FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 Commission File Number 1-
8857
MAXXAM GROUP INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 13-1310680
(State or other (I.R.S. Employer
jurisdiction Identification Number)
of incorporation or
organization)
5847 SAN FELIPE, SUITE 2600
HOUSTON, TEXAS 77057
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (713) 975-7600
__________________
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
__________________
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (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 / /
Shares of Common Stock outstanding at March 15, 1994: 100
All of the Registrant's voting stock is held by an affiliate of
the Registrant.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
(J)(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
DOCUMENTS INCORPORATED BY REFERENCE
The consolidated financial statements and notes thereto of Kaiser Aluminum
Corporation are incorporated herein by reference and included as Exhibit 99
hereto.
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MAXXAM GROUP INC.
PART I
ITEM 1. BUSINESS
GENERAL
MAXXAM Group Inc. and its majority and wholly owned
subsidiaries are collectively referred to herein as the "Company" or
"MGI" unless otherwise indicated or the context indicates otherwise.
The Company is a wholly owned subsidiary of MAXXAM Inc. ("MAXXAM").
As a result of the Forest Products Group Formation described in the
following paragraph, the Company is engaged almost exclusively in
forest products operations through its wholly owned subsidiaries, The
Pacific Lumber Company and its wholly owned subsidiaries (collectively
referred to herein as "Pacific Lumber," unless the context indicates
otherwise), and Britt Lumber Co., Inc. ("Britt"). Pacific Lumber,
which has been in continuous operation for 125 years, engages in all
principal aspects of the lumber industry--the growing and harvesting
of redwood and Douglas-fir timber, the milling of logs into lumber
products and the manufacturing of lumber into a variety of value-added
finished products. Britt manufactures redwood and cedar fencing and
decking products from small diameter logs, a substantial portion of
which Britt acquires from Pacific Lumber (which cannot efficiently
process them in its own mills).
FOREST PRODUCTS GROUP FORMATION
On August 4, 1993, the Company issued $100 million aggregate
principal amount of 11 1/4% Senior Secured Notes due 2003 (the "MGI
Senior Notes") and $126.7 million aggregate principal amount
(approximately $70 million net of original issue discount) of 12 1/4%
Senior Secured Discount Notes due 2003 (the "MGI Discount Notes" and
together with the MGI Senior Notes, the "MGI Notes"). In connection
with such offering, the Company reorganized its operations so that it
would be engaged in the forest products business (the "Forest Products
Group Formation"). Prior to the Forest Products Group Formation, the
Company also operated in two other industries: aluminum, through its
majority owned subsidiary, Kaiser Aluminum Corporation ("Kaiser"), a
fully integrated aluminum producer, and real estate management and
development, through the Palmas del Mar development located in Puerto
Rico ("Palmas") owned by a subsidiary of the Company. On August 4,
1993, the Company (i) transferred to MAXXAM 50 million shares of
Kaiser's common stock held by a subsidiary of the Company,
representing the Company's entire interest in Kaiser's common stock,
(ii) transferred to MAXXAM 60,075 shares of MAXXAM's common stock held
by a subsidiary of the Company, (iii) transferred to MAXXAM certain
notes receivable, long-term investments, and other assets, each net of
related liabilities, collectively having a carrying value to the
Company of approximately $1.1 million, and (iv) exchanged with MAXXAM
2,132,950 Depositary Shares, acquired from Kaiser in June 1993 for
$15.0 million, such exchange being in satisfaction of a $15.0 million
promissory note evidencing a cash loan made by MAXXAM to the Company
in January 1993. On the same day, MAXXAM assumed approximately $17.5
million of certain liabilities of the Company that were unrelated to
the Company's forest products operations or were related to operations
which have been disposed of by the Company. Additionally, in
September 1993, the Company transferred to MAXXAM its interest in
Palmas.
PACIFIC LUMBER REFINANCING
On March 23, 1993 (the "Closing Date"), Pacific Lumber
transferred (the "Transfer") approximately 179,000 acres of
timberlands (the "Subject Timberlands"), its geographical information
system and certain other assets to its newly-formed wholly owned
subsidiary, Scotia Pacific Holding Company ("SPHC"), in exchange for
(i) the assumption by SPHC of $323.4 million of Pacific Lumber's
public indebtedness consisting of all of Pacific Lumber's 12% Series A
Senior Notes due July 1, 1996 (the "Series A Notes")
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and a portion of Pacific Lumber's 12.2% Series B Senior Notes due July
1, 1996 (the "Series B Notes") and (ii) all of SPHC's outstanding
common stock. SPHC was organized as a special purpose Delaware
corporation to facilitate the Transfer and the offering of the Timber
Notes described below. The Subject Timberlands consist substantially
of residual old growth and young growth redwood and Douglas-fir
timber. On the Closing Date, Pacific Lumber and SPHC entered into a
Master Purchase Agreement, a Services Agreement, an Additional
Services Agreement and certain other agreements providing for a
variety of ongoing relationships. See "Pacific Lumber Operations--
Relationships with SPHC and Britt Lumber." On the Closing Date,
Pacific Lumber also transferred to its newly-formed wholly owned
subsidiary, Salmon Creek Corporation ("Salmon Creek"), in exchange for
all of Salmon Creek's common stock, approximately 3,000 contiguous
acres of its virgin old growth redwood timber, together with
approximately 3,000 additional acres of adjacent timberlands owned by
Pacific Lumber which could not be readily segregated from such virgin
old growth redwood timberlands (collectively, the "Salmon Creek
Property").
Pacific Lumber retained the exclusive right to harvest (the
"Pacific Lumber Harvest Rights") approximately 8,000 non-contiguous
acres of the Subject Timberlands consisting substantially of virgin
old growth redwood and virgin old growth Douglas-fir timber located on
numerous small parcels throughout the Subject Timberlands. In
addition, Pacific Lumber retained its lumber milling, manufacturing,
cogeneration and related facilities, as well as approximately 11,000
acres of real property located in Humboldt County, California, which
do not constitute part of the Subject Timberlands (collectively, the
"Pacific Lumber Real Property"). The Pacific Lumber Real Property
consists of the town of Scotia, the land on which Pacific Lumber's
sawmills, manufacturing facilities and related facilities are located
and areas adjacent thereto, certain potential residential and
commercial development sites and other areas, including timberlands
owned by Pacific Lumber which cannot be readily segregated from the
foregoing properties. Pacific Lumber is milling logs and producing
and marketing lumber products from timber located on the timberlands
of SPHC, Pacific Lumber and Salmon Creek in substantially the same
manner as conducted prior to the Transfer. Pacific Lumber is,
pursuant to the Master Purchase Agreement, harvesting and purchasing
from SPHC all or substantially all of the logs harvested from the
Subject Timberlands. See "--Pacific Lumber Operations--Relationships
with SPHC and Britt Lumber" below.
On the Closing Date, Pacific Lumber consummated its offering
of $235 million aggregate principal amount of 10 1/2% Senior Notes due
2003 (the "Pacific Lumber Senior Notes") and SPHC consummated its
offering of $385 million aggregate principal amount of 7.95% Timber
Collateralized Notes due 2015 (the "Timber Notes"). The net proceeds
of such offerings, together with cash and marketable securities, were
used to redeem all of Pacific Lumber's outstanding public indebtedness
(including the amounts assumed by SPHC), to make required deposits
into certain accounts for the benefit of the holders of the Timber
Notes, to repay Pacific Lumber's cogeneration loan and to pay a $25.0
million dividend to MAXXAM Properties Inc., a subsidiary of the
Company ("MPI"). Substantially all of SPHC's assets, including the
Subject Timberlands, were pledged as security for the Timber Notes.
PACIFIC LUMBER OPERATIONS
TIMBERLANDS
Pacific Lumber owns and manages approximately 187,000 acres
of commercial timberlands in Humboldt County in northern California.
These timberlands contain approximately three-quarters redwood and
one-quarter Douglas-fir timber. Pacific Lumber's acreage is virtually
contiguous, is located in close proximity to its sawmills and contains
an extensive (1,100 mile) network of roads. These factors
significantly reduce harvesting costs and facilitate Pacific Lumber's
forest management techniques. The
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extensive roads throughout Pacific Lumber's timberlands facilitate log
hauling, serve as fire breaks and allow Pacific Lumber's foresters
access to employ forest stewardship techniques which protect the trees
from forest fires, erosion, insects and other damage.
The forest products industry grades lumber in various
classifications according to quality. The two broad categories within
which all grades fall, based on the absence or presence of knots, are
called "upper" and "common" grades, respectively. "Old growth" trees,
often defined as trees which have been growing for approximately 200
years or longer, have a higher percentage of upper grade lumber than
"young growth" trees (those which have been growing for less than 200
years). "Virgin" old growth trees are located in timber stands that
have not previously been harvested. "Residual" old growth trees are
located in timber stands which have been selectively harvested in the
past.
Pacific Lumber has engaged in extensive efforts, at
relatively low cost, to supplement the natural regeneration of timber
and increase the amount of timber on its timberlands. Regeneration of
redwood timber generally is accomplished through the natural growth of
redwood sprouts from the stump remaining after a redwood tree is
harvested. Such new redwood sprouts grow quickly, thriving on
existing mature root systems. In addition, Pacific Lumber supplements
natural redwood generation by planting redwood seedlings. Douglas-fir
timber grown on Pacific Lumber's timberlands is regenerated almost
entirely by planting seedlings. During the 1992-93 planting season
(December through March), Pacific Lumber planted approximately 488,000
redwood and Douglas-fir seedlings at a cost of approximately $215,500.
HARVESTING PRACTICES
The ability of Pacific Lumber to sell logs or lumber
products will depend, in part, upon its ability to obtain regulatory
approval of timber harvesting plans ("THPs"). THPs are required to be
filed with the California Department of Forestry ("CDF") prior to the
harvesting of timber and are designed to comply with existing
environmental laws and regulations. The CDF's evaluation of proposed
THPs incorporates review and analysis of such THPs provided by several
California and federal agencies and public comments received with
respect to such THPs. An approved THP is applicable to specific
acreage and specifies the harvesting method and other conditions
relating to the harvesting of the timber covered by such THP. The
method of harvesting as set forth in a THP is chosen from among a
number of accepted methods based upon suitability to the particular
site conditions. Pacific Lumber maintains a detailed geographical
information system covering its timberlands (the "GIS"). The GIS
covers numerous aspects of Pacific Lumber's properties, including
timber type, tree class, wildlife data, roads, rivers and streams. By
carefully monitoring and updating this data base, Pacific Lumber's
foresters are able to develop detailed THPs which are required to be
filed with and approved by the CDF prior to the harvesting of timber.
Pacific Lumber principally harvests trees through selective
harvesting, which harvests only a portion of the trees in a given
area, as opposed to clearcutting, which harvests an entire area of
trees in one logging operation. Selective harvesting generally
accounts for over 90% (by volume on a net board foot basis) of Pacific
Lumber's timber harvest in any given year. Harvesting by clearcutting
is used only when selective harvesting methods are impractical due to
unique conditions. Selective harvesting allows the remaining trees to
obtain more light, nutrients and water thereby promoting faster growth
rates. Due to the size of its timberlands and conservative harvesting
practices, Pacific Lumber has historically conducted harvesting
operations on approximately 5% of its timberlands in any given year.
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PRODUCTION FACILITIES
Pacific Lumber owns four highly mechanized sawmills and
related facilities located in Scotia, Fortuna and Carlotta,
California. The sawmills historically have been supplied almost
entirely from timber harvested from Pacific Lumber's timberlands.
Since 1986, Pacific Lumber has implemented numerous technological
advances which have increased the operating efficiency of its
production facilities and the recovery of finished products from its
timber. Over the past three years, Pacific Lumber's annual lumber
production has averaged approximately 249 million board feet, with
approximately 228, 264 and 256 million board feet produced in 1993,
1992 and 1991, respectively. Pacific Lumber operates a finishing
plant which processes rough lumber into a variety of finished products
such as trim, fascia, siding and paneling. These finished products
include the industry's largest variety of customized trim and fascia
patterns. Pacific Lumber also enhances the value of some grades of
common grade lumber by cutting out knot-free pieces and reassembling
them into longer or wider pieces in Pacific Lumber's state-of-the-art
end and edge glue plant. The result is a standard sized upper grade
product which can be sold at a significant premium over common grade
products.
Pacific Lumber dries the majority of its upper grade lumber
before it is sold. Upper grades of redwood lumber are generally
air-dried for six to eighteen months and then kiln-dried for seven to
twenty-four days to produce a dimensionally stable and high quality
product which generally commands higher prices than "green" lumber
(which is lumber sold before it has been dried). Upper grade
Douglas-fir lumber is generally kiln-dried immediately after it is
cut. Pacific Lumber owns and operates 34 kilns, having an annual
capacity of approximately 95 million board feet, to dry its upper
grades of lumber efficiently in order to produce a quality, premium
product. Pacific Lumber also maintains several large enclosed storage
sheds which hold approximately 25 million board feet of lumber.
In addition, Pacific Lumber owns and operates a modern
25-megawatt cogeneration power plant which is fueled almost entirely
by the wood residue from Pacific Lumber's milling and finishing
operations. This power plant generates substantially all of the
energy requirements of Scotia, California, the town adjacent to
Pacific Lumber's timberlands owned by Pacific Lumber where several of
its manufacturing facilities are located. Pacific Lumber sells
surplus power to Pacific Gas and Electric Company. In 1993, the sale
of surplus power to Pacific Gas and Electric Company accounted for
approximately 2% of Pacific Lumber's total revenues.
In April 1992, an earthquake and a series of aftershocks
occurred in northern California which produced a significant amount of
damage in and around the area where Pacific Lumber's forest products
operations are located. Standing timber on Pacific Lumber's
timberlands suffered virtually no damage; however, among other damage,
a large number of kilns used to dry upper grade redwood lumber and two
sawmills were damaged, including one sawmill which was not operational
for a period of approximately six weeks. Pacific Lumber maintains
insurance coverage with respect to damage to its property and the
disruption of its business from earthquakes. Consistent with its past
practices and the owners of most other timber tracts in the United
States, Pacific Lumber does not maintain earthquake or fire insurance
in respect of standing timber.
PRODUCTS
Lumber
Pacific Lumber primarily produces and markets lumber. In
1993, Pacific Lumber sold approximately 240 million board feet of
lumber, which accounted for approximately 82% of Pacific Lumber's
total revenues. Lumber products vary greatly by the species and
quality of the timber from which it is produced.
<PAGE>
Lumber is sold not only by grade (such as "upper" grade versus
"common" grade), but also by board size and the drying process
associated with the lumber.
Redwood lumber is Pacific Lumber's largest product category,
constituting approximately 81% of Pacific Lumber's total lumber
revenues and 67% of Pacific Lumber's total revenues in 1993. Redwood
is commercially grown only along the northern coast of California and
possesses certain unique characteristics which permit it to be sold at
a premium to many other wood products. Such characteristics include
its natural beauty, superior ability to retain paint and other
finishes, dimensional stability and innate resistance to decay,
insects and chemicals. Typical applications include exterior siding,
trim and fascia for both residential and commercial construction,
outdoor furniture, decks, planters, retaining walls and other
specialty applications. Redwood also has a variety of industrial
applications because of its chemical resistance and because it does
not impart any taste or odor to liquids or solids.
Upper grade redwood lumber, which is derived primarily from
old growth trees and is characterized by an absence of knots and other
defects and a very fine grain, is used primarily in more costly and
distinctive interior and exterior applications. During 1993, upper
grade redwood lumber products accounted for approximately 25% of
Pacific Lumber's total lumber production volume (on a net board foot
basis), 49% of its total lumber revenues and 40% of its total
revenues.
Common grade redwood lumber, Pacific Lumber's largest volume
product, has many of the same aesthetic and structural qualities of
redwood uppers, but has some knots, sapwood and a coarser grain. Such
lumber is commonly used for construction purposes, including outdoor
structures such as decks, hot tubs and fencing. In 1993, common grade
redwood lumber accounted for approximately 48% of Pacific Lumber's
total lumber production volume (on a net board foot basis), 32% of its
total lumber revenues and 26% of its total revenues.
Douglas-fir lumber is used primarily for new construction
and some decorative purposes and is widely recognized for its
strength, hard surface and attractive appearance. Douglas-fir is
grown commercially along the west coast of North America and in Chile
and New Zealand. Upper grade Douglas-fir lumber is derived primarily
from old growth Douglas-fir timber and is used principally in finished
carpentry applications. In 1993, upper grade Douglas-fir lumber
accounted for approximately 5% of Pacific Lumber's total lumber
production volume (on a net board foot basis), 8% of its total lumber
revenues and 6% of its total revenues. Common grade Douglas-fir
lumber is used for a variety of general construction purposes and is
largely interchangeable with common grades of other whitewood lumber.
In 1993, common grade Douglas-fir lumber accounted for approximately
22% of Pacific Lumber's total lumber production volume, 11% of its
total lumber revenues and 9% of its total revenues.
Logs
Pacific Lumber currently sells certain logs that, due to
their size or quality, cannot be efficiently processed by its mills
into lumber. The purchasers of these logs are largely Britt, and
surrounding mills which do not own sufficient timberlands to support
their mill operations. In 1993, log sales accounted for approximately
10% of Pacific Lumber's total revenues. See "--Relationships with
SPHC and Britt Lumber" below.
Except for the agreement with Britt described below, Pacific
Lumber does not have a significant contractual relationships with any
third parties relating to the purchase of logs. Pacific Lumber has
historically not purchased significant quantities of logs from third
parties; however, Pacific Lumber may from time to time purchase logs
from third parties for processing in its mills or for resale to third
parties
<PAGE>
if, in the opinion of management, economic factors are advantageous to
the Company. See also Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of
Operations--Operating Income" for a description of 1993 log purchases
by Pacific Lumber due to inclement weather conditions.
Wood Chips
In 1990, Pacific Lumber installed a whole-log chipper to
produce wood chips from hardwood trees which were previously left as
waste. These chips primarily are sold to third parties for the
production of facsimile and other specialty papers. In 1993, hardwood
chips accounted for approximately 3% of Pacific Lumber's total
revenues.
Pacific Lumber also produces softwood chips from the wood
residue and waste from its milling and finishing operations. These
chips are sold to third parties for the production of wood pulp and
paper products. In 1993, softwood chips accounted for approximately
3% of Pacific Lumber's total revenues.
BACKLOG AND SEASONALITY
Pacific Lumber's backlog of sales orders at December 31,
1993 and 1992 was approximately $16.0 million and $15.4 million,
respectively, the substantial portion of which was delivered in the
first quarter of the succeeding fiscal year.
Pacific Lumber has historically experienced lower first and
fourth quarter sales due largely to the general decline in
construction-related activity during the winter months. As a result,
Pacific Lumber's results in any one quarter are not necessarily
indicative of results to be expected for the full year.
MARKETING
The housing, construction and remodeling markets are the
primary markets for Pacific Lumber's lumber products. Pacific
Lumber's policy is to maintain a wide distribution of its products
both geographically and in terms of the number of customers. Pacific
Lumber sells its lumber products throughout the country to a variety
of accounts, the large majority of which are wholesalers, followed by
retailers, industrial users, exporters and manufacturers. Upper
grades of redwood and Douglas-fir lumber are sold throughout the
entire United States, as well as to export markets. Common grades of
redwood lumber are sold principally west of the Mississippi river,
with California accounting for approximately 60% of these sales in
1993. Common grades of Douglas-fir lumber are sold primarily in
California. In 1993, no single customer accounted for more than 6% of
Pacific Lumber's total revenues. Exports of lumber accounted for
approximately 4% of Pacific Lumber's total lumber revenues in 1993.
Pacific Lumber markets its products through its own sales staff which
focuses primarily on domestic sales.
Pacific Lumber actively follows trends in the housing,
construction and remodeling markets in order to maintain an
appropriate level of inventory and assortment of product. Due to its
high quality products, large inventory, competitive prices and long
history, Pacific Lumber believes that it has a strong degree of
customer loyalty.
COMPETITION
Pacific Lumber's lumber is sold in highly competitive
markets. Competition is generally based upon a combination of price,
service and product quality. Pacific Lumber's products compete not
only with other
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wood products but with metals, masonry, plastic and other construction
materials made from non-renewable resources. The level of demand for
Pacific Lumber's products is dependent on such broad factors as
overall economic conditions, interest rates and demographic trends.
In addition, competitive considerations, such as total industry
production and competitors' pricing, as well as the price of other
construction products, affect the sales prices for Pacific Lumber's
lumber products. Pacific Lumber currently enjoys a competitive
advantage in the upper grade redwood lumber market due to the quality
of its timber holdings and relatively low cost production operations.
Competition in the common grade redwood and Douglas-fir lumber market
is more intense, and Pacific Lumber competes with numerous large and
small lumber producers.
EMPLOYEES
As of March 1, 1994, Pacific Lumber had approximately 1,200
employees.
RELATIONSHIPS WITH SPHC AND BRITT LUMBER
On the Closing Date, Pacific Lumber and SPHC entered into a
Services Agreement (the "Services Agreement") and an Additional
Services Agreement (the "Additional Services Agreement"). Pursuant to
the Services Agreement, Pacific Lumber provides operational,
management and related services with respect to the Subject
Timberlands containing timber of SPHC ("SPHC Timber") not performed by
SPHC's own employees. Such services include the furnishing of all
equipment, personnel and expertise not within the SPHC's possession
and reasonably necessary for the operation and maintenance of the
Subject Timberlands containing the SPHC Timber. In particular,
Pacific Lumber is required to regenerate SPHC Timber, prevent and
control loss of the SPHC Timber by fires, maintain a system of roads
throughout the Subject Timberlands, take measures to control the
spread of disease and insect infestation affecting the SPHC Timber and
comply with environmental laws and regulations, including measures
with respect to waterways, habitat, hatcheries and endangered species.
Pacific Lumber also is required (to the extent necessary) to assist
SPHC personnel in updating the GIS and to prepare and file, on SPHC's
behalf, all pleadings and motions and otherwise diligently pursue
appeals of any denial of any THP and related matters. As compensation
for these and the other services to be provided by Pacific Lumber,
SPHC pays a fee which is adjusted on January 1 of each year based on a
specified government index relating to wood products. The fee was
$100,000 per month in 1993 and is expected to be approximately
$114,000 per month in 1994. Pursuant to the Additional Services
Agreement, SPHC provides Pacific Lumber with a variety of services,
including (a) assisting Pacific Lumber to operate, maintain and
harvest its own timber properties, (b) updating and providing access
to the GIS with respect to information concerning Pacific Lumber's own
timber properties, and (c) assisting Pacific Lumber with its statutory
and regulatory compliance. Pacific Lumber pays SPHC a fee for such
services equal to the actual cost of providing such services, as
determined in accordance with generally accepted accounting
principles.
Pacific Lumber and SPHC also entered into the Master
Purchase Agreement on the Closing Date. The Master Purchase Agreement
governs all purchases of logs by the Company from SPHC. Each purchase
of logs by Pacific Lumber from SPHC is made pursuant to a separate log
purchase agreement (which incorporates the terms of the Master
Purchase Agreement) for the SPHC Timber covered by an approved THP.
Each log purchase agreement generally constitutes an exclusive
agreement with respect to the timber covered thereby, subject to
certain limited exceptions. The purchase price must be at least equal
to the SBE Price (as defined below). The Master Purchase Agreement
provides that if the purchase price equals or exceeds (i) the price
for such species and category thereof set forth on the structuring
schedule applicable to the Timber Notes, and (ii) the SBE Price, then
such price shall be deemed to be the fair market value of such logs.
The Master Purchase Agreement defines the "SBE Price," for any species
and category of
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timber, as the stumpage price for such species and category as set
forth in the most recent "Harvest Value Schedule" published by the
California State Board of Equalization applicable to the timber sold
during the period covered by such Harvest Value Schedule. Such
Harvest Value Schedules are published for purposes of computing yield
taxes and generally are established every six months. As Pacific
Lumber purchases logs from SPHC pursuant to the Master Purchase
Agreement, Pacific Lumber is responsible, at its own expense, for
harvesting and removing the standing SPHC Timber covered by approved
THPs and, thus, the purchase price thereof is based upon "stumpage
prices." Title to the harvested logs does not pass to Pacific Lumber
until the logs are transported to Pacific Lumber's log decks and
measured. Substantially all of SPHC's revenues are derived from the
sale of logs to Pacific Lumber under the Master Purchase Agreement.
In connection with the Transfer, Pacific Lumber, SPHC and
Salmon Creek also entered into a Reciprocal Rights Agreement granting
to each other certain reciprocal rights of egress and ingress through
their respective properties in connection with the operation and
maintenance of such properties and their respective businesses. In
addition, on the Closing Date, Pacific Lumber entered into an
Environmental Indemnification Agreement with SPHC pursuant to which
Pacific Lumber agreed to indemnify SPHC from and against certain
present and future liabilities arising with respect to hazardous
materials, hazardous materials contamination or disposal sites, or
under environmental laws with respect to the Subject Timberlands.
On the Closing Date, Pacific Lumber entered into an
agreement with Britt which governs the sale of logs by Pacific Lumber
and Britt to each other, the sale of hog fuel (wood residue) by Britt
to Pacific Lumber for use in Pacific Lumber's cogeneration plant, the
sale of lumber by Pacific Lumber and Britt to each other, and the
provision by Pacific Lumber of certain administrative services to
Britt (including accounting, purchasing, data processing, safety and
human resources services). The logs which Pacific Lumber sells to
Britt and which are used in Britt's manufacturing operations are sold
at approximately 75% of applicable SBE prices (to reflect the lower
quality of these logs). Logs which either Pacific Lumber or Britt
purchases from third parties and which are then sold to each other are
transferred at the actual cost of such logs. Hog fuel is sold at
applicable market prices, and administrative services are provided by
Pacific Lumber based on Pacific Lumber's actual costs and an allocable
share of Pacific Lumber's overhead expenses consistent with past
practice.
BRITT LUMBER OPERATIONS
BUSINESS
Britt is located in Arcata, California, approximately 45
miles north of Pacific Lumber's headquarters. Britt's primary
business is the processing of small diameter redwood logs into wood
fencing products for sale to retail and wholesale customers. Britt
was incorporated in 1965 and operated as an independent manufacturer
of fence products until July 1990, when it was purchased by a
subsidiary of the Company. Britt purchases small diameter (6 to 14
inch) and short length (6 to 12 feet) redwood logs from Pacific Lumber
and a variety of different diameter and different length logs from
various timberland owners. Britt processes logs at its mill into a
variety of different fencing products, including "dog-eared" 1" to 6"
fence stock in six and eight foot lengths, 4" x 4" fence posts in 6
through 12 foot lengths, and other fencing products in 6 through 12
foot lengths. Britt's purchases of logs from third parties are
generally consummated pursuant to short-term contracts of twelve
months or less. See "--Pacific Lumber Operations--Relationships with
SPHC and Britt Lumber" for a description of Britt's log purchases from
Pacific Lumber.
<PAGE>
MARKETING
In 1993, Britt sold approximately 73 million board feet of
lumber products to approximately 90 different customers, compared to
1992 sales of approximately 68 million board feet of lumber products
to approximately 100 customers. In both years, over one-half of its
sales were in northern California. The remainder of its 1993 and 1992
sales were in southern California, Arizona, Colorado, Hawaii and
Nevada. The largest and top five of such customers accounted for
approximately 33% and 46%, respectively, of such 1993 sales and 33%
and 80%, respectively, of 1992 sales. Britt markets its products
through its own sales person to a variety of customers, including
distribution centers, industrial remanufacturers, wholesalers and
retailers.
FACILITIES AND EMPLOYEES
Britt's manufacturing operations are conducted on 12 acres
of land, 10 acres of which are leased on a long-term fixed-price basis
from an unrelated third party. Fence production is conducted in a
46,000 square foot mill. An 18 acre log sorting and storage yard is
located 1/4 mile away. The mill was constructed in 1980, and capital
expenditures to enhance its output and efficiency are made on a yearly
basis. Britt's (single shift) mill capacity, assuming 40 production
hours per week, is estimated at 40.3 million board feet of fencing
products per year. As of March 1, 1994, Britt employed approximately
100 people.
COMPETITION
Management estimates that Britt accounted for approximately
24% of the redwood fence market in 1993 in competition with the
northern California mills of Louisiana Pacific and Georgia Pacific.
REGULATORY AND ENVIRONMENTAL FACTORS
Regulatory and environmental issues play a significant role
in Pacific Lumber's forest products operations. Pacific Lumber's
forest products operations are subject to a variety of California, and
in some cases, federal laws and regulations dealing with timber
harvesting, endangered species, and air and water quality. These laws
include the California Forest Practice Act (the "Forest Practice
Act"), which requires that timber harvesting operations be conducted
in accordance with detailed requirements set forth in the Forest
Practice Act and in the regulations promulgated thereunder by the
California Board of Forestry (the "BOF"). The federal Endangered
Species Act (the "ESA") and the California Endangered Species Act (the
"CESA") provide in general for the protection and conservation of
specifically listed fish, wildlife and plants which have been declared
to be endangered or threatened. The California Environmental Quality
Act ("CEQA") provides, in general, for protection of the environment
of the state, including protection of air and water quality and of
fish and wildlife. In addition, the California Water Quality Act
requires, in part, that Pacific Lumber's operations be conducted so as
to reasonably protect the water quality of nearby rivers and streams.
Pacific Lumber does not expect that compliance with such existing laws
and regulations will have a material adverse effect on its timber
harvesting practices or future operating results. There can be no
assurance, however, that future legislation, governmental regulations
or judicial or administrative decisions would not adversely affect
Pacific Lumber.
Additional BOF regulations (i.e., late succession forest
stand rules and sensitive watershed rules) went into effect March 1,
1994. These new regulations require, among other things, the
inclusion of more information in THPs (concerning, among other things,
timber generation systems, the presence or absence of fish, wildlife
and plant species, and potentially impacted watersheds) and
modification of certain timber
<PAGE>
harvesting practices to comply with the new regulations. In early
March 1994, the BOF also approved silviculture with sustained yield
rules. The Office of Administrative Law (the "OAL") is expected to
(i) approve these proposed regulations, (ii) request additional
review, information or action and resubmittal to the OAL,
or (iii) reject the proposed regulations. These proposed
regulations are scheduled to become effective on May 1, 1994, and if
approved, will require additional information to be included in THPs
(concerning, among other things, compliance with long-term sustained
yield objectives) and modifications of certain timber harvesting
practices (including the creation of buffer zones between harvest
areas and increases in the amount of timber required to be retained in
a harvest area).
Various groups and individuals have filed objections with
the CDF regarding the CDF's actions and rulings with respect to
certain of Pacific Lumber's THPs, and the Company expects that such
groups and individuals will continue to file objections to certain of
Pacific Lumber's THPs. In addition, lawsuits are pending which seek
to prevent Pacific Lumber from implementing certain of its approved
THPs. These challenges have severely restricted Pacific Lumber's
ability to harvest virgin old growth timber on its property during the
past few years. To date, litigation with respect to Pacific Lumber's
THPs relating to young growth and residual old growth timber has been
limited; however, no assurance can be given as to the extent of such
litigation in the future. See Item 3. "Legal Proceedings--Pacific
Lumber Environmental Litigation."
In June 1990, the U.S. Fish and Wildlife Service (the
"USFWS") designated the northern spotted owl as threatened under the
ESA. The State of California also has adopted regulations designed to
protect the northern spotted owl, although the northern spotted owl
has not been listed as threatened or endangered under the CESA. The
owl's range includes all of Pacific Lumber's timberlands. The ESA and
its implementing regulations generally prohibit harvesting operations
in which individual owls might be killed, displaced or injured or
which result in significant habitat modification that could impair the
survival of individual owls or the species as a whole. Since 1988,
biologists have conducted inventory and habitat utilization studies of
northern spotted owls on Pacific Lumber's timberlands. The USFWS has
given its full concurrence to a northern spotted owl management plan
(the "Owl Plan"), a comprehensive wildlife management plan submitted
by Pacific Lumber with respect to the northern spotted owl. Pacific
Lumber incorporates this plan into each THP filed with the CDF and is
no longer required to receive individual approval of its northern
spotted owl conservation practices in connection with each THP it
submits. The Owl Plan enables Pacific Lumber to expedite the approval
process with respect to its THPs. Both federal and state agencies
continue to review and consider possible additional regulations
regarding the northern spotted owl. It is uncertain if such
additional regulations will become effective or their ultimate
content.
On March 12, 1992, the marbled murrelet was approved for
listing as endangered under the CESA. Pacific Lumber has
incorporated, and will continue to incorporate, additional mitigation
measures into its THPs to protect and maintain habitat for marbled
murrelets on its timberlands. The California Department of Fish and
Game (the "CDFG") requires Pacific Lumber to conduct pre-harvest
marbled murrelet surveys and to provide certain other site specific
mitigations in connection with its THPs covering virgin old growth
timber and unusually dense stands of residual old growth timber. Such
surveys can only be conducted during April to July, the murrelets'
nesting and breeding season. Accordingly, such surveys are expected
to delay the approval process with respect to certain of the THPs
filed by Pacific Lumber. The results of such surveys could prevent
Pacific Lumber from conducting certain of its harvesting operations.
In October 1992, the USFWS issued its final rule listing the marbled
murrelet as a threatened species under the ESA in the tri-state area
of Washington, Oregon and California. In January 1994, the USFWS
proposed designation of critical habitat for the marbled murrelet
under the ESA. This proposal is subject to public comment, hearings
and possible future modification. Both federal and state agencies
continue to review and
<PAGE>
consider possible additional regulations regarding the marbled
murrelet. It is uncertain if such additional regulations will become
effective or their ultimate content.
Pacific Lumber's wildlife biologist is conducting research
concerning the marbled murrelet on Pacific Lumber's timberlands and is
currently developing a comprehensive management plan for the marbled
murrelet (the "Murrelet Plan") similar to the Owl Plan. Pacific
Lumber is continuing to work with the USFWS and the other government
agencies on the Murrelet Plan. It is uncertain when the Murrelet Plan
will be completed and approved.
In October 1993, the USFWS received a petition proposing
listing the coho salmon (which is found on Pacific Lumber's property)
as threatened or endangered.
Laws and regulations dealing with Pacific Lumber's
operations are subject to change and new laws and regulations are
frequently introduced concerning the California timber industry. A
variety of bills are currently pending in the California legislature
and the U.S. Congress which relate to the business of Pacific Lumber,
including the protection and acquisition of old growth and other
timberlands, endangered species, environmental protection and the
restriction, regulation and administration of timber harvesting
practices. For example, the U.S. Congressman for the congressional
district in which Pacific Lumber is located has introduced a bill
which would, among other things, incorporate within the boundaries of
an existing national forest approximately 42,000 acres of Pacific
Lumber's timberlands and would designate approximately 12,000 acres of
Pacific Lumber's timberlands to be studied for possible inclusion
within such national forest. Corresponding legislation has been
introduced in the California legislature. These 54,000 acres
constitute approximately 30% of Pacific Lumber's timberlands. Since
this and the other bills are subject to amendment, it is premature to
assess the ultimate content of these bills, the likelihood of any of
the bills passing, or the impact of any of these bills on the
financial position or results of operations of the Company.
Furthermore, any bills which are passed are subject to executive veto
and court challenge. In addition to existing and possible new or
modified statutory enactments, regulatory requirements, administrative
and legal actions, the California timber industry remains subject to
potential California or local ballot initiatives and evolving federal
and California case law which could affect timber harvesting
practices. It is, however, impossible to assess the effect of such
matters on the future operating results or consolidated financial
position of the Company.
ITEM 2. PROPERTIES
A description of the Company's properties is included under
Item 1 above
ITEM 3. LEGAL PROCEEDINGS
PACIFIC LUMBER MERGER LITIGATION
During the mid-to-late 1980's, Pacific Lumber was named as
defendant along with several other entities and individuals, including
MAXXAM and MGI, in various class, derivative and other actions brought
in the Superior Court of Humboldt County by former stockholders of
Pacific Lumber relating to the cash tender offer (the "Tender Offer")
for the shares of Pacific Lumber by a subsidiary of MGI and the
subsequent merger (the "Merger"), as a result of which Pacific Lumber
became a wholly-owned subsidiary of MGI (the "Humboldt County
Lawsuits"). The Humboldt County Lawsuits which remain open are
captioned: Fries, et al. v. Carpenter, et al. (No. 76328) ("Fries
State"); Omicini, et al. v. The Pacific Lumber Company, et al. (No.
76974) ("Omicini"); Thompson, et al. v. Elam, et al. (No. 78467)
("Thompson State"); and Russ,
<PAGE>
et al. v. Milken, et al. (No. DR-85429) ("Russ"). The Humboldt County
Lawsuits generally allege, among other things, that in documents filed
with the Securities and Exchange Commission (the "Commission"), the
defendants made false statements concerning, among other things, the
estimated value of Pacific Lumber's assets, financing for the Tender
Offer and the Merger and minority stockholders' appraisal rights, and
that the individual directors of Pacific Lumber breached certain
fiduciary duties owed stockholders and other constituencies of Pacific
Lumber. MGI and MAXXAM are alleged to have aided and abetted these
violations and committed other wrongs. The Thompson State, Omicini
and Fries State suits seek compensatory damages in excess of $1
billion, exemplary damages in excess of $750 million, rescission and
other relief. The Russ suit does not specify the amount of damages
sought. There has been no activity in the Fries State case since 1987
nor in the Omicini case since 1986. The Thompson State and Russ
actions are stayed pending the outcome of the In re Ivan F. Boesky
Multidistrict Securities Litigation described below.
In 1988, the plaintiffs in the Fries State action filed
another action entitled Fries, et al. v. Hurwitz, et al. (No. 88-3493
RMT), in United States District Court, Central District of California
("Fries Federal") against Pacific Lumber, MGI, MAXXAM and others.
Fries Federal repeats many of the allegations and seeks damages and
relief similar to that contained in the Humboldt County Lawsuits, and,
among other things, asserts that the defendants violated RICO and the
Hart-Scott-Rodino Antitrust Improvements Act, and further alleges
that, as a result of alleged arrangements between Ivan F. Boesky and
others, MGI beneficially owned, for purposes of Pacific Lumber's
bylaws, more than 5% of Pacific Lumber's outstanding shares so that
the Merger required the approval of 80% of the outstanding shares
rather than a majority. In 1988, plaintiffs in the Thompson State
action and others filed a complaint in the United States District
Court, Central District of California, entitled Thompson, et al. v.
MAXXAM Group Inc., et al. (No. 88-06274) ("Thompson Federal"). The
defendants in the Thompson Federal action include Pacific Lumber, MGI,
MAXXAM and others. This action, as amended, repeats the allegations,
asserts claims and seeks damages and relief similar to that contained
in the Fries Federal and Fries State actions.
In May 1989, the Thompson Federal and Fries Federal actions
were consolidated in the In re Ivan F. Boesky Multidistrict Securities
Litigation in the United States District Court, Southern District of
New York (MDL No. 732 M 21-45-MP) ("Boesky"). An additional action
filed in November 1989, entitled American Red Cross, et al. v.
Hurwitz, et al. (No. 89 Civ 7722) ("American Red Cross"), has been
consolidated with the Boesky action. The American Red Cross action
contains allegations and seeks damages and relief similar to that
contained in the Russ, Thompson Federal and Fries Federal actions. In
September 1990, the Court in the Boesky action certified a class of
plaintiffs comprised of persons who sold their shares in Pacific
Lumber on or after September 27, 1985. Various plaintiffs in the
Boesky action have opted out of the certified class of plaintiffs and
are prosecuting their claims individually within the Boesky
proceeding. The Boesky action has been set for trial commencing April
11, 1994.
In September 1989, seven past and present employees of
Pacific Lumber brought an action against Pacific Lumber, MAXXAM, MGI,
certain current and former directors and officers of Pacific Lumber,
MAXXAM and MGI, and First Executive Life Insurance Company ("First
Executive") (subsequently dismissed as a defendant) in the United
States District Court, Northern District of California, entitled
Kayes, et al. v. Pacific Lumber Company, et al. (No. C89-3500)
("Kayes"). Plaintiffs purport to be participants in or beneficiaries
of Pacific Lumber's former Retirement Plan (the "Retirement Plan") for
whom a group annuity contract was purchased from Executive Life
Insurance Company ("Executive Life") in 1986 after termination of the
Retirement Plan. The Kayes action alleges that the Pacific Lumber,
MAXXAM and MGI defendants breached their ERISA fiduciary duties to
participants and beneficiaries of the Retirement Plan by purchasing
the group annuity contract from First Executive and selecting First
Executive to administer the annuity payments. Plaintiffs seek, among
other things, a new group annuity contract on behalf of the Retirement
Plan participants and beneficiaries. This case was dismissed on April
14, 1993 and was refiled
<PAGE>
as Jack Miller, et al. v. Pacific Lumber Company, et al. (No. C-89-
3500-SBA) ("Miller") on April 26, 1993; the Miller case was dismissed
on May 14, 1993. These dismissals have been appealed. On October 28,
1993, a bill amending ERISA, was passed by the U.S. Senate which
appears to be intended, in part, to overturn the District Court's
dismissal of the Miller action and to make available certain remedies.
This bill has not been voted upon by the House of Representatives. It
is impossible to say if the bill will be enacted or if enacted its
ultimate content.
In June 1991, the U.S. Department of Labor filed a civil
action entitled Lynn Martin, Secretary of the U.S. Department of Labor
v. The Pacific Lumber Company, et al. (No. 91-1812-RHS) ("DOL civil
action") in the United States District Court, Northern District of
California, against Pacific Lumber, MAXXAM, MGI and certain of their
current and former officers and directors. The allegations in the DOL
civil action are substantially similar to that in the Kayes action.
The DOL civil action has been stayed pending resolution of the Kayes
and Miller appeals.
Management is of the opinion that the outcome of the
foregoing litigation is unlikely to have a material adverse effect on
the Company's consolidated financial position. Management is unable
to express an opinion as to whether the outcome of such litigation is
unlikely to have a material adverse effect on the Company's results of
operations in respect of any fiscal year.
In April 1991, the California Commissioner of Insurance (the
"Commissioner") filed for conservatorship of Executive Life in Los
Angeles County Superior Court in proceedings entitled Insurance
Commissioner of the State of California v. Executive Life Insurance
Co. and Does 1-1000 (Case No. BS006912) ("Executive Life
Conservatorship"). In September 1993, the final rehabilitation plan
for Executive Life (the "Plan") was closed. The Commissioner expects
that for nearly all policyholders who chose to remain with Aurora
National Life Assurance Corporation, the new owner and successor of
Executive Life ("Aurora"), such persons will receive full payments.
Policyholders who chose to "opt-out" of the Plan (i.e., chose to
terminate their policy and cash in at a discounted rate), will be paid
in accordance with their choice to opt-out.
PACIFIC LUMBER ENVIRONMENTAL LITIGATION
Various actions, similar to each other, have been filed
against Pacific Lumber, MAXXAM, MGI, various state officials and
others, alleging, among other things, violations of the Forest
Practices Act, the CEQA, ESA, CESA, and/or related regulations. These
actions seek to prevent Pacific Lumber from harvesting certain of its
THPs. The Sierra Club, et al. v. State Board of Forestry, et al. (No.
82371) action in Superior Court of Humboldt County, filed by the
Sierra Club and the Environmental Protection Information Center
("EPIC") in 1988, relates to two THPs for approximately 82 and 237
acres, respectively, of Pacific Lumber's virgin old growth timber. On
appeal, the Court of Appeal overturned the Superior Court's decision
upholding the BOF's approval of the two THPs. Pacific Lumber appealed
the Court of Appeal decision and in June 1992 the California Supreme
Court granted Pacific Lumber's petition for review. This matter is
still pending before the California Supreme Court. Harvesting has
been stayed pending outcome of the appeal.
The Sierra Club, et al. v. The California Department of
Forestry, et al. (No. 82983) and Sierra Club, et al. v. The California
Department of Forestry, et al. (No. 83428) actions in the Superior
Court of Humboldt County, each filed by the Sierra Club and EPIC in
1988, relate to two THPs for approximately 230 and 226 acres,
respectively, of virgin old growth timber. Initially, the Superior
Court ruled in favor of Pacific Lumber and dismissed these cases.
After plaintiffs' appeal, the cases were remanded to Superior
<PAGE>
Court for trial. On remand, the decision of the Superior Court in
each action prevented Pacific Lumber from harvesting the contested
THP. Both decisions were appealed to the Court of Appeal, which in
December 1993, affirmed the trial court's judgments reversing the
approval of the THPs. In February 1994, Pacific Lumber sought review
of this case by the California Supreme Court. In March 1994, the
California Supreme Court affirmed the decision of the Court of Appeal,
but ordered the decision of the Court of Appeal depublished, rendering
it without precedential value. The Sierra Club, et al. v. The
California Department of Forestry, et al. (No. DR84664) action in the
Superior Court of Humboldt County, filed by the Sierra Club and EPIC
in 1989, seeks substantially the same relief requested in the Sierra
Club action No. 83428 cited above. After the Superior Court dismissed
this action and imposed sanctions on plaintiffs based on the pending
resolution of Sierra Club III, the plaintiffs appealed the sanction
decision. The Court of Appeal remanded the action back to the
Superior Court for further review.
The EPIC v. The California Department of Forestry, et al.
(No. 90CP0341) action in Superior Court of Humboldt County, filed by
EPIC in May 1990, relates to a THP for approximately 378 acres of
virgin old growth timber. A nearly identical action in Superior Court
of Humboldt County, entitled Sierra Club v. The California Department
of Forestry, et al. (No. 90CP0405), was brought by the Sierra Club in
June 1990. These actions were subsequently consolidated and after a
trial on the merits, the Superior Court in June 1992 issued its
judgment in favor of Pacific Lumber and affirming the BOF's approval
of this THP. The trial court's decision was appealed and the matter
is still pending before the Court of Appeal. Except for certain
previously felled trees, all timber harvesting operations have been
stayed pending the outcome of the appeal.
The EPIC, et al. v. California State Board of Forestry, et
al. (No. 91CP244) action in the Superior Court of Humboldt County,
filed by the Sierra Club and EPIC in 1991, relates to a THP for
approximately 237 acres of virgin old growth timber ("THP 90-237").
After the Superior Court reversed the BOF's approval of this THP,
certain modifications were made to the THP which was then unanimously
approved by the BOF. The Superior Court later issued judgment in
favor of Pacific Lumber. On appeal, the Court of Appeal in October
1993 affirmed the trial court's judgment approving THP 90-237. In
April 1993, EPIC filed another action with respect to THP 90-237
entitled Marbled Murrelet, et al. v. Bruce Babbitt, Secretary,
Department of Interior, et al. (No. C93-1400) in the U.S. District
Court for the Northern District of California, alleging an unlawful
"taking" of the marbled murrelet. The Court has dismissed the federal
and state agency defendants and limited plaintiffs' claims against
Pacific Lumber. In January 1994, plaintiffs appealed the dismissal of
the state and federal defendants. Harvesting has been stayed pending
outcome of the trial which is scheduled to commence in July 1994.
The Lost Coast League v. The California Department of
Forestry, et al. (No. 94DR0046) action in Superior Court of Humboldt
County, filed in February 1994, relates to a THP for approximately 121
acres of primarily virgin old growth timber. On March 10, 1994, the
Court heard plaintiff's request for a preliminary injunction, took the
matter under submission, and issued a stay of timber harvesting while
the Court reviews the matter.
The Company's management believes that the matters described
above are unlikely to have a material adverse effect on the Company's
consolidated financial position or results of operations. See Item 1.
"Business--Regulatory and Environmental Factors" above for a general
description of regulatory and similar matters which could effect
Pacific Lumber's timber harvesting practices and future operating
results.
Pacific Lumber is also involved as a plaintiff, directly and
indirectly, in various legal proceedings relating to its timber
harvesting operations. For example, Redwood Coast Watersheds Alliance
v. California
<PAGE>
State Board of Forestry, et al. (No. 932123), in the Superior Court of
San Francisco, California, challenges certain BOF regulations; Marbled
Murrelet, et al. v. Bruce Babbitt, et al. (No. C92-522WDR), in the
U.S. District Court for the Western District of Washington, challenges
the USFWS's delay in listing as threatened, and designating critical
habitat for, the marbled murrelet under the ESA; The Pacific Lumber
Company v. California State Board of Forestry (No. 366197), in the
Superior Court of Sacramento County, California, challenges the denial
of two Pacific Lumber THPs for the harvest of approximately 558 acres
of virgin old growth timber; The Pacific Lumber Company v. California
Department of Fish & Game, et al. (No. 370562), in the Superior Court
of Sacramento County, California, challenges the listing of the
marbled murrelet as endangered under the CESA; Northwest Forest
Resource Council, et al. v. Bruce Babbitt, et al. (No. 93-1579), in
the U.S. District Court, District of Columbia, challenges the listing
of the marbled murrelet as a threatened species under the ESA in the
tri-state area of Washington, Oregon and California; and Sierra Club,
et al. v. California State Board of Forestry, et al. (No. 95104), in
the Superior Court of San Francisco County, California, challenges the
approval of certain BOF regulations.
ZERO COUPON NOTE LITIGATION
In April 1989, an action was filed against the Company,
MAXXAM, MPI and certain of MAXXAM's directors in the Court of Chancery
of the State of Delaware, entitled Progressive United Corporation v.
MAXXAM Inc., et al., Civil Action No. 10785. Plaintiff purports to
bring this action as a stockholder of MAXXAM derivatively on behalf of
MAXXAM and MPI. In May 1989, a second action containing substantially
similar allegations was filed in the Court of Chancery of the State of
Delaware, entitled Wolf v. Hurwitz, et al. (No. 10846) and the two
cases were consolidated (collectively, the "Zero Coupon Note"
actions). The Zero Coupon Note actions relate to a Put and Call
Agreement between MPI and Mr. Charles Hurwitz (Chairman of the Board
of the Company, MAXXAM and MPI), as well as a predecessor agreement
(the "Prior Agreement"). Among other things, the Put and Call
Agreement provided that Mr. Hurwitz had the option (the "Call") to
purchase from MPI certain notes (or the common stock of MAXXAM into
which they were converted) for $10.3 million. In July 1989, Mr.
Hurwitz exercised the Call and acquired 990,400 shares of MAXXAM's
common stock. The Zero Coupon Note actions generally allege that in
entering into the Prior Agreement Mr. Hurwitz usurped a corporate
opportunity belonging to MAXXAM, that the Put and Call Agreement
constituted an alleged waste of corporate assets of MAXXAM and MPI,
and that the defendant directors breached their fiduciary duties in
connection with these matters. Plaintiffs seek to have the Put and
Call Agreement declared null and void, among other remedies.
OTHER LITIGATION MATTERS
The Company and certain of its subsidiaries are also
involved in other claims and litigation, both as plaintiffs and
defendants, in the ordinary course of business. Management is of the
opinion that the outcome of such other litigation will not have a
material adverse effect upon the Company's consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
MAXXAM GROUP INC.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is held entirely by MAXXAM.
Accordingly, the Company's common stock is not traded on any stock
exchange and has no established public trading market. Provisions in
the indenture governing the Notes contain certain restrictions on
transactions with affiliates and the payment of dividends. As of
December 31, 1993, no dividends may be paid by the Company. The
Company declared and paid cash dividends on its common stock of $20.0
million and $110.9 million in 1993 and 1991, respectively.
The MGI Notes are secured by the Company's pledge of 100% of
the common stock of Pacific Lumber, Britt and MPI, and by a pledge of
28 million common shares of Kaiser that are owned by MAXXAM. See Item
7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Notes to the Consolidated Financial
Statements appearing in Item 8.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As a result of the Forest Products Group Formation, the
Company's financial statements have been restated to present the
historical results of operations relating to the net assets
transferred to MAXXAM pursuant to the Forest Products Group Formation.
Such restatement has been made with respect to all periods presented
in this Report in a manner similar to that which would be presented if
the Company had discontinued the operations relating to such net
assets.
RESULTS OF OPERATIONS
The following should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto
appearing in Item 8. The following table presents selected historical
operational and financial information for the years ended December 31,
1993, 1992 and 1991.
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
---------- ---------- -----------
(In millions of dollars, except
shipments and prices)
<S> <C> <C> <C>
Shipments:
Lumber (1):
Redwood upper grades 68.3 76.6 86.7
Redwood common grades 184.7 193.9 197.2
Douglas-fir upper grades 10.7 10.2 11.7
Douglas-fir common grades 46.4 56.0 37.8
-------- -------- --------
Total lumber 310.1 336.7 333.4
======== ======== ========
Logs (2) 18.6 19.1 14.5
======== ======== ========
Wood chips (3) 156.8 202.7 168.4
======== ======== ========
Average sales price:
Lumber (4):
Redwood upper grades $1,275 $1,141 $1,085
Redwood common grades 469 427 347
Douglas-fir upper grades 1,218 1,125 1,033
Douglas-fir common grades 447 298 262
Logs (4) 704 366 373
Wood chips (5) 81 83 79
Net sales:
Lumber, net of discount $202.6 $194.2 $180.2
Logs 13.1 7.0 5.4
Wood chips 12.7 16.9 13.4
Cogeneration power 3.8 3.7 4.8
Other 1.2 1.5 1.9
-------- --------- --------
Total net sales $233.4 $223.3 $205.7
======== ======== ========
Operating income $53.0 $62.5 $53.2
======== ======== ========
Loss from continuing operations before income taxes,
extraordinary item and cumulative effect of changes in $(17.7) $(24.7) $(16.4)
accounting principles ======== ======== ========
Income (loss) from net assets transferred to MAXXAM, net of
minority interests and related income taxes $(513.0) $33.7 $100.1
======== ======== ========
Net income (loss) $(531.9) $7.7 $78.0
======== ======== ========
Capital expenditures $11.1 $8.7 $6.4
======== ======== ========
<FN>
(1) Lumber shipments are expressed in millions of board feet.
(2) Log shipments are expressed in millions of board 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.
</TABLE>
<PAGE>
Shipments
Lumber shipments to third parties in 1993 were 310.1 million
board feet, a decrease of 8% from 336.7 million board feet in 1992.
This decrease was attributable to a 5% decrease in redwood common
lumber shipments, a 14% decrease in shipments of Douglas-fir lumber
and an 11% decrease in shipments of upper grade redwood lumber. The
Company believes the decrease in total lumber shipments was caused
primarily by a decline in construction related activity resulting from
weak economic conditions in the Western region of the United States
and, to a lesser extent, by the difficulties related to weather
conditions in the West and Midwestern United States during 1993. Log
shipments in 1993 were 18.6 million feet (net Scribner scale), a
decrease of 3% from 19.1 million feet in 1992.
Lumber shipments to third parties in 1992 of 336.7 million
board feet increased 1% from 333.4 million board feet in 1991. This
increase was attributable to a 48% increase in common grade
Douglas-fir shipments, partially offset by a 12% decrease in upper
grade redwood shipments and a 2% decrease in shipments of redwood
common lumber. During the second quarter of 1992, Pacific Lumber
experienced lumber production delays attributable to the earthquake
and aftershocks which struck Humboldt County, California in April.
The earthquake and related aftershocks disabled, for a period of
approximately six weeks, a large number of the kilns used to dry the
upper grade redwood lumber and the sawmill which produces a
significant portion of Pacific Lumber's upper grade redwood lumber.
Pacific Lumber initiated additional shifts at two of its other
sawmills in order to minimize the impact of the lost production. The
increased production at one of the sawmills was predominantly from
Douglas-fir logs that had recently been salvaged from an area that
experienced a forest fire in 1990. These factors resulted in
substantially increased shipments of Douglas-fir lumber and the
decline in shipments of redwood lumber discussed above. Log shipments
in 1992 of 19.1 million feet increased 32% from 14.5 million feet in
1991. The increase in log shipments resulted primarily from the sale,
to unaffiliated parties during the second quarter of 1992, of certain
logs salvaged from the 1990 forest fire that were not of a suitable
quality for Pacific Lumber's sawmills.
Net sales
Revenues from net sales for 1993 increased by approximately
5% from 1992. This increase was principally due to a 12% increase in
the average realized price of upper grade redwood lumber, a 10%
increase in the average realized price of redwood common lumber, a 92%
increase in the average realized price of log sales and a 50% increase
in the average realized price of common grade Douglas-fir lumber,
partially offset by decreased shipments of lumber and logs, as
<PAGE>
previously discussed, and decreased sales of wood chips. The decrease
in sales of wood chips resulted from the closure of a pulp mill by one
of Pacific Lumber's customers.
Revenues from net sales for 1992 increased by approximately
9% from 1991. This increase was principally due to a 23% increase in
the average realized price of redwood common lumber, higher shipments
of common grade Douglas-fir lumber, a 5% increase in the average
realized price of upper grade redwood lumber, increased sales of wood
chips, a 14% increase in the average realized price of common grade
Douglas-fir lumber and higher log shipments, partially offset by lower
shipments of upper and common grades of redwood lumber and lower sales
of electrical power resulting from damage sustained by Pacific
Lumber's cogeneration facility during the earthquake and aftershocks
in April 1992.
Operating income
Operating income for 1993 decreased by approximately 15% as
compared to 1992. This decrease was primarily due to the additional
cost of logs purchased from third parties, lower shipments of high
margin wood chips and higher overhead costs, partially offset by the
increase in sales of lumber and logs, as previously discussed. The
Company arranged for the purchase of a significant number of logs
earlier in the year in response to concerns regarding inclement
weather conditions hindering logging activities on the Company's
timberlands during the first five months of 1993. The cost associated
with the purchase of logs from third parties significantly exceeds the
Company's cost to harvest its own timber. As a result of the
Company's last-in, first-out (LIFO) methodology of accounting for
inventories, a substantial portion of the additional cost associated
with the purchased logs was charged to cost of sales in the third
quarter of 1993. Cost of goods sold for 1992 was reduced by a $3.3
million business interruption insurance claim as a result of the April
1992 earthquake. The business interruption insurance claim represents
partial compensation for the added costs and lower realized gross
margins on lumber sales, primarily due to lost production capacity of
Pacific Lumber's drying kilns as described above under "Shipments."
Cost of goods sold for 1993 includes a reduction of $1.2 million
reflecting an additional business interruption insurance claim.
Operating income for 1992 increased by approximately 18% as
compared to 1991. This increase was principally attributable to the
factors impacting shipments and sales, as previously discussed. Cost
of goods sold for 1991 reflects a benefit of $3.3 million due to a
reduction of Pacific Lumber's LIFO inventories.
Cost of goods sold as a percentage of sales was
approximately 58%, 51% and 51% for 1993, 1992 and 1991, respectively.
The increase for 1993 reflects the impact of purchased logs as
discussed above. Logging costs have increased primarily due to the
harvest of smaller diameter logs and, to a lesser extent, compliance
with environmental regulations relating to the harvesting of timber
and litigation costs incurred in connection with certain THPs filed by
Pacific Lumber. See "--Trends." During the past few years, the
Company has significantly increased its production of manufactured
lumber products by assembling knot-free pieces of common grade lumber
into wider and longer pieces in the Company's end and edge glue plant.
This manufactured lumber results in a significant increase in lumber
recovery and produces a standard size upper grade product which is
sold at a premium price compared to common grade products of similar
dimensions. The Company has instituted a number of measures at its
sawmills during the past several years designed to enhance the
efficiency of its operations such as expansion of its manufactured
lumber facilities and other improvements in lumber recovery, automated
lumber handling and the modification of its production scheduling to
increase cogeneration power revenues.
Loss from continuing operations before income taxes,
extraordinary item and cumulative effect of changes in accounting
principles
The loss from continuing operations before income taxes,
extraordinary item and cumulative effect of changes in accounting
principles decreased for 1993 as compared to 1992 due to an increase
in investment, interest and other income and a decrease in interest
expense, partially offset by the decrease in operating income. The
loss from continuing operations before income taxes, extraordinary
item and cumulative effect of changes in accounting principles
increased for 1992 as compared to 1991 due to a decrease in
investment, interest and other income, partially offset by the
increase in operating income and a decrease in interest expense.
Investment, interest and other income for 1993 includes net gains on
marketable securities of $6.4 million. Investment, interest and other
income for 1992 includes estimated minimum insurance recoveries of
$1.6 million for earthquake damage incurred in April 1992.
Investment, interest and other income for 1991 includes a pre-tax gain
of $3.5 million resulting from the sale of Pacific Lumber's San Mateo
County, California timberlands in June 1991 for $7.5 million.
Interest expense decreased in 1993 as compared to 1992 due to lower
interest rates resulting from the refinancing of the Company's long-
term debt during 1993. See "--Financial Condition and Investing and
Financing Activities." Interest expense decreased in 1992 as compared
to 1991 primarily due to the repurchase of $15.5 million principal
amount of long-term debt in 1991 (see Note 6 to the Consolidated
Financial Statements).
<PAGE>
Income (loss) from net assets transferred to MAXXAM
The loss from net assets transferred to MAXXAM for 1993 was
$513.0 million as compared to income of $33.7 million for 1992 and
$100.1 million for 1991. The operations associated with these net
assets consist primarily of aluminum operations conducted by Kaiser
and the real estate management and development operations of Palmas.
Aluminum operations incurred losses for 1993 of $501.3 million,
consisting of (a) losses before income taxes, minority interests,
extraordinary item and cumulative effect of changes in accounting
principles of $74.4 million, (b) benefits for minority interests of
$3.6 million and income taxes of $31.1 million, (c) an extraordinary
loss on the redemption of debt of $19.0 million, net of related
benefits for minority interests of $2.8 million and income taxes of
$11.3 million, and (d) losses attributable to the cumulative effect of
changes in accounting principles for postretirement benefits other
than pensions and postemployment benefits of $440.5 million, net of
related benefits for minority interests of $64.6 million and income
taxes of $237.7 million, and income taxes of $2.0 million. Aluminum
operations reported income before income taxes, minority interests,
extraordinary item and cumulative effect of changes in accounting
principles of $32.1 million and $153.6 million for the years ended
December 31, 1992 and 1991, respectively. Real estate operations,
together with the other net assets transferred to MAXXAM pursuant to
the Forest Products Group Formation, incurred losses before income
taxes, extraordinary item and cumulative effect of changes in
accounting principles of $8.5 million and losses attributable to the
cumulative effect of the change in accounting principle for income
taxes of $3.2 million for 1993. Real estate and other operations
incurred losses before income taxes, extraordinary item and cumulative
effect of changes in accounting principles for 1992 and 1991 of $5.8
million and $15.2 million, respectively. See Notes 1 and 2 to the
Consolidated Financial Statements for the years ended December 31,
1993, 1992 and 1991 contained elsewhere herein.
Extraordinary item
The refinancing of Pacific Lumber's outstanding public
indebtedness on March 23, 1993, consisting of the Series A Notes, the
Series B Notes and the 12 1/2% Senior Subordinated Debentures due July
1, 1998 (the "Debentures;" the Series A Notes, the Series B Notes and
the Debentures are collectively referred to as the "Old Pacific Lumber
Securities"), and the Company's 12 3/4% Notes on August 4, 1993
resulted in an extraordinary loss of $17.2 million, net of related
income taxes of $8.9 million. The extraordinary loss consists
primarily of the redemption premiums paid and the write-off of
unamortized deferred financing costs on the Old Pacific Lumber
Securities and the 12 3/4% Notes. See Note 6 to the Consolidated
Financial Statements.
Cumulative effect of changes in accounting principles
As of January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109") and Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions
("SFAS 106") as more fully described in Notes 7 and 8 to the
Consolidated Financial Statements. The cumulative effect of the
change in accounting principle for the adoption of SFAS 109 increased
results of operations by $14.9 million. The cumulative effect of the
change in accounting principle for the adoption of SFAS 106 reduced
results of operations by $2.3 million, net of related income taxes of
$1.6 million. The new accounting method has no effect on the
Company's cash outlays for postretirement benefits, nor will the
cumulative effect of the change in accounting principle affect the
Company's compliance with its existing debt covenants. The Company
reserves the right to amend or terminate these benefits.
<PAGE>
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
As of December 31, 1993, the Company had consolidated
working capital of $81.9 million and long-term debt of $738.7 million
(net of current maturities and restricted cash deposited in the
Liquidity Account described below) as compared to $120.2 million and
$679.9 million, respectively, at December 31, 1992. The increase in
long-term debt was primarily attributable to Pacific Lumber's recent
refinancing, along with the refinancing of the Company's 12 3/4% Notes
(as described below). The decline in working capital was primarily
due to the decline in operating income, the payment of the $20.0
million dividend made in connection with the refinancing of the
Company's 12 3/4% Notes and the impact of recording a current deferred
income tax liability in connection with the implementation of the new
accounting standard for income taxes. The Company anticipates that
cash flows from operations, together with existing cash, marketable
securities and available sources of financing, will be sufficient to
fund the working capital requirements of the Company and its
respective subsidiaries; however, due to its highly leveraged
condition, the Company is more sensitive than less leveraged companies
to factors affecting its operations, including governmental regulation
affecting its timber harvesting practices, increased competition from
other lumber producers or alternative building products and general
economic conditions.
During the years ended December 31, 1993, 1992 and 1991,
Pacific Lumber's operating income before depletion and depreciation
("operating cash flow") amounted to $76.6 million, $90.1 million and
$83.2 million, respectively, which exceeded interest accrued on all of
its indebtedness in those years by $17.4 million, $24.5 million and
$14.5 million, respectively. The Company believes that Pacific
Lumber's and SPHC's level of operating cash flow and other available
sources of financing will enable them to meet the debt service
requirements on the Pacific Lumber Senior Notes and the Timber Notes,
respectively.
On August 4, 1993, the Company issued $100.0 million
aggregate principal amount of MGI Senior Notes and $126.7 million
aggregate principal amount (approximately $70.0 million net of
original issue discount) of MGI Discount Notes. The MGI Notes are
secured by the Company's pledge of 100% of the common stock of Pacific
Lumber, Britt and MPI, and by MAXXAM's pledge of 28 million shares of
Kaiser's common stock it received as a result of the Forest Products
Group Formation. The indenture governing the MGI Notes, among other
things, restricts the ability of the Company to incur additional
indebtedness, engage in transactions with affiliates, pay dividends
and make investments. At December 31, 1993, under the most
restrictive of these covenants, no dividends may be paid by the
Company. The MGI Notes are senior indebtedness of the Company;
however, they are effectively subordinate to the liabilities of the
Company's subsidiaries, which liabilities include the Timber Notes and
the Pacific Lumber Senior Notes.
The Company used a portion of the net proceeds from the sale
of the MGI Notes to retire the entire outstanding balance of its 12
3/4% Notes at 101% of their principal amount, plus accrued interest
through November 14, 1993. The Company used the remaining portion of
the net proceeds from the sale of the MGI Notes, together with a
portion of its existing cash resources, to pay a $20.0 million
dividend to MAXXAM. MAXXAM used such proceeds to redeem, on August
20, 1993, $20.0 million aggregate principal amount of its 14% Senior
Subordinated Reset Notes due 2000 at 100% of their principal amount
plus accrued interest thereon. The Company incurred a pre-tax
extraordinary loss associated with the early retirement of the 12 3/4%
Notes of approximately $9.7 million.
On March 23, 1993, Pacific Lumber transferred to SPHC
substantially all of Pacific Lumber's non-virgin old growth redwood
and Douglas-fir timber and timberlands, together with certain other
assets, in exchange for (i) the assumption by SPHC of $323.4 million
aggregate principal amount of Pacific Lumber's
<PAGE>
outstanding public indebtedness and (ii) all of SPHC's outstanding
common stock. On the same date, Pacific Lumber issued $235.0 million
of the Pacific Lumber Senior Notes and SPHC issued $385.0 million of
the Timber Notes. The net proceeds from the sale of the Pacific
Lumber Senior Notes and the Timber Notes, together with Pacific
Lumber's existing cash and marketable securities, were used to (i)
retire the Old Pacific Lumber Securities; (ii) pay accrued interest on
the Old Pacific Lumber Securities through the date of redemption
thereof; (iii) pay the applicable redemption premiums on the Old
Pacific Lumber Securities (at approximately 1.7% of the principal
amount thereof); (iv) repay Pacific Lumber's $28.9 million
cogeneration facility loan; (v) fund the initial deposit of $35.0
million to a liquidity account for the benefit of the holders of the
Timber Notes (the "Liquidity Account"); and (vi) pay a $25.0 million
dividend to a subsidiary of the Company.
The Company conducts its operations primarily through its
subsidiaries. Creditors of the Company's subsidiaries have priority
with respect to the assets and earnings of such subsidiaries over the
claims of the creditors of the Company, including the holders of the
Company's public debt. As of December 31, 1993, the indebtedness of
the subsidiaries reflected on the Company's Consolidated Balance Sheet
was $614.9 million. The indentures governing the Pacific Lumber
Senior Notes and the Timber Notes (the "Timber Note Indenture") and
Pacific Lumber's Revolving Credit Agreement contain various covenants
which, among other things, restrict transactions between Pacific
Lumber and its affiliates and the payment of dividends. Pacific
Lumber can pay dividends in an amount that is generally equal to 50%
of Pacific Lumber's consolidated net income plus depletion and cash
dividends received from SPHC (for periods subsequent to March 1,
1993), exclusive of the net income and depletion of SPHC so long as
any Timber Notes are outstanding. On February 24, 1994, Pacific
Lumber paid dividends of $5.7 million which represents the entire
amount permitted at December 31, 1993.
Substantially all of the Company's consolidated assets are
owned by Pacific Lumber and a significant portion of Pacific Lumber's
consolidated assets are owned by SPHC. The Company expects that
Pacific Lumber will provide a major portion of the Company's future
operating cash flow. Pacific Lumber is dependent upon SPHC for a
significant portion of its operating cash flow. The holders of the
Timber Notes have priority over the claims of creditors of Pacific
Lumber with respect to the assets and cash flow of SPHC and the
holders of the Pacific Lumber Senior Notes will have priority over the
claims of creditors of the Company with respect to the assets and cash
flows of Pacific Lumber. Under the terms of the Timber Note
Indenture, SPHC will not have available cash for distribution to
Pacific Lumber unless SPHC's cash flow from operations exceeds the
amounts required by the Timber Note Indenture to be reserved for the
payment of current debt service (including interest, principal and
premiums) on the Timber Notes, capital expenditures and certain other
operating expenses. The Timber Note Indenture prohibits SPHC from
incurring any additional indebtedness for borrowed money and limits
the business activities of SPHC to the ownership and operation of its
timber and timberlands and actions reasonably incidental thereto. The
Timber Notes are structured to link, to the extent of cash available,
the deemed depletion of SPHC's timber (through the harvest and sale of
logs) to required amortization of the Timber Notes. The actual
required amount of such amortization due on any Timber Note payment
date is determined by various mathematical formulas set forth in the
Timber Note Indenture. The minimum amount of principal which SPHC
must pay (on a cumulative basis) through any Timber Note payment date
in order to avoid an Event of Default (as defined in the Timber Note
Indenture) is referred to as Rated Amortization. Rated Amortization
on the Timber Notes is as follows: years ending December 31, 1994 -
nil; 1995 - $5.7 million; 1996 - $8.3 million; 1997 - $8.5 million;
1998 - $8.7 million; thereafter - $345.8 million. If all payments of
principal are made in accordance with Rated Amortization, the payment
date on which SPHC will pay the final installment of principal is July
20, 2015. The amount of principal which SPHC must pay through each
Timber Note payment date in order to avoid
<PAGE>
payment of prepayment or deficiency premiums is referred to as
Scheduled Amortization. If all payments of principal are made in
accordance with Scheduled Amortization, the payment date on which SPHC
will pay the final installment of principal is July 20, 2009.
Scheduled Amortization on the Timber Notes is as follows: years ending
December 31, 1994 - $13.1 million; 1995 - $13.6 million; 1996 - $14.1
million; 1997 - $16.2 million; 1998 - $19.3 million; thereafter -
$300.7 million. On July 20, 1993 and January 20, 1994, SPHC repaid
approximately $8.0 million and $8.1 million, respectively, of the
aggregate principal amount outstanding on the Timber Notes in
accordance with Scheduled Amortization.
The Company expects that, consistent with SPHC's purposes
and its need to fund operating and capital expenses, substantially all
of SPHC's available cash will be periodically distributed to Pacific
Lumber. Once appropriate provision for current debt service on the
Timber Notes and expenditures for operating and capital costs are made
and in the absence of certain Trapping Events (as defined in the
Timber Note Indenture) or outstanding judgments, the Timber Note
Indenture does not limit monthly distributions of available cash from
SPHC to Pacific Lumber. In the event SPHC's cash flows are not
sufficient to generate distributable funds to Pacific Lumber, Pacific
Lumber's ability to pay interest on the Pacific Lumber Senior Notes
and to service its other indebtedness would be materially impaired and
the Company's ability to pay interest on the MGI Notes and its other
indebtedness would also be materially impaired. SPHC paid $58.3
million of dividends to Pacific Lumber during the period from March
23, 1993 to December 31, 1993.
The MGI Senior Notes require annual interest payments of
$11.3 million. The Company's annual interest expense on the MGI
Discount Notes will initially aggregate approximately $8.8 million.
The MGI Discount Notes will require annual interest payments of $15.5
million beginning on February 1, 1999. As of December 31, 1993, the
Company (excluding Pacific Lumber and its subsidiary companies) had
cash and marketable securities of approximately $11.4 million. The
Company believes, although there can be no assurance, that the
aggregate dividends that will be available to it from Pacific Lumber
and Britt, during the five year period in which cash interest will not
be payable on the MGI Discount Notes, will exceed the Company's cash
interest payments on the MGI Senior Notes. When cash interest
payments on the MGI Discount Notes commence on February 1, 1999, the
Company believes that it will be able to make such cash interest
payments out of its then existing cash resources and from cash
expected to be available to it from Pacific Lumber and Britt.
On June 23, 1993, Pacific Lumber entered into a new
Revolving Credit Agreement with a bank which provides for borrowings
of up to $30.0 million, of which $15.0 million may be used for standby
letters of credit. As of December 31, 1993, $19.7 million of
borrowings was available under the Revolving Credit Agreement, of
which $4.7 million was available for letters of credit. No borrowings
were outstanding as of December 31, 1993, and letters of credit
outstanding amounted to $10.3 million. The Revolving Credit Agreement
expires May 31, 1996, is secured by Pacific Lumber's trade receivables
and inventories and contains covenants substantially similar to those
contained in the indenture governing the Pacific Lumber Senior Notes.
Capital expenditures for Pacific Lumber and Britt of
approximately $26.2 million for the three years ended December 31,
1993 were made to improve production efficiency and reduce operating
costs. Capital expenditures of the Company's subsidiaries were $11.1
million, $8.7 million and $6.4 million for the years ended December
31, 1993, 1992 and 1991, respectively. Capital expenditures for 1994
are expected to be $10 million and for the 1995 - 1996 period are
estimated to be between $5 million and $10 million per year. Capital
expenditures attributable to the reconstruction of Pacific Lumber's
commercial facilities destroyed by the April 1992 earthquake were
approximately $1.6 million for 1993 and are expected to be
approximately
<PAGE>
$2 million to $3 million for 1994 when construction is completed. The
Company anticipates that the funds necessary to finance the capital
expenditures of its subsidiaries will be obtained through cash flows
generated by operations of such subsidiaries and other available
sources of financing to the Company's subsidiaries.
In February 1994, Pacific Lumber received a franchise tax
refund of approximately $7.2 million, including interest, from the
State of California relating to tax years 1972 through 1985. This
amount will be recognized in investment, interest and other income
during the first quarter of 1994.
In November 1991, the Company issued $150.0 million
aggregate principal amount of 12 3/4% Notes, due November 15, 1995, at
99% of their face amount. The Company used a portion of the proceeds
from the sale of the 12 3/4% Notes to pay a $30.9 million cash
dividend to MAXXAM, which enabled MAXXAM to redeem its 14 1/4% Senior
Subordinated Notes. Additionally, the Company paid a cash dividend of
$20.0 million and a non-cash dividend of $95.5 million of certain
notes receivable from MAXXAM in conjunction with the issuance of the
12 3/4% Notes. The remaining proceeds from the sale of the 12 3/4%
Notes, together with a portion of the Company's existing cash
resources (a portion of which was obtained from Kaiser through
Kaiser's initial public offering of its common stock), were used to
redeem the Company's 13 5/8% Senior Subordinated Notes.
During 1991, Pacific Lumber repurchased $15.5 million
principal amount of Pacific Lumber Securities for $15.0 million.
TRENDS
The Company's forest products operations are primarily
conducted by Pacific Lumber and are subject to a variety of California
and, in some cases, federal laws and regulations dealing with timber
harvesting, endangered species, water quality and air and water
pollution. The Company does not expect that compliance with such
existing laws and regulations will have a material adverse effect on
its future operating results. Laws and regulations dealing with
Pacific Lumber's operations are subject to change and new laws and
regulations are frequently introduced concerning the California timber
industry. A variety of bills are currently pending in the California
legislature and the U.S. Congress which relate to the business of
Pacific Lumber, including the protection and acquisition of old growth
and other timberlands, endangered species, environmental protection
and the restriction, regulation and administration of timber
harvesting practices. For example, the U.S. Congressman for the
congressional district in which Pacific Lumber is located has
introduced a bill which would, among other things, incorporate within
the boundaries of an existing national forest approximately 42,000
acres of Pacific Lumber's timberlands and would designate
approximately 12,000 acres of Pacific Lumber's timberlands to be
studied for possible inclusion within such national forest. These
54,000 acres constitute approximately 30% of Pacific Lumber's
timberlands. Since this and the other bills are subject to amendment,
it is premature to assess the ultimate content of these bills, the
likelihood of any of the bills passing or the impact of any of these
bills on the consolidated financial position or results of operations
of the Company. Furthermore, any bills which are passed are subject
to executive veto and court challenge. In addition to existing and
possible new or modified statutory enactments, regulatory requirements
and administrative and legal actions, the California timber industry
remains subject to potential California or local ballot initiatives
and evolving federal and California case law which could affect timber
harvesting practices. It is, however, impossible to assess the effect
of such matters on the future operating results or consolidated
financial position of the Company.
<PAGE>
Various groups and individuals have filed objections with
the CDF regarding the CDF's actions and rulings with respect to
certain of Pacific Lumber's THPs, and the Company expects that such
groups and individuals will continue to file objections to Pacific
Lumber's THPs. In addition, lawsuits are pending which seek to
prevent Pacific Lumber from implementing certain of its approved THPs.
These challenges have severely restricted Pacific Lumber's ability to
harvest virgin old growth redwood timber on its property during the
past few years, as well as substantial amounts of virgin Douglas-fir
timber which are located in virgin old growth redwood stands. No
assurance can be given as to the extent of such litigation in the
future. The Company believes that environmentally focused challenges
to Pacific Lumber's THPs are likely to occur in the future. Although
such challenges have delayed or prevented Pacific Lumber from
conducting a portion of its operations, to date such challenges have
not had a material adverse effect on the Company's consolidated
financial position or results of operations. It is, however,
impossible to predict the future nature or degree of such challenges
or their ultimate impact on the operating results or consolidated
financial position of the Company.
<PAGE> MAXXAM GROUP INC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder and Board of Directors of MAXXAM Group Inc.:
We have audited the accompanying consolidated balance sheets
of MAXXAM Group Inc. (a Delaware corporation and a wholly owned
subsidiary of MAXXAM Inc.) and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of operations, cash
flows and stockholder's equity for each of the three years in the
period ended December 31, 1993. These financial statements and the
schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of MAXXAM Group Inc. and subsidiaries as of
December 31, 1993 and 1992, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting
principles.
As explained in Notes 7 and 8 to the financial statements,
effective January 1, 1993, the Company changed its method of
accounting for income taxes and postretirement benefits other than
pensions.
Our audits were made for the purpose of forming an opinion
on the basic consolidated financial statements taken as a whole. The
schedule listed in Item 14(a)(2) of this Form 10-K is presented for
purposes of complying with the Securities and Exchange Commission's
rules and is not part of the basic consolidated financial statements.
This schedule has been subjected to the auditing procedures applied in
the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Houston, Texas
January 27, 1994
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1993 1992
----------- -----------
(In thousands of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $39,001 $54,254
Marketable securities 17,775 22,730
Receivables:
Trade 15,910 19,105
Other 4,212 8,885
Inventories 73,413 72,108
Prepaid expenses and other current assets 3,189 3,401
-------- --------
Total current assets 153,500 180,483
Timber and timberlands, net of depletion of $171,007 and
$160,419 at December 31, 1993 and 1992, respectively 365,511 389,744
Property, plant and equipment, net 102,780 100,846
Deferred financing costs, net 32,725 10,546
Deferred income taxes 58,371 -
Restricted cash and other assets 43,134 11,267
Net assets transferred to MAXXAM - 531,751
------- ---------
$756,021 $1,224,637
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $2,871 $2,504
Accrued interest 26,216 33,500
Accrued compensation and related benefits 7,782 7,896
Deferred income taxes 14,132 -
Other accrued liabilities 4,543 4,717
Long-term debt, current maturities 16,093 11,707
-------- --------
Total current liabilities 71,637 60,324
Long-term debt, less current maturities 772,310 679,931
Other noncurrent liabilities 28,125 18,032
-------- --------
Total liabilities 872,072 758,287
-------- --------
Contingencies
Stockholder's equity (deficit):
Common stock, $.08 1/3 par value; 1000 shares - -
authorized;
100 shares issued
Additional capital 81,287 81,257
Retained earnings (deficit) (197,338) 385,093
-------- --------
Total stockholder's equity (deficit) (116,051) 466,350
-------- ---------
$756,021 $1,224,637
======== ========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
----------- ----------- -----------
(In thousands of dollars)
<S> <C> <C> <C>
Net sales:
Lumber and logs $215,743 $201,176 $185,655
Other 17,696 22,169 20,052
--------- --------- ---------
233,439 223,345 205,707
--------- --------- ---------
Operating expenses:
Cost of goods sold (exclusive of depletion and depreciation) 134,563 113,769 103,909
Depletion and depreciation 25,811 29,932 31,966
Selling, general and administrative 20,108 17,136 16,649
--------- --------- ---------
180,482 160,837 152,524
--------- --------- ---------
Operating income 52,957 62,508 53,183
Other income (expense):
Investment, interest and other income 9,718 399 20,910
Interest expense (80,339) (87,606) (90,528)
-------- -------- --------
Loss from continuing operations before income taxes,
extraordinary item and cumulative effect of changes in
accounting principles (17,664) (24,699) (16,435)
Credit (provision) in lieu of income taxes 3,355 (1,276) (5,660)
--------- -------- --------
Loss from continuing operations before extraordinary item and
cumulative effect of changes in accounting principles (14,309) (25,975) (22,095)
Income (loss) from net assets transferred to MAXXAM, net of
minority interests and related income taxes (512,970) 33,691 100,082
-------- --------- ---------
Income (loss) before extraordinary item and cumulative effect of
changes in accounting principles (527,279) 7,716 77,987
Extraordinary item:
Loss on early extinguishment of debt, net of related credit
in lieu of income taxes of $8,856 (17,189) - -
Cumulative effect of changes in accounting principles:
Postretirement benefits other than pensions, net of related
credit in lieu of income taxes of $1,566 (2,348) - -
Accounting for income taxes 14,916 - -
--------- --------- ---------
Net income (loss) $(531,900) $7,716 $77,987
======== ======== ========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
----------- ----------- -----------
(In thousands of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(531,900) $7,716 $77,987
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Loss (income) from net assets transferred to MAXXAM,
net 512,970 (33,691) (100,082)
Depletion and depreciation 25,811 29,932 31,966
Extraordinary loss on early extinguishment of debt, net 17,189 - -
Amortization of deferred financing costs and discounts
on long-term debt 7,435 3,018 2,765
Net loss (gain) on asset dispositions 177 (153) (3,373)
Incurrence of financing costs (34,738) (505) (6,054)
Cumulative effect of changes in accounting principles,
net (12,568) - -
Net losses (gains) on marketable securities (6,414) 5,374 (440)
Decrease (increase) in receivables 7,558 (7,576) 270
Increase (decrease) in accounts payable 471 (3,418) 1,590
Decrease in accrued interest (7,284) (53) (1,275)
Increase in accrued and deferred income taxes (5,123) - -
Decrease (increase) in inventories, net of depletion (2,077) 7,872 5,638
Other 654 (426) 104
--------- --------- ---------
Net cash provided by (used for) operating
activities (27,839) 8,090 9,096
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of marketable securities 12,389 23,355 (24,424)
Net proceeds from sale of assets 256 573 7,689
Decrease (increase) in net assets transferred to MAXXAM (11,770) (24,264) 156,716
Capital expenditures (11,120) (8,669) (6,353)
Other 44 520 (607)
--------- --------- ---------
Net cash provided by (used for) investing
activities (10,201) (8,485) 133,021
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 790,000 - 148,500
Net borrowings (payments) under revolving credit agreements 2,900 - (920)
Redemptions, repurchase of and principal payments on long-
term debt (716,551) (4,773) (160,009)
Restricted cash deposits (33,562) - -
Dividends paid (20,000) (36) (110,900)
-------- -------- ---------
Net cash provided by (used for) financing
activities 22,787 (4,809) (123,329)
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,253) (5,204) 18,788
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 54,254 59,458 40,670
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $39,001 $54,254 $59,458
======== ========= =========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Net assets transferred to MAXXAM $30,531
Dividend of notes receivable and marketable securities to
MAXXAM $14,964 $100,122
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $80,188 $84,641 $89,038
Income taxes paid (refunded) 46 966 (18)
Tax allocation payments to MAXXAM 1,722 1,079 -
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common
Stock Retained
($.08 1/3 Additional Earnings
Par) Capital (Deficit) Total
----------- ----------- ----------- -----------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Balance, January 1, 1991 $- $52,808 $525,412 $578,220
Net income - - 77,987 77,987
Dividend - - (211,022) (211,022)
Gain from initial public offering of Kaiser Aluminum
Corporation common stock - 28,568 - 28,568
--------- --------- --------- ---------
Balance, December 31, 1991 - 81,376 392,377 473,753
Net income - - 7,716 7,716
Dividend - - (15,000) (15,000)
Loss from issuance of Kaiser Aluminum Corporation
common stock - (119) - (119)
--------- -------- --------- ---------
Balance, December 31, 1992 - 81,257 385,093 466,350
Net loss - - (531,900) (531,900)
Dividend - - (20,000) (20,000)
Gain from issuance of Kaiser Aluminum Corporation
common stock - 30 - 30
Net assets transferred to MAXXAM - - (30,531) (30,531)
--------- --------- --------- ---------
Balance, December 31, 1993 $- $81,287 $(197,338) $(116,051)
========= ========= ========= =========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts
of MAXXAM Group Inc. ("MGI") and its subsidiaries, collectively
referred to herein as the "Company." The Company is a wholly owned
subsidiary of MAXXAM Inc. ("MAXXAM").
The Company conducts its business primarily through the
operations of its subsidiaries. Prior to the Forest Products Group
Formation (as defined below), the Company operated in three
industries: aluminum, through its majority owned subsidiary, Kaiser
Aluminum Corporation ("Kaiser"), a fully integrated aluminum producer;
forest products, through The Pacific Lumber Company ("Pacific Lumber")
and Britt Lumber Co., Inc. ("Britt"), each a wholly owned subsidiary;
and real estate management and development, through the Palmas del Mar
development located in Puerto Rico ("Palmas") which was owned by the
Company's subsidiary, MAXXAM Properties Inc. ("MPI"). On August 4,
1993, contemporaneously with the consummation of the sale of the Notes
(as defined in Note 6), the Company (i) transferred to MAXXAM 50
million common shares of Kaiser held by a subsidiary of the Company,
representing the Company's (and MAXXAM's) entire interest in Kaiser's
common stock, (ii) transferred to MAXXAM 60,075 shares of MAXXAM
common stock held by a subsidiary of the Company, (iii) transferred to
MAXXAM certain notes receivable, long-term investments, and other
assets, each net of related liabilities, collectively having a
carrying value to the Company of approximately $1,100 and (iv)
exchanged with MAXXAM 2,132,950 Depositary Shares, acquired from
Kaiser on June 30, 1993 for $15,000, such exchange being in
satisfaction of a $15,000 promissory note evidencing a cash loan made
by MAXXAM to the Company in January 1993. On the same day, MAXXAM
assumed approximately $17,500 of certain liabilities of the Company
that were unrelated to the Company's forest products operations or
were related to operations which have been disposed of by the Company.
Additionally, on September 28, 1993, the Company transferred to MAXXAM
its interest in Palmas. The foregoing transactions are collectively
referred to as the "Forest Products Group Formation."
As a result of the Forest Products Group Formation, the
Company restated its Consolidated Financial Statements to present the
net assets transferred to MAXXAM pursuant to the Forest Products Group
Formation (including certain allocated costs from MAXXAM for general
and administrative expenses unrelated to the Company's forest products
operations). Such restatement has been made with respect to all
periods presented in a manner similar to that which would have been
presented if the Company had discontinued the operations relating to
such net assets. See Note 2.
As a result of the Forest Products Group Formation, the
Company's business is substantially limited to forest products
operations which consists of 100% of the outstanding common stock of
Pacific Lumber and 100% of the outstanding common stock of Britt.
Pacific Lumber is engaged in all principal aspects of the lumber
industry, including the growing and harvesting of redwood and
Douglas-fir timber, the milling of logs into lumber and the production
of manufactured lumber products. Britt mills logs to produce a
variety of fencing and decking products.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cash equivalents consist of highly liquid money market
instruments with original maturities of three months or less. The
carrying amount of these instruments approximates fair value.
<PAGE>
Marketable Securities
On December 31, 1993, the Company adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS 115"). In accordance
with the provisions of SFAS 115, marketable securities are carried at
market value on December 31, 1993. Prior to that date, marketable
securities portfolios were carried at the lower of cost or market at
the balance sheet date. The cost of the securities sold is determined
using the first-in, first-out method. Market values are determined
based on quoted prices. The cost and market values of securities held
at December 31, 1992 were $24,793 and $22,730, respectively. Included
in investment, interest and other income for each of the three years
ended December 31, 1993 were: 1993 - net realized gains of $3,510, the
recovery of $2,063 of net unrealized losses and net unrealized gains
of $841; 1992 - net realized losses of $5,003 and net unrealized
losses of $371; and 1991 - net realized gains of $73 and the recovery
of $367 of net unrealized losses. Net unrealized losses represent the
amount required to reduce the short-term marketable securities
portfolios from cost to market value prior to December 31, 1993.
Inventories
Inventories are stated at the lower of cost or market. Cost
is primarily determined using the last-in, first-out (LIFO) method.
Timber and Timberlands
Depletion is computed utilizing the unit-of-production
method based upon estimates of timber values and quantities.
Property, Plant and Equipment
Property, plant and equipment, including capitalized
interest, is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates
based upon the estimated useful lives of the various classes of
assets.
Deferred Financing Costs
Costs incurred to obtain financing are deferred and
amortized over the estimated term of the related borrowing.
Restricted Cash and Concentrations of Credit Risk
Restricted cash represents the amount initially deposited
into an account (the "Liquidity Account") held by the trustee under
the indenture governing the 7.95% Timber Collateralized Notes due 2015
(the "Timber Notes") as described in Note 6. The Liquidity Account is
not available, except under certain limited circumstances, for working
capital purposes; however, it is available to pay the Rated
Amortization (as defined below) and interest on the Timber Notes if
and to the extent that cash flows are insufficient to make such
payments. The required Liquidity Account balance will generally
decline as principal payments are made on the Timber Notes. The
carrying amount of the Liquidity Account approximates its fair value.
Investment, interest and other income includes approximately $2,101
attributable to an investment rate agreement (at 7.95% per annum) with
the financial institution which holds the Liquidity Account. At
December 31, 1993, the balance of the Liquidity Account is $33,562.
At December 31, 1993, cash and cash equivalents includes
$20,280 (the "Payment Account") which is reserved for debt service
payments on the Timber Notes (see Note 6). The Payment Account and
the
<PAGE>
Liquidity Account are each held by a different financial
institution. In the event of nonperformance by such financial
institutions, the Company's exposure to credit loss is represented by
the amounts deposited plus any unpaid accrued interest thereon. The
Company mitigates its concentrations of credit risk with respect to
these restricted cash deposits by maintaining them at high credit
quality financial institutions and monitoring the credit ratings of
these institutions.
Stockholder's Equity (Deficit)
Adjustments to the Company's additional capital for the
years ended December 31, 1993, 1992 and 1991 resulted from
transactions relating to Kaiser's common stock prior to the Forest
Products Group Formation. The transactions included Kaiser's 1991
initial public offering of 7.25 million shares for net proceeds of
$93,216 and Kaiser's subsequent issuance of shares to certain members
of its management pursuant to the terms of an amended compensation
plan in 1992 and 1993 of 77,279 and 4,228 shares, respectively. As a
result of these transactions, the Company's equity in Kaiser's net
assets differed from the Company's historical cost. The Company
accounted for these differences as adjustments to additional capital.
Reclassifications
Certain reclassifications have been made to prior years'
financial statements to be consistent with the presentation in the
current year.
2. NET ASSETS TRANSFERRED TO MAXXAM
As a result of the Forest Products Group Formation (as
described in Note 1), the Company transferred all of its interest in
Kaiser's common stock, the assets and related liabilities of Palmas,
and certain other net assets that were unrelated to the Company's
forest products operations, to MAXXAM. The Company did not incur any
gain or loss relating to the transfer of such assets and liabilities
to MAXXAM.
<PAGE>
The net income (loss) from net assets transferred to MAXXAM are as
follows:
<TABLE>
<CAPTION>
Seven Months
Ended
July 31, Years Ended December 31,
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Aluminum operations $1,016,966 $1,909,115 $2,000,828
Real estate and other 19,654 27,464 22,663
--------- --------- ---------
1,036,620 1,936,579 2,023,491
--------- --------- ---------
Costs and expenses:
Aluminum operations 1,091,353 1,877,004 1,847,188
Real estate and other 28,132 33,298 37,902
--------- --------- ---------
1,119,485 1,910,302 1,885,090
--------- --------- ---------
Income (loss) before income taxes, minority interests,
extraordinary item and cumulative effect of changes in
accounting principles (82,865) 26,277 138,401
Credit (provision) for income taxes 31,050 10,755 (30,399)
Minority interests 3,641 (3,341) (7,920)
--------- --------- ---------
Income (loss) before extraordinary item and cumulative
effect of changes in accounting principles (48,174) 33,691 100,082
Extraordinary item:
Loss on redemption of debt, net of related benefits for
income taxes and minority interests of $11,249 and
$2,791, respectively (19,045) - -
Cumulative effect of changes in accounting principles:
Postretirement and postemployment benefits, net of
related benefits for income taxes and minority
interests of $237,682 and $64,554, respectively (440,519) - -
Accounting for income taxes (5,232) - -
--------- --------- ---------
Income (loss) from net assets transferred to MAXXAM $(512,970) $33,691 $100,082
========= ========= ========
</TABLE>
<PAGE>
Net assets transferred to MAXXAM are as follows:
<TABLE>
<CAPTION>
Date of December 31,
Transfer 1992
--------- ---------
<S> <C> <C>
Current assets:
Aluminum operations $780,791 $766,013
Real estate and other 16,480 18,218
--------- ---------
797,271 784,231
--------- ---------
Current liabilities:
Aluminum operations 477,805 445,700
Real estate and other 28,853 36,975
--------- ---------
506,658 482,675
--------- ---------
Net current assets 290,613 301,556
--------- ---------
Non-current assets:
Aluminum operations 1,722,362 1,332,748
Real estate and other 56,422 59,317
--------- ---------
1,778,784 1,392,065
--------- ---------
Non-current liabilities:
Aluminum operations 1,790,946 977,148
Minority interests in aluminum operations 221,907 177,158
Real estate and other 26,013 7,564
--------- ---------
2,038,866 1,161,870
--------- ---------
Net assets transferred to MAXXAM $30,531 $531,751
========= =========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1993 1992
----------- -----------
<S> <C> <C>
Lumber $52,354 $58,379
Logs 21,059 13,729
--------- ---------
$73,413 $72,108
======== ========
</TABLE>
During 1993, 1992 and 1991, Pacific Lumber's inventory
quantities were reduced. These reductions resulted in the liquidation
of Pacific Lumber's LIFO inventory quantities carried at prevailing
costs from prior years which were higher than the current cost of
inventory in 1993 and lower than current costs in 1992 and 1991. The
effects of these inventory liquidations increased cost of goods sold
by approximately $222 for the year ended December 31, 1993 and
decreased cost of goods sold by approximately $372 and $3,286 for the
years ended December 31, 1992 and 1991, respectively.
<PAGE>
4. TIMBER AND TIMBERLANDS
The following table presents the changes in timber and
timberlands for the three years ended December 31, 1993.
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $389,744 $406,137 $421,961
Adoption of new accounting principle for income taxes (see
Note 7) (8,128) - -
Additions at cost 264 557 319
Depletion (16,369) (16,950) (16,143)
--------- --------- ---------
Balance at end of year $365,511 $389,744 $406,137
========= ========= =========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
Estimated December 31,
Useful Lives 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Logging roads, land and improvements 15 years $7,241 $8,822
Buildings 20-33 years 22,234 20,831
Machinery and equipment 5-20 years 123,270 113,195
Construction in progress 125 351
--------- ---------
152,870 143,199
Less: accumulated depreciation (50,090) (42,353)
--------- ---------
$102,780 $100,846
========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1993,
1992 and 1991 was $8,670, $8,491 and $8,106, respectively.
<PAGE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1993 1992
----------- -----------
<S> <C> <C>
7.95% Timber Collateralized Notes due July 20, 2015 $376,953 $-
11 1/4% Senior Secured Notes due August 1, 2003 100,000 -
12 1/4% Senior Secured Discount Notes due August 1, 2003,
net of discount 73,499 -
10 1/2% Senior Notes due March 1, 2003 235,000 -
12 3/4% Notes due November 15, 1995, net of discount - 148,852
12% Series A Senior Notes due July 1, 1996 - 163,784
12.2% Series B Senior Notes due July 1, 1996 - 304,725
12 1/2% Senior Subordinated Debentures due July 1, 1998 - 41,750
Other 2,951 32,527
--------- ---------
788,403 691,638
Less: current maturities (16,093) (11,707)
--------- ---------
$772,310 $679,931
========= =========
</TABLE>
On March 23, 1993, Pacific Lumber issued $235,000 of 10 1/2%
Senior Notes due 2003 (the "Pacific Lumber Senior Notes") and its
newly-formed wholly owned subsidiary, Scotia Pacific Holding Company
("SPHC"), issued $385,000 of the Timber Notes. Pacific Lumber and
SPHC used the net proceeds from the sale of the Pacific Lumber Senior
Notes and the Timber Notes, together with Pacific Lumber's cash and
marketable securities, to (i) retire (a) $163,784 aggregate principal
amount of Pacific Lumber's 12% Series A Senior Notes due July 1, 1996
(the "Series A Notes"), (b) $299,725 aggregate principal amount of
Pacific Lumber's 12.2% Series B Senior Notes due July 1, 1996 (the
"Series B Notes") and (c) $41,750 aggregate principal amount of
Pacific Lumber's 12 1/2% Senior Subordinated Debentures due July 1,
1998 (the "Debentures;" the Series A Notes, the Series B Notes and the
Debentures are referred to collectively as the "Old Pacific Lumber
Securities"); (ii) pay accrued interest on the Old Pacific Lumber
Securities through the date of redemption thereof; (iii) pay the
applicable redemption premiums on the Old Pacific Lumber Securities;
(iv) repay Pacific Lumber's $28,867 cogeneration facility loan; (v)
fund the initial deposit of $35,000 to the Liquidity Account; and (vi)
pay a $25,000 dividend to a subsidiary of the Company. These
transactions resulted in a pre-tax extraordinary loss of $16,368,
consisting primarily of the payment of premiums and the write-off of
unamortized deferred financing costs on the Old Pacific Lumber
Securities.
The indenture governing the Timber Notes (the "Timber Note
Indenture") prohibits SPHC from incurring any additional indebtedness
for borrowed money and limits the business activities of SPHC to the
ownership and operation of its timber and timberlands. The Timber
Notes are senior secured obligations of SPHC and are not obligations
of, or guaranteed by, Pacific Lumber or any other person. The Timber
Notes are secured by a lien on (i) SPHC's timber and timberlands, (ii)
substantially all of SPHC's property and equipment, (iii) SPHC's
contract rights and certain other assets and (iv) the funds deposited
in the Payment Account and the Liquidity Account.
The Timber Notes are structured to link, to the extent of
cash available, the deemed depletion of SPHC's timber (through the
harvest and sale of logs) to required amortization of the Timber
Notes. The actual required amount of such amortization due on any
Timber Note payment date is determined by various mathematical
formulas set forth in the Timber Note Indenture. The minimum amount
of principal which
<PAGE>
SPHC must pay (on a cumulative basis) through any Timber Note payment
date in order to avoid an Event of Default (as defined in the Timber
Note Indenture) is referred to as rated amortization ("Rated
Amortization"). If all payments of principal are made in accordance
with Rated Amortization, the payment date on which SPHC will pay the
final installment of principal is July 20, 2015. The amount of
principal which SPHC must pay through each Timber Note payment date in
order to avoid payment of prepayment or deficiency premiums is
referred to as scheduled amortization ("Scheduled Amortization"). If
all payments of principal are made in accordance with Scheduled
Amortization, the payment date on which SPHC will pay the final
installment of principal is July 20, 2009.
Substantially all of the Company's consolidated assets are
owned by Pacific Lumber and a significant portion of Pacific Lumber's
assets are owned by SPHC. The Company expects that Pacific Lumber
will provide a major portion of the Company's future operating cash
flow. Pacific Lumber is dependent upon SPHC for a significant portion
of its operating cash flow. The holders of the Timber Notes have
priority over the claims of creditors of Pacific Lumber with respect
to the assets and cash flow of SPHC, and the holders of the Pacific
Lumber Senior Notes have priority over the claims and creditors of the
Company with respect to the assets and cash flows of Pacific Lumber.
Under the terms of the Timber Note Indenture, SPHC will not have
available cash for distribution to Pacific Lumber unless SPHC's cash
flow from operations exceeds the amounts required by the Timber Note
Indenture to be reserved for the payment of current debt service
(including interest, principal and premiums) on the Timber Notes,
capital expenditures and certain other operating expenses.
Principal and interest on the Timber Notes is payable semi-
annually on January 20 and July 20. The Timber Notes are redeemable
at the option of SPHC, in whole but not in part, at any time. The
redemption price of the Timber Notes is equal to the sum of the
principal amount, accrued interest and a prepayment premium calculated
based upon the yield of like term Treasury securities plus 50 basis
points.
Interest on the Pacific Lumber Senior Notes is payable semi-
annually on March 1 and September 1. The Pacific Lumber Senior Notes
are redeemable at the option of Pacific Lumber, in whole or in part,
on or after March 1, 1998 at a price of 103% of the principal amount
plus accrued interest. The redemption price is reduced annually until
March 1, 2000, after which time the Pacific Lumber Senior Notes are
redeemable at par.
Pacific Lumber has a revolving credit agreement with a bank
(the "Revolving Credit Agreement") which expires on May 31, 1996.
Borrowings under the Revolving Credit Agreement are secured by Pacific
Lumber's trade receivables and inventories, with interest computed at
the bank's reference rate plus 1 1/2% or the bank's offshore rate plus
2 1/2%. The Revolving Credit Agreement provides for borrowings of up
to $30,000, of which $15,000 may be used for standby letters of
credit. As of December 31, 1993, $19,742 of borrowings was available
under the Revolving Credit Agreement, of which $4,742 was available
for letters of credit. No borrowings were outstanding as of December
31, 1993, and letters of credit outstanding amounted to $10,258.
The indentures governing the Pacific Lumber Senior Notes and
the Timber Notes and Pacific Lumber's Revolving Credit Agreement
contain various covenants which, among other things, limit the payment
of dividends and restrict transactions between Pacific Lumber and its
affiliates. As of December 31, 1993, under the most restrictive of
these covenants, approximately $5,731 of dividends could be paid by
Pacific Lumber.
<PAGE>
On August 4, 1993, the Company issued $100,000 aggregate
principal amount of 11 1/4% Senior Secured Notes due 2003 (the "MGI
Senior Notes") and $126,720 aggregate principal amount (approximately
$70,000 net of original issue discount) of 12 1/4% Senior Secured
Discount Notes due 2003 (the "MGI Discount Notes", which, together
with the MGI Senior Notes, are referred to collectively as the "MGI
Notes"). The MGI Notes are secured by the Company's pledge of 100% of
the common stock of Pacific Lumber, Britt and MPI, and by MAXXAM's
pledge of 28 million shares of Kaiser's common stock it received as a
result of the Forest Products Group Formation. The indenture
governing the MGI Notes, among other things, restricts the ability of
the Company to incur additional indebtedness, engage in transactions
with affiliates, pay dividends and make investments. At December 31,
1993, under the most restrictive of these covenants, no dividends may
be paid by the Company. The MGI Notes are senior indebtedness of the
Company; however, they are effectively subordinate to the liabilities
of the Company's subsidiaries, which includes the Timber Notes and the
Pacific Lumber Senior Notes. The MGI Discount Notes are net of
discount of $53,221 at December 31, 1993.
The MGI Senior Notes will pay interest semiannually on
February 1 and August 1 of each year beginning on February 1, 1994.
The MGI Discount Notes will not pay any interest until February 1,
1999, at which time semiannual interest payments will become due on
each February 1 and August 1 thereafter.
The Company used a portion of the net proceeds from the sale
of the MGI Notes to retire the entire outstanding balance of its 12
3/4% Notes at 101% of their principal amount, plus accrued interest
through November 14, 1993. The Company used the remaining portion of
the net proceeds from the sale of the MGI Notes, together with a
portion of its existing cash resources, to pay a $20,000 dividend to
MAXXAM. MAXXAM used such proceeds to redeem, on August 20, 1993,
$20,000 aggregate principal amount of its 14% Senior Subordinated
Reset Notes due 2000 at 100% of their principal amount plus accrued
interest thereon.
The Company incurred a pre-tax extraordinary loss associated
with the early retirement of the 12 3/4% Notes of $9,677 consisting of
net interest cost of $3,763, the write-off of $3,472 of unamortized
deferred financing costs, a premium of $1,500 and the write-off of
$942 of unamortized original issue discount.
Repurchase of Debt
During 1991, Pacific Lumber purchased $15,452 principal
amount of its Series B Notes for $15,029. Cash flow from operations
was used to repurchase the Series B Notes.
<PAGE>
Maturities
The following table of scheduled maturities of long-term
debt outstanding at December 31, 1993 reflects Scheduled Amortization
with respect to the Timber Notes:
<TABLE>
<CAPTION>
Years Ending December 31,
1994 1995 1996 1997 1998 Thereafter
<S> <C> <C> <C> <C> <C> <C>
7.95% Timber Collateralized
Notes $13,142 $13,578 $14,103 $16,165 $19,335 $300,630
11 1/4% Senior Secured Notes - - - - - 100,000
12 1/4% Senior Secured Discount
Notes - - - - - 126,720
10 1/2% Senior Notes - - - - - 235,000
Other 2,951 - - - - -
--------- --------- --------- --------- --------- ---------
$16,093 $13,578 $14,103 $16,165 $19,335 $762,350
========= ========= ========= ========= ========= =========
</TABLE>
Restricted Net Assets of Subsidiaries
At December 31, 1993, certain debt instruments restricted
the ability of Pacific Lumber to transfer assets, make loans and
advances and pay dividends to the Company. The restricted net assets
of Pacific Lumber totaled $20,000 at December 31, 1993.
Fair Value
The estimated fair value of the Company's long-term debt is
determined based on the quoted market prices for the Timber Notes, the
Pacific Lumber Senior Notes, the MGI Notes, the Old Pacific Lumber
Securities and the 12 3/4% Notes, and on the current rates offered for
borrowings similar to the other debt. At December 31, 1993 and 1992,
the fair value of the Company's long-term debt is estimated to be
$817,400 and $704,100, respectively.
7. CREDIT (PROVISION) IN LIEU OF INCOME TAXES
The Company and its subsidiaries are members of MAXXAM's
consolidated return group for federal income tax purposes. Prior to
August 4, 1993, the Company and each of its subsidiaries computed
their tax liabilities or tax benefits on a separate company basis
(except as discussed in the following paragraph), in accordance with
their respective tax allocation agreements with MAXXAM.
Effective on March 23, 1993, MAXXAM, Pacific Lumber, SPHC
and Salmon Creek Corporation ("Salmon Creek") entered into a tax
allocation agreement that, among other things, amended the tax
calculations with respect to Pacific Lumber (the "Amended PL Tax
Allocation Agreement"). Under the terms of the Amended PL Tax
Allocation Agreement, Pacific Lumber is liable to MAXXAM for the
federal consolidated income tax liability of Pacific Lumber, SPHC and
certain other subsidiaries of Pacific Lumber (but excluding Salmon
Creek) (collectively, the "PL Subgroup") computed as if the PL
Subgroup was a separate affiliated group of corporations which was
never connected with MAXXAM. The Amended PL Tax Allocation Agreement
further provides that Salmon Creek is liable to MAXXAM for its federal
income tax liability computed on
<PAGE>
a separate company basis as if it was never connected with MAXXAM.
The remaining subsidiaries of MGI are each liable to MAXXAM for their
respective income tax liabilities computed on a separate company basis
as if they were never connected with MAXXAM, pursuant to their
respective tax allocation agreements.
Effective on August 4, 1993, MGI amended its tax allocation
agreement with MAXXAM (the "Amended Tax Allocation Agreement") to
provide that the Company's federal income tax liability is computed as
if MGI files a consolidated tax return with all of its subsidiaries
except Salmon Creek, and that such corporations were never connected
with MAXXAM (the "MGI Consolidated Tax Liability"). The federal
income tax liability of MGI is the difference between (i) the MGI
Consolidated Tax Liability and (ii) the sum of the separate tax
liabilities for the Company's subsidiaries (computed as discussed
above), but excluding Salmon Creek. To the extent that the MGI
Consolidated Tax Liability is less than the aggregate amounts in (ii),
MAXXAM is obligated to pay the amount of such difference to MGI.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109"). The adoption of SFAS 109 changes the Company's method
of accounting for income taxes to an asset and liability approach from
the deferral method prescribed by Accounting Principles Board Opinion
No. 11, Accounting for Income Taxes ("APB 11"). The asset and
liability approach requires the recognition of deferred income tax
assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements
or tax returns. Under this method, deferred income tax assets and
liabilities are determined based on the temporary differences between
the financial statement and tax bases of assets and liabilities using
enacted tax rates. The cumulative effect of the change in accounting
principle, as of January 1, 1993, increased the Company's results of
operations by $14,916.
The implementation of SFAS 109 required the Company to
restate certain assets and liabilities to their pre-tax amounts from
their net-of-tax amounts originally recorded in connection with the
acquisitions of Pacific Lumber in 1986 and Britt in 1990. The
restatement of the assigned values with respect to assets and
liabilities recorded as a result of the acquisitions and the
recomputation of deferred income tax assets and liabilities under SFAS
109 resulted in: (i) a decrease of $8,128 in the net carrying value of
timber and timberlands, (ii) an increase of $181 in the net carrying
value of property, plant and equipment and (iii) an increase of
$22,863 in net deferred income tax assets. As a result of restating
these assets and liabilities, the loss from continuing operations
before income taxes, extraordinary item and cumulative effect of
changes in accounting principles for the year ended December 31, 1993
was decreased by $377.
Concurrent with the adoption of SFAS 109, the Company
implemented changes in its accounting method for postretirement
benefits pursuant to Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits Other Than
Pensions ("SFAS 106") (see Note 8). The pre-tax cumulative effect of
the change in accounting principle relating to SFAS 106 was a charge
of $3,914 and resulted in the recognition of deferred income tax
assets of $1,566.
<PAGE>
The credit (provision) in lieu of income taxes on the loss
from continuing operations before income taxes, extraordinary item and
cumulative effect of changes in accounting principles consists of the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Current:
Federal credit (provision) in lieu of income taxes $(988) $(1,774) $(4,734)
State and local (253) (424) (255)
--------- --------- ---------
(1,241) (2,198) (4,989)
--------- --------- ---------
Deferred:
Federal credit (provision) in lieu of income taxes 4,825 922 (671)
State and local (229) - -
--------- --------- ---------
4,596 922 (671)
--------- --------- ---------
$3,355 $(1,276) $(5,660)
========= ========= =========
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 (the "Act"),
enacted on August 10, 1993, retroactively increased the maximum
federal statutory income tax rate from 34% to 35% for periods
beginning on or after January 1, 1993. The 1993 deferred federal
credit in lieu of income taxes of $4,825 includes $2,601 for the
benefit of operating loss carryforwards generated in 1993 and includes
an $850 benefit for increasing net deferred income tax assets
(liabilities) as of the date of enactment of the Act due to the
increase in the federal statutory income tax rate.
The deferred credit (provision) in lieu of income taxes
results from the following timing differences for 1992 and 1991:
<TABLE>
<CAPTION>
Years Ended December 31,
1992 1991
--------- ---------
<S> <C> <C>
Provision to reduce certain investments to estimated net $1,467 $238
realizable value
Change in unrealized losses on short-term marketable (770) (962)
securities
Other 225 53
--------- ---------
$922 $(671)
========= =========
</TABLE>
<PAGE>
A reconciliation between the credit (provision) in lieu of
income taxes and the amount computed by applying the federal statutory
income tax rate to the loss from continuing operations before income
taxes, extraordinary item and cumulative effect of changes in
accounting principles is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Loss from continuing operations before income taxes,
extraordinary item and cumulative effect of changes in
accounting principles $(17,664) $(24,699) $(16,435)
========= ========= =========
Amount of federal income tax based upon the statutory rate $6,182 $8,398 $5,588
Revision of prior years' tax estimates and other changes in
valuation allowances (3,468) - -
Increase in net deferred income tax assets due to tax rate
change 850 - -
State and local taxes, net of federal tax benefit (313) (280) (168)
Financial reporting and tax basis differences - 343 1,359
Losses and expenses for which no federal tax benefit was
recognized - (9,744) (12,295)
Other 104 7 (144)
--------- --------- ---------
$3,355 $(1,276) $(5,660)
========= ========= =========
</TABLE>
The credit in lieu of income taxes as a percentage of the
loss from continuing operations before income taxes, extraordinary
item and cumulative effect of changes in accounting principles would
have approximated the federal statutory rate had the Company computed
the credit (provision) in lieu of income taxes for the year ended
December 31, 1993 on a consolidated return basis. The Company would
not have been able to record a credit in lieu of income taxes with
respect to the losses from continuing operations computed on a
consolidated return basis, for each of the years ended December 31,
1992 and 1991, due to the uncertainty of realizing any future tax
benefit attributable to such losses pursuant to the provisions of APB
11.
As shown in the Consolidated Statement of Operations for the
year ended December 31, 1993, the Company reported an extraordinary
loss related to the early extinguishment of debt. The Company
reported the loss net of related deferred income taxes of $8,856 which
approximated the federal statutory income tax rate in effect on the
dates the transactions occurred. The related deferred income tax
benefit recorded by the Company in respect of SFAS 106 was recorded at
the federal and state statutory rates in effect on the date the
accounting standard was adopted.
<PAGE>
After giving effect to the adoption of SFAS 109, the
components of the Company's net deferred income tax assets
(liabilities) are as follows:
<TABLE>
<CAPTION>
January 1,
1993
December 31, (date of
1993 adoption)
<S> <C> <C>
Deferred income tax assets:
Loss and credit carryforwards $92,408 $67,116
Timber and timberlands 36,443 30,608
Investments 4,729 6,003
Other liabilities 4,616 4,152
Postretirement benefits other than pensions 1,734 1,695
Other 4,569 1,967
Valuation allowances (57,676) (44,948)
--------- ---------
Total deferred income tax assets, net 86,823 66,593
--------- ---------
Deferred income tax liabilities:
Property, plant and equipment (21,160) (22,302)
Inventories (17,172) (16,567)
Other (4,252) (2,489)
--------- ---------
Total deferred income tax liabilities (42,584) (41,358)
--------- ---------
Net deferred income tax assets $44,239 $25,235
========= =========
</TABLE>
The valuation allowances listed above relate primarily to
loss and credit carryforwards. As of December 31, 1993, approximately
$36,443 of the net deferred income tax assets listed above relate to
the excess of the tax basis over financial statement basis with
respect to timber and timberlands. The Company believes that it is
more likely than not that this net deferred income tax asset will be
realized, based primarily upon the estimated value of its timber and
timberlands which is well in excess of its tax basis. Also included
in net deferred income tax assets as of December 31, 1993 is
approximately $36,231 which relates to the benefit of loss and credit
carryforwards, net of valuation allowances. The Company evaluated all
appropriate factors to determine the proper valuation allowances for
loss and credit carryforwards. These factors included any limitations
concerning use of the carryforwards, the year the carryforwards expire
and the levels of taxable income necessary for utilization. The
Company has concluded that it will more likely than not generate
sufficient taxable income to realize the benefit attributable to the
loss and credit carryforwards for which valuation allowances were not
provided.
Included in the net deferred income tax assets listed above
are $42,752 at December 31, 1993 and $23,519 at January 1, 1993 which
are recorded pursuant to the tax allocation agreements with MAXXAM.
<PAGE>
The following table presents the estimated tax attributes
for federal income tax purposes for the Company and its subsidiaries
as of December 31, 1993, under the terms of the respective tax
allocation agreements. The utilization of certain of these attributes
are subject to limitations.
<TABLE>
<CAPTION>
Expiring
Through
<S> <C> <C>
Regular Tax Attribute Carryforwards:
Current year net operating loss $53,642 2008
Prior year net operating losses 190,229 2007
Net capital losses 6,090 1997
Alternative Minimum Tax Attribute Carryforwards:
Current year net operating loss $52,654 2008
Prior year net operating losses 145,350 2007
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit plan which covers all
employees of Pacific Lumber. Under the plan, employees are eligible
for benefits at age 65 or earlier, if certain provisions are met. The
benefits are determined under a career average formula based on each
year of service with Pacific Lumber and the employee's compensation
for that year. Pacific Lumber's funding policy is to contribute
annually an amount at least equal to the minimum cash contribution
required by The Employee Retirement Income Security Act of 1974, as
amended.
<PAGE>
A summary of the components of net periodic pension cost is as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Service cost - benefits earned during the year $1,600 $1,546 $1,225
Interest cost on projected benefit obligation 918 749 530
Actual gain on plan assets (2,128) (1,013) (1,164)
Net amortization and deferral 1,359 352 775
--------- --------- ---------
Net periodic pension cost $1,749 $1,634 $1,366
========= ========= =========
</TABLE>
<PAGE>
The following table sets forth the funded status and amounts
recognized in the Consolidated Balance Sheet:
<TABLE>
<CAPTION>
December 31,
1993 1992
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested benefit obligation $11,047 $8,211
Non-vested benefit obligation 1,183 1,114
--------- ---------
Total accumulated benefit obligation $12,230 $9,325
========= =========
Projected benefit obligation $15,303 $11,475
Plan assets at fair value, primarily fixed income securities (12,216) (9,108)
-------- --------
Projected benefit obligation in excess of plan assets 3,087 2,367
Unrecognized net transition asset 35 41
Unrecognized net loss (582) (450)
Unrecognized prior service cost (89) (97)
--------- ---------
Accrued pension liability $2,451 $1,861
========= ========
</TABLE>
<TABLE>
The assumptions used in accounting for the defined benefit plan were as follows:
1993 1992 1991
<S> <C> <C> <C>
Rate of increase in compensation levels 5.0% 5.0% 5.0%
Discount rate 7.5% 8.0% 8.0%
Expected long-term rate of return on assets 8.0% 9.0% 9.0%
</TABLE>
The Company has an unfunded defined benefit plan for certain
postretirement and other benefits which covers substantially all
employees of Pacific Lumber. Participants of the plan are eligible
for certain health care benefits upon termination of employment and
retirement and commencement of pension benefits. Participants make
contributions for a portion of the cost of their health care benefits.
The Company adopted SFAS 106 as of January 1, 1993. The
costs of postretirement benefits other than pensions are now accrued
over the period the employees provide services to the date of their
full eligibility for such benefits. Previously, such costs were
expensed as actual claims were incurred. The cumulative effect of the
change in accounting principle for the adoption of SFAS 106 was
recorded as a charge to results of operations of $2,348, net of
related income taxes of $1,566.
A summary of the components of net periodic postretirement
benefit cost for the year ended December 31, 1993 is as follows:
<TABLE>
<S> <C>
Service cost - benefits earned during the year $153
Interest cost on accumulated postretirement benefit
obligation 315
--------
Net periodic postretirement benefit cost $468
========
</TABLE>
The adoption of SFAS 106 increased the Company's loss from continuing
operations before extraordinary item and cumulative effect of changes
in accounting principles by $212 ($360 before tax) for the year ended
December 31, 1993.
<PAGE>
The postretirement benefit liability recognized in the Company's
Consolidated Balance Sheet was:
<TABLE>
<CAPTION>
January 1,
1993
December 31, (date of
1993 adoption)
<S> <C> <C>
Retirees $963 $1,009
Actives 3,245 2,905
--------- ---------
Accumulated postretirement benefit obligation 4,208 3,914
Unrecognized net gain 71 -
--------- ---------
Postretirement benefit liability $4,279 $3,914
========= ========
</TABLE>
The annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 13% for
1994 and is assumed to decrease gradually to 5.5% for 2007 and remain
at that level thereafter. Each one percentage point increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by
approximately $582 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost by
approximately $76.
The discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% at December 31, 1993 and
8.25% at January 1, 1993.
9. RELATED PARTY TRANSACTIONS
MAXXAM provides the Company and certain of the Company's
subsidiaries with accounting and data processing services. In
addition, MAXXAM provides the Company with office space and various
office personnel, insurance, legal, operating, financial and certain
other services. MAXXAM's expenses incurred on behalf of the Company
are reimbursed by the Company through payments consisting of (i) an
allocation of the lease expense for the office space utilized by or on
behalf of the Company and (ii) a reimbursement of actual out-of-pocket
expenses incurred by MAXXAM, including, but not limited to, labor
costs (including costs associated with phantom share and stock
appreciation rights) of MAXXAM personnel rendering services to the
Company. Charges by MAXXAM for such services included in continuing
operations were $3,347, $3,735 and $3,652 for the years ended December
31, 1993, 1992 and 1991, respectively. The Company believes that the
services being rendered are on terms not less favorable to the Company
than those which would be obtainable from unaffiliated third parties.
In November 1991, MAXXAM purchased $1,222 of MAXXAM's 12
1/2% Subordinated Debentures (the "MAXXAM Debentures") from the
Company for $1,304. Interest earned on the MAXXAM Debentures amounted
to $164 for the year ended December 31, 1991.
Interest income on loans to MAXXAM was approximately $9,810
for the year ended December 31, 1991.
<PAGE>
10. CONTINGENCIES
The Company's operations are subject to a variety of
California and, in some cases, federal laws and regulations dealing
with timber harvesting, endangered species, water quality and air and
water pollution. The Company does not expect that compliance with
such existing laws and regulations will have a material adverse effect
on the Company's future operating results. There can be no assurance,
however, that future legislation, governmental regulations or judicial
or administrative decisions would not adversely affect the Company or
its ability to sell lumber, logs or timber.
Various groups and individuals have filed objections with
the California Department of Forestry ("CDF") regarding the CDF's
actions and rulings with respect to certain of the Company's timber
harvesting plans ("THPs"), and the Company expects that such groups
and individuals will continue to file objections to the Company's
THPs. In addition, lawsuits are pending which seek to prevent the
Company from implementing certain of its approved THPs. These
challenges have severely restricted Pacific Lumber's ability to
harvest virgin old growth redwood timber on its property during the
past few years, as well as substantial amounts of virgin Douglas-fir
timber which are located in virgin old growth redwood stands. No
assurance can be given as to the extent of such litigation in the
future. The Company believes that environmentally focused challenges
to its THPs are likely to occur in the future. Although such
challenges have delayed or prevented the Company from conducting a
portion of its operations, to date such challenges have not had a
material adverse effect on the Company's consolidated financial
position or results of operations. It is, however, impossible to
predict the future nature or degree of such challenges or their
ultimate impact on the operating results or consolidated financial
position of the Company.
The Company, Pacific Lumber, MAXXAM and certain of their
former and current officers and directors are defendants in various
actions related to the Company's acquisition of Pacific Lumber.
Management is of the opinion that the outcome of such litigation is
unlikely to have a material adverse effect on the Company's
consolidated financial position. Management is unable to express an
opinion as to whether the outcome of such litigation is unlikely to
have a material adverse effect on the Company's results of operations
in respect of any fiscal year.
The Company is also involved in various claims, lawsuits and
proceedings relating to a wide variety of other matters. While there
are uncertainties inherent in the ultimate outcome of such matters and
it is impossible to presently determine the ultimate costs that may be
incurred, management believes the resolution of such uncertainties and
the incurrence of such costs should not have a material adverse effect
upon the Company's consolidated financial position or results of
operations.
<PAGE>
11. SUPPLEMENTARY INFORMATION
The following amounts are included in the Company's Consolidated
Statement of Operations:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Maintenance and repairs $12,065 $10,673 $10,317
Property taxes 1,568 2,079 2,288
Yield taxes 4,372 2,691 1,960
Workers' compensation 3,776 3,288 4,259
</TABLE>
Pacific Lumber is self-insured for workers' compensation
benefits. Included in accrued compensation and related benefits and
other noncurrent liabilities are accruals for workers' compensation
claims amounting to $7,008 and $5,400 at December 31, 1993 and 1992,
respectively.
In 1993 and 1992, Pacific Lumber recorded reductions in cost
of sales of $1,200 and $3,300, respectively, from business
interruption insurance claims for reimbursement of higher operating
costs and the related loss of revenues resulting from the April 1992
earthquake. In 1992, Pacific Lumber recorded a $1,600 gain in
investment, interest and other income on a casualty insurance claim
for the loss of certain commercial property due to the earthquake.
Other receivables at December 31, 1993 and 1992 included $1,235 and
$7,723, respectively, related to these and other earthquake related
insurance claims.
In June 1991, Pacific Lumber completed the sale of its San
Mateo County, California timberlands for $7,492. This sale resulted
in a pre-tax gain of $3,482 which is included in investment, interest
and other income for the year ended December 31, 1991.
<PAGE>
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summary quarterly financial information for the years ended
December 31, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1993:
Net sales $52,737 $58,007 $58,803 $63,892
Operating income 16,233 14,997 9,185 12,542
Loss from continuing operations before extraordinary
item and cumulative effect of changes in
accounting principles
(2,141) (3,593) (5,420) (3,155)
Loss from net assets transferred to MAXXAM, net (480,370) (20,900) (11,700) -
Extraordinary item, net (10,802) - (6,387) -
Cumulative effect of changes in accounting principles,
net 12,568 - - -
Net loss (480,745) (24,493) (23,507) (3,155)
1992:
Net sales $51,431 $57,604 $57,042 $57,268
Operating income 13,379 19,869 16,182 13,078
Loss from continuing operations (7,113) (1,085) (3,646) (14,131)
Income from net assets transferred to MAXXAM, net
6,890 5,862 3,240 17,699
Net income (loss) (223) 4,777 (406) 3,568
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(A) INDEX TO FINANCIAL STATEMENTS
PAGE
1. FINANCIAL STATEMENTS (INCLUDED UNDER ITEM 8):
Report of Independent Public Accountants 27
Consolidated balance sheet at December 31, 1993 and 1992 28
Consolidated statement of operations for the
years ended December 31, 1993,
1992 and 1991 29
Consolidated statement of cash flows for the
years ended December 31, 1993,
1992 and 1991 30
Consolidated statement of stockholder's equity
for the years ended December 31, 1993,
1992 and 1991 31
Notes to consolidated financial statements 32
The consolidated financial statements and notes
thereto of Kaiser Aluminum Corporation are
incorporated herein by reference and included
as Exhibit 99 hereto.
2. FINANCIAL STATEMENT SCHEDULES:
Schedule III - Condensed financial information of
Registrant at December 31, 1993 and 1992
and for the years ended December 31, 1993,
1992 and 1991 53
All other schedules are inapplicable or the required
information is included in the consolidated financial statements or
the notes thereto.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 58), which index is
incorporated herein by reference.
<PAGE>
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (UNCONSOLIDATED)
<TABLE>
<CAPTION>
December 31,
1993 1992
(In thousands of dollars)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $92 $10,585
Marketable securities and other current assets 11,964 2,427
--------- ---------
Total current assets 12,056 13,012
Investments in and advances from subsidiaries 39,405 68,517
Deferred financing costs and other assets 6,238 4,397
Deferred income taxes 6,369 -
Net assets transferred to MAXXAM - 531,751
--------- ---------
$64,068 $617,677
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $2,058 $-
Accrued interest 4,562 2,475
--------- ---------
Total current liabilities 6,620 2,475
Long-term debt 173,499 148,852
--------- ---------
Total liabilities 180,119 151,327
--------- ---------
Stockholder's equity (deficit):
Common stock, $.08 1/3 par value; 1,000 shares - -
authorized;
100 shares issued
Additional capital 81,287 81,257
Retained earnings (deficit) (197,338) 385,093
--------- ---------
Total stockholder's equity (deficit) (116,051) 466,350
--------- ---------
$64,068 $617,677
========= =========
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS (UNCONSOLIDATED)
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
(In thousands of dollars)
<S> <C> <C> <C>
Investment, interest and other income (expense) $(718) $(2,607) $(2,598)
Interest expense (20,917) (21,592) (22,521)
General and administrative expenses (720) (1,000) (1,000)
Equity in earnings (losses) of subsidiaries 6,534 (776) 4,024
--------- --------- ---------
Loss from continuing operations before income taxes,
extraordinary item and cumulative effect of change in (15,821) (25,975) (22,095)
accounting principle
Credit in lieu of income taxes 3,334 - -
--------- --------- ---------
Loss from continuing operations before extraordinary item
and cumulative effect of change in accounting principle (12,487) (25,975) (22,095)
Income (loss) from net assets transferred to MAXXAM, net of
minority interests and related income taxes (512,970) 33,691 100,082
--------- --------- ---------
Income (loss) before extraordinary item and cumulative
effect of change in accounting principle (525,457) 7,716 77,987
Extraordinary item:
Loss on early extinguishment of debt, net of related
credit in lieu of income taxes of $3,290 (6,387) - -
Cumulative effect of change in accounting principle for
income taxes (56) - -
--------- --------- ---------
Net income (loss) $(531,900) $7,716 $77,987
========= ========= =========
</TABLE>
<PAGE>
STATEMENT OF CASH FLOWS (UNCONSOLIDATED)
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
(In thousands of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(531,900) $7,716 $77,987
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Loss (income) from net assets transferred to
MAXXAM, net 512,970 (33,691) (100,082)
Extraordinary loss on early extinguishment of
debt, net 6,387 - -
Amortization of deferred financing costs and
discounts on long-term debt 4,855 1,806 1,095
Cumulative effect of change in accounting
principle 56 - -
Equity in losses (earnings) of subsidiaries (6,534) 776 (4,024)
Incurrence of financing costs (6,503) - (6,054)
Net losses (gains) on marketable securities (2,551) 2,608 7,270
Increase in other liabilities 3,272 31 37
Increase (decrease) in accounts payable 53 (111) (80)
Increase in accrued and deferred income taxes (3,356) - -
Decrease (increase) in receivables (380) 11,117 90,658
Other 62 - 467
--------- --------- ---------
Net cash provided by (used for) operating (23,569) (9,748) 67,274
activities --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net advances from subsidiaries 35,695 - -
Increase in net assets transferred to MAXXAM (11,770) (22,356) (25,518)
Net sales (purchases) of marketable securities (5,586) 42,725 -
Dividend from subsidiary - - 60,398
Other - - 244
--------- --------- ---------
Net cash provided by investing activities 18,339 20,369 35,124
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 170,000 - 148,500
Redemptions of long-term debt (155,263) - (140,000)
Dividends paid (20,000) (36) (110,900)
--------- --------- ---------
Net cash used for financing activities (5,263) (36) (102,400)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,493) 10,585 (2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,585 - 2
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $92 $10,585 $-
========= ========= =========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Net assets transferred to MAXXAM $30,531
Dividend of notes receivable and marketable securities
to parent $14,964 $100,122
Dividend of notes received from subsidiary 60,599
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $13,975 $19,839 $21,338
Income taxes paid (refunded) 22 - (69)
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
As described in Note 1 to the Company's Consolidated
Financial Statements (contained in Item 8), the Forest Products Group
Formation required the Company to restate its historical financial
statements with respect to the net assets transferred to MAXXAM. Such
restatement has been made with respect to all periods presented in a
manner similar to that which would have been presented if the Company
had discontinued the operations relating to such net assets.
B. LONG-TERM DEBT
The Forest Products Group Formation was done
contemporaneously with the issuance of the MGI Notes and the
retirement of the 12 3/4% Notes as described in Note 6 to the
Consolidated Financial Statements. The MGI Notes are secured by the
Company's pledge of 100% of the common stock of Pacific Lumber, Britt
and MPI and by MAXXAM's pledge of 28 million shares of Kaiser's common
stock it received as a result of the Forest Products Group Formation.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C>
MAXXAM GROUP INC.
Date: March 29, 1994 By: JOHN T. LA DUC
John T. La Duc
Vice President and Chief Financial
Officer
(Principal Financial Officer)
Date: March 29, 1994 By: JACQUES C. LAZARD
Jacques C. Lazard
Vice President and Controller
(Principal Accounting Officer)
<CAPTION>
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
<S> <C>
Date: March 29, 1994 By: CHARLES E. HURWITZ
Charles E. Hurwitz
Chairman of the Board, President
and Chief Executive Officer
Date: March 29, 1994 By: JOHN T. LA DUC
John T. La Duc
Vice President, Chief Financial
Officer and Director
Date: March 29, 1994 By: ANTHONY R. PIERNO
Anthony R. Pierno
Vice President, General Counsel
and Director
Date: March 29, 1994 By: PAUL N. SCHWARTZ
Paul N. Schwartz
Vice President and Director
</TABLE>
<PAGE>
MAXXAM GROUP INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3.1 Certificate of Incorporation of MAXXAM Group Inc. (the
"Company" or "MGI") (incorporated herein by reference
to Exhibit 3.1E to the Company's definitive proxy
statement dated October 24, 1984)
3.2 Certificate of Amendment of Certificate of
Incorporation of the Company dated as of September 28,
1988 (incorporated herein by reference to Exhibit 3(b)
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988)
3.3 Certificate of Amendment of Certificate of
Incorporation of the Company dated as of June 1, 1989
(incorporated herein by reference to Exhibit 3(c) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1989)
3.4 By-laws of the Company (incorporated herein by
reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K dated July 10, 1986)
*4.1 Indenture between the Company and Shawmut Bank, N.A.,
Trustee, regarding the Company's 12 3/4 Senior Secured
Discount Notes due 2003 and 11 1/4% Senior Secured
Notes due 2003
4.2 Indenture between The Pacific Lumber Company ("Pacific
Lumber") and The First National Bank of Boston, as
Trustee, regarding Pacific Lumber's 10 1/2% Senior
Notes due 2003 (incorporated herein by reference to
Exhibit 4.1 to the Annual Report on Form 10-K of
Pacific Lumber for the fiscal year ended December 31,
1993, File No. 1-9204)
4.3 Indenture between Scotia Pacific Holding Company
("SPHC") and The First National Bank of Boston, as
Trustee, regarding SPHC's 7.95% Timber Collateralized
Notes due 2015 (incorporated herein by reference to
Exhibit 4.1 to SPHC's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, File No.
55538; the "SPHC 1993 Form 10-K")
4.4 Revolving Credit Agreement dated as of June 23, 1993
between Pacific Lumber and Bank of America National
Trust and Savings Association (incorporated herein by
reference to Exhibit 4.19 to Amendment No. 6 to the
Company's Registration Statement on Form S-2,
Registration No. 33-64042; the "MGI Registration
Statement")
4.5 Letter Amendment to the Pacific Lumber Revolving
Credit Agreement, dated October 5, 1993 (incorporated
herein by reference to Exhibit 4.1 to Pacific Lumber's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, File No. 1-9204)
Note: Pursuant to Regulation Section 229.601, Item 601
(b)(4)(iii) of Regulation S-K, upon request of the
Securities and Exchange Commission, the Company hereby
agrees to furnish a copy of any unfiled instrument
which defines the rights of holders of long-term debt
of the Company and its consolidated subsidiaries (and
for any of its unconsolidated subsidiaries for which
financial statements are required to be filed) wherein
the total amount of securities authorized thereunder
does not exceed 10 percent of the total consolidated
assets of the Company
10.1 Tax Allocation Agreement between the Company and
MAXXAM Inc. dated August 4, 1993 (incorporated herein
by reference to Exhibit 10.6 to the MGI Registration
Statement)
10.2 Tax Allocation Agreement dated as of May 21, 1988
among MAXXAM Inc., the Company, Pacific Lumber and the
corporations signatory thereto (incorporated herein by
reference to Exhibit 10.8 to Pacific Lumber's Annual
Report on Form 10-K for the fiscal year ended December
31, 1988, File No. 1-9204)
10.3 Tax Allocation Agreement among Pacific Lumber, SPHC,
Salmon Creek Corporation and MAXXAM Inc. dated March
23, 1993 (incorporated herein by reference to Exhibit
10.1 to Amendment No. 3 to the Form S-1 Registration
Statement of SPHC, Registration No. 33-55538)
*10.4 Tax Allocation Agreement between MAXXAM Inc. and Britt
Lumber Co., Inc., dated as of July 3, 1990
10.5 Agreement dated December 20, 1985 between Pacific
Lumber and General Electric Company (incorporated
herein by reference to Exhibit 10(m) to Pacific
Lumber's Registration Statement on Form S-1,
Registration No. 33-5549; the "1985 GE Agreement")
10.6 Amendment No. 1 to Agreement between Pacific Lumber
and General Electric Company dated July 29, 1986
relating to the 1985 GE Agreement (incorporated herein
by reference to Exhibit 10.4 to Pacific Lumber's
Annual Report on Form 10-K for the year ended December
31, 1988, File No. 1-9204)
10.7 Power Purchase Agreement dated January 17, 1986
between Pacific Lumber and Pacific Gas and Electric
Company (incorporated herein by reference to Exhibit
10(n) to Pacific Lumber's Registration Statement on
Form S-1, Registration No. 33-5549)
10.8 Deed of Trust, Security Agreement, Financing
Statement, Fixture Filing and Assignment among SPHC,
The First National Bank of Boston, as Trustee, and The
First National Bank of Boston, as the Collateral Agent
(incorporated herein by reference to Exhibit 4.2 to
the SPHC 1993 Form 10-K)
10.9 Master Purchase Agreement between Pacific Lumber and
SPHC (incorporated herein by reference to Exhibit 10.1
to the SPHC 1993 Form 10-K)
10.10 Services Agreement between Pacific Lumber and SPHC
(incorporated herein by reference to Exhibit 10.2 to
the SPHC 1993 Form 10-K)
10.11 Additional Services Agreement between Pacific Lumber
and SPHC (incorporated herein by reference to Exhibit
10.3 to the SPHC 1993 Form 10-K)
10.12 Reciprocal Rights Agreement among Pacific Lumber, SPHC
and Salmon Creek Corporation (incorporated herein by
reference to Exhibit 10.4 to the SPHC 1993 Form 10-K)
10.13 Environmental Indemnification Agreement between
Pacific Lumber and SPHC (incorporated herein by
reference to Exhibit 10.5 to the SPHC 1993 Form 10-K)
10.14 Transfer Agreement between Pacific Lumber and SPHC
(incorporated herein by reference to Exhibit 10.6 to
the SPHC 1993 Form 10-K)
10.15 Grant Deed from Pacific Lumber to SPHC (incorporated
herein by reference to Exhibit 10.7 to the SPHC 1993
Form 10-K)
10.16 Bill of Sale and General Assignment from Pacific
Lumber to SPHC (incorporated herein by reference to
Exhibit 10.8 to the SPHC 1993 Form 10-K)
10.17 Purchase and Services Agreement between Pacific Lumber
and Britt Lumber Co., Inc. (incorporated herein by
reference to Exhibit 10.17 to Amendment No. 2 to the
Form S-2 Registration Statement of Pacific Lumber;
Registration Statement No. 33-56332)
10.18 Put and Call Agreement dated November 16, 1987 between
Charles E. Hurwitz and MPI (incorporated herein by
reference to Exhibit C to Schedule 13D dated November
24, 1987, filed by the Company with respect to MAXXAM
Inc.'s common stock; the "Put and Call Agreement")
10.19 Amendment to Put and Call Agreement, dated May 18,
1988 (incorporated herein by reference to Exhibit D to
the Final Amendment to Schedule 13D dated May 20,
1988, filed by the Company relating to MAXXAM Inc.'s
common stock)
10.20 Amendment to Put and Call Agreement, dated as of
February 17, 1989 (incorporated herein by reference to
Exhibit 10.35 to MAXXAM Inc.'s Annual Report on Form
10-K for the year ended December 31, 1988, File No.
1-3924)
10.21 Unconditional Guarantee of Payment and Performance
dated June 17, 1991, by the Company and MAXXAM Inc. to
and for the benefit of General Electric Capital
Corporation ("GECC") (incorporated herein by reference
to Exhibit 10(ee) to Amendment No. 4 to MGI's
Registration Statement on Form S-4 on Form S-2,
Registration No. 33-42300)
10.22 First Renewal, Extension and Modification Agreement,
dated as of June 17, 1992 among GECC, MXM Mortgage
Corp. and the Company (incorporated herein by
reference to Exhibit 4.3 to MAXXAM Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September
30, 1993, File No. 1-3924)
10.23 Loan Increase, Extension and Modification Agreement,
dated as of December 30, 1992, among GECC, MXM
Mortgage Corp. and MAXXAM Inc.(incorporated herein by
reference to Exhibit 4.23 to MAXXAM Inc.'s Annual
Report on Form 10-K for the fiscal year ended December
31, 1992, File No. 1-3924)
10.24 Consent and Assumption Agreement, dated as of December
10, 1993, among GECC, MXM Mortgage Corp., MXM Mortgage
L.P., the Company and MAXXAM Inc. (incorporated herein
by reference to MAXXAM Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1993, File
No. 1-3924)
10.25 Release and Termination of Unconditional Guarantee of
Payment and Performance, dated as of December 30,
1993, executed by GECC (incorporated herein by
reference to MAXXAM Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, File No.
1-3924)
10.26 Investment Management Agreement, dated as of December
1, 1991, by and among the Company, MAXXAM Inc. and
certain related corporations (incorporated herein by
reference to Exhibit 10.23 to Amendment No. 5 to the
MGI Registration)
*10.27 Undertaking, dated August 4, 1993, executed by MAXXAM
in favor of the Company
*99 The consolidated financial statements and notes thereto of
Kaiser Aluminum Corporation for the fiscal year ended
December 31, 1993
--------------------
<FN>
* Included with this filing.
</TABLE>
MAXXAM GROUP INC.
$126,720,000 12 1/4% Senior Secured Discount Notes due 2003
$100,000,000 11 1/4% Senior Secured Notes due 2003
____________________
INDENTURE
Dated as of August 4, 1993
____________________
Shawmut Bank, N.A.
Trustee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE 1
Definitions and Incorporation by Reference
<S> <C> <C>
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Definitions . . . . . . . . . . . . . . . . . 30
SECTION 1.03. Incorporation by Reference of Trust Indenture Act . 32
SECTION 1.04. Rules of Construction . . . . . . . . . . . . . . . 33
<CAPTION>
ARTICLE 2
The Securities
<S> <C> <C>
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . . . . 33
SECTION 2.02. Execution and Authentication . . . . . . . . . . . . 34
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . 35
SECTION 2.04. Paying Agent to Hold Money in Trust . . . . . . . . 36
SECTION 2.05. Securityholder Lists . . . . . . . . . . . . . . . . 36
SECTION 2.06. Transfer and Exchange . . . . . . . . . . . . . . . 36
SECTION 2.07. Replacement Securities . . . . . . . . . . . . . . . 37
SECTION 2.08. Outstanding Securities . . . . . . . . . . . . . . . 38
SECTION 2.09. Temporary Securities . . . . . . . . . . . . . . . . 38
SECTION 2.10. Cancellation . . . . . . . . . . . . . . . . . . . . 39
SECTION 2.11. Defaulted Interest . . . . . . . . . . . . . . . . . 39
SECTION 2.12. CUSIP Numbers . . . . . . . . . . . . . . . . . . . 39
<CAPTION>
ARTICLE 3
Redemption
<S> <C> <C>
SECTION 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . 41
SECTION 3.02. Selection of Securities to be Redeemed . . . . . . . 41
SECTION 3.03. Notice of Redemption . . . . . . . . . . . . . . . . 41
SECTION 3.04. Effect of Notice of Redemption . . . . . . . . . . . 43
SECTION 3.05. Deposit of Redemption Price . . . . . . . . . . . . 43
SECTION 3.06. Securities Redeemed in Part . . . . . . . . . . . . 43
<PAGE>
SECTION 3.07. Cancellation of Redeemed Securities . . . . . . . . 44
SECTION 3.08. No Repurchase Restrictions . . . . . . . . . . . . . 44
<CAPTION>
ARTICLE 4
Covenants
<S> <C> <C>
SECTION 4.01. Payment of Securities . . . . . . . . . . . . . . . 44
SECTION 4.02. SEC Reports . . . . . . . . . . . . . . . . . . . . 45
SECTION 4.03. Limitation on Indebtedness . . . . . . . . . . . . . 45
SECTION 4.04. Limitation on Restricted Payments . . . . . . . . . 49
SECTION 4.05. Ownership of Capital Stock of Subsidiaries . . . . . 52
SECTION 4.06. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries . . . . . . . . . . . . . . . 53
SECTION 4.07. Limitation on Asset Sales . . . . . . . . . . . . . 56
SECTION 4.08. Limitation on Transactions with Affiliates . . . . . 63
SECTION 4.09. Change of Control . . . . . . . . . . . . . . . . . 64
SECTION 4.10. Limitation on Liens . . . . . . . . . . . . . . . . 69
SECTION 4.11. Amendment of Scotia Pacific Agreements . . . . . . . 72
SECTION 4.12. Compliance Certificate . . . . . . . . . . . . . . . 72
SECTION 4.13. Use of Proceeds . . . . . . . . . . . . . . . . . . 72
SECTION 4.14. Corporate Existence . . . . . . . . . . . . . . . . 72
SECTION 4.15. Limitation on Status as Investment Company . . . . . 73
SECTION 4.16. Limitation on Liens on Pledged Shares . . . . . . . 73
SECTION 4.17. Declaration and Payment of Dividends by Pacific Lumber
and Britt . . . . . . . . . . . . . . . . . . . . . 73
<CAPTION>
ARTICLE 5
Successor Company
<S> <C> <C>
SECTION 5.01. When Company May Merge or Transfer Assets . . . . . 74
<PAGE>
<CAPTION>
ARTICLE 6
Defaults and Remedies
<S> <C> <C>
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . 76
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . 78
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . 79
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . 79
SECTION 6.05. Control by Majority . . . . . . . . . . . . . . . . 79
SECTION 6.06. Limitation on Suits . . . . . . . . . . . . . . . . 80
SECTION 6.07. Rights of Holders to Receive Payment . . . . . . . . 81
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . 81
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . 81
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . 82
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . 82
SECTION 6.12. Waiver of Stay or Extension Laws . . . . . . . . . . 83
SECTION 6.13. Restoration of Rights and Remedies . . . . . . . . . 83
<CAPTION>
ARTICLE 7
Trustee
<S> <C> <C>
SECTION 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . 84
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . 85
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . 87
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . 87
SECTION 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . 87
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . 87
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . 87
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . 88
SECTION 7.09. Successor Trustee by Merger . . . . . . . . . . . . 90
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . 90
SECTION 7.11. Preferential Collection of Claims Against Company . 90
<PAGE>
<CAPTION>
ARTICLE 8
Discharge of Indenture
<S> <C> <C>
SECTION 8.01. Discharge of Liability on Securities; Defeasance . . 91
SECTION 8.02. Conditions to Defeasance . . . . . . . . . . . . . . 92
SECTION 8.03. Application of Trust Money . . . . . . . . . . . . . 93
SECTION 8.04. Repayment to Company . . . . . . . . . . . . . . . . 94
SECTION 8.05. Indemnity for Government Obligations . . . . . . . . 94
SECTION 8.06. Reinstatement . . . . . . . . . . . . . . . . . . . 94
<CAPTION>
ARTICLE 9
Amendments
<S> <C> <C>
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . 95
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . 95
SECTION 9.03. Compliance with Trust Indenture Act . . . . . . . . 97
SECTION 9.04. Revocation and Effect of Consents and Waivers . . . 97
SECTION 9.05. Notation on or Exchange of Securities . . . . . . . 98
SECTION 9.06. Trustee to Sign Amendments . . . . . . . . . . . . . 98
<CAPTION>
ARTICLE 10
Security
<S> <C> <C>
SECTION 10.01. Grants of Security Interests . . . . . . . . . . . . 98
SECTION 10.02. Pledged Shares . . . . . . . . . . . . . . . . . . 102
SECTION 10.03. Collateral Accounts . . . . . . . . . . . . . . . 108
SECTION 10.04. Further Assurances; Revisions of Exhibit C . . . . 114
SECTION 10.05. Release and Substitution of Collateral . . . . . . 115
SECTION 10.06. Trustee Appointed Attorney-in-Fact . . . . . . . . 128
SECTION 10.07. Trustee May Perform . . . . . . . . . . . . . . . 129
SECTION 10.08. Remedies Upon Event of Default . . . . . . . . . . 129
SECTION 10.09. Application of Proceeds . . . . . . . . . . . . . 131
<PAGE>
SECTION 10.10. Continuing Liens . . . . . . . . . . . . . . . . . 131
SECTION 10.11. Certificates and Opinions . . . . . . . . . . . . 132
SECTION 10.12. Representations and Warranties . . . . . . . . . . 132
SECTION 10.13. Certain Mergers, Consolidations, etc. Among the
Company, Pledged Companies and Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . 135
<CAPTION>
ARTICLE 11
Miscellaneous
<S> <C> <C>
SECTION 11.01. Trust Indenture Act Controls . . . . . . . . . . . 137
SECTION 11.02. Notices . . . . . . . . . . . . . . . . . . . . . 137
SECTION 11.03. Communication by Holders with Other Holders . . . 138
SECTION 11.04. Certificate and Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . . . 138
SECTION 11.05. Statements Required in Certificate or Opinion . . 139
SECTION 11.06. When Treasury Securities Disregarded . . . . . . . 139
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar . . . 139
SECTION 11.08. Legal Holidays . . . . . . . . . . . . . . . . . . 140
SECTION 11.09. Governing Law . . . . . . . . . . . . . . . . . . 140
SECTION 11.10. No Recourse Against Others . . . . . . . . . . . . 140
SECTION 11.11. Successors . . . . . . . . . . . . . . . . . . . . 141
SECTION 11.12. Severability . . . . . . . . . . . . . . . . . . . 141
SECTION 11.13. Multiple Originals . . . . . . . . . . . . . . . . 141
SECTION 11.14. Table of Contents; Headings . . . . . . . . . . . 141
SECTION 11.15. Benefits of Indenture . . . . . . . . . . . . . . 141
SECTION 11.16. No Challenge . . . . . . . . . . . . . . . . . . . 141
Exhibit A-1 - Form of Series A Security . . . . . . . . . . . A-1-1
Exhibit A-2 - Form of Series B Security . . . . . . . . . . . A-2-1
Exhibit B - Salmon Creek Property Legal Description . . . . . B-1
Exhibit C - Description of Pledged Shares . . . . . . . . . . C-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
------- ---------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NA
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08;
7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06;
11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02;
4.12;
11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05;
11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a) (last sentence) . . . . . . . . . . . . . . . . . . . . 11.06
(a)(l)(A) . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(l)(B) . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.04
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
<PAGE>
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
N.A. means Not Applicable.
<FN>
____________________
Note: This Cross-Reference Table shall not, for any purpose, be
deemed part of the Indenture.
</TABLE>
<PAGE>
INDENTURE dated as of August 4, 1993, between MAXXAM Group Inc.,
a Delaware corporation (the "Company"), and Shawmut Bank, N.A., a
national banking association, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the
Company's 12 1/4% Senior Secured Discount Notes due 2003 (the "Series
A Securities") and 11 1/4% Senior Secured Notes due 2003 (the "Series
B Securities" and, together with the Series A Securities, the "Securi-
ties"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Accreted Value" as of any date (the "Specified Date") means,
(A) with respect to each $1,000 principal amount at maturity of Series
A Securities:
(i) if the Specified Date is prior to August 1, 1998,
the sum of (a) the initial offering price of such Security and (b) the
portion of the original issue discount for such Security (which for
this purpose shall be deemed to be the excess of the principal amount
over such initial offering price) which shall be amortized with
respect to such Security to but not including such date, such original
issue discount to be so amortized at the rate of 12 1/4% per annum
using semiannual compounding of such rate on each February 1 and
August 1, commencing February 1, 1994, from and including the date of
issuance of such Security to but not including the date of
determination (the following table indicating the Accreted Value at
the semiannual compounding dates (each a "Semiannual Compounding
Date"), with respect to each $1,000 principal amount at maturity of
Series A Securities, as set forth below):
<PAGE>
<TABLE>
<CAPTION>
Accreted Value of
Semiannual Compounding Date Series A Securities
--------------------------- --------------------
<C> <C>
February 1, 1994 $585.65
August 1, 1994 621.52
February 1, 1995 659.59
August 1, 1995 699.99
February 1, 1996 742.87
August 1, 1996 788.37
February 1, 1997 836.66
August 1, 1997 887.90
February 1, 1998 942.29
</TABLE>
and (ii) if the Specified Date is on or after August 1, 1998,
$1,000.00 and (B) with respect to each $1,000 principal amount of
Series B Securities, at all times, $1,000.00.
"AFFILIATE" of any person means (i) any person who, directly or
indirectly, is in control of, is controlled by or is under common
control with such person and (ii) any person who is a director or
officer (A) of such person, (B) of any subsidiary of such person, or
(C) of any person described in clause (i) above, and shall be deemed
to include any joint venture, partnership or other person (other than
a Subsidiary of the Company) in which the Company and/or its
Subsidiaries have an equity ownership interest equal to or greater
than 5% and in which one or more Affiliates of the Company has a
direct or an indirect equity ownership interest in excess of 5% there-
in other than by virtue of the direct or indirect equity ownership in
such joint venture, partnership or other person held (in the
aggregate) by the Company and/or one or more of its Subsidiaries;
provided, however, that the term "Affiliate" shall not include (i) the
Company or (ii) any Subsidiary of the Company so long as no Affiliate
of the Company has a direct or indirect equity ownership interest
equal to or greater than 5% in such Subsidiary other than by virtue of
the direct or indirect equity ownership in such Subsidiary held (in
the aggregate) by the Company and/or one or more of its Subsidiaries.
For purposes of this definition, control of a person means the power,
direct or indirect, to direct or cause the direction of the management
and policies of such person whether by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. The fact that an Affiliate of a person is a partner of a
law firm that renders services to such
<PAGE>
person or its Affiliates does not mean that the law firm is an
Affiliate of such person.
"ASSET SALE" means any sale, transfer or other disposition
(including, without limitation, dispositions pursuant to any Taking,
merger, consolidation or sale and lease back transactions) after the
Issue Date by the Company or any of its Restricted Subsidiaries (other
than Scotia Pacific so long as there are any Timber Notes outstanding)
to any person other than to the Company or any of its Restricted
Subsidiaries of (i) any Capital Stock or other ownership interest of
any of the Company's Restricted Subsidiaries (including sales,
transfers or other dispositions by such Restricted Subsidiary of its
Capital Stock or other ownership interest) or (ii) any other assets
(other than any Capital Stock or ownership interests in any
Unrestricted Subsidiary) of the Company or any of its Restricted
Subsidiaries, other than sales, transfers or other dispositions of
assets in the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole; provided, however, that the
term Asset Sale shall not include (A) the sale, transfer or other
disposition of any assets or Capital Stock or other ownership interest
by the Company or its Restricted Subsidiaries if such transaction
would have been an Asset Sale in the absence of this clause (A) and
the gross proceeds thereof (exclusive of indemnities) do not exceed an
aggregate of $25,000,000 from and after the Issue Date (such proceeds,
to the extent non-cash, to be determined in good faith by the Board of
Directors), (B) the creation, incurrence, assumption or existence of
any Lien to the extent not prohibited by Section 4.10, (C) any of the
transactions governed by Section 5.01, (D) an exchange of assets,
provided, the assets received are to be used in the lines of business
of the Company or any of its Restricted Subsidiaries on the Issue Date
or reasonably related extensions of such lines and only to the extent
such exchange qualifies for non-recognition treatment under the Code,
(E) any transaction to the extent governed by Section 4.04 or Section
4.05 or (F) the sale, transfer or other disposition of Pledged Shares
to a person who is not an Affiliate of the Company or of non-money or
non-Cash Equivalent Collateral pursuant to and in compliance with
Section 10.05(b).
"AVERAGE LIFE" means, as of the date of determination, with
respect to any Indebtedness, the quotient obtained by dividing (i) the
sum of the products of the
<PAGE>
numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness multiplied
by the amount of such principal payment by (ii) the sum of all such
principal payments.
"BANK DEBTS" means any and all amounts payable under or in
respect of the Credit Agreement, including principal, premium (if
any), interest, fees, charges, expenses, reimbursement obligations,
guaranties, indemnities and all other amounts payable thereunder or in
respect thereof.
"BERING AGREEMENT" means the investment management agreement,
effective as of December 1, 1991, between Bering Holdings Inc. and
each of MAXXAM, the Company, MPI and Pacific Lumber, as amended,
supplemented or otherwise modified from time to time.
"BOARD OF DIRECTORS" means the Board of Directors of the Company
or any committee thereof duly authorized to act on behalf of such
Board.
"BRITT" means Britt Lumber Co., Inc., a California corporation
and any successor Restricted Subsidiary pursuant to a transaction
governed by and in accordance with Section 10.13.
"BUSINESS DAY" means each day that is not a Legal Holiday.
"CALL PRICE" means, expressed as a percentage of Accreted
Value, 110%.
"CAPITAL LEASE OBLIGATIONS" of any person means, as of any date
of determination, any obligation that is required to be classified and
accounted for as a capital lease on the face of a balance sheet of
such person prepared in accordance with GAAP as of such determination
date (it being understood that the Capital Lease Obligations of the
Company shall not include any such obligations attributable to any
Unrestricted Subsidiary as of any determination date); the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the stated maturity thereof shall be the
date of the last payment of rent or any other amount due under such
lease prior to the first date
<PAGE>
upon which such lease may be terminated by the lessee without payment
of a penalty.
"CAPITAL STOCK" of any person means any and all shares,
interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) corporate
stock of such person, including any Preferred Stock of such person but
excluding any Redeemable Stock of such person.
"CASH EQUIVALENTS" means (1) when used in respect of any Trust
Moneys (i) any evidence of any obligation issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided, that the full faith and credit of
the United States of America is pledged in support thereof); (ii)
demand or time deposits with, and certificates of deposit or
acceptances issued by, any bank or trust company organized under the
laws of the United States of America or any State thereof (including
the Trustee) whose unsecured, unguaranteed, long-term debt obligations
are rated "A" by Standard & Poor's Corporation ("S&P") and "A2" by
Moody's Investors Service, Inc. ("Moody's") or higher, or whose
unsecured, unguaranteed commercial paper obligations are rated "A-2"
by S&P and "P-2" by Moody's or higher; (iii) repurchase agreements
entered into with entities whose unsecured, unguaranteed long-term
debt obligations are rated "A" by S&P and "A2" by Moody's or higher,
or whose unsecured, unguaranteed commercial paper obligations are
rated "A-2" by S&P and "P-2" by Moody's or higher, pursuant to a
written agreement with respect to any obligation described in clauses
(i), (ii) or (iv) of this clause (1); (iv) commercial paper (including
both noninterest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not later than
180 days from the date of acquisition thereof) and having a rating of
"A-2" by S&P and "P-2" by Moody's or higher; (v) direct obligations of
any money market fund or other similar investment company all of whose
investments consist primarily of obligations described in the
foregoing clauses of this definition and that is rated "AAm" by S&P
and "Aam" by Moody's or higher; (vi) adjustable rate preferred stock
that is rated "A" (or higher) by Moody's or S&P; (vii) taxable or
non-taxable auction rate securities which have interest rates reset on
periodic short term intervals (typically each 7, 14, 21, 28 or 49 days
via a Dutch auction process) and which at the time of
<PAGE>
purchase have been rated and the ratings for which (A) for direct
issues, must not be less than "P2" if rated by Moody's and not less
than "A2" if rated by S&P and (B) for collateralized issues which
follow the asset coverage tests set forth in the Investment Company
Act of 1940, as amended, must have long-term ratings of at least "AAA"
if rated by S&P and "Aaa" if rated by Moody's; or (viii) any
investments hereafter developed which are substantially comparable to
those described above in this clause (1); and (2) otherwise (i) any
evidence of any obligation issued or directly and fully guaranteed or
insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) (ii)
demand or time deposits with, and certificates of deposit or
acceptances issued by, any bank or trust company organized under the
laws of the United States of America or any state thereof (including
the Trustee) whose unsecured, unguaranteed long-term debt obligations
are rated "A" by Standard & Poor's Corporation ("S&P") and "A2" by
Moody's Investors Service, Inc. ("Moody's") or higher, or whose
unsecured, unguaranteed commercial paper obligations are rated "A-2"
by S&P and "P-2" by Moody's or higher; (iii) repurchase agreements
entered into with entities whose unsecured, unguaranteed long-term
debt obligations are rated "A" by S&P and "A2" by Moody's or higher,
or whose unsecured unguaranteed commercial paper obligations are rated
"A-2" by S&P and "P-2" by Moody's or higher, pursuant to a written
agreement with respect to any obligation described in clauses (i),
(ii) or (iv) of this clause (2); (iv) commercial paper (including both
noninterest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not later than
180 days from the date of acquisition thereof) and having a rating of
"A-2" by S&P and "P-2" by Moody's or higher; (v) direct obligations of
any money market fund or other similar investment company all of whose
investments consist primarily of obligations described in the
foregoing clauses of this definition and that is rated "AAm" by S&P
and "Aam" by Moody's or higher; (vi) taxable auction rate securities
commonly known as "money market notes" that at the time of purchase
have been rated and the ratings for which (A) for direct issues, must
not be less than "P2" if rated by Moody's and not less than "A2" if
rated by S&P, or (B) for collateralized issues which follow the asset
coverage tests set forth in the Investment Company Act of 1940, as
amended, must have long-term ratings of
<PAGE>
at least "AAA" if rated by S&P and "Aaa" if rated by Moody's; or (vii)
any investments hereafter developed which are substantially comparable
to those described above in this clause (2).
"CHANGE OF CONTROL" means the occurrence of any of the following
events: (i) MAXXAM, directly or indirectly, not having (other than by
reason of the existence of a Lien, but including by reason of the
foreclosure of or other realization upon a Lien) direct or indirect
sole beneficial ownership (as defined under Regulation 13d-3 of the
Exchange Act as in effect on the date of this Indenture) of at least
40% of the total common equity, on a fully diluted basis, of the
Company; provided, however, that such ownership by MAXXAM, directly or
indirectly, of 30% or greater, but less than 40% of the total common
equity, on a fully diluted basis, of the Company shall not be a Change
of Control if MAXXAM, through direct representation or through persons
nominated by it, controls a majority of the Board of Directors
necessary to effectuate any actions by the Board of Directors; and
provided, further, that the foregoing minimum percentages shall be
deemed not satisfied if any person or group shall, directly or
indirectly, own more of the total voting power entitled to vote
generally in the election of directors of the Company than MAXXAM; or
(ii) Charles Hurwitz, members of his immediate family and trusts for
the benefit thereof (each such person, including Mr. Hurwitz and any
trustee of such trusts being herein called a "Beneficiary") not having
(other than by reason of resolution of any litigation outstanding as
of the date of this Indenture, whether or not applicable, or any
similar litigation or the existence of a Lien but including by reason
of the foreclosure of or other realization upon a Lien) direct or
indirect sole beneficial ownership (as defined under Regulation 13d-3
of the Exchange Act as in effect on the date of this Indenture) of at
least the Minimum Percentage of the total equity of MAXXAM other than
as a result of new issuances of equity securities by MAXXAM to third
parties (other than to a third party who is not a Beneficiary and who
controls MAXXAM). Minimum Percentage means that percentage obtained
by multiplying (A) the percentage of the total equity of MAXXAM
directly or indirectly beneficially owned by the Beneficiaries as of
the date of this Indenture and (B) 80%.
"CODE" means the Internal Revenue Code of 1986, as amended (or
any successor statute thereto), and the
<PAGE>
regulations promulgated thereunder, all as in effect from time to
time.
"COLLATERAL" means, at any time of determination, all property
upon which a Lien exists at such time in favor of the Trustee for the
benefit of Holders pursuant to Articles 5 and 10, including pursuant
to instruments executed and delivered in compliance with Sections
5.01(i), 10.02(e) or 10.13.
"COLLATERAL DEFAULT" means a Default consisting of the Company's
failure to comply with any provision contained in Article 10 of this
Indenture which (i) either (A) results in an impairment of the
validity, perfection, or priority of the Lien of this Indenture with
respect to any portion of the Collateral having a fair market value in
excess of $1 million in the aggregate or (B) would be materially
adverse in any way to the Holders (any Default consisting of the
failure to make any offer required to be made pursuant to Article 10
being deemed, without limitation, material for this purpose) and (ii)
would constitute an Event of Default unless cured within the
applicable cure or grace period set forth in Section 6.01(3).
"COMMON STOCK" means the common stock, par value $.08-1/3 per
share, of the Company.
"COMPANY" means MAXXAM Group Inc., a Delaware corporation, and,
subject to the provisions of Article 5 hereof, shall mean its
successors and assigns; provided, however, that, for purposes of any
provision contained herein which is required by the TIA, "Company"
shall also mean each other obligor (if any) on the indenture securi-
ties.
"CONSOLIDATED CASH FLOW COVERAGE RATIO" of the Company means, as
of the date of the transaction giving rise to the need to calculate
the Consolidated Cash Flow Coverage Ratio (the "Transaction Date"),
the ratio of (i) the aggregate amount of EBITDA for the immediately
preceding four fiscal quarters for which financial information in
respect thereof is available immediately prior to the Transaction Date
to (ii) the aggregate Consolidated Interest Expense for the fiscal
quarter in which the Transaction Date occurs and to be accrued during
the three fiscal quarters immediately subsequent thereto (based upon
the pro forma amount of Indebtedness of the
<PAGE>
Company and its Restricted Subsidiaries reasonably expected by the
Company to be outstanding on the Transaction Date and thereafter other
than the Timber Notes), assuming for the purposes of this measurement
the continuation of market interest rates prevailing on the Trans-
action Date and base interest rates in respect of floating interest
rate obligations equal to the base interest rates on such obligations
in effect as of the Transaction Date; provided, that if the Company or
any of its Restricted Subsidiaries is a party to any Interest Rate
Protection Agreements which would have the effect of changing the
interest rate on any Indebtedness of the Company or any of its
Restricted Subsidiaries for such four quarter period (or a portion
thereof), the resulting rate shall be used for such four quarter
period or portion thereof; and provided, further, that any Consolidat-
ed Interest Expense with respect to Indebtedness Incurred or retired
by the Company or any of its Restricted Subsidiaries during the fiscal
quarter in which the Transaction Date occurs shall be calculated as if
such Indebtedness was so Incurred or retired on the first day of the
fiscal quarter in which the Transaction Date occurs; and provided,
further, that if, during the four fiscal quarters referred to in
clause (i) of this definition, (A) the Company or any of its
Restricted Subsidiaries shall have engaged in any Asset Sale, EBITDA
for such period shall be reduced by an amount equal to the EBITDA (if
positive), or increased by an amount equal to the EBITDA (if
negative), directly attributable to the assets which are the subject
of such Asset Sale calculated on a pro forma basis as if such Asset
Sale and any related retirement of Indebtedness had occurred on the
first day of such period or (B) the Company or any of its Restricted
Subsidiaries shall have acquired any material assets out of the
ordinary course of business, EBITDA shall be calculated on a pro forma
basis as if such asset acquisition and any related financing had
occurred on the first day of such period.
"CONSOLIDATED INCOME TAX EXPENSE" of the Company means (without
duplication), for any period, the aggregate of the income tax expense
(net of applicable credits) of the Company and its Subsidiaries for
such period, determined on a consolidated basis in accordance with
GAAP other than income taxes (including credits) with respect to items
of net income excluded from the definition of Consolidated Net Income.
<PAGE>
"CONSOLIDATED INTEREST EXPENSE" of the Company means, for any
period (without duplication), (i) the sum of (A) the interest expense
of the Company and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, (B) all fees, commissions,
discounts and other charges of the Company and its Subsidiaries with
respect to letters of credit and bankers' acceptances and the costs
(net of benefits) associated with Interest Rate Protection Agreements
for such period, determined on a consolidated basis in accordance with
GAAP, and (C) dividends declared on Redeemable Stock of the Company or
any Restricted Subsidiary held by persons other than the Company or a
Wholly Owned Restricted Subsidiary (other than dividends payable in
Capital Stock of the Company or pro rata dividends payable to all
stockholders of such class or series of Stock payable in Capital Stock
of any such Restricted Subsidiary), less (ii) the sum of (x), to the
extent included in clause (i) of this definition, any charge in
connection with the repurchase or redemption of the Old Securities
with respect to premiums paid in excess of the principal amount of the
Old Securities so repurchased or redeemed, and (y) the amortization or
write-off of deferred financing costs by the Company and its
Subsidiaries during such period, determined on a consolidated basis in
accordance with GAAP (including, without limitation, the amortization
of any unamortized deferred financing costs in connection with any
refinancing of the Credit Agreement and/or the repurchase or
redemption of the Old Securities); in the case of clauses (i) and (ii)
of this definition, without giving effect to any such items and
amounts attributable to any Unrestricted Subsidiary, or to Scotia
Pacific so long as any Timber Notes are outstanding, during such
period.
"CONSOLIDATED NET INCOME" of the Company means, for any period,
the aggregate net income (or net loss, as the case may be) of the
Company and its Subsidiaries for such period on a consolidated basis,
determined in accordance with GAAP ("GAAP Net Income"); provided that
(without duplication) there shall be excluded from GAAP Net Income (to
the extent otherwise included therein) (i) gains and losses (net of
applicable taxes) from Asset Sales or reserves relating thereto
(except any gain or loss on the sale of an Unrestricted Subsidiary);
(ii) items classified as extraordinary and gains and losses from
discontinued operations; (iii) the net income (or loss) of (A) any
Unrestricted Subsidiary or (B) any per-
<PAGE>
son that is not a Subsidiary of the Company or that is accounted for
on the equity method of accounting, provided, that in each case the
amount of dividends or other distributions actually paid to the
Company or any of its Restricted Subsidiaries (other than Salmon Creek
Distributions) during such period shall be added to Consolidated Net
Income (to the extent, in the case of clause (A), that the Company
elects to include such distributions in the computation of
Consolidated Net Income at the time of the computation thereof); (iv)
except to the extent includable pursuant to clause (iii) of this
definition, the net income (or loss) of any other person accrued or
attributable to any period prior to the date it becomes a Subsidiary
of the Company or is merged into or consolidated with the Company or
any of its Subsidiaries or such other person's property (or a portion
thereof) is acquired by the Company or any of its Subsidiaries; (v)
the net income (or loss) of any Restricted Subsidiary during such
period if the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary to the Company of any such
net income is not at the time permitted by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order,
statute, rule or government regulation applicable to such Restricted
Subsidiary, provided, that the amount of dividends or other
distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Restricted Subsidiary (other than Salmon Creek
Distributions) shall be added to Consolidated Net Income during such
period; and (vi) any property or cash transferred or to be transferred
in the Transactions; provided, further, that there shall be excluded
from Consolidated Net Income, to the extent otherwise included
therein, the amount of dividends and distributions made with the net
proceeds of any Equity Offering by any Subsidiary of the Company;
provided, further, that there shall be included in Consolidated Net
Income the fair market value (as determined in good faith by the Board
of Directors, whose determination shall be evidenced by a resolution
of the Board of Directors filed with the Trustee) in excess of $62
million of Salmon Creek Distributions received by the Company or any
of its Restricted Subsidiaries from Pacific Lumber; provided that, to
the extent that any dividends or distributions shall be permitted (and
shall be made) by the Company pursuant to Section 4.04(a) as a result
of the inclusion of amounts in Consolidated Net Income pursuant to
this proviso, (i) such dividends or distributions (to the extent made
in cash) shall not exceed 50% of the amount
<PAGE>
of cash received (including any cash realization of any non-cash
proceeds of any Salmon Creek Distribution, but, in each case, only as,
when, and to the extent, received by the Company or any of its
Restricted Subsidiaries (other than Pacific Lumber and its Restricted
Subsidiaries)) by the Company and/or its Restricted Subsidiaries in
respect of Salmon Creek Distributions from Pacific Lumber, and (ii)
such dividends or distributions (to the extent made in kind with
property received by the Company and/or its Restricted Subsidiaries in
a Salmon Creek Distribution from Pacific Lumber) shall be valued at
fair market value (as determined in good faith by the Board of
Directors, whose determination shall be evidenced by a resolution of
the Board of Directors filed with the Trustee, except to the extent
the fair market value exceeds $10 million, in which case such
determination shall be made by an investment banking firm with capital
of at least $250 million or a nationally recognized appraiser or other
expert selected by the Company whose opinion shall be delivered, and
shall be acceptable, to the Trustee).
"CREDIT AGREEMENT" means the agreement dated June 23, 1993,
between Bank of America, National Trust and Savings Association and
Pacific Lumber, together with all related notes, letters of credit,
collateral documents and guarantees and any other related agreements
and instruments executed and delivered in connection therewith, in
each case, as amended, supplemented, restated, restructured, renewed,
extended, refinanced or otherwise modified, in whole or in part, from
time to time.
"DEED OF TRUST" means the Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Proceeds, dated
March 18, 1993, from Scotia Pacific to the Deed of Trust Trustee named
therein, for the benefit of the Collateral Agent named therein, as
amended, supplemented or otherwise modified from time to time.
"DEFAULT" means any event which is, or after notice or passage of
time or both would be, an Event of Default as specified in Section
6.01.
"EBITDA" of the Company means, for any period, the sum for such
period of Consolidated Net Income plus, to the extent reflected in the
income statement for such period from which Consolidated Net Income is
determined,
<PAGE>
without duplication, (i) Consolidated Interest Expense, (ii)
Consolidated Income Tax Expense, (iii) depreciation and depletion
expense, (iv) amortization expense (including amortization of deferred
financing costs), and (v) any charge related to any premium or penalty
paid in connection with redeeming or retiring any Indebtedness prior
to its stated maturity; (A) in the case of clauses (iii), (iv) and (v)
of this definition, of the Company and its Subsidiaries determined on
a consolidated basis in accordance with GAAP for such period, but
without giving effect to any such items and amounts attributable to
any Unrestricted Subsidiary during such period or to Scotia Pacific so
long as any Timber Notes are outstanding, and (B) in the case of
clauses (iv) and (v) of this definition, excluding the amounts thereof
excluded from the definition of "Consolidated Interest Expense" pursu-
ant to clause (ii) of such definition.
"EQUITY OFFERING" means any sale, public or private, of equity
securities of any person.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended (or any successor statute thereto), and the rules and
regulations promulgated thereunder.
"EXEMPT DISTRIBUTIONS" means any and all dividends, cash,
instruments and other property and proceeds received, receivable or
otherwise distributed on any of the Pledged Shares other than: (i) any
liquidating dividend or other liquidating distribution or other
similar extraordinary dividend or distribution; (ii) any dividend or
other distribution on Pledged Shares that constitute Stock of Pacific
Lumber (or its permitted successor pursuant to Section 10.13) if the
amount of all dividends and other distributions on the Stock of
Pacific Lumber made on or after the Issue Date to and including the
date of such
<PAGE>
dividend or other distribution on such Pledged Shares (exclusive of
amounts referred to in clauses (v), (vi) and (vii) below) exceeds the
sum of 100% of the consolidated net income of Pacific Lumber plus 100%
of the consolidated depletion expense of Pacific Lumber, each
determined in accordance with GAAP, accrued on a cumulative basis
subsequent to September 30, 1993; (iii) any dividend or other
distribution on Pledged Kaiser Shares if the amount of all dividends
and other distributions on the common stock of Kaiser made on or after
the Issue Date to and including the date of such dividend or other
distribution on such Pledged Kaiser Shares (exclusive of amounts
referred to in clauses (v), (vi) and (vii) below) made on or after the
Issue Date exceeds 100% of the consolidated net income of Kaiser
determined in accordance with GAAP, accrued on a cumulative basis
subsequent to September 30, 1993; (iv) any dividend or other
distribution on Pledged Shares that constitute Stock of Britt made in
any fiscal year if the amount of all dividends and other distributions
on the Stock of Britt made during such fiscal year to and including
the date of such dividend or other distribution on such Pledged Shares
(exclusive of amounts referred to in clauses (v), (vi) and (vii)
below) exceeds 100% of the consolidated net income, determined in
accordance with GAAP, of Britt during the prior fiscal year; (v) any
Salmon Creek Distribution and any property or cash transferred or to
be transferred in the Transactions; (vi) any dividend or other
distribution consisting of proceeds of any Primary Share Sale by a
Pledged Company or Kaiser or proceeds of any Pledged Share Sale; and
(vii) any dividend or other distribution of proceeds of a transaction
effected pursuant to and in accordance with Sections 10.05(c)(2) or
10.13. Notwithstanding the foregoing, any dividend or other
distribution made on any Pledged Shares of a Pledged Company and
received by the Company or MPI during any fiscal year shall be an
Exempt Distribution if such dividend or distribution, together with
all other dividends and other distributions previously so made during
such fiscal year (exclusive of amounts referred to in clauses (v),
(vi) and (vii) above), does not exceed 120% of the interest that has
become payable or is to become payable on the Securities during such
year.
"EXTRAORDINARY DISTRIBUTION" means any and all dividends, cash,
instruments and other property and proceeds received, receivable or
otherwise distributed on any Pledged Shares other than: (i) an Exempt
Distribution; (ii) any Salmon Creek Distribution and any property or
cash transferred or to be transferred in the Transactions; (iii) any
dividend or other distribution consisting of proceeds of any Primary
Share Sale by a Pledged Company or Kaiser or proceeds of any Pledged
Share Sale; and (iv) any dividend or other distribution of proceeds of
a transaction effected pursuant to and in accordance with Section
10.05(c)(2) or 10.13.
<PAGE>
"GAAP" means, at any date, generally accepted accounting
principles as in effect on December 31, 1992, and used in the
preparation of the Company's consolidated balance sheet at such date
and the Company's statements of consolidated income and cash flows for
the year then ended, but (A) in any event giving effect to Statement
of Financial Accounting Standards No. 115 (Accounting for Certain
Investments in Debt and Equity Securities) but (B) excluding the
effect of any one-time charges related to the implementation of,
Statement of Financial Accounting Standards No. 106 (Employers'
Accounting for Postretirement Benefits Other than Pensions) and
Statement of Financial Accounting Standards No. 109 (Accounting for
Income Taxes).
"HOLDER" OR "SECURITYHOLDER" means the person in whose name a
Security is registered on the Registrar's books.
"INDEBTEDNESS" of any person means, at any date, any of the
following (without duplication): (i) the principal amount of all
obligations (unconditional or contingent) of such person for borrowed
money (whether or not there is recourse to the whole of the assets of
such person or only to a portion thereof) and the principal amount of
all obligations (unconditional or contingent) of such person evidenced
by debentures, notes or other similar instruments (including, without
limitation, reimbursement obligations with respect to letters of
credit (except to the extent collateralized by cash or Cash
Equivalents), performance bonds (except to the extent collateralized
by cash or Cash Equivalents) and bankers' acceptances (except to the
extent collateralized by cash or Cash Equivalents)); (ii) all
obligations of such person to pay the deferred purchase price of
property or services, except (A) accounts payable and other current
liabilities arising in the ordinary course of business and (B)
compensation, pension obligations and other obligations arising from
employee benefits and employee arrangements; (iii) Capital Lease
Obligations of such person; (iv) all Indebtedness of others secured by
a Lien on any asset of such person whether or not such Indebtedness is
assumed or guaranteed by such person; (v) all Indebtedness of others
guaranteed by such person; and (vi) all Redeemable Stock, valued at
the greater of its voluntary or involuntary maximum fixed repurchase
price (or its stated liquidation value in the case of Preferred Stock
that is not by its terms redeemable)
<PAGE>
exclusive of accrued and unpaid dividends; and the amounts thereof
shall be the outstanding balance of any such unconditional obligations
as described in clauses (i) through (v) (other than clause (iv)), and
the maximum liability of any such contingent obligations at such date
as described in clauses (i) through (v) (other than with respect to
clause (iv)) and, in the case of clause (iv), the lesser of the fair
value (as determined by the Board of Directors) at such date of any
asset subject to any Lien securing the Indebtedness of others and the
principal amount of the Indebtedness secured; provided, that the
Indebtedness of any person shall not include (x) obligations of such
person arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business,
provided, that such obligations are extinguished within two Business
Days after their Incurrence and (y) obligations of such person
resulting from the endorsement of negotiable instruments in the
ordinary course of business. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of
such Redeemable Stock as if such Redeemable Stock were purchased on
any date on which Indebtedness is required to be determined pursuant
to this Indenture, and if such price is based upon, or measured by,
the fair market value of such Redeemable Stock, such fair market value
shall be determined in good faith by the board of directors of the
issuer of such Redeemable Stock.
"INDENTURE" means this Indenture as amended, supplemented or
otherwise modified from time to time in accordance with the terms
hereof.
"INTEREST PAYMENT DEFAULT" means a default in the payment of
interest when due and payable on any of the Securities which would
constitute an Event of Default if such payment were not made within
the applicable cure or grace period pursuant to Section 6.01(1).
"INTEREST RATE PROTECTION AGREEMENT" means any interest rate swap
agreement, interest rate cap agreement, currency swap agreement or
other financial agreement or arrangement designed to protect the
Company or any Subsidiary of the Company against fluctuations in
interest rates or currency exchange rates, as in effect from time to
time.
<PAGE>
"INVESTMENT" means with respect to any person (such person being
referred to in this definition as the "Investor") (without
duplication), (i) any amount paid or any property transferred, in each
case, directly or indirectly, by the Investor for Capital Stock or
Redeemable Stock, partnership interests or other securities of, or as
a contribution to the capital of any other person, (ii) any direct or
indirect loan or advance by the Investor to any other person other
than accounts receivable of the Investor relating to the purchase and
sale of property or services arising in the ordinary course of busi-
ness, and (iii) any direct or indirect guarantee by the Investor of
any Indebtedness of any other person.
"ISSUE DATE" means August 4, 1993.
"KAISER" means Kaiser Aluminum Corporation, a Delaware
corporation, and any successor pursuant to a transaction governed by
and in accordance with Section 10.05(c)(2).
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which
banking institutions are not required by applicable law to be open in
the States of New York, California, Massachusetts and Texas.
"LIEN" means, with respect to any asset, any lien, mortgage,
pledge, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention agreement and
any lease in the nature thereof) in respect of such asset.
"MAXXAM" means MAXXAM Inc., a Delaware corporation, and any
successor corporation, by way of merger, consolidation, purchase of
all or substantially all of its assets, or otherwise.
"MONEY" or "U.S. LEGAL TENDER" means such coin or currency of the
United States of America as at the time of payment is legal tender for
the payment of public and private debts.
"MPI" means MAXXAM Properties Inc., a Delaware corporation, and
any successor Restricted Subsidiary pursuant to a transaction governed
by and in accordance with Section 10.13.
<PAGE>
"MXM GUARANTY" means the Unconditional Guarantee of Payment and
Performance, dated June 17, 1991, to General Electric Capital Corp. by
MAXXAM and the Company, as amended by agreement, dated as of June 17,
1992 and December 30, 1992, as amended, supplemented or otherwise
modified from time to time in a manner that is not materially adverse
to Holders.
"NET CASH PROCEEDS" means cash payments received (but if received
in a currency other than United States dollars, such payments shall
not be deemed received until the earliest time at which such currency
is converted into United States dollars) by the Company and/or any of
its Restricted Subsidiaries (including any cash payments received by
way of deferred payment of principal pursuant to a note or installment
receivable or otherwise, or the cash realization of any non-cash pro-
ceeds of any Asset Sale, but, in each case, only as and when, and to
the extent, received by the Company or any of its Restricted
Subsidiaries) from an Asset Sale, in each case and without
duplication, net of (i) fees, expenses and other expenditures in
connection with such Asset Sale (whether or not such fees, expenses or
expenditures are then due and payable or made, as the case may be),
(ii) the amounts paid to repurchase or repay any Indebtedness, or the
amount of any Indebtedness assumed, in each case which Indebtedness is
either (A) secured, directly or indirectly, by Liens on the assets
which are the subject of such Asset Sale or (B) associated with such
assets and due in connection with such Asset Sale, and other fees,
expenses and other expenditures, in each case, incurred in connection
with such Asset Sale or the repurchase, repayment or assumption of
such Indebtedness (whether or not such fees, expenses or expenditures
are then due and payable), (iii) all amounts deemed appropriate by the
Company (as evidenced by a signed certificate of the Treasurer or
Assistant Treasurer of the Company delivered to the Trustee) to be
provided as a reserve, in accordance with GAAP, against any
liabilities associated with such assets which are the subject of such
Asset Sale, (iv) all foreign, federal, state and local taxes payable
(including taxes reasonably estimated to be payable) in connection
with or as a result of such Asset Sale, (v) with respect to any Asset
Sale by a Restricted Subsidiary of the Company or any Primary Share
Sale, the portion of such cash payments required to be paid to persons
holding a minority interest in such Restricted Subsidiary and (vi) if
such Asset Sale is a Primary Share
<PAGE>
Sale by any Pledged Company, any of the proceeds of such Primary Share
Sale that are distributed by the issuer in such Primary Share Sale to
its stockholders; provided, in each such case, such fees, expenses,
expenditures and other amounts are not payable to an Affiliate of the
Company.
"NET PROCEEDS" means any property, assets or other consideration
of any kind, whether tangible or intangible, received by the Company
and/or any of its Restricted Subsidiaries from any Primary Share Sale
by, or from any Pledged Share Sale of any of the Pledged Shares of,
any Pledged Company, or received by MAXXAM from any Primary Share Sale
by, or from any Pledged Share Sale of any of the Pledged Shares of,
Kaiser, in each case and without duplication, net of (i) fees,
expenses and other expenditures in connection with such Primary Share
Sale or Pledged Share Sale (whether or not such fees, expenses or
expenditures are then due and payable or made, as the case may be),
(ii) the amounts paid to repurchase or repay any Indebtedness, or the
amount of any Indebtedness assumed, in each case which Indebtedness is
either (A) secured, directly or indirectly, by Liens on the assets
which are the subject of such Primary Share Sale or Pledged Share Sale
or (B) associated with such assets and due in connection with such
Primary Share Sale or Pledged Share Sale, and other fees, expenses and
other expenditures, in each case, incurred in connection with such
Primary Share Sale or Pledged Share Sale or the repurchase, repayment
or assumption of such Indebtedness (whether or not such fees, expenses
or expenditures are then due and payable), (iii) all amounts deemed
appropriate by the Company (as evidenced by a signed certificate of
the Treasurer or an Assistant Treasurer of the Company delivered to
the Trustee) to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such shares which are the
subject of such Primary Share Sale or Pledged Share Sale, (iv) all
foreign, federal, state and local taxes payable (including taxes
reasonably estimated to be payable) in connection with or as a result
of such Primary Share Sale or Pledged Share Sale, (v) with respect to
any Primary Share Sale by a Pledged Company or by Kaiser, the portion
of Net Proceeds required to be paid to persons holding Stock in such
Pledged Company or in Kaiser, as the case may be, that is not required
to be Pledged Shares and (vi) in the case of a Primary Share Sale that
is an Asset Sale, any of the proceeds from such Asset Sale that are
applied as de-
<PAGE>
scribed in clauses (i) and (ii) of the definition of"Asset Sale Offer
Amount" (without theretofore having been distributed on any Pledged
Shares) within 360 days following the consummation of such Asset Sale;
provided, in each such case, such fees, expenses, expenditures and
other amounts are not payable to an Affiliate of the Company; and
provided, further, that, if other than cash, Net Proceeds shall have
as their value for purposes of this Indenture their fair value as
reasonably- determined by the Board of Directors.
"NOTICE OF ACCELERATION" means a written notice delivered during
the continuance of an Event of Default to the Company by the Trustee
or by the Holders of at least 25% in aggregate Accreted Value of the
Securities then outstanding, stating that an Event of Default has
occurred and is continuing and that the Accreted Value of and accrued
and unpaid interest, if any, on all of the Securities are due and
payable; provided that a Notice of Acceleration shall be deemed to
have been delivered and to be effective for all purposes under Article
10 of this Indenture upon the occurrence and during the continuance of
an event with respect to the Company specified in Section 6.01(5) or
(6).
"OFFICER" means the Chairman of the Board, the President, any
Vice President, the Chief Financial Officer, the Treasurer, an
Assistant Treasurer, the Secretary, or an Assistant Secretary of the
Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two
Officers.
"OLD SECURITIES" means the 12-3/4% Notes due November 15, 1995,
of the Company, issued and outstanding pursuant to the indenture dated
as of November 1, 1991, by and between the Company and First Trust
National Association, as trustee.
"OPINION OF COUNSEL" means a written opinion from legal counsel
who is reasonably acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company or the Trustee, as the case may
be.
"PACIFIC LUMBER" means The Pacific Lumber Company, a Delaware
corporation, and any successor Restricted Subsidiary pursuant to a
transaction governed by and in accordance with Section 10.13.
<PAGE>
"PACIFIC LUMBER INDENTURE" means the indenture, dated March 23,
1993, between Pacific Lumber and The First National Bank of Boston, as
trustee, pursuant to which the Pacific Lumber Senior Notes were
issued, as amended, supplemented or otherwise modified, or, in ac-
cordance with and subject to the provisions of Section 4.03(c),
restated, restructured, renewed or refinanced in whole or in part from
time to time.
"PACIFIC LUMBER SENIOR NOTES" means the debt securities
outstanding pursuant to, and whose terms are governed by, the Pacific
Lumber Indenture.
"PERSON" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint-stock company,
trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"PLEDGED COMPANY" means (i) Pacific Lumber, Britt and MPI, in
each case until such time as such corporation merges or consolidates
into, or transfers all of its assets to, the Company or another
Restricted Subsidiary in a transaction pursuant to and in accordance
with Section 10.13 and (ii) any such other Restricted Subsidiary into
which any Pledged Company merges or consolidates, or to which any
Pledged Company transfers all or substantially all of its assets, in a
transaction pursuant to and in accordance with Section 10.13, until
such time as such other Restricted Subsidiary merges or consolidates
into, or transfers all of its assets to, the Company or another
Restricted Subsidiary of the Company in a transaction pursuant to and
in accordance with Section 10.13.
"PLEDGED KAISER SHARES" means, at any time, any shares of Common
Stock, par value $.01 per share, of Kaiser ("Kaiser Shares") included
in the Collateral at such time, and any securities or other property
substituted for Kaiser Shares pursuant to Section 10.05(c) included in
the Collateral at such time.
"PLEDGED SHARE SALE" means a sale to any person of Pledged Shares
other than (i) a sale in connection with a transaction pursuant to and
in accordance with Section 10.13, (ii) a sale in connection with a
transaction pursuant to and in accordance with Section 10.05(c)(2) or
(iii) a sale of Pledged Shares of a
<PAGE>
Pledged Company by the Company or one of its Subsidiaries to the
Company or any of its Subsidiaries, in which the purchaser becomes a
Pledgor with respect to such Pledged Shares pursuant to Article 10
hereof.
"PLEDGED SHARES" means, at any time, (i) any shares of Stock of
Pledged Companies that are included in the Collateral at such time and
(ii) any Pledged Kaiser Shares.
"PLEDGOR" means: (i) on the Issue Date, (A) MPI, with respect to
the Pledged Shares of Pacific Lumber and Britt, (B) the Company, with
respect to the Pledged Shares of MPI and (C) MAXXAM, with respect to
the Pledged Kaiser Shares; and (ii) at any other time, with respect to
any property constituting Collateral at such time, any person who has
granted, pursuant to Section 10.01, 5.01(i), 10.02(e) or 10.13, a
security interest in such person's right, title and interest in and to
any property that at such time constitutes Collateral.
"PREFERRED STOCK" as applied to the Capital Stock or Redeemable
Stock of any corporation, means Capital Stock or Redeemable Stock of
any class or classes (however designated) which is preferred as to the
payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock or Redeemable Stock, as the
case may be, of any other class of such corporation.
"PRIMARY SHARE SALE" means (i) any issuance and sale of Stock by
a Pledged Company other than to the Company or any of its Subsidiaries
(provided, that no issuance of Stock in connection with a transaction
pursuant to and in accordance with Section 10.13 shall constitute a
Primary Share Sale) and (ii) any issuance and sale of common stock by
Kaiser (provided, that no issuance of Stock in connection with a
transaction pursuant to and in accordance with Section 10.05(c)(2)
shall constitute a Primary Share Sale).
"PRO RATA BASIS" means, (i) with respect to a redemption in part
of the Securities pursuant to Section 5 of the Securities and Article
3 of this Indenture, that (except as may otherwise result from the
selection methods used in accordance with Section 3.02 and except as
to Securities, or portions thereof, previously called for
<PAGE>
redemption) (A) the portion of the Accreted Value (at the redemption
date) of each outstanding Series A Security called for redemption
divided by the outstanding Accreted Value (at the redemption date) of
such Security equals (B) the portion of the Accreted Value of each
outstanding Series B Security called for redemption divided by the
outstanding Accreted Value thereof; and (ii) as applied to an offer to
purchase the Securities pursuant to Section 4.07 or 10.05 hereof, that
(except as may otherwise result from adjustments made in accordance
with Section 4.07(d)(8) or 10.05(f)(viii), as the case may be, and
except as to Securities not tendered into, or tendered into and
withdrawn from, such offer) (A) the portion of the Accreted Value (at
the purchase date) of each outstanding Series A Security accepted for
purchase pursuant to such offer divided by the portion of the
outstanding Accreted Value (at the purchase date) of such Security
tendered into and not withdrawn from such offer equals (B) the portion
of the Accreted Value of each outstanding Series B Security accepted
for purchase pursuant to such offer divided by the portion of the
outstanding Accreted Value thereof tendered into and not withdrawn
from such offer.
"PROSPECTUS" means the final prospectus, dated July 28, 1993,
filed pursuant to Rule 424(b) of the Securities Act, as part of the
Company's registration statement (no. 33-64042) on Form S-2 relating
to the offering and sale of the Securities.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of
common stock of the Company, MPI or Pacific Lumber (or the successor
in a transaction with MPI or Pacific Lumber that becomes a Pledged
Company pursuant to Section 10.13) pursuant to an effective reg-
istration statement filed pursuant to the Securities Act.
"REDEEMABLE STOCK" of any person means any equity security of
such person that by its terms is required to be redeemed prior to the
final Stated Maturity of all principal of the Securities, or is
redeemable at the option of the holder thereof at any time prior to
the final Stated Maturity of all principal of the Securities and shall
also include, in the case of the Company, all Preferred Stock of the
Company's Restricted Subsidiaries.
"RESTRICTED INVESTMENT" means any Investment in an Affiliate of
the Company.
<PAGE>
"RESTRICTED SUBSIDIARY" means, as of any determination date, each
of the Subsidiaries of the Company which is not as of such
determination date an Unrestricted Subsidiary of the Company.
"SALMON CREEK" means Salmon Creek Corporation, a Delaware
corporation, or any successor corporation, by way of merger,
consolidation, purchase of all or substantially all of its assets, or
otherwise, which holds the Salmon Creek Property on the date of this
Indenture but which may not acquire any other assets (other than
assets incidental to the operation, disposition, management and
maintenance of the Salmon Creek Property or assets received (i) in
respect of all or any part of the Stock of Salmon Creek, (ii) in
respect of all or any part of the real property constituting the
Salmon Creek Property or (iii) otherwise in connection with Salmon
Creek or the Salmon Creek Property, except in connection with the
harvesting of timber located on the Salmon Creek Property), except in
exchange for or out of the proceeds of the sale or disposition of the
Salmon Creek Property.
"SALMON CREEK DISTRIBUTION" means a dividend or other
distribution identified as a "Salmon Creek Distribution" by the
Company in writing to the Trustee at the time of such dividend or
other distribution.
"SALMON CREEK PROPERTY" means any of the property described on
Exhibit B to this Indenture or any assets or Stock, in each case, held
by Salmon Creek.
"SCOTIA PACIFIC" means Scotia Pacific Holding Company, a Delaware
corporation, and any successor corporation, by way of merger,
consolidation, purchase of all or substantially all of its assets, or
otherwise.
"SCOTIA PACIFIC AGREEMENTS" means any agreements between Scotia
Pacific and Pacific Lumber or any Subsidiary of Pacific Lumber as the
same may be amended after the date hereof in accordance with the terms
thereof, including, without limitation, the Master Purchase Agreement,
dated as of March 23, 1993, between Scotia Pacific and Pacific Lumber,
the Services Agreement, dated as of March 23, 1993, between Scotia
Pacific and Pacific Lumber, the Additional Services Agreement, dated
as of March 23, 1993, between Scotia Pacific and Pacific Lumber, the
Environmental Indemnification Agreement, dated as of March 23, 1993,
between Scotia Pacific and Pacific
<PAGE>
Lumber, and the Reciprocal Rights Agreement, dated as of March 18,
1993, among Scotia Pacific, Pacific Lumber and Salmon Creek.
"SEC" means the Securities and Exchange Commission or any
successor regulatory agency thereto.
"SECURITIES" means, collectively, the 12 1/4% Senior Secured
Discount Notes due 2003 (the "Series A Securities") and the 11 1/4%
Senior Secured Notes due 2003 (the "Series B Securities"), issued,
authenticated and delivered pursuant to this Indenture, as amended,
restated, restructured, renewed, extended, or otherwise modified, in
whole or in part, from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended (or
any successor statute thereto), and the rules and regulations
promulgated thereunder.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary of the
Company which at the time of determination had, or any group of
Restricted Subsidiaries which, if merged into each other at the time
of determination, would at the time of determination have had, (i)
assets which, as of the date of the Company's most recent quarterly
consolidated balance sheet, constituted at least 10% of the Company's
total assets on a consolidated basis as of such date, (ii) revenues
for the 12-month period ending on the date of the Company's most
recent quarterly consolidated statement of income which constituted at
least 10% of the Company's total revenues on a consolidated basis for
such period, or (iii) EBITDA for the 12month period ending on the date
of the Company's most recent quarterly consolidated statement of
income which constituted at least 10% of the Company's total EBITDA on
a consolidated basis for such period (it being understood that for the
purposes of clause (iii) of this definition, EBITDA of any Restricted
Subsidiary or group of Restricted Subsidiaries of the Company for any
period shall be that portion of the Company's total EBITDA
attributable to such Restricted Subsidiary or group of Restricted
Subsidiaries during such period).
"STATED MATURITY", when used with respect to the payment of any
principal of, or accrued interest on, any Security, means the date
specified in such Security as the fixed date on which such principal
of or accrued
<PAGE>
interest on such Security is due and payable, as the case may be.
"STOCK" of any person means, collectively, the Capital Stock and
the Redeemable Stock of such person.
"SUBSIDIARY" means, with respect to any person, (i) any
corporation of which more than 50% of the outstanding Capital Stock
and Redeemable Stock having ordinary voting power to elect a majority
of the board of directors of the corporation (irrespective of whether
at the time Capital Stock or Redeemable Stock of any other class or
classes of such corporation shall or might have voting power upon the
occurrence of any contingency) is at the time owned, directly or
indirectly, by such person, or by one or more other Subsidiaries of
such person, or by such person and one or more other Subsidiaries of
such person, or (ii) any other entity of which more than 50% of the
outstanding equity ownership interests are at the time owned, directly
or indirectly, by such person, or by one or more other Subsidiaries of
such person, or by such person and one or more other Subsidiaries of
such person.
"TAKING" means any sale, transfer or other disposition of all or
any part of the assets of the Company and its Restricted Subsidiaries
that occurs by reason of condemnation or eminent domain or other
similar proceedings exercised by the United States of America or any
State, municipality, agency or other governmental authority thereof.
"TAX SHARING AGREEMENTS" means (i) the tax allocation agreement,
dated May 21, 1988, by and among MAXXAM, Pacific Lumber and certain
other subsidiaries of MAXXAM and the Company, as amended by the tax
allocation agreement, dated as of March 23, 1993, by and among MAXXAM,
Pacific Lumber, Scotia Pacific and Salmon Creek, and as amended by the
tax allocation agreement, dated as of the Issue Date, by and among
MAXXAM and the Company, and (ii) the tax allocation agreement, dated
as of July 3, 1990, by and among MAXXAM and Britt; each as amended,
supplemented or otherwise modified from time to time.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa through 77bbbb) as in effect on the date of this Indenture,
except as otherwise expressly provided herein.
<PAGE>
"TIMBER NOTE INDENTURE" means the Indenture, dated as of March
23, 1993, between Scotia Pacific and The First National Bank of
Boston, as trustee, pursuant to which the Timber Notes were issued, as
amended, supplemented or otherwise modified from time to time.
"TIMBER NOTES" means the 7.95% Timber Collateralized Notes due
2015, issued by Scotia Pacific, as amended, supplemented or otherwise
modified, in whole or in part, from time to time in accordance with
the terms of the Timber Note Indenture.
"TRANSACTIONS" means (i) the transactions described in the
Prospectus, under the caption "The Forest Products Group Formation"
therein and (ii) the retirement of the Old Securities, described in
the Prospectus, under the caption "Use of Proceeds."
"TRUST OFFICER" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"TRUSTEE" means the party named as such in this Indenture until a
successor replaces it in accordance with the terms of this Indenture
and, thereafter, means the successor.
"UNIFORM COMMERCIAL CODE" means the New York Uniform Commercial
Code as in effect from time to time, except with respect to matters
concerning the validity and perfection of security interests of the
Trustee in favor of the Holders in the Accounts, in which case such
term shall mean the Massachusetts Uniform Commercial Code as in effect
from time to time.
"UNRESTRICTED INVESTMENTS OUTSTANDING" means, at any time of
determination, in respect of any Unrestricted Subsidiary, the
difference between (i) the sum of all Unrestricted Investments
theretofore made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary after the date of this Indenture, minus (ii)
the amount of all dividends and distributions paid to the Company or a
Restricted Subsidiary (to the extent that the Company does not elect
to include the amount of such dividends and distributions in the
computation of Consolidated Net Income pursuant to the parenthetical
of clause (iii) of the definition thereof at the time of
determination) and all repayments of the principal amount
<PAGE>
of loans or advances by such Unrestricted Subsidiary to the Company or
any of its Restricted Subsidiaries during the period that such person
was an Unrestricted Subsidiary and any other reduction of Unrestricted
Investments in such Unrestricted Subsidiary during the period that
such person was an Unrestricted Subsidiary (the amount of any
Unrestricted Investment returned or reduced, if other than in cash or
a sum certain guaranteed, to be the fair market value as determined in
good faith by the Board of Directors, whose determination shall be
evidenced by a resolution of the Board of Directors filed with the
Trustee); provided, that the amount of Unrestricted Investments
Outstanding in respect of any Unrestricted Subsidiary shall at no time
be a negative amount. Notwithstanding anything to the contrary
contained in this Indenture, the Company or any of its Restricted
Subsidiaries shall be permitted to contribute any non-cash proceeds
received in respect of a Salmon Creek Distribution to an Unrestricted
Subsidiary and such contribution shall not constitute an Unrestricted
Investment under the Indenture, provided, that no such non-cash
proceeds shall theretofore have been dividended or distributed by the
Company as contemplated in clause (ii) of the last proviso to the
definition of Consolidated Net Income.
"UNRESTRICTED SUBSIDIARY" means (i) each of the Subsidiaries of
the Company so designated by a resolution adopted by the Company's
Board of Directors and whose creditors have no direct or indirect
recourse (including, but not limited to, recourse with respect to the
payment of principal or interest on Indebtedness of such Subsidiary)
to the Company or a Restricted Subsidiary (except to the extent such
recourse arises (A) solely by operation of law and not pursuant to a
contractual or other consensual arrangement or (B) pursuant to an
Investment or a Restricted Investment permitted by this Indenture),
(ii) any joint venture, partnership or other person (other than a
Subsidiary of the Company) in which the Company and/or its
Subsidiaries have an equity ownership interest equal to or greater
than 5% and in which no Affiliate of the Company has a direct or an
indirect equity ownership interest in excess of 5% therein other than
by virtue of the direct or indirect equity ownership interest in such
joint venture, partnership or other person held (in the aggregate) by
the Company and/or one or more of its Subsidiaries and (iii) Salmon
Creek. The Board of Directors may designate an Unrestricted
Subsidiary to be a Restricted Subsidiary, provided, that any such
redesigna-
<PAGE>
tion shall be deemed to be an Incurrence by the Company and its
Restricted Subsidiaries of the Indebtedness (if any) of such
redesignated Restricted Subsidiary for purposes of Section 4.03 as of
the date of such redesignation to the extent that such Indebtedness
does not already constitute Indebtedness of the Company or one or more
of its Restricted Subsidiaries. Subject to the foregoing, the Board
of Directors of the Company also may designate any Restricted
Subsidiary (other than Scotia Pacific so long as there are any Timber
Notes outstanding) to be an Unrestricted Subsidiary, provided, that
(x) the amount of any outstanding Investments by the Company and its
Restricted Subsidiaries in such Restricted Subsidiary shall be deemed
to be Unrestricted Investments Outstanding at the time of such
designation and (y) immediately after giving effect to such
designation and to the characterization of the Investments by the
Company and its Restricted Subsidiaries in such newly designated
Unrestricted Subsidiary, the Company and its remaining Restricted
Subsidiaries could make at least $1.00 of additional Restricted
Payments or Unrestricted Investments pursuant to Section 4.04.
"U.S. LEGAL TENDER" See the definition of "money."
"U.S. GOVERNMENTAL OBLIGATIONS" means any evidence of obligations
issued directly or fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof for the payment of
which the full faith and credit of the United States of America is
pledged and which are not callable at the issuer's option.
"VOTING STOCK" of a corporation means all classes of Capital
Stock of such corporation then outstanding and normally entitled to
vote in the election of directors.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted
Subsidiary (i) which is a corporation of which all of the outstanding
shares of Capital Stock and Redeemable Stock having ordinary voting
power to elect a majority of the board of directors of such
corporation (irrespective of whether at the time Capital Stock or
Redeemable Stock of any other class or classes of such corporation
shall or might have voting power upon the occurrence of any
contingency) are owned at the time,
<PAGE>
directly or indirectly (through one or more Wholly Owned Restricted
Subsidiaries), by the Company (except for director's qualifying
shares), or (ii) which is any other entity of which all of the
outstanding equity ownership interests are owned at the time, directly
or indirectly (through one or more Wholly Owned Restricted Subsidiar-
ies), by the Company.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
____ ____________
<S> <C>
"Accounts" 10.03(a)
"Adjustment Period" . . . . . . . . . . . . . . . . . . 4.08
"Aggregate Offer Amount" . . . . . . . . . . . . . . . 1.01 (within
the definition
of "pro rata
basis")
"Aggregate Redemption Price" . . . . . . . . . . . . 10.05(g)
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . 4.07(c)
"Asset Sale Offer Amount" . . . . . . . . . . . . . . . 4.07(b)
"Asset Sale Offer Notice" . . . . . . . . . . . . . . . 4.07(d)
"Asset Sale Purchase Notice" . . . . . . . . . . . . . 4.07(e)
"Asset Sale Purchase Price" . . . . . . . . . . . . . . 4.07(c)
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . 6.01
"Beneficiary" . . . . . . . . . . . . . . . . . . . . . 1.01 (within
the definition
of "Change of
Control")
"Cash Collateral Account" . . . . . . . . . . . . . . 10.03(a)
"Cash Collateral Default Account" . . . . . . . . . . 10.03(a)
"Cash Collateral Offer Account" . . . . . . . . . . . 10.03(a)
"Cash Collateral Public Equity Offering Account" . . 10.03(a)
"Change of Control Offer Notice" . . . . . . . . . . . 4.09(b)
"Change of Control Purchase Date" . . . . . . . . . . . 4.09(a)
"Change of Control Purchase Price" . . . . . . . . . . 4.09(a)
"Collateralized Cash Proceeds Offer" . . . . . . . . 10.05(f)
"Collateralized Cash Proceeds Offer Amount" . . . . . 10.05(f)
"Collateralized Cash Proceeds Offer Notice" . . . . . 10.05(f)
"Collateralized Cash Proceeds Purchase Date" . . . . 10.05(f)
"Collateralized Cash Proceeds Purchase Notice" . . . 10.05(f)
"Collateralized Cash Proceeds Purchase Price" . . . . 10.05(f)
<PAGE>
"covenant defeasance option" . . . . . . . . . . . . . 8.01
"Custodian" . . . . . . . . . . . . . . . . . . . . . . 6.01
"Dividend Encumbrances" . . . . . . . . . . . . . . . . 4.17
"Event of Default" . . . . . . . . . . . . . . . . . . 6.01
"GAAP Net Income" . . . . . . . . . . . . . . . . . . . 1.01 (within
the definition
of "Consolida-
ted Net In-
come")
"Incur" (and the terms "Incurred" and "Incurrence"
have correlative meanings) . . . . . . . . . . . . . . 4.03
"Kaiser Shares" . . . . . . . . . . . . . . . . . . . . 1.01 (within
the definition
of "Pledged
Kaiser
Shares")
"Kaiser Transaction" . . . . . . . . . . . . . . . . .
"legal defeasance option" . . . . . . . . . . . . . . . 8.01
"maximum fixed repurchase price" . . . . . . . . . . . 1.01 (within
the definition
of "Indebted-
ness")
"Minimum percentage" . . . . . . . . . . . . . . . . . 1.01 (within
the definition
of "Change of
Control")
"Monetization" . . . . . . . . . . . . . . . . . . . . 10.05(b)
"Moody's" . . . . . . . . . . . . . . . . . . . . . . . 1.01 (within
the definition
of "Cash
Equivalents")
"Non-Cash Amount" . . . . . . . . . . . . . . . . . . . 10.05(f)
"Offer Amount" . . . . . . . . . . . . . . . . . . . . 4.07
"Paying Agent" . . . . . . . . . . . . . . . . . . . . 2.03
"PL Asset Sale" . . . . . . . . . . . . . . . . . . . . 4.07(b)
"PPI Index" . . . . . . . . . . . . . . . . . . . . . . 4.08
"Repurchase" . . . . . . . . . . . . . . . . . . . . . 4.04(a)
"refinance" (and the terms "refinancing" and
"refinanced" have correlative meanings) . . . . . . . 4.03(c)
"Refinancing Indebtedness" . . . . . . . . . . . . . . 4.03(c)
"Registrar" . . . . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payment" . . . . . . . . . . . . . . . . . 1.01 (within
the definition
of "Cash Equi-
valents")
"S&P" . . . . . . . . . . . . . . . . . . . . . . . . . 1.01 (within
the definition
of "Cash Equi-
valents")
"Semiannual Compounding Date" . . . . . . . . . . . . . 1.01 (within
the definition
<PAGE>
of "Accreted
Value")
"Series A Preferred Stock" . . . . . . . . . . . . . . 10.12(c)
"Series A Securities" . . . . . . . . . . . . . . . . . 1.01 (within
the definition
of "Securi-
ties")
"Series B Securities" . . . . . . . . . . . . . . . . . 1.01 (within
the definition
of "Securi-
ties")
"Trust Moneys" . . . . . . . . . . . . . . . . . . . . 10.03(a)
"Unrestricted Investment" . . . . . . . . . . . . . . . 4.04(a)
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the
following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the indenture securities.
Except as expressly provided herein, all other terms used in this
Indenture that are defined by the TIA, or that are, by reference in
the TIA, defined in the Securities Act, shall have the meaning
assigned to such terms in the TIA and in the Securities Act, as the
case may be, as they were in effect as of the date of this Indenture.
<PAGE>
SECTION 1.04. RULES OF CONSTRUCTION. For purposes of the
Securities and this Indenture (except as otherwise expressly provided
herein or unless the context otherwise requires):
a term has the meaning assigned to it;
(1) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(2) "or" is not exclusive;
(3) "including" means including, without limitation;
(4) words in the singular include the plural and words in
the plural include the singular;
(5) unsecured indebtedness shall not be deemed to rank
subordinate or junior in right or priority of payment to secured
indebtedness merely because it is unsecured indebtedness; and
(6) the principal amount of any noninterest bearing
security at any date shall be the principal amount thereof that would
be shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP and accretion of principal on such security shall
not be deemed to be the Incurrence of Indebtedness.
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING. The Series A Securities and the
Series B Securities (and the related Trustee's certificates of
authentication) shall be substantially in the forms set forth in
Exhibits A-l and A-2 hereto, respectively. The Securities may have
notations, legends or endorsements lithographed or engraved thereon as
the Company may deem appropriate and as not inconsistent with the
provisions of this Indenture, or as may be required by law, stock
exchange rule or regulation, or
<PAGE>
usage or agreements to which the Company is a party which are not
inconsistent therewith (provided, that any such notation, legend or
endorsement is in a form reasonably acceptable to the Trustee and the
Company). Each Security shall be dated the date of its authentication.
The terms and provisions contained in the forms of Securities, annexed
hereto as Exhibits A-1 and A-2, shall constitute, and are hereby
expressly made, a part of this Indenture.
SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall
sign the Securities on behalf of the Company under its corporate seal.
The Company's seal shall be impressed, affixed, imprinted or otherwise
reproduced on the Securities and may be in facsimile form. The
signature of any such officer or officers upon the Securities may be
the manual or facsimile signature of the present or any future officer
or officers and facsimile signatures may be imprinted or otherwise
reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the
Security shall be valid nevertheless.
A Security shall not be valid until a duly authorized officer of
the Trustee manually signs the certificate of authentication on the
Security. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
The Trustee shall authenticate and deliver Series A Securities
for original issuance in an aggregate principal amount at maturity of
up to $126,720,000 and Series B Securities for original issuance in an
aggregate principal amount of up to $100,000,000, in each case upon a
written order of the Company, signed by two Officers of the Company.
Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Securities
is to be authenticated. The aggregate principal amount at maturity of
Series A Securities outstanding at any time shall not exceed
$126,720,000, and the aggregate principal amount of Series B
Securities outstanding at any time shall not exceed $100,000,000,
except as provided in Section 2.07.
<PAGE>
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent.
An authenticating agent has the same rights as any Registrar, Paying
Agent or agent for service of notices and demands.
The Securities shall be issued only in registered form, without
coupons, and only in denominations of $1,000 principal amount at
maturity and any integral multiple thereof.
SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall
maintain an office or agency where Securities may be presented for
registration of transfer or for exchange ("REGISTRAR") and an office
or agency where Securities may be presented for payment ("PAYING
AGENT"). The Registrar shall keep a register of the Securities and of
their transfer and exchange. The Company may have one or more
co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent"
includes any additional paying agent.
The Company may designate or appoint a Registrar or Paying Agent
not a party to this Indenture. If the Company shall so designate or
appoint such agent, the Company shall enter into an appropriate agency
agreement with such Registrar or Paying Agent. The agreement shall
implement the provisions of this Indenture that relate to such agent.
The Company shall notify the Trustee of the name and address of any
such agent. If the Company fails to maintain a Registrar or Paying
Agent, the Trustee shall act as such and shall be entitled to
appropriate compensation therefor pursuant to Section 7.07. Except as
provided to the contrary herein, the Company or any Subsidiary or
Affiliate of the Company may act as Paying Agent, Registrar or
transfer agent.
The Company initially appoints the Trustee as Registrar and
Paying Agent in connection with the Securities.
<PAGE>
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. On or prior
to 11:00 A.M., New York City time, on each due date of the principal
of or interest on any Security, the Company shall deposit with the
Paying Agent immediately available funds sufficient to pay such prin-
cipal or interest then so becoming due. The Company shall require
each Paying Agent (other than the Trustee) to agree in writing that
the Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall
notify the Trustee of any default by the Company in making any such
payment; provided, however, that any money earned on funds invested by
the Trustee or any Paying Agent shall be remitted to the Company. If
the Company or a Subsidiary acts as Paying Agent, it shall segregate
the money held by it as Paying Agent and hold it as a separate trust
fund. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and to account for any funds disbursed
by it. Upon doing so, the Paying Agent (if other than the Company)
shall have no further liability for the money so paid over to the
Trustee.
SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Securityholders. If the
Trustee is not the Registrar, the Company shall furnish to the
Trustee, in writing at least seven Business Days before each interest
payment date as set forth in the Securities and at such other times as
the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses
of Securityholders.
SECTION 2.06. TRANSFER AND EXCHANGE. The Securities shall be
issued in registered form and shall be transferable only upon the
surrender of such Security for registration of transfer at the office
or agency to be maintained by the Company. When a Security is pre-
sented to the Registrar with a written request to register a transfer,
the Registrar shall register the transfer as requested, and deliver a
duly executed and authenticated Security or Securities in the name of
the transferee, if its requirements are met. When Series A Securities
and Series B Securities are presented to the Registrar with a request
to exchange them for an equal princi-
<PAGE>
pal amount of Series A Securities and Series B Securities, as the case
may be, in other authorized denominations, the Registrar shall make
the exchange as requested, and deliver the duly executed and
authenticated Security or Securities which the Holder making the
exchange shall be entitled to receive, if the same requirements are
met. To permit registration of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Securities at the
Registrar's request. No service charge shall be made to a Holder for
any registration of transfer or exchange, but the Company may require
payment of a sum sufficient to pay all taxes, assessments or other
governmental charges that may be imposed in relation thereto. The
Company shall not be required to make and the Registrar need not
register transfers or exchanges of Securities selected for redemption
in whole or in part (except, in the case of Securities to be redeemed
in part, the portion thereof not to be redeemed) or during the 15 day
period prior to the date of the mailing of a notice of redemption of
Securities selected for redemption or after an interest payment record
date and before an interest payment date as set forth in the
Securities.
Prior to the due presentation for registration of transfer or
exchange of any Security, the Company, the Paying Agent or the
Registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and
for all other purposes whatsoever, and none of the Company, the
Trustee, the Paying Agent or the Registrar shall be affected by notice
to the contrary.
SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security
(temporary or definitive) is surrendered to the Registrar or if the
Holder of a Series A Security or Series B Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee shall authenticate a replacement Series A
Security or Series B Security, as the case may be, if the Trustee's
requirements are met. If required by the Trustee or the Company, such
Holder shall furnish to the Trustee and the Company an indemnity bond
sufficient in the judgment of the Company and the Trustee to protect
the Company, the Trustee, the Paying Agent and the Registrar from any
loss which any of them may suffer if a Security is replaced. The
Company and the Trustee
<PAGE>
may charge the Holder for their respective expenses in replacing a
Security.
Every replacement Security is an additional obligation of the
Company and shall be subject to all the terms and provisions of this
Indenture.
SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding at
any time are all Securities that have been issued, authenticated and
delivered by the Trustee except for those cancelled by it, those
delivered to it for cancellation and those described in this Section
as not outstanding. A Security does not cease to be outstanding
because the Company, one of its Subsidiaries or an Affiliate of the
Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to
be outstanding unless the Trustee and the Company receive proof
satisfactory to them that the replaced Security is held by a bona fide
purchaser.
To the extent that the Trustee or the Paying Agent segregates and
holds in trust, in accordance with this Indenture, on a redemption
date or maturity date money sufficient to pay the Securities (or
portions thereof) payable on that date and the Paying Agent is not
prohibited from paying such money to the Holders on that date pursuant
to the terms of this Indenture, then on and after that date such
Securities (or portions-thereof) cease to be outstanding, interest on
them ceases to accrue and, in the case of the Series A Securities, any
increase in Accreted Value ceases, in each case regardless of whether
the Securities have been timely surrendered, and the only remaining
right of the Holders thereof shall be to receive payment of the
redemption price thereof, plus accrued and unpaid interest thereon to
(but not including) such redemption date, if applicable, upon
surrender to the Paying Agent of such Securities.
SECTION 2.09. TEMPORARY SECURITIES. Until definitive Securities
are ready for delivery, the Company may execute and the Trustee shall
authenticate and deliver temporary Securities (printed, lithographed
or typewritten) of any authorized denomination, upon written order of
the Company signed by two Officers. Temporary Securities shall be
substantially in the form of definitive Securities, but with such
omissions, insertions and variations that the Company considers
appropriate for
<PAGE>
temporary Securities. Without unreasonable delay, the Company shall
execute and deliver definitive Securities to the Trustee and the
Trustee shall authenticate definitive Securities and deliver them in
exchange for temporary Securities. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits
under this Indenture and shall be subject to the same provisions
hereof as definitive Securities authenticated and delivered hereunder.
SECTION 2.10. CANCELLATION. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the
Paying Agent shall forward to the Trustee any Securities surrendered
to them for transfer, exchange or payment. The Trustee and no one
else shall cancel and destroy all Securities surrendered for transfer,
exchange, payment or cancellation and deliver a certificate of such
destruction to the Company unless the Company directs the Trustee to
deliver canceled Securities to the Company. The Company may not issue
new Securities to replace Securities it has redeemed, paid or
delivered to the Trustee for cancellation.
SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a
payment of interest on the Securities, it shall pay the defaulted
interest (plus interest on such defaulted interest to the extent
permitted by applicable law calculated at the same rate as the rate at
which the interest that is in default was calculated). The Company may
pay the defaulted interest to the persons who are Securityholders on a
subsequent special record date, which date shall be at least five
Business Days prior to the payment date. The Company shall fix or
cause to be fixed any such special record date and payment date, and,
at least 15 days before the special record date, the Company shall
mail to each Securityholder a notice that states the special record
date, the payment date and the amount of defaulted interest to be
paid. The Company may pay defaulted interest in any other lawful
manner.
SECTION 2.12. CUSIP NUMBERS. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use), and the
Trustee shall use CUSIP numbers in notices of redemption or exchange
as a convenience to Holders upon written order of the Company signed
by two Officers; provided, that any such notice
<PAGE>
shall state that neither the Trustee nor the Company makes any
representation as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption or
exchange and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemp-
tion or exchange shall not be affected by any defect in or omission of
such numbers.
<PAGE>
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to
redeem Securities pursuant to paragraph 5 of the Securities, it shall
notify the Trustee in writing of the redemption date and the aggregate
principal amount of Securities to be redeemed. The Company shall give
each notice to the Trustee provided for in this Section 3.01 at least
45 days before the redemption date (unless a shorter notice period
shall be satisfactory to the Trustee). If less than all the
Securities are to be redeemed, the record date relating to such
redemption shall be selected by the Company and given to the Trustee.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer
than all the Securities are to be redeemed, the Trustee shall select
the Securities to be redeemed such that the redemption is effected on
a pro rata basis. The Trustee shall make the selection from
outstanding Securities not previously called for redemption. The
Trustee may select for redemption portions of the principal amount at
maturity of Securities that have denominations larger than $1,000.
Securities and portions of them the Trustee selects for redemption
shall be in denominations of $1,000 or an integral multiple of $1,000.
Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
The Trustee in redeeming Securities may use any method it considers
fair and equitable to round up or down so that the amount of any
Securities redeemed shall be in denominations of $1,000 or integral
multiples thereof. If at the time of any such selection, the Trustee
is not then the Registrar, the Trustee may direct the Registrar to
make the selection in accordance with this Section 3.02. The Trustee
shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
SECTION 3.03. NOTICE OF REDEMPTION. At least 15 days (or 30
days if legally required by The Depositary Trust Company) but not more
than 60 days before a date fixed for redemption of Securities, the
Company shall mail a notice of redemption by first-class mail to each
Holder of Securities to be redeemed at such Holder's last address as
it shall appear upon the register of the Secu-
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rities maintained by the Company, but any defect therein or failure of
the addressee to receive such notice shall not affect the validity of
the proceedings for the redemption of any of the Securities. Any
failure to give such notice to the Holder of any Securities shall not
affect the validity of the proceedings for the redemption of any other
Security.
The notice shall identify the Securities to be redeemed
(including CUSIP numbers if used) and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be
redeemed, the identification and principal amounts at maturity of the
particular Securities to be redeemed;
(6) that, unless the Company defaults in making such redemption
payment, interest on Securities called for redemption ceases to accrue
(and, in the case of Series A Securities, any increase in Accreted
Value ceases) on and after the redemption date and the only remaining
right of the Holders is to receive payment of the redemption price and
accrued and unpaid interest thereon to (but not including) the
redemption date, if applicable, upon surrender to the Paying Agent of
such Securities; and
(7) the paragraph of the Securities and the section of this
Indenture pursuant to which the Securities are to be redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In
such event, the Company shall provide the Trustee with the information
required
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by clauses (1) through (3) at least 60 days prior to any such
redemption date (unless a shorter notice period shall be satisfactory
to the Trustee).
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Securities called for redemption become due and
payable on the redemption date and at the redemption price thereof
stated in the notice. Upon surrender to the Paying Agent, each such
Security shall be paid at the applicable redemption price thereof
stated in the notice, plus accrued and unpaid interest thereon, if
any, to (but not including) the redemption date. Unless the Company
defaults in making the redemption payment, interest on the Securities
called for redemption ceases to accrue (and, in the case of Series A
Securities, any increase in Accreted Value ceases) on and after the
redemption date (regardless of whether the Securities have been timely
surrendered), and the only remaining right of the Holders thereof
shall be to receive payment of the redemption price thereof, plus
accrued and unpaid interest thereon to (but not including) such
redemption date, if applicable, upon surrender to the Paying Agent of
such Securities. If the date fixed for redemption is an interest
payment date, the redemption payment shall not include accrued
interest which shall be paid in the usual manner otherwise provided
for herein.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. On or prior to 11:00
A.M., New York City time, on the redemption date, the Company shall
deposit with the Paying Agent (or if the Company or a Subsidiary is
the Paying Agent, shall segregate and hold in trust as provided in
Section 2.04) money sufficient to pay the redemption price of, and
accrued interest, if any, on, all Securities to be redeemed on that
date other than Securities or portions thereof called for redemption
on that date which have been delivered by the Company to the Trustee
for cancellation. All money earned on funds held in trust by the
Trustee or any Paying Agent shall be remitted to the Company.
SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a
Series A Security or Series B Security that is redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver
to the Holder thereof (at the Company's expense) a new Series A
Security of Series B Security, as the case may be, equal
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in principal amount at maturity in authorized denominations to the
unredeemed portion of the Security surrendered.
SECTION 3.07. CANCELLATION OF REDEEMED SECURITIES. All
Securities surrendered to the Trustee, upon redemption pursuant to the
provisions of this Article 3, shall be forthwith cancelled by it.
SECTION 3.08. NO REPURCHASE RESTRICTIONS. Except as expressly
provided in Article 10, nothing contained in this Indenture or in the
Securities shall be deemed to prohibit or in any way restrict the
Company, any Subsidiary or any Affiliate from purchasing or otherwise
acquiring any Security or interest therein at any price or for any
consideration whether higher or lower than the redemption price, in a
transaction not effected pursuant to this Article 3.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES. The Company shall promptly
pay the principal of and accrued interest, if any, on the Securities
on the dates and in the manner provided in the Securities and in this
Indenture. The principal of Securities and accrued interest, if any,
shall be considered paid on the date due to the extent that on such
date the Trustee or the Paying Agent holds in accordance with this
Indenture money sufficient to pay the principal of the Securities and
accrued interest, if any, then due and the Trustee or the Paying
Agent, as the case may be, is not prohibited from paying such money to
the Securityholders on that date pursuant to the terms of this
Indenture.
The Company shall pay interest on overdue principal of the Series
A Securities and Series B Securities at the rates specified therefor
in the Series A Securities and Series B Securities, respectively, and
it shall in each case pay interest on overdue installments of interest
to the extent permitted by applicable law calculated at the same rate
as the rate at which the interest that is in default was calculated.
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SECTION 4.02. SEC REPORTS. The Company shall file with the
Trustee and provide Securityholders, within 15 days after it files
them with the SEC, copies of its annual report and of the final
information, documents and other reports (or copies of such portions
of any of the foregoing as the SEC may by rules and regulations pre-
scribe) which the Company or any Subsidiary is required to file with
the SEC pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that the company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall continue to file with the SEC and provide the Trustee and
Securityholders with such annual reports and such information,
documents and other reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe) which are
specified in Sections 13 and 15(d) of the Exchange Act. The Company
also shall comply with the provisions of TIA Section 314(a).
SECTION 4.03. LIMITATION ON INDEBTEDNESS.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or become liable with respect to,
contingently or otherwise (collectively, "INCUR"), any Indebtedness
(including, without duplication, guarantees of Indebtedness by the
Company and/or its Restricted Subsidiaries), except that the Company
and/or its Restricted Subsidiaries (other than Scotia Pacific so long
as there are any Timber Notes outstanding) may Incur Indebtedness
(including, without duplication, guarantees of Indebtedness by the
Company and/or its Restricted Subsidiaries) if, immediately after
giving effect thereto and the receipt and application of the proceeds
thereof, the Consolidated Cash Flow Coverage Ratio of the Company
would exceed 2.0 to 1.
(b) Notwithstanding the provisions of Section 4.03(a), the
Company and/or its Restricted Subsidiaries (other than, except in the
case of clauses (xi) and (xii) of Section 4.03(b), Scotia Pacific so
long as there are any Timber Notes outstanding) may Incur (without
duplication) the following:
(i) Indebtedness in respect of the Securities;
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(ii) aggregate Indebtedness under the Credit Agreement
in an amount not to exceed at any time outstanding $40,000,000;
(iii) Indebtedness outstanding on the Issue Date,
including the indebtedness outstanding pursuant to the Pacific Lumber
Indenture (other than the Timber Notes which are governed by clause
(xi) of this Section 4.03(b));
(iv) Indebtedness in connection with one or more
letters of credit issued pursuant to (A) self-insurance obligations
(other than workmen's compensation obligations), the aggregate face or
stated amount of which, together with the aggregate amount of any
related reimbursement obligations (without duplication) does not
exceed $1,000,000 at any time outstanding, and (B) workmen's compensa-
tion obligations;
(v) Indebtedness owed by the Company to a Restricted
Subsidiary or owed by a Restricted Subsidiary to the Company or to any
other Restricted Subsidiary of the Company;
(vi) Capital Lease Obligations (other than Capital
Lease Obligations permitted by clause (xii) of this Section 4.03(b))
not exceeding in the aggregate $10,000,000 at any time outstanding;
(vii) Indebtedness under any Interest Rate
Protection Agreement to the extent that such Interest Rate Protection
Agreement is related to payment obligations on Indebtedness otherwise
permitted under this Section 4.03;
(viii) Indebtedness Incurred in connection with
Indebtedness the interest on which is exempt from Federal income tax
under the Code in an aggregate amount not
<PAGE>
exceeding $10,000,000 at any time outstanding;
(ix) Indebtedness owed to or guaranteed by any
governmental agency, instrumentality or other authority Incur red to
provide relief from natural disasters or other similar assistance;
(x) Indebtedness Incurred after the Issue Date (in
addition to (and without duplication of) Indebtedness otherwise
permitted by this Section 4.03), in an aggregate principal amount not
exceeding $25,000,000 at any one time outstanding in the case of
Indebtedness Incurred by Pacific Lumber and its Subsidiaries that are
Restricted Subsidiaries and $15,000,000 at any one time outstanding in
the case of Indebtedness Incurred by the Company and its Restricted
Subsidiaries other than Pacific Lumber and its Subsidiaries that are
Restricted Subsidiaries;
(xi) Indebtedness of Scotia Pacific under the Timber
Notes or the Timber Note Indenture or in respect of the Scotia Pacific
Agreements or any other agreement entered into in connection with the
Timber Notes, as the same may be amended from time to time in
accordance with Section 4.11; and
(xii) Capital Lease Obligations of Scotia Pacific.
(c) Notwithstanding anything to the contrary in Section
4.03(a) or (b), the Company and its Restricted Subsidiaries (other
than Scotia Pacific so long as there are any Timber Notes outstanding)
may Incur Indebtedness all of the net proceeds of which (after
premiums, reasonable fees, expenses and costs related to the
incurrence of such Indebtedness) are applied to renew, extend,
restructure, restate, refund or otherwise refinance, in whole or in
part (collectively, "REFINANCE") the Indebtedness permitted by
paragraphs (a) or (b)(i) and (b)(iii) of this Section 4.03 or any one
or
<PAGE>
more successive refinancings thereof (collectively, "REFINANCING
INDEBTEDNESS"), provided, that (i) such Refinancing Indebtedness is in
an aggregate amount not exceeding the aggregate amount outstanding of
the Indebtedness being so refinanced plus an amount equal to the
premiums, reasonable fees and expenses incurred in connection with
such refinancing; (ii) with respect to Refinancing Indebtedness which
refinances Indebtedness of the Company which ranks (pursuant to its
terms) subordinate in right and priority of payment to the Securities,
(A) the final stated maturity date of such Refinancing Indebtedness
shall not be earlier than the final stated maturity date of the
Indebtedness being so refinanced, (B) in the case of such Refinancing
Indebtedness Incurred by the Company, such Refinancing Indebtedness is
ranked (pursuant to its terms) subordinate in right and priority of
payment to the Securities to the same extent as the Indebtedness being
so refinanced, and (C) such Refinancing Indebtedness has an Average
Life at the time it is Incurred which is not less than the remaining
Average Life of the Indebtedness being so refinanced; and (iii) no
Restricted Subsidiary may Incur Refinancing Indebtedness to refinance
Indebtedness of the Company pursuant to this clause (c) of Section
4.03 except to the extent that such Refinancing Indebtedness
constitutes a guarantee by such Restricted Subsidiary of Indebtedness
of the Company (it being understood that such Restricted Subsidiary
may incur Indebtedness to refinance Indebtedness of the Company to the
extent that the Incurrence of such Indebtedness is otherwise permitted
by clauses (a) or (b) of this Section 4.03).
(d) Any revocation of the designation of an Unrestricted
Subsidiary shall be deemed for purposes of this Section 4.03 to be an
Incurrence of Indebtedness by the Company and its Restricted
Subsidiaries of the Indebtedness of such Unrestricted Subsidiary as of
the time of such revocation to the extent such Indebtedness does not
already constitute Indebtedness of the Company or one of its
Restricted Subsidiaries.
(e) Notwithstanding anything to the contrary in Section
4.03(a), (b) or (c), Britt may not Incur after the Issue Date
Indebtedness (other than Indebtedness in respect of the Securities and
Indebtedness owed to the Company and Refinancing Indebtedness in
respect of the foregoing) in an aggregate principal amount exceeding
$5,000,000 at any time outstanding.
<PAGE>
SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) The
Company shall not, and shall not permit any Restricted Subsidiary,
directly or indirectly, to:
(i)(x) declare or pay any dividend or make any
distribution on the Company's Capital Stock or the Company's
Redeemable Stock (other than (A) in either case, dividends or
distributions payable in Capital Stock that is not convertible or
exchangeable into Redeemable Stock or Indebtedness of the Company and
(B) in the case of the Company's Redeemable Stock, dividends and
distributions in an amount not exceeding (in addition to any dividends
or distributions declared or paid in accordance with clause (A) above)
the amount stated to be payable on such Redeem able Stock pursuant to
the provisions thereof) or (y) purchase, redeem or otherwise acquire
or retire for value any Capital Stock or Redeemable Stock of the Com-
pany (each of the foregoing in clauses (x) and (y), a "RESTRICTED
PAYMENT"),
(ii) make any Restricted Investment,
(iii) make any Investment in an Unrestricted Subsidiary
(an "UNRESTRICTED INVESTMENT"), or
(iv) redeem, repurchase, defease or otherwise acquire or
retire for value (a "REPURCHASE"), prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, Indebtedness of
the Company which ranks (pursuant to its terms) subordinate in right
and priority of payment to the Securities and which was scheduled to
mature on or after the final Stated Maturity of all principal of the
Securities (other than acquisitions of such Indebtedness in
anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each
<PAGE>
case due within one year of the date of such acquisition),
if, at the time of such Restricted Payment, Restricted Investment,
Unrestricted Investment, or Repurchase:
(A) a Default shall have occurred and be continuing; or
(B) after giving effect to such Restricted Payment, Unrestricted
Investment, Repurchase or Restricted Investment by the Company or any
Restricted Subsidiary, the aggregate amount (i) expended for all such
Restricted Payments and Repurchases subsequent to the Issue Date, (ii)
of all Restricted Investments then outstanding (the amount expended
for such Restricted Payments, Repurchases and Restricted Investments
subsequent to the Issue Date, the amount of any Restricted Investments
outstanding at any time, and the amount of any Restricted Investments
returned or reduced, in each case, if other than in cash or a sum
certain guaranteed, to be the fair market value as determined in good
faith by the Board of Directors, whose determination shall be
evidenced by a resolution of the Board of Directors filed with the
Trustee), and (iii) of all Unrestricted Investments Outstanding, shall
exceed the sum of:
(1) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis subsequent to June 30, 1993,
(or, in case such aggregate cumulative Consolidated Net Income shall
be a loss, minus 100% of such loss), and
(2) the aggregate net cash proceeds, received by the
Company as capital contributions to the Company after June 30, 1993,
or from the issue or sale (other than to a Subsidiary of the Company)
after June 30, 1993, of Capital Stock (including Capital Stock issued
upon the conversion of, or in exchange for, Indebtedness or Redeemable
<PAGE>
Stock (other than that issued pursuant to clause (ii) of Section
4.04(c) below) and including upon exercise of warrants or options or
other rights to purchase such Capital Stock, issued after June 30,
1993), or from the issue or sale, after June 30, 1993, of any
Indebtedness (other than that issued pursuant to clause (ii) of
Section 4.04(c), below) or, without duplication, other security of the
Company convertible or exercisable into such Capital Stock that has
been so converted or exercised.
(b) Transactions and payments which are permitted by
Section 4.08(b) hereof, shall not be considered Restricted Payments or
Restricted Investments.
(c) The foregoing provisions of Section 4.04(a) shall
not be violated by reason of: (i) the payment of any dividend or
distribution or the redemption of any securities within 60 days after
the date of declaration of such dividend or distribution or the giving
of the formal notice of such redemption, if at said date of
declaration of such dividend or distribution or the giving of the
formal notice of such redemption, such dividend, distribution or
redemption would have complied with Section 4.04(a) and so long as no
Event of Default exists as of the payment date; (ii) redemptions,
repurchases, defeasances, acquisitions or retirements for value, of
indebtedness of the Company which ranks (pursuant to its terms)
subordinate in right and priority of payment to the Securities from
the proceeds of Refinancing Indebtedness permitted by Section 4.03(c);
(iii) the acquisition, redemption or retirement of any shares of the
Company's Capital Stock or any Indebtedness of the Company in exchange
for, or in connection with a substantially concurrent issuance of,
Capital Stock of the Company (provided, such Capital Stock is not
exchangeable for or convertible into Redeemable Stock or Indebtedness
of the Company or any of its Subsidiaries); (iv) the repurchase of the
Company's Capital Stock or Redeemable Stock with the proceeds of a
substantially concurrent issuance of the Company's Capital Stock that
is not convertible or exchangeable into Redeemable Stock or
Indebtedness by the Company; (v) the making by Pacific Lumber or its
Restricted Subsidiaries of an Unrestricted Investment to the extent
the amount of Unrestricted Investments Out-
<PAGE>
standing made pursuant to this clause (v) does not exceed $25 million,
provided that none of the funds used by Pacific Lumber or its
Restricted Subsidiaries to make any such Unrestricted Investment is
obtained from the Company or any Restricted Subsidiary (other than
Pacific Lumber or a Restricted Subsidiary of Pacific Lumber); or (vi)
the consummation of the Transactions. No payment or other transfer
made pursuant to clauses (ii) through (vi) of this Section 4.04(c)
shall reduce the amount available for Restricted Payments, Restricted
Investments, Unrestricted Investments or Repurchases pursuant to
Section 4.04(a) and the application of proceeds from the issuance of
Capital Stock applied pursuant to clause (iii) or (iv) of this Section
4.04(c) shall not reduce the amount available for Restricted Payments
pursuant to Section 4.04(a); provided, however, that the proceeds from
the issuance of Capital Stock pursuant to clauses (iii) and (iv) of
this Section 4.04(c) shall not increase the amount available for
Restricted Payments, Restricted Investments, Unrestricted Investments
and Repurchases under Section 4.04(a).
SECTION 4.05. OWNERSHIP OF CAPITAL STOCK OF SUBSIDIARIES. The
Company will not, and will not permit any Restricted Subsidiary to,
issue, sell, assign, transfer or otherwise dispose of, directly or
indirectly, (i) any Capital Stock or Redeemable Stock of Scotia
Pacific (it being understood that no issue, sale, assignment, transfer
or other disposition of any Capital Stock or Redeemable Stock of any
Restricted Subsidiary (other than Scotia Pacific) shall be deemed to
violate this clause (i), provided, that Pacific Lumber shall
thereafter continue to own directly all outstanding Stock of Scotia
Pacific), (ii) any Capital Stock or Redeemable Stock of any Pledged
Company if immediately thereafter, or as a consequence thereof, the
Company and its Subsidiaries that are Pledgors shall beneficially own
less than a majority of the Voting Stock and outstanding equity in-
terests (on a fully diluted basis) of each Pledged Company (other than
in a transaction governed by and in compliance with Section 10.13),
(iii) any assets of Scotia Pacific for consideration consisting in
whole or in part of Capital Stock or Redeemable Stock of another
person which is not a Wholly Owned Restricted Subsidiary, (iv) any
Capital Stock or Redeemable Stock of any Restricted Subsidiary (other
than Scotia Pacific or a Pledged Company) (except to the Company or to
one or more Restricted Subsidiaries) or any assets of any Restricted
Subsidiary
<PAGE>
(other than Scotia Pacific or a Pledged Company) for consideration
consisting in whole or in part of Capital Stock or Redeemable Stock of
another person which is not a Wholly Owned Restricted Subsidiary
unless, in the case of this clause (iv), immediately after giving
effect thereto and the receipt and application of the proceeds
therefrom, the Consolidated Cash Flow Coverage Ratio of the Company
would be greater than 1.5 to 1; provided, however, that this Section
4.05 shall permit, assuming the Company complies with the provisions
of Article 5 and Sections 10.05 and 10.13, in each case to the extent
applicable, the disposition in a single transaction or in a series of
related transactions of all of the Capital Stock of any Restricted
Subsidiary then owned by the Company or its Restricted Subsidiaries
for a consideration consisting of cash or other property (other than
Capital Stock or Redeemable Stock of another person) which is at least
equal to the fair value (as reasonably determined by the Board of
Directors of the Company) of such Capital Stock; and provided,
further, that any entity resulting from any transaction or disposition
permitted by clause (iv) of this Section 4.05 shall be or become a
Restricted Subsidiary.
SECTION 4.06. LIMITATION ON DIVIDENDS AND OTHER PAYMENT
RESTRICTIONS AFFECTING SUBSIDIARIES. (a) The Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become
effective any consensual restriction or encumbrance on the ability of
any such Restricted Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or Redeemable Stock or any other
interest or participation in, or measured by, its profits, in each
case, owned by the Company, or pay any Indebtedness owed to the
Company or any Restricted Subsidiary of the Company, (ii) make loans
or advances to the Company or any Restricted Subsidiary of the
Company, or (iii) make any transfer of any of its assets to the
Company or a Restricted Subsidiary.
(b) The foregoing shall not prohibit encumbrances or
restrictions existing under or by reason of:
<PAGE>
(i) this Indenture or the Pacific Lumber Indenture;
(ii) the Credit Agreement;
(iii) (A) customary provisions restricting
subletting or assignment of any lease of the Company or any Restricted
Subsidiary of the Company, or (B) customary restrictions imposed on
the transfer of copyrighted or patented materials or provisions in
agreements that restrict the assignment of such agreement or any
rights thereunder;
(iv) any instrument governing Indebtedness or other
obligations of a person acquired (whether pursuant to a purchase of
stock or assets) by the Company or any Restricted Subsidiary or appli-
cable to any assets so acquired at the time such person became a
Subsidiary of the Company or such assets were acquired by the Company
or a Restricted Subsidiary (excluding instruments entered into by such
person in connection with, or in contemplation of, its becoming a
Subsidiary of the Company or its assets being acquired by the Company
or any Restricted Subsidiary, as the case may be), which encumbrance
or restriction is not applicable to any person, or the properties or
assets of any person, other than the person or the property or assets
of the person so acquired (including the Capital Stock or Redeemable
Stock thereof) or any entity formed to effect such acquisition, and,
in each case, the monetary proceeds thereof;
(v) Indebtedness or other obligations existing on the
Issue Date;
(vi) the subordination (pursuant to its terms) in right
and priority of payment to Indebtedness of the Company
<PAGE>
or any of its Restricted Subsidiaries of any Indebtedness owed by the
Company or any Restricted Subsidiary of the Company to the Company or
any of its other Restricted Subsidiaries, provided, (A) the
Indebtedness is permitted under this Indenture and (B) the Board of
Directors has determined in good faith at the time of the creation of
such encumbrance or restriction that such encumbrance or restriction
would not singly or in the aggregate have a material adverse effect on
the holders of the Securities;
(vii) restrictions imposed by covenants contained
in any refinancing of Indebtedness or other obligations described in
clauses (i), (ii), (iv), (v) and (ix) of this Section 4.06(b),
provided, that such restrictions are, in the good faith determination
of the Board of Directors, on the whole, not materially more
restrictive than such restrictions contained in such refinanced
Indebtedness;
(viii) restrictions imposed by applicable laws or
regulations or pursuant to condemnation or eminent domain proceedings;
(ix) restrictions on Scotia Pacific and/or any of its
Subsidiaries imposed by the Scotia Pacific Agreements, the Deed of
Trust, the Timber Note Indenture or any other agreements entered into
in connection with the Timber Notes, as the same may be amended in
accordance with Section 4.11 of this Indenture;
(x) an agreement which has been entered into for the
sale or disposition of all or substantially all of the Stock or assets
of a Restricted Subsidiary of the Company, provided, however, that
such encumbrances or restrictions are
<PAGE>
limited to the Stock or assets being sold or disposed of;
(xi) applicable law and agreements with foreign
governments with respect to assets located in their respective
jurisdictions; or
(xii) customary provisions placing limitations on
the payment of dividends on shares of stock contained in the terms of
Preferred Stock instruments issued in compliance with this Indenture.
(c) The provisions of Section 4.06(a) shall not prohibit
(i) Liens not prohibited by Section 4.10 or (ii) restrictions on the
sale or other disposition of any property securing Indebtedness,
provided, that such Indebtedness is otherwise permitted by this
Indenture.
SECTION 4.07. LIMITATION ON ASSET SALES. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, consummate any
Asset Sale, unless (except in the case of an Asset Sale which is a
Taking) (i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the
fair value of the assets subject to such Asset Sale (as reasonably
determined by the Board of Directors), including the value of all
non-cash consideration, and (ii) at least 75% of the aggregate
consideration (excluding indemnities) received therefor by the Company
or such Restricted Subsidiary is in the form of money or Cash
Equivalents. The amount of any liabilities of the Company or any
Restricted Subsidiary of the Company that is actually assumed by the
transferee in such Asset Sale shall be deemed to be money for purposes
of determining the percentage of money and Cash Equivalent
consideration received by the Company and its Restricted Subsidiaries.
(b) For the purposes of this Section 4.07, "ASSET SALE
OFFER AMOUNT" means the sum of the amount of Net Cash Proceeds from
each Asset Sale (excluding the amount of Net Cash Proceeds from such
Asset Sales which have been subjected to a prior Asset Sale Offer) by
<PAGE>
the Company and its Restricted Subsidiaries which, on the 360th day
following the consummation of such Asset Sale (or the 540th day
following the consummation of an Asset Sale solely by Pacific Lumber
and/or any of its Restricted Subsidiaries, other than Scotia Pacific
so long as any Timber Notes are outstanding, if such Asset Sale is
governed by the terms of the Pacific Lumber Indenture (a "PL Asset
Sale")), the Company and its Restricted Subsidiaries have not (i)
reinvested, or entered into binding obligations (subject to customary
closing and termination provisions) to reinvest, in additional assets
to be used in one or more lines of business (including capital ex-
penditures) in which the Company and its Restricted Subsidiaries are
engaged as of the Issue Date (or reasonably related extensions of such
lines), or (ii) applied to make repayments or purchases of the
Securities or the Pacific Lumber Senior Notes (or Indebtedness ranking
pari passu in right and priority of payment with the Pacific Senior
Lumber Notes), provided, that Net Cash Proceeds of any PL Asset Sale,
to the extent not applied pursuant to clause (i) or (ii) above, shall
be included in the Asset Sale Offer Amount only to the extent
permitted to be distributed or paid as a dividend pursuant to Section
4.04(a) of the Pacific Lumber Indenture and applicable law on the
earlier of (A) the 450th day following the consummation of such Asset
Sale and (B) the consummation of any offer to purchase Pacific Lumber
Senior Notes which Pacific Lumber is required to make with such Net
Cash Proceeds pursuant to the Pacific Lumber Indenture.
(c) Each Holder shall have the right, at the Holder's
option, to require the Company to apply the Asset Sale Offer Amount to
purchase Securities tendered pursuant to an offer by the Company to
purchase Securities at a purchase price (the "ASSET SALE PURCHASE
PRICE") equal to 100% of the Accreted Value, as of the scheduled date
of purchase (the "ASSET SALE PURCHASE DATE"), of the Securities
purchased, plus accrued and unpaid interest, if any, thereon to (but
not including) the Asset Sale Purchase Date in accordance with the
procedures (including proration in the event of an oversubscription)
set forth in this Section 4.07 (an "ASSET SALE OFFER"); provided, that
the Company shall not be required to (but may in its discretion) make
an Asset Sale Offer, unless the Asset Sale Offer Amount exceeds
$25,000,000. No Asset Sale Offer Amount shall be required to be ap
<PAGE>
plied to purchase Securities pursuant to more than one Asset Sale
Offer. Pending application of any Net Cash Proceeds in accordance
with this Section 4.07, the Company or a Restricted Subsidiary, as the
case may be, may invest such Net Cash Proceeds in Cash Equivalents.
(d) Within 30 days following the date on which the Asset
Sale Offer Amount exceeds $25,000,000, the Company shall mail a
written notice of an Asset Sale Offer to the Trustee, the Paying Agent
and each Holder (and to beneficial owners as required by applicable
law including, without limitation, the Exchange Act and the Rules and
Regulations promulgated pursuant thereto) (the "ASSET SALE OFFER
NOTICE"). The Asset Sale Offer Notice shall include a form of Asset
Sale Purchase Notice (as described below) to be completed by the
Holder and shall contain or state:
(1) the Asset Sale Offer Amount, a brief description of the
Asset Sale(s) which have generated Net Cash Proceeds and the
calculation of the Asset Sale Offer Amount;
(2) the date by which the Asset Sale Purchase Notice
pursuant to this Section 4.07 must be delivered to the Paying Agent;
(3) the Asset Sale Purchase Date (which shall be no earlier
than 30 days and not later than 60 days following the date on which
such Asset Sale Offer Notice is mailed, subject to compliance with
applicable law);
(4) the Asset Sale Purchase Price;
(5) the name and address of the Trustee and the Paying
Agent;
(6) that the Securities must be surrendered to the Paying
Agent;
(7) that the Asset Sale Purchase Price for any Security as
to which an Asset Sale Purchase Notice has been duly given and not
withdrawn will be paid promptly (subject to proration as described in
clause (d)(8) of this
<PAGE>
Section 4.07) following the later of the Asset Sale Purchase Date and
the time of surrender of such Security as described in clause (d)(6)
of this Section 4.07;
(8) that if Asset Sale Purchase Notices are given with
respect to Securities having an aggregate Asset Sale Purchase Price in
excess of the Asset Sale Offer Amount pursuant to the Asset Sale
Offer, the Company shall purchase Securities on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that
only Securities in denominations of $1,000 or integral multiples
thereof shall be acquired);
(9) the procedures that the Holder must follow to exercise
rights under this Section 4.07 and a brief description of those
rights; and
(10) the procedures for withdrawing an Asset Sale Purchase
Notice.
The Trustee and the Paying Agent shall be under no obligation to
ascertain the occurrence of an Asset Sale. The Trustee and the Paying
Agent may conclusively assume, absent contrary notice from the
Company, that no Asset Sale has occurred.
(e) To accept the offer to purchase Securities described in
Section 4.07(c), a Holder must deliver a written notice of purchase
(an "ASSET SALE PURCHASE NOTICE") to the Paying Agent at any time
prior to the close of business on the third Business Day immediately
preceding the Asset Sale Purchase Date, stating:
(1) the name of the Holder, the series, the principal
amount at maturity and the certificate number or numbers of the
Security or Securities which the Holder will deliver to be purchased,
and a statement that the Asset Sale Offer is being accepted with
respect to such Securities;
<PAGE>
(2) the portion of the principal amount at maturity of any
Security which the Holder will deliver to be purchased, which portion
must be $1,000 principal amount at maturity or an integral multiple
thereof; and
(3) that such Security or Securities shall be purchased on
the Asset Sale Purchase Date pursuant to the terms and conditions
specified in the Securities and this Indenture.
The delivery of a Security, by hand or by registered mail
prior to, on or after the Asset Sale Purchase Date (together with all
necessary endorsements), to the Paying Agent shall be a condition to
the receipt by the Holder of the Asset Sale Purchase Price therefor;
provided, however, that such Asset Sale Purchase Price shall be so
paid pursuant to this Section 4.07 only if the Security or Securities
so delivered to the Paying Agent shall conform in all respects to the
description thereof set forth in the related Asset Sale Purchase
Notice; and provided, further, that the Company shall have no
obligation to purchase any Securities with respect to which an Asset
Sale Purchase Notice has not been received by the Paying Agent prior
to the close of business on the third Business Day immediately
preceding the Asset Sale Purchase Date.
In the event that the Asset Sale Offer described in this
Section 4.07 shall be accepted in accordance with the terms hereof
with respect to any portion of a Security, the Company shall purchase
from the Holder thereof (subject to proration pursuant to Section
4.07(f)), pursuant to this Section 4.07, such portion of such Security
if the principal amount at maturity of such portion is $1,000 or an
integral multiple of $1,000. In connection with a Security purchased
in part, the Company shall execute and the Trustee shall authenticate
for delivery to the Holder thereof, a new Security equal in principal
amount to that of the unpurchased portion of the Security surrendered.
(f) Upon receipt by the Paying Agent of the Asset Sale
Purchase Notice as specified in Section 4.07(e), the Holder of the
Security (or portion thereof) in respect of which such Asset Sale
Purchase Notice was
<PAGE>
given shall (subject to proration pursuant to this Section 4.07(f) and
unless such Asset Sale Purchase Notice is withdrawn as specified in
the following paragraph) thereafter be entitled to receive the Asset
Sale Purchase Price with respect to such Security (or portion
thereof). Such Asset Sale Purchase Price shall be due and payable as
of the Asset Sale Purchase Date and shall be paid to such Holder
promptly following the later of (i) the Asset Sale Purchase Date
(provided the conditions in Section 4.07(e), as applicable, have been
satisfied) and (ii) the date of delivery of such Security to the
Paying Agent by the Holder thereof in the manner required by Section
4.07(e).
An Asset Sale Purchase Notice may be withdrawn by means of a
written notice of withdrawal delivered to the Paying Agent at any time
on or prior to the close of business on the second Business Day
preceding the Asset Sale Purchase Date, specifying:
(1) the series and the certificate number or numbers of the
Security or Securities in respect of which such notice of withdrawal
is being submitted;
(2) the principal amount at maturity of the Security or
Securities with respect to which such notice of withdrawal is being
submitted; and
(3) the principal amount at maturity, if any, of such
Security or Securities which remains subject to the original Asset
Sale Purchase Notice, and which has been or will be delivered for
purchase by the Company.
If at the close of business on the second Business Day
preceding the Asset Sale Purchase Date, the Asset Sale Purchase Price
of all Securities for which Asset Sale Purchase Notices have been
given and not withdrawn exceeds the Asset Sale Offer Amount, the
Paying Agent shall select the Securities to be purchased such that
each properly tendering Holder shall receive a portion of the Asset
Sale Offer Amount on a pro rata basis (with such adjustments as may be
deemed appropriate by the Paying Agent so that only Securities in
denominations
<PAGE>
of $1,000 principal amount at maturity or integral multiples thereof
shall be purchased). The Paying Agent shall promptly return to the
Holder thereof any Securities surrendered which the Company shall not
be required to purchase pursuant to this Section 4.07.
(g) On or prior to the Asset Sale Purchase Date, the
Company shall deposit with the Paying Agent (which, for purposes of
this Section 4.07, may not be the Company or a Subsidiary or an
Affiliate of either) an amount of money (not exceeding the Asset Sale
Offer Amount) in immediately available funds sufficient to pay the
aggregate Asset Sale Purchase Price of the Securities (or portions
thereof) which are to be purchased on the Asset Sale Purchase Date.
If money sufficient to pay the Asset Sale Purchase Price of all
Securities (or portions thereof) to be purchased on the Asset Sale
Purchase Date is deposited with the Paying Agent as of the Asset Sale
Purchase Date, interest shall cease to accrue (and, in the case of a
Series A Security, any increase in Accreted Value shall cease),
whether or not any such Security is delivered to the Paying Agent, on
such Securities (or portions thereof) on and after the Asset Sale
Purchase Date, and the Holders thereof shall have no other rights as
such, other than the right to receive the Asset Sale Purchase Price
(and, in the case of a Security purchased in part, a new Security
equal in principal amount to the unpurchased portion of the Security
surrendered) upon surrender of such Securities.
(h) In connection with any offer to purchase, or any
purchase of, Securities under this Section 4.07, the Company shall (i)
comply with the Exchange Act, if applicable, (ii) file any required
Schedules of the Exchange Act, if applicable, and (iii) otherwise
comply with all Federal and state securities laws regulating the
purchase of the Securities.
(i) The Paying Agent shall return to the Company any money,
together with interest or dividends, if any, thereon held by it for
the payment of the Asset Sale Purchase Price of the Securities that
remain unclaimed as provided in Section 8.04 hereof; provided,
however, that to the extent that the aggregate amount of money
deposited by the Company pursuant to Section 4.07(g) exceeds the
aggregate Asset Sale Purchase Price
<PAGE>
of the Securities or portions thereof to be purchased on the Asset
Sale Purchase Date, then promptly after the Asset Sale Purchase Date,
the Paying Agent shall return any such excess to the Company together
with interest or dividends, if any, thereon.
(j) Notwithstanding anything to the contrary contained in
this Section 4.07, this Section 4.07 shall not prohibit or otherwise
apply to (i) a consolidation or merger of the Company or a transfer,
conveyance, sale or lease of all or substantially all of the Company's
assets, provided that any such transaction complies with the
provisions and the terms set forth in Section 5.01 or (ii) any
transaction permitted by Section 4.04.
SECTION 4.08. LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a)
The Company shall not, and shall not permit any of its Restricted
Subsidiaries or Salmon Creek (or any successor to Salmon Creek or any
transferee of substantially all of the assets of Salmon Creek so long
as such successor or transferee is a Subsidiary of the Company) to,
enter into any transaction or transactions with any Affiliate of the
Company, unless: (i) the terms thereof are not less favorable to the
Company or such Restricted Subsidiary than those that could reasonably
be obtained in a comparable transaction at such time with a person who
is not an Affiliate of the Company; (ii) such transaction shall have
been approved as meeting such standard, in good faith, by a majority
of the members of the Board of Directors; and (iii) with respect to
any transaction or series of related transactions involving payments
and consideration in excess of $10,000,000, the Company shall have
obtained and made available to the Trustee an opinion of a nationally
recognized investment banking firm stating that the terms of such
transaction or series of transactions are fair from a financial point
of view to the Company or its Restricted Subsidiary, as the case may
be. The Company shall deliver to the Trustee, within 60 days after
the end of each fiscal quarter of the Company, an Officers'
Certificate which shall briefly describe and specify the aggregate
dollar amount of transactions (other than the transactions set forth
in Section 4.08(b)) with Affiliates of the Company occurring during
such fiscal quarter.
<PAGE>
(b) The provisions contained in Section 4.08(a) shall not
apply to: (i) any transaction permitted by Section 4.04(a) or Section
4.04(c)(i), (v) and (vi) of this Indenture; (ii) the execution and
delivery of, the performance of, and the making of any payments
required by, the Tax Sharing Agreements; (iii) the execution and
delivery of, the performance of, and the making of any payments
required by, the Bering Agreement; (iv) the making of payments to
MAXXAM for reimbursement for actual services provided thereby to the
Company and its Subsidiaries based on actual costs and an allocable
share of overhead expenses consistent with prior practices; (v)
compensation, indemnification and other benefits paid or made
available to officers, directors and employees of the Company or a
Restricted Subsidiary for services rendered in such person's capacity
as an officer, director, or employee (including reimbursement or
advancement of reasonable out-of-pocket expenses and directors' and
officers' liability insurance); and (vi) the execution and delivery
of, the performance of, and the making of any payments required by,
the MXM Guaranty; in the case of clauses (iii) and (iv) of this
Section 4.08(b), to the extent the aggregate amount of payments
pursuant to such clauses does not exceed $5 million in any calendar
year, which amount shall be adjusted for each calendar year,
commencing with the calendar year beginning January 1, 1994 (each, an
"Adjustment Period"), by multiplying such amount by a fraction, the
numerator of which shall be the then most recent Producer Price Index
(Lumber and Wood Products Commodity Groups) (Standard Industrial
Classification No. 2400), as published by the United States Department
of Labor, Bureau of Labor Statistics (the "PPI Index"), in effect on
the first day of such Adjustment Period, and the denominator of which
shall be the most recent PPI Index published as of January 1, 1993.
SECTION 4.09. CHANGE OF CONTROL. (a) Upon the first Change of
Control to occur after the date of this Indenture (but not upon any
subsequent Change of Control), each Holder shall have the right, at
the Holder's option, to require that the Company purchase any or all
of such Holder's Securities at a purchase price (the "CHANGE OF
CONTROL PURCHASE PRICE") in cash equal to 101% of the Accreted Value
of the Securities to be purchased, plus accrued and unpaid interest in
each case, if any, thereon to (but not including) the scheduled date
of
<PAGE>
purchase (the "CHANGE OF CONTROL PURCHASE DATE"), in accordance with
the procedures set forth in this Section 4.09.
(b) Within 30 days following the first occurrence of a
Change of Control following the date of this Indenture, the Company
shall mail a written notice of Change of Control to the Trustee, the
Paying Agent and each Holder (and to beneficial owners as required by
applicable law, including without limitation, Rule 13e-4 of the
Exchange Act) (the "CHANGE OF CONTROL OFFER NOTICE"). The Change of
Control Offer Notice shall include a form of Change of Control
Purchase Notice (as described below) to be completed by the Holder and
shall contain or state:
(1) a brief description of the Change of Control and the
date of such Change of Control;
(2) the date by which the Change of Control Purchase Notice
pursuant to this Section 4.09 must be delivered to the Paying Agent;
(3) the Change of Control Purchase Date (which shall be no
earlier than 30 days and not later than 60 days following the date on
which such Change of Control Offer Notice is mailed, subject to
compliance with applicable law);
(4) the Change of Control Purchase Price;
(5) the name and address of the Trustee and the Paying
Agent;
(6) that the Securities must be surrendered to the Paying
Agent;
(7) that the Change of Control Purchase Price for any
Security as to which such Change of Control Purchase Notice has been
duly given and not withdrawn will be paid promptly following the later
of the Change of Control Purchase Date and the time of surrender of
such Security as described in clause (b)(6) of this Section 4.09;
<PAGE>
(8) the procedures that the Holder must follow to exercise
rights under this Section 4.09 and a brief description of those
rights; and
(9) the procedures for withdrawing such Change of Control
Purchase Notice.
The Trustee and the Paying Agent shall be under no
obligation to ascertain the occurrence of a Change of Control. The
Trustee and the Paying Agent may conclusively assume, absent contrary
notice from the Company, that no Change of Control has occurred.
(c) To accept the offer to purchase Securities
described in Section 4.09(a), a Holder must deliver a written notice
of purchase (a "CHANGE OF CONTROL PURCHASE NOTICE") to the Paying
Agent at any time prior to the close of business on the third Business
Day immediately preceding the Change of Control Purchase Date,
stating:
(1) the name of the Holder, the series, the principal
amount at maturity and the certificate number or numbers of the
Security or Securities which the Holder will deliver to be purchased,
and a statement that the offer to purchase is being accepted with
respect to such Securities;
(2) the portion of the principal amount at maturity of any
Security which the Holder will deliver to be purchased, which portion
must be $1,000 principal amount at maturity or an integral multiple
thereof; and
(3) that such Security or Securities shall be purchased on
the Change of Control Purchase Date pursuant to the terms and condi-
tions specified in the Securities and this Indenture.
The delivery of a Security, by hand or by registered mail
prior to, on or after the Change of Control Purchase Date (together
with all necessary endorsements), to the Paying Agent shall be a
condition to the receipt
<PAGE>
by the Holder of the Change of Control Purchase Price therefor;
provided, however, that such Change of Control Purchase Price shall be
so paid pursuant to this Section 4.09 only if the Security or
Securities so delivered to the Paying Agent shall conform in all
respects to the description thereof set forth in the related Change of
Control Purchase Notice; and provided, further, that the Company shall
have no obligation to purchase any Securities with respect to which a
Change of Control Purchase Notice has not been received by the Paying
Agent prior to the close of business on the third Business Day immedi-
ately preceding the Change of Control Purchase Date.
In the event that the offer to purchase described in Section
4.09(a) shall be accepted in accordance with the terms hereof with
respect to any portion of a Security, the Company shall purchase from
the Holder thereof, pursuant to this Section 4.09, such portion of
such Security if the principal amount at maturity of such portion is
$1,000 principal amount at maturity or an integral multiple of $1,000
principal amount at maturity. In connection with a Security purchased
in part, the Company shall execute and the Trustee shall authenticate
for delivery to the Holder thereof, a new Security equal in principal
amount to the unpurchased portion of the Security surrendered.
(d) Upon receipt by the Paying Agent of the Change of
Control Purchase Notice as specified in Section 4.09(c), the Holder of
the Security (or portion thereof) in respect of which such Change of
Control Purchase Notice was given shall (unless such Change of Control
Purchase Notice is withdrawn as specified in the following paragraph)
thereafter be entitled to receive the Change of Control Purchase Price
with respect to such Security (or portion thereof). Such Change of
Control Purchase Price shall be due and payable as of the Change of
Control Purchase Date and shall be paid to such Holder promptly
following the later of (i) the Change of Control Purchase Date
(provided the conditions in Section 4.09(c), as applicable, have been
satisfied) and (ii) the date of delivery of such Security to the
Paying Agent by the Holder thereof in the manner required by Section
4.09(c).
<PAGE>
A Change of Control Purchase Notice may be withdrawn by
means of a written notice of withdrawal delivered to the Paying Agent
at any time on or prior to the close of business on the Business Day
next preceding the Change of Control Purchase Date, specifying:
(1) the series and the certificate number or numbers of the
Security or Securities in respect of which such notice of withdrawal
is being submitted;
(2) the principal amount at maturity of the Security or
Securities with respect to which such notice of withdrawal is being
submitted; and
(3) the principal amount at maturity, if any, of such
Security or Securities which remains subject to the original Change of
Control Purchase Notice, and which has been or will be delivered for
purchase by the Company.
(e) On or prior to the Change of Control Purchase
Date, the Company shall deposit with the Paying Agent (or, if the
Company or a Subsidiary or an Affiliate of either of them is acting as
Paying Agent, shall segregate and hold in trust) an amount of cash in
immediately available funds sufficient to pay the aggregate Change of
Control Purchase Price of all the Securities (or portions thereof)
which are to be purchased on the Change of Control Purchase Date. If
money sufficient to pay the Change of Control Purchase Price of all
Securities (or portions thereof) to be purchased on the Change of Con-
trol Purchase Date is deposited with the Paying Agent as of the Change
of Control Purchase Date, interest shall cease to accrue (and, in the
case of a Series A Security, any increase in Accreted Value shall
cease), whether or not such Security is delivered to the Paying Agent,
on such securities (or portions thereof) on and after the Change of
Control Purchase Date, and the Holders thereof shall have no other
rights as such, other than the right to receive the Change of Control
Purchase Price (and, in the case of a Security purchased in part, a
new Security equal in principal amount at maturity to the unpurchased
portion of the Security surrendered) upon surrender of such
Securities.
<PAGE>
(f) In connection with any offer to purchase, or any
purchase of, Securities pursuant to this Section 4.09, the Company
shall (i) comply with the Exchange Act and the applicable Rules and
Regulations of the Exchange Act (or any successor provision thereof),
if applicable, (ii) file the Schedules required by the Exchange Act,
if applicable, and (iii) otherwise comply with all Federal and state
securities laws regulating the purchase of the Securities.
(g) The Paying Agent shall return to the Company any
money, together with interest or dividends, if any, thereon held by it
for the payment of the Change of Control Purchase Price of the
Securities that remain unclaimed as provided in Section 8.04 hereof;
provided, however, that to the extent that the aggregate amount of
money deposited by the Company pursuant to Section 4.09(e) exceeds the
aggregate Change of Control Purchase Prices of the Securities (or
portions thereof) to be purchased on the Change of Control Purchase
Date, then promptly after the Change of Control Purchase Date, the
Paying Agent shall return any such excess to the Company together with
interest or dividends, if any, thereon.
SECTION 4.10. LIMITATION ON LIENS. The Company shall not, and
shall not permit any of its Restricted Subsidiaries to, incur, assume,
suffer to exist, create or otherwise cause to be effective Liens upon
any of their respective assets to secure Indebtedness, except for:
(i) Liens in existence on the Issue Date;
(ii) Liens securing all or any Indebtedness outstanding
under the Credit Agreement;
(iii) Liens incurred or pledges and deposits in
connection with workers' compensation, unemployment insurance and
other social security benefits, leases, appeal bonds and other
obligations of like nature, incurred by the Company or any Restricted
Subsidiary in the ordinary course of business;
<PAGE>
(iv) Liens imposed by law, including, without limitation,
mechanics', carriers', warehouse men's, material men's, suppliers' and
vendors' Liens, incurred by the Company or any Restricted Subsidiary
in the ordinary course of business;
(v) zoning restrictions, easements, licenses, covenants,
reservations, restrictions on the use of real property or minor
irregularities of title incident thereto, which do not in the
aggregate have a material adverse effect on the operation of the
business of the Company or its Restricted Subsidiaries taken as a
whole;
(vi) Liens for ad valorem, income or property taxes or
assessments and similar charges either (A) not Delinquent or (B)
contested in good faith by appropriate proceedings and as to which the
Company has set aside on its books reserves to the extent required by
GAAP;
(vii) Liens in respect of purchase money Indebtedness
incurred to acquire assets or Stock provided that such Liens are
limited to the assets or Stock acquired with the proceeds of such
Indebtedness (and the proceeds of such assets or Stock);
(viii) Liens securing Indebtedness permitted by Section
4.03(c) which refinances secured Indebtedness, so long as such Liens
are limited to the collateral which secures the Indebtedness being
refinanced and the proceeds of such collateral;
(ix) Liens on any assets or the Stock of any Subsidiary of
the Company which assets or Stock are acquired by the Company or a
Restricted Subsidiary subsequent to the date of this Indenture and
<PAGE>
which Liens were in existence on or prior to the acquisition of such
assets or the Stock of such Subsidiary (to the extent that such Liens
were not created in contemplation of such acquisition); provided that
such Liens are limited to the assets so acquired or the Stock of such
acquired Subsidiary (or the entity organized to effect such
acquisition) and the proceeds thereof;
(x) Liens securing Indebtedness permitted by clauses (vi),
(viii), (ix), or (xii) of Section 4.03(b), provided, in each such
case, that such Liens are limited to the assets financed with the
proceeds of the Indebtedness incurred pursuant to such provisions (and
the proceeds of such assets);
(xi) Liens securing Indebtedness under any Interest Rate
Protection Agreement permitted by Section 4.03(b)(vii), provided, that
such Liens are limited to the collateral which secures the
Indebtedness to which such Interest Rate Protection Agreement relates;
(xii) Liens imposed pursuant to condemnation or eminent
domain or substantially similar proceedings or in connection with
compliance with environmental laws or regulations;
(xiii) Liens granted pursuant to the Timber Notes, the
Timber Note Indenture or the Deed of Trust, in connection with the
Timber Notes or in connection with any of the Scotia Pacific Agree-
ments, or in connection with any other agreement entered into in
connection with the Timber Notes;
(xiv) other Liens securing Indebtedness not exceeding
$25,000,000 in
<PAGE>
aggregate principal amount; and
(xv) Liens in favor of the Trustee pursuant to this
Indenture and Liens in favor of the trustee under and pursuant to the
Pacific Lumber Indenture.
SECTION 4.11. AMENDMENT OF SCOTIA PACIFIC AGREEMENTS. The
Company shall not permit Scotia Pacific to agree to amend the Timber
Note Indenture, the Deed of Trust, or any of the Scotia Pacific
Agreements, unless such amendment (i) is to cure any ambiguity,
omission, defect or inconsistency, or to add to the covenants of
Scotia Pacific for the benefit of the Company or the Holders or to
surrender any right or power conferred in the Master Purchase
Agreement on Scotia Pacific, or (ii) does not materially adversely
affect the ability of the Company to pay principal or interest on the
Securities when due.
SECTION 4.12. COMPLIANCE CERTIFICATE. The Company shall deliver
to the Trustee within 120 days after the end of each fiscal year of
the Company an Officers' Certificate stating whether or not the
signers know of any Default that occurred during such period. If they
do, the Officers' Certificate shall describe the Default and its
status. Such Officers' Certificates shall comply with TIA Section
314(a)(4).
SECTION 4.13. USE OF PROCEEDS. The Company shall use the net
proceeds from the offering and sale of the Securities as set forth in
the Prospectus under the caption "Use of Proceeds."
SECTION 4.14. CORPORATE EXISTENCE. Subject to Article 5, the
Company shall do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, rights
(charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise
if its Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the
Company.
<PAGE>
SECTION 4.15. LIMITATION ON STATUS AS INVESTMENT COMPANY.
Neither the Company nor any of its Restricted Subsidiaries shall
become an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended).
SECTION 4.16. LIMITATION ON LIENS ON PLEDGED SHARES. Each
Pledgor covenants with respect to any Pledged Shares with respect to
which it has granted a Lien pursuant to this Indenture that it will
not, and will not permit any Subsidiary thereof to, directly or
indirectly, create, incur, assume or permit to exist, will defend such
Pledged Shares against, and will take such action as is necessary to
remove any Lien or claim on or in respect of such Pledged Shares,
except (i) the Liens created by this Indenture, (ii) Liens for taxes
or assessments or other governmental charges or levies not yet due or
payable under law or being contested in good faith by appropriate
proceedings, (iii) Liens arising by operation of law in the ordinary
course of business and with respect to amounts not overdue for a
period of more than 90 days or being contested in good faith by appro-
priate proceedings and (iv) judgment Liens and other similar Liens
arising in connection with court proceedings (provided, that the
execution or other enforcement thereof is effectively stayed within 60
days following entry of judgment and the claims secured thereby are
being actively contested in good faith and by appropriate
proceedings).
SECTION 4.17. DECLARATION AND PAYMENT OF DIVIDENDS BY PACIFIC
LUMBER AND BRITT. Pacific Lumber and Britt shall, to the extent that
there exists any consensual restriction or encumbrance on their
respective abilities to pay dividends or make any other distributions
on their respective Capital Stock ("Dividend Encumbrances"), declare
and pay dividends to their stockholders to the maximum extent
permitted by the instruments or other agreements containing such
Dividend Encumbrances, unless the Board of Directors of Pacific Lumber
or Britt determines in good faith (whose determination shall be evi-
denced by a resolution of the Board of Directors filed with the
Trustee) that the declaration or payment of such dividend would be
detrimental to the capital and other operating needs of Pacific Lumber
or Britt, as the case may be.
<PAGE>
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS.
Except as permitted by Section 10.13, the Company shall not
consolidate with or merge with or into, or convey, transfer or lease
all or substantially all of its assets to, any person or group of
related persons in a single transaction or series of related
transactions, or permit any of its Restricted Subsidiaries to enter
into any such transaction or transactions if such transaction or
transactions in the aggregate would result in a transfer of all or
substantially all of the assets of the Company and its Restricted
Subsidiaries on a consolidated basis to any person other than the
Company, unless (except as permitted by Article 10):
(i) the resulting, surviving or transferee person (if not
the Company) shall be organized and existing under the laws of the
United States of America or any State thereof or the District of Co-
lumbia and such entity shall expressly assume, by supplemental
indenture hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under
the Securities and this Indenture, and such entity and/or each other
person that, upon consummation of such transaction or transactions,
obtains ownership of any portion of the Collateral (to the extent such
Collateral is not released from the Lien of this Indenture in
accordance with the terms of this Indenture) shall, if not at the time
a Pledgor with respect thereto, grant a security interest (of like
tenor to the security interest granted on the Issue Date with respect
to such Collateral pursuant to Section 10.01(a) or (b), as applicable)
in such Collateral, and shall expressly assume, by supplemental inde-
nture hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the previ-
<PAGE>
ous Pledgor with respect to such Collateral set forth in Article 10;
(ii) immediately after giving effect to such transaction, no
Default shall have happened and be continuing;
(iii) except in the case of a merger, or transfer of all
or substantially all assets, of a Restricted Subsidiary into or to the
Company or into or to another Restricted Subsidiary, immediately after
giving effect to such transaction, the Consolidated Cash Flow Coverage
Ratio of the Company or the surviving entity shall exceed 2.0 to 1;
(iv) the Company shall have delivered to the Trustee an
Officers' Certificate to the foregoing effect and an Opinion of
Counsel, stating that such consolidation, merger or transfer convey-
ance or lease (other than the calculation of the Consolidated Cash
Flow Coverage Ratio as to which counsel need not opine) and such
supplemental indenture comply with this Indenture; and
(v) the Lien of this Indenture on the Collateral in favor
of the Trustee for the benefit of Holders of the Securities has not
been materially impaired in contravention of the provisions of this
Indenture as a result of such transaction or transactions; provided,
that any Pledged Company may merge or consolidate with or transfer
substantially all of its assets to a Restricted Subsidiary of the
Company pursuant to a transaction in compliance with the provisions of
Section 10.13.
The resulting, surviving or transferee person (if other than the
Company which executed this Indenture) shall succeed to, and may
exercise every right and power of, the Company under this Indenture
with the same effect
<PAGE>
as if such successor Company had been named as the Company herein and
the Company (except in the event of a lease of all or substantially
all of the Company's assets) shall be relieved of its obligations
under this Indenture and the Securities. Each person that becomes a
Pledgor with respect to any Collateral upon consummation of such
transaction or transactions shall succeed to, and may exercise every
right and power of, the person who was a Pledgor with respect thereto
prior to such consummation with the same effect as if such person had
been named as a Pledgor herein, and each person who ceases to be a
Pledgor upon such consummation shall be relieved of its obligations in
respect of such Collateral.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs
if:
(1) the Company defaults in any payment of interest on any
Security when the same becomes due and payable and such default
continues for a period of 30 days;
(2) the Company defaults in the payment of the Accreted
Value of any Security when the same becomes due and payable at its
Stated Maturity, upon optional or special redemption, upon declaration
or otherwise, including any failure by the Company to redeem or
repurchase any of the Securities when required pursuant to Sections
4.07, 4.09 and 10.05(f) of this Indenture or paragraphs 5 or 7 of the
Securities;
(3) the Company defaults in the performance of, or
breaches, any covenant or agreement on the part of the Company
contained in this Indenture (other than a covenant or agreement on the
part of the Company a default in whose performance or breach is
specifically addressed elsewhere in this Section 6.01), and
continuance of such default or breach for a period of 60 days after
written notice thereof, which must specify the default or breach,
demand it be remedied and state that the notice is a
<PAGE>
"Notice of Default," has been given to the Company by the Trustee or
to the Company and the Trustee by the Holders of at least 25% in
aggregate Accreted Value (at the time of such notice) of the
Securities then outstanding;
(4) there is a default under any bond, debenture, note or
other evidence of Indebtedness of the Company or any Restricted
Subsidiary, or under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any Restricted Subsidiary, whether such
Indebtedness now exists or is hereafter created, which default in-
volves the failure to pay principal on Indebtedness at the final
maturity thereof or which has resulted in such Indebtedness becoming
or being declared due and payable prior to its scheduled maturity in
an aggregate amount in excess of $10,000,000;
(5) the Company or any Significant Subsidiary pursuant to
or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors;
(6) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary in an involuntary case,
(B) appoints a Custodian of the Company or any
Significant Subsidiary or for all or substantially all of its
property, or
<PAGE>
(C) orders the winding up or liquidation of the
Company or any Significant Subsidiary,
and in each case the order or decree remains unstayed and in
effect for a period of 60 consecutive days; or
(7) the entry by a court having jurisdiction in the
premises of one or more judgments or orders against the Company or any
Restricted Subsidiary for the payment of money in an aggregate amount
in excess of $10,000,000 (to the extent not covered by insurance)
which remain undischarged or unsatisfied for a period of 60
consecutive days after the judgments or orders become final and the
right to appeal them has expired.
The term "Bankruptcy Law" means Title 11 of the United States
Code, or any similar Federal or state law for the relief of debtors.
The term "Custodian" means any receiver, trustee, assignee,
liquidator, custodian or similar official under any Bankruptcy Law.
The Company shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice, in the form of an Officers'
Certificate, of any event which with the giving of notice and the
lapse of time would become an Event of Default under clauses (4) or
(7). Such notice shall specify the status of such event and what
action the Company is taking or proposes to take with respect thereto.
SECTION 6.02. ACCELERATION. If an Event of Default (other than
an Event of Default specified in Section 6.01(5) or (6)) occurs and is
continuing, either the Trustee by written notice to the Company, or
the Holders of at least 25% in aggregate Accreted Value (at the time
of such notice) of the Securities then outstanding by written notice
to the Company and the Trustee, may declare the then Accreted Value
and accrued interest, if any, on all the Securities to be due and
payable. If an Event of Default specified in Section 6.01(5) or (6)
with respect to the Company occurs and is continuing, the Accreted
Value of and interest on all the Securities then outstanding shall
ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any
Securityholder. The Hold-
<PAGE>
ers of a majority in aggregate Accreted Value (at the time of such
notice) of the Securities then outstanding by notice to the Trustee
may rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due
solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and
is continuing, the Trustee may pursue any available remedy to collect
the payment of Accreted Value of or interest on the Securities or to
enforce the performance of any provision of the Securities or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder
in exercising any right or remedy accruing upon an Event of Default
shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. No remedy is exclusive of any
other remedy. All available remedies are cumulative.
SECTION 6.04. WAIVER OF PAST DEFAULTS. Subject to Sections 6.07
and 9.02, the Holders of a majority in aggregate Accreted Value (at
the time of such notice) of outstanding Securities by notice to the
Trustee may waive an existing Default and its consequences except (1)
a Default or Event of Default in the payment of the Accreted Value of
or interest on a Security as specified in clauses (1) and (2) of
Section 6.01 or (2) a Default in respect of a provision that under
Section 9.02 cannot be amended without the consent of each
Securityholder affected. When a Default or Event of Default is
waived, it is deemed cured and ceases, but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in
aggregate Accreted Value (at the time) of outstanding Securities may
direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust
<PAGE>
or power conferred on the Trustee. However, the Trustee may refuse to
follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly
prejudicial to the rights of other Securityholders or would involve
the Trustee in personal liability; provided, however, that the Trustee
may take any other action deemed proper by the Trustee that is not
inconsistent with such direction. Prior to taking any action
hereunder, the Trustee shall be entitled to indemnification reasonably
satisfactory to it against all losses and expenses caused by taking or
not taking such action.
SECTION 6.06. LIMITATION ON SUITS. A Securityholder may not
pursue any remedy with respect to this Indenture or the Securities,
unless:
(1) the Holders of at least 25% in aggregate Accreted Value
of Securities then outstanding give to the Trustee written notice
stating that an Event of Default is continuing;
(2) the Holders of at least 25% in aggregate Accreted Value
of the Securities then outstanding make a written request to the
Trustee to pursue the remedy;
(3) such Holders offer to the Trustee reasonable security
or indemnity against any loss, liability or expense to be incurred in
complying with such request;
(4) the Trustee does not comply with the request within 60
days after receipt of the notice, request and offer of security or
indemnity and such Event of Default has not been cured or waived; and
(5) the Holders of a majority in aggregate Accreted Value
of the Securities then outstanding do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority
over another Securityholder.
<PAGE>
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of Accreted Value of and interest on the
Securities held by such Holder, on or after the respective due dates
expressed in the Securities, or to bring suit for the enforcement of
any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder; provided,
that no Holder shall have the right to institute any such suit, if and
to the extent that the institution or prosecution thereof or the entry
of judgment therein would, under applicable law, result in the
surrender, impairment, waiver or loss of the Lien on the Collateral
created by this Indenture.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of
Default in payment of interest or Accreted Value specified in Section
6.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against
the Company for the whole amount of Accreted Value and interest
remaining unpaid (together with interest on such unpaid interest to
the extent lawful) and the amounts provided for in Section 7.07.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may
file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee and
the Securityholders allowed in any judicial proceedings relative to
the Company, its creditors or its property and, unless prohibited by
law or applicable regulations, may vote on behalf of the Holders in
any election of a trustee in bankruptcy or other person performing
similar functions, and be entitled and empowered to collect and re-
ceive any monies or other property payable or deliverable on any such
claims and to distribute the same, and any Custodian in any such
judicial proceeding is hereby authorized by each Holder to make
payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay
to the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
its counsel, and any other amounts due the Trustee under Section 7.07.
Nothing herein contained shall be deemed to authorize or consent to or
accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or compo-
<PAGE>
sition affecting the Securities or the rights of any Holder thereof,
or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding.
SECTION 6.10. PRIORITIES. If the Trustee collects any money
pursuant to this Article 6 or, if a Notice of Acceleration has been
delivered to the Company and is in effect and Trust Monies are held in
the Accounts, it shall pay out the money (or Trust Monies, as
applicable) in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on
the Securities for Accreted Value and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Securities for Accreted Value and interest,
respectively; and
THIRD: to the Company its successors and assigns.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section 6.10. At least 15
days before such record date, the Trustee shall mail to each
Securityholder and the Company a notice that states the record date,
the payment date and the amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit
against the Trustee for any action taken or omitted by it as Trustee,
a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section 6.11 does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07
or a suit by Holders of more than 10% in aggregate Accreted Value of
the then outstanding Securities.
<PAGE>
SECTION 6.12. WAIVER OF STAY OR EXTENSION LAWS. The Company (to
the extent it may lawfully do so) shall not at any time insist upon,
or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage
of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had
been enacted.
SECTION 6.13. RESTORATION OF RIGHTS AND REMEDIES. If the
Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company,
the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all
rights and remedies of the Company, the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
<PAGE>
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE. (a) The Trustee, prior to the
occurrence of an Event of Default and after the curing or waiving of
all Events of Default which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture. If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs. At all times, the Trustee's
sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207
of the Uniform Commercial Code or otherwise, shall be to deal with it
in the same manner as the Trustee deals with similar property for its
own account.
(b) Except during the continuance of an Event of
Default:
(1) the Trustee need perform only those duties that are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture which are adverse to
the Trustee; and
(2) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; provided, however, that the Trustee shall examine
the certificates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its own
wilful misconduct, except that:
(1) this paragraph does not limit the effect of paragraph
(b) of this Section 7.01;
<PAGE>
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts;
and
(3) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b) and (c) of
this Section.
(e) The Trustee shall agree in writing with the
Company to invest moneys deposited hereunder and the Company shall be
entitled to the income thereon.
(f) Funds held in trust by the Trustee need not be
segregated from other funds except to the extent required by this
Indenture and applicable law.
(g) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds to believe that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
SECTION 7.02. RIGHTS OF TRUSTEE. Subject to Section 7.01:
(a) The Trustee may rely and shall be protected in
acting or refraining from acting upon any written resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, Security or other paper or document
believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) Whenever in the administration of this Indenture
the Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in
<PAGE>
the absence of bad faith on its part, rely upon an Officers'
Certificate or an Opinion of Counsel;
(c) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be
authorized or within its rights or powers conferred upon it by this
Indenture; provided, however, that the Trustee's conduct does not
constitute willful misconduct, negligence or bad faith.
(d) The Trustee may consult with counsel, and the
advice or Opinion of Counsel with respect to this Indenture and the
Securities shall be full and complete authorization and protection
from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or
Opinion of Counsel.
(e) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Indenture at
the request or direction of any of the Securityholders pursuant to
this Indenture, unless such Securityholder shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses
and liabilities which might be incurred by it in compliance with such
requests or direction;
(f) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, Security or other paper or document but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the relevant books,
records and premises of the Company, personally or by agent or
attorney;
(g) The Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys, and the Trustee shall not be
responsible for any misconduct or negligence on the part of any agent
or attorney appointed with due care by it hereunder.
<PAGE>
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of
Securities and may otherwise deal with the Company or its Affiliates
with the same rights it would have if it were not Trustee. Any Paying
Agent or Registrar may do the same with like rights. Notwithstanding
the foregoing, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be
responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities,
and it shall not be responsible for any statement in this Indenture or
the Securities other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail
to each Securityholder, in the manner and to the extent provided in
TIA Section 315(b), notice of the Default within 90 days after it
occurs. Except in the case of a Default in payment of principal of or
interest on any Security, the Trustee may withhold the notice if and
so long as a committee of its Trust Officers in good faith determines
that withholding the notice is in the interest of Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as
practicable after each May 15, beginning with the May 15 following the
date of this Indenture, and in any event prior to July 15 in each
year, the Trustee shall mail to each Securityholder a brief report
dated as of May 15 of such year that complies with TIA Section 313(a).
The Trustee also shall comply with TIA Section 313(b)(1) and (2) and
(c).
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange,
if any, on which the Securities are listed. The Company agrees to
notify the Trustee whenever the Securities become listed on any stock
exchange and of any delisting thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay
to the Trustee from time to time reasonable compensation for its
services. The Trustee's
<PAGE>
compensation shall not be limited by any law on compensation relating
to the trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses
incurred by it, including reasonable expenses incurred in connection
with exercise of any remedy with respect to the Collateral, except any
such expense as may arise from the Trustee's negligence, bad faith or
wilful misconduct. Such expenses shall include the reasonable
compensation and expenses of the Trustee's agents and counsel. The
Company shall indemnify the Trustee against any loss, liability or
expense (including reasonable attorneys' fees) incurred by it without
negligence or bad faith on its part in connection with the
administration of this trust and the performance of its duties
hereunder. The Trustee shall notify the Company promptly of any claim
for which it may seek indemnity. The Company shall defend the claim
and the Trustee shall cooperate in the defense. The failure of the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder, except to the extent the Company is prejudiced
thereby. The Company need not pay for any settlement made without its
written consent. The Company need not reimburse any expense or
indemnify against any loss or liability incurred by the Trustee
through wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a lien prior to the Securities on all money or
property held or collected by the Trustee in its capacity as Trustee,
except that held in trust to pay Accreted Value of or interest on
particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs
expenses after the occurrence of an Event of Default specified in
Section 6.01(5) or (6) with respect to the Company, the expenses are
intended to constitute expenses of administration under the Bankruptcy
Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal
of the Trustee and the appointment of a successor Trustee shall become
effective only upon the successor Trustee's acceptance of appointment
as provided in this Section 7.08. The Trustee may resign at any time
by so notifying the Company and the Holders in writing.
<PAGE>
The Holders of a majority in aggregate Accreted Value of the
Securities then outstanding may remove the Trustee by so notifying the
Trustee and the Company in writing and may appoint a successor Trustee
with the Company's consent. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a Custodian, receiver or other public officer takes
charge of the Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly
appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective,
and the successor Trustee shall have all the rights, powers and duties
of the Trustee under this Indenture. The successor Trustee shall mail
a notice of its succession to Securityholders. The retiring Trustee
shall promptly transfer all property held by it as Trustee to the suc-
cessor Trustee, subject to the lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of a majority in aggregate Accreted Value of
the Securities then outstanding may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
<PAGE>
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee
consolidates or merges with or converts into, or transfers all or
substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or
transferee corporation without any further act shall be the successor
Trustee; provided, that in the case of a transfer of all or
substantially all of its corporate trust business to another
corporation, the transferee corporation expressly assumes all the
Trustee's liabilities under the Indenture and the Securities.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts
created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor trustee,
and deliver such Securities so authenticated; and in case at that time
any of the Securities shall not have been authenticated, any successor
to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full
force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of
any predecessor trustee or authenticate Securities in the name of any
predecessor trustee shall only apply to its successors by merger,
conversion or consolidation.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall
at all times satisfy the requirements of TIA Section 310(a)(1) and
(2). In addition, without limiting the foregoing, the Trustee shall
at all times be authorized to conduct a corporate trust business in
good standing, and be either (a) a bank or trust company having, or
(b) a wholly owned subsidiary of a bank or trust company having, a
combined capital and surplus of at least $50,000,000 as set forth in
its most recent published annual report of condition. The Trustee
shall comply with TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned
<PAGE>
or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE
(a) When (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.07)
for cancellation or (ii) all outstanding Securities not delivered to
the Trustee for cancellation have become due and payable, will become
due and payable at their stated maturity within one year or may be
called for redemption on a redemption date that is within one year
under arrangements satisfactory to the Trustee and the Company irrevo-
cably (i.e., without condition or right of withdrawal deposits with
the Trustee money or U.S. Governmental Obligations sufficient to pay
at maturity all outstanding Securities, including interest thereon
(other than Securities replaced pursuant to Section 2.07), and if in
either case the Company pays all other sums payable hereunder by the
Company, then this Indenture shall, subject to Sections 8.01(c) and
8.06, cease to be of further effect. Upon satisfaction of the
conditions set forth in this Section 8.01(a) and upon request of the
Company, accompanied by an Officers' Certificate and an Opinion of
Counsel, and at the expense of the Company, the Trustee shall
acknowledge in writing the discharge of the Company's obligations
under the Securities and this Indenture except for those surviving
obligations specified herein.
(b) Subject to Sections 8.01(c), 8.02 and 8.06, the
Company at any time may terminate (i) all its obligations under the
Securities and this Indenture ("legal defeasance option") or (ii) its
obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08,
4.09, 4.10, 4.11, 4.12 and 5.01(ii) other than with respect to an
Event of Default specified in Sections 6.01(1) or 6.01(2) and
5.01(iii) and the operation of Sections 6.01(3), 6.01(4) and 6.01(7)
("covenant defeasance option"). The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its covenant
defeasance option.
<PAGE>
If the Company exercises its legal defeasance option, payment of
the Securities may not be accelerated because of an Event of Default.
If the Company exercises its covenant defeasance option, payment of
the Securities may not be accelerated because of an Event of Default
specified in Sections 6.01(3), 6.01(4) and 6.01(7).
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the
discharge of those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the
Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07,
7.08, 8.04, 8.05 and 8.06 shall survive until the Securities have been
paid in full. Thereafter, the Company's obligations in Sections 7.07,
8.04 and 8.05 shall survive.
SECTION 8.02. CONDITIONS TO DEFEASANCE. The Company may
exercise its legal defeasance option or its covenant defeasance option
only if:
(i) the Company irrevocably deposits in trust with the
Trustee money or U.S. Governmental Obligations sufficient for the
payment of principal and interest on the Securities to maturity or
redemption, as the case may be;
(ii) the Company delivers to the Trustee an Officers'
Certificate to the effect that the payments of principal and interest
when due and without reinvestment on the deposited U.S. Government
Obligations plus any deposited money without investment will provide
cash at such times and in such amounts (but, in the case of the legal
defeasance option only, not more than such amounts) as will be
sufficient to pay principal and interest when due on all the
Securities to maturity or redemption, as the case may be;
(iii) 90 days pass after the deposit is made and during
the 90-day period no Default specified in Section 6.01(5) or (6) with
respect to the Company occurs which is continuing at the end of the
period;
<PAGE>
(iv) the deposit does not constitute a default under any
other agreement binding on the Company other than a default (a) with
respect to Indebtedness of the Company which is defeased, redeemed or
otherwise satisfied prior to or contemporaneously with such deposit,
or (b) which is consented to or waived by the relevant other party or
parties to the agreement;
(v) the Company delivers to the Trustee an Opinion of
Counsel or a ruling received from the Internal Revenue Service to the
effect that holders will not recognize income, gain or loss for
Federal income tax purposes as a result of the exercise of such rights
and will be subject to Federal income tax in the same amount and in
the same manner and at the same time as would have been the case
otherwise; provided, that the Company is not required to deliver to
the Trustee such Opinion of Counsel upon the exercise of the Company's
legal defeasance option or covenant defeasance option within one year
of Stated Maturity or a date fixed for redemption pursuant to Article
3; and
(vi) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the defeasance and discharge of the Securities
as contemplated by this Article 8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a
future date in accordance with Article 3.
SECTION 8.03. APPLICATION OF TRUST MONEY. The Trustee shall
hold in trust money or U.S. Government Obligations deposited with it
pursuant to this Article 8. It shall apply the deposited money and the
money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal of and
interest on the Securities.
<PAGE>
SECTION 8.04. REPAYMENT TO COMPANY. Subject to Section 8.01,
the Trustee and the Paying Agent shall promptly turn over to the
Company any excess money or securities held by them at any time, upon
the written request of the Company and upon the receipt by the Trustee
of an Officers' Certificate in form reasonably satisfactory to the
Trustee, addressing the status of such money or securities.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall promptly pay to the Company any money held by
them for the payment of principal or interest that remains unclaimed
for two years, and, thereafter, Securityholders entitled to the money
must look to the Company for payment as general creditors, unless
applicable law designates another person.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company
shall pay and shall indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against deposited U.S. Government
Obligations or the principal and interest received on such U.S.
Government Obligations.
SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance
with this Article 8 by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Securities shall be
revived and reinstated as though no deposit had occurred pursuant to
this Article 8 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in
accordance with this Article 8; provided, however, that if the Company
has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive
such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
<PAGE>
ARTICLE 9
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the
Trustee may amend, supplement or otherwise modify this Indenture or
the Securities without notice to or consent of any Securityholder:
(1) to cure any ambiguity, omission defect or
inconsistency;
(2) to comply with Article 5, Section 10.02(e) or Section
10.13;
(3) to provide for uncertificated Securities in addition to
or in place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes
of Section 163(f) of the Code, or in a manner such that the
uncertificated Securities are described in Section 163(f)(2)(B) of the
Code;
(4) to make any change that does not adversely affect the
rights of any Securityholder;
(5) to add to the covenants of the Company for the benefit
of the Securityholders or to surrender any right or power herein
conferred upon the Company; or
(6) to comply with the TIA.
After an amendment, supplement or other modification under this
Section becomes effective, the Company shall mail to Securityholders a
notice briefly describing such amendment, supplement or other
modification. The failure to give such notice to all Securityholders,
or any defect therein, shall not impair or affect the validity of an
amendment, supplement or other modification under this Section 9.01.
SECTION 9.02. WITH CONSENT OF HOLDERS. (a) Subject to Section
6.07, the Company and the Trustee may amend, supplement or otherwise
modify this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of at least
a majority in aggregate Accreted Value of the Securities
<PAGE>
then outstanding; provided, that (except for changes permitted
pursuant to Section 9.01) any change to Article 10 (or the definitions
relating thereto) shall require the written consent of the Holders of
at least 66 2/3% of the aggregate Accreted Value of Securities then
outstanding. Subject to Sections 6.04 and 6.07, the Holders of a
majority in aggregate Accreted Value of the Securities then
outstanding may waive compliance by the Company with any provision of
this Indenture or the Securities without notice to any Securityholder.
(b) Notwithstanding anything to the contrary contained
in Sections 9.01 or 9.02(a), without the consent of each
Securityholder affected, an amendment, supplement, other modification
or waiver may not:
(1) reduce the amount of Securities whose Holders must
consent to an amendment, supplement, other modification or waiver;
(2) reduce the rate of or extend the stated maturity of any
payment of interest on any Security;
(3) reduce the Accreted Value or principal (at maturity or
any other time) of or extend the Stated Maturity of any payment of
principal of any Security, including upon redemption, or payment of
the Asset Sale Purchase Price or Change of Control Purchase Price;
(4) reduce the premium payable upon the redemption of any
Security, including upon redemption, or payment of the Asset Sale
Purchase Price or Change of Control Purchase Price; or
(5) make any Security payable in money other than that
stated in the Security.
(c) It shall not be necessary for the consent of the
Holders under this Section 9.02 to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent
approves the substance thereof.
(d) After an amendment, supplement, waiver or other
modification under this Section becomes effective, the Company shall
mail to Securityholders a notice briefly describing such amendment,
supplement,
<PAGE>
waiver or other modification. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or affect the
validity of an amendment, supplement, waiver or other modification
under this Section.
(e) Notwithstanding the foregoing, the provisions of
Section 11.16 hereof and this subsection (e) may not be amended
without the consent of the parties to the Credit Agreement.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every
amendment, supplement or other modification to this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A
consent to an amendment, supplement or other modification or a waiver
under or in connection with this Indenture or the Securities by a
Holder of a Security shall bind the Holder and every subsequent Holder
of that Security or portion of the Security that evidences the same
debt as the consenting Holder's Security, even if notation of the
consent or waiver is not made on the Security. However, if such
consent or waiver may be revoked, any such Holder or subsequent Holder
may revoke the consent or waiver as to such Holder's Security or
portion of the Security if the Trustee receives the notice of
revocation before the date the amendment, supplement, waiver or other
modification becomes effective. After an amendment, supplement, waiver
or other modification becomes effective, it shall bind every Security-
holder, unless it makes a change described in any of clauses (1)
through (6) of Section 9.02(b). In that case, the amendment,
supplement, waiver or other modification shall bind each Holder of a
Security who has consented to it and every subsequent Holder of a
Security or a portion of a Security that evidences the same debt as
the consenting Holder's Security.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Securityholders entitled to give
their consent or take any other action described above. If a record
date is fixed, then notwithstanding the immediately preceding
paragraph, those persons who were Securityholders at such record date
(or their duly designated proxies), and only those persons, shall be
entitled to give such consent or
<PAGE>
to revoke any consent previously given or to take any such action,
whether or not such persons continue to be Holders after such record
date.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an
amendment, supplement, waiver or other modification changes the terms
of a Security, the Trustee may require the Holder of the Security to
deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Security shall issue and
the Trustee shall authenticate a new Security that reflects the
changed terms. Failure to make the appropriate notation or to issue a
new Security shall not affect the validity of such amendment,
supplement, waiver or other modification.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall
sign any amendment, supplement, waiver or other modification
authorized pursuant to this Article 9 if the amendment, supplement,
waiver or other modification does not adversely affect the rights,
duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not sign it. In signing such amendment,
supplement, waiver or other modification the Trustee shall be entitled
to receive, and (subject to Section 7.01) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stat-
ing that such amendment, supplement, waiver or other modification is
authorized or permitted by this Indenture.
ARTICLE 10
SECURITY
SECTION 10.01. GRANTS OF SECURITY INTERESTS.
(a) To secure the full and punctual payment of
Accreted Value and premium of and interest on the Securities and all
other amounts payable pursuant to this Indenture, the Company hereby
grants to the Trustee, for the benefit of the Holders and the Trustee,
a first priority and (except for Liens permitted under Section 4.16)
exclusive security interest in all its right, title and interest in
and to the following, subject to the exclu-
<PAGE>
sion specified in the last sentence of this Section 10.01:
(i) all of the outstanding shares of Stock of MPI listed on
Exhibit C hereto, all of the outstanding shares of Stock of Pacific
Lumber and all of the outstanding shares of Stock of Britt, in each
case whether now or hereafter owned or acquired by the Company or any
of the Company's Subsidiaries;
(ii) all certificates whether now owned or hereafter
acquired representing any of the shares referred to in clause (i) of
this Section 10.01(a);
(iii) all dividends, cash, instruments and other
property and proceeds from time to time received, receivable or
otherwise distributed on or in exchange for any of the foregoing after
the Issue Date, including, without limitation, any stocks, bonds or
other securities, options, warrants, or other such rights, cash or
other property payable or distributable on any of the shares referred
to in clause (i) of this Section 10.01(a) at any time, including,
without limitation, any distribution on any such shares upon the
dissolution or liquidation, in whole or in part, of the issuer of such
shares or the consolidation or merger of such issuer with any other
person or persons, or the reorganization of such issuer, or any
distribution on any such shares of the capital or paid-in capital
surplus or any part thereof of the issuer of such shares, in any form,
or any subdivision, combination, reclassification or redemption of any
such shares; and
(iv) to the extent not included in clauses (i), (ii) and
(iii) of this Section 10.01(a), all proceeds (as defined in the
Uniform Commercial Code as in effect on the date hereof) of any and
all of the foregoing (arising after the Issue Date).
(b) To secure the full and punctual payment of
Accreted Value and premium of and interest on the Securities and all
other amounts payable pursuant to this
<PAGE>
Indenture, MPI hereby grants to the Trustee, for the benefit of the
Holders and the Trustee, a first priority and (except for Liens
permitted under Section 4.16) exclusive security interest in all its
right, title and interest in and to the following, subject to the
exclusion specified in the last sentence of this Section 10.01:
(i) all of the outstanding shares of Stock of Pacific
Lumber and all of the outstanding shares of Stock of Britt, in each
case whether now or hereafter owned or acquired by MPI;
(ii) all certificates whether now owned or hereafter
acquired representing any of the shares referred to in clause (i) of
this Section 10.01(b);
(iii) all dividends, cash, instruments and other
property and proceeds from time to time received, receivable or
otherwise distributed on or in exchange for any of the foregoing after
the Issue Date, including, without limitation, any stocks, bonds or
other securities, options, warrants, or other such rights, cash or
other property payable or distributable on any of the shares referred
to in clause (i) of this Section 10.01(b) at any time, including,
without limitation, any distribution on any such shares upon the
dissolution or liquidation, in whole or in part, of the issuer of such
shares or the consolidation or merger of such issuer with any other
person or persons, or the reorganization of such issuer, or any
distribution on any such shares of the capital or paid-in capital
surplus or any part thereof of the issuer of such shares, in any form,
or any subdivision, combination, reclassification or redemption of any
such shares; and
(iv) to the extent not included in clauses (i), (ii) and
(iii) of this Section 10.01(b), all proceeds (as defined in the
Uniform Commercial Code as in effect on the date hereof) of any and
all of the foregoing (arising after the Issue Date).
<PAGE>
(c) To secure the full and punctual payment of
Accreted Value and premium of and interest on the Securities and all
other amounts payable pursuant to this Indenture, MAXXAM hereby grants
to the Trustee, for the benefit of the Holders and the Trustee, a
first priority and (except for Liens permitted under Section 4.16)
exclusive security interest in all its right, title and interest in
and to the following:
(i) the 28,000,000 shares of Common Stock, par value $.01
per share, of Kaiser described on Exhibit C hereto;
(ii) all certificates whether now owned or hereafter
acquired representing any of the shares referred to in clause (i) of
this Section 10.01(c);
(iii) all dividends, cash, instruments and other
property and proceeds from time to time received, receivable or
otherwise distributed on or in exchange for any of the foregoing after
the Issue Date, including, without limitation, any stocks, bonds or
other securities, options, warrants, or other such rights, cash or
other property payable or distributable on any of the shares referred
to in clause (i) of this Section 10.01(c) at any time, including,
without limitation, any distribution on any such shares upon the
dissolution or liquidation, in whole or in part, of the issuer of such
shares or the consolidation or merger of such issuer with any other
person or persons, or the reorganization of such issuer, or any
distribution on any such shares of the capital or paid-in capital
surplus or any part thereof of the issuer of such shares, in any form,
or any subdivision, combination, reclassification or redemption of any
such shares; and
(iv) to the extent not included in clauses (i), (ii) and
(iii) of this Section 10.01(c), all proceeds (as defined in the
Uniform Commercial Code as in effect on the date hereof) of any and
all of the foregoing (arising after the Issue Date).
<PAGE>
Notwithstanding any other provision contained in this Indenture or in
the Securities, no security interest has been granted pursuant to this
Indenture, and the Trustee has not taken pursuant to this Indenture a
security interest, in (x) any Salmon Creek Distribution, (y) any
property (identified as such by the Company in writing to the Trustee)
or cash transferred or to be transferred in the Transactions
(provided, that MAXXAM shall thereupon comply with Section 10.01(c))
or (z) any proceeds identified as such by the Company in writing to
the Trustee) of any and all of the foregoing. The Company shall not
identify any dividend or distribution as a "Salmon Creek Distribution"
except for any dividends and other distributions on Pledged Shares of
any Pledged Company of amounts or other consideration received by the
Company or any of its Subsidiaries from any person or entity (i) in
respect of all or any part of the Stock of Salmon Creek, (ii) in
respect of all or any part of the real property constituting the
Salmon Creek Property or (iii) otherwise in connection with Salmon
Creek or the Salmon Creek Property, except in connection with the
harvesting of timber located on the Salmon Creek Property.
SECTION 10.02. PLEDGED SHARES.
(a) Delivery of Certificates and Instruments. Subject
to the terms hereof, the Company agrees (with respect to the
Collateral described in Section 10.01(a)), MPI agrees (with respect to
the Collateral described in Section 10.01(b)) and MAXXAM agrees (with
respect to the Collateral described in Section 10.01(c)) that all
certificates or instruments representing or evidencing Pledged Shares
or any other Collateral shall be delivered to the Trustee, at such
office in New York City, New York as is designated by the Trustee from
time to time in a notice addressed to the Company, and shall be in
suitable form for transfer by delivery, and shall be accompanied by
duly executed and undated instruments of transfer or assignment in
blank (with signatures appropriately guaranteed if requested by the
Trustee), all in form and substance satisfactory to the Trustee. If
an issuer of Pledged Shares is incorporated in a jurisdiction which
does not permit the use of certificates to evidence equity ownership
or which permits or requires pledges of Capital Stock to be perfected
other than by delivery, then the Company or MPI, as applicable (in the
case of any Pledged Company), or MAXXAM (in the case of Kaiser) shall,
upon delivery to the Company of the Trust-
<PAGE>
ee's written request, take such action as may be necessary in such
jurisdiction and reasonably requested by the Trustee to perfect the
Trustee's first priority and (except for Liens permitted under Section
4.16) exclusive security interest in such Stock and other Collateral
and give the Trustee the other rights in the Pledged Shares granted
under the terms hereof; and the Company agrees to provide to the
Trustee an Opinion of Counsel, in form and substance reasonably
satisfactory to it, confirming such pledge. The Trustee shall have
the right at any time at which a Notice of Acceleration has been
delivered and is in effect to exchange certificates or instruments
representing or evidencing the Pledged Shares for certificates or
instruments of smaller or larger denominations.
(b) Preservation of Corporate Existence of Issuers of
Pledged Shares. Subject to Article 5 and Sections 10.05 and 10.13,
the Trustee may do whatever in its reasonable judgment may be
necessary, and the Company, MPI and the Company's other Subsidiaries
that are Pledgors (in the case of any Pledged Company) and MAXXAM (in
the case of Kaiser) shall take such action in connection therewith as
may reasonably be requested in writing by the Trustee, for the purpose
of preserving or extending the corporate existence of such
corporations.
(c) Change of Registration Upon Notice of
Acceleration. Any or all Pledged Shares held by the Trustee for the
benefit of the Holders of Securities may, if a Notice of Acceleration
has been delivered and is at the time in effect, without notice to the
Company, be registered in the name of the Trustee or its nominee.
(d) Voting Rights; Dividends; etc.
(1) Unless a Notice of Acceleration has been delivered and
is at the time in effect, the Company, MPI and the Company's other
Subsidiaries that are Pledgors (in the case of any Pledged Company)
and MAXXAM (in the case of Kaiser) shall be entitled to exercise any
and all voting and other corporate rights pertaining to the Pledged
Shares or any part thereof for any purpose not inconsistent with the
terms of this Indenture and the Securities; provided, however, that no
vote shall be cast or consent, waiver or ratification given or action
taken that would be inconsistent with or violate any
<PAGE>
provision of this Indenture or the Securities. After a Notice of
Acceleration has been delivered and so long as it remains in effect,
upon written notice from the Trustee to the Company that it has
determined that it will exercise such rights, all rights of the
Company, MPI and the Company's other Subsidiaries that are Pledgors
and MAXXAM, as applicable, to exercise the voting and other consensual
corporate rights which it or they would otherwise be entitled to
exercise pursuant to this Section 10.02(d)(1) shall cease and all such
rights shall become vested in the Trustee, which shall thereupon have
the sole right to exercise such voting and other consensual corporate
rights during the continued effectiveness of such Notice of Ac-
celeration (such rights to include the exercise of any and all rights
of conversion, exchange, subscription or any other rights, privileges
or options pertaining to any of the Pledged Shares, including, without
limitation, the right to exchange, at the Trustee's discretion, any
and all of the Pledged Shares upon the merger, consolidation,
reorganization, recapitalization or other readjustment of any issuer
of any of such Pledged Shares or upon the exercise by any such issuer
or the Trustee of any right, privilege or option pertaining to any of
the Pledged Shares and, in connection therewith, to deposit and
deliver any and all of the Pledged Shares with any committee,
depositary, transfer agent, registrar or other designated agency on
such terms and conditions as the Trustee may determine, all without
liability except to account for property actually received by it).
The Trustee shall have no duty to the Company, MPI or the Company's
other Subsidiaries or MAXXAM to exercise any of the aforesaid rights,
privileges or options and shall not be responsible for any failure to
do so or delay in so doing. Upon rescission of such Notice of
Acceleration, such voting and consensual corporate rights shall revert
to the Company, to MPI and the Company's other Subsidiaries that are
Pledgors and to MAXXAM, as applicable.
<PAGE>
(2) So long as no Event of Default, Collateral Default or
Interest Payment Default shall have occurred and be continuing, the
Company, MPI and the Company's other Subsidiaries that are Pledgors
(in the case of any Pledged Company) and MAXXAM (in the case of
Kaiser) shall be entitled to receive and retain any and all Exempt
Distributions made on any Pledged Shares.
(3) Upon the occurrence and during the continuance of an
Event of Default, Collateral Default or Interest Payment Default, all
rights of the Company, MPI and the Company's other Subsidiaries that
are Pledgors (in the case of any Pledged Company) and of MAXXAM (in
the case of Kaiser) to receive and retain Exempt Distributions on
Pledged Shares pursuant to Section 10.02(d)(2) shall cease, and the
Trustee shall thereupon have the sole right to receive any Exempt
Distributions on any Pledged Shares made during the continuance of
such Event of Default, Collateral Default or Interest Payment Default;
provided, that the Company and its Subsidiaries, and MAXXAM, shall be
entitled to receive and retain any Salmon Creek Distributions and any
property or cash transferred or to be transferred in the Transactions.
All such Exempt Distributions shall be deposited in the Cash
Collateral Default Account in accordance with Section 10.03(f). All
Exempt Distributions on Pledged Shares received by the Company, MPI or
the Company's other Subsidiaries that are Pledgors (in the case of
Pledged Shares of any Pledged Company) or by MAXXAM (in the case of
Pledged Kaiser Shares) contrary to the provisions of this Section
10.02(d)(3) shall be received in trust for the benefit of the Trustee
and the Holders, shall be segregated from other funds of the
applicable Pledgor or Pledgors, and shall be forthwith paid over to
the Trustee in the same form as received by such Pledgor or Pledgors
(duly endorsed to the Trustee, if required), and the Trustee shall
deposit such amounts in the Cash Collateral Default Account in
accordance with Section 10.03(f). If any such Event of Default, Col-
lateral Default or Interest Payment Default
<PAGE>
shall have been cured or waived and no other Event of Default,
Collateral Default or Interest Payment Default shall be continuing,
the right of the Company, MPI and the Company's other Subsidiaries
that are Pledgors (in the case of Pledged Shares of any Pledged
Company) or of MAXXAM (in the case of Pledged Kaiser Shares) to
receive and retain any and all Exempt Distributions on Pledged Shares
shall be reinstated.
(4) In order to permit the Company, MPI and the Company's
other Subsidiaries that are Pledgors (in the case of any Pledged
Company) and MAXXAM (in the case of Kaiser) and the Trustee to
exercise their respective voting and other corporate rights which they
are entitled to exercise pursuant to Section 10.02(d)(1) and Section
10.02(d)(5) and to receive the dividends, distributions and other
amounts which they are authorized to receive and retain pursuant to
Sections 10.02(d)(2) and 10.02(d)(3), (A) the Trustee shall, upon
written notice from the Company, from MPI or any other Subsidiaries of
the Company that are Pledgors, or from MAXXAM, as the case may be,
from time to time, execute and deliver (or cause to be executed and
delivered) to the Company, to MPI or any other such Subsidiary or to
MAXXAM, as the case may be, and (B) the Company, MPI and the Company's
other Subsidiaries that are Pledgors (in the case of any Pledged
Company, to the extent applicable) and MAXXAM (in the case of Kaiser)
shall, upon written notice from the Trustee, from time to time execute
and deliver (or cause to be executed and delivered) to the Trustee,
all such proxies, dividend payment orders and other instruments as the
Company, MPI or such other Subsidiaries, MAXXAM or the Trustee, as the
case may be, may reasonably request for such purposes as shall be
specified in such request.
(5) At any time with the consent of the Company, or without
the consent of the Company upon the delivery to the Company of a
Notice of Acceleration that is at the time in effect, the Trustee may
join in any plan of voluntary or
<PAGE>
involuntary reorganization or readjustment or rearrangement in respect
of any Pledged Shares and may accept or authorize the acceptance of
new securities issued in exchange therefor under any such plan. Any
new securities so issued shall be delivered to the Trustee and pledged
hereunder. If the Trustee does not join in such plan of
reorganization or readjustment or rearrangement, any money or Cash
Equivalents accruing on or apportioned to such Pledged Shares shall be
delivered to the Trustee for deposit into the Cash Collateral Account
in accordance with Section 10.03(g).
(e) Pledged Shares to Constitute Majority of Voting
Stock and Equity Interests; Delivery of After-Acquired Shares. The
Company shall, and shall cause its Subsidiaries that are Pledgors to,
cause the Pledged Shares that are subject to the Lien of this
Indenture at all times to include: (i) at least a majority of the
Voting Stock and the outstanding equity interests (on a fully diluted
basis) of each of Pacific Lumber, Britt and MPI, in each case until
such time as such Subsidiary merges or consolidates into, or transfers
all of its assets to, either (A) a Restricted Subsidiary or (B) the
Company, in either case pursuant to and in accordance with Section
10.13; and (ii) after any transaction described in clause (i)(A)
above, at least a majority of the Voting Stock and the outstanding
equity interests (on a fully diluted basis) of the Restricted
Subsidiary into which such Subsidiary merges or consolidates or to
which it transfers all or substantially all of its assets. The
Company shall, and shall cause each of its Subsidiaries to, pledge and
deposit with the Trustee all outstanding shares of Stock of all
Subsidiaries of the Company at the time constituting Pledged Companies
that the Company or any of its Subsidiaries acquire at any time after
the Issue Date, and to cause all such shares of Stock to be subject to
the Lien of this Indenture (other than Palmas Holding Corp., a
Delaware corporation, with respect to Stock constituting not more than
.07% of the outstanding Stock of MPI). All such shares (except for
shares of Stock of MPI owned by Palmas Holding Corp., a Delaware
corporation, constituting not more than .07% of the outstanding Stock
of MPI) other than those acquired by the Company and (except for
shares of Pacific Lumber or Britt) MPI shall be made so subject by the
granting by the acquiror thereof of a security interest (substantially
the same in form and substance to the
<PAGE>
security interest granted on the Issue Date pursuant to Section
10.01(a)), and such acquiror shall expressly assume, by supplemental
indenture hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations with respect to such
shares applicable to a Pledgor with respect thereto under this Article
10 and such security interest shall be deemed granted pursuant to this
Article 10.
SECTION 10.03. COLLATERAL ACCOUNTS.
(a) Establishment of Accounts; Deposit of Trust
Moneys.
(1) The Trustee shall establish from time to time as
required by this Section 10.03, and at all times thereafter until the
trust created by this Indenture has terminated shall maintain, at its
corporate offices in Massachusetts, four (4) accounts: the Cash
Collateral Offer Account, the Cash Collateral Public Equity Offering
Account, the Cash Collateral Default Account and the Cash Collateral
Account (collectively, the "Accounts"). The Accounts shall be
entitled the "MAXXAM GROUP INC. Cash Collateral Offer Account, [name
of Trustee], as trustee, secured party," "MAXXAM GROUP INC. Cash
Collateral Public Equity Offering Account, [name of Trustee], as
trustee, secured party," "MAXXAM GROUP INC. Cash Collateral Default
Account, [name of Trustee], as trustee, secured party" and "MAXXAM
GROUP INC. Cash Collateral Account, [name of Trustee], as trustee,
secured party," respectively.
(2) All money and Cash Equivalents required to constitute
Collateral and to be delivered to the Trustee or received by the
Trustee or any agent or nominee of the Trustee in respect thereof,
whether pursuant to the terms of this Indenture, the Uniform
Commercial Code, other applicable law or otherwise ("Trust moneys"),
shall be deposited in the appropriate Account, as specified in this
Section 10.03, and the Trustee shall thereafter invest, apply, deposit
into another Account or release, as the case may be, Trust Moneys in
accordance with the terms of this Indenture.
<PAGE>
All right, title and interest in and to the Accounts shall vest in the
Trustee, who shall have sole dominion and control over the Accounts
and only the Trustee shall have any right of withdrawal therefrom.
(b) Accounts as Collateral. All Trust Moneys
deposited in any of the Accounts shall be held segregated in the Cash
Collateral Offer Account, the Cash Collateral Public Equity Offering
Account, the Cash Collateral Default Account or the Cash Collateral
Account, as the case may be, as provided in this Section 10.03, and
shall be held by the Trustee, in trust under this Indenture, as part
of the Collateral.
(c) Investment of Trust Moneys. The Company shall have the
right to direct the Trustee in writing to, and the Trustee shall,
except as otherwise required herein, invest any Trust Moneys held in
the Accounts in Cash Equivalents and liquidate Cash Equivalents held
in Accounts into money. The Trustee shall not be liable or
responsible for any loss resulting from such investments and rein
vestments or from any dispositions; provided, however, that the
Trustee shall be liable for its own negligent action, its own
negligent failure to act and its own willful misconduct in complying
with this Article 10. The Accounts and all credits thereto and
investments therein shall be maintained in such a manner in accordance
with applicable law and all items shall be delivered to the Trustee
and credited to the Accounts in accordance with applicable law so that
the Trustee shall at all times have (except for Liens permitted under
Section 4.16) an exclusive and a first priority perfected security
interest therein. The Company, MPI and the Company's other
Subsidiaries (with respect to any Pledged Company) and MAXXAM (with
respect to Kaiser) shall deliver to the Trustee and any bank where any
Accounts are maintained all such notices and other documents, and
shall otherwise make such filings and take such other actions as may
be reasonably requested by the Trustee, to create and maintain (except
for Liens permitted under Section 4.16) an exclusive and first
priority perfected security interest in the Accounts and all credits
thereto and investments therein. Interest and other amounts earned on
an Account shall be held as part of the Collateral, shall be credited
to the Account in which the principal on which they are earned is
deposited and shall be
<PAGE>
transferred between Accounts together with and in the same manner as
the principal on which they are earned.
(d) Deposits into Cash Collateral Offer Account.
(1) Except as otherwise provided in Section 10.03(e)(1),
upon the receipt of any Net Proceeds of a Primary Share Sale by a
Pledged Company, or by Kaiser, that were dividended or distributed on
Pledged Shares of such Pledged Company, or on Pledged Kaiser Shares,
as the case may be, the Pledgor or Pledgors of such Pledged Shares
shall deliver or cause to be delivered to the Trustee, for deposit
into the Cash Collateral Offer Account for application pursuant to
Section 10.05(f), all such Net Proceeds so received that are money or
Cash Equivalents.
(2) Except as otherwise provided in Section 10.03(e)(2),
upon the release of any Pledged Shares pursuant to Section 10.05(b)(1)
and the receipt of any Net Proceeds of a Pledged Share Sale in respect
of such Pledged Shares, the Pledgor or Pledgors of such Pledged Shares
shall deliver or cause to be delivered to the Trustee, for deposit
into the Cash Collateral Offer Account for application pursuant to
Section 10.05(f), all such Net Proceeds so received that are money or
Cash Equivalents.
(3) Upon receipt by the Company or any of its Subsidiaries,
or upon receipt by MAXXAM, of an Extraordinary Distribution on any
Pledged Shares, the Pledgor or Pledgors that received such
Extraordinary Distribution shall deliver or cause to be delivered to
the Trustee, for deposit into the Cash Collateral Offer Account for
application pursuant to Section 10.05(f), all amounts so received that
are money or Cash Equivalents.
(4) Except as otherwise provided in Section 10.03(e)(3),
if, following receipt by the Company or any of its Subsidiaries, or
following receipt by MAXXAM, of (A) Net Proceeds, other than money or
Cash Equivalents, of
<PAGE>
either (x) a Primary Share Sale by a Pledged Company, or by Kaiser,
that were distributed on Pledged Shares of such Pledged Company, or on
Pledged Kaiser Shares, as the case may be, or (y) a Pledged Share Sale
in respect of any Pledged Shares or of (B) an Extraordinary Dis-
tribution on any Pledged Shares in a form other than money or Cash
Equivalents, all or any portion of such Net Proceeds or Extraordinary
Distributions at the time subject to the Lien of this Indenture are
disposed of for money or Cash Equivalents pursuant to Section
10.05(b)(2), the Company shall deliver or cause to be delivered to the
Trustee, for deposit into the Cash Collateral Offer Account, all money
or Cash Equivalents received in consideration of such disposition.
(e) Deposits into and Transfers from Cash Collateral
Public Equity Offering Account.
(1) Upon receipt of any Net Proceeds of a Primary Share
Sale by a Pledged Company that were distributed on Pledged Shares of
such Pledged Company, if such Primary Share Sale is also a Public
Equity Offering and such receipt occurs prior to August 1, 1997, the
Pledgor or Pledgors of such Pledged Shares shall deliver or cause to
be delivered to the Trustee, for deposit into the Cash Collateral
Public Equity Offering Account, all such Net Proceeds so received that
are money or Cash Equivalents.
(2) Upon the release of any Pledged Shares pursuant to
Section 10.05(b)(1) and the receipt of any Net Proceeds of a Pledged
Share Sale in respect of such Pledged Shares, if such Pledged Share
Sale is also a Public Equity Offering and such receipt occurs prior to
August 1, 1997, the Pledgor or the Pledgors of such Pledged Shares
shall deliver or cause to be delivered to the Trustee for deposit into
the Cash Collateral Public Equity Offering Account all such Net
Proceeds so received that are money or Cash Equivalents.
<PAGE>
(3) If, following receipt prior to August l, 1997 by the
Company or any of its Subsidiaries of Net Proceeds, other than money
or Cash Equivalents, of (A) a Primary Share Sale that is a Public
Equity Offering that were distributed on Pledged Shares or (B) a
Pledged Share Sale that is a Public Equity Offering in respect of any
Pledged Shares, all or any portion of such Net Proceeds at the time
subject to the Lien of this Indenture are disposed of for money or
Cash Equivalents pursuant to Section 10.05(b)(2), the Company shall
deliver or cause to be delivered to the Trustee, for deposit into the
Cash Collateral Public Equity Offering Account, all money or Cash
Equivalents received in consideration of such disposition.
(4) In the event the Company elects, pursuant to Section
10.05(g), optionally to redeem Securities with all or any portion of
any Net Proceeds described in Sections 10.03(e)(1), (2) or (3), such
Net Proceeds (or such portion thereof) shall remain in the Cash
Collateral Public Equity Offering Account for application pursuant to
Article 3 and Section 10.05(g) hereof and Section 5 of the Securities.
If no such election is made within the time period specified in
Section 10.05(g), all amounts in such Account shall, upon expiration
of the time period for such election (or upon earlier written notice
from the Company that no such election will be made), be deposited in
the Cash Collateral Offer Account.
(f) Deposits into Cash Collateral Default Account.
(1) Upon and during the continuance of an Event of Default,
Collateral Default or an Interest Payment Default, the Pledgors shall
deliver or cause to be delivered to the Trustee for deposit into the
Cash Collateral Default Account all Exempt Distributions made on any
Pledged Shares during such continuance; provided, that the Company and
its Subsidiaries, and MAXXAM, shall be entitled to receive and retain
any Salmon Creek Distributions and any property and cash transferred
or to be transferred in
<PAGE>
the Transactions. Any Trust Moneys held in the Cash Collateral
Default Account shall be released from the Lien of this Indenture and,
as the Company directs in writing, applied by the Trustee to cure any
outstanding Interest Payment Defaults in respect of the Securities and
to pay the principal due on the Securities at the final maturity
thereof.
(2) If at any time following the deposit of Trust Moneys
into the Cash Collateral Default Account, no Event of Default,
Collateral Default or Interest Payment Default is continuing, any
amounts in the Cash Collateral Default Account shall be deposited into
the Cash Collateral Offer Account for application pursuant to Section
10.05(f).
(g) Deposits into Cash Collateral Account. The
Trustee shall deposit into the Cash Collateral Account any money or
Cash Equivalents (i) eligible for transfer out of the Cash Collateral
Offer Account pursuant to Section 10.05(f) upon their eligibility for
such transfer, (ii) delivered to the Trustee pursuant to Section
10.02(d)(5) or (iii) constituting Trust Moneys whose disposition by
the Trustee upon receipt thereof is not otherwise provided for in this
Section 10.03.
(h) Application of Trust Moneys to Pay Trustee's Fees or upon a
Notice of Acceleration.
(1) Notwithstanding any other provision contained in this
Article 10, but subject to the Company's continuing primary obligation
contained in Section 7.07, the Trustee may at any time apply Trust
Moneys in the Cash Collateral Account or in the Cash Collateral
Default Account to the payment of due and unpaid fees under Section
7.07 of this Indenture; provided, that funds are drawn, first, from
the Cash Collateral Account and, second, and only if there exist no
Trust Moneys in the Cash Collateral Account, from the Cash Collateral
Default Account.
(2) Notwithstanding any other provision contained in this
Article 10, if a Notice of Acceleration has been delivered to the
Company
<PAGE>
and is at the time in effect, the Trustee shall apply all Trust Moneys
held in the Accounts in accordance with Section 6.10; provided, that,
so long as a Notice of Acceleration is not in effect, Trust Moneys
shall be invested, applied, deposited in other Accounts or released as
otherwise provided in this Article 10.
(i) Grant of Security Interest in Accounts. As
security for the Company's obligations to pay the Accreted Value,
premium of and interest on the Securities and all other amounts and
obligations under this Indenture and the Securities when due, each
Pledgor hereby grants a security interest to the Trustee, for the
benefit of the Holders and the Trustee, in all of its right, title and
interest, whether now owned or hereafter acquired, in the Accounts and
all sums of money, funds, securities, investments or other property
held in or credited to the Accounts, from any source whatsoever, now
or hereafter transferred or credited to and comprising the Accounts,
including, without limitation, all proceeds derived from the
Collateral credited to the Accounts, and any and all interest and
dividends or other distribution from any such amounts, and all
statements, certificates and instruments in or representing the
Accounts.
(j) Release and Application of Trust Moneys in Cash
Collateral Account. The Company shall be entitled to a release, at
any time and from time to time, of any Trust Moneys held in the Cash
Collateral Account to be applied, as the Company directs the Trustee
in writing, to redeem Securities or to purchase Securities, in the
open market or otherwise.
SECTION 10.04. FURTHER ASSURANCES; REVISIONS OF EXHIBIT C. The
Company (with respect to Pledged Shares of the Pledged Companies)
shall, and shall cause its Subsidiaries to, and MPI (with respect to
the Pledged Shares of Pacific Lumber and Britt owned by MPI) and
MAXXAM (with respect to the Pledged Kaiser Shares) each shall, in each
case at any reasonable time and reasonably from time to time, at its
expense, execute and deliver all further instruments and documents and
take all reasonable further action that the Trustee may reasonably
request in order to perfect and protect any Lien granted or purported
to be granted with respect to any Collateral or to enable the Trustee
to exercise and enforce its rights and remedies hereunder with respect
to any Collat-
<PAGE>
eral. Without limiting the foregoing, the Company, MPI or MAXXAM, as
the case may be, shall provide to the Trustee a revised Exhibit C to
reflect any changes in the composition of the Pledged Shares pledged
by it hereunder, and at such time the Company, MPI or MAXXAM, as the
case may be, shall be deemed to make the representations and
warranties set forth in clauses (i) through (v) of Sections 10.12(a),
(b) or (c), as the case may be, with respect to Exhibit C as so
revised.
SECTION 10.05. RELEASE AND SUBSTITUTION OF COLLATERAL.
(a) General. The Company, MPI and the Company's other
Subsidiaries (and in the case of Pledged Kaiser Shares and related
Collateral, MAXXAM) shall be entitled from time to time to the release
by the Trustee of Pledged Shares and other Collateral from the Lien of
this Indenture, and to substitute other property for Collateral, upon
satisfaction of the requirements of this Section 10.05 and, to the
extent applicable, Sections 5.01 and 10.13.
(b) Release of Pledged Shares and of Non-Cash Net
Proceeds and Extraordinary Distributions in Connection with a
Collateralized Cash Proceeds Offer or Optional Redemption.
(1) The Company, MPI and the Company's other Subsidiaries
(and, with respect to the Pledged Kaiser Shares, MAXXAM) shall be
entitled to a release of Pledged Shares from the Lien of this
Indenture in order to effect a Pledged Share Sale; provided, that (i)
no Event of Default, Collateral Default or Interest Payment Default
has occurred and is continuing or would result from such release, (ii)
an Officers' Certificate is delivered to the Trustee by the Company so
stating and stating that such release is otherwise permitted under
this Section 10.05 and (iii) the Company agrees to subject money in an
amount equal to the amount of Net Proceeds of such Pledged Share Sale
received by the Company and its subsidiaries (or, with respect to the
Pledged Kaiser Shares, MAXXAM), including all Trust Moneys in the
Accounts to the extent required in this Article 10, to an offer to
purchase Securities
<PAGE>
in accordance with the provisions of Section 10.05(f) or, if such
Pledged Share Sale is a Public Equity Offering and the Company shall
so elect pursuant to Section 10.05(g) with respect to all or any
portion of such Net Proceeds, to effect an optional redemption of
Securities pursuant to Article 3 of this Indenture and Section 5 of
the Securities.
(2) The Company, MPI and the Company's other Subsidiaries
(and, with respect to the Pledged Kaiser Shares and related
Collateral, MAXXAM) shall be entitled to a release of (A) Net
Proceeds, other than money or Cash Equivalents, of either (x) a
Primary Share Sale by a Pledged Company, or by Kaiser, that were dis-
tributed on Pledged Shares of such Pledged Company, or on Pledged
Kaiser Shares, as the case may be, or (y) a Pledged Share Sale in
respect of any Pledged Shares or of (B) an Extraordinary Distribution
on any Pledged Shares in a form other than money or Cash Equivalents:
(i) if all or any portion of such Net Proceeds are disposed
of in one or more transactions (a "Monetization") for consideration
consisting of money or Cash Equivalents (but which may also include
customary indemnities) and the Company delivers or causes to be deliv-
ered to the Trustee, for deposit into the Cash Collateral Offer
Account or the Cash Collateral Public Equity Offering Account, as
applicable, all of the money or Cash Equivalents received in such
Monetization, in which case all or such portion of such Net Proceeds
shall, simultaneously with such Monetization, be released from the
Lien of this Indenture;
(ii) if in connection with a Collateralized Cash Proceeds
Offer, the Company delivers to the Trustee for deposit into the Cash
Collateral Offer Account, pursuant to Section 10.05(f)(ix), money in
the amount specified in such section, in which case (a) all of such
Net Proceeds or Extraordinary Distribution shall be released from the
Lien of this Indenture, simultaneously with such deposit, if the Cash
<PAGE>
Collateralized Proceeds Purchase Prices for the Series A Securities
and the Series B Securities equal or exceed the respective Call Prices
therefor plus accrued and unpaid interest, if any, thereon to (but not
including) the Collateralized Cash Proceeds Purchase Date and (b) if
the preceding clause (a) is not applicable, a portion of such Net
Proceeds or Extraordinary Distribution, designated by the Company, not
greater in value (at the time it became Collateral) than the amount of
money so delivered by the Company shall, simultaneously with such
deposit, be released from the Lien of this Indenture; and
(iii) if in connection with an optional redemption using
Net Proceeds of a Public Equity Offering that are subject to the Lien
of this Indenture, the Company delivers to the Trustee for deposit
into the Cash Collateral Public Equity Offering Account, pursuant to
Section 10.05(g), money in the amount specified in such section, in
which case there shall be released from the Lien of this Indenture,
simultaneously with such deposit, a portion of such Net Proceeds,
designated by the Company, not greater in value (at the time it became
Collateral) than the amount of money so delivered by the Company.
(c) Pledged Kaiser Share Release and Substitution.
(1) MAXXAM shall be entitled to a release of Pledged Kaiser
Shares from the Lien of this Indenture at any time and from time to
time if (i) no Event of Default, no Collateral Default and no Interest
Payment Default has occurred and is continuing or would result from
such release, (ii) an Officers' Certificate is delivered to the
Trustee by the Company so stating and stating that such release is
permitted under this Section 10.05(c) and (iii) there shall remain as
Collateral immediately subsequent to any such release Pledged Kaiser
Shares bearing the same proportion (taking account of any subdivision,
combination or reclassification of such shares after the Issue Date)
to
<PAGE>
the number of Pledged Kaiser Shares constituting Collateral on the
Issue Date as (A) the sum of (x) the aggregate principal amount at
maturity of Securities outstanding on the date of such release, plus
(y) one-half of the difference obtained by subtracting the aggregate
principal amount at maturity of Securities outstanding on the date of
such release from the aggregate principal amount at maturity of
Securities outstanding on the Issue Date bears, to (B) the aggregate
principal amount at maturity of Securities outstanding on the Issue
Date.
(2) MAXXAM shall be entitled to a release of Pledged Kaiser
Shares from the Lien of this Indenture at any time and from time to
time in connection with, and MAXXAM may permit Kaiser to effect, a
merger or consolidation of Kaiser (or a successor thereto pursuant to
this Section 10.05(c)(2)) into, or a sale or transfer of all or
substantially all of the assets of Kaiser in any transaction or series
of related transactions to, another person, or in connection with any
other corporate reorganization of Kaiser (other than a spin-off or
other similar distribution of Kaiser Shares to stockholders of MAXXAM)
(a "Kaiser Transaction") if (l) no Event of Default, Collateral
Default or Interest Payment Default has occurred and is continuing or
would result from such release, ( 2) the Trustee receives, as
Collateral subject to the Lien of this Indenture, in substitution for
such Pledged Kaiser Shares, upon consummation of the Kaiser
Transaction, the consideration received in respect of such Pledged
Kaiser Shares pursuant to such Kaiser Transaction, (3) all holders of
the common stock of Kaiser (or such successor) shall (subject to
proration, customary treatment of fractional amounts and other similar
adjustments) be entitled to receive substantially the same
consideration in respect of their shares of Kaiser common stock
pursuant to the terms of such Kaiser Transaction and (4) any non-money
or non-Cash Equivalent consideration received in respect of such
Pledged Kaiser Shares pursuant to such Kaiser Transaction shall have
been registered under
<PAGE>
the Securities Act to the extent required under the Federal securities
laws.
(d) Release Upon Defeasance. Notwithstanding anything
to the contrary in this Indenture, upon satisfaction by the Company of
the conditions set forth in Article 8 to its legal defeasance option,
its covenant defeasance option or to the discharge of this Indenture,
the Lien of this Indenture on all the Collateral shall terminate and
all the Collateral shall be released without any further action on the
part of the Trustee or any other Person.
(e) Further Assurances by Trustee Upon Release of
Collateral. Upon the release of any Collateral pursuant to this
Article 10, the Trustee shall execute and deliver an instrument or
instruments acknowledging the release of such Collateral from the Lien
of this Indenture and the discharge of the Lien on such Collateral
created by this Article 10, and shall duly assign, transfer and
deliver to the Company, MPI, the Company's other Subsidiaries and/or
MAXXAM, as applicable, or such other person as may be entitled thereto
(without recourse and without any representation or warranty) such
Collateral.
(f) Collateralized Cash Proceeds Offer Procedures.
(i) Each holder shall have the right, at such Holder's
option, to require the Company to apply Trust Moneys in the Cash
Collateral Offer Account, together with other money, if required, in
an aggregate amount equal to the Collateralized Cash Proceeds Offer
Amount, to purchase Securities tendered pursuant to an offer by the
Company to purchase, for U.S. Legal Tender pursuant to an
unconditional, irrevocable offer, subject to applicable law,
Securities at a purchase price (the "COLLATERALIZED CASH PROCEEDS
PURCHASE PRICE") equal to not less than (A) in the case of any Series
A Security (or portion thereof) tendered, the sum of (1) 101% of the
Accreted Value thereof at the scheduled date of purchase (the
"COLLATERALIZED CASH PROCEEDS PURCHASE DATE") plus (2) if such date of
purchase is after August 1, 1998, accrued and unpaid interest on such
Secu-
<PAGE>
rity to but not including such date of purchase and (B) in the case of
any Series B Security (or portion thereof) tendered, the sum of (1)
101% of the principal amount thereof plus (2) accrued and unpaid
interest thereon to but not including such date of purchase, in each
case in accordance with the procedures (including proration in the
event of an oversubscription) set forth in this Section 10.05(f) (a
"COLLATERALIZED CASH PROCEEDS OFFER"); provided, that the Company
shall not be required to (but may in its discretion) make a
Collateralized Cash Proceeds Offer if the sum of (x) the amount of
Trust Moneys deposited in the Cash Collateral Offer Account, together
with (y) the value, when it became Collateral, of non-money and
non-Cash Equivalent Net Proceeds, Extraordinary Distributions and
Exempt Distributions then required to constitute Collateral, in each
case that have not previously been (and are not being) subjected to an
offer pursuant to this Section 10.05(f) or (in the case of Net Pro-
ceeds of a Public Equity Offering) applied to an optional redemption
pursuant to Section 10.05(q) (the amounts specified in clause (y),
above, to the extent not subjected or applied (or being subjected or
applied) as aforesaid, being hereafter referred to collectively as the
"NON-CASH AMOUNT"), do not in the aggregate exceed $10,000,000. No
Net Proceeds, Exempt Distributions or Extraordinary Distributions
shall be required to be subjected to more than one Collateralized Cash
Proceeds Offer, and no Net Proceeds of a Public Equity Offering that
have been applied to an optional redemption (or that are being so
applied or that may be so applied pursuant to an election by the
Company pursuant to Section 10.05(g) the time for which has not
expired) in accordance with Section 10.05(g) shall be required to be
subjected to a Collateralized Cash Proceeds Offer. Pending
application of any Trust Moneys in the Cash Collateral Offer Account
in accordance with this Section 10.05(f), such moneys may be invested
in accordance with Section 10.03(c).
<PAGE>
(ii) Within 30 days following the date on which the Trust
Moneys in the Cash Collateral Offer Account, together with the
Non-Cash Amount, exceed $10,000,000 (the amount of such Trust Moneys
together with the Non-Cash Amount, as of the close of business on the
second Business Day prior to the mailing of the Collateralized Cash
Proceeds Offer Notice, described below, being hereinafter referred to
as the "COLLATERALIZED CASH PROCEEDS OFFER AMOUNT"), or earlier if it
shall so elect, the Company shall mail a written notice of a
Collateralized Cash Proceeds Offer to the Trustee, the Paying Agent
(which for purposes of this Article 10 shall not be the Company or any
of its Affiliates or Subsidiaries) and each Holder (and to beneficial
owners as required by applicable law including, without limitation,
the Exchange Act and the Rules and Regulations promulgated pursuant
thereto) (the "COLLATERALIZED CASH PROCEEDS OFFER NOTICE"). The
Collateralized Cash Proceeds Offer Notice shall include a form of
Collateralized Cash Proceeds Purchase Notice (as described below) to
be completed by the Holder, and shall contain or state:
(1) the Collateralized Cash Proceeds Offer Amount, a brief
description of the transactions which have generated such amount, and
the calculation of the Collateralized Cash Proceeds Offer Amount;
(2) the date by which the Collateralized Cash Proceeds
Purchase Notice pursuant to this Section 10.05(f) must be delivered to
the Paying Agent;
(3) the Collateralized Cash Proceeds Purchase Date (which
shall be no earlier than 30 days and not later than 60 days following
the date on which such Collateralized Cash Proceeds Offer Notice is
mailed, subject to compliance with applicable law);
(4) the applicable Collateralized Cash Proceeds Purchase
Price;
<PAGE>
(5) the name and address of the Trustee and the Paying
Agent;
(6) that the Securities must be surrendered to the Paying
Agent;
(7) that the Collateralized Cash Proceeds Price for any
Security as to which a Collateralized Cash Proceeds Purchase Notice
has been duly given and not withdrawn shall be paid promptly (subject
to proration) following the later of the Collateralized Cash Proceeds
Purchase Date and the time of surrender of such Security as described
in this Section 10.05(f);
(8) that if Collateralized Cash Proceeds Purchase Notices
are given with respect to Securities having an aggregate
Collateralized Cash Proceeds Purchase Price in excess of the
Collateralized Cash Proceeds Offer Amount pursuant to the
Collateralized Cash Proceeds Offer, the Company shall purchase
Securities on a pro rata basis (with such adjustments as may be deemed
appropriate by the Paying Agent so that only Securities in
denominations of $1,000 or integral multiples thereof shall be
acquired)
(9) the procedures that the Holder must follow to exercise
rights under this Section 10.05(f) and a brief description of those
rights; and
(10) the procedures for withdrawing a Collateralized Cash
Proceeds Purchase Notice.
(iii) To accept the offer to purchase Securities
described in this Section 10.05(f), a Holder must deliver a written
notice of purchase (a "COLLATERALIZED CASH PROCEEDS PURCHASE NOTICE")
to the Paying Agent at any time prior to the close of business on the
third Business Day immediately preceding the Collateralized Cash
Proceeds Purchase Date, stating:
(1) the name of the Holder, the series, the principal
amount at maturity and the certificate number or numbers of the
Security or Securities which the Holder will deliver to be
<PAGE>
purchased, and a statement that the Collateralized Cash Proceeds Offer
is being accepted with respect to such Securities;
(2) the portion of the principal amount at maturity of any
Security which the Holder will deliver to be purchased, which portion
must be $1,000 principal amount at maturity or an integral multiple
thereof; and
(3) that such Security or Securities shall be purchased on
the Collateralized Cash Proceeds Purchase Date pursuant to the terms
and conditions specified in the Securities and this Indenture.
(iv) The delivery of a Security, by hand or by registered
mail prior to, on or after the Collateralized Cash Proceeds Purchase
Date (together with all necessary endorsements), to the Paying Agent
shall be a condition to the receipt by the Holder of the
Collateralized Cash Proceeds Purchase Price therefor; provided,
however, that such Collateralized Cash Proceeds Purchase Price shall
be so paid pursuant to this Section 10.05(f) only if the Security or
Securities so delivered to the Paying Agent shall conform in all
respects to the description thereof set forth in the related
Collateralized Cash Proceeds Purchase Notice and provided, further,
that the Company shall have no obligation to purchase any Securities
with respect to which a Collateralized Cash Proceeds Purchase Notice
has not been received by the Paying Agent prior to the close of busi-
ness on the third Business Day immediately preceding the
Collateralized Cash Proceeds Purchase Date.
(v) In the event that the Collateralized Cash Proceeds
Offer described in this Section 10.05(f) shall be accepted in
accordance with the terms thereof with respect to any portion of a
Security, the Company shall purchase from the holder thereof (subject
to proration pursuant to clause (viii) of this Section 10.05(f)),
pursuant to this Section 10.05(f), such portion of such Security if
the principal amount at
<PAGE>
maturity of such portion is $1,000 or an integral multiple of $1,000.
In connection with a Security purchased in part, the Company shall
execute and the Trustee shall authenticate for delivery to the Holder
thereof, a new Security equal in principal amount at maturity to that
of the unpurchased portion of the Security so surrendered.
(vi) Upon receipt by the Paying Agent of the Collateralized
Cash Proceeds Purchase Notice as specified in this Section 10.05(f),
the Holder of the Security (or portion thereof) in respect of which
such Collateralized Cash Proceeds Purchase Notice was given shall
(subject to proration pursuant to clause (viii) of this Section
10.05(f)) and unless such Collateralized Cash Proceeds Purchase Notice
is withdrawn as specified in clause (vii) of this Section 10.05(f))
thereafter be entitled to receive the applicable Collateralized Cash
Proceeds Purchase Price with respect to such Security (or portion
thereof). Such Collateralized Cash Proceeds Purchase Price shall be
due and payable as of the Collateralized Cash Proceeds Purchase Date
and shall be paid to such Holder promptly following the later of (A)
the Collateralized Cash Proceeds Purchase Date (provided, the
conditions in clauses (iii) and (iv) of this Section 10.05(f), as
applicable, have been satisfied) and (B) the date of delivery of such
Security to the Paying Agent by the Holder thereof in the manner
required by such clauses (iii) and (iv).
(vii) A Collateralized Cash Proceeds Purchase Notice may
be withdrawn by means of a written notice of withdrawal delivered to
the Paying Agent at any time on or prior to the close of business on
the second Business Day preceding the Collateralized Cash Proceeds
Purchase Date specifying:
(1) the series and the certificate number or numbers of the
Security or Securities in respect of which such notice of withdrawal
is being submitted;
<PAGE>
(2) the principal amount at maturity of the Security or
Securities with respect to which such notice of withdrawal is being
submitted; and
(3) the principal amount at maturity, if any, of such
Security or Securities which remains subject to the original
Collateralized Cash Proceeds Purchase Notice, and which has been or
will be delivered for purchase by the Company.
(viii) If at the close of business on the second Business
Day preceding the Collateralized Cash Proceeds Purchase Date, the
Collateralized Cash Proceeds Purchase Price of all Securities for
which Collateralized Cash Proceeds Purchase Notices have been given
and not withdrawn exceeds the Collateralized Cash Proceeds Offer
Amount, the Paying Agent shall select the Securities to be purchased
such that each properly tendering Holder shall receive a portion of
the Collateralized Cash Proceeds Offer Amount on a pro rata basis
(with such adjustments as may be deemed appropriate by the Paying
Agent so that only Securities in denominations of $1,000 principal
amount at maturity or integral multiples thereof shall be purchased).
The Paying Agent shall promptly return to the Holder thereof any
Securities surrendered which the Company shall not be required to
purchase pursuant to this Section 10.05(f).
(ix) Prior to noon, New York time, on the Collateralized
Cash Proceeds Purchase Date, the Company shall deliver to the Trustee,
for deposit into the Cash Collateral Offer Account, an amount of money
equal to the amount, if any, by which (A) the lesser of (x) the
aggregate Collateralized Cash Proceeds Purchase Price of all
Securities for which Collateralized Cash Proceeds Purchase Notices
have been given and not withdrawn and (y) the Collateralized Cash
Proceeds Offer Amount exceeds (B) the amount of money on deposit in
the Cash Collateral Offer Account. Following such delivery, if any,
but in any event on or prior to noon, New York
<PAGE>
time, on the Collateralized Cash Proceeds Purchase Date, the Trustee
shall release from the Lien of this Indenture and deliver to the Pay-
ing Agent an amount of money from the Cash Collateral Offer Account
equal to the amount specified in clause (A) above.
(x) Any Trust Moneys remaining in the Cash Collateral Offer
Account following release and delivery by the Trustee pursuant to
Section 10.05(f)(ix) shall be (A) deposited in the Cash Collateral
Account if the Collateralized Cash Proceeds Purchase Prices for the
Series A Securities and the Series B Securities do not, in each case,
equal or exceed the respective Call Prices therefor plus accrued and
unpaid interest, if any, thereon to (but not including) the
Collateralized Cash Proceeds Purchase Date, in which case such Trust
Moneys shall remain subject to the Lien of this Indenture, or (B)
delivered to the Company, if the preceding clause (A) is not
applicable, in which case such moneys shall be released from the Lien
of this Indenture without the need for any further action from the
Trustee.
(xi) If money sufficient to pay the Collateralized Cash
Proceeds Purchase Price of all Securities (or portions thereof) to be
purchased on the Collateralized Cash Proceeds Purchase Date is
deposited with the Paying Agent as of the Collateralized Cash Proceeds
Purchase Date, interest shall cease to accrue on (and, in respect of
the Series A Securities, any increase in Accreted Value shall cease
with respect to) all such Securities (or portions thereof) on and
after the Collateralized Cash Proceeds Purchase Date, whether or not
any such Security is delivered to the Paying Agent, and the holders
thereof shall have no other rights as such, other than the right to
receive the applicable Collateralized Cash Proceeds Purchase Price
(and, in the case of a Security purchased in part, a new Security
equal in principal amount at maturity to the unpurchased portion of
the Security surrendered) upon surrender of such Securities.
<PAGE>
(xii) In connection with any offer to purchase, or any
purchase of, Securities under this Section 10.05(f), the Company shall
(i) comply with the Exchange Act, if applicable, (ii) file any
required Schedules of the Exchange Act, if applicable, and (iii)
otherwise comply with all Federal and state securities laws regulating
the purchase of the Securities.
(xiii) The Paying Agent shall return to the Company any
money, together with interest or dividends, if any, thereon held by it
for the payment of the Collateralized Cash Proceeds Purchase Price of
the Securities that remain unclaimed as provided in Section 8.04
hereof; provided, however, that to the extent that the aggregate
amount of money deposited by the Company pursuant to Section
10.05(f)(ix) (together with Trust Moneys at the time in the Cash
Collateral Offer Account) exceeds the aggregate Collateralized Cash
Proceeds Purchase Price of the Securities or portions thereof to be
purchased on the Collateralized Cash Proceeds Purchase Date, then
promptly after the Collateralized Cash Proceeds Purchase Date, the
Paying Agent shall return any such excess to the Company together with
interest or dividends, if any, thereon.
(g) Release Upon Election Optionally to Redeem. If the
Company or a Subsidiary thereof receives Net Proceeds from a sale of
Pledged Shares or from a Primary Share Sale that becomes subject to
the Lien of this Indenture, and if such sale constitutes a Public
Equity Offering and the Company is entitled at such time to effect an
optional redemption in part of Securities pursuant to Article 3 of
this Indenture and Section 5 of the Securities with such Net Proceeds,
then the Company may elect, by written notice to the Trustee delivered
within 30 days after it or such Subsidiary receives such Net Proceeds,
to apply all or any portion of such Net Proceeds to such an optional
redemption. Following the giving of such written notice, the Company
shall, prior to 11:00 A.M., New York time, on the date set by the
Company for such redemption of Securities in accordance with Article
3, deliver to the Trustee, for deposit into the Cash Collateral Public
Equity Offering Account, an amount of money equal to the amount, if
any, by which the
<PAGE>
aggregate redemption price of all Securities called for redemption
plus accrued and unpaid interest, if any, to (but not including) the
date of redemption (the "AGGREGATE REDEMPTION PRICE")exceeds the
amount of money on deposit in the Cash Collateral Public Equity
Offering Account. Following such delivery, if any, but in any event
on or prior to 11:00 A.M., New York time, on the date set by the
Company for such redemption of Securities in accordance with Article
3, the Trustee shall release from the Lien of this Indenture and
deliver to the Paying Agent an amount of money from the Cash
Collateral Public Equity Offering Account equal to the Aggregate
Redemption Price. Pending application of any Trust Moneys in the Cash
Collateral Public Equity Offering Account in accordance with this
Section 10.05(g), such moneys may be invested in accordance with
Section 10.03(c).
SECTION 10.06. TRUSTEE APPOINTED ATTORNEY-IN-FACT.
(a) The Company hereby appoints the Trustee as its
attorney-in-fact, with power of substitution and with full authority
in its place and stead and in its name or the Trustee's own name, from
time to time, in the Trustee's discretion subject to the provisions of
this Article 10, to take any action and to execute any instrument
which the Trustee may deem necessary or advisable in order to
accomplish the purposes of this Article 10, including to receive,
endorse and collect all instruments made payable to it representing
any dividend, interest payment or other distribution in respect of the
Collateral or any part thereof and to give full discharge for the
same. This power, being coupled with an interest, is irrevocable.
(b) MPI hereby appoints the Trustee as its
attorney-in-fact, with power of substitution and with full authority
in its place and stead and in its name or the Trustee's own name, from
time to time, in the Trustee's discretion subject to the provision of
this Article 10, to take any action and to execute any instrument
which the Trustee may deem necessary or advisable in order to
accomplish the purposes of this Article 10, including to receive,
endorse and collect all instruments made payable to it representing
any dividend, interest payment or other distribution in respect of the
Collateral or any part thereof and to give full discharge for the
<PAGE>
same. This power, being coupled with an interest, is irrevocable.
(c) MAXXAM hereby appoints the Trustee as its
attorney-in-fact, with power of substitution and with full authority
in its place and stead and in its name or the Trustee's own name, from
time to time, in the Trustee's discretion subject to the provisions of
this Article 10, to take any action and to execute any instrument
which the Trustee may deem necessary or advisable in order to
accomplish the purposes of this Article 10, including to receive,
endorse and collect all instruments made payable to it representing
any dividend, interest payment or other distribution in respect of the
Collateral or any part thereof and to give full discharge for the
same. This power, being coupled with an interest, is irrevocable.
SECTION 10.07. TRUSTEE MAY PERFORM. If the Company, MPI or
MAXXAM fails in any material respect to perform any agreement
contained in this Article 10, or fails to take any action required to
be taken by it, to perfect or maintain the perfection and priority of
the Trustee's Lien on any applicable Collateral, the Trustee may
itself perform, or cause performance of, such agreement, and the
expenses of the Trustee incurred in connection therewith shall be
payable by the Company under Section 7.07. Without limiting the
foregoing, the Trustee is authorized to file financing statements
without the signature of the grantor of a security interest in any
Collateral in order to perfect any Lien on such Collateral.
SECTION 10.08. REMEDIES UPON EVENT OF DEFAULT. If any Notice of
Acceleration shall have been delivered and is at the time in effect,
the Trustee may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies provided a secured party upon the
default of a debtor under the Uniform Commercial Code at that time.
Without limiting the foregoing, the Trustee may, without notice,
except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any exchange,
broker's board or at any of the Trustee's offices or elsewhere, for
cash, on credit or for future delivery, upon such terms as the Trustee
may determine to be commercially reasonable, and the Trustee or any
secur-
<PAGE>
ityholder may be the purchaser of any or all of the Collateral so sold
and thereafter hold the same, absolutely, free from any right or claim
of whatsoever kind. Each of the Company and MPI (with respect to the
Pledged Shares pledged by it hereunder) and MAXXAM (with respect to
the Pledged Kaiser shares) agrees that, to the extent notice of sale
shall be required by law, at least 10 days' notice to the Company
(with respect to the Pledged Shares of the Pledged Companies) and
MAXXAM (with respect to the Pledged Kaiser Shares) of the time and
place of any public sale or the time after which any private sale is
to be made shall constitute reasonable notification. The Trustee
shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Trustee may adjourn any public
or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. The Trustee
shall incur no liability to the Company, MAXXAM or MPI as a result of
the sale of the Collateral, or any part thereof, at any private sale
conducted in a commercially reasonable manner. Each of the Company,
MAXXAM and MPI hereby waives any claim against the Trustee arising by
reason of the fact that the price at which any Collateral pledged by
it hereunder may have been sold at such a private sale was less than
the price which might have been obtained at a public sale, even if the
Trustee accepts the first offer received and does not offer such
Collateral to more than one offeree.
The Company, MAXXAM and MPI each recognize that, by reason of
certain prohibitions contained in the Securities Act and applicable
state securities laws, the Trustee may be compelled, with respect to
any sale of all or any part of the Collateral, to limit purchasers to
those who will agree, among other things, to acquire such securities
for their own account, for investment and not with a view to the
distribution or resale thereof. The Company, MAXXAM and MPI each
acknowledge and agree that any such sale may result in prices and
other terms less favorable to the seller than if such sale were a
public sale without such restrictions and, notwithstanding such
circumstances, each agrees that any such sale of any Collateral
pledged by it hereunder shall be deemed to have been made in a
commercially reasonable manner. The Trustee shall be under no
obligation to delay the sale of any of the Pledged Shares for the
period of time necessary to permit the Company, MAXXAM and MPI, as the
case
<PAGE>
may be, to register such securities for public sale under the
Securities Act or under applicable state securities laws, even if the
Company, MAXXAM or MPI, as the case may be, would agree to do so.
If a Notice of Acceleration has been delivered and is at the time
in effect, the Trustee may, upon written notice, require the Company,
or MPI, as applicable, to use its best efforts to cause to be
registered as soon as possible pursuant to the Securities Act and
relevant state securities laws the Pledged Shares that are shares of
Pledged Companies, including, without limitation, Stock of MPI,
Pacific Lumber and Britt, respectively, and to keep such registration
effective for at least 360 consecutive days, and to enter into
customary arrangements with the Trustee and the holders concerning
indemnification and reimbursement of expenses.
SECTION 10.09. APPLICATION OF PROCEEDS. If a Notice of
Acceleration has been delivered and is at the time in effect, any
Trust Moneys held by the Trustee as Collateral, and all proceeds
received by the Trustee in respect of any sale of, collection from or
other realization upon, all or any part of the Collateral, shall be
applied by the Trustee in the manner specified in Section 6.10.
SECTION 10.10. CONTINUING LIENS. Except as provided in Article
5 and this Article 10.
(a) the Company represents that this Indenture shall
create a continuing Lien on the Collateral with respect to which a
security interest is granted pursuant to Section 10.01(a) that shall
(i) remain in full force and effect until payment in full of the Secu-
rities, (ii) be binding upon the Company and its successors and
assigns and (iii) enure to the benefit of the Trustee and its
successors, transferees and assigns.
(b) MPI represents that this Indenture shall create a
continuing Lien on the Collateral with respect to which a security
interest is granted pursuant to Section 10.01(b) that shall (i) remain
in full force and effect until payment in full of the Securities, (ii)
be binding upon MPI and its successors and assigns and (iii) enure to
the benefit of the Trustee and its successors, transferees and
assigns.
<PAGE>
(c) MAXXAM represents that this Indenture shall create
a continuing Lien on the Collateral with respect to which a security
interest is granted pursuant to Section 10.01(c) that shall (i) remain
in full force and effect until payment in full of the Securities, (ii)
be binding upon MAXXAM and its successors and assigns and (iii) enure
to the benefit of the Trustee and its successors, transferees and
assigns.
SECTION 10.11. CERTIFICATES AND OPINIONS. The Company shall
comply with (a) TIA Section 314(b) relating to Opinions of Counsel
regarding the Lien of this Indenture and (b) TIA Section 314(d)
relating to the release and substitution of Collateral from the Lien
of this Indenture and Officers' Certificates or other documents
regarding fair value of the Collateral, to the extent such provisions
are applicable. The release of any collateral, in whole or in part,
from the Lien of this Indenture shall be deemed not to impair in
contravention of this Indenture, any of the Liens relating to the
Collateral, or otherwise contravene the provisions of this Indenture,
if and to the extent such Collateral is released pursuant to and in
compliance with the terms of this Indenture. Any certificate or
opinion required by TIA Section 314(d) may be executed and delivered
by an Officer of the Company to the extent permitted by TIA Section
314(d).
SECTION 10.12. REPRESENTATIONS AND WARRANTIES.
(a) The Company hereby represents and warrants as
follows:
(i) The Company is the record and beneficial owner of the
Pledged Shares described on Exhibit C as being owned by the Company,
free and clear of any Lien, except for the Lien created by this
Indenture.
(ii) The Company has full corporate power, authority and
legal right to pledge all the Pledged Shares described on Exhibit C as
being owned by the Company and all other Collateral pledged by the
Company.
(iii) The Pledged Shares described on Exhibit C as being
owned by the Company have
<PAGE>
been duly authorized and are validly issued, fully paid and
non-assessable.
(iv) The pledge in accordance with the terms of this
Indenture of the Pledged Shares described on Exhibit C as being owned
by the Company (assuming no failure by the Trustee to perform acts
customarily required of a secured party in such circumstances) creates
an (except for Liens permitted under Section 4.16) exclusive and a
valid and perfected first priority Lien on such Collateral, securing
payment of principal and premium of and interest on the Securities by
the Company.
(v) Exhibit C hereto sets forth a description of all the
Pledged Shares owned by the Company as of the Issue Date.
(vi) The Pledged Shares that are MPI shares of Stock
constitute approximately 99.93% of the outstanding Stock of MPI.
(vii) There are no existing options, warrants, calls or
similar commitments relating to any authorized and unissued Stock of
MPI.
(b) MPI hereby represents and warrants as follows:
(i) MPI is the record and beneficial owner of the Pledged
Shares described on Exhibit C as being owned by MPI, free and clear of
any Lien, except for the Lien created by this Indenture.
(ii) MPI has full corporate power, authority and legal right
to pledge all the Pledged Shares described on Exhibit C as being owned
by MPI and all other Collateral pledged by MPI.
(iii) The Pledged Shares described on Exhibit C as being
owned by MPI have been duly authorized and are validly issued, fully
paid and non-assessable.
<PAGE>
(iv) The pledge in accordance with the terms of this
Indenture of the Pledged Shares described on Exhibit C as being owned
by MPI (assuming no failure by the Trustee to perform acts customarily
required of a secured party in such circumstances) creates an (except
for Liens permitted under Section 4.16) exclusive and a valid and
perfected first priority Lien on such Collateral, securing payment of
principal and premium of and interest on the Securities by the
Company.
(v) Exhibit C hereto sets forth a description of all the
Pledged Shares owned by MPI as of the Issue Date.
(vi) The Pledged Shares that are Pacific Lumber and Britt
shares of Stock constitute all of the outstanding Stock of such
entities.
(vii) There are no existing options, warrants, calls or
similar commitments relating to any authorized and unissued Stock of
Pacific Lumber or Britt.
(c) MAXXAM hereby represents and warrants as follows:
(i) MAXXAM is the record and beneficial owner of the
Pledged Shares described on Exhibit C as being owned by MAXXAM, free
and clear of any Lien, except for the Lien created by this Indenture.
(ii) MAXXAM has full corporate power, authority and legal
right to pledge all the Pledged Shares described on Exhibit C as being
owned by MAXXAM and all other Collateral pledged by MAXXAM.
(iii) The Pledged Shares described on Exhibit C as being
owned by MAXXAM have been duly authorized and are validly issued,
fully paid and non-assessable.
(iv) The pledge in accordance with the terms of this
Indenture of the Pledged Shares described on Exhibit C as being owned
by MAXXAM
<PAGE>
(assuming no failure by the Trustee to perform acts customarily
required of a secured party in such circumstances) creates an (except
for Liens permitted under Section 4.16) exclusive and a valid and
perfected first priority Lien on such Collateral, securing payment of
principal and premium of and interest on the Securities by the
Company.
(v) Exhibit C hereto sets forth a description of all the
Pledged Shares owned by MAXXAM as of the Issue Date.
(vi) On the Issue Date there are authorized and outstanding
57,331,507 shares and 1,938,295 shares of Common Stock, par value $.01
per share, and Series A Mandatory Conversion Premium Dividend
Preferred Stock, par value $.05 per share (the "Series A Preferred
Stock"), of Kaiser, respectively, and outstanding options, warrants,
calls and/or commitments relating to 21,882,950 shares of Common
Stock, par value $.01 per share, of Kaiser (including shares thereof
issuable on conversion of the Series A Preferred Stock and 2,500,000
shares thereof issuable pursuant to the Kaiser 1993 Omnibus Stock
Incentive Plan).
SECTION 10.13. CERTAIN MERGERS, CONSOLIDATIONS, ETC. AMONG THE
COMPANY, PLEDGED COMPANIES AND RESTRICTED SUBSIDIARIES.
Notwithstanding any other provision of this Indenture, the Company may
at any time and from time to time permit any Pledged Company to merge
or consolidate into, or sell or transfer all or substantially all its
assets in any transaction or series of transactions to, any Restricted
Subsidiary if:
(i) the Trustee receives, as Collateral subject to the Lien
of this Indenture, the consideration distributed to the Company and
its Subsidiaries on the Pledged Shares of such Pledged Company in such
transaction or transactions;
(ii) after giving effect to such transaction or
transactions, the Collateral includes at least a majority of the
Voting Stock and outstanding equity interests (on a fully dilut-
<PAGE>
ed basis) of the person surviving such mergeror consolidation or to
whom such transfer is made, in a proportion at least equal (treating,
for purposes of this clause (ii), shares of Stock of MPI held by
Palmas Holding Corp., a Delaware corporation, on the Issue Date as
Collateral) to that in which the Voting Stock and outstanding equity
interests of such Pledged Company were included in the Collateral
immediately prior to such transaction or transactions;
(iii) no Default exists or would exist immediately
following such transaction or transactions after giving effect thereto
on a pro forma basis; and
(iv) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel stating that clause
(iii) above is satisfied and stating that such transaction or
transactions are otherwise permitted by this Section 10.13.
Upon satisfaction of the requirements of this Section 10.13, the
Trustee shall, if requested, release the Pledged Shares of such
Pledged Company from the Lien of this Indenture to the extent
necessary to effect any transaction or transactions permitted under
this Section 10.13; provided, that any person surviving such merger or
consolidation, or to whom such sale or transfer is made, pursuant to
the foregoing provisions of this Section 10.13 shall be deemed to be,
for all purposes of this Indenture, a Pledged Company, such person
shall be a Restricted Subsidiary and any owner of shares of Stock of
such person that is either the Company or a Subsidiary of the Company
shall grant a security interest (of like tenor to the security
interest granted on the Issue Date pursuant to Section 10.01(a)) in
such shares of Stock and shall expressly assume, by supplemental
indenture hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations with respect to such
shares applicable to a Pledgor with respect thereto under this Article
10. Notwithstanding any other provision of this Indenture, any
Pledged Company may, at any time and from time to time, merge or
consolidate into, or transfer all or substantially all its assets in
any transaction or series of transactions to, the Company.
<PAGE>
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS. If any provision
of this Indenture limits, qualifies or conflicts with another
provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
SECTION 11.02. NOTICES. Any notice or communication shall be in
writing and delivered in person, transmitted by facsimile (confirmed
in writing by mail) or mailed by first-class mail addressed as
follows:
If to the Company:
MAXXAM Group, Inc.
5847 San Felipe, Suite 2600
Houston, Texas 77057
Attention: General Counsel
Telecopy Number: (713) 267-3702
with copies to:
Howard A. Sobel, Esq.
c/o Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel
919 Third Avenue
New York, New York 10022
and
if to the Trustee:
Shawmut Bank, N.A.
Corporate Trust Department
1 Federal Street
Boston, Massachusetts 02211
Attention: Corporate Trust Division
Telecopy Number: (617) 292-4289
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's address as it
appears on the registra-
<PAGE>
tion books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to
other Securityholders. If a notice or communication is mailed in the
manner provided above, it is duly given, whether or not the addressee
receives it. Notwithstanding anything to the contrary in this Section
11.02, notices to the Company or the Trustee shall only be deemed
given when received by the Company or the Trustee, as the case may be.
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this
Indenture or the Securities and the Trustee shall comply with TIA Sec-
tion 312(b). The Company, the Trustee, the Registrar and anyone else
shall have the protection of TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT. Upon any request or application by the Company to the
Trustee to take any action under this Indenture, the Company shall
furnish to the Trustee upon the Trustee's request:
(i) an Officers' Certificate stating that, in the opinion
of the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with (or
will have been complied with upon the execution and delivery of desig-
nated instruments); and
(ii) an Opinion of Counsel stating that, in the opinion of
such counsel, as to legal matters, all such conditions precedent have
been complied with (or will have been complied with upon the execution
and delivery of designated instruments);
except that in the case of any application or request as to which the
furnishing of such documents is specifically required by any
provisions of this Indenture relating to such particular application
or request, no additional certificate or opinion need be furnished.
<PAGE>
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a covenant
or condition provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
rendering such opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or
she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of
such person, such covenant or condition has been complied with.
SECTION 11.06. WHEN TREASURY SECURITIES DISREGARDED. In
determining whether the Holders of the required Accreted Value of
Securities have concurred in any direction, waiver or consent,
Securities owned by the Company or by any person directly or
indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to
be outstanding, except that, for the purpose of determining whether
the Trustee shall be protected in relying on any such direction,
waiver or consent, only Securities which the Trustee knows are so
owned shall be so disregarded. Also, subject to the foregoing, only
Securities outstanding at the time shall be considered in any such
determination.
SECTION 11.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar and the Paying Agent may make
reasonable rules for their functions.
<PAGE>
SECTION 11.08. LEGAL HOLIDAYS. If a payment date is a Legal
Holiday, payment shall be made on the next succeeding day that is not
a Legal Holiday, and no interest shall accrue for the intervening
period. If a regular record date is a Legal Holiday, the record date
shall not be affected.
SECTION 11.09. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK
SHALL GOVERN THIS INDENTURE AND THE SECURITIES, WITHOUT GIVING EFFECT
TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY, EXCEPT THAT THE LAWS OF THE STATE OF MASSACHUSETTS SHALL
GOVERN MATTERS CONCERNING THE VALIDITY AND PERFECTION OF SECURITY
INTERESTS OF THE TRUSTEE IN FAVOR OF THE HOLDERS IN TUE ACCOUNTS,
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY. THE COMPANY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE
BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND
THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE
AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY
AND ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY
SECURITYHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE
COMPANY IN ANY OTHER JURISDICTION.
SECTION 11.10. NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company or the Trustee shall
not have any liability for any obligations of the Company or the
Trustee under the Securities or this Indenture or for any claim based
on, in respect of or by reason of such obligations or their creation.
By accepting a Security, each Security holder shall waive and release
all such liability. The
<PAGE>
waiver and release shall be part of the consideration for the issue of
the Securities.
SECTION 11.11. SUCCESSORS. All agreements of the Company in
this Indenture and the Securities shall bind its successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 11.12. SEVERABILITY. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions thereof shall not in any way be affected or
impaired thereby.
SECTION 11.13. MULTIPLE ORIGINALS. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement. One
signed copy is enough to prove this Indenture. This Indenture may be
executed in two or more counterparts, each of which shall be an
original, but all of them together constitute the same agreement.
SECTION 11.14. TABLE OF CONTENTS; HEADINGS. The table of
contents, cross-reference sheet and headings of the Articles and
Sections of this Indenture have been inserted for convenience of
reference only, are not intended to be considered a part hereof and
shall not modify, restrict or otherwise affect the meaning or
interpretation of any of the terms or provisions hereof.
SECTION 11.15. BENEFITS OF INDENTURE. Nothing in this Indenture
or the Securities, express or implied shall give to any person, other
than the parties hereto and their successors hereunder, and the
Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 11.16. NO CHALLENGE. (a) The Trustee agrees, and each
Holder of a Security by its acceptance thereof agrees, that neither
the Trustee nor any such Holder shall take any action to challenge or
to contest, in any bankruptcy or insolvency proceeding or otherwise,
or vote in any way so as to authorize or participate, directly or
indirectly, in any such challenge or contest of, or file any claim in
any bankruptcy or insolvency proceeding or otherwise inconsistent
with: (i) the validity, priority or enforceability of the Liens and
security
<PAGE>
interests granted to secure payment of the Bank Debt, whether
outstanding at the date hereof or hereafter, (ii) the rights of the
holders of the Bank Debt, or any agent for such holders, set forth in
any security agreement, mortgage or other collateral document with
respect to such Liens and security interests, or (iii) the validity or
enforceability of any provision of this Section 11.16. For purposes of
this Indenture, the Liens and security interests granted in connection
with the Bank Debt shall be deemed to have been given in exchange for
reasonably equivalent or fair value received by the Company.
(b) Except as expressly stated in this Section 11.16, the
Trustee and the Holders of the Securities retain their rights to vote
their claims and otherwise to act on their own behalf in any
proceeding under the Bankruptcy Law.
(c) The Trustee acknowledges, on behalf of itself and the
Holders of the Securities, that the holders of the Bank Debt have
entered or will enter into the Credit Agreement and have extended or
will extend credit pursuant thereto in reliance upon this Section
11.16. This Section 11.16 shall inure to the benefit of and be
enforceable by the holders of the Bank Debt and any agent for such
holders.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
MAXXAM GROUP INC.
Attest:
By: By:
Bernard L. Birkel John T. La Duc
Assistant Secretary Vice President and
Chief Financial Officer
MAXXAM Inc. hereby confirms
its agreements set forth in
Article 10 of this Indenture.
Attest:
By: By:
Bernard L. Birkel Anthony R. Pierno
Assistant Secretary Senior Vice President and
General Counsel
MAXXAM Properties Inc. hereby
confirms its agreements set
forth in Article 10 of this
Indenture.
Attest:
By: By:
Bernard L. Birkel Jacques C. Lazard
Assistant Secretary Vice President and Controller
SHAWMUT BANK, N.A.
Attest:
By: By:
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be
duly executed as of the date first written above.
MAXXAM GROUP INC.
Attest:
By:
By: NAME:
TITLE:
MAXXAM Inc. hereby confirms
its agreements set forth in
Article 10 of this Indenture.
Attest:
By: By:
MAXXAM Properties Inc. hereby
confirms its agreements set
forth in Article 10 of this
Indenture.
Attest:
By: By:
SHAWMUT BANK, N.A.
Attest:
By:
By: Name:
Title:
MAXXAM INC.
TAX ALLOCATION AGREEMENT WITH BRITT LUMBER CO., INC.
AS OF JULY 3, 1990
This Agreement is made as of July 3, 1990, between MAXXAM Inc.
("Parent"), a Delaware corporation, and Britt Lumber Co., Inc.
("Britt"), a California corporation.
WHEREAS, on July 2, 1990, MAXXAM Properties Inc. acquired all of
the outstanding common stock of Britt (the "Acquisition"); and
WHEREAS, as of July 3, 1990, as a consequence of the Acquisition,
Britt became a member of the affiliated group within the meaning of
Section 1504(a) of The Internal Revenue Code (the "Code") of which
Parent is the common parent corporation (the "Group"); and
WHEREAS, Parent and Britt desire to establish a Tax Allocation
Method which includes Britt. As used herein, the term "Tax Allocation
Method" shall mean a method for allocating the consolidated tax
liability of a group among its members and for reimbursing the group's
parent for the payment of such liability.
NOW, THEREFORE, in consideration of the promises and of the
mutual agreements and covenants contained herein, Parent and Britt
hereby agree as follows:
1. Britt agrees to be included in, and Parent agrees to file a
consolidated Federal income tax return for all taxable years in which
Parent and Britt are eligible to file consolidated returns as an
affiliated group of corporations as such term is defined in Section
1504 of the Code.
2. All elections relating to the filing of a consolidated
Federal income tax return which are required or are available and the
computation of the consolidated Federal income tax liability of the
Group shall be made by Parent. Britt shall execute such consents and
other documents as are necessary in connection therewith.
<PAGE>
3. Parent, as the common parent and agent of the Group, shall
be responsible for, and shall pay, any consolidated Federal income tax
liability of the Group, and has the sole right to any refunds from the
Internal Revenue Service.
4. (a) There shall be computed a Federal income tax liability
for Britt for any taxable period covered by Section 6 of this
Agreement (the "Applicable Period") as if (i) Britt had filed a
separate return for such period and all prior Applicable Periods
(taking into account all limitations which would be applicable to
Britt) and (ii) Britt was never a member of the Group. In calculating
such liability the separate returns shall be prepared by taking into
account all inter-company transactions, including those eliminated by
reason of the consolidated return Treasury Regulations.
(b) If the foregoing calculation results in a Federal
income tax liability for Britt with respect to the Applicable Period,
then, in that event, Britt shall pay such computed income tax
liability to Parent in such amounts and at such times as Britt would
have been required to pay to the Internal Revenue Service if it were
an unaffiliated corporation making separate estimated payments of tax
and filing a separate tax return.
(c) If the foregoing calculation with respect to the
Applicable Period results in a net operating loss that can be carried
back to a prior taxable period or periods of Britt with respect to
which Britt previously made payments to Parent pursuant to the
preceding paragraph (b), then, in that event, Parent shall pay Britt
an amount equal to the tax refund to which Britt would have been
entitled if it were an unaffiliated corporation that filed separate
income tax returns in respect of all the relevant taxable periods.
<PAGE>
(d) If the foregoing calculation with respect to the
Applicable Period results in a net operating loss that cannot be
carried back to a prior taxable period or periods of Britt with
respect to which Britt previously made payments to Parent pursuant to
the preceding paragraph (b), then, in that event, such net operating
loss shall be a net operating loss carryover to be used by Britt in
computing its Federal income tax liability pursuant to the preceding
paragraph (a) for future taxable periods, under the law applicable to
net operating loss carryovers in general.
(e) Any adjustment other than a net operating loss carry
back described in paragraph (c) above, for whatever reason (including,
without limitation, audits or amended returns), to any item affecting
a calculation of tax liabilities under paragraph (a), (b), (c) or (d)
above, shall be given effect by redetermining the amount payable by or
due to Britt pursuant to this Agreement as if such adjustment was part
of the original determination hereunder and including any interest due
to or from the Internal Revenue Service as a result of such
adjustment.
5. The foregoing principles shall apply in similar fashion to any
consolidated state or other local income tax return which the Group
may elect or be required to file.
6. With respect to Britt, this Agreement shall be effective for
the Group's 1990 taxable period and all subsequent taxable periods
(excluding any period of time in 1990 in which Britt was not a member
of the Group) until the date on which (i) Britt ceases to be a member
of the Group, (ii) the Group no longer remains in existence within the
meaning of Treasury Regulation 1.1502-75(a), or (iii) the Group is no
longer eligible to file, or is no longer eligible to join in the
filing of, a consolidated return for Federal income tax purposes.
Prior to or upon termination of this Agreement, the parties may enter
into a new agreement, consistent with the provisions of this
Agreement, taking into account, among
<PAGE>
other things, to the extent applicable, the manner in which Britt
ceased to be a member of the Group, the reason that the Group is no
longer in existence, or the reason that Parent and Britt can no longer
join in the same consolidated return.
7. This Agreement is entered into by the parties solely in
recognition of the mutual benefits resulting from filing a Federal (or
state or other local) consolidated tax return. The respective amounts
of tax liability allocated to Parent and Britt for purposes of
computing such corporations' earnings and profits for Federal (or any
other) income tax purposes may differ from those determined in
accordance with this Agreement. Furthermore, any amount treated for
Federal (or state) income tax purposes, on account of such a
difference, as a contribution to capital or a distribution with
respect to stock, or a combination thereof, as the case may be, shall
be treated as a contribution to capital, a distribution with respect
to stock, or a combination thereof, solely for Federal (or state)
income tax purposes.
IN WITNESS WHEREOF, Parent and Britt have executed this Agreement
by authorized officers thereof as of the date first above written.
MAXXAM Inc.
By
Britt Lumber Co., Inc.
By
UNDERTAKING
Effective as of the date hereof, the undersigned does hereby
assume (a) any unpaid Federal income tax liabilities of MAXXAM
Group Inc. ("MGI"), a Delaware corporation and wholly owned
subsidiary of the undersigned, attributable to taxable years of
MGI ending on or before May 20, 1988 (plus all penalties and
interest thereon) and (b) any liabilities related to those
certain loan and installment sale contracts previously assigned
to MAXXAM Properties Inc. by Coyne Cylinder Co., as more fully
described in Exhibit A attached hereto.
Dated: August 4, 1993 MAXXAM INC.
By: JACQUES C. LAZARD
Jacques C. Lazard
Vice President and
Corporate Controller
<PAGE>
EXHIBIT A
All terms used but not defined herein have the meaning
assigned them under that certain Amended and Restated Loan and
Security Agreement dated as of November 15, 1987 (the "Loan
Agreement") among MAXXAM Properties Inc. as Borrower, MAXXAM
Group Inc. as Guarantor and Bank of America National Trust and
Savings Association as Lender.
Subject to Lender's security interest therein, all right,
title and interest in, to and under the First Loan Contracts and
the Second Loan Contracts assigned by Coyne Cylinder Co.
("Coyne") to the predecessor of MAXXAM Properties Inc., MXM
Holdings Corporation, pursuant to that certain Assignment and
Assumption agreement dated as of September 8, 1987.
All right, title and interest in, to and under the
installment sale contracts described on Schedule III-A to the
Loan Agreement.
To the Stockholders and the Board of Directors of Kaiser Aluminum
Corporation:
We have audited the accompanying consolidated balance sheets of
Kaiser Aluminum Corporation (a Delaware corporation) and
subsidiaries as of December 31, 1993 and 1992, and the related
statements of consolidated income and cash flows for each of the
three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Kaiser Aluminum Corporation and subsidiaries as of December
31, 1993 and 1992, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted
accounting principles.
As explained in Note 1 of the Notes to Consolidated Financial
Statements, effective January 1, 1993, the Company changed its
methods of accounting for postretirement benefits other than
pensions, postemployment benefits, and income taxes.
ARTHUR ANDERSEN & CO.
Houston, Texas
February 24, 1994
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------
(In millions of dollars, except share amounts) 1993 1992
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 14.7 $ 19.1
Receivables:
Trade, less allowance for doubtful receivables
of $2.9 in 1993 and $3.0 in 1992 156.1 174.0
Other 78.6 96.0
Inventories 426.9 439.9
Prepaid expenses and other current assets 60.7 37.0
-------- --------
Total current assets 737.0 766.0
Investments in and advances to unconsolidated affiliates 183.2 150.1
Property, plant, and equipment -- net 1,163.7 1,066.8
Deferred income taxes 210.8
Other assets 233.2 189.7
-------- --------
Total $2,527.9 $2,172.6
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 126.3 $ 136.6
Accrued interest 23.6 4.6
Accrued salaries, wages, and related expenses 56.1 84.4
Accrued postretirement benefit
obligation -- current portion 47.6
Other accrued liabilities 133.2 121.0
Payable to affiliates 62.4 78.4
Short-term borrowings .5 4.8
Long-term debt -- current portion 8.7 25.9
-------- --------
Total current liabilities 458.4 455.7
Long-term liabilities 501.8 281.7
Accrued postretirement benefit obligation 713.1
Long-term debt 720.2 765.1
Minority interests 105.0 104.9
Stockholders' equity:
Preferred stock, par value $.05, authorized
20,000,000 shares; Series A Convertible, stated
value $.10, issued and outstanding, 1,938,295 and
nil in 1993 and 1992 .2
Common stock, par value $.01, authorized 100,000,000 shares;
issued and outstanding, 58,095,599 and 57,327,279 shares
in 1993 and 1992 .6 .6
Additional capital 425.9 288.5
Retained earnings (accumulated deficit) (375.7) 282.8
Additional minimum pension liability (21.6) (6.7)
-------- --------
Total stockholders' equity 29.4 565.2
-------- --------
Total $2,527.9 $2,172.6
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
- 13 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(In millions of dollars, except share amounts) 1993 1992 1991
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,719.1 $1,909.1 $2,000.8
-------- -------- --------
Costs and expenses:
Cost of products sold 1,587.7 1,619.3 1,594.2
Depreciation 97.1 80.3 73.2
Selling, administrative, research and
development, and general 121.9 119.6 117.4
Restructuring of operations 35.8
-------- -------- --------
Total costs and expenses 1,842.5 1,819.2 1,784.8
-------- -------- --------
Operating income (loss) (123.4) 89.9 216.0
Other income (expense):
Interest and other income -- net (.9) 20.9 20.3
Interest expense (84.2) (78.7) (93.9)
-------- -------- --------
Income (loss) before income taxes, minority interests,
extraordinary loss, and cumulative effect of changes
in accounting principles (208.5) 32.1 142.4
Credit (provision) for income taxes 86.9 (5.3) (32.4)
Minority interests (1.5) .1 (1.6)
-------- -------- --------
Income (loss) before extraordinary loss and cumulative
effect of changes in accounting principles (123.1) 26.9 108.4
Extraordinary loss on early extinguishment of debt,
net of tax benefit of $11.2 (21.8)
Cumulative effect of changes in accounting principles,
net of tax benefit of $237.7 (507.3)
-------- -------- --------
Net income (loss) $ (652.2) $ 26.9 $ 108.4
======== ======== ========
Per common and common equivalent share:
Income (loss) before extraordinary loss and cumulative effect of
changes in accounting principles $ (2.25) $ .47 $ 2.03
Extraordinary loss (.38)
Cumulative effect of changes in accounting principles (8.84)
-------- -------- --------
Net income (loss) $ (11.47) $ .47 $ 2.03
======== ======== ========
Weighted average common and common equivalent shares
outstanding (000) 57,423 57,250 53,297
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
- 14 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
(In millions of dollars) 1993 1992 1991
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $(652.2) $ 26.9 $ 108.4
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation 97.1 80.3 73.2
Amortization of deferred financing costs and discount
on long-term debt 11.2 11.5 10.7
Non-cash postretirement benefit expenses
other than pensions 19.2
Restructuring of operations 35.8
Minority interests 1.5 (.1) 1.6
Extraordinary loss on early extinguishment of debt -- net 21.8
Cumulative effect of changes in accounting principles -- net 507.3
(Decrease) increase in accrued and deferred income taxes (96.4) 3.5 10.1
Equity in losses of unconsolidated affiliates 3.3 1.9 19.5
Recognition of previously deferred income
from a forward alumina sale (.6) (25.7) (42.0)
Increase (decrease) in accrued interest 19.2 (.3) (1.9)
Incurrence of financing costs (12.7) (5.5) (5.9)
Increase in receivables (6.1) (57.8) (2.5)
Decrease in inventories 13.0 58.7 25.3
Decrease (increase) in prepaid expenses
and other current assets 7.4 7.6 (38.3)
Increase (decrease) in accounts payable,
payable to affiliates, and accrued liabilities 47.4 (93.9) (29.6)
Other 8.0 19.2 6.4
------- ------- -------
Net cash provided by operating activities 24.2 26.3 135.0
------- ------- -------
Cash flows from investing activities:
Net proceeds from disposition of property and investments 13.1 26.1 8.8
Capital expenditures (67.7) (114.4) (118.1)
------- ------- -------
Net cash used for investing activities (54.6) (88.3) (109.3)
------- ------- -------
Cash flow from financing activities:
Repayments of long-term debt, including revolving credit (1,134.5) (221.4) (533.3)
Borrowings of long-term debt, including revolving credit 1,068.1 303.8 575.9
Borrowings from MAXXAM Group Inc. (see supplemental
disclosure below) 15.0
Tender premiums and other costs of early
extinguishment of debt (27.1)
Net short-term (payments) borrowings (4.3) (1.5) 6.7
Borrowing (prepayment) of notes to parent 2.5 (100.2)
Dividends paid (6.3) (11.4) (55.7)
Capital stock issued 119.3 .6 93.2
Redemption of minority interests' preference stock (4.2) (7.3) (20.4)
------- ------- -------
Net cash provided by (used for) financing activities 26.0 65.3 (33.8)
------- ------- -------
Net increase (decrease) in cash and cash equivalents
during the year (4.4) 3.3 (8.1)
Cash and cash equivalents at beginning of year 19.1 15.8 23.9
------- ------- -------
Cash and cash equivalents at end of year $ 14.7 $ 19.1 $ 15.8
======= ======= =======
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 53.7 $ 68.1 $ 81.7
Income taxes paid 13.5 1.8 20.9
Tax allocation payments to MAXXAM 28.0 39.1
Supplemental disclosure of non-cash financing activities:
Contribution to capital of notes payable to parent together
with accrued interest $ 53.9
Exchange of the borrowings from MAXXAM Group Inc. for capital stock $ 15.0
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
- 15 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the statements of Kaiser
Aluminum Corporation ("Kaiser" or the "Company") and its majority
owned subsidiaries. Investments in 50%-or-less-owned entities are
accounted for primarily by the equity method. Intercompany balances
and transactions are eliminated. The Company is a subsidiary of
MAXXAM Inc. ("MAXXAM"), and conducts its operations through its wholly
owned subsidiary, Kaiser Aluminum & Chemical Corporation ("KACC").
Certain reclassifications of prior-year information were made to
conform to the current presentation.
Changes in Accounting Principles
The Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"), and Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits"
("SFAS 112"), as of January 1, 1993. The costs of postretirement
benefits other than pensions and postemployment benefits are now
accrued over the period employees provide services to the date of
their full eligibility for such benefits. Previously, such costs were
expensed as actual claims were incurred. The cumulative effect of the
changes in accounting principles for the adoption of SFAS 106 and SFAS
112 were recorded as charges to results of operations of $497.7 and
$7.3, net of related income taxes of $234.2 and $3.5, respectively.
The new accounting standards had no effect on the Company's cash
outlays for postretirement or postemployment benefits, nor did these
one-time charges affect the Company's compliance with its existing
debt covenants. The Company reserves the right, subject to applicable
collective bargaining agreements and applicable legal requirements, to
amend or terminate these benefits.
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), as of January 1,
1993. The adoption of SFAS 109 changes the Company's method of
accounting for income taxes to an asset and liability approach from
the deferral method prescribed by Accounting Principles Board Opinion
No. 11, "Accounting for Income Taxes" ("APB 11"). The asset and
liability approach requires the recognition of deferred income tax
assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements
or tax returns. Under this method, deferred income tax assets and
liabilities are determined based on the temporary differences between
the financial statement and tax bases of assets and liabilities using
enacted tax rates. The cumulative effect of the change in accounting
principle reduced the Company's results of operations by $2.3.
Cash and Cash Equivalents
The Company considers only those short-term, highly liquid investments
with original maturities of 90 days or less to be cash equivalents.
Inventories
Substantially all product inventories are stated at last-in, first-out
("LIFO") cost, not in excess of market. Replacement cost is not in
excess of LIFO cost. Other inventories, principally operating
supplies and repair and maintenance parts, are stated at the lower of
average cost or market. Inventory costs consist of material, labor,
and manufacturing overhead, including depreciation. Inventories
consist of the following:
- 16 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------
1993 1992
-----------------------------------------------------------------------
<S> <C> <C>
Finished fabricated products $ 83.7 $ 91.2
Primary aluminum and work in process 141.4 128.7
Bauxite and alumina 94.0 107.4
Operating supplies and repair and maintenance parts 107.8 112.6
------ ------
$426.9 $439.9
====== ======
</TABLE>
The Company recorded pre-tax charges of approximately $19.4 in 1993
and $29.0 in 1992 because of a reduction in the carrying values of its
inventories caused principally by prevailing lower prices for alumina,
primary aluminum, and fabricated products. The 1992 amount includes a
LIFO inventory liquidation of $10.2.
Depreciation
Depreciation is computed principally by the straight-line method at
rates based upon the estimated useful lives of the various classes of
assets. The principal estimated useful lives by class of assets are:
-----------------------------------------------------------------------
Land improvements 8 to 25 years
Buildings 15 to 45 years
Machinery and equipment 10 to 22 years
Other Income
Other income in 1993 includes approximately $10.8 of pre-tax charges
related principally to establishing additional litigation and
environmental reserves in the fourth quarter. Other income in 1992
includes approximately $14.0 of pre-tax income for non-recurring
adjustments to previously recorded liabilities and reserves in the
fourth quarter. Included in interest and other income in 1991 is the
receipt of a $12.0 fee in the first quarter from the Company s
minority partner in consideration for the execution of an expansion
agreement for the Alumina Partners of Jamaica ("Alpart") alumina
refinery. The agreement provides for a program of expansion and
modernization of Alpart at the existing ownership interest of 65% for
KACC and 35% for KACC's minority partner. The prior expansion
agreement provided for expansion rights of 75% for KACC and 25% for
KACC's minority partner.
Futures Contracts and Options
The Company periodically enters into forward foreign exchange,
commodity futures, and commodity and currency option contracts, which
are primarily accounted for as hedges of its revenues and costs. The
gains and losses on these contracts are reflected in earnings
concurrently with the hedged revenues or costs. The cash flows from
these contracts are classified in a manner consistent with the
underlying nature of the transactions. At December 31, 1993, the net
fair market value of the Company's position in these contracts was not
material.
Deferred Financing Costs
Costs incurred to obtain debt financing are deferred and amortized
over the estimated term of the related borrowing.
Foreign Currency
The Company uses the United States dollar as the functional currency
for its foreign operations.
- 17 -<PAGE>
<PAGE>
(In millions of dollars, except share amounts)
-----------------------------------------------------------------------
Fair Value of Financial Instruments
Unless otherwise disclosed, the carrying amount of all financial
instruments is a reasonable estimate of fair value.
Net Income per Common and Common Equivalent Share
Net income per common and common equivalent share is computed based on
the weighted average number of common and common equivalent shares
outstanding during each period. For the year ended December 31, 1993,
common stock equivalents of 19,382,950 attributable to the Series A
Convertible Preferred Stock and 584,300 attributable to nonqualified
stock options (see Note 9) were excluded from the calculation of
weighted average shares because they were antidilutive. Dividends on
the Series A Convertible Preferred Stock ($6.3 for the year ended
December 31, 1993) are deducted from net income (added to net loss)
for the purpose of calculating net income (loss) per common and common
equivalent share.
2. Pro Forma Financial Information
On February 17, 1994, the Company completed an equity offering of
preferred stock (see Note 9), and KACC completed a refinancing which
included the issuance of $225.0 of Senior Notes and the signing of the
1994 Credit Agreement (see Note 6). The following unaudited pro forma
information reflects the effects of these transactions as if they had
occurred on December 31, 1993.
-----------------------------------------------------------------------
Current assets $ 843.6
Non-current assets 1,800.1
Current liabilities 454.2
Long-term debt 755.7
Stockholders' equity 113.8
3. Restructuring of Operations
In 1993, KACC implemented a restructuring plan for its flat-rolled
products operation at its Trentwood plant in response to overcapacity
in the aluminum rolling industry, flat demand in the U.S. can stock
markets, and declining demand for aluminum products sold to customers
in the commercial aerospace industry, all of which have resulted in
declining prices in Trentwood's key markets. Additionally, KACC
implemented a plan to discontinue its casting operations, which
include three facilities located in Ohio. This entire restructuring
is expected to be completed by the end of 1995 and will affect
approximately 670 employees. The pre-tax charge for this
restructuring of $35.8 includes $25.2 for pension, severance, and
other termination benefits; $4.7 for a writedown of the casting
facilities to net realizable value; $3.3 for estimated 1994 casting
operating losses until the date of closure or sale; and $2.6 for
various other items.
4. Investments In and Advances To Unconsolidated Affiliates
Summary combined financial information is provided below for
unconsolidated aluminum investments, most of which supply and process
raw materials. The investees are Queensland Alumina Limited ("QAL")
(28.3% owned), Anglesey Aluminium Limited ("Anglesey") (49.0% owned),
and Kaiser Jamaica Bauxite Company (49.0% owned). The equity in
earnings (losses) before income taxes of such operations are treated
as a reduction (increase) in cost of products sold. At December 31,
1993 and 1992, KACC's net receivables from these affiliates were not
material.
- 18 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------------
(In millions of dollars, except share amounts)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Summary of Combined Financial Position
December 31,
-------------------
1993 1992
-------------------------------------------------------------------------
<S> <C> <C>
Current assets $312.3 $295.0
Property, plant, and equipment -- net 371.1 389.4
Other assets 46.3 49.9
------ ------
Total assets $729.7 $734.3
====== ======
Current liabilities $130.4 $132.8
Long-term debt 290.0 275.0
Other liabilities 17.8 20.0
Stockholders' equity 291.5 306.5
------ ------
Total liabilities and stockholders' equity $729.7 $734.3
====== ======
</TABLE>
Summary of Combined Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1993 1992 1991
-------------------------------
<S> <C> <C> <C>
Net sales $ 510.3 $ 586.6 $ 589.0
Costs and expenses (527.2) (586.7) (630.7)
Provision for income taxes 1.9 6.9 9.5
------- ------- -------
Net income (loss) $ (15.0) $ 6.8 $ (32.2)
======= ======= =======
Company's equity in losses $ (3.3) $ (1.9) $ (19.5)
======= ======= =======
</TABLE>
The Company's equity in losses differs from the summary net income
(loss) due to various percentage ownerships in the entities and equity
method accounting adjustments.
At December 31, 1993, KACC's investment in its unconsolidated
affiliates exceeded its equity in their net assets by approximately
$80.7. The Company is amortizing this amount over a 12-year period,
which results in an annual amortization charge of approximately $11.9.
The Company and its affiliates have interrelated operations. KACC
provides some of its affiliates with services such as financing,
management, and engineering. Significant activities with affiliates
include the acquisition and processing of bauxite, alumina, and
primary aluminum. Purchases from these affiliates were $206.6,
$219.4 and $238.7 in the years ended December 31, 1993, 1992, and
1991, respectively. No dividends were received from investees in the
three years ended December 31, 1993. See Note 7 for the impact of the
adoption of SFAS 109 in 1993.
- 19 -
<PAGE>
<PAGE>
(In millions of dollars, except share amounts)
------------------------------------------------------------------------
5. Property, Plant, and Equipment
The major classes of property, plant, and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
-------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 135.1 $ 123.8
Buildings 194.8 164.1
Machinery and equipment 1,223.0 1,010.7
Construction in progress 64.9 70.3
-------- --------
1,617.8 1,368.9
Accumulated depreciation 454.1 302.1
-------- --------
Property, plant, and equipment -- net $1,163.7 $1,066.8
======== ========
</TABLE>
See Note 7 for the impact of the adoption of SFAS 109 in 1993.
6. Long-Term Debt
Long-term debt and its maturity schedule are as follows:
<TABLE>
<CAPTION>
December 31,
1999 ---------------
and 1993 1992
1994 1995 1996 1997 1998 After Total Total
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1989 Credit Agreement (6.59% at
December 31, 1993)
Revolving Credit Facility $188.0 $188.0 $290.0
Term Loan 36.6
Pollution Control and Solid Waste Disposal
Facilities Obligations (6.00%-7.75%) $ 1.1 $ 1.2 $ 1.2 $ 1.3 $ 1.3 33.1 39.2 40.0
Alpart CARIFA Loan (fixed and variable rates) 60.0 60.0 60.0
Alpart Term Loan (8.95%) 6.3 6.2 6.3 6.2 25.0 31.3
12-3/4% Senior Subordinated Notes 400.0 400.0
14-1/4% Senior Subordinated Notes 320.5
Other borrowings (fixed and variable rates) 1.3 3.7 1.5 1.5 7.8 .9 16.7 12.6
------ ------ ------ ------ ------ ------ ------ ------
Total $ 8.7 $ 11.1 $ 9.0 $ 9.0 $ 9.1 $682.0 728.9 791.0
====== ====== ====== ====== ====== ======
Less current portion 8.7 25.9
------ ------
Long-term debt $720.2 $765.1
====== ======
</TABLE>
1994 Credit Agreement
On February 17, 1994, the Company and KACC entered into a credit
agreement with BankAmerica Business Credit, Inc. (as agent for itself
and other lenders), Bank of America National Trust and Savings
Association, and certain other lenders (the "1994 Credit Agreement").
The 1994 Credit Agreement replaced the 1989 Credit Agreement (as
defined below) and consists of a $250.0 five-year secured, revolving
line of credit, scheduled to mature in 1999. The Company is able to
borrow under the facility by means of revolving credit advances and
letters of credit (up to $125.0) in an aggregate amount equal to the
lesser of $250.0 or a borrowing base relating to eligible accounts
- 20 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
receivable plus eligible inventory. The Company will record a
pre-tax extraordinary loss of approximately $8.3 in the first quarter
of 1994, consisting primarily of the write-off of unamortized deferred
financing costs related to the 1989 Credit Agreement. As of February
24, 1994, the amount outstanding under the 1994 Credit Agreement was
$67.4 of letters of credit. The 1994 Credit Agreement is
unconditionally guaranteed by the Company and by all significant
subsidiaries of KACC which were guarantors of KACC's obligations under
the 1989 Credit Agreement. Loans under the 1994 Credit Agreement bear
interest at a rate per annum, at KACC's election, equal to (i) a
Reference Rate (as defined) plus 1-1/2% or (ii) LIBO Rate (Reserve
Adjusted) plus 3-1/4%. After June 30, 1995, the interest rate margins
applicable to borrowings under the 1994 Credit Agreement may be
reduced by up to 1-1/2% (non-cumulatively), based upon a financial
test, determined quarterly.
The 1994 Credit Agreement requires KACC to maintain certain financial
covenants and places restrictions on the Company's and KACC's ability
to, among other things, incur debt and liens, make investments, pay
common stock dividends, undertake transactions with affiliates, make
capital expenditures, and enter into unrelated lines of business. The
1994 Credit Agreement is secured by, among other things, (i) mortgages
on KACC's major domestic plants (excluding the Gramercy plant); (ii)
subject to certain exceptions, liens on the accounts receivable,
inventory, equipment, domestic patents and trademarks, and
substantially all other personal property of KACC and certain of its
subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser;
and (iv) pledges of all of the stock of a number of KACC's wholly
owned domestic subsidiaries, pledges of a portion of the stock of
certain foreign subsidiaries, and pledges of a portion of the stock of
certain partially owned foreign affiliates.
The 1989 Credit Agreement
The Company and KACC entered into a credit agreement with a syndicate
of commercial banks and other financial institutions. This agreement
was composed of a Revolving Credit Facility, a five-year Term Loan,
and certain other agreements (as amended, the "1989 Credit
Agreement"). The obligations of KACC in respect of the credit
facilities were guaranteed by Kaiser, and by a number of wholly owned
subsidiaries of KACC.
The Revolving Credit Facility under the 1989 Credit Agreement provided
for loans not to exceed the lesser of $350.0 or a borrowing base
relating to the amount of eligible accounts receivable and eligible
inventory of KACC and certain of its subsidiaries. Up to $50.0 of
availability under the Revolving Credit Facility could have been used
for letters of credit. As of December 31, 1993, $113.6 of borrowing
capacity was unused under the Revolving Credit Facility of the 1989
Credit Agreement (of which $12.8 could also have been used for letters
of credit). The five-year Term Loan component of the 1989 Credit
Agreement, which was originally to be repaid in ten equal semi-annual
installments commencing May 31, 1990, was prepaid in June 1993.
Senior Notes
Concurrent with the offering by the Company of its 8.255% PRIDES,
Convertible Preferred Stock (the "PRIDES") on February 17, 1994 (see
Note 9), KACC issued $225.0 of its 9-7/8% Senior Notes due 2002 (the
"Senior Notes"). The net proceeds of the offering of the Senior Notes
were used to reduce outstanding borrowings under the Revolving Credit
Facility of the 1989 Credit Agreement immediately prior to the
effectiveness of the 1994 Credit Agreement and for working capital and
general corporate purposes.
Senior Subordinated Notes
On February 1, 1993, KACC issued $400.0 of 12-3/4% Senior Subordinated
Notes due 2003 (the "12-3/4% Notes"). The net proceeds from the sale
of the 12-3/4% Notes were used to retire the 14-1/4% Senior
Subordinated Notes due 1995 (the "14-1/4% Notes"), to prepay $18.0 of
the Term Loan, and to reduce outstanding borrowings under the
Revolving Credit
- 21 -
<PAGE>
<PAGE>
(In millions of dollars, except share amounts)
-----------------------------------------------------------------
Facility. These transactions resulted in a pre-tax extraordinary loss
of approximately $33.0 in the first quarter of 1993, consisting
primarily of the write-off of unamortized discount and deferred
financing costs related to the 14-1/4% Notes and the payment of premiums
on the 14-1/4% Notes.
The obligations of KACC with respect to the Senior Notes and the 12-3/4%
Notes are guaranteed, jointly and severally, by certain subsidiaries
of KACC. The indentures governing the Senior Notes and the 12-3/4% Notes
restrict, among other things, KACC's ability, and the 1994 Credit
Agreement restricts, among other things, Kaiser's and KACC's ability,
to incur debt, undertake transactions with affiliates, and pay
dividends.
Gramercy Revenue Bonds
In December 1992, KACC entered into an installment sale agreement (the
"Sale Agreement") with the Parish of St. James, Louisiana (the
"Louisiana Parish"), pursuant to which the Louisiana Parish issued
$20.0 aggregate principal amount of its 7-3/4% Bonds due August 1,
2022 (the "Bonds") to finance the construction of certain solid waste
disposal facilities at KACC's Gramercy plant. The proceeds from the
sale of the Bonds were deposited into a construction fund and may be
withdrawn, from time to time, pursuant to the terms of the Sale
Agreement and the Bond indenture. At December 31, 1993, $10.8
remained in the construction fund. The Sale Agreement requires KACC
to make payments to the Louisiana Parish in installments due on the
dates and in the amounts required to permit the Louisiana Parish to
satisfy all of its payment obligations under the Bonds.
Alpart CARIFA Loan
In December 1991, Alpart entered into a loan agreement with the
Caribbean Basin Projects Financing Authority ("CARIFA") under which
CARIFA loaned Alpart the proceeds from the issuance of CARIFA's
industrial revenue bonds. The terms of the loan parallel the bonds'
repayment terms. The $38.0 aggregate principal amount of Series A
bonds matures on June 1, 2008. The Series A bonds bear interest at a
floating rate of 87% of the applicable LIBID Rate (LIBOR less 1/8 of
1%) on $37.5 of the principal amount (2.9% at December 31, 1993) with
the remaining $.5 bearing interest at a fixed rate of 6.35%. The
$22.0 aggregate principal amount of Series B bonds matures on June 1,
2007, and bears interest at a fixed rate of 8.25%.
Proceeds from the sale of the bonds were used by Alpart to refinance
interim loans from the partners in Alpart, to pay eligible project
costs for the expansion and modernization of its alumina refinery and
related port and bauxite mining facilities, and to pay certain costs
of issuance. Under the terms of the loan agreement, Alpart must
remain a qualified recipient for Caribbean Basin Initiative funds as
defined in applicable laws. Alpart has agreed to indemnify
bondholders of CARIFA for certain tax payments that could result from
events, as defined, that adversely affect the tax treatment of the
interest income on the bonds. Alpart's obligations under the loan
agreement are secured by a $64.2 letter of credit guaranteed by the
partners in Alpart (of which $22.5 is guaranteed by the Company s
minority partner in Alpart).
Capitalized Interest
Interest capitalized in 1993, 1992, and 1991 was $3.4, $4.4, and $4.2,
respectively.
Restricted Net Assets of Subsidiary
Certain debt instruments restrict the ability of KACC to transfer
assets, make loans and advances, and pay dividends to the Company.
The assets of KACC, which are substantially all of the Company's
assets, are restricted.
- 22 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Fair Value Disclosure
The fair value of the Company's long-term debt was approximately
$734.1 and $806.8 at December 31, 1993 and 1992, respectively. For
1993, the fair value of the 12-3/4% Notes was estimated using the market
value of such notes, or $401.0. For 1992, the estimated fair value of
the 14-1/4% Notes was the amount used to retire the 14-1/4% Notes in
February 1993, or $347.8. The fair value of all other long-term debt
is based upon discounting the future cash flows using the current rate
for debt of similar maturities and terms.
7. Income Taxes
The adoption of SFAS 109 as of January 1, 1993, as discussed in Note
1, required the Company to restate certain assets and liabilities to
their pre-tax amounts from their net-of-tax amounts originally
recorded in connection with the acquisition by MAXXAM in October 1988.
The restatement of the assigned values with respect to certain assets
and liabilities recorded as a result of the acquisition and the
recomputation of deferred income tax liabilities under SFAS 109
resulted in: (i) an increase of $144.6 in the net carrying value of
property, plant, and equipment; (ii) an increase of $47.8 in
investments in and advances to unconsolidated affiliates; (iii) an
increase of $126.1 in deferred income tax liabilities (a substantial
portion of which has been netted against deferred income tax assets on
the Consolidated Balance Sheet); (iv) a decrease of $2.5 in other
assets; (v) an increase of $56.0 in long-term liabilities; and (vi) an
increase of $10.1 in other liabilities. As a result of restating the
assets and liabilities, as described above, the loss before income
taxes, minority interests, extraordinary loss, and cumulative effect
of changes in accounting principles for the year ended December 31,
1993, was increased by $9.3.
Concurrent with the adoption of SFAS 109, the Company implemented
changes in its accounting method for postretirement benefits and
postemployment benefits pursuant to SFAS 106 and SFAS 112 (see Notes 1
and 8). The pre-tax cumulative effect of changes in accounting
principles relating to SFAS 106 and SFAS 112 was a charge of $742.7.
These accounting principles changes resulted in the recognition of
deferred income tax assets of $237.7, net of valuation allowances.
Income (loss) before income taxes, minority interests, extraordinary
loss, and cumulative effect of changes in accounting principles by
geographic area is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1993 1992 1991
-------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $(232.0) $ (77.6) $ 16.2
Foreign 23.5 109.7 126.2
------- ------ ------
Total $(208.5) $ 32.1 $142.4
</TABLE> ======= ======= ======
- 23 -
<PAGE>
<PAGE>
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
The credit (provision) for income taxes on income (loss) before income
taxes, minority interests, extraordinary loss, and cumulative effect
of changes in accounting principles consists of:
<TABLE>
<CAPTION>
Federal Foreign State Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 Current $ 12.6 $ (7.9) $ (.1) $ 4.6
Deferred 68.5 12.0 1.8 82.3
------ ------ ------ ------
Total $ 81.1 $ 4.1 $ 1.7 $ 86.9
====== ====== ====== ======
1992 Current $ (9.7) $(11.4) $ (.1) $(21.2)
Deferred 13.1 3.3 (.5) 15.9
------ ------ ------ ------
Total $ 3.4 $ (8.1) $ (.6) $ (5.3)
====== ====== ====== ======
1991 Current $(25.3) $ (8.9) $ (1.1) $(35.3)
Deferred 1.9 (1.4) 2.4 2.9
------ ------ ------ -------
Total $(23.4) $(10.3) $ 1.3 $(32.4)
====== ====== ====== ======
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 (the "Act"), enacted on
August 10, 1993, retroactively increased the maximum federal statutory
income tax rate from 34% to 35% for periods beginning on or after
January 1, 1993. The 1993 federal deferred credit for income taxes of
$68.5 includes $29.2 for the benefit of operating loss carryforwards
generated in 1993 and includes a $3.4 benefit for increasing net
deferred income tax assets (liabilities) as of the date of enactment
of the Act due to the increase in the federal statutory income tax
rate.
The deferred credit for income taxes for the years ended December 31,
1992 and 1991, as computed under APB 11, results from the following
timing differences:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1992 1991
-----------------------------------------------------------------------------------------
<S> <C> <C>
Undistributed earnings or losses of foreign and
unconsolidated affiliates $ 12.3 $ 12.4
Inventory costing differences 5.5 (5.9)
Revision of prior years' tax estimates 2.9 8.7
Net federal and foreign tax loss and credit carryforwards
utilized and other foreign tax items (.9)
Depreciation (5.4) (7.8)
Other .6 (3.6)
------ ------
Total $ 15.9 $ 2.9
====== ======
</TABLE>
A reconciliation between the credit (provision) for income taxes and
the amount computed by applying the federal statutory income tax rate
to income (loss) before income taxes, minority interests,
extraordinary loss, and cumulative effect of changes in accounting
principles is as follows:
- 24 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1993 1992 1991
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount of federal income tax based upon the statutory rate $73.0 $(10.9) $(48.4)
Percentage depletion 6.4 6.3 6.0
Revision of prior years' tax estimates and other changes
in valuation allowances 3.9 2.9 8.7
Increase in net deferred income tax assets due to tax rate change 3.4
Financial reporting/tax basis differences (3.0) 6.4
Losses and expenses for which no federal tax benefit was recognized (3.8)
Foreign taxes, net of federal tax benefit (2.6) (.4) .2
Other 2.8 (.2) (1.5)
----- ----- ------
Credit (provision) for income taxes $86.9 $(5.3) $(32.4)
===== ===== ======
</TABLE>
As shown in the Statement of Consolidated Income (Loss) for the year
ended December 31, 1993, the Company reported an extraordinary loss
related to the early extinguishment of debt. The Company reported the
loss, net of related current federal income taxes, of $11.2, which
approximated the federal statutory rate in effect on the date the
transaction occurred. The related deferred income tax benefits
recorded by the Company in respect of SFAS 106 and SFAS 112 were
recorded at the federal statutory rate in effect on the date the
accounting standards were adopted before giving effect to certain
valuation allowances. At December 31, 1993 and 1992, the Company
recorded charges to equity for additional minimum pension liabilities
pursuant to Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" ("SFAS 87"). The Company
recorded the charges net of related deferred federal and state income
taxes of $8.7 at December 31, 1993, and $3.6 at December 31, 1992,
which approximated the federal and state statutory rates.
After giving effect to the adoption of SFAS 106, SFAS 109, and SFAS
112, the components of the Company's net deferred income tax assets
were as follows:
<TABLE>
<CAPTION>
December 31, January 1, 1993
1993 (date of adoption)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits other than pensions $ 285.4 $ 270.8
Loss and credit carryforwards 142.6 83.3
Other liabilities 105.2 98.8
Pensions 60.6 45.8
Foreign and state deferred income tax liabilities 33.0 44.4
Property, plant, and equipment 23.1 22.6
Other 10.5 18.6
Valuation allowances (133.5) (103.7)
------- -------
Total deferred income tax assets -- net 526.9 480.6
------- -------
Deferred income tax liabilities:
Property, plant, and equipment (224.4) (218.3)
Investments in and advances to unconsolidated affiliates (60.6) (60.9)
Inventories (14.8) (18.6)
Other (20.3) (28.7)
-------- -------
Total deferred income tax liabilities (320.1) (326.5)
------- -------
Net deferred income tax assets $ 206.8 $ 154.1
======= =======
</TABLE>
- 25 -
<PAGE>
<PAGE>
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
The valuation allowances listed above relate primarily to loss and
credit carryforwards and postretirement benefits other than pensions.
As of December 31, 1993, approximately $82.4 of the net deferred
income tax assets listed above relate to the benefit of loss and
credit carryforwards, net of valuation allowances. The Company
evaluated all appropriate factors to determine the proper valuation
allowances for these carryforwards, including any limitations
concerning their use and the year the carryforwards expire, as well as
the levels of taxable income necessary for utilization. For example,
full valuation allowances were provided for certain credit
carryforwards that expire in the near term. With regard to future
levels of income, the Company believes, based on the cyclical nature
of its business, its history of prior operating earnings, and its
expectations for future years, that it will more likely than not
generate sufficient taxable income to realize the benefit attributable
to the loss and credit carryforwards for which valuation allowances
were not provided. The remaining portion of the Company's net
deferred income tax assets at December 31, 1993, is approximately
$124.4. A principal component of this amount is the tax benefit
associated with the accrual for postretirement benefits other than
pensions. The future tax deductions with respect to the turnaround of
this accrual will occur over a 30- to 40-year period. If such
deductions create or increase a net operating loss in any one year,
the Company has the ability to carry forward such loss for 15 taxable
years. For these reasons, the Company believes a long-term view of
profitability is appropriate and has concluded that this net deferred
income tax asset will more likely than not be realized despite the
recent decline in profitability.
Certain of the deferred income tax assets and liabilities listed above
are included on the Consolidated Balance Sheet in the captions
entitled Receivables, Prepaid expenses and other current assets, Other
accrued liabilities, and Long-term liabilities.
The Company and its subsidiaries were included in the consolidated
federal income tax returns of MAXXAM for the period from October 28,
1988, through December 31, 1992. The taxable income and loss and tax
credits for the Company and its subsidiaries for the period January 1,
1993, through June 30, 1993, will be included in the 1993 MAXXAM
consolidated federal income tax return.
As a consequence of the issuance of the Depositary Shares on June 30,
1993, as discussed in Note 9, the Company and its subsidiaries are no
longer included in the consolidated federal income tax return of
MAXXAM. The Company and its subsidiaries have become members of a new
consolidated return group of which the Company is the common parent
corporation (the "New Kaiser Tax Group"). The New Kaiser Tax Group
will file a consolidated federal income tax return for taxable periods
beginning on or after July 1, 1993.
The tax allocation agreement between the Company and MAXXAM (the
"Company Tax Allocation Agreement") and the tax allocation agreement
between KACC and MAXXAM (the "KACC Tax Allocation Agreement")
(collectively, the "Tax Allocation Agreements"), terminated pursuant
to their terms, effective for taxable periods beginning after June 30,
1993. Any unused federal income tax attribute carryforwards under the
terms of the Tax Allocation Agreements were eliminated and are not
available to offset federal income tax liabilities for taxable periods
beginning on or after July 1, 1993. Upon the filing of MAXXAM's 1993
consolidated federal income tax return, the tax attribute
carryforwards of the MAXXAM consolidated return group as of
December 31, 1993, will be apportioned in part to the New Kaiser Tax
Group, based upon the provisions of the relevant consolidated return
regulations. It is estimated that the benefit of such tax attribute
carryforwards apportioned to the New Kaiser Tax Group will approximate
or exceed the benefit of tax attribute carryforwards eliminated under
the Tax Allocation Agreements. To the extent the New Kaiser Tax Group
generates unused tax losses or tax credits for periods beginning on or
after July 1, 1993, such amounts will not be available to obtain
refunds of amounts paid by the Company or KACC to MAXXAM for periods
ending on or before June 30, 1993, pursuant to the Tax Allocation
Agreements.
- 26 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
KACC and MAXXAM entered into the KACC Tax Allocation Agreement,
which became effective as of October 28, 1988. Under the terms of the
KACC Tax Allocation Agreement, MAXXAM computed the federal income tax
liability for KACC and its subsidiaries (collectively, the "Subgroup")
as if the Subgroup were a separate affiliated group of corporations
which was never connected with MAXXAM. During 1991, the Company and
MAXXAM entered into the Company Tax Allocation Agreement which became
effective as of January 1, 1991. Under the terms of the Company Tax
Allocation Agreement, MAXXAM computed a tentative federal income tax
liability for the Company as if it and its subsidiaries, including
KACC and its subsidiaries, were a separate affiliated group of
corporations which was never connected with MAXXAM. The federal
income tax liability of the Company is the difference between the
tentative federal income tax liability and the liability computed
under the KACC Tax Allocation Agreement.
The provisions of the Tax Allocation Agreements will continue to
govern for periods ended prior to July 1, 1993. Therefore, payments
or refunds may still be required by or payable to the Company or KACC
under the terms of their respective tax allocation agreements for
periods ended prior to July 1, 1993, due to the final resolution of
audits, amended returns, and related matters with respect to such
periods. However, the 1994 Credit Agreement prohibits the payment by
KACC to MAXXAM of any amounts due under the KACC Tax Allocation
Agreement, except for certain payments that are required as a result
of audits and only to the extent of any amounts paid after February
17, 1994, by MAXXAM to KACC under the KACC Tax Allocation Agreement.
As of December 31, 1993, MAXXAM owed the Company approximately $.1 and
owed KACC approximately $11.6 under the terms of their respective tax
allocation agreements.
Income taxes are classified as either domestic or foreign, based on
whether payment is made or due to the United States or a foreign
country. Certain income classified as foreign is also subject to
domestic income taxes.
The following table presents the Company's tax attributes for federal
income tax purposes as of December 31, 1993. The amounts of such
attributes may change based upon the final 1993 tax returns. The
utilization of certain of these tax attributes are subject to
limitations:
<TABLE>
<CAPTION>
Expiring
Through
----------------------------------------------------------------------------------------
<S> <C> <C>
Regular tax attribute carryforwards:
Current year net operating loss $ 83.4 2008
Prior year net operating losses 54.9 2006
General business tax credits 41.6 2006
Foreign tax credits 19.8 1998
Alternative minimum tax credits 15.3 Indefinite
Alternative minimum tax attribute carryforwards:
Current year net operating loss $ 56.0 2008
Prior year net operating losses 24.0 2002
Foreign tax credits 12.0 1998
</TABLE>
8. Employee Benefit and Incentive Plans
Retirement Plans
Retirement plans are non-contributory for salaried and hourly
employees and generally provide for benefits based on a formula which
considers length of service and earnings during years of service. The
Company's funding policies meet or exceed all regulatory requirements.
- 27 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Employee pension benefit plans funded status and amounts included in
the Company's Consolidated Balance Sheets are as follows:
<TABLE>
<CAPTION>
Plans with Accumulated
Benefits Exceeding Assets(1)
December 31,
--------------------
1993 1992
----------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Vested employees $(705.0) $(663.5)
Nonvested employees (40.1) (49.6)
------- -------
Accumulated benefit obligation (745.1) (713.1)
Additional amounts related to projected salary increases (45.5) (33.7)
------- -------
Projected benefit obligation (790.6) (746.8)
Plan assets (principally fixed income
obligations and common stocks) at fair value 569.8 572.5
------- -------
Plan assets less than projected benefit obligation (220.8) (174.3)
Unrecognized net losses 75.7 34.7
Unrecognized net obligations 1.6 2.6
Unrecognized prior-service cost 16.9 15.9
Adjustment required to recognize minimum liability (47.7) (25.3)
------- -------
Accrued pension obligation included in the
Consolidated Balance Sheets (principally
in long-term liabilities) $(174.3) $(146.4)
======= =======
</TABLE>
(1) Includes plans with assets exceeding accumulated benefits by
approximately $.1 and $.4 in 1993 and 1992, respectively.
The Company also recorded $13.7 of additional pension obligation (not
included in the amounts above) as part of the restructuring reserve
(see Note 3).
SFAS No. 87 requires recognition of a minimum pension liability for
unfunded plans. At December 31, 1993 and 1992, the Company recorded
an after-tax charge to equity of $14.9 and $6.7, respectively, for the
excess of the minimum liability over the unrecognized net obligation
and prior-service cost.
The components of net periodic pension cost are:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1993 1992 1991
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned during the period $10.8 $ 11.0 $ 9.8
Interest cost on projected benefit obligation 59.2 58.8 59.3
Return on assets:
Actual gain (70.3) (26.3) (100.1)
Deferred gain (loss) 15.9 (31.2) 49.9
Net amortization and deferral 2.3 2.1 .3
------ ------ ------
Net periodic pension cost $ 17.9 $ 14.4 $ 19.2
====== ====== ======
</TABLE>
- 47 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Assumptions used to value obligations at year-end, and to determine
the net periodic pension cost in the subsequent year are:
<TABLE>
<CAPTION>
1993 1992 1991
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.50% 8.25% 8.25%
Expected long-term rate of return on assets 10.00% 10.00% 10.00%
Rate of increase in compensation levels 5.00% 5.00% 5.00%
</TABLE>
Postretirement Benefits Other Than Pensions
Kaiser adopted SFAS 106 to account for postretirement benefits other
than pensions effective January 1, 1993 (see Note 1). The Company and
its subsidiaries provide postretirement health care and life insurance
benefits to retired employees. Substantially all employees may become
eligible for those benefits if they reach retirement age while still
working for the Company or its subsidiaries. These benefits are
provided through contracts with various insurance carriers. The
Company has not funded the liability for these benefits.
The Company changed certain salaried retiree group insurance benefits
effective January 1, 1994, to provide for additional cost-sharing
features, such as reducing certain reimbursements and requiring future
retiree contributions which will lower salaried retiree medical
expenses.
The Company's accrued postretirement benefit obligation is composed of
the following:
<TABLE>
<CAPTION>
December 31, 1993
----------------------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $(629.3)
Active employees eligible for postretirement benefits (35.1)
Active employees not eligible for postretirement benefits (128.3)
-------
Accumulated postretirement benefit obligation (792.7)
Unrecognized net losses 67.0
Unrecognized prior-service costs (35.0)
------
Accrued postretirement benefit obligation $(760.7)
=======
</TABLE>
The components of net periodic postretirement benefit cost are:
<TABLE>
<CAPTION>
Year Ended
December 31, 1993
---------------------------------------------------------------------------------------
<S> <C>
Service cost $ 7.1
Interest cost 58.5
-----
Net periodic postretirement benefit cost $65.6
=====
</TABLE>
The 1994 annual assumed rates of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) are 9.5% and
8.0% for retirees under 65 and over 65, respectively, and are assumed
to decrease gradually to 5.25% in 2006 and remain at that level
thereafter. The health care cost trend rate has a significant effect
on the amounts reported. A one percentage point increase in the
assumed health care cost trend rate would increase the accumulated
- 48 -
<PAGE>
<PAGE>
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
postretirement benefit obligation as of December 31, 1993, by
approximately $96.0 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1993 by
approximately $9.5. The weighted average discount rate used to
determine the accumulated postretirement benefit obligation at
December 31, 1993, was 7.5%.
Postemployment Benefits
Kaiser adopted the new accounting standard on postemployment benefits
effective January 1, 1993 (see Note 1). The Company provides certain
benefits to former or inactive employees after employment but before
retirement.
Incentive Plans
Effective January 1, 1989, the Company and KACC adopted an unfunded
Long-Term Incentive Plan (the "LTIP") for certain key employees of the
Company, KACC, and their consolidated subsidiaries. All compensation
vested as of December 31, 1992, under the LTIP, as amended in 1991 and
1992, has been paid to the participants in cash or common stock of the
Company as of December 31, 1993. Under the LTIP, as amended, 764,092
shares were distributed to participants during 1993, which will
generally vest at the rate of 25% per year. The Company will record
the related expense of $6.5 over the four-year period ending December
31, 1996.
Effective January 1, 1990, KACC adopted an unfunded Middle Management
Long-Term Incentive Plan. KACC also has a supplemental savings and
retirement plan for salaried employees under which the participants
contribute a percentage of their base salaries.
The Company's expense for the above plans was $5.3, $6.6, and $6.5 for
the years ended December 31, 1993, 1992, and 1991, respectively.
- 49 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
9. Stockholders' Equity and Minority Interests
Changes in stockholders' equity and minority interests were:
<TABLE>
<CAPTION>
Minority Interests Stockholders Equity
---------------------- -------------------------------------------------
Retained
Earnings Additional
Redeemable (Accu- Minimum
Preference Preferred Common Additional mulated Pension
Stock Other Stock Stock Capital Deficit) Liability
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1991 $ 47.8 $ 75.4 $ .5 $140.9 $214.6
Net income 108.4
Redeemable preference stock:
Accretion 7.2
Stock redemption (20.2)
Dividends on common stock (55.7)
Conversions (3,262 preference shares into cash) (.2)
Common stock issued .1 93.1
Capital contribution 53.9
Minority interest in majority-owned
subsidiaries (1.1)
------ ----- ------ ------ ------
BALANCE, DECEMBER 31, 1991 34.8 74.1 .6 287.9 267.3
Net income 26.9
Redeemable preference stock:
Accretion 5.1
Stock redemption (7.1)
Dividends on common stock (11.4)
Conversions (2,405 preference shares into cash) (.2)
Common stock issued .6
Minority interest in majority-owned
subsidiaries (1.8)
Additional minimum pension liability $ (6.7)
----- ----- ------ ------ ------ ------
BALANCE, DECEMBER 31, 1992 32.8 72.1 .6 288.5 282.8 (6.7)
Net loss (652.2)
Redeemable preference stock:
Accretion 4.8
Stock redemption (4.0)
Conversions (1,967 preference shares into cash) (.2)
Common stock issued 3.3
Preferred stock issued $ .2 134.1
Dividend on preferred stock (6.3)
Minority interest in majority-owned
subsidiaries (.5)
Additional minimum pension liability (14.9)
------ ------ ------ ------ ------ ------ ------
BALANCE, DECEMBER 31, 1993 $ 33.6 $ 71.4 $ .2 $ .6 $425.9 $(375.7) $(21.6)
====== ====== ====== ====== ====== ======= ======
</TABLE>
- 50 -
<PAGE>
<PAGE>
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
Redeemable Preference Stock
In March 1985, KACC entered into a three-year agreement with the
United Steelworkers of America ("USWA") whereby shares of a new
series of "Cumulative (1985 Series A) Preference Stock" would be
issued to an employee stock ownership plan in exchange for certain
elements of wages and benefits. Concurrently, a similar plan was
established for certain nonbargaining employees which provided for
the issuance of "Cumulative (1985 Series B) Preference Stock."
Series A Stock and Series B Stock ("Series A and B Stock") each
have a par value of $1 per share and a liquidation and redemption
value of $50 per share plus accrued dividends, if any.
For financial reporting purposes, Series A and B Stock were
recorded at fair market value when issued, based on independent
appraisals, with a corresponding charge to compensation cost.
Carrying values have been increased each year to recognize
accretion of redemption values and, in certain years, there have
been other increases for reasons described below. Issuances and
redemptions of Series A and B Stock are shown below.
<TABLE>
<CAPTION>
1993 1992 1991
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares:
Beginning of year 1,163,221 1,305,550 1,718,051
Issued 1,868
Redeemed (81,673) (142,329) (414,369)
--------- --------- ---------
End of year 1,081,548 1,163,221 1,305,550
========= ========= =========
</TABLE>
No additional Series A or B Stock will be issued based on
compensation earned in 1992 or subsequent years. While held by the
plan trustee, Series B Stock is entitled to cumulative annual
dividends, when and as declared by the Board of Directors, payable
in stock or in cash at the option of KACC on or after March 1,
1991, in respect to years commencing January 1, 1990, based on a
formula tied to KACC's income before tax from aluminum operations.
When distributed to plan participants (generally upon separation
from KACC), the Series A and B stocks are entitled to an annual
cash dividend of $5 per share, payable quarterly, when and as
declared by the Board of Directors.
Redemption fund agreements require KACC to make annual payments by
March 31 each year based on a formula tied to consolidated net
income until the redemption funds are sufficient to redeem all
Series A and B Stock. On an annual basis, the minimum payment is
$4.3 and the maximum payment is $7.3. In March 1992 and 1993, KACC
contributed $7.0 and $4.3 for the years 1991 and 1992,
respectively, and will contribute $4.3 in March 1994 for 1993.
Under the USWA labor contract effective November 1, 1990, KACC was
obligated to offer to purchase up to 80 shares of Series A Stock
from each active participant in 1991 at a price equal to its
redemption value of $50 per share. KACC also agreed to offer to
purchase up to an additional 40 shares from each participant in
1994. The employees may elect to receive their shares, accept
cash, or place the proceeds into KACC's 401(k) savings plan. Under
separate action, KACC also offered to purchase 80 shares of Series
B stock from active participants in 1991 and 40 shares in 1994.
Under the provisions of these contracts, in February 1994, KACC
purchased $4.6 and $.8 of the Series A and B stock, respectively.
The Series A and B Stock is distributed in the event of death,
retirement, or in other specified circumstances. KACC may also
redeem such stock at $50 per share plus accrued dividends, if any.
At the option of the plan participant, the trustee shall redeem
stock distributed from the plans at redemption value to the extent
funds are available in the
- 51 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
redemption fund. Under the Tax Reform Act of 1986, at the option
of the plan participant, KACC must purchase distributed shares
earned after December 31, 1985, at redemption value on a five-year
installment basis, with interest at market rates. The obligation
of KACC to make such installment payments must be secured.
The Series A and B Stock is entitled to the same voting rights as
KACC common stock and to certain additional voting rights under
certain circumstances, including the right to elect, along with
other KACC preference stockholders, two directors whenever accrued
dividends have not been paid on two annual dividend payment dates,
or when accrued dividends in an amount equivalent to six full
quarterly dividends are in arrears. The Series A and B Stock
restricts the ability of KACC to redeem or pay dividends on common
stock if KACC is in default on any dividends payable on the Series
A and B Stock.
Preference Stock
KACC Cumulative Convertible Preference Stock, $100 par value ("$100
Preference Stock"), restricts acquisition of junior stock and
payment of dividends. At December 31, 1993, such provisions were
less restrictive as to the payment of cash dividends than the 1989
Credit Agreement provisions. KACC has the option to redeem the
$100 Preference Stocks at par value plus accrued dividends. KACC
does not intend to issue any additional shares of the $100
Preference Stocks.
The 4-1/8% and 4-3/4% (1957 Series, 1959 Series, and 1966 Series)
$100 Preference Stock can be exchanged for per share cash amounts
of $69.30, $77.84, $78.38, and $76.46, respectively. KACC records
the $100 Preference Stock at their exchange amounts for financial
statement presentation and the Company includes such amounts in
minority interests. The outstanding shares of KACC preference
stock were:
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1992
-------------------------------------------------------------------------------
<S> <C> <C>
4-1/8% 3,921 4,110
4-3/4% (1957 Series) 2,623 3,054
4-3/4% (1959 Series) 13,605 14,607
4-3/4% (1966 Series) 3,890 4,235
</TABLE>
Preferred Stock
Series A Convertible - On June 30, 1993, Kaiser issued 17,250,000
of its $.65 Depositary Shares (the "Depositary Shares"), each
representing one-tenth of a share of Series A Mandatory Conversion
Premium Dividend Preferred Stock (the "Series A Shares"). In
connection with the issuance of the Depositary Shares, MAXXAM Group
Inc. ("MGI"), a wholly owned subsidiary of MAXXAM, exchanged a
$15.0 promissory note of KACC (the "MAXXAM Note") for an additional
2,132,950 Depositary Shares.
The net cash proceeds from the sale of Depositary Shares were
approximately $119.3. Kaiser used approximately $37.8 of such net
proceeds to make a non-interest bearing loan to KACC evidenced by
an intercompany note, which matures on June 29, 1996, and is
payable in quarterly installments. The intercompany note is
designed to provide sufficient funds to Kaiser to enable it to make
dividend payments on the Series A Shares until June 30, 1996, the
date on which the outstanding Series A Shares are mandatorily
converted into shares of the Company's common stock. Kaiser used
approximately $81.5 of such net proceeds and the MAXXAM Note to
make a capital contribution to KACC. KACC used approximately $13.7
of the funds it received from Kaiser to prepay the remaining
balance of the Term Loan under
- 52 -
<PAGE>
(In millions of dollars, except share amounts)
-------------------------------------------------------------------
the 1989 Credit Agreement and $105.6 of such funds to reduce
outstanding borrowings under the Revolving Credit Facility of the
1989 Credit Agreement.
The owners of Depositary Shares are entitled to receive (when, as,
and if the Board of Directors declares dividends on the Series A
Shares) cumulative preferential cash dividends from the date of
issue, accruing at the rate of $.65 per annum for each of the
Depositary Shares, payable quarterly in arrears on the last day of
each March, June, September and December, commencing September 30,
1993. Holders of Depositary Shares (based on the voting rights of
the Series A Shares) have one vote for each Depositary Share held
of record, except as required by law, and are entitled to vote with
the holders of common stock on all matters submitted to a vote of
common stockholders.
On June 30, 1996, each of the outstanding Depositary Shares will
automatically convert (upon the automatic conversion of the Series
A Shares) into (i) one share of common stock, plus (ii) the right
to receive an amount in cash equal to the accrued and unpaid
dividends payable with respect to such Depositary Share. Automatic
conversion of the outstanding Depositary Shares (and the Series A
Shares) will occur upon certain mergers or consolidations of the
Company (as defined). At any time or from time to time prior to
June 30, 1996, the Company may call the outstanding Depositary
Shares (by calling the Series A Shares) for redemption, in whole or
in part, at a call price per Depositary Share initially equal to
$12.46, declining by $.0018 on each day following the date of issue
to $10.624 on April 30, 1996, and equal to $10.51 thereafter,
payable in shares of common stock having an aggregate Current
Market Price (as defined) equal to the applicable call price, plus
an amount in cash equal to all accrued and unpaid dividends payable
with respect to such Depositary Share.
PRIDES Convertible - On February 17, 1994, the Company consummated
the public offering of 8,000,000 shares of the PRIDES. The net
proceeds from the sale of the shares of PRIDES were approximately
$90.6. The Company used such net proceeds to make a non-interest
bearing loan to KACC in a principal amount equal to $30.0 (the
aggregate dividends scheduled to accrue on the shares of PRIDES
from the issuance date until December 31, 1997, the date on which
the outstanding PRIDES are mandatorily converted into shares of the
Company's common stock), evidenced by an intercompany note, and
used the balance of such net proceeds to make a capital
contribution to KACC in the amount of approximately $60.6.
Holders of shares of PRIDES are entitled to receive (when, as, and
if the Board of Directors declares dividends on the PRIDES)
cumulative preferential cash dividends at a rate per annum of
8.255% of the per share offering price (equivalent to $.97 per
annum for each share of PRIDES), from the date of initial issuance,
payable quarterly in arrears on the last day of each March, June,
September, and December of each year. Holders of shares of PRIDES
have a 4/5 vote for each share held of record and, except as
required by law, are entitled to vote together with the holders of
common stock and together with the holders of any other classes or
series of stock (including the Series A Shares) who are entitled to
vote in such manner on all matters submitted to a vote of common
stockholders.
On December 31, 1997, unless either previously redeemed or
converted at the option of the holder, each of the outstanding
shares of PRIDES will mandatorily convert into (i) one share of the
Company's common stock, subject to adjustment in certain events,
and (ii) the right to receive an amount in cash equal to all
accrued and unpaid dividends thereon (other than previously
declared dividends payable to a holder of record on a prior date).
Shares of PRIDES are not redeemable prior to December 31, 1996. At
any time and from time to time on or after December 31, 1996, the
Company may redeem any or all of the outstanding shares of PRIDES.
Upon any such redemption, each holder will receive, in exchange for
each share of PRIDES, the number of shares of common stock equal to
(A) the sum of (i) $11.9925, declining after December 31, 1996, to
$11.75 until December 31, 1997, plus,
- 53 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
in the event the Company does not elect to pay cash dividends to
the redemption date, (ii) all accrued and unpaid dividends thereon
divided by (B) the Current Market Price (as defined) on the
applicable date of determination, but in no event less than .8333
of a share of common stock, subject to adjustment in certain
events. At any time prior to December 31, 1997, unless previously
redeemed, each share of PRIDES is convertible at the option of the
holder thereof into .8333 of a share of common stock (equivalent to
a conversion price of $14.10 per share of common stock), subject to
adjustment in certain events. The number of shares of common stock
a holder will receive upon redemption, and the value of the shares
received upon conversion, will vary depending on the market price
of the common stock from time to time.
Common Stock
On July 18, 1991, the Company issued 7,250,000 shares of its common
stock for net proceeds of approximately $93.2. Three-fourths of
the net proceeds from the offering were used by the Company to
prepay a portion of the promissory notes of the Company (see
"Dividends on Common Stock" below) with accrued interest, payable
to its parent. The remaining balance of such notes payable to
parent that were not prepaid with the net proceeds of the offering,
together with accrued interest, were contributed to the
stockholders' equity of the Company. The remaining one-fourth of
the net proceeds from the offering was used by Kaiser to purchase
common stock of KACC. KACC reduced its Term Loan by an amount
equal to the proceeds it received from Kaiser.
Stock Incentive Plan
In 1993, the Company adopted the Kaiser 1993 Omnibus Stock
Incentive Plan. A total of 2,500,000 shares of Kaiser common stock
are reserved for awards or for payment of rights granted under the
Plan. Six Company executives have received grants of 764,092
shares under the LTIP for benefits generally earned but not vested
as of December 31, 1992 (see Note 8). In 1993, the stockholders
approved the award of 584,300 shares as "nonqualified stock
options" to members of management other than those participating in
the LTIP. These options will generally vest at the rate of 20% per
year over the next five years, commencing May 18, 1994. The
exercise price of these shares is $7.25 per share, the quoted
market price at the date of grant.
Dividends on Common Stock
On January 31, September 16, and December 16, 1991, the Company
declared and paid dividends on common stock of $50.0, $2.9, and
$2.8, respectively. The Company paid cash dividends on common
stock of $2.9 in each quarter of 1992. As required under the 1989
Credit Agreement, on December 15, 1992, KACC issued a Pay-in-Kind
Note (the "PIK Note") to MGI in the principal amount of $2.5,
representing the entire amount of the dividend received by MGI in
respect of the shares of the Company's common stock which it owned.
The PIK Note bears interest, compounded semiannually, at a rate
equal to 12% per annum, and is due and payable, together with
accrued interest thereon, on June 30, 1995.
The indentures governing the Senior Notes and the 12-3/4% Notes
restrict, among other things, KACC's ability, and the 1994 Credit
Agreement restricts, among other things, Kaiser's and KACC's
ability, to incur debt, undertake transactions with affiliates, and
pay dividends. Under the most restrictive of these covenants,
neither the Company nor KACC is currently permitted to pay
dividends on its common stock.
At December 31, 1993, 28,000,000 shares of the Company's common
stock owned by MAXXAM were pledged as security for debt issued by
MGI, consisting of $100.0 aggregate principal amount of 11-1/4% Senior
Secured Notes due 2003 and $126.7 aggregate principal amount of
12-1/4% Senior Secured Discount Notes due 2003.
- 54 -
<PAGE>
<PAGE>
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
10. Commitments and Contingencies
Commitments
The Company has financial commitments, including purchase
agreements, tolling arrangements, forward foreign exchange
contracts, forward sales contracts, letters of credit, and
guarantees.
Purchase agreements and tolling arrangements include agreements to
supply alumina to Anglesey and to purchase aluminum from that
company.
Similarly, KACC has long-term agreements for the purchase and
tolling of bauxite into alumina in Australia by QAL. These
obligations expire in 2008. Under the agreements, KACC is
unconditionally obligated to pay its proportional share of debt,
operating costs, and certain other costs of QAL. The aggregate
minimum amount of required future principal payments at December
31, 1993, is $73.6, due in 1997. The KACC share of payments,
including operating costs and certain other expenses under the
agreement, was $86.7, $99.2, and $107.6 for the years ended
December 31, 1993, 1992, and 1991, respectively.
Minimum rental commitments under operating leases at December 31,
1993, are as follows: years ending December 31, 1994 -- $24.3;
1995 -- $23.2; 1996 -- $22.3; 1997 -- $21.8; 1998 -- $23.4;
thereafter -- $243.2. The future minimum rentals receivable under
noncancelable subleases was $90.7 at December 31, 1993.
Rental expenses were $29.0, $26.2, and $23.3 for the years ended
December 31, 1993, 1992, and 1991, respectively.
Environmental Contingencies
The Company and KACC are subject to a wide variety of environmental
laws and regulations and to fines or penalties assessed for alleged
breaches of the environmental laws and to claims and litigation
based upon such laws. KACC is currently subject to a number of
lawsuits under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund
Amendments Reauthorization Act of 1986 ("CERCLA"), and, along with
certain other entities, has been named as a potentially
responsible party for remedial costs at certain third-party sites
listed on the National Priorities List under CERCLA.
Based upon the Company's evaluation of these and other
environmental matters, the Company has established environmental
accruals primarily related to potential solid waste disposal and
soil and groundwater remediation matters. The following table
presents the changes in such accruals, which are primarily included
in Long-term liabilities, for the years ended December 31, 1993,
1992, and 1991:
<TABLE>
<CAPTION>
1993 1992 1991
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 46.4 $ 51.5 $ 57.7
Additional amounts 1.7 4.5 7.8
Less expenditures (7.2) (9.6) (14.0)
------ ------ ------
Balance at end of period $ 40.9 $ 46.4 $ 51.5
====== ====== ======
</TABLE>
These environmental accruals represent the Company's estimate of
costs reasonably expected to be incurred based upon presently
enacted laws and regulations, currently available facts, existing
technology, and the Company's assessment of the likely remediation
action to be taken. The Company expects that these remediation
actions will be taken over
- 55 - <PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
----------------------------------------------------------------------
(In millions of dollars, except share amounts)
----------------------------------------------------------------------
the next several years and estimates that expenditures to be charged
to the environmental accrual will be approximately $4.0 to $8.0 for
the years 1994 through 1998 and an aggregate of approximately $12.8
thereafter.
As additional facts are developed and definitive remediation plans
and necessary regulatory approvals for implementation of
remediation are established, or alternative technologies are
developed, changes in these and other factors may result in actual
costs exceeding the current environmental accruals by amounts which
cannot presently be estimated. While uncertainties are inherent in
the ultimate outcome of these matters and it is impossible to
presently determine the actual costs that ultimately may be
incurred, management believes that the resolution of such
uncertainties should not have a material adverse effect upon the
Company's consolidated financial position or results of operations.
Asbestos Contingencies
KACC is a defendant in a number of lawsuits in which the plaintiffs
allege that certain of their injuries were caused by exposure to
asbestos during, and as a result of, their employment with KACC or
to products containing asbestos produced or sold by KACC. The
lawsuits generally relate to products KACC has not manufactured for
at least 15 years.
At year-end 1993, the number of such lawsuits pending was
approximately 23,400 (approximately 11,400 of which were received
in 1993). The number of such lawsuits instituted against KACC
increased substantially in 1993, and management believes the number
of such lawsuits will continue at approximately the same rate for
the next few years.
In connection with such litigation, during 1993, 1992, and 1991,
KACC made cash payments for settlement and other related costs of
$7.0, $7.1, and $6.1, respectively. Based upon prior experience,
the Company estimates annual future cash payments in connection
with such litigation of approximately $8.0 to $13.0 for the years
1994 through 1998, and an aggregate of approximately $88.4
thereafter through 2006. Based upon past experience and reasonably
anticipated future activity, the Company has established an accrual
for estimated asbestos-related costs for claims filed and estimated
to be filed and settled through 2006. The Company does not
presently believe there is a reasonable basis for estimating such
costs beyond 2006 and, accordingly, no accrual has been recorded
for such costs which may be incurred. This accrual was calculated
based upon the current and anticipated number of asbestos-related
claims, the prior timing and amounts of asbestos-related payments,
the current state of case law related to asbestos claims, the
advice of counsel, and the anticipated effects of inflation and
discounting at an estimated risk-free rate (5.25% at December 31,
1993). Accordingly, an accrual of $102.8 for asbestos-related
expenditures is included primarily in Long-term liabilities at
December 31, 1993. The aggregate amount of the undiscounted
liability at December 31, 1993, of $141.5, before considerations
for insurance recoveries, reflects an increase of $56.6 from the
prior year, resulting primarily from an increase in claims filed
during 1993 and the Company's belief that the number of such
lawsuits will continue at approximately the same rate for the next
few years.
The Company believes that KACC has insurance coverage available to
recover a substantial portion of its asbestos-related costs. While
claims for recovery from one of KACC's insurance carriers are
currently subject to pending litigation and other carriers have
raised certain defenses, the Company believes, based upon prior
insurance-related recoveries in respect of asbestos-related claims,
existing insurance policies, and the advice of counsel, that
substantial recoveries from the insurance carriers are probable.
Accordingly, estimated insurance recoveries of $94.0, determined on
the same basis as the asbestos-related cost accrual, are recorded
primarily in Other assets as of December 31, 1993.
- 56 -
<PAGE>
<PAGE>
(In millions of dollars, except share amounts)
-------------------------------------------------------------------
Based upon the factors discussed in the two preceding paragraphs,
management currently believes that there is no more than a remote
possibility (under generally accepted accounting principles) that
the Company's asbestos-related costs net of related insurance
recoveries exceed those accrued as of December 31, 1993, and,
accordingly, that the resolution of such uncertainties and the
incurrence of such net costs should not have a material adverse
effect upon the Company's consolidated financial position or
results of operations.
Other Contingencies
The Company is involved in various other claims, lawsuits, and
other proceedings relating to a wide variety of matters. While
uncertainties are inherent in the ultimate outcome of such matters
and it is impossible to determine the actual costs that ultimately
may be incurred, management believes that the resolution of such
uncertainties and the incurrence of such costs should not have a
material adverse effect upon the Company's consolidated financial
position or results of operations.
11. Segment and Geographical Area Information
Sales and transfers among geographic areas are made on a basis
intended to reflect the market value of products.
The aggregate foreign currency gain included in determining net
income was $4.9, $12.0, and $1.2 for the years ended December 31,
1993, 1992, and 1991, respectively.
There were no sales of more than 10% of total revenue to a single
customer for the year ended December 31, 1993. Sales to a single
customer were $135.3 and $155.9 of bauxite and alumina and $144.9
and $160.9 of aluminum processing for the years ended December 31,
1992, and 1991, respectively.
Export sales were less than 10% of total revenue during the years
ended December 31, 1993, 1992, and 1991.
- 57 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------
(In millions of dollars, except share amounts)
-------------------------------------------------------------------
Financial information by industry segment at December 31, 1993 and
1992, and for the years ended December 31, 1993, 1992, and 1991, is
as follows:
<TABLE>
<CAPTION>
Year Ended Bauxite & Aluminum
December 31, Alumina Processing Corporate Total
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers 1993 $ 423.4 $1,295.7 $1,719.1
1992 466.5 1,442.6 1,909.1
1991 550.8 1,450.0 2,000.8
Intersegment sales 1993 $ 129.4 $ 129.4
1992 179.9 179.9
1991 194.6 194.6
Equity in earnings (losses) of 1993 $ (2.5) $ (.8) $ (3.3)
unconsolidated affiliates 1992 1.8 (3.7) (1.9)
1991 (4.4) (15.1) (19.5)
Operating income (loss) 1993 $ (4.5) $ (46.3) $ (72.6) $ (123.4)
1992 62.6 104.9 (77.6) 89.9
1991 150.0 150.2 (84.2) 216.0
Effect of changes in accounting principles
on operating income (loss)
SFAS 106 1993 $ (2.0) $ (16.1) $ (1.1) $ (19.2)
SFAS 109 1993 (7.7) (7.8) .3 (15.2)
Depreciation 1993 $ 35.3 $ 59.9 $ 1.9 $ 97.1
1992 29.8 49.0 1.5 80.3
1991 26.4 46.0 .8 73.2
Capital expenditures 1993 $ 35.3 $ 31.2 $ 1.2 $ 67.7
1992 50.8 39.4 24.2 114.4
1991 51.1 64.8 2.2 118.1
Investment in and advances to 1993 $ 151.5 $ 30.7 $ 1.0 $ 183.2
unconsolidated affiliates 1992 136.2 12.5 1.4 150.1
Identifiable assets 1993 $ 734.0 $1,214.9 $ 579.0 $2,527.9
1992 715.7 1,165.9 291.0 2,172.6
</TABLE>
- 37 -
<PAGE>
<PAGE>
(In millions of dollars, except share amounts)
-------------------------------------------------------------------
Geographical area information relative to operations is summarized
as follows:
<TABLE>
<CAPTION>
Year Ended Other
December 31, Domestic Caribbean Africa Foreign Eliminations Total
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers 1993 $1,230.5 $ 96.5 $207.5 $184.6 $1,719.1
1992 1,359.6 92.9 263.5 193.1 1,909.1
1991 1,383.8 149.6 269.2 198.2 2,000.8
Sales and transfers among 1993 $ 92.3 $ 79.6 $(171.9)
geographic areas 1992 111.8 93.5 (205.3)
1991 116.4 112.3 (228.7)
Equity in losses of 1993 $ (3.3) $ (3.3)
unconsolidated affiliates 1992 (1.9) (1.9)
1991 (19.5) (19.5)
Operating income (loss) 1993 $ (159.8) $ (2.0) $ 34.1 $ 4.3 $ (123.4)
1992 (25.3) 18.4 78.8 18.0 89.9
1991 59.7 47.8 72.1 36.4 216.0
Investment in and advances to 1993 $ 1.0 $ 30.5 $151.7 $ 183.2
unconsolidated affiliates 1992 1.4 29.5 119.2 150.1
Identifiable assets 1993 $1,758.0 $360.4 $223.0 $186.5 $2,527.9
1992 1,374.9 358.3 227.5 211.9 2,172.6
</TABLE>
- 38 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
FIVE-YEAR FINANCIAL DATA
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
(In millions of dollars) 1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 14.7 $ 19.1 $ 15.8 $ 23.9 $ 95.1
Receivables 234.7 270.0 218.8 227.5 262.9
Inventories 426.9 439.9 498.6 523.9 511.1
Prepaid expenses and other current assets 60.7 37.0 84.0 36.1 6.6
Assets held for sale 51.1
-------- -------- -------- -------- --------
Total current assets 737.0 766.0 817.2 811.4 926.8
Investments in and advances to
unconsolidated affiliates 183.2 150.1 161.9 184.5 187.8
Property, plant, and equipment -- net 1,163.7 1,066.8 1,014.5 970.3 936.0
Deferred income taxes 210.8
Other assets 233.2 189.7 140.5 152.3 80.3
-------- -------- -------- -------- --------
Total $2,527.9 $2,172.6 $2,134.1 $2,118.5 $2,130.9
======== ======== ======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accruals $ 339.7 $ 351.4 $ 461.6 $ 432.1 $ 526.9
Accrued postretirement benefit
obligation -- current portion 47.6
Payable to affiliates 62.4 78.4 87.1 82.4 60.7
Long-term debt -- current portion 8.7 25.9 26.3 32.5 139.0
-------- -------- -------- -------- --------
Total current liabilities 458.4 455.7 575.0 547.0 726.6
Long-term liabilities 501.8 281.7 212.9 310.8 321.1
Accrued postretirement benefit obligation 713.1
Long-term debt 720.2 765.1 681.5 631.5 655.8
Note payable to parent 150.0
Minority interests 105.0 104.9 108.9 123.2 135.1
Stockholders' Equity:
Preferred stock .2
Common stock .6 .6 .6 .5
Additional capital 425.9 288.5 287.9 140.9 141.4
Retained earnings (accumulated deficit) (375.7) 282.8 267.3 214.6 150.9
Additional minimum pension liability (21.6) (6.7)
-------- -------- -------- -------- --------
Total stockholders' equity 29.4 565.2 555.8 356.0 292.3
-------- -------- -------- -------- --------
Total $2,527.9 $2,172.6 $2,134.1 $2,118.5 $2,130.9
======== ======== ======== ======== =======
Debt-to-capital ratio(1) 81.3 54.1 51.5 51.1(2) 64.9
<FN>
(1) Total debt as a ratio of total debt, deferred income taxes, minority interests, and stockholders' equity.
(2) Excludes the effect of a $150.0 dividend paid in the form of an intercompany promissory note to parent.
</TABLE>
- 60 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
FIVE-YEAR FINANCIAL DATA
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
(In millions of dollars, except share amounts) 1993 1992 1991 1990 1989
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,719.1 $1,909.1 $2,000.8 $2,095.0 $2,192.7
-------- -------- -------- -------- --------
Costs and expenses:
Cost of products sold 1,587.7 1,619.3 1,594.2 1,525.2 1,545.6
Depreciation 97.1 80.3 73.2 70.5 62.3
Selling, administrative, research
and development, and general 121.9 119.6 117.4 123.2 119.7
Restructuring of operations 35.8
--------- -------- -------- -------- --------
Total costs and expenses 1,842.5 1,819.2 1,784.8 1,718.9 1,727.6
--------- -------- -------- -------- --------
Operating income (loss) (123.4) 89.9 216.0 376.1 465.1
Other income (expense):
Interest and other income -- net (.9) 20.9 20.3 17.6 53.4
Interest expense (84.2) (78.7) (93.9) (96.6) (207.0)
-------- -------- -------- -------- --------
Income (loss) before income taxes,
minority interests, extraordinary loss
and cumulative effect of changes in
accounting principles (208.5) 32.1 142.4 297.1 311.5
Credit (provision) for income taxes 86.9 (5.3) (32.4) (75.6) (100.1)
Minority interests (1.5) .1 (1.6) (7.8) (9.3)
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss
and cumulative effect of changes in
accounting principles (123.1) 26.9 108.4 213.7 202.1
Extraordinary loss on early extinguishment of
debt, net of tax benefit of $11.2 (21.8)
Cumulative effect of changes in accounting
principles, net of tax benefit of $237.7 (507.3)
-------- -------- -------- -------- --------
Net income (loss) $ (652.2) $ 26.9 $ 108.4 $ 213.7 $ 202.1
======== ======== ======== ======== ========
Per common share:
Net income (loss) $ (11.47) $ .47 $ 2.03 $ 4.27 $ 4.04
Dividends declared .20 1.10 3.00
- 61 -
<PAGE>
<PAGE>
KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES
QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------
(In millions of dollars, except share amounts) March 31 June 30 September 30 December 31
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Net sales $442.6 $432.2 $428.4 $415.9
Operating loss 9.7 14.2 17.5 82.0(1)
Net loss 545.7(2) 19.4 21.0 66.1(3)
Per common share:
Net loss 9.52 .34 .42 1.20
Market price:
High 9-7/8 8 8-5/8 10-1/2
Low 7-3/8 6-3/8 6-5/8 6-7/8
Close 7-1/2 7-7/8 7-7/8 9
1992
Net sales $463.7 $490.9 $458.5 $496.0
Operating income 29.5 29.6 26.6 4.2(4)
Net income 8.4 12.0 3.9 2.6(5)
Per common share:
Net income .15 .21 .06 .05
Dividends declared .05 .05 .05 .05
Market price:
High 14-3/4 14-1/4 11 9-1/2
Low 10-1/8 10-1/4 7-5/8 6-7/8
Close 13-3/4 10-7/8 7-7/8 8-5/8
<FN>
(1) Includes pre-tax charges of approximately $35.8 related to the restructuring
of operations and $19.4 because of a reduction in the carrying value of inventories.
(2) Includes $507.3 after-tax charge for the cumulative effect of changes in accounting
principles and $21.8 after-tax charge for extraordinary loss on early extinguishment of debt.
(3) Includes a pre-tax charge of approximately $10.8 principally related to establishing of
additional litigation and environmental reserves.
(4) Includes a pre-tax charge of approximately $29.0 because of a reduction in the carrying value of
inventories.
(5) Includes approximately $14.0 of pre-tax income for non-recurring adjustments to previously
recorded liabilities and reserves.
</TABLE>
- 62 -
