UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Commission File Number 1-3924
MAXXAM INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 95-2078752
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
5847 SAN FELIPE, SUITE 2600 77057
HOUSTON, TEXAS (Zip Code)
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (713) 975-7600
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Number of shares of common stock outstanding at August 1, 1996: 8,707,847
MAXXAM INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 1996 and
December 31, 1995 3
Consolidated Statement of Operations for the three
and six months ended June 30, 1996 and 1995 4
Consolidated Statement of Cash Flows for the six months
ended June 30, 1996 and 1995 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures S-1
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
(Unaudited)
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 118.9 $ 104.2
Marketable securities 40.8 45.9
Receivables:
Trade, net of allowance for doubtful
accounts of $5.8 and $5.5 at June
30, 1996 and December 31, 1995,
respectively 227.3 246.2
Other 80.7 98.9
Inventories 631.5 606.8
Prepaid expenses and other current assets 151.3 129.7
------------- -------------
Total current assets 1,250.5 1,231.7
Property, plant and equipment, net of accumulated
depreciation of $725.0 and $678.1 at June
30, 1996 and December 31, 1995, respectively 1,235.4 1,231.9
Timber and timberlands, net of depletion of
$146.4 and $139.6 at June 30, 1996 and
December 31, 1995, respectively 307.4 313.0
Investments in and advances to unconsolidated
affiliates 189.5 189.1
Deferred income taxes 426.1 414.0
Long-term receivables and other assets 468.4 452.6
------------- -------------
$ 3,877.3 $ 3,832.3
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 174.9 $ 196.7
Accrued interest 57.9 58.0
Accrued compensation and related benefits 151.2 166.5
Other accrued liabilities 153.4 148.4
Payable to affiliates 92.6 90.2
Long-term debt, current maturities 24.4 25.1
------------- -------------
Total current liabilities 654.4 684.9
Long-term debt, less current maturities 1,648.5 1,585.1
Accrued postretirement benefits 738.6 742.6
Other noncurrent liabilities 679.6 680.3
------------- -------------
Total liabilities 3,721.1 3,692.9
------------- -------------
Commitments and contingencies
Minority interests 216.9 223.2
Stockholders' deficit:
Preferred stock, $.50 par value; 12,500,000
shares authorized; Class A $.05 Non-
Cumulative Participating Convertible
Preferred Stock; shares issued: 669,701 .3 .3
Common stock, $.50 par value; 28,000,000
shares authorized; shares issued:
10,063,359 5.0 5.0
Additional capital 155.4 155.0
Accumulated deficit (185.8) (208.5)
Pension liability adjustment (16.1) (16.1)
Treasury stock, at cost (shares held:
preferred - 845; common: 1,355,512) (19.5) (19.5)
------------- -------------
Total stockholders' deficit (60.7) (83.8)
------------- -------------
$ 3,877.3 $ 3,832.3
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
(In millions of dollars, except share amounts)
<S> <C> <C> <C> <C>
Net sales:
Aluminum operations $ 567.6 $ 583.4 $ 1,098.7 $ 1,096.4
Forest products operations 71.3 65.6 131.1 117.6
Real estate operations 28.8 24.3 50.1 40.6
------------- ------------- ------------- -------------
667.7 673.3 1,279.9 1,254.6
------------- ------------- ------------- -------------
Costs and expenses:
Costs of sales and operations
(exclusive of depreciation
and depletion):
Aluminum operations 476.1 463.8 909.8 890.5
Forest products operations 41.4 33.0 74.5 62.5
Real estate operations 23.4 16.3 40.3 28.4
Selling, general and
administrative expenses 49.5 47.2 94.2 89.8
Depreciation and depletion 31.3 31.1 61.9 60.9
------------- ------------- ------------- -------------
621.7 591.4 1,180.7 1,132.1
------------- ------------- ------------- -------------
Operating income 46.0 81.9 99.2 122.5
Other income (expense):
Investment, interest and other
income 10.2 5.5 15.5 9.1
Interest expense (45.6) (45.4) (90.7) (90.8)
------------- ------------- ------------- -------------
Income before income taxes and
minority interests 10.6 42.0 24.0 40.8
Credit (provision) for income taxes 9.1 (10.0) 4.1 (2.8)
Minority interests (2.8) (6.6) (5.4) (13.6)
------------- ------------- ------------- -------------
Net income $ 16.9 $ 25.4 $ 22.7 $ 24.4
============= ============= ============= =============
Net income per common and common
equivalent share $ 1.78 $ 2.69 $ 2.40 $ 2.58
============= ============= ============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1996 1995
------------- -------------
(In millions of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22.7 $ 24.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 61.9 60.9
Net sales (purchases) of marketable
securities 8.6 (1.7)
Minority interests 5.4 13.6
Amortization of deferred financing costs
and discounts on long-term debt 10.6 9.5
Equity in income of unconsolidated
affiliates (7.9) (7.1)
Decrease (increase) in receivables 39.5 (43.2)
Decrease in payable to affiliates and
other liabilities (34.1) (12.1)
Increase in inventories (26.7) (45.3)
Increase (decrease) in accrued interest (.2) .2
Decrease (increase) in prepaid expenses
and other assets (21.4) 64.6
Decrease in accounts payable (21.8) (14.6)
Increase in accrued and deferred income
taxes (13.3) (6.3)
Other .4 .2
------------- -------------
Net cash provided by operating
activities 23.7 43.1
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposition of property
and investments 8.2 11.0
Capital expenditures (63.8) (33.8)
Other (2.9) (.3)
------------- -------------
Net cash used for investing
activities (58.5) (23.1)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit
agreements 66.5 41.1
Proceeds from issuance of long-term debt 4.3 2.6
Principal payments on long-term debt (15.4) (20.8)
Dividends paid to Kaiser's minority
preferred stockholders (4.2) (15.6)
Redemption of preference stock (5.1) (8.7)
Other 3.4 2.0
------------- -------------
Net cash provided by financing
activities 49.5 .6
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14.7 20.6
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 104.2 84.6
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 118.9 $ 105.2
============= =============
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Net repayments of margin borrowings for
marketable securities $ - $ 6.9
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $ 80.2 $ 81.0
Income taxes paid 18.3 17.1
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. GENERAL
The information contained in the following notes to the
consolidated financial statements is condensed from that which would appear
in the annual consolidated financial statements; accordingly, the
consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and related notes
thereto contained in the Annual Report on Form 10-K filed by MAXXAM Inc.
with the Securities and Exchange Commission for the fiscal year ended
December 31, 1995 (the "Form 10-K"). All references to the "Company"
include MAXXAM Inc. and its subsidiary companies unless otherwise indicated
or the context indicates otherwise. Any capitalized term used but not
defined in the following Condensed Notes to the Consolidated Financial
Statements have the same meaning given to them as in the Form 10-K.
Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the results to
be expected for the entire year.
The consolidated financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present fairly
the consolidated financial position of the Company at June 30, 1996, the
consolidated results of operations for the three and six months ended June
30, 1996 and 1995 and consolidated cash flows for the six months ended June
30, 1996 and 1995. Certain reclassifications of prior period information
have been made to conform to the current presentation.
2. RESTRICTED CASH
Long-term receivables and other assets, as reflected on the
accompanying consolidated balance sheet, includes restricted cash in the
amount of $31.1 and $31.4 at June 30, 1996 and December 31, 1995,
respectively. Such restricted cash represents the amount deposited into an
account held by the Trustee under the indenture governing the Timber Notes
of the Company's indirect wholly owned subsidiary, Scotia Pacific Holding
Company ("Scotia Pacific").
At June 30, 1996 and December 31, 1995, cash and cash equivalents
also includes $11.3 and $19.7, respectively, which is restricted for debt
service payments on the succeeding note payment date for the Timber Notes.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
Aluminum Operations:
Finished fabricated products $ 107.4 $ 91.5
Primary aluminum and work in process 197.1 195.9
Bauxite and alumina 131.2 119.6
Operating supplies and repair and
maintenance parts 123.0 118.7
-------------- --------------
558.7 525.7
-------------- --------------
Forest Products Operations:
Lumber 60.0 65.5
Logs 12.8 15.6
-------------- --------------
72.8 81.1
-------------- --------------
$ 631.5 $ 606.8
============== ==============
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
Corporate:
14% MAXXAM Senior Subordinated Reset
Notes due May 20, 2000 $ 25.0 $ 25.0
12-1/2% MAXXAM Subordinated Debentures
due December 15, 1999, net of
discount 16.6 16.5
Other - .1
Aluminum Operations:
1994 KACC Credit Agreement 80.4 13.1
9-7/8% KACC Senior Notes due February
15, 2002, net of discount 223.9 223.8
Alpart CARIFA Loan 60.0 60.0
12-3/4% KACC Senior Subordinated Notes
due February 1, 2003 400.0 400.0
Other 55.6 61.2
Forest Products Operations:
7.95% Scotia Pacific Timber
Collateralized Notes due July 20,
2015 341.7 350.2
11-1/4% MGI Senior Secured Notes due
August 1, 2003 100.0 100.0
12-1/4% MGI Senior Secured Discount
Notes due August 1, 2003, net of
discount 98.2 92.5
10-1/2% Pacific Lumber Senior Notes due
March 1, 2003 235.0 235.0
Other .7 .8
Real Estate and Other Operations:
11% SHRP, Ltd. Senior Secured Extendible
Notes due September 1, 2001, net of
discount 14.8 13.3
RTC Portfolio secured notes due December
31, 1999, interest at prime plus 3% 11.7 8.0
Other notes and contracts, secured by
receivables, buildings, real estate
and equipment 9.3 10.7
------------- -------------
1,672.9 1,610.2
Less: current maturities (24.4) (25.1)
------------- -------------
$ 1,648.5 $ 1,585.1
============= =============
</TABLE>
On April 24, 1996, the Securities and Exchange Commission ("SEC")
declared effective a shelf registration statement which the Company had
filed with respect to up to $200.0 aggregate principal amount of debt
securities. The Company has not determined the amount, interest rates,
maturity, collateral (if any) or other terms of such debt securities or the
timing of any offering of such debt securities. The debt securities could
be secured by, or convertible into, shares of common stock of Kaiser
Aluminum Corporation ("Kaiser," a majority-owned subsidiary of the Company)
owned by the Company. In that regard, Kaiser also filed a shelf
registration statement with the SEC, which was also declared effective on
April 24, 1996, covering 10 million shares of its common stock owned by the
Company. The Company would use the net proceeds (or portions thereof) from
the sale of such debt securities to retire outstanding debt, for working
capital and general corporate purposes.
5. PER SHARE INFORMATION
Per share calculations are based on the weighted average number
of common shares outstanding in each period and, if dilutive, weighted
average common equivalent shares assumed to be issued from the exercise of
common stock options based upon the average price of the Company's common
stock during the period.
6. CREDIT (PROVISION) FOR INCOME TAXES
The Company's credit (provision) for income taxes differs from
the federal statutory rate due principally to (i) the revision of prior
years' tax estimates and other changes in valuation allowances, (ii)
percentage depletion, and (iii) foreign, state and local taxes, net of
related federal tax benefits. Revision of prior years' tax estimates
includes amounts for the reversal of reserves which the Company no longer
believes are necessary. Generally, the reversal of reserves relate to the
expiration of the relevant statute of limitations with respect to certain
income tax returns, or the resolution of specific income tax matters with
the relevant tax authorities. The credit for income taxes for the second
quarter of 1996 includes a benefit of $13.4 million relating to the
reversal of reserves the Company no longer believes are necessary. The
Company's provision for income taxes for the second quarter and six months
ended June 30, 1995, reflects a benefit of $4.9 million and $12.8 million,
respectively, relating to the reversal of reserves the Company no longer
believes are necessary.
7. CONTINGENCIES
Environmental Contingencies
Kaiser and its principal operating subsidiary, Kaiser Aluminum &
Chemical Corporation ("KACC"), are subject to a number of environmental
laws and regulations, to fines or penalties assessed for alleged breaches
of the environmental laws, and to claims and litigation based on such laws.
KACC is currently subject to a number of lawsuits under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendments Reauthorization Act of 1986 ("CERCLA") and,
along with certain other entities, has been named as a potentially
responsible party for remedial costs at certain third-party sites listed on
the National Priorities List under CERCLA.
Based on Kaiser's evaluation of these and other environmental
matters, Kaiser has established environmental accruals primarily related to
potential solid waste disposal and soil and groundwater remediation
matters. At June 30, 1996, the balance of such accruals, which is
primarily included in other noncurrent liabilities, was $34.6. These
environmental accruals represent Kaiser's estimate of costs reasonably
expected to be incurred based on presently enacted laws and regulations,
currently available facts, existing technology, and Kaiser's assessment of
the likely remediation action to be taken. Kaiser expects that these
remediation actions will be taken over the next several years and estimates
that annual expenditures to be charged to these environmental accruals will
be approximately $3.0 to $10.0 for the years 1996 through 2000 and an
aggregate of approximately $8.0 thereafter.
As additional facts are developed and definitive remediation
plans and necessary regulatory approvals for implementation of remediation
are established or alternative technologies are developed, changes in these
and other factors may result in actual costs exceeding the current
environmental accruals. Kaiser believes that it is reasonably possible
that costs associated with these environmental matters may exceed current
accruals by amounts that could range, in the aggregate, up to an estimated
$22.0 and that the factors upon which a substantial portion of this
estimate is based are expected to be resolved in early 1997. While
uncertainties are inherent in the final outcome of these environmental
matters, and it is impossible to determine the actual costs that ultimately
may be incurred, management believes that the resolution of such
uncertainties should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
Asbestos Contingencies
KACC is a defendant in a substantial number of lawsuits, some of
which involve claims of multiple persons, in which the plaintiffs allege
that certain of their injuries were caused by, among other things, exposure
to asbestos during, and as a result of, their employment or association
with KACC or exposure to products containing asbestos produced or sold by
KACC. The lawsuits generally relate to products KACC has not manufactured
for at least 15 years. At June 30, 1996, the number of such lawsuits
pending was approximately 71,900, as compared to 59,700 at December 31,
1995. In 1995, approximately 41,700 of such claims were received and
approximately 7,200 were settled or dismissed and, during the first six
months of 1996, approximately 15,400 of such claims were received and
approximately 3,200 were settled or dismissed.
Based on past experience and reasonably anticipated future
activity, Kaiser has established an accrual for estimated asbestos-related
costs for claims filed and estimated to be filed and settled through 2008.
There are inherent uncertainties involved in estimating asbestos-related
costs, and Kaiser's actual costs could exceed these estimates. Kaiser's
accrual was calculated based on the current and anticipated number of
asbestos-related claims, the prior timing and amounts of asbestos-related
payments, and the advice of Wharton Levin Ehrmantraut Klein & Nash, P.A.
with respect to the current state of the law related to asbestos claims.
Accordingly, an asbestos-related cost accrual of $159.9, before
consideration of insurance recoveries, is included primarily in other
noncurrent liabilities at June 30, 1996. Kaiser estimates that annual
future cash payments in connection with such litigation will be
approximately $13.0 to $20.0 for each of the years 1996 through 2000, and
an aggregate of approximately $78.0 thereafter through 2008. While Kaiser
does not believe there is a reasonable basis for estimating such costs
beyond 2008, and, accordingly, did not accrue such costs, there is a
reasonable possibility that such costs may continue beyond 2008, and that
such costs may be substantial.
A substantial portion of the asbestos-related claims that were
filed and served on KACC during 1995 and the first half of 1996 were filed
in Texas. KACC has been advised by its regional counsel that, although
there can be no assurance, the increase in pending claims may have been
attributable in part to tort reform legislation in Texas. Although
asbestos-related claims are currently excluded from certain aspects of the
Texas tort reform legislation, management has been advised that efforts to
remove the asbestos-related exemption in the tort reform legislation, as
well as other developments in the legislative and legal environment in
Texas, may be responsible for the accelerated pace of new claims
experienced in late 1995 and its continuance through the first half of
1996, albeit at a somewhat reduced rate.
Kaiser believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs. Claims for
recovery from some of KACC's insurance carriers are currently subject to
pending litigation and other carriers have raised certain defenses, which
have resulted in delays in recovering costs from the insurance carriers.
The timing and amount of ultimate recoveries from these insurance carriers
are dependent upon the resolution of these disputes. KACC believes, based
on prior insurance-related recoveries with respect to asbestos-related
claims, existing insurance policies, and the advice of Thelen, Marrin,
Johnson & Bridges with respect to applicable insurance coverage law
relating to the terms and conditions of those policies, that substantial
recoveries from the insurance carriers are probable. Accordingly, an
estimated aggregate insurance recovery of $140.8, determined on the same
basis as the asbestos-related cost accrual, is recorded primarily in long-
term receivables and other assets at June 30, 1996.
Management continues to monitor claims activity, the state of the
lawsuits (including settlement initiatives), legislative progress, and
costs incurred in order to ascertain whether an adjustment to the existing
accruals should be made to the extent that historical experience may differ
significantly from Kaiser's underlying assumptions. While uncertainties
are inherent in the final outcome of these asbestos matters and it is
impossible to determine the actual costs that ultimately may be incurred
and the insurance recoveries that will be received, management currently
believes that, based on the factors discussed in the preceding paragraphs,
the resolution of the asbestos-related uncertainties and the incurrence of
asbestos-related costs net of related insurance recoveries should not have
a material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
OTS Contingency and Related Matters
On December 26, 1995, the United States Department of Treasury's
Office of Thrift Supervision ("OTS") initiated formal administrative
proceedings against the Company and others by filing a Notice of Charges
(the "Notice"). The Notice alleges misconduct by the Company, Federated
Development Company ("Federated," a New York business trust wholly owned by
Mr. Charles E. Hurwitz, members of his immediate family and trusts for the
benefit thereof), Mr. Hurwitz and others (the "respondents") with respect
to the failure of United Savings Association of Texas ("USAT"), a wholly
owned subsidiary of United Financial Group Inc. ("UFG"). The Notice claims
that the Company was a savings and loan holding company, that with others
it controlled USAT, and that it was therefore obligated to maintain the net
worth of USAT. The Notice makes numerous other allegations against the
Company and the other respondents, including, among other things,
allegations that through USAT it was involved in prohibited transactions
with Drexel, Burnham, Lambert Inc. The OTS, among other things, seeks
unspecified damages in excess of $138.0 from the Company, civil money
penalties and a removal from, and prohibition against the Company and the
other respondents engaging in, the banking industry. The Company has
concluded that it is unable to determine a reasonable estimate of the loss
(or range of loss), if any, that could result from this contingency.
Accordingly, it is impossible to assess the ultimate impact, if any, of the
outcome this matter may have on the Company's consolidated financial
position, results of operations or liquidity.
On August 2, 1995, the Federal Deposit Insurance Corporation
("FDIC") filed a civil action entitled Federal Deposit Insurance
Corporation, as manager of the FSLIC Resolution Fund v. Charles E. Hurwitz
(No. H-95-3936) (the "FDIC action") in the U.S. District Court for the
Southern District of Texas (the "Court"). The FDIC action did not name the
Company as a defendant. The suit against Mr. Hurwitz seeks damages in
excess of $250.0 based on the allegation that Mr. Hurwitz was a controlling
shareholder, de facto senior officer and director of USAT, and was involved
in certain decisions which contributed to the insolvency of USAT. The FDIC
further alleges, among other things, that Mr. Hurwitz was obligated to
ensure that UFG, Federated and the Company maintained the net worth of
USAT. On November 14, 1995, Mr. Hurwitz filed a motion to join the OTS to
this action. On December 8, 1995, the Company filed a motion to intervene
in this action and conditioned it on the Court joining the OTS to this
action. The Company also filed a proposed complaint which alleges that the
OTS violated the Administrative Procedures Act by rejecting the Company's
bid for USAT. The Company's bylaws provide for indemnification of its
officers and directors to the fullest extent permitted by Delaware law.
The Company is obligated to advance defense costs to its officers and
directors, subject to the individual's obligation to repay such amount if
it is ultimately determined that the individual was not entitled to
indemnification. In addition, the Company's indemnity obligation can,
under certain circumstances, include amounts other than defense costs,
including judgments and settlements. The Company has concluded that it is
unable to determine a reasonable estimate of the loss (or range of loss),
if any, that could result from this contingency. It is impossible to
assess the ultimate outcome of the foregoing matter or its potential impact
on the Company's consolidated financial position, results of operations or
liquidity.
Other Contingencies
The Company is involved in various other claims, lawsuits and
other proceedings relating to a wide variety of matters. While
uncertainties are inherent in the final outcome of such matters and it is
impossible to determine the actual costs that ultimately may be incurred,
management currently believes that the resolution of such uncertainties and
the incurrence of such costs should not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
8. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
KACC enters into primary aluminum hedging transactions in the
normal course of business. The prices realized by KACC under certain sales
contracts for alumina, primary aluminum and fabricated aluminum products as
well as the costs incurred by KACC on certain items, such as aluminum
scrap, rolling ingot, power and bauxite, fluctuate with the market price of
primary aluminum, together resulting in a "net exposure" of earnings. The
primary aluminum hedging transactions are designed to mitigate the net
exposure of earnings to declines in the market price of primary aluminum,
while retaining the ability to participate in favorable environments that
may materialize. KACC has employed strategies which include forward sales
and purchases of primary aluminum at fixed prices and the purchase or sale
of options for primary aluminum. With respect to its 1996, 1997 and 1998
anticipated net exposure, at June 30, 1996, KACC had sold forward 166,500
tons (all references to tons in this report refer to metric tons of 2,204.6
pounds) of primary aluminum at fixed prices, had purchased 28,900 tons of
primary aluminum under forward purchase contracts at fixed prices, and had
purchased put options to establish a minimum price for 157,000 tons of
primary aluminum.
In addition, at June 30, 1996, KACC had sold approximately 97%,
62% and 77% of the alumina available to it in excess of its projected
internal smelting requirements for 1996, 1997 and 1998, respectively.
Approximately 42% of such alumina sold for 1996 and all of such alumina
sold for 1997 and 1998 have been sold at prices linked to the future prices
of primary aluminum as a percentage of the price of primary aluminum
("Variable Price Contracts"), and approximately 58% of such alumina sold
for 1996 has been sold at fixed prices ("Fixed Price Contracts"). The
average realized prices of alumina sold under Variable Price Contracts will
depend on future prices of primary aluminum, and the average realized
prices of alumina sold under Fixed Price Contracts will substantially
exceed Kaiser's manufacturing cost of alumina.
From time to time, KACC also enters into forward purchase and
option transactions to limit its exposure to increases in fuel costs. At
June 30, 1996, KACC had entered into a series of transactions to limit its
costs for 40,000 MM Btu of natural gas per day through October 1996.
During July 1996, KACC entered into additional transactions for 40,000 MM
Btu per day to reduce its exposure to increases in natural gas prices
through March 1997.
KACC also enters into hedging transactions in the normal course
of business that are designed to reduce its exposure to fluctuations in
foreign exchange rates. At June 30, 1996, KACC had net forward foreign
exchange contracts totaling approximately $92.2 for the purchase of 127.0
Australian dollars from July 1996 through May 1998, in respect of its
commitments for 1996, 1997 and 1998 expenditures denominated in Australian
dollars.
At June 30, 1996, the net unrealized gain on KACC's position in
aluminum forward sales and option contracts, based on an average price of
$1,588 per ton ($.72 per pound) of primary aluminum, natural gas forward
purchase and option contracts, and forward foreign exchange contracts was
$21.0.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the response to
Part I, Item 1 of this Report and Items 7 and 8 of the Form 10-K. Any
capitalized terms used but not defined in this Item have the same meaning
given to them in the Form 10-K.
RESULTS OF OPERATIONS
The Company operates in three principal industries: aluminum,
through its majority owned subsidiary Kaiser, a fully integrated aluminum
producer; forest products, through MAXXAM Group Inc. ("MGI") and its wholly
owned subsidiaries, principally The Pacific Lumber Company ("Pacific
Lumber") and Britt Lumber Co., Inc.; real estate investment and
development, managed through MAXXAM Property Company; and other commercial
operations through various other wholly owned subsidiaries.
ALUMINUM OPERATIONS
Aluminum operations account for a substantial portion of the
Company's revenues and operating results. Kaiser's operating results are
sensitive to changes in prices of alumina, primary aluminum and fabricated
aluminum products, and also depend to a significant degree upon the volume
and mix of all products sold and on hedging strategies. Kaiser, through
its principal subsidiary KACC, operates in two business segments: bauxite
and alumina, and aluminum processing. The following table presents
selected operational and financial information for the three and six months
ended June 30, 1996 and 1995. The information presented in the table is in
millions of dollars except shipments and prices.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shipments: (1)
Alumina 431.9 576.6 908.1 1,023.1
Aluminum products:
Primary aluminum 100.0 63.8 174.8 111.5
Fabricated aluminum
products 85.1 99.4 162.3 193.9
------------- ------------- ------------- -------------
Total aluminum
products 185.1 163.2 337.1 305.4
============= ============= ============= =============
Average realized sales price:
Alumina (per ton) $ 207 $ 206 $ 208 $ 202
Primary aluminum (per pound) .69 .83 .71 .82
Net sales:
Bauxite and alumina:
Alumina $ 89.5 $ 118.7 $ 188.5 $ 206.6
Other (2) (3) 27.0 23.9 51.4 43.0
------------- ------------- ------------- -------------
Total bauxite and
alumina 116.5 142.6 239.9 249.6
------------- ------------- ------------- -------------
Aluminum processing:
Primary aluminum 153.1 116.6 272.2 201.6
Fabricated aluminum
products 294.1 319.8 579.0 636.0
Other (3) 3.9 4.4 7.6 9.2
------------- ------------- ------------- -------------
Total aluminum
processing 451.1 440.8 858.8 846.8
------------- ------------- ------------- -------------
Total net sales $ 567.6 $ 583.4 $ 1,098.7 $ 1,096.4
============= ============= ============= =============
Operating income $ 38.1 $ 65.0 $ 79.9 $ 99.1
============= ============= ============= =============
Income before income taxes and
minority interests $ 16.3 $ 40.1 $ 35.1 $ 49.9
============= ============= ============= =============
Capital expenditures $ 31.9 $ 13.4 $ 51.7 $ 27.1
============= ============= ============= =============
<FN>
(1) Shipments are expressed in thousands of metric tons. A metric ton is equivalent to 2,204.6 pounds.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority interests in consolidated subsidiaries.
</TABLE>
Net sales
Bauxite and alumina. Net sales to third parties for the
bauxite and alumina segment decreased 18% in the second quarter of 1996
from the second quarter of 1995, and decreased 4% in the six months ended
June 30, 1996 from the six months ended June 30, 1995. Net sales from
alumina decreased 25% in the second quarter of 1996 from the second quarter
of 1995 due to lower shipments as a result of routine fluctuations in the
timing of cargo vessel departures, compounded by below-average production
at the Company's 65%-owned Alpart alumina refinery in Jamaica ("Alpart")
due to an earlier power outage and at the Gramercy, Louisiana, facility due
to a temporary material quality problem. Net sales from alumina decreased
9% in the six months ended June 30, 1996 from the six months ended June 30,
1995, due to lower shipments partially offset by higher average realized
prices.
Aluminum processing. Net sales to third parties for the
aluminum processing segment increased 2% in the second quarter of 1996 from
the second quarter of 1995, and were approximately the same for the six
months ended June 30, 1996 and 1995. Net sales from primary aluminum
increased 31% in the second quarter of 1996 from the second quarter of
1995, and increased 35% in the six months ended June 30, 1996 from the six
months ended June 30, 1995, due primarily to higher shipments, partially
offset by lower average realized prices. Net sales for the first half of
1995 were adversely affected by decreased shipments caused by the strike by
the United Steelworkers of America ("USWA") discussed below. Shipments of
primary aluminum to third parties were approximately 54% and 52% of total
aluminum products shipments in the second quarter of 1996 and six months
ended June 30, 1996, respectively, compared with approximately 39% and 37%
in the second quarter of 1995 and six months ended June 30, 1995,
respectively. Net sales from fabricated aluminum products decreased 8% in
the second quarter of 1996 from the second quarter of 1995, and decreased
9% in the six months ended June 30, 1996 from the six months ended June 30,
1995, due to lower shipments for most of these products, partially offset
by higher average realized prices for most of these products.
Operating income (loss)
Kaiser's corporate general and administrative expenses of $14.7
million and $19.3 million for the second quarter of 1996 and 1995,
respectively, and $32.7 million and $37.4 million for the six months ended
June 30, 1996 and 1995, respectively, were allocated by the Company to the
bauxite and alumina and aluminum processing segments based on those
segments' ratio of sales to unaffiliated customers.
Operating results for the six months ended June 30, 1995 were
negatively impacted by (i) an eight-day strike at five major domestic
locations by the USWA, (ii) a six-day strike by the National Workers Union
at Alpart, and (iii) a four-day disruption of alumina production at Alpart
caused by a boiler failure. The combined impact of these events on the
results for the six months ended June 30, 1995 was approximately $17.0
million in the aggregate (on a pre-tax basis) principally from lower
production volume and other related costs.
Bauxite and alumina. Operating loss for the bauxite and alumina
segment for the second quarter of 1996 was $1.4 million, compared with an
operating income of $16.0 million for the second quarter of 1995,
principally due to lower revenue. Operating income for the six months
ended June 30, 1996 was $4.8 million, compared to $14.2 million for the six
months ended June 30, 1995, principally due to lower revenue. Operating
results for the first half of 1995 were negatively impacted by the effect
of the strikes and boiler failure.
Aluminum processing. Operating income for the aluminum
processing segment for the second quarter of 1996 was $39.4 million,
compared to $49.0 million for the second quarter of 1995, principally due
to lower revenue. Operating income for the six months ended June 30, 1996
was $75.0 million, compared to $84.9 million for the six months ended June
30, 1995, principally due to lower revenue. Operating results for the
first half of 1995 were negatively impacted by the effect of the strike by
the USWA.
Income (loss) before income taxes and minority interests
Income before income taxes and minority interests for the three
and six months ended June 30, 1996 decreased from the three and six months
ended June 30, 1995, principally due to the declines in operating income as
discussed above.
FOREST PRODUCTS OPERATIONS
The Company's forest products operations are conducted by MGI
through its principal operating subsidiaries. MGI's business is seasonal
in that the forest products business generally experiences lower first
quarter sales due largely to the general decline in construction-related
activity during the winter months. Accordingly, MGI's results for any one
quarter are not necessarily indicative of results to be expected for the
full year. The following table presents selected operational and financial
information for the three and six months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
(In millions of dollars, except shipments and prices)
<S> <C> <C> <C> <C>
Shipments:
Lumber: (1)
Redwood upper grades 12.9 12.8 23.3 23.5
Redwood common grades 60.8 64.8 118.1 115.9
Douglas-fir upper grades 2.8 1.4 5.0 3.2
Douglas-fir common grades 18.6 11.1 37.9 24.5
Other 8.4 4.0 10.3 7.0
-------------- -------------- -------------- --------------
Total lumber 103.5 94.1 194.6 174.1
============== ============== ============== ==============
Logs (2) 5.7 1.6 11.6 2.1
============== ============== ============== ==============
Wood chips (3) 52.4 52.8 101.4 99.7
============== ============== ============== ==============
Average sales price:
Lumber: (4)
Redwood upper grades $ 1,392 $ 1,478 $ 1,389 $ 1,508
Redwood common grades 525 498 504 467
Douglas-fir upper grades 1,158 1,290 1,156 1,333
Douglas-fir common grades 438 378 407 378
Logs (4) 544 559 505 482
Wood chips (5) 67 99 77 94
Net sales:
Lumber, net of discount $ 63.5 $ 58.8 $ 115.4 $ 105.7
Logs 3.0 .9 5.8 1.0
Wood chips 3.5 5.2 7.8 9.4
Cogeneration power .9 .4 1.3 .8
Other .4 .3 .8 .7
-------------- -------------- -------------- --------------
Total net sales $ 71.3 $ 65.6 $ 131.1 $ 117.6
============== ============== ============== ==============
Operating income $ 19.3 $ 22.0 $ 35.9 $ 34.6
============== ============== ============== ==============
Operating cash flow (6) $ 26.3 $ 29.1 $ 49.4 $ 47.5
============== ============== ============== ==============
Income before income taxes and
minority interests $ 2.7 $ 5.1 $ 3.3 $ -
============== ============== ============== ==============
Capital expenditures $ 3.1 $ 2.6 $ 5.9 $ 4.5
============== ============== ============== ==============
<FN>
(1) Lumber shipments are expressed in millions of board feet.
(2) Log shipments are expressed in millions of feet, net Scribner scale.
(3) Wood chip shipments are expressed in thousands of bone dry units of 2,400 pounds.
(4) Dollars per thousand board feet.
(5) Dollars per bone dry unit.
(6) Operating income before depletion and depreciation, also referred to as "EBITDA."
</TABLE>
Shipments
Lumber shipments to third parties for the second quarter of 1996
increased from the second quarter of 1995. Increased shipments of common
Douglas-fir lumber were partially offset by decreased shipments of redwood
common lumber. Log shipments for the second quarter of 1996 were 5.7
million feet (net Scribner scale), an increase of 4.1 million feet from the
second quarter of 1995.
Lumber shipments to third parties for the six months ended June
30, 1996 increased from the six months ended June 30, 1995 due primarily to
increased shipments of Douglas-fir and redwood common lumber. Log
shipments for the six months ended June 30, 1996 were 11.6 million feet, an
increase of 9.5 million feet from the six months ended June 30, 1995.
Net sales
Net sales for the second quarter of 1996 increased from the
second quarter of 1995. This increase was principally due to higher
shipments and average realized prices of common Douglas-fir lumber,
increased shipments of logs and upper grade Douglas-fir lumber and higher
average realized prices for redwood common lumber, partially offset by
decreased shipments of redwood common lumber and lower average realized
prices for upper grade redwood lumber and wood chips.
Net sales for the six months ended June 30, 1996 increased from
the six months ended June 30, 1995. This increase was principally due to
higher shipments of common and upper grade Douglas-fir lumber, logs and
higher average realized prices for Douglas-fir and redwood common lumber,
partially offset by lower average realized prices for upper grade redwood
lumber and wood chips. Shipments of fencing and other value-added common
lumber products from the Company's new remanufacturing facility were a
contributing factor in the improved redwood common lumber realizations.
Operating income
Operating income for the second quarter of 1996 decreased from
the second quarter of 1995 and increased for the six months ended June 30,
1996 from the six months ended June 30, 1995. Cost of goods sold increased
during the quarter and six month period ended June 30, 1996 compared to the
same periods in 1995 primarily due to the increased costs associated with
the higher shipments of common grade lumber. Additionally, cost of goods
sold for the second quarter of 1995 was reduced by $1.5 million of business
interruption proceeds for the settlement of claims related to the April
1992 earthquake.
Income before income taxes and minority interests
Income before income taxes for the second quarter of 1996
decreased from the second quarter of 1995 principally due to the decrease
in operating income discussed above. Income before income taxes for the
six months ended June 30, 1996 increased from the same period in 1995,
primarily as a result of the increase in operating income as discussed
above.
REAL ESTATE AND OTHER OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
(In millions of dollars)
<S> <C> <C> <C> <C>
Net sales $ 28.8 $ 24.3 $ 50.1 $ 40.6
Operating loss (1.0) (.3) (2.7) (3.6)
Income (loss) before income taxes and
minority interests 2.0 1.2 1.2 (1.5)
</TABLE>
Net sales
Net sales for the second quarter of 1996 and the six months ended
June 30, 1996 increased from the same periods in 1995, principally due to
$5.7 million and $10.3 million, respectively, of revenues attributable to
Sam Houston Race Park, Ltd. ("SHRP, Ltd."). Operating results with respect
to SHRP, Ltd. were not consolidated prior to October 6, 1995.
Operating loss
The operating loss decreased for the second quarter of 1996 and
for the six months ended June 30, 1996 from the same periods in 1995,
principally due to higher sales of real property in the Palmas del Mar
development in Puerto Rico. The operating loss for the second quarter and
the six months ended June 30, 1996 included losses of $.3 million and $1.0
million, respectively, due to the operations of SHRP Ltd.
Income (loss) before income taxes and minority interests
Income before income taxes and minority interests for the second
quarter of 1996 and for the six months ended June 30, 1996 increased
compared to the loss for the same periods in 1995. Investment, interest
and other income for the second quarter of 1996 includes a pre-tax gain of
$3.1 million from the sale of a multi-family property from the RTC
Portfolio for $6.3 million. Additionally, investment income for the
quarter and the six months ended June 30, 1996 include income derived from
lot sales at SunRidge Canyon, the Company's 50%-owned joint venture in
Arizona. Interest expense for the second quarter of 1996 and for the six
months ended June 30, 1996 includes interest on SHRP Ltd.'s Senior Secured
Extendible Notes (see Note 4 of the Condensed Notes to Consolidated
Financial Statements).
OTHER ITEMS NOT DIRECTLY RELATED TO INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
(In millions of dollars)
<S> <C> <C> <C> <C>
Operating loss $ (10.4) $ (4.8) $ (13.9) $ (7.6)
Loss before income taxes and minority
interests (10.4) (4.4) (15.6) (7.6)
</TABLE>
Operating loss
The operating losses represent corporate general and
administrative expenses that are not attributable to the Company's industry
segments. The operating losses for the second quarter of 1996 and the six
months ended June 30, 1996 increased from the same periods in 1995
principally due to a $7.0 million accrual for certain legal contingencies.
Loss before income taxes and minority interests
The loss before income taxes and minority interests includes
operating losses, investment, interest and other income (expense) and
interest expense, including amortization of deferred financing costs, that
are not attributable to the Company's industry segments. The losses for
the second quarter of 1996 and the six months ended June 30, 1996 increased
from the same periods in 1995 principally due to increased operating losses
discussed above.
Credit (Provision) for Income Taxes
The Company's credit for income taxes for the second quarter of
1996 and the provision for income taxes for the second quarter and six
months ended June 30, 1995 include the reversal of reserves the Company no
longer believes are necessary (see Note 6 of the Condensed Notes to
Consolidated Financial Statements).
Minority interests
Minority interests represent the minority stockholders' interest
in the Company's aluminum operations and, with respect to periods after
October 6, 1995, the minority partners' interest in SHRP, Ltd.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
THE COMPANY
Certain of the Company's subsidiaries, principally Kaiser and
MGI, are restricted by their various debt agreements as to the amount of
funds that can be paid in the form of dividends or loaned to the Company.
The 1994 KACC Credit Agreement and the indentures governing the KACC Senior
Notes and the KACC Senior Subordinated Notes contain covenants which, among
other things, limit Kaiser's ability to pay cash dividends and restrict
transactions between Kaiser and its affiliates. Pursuant to the terms of
the 1994 KACC Credit Agreement, Kaiser is precluded from paying any
dividends with respect to its common stock. The indenture governing the
MGI Senior Notes and the MGI Discount Notes contains various covenants
which, among other things, limit the payment of dividends and restrict
transactions between MGI and its affiliates. In January 1996, MGI paid
dividends of $1.6 million. As of June 30, 1996, an additional $2.3 million
of dividends could be paid by MGI. The covenants governing debt of the
Company's real estate and other subsidiaries would permit payment to the
Company of approximately $10.7 million as of June 30, 1996.
As of June 30, 1996, the Company (excluding its subsidiaries) had
cash and marketable securities of approximately $41.9 million and available
borrowings under its Custodial Trust Agreement (defined below) of $25.0
million. The Company believes that its existing cash, cash equivalents and
marketable securities (excluding such items owned by its subsidiaries),
together with available sources of financing, will be sufficient to fund
its working capital requirements for the next year. With respect to its
long-term liquidity, the Company believes that its existing cash and cash
resources, together with the cash proceeds from the sale of assets,
distributions from its subsidiaries, and the proceeds from the sale of debt
securities should be sufficient to meet its working capital requirements.
See Note 7 of the Condensed Notes to Consolidated Financial Statements for
a discussion of the Company's material contingencies.
On June 28, 1996, the Company entered into a loan and pledge
agreement (the "Custodial Trust Agreement") with Custodial Trust Company
providing for up to $25.0 million in borrowings. Any amounts borrowed
would be secured by Kaiser common stock owned by the Company (or such other
marketable securities acceptable to the lender) with an initial market
value (as defined therein) of approximately three times the amount
borrowed. Borrowings under the Custodial Trust Agreement would bear
interest at the prime rate plus 1/2% per annum. The Custodial Trust
Agreement provides for a revolving credit arrangement during the first year
of the agreement. Any borrowings outstanding on the first anniversary date
of the agreement convert into a term loan maturing on the second
anniversary date of the agreement. No borrowings were outstanding as of
June 30, 1996.
On April 24, 1996, the SEC declared effective a shelf
registration statement which the Company had filed with respect to up to
$200.0 million aggregate principal amount of debt securities. The Company
has not determined the amount, interest rates, maturity, collateral (if
any) or other terms of such debt securities or the timing of any offering
of such debt securities. The debt securities could be secured by, or
convertible into, shares of common stock of Kaiser owned by the Company.
In that regard, Kaiser also filed a shelf registration statement with the
SEC, which was also declared effective on April 24, 1996, covering 10
million shares of its common stock owned by the Company. The Company would
use the net proceeds (or portions thereof) from the sale of such debt
securities to retire outstanding debt, for working capital and general
corporate purposes.
ALUMINUM OPERATIONS
Kaiser's Board of Directors has approved a proposed
recapitalization (the "Proposed Recapitalization"). The Proposed
Recapitalization would, among other things: (i) provide for two classes of
common stock: Class A Common Shares, $.01 par value, with one vote per
share ("Class A Common Shares") and a new, lesser-voting class designated
as Common Stock, $.01 par value, with 1/10 vote per share ("New Common
Stock"), (ii) redesignate as Class A Common Shares the 100 million
currently authorized shares of Kaiser's existing common stock and authorize
an additional 250 million shares of New Common Stock, and (iii) reclassify
each issued share of Kaiser's existing common stock into (a) .33 of a Class
A Common Share and (b) .67 of a share of New Common Stock. Kaiser would
pay cash in lieu of fractional shares. Kaiser anticipates that both the
Class A Common Shares and the New Common Stock would be approved for
trading on the New York Stock Exchange.
On March 19, 1996, a lawsuit was filed in the Delaware Court of
Chancery which, among other things, sought to enjoin the Proposed
Recapitalization. On April 8, 1996, the Delaware Court of Chancery issued
a ruling which preliminarily enjoined Kaiser from implementing the Proposed
Recapitalization. On April 19, 1996, the Delaware Supreme Court granted
defendants' motion to consider, on an expedited basis, defendants' appeal
of the preliminary injunction. On May 1, 1996, Kaiser's stockholders
approved the Proposed Recapitalization; however, it will not be implemented
pending the outcome of defendants' appeal. The Delaware Supreme Court
heard oral arguments on May 21, 1996, but has not yet issued its decision
in this matter.
At a recent meeting of the directors of Yellow River Aluminum
Industry Company Limited (the "Joint Venture"), a Sino-foreign joint equity
enterprise organized under the law of the People's Republic of China
between Kaiser Yellow River Investment Limited ("KYRIL"), a subsidiary of
KACC, and Lanzhou Aluminum Smelters ("LAS") of the China National
Nonferrous Metal Industry Corporation, KYRIL, LAS and the Joint Venture
reached an agreement (i) that extended until early 1997, the time for KYRIL
to make a second capital contribution to the Joint Venture, and (ii) that
KYRIL would continue to explore various methods of financing any future
capital contributions to the Joint Venture, including financing that could
be obtained from third-party investors.
Loans under the 1994 KACC Credit Agreement bear interest at a
rate per annum, at KACC's election, equal to a Reference Rate (as defined)
plus 1-1/2% or LIBO Rate (Reserve Adjusted) (as defined) plus 3-1/4%.
After June 30, 1995, the interest rate margins applicable to borrowings
under the 1994 KACC Credit Agreement may be reduced by up to 1-1/2% (non-
cumulatively), based on a financial test, determined quarterly. The
quarterly financial test permitted a 1-1/2% reduction in margins during the
first and second quarters of 1996. As of June 30, 1996, the financial
test permitted a reduction of 1% per annum in margins effective July 1,
1996. At June 30, 1996, $192.1 million (of which $72.5 million could have
been used for letters of credit) was available to KACC under the 1994 KACC
Credit Agreement.
Kaiser believes that its existing cash resources, together with
cash flow from operations and borrowings under KACC's credit agreement
dated as of February 15, 1994, as amended (the "1994 Credit Agreement")
will be sufficient to satisfy its working capital and capital expenditure
requirements for the next year. With respect to its long-term liquidity,
Kaiser believes that its operating cash flow, together with its ability to
obtain both short and long-term financing, should provide sufficient funds
to meet its long-term working capital and capital expenditure requirements.
FOREST PRODUCTS OPERATIONS
As of June 30, 1996, $45.1 million of borrowings was available
under Pacific Lumber's Revolving Credit Agreement, of which $5.1 million
was available for letters of credit and $30.0 million for timberland
acquisitions. No borrowings were outstanding as of June 30, 1996, and
letters of credit outstanding amounted to $9.9 million.
MGI and its subsidiaries anticipate that cash flow from
operations, together with existing cash, cash equivalents, marketable
securities and available sources of financing, will be sufficient to fund
their working capital and capital expenditure requirements for the next
year. With respect to their long-term liquidity, MGI and its subsidiaries
believe that their existing cash and cash equivalents, together with their
ability to generate sufficient cash flow from operations and obtain both
short and long-term financing, should provide sufficient funds to meet
their working capital and capital expenditure requirements. However, due
to their highly leveraged condition, MGI and its subsidiaries are more
sensitive than less-leveraged companies to factors affecting their
operations, including litigation and governmental regulation affecting
their timber harvesting practices, increased competition from other lumber
producers or alternative building products and general economic conditions.
REAL ESTATE AND OTHER OPERATIONS
As of June 30, 1996, the Company's real estate and other
subsidiaries had approximately $9.0 million available for use under the
MCOP Credit Agreement. The Company believes that the existing cash and
credit facilities of its real estate and other subsidiaries are sufficient
to fund the working capital and capital expenditure requirements of such
subsidiaries for the next year. With respect to the long-term liquidity of
such subsidiaries, the Company believes that their ability to generate cash
from the sale of their existing real estate, together with their ability to
obtain financing should provide sufficient funds to meet their working
capital and capital expenditure requirements.
TRENDS
FOREST PRODUCTS OPERATIONS
The Company's forest products operations are primarily conducted
by Pacific Lumber and are subject to a variety of California and federal
laws and regulations dealing with timber harvesting, endangered species and
critical habitat, and air and water quality. While the Company does not
expect that Pacific Lumber's compliance with such existing laws and
regulations will have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity,
Pacific Lumber is subject to certain pending matters, including the
resolution of issues relating to the final designation of critical habitat
for the marbled murrelet (described below), which could have a material
adverse effect on Pacific Lumber's consolidated financial position, results
of operations or liquidity. Moreover, the laws and regulations relating to
Pacific Lumber's forest products operations are modified from time to time
and are subject to judicial and administrative interpretation. There can
be no assurance that certain pending or future governmental regulations,
legislation or judicial or administrative decisions would not materially
and adversely affect Pacific Lumber or its ability to sell lumber, logs or
timber.
In May 1996, the U.S. Fish and Wildlife Service (the "USFWS")
published its final designation of critical habitat for the marbled
murrelet ("Final Designation"), designating over four million acres as
critical habitat for the marbled murrelet. Although nearly all of the
designated habitat is public land, approximately 33,000 acres of the
Company's (privately owned) timberlands are included in the Final
Designation, the substantial portion of such 33,000 acres being young
growth timber. Pacific Lumber's wildlife surveys to date (based upon
current survey protocols) have indicated that Pacific Lumber has
approximately 6,600 acres of occupied marbled murrelet habitat. A
substantial portion of this land contains virgin and residual old growth
timber and the bulk of it falls within the area covered by the Final
Designation. In order to mitigate the impact of the Final Designation,
particularly with respect to timberlands occupied by the marbled murrelet,
Pacific Lumber has attempted over the last few years to develop a habitat
conservation plan for the marbled murrelet (the "Murrelet HCP"). The USFWS
has given unfavorable responses to Pacific Lumber's Murrelet HCP efforts.
For this reason and a variety of others, Pacific Lumber and its
subsidiaries have filed two actions alleging that certain portions of its
timberlands have been "taken" and seeking just compensation (see Part II,
Item 1, "Legal Proceedings--Pacific Lumber Litigation").
It is impossible to determine the potential adverse effect of the
Final Designation on Pacific Lumber's consolidated financial position,
results of operations or liquidity until such time as the related
regulatory and legal issues are fully resolved. However, if Pacific Lumber
is unable to harvest, or is severely limited in harvesting, on timberlands
designated as marbled murrelet critical habitat, such effect could be
material. If Pacific Lumber is unable to harvest or is severely limited in
harvesting, it intends to seek just compensation from the appropriate
governmental agencies on the grounds that such restrictions constitute a
governmental taking.
Judicial or regulatory actions adverse to Pacific Lumber,
increased regulatory delays and inclement weather in northern California,
independently or collectively, could impair Pacific Lumber's ability to
maintain adequate log inventories and force Pacific Lumber to temporarily
idle or curtail operations at certain of its lumber mills from time to
time.
See also Part II, Item 1. "Legal Proceedings--Pacific Lumber
Litigation" for further information, including government takings actions
recently filed and additional takings claims which could be filed by
Pacific Lumber and its subsidiaries.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Form 10-K and Part II, Item 1
of the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1996 (the "Form 10-Q") for information concerning material
legal proceedings with respect to the Company. The following material
developments have occurred with respect to such legal proceedings.
USAT MATTERS
In connection with the OTS action, the date for the hearing on
the merits has been rescheduled from January 21, 1997 to May 28, 1997.
In connection with U.S., ex rel., Martel v. Hurwitz, et al., on
June 11, 1996, defendants filed their motion to dismiss this case. On
August 6, 1996, the Court transferred this case to the judge handling the
FDIC action.
In connection with the FDIC action, on August 6, 1996, the court
entered an order denying the FDIC's motion to stay this case pending the
outcome of the OTS action.
RANCHO MIRAGE LITIGATION
In connection with the In Re: MAXXAM Inc./Federated Development
Shareholder's Litigation, the Court has rescheduled oral argument on the
merits of the case from July 24, 1996 to August 13, 1996.
KAISER LITIGATION
In connection with the Hammons action, on July 1, 1996, the
United States District Court for the Central District of California granted
summary judgment in favor of Kaiser and other defendants and dismissed the
complaint as to all defendants with prejudice. On July 16, 1996, the Court
ruled on Plaintiff's Motion for Reconsideration and confirmed its ruling
and order granting summary judgment in favor of defendants.
In connection with Matheson, et al. v. Kaiser Aluminum
Corporation, et al., the Delaware Supreme Court heard oral argument on
defendants' appeal of the preliminary injunction on May 21, 1996, but has
not yet issued its decision.
PACIFIC LUMBER LITIGATION
In connection with the Kayes/Miller action and the DOL civil
action, the settlement agreement in these cases was approved by the Court
at the July 12, 1996 final hearing. The settlement called for payment to
the class plaintiffs and their counsel of $7.0 million in cash by Pacific
Lumber in exchange for full releases by the plaintiffs of defendants and
dismissal of the Kayes/Miller and DOL civil actions.
In connection with the Marbled Murrelet action, on May 7, 1996,
the U. S. Ninth Circuit Court of Appeals reversed the preliminary
injunction order concerning harvesting pursuant to exemptions for forest
health. In addition to appealing the preliminary injunction issued on
April 3, 1996 preventing harvesting on eight THPs to the extent each
relies on the Owl Plan, Pacific Lumber has obtained reapproval of two of
the THPs without reliance on the Owl Plan and has received confirmation
from the Court that these two THPs are not subject to the preliminary
injunction. Pacific Lumber continues to review and seek reapproval of the
other THPs covered by the April 3, 1996 preliminary injunction.
In connection with The Pacific Lumber Company, et al. v. The
United States of America, the Court has granted the parties' agreed motion
to stay this action until September 15, 1996 in order to negotiate a
possible settlement involving approximately 4,500 acres of Pacific Lumber's
timberlands, including a 3,000 acre stand of virgin old growth timber often
referred to as the "Headwaters Forest." Settlement discussions have
commenced. On July 23, 1996, EPIC and the Sierra Club filed a motion to
intervene in this lawsuit.
In connection with Salmon Creek Corporation v. California State
Board of Forestry, et al., in July 1996 the parties submitted an agreed
motion to stay this action until September 15, 1996 in order to negotiate a
possible settlement involving the Headwaters Forest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on May
22, 1996, at which meeting the stockholders voted to elect management's
slate of nominees as directors of the Company. The nominees for election
are listed below, together with voting information for each nominee.
Messrs. Charles E. Hurwitz and Ezra G. Levin continued as directors of the
Company.
NOMINEES FOR ELECTION BY HOLDERS OF COMMON STOCK
Stanley D. Rosenberg - 6,718,287 votes for, -0- votes against,
37,422 votes withheld, -0- votes abstaining and -0- broker non-votes.
Robert J. Cruikshank - 6,720,264 votes for, -0- votes against,
35,445 votes withheld, -0- votes abstaining and -0- broker non-votes.
NOMINEES FOR ELECTION BY HOLDERS OF COMMON STOCK AND CLASS A
PREFERRED STOCK
No person was nominated to stand for election by the holders of
Common Stock and Preferred Stock, voting together as a separate class to
hold office until the 1999 Annual Meeting of Stockholders and a vacancy
will exist with respect to such<PAGE>
position unless the Board of Directors
appoints someone to fill such vacancy.
ITEM 5. OTHER INFORMATION
See Part II, Item 1. "Legal Proceedings - Pacific Lumber
Litigation" for information regarding settlement discussions involving the
Headwaters Forest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
4 Loan and Pledge Agreement, dated June 28, 1996, between
Custodial Trust Company and MAXXAM Inc.
11 Computation of Net Income Per Common and Common Equivalent
Share
27 Financial Data Schedule
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
B. REPORTS ON FORM 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized, who has signed this report on
behalf of the Registrant and as the principal accounting officer of the
Registrant.
MAXXAM INC.
Date: August 13, 1996 By: TERRY L. FREEMAN
Terry L. Freeman
Assistant Controller
COMPUTATION OF NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
(In millions of dollars, except share and per share
amounts)
<S> <C> <C> <C> <C>
Weighted average common and common
equivalent shares outstanding
during each period 9,376,703 9,376,703 9,376,703 9,376,703
Common equivalent shares
attributable to stock options
and convertible securities 94,511 71,175 93,074 71,175
-------------- -------------- -------------- --------------
Total common and common
equivalent shares 9,471,214 9,447,878 9,469,777 9,447,878
============== ============== ============== -=============
Net income $ 16.9 $ 25.4 $ 22.7 $ 24.4
============== ============== ============== ==============
Net income per common and common
equivalent share $ 1.78 $ 2.69 $ 2.40 $ 2.58
============== ============== ============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
and is qualified in its entirety by reference to such consolidated financial
statements together with the related footnotes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 118,900
<SECURITIES> 40,800
<RECEIVABLES> 233,100
<ALLOWANCES> 5,800
<INVENTORY> 631,500
<CURRENT-ASSETS> 1,250,500
<PP&E> 1,960,400
<DEPRECIATION> 725,000
<TOTAL-ASSETS> 3,877,300
<CURRENT-LIABILITIES> 654,400
<BONDS> 1,672,900
0
300
<COMMON> 5,000
<OTHER-SE> (66,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,877,300
<SALES> 1,279,900
<TOTAL-REVENUES> 1,279,900
<CGS> 1,024,600
<TOTAL-COSTS> 1,024,600
<OTHER-EXPENSES> 156,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,700
<INCOME-PRETAX> 24,000
<INCOME-TAX> (4,100)
<INCOME-CONTINUING> 22,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,700
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.40
</TABLE>
LOAN AND PLEDGE AGREEMENT
AGREEMENT dated as of June 28, 1996, between CUSTODIAL TRUST COMPANY
("Bank"), a bank and trust company organized and existing under the laws of
the State of New Jersey, and MAXXAM INC. ("Borrower"), a corporation
organized and existing under the laws of the State of Delaware.
WHEREAS, Borrower wishes to obtain, and Bank is willing to make, loans
in an aggregate principal amount of up to U.S. dollars $25,000,000 from
time to time outstanding;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. The following terms, unless the context otherwise
requires, shall have the following meanings as used herein:
(a) "Business Day" means any day on which banks in the States of New
Jersey, New York and Texas are open for business.
(b) "Business Hour" means any hour in a Business Day.
(c) "Collateral" has the meaning given in Section 8(c) below.
(d) "Event of Default" has the meaning given in Section 17 below.
(e) "Excess Collateral" at any time means Pledged Securities having an
Initial Loan Value equal to the difference between (i) the Initial Loan
Value of all Pledged Securities at such time and (ii) the aggregate
principal amount of all Loans (as defined in Section 2 below) then
outstanding.
(f) "Guarantee" of or by any Person means any obligation, contingent
or otherwise, of such Person guaranteeing the payment of any Indebtedness
of any other Person in any manner, whether directly or indirectly, and
including any obligation of such Person, direct or indirect, (i) to
purchase (or advance or supply funds for the purchase or payment of) such
Indebtedness or to purchase (or to advance or supply funds for the purchase
of) any security for the payment of such Indebtedness, or (ii) to purchase
property, securities or services for the purpose of assuring the owner of
such Indebtedness of the payment of such Indebtedness; provided, however,
that the term Guarantee shall not include endorsements for collection or
deposit, in either case in the ordinary course of business.
(g) "Indebtedness" of any Person means, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (iii)
all obligations of such Person upon which interest charges are customarily
paid, but not including such obligations which consist of accounts payable
and other current liabilities arising in the ordinary course of business,
(iv) all obligations of such Person to repurchase securities under
repurchase agreements and all obligations of such Person issued or assumed
as the deferred purchase price of property or services which under
generally accepted accounting principles would be shown on a balance sheet
of such Person as a liability, but not including such obligations which
consist of (A) accounts payable and other current liabilities arising in
the ordinary course of business and (B) compensation, pension and other
obligations arising from employee compensation and benefit arrangements,
(v) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not
the obligations secured thereby have been assumed, (vi) all Guarantees by
such Person of Indebtedness of others, and (vii) all obligations of such
Person as an account party in respect of letters of credit and bankers'
acceptances.
(h) "Initial Loan Value" means the collateral value assigned to the
Collateral in accordance with Section 8(e) below.
(i) "Kaiser" means Kaiser Aluminum Corporation, a corporation
organized and existing under the laws of the State of Delaware.
(j) "Kaiser Common" means the common stock of Kaiser, including any
class thereof issued upon any reclassification or recapitalization of
Kaiser's capital stock.
(k) "Kaiser Stock" means (i) Kaiser Common, and (ii) any other capital
stock of Kaiser which is listed on a national securities exchange in the
United States and is acceptable to Bank in its sole and absolute
discretion.
(l) "Lien" means, with respect to any asset, (i) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset or any assignment, hypothecation or other preferential arrangement of
or with respect to such asset, and (ii) any purchase option, call or
similar right of a third party with respect to such asset.
(m) "Loan" or "Loans" means any or all of the loans provided for in
Section 2 below, which may be Revolving Loans and the Term Loan.
(n) "Maintenance Loan Value" means the collateral value assigned to
the Collateral in accordance with Section 8(e) below.
(o) "Market Value" means the value assigned to the Collateral in
accordance with Section 8(f) below.
(p) "Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
government or any agency, court or political division thereof, or any
other entity.
(q) "Pledge Account" means an account of Bank as pledgee of Borrower,
maintained at Bank and entitled "MAXXAM pledgor/CTC pledgee".
(r) "Pledged Securities" means all shares of Kaiser Stock and other
securities, which are in the Pledge Account and pledged by Borrower to Bank
as provided in this Agreement, and any securities into which such
securities are converted or for which they are exchanged.
(s) "Prime Rate" means the prime rate as quoted in The Wall Street
Journal (Eastern Edition) for the Business Day preceding the date on which
the determination is made. If more than one prime rate is so quoted, the
Prime Rate shall be the average of the prime rates so quoted.
(t) "Revolving Credit Commitment" has the meaning given in Section
2(a) below.
(u) "Revolving Loan(s)" has the meaning given in Section 2(a) below.
(v) "Significant Subsidiary" has the meaning assigned to that term in
Regulation S-X of the Securities Act of 1933, as such Regulation is in
effect on the date hereof.
(w) "Term Loan" has the meaning given in Section 2(c) below.
2. LOANS. (a) Subject to the terms and conditions of this Agreement,
Bank shall make loans to Borrower from the date of this Agreement to but
not including the first anniversary of such date (each, a "Revolving Loan",
and, collectively, the "Revolving Loans"), at such times within such period
of time and in such amounts as Borrower may request, which amounts may be
borrowed, repaid and reborrowed, provided that the Revolving Loans shall
not exceed $25,000,000 in aggregate principal amount at any one time
outstanding (the "Revolving Credit Commitment").
(b) Borrower shall request each Revolving Loan by notice to Bank,
specifying (i) the date (which shall be a Business Day) for the making of
such Revolving Loan, (ii) the principal amount of such Revolving Loan, and
(iii) the Collateral for such Revolving Loan, which notice shall be
received by Bank at least one Business Day prior to the date for the making
of such Revolving Loan.
(c) Subject to the terms and conditions of this Agreement, Bank shall
make a loan to Borrower on the first anniversary of the date of this
Agreement (the "Term Loan") in a principal amount equal to the aggregate
principal amount of all Revolving Loans then outstanding.
3. CONDITIONS PRECEDENT. (a) The obligation of Bank to make any Loan
shall be subject to the fulfillment of each of the following conditions
precedent: (i) that on the date of the making of such Loan no event has
occurred and is continuing which constitutes an Event of Default under this
Agreement or which, upon the giving of notice, the lapse of time, or both,
would constitute an Event of Default, (ii) that the representations and
warranties of Borrower in Sections 10, 11 and 12 below are correct and
accurate in all material respects on the date of the making of such Loan as
though made on such date, (iii) that Borrower has fulfilled, to the
satisfaction of Bank, Borrower's obligation with respect to such Loan as
set forth in Section 8(a) below, (iv) if such Loan is a Revolving Loan,
that after giving effect to the making of such Loan and any pledge of
Collateral therefor, the Collateral then held by Bank has an Initial Loan
Value equal to the sum of the principal amount of such Loan and the
aggregate principal amount of all other Loans then outstanding plus the
accrued interest thereon, (v) if such Loan is the Term Loan, that after
giving effect to the making of such Loan and any pledge of Collateral
therefor, the Collateral then held by Bank has an Initial Loan Value equal
to the principal amount of such Loan, and (vi) that after giving effect to
the making of such Loan and the pledge of Collateral therefor, the
representation and warranty of Borrower in Section 12(a) below continues to
be correct and accurate in all material respects, and (vii) that Bank has
received from Borrower such documents as Bank may have reasonably
requested.
(b) The obligation of Bank to make the first Revolving Loan shall be
subject to the fulfillment of the condition precedent that on or prior to
the date of the making of such Loan, Bank shall have received from Borrower
(i) the arranging fee and reimbursement of out-of-pocket expenses provided
for in Section 14 below, (ii) a balance sheet and the related income
statement for Borrower's most recent quarterly fiscal period for which such
financials are available as well as audited financials for Borrower's most
recent fiscal year for which such audited financials are available, and
(iii) a Statement of Purpose (Federal Reserve Form U-1) duly completed and
signed by Borrower and (iv) such other documents as Bank may have
reasonably requested.
4. TERMS OF REPAYMENT; WAIVERS. (a) Borrower may repay any Revolving
Loan in its entirety or in part at any time prior to the first anniversary
of the date of this Agreement, without premium and without notice of any
kind but together with all accrued but unpaid interest thereon.
(b) Borrower shall repay all Revolving Loans in their entirety on the
first anniversary of the date of this Agreement. Forthwith upon the making
of the Term Loan, Bank shall apply the proceeds thereof on behalf of
Borrower to such repayment of all Revolving Loans then outstanding.
(c) Borrower shall repay the Term Loan in its entirety on the second
anniversary of the date of this Agreement.
(d) Any Loan may also become repayable, in whole or in part, as
provided in Section 8(d) below, and shall become repayable in its entirety
as provided in Section 17 below upon the occurrence of an Event of Default.
(e) Borrower hereby waives presentment and protest of any instrument
and notice thereof, notice of default and, to the extent permitted by
applicable law, all other notices (except notices required by the terms of
this Agreement) to which Borrower might otherwise be entitled.
5. INTEREST AND OTHER CHARGES. (a) Borrower shall pay Bank interest
on the principal amount of each Loan from the date on which such Loan is
made pursuant to Section 2 above until (but not including) the date such
Loan is due under this Agreement, at a fluctuating rate per annum equal at
all times to the Prime Rate in effect from time to time plus one-half of
one percent (50 basis points), with each change in such fluctuating
interest rate to take effect simultaneously with the corresponding change
in the Prime Rate. Such interest shall be payable monthly on the 10th day
of each month (or, if the 10th day is not a Business Day, on the next
succeeding Business Day) and upon repayment of such Loan in full.
(b) Borrower shall pay Bank interest on any amount not paid by
Borrower when due under this Agreement, from the date payment of such
amount was due until the date such amount is paid, at a fluctuating rate
per annum equal at all times to the Prime Rate in effect from time to time
plus three percent (300 basis points), with each change in such fluctuating
interest rate to take effect simultaneously with the corresponding change
in the Prime Rate. Such interest shall be payable on demand made by Bank
from time to time.
(c) Interest payable hereunder shall be calculated on the basis of a
360-day year and for the actual number of days elapsed.
(d) In no event whatsoever shall the interest rate and other charges
charged hereunder exceed the highest rate permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that a court determines, in a final
determination, that Bank has received interest and other charges hereunder
in excess of such highest rate, Bank shall promptly refund such excess
amount to Borrower, and the provisions hereof shall be deemed amended to
provide for such permissible rate.
6. COMMITMENT FEE. Borrower shall pay to Bank a commitment fee
computed (on the basis of a 360-day year and for the actual number of days
elapsed) at a rate of one-half of one percent (50 basis points) per annum
on the average daily unused amount of the Revolving Credit Commitment. Such
commitment fee shall accrue from the date of this Agreement to and
including the first anniversary of such date, and shall be payable on the
last Business Day of each calendar month up to and including the calendar
month during which the first anniversary of the date of this Agreement
occurs.
7. PLACE AND MANNER OF PAYMENT. Borrower shall make all payments
required to be made by it under this Agreement (whether of principal,
interest or any other amount) prior to 11:00 A.M. New York time on the date
such payment is due, at such address in the United States of America as
Bank shall from time to time indicate to Borrower, in U.S. dollars and in
immediately available funds.
8. COLLATERAL SECURITY, PLEDGE AND LIMITATION ON COLLATERAL. (a) On or
before the date of the making of any Loan, Borrower shall deliver to the
Pledge Account shares of Kaiser Stock and/or other securities (which other
securities shall be acceptable to Bank in its sole and absolute
discretion), having on the date of the making of such Loan (i) an aggregate
Initial Loan Value of no less than the principal amount of such Loan, or
(ii) if there is Excess Collateral in the Pledge Account on such date, an
aggregate Initial Loan Value of no less than the difference between (A) the
principal amount of such Loan and (B) the Initial Loan Value of such Excess
Collateral on such date.
(b) If shares of Kaiser Common are delivered to the Pledge Account
pursuant to Section 8(a) above after a reclassification or recapitalization
of Kaiser Common into two or more classes of shares, then the shares so
delivered shall at all times consist of (i) a number of shares from each of
such classes that bears the same proportion to all of the shares so
delivered as (ii) the total number of shares of such class that were issued
solely by reason of such reclassification or recapitalization bears to the
total number of shares of all classes of Kaiser Common issued solely by
reason of such reclassification or recapitalization.
(c) To secure the due and punctual payment of each Loan, all accrued
interest thereon and all other amounts from time to time payable by
Borrower under this Agreement, and the performance by Borrower of all its
obligations and covenants under this Agreement, Borrower hereby pledges,
hypothecates, assigns, transfers and sets over to Bank, and grants to Bank
a continuing security interest in and lien upon, (i) all Pledged Securities
at any time in the Pledge Account, (ii) all other property of Borrower now
or at any time hereafter in Bank's actual possession including, but not
limited to, all other securities, monies, claims and credit balances, and
(iii) all proceeds, products and profits derived from any of the foregoing
(including proceeds of any insurance policies and all cash, securities,
dividends and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of the foregoing securities), and copies of all books and records
related to any of the foregoing (all of the foregoing Pledged Securities
and other property, together with all other property in which Borrower may
hereafter grant to Bank a lien and security interest, being herein
collectively referred to as the "Collateral").
(d) At all times while any Loan is outstanding, Borrower shall
maintain Collateral with Bank consisting of Pledged Securities having an
aggregate Maintenance Loan Value of not less than the aggregate principal
amount of all Loans outstanding hereunder and all accrued interest thereon.
Forthwith upon demand made to Borrower by Bank, Borrower shall, at its
option, either (i) deliver and transfer to Bank such shares of Kaiser Stock
or such other securities which are acceptable to Bank in its sole and
absolute discretion, or (ii) repay so much of the aggregate principal
amount of all Loans outstanding as, in either case, may be necessary for
the aggregate Maintenance Loan Value of all Pledged Securities to be no
less than the aggregate principal amount of all Loans outstanding hereunder
and all accrued interest thereon.
(e) The Initial Loan Value and the Maintenance Loan Value of any of
the Pledged Securities or other item of Collateral are each an amount
representing a percentage of the Market Value of such Pledged Security or
other item of Collateral and shall be determined (i) in accordance with
Schedule A hereto if the percentages required for such determination are
set forth therein or (ii) from time to time by Bank in its sole and
absolute discretion if such percentages are not set forth therein,
provided, however, that in no event shall Kaiser Common, irrespective of
its Market Value, be accorded a Maintenance Loan Value higher than $7.50
per share of Kaiser Common.
(f) If and for so long as any Pledged Securities are listed on a
national securities exchange in the United States of America, their Market
Value shall be determined for all purposes by the last sales price for such
Pledged Securities on any such exchange on the Business Day next preceding
the date of determination or, if there was no sale on that Business Day, by
the last sales price for such Pledged Securities on the next preceding
Business Day on which there was a sale thereof on any such exchange, all as
quoted on the Consolidated Tape or, if not quoted on the Consolidated Tape,
then as quoted by any such exchange. The Market Value of any other item of
Collateral, and the Market Value of such Pledged Securities if they are no
longer listed on any such exchange, shall be determined by Bank for all
purposes (i) based upon the prices bid (on the Business Day next preceding
the date of determination) by banks and broker/dealers which regularly
quote prices on property of the same type as such item of Collateral or
(ii) if no such quotations are available for such Business Day, based upon
such factors as Bank, in its sole and reasonable judgment, shall determine
and communicate to Borrower. Market Value, in the case of interest-bearing
Collateral, shall include accrued interest to the date on which such Market
Value is determined.
(g) Subject to Section 8(i) below, Bank shall promptly pay over to
Borrower (i) any and all cash dividends and interest paid on any of the
Collateral and received by Bank, and (ii) any other cash received by Bank
on account of the Collateral (whether upon the repayment, redemption or
exchange of any thereof or otherwise) unless, after giving effect to such
payment of cash dividends or interest or other cash to Borrower, the
aggregate Maintenance Value of all Collateral then held by Bank would be
less than the sum of the aggregate principal amount of all outstanding
Loans and the interest accrued thereon, in which case Bank shall promptly
apply the amount of such cash to the repayment of such aggregate principal
amount. Any and all other distributions of property (including stock
dividends) made for any reason whatsoever on or in respect of any of the
Collateral, which are received by Bank, shall be retained by Bank and held
by it as part of the Collateral subject to this Agreement.
(h) Subject to Section 8(i) below, Borrower shall be entitled to
exercise, for any purpose not inconsistent with the terms of this
Agreement, any and all voting and/or consensual rights relating or
pertaining to the Collateral. In furtherance of such exercise, Bank shall
deliver to Borrower all notices of meetings, proxies, proxy materials and
other materials which it receives regarding Pledged Securities from the
issuers thereof or, in the case of tender, exchange or similar offers for
Pledged Securities, from the party (or its agent) making the offer, or from
any party to any reorganization, liquidation or other similar proceedings
for such issuers. Before delivering them to Borrower, Bank shall cause all
such proxies relating to any such Pledged Securities which are not
registered in the name of Borrower to be executed by the registered holder
of such securities, without any indication of how such proxies are to be
voted.
(i) If an Event of Default occurs and for so long as it continues,
Borrower shall cease to be entitled (i) to exercise any and all voting
and/or consensual rights relating or pertaining to any of the Collateral,
and (ii) to receive any cash dividends and interest, or other cash, payable
on or on account of any of the Collateral; and Bank shall have the sole and
exclusive right and authority to exercise such voting and/or consensual
rights and powers and to receive and retain such dividends and interest and
other cash. Any money or other property received by Bank pursuant to this
Section 8(i) shall be retained by Bank as additional Collateral and applied
as required in Section 18(a) below.
(j) If the aggregate Initial Loan Value of the Collateral at any time
exceeds the aggregate principal amount of all then outstanding Loans and
the interest accrued thereon, and provided that no Event of Default has
occurred and is continuing, Borrower may designate to Bank, in writing,
Pledged Securities which have an aggregate Initial Loan Value no greater
than such excess, and Bank, promptly upon such designation, shall release
such designated Pledged Securities from the lien and security interest
granted in Section 8(c) above and deliver and transfer them pursuant to
such instructions as Borrower may have given to Bank, provided that,
immediately after giving effect to such delivery and transfer, the
aggregate Initial Loan Value of all remaining Collateral is not less than
the aggregate principal amount of all such Loans and the interest accrued
thereon.
(k) Upon the payment in full of all the Loans, all accrued interest
thereon and all other amounts from time to time payable by Borrower under
this Agreement, the security interest and lien granted in Section 8(c)
above in and upon the Collateral shall terminate, and all of Bank's rights
hereunder to the Collateral shall revert to Borrower. Upon such
termination, Bank shall deliver and transfer the Collateral in the Pledge
Account to Borrower, together with all instruments and documents evidencing
the Collateral and such other documents as Borrower shall reasonably
request to evidence such termination.
9. PROTECTION OF SECURITY INTEREST. (a) Borrower shall, at its expense
and from time to time, perform all steps reasonably requested by Bank at
any time to perfect, maintain, protect and enforce Bank's security interest
in and lien upon the Collateral, including, without limitation, (i)
executing and filing financing or continuation statements and amendments
thereto, in form and substance satisfactory to Bank, and (ii) obtaining
such consents, providing such endorsements and executing and delivering
such other documents as may be required for any sale, transfer or other
disposition thereof by Bank in accordance with the provisions of this
Agreement. From time to time, Borrower shall, upon Bank's written request,
promptly execute and deliver confirmatory written instruments pledging the
Collateral to Bank, but any failure by Borrower to do so shall not affect
or limit Bank's security interest in, lien upon or other rights in and to
the Collateral. Until payment in full of all the Loans, all accrued
interest thereon and all other amounts from time to time payable by
Borrower under this Agreement, Bank's security interest in the Collateral
shall continue in full force and effect.
(b) Subject to the terms of this Agreement, Borrower hereby
irrevocably appoints Bank its true and lawful attorney in its name, place
and stead, and at its expense, in connection with the preservation and
enforcement of Bank's rights and remedies under this Agreement if an Event
of Default occurs and is continuing (i) to receive, endorse and collect all
checks and other orders for the payment of money made payable to Borrower
representing any dividend, interest or other distribution payable or
distributable in respect of any of the Collateral and to give full
discharge for the same, (ii) to give all notices, obtain all consents,
effectuate all registrations in Bank's name or that of a proposed purchaser
or other transferee and make all transfers of all or any part of the
Collateral which are necessary or appropriate in connection with any sale,
transfer or other disposition thereof pursuant to this Agreement, (iii) to
execute and deliver for value all necessary or appropriate assignments and
other instruments in connection with any such sale, transfer or other
disposition, and (iv) to execute and deliver all other documents, and do
all other acts and things, which Bank reasonably deems appropriate in such
connection. Borrower hereby ratifies and confirms all that Bank, as
Borrower's attorney, may lawfully do hereunder and pursuant hereto, but,
nevertheless, at Bank's request or that of the purchaser or other
transferee in question, Borrower shall ratify and confirm any sale,
transfer or other disposition of Collateral pursuant to this Agreement in
such manner as Bank or such purchaser or other transferee may reasonably
specify in such request.
10. OTHER LIENS. Borrower represents and warrants to Bank that all
Collateral consisting of Pledged Securities and other items of Collateral
is, and Borrower covenants that it will continue to be, owned by Borrower
free and clear of all Liens (except for (i) Liens in favor of Bank, (ii)
Liens for taxes not delinquent or being contested in good faith and in
appropriate proceedings, (iii) Liens in connection with workers'
compensation, unemployment insurance, social security or similar
obligations, and (iv) mechanics', workmen's, materialmen's, landlords',
carriers' or other like liens arising in the ordinary course of business
with respect to obligations which are not due or which are being contested
in good faith).
11. USE OF PROCEEDS. Borrower represents and warrants to Bank that
each Loan is a commercial loan the proceeds of which will be used in the
business of Borrower which is, by various means (including the purchase or
repurchase of securities issued by Borrower) to invest in, acquire and
operate businesses of various kinds, including the businesses described in
Borrower's annual report on Securities and Exchange Commission Form 10-K
for its fiscal year ended December 31, 1995.
12. OTHER REPRESENTATIONS AND WARRANTIES. Borrower further represents
and warrants to Bank that:
(a) at no time shall the Collateral include Pledged Securities, or any
class of Pledged Securities, in an amount such that solely by reason of
such Pledged Securities, either upon exercising its rights under Section 18
below or otherwise, Bank would become a holder of 10% or more of any class
of Pledged Securities or would become (or be presumed to be) an affiliate
of the issuer of such Pledged Securities (as such term "affiliate" is
defined for purposes of the Securities Act of 1933);
(b) Borrower has, for purposes of Rule 144 under the Securities Act of
1933, been the beneficial owner of the shares of Kaiser Common or other
Kaiser Stock pledged (or to be pledged) to Bank under this Agreement at all
times since May 15, 1993 or earlier;
(c) Borrower (i) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, (ii) is qualified
to do business and is in good standing in all states in which qualification
and good standing are necessary in order for it to conduct its business and
own its property, except where the failure to so qualify or to be in good
standing could not reasonably be expected to have a material adverse effect
on the financial condition, operations or business of Borrower and its
subsidiaries considered as one enterprise and (iii) has all requisite
corporate power and authority to conduct its business, to own its property
and to execute and deliver this Agreement and to perform its obligations
hereunder;
(d) it has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement, and such
authorization, delivery and performance do not (i) violate its corporate
charter or by-laws or any material law, rule, regulation, order, judgment,
injunction, decree, determination or award presently in effect and
applicable to it, (ii) require any consent or result in a breach of or
constitute a default under any material agreement, lease or instrument to
which it is a party or by which it or any of its assets may be bound or
affected, or (iii) result in or require the creation or imposition of any
Lien (other than in favor of Bank pursuant to this Agreement) upon or with
respect to any shares of Kaiser Common or other Kaiser Stock owned by
Borrower or any material portion of Borrower's other properties;
(e) this Agreement has been duly and validly executed and delivered by
Borrower and constitutes a legal, valid and binding obligation of Borrower,
enforceable against it in accordance with its terms, subject, as to
enforceability of remedies (i) to bankruptcy, insolvency and other laws
affecting creditors' rights generally, and (ii) to the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law);
(f) as of the date hereof, no recording, order, authorization,
consent, license, registration, approval, exemption, filing, notice or
other similar action by or with any governmental body, governmental
official or other regulatory authority (except such as have been obtained,
made or given and copies of which have been delivered by Borrower to Bank)
is or will be required to be obtained, made or given by Borrower in order
to (i) ensure the legality, validity, binding effect or enforceability of
this Agreement, (ii) permit the performance by Borrower of its obligations
under this Agreement in accordance with the terms thereof, or (iii) enable
Bank to enforce its rights and remedies pursuant to the terms of this
Agreement, including any sale, transfer or other disposition by Bank of all
or any part of the Collateral, except such as may be required under the
Securities Act of 1933, the regulations promulgated thereunder and State
securities laws or by any national securities exchange;
(g) Borrower is not in default with respect to any Indebtedness of
Borrower in a principal amount greater than $500,000;
(h) except as disclosed by it in reports filed under the Securities
Exchange Act of 1934 or otherwise disclosed in writing by Borrower to Bank,
there is no litigation or other proceeding pending or, to its knowledge,
threatened against or affecting Borrower which could reasonably be expected
to have a material adverse effect (i) on its financial condition,
operations or business, or (ii) on any of the Collateral; and
(i) the consolidated balance sheet of Borrower and its consolidated
subsidiaries as of December 31, 1995, and the related consolidated income
statement for the twelve-month period then ended and the consolidated
balance sheet of Borrower and its consolidated subsidiaries as of March 31,
1996 and the related consolidated income statement for the three-month
period then ended, copies of all of which have heretofore been delivered to
Bank by Borrower, present fairly, in all material respects, the
consolidated financial condition of Borrower and its consolidated
subsidiaries as at the dates thereof and their consolidated results of
operations for the periods then ended, and have been prepared in accordance
with generally accepted accounting principles applied on a consistent
basis; since the date of Borrower's most recent, publicly available current
or periodic report filed with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, which has been delivered by it to
Bank, there have been no material adverse changes in the assets or
liabilities or financial condition of Borrower or of any of its Significant
Subsidiaries; and neither Borrower nor any of its Significant Subsidiaries
has entered into any commitment or contract, or incurred any other
liability, which is not reflected in said balance sheets and could
reasonably be expected to have a material adverse effect upon its financial
condition, operations or business.
13. REITERATION OF REPRESENTATIONS. The representations in Sections
10, 11 and 12 above shall be deemed to be repeated by Borrower each time a
Loan is made.
14. ARRANGING FEE AND EXPENSES. Upon execution of this Agreement,
Borrower shall pay Bank an arranging fee of $125,000 for the credit
facility provided in this Agreement. Upon presentation of an invoice
therefor, Borrower shall reimburse Bank for such reasonable out-of-pocket
expenses (including reasonable fees and disbursements of legal counsel to
Bank) as Bank may have incurred in the negotiation of this Agreement and
the establishment of such credit facility.
15. REPORTING. (a) As soon as available, and in any event within 60
days after the close of each of the first three quarters of each fiscal
year of Borrower, commencing with the quarter ending on June 30, 1996,
Borrower shall deliver to Bank the consolidated balance sheet of Borrower
and its consolidated subsidiaries at the end of such quarter and the
related consolidated income statement for the portion of the fiscal year
ending on the last day of such quarter, all in reasonable detail and
stating in comparative form the figures for the corresponding date and
period in the previous fiscal year, prepared in accordance with generally
accepted accounting principles applied on a consistent basis, subject,
however, to year-end audit adjustments, and unless delivered to Bank as
part of Borrower's quarterly report on Securities and Exchange Commission
Form 10Q, certified by Borrower's chief financial or accounting officer.
(b) As soon as available, and in any event within 105 days after the
close of each fiscal year of Borrower, Borrower shall deliver to Bank the
consolidated balance sheet of Borrower and its consolidated subsidiaries as
at the close of such fiscal year and the related consolidated income
statement for such fiscal year, all in reasonable detail and stating in
comparative form the figures as at the close of and for the previous fiscal
year, audited by certified public accountants satisfactory to Bank and
accompanied by a report thereon, satisfactory to Bank, issued by such
accountants.
16. OTHER COVENANTS. Borrower covenants with Bank that until the
payment in full of all Loans, all accrued interest thereon and all other
amounts from time to time payable by Borrower under this Agreement, it
shall:
(a) maintain and preserve its existence and all rights, privileges,
approvals and other authority adequate for the conduct of its business;
(b) promptly notify Bank in writing of any violation by Borrower of
any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to it which would likely materially and
adversely affect the Collateral or the financial condition, operations or
business of Borrower and its subsidiaries considered as one enterprise;
(c) notify Bank in writing within five (5) Business Days of any
default by Borrower with respect to any of its Indebtedness in a principal
amount of more than $1,000,000;
(d) promptly notify Bank in writing of any change in the control of
Borrower or the control of Kaiser;
(e) deliver to Bank (i) promptly after the same are available copies
of all financial statements and other reports and documents that Borrower
distributes to its shareholders or otherwise makes publicly available, and
(ii) such other documents as Bank may from time to time reasonably request,
including such Statements of Purpose (Federal Reserve Form U-1's) with
regard to any Pledged Securities as may be required under Regulation U of
the Board of Governors of the Federal Reserve System; and
(f) not create, incur, assume or permit to exist any Lien on any
shares of Kaiser Common, shares of other Kaiser Stock or any other
securities equivalent to Kaiser Common or other Kaiser Stock, whether such
shares or other securities are now owned or hereafter acquired by it, other
than (i) Liens for taxes not delinquent or being contested in good faith
and in appropriate proceedings; (ii) Liens in connection with workers'
compensation, unemployment insurance, social security or similar
obligations; (iii) mechanics', workmen's, materialmen's, landlords',
carriers' or other like liens arising in the ordinary course of business
with respect to obligations which are not due or which are being contested
in good faith; (iv) Liens granted prior to the date of this Agreement to
secure the 12-1/4% Senior Secured Discount Notes due 2003 and/or the
11-1/4% Senior Secured Notes due 2003 of MAXXAM Group Inc.; (v) Liens in
favor of Bank; and (vi) such other Liens as Bank and Borrower may from time
to time agree upon in writing.
17. EVENTS OF DEFAULT. It shall constitute an Event of Default
hereunder (and, upon the occurrence thereof, all of Bank's obligations
hereunder to make any Loan shall terminate and the then outstanding
principal amount of each Loan, all accrued but unpaid interest thereon and
all accrued but unpaid commitment fee shall become immediately due and
payable, without demand, presentment or notice of any kind, all of which
are hereby expressly waived) if at any time:
(a) Borrower fails to pay in full the principal amount of any Loan
when due; or
(b) Borrower fails to make or pay when due any interest payment,
charge or other amount required to be made or paid by it under this
Agreement, and such failure continues for five Business Days after the date
on which the making of such payment or the payment of such charge or other
amount was due; or
(c) Borrower fails to deliver Collateral in accordance with Section
8(d) above upon demand therefor made by Bank in writing at the address for
notices to Borrower specified in Section 23 below, and such failure
continues for five Business Days after the date of the making of such
demand; or
(d) Borrower fails to perform or observe in any material respect any
other term, covenant or condition to be performed or observed by it under
this Agreement, and such failure continues for a period in excess of 10
Business Days after the earlier of (i) the date an executive officer of
Borrower obtains knowledge of such failure or (ii) the date on which
written notice thereof is given by Bank to Borrower; or
(e) any representation or warranty made by Borrower in Sections 10, 11
and 12 above proves to have been incorrect in any material respect on any
of the dates as of which made or deemed to have been repeated; or
(f) Borrower defaults in the payment when due, whether at stated
maturity or when otherwise due (which shall include any applicable grace
period), of any of its Indebtedness (other than Indebtedness under this
Agreement) in a principal amount of more than $2,000,000, whether now or
hereafter existing;
(g) Borrower fails (within the applicable grace period, if any) to
perform any term, covenant or agreement on its part to be performed under
any agreement or instrument (other than this Agreement) evidencing or
securing any of its Indebtedness (whether now or hereafter existing) in a
principal amount of more than $2,000,000, or any event occurs or condition
exists (and such event or condition is not remedied within the applicable
grace period, if any), if the effect of such failure, event or condition is
to cause, or to permit the holder or holders of such Indebtedness (with or
without the giving of notice, lapse of time or both) to cause, such
Indebtedness to become due prior to its stated maturity;
(h) (i) Borrower as debtor commences a case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar
law, or seeks the appointment of a receiver, trustee, custodian or similar
official for itself or any substantial part of its property, (ii) any such
case or proceeding is commenced against it, or another seeks such an
appointment, which (A) is consented to or not timely contested by it, (B)
results in the entry of an order for relief, such an appointment, or the
entry of an order having a similar effect, or (C) is not dismissed within
90 days, (iii) it makes a general assignment for the benefit of creditors,
or (iv) it admits in writing its inability to pay its debts as they become
due; or
(i) one or more judgments or orders for the payment of money in an
aggregate amount in excess of $2,000,000 are rendered against Borrower and
(A) the same remain undischarged for a period of 30 or more consecutive
days during which execution thereof is not effectively stayed upon appeal
or otherwise or (B) any proceeding by a creditor to enforce the same is
pending.
18. BANK'S RIGHTS AND REMEDIES. (a) If an Event of Default occurs and
is then continuing, Bank shall promptly apply to the payment of the
principal of, and accrued but unpaid interest on, the Loans and of any
other amounts payable by Borrower under this Agreement (in such order as
Bank in its sole and absolute discretion may determine) any cash held by
Bank as part of the Collateral pursuant to Section 8(i) above.
(b) In addition to its obligation under Section 18(a) above, if an
Event of Default occurs and is then continuing, Bank shall have the right
to exercise with respect to any or all of the Collateral any rights and
remedies available to a secured creditor under applicable law and, in
addition, (without being required to give any notice to Borrower except as
may be required in Section 18(d) below) to sell any or all of such
Collateral, publicly or privately, at a place of Bank's choosing, and (in
such order as Bank in its sole and absolute discretion may determine) to
apply the proceeds of such sale to the payment of the principal of, and
accrued but unpaid interest on, the Loans and of any other amounts payable
by Borrower under this Agreement.
(c) If any Pledged Securities forming part of the Collateral are, in
whole or in part, actually convertible into or exchangeable for other
securities, then Bank shall have the right, in its discretion, instead of
selling such Pledged Securities as provided in Section 18(b) above, to
convert or exchange them pursuant to their terms, to apply any cash
received by Bank in such conversion or exchange to the payment of the
principal of, and accrued but unpaid interest on, the Loans and of any
other amounts payable by Borrower under this Agreement, and to sell as
provided in Section 18(b) above any securities it receives in such
conversion or exchange.
(d) The Pledged Securities at any time forming part of the Collateral
are of a type customarily sold on recognized markets and no notification to
Borrower of any public or private sale thereof by Bank is required,
provided, however, that if any such notice is required by applicable law
with respect to any such sale, then one Business Day's notice thereof shall
be reasonable notification to Borrower.
19. NO WAIVER. No failure by Bank to exercise any right, power or
remedy under this Agreement, and no delay by Bank in exercising any such
right, power or remedy, shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise by Bank of any other
right, power or remedy. The rights and remedies of Bank provided for in
this Agreement are cumulative and not exclusive of any remedies provided at
law or in equity.
20. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
agreement of the parties with respect to the Loans, and, except as provided
in Section 5(d) above, no amendment, modification, termination or waiver of
any provision hereof or consent to a departure herefrom by Borrower shall
be effective unless the same is in writing and signed by both Bank and
Borrower.
21. SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
representatives, successors and assigns, provided, however, that except as
provided in Section 21(b) below it may not be assigned by either party
hereto without the prior written consent of the other party hereto, and any
purported assignment in violation of this provision shall be null and void.
(b) Section 21(a) above notwithstanding, Bank may from time to time,
in its sole and absolute discretion and without Borrower's further consent
(i) assign this Agreement and any Loan to any affiliate of Bank, or (ii)
sell participations in any Loan to any Person, provided, however, that in
the case of any such sale of participations Bank's obligations under this
Agreement shall remain unchanged and it shall remain solely responsible to
Borrower for its performance thereof.
22. GOVERNING LAW AND JURISDICTION. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York, without regard to the conflict of law principles thereof.
(b) Any suit, action or proceeding with respect to this Agreement or
any Loan may be brought in the Supreme Court of the State of New York,
County of New York, or in the United States District Court for the Southern
District of New York, and the parties hereto hereby submit to the non-
exclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding, and hereby waive for such purpose any other
preferential jurisdiction by reason of their present or future domicile or
otherwise.
23. NOTICES. Unless otherwise specified, any notice or demand required
hereunder shall be sent, delivered or transmitted to the recipient at the
address (or, in the case of facsimile transmission, the telephone number)
set forth after its name hereinbelow:
IF TO BANK, AT:
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
Attention: Vice President -
Loan Compliance
Telephone: (609) 951-2313
Facsimile: (609) 951-2317
IF TO BORROWER, AT:
MAXXAM Inc.
5847 San Felipe, Ste 2600
Houston, Texas 77057
Attention: Paul N. Schwartz
Telephone: (713) 267-3685
Facsimile: (713) 267-3703
AND
Attention: Treasury Department
Telephone: (713) 267-3619
Facsimile: (713) 267-3704
or to such other address or telephone number as each party may designate
for itself by like notice. The means by or through which notices, demands
and other communications hereunder may be sent or transmitted include
teletype, facsimile, central processing unit connection, on-line terminal
and magnetic tape.
24. EXPENSES. Borrower shall pay or, at the election of Bank, shall
reimburse Bank for paying (a) all reasonable costs, fees and expenses
(including reasonable attorneys' fees) incurred by Bank in connection with
the enforcement of this Agreement and Bank's security interest in the
Collateral, and (b) all transfer, stamp, documentary or other similar
taxes, assessments or charges levied by any tax or other governmental
authority in respect of this Agreement or any Loan.
25. SEVERABILITY. If any provision of this Agreement is invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions of this Agreement (and the
validity, legality and enforceability of such provision in any other
jurisdiction) shall not be affected or impaired thereby.
26. MISCELLANEOUS. (a) For the avoidance of doubt, it is hereby
expressly understood that Borrower as defined in this Agreement means
MAXXAM INC. considered individually and does not refer to any subsidiary
thereof, whether accounted for on a consolidated basis with Borrower or
not, and that the rights and obligations of Borrower under this Agreement
are not rights and obligations of any such subsidiary.
(b) All agreements, representations and warranties contained in this
Agreement shall survive the execution and delivery of this Agreement and
the making of any Loan.
(c) Bank shall be held to the exercise of reasonable care in the
custody and preservation of the Collateral in its possession, and shall be
deemed to have exercised such care if such Collateral is accorded treatment
substantially equal to that which Bank accords to its own property.
(d) Except to the extent that pursuant to Section 26(c) above Bank may
be liable to Borrower for Bank's negligence in the custody and preservation
of Collateral in Bank's possession, and except as may be otherwise provided
in the matter of collateral by applicable provisions of the Uniform
Commercial Code as in effect in the State of New York, Bank shall be
without liability to Borrower for any loss, damage, cost, expense,
liability or claim which does not arise from willful misfeasance, bad faith
or gross negligence on the part of Bank in taking or omitting to take any
action under this Agreement.
(e) Bank shall have the continuing and exclusive right to apply any
and all payments to any portion of the Loans. All payments by Borrower to
Bank pursuant to this Agreement shall be made without set-off, and none of
such payments shall be subject to any counterclaim by Borrower. To the
extent that Borrower makes a payment or Bank receives any payment or
proceeds of the Collateral for Borrower's benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or
required to be repaid to a trustee, debtor in possession, receiver or any
other party under any bankruptcy, reorganization or insolvency law, common
law or equitable cause, then, to such extent, the obligation hereunder of
Borrower which was to have been satisfied by such payment or proceeds shall
be revived and continue as if such payment or proceeds had not been
received by Bank.
(f) Bank shall maintain, and shall cause its officers, directors,
employees and affiliates under its control to maintain, the confidentiality
of all information provided by Borrower to Bank pursuant to this Agreement
and which Borrower has identified to Bank (at the time that it is provided
to Bank) as being non-public, except to the extent that such information
(i) becomes generally available to the public other than as a result of
disclosure by Bank, (ii) is required to be provided to regulatory
authorities or Bank's auditors, (iii) is required to be provided pursuant
to court process, provided that Bank shall promptly notify Borrower of such
process so that Borrower may seek a protective order in connection
therewith, or (iv) needs to be disclosed in connection with the exercise,
preservation and enforcement of Bank's rights and remedies under this
Agreement.
(g) The headings of sections in this Agreement are for convenience of
reference only and shall not affect the meaning or construction of any
provision of this Agreement.
(h) This Agreement may be executed in one or more counterparts and by
the parties hereto on separate counterparts, each of which shall be deemed
an original but all of which taken together shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed in its name and on its behalf by its representative thereunto
duly authorized, all as of the day and year first above written.
MAXXAM INC.
By: PAUL N. SCHWARTZ
Name: Paul N. Schwartz
Title: Executive Vice President
CUSTODIAL TRUST COMPANY
By: RONALD D. WATSON
Name: Ronald D. Watson
Title: President
SCHEDULE A
Loan Value
(percentages are
Collateral Type % of Market Value)
- --------------- -----------------
Initial Maintenance
------- -----------
Common Stock of Kaiser
Aluminum Corporation 33-1/3% lower of 50%
or $7.50 per
share
