months
when power is priced at different rates in
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such a way that power purchased from BPA has an actual rate that is lower than
the published average rate. The remaining 40% of Northwest's and Goldendale's
energy requirements is obtained by purchasing blocks of energy under periodic
contracts from various suppliers, including BPA, PacifiCorp, Enron, Illinova
Energy, Duke Energy, Avista Energy, the Avista Utilities and others. Recently,
power costs have increased as the amount of power required to be purchased at
predetermined prices under the power sale agreement has been greater than in
earlier periods when we purchased more power on the spot market.
Due to our transmission agreements and the smelters' geographical location
on an unconstrained segment of the main transmission network in the region, we
believe we will be able to obtain competitively-priced power in the foreseeable
future. We do face the normal risks associated with the market price of energy,
however. Numerous short-term and long-term developments can affect power prices,
including worldwide demand for fossil fuels, changing environmental standards,
the overall economic activity in the United States and the Pacific Northwest,
weather temperature and precipitation. Due to the high percentage of
hydroelectric generation in the power supply of the Pacific Northwest, energy
prices in the region tend to be sensitive to drought conditions that reduce the
availability of low cost hydroelectric power supply. The hydroelectric system in
the Pacific Northwest, however, has significant flexibility and excess capacity
to meet spikes in demand or short-term thermal plant outages that have caused
large price swings in other regions of the country. For the longer term, we
expect that the geographical proximity to the low-cost Western Canadian natural
gas supply and the operating flexibility and stability of the Federal Columbia
River Hydro System should keep the market price of electricity attractive in the
Pacific Northwest relative to the average market price of power in the United
States. In addition, we are exploring opportunities to develop generating
capability either on our own or in conjunction with BPA, publicly owned local
utilities or other resource developers.
Hedging Activities
Our revenues and earnings are sensitive to changes in the price of primary
aluminum and in the premiums for, and mix of, our value-added products. For
example, the tolling fees and premiums received by us are tied to the London
Metals Exchange price of aluminum.
Primary aluminum prices historically have been subject to significant
cyclical price fluctuations. The timing of changes in the market price of
aluminum largely are unpredictable. Aluminum prices historically have shown long
periods of average, or below average, prices followed by sudden, relatively
short periods of above average prices. These prices have historically fluctuated
widely and are affected by numerous factors beyond our control, including the
overall demand for, and worldwide supply of, primary aluminum, the availability
and price of competing commodities, international economic trends, currency
exchange rate fluctuations, expectations of inflation, actions of commodity
market participants, consumption and demand patterns and political events in
major producing countries. Over the eleven-year period between January 1, 1988
and December 31, 1998,
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the three month price of aluminum on the London Metals Exchange has ranged
between a low of approximately $0.47 per pound to a high of approximately $1.26
per pound. During this period prices averaged $0.73 per pound.
We attempt to mitigate fluctuations in the price of commodity aluminum
through our strategy of minimizing the costs of production and maximizing the
margins of our value-added products. When we sell value-added products for
future delivery at a fixed price, we generally purchase metal or otherwise fix
the price of the commodity aluminum required in that period to support the sale.
From time to time, we may leave some quantities for some durations uncovered, or
acquire put or call options. This policy generally leaves us with a fixed margin
on our value-added sales and open prices for our future primary production that
will vary with London Metals Exchange aluminum prices.
Backlog
We generally receive the bulk of the orders for value-added specialty
aluminum products in the three months preceding the calendar year in which the
products are to be shipped to customers. At December 31, 1998, our fixed price
backlog was $62.6 million, compared to $67.2 million at December 31, 1997. For a
variety of reasons, including the timing of shipments and product mix, backlog
may not be a reliable measure of future sales for any succeeding period.
Competition
Competition within the aluminum industry is intense. We compete with both
domestic and foreign producers of primary aluminum and with primarily domestic
producers of extrusion billet and other value-added products and with primarily
domestic producers of other products such as copper, steel, glass and plastic.
Many of our competitors have greater financial resources than we do, which may
adversely affect our ability to compete effectively.
Primary aluminum is a commodity with standard qualities. Competition
generally is based upon the ability to produce primary aluminum at a cost below
the market price, which generally is established through trading on the London
Metals Exchange. We also compete with various aluminum producers, casting
companies, extruders and other fabricators in the production of extrusion
billet, sheet ingot, small diameter ingot and other value-added products. In the
extrusion billet market, we compete primarily with Alcan and Alumax, which was
recently acquired by Alcoa. Northwest Aluminum Specialties' major competition in
the small diameter billet segment comes from extrusion companies rather than
primary producers. These companies include Crissonna, a division of Alumax, and
Pimalco, a subsidiary of Alcoa, both of which are large, efficient extruders.
Competition in the sale of these value-added products generally is based upon
price, quality, availability, service and other factors. We concentrate on the
sale of value-added products in which we believe we have production expertise,
cost, quality, geographic or other competitive advantages.
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Environmental and Health Matters
We are subject to federal, state and local environmental laws. From time to
time, these environmental laws are amended and new ones are adopted. These laws
regulate, among other things, air emissions and water discharges; the use,
generation, storage, treatment, transportation and disposal of solid and
hazardous materials and wastes; and the release of hazardous or toxic substances
or other contaminants into the environment. In addition, we are subject to
various federal, state and local workplace health and safety laws and
regulations. The environmental and health laws are administered by the U.S.
Environmental Protection Agency, and various other federal, state and local
agencies.
To operate our business in compliance with environmental and health laws,
we must obtain and maintain in effect permits for each of our facilities for a
variety of operations. These permits include without limitation permits for
discharges of wastewater, emission of air pollutants and management of hazardous
wastes. As a result, we sometimes are required to make expenditures for
pollution control equipment or for other purposes related to our permits and
compliance with the environmental and health laws. We have been fined or
penalized for breaches or alleged breaches of the environmental and health laws
and subjected 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 injuries or
alleged injuries to health or to the environment. The Dalles smelter, the
Goldendale smelter and the Portland, Oregon unloading facility were subject to
an environmental compliance assessment by an independent environmental
consultant in 1996 that was updated in the summer of 1998. In both cases, we
hired and paid the consultant. These assessments were intended to evaluate our
compliance with the environmental laws regulating discharges of wastewater,
emission of air pollutants and the management of hazardous wastes. These
assessments identified no condition of non-compliance that we believe would have
a material adverse effect on our financial condition or results of operations,
nor are we aware of any such material condition.
Our manufacturing facilities have been in operation for several decades,
and these facilities have used substances and generated and disposed of wastes
that are or may be considered hazardous. For example, these facilities have in
the past stored or disposed of wastewater treatment sludge in on-site surface
impoundments such as ponds and lagoons and have handled spent pot liner and
disposed of spent pot liner and other wastes in on-site surface impoundments.
Martin Marietta Corporation, a prior owner of The Dalles smelter, conducted
an investigation of soil and groundwater at the smelter and implemented clean-up
measures at the smelter site, including the removal of hazardous substances from
groundwater and certain areas of the site and the encapsulation of other areas
where hazardous substances were disposed or released. Martin Marietta performed
this work under the supervision of the U.S. Environmental Protection Agency. In
1996 Martin Marietta completed the investigations and clean-up measures required
by the EPA at The Dalles smelter site. Although the purpose of
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the Martin Marietta investigation was to identify all areas at the smelter where
hazardous substances had been disposed or released, some affected areas may not
have been identified or the clean-up measures may not perform as expected in the
future.
Hazardous substances have also been released at the Goldendale facility,
and the site was listed in the EPA's Comprehensive Environmental Response,
Compensation, and Liability Information System database in 1980. We expect
expenditures will be necessary at the Goldendale smelter to investigate and
clean up releases of hazardous substances disposed or released at the Goldendale
smelter, although we are unable to estimate the amount of these expenditures. We
have requested the State of Washington Department of Ecology to approve a plan
to close an on-site surface impoundment at the Goldendale facility by 2005-2006.
We expect to receive a response from the State of Washington in the second or
third quarter of 1999. As of December 31, 1998, the estimated cost of the
surface impoundment closure and post-closure actions was over $3.0 million. We
have established a trust fund of approximately $560,000, as of December 31,
1998, to help pay these costs, and we have procured insurance coverage to
provide funds to the State of Washington for closure if we default. The actual
closure costs may exceed our estimate. Under a contract with the former owners
of the Goldendale smelter, the former owners have agreed to reimburse Goldendale
Aluminum Company for certain anticipated expenditures. We do not assure you the
former owners of the Goldendale smelter will contribute their contractually
allocated share of the costs necessary to investigate and clean-up hazardous
substances disposed or released at the Goldendale smelter site or to obtain
regulatory closure of surface impoundments at the site.
As a result of recent changes in the environmental laws, we have
experienced substantial increases in costs associated with the disposal of spent
pot liner from our smelters. We dispose of spent pot liner under a contract with
a chemical waste treatment company, which expires in December 31, 2000, and
which provides for increased treatment costs as the contract continues. The EPA
has called for proposals from aluminum producers for alternative methods of
disposing of spent pot liner. We are developing a process designed to recycle
spent pot liner into marketable products which we plan to submit to the EPA for
approval. We also expect several other producers to make proposals to the EPA.
We cannot predict, however, whether our process, or any other proposed process,
will be approved by the EPA; whether any such process, if approved, will be cost
efficient; or what additional costs of disposal of spent pot liner, if any, we
may have in the absence of EPA approval of an available, cost efficient disposal
process.
(1) An environmental condition that we do not know about could exist as to
one or more of our properties and could have an adverse effect on our
results of operations or financial condition.
(2) Future environmental or health laws could have an adverse effect on
our results of operation or financial condition.
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Employees
As of December 31, 1998, we employed 1,217 workers, 568 of which are
members of Local 8147 and 419 of which are members of Local 9170 of the United
Steelworkers of America. Goldendale Aluminum Company is signatory to a
collective bargaining agreement with the USW for the period May 24, 1996 through
May 31, 2001. Northwest Aluminum Company is a signatory to a collective
bargaining agreement with the USW for the period July 1, 1996 through June 30,
2001.
Both labor agreements provide for a 4% wage increase each year of the
contract. During the contract period there is a no strike/no lockout agreement.
We provide profit sharing programs in addition to the base compensation for all
employees, and a fully-paid medical, dental and vision health care plan. We have
a 401(k) plan but no defined benefit plan.
We believe we have a good relationship with the union and an employee
involvement process that encourages creativity, productivity and positive
employer-employee relations.
Properties
We own all of our facilities. The following table shows (1) each facility,
(2) its square footage, (3) its annual production capacity and (4) its use.
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<TABLE>
<CAPTION>
FACILITIES
Square Annual
Facility Footage Capacity Operations
--------- ------- -------- ----------
<S> <C> <C> <C> <C>
Goldendale
Smelter 1,209,730 168,000 mt Alumina reduction
Casthouse Included in above 168,000 mt Produce sow, billet, sheet
Unloading Facility 7.9 acres 42,000 mt
(Portland) shipments
Paste Plant 37,711 85,000 mt Carbon briquette
production
Laboratory 18,995 Quality control, R & D
Real Property 6,473 acres
Northwest
Smelter 636,000 82,000 mt Alumina reduction
Casthouse 122,000 99,800 mt Produce sow, billet, ingot
Paste Plant 108,000 85,000 mt Carbon briquette
production
Real Property 390 acres
Specialties
Casthouse 160,000 Up to 54,500 mt Value-added billet
depending on
product mix
Sawing/Turning 100,000 Saw: Semi-fabrication
130,000 mt
Turning:
1,000,000 logs
</TABLE>
We believe these facilities are adequate to meet our current needs. We are
expanding or upgrading some of our facilities as a result of the facilities
investment program. Most of our facilities are subject to mortgages and other
claims held by our creditors to secure the notes and our indebtedness to Hydro.
See "-- Facilities Investment Program."
Legal Proceedings
From time to time, we are involved in various legal proceedings arising
from our normal business activities. We believe these legal proceedings,
individually or combined, will not have a material adverse effect on our
financial condition or results of operations. We are involved in a dispute with
the IRS relating to proposed adjustments to both Northwest Aluminum Company and
Goldendale Aluminum Company's taxable income for prior years. These adjustments
could affect income taxes in future years.
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MANAGEMENT
The following table sets forth information about our directors, executive
officers and certain other key employees as of the date of this document.
Name Age Positions with the Company
- ---- --- --------------------------
Brett E. Wilcox........ 45 Chairman, President and Director
Allen Barkley.......... 43 Vice President and General Manager -- Northwest
William R. Reid........ 50 Chief Financial Officer -- Golden Northwest
Aluminum, Inc. and Northwest
Daniel J. Gnall........ 40 Vice President-- Sales and Marketing-- Northwest
Muhsin (Mac) Seyhanli.. 54 Vice President and General Manager-- Golden
Northwest Aluminum, Inc. and Goldendale
Gerald Miller.......... 57 Vice President, General Counsel and Secretary
-- Golden Northwest Aluminum, Inc. and Goldendale
Jessie Casswell........ 49 Chief Financial Officer-- Goldendale
A. Ray Roberts......... 57 President-- Technologies
Robert Ames............ 58 Director
Stephen E. Babson...... 47 Director
David Bolender......... 66 Director
Michael G. Psaros...... 31 Director
Brett Wilcox has served as our President since our inception in June 1998.
Mr. Wilcox is also the President of Northwest Aluminum Company, which he founded
in 1986, and since 1996 has served as the President of Goldendale Aluminum
Company. Before founding Northwest in 1986, Mr. Wilcox was the Executive
Director of Direct Service Industries, a trade association of ten large aluminum
and other energy-intensive companies that purchase electricity from the
Bonneville Power Administration. Before 1986 Mr. Wilcox was an attorney with
Preston and Gates in Seattle, Washington, concentrating in energy and general
business matters. Mr. Wilcox is chairman of the Oregon Economic Development
Commission, Vice Chair of the Oregon Progress Board and active in various civic
and business organizations.
Allen Barkley joined Northwest in June 1995 as Production Engineering
Manager and became Vice President and General Manager in October 1996. Before
joining Northwest, Mr. Barkley spent 18 years at a primary aluminum smelter
facility in Columbia Falls, Montana where he served in a variety of capacities,
including production, engineering, maintenance and public affairs.
William Reid joined Northwest in 1986, became its Controller in 1993 and
was appointed Chief Financial Officer of Northwest in 1996 and of Golden
Northwest Aluminum in August 1998. Before joining Northwest, Mr. Reid was a
senior auditor with Touche Ross & Co.
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Daniel J. Gnall joined Northwest in August 1991 as a metal trader, and in
1992 became Manager -- Sales and Marketing responsible for metal purchasing and
sales. Before joining Northwest, Mr. Gnall was an account executive with Martin
Marietta Corporation and worked for Cassmet International, Inc., a metals
trading company where he served as its General Manager in charge of physical
operations and non-ferrous metal purchasing and sales.
Muhsin (Mac) Seyhanli became Vice President and General Manager of Golden
Northwest Aluminum in August 1998. He was one of the founders of Columbia
Aluminum Company, the predecessor of Goldendale, and since 1994 has been the
general manager for all operations at Goldendale, becoming its Vice President
and General Manager in 1996. Before his current position, Mr. Seyhanli was a
cell line manager for both Columbia and Commonwealth Aluminum. Mr. Seyhanli has
over 29 years of experience in the aluminum industry.
Gerald Miller became Vice President, General Counsel and Secretary of
Golden Northwest Aluminum in August 1998. He joined Columbia Aluminum Company in
1989 as General Counsel and Corporate Secretary. In 1996, Mr. Miller was named
to the additional post of Vice President -- Energy and Government Affairs of
Goldendale. Before joining Goldendale, Mr. Miller was a trial lawyer in private
practice in the state of Washington. Mr. Miller is a member of the Board of
Directors of the State of Washington Economic Development Finance Authority.
Jessie Casswell has been the Chief Financial Officer of Goldendale since
1998 the Controller since 1984. From 1972 to 1984, Ms. Casswell served as the
Controller of Northwest. Ms. Casswell is also a member of the Executive
Committee of the Goldendale profit sharing plan and is the Chairperson of the
Trustees of the profit sharing plan.
A. Ray Roberts joined Northwest in 1992 as Operations Manager and was
responsible for smelter operations. In 1997, Mr. Roberts was named President of
Northwest Aluminum Technologies. In his over 28 years of experience in the
aluminum industry and before joining Northwest, Mr. Roberts has worked for
several smelting facilities in various engineering and managerial capacities,
including production, marketing manager, technology development and liaison to
government.
Robert Ames became a director of Golden Northwest Aluminum in 1998. Since
1996, he has served as a director of Goldendale. Until his retirement in 1995,
Mr. Ames worked in the banking industry, serving most recently as the Vice
Chairman and President of First Interstate Bank of Oregon. Mr. Ames is a real
estate investor and a member of the boards of directors of a number of Pacific
Northwest companies, including Barrett Business Services, Inc.
Stephen E. Babson became a director of Golden Northwest Aluminum in 1998.
Since 1996, he has served as a director of Goldendale. Mr. Babson has been a
partner in the
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Portland office of Stoel Rives LLP, which is acting as our counsel in connection
with this exchange offer, since 1984. Mr. Babson is also a director of Roseburg
Forest Products Co. and serves on the advisory boards of several Pacific
Northwest based technology companies. He is the general partner of Babson
Capital Partners, LP, a private investment fund, the secretary and director of
the Oregon Symphony Association and the Chair of the Riverdale School
Foundation. Mr. Babson formerly served as secretary and a director of the
Software Association of Oregon.
David Bolender became a director of Golden Northwest Aluminum in 1998.
Since 1996, he has served as a director of Goldendale. Since 1992, Mr. Bolender
has served as Chairman of the Board of Electro Scientific Industries, Inc., a
manufacturer of machine tools for the electronics industry. In May 1998, Mr.
Bolender became Chief Executive Officer and Chairman of the Board of Protocol
Systems, a manufacturer of medical vital sign monitoring instrumentation. From
1982 to 1991, Mr. Bolender was President of Pacific Power and Light Company and
PacifiCorp Electric Operations Group. Before joining PacifiCorp in 1982, Mr.
Bolender spent 12 years with Westinghouse Electric Corporation, where he managed
the construction and operation of power plants around the world. He is a member
of the boards of directors of Benson Industries and Micro Monitors.
Michael G. Psaros became a director of Golden Northwest Aluminum in 1998.
Since 1996, he has served as a director of Goldendale. Since 1991, Mr. Psaros
has been a Principal of Keilin & Co. LLC, a New York investment bank. Mr. Psaros
is also a Principal of KPS (Keilin, Psaros, Shapiro) Special Situations Fund,
L.P., a private equity fund. Before joining Keilin, Mr. Psaros worked in the
investment banking department of Bear, Stearns & Co. Inc. Mr. Psaros was
originally appointed to Goldendale's Board by the President of the United
Steelworkers of America.
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EXECUTIVE COMPENSATION
Compensation Committee Interlocks and Insider Participation
In the last fiscal year, our Board of Directors did not have a compensation
committee. Compensation decisions for executive officers were made by Brett
Wilcox.
Executive Compensation
Compensation Summary. The following table sets forth compensation
information for the President and our other four most highly compensated
executives, each of whose total annual compensation exceeded $100,000 in 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
-------------------------------------------
Other Annual
Salary Bonus Compensation
--------- --------- ------------
<S> <C> <C> <C>
Brett Wilcox, President and Chairman of the Board
1998............................................. $ 601,806 $ 903,001 $0
Muhsin (Mac) Seyhanli, Vice President and
General Manager
1998............................................. 150,000 253,380 0
Allen Barkley, Vice President and General
Manager-- Northwest Aluminum Company
1998............................................. 106,950 100,000 0
Daniel J. Gnall, Vice President - Sales and
Marketing-- Northwest Aluminum Company
1998............................................. 106,950 100,000 0
William R. Reid, Chief Financial Officer
1998............................................. 106,950 100,000 0
</TABLE>
The salaries of the above-named executive officers will be the same in
fiscal 1999. No material increases in bonuses or other annual compensation are
planned in fiscal 1999.
Limitation of Liability and Indemnification
Our articles of incorporation eliminate, to the fullest extent permitted by
Oregon law, liability of our directors for monetary damages for conduct as a
director. Although liability for monetary damages has been eliminated, equitable
remedies such as injunctive relief or
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rescission remain available. In addition, a director is not relieved of his
responsibilities under any other law, including the federal securities laws.
Our articles of incorporation require us to reimburse the directors for any
liabilities and related expenses arising from the Company's operations to the
fullest extent not prohibited by law. We believe that the limitation of
liability provisions in our articles of incorporation may enhance our ability to
attract and retain qualified individuals to serve as directors.
Directors' Compensation
Directors who are not our employees receive a fee of $5,000 per board
meeting attended.
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CERTAIN TRANSACTIONS
We sell semi-solid metalworking and other value-added products to Hot Metal
Technologies, Inc. and Hot Metal Moldings, Inc. under annual purchase orders.
Hot Metal Technologies and Hot Metal Moldings, suppliers of automotive parts,
are each wholly owned by Brett Wilcox, our sole shareholder. Our sales to these
companies under these purchase orders totaled approximately $3.6 million for the
years ended December 31, 1997 and 1998. The terms of these sales were comparable
to similar sales to non-affiliates. We also made advances to Hot Metal
Technologies and Hot Metal Moldings during the years ended December 31, 1997 and
1998 by way of payroll and benefits expenses paid by Northwest Aluminum Company
for Northwest employees on loan to these companies. On December 31, 1997, $4.0
million of the total amount then owed by Hot Metal Technologies and Hot Metal
Moldings to us for accounts receivable and advances was converted to a note
receivable. The note bears interest at 9.25% per year and is payable in
quarterly installments beginning April 1, 1998 through January 2002. As of
December 31, 1998, a combined total of approximately $4.3 million was owed by
these companies to us, consisting of approximately $3.4 million on the note
receivable and accounts receivable of approximately $0.9 million. The highest
amount of total indebtedness of Hot Metal Technologies and Hot Metal Moldings to
us since January 1, 1997 was $6.5 million.
In 1998 the federal government made a grant of $750,000 to Hot Metal
Technologies as contractor, and Northwest Aluminum Specialties as subcontractor,
for semi-solid metalworking research.
In 1997 Northwest Aluminum Company paid $4.9 million to Mr. Wilcox to pay
taxes owed by him as a result of Northwest's status as a Subchapter S
corporation. The amount paid was in excess of actual tax liabilities and, of
this amount, $2.9 million was recorded as a dividend. The remaining $2.0 million
is recorded as a receivable on our combined balance sheet and is outstanding. No
interest is payable upon the receivable.
Mr. Wilcox has entered into an agreement with Northwest, Northwest Aluminum
Specialties and us under which we have agreed not to file any amended income tax
return or change any election or accounting method without the consent of Mr.
Wilcox if the filing or change would increase any tax liability of Mr. Wilcox.
In addition, the companies have agreed to reimburse Mr. Wilcox for any
adjustment for taxes owed for earlier periods, including taxes on any such
payments, and for certain other fees and costs relating to periods before
December 18, 1998.
Under a voting agreement effective May 17, 1996, Mr. Wilcox must cause
Goldendale Holding Company to vote the shares of Goldendale Aluminum Company
common stock held by it to ensure that
(1) the Goldendale Aluminum Company board of directors consists of not
more than five directors,
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(2) not less than one director is a nominee designated by the President of
the United Steel Workers of America and
(3) not less than two directors are nominees of Mr. Wilcox who have no
significant continuing business relationship with Mr. Wilcox or any
entity controlled by him.
The voting agreement will remain in force so long as the USW represents the
collective bargaining unit of the Goldendale facility, except that clauses (1)
and (3) of the preceding sentence will continue only until the termination of
the initial term of the Collective Bargaining Agreement dated April 7, 1996
between Goldendale Aluminum Company and the USW.
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DESCRIPTION OF OTHER INDEBTEDNESS
AND GOLDENDALE PREFERRED STOCK
The following describes Goldendale Aluminum Company preferred stock and
some of the debt instruments to which we and our subsidiaries are parties.
Revolving Credit Facility
Goldendale Aluminum Company, Northwest Aluminum Company, Northwest Aluminum
Specialties and Northwest Aluminum Technologies, as borrowers, and Goldendale
Holding Company, as guarantor, have entered into an agreement with BankBoston,
N.A. and U.S. Bank, N.A. establishing a revolving credit facility. The following
is a summary of the key terms and provisions of the facility.
The credit facility consists of a $75.0 million senior secured revolving
credit facility, collateralized by all of the inventory, accounts receivable and
other rights to payment and related intangibles and any proceeds of Goldendale
Aluminum Company, Northwest, Specialties and Technologies and maturing on
December 20, 2003. The maximum amount of borrowings that may be outstanding
under the credit facility is limited to the lesser of specified percentages of
eligible accounts receivable and inventory and $75.0 million. Availability under
the credit facility as of December 31, 1998 was approximately $50.5 million.
The credit agreement contains restrictive covenants, including a minimum
net worth requirement, a minimum excess availability requirement and limitations
on capital expenditures, dividends, additional indebtedness, mergers and other
business combinations, asset sales, liens or other similar restrictions on
property, investments and transactions with affiliates. The credit agreement
also contains customary events of default and other provisions, including an
event of default on a change of control of us or our subsidiaries. Upon the
occurrence of an event of default, the lenders may declare all amounts owing
under the credit facility to be immediately due and payable, except that, on the
occurrence of an event of default triggered by certain events of bankruptcy,
insolvency or reorganization, borrowings under the credit facility will
automatically become due and payable, at which time the lenders may initiate
proceedings to realize on the collateral for the credit facility.
Borrowings under the credit facility bear interest at a floating rate based
on the Alternative Base Rate specified in the credit agreement plus from 0.50%
to 1.00% or LIBOR plus from 2.00% to 2.50%, depending on our consolidated ratio
of EBITDA to interest expense. Interest is payable monthly or at the end of
LIBOR interest periods in arrears. The credit facility provides for the payment
of a commitment fee of 0.50% per year based on the unused portion of the credit
facility and other fees. Fees payable in connection with the issuance of letters
of credit are equal to the then applicable LIBOR margin plus a fronting fee of
0.25% calculated on an annualized basis on the face amount of each letter of
credit.
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<PAGE>
During the time that an event of default is continuing, interest will be payable
at rates 2.00% above the interest rate applicable to Base Rate loans described
in the credit agreement.
Hydro Subordinated Debt
We have entered into an agreement with Norsk Hydro USA, Inc. to borrow up
to $30.0 million in the form of subordinated debt secured by a second lien on
and pledge of the collateral securing your notes and subordinated guarantees by
our subsidiaries. Except for Hydro's collateral security, the guarantees by our
subsidiaries of the Hydro debt are also subordinate to the indebtedness under
our revolving credit facility. The proceeds of this indebtedness will be
available to us in two parts -- $20.0 million, which has already been borrowed,
and $10.0 million on our notice, issued on or before December 31, 2001, of the
completion of plans to implement complete point feeder conversion of the
Goldendale smelter, the receipt of all necessary permits and satisfaction of
certain other customary conditions.
Our indebtedness with Hydro matures December 31, 2005. Automatic extensions
of up to a maximum of two years may take effect if we cannot repay principal at
maturity as a result of the limitations imposed by the restricted payments
covenant in the indenture. Borrowings under this indebtedness bear interest at
LIBOR plus 2.00%, payable semi-annually in arrears. Commencing February 15,
2003, we will make semi-annual principal payments based on increased earnings
associated with the facilities investment program at the Goldendale smelter to
the extent permitted by the restricted payments covenant in the indenture. The
subordinated note purchase agreement with Hydro contains customary affirmative
covenants and a covenant to implement the facilities investment program and
incorporates by reference certain of the negative covenants contained in the
indenture.
Under an agreement between the trustee of your notes and Hydro, the Hydro
indebtedness and the related guarantees by our subsidiaries are subordinated in
right of payment to the notes and their guarantees in the following manner:
(1) in the event of a bankruptcy or similar proceeding involving us or any
of our subsidiaries, you will be entitled to receive payment in full
before Hydro will be entitled to receive any payment for the
indebtedness owed to it or under the related guarantees, and
(2) no payment on the indebtedness to Hydro or the related guarantees will
be permitted unless
(a) the payment of principal is permitted under the restricted
payments covenant contained in the indenture,
(b) at the time of and after giving effect to the payment, there is
not an existing or pending default under the indenture, and
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<PAGE>
(c) no portion of the indebtedness to Hydro shall have been made
immediately due and payable at or before the time of the payment.
In addition, the agreement provides that the trustee's security interest in and
pledge of the collateral for the notes is senior in priority to the security
interest and pledge securing the indebtedness to Hydro, and will limit in some
respects the ability of Hydro to exercise its rights and remedies under the
indebtedness and the guarantees and collateral securing it. See "Description of
Notes -- Material Covenants -- Limitations on Restricted Payments, Restricted
Investments and Unrestricted Subsidiary Investments."
Goldendale Preferred Stock
Goldendale Holding Company has outstanding 131,836.1 shares of
nonconvertible Series A preferred stock held by the Goldendale Aluminum Company
profit sharing plan. Goldendale Holding Company is the sole owner of all 329,500
outstanding shares of common stock of Goldendale Aluminum Company. The
Goldendale preferred stock pays cumulative dividends and has one vote per share
on all matters submitted to a vote of shareholders of Goldendale Holding Company
and votes together with the common stock as a single class on these matters. We
have the right to redeem the Goldendale preferred stock in cash at any time for
a variable price described in Goldendale Holding Company's certificate of
incorporation. If we do not redeem the Goldendale preferred stock before January
1, 2002, each holder of the Goldendale preferred stock can receive additional
shares of Goldendale preferred stock equal in value to any accrued and unpaid
cash dividends. Although we plan to redeem the Goldendale preferred stock, we do
not assure you we will do so. Because the shares of Goldendale preferred stock
vote as a class with the common stock, such an in-kind payment to the holders of
the Goldendale preferred stock could over time result in a change of voting
control of Goldendale Holding Company, which could result in an event of default
under our revolving credit facility. The liquidation preference on the
Goldendale preferred stock is $225 per share.
126
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 350,000 shares of common stock.
Common Stock
As of the date of this document, 1,000 shares of common stock were
outstanding, held of record by Mr. Wilcox.
Holders of common stock are entitled to receive dividends as may from time
to time be declared by our board of directors out of funds legally available for
that purpose. Holders of common stock are entitled to one vote per share on all
matters on which they are entitled to vote and do not have any cumulative voting
rights. Holders of common stock have no preemptive rights, conversion rights,
redemption rights or rights to a fund whose assets and their earnings are
earmarked to pay for the common stock. If we liquidate, dissolve or wind up,
holders of common stock are entitled to share equally and proportionately in any
of our assets remaining after the payment of all of our liabilities, including
the notes. The outstanding shares of common stock are fully paid and
nonassessable.
127
<PAGE>
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
This section discusses the material U.S. federal income tax consequences
associated with the exchange of the notes for the new notes under the exchange
offer. It does not describe all aspects of U.S. federal income taxation that may
be relevant to particular holders in the context of their specific investment
circumstances or certain types of holders subject to special treatment under
these laws, e.g., financial institutions, tax-exempt organizations, foreign
corporations and individuals who are not citizens or residents of the U.S. This
section is based upon the United States federal tax laws and regulations as now
in effect and as currently interpreted and does not take into account possible
changes in these tax laws or these interpretations, any of which may be applied
retroactively. It does not include any description of the tax laws of any state,
local or foreign government that may be applicable to the notes or a holder of
the notes.
The exchange of the notes for the new notes under the exchange offer will
not be treated as an "exchange" for federal income tax purposes because the new
notes do not differ materially in either kind or extent from the notes and
because the exchange will occur by operation of the terms of the notes. Rather,
the new notes received by a holder will be treated as a continuation of the
notes in the hands of the holder. As a result, there generally will be no
federal income tax consequences to holders who exchange notes for the new notes
under the exchange offer. In addition, any "market discount" on the notes should
carry over to the new notes. Holders should consult their tax advisors regarding
the application of the market discount rules to the new notes received in
exchange for the notes under the exchange offer.
This section does not discuss all aspects of United States federal income
taxation that may be relevant to a particular holder of the notes in light of
his, her or its particular circumstances and income tax situation. Each holder
of the notes should consult his, her or its tax advisor as to the specific tax
consequences to the holder of the exchange of notes for new notes and the
ownership and disposition of the notes, including the application and effect of
state, local, foreign and other tax laws or changes to those laws.
128
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in
connection with the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the new notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of new notes received in exchange for
notes where the notes were acquired as a result of market-making activities or
other trading activities. We have agreed that for a period ending on the earlier
of
(1) 180 days after the date of this prospectus and
(2) the date on which a broker-dealer is no longer required to deliver a
prospectus in connection with market-making or other trading
activities,
we will make available and provide promptly upon reasonable request this
prospectus, in a form meeting the requirements of the Securities Act, to any
broker-dealer for use in connection with any such resale.
We will receive no proceeds in connection with the exchange offer. New
notes received by broker-dealers for their own account in the exchange offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the new
notes or a combination of these methods of resale, at market prices prevailing
at the time of resale, at prices related to the prevailing market prices or
negotiated prices. A resale may be made directly to purchasers or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from the broker-dealer and/or the purchasers of new notes. Any
broker-dealer that resells new notes that were received by it for its own
account in the exchange offer and any broker or dealer that participates in a
distribution of the new notes may be an underwriter within the meaning of the
Securities Act, and any profit on the resale of new notes and any commissions or
concessions received by these persons may be underwriting compensation under the
Securities Act. The letter of transmittal states that by acknowledging that it
will deliver, and by delivering, a prospectus, a broker-dealer will not be
considered to admit that it is an underwriter. We have agreed to reimburse these
broker-dealers for any amounts arising as a result of certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the new notes will be passed upon for us by
Stoel Rives LLP, Portland, Oregon.
EXPERTS
The consolidated financial statements of Golden Northwest Aluminum, Inc.
and Affiliates as of December 31, 1998 and 1997 and for each of the three years
in the period
129
<PAGE>
ended December 31, 1998 included in this prospectus have been audited by BDO
Seidman, LLP, independent certified public accountants, as stated in their
report appearing in this prospectus.
The statements of income and cash flows of Goldendale Smelter Division
of Columbia Aluminum Company for the year ended December 31, 1995 and the period
from January 1, 1996 through May 21, 1996 included in this prospectus have been
audited by BDO Seidman, LLP, independent certified public accountants, as stated
in their report appearing in this prospectus.
CHANGE OF ACCOUNTANTS
On June 15, 1998, we engaged BDO Seidman, LLP as our independent public
accountants. BDO's engagement was approved by our Board of Directors. Under this
engagement, BDO audited our consolidated financial statements for the years
ended December 31, 1997 and 1996, which consolidated financial statements are
included in this document. Prior to this engagement, we had not consulted with
BDO on issues relating to our accounting principles or the type of audit opinion
to be issued for our financial statements.
Perkins & Company, P.C. were the prior auditors and audited the combined
financial statements of Northwest Aluminum Company and Northwest Aluminum
Specialties, Inc. for the year ended September 3, 1995. Perkins resigned and
referred us to BDO Seidman. Perkins is a member of the BDO Seidman Alliance. The
report of Perkins on those financial statements did not contain an adverse
opinion or a disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope, or accounting principles. In connection with the audit
by Perkins for the year ended September 3, 1995, there was no disagreement
between us and Perkins on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which, if not
resolved to the satisfaction of Perkins, would have caused them to make
reference to the matter in their report.
Arthur Andersen LLP had previously audited Goldendale Aluminum Company's
financial statements as of December 31, 1996 and 1997. In connection with the
audit by Arthur Andersen for these periods, there was no disagreement between us
and Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which, if not
resolved to the satisfaction of Arthur Andersen would have caused them to make
reference to the matter in their report.
ADDITIONAL INFORMATION
As required by the Securities Act, we have filed a registration statement
on Form S-4 with the SEC to register the new notes to be exchanged for existing
notes in the exchange offer. This document omits some information contained in
the registration statement and the
130
<PAGE>
exhibits and schedules attached to the registration statement. For further
information about us and the exchange offer, you should review the registration
statement and its exhibits and schedules. Statements in this document that
summarize the contents of any contract or other document are not necessarily
complete and you should review every contract or document that is filed as an
exhibit to the registration statement. The registration statement and its
exhibits and schedules may be inspected without charge at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the SEC located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these
materials may be obtained from the Public Reference Section of the SEC, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates and
from the SEC's Internet Web site at http://www.sec.gov. You may obtain
information on the operations of the Public Reference Room by calling the SEC at
1-800-SEC-0300.
131
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Golden Northwest Aluminum, Inc. and Subsidiaries
Report of Independent Certified Public Accountants............. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998......................... F-4
Consolidated Statements of Shareholder's Equity for the years
ended December 31, 1996, 1997 and 1998................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-6
Summary of Significant Accounting Policies..................... F-7 to F-11
Notes to Consolidated Financial Statements..................... F-12 to F-21
Goldendale Smelter Division of Columbia Aluminum Company
Report of Independent Certified Public Accountants............. F-22
Statements of Income for the year ended December 31, 1995
and for the period from January 1, 1996 through
May 21, 1996.............................................. F-23
Statements of Cash Flows for the year ended December 31, 1995
and for the period from January 1, 1996 through
May 21, 1996.............................................. F-24
Summary of Significant Accounting Policies..................... F-25 to F-27
Notes to Financial Statements.................................. F-28 to F-29
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Golden Northwest Aluminum, Inc. and Subsidiaries
The Dalles, Oregon
We have audited the accompanying consolidated balance sheets of Golden
Northwest Aluminum, Inc. and Subsidiaries as of December 31, 1997 and 1998 and
the related consolidated statements of operations, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These consolidated 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 consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Golden
Northwest Aluminum, Inc. and Subsidiaries as of December 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Spokane, Washington
March 16, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (Note 5)
December 31,
-----------------------------
1997 1998
----------- ------------
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 1,251 $ 37,633
Trade accounts receivable, less allowance for doubtful accounts of 61,862 47,264
$1,000 (Note 14).....................................................
Current portion of receivable due from related company (Note 13)........ -- 2,126
Inventories (Note 2).................................................... 60,892 55,083
Prepaid expenses........................................................ 527 786
Deferred income taxes (Note 10)......................................... 1,339 1,494
----------- ------------
Total current assets................................................. 125,871 144,386
----------- ------------
Property, plant and equipment, net (Notes 1 and 3)......................... 113,812 117,761
Power project assets held for sale......................................... 1,630 543
Goodwill, net of accumulated amortization of $7,785 and $12,531 (Note 1).. 92,886 88,140
Advances to shareholder.................................................... 2,000 2,000
Receivable due from related company, less current portion (Note 13)........ 4,034 2,826
Other assets, net (Note 4)................................................. 6,778 10,472
----------- ------------
$ 347,011 $ 366,128
=========== ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt (Note 5............................... $ 13,500 $ --
Trade accounts payable.................................................. 50,496 41,035
Accrued expenses (Note 8)............................................... 19,161 19,598
Income taxes payable (Note 10).......................................... 6,316 5,361
----------- ------------
Total current liabilities............................................ 89,473 65,994
----------- ------------
Long-term debt, less current portion (Note 5)........................... 121,441 170,000
Deferred income taxes (Note 10)......................................... 9,323 9,965
Deferred compensation (Note 7).......................................... 2,915 1,734
Other long-term liabilities (Note 9).................................... 2,312 1,741
Dividends payable (Note 11)............................................. 5,867 9,515
----------- ------------
Total liabilities.................................................... 231,331 258,949
----------- ------------
Commitments and Contingencies (Notes 6, 7, 9 and 10)
Preferred stock of subsidiary (Note 11).................................... 29,663 29,663
Shareholder's Equity (Note 1):.............................................
Common stock, $0.10 par value; 350,000 shares authorized; -- --
1,000 shares issued and outstanding
Additional paid-in capital.............................................. 65,504 65,504
Retained earnings....................................................... 20,513 12,012
----------- ------------
Total shareholder's equity 86,017 77,516
----------- ------------
$ 347,011 $ 366,128
=========== ============
See accompanying summary of significant accounting policies and notes
to the consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
-------------------------------------------------
1996 1997 1998
------------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues (Notes 1, 6 and 13) $ 373,038 $ 497,872 $ 470,850
Cost of revenues 329,739 438,299 443,251
------------- ------------- -------------
Gross margin 43,299 59,573 27,599
General and administrative expenses 9,746 15,327 15,600
------------- ------------- -------------
Operating income 33,553 44,246 11,999
------------- ------------- -------------
Other income (expense):
Interest expense (Note 5) (9,454) (16,723) (14,180)
Other income, net 1,442 4,246 1,889
------------- ------------- -------------
Net other expense (8,012) (12,477) (12,291)
------------- ------------- -------------
Income (loss) before income taxes 25,541 31,769 (292)
Income tax expense (Note 10) 6,636 13,274 3,009
------------- ------------- -------------
Income (loss) before extraordinary item 18,905 18,495 (3,301)
Extraordinary item - loss on extinguishment of debt (net of
income tax benefit of $513) (Note 5) -- -- (1,552)
------------- ------------- -------------
Net income (loss) $ 18,905 $ 18,495 (4,853)
============= ============= =============
Income (loss) before extraordinary item $ 18,905 $ 18,495 $ (3,301)
Dividends accrued on preferred stock of subsidiary (2,219) (3,648) (3,648)
------------- ------------- -------------
Income (loss) available to common shareholder 16,686 14,847 (6,949)
Extraordinary item -- -- (1,552)
------------- ------------- -------------
Net income (loss) available to common shareholder $ 16,686 $ 14,847 $ (8,501)
============= ============= =============
Earnings (loss) per share - basic and diluted:
Income (loss) before extraordinary item $ 16,686 $ 14,847 $ (6,949)
Extraordinary item -- -- (1,552)
------------- ------------- -------------
Net income (loss) per share of common stock $ 16,686 $ 14,847 $ (8,501)
============= ============= =============
Weighted average shares of common stock outstanding 1,000 1,000 1,000
============= ============= =============
(The Consolidated Statements of Operations include the results of operations of
Goldendale Holding Company since May 22, 1996. See Note 1.)
See accompanying summary of significant accounting policies and notes
to the consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Common Stock Additional Total
--------------------------- Paid-In Retained Shareholder's
Shares Amount Capital Earnings Equity
------------ ------------ ------------ ------------ -----------
(in thousands except share data)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 1,000 $ -- $ 20,774 $ 59,599 $ 80,273
Acquisition of Goldendale (Note 1) -- -- 44,480 -- 44,480
Cash contributed to capital -- -- 100 -- 100
Dividends accrued on preferred stock -- -- -- (2,219) (2,219)
Dividends paid on common stock -- -- -- (67,587) (67,587)
Net income -- -- -- 18,905 18,905
------------ ------------ ------------ ------------ -----------
Balance at December 31, 1996 1,000 -- 65,354 8,598 73,952
Cash contributed to capital -- -- 150 -- 150
Dividends accrued on preferred stock -- -- -- (3,648) (3,648)
Dividends paid on common stock -- -- -- (2,932) (2,932)
Net income -- -- -- 18,495 18,495
------------ ------------ ------------ ------------ -----------
Balance at December 31, 1997 1,000 -- 65,504 20,513 86,017
Dividends accrued on preferred stock -- -- -- (3,648) (3,648)
Net loss -- -- -- (4,853) (4,853)
------------ ------------ ------------ ------------ -----------
Balance at December 31, 1998 1,000 $ -- $ 65,504 $ 12,012 $ 77,516
============ ============ ============ ============ ===========
See accompanying summary of significant accounting policies and notes
to the consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31,
-------------------------------------
1996 1997 1998
--------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................. $ 18,905 $ 18,491 $ (4,853)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization................................. 13,584 19,069 20,371
Gain on disposal of assets.................................... -- (2,600) (38)
Provision for bad debts....................................... 296 -- 1,500
Extraordinary loss............................................ -- -- 2,065
Deferred income taxes......................................... 3,573 8,136 487
Change in assets and liabilities, net of effect of acquisition:
Trade accounts receivable.................................. (3,256) (1,372) 13,098
Inventories................................................ 22,299 (9,503) 5,809
Prepaid expenses........................................... (43) 150 (259)
Other assets............................................... (5,298) 2,850 627
Trade accounts payable..................................... (3,586) 22,914 (6,878)
Accrued expenses........................................... (17,074) 3,641 (2,739)
Intercompany payable....................................... -- -- 418
Income taxes payable....................................... 450 (4,886) (955)
Other liabilities.......................................... 4 (802) 85
--------- --------- ---------
Net cash provided by operating activities........................ 29,854 56,092 28,738
--------- --------- ---------
Cash flows from investing activities:
Proceeds from disposal of assets.............................. -- 12,821 1,210
Acquisition of property, plant and equipment.................. (19,852) (14,281) (19,010)
Advances to shareholder....................................... -- (2,000) --
Advances to related company................................... (403) (3,631) (918)
Cash acquired in business acquisition......................... 1,106 -- --
--------- --------- ---------
Net cash used in investing activities............................ (19,149) (7,091) (18,718)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under revolving credit facilities.................. 259,122 319,219 300,772
Repayments under revolving credit facilities.................. (212,029) (326,793) (299,762)
Contribution of capital....................................... 100 150 --
Principal repayments of term loan facilities.................. (7,750) (42,926) (11,904)
Proceeds from term loan facilities............................ 25,000 -- --
Proceeds from long-term borrowings............................ -- -- 45,953
Deferred finance costs........................................ -- -- (7,035)
Principal payments on deferred compensation notes............. (1,631) (813) (1,662)
Dividends paid................................................ (67,587) (2,932) --
--------- --------- ---------
Net cash provided by (used in) financing activities.............. (4,775) (54,095) 26,362
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............. 5,930 (5,094) 36,382
Cash and cash equivalents, beginning of year..................... 415 6,345 1,251
--------- --------- ---------
Cash and cash equivalents, end of year........................... $ 6,345 $ 1,251 $ 37,633
========= ========= =========
Supplemental Disclosures of Cash Flow Information (Note 12)
See accompanying summary of significant accounting policies and notes
to the consolidated financial statements.
</TABLE>
F-6
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
Operations, Principles of Consolidation and Basis of Presentation
The operations of Golden Northwest Aluminum, Inc. ("Golden" or the
"Company") consist primarily of the smelting conversion of alumina to aluminum
under tolling arrangements with alumina suppliers, processing of aluminum into
primary products, and the sale of those products. The operations are located in
the Pacific Northwest on the Columbia River.
The Company was incorporated in the state of Oregon on June 3, 1998 for the
purposes of becoming the holding company of Northwest Aluminum Company,
Northwest Aluminum Specialties, Inc., Northwest Aluminum Technologies, LLC
(collectively "Northwest") and Goldendale Holding Company and its wholly owned
subsidiary, Goldendale Aluminum Company (collectively "Goldendale"). The sole
shareholder of the Company also owned all of the outstanding shares of common
stock of Northwest and Goldendale. On December 18, 1998, the sole shareholder of
Golden contributed all of the issued and outstanding shares of common stock of
Goldendale and Northwest to the Company. The transaction was accounted for as a
merger of entities under common control in a manner similar to a pooling of
interests. Accordingly, the financial statements give retroactive effect to this
transaction. The consolidated financial statements include the accounts of
Northwest for all periods presented and the accounts of Goldendale from May 22,
1996, the date of acquisition by the sole shareholder (See Note 1).
The Company and Goldendale report on a December 31 year basis; Northwest
reports on a September 30 fiscal year basis. Included in accrued expenses at
December 31, 1998 is $418, representing the portion of intercompany advances
which do not eliminate due to the differing year ends. All other significant
intercompany accounts and transactions have been eliminated.
Consolidated and separate results of Northwest and Goldendale are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Northwest............................ $ 244,839 $ 296,271 $ 293,596
Goldendale........................... 128,199 201,601 177,254
--------------- --------------- ---------------
$ 373,038 $ 497,872 $ 470,850
=============== =============== ===============
Net income (loss)
Northwest............................ $ 9,730 $ 205 $ (4,742)
Goldendale........................... 9,175 $ 18,290 $ (111)
--------------- --------------- ---------------
$ 18,905 $ 18,495 $ (4,853)
=============== =============== ==============
</TABLE>
Revenue Recognition
Revenues for the conversion of alumina and processing of aluminum under
tolling arrangements are recognized upon completion of the tolling process.
Under the tolling arrangements, alumina suppliers deliver their alumina to the
Company. The alumina is converted to aluminum in reduction cells by putting it
in liquid
F-7
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
form by dissolving it in an "electrolyte" solution and then passing electric
current through the "electrolyte" to separate the alumina into its two parts,
aluminum and oxygen. This process is continuous and is nearly instantaneous as
the alumina is dissolved in the "electrolyte". The tolling process is considered
complete when the molten aluminum is withdrawn from the cells. Revenues from the
processing and sale of aluminum products are recognized upon shipment.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method, except for certain supply inventories, which
are based upon the weighted-average cost method.
Property, Plant and Equipment
Property, plant and equipment including cell relining costs are stated at
cost, less accumulated depreciation. For financial reporting purposes, the costs
of plant and equipment are depreciated over the estimated useful lives of the
assets, which range from three to forty years, using the straight-line method.
Assets Held For Sale
Power project assets represent idle assets, which are being held for sale.
These assets are recorded at their estimated net realizable value.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is being amortized on a straight-line basis over twenty
years. The Company periodically evaluates the recoverability of goodwill. The
measurement of possible impairment is based primarily on the Company's ability
to recover the unamortized balance of the goodwill from expected future
operating cash flows on an undiscounted basis.
Asset Impairment
The Company evaluates its long-lived assets for financial impairment, and
continues to evaluate them as events or changes in circumstances indicate that
the carrying amount of such assets may not be fully recoverable. The Company
evaluates the recoverability of long-lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their fair
values.
Interest Costs
The Company follows the policy of capitalizing interest as a component of
the cost of property, plant and equipment constructed for its own use. Interest
costs of $147, $0 and $44 were capitalized during the year ended December 31,
1996, 1997 and 1998, respectively.
F-8
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
Income Taxes
Both the Company and its Northwest subsidiary have elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company, including its Northwest subsidiary, does not pay
federal or state corporate income taxes on its taxable income. Instead, the
Company's shareholder is liable for individual federal and state income taxes on
its taxable income. It is the Company's intention to pay dividends to the
shareholder in an amount no less than the sum of these federal and state income
taxes.
The Company's other subsidiary, Goldendale, accounts for income taxes under
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). SFAS 109 uses the liability method so
that deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of enacted tax laws and tax rates. Deferred
income tax expense or benefit is based on the changes in the financial statement
bases versus the tax bases in Goldendale's assets or liabilities from period to
period.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Those estimates and assumptions affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to a
concentration of credit risk, consist of cash and cash equivalents and trade
accounts receivable. The Company places its cash and cash equivalents with
various high quality financial institutions; these deposits may exceed federally
insured limits at various times throughout the year. Northwest sells its
products to various customers involved in the manufacturing of aluminum products
located throughout the United States. Credit risk arising from these receivables
is controlled through credit approval, credit limit and monitoring procedures.
Receivables due from the Company's two primary tolling customers comprise 40%
and 39% of the Company's total trade accounts receivable at December 31, 1997
and 1998, respectively.
Financial Instruments and Derivative Financial Instruments
The fair values of financial instruments have been determined through
information obtained from quoted market sources and management estimates. It is
management's belief that financial instruments held by the Company approximate
fair market value. The Company does not hold or issue financial instruments or
derivative financial instruments for trading purposes.
Both Goldendale and Northwest have entered into interest rate swap
agreements for purposes of minimizing exposure to interest rate risk. The
differential between the floating interest rate and the fixed
F-9
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
interest rate, which is to be paid or received, is recognized in interest
expense as the floating interest rate changes over the life of the agreement.
Research and Development Costs
Expenditures associated with research and development for existing product
process improvements are expensed as incurred. These costs amounted to $898,
$544 and $1,194 during the years ended December 31, 1996, 1997 and 1998,
respectively.
Cash and Cash Equivalents
For purposes of balance sheet classification and the statements of cash
flows, the Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Environmental Matters
The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Expenditures that extend the life of the
related property or mitigate or prevent future environmental contamination are
capitalized. The Company records a liability for an environmental matter when it
is probable and can be reasonably estimated. The liability is adjusted as
further information develops or circumstances change. The Company's estimated
liability is reduced to reflect the anticipated participation of other
potentially responsible parties in those instances where it is probable that
such parties are legally responsible and financially capable of paying their
respective shares of the relevant costs. The estimated liability of the Company
is not discounted or reduced for possible recoveries from insurance carriers
Debt Issue Costs
Costs and fees incurred to obtain financing are capitalized and amortized
over the term of the related debt.
Effect of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), Disclosures about
Segments of an Enterprise and Related Information, which supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, establishes standards
for the new way that public enterprises report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. As the Company operates within a single aggregated segment,
production of aluminum, the adoption of SFAS No. 131 by the Company in 1998, did
not have a significant impact on the Company's financial position.
F-10
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers'
Disclosures about Pensions and other Post-retirement Benefits, which
standardizes the disclosure requirements for pension and other post-retirement
benefits. The adoption of SFAS No. 132 did not materially impact the Company's
current disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Based on its current and planned future
activities relative to derivative instruments, the Company believes that the
adoption of SFAS No. 133 on January 1, 2000 will not have a significant effect
on its financial statements.
In October 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 134, ("SFAS No. 134") Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise. This statement effectively
changes the way mortgage banking firms account for certain securities and other
interests they retain after securitizing mortgage loans that were held for sale.
The adoption of SFAS No. 134 is not expected to have a material impact on the
Company's financial position.
In February 1999 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 135 ("SFAS No.135"), Rescission of
Financial Accounting Standards Board No. 75 ("SFAS No. 75") and Technical
Corrections. SFAS No.135 rescinds SFAS No. 75 and amends Statement of Financial
Accounting Standards Board No. 35. SFAS No. 135 also amends other existing
authoritative literature to make various technical corrections, clarify
meanings, or describe applicability under changed conditions. SFAS No. 135 is
effective for financial statements issued for fiscal years ending after February
15, 1999. The Company believes that the adoption of SFAS No. 135 will not have a
significant effect on its financial statements.
Earnings per share
Basic earnings per share includes no dilution and is calculated by dividing
income available to common shareholders by the average number of shares actually
outstanding during the period. Diluted earnings per share reflect the potential
dilution of securities (such as stock options, warrants and securities
convertible into common stock) that could share in the earnings of an entity.
The Company has no dilutive securities.
F-11
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Business Acquisition
On May 22, 1996, the sole shareholder of the Company purchased 137,314.82
shares of outstanding common stock of Columbia Aluminum Corporation ("CAC") for
approximately $30,895. On that same date the shareholder purchased all of the
issued and outstanding common stock of KCE Enterprises, Inc. ("KCE"), which
owned 60,374 shares of common stock of CAC, for approximately $13,585.
Immediately before the purchase of CAC and KCE stock described above,
pursuant to a plan of corporate reorganization and separation, CAC redeemed
564,626 shares of common stock of CAC owned by an unrelated party in exchange
for stock of a wholly-owned subsidiary of CAC, Columbia Ventures Corporation
("CVC"). CAC operated the Goldendale smelter; CVC and its subsidiaries were
engaged in a diversified array of businesses, primarily related to the aluminum
industry. Pursuant to the plan of reorganization and separation, CAC contributed
to CVC certain non-smelter related assets, intercompany receivables and $54,141
in cash; CAC also purchased certain power generation assets from CVC for
$21,321. The funds contributed to CVC and used to acquire the power generation
assets were obtained by CAC through the term loans described in Note 5.
Following the separation of CVC from CAC and the purchases of common stock
on that same date, the shareholders of CAC were KCE (owned by the Company's
shareholder), the Company's shareholder, and the Columbia Aluminum Corporation
Employee Stock Ownership Trust (the "ESOT"), which, after selling 120,000 shares
of CAC common stock to the Company's shareholder, owned 131,836.10 shares of CAC
common stock. Goldendale Holding Company then issued 197,688.82 shares of its
common stock to the Company's shareholder and 131,836.10 shares of Series A
Preferred Stock, valued at $29,663 ($225/share), to the ESOT in exchange for the
shares of common stock of CAC held by them. CAC was renamed Goldendale Aluminum
Company ("GAC").
The acquisition of GAC was recorded under the purchase method of
accounting; accordingly, the results of operations of GAC are included in the
consolidated statements of income from the date of acquisition. The total
purchase price of CAC was $79,643 and consisted of $44,480 in cash, Series A
preferred stock valued at $29,663 and acquisition costs of approximately $5,500.
The excess of the purchase price over the fair value of the net tangible assets
acquired was approximately $98,000 and is being amortized over twenty years.
During 1997, an adjustment of approximately $2,700 was made to the intangible
asset relating to contingent tax liabilities existing at the date of
acquisition.
F-12
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
As of May 22, 1996, the fair values of assets acquired and liabilities
assumed, exclusive of cash acquired of $1,106, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Trade accounts receivable...................................... $ 27,309
Inventories.................................................... 30,813
Property, plant and equipment.................................. 64,681
Power project assets........................................... 12,000
Other assets................................................... 9,214
Goodwill....................................................... 97,971
Accounts payable............................................... (15,007)
Other liabilities.............................................. (27,975)
Long-term debt................................................. (119,363)
-------------
$ 79,643
=============
</TABLE>
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of GAC had occurred at the beginning of
1996, after giving effect to certain adjustments, including amortization of the
intangible asset, increased depreciation on the step-up in the basis of fixed
assets, increased interest expense on acquisition debt, and related income tax
effects. They do not purport to be indicative of the results of operations which
actually would have resulted had the acquisition occurred at the beginning of
1996.
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Revenues $ 456,568
Net Income $ 20,621
Earnings per share $ 16,973
</TABLE>
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Purchased metals and tolling in process............ $ 37,932 $ 33,047
Supplies and alloys................................ 14,137 12,558
Carbon plant materials............................. 5,296 5,793
Alumina............................................ 3,527 3,685
------------ ------------
$ 60,892 $ 55,083
============ ============
</TABLE>
F-13
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
3. Property, Plant and Equipment and Restatement
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
----------- ------------
<S> <C> <C>
Land and improvements.......................... $ 5,562 $ 7,378
Machinery and equipment...................... 105,134 124,797
Buildings and improvements................. 39,283 38,298
Capital projects in process................ 4,582 8,435
----------- ------------
154,561 178,908
Less accumulated depreciation.................. 40,749 61,147
----------- ------------
$ 113,812 $ 117,761
=========== ============
</TABLE>
During 1998, in connection with the preparation of its financial statements
to be used in the registration of debt securities discussed in Note 5, the
Company changed its method of accounting for cell relining costs from expensing
such costs as incurred to capitalizing and amortizing these costs over future
periods. As a result of relining the cells with improved materials, the useful
life of the individual cells has increased. In addition, the cell relining
activity and related expenditures vary each year. The Company believes that the
new method improves the matching of revenues and costs as technological
improvements have extended the estimated period of economic benefit realized
from cell relining. The change has been applied by retroactively restating the
accompanying consolidated financial statements. The effect of this change was to
increase net income for the years ended December 31, 1996 and 1997 and by
$1,223, and $2,067 respectively.
4. Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Long-term trade receivable.......................... $ 2,465 $ 1,714
Debt issue costs, net of accumulated amortization of
$1,226 and $50...................................... 2,826 6,985
Restricted cash..................................... 1,239 1,300
Other............................................... 248 473
----------- -----------
$ 6,778 $ 10,472
=========== ===========
</TABLE>
Restricted cash consists of cash held in trust and committed for
environmental cleanup and workers compensation self-insurance as required by the
State of Washington. These monies will be disbursed at a future date as required
by the state.
F-14
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
5. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
First mortgage notes............................... $ - $ 150,000
Subordinated credit agreement...................... - 20,000
Revolving Credit Facilities........................ 65,617 -
Term Loans......................................... 69,324 -
---------- ----------
Long-term debt..................................... 134,941 170,000
Less current portion............................... 13,500 -
---------- ----------
Long-term debt less current portion $ 121,441 $ 170,000
========== ==========
</TABLE>
The Revolving Credit Facilities and Term Loans were made pursuant to credit
agreements between each of Northwest and Goldendale and a bank. Borrowings under
the credit agreements were secured by substantially all assets of the respective
companies. The Revolving Credit Facilities, which were due to mature in 2001,
provided for borrowings up to $65 million for Northwest and up to $30 million
for Goldendale. Revolving loan advances bore interest at either the bank's Base
Rate plus an applicable margin as defined in the credit agreement or the
Eurodollar Rate plus an applicable margin as defined in the credit agreement.
Term Loans, with maturity dates ranging from 2001 to 2002, bore interest at
either the bank's Base Rate plus an applicable margin as defined in the credit
agreement or the Eurodollar Rate plus an applicable margin as defined in the
credit agreement. The lending agreements contained covenants related to minimum
net worth, interest coverage ratio, fixed charge coverage ratio and debt to
income ratio. In addition, the credit agreements limited capital spending,
investments and dividends. Amounts outstanding under the Revolving Credit
Facilities and Term Loans were repaid in December 1998 with the proceeds from
the first mortgage notes discussed below. In connection with the extinguishment
of the Revolving Credit Facilities and Term Loans, the Company recognized an
extraordinary loss, net of income taxes, of $1,552.
In December 1998, the Company issued $150 million of 12% first mortgage
notes due on December 15, 2006. Interest is payable semi-annually on June 15 and
December 15, commencing June 15, 1999. Payment of the notes is guaranteed by the
Company. The debt is collateralized by substantially all of the real property,
plant and equipment of the Company and by a pledge of all of the issued and
outstanding capital stock of the Company's subsidiaries. On or after December
15, 2002 the notes are redeemable at the option of the Company at specified
redemption prices. There are no sinking fund requirements. The indenture
agreement limits principal payments on subordinated debt, dividends or
shareholder distributions, and investments in subsidiaries.
In December 1998, the Company entered into a $75 million bank revolving
credit facility, collateralized by inventory, accounts receivable and related
intangibles, including a security interest in the Company's tolling agreements,
which mature on December 20, 2003. Borrowings under the credit facility bear
interest at a floating base rate specified in the credit agreement plus from
0.50% to 1.00% or the LIBOR rate plus from 2.00% to 2.50%, depending on the
consolidated ratio of earnings before interest, income taxes, depreciation and
amortization to interest expense. The credit facility provides for the payment
of a commitment fee of 0.50%
F-15
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
per annum based on the unused portion of the credit facility. The credit
agreement contains restrictive covenants, including a minimum net worth
requirement, a minimum excess availability requirement and limitations on
capital expenditures, dividends, additional indebtedness, mergers and other
business combinations, assets sales, encumbrances, investments and transactions
with affiliates. The Company was in compliance with these covenants at December
31, 1998. No amounts were outstanding under this credit facility at December 31,
1998.
Also in December 1998, the Company entered into a subordinated credit
agreement with Hydro pursuant to which $20 million was advanced. The debt bears
interest at LIBOR plus two percent (7.13% at December 31, 1998) and is due in
December 2005. The debt is secured by a second lien and a pledge on the
collateral securing the first mortgage notes and is guaranteed by the Company.
Except for the collateral security, the guarantees by the Company are
subordinate to the indebtedness under the bank revolving credit facility. The
credit agreement provides for additional borrowings of $10 million on or prior
to December 31, 2001.
During 1996, both Goldendale and Northwest entered into interest rate swap
agreements, as required by the credit agreements, which expire in 2001. The
fixed interest rate paid on the interest rate swaps is 6.83%, covering, at
December 31, 1998, $30 million notional principal amount of floating rate
indebtedness of Goldendale and 6.25% covering $13.75 million notional principal
amount of floating rate indebtedness of Northwest. Although the Company is
exposed to credit loss on the interest rate swap in the event of nonperformance
by the counterparties, the Company estimates the likelihood of such
nonperformance to be remote. At December 31, 1998 and 1997, the fair value of
the interest rate swaps was approximately $1,029 and $800, respectively, which
reflects the estimated amount that the Company would pay to terminate the
contracts. Subsequent to year-end, on January 25, 1999 the Company terminated at
no cost its existing interest rate swap agreements and entered into a new swap
agreement that expires in 2003. The fixed interest rate paid on the new swap is
6.4% and covers $20 million of notional principal amount of floating rate
(LIBOR) indebtedness of the Company.
6. Alumina Tolling Conversion Agreements
Both Goldendale and Northwest have agreements with alumina suppliers for
the conversion of alumina to aluminum for a tolling charge under which the
entire production capacity of the smelting facilities is dedicated to the
tolling of its supplier's alumina. The supplier is obligated to supply, without
charge, alumina sufficient to meet the requirements for full operation. The
tolling fees set forth in the contracts are a percentage of the price of
aluminum quoted on the London Metals Exchange. Goldendale's agreement continues
through December 31, 2006, and Northwest's continues through December 31, 1999.
These two tolling customers accounted for 26% and 31% of the Company's
consolidated revenue in 1996, 18% and 40% of the Company's consolidated revenues
in 1997, and 19% and 37% of the Company's consolidated revenue in 1998.
7. Employee Benefit Plans
Profit Sharing Bonus Plans
Northwest has entered into agreements, which continue through 2001, with
the United Steelworkers of America, AFL-CIO, to pay annually as additional
compensation 20% of the combined net income of Northwest,
F-16
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
as adjusted in accordance with the agreements. Northwest's total additional
compensation bonuses under these agreements amounted to approximately $2,100,
$1,300 and $829 during the years ended December 31, 1996, 1997 and 1998,
respectively.
Goldendale has a profit sharing plan for its hourly and salaried employees.
All Goldendale employees are eligible participants in this plan upon completion
of a probationary period. The plan provides for payments equal to a percentage
of Goldendale's profits, as defined. These amounts are to be distributed to
eligible participants on or before March 31 following Goldendale's year-end. For
the years ended December 31, 1996, 1997 and 1998, Goldendale recorded
approximately $1,200, $1,900 and $380, respectively, of expense related to this
plan.
Goldendale also has an additional profit sharing plan ("PSP") which is
available to all Goldendale employees as of their first day of employment.
Employer contributions to the PSP are discretionary as approved by the Board of
Directors. No employee contributions will be made to the PSP. Participants, who
have one hour of service after July 31, 1996, are vested in the assets of the
PSP at 100%. Upon termination of employment, plan participants will be paid in
cash, based on their account balance as of the last regular or special valuation
on or before distribution, subject to the plan provisions of the PSP. No
contributions were made to the PSP in 1996, 1997 and 1998.
Retirement Benefit Plans
Northwest has a defined contribution 401(k) profit sharing plan (the "401k
Plan") covering substantially all Northwest employees under which employees may
elect to defer pay subject to statutory limits. Northwest is committed to
contribute the greater of $.25 per eligible hour worked or 5% of the combined
adjusted net income of Northwest. Northwest may also make discretionary
contributions to the 401k Plan. Total required and discretionary contributions
by Northwest to the 401(k) Plan amounted to approximately $520, $560 and $341
during the years ended December 31, 1996, 1997 and 1998, respectively.
Goldendale also has a 401(k) profit sharing plan under which employees may
elect to defer pay, subject to statutory limits; Goldendale also makes matching
contributions for non-bargaining on the basis of percentages specified in the
plan. Goldendale maintains a separate profit sharing retirement plan (the "DC
Plan") which provides retirement benefits for substantially all of its
employees. The DC Plan allows for discretionary contributions by Goldendale as
determined on an annual basis. For the years ended December 31, 1996, 1997 and
1998, Goldendale recorded approximately $240, $730 and $290 of expense for plan
contributions.
Deferred Compensation
In connection with the acquisition described in Note 1, the Company entered
into deferred compensation agreements with certain employees in exchange for the
employees waiving their rights under stock-based compensation and other
employment agreements which existed at the acquisition date. The liability is
payable in monthly installments of approximately $115, including interest at
8.75%, through 2001.
F-17
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
8. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
----------- ----------
<S> <C> <C>
Bonuses............................................. $ 4,797 $ 5,023
Salaries and related expenses.................... 7,741 3,782
Interest......................................... 4,100 4,538
Intercompany payable............................. - 418
Other............................................ 2,523 5,837
----------- ----------
$ 19,161 $ 19,598
=========== ==========
</TABLE>
9. Commitments and Contingencies
The Company, in the regular course of business, is involved in
investigations and claims by various regulatory agencies. The Company is also
engaged in various legal proceedings incidental to its normal business
activities. The Company's management does not believe that the ultimate
resolution of these investigations, claims and legal proceedings will have a
material effect on its financial position, results of operations or cash flows.
As of December 31, 1997 and 1998, the Company had a liability of
approximately $1,656 and $1,741 respectively, for estimated environmental
remediation activities. The Company's estimate of this liability is based on a
remediation study conducted by independent engineering consultants. The total
cost of remediation is estimated at $2.5 million; however, under a court decree
the Company is only responsible for 57% of the total. The remaining cost is the
responsibility of prior owners.
The Company has entered into various agreements for the purchase of power
and aluminum. Future estimated minimum payments under these noncancellable
agreements are as follows
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------------------- --------------
<S> <C>
1999...................................... $ 177,677
2000...................................... 83,887
2001...................................... 68,699
-------------
$ 330,263
=============
</TABLE>
F-18
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
10. Income Taxes
Income tax expense consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
Current.................................... $ 3,063 $ 10,204 $ 2,009
Deferred................................... 3,573 3,070 487
---------- ----------- -----------
Income tax expense......................... $ 6,636 $ 13,274 $ 2,496
========== =========== ===========
</TABLE>
The difference between the federal statutory tax rate and the effective tax
rate resulted from the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
Federal statutory tax rate.................. 35.0% 35.0% 35.0%
Loss (earnings) from entities not subject to
income taxes................................ (18.0) (3.1) (417.5)
Amortization of goodwill.................... 4.2 5.3 (568.9)
Other items, net............................ 4.8 4.6 (79.2)
----------- ---------- -----------
Effective tax rate.......................... 26.0% 41.8% (1030.5)%
=========== ========== ===========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Current
Accrued expenses.................................... $ 1,143 $ 1,353
Inventory:.......................................... 145 140
Other:.............................................. 51 1
============ ===========
$ 1,339 $ 1,494
============ ===========
Non-current:
Property, plant and equipment....................... $ (13,968) $ (13,507)
Power project assets................................ 3,262 404
Deferred compensation............................... 1,164 607
Other............................................... 219 2,531
============ ===========
$ (9,323) $ (9,965)
============ ===========
</TABLE>
Internal Revenue Service ("IRS") has audited the Company's income tax
returns and has proposed to change the Company's method of accounting for
certain expenditures that were deducted when incurred. The IRS has proposed to
capitalize and depreciate these expenditures over an estimated useful life. The
Company is currently appealing the proposed change in accounting method
initiated by the IRS and believes it has various
F-19
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
meritorious defenses. However, at December 31, 1998, the Company has recorded a
liability associated with the proposed change in accounting method that is
effective for all tax years subsequent to 1989, of approximately $11.5 million,
which includes interest of $4.0 million. The sole shareholder of the Company
will also incur additional taxes and interest associated with this proposed
change. It is the Company's intention to reimburse the shareholder for any such
amounts in the form of a dividend. The Company estimates that this dividend
distribution will range from $2.7 to $5.3 million. Because the Company has
recorded a liability associated with the proposed change, ultimate resolution is
not expected to have a material impact on the Company's results of operations.
The Company intends to use funds available under its current financing
arrangements and funds generated from operations to pay any amounts ultimately
assessed.
11. Preferred Stock of Subsidiary
Goldendale has authorized 150,000 shares of $.01 par value Series A
cumulative, nonconvertible preferred stock. At December 31, 1998 and 1997,
131,836.10 shares were issued and outstanding. The shares were issued in
connection with the acquisition of Goldendale in 1996 and are stated at their
per share fair value when issued of $225. The liquidation preference on the
preferred stock is $225 per share.
Terms of the Goldendale preferred stock provide for dividends accruing
quarterly and payable in cash as declared by the Board of Directors according to
the following schedule:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
---------------------------------------- ---------------
<S> <C>
Through 2001.............................................. $ 27.68/share
2002...................................................... 29.93/share
2003...................................................... 32.18/share
Thereafter................................................ 34.43/share
</TABLE>
Commencing on January 1, 2002, the preferred shareholders have the option
of receiving additional shares of preferred stock in satisfaction of any
cumulative dividend in arrears that may exist at that time.
The Company may redeem any or all outstanding shares of Series A Preferred
Stock at the following redemption prices at any time after December 31, 1998:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
---------------------------------------- ---------------
<S> <C>
Through 1999.............................................. $ 230.63
2000...................................................... 228.38
2001...................................................... 227.25
Thereafter................................................ 225.00
</TABLE>
The shares of preferred stock and shares of common stock vote together as a
single class on all matters submitted to a vote of shareholders of Goldendale.
The holders of shares of preferred stock are entitled to one vote per share and
have full voting rights and power equal to those of the holders of common stock.
F-20
<PAGE>
GOLDEN NORTHWEST ALUMINUM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
12. Supplemental Disclosures of Cash Flow Information
Supplemental disclosures of cash flow information is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest................................................... $ 8,869 $ 14,346 $ 13,273
Income taxes............................................... 2,600 10,545 2,900
Non-cash investing and financing activities:
Principal balance of debt refinanced....................... - - 124,047
Acquisition contingency accrual:
Goodwill................................................... - 2,699 -
Deferred income taxes...................................... - 6,742 -
Dividends accrued on preferred stock....................... 2,219 3,648 3,648
Business acquisition:
Fair value of assets acquired.............................. 144,017 - -
Purchase price in excess of net assets acquired............ 97,971 - -
Liabilities assumed........................................ 168,951 - -
Common and preferred stock issued.......................... 74,143 - -
</TABLE>
13. Related Party Transactions
Sales to a company related by common ownership amounted to $157, $3,613,
and $6,406 for the years ended December 31, 1996, 1997 and 1998, respectively.
Receivable due from the related company includes the balance due from those
sales, together with cash advances, of which $4,000 was converted to a note
receivable on December 31, 1997. The note bears interest at 9.25% and is payable
in quarterly installments through January 2002.
14. Valuation and Qualifying Accounts
Allowance for doubtful accounts activity was as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year................. $ 1,000 $ 1,296 $ 1,000
Charged to expense......................... 296 - 1,500
Write-offs, net of recoveries.............. - (296) (1,500)
----------- ----------- -----------
Balance, end of year....................... $ 1,296 $ 1,000 $ 1,000
=========== =========== ===========
</TABLE>
F-21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Goldendale Holding Company and
Goldendale Smelter Division of Columbia Aluminum Company
Goldendale, Washington
We have audited the accompanying statements of income and cash flows of
Goldendale Smelter Division of Columbia Aluminum Company for the year ended
December 31, 1995 and the period from January 1, 1996 through May 21, 1996.
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 audits to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements of income and cash flows referred to above
present fairly, in all material respects, the results of operations and cash
flows of Goldendale Smelter Division of Columbia Aluminum Company for the year
ended December 31, 1995 and the period from January 1, 1996 through May 21,
1996, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Spokane, Washington
July 31, 1998
F-22
<PAGE>
<TABLE>
<CAPTION>
GOLDENDALE SMELTER DIVISION OF
COLUMBIA ALUMINUM COMPANY
STATEMENTS OF INCOME
Period from
Year Ended January 1, 1996
December 31, through
1995 May 21, 1996
----------------- -------------------
(in thousands)
<S> <C> <C>
Revenues (Notes 1 and 4)......................................... $ 214,730 $ 83,530
Cost of revenues................................................. 190,832 73,270
----------------- -------------------
Gross margin............................................ 23,898 10,260
General and administrative expenses.............................. 2,296 718
----------------- -------------------
Operating income................................................. 21,602 9,542
----------------- -------------------
Other income (expense):
Interest expense........................................ (1,070) (398)
Other income, net....................................... 1,250 339
----------------- -------------------
Net other income (expense)....................................... 180 (59)
----------------- -------------------
Income before income taxes....................................... 21,782 9,483
Income tax expense............................................... (8,277) (3,335)
----------------- -------------------
Net income....................................................... $ 13,505 $ 6,148
================= ===================
See accompanying summary of significant accounting policies and
notes to financial statements.
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
GOLDENDALE SMELTER DIVISION OF
COLUMBIA ALUMINUM COMPANY
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Period from
Year Ended January 1, 1996
December 31, through
1995 May 21, 1996
--------------- ----------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 13,505 $ 6,148
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 1,978 854
Loss on disposal of assets........................... 1 12
Change in assets and liabilities:
Trade accounts receivable................... (3,175) (247)
Inventories................................. (7,514) 248
Prepaid expenses and other assets........... 488 133
Trade accounts payable...................... 3,715 (3,850)
Accrued expenses............................ (17) (1,935)
--------------- ----------------
Net cash provided by operating activities.............................. 8,981 1,363
--------------- ----------------
Cash flows from investing activities:
Acquisition of property, plant and equipment.................. (3,994) (1,402)
Proceeds from sale of assets.................................. 3 -
Net advances from (to) related companies...................... (3,513) 60
--------------- ----------------
Net cash used in investing activities.................................. (7,504) (1,342 )
--------------- ----------------
Cash flows from financing activities:
Cash paid for treasury stock.................................. (1,424) (56)
--------------- ----------------
Net cash used in financing activities.................................. (1,424) (56)
--------------- ----------------
Net increase (decrease) in cash and cash equivalents................... 53 (35)
Cash and cash equivalents, beginning of period......................... 519 572
--------------- ----------------
Cash and cash equivalents, end of period............................... $ 572 $ 537
=============== ================
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest...................................................... $ 1,070 $ 398
Income taxes.................................................. 5,700 5,700
See accompanying summary of significant accounting policies and
notes to financial statements.
</TABLE>
F-24
<PAGE>
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
Basis of Presentation
Columbia Aluminum Corporation ("CAC") owned and operated an aluminum
smelter in Goldendale, Washington ("Goldendale" or the "Smelter") and, through
its wholly-owned subsidiary, Columbia Ventures Corporation ("CVC"), was engaged
in a diversified array of other businesses, primarily related to the aluminum
industry. Pursuant to a plan of corporate reorganization and separation (the
"Plan"), CAC redeemed 564,626 shares of its common stock held by CAC's
controlling shareholder in exchange for all of the issued and outstanding shares
of common stock of CVC. Pursuant to terms of the Plan, CAC contributed to CVC
certain non-smelter-related assets, intercompany receivables and $54,141 in
cash; CAC also purchased certain power generation assets from CVC for $21,321.
Immediately following the separation of CVC, the sole shareholder of Goldendale
Holding Company ("GHC") acquired 197,688.82 shares of common stock of CAC for
approximately $44,480.
Following the separation of CVC from CAC and the purchase of common stock,
the shareholders of CAC were the shareholder of GHC and the Columbia Aluminum
Corporation Employee Stock Ownership Trust (the "ESOT"), which held 131,836.10
shares of CAC common stock. GHC then issued 197,688.82 shares of its common
stock to the sole shareholder and 131,836.10 shares of Series A Preferred Stock,
valued at $29,663, to the ESOT in exchange for the shares of common stock of CAC
held by them. CAC was then renamed Goldendale Aluminum Company.
During the periods presented in these financial statements, the Smelter was
an integral part of CAC's overall operations and separate financial statements
were not prepared for the Smelter. The accompanying financial statements have
been prepared from the historical accounting records of CAC and present the
results of operations and cash flows of the Smelter. The statements of income
include allocations of certain CVC corporate administrative expenses in the
amount of approximately $270 for the year ended December 31, 1995 and $120 for
the period from January 1, 1996 through May 21, 1996. Management and
administrative salaries were allocated based upon estimated time devoted to the
Smelter; all other corporate overhead was based upon specific identification or
the relationship of the Smelter operations to total operations of CAC. Interest
expense was charged to the Smelter based on prime rate and changes in its
working capital position. Income taxes are provided as if the Smelter filed a
separate tax return.
These allocated costs and expenses, which management believes are
reasonable, may not necessarily be indicative of the results that would have
been attained if the Smelter had been operated as a separate legal entity.
Operations
The operations of Goldendale consist primarily of the smelting conversion
of alumina to aluminum under tolling arrangements with alumina suppliers,
processing of aluminum into primary products, and the sale of those products.
The operations are located in the Pacific Northwest on the Columbia River.
Revenue Recognition
Revenues for the conversion of alumina and processing of aluminum under
tolling arrangements are recognized upon the completion of the tolling process.
Revenues from sales of aluminum products are recognized upon shipment.
F-25
<PAGE>
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
Cost of Sales
Inventory costs are determined by the first-in, first-out method, except
for certain supply inventories, which are based upon the weighted average cost
method.
Property, Plant and Equipment
For financial reporting purposes, the costs of plant and equipment are
depreciated over the estimated useful lives of the assets, which range from
three to forty years, using the straight-line method.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, Goldendale considers all
highly liquid instruments purchased with an original maturity of three months or
less to be cash equivalents.
Environmental Matters
The Smelter expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Expenditures that extend the life of the
related property or mitigate or prevent future environmental contamination are
capitalized. The Smelter records a liability for environmental matters at the
time when it is probable and can be reasonably estimated. The Smelter's
estimated liability is reduced to reflect the anticipated participation of other
potentially responsible parties in those instances where it is probable that
such parties are legally responsible and financially capable of paying their
respective shares of the relevant costs. The estimated liability of the Smelter
is not discounted or reduced for possible recoveries from insurance carriers.
Futures and Options Contracts
Goldendale utilized certain financial instruments, primarily futures and
options contracts, to hedge the effect of price changes of aluminum that the
Smelter produced and sold. Gains and losses, and the related costs paid or
premium received for contracts which hedged the sales prices of aluminum and
purchase prices of raw materials were deferred and included in earnings
concurrently with the hedged revenues. Premiums paid for the purchase of put
options classified as hedges were amortized over the life of the options.
Future sales contracts require the future delivery of aluminum at a
specified price. Certain futures sales contracts were made on a rollover basis
which allowed Goldendale to defer the delivery of aluminum to a later date at a
renegotiated market price. Gains and losses on contracts rolled over were
deferred until the positions were closed and included in earnings concurrently
with the hedged revenues. Cash flows from futures and options contracts are
reported in the statements of cash flows in the same category as the cash flows
from the hedged items.
F-26
<PAGE>
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
Contracts open at May 21, 1996 were closed out by GHC as they came due.
Effect of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
("SFAS 130") and Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("SFAS 131"). SFAS No. 130
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from non-owner sources. SFAS No.
131 establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas and major customers. Adoption of these statements will not
materially effect Goldendale's results of operations or cash flows; any effect
will be limited to the form of its disclosures. Both statements are effective
for years beginning after December 15, 1997, although they may be applied
earlier.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and other Post-retirement Benefits", ("SFAS No. 132"), which
standardizes the disclosure requirements for pension and other postretirement
benefits. The adoption of SFAS No. 132 is not expected to materially impact
Goldendale's current disclosures.
F-27
<PAGE>
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
1. Tolling Contract
During 1987, Goldendale entered into a tolling contract for a ten-year
period. Under the contract, the customer owns all of the primary raw materials
and all of the finished goods. Goldendale receives tolling fees for converting
the primary raw materials into finished aluminum products specified by the
customer. The contract specifies standard usage rates of the primary raw
materials based upon actual production. Variations of actual usage from such
standard usage may result in additional amounts due to or due from the customer.
Sales under the tolling agreement totaled approximately $135 million and $46
million for the year ended December 31, 1995 and the period from January 1, 1996
through May 21, 1996, respectively. On May 22, 1996, Goldendale renegotiated the
contract. Pursuant to terms of the new contract, which expires in December 2006,
the entire production capacity of the Smelter is dedicated to the tolling of the
customer's alumina.
2. Employee Benefit Plans
Goldendale has a profit sharing plan for its hourly and salaried employees.
All Goldendale employees are eligible participants in this plan upon completion
of a probationary period. The plan provides for payments equal to a percentage
of Goldendale's profits, as defined. These amounts are to be distributed to
eligible participants on or before March 31 following the Company's year-end.
For the years ended December 31, 1995 and the period from January 1, 1996
through May 21, 1996, the Company recorded approximately $1,480 and $570,
respectively, of expense related to this plan.
Goldendale also has a 401(k) profit sharing plan under which employees may
elect to defer pay, subject to statutory limits; Goldendale also makes matching
contributions for non-bargaining employees on the basis of percentages specified
in the plan. Goldendale maintains a separate profit sharing retirement plan (the
"DC Plan") which provides retirement benefits for substantially all of its
employees. The DC Plan allows for discretionary contributions by Goldendale as
determined on an annual basis. For the year ended December 31, 1995 and the
period from January 1, 1996, Goldendale recorded approximately $490 and $290 of
expense for plan contributions.
Goldendale had various stock based compensation agreements (the
"Agreements") with certain key employees. The Agreements include stock
appreciation rights, "phantom" shares of the Company's common stock and stock
options. The value of the compensation paid under the Agreements is a function
of the amount by which the fair market value of Goldendale's common stock
increases during the performance period. During the year ended December 31, 1995
and the period from January 1, 1996 through May 21, 1996, Goldendale incurred
expense related to the Agreements of $2,512 and $2,298. On May 22, 1996, the
employees covered by the Agreements waived their rights thereto in exchange for
a five-year pay-out of amounts then owing under the Agreements.
The Columbia Aluminum Corporation Employee Stock Ownership Plan (ESOP) was
originally available to substantially all Goldendale employees upon completion
of 1,000 hours of service. Employer contributions to the ESOP were discretionary
as approved by the Board of Directors. No employee contributions were made to
the ESOP. Participants vest in the assets of the ESOP at 25% per year. Upon
termination, plan participants that receive stock are granted an option to sell
the stock to the ESOP in accordance with the ESOP agreement.
F-28
<PAGE>
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
All stock owned by the ESOP was allocated to plan participant accounts. On May
22, 1996, all CAC common stock owned by plan participants was exchanged for cash
and GHC Series A Preferred Stock.
3. Commitments and Contingencies
Goldendale, in the regular course of business, is involved in
investigations and claims by various regulatory agencies. Goldendale is also
engaged in various legal proceedings incidental to its normal business
activities. Management does not believe that the ultimate resolution of these
investigations, claims and legal proceedings will have a material effect on
Goldendale's financial position, results of operations or cash flows.
At December 31, 1995, Goldendale had entered into contracts for the annual
purchase of 70,000 to 150,000 tons of certain raw materials for delivery through
December 1998. The purchase price is to be adjusted monthly throughout the term
of the contracts based upon the average market price of aluminum. During 1995,
Goldendale entered into an agreement pursuant to which it committed to purchase
a minimum amount of power on an annual basis through September 2001. The
estimated minimum future commitment under this agreement is as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------------------------- -----------
<S> <C>
1997 $ 20,000
1998 33,000
1999 33,000
2000 40,000
2001 40,000
</TABLE>
During the year ended December 31, 1995, Goldendale accrued a liability of
approximately $1,036 for environmental remediation activities. Goldendale's
estimate of this liability was based on a remediation study conducted by
independent engineering consultants. The total cost of remediation is estimated
at $2.5 million, however, under a court decree Goldendale is responsible for
only a portion of the total. The remaining cost is the responsibility of prior
owners of the Smelter.
During 1995, the Internal Revenue Service (IRS) completed audits of CAC's
1990 and 1991 federal income tax returns. Based upon its audits, the IRS
indicated proposed adjustments to these returns resulting in additional taxes
due of approximately $2.8 million for tax year 1990 and approximately $1.6
million for tax year 1991. The adjustments proposed relate primarily to
differences between the Company and the IRS as to the tax year when certain
deductions may be taken. The Company is currently appealing the results of the
audits. Management of the Company does not believe that the ultimate resolution
of these audits will have a material effect upon its financial position or
results of operations.
4. Related Party Transactions
During the year ended December 31, 1995 and the period from January 1, 1996
through May 21, 1996, the Smelter paid commissions of $2,467 and $1,034 to a
related party.
F-29
<PAGE>
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this prospectus and, if given or made,
the information or representations must not be relied upon as having been
authorized by us. This prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any securities other than the notes to which it
relates or an offer to, or a solicitation of, any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this prospectus nor any sale made under this prospectus shall, under any
circumstances, create an implication that there has been no change in our
affairs or that information contained herein is correct as of any time
subsequent to the date hereof.
================================================================================
$150,000,000
Golden Northwest
Aluminum, Inc.
12% First Mortgage Notes
due 2006
PROSPECTUS
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Article IV of the Company's Articles of Incorporation (the "Articles")
requires indemnification of current or former directors ("directors") of the
Company to the fullest extent not prohibited by the Oregon Business Corporation
Act (the "Act"). The effects of the Articles and the Act (the "Indemnification
Provisions") are summarized as follows:
(a) The Indemnification Provisions grant a right of indemnification in
respect of any action, suit or proceeding (other than an action by or in
the right of the Company) against expenses (including attorney fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred, if the person concerned acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the Company, was not adjudged liable on the basis of receipt of an improper
personal benefit and, with respect to any criminal action or proceeding,
had no reasonable cause to believe the conduct was unlawful. The
termination of an action, suit or proceeding by judgment, order,
settlement, conviction or plea of nolo contendere does not, of itself,
create a presumption that the person did not meet the required standards of
conduct.
(b) The Indemnification Provisions grant a right of indemnification in
respect of any action or suit by or in the right of the Company against the
expenses (including attorney fees) actually and reasonably incurred if the
person concerned acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the Company,
except that no right of indemnification will be granted if the person is
adjudged to be liable to the Company.
(c) Every person who has been wholly successful on the merits of a
controversy described in (a) or (b) above is entitled to indemnification as
a matter of right.
(d) Because the limits of permissible indemnification under Oregon law
are not clearly defined, the Indemnification Provisions may provide
indemnification broader than that described in (a) and (b).
Article IV of the Articles provides that the Company shall indemnify any
person who is or was an officer, employee, agent, or fiduciary within the
meaning of the Employee Retirement Income Security Act of 1974 with respect to
any employee benefit plan of the Corporation, to the same extent that directors
are entitled to indemnification.
II-1
<PAGE>
The rights of indemnification described above are not exclusive of any
other rights of indemnification to which the persons indemnified may be entitled
under any bylaw, agreement, vote of shareholders or directors or otherwise.
Item 21. Exhibits and Financial Statement Schedules
+ 3.1 Articles of Incorporation of Registrant.
+ 3.2 Bylaws of Registrant.
+ 4.1 Indenture, dated as of December 21, 1998, between Registrant, as
Issuer, Northwest Aluminum Specialties, Inc., Northwest Aluminum
Company, Northwest Aluminum Technologies, LLC, Goldendale Holding
Company, and Goldendale Aluminum Company, as Guarantors, and U.S.
Trust Company, N.A., as Trustee.
+ 4.2 Credit Agreement, dated December 21, 1998, among the Financial
Institutions named therein, BancBoston, N.A., as Administrative
Agent, U.S. Bank National Association, as Documentation Agent,
Northwest Aluminum Company, Northwest Aluminum Specialties, Inc.,
Goldendale Aluminum Company, and Northwest Aluminum Technologies, as
amended by the Agreement and Amendment No. 1, dated as of January 21,
1999.
+ 4.3 Registration Rights Agreement, dated as of December 21, 1998, by and
among the Registrant, the Subsidiary Guarantors party to this
Agreement; and BancBoston Robertson Stephens Inc., and Libra
Investments, Inc.
+ 4.4 Certificate of Incorporation of Goldendale Holding Company.
+ 5.1 Opinion of Stoel Rives LLP.
+ 10.1 Agreement to Toll Convert Alumina into Aluminum, dated May 22, 1996,
between Hydro Aluminum Louisville, Inc., and Goldendale Aluminum
Company. (Confidential treatment of portions of this document has
been requested. The information omitted from this exhibit has been
filed with the Commission.)
+ 10.2 First Amendment to Agreement to Toll Convert Alumina into Aluminum,
dated December 21, 1998.
+ 10.3 Aluminum Toll Conversion Agreement between Clarendon Ltd. and
Northwest Aluminum Company, dated September 15, 1986. (Confidential
treatment of portions of this document has been requested. The
information omitted from this exhibit has been filed with the
Commission.)
II-2
<PAGE>
+ 10.4 Amendment No. 1 to Aluminum Toll Conversion Agreement, dated as of
May 4, 1988. (Confidential treatment of portions of this document has
been requested. The information omitted from this exhibit has been
filed with the Commission.)
+ 10.5 Extension and Amendment Agreement, dated as of October 1, 1991.
(Confidential treatment of portions of this document has been
requested. The information omitted from this exhibit has been filed
with the Commission.)
+ 10.6 Option to Extend 1986 Amended Toll Agreement, dated as of March 1,
1992.
+ 10.7 Letter, from Glencore Ltd., exercising Option to Extend, dated
September 21, 1994.
+ 10.8 Tax Indemnification Agreement, dated as of December 21, 1998, between
Registrant, Northwest Aluminum Company, Northwest Aluminum
Specialties, Inc., and Brett E. Wilcox.
+ 10.9 General Transmission Agreement, dated April 7, 1995, executed by the
United States of America Department of Energy acting by and through
the Bonneville Power Administration and Northwest Aluminum Company.
+ 10.10 Power Sale Agreement, dated September 28, 1995, between the United
States of America Department of Energy acting by and through the
Bonneville Power Administration and Northwest Aluminum Company.
* 10.11 Voting Agreement dated May 17, 1996, by Brett Wilcox for the benefit
of the United Steelworkers of America, Local 8147.
* 10.12 General Transmission Agreement, dated May 4, 1995, executed by the
United States of America Department of Energy acting by and through
the Bonneville Power Administration and Columbia Aluminum Company.
* 10.13 Power Sales Agreement, dated September 18, 1995, executed by the
United States of America Department of Energy acting by and through
the Bonneville Power Administration and Columbia Aluminum Company.
+ 12.1 Statements re Computation of Ratios.
* 23.1 Consent of BDO Seidman, LLP.
+ 23.2 Consent of Perkins and Company, P.C.
II-3
<PAGE>
+ 23.3 Consent of Stoel Rives LLP (included in Exhibit 5.1).
+ 24.1 Powers of Attorney (included on Page II-6 of the Registration
Statement).
** 25.1 Statement of Eligibility of Trustee.
* 27.1 Financial Data Schedule.
** 99.1 Form of Letter of Transmittal.
- -------------
* Filed herewith.
** To be filed by amendment.
+ Previously filed.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities
Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became
effective.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amended registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of The Dalles, State
of Oregon, on March 31, 1999.
GOLDEN NORTHWEST ALUMINUM, INC.
By: BRETT E. WILCOX
-------------------------------------------
Brett E. Wilcox
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed below by the following persons on March
31, 1999 in the capacities indicated.
Signature Title
BRETT E. WILCOX
- ----------------------------- Chairman of the Board and President
Brett E. Wilcox
* WILLIAM R. REID Chief Financial Officer
- ----------------------------- (Principal Financial and Accounting Officer)
William R. Reid
* ROBERT AMES Director
- -----------------------------
Robert Ames
* STEPHEN E. BABSON Director
- -----------------------------
Stephen E. Babson
* DAVID BOLENDER Director
- ------------------------------
David Bolender
- ------------------------------ Director
Michael G. Psaros
* By BRETT WILCOX
-------------------------
Brett Wilcox
Attorney-in-Fact
II-6
VOTING AGREEMENT
This Voting Agreement is entered into as of May 17, 1996 by Brett Wilcox
("Wilcox") for the benefit of the United Steelworkers of America, Local 8147,
whose members are employed at the Columbia Aluminum Corporation smelter in
Goldendale, Washington and related unloader facility in Portland, Oregon (the
"Union").
RECITALS
A. Columbia Aluminum Corporation ("CAC") and Wilcox, among other parties,
have entered into binding agreements with respect to a series of related
transactions through which Wilcox and his affiliates will acquire a controlling
interest in Goldendale Holdings Company ("Parent"), which will own 100 percent
of the outstanding capital stock of CAC. Immediately following the transactions,
CAC's name will be changed to Goldendale Aluminum Company.
B. Following the transactions, Wilcox will cause Parent to elect to the
Board of Directors of CAC (1) one nominee designated by the Union, and (2) two
nominees who have no significant continuing business relationship with Wilcox or
any entity controlled by Wilcox.
C. In consideration of the covenants and agreements of the Union set forth
in the Collective Bargaining Agreement dated April 7, 1996 between CAC and the
Union (the "Labor Agreement"), Wilcox has agreed to the following restrictions
governing voting rights with respect to the shares of Common Stock of CAC held
by Parent (the "Shares").
AGREEMENT
1. Commencing May 22, 1996, at any annual or special meeting of
shareholders of CAC called for the purpose of electing directors, or in any
action with respect to the election of directors taken by written consent of
shareholders, Wilcox will cause Parent to vote the Shares in such a manner as to
ensure that all times during the term hereof: a) the CAC Board will consist of
not more than five directors; b) not less than one director will be a nominee of
the Union designated by the President of the United Steelworkers of America
International Union, Pittsburgh, Pennsylvania, and c) not less than two
directors will be nominees of Wilcox having no significant continuing business
relationship with Wilcox or any entity controlled by Wilcox.
2. This Agreement will commence as of the date set forth above and shall
continue for such time as the United Steelworkers of America represents the
collective
<PAGE>
bargaining unit of CAC's Goldendale, Washington aluminum smelter; except that
with respect to clauses a) and c) of paragraph 1 the Agreement shall continue
until the earlier of (i) termination of the initial term of the Labor Agreement,
or (ii) such time, if any, as the Shares are transferred but only if pursuant to
foreclosure of the Shares under the terms of the Pledge Agreement entered into
at the Closing of the above transaction between Parent and its senior lenders.
3. Wilcox acknowledges that monetary damages alone cannot provide an
adequate remedy with respect to the covenants and benefits of this Agreement
bargained for by the Union, and agrees that Union will be entitled to seek
specific performance and injunctive relief to enforce this Agreement in the
federal or state courts of Oregon. Wilcox will pay reasonable attorney fees
incurred by the Union to the extent the union prevails in any such action.
4. This Agreement will be governed by the laws of Washington and will be
binding upon the successors and assigns of Wilcox.
BRETT E. WILCOX
-----------------------------------
Brett E. Wilcox
2
Contract No. DE-MS79-95BP94762
AUTHENTICATED
GENERAL TRANSMISSION AGREEMENT
executed by the
UNITED STATES OF AMERICA
DEPARTMENT OF ENERGY
acting by and through the
BONNEVILLE POWER ADMINISTRATION
and
COLUMBIA ALUMINUM
Index to Sections
- --------------------------------------------------------------------------------
Section Page
1. TERM OF AGREEMENT.................................................... 3
2. DEFINITION AND EXPLANATION OF TERMS.................................. 3
3. EXHIIBITS; INTERPRETATIONS........................................... 7
7. POWER SCHEDULING..................................................... 12
9. REVISION OF EXHEBITS................................................. 13
10. ADDITION OR DELETION OF POINTS OF INTEGRATION AND POINTS
OF DELIVERY AND CHANGES IN TRANSMISSION DEMANDS ..................... 14
11. OPTION TO CONVERT SERVICE............................................ 17
12. REQUESTS AND DISPUTES................................................ 18
13. POWER SALES CONTRACT................................................. 18
14. PRIORITY............................................................. 19
15. ASSIGNMENT........................................................... 19
16. STABILITY RESERVES................................................... 19
17. POWER SERVICES....................................................... 28
18. NO THIRD PARTY BENEFICIARIES......................................... 29
Exhibit A (Transmission Rate Schedules and General Transmission
Rate Schedule Provisions)............................... 7
Exhibit B (General Wheeling Provisions)............................ 7
Exhibit C (Transmission Parameters)................................ 7
Exhibit D (Transmission Loss Factors).............................. 7
Exhibit E (Request and Response Procedures)........................ 7
Exhibit F (Stability Reserves Schemes)............................. 7
<PAGE>
This GENERAL TRANSMISSION AGREEMENT (Agreement), executed May 4, 1995, by
the UNITED STATES OF AMERICA (Government), Department of Energy, acting by and
through the BONNEVILLE POWER ADMINISTRATION (Bonneville), and COLUMBIA ALUMINUM,
a corporation of the State of California, each of which may be referred to
herein individually as "Party" or collectively as "Parties".
WITNESSETH:
WHEREAS, Bonneville Power Administration ("Bonneville") and Columbia
Aluminum (Customer), on September 3, 1991, entered into Contract No. DE-MS79-8
IBP903 52, (which as the same may be amended or replaced is hereinafter referred
to as Power Sales Contract); and
WHEREAS, Bonneville is, or intends to become, a party to the Westwide
Regional Transmission Association ("RTA") and the Northwest RTA which implements
portions of the National Energy Policy Act of 1992 (EPA 92).
WHEREAS, Bonneville is willing to offer transmission services to the Direct
Service Industrial Customers which are comparable to the services that its
Utility Customers receive under EPA 92 and the Northwest RTA.
WHEREAS, Bonneville is authorized pursuant to law to dispose of electric
power and energy generated at various Federal hydroelectric projects in the
Pacific Northwest or acquired from other resources, to construct and operate
transmission facilities, to provide transmission and other services, and to
enter into agreements to carry out such authority;
NOW, THEREFORE, the Parties hereto mutually agree as follows:
2
<PAGE>
1. TERM OF AGREEMENT
(a) This Agreement shall be effective at 2400 hours on the date of
execution (Effective Date) and shall continue in effect until 2400
hours on the fifth anniversary of the Effective Date; provided,
however, that power transactions to which the Waiver and Release
between the parties applies, signed by Bonneville on March 15, 1995,
may continue to be transmitted under this Agreement until June 30,
2001.
(b) Under expiration of this Agreement, and subject to the outcome of
National Environmental Policy Act review, Bonneville will offer to
extend transmission services provided hereunder, of the same quality
as, and on rates, terms and conditions consistent with, those offered
to entities with the right to request wheeling service under section
211 of the Federal Power Act.
2. DEFINITION AND EXPLANATION OF TERMS
(a) "Agency" means the Federal Energy Regulatory Commission or its
successor.
(b) "Available Transmission Capacity" and all other terms defined in
Exhibit E are incorporated into this section as if set out herein.
(c) "Customer Facilities" means the Customer's production facility served
by Bonneville under its Power Sales Contract as of the Effective Date
of this Agreement.
(d) "Contract Demand" means the number of megawatts specified as the
Customer's Contract Demand, as of the Effective Date of this
Agreement, in subsection 5(a) of its Power Sales Contract plus the
megawatts for transmission losses associated with such Contract
Demand; provided, that for purposes of this Agreement, upon
3
<PAGE>
Customer's request and pursuant to subsection 5(d) of the Power Sales
Contract, the Customer's Contract Demand shall be changed to reflect
the maximum allowable Contract Demand to which Customer would have
been entitled under subsection 5(d), Technological Allowances of the
Power Sales Contract if the Customer's Power Sales Contract (and all
other companies' power sales contracts) were in effect as of the date
of Customer's request; provided further, that for purposes of this
Agreement, Customer's Contract Demand shall not be reduced by any
termination under section 2 of the Power Sales Contract.
(e) "Eastern Intertie" means the transmission facilities consisting of the
Townsend-Garrison double-circuit 500 kV transmission line segment
including related terminals at Garrison.
(f) "Electric Power" or "power" means electric peaking capacity, expressed
in kilowatts, or electric energy, expressed in kilowatt hours, or
both.
(g) "FCRTS" or "Federal Columbia River Transmission System" means the
transmission facilities of the Federal Columbia River Power System,
which include all transmission facilities owned by the Government and
operated by Bonneville, and other facilities over which Bonneville has
obtained transmission rights, excluding the Southern Intertie, the
Northern Intertie and the Eastern Intertie, provided, that the FCRTS
shall include any intertie if the costs associated with such intertie
are rolled-into the IR-93 transmission rate or its successor.
(h) "Northern Intertie" means the transmission facilities consisting of
two 500 kV lines between Custer Substation and the United
States-Canadian boarder, one 500 kV line between Custer and Monroe
Substations, and two 230 kV lines from Boundary Substation to the
United States-Canadian border, and the associated substation
facilities.
(i) "Points of Delivery" or "POD" means the points, named in the
Transmission Parameters Exhibit, where Electric Power may be made
available to the Customer hereunder.
4
<PAGE>
(j) "Points of Integration" or "POI" means:
(1) the point or points requested by the Customer and listed in the
Transmission Parameters Exhibit, where Electric Power from the
Customer's Resources shall be integrated into the FCRTS
hereunder; or
(2) the points mutually agreed upon by the Parties hereto where
Electric Power from other Resources may be made available to
Bonneville for nonfirm transmission to the Customer's Points of
Delivery. If requested, the Resources to be integrated at each
Point of Integration shall be identified.
(k) "Resource" means:
(1) any of the Customer's generating or contractual resources listed
in the Transmission Parameters Exhibit requiring firm
transmission services on the FCRTS; and
(2) any resource for which nonfirm transmission service is requested
and which is made available to Bonneville at mutually agreed upon
Points of Integration on the FCRTS; and
(3) any other resource not listed in the Transmission Parameters
Exhibit, but which is used to supply back-up for a listed
resource.
5
<PAGE>
(l) "Southern Intertie" means the following facilities: two 500 kV
transmission lines extending from John Day Substation to the Malin
Substation and to the California-Oregon border; portions of John Day,
Grizzly, and Malin Substations and the Sand Springs, Fort Rock, and
Sycan Compensation Stations; a portion of the Buckley-Summer Lake 500
kV transmission line and associated substations; portions of the
Buckley-Marion and Marion-Alvey 500 kV transmission lines and
associated facilities; a portion of Bonneville's capacity rights in
the Summer Lake-Malin 500 kV transmission line; Bonneville's rights in
the Meridian-Malin 500 kV transmission line and Bonneville's share of
ownership of the Alvey-Meridian 500 kV transmission line; Captain Jack
Substation; the 500 kV transmission fine from Captain Jack Substation
to the California-Oregon border; the DC transmission line between the
Celilo Converter Station in The Dalles, Oregon, and the Nevada-Oregon
Border; and any modifications, additions, improvements, or other
alterations thereto.
(m) "Total Power Wheeled" for each hour means the sum of the Electric
Power scheduled hereunder on such hour to Bonneville, including but
not restricted to Electric Power scheduled pursuant to the provisions
of section 7 hereof, at all points on the FCRTS where Bonneville
accepts such Electric Power from the Customer or Customer's
Supplier(s) for transmission hereunder to the Customer's Points of
Delivery.
(n) "Transmission Demand" at a Point of Integration means the maximum firm
transmission capacity which Bonneville shall be obligated to have
available at each Point of Integration for the purpose of integrating
Electric Power from a Resource specified in the Transmission
Parameters Exhibit for the Customer hereunder. The level of the
Transmission Demand shall be based on the hourly peak capability of
the Customer's Resource to be integrated hereunder at such Point of
Integration. The sum of the Customer's Transmission Demands (Total
6
<PAGE>
Transmission Demand) is specified in the Transmission Parameters
Exhibit.
(o) "Use-of-Facilities Charge" means the charges, if any, specified in the
Transmission Parameters Exhibit, applicable to Points of Integration
and Points of Delivery for the purpose of recovering the cost of
identifiable facilities provided by Bonneville for the Customer's use.
Such charges and their application shall be consistent with the
Use-of-Facilities Transmission Rate Schedule, contained in the
Transmission Rate Schedules and General Transmission Rate Schedule
Provisions Exhibit, and shall also be consistent with Bonneville's
Customer Service Policy.
(p) "Utility Customers" means public agency or investor-owned utility
customers of Bonneville.
(q) "Workday" for the purpose of power scheduling means a day which the
Parties hereto jointly observe as a regular workday.
3. EXHIBITS; INTERPRETATIONS
The rights and obligations of the Parties with respect to provisions
hereunder shall be subject to and governed only by this Agreement,
including Exhibits A through F (Exhibits) attached hereto and by this
reference made a part of this Agreement. The provisions of section 38 of
the General Wheeling Provisions [GWP Form-4R] require a minimum notice
prior to a Rate Adjustment Date. If the rates are disapproved or conditions
are placed on them by the Agency authorized to approve Bonneville's
transmission rates, Bonneville shall not be required to give the minimum
notice prior to resubmitting the rates to the Agency or implementing the
Agency approved rates. The headings used in this Agreement are for
convenient reference only, and shall not affect the interpretation of this
Agreement. The Customer shall be the "Transferee" and Bonneville shall be
the "Transferor" referred to in the General Wheeling Provisions Exhibit.
7
<PAGE>
4. DESIGNATION OF TRANSMISSION DEMAND
Unless otherwise agreed and for delivery of power and energy to Customer's
production facilities for consumption up to Customer Contract Demand,
Bonneville shall provide a maximum Total Transmission Demand to Customer
equal to Customer's Contract Demand minus the minimum annual contract
demand associated with expected purchases of federal power, as determined
by the Customer; provided, however, that Customer's requests for service
meet the requirements of this Agreement. (For purposes of this section 4,
"expected purchases of federal power" shall include only purchases of
one-year or more.) Bonneville shall make available to Customer the
Transmission Demand requested by Customer at the requested POI if
Bonneville has (or can acquire through construction of new facilities or
otherwise) Available Transmission Capacity to provide the requested
service.
5. TRANSMISSION OF ELECTRIC POWER
(a) During each hour of the term hereof, the Customer shall make available
or arrange to have made available to Bonneville at the Point(s) of
Integration, the Total Power Wheeled; and Bonneville shall for each
such hour make an amount of Electric Power equal to the Total Power
Wheeled available to the Customer at the Point(s) of Delivery, subject
to the conditions in paragraphs (a)(1) through (a)(3) below.
(1) Bonneville may, but shall not be obligated to, integrate amounts
of Electric Power on any hour which exceed the Total Transmission
Demand.
(2) Bonneville may, but shall not be obligated to, integrate at a
Point of Integration on any hour, amounts of Electric Power which
exceed the Transmission Demand at such Point of Integration.
8
<PAGE>
(3) Bonneville may, but shall not be obligated to, integrate Electric
Power from Resources other than Resources listed in the
Customer's Transmission Parameters Exhibit, provided that the
Points of Integration for such Electric Power have been mutually
agreed upon; provided however, any such integration of power, to
the extent that the Total Transmission Demand is not exceeded,
shall be provided, in accordance, with the Integration of
Resources Transmission Rate Schedule. The Energy Transmission
Rate Schedule shall not be applicable to integration of power
from Resources to the extent such integration does not exceed the
Total Transmission Demand.
(b) If, for any hour, the Customer determines that it has Electric Power
available for nonfirm transmission over the FCRTS, the Customer may
request nonfirm transmission service from Bonneville. If Bonneville
has Available Transmission Capacity to provide the requested service,
then Bonneville will provide transmission service for such excess
Electric Power as a separately identified part of its schedule
pursuant to section T. Charges for such transmission, if in excess of
Total Transmission Demand, shall be applied in accordance with the
Energy Transmission rate schedule, or its successor, attached hereto
as part of Exhibit A. At its discretion, Bonneville may provide such
nonfirm transmission service notwithstanding section 4.
(1) The option to schedule Electric Power as nonfirm transmission
service shall not be used to avoid having a Total Transmission
Demand which reasonably reflects Transmission Demand for each
Resource and the combined peak demand for wheeling which the
Customer regularly places on Bonneville. Bonneville shall have
the right to refuse to provide service on a nonfirm basis if it
determines that the Transmission Demand at a Point of Integration
should be increased or the Total Transmission
9
<PAGE>
Demand should be increased.
(2) Any transaction using the FCRTS which is exempt from wheeling
charges or loss assessment at the time of actual transmission,
such as qualifying transactions under the Coordination Agreement
(Contract No. 14-03-48221), and which is subsequently converted
to a sale to an entity other than Bonneville, shall be
retroactively billed as nonfirm transmission service and shall be
assessed losses unless such conversion is allowed or provided for
under another agreement to which Bonneville is a party. Such
qualifying transactions shall not be subject to paragraph (b)(3)
below.
(3) Except as provided in subsection 5(b) for nonfirm transmission,
amounts of Electric Power wheeled hereunder which exceed the
Transmission Demand shall be billed under the ratchet provision
of section 6, and/or an appropriate Bonneville rate for
transmission without prior agreement.
(c) To compensate Bonneville for losses incurred in providing services
hereunder, the Customer shall make available to Bonneville at the
Customer's Points of Delivery, unless otherwise mutually agreed
between the Parties, on the current hour, the amounts of Electric
Power determined pursuant to the Transmission Loss Factors Exhibit for
service performed pursuant to subsections (a) and (b) above; provided,
however, that if mutually agreed, losses due to wheeling over
designated facilities shall be purchased from Bonneville and deemed to
be delivered to Bonneville by the Customer instead of being made
available with scheduled energy.
(d) Bonneville shall, if requested by the Customer and if it is within
Bonneville's capability to do so without adversely affecting its other
obligations, make replacement Electric Power available to the Customer
hereunder, without additional cost to the Customer except as provided
in this subsection, if Electric
10
<PAGE>
Power to be made available to Bonneville pursuant to subsection (a)
above cannot be made available solely because of suspension or
interruption of, or interference with, the operation of the FCRTS. The
Customer shall, at Bonneville's option:
(1) reimburse Bonneville for any cost or loss of revenue incurred in
making such replacement Electric Power available;
(2) replace all or a portion of such replacement Electric Power with
the Customer's Electric Power at a time agreed upon by the
Parties prior to delivery; or
(3) reimburse and replace pursuant to paragraphs (1) and (2) above in
amounts determined by Bonneville which in total are equivalent in
value to the replacement Electric Power delivered to the Utility
pursuant to this subsection.
The method to replace or reimburse shall be specified by
Bonneville at the time of the Customer's request for replacement
Electric Power.
(e) The Customer shall not use rights obtained under this Agreement to
provide transmission services for another entity.
6. PAYMENT BY THE CUSTOMER
As compensation for services provided hereunder, the Customer shall pay
Bonneville each month during the term hereof, amounts determined as
provided in this section and in accordance with the Transmission Parameters
Exhibit and the Transmission Rate Schedules and General Transmission Rate
Schedule Provisions Exhibit. Any ratchet
11
<PAGE>
demand that may occur as determined by Bonneville pursuant to the
Transmission Rate Schedules and General Transmission Rate Schedule
Provisions, does not constitute an increase in any Transmission Demand
approved by Bonneville and any continued service at such level will depend
on the availability of facilities as determined by Bonneville. Any changes
in Transmission Demands must be requested in accordance with section 10.
(a) For integration of Electric Power pursuant to subsection 5(a), the
Customer shall pay Bonneville in accordance with the appropriate rate
schedules for integration of resources, use-of-facilities, and other
transmission services.
(b) For nonfirm transmission of Electric Power pursuant to subsection
5(b), the Customer shall pay Bonneville the rate specified in the
current rate schedule for nonfirm transmission applicable to the
facilities being used.
(c) If granted a Transmission Demand at a POI, Customer may, pursuant to
the other provisions of this Agreement, reserve such Transmission
Demand prior to actual use by paying Bonneville a deposit. Such
deposit will be determined by Bonneville in a manner comparable to
that applied to its Utility Customers.
7. POWER SCHEDULING
The Customer shall submit or arrange to have submitted to Bonneville by
1000 hours (Pacific Time) of each Workday:
(a) for Resources requiring transmission herein to which the Customer has
generation control:
(1) a retroactive report of the Electric Power supplied to Bonneville
for each hour of the previous day or days; and
12
<PAGE>
(2) at Bonneville's request, estimated amounts of Electric Power as
specified in paragraph (1) above for each hour of the following
day or days;
(b) for Resources requiring transmission herein to which the Customer does
not have generation control:
(1) at Bonneville's request, a schedule in advance of Electric Power
to be supplied to Bonneville for each hour of the following day
or days; and
(2) if the resource is within Bonneville's control area, a
retroactive report of the Electric Power supplied by each
Resource as made available to Bonneville for each hour of the
previous day or days;
(c) a retroactive report of the hourly amounts of Electric Power which the
Customer made available to Bonneville for nonfirm transmission
pursuant to subsection 5(b); provided, however, that if requested by
Bonneville, the Customer shall submit estimated amounts of Electric
Power to be made available for nonfirm transmission and indicate the
Point of Integration where such Electric Power will be made available.
8. REACTIVE POWER
It is the intent of the Parties hereto that the voltage level at the Points
of Integration and the Points of Delivery be controlled in accordance with
prudent utility operating practice. The Parties hereto shall jointly plan
and operate their systems so as not to place an undue burden on the other
party to supply or absorb reactive power accompanying or resulting from
deliveries hereunder.
9. REVISION OF EXHIBITS
13
<PAGE>
(a) The rate schedules included in the Transmission Rate Schedules and
General Transmission Rate Schedule Provisions Exhibit 5 10 shall be
replaced by successor rate schedules in accordance with the provisions
of section 7(i) of the Pacific Northwest Power Act and Agency rules.
The unit rate or rates in such successor rate schedules shall be a
non-mileage based rate which shall only reflect the distances between
POI's and POD's if a short distance discount factor has been agreed
upon by the Parties.
(b) Bonneville shall annually review the Transmission Loss Factors Exhibit
and shall revise such exhibit as appropriate to incorporate values
which represent then current FCRTS operating conditions or to
incorporate any value, used in such exhibit to calculate the losses,
which has -changed due to a change in methodology. Any changes to the
loss methodology or formula, other than numerical values, shall only
be made after consultation with the Customer. Bonneville shall prepare
a new Transmission Loss Factors Exhibit incorporating any revision and
the revised exhibit shall become effective as of the date specified
therein.
(c) If Bonneville determines that the Use-of-Facilities Charges specified
in the Transmission Parameters Exhibit or any other charges,
subsequent charges, or factors used in calculating any charges
specified in this Agreement must be changed pursuant to sections 19 or
38 of the General Wheeling Provisions Exhibit, it shall prepare a new
Transmission Parameters Exhibit or other affected exhibit
incorporating such revised charges and parameters. Such new exhibits
shall be substituted for the exhibits then in effect and shall become
effective as of the date specified therein.
10. ADDITION OR DELETION OF POINTS OF INTEGRATION AND POINTS OF DELIVERY AND
CHANGES IN TRANSMISSION DEMANDS
14
<PAGE>
SDB PAS
(a) Subject to section 4, Points of Integration and Points of Delivery may
be added and Transmission Demands may be increased, subject to
Bonneville's determination of Available Transmission Capacity, upon
3-months' prior written notice to Bonneville, but no more frequently
than once in any 12-month period for any individual point or
Transmission Demand. Such changes shall be effective for the remaining
term of this Agreement unless otherwise indicated in the appropriate
exhibits hereto, or changed pursuant to the provisions hereof.
(b) Points of Integration and Points of Delivery may be deleted and
Transmission Demands may be reduced subject to the provisions of
paragraphs (b)(1) through (b)(6) below.
(1) Transmission Demands for individual Points of Integration may be
reduced no more frequently than once in any 12-month period for
any Point of Integration, subject to the provisions of paragraph
(b)(4) below and the notice requirements of paragraph (b)(5)
below and only:
(A) to the extent that, pursuant to the provisions of agreements
between the Customer and the owner of a Resource designated
in the Transmission Parameters Exhibit as being integrated
at such Point of Integration, the Resource owner withdraws
all or a portion of the Customer's share of the Resource
output;
(B) to the extent that the Customer assigns all or a portion of
its share of the Resource output;
(C) to the extent of a permanent partial or total reduction in
the Customer's entitlement to a share of the capability of
the Resource;
15
<PAGE>
(D) to the extent of the destruction, abandonment, or sale of a
Resource integrated at such Point of Integration; or
(E) to the extent of the discontinuation of operation of a
Resource under a final order of a public official having
authority to issue such order.
(2) A Point of Integration may be deleted, upon 3-months' prior
written notice to Bonneville, subject to paragraph (b)(4) below,
but only after its Transmission Demand has been reduced to zero
pursuant to paragraph (b)(1) above.
(3) A Point of Delivery may be deleted, subject to mutual agreement
of the Parties hereto and to paragraph (b)(4) below, upon
3-months' prior written notice to Bonneville.
(4) A reduction of a Transmission Demand or the deletion of a Point
of Integration or a Point of Delivery shall not decrease the
Customer's obligation to pay, for the duration of this Agreement,
the Use-of-Facility Charges specified in the Transmission
Parameters Exhibit, except to the extent that another customer of
Bonneville obligates itself to make such payments to Bonneville
for the remainder of the duration of this Agreement; provided,
however, that upon mutual agreement, the Parties may negotiate a
termination charge in lieu of continued periodic payment of
Use-of-Facility Charges for the duration of this Agreement.
(5) The Customer shall provide Bonneville 3 years' written notice of
any decrease in Transmission Demand, except as follows:
16
<PAGE>
(A) the Customer shall provide 3 months' written notice of a
decrease in Transmission Demand if there is an equal
increase in Transmission Demand by another customer at the
same Point of Integration resulting from the sale or
assignment of the Resource and involving no loss of revenue
to Bonneville; or
(B) the Customer shall provide written notice as soon as
possible if such decrease is due to involuntary loss of a
Resource, or discontinuation of operation of a Resource
under a final order of a public official having authority to
issue such order.
(C) When changes are made pursuant to this section, Bonneville
shall incorporate such changes in a new Transmission
Parameters Exhibit as soon as practicable.
(6) Notwithstanding any other provision but subject to paragraph
10(b)(4), if Customer increases its purchases of federal power
Customer shall be entitled to reduce its Transmission Demand at
any POI(s) in an amount equal to such increase effective on the
date that such increase in federal service occurs; provided, that
Customer shall not be entitled, without Bonneville's consent, to
a Total Transmission Demand in excess of the amount allowed by
section 4.
SDB
PAS
(c) Notwithstanding any other provision, Customer may request a seasonal
POI and an associated seasonal Transmission Demand at the POL
Bonneville will respond to such request under the procedures and
standards of Exhibit E.
11. OPTION TO CONVERT SERVICE
17
<PAGE>
Customer may convert services under this Agreement to other transmission
services that Bonneville offers pursuant to the same policies which apply
to Bonneville's Utility Customers; provided that, subject to subsection
12(b), the provisions of Exhibit E shall continue to apply to any
alternative transmission services.
12. REQUESTS AND DISPUTES
(a) The Customer may request additional transmission services to be
provided under other agreements as provided in Exhibit E and, subject
to the conditions and limitations therein, Bonneville's shall provide
such services.
(b) Unless otherwise expressly provided, requests and disputes regarding
requests for service (including requests for additional or deleted
PODs or POIs and for increased or decreased Transmission Demand) and
disputes under this Agreement shall be governed by Exhibit E;
provided, that, if Bonneville's membership in both the Western
Regional Transmission Association and the Northwest Regional
Transmission Association terminates, Exhibit E shall only be used for
disputes regarding IR services under this Agreement and shall
terminate for all other purposes; provided, that requests for other
services pending as of the date of Bonneville's termination of
membership shall continue to be governed by Exhibit E; provided, that
if Bonneville joins a successor organization to either the
Westwide or Northwest RTA, or any new organization to implement
Bonneville's obligations under sections 211 and 212 of the 1992
Natural Energy Policy Act, then Exhibit E (as modified if necessary to
provide comparable services to those provided under such successor or
new organization) shall continue to apply to all requests for services
by Customer under this Agreement.
13. POWER SALES CONTRACT
This Agreement does not modify the current Power Sales Contract between
Bonneville
18
<PAGE>
and the Customer.
14. PRIORITY
Customer shall have the same priority to Available Transmission Capacity
for service under this Agreement as transmission service to other
non-federal regional loads. To the extent Bonneville does not have adequate
Available Transmission Capacity to meet a Customer's request, Customer
shall have the same priority to Incremental Facilities for service under
this Agreement as transmission service to other non-federal regional loads.
15. ASSIGNMENT
With Bonneville's consent, which shall not be unreasonably withheld,
Customer may assign this Agreement or services under this Agreement (e.g.,
PODs, POIs, and the associated Transmission Demands) to third Parties;
provided, that the Transmission Service provided under this Agreement to
such third party shall still serve, directly or indirectly, Customer's
Facilities.
16. STABILITY RESERVES
The Customer shall provide Stability Reserves up to the Transmission Demand
for transmission services provided pursuant to this Agreement as provided
herein.
(a) Definitions:
(1) "Event" is a system condition that results in the need for
Stability Reserves. The beginning of an event shall be identified
by a transfer trip or other signal from Bonneville to the
Customer restricting delivery of energy under this Agreement. The
end of the Event shall be identified by the Bonneville
dispatcher's notification to Customer that transmission of
19
<PAGE>
all energy to which Customer is entitled under this Agreement has
been restored or notice to the Customer that service to the
Customer's load will continue to be fully or partially restricted
for reasons other than Bonneville Stability Reserves rights under
this Agreement. Notwithstanding the foregoing, the Event will end
(subject to reinstatement as provided herein) when an
undervoltage or underfrequency load shedding signal is received
by the Customer and, if such undervoltage or underfrequency load
shedding signal is received by Customer prior to Event Minute 3,
then the entire Event shall be deemed an event of force majeure.
The Event shall be reinstated and continue as follows:
(i) if the Event Duration was 5 Event Minutes or less, then the
Event shall be reinstated if Bonneville restricts deliveries
to Customer pursuant to its Stability Reserve rights within
2 hours or less of the last Event Minute;
(ii) if the Event Duration was more than 5 Event Minutes but not
more than 15 Event Minutes, then the Event shall be
reinstated if Bonneville restricts deliveries to Customer
pursuant to its Stability Reserve rights within 4 hours or
less of the last Event Minute;
(iii) if the Event Duration was more than 15 Event Minutes but
not more than 22 Event Minutes, then the Event shall be
reinstated if Bonneville restricts deliveries to Customer
pursuant to its Stability Reserve rights within 6 hours or
less of the last Event Minute;
(iv) if the Event Duration was more than 22 Event Minutes, then
the Event shall be reinstated if Bonneville restricts
deliveries to Customer pursuant to its Stability Reserve
rights within 8 hours or
20
<PAGE>
less of the last Event Minute.
(2) "Event Duration" shall be the total cumulative Event Minutes of
the Event.
(3) "Event Minute" shall be the minutes of restriction (or any
portion thereof) during an Event. If Bonneville restricts less
than its full entitlement in any Event Minute, then for purposes
of defining the Event, the Event Minutes and Event Duration,
Bonneville shall be deemed to have restricted the entire amount
of energy wheeled under this Agreement.
(4) "Material Plant Damage" shall be the inability to resume
electrolysis in one or more pots without rebuilding or
substantially repairing such pot(s).
(5) "Stability Reserves" are those reserves, provided by the Customer
under this Agreement, that are necessary to ensure the stability
of the Federal Columbia River Transmission System against losses
of transmission facilities pursuant to the schemes in Exhibit F
or any additional scheme(s) adopted pursuant to section 16(h)
herein. Stability Reserves provided under this Agreement shall
not include, without limitation: (1) stability reserves provided
by the Customer in the Power Sales Contract; or (2) operating
reserves or forced outage reserves that Bonneville has acquired
under the Power Sales Contract or under other agreements.
(b) Amount of Stability Reserves. When necessary to provide Stability
Reserves, Bonneville may restrict deliveries of energy wheeled under
this Agreement to the Customer's aluminum smelter load (which shall
not include wheel turning loads) pursuant to the schemes listed in
Exhibit F and to Customer's other loads under any additional or
extended scheme(s) adopted pursuant to subsection 16(h), for Stability
Reserves in the following manner:
21
<PAGE>
(1) up to 100 percent of Customer's energy subject to restriction
under this Agreement for a period of up to 30 Event Minutes per
Event;
(2) provided, that Bonneville shall have the sole right to determine
whether to restrict all or part of Customer's energy subject to
restriction hereunder, when an Event occurs.
For accounting purposes, Customer's wheeling turning load shall be
deemed to be served by all of Customer's energy suppliers (whether the
sale is made directly to Customer at its production facility or
whether the sale is made at a remote point and the energy is wheeled
to Customer's production facility), in proportion to the total annual
amounts of energy purchased from each such supplier; provided, that if
the wheel turning load is served exclusively by a supplier other than
Bonneville who contracted specifically to provide such wheel turning
service, such wheel turning load shall be excluded from the
allocation.
Notwithstanding any other provision of this Agreement, Bonneville
shall use its best efforts to end an Event as soon as possible and
Customer agrees to cooperate in development of mechanisms that will
enhance Bonneville's ability to notify Customer of the end of an
Event.
Notwithstanding any other provision of this Agreement, including the
breach and damages provisions, Bonneville shall have no contractual
right under this Agreement which would cause Customer to incur
Material Plant Damages: provided, Bonneville shall not be liable for
equitable relief or damages for such Material Plant Damage occurring
within 45 Event Minutes or less of an Event pursuant to a Stability
Reserve scheme listed in Exhibit F or adopted pursuant to subsection
16(h).
(c) Compensation for Stability Reserves.
22
<PAGE>
(1) For the right to restrict and for any restrictions provided
pursuant to subsection (b) for the schemes listed in Exhibit F,
Bonneville shall pay the Customer a "Reservation Fee" and a "Use
Fee":
The Reservation Fee shall be $0.20 per kilowatt-year for
Customer's entire Transmission Demand.
The Use Fee shall be 50 mills/kWh of restricted energy during
Event Minutes 1 through 15 (or any portion thereof) of an Event;
and, 100 mills/kWh of restricted energy during the Event Minutes
16 through 30 (or any portion thereof) of an Event.
(2) If the Customer's load is not connected to a scheme specified in
Exhibit F or additional or extended scheme adopted pursuant to
subsection 16(h), Bonneville shall have no obligation to pay for
Stability Reserves.
(3) The charges specified in this subsection shall not have any
precedential effect for the purpose of determining reasonable
stability reserve compensation under other agreements or for
determining reasonable Stability Reserve compensation for
additional or extended scheme(s) adopted pursuant to subsection
16(h) herein. Neither Party shall introduce as evidence of
reasonable compensation this Agreement or anything herein related
to the compensation for stability reserves in Bonneville's rate
cases or similar forums or in a proceeding under subsection 16(h)
herein.
(4) Bonneville's payment obligation hereunder shall not include
payment for restrictions under events of force majeure or under
rights provided by other agreements. Such restrictions include
those restrictions associated
23
<PAGE>
with force majeure which cause undervoltage and underfrequency
load shedding, future similar schemes of last resort, and outages
of transmission facilities required for service hereunder.
(d) Liquidated Damage. The Parties acknowledge that restrictions beyond
that allowed by this Agreement may result in damage to and lost
production by Customer's aluminum reduction facilities prior to
Material Plant Damage which is difficult to quantify. If the Event
Duration exceeds 30 Event Minutes, then Bonneville shall be liable to
Customer as follows:
(i) 200 mills/kWh of restricted energy during Event Minutes 31
through 45 (or portion thereof) of an Event;
(ii) 400 mills/kWh of restricted energy during Event Minutes (or
portion thereof), after Event Minute 45 of an Event;
(iii) provided, that in lieu of (ii) and at Customer's option, if the
Event Duration exceeds 45 Event Minutes, and Customer incurs, in
its determination, Material Plant Damage as a direct result of
the restriction, then as to the portion of its production
facilities that suffers Material Plan Damage, Bonneville and
Customer agree that these damages can be reasonably quantified
and, therefore, for that portion of its production facilities,
Customer may recover actual damages (excluding only lost
production and lost profits) pursuant to subsection 16(e) herein;
but such actual damages shall not exceed $30 per kW of plant
production facilities suffering Material Plant Damage. The
liquidated damages charges in (i) and (ii), above, shall continue
to apply to that portion of Customer's load which does not suffer
Material Plant Damage. For purposes of this calculation, the
Material Plant Damage shall be deemed to occur at the
24
<PAGE>
beginning of Event Minute 46.
(e) Arbitration. Notwithstanding any other provision of this
Agreement, Bonneville agrees to arbitrate any issue arising under
this section 16 to the full extent allowed under then-existing
law, utilizing the procedures and standards in Exhibit E
applicable to non-rate issues. The Arbitrator shall apply federal
common law to determine the amount of such damages and, if
Bonneville alleges any intervening events, to rule on such
allegation and, if necessary, to determine Bonneville's relative
share of such damages.
(f) Storage. During a period of restriction under subsection 16(b),
during any further restriction of deliveries in breach of this
Agreement, and during the period of Customer's inability to take
delivery due to such breach, all of Customer's energy scheduled
and delivered to Bonneville under this Agreement shall be deemed
stored, at no charge, and shall not be spilled. Subject to
transmission availability, Bonneville shall deliver such energy
on demand to Customer's facilities or to another entity for
resale at no charge other than the transmission charge provided
herein. The Customer shall take from storage all such energy
prior to purchasing any additional energy required to recover
from the Event. If the Customer does not take the energy from
storage within 48 hours of the end of the Event, Bonneville's
obligation to return such energy shall terminate.
(g) Confidentiality. The Parties agree that all material related to
plant technology, plant operations or to proving damages which is
submitted by the Customer to Bonneville, the arbitrator or any
other party in any proceeding under section 16 of this Agreement
is confidential. The Parties shall jointly request a protective
order from the arbitrator: (i) preserving the confidentiality of
such material; (ii) limiting its use to such proceeding; and
(iii) requiring its return to Customer at the conclusion of the
proceeding. Bonneville agrees not to voluntarily disclose any
such information outside of the agency and agrees to restrict
access to and use of
25
<PAGE>
such information to employees necessary to and for purposes
associated only with the conduct of such proceeding.
(h) Additional Stability Reserve Schemes. To the extent Bonneville
determines: (a) the need for additional Stability Reserve
scheme(s) not listed in Exhibit F that would restrict, at a
frequency and duration similar to the scheme listed in Exhibit F,
the energy subject to restriction under this Agreement, (b) the
need to apply Stability Reserve schemes listed in Exhibit F and
additional Stability Reserve scheme(s) to energy wheeled u rider
this Agreement to non-aluminum DSIs, or (c) the need for
modifications to the elements of schemes fisted in Exhibit F that
would significantly change the expected frequency or duration of
restrictions, then:
(1) Bonneville shall consult with Customer on the need for,
operational characteristics as they affect Customer of, and
compensation for such scheme(s), and;
(2) Bonneville shall consider alternative methods and costs,
including purchases from non-DSIs, for obtaining such
additional reserves.
Customer agrees to cooperate in the development of such scheme(s)
and shall not unreasonably withhold its consent to implementation
of such scheme(s).
(i) Make-Up Transmission. When an Event ends, Bonneville shall
permit, subject to Available Transmission Capacity, without
additional demand or unauthorized, increase charges, short-term,
non-recurring demand overruns of the Customer's Transmission
Demand.
26
<PAGE>
(j) Annual Adjustments after October 1, 1995. Subsequent to October
1, 1995, on the effective date of any IP Premium or successor
rate adjustment thereafter, the fees and charges (SRCx)
identified in 16(c) and 16(d) shall be adjusted as follows:
SRCX = SRC base *IP-New
------
IP-93
where SRCX = Each of the stability reserve fees
identified in 16(c) and charges
identified in 16(d), as adjusted
hereunder, to be effective on the
effective date of any IP or successor
rate adjustment on or after October
1, 1995.
SRC Base = The stability reserve fees as
specified in 16(c) and the changes as
specified in 16(d).
IP-New = Each newly adjusted average IP
Premium rate or successor rate
effective after October 1, 1995, in
mills per kWh. Such IP Premium or
successor rate shall be calculated at
a load factor of 90 percent, and
assuming a uniform demand in all
months. If there is more than one IP
Premium or successor rate, the
average shall be determined by a
weighting based on forecasted sales
in the relevant rate case.
IP-93 = The average IP Premium rate in effect
on October 1, 1993, in mills per kWh.
Such average IP Premium rate shall be
calculated
27
<PAGE>
at a load factor of 90 percent, and
assuming a uniform demand in all
months. If there is more than one IP
or successor rate, the average shall
be determined by a weighting based on
forecasted sales in the relevant rate
case.
17. POWER SERVICES
As a condition for providing service under this Agreement:
(a) If Customer's Resource is located in Bonneville's load control area,
then Customer shall enter into an agreement with Bonneville for the
purchase of the power services necessary for operation of the Resource
consistent with the standards of the North American Electric
Reliability Council, the Western Systems Coordinating Council, and the
Northwest Power Pool or, at Customer's option, demonstrate to
Bonneville that it has purchased or otherwise provided such power
services.
(b) If the portion of Customer's load to which energy is wheeled under
this Agreement is located in Bonneville's load control area, then
Customer shall enter into an agreement with Bonneville for the
purchase of the power services necessary for reliable service to such
load consistent with the standards of the North American Electric
Reliability Council, the Western Systems Coordinating Council, and the
Northwest Power Pool or, at Customer's option, demonstrate to
Bonneville that it has purchased or otherwise provided such power
services.
(c) Such power services may include, but shall not be limited to, control
area services, scheduling services, energy shaping services, energy
regulation services, station service, start-up power, Resource back-up
services, and replacement
28
<PAGE>
power.
18. NO THIRD PARTY BENEFICIARIES
This Agreement creates rights and obligations only between the Parties
hereto. The Parties hereto expressly do not intend to create any obligation
or promise of performance to any other third person or entity nor have the
Parties conferred any right or remedy upon any third person or entity other
than the Parties hereto, their respective successors and assigns to enforce
this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in several
counterparts.
UNITED STATES OF AMERICA
Department of Energy
Bonneville Power Administration
By: /s/ SYDNEY D. BERWAGER
Name: _______________________
(Print/Type)
Title: Account Executive
----------------------------
Date: April 7, 1995
----------------------------
29
<PAGE>
COLUMBIA ALUMINUM
By: /s/ KENNETH D. PETERSON, JR.
Name: ____________________________
(Print/Type)
Title: President
-------------------------
Date: May 4, 1995
-------------------------
30
<PAGE>
Exhibit A
Contract No. DE-MS79-95BP94762
COLUMBIA ALUMINUM
TRANSMISSION RATE SCHEDULES AND
GENERAL TRANSMISSION RATE SCHEDULE PROVISIONS
---------------------------------------------
<PAGE>
Exhibit B
Contract No. DE-MS79-95BP94762
COLUMBIA ALUMINUM
GENERAL WHEELING PROVISIONS
---------------------------
<PAGE>
Exhibit C
Contract No. DE-MS79-95BP94762
COLUMBIA ALUMINUM
TRANSMISSION PARAMETERS
A. Points of Integration, Transmission Demands, and Resources.
Point of Integration Transmission Demand Resource(s) to be
(voltage) (kW) Integrated
1. Name of Substation(_____ kV) _____ _____
2. Name of Substation (_____ kV) _____ _____
Total Transmission Demand _____
If Customer requests transmission service for a new Resource, which is a
replacement for a Resource listed in Exhibit C, at the same Point of
Integration and with the same or less associated Transmission Demand, and
Bonneville determines that such replacement Resource can be integrated at
such Point of Integration, Bonneville shall allow substitution of such
replacement Resource in this Exhibit C. The Resource term shall include any
purchase option periods.
B. Points of Delivery and Use-of-Facilities Charges.
Points of Delivery Use-of-Facilities Charges
[Customer Facilities Locations]
Points of Delivery for Station Service Only Unless Otherwise Noted1
- -----------------
1 Upon Bonneville's request, the Customer shall provide evidence of the
obligation to provide service and the amounts and conditions of such obligation.
1
<PAGE>
C. Description of Points of Integration and Points of Delivery.
These are definitions only. Designations of these points as either Points
of Integration or Points of Delivery are in Part A or Part B of this
Exhibit.
1. ENTER NAME:
Location:
Voltage: _____ kV
Metering:
2. ENTER NAME:
Location:
Voltage: _____ kV
Metering:
3. ENTER NAME
Location:
Voltage: _____ kV
Metering:
2
<PAGE>
Exhibit C, Page ___ of ___
Service Agreement No. MS96-96109
Goldendale Aluminum Company
Effective on 2400 hours on
September 30, 1996
1. TERM OF TRANSACTION
Start Date: September 30, 1996, at 2400 hours.
Termination Date: September 30, 2001, at 2400 hours.
2. Maximum amount of capacity and/or energy to be transmitted at each Point of
Interconnection and Point of Delivery (Total of which is not to exceed the
Total Transmission Demand as described in the Section 4 of the Transmission
Customer's IR Contract):
See Section 6 below.
3. DELIVERING PARTY/RESOURCE
PanEnergy
4. RECEIVING PARTY
Goldendale Aluminum Company
5. SUMMARY OF POINTS OF INTERCONNECTION AND POINTS OF DELIVERY
10/1/96 - 12/31/96
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Point of Interconnection Transmission Demand (kW) Point of Delivery (Voltage) Transmission Demand (kW)
(Voltage) 10/1/96 - 12/31/96 10/1/96 - 9/30/2001
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Vantage Substation 147,000 Harvalum Substation 147,000
230 kV 23.0 kV
Rocky Reach Substation 75,000 Harvalum Substation 75,000
230 kV 23.0 kV
Total Transmission Demand 222,000 kW 222,000 kW
</TABLE>
23
Service Agreement No. 96MS-96109
<PAGE>
Exhibit C, Page ___ of ___
Service Agreement No. MS96-96109
Goldendale Aluminum Company
Effective on 2400 hours on
September 30, 1996
1/1/97 - 03/31/97
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Point of Interconnection Transmission Demand (kW) Point of Delivery (Voltage) Transmission Demand (kW)
(Voltage) 10/1/96 - 9/30/2001 10/1/96 - 9/30/2001
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Vantage Substation 167,000 Harvalum Substation 167,000
230 kV 23.0 kV
Rocky Reach Substation 75,000 Harvalum Substation 75,000
230 kV 23.0 kV
Total Transmission Demand 242,000 kW 242,000 kW
</TABLE>
04/01/97 - 09/30/2001
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Point of Interconnection Transmission Demand (kW) Point of Delivery (Voltage) Transmission Demand (kW)
(Voltage) 10/1/96 - 9/30/2001 10/1/96 - 9/30/2001
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Vantage Substation 192,000 Harvalum Substation 192,000
230 kV 23.0 kV
Rocky Reach Substation 100,000 Harvalum Substation 100,000
230 kV 23.0 kV
Total Transmission Demand 292,000 kW 292,000 kW
</TABLE>
6. DESCRIPTION OF POINTS OF INTERCONNECTION
(a) Vantage Substation
Location. The points in the BPA's Vantage Substation where the 230 W
facilities of the BPA and Grant County PUD are connected;
Voltage. 230 kV
Transmission Demand. 10/01/96 - 12/31/96 147,000 kW
01/01/97 - 03/31/97 167,000 kW
04/01/97 - 09/30/01 192,000 kW
Metering. Quantities to be scheduled
Delivering Party/Resource. PanEnergy
Control Area.
24
Service Agreement No. 96MS-96109
<PAGE>
10/01/96 - 12/31/96: From: BPA/Cowlitz PUD/EWEB/Grant
PUD/PacifiCorp/Portland General Electric/Puget Sound Power and
Light/Washington Water Power to BPA
01/01/97 - 03/31/97: From BPA/Cowlitz PUD/EWEB/Grant
PLTD/PacifiCorp/Portland General Electric/Puget Sound Power &
Light/Washington Water Power to BPA
04/01/97 - 09/30/01: From BPA/Cowlitz PUD/EWEB/Grant
PUD/PacifiCorp/Portland General Electric/Puget Sound Power &
Light/Washington Water Power
(b) Rocky Reach Substation
Location. The points in the BPA's Rocky Reach Substation where the 230
kV facilities of the BPA and Chelan County PUD are connected;
Voltage. 230 kV
Transmission Demand. 10/01/96 - 03/31/96: 75,000 kW
04/01/97 - 09/30/01: 100,000 kW
Metering. Quantities to be scheduled
Delivering Party/Resource. PanEnergy
Control Area.
10/01/96 - 03/31/97: From: BPA/Douglas PUD/PacifiCorp/Portland General
Electric/Puget Sound Power and Light/Washington Water Power/Chelan PUD
to BPA
04/01/97 - 09/30/01: From BPA/Douglas PUD/PacifiCorp/Portland General
Electric/Puget Sound Power & Light/Washington Water Power/Chelan PUD
to BPA
25
Service Agreement No. 96MS-96109
<PAGE>
7. DESCRIPTION OF POINTS OF DELIVERY
(a) Network Point of Delivery
Harvalum Point of Delivery.
Location. The points in the BPA's Harvalum Substation where the 23 kV
facilities of BPA and the Transmission Customer are connected.
Voltage. 23 kV
Metering. in the 23 kV facilities through which such electrical power
and energy flows.
Loss Adjustment. If applicable, BPA will adjust for transmission
losses between the Transmission Customer's point of receipt and point
of metering. Such adjustments shall be specified in written
correspondence between BPA and the Transmission Customer.
Exceptions.
8. MAXIMUM AMOUNT OF CAPACITY (TRANSMISSION DEMAND)
10/01/96 - 12/31/96: 222,000 kW
01/01/97 - 03/31/97: 242,000 kW
04/01/97 - 09/30/01: 292,000 kW
9. DESIGNATION OF PARTY SUBJECT TO RECIPROCAL SERVICE OBLIGATION
Transmission Customer (if they own transmission facilities.)
10. NAME(S) OF ANY INTERVENING SYSTEMS PROVIDING TRANSMISSION SERVICE
None
11. TRANSMISSION LOSS FACTORS
Network Facilities: 1.9 percent of kWh delivered
Delivery Transformations: 0.6 percent of kWh delivered
ET: 1.9 percent
26
Service Agreement No. 96MS-96109
<PAGE>
12. SHORT DISTANCE DISCOUNT
[0.6 + (0.4 x transmission distance/75)]
Not Applicable
13. FACILITY COSTS FOR WHICH THE TRANSMISSION CUSTOMER IS RESPONSIBLE
UFT Charges: (See Exhibit H)
Other Charges
14. ANCILLARY SERVICES PROVIDED
(a) Energy Imbalance. Provided by: BPA
(b) Control Area Reserves for Resources. Provided by the resource
provider.
(c) Load Regulation. Provided by: BPA
(d) Transmission Losses.
The Transmission Customer shall obtain sufficient power to compensate BPA
for losses incurred over the FCRTS. This shall be accomplished by
multiplying the amount of power delivered under this Service Agreement from
such resources, other than federal power for `which the cost for
transmission losses is included in the rate for such power, by applicable
Loss Factors and [1] adding the resulting amount to the billing factor for
the Transmission Customer's purchases of federal power; [2] purchasing the
resulting amount from BPA under the APS rate schedule for Transmission
Losses; or [3] providing the resulting amount itself or by arrangement with
a third party and scheduling it to BPA at the Point of Delivery 168 hours
after the deliveries for which the losses were incurred.
The Transmission Customer shall notify BPA of its method of compensation
for losses, in writing, 30 days prior to the first day of October, each
year during the term of this Service Agreement.
Transmission Customer's Method of Compensation of Losses: Goldendale
shall purchase Transmission Losses from BPA at a rate of 14.25
mills/kWh for the period 10/1/96 - 09/30/97.
27
Service Agreement No. 96MS-96109
<PAGE>
Exhibit D
Contract No. DE-MS79-95BP94762
COLUMBIA ALUMINUM
TRANSMISSION LOSS FACTORS
-------------------------
A. Losses Resulting From Transmission Pursuant to the Integration of Resources
(IR) Rate Schedule.
Loss Factor
1.6%
B. Losses Resulting From Nonfirm Transmission Pursuant to the Energy
Transmission (ET) Rate Schedule.
Loss Factor
1.6%
1
<PAGE>
Exhibit E
Contract No. DE-MS79-95BP94762
COLUMBIA ALUMINUM
REQUEST AND RESPONSE PROCEDURES
Bonneville agrees to enter into this Exhibit E to provide a contractual
process and standards for the Customer comparable to that available under
sections 211 and 212 of the Federal Power Act and the Regional Transmission
Associations -- because Customer is not currently eligible for membership in the
RTAs and is not eligible to make a section 211 request.
1. DEFINITIONS.
When capitalized herein, whether in singular or plural, the following terms
shall have the following meaning:
1.1 Arbitrator. An individual selected to resolve disputes under this
Agreement (including this Exhibit E to the Agreement).
1.2 Available Transmission Capacity. That amount of transmission capacity
on Bonneville's Transmission System available to Bonneville, at the
time such requested service would commence, to provide the
transmission service requested by Customer that is not reasonably
required to accommodate transmission service for Bonneville's: (i)
Native Load; (ii) existing contractual commitments for firm wholesale
purchases, firm exchanges, firm deliveries, and firm sales, including
the Pacific Northwest Coordination Agreement or its successor; (iii)
Firm Transmission Service; (iv) Prudent Reserves to support (i), (ii),
and (iii) above; and (v) other pending potential uses of Bonneville's
transmission to the extent reasonable and consistent with
then-applicable FERC standards.
1
<PAGE>
1.3 Award. A decision of an Arbitrator pursuant to this Agreement.
1.4 Bonneville's Transmission System. Bonneville's Transmission System
shall include the FCRTS, and facilities over which Bonneville has any
contractual transmission rights.
1.5 Existing Facilities. Those transmission facilities owned by
Bonneville, or transmission capacity under contract to Bonneville,
which as of the proposed effective date of the requested service under
the Good Faith Request, have been used, or will have been used, to
transmit federal or non-federal electric energy.
1.6 Firm Transmission Service. Transmission services that Bonneville by
treaty, statute, contract, or federal policy or regulation, has the
firm obligation to plan, construct or operate its system to provide.
Firm Transmission Service includes firm service over the FCRTS needed
to assure adequate and reliable service to nonfederal loads in the
Pacific Northwest, as that region is defined in subsection 3(14) of
the Pacific Northwest Electric Power Planning and Conservation Act (16
U. S. C. subsection 83 9a(14)), where not included in Native Load.
1.7 FERC. The Federal Energy Regulatory Commission or a successor agency.
1.8 FPA. The Federal Power Act as it may be amended from time to time.
1.9 Incremental Facilities. Transmission facilities, other than Existing
Facilities, that are reasonably required to satisfy a request for
transmission service from Customer.
1.10 Interconnection. Incremental Facilities connecting the systems of two
or more utilities.
2
<PAGE>
1.11 Native Load. Existing and reasonably-forecasted customer load,
including Customer's load, for which Bonneville by treaty, statute,
contract, or federal policy or regulation, has the obligation to plan,
construct, or operate its system reliably.
1.12 Northwest Power Pool. A reliability organization for the Northwest
Interconnected Area.
1.13 Northwest Interconnected Area. The area consisting of the States of
Oregon, Washington, and Idaho, the portion of the State of Montana
west of the Continental Divide, and such portions of the States of
Nevada, Utah, and Wyoming as are within the Columbia River drainage
basin; and any contiguous areas, not in excess of seventy-five air
miles from the just described area, which are a part of the service
area of a rural electric cooperative customer served by the Bonneville
on the effective date of this Agreement which has a distribution
system from which it serves both within and without such area; and the
provinces of British Columbia and Alberta.
1.14 Prudent Reserve. An amount of transmission capacity (on an hourly,
on-peak/off-peak, seasonal, or other time basis as is necessary)
reserved for Bonneville's reasonable reliability requirements as
determined by Bonneville's reliability criteria, standards, guidelines
and operating procedures, which shall be consistent with Prudent
Utility Practice and regional reliability council criteria, and which
shall be impartially applied without undue discrimination.
1.15 Prudent Utility Practice. Those practices, methods, and acts,
including levels of reserves and provisions for contingencies, as may
be modified from time to time, that are generally accepted in the
Northwest Interconnected Area to plan, design, and operate electric
systems in a manner that is dependable, reliable, safe,
3
<PAGE>
efficient, economical, and in accordance with all applicable laws and
governmental rules, regulations and orders, or which in the exercise
of reasonable judgment considering the facts known when engaged in,
could have been expected to accomplish the desired result at a
reasonable cost consistent with applicable law, reliability,
efficiency and economy.
1.16 Transmission Services. The Transmission Services over the FCRTS made
available to Customer under this Agreement shall be transmission of
power, energy or other energy products for delivery to Customer's
Facilities for consumption. The Customer may request additional
transmission services including the following:
(a) Customer may request POI(s), and associated Transmission
Demand(s), at the non-network terminus of the Southern, Northern,
or Eastern Interties.
(b) Customer may request a POD(s), other than at the location of
Customer Facilities, for the purpose of reselling power which
cannot be consumed in Customer's Facilities.
(c) Customer may request a Total Transmission Demand in excess of
that allowed by subsection 4 of this Agreement.
(d) Customer may request transmission services other than IR.
Requests for service under this Exhibit E and Bonneville's
responses thereto shall be subject to the procedures and
standards of Exhibit E provided only that requests for
Transmission Demand in excess of that allowed by section 4 of
this Agreement shall be subject to Bonneville's precedent and
policy of providing transmission capacity to its direct service
customers in excess of their Contract Demand.
4
<PAGE>
2. REQUESTS FOR TRANSMISSION SERVICE.
2.1 Service to be Provided. Upon request by Customer and subject to the
terms of this Agreement, Bonneville shall provide Transmission
Services to Customer from its Available Transmission Capacity on its
Existing Facilities, or from Incremental Facilities where necessary,
to Customer on the same basis that Bonneville provides such services
to similarly-situated entities eligible for FERC-ordered service under
FPA sections 211 and 212.
2.2 Request for Service. Customer shall provide to Bonneville information
regarding its request for transmission service, consistent (to the
extent applicable) with, either the FERC's then-current policy
regarding such request (as currently embodied in its "Policy Statement
Regarding Good Faith Requests for Transmission Services") or as
otherwise mutually agreed. A request for transmission services which
is consistent with this subsection shall be deemed a "Good Faith
Request" for transmission services for purposes of this Agreement.
2.3 Response to Request for Transmission Service.
2.3.1 Bonneville shall respond to a request for transmission services
from Customer in a manner consistent with responses to Good Faith
Requests under section 212 of the FPA and FERC's then-current
policies (as presently embodied in its "Policy Statement
Regarding Good Faith Requests for Transmission Services").
2.3.2 Bonneville may elect to provide the requested transmission
service without further study, or may elect to conduct a study,
including any
5
<PAGE>
environmental studies, if such are reasonably required by statute
to determine:
(i) whether Bonneville has sufficient Available Transmission
Capacity to provide the requested service initially and for
the full term of the request; and
(ii) what Incremental Facilities, if any, are required to
accommodate the requested service.
If Bonneville and Customer agree, such study may be conducted by
a third party; provided, however, Bonneville shall retain the
authority to accept or reject the study's conclusions.
Bonneville's reasonable study costs shall be billed to and paid
by Customer based upon Bonneville's estimate of such costs. Any
reconciliation for over or underpayment shall be done upon
completion of the study work. Such study shall be completed
within a reasonable time period consistent with FERC's
then-current policies. Failing agreement between Bonneville and
Customer on a reasonable period of time for and scope of such
studies, the dispute resolution procedures may be invoked by
either Party. Bonneville shall be responsible for conducting the
study with participation and input from Customer. The results of
the study, to the extent Customer has not requested confidential
treatment, shall be made available to the Customer and to any
other DSI or Member of the Northwest RTA, provided that such
other DSI or Member reimburses Customer for a reasonable share of
its costs.
2.3.3 Subject to the requirements of the National Environmental Policy
Act or other applicable environmental laws, if Bonneville is able
to provide the
6
<PAGE>
requested transmission service without further study or if the
study, demonstrates that the requested service can be provided
using Existing Facilities, then Bonneville shall promptly tender
amendments to this contract to Customer and take all other
actions reasonably necessary to effectuate service.
2.4 Requests Requiring Upgrades, Additional Facilities or
Interconnections.
2.4.1 If Bonneville concludes, based on a study performed pursuant to
subsection 2.3.2, that Bonneville does not have sufficient
Available Transmission Capacity to provide the requested
service initially or for the term of the request, then
Bonneville's study shall include at a minimum: (i) a detailed
description of the Incremental Facilities which are necessary
to provide the requested service; (ii) the estimated cost of
and cash flow requirements for installing the Incremental
Facilities; (iii) the estimated time necessary to build the
Incremental Facilities, including the estimated time required
for environmental studies, licensing and regulatory approvals;
(iv) the estimated incremental capacity added to the
transmission system by the Incremental Facilities; and (v)
whether Customer will be expected or required to contribute
capital in connection with installing the Incremental
Facilities. If requested, Bonneville will also provide a list
of any other requests or Bonneville forecasted uses that
contributed to the insufficiency of Available Transmission
Capacity.
2.4.2. If Bonneville's study demonstrates a need for a transmission
Interconnection with another entity, then Bonneville shall make
a good faith effort to arrange a joint study with the other
entity to evaluate the impact of such an Interconnection.
2.4.3 If Bonneville's study demonstrates a need for and the
feasibility
7
<PAGE>
of building Incremental Facilities and if Customer elects to
proceed with its request for transmission services, then
Bonneville shall be obligated to build the Incremental Facility
and provide the requested service; provided that Bonneville's
obligation to build and provide service is subject to
applicable law. Bonneville shall provide notice of the project
to all other DSIs and to the manager of the Northwest RTA.
3. PRICING.
Pricing of Transmission Services by Bonneville to integrate Customer's
Resource to its load under this Agreement shall be pursuant to IR-93 and
its successor. If Bonneville offers other Transmission Services, pricing
for such services shall be at the rates applicable to other users of the
same services.
4. PURCHASE AND RESALE SERVICES.
Bonneville and Customer acknowledge that in some instances, an arrangement
in which Bonneville purchases power for resale to Customer may be
preferable to Bonneville wheeling non-federal power to Customer. Therefore,
Bonneville shall make best efforts to purchase power, energy or other
energy services, as specified by Customer as to supplier, amount, term,
shape, and other criteria, and resell such power, energy or other energy
services to Customer for Customer's own use at a price equal to
Bonneville's purchase costs for the power plus Bonneville transmission
charges that would have been applicable if Customer had directly purchased
such power, energy or other energy services. Bonneville may also impose a
reasonable brokerage fee for this service.
5. TRANSMISSION ON NON-FEDERAL SYSTEMS.
8
<PAGE>
Bonneville shall make best efforts to request and purchase transmission
services identified by Customer, on Customer's behalf, from Northwest RTG
members, Westwide RTG members, or from any transmitting utility under
sections 211 and 212 of the Federal Power Act. Customer shall reimburse
Bonneville for all of the costs incurred in complying with this provision.
6. DISPUTE RESOLUTION.
6.1 Scope of Dispute Resolution. The scope of dispute resolution under
this Agreement shall include all disputes arising under this
Agreement, including but not limited to, disputes concerning amounts
and location of Available Transmission Capacity; need for and costs of
Incremental Facilities and interconnection facilities; costs, prices,
and terms and conditions of requested transmission services and
interconnection facilities; and estimates of the nature, extent, total
cost, schedule, and proposed allocations of costs associated with
studies, including environmental analyses, proposed in response to a
request for service; and including, unless expressly waived, disputes
arising under transmission agreements requested, offered or signed
pursuant to this Agreement.
6.2 Preconditions to Arbitration.
6.2.1 Each Party shall use best efforts to settle all disputes
arising under this Governing Agreement. In the event any such
dispute is not settled, any disputing Party may request in
writing that the Manager of the Northwest RTA (or
alternatively, the head of the Northwest Power Pool) appoint an
impartial facilitator to aid the disputing Parties in reaching
a mutually-acceptable resolution to the dispute; such
appointment shall be made within ten days of receipt of the
request. The facilitator and representatives of the disputing
Parties with authority to settle the dispute shall meet within
21 days after the facilitator has been appointed to
9
<PAGE>
attempt to negotiate a resolution of the dispute. Settlement
offers shall not be admissible in any subsequent dispute
resolution process or in any other forum. With the consent of
all disputing Parties, resolution may include referring the
matter to a technical body (such as the Northwest Power Pool
Transmission Planning Committee) for resolution or an advisory
opinion.
6.2.2 If the disputing Parties have not succeeded in negotiating a
resolution of the dispute within 30 days after first meeting
with the facilitator or if the facilitator is not appointed
within ten days pursuant to subsection 6.2.1, such Parties
shall be deemed to be at an impasse and any such disputing
Party may commence the dispute resolution process by submitting
a written notice to the other Party.
6.3 Arbitration Process.
6.3.1 Within 14 days of a disputing Party's request that the
arbitration process be commenced, each disputing Party shall
submit a statement in writing to the other disputing Party,
which statement shall set forth in reasonable detail the nature
of the dispute, the issues to be arbitrated, and the proposed
Award sought through such arbitration proceedings. To the
extent the disputing Parties do not agree on the terms of a
requested contract for Interconnection or Transmission
Services, each submittal shall include proposed contract
language for those issues in dispute.
6.3.2 Within ten days following the submission of their statements,
the disputing Parties shall select an Arbitrator who shall be
familiar with and knowledgeable about the policies and criteria
used in the Northwest interconnected Area transmission systems
and regulatory requirements. If the disputing Parties cannot
agree upon an Arbitrator, the disputing Parties shall take
turns striking names from a list of ten qualified individuals
10
<PAGE>
supplied by the Northwest RTA Manager (or alternatively the
head of the Northwest Power Pool) from the list maintained by
the Northwest RTA Board with a disputing Party chosen by lot
first striking a name. The last-remaining name not stricken
shall be designated as the Arbitrator. If that individual is
unable or unwilling to serve, the individual last stricken from
the list shall be designated and the process repeated until an
individual is selected who is able and willing to serve. Absent
the express written consent of all disputing Parties as to any
particular individual, no person shall be eligible for
selection as an Arbitrator who is or was, past or present, an
officer, member of the governing body, employee of or
consultant to any of the disputing Parties, or of an entity
related to or affiliated with any of the disputing Parties, or
whose interests are otherwise affected by the matter to be
arbitrated. Any individual designated as an Arbitrator shall
make known to the disputing Parties any such disqualifying
relationship and a new Arbitrator shall be designated in
accordance with the provisions of this subsection.
6.3.3 The Arbitrator shall cause to be published in the Northwest RTA
newsletter and electronic bulletin board a notice of the
dispute with sufficient detail to inform potential intervenors
of the disputed issues.
6.3.4 The Arbitrator shall determine discovery procedures,
intervention rights, how evidence shall be taken, what written
submittals may be made, and other such procedural matters,
taking into account the complexity of the issues involved, the
extent to which factual matters are disputed and the extent to
which the credibility of witnesses is relevant to a resolution
of the dispute. Each party to the dispute shall produce all
evidence determined by the Arbitrator to be relevant to the
issues presented. To the extent such evidence involves
proprietary or confidential information, the Arbitrator shall
issue an appropriate protective order which shall be
11
<PAGE>
complied with by all Parties to the dispute. The Arbitrator may
elect to resolve the arbitration matter solely on the basis of
written evidence and arguments.
6.3.5 The Arbitrator shall grant intervention only to Parties that
have a commercial power or transmission interest in the
dispute. Intervening Parties shall have the same procedural
rights as Disputing Parties to the dispute. "Parties" refers to
both Disputing Parties and Intervening Parties. Absent the
agreement to the contrary of all disputing Parties, no entity
shall be permitted to intervene unless, as a condition of its
intervention, it agrees to be bound by these dispute resolution
provisions, including the provisions related to deference on
appeal set forth in subsection 6.6.4.
6.3.6 The Arbitrator shall consider all issues underlying a dispute
including, if relevant, whether Bonneville's reliability
criteria, standards, guidelines and operating procedures are
reasonably consistent with Prudent Utility Practice, after
giving consideration to consistently applied regional or
national reliability standards, guidelines or criteria;
provided, that Bonneville's reliability criteria, standards,
and guidelines, and operating procedures for maintaining system
reliability which were in effect and in writing as of July 1,
1993, or that are consistent with the provisions of reliability
criteria, standards, guidelines, and operating procedures of
the North American Electric Reliability Council and the WSCC
which govern the planning, design, and operation of Members'
transmission systems, but not the applicability, consistent
application or interpretation of such criteria, standards,
operating procedures and guidelines in regard to a particular
request, shall be afforded a rebuttable presumption of
reasonableness and consistency with Prudent Utility Practice by
the Arbitrator. Bonneville's reliability criteria, standards,
guidelines and operating procedures shall be consistently
applied by Bonneville to its
12
<PAGE>
own use of its system and to Customer's request to use such
system pursuant to a request for interconnection or
Transmission Services.
6.3.7 The Arbitrator shall take evidence submitted by the Parties in
accordance with procedures established by the Arbitrator and
may request additional information, including the opinion of
recognized technical bodies. Parties shall be afforded a
reasonable opportunity to rebut any such additional
information.
6.4 Substantive Standards and Decision. The Arbitrator shall apply to any
dispute arising from a request for service the standards that FERC
would apply to a request for FERC ordered service under FPA sections
211 and 212. As soon as practicable, but in no event later than 115
days of his or her selection as Arbitrator, the Arbitrator shall
select, by written notice to the Parties, the proposed Award of a
disputing party which best meets the terms and intent of this
Agreement and conforms with the FPA and FERC's then-applicable
standards and policies for FERC-ordered service; provided, however, if
the Arbitrator concludes that no proposed Award is consistent with
this Governing Agreement, the FPA, and FERC's then-applicable
standards and policies, or addresses an issues in dispute, the
Arbitrator shall specify how each proposed Award is deficient and
request that the Parties submit within twenty (20) days new proposed
Awards that cure the deficiencies stated by the Arbitrator. A written
decision, including specific findings of fact, explaining the basis
for the Award shall be provided by the Arbitrator Awards will be based
only on the evidence on the record before the Arbitrator. The decision
shall be published in the NWRTA newsletter or on the electronic
bulletin board. No Award that is not appealed shall be deemed to be
precedential in any other arbitration related to a different dispute.
6.5 Compliance and Costs.
13
<PAGE>
6.5.1 Immediately upon the decision by the Arbitrator, the disputing
Parties shall take whatever action is required to comply with
the selected Award to the extent the selected Award does not
require regulatory action and no party seeks appeal. To the
extent the Award requires local or federal approval or
regulatory action, Bonneville shall promptly submit and support
that portion of the Award with the appropriate authority. Any
and all costs associated with the arbitration (not including
the Parties' costs associated with attorney costs and expert
witness fees) shall be borne by the Party or Parties whose
proposed Award was not selected, unless the Parties agree to an
alternate method of allocating costs.
6.6 Bonneville Rate Proceedings. In case of a dispute arising under this
Agreement concerning a Bonneville rate for requested Interconnection
or Transmission Services ("Bonneville Rate Issue Dispute"):
6.6.1 Except as otherwise provided in this subsection, this
subsection 6.6 shall apply to a Bonneville Rate Issue Dispute
in lieu of subsection 6.3, 6.4, 6.5 of this Agreement;
provided, that if Bonneville has by Federal Register notice
initiated a hearing under subsection 7(i) of the Pacific
Northwest Electric Power Planning and Conservation Act
(Northwest Power Act) to establish, or to review and revise, a
rate or rates of general applicability for FERC-ordered
transmission services, and the Bonneville Rate Issue Dispute
involves the appropriateness or application of such rate or
rates to the Customer's request for Bonneville Transmission
Services, then for purposes only of Customer's request for
Bonneville Transmission Services a separate subsection 7(i)
proceeding shall be held in accordance with the procedures of
this subsection 6.6 to resolve that particular Bonneville Rate
Issue Dispute unless the Arbitrator determines that (1) the
separate 7(i) proceeding would frustrate the ongoing 1(i)
proceeding and (2) resolution
14
<PAGE>
of the Bonneville Rate Issue Dispute in the ongoing 7(i)
proceeding would not materially frustrate the Customer's need
for an expeditious decision.
6.6.2 Where the rate would have been subject to review and
determination by FERC under subsection 212(i)(1) of the FPA if
the rate dispute and any related good faith dispute over
Transmission Services had been timely brought before FERC by an
entity eligible to request FERC-ordered service under
subsection 211 of the FPA, then pricing of Interconnection or
Transmission Service by Bonneville in response to Customer
request shall conform to subsection 212(i)(1)(ii) of the FPA
and then-applicable standards and policies of FERC.
6.6.3 A hearing on a Bonneville Rate Issue Dispute shall be held
which comports in all respects with subsection 7(i) of the
Northwest Power Act and other applicable requirements of
Federal law, including any applicable requirements of the
National Environmental Policy Act, with the addition that:
(i) following compliance with the preconditions to arbitration
set forth in subsection 6.2 of this Governing Agreement,
and within 14 days of a disputing Party's ensuing request
that the hearing process be commenced, each disputing
Party shall submit a statement in writing to the other
disputing Party, which statement shall set forth in
reasonable detail the nature of the Bonneville Rate Issue
Dispute, the issues to be raised in the hearing, and the
proposed rate(s) sought through such hearing;
(ii) Bonneville shall within 14 days of its receipt of the
disputing Party's written statement prepare and submit for
publication a Federal Register notice that in addition to
meeting the requirements
15
<PAGE>
of Northwest Power Act subsection 7(i)(1), also sets forth
the statements or notifies the public of their
availability;
(iii) the Hearing Officer/Arbitrator (hereafter Hearing
Officer) shall be selected as specified in subsection
6.3.2 of this Governing Agreement, which selection shall
be officially recognized by Bonneville;
(iv) with the exception of any legally required process for
taking participant comments, the hearing shall be held in
Portland, Oregon, and in the Bonneville Rates Hearing Room
if available, unless an alternative location is agreed to
by all Parties to the hearing;
(v) the Hearing Officer shall comport with subsections 6.3.4,
6.3.6 and 6.3.7 of this Governing Agreement, unless
inconsistent with the procedural provisions of subsection
7(i) of the Northwest Power Act or the National
Environmental Policy Act;
(vi) the Hearing Officer shall, unless violative of subsection
7(i) of the Northwest Power Act or the National
Environmental Policy Act, conduct the hearing in a manner
calculated to ensure that no more than 115 days elapses
from the date of the publicly noticed pre-hearing
conference to the date of the Administrator's final
decision pursuant to subsection 7(i)(5) of the Northwest
Power Act;
(vii) the Hearing Officer shall, unless the Hearing Officer
becomes unavailable, make a recommended decision to the
Administrator that (a) best meets the terms and intent of
this Governing Agreement, subsection 212(i) of the FPA and
FERCs then-
16
<PAGE>
applicable standards and policies for FERC-ordered
service, and (b) sets forth the Hearing Officer's findings
and conclusions, and the reasons or basis thereof, on all
material issues of fact, law, or discretion presented on
the record;
(viii) in the case of rates described in subsection 6.6.2 above,
the Administrator shall afford deference to the Hearing
Officer's factual findings and determination of issues not
of first impression (i.e., matters previously decided by
FERC or a court of competent jurisdiction in cases
involving comparable facts and circumstances); and
(ix) the Administrator's final decision under subsection
7(i)(5) of the Northwest Power Act shall also set forth
the reasons for reaching any findings and conclusions
which may differ from those of the Hearing Officer, based
on the hearing record and the law.
6.6.4 FERC Appeal. Bonneville shall file its final rates decision
with FERC in accord with existing provisions of law and
regulation. A disputing party to an arbitration may apply to
FERC to appeal or protest that aspect of any Award relating to
Bonneville's rate. Any appeal to FERC shall be based solely
upon the record assembled by the Arbitrator, provided, however,
that any order by an Arbitrator excluding material from the
arbitration record or which is alleged to violate due process
may be explicitly appealed to FERC. Bonneville and the
Customer, in the case of Bonneville rates described in
subsection 6.6.2 above, intend that FERC should afford
deference to the Hearings Officer factual findings and
determinations of issues not of first impression (i.e., matters
previously decided by FERC or a court of competent jurisdiction
in cases involving comparable facts and circumstances).
17
<PAGE>
6.7 Appeal to Claims Court. A disputing party to an arbitration may apply
to the U.S. Claims Court to hear an appeal of that aspect of any Award
relating to terms and conditions of requested service or a breach of
this Agreement. Upon finding that any terms and conditions are
inconsistent with this Agreement or that Bonneville has breached this
Agreement, the Claims Court shall remand to the Arbitrator for any
further determinations and decisions.
7. EFFECTIVE DATE AND TERM.
7.1 This Exhibit shall become effective when (1) the Agreement is signed
by Bonneville and the Customer, and (2) after Bonneville becomes a
member of either the Westwide RTA or Northwest RTA.
7.2 This Exhibit shall have a term concurrent with the Agreement except as
provided in subsection 12(b).
18
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Exhibit F
Contract No. DE-MS79-95BP94762
COLUMBIA ALUMINUM
STABILITY RESERVE SCHEMES
-------------------------
1. Import Contingency Load Tripping Schemes: Remedial Action Scheme for the
loss of the AC Intertie and Remedial Action Scheme for the loss of the DC
Intertie.
2. Bellingham Area Load Tripping Scheme.
3. Conkelley Area Load Tripping Scheme.
1
<PAGE>
Amendatory Agreement No. 1 to
Contract No. DE-MS79-95BP94762
AUTHENTICATED
AMENDATORY AGREEMENT
executed by the
UNITED STATES OF AMERICA
DEPARTMENT OF ENERGY
acting by and through the
BONNEVILLE POWER ADMINISTRATION
and
COLUMBIA ALUMINUM CORPORATION
This AMENDATORY AGREEMENT, executed 9/14/1995, by the UNITED STATES OF
AMERICA (Government), Department of Energy, acting by and through the BONNEVILLE
POWER ADMINISTRATION (Bonneville), and COLUMBIA ALUMINUM CORPORATION (Columbia
Aluminum), a corporation of the State of Washington, each of which may be
referred to herein individually as "Party" or collectively as "Parties".
WITNESSETH:
WHEREAS, Bonneville and Columbia Aluminum, entered into Contract No.
DE-MS79-95BP94762, (which as the same may be amended or replaced is hereinafter
referred to as the General Transmission Agreement);
WHEREAS, according to its terms the General Transmission Agreement
continues in effect until the fifth anniversary of the Effective Date of the
General Transmission Agreement;
1
<PAGE>
WHEREAS, the Parties to the General Transmission Agreement are willing to
extend the General Transmission Agreement until the twentieth anniversary of the
Effective Date of the General Transmission Agreement; and
WHEREAS, Bonneville is authorized pursuant to law to dispose of electric
power and energy generate d at various Federal hydroelectric projects in the
Pacific Northwest or acquired from other resources, to construct and operate
transmission facilities, to provide transmission and other services, and to
enter into agreements to carry out such authority;
NOW THEREFORE, the Parties hereto mutually agree as follows:
1. This Agreement shall become effective upon its execution by both
Parties.
2. Upon the fifth anniversary of the Effective Date of the General
Transmission Agreement, the term "fifth anniversary" in Section 1(a)
of such General Transmission Agreement shall be replaced with the term
"twentieth anniversary" such that the General Transmission Agreement
shall continue in effect until 2400 hours on the twentieth anniversary
of the Effective Date, and that the terms of the General Transmission
Agreement shall govern transmission services provided thereunder for
the additional 15 year period.
2
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement.
UNITED STATES OF AMERICA
Department of Energy
Bonneville Power Administration
By: /S/ SYDNEY D. BERWAGER
-----------------------------------
Name: Sydney D. Berwager
-------------------------------
(Print/Type)
Title: Account Executive
-------------------------------
Date: August 31, 1995
--------------------------------
COLUMBIA ALUMINUM CORPORATION
By: /S/ KENNETH D. PETERSON JR.
---------------------------
Name: Kenneth D. Peterson Jr.
---------------------------
(Print/Type)
Title: Chief Executive Officer
---------------------------
Date: 9/14/94
---------------------------
3
<PAGE>
[LOGO]
Department of Energy
Bonneville Power Administration
P.O. Box 3621
Portland, Oregon 97208-3621
SALES AND CUSTOMER SERVICE
September 30, 1996
Gerald F. Miller
VP Energy & Government Affairs
Goldendale Aluminum Company
1111 Main, Suite 710
Vancouver, WA 98660
Dear Mr. Miller:
The Bonneville Power Administration (BPA) desires to provide transmission
service starting on October 1, 1996 and Goldendale Aluminum Company desires to
receive such requested transmission service. However, the parties have not yet
executed a final agreement of the Network Integration Transmission Service
Agreement (Service Agreement), Contract No. 96MS-96109 (draft date 9/27/96) for
such service. Consequently, BPA and Goldendale Aluminum Company agree to the
following until such Service Agreement is executed:
BPA shall:
1. Initiate transmission service beginning 2400 hours, September 30, 1996
pursuant to the terms and conditions specified in the above mentioned
unexecuted Service Agreement.
2. BPA shall bill Goldendale Aluminum Company for transmission services
pursuant to the terms and conditions of the Service Agreement.
Goldendale Aluminum Company shall:
1. Comply with the terms and conditions specified in the above mentioned
Service Agreement.
2. Compensate BPA for the Transmission Service in accordance with the
Service Agreement and the Tariff.
BPA and Goldendale Aluminum Company agree to operate according to these
standards: starting on 2400 hours, September 30, 1996 and ending on the earlier
of (a) execution of the Service Agreement or (b) 2400 hours, March 31, 1997. The
parties will negotiate, in good faith, all unresolved issues to produce a final
draft of the Service Agreement.
<PAGE>
2
If Goldendale, Aluminum Company agrees with the statements in this letter,
indicate by signing below and returning one copy with original signatures to me
within five (5) working days.
UNITED STATES OF AMERICA
Department of Energy
Bonneville Power Administration
By GARY L. FUQUA
---------------------------------
Senior Account Executive
Name Gary L. Fuqua
----------------------------
(Print/Type)
Date SEP 30 1996
----------------------------
CONCURRENCE:
GOLDENDALE ALUMINUM COMPANY
By GERALD. F. MILLER
-------------------------------
Name Gerald F. Miller
--------------------------
(Print/Type)
Title Vice President Energy
--------------------------
Date September 30, 1996
--------------------------
Enclosure
<PAGE>
Exhibit H, Page ___ of ___
Service Agreement No. MS96-96106
Goldendale Aluminum Company
Effective on 2400 hours on
September 30, 1996
USE-OF-FACILITIES CHARGE
<TABLE>
<CAPTION>
I&A(1) I&A O&M(2)
Annual Annual Annual
Facility Investment Cost Ratio Cost Cost Demand $/kW/yr
-------- ---------- ---------- -------- ------ ------- --------
(3) (4) (kW)
<S> <C> <C> <C> <C> <C>
Substation $ % $ $ $
Total Use-of-Facilities Charge () = $/kW/mo
</TABLE>
- ---------------
(1) Investment and amortization.
(2) Operations and maintenance.
(3) Based on ACR table dated 6/2/95, column 8 minus column 5 for substation
category.
(4) Based on O&M table dated 6/2/95.
1. CHANGES TO THE USE-OF-FACILITIES CHARGE
(a) Changes in Costs and Demands This Exhibit H may be revised annually to
reflect changes in: (1) the yearly noncoincidental demands on the
facility under this Service Agreement and other agreements; (2)
changes in I&A annual cost ratio; (3) changes in O&M annual cost; and
(4) changes in the general transfer agreement costs, if applicable.
Any changes in the costs or demands used in calculating the
use-of-facilities change in this Exhibit I are subject to the dispute
resolution provisions of section 6.
(b) Limits on Changes in Use of Facilities Charge Through September 30,
2001, the sum of the annual costs for I&A annual cost O&M annual cost,
and the cost of general transfer agreements, if applicable, used in
calculating the use of facilities charge shall not exceed a limit
equal to 150 percent of such total annual cost specified in the
initial Exhibit H as adjusted for changes
28
Service Agreement No. 96MS-96109
<PAGE>
Exhibit H, Page ___ of ___
Service Agreement No. MS96-96106
Goldendale Aluminum Company
Effective on 2400 hours on
September 30, 1996
in investments. The formula used for determining the use of facilities
charge shall not change from the formula used in developing the
initial Exhibit H.
2. NEW INVESTMENTS IN FACILITIES SERVING THE COMPANY
(a) Use-of-Facilities Charge. If new investments are proposed by BPA and
agreed to by the Company in accordance with the provisions of sections
11 and 12 of the PTP Tariff such investments shall be used in the
use-of-facilities charge under this Service Agreement.
(b) Change in Rate Test Limit. If BPA makes such new investments, the
limit on the use-of-facilities charge specified in section 1(b) of
this Exhibit H shall be proportionately increased to reflect such new
investments.
29
Service Agreement No. 96MS-96109
Contract No. 95MS-94854
September 18, 1995
POWER SALES AGREEMENT
between the
UNITED STATES OF AMERICA
DEPARTMENT OF ENERGY
acting by and through the
BONNEVILLE POWER ADMINISTRATION
and
COLUMBIA ALUMINUM CORPORATION
Index to Sections
- --------------------------------------------------------------------------------
Section Page
1. Effective Date and Term......................................... 3
2. Deliveries of Firm Power Between the Effective Date
and Commencement Date....................................... 3
3. Commencement of Deliveries of Firm Power........................ 4
4. Termination of Prior Contract and Other Contracts............... 4
5. Termination of This Agreement................................... 5
6. Definitions..................................................... 9
7. Exhibits; Interpretation........................................ 16
8. Contract Revisions and Waivers.................................. 17
9. Purchase and Sale of Annual Take-or-Pay Firm Energy............. 18
10. Monthly, Weekly, Daily, and Hourly Amounts of Firm Power........ 19
11. Rate Test Compliance............................................ 22
12. Rates and Charges............................................... 23
13. Billing and Payment............................................. 23
14. Relief from Take-or-Pay Obligation.............................. 26
15. Unauthorized Increase Charges................................... 28
16. Changes in Firm Power Amounts................................... 29
17. Reserves........................................................ 29
18. Curtailment or Remarketing...................................... 35
19. Load Regulation, Unbundled Products, and Other
Transmission Products....................................... 42
20. Provisions Relating to Delivery of Firm Power................... 44
21. Assignment of Agreement......................................... 44
22. Dispute Resolution.............................................. 45
23. Force Majeure................................................... 48
Contract No. 95MS-94854
<PAGE>
Index to Sections
- --------------------------------------------------------------------------------
Section Page
24. Notices......................................................... 50
25. Hold Harmless................................................... 50
26. Damages for Failure by BPA to Deliver........................... 51
27. Obligations During Performance of This Agreement................ 52
28. Third Parties................................................... 52
26. Severability.................................................... 52
30. Entire Agreement................................................ 53
31. Signature Clause................................................ 54
Exhibit A (General Contract Provisions)...................... 16
Exhibit B (Fees for Remarketing)............................. 16
Exhibit C (Rate Schedule).................................... 16
Exhibit D (Monthly Amounts of Firm Power).................... 16
Exhibit E (Points of Delivery)............................... 16
Exhibit F (Unrecoverable Costs and Transfer Costs)........... 16
Exhibit G (Stability Reserve Scheme(s))...................... 16
Exhibit H (Arbitration Procedures)........................... 16
Exhibit I (Use-of-Facilities Charge)......................... 16
This POWER SALES AGREEMENT, executed ____________________, 1995, by the
UNITED STATES OF AMERICA (Government), Department of Energy, acting by and
through the BONNEVILLE. POWER ADMINISTRATION (BPA or Bonneville), and COLUMBIA
ALUMINUM CORPORATION (Company), a corporation incorporated under the laws of the
State of Washington. BPA and the Company are hereinafter sometimes referred to
individually as "Party" and collectively as "Parties."
W I T N E S S E T H:
WHEREAS pursuant to section 5(d) of the Pacific Northwest Electric Power
Planning and Conservation Act (Northwest Power Act), BPA is authorized to sell
power to the Company; and
WHEREAS on August 25, 1981, BPA and the Company entered into Contract No.
DE-MS79-81BP-90352, hereinafter referred to as "Prior Contract"; and
WHEREAS this Agreement provides for the termination of the Prior Contract;
and
Contract No. 95MS-94854
2
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WHEREAS BPA desires to sell, and the Company desires to purchase, Firm
Power pursuant to the terms and conditions of this Agreement; and
WHEREAS the Company and BPA have entered into an Integration of Resources
transmission agreement, Contract No. 95MS-94762 (IR Transmission Agreement),
which provides for transmission of non-Federal power; and
WHEREAS BPA is authorized pursuant to law to market electric power and
energy generated at various Federal hydroelectric projects in the Pacific
Northwest or acquired from other resources, to construct and operate
transmission facilities, to provide transmission and other services, and to
enter into agreements to carry out such authority;
NOW, THEREFORE, the Parties hereto agree as follows:
1. EFFECTIVE DATE AND TERM
(a) Effective Date This Agreement shall become effective on the date that
it is executed by BPA.
(b) Term
This Agreement shall continue in effect until 2400 hours on September
30, 2001, unless terminated earlier as provided herein. All
obligations incurred hereunder shall be preserved until satisfied.
2. DELIVERIES OF FIRM POWER BETWEEN THE EFFECTIVE DATE AND COMMENCEMENT DATE
During the period between the Effective Date and the Commencement Date, the
Prior Contract shall govern the sale of Firm Power by BPA to the Company;
provided, however, that, as of the Effective Date, the Company shall have
no obligation under section 2(b)(1) of the Prior Contract to reimburse BPA
for any costs, unrecoverable or otherwise, and provided further, that
section 2(b)(2) limitations
Contract No. 95MS-94854
3
<PAGE>
on the Company's right to purchase electric power shall be of no further
application and shall terminate.
5 3. COMMENCEMENT OF DELIVERIES OF FIRM POWER
Deliveries of Firm Power shall commence on the later of October 1, 1996, or
the date that FERC provides interim approval of a Rate Schedule that
satisfies the Rate Test; provided, however, that the Company may waive in
writing its right to terminate this Agreement under section 5(a)(2)(A) and
thereupon deliveries of Firm Power shall commence in accordance with the
provisions of this Agreement.
4. TERMINATION OF PRIOR CONTRACT AND OTHER CONTRACTS
(a) Effective on the Commencement Date, the Prior Contract shall
terminate, if it has not previously been terminated and all
obligations of the Parties under the Prior Contract shall terminate,
except for the Company's liability to pay for power delivered under
the Prior Contract prior to the Commencement Date. If the Commencement
Date has not occurred by October 1, 1996, then, in addition to any
other right to terminate, the Company may terminate the Prior Contract
upon 7 days' written notice to BPA. Such notice may be given anytime
after October 1, 1996, and prior to the Commencement Date.
(b) In addition to termination of the Prior Contract pursuant to section
4(a), the following contract(s) shall terminate effective on the
Commencement Date:
Contract No. 95MS-94854
4
<PAGE>
Contract No. DE-MS79-78BP90090 (1978 IRE Agreement)
Contract No. DE-MS79-94BP94438 (Interim IRE Agreement)
All liabilities accrued by either Party under any agreement listed in
this section 4(c) are preserved until satisfied.
5. TERMINATION OF THIS AGREEMENT
(a) Excused Termination The Company shall have the right to terminate this
Agreement, subject to the following terms:
(1) Conditions Over Which BPA Has Control That Allow for Excused
Termination The Company may terminate this Agreement upon 7 days'
notice to BPA if any one of the following events occur:
(A) if BPA issues a final Record of Decision in the 1996 Rate
Case that proposes a Rate Schedule which is applicable to
this, Agreement and which fails to satisfy the Rate Test;
(B) if by September 1, 1996, BPA has failed to file a Rate
Schedule with FERC that is applicable to this Agreement and
satisfies the Rate Test;
(C) if, within 180 days of the remand of the Rate Schedule by
FERC or a court to BPA, BPA does not propose revised rates,
including a Rate Schedule that satisfies the Rate Test; or
if
Contract No. 95MS-94854
5
<PAGE>
FERC fails to approve such Rate Schedule; or such Rate
Schedule is subsequently disapproved by a court;
(D) if at any time, BPA acts or fails to act so as to entitle
the Company to terminate pursuant to section 22 of this
Agreement; or
(E) if after breach by BPA, as determined under section 22 or by
a Federal Court, BPA has not cured the breach within 30 days
following such determination.
(2) Conditions Over Which BPA Does Not Have Control That Allow for
Excused Termination The Company may terminate this Agreement upon
7 days' notice to BPA if either of the following events occur:
(A) if by September 30, 1996, FERC has failed to approve, on an
interim or final basis, a Rate Schedule that is applicable
to this Agreement and satisfies the Rate Test; or
(B) if any term, covenant, or condition of this Agreement or the
Rate Schedule or the performance of such term, covenant, or
condition, is held to be invalid or unenforceable, or
enjoined by an order of a court, and such order is not
stayed, pending any appeals; provided, however, that if only
one or both of: (i) section 18(b)(2)(B) of this Agreement,
and (ii) a contract entered into pursuant to section
18(b)(2)(B) of this Agreement, is held to be invalid or
unenforceable, then such order shall not permit the Company
to terminate this Agreement under this section 5(a)(2).
Contract No. 95MS-94854
6
<PAGE>
(b) Obligations Upon Expiration or Termination
(1) Obligations Upon Expiration or Termination for Any Reason Upon
expiration of this Agreement at 2400 hours on September 30, 2001,
or upon termination of this Agreement pursuant to section 5(a),
or for any other reason, the following terms and conditions shall
apply:
(A) BPA shall make the BPA substation and/or transmission
facilities whose primary purpose is to serve the Company's
load available for use of the Company for deliveries of
power from BPA, or from third parties under BPA's
then-current transmission tariffs.
The Company will reimburse BPA pursuant to the terms and
conditions of Exhibit F for the unrecoverable cost, if any,
in BPA substation or transmission facilities whose primary
purpose is to serve the Company's load during the life of
this Agreement, to the extent that BPA cannot mitigate such
cost. Continued transmission service at the same level of
service as purchases hereunder through and at such
facilities under BPA's then-current transmission tariffs is
mitigation for unrecoverable cost under this Agreement.
If BPA does not have another use at the site for such
facilities to serve other BPA customers, and the Company
makes an offer to purchase such facilities for the
unamortized investment in the facilities as determined
pursuant to Exhibit F plus the appraised value of the
property on which the facilities are located, and BPA
rejects the offer, then the Company shall not be required to
reimburse BPA for any unrecoverable costs pursuant to
Exhibit F.
Contract No. 95MS-94854
7
<PAGE>
(B) If the Company is served by transfer over third-party
facilities, the Company shall pay any amount BPA is
obligated to pay the third party under the transfer
arrangement, pursuant to the terms and conditions of Exhibit
F.
(C) If BPA proposes new investments in substation or
transmission facilities whose primary purpose is to serve
the Company's load, and the Company consents to such
investment, Exhibit F will be amended to include such
investments. The Company's consent to such investments shall
not be unreasonably withheld.
(2) Obligations After Expiration or Termination Pursuant to Section
5(a)(1) After expiration of this Agreement, or if the Company
terminates this Agreement pursuant to section 5(a)(1), then BPA
shall not charge, except to the extent specified in section
5(b)(1), the Company or a third party doing business with the
Company any amount, charge, or fee of any nature whatever based
on the purchases made by the Company under this or any prior
power purchase agreements between the Company and BPA or based on
the termination or reduction of the amount of power purchased by
the Company under this Agreement or any such prior agreements.
Nothing in this Agreement is intended to imply that the Company
would have any obligation to pay such charges under any
circumstances or to pay BPA any amounts except as expressly
provided in this Agreement. This provision is a material term and
essential to the Company having entered into this Agreement.
Contract No. 95MS-94854
8
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6. DEFINITIONS
(a) "Agreement" means this Power Sales Agreement, Contract No. 95MS-94854.
(b) "Commencement Date" means the date that deliveries commence under this
Agreement.
(c) "Contract Demand" means the maximum integrated hourly rate of delivery
that the Company may request under this Agreement and is equal to
294.75 megawatts. The Contract Demand shall not be increased except
through:
(1) a process conducted pursuant to section 5(d)(3) of the Northwest
Power Act that provides for BPA to acquire increased reserves
from its direct service industrial companies; or
(2) a technological allowance which BPA shall grant upon the
Company's demonstration to BPA that such allowance meets the
criteria for a technological allowance under the Prior Contract.
(d) "Contract Year" means the period that begins on October 1 and ends on
the following September 30.
(e) "Control Area" or "Load Control Area" means the electrical (not
necessarily geographical) area within which a controlling utility
operating under all North American Electric Reliability Council
standards has the responsibility to adjust its generation on an
instantaneous basis to match internal load and power flow across
interchange boundaries to other Control Areas. A utility operating a
Control Area is called a "controlling utility."
Contract No. 95MS-94854
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(f) "Demand" means the maximum integrated hourly rate of delivery during
each month of each Contract Year for Firm Power deliveries under this
Agreement, as specified in Exhibit D.
(g) "Effective Date" means the date that this Agreement is signed by BPA.
(h) "Event" means the period during which BPA restricts service to the
Company under this Agreement to obtain Operating Reserves or Stability
Reserves. The Event shall commence with the reduction in deliveries to
the Company under this Agreement due to a BPA request for Operating
Reserves or a transfer trip or signal that initiates Stability
Reserves restriction. Unless reinstated as provided herein, the Event
shall end when BPA's dispatcher notifies the Company that the load
restricted for such reserves can be restored to service.
Notwithstanding the foregoing, the Event will end (subject to
reinstatement as provided herein) when system conditions occur that
would result in tripping the Company for undervoltage or
underfrequency load shedding. Any BPA restriction or series of BPA
restrictions that makeup an SR Event shall be treated as part of a
single Event.
After an Event has ended, the Event shall be reinstated and continue
as follows:
(1) if the Event Magnitude was less than (Federal Load) x (15
minutes), then the Event shall be reinstated if BPA requests or
obtains Reserves from the Company again within 10 hours;
(2) if the Event Magnitude was equal to or greater than (Federal
Load) x (15 minutes), then the Event shall be reinstated if BPA
requests or obtains Reserves from the Company again within 21
hours;
Contract No. 95MS-94854
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(3) if the Event Magnitude was equal to or greater than (Federal
Load) x (30 minutes), then the Event shall be reinstated if BPA
requests or obtains Reserves again within 42 hours;
(4) if the Event Magnitude was equal to or greater than (Federal
Load) x (60 minutes), then the Event shall be reinstated if BPA
requests Reserves again within 84 hours; and
(5) if the Event Magnitude was equal to or greater than (Federal
Load) x (90 minutes), then the Event shall be reinstated if BPA
requests or obtains Reserves again within 126 hours.
(i) "Event Duration" means the total cumulative Event Minutes of the
Event.
(j) "Event Magnitude" means a value calculated for each Event as the sum
of: (Requested Operating Reserves x Event Minutes associated with the
use of Operating Reserves) + (Amount of Load Tripped for Stability
Reserves x duration of the SR Event in minutes) for each restriction
during the Event. The Event Magnitude shall not include loads
restricted pursuant to operating reserves and stability reserve rights
that BPA has under other contracts.
(k) "Event Magnitude Limit" means the Federal Load multiplied by 90
minutes.
(l) "Event Minute(s)" means the minute(s) of restriction (or any portion
thereof) during an Event.
(m) "Excess Firm Energy" means Firm Energy that would have been delivered
to the Company for service to its expected Plant Load but is excess
due to a reduction in the Company's actual Plant Load.
(n) "Federal Load" means an hourly amount of energy equal to the lesser of
(1) 50 percent of the Process Load operating immediately prior to the
Event,
Contract No. 95MS-94854
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or (2) 50 percent of the Firm Energy either scheduled to the Company,
remarketed to other Qualified Purchasers, used by BPA, or any
combination thereof.
(o) "FERC" means the Federal Energy Regulatory Commission, or its
successor,
(p) "Firm Energy" means the Federal energy that the Company has agreed to
purchase from BPA under this Agreement.
(q) "Firm Power" means the monthly amounts of Demand and Firm Energy (HLH
and LLH) purchased by the Company under this Agreement.
(r) "Heavy Load Hours" or "HLH" means those hours that begin at 6 a.m. and
end at 10 p.m., Monday through Saturday.
(s) "Light Load Hours" or "LLH" means all hours that are not HLH.
(t) "Material Plant Damage" means the inability of the Company to resume
industrial production at all or any portion of its plant because of
damage to plant production facilities resulting from a restriction;
for example, the inability to resume electrolysis in one or more pots
without rebuilding or substantially repairing such pot(s).
(u) "Non-Federal Service" means, for the purposes of section 18(a) of this
Agreement, the monthly amounts of demand, HLH energy and LLH energy
that the Company chooses to acquire from non-Federal entities to serve
a portion of its Plant Load during the term of this Agreement. The
Company agrees that such amounts must be supplied to the Plant Load.
The Company may purchase additional amounts of non-Federal energy that
will not be used in calculating the amount of curtailed energy
(v) "Occurrence" means a system condition that results in the need for
Reserves.
Contract No. 95MS-94854
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(w) "Operating Reserves" means nonspinning reserves, provided by the
Company under this Agreement, that are necessary to enable BPA either
to reestablish its load/resource balance after loss of generation or
transmission facilities, or to meet any of its other existing
nonspinning operating reserve obligations. Operating Reserves provided
under this Agreement shall not include, without limitation: (1)
Stability Reserves provided by the Company in this Agreement; (2)
operating reserves provided by the Company in any other contract; and
(3) any other reserves that BPA has acquired under other arrangements.
(x) "Plant Load" means the total electrical energy load at Company
facilities, eligible for BPA service during any given time period
whether the Company has chosen to serve its load with BPA power or
non-Federal power.
(y) "Process Load" means, for an aluminum facility or a chlor-alkali
facility, the electrolytic load.
(z) "Qualified Purchaser" shall mean a utility or entity which: (1) is
capable of performing the financial obligations undertaken for a sale
or for an option to buy; (2) meets BPA's standards of service,
including having an available transmission path; and (3) if required
by State or Federal law, the purchaser has received all necessary
approvals from appropriate regulatory bodies to conduct the
transaction with BPA.
(aa) "Rate Schedule" means the Industrial Firm Power Rate Schedule
(IP-96.5), the Point-to-Point Transmission Rate Schedule, exclusive of
the Delivery Charge therein (PTP-96.5), Ancillary Products and
Services Rate Schedule (APS-96), a rate schedule that includes the
fixed curtailment fee for the option specified in section 18(a), and
the General Rate Schedule Provisions established by BPA, and
applicable to sales under this Agreement. When
Contract No. 95MS-94854
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<PAGE>
such Rate Schedule has received interim or final approval by FERC,
then it shall be attached hereto as Exhibit C.
(bb) "Rate Test" means: (1) the calculation of whether the total average
price in mills per kilowatthour, using the Rate Schedule, to determine
if such total average price is less than or equal to the price
specified in section 11(a) of this Agreement; (2) the determination of
whether the fixed curtailment fee, for purposes of section 18(a) of
this Agreement, is less than or equal to the amount specified in
section 11(b); and (3) the determination of whether the
use-of-facilities charge, as may be revised pursuant to section
8(b)(2) and Exhibit I, is less than or equal to the amount determined
pursuant to section 11(c). The Rate Test is further described in
section 11 of this Agreement.
(cc) "Requested Operating Reserves" means the amount of Operating Reserves,
pursuant to section 17, that the BPA dispatcher requests the Company
to trip for purposes of providing Operating Reserves.
(dd) "Reserves" means the Stability Reserves and Operating Reserves
provided by the Company under this Agreement.
(ee) "SR Event" means the period during which BPA implements a Stability
Reserve restriction. An SR Event shall be an Event for all purposes.
The beginning of the SR Event shall be identified by a transfer trip
or other signal from BPA to the Company restricting delivery of energy
under this Agreement. Unless reinstated as provided herein, the end of
the SR Event shall be identified by the BPA dispatcher's notification
to Company that delivery of all energy to which Company is entitled
under this Agreement can be restored. Notwithstanding the foregoing,
the Event will end (subject to reinstatement as provided herein) when
system conditions occur that result in tripping the Company for
undervoltage or underfrequency load shedding. If such undervoltage or
underfrequency load shedding signal is received by
Contract No. 95MS-94854
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<PAGE>
the Company prior to Event Minute 3 of the SR Event, then the
restriction shall be deemed an event of Force Majeure until service is
restored.
After an SR Event has ended, the SR Event shall be reinstated and
continue as follows:
(1) if the SR Event duration was 5 Event Minutes or less, then the SR
Event shall be reinstated if BPA restricts deliveries to Company
pursuant to its Stability Reserve rights within 2 hours or less
of the last SR Event Minute;
(2) if the SR Event duration was more than 5 Event Minutes but not
more than 15 Event Minutes, then the SR Event shall be reinstated
if BPA restricts deliveries to Company pursuant to its Stability
Reserve rights within 4 hours or less of the last SR Event
Minute;
(3) if the SR Event duration was more than 15 SR Event Minutes but
not more than 22 Event Minutes, then the SR Event shall be
reinstated if BPA restricts deliveries to Company pursuant to its
Stability Reserve rights within 6 hours or less of the last SR
Event Minute; and
(4) if the SR Event duration was more than 22 Event Minutes, then the
SR Event shall be reinstated if BPA restricts deliveries to
Company pursuant to its Stability Reserve rights within 8 hours
or less of the last SR Event Minute.
(ff) "Stability Reserves" means those reserves, provided by the Company
under this Agreement, that are necessary to ensure the stability of
the Federal Columbia River Transmission System against losses of
transmission facilities pursuant to the scheme(s) in Exhibit G or any
additional scheme(s) adopted pursuant to section 17 herein. Stability
Reserves provided under this Agreement shall not include, without
limitation: (1) stability reserves
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provided by the Customer in the General Transmission Agreement or in
other agreements; (2) operating reserves or forced outage reserves
that BPA has acquired under this Agreement or under other agreements;
and (3) any other reserves that BPA has acquired under other
arrangements.
(gg) "Take-or-Pay Obligation" means the obligation, as Modified by section
14, of the Company to pay for the Firm Power purchased by the Company
under this Agreement. On an annual basis, the amounts of HLH and LLH
Firm Energy that the Company agrees to purchase from BPA is specified
in section 9(b) of this Agreement. The monthly amounts of HLH and LLH
Firm Energy shall be as specified in Exhibit D. The monthly Demand
amounts, for the purposes of this Take-or-Pay Obligation, shall be the
monthly Demand amounts specified in Exhibit D. If the calculation of
the Take-or-Pay Obligation for a Contract Year for which Demands are
not yet required to be specified under section 10(a) becomes relevant,
then the Demands for such Contract Year shall be calculated by
dividing the annual HLH Firm Energy, if any, for each such Contract
Year, as specified in section 9(b), by the number of HLH in a Contract
Year. Weekly, daily, and hourly amounts of HLH and LLH Firm Energy are
the amounts submitted by the Company pursuant to section 10 of this
Agreement.
7. EXHIBITS; INTERPRETATION
Exhibit A (General Contract Provisions), Exhibit B (Fees for Remarketing),
Exhibit C (Rate Schedule), Exhibit D (Monthly Amounts of Firm Power),
Exhibit E (Points of Delivery), Exhibit F (Unrecoverable Costs and Transfer
Costs), Exhibit G (Stability Reserve Scheme(s)), Exhibit H (Arbitration
Procedures), and Exhibit I (Use-of- Facilities Charge) are attached hereto
and made a part of this Agreement. If there is a conflict between the body
of this Agreement and any exhibit; then the body of this Agreement shall
prevail. If there is a conflict between Exhibit C and any other exhibit,
then all other exhibits shall prevail over Exhibit C.
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8. CONTRACT REVISIONS AND WAIVERS
(a) Amendments and Exhibit Revisions Except as otherwise expressly
provided to the contrary in this Agreement, the provisions of the body
of this Agreement may be amended only by the mutual written agreement
of the Parties hereto subsequent to the date of execution of this
Agreement.
(b) Exhibit Revisions
(1) Revision of Exhibits A through H Except as otherwise expressly
provided to the contrary in this Agreement, the provisions of
Exhibits A through H may be revised only by the mutual written
agreement of the Parties here to subsequent to the date of
execution of this Agreement.
(2) Revision of Exhibit I Exhibit I may be revised by BPA in the same
manner and under the same terms and conditions for revision of
the use-of-facilities charge under the IR Transmission Agreement,
as amended or replaced, except as limited by the terms and
conditions of Exhibit I.
(c) Waivers
(1) Failure by a Party to exercise any right, remedy, or option
hereunder or delay in exercising such right, remedy, or option
shall not operate as a waiver by such Party of its right to
exercise any such right, remedy, or option prior to the time such
right, remedy, or option expires by an express term of this
Agreement; nor shall such failure or delay by such Party operate
as a waiver of any, right, remedy or option that may arise from a
subsequent event under the relevant provisions of this Agreement.
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(2) The Parties may agree to waive any provision of this Agreement to
address temporary problems or unforeseen circumstances. Any such
waiver shall be in writing and shall clearly specify the period
of time for which the waiver is in effect. The consent of the
other Party to such a waiver shall not be unreasonably withheld.
No Party shall claim that the granting of a waiver sets a binding
precedent for future waivers, even if similar waivers are granted
throughout the term of this Agreement.
9. PURCHASE AND SALE OF ANNUAL TAKE-OR-PAY FIRM ENERGY
(a) Mutual Obligation BPA shall sell and deliver to the Company and the
Company shall purchase from BPA, for service to its Plant Load, annual
amounts of HLH and LLH Firm Energy on-a take-or-pay basis, as
specified in section 9(b).
(b) Annual Amounts of Firm Energy The Company shall purchase, during, each
Contract Year, the following annual amounts of HLH and LLH Firm
Energy:
<TABLE>
<CAPTION>
Firm HLH Energy Firm LLH Energy
Contract Year (megawatthours) (megawatthours)
------------- --------------- ---------------
<S> <C> <C>
1996-1997 591,002 436,600
1997-1998 985,117 737,962
1998-1999 980,448 742,631
1999-2000 1,223,226 826,669
2000-2001 1,339,946 915,377
</TABLE>
(c) Other Purchases This Agreement does not limit the Company's right to
purchase power from BPA, consistent with Federal statutes, under other
agreements, or to purchase power from third parties.
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(d) Minimum Demand for Transmission
A Company may elect to specify a minimum level of Demand for
transmission for any month for the remaining term of this Agreement at
the time the Company makes its submission of monthly amounts of Firm
Power. Any request to specify a minimum level of Demand made after
February 1, 1996, shall be subject to available transmission capacity
as described in section 10(a). The Company may assign any excess
minimum Demand for transmission consistent with terms for Assignment
of Transmission Service under BPA's Point-to-Point Transmission
Service Tariff. The amount of minimum Demand for transmission as
elected or assigned shall be specified in Exhibit D.
10. MONTHLY, WEEKLY, DAILY, AND HOURLY AMOUNTS OF FIRM POWER
(a) Monthly Amounts of Firm Power
Not later than the February 1, immediately prior to October 1 of each
Contract Year, the Company shall specify monthly amounts of Demand and
HLH and LLH Firm Energy for such Contract Year. The total of the
monthly amounts of HLH and LLH Firm Energy shall equal the annual
amounts specified in section 9(b) for such Contract Year. The Company
may set its Demand in each month in the 1996-1997 Contract Year at any
level up to its Contract Demand. Any increase in amounts of Demand for
a specific month in a later Contract Year above the greater of: (1)
the amount of Demand for such month in the previous Contract Year; or
(2) the minimum level of Demand for transmission specified in Exhibit
D; is subject to BPA's determination of available transmission
capacity. If additional generating resources integrated at points with
transmission capacity available to the Company's points of delivery
are available for BPA's use or purchase, then BPA shall determine that
transmission capacity is available under this Agreement. BPA shall
also treat as available any transmission capacity made available by
the Company to BPA through a reduction in demand under any other
transmission agreement with BPA. If BPA determines that
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firm transmission capacity is not available for the Company's request,
BPA will notify the Company within 60 days of the approved level of
Demand. Each Year, Exhibit D shall be revised to reflect the amounts
specified by the Company, consistent with this section 10(a).
(b) Weekly, Daily, and Hourly Amounts of Firm Power The Company shall
either: (1) provide advance submittals of weekly, daily, and hourly
amounts of Firm Energy and any Excess Firm Energy pursuant to section
10(b)(1), which will remain as submitted unless changed pursuant to
section 10(b)(2); or (2) provide such submittals pursuant to the terms
of section 10(b)(2) only.
(1) Advance Submittals of Weekly, Daily, and Hourly Amounts of Firm
Energy The Company may submit weekly, daily, and hourly amounts
in advance of, but not later than allowed under section 10(b)(2).
Such advance submittals shall specify HLH and LLH amounts of Firm
Energy to be delivered hereunder until the Company changes its
submittal. The Company may change any advance submittal pursuant
to section 10(b)(2). All advance submittals shall include a
beginning and ending hour.
(2) Submittals of Weekly, Daily, and Hourly Amounts of Firm Power
(A) Weekly Amounts of Firm Power
At least 2 months prior to the delivery month, the Company
shall provide BPA with its notice of weekly amounts of HLH
and LLH Firm Energy for each month. The total of the
Company's weekly amounts of HLH and LLH Firm Energy during a
month shall be equal to the monthly amounts specified in
Exhibit D for such month. For transition weeks
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(weeks that include days from the prior month or days from a
subsequent month), the Company shall identify the amounts of
HLH and LLH Firm Energy associated with each monthly period.
The Company may request a waiver to provide for changes in
weekly amounts of HLH and LLH Firm Energy on less than 2
months' prior notice, if the request is due to temporary or
unanticipated operational problems.
(B) Daily Amounts of Firm Power
No later than the Wednesday prior to the Sunday-through-
Saturday weekly delivery period, the Company shall provide
BPA with notice of its daily amounts of required HLH and LLH
Firm Energy. The sum for HLH and LLH of the daily amounts
for the week shall be equal to the weekly amounts. For
transition weeks, the Company shall identify the daily
amounts associated with each monthly period.
(C) Hourly Amounts of Firm Energy
The Company shall specify, orally or in writing, hourly
amounts of Firm Energy in whole megawatthours not later than
2 p.m. on the workday prior to the day or days of delivery.
Such specified amounts shall be scheduled amounts for all
purposes under this Agreement. The sum of the Company's
hourly amounts for HLH and LLH Firm Energy for the day shall
be equal to its daily amount for HLH and LLH Firm Energy.
The specified amount of LLH Firm Energy for any LLH shall
not be less than 50 percent of the Company's average hourly
amount of LLH Firm Energy for the day.
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11. RATE TEST COMPLIANCE
For purposes of the Company's right to terminate under section 5(a), the
Rate Test will be satisfied only if all of the following conditions
specified, in sections 11(a), 11(b), and 11(c) are met.
(a) Rate Test for Delivered Firm Power The total average price (excluding
the use-of-facilities charge) for Firm Power delivered to the Company
during each Contract Year, including all charges for Firm Energy;
Demand; reactive power; transmission on a point-to-point basis
(excluding the delivery charge); load regulation; and any other
applicable charge, is 22.1 mills per kilowatthour or less.
The total average price shall be calculated from the Rate Schedule by
summing all applicable charges as provided above for the purchase of
equal hourly amounts of delivered Firm Power for each hour of each
Contract Year of this Agreement, and dividing the resulting sum by the
total number of kilowatthours of such sale in the Contract Year. In
calculating the total average price, the calculation shall assume a
Plant Load equal to the delivered amounts used in the calculation, a
constant power factor of 0.98 lagging, and shall not assume any
purchase of load shaping products, any preschedule changes, any
remarketing of Excess Firm Energy, or any Unauthorized Increases. For
purposes of calculating the total average price, BPA shall use the
lowest firm transmission rate in the Rate Schedule for deliveries to
the Company's facilities.
(b) Rate Test for Fixed Curtailment Fee
The fixed curtailment fee in the Rate Schedule is less than or equal
to 5 mills per kilowatthour.
(c) Rate Test for Use-of-Facilities Charge
use-of-facilities charge The use-of-facilities charge specified in
Exhibit I is less than or equal to the use-of-facilities charge that
is used for deliveries of
Contract No. 95MS-94854
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<PAGE>
non-Federal power under the IR Transmission Agreement, and is
calculated pursuant to Exhibit I.
12. RATES AND CHARGES
(a) The rates and charges for all services provided by BPA under this
Agreement (exclusive only of charges for additional power or optional
services specifically requested by the Company) shall be as specified
in Exhibit B, and the Rate Schedule in Exhibit C, and Exhibit I, and
shall include no other fee or charge, other than those specified in
Exhibits, B C, and I. Such Rate Schedule shall not be revised except
as required in a remand order of FERC or a court upon direct review of
the Rate Schedule. Exhibit I may be revised pursuant to the provisions
of section 8(b)(2).
(b) If the Company specifies a minimum level of Demand for transmission
pursuant to section 9(d), the charge for the amount by which such
monthly minimum Demand for transmission exceeds the Demand in any
month shall be the Embedded Cost Network Charge under Rate Schedule
PTP-96.5.
13. BILLING AND PAYMENT
Bills for power shall be rendered monthly by BPA. Failure to receive a bill
shall not release the Company from liability for payment. If requested by
the Company, BPA will electronically transmit the Company's power bill to
the Company on the issue date of the bill, provided the Parties have
compatible electronic equipment. BPA may elect to electronically transmit
only that portion of the bill showing the amount owed. If the entire bill
is not provided by electronic means, BPA will also send the Company a
complete copy of its power bill by mail.
(a) Due Date
Bills shall be due by close of business on the 20th day after the date
of the bill (Due Date). This requirement also holds for revised bills
(see
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section 13(h)). If the 20th day is a Saturday, Sunday, or Federal
holiday, the Due Date shall be the next business day.
(b) Payments of $50,000 or More
(1) If the Company's monthly bill from BPA is $50,000 or more, the
Company must pay by wire transfer using procedures established by
BPA's Financial Services Group, unless the Company has obtained
the right to pay by mail as provided in section 13(b)(2). Wire
transfer amounts are due and payable on the Due Date.
(2) The Company may pay its bill by mail even if the amount exceeds
$50,000, provided the following conditions have been met:
(A) the Company gives BPA 30 days' notice of its intent to pay
by mail;
(B) The Company ensures that BPA receives full payment by the
above-stated Due Date; and
(C) the Company has not incurred late payment charges while
paying its bills by mail.
If the Company incurs a late payment charge while paying its
bills under this payment provision, BPA may rescind the
Company's right to pay bills of $50,000 or more by mail. The
Company would then be required to pay by wire transfer as
provided in section 13(b)(1).
(c) Payments of Less than $50,000
If the Company's monthly bill from BPA is less than $50,000, the
Company may pay the bill by mail. Payment for such bills will be
accepted as timely if the payment is postmarked by the Due Date.
Payments shall be mailed to:
Contract No. 95MS-94854
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<PAGE>
Bonneville Power Administration
P.O. Box 6040
Portland, OR 97228-6040
(d) Computation of Bills
Bills for products and services purchased under this Agreement shall
be rounded to whole dollar amounts, by eliminating any amount which is
less than 50 cents and increasing any amount from 50 cents through 99
cents to the next higher dollar.
(e) Estimated Bills
At its option, BPA may elect to render an estimated bill for a month
to be followed at a subsequent billing date by a final bill for that
month. Such estimated bill shall have the validity of, and be subject
to, the same payment provisions as a final bill.
(f) Late Payment
Bills not paid in full, on or before close of business on the Due Date
shall be subject to an interest charge of one-twentieth percent (0.05
percent), applied each day to the unpaid balance. This interest charge
shall be assessed on a daily basis until such time as the unpaid
amount is paid in full.
Remittances received by mail which are not required to be paid by wire
transfer will be accepted without assessment of the charges referred
to in the preceding paragraph of this section 13(f), provided the
postmark indicates the payment was mailed on or before the Due Date.
(g) Disputed Bills
In the event of a billing dispute, the Company agrees to note the
disputed amount and pay its power bill in full by the Due Date. The
amount billed is subject to late payment charges until paid in full.
If it is determined that the Company is entitled to a refund of any
portion of the disputed amount, then
Contract No. 95MS-94854
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<PAGE>
BPA will make such refund with interest computed from the date of
receipt of the disputed payment. Interest will be computed using an
interest rate of one- twentieth percent (0.05 percent) applied each
day to the disputed payment amount. BPA shall not be liable for
interest prior to the time the Company notifies BPA of the dispute.
Disputed bills are subject to the terms and conditions of section 22
of this Agreement.
(h) Revised Bills
As necessary, BPA may render revised bills. The date of a revised bill
shall be its issue date.
(1) If the amount of the revised bill is more than the amount of the
previous bill, the previous bill remains due on its Due Date, and
the additional amount is due on the Due Date of the revised bill.
(2) If the amount of the revised bill is less than the amount of the
previous bill, the obligation to pay the previous bill is
satisfied by payment of the revised bill on the Due Date of the
previous bill.
(3) If the revised bill changes the Party to whom money is due, the
previous bill is canceled and the amount owed the other Party is
due on the Due Date of the revised bill.
(4) If payment of the previous bill results in an overpayment, a
refund is due on the later of : (A) the Due Date of the revised
bill, or (B) 20 days after the receipt of the payment for the
original bill.
14. RELIEF FROM TAKE-OR-PAY OBLIGATION
(a) Hourly Amounts
BPA shall relieve the Company of its Take-or-Pay Obligation for any
hourly decrease in Firm Power usage below the scheduled amount of Firm
Power for
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<PAGE>
any hour, to the extent that such decrease is less than or equal to
the greater of 1 megawatt or 5 percent of the Firm Power scheduled for
such hour; provided, however, that BPA shall relieve the Company of
its Take-or-Pay Obligation for up to 15 percent of the Firm Power
scheduled for such hour, if the Company demonstrates to BPA that an
operational occurrence took place that caused a reduction in Plant
Load.
(b) Daily Amounts
BPA shall relieve the Company of its Take-or-Pay Obligation for any
daily decrease in Firm Power usage below the Company's daily amount of
HLH and/or LLH Firm Energy, to the extent that such decrease is less
than or equal to the greater of 1 average megawatt or 5 percent of the
daily HLH and/or LLH Firm Energy for the day.
(c) Monthly Amounts
BPA shall relieve the Company of its Take-or-Pay Obligation for any
monthly decrease in Firm Power usage below the Company's monthly
amount of HLH and/or LLH Firm Energy, to the extent that such decrease
is less than or equal to the greater of 1 average megawatt or 1
percent of the Firm Power specified in Exhibit D for such month.
(d) Maintenance Outage
In addition to any other relief provided herein, BPA shall relieve the
Company of its Take-or-Pay Obligation for any Firm Energy that cannot
be delivered due to an interruption pursuant to section 4(f) of
Exhibit A.
(e) Restricted Energy
The Company shall not be required to pay BPA the Rate Schedule energy
charge for the amount of energy restricted by BPA, or the amount of
energy the Company cannot use prior to the restoration of plant
operations following any such restriction.
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15. UNAUTHORIZED INCREASE CHARGES
(a) Measured Amounts in Excess of Scheduled Amounts
Measured Demand and Measured Energy, as those terms are defined in
Exhibit C, General Rate Schedule Provisions, which is not assigned to
classes of power delivered under other agreements, shall be deemed to
be a Firm Power delivery under this Agreement. In lieu of the Demand
and Firm Energy charges under the Rate Schedule, BPA will assess the
Unauthorized Increase charge specified in the Rate Schedule for any
hourly amount of Measured Demand or Measured Energy in excess of the
lesser of the amount scheduled for such hour or the Demand for any
HLH, to the extent that such hourly excess exceeds the larger of:
(1) 1 megawatt; or
(2) 1 percent of the scheduled amount of Firm Power on any such hour.
(b) Scheduled Amounts in Excess of Daily Amounts
BPA shall assess an Unauthorized Increase charge for any scheduled
daily amounts of HLH or LLH Firm Energy that exceeds the Company's
daily amount of Firm Energy for HLH or LLH established pursuant to
section 10(b)(2)(B).
(c) Firm Power Deliveries to Plant Load Dedicated to Non-Federal Service
BPA shall assess an Unauthorized Increase charge for any delivery of
Firm Power to Plant Load served by Non-Federal Service when the
Company has elected to curtail its purchases pursuant to section
18(a), unless, such deliveries are allowed under an applicable rate
schedule or under a separate agreement between the Parties.
Contract No. 95MS-94854
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16. CHANGES IN FIRM POWER AMOUNTS
(a) The Company may request, and BPA may, but shall not be obligated to
provide monthly or annual amounts of Firm Power that differ from the
amounts specified in Exhibit D.
(b) BPA shall not grant such request if the change shall cause BPA's Firm
Power obligation to exceed the Company's Contract Demand.
(c) If BPA grants the request, the changes shall be reflected in a
revision to Exhibit D to be executed by the Parties.
(d) The amounts of Firm Power in the revised Exhibit D shall be purchased
and sold at the applicable rates specified in Exhibit C of this
Agreement.
17. RESERVES
(a) Operating Reserves
In the event of an Occurrence requiring the use of Operating Reserves,
unless otherwise provided by separate agreement, the Company shall,
within 5 minutes of receiving an appropriate request from BPA, provide
Operating Reserves by reducing its Federal Load for up to 120 Event
Minutes as follows:
(1) Amount of Requested Operating Reserves
The amount of Requested Operating Reserves will be specified by
BPA in its request; provided that the amount of Requested
Operating Reserves shall not exceed the Federal Load at the time
of BPA's notice.
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(2) Use of Other Operating Reserves
BPA shall use all other operating reserves available to BPA,
including reserves available from parties other than direct
service industry, customers, prior to using Operating Reserves
under this Agreement.
(3) Company Failure to Respond to BPA's Request for Operating
Reserves
If the Company fails to respond to BPA's request for Operating
Reserves by voluntarily reducing its load to the level requested
within 5 minutes after BPA's request for Operating Reserves, BPA
may unilaterally restrict (Unilaterally Restrict(ed)) an amount
up to the Company's entire Process Load so that BPA can obtain
the Requested Operating Reserves in a timely manner; provided in
the event BPA Unilaterally Restricts the Company's load by
opening a circuit breaker, BPA shall open the circuit breaker
that results in the smallest load reduction necessary to achieve
BPA's Requested Operating Reserves. In the event that BPA
Unilaterally Restricts the Company's load, BPA will work with the
Company to restore service to the nonreserve portion of its load
as soon as practicable, but in any event within 90 minutes. BPA
will not provide compensation for any service in excess of the
Requested Operating Reserves Unilaterally Restricted due solely
to the Company's failure to respond in a timely manner to BPA's
request for Operating Reserves. In the event BPA Unilaterally
Restricts the Company's load, for purposes of calculating Event
Magnitude and liquidated damages, BPA shall be deemed to restore
non-BPA power service prior to restoring BPA power service. BPA
shall not unreasonably refuse to cooperate with the Company, at
the Company's expense, if the Company requests to install circuit
breakers, at the Company's expense, to allow for greater
flexibility in the amount of Company's load that would be
susceptible to a Unilateral Restriction.
Contract No. 95MS-94854
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(b) Stability Reserves
The Company shall provide Stability Reserves up to the hourly amount
of Firm Power delivered to the Company under this Agreement and for a
period of up to 30 Event Minutes per Event as provided herein.
(1) Amount of Stability Reserves
When necessary to provide Stability Reserves, BPA may restrict
deliveries of Firm Power under this Agreement to Company's
aluminum smelter Process Load for a period of UP to 30 Event
Minutes per Event pursuant to the scheme(s) listed in Exhibit G
and to Company's other loads under any additional scheme(s)
adopted pursuant to this section 17(b)(3); provided, that BPA
shall have the sole right to determine whether to restrict all or
part of Company's energy subject to restriction hereunder when an
SR Event occurs.
(2) Additional Installations
In the event that the Company makes less than 100 percent of its
Process Load available to BPA for Stability Reserves under this
Agreement or under other agreements, the Company shall pay all
costs for such additional installations as may be needed at the
Company's facilities or BPA's facilities used solely to serve the
Company to allow for the restriction of only a portion of the
Company's load.
(3) Additional Stability Reserve Schemes To the extent
BPA determines:
(A) the need for additional Stability Reserve scheme(s) not
listed in Exhibit G that would restrict, at a frequency and
duration similar to the scheme(s) listed in Exhibit G, the
energy subject to restriction under this Agreement,
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(B) the need to apply Stability Reserve schemes listed in
Exhibit G and additional Stability Reserve scheme(s) to
energy delivered under this Agreement to nonaluminum direct
service industries, or
(C) the need for modifications to the elements of schemes listed
in Exhibit G that would significantly change the expected
frequency or duration of restrictions, then:
(D) the Company agrees to cooperate in the development of such
scheme(s) and shall not unreasonably withhold its consent to
implementation of such scheme(s), at BPA's expense.
BPA shall consult with the Company on the need for such
schemes, the operational characteristics as they affect the
Company, and the additional compensation for such scheme(s)
(except for the application of the Stability Reserve schemes
listed in Exhibit G to energy delivered under this Agreement
to nonaluminum direct service industries) that BPA shall
pay, and;
BPA shall consider alternative methods and costs, including
purchases from entities other than direct service industry
customers, for obtaining such additional reserves.
(c) General Provisions
(1) Restoration of Service
Notwithstanding any other provision of this Agreement,, BPA shall
end the Event as soon as possible. The Company agrees to
cooperate in the development of mechanisms that will enhance
BPA's ability to notify the Company of the end of an Event.
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(2) No Right to Cause Material Plant Damage
Notwithstanding any other provision of this Agreement, including
the breach and damages provisions, BPA shall have no contractual
right under this Agreement which would cause the Company to incur
Material Plant Damage as a result of providing Reserves;
provided, BPA shall not be liable for damages for such Material
Plant Damage that occurred prior to reaching the Event Magnitude
Limit or prior to Event Minute 46 for an SR Event.
(3) Compensation for Reserves
The Company shall be compensated for providing reserves through
the credit in the applicable power rate in the Rate Schedule for
all Events with an Event Magnitude less than or equal to the
Event Magnitude Limit, and for all SR Events of an Event Duration
of 30 minutes or less.
(4) Liquidated Damages
The Parties acknowledge that restrictions beyond that allowed by
this Agreement may result in damage to and lost production by the
Company's production facilities prior to Material Plant Damage
and that such damage is difficult to quantify. Therefore the
Company may recover from BPA liquidated damages as follows:
(A) If an SR Event Duration exceeds 30 Event Minutes, then BPA
shall be liable to Company as follows:
(i) 200 mills per kilowatthour of restricted energy during
SR Event Minutes 31 through 45 (or portion thereof) of
an SR Event; and
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(ii) 400-mills per kilowatthour of restricted energy during
SR Event Minutes (or portion thereof), after SR Event
Minute 45 of an SR Event; or
(B) If the Event Magnitude of any Event exceeds the Event
Magnitude Limit; then BPA shall be liable to the Company for
200 mills per kilowatthour for each kilowatthour that the
Event Magnitude exceeds the Event Magnitude Limit.
Each megawatt of restricted load that is subject to both sections
17(c)(4)(A) and 17(c)(4)(B) shall be paid for at the highest
level specified under either section 17(c)(4)(A) or section
17(c)(4)(B), but shall not be paid for under both sections
17(c)(4)(A) and 17(c)(4)(B).
(5) Material Plant Damage In lieu of section 17(c)(4)(A)(ii) or
17(c)(4)(B), at the Company's option, if the SR Event Duration
exceeds 45 SR Event Minutes, or an Event exceeds the Event
Magnitude limit and the Company incurs, in its determination,
Material Plant Damage as a direct result of the restriction, then
as to the portion of its production facilities that suffers
Material Plant Damage, BPA and the Company agree that these
damages can be reasonably quantified and, therefore, for that
portion of its production facilities, the Company may recover
actual damages (excluding only lost production and lost profits).
Such actual damages shall not exceed $30 per kilowatt of plant
production facilities suffering Material Plant Damage. The
liquidated damages charges in sections 17(c)(4)(A)(ii) and
17(c)(4)(B) shall continue to apply to that portion of Company's
load which the Company does not determine has suffered Material
Plant Damage.
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BPA shall not be liable for any portion of Material
Plant Damage associated with restrictions to service
to the Company's load resulting from stability or
operating reserves which the Company provides to
others or provides for its own use. In the event that
Material Plant Damage is a result of a Company's load
being restricted under this Agreement and under other
agreement(s), between BPA and the Company or between
the Company and a third party (or parties), then BPA
shall be liable under this Agreement only for a
portion of the Material Plant Damage. BPA's share of
the Material Plant Damage under this Agreement shall
be based on the ratio of the Event Magnitude divided
by the sum of Event Magnitude and the number of
megawatt-minutes of such other restriction during, or
immediately before or after the Event.
(6) Makeup Power
At the Company's request, BPA shall sell and deliver
to the Company energy in excess of the amount shown
in Exhibit D (Makeup Power), at the applicable energy
charge only established for Firm Energy in the
Industrial Firm Power Rate in the Rate Schedule, to
the extent that such energy is needed by the Company
to restore its operations following a restriction.
Such Makeup Power shall not subject the Company to
any Unauthorized Increase, or other charge.
18. CURTAILMENT OR REMARKETING
The Company shall have a one-time option, at the time the Company makes
its first submission of monthly amounts of Firm Power pursuant to
section 10(a) of this Agreement, to either: curtail its purchases
pursuant to section 18(a); or remarket Excess Firm Energy pursuant to
section 18(b). Following the Company's election, BPA and the Company
shall operate under the terms and conditions of either section 18(a) or
section 18(b), as applicable.
Contract No. 95MS-94854
35
<PAGE>
(a) Curtailment of Excess Firm Energy for a Fixed Fee The Company may
curtail its Plant Load below the sum of its Take-or-Pay Obligation
plus any amount of Non-Federal Service the Company identifies at the
time it elects this curtailment option. BPA shall relieve the Company
of its Take-or-Pay Obligation for Demand and Firm Energy for any such
curtailed amounts and the Company shall pay BPA the fixed curtailment
fee in mills per kilowatthour for each kilowatthour of such curtailed
amounts, as specified in the Rate Schedule. Selection of this
curtailment option shall relieve the Company of its obligation to pay
the use-of-facilities charge specified in Exhibit I for amounts of
curtailed energy.
(1) The Company shall provide BPA as much notice as possible, but not
less than 48 hours, of any curtailment of Firm Power usage.
(2) If the Company chooses to use Non-Federal Service for part of its
Plant Load, the Company shall specify the monthly amounts of
demand, HLH energy, and LLH energy of Non-Federal Service, if
any, for the term of this Agreement. BPA shall not be obligated
to serve these specified monthly amounts, and any service to
these amounts shall be subject to an Unauthorized Increase
charge, as provided for in section 15(c).
(3) Curtailed energy shall be equal to the Company's Take-or-Pay
Obligation for Firm Energy reduced by the relief from take-or-pay
provisions of section 14, minus the Measured Energy for Firm
Power delivered under this Agreement.
(4) Election of this curtailment option operates to assign the
Company's tight to transmit an amount of energy equal to the
curtailed energy to BPA.
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<PAGE>
(b) Remarketing Excess Firm Energy Without a Fixed Fee
(1) Notice and Request to Remarket
The Company shall request that BPA remarket Excess Firm Energy by
notifying BPA of:
(A) the amount and minimum duration cf Excess Firm Energy to be
remarketed; and
(B) the manner pursuant to section 18(b)(2) in which the Company
wants BPA to remarket the Excess Firm Energy.
(2) Remarketing Options
The Company may select one or more of the following options for
remarketing Excess Firm Energy:
(A) The Company may identify one or more Qualified Purchasers
that have agreed to purchase some or all of the Excess Firm
Energy under specified terms and conditions at agreed-upon
prices or price formulas and for agreed-upon amounts and
durations. The Company shall provide BPA at least the notice
specified in section 18(b)(3) prior to the date that
deliveries are to begin under each proposed sale.
(B) The Company may arrange in advance for a Qualified
Purchaser(s) to purchase any Firm Power that becomes Excess
Firm Energy during any period for which the Company and a
Qualified Purchaser may agree. The Company shall provide BPA
at least the notice specified in section 18(b)(3) prior to
the date on which the prearrangement becomes effective. In
addition, the Company shall notify BPA a's required in
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<PAGE>
section 10(b) when deliveries are to begin under the
arrangement.
(C) The Company may request that BPA find purchasers for the
Excess Firm Energy. If the Company chooses, it may request
that BPA seek sales of specified amounts for daily, weekly,
monthly, or other specified durations, and the Company may
specify minimum prices or price ranges for the sales. BPA
and the Company shall agree on the price of the sale at the
time of the transaction unless the daily limitations in
section 18(b)(4)(E) apply. BPA shall promptly notify the
Company of the sales made on the Company's behalf.
(D) The Company and BPA may agree to a price for use in
crediting the Company's wholesale power bill under section
18(b)(4). BPA shall have discretion to dispose of or use
such Excess Firm Energy without regard to the procedures
associated with other options for disposal, and the Company
shall have no further rights with respect to such Excess
Firm Energy that is subject to such agreement.
(3) Applicability of Preference Provisions
Excess Firm Energy remarketed by BPA shall be subject to
applicable statutory provisions regarding preference. BPA shall
notify the Company within the time period specified below if BPA
or another Qualified Purchaser with public preference has elected
to perform the agreement.
Contract No. 95MS-94854
38
<PAGE>
<TABLE>
<CAPTION>
Minimum Maximum Period
Notice Period for BPA to Respond
Duration of Sale to Notify BPA to Company
---------------- ------------- ------------------
<S> <C> <C>
Up to 1 month 48 hours 24 hours
Up to 6 months 7 days 2 days
Over 6 months 14 days 7 days
Prearrangements under
section 18(b)(2)(B) 21 days 14 days
</TABLE>
(4) Crediting the Company's Wholesale Power Bill
(A) During months when Excess Firm Energy is being remarketed by
BPA, such power shall continue to be included in the amount
of Firm Power billed by BPA as if delivered to the Company.
(B) BPA may sell the Excess Firm Energy to the Qualified
Purchaser(s) as arranged by the Company under options
section 18(b)(2)(A) and section 18(b)(2)(B) or dispose of
such power on whatever alternative terms that BPA may
separately arrange. In either event, BPA shall credit the
Company for the Excess Firm Energy revenues based on the
price(s) agreed to between the Company and the Qualified
Purchaser(s) net of the amounts specified in section
18(b)(4)(C).
(C) BPA shall determine the revenues for Excess Firm Energy
delivered during a month by subtracting from the amount paid
by the Qualified Purchaser (or the amount agreed to be paid
or credited if BPA elects not to remarket to the Qualified
Purchaser, disposes of or uses the Excess Firm Energy under
section 18(b)(2)(D), or remarkets the Excess Firm Energy
under section 18(b)(2)(C)): (i) any applicable transmission
charges or losses specified in section 18(b)(4)(F); and (ii)
the remarketing fee, as specified in Exhibit B. The fee or
the pro rata share of the fee that the Company would have
paid to
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<PAGE>
another entity under a transaction under section 18(b)(2)(B)
shall be deducted from revenues when BPA elects to retain
the Excess Firm Energy for itself. No charges shall apply
under section 18(b)(4)(C)(i) and section 18(b)(4)(C)(ii)
when BPA uses such Excess Firm Energy for its own use or
disposes of such Excess Firm Energy under section
18(b)(2)(D).
(D) BPA shall credit the Company's wholesale power bill for
revenues from sales of Excess Firm Energy in the month in
which BPA uses such Excess Firm Energy for its own use or
disposes of such Excess Firm Energy under section
18(b)(2)(1)), BPA is paid for such Excess Firm Energy under
section 18(b)(2)(C), or BPA is paid for such Excess Firm
Energy by the Qualified Purchaser. If the amount of the
credit during any month exceeds the power bill amount, then
BPA shall pay the Company the amount of the difference.
(E) BPA shall credit the Company for sales made under section
18(b)(2)(C) on Company's behalf subject to the limitations
in this paragraph. For sales of 1 month duration or less, if
BPA notified the Company at the start of a transaction that
it was subject to daily remarketing limitations and BPA is
simultaneously remarketing power for the Company and selling
nonfirm energy on a daily basis, then the Company shall
receive credit for the energy that BPA remarkets on the
Company's behalf on such days at BPA's average sale price
for nonfirm energy (including remarketed energy) for such
day; provided, however, BPA shall have no obligation to
credit the Company at such average daily price to the extent
that the total amount of Excess Firm Energy remarketed under
similar contract provisions for the Company and other
entities
Contract No. 95MS-94854
40
<PAGE>
providing for daily remarketing limitations exceeds the
following limits:
<TABLE>
<CAPTION>
If BPA's actual daily average
sales (excluding remarketed Limit to total amount of
amounts) are: remarketed energy:
------------------------------------------- ------------------------
equal to or greater but less than
than (aMW) (aMW)+ (aMW)
------------------- ------------- ------------------------
<S> <C> <C>
0 600 25% of BPA actual sales
600 1,000 200
1,000 1,500 250
1,500 3,000 300
3,000 4,000 400
4,000 5,000 500
5,000 - - 600
</TABLE>
In the event the above limits are exceeded, the Company
shall be credited for its pro rata share of remarketed
energy at the average daily price. All sales of remarketed
energy for each day under the daily remarketing limitations
shall be considered made under a single active schedule to
determine remarketing fees. Sales of remarketed energy under
the daily remarketing limitations shall be considered made
over the southern intertie during the months of April
through July, and in the Pacific Northwest during other
months. The Company may request that BPA remarket the
remainder of its Excess Firm Energy at the best available
price for additional energy, or the Company may arrange to
store the Excess Firm Energy for sale at another time. BPA
shall not discriminate against the Company in the storage or
disposal of such remaining Excess Firm Energy.
(F) There are no additional transmission charges for Excess Firm
Energy except when:
(i) BPA incurs incremental transfer costs, including
losses,
Contract No. 95MS-94854
41
<PAGE>
(ii) the Qualified Purchaser receiving delivery would have
paid a charge for low-voltage delivery higher than the
charge, if any, paid by the Company.
The Company shall pay such incremental costs. Any
deliveries of Excess Firm Energy over BPA's interties
shall be charged BPA's standard intertie tariffs.
Losses will be valued at the price of the remarketed
power.
19. LOAD REGULATION, UNBUNDLED PRODUCTS, AND OTHER TRANSMISSION PRODUCTS
(a) Purchase of Load Regulation
If the Company is within BPA's Control Area, or if BPA provides load
regulation services to the Company through a third party, the Company
shall purchase load regulation from BPA. The charge for load
regulation shall be as specified in Exhibit C.
(b) Moving Out of BPA's Control Area
The Company may elect to discontinue the purchase of load regulation
from BPA by notifying BPA of its intent to either:
(1) establish its own Control Area consistent with the
then-applicable requirements of the North American Electric
Reliability Council (NERC), the Western Systems Coordinating
Council (WSCC), and the Northwest Power Pool (NWPP); or
(2) locate in another Control Area operating in accordance with NERC,
WSCC and NWPP standards.
Contract No. 95MS-94854
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<PAGE>
(c) Schedule for Changing Control Areas
(1) Upon notice by the Company that the Company intends to move out
of BPA's Control Area, BPA shall use best efforts to effectuate
the change of Control Area within a reasonable period of time
from the date of request, provided, however, that the Company
obtains the full cooperation of any third party to take all steps
required for BPA to accomplish the change consistent with
applicable NERC, WSCC, and NWPP standards.
(2) Within a reasonable time, which may be less and shall not exceed
60 days following receipt of the Company's notice of intent to
change Control Areas, BPA shall provide the Company with:
(A) an estimate of the schedule for making the necessary
changes, and
(B) an estimate of the costs that BPA will incur in making the
required changes.
(3) BPA shall continue to charge the Company for load regulation,
until the date that another Control Area assumes full Control
Area responsibility.
(4) If the Company moves out of BPA's Control Area, the Parties shall
schedule Firm Power in accordance with then-existing WSCC
scheduling practices. The Parties shall amend the appropriate
provisions of this Agreement to reflect such practices.
(d) Unbundled Products and Other Transmission Services BPA shall offer to
the Company the ancillary services, the network integration
transmission product, the point-to-point transmission product,
Contract No. 95MS-94854
43
<PAGE>
and the intertie transmission products that BPA offers to its utility
customers. BPA may offer to the Company other unbundled services. If
the Company elects to purchase such products, the Parties agree to
amend the appropriate provisions of this Agreement.
(e) Eccentric Loads
None of the Company's facilities operating as of the Effective Date
shall be billed as Eccentric Loads.
(f) Unbundling of Assignability in the Point-to-Point
Transmission Rate If BPA offers a point-to-point transmission rate
schedule that offers the right to purchase point-to-point transmission
that is not assignable, the Company shall be eligible to take service
under such schedule if the Company chooses to purchase such product.
The Parties agree to amend the appropriate provisions of this
Agreement to provide for transmission charges for Excess Firm Energy
remarketed over BPA's network facilities at BPA's standard tariffs for
point- to-point service.
20. PROVISIONS RELATING TO DELIVERY OF FIRM POWER
(a) Delivery to Company's Firm Load
BPA shall deliver Firm Power to the Company's firm load at the
Point(s) of Delivery specified in Exhibit E.
(b) Other Provisions Relating to Delivery
Other provisions relating to delivery shall be as specified in Exhibit
A.
21. ASSIGNMENT OF AGREEMENT
This Agreement shall inure to the benefit of, and shall be binding upon the
respective successors and assigns of the Parties. This Agreement or any
interest herein may be transferred or assigned by either Party to another
only upon the written consent of the other Party, which shall not be
unreasonably withheld, except
Contract No. 95MS-94854
44
<PAGE>
as specifically provided in this section. The consent of BPA is hereby
given to: (a) any assignment to a successor in interest of the Company that
agrees to perform the obligations of the Company under this Agreement; and
(b) any security assignment or other like financing instrument which may be
required under terms of any mortgage, trust, security agreement or holder
of such instrument of indebtedness made by and between the Company and any
mortgagee, trustee, secured party, subsidiary of the Company or holder of
such instrument of indebtedness, as security for bonds or other
indebtedness of such Company, present or future. Such mortgagee, trustee,
secured party, subsidiary, or holder may realize upon such security in
foreclosure or other suitable proceedings, and succeed to all right, title,
and interests of such Company.
21. DISPUTE RESOLUTION
(a) The Parties intend by this Agreement to create contract rights and
obligations to be interpreted to carry out the mutual intent of the
Parties expressed herein and that such rights and obligations shall be
enforceable, to the maximum extent consistent with existing statutes,
like any other commercial contract.
(b) If a dispute arises between the Parties regarding the terms,
conditions, or performance of obligations under this Agreement, then
the Parties shall continue performance under this Agreement pending
resolution of such dispute. Parties shall first seek to resolve any
dispute by settlement prior to giving notice of initiation of an
arbitration under this Agreement.
(c) Upon the written notice from either Party to the other Party, any and
all disputes arising under the terms of this Agreement or out of
performance under this Agreement are subject to arbitration on any
issue, including without limitation, issues of fact, any law relating
to performance under this Agreement, and contract interpretation.
Contract No. 95MS-94854
45
<PAGE>
(d) The Company and BPA shall agree to a set of procedures for the conduct
of any arbitration under this section 22 by February 1, 1996, and
shall attach such procedures as Exhibit H to this Agreement. In the
event the Company and BPA have not agreed to a set of procedures prior
to a notice of a dispute under this section 22, then the arbitration
procedures, for commercial arbitration of the CPR Institute for
Dispute Resolution (Non-Administered Arbitration Rules) shall be used
for that dispute.
(e) The Parties agree that all material related to plant technology, plant
operations or to proving damages which is submitted by the Company to
BPA, the arbitrator or any other party in any dispute under this
Agreement is confidential. The Parties shall jointly request a
protective order from the arbitrator:
(1) preserving the confidentiality of such material;
(2) limiting its use to such proceeding; and
(3) requiring its return to Company at the conclusion of the
proceeding.
BPA agrees not to voluntarily disclose any such information outside of
the agency and agrees to restrict access to and use of such
information to employees necessary to and for purposes associated only
with the conduct of such proceeding. If requested to provide such
information to any Federal agency or Congress, BPA shall inform the
agency or Congress of the confidential nature of the information and
request that the agency or Congress retain the information as
confidential. BPA shall also inform the Company of the request prior
to complying with the request. Responding to any such request shall
not be a breach of this Agreement.
(f) As part of a decision to resolve the dispute, an arbitrator may direct
that one or both of the Parties take actions to meet its obligations
under the
Contract No. 95MS-94854
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<PAGE>
Agreement and may also direct that one Party pay the other Party an
amount of damages caused to a Party as may be determined to result
from a breach of the Agreement by the other Party.
(g) The decision and award of the arbitrator shall be binding on both
Parties to the maximum extent permissible under the law existing at
the time that the notice of arbitration is given by one Party to the
other Party.
(h) Within 30 days after BPA's receipt of the arbitrator's decision and
award, the Administrator shall decide to accept or reject the
arbitrator's decision and award, and provide notice of the decision to
the Company and the arbitrator. If BPA rejects the arbitrator's
decision and award, then the notice shall state whether the
Administrator contends that such decision and award is not binding on
BPA as a matter of law.
(i) If BPA provides such a notice to the Company and the arbitrator of
nonacceptance of an award directing actions to be taken other than the
payment of money, then the arbitrator shall review the decision and
issue an alternative award which shall provide for an amount of money
damages only. The Administrator shall have 30 days after the receipt
of such alternative award to provide notice to the Company and the
arbitrator accepting or rejecting the alternative award. If the
Administrator rejects an award for the payment of money, then such
rejection shall not affect either Party's right to seek to enforce or
to challenge the award.
(j) If BPA fails to provide notice of acceptance, nonacceptance, or
rejection of an award as required in section 22(f), 22(g), or 22(i),
then the Company may notify BPA that it will terminate this Agreement
if BPA fails to provide such notice of acceptance, nonacceptance, or
rejection of the award within 21 days. If BPA fails to provide such
notice within 21 days of such request, the Company may terminate this
Agreement.
Contract No. 95MS-94854
47
<PAGE>
(k) If BPA notifies the Company that it will not accept any award and
decision of the arbitrator directing money to be paid, or upon
acceptance does not comply with the award and decision, or seeks to
set aside any award on the grounds that the award is not binding on
it, then the Company may, by giving notice to BPA within 90 days,
terminate this Agreement. Such notice of termination shall be
effective 30 days after the date it is received by BPA.
(l) If the Company fails to comply with an award issued by an arbitrator
and has not filed a legal action to modify, vacate, or set aside the
award in a court having jurisdiction within 90 days, then BPA may
demand performance of the award from the Company. If the Company does
not then comply with the award within 90 days after such demand, BPA
may terminate this Agreement. This provision shall not limit any other
right to seek enforcement or other relief available to BPA.
(m) Any monetary award entered by an arbitrator shall bear interest at a
rate of one-twentieth percent ( 0.05 percent) per day, from the 31st
day following receipt of the award by the Parties until the day the
award is satisfied.
(n) Irrespective of whether a notice of termination of this Agreement is
given, the Party in whose favor the award and decision was made shall
retain all rights to seek enforcement of the award, or other
appropriate relief in a court of competent jurisdiction. Nothing in
the foregoing shall limit the right of the other Party to seek any
remedies it may have under law.
23. FORCE MAJEURE
(a) Definition of Force Majeure
"Force Majeure" means an event beyond the reasonable control and
without the fault or negligence of the Party claiming Force Majeure.
Force Majeure includes but is not limited to:
Contract No. 95MS-94854
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<PAGE>
(1) strikes or work stoppages, including threats of strikes or
imminent strikes, the settlement of which shall be at the sole
discretion of the Party subject to the strike;
(2) events reasonably beyond the control of the Parties (including
those events creating actual or imminent safety problems) and
which the Party could not, by exercise of reasonable diligence
and foresight, have been expected to avoid;
(3) floods or other natural disasters; or
(4) order or injunction entered by any court having competent subject
matter jurisdiction or any order of an administrative officer,
other than an officer of BPA or the Department of Energy, which
cannot be stayed, suspended, or set aside pending review of such
order.
Neither the unavailability of funds or financing, nor conditions of
national or local economies or markets shall be considered a Force
Majeure. The economic hardship of either Party shall not constitute a
Force Majeure.
(b) Obligations of the Parties
Each Party shall notify the other as soon as possible of any Force
Majeure which may, in any way, affect the delivery of Firm Power under
this Agreement.
To the extent either Party is prevented, for the duration of the Force
Majeure, from meeting its obligations under this Agreement by a Force
Majeure, both Parties shall be excused from their respective
obligations without liability to the other for the period reasonably
required to restore the affected Party's operations to conditions
existing prior to the occurrence of the Force Majeure.
Contract No. 95MS-94854
49
<PAGE>
24. NOTICES
Unless the Agreement requires otherwise, any notice, demand, or request
provided for in this Agreement, or served, given, or made in connection
with it, shall be in writing and shall be deemed properly served, given, or
made if delivered in person or sent by telegraph, or by acknowledged
delivery, or sent by registered or certified mail, postage prepaid, to the
persons specified below:
To the Company: Mr. Ken Peterson
President and Chief Executive Officer
Columbia Aluminum Corporation
1220 Main St., Suite 200
Vancouver, WA 98660
To BPA: Mr. Sydney D. Berwager - SH
Senior Customer Account Executive
U.S. Department of Energy
Bonneville Power Administration
P.O. Box 3621
Portland, OR 97208-3621
Any Party may, by written notice to the other Party, change the designation
or address of the person so specified as the one to receive notices
pursuant to this Agreement.
25. HOLD HARMLESS
Each Party hereto hereby assumes all liability for injury or damage to
persons or property arising from the act or neglect of its own employees,
agents or contractors and shall indemnify and hold the other Party harmless
from any liability arising therefrom. Each Party releases the other Party
from, and shall indemnify the other Party for, any such liability. As used
in this section: (a) the term "Party" means, in addition to such Party
itself, its directors, officers, and employees; (b) the term "damage" means
all damage, including consequential damage; and (c) the term person" means
any person, including those not connected with either Party to this
Agreement.
Contract No. 95MS-94854
50
<PAGE>
26. DAMAGES FOR FAILURE BY BPA TO DELIVER
In the event BPA fails to deliver the hourly amounts of Firm Energy
scheduled by the Company to the plant's Point of Delivery, and such
delivery is not restricted by BPA pursuant to its Reserve rights under this
Agreement, or such delivery is not excused by section 4(f) of Exhibit A,
BPA shall pay the Company (on the date
Contract No. 95MS-94854
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<PAGE>
payment by the Company for the Firm Energy would otherwise have been due
under this Agreement):
(a) an amount for each megawatthour of such nondelivery equal to the price
at which the Company is, or would be, able to obtain comparable
supplies of power at a commercially-reasonable price (adjusted to
reflect differences in transmission costs, if any) minus the
applicable payment under this Agreement; provided, if such sum as
determined above is negative then it shall be deemed to equal zero; or
(b) liquidated damages as provided for an Event which exceeds an Event
Magnitude Limit, if the Company or its agent is unable,
notwithstanding its diligent effort to do so, to obtain replacement
power.
27. OBLIGATIONS DURING PERFORMANCE OF THIS AGREEMENT
During the course of performance of this Agreement by the Company, BPA
shall not charge the Company or a third party doing business with the
Company any amount, charge or fee of any nature whatever based on the
historical purchases made by the Company under any prior power purchase
agreements between the Company and BPA. This provision is a material term
essential to the Company having entered into this Agreement.
28. THIRD PARTIES
The rights, obligations, and benefits of this Agreement shall inure solely
to the signatories and the terms, covenants and conditions herein shall not
be interpreted to create, nor are they intended to create any right,
benefit, or obligation to any third party whatsoever.
29. SEVERABILITY
If any term, covenant, or condition of this Agreement or the application of
any such term, covenant, or condition shall be held invalid as to any
person, entity, or circumstance by any court of competent jurisdiction,
then such term, covenant, or
Contract No. 95MS-94854
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<PAGE>
condition shall remain in force and effect to the maximum extent permitted
by law, and all other terms, covenants, and conditions of this Agreement
and their application shall not be affected thereby but shall remain in
force and effect unless the court finds that such provision is not
severable from all other provisions of this Agreement. The Company's right
to terminate this Agreement under section 5(a)(2)(B) shall not be limited
by any finding that any term, covenant, or condition of this Agreement is
severable.
30. ENTIRE AGREEMENT
The terms and provisions contained in this Agreement, including the
exhibits and all referenced documents, constitute the entire agreement
between the Parties and supersede all previous communications,
representations, or agreements, either oral or written, between the Parties
with respect to the subject matter of this Agreement. Except as expressly
provided in this Agreement, this Agreement shall not supersede agreements
with respect to the Prior Contract.
Contract No. 95MS-94854
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<PAGE>
31. SIGNATURE CLAUSE
The signatories hereto represent that they have been duly authorized to
enter into this Agreement on behalf of the Party for whom they sign.
IN WITNESS WHEREOF, the Parties have executed this Agreement.
UNITED STATES OF AMERICA
Department of Energy
Bonneville Power Administration
By SYDNEY D. BERWAGER
-----------------------------------
Senior Customer Account Executive
Name Sydney D. Berwager
-----------------------------------
(Print/Type)
Date September 28, 1995
----------------------------------0
COLUMBIA ALUMINUM CORPORATION
By KENNETH D. PETERSON, JR.
----------------------------
Name Kenneth D. Peterson, Jr.
--------------------------
(Print/Type)
Title President
--------------------------
Date September 20, 1995
--------------------------
Contract No. 95MS-94854
54
<PAGE>
Exhibit A, Page 1 of 8
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
GENERAL CONTRACT PROVISIONS
Index to Sections
- --------------------------------------------------------------------------------
Section Page
1. Definitions....................................................... 1
2. Metering.......................................................... 2
(a) Metering Costs.............................................. 2
(b) Metering Requirements at Company Facilities................. 2
(c) Metering Standards.......................................... 3
(d) Data Reporting Requirements................................. 4
(e) Metering Tests.............................................. 5
3. Facilities........................................................ 5
(a) Ownership of Facilities..................................... 5
(b) Access to Facilities........................................ 5
(c) General Environmental Provisions............................ 6
4. Deliveries........................................................ 6
(a) Character of Service........................................ 6
(b) Voltage Levels.............................................. 6
(c) Balancing Phase Demands..................................... 7
(d) Harmonic Control............................................ 7
(e) Voltage Flicker............................................. 8
(f) Maintenance Outages......................................... 8
5. Statutory Provisions.............................................. 8
1. DEFINITIONS
(a) "Federal System" or "Federal System Facilities" means the facilities
of the Federal Columbia River Power System (FCRPS). For purposes of
this Agreement, the FCRPS includes:
(1) the Federal Government's generating facilities in the Pacific
Northwest for which BPA is the designated marketing agent;
(2) the Federal Government's facilities under BPA's jurisdiction;
(3) any other facilities which BPA has a right to use by contract,
license, or treaty; and
Contract No. 95MS-94854
<PAGE>
Exhibit A, Page 2 of 8
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
(4) any other facilities from which BPA receives generating
capability.
(b) "Prudent Electric Utility Practice" or "Prudent Utility Practice"
means, at any particular time, the generally accepted practices,
methods, and acts in the electric utility industry that would achieve
the desired result. If there are no such practices, methods, and acts,
Prudent Electric Utility Practice means the practices, methods, and
acts which, in the exercise of reasonable judgment in light of the
facts known at the time the decision was made, could have been
expected to accomplish the desired result consistent with reliability
and safety considerations.
2. METERING
(a) Metering Costs
The Parties shall bear the costs of metering as provided in sections
2(a)(1) and 2(a)(2), except as otherwise specifically provided in
section 2(b).
(1) Metering of Existing Facilities
BPA shall bear the costs of any meter replacement or new meter
installation at any Company facility that is used for delivery of
Federal power and which is an existing facility on the Effective
Date of this Agreement.
(2) Metering of New Company Facilities
The Company shall pay all costs associated with installing BPA-
approved metering at the following types of locations established
by the Company after the Effective Date of this Agreement:
(A) all points of generation integration;
(B) all automatic generation control (AGC) interchange points;
and
(C) all other points of electrical interconnection, including
convenience points of delivery.
(b) Metering Requirements at Company Facilities
(1) Points of Automatic Generation Control Interchange
The following metering is required for each AGC interchange point
(a point on a Control Area boundary);
(A) telemetering of the kilowatts (kW) at such point; and
Contract No. 95MS-94854
<PAGE>
Exhibit A, Page 3 of 8
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
(B) hourly metering capable of providing summaries, at the end
of each clock hour, of the kilowatthours (kWh) and
kilovoltampere reactive hours (kVArh) (lagging and leading)
exchanged during the previous hour.
(2) Other Electrical Connections
All electrical interconnections other than AGC interchange points
and points of generation integration shall be metered on an
hourly basis for both kW/kWh and kilovoltamperes reactive
(kVAr)/kVArh (lagging and leading) quantities. BPA shall pay for
any upgrades or replacement of required meters on facilities
existing on the Effective Date; the Company shall pay to meet
BPA's metering requirements for all new facilities.
(3) Eccentric Loads
At its own expense, the Company shall separately meter each of
its eccentric loads, which are large loads that have an extremely
steep ramp rate (more specifically defined in BPA's Billing
Policy or product catalog). Eccentric loads shall be metered
using telemetering equipment or the equivalent.
(c) Metering Standards
(1) All meters at new installations where the interconnections are
"normally closed" shall be capable of providing data
electronically unless BPA otherwise agrees.
(2) BPA will determine whether hourly data or meter slips are
required for those interconnections that are normally operated in
the "open" position.
(3) All meters providing data electronically shall be compatible with
BPA's electronic metering systems.
(4) As of the Effective Date, BPA principally uses a telemetering
system, a kWh system, and BPA's Revenue Metering System (RMS) for
metering. There are acceptable alternatives to each of these
specific systems. The Company shall consult with BPA to ensure
compatibility of any Company meter with BPA's then-current
metering system.
(5) The Company's meters shall meet BPA's accuracy standards as
described in the BPA's Billing Policy.
Contract No. 95MS-94854
<PAGE>
Exhibit A, Page 4 of 8
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
(6) The Company shall coordinate with BPA to determine BPA's
information and communication needs when designing future meter
installations.
(7) BPA-installed metering shall be used exclusively for BPA purposes
unless otherwise agreed.
(8) If the required metering capability is not installed by the
Effective Date and until its installation, the Parties shall
calculate the hourly quantities using a default methodology
specified in the Billing Policy, unless a different methodology
is specified in the Points of Delivery Exhibit.
(d) Data Reporting Requirements
(1) Telemetered data shall be furnished to BPA continuously on a
real-time basis via 10-30 hertz telemetry, BPA's Supervisory
Control and Data Acquisition system, the Interutility Data
Exchange system, or other data collection method as determined by
BPA.
(2) Hourly metered data for all points of generation integration and
points of AGC interchange shall be furnished to BPA at the end of
each clock hour. Data shall be reported through the kWh metering
system or an approved alternative.
(3) Hourly metered data for:
(A) points of delivery (excluding points of AGC interchange);
and
(B) eccentric loads
shall be furnished to BPA at least once a month, at the end of
the Company's billing cycle.
(4) The Company shall submit a meter slip to BPA for all metering
points which do not currently have:
(A) metering capable of providing hourly kWh and kVArh
quantities; or
(B) electronic communications for such metered amounts (through
the RMS or equivalent).
Contract No. 95MS-94854
<PAGE>
Exhibit A, Page 5 of 8
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
(e) Metering Tests
Each Party shall inspect and test each of its meters used to measure
power flowing between the Parties:
(1) at least once every 2 years; and
(2) upon the request of the other Party.
Each Party shall give reasonable notice to the other stating when a
test or inspection will occur. The other Party has the right to have
one or more representatives present at such test or inspection.
3. FACILITIES
(a) Ownership of Facilities
(1) Except as otherwise expressly provided, equipment or salvable
facilities owned by one Party and installed on the property of
the other shall remain the property of the owner.
(2) Each Party shall identify all movable equipment and other
salvable facilities which it installed on the other's property by
permanently affixing suitable markers plainly identifying the
owner. Within a reasonable time after such installation, and
again after any subsequent modification of such installation,
representatives of the Parties shall jointly prepare an itemized
list of said movable equipment and salvable facilities.
(b) Access to Facilities
Whenever one Party has facilities or equipment located on, or planned
to be located on, the other's property, the property owner shall give
the facility or equipment owner permission to access such property for
any reasonable purpose related to such facilities or equipment,
including removal. The property owner shall also provide accurate and
up-to-date information on those facilities and equipment owned by the
property owner, to the extent needed by the other Party to accomplish
its purpose.
Each Party shall have the right, at any reasonable time, to enter the
other's property to read meters and inspect the other Party's electric
installation. The inspecting Party shall observe written instructions
and posted rules and such other necessary instructions or inspection
standards to which the
Contract No. 95MS-94854
<PAGE>
Exhibit A, Page 6 of 8
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
Parties have agreed. Only those electric installations used to deliver
power that BPA sells or wheels to the Company shall be subject to
inspection.
The inspecting Party shall be liable for any injury, loss, damage, or
accident resulting from their inspection.
(c) General Environmental Provisions
Each Party shall be responsible for the cost of compliance with the
requirements of all applicable Federal State, and local environmental
laws for its own facilities, even when those facilities are located on
the property of the other Party.
4. DELIVERIES
(a) Character of Service
Unless otherwise provided in this Agreement, BPA shall make electric
power available to the Company in the form of 3-phase alternating
current, at a nominal frequency of 60 hertz.
(b) Voltage Levels
(1) Voltage Levels on the Transmission System
BPA has the right to operate its transmission system as provided
below and cannot accept any restriction of that right.
(A) 500 Kilovolt System
BPA shall normally operate its 500 kV transmission system in
a range from the nominal voltage to 10 percent above the
nominal voltage (500 kV to 550 kV).
(B) 115-345 Kilovolts
BPA shall normally operate its 115-345 kV transmission
system within 5 percent of the nominal voltage. BPA normally
operates in the range from nominal voltage to 5 percent
above, but reserves the right to operate in the lower half
of the range. Sometimes BPA will allow some of its
transmission lines or facilities to operate above or below
the normal voltage limits where no substantive damage will
occur from this operation.
(2) Voltage Levels at Points of Delivery
When the nominal voltage at the Company's point of delivery is
115 kV or more, BPA shall deliver power to the Company at the
operating voltage of the transmission system. If the nominal
voltage
Contract No. 95MS-94854
<PAGE>
Exhibit A, Page 7 of 8
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
at the Company's point of delivery is below 115 kV, the delivery
voltage may differ from the operating voltage of the transmission
system as a result of the "turns ratio" and impedance of the
transformer providing the delivery service.
(3) Voltage Schedules
Voltage schedules are necessary for the efficient and reliable
transmission of electrical power. BPA will establish a voltage
schedule for each critical (or key) substation, as determined by
BPA. Depending on the hourly operating requirements at each
substation and at each point of generation integration, BPA will
issue a target voltage (set- point) for the voltage schedule. At
any time, BPA may reset the voltage schedule. The Company shall
take all appropriate actions to help BPA maintain the established
voltage schedule.
(4) Voltage Levels During Abnormal System Conditions
During outages or emergencies, BPA will maintain delivery voltage
within 10 percent of the nominal voltage for all facilities
having a nominal voltage less than 500 kV. BPA will normally
match other transmission providers' voltage levels for abnormal
system conditions when they share transmission responsibilities.
At times during abnormal system conditions, BPA may need the
Company to supply additional reactive power from its generating
facilities (relative to normal requirements) to maintain
reasonable voltage levels. The Company shall use its best efforts
to comply with BPA's request.
(c) Balancing Phase Demands
The current on any one phase shall not deviate by more than 5
percent from the current on any other phase, unless otherwise
agreed by the Parties.
(d) Harmonic Control
Each Party shall design, construct, operate, maintain, and use
its electric facilities in accordance with Prudent Utility
Practice to reduce, to acceptable levels, the harmonic currents
and voltages which pass into the other Party's facilities. To
that end, the Parties shall be guided by the recommended
practices and requirements for harmonic control specified in The
Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Electrical Power System Standard 519-1992, or its successor. The
Parties shall accomplish harmonic reductions using equipment
which is specifically designed, and permanently operated and
maintained, as an integral part of the facilities of the Party
which owns the system on which the harmonics are generated.
Contract No. 95MS-94854
<PAGE>
Exhibit A, Page 8 of 8
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
(e) Voltage Flicker
Voltage flicker is normally detectable through visible variations
in light intensity. However, flicker may be present even when no
light variations are detectable. Since flicker is disruptive to
lighting and can damage computer equipment, it must be
controlled. IEEE Recommended Practices and Requirements for
Harmonic Control in Electric Power Systems, (IEEE Standard 519)
provides definitions and limits on acceptable levels of voltage
flicker, as set by IEEE Standard 519. Both Parties shall control
voltage flicker on their respective systems as required by IEEE
Standard 519.
(f) Maintenance Outages
The Company, BPA or a transferor may temporarily interrupt or
reduce deliveries of electric power if any such party determines
that such interruption or reduction is necessary or desirable to
install equipment in, make repairs to, make replacements within,
conduct investigations and inspections of, or perform other
maintenance work on, the Company's facilities, the Federal
System, or the transferor's system.
Except in an emergency where such notice is not possible, the
interrupting party shall notify the other affected entities in
advance of an interruption or reduction in service. The
interrupting party shall identify the reason for such
interruption or reduction, and the probable duration. To the
extent reasonable or appropriate, the Company or BPA shall
schedule such interruption or use temporary facilities or
equipment to minimize the effect of any such interruption or
outage.
5. STATUTORY PROVISIONS
(a) The provisions of sections 9(c) and (d) of Public Law 96-501 and the
provisions of Public Law 88-552 (the Provisions) as may be amended
prior to the execution of this Agreement are hereby incorporated by
this reference.
(b) BPA agrees that the Company, together with other companies in the
Pacific Northwest, shall have priority to power that BPA has available
for sale, in conformity with the Provisions.
Contract No. 95MS-94854
<PAGE>
Exhibit B, Page 1 of 1
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
FEES FOR REMARKETING
Excess Firm Energy remarketed pursuant to section 18(b) of this Agreement shall
be subject to the following charges:
1. One-Tenth (0.1) mill per kilowatthour multiplied by the total amount of
energy remarketed under section 18(b)(2)(C), plus the scheduling and
dispatching fee under BPA's ancillary services rate schedule.
2. Two thousand dollars ($2,000) per contract under section 18(b)(2)(A) and
section 18(b)(2)(B), plus the scheduling and dispatching fee under BPA's
ancillary services rate schedule.
The Parties may agree to different charges for specific transactions. The prices
above are inclusive, including scheduling and dispatch, sales, billing,
invoicing, and other administrative services.
Contract No. 95MS-94854
<PAGE>
Exhibit C, Page 1 of 1
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
RATE SCHEDULE
Contract No. 95MS-94854
<PAGE>
Exhibit D, Page 1 of 1
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
MONTHLY AMOUNTS OF FIRM POWER
CONTRACT YEAR 10/01/96 THROUGH 09/30/97
<TABLE>
<CAPTION>
HLH LLH Demand HLH LLH Demand
Month (MWh) (MWh) (MW) Month (MWh) (MWh) (MW)
- ----- ----- ----- ----- ----- ----- ----- ------
<S> <C> <C> <C>
October April 42,871 46,917 300.75
November May 129,924 93,834 300.75
December June 120,300 96,240 300.75
January July 129,924 93,834 300.75
February August 42,871 46,917 300.75
March September 125,112 58,858 300.75
</TABLE>
CONFIDENTIAL
<PAGE>
Revision No. 1
Exhibit D, Page 1 of 1
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective at 2400 hours
on September 30, 1996
MONTHLY AMOUNTS OF FIRM POWER
This revision shows monthly amounts of HLH and LLH Firm Energy and Demand for
Contract Year 1996-1997.
CONTRACT YEAR 10/01/96 THROUGH 09/30/97
<TABLE>
<CAPTION>
HLH LLH Demand HLH LLH Demand
Month (MWh) (MWh) (MW) Month (MWh) (MWh) (MW)
- ----- ----- ----- ------ ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
October 0 0 0 April 42,871 46,917 295.125
November 0 0 0 May 127,572 92,136 295.306
December 0 0 0 June 118,250 94,440 295.125
January 0 0 0 July 127,572 92,136 295.306
February 0 0 0 August 51,965 52,113 295.306
March 0 0 0 September 122,772 58,858 295.125
</TABLE>
ACCEPTED:
GOLDENDALE ALUMINUM COMPANY UNITED STATES OF AMERICA
Department of Energy
Bonneville Power Administration
By GERALD F. MILLER By SYDNEY D. BERWAGER
--------------------------------- -----------------------------
Name Gerald F. Miller Sydney D. Berwager
------------------------------ -----------------------------
(Print/Type) Account Executive
Title Vice President Name ___________________________
------------------------------ (Print/Type)
Date 3-6-97
------------------------------ Date March 4, 1997
---------------------------
Contract No. 95MS-94854
<PAGE>
Revision No. 5, Exhibit D
MONTHLY AMOUNTS OF FIRM POWER
This revision shows monthly amounts of HLH and LLH Firm Energy and Demand for
Contract Year 1999-2000.
EFFECTIVE DATE
This Revision No. 5 will take effect at 2400 hours on September 30, 1999.
CONTRACT YEAR 10/01/1999 THROUGH 09/30/2000
<TABLE>
<CAPTION>
HLH LLH Demand HLH LLH Demand
Month (MWh) (MWh) (MW) Month (MWh) (MWh) (MW)
- ----- ----- ----- ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
October 122,720 97,055 295 April 0 0 0
November 122,720 89,680 295 May 45,360 32,760 105
December 127,440 92,040 295 June 122,720 0 295
January 122,720 96,760 295 July 122,720 96,760 295
February 78,800 58,312 197 August 127,440 92,040 295
March 0 0 0 September 122,720 89,680 295
TOTAL 1,115,360 745,087 295
</TABLE>
ACCEPTED:
GOLDENDALE NORTHWEST ALUMINUM, UNITED STATES OF AMERICA
INC. (GOLDENDALE ALUMINUM Department of Energy
COMPANY) Bonneville Power Administration
By GERALD F. MILLER By SYDNEY D. BERWAGER
---------------------------------- --------------------------
Senior Account Executive
Name Gerald F. Miller
--------------------------------
(Print/Type) Name Sydney D. Berager
------------------------
Vice President (Print/Type)
Title General Counsel, and Secretary
-------------------------------- Date 1/29/99
------------------------
Date 1-29-99
-------------------------------
- --------------------------------------------------------------------------------
95MS-94854, Goldendale Aluminum Company 1 of 1
<PAGE>
Exhibit E, Page 1 of 2
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
POINTS OF DELIVERY
1. THE HARVALUM POINT OF DELIVERY
Location: the point in the Company's rectifier substation where the 23
kilovolt (kV) facilities of the Government and the Company are connected;
Voltage: 23 kV;
Metering: in the Government's Harvalum Substation, in the 230 kV circuits
over which such electric power and energy flows;
Adjustment: for transmission losses between the metering, location and
Point of Delivery;
Demand Limit: 315,000 kilowatts.
2. AT-SITE SETTLEMENT AGREEMENT
As set forth in Bonneville's At-Site Settlement Agreement with Martin
Marietta Corporation (MMC), Contract No DE-MS79-82BP90894, Bonneville owns
all the equipment in the Harvalum Substation including the specific
equipment identified in section 2(e), below. By the terms of Transfer and
Assignment Agreement, No. DE-MS79-87BP92419, the At-Site Settlement
Agreement was terminated with respect to Columbia Aluminum Corporation
(Columbia) and the active provisions are incorporated herein. References to
Columbia shall also apply to Columbia's assignee(s), if any.
(a) Columbia hereby relinquishes any right to any alleged past or future
at-site credit entitlements.
(b) Columbia will continue to provide a rent-free lease to Bonneville for
Bonneville's use of that portion of Columbia's land on which the
Harvalum Substation is located. Columbia will also provide Bonneville
with rent-free access to that land for operation and maintenance
purposes. These rent-free leases will continue for as long as
Bonneville requires the substation for service to Columbia or any of
Bonneville's other customers. Columbia reserves the right to move the
Substation to any comparable area of its property, provided Columbia
pays the costs directly involved in such a move.
(c) If Bonneville determines that it is necessary to install new
transmission lines to provide adequate support of the Harvalum bus,
Columbia will provide Bonneville with a rent-free easement to any
mutually agreeable and reasonable transmission line corridor.
Bonneville shall, however, be liable for the costs
Contract No. 95MS-94854
<PAGE>
Exhibit E, Page 2 of 2
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
of said new transmission. lines as well as any costs associated with
corridor preparation.
(d) An appropriate payment for use of the standby transformer (3rd bank)
and associated high and low side switching facilities will be assessed
to Columbia in accordance with similar arrangements with other direct
service industries for provision or space facilities.
(e) Bonneville shall be responsible for maintaining the Government's
equipment and facilities located at Harvalum Substation including, but
not limited to, the equipment and facilities transferred to Bonneville
by MMC under the Bill of Sale dated May 28, 1982.
Contract No. 95MS-94854
<PAGE>
Exhibit E, Page 3 of 2
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
UNRECOVERABLE COSTS AND TRANSFER COSTS
1. UNRECOVERABLE COSTS
(a) The unrecoverable costs in BPA substation or transmission facilities
used to serve the Company's load, shall include the following
unamortized investment in the facilities:
<TABLE>
<CAPTION>
Unamortized
Investment
-----------
<S> <C>
Prior to October 1, 1996 3,489,850
Contract Year 1997 3,472,731
Contract Year 1998 3,600,807
Contract Year 1999 3,579,153
Contract Year 2000 3,555,147
Contract Year 2001 3,528,519
</TABLE>
(b) If the facilities must be removed from the site, the unrecoverable
costs shall include, in addition to the unamortized investment for
such facilities, all reasonable costs involved in the disposition of
such facilities, such as, but not limited to, labor in dismantling
equipment, transportation, site restoration and cleanup (except for
the cost covered under section 3(c) of Exhibit A), less any
mitigation, such as the salvage value of such equipment.
2. TRANSFER COSTS
The Company is not served by transfer over third-party facilities.
Contract No. 95MS-94854
<PAGE>
Exhibit E, Page 4 of 2
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
ARBITRATION PROCEDURES
Contract No. 95MS-94854
<PAGE>
Exhibit E, Page 5 of 2
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
USE-OF-FACILITIES CHARGE
<TABLE>
<CAPTION>
I&A(1) I&A O&M(2)
Annual Annual Annual
Facility Investment Cost Ratio Cost Cost Demand $/kW/yr
- -------- ---------- ---------- ---- ---- ------ -------
(3) (4)
<S> <C> <C> <C> <C> <C> <C>
Harvalum Substation $4,128,492 7.91% $326,564 $405,954 294,750 $2.49
Total Use-of-Facilities Charge (Harvalum) = 0.207.$/kW/mo
- --------------------------
1 Investment and amortization.
2 Operations and maintenance.
3 Based on ACR table dated 6/2/95, column 8 minus column 5 for F substation
category.
4 Based on O&M table dated 6/2/95.
</TABLE>
1. CHANGES TO THE USE-OF-FACILITIES CHARGE
(a) Changes in Costs and Demands.
This Exhibit I may be revised annually to reflect changes in: (1) the
yearly noncoincidental demands on the facility under this Agreement
and other agreements; (2) changes in I&A annual cost ratio; (3)
changes in O&M annual cost; and (4) changes in the general transfer
agreement costs, if applicable. Any changes in the costs or demands
used in calculating the use-of-facilities change in this Exhibit I are
subject to the dispute resolution provisions of section 22.
(b) Limits on Changes in Use-of-Facilities Charge
The sum of the annual costs for I&A annual cost, O&M annual cost, and
the cost of general transfer agreements, if applicable, used in
calculating the use- of-facilities charge shall not exceed a limit
equal to 150 percent of such total annual cost specified in the
initial Exhibit I as adjusted for changes in investments. The formula
used for determining the use-of-facilities charge shall not change
from the formula used in developing the initial Exhibit I.
Contract No. 95MS-94854
<PAGE>
Exhibit E, Page 6 of 2
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
STABILITY RESERVE SCHEME(S)
1. Import Contingency Load Tripping Schemes: Remedial Action Scheme for the
loss of the AC Intertie and Remedial Action Scheme for the loss of the DC
Intertie.
Contract No. 95MS-94854
<PAGE>
Exhibit E, Page 7 of 2
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
2. NEW INVESTMENTS IN FACILITIES SERVING THE COMPANY
(a) Use-of-Facilities Charge
If new investments are proposed by BPA and agreed to by the Company in
accordance with the provisions of section 5(b)(1)(C), such investments
shall be used in the use-of-facilities charge under this Agreement.
(b) Change in Rate Test Limit
If BPA makes such new investments, the limit on the use-of-facilities
charge specified in section 1(b) of this Exhibit I shall be
proportionately increased to reflect such new investments.
Contract No. 95MS-94854
<PAGE>
Exhibit D, Page 1 of 1
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
MONTHLY AMOUNTS OF FIRM POWER
CONTRACT YEAR 10/01/96 THROUGH 09/30/97
<TABLE>
<CAPTION>
HLH LLH Demand HLH LLH Demand
Month (Mwh) (Mwh) (MW) Month (MWh) (MWh) (MW)
----- ----- ---- ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
October 0 0 0 April 42,871 46,917 300.75
November 0 0 0 May 129,924 93,834 300.75
December 0 0 0 June 120,300 96,240 300.75
January 0 0 0 July 129,924 93,834 300.75
February 0 0 0 August 42,871 46,917 300.75
March 0 0 0 September 125,112 58,858 300.75
</TABLE>
Contract No. 95MS-94854
<PAGE>
Exhibit E, Page 8 of 2
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
MONTHLY AMOUNTS OF FIRM POWER
This Revision No. I revises the monthly amounts of HLH and LLH Firm Energy and
Demand for Contract Year 1996-1997, and replaces the previously executed
Revision No. 1.
CONTRACT YEAR 10/01/96 THROUGH 09/30/97
<TABLE>
<CAPTION>
HLH LLH Demand HLH LLH Demand
Month (Mwh) (Mwh) (MW) Month (MWh) (MWh) (MW)
----- ----- ----- ------ ----- ----- ---- ------
<S> <C> <C> <C> <C> <C> <C>
October 0 0 0 April 42,871 46,917 295.125
November 0 0 0 May 125,280 90,480 295.000
December 0 0 0 June 116,000 92,800 295.000
January 0 0 0 July 125,280 90,480 295.000
February 0 0 0 August 62,400 49,200 295.000
March 0 0 0 September 120,581 65,313 295.000
</TABLE>
ACCEPTED:
GOLDENDALE ALUMINUM COMPANY UNITED STATES OF AMERICA
Department of Energy
Bonneville Power Administration
By GERALD F. MILLER
--------------------------------
Name Gerald F. Miller
------------------------------ By SYDNEY D. BERWAGER
------------------------------
(Print Type) Sydney D. Berwager
------------------------------
Senior Account Executive
Title Vice President, Energy &
Government Affairs
-----------------------------
Name______________________________
Date May 18, 1997 (Print Type)
-----------------------------
Date May 9, 1997
----------------------------
Contract No. 95MS-94854
<PAGE>
Exhibit E, Page 9 of 2
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
MONTHLY AMOUNTS OF FIRM POWER
This revision shows monthly amounts of HLH and LLH Firm Energy and Demand for
Contract Year 1997-1998.
CONTRACT YEAR 10/01/97 THROUGH 09/30/98
<TABLE>
<CAPTION>
HLH LLH Demand HLH LLH Demand
Month (Mwh) (Mwh) (MW) Month (MWh) (MWh) (MW)
----- ----- ----- ------ ----- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
October 6,480 4,695 15 April 0 0 0
November 104,000 83,200 260 May 108,160 85,280 260
December 112,320 81,120 260 June 108,160 79,040 260
January 112,320 81,120 260 July 112,320 81,120 260
February 99,840 74,880 260 August 108,160 85,280 260
March 4,688 3,697 11.27 September 108,160 79,040 260
</TABLE>
ACCEPTED:
GOLDENDALE ALUMINUM COMPANY UNITED STATES OF AMERICA
Department of Energy
Bonneville Power Administration
By GERALD F. MILLER
-----------------------------------
Name Gerald F. Miller By SYDNEY D. BERWAGER
---------------------------------- ------------------------------
(Print Type) Sydney D. Berwager
------------------------------
Senior Account Executive
Title Vice President, Energy &
Government Affairs
---------------------------------- Name _____________________________
Date May 18, 1997 (Print Type)
----------------------------------
Date April 18, 1997
----------------------------
Contract No. 95MS-94854
<PAGE>
Exhibit E, Page 10 of 2
Contract No. 95MS-94854
Columbia Aluminum Corp.
Effective on the Commencement Date
MONTHLY AMOUNTS OF FIRM POWER
This revision shows monthly amounts of HLH and LLH Firm Energy and Demand for
Contract Year 1998-1999.
CONTRACT YEAR 10/01/98 THROUGH 09/30/99
<TABLE>
<CAPTION>
HLH LLH Demand HLH LLH Demand
Month (Mwh) (Mwh) (MW) Month (MWh) (MWh) (MW)
----- ----- ----- ------ ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
October 0 0 0 April 0
November 118,000 94,400 295 May 122,720 96,760 295
December 127,440 92,040 295 June 122,720 89,680 295
January 122,720 96,760 295 July 127,440 92,040 295
February 0 0 0 August 122,720 96,760 281
March 0 0 0 September 116,688 84,191
TOTAL 980,448 742,631
</TABLE>
ACCEPTED:
GOLDENDALE ALUMINUM COMPANY UNITED STATES OF AMERICA
Department of Energy
Bonneville Power Administration
By GERALD F. MILLER
-----------------------------------
Name Gerald F. Miller
--------------------------------- By SYDNEY D. BERWAGER
(Print Type) -----------------------------
Sydney D. Berwager
-----------------------------
Senior Account Executive
Title Vice President, Energy &
Government Affairs
---------------------------------
Name_____________________________
Date January 30, 1998 (Print Type)
---------------------------------
Date February 6, 1998
---------------------------
Contract No. 95MS-94854
<PAGE>
Revision No. 4, Exhibit D
MONTHLY AMOUNTS OF FIRM POWER
This Revision No. 4 changes the monthly amounts of HLH and LLH Firm Energy and
Demand during November, December, January, and February for Contract Year
1998-1999. This Revision No. 4 is effective at 2400 hours on September 30, 1998.
CONTRACT YEAR 10/01/1998 THROUGH 09/30/1999
<TABLE>
<CAPTION>
HLH LLH Demand HLH LLH Demand
Month (Mwh) (Mwh) (MW) Month (MWh) (MWh) (MW)
----- ----- ----- ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
October 0 0 0 April 0
November 112,400 89,920 281 May 122,720 96,760 295
December 122,256 88,296 283 June 122,720 89,680 295
January 118,976 93,808 286 July 127,440 92,040 295
February 14,976 11,232 39 August 122,720 96,760 295
March 0 0 0 September 116,688 84,191
TOTAL 980,448 742,631
</TABLE>
ACCEPTED:
GOLDENDALE ALUMINUM COMPANY UNITED STATES OF AMERICA
Department of Energy
Bonneville Power Administration
By GERALD F. MILLER
------------------------------------
Name Gerald F. Miller
---------------------------------- By SYDNEY D. BERWAGER
(Print Type) ------------------------------
Sydney D. Berwager
------------------------------
Senior Account Executive
Title Vice President, Energy &
Government Affairs
---------------------------------
Name____________________________
Date November 2, 1998 (Print Type)
---------------------------------
Date October 30, 1998
--------------------------
Contract No. 95MS-94854
<PAGE>
[LOGO]
Department of Energy
Bonneville Power Administration
P.O. Box 3621
Portland, Oregon 97208-3621
January 29, 1999
In reply refer to: PSB-6
Amendment No. 3
Contract No. 95MS-94854
POWER SALES AGREEMENT
Mr. Gerald F. Miller
Vice President, General Counsel, and Secretary
Golden Northwest Aluminum, Inc.
(Goldendale Aluminum Company)
1111 Main Street, Ste. 710
Vancouver, WA 98660
Dear Mr. Miller:
This letter agreement (Amendment) constitutes an amendment to Contract No.
95MS-94854 (Power Sales Agreement) between the Bonneville Power Administration
(BPA) and Goldendale Aluminum Company (Company). BPA and the Company are
referred to individually as "Party" and jointly as "Parties." The Company has
requested, and BPA has agreed, to allow the Company to purchase 1,115,360
kilowatthours per hour (kWh per hour) of Heavy Load Hour (HLH) and 745,087 kWh
per hour of Light Load Hour (LLH) Firm Energy during the Contract Year beginning
October 1, 1999, and ending on September 30, 2000, and to purchase 1,186,976 kWh
per hour of HLH and 799,983 kWh per hour of LLH Firm Energy during the Contract
Year beginning October 1, 2000, and ending on September 30, 2001. As such, the
Parties have agreed to amend the Power Sales Agreement in order to change the
amounts of HLH and LLH Firm Energy to be purchased by the Company during the
Contract Years 1999-2000 and 2000-2001.
Therefore, BPA proposes the following terms and conditions:
1. EFFECTIVE DATE. This Amendment, when executed by the Parties, shall
become effective at the time of execution.
2. DEFINITIONS. All capitalized terms used herein shall be as defined in
the Power Sales Agreement or the General Rate Schedule Provisions, unless
otherwise specified in this Amendment.
3. AMENDMENT OF POWER SALES AGREEMENT. The Power Sales Agreement is amended
as follows:
Section 9(b) is deleted and replaced by the following:
<PAGE>
"(b) Annual Amounts of Firm Energy. The Company shall purchase, during each
Contract Year, the following annual amounts of HLH and LLH Firm Energy:
<TABLE>
<CAPTION>
Contract Firm LHL Firm LLH
Year Energy (MWh) Energy (MWh)
--------- ------------ ------------
<S> <C> <C>
1996-1997 591,002 436,600
1997-1998 984,608 738,472
1998-1999 980,448 742,631
1999-2000 1,115,360 745,087
2000-2001 1,186,976 799,983
</TABLE>
If this Amendment is acceptable to the Company, please so indicate by signing
both originals and return one original to me. The remaining original is for your
files.
Sincerely,
SYDNEY D. BERWAGER
Senior Account Executive
Name: Sydney D. Berwager
-----------------------------
(Print/Type)
ACCEPTED:
GOLDEN NORTHWEST ALUMINUM, INC.
(GOLDENDALE ALUMINUM COMPANY)
By GERALD F. MILLER
----------------------------------
Name Gerald F. Miller
--------------------------------
(Print/Type)
Vice President,
Title General Counsel, and Secretary
--------------------------------
Date January 29, 1999
--------------------------------
95MS-94854, Goldendale Aluminum Company
Consent of Independent Certified Public Accountants
Golden Northwest Aluminum, Inc.
The Dalles, Oregon
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 16, 1999 relating to the
consolidated financial statements of Golden Northwest Aluminum, Inc. and
Subsidiaries for the years ended December 31, 1998 and 1997 and our report dated
July 31, 1998 relating to the statements of income and cash flows of Goldendale
Smelter Division of Columbia Aluminum Company for the year ended December 31,
1995 and the period from January 1, 1996 through May 21, 1996 which are
contained in this Registration Statement.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Spokane, Washington
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GOLDEN
NORTHWEST ALUMINUM, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001079177
<NAME> Golden Northwest Aluminum, Inc.
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
<CASH> 6,345 1,251 37,633
<SECURITIES> 0 0 0
<RECEIVABLES> 60,490 61,862 47,264
<ALLOWANCES> 1,296 1,000 1,000
<INVENTORY> 51,389 60,892 55,083
<CURRENT-ASSETS> 120,146 125,871 144,386
<PP&E> 113,105 113,812 117,761
<DEPRECIATION> 30,694 40,749 61,147
<TOTAL-ASSETS> 350,815 347,011 366,128
<CURRENT-LIABILITIES> 58,238 89,473 65,994
<BONDS> 185,441 134,941 170,000
0 0 0
29,663 29,663 29,663
<COMMON> 0 0 0
<OTHER-SE> 65,354 65,504 65,504
<TOTAL-LIABILITY-AND-EQUITY> 350,815 347,011 366,128
<SALES> 373,038 497,872 470,850
<TOTAL-REVENUES> 373,038 497,872 470,850
<CGS> 329,739 438,299 443,251
<TOTAL-COSTS> 329,739 438,299 443,251
<OTHER-EXPENSES> 8,012 12,477 10,574
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 9,454 16,723 14,180
<INCOME-PRETAX> 25,541 31,769 (292)
<INCOME-TAX> 6,636 13,274 3,009
<INCOME-CONTINUING> 18,905 18,495 (3,301)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 (1,552)
<CHANGES> 0 0 0
<NET-INCOME> 18,905 18,495 (4,853)
<EPS-PRIMARY> 18,905 18,495 (4,853)
<EPS-DILUTED> 0 0 0
</TABLE>
