As filed with the Securities and Exchange Commission on February 12, 1999
Registration No. 333-____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------
Form S-4
GOLDEN NORTHWEST ALUMINUM, INC.
(Exact name of registrant as specified in its charter)
Oregon 3334 93-1249606
(State or other jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Form S-4
NORTHWEST ALUMINUM COMPANY
(Exact name of registrant as specified in its charter)
Oregon 3334 93-0905834
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Form S-4
NORTHWEST ALUMINUM SPECIALTIES, INC.
(Exact name of registrant as specified in its charter)
Oregon 3334 93-1019176
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Form S-4
NORTHWEST ALUMINUM TECHNOLOGIES, LLC
(Exact name of registrant as specified in its charter)
Washington 3334 93-1196863
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Form S-4
GOLDENDALE HOLDING COMPANY
(Exact name of registrant as specified in its charter)
-------------------
Delaware 3334 91-1785763
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Form S-4
GOLDENDALE ALUMINUM COMPANY
(Exact name of registrant as specified in its charter)
Delaware 3334 91-1380241
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
BRETT E. WILCOX
President
Golden Northwest Aluminum, Inc.
Northwest Aluminum Company
Northwest Aluminum Specialties, Inc.
Northwest Aluminum Technologies, LLC
Goldendale Holding Company
Goldendale Aluminum Company
3313 West Second Street
The Dalles, Oregon 97058
(541) 296-6161
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
It is respectfully requested that the Commission send copies of all
notices, orders and communications to:
ROBERT J. MOORMAN
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
(503) 224-3380
-------------------
Approximate date of commencement of proposed sale to the public: As
promptly as practicable after this registration statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.o
CALCULATION OF REGISTRATION FEE
==============================================================================================================================
Proposed Proposed
maximum maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered(1) per unit(1) offering price(1) registration fee
- ------------------------------------------------------------------------------------------------------------------------------
12% First Mortgage Notes due 2006 $150,000,000 100% $150,000,000 $41,700
- ------------------------------------------------------------------------------------------------------------------------------
Guarantees of First Mortgage Notes due 2006 -- -- -- (2)
==============================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended (the
"Securities Act").
(2) No additional consideration will be paid in respect of these Guarantees.
-------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such a date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999
- --------------------------------------------------------------------------------
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
- --------------------------------------------------------------------------------
PROSPECTUS
GOLDEN NORTHWEST ALUMINUM, INC.
Exchange Offer for
$150,000,000
12% First Mortgage Notes due 2006
Guaranteed by
Northwest Aluminum Company Goldendale Holding Company
Northwest Aluminum Specialties, Inc. Goldendale Aluminum Company
Northwest Aluminum Technologies, LLC
Key Terms of Exchange Offer
o Expires 5:00 p.m., New York City o Tenders of outstanding notes may be
time, ______________, 1999, unless withdrawn any time before the
extended expiration of the Exchange Offer
o Not subject to any conditions other o The exchange of notes will not be a
than the Exchange Offer does not taxable exchange for United States
violate law or any interpretation of federal income tax purposes
the staff of the Securities and
Exchange Commission o The terms of the notes to be issued
are identical to the outstanding
o All outstanding notes that are validly notes, except for certain transfer
tendered and not validly withdrawn restrictions and registration rights
will be exchanged with respect to the outstanding notes
This investment involves risks. See the Risk Factors section beginning on page
19.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the notes to be distributed in the Exchange Offer, nor
have any of these organizations determined that this Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
_________________, 1999
TABLE OF CONTENTS
Prospectus Summary..........................................................3
Risk Factors...............................................................19
Selected Combined Financial Data...........................................32
Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................34
Business...................................................................47
Management.................................................................62
Executive Compensation.....................................................65
Certain Transactions.......................................................67
The Exchange Offer.........................................................69
Description of Notes.......................................................78
Description of Certain Other Indebtedness and Goldendale Preferred Stock..130
Description of Capital Stock..............................................133
Certain United States Federal Income Tax Consequences.....................134
Plan of Distribution......................................................135
Legal Matters.............................................................135
Experts...................................................................135
Change of Accountants.....................................................136
Additional Information....................................................136
Index to Financial Statements.............................................F-1
2
PROSPECTUS SUMMARY
On the cover page, in this summary and in the "Risk Factors" section
starting on page 19, the words "Company," "we," "our," "ours" and "us" refer
only to Golden Northwest Aluminum, Inc. and not to any of our subsidiaries. The
following summary contains basic information about this Exchange Offer. It may
not contain all the information that is important to you. For a more complete
understanding of the Exchange Offer, we encourage you to read this entire
document.
The Exchange Offer
On December 21, 1998, we completed a private offering of 12% First Mortgage
Notes due 2006. The notes were sold for an aggregate purchase price of
$150,000,000. The notes are
o secured by a first priority security interest in substantially all of
our and our subsidiaries' real property, plant, equipment and other
assets and a pledge of all of the capital stock of our subsidiaries,
and
o guaranteed by our subsidiaries Northwest Aluminum Company, Northwest
Aluminum Specialties, Inc., Northwest Aluminum Technologies, LLC,
Goldendale Holding Company and Goldendale Aluminum Company.
We entered into a Registration Rights Agreement with the initial purchasers
in the private offering in which we agreed to deliver to you this Prospectus and
to complete the Exchange Offer by May 20, 1999. This Exchange Offer entitles you
to exchange your notes for notes with identical terms that are registered with
the Securities and Exchange Commission. If the Exchange Offer is not completed
by May 20, 1999, the interest rate on the notes will be increased to 12.25% per
year. You should read the discussion under the heading "The Exchange Offer"
beginning on page 69 and "Description of Notes" beginning on page 78 for further
information about the registered notes.
We believe the notes issued in the Exchange Offer may be resold by you
without compliance with the registration and prospectus delivery requirements of
the Securities Act of 1933, subject to certain conditions. You should read the
discussion under the headings "-- The Exchange Offer" beginning on page 9 and
"The Exchange Offer" beginning on page 69 for further information regarding the
Exchange Offer and resale of notes.
3
The Company
Overview
Who We Are
We produce primary aluminum and selected specially engineered, value-added
aluminum products. Our revenue is generated through fees from tolling alumina
into aluminum and sales of value-added aluminum products. At our two facilities
east of Portland, Oregon, we operate two primary aluminum smelters with combined
production capacity of 250,000 metric tons. We are one of the five largest
primary aluminum producers in the United States.
We operate our business through our subsidiaries. The following chart shows
the organization of Golden Northwest Aluminum, Inc. and its subsidiaries and the
percentage of each subsidiary owned by its direct parent. The subsidiaries are
parties to a credit agreement with BankBoston, N.A. that provides for a $75
million senior secured revolving credit facility. There is no amount outstanding
under that facility. You should read the discussion under the heading "Risk
Factors -- Effective Subordination" for more information regarding your right to
repayment.
[graphic organizational chart omitted]
Controlling Shareholder
Brett E. Wilcox, Chairman of the Board and President of our company,
beneficially owns 100% of our outstanding capital stock.
What We Do
We produce primary aluminum under tolling agreements with Hydro Aluminum
Louisville, Inc. and Glencore, Ltd., two large international industrial and
trading companies. In conjunction with our smelter operations, we operate three
casthouses that produce a range
4
of value-added aluminum products, including our proprietary line of direct-cast,
small diameter, alloy billet products. We sell value-added billet and related
products directly for extrusion or for further processing into final products
such as automobile air-bag canisters, fire extinguishers, golf club heads,
bicycle frames and a variety of automotive and aircraft parts.
Competitive Strengths
We Believe We Are a Cost Competitive Aluminum Producer
We are able to produce primary aluminum and value-added aluminum products
at relatively low cost because of our:
o low cost hydroelectric power
o technical innovations
o competitive wage rates
o low overhead and
o tolling agreements with industry leaders that ensure full smelter
utilization.
Our company and the previous owners of the smelters, including Martin
Marietta Corporation, have periodically upgraded the smelters. These upgrades
have resulted in improvements in efficiency as measured by power usage, carbon
consumption and cell life. We have begun a $75 million facilities investment
program, which we believe will further improve the efficiency of our smelter and
casthouse operations.
Our Value-Added Products Provide Diversification
We are a leading supplier of value-added products such as extrusion billet,
sheet ingot, small diameter billet and special alloy billet. We market these
products directly to manufacturers for use in:
o automobile air-bag canisters
o fire extinguishers
o golf club heads
o bicycle frames and
o a variety of automotive and aircraft parts.
We are able to charge a premium for these products, which comprise a significant
portion of our total production. Shipments of non-tolled, value-added products
have increased from 153.7 million pounds, or 46.5% of net shipments, in 1993 to
263.9 million pounds, or 58.6% of net shipments, in 1997.
5
Our Long-Standing Strategic Relationship with Alumina Suppliers Provides
Stability
We maintain a long-standing relationship with Norsk Hydro a.s., the largest
industrial concern in Norway and a leading aluminum producer in Europe. This
relationship has provided us with a reliable source of alumina, the main input
in the production of primary aluminum. In turn, we are Hydro's main source of
primary aluminum products in the U.S. All of the primary and value-added
aluminum we produce at our facility in Goldendale, Washington is contracted
under a tolling agreement with Hydro. Under the tolling agreement, Hydro
provides us with alumina, which we then smelt into primary aluminum and further
transform into value-added products. Hydro retains ownership of the alumina and
the resulting aluminum products throughout the production process and we receive
a fee for the work we perform.
In addition, Hydro is providing proprietary technology to assist us with
the facilities investment program, which we expect will increase the smelter and
casthouse capacity and improve efficiency and environmental performance at our
Goldendale facility. Finally, Hydro has loaned $20.0 million to Goldendale
Aluminum Company, and may provide up to an additional $10.0 million to help
finance the facilities investment program. Hydro's right to repayment is
subordinate to your right of repayment on the notes.
We have also maintained a relationship with Glencore Ltd., a major
international metals and commodity trader. All of the primary aluminum capacity
at our facility in The Dalles, Oregon is contracted under a tolling agreement
with Glencore which expires in December 1999. This agreement has permitted us to
operate our smelter at The Dalles at full capacity while developing our
non-tolled, value-added business. However, our current consumption of primary
aluminum for non-tolled value-added products exceeds the volume of primary
aluminum tolled for Glencore. Consequently, we do not plan to renew the Glencore
tolling agreement when it expires, and expect to realize cost savings as a
result. Our relationship with Glencore remains strong, however, and we have
signed a letter of intent for Glencore to supply the smelter at The Dalles with
all of its alumina requirements from October 1, 1999 to December 31, 2004.
Our Company's Strong Management Team and Employee Partnership
Our senior executive officers average over 20 years of experience in the
aluminum industry. We believe we have established a good relationship with the
United Steelworkers of America, the union that represents our employees, and
created an effective employee involvement program. We pay competitive base wage
rates and allow employees to earn additional compensation through participation
in our profit sharing plans, which are designed to encourage increased
productivity, efficiency and cost control in all aspects of our business.
6
Business Strategy
Our goal is to increase profitability by focusing on five key strategies:
(1) lowering the cost of production, (2) maximizing earnings from value-added
products, (3) making strategic capital investments, (4) maintaining financial
flexibility and (5) emphasizing innovation and technological improvements.
Lowering the Cost of Production
We consistently seek improvements in process efficiencies that enable us to
lower production costs. Our largest production costs are electric power, raw
materials and labor. In 1996 we entered into power sales and long-term
transmission agreements with the U.S. Bonneville Power Administration that
substantially reduced our electric power costs and provided access to the
competitive bulk electric power markets. We expect this access to result in a
further decline in the price we pay for power after our current BPA power sales
contracts expire in 2001. In addition, we believe our facilities investment
program will reduce our per pound cost of aluminum produced.
Maximizing Earnings from Value-Added Products
We seek to maximize earnings by increasing the volume and average margins
on our value-added products. We expect our facilities investment program to
increase value-added casthouse capacity at our Goldendale facility over a period
of approximately 18 months from approximately 160 million pounds per year to
approximately 264 million pounds per year. A new machining process recently
implemented by Northwest Aluminum Specialties permits us to produce higher
margin aluminum billet in any diameter from two to five inches. We have also
developed a patented process for producing and transforming aluminum billet for
semi-solid metal working.
We also plan to enhance earnings on value-added products by allowing our
tolling agreement with Glencore to expire. We are purchasing more primary
aluminum than we toll for Glencore because of the increase in our sales of
value-added products. By not renewing the agreement, we believe we can lower our
costs by using primary aluminum we produce at our smelter in The Dalles in the
production of value-added products.
Making Strategic Capital Investments
Our company and the prior owners of our smelters and casthouses
periodically have invested in major technological improvements. From 1978
through 1981, Martin Marietta Corporation implemented new anode and cathode
technology at the two smelters, modernized the electrical and environmental
control systems, and added a third cell line at the smelter in Goldendale,
Washington. In 1991 and 1997 Northwest Aluminum Specialties added new
value-added production capabilities to enable it to enter new value-added
markets.
7
We are now undertaking a facilities investment program. The program is
being partially financed by Hydro, which has provided $20.0 million and is
committed to provide up to an additional $10.0 million for the expansion of the
casthouse and the upgrade of the smelter cell lines at our facility in
Goldendale. With Hydro's technological assistance, we plan to make cell
improvements, which include among other things
o installing point-feeders to control alumina additions
o installing magnetic compensation to stabilize cell operations
o redesigning cathodes to optimize heat balance and
o improving computer controls and other related technologies.
We believe these technologies, which Hydro has already successfully implemented
at a similar smelter in Norway, will increase the Goldendale smelter's capacity.
We estimate that full implementation of the facilities investment program
will be completed in approximately five years. We can control and vary the rate
of the program because each cell can be individually and sequentially upgraded
with minimal disruption to ongoing operations. Moreover, we expect to realize
incremental benefits as individual cells are upgraded.
Maintaining Financial Flexibility
We have a $75.0 million revolving credit facility with a group of banks.
Only $49.0 million of that amount was available on December 31, 1998 because of
borrowing base limitations. We also can borrow up to $10.0 million from Hydro if
we meet certain conditions. We believe the funds we received by selling the
notes and our other sources of financing provide us with the financial
flexibility
o to implement the facilities investment program
o for additional working capital needs and
o for other corporate purposes, including the possible redemption of
outstanding preferred stock of Goldendale Holding Company.
Emphasizing Innovation and Technological Improvements
We emphasize innovation and encourage employees to create and develop new
technologies, processes and products. We have been issued patents for a new
alloy and a new technology to smelt aluminum using inert metallic anodes and
titanium dioxide cathodes. We also are implementing a patented process for
casting and transforming aluminum for semi-solid metal working. Finally, we have
applied for a patent for a process to recycle spent pot liner into marketable
products.
8
Where You Can Reach Us
Our mailing address is 3313 West Second Street, The Dalles, Oregon 97058.
Our telephone number is (541) 296-6161.
The New Credit Facility
In addition to offering the notes, our subsidiaries repaid and terminated
their prior credit facility with BankBoston, N.A. and entered into a new credit
agreement with BankBoston and others. Under the new agreement, our subsidiaries
may borrow up to $75 million on a revolving basis. The obligations under the new
credit agreement are secured by inventory, accounts receivable and other rights
to payment and related intangibles of the subsidiaries. For more information
about this revolving credit facility, see"Management's Discussion and Analysis
of Financial Condition and Results of Operation -- Liquidity and Capital
Resources" on page 40 and "Description of Certain Other Indebtedness and
Goldendale Preferred Stock" on page 130.
The Exchange Offer
Registration Rights Agreement.... You are entitled to exchange your notes for
registered notes with substantially identical
terms. The Exchange Offer is intended to
satisfy these rights. After the Exchange
Offer is complete, you will no longer be
entitled to any exchange or registration
rights with respect to your notes.
The Exchange Offer............... We are offering to exchange $1,000 principal
amount of 12% First Mortgage Notes due 2006
of Golden Northwest Aluminum, Inc. that have
been registered under the Securities Act of
1933 for each $1,000 principal amount of its
outstanding 12% First Mortgage Notes due 2006
which were issued in December 1998 in a
private offering. In order to be exchanged,
an outstanding note must be properly tendered
and accepted. All outstanding notes that are
validly tendered and not validly withdrawn
will be exchanged for registered notes.
There are $150 million principal amount of
notes outstanding.
9
We will issue registered notes promptly after
the expiration of the Exchange Offer.
Resales.......................... We believe the notes issued in the Exchange
Offer may be offered for resale, resold and
otherwise transferred by you without
compliance with the registration and
prospectus delivery provisions of the
Securities Act of 1933 provided that
o the notes received in the Exchange Offer
are acquired in the ordinary course of
your business
o you are not participating, do not intend
to participate, and have no arrangement
or understanding with any person to
participate in the distribution of the
notes issued to you in the Exchange
Offer, and
o you are not an "affiliate" of ours.
Each broker-dealer issued notes in the
Exchange Offer for its own account in
exchange for notes acquired by the
broker-dealer as a result of market-making or
other trading activities must acknowledge
that it will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in
connection with any resale of the notes
issued in the Exchange Offer. A broker-dealer
may use this Prospectus for an offer to
resell, resale or other retransfer of the
notes issued to it in the Exchange Offer.
Expiration Date.................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, ___________, 1999, unless
we decide to extend the expiration date.
Conditions to the Exchange
Offer................... The Exchange Offer is not subject to any
condition other than the Exchange Offer does
not violate law or any interpretation of the
staff of the Securities and Exchange
Commission.
10
Procedures for Tendering
Outstanding Notes
Held in the Form of
Book-Entry Interests.......... The outstanding notes were issued as global
securities in bearer form without interest
coupons. The outstanding notes were deposited
with U.S. Trust Company, National
Association, as book-entry depositary, when
they were issued. U.S. Trust Company issued a
certificateless depositary interest in each
note, which represents a 100% interest in the
note, to The Depository Trust Company
("DTC"). Beneficial interests in the notes,
which are held by direct or indirect
participants in DTC through the
certificateless depositary interests (the
"Book-Entry Interests"), are shown on, and
transfers of the notes can be made only
through, records maintained in book- entry
form by DTC (with respect to its
participants) and its participants.
If you are a holder of a note held in the
form of a Book-Entry Interest and you wish to
tender your Book- Entry Interest for exchange
pursuant to the Exchange Offer, you must
transmit to U.S. Trust Company, as exchange
agent, before the Expiration Date:
Either
o a properly completed and duly executed
Letter of Transmittal, which accompanies
this Prospectus, or a facsimile of the
Letter of Transmittal, including all
other documents required by the Letter
of Transmittal, to the Exchange Agent at
the address set forth on the cover page
of the Letter of Transmittal;
11
Or
o a computer-generated message transmitted
by means of DTC's Automated Tender Offer
Program system and received by the
Exchange Agent and forming a part of a
confirmation of book entry transfer in
which you acknowledge and agree to be
bound by the terms of the Letter of
Transmittal;
And, Either
o a timely confirmation of book-entry
transfer of your outstanding notes into
the Exchange Agent's account at DTC,
pursuant to the procedure for book-entry
transfers described in this Prospectus
under the heading "The Exchange Offer--
Book-Entry Transfer" beginning on page
74, must be received by the Exchange
Agent on or prior to the Expiration
Date;
Or
o the documents necessary for compliance
with the guaranteed delivery procedures
described below.
Procedures for Tendering
Certificated Notes...... If you are a holder of a beneficial interest
in the outstanding notes, you are entitled to
receive, in exchange for your beneficial
interest, certificated notes which are in
equal principal amounts to your beneficial
interest. As of this date, however, no
certificated notes were issued and
outstanding. If you acquire certificated
notes before the Expiration Date, you must
tender your registered notes in accordance
with the procedures described in this
Prospectus under the heading "The Exchange
Offer--Procedures for Tendering Notes"
beginning on page 71.
12
Special Procedures for
Beneficial Owners........ If you are the owner of a beneficial interest
and your name does not appear on a security
position listing of DTC as the holder of that
interest or if you are a beneficial owner of
certificated notes that are registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee and you wish
to tender that interest or certificated notes
in the Exchange Offer, you should contact the
person in whose name your interest or
certificated notes are registered promptly
and instruct such person to tender on your
behalf.
Guaranteed Delivery
Procedures.............. If you wish to tender your notes and time
will not permit your required documents to
reach the Exchange Agent by the Expiration
Date, or the procedure for book-entry
transfer cannot be completed on time or
certificates for registered notes cannot be
delivered on time, you may tender your notes
pursuant to the procedures described in this
Prospectus under the heading "The Exchange
Offer--Guaranteed Delivery Procedures"
beginning on page 74.
Withdrawal Rights................ You may withdraw the tender of your notes at
any time before 5:00 p.m. New York City time
on ___________, 1999.
Certain U.S. Federal Income
Tax Consequences........ The exchange of notes will not be a taxable
exchange for U.S. federal income tax
purposes. You will not recognize any taxable
gain or loss or any interest income as a
result of the exchange.
Exchange Agent................... U.S. Trust Company, National Association is
serving as exchange agent in connection with
the Exchange Offer.
13
Summary of the Terms of the Exchange Notes
The form and terms of the notes to be issued in the Exchange Offer are the
same as the form and terms of outstanding notes except that the notes to be
issued in the Exchange Offer will be registered under the Securities Act of 1933
and, therefore, will not bear legends restricting their transfer. The notes
issued in the Exchange Offer will evidence the same debt as the outstanding
notes, and both the outstanding notes and the notes to be issued are governed by
the same indenture.
Aggregate Amount................. $150,000,000 aggregate principal amount of
12% First Mortgage Notes due 2006 of Golden
Northwest Aluminum, Inc.
Maturity......................... December 15, 2006.
Interest......................... Annual rate - 12% Payment frequency - every
six months on June 15 and December 15
First payment - June 15, 1999.
Optional Redemption.............. On or after December 15, 2002 we may redeem
some or all of the notes at any time at the
redemption prices listed in the section
"Description of Notes" under the heading
"Optional Redemption."
Assets Pledged to Secure Notes... To secure these notes, we
(1) granted a first priority security
interest in substantially all of our
subsidiaries' real property, plant and
equipment and some other assets,
excluding, among other things, the
tolling agreements with Hydro and
Glencore and our subsidiaries'
inventory, accounts receivable and other
rights to payment and related
intangibles and
(2) pledged all of the stock we own in our
direct and indirect subsidiaries.
14
We granted the same security to Hydro under
our note purchase agreement with Hydro. The
interest in assets and stock securing the
notes is senior to the interest in assets and
stock securing the Hydro notes. See
"Description of Notes -- Security" beginning
on page 81.
Subsidiary Guarantors............ Each of our direct or indirect wholly owned
subsidiaries is a guarantor of the notes. If
we cannot make payments on the notes when
they are due, the guarantor subsidiaries must
make them.
Ranking.......................... These notes and the subsidiary guarantees are
referred to as senior debts because they are
not expressly subordinated to any of our
other indebtedness. They rank ahead of all
our current and future indebtedness and the
current and future indebtedness of our
subsidiaries if the indebtedness is expressly
subordinated to the notes.
These notes and the subsidiary guarantees:
o rank equally with other senior debt
o rank ahead of all of the subordinated
debt with Hydro and
o rank below indebtedness to the extent of
any collateral securing it.
Mandatory Sinking Fund
or Redemption.................... Generally, we are not required to redeem the
notes or make sinking fund payments on them.
Change of Control................ If our ownership structure materially
changes, we must offer to buy any or all the
notes you wish to sell. We must pay you 101%
of the aggregate principal amount of the
notes, plus accrued and unpaid interest, on
the date we buy the notes.
15
Basic Covenants of the Indenture. We will issue the exchange notes under our
indenture with U.S. Trust Company, National
Association. Among other things, the
indenture restricts our ability and the
ability of our subsidiaries to:
o make some payments and investments
o incur additional indebtedness
o create liens
o agree to payment restrictions affecting
subsidiaries
o engage in mergers, consolidations and
asset sales
o conduct our business
o engage in transactions with our
affiliates and some subsidiaries and
o make issuances and sales of capital
stock of our wholly owned subsidiaries.
For more information, see "Description of
Notes -- Material Covenants" beginning on
page 85.
Risk Factors
You should carefully consider the information under the caption "Risk
Factors" beginning on page 19 and all other information in this document before
tendering your notes in the Exchange Offer.
16
Summary Combined Historical Financial Information
The summary combined historical financial information set forth below was
derived from the Combined Financial Statements beginning on page F-1. This
summary should be read together with these sections and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" beginning on page
34. Our summary combined historical financial information includes the accounts
of Northwest Aluminum Company, Northwest Aluminum Specialties, Inc. and
Northwest Aluminum Technologies, LLC, all of which report on a September 30
fiscal year, for all periods presented. They also include the accounts of
Goldendale Aluminum Company, which reports on a calendar year, from May 22,
1996, the date it was acquired by our sole shareholder. Information for 1995
includes only the accounts of Northwest and Specialties, which then reported
their operations on a 52 or 53 week period ending on the Sunday closest to
August 31. The summary combined historical financial data as of September 30,
1998 and for the nine months ended September 30, 1997 and 1998 are derived from
our unaudited combined financial statements and include all normal recurring
adjustments that our management considers necessary to present fairly this data.
The results for the nine months ended September 30, 1998 do not necessarily
indicate the results that may be expected for the year ending December 31, 1998.
Fiscal Year Ended Nine Months
----------------- Ended September 30,
September 3, December 31, December 31, ---------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ---- ----
(Dollars in thousands, except operating data)
Combined Statement of Operations
Data:
Revenues............................... $ 289,693 $373,038 $497,872 $363,282 $360,035
Cost of revenues..................... 256,211 329,739 438,299 314,575 329,897
General and administrative expenses.. 8,293 9,746 15,327 10,574 12,087
Depreciation and amortization........ 7,711 13,584 19,069 13,881 14,553
Operating income..................... 25,189 33,553 44,246 38,133 18,051
Net income........................... 23,696 18,905 18,495 17,654 3,655
September 30, 1998
--------------------------
Actual As Adjusted(1)
-------- --------------
Combined Balance Sheet Data:
Cash and cash equivalents........................................................ $ 1,122 $ 31,950
Working capital.................................................................. 41,108 87,280
Total assets..................................................................... 332,895 367,840
Total debt....................................................................... 131,775 170,000
Minority interest(2)............................................................. -- 29,663
Total shareholders' equity....................................................... 116,728 85,379
(1) Adjusted to reflect the effect of the issuance of the notes, the
refinancing of bank debt and the issuance of debt to Hydro. See
"Description of Certain Other Indebtedness and Goldendale Preferred Stock"
included elsewhere in this document.
17
(2) As a result of the consolidation in which we became a holding company for
our operating subsidiaries, generally accepted accounting principles
required the outstanding Goldendale preferred stock to be reclassified and
reported as minority interest.
18
RISK FACTORS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 including, in particular, the statements about the
Company's plans, strategies and prospects under the headings "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." Although we believe that our plans,
intentions and expectations reflected in or suggested by these forward-looking
statements are reasonable, we give no assurance these plans, intentions or
expectations will be achieved. Important factors that could cause actual results
to differ materially from the forward-looking statements we make in this
Prospectus are set forth below and elsewhere in this Prospectus. All
forward-looking statements attributable to the Company or persons acting on our
behalf are expressly qualified in their entirety by the following cautionary
statements.
Substantial Leverage -- Our substantial indebtedness could adversely affect our
financial health and prevent us from fulfilling our obligations under the notes.
We have a significant amount of debt. The following tables show certain
important credit statistics:
September 30, 1998
Total indebtedness .................................. $216,200,000
Shareholders' equity ................................ $116,700,000
Debt to equity ratio................................. 1.85x
Year Ended Nine Months
December 31, 1997 Ended September 30, 1998
----------------- ------------------------
Ratio of earnings to fixed
charges................... 2.1x 1.1x
Our substantial indebtedness could have important consequences to you. For
example, it could or will
o make it more difficult for us to satisfy our obligations with respect
to these notes
o increase our vulnerability to general adverse economic and industry
conditions
o limit our ability to fund future working capital, capital
expenditures, research and development and other general corporate
requirements
19
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing our cash
flow available to fund working capital, capital expenditures, research
and development efforts and other general corporate purposes
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate
o place us at a competitive disadvantage compared to our competitors
that have less debt
o with the financial and other restrictive covenants in our
indebtedness, among other things, limit our ability to borrow
additional funds. Failing to comply with those covenants could result
in an event of default which, if not cured or waived, could have a
material adverse effect on us.
See "Description of Certain Other Indebtedness and Goldendale Preferred
Stock -- Revolving Credit Facility," "Description of Other Indebtedness and
Goldendale Preferred Stock -- Hydro Subordinated Debt" and "Description of Notes
- -- Offer to Purchase the Notes."
Additional Borrowings Available -- Despite current indebtedness levels, we and
our subsidiaries may still be able to borrow more money. This could further
exacerbate the risks described above.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not prohibit us or our
subsidiaries from doing so. Our credit facility permits total borrowings up to
$75 million, and those borrowings would rank equally with the notes and the
subsidiary guarantees. Our subordinated note purchase agreement with Hydro also
allows us to borrow up to an additional $10 million in some circumstances. This
debt would be subordinate to the notes and the subsidiary guarantees. The
Indenture also permits us and our subsidiaries to incur other debt. If new debt
is added to our and our subsidiaries' current debt levels, the related risks
that we and they now face could intensify.
See "Selected Combined Financial Data," "Description of Certain Other
Indebtedness and Goldendale Preferred Stock -- Revolving Credit Facility,"
"Description of Other Indebtedness and Goldendale Preferred Stock -- Hydro
Subordinated Debt" and "Description of Notes -- Offer to Purchase the Notes."
20
Ability to Service Debt -- To service our indebtedness, we will require a
significant amount of cash. Our ability to generate cash depends on many factors
beyond our control.
Our ability to make payments on or to refinance our indebtedness, including
these notes, and to fund planned capital expenditures and research and
development efforts, will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under our credit facility will be adequate to meet our
future liquidity needs for at least the next few years. We do not assure you,
however, that our business will generate sufficient cash flow from operations,
that anticipated cost savings and operating improvements will be realized on
schedule or that future borrowings will be available to us under our credit
facility in an amount sufficient to enable us to pay our indebtedness, including
these notes, or to fund our other liquidity needs. We may need to refinance all
or a portion of our indebtedness, including these notes on or before maturity.
We do not assure you we will be able to refinance any of our indebtedness,
including our credit facility and these notes, on commercially reasonable terms
or at all.
Sensitivity to Prices -- Our revenues and earnings are heavily affected by the
price of primary aluminum.
Low prices for primary aluminum could adversely affect our revenues and
earnings. One of our primary sources of revenue, tolling fees on primary
aluminum products is tied to the price of aluminum on the London Metals
Exchange. Decreases in the LME price have a substantial adverse effect on our
revenues and earnings because we are unable to expand our volume of production
and the costs of our smelter operations are largely fixed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Operations."
Primary aluminum prices historically have been subject to significant
cyclical price fluctuations. We believe the timing of changes in the market
price of aluminum largely are unpredictable. Price fluctuations are affected by
numerous factors beyond our control, including
o the overall demand for, and worldwide supply of, primary aluminum
o the availability and price of competing commodities
o international economic trends
o currency exchange rate fluctuations
o expectations of inflation
o actions of commodity market participants
21
o consumption and demand patterns and
o political events in major producing countries.
Over the ten year period between January 1, 1988 and December 31, 1997, the
three-month LME price of aluminum has ranged between a low of approximately
$0.47 per pound to a high of approximately $1.26 per pound. During this period
prices averaged $0.73 per pound. From January 1, 1998 through November 30, 1998,
the three-month LME price of aluminum averaged $0.63 per pound. At December 31,
1998, the LME price for primary aluminum was $0.56 per pound.
As a result of the decline in the price for primary aluminum, our 1998
revenue and net income have been lower than they were in 1997 and we do not
assure you they will return to historic levels. In addition, because
fluctuations in the price for aluminum are largely unpredictable, we do not
assure you future fluctuations or declines will not be severe or prolonged.
Holding Company Structure -- We are a holding company. As a result, we are
dependent on our operating subsidiaries for the cash flow needed to repay the
notes.
Our company does not conduct any of its own operations, but rather serves
as a holding company for our operating subsidiaries. As a result, we are
dependent on distributions of the earnings of our subsidiaries through
dividends, advances or payments on account of intercompany obligations to pay
our debts, including the notes. Moreover, in the future, some new or existing
subsidiaries may not be required to repay the notes or make funds available to
us so that we may do so. In addition, a subsidiary's ability to make
distributions to us is subject to state laws and contractual or other
restrictions. Distributions also depend on results of operations of the
subsidiaries and are subject to various business considerations. See
"Description of Certain Other Indebtedness and Goldendale Preferred Stock."
We have been a holding company only since December 1998. Our subsidiaries,
although under common ownership since May 1996, generally have operated as
independent businesses with separate boards of directors, executive management,
operations, financing, financial reporting and employees. Our subsidiaries may
continue to operate relatively autonomously for a period of time as we evaluate
and develop appropriate practices and procedures for our consolidated company.
As a result, we can provide you with only limited operating information about
our company as a combined organization. We may experience difficulties in the
implementation of a holding company structure and commencement of operations on
a consolidated basis, including
o staffing and allocation of management resources
o integration of operating and financial functions, systems and
reporting and
o establishment of consolidated practices and procedures.
22
Effective Subordination -- Our obligation to repay you is subordinate to other
lenders' rights to any collateral securing the lenders' loans to us. Proceeds
from the sale of the collateral will be used to pay those lenders before they
are used to repay you.
Although the notes are equal or senior in rank to all of our indebtedness,
a lender's right to any collateral securing its loan ranks ahead of our
obligation to repay you on the notes. The subsidiaries' guarantees are also
effectively subordinated to a lender's right to collateral. Our credit agreement
with BankBoston is secured by our subsidiaries' accounts receivable, inventory
and some related intangibles. As a result, BankBoston will be entitled to any
proceeds of these assets up to the amount of money owed to it before any of
those proceeds can be used to repay you. At December 31, 1998, the notes were
not effectively subordinate to any secured indebtedness. The indenture permits
us and our subsidiaries to place liens on some of our assets. These liens may,
for example, secure purchase money indebtedness. The notes and the guarantees
will be effectively subordinated to this purchase money indebtedness and other
obligations secured by these liens. See "Description of Notes -- Ranking of
Notes and Guarantees."
Restrictions Imposed by the Terms of Our Indebtedness -- The terms of our
indebtedness place several restrictions on our ability to operate our business
that could result in our inability to repay the notes.
The indenture contains restrictions on how we operate our business. These
restrictions limit, among other things, our ability and the ability of our
subsidiaries to
o incur additional indebtedness
o pay dividends
o make certain other restricted payments
o create or incur liens
o issue or sell stock of some of our subsidiaries
o apply net proceeds from certain asset sales
o merge or consolidate with another person
o sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of our assets or
o enter into transactions with affiliates.
Our other loan agreements, including our credit agreement with BankBoston, now
contain and will contain in the future similar restrictive covenants and will
require us to satisfy certain financial condition tests. Our ability to meet
these financial tests could be affected by events beyond our control, and we do
not assure you we will meet those tests.
If we fail to comply with a restrictive covenant or a financial test, that
failure could result in an event of default. On the occurrence of an event of
default, the lenders could declare all amounts outstanding to be immediately due
and payable. They also could proceed against the collateral granted to them to
secure that indebtedness. An event of default under
23
other indebtedness may constitute an event of default under the indenture. If
any of our other indebtedness were accelerated, we do not assure you our assets
would be sufficient to repay all of our indebtedness, including the notes.
Restrictive covenants and financial tests limit our operating and financial
flexibility. As a result, our ability to respond to changing business and
economic conditions and to secure additional financing, if needed, may be
significantly restricted, and we may be prevented from engaging in transactions
that might otherwise be considered beneficial to us. See "Description of Notes
- -- Material Covenants."
Other Secured Creditors -- The collateral securing our indebtedness to
BankBoston will not be available to you until that indebtedness has been repaid.
The indenture permits us to borrow up to $90.0 million from BankBoston.
These borrowings are secured by our and our subsidiaries' accounts receivable,
inventory and related intangibles. Accordingly, these items will not be
available to you if we become the subject of bankruptcy, liquidation or similar
circumstance until the money we owe to BankBoston is paid in full. We could owe
BankBoston up to $75.0 million plus interest and expenses. Our accounts
receivable represented $48.1 million, and our inventory represented $62.3
million, each on September 30, 1998, and are among our most liquid assets.
Limitations on the Collateral and the Guarantees -- The value of the collateral
securing the debt under the notes is limited and may be insufficient to repay
the notes if we are in bankruptcy.
The pledge of the stock of our subsidiaries and the pledge of the real
property, plant and equipment of our subsidiaries provide only limited security
for the notes. Our subsidiaries' inventory, accounts receivable and related
intangibles, including tolling agreements, are pledged to secure our obligations
under our credit agreement with BankBoston. Any contracts, agreements, licenses
and other instruments related to the real property collateral that by their
express terms prohibit their assignment or the granting of a security interest
in them are excluded from the collateral securing the notes.
The collateral securing the notes was not appraised when the notes were
offered. Accounting for depreciation, the combined book value on September 30,
1998 of our property, plant and equipment serving as collateral for the notes
was approximately $117.5 million. Depending on market and economic conditions
and the availability of buyers, the sale value of the collateral may be
substantially different from its book value. Its value could also be affected if
agreements and licenses necessary to operate our property, plant and equipment
are not in place after bankruptcy. Some of these agreements and licenses are not
pledged to secure the notes or guarantees of the subsidiaries and may be not
included in the collateral for the notes. Accordingly, if we default on the
notes, we do not assure you the indenture trustee would receive enough money
from the sale of the collateral to repay you. Once the collateral has been sold,
your claims against our remaining assets to repay any
24
amounts still outstanding under the notes would be unsecured and would be
subject to state fraudulent conveyance laws. See "-- Fraudulent Conveyance
Matters," "-- Holding Company Structure" and "-- Effective Subordination."
At least some of the collateral is illiquid and its market value may not be
easy to ascertain. The collateral may not be saleable. Even if it is saleable,
substantial delays could be encountered in its liquidation. Moreover, some of
the collateral may be encumbered by liens, rights and easements granted to other
parties, and these parties could exercise rights and remedies with respect to
those assets. These actions could adversely affect the value of the collateral
and the ability of the trustee to foreclose on it.
The indenture may permit us to release collateral without the substituting
other collateral in its place. See "Description of Notes -- Security."
If a bankruptcy case is commenced by or against us before the indenture
trustee has repossessed and disposed of the collateral, the right to
repossession and disposal on a default by us could be significantly impaired. In
the case of real property collateral, state law restrictions also could
significantly impair the trustee's rights. See "-- Material Limitations under
State Law" and "-- Material Bankruptcy Limitations."
The indenture trustee, on your behalf, has entered into an intercreditor
agreement with BankBoston. Among other things, the agreement allows BankBoston
to enter any of our facilities to collect accounts receivable and to remove,
sell or dispose of inventory after the trustee has obtained possession and
control of our facilities that serve as collateral for the notes. BankBoston
also may store its collateral on our premises. BankBoston's right to enter the
premises and use the collateral could delay the liquidation of the collateral.
Material Limitations under State Law -- Oregon and Washington state laws may
limit your ability to pursue our company for unpaid amounts under the notes and
to accelerate repayment of the notes.
Under Oregon and Washington law, a creditor holding a trust deed on real
property, like the mortgage on our real property and improvements securing the
notes, may enforce the lien through a judicial foreclosure or a non-judicial
sale. If the creditor proceeds by nonjudicial sale, the creditor may not enforce
any unpaid portion of the indebtedness as a personal liability of the debtor.
The creditor would, however, be entitled to proceed against any other collateral
pledged as security for the debt. Additionally, a guarantor is not liable for a
deficiency judgment in Oregon and may limit its liability for a deficiency
judgment in Washington to the difference between the outstanding debt and the
value of the property sold by the trustee. Accordingly, if the trustee elects to
proceed by non-judicial sale of our real property collateral located in Oregon
or Washington, the law of those states could preclude recourse by you or the
trustee against us and may limit or eliminate your recourse against our
guarantor subsidiaries.
25
With some exceptions, we are generally prohibited under the indenture from
creating liens on (1) the collateral or (2) any other property unless the notes
are also secured by the liens. The indenture also provides that you or the
trustee can accelerate the maturity of the notes if the prohibition against
creating liens is breached and the breach is not remedied within 30 days after
we are given written notice of it. Under some court cases, to effect such an
acceleration, you may need to demonstrate that enforcement is reasonably
necessary to protect against impairment of your security or to protect against
an increased risk of default. Although the foregoing court decisions may have
been at least partially preempted by federal laws, the scope of this preemption
is uncertain. Accordingly, an Oregon or Washington court could prevent you or
the trustee from declaring a default and accelerating the notes because of a
breach of this covenant. Such a decision could have a material adverse effect on
your ability to enforce the covenant. See "Description of Notes -- Material
Covenants -- Limitations on Liens" and "Description of Notes -- Defaults and
Certain Rights on Default."
Material Bankruptcy Limitations -- The ability of the trustee to liquidate the
collateral could be impaired if a bankruptcy case is commenced by or against us.
If a bankruptcy case is commenced by or against us or our subsidiaries
before the trustee repossesses and disposes of the collateral, the trustee's
right to do so after we have defaulted on the repayment of the notes will likely
be significantly impaired. Under federal bankruptcy laws, a secured creditor
cannot repossess its security from a debtor in a bankruptcy case or dispose of
security repossessed from the debtor without the bankruptcy court's approval.
Moreover, as long as the secured creditor is given "adequate protection,"
federal bankruptcy laws permit the debtor to continue to retain and use
collateral even though the debtor is in default under the applicable debt
instruments. The meaning of the term "adequate protection" varies according to
circumstances, but it is intended to protect the value of the secured creditor's
interest in the collateral. If the value of the collateral is diminished by the
creditor's inability to repossess it or dispose of it or by its use by the
debtor, adequate protection may include cash payments or the granting of
additional security, as the court may determine in its discretion. Generally,
adequate protection payments are not required to be paid by a debtor to a
secured creditor unless the bankruptcy court determines that the value of the
secured creditor's interest in the collateral is declining during the pendency
of the bankruptcy case. Given the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
we do not predict how long payments under the notes or the guarantees could be
delayed following commencement of a bankruptcy case, nor can we predict whether
or when the trustee could repossess or dispose of the collateral or whether or
to what extent holders of the notes would be compensated for any delay in
payment or loss of value of the collateral through the requirement of "adequate
protection."
In a federal bankruptcy case, the court has the power to confirm a plan for
the reorganization of the debtor over the objection of creditors. Among other
things, such a plan may change the interest rate and payment terms on
obligations of the debtor. Thus, if we
26
were involved in a bankruptcy case, a bankruptcy court could approve a
reorganization plan that modifies the interest rate or payment terms on the
notes.
Fraudulent Conveyance Matters -- Federal and state statutes allow courts, under
specific circumstances, to void guarantees and require noteholders to return
payments received from guarantors.
Under federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee could be voided if, among other things, the
guarantor, at the time it incurred the indebtedness evidenced by its guarantee
o received less than reasonably equivalent value or fair consideration
for the incurrence of the guarantee, and
o was insolvent or rendered insolvent by reason of the incurrence, or
o was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital, or
o intended to incur, or believed that it would incur, debts beyond its
ability to pay the debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could be
voided and required to be returned to the guarantor or to a fund for the benefit
of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending on the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if
o the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets, or
o the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature, or it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of these notes, will not be insolvent, will not have unreasonably
small capital for the business in which it is engaged and will not have incurred
debts beyond its ability to pay the debts as they mature. We do not assure you,
however, as to what standard a court would apply in making these determinations
or that a court would agree with our conclusions in this regard.
27
Risk to Secured Lenders under Environmental Laws -- Federal and state
environmental laws may decrease the value of the collateral securing the notes
and may result in you being liable for environmental clean-up costs at our
facilities.
Our facilities at Goldendale and The Dalles are classified in the same
manner as similar aluminum smelters and casthouses in the industry as generating
hazardous waste materials, and we have been required to undertake actions to
remediate environmental conditions at these facilities. The notes and guarantees
are secured by liens on real property that may be subject to known and
unforeseen environmental risks, and these risks may reduce or eliminate the
value of the real property as collateral for the notes. Moreover, under federal
environmental laws, a secured lender may be obligated to remediate or may be
liable for the costs of remediating releases or threatened releases of hazardous
substances at a mortgaged property. There may be similar risks under various
state laws and common law theories. The costs of environmental remediation are
often substantial. See "Business -- Environmental and Health Matters."
The state of the law is unclear as to whether and under what circumstances
the obligation to remediate or the liability for remediation costs can be
imposed on a secured lender. Under federal environmental laws, a lender may be
liable if the lender or its agents or employees have participated in the
management of the operations of the debtor, even though the environmental damage
or threat was caused by a third party, a prior owner, a current owner or an
operator other than the lender. A lender would be excluded from liability,
however, if it is a person "who without participating in the management of the
facility, holds indicia of ownership primarily to protect his security
interest." This secured creditor exemption protects a holder of a security
interest, but generally only to the extent the holder is acting to protect its
security interest in the facility or property. If a lender's activities begin to
encroach on the actual management of the facility or property, the lender faces
potential liability under federal environmental laws. Similarly, when a lender
forecloses and takes title to a contaminated facility or property, the lender
may incur liability in various circumstances, including when it
o holds the facility or property as an investment, including leasing the
facility or property to a third party
o fails to market the property in a timely fashion or
o fails to properly address environmental conditions at the property or
facility.
Under the laws of some states, failure to perform required remediation may
give rise to a lien on the property to ensure the reimbursement of the costs of
such remediation. This type of lien is commonly referred to as a superlien. All
subsequent liens on such property are subordinated to a superlien. In some
states, even previously recorded liens are subordinated to a superlien. In these
states, the security interest of a creditor in any collateral that is subject to
a superlien could be adversely affected. While Oregon law provides for a
superlien, the lien does not have priority over previously recorded liens. As
noted above, however, the costs which might be incurred by any purchaser of the
property in
28
remediating environmental conditions could reduce or eliminate the value of the
property as security for the notes and the guarantees.
Before taking some actions, the trustee may request that you indemnify it
for its costs, expenses and liabilities. Cleanup costs could become a liability
of the trustee, and if you indemnified the trustee you could be required to help
repay those costs. In addition, rather than acting through the trustee, you may
in some circumstances act directly to pursue a remedy under the indenture. If
you exercise that right, you could be deemed to be a lender and be subject to
the risks discussed above.
Technological Improvements -- Our smelters are based on a technology which is
generally not used in the design of newer smelters and our continued
competitiveness depends on our ability to operate efficiently.
The design of our smelters is based on a technology that is not generally
used in the design of newer smelters. The newer smelter design has certain
advantages and may permit primary aluminum production at a lower cost. To date,
we have been able to compete because of the implementation of
efficiency-enhancing technology at our smelters, cost- competitive wages and low
power costs. Our ability to compete in the future will depend in part on our
continued ability to rely on these factors. We do not assure you this reliance
will be possible in the future. In addition, we intend to invest approximately
$75.0 million in the facilities investment program. The facilities investment
program may not produce technological improvements or other benefits, and the
additional casthouse capacity may not be fully utilized. See "Business --
Operations" and "Business -- Facilities Investment Program."
The aluminum industry is increasingly affected by advances in technology.
Our ability to compete successfully may depend on the extent to which we are
able to implement and exploit technological changes. Our failure to develop,
anticipate or respond to these changes could have a material adverse effect on
our company.
Electricity Costs -- Large increases in the cost of electricity could have a
material adverse effect on us.
Electricity is one of the largest cost inputs and can vary significantly
from smelter to smelter. Electricity costs, therefore, can affect significantly
the relative competitiveness of primary aluminum smelters. Large increases in
the cost of electricity could adversely affect our earnings. Approximately 60%
of our electricity requirements for the next two-and-a-half years will be
provided by the BPA at pre-determined prices. The remaining 40% of our required
electricity, however, is provided by direct purchase of bulk electric power at
negotiated rates from various power marketers, including BPA, Avista Energy,
PacifiCorp, Portland General Electric, Illinova Energy, Duke Energy and
Washington Water Power. We are therefore subject to risks associated with the
market price of electricity. Numerous short-term and long-term developments can
affect electricity prices, including
29
o worldwide demand for fossil fuels
o changing environmental standards
o the overall economic activity in the United States and the Pacific
Northwest and
o weather temperature and precipitation.
As a result of the high percentage of hydroelectric power in the electricity
supply of the Pacific Northwest, electricity prices in the region tend to be
sensitive to drought conditions that reduce the availability of low cost
hydroelectric power. See "Business -- Power Contracts."
Sources of Alumina -- We have been insulated from changes in the price of
alumina because of our tolling agreements with Hydro and Glencore. The loss of
either of these agreements would subject us to the risks associated with buying
raw materials on the open market.
We obtain all of our raw materials from outside suppliers. Our alumina
requirements are met pursuant to agreements with our tolling partners, Hydro and
Glencore. Our tolling agreement with Hydro has been extended to December 2011.
Our tolling agreement with Glencore will expire on December 31, 1999, and we do
not intend to renew it. Without either of these tolling agreements, we will be
required to purchase alumina on the open market at prevailing prices. We do not
assure you we will have the financial capacity to finance such open market
purchases. In addition, without a long-term tolling contract, any limitation in
the supply or any increased cost of alumina could have a material adverse effect
on our operations and financial condition. See "Business -- Suppliers."
Dependence on Key Personnel -- Our management has been a key to our past success
and the loss of any member of our management, especially Brett Wilcox, could
have a material adverse effect on our operations.
Our operating subsidiaries are dependent on their senior management and Mr.
Wilcox, our President. The failure to retain Mr. Wilcox or a number of our
senior management without appropriate replacements being hired could have a
material adverse effect on us. See "Management."
Dependence on Key Customers -- Our business has been highly dependent on our
tolling partners for revenue and any change in the status of these customers
could have a material adverse effect on our business.
Each of our smelter facilities is dependent on a single customer. Through
their respective tolling agreements, Hydro and Glencore accounted for
approximately 58% of our revenue in fiscal 1997 and approximately 56% of our
revenue in the first nine months of fiscal 1998. If we lose either of these
customers, either of them decide for any reason to materially decrease the
amount of primary or value-added aluminum products they buy from
30
us or either of them significantly change their manner of doing business, our
business could be adversely affected. See "Business -- Operations."
Credit Risk -- Because we do not require collateral to secure customer
receivables, our company is susceptible to the risk that our customers will not
pay significant balances.
When we sell products, we generally do not require collateral as security
for customer receivables. Our subsidiaries have significant balances owing from
customers that operate in cyclical industries and under leveraged conditions
that may impair the collectibility of these receivables. For example, in the
third quarter of fiscal 1998, we recorded a write-off of a long-term receivable
from a value-added aluminum products customer of approximately $1.4 million. In
other words, we do not expect to receive that money from that customer. Failure
to collect a significant portion of amounts due on these receivables could have
a material adverse effect on our results of operations or financial condition.
Financing Change of Control Offer -- We may not have the ability to raise the
funds necessary to finance the change of control offer required by the
indenture.
On the occurrence of certain specific kinds of change of control events we
will be required to offer to repurchase all outstanding notes. However, it is
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of notes or that restrictions in our
credit facility will not allow such repurchases. In addition, certain important
corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a "Change of Control" under the
indenture. See "Description of Notes -- Offer to Purchase the Notes."
31
SELECTED COMBINED FINANCIAL DATA
The selected combined financial data presented below includes the accounts
of Northwest Aluminum Company, Northwest Aluminum Technologies and Northwest
Aluminum Specialties for all periods presented. It also includes the accounts of
Goldendale Aluminum Company from May 22, 1996, the date Goldendale was acquired
by Brett Wilcox, our sole shareholder. In the opinion of our management, the
unaudited combined financial statements have been prepared on the same basis as
the audited combined financial statements and include all normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations for those periods. Operating results for the nine months
ended September 30, 1998 do not necessarily indicate the results that may be
expected for the year ending December 31, 1998.
Fiscal Year Ended Nine Months
------------------------------------------------------------- Ended Sept. 30,
Aug. 29, Aug. 28, Sept. 3, Dec. 31, Dec. 31, -----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ----------
(in thousands, except per share data and ratios) (unaudited)
Income Statement Data:
Revenues................................... $ 161,568 $ 208,462 $ 289,693 $ 373,038 $ 497,872 $ 363,282 $ 360,035
Cost of revenues........................... 156,664 200,284 256,211 329,739 438,299 314,575 329,897
General and administrative expenses........ 4,488 5,073 8,293 9,746 15,327 10,574 12,087
Interest expense........................... (406) (832) (948) (9,454) (16,723) (11,850) (11,251)
Other income (expense), net................ 58 76 (545) 1,442 4,246 3,333 1,540
Income before income taxes................. 68 2,349 23,696 25,541 31,769 29,616 8,340
Income tax expense......................... -- -- -- 6,636 13,274 11,962 4,685
Net income................................. 68 2,349 23,696 18,905 18,495 17,654 3,655
Net income per share of common
stock-- pro forma........................ 68 2,349 23,696 16,686 14,847 14,917 918
EBITDA(1).................................. 8,448 11,290 32,900 47,137 63,315 52,014 32,604
Ratio of earnings to fixed charges(2)...... 1.2x 3.8x 26.0x 2.8x 2.1x 2.5x 1.1x
Balance Sheet Data:
Cash and cash equivalents.................. $ 597 $ 419 $ 1,066 $ 6,345 $ 1,251 $ 2,647 $ 1,122
Working capital............................ 17,912 20,861 43,512 61,908 36,398 43,116 41,108
Total assets............................... 84,664 98,336 113,656 350,815 347,011 338,784 332,895
Total long-term debt....................... 7,737 17,977 3,000 185,441 134,941 139,860 131,775
Goldendale Holding Company Preferred Stock. 29,663 29,663 29,663
Total shareholders' equity................. 61,029 60,629 80,325 103,615 115,680 114,682 116,728
- --------------
(1) EBITDA represents operating income before deductions for depreciation and
amortization. EBITDA has been presented because we believe it is commonly
used by investors to analyze operating performance and to determine a
company's ability to incur or service indebtedness. EBITDA should not be
considered in isolation or as a substitute for net income, cash flow from
operations or any other measure of income or cash flow that is prepared in
accordance with generally accepted accounting principles, or as a measure
of a company's profitability or liquidity. In addition, our definition of
EBITDA may not be identical to similarly entitled measures used by other
companies. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Combined Financial Statements included
elsewhere in this Prospectus.
32
(2) For purposes of this computation, fixed charges consist of interest
expense, amortization of deferred financing costs and dividends accrued on
the Goldendale preferred stock. Earnings consist of income before income
taxes plus fixed charges.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to reading this section, you should read the Combined Financial
Statements that begin on page F-1 of this document. That section contains all of
our detailed financial information, including our results of operations.
Basis of Presentation
We were incorporated in the state of Oregon in June 1998 for the purposes
of becoming the holding company of Goldendale Aluminum Company, Northwest
Aluminum Company, Northwest Aluminum Technologies and Northwest Aluminum
Specialties. For purposes of this section only, the term "Northwest Entities"
refers to Northwest, Specialties and Technologies collectively. The combined
historical financial statements include the accounts and results of operations
for the Northwest Entities for all periods presented and the accounts and
results of operations of Goldendale from May 22, 1996, the date of its
acquisition by our sole shareholder. Goldendale's fiscal year-end is December
31. The Northwest Entities reported their operations on a 52 or 53 week period
ending on the Sunday closest to August 31. To permit the combination of their
financial statements with Goldendale's, the Northwest Entities changed their
fiscal years-end to September 30 commencing with the year ended September 30,
1996. Following the acquisition of Goldendale, the combined financial statements
present these fiscal years on a combined basis by reference to Goldendale's
December 31 fiscal year, and present the nine month interim fiscal periods on a
combined basis by reference to Goldendale's nine month periods ended September
30, 1997 and 1998. We do not believe seasonal or other factors materially affect
the combination of these differing fiscal periods. For discussion purposes, our
years ended December 31, 1997 and 1996 and September 3, 1995 are referred to as
1997, 1996 and 1995.
Recent Developments
For the first nine months of 1998, the average price per pound of aluminum
on the London Metals Exchange was $0.63, which was lower than the average price
in any of the three prior years. Our revenue of $360.0 million for the nine
months ended September 30, 1998 remained relatively constant compared to revenue
of $363.3 million for the nine months ended September 30, 1997, principally
because we have sold more value-added products. EBITDA, however, declined from
$52.0 million for the nine months ended September 30, 1997 to $32.6 million for
the nine months ended September 30, 1998. Recent LME prices have fluctuated
around $0.56 per pound, and the timing of an increase in aluminum prices is
uncertain. Largely as a result of the continuation of lower aluminum prices, we
expect our results of operations, including net income and EBITDA, for the
fourth quarter of 1998 and the year ended December 31, 1998 will continue to be
adversely affected.
34
For the three months ended September 30, 1998, Northwest Aluminum Company
recorded unaudited revenues of approximately $70 million and incurred an
unaudited net loss of approximately $3 million, principally as a result of
increases in power costs and the continuation of relatively low aluminum prices.
Because of the differing accounting periods described above, these results are
not included in our combined results of operations for the nine months ended
September 30, 1998 but will be included in the combined results of operations
for the year ending December 31, 1998.
Overview
General
Our revenue comes from two primary sources: (1) fees received from tolling
alumina into primary and value-added aluminum products under tolling contracts
with Hydro and Glencore, and (2) the sale of non-tolled value-added aluminum
products to other customers. The amount of revenue from tolling activities
varies depending on market aluminum prices (LME prices in particular), gross
smelter production volumes and general economic conditions. The amount of
revenue from non-tolled value-added sales varies depending on market aluminum
prices, demand for our value-added products and the pricing premiums we are able
to realize for such products.
The aluminum industry is highly cyclical, with market prices fluctuating
widely based on global supply and demand factors, most of which are beyond our
control. As shown below, for the first nine months of 1998, the average LME
price per pound of aluminum was lower than the average price in any of the three
previous years. The average three month LME prices per pound of aluminum over
the last three years and the nine month periods ended September 30, 1997 and
1998 were as follows:
Price Per
Year Ended December 31, Pound
----------------------- -----
1995.................................... $ 0.83
1996.................................... $ 0.70
1997.................................... $ 0.74
Nine Months Ended
-----------------
September 30, 1997...................... $ 0.74
September 30, 1998...................... $ 0.63
We believe the current market price for aluminum is depressed due primarily
to the softening in the economies of several Pacific Rim countries, which has
cast concern on the prospects for future demand from this important aluminum
consumption region. Recent LME prices have fluctuated around $0.56 per pound,
and the timing of an increase in aluminum prices is uncertain. As of December
31, 1998, the three month LME price per
35
pound of aluminum was $0.56. Accordingly, we believe our cash flow and earnings
in the near term will be significantly lower than amounts reported for
comparable prior periods.
Our cash flow and earnings are highly sensitive to aluminum prices because
production costs are largely fixed. At low market aluminum prices, we are able
to reduce some variable costs, but most of the production costs of primary
aluminum are constant in the short term, and therefore declines in market prices
will cause declines in earnings. Conversely, increased market aluminum prices
will cause increases in earnings. For these reasons we strive to maintain full
plant utilization, which reduces the average cost per pound of aluminum.
To reduce our reliance on market-priced primary aluminum and to improve
overall profitability, we have pursued a strategy of increasing both our
"tolled" and "non-tolled" value-added production through specialty casting and
processing operations. Through these operations, we are able to realize premiums
over market LME prices, the amount of which varies with the degree of
value-added content of the product and uniqueness of the product in the
marketplace. Our volume of value-added production has increased significantly
over the past decade relative to the volume of our primary production. Our
continued investment in value-added production operations is designed to further
increase our value-added production capabilities. As a consequence of this
strategy, the volume of non-tolled value-added production at Northwest and
Specialties has grown from 153.7 million pounds in 1993 to 263.9 million pounds
in 1997. As a result of this growth, we purchase at market prices more primary
aluminum for further processing by Northwest and Specialties into non-tolled
value-added products than we produce for Glencore under the tolling contract.
Glencore's tolling contract allowed us to operate our smelter at The Dalles at
full capacity while we were developing value-added products. The success of our
non-tolled products, however, has reduced the importance of this contract, and
we will not renew the tolling contract when it expires in December 1999. The
effect of this non-renewal will be to eliminate the revenue and gross margin we
derive from tolling aluminum for Glencore. This may be more than offset by an
increase in gross margin from the sale of non-tolled products, because the
underlying cost for primary aluminum will be our own production cost rather than
the market price. We do not assure you, however, we will be able to realize any
increased gross margin upon expiration of the Glencore tolling agreement.
Financial Effect of the Goldendale Acquisition.
On May 22, 1996, Brett Wilcox, our sole shareholder, acquired Goldendale
through a leveraged buyout. The transaction was recorded under the purchase
method of accounting, requiring us to step up the basis of fixed assets acquired
by approximately $46.0 million and record goodwill of approximately $101.0
million. The acquisition of Goldendale affects the comparability of our
historical combined results of operations beginning in 1996. As required under
purchase accounting, the results of Goldendale's operations are included in the
historical combined financial statements only for periods following the
acquisition date; accordingly, Goldendale's results of operations are not
included in our 1995 operating results
36
and are included for only part of 1996. Our reported annual depreciation and
amortization expense increased by approximately $9.0 million as a result of the
step up in the basis in the fixed assets and goodwill. Additionally, interest
expense increased as a result of indebtedness incurred in the acquisition.
Finally, unlike the Northwest Entities, Goldendale is subject to corporate
income taxes. Northwest and Specialties have elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code and Technologies is a
limited liability company taxed as a partnership. Accordingly, income tax
expense related to Goldendale has been reflected on our historical combined
financial statements for all periods following the acquisition.
The Consolidation
On December 18, 1998, Brett Wilcox contributed to Golden Northwest
Aluminum, Inc. his membership interest in Technologies and all of the
outstanding shares of common stock of Northwest, Specialties and Goldendale. The
consolidation is treated for accounting purposes as a combination of entities
under common control in a manner similar to a pooling of interests. The
consolidation has not had and we do not expect it to have a significant impact
on our financial position, results of operations or cash flows. In accordance
with generally accepted accounting principles, however, the amount recorded as
Goldendale preferred stock has been reclassified and recorded as a minority
interest of our company.
Results of Operations
The following table sets forth consolidated statement of income data as a
percentage of revenues for 1995, 1996 and 1997, and for the nine month periods
ended September 30, 1997 and 1998.
Year Ended Nine Months
---------- Ended
September 3, December 31, September 30,
------------ ---------------------- -------------------
1995 1996 1997 1997 1998
------------ ------------ -------- ------- -----
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................... 88.4% 88.4% 88.0% 86.6% 91.6%
------ ----- ----- ----- -----
Gross margin.......................... 11.6% 11.6% 12.0% 13.4% 8.4%
General and administrative expenses... 2.9% 2.6% 3.1% 2.9% 3.4%
------- ----- ----- ----- -----
Operating income...................... 8.7% 9.0% 8.9% 10.5% 5.0%
Interest expense...................... (0.3)% (2.5)% (3.4)% (3.3)% (3.1)%
Other income (expense), net........... (0.2)% 0.3% 0.9% 1.0% 0.4%
------- ----- ----- ----- -----
Net other expenses.................... (0.5)% (2.2)% (2.5)% (2.3)% (2.7)%
------- ----- ----- ----- -----
Income before income taxes............ 8.2% 6.8% 6.4% 8.2% 2.3%
Income tax expense.................... 0.0% 1.8% 2.7% 3.3% 1.3%
------- ----- ----- ----- -----
Net income............................ 8.2% 5.0% 3.7% 4.9% 1.0%
======= ===== ===== ===== =====
37
Nine Months Ended September 30, 1998 Compared with Nine Months Ended September
30, 1997
Primary and value-added aluminum produced under tolling contracts were
395.3 million pounds and 396.8 million pounds for the nine month periods ended
September 30, 1998 and 1997, respectively. Revenues realized under these tolling
contracts were $203.0 million during the nine months ended September 30, 1998
and $212.6 million during the nine months ended September 30, 1997. Shipments of
non-tolled value-added aluminum products were 203.2 million pounds and 191.2
million pounds for the nine months ended September 30, 1998 and 1997,
respectively. The increase in non-tolled value-added products resulted primarily
from an increase in shipments of value-added billet produced at Northwest.
Revenues decreased from $363.3 million in 1997 to $360.0 million in 1998, a
decrease of 0.9%. Despite the decrease in market aluminum prices in 1998,
revenues were relatively constant due to growing sales of value added products
at Northwest and Specialties, which increased to $157.6 million for the nine
month period ended September 30, 1998 from $149.8 million for the nine month
period ended September 30, 1997. See "-- Overview."
Gross margin decreased from $48.7 million in 1997 to $30.1 million in 1998,
a decrease of 38.2%. As a percentage of revenues, gross margin declined from
13.4% to 8.4%. Gross margin declined due primarily to the decreased market
prices of aluminum. In addition, power costs increased as a result of
contractual terms in the power contract with the BPA which increased the amount
of power required to be purchased at predetermined prices from BPA. Power costs
in 1998 have been at rates we expect to continue through 2001.
General and administrative expenses increased from $10.6 million in 1997 to
$12.1 million in 1998, an increase of 14.3%. As a percentage of revenues,
general and administrative expenses increased from 2.9% to 3.4%. The increase
resulted primarily from the $1.4 million write-off of a long-term trade
receivable.
Interest expense decreased from $11.9 million in 1997 to $11.3 million in
1998, or 5.0%, primarily as a result of the lower level of debt outstanding.
Income tax expense decreased from $12.0 million in 1997 to $4.7 million in
1998, or 60.8%, primarily as a result of a decrease in Goldendale's taxable
income.
1997 Compared to 1996
The results of operations for 1997 reflect the inclusion of the results of
Goldendale's operations for the entire year of 1997 as compared with an
approximately seven month period for 1996.
Primary and valued added aluminum produced under tolling contracts
increased from 315.7 million pounds in 1996 to 530.4 million pounds in 1997,
generating $165.3 million in
38
1996 and $290.2 million in 1997. This increase resulted primarily from the
inclusion of a full year of operations of Goldendale in 1997 as compared to a
partial year in 1996 and the Hydro tolling agreement, effective January 1, 1997,
under which Goldendale agreed to utilize 100% of its capacity to produce tolled
product for Hydro. Shipments of non-tolled value-added aluminum products
decreased from 274.1 million pounds in 1996 to 263.9 million pounds in 1997 as a
result of the shift from non-tolled value-added product to tolled product at
Goldendale, partially offset by the increased sales at Northwest and Specialties
of 44.2 million pounds of non-tolled value-added product. Revenues from these
products totaled $207.7 million in both 1997 and 1996.
Revenues increased from $373.0 million in 1996 to $497.9 million in 1997,
an increase of 33.5%. The increase in revenues resulted primarily from the
inclusion of a full year of operations of Goldendale in 1997 and from increased
volumes of tolled and non- tolled product at Goldendale and Northwest.
Gross margin increased from $43.3 million in 1996 to $59.6 million in 1997,
an increase of 37.6%. As a percentage of revenues, gross margin increased
slightly between the two years, from 11.6% in 1996 to 12.0% in 1997.
General and administrative expenses increased from $9.7 million in 1996 to
$15.3 million in 1997, an increase of 57.3%. The increase resulted primarily
from the inclusion of Goldendale for the entire year of 1997. As a percentage of
revenues, general and administrative expenses increased slightly from 2.6% to
3.1%.
Interest expense increased from $9.5 million in 1996 to $16.7 million in
1997, an increase of 76.9%, primarily as a result of a full year of indebtedness
incurred as a result of the Goldendale acquisition, partially offset by our
continued paydown of the Existing Credit Facility using cash flow from
operations and asset sales.
Other income increased from $1.4 million in 1996 to $4.2 million in 1997
primarily as a result of a $2.6 million gain recognized by us on the sale of two
power generation turbines in 1997.
Income tax expense increased from $6.6 million in 1996 to $13.3 million in
1997 primarily as a result of an increase in taxable income reported by
Goldendale and the inclusion of Goldendale for the entire year in 1997.
1996 Compared to 1995
Overall, the results of operations for 1996, as compared to 1995, reflect
the inclusion of Goldendale's operations for the period in 1996 subsequent to
its acquisition on May 22, 1996.
39
Primary and value-added aluminum produced under tolling contracts increased
from 186.9 million pounds in 1995 to 315.7 million pounds for 1996 and related
revenues increased from $106.3 million in 1995 to $165.3 million in 1996.
Shipments of non-tolled value-added aluminum products increased from 221.5
million pounds in 1995 to 274.1 million pounds in 1996 and related revenues
increased from $183.4 million in 1995 to $207.7 million in 1996. These increases
were primarily the result of the inclusion of approximately seven months of
Goldendale production in 1996, partially offset by a decrease of approximately
52.0 million pounds of non-tolled value-added shipments from Northwest and
Specialties due to our decision to reduce shipments during a period of depressed
market prices and value-added premiums.
Revenues increased from $289.7 million in 1995 to $373.0 million in 1996,
an increase of 28.8%. Approximately $128.0 million of this increase was due to
the inclusion of Goldendale operations for approximately seven months in 1996,
offset by a decrease in revenues of $44.7 million at Northwest and Specialties.
Due to lower aluminum prices, tolling revenues at Northwest declined. In
addition, we decided to reduce value-added sales at Specialties when average LME
prices decreased from $0.83 per pound in 1995 to $0.70 per pound in 1996.
Gross margin increased from $33.5 million in 1995 to $43.3 million in 1996.
Expressed as a percentage of revenue, gross margin remained unchanged for both
years at 11.6%. Gross margin as a percentage of revenue was unchanged due to
revenues from aluminum sales and the costs relative to aluminum purchases
fluctuating in a directly proportional manner with the LME price of aluminum.
General and administrative expenses increased from $8.3 million in 1995 to
$9.7 million in 1996. Expressed as a percentage of revenues, this expense
decreased from 2.9% in 1995 to 2.6% in 1996, as a result of lower bonuses paid
to salaried employees.
Interest expense increased from $900,000 in 1995 to $9.5 million in 1996
primarily as a result of the debt incurred in connection with the acquisition of
Goldendale.
Other income (expense) increased from $(500,000) in 1995 to $1.4 million in
1996 primarily as a result of fees earned by Goldendale related to third party
usage of its Portland unloading facility.
Income tax expense increased from $0 in 1995 to $6.6 million in 1996 due
entirely to the inclusion of Goldendale's earnings for approximately seven
months during 1996.
Liquidity and Capital Resources
Historically, our cash and capital requirements have been satisfied through
cash generated from operating activities and borrowings under our primary credit
facilities. Before December 21, 1998, Goldendale, Northwest and Specialties
operated under
40
independent credit facilities which were scheduled to mature in 2001 and
consisted of total borrowings at September 30, 1998 of $131.8 million under term
loans and revolving credit facilities. See Note 5 to the Combined Financial
Statements. We refinanced these credit facilities with proceeds from the sale of
the notes and the note held by Hydro.
Our new credit facility with BankBoston consists of a $75.0 million senior
secured revolving credit facility collateralized by all of the inventory,
accounts receivable and other rights to payment of our subsidiaries.
Availability under the revolving line of credit is controlled by a borrowing
base formula based on eligible receivables and inventory, and was approximately
$49.0 million on December 31, 1998. See "Description of Certain Other
Indebtedness and Goldendale Preferred Stock."
Our liquidity and capital needs relate primarily to payment of principal
and interest on outstanding borrowings, the funding of capital expenditures,
including our facilities investment program, the funding of distributions to our
sole shareholder to pay income taxes, working capital and other general
corporate requirements, including the incremental working capital needs
anticipated in connection with the potential termination of the Glencore tolling
agreement. Additionally, the Goldendale preferred stock became redeemable at our
discretion after December 31, 1998. We anticipate that the funds necessary to
redeem the Goldendale preferred stock, if we so elect, would be drawn from our
revolving credit facility with BankBoston. The initial redemption price for the
Goldendale preferred stock will be $30.4 million plus any accrued but unpaid
dividends. We are upgrading our management information systems, including
hardware and software, to a fully integrated enterprise resource planning
system. Northwest and Goldendale are executing a transition to SAP's R/3
enterprise resource planning system. Costs incurred and capitalized to date have
amounted to approximately $2.0 million and will total approximately $6.0 million
at completion. Furthermore, we are subject to a number of contingencies and
uncertainties, including a potential income tax deficiency.
Our statement of cash flows for the periods indicated are summarized below:
Year Ended
------------------------------------
September 3, December 31, Nine Months Nine Months
------------ -------------------- Ended Ended
1995 1996 1997 Sept. 30, 1997 Sept. 30, 1998
------------ -------- ------- -------------- --------------
(Dollars in thousands)
Net cash provided by operating
activities......................... $ 24,827 $ 29,854 $ 56,092 $ 46,983 $ 16,898
Net cash used in investing
activities......................... (5,203) (19,149) (7,091) (1,542) (13,047)
Net cash used in financing
activities......................... (18,977) (4,775) (54,095) (49,139) (3,980)
Increase (decrease) in cash......... 647 5,930 (5,094) (3,698) (129)
For the nine month period ended September 30, 1998, $16.9 million was
provided by our operating activities, primarily as a result of net income, as
adjusted for non-cash charges of $20.8 million, and a decrease in accounts
receivable of $13.7 million, offset by a decrease
41
in accounts payable and accrued expenses, including income taxes payable, of
$17.2 million and a net increase in inventories and other assets of $0.6
million. Investing activities used $13.0 million primarily as a result of
capital expenditures of $12.8 million. Financing activities used $4.0 million as
a result of net repayments under our credit facilities. During the nine month
period ended September 30, 1997, $47.0 million was provided by our operating
activities, primarily as a result of net income, as adjusted for non-cash
charges of $38.2 million, a net increase in accounts payable and accrued
expenses, including income taxes payable, of $8.9 million, and a decrease in
accounts receivable of $2.5 million, offset by an increase in inventories and
other assets of $2.9 million. Investing activities used $1.5 million due to
capital expenditures of $10.1 million, advances to our shareholder of $1.2
million and an increase in receivables from a related company of $2.8 million,
offset by proceeds from the sale of assets of $12.6 million. Financing
activities used $49.1 million, primarily as a result of net repayments of our
credit facilities.
Net cash provided by operating activities was $24.8 million, $29.9 million
and $56.1 million for 1995, 1996 and 1997, respectively. The net cash provided
by operating activities during 1997 was primarily attributable to net income, as
adjusted for non-cash charges of $43.1 million, and an increase in accounts
payable and accrued expenses of $26.6 million, offset by an increase in
inventories of $9.5 million. The increase in inventories and accounts payable
was due to a temporary modification of the Glencore metal repurchase terms which
allowed us to extend the timing of payments due to Glencore. The net cash
provided by operating activities during 1996 was primarily attributable to net
income, as adjusted for non-cash charges of $36.1 million, and a decrease in
inventories of $22.3 million, offset by a decrease in accounts payable and
accrued expenses of $20.7 million and an increase in accounts receivable and
other assets of $8.3 million. The decrease in inventories and accounts payable
was primarily due to Goldendale's restructuring of its tolling agreement with
Hydro whereby Hydro committed to usage of the entire Goldendale facility,
thereby significantly reducing our requirements to purchase and hold our own
inventory. The net cash provided by operating activities during 1995 was
primarily attributable to net income, as adjusted for non-cash charges of $32.0
million, and an increase in accounts payable and accrued expenses of $10.6
million, offset by an increase in inventories of $14.7 million and an increase
in accounts receivable of $2.8 million.
Net cash used in investing activities was $7.1 million in 1997 compared to
net cash used in investing activities of $19.1 million in 1996 and $5.2 million
in 1995. Cash used in investing activities in 1997 primarily resulted from
proceeds of $12.8 million received by us through the sale of certain of our
power generation assets, offset by capital expenditures of $14.3 million and
combined advances to our shareholder and a related company of $5.6 million. Cash
used in investing activities in 1996 and 1995 were primarily attributable to
capital expenditures of $19.9 million, and $5.2 million.
Net cash used in financing activities was $19.0 million, $4.8 million and
$54.1 million for 1995, 1996 and 1997. Net cash used in financing activities in
1997 was primarily attributable to $50.5 million in net repayments on our credit
facility and $2.9 million paid in
42
dividends. Net cash used in financing activities in 1996 was primarily
attributable to $47.1 million in net borrowings under our credit facility for
the acquisition of Goldendale, offset by $67.6 million paid in dividends for the
acquisition of Goldendale. Net cash used in financing activities in 1995 was
primarily attributable to $15.0 million in net repayments on our credit
facilities and by $4.0 million paid in dividends. Annual dividends paid to our
shareholder approximated his personal liability for federal and state income
taxes related to Northwest's operations. In 1996 additional dividends of $44.5
million were paid to our shareholder that were used in the acquisition of
Goldendale.
We believe cash flow from operations, available borrowings under our
revolving credit facility and under our note purchase agreement with Hydro and
cash on hand will provide adequate funds for our foreseeable working capital
needs, planned capital expenditures and debt service and other obligations
through 2000.
Our ability to fund operations, make planned capital expenditures, such as
our facilities investment program, make principal and interest payments on the
notes, and remain in compliance with all of the financial covenants under our
debt agreements will be dependent on our future operating performance. Our
future operating performance is dependent on a number of factors, including
aluminum prices, many of which are beyond our control. These factors include
prevailing economic conditions and financial, competitive, regulatory and other
factors affecting our business and operations, and may be dependent on the
availability of borrowings under our revolving credit facility or other
borrowings. We do not assure you our cash flow from operations, together with
other sources of liquidity, will be adequate
o to make required payments of principal and interest on the notes and
our other debt
o to finance anticipated capital expenditures
o to fund working capital requirements or
o to fund the possible redemption of all outstanding shares of the
Goldendale preferred stock.
If we do not have sufficient available resources to repay any of our
indebtedness when it becomes due and payable, we may need to refinance the
indebtedness. We do not assure you refinancing would be available or available
on reasonable terms.
Seasonality and Inflation
Our results of operations can be affected by seasonal factors, such as
substantial increases in the cost of electricity in the fall and winter. We do
not believe inflation has had a material effect on the combined financial
statements for the periods presented.
43
Effect of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Our adoption of SFAS No. 130 on January 1, 1998 had no
impact on our financial position.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
Disclosures about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the new way that public enterprises report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. We do not expect the adoption of SFAS No. 131, which will
occur in our December 31, 1998 financial statements, to affect our financial
position.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers'
Disclosures about Pensions and other Postretirement Benefits, which standardizes
the disclosure requirements for pension and other postretirement benefits. We do
not expect the adoption of SFAS No. 132 to affect materially our current
disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133 is effective for all
44
fiscal quarters of fiscal years beginning after June 15, 1999. Based on our
current and planned future activities relative to derivative instruments, we
believe that the adoption of SFAS No. 133 on January 1, 2000 will not have a
significant effect on our financial statements.
Year 2000 Compliance
The following is a discussion of our year 2000 compliance status.
Goldendale
Goldendale has reviewed its business and processing systems and determined
that the majority of the systems are already year 2000 compliant. Goldendale has
been working with a consultant and an internal committee of 50 employees to
address the scope of the year 2000 issue and implement any necessary solutions.
Although Goldendale believes the majority of its business and processing systems
are already year 2000 compliant, Goldendale is upgrading its enterprise resource
planning system. We have chosen ERP system software, and we have begun
evaluating how to implement it. Goldendale is making inquiries of customers and
suppliers on which the operations of the business are critically dependent to
determine their year 2000 readiness. Our analysis of the responses from
customers and suppliers received so far indicates substantial compliance with
year 2000 issues, so we do not expect any material effect based on a third
party's noncompliance. In the last year, Goldendale has expended nearly $100,000
on its year 2000 review and has budgeted $3.5 million over the next two years to
upgrade and further integrate its business and process systems to maintain year
2000 compliance.
Goldendale's year 2000 compliance analysis to date has identified its
inventory system as year 2000 deficient. Goldendale is upgrading the ERP system
software and is developing software upgrades to the inventory system in case the
system upgrade is delayed beyond January 1, 2000. Until the upgrade is complete,
Goldendale will continue to gather information and assess the possibilities of
disruption to its operations, liquidity, and financial condition due to the year
2000 problem.
Northwest
Northwest has retained outside experts to review its year 2000 readiness
and make recommendations on how to become year 2000 compliant. To date,
Northwest's major business systems have been reviewed and tested for year 2000
compliance. The majority of all critical business systems are year 2000
compliant since the latest implementation of SAP's R/3 ERP system. The business
systems included are sales, accounting, purchasing, production, inventory
management and plant maintenance. We have completed about half of the testing of
Northwest's remaining information technology systems, including process systems,
as well as the non-information technology systems for year 2000 compliance. We
have identified some of Northwest's non-information technology systems as
non-year 2000
45
compliant. We have adopted a plan to modify those systems lacking year 2000
compliance, with completion of the plan expected by mid-1999. Northwest is
making inquiries of its customers and suppliers to determine the potential
effect of their year 2000 readiness on its operations. To date, Northwest has
not identified any vendors or suppliers whose year 2000 issues would have a
material effect on it, but we do not assure you all of these parties will be
year 2000 compliant.
Over the past year, Northwest has spent approximately $2 million on its
year 2000 review and implementation of solutions to identified year 2000
problems. Many of those expenditures have been used to upgrade the computer
systems, not solely to resolve potential year 2000 problems. Northwest expects
to spend another $500,000 to $2 million to complete its system upgrade and to
resolve its year 2000 compliance issues. A contingency plan is under development
to deal with a worst case year 2000 problem.
Interest Rate Risk Management
We have entered into an interest rate swap agreement, which covers $20.0
million of notional principal amount at January 25, 1999 and which expires in
2003, to manage our exposure to interest rate risk on a portion of our variable
rate borrowings. The fixed interest rate paid by us is 6.4%. Although we are
exposed to loss on the interest rate swap in the event of nonperformance by the
counterparties, we believe the likelihood of nonperformance is remote.
Employee Benefit Plan Matters
The qualified retirement plans of Northwest and Goldendale are being tested
by an outside consultant to determine whether those plans, and the qualified
retirement plans of other entities owned 80% or more by Brett Wilcox or his
spouse, meet discrimination and coverage requirements. Outcome of the testing is
difficult to predict because the test is complex and includes employees of
entities whose businesses are unrelated to our business. We believe if the test
is failed Northwest or Goldendale may be able to redesign their plans to pass
without material costs or adverse consequences. Alternatively, the qualified
retirement benefits for companies other than Northwest or Goldendale may need to
be enhanced. If those entities are financially unable to implement such a
remedy, the tax qualification under Section 401(a) of the Internal Revenue Code
of 1986 of the plans of Northwest and Goldendale could be jeopardized. If a plan
fails and the enhancement of benefits of other entities is the necessary remedy,
we believe the entities responsible for those remedies will be able to provide
adequate enhanced benefits.
46
BUSINESS
Our company, through its three primary operating subsidiaries, Goldendale
Aluminum Company, Northwest Aluminum Company and Northwest Aluminum Specialties,
Inc., is a leading producer of primary aluminum and selected specialty
engineered high quality value-added aluminum products. Our revenue comes from
two main sources: fees received from tolling alumina into aluminum and sales of
value-added aluminum products. At our two facilities on the Columbia River east
of Portland, Oregon, we operate two primary aluminum smelters with combined
production capacity of 250,000 metric tons, making us one of the five largest
primary aluminum producers in the United States. We produce primary aluminum
under tolling agreements with Hydro Aluminum Louisville, Inc. and Glencore,
Ltd., two large international industrial and trading companies. In conjunction
with our smelter operations, we operate three casthouses that produce a range of
value-added aluminum products, including our proprietary line of direct-cast,
small diameter, alloy billet products.
We sell value-added billet and related products directly for extrusion for
further processing into final products such as fire extinguishers, automobile
air bag canisters, golf club heads, bicycle frames and a variety of automotive
and aircraft parts. We believe our cost competitive position, strategic
relationships, investment in new smelting and casting technologies and mix of
higher-margin, value-added products are key competitive advantages and have been
primary determinants of our historical profitability.
We believe we rank among the lower cost aluminum producers in the United
States. We attribute our historical profitability to a number of factors
including access to and innovative procurement of low-cost hydroelectric power,
technical innovation at the plant level, good labor relations and low levels of
corporate overhead.
Operations
We conduct our business and derive revenue through two principal business
activities: the production of primary aluminum under tolling contracts and the
production of value-added specialty aluminum products under tolling contracts
and for direct sales.
Production of Primary Aluminum
Our subsidiaries operate two aluminum smelters in The Dalles, Oregon and
Goldendale, Washington. The smelters have the capacity to produce approximately
250,000 metric tons of primary aluminum per year. A metric ton is equal to
2,204.6 pounds. These smelters consist of 826 vertical pin Soderberg technology
reduction cells organized into five pot lines. The smelters use advanced
conservation technology, computer control procedures and environmental control
equipment to enhance their efficiency. Capital investment in the facilities by
us and the smelters' previous owners over the life of the facilities,
competitive wage rates, access to low cost hydroelectric power, low overhead and
tolling agreements that
47
insured full smelter utilization have also contributed to the smelters'
efficiency. The efficiency of the smelters allows us to maintain a competitive
cost position relative to other industry participants, many of which are
significantly larger than we are. Our operating efficiencies and competitive
cost position allowed us to maintain positive net earnings through industry
cycles in the last dozen years, including the 1992-1993 industry down cycle.
Smelting Methods. Smelting, which involves the reduction of alumina to
aluminum ingot, is an electrolytic process. Raw alumina is dissolved in an
electrolytic bath in large cells, or pots, which are insulated with brick and
lined with carbon. The cell lining acts as the negative cathode, and a carbon
block, which is partially immersed in the electrolytic bath serves as a positive
anode. The carbon anode is composed of petroleum coke and coal tar pitch and is
consumed in the smelting process, as oxygen released from alumina in the
reduction process binds with the carbon to form carbon dioxide. Because of the
high cost of removing metallic impurities from aluminum, careful attention must
be given to avoiding impurity introduction by way of the raw materials used in
the anode manufacturing process. Petroleum coke and coal tar pitch are used as
the carbon and binder sources because of their relatively high purity. Gases and
particulate matter are collected in the hood around the lower rim of the anode
casing and are passed through the smelter's air and water purification systems.
Molten aluminum is drawn from the bottom of the cell, and, typically, poured
into molds as unalloyed metal, or sow, or routed into holding furnaces where
various alloying ingredients may be added before casting into plate, slab, logs
or ingot.
The world's aluminum smelters are evenly split between two basic anode
technologies, Soderberg and pre-bake. The two processes differ only in the
fabrication and connection of the carbon anode. Most recently constructed
smelters use pre-bake technology, which has certain inherent advantages relative
to Soderberg technology and may permit primary aluminum production at a lower
cost, albeit at a higher initial investment.
Soderberg anodes are baked by utilizing waste heat from the smelting cell
and, as such, are referred to as self-baking. A steel casing or mold six to
eight meters by two meters containing the coke aggregate and coal tar pitch
mixture is mounted over the smelting cell and its contents bake as they progress
toward the electrolytic bath. The carbon mass is allowed to slip through the
casing at the rate of its oxidation in the electrolytic bath. In the vertical
spike version of the Soderberg cell, electrical contact is made by steel tipped
aluminum spikes entering from the top. They are pulled by a special tool and
reset as their tips approach the electrolytic bath surface due to consumption of
the anode. In the horizontal spike version of the Soderberg cell the
steel-aluminum spikes enter through the side of the casing instead of through
the top. They must be removed and reset as the anode is consumed.
Pre-bake anodes are formed by blending sized petroleum coke aggregate and
coal tar pitch, molding it into blocks complete with preformed electrical
connection sockets by hydraulic pressing or vibration forming, and firing in
oil- or gas-fired ceramic-lined ring furnace pits. A typical block is 70 cm
wide, 125 cm long and 50 cm high. Electrical
48
contact and physical support is obtained through aluminum or copper rods welded
or bolted to steel stubs. The stubs are set in the anode sockets and molten cast
iron is poured around them to produce a strong joint with low electrical
resistance.
Goldendale Smelter. The smelter in Goldendale, Washington was built in
1971, making it the most recently constructed aluminum smelter in the Pacific
Northwest, and was expanded in 1981. The total annual production capacity of the
Goldendale smelter is 168,000 metric tons of primary aluminum output. The
Goldendale smelter employs vertical pin Soderberg technology and consists of 526
reduction cells organized into three pot lines. The Goldendale smelter has
undergone a number of technology upgrades during its lifetime. These upgrades
have resulted in a significant improvement in production efficiencies over the
years as measured by energy consumption, carbon consumption and cell life.
The Goldendale smelter was constructed from engineering plans based on
Hydro's Karmoy, Norway facility, and as such is similar in terms of layout,
smelter design and operating processes. The Goldendale smelter was also designed
to operate in tandem with our smelter located in The Dalles, Oregon.
Northwest Smelter. Located across the Columbia river and approximately 35
miles west of the Goldendale smelter, our smelter in The Dalles produces primary
aluminum. Built in 1958, The Dalles smelter consists of 300 vertical pin
Soderberg reduction cells organized into two pot lines. The smelter's production
capacity is about 82,000 metric tons of primary aluminum per year.
We also operate a carbon plant at The Dalles facility. The plant produces
approximately 40,000 metric tons of carbon briquettes, which are consumed during
the alumina reduction process. We have surplus capacity in the plant and
recently have begun selling briquettes to a non-affiliated aluminum producer.
Tolling Agreements. Each of Northwest Aluminum Company and Goldendale
Aluminum Company is party to a tolling agreement relating to the production of
primary aluminum and, in the case of Goldendale, value-added products.
The Hydro Tolling Agreement. Goldendale and Hydro Aluminum Louisville, Inc.
entered into a ten-year contract effective January 1, 1997. The Hydro tolling
agreement has been extended another five years, until December 2011.
Under the terms of the Hydro tolling agreement, Goldendale must use its
smelter exclusively to produce at least 157,000 metric tons of aluminum annually
from the alumina supplied to it by Hydro, and Hydro is required to supply
sufficient alumina to enable Goldendale to produce that amount of aluminum.
Hydro supplies the alumina at no cost to Goldendale, and at all times the
alumina and aluminum inventory is owned by Hydro. Goldendale bears the entire
cost of unloading and storing the alumina and transporting it to the smelter
from Goldendale's unloading facility. Hydro pays a tolling fee to Goldendale for
49
converting the alumina to aluminum based on a percentage of the price of
aluminum on the London Metals Exchange. Pursuant to its tolling agreement with
Hydro, Goldendale receives an additional tolling fee for casting the aluminum
into value-added "casthouse products" such as extrusion billet, foundry "T" or
sheet ingot. In addition, Goldendale shares premiums that Hydro is able to
realize on sales of value-added products in the market. Hydro is required to
place orders for at least 70,000 metric tons of value-added products each year.
The tolling agreement also specifies quality and efficiency requirements. If the
products or production schedules do not meet the required specifications, the
parties have agreed to work together to identify and correct the problem;
however, Hydro may terminate the agreement if Goldendale's production were to
continue to fall below the product or schedule specifications.
The Hydro agreement also requires Goldendale to use any additional smelter
capacity resulting from the installation of new point feeder technology under
the facilities investment program exclusively to produce aluminum products for
Hydro, subject to some maximum volumes. Hydro is required to supply sufficient
alumina to enable Goldendale to produce the additional volume. However, Hydro's
commitment to place orders for value-added products remains at 70,000 metric
tons and has not been increased to reflect the additional casthouse capacity
expected to result from the facilities investment program.
The Glencore Tolling Agreement. Northwest entered into a tolling contract
with Glencore, Ltd. in September 1986, which was extended through December 1999.
Under the Glencore tolling agreement, Glencore provides alumina to Northwest for
conversion into primary aluminum. Glencore must supply enough alumina to support
the full production capacity of the Northwest smelter, and Northwest must use
its best efforts to produce 82,000 metric tons of aluminum ingot and other
finished products for Glencore in exchange for a tolling fee based on a certain
percentage of the London Metals Exchange price for aluminum. Northwest bears the
cost of unloading and storing the Glencore alumina and transporting it to the
Northwest smelter.
Northwest has the right to buy back part of the metal supplied to Glencore,
which Northwest uses in its value-added operations. Due to the growth of its
value-added operations, Northwest has increased its purchases of primary
aluminum from Glencore and now purchases more primary aluminum from Glencore
than the production capacity of the Northwest smelter. Glencore's tolling
contract allowed us to operate The Dalles smelter at full capacity while we had
no developed market for our smelter production. The success of our non-tolled
products, however, has reduced the importance of this contract, and we will not
renew the tolling contract when it expires in December 1999. We have, however,
entered into a letter of intent with Glencore to have Glencore supply the
smelter at The Dalles with all of its alumina requirements from October 1, 1999
to December 31, 2004.
Once the Glencore tolling agreement expires, we will no longer count as
primary aluminum production the output that is directly consumed by our
value-added casting operations.
50
Unloading Facilities. We receive raw alumina at our Portland, Oregon
unloading facility. The facility is served by a ship channel maintained by the
U.S. Army Corps of Engineers. Three steel silos are located on the property with
the capacity to store 42,000 metric tons of alumina. Alumina is delivered to the
facility by ship and is then transferred into silos for short-term storage and
delivered to our smelters by rail. The unloading facility has sufficient
capacity to handle our unloading and storage requirements.
Production of Value-added Specialty Aluminum Products
We operate a value-added production operation which blends primary aluminum
produced at both our smelters (which is purchased from Hydro and Glencore) and
by other aluminum producers and various alloys into a variety of value-added
products, including proprietary small diameter billet ("SDB") and related
products. Our SDB products are cast directly from molten aluminum in a process
that eliminates the expense associated with the extrusion process typically
required to manufacture SDB products. Our SDB products are frequently
manufactured to customer specifications, and, as such, can be priced to provide
us with enhanced margins relative to "commodity" aluminum products. Since
Northwest Aluminum Specialties began its value-added operations in the early
1990s, the business has grown to represent a significant percentage of our total
revenues. Our SDB products are typically forged or extruded by our customers
into end use forms which include fire extinguishers, automobile air bag
canisters, golf club heads, bicycle frames and a variety of automotive and
aircraft parts.
In late 1996, Specialties added a new billet machining operation which
allows us to manufacture SDB in any diameter between 2 inches and 5 inches,
within extremely tight engineering tolerances. Bar sawing capabilities were also
added that allow us to deliver cut billet "pucks" that meet customer
specifications. These new capabilities have led to additional business and
opportunities that we believe will allow us to continue to increase the size of
our value-added aluminum business and enhance the average premium received.
At this time, our value-added standard extrusion billet and hot molten
metal products that are not produced under tolling arrangements are sold at the
Midwest market price (which includes a premium of $.03 to $.05 per pound over
the London Metals Exchange price) plus a premium of between $.06 and $.13 per
pound. Our specialty extrusion billet, hot closed die forging, cold impact
forging and semi-solid forging are sold at the Midwest market price plus a
premium of between $.13 and $.81 per pound.
Facilities Investment Program
Both we and previous owners of our facilities periodically have made major
investments in new plant and equipment. From 1978 to 1981, Martin Marietta
Corporation made a major investment in both smelters by implementing new anode
and cathode technology, modernizing electrical and environmental control systems
and adding the third
51
cell line at the Goldendale smelter. In 1991 and 1997 Northwest Aluminum
Specialties added new casting capability.
We are undertaking the facilities investment program to expand capacity and
enhance operating efficiency. With the financial and technical support of Hydro,
we plan to expand the casthouse at Goldendale and upgrade the cell lines at
Goldendale and, possibly, at The Dalles. We intend to implement the facilities
investment program over the next five years, in two stages.
In the first stage, we plan to modernize the Goldendale casthouse and
complete a demonstration of its new cell line technology. The Goldendale
casthouse expansion is designed to increase the facility's capacity to produce
value-added billet from 13 million pounds per month to an initial capacity of 22
million pounds per month, with the option to expand capacity to over 30 million
pounds per month. The additional value-added production will be sold by Hydro
under the tolling agreement, with the same sharing of market premiums in excess
of costs. As discussed below, our share of any incremental earnings from the
facilities investment program will be used to repay the debt owed to Hydro.
Hydro has informed us that its own U.S. extrusion plants should be able to use
this additional capacity. The expansion is underway, and we expect it to take 18
months to complete and to cost approximately $13.0 million.
The first stage will also include a 12 to 18-month demonstration of the
planned cell line improvements in a 30-cell section at Goldendale. Conversion of
this section and the demonstration are budgeted to cost less than $7.0 million.
Cell improvements include pointfeeders to control alumina additions, magnetic
compensation to stabilize cell operations, cathode redesign to optimize heat
balance, new computer controls and other related technologies. The technology
for the cell line improvements has been licensed from Hydro, which already has
implemented these changes at a similar smelter in Norway. Based upon Hydro's
experience, we expect the improvements to increase smelter production, reduce
average unit costs of production, increase production efficiencies and
significantly reduce air emissions.
We plan to begin the second stage of converting the remaining cells at both
smelters when we complete the demonstration of our cell line upgrades and obtain
all necessary permits. The conversion can be performed cell by cell, with
minimal disruption of operations, and can be accelerated or slowed for market or
other reasons. We estimate that conversion of the remaining cells at both
smelters will cost approximately $55 million. Hydro has agreed, subject to
certain conditions, to provide an additional $10.0 million of subordinated
financing if we decide to convert the remaining cells at Goldendale. We expect
the remaining $45 million, and any additional costs of the facilities investment
program, will be funded through cash from operations and borrowings under our
revolving credit facility.
52
Research and Development and Intellectual Property
We have traditionally placed emphasis on innovation and research and
development. We have laboratory facilities dedicated to environmental
compliance, quality testing and research and development. We engage in several
research and development activities designed to improve earnings by increasing
value-added margins or reducing costs. Expenditures for activities designated as
research and development were $544,000 in 1997, $898,000 in 1996, and $129,000
in 1995. We estimate that research and development expenditures were
approximately $1.5 million in 1998. We also have received grants from state and
federal governments for certain research and development activities.
Our research and development encompasses five broad initiatives:
o First, we undertake research and development to develop new alloys and
casting and homogenizing practices that improve the characteristics of
metal sold to customers. We endeavor to protect our proprietary
interest in our products and processes by filing patent applications
where appropriate and otherwise by seeking to protect them as trade
secrets. This research has resulted in several proprietary products
and an issued patent for a new alloy.
o Second, we have focused research in the area of semi-solid
metalworking ("SSM"). SSM is intended to give automotive and other
parts the physical properties of forgings with the production cost of
die castings. We have obtained a patent for the casting and
transformation of aluminum to produce SSM parts.
o Third, we have undertaken an initiative to develop a process to
recycle Spent Pot Lining ("SPL"). We believe this process may allow
SPL to be recycled into several marketable products rather than being
treated and land filled at a significant cost. We have been notified
that a patent will be granted for this process.
o Fourth, our subsidiary, Northwest Aluminum Technologies, has acquired
and expects to develop a new technology to smelt aluminum in a low
temperature bath using inert metallic anodes and titanium dioxide
cathodes. In our pursuit of this technology, we have acquired four
patents and intend to file additional patent applications. We also
have received two grants from the U.S. government to fund additional
research to develop new smelting technologies.
o Fifth, we engage in several other research and development projects to
continuously improve our smelting and casting operations.
Northwest Aluminum Specialties markets proprietary small diameter billet it
produces under the registered trademark "Direct Forge."
53
Sales and Marketing
Through their tolling agreements, Hydro and Glencore are our largest
customers, accounting for 40% and 18% of our revenues in fiscal 1997 and 37% and
19% of our revenues for the nine months ended September 30, 1998. We directly
sell value-added aluminum products to approximately 100 extruders, forgers,
casters, traders and other customers throughout the United States and abroad.
Northwest Aluminum Company's Vice President of Sales and Marketing oversees a
small sales and customer service group that makes and supports these direct
sales.
Suppliers
The major raw materials we use are alumina, petroleum coke and coal tar
pitch, aluminum ingot, scrap aluminum and alloying elements and electricity. We
obtain our raw materials either through annual contracts or on the spot market.
Alumina consumed in the production of aluminum is supplied by Glencore and
Hydro under the tolling agreements. We have entered into a letter of intent with
Glencore to have Glencore supply the smelter at The Dalles with all of its
alumina requirements from October 1, 1999 to December 31, 2004. We do not assure
you as to the timing or the terms of an agreement resulting from the letter of
intent.
The other raw materials involved in the reduction of alumina are petroleum
coke, coal tar pitch and carbon lining. Petroleum coke is used to make anodes
and carbon lining and is sourced locally from a large producer of quality coke,
which is one of several suppliers. Coal tar pitch is available from several
suppliers. Carbon lining, which acts as the cathode in the smelting cells, is
purchased from various suppliers.
We annually purchase aluminum to supplement our smelter production. In
addition to buying back the approximately 82,000 metric tons of our own
production from Glencore, we purchase approximately 45,000 metric tons from
other producers, including Hydro, at market prices in the form of primary ingot,
primary molten metal and scrap metal. Primary suppliers include Hydro, Vanalco
and Alcoa. The other major inputs in the making of aluminum products are
alloying elements, such as magnesium and silicon, which are provided by various
suppliers.
Power Contracts
Because electricity is both necessary for the manufacturing of aluminum and
the single largest cost of making primary aluminum, the availability and pricing
of electricity and access to transmission is crucial to our operations.
Approximately 80% of all power produced or consumed in the Pacific Northwest is
delivered over the transmission system of the BPA. Both The Dalles smelter and
Goldendale smelter are connected directly to the main high voltage transmission
grid of BPA. Each plant has a 20-year transmission
54
agreement with BPA, expiring in April 2015, for transmission capacity which we
believe is sufficient to meet both plants' existing and projected energy needs.
These transmission agreements obligate BPA to offer Goldendale Aluminum Company
and Northwest Aluminum Company a new transmission agreement upon the expiration
of the current agreements. Moreover, the transmission agreements also obligate
BPA to act as agent for Goldendale and Northwest to obtain transmission services
over other transmission systems if requested. With the exception of limited
rights to restrict transmission service in the event of certain threats to
system stability, the transmission agreements obligate BPA to provide Goldendale
and Northwest with the same open access transmission available to utilities and
power companies under the rules of the Federal Energy Regulatory Commission.
Goldendale and Northwest are buying energy from BPA pursuant to a five-year
Power Sale Agreement through which approximately 60% of each plant's energy
needs are contractually secured at predetermined prices through September 30,
2001. The published annual average rate for power from BPA is 2.2 cents per
kilowatt-hour. The Power Sale Agreement allows us to schedule our purchases in
different months when power is priced at different rates in such a way that
power purchased from BPA has an actual rate that is lower than the published
average rate. The remaining 40% of Northwest's and Goldendale's energy
requirements is obtained by purchasing blocks of energy under periodic contracts
from various suppliers, including BPA, PacifiCorp, Enron, Illinova Energy, Duke
Energy, Avista Energy, the Washington Water Power Company and others. Recently,
power costs have increased as the amount of power required to be purchased at
predetermined prices under the Power Sale Agreement has been greater than in
earlier periods when we purchased more power on the spot market.
Due to our transmission agreements and the smelters' geographical location
on an unconstrained segment of the main transmission network in the region, we
believe we will be able to obtain competitively-priced power in the foreseeable
future. We do face the normal risks associated with the market price of energy,
however. Numerous short-term and long-term developments can affect power prices,
including worldwide demand for fossil fuels, changing environmental standards,
the overall economic activity in the United States and the Pacific Northwest,
weather temperature and precipitation. Due to the high percentage of
hydroelectric generation in the power supply of the Pacific Northwest, energy
prices in the region tend to be sensitive to drought conditions that reduce the
availability of low cost hydroelectric power supply. The hydroelectric system in
the Pacific Northwest, however, has significant flexibility and excess capacity
to meet spikes in demand or short-term thermal plant outages that have caused
large price swings in other regions of the country. For the longer term, we
expect that the geographical proximity to the low-cost Western Canadian natural
gas supply and the operating flexibility and stability of the Federal Columbia
River Hydro System should keep the market price of electricity attractive in the
Pacific Northwest relative to the average market price of power in the United
States. In addition, we are exploring opportunities to develop generating
capability either on our own or in conjunction with BPA, publicly owned local
utilities or other resource developers.
55
Hedging Activities
Our revenues and earnings are sensitive to changes in the price of primary
aluminum and in the premiums for, and mix of, our value-added products. For
example, the tolling fees and premiums received by us are tied to the London
Metals Exchange price of aluminum.
Primary aluminum prices historically have been subject to significant
cyclical price fluctuations. The timing of changes in the market price of
aluminum largely are unpredictable. Aluminum prices historically have shown long
periods of average, or below average, prices followed by sudden, relatively
short periods of above average prices. These prices have historically fluctuated
widely and are affected by numerous factors beyond our control, including the
overall demand for, and worldwide supply of, primary aluminum, the availability
and price of competing commodities, international economic trends, currency
exchange rate fluctuations, expectations of inflation, actions of commodity
market participants, consumption and demand patterns and political events in
major producing countries. Over the ten-year period between January 1, 1988 and
December 31, 1997, the three month price of aluminum on the London Metals
Exchange has ranged between a low of approximately $0.47 per pound to a high of
approximately $1.26 per pound. During this period prices averaged $0.73 per
pound.
We attempt to mitigate fluctuations in the price of commodity aluminum
through our strategy of minimizing the costs of production and maximizing the
margins of our value-added products. When we sell value-added products for
future delivery at a fixed price, we generally purchase metal or otherwise fix
the price of the commodity aluminum required in that period to support the sale.
From time to time, we may leave some quantities for some durations uncovered, or
acquire put or call options. This policy generally leaves us with a fixed margin
on our value-added sales and open prices for our future primary production that
will vary with London Metals Exchange aluminum prices.
Backlog
We generally receive the bulk of the orders for value-added specialty
aluminum products in the three months preceding the calendar year in which the
products are to be shipped to customers. At December 31, 1998, our fixed price
backlog was $62.6 million, compared to $67.2 million at December 31, 1997. For a
variety of reasons, including the timing of shipments and product mix, backlog
may not be a reliable measure of future sales for any succeeding period.
Competition
Competition within the aluminum industry is intense. We compete with both
domestic and foreign producers of primary aluminum and with primarily domestic
producers of extrusion billet and other value-added products and with primarily
domestic producers of
56
other products such as copper, steel, glass and plastic. Many of our competitors
have greater financial resources than we do, which may adversely affect our
ability to compete effectively.
Primary aluminum is a commodity with standard qualities. Competition
generally is based upon the ability to produce primary aluminum at a cost below
the market price, which generally is established through trading on the London
Metals Exchange. We also compete with various aluminum producers, casting
companies, extruders and other fabricators in the production of extrusion
billet, sheet ingot, small diameter ingot and other value-added products. In the
extrusion billet market, we compete primarily with Alcan and Alumax, which was
recently acquired by Alcoa. Northwest Aluminum Specialties' major competition in
the small diameter billet segment comes from extrusion companies rather than
primary producers. These companies include Crissonna, a division of Alumax, and
Pimalco, a subsidiary of Alcoa, both of which are large, efficient extruders.
Competition in the sale of these value-added products generally is based upon
price, quality, availability, service and other factors. We concentrate on the
sale of value-added products in which we believe we have production expertise,
cost, quality, geographic or other competitive advantages.
Environmental and Health Matters
We are subject to federal, state and local environmental laws. From time to
time, these environmental laws are amended and new ones are adopted. These laws
regulate, among other things, air emissions and water discharges; the use,
generation, storage, treatment, transportation and disposal of solid and
hazardous materials and wastes; and the release of hazardous or toxic substances
or other contaminants into the environment. In addition, we are subject to
various federal, state and local workplace health and safety laws and
regulations. The environmental and health laws are administered by the U.S.
Environmental Protection Agency, and various other federal, state and local
agencies.
To operate our business in compliance with environmental and health laws,
we must obtain and maintain in effect permits for each of our facilities for a
variety of operations. These permits include without limitation permits for
discharges of wastewater, emission of air pollutants and management of hazardous
wastes. As a result, we sometimes are required to make expenditures for
pollution control equipment or for other purposes related to our permits and
compliance with the environmental and health laws. We have been fined or
penalized for breaches or alleged breaches of the environmental and health laws
and subjected to claims and litigation brought by federal, state or local
agencies and by private parties seeking remedial or other enforcement action
under the environmental and health laws or damages related to injuries or
alleged injuries to health or to the environment. The Dalles smelter, the
Goldendale smelter and the Portland, Oregon unloading facility were subject to
an environmental compliance assessment by an independent environmental
consultant in 1996 that was updated in the summer of 1998. These assessments
were intended to evaluate our compliance with the environmental laws regulating
discharges of wastewater, emission of air pollutants and the management of
hazardous wastes. These assessments identified no
57
condition of non-compliance that we believe would have a material adverse effect
on our financial condition or results of operations, nor are we aware of any
such material condition.
Our manufacturing facilities have been in operation for several decades,
and these facilities have used substances and generated and disposed of wastes
that are or may be considered hazardous. For example, these facilities have in
the past stored or disposed of wastewater treatment sludge in on-site ponds,
lagoons or other surface impoundments and have handled spent pot liner and
disposed of spent pot liner and other wastes in on-site surface impoundments.
Martin Marietta Corporation (a prior owner of The Dalles smelter) conducted
an investigation of soil and groundwater at the smelter and implemented clean-up
measures at the smelter site, including the removal of hazardous substances from
groundwater and certain areas of the site and the encapsulation of other areas
where hazardous substances were disposed or released. Martin Marietta performed
this work under the supervision of the U.S. Environmental Protection Agency. In
1996 Martin Marietta completed the investigations and clean-up measures required
by the EPA at The Dalles smelter site. Although the purpose of the Martin
Marietta investigation was to identify all areas at the smelter where hazardous
substances had been disposed or released, we do not assure you all affected
areas were identified or that the clean-up measures will perform as expected in
the future.
Hazardous substances have also been released at the Goldendale facility,
and the site was listed in the EPA's Comprehensive Environmental Response,
Compensation, and Liability Information System database in 1980. We expect
expenditures will be necessary at the Goldendale smelter to investigate and
clean up releases of hazardous substances disposed or released at the Goldendale
smelter, although we are unable to estimate the amount of these expenditures. We
have requested the State of Washington Department of Ecology to approve a plan
to close an on-site surface impoundment at the Goldendale facility by 2005-2006.
As of December 31, 1997, the estimated cost of the surface impoundment closure
and post- closure actions was over $3.0 million. We have established a trust
fund of approximately $535,000, as of December 31, 1997, to help pay these
costs, and we have procured insurance coverage to provide funds to the State of
Washington for closure if we default. We do not assure you whether or not the
actual closure costs will exceed our estimate. Under a contract with the former
owners of the Goldendale smelter, the former owners have indemnified Goldendale
Aluminum Company for certain anticipated expenditures. We do not assure you the
former owners of the Goldendale smelter will contribute their contractually
allocated share of the costs necessary to investigate and clean-up hazardous
substances disposed or released at the Goldendale smelter site or to obtain
regulatory closure of surface impoundments at the site.
As a result of recent changes in the environmental laws, we have incurred
substantial increases in costs associated with the disposal of spent pot liner
from our smelters. We dispose of spent pot liner pursuant to a contract with a
chemical waste treatment company, which expires in December 31, 2000, and which
provides for increased treatment costs as the
58
contract continues. The EPA has called for proposals from aluminum producers for
alternative methods of disposing of spent pot liner. We are developing a process
designed to recycle spent pot liner into marketable products which we plan to
submit to the EPA for approval. We also expect several other producers to make
proposals to the EPA. We cannot predict, however, whether our process, or any
other proposed process, will be approved by the EPA; whether any such process,
if approved, will be cost efficient; or what additional costs of disposal of
spent pot liner, if any, we may incur in the absence of EPA approval of an
available, cost efficient disposal process.
We do not assure you
(1) whether an environmental condition that we do not know about exists as
to one or more of our properties that could have an adverse effect on
our results of operations or financial condition or
(2) whether future environmental or health laws will have an adverse
effect on our results of operation or financial condition.
Employees
As of December 31, 1998, we employed 1,217 workers, 568 of which are
members of Local 8147 and 419 of which are members of Local 9170 of the United
Steelworkers of America. Goldendale Aluminum Company is signatory to a
collective bargaining agreement with the USW for the period May 24, 1996 through
May 31, 2001. Northwest Aluminum Company is a signatory to a collective
bargaining agreement with the USW for the period July 1, 1996 through June 30,
2001.
Both labor agreements provide for a 4% wage increase each year of the
contract. During the contract period there is a no strike/no lockout agreement.
We provide profit sharing programs in addition to the base compensation for all
employees, and a fully-paid medical, dental and vision health care plan. We have
a 401(k) plan but no defined benefit plan.
We believe we have a good relationship with the union and an employee
involvement process that encourages creativity, productivity and positive
employer-employee relations.
59
Properties
We own all of our facilities. The following table shows (1) each facility,
(2) its square footage, (3) its annual production capacity and (4) its use.
FACILITIES
Square Annual
Facility Footage Capacity Operations
-------- ------- -------- ----------
Goldendale
Smelter 1,209,730 168,000 mt Alumina reduction
Casthouse Included in above 168,000 mt Produce sow, billet, sheet
Unloading Facility 7.9 acres 42,000 mt
(Portland) shipments
Paste Plant 37,711 85,000 mt Carbon briquette
production
Laboratory 18,995 Quality control, R & D
Real Property 6,473 acres
Northwest
Smelter 636,000 82,000 mt Alumina reduction
Casthouse 122,000 99,800 mt Produce sow,billet,ingot
Paste Plant 108,000 85,000 mt Carbon briquette
production
Real Property 390 acres
Specialties
Casthouse 160,000 Up to 54,500 mt Value-added billet
depending on
product mix
Sawing/Turning 100,000 Saw: Semi-fabrication
130,000 mt
Turning:
1,000,000 logs
We believe these facilities are adequate to meet our current needs. We are
expanding or upgrading some of our facilities pursuant to the facilities
investment program. Most of our facilities are subject to mortgages and other
encumbrances to secure the notes and our indebtedness to Hydro. See "--
Facilities Investment Program."
Legal Proceedings
From time to time, we are involved in various legal proceedings arising
from our normal business activities. We believe these legal proceedings,
individually or in the aggregate, will not have a material adverse effect on our
financial condition or results of operations. We are involved in a dispute with
the IRS relating to proposed adjustments to
60
both Northwest Aluminum Company and Goldendale Aluminum Company's taxable income
for prior years. These adjustments could affect income taxes in future years.
61
MANAGEMENT
The following table sets forth information about our directors, executive
officers and certain other key employees as of the date of this document.
Name Age Positions with the Company
- ---- -- --------------------------
Brett E. Wilcox............... 45 Chairman, President and Director
Allen Barkley................. 43 Vice President and General Manager-- Northwest
William R. Reid............... 50 Chief Financial Officer-- Golden Northwest Aluminum,
Inc. and Northwest
Daniel J. Gnall............... 40 Vice President-- Sales and Marketing-- Northwest
Muhsin (Mac) Seyhanli......... 54 Vice President and General Manager-- Golden Northwest
Aluminum, Inc. and Goldendale
Gerald Miller................. 57 Vice President, General Counsel and Secretary-- Golden
Northwest Aluminum, Inc. and Goldendale
Jessie Casswell............... 49 Chief Financial Officer-- Goldendale
A. Ray Roberts................ 57 President-- Technologies
Robert Ames................... 58 Director
Stephen E. Babson............. 47 Director
David Bolender................ 66 Director
Michael G. Psaros............. 31 Director
Brett Wilcox has served as our President since our inception in June 1998.
Mr. Wilcox is also the President of Northwest Aluminum Company, which he founded
in 1986, and since 1996 has served as the President of Goldendale Aluminum
Company. Before founding Northwest in 1986, Mr. Wilcox was the Executive
Director of Direct Service Industries, a trade association of ten large aluminum
and other energy-intensive companies that purchase electricity from the
Bonneville Power Administration. Before 1986 Mr. Wilcox was an attorney with
Preston and Gates in Seattle, Washington, concentrating in energy and general
business matters. Mr. Wilcox is chairman of the Oregon Economic Development
Commission, Vice Chair of the Oregon Progress Board and active in various civic
and business organizations.
Allen Barkley joined Northwest in June 1995 as Production Engineering
Manager and became Vice President and General Manager in October 1996. Before
joining Northwest, Mr. Barkley spent 18 years at a primary aluminum smelter
facility in Columbia Falls, Montana where he served in a variety of capacities,
including production, engineering, maintenance and public affairs.
William Reid joined Northwest in 1986, became its Controller in 1993 and
was appointed Chief Financial Officer of Northwest in 1996 and of Golden
Northwest Aluminum in August 1998. Before joining Northwest, Mr. Reid was a
senior auditor with Touche Ross & Co.
62
Daniel J. Gnall joined Northwest in August 1991 as a metal trader, and in
1992 became Manager -- Sales and Marketing responsible for metal purchasing and
sales. Before joining Northwest, Mr. Gnall was an account executive with Martin
Marietta Corporation and worked for Cassmet International, Inc., a metals
trading company where he served as its General Manager in charge of physical
operations and non-ferrous metal purchasing and sales.
Muhsin (Mac) Seyhanli became Vice President and General Manager of Golden
Northwest Aluminum in August 1998. He was one of the founders of Columbia
Aluminum Company, the predecessor of Goldendale, and since 1994 has been the
general manager for all operations at Goldendale, becoming its Vice President
and General Manager in 1996. Before his current position, Mr. Seyhanli was a
cell line manager for both Columbia and Commonwealth Aluminum. Mr. Seyhanli has
over 29 years of experience in the aluminum industry.
Gerald Miller became Vice President, General Counsel and Secretary of
Golden Northwest Aluminum in August 1998. He joined Columbia Aluminum Company in
1989 as General Counsel and Corporate Secretary. In 1996, Mr. Miller was named
to the additional post of Vice President -- Energy and Government Affairs of
Goldendale. Before joining Goldendale, Mr. Miller was a trial lawyer in private
practice in the state of Washington. Mr. Miller is a member of the Board of
Directors of the State of Washington Economic Development Finance Authority.
Jessie Casswell has been the Chief Financial Officer of Goldendale since
1998 the Controller since 1984. From 1972 to 1984, Ms. Casswell served as the
Controller of Northwest. Ms. Casswell is also a member of the Executive
Committee of the Goldendale profit sharing plan and is the Chairperson of the
Trustees of the profit sharing plan.
A. Ray Roberts joined Northwest in 1992 as Operations Manager and was
responsible for smelter operations. In 1997, Mr. Roberts was named President of
Northwest Aluminum Technologies. In his over 28 years of experience in the
aluminum industry and before joining Northwest, Mr. Roberts has worked for
several smelting facilities in various engineering and managerial capacities,
including production, marketing manager, technology development and liaison to
government.
Robert Ames became a director of Golden Northwest Aluminum in 1998. Since
1996, he has served as a director of Goldendale. Until his retirement in 1995,
Mr. Ames worked in the banking industry, serving most recently as the Vice
Chairman and President of First Interstate Bank of Oregon. Mr. Ames is a real
estate investor and a member of the boards of directors of a number of Pacific
Northwest companies, including Barrett Business Services, Inc.
Stephen E. Babson became a director of Golden Northwest Aluminum in 1998.
Since 1996, he has served as a director of Goldendale. Mr. Babson has been a
partner in the
63
Portland office of Stoel Rives LLP, which is acting as our counsel in connection
with this exchange offer, since 1984. Mr. Babson is also a director of Roseburg
Forest Products Co. and serves on the advisory boards of several Pacific
Northwest based technology companies. He is the general partner of Babson
Capital Partners, LP, a private investment fund, the secretary and director of
the Oregon Symphony Association and the Chair of the Riverdale School
Foundation. Mr. Babson formerly served as secretary and a director of the
Software Association of Oregon.
David Bolender became a director of Golden Northwest Aluminum in 1998.
Since 1996, he has served as a director of Goldendale. Since 1992, Mr. Bolender
has served as Chairman of the Board of Electro Scientific Industries, Inc., a
manufacturer of machine tools for the electronics industry. In May 1998, Mr.
Bolender became Chief Executive Officer and Chairman of the Board of Protocol
Systems, a manufacturer of medical vital sign monitoring instrumentation. From
1982 to 1991, Mr. Bolender was President of Pacific Power and Light Company and
PacifiCorp Electric Operations Group. Before joining PacifiCorp in 1982, Mr.
Bolender spent 12 years with Westinghouse Electric Corporation, where he managed
the construction and operation of power plants around the world. He is a member
of the boards of directors of Benson Industries and Micro Monitors.
Michael G. Psaros became a director of Golden Northwest Aluminum in 1998.
Since 1996, he has served as a director of Goldendale. Since 1991, Mr. Psaros
has been a Principal of Keilin & Co. LLC, a New York investment bank. Mr. Psaros
is also a Principal of KPS (Keilin, Psaros, Shapiro) Special Situations Fund,
L.P., a private equity fund. Before joining Keilin, Mr. Psaros worked in the
investment banking department of Bear, Stearns & Co. Inc. Mr. Psaros was
originally appointed to Goldendale's Board by the President of the United
Steelworkers of America.
64
EXECUTIVE COMPENSATION
Compensation Committee Interlocks and Insider Participation
In the last fiscal year, our Board of Directors did not have a compensation
committee. Compensation decisions with respect to executive officers were made
by Brett Wilcox.
Executive Compensation
Compensation Summary. The following table sets forth compensation
information for the President and our other four most highly compensated
executives, each of whose total annual compensation exceeded $100,000 in 1998.
Summary Compensation Table
Annual Compensation
------------------------------------------
Other Annual
Salary Bonus Compensation
------ ----- ------------
Brett Wilcox, President and Chairman of
the Board
1998................................ $601,806 $903,001 $0
Muhsin (Mac) Seyhanli, Vice President and
General Manager
1998................................ 150,000 253,380 0
Allen Barkley, Vice President and General
Manager -- Northwest Aluminum
Company
1998................................ 106,950 100,000 0
Daniel J. Gnall, Vice President - Sales and
Marketing -- Northwest Aluminum
Company
1998................................ 106,950 100,000 0
William R. Reid, Chief Financial Officer
1998................................ 106,950 100,000 0
Limitation of Liability and Indemnification
Our articles of incorporation eliminate, to the fullest extent permitted by
Oregon law, liability of our directors for monetary damages for conduct as a
director. Although liability for monetary damages has been eliminated, equitable
remedies such as injunctive relief or rescission remain available. In addition,
a director is not relieved of his responsibilities under any other law,
including the federal securities laws.
65
Our articles of incorporation require us to indemnify directors to the
fullest extent not prohibited by law. We believe that the limitation of
liability provisions in our articles of incorporation may enhance our ability to
attract and retain qualified individuals to serve as directors.
Directors' Compensation
Directors who are not our employees receive a fee of $5,000 per board
meeting attended.
66
CERTAIN TRANSACTIONS
We sell semi-solid metalworking and other value-added products to Hot Metal
Technologies, Inc. and Hot Metal Moldings, Inc. under annual purchase orders.
Hot Metal Technologies and Hot Metal Moldings, suppliers of automotive parts,
are each wholly owned by Brett Wilcox, our sole shareholder. Our sales to these
companies under these purchase orders totalled approximately $3.6 million for
the year ended December 31, 1997 and $5.3 million for the nine months ended
September 30, 1998. We also made advances to Hot Metal Technologies and Hot
Metal Moldings during the year ended December 31, 1997, and during the nine
months ended September 30, 1998, by way of payroll and benefits expenses paid by
Northwest Aluminum Company with respect to Northwest employees on loan to these
companies. On December 31, 1997, $4.0 million of the aggregate amount then owed
by Hot Metal Technologies and Hot Metal Moldings to us with respect to accounts
receivable and advances was converted to a note receivable. The note bears
interest at 9.25% per annum and is payable in quarterly installments beginning
April 1, 1998 through January 2002. As of December 31, 1998, an aggregate of
approximately $4.3 million was owed by these companies to us, consisting of
approximately $3.4 million on the note receivable and accounts receivable of
approximately $0.9 million. The highest amount of aggregate indebtedness of Hot
Metal Technologies and Hot Metal Moldings to us since January 1, 1997 was $6.5
million.
In 1998 the federal government made a grant of $750,000 to Hot Metal
Technologies as contractor, and Northwest Aluminum Specialties as subcontractor,
for semi-solid metalworking research.
In 1997 Northwest Aluminum Company paid $4.9 million to Mr. Wilcox to pay
taxes owed by him as a result of Northwest's status as a Subchapter S
corporation. The amount paid was in excess of actual tax liabilities and, of
this amount, $2.9 million was recorded as a dividend. The remaining $2.0 million
is recorded as a receivable on our combined balance sheet and is outstanding. No
interest is payable upon the receivable.
Mr. Wilcox has entered into an indemnification agreement with Northwest,
Northwest Aluminum Specialties and us pursuant to which we have agreed not to
file any amended income tax return or change any election or accounting method
without the consent of Mr. Wilcox if the filing or change would increase any tax
liability of Mr. Wilcox. In addition, the companies have agreed to indemnify Mr.
Wilcox for any adjustment for taxes owed for earlier periods (including taxes on
any such indemnification payments) and for certain other fees and costs relating
to periods before December 18, 1998.
Pursuant to a voting agreement effective May 17, 1996, Mr. Wilcox must
cause Goldendale Holding Company to vote the shares of Goldendale Aluminum
Company common stock held by it to ensure that
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(1) the Goldendale Aluminum Company board of directors consists of not
more than five directors,
(2) not less than one director is a nominee designated by the President of
the United Steel Workers of America and
(3) not less than two directors are nominees of Mr. Wilcox who have no
significant continuing business relationship with Mr. Wilcox or any
entity controlled by him.
The voting agreement will remain in force so long as the USW represents the
collective bargaining unit of the Goldendale facility, except that clauses (1)
and (3) of the preceding sentence will continue only until the termination of
the initial term of the Collective Bargaining Agreement dated April 7, 1996
between Goldendale Aluminum Company and the USW.
68
THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Your Notes
We sold your notes on December 21, 1998 to BancBoston Robertson Stephens
Inc. and Libra Investments, Inc. under a purchase agreement dated December 14,
1998. Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, we will accept for exchange any
and all your notes that are properly tendered on or before the Expiration Date
and not withdrawn as permitted below. The term "Expiration Date" means 5:00
p.m., New York City time, on ____________, 1999; provided, however, that if we,
in our sole discretion, have extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the notes was outstanding. We are sending this Prospectus, together with the
Letter of Transmittal, on or about the date set forth on the cover page to you
at the addresses set forth in the security register with respect to notes
maintained by the trustee. Our obligation to accept notes for exchange pursuant
to the Exchange Offer is subject to certain conditions.
We reserve the right, at any time or from time to time, to extend the
period of time during which the Exchange Offer is open, and thereby delay
acceptance for exchange of any notes, by mailing written notice of any extension
to you as described below. During any extension, all notes previously tendered
will remain subject to the Exchange Offer and may be accepted for exchange by
us. Any notes not accepted for exchange for any reason will be returned without
expense to the tendering holder of the notes as promptly as practicable after
the expiration or termination of the Exchange Offer.
Notes tendered in the Exchange Offer must be $1,000 in principal amount or
any integral multiple thereof.
We will mail written notice of any extension, amendment, non-acceptance or
termination to the holders of the notes as promptly as practicable. Any notice
will be mailed to the holders of record of the notes no later than 9:00 a.m. New
York City time, on the next business day after the previously scheduled
Expiration Date or other event giving rise to the notice requirement.
Registration Rights; Additional Interest
Pursuant to a registration rights agreement, we have agreed with BancBoston
Robertson Stephens Inc. and Libra Investments, Inc., for your benefit and at our
cost, (1) not later than 60 days after December 21, 1998, to file a registration
statement with the Securities and Exchange Commission with respect to a
registered offer to exchange the notes for new notes having terms substantially
identical in all material respects to the notes, except that the new
69
notes will not contain terms with respect to transfer restrictions and (2) to
use our best efforts to cause this registration statement to be declared
effective under the Securities Act not later than 120 days after December 21,
1998. Upon the effectiveness of the registration statement, we will promptly
offer the new notes in exchange for surrender of the notes. We will keep this
offer open for not less than 20 business days after the date notice of the offer
is mailed to you and use our best efforts to cause the offer to be completed no
later than 150 days after the December 21, 1998. For each note surrendered to us
pursuant to the offer, the holder of the note will receive a new note having a
principal amount equal to that of the surrendered note. Interest on each new
note will accrue from the last interest payment date on which interest was paid
on the note surrendered in exchange for the new note or, if no interest has been
paid on the note, from the date of its original issue.
In general, if you wish to exchange the notes for new notes in the offer,
you will be required to represent that any new notes you receive will be
acquired in the ordinary course of your business, that you are not our
"affiliate," as defined in Rule 405 of the Securities Act, and that at the time
of the commencement of the offer, you have no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the new notes, or if you are participating in a distribution
of the new notes, that you will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If applicable law or interpretations of the staff of the SEC do not permit
us to effect such an offer, if the offer is not consummated within 150 days
after December 21, 1998, or if any holder of notes notifies us within 20
business days after completion of the offer that the holder was prohibited by
applicable law or SEC policy from participating in the offer, or that the holder
may not resell the new notes acquired by it in the offer without delivering a
prospectus and that the prospectus contained in the registration statement is
not appropriate or available for such resales or that the holder is a
broker-dealer and holds notes acquired directly from us or one of our
affiliates, we will, at our cost, (1) as promptly as practicable, but no later
than 60 days after the satisfaction of any of the foregoing conditions, file a
shelf registration statement covering resales of the notes or the new notes, as
the case may be, (2) use our best efforts to cause the shelf registration
statement to be declared effective under the Securities Act as promptly as
practicable, but no later than 120 days after the satisfaction of any of the
foregoing conditions, and (3) keep the shelf registration statement effective
for two years after its effective date (or a shorter period that will terminate
when all notes or new notes, as the case may be, covered by the shelf
registration statement have been sold pursuant to the shelf registration
statement). In certain circumstances, we have the right to suspend the
effectiveness of the shelf registration statement for limited periods. If a
shelf registration statement is filed, we will provide to each holder for whom
such shelf registration statement was filed copies of the prospectus which is
part of the shelf registration statement, notify each such holder when the shelf
registration statement has become effective and take certain other actions
required to permit unrestricted resales of the notes or the new notes, as the
case may be. A holder selling these notes or new notes pursuant to the shelf
registration statement generally would be required to be named as a selling
security holder in
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the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
registration rights agreement that are applicable to the holder (including
certain indemnification obligations).
If
(1) within 60 days after December 21, 1998, the registration statement has
not been filed with the SEC;
(2) within 120 days after December 21, 1998, the registration statement
has not been declared effective;
(3) within 150 days after December 21, 1998, the offer has not been
completed;
(4) a shelf registration statement is required to be filed and is not
filed within the time specified for filing in the registration rights
agreement or is not declared effective within the time specified for
effectiveness in the registration rights agreement; or
(5) after either the registration statement or the shelf registration
statement has been declared effective, the registration statement
thereafter ceases to be effective or fails to be usable (subject to
certain exceptions) for its intended purpose in connection with
resales of notes or new notes in accordance with and during the
periods specified in the registration rights agreement,
additional interest will accrue on the notes and the new notes from and
including the date on which any registration default occurs but excluding the
date on which all registration defaults have been cured. Additional interest
will accrue at a rate of 0.25% per annum during the 90-day period immediately
following the occurrence of any registration default and will increase by 0.25%
per annum at the commencement of each subsequent 90-day period, but additional
interest will not accrue at a rate in excess of 1.0% per annum. Following the
cure of all registration defaults, the accrual of additional interest will
cease.
This summary of material provisions of the registration rights agreement is
not complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the registration rights agreement, a copy of which is
available upon request to us.
Procedure for Tendering Notes
Your tender of notes to us as set forth below and our acceptance of the
notes will constitute a binding agreement between you and us upon the terms and
subject to the conditions set forth in this document and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
notes for exchange pursuant to the
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Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, together with all other documents required by the Letter of
Transmittal, to U.S. Trust Company, National Association at the address set
forth below under "-- Exchange Agent" on or before the Expiration Date. In
addition, (1) certificates for the notes must be received by U.S. Trust along
with the Letter of Transmittal, or (2) a timely confirmation of a book-entry
transfer of the notes, if this procedure is available, into U.S. Trust's account
at The Depository Trust Company pursuant to the procedure for book-entry
transfer described below, must be received by U.S. Trust before the Expiration
Date or (3) you must comply with the guaranteed delivery procedures described
below. The method of delivery of the notes, Letters of Transmittal and all other
required documents is at your election and risk. If the delivery is by mail, we
recommend registered mail, properly insured, with return receipt requested, be
used in all cases. You should allow sufficient time to assure timely delivery.
No Letters of Transmittal or notes should be sent to us.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the notes surrendered for exchange are
tendered (1) by a registered holder of the notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (2) for the account of an eligible institution. An
"eligible institution" is an eligible guarantor institution (bank, stockbroker,
national securities exchange, registered securities association, savings and
loan association or credit union with membership in a signature medallion
program) under Rule 17Ad-15 of the Securities Exchange Act of 1934. If
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, the guarantees must be by an eligible
institution. If notes are registered in the name of a person other than the
person signing the Letter of Transmittal, the notes surrendered for exchange
must be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder, with the signature
guaranteed by an eligible institution.
All questions about the validity, form, eligibility (including time of
receipt) and acceptance of notes tendered for exchange will be determined by us
in our sole discretion, which determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of any particular notes
not properly tendered or not to accept any particular notes if acceptance might,
in our judgment or the judgment of our counsel, be unlawful. We also reserve the
absolute right in our sole discretion to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular notes either before or
after the Expiration Date (including the right to waive the ineligibility of any
holder who seeks to tender notes in the Exchange Offer). The interpretation of
the terms and conditions of the Exchange Offer as to any particular notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by us shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of notes for
exchange must be cured within a reasonable period of time that we shall
determine. Neither we, U.S. Trust nor any other person shall be under any duty
to give
72
notification of any defect or irregularity with respect to any tender of notes
for exchange, nor will any of us incur any liability for failure to give any
notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of notes, the notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the notes.
If the Letter of Transmittal or any notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
these persons should so indicate when signing, and unless waived by us, proper
evidence satisfactory to us of their authority to so act must be submitted with
the Letter of Transmittal.
By tendering notes, if you are not a broker-dealer, you must acknowledge
you are not engaged in, and do not intend to engage in, a distribution of new
notes. If you are our "affiliate," as defined under Rule 405 of the Securities
Act, or are engaged in or intend to engage in or have any arrangement with any
person to participate in the distribution of the new notes to be acquired
pursuant to the Exchange Offer, you (1) could not rely on the applicable
interpretations of the staff of the SEC and (2) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives new
notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of the new notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Acceptance of Notes for Exchange; Delivery of New Notes
We will accept, promptly after the Expiration Date, all notes properly
tendered and will issue the new notes promptly after acceptance of the notes.
For each note accepted for exchange, the holder of the note will receive a new
note having a principal amount equal to that of the surrendered note. The new
notes will bear interest from the most recent date to which interest has been
paid on the notes or, if no interest has been paid on the notes, from December
15, 1998. Accordingly, if the relevant record date for interest payment occurs
after the completion of the Exchange Offer, registered holders of new notes on
the record date will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid, from December 15,
1998. If, however, the relevant record date for interest payment occurs before
the completion of the Exchange Offer, registered holders of notes on the record
date will receive interest accruing from the most recent date to which interest
has been paid or, if no interest has been paid, from December 15, 1998. Notes
accepted for exchange will cease to accrue interest from and after the date of
completion of the Exchange Offer, except as set forth in the immediately
preceding sentence. If your notes are accepted for exchange, you will not
receive any payment in respect of
73
interest on the notes otherwise payable on any interest payment date the record
date for which occurs on or after completion of the Exchange Offer.
In all cases, issuance of new notes for notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by U.S. Trust of (1) certificates for the notes or a timely book-entry
confirmation of the notes into U.S. Trust's account at The Depository Trust
Company, (2) a properly completed and duly executed Letter of Transmittal and
(3) all other required documents. If any tendered notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer or if
certificates representing notes are submitted for a greater principal amount
than the holder desires to exchange, certificates representing the unaccepted or
non-exchanged notes will be returned without expense to the tendering holder of
the notes (or, in the case of notes tendered by book-entry transfer into U.S.
Trust's account at The Depository Trust Company pursuant to the book-entry
transfer procedures described below, the non-exchanged notes will be credited to
an account maintained with The Depository Trust Company) as promptly as
practicable after the expiration or termination of the Exchange Offer.
Book-Entry Transfer
U.S. Trust will make a request to establish an account with respect to the
notes at The Depository Trust Company for purposes of the Exchange Offer within
two business days after the date of this document, and any financial institution
that is a participant in The Depository Trust Company's systems may make
book-entry delivery of notes by causing The Depository Trust Company to transfer
the notes into U.S. Trust's account at The Depository Trust Company in
accordance with The Depository Trust Company's procedures for transfer. Although
delivery of notes may be effected through book-entry transfer at The Depository
Trust Company, the Letter of Transmittal or a facsimile of it, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by U.S. Trust at the address set forth below under "
- -- Exchange Agent" on or prior to the Expiration Date or you must comply with
the guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
If you desire to tender your notes and your notes are not immediately
available, or time will not permit your notes or other required documents to
reach U.S. Trust before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if (1)
the tender is made through an eligible institution, (2) before the Expiration
Date, U.S. Trust receives from the eligible institution a properly completed and
duly executed Letter of Transmittal (or a facsimile of it) and Notice of
Guaranteed Delivery, substantially in the form provided by us (by telegram,
telex, facsimile transmission, mail or hand delivery), setting forth your name
and address and the amount of notes tendered, stating that the tender is being
made thereby and guaranteeing that within five New York Stock Exchange trading
days after the date of execution of the Notice of
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Guaranteed Delivery, the certificates for all physically tendered notes, in
proper form for transfer, or a book-entry confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the eligible institution with U.S. Trust and (3) the certificates for all
physically tendered notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by U.S. Trust within five New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of notes may be withdrawn at any time before 5:00 p.m., New York
City time, on the Expiration Date.
For a withdrawal to be effective, a written or facsimile notice of
withdrawal must be received by U.S. Trust at the address set forth below under
"-- Exchange Agent." Any notice of withdrawal must specify the name of the
person having tendered the notes to be withdrawn, identify the notes to be
withdrawn (including the principal amounts of such notes), and (where
certificates for notes have been transmitted) specify the name in which such
notes are registered, if different from that of the withdrawing holder. If
certificates for notes have been delivered or otherwise identified to U.S.
Trust, then, prior to the release of the certificates, the withdrawing holder
must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
eligible institution unless the holder is an eligible institution. If notes have
been tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at The
Depository Trust Company to be credited with the withdrawn notes and otherwise
comply with the procedures of the facility. All questions about the validity,
form and eligibility (including time of receipt) of the notices will be
determined by us and our determination will be final and binding on all parties.
Certificates for any notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any notes that have
been tendered for exchange but which are not exchanged for any reason will be
returned to the holder of the notes without cost to the holder (or, in the case
of notes tendered by book-entry transfer into U.S. Trust's account at The
Depository Trust Company pursuant to the book-entry transfer procedures
described above, the notes will be credited to an account maintained with The
Depository Trust Company for the notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
notes may be retendered by following one of the procedures described under "--
Procedure for Tendering Notes" above at any time on or before the Expiration
Date.
Exchange Agent
U.S. Trust Company, National Association has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at the address set forth below. Questions and
requests for assistance, requests for
75
additional copies of this document or of the Letter of Transmittal and requests
for Notices of Guaranteed Delivery should be directed to the Exchange Agent,
addressed as follows:
By Mail or by Hand:
U.S. Trust Company, N.A., Exchange Agent
One Embarcadero Center, Suite 2050
San Francisco, CA 94111
By Facsimile:
415-956-2545
Confirm Facsimile by Telephone:
415-743-9004
Delivery of the Letter of Transmittal to an address other than as set forth
above or transmission of instructions via facsimile other than as set forth
above does not constitute a valid delivery of the Letter of Transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers or others soliciting
acceptances of the Exchange Offer.
Transfer Taxes
You will not be obligated to pay any transfer tax in connection with the
exchange, except if you instruct us to register new notes in the name of, or
request that notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than you, you will be responsible for the payment of
any applicable transfer tax.
Appraisal Rights
You will not have dissenters' rights or appraisal rights in connection with
the Exchange Offer.
Consequences of Failure to Exchange Notes
If you do not exchange their notes for new notes pursuant to the Exchange
Offer, you will continue to be subject to the restrictions on transfer of the
notes. In general, the notes may not be offered or sold unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the
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Securities Act and applicable state securities laws. We do not anticipate that
we will register the existing notes under the Securities Act. Based on
interpretations by the staff of the SEC issued to third parties, new notes
issued pursuant to the Exchange Offer in exchange for notes may be offered for
resale, resold or otherwise transferred by holders of the new notes (other than
any holder that is our "affiliate"within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the new notes are acquired in
the ordinary course of the holders' business and the holders have no arrangement
with any person to participate in the distribution of the new notes. If you are
not a broker-dealer, you must acknowledge you are not engaged in, and do not
intend to engage in, a distribution of new notes. If you are our affiliate, are
engaged in or intend to engage in or have any arrangement or understanding with
respect to the distribution of the new notes to be acquired pursuant to the
Exchange Offer, you (1) could not rely on the applicable interpretations of the
staff of the SEC and (2) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives new notes for its own account in
exchange for notes must acknowledge that the notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of the new notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, it may be necessary to
qualify for sale or to register the new notes prior to offering or selling the
new notes. We do not intend to take any action to register or qualify the new
notes for resale in any of these jurisdictions.
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DESCRIPTION OF NOTES
Table of Contents Page
Introduction................................................................79
Brief Description of the Notes and the Guarantees...........................79
Principal, Maturity and Interest............................................80
Methods of Receiving Payments on the Notes..................................80
Paying Agent and Registrar for the Notes....................................81
Transfer and Exchange.......................................................81
Security....................................................................81
The Subsidiary Guarantees...................................................82
Ranking of Notes and Guarantees.............................................83
Material Bankruptcy Limitations.............................................83
Optional Redemption.........................................................84
Offer to Purchase the Notes.................................................84
Selection and Notice........................................................85
Material Covenants..........................................................85
Limitations on Indebtedness............................................. 85
Limitations on Restricted Payments, Restricted Investmenets and
Unrestricted Subsidiary Investments................................ 88
Restrictions on Transactions with Affiliates and Unrestricted
Subsidiaries....................................................... 93
Limitations on Liens.................................................... 94
Subsidiary Guarantees................................................... 96
Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries............................................. 96
Limitations on Asset Sales.............................................. 97
Limitations on Unrestricted Subsidiaries................................ 99
Conduct of Business..................................................... 99
Limitations on Issuances and Sales of Capital Stock of Subsidiaries..... 99
Payment for Consent.....................................................100
Maintenance of Corporate Existence......................................100
Maintenance of Insurance................................................100
SEC Reports.............................................................100
Merger or Consolidation.................................................101
No Amendment to Subordination Provisions................................102
Release of Collateral......................................................103
Defaults and Certain Rights on Default.....................................103
Modification of Indenture or Security Agreements...........................105
Legal Defeasance and Covenant Defeasance...................................106
Concerning the Trustee.....................................................108
Governing Law..............................................................109
Certain Definitions........................................................109
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Introduction
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Company" refers only to Golden Northwest Aluminum, Inc. and not to any of its
subsidiaries.
The Company will issue the new notes (the "Notes") under an Indenture (the
"Indenture") among itself, the Guarantors and U.S. Trust Company, National
Association, as trustee (the "Trustee"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Security Agreements
referred to under the subcaption "Security" also define the terms of the pledges
that will secure the Notes.
The following description is a summary of the material provisions of the
Indenture and the Security Agreements. It does not restate those agreements in
their entirety. We urge you to read the Indenture and the Security Agreements
because they, and not this description, define your rights as holders of these
Notes. We have filed copies of the Indenture and the Security Agreements as
exhibits to the registration statement which includes this Prospectus.
Brief Description of the Notes and the Guarantees
The Notes
These Notes
o are general obligations of the Company
o are secured by a first priority security interest in substantially all
of the Company's directly and indirectly owned subsidiaries' real
property, plant and equipment and some other assets and by a senior
pledge of the capital stock of the Company's directly and indirectly
owned subsidiaries
o are senior in right of payment to any future subordinated Indebtedness
of the Company and
o are unconditionally guaranteed by the Guarantors.
The Guarantees
These Notes are guaranteed by the following subsidiaries of the Company:
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Goldendale Holding Company
Goldendale Aluminum Company
Northwest Aluminum Company
Northwest Aluminum Specialties, Inc.
Northwest Aluminum Technologies, LLC.
These guarantees
o are general obligations of each Guarantor and
o are senior in right of payment to any future subordinated
Indebtedness of each Guarantor.
As of the date of the Indenture, all of our subsidiaries were "Restricted
Subsidiaries." Under the circumstances described below under the subheading
"Subsidiary Guarantees," however, we will be permitted to designate some of our
subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants in the Indenture. Unrestricted
Subsidiaries will not guarantee the Notes.
Principal, Maturity and Interest
The Company will issue Notes with a maximum aggregate principal amount of
$150 million. The Company will issue Notes in denominations of $1,000 and
integral multiples of $1,000. The Notes will mature on December 15, 2006.
Interest on the Notes will accrue at the rate of 12% per annum and will be
payable semi-annually in arrears on June 15 and December 15, commencing on June
15, 1999. The Company will make each interest payment to the Holders of record
of these Notes on the immediately preceding May 30 and November 30.
Interest on these Notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Methods of Receiving Payments on the Notes
If a holder has given wire transfer instructions to the Company, the
Company will make all principal, premium and interest payments on those Notes in
accordance with those instructions. All other payments on these Notes will be
made at the office or agency of the Paying Agent and Registrar within the City
and State of New York unless the Company elects to make interest payments by
check mailed to a holder at the address set forth in the register of holders.
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Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the holders of
the Notes, and the Company or any of its Subsidiaries may act as Paying Agent or
Registrar.
Transfer and Exchange
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
Security
Our obligations under the Notes and Guarantees are secured under the
Security Agreements by
(1) a first priority security interest in substantially all of the real
property, plant and equipment of our existing Subsidiaries, other than
the Excluded Property, and some of our other assets (collectively, the
"PP&E"; the PP&E excludes, however, the Tolling Agreements, inventory,
accounts receivable and other rights to payment and related
intangibles and proceeds) and
(2) a pledge (the "Pledge") of all of the issued and outstanding Capital
Stock of our direct or indirect Subsidiaries and all income, benefits
and rights derived from that Capital Stock and all related proceeds
(collectively, the "Pledged Shares" and together with the PP&E, the
"Collateral").
These security interests and Pledge have been granted to the Trustee, as
collateral agent on your behalf (in such capacity the "Collateral Agent"). The
interests and Pledge secure the payment and performance when due of our
obligations under the Indenture and the Notes and the obligations of our
Subsidiaries under the Guarantees as provided in the Security Agreements. Our
Subsidiary Guarantors have granted a security interest in the Tolling Agreements
and their inventory, accounts receivable and other rights to payment and related
intangibles and proceeds to BankBoston to secure their obligations under our
credit facility.
The Indebtedness under the Hydro Agreement also has been secured by the
Collateral, but the security interest and pledge securing such Indebtedness
ranks junior to the security
81
interest and Pledge securing the Notes and Guarantees. Hydro's rights to
exercise remedies in respect of the Collateral are limited. Upon the occurrence
and during the continuance of an Event of Default, the Trustee may foreclose on
the Collateral and exercise other rights and remedies in respect of the Pledged
Shares.
If the Guarantee of any Subsidiary Guarantor is released as described under
"-- The Subsidiary Guarantees," any security interest of the Trustee in the
Collateral, including the Pledge of the Pledged Shares issued by the Subsidiary,
also will be released without any further action by us, the Trustee, the
Subsidiary, any other Subsidiary or any holder of the Notes. The Trustee will
deliver appropriate releases of the Security Agreements and certificates
evidencing the Pledged Shares, together with any related stock powers, to us.
Any Liens on the Collateral securing the Indebtedness under the Hydro Agreement,
and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive
Refinancing, however, must be released before the security interest on the Notes
and Guarantees is released. At our request, the Trustee will execute and deliver
an instrument evidencing the release.
The Subsidiary Guarantees
The Guarantors have jointly and severally guaranteed the Company's
obligations under these Notes. The obligations of each Guarantor under its
Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary
Guarantee from constituting a fraudulent conveyance under applicable law. See
"Risk Factors -- Fraudulent Conveyance Matters."
The Subsidiary Guarantee of a Guarantor will be released
(1) in connection with any sale of all of the capital stock of a Guarantor
to a Person that is not the Company or a Subsidiary, Unrestricted
Subsidiary or Affiliate of the Company, if the Company complies with
the terms of the Indenture or
(2) if the Company designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary and
any obligations of the Subsidiary in respect of Indebtedness under the Credit
Agreement (and/or any Refinancing Indebtedness Incurred in any Refinancing, or
successive Refinancing, thereof) and any guarantee by such Subsidiary of the
Indebtedness under the Hydro Agreement (and/or any Refinancing Indebtedness
Incurred in any Refinancing, or successive Refinancing, thereof), have been or
are simultaneously released. See "-- Material Covenants -- Limitations on Asset
Sales."
Under certain circumstances, the Company will be able to designate
Restricted Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not be "Subsidiaries" for purposes of the Indenture and will not be subject
to most of the restrictive
82
covenants in the Indenture. The Company has no Unrestricted Subsidiaries. When a
Subsidiary is designated as an Unrestricted Subsidiary in compliance with the
terms of the Indenture, the obligations of the Subsidiary under its Guarantee
will be deemed released without any further action on the part of the Trustee,
the Company, the Subsidiary, any other Subsidiary of the Company or any holder
of the Notes. For such a release to occur, however, any obligations of the
Subsidiary in respect of Indebtedness under the Credit Agreement (and/or any
Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing,
thereof) and any guarantee by such Subsidiary of the Indebtedness under the
Hydro Agreement (and/or any Refinancing Indebtedness Incurred in any
Refinancing, or successive Refinancing, thereof) must be released. In addition,
upon the designation of a Subsidiary as an Unrestricted Subsidiary, the
Collateral Agent will release any Collateral of the Unrestricted Subsidiary in
the manner contemplated by the Security Agreements. Again, this release is only
possible if the Collateral is also released from the Hydro Agreement and all
Collateral for the Credit Agreement is also released.
The Trustee will deliver written evidence any release of a Subsidiary from
its Guarantee at the request of the Company. Upon the release of any Subsidiary,
the other Subsidiaries of the Company not so released will remain liable for the
Company's obligations under the Notes and the Subsidiaries' Guarantee as and to
the extent provided in the Indenture.
Ranking of Notes and Guarantees
The payment of principal, premium and interest, if any, on the Notes and
Guarantees will rank senior in right and priority of payment to all Indebtedness
of the Company or any of its Subsidiaries that by its terms is expressly
subordinated to the Notes. Subordinated debt includes the Indebtedness under the
Hydro Agreement and the guarantees by the Subsidiaries of the Company of this
Indebtedness. The Notes and the Guarantees will rank equally in right and
priority of payment with all other Indebtedness of the Company or any of its
Subsidiaries. This debt includes the Indebtedness of the Subsidiaries of the
Company under the Credit Agreement. Notwithstanding the foregoing, holders of
secured obligations of the Company and its Subsidiaries, including the financial
institutions party to the Credit Agreement but excluding the holder of the
Indebtedness under the Hydro Agreement, will have claims that are prior to the
claims of the holders of the Notes with respect to the assets securing these
obligations.
Material Bankruptcy Limitations
The Company is a holding company. It conducts substantially all of its
business through its Guarantor Subsidiaries. Holders of the Notes will be
creditors of each Subsidiary Guarantor by virtue of its Guarantee and the Lien
granted to the holders of the Notes on the Subsidiary's assets. Nonetheless, in
the event of the bankruptcy of a Subsidiary Guarantor, the Subsidiary's
obligations under its Guarantee and any Liens on the Subsidiaries' assets may be
subject to avoidance under state and federal fraudulent transfer and conveyance
laws.
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Among other things, these obligations may be avoided if a court concludes that
the obligations were incurred for less than fair consideration or reasonably
equivalent value at a time when the Subsidiary
(1) was insolvent,
(2) was rendered insolvent, or
(3) was left with inadequate capital to conduct its business or debts that
were beyond its ability to pay as they matured.
A court could conclude that a Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value to the extent that the aggregate
amount of its liability under its Guarantee exceeds the economic benefits it
receives from the offering of the Notes. The obligations of each Subsidiary
Guarantor under its Guarantee and any Liens on the Subsidiaries' assets will be
limited in a manner intended to avoid fraudulent transfer or conveyance concerns
under applicable law. We do not assure you, however, a court would give the
holders of the Notes the benefit of these provisions.
If the obligations of a Subsidiary Guarantor under its Guarantee or any
Lien granted to the holders of the Notes are avoided, holders of Notes would
have to look to the assets of the Company and any remaining Subsidiaries of the
Company for payment. We do not assure you such assets would be sufficient to pay
the Notes.
Optional Redemption
The Company may not redeem the Notes before December 15, 2002. On or after
December 15, 2002, the Company may redeem all or a part of the Notes, on not
less than 15 nor more than 60 days notice, at the redemption prices (expressed
as a percentage of principal amount) set forth below plus accrued and unpaid
interest, if any, to the applicable redemption date, if redeemed during the
12-month period beginning December 15, of the years indicated below:
Redemption
Year Price
---- ---------
2002............................. 108.000%
2003............................. 105.333%
2004............................. 102.667%
2005 and thereafter.............. 100.000%
Offer to Purchase the Notes
Under the Indenture, if any Change of Control of the Company occurs on or
before maturity, the Company will be required to make an offer to purchase from
each holder all or any part (equal to $1,000 or an integral multiple of $1,000)
of the holder's notes. To be eligible to receive this payment, a holder of the
Notes must deliver and not withdraw a Change of Control Purchase Notice to the
Company as provided in the Indenture. The
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purchase date will occur 30 Business Days after the Change of Control (the
"Change of Control Purchase Date"). The purchase price will be paid in cash and
will equal 101% of the principal amount thereof plus accrued and unpaid interest
to the Change of Control Purchase Date (the "Change of Control Purchase Price").
Some of the circumstances that would require the Company to make an offer
to repurchase the Notes on a Change of Control would also constitute an event of
default under the Credit Agreement and the Hydro Agreement. In the event of such
a default, the obligations of the Company under those agreements could be
declared due and payable. In addition, the repurchase of the Notes upon a Change
of Control could result in defaults under the Credit Agreement. See "Risk
Factors -- Financing Change of Control Offer."
Under some circumstances, the Indenture will require the Company to make an
offer to purchase specified portions of the Notes if the Company has available
Net Cash Proceeds as a result of Asset Sales. See "-- Material Covenants --
Limitations on Asset Sales." The Company's ability to pay cash to the holders of
Notes upon a Change of Control or Asset Sale may be limited by the Company's
then existing financial resources.
The Indenture will require the Company to comply with all applicable
federal securities laws (including Rule 14e-1 under the Exchange Act) in
connection with any repurchase of Notes upon a Change of Control or Asset Sales.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption on a pro rata basis, by lot or by any method
the Trustee deems fair and appropriate. No Notes of $1,000 or less will be
redeemed in part. Notices of redemption will be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address. Notices of redemption may not be
conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note will state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
Material Covenants
Limitations on Indebtedness
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or become liable
with respect to, or extend
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the maturity of or become liable for the payment of, contingently or otherwise
(collectively, "Incur"), any Indebtedness, except that, without duplication, the
Company may Incur Indebtedness (and the Subsidiaries of the Company may
guarantee the Indebtedness) if, after giving effect thereto and the receipt and
application of the proceeds therefrom, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than 2.0 to 1, in the case of Indebtedness
Incurred before December 15, 2001, and 2.25 to 1, in the case of Indebtedness
Incurred on or after December 15, 2001.
The first paragraph of this covenant does not prohibit the following:
(1) Indebtedness Incurred by the Company and its Subsidiaries in respect
of the Notes;
(2) Indebtedness Incurred by any of the Subsidiaries of the Company under
the Credit Agreement in an aggregate principal amount (with letters of
credit and bankers' acceptances being deemed to have a principal
amount equal to the maximum reimbursement obligations with respect
thereto) at any one time outstanding not to exceed the greater of (a)
$90,000,000 or (b) the then amount of the Borrowing Base;
(3) Indebtedness Incurred by the Company under the Hydro Agreement in an
aggregate original principal amount not to exceed $30,000,000, and
guarantees by the Subsidiaries of the Company of this Indebtedness;
(4) Indebtedness Incurred by any of the Subsidiaries of the Company
payable solely to the Company or any Wholly Owned Subsidiary;
(5) Indebtedness Incurred by a Person prior to the date upon which it
becomes a Subsidiary of the Company (excluding Indebtedness Incurred
by the Person in connection with, or in contemplation of, it becoming
a Subsidiary of the Company), provided that the holders of this
Indebtedness do not have at any time, in respect thereof, direct or
indirect recourse to any property or assets of the Company and its
Subsidiaries other than the property and assets of the acquired Person
and its Subsidiaries;
(6) Indebtedness ("Refinancing Indebtedness") Incurred by the Company or
any of its Subsidiaries that serves to Refinance, in whole or in part,
any Indebtedness permitted by this paragraph (other than by clause (4)
or (8)) or by the immediately preceding full paragraph (the
"Refinanced Indebtedness"), or any one or more successive Refinancings
of any of the Indebtedness; provided, however, that:
(a) the Refinancing Indebtedness is in an aggregate amount not to
exceed the aggregate amount of the Refinanced Indebtedness
(including accrued
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interest thereon and, in the case of Refinanced Indebtedness
Incurred under the Credit Agreement, undrawn amounts under
revolving credit arrangements thereunder otherwise permitted to
be Incurred pursuant to clause (2)(b) of this paragraph), the
amount of any premium required to be paid in connection with the
Refinancing under the terms of the Refinanced Indebtedness or the
amount of any reasonable and customary premium determined by the
Company to be necessary to accomplish the Refinancing by means of
a redemption, tender offer, privately negotiated transaction,
defeasance or other similar transaction, and an amount equal to
the reasonable fees and expenses in connection with the
Incurrence of the Refinancing Indebtedness;
(b) neither the Company nor any of its Subsidiaries is an obligor of
the Refinancing Indebtedness, except to the extent that such
Person (I) was an obligor of the Refinanced Indebtedness or (II)
is otherwise permitted, at the time the Refinancing Indebtedness
is Incurred, to be an obligor of the Refinancing Indebtedness;
and
(c) in the case of any Refinanced Indebtedness that is subordinated
(pursuant to its terms) in right and priority of payment to the
Notes or any Guarantee, the Refinancing Indebtedness (I) has a
final maturity and weighted average maturity at least as long as
the Refinanced Indebtedness and (II) is subordinated (pursuant to
its terms) in right and priority of payment to the Notes or the
Guarantee, as the case may be, at least to the same extent as
such Refinanced Indebtedness;
(7) Indebtedness Incurred by the Company or Northwest Aluminum Company or
Northwest Aluminum Specialties to fund capital improvements projects
at Northwest or Specialties in an aggregate original principal amount
not to exceed $15,000,000, and guarantees by the Subsidiaries of the
Company of this Indebtedness, provided that the Indebtedness and the
guarantees are subordinated in right and priority of payment to the
Notes and the Guarantees on terms no less favorable to the Holders of
the Notes than those applicable to the Indebtedness under the Hydro
Agreement and the guarantees of the Hydro Agreement as in effect on
the date of the Indenture, and further provided that this Indebtedness
has a final maturity date no earlier than one year following the
stated maturity of the Notes and provides for payments of principal
and interest on terms no less favorable to the holders of the Notes
than those contained in the Hydro Agreement;
(8) Indebtedness Incurred by the Company or any of its Subsidiaries
pursuant to Aluminum Hedging Obligations entered into in the ordinary
course of business and not for speculative purposes in reasonable
relation to the Company's or the Subsidiary's business; and
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(9) other Indebtedness Incurred by the Company in an aggregate principal
amount which does not exceed $5,000,000 at any time outstanding, and
guarantees by Subsidiaries of the Company of this Indebtedness.
The Board of Directors of the Company may designate an Unrestricted
Subsidiary to be a Subsidiary of the Company, provided that the conditions
specified in the definition of "Unrestricted Subsidiary" are met. A
redesignation will be treated as an Incurrence by the Company or its
Subsidiaries of the Indebtedness of the redesignated Subsidiary, to the extent
that the Indebtedness does not already constitute Indebtedness of the Company or
any of its Subsidiaries for purposes of this covenant as of the date of the
redesignation.
Any Indebtedness of any other Person existing at the time the Person
becomes a Subsidiary of the Company or secured by a Lien encumbering any assets
acquired by the Company or any Subsidiary of the Company will be deemed, for
purposes of this covenant (other than clause (5) of the second paragraph of this
covenant), to be Incurred at the time the Person becomes a Subsidiary or at the
time the assets are acquired, as the case may be.
The Company will not, and will not permit any of its Subsidiaries to, Incur
any Indebtedness that is subordinated (pursuant to its terms) in right and
priority of payment to any other Indebtedness of the Company or its Subsidiaries
unless the Indebtedness is also subordinated (pursuant to its terms) in right
and priority of payment to the Notes and the Guarantees on substantially
identical terms. No Indebtedness of the Company or any Subsidiary of the Company
will be deemed to be subordinated in right and priority of payment to any other
Indebtedness of the Company or the Subsidiary solely by virtue of being
unsecured or unguaranteed.
Limitations on Restricted Payments, Restricted Investments and Unrestricted
Subsidiary Investments
The Company will not, directly or indirectly,
(1) declare or pay any dividend or make any distribution in respect of, or
permit any of its Subsidiaries to declare or pay any dividend or make
any distribution in respect of, its Capital Stock (other than
dividends payable in Capital Stock of the Company other than
Disqualified Stock), provided that any Subsidiary of the Company may
pay dividends or make distributions to the Company or any other Wholly
Owned Subsidiary,
(2) make or permit any of its Subsidiaries to make any payment on account
of the purchase, redemption or other acquisition or retirement of any
Capital Stock of the Company or any of its Subsidiaries, provided that
any Subsidiary of the Company may purchase Capital Stock of the
Subsidiary from the Company or any Wholly Owned Subsidiary (which
purchase will not be a Restricted Payment or a Restricted Investment),
88
(3) make or permit any of its Subsidiaries to make any principal payment
(whether regularly scheduled or otherwise) on, or any prepayment,
purchase, redemption or other acquisition or retirement for value of,
any Indebtedness of the Company or any of its Subsidiaries that is
subordinated (pursuant to its terms) in right and priority of payment
to the Notes or any Guarantee, provided that any Subsidiary of the
Company may pay, prepay, purchase, redeem or otherwise acquire or
retire any of the Indebtedness of the Subsidiary payable to the
Company or any other Wholly Owned Subsidiary (each of the foregoing in
clauses (1), (2) and (3), a "Restricted Payment"),
(4) make or permit any of its Subsidiaries to make any Restricted
Investment, or
(5) make or permit any of its Subsidiaries to make any Unrestricted
Subsidiary Investment, unless at the time of, and immediately after
giving effect to, each Restricted Payment, Restricted Investment or
Unrestricted Subsidiary Investment:
(a) no Event of Default (or event that, after notice or lapse of
time, or both, would become an Event of Default) shall have
occurred and be continuing; and
(b) the Consolidated Fixed Charge Coverage Ratio of the Company is
greater than 2.0 to 1, in the case of any Restricted Payment,
Restricted Investment or Unrestricted Subsidiary Investment made
prior to December 15, 2001, and 2.25 to 1, in the case of any
Restricted Payment, Restricted Investment or Unrestricted
Subsidiary Investment made on or after December 15, 2001; and
(c) the sum of:
(I) the aggregate amount expended for all Restricted Payments
after the date of the Indenture,
(II) the aggregate amount expended for all Restricted Investments
after the date of the Indenture (less (A) to the extent any
Restricted Investment made after the date of the Indenture
is sold for or otherwise liquidated or repaid in cash, the
lesser of the cash return of capital with respect to the
Restricted Investment (less the cost of disposal, if any)
and the initial amount of the Restricted Investment, and (B)
the amount of any guarantee or similar contingent obligation
that constitutes a Restricted Investment made after the date
of the Indenture, to the extent it has been released), and
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(III) the aggregate amount of Unrestricted Subsidiary Investments
Outstanding (in each case, the amount expended for such
Restricted Payments, Restricted Investments and Unrestricted
Subsidiary Investments, if paid in property other than in
cash or a sum certain guaranteed, to be the Fair Market
Value of such property), would not exceed the sum of:
(A) 50% of the Consolidated Net Income of the Company (or,
if the aggregate Consolidated Net Income of the Company
for any period is a deficit, minus 100% of the deficit)
accrued on a cumulative basis for the period (taken as
one accounting period) from January 1, 1999 to the end
of the Company's most recently ended fiscal quarter for
which financial statements are available at the time
the Restricted Payment, Restricted Investment or
Unrestricted Subsidiary Investment is being made,
(B) the aggregate net proceeds, including the Fair Market
Value of property other than cash, received by the
Company as capital contributions to the Company (other
than from a Subsidiary or an Unrestricted Subsidiary of
the Company) after the date of the Indenture, or from
the issue or sale (other than to a Subsidiary or an
Unrestricted Subsidiary of the Company), after the date
of the Indenture, of Capital Stock of the Company other
than Disqualified Stock (excluding any net proceeds of
a Qualified Equity Offering to the extent used to
redeem any part of the Notes), or from the issue or
sale (other than to a Subsidiary or an Unrestricted
Subsidiary of the Company), after the date of the
Indenture, of any debt or other security of the Company
convertible into or exercisable for such Capital Stock
that has been so converted or exercised, and
(C) 50% of any dividends or other distributions consisting
of cash received by the Company or a Wholly Owned
Subsidiary after the date of the Indenture from any
Unrestricted Subsidiary to the extent that these
dividends or other distributions are not required to
reduce the amount of the Unrestricted Subsidiary
Investments Outstanding to zero.
The preceding provisions will not be violated by:
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(1) the payment of any dividend or distribution or the redemption of any
securities within 60 days after the date of declaration of the
dividend or distribution or the giving of the formal notice by the
Company of the redemption, if at said date of declaration of the
dividend or distribution or the giving of the formal notice of the
redemption, the dividend, distribution or redemption would have
complied with the preceding full paragraph;
(2) the retirement of any shares of the Company's Capital Stock by
exchange for, or out of the proceeds of, the substantially concurrent
sale (other than to a Subsidiary or an Unrestricted Subsidiary of the
Company) of other shares of its Capital Stock other than Disqualified
Stock or out of the proceeds of a substantially concurrent capital
contribution to the Company (other than by a Subsidiary or an
Unrestricted Subsidiary of the Company); provided, however, that, to
the extent the proceeds are so used, the sale of Capital Stock or
capital contribution will be excluded in determining the aggregate net
proceeds received by the Company referred to under clause (B) of the
preceding full paragraph;
(3) the payments provided for by clauses (2) and (3) of the second
paragraph under "-- Restrictions on Transactions with Affiliates and
Unrestricted Subsidiaries";
(4) principal payments (whether regularly scheduled or otherwise) on, or
any prepayment, purchase, redemption or other acquisition or
retirement for value of, Indebtedness of the Company or any of its
Subsidiaries that is subordinated (pursuant to its terms) in right and
priority of payment to the Notes or any Guarantee with the proceeds
from the substantially concurrent Incurrence of any Refinancing
Indebtedness in respect thereof permitted by clause (6) of the second
paragraph described under "-- Limitations on Indebtedness" (other than
Refinancing Indebtedness payable to the Company or any of its
Subsidiaries or Unrestricted Subsidiaries); provided, however, that,
to the extent the proceeds are so used, the proceeds, upon any
conversion of the Refinancing Indebtedness into Capital Stock, will
not be included in determining the aggregate net proceeds received by
the Company referred to under clause (B) of the preceding full
paragraph;
(5) principal payments (whether regularly scheduled or otherwise) on, or
any prepayment, purchase, redemption or other acquisition or
retirement for value of, any Indebtedness of the Company or any of its
Subsidiaries that is subordinated (pursuant to its terms) in right and
priority of payment to the Notes or any Guarantee by exchange for, or
out of the proceeds of, the substantially concurrent sale (other than
to a Subsidiary or an Unrestricted Subsidiary of the Company) of
Capital Stock of the Company other than Disqualified Stock or out of
the proceeds of a substantially concurrent capital
91
contribution to the Company (other than by a Subsidiary or an
Unrestricted Subsidiary of the Company); provided, however, that, to
the extent the proceeds are so used, the sale of Capital Stock or
capital contribution will be excluded in determining the aggregate net
proceeds received by the Company referred to under clause (B) of the
preceding full paragraph;
(6) (a) from time to time during or following the end of any fiscal
quarter during which the Company is an "S Corporation" within the
meaning of Section 1361 of the Internal Revenue Code of 1986, a
"qualified subchapter S subsidiary" within the meaning of Section
1361(b)(3)(B) of the Code, or a Person who has duly elected to be
taxed as a pass- through entity or otherwise ignored for federal
income tax purposes, cash distributions by the Company to its
shareholders in an amount equal to the maximum amount sufficient
to cover payment of the expected federal and state income taxes
attributable to the direct or indirect ownership of the Company's
common stock, based on the highest federal and state income tax
rates that could be applicable to any holder of such common
stock, as determined through the end of the fiscal quarter in
question plus any penalties or interest thereon, and
(b) if, subsequent to any year in which the Company or any Subsidiary
of the Company was an "S Corporation", a "qualified subchapter S
subsidiary" within the meaning of Section 1361(b)(3)(B) of the
Code, or a Person who has duly elected to be taxed as a
pass-through entity or otherwise ignored for federal income tax
purposes any taxing authority or court of competent jurisdiction
shall finally determine (including by way of settlement or
stipulation) that additional federal or state income taxes or any
penalties or interest are payable by the holders of the Company's
or the Subsidiary's common stock in respect of income of the
Company or the Subsidiary during that year, cash distributions to
the holders in an additional amount sufficient to pay the
additional federal or state income taxes plus any penalties or
interest;
provided, however, that, in the case of either clause (a) or (b), in
no event shall amounts so distributed after the date of the Indenture
in respect of any year exceed the actual amount of federal and state
income taxes (including any penalties or interest thereon), or
additional income taxes (including any penalties or interest thereon),
as the case may be, for the year on the income attributable to the
ownership of the Company's or the Subsidiary's common stock; provided,
further, that for purposes of clause (c)(III)(A) in the preceding
paragraph, Consolidated Net Income of the Company shall be reduced by
an amount equal to any cash distributions made in respect of any
penalties or interest in connection with any federal and state income
taxes in accordance with these clauses (6)(a) or (b);
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(7) the repurchase by Goldendale Aluminum Company of shares of its
preferred stock outstanding on the date of the Indenture; provided,
however, that the aggregate amount paid to repurchase such preferred
stock does not exceed $30,500,000, plus any accrued and unpaid
dividends thereon; and provided, further, that, immediately after
giving effect to the repurchase (a) no Event of Default (or event
that, with notice or lapse of time, or both, would constitute an Event
of Default) will exist and (b) the Company could Incur $1.00 of
Indebtedness pursuant to the first paragraph of the covenant described
under "-- Limitations on Indebtedness"; and
(8) the making by the Company or any Subsidiary of the Company of
Restricted Payments in addition to those permitted by any other clause
of this paragraph or by the first full paragraph of this covenant in
an aggregate amount not exceeding $1,000,000.
No payments and other transfers made under clauses (2) through (7) (except
as provided in clause (6)) of the preceding paragraph will reduce the amount
available for Restricted Payments, Restricted Investments and Unrestricted
Subsidiary Investments under the first full paragraph of this covenant. Payments
made under clause (1) or (8) and as specified in clause (6) of the preceding
paragraph will reduce the amount available for Restricted Payments, Restricted
Investments and Unrestricted Subsidiary Investments under the first full
paragraph of this covenant.
The Board of Directors of the Company may designate a Subsidiary of the
Company to be an Unrestricted Subsidiary, provided that certain conditions
specified in the definition of "Unrestricted Subsidiary" are met. For purposes
of making this determination, all outstanding Unrestricted Subsidiary
Investments by the Company and its Subsidiaries in the Unrestricted Subsidiary
so designated will be deemed to be Unrestricted Subsidiary Investments
Outstanding at the time of the designation and will reduce the amount available
for Restricted Payments, Restricted Investments and Unrestricted Subsidiary
Investments under the first full paragraph of this covenant. These Unrestricted
Subsidiary Investments will be deemed to have been made at the time of the
designation and to be in an amount equal to the greater of (1) the net book
value of the Unrestricted Subsidiary Investments at the time of the designation
and (2) the Fair Market Value of the Unrestricted Subsidiary Investments at the
time of the designation. The designation will only be permitted if the
Unrestricted Subsidiary Investments would be permitted at that time and if the
Subsidiary otherwise meets the conditions specified in the definition of an
Unrestricted Subsidiary.
Restrictions on Transactions with Affiliates and Unrestricted Subsidiaries
The Company will not, and will not permit any of its Subsidiaries to, enter
into any transaction or series of related transactions with any Affiliate or
Unrestricted Subsidiary of the Company, unless
93
(1) the terms of the transaction are no less favorable to the Company or
the Subsidiary, as the case may be, than those that could reasonably
be expected to be obtained in a comparable transaction with an
unrelated Person,
(2) if the amount of the transaction or the aggregate amount of a series
of related transactions is greater than $1,000,000, the transaction or
series of related transactions shall have been approved as meeting
such standard, in good faith, by a majority of the disinterested
members of the Board of Directors of the Company, as evidenced by a
Board Resolution, and
(3) if the amount of the transaction or the aggregate amount of a series
of related transactions is greater than $5,000,000, the Company or the
Subsidiary, as the case may be, shall have received an opinion that
the transaction or series of related transactions is fair to the
Company or the Subsidiary, as the case may be, from a financial point
of view, from an independent investment banking, appraisal or
accounting firm of national standing selected by the Company (which,
in the good faith judgment of the Board of Directors of the Company,
is qualified to perform this task).
The provisions contained in the preceding paragraph will not apply to
(1) the making of any Restricted Payments, Restricted Investments and
Unrestricted Subsidiary Investments otherwise permitted by the
covenant described under "-- Limitations on Restricted Payments,
Restricted Investments and Unrestricted Subsidiary Investments,"
(2) compensation (in the form of reasonable director's fees and
reimbursement or advancement of reasonable out-of-pocket expenses)
paid to any director of the Company or its Subsidiaries for services
rendered in that Person's capacity as a director and indemnification
and directors' and officers' liability insurance provided in
connection therewith, and
(3) compensation, indemnification and other benefits paid or provided to
officers and employees of the Company or its Subsidiaries for services
rendered consistent with the Company's practices on the date of the
Indenture or comparable to those generally paid or provided by
entities engaged in the same or similar businesses (including
reimbursement or advancement of reasonable out-of-pocket business
expenses and the provision of directors' and officers' liability
insurance).
Limitations on Liens
The Company will not, and will not permit any of its Subsidiaries to,
create, incur, assume or suffer to exist any Lien upon any of its assets
(including without limitation the
94
Pledged Shares) to secure, directly or indirectly, any Indebtedness or
obligations other than the Notes, unless the Notes are equally and ratably
secured on a senior basis for so long as the secured Indebtedness or obligations
are so secured.
The foregoing provision will not prohibit:
(1) Liens on the assets of the Subsidiaries of the Company (other than the
Collateral) securing Indebtedness under the Credit Agreement permitted
by clause (2) of the second paragraph of the covenant described under
"-- Limitations on Indebtedness";
(2) Liens on the Collateral securing Indebtedness under the Hydro
Agreement permitted by clause (3) of the second paragraph of the
covenant described under "-- Limitations on Indebtedness," provided
that these Liens are subordinated to the Liens on the Collateral on
terms substantially identical to those in effect on the date of the
Indenture;
(3) Liens in favor of the Company or any Wholly Owned Subsidiary;
(4) Liens on assets of a Person existing at the time the Person is merged
into or consolidated with the Company or any Subsidiary of the
Company, provided that these Liens were not created in connection with
or in contemplation of the merger or consolidation and do not extend
to any other assets (other than Improvements thereto or thereon and
any proceeds thereof) of the Company or any Subsidiary of the Company;
(5) Liens on assets existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that these Liens
were not created in connection with or in contemplation of the
acquisition and do not extend to any other assets (other than
Improvements thereto or thereon and any proceeds thereof) of the
Company or any Subsidiary of the Company;
(6) Liens securing Refinancing Indebtedness permitted by clause (6) of the
second paragraph of the covenant described under "-- Limitations on
Indebtedness" and Incurred to Refinance, or successively Refinance,
any Indebtedness secured by Liens permitted by this paragraph (other
than by clause (3) or (8) of this paragraph), provided that the Liens
securing the Refinancing Indebtedness do not encumber any assets
(which may be by category or type) of the Company or any Subsidiary of
the Company other than those securing the Indebtedness so Refinanced;
(7) Permitted Liens; and
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(8) Liens on assets of the Company or the Subsidiaries (other than the
Pledged Shares), in addition to those permitted by clauses (1) through
(7), securing Indebtedness or obligations in an aggregate amount at
any time outstanding not exceeding $5,000,000.
The Notes will be considered equally and ratably secured on a senior basis with
any other Lien if the Lien securing the Notes is of at least equal priority and
covers the same assets as the other Lien, provided that, if the Indebtedness or
obligations secured by the other Lien are expressly subordinated in right and
priority of payment by their terms to the Notes or any Guarantee, the Lien
securing the Notes shall be senior to the other Lien.
Subsidiary Guarantees
The Indenture will provide that, if any Person becomes a Subsidiary of the
Company after the date of the Indenture (including as a result of any merger,
consolidation or other acquisition or any designation by the Board of Directors
of the Company), the Company will
(1) execute and deliver to the Trustee, and cause each Person (and, in the
event the Company owns any of the Capital Stock of the Person
indirectly through one or more other Subsidiaries of the Company, each
of the other Subsidiaries) to execute and deliver to the Trustee, a
supplemental indenture complying with the requirements of the
Indenture satisfactory in form to the Trustee pursuant to which
(a) the Person will be named as an additional Subsidiary of the
Company subject as such to the terms of the Indenture, including
without limitation the provisions described under "-- The
Subsidiary Guarantees," and
(b) all of the issued and outstanding Capital Stock of the Person
owned by the Company or any Subsidiary of the Company (together
with all income, benefits and rights derived therefrom and all
proceeds thereof) will become subject to the Pledge under the
Indenture, and
(2) deliver or cause the Subsidiaries to deliver to the Trustee all
certificates evidencing the Capital Stock, properly endorsed in blank
or accompanied by duly executed stock powers satisfactory in form to
the Trustee providing for transfer in blank.
Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit its Subsidiaries to, create or
otherwise suffer to exist any consensual encumbrances or restrictions on the
ability of any Subsidiary of the Company to pay dividends or make any other
distributions on its Capital Stock or pay
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any Indebtedness owed to the Company or any other Subsidiary of the Company or
to make loans or advances or transfer any of its assets to the Company or any
other Subsidiary of the Company; provided, however, that these restrictions
shall not prohibit Permitted Dividend Encumbrances.
Limitations on Asset Sales
The Company will not, and will not permit any of its Subsidiaries to,
consummate any Asset Sale unless the Company or the Subsidiary receives
consideration in connection with the Asset Sale at least equal to the Fair
Market Value of the assets sold, transferred or otherwise disposed of and at
least 75% of the consideration therefor received by the Company or the
Subsidiary (exclusive of indemnities) is in the form of cash or Cash
Equivalents, provided that this sentence shall not apply to the sale or
disposition of assets as a result of a foreclosure (or a secured party taking
ownership of such assets in lieu of foreclosure) or as a result of an
involuntary proceeding in which the Company cannot, directly or through its
Subsidiaries, direct the type of proceeds received. The amount of any
liabilities of the Company or any Subsidiary of the Company (other than
contingent liabilities and liabilities that are by their terms subordinated in
right and priority of payment to the Notes or any Guarantee) that are actually
assumed by the transferee in the Asset Sale pursuant to a customary novation
agreement that releases the Company and its Subsidiaries from further liability
will be deemed to be cash for purposes of determining the percentage of cash
consideration received by the Company or its Subsidiaries.
The Company will apply any Net Cash Proceeds received after the date of the
Indenture to
(1) the prepayment of any Indebtedness of the Company (other than the
Notes or the Indebtedness under the Credit Agreement (or any
Refinancing Indebtedness Incurred in any Refinancing or successive
Refinancing thereof)) entitled to receive payment pursuant to the
terms thereof (excluding Indebtedness that by its terms is
subordinated in right and priority of payment to the Notes or any
Guarantee) (the "Specified Pari Passu Indebtedness"), unless the
holders thereof elect not to receive the prepayment (provided that, in
the event any of the Indebtedness was Incurred under a revolving
credit arrangement, the prepayment shall be accompanied by a permanent
reduction of the commitment in respect thereof), and
(2) an offer to purchase (an "Asset Sale Offer") the then outstanding
Notes on any Business Day occurring no later than 305 days after the
receipt by the Company (or any of its Subsidiaries, if applicable) of
the Net Cash Proceeds (the "Asset Sale Purchase Date," which date
shall be deferred to the extent necessary to permit the Asset Sale
Offer to remain open for the period required by applicable law), at a
price (the "Asset Sale Purchase Price") equal to 100% of the principal
amount thereof together with accrued and unpaid
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interest, if any, to the Asset Sale Purchase Date pursuant to the
provisions set forth below.
An Asset Sale Offer with respect to the Notes will be in an aggregate principal
amount (the "Asset Sale Offer Amount") equal to the Net Cash Proceeds (rounded
down to the nearest $1,000) from the Asset Sales to which the Asset Sale Offer
relates multiplied by a fraction, the numerator of which is the principal amount
of the Notes outstanding (determined as of the close of business on the day
immediately preceding the date notice of the Asset Sale Offer is mailed) and the
denominator of which is the principal amount of the Notes outstanding plus the
aggregate principal amount of Specified Pari Passu Indebtedness outstanding
(determined as of the close of business on the day immediately preceding the
date notice of the Asset Sale Offer is mailed). If
(1) no Specified Pari Passu Indebtedness is outstanding or
(2) the holders of this Indebtedness entitled to receive payment elect not
to receive the payments provided for in the previous sentence, or
(3) the application of such Net Cash Proceeds results in the complete
prepayment of this Indebtedness,
then in each case any remaining portion of such Net Cash Proceeds will be
required to be applied to an Asset Sale Offer to purchase the Notes.
Notice of an Asset Sale Offer will be mailed by the Company to all holders
at their last registered address within 275 days of the receipt by the Company
or any of its Subsidiaries of any Net Cash Proceeds. The Asset Sale Offer shall
remain open from the time of mailing until the last Business Day before the
Asset Sale Purchase Date, but in no event for a period less than the greater of
(1) 24 days or
(2) that required by applicable law.
The notice shall state, among other things,
(1) that holders will be entitled to withdraw their election if the
Trustee receives, not later than one Business Day before the Asset
Sale Purchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the holder, the principal amount of
the Notes the holder delivered for purchase, the certificate number of
each Note the holder delivered for purchase and a statement that the
holder is withdrawing his, her or its election to have the Notes
purchased and
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(2) that if Notes in a principal amount in excess of the Asset Sale Offer
Amount are surrendered pursuant to the Asset Sale Offer, the Company
shall purchase Notes on a pro rata basis (with adjustments deemed
appropriate by the Company so that only Notes in denominations of
$1,000 or integral multiples thereof will be acquired).
Notwithstanding the foregoing, the Company will not be required to make an
Asset Sale Offer until the aggregate amount of Net Cash Proceeds so to be
applied pursuant to this covenant exceeds $10,000,000, and then the total amount
of such Net Cash Proceeds shall be required to be so applied in accordance with
this covenant. In no event will any Net Cash Proceeds that are applied to an
Asset Sale Offer be required to be applied to more than one Asset Sale Offer.
Notwithstanding the foregoing, the Company will have no obligation to make
an Asset Sale Offer if, and to the extent, the Company or any of its
Subsidiaries commits within 270 days of the receipt of any Net Cash Proceeds to
reinvest (whether by acquisition of an existing business or expansion, including
without limitation capital expenditures) the Net Cash Proceeds in one or more of
the lines of business (including capital expenditures) in which the Company or
its Subsidiaries were engaged on the date of the Indenture or any business
reasonably related or ancillary thereto, provided that the Net Cash Proceeds are
substantially so used or irrevocably committed to be so used no later than 365
days following receipt of the Net Cash Proceeds.
Limitations on Unrestricted Subsidiaries
The Company will not permit any of its Unrestricted Subsidiaries to
guarantee or otherwise directly or indirectly provide credit support for any
Indebtedness of the Company or any of its Subsidiaries.
Conduct of Business
The Company will not, and will not permit any of its Subsidiaries to,
engage in any businesses other than lines of business in which the Company or
any of its Subsidiaries is engaged on the date of the Indenture and any business
reasonably related or ancillary thereto (as determined in good faith by the
Company's Board of Directors).
Limitations on Issuances and Sales of Capital Stock of Subsidiaries
The Company will not, and will not permit any of its Subsidiaries to, sell,
transfer or otherwise dispose of any Capital Stock of any Subsidiary to any
Person if as a result of the sale, transfer or disposition the Subsidiary will
cease to be a Subsidiary, and will provide further that any permitted sale,
transfer or disposition will comply with the terms of the Indenture (including
without limitation the covenant described under "-- Limitations on Asset
Sales").
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Payments for Consent
The Company will not, and will not permit any of its Subsidiaries or
Unrestricted Subsidiaries to, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any holder
of a Note for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture, the Notes or any Guarantee, unless the
consideration is offered to be paid or is paid to all holders of the Notes that
so consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to the consent, waiver or amendment.
Maintenance of Corporate Existence
Except pursuant to a merger or a consolidation in accordance with the
provisions described under "-- Merger or Consolidation," the Company will at all
times (except as otherwise provided or permitted in the Indenture) do or cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence and the corporate existence of each Subsidiary of the
Company; provided, however, that any Wholly Owned Subsidiary may liquidate or
dissolve under the laws of its jurisdiction of formation.
Maintenance of Insurance
From and at all times after the date of issuance of Notes until the Notes
have been paid in full, the Company and the Subsidiary Guarantors will, and will
cause their Restricted Subsidiaries to, have and maintain in effect insurance
with responsible carriers against risks and in amounts as is customarily carried
by similar businesses with deductibles, retentions, self insured amounts and
coinsurance provisions that are customarily carried by similar businesses of
similar size, including, without limitation, property and casualty.
SEC Reports
The Company will file with the Trustee, within 15 days after it is required
to file them with the Securities and Exchange Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) that the Company is required to file with the SEC pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. If the Company is not
subject to the requirements of Section 13 or 15(d) of the Securities Exchange
Act, the Company shall nonetheless file with the Trustee copies of annual
reports and information, documents and other reports that it would file if it
were subject to the requirements of Section 13 or 15(d) of the Securities
Exchange Act. In addition, the Company and its Subsidiaries will agree that, for
so long as any Restricted Securities remain outstanding, they will furnish to
the holders of the Notes and to securities analysts and prospective investors,
upon request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act of 1933.
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Merger or Consolidation
The Company will not consolidate or merge with or into any other entity or
sell or convey (or permit any of its Subsidiaries to sell or convey) all or
substantially all of the Company's property (determined on a consolidated basis
for the Company and its Subsidiaries) to any other entity, whether in a single
transaction or a series of related transactions (the entity formed by or
surviving any such consolidation or merger, or to which such sale or conveyance
shall have been made, whether the Company or such other entity, being herein
called the "surviving corporation"), unless
(1) immediately after giving effect to such consolidation, merger, sale or
conveyance, no Event of Default (or event that, after notice or lapse
of time, or both, would constitute an Event of Default) will exist,
(2) the surviving corporation will be a corporation organized under the
laws of the United States or any State thereof,
(3) immediately after giving effect to such consolidation, merger, sale or
conveyance, the surviving corporation could Incur $1.00 of
Indebtedness pursuant to the first paragraph of the covenant described
under "-- Limitations on Indebtedness,"
(4) the surviving corporation (if other than the Company) will expressly
assume the obligations of the Company under the Notes and the
Indenture by supplemental indenture complying with the requirements of
the Indenture satisfactory in form to the Trustee,
(5) the surviving corporation (if other than the Company) will expressly
assume the obligations of the Company under the Security Agreements
and the Registration Rights Agreement and
(6) immediately after giving effect to the consolidation, merger, sale or
conveyance, the surviving corporation will have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the
Company immediately prior to the transaction.
Except as set forth in the immediately succeeding paragraph, no Subsidiary
of the Company (other than a Subsidiary the Guarantee of which is to be released
in accordance with the terms of the Indenture in connection with any transaction
complying with the covenant described under "-- Limitations on Asset Sales")
will consolidate or merge with or into any other entity, unless
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(1) immediately after giving effect to the consolidation or merger, no
Event of Default (or event that, after notice or lapse of time, or
both, would constitute an Event of Default) will exist,
(2) the surviving corporation will be a Subsidiary of the Company
organized under the laws of the United States or any State thereof,
(3) immediately after giving effect to the consolidation or merger, the
Company could Incur $1.00 of Indebtedness pursuant to the first
paragraph of the covenant described under "-- Limitations on
Indebtedness,"
(4) the surviving corporation (if other than the Subsidiary) will
expressly assume the obligations of the Subsidiary under the Security
Agreements and the Indenture (including the obligations of the
Subsidiary under its Guarantee) by supplemental indenture complying
with the requirements of the Indenture satisfactory in form to the
Trustee, and
(5) immediately after giving effect to the consolidation or merger, the
surviving corporation will have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Subsidiary immediately
prior to such transaction.
Notwithstanding the immediately preceding paragraph,
(1) a Wholly Owned Subsidiary of the Company may consolidate or merge with
or into the Company, provided that the Company is the surviving
corporation, and
(2) a Wholly Owned Subsidiary of the Company may consolidate or merge with
or into any other Wholly Owned Subsidiary.
No Amendment to Subordination Provisions
Without the consent of the Holders of at least a majority in aggregate
principal amount of the Notes then outstanding, the Company will not amend,
modify or alter the Hydro Agreement in any way that will
(1) increase the rate of or change the time for payment of interest on any
Hydro Subordinated Debt,
(2) increase the principal of, advance the final maturity date of or
shorten the Weighted Average Life to Maturity of any Hydro
Subordinated Debt and
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(3) alter the redemption provisions or the price or terms at which the
Company is required to offer to purchase the Hydro Subordinated Debt.
The Company also will not agree or consent to or take any other act to affect
the subordination of the Hydro Subordinated Debt relative to the Notes.
Release of Collateral
Under certain circumstances, the Company may obtain the release of certain
Collateral upon fulfilling various requirements as provided in the Security
Agreements.
Defaults and Certain Rights on Default
Each of the following is an Event of Default:
(1) a default in the payment of principal, Change of Control Purchase
Price, Asset Sale Purchase Price or premium (if any) with respect to
the Notes, as and when the same shall become due and payable either at
maturity, upon redemption or purchase by the Company, by declaration
or otherwise,
(2) a default in payment of any installment of interest on any of the
Notes as and when the same shall become due and payable, which default
continues for 30 days,
(3) a failure on the part of the Company to observe or perform in any
material respect the provisions described under "--Material
Covenants-- Limitations on Indebtedness," "--Material Covenants --
Limitations on Restricted Payments, Restricted Investments and
Unrestricted Subsidiary Investments," "--Material Covenants--
Limitations on Liens," "--Material Covenants -- Limitations on Asset
Sales," "--Covenants-- Merger or Consolidation," "-- Material
Covenants-- No Amendment to Subordination Provisions" or "Offer to
Purchase the Notes,"
(4) a failure on the part of the Company to observe or perform in any
material respect any other of the covenants or agreements on the part
of the Company in the Notes or in the Indenture for a period of 60
days after the date on which written notice of the failure, which
notice must specify the failure, demand it be remedied and state that
the notice is a "Notice of Default," shall have been given to the
Company by the Trustee by registered or certified mail (which notice
the Trustee may give at its discretion and will give upon receipt of
requests to do so by the holders of at least 25% of the aggregate
principal amount of the Notes at the time outstanding) or to the
Company and the Trustee by registered or certified mail by the holders
of at least 25% of the aggregate principal amount of the Notes at the
time outstanding,
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(5) a default under any mortgage, indenture or instrument under which
there may be issued, secured or evidenced any Indebtedness of the
Company or any of its Subsidiaries, whether the Indebtedness now
exists or shall hereafter be created, which default
(a) in the case of a failure to make payment on any Indebtedness,
shall not have been waived, cured or otherwise ceased to exist
prior to the expiration of the applicable grace period provided
with respect to the Indebtedness, or
(b) in the case of any default other than a payment default referred
to in clause (a), shall have resulted in the Indebtedness
becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, provided
that the aggregate principal amount of all Indebtedness in
respect of which any such default exists exceeds $10,000,000;
(6) a breach by the Company or any Guarantor of any material
representation or warranty set forth in the Security Agreements, or,
subject to notice and grace periods set forth in the applicable
Security Agreements, a default by the Company or any Guarantor in the
performance of any covenant set forth in the Security Agreements, or a
repudiation by the Company or any Guarantor of its obligations under
the Security Agreements or the unenforceability of the Security
Agreements against the Company or any Guarantor for any reason;
(7) a final judgment which, together with other outstanding final
judgments against the Company and its Subsidiaries, exceeds an
aggregate of $10,000,000 (to the extent the judgments are not covered
by valid and collectible insurance from solvent unaffiliated insurers
or uncontested indemnification from solvent unaffiliated indemnitors)
shall be entered against the Company and/or its Subsidiaries and,
within 60 days after entry thereof, judgments exceeding that amount
shall not have been discharged, settled or bonded or execution thereof
stayed pending appeal or, within 60 days after the expiration of any
stay, the judgments exceeding such amount shall not have been
discharged, settled or bonded or execution thereof further stayed;
(8) certain events of bankruptcy, insolvency, receivership or
reorganization with respect to the Company or any of its Subsidiaries
and
(9) other than pursuant to the provisions regarding release described
under "-- The Subsidiary Guarantees," a Guarantee having been held
unenforceable or invalid with respect to any Subsidiary of the Company
by a final non-appealable order or judgment issued by a court of
competent jurisdiction or having ceased for any reason to be in full
force and effect with respect to any
104
Subsidiary of the Company, or any Subsidiary of the Company or any
Person acting by or on behalf of any Subsidiary of the Company having
denied or disaffirmed its obligations under a Guarantee.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium will also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the Notes. If an Event of Default occurs before December 15,
2002 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to December 15, 2002, then the premium specified
in the Indenture will also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
If an Event of Default shall have occurred and be continuing, either the
Trustee or the holders of at least 25% of the aggregate principal amount of the
Notes then outstanding may declare the entire principal of and interest on the
Notes to be due and payable immediately. Upon the occurrence of certain events
of bankruptcy, insolvency, receivership or reorganization, principal of and
interest on the Notes will become due and payable without necessity of action on
the part of the Trustee or the holders of the Notes. The holders of a majority
of the aggregate principal amount of the Notes at the time outstanding may on
behalf of the holders of all of the Notes waive any past default under the
Indenture and its consequences (including any acceleration, other than an
automatic acceleration resulting from certain events of bankruptcy, insolvency,
receivership or reorganization), except a default in the payment of principal
of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price
or interest on any of the Notes (other than solely as a result of an
acceleration) or a default under any covenant or provision of the Indenture
which under the provisions described in "-- Modification of the Indenture or
Security Agreements" cannot be modified or amended without the consent of the
holder of each outstanding Note. In the case of any waiver, the Company, the
Trustee and the holders of the Notes will be restored to their former positions
and rights hereunder; but no waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
Modification of Indenture or Security Agreements
With the consent of the holders of not less than a majority in aggregate
principal amount of the outstanding Notes, the Trustee and the Company may
execute a supplemental indenture to add provisions to, or change in any manner
or eliminate any provisions of, the Indenture or modify in any manner the rights
of the holders of the Notes; provided, however, that, without the consent of
each holder of an outstanding Note affected, no such supplemental indenture will
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(1) extend the stated maturity of any Note, reduce the rate at which
interest accrues on any Note, extend the time or alter the manner of
payment of interest on any Note, reduce the principal amount of any
Note, alter the timing of or reduce any premium payable upon the
redemption of any Note, change the currency in which any payments are
made on or with respect to any Note, change the ranking or seniority
of any Note, or reduce the amount payable on any Note in the event of
acceleration or the amount of any Note payable in bankruptcy, or
(2) reduce the percentage of aggregate principal amount of Notes the
consent of the holders of which is required for any supplemental
indenture.
The Company and the Trustee may, without the consent of any holder of the Notes,
amend or supplement the Indenture for certain limited purposes, including to
cure any ambiguity or to correct any defect or inconsistency in the Indenture or
to comply with any requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. Without the consent of the holders of not less than 66 2/3% in
aggregate principal amount of the outstanding Notes, the Collateral Agent and
the Company cannot
(1) amend the Security Agreements or
(2) release any of the Collateral from a Lien or the Security Agreements
(except in accordance with the provisions thereof).
Legal Defeasance and Covenant Defeasance
The Company may, at its option, elect to have its obligations and the
obligations of its Subsidiaries, including under any Guarantees, discharged with
respect to the outstanding Notes ("Legal Defeasance"). This Legal Defeasance
means that the Company will be deemed to have paid and discharged the entire
indebtedness represented, and the Indenture will cease to be of further effect
as to all outstanding Notes and Guarantees, except as to
(1) rights of holders of the Notes to receive payments in respect of the
principal of, premium, if any, and interest on the Notes when the
payments are due from the trust funds;
(2) the Company's obligations with respect to such Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes, and the maintenance of an office or agency for
payment and money for security payments held in trust;
(3) the rights, powers, trust, duties, and immunities of the Trustee, and
the Company's obligations in connection therewith; and
106
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and its Subsidiaries released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with these obligations will not constitute an
Event of Default with respect to the Notes. If a Covenant Defeasance occurs,
certain events (not including non-payment, guarantees, bankruptcy, receivership,
reorganization and insolvency events) described under "-- Defaults and Certain
Rights on Default" will no longer constitute an Event of Default with respect to
the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the holders of the Notes, U.S. legal tender, Government
Securities or a combination thereof, in amounts that will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the Notes on the stated date for payment thereof
or on the redemption date of the principal or installment of principal
of, premium, if any, or interest on the Notes, and the holders of
Notes must have a valid, perfected, exclusive security interest in the
trust;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that
(a) the Company has received from, or there has been published by the
Internal Revenue Service, a ruling or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon the opinion of counsel shall confirm
that, the holders of the Notes will not recognize income, gain or
loss for federal income tax purposes as a result of the Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if the Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to such Trustee confirming that the holders of the Notes
will not recognize income, gain or loss for federal income tax
purposes as a result of the Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if the Covenant Defeasance had
not occurred;
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(4) no Event of Default (or event that, after notice or lapse of time, or
both, would become an Event of Default) shall have occurred and be
continuing on the date of the deposit or, in so far as bankruptcy,
insolvency, receivership or reorganization are concerned, at any time
between the date of the deposit and the 91st day after the date of the
deposit and the Company shall have delivered to the Trustee an opinion
of counsel, subject to the qualifications and exceptions as the
Trustee deems appropriate, to the effect that, assuming no intervening
bankruptcy of the Company between the date of deposit and the 91st day
following the deposit and that no holder of the Notes is an insider of
the Company, after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors rights
generally;
(5) the Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, the Indenture
or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;
(6) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the Notes over any other
creditors of the Company or any of its Subsidiaries or with the intent
of defeating, hindering, delaying or defrauding any other creditors of
the Company or any of its Subsidiaries or others; and
(7) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that the Company
has complied with the conditions precedent provided for in, in the
case of the Officers' Certificate, (1) through (6) and, in the case of
the opinion of counsel, clauses (1) (with respect to the validity and
perfection of the security interest) and (5) of this paragraph.
If the funds deposited with the Trustee to effect Covenant Defeasance are
insufficient to pay the principal of, premium, if any, and interest on the Notes
when due, or if the transfer of the funds to the Trustee is avoided as a
preferential transfer, a fraudulent transfer, or otherwise, then the obligations
of the Company and the Subsidiary Guarantors under the Indenture will be revived
and no defeasance will be deemed to have occurred.
Concerning the Trustee
U.S. Trust Company, National Association, is the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
The holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any
108
remedy available to the Trustee, subject to certain exceptions. The Indenture
provides that if an Event of Default occurs (and is not cured), the Trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent person in the conduct of his or her own affairs. Subject to these
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any holder of Notes,
unless a holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Please
refer to the Indenture for a full disclosure of all these terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Affiliate" means any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with a specified
Person. For the purpose of this definition, "control" when used with respect to
any specified Person means the possession of the power to direct the management
and policies of that Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Aluminum Hedging Obligations" means, with respect to any Person, monetary
obligations of that Person pursuant to any options or futures contract, forward
contract or other agreement or arrangement designed to protect that Person or
any of its Subsidiaries against fluctuations in prices of aluminum or raw
materials related to the production of aluminum.
"Asset Sale" means
(1) any sale, transfer or other disposition (including without limitation
dispositions pursuant to a merger, consolidation or sale and leaseback
transaction) of any assets (other than cash or Cash Equivalents) on or
after the date of the Indenture by the Company or any of its
Subsidiaries to any Person other than the Company or a Wholly Owned
Subsidiary, and
(2) the issuance by any Subsidiary of the Company on or after the date of
the Indenture of its Capital Stock to any Person other than the
Company or a
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Wholly Owned Subsidiary; provided, however, that, solely for the
purposes of the definition of Consolidated Cash Flow Available for
Fixed Charges, the term Asset Sale shall exclude dispositions pursuant
to a sale and leaseback transaction if the lease under the sale and
leaseback transaction is required to be classified and accounted for
as a Capitalized Lease Obligation; and provided, further, that the
following sales, transfers or other dispositions of assets will not be
an "Asset Sale" hereunder:
(a) sales of inventory in the ordinary course of business of the
Company and its Subsidiaries;
(b) o trade-ins of any used equipment on replacement equipment or
o sales, transfers or other dispositions of property no longer
necessary for or useful in the proper conduct of the business
of the Company and its Subsidiaries, the gross proceeds of
which sales, transfers or other dispositions (exclusive of
indemnities) do not exceed $1,000,000 during any 12-month
period (the amount of the proceeds, to the extent consisting
of property other than cash, to be the Fair Market Value of
such property);
(3) transfers or other dispositions resulting from the creation,
Incurrence or assumption of (but not any foreclosure with respect to)
any Lien not prohibited by the covenant described under "-- Material
Covenants -- Limitations on Liens";
(4) sales in the ordinary course of business of accounts receivable as to
which collection is doubtful in accordance with past practice;
(5) sales, transfers or other dispositions in connection with any
consolidation or merger of the Company or any of its Subsidiaries or
sale or conveyance of all or substantially all of the property of the
Company (determined on a consolidated basis for the Company and its
Subsidiaries) in compliance with the provisions described under "--
Material Covenants -- Merger or Consolidation";
(6) sales, transfers or other dispositions which are Restricted
Investments, Restricted Payments or Unrestricted Subsidiary
Investments permitted by the provisions described under "-- Material
Covenants -- Limitations on Restricted Payments, Restricted
Investments and Unrestricted Subsidiary Investments";
(7) sales, transfers or other dispositions of the 105 megawatt General
Electric steam turbine generator and related generator power
transformers and other
110
related assets held for sale by Goldendale Aluminum Company on the
date of the Indenture; and
(8) the surrender or waiver of contract rights, or settlement, release or
surrender of contract, tort or other claims of any kind.
"Attributable Debt" means, with respect to a sale and leaseback
transaction, as of the date of completion of the transaction, the greater of
(1) the Fair Market Value of the property subject to the sale and
leaseback transaction and
(2) the present value (discounted at the interest rate borne by the Notes,
compounded semi-annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in the
sale and leaseback transaction (including any period for which the
lease has been extended).
"Borrowing Base" means, at any time, the sum of
(1) up to 85% of the then book value (net of reserves) of the accounts of
the Company and its Subsidiaries on a consolidated basis arising from
the sale of inventory in the ordinary course of business, plus
(2) up to 75% of the then book value of the finished aluminum inventory of
the Company and its Subsidiaries on a consolidated basis, plus
(3) up to 50% of the other inventory of the Company and its Subsidiaries
on a consolidated basis, all as determined in accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of capital
stock, partnership or member interests or other undivided ownership interests in
the Person, and warrants, options or similar rights (other than, except for
purposes of the provisions described under "-- Material Covenants -- Subsidiary
Guarantees" and "-- Security," debt securities convertible into Capital Stock)
to acquire the capital stock, partnership or member interests or other undivided
ownership interests in the Person.
"Capitalized Lease Obligations" means, with respect to any Person, the
obligations of the Person to pay rent or other amounts under any lease of (or
other agreement conveying the right to use) real or personal property, which
obligations are required to be classified and accounted for as a capital lease
obligation on a balance sheet of the Person under GAAP; and, for purposes of the
Indenture, the amount of these obligations at any date shall be the amount of
the liability thereof at that date, determined in accordance with GAAP.
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"Cash Equivalents" means, with respect to any Person,
(1) Government Securities having maturities of not more than one year from
the date of acquisition,
(2) certificates of deposit of any commercial bank incorporated under the
laws of the United States, or any state, territory or commonwealth
thereof, of recognized standing having capital and unimpaired surplus
in excess of $100,000,000 and whose short-term commercial paper rating
at the time of acquisition is at least A-2 or the equivalent by
Standard & Poor's Corporation or at least P-2 or the equivalent by
Moody's Investors Services, Inc. (any such bank, an "Approved Bank"),
which certificates of deposit have maturities of not more than one
year from the date of acquisition,
(3) repurchase obligations with a term of not more than 31 days for
underlying securities of the types described in clauses (1), (2) and
(4) of this definition entered into with any Approved Bank,
(4) commercial paper or finance company paper issued by any Person
incorporated under the laws of the United States, or any state
thereof, and rated at least A-2 or the equivalent by Standard & Poor's
Corporation or at least P-2 or the equivalent by Moody's Investors
Services, Inc., and in each case maturing not more than one year from
the date of acquisition, and
(5) investments in money market funds that are registered under the
Investment Company Act of 1940 that have net assets of at least
$100,000,000 and at least 85% of whose assets consist of investments
or other obligations of the type described in clauses (1) through (4)
above.
"Change of Control" means the occurrence of any of the following (whether
or not otherwise in compliance with the provisions of the Indenture):
(1) the sale, lease, transfer, conveyance or other disposition, in one or
a series of related transactions, of all substantially all of the
assets of the Company and its Subsidiaries taken as a whole to any
"person" (as that term is used in Section 13(d)(3) of the Exchange
Act) other than the Company and/or one or more Wholly Owned
Subsidiaries,
(2) the adoption of a plan relating to the complete liquidation or
dissolution of the Company,
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) as a result of which Brett E. Wilcox is
no longer the sole beneficial owner (as to both voting and dispositive
power) of at least a
112
majority of the Voting Stock of the Company, provided that an event
will not constitute a "change of control" if Brett E. Wilcox
(a) is the sole beneficial owner (as to both voting and dispositive
power) of at least 35% of the Voting Stock of the Company, and
(b) is the Chief Executive Officer of the Company and
(c) has the sole right (not subject to revocation, termination or
expiration prior to the scheduled maturity of the Notes) to elect
a majority of the Board of Directors of the Company;
provided, further, that the immediately preceding proviso will not be
available if any other "person" (as defined above) is the beneficial
owner (as to either voting or dispositive power) of 35% or more of the
Voting Stock of the Company or
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors. For purposes of
this provision, "Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who
(a) was a member of the Board of Directors on the date of the
Indenture or
(b) was nominated for election or elected or appointed to the Board
of Directors by the Board of Directors of the Company at a time
when a majority of the Board (excluding any member whose service
terminated as result of death) consisted of Continuing Directors.
"Consolidated Amortization Expense" means, with respect to any Person for
any period, the amortization expense (including without limitation that
associated with goodwill, deferred financing charges and other intangible items)
of that Person and its Subsidiaries for the period, determined on a consolidated
basis in accordance with GAAP.
"Consolidated Cash Flow Available for Fixed Charges" means, with respect to
any Person for any period, the sum (without duplication) of the amounts for the
period of
(1) Consolidated Net Income (which shall include, solely for this purpose,
the Net Income of any Unrestricted Subsidiary to the extent paid or
distributed in cash to the Company or one of its Subsidiaries),
(2) Consolidated Fixed Charges (but only to the extent Consolidated Net
Income has been reduced thereby),
113
(3) Consolidated Income Tax Expense (other than income taxes (including
credits) with respect to items of Net Income not included in the
definition of Consolidated Net Income),
(4) Consolidated Depreciation Expense,
(5) Consolidated Amortization Expense, and
(6) any other non-cash items reducing Consolidated Net Income (excluding
any non-cash expense to the extent it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period or amortization
of a prepaid cash expense that was paid in a prior period), minus any
non-cash items increasing Consolidated Net Income, all as determined
on a consolidated basis for the Person and its Subsidiaries in
accordance with GAAP;
provided, however, that
(1) if, during that period (or subsequent to the period and on or before
the relevant Transaction Date, as defined below), the Person or any of
its Subsidiaries shall have engaged in any Asset Sale, Consolidated
Cash Flow Available for Fixed Charges of the Person and its
Subsidiaries for the period will be reduced by an amount equal to the
Consolidated Cash Flow Available for Fixed Charges (if positive)
directly attributable to the assets that are the subject of the Asset
Sale for the period, or increased by an amount equal to the
Consolidated Cash Flow Available for Fixed Charges (if negative)
directly attributable to the assets that are the subject of the Asset
Sale for the period and
(2) if, during that period (or subsequent to the period and on or before
the relevant Transaction Date), the Person or any of its Subsidiaries
shall have acquired any material assets out of the ordinary course of
business, Consolidated Cash Flow Available for Fixed Charges will be
calculated on a pro forma basis as if the asset acquisition and
related financing had occurred at the beginning of the period.
"Consolidated Depreciation Expense" means, with respect to any Person for
any period, the depreciation and depletion expense (including without limitation
the amortization expense associated with Capitalized Lease Obligations) of that
Person and its Subsidiaries for the period, determined on a consolidated basis
in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person as of the date of the transactions giving rise to the need to calculate
the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date"), the ratio
of
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(1) the aggregate amount of Consolidated Cash Flow Available for Fixed
Charges of that Person for the four fiscal quarters immediately
preceding the Transaction Date for which financial information in
respect thereof is available (the "Four Quarter Period") to
(2) the aggregate Consolidated Fixed Charges of the Person for the Four
Quarter Period.
For purposes of this calculation,
(1) any Indebtedness (other than Indebtedness Incurred under a revolving
credit facility in effect on a pro forma basis on the Transaction
Date) Incurred, repaid, redeemed, repurchased, defeased or otherwise
discharged during the Four Quarter Period or subsequent to the Four
Quarter Period and on or before the Transaction Date, including
without limitation Indebtedness giving rise to the need to make these
calculations, will be deemed to have been Incurred or discharged, as
the case may be, on the first day of the Four Quarter Period (so that
there will be deemed to have been outstanding during the entire Four
Quarter Period an amount of Indebtedness equal to the amount thereof
outstanding on a pro forma basis on the Transaction Date and so that
no Indebtedness that is not outstanding on a pro forma basis on the
Transaction Date will be deemed to have been outstanding during any
part of the Four Quarter Period),
(2) any Indebtedness under a revolving credit facility in effect on a pro
forma basis on the Transaction Date will be deemed to have been
outstanding during the entire Four Quarter Period in an amount equal
to the average daily balance of the Indebtedness during the period
commencing on the first day of the Four Quarter Period and ending on
the Transaction Date, and
(3) Consolidated Fixed Charges attributable to interest accrued at a
variable rate will be computed as if the rate in effect on the
Transaction Date had been the applicable rate for the entire Four
Quarter Period, unless the Person or any of its Subsidiaries is a
party to any Interest Hedging Obligations (which will remain in effect
for the 12-month period immediately following the Transaction Date)
that have the effect of fixing such rate, in which case the fixed rate
shall be used.
"Consolidated Fixed Charges" means (without duplication), with respect to
any Person for any period, the sum of:
(1) the interest expense of that Person and its Subsidiaries for the
period, determined on a consolidated basis in accordance with GAAP;
115
(2) all fees, commissions, discounts and other charges of that Person and
its Subsidiaries for the period, determined on a consolidated basis in
accordance with GAAP, with respect to letters of credit and bankers'
acceptances and the costs (net of benefits) associated with Interest
Hedging Obligations of the Person and its Subsidiaries for the period;
(3) the aggregate amount of dividends or other similar distributions
accrued by that Person and its Subsidiaries during the period with
respect to preferred stock of the Person or its Subsidiaries
determined on a consolidated basis in accordance with GAAP; and
(4) amortization or write-off of debt discount for the period in
connection with any Indebtedness of that Person and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Income Tax Expense" means (without duplication), with respect
to any Person for any period, the income tax expense (net of applicable credits)
of that Person and its Subsidiaries for the period, determined on a consolidated
basis in accordance with GAAP, and, in the case of the Company, any
distributions made in respect of income for the period pursuant to clause (6) of
the second paragraph of the covenant described under "-- Material Covenants --
Limitations on Restricted Payments, Restricted Investments and Unrestricted
Subsidiary Investments."
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of that Person and its Subsidiaries for the
period taken as a single accounting period, all as determined on a consolidated
basis in accordance with GAAP, excluding (in each case to the extent otherwise
included):
(1) the Net Income (but not loss) of any Person that is not a Subsidiary
of the Person or that is accounted for on the equity method of
accounting, except to the extent of the amount of dividends or other
distributions (other than dividends or distributions of Capital Stock)
actually paid in cash to the Person or any of its Subsidiaries by the
other Person during such period;
(2) except to the extent included by clause (1), the Net Income of any
Person accrued before the date it becomes a Subsidiary of the Person
or is merged into or consolidated with the Person or any of its
Subsidiaries or that Person's assets are acquired by the Person or any
of its Subsidiaries;
(3) the Net Income of any Subsidiary of the Person during the period
(a) to the extent that the declaration or payment of dividends or
similar distributions by the Subsidiary of the Net Income is not
at the time permitted or, directly or indirectly, by operation of
the terms of its
116
charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation (including any
governmental approval that has not been obtained) applicable to
that Subsidiary or its shareholders or
(b) in the case of a foreign Subsidiary or a Subsidiary with
significant foreign source income, to the extent the Net Income
has not been distributed to the Person and the distribution would
result in a material tax liability not otherwise deducted from
the calculation of Consolidated Net Income whether or not the
deduction is required by GAAP;
(4) the Net Income of any Unrestricted Subsidiary, whether or not paid or
distributed to the Company or one of its Subsidiaries; and
(5) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the total shareholders' equity of that Person as of the date less, to the extent
otherwise included, amounts attributable to Disqualified Stock, in each case
determined on a consolidated basis in accordance with GAAP.
"Credit Agreement" means the Credit Agreement, dated December 21, 1998, by
and among Northwest Aluminum Company, Northwest Aluminum Specialties, Inc.,
Goldendale Holding Company (as guarantor), Goldendale Aluminum Company,
Northwest Aluminum Technologies, LLC, the financial institutions that are, or
from time to time become, parties thereto, and BankBoston N.A., as
administrative agent, providing for revolving credit borrowings, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Disqualified Stock" means
(1) except as set forth in clause (2) below, with respect to any Person,
Capital Stock of that Person that by its terms, or by the terms of any
security into which it is convertible or for which it is exercisable
or exchangeable, is, or upon the happening of an event or a passage of
time would be, required to be redeemed or repurchased (including at
the option of the holder thereof) by the Person or any of its
Subsidiaries, in whole or in part, on or before the scheduled maturity
date that is 91 days after the maturity of the Notes, and
(2) with respect to any Subsidiary of a Person (including any Subsidiary
of the Company), any Capital Stock other than common stock with no
special rights and no preference, privileges, or redemption or
repayment provisions.
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"Excluded Property" means the real property at Goldendale, Washington and
The Dalles, Oregon, including the improvements thereon, that is not integral to
the Company's operations and not subject to the Liens of the Security
Agreements.
"Fair Market Value" means, with respect to any property other than cash,
the fair market value of the property as determined in good faith by the Board
of Directors of the Company, whose determination shall be evidenced by a Board
Resolution; provided, however, that, if the Company or a Subsidiary of the
Company makes a payment in the form of or otherwise transfers property other
than cash to, or receives property other than cash from, an Affiliate of the
Company or an Unrestricted Subsidiary in an amount in excess of $5,000,000, the
Company or a Subsidiary of the Company, in addition, shall have received an
opinion from an independent investment banking, appraisal or accounting firm of
national standing selected by the Company (which, in the good faith judgment of
the Board of Directors, is qualified to perform this task) to the effect that
the Board of Directors' determination of fair market value is fair.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in other statements by any other
entity as may be approved by a significant segment of the accounting profession
of the United States, as in effect on the date of the Indenture.
"Government Securities" means securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof).
"Guarantee" means any guarantee of the Notes by any Subsidiary of the
Company.
"Hydro Agreement" means the Subordinated Note Purchase Agreement, dated
December 21, 1998, between the Company and Norsk Hydro USA, Inc., including all
related notes, collateral documents and guarantees.
"Improvements" means, with respect to any assets, any accessories,
accessions, additions, attachments, substitutions, replacements, improvements,
parts and other property now or hereafter affixed to the assets or used in
connection therewith.
"Indebtedness" means, with respect to any Person at any date, any of the
following (without duplication):
(1) all obligations (unconditional or contingent) of that Person for
borrowed money (whether or not recourse is to the whole of the assets
of the Person or only to a portion thereof) and all obligations
(unconditional or contingent) of the Person evidenced by debentures,
notes or other similar instruments
118
(including without limitation reimbursement obligations with respect
to letters of credit and bankers' acceptances) or representing
reimbursement or similar obligations with respect to Aluminum Hedging
Obligations;
(2) all obligations of the Person to pay the deferred purchase price of
property or services, except
(a) accounts payable and other accrued expenses arising in the
ordinary course of business, and
(b) obligations to pay employee compensation or other employee
benefits (except as provided in clause (7) below);
(3) Capitalized Lease Obligations of the Person;
(4) all Indebtedness of others secured by a Lien on any asset of the
Person, whether or not the Indebtedness is assumed or guaranteed by
the Person;
(5) all Disqualified Stock of such Person;
(6) all Indebtedness of others guaranteed by such Person;
(7) all pension and other similar obligations of such Person arising from
employee benefits, to the extent unfunded ("Unfunded Pension
Obligations"); and
(8) all obligations under sale and leaseback transactions;
and the amounts thereof will be, in the case of clauses (1) through (3) and (6),
the outstanding balance of any of the unconditional obligations (or the accreted
value thereof in the case of Indebtedness issued with original issue discount)
together with any interest thereon that is more than 30 days past due and the
maximum liability of any of the contingent obligations at that date, and, in the
case of clause (4), the lesser of the Fair Market Value at that date of any
asset subject to any Lien securing the Indebtedness of others and the amount of
the Indebtedness secured, and, in the case of clause (5), the greater of the
maximum liquidation value of the Disqualified Stock and the maximum redemption
price of the Disqualified Stock, and, in the case of clause (7), the amount of
the Unfunded Pension Obligations determined by the Company in good faith as
evidenced by a certificate of the Chief Financial Officer of the Company
delivered to the Trustee, and, in the case of clause (8), the Attributable Debt
with respect to the sale and leaseback transactions; provided, however, that
Indebtedness shall not include obligations of the Person resulting from the
endorsement of negotiable instruments for collection in the ordinary course of
business.
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"Interest" means, with respect to the Notes, interest payable on the Notes
at the rate set forth therein, plus any additional interest payable by the
Company and the Subsidiaries in respect of the Notes pursuant to the
Registration Rights Agreement.
"Interest Hedging Obligations" means, with respect to any Person, the
monetary obligations of that Person pursuant to any interest rate swap
agreement, interest rate collar agreement, interest rate cap agreement, options
or futures contract, forward contract or other agreement or arrangement designed
to protect the Person or any of its Subsidiaries against fluctuations in
interest rates.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Cash Proceeds" means cash payments received (but if received in a
currency other than U.S. dollars, these payments will not be deemed received
until the earliest time at which the currency is, or could freely be, converted
into U.S. dollars) by or on behalf of the Company and/or any of its Subsidiaries
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise or the cash
realization of any non-cash proceeds of any Asset Sale, but, in each case, only
as and when, and to the extent, received) from an Asset Sale, in each case net
of:
(1) all legal, title and recording tax expenses, commissions, consulting
fees, investment banking, broker's and accounting fees and expenses
and fees and expenses incurred in obtaining regulatory approvals in
connection with the Asset Sale;
(2) the amounts of any repayments of Indebtedness secured, directly or
indirectly, by Liens on the assets which are the subject of the Asset
Sale (other than Indebtedness under the Credit Agreement or
Refinancing Indebtedness incurred to Refinance, or successively
Refinance, Indebtedness under the Credit Agreement) and other fees,
expenses and other expenditures reasonably incurred as a consequence
of the repayment of Indebtedness (whether or not the fees, expenses or
expenditures are then due and payable or made, as the case may be);
(3) all foreign, federal, state and local taxes payable (including taxes
reasonably estimated to be payable) in connection with or as a result
of the Asset Sale;
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(4) with respect to Asset Sales by any Subsidiary of the Company, the
portion of the cash payments attributable to Persons holding a
minority interest in the Subsidiary; and
(5) any amounts paid in respect of term loans outstanding under the Credit
Agreement or any Refinancing Indebtedness Incurred to Refinance or
successively Refinance the term loans.
provided, in each case, that the fees and expenses and other amounts are not
payable to an Affiliate or an Unrestricted Subsidiary of the Company.
Notwithstanding the foregoing, Net Cash Proceeds will not include proceeds
received in a foreign jurisdiction from an Asset Sale of an asset located
outside the United States to the extent
(y) the proceeds cannot under applicable law be transferred to the United
States or
(z) the transfer would result (in the good faith determination of the
Board of Directors of the Company set forth in a Board Resolution) in
a foreign tax liability that would be materially greater than if the
Asset Sale occurred in the United States;
provided that if, as, and to the extent that any of the proceeds may lawfully be
(in the case of clause (y)) or are (in the case of clause (z)) transferred to
the United States, the proceeds will be deemed to be cash payments that are
subject to the terms of this definition of Net Cash Proceeds. Subject to the
provisions of the next preceding sentence, Net Cash Proceeds will also include
cash distributions actually received by or on behalf of the Company or any of
its Subsidiaries from any Unrestricted Subsidiary representing the proceeds of a
transaction by the Unrestricted Subsidiary that would constitute an Asset Sale
if the Unrestricted Subsidiary were a Subsidiary of the Company.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of that Person for the period determined in accordance with GAAP,
less, in the case of the Company, the amount of any distributions made in
respect of income for the period pursuant to clause (6) of the second paragraph
of the covenant described under "-- Material Covenants -- Limitations on
Restricted Payments, Restricted Investments and Unrestricted Subsidiary
Investments."
"Permitted Dividend Encumbrance" means, with respect to any Person, any
consensual encumbrance or restriction on the ability of that Person to pay
dividends or make any other distributions on its Capital Stock or pay any
Indebtedness owed to the Company or any of its Subsidiaries or to make loans or
advances or transfer any of its assets to the Company or any of its Subsidiaries
existing under or by reason of any of:
(1) the Indenture;
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(2) the Credit Agreement;
(3) applicable law;
(4) customary provisions in agreements that restrict the assignment of the
agreements or rights thereunder or the subletting of any assets leased
under the agreements;
(5) customary restrictions on the transfer of assets imposed by any
agreement for the sale of a Person or its assets prior to the
completion thereof, provided that the restrictions apply only to the
assets of the Person or the assets to be sold, as the case may be;
(6) agreements governing Refinancing Indebtedness that is otherwise
permitted in connection with any Refinanced Indebtedness, provided
that no encumbrances or restrictions will be materially less favorable
to the holders of the Notes than those contained in the agreements
governing the Refinanced Indebtedness;
(7) customary restrictions on the sale or other disposition of property
subject to a Lien securing Indebtedness, provided that the Lien and
the Indebtedness are otherwise permitted by the Indenture, and
(8) the Hydro Agreement (to the extent it incorporates provisions of the
Indenture).
"Permitted Lien" means
(1) Liens imposed by governmental authorities for taxes, assessments or
other charges not yet subject to penalty or which are being contested
in good faith and by appropriate proceedings, if adequate reserves
with respect thereto are maintained on the books of the Company or its
Subsidiary, as the case may be, in accordance with GAAP;
(2) statutory liens of carriers, warehousemen, mechanics, material men,
landlords, repairmen or other like Liens arising by operation of law
in the ordinary course of business provided that
(a) the underlying obligations are not overdue for a period of more
than 60 days, or
(b) the Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are
maintained on the books of the Company or its Subsidiary, as the
case may be, in accordance with GAAP;
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(3) Liens securing the performance of bids, trade contracts (other than
for borrowed money), operating leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a similar
nature incurred in the ordinary course of business that do not, singly
or in the aggregate, materially detract from the value of the assets
of the Company and its Subsidiaries or interfere with the ordinary
conduct of the business of the Company and its Subsidiaries, taken as
a whole;
(4) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the
aggregate, do not in any case materially detract from the value of the
property subject thereto (as the property is used by the Company or
any of its Subsidiaries) or interfere with the ordinary conduct of the
business of the Company or any of its Subsidiaries;
(5) Liens arising by operation of law in connection with judgments, only
to the extent, for an amount and for a period not resulting in an
Event of Default with respect thereto;
(6) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security legislation;
(7) leases or subleases granted to other Persons in the ordinary course of
business not materially interfering with the conduct of the business
of the Company or any of its Subsidiaries or materially detracting
from the value of the respective assets of the Company or any of its
Subsidiaries;
(8) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by the
Company or any of its Subsidiaries in the ordinary course of business;
(9) purchase money Liens on assets that
(a) are purchased by the Company or its Subsidiaries after the date
of the Indenture and
(b) are used or useful in the Company's or its Subsidiaries'
businesses,
provided that these Liens
(x) secure an amount not exceeding 100% of the purchase price of the
assets acquired,
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(y) secure Indebtedness that is permitted to be incurred by the
covenant described under "-- Material Covenants -- Limitations on
Indebtedness," and
(z) do not extend, contingently or otherwise, to any property or
assets other than those being purchased on the date in question;
(10) Liens arising solely by virtue of any statutory or common law
provision relating to bankers' liens, rights of setoff or similar
rights and remedies as to deposit accounts or other funds maintained
with the creditor depository institution, provided that
(a) the deposit account is not a dedicated cash collateral account
and is not subject to restriction against access by the Company
or any of its Subsidiaries in excess of those set forth in
regulations promulgated by the Federal Reserve Board and
(b) the deposit is not intended by the Company or any of its
Subsidiaries to provide collateral to the depository institution
and
(11) Liens securing any Indebtedness Incurred pursuant to clause (7) of the
covenant described under "-- Material Covenants -- Limitations on
Indebtedness;" provided that the Liens are subordinated in right and
priority of payment to the Notes and the Guarantees on terms no less
favorable to the holders of the Notes than those applicable to the
Security Interests and pledge under the Hydro Agreement.
"Refinance" means to renew, extend, refund, replace, restructure,
refinance, amend or modify any Indebtedness. The term "Refinancing" shall have a
correlative meaning.
"Registration Rights Agreement" means the registration rights agreement
among the Company, its Subsidiaries and the Initial Purchasers, entered into on
the date of the Indenture.
"Restricted Investment" means, with respect to any Person,
(1) the acquisition by that Person of, or the investment by the Person in,
any Capital Stock, Indebtedness or other securities of, or the making
by the Person of any capital contribution to, any other Person (other
than the Company or any Unrestricted Subsidiary),
(2) any loan or advance by the Person to any other Person (other than the
Company, any Wholly Owned Subsidiary or any Unrestricted Subsidiary)
other
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than accounts receivable of the Person relating to the purchase and
sale of inventory, goods or services arising in the ordinary course of
business,
(3) any guarantee by the Person of any obligations, contingent or
otherwise, of any other Person (other than the Company, any Wholly
Owned Subsidiary or any Unrestricted Subsidiary),
(4) any provision of credit support (including any undertaking, agreement
or instrument that would constitute Indebtedness) by the Persons to or
on behalf of any other Person (other than the Company, any Wholly
Owned Subsidiary or any Unrestricted Subsidiary), and
(5) any obligation or liability of the Person to subscribe for additional
Capital Stock or other securities of any other Person (other than the
Company or any Unrestricted Subsidiary) or to maintain or preserve the
financial condition of any other Person (other than the Company or any
Unrestricted Subsidiary) or to cause any such other Person to achieve
any specified levels of operating results;
provided, however, that the following shall not be Restricted Investments:
(a) investments in Cash Equivalents;
(b) investments in or acquisitions of Capital Stock of any Person (other
than a Person in which Affiliates of the Company have an interest
other than through the Company, its Subsidiaries or its Unrestricted
Subsidiaries) that is or becomes, at the time of the acquisition
thereof, a Wholly Owned Subsidiary;
(c) Restricted Investments of the Person existing as of the date of the
Indenture and any extension, modification or renewal of the Restricted
Investment (but not increases thereof, other than as a result of the
accrual or accretion of interest or original issue discount pursuant
to the terms of the Restricted Investment);
(d) investments in or acquisitions of Capital Stock or other securities of
Persons (other than Affiliates of the Company) received in the
bankruptcy or reorganization of or by the Person or taken in
settlement of or other resolution of claims or disputes against or
with the Person, and, in each case, extensions, modifications and
renewals thereof; and
(e) investments in Persons (other than Affiliates of the Company) received
by the Person as consideration in Asset Sales (including, for the
purposes of this definition, those sales, transfers and other
dispositions described in clause (2)(b) and in clause (5) of such
definition) to the extent not prohibited by the
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provisions described under "-- Material Covenants -- Limitations on
Asset Sales," and extensions, modifications and renewals thereof.
"Security Agreements" means the Deeds of Trust, Assignment of Rents and
Leases, Security Agreement and Fixture Filing, the Security Agreement, the
Pledge Agreement, the Collateral Assignment of Patents and Trademarks, the
Collateral Assignments of Licenses, Permits, Approvals and Contracts, Uniform
Commercial Code financing statements, and the other agreements, documents and
filings that may be necessary or desirable to evidence or perfect the security
interests and Pledge of the Collateral Agent in the Collateral.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which more than 50% of the outstanding Voting Stock is at the time
directly or indirectly owned (either alone or through its Subsidiaries or
together with its Subsidiaries) by that Person. For purposes of this definition,
any directors' qualifying shares will be disregarded in determining the
ownership of a Subsidiary. Notwithstanding anything to the contrary contained
herein, no Unrestricted Subsidiary will be deemed to be a Subsidiary of the
Company or of any Subsidiary or Subsidiaries of the Company.
"Tolling Agreements" means the Tolling Agreement, dated May 22, 1996, by
and between Goldendale Aluminum Company and Hydro Aluminum Louisville, Inc. and
the Tolling Agreement, dated September 15, 1986, by and between Northwest
Aluminum Company and Glencore, Ltd.
"Unrestricted Subsidiary" means each of the Subsidiaries of the Company
(other than Northwest Aluminum Company and Goldendale Aluminum Company, the
lines of business currently operated by which will in no event be transferred to
or held by an Unrestricted Subsidiary), or any entity that is to become a
Subsidiary of the Company, designated as an "Unrestricted Subsidiary" by the
Board of Directors of the Company; but only if
(1) immediately after giving effect to the designation, no Event of
Default (or event that, after notice or lapse of time, or both, would
become an Event of Default) shall exist,
(2) immediately after giving effect to the designation, the Company could
Incur $1.00 of Indebtedness pursuant to the first paragraph of the
covenant described under "-- Material Covenants -- Limitations on
Indebtedness,"
(3) the Subsidiary does not own, at the time of the designation or at any
time thereafter, any Capital Stock of the Company or any other
Subsidiary of the Company, and
(4) the Subsidiary is not, at the time of the designation, party to any
transaction or series of related transactions with the Company or any
other Subsidiary of the Company, unless the transaction or series of
related transactions, if entered
126
into immediately after such designation, would be permitted by the
provisions of the covenant described above under "-- Material
Covenants -- Restrictions on Transactions with Affiliates and
Unrestricted Subsidiaries."
The Board of Directors of the Company may designate an Unrestricted Subsidiary
to be a Subsidiary, but only if
(1) immediately after giving effect to the redesignation, no Event of
Default (or event that, after notice or lapse of time, or both, would
become an Event of Default) will exist, and
(2) immediately after giving effect to the such redesignation, the Company
could Incur $1.00 of Indebtedness pursuant to the first paragraph of
the covenant described under "-- Material Covenants -- Limitations on
Indebtedness."
Any designation or redesignation by the Board of Directors of the Company will
be evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to the designation or redesignation and an
Officers' Certificate certifying that the designation or redesignation complied
with the foregoing conditions.
"Unrestricted Subsidiary Investment" means, with respect to the Company or
any Subsidiary of the Company (each Person being referred to in this definition
as the "Investor"),
(1) the acquisition by the Investor of, or the investment by the Investor
in, any Capital Stock, Indebtedness or other securities of, or the
making by the Investor of any capital contribution to, an Unrestricted
Subsidiary,
(2) any loan or advance by the Investor to an Unrestricted Subsidiary
other than accounts receivable of the Investor relating to the
purchase and sale of inventory, goods or services arising in the
ordinary course of business,
(3) any guarantee by the Investor of any obligations, contingent or
otherwise, of an Unrestricted Subsidiary,
(4) any provision of credit support (including any undertaking, agreement
or instrument that would constitute Indebtedness) by the Investor to
or on behalf of an Unrestricted Subsidiary,
(5) any Incurrence of Indebtedness by an Unrestricted Subsidiary, a
default with respect to which (including any rights that the holders
thereof may have to take enforcement action against the Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any Indebtedness of the Investor (other than the Notes) to
declare a default on such Indebtedness of the Investor
127
or cause the payment thereof to be accelerated or payable prior to its
stated maturity, and
(6) any obligation or liability of the Investor to subscribe for
additional Capital Stock or other securities of an Unrestricted
Subsidiary or to maintain or preserve an Unrestricted Subsidiary's
financial condition or to cause an Unrestricted Subsidiary to achieve
any specified levels of operating results.
"Unrestricted Subsidiary Investments Outstanding" means, at any time of
determination, the amount, if any, by which
(1) the sum of all Unrestricted Subsidiary Investments made by the Company
or any Subsidiary of the Company after the date of the Indenture
exceeds
(2) the amount of all dividends and distributions received, directly or
indirectly, by the Company or a Subsidiary of the Company from
Unrestricted Subsidiaries in cash during the period that these Persons
were Unrestricted Subsidiaries, and all repayments in cash from these
Unrestricted Subsidiaries, directly or indirectly, to the Company or
one of its Subsidiaries of loans or advances from the Company or any
of its Subsidiaries to the Unrestricted Subsidiaries during the period
that the Persons were Unrestricted Subsidiaries, any other reduction
(including as a result of the sale by the Company or any of its
Subsidiaries of Capital Stock of an Unrestricted Subsidiary) received,
directly or indirectly, by the Company or a Subsidiary of the Company
in cash of Unrestricted Subsidiary Investments in the Unrestricted
Subsidiaries during the period that the Persons were Unrestricted
Subsidiaries, and any reductions of Unrestricted Subsidiary
Investments in such Unrestricted Subsidiaries of the kind referred to
in clauses (3) through (6) of the definition of Unrestricted
Subsidiary Investment;
provided that the amount of Unrestricted Subsidiary Investments Outstanding
shall at no time be a negative amount.
"Voting Stock" means, with respect to any Person, the Capital Stock of that
Person having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of the Person
(irrespective of whether or not at the time Capital Stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the sum of the products obtained by multiplying
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(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between that date and the making of the payment, by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means a Subsidiary of the Company all of the
outstanding Capital Stock of which is at the time directly or indirectly owned
(either alone or through Wholly Owned Subsidiaries or together with Wholly Owned
Subsidiaries) by the Company. For purposes of this definition, any directors'
qualifying shares and, at all times before January 1, 2002, the Series A
Preferred Stock of Goldendale outstanding on the date of the Indenture shall be
disregarded in determining the ownership of a Wholly Owned Subsidiary.
129
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
AND GOLDENDALE PREFERRED STOCK
The following is a summary of certain terms and provisions of the
Goldendale Aluminum Company preferred stock and certain debt instruments to
which we and our subsidiaries are parties. This summary is not complete and is
qualified in its entirety by reference to the underlying operative documents,
copies of which are available on request.
Revolving Credit Facility
Goldendale Aluminum Company, Northwest Aluminum Company, Northwest Aluminum
Specialties and Northwest Aluminum Technologies, as borrowers, and Goldendale
Holding Company, as guarantor, have entered into an agreement with BankBoston,
N.A. and U.S. Bank, N.A. establishing a revolving credit facility. The following
is a summary of the key terms and provisions of the facility.
The credit facility consists of a $75.0 million senior secured revolving
credit facility, collateralized by all of the inventory, accounts receivable and
other rights to payment and related intangibles and the proceeds thereof of
Goldendale Aluminum Company, Northwest, Specialties and Technologies and
maturing five years from the date of origination. The maximum amount of
borrowings that may be outstanding under the credit facility at any time will be
limited to an amount calculated as specified percentages of eligible accounts
receivable and inventory, provided that the maximum amount of borrowings may not
at any time exceed $75.0 million. On a pro forma basis, we estimate that
availability under the credit facility as of September 30, 1998 would have been
approximately $54 million.
The credit agreement contains restrictive covenants, including a minimum
net worth requirement, a minimum excess availability requirement and limitations
on capital expenditures, dividends, additional indebtedness, mergers and other
business combinations, asset sales, encumbrances, investments and transactions
with affiliates. The credit agreement also contains customary events of default
and other provisions, including an event of default due to a change of control
of us or our subsidiaries. Upon the occurrence of an event of default,
BankBoston may declare all amounts owing under the credit facility to be
immediately due and payable (except that, upon the occurrence of an event of
default triggered by certain events of bankruptcy, insolvency or reorganization,
borrowings under the credit facility will automatically become due and payable),
whereupon BankBoston may initiate proceedings to realize on the collateral for
the credit facility.
Borrowings under the credit facility bear interest at a floating rate based
on the Alternative Base Rate specified in the credit agreement plus from 0.50%
to 1.00% or LIBOR plus from 2.00% to 2.50%, depending on our consolidated ratio
of EBITDA to interest expense. Interest payments will be payable monthly or at
the end of LIBOR interest periods in arrears. The credit facility provides for
the payment of a commitment fee of 0.50% per annum based on the unused portion
of the credit facility and certain other fees. Fees payable
130
in connection with the issuance of letters of credit are equal to the then
applicable LIBOR margin plus a fronting fee of 0.25% all calculated per annum on
the face amount of each letter of credit. During the continuance of an event of
default, interest will be payable at rates 2.00% above the interest rate
applicable to Base Rate loans described in the credit agreement.
Hydro Subordinated Debt
We have entered into an agreement with Norsk Hydro USA, Inc. to borrow up
to $30.0 million in the form of subordinated debt secured by a second lien and
pledge on the collateral securing your notes and guarantees by our subsidiaries.
Except for the collateral security, the guarantees by our subsidiaries of the
Hydro debt are also subordinate to the indebtedness under our credit facility
with BankBoston. The proceeds of this indebtedness will be available to us in
two parts -- $20.0 million, which has already been provided, and the balance on
our notice, issued on or before December 31, 2001, of the completion of plans to
implement complete point feeder conversion of the Goldendale smelter, the
receipt of all necessary permits and satisfaction of certain other customary
conditions.
Our indebtedness with Hydro matures December 31, 2005 (subject to automatic
extensions of up to a maximum of two years to the extent we cannot repay
principal at maturity as a result of the limitations imposed by the restricted
payments covenant in the indenture). Borrowings under this indebtedness bear
interest at LIBOR plus 2.00%, payable semi-annually in arrears. Commencing
February 15, 2003, we will make semi-annual principal payments (subject to the
limitations imposed by the restricted payments covenant in the indenture) based
on increased earnings associated with the facilities investment program at the
Goldendale smelter. The subordinated note purchase agreement with Hydro contains
customary affirmative covenants and a covenant to implement the facilities
investment program and incorporates by reference certain of the negative
covenants contained in the indenture.
Pursuant to an agreement between the trustee of your notes and Norsk Hydro
USA, Inc., the Hydro indebtedness and the related guarantees by our subsidiaries
are subordinated in right of payment to the notes and their guarantees in the
following manner:
(1) in the event of a bankruptcy or similar proceeding involving us or any
of our subsidiaries, you will be entitled to receive payment in full
before Norsk Hydro USA, Inc. will be entitled to receive any payment
in respect of the indebtedness owed to it or the related guarantees,
and
(2) no payment in respect of the indebtedness to Hydro or the related
guarantees will be permitted unless
(a) the payment (in the case of principal) is permitted under the
restricted payments covenant contained in the indenture,
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(b) at the time of the payment and after giving effect thereto, there
shall not be an event of default under the indenture, a notice of
an event or condition which would constitute an event of default
or an event or condition the occurrence or existence of which
would, solely with the passage of time, constitute an event of
default under the indenture and
(c) no portion of the indebtedness to Hydro shall have been
accelerated at or before the time of the payment.
In addition, the agreement provides that the trustee's security interest and
pledge in the collateral for the notes will be senior in priority to the
security interest and pledge securing the indebtedness to Hydro, and will limit
in certain respects the ability of Hydro to exercise its rights and remedies in
respect of the indebtedness and the guarantees and collateral securing it. See
"Description of Notes -- Material Covenants -- Limitations on Restricted
Payments, Restricted Investments and Unrestricted Subsidiary Investments."
Goldendale Preferred Stock
Goldendale Holding Company has outstanding 131,836.1 shares of
nonconvertible Series A preferred stock held by the Goldendale Aluminum Company
profit sharing plan. Goldendale Holding Company is the sole owner of all 329,500
outstanding shares of common stock of Goldendale Aluminum Company. The
Goldendale preferred stock pays cumulative dividends and has one vote per share
on all matters submitted to a vote of shareholders of Goldendale Aluminum
Company and votes together with the common stock as a single class on these
matters. We have the right to redeem the Goldendale preferred stock in cash at
any time for a variable price set forth in the terms of the Goldendale preferred
stock. If we do not redeem the Goldendale preferred stock before January 1,
2002, each holder of the Goldendale preferred stock can receive additional
shares of Goldendale preferred stock equal in value to any accrued and unpaid
cash dividends. Although we plan to redeem the Goldendale preferred stock, we do
not assure you we will do so. Because the shares of Goldendale preferred stock
vote as a class with the common stock, such an in-kind payment to the holders of
the Goldendale preferred stock could result in a change of voting control of
Goldendale Aluminum Company. See Note 11 to the Combined Financial Statements.
The liquidation preference on the Goldendale preferred stock is $225 per share.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 350,000 shares of common stock.
Common Stock
As of the date of this document, 1,000 shares of common stock were
outstanding, held of record by Mr. Wilcox.
Holders of common stock are entitled to receive dividends as may from time
to time be declared by our board of directors out of funds legally available for
that purpose. Holders of common stock are entitled to one vote per share on all
matters on which they are entitled to vote and do not have any cumulative voting
rights. Holders of common stock have no preemptive, conversion, redemption or
sinking fund rights. If we liquidate, dissolve or wind up, holders of common
stock are entitled to share equally and ratably in any of our assets remaining
after the payment of all of our liabilities, including the notes. The
outstanding shares of common stock are fully paid and nonassessable.
133
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain U.S. federal income tax
consequences associated with the exchange of the notes for the new notes under
the Exchange Offer. The discussion below does not consider all aspects of U.S.
federal income taxation that may be relevant to particular holders in the
context of their specific investment circumstances or certain types of holders
subject to special treatment under these laws (e.g., financial institutions,
tax-exempt organizations, foreign corporations and individuals who are not
citizens or residents of the U.S.). This summary is based upon the United States
federal tax laws and regulations as now in effect and as currently interpreted
and does not take into account possible changes in these tax laws or these
interpretations, any of which may be applied retroactively. It does not include
any description of the tax laws of any state, local or foreign government that
may be applicable to the notes or a holder of the notes.
The exchange of the notes for the new notes under the Exchange Offer will
not be treated as an "exchange" for federal income tax purposes because the new
notes do not differ materially in either kind or extent from the notes and
because the exchange will occur by operation of the terms of the notes. Rather,
the new notes received by a holder will be treated as a continuation of the
notes in the hands of the holder. As a result, there generally will be no
federal income tax consequences to holders who exchange notes for the new notes
under the Exchange Offer. In addition, any "market discount" on the notes should
carry over to the new notes. Holders should consult their tax advisors regarding
the application of the market discount rules to the new notes received in
exchange for the notes under the Exchange Offer.
This summary does not discuss all aspects of United States federal income
taxation that may be relevant to a particular holder of the notes in light of
his, her or its particular circumstances and income tax situation. Each holder
of the notes should consult his, her or its tax advisor as to the specific tax
consequences to the holder of the exchange of notes for new notes and the
ownership and disposition of the notes, including the application and effect of
state, local, foreign and other tax laws or changes to those laws.
134
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of the new notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of new notes received in exchange for
notes where the notes were acquired as a result of market-making activities or
other trading activities. We have agreed that for a period ending on the earlier
of (1) 180 days after the date of this Prospectus and (2) the date on which a
broker-dealer is no longer required to deliver a prospectus in connection with
market-making or other trading activities, we will make available and provide
promptly upon reasonable request this Prospectus (as amended or supplemented),
in a form meeting the requirements of the Securities Act, to any broker-dealer
for use in connection with any such resale.
We will receive no proceeds in connection with the Exchange Offer. New
notes received by broker-dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of these methods of resale, at market
prices prevailing at the time of resale, at prices related to the prevailing
market prices or negotiated prices. A resale may be made directly to purchasers
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from the broker-dealer and/or the purchasers of new
notes. Any broker-dealer that resells new notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of the new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on the
resale of new notes and any commissions or concessions received by these persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver, and by
delivering, a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. We have agreed to
indemnify these broker-dealers against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the new notes will be passed upon for us by
Stoel Rives LLP, Portland, Oregon.
EXPERTS
The combined financial statements of Golden Northwest Aluminum, Inc. and
Affiliates as of December 31, 1997 and 1996 and for each of the two years in the
period ended December 31, 1997 included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, as stated in their
report appearing herein.
135
The combined statements of income, shareholders' equity and cash flows of
Golden Northwest Aluminum, Inc. and Affiliates for the year ended September 3,
1995 included in this Prospectus have been audited by Perkins & Company, P.C.,
independent certified public accountants, as stated in their report appearing
herein.
The statements of income and cash flows of Goldendale Smelter Division of
Columbia Aluminum Company for the year ended December 31, 1995 and the period
from January 1, 1996 through May 21, 1996 included in this Prospectus have been
audited by BDO Seidman, LLP, independent certified public accountants, as stated
in their report appearing herein.
CHANGE OF ACCOUNTANTS
On June 15, 1998, we engaged BDO Seidman, LLP as our independent public
accountants. BDO's engagement was approved by our Board of Directors. Pursuant
to this engagement, BDO audited our combined financial statements for the years
ended December 31, 1997 and 1996, which combined financial statements are
included in this document. Prior to this engagement, we had not consulted with
BDO on issues relating to our accounting principles or the type of audit opinion
to be issued with respect to our financial statements.
Perkins & Company, P.C. were our prior auditors and audited our combined
financial statements for the year ended September 3, 1995. The report of Perkins
on those financial statements did not contain an adverse opinion or a disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. In connection with the audit by Perkins for the year
ended September 3, 1995, there was no disagreement between us and Perkins on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which, if not resolved to the satisfaction of
Perkins, would have caused them to make reference to the matter in their report.
Arthur Andersen LLP had previously audited Goldendale Aluminum Company's
financial statements as of December 31, 1996 and 1997. In connection with the
audit by Arthur Andersen for these periods, there was no disagreement between us
and Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which, if not
resolved to the satisfaction of Arthur Andersen would have caused them to make
reference to the matter in their report.
ADDITIONAL INFORMATION
As required by the Securities Act, we have filed a Registration Statement
on Form S-4 with the SEC to register the new notes to be exchanged for existing
notes in the Exchange Offer. This document omits some information contained in
the Registration Statement and the exhibits and schedules attached to the
Registration Statement. For further information about us and the Exchange Offer,
you should review the Registration Statement
136
and its exhibits and schedules. Statements in this document that summarize the
contents of any contract or other document are not necessarily complete and you
should review every contract or document that is filed as an exhibit to the
Registration Statement. The Registration Statement and its exhibits and
schedules may be inspected without charge at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the SEC located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials
may be obtained from the Public Reference Section of the SEC, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates and from the
SEC's Internet Web site at http://www.sec.gov.
137
INDEX TO FINANCIAL STATEMENTS
Page
----
Golden Northwest Aluminum, Inc. and Affiliates
Reports of Independent Certified Public Accountants..................... F-2-F-3
Combined Balance Sheets as of December 31, 1996 and 1997
and September 30, 1998 (unaudited)........................................ F-4
Combined Statements of Income for the years ended September 3, 1995,
December 31, 1996 and 1997 and Nine Months Ended September 30, 1997
and 1998 (unaudited)...................................................... F-5
Combined Statements of Shareholders' Equity for the years ended
September 3, 1995, December 31, 1996 and 1997 and
Nine Months Ended September 30, 1998 (unaudited).......................... F-6
Combined Statements of Cash Flows for the years ended September 3, 1995,
December 31, 1996 and 1997 and Nine Months Ended September 30, 1997
and 1998 (unaudited)...................................................... F-7
Summary of Significant Accounting Policies.................................. F-8
Notes to Combined Financial Statements..................................... F-13
Goldendale Smelter Division of Columbia Aluminum Company
Report of Independent Certified Public Accountants......................... F-23
Statements of Income for the year ended December 31, 1995
and for the period from January 1, 1996 through May 21, 1996............. F-24
Statements of Cash Flows for the year ended December 31, 1995
and for the period from January 1, 1996 through May 21, 1996............. F-25
Summary of Significant Accounting Policies................................. F-26
Notes to Financial Statements.............................................. F-29
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Golden Northwest Aluminum, Inc. and Affiliates
The Dalles, Oregon
We have audited the accompanying combined balance sheets of Golden
Northwest Aluminum, Inc. and Affiliates as of December 31, 1996 and 1997 and the
related combined statements of income, shareholders' equity, and cash flows for
the years then ended. These combined financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined 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 combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Golden Northwest
Aluminum, Inc. and Affiliates as of December 31, 1996 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
BDO Seidman, LLP
Spokane, Washington
July 10, 1998, except for
Note 3 which is
as of February 8, 1999
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Golden Northwest Aluminum, Inc. and Affiliates
The Dalles, Oregon
We have audited the accompanying combined statements of income,
shareholders' equity and cash flows of Golden Northwest Aluminum, Inc. and
Affiliates for the year ended September 3, 1995. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined 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 audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations, changes in
shareholders' equity and cash flows of Golden Northwest Aluminum Company, Inc.
and Affiliates for the year ended September 3, 1995.
Perkins & Company, P.C.
Portland, Oregon
October 11, 1995, except
for Note 3 which
is as of February 8, 1999
F-3
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
ASSETS (Note 5)
December 31, September 30,
-------------------- -------------
1996 1997 1998
-------- -------- -------------
(unaudited)
(In thousands)
Current assets:
Cash and cash equivalents.............................................. $ 6,345 $ 1,251 $ 1,122
Trade accounts receivable, less allowance for doubtful
accounts of $1,296, $1,000 and $1,000............................... 60,490 61,862 48,119
Current portion of receivable due from related company (Note 13)....... -- -- 673
Inventories (Note 2)................................................... 51,389 60,892 62,314
Prepaid expenses....................................................... 677 527 739
Deferred income taxes (Note 10)........................................ 1,245 1,339 1,256
-------- --------- --------
Total current assets........................................... 120,146 125,871 114,223
-------- --------- --------
Property, plant and equipment, net (Notes 1 and 3)....................... 113,105 113,812 116,167
Power project assets held for sale....................................... 12,000 1,630 1,630
Goodwill, net of accumulated amortization of $3,039,
$7,785 and $11,345 (Note 1)............................................ 94,933 92,886 89,326
Advances to stockholder.................................................. -- 2,000 2,000
Receivable due from related company, less current portion (Note 13)...... 403 4,034 3,601
Other assets, net (Note 4)............................................... 10,228 6,7788 5,948
-------- -------- --------
$350,815 $347,011 $332,895
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5)............................. $ 13,375 $13,500 $ 13,750
Trade accounts payable................................................. 27,582 50,496 37,527
Accrued expenses (Note 8).............................................. 12,821 19,161 16,261
Income taxes payable (Note 10)......................................... 4,460 6,316 5,577
-------- -------- --------
Total current liabilities...................................... 58,238 89,473 73,115
Long-term debt, less current portion (Note 5).......................... 172,066 121,441 118,025
Deferred income taxes (Note 10)........................................ 7,835 9,323 11,714
Deferred compensation (Note 7)......................................... 3,728 2,915 2,334
Other long-term liabilities (Note 9)................................... 3,114 2,312 2,375
Dividends payable (Note 11)............................................ 2,219 5,867 8,604
-------- -------- --------
Total liabilities.............................................. 247,200 231,331 216,167
-------- -------- --------
Commitments and contingencies (Notes 6, 7, 9 and 10)
Shareholders' equity (Notes 1 and 11):
Preferred stock........................................................ 29,663 29,663 29,663
Common stock........................................................... 40 40 40
Additional paid-in capital............................................. 65,314 65,464 65,594
Retained earnings ..................................................... 8,598 20,513 21,431
-------- -------- --------
Total shareholders' equity..................................... 103,615 115,680 116,728
-------- -------- --------
$350,815 $347,011 $332,895
======== ======== ========
See accompanying summary of significant accounting policies and notes
to the combined financial statements.
F-4
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
Year Ended Nine Months Ended
---------- ----------------------
September 3, December 31, September 30,
------------ --------------------- ----------------------
1995 1996 1997 1997 1998
------------ -------- ------- -------- --------
(unaudited)
(in thousands, except per share data)
Revenues (Notes 1, 6 and 13)............... $ 289,693 $373,038 $497,872 $363,282 $360,035
Cost of revenues........................... 256,211 329,739 438,299 314,575 329,897
--------- -------- -------- -------- --------
Gross margin............................... 33,482 43,299 59,573 48,707 30,138
General and administrative expenses........ 8,293 9,746 15,327 10,574 12,087
--------- -------- -------- -------- --------
Operating income........................... 25,189 33,553 44,246 38,133 18,051
--------- -------- -------- -------- --------
Other income (expense):
Interest expense (Note 5)................ (948) (9,454) (16,723) (11,850) (11,251)
Other income (expense), net.............. (545) 1,442 4,246 3,333 1,540
--------- -------- -------- -------- --------
Net other expense.......................... (1,493) (8,012) (12,477) (8,517) (9,711)
--------- -------- -------- -------- --------
Income before income taxes................. 23,696 25,541 31,769 29,616 8,340
Income tax expense (Note 10)............... -- 6,636 13,274 11,962 4,685
--------- -------- -------- -------- --------
Net income................................. $ 23,696 $ 18,905 $ 18,495 $ 17,654 $ 3,655
========= ======== ======== ======== ========
Pro Forma Amounts (unaudited):
Net income............................... $ 23,696 $ 18,905 $ 18,495 $ 17,654 $ 3,655
Dividends accrued on preferred
stock................................. -- (2,219) (3,648) (2,737) (2,737)
--------- -------- -------- -------- --------
Net income available to common shareholde $ 23,696 $ 16,686 $ 14,847 $ 14,917 $ 918
========= ======== ======== ======== ========
Net income per share of common stock.. $ 23,696 $ 16,686 $ 14,847 $ 14,917 $ 918
========= ======== ======== ======== ========
Weighted average shares of common
stock outstanding................... 1,000 1,000 1,000 1,000 1,000
========= ======== ======== ======== ========
(The Combined Statements of Income include the results of operations of
Goldendale Holding Company since May 22, 1996. See Note 1.)
See accompanying summary of significant accounting policies and notes
to the combined financial statements.
F-5
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
Preferred Common Additional Total
Stock Stock Paid-In Retained Shareholders'
Amount Amount Capital Earnings Equity
--------- ------ --------- -------- ------------
(in thousands)
Balance at August 29, 1994.................. $ -- $ 38 $20,736 $ 39,855 $ 60,629
Dividends paid on common stock.............. -- -- -- (4,000) (4,000)
Net income.................................. -- -- -- 23,696 23,696
------- ---- ------- -------- --------
Balance at September 3, 1995................ -- 38 20,736 59,551 80,325
Transition period activity:
Net income................................ -- -- -- 1,948 1,948
Dividends paid on common stock............ -- -- -- (2,000) (2,000)
------- ---- ------- -------- --------
Balance at January 1, 1996.................. -- 38 20,736 59,499 80,273
Shares issued for business
acquisition (Note 1)...................... 29,663 2 44,478 -- 74,143
Cash contributed to capital (unaudited)..... -- -- 100 -- 100
Dividends accrued on preferred stock........ -- -- -- (2,219) (2,219)
Dividends paid on common stock.............. -- -- -- (67,587) (67,587)
Net income.................................. -- -- -- 18,905 18,905
------- ---- ------- -------- --------
Balance at December 31, 1996................ 29,663 40 65,314 8,598 103,615
Cash contributed to capital................. -- -- 150 -- 150
Dividends accrued on preferred stock........ -- -- -- (3,648) (3,648)
Dividends paid on common stock.............. -- -- -- (2,932) (2,932)
Net income.................................. -- -- -- 18,495 18,495
------- ---- ------- -------- --------
Balance at December 31, 1997................ 29,663 40 65,464 20,513 115,680
Cash contributed to capital (unaudited)..... -- -- 130 -- 130
Net income for the period (unaudited)....... -- -- -- 3,655 3,655
Dividends accrued on preferred stock (unaudited) -- -- -- (2,737) (2,737)
------- ---- ------- -------- --------
Balance at September 30, 1998 (unaudited)... $29,663 $ 40 $65,594 $ 21,431 $116,728
======= ==== ======= ======== ========
See accompanying summary of significant accounting policies and notes
to the combined financial statements.
F-6
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Year Ended
--------------------------------------- Nine Months Ended
September 3, December 31, September 30,
------------ ------------------------ -----------------------
1995 1996 1997 1997 1998
------------ ---------- ---------- --------- ----------
(in thousands) (unaudited)
Cash flows from operating activities:
Net income........................................... $ 23,696 $ 18,905 $ 18,495 $ 17,654 $ 3,655
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 7,711 13,584 19,069 13,881 14,553
Loss (gain) on disposal of assets.................. 635 -- (2,600) (2,218) 78
Deferred income taxes.............................. -- 3,573 8,136 8,882 2,474
Change in assets and liabilities, net of effect
of acquisition:
Trade accounts receivable..................... (2,801) (2,960) (1,372) 2,498 13,743
Inventories................................... (14,668) 22,299 (9,503) (5,687) (1,422)
Prepaid expenses.............................. (103) (43) 150 227 (212)
Other assets.................................. (242) (5,298) 2,850 2,793 837
Trade accounts payable........................ 4,810 (3,586) 22,914 17,183 (13,595)
Accrued expenses.............................. 5,789 (17,074) 3,641 (1,214) (2,900)
Income taxes payable.......................... -- 450 (4,886) (7,099) (739)
Other liabilities............................. -- 4 (802) 83 426
--------- ---------- ---------- ---------- ----------
Net cash provided by operating activities.............. 24,827 29,854 56,092 46,983 16,898
--------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of assets......................... 13 -- 12,821 12,588 --
Acquisition of property, plant and equipment......... (5,216) (19,852) (14,281) (10,106) (12,807)
Advances to stockholder.............................. -- -- (2,000) (1,212) --
Receivable due from related company.................. -- (403) (3,631) (2,812) (240)
Cash acquired in business acquisition................ -- 1,106 -- -- --
--------- ---------- ---------- ---------- ----------
Net cash used in investing activities.................. (5,203) (19,149) (7,091) (1,542) (13,047)
--------- ---------- ----------- ----------- ----------
Cash flows from financing activities:
Borrowings under revolving credit facilities......... 184,561 259,122 319,219 189,197 237,000
Repayments under revolving credit facilities......... (199,538) (212,029) (326,793) (198,478) (230,762)
Contribution of capital.............................. -- 100 150 82 130
Principal repayments of term loan facilities......... -- (7,750) (42,926) (36,300) (9,404)
Proceeds from term loan facilities................... -- 25,000 -- -- --
Principal payments on deferred compensation notes.... -- (1,631) (813) (920) (944)
Dividends paid....................................... (4,000) (67,587) (2,932) (2,720) --
--------- ---------- ---------- ---------- ----------
Net cash used in financing activities.................. (18,977) (4,775) (54,095) (49,139) (3,980)
--------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents... 647 5,930 (5,094) (3,698) (129)
Cash and cash equivalents, beginning of period......... 419 415 6,345 6,345 1,251
--------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period............... $ 1,066 $ 6,345 $ 1,251 $ 2,647 $ 1,122
========= ========== ========== ========== ==========
Supplemental Disclosures of Cash Flow Information (Note 12)
See accompanying summary of significant accounting policies and notes to the
combined financial statements.
F-7
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
Operations, Principles of Combination and Basis of Presentation
Golden Northwest Aluminum, Inc. ("Golden" or the "Company") was
incorporated in the state of Oregon on June 3, 1998 for the purposes of becoming
the holding company of Northwest Aluminum Company, Northwest Aluminum
Specialties, Inc., Northwest Aluminum Technologies, LLC (collectively
"Northwest") and Goldendale Holding Company and its wholly owned subsidiary,
Goldendale Aluminum Company (collectively "Goldendale"). The sole shareholder of
the Company also owns all of the outstanding shares of common stock of Northwest
and Goldendale. The combined financial statements include the accounts of
Northwest for all periods presented and the accounts of Goldendale from May 22,
1996, the date of acquisition by the sole shareholder (See Note 1). All
significant intercompany accounts and transactions have been eliminated.
The operations of the Company consist primarily of the smelting conversion
of alumina to aluminum under tolling arrangements with alumina suppliers,
processing of aluminum into primary products, and the sale of those products.
The operations are located in the Pacific Northwest on the Columbia River.
Goldendale's fiscal year end is December 31. Northwest reported its
operations on a 52 or 53 week period ending on the Sunday occurring closest to
August 31. The year ended September 3, 1995 was a 53 week period. In order to
permit the combination with Goldendale, Northwest changed its fiscal year end to
September 30 commencing with the year ended September 30, 1996. During the
transitional month of September 1995, Northwest recorded revenues of $21,643 and
net income of $1,948. The net income for this period has been reflected in the
accompanying statement of shareholders' equity, net of transitional period
dividends to the stockholder of $2,000, as an adjustment to retained earnings.
Combined and separate results of Northwest and Goldendale are as follows.
Operating results for 1996 and 1997 include the results of the combining
entities based on their respective fiscal year ends (Goldendale -- December 31
and Northwest -- September 30); operating results for the interim periods
include the results of Goldendale's operations for the nine month periods ending
September 30 and Northwest's operations for the nine month periods ending June
30.
Year Ended Nine Months Ended
------------------------------------ ----------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
Revenues:
Northwest.................. $289,693 $244,839 $296,271 $213,574 $224,399
Goldendale................. -- 128,199 201,601 149,708 135,636
-------- -------- -------- -------- --------
$289,693 $373,038 $497,872 $363,282 $360,035
======== ======== ======== ======== ========
Net income (loss):
Northwest.................. $ 23,696 $ 9,730 $ 205 $ 1,118 $ (766)
Goldendale................. -- 9,175 18,290 16,536 4,421
-------- -------- -------- -------- --------
$ 23,696 $ 18,905 $ 18,495 $ 17,654 $ 3,655
======== ======== ======== ======== ========
Revenue Recognition
Revenues for the conversion of alumina and processing of aluminum under
tolling arrangements are recognized upon completion of the tolling process.
Revenues from the sale of aluminum products are recognized upon shipment.
F-8
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method, except for certain supply inventories which
are based upon the weighted average cost method.
Property, Plant and Equipment
Property, plant and equipment including cell relining costs are stated at
cost, less accumulated depreciation. For financial reporting purposes, the costs
of plant and equipment are depreciated over the estimated useful lives of the
assets, which range from three to forty years, using the straight-line method.
Assets Held For Sale
Power project assets represent idle assets which are being held for sale.
These assets are recorded at their estimated net realizable value.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is being amortized on a straight-line basis over twenty
years.
Asset Impairment
The Company evaluates its long-lived assets for financial impairment, and
continues to evaluate them as events or changes in circumstances indicate that
the carrying amount of such assets may not be fully recoverable. The Company
evaluates the recoverability of long-lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their fair
values.
Interest Costs
The Company follows the policy of capitalizing interest as a component of
the cost of property, plant and equipment constructed for its own use. Interest
costs of $147 were capitalized during the year ended December 31, 1996.
Income Taxes
Both the Company and Northwest have elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those provisions,
Northwest does not pay federal or state corporate income taxes on their taxable
income. Instead, Northwest's shareholder is liable for individual federal and
state income taxes on Northwest's taxable income. It is the Company's intention
to pay dividends to the shareholder in an amount no less than the sum of these
federal and state income taxes.
F-9
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
Goldendale accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 uses the liability method so that deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities given the provisions of
enacted tax laws and tax rates. Deferred income tax expense or benefit is based
on the changes in the financial statement bases versus the tax bases in
Goldendale's assets or liabilities from period to period.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and trade
accounts receivable. The Company places its cash and cash equivalents with
various high quality financial institutions; these deposits may exceed federally
insured limits at various times throughout the year. Northwest sells its
products to various customers involved in the manufacturing of aluminum products
located throughout the United States. Credit risk arising from these receivables
is controlled through credit approval, credit limit and monitoring procedures.
Receivables due from the Company's two primary tolling customers comprise 29%,
40%, and 42% of the Company's total trade accounts receivable at December 31,
1996 and 1997 and September 30, 1998, respectively.
Financial Instruments and Derivative Financial Instruments
The fair values of financial instruments have been determined through
information obtained from quoted market sources and management estimates. It is
management's belief that financial instruments held by the Company approximate
fair market value. The Company does not hold or issue financial instruments or
derivative financial instruments for trading purposes.
Both Goldendale and Northwest have entered into interest rate swap
agreements for purposes of minimizing exposure to interest rate risk. The
differential between the floating interest rate and the fixed interest rate
which is to be paid or received is recognized in interest expense as the
floating interest rate changes over the life of the agreement.
Research and Development Costs
Expenditures associated with research and development for existing product
process improvements are expensed as incurred. These costs amounted to $129,
$898 and $544 during the years ended September 3, 1995 and December 31, 1996 and
1997, respectively.
F-10
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
Cash and Cash Equivalents
For purposes of balance sheet classification and the statements of cash
flows, the Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Environmental Matters
The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Expenditures which extend the life of the
related property or mitigate or prevent future environmental contamination are
capitalized. The Company records a liability for an environmental matter when it
is probable and can be reasonably estimated. The Company's estimated liability
is reduced to reflect the anticipated participation of other potentially
responsible parties in those instances where it is probable that such parties
are legally responsible and financially capable of paying their respective
shares of the relevant costs. The estimated liability of the Company is not
discounted or reduced for possible recoveries from insurance carriers.
Debt Issue Costs
Costs and fees incurred to obtain financing are capitalized and amortized
over the term of the related debt.
Effect of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
Reporting Comprehensive Income, establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by or distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The adoption of SFAS No. 130 by the Company on January 1,
1998 had no impact on the Company's financial position.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
Disclosures about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, establishes standards for the new way that public enterprises report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The Company does not expect the adoption of SFAS No. 131,
which will occur in its December 31, 1998 financial statements, to have an
impact on the Company's financial position.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers'
Disclosures about Pensions and Other Postretirement Benefits,
F-11
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
which standardizes the disclosure requirements for pension and other
postretirement benefits. The adoption of SFAS No. 132 is not expected to
materially impact the Company's current disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Based on its current and planned future
activities relative to derivative instruments, the Company believes that the
adoption of SFAS No. 133 on January 1, 2000 will not have a significant effect
on its financial statements.
Unaudited Interim Combined Financial Statements and Separate Subsidiary
Financial Statements
In the opinion of the Company's management, the combined balance sheet as
of September 30, 1998, the combined statements of income and cash flows for the
nine months ended September 30, 1998 and 1997 and the combined statement of
shareholders' equity for the nine months ended September 30, 1998 contain all
adjustments (consisting of only normal recurring accruals and adjustments)
necessary to present fairly the information set forth therein. The results of
operations for the nine months ended September 30, 1998 are not necessarily
indicative of future results.
In connection with a proposed debt refinancing, each of the Company's
subsidiaries will jointly and severally guarantee the debt of the Company. As
the guarantees will be full and unconditional and the Company will have no
operations or assets other than its investments in the subsidiaries, full
separate financial statements of the guarantor are not provided.
Earnings per share
Earnings per share is computed based on the Company's combined net earnings
and the pro forma weighted average number of shares of common stock of the
Company, assuming that the shares issued by the Company upon incorporation had
been outstanding for all periods presented.
F-12
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
1. Business Acquisition
On May 22, 1996, the sole shareholder of the Company purchased 137,314.82
shares of outstanding common stock of Columbia Aluminum Corporation ("CAC") for
approximately $30,895. On that same date the shareholder purchased all of the
issued and outstanding common stock of KCE Enterprises, Inc. ("KCE"), which
owned 60,374 shares of common stock of CAC, for approximately $13,585.
Immediately before the purchase of CAC and KCE stock described above,
pursuant to a plan of corporate reorganization and separation, CAC redeemed
564,626 shares of common stock of CAC owned by an unrelated party in exchange
for stock of a wholly-owned subsidiary of CAC, Columbia Ventures Corporation
("CVC"). CAC operated the Goldendale smelter; CVC and its subsidiaries were
engaged in a diversified array of businesses, primarily related to the aluminum
industry. Pursuant to the plan of reorganization and separation, CAC contributed
to CVC certain non-smelter related assets, intercompany receivables and $54,141
in cash; CAC also purchased certain power generation assets from CVC for
$21,321. The funds contributed to CVC and used to acquire the power generation
assets were obtained by CAC through the term loans described in Note 5. Fees
incurred related to the financing and acquisition were approximately $3,000 and
$5,500, respectively.
Following the separation of CVC from CAC and the purchases of common stock
on that same date, the shareholders of CAC were KCE (owned by the Company's
stockholder), the Company's shareholder, and the Columbia Aluminum Corporation
Employee Stock Ownership Trust (the "ESOT"), which, after selling 120,000 shares
of CAC common stock to the Company's shareholder, owned 131,836.10 shares of CAC
common stock. Goldendale Holding Company then issued 197,688.82 shares of its
common stock to the Company's shareholder and 131,836.10 shares of Series A
Preferred Stock, valued at $29,663 ($225/share), to the ESOT in exchange for the
shares of common stock of CAC held by them. CAC was renamed Goldendale Aluminum
Company ("GAC").
The acquisition of GAC was recorded under the purchase method of
accounting; accordingly, the results of operations of GAC are included in the
combined statements of income from the date of acquisition. The excess of the
purchase price over the fair value of the net tangible assets acquired was
approximately $98,000 and is being amortized over twenty years. During 1997, an
adjustment of approximately $2,700 was made to the intangible asset relating to
contingent tax liabilities existing at the date of acquisition.
The following unaudited pro forma combined results of operations have been
prepared as if the acquisition of GAC had occurred at the beginning of each
year, after giving effect to certain adjustments, including amortization of the
intangible asset, increased depreciation on the step-up in the basis of fixed
assets, increased interest expense on acquisition debt, and related income tax
effects. They do not purport to be indicative of the results of operations which
actually would have resulted had the acquisition occurred at the beginning of
1995 or 1996.
1995 1996
--------- ---------
Revenues....................................... $ 504,423 $ 456,568
Net income..................................... $ 25,386 $ 20,621
Net income per share of Common Stock........... $ 21,738 $ 16,973
F-13
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
2. Inventories
Inventories consist of the following:
December 31,
--------------------- September 30,
1996 1997 1998
------- ------- -------------
(unaudited)
Purchased metals and tolling in process....... $29,740 $37,932 $33,130
Supplies and alloys........................... 12,907 14,137 19,043
Carbon plant materials........................ 5,230 5,296 6,536
Alumina....................................... 3,512 3,527 3,605
------- ------- -------
$51,389 $60,892 $62,314
======= ======= =======
3. Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31,
---------------------- September 30,
1996 1997 1998
-------- -------- -------------
(unaudited)
Land and improvements....................... $ 5,487 $ 5,562 $ 7,321
Machinery and equipment..................... 93,226 105,134 109,318
Buildings and improvements.................. 38,280 39,283 38,265
Capital projects in process................. 6,806 4,582 7,155
-------- -------- --------
143,799 154,561 162,059
Less accumulated depreciation............... 30,694 40,749 45,892
-------- -------- --------
Property, plant and equipment, net.......... $113,105 $113,812 $116,167
======== ======== ========
During 1998, in connection with the preparation of its financial statements
to be used in the registration of debt securities, the Company changed its
method of accounting for cell reline costs from expensing such costs as incurred
to deferring and amortizing these costs over future periods. The Company
believes that the new method is preferable since it improves the matching of
revenues and costs as technological improvements have extended the estimated
period of economic benefit realized from cell relining. The change has been
applied by retroactively restating the accompanying combined financial
statements. The effect of this change was to decrease net income for the year
ended September 3, 1995 by $1,308 and increase net income for the years ended
December 31, 1996 and 1997 and the nine month periods ended September 30, 1997
and 1998 by $1,223, $2,067, $1,739 and $1,939, respectively.
F-14
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
4. Other Assets
Other assets consist of the following:
December 31,
--------------------- September 30,
1996 1997 1998
------- ------ -------------
(unaudited)
Long-term trade receivable........................ $ 1,380 $2,465 $1,292
Debt issue costs (net of accumulated
amortization of $412, $1,226 and $1,863)........ 3,640 2,826 2,257
Restricted cash................................... 1,170 1,239 1,268
Refundable federal tax deposit.................... 3,361 -- --
Deferred financing costs.......................... -- -- 626
Other............................................. 677 248 505
------- ------ ------
$10,228 $6,778 $5,948
======= ====== ======
Northwest was subject to requirements for a federal tax deposit to retain
its fiscal year for income tax purposes. Northwest adopted a calendar year for
income tax purposes effective December 31, 1996 and, as a result, the tax
deposits were refunded during the year ended December 31, 1997.
Restricted cash consists of cash held in trust and committed for
environmental cleanup and workers compensation self-insurance as required by the
State of Washington. These monies will be disbursed at a future date as required
by the state.
5. Long-Term Debt
Long-term debt consists of the following:
December 31,
---------------------- September 30,
1996 1997 1998
-------- -------- -------------
(unaudited)
Revolving credit facilities........... $ 73,191 $ 65,617 $ 71,855
Term loans............................ 112,250 69,324 59,920
-------- -------- --------
Long-term debt........................ 185,441 134,941 131,775
Less current portion.................. 13,375 13,500 13,750
-------- -------- --------
Long-term debt less current portion... $172,066 $121,441 $118,025
======== ======== ========
The Revolving Credit Facilities and Term Loans are made pursuant to credit
agreements between each of Northwest and Goldendale and a bank. Borrowings under
the credit agreements are secured by substantially all assets of the respective
company. The Revolving Credit Facilities, which mature in 2001, provide for
borrowings up to $65 million for Northwest and up to $30 million for Goldendale.
Revolving loan advances bear interest at either the bank's Base Rate plus an
applicable margin as defined in the credit agreement or the Eurodollar Rate plus
an applicable margin as defined in the credit agreement; at December 31, 1997,
interest rates on the Revolving Credit Facility ranged from 8.5% to 9.25% on the
Base Rate portions and from 7.4% to 8.5% on the Eurodollar rate portions.
Northwest and Goldendale are subject to a quarterly commitment fee, ranging from
0.375% to 0.50%
F-15
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
per annum, on the unused portion of the Revolving Credit Facilities. Term Loans,
with maturity dates ranging from 2001 to 2002, bear interest at either the
bank's Base Rate plus an applicable margin as defined in the credit agreement or
the Eurodollar Rate plus an applicable margin as defined in the credit
agreement. At December 31, 1997, the interest rates on the Term Loans were 9.25%
on the Base Rate portion and from 7.4% to 8.7% on the Eurodollar portion. The
lending agreements contain covenants related to minimum net worth, interest
coverage ratio, fixed charge coverage ratio and debt to income ratio. In
addition, the credit agreements limit capital spending, investments and
dividends. At December 31, 1997, Northwest and Goldendale were in compliance
with their debt covenants. At September 30, 1998, Northwest and Goldendale were
not in compliance with their debt covenants. A waiver for noncompliance was
obtained by the Company.
During 1996, both Goldendale and Northwest entered into interest rate swap
agreements, as required by the credit agreements, which expire in 2001. The
fixed interest rate paid on the interest rate swaps is 6.83%, covering, at
December 31, 1997, $40 million notional principal amount of floating rate
(Eurodollar) indebtedness of Goldendale and 6.25% covering $18.8 million
notional principal amount of floating rate (Eurodollar) indebtedness of
Northwest. Although the Company is exposed to credit loss on the interest rate
swap in the event of nonperformance by the counterparties, the Company estimates
the likelihood of such nonperformance to be remote. At December 31, 1997 and
1996, the fair value of the interest rate swaps was approximately $800 and
$1,025, respectively, which reflects the estimated amount that the Company would
pay to terminate the contracts.
Scheduled principal maturities of long-term debt at December 31, 1997 are
as follows:
Year Ending
December 31, Amount
------------ ---------
1998.......................... $ 13,500
1999.......................... 15,000
2000.......................... 11,197
2001.......................... 80,742
2002.......................... 14,502
---------
$ 134,941
=========
6. Aluminum Tolling Conversion Agreements
Both Goldendale and Northwest have agreements with alumina suppliers for
the conversion of alumina to aluminum for a tolling charge under which the
entire production capacity of the smelting facilities is dedicated to the
tolling of its supplier's alumina. The supplier is obligated to supply, without
charge, alumina sufficient to meet the requirements for full operation. The
tolling fees set forth in the contracts are a percentage of the price of
aluminum quoted on the London Metals Exchange. Goldendale's agreement continues
through December 31, 2006, and Northwest's continues through December 31, 1999.
These two tolling customers accounted for 37% and 0% of the Company's combined
revenue in 1995, 26% and 31% of the Company's combined revenue in 1996, and 18%
and 40% of the Company's combined revenues in 1997.
F-16
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
7. Employee Benefit Plans
Profit Sharing Bonus Plans
Northwest has entered into agreements, which continue through 2001, with
the United Steelworkers of America, AFL-CIO, to pay annually as additional
compensation 20% of the combined net income of Northwest, as adjusted in
accordance with the agreements. The Company's total additional compensation
bonuses under these agreements amounted to approximately $4,168, $2,100 and
$1,300 during the years ended September 3, 1995 and December 31, 1996 and 1997,
respectively.
Goldendale has a profit sharing plan for its hourly and salaried employees.
All Goldendale employees are eligible participants in this plan upon completion
of a probationary period. The plan provides for payments equal to a percentage
of Goldendale's profits, as defined. These amounts are to be distributed to
eligible participants on or before March 31 following the Company's year-end.
For the years ended December 31, 1996 and 1997, the Company recorded
approximately $1,200 and $1,900, respectively, of expense related to this plan.
Goldendale also has an additional profit sharing plan ("PSP") which is
available to all Goldendale employees as of their first day of employment.
Employer contributions to the PSP are discretionary as approved by the Board of
Directors. No employee contributions will be made to the PSP. Participants, who
have one hour of service after July 31, 1996, are vested in the assets of the
PSP at 100%. Upon termination of employment, plan participants will be paid in
cash, based on their account balance as of the last regular or special valuation
on or before distribution, subject to the plan provisions of the PSP. No
contributions were made to the PSP in 1996 and 1997.
Retirement Benefit Plans
Northwest has a defined contribution 401(k) profit sharing plan (the
"401(k) Plan") covering substantially all Northwest employees under which
employees may elect to defer pay subject to statutory limits. The Company is
committed to contribute the greater of $.25 per eligible hour worked or 5% of
the combined adjusted net income of Northwest. The Company may also make
discretionary contributions to the 401(k) Plan. Total required and discretionary
contributions by the Company to the 401(k) Plan amounted to approximately
$1,376, $520 and $560 during the years ended September 3, 1995 and December 31,
1996 and 1997, respectively.
Goldendale also has a 401(k) profit sharing plan under which employees may
elect to defer pay, subject to statutory limits; the Company also makes matching
contributions for nonbargaining employees on the basis of percentages specified
in the plan. Goldendale maintains a separate profit sharing retirement plan (the
"DC Plan") which provides retirement benefits for substantially all of its
employees. The DC Plan allows for discretionary contributions by the Company as
determined on an annual basis. For the years ended December 31, 1996 and 1997,
the Company recorded approximately $240 and $730 of expense for plan
contributions.
Deferred Compensation
In connection with the acquisition described in Note 1, the Company entered
into deferred compensation agreements with certain employees in exchange for the
employees waiving their rights under stock-based compensation and other
employment agreements which existed at the acquisition date. The liability is
payable in monthly installments of approximately $115, including interest at
8.75%, through 2001.
F-17
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
8. Accrued Expenses
Accrued expenses consist of the following:
December 31,
--------------------- September 30,
1996 1997 1998
------- ------- ------------
(unaudited)
Bonus................................ $ 7,774 $ 8,067 $ 5,537
Salaries and related expenses........ 3,626 4,471 2,620
Interest payable..................... 280 3,950 4,893
Other................................ 1,141 2,673 3,211
------- ------- -------
$12,821 $19,161 $16,261
======= ======= =======
9. Commitments and Contingencies
The Company, in the regular course of business, is involved in
investigations and claims by various regulatory agencies. The Company is also
engaged in various legal proceedings incidental to its normal business
activities. The Company's management does not believe that the ultimate
resolution of these investigations, claims and legal proceedings will have a
material effect on its financial position, results of operations or cash flows.
As of December 31, 1996 and 1997, the Company had a liability of
approximately $1,572 and $1,656, respectively, for estimated environmental
remediation activities. The Company's estimate of this liability is based on a
remediation study conducted by independent engineering consultants. The total
cost of remediation is estimated at $2.5 million; however, under a court decree
the Company is only responsible for approximately 50% of the total. The
remaining cost is the responsibility of prior owners.
The Company has entered into various agreements for the purchase of power
and aluminum. Future estimated minimum payments under these noncancelable
agreements are as follows:
Year Ending December 31, Amount
------------------------ ---------
1998.......................................... $ 207,062
1999.......................................... 131,536
2000.......................................... 73,597
2001.......................................... 68,699
---------
$ 480,894
=========
F-18
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
10. Income Taxes
Income tax expense consists of the following:
Nine Months Ended
September 30,
December 31, --------------------
----------------------------- (unaudited)
1995 1996 1997 1997 1998
---- ------ ------- -------- -------
Current............................. $ -- $3,063 $10,204 $ 9,821 $2,211
Deferred............................ -- 3,573 3,070 2,141 2,474
---- ------ ------- ------- ------
Income tax expense.................. $ -- $6,636 $13,274 $11,962 $4,685
==== ====== ======= ======= ======
The difference between the federal statutory tax rate and the effective tax
rate resulted from the following:
Nine Months
Ended
September 30,
December 31, ---------------
------------------------- (unaudited)
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
Federal statutory tax rate................. 35.0% 35.0% 35.0% 35.0% 35.0%
Loss (Earnings) from entities not
subject to income taxes.................. (35.0) (18.0) (3.1) (3.5) 3.2
Amortization of goodwill................... -- 4.2 5.3 4.2 14.9
Other items, net........................... -- 4.8 4.6 4.7 3.1
---- ---- ---- ---- ----
Effective tax rate......................... --% 26.0% 41.8% 40.4% 56.2%
==== ==== ==== ==== ====
Significant components of the Company's deferred tax assets and liabilities are
as follows:
December 31, 1996 1997
------------ --------- ---------
Current:
Accrued expenses....................... $ 1,032 $ 1,143
Inventory.............................. 195 145
Other.................................. 18 51
--------- ---------
$ 1,245 $ 1,339
========= =========
Noncurrent:
Property, plant and equipment.......... $ (20,744) $ (13,968)
Power project assets................... 5,969 3,262
Deferred compensation.................. 1,324 1,164
Net operating losses................... 5,067 --
Other.................................. 549 219
--------- ---------
$ (7,835) $ (9,323)
========= =========
The Internal Revenue Service ("IRS") has audited the Company's income tax
returns and has proposed to change the Company's method of accounting for
certain expenditures that were deducted when incurred. The IRS has proposed to
capitalize and depreciate these expenditures over an estimated useful life. The
Company is currently
F-19
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
appealing the proposed change in accounting method initiated by the IRS and
believes it has various meritorious defenses. However, at December 31, 1997, the
Company has recorded a liability associated with the proposed change in
accounting method, which is effective for all tax years subsequent to 1989, of
approximately $11.5 million, which includes interest of $4.0 million. The sole
shareholder of the Company also has a potential personal liability of
approximately $4.4 million related to this IRS proposal. It is the Company's
intention to reimburse the shareholder for any amount ultimately paid as a
result of the IRS proposal. The Company does not believe that the ultimate
resolution of this tax dispute will have a material effect on the Company's
financial position or results of operations.
11. Shareholders' Equity
The equity accounts of the combining entities are comprised of the
following:
December 31,
--------------------- September 30,
1996 1997 1998
-------- ------- -------------
(unaudited)
Preferred Stock:
Goldendale, Series A, cumulative, nonconvertible $.01 par
value; 150,000 shares authorized, 131,836.10 issued
and outstanding, stated at fair value ($225 per share)
when issued...................................... $29,663 $29,663 $29,663
======= ======= =======
Common Stock:
Goldendale, $.01 par value, 350,000 shares authorized,
197,688.82 issued and outstanding................ $ 2 $ 2 $ 2
Northwest, no par value, 2,000 shares authorized,
issued and outstanding........................... 38 38 38
------- ------- -------
$ 40 $ 40 $ 40
======= ======= =======
Additional Paid-in Capital:
Goldendale.......................................... $44,478 $44,478 $44,478
Northwest........................................... 20,836 20,986 21,116
------- ------- -------
$65,314 $65,464 $65,594
======= ======= =======
Terms of the Goldendale preferred stock provide for dividends accruing
quarterly and payable in cash as declared by the Board of Directors according to
the following schedule:
Year Ending December 31, Amount
------------------------ ------------
Through 2001............................... $27.68/share
2002....................................... 29.93/share
2003....................................... 32.18/share
Thereafter................................. 34.43/share
Commencing on January 1, 2002, the preferred shareholders have the option
of receiving additional shares of preferred stock in satisfaction of any
cumulative dividend in arrears which may exist at that time.
F-20
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
The Company may redeem any or all outstanding shares of Series A Preferred
Stock at the following redemption prices at any time after December 31, 1998:
Year Ending December 31, Amount
Through 1999................................. $ 230.63
2000......................................... 228.38
2001......................................... 227.25
Thereafter................................... 225.00
The shares of preferred stock and shares of common stock vote together as a
single class on all matters submitted to a vote of shareholders of Goldendale.
The holders of shares of preferred stock are entitled to one vote per share and
have full voting rights and power equal to those of the holders of common stock.
12. Supplemental Disclosures of Cash Flow Information
Supplemental disclosures of cash flow information is as follows:
Year Ended Nine Months Ended
------------------------------------- ---------------------
September 3, December 31, September 30,
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(unaudited)
Cash paid during the period for:
Interest................................. $ 1,000 $ 8,869 $14,346 $10,211 $11,281
Income taxes............................. -- 2,600 10,545 10,490 2,900
Noncash investing and financing activities:
Acquisition contingency accrual:
Goodwill.............................. -- -- 2,699 2,699 --
Deferred income taxes................. -- -- 6,742 6,742 --
Dividends accrued on preferred
stock................................. -- 2,219 3,648 2,737 2,737
Deferred financing costs accrued......... -- -- -- -- 626
Business acquisition:
Fair value of assets acquired............ -- 144,017 -- -- --
Purchase price in excess of net assets acquired -- 97,971 -- -- --
Liabilities assumed...................... -- 168,951 -- -- --
Stock issued............................. -- 74,143 -- -- --
13. Related Party Transactions
Sales to a company related by common ownership amounted to $157, $3,613,
and $5,278 for the years ended December 31, 1996 and 1997 and the nine months
ended September 30, 1998, respectively. Receivable due from the related company
includes the balance due from those sales, together with cash advances, of which
$4,000 was converted to a note receivable on December 31, 1997. The note bears
interest at 9.25% and is payable in quarterly installments beginning April 1,
1998 through January 2002.
F-21
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the nine month periods
ending September 30, 1998 and 1997 is unaudited.)
(Dollars in thousands.)
14. Reorganization (unaudited)
Prior to the completion of a refinancing of the Company's long term debt,
which is expected to occur in December 1998, the sole stockholder of the Company
intends to transfer all of the issued and outstanding shares of common stock of
Goldendale and Northwest to the Company as a capital contribution. The
transaction will be accounted for as a combination of entities under common
control similar to a pooling of interests. The transaction would have no effect
on the Company's reported results of operations or its total assets and
liabilities as of September 30, 1998. The following unaudited pro forma
supplemental information presents the effect of the proposed share exchange on
shareholders' equity of the Company as if the exchange occurred on September 30,
1998. Such pro forma amounts are not necessarily indicative of what the actual
amounts might have been if the exchange had occurred on September 30, 1998.
September 30,
1998
------------
Minority interest.......................... $ 29,663
========
Shareholders' equity:
Common stock............................... $ --
Additional paid-in capital................. 65,634
Retained earnings.......................... 21,431
--------
Total shareholders' equity................. $ 87,065
========
F-22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Goldendale Holding Company and
Goldendale Smelter Division of Columbia Aluminum Company
Goldendale, Washington
We have audited the accompanying statements of income and cash flows of
Goldendale Smelter Division of Columbia Aluminum Company for the year ended
December 31, 1995 and the period from January 1, 1996 through May 21, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements of income and cash flows referred to above
present fairly, in all material respects, the results of operations and cash
flows of Goldendale Smelter Division of Columbia Aluminum Company for the year
ended December 31, 1995 and the period from January 1, 1996 through May 21,
1996, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Spokane, Washington
July 31, 1998
F-23
GOLDENDALE SMELTER DIVISION OF
COLUMBIA ALUMINUM COMPANY
STATEMENTS OF INCOME
Period from
Year Ended January 1, 1996
December 31, through
1995 May 21, 1996
--------------- --------------
(in thousands)
Revenues (Notes 1 and 4)................... $214,730 $ 83,530
Cost of revenues........................... 190,832 73,270
-------- --------
Gross margin............................. 23,898 10,260
General and administrative expenses........ 2,296 718
-------- --------
Operating income........................... 21,602 9,542
-------- --------
Other income (expense):
Interest expense......................... (1,070) (398)
Other income, net........................ 1,250 339
-------- --------
Net other income (expense)................. 180 (59)
-------- --------
Income before income taxes................. 21,782 9,483
Income tax expense......................... (8,277) (3,335)
-------- --------
Net income................................. $ 13,505 $ 6,148
======== ========
See accompanying summary of significant accounting policies and notes to
financial statements.
F-24
GOLDENDALE SMELTER DIVISION OF
COLUMBIA ALUMINUM COMPANY
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Period from
January 1, 1996
Year Ended through
December 31, 1995 May 21, 1996
----------------- ---------------
(in thousands)
Cash flows from operating activities:
Net income.................................................... $ 13,505 $ 6,148
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 1,978 854
Loss on disposal of assets................................. 1 12
Change in assets and liabilities:
Trade accounts receivable................................ (3,175) (247)
Inventories.............................................. (7,514) 248
Prepaid expenses and other assets........................ 488 133
Trade accounts payable................................... 3,715 (3,850)
Accrued expenses......................................... (17) (1,935)
--------- ---------
Net cash provided by operating activities....................... 8,981 1,363
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment.................. (3,994) (1,402)
Proceeds from sale of assets.................................. 3 --
Net advances from (to) related companies...................... (3,513) 60
--------- ---------
Net cash used in investing activities........................... (7,504) (1,342)
--------- ---------
Cash flows from financing activities:
Cash paid for treasury stock.................................. (1,424) (56)
--------- ---------
Net cash used in financing activities........................... (1,424) (56)
--------- ---------
Net increase (decrease) in cash and cash equivalents............ 53 (35)
Cash and cash equivalents, beginning of period.................. 519 572
--------- ---------
Cash and cash equivalents, end of period........................ $ 572 $ 537
========= =========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest...................................................... $ 1,070 $ 398
Income taxes.................................................. $ 5,700 $ 5,700
See accompanying summary of significant accounting policies and notes to
financial statements.
F-25
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
Basis of Presentation
Columbia Aluminum Corporation ("CAC") owned and operated an aluminum
smelter in Goldendale, Washington ("Goldendale" or the "Smelter") and, through
its wholly-owned subsidiary, Columbia Ventures Corporation ("CVC"), was engaged
in a diversified array of other businesses, primarily related to the aluminum
industry. Pursuant to a plan of corporate reorganization and separation (the
"Plan"), CAC redeemed 564,626 shares of its common stock held by CAC's
controlling stockholder in exchange for all of the issued and outstanding shares
of common stock of CVC. Pursuant to terms of the Plan, CAC contributed to CVC
certain non-smelter related assets, intercompany receivables and $54,141 in
cash; CAC also purchased certain power generation assets from CVC for $21,321.
Immediately following the separation of CVC, the sole stockholder of Goldendale
Holding Company ("GHC") acquired 197,688.82 shares of common stock of CAC for
approximately $44,480.
Following the separation of CVC from CAC and the purchase of common stock,
the shareholders of CAC were the stockholder of GHC and the Columbia Aluminum
Corporation Employee Stock Ownership Trust (the "ESOT"), which held 131,836.10
shares of CAC common stock. GHC then issued 197,688.82 shares of its common
stock to the sole stockholder and 131,836.10 shares of Series A Preferred Stock,
valued at $29,663, to the ESOT in exchange for the shares of common stock of CAC
held by them. CAC was then renamed Goldendale Aluminum Company.
During the periods presented in these financial statements, the Smelter was
an integral part of CAC's overall operations and separate financial statements
were not prepared for the Smelter. The accompanying financial statements have
been prepared from the historical accounting records of CAC and present the
results of operations and cash flows of the Smelter. The statements of income
include allocations of certain CVC corporate administrative expenses in the
amount of approximately $270 for the year ended December 31, 1995 and $120 for
the period from January 1, 1996 through May 21, 1996. Management and
administrative salaries were allocated based upon estimated time devoted to the
Smelter; all other corporate overhead was based upon specific identification or
the relationship of the Smelter operations to total operations of CAC. Interest
expense was charged to the Smelter based on prime rate and changes in its
working capital position. Income taxes are provided as if the Smelter filed a
separate tax return.
These allocated costs and expenses, which management believes are
reasonable, may not necessarily be indicative of the results that would have
been attained if the Smelter had been operated as a separate legal entity.
Operations
The operations of Goldendale consist primarily of the smelting conversion
of alumina to aluminum under tolling arrangements with alumina suppliers,
processing of aluminum into primary products, and the sale of those products.
The operations are located in the Pacific Northwest on the Columbia River.
Revenue Recognition
Revenues for the conversion of alumina and processing of aluminum under
tolling arrangements are recognized upon the completion of the tolling process.
Revenues from the sale of aluminum products are recognized upon shipment.
F-26
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
Cost of Sales
Inventory costs are determined by the first-in, first-out method, except
for certain supply inventories which are based upon the weighted average cost
method.
Property, Plant and Equipment
For financial reporting purposes, the costs of plant and equipment are
depreciated over the estimated useful lives of the assets, which range from
three to forty years, using the straight-line method.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, Goldendale considers all
highly liquid instruments purchased with an original maturity of three months or
less to be cash equivalents.
Environmental Matters
The Smelter expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Expenditures which extend the life of the
related property or mitigate or prevent future environmental contamination are
capitalized. The Smelter records a liability for environmental matters at the
time when it is probable and can be reasonably estimated. The Smelter's
estimated liability is reduced to reflect the anticipated participation of other
potentially responsible parties in those instances where it is probable that
such parties are legally responsible and financially capable of paying their
respective shares of the relevant costs. The estimated liability of the Smelter
is not discounted or reduced for possible recoveries from insurance carriers.
Futures and Options Contracts
Goldendale utilized certain financial instruments, primarily futures and
options contracts, to hedge the effect of price changes of aluminum which the
Smelter produced and sold. Gains and losses, and the related costs paid or
premium received for contracts which hedged the sales prices of aluminum and
purchase prices of raw materials were deferred and included in earnings
concurrently with the hedged revenues. Premiums paid for the purchase of put
options classified as hedges were amortized over the life of the options.
Future sales contracts require the future delivery of aluminum at a
specified price. Certain futures sales contracts were made on a rollover basis
which allowed Goldendale to defer the delivery of aluminum to a later date at a
renegotiated market price. Gains and losses on contracts rolled over were
deferred until the positions were closed and included in earnings concurrently
with the hedged revenues. Cash flows from futures and options contracts are
reported in the statements of cash flows in the same category as the cash flows
from the hedged items.
F-27
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Dollars in thousands)
Contracts open at May 21, 1996 were closed out by GHC as they came due.
Effect of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
("SFAS 130") and Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("SFAS 131"). SFAS No. 130
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from nonowner sources. SFAS No.
131 establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas and major customers. Adoption of these statements will not
materially effect Goldendale's results of operations or cash flows; any effect
will be limited to the form of its disclosures. Both statements are effective
for years beginning after December 15, 1997, although they may be applied
earlier.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and other Postretirement Benefits", ("SFAS No. 132"), which
standardizes the disclosure requirements for pension and other postretirement
benefits. The adoption of SFAS No. 132 is not expected to materially impact
Goldendale's current disclosures.
F-28
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
1. Tolling Contract
During 1987, Goldendale entered into a tolling contract for a ten year
period. Under the contract, the customer owns all of the primary raw materials
and all of the finished goods. Goldendale receives tolling fees for converting
the primary raw materials into finished aluminum products specified by the
customer. The contract specifies standard usage rates of the primary raw
materials based upon actual production. Variations of actual usage from such
standard usage may result in additional amounts due to or due from the customer.
Sales under the tolling agreement totaled approximately $135 million and $46
million for the year ended December 31, 1995 and the period from January 1, 1996
through May 21, 1996, respectively. On May 22, 1996, Goldendale renegotiated the
contract. Pursuant to terms of the new contract, which expires in December 2006,
the entire production capacity of the Smelter is dedicated to the tolling of the
customer's alumina.
2. Employee Benefit Plans
Goldendale has a profit sharing plan for its hourly and salaried employees.
All Goldendale employees are eligible participants in this plan upon completion
of a probationary period. The plan provides for payments equal to a percentage
of Goldendale's profits, as defined. These amounts are to be distributed to
eligible participants on or before March 31 following the Company's year-end.
For the years ended December 31, 1995 and the period from January 1, 1996
through May 21, 1996, the Company recorded approximately $1,480 and $570,
respectively, of expense related to this plan.
Goldendale also has a 401(k) profit sharing plan under which employees may
elect to defer pay, subject to statutory limits; Goldendale also makes matching
contributions for nonbargaining employees on the basis of percentages specified
in the plan. Goldendale maintains a separate profit sharing retirement plan (the
"DC Plan") which provides retirement benefits for substantially all of its
employees. The DC Plan allows for discretionary contributions by Goldendale as
determined on an annual basis. For the year ended December 31, 1995 and the
period from January 1, 1996 through May 21, 1996, Goldendale recorded
approximately $490 and $290 of expense for plan contributions.
Goldendale had various stock based compensation agreements (the
"Agreements") with certain key employees. The Agreements include stock
appreciation rights, "phantom" shares of the Company's common stock and stock
options. The value of the compensation paid under the Agreements is a function
of the amount by which the fair market value of Goldendale's common stock
increases during the performance period. During the year ended December 31, 1995
and the period from January 1, 1996 through May 21, 1996, Goldendale incurred
expense related to the Agreements of $2,512 and $2,298. On May 22, 1996, the
employees covered by the Agreements waived their rights thereto in exchange for
a five-year payout of amounts then owing under the Agreements.
The Columbia Aluminum Corporation Employee Stock Ownership Plan (ESOP) was
originally available to substantially all Goldendale employees upon completion
of 1,000 hours of service. Employer contributions to the ESOP were discretionary
as approved by the Board of Directors. No employee contributions were made to
the ESOP. Participants vest in the assets of the ESOP at 25% per year. Upon
termination, plan participants that receive stock are granted an option to sell
the stock to the ESOP in accordance with the ESOP agreement. All stock owned by
the ESOP was allocated to plan participant accounts. On May 22, 1996, all CAC
common stock owned by plan participants was exchanged for cash and GHC Series A
Preferred Stock.
F-29
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
3. Commitments and Contingencies
Goldendale, in the regular course of business, is involved in
investigations and claims by various regulatory agencies. Goldendale is also
engaged in various legal proceedings incidental to its normal business
activities. Management does not believe that the ultimate resolution of these
investigations, claims and legal proceedings will have a material effect on
Goldendale's financial position, results of operations or cash flows.
At December 31, 1995, Goldendale had entered into contracts for the annual
purchase of 70,000 to 150,000 metric tons of certain raw materials for delivery
through December 1998. The purchase price is to be adjusted monthly throughout
the term of the contracts based upon the average market price of aluminum.
During 1995, Goldendale entered into an agreement pursuant to which it committed
to purchase a minimum amount of power on an annual basis through September 2001.
The estimated minimum future commitment under this agreement is as follows:
Year Ending December 31, Amount
------------------------ ---------
1997............................ $ 20,000
1998............................ 33,000
1999............................ 33,000
2000............................ 40,000
2001............................ 40,000
During the year ended December 31, 1995, Goldendale accrued a liability of
approximately $1,036 for environmental remediation activities. Goldendale's
estimate of this liability was based on a remediation study conducted by
independent engineering consultants. The total cost of remediation is estimated
at $2.5 million, however, under a court decree Goldendale is responsible for
only a portion of the total. The remaining cost is the responsibility of prior
owners of the Smelter.
During 1995, the Internal Revenue Service (IRS) completed audits of CAC's
1990 and 1991 federal income tax returns. Based upon its audits, the IRS
indicated proposed adjustments to these returns resulting in additional taxes
due of approximately $2.8 million for tax year 1990 and approximately $1.6
million for tax year 1991. The adjustments proposed relate primarily to
differences between the Company and the IRS as to the tax year when certain
deductions may be taken. The Company is currently appealing the results of the
audits. Management of the Company does not believe that the ultimate resolution
of these audits will have a material effect upon its financial position or
results of operations.
4. Related Party Transactions
During the year ended December 31, 1995 and the period from January 1, 1996
through May 21, 1996, the Smelter paid commissions of $2,467 and $1,034 to a
related party.
F-30
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus and, if given or made,
the information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or a solicitation of any offer to buy any securities other than the notes to
which it relates or an offer to, or a solicitation of, any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company or that information contained herein is correct as of any
time subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
Page
Summary................................................... 3
Risk Factors.............................................. 19
Selected Combined Financial Data.......................... 32
Management's Discussion And Analysis
Of Financial Condition And Results Of Operations........ 34
Business.................................................. 47
Management................................................ 62
Executive Compensation.................................... 65
Certain Transactions...................................... 67
The Exchange Offer........................................ 69
Description Of Notes...................................... 78
Description Of Certain Other
Indebtedness And Goldendale Preferred................... 130
Description Of Capital Stock.............................. 133
Certain United States Federal Income
Tax Consequences........................................ 134
Plan Of Distribution...................................... 135
Legal Matters............................................. 135
Experts................................................... 135
Change Of Accountants..................................... 136
Additional Information.................................... 136
Index To Financial Statements............................. F-1
================================================================================
$150,000,000
Golden Northwest
Aluminum, Inc.
12% First Mortgage Notes
due 2006
--------------------
PROSPECTUS
--------------------
, 1999
================================================================================
F-31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Article IV of the Company's Articles of Incorporation (the "Articles")
requires indemnification of current or former directors ("directors") of the
Company to the fullest extent not prohibited by the Oregon Business Corporation
Act (the "Act"). The effects of the Articles and the Act (the "Indemnification
Provisions") are summarized as follows:
(a) The Indemnification Provisions grant a right of indemnification in
respect of any action, suit or proceeding (other than an action by or in
the right of the Company) against expenses (including attorney fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred, if the person concerned acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the Company, was not adjudged liable on the basis of receipt of an improper
personal benefit and, with respect to any criminal action or proceeding,
had no reasonable cause to believe the conduct was unlawful. The
termination of an action, suit or proceeding by judgment, order,
settlement, conviction or plea of nolo contendere does not, of itself,
create a presumption that the person did not meet the required standards of
conduct.
(b) The Indemnification Provisions grant a right of indemnification in
respect of any action or suit by or in the right of the Company against the
expenses (including attorney fees) actually and reasonably incurred if the
person concerned acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the Company,
except that no right of indemnification will be granted if the person is
adjudged to be liable to the Company.
(c) Every person who has been wholly successful on the merits of a
controversy described in (a) or (b) above is entitled to indemnification as
a matter of right.
(d) Because the limits of permissible indemnification under Oregon law
are not clearly defined, the Indemnification Provisions may provide
indemnification broader than that described in (a) and (b).
Article IV of the Articles provides that the Company shall indemnify any
person who is or was an officer, employee, agent, or fiduciary within the
meaning of the Employee Retirement Income Security Act of 1974 with respect to
any employee benefit plan of the Corporation, to the same extent that directors
are entitled to indemnification.
II-1
The rights of indemnification described above are not exclusive of any
other rights of indemnification to which the persons indemnified may be entitled
under any bylaw, agreement, vote of shareholders or directors or otherwise.
Item 21. Exhibits and Financial Statement Schedules
3.1 Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4.1 Indenture, dated as of December 21, 1998, between Registrant, as
Issuer, Northwest Aluminum Specialties, Inc., Northwest Aluminum
Company, Northwest Aluminum Technologies, LLC, Goldendale Holding
Company, and Goldendale Aluminum Company, as Guarantors, and U.S.
Trust Company, N.A., as Trustee.
4.2 Credit Agreement, dated December 21, 1998, among the Financial
Institutions named therein, BancBoston, N.A., as Administrative Agent,
U.S. Bank National Association, as Documentation Agent, Northwest
Aluminum Company, Northwest Aluminum Specialties, Inc., Goldendale
Aluminum Company, and Northwest Aluminum Technologies, as amended by
the Agreement and Amendment No. 1, dated as of January 21, 1999.
4.3 Registration Rights Agreement, dated as of December 21, 1998, by and
among the Registrant, the Subsidiary Guarantors party to this
Agreement; and BancBoston Robertson Stephens Inc., and Libra
Investments, Inc.
4.4 Certificate of Incorporation of Goldendale Holding Company.
5.1 Opinion of Stoel Rives LLP.
10.1 Agreement to Toll Convert Alumina into Aluminum, dated May 22, 1996,
between Hydro Aluminum Louisville, Inc., and Goldendale Aluminum
Company. (Confidential treatment of portions of this document has
been requested.)
10.2 First Amendment to Agreement to Toll Convert Alumina into Aluminum,
dated December 21, 1998.
10.3 Aluminum Toll Conversion Agreement between Clarendon Ltd. and
Northwest Aluminum Company, dated September 15, 1986. (Confidential
treatment of portions of this document has been requested.)
II-2
10.4 Amendment No. 1 to Aluminum Toll Conversion Agreement, dated as of May
4, 1988. (Confidential treatment of portions of this document has been
requested.)
10.5 Extension and Amendment Agreement, dated as of October 1, 1991.
(Confidential treatment of portions of this document has been
requested.)
10.6 Option to Extend 1986 Amended Toll Agreement, dated as of March 1,
1992.
10.7 Letter, from Glencore Ltd., exercising Option to Extend, dated
September 21, 1994.
10.8 Tax Indemnification Agreement, dated as of December 21, 1998, between
Registrant, Northwest Aluminum Company, Northwest Aluminum
Specialties, Inc., and Brett E. Wilcox.
10.9 General Transmission Agreement, dated April 7, 1995, executed by the
United States of America Department of Energy acting by and through
the Bonneville Power Administration and Northwest Aluminum Company.
10.10 Power Sale Agreement, dated September 28, 1995, between the United
States of America Department of Energy acting by and through the
Bonneville Power Administration and Northwest Aluminum Company.
12.1 Statements re Computation of Ratios.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Perkins and Company, P.C.
23.3 Consent of Stoel Rives LLP (included in Exhibit 5.1).
24.1 Powers of Attorney (included on Page II-6 of the Registration
Statement).
25.1 Statement of Eligibility of Trustee.*
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.*
- --------------
* To be filed by amendment.
II-3
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court
II-4
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of The Dalles, State of
Oregon, on February 12, 1999.
GOLDEN NORTHWEST ALUMINUM, INC.
By: BRETT E. WILCOX
--------------------------------------
Brett E. Wilcox
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on
February 12, 1999 in the capacities indicated.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Brett E. Wilcox his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any amendments (whether pre-effective or post-effective) to
this Registration Statement and any registration statement for the same offering
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same with all exhibits thereto and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto each of said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or their substitute or substitutes, may do or
cause to be done by virtue hereof.
Signature Title
BRETT E. WILCOX Chairman of the Board and
- -------------------------------- President
Brett E. Wilcox
WILLIAM R. REID Chief Financial Officer
- -------------------------------- (Principal Financial and
William R. Reid Accounting Officer)
Director
- --------------------------------
Robert Ames
II-6
STEPHEN E. BABSON Director
- --------------------------------
Stephen E. Babson
DAVID BOLENDER Director
- --------------------------------
David Bolender
Director
- --------------------------------
Michael B. Psaros
II-7
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3.1 Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4.1 Indenture, dated as of December 21, 1998, between Registrant, as
Issuer, Northwest Aluminum Specialties, Inc., Northwest Aluminum
Company, Northwest Aluminum Technologies, LLC, Goldendale Holding
Company, and Goldendale Aluminum Company, as Guarantors, and U.S.
Trust Company, N.A., as Trustee.
4.2 Credit Agreement, dated December 21, 1998, among the Financial
Institutions named therein, BancBoston, N.A., as Administrative
Agent, U.S. Bank National Association, as Documentation Agent,
Northwest Aluminum Company, Northwest Aluminum Specialties, Inc.,
Goldendale Aluminum Company, and Northwest Aluminum Technologies, as
amended by the Agreement and Amendment No. 1, dated as of January
21, 1999.
4.3 Registration Rights Agreement, dated as of December 21, 1998, by and
among the Registrant, the Subsidiary Guarantors party to this
Agreement; and BancBoston Robertson Stephens Inc., and Libra
Investments, Inc.
4.4 Certificate of Incorporation of Goldendale Holding Company.
5.1 Opinion of Stoel Rives LLP
10.1 Agreement to Toll Convert Alumina into Aluminum, dated May 22, 1996,
between Hydro Aluminum Louisville, Inc., and Goldendale Aluminum
Company
10.2 First Amendment to Agreement to Toll Convert Alumina into Aluminum,
dated December 21, 1998.
10.3 Aluminum Toll Conversion Agreement between Clarendon Ltd. and
Northwest Aluminum Company, dated September 15, 1986
10.4 Amendment No. 1 to Aluminum Toll Conversion Agreement, dated as of
May 4, 1988
10.5 Extension and Amendment Agreement, dated as of October 1, 1991
10.6 Option to Extend 1986 Amended Toll Agreement, dated as of March 1,
1992
10.7 Letter, from Glencore Ltd., exercising Option to Extend, dated
September 21, 1994.
10.8 Tax Indemnification Agreement, dated as of December 21, 1998,
between Registrant, Northwest Aluminum Company, Northwest Aluminum
Specialties, Inc., and Brett E. Wilcox.
10.9 General Transmission Agreement, dated April 7, 1995, executed by the
United States of America Department of Energy acting by and through
the Bonneville Power Administration and Northwest Aluminum Company.
10.10 Power Sale Agreement, dated September 28, 1995, between the United
States of America Department of Energy acting by and through the
Bonneville Power Administration and Northwest Aluminum Company.
12.1 Statements re Computation of Ratios
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Perkins and Company, P.C.
23.3 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on Page II-6 of the Registration
Statement)
25.1 Statement of Eligibility of Trustee*
99.1 Form of Letter of Transmittal*
- --------------
* To be filed by amendment.