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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999 Commission File Number 0-18858
KAISER VENTURES INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 94-0594733
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3633 East Inland Empire Blvd., Suite 850
Ontario, California 91764
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (909) 483-8500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes X No
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On November 11, 1999, the Company had 10,699,354 shares of Common Stock, $.03
par value, outstanding (including 136,919 shares deemed outstanding and held in
reserve by the Company for issuance to the former general unsecured creditors of
Kaiser Steel Corporation pursuant to its Plan of Reorganization).
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TABLE OF CONTENTS TO FORM 10-Q
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INTRODUCTION
BUSINESS UPDATE 1
PART I
Item 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
Condition and Results of Operations....................................... 7
Item 2. FINANCIAL STATEMENTS...................................................... 17
CONSOLIDATED BALANCE SHEETS............................................... 17
CONSOLIDATED STATEMENTS OF OPERATIONS..................................... 19
CONSOLIDATED STATEMENTS OF CASH FLOWS..................................... 20
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY...................................................... 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................ 22
PART II
Item 1. LEGAL PROCEEDINGS......................................................... 25
Item 2. CHANGES IN SECURITIES..................................................... 26
Item 3. DEFAULTS UPON SENIOR SECURITIES........................................... 26
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS......................... 26
Item 5. OTHER INFORMATION......................................................... 26
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................... 27
SIGNATURES.............................................................................. 28
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AVAILABILITY OF PREVIOUS REPORTS
The Company will furnish without charge, to each stockholder, upon written
request of any such person, a copy of the Company's annual report on Form 10-K
for the year ended December 31, 1998, as amended (the "10-K Report") as filed
with the Securities Exchange and Commission, including the financial statement
schedules thereto. Those requesting a copy of the 10-K Report that are not
currently stockholders of the Company may also obtain a copy directly from the
Company. Requests for a copy of the 10-K Report should be directed to Vice
President-Finance, at 3633 East Inland Empire Boulevard, Suite 850, Ontario,
California 91764.
The reader is encouraged to read this Form 10-Q Report in conjunction with
the first and second quarter 10-Q Reports for 1999 and 10-K Report for 1998, as
amended, since the information contained herein is often an update of the
information in such reports.
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FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this 10-Q Report constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Any 10-K,
Annual Report to Stockholders, 10-Q or 8-K Report of the Company may include
forward-looking statements. In addition, other written or oral statements,
which constitute forward-looking statements, have been made and may be made in
the future by the Company. When used or incorporated by reference in this 10-Q
Report or in other written or oral statements, the words "anticipate,"
"estimate," "project" and similar expressions are intended to identify forward-
looking statements. Such statements are subject to certain risks, uncertainties
and assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, expected or projected.
For example, actual results could materially differ from those projected as a
result of factors such as, but not limited to, general economic conditions in
the United States and Southern California; the impact of any year 2000 problems
on a regional or national basis; a material adverse change in the value of the
Class A common stock of International Speedway Corporation; the impact of
federal, state, and local laws and regulations on the Company's development
activities; the discovery of unanticipated environmental conditions on any of
the Company's properties; the failure of the bankruptcy discharge granted to the
Company to address claims and litigation that relate to the pre-bankruptcy
activities of Kaiser Steel Corporation; or the failure to obtain any required
approval or permit for the proposed Eagle Mountain landfill project or
development of the Company's Mill Site real estate. Readers are cautioned not
to put undue reliance on forward-looking statements. The Company disclaims any
intention to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
ADDITIONAL INFORMATION
A reader of this Form 10-Q Report is strongly encouraged to read the entire
report, together with the Company's first and second quarter 1999 10-Q Reports
and 1998 Form 10-K Report, as amended, for background information and a complete
understanding as to material developments concerning the Company.
INTRODUCTION
BUSINESS UPDATE
General
Kaiser Ventures Inc. ("Kaiser" or the "Company") is an asset development
company pursuing project opportunities and investments associated with its
principal assets which are: (i) a 50.88% interest in Fontana Union Water
Company ("Fontana Union"), a mutual water company; (ii) approximately a 74%
interest in Mine Reclamation Corporation ("MRC"), the developer of the Eagle
Mountain Landfill Project (the "Landfill Project"); (iii) a 50% joint venture
interest in the West Valley MRF ("WVMRF"), a transfer station and recycling
facility located on land acquired from the Company; (iv) approximately 645 acres
(gross) of the former Kaiser Steel Corporation ("KSC") steel mill site (the
"Mill Site Property"); and (v) the 11,350 acre idle iron ore mine in the
California desert (the "Eagle Mountain Site"), which includes the associated 460
acre town of Eagle Mountain ("Eagle Mountain Townsite") and the land leased to
MRC for the Landfill Project. In addition, as a result of the acquisition on
July 26, 1999 of Penske Motorsports, Inc. ("PMI") by International Speedway
Corporation ("ISC"), a publicly traded motorsports company, the
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Company's former 11.73% interest in PMI was converted to ISC Class A common
stock and cash worth approximately $81 million at the time of the merger. Due to
sales of ISC Class A stock subsequent to the merger, as of November 12, 1999,
the Company owns approximately 135,000 shares of ISC Class A common stock.
As discussed in more detail below, the Company recently entered into an
agreement to sell virtually all of its remaining Mill Site property.
Finally, see Part II, "Item 5. OTHER INFORMATION" on page 26 of this report
for additional information on the Company.
Investment in Fontana Union Water Company
The Company, through a wholly-owned subsidiary, Fontana Water Resources, Inc.,
leases its 50.88% ownership of the capital stock of Fontana Union, a mutual
water company, to Cucamonga pursuant to a 102-year take-or-pay lease expiring in
2092 (the "Cucamonga Lease"). Currently, the Company's pro rata interest in
unclaimed water raises its effective interest in Fontana Union to 57.33%. Under
the terms of the Cucamonga Lease, Cucamonga's payments to the Company are based
upon established fixed quantities of water for most of the applicable sources,
multiplied by a fixed percentage of a water rate from the Metropolitan Water
District of Southern California ("MWD") as available through the Chino Basin
Municipal Water District as it may change from time-to-time (the "Lease Rate").
As a result of changed rates and a new rate structure implemented by MWD as of
July 1, 1995, the Company and Cucamonga became involved in a rate dispute under
the terms of the Cucamonga Lease. After a trial held in March 1998, the San
Bernardino County Superior Court concluded that the rate on which the Cucamonga
Lease had been based was discontinued effective July 1, 1995. The terms of the
Cucamonga Lease require the parties to negotiate, in good faith, a new
substitute rate. However, since the parties have not been able to negotiate a
new substitute rate, the Cucamonga Lease requires that a new substitute rate be
determined in a reference proceeding. A reference proceeding is in effect a
private trial. Currently, the reference proceeding to determine the new
substitute rate is scheduled to occur during the first quarter of 2000.
Settlement negotiations continued during the third quarter with San Bernardino
County regarding the litigation commenced by the Company's wholly owned
subsidiary, Fontana Water Resources, Inc., with regard to water quality and
quantity concerns arising from San Bernardino County's Mid-Valley Sanitary
Landfill and its proposed expansion. The Company believes the parties are close
to reaching a final settlement. However, even though the parties are currently
close to reaching a final settlement, there is no assurance that there will
ultimately be a satisfactory settlement of the litigation.
Investment in Penske Motorsports, Inc.
Until the close of business July 26, 1999, the Company owned 1,627,923 shares,
or approximately 11.73 % of the common stock of PMI. The Company's ownership
interest in PMI was acquired as a result of: (i) its contribution in November
1995, to PMI of approximately 480 acres, as adjusted, of the Central Mill Site
Property on which the California Speedway ("TCS") has been built; and (ii) the
subsequent sale of the Speedway Business Park, totaling approximately 54 acres
to PMI in December 1996. Until the close of business on July 26, 1999, PMI was
traded on the NASDAQ National Market under the symbol "SPWY".
On July 26, 1999, ISC acquired PMI. ISC is a leading promoter of motorsports
activities in the United States, currently promoting more than 100 events
annually. The Company voted for the merger and elected to take the cash and
stock election afforded to PMI shareholders. Thus, under the cash and stock
election, Kaiser received approximately $24 million in cash and 1,187,407 shares
in ISC Class A common stock valued at approximately $57 million as of the date
of the merger.
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During the third quarter and subsequent to the merger, the Company sold
approximately 535,407 shares of ISC Class A stock at an average sale price of
$53.95 per share. Since September 30, 1999 and thorough November 12, 1999, the
Company has sold an additional 517,500 shares of ISC stock at a price ranging
from $52.50 to $54.375 per share. The Company anticipates that future sales of
ISC stock may occur depending upon market conditions and the cash needs of the
Company. As of the close of business November 12, 1999, the Company still owns
approximately 135,000 shares of ISC Class A common stock.
On November 12, 1999, the reported closing price of ISC's Class A common stock
on the NASDAQ National Market/SM/ System was $54.375.
The Company originally began accounting for its share of PMI's net income as
of April 1, 1996, under the equity method of accounting. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
However, effective April 1, 1999, the Company ceased accounting for PMI under
the equity method of accounting due to the decision to sell the PMI stock owned
by the Company, as a result of the announced PMI/ISC merger. For more detailed
information on the accounting treatment of the Company's former interest in PMI,
please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Mill Site Property
Agreement to Sell Mill Site Property. In October 1999, the Company and its
wholly owned subsidiary, Kaiser Steel Land Development, Inc., entered into a
Purchase and Sale Agreement and Joint Escrow Instructions (the "Purchase
Agreement") with Ontario Partners I, LLC (the "Buyer") pursuant to which the
Company agreed to sell approximately 592 acres of its remaining Mill Site real
estate for $16 million in cash plus the assumption of virtually all known and
unknown environmental obligations and risks associated with the property. The
sale includes the proposed Kaiser Commerce Center with its proposed truck stop
and the East Slag pile property, as well as ancillary items such as the water
rights associated with the property. As part of the transaction, the Company
will be provided environmental insurance coverage and other financial assurance
mechanisms related to the known and unknown environmental obligations and risks
associated with the property being sold.
The Buyer is a new entity formed by LandBank and the Knowlton Group, a Salt
Lake City based developer. LandBank, a wholly owned subsidiary of the IT Group,
specializes in the acquisition, restoration and redevelopment of environmentally
impaired real estate.
The transaction is subject to extensive due diligence and a number of
contingencies. The Buyer may terminate the transaction for any reason prior to
the close of its due diligence period, which will end in the first quarter of
2000. If the Buyer is satisfied with the results of its due diligence and all
other contingencies are resolved, such as the negotiation of the final terms of
certain exhibits to the Purchase Agreement, the transaction would close during
the first half of 2000. Given the due diligence to be undertaken by the Buyer
and the contingencies involved, there can be no assurance that the transaction
will be ultimately consummated or if consummated that it will close on the
current terms set forth in the Purchase Agreement.
The foregoing description of the Purchase Agreement and the proposed
transactions contemplated therein does not purport to be complete and is
qualified in its entirety by reference to the Purchase Agreement attached hereto
as Exhibit 10.1 and incorporated herein by this reference.
Other Sales of Mill Site Property. In addition to entering into an agreement
to sell the bulk of the Company's mill site real estate, the Company has sold,
is in escrow, or is in negotiating for the sale of the remaining approximately
45 acres of the Mill Site not being sold to Ontario Ventures I, LLC. On
November 5, 1995, one of the NAPA Lots of approximately 7.8 acres was sold for a
gross cash sales price
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of $1,698,840, or $5.00 per square foot. On the same day, a sliver of land of
approximately .36 of an acre was sold to an adjoining landowner for $68,215.
The Company accepted a promissory note for the $68,215 purchase price. The
remaining NAPA Lot of approximately 5.2 acres is currently in escrow at $4.90
per square foot, with a closing anticipated to occur by the end of the fourth
quarter of this year. However, there is no assurance that escrow will close on
this remaining NAPA Lot.
The Company is also negotiating the sale of approximately 33 acres, known as
the Rancho Cucamonga property. There is no assurance that the negotiations
for this property will ultimately lead to a sale of the property.
Resolution of U.S. Fish & Wildlife Concerns. As previously disclosed,
subsequent to the approval of the Kaiser Commerce Center by San Bernardino
County, San Bernardino County and the California Transportation Department
received a letter from the U. S. Fish and Wildlife Service ("USF&W"). In
summary, the letter expressed concerns that the freeway improvements and the
Kaiser Commerce Center may have indirect impacts on two federally endangered
species, the San Bernardino Kangaroo Rat and the Delphi Sands Flower-Loving Fly.
In response to a previous letter, the Company had already surveyed both the
Kaiser Commerce Center and the location of the proposed freeway improvements and
found no suitable habitat for either species. At a meeting with the USF&W held
during the third quarter, its concerns were resolved and it concluded that the
proposed freeway improvements and the Kaiser Commerce Center would not have a
direct or indirect impact on endangered species.
Waste Management
West Valley Materials Recovery Facility
The Company, through a wholly-owned subsidiary, and Burrtec Waste Industries,
Inc., also through a wholly-owned subsidiary, each own a fifty percent (50%)
interest in West Valley MRF, LLC, a limited liability company that owns the West
Valley MRF. Phase 1 of the West Valley MRF includes a 62,000 square foot
building, sorting equipment, and related facilities for waste transfer and
recycling services. The West Valley MRF currently receives and processes up to
approximately 2,000 tons per day of non-hazardous commercial and municipal solid
waste. Waste is primarily received from jurisdictions in which Burrtec
affiliated companies have hauling contracts, and from the cities of Ontario,
Chino and Chino Hills. In November 1999, the City of Ontario contracted with
the West Valley MRF to assist in the implementation of a recycling program that
is being instituted by the city. Thus, the West Valley MRF in 2000 will begin
receiving and processing recyclable materials for the benefit of the City of
Ontario.
Given the current volumes of waste being handled by the West Valley MRF,
construction of Phase 2 of the West Valley MRF is being considered. Phase 2
would expand the processing capacity of the West Valley MRF from approximately
2,000 tons per day to approximately 3,500 tons per day. The estimated cost of
the expansion is currently estimated at approximately $9 - $10 million depending
on final design. A final decision on the expansion will probably not be made
until late in the fourth quarter of 1999.
Eagle Mountain Landfill Project
In 1988, the Company entered into a 100-year lease agreement (the "MRC Lease")
with MRC. MRC is seeking to develop the Company's former iron ore mine near
Eagle Mountain, California into a large, regional rail-haul, municipal solid
waste landfill. MRC became a subsidiary of the Company when the Company's
subsidiary, Eagle Mountain Reclamation, Inc., acquired a 70% interest in MRC
during the first quarter of 1995 in exchange for the elimination of the minimum
monthly rent due the Company under the MRC Lease. The elimination of the
minimum monthly rent did not change the future royalty payments due the Company
once the landfill commences operations. As a result of a series of private
placements, the Company's interest in MRC is now approximately 74%. MRC is
currently in the process
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of undertaking a $4.8 million private placement to its existing shareholders. It
is anticipated that the Company will participate in this private placement at
least to the extent of its ownership interest in MRC.
EIR Litigation and Appeal. After the September 1997 approval of the new
environmental impact report for the Landfill Project, (the "Project EIR"), the
litigation with respect to the Project EIR resumed. In February 1998, Judge
Judith McConnell of the San Diego County Superior Court issued her final ruling
with respect to the litigation before her on the new Project EIR. Judge
McConnell, in her final ruling, found that the new Project EIR remained
inadequate in evaluating the Landfill Project's impacts in two general areas:
(i) the threatened desert tortoise; and (ii) impacts to Joshua Tree National
Park. MRC, the Company and Riverside County appealed the Superior Court's
decision.
On May 7, 1999, the Court of Appeal announced its decision to completely
reverse the San Diego Superior Court's prior adverse decision. The Court of
Appeal's decision in effect certified the Project EIR and reinstated Riverside
County's approval of the Landfill Project. The Court of Appeal concluded that
there was substantial evidence to support the decision of the Riverside County
Board of Supervisors to approve the Landfill Project in September 1997, and that
the San Diego Superior Court had improperly substituted its judgment in
concluding that the Project EIR was defective. In June 1999, opponents to the
Landfill Project requested that the California Supreme Court review and overturn
the Court of Appeal's decision. In July 1999, the California Supreme Court
declined to review the Court of Appeal's decision.
Federal Land Exchange. On October 13, 1999, the Company's wholly owned
subsidiary, Kaiser Eagle Mountain, Inc., completed a land exchange with the U.
S. Bureau of Land Management ("BLM"). Completion of the land exchange was a
significant positive step for the Project.
By way of background, for some time the Company had planned to transfer to the
BLM approximately 2,800 acres of Kaiser-owned property along its railroad right-
of-way, which was identified as prime desert tortoise habitat, in exchange for
fee ownership of approximately 3,500 acres of land within the Landfill Project
area. In September 1997, the BLM approved the proposed land exchange. A number
of protests to the land exchange were received, which protests were denied by
the BLM in December 1998. As anticipated, in January 1999 the same two
opponents in the EIR litigation discussed above filed an appeal with the
Interior Board of Land Appeals ("IBLA") challenging the BLM's decision to
proceed with the land exchange. On September 30, 1999, the IBLA issued its
decision upholding the decision of the BLM to engage in the proposed land
exchange with the Company. This positive decision paved the way for completion
of the land exchange.
Permitting. With the positive decision on the Project's EIR and consummation
of the federal land exchange, MRC resumed seeking the final technical permits
for the Project. On September 15, 1999, the California Regional Water Quality
Control Board- Lower Colorado Basin Region, unanimously approved the waste
discharge requirements permit for the Landfill Project. The grant of this
permit has been appealed to the California Water Board by one of the opponents
to the Landfill Project. A stay on the issuance of the permit is also being
sought. The Company and MRC believe that the appeal and stay request are
without merit. A decision on the appeal is anticipated by the end of 1999.
With the Landfill Project's receipt of the waste discharge requirements
permit, MRC has received 19 of 20 major permits required for construction and
operation of the Landfill Project. MRC is pursuing receipt of the final major
permit for the Landfill Project. MRC anticipates soon being before the
California Integrated Waste Management Board seeking its concurrence as to the
issuance of the final major permit.
Marketing. Again, as a result of the recent litigation successes and
completion of the land exchange, MRC is preparing to accelerate its efforts to
market the Landfill Project. MRC has had meetings with several governmental
agencies about the possibility of participating in the Landfill Project through
the
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purchase of air or capacity rights or other similar arrangements. These entities
include, but are not limited to, the Los Angeles Sanitation District. The Los
Angeles Sanitation District has publicly stated that it has an interest in
pursuing a possible transaction, including a possible purchase transaction, with
respect to the Landfill Project and/or with respect to a competing rail-haul
landfill project to be located in Imperial County, California, known as the
Mesquite landfill project. However, even though there are periodic discussions
with the Los Angeles Sanitation District and others, there is no assurance that
any discussions will ultimately lead to an agreement with regard to the Landfill
Project or as to the timing or terms of any agreement if one is ultimately
negotiated.
Risks. As is discussed in more detail in the Company's 1998 Form 10-K Report,
there are numerous risks associated with MRC and the Landfill Project which must
be overcome to achieve the financing, permitting, construction, opening, and
operation of the Landfill Project. There have been and will continue to be
opponents to the Landfill Project. Given the legal challenges that have
occurred to date and the controversies that generally surround landfill
projects, future legal challenges are likely. In addition, the Landfill Project
faces competition from a variety of sources, including the competing Mesquite
rail-haul landfill project to be located in Imperial County, California. The
Mesquite landfill project has reported that it has received all of its major
permits and should soon be able to commence construction. In addition, the
Mesquite Landfill Project is targeting many of the same customers that MRC also
believes are potential customers for the Landfill Project. There is no
assurance that the Landfill Project will be successfully permitted and
ultimately operational.
[Remainder of Page Intentionally Left Blank]
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PART I
Item 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Section 1: Operating Results
General
Kaiser Ventures Inc. ("Kaiser" or the "Company") is an asset development
company with a long-term emphasis on the further development of its principal
assets: (i) a 50.88% interest in Fontana Union Water Company ("Fontana Union"),
a mutual water company; (ii) approximately a 74% interest in Mine Reclamation
Corporation ("MRC"), the developer of the Eagle Mountain Landfill Project (the
"Landfill Project"); (iii) a 50% joint venture interest in the West Valley MRF
("WVMRF"), a transfer station and recycling facility located on land acquired
from the Company; (iv) approximately 629 acres of the former Kaiser Steel
Corporation ("KSC") steel mill site (the "Mill Site Property"), a portion of
which is currently being developed as the Kaiser Commerce Center; and (v) the
11,350 acre idle iron ore mine in the California desert (the "Eagle Mountain
Site"), which includes the associated 460 acre town of Eagle Mountain ("Eagle
Mountain Townsite") and the land leased to MRC for the Landfill Project. In
addition, as a result of the July 26, 1999 acquisition of Penske Motorsports,
Inc. ("PMI") by International Speedway Corporation ("ISC"), a publicly traded
motorsports company, the Company's former 11.73% interest in PMI was converted
into $24.4 million of cash and 1,187,407 shares of ISC Class A common stock. As
of September 30, 1999, Kaiser had sold approximately 535,000 shares of the ISC
stock it received from the merger. Subsequent to September 30, 1999, the
Company has sold an additional 517,500 shares of ISC Class A stock as of
November 12, 1999.
The Company accounts for its investment in ISC in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities (FASB 115). Under FASB 115, the
Company's investment in ISC stock is classified as available-for-sale securities
and reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders' equity. As a
result, at September 30, 1999, the Company wrote up its investment in ISC by
$3.0 million to its fair value of $34.3 million, and credited a separate
component of stockholders' equity and deferred taxes with $1.8 million and $1.2
million, respectively.
Primary Revenue Sources
Ongoing Operations
The Company's revenues from ongoing operations are generally derived from the
development of the Company's long-term projects. Revenues from water resources
represent payments under the lease of the Company's interest in Fontana Union to
Cucamonga. Property redevelopment revenues primarily reflect revenues from
long-term redevelopment activities including water and waste water treatment
revenues at the Mill Site Property; housing rental income, aggregate and rock
sales and lease payments for the minimum security prison at the Eagle Mountain
Townsite; and royalty revenues from iron ore shipments from the Company's iron
ore mine in California (the "Silver Lake Mine"). Income from equity method
investments reflects Kaiser's share of income related to those equity
investments (i.e., PMI commencing April 1996 through March 31, 1999) and joint
ventures (i.e., West Valley MRF from January 1, 1998) which the Company accounts
for under the equity method. The gain on the merger of PMI into ISC was
realized in cash and stock, on July 26, 1999. The realized gain on the sale of
ISC stock is due to the Company selling ISC stock subsequent to the merger
between PMI and ISC.
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Interim Activities
Revenues from interim activities are generated from various sources primarily
related to the Mill Site Property. Interim activities include rentals under
short-term tenant lease arrangements, royalty revenues from the sale of slag to
outside contractors, royalty revenues from the sale of recyclable revert
materials, and other miscellaneous short-term activities. Revenues from these
activities are declining rapidly as the development of the remaining Mill Site
property proceeds.
Summary of Revenue Sources
Due to the developmental nature of certain Company projects and the Company's
recognition of revenues from bankruptcy-related and other non-recurring items,
historical period-to-period comparisons of total revenues are not meaningful for
developing an overall understanding of the Company. Therefore, the Company
believes it is important to evaluate the trends in the components of its
revenues as well as the recent developments regarding its long-term ongoing and
interim revenue sources. See "Part I, Item 1. - Business" for a discussion of
recent material events affecting the Company's revenue sources.
Results of Operations
Analysis of Results for the Quarters Ended September 30, 1999 and 1998
An analysis of the significant components of the Company's resource revenues
for the quarters ended September 30, 1999 and 1998 follows:
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1999 1998 % Inc. (Dec)
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Ongoing Operations
Water resource..................................... $ 1,188,000 $1,176,000 1%
Property redevelopment............................. 355,000 468,000 (24%)
Gain on merger of PMI into ISC..................... 35,713,000 --- 100%
Gain on sale of ISC stock.......................... 3,192,000 --- 100%
Income from equity method
investments.......................................
Penske Motorsports Inc.......................... --- 402,000 (100%)
West Valley MRF, LLC............................ 368,000 --- 100%
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Total ongoing operations.......................... 40,816,000 2,046,000 1895%
----------- ---------- ----
Interim Activities 116,000 370,000 (69%)
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Total resource revenues........................... $40,932,000 $2,416,000 1594%
=========== ========== ====
Revenues as a Percentage of Total Resource Revenues:
Ongoing operations................................. 100% 85%
Interim activities................................. 0% 15%
----------- ----------
Total resource revenues........................... 100% 100%
=========== ==========
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Resource Revenues. Total resource revenues for the third quarter of 1999 were
$40,932,000, compared to $2,416,000 for 1998. Revenues from ongoing operations
increased 19-fold during the quarter to $40,816,000 from $2,046,000 in 1998,
while revenues from interim activities decreased 69% to $116,000 from $370,000
in 1998. Revenues from ongoing operations as a percentage of total revenues
increased to 100% in 1999 from 85% in 1998.
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Ongoing Operations. Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $1,188,000 during the third quarter of 1999
compared to $1,176,000 for 1998. The 1% increase in water revenues during the
quarter reflects: (a) an increase, as of July 1, 1999, in the effective non-
interruptible untreated water rate being paid by Cucamonga to $356.50 from
$354.00 per acre foot; and (b) an increase, effective January 1, 1999, in the
Company's effective interest in Fontana Union from 57.33% to 57.37%, due to a
decline in the number of Fontana Union shareholders taking water. As previously
disclosed, Metropolitan Water District of Southern California ("MWD"), effective
July 1, 1995, implemented changed rates and a changed rate structure which
resulted in the continuing lease interpretation dispute with Cucamonga regarding
the extent of the MWD rate increases. Although the Company is continuing to
bill Cucamonga at what it believes is the correct MWD rate under the lease with
Cucamonga, the Company has elected to report revenues on the basis of amounts
Cucamonga is currently paying. The total amount of lease payments in dispute as
of September 30, 1999 is approximately $2,349,000. In addition, MWD has stated
that it may further refine its rate structure in the future.
Property redevelopment revenues were $355,000 for 1999 compared to $468,000
for 1998. The 24% decrease from 1998 is primarily the reduction of certain
reserves deemed no longer necessary in 1998 ($142,000) being partially offset by
increased iron ore sales from the California mines ($15,000) and a 5% lease
increase included in the 2 1/2 year lease extension with Management Training
Corporation ($10,000).
Income from equity method investments decreased to $368,000 for the third
quarter of 1999 compared to $402,000 for 1998. The decrease of $34,000 reflects
the discontinuance of recording equity income from PMI ($402,000) effective
April 1, 1999 due to the merger between ISC and PMI being partially offset by an
increase in the third quarter equity income of the WVMRF ($368,000).
During the third quarter, ISC consummated its merger with PMI, purchasing the
88% of PMI's common stock it did not already own for $50.00 per share. Kaiser
received, under the cash and stock election of 30% and 70%, respectively, $24.4
million in cash and 1,187,407 of ISC Class A common stock. As a result of the
merger, the Company recognized a gain of $35.7 million during the third quarter
of 1999.
Subsequent to the merger of PMI into ISC, the Company commenced an orderly
liquidation of a portion of its common stock of ISC. Through the end of the
third quarter the Company sold approximately 535,000 shares of ISC common stock
resulting in a gain of $3,192,000. Subsequent to the end of the third quarter
through November 12, 1999, the Company sold an additional 517,500 shares of ISC
stock.
Interim Activities. Revenues from interim activities for the third quarter of
1999 were $116,000 compared to $370,000 for 1998. The 69% decrease in revenues
from interim activities in 1999 is attributable to lower revenues from tenant
rental and services revenues at the Mill Site due to continued redevelopment
activities ($254,000).
Resource Operating Costs. Resource operating costs are those costs directly
related to the resource revenue sources. Total resource operating costs for the
third quarter of 1999 decreased to $666,000 from $854,000 in 1998. Operations
and maintenance costs for 1999 were $232,000 compared to $346,000 for 1998. The
33% decrease in 1999 operations and maintenance costs was primarily due to
reduced manpower and salaries ($17,000) and lower maintenance and supplies costs
for buildings and equipment at the Mill Site and Eagle Mountain ($94,000).
Administrative support expenses for the third quarter of 1999 decreased 15% to
$434,000 from $508,000 for 1998. This decrease was primarily due to lower
outside service expenses at the Mill Site and Eagle Mountain ($126,000), lower
salaries and benefits at the Mill Site due to layoffs in the first and second
quarters of 1999 ($16,000). These decreases were partially offset by higher
outside legal costs associated with water revenue ($50,000), increased
depreciation expense ($15,000), and higher salaries and benefits at Eagle
Mountain ($8,000).
9
<PAGE>
Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the third quarter of 1999 increased 22% to
$1,012,000 from $976,000 for 1998. The increase is primarily due to higher
professional and outside consulting expenses ($53,000) being partially offset by
lower payroll and related expenses ($16,000).
Net Interest Expense. Net interest expense for the third quarter of 1999 was
$104,000 compared to $254,000 in 1998. The decrease was due primarily to an
increase in interest income ($250,000) associated with the increase in cash
being partially offset by an increase in interest expense ($75,000) associated
with additional long term debt under the Union Bank of California ("Union Bank")
credit facility and an increase in the amortization of deferred loan fees
($24,000).
Pre-Tax Loss and Income Tax Provision. The Company recorded income before
income tax provision of $39,150,000 for the third quarter of 1999, a $38,818,000
increase from the $332,000 of income recorded in 1998. An income tax expense of
$9,843,000 was recorded in the third quarter of 1999 as compared with $143,000
for 1998. Less than 50% of the tax provision is currently payable with the
remainder being credited directly to equity as a result of the utilization of
NOLs.
Net Income. For third quarter of 1999, the Company reported net income of
$29,307,000, or $2.77 basic earnings per share, a $29,189,000 increase from the
income of $189,000, or $.02 basic earnings per share, reported for 1998.
Analysis of Results for the Nine Months Ended September 30, 1999 and 1998
An analysis of the significant components of the Company's resource revenues
for the nine months ended September 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998 % Inc. (Dec)
-------------------- ------------------ -------------------
<S> <C> <C> <C>
Ongoing Operations
Water resource..................................... $ 3,548,000 $3,514,000 1%
Property redevelopment............................. 1,081,000 1,145,000 (6%)
Gain on merger of PMI into ISC..................... 35,713,000 --- 100%
Gain on sale of ISC stock.......................... 3,192,000 --- 100%
Income (loss) from equity method
Investments.......................................
Penske Motorsports Inc.......................... (329,000) 1,475,000 n/a
West Valley MRF, LLC............................ 580,000 40,000 1350%
----------- ---------- ----
Total ongoing operations.......................... 43,785,000 6,174,000 609%
----------- ---------- ----
Interim Activities.................................. 286,000 981,000 (71%)
----------- ---------- ----
Total resource revenues........................... $44,071,000 $7,155,000 516%
=========== ========== ====
Revenues as a Percentage of Total Resource Revenues:
Ongoing operations................................. 99% 86%
Interim activities................................. 1% 14%
----------- ----------
Total resource revenues........................... 100% 100%
=========== ==========
</TABLE>
Resource Revenues. Total resource revenues for the first nine months of 1999
were $44,071,000, compared to $7,155,000 for 1998. Revenues from ongoing
operations increased 6-fold during the nine months to $43,785,000 from
$6,174,000 in 1998, while revenues from interim activities decreased 71% to
10
<PAGE>
$286,000 from $981,000 in 1998. Revenues from ongoing operations as a percentage
of total revenues increased to 99% in 1999 from 86% in 1998.
Ongoing Operations. Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $3,548,000 during the first nine months of 1999
compared to $3,514,000 for 1998. The 1% increase in water revenues reflects:
(a) an increase, as of July 1, 1998, in the effective non-interruptible
untreated water rate being paid by Cucamonga to $354.00 from $351.75 per acre
foot; (b) an increase, as of July 1, 1999, in the effective non-interruptible
untreated water rate being paid by Cucamonga to $356.50 from $354.00 per acre
foot; and (c) an increase, effective January 1, 1999, in the Company's effective
interest in Fontana Union from 57.33% to 57.37%, due to a decline in the number
of Fontana Union shareholders taking water. As previously disclosed,
Metropolitan Water District of Southern California ("MWD"), effective July 1,
1995, implemented changed rates and a changed rate structure which resulted in
the continuing lease interpretation dispute with Cucamonga regarding the extent
of the MWD rate increases. Although the Company is continuing to bill Cucamonga
at what it believes is the correct MWD rate under the lease with Cucamonga, the
Company has elected to report revenues on the basis of amounts Cucamonga is
currently paying. The total amount of lease payments in dispute as of September
30, 1999 is approximately $2,349,000. In addition, MWD has stated that it may
further refine its rate structure in the future.
Property redevelopment revenues were $1,081,000 for the first nine months of
1999 compared to $1,145,000 for 1998. The 6% decrease from 1998 is primarily
the result of the reduction of certain reserves deemed no longer necessary
($142,000), being partially offset by a 5% lease increase included in the 2 1/2
year lease extension with Management Training Corporation ($33,000) and
increased iron ore sales from the California mines ($39,000).
Income (loss) from equity method investments decreased to $251,000 for the
first nine months of 1999 from $1,515,000 for 1998. The decrease of $1,264,000
reflects the discontinuance of recording equity income from PMI ($1,623,000)
effective April 1, 1999 due to the merger between ISC and PMI that was
announced in May 1999, and an increase in the reported first quarter net loss of
PMI ($181,000) being partially offset by an increase in equity income from the
WVMRF ($540,000).
During the third quarter, ISC consummated its merger with PMI, purchasing the
88% of PMI's common stock it did not already own for $50.00 per share. Kaiser
received, under the cash and stock election of 30% and 70% respectively,
received $24.4 million in cash and 1,187,407 of ISC Class A common stock. As a
result of the merger the Company recognized a gain of $35.7 million.
Subsequent to the merger of PMI into ISC, the Company commenced an orderly
liquidation of a portion of its position in the common stock of ISC. Through
the end of the third quarter, the Company sold approximately 535,000 shares of
ISC common stock resulting in a gain of $3,192,000. Subsequent to the end of
the third quarter, the Company sold an additional 130,000 shares of ISC stock.
Interim Activities. Revenues from interim activities for the first nine
months of 1999 were $286,000 compared to $981,000 for 1998. The 71% decrease in
revenues from interim activities in 1999 is primarily attributable to lower
revenues from tenant rental and services sales at the Mill Site due to continued
redevelopment activities ($719,000) being partially offset by increased scrap
and metallic sales at the Mill Site ($28,000).
Resource Operating Costs. Resource operating costs are those costs directly
related to the resource revenue sources. Total resource operating costs for the
first nine months of 1999 decreased to $1,982,000 from $2,738,000 in 1998.
Operations and maintenance costs for the first nine months of 1999 were $664,000
compared to $997,000 for 1998. The 33% decrease in operations and maintenance
costs thus far in 1999 was primarily due to lower salaries at the Mill Site
($33,000) and maintenance and supply costs
11
<PAGE>
for buildings and equipment at the Mill Site and Eagle Mountain ($294,000).
Administrative support expenses for the first nine months of 1999 decreased 24%
to $1,318,000 from $1,741,000 for 1998. This decrease was primarily due to a
decrease in outside legal costs associated with the CCWD lease rate dispute
($105,000), the reduction of certain reserves for bad debt ($112,000), and lower
outside service expenses at the Mill Site and Eagle Mountain ($328,000) being
partially offset by restructuring charges relating to planned layoffs at the
Mill Site ($100,000) and higher depreciation expense relating to the sewer plant
improvements ($29,000) at the Mill Site.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the first nine months of 1999 decreased 11% to
$2,754,000 from $3,089,000 for 1998. The decrease is primarily due to lower
payroll and related expenses ($112,000) and lower professional and outside
consulting expenses ($219,000).
Net Interest Expense. Net interest expense for the first nine months of 1999
was $757,000 compared to $728,000 in 1998. The increase was due primarily to:
(a) an increase in interest expense ($192,000) associated with additional long
term debt under the Union Bank of California ("Union Bank") credit facility; (b)
an increase in the amortization of deferred loan fees ($72,000); being mostly
offset by higher interest income ($234,000) associated with the increase in
cash.
Pre-Tax Income and Income Tax Provision. The Company recorded income before
income tax provision of $38,578,000 for the first nine months of 1999, a
$37,978,000 increase from the $600,000 of income recorded in 1998. An income
tax expense of $9,624,000 was recorded for the first nine months of 1999 as
compared with $259,000 recorded in 1998. Less than 50% of the tax provision is
currently payable with the remainder being credited directly to equity as a
result of the utilization of NOLs.
Net Loss. For first nine months of 1999, the Company reported net income of
$28,954,000, or $2.71 basic earnings per share, a $28,613,000 increase from the
net income of $341,000, or $.03 basic earnings per share, reported for 1998.
Section 2: Financial Position
Cash, Cash Equivalents and Short-Term Investments. The Company defines cash
equivalents as highly liquid debt instruments with original maturities of 90
days or less. Cash and cash equivalents increased $53,328,000 to $56,737,000 at
September 30, 1999 from $3,409,000 at December 31, 1998. Included in cash and
cash equivalents is $1,987,000 and $2,545,000 held solely for the benefit of MRC
at September 30, 1999 and December 31, 1998, respectively. The increase in cash
and cash equivalents is primarily due to: (a) proceeds from the PMI / ISC
merger ($24,419,000); (b) proceeds from the sale of ISC stock ($28,859,000); (c)
increased borrowings under the Company's Union Bank revolving-to-term credit
facility ($3,000,000); (d) cash provided by operations ($356,000); (e) equity
funding by the MRC minority partners ($393,000); and (f) the issuance of common
stock relating to the exercise of stock options ($128,000) being partially
offset by $2,552,000 in capital expenditures and $1,350,000 in environmental
remediation costs.
Working Capital. During the first nine months of 1999, current assets
increased $52,783,000 to $58,631,000 while current liabilities increased
$5,909,000 to $14,244,000. The increase in current assets resulted primarily
from the $53,328,000 increase in cash and cash equivalents being offset by a
$545,000 decline in net accounts receivable. The increase in current
liabilities resulted primarily from an increase in current income taxes payable
($4,793,000) and in accounts payable and accrued liabilities associated with the
permitting of Eagle Mountain landfill and environmental remediation at the Mill
Site. Included in current liabilities as of September 30, 1999 is $684,000 in
accounts payable and accrued liabilities relating to MRC. As a result of the
above, working capital increased during the first nine months of 1999 by
$46,874,000 to $44,387,000 at September 30, 1999.
12
<PAGE>
Real Estate. Real Estate increased $414,000 during 1999 due to the costs
associated with continuing redevelopment of the Mill Site properties.
Investments. As a result of the PMI / ISC merger in July 1999, the Company's
investment in PMI was converted into $24.4 million of cash and $57.0 million (or
1,187,407 shares) of ISC Class A common stock valued at $47.98 per share.
Subsequent to the merger, the Company sold approximately 535,000 shares of ISC
stock, reducing its investment by $25.7 million. At September 30, 1999, there
was a $3.0 million increase in the Company's investment in ISC due to the
Company's recording of the unrealized gain pursuant to FAS 115 based upon ISC's
stock price of $52.56 at that date. The Company's investment in the WVMRF
increased by $580,000 during the first nine months of 1999 due to the Company's
recording of its 50% equity share of the WVMRF's income for the first nine
months of 1999.
Other Assets. The increase in other assets ($2,042,000) is primarily related
to capitalized landfill permitting and development costs incurred by MRC
($2,290,000) and capital improvements at the Mill Site and Eagle Mountain
($245,000), being partially offset by an increase in accumulated depreciation
and amortization as of September 30, 1999 ($407,000) and a reduction in the long
term portion of a note receivable ($75,000).
Environmental Remediation. The Company estimates, based upon current
information, that its future remediation and other environmental costs for the
balance of its land and related matters, including groundwater and other
possible third party claims, will be between approximately $17 million and $27
million, depending both upon the ultimate extent of the environmental
remediation and clean-up effort involved and which approved remediation
alternatives are eventually selected. In order to provide better information
regarding these future remediation and other environmental costs, the Company
elected, in 1996, to restate its balance sheets to show as a separate liability
rather than, as previously, an offset to land, the amount of future
environmental related costs reflected in its financial statements. The
restatement reflects the original $34.7 million remediation adjustment to land;
the $6.6 million groundwater remediation reserve recorded in 1988 when the
Company emerged from bankruptcy as the reorganized successor of KSC; and the net
$12.5 million in environmental insurance litigation settlement proceeds received
in 1995 being offset by approximately $26.9 million in remediation and other
environmental costs expended through September 30, 1999. The Company's decision
to restate its balance sheet was based upon, among other things, the more
extensive investigation and remediation activities that have been pursued over
the past several years and the Company's ability to better estimate the probable
range of future remediation and other environmental costs.
As of September 30, 1999, the total short-term and long-term environmental
liabilities including remediation reflected on the Company's balance sheet were
approximately $26.9 million, the high end of the probable range of future
remediation and other environmental costs, which declined from the $28.3 million
as of December 31, 1998. The decrease is a result of approximately $1.4 million
in remediation and other environmental costs incurred in the first nine months
of 1999 on the Mill Site property.
Although ongoing environmental investigations are being conducted on the Mill
Site Property and management believes it is currently in a position to estimate
with some reasonable certainty future investigation and remediation costs, there
can be no assurance that the actual amount of environmental remediation
expenditures to be incurred will not substantially exceed those currently
anticipated or that additional areas of contamination may not be identified.
Accordingly, future facts and circumstances could cause these estimates to
change significantly.
Long-term Debt. Of September 30, 1999, the Company had $16,750,000 in long-
term debt, solely comprised of borrowings under the Company's $30,000,000
revolving-to-term credit facility with Union Bank.
13
<PAGE>
Long-term Liabilities. The $1,711,000 decrease in other long-term
liabilities, excluding long-term debt, is primarily as a result of $1,410,000 in
environmental remediation undertaken during the first nine months of 1999 and a
decrease of $483,000 in other long term liabilities being partially offset by a
$182,000 increase in the deferred tax liability primarily associated with the
Company's investment in ISC.
Minority Interest and Other Liabilities. As of September 30, 1999, the Company
has recorded $4,168,000 of minority interest relating to the approximately 26%
ownership interest in MRC the Company does not own.
Contingent Liabilities. The Company has contingent liabilities more fully
described in the notes to the financial statements.
Section 3: Business Outlook
The statements contained in this Business Outlook are based upon current
operations and expectations. In addition to the forward-looking statements and
information contained elsewhere in this 10-Q Report, these statements are
forward-looking and, therefore, actual results may differ materially.
On-Going Operations. As noted above, the Company's revenues from ongoing
operations are generally derived from the development of the Company's major
long-term projects and investments. The development of a number of these
projects and investments, such as the 102-year take-or-pay lease with Cucamonga,
and the 50% equity ownership of the West Valley MRF, are essentially complete
and the Company has been recognizing significant revenues and income from these
investments. The Company expects revenues from these projects and investments
to increase over time as certain key economic factors impacting these projects
and investments increase. In addition, the Company continues to evaluate these
completed projects and investments in light of how to best provide maximum
realizable value to its shareholders.
In regard to the lease with Cucamonga, the most significant economic factor
affecting future water lease revenues is likely to be adjustments in the MWD
rate for untreated and non-interruptible water as available through the Chino
Basin Municipal Water District (now called Inland Empire Utilities Agency (the
"Lease Rate") upon which the lease payments are calculated. The MWD rate
established for untreated, non-interruptible water is based on a number of
factors, including MWD's need for funds to finance capital improvements and to
cover large fixed overhead costs. After increasing at an average of
approximately 8.0% per year during the past 25 years, MWD is projecting that the
MWD rate for untreated, non-interruptible water, including all of the changed
rates and charges implemented by MWD since July 1, 1995, will likely increase at
less than 5.0% per year for the next 2-4 years. This reduction is due to a
reduced capital budget, lower overhead, lower borrowing costs and reduced levels
of inflation. Also affecting the Company's future water lease revenues is the
dispute with Cucamonga regarding the calculation of the Lease Rate. In March
1998, the San Bernardino Superior Court ruled that the Lease Rate had been
discontinued as of July 1, 1995. Thus, the parties are required to negotiate in
good faith a substitute Lease Rate. To date, the parties have been unable to
negotiate a substitute Lease Rate; consequently, the matter has been submitted
to a reference process, which is a private trial much like arbitration. The
reference process or trial is scheduled to occur during the first quarter of
2000.
In regard to the Company's 50% interest in the WVMRF, the most significant
factors affecting the Company's future equity income from the WVMRF will be the
possible expansion of the facility to meet the expanding demand for the WVMRF's
processing services. Since the beginning of 1999, the facility has been
operating at full capacity and recently began to explore the potential of
expanding the processing capabilities of the facility under its existing
permits. A Phase 2 expansion of the WVMRF would cost
14
<PAGE>
approximately $9-10 million and would increase processing capacity from 2,000 to
3,500 tons per day. The Company would be responsible for 50% of the $1.0 million
in equity and $8-9 million in debt associated with the cost of the expansion.
The Company has received the final approvals necessary for the development of
a variety of possible commercial, industrial and recreational uses relative to
the redevelopment of approximately 448 acres (gross) of the Mill Site Property.
The Company received approval, from San Bernardino County, of its EIR for the
project in April 1999, and is seeking the final approval of the California
Department of Transportation ("CalTrans") for improvements to the existing
freeway access to the site. In support of these efforts, the Company expects to
spend, in 1999, up to approximately $3.8 million for required environmental
remediation. The $3.8 million to be spent in 1999 for required environmental
remediation is a component of the $17-27 million estimate to complete all
remaining required remediation for the Mill Site Property. In addition,
substantial future capital expenditures will be required to complete the
necessary on-site and off-site improvements for the redevelopment of remaining
Mill Site Property. As a result of the approval of the Kaiser Commerce Center
project by San Bernardino County and the active Southern California real estate
market, the Company has received a number of unsolicited offers from potential
bulk purchasers and retail users regarding the possible purchase of property
within the project area, as well as the Company's remaining NAPA Lots and the
Rancho Cucamonga parcel.
In July 1999, the Company entered into two definitive purchase agreements to
sell the 2 remaining NAPA Lots, totaling 13 acres, for $4.90 and $5.00 per
square foot, respectively. One lot sale closed on November 5, 1999, with a
gross sales of $1,698,840 or $5.00 per square foot. A very small parcel (.36 of
an acre) created from the sold parcel also sold in November for a gross sales
price of $68,215. The remaining NAPA Lot of approximately 5.5 acres is scheduled
to close by year-end. It is in escrow at $4.90 per square foot.
In addition, on October 19, 1999, the Company entered into an agreement with
Ontario Ventures I, LLC to sell the bulk of its remaining Mill Site Property for
$16 million in cash plus the assumption of virtually all known and unknown
environmental obligations and liabilities associated with the Mill Site real
estate. The Buyer is a new entity formed by LandBank, a wholly owned subsidiary
of The IT Group, and The Knowlton Group, a Salt Lake City based developer.
LandBank specializes in the acquisition, restoration and redevelopment of
environmentally impaired real estate. The transaction is subject to extensive
due diligence and a number of contingencies. If the buyer is satisfied with the
results of its due diligence investigation and all other contingencies are
resolved, the transaction would potentially close during the first half of 2000.
Given the contingencies involved, there can be no assurances that the
transaction will close on the terms negotiated or will ultimately be consummated
at all. See "INTRODUCTION - Business Update - The Mill Site Property" for
additional information.
The Company also has been spending capital in the continued development of its
other major project: the repermitting of the Eagle Mountain Landfill by MRC, the
Company's 74% owned subsidiary. If it is successful in completing the
development of this project as planned, the Company expects to generate
significant future revenues and net income. However, as is noted in the 1998
Form 10-K Report and elsewhere in this Report, there are numerous risks
associated with completing the re-permitting of the Landfill Project that could
materially impact the Company's future revenues and net income from this
project.
In regard to the Company's investment in MRC, a number of significant
milestones, as discussed above, have been achieved during 1999. MRC expects
that the Eagle Mountain Landfill could be fully permitted by the end of the
first half of 2000. However, new litigation and further delays are possible.
Although neither the Company nor any subsidiary of the Company has any
obligation to invest funds in MRC, the Company has, to date, continued to make
investments in MRC. Through a series of private placements with existing MRC
shareholders, from July 1995 through March 31, 1999, a total of $14.9
15
<PAGE>
million has been raised by MRC, with Kaiser contributing approximately $11
million of that amount. The Company has also approved advances to MRC totaling
$1.2 million for 1999, which together with the minority shareholders advances,
will fund MRC through September 30, 1999. Additional funding for 1999 and 2000
is expected to be approved by the Company in the fourth quarter of 1999. MRC is
currently undertaking a $4.8 million private placement.
Finally, in regard to the Company's remaining investment in ISC stock, the
Company will continue to review the prospects for further appreciation in ISC's
stock price and may sell additional shares ISC stock based upon its evaluation
of those prospects.
Capital Resources. The Company expects that its current cash balances and
short-term investments together with: (a) the approximately $24 million in cash
from the PMI/ISC merger; (b) cash provided from operating activities; and (c)
amounts available under its $30,000,000 revolving-to-term credit facility (less
$4,850,000 reserved for financial assurances required by the DTSC and relating
to environmental remediation on the Mill Site Property) will be sufficient to
satisfy both the Company's near-term operating cash requirements and to enable
the Company to continue to fund the development of its long-term projects and
investments. As was discussed in more detail above, the Company expects to
commit, in 1999, a total of approximately $8.4 million for capital projects and
investments. To the extent that additional capital resources are required, such
capital will be raised through bank borrowings, the sale of ISC stock,
partnerships, joint venture arrangements, additional equity, or the sales or
monetization of assets.
Improved Cash Flow from Use of Net Operating Loss Tax Carryforwards. Due to
the Company's status as successor to KSC and its use of KSC-related NOLs, income
taxes actually paid by the Company are substantially less than the income tax
provision reported in its financial statements. The tax benefit associated with
the utilization of these NOLs is reflected as an increase to stockholders'
equity rather than as an increase to net income. As was the case during the
third quarter of 1999, the Company expects that its use of these NOLs will
substantially reduce the cash paid for income taxes until these NOLs are fully
utilized. The total NOLs at September 30, 1999, are approximately $69 million
for federal purposes and $102,000 for California purposes. The federal NOLs
expire in varying amounts over a period from year 2000 to 2014 while the
California NOLs expire from 2000 through 2004. Based upon the taxable gains
generated thus far during 1999, the Company will be able to utilize all the
federal and California NOLs expiring through 2005.
Please note that if, within a three-year period, 50% or more of the stock of
the Company changes ownership, the future annual use of NOLs may be limited.
The annual limitation would be calculated as the product of: (i) the highest
long-term tax-exempt rate for a designated period prior to the ownership change;
and (ii) the market value of the Company at such time.
[Remainder of Page Intentionally Left Blank]
16
<PAGE>
CONSOLIDATED BALANCE SHEETS
as of
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------- --------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................... $ 56,737,000 $ 3,409,000
Accounts receivable and other, net of allowance for
doubtful accounts of $117,000 and $303,000,
respectively............................................ 1,794,000 2,339,000
Note receivable......................................... 100,000 100,000
------------ ------------
58,631,000 5,848,000
------------ ------------
Investment in common stock of Penske Motorsports, Inc...... --- 45,784,000
------------ ------------
Investment in common
stock of International Speedway Corp....................... 34,297,000 ---
------------ ------------
Investment in Fontana Union Water Company.................. 16,108,000 16,108,000
------------ ------------
Investment in West Valley MRF.............................. 3,129,000 2,549,000
------------ ------------
Real Estate
Land and improvements................................... 15,621,000 15,621,000
Real estate in development.............................. 41,021,000 40,607,000
------------ ------------
56,642,000 56,228,000
------------ ------------
Other Assets
Note Receivable......................................... 639,000 714,000
Landfill permitting and development..................... 14,931,000 12,641,000
Buildings and equipment (net)........................... 2,871,000 2,949,000
Other assets............................................ 26,000 121,000
------------ ------------
18,467,000 16,425,000
------------ ------------
Total Assets............................................... $187,274,000 $142,942,000
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
CONSOLIDATED BALANCE SHEETS
as of
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------------- -------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable....................................... $ 980,000 $ 708,000
Income taxes payable................................... 4,793,000 ---
Accrued liabilities.................................... 4,666,000 3,822,000
Environmental remediation.............................. 3,805,000 3,805,000
------------ ------------
14,244,000 8,335,000
------------ ------------
Long-term Liabilities
Deferred gain on sale of real estate................... 656,000 656,000
Accrued liabilities.................................... 1,291,000 1,774,000
Deferred tax liabilities............................... 2,531,000 2,349,000
Long-term debt......................................... 16,750,000 13,750,000
Environmental remediation.............................. 23,055,000 24,465,000
------------ ------------
44,283,000 42,994,000
------------ ------------
Total Liabilities......................................... 58,527,000 51,329,000
------------ ------------
Minority Interest......................................... 4,168,000 3,775,000
------------ ------------
Commitments and Contingencies
Stockholders' Equity
Common stock, par value $.03 per share, authorized
13,333,333 shares; issued and outstanding
10,699,354 and 10,685,257 respectively................ 321,000 321,000
Capital in excess of par value......................... 80,736,000 74,741,000
Retained earnings since November 15, 1988.............. 41,730,000 12,776,000
Accumulated other comprehensive income................. 1,792,000 ---
------------ ------------
Total Stockholders' Equity................................ 124,579,000 87,838,000
------------ ------------
Total Liabilities and Stockholders' Equity................ $187,274,000 $142,942,000
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three and Nine Months Ended September 30
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------------- ----------------------------------------
1999 1998 1999 1998
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Resource Revenues
Ongoing Operations
Water resource.............................. $ 1,188,000 $ 1,176,000 $ 3,548,000 $ 3,514,000
Property redevelopment...................... 355,000 468,000 1,081,000 1,145,000
Gain on merger of PMI into ISC............. 35,713,000 --- 35,713,000 ---
Gain on sale of ISC common stock............ 3,192,000 --- 3,192,000 ---
Income (loss) from equity method investments
Penske Motorsports Inc..................... --- 402,000 (329,000) 1,475,000
West Valley MRF, LLC....................... 368,000 --- 580,000 40,000
----------- ----------- ----------- -----------
Total ongoing operations................... 40,816,000 2,046,000 43,785,000 6,174,000
----------- ----------- ----------- -----------
Interim Activities 116,000 370,000 286,000 981,000
----------- ----------- ----------- -----------
Total resource revenues.................... 40,932,000 2,416,000 44,071,000 7,155,000
----------- ----------- ----------- -----------
Resource Operating Costs
Operations and maintenance................... 232,000 346,000 664,000 997,000
Administrative support expenses.............. 434,000 508,000 1,318,000 1,741,000
----------- ----------- ----------- -----------
Total resource operating costs............. 666,000 854,000 1,982,000 2,738,000
----------- ----------- ----------- -----------
Income from Resources......................... 40,266,000 1,562,000 42,089,000 4,417,000
Corporate general and administrative expenses 1,012,000 976,000 2,754,000 3,089,000
----------- ----------- ----------- -----------
Income from Operations........................ 39,254,000 586,000 39,335,000 1,328,000
Net Interest expense......................... 104,000 254,000 757,000 728,000
----------- ----------- ----------- -----------
Income before Income Tax Provision............ 39,150,000 332,000 38,578,000 600,000
Income tax provision
Currently payable........................... 4,817,000 7,000 4,831,000 21,000
Deferred tax benefit........................ (1,013,000) --- (1,013,000) ---
Deferred tax expense credited to equity..... 6,039,000 136,000 5,806,000 238,000
----------- ----------- ----------- -----------
Net Income.................................... $29,307,000 $ 189,000 $28,954,000 $ 341,000
=========== =========== =========== ===========
Basic Earnings Per Share...................... $2.77 $.02 $2.71 $.03
=========== =========== =========== ===========
Diluted Earnings Per Share.................... $2.73 $.02 $2.67 $.03
=========== =========== =========== ===========
Basic Weighted Average Number of Shares
Outstanding.................................. 10,583,000 10,685,000 10,698,000 10,657,000
Diluted Weighted Average Number of Shares
Outstanding.................................. 10,752,000 10,858,000 10,839,000 10,836,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Nine Months Ended September 30
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income............................................ $ 28,954,000 $ 341,000
Provision for income tax which is credited to equity.. 5,806,000 238,000
Deferred tax (benefit) expense........................ (1,013,000) ---
Equity income in Penske Motorsports, Inc. and West
Valley MRF, LLC...................................... (251,000) (1,515,000)
Gain on merger of PMI into ISC........................ (35,713,000) ---
Gain on sale of ISC common stock...................... (3,192,000) ---
Depreciation and amortization......................... 407,000 327,000
Allowance for doubtful accounts....................... (50,000) (3,000)
Changes in assets:
Receivables and other............................... 595,000 321,000
Changes in liabilities:
Current liabilities................................. 90,000 (152,000)
Income taxes payable................................ 4,793,000 ---
Long-term accrued liabilities....................... (70,000) 100,000
------------ -----------
Net cash flows from operating activities.............. 356,000 (343,000)
------------ -----------
Cash Flows from Investing Activities
Minority interest..................................... 393,000 510,000
Note receivable collections........................... 75,000 406,000
Proceeds from the merger of PMI into ISC.............. 24,419,000 ---
Proceeds from the sale of ISC common stock............ 28,859,000 ---
Capital expenditures.................................. (2,552,000) (3,507,000)
Environmental remediation expenditures................ (1,350,000) (1,855,000)
------------ -----------
Net cash flows from investing activities.............. 49,844,000 (4,446,000)
------------ -----------
Cash Flows from Financing Activities
Issuance of common stock.............................. 128,000 133,000
Principal payments on note payable.................... --- (5,102,000)
Borrowings under revolver-to-term credit facility..... 3,000,000 7,750,000
Payment of loan fees.................................. --- (50,000)
------------ -----------
Net cash flows from financing activities.............. 3,128,000 2,731,000
------------ -----------
Net Changes in Cash and Cash Equivalents............... 53,328,000 (2,058,000)
Cash and Cash Equivalents at Beginning of Year......... 3,409,000 4,330,000
------------ -----------
Cash and Cash Equivalents at End of Quarter............ $ 56,737,000 $ 2,272,000
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the Nine Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Capital In Other
Common Stock Excess of Comprehensive Retained
-----------------------
Shares Amount Par Value Income Earnings Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 10,685,257 $321,000 $74,741,000 $ --- $12,776,000 $ 87,838,000
------------
Net income................... --- --- --- --- 28,954,000 28,954,000
Other comprehensive income,
unrealized gain on
securities net of tax
and reclassification --- --- --- 1,792,000 --- 1,792,000
adjustments............. ------------
Comprehensive income......... 30,746,000
------------
Provision for income tax,
credited to equity.......... 5,806,000 5,806,000
------------
Issuance of shares of
common stock............. 14,097 --- 189,000 --- --- 189,000
---------- --------- ----------- ----------------- ------------ ------------
Balance at September 30, 1999 10,699,354 $321,000 $80,736,000 $1,792,000 $41,730,000 $124,579,000
========== ========= =========== ================= ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The unaudited, consolidated financial statements as of September 30, 1999 and
for the three and nine month periods ended September 30, 1999 and 1998, as well
as related notes, should be read in conjunction with the audited consolidated
financial statements and related notes as of and for the year ended December 31,
1998. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary (all of which are normal and/or
recurring in nature) to present fairly the Company's financial position at
September 30, 1999, and results of operations and cash flows for the three and
nine month periods ended September 30, 1999 and 1998.
Note 2. COMPREHENSIVE INCOME
As of April 1, 1999, the Company adopted FASB 130, Reporting Comprehensive
Income. FASB 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or shareholders' equity. FASB 130
requires unrealized gains or losses on the Company's available-for-sale
securities to be included in other comprehensive income, which prior to adoption
were reported separately in shareholders' equity. The Company's prior period
financial statements were not impacted by the adoption of FASB 130.
The components and related tax effects of other comprehensive income for the
nine months ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Before-Tax Tax Net-of-Tax
Amount (Benefit)/Expense Amount
<S> <C> <C> <C>
Unrealized gains on securities:
Cumulative unrealized gains on PMI
common stock prior to merger $ 35,713,000 $ 8,449,000 $ 27,264,000
Less: gain on merger of PMI into ISC
(35,713,000) (8,449,000) (27,264,000)
Cumulative unrealized gains on ISC
common stock 6,179,000 2,472,000 3,707,000
Less: gain on the sale of ISC common
stock (3,192,000) (1,277,000) (1,915,000)
------------ ----------- ------------
Other comprehensive income as of
September 30, 1999 $ 2,987,000 $ 1,195,000 $ 1,792,000
============ =========== ============
</TABLE>
Note 3. CUCAMONGA LEASE
The Company, through a wholly-owned subsidiary, Fontana Water Resources, Inc.,
leases its 50.88% ownership of the capital stock of Fontana Union, a mutual
water company, to Cucamonga County Water District ("Cucamonga") pursuant to a
take-or-pay lease (the "Cucamonga Lease") that terminates in the year 2092. In
1996, the Company instituted litigation against Cucamonga due to a dispute
concerning the amount payable to the Company pursuant to the terms of the
Cucamonga Lease. The dispute centers on the Company's assertion that either the
MWD Rate in the Cucamonga Lease was discontinued on July 1, 1995, or that the
Lease Rate should be interpreted to include all the changed rates and items
implemented
22
<PAGE>
by Metropolitan Water District of Southern California ("MWD") since July 1,
1995. A five-day trial on the matter was held in March 1998. The Court ruled, in
favor of the Company, that the rate on which the Cucamonga Lease had been based
was discontinued effective July 1, 1995. Therefore the terms of the Cucamonga
Lease require the parties to negotiate in good faith a new substitute MWD rate.
To date, the parties have been unable to negotiate a substitute Lease Rate;
consequently, the matter is being submitted to a reference process, which is a
private trial much like arbitration. The reference process or trial is scheduled
to occur during the first quarter of 2000. Cucamonga continues to pay under the
terms of the Cucamonga Lease, but at a rate substantially less than the Lease
Rate that the Company maintains it is entitled to receive pursuant to the
Cucamonga Lease. Although the Company is continuing to bill Cucamonga at what it
believes is the correct MWD rate under the lease with Cucamonga, the Company has
elected to report revenues on the basis of amounts Cucamonga is currently
paying. The total amount of lease payments in dispute as of September 30, 1999
is approximately $2,349,000.
Note 4. SUPPLEMENTAL CASH FLOW INFORMATION
During the nine months ended September 30, 1999 and 1998 the Company issued
$61,000 and $142,000 of common stock, respectively, for the payment of bonuses.
As a result of the merger between PMI and ISC in July, the Company's
investment in PMI was converted into $24.4 million of cash and $57.0 million of
ISC Class A common stock.
Pursuant to FASB 130, at September 30, 1999, the Company wrote up its
investment in ISC by $3.0 million to its fair value of $34.3 million, and
credited a separate component of stockholders' equity and deferred taxes with
$1.8 million and $1.2 million, respectively
Note 5. COMMITMENTS AND CONTINGENCIES
Environmental Contingencies
The Company estimates, based upon current information, that its future
remediation and other environmental costs, including groundwater and other
possible third party claims, will be between approximately $17 million and $27
million, depending upon which approved remediation alternatives are eventually
selected.
Although ongoing environmental investigations are being conducted on the
Company's property, and management believes it is currently in a position to
estimate with some reasonable certainty future investigation and remediation
costs, there can be no assurance that the actual amount of environmental
remediation expenditures and incurred will not substantially exceed those
currently anticipated or that additional areas of contamination may not be
identified. Accordingly, future facts and circumstances could cause these
estimates to change significantly. The Company anticipates recovery of the
remediation costs incurred through redevelopment of the property, primarily in
connection with specific redevelopment projects or joint ventures. Further, the
Company has provided certain financial assurances to the DTSC in connection with
anticipated remediation activities, the primary one being the dedication of
approximately $4.8 million of Kaiser's Union Bank Credit facility.
While the Company has monitored certain groundwater wells in the past, the
DTSC requested and the Company will implement a supplemental groundwater
monitoring system. The Company previously settled obligations of groundwater
contamination with the California Regional Water Quality Control Board. The
settlement required a $1,500,000 cash payment by the Company, which was made in
February 1994, and the contribution of 1,000 acre feet of water annually for 25
years to a water quality
23
<PAGE>
project. These water rights are unrelated to those leased to Cucamonga. In 1995,
the Company contributed 18,000 acre feet of its water in storage thus,
satisfying the first 18 years of its obligation. The Company remains
contingently liable for any impacts the groundwater plume may have on water
wells owned by third parties. The City of Ontario, California has commenced
litigation against the Company alleging that the Company has contaminated one of
its municipal wells.
Note 6. SUBSEQUENT EVENT
Subsequent to September 30, 1999, the Company has sold an additional 517,500
shares of ISC stock at a sales price ranging from $52.50 to $54.375 per share
through November 12, 1999.
On October 19, 1999, the Company entered into an agreement with Ontario
Ventures I, LLC to sell the bulk of its remaining Fontana Mill Site real estate
for $16 million in cash plus the assumption of virtually all known and unknown
environmental obligations and liabilities associated with the Mill Site real
estate. The Buyer is a new entity formed by LandBank, a wholly owned subsidiary
of The IT Group, and The Knowlton Group, a Salt Lake City based developer. The
transaction is subject to extensive due diligence and a number of contingencies.
If the buyer is satisfied with the results of its due diligence investigation
and all other contingencies are resolved, the transaction would potentially
close during the first half of 2000. Given the contingencies involved, there can
be no assurances that the transaction will close on the terms negotiated or will
ultimately be consummated at all.
[Remainder of Page Intentionally Left Blank]
24
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
As discussed in the Company's Form 10-K Report for 1998, the Company is
engaged in certain claims and litigation. There were no material developments
in any legal proceeding in the third quarter of 1999 except as noted below:
Eagle Mountain Landfill Project Litigation. On May 7, 1999, a unanimous
three-judge panel of the California Court of Appeal, 4th Appellate District,
Division 1, completely overturned the prior adverse decision of the San Diego
Superior Court on the Landfill Project's environmental impact report. The
California Supreme Court on July 21, 1999, denied the opponents request that the
Court of Appeal's decision be reviewed and overturned. Landfill opponents have
effectively exhausted their challenges under the California Environmental
Quality Act.
On September 30, 1999, the Interior Board of Land Appeals ("IBLA") dismissed
the appeals of two opponents to the proposed federal land exchange. The IBLA
concluded that the challenges to the proposed land exchange between the U.S.
Bureau of Land Management and the Company were without merit. As a result of
the positive decision of the IBLA, the land exchange between the Company and the
U.S. Bureau of Land Management was completed on October 13, 1999.
Finally, opponents to the Landfill Project have appealed to the California
Water Board the issuance of the waste discharge requirements permit for the
Landfill Project unanimously approved in September 1999 by the California
Regional Water Quality Control Board, Lower Colorado River Basin. A stay of the
issuance of the permit has also been sought. The Company believes the appeal is
without merit.
For additional information on the Landfill Project litigation, see
"Introduction - Business Update - Waste Management - Eagle Mountain" of this 10-
Q Report, as well as the Company's 1998 10-K Report.
Mushegain Litigation Settlement. During the third quarter a settlement was
reached with regard to the litigation brought by a landowner that had rented out
his property to a tenant that performed work during the construction of the
California Speedway. The landowner alleged that debris, including possible
hazardous substances, were deposited in and on the landowner's property by the
former tenant and that the source of some of the debris was from the demolition
activities on the California Speedway property. The tenant acknowledged
responsibility for the conditions created on the property but effectively became
bankrupt. The landowner then sought contribution from The California Speedway
Corporation and the Company. Given the time and expense involved in the case,
the parties ultimately agreed to a settlement. The Company's final allocation
of the settlement has yet to be determined but it will not exceed $500,000.
Mary Mushegain v. The California Speedway, et. al (United States District Court,
Central District of California, Case No. CV 98-6786).
City of Richmond Litigation. During the third quarter, the City of Richmond,
located in Northern California, joined the Company in federal litigation it
commenced against several entities, alleging that the City of Richmond is
entitled to recover past and future environmental clean-up costs associated with
property owned by the City of Richmond. Apparently, the property currently
owned by Richmond includes portions of World War II era shipyard construction
and demolition facilities. It is alleged that the Company demolished ships for
approximately a two-year period in the 1940's and thus, contributed to the
contamination of the property. Since this matter was just recently commenced
against the Company (no answer has yet been filed by the Company in the
litigation as of the date of this 10-Q Report), there has been no discovery in
the matter. The Company is vigorously defending the lawsuit and asserts, among
other defenses, that any liability has been discharged as a part of the
bankruptcy of Kaiser Steel
25
<PAGE>
Corporation. Litigation has been commenced against the City of Richmond in the
U.S. Bankruptcy Court for the District of Colorado to hold the City of Richmond
and certain officials in contempt for violating the bankruptcy order. City of
Richmond, et al v. Levin Enterprises, Inc., et al. (United States District
Court, Northern District of California, Case No. C-97-3213 CRB).
Centennial Settlement. During the third quarter, a settlement was also
reached in the Centennial Insurance litigation. In that litigation, Centennial
sought to recover damages from the Company and others for approximately
$115,000 in losses related to the theft of property that was stored on the
Company's property. The settlement was covered by insurance. Centennial
Insurance Company v. Kaiser Resources Inc., et al., San Bernardino County
Superior Court - Rancho Cucamonga Division, Case No. RCV 30545.
7-7 PRP Site. The U.S. Environmental Protection Agency has alleged that the
Company, along with a number of other entities, is responsible for clean-up and
oversight costs associated with the remediation of one of more sites located in
Ohio formally owned or operated by 7-7, Inc. 7-7, Inc. was a remediation
contractor. 7-7, Inc. was employed by the Company in connection with certain
remediation projects. Currently, the Company believes it may be a de minimis
potentially responsible party. The Company's liability, if any, is currently
estimated to be less than $150,000.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
A. See the "Introduction" section of this Form 10-Q Report.
B. As previously disclosed, the Company's Board of Directors appointed a
special committee to consider and pursue, among other things, various
strategic alternatives and transactions with respect to the Company
and its assets. These alternatives included, but were not limited to,
the sale of the entire Company, selling or merging the Company, the
sale of certain assets, and the distribution of assets. Subsequently,
the Board also appointed an independent committee consisting of all
outside directors for the purpose of evaluating and negotiating some
form of transaction for the repurchase of the Company's stock,
including the repurchase of a substantial portion of only the stock
owned in the Company by the New Kaiser Voluntary Employees'
Beneficiary Association Trust and/or the Pension Benefit Guarantee
Corporation. During the third quarter, the Company's Independent
Committee continued its work, assisted by Merrill Lynch.
26
<PAGE>
C. Due to work undertaken and to be completed by the Company's Special
Committee and Independent Committee, the Company's annual meeting of
shareholders for 1999 has yet to be scheduled. It is currently
anticipated that an annual meeting of shareholders will be scheduled
earlier than usual in the year 2000.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
--------
Exhibit 10.1- Purchase and Sale Agreement and Joint Escrow
Instructions among Kaiser Ventures Inc., Kaiser Steel Land
Development, Inc. and Ontario Ventures I, LLC dated October 19, 1999
Exhibit 27 - Financial Data Schedule for third quarter 10-Q.
B. Reports on Form 8-K.
--------------------
None.
[Remainder of Page Intentionally Left Blank]
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
KAISER VENTURES INC.
Dated: November 12, 1999 /s/ James F. Verhey
-------------------
James F. Verhey, Executive Vice President-
Finance & Principal Financial Officer
28
<PAGE>
EXHIBIT 10.1
PURCHASE AND SALE AGREEMENT AND
===============================
JOINT ESCROW INSTRUCTIONS
=========================
THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS
("Agreement") is made and entered into as of the 19th day of October, 1999, by
---------
and among KAISER VENTURES INC., a Delaware corporation and KAISER STEEL LAND
DEVELOPMENT INC., a Delaware corporation, (KAISER VENTURES INC. and KAISER STEEL
LAND DEVELOPMENT INC. are hereafter collectively referred to as "Seller"), and
------
ONTARIO VENTURES I, LLC, a Delaware limited liability company or its designee
approved as set forth in Section 15.8 hereof ("Buyer").
-----
Recitals
A. WHEREAS, Seller is the owner of certain real property commonly known as
the KVI properties located in the County of San Bernardino, State of California,
consisting of approximately 592.1 gross acres and more particularly shown on the
map attached hereto as Exhibit A (the "Land," and collectively with the
--------- ----
Improvements (defined below), the "Real Property") and which is more fully
-------------
described in Section 1.39 below, and certain tangible and intangible personal
property located on, or associated with the use and operation of, the Real
Property. Notwithstanding any other provision in this Agreement, the Land and
the Real Property do not include the real property owned by Kaiser Ventures Inc.
and commonly referred to as the Napa Lots, the Rancho Cucamonga Property, the
Tar Pits Property and the Household Waste Property; and
B. WHEREAS, the Real Property and adjoining property was used as a fully
integrated steel mill, which included such items as coke ovens, blast furnaces,
byproducts facilities, power generation facilities, scrap yards, slag dumps,
soaking and waste facilities, a landfill, waste water and sewer treatment
facilities, fabrication facilities and other uses ancillary to a steel and
fabrication mill (collectively "Steel Mill Operations") and was occupied by a
---------------------
number of tenants and others subsequent to active Steel Mill Operations; and
C. WHEREAS, in consideration for Buyer's agreement to (i) assume certain
contractual indemnification and other obligations of Seller which are
specifically agreed to by Buyer; (ii) remediate existing Hazardous Substances
contamination at, under, above, adjacent to and/or emanating to or from the Real
Property and/or the Tar Pits Property; (iii) assume any third-party liability
associated with the Real Property and/or the Tar Pits Property, except as
expressly excluded; and (iv) other good and valuable consideration, Seller
desires to sell the Real Property and Other Assets to Buyer on the terms and
conditions set forth herein; and
D. WHEREAS, Buyer desires to purchase the Real Property and Other Assets
from Seller and to undertake an obligation to (i) assume certain contractual
indemnification and other obligations of Seller which are specifically agreed to
by Buyer; (ii) remediate existing Hazardous Substances contamination at, under,
above, adjacent to and/or emanating to or from the Real Property and/or, subject
to the provisions of Section 10.7 hereof, the Tar Pits Property; and (iii)
assume any third-party liability associated with the Real Property and/or the
Tar Pits Property, except as expressly excluded, on the terms and conditions set
forth herein.
1
<PAGE>
NOW, THEREFORE, Buyer and Seller (each herein sometimes called a "Party"
------
and jointly the "Parties") hereby agree as follows:
--------
Agreement
1. Definitions. In addition to the terms defined in the foregoing
-----------
Recitals and capitalized terms hereinafter defined in this Agreement, for
purposes of this Agreement the terms set forth below shall have the following
meanings:
1.1 "Adjacent Property" means, collectively, the California Speedway
-----------------
Property, the MRF Property, the Household Waste Property, Tar Pits Property, the
Budway Property, the Rancho Cucamonga Property and the remaining NAPA Lots, all
as more particularly described in Exhibit B attached hereto, which properties
are deemed for purposes of this Agreement only to be located adjacent to the
Real Property.
1.2 "Agencies" means, collectively, DTSC, RWQCB, the CIWMB and any
--------
other federal, state or local governmental or regulatory agency, body, board,
commission or other political entity with environmental jurisdiction over the
Property. Any one of these political entities may sometimes be referred to as an
"Agency".
------
1.3 "Approved Title Conditions" shall have the meaning set forth in
-------------------------
Section 4.1 hereof.
1.4 "Bill of Sale" means a bill of sale in the form of Exhibit C
------------
attached hereto duly conveying all of the Other Assets to Buyer.
1.5 "Case" means any case or cases opened by DTSC , RWQCB or CIWMB
----
with respect to Hazardous Substances contamination at the Real Property,
including, without limitation, the cases listed on Exhibit D hereto.
---------
1.6 "Cash Equivalent" means a wire transfer of funds or other good and
---------------
immediately available funds.
1.7 "CIWMB" means the California Integrated Waste Management Board.
-----
1.8 "Close of Escrow" means the date on which the Deed is recorded in
---------------
the Official Records.
1.9 "Closing Date" means a date which is no more than thirty (30) days
------------
after the Contingency Date, unless the Closing Date is extended pursuant to the
provisions of this Agreement. The date scheduled for the Close of Escrow is the
"Closing Date" and the actual date of closing is the "Close of Escrow."
------------ ---------------
1.10 "Consent Order" means the California Department of Health Services
--------------
(now known as the California Environmental Protection Agency Department of Toxic
Substances Control) Consent Order with Kaiser Steel Resources, Inc. (now known
as Kaiser Ventures, Inc.) dated as of August 22, 1988, as amended by an
Amendment to Consent Order dated November 13, 1997, and an Amendment to Consent
Order dated January 11, 1999.
2
<PAGE>
1.11 "Contingency Date" means the date which is seventy-five (75) days
-----------------
after the Execution Date, unless extended pursuant to Section 3.1.3 below.
1.12 "Contingent Transportation Insurance Policy" means a Contingent
------------------------------------------
Transportation Insurance Policy as described in Article 10 hereof, in the form
of Exhibit E to be attached hereto.
---------
1.13 "Corrective Action" means a Corrective Action as defined in
-----------------
Section 10.3.3.1 hereof.
1.14 "Deed" means a grant deed in the form of Exhibit F attached
---- ---------
hereto, duly conveying fee title to the Real Property from Seller to Buyer.
1.15 "Deposit" means the sum of Two Hundred Fifty Thousand Dollars
--------
($250,000).
1.16 "DTSC" means the California Environmental Protection Agency
----
Department of Toxic Substances Control and any divisions or officers thereof and
all successors thereto.
1.17 "Environmental Law" means the Comprehensive Environmental
-----------------
Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601, et
seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections
6901 et seq., the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq., the Federal
Water Pollution Prevention and Control Act, 33 U.S.C. Sections 1251 et seq., the
Oil Pollution Act of 1990, Pub. L. 101-380, August 18, 1990, the Safe Drinking
Water and Toxic Enforcement Act of 1986 (Cal. Health & Safety Code Sections
25249.5-25249.13), the Carpenter-Presley-Tanner Hazardous Substances Account Act
(Cal. Health & Safety Code Sections 25300 et seq.), the California Hazardous
Water Control Act (Cal. Health & Safety Code Sections 25100 et seq.) and the
California Water Code Sections 13000 et seq., as said Laws have been
supplemented or amended from time to time, the regulations now or hereafter
promulgated pursuant to said Laws and any other federal, state, county or local
law, statute, rule, regulation or ordinance currently in effect or subsequently
enacted, promulgated or adopted which regulates or proscribes the use, storage,
disposal, presence, cleanup, transportation or release or threatened release
into the environment of any Hazardous Substances or pertains to health,
industrial hygiene and/or the environment.
1.18 "Escrow" means an escrow to be opened with Escrow Holder within
------
three (3) business days after the Execution Date.
1.19 "Escrow Holder" shall be and mean Chicago Title Company, 560 East
------------
Hospitality Lane, San Bernardino, California 92408.
1.20 "Execution Date" means the date on which the last of Buyer and
--------------
Seller provides notice to the other Party that (i) this Agreement has been duly
executed, and (ii) all internal approvals to such execution have been obtained;
provided, however, that if the Execution Date does not occur on or before
- -------- -------
October 22, 1999, then the Agreement shall be deemed to be null and void.
3
<PAGE>
1.21 "Full Occurrence CGL Policy" means a Full Occurrence Commercial
--------------------------
General Liability with Pollution Policy, in the form of Exhibit G to be attached
---------
hereto.
1.22 "Hazardous Substances" means (i) any element, compound, mixture,
--------------------
solution, chemical, material or substance at any time defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous waste," "acutely hazardous waste," "radioactive
waste," "biohazardous waste," "pollutant," "toxic pollutant," "contaminant,"
"restricted hazardous waste," "infectious waste," "toxic substances," or any
other term or expression intended to define, list or classify substances by
reason of properties harmful to health, safety or the indoor or outdoor
environment (including harmful properties such as ignitability, corrosivity,
reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or
"EP toxicity" or words of similar import under any applicable Environmental
Laws); (ii) any oil, petroleum, petroleum fraction, petroleum additive or
petroleum derived substance; (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (iv) any flammable substances or
explosives; (v) any radioactive materials; (vi) any asbestos-containing
materials; (vii) urea formaldehyde foam insulation; (viii) electrical equipment
which contains any oil or dielectric fluid containing polychlorinated biphenyls;
(ix) pesticides; (x) lead-based paint; and (xi) any other chemical, material or
substance, exposure to which is now or in the future prohibited, limited or
regulated by any governmental authority or which may or could pose a hazard to
the health and safety of the owners, occupants or any persons in the vicinity of
the Property or to the indoor or outdoor environment.
1.23 "Improvements" means any and all buildings, structures, systems,
------------
facilities, fixtures, fences and parking areas located on the Land as of the
Execution Date, including, without limitation, the sewage treatment facility
located on the Land, but not including two trailers currently located on the
Real Property which are owned by a former tenant of Seller and will be removed
from the Real Property prior to the Close of Escrow.
1.24 "Inspections" shall have the meaning set forth in Section 4.2
-----------
hereof.
1.25 "Insurance Policies" means, collectively, the Contingent
-------------------
Transportation Insurance Policy, the Full Occurrence CGL Policy, the Real Estate
Pollution Policy and the Remediation Project Policy, as described in Section
10.5 hereof.
1.26 "ITG" means The IT Group, Inc. or any of its wholly-owned
---
subsidiaries or affiliates.
1.27 "Knowlton" means The Knowlton Group, a sole proprietorship.
--------
1.28 "LandBank" means LandBank, Inc., a Delaware corporation.
--------
1.29 "Laws" means all federal, state and local laws, ordinances,
----
rules, regulations and orders, including, without limitation, all Environmental
Laws.
1.30 "No Further Action Letter" or "NFA" means a letter (or its
substantial equivalent) to be issued by the DTSC or another Agency with respect
to the Real Property and
4
<PAGE>
the Tar Pits Property, stating that no regulatory action or no further
regulatory action need be taken by any party to meet the clean-up requirements
established by the DTSC, other responsible Agency or applicable Laws for a
particular portion of the Real Property or the Tar Pits Property, subject to
certain terms and conditions within such letter (such as continuing operations
and maintenance obligations) which terms and conditions are consistent with the
types of terms and conditions which are customarily contained in such a letter.
The Parties acknowledge that the West End Parcels and the Valley Boulevard
Parcel as generally depicted on the map attached as Exhibit A hereto are not the
---------
subject of the Consent Order but are subject to regulatory jurisdiction.
1.31 "Official Records" means the Official Records of San Bernardino
----------------
County, California.
1.32 "Opening of Escrow" means the date on which a fully executed copy
-----------------
of this Agreement and the Deposit are deposited with Escrow Holder; provided,
--------
however, that if the Opening of Escrow fails to occur within ten (10) business
- -------
days after the Execution Date, this Agreement shall become null and void.
1.33 "Other Assets" means all tangible and intangible assets located
------------
on the Real Property at the Close of Escrow or used in the operation of the Real
Property, including but not limited to, (a) two diesel locomotives, together
with any and all equipment used to maintain said locomotives; (b) any and all
switching equipment used in the operation of the diesel locomotive switching and
stacking operations which Seller contracts with Western Railroad; (c) copies of
any reports relating to the Real Property which are in the possession or
reasonable control of Seller and can reasonably be retrieved by Seller, which
are not subject to any attorney-client privilege, attorney-work product
privilege or any other privilege (subject to any limitations that may be
applicable to Buyer's ability to rely on any such reports), (d) summaries of all
reports or documents which are the subject of any attorney-client privilege,
attorney-work product privilege or any other privilege subject to establishment
of a mutually acceptable procedure for preserving such privileges, (e) the
Permits (as hereinafter defined) to the extent they can be transferred and/or
assigned, (f) all other items of personal property, subject to any limitation
that may be applicable to Buyer's ability to rely on any such personal property,
(g) a license in the form attached as Exhibit I hereto to use the name "Kaiser
--------- ------
Commerce Center," and (h) any rights Seller may have against any former tenants
- ---------------
or other third parties for costs of future environmental remediation (and Seller
shall provide to Buyer a list of such parties and a copy of the documents which
give rise to any such claims). Buyer acknowledges that certain pre-October 4,
1988 documents are contained in boxes which are not well-indexed and which Buyer
will have to review at its expense.
1.34 "Permits" means the Permits listed on Exhibit J attached hereto.
------- ---------
1.35 "Property" means, collectively, the Real Property and the Other
--------
Assets.
1.36 "PTR" means the preliminary title report prepared by Title
---
Company pursuant to Section 4.1 hereof.
5
<PAGE>
1.37 "Purchase Price" means the sum of Sixteen Million Dollars
--------------
($16,000,000).
1.38 "Real Estate Pollution Policy" means a Real Estate Pollution
----------------------------
Policy, in the form to be attached hereto as Exhibit K.
---------
1.39 "Real Property" means the Land shown on Exhibit A, together with
------------- ---------
all right, title and interest of Seller, if any, in and to the Improvements and
all privileges, entitlements, easements, rights and appurtenances thereto
including, without limitation, (a) all development rights and air rights
relating to such Real Property, (b) all water rights which are appurtenant to
the Land, (c) all right, title and interest of Seller in and to any streets,
alleys, passages, watercourses, other easements, and other rights-of-way or
appurtenances included in such Real Property as of the Close of Escrow, (d) the
reversions and remainders owned by the Seller which are part of the real
property shown on Exhibit A, and (e) all the estate, right, title, interest,
---------
property, possession, claim and demand whatsoever, in law and in equity, owned
by Seller, in and to the foregoing and any part thereof. The Parties acknowledge
and agree that the shares of Fontana Union Water Company, a mutual water
company, which are owned by Kaiser Ventures, Inc. and/or its subsidiary, Fontana
Water Resources, Inc., are not included within the definitions of Land, Real
Property, Property or Other Assets and are also not included within the subject
matter of this Agreement. Provided, however, that in the event that The
California Speedway Corporation exercises its right of first refusal on the
sewer treatment facility or exercises its right not to permit the transfer of
the sewer treatment facility, then the sewer treatment facility and the land
reasonably allocable thereto shall not be part of the Real Property.
1.40 "Remediation Project Policy" means a Remediation Project
--------------------------
Insurance Policy, in the form of Exhibit L to be attached hereto.
---------
1.41 "RWQCB" means the California Regional Water Quality Control Board
-----
Santa Ana Region.
1.42 "Survey" means the survey prepared pursuant to Section 4.1
------
hereof, which survey shall comply with the minimum standard detail requirements
for ALTA/ACSM land title surveys jointly adopted by ALTA and ACSM and including
Items 2-5 and 10 from Table A thereof.
1.43 "Tar Pits Property" means that approximately four (4) acre parcel
-----------------
of Real Property more particularly described in the applicable portion of
Exhibit B hereto.
- ---------
1.44 "Title Company" means Chicago Title Company, 560 East Hospitality
--------------
Lane, San Bernardino, California 92408.
1.45 "Title Documents" means all of the documents referenced in the
---------------
PTR, including, without limitation, any document referenced in the documents
referenced in the PTR.
1.46 "Title Policy" means an ALTA extended coverage owner's policy of
------------
title insurance together with endorsements requested by Buyer, issued by the
Title Company, dated as of the Close of Escrow, insuring Buyer as owner of the
Real Property, with liability limits in an
6
<PAGE>
amount equal to Thirty Million Dollars ($30,000,000), and showing that title to
the Real Property is vested in Buyer subject only to the Approved Title
Conditions.
2. Purchase and Sale. Seller agrees to sell or cause to be sold to Buyer,
-----------------
and Buyer agrees to purchase, the Property, upon the terms and conditions set
forth in this Agreement, for the Purchase Price, subject to the prorations,
reductions and credits hereinafter set forth. Buyer and Seller shall, after
completion of the Survey, agree on the allocation of the Purchase Price for the
Property. In the event The California Speedway Corporation exercises its right
of first refusal on the sewer treatment facility or exercises its right not to
permit the transfer of the sewer treatment facility, then the Purchase Price
shall be reduced by the undiscounted amount of the Purchase Price which is
identified in the notice from Seller to The California Speedway Corporation.
3. Consideration.
-------------
3.1 Deposit.
-------
3.1.1 Delivery by Seller. On the date of the Opening of Escrow,
------------------
Buyer shall deliver the Deposit to Escrow Holder, by Cash Equivalent. Escrow
Holder shall hold the Deposit in an interest-bearing account with interest
accruing for the benefit of Buyer.
3.1.2 Disposition of Deposit. In the event this Agreement is
----------------------
terminated for any reason prior to the Contingency Date or pursuant to Section
6.1 or 13 hereof, the Deposit (including all interest thereon) shall be fully
refunded to Buyer by Escrow Holder. Following the Contingency Date, in the event
this Agreement is terminated or the Close of Escrow fails to occur by reason of
Buyer's default hereunder, the entire Deposit (including all interest thereon)
shall be held by Escrow Holder for the benefit of Seller and paid to Seller
pursuant to Section 6.2 hereof, unless a portion of the Deposit has been
released to Seller pursuant to Section 3.1.3, in which event the remainder of
the Deposit shall be released to Seller pursuant to Section 6.2 hereof. In the
event this Agreement is terminated or the Close of Escrow fails to occur by
reason of Seller's default hereunder, then the Deposit (including all interest
thereon and including any portion of the Deposit which was released to Seller)
shall be returned to Buyer. Upon the Close of Escrow, the entire Deposit
(including all interest thereon) shall be paid to Seller and shall be credited
towards the payment of the Purchase Price.
3.1.3 Extension of Contingency Date. Notwithstanding any
-----------------------------
provision of this Agreement to the contrary, Buyer shall have the right, to be
exercised in Buyer's sole and absolute discretion, to extend the Contingency
Date one (1) time only for an additional thirty (30) days, by delivering written
notice of Buyer's exercise of such extension to Seller and Escrow Holder no
later than one (1) business day before the originally scheduled Contingency Date
together with (i) commercially reasonable evidence satisfactory to Seller that
Buyer has the financial ability to purchase the Property and to timely perform
Buyer's obligations under this Agreement, and (ii) a letter addressed to Escrow
Holder and Seller authorizing Escrow Holder to release One Hundred Fifty
Thousand Dollars ($150,000) of the Deposit to Seller, which portion of the
Deposit shall thereupon be released to Seller and be nonrefundable to Buyer but
shall be applicable to the Purchase Price.
7
<PAGE>
3.1.4 Purchase Price. At least one (1) business day prior to the
--------------
Closing Date, Buyer shall deliver the Purchase Price to Escrow Holder, by Cash
Equivalent (less the amount of the Deposit (and interest accrued thereon while
held in Escrow) already held by Escrow Holder). Such sum shall be payable to
Seller by Cash Equivalent through Escrow at the Close of Escrow.
4. Investigations by Buyer. Beginning on the Execution Date and ending on
-----------------------
the Contingency Date, Buyer may conduct investigations as to the Property and
the Adjacent Property. Buyer shall have until the Contingency Date either to
approve or to waive, in Buyer's sole and absolute discretion, the contingencies
set forth in this Article 4. The Parties acknowledge that Seller does not
control all of the Adjacent Property and that Seller shall be required only to
use commercially reasonable efforts to obtain access for Buyer and its agents,
over those portions of the Adjacent Property which Seller does not control.
4.1 Conditions of Title; Survey. Within ten (10) business days after
---------------------------
the Execution Date, Seller shall (a) cause the Title Company to deliver to
Seller and Buyer a preliminary title report (the "PTR") for the Real Property,
---
prepared by Title Company, together with copies of all of the Title Documents;
and (b) engage a surveyor at Seller's expense to prepare an ALTA survey of the
Real Property (the "Survey"), for delivery to Buyer and Seller and certification
------
to Buyer and the Title Company in time for the Title Company to deliver the
Title Policy at the Close of Escrow. The Survey shall plot each easement and
other plottable exception shown on the PTR. Buyer shall have until the later of
the Contingency Date or thirty (30) days after receipt of the Survey to give
Seller and Escrow Holder written notice of Buyer's disapproval of any matters
listed on the PTR or shown on the Survey. Buyer hereby approves the granting of
a road easement shown on Exhibit M attached hereto, which may be granted
---------
subsequent to the Execution Date or delivery of the PTR. In addition, Buyer
hereby approves of Seller's application to create a new separate legal parcel of
a size reasonably acceptable to Buyer for the sewer treatment facility and the
recording of a covenant against the new parcel which would restrict the use of
such parcel to the uses set forth on Exhibit M-1 hereof. If Buyer disapproves
-----------
any matters listed on the PTR or shown on the Survey, Seller may, but shall not
be obligated to, cure or cause to be cured such objections or agree that it
shall cure such objections prior to the Close of Escrow and, in such event, the
cure of such objections shall be both a covenant of Seller and a condition
precedent to Buyer's obligation to close Escrow. In the event Seller fails
either to cure such objections, or to agree to cure such objections prior to the
Close of Escrow, within ten (10) days after receipt of Buyer's notice to Seller
of said objections, Buyer shall have the right to terminate this Agreement and
to cancel Escrow by delivering written notice to Seller and Escrow Holder before
5:00 p.m. P.S.T. on the second business day immediately succeeding the
expiration of such ten (10) day period, in which case the Parties' rights shall
be as set forth in Section 4.7 below.
If Buyer disapproves any matters listed on the PTR or shown on the Survey
prior to the Contingency Date as set forth above, but otherwise extends the
Contingency Date as set forth in Section 3.1.3 above, then Escrow Holder shall
delay releasing the Deposit to Seller pursuant to Section 3.1.3 above until the
date that Seller either cures such objections or agrees to cure such objections
prior to the Close of Escrow (i.e., within ten (10) days after receipt of
Buyer's notice to Seller of said objections). Notwithstanding anything to the
contrary, Seller shall be obligated to remove any monetary encumbrances which
encumber the Real Property
8
<PAGE>
other than liens for real property taxes or assessments which are not delinquent
and other than monetary encumbrances, if any, to be recorded at the Close of
Escrow and which are arranged by Buyer. All matters not objected to by Buyer or
waived by Buyer pursuant hereto, and all financing arranged by Buyer, shall
collectively be the "Approved Title Conditions."
-------------------------
Notwithstanding anything to the contrary contained herein, if any new
covenant, condition, restriction, reservation, easement or right of way
affecting the use and occupancy of the Real Property (other than the
aforementioned road easement shown on Exhibit M and the aforementioned separate
---------
legal parcel for the sewer treatment facility) (each, a "New Exception") becomes
-------------
of record after the Execution Date (other than an exception caused by Buyer or
its members or ultimate members or consented to by Buyer or its members or
ultimate members), (i) if such New Exception was caused directly or indirectly
by or with the consent of Seller and without the consent of Buyer, then Seller
shall cause such New Exception to be removed prior to the Close of Escrow;
(ii)if such New Exception was not caused directly or indirectly by either Buyer
or Seller, then Seller may, but shall not be obligated to, remove such new title
exception within five (5) calendar days after receipt of notice of such new
title exception, and, if necessary, the Closing Date shall be extended for five
(5) calendar days to permit any such removal. In the event Seller elects not to
remove such new title exception within such period, Buyer shall have the right,
by written notice to the Seller and Escrow Holder within five (5) calendar days
after receipt of written notice from Seller that Seller has elected not to
remove such new title exception, to accept such new title exception or terminate
this Agreement, in which case the Parties' rights shall be as set forth in
Section 4.7, below. If such New Exception was caused by or consented to by
Buyer or its members or ultimate members, then either Buyer shall take title to
the Real Property subject to such New Exception or the Close of Escrow shall be
extended for up to thirty (30) days while Buyer tries to remove such New
Exception and Buyer shall be obligated to close at the end of such thirty (30)
days whether or not such New Exception is removed; provided, however, that the
road easement referenced in Exhibit M shall not be removed or permit the
---------
extension of the Close of Escrow.
4.2 Inspections. Subject to the limitations set forth in this Section
-----------
4.2, Buyer shall, at Buyer's sole cost and expense, have the right to make, or
cause to be made, such inspections (including, without limitation, surveys,
studies, inspections and investigations) (collectively, "Inspections") of the
-----------
Real Property as shall be deemed necessary, desirable or appropriate by Buyer,
subject to Buyer's execution and delivery of an Entry Permit substantially in
the form of Exhibit N attached hereto, and subject to Seller and Buyer agreeing
---------
on a protocol for all such Inspections prior to conducting any Inspection.
Subject to the terms and conditions of the aforementioned protocol, such
Inspections may include drilling, ground penetration or any other invasive
physical testing or sampling of the soils deemed necessary or desirable by
Seller and Buyer. At Seller's option and expense, a representative of Seller
may be present during all sampling and other physically invasive soils testing
of the Real Property. At the option of any such representative of Seller, each
sample taken by Buyer and/or its agents shall be split, with the split sample
being sent to a laboratory of Seller's selection. Seller shall be entitled to
receive the results of all testing performed by Buyer and/or its agents and
shall also be entitled to receive copies of all draft reports and final reports
prepared by or at the request of Buyer. Seller shall have the right to approve
or disapprove in its sole discretion any proposed inspections or testing of
groundwater which Buyer and/or its agents wants to perform on the Real Property
and the Adjacent Property. If Seller disapproves any such testing, then Buyer
shall have the right to
9
<PAGE>
terminate this Agreement within fourteen (14) calendar days after Seller
notifies Buyer of such disapproval but in any event no later than the
Contingency Date. Upon such termination of this Agreement by Buyer, the Parties'
rights shall be as set forth in Section 4.7 hereof.
4.3 Documents, Files and Records. Seller shall make available to
----------------------------
Buyer for Buyer's review and copying at: (i) Seller's offices at 3633 Inland
Empire Boulevard, Suite 850, Ontario, California 91764; (ii) that certain office
maintained by Seller and which is commonly known as the Mill Site Office, and
(iii) the warehouse located in San Bernardino, California at which Seller
maintains records, all of the following reports, documents and files relating to
the Property which are in Seller's possession, can be reasonably retrieved by
Seller and which are not otherwise subject to any attorney-client, attorney-work
product privilege or other privilege:
4.3.1 Permits. The permits listed on Exhibit J.
------- ---------
4.3.2 Reports. Any and all structural, mechanical, physical,
-------
environmental or geological reports concerning the Real Property which have been
prepared at Seller's request or are within Seller's possession or reasonable
control.
4.3.3 Case Documents. Any and all records, files, documents,
--------------
correspondence and other information relating to the Case(s), the Consent Order,
the Real Property or the use, development or condition thereof.
4.3.4 Indemnification and Other Agreements. Any and all
------------------------------------
indemnification agreements or other agreements or contracts currently in effect
or which will be in effect at any time after the Close of Escrow, entered into
between or among Seller or its predecessors-in-interest and the owners, tenants
and lenders for any other real property in the vicinity of the Real Property
and/or the DTSC (collectively, the "Adjacent Property Indemnification and Other
--------------------------------------------
Agreements"), each of which is set forth on Exhibit H hereto.
- ----------- ---------
4.3.5 Litigation Files. Subject to the provisions of Section
----------------
4.3.8 hereof, any and all pleadings, records, files, documents, correspondence
and other information relating to the Ontario Litigation, the Mushegain
Litigation and any other pending or threatened suits or proceedings related to
the Real Property and/or the Tar Pits Property listed in Exhibit O attached
---------
hereto.
4.3.6 Operational Documents. Any and all service and maintenance
---------------------
agreements, tax bills, utility statements, leases, licenses and agreements
relating to the Real Property.
4.3.7 Other Documents. In addition to the documents otherwise
---------------
made available to Buyer pursuant to this Section 4.3, Buyer and its
representatives shall have the right of access during reasonable business hours
to all files, books and records and correspondence maintained by Seller and
Seller's environmental consultants relating to the physical and environmental
condition and the development, ownership, use, management, maintenance and
operation of the Real Property and the Adjacent Property, other than files,
books and records and correspondence which are subject to any attorney-client
privilege, attorney-work product privilege or any other privilege or which
relate to the Excluded Liabilities. Seller shall also make available to Buyer
all documents, studies and final or near final financial analyses (and an
10
<PAGE>
explanation of the assumptions used in such analyses) relating to the approved
uses of the Property.
4.3.8 Summaries of Privileged Documents. Seller shall provide to
---------------------------------
Buyer summaries of all reports, documents, files, correspondence, etc. which are
in the possession or reasonable control of Seller and can reasonably be
retrieved by Seller (including those described in Section 4.6 hereof) but which
are not made available to Buyer hereunder because they were deemed by Seller to
be subject to any attorney-client privilege, attorney-work product privilege or
any other privilege, which summaries shall be prepared in such a manner as not
to waive any such privilege.
4.4 Development Rights. Commencing on the Execution Date, Buyer
------------------
shall, at Buyer's sole expense, have the right to determine whether the Real
Property is suitable for Buyer's (or Buyer's prospective tenants' or
purchasers') intended use. Without limiting the foregoing, Buyer shall have the
right to review all applicable land use, subdivision, zoning, building and
access regulations, covenants, conditions and restrictions, entitlements and
development rights applicable to the Real Property, including, but not limited
to (i) the CALTRANS Etiwanda interchange design, and (ii) the Kaiser Commerce
Center Specific Plan and Truck Stop Conditional Use Permit adopted by the San
Bernardino County Board of Supervisors. Buyer and its representatives shall have
the right to independently contact governmental agencies to discuss Buyer's
development plans for the Real Property; provided, however, that Buyer shall
-------- -------
give Seller forty-eight (48) hours' written notice of any proposed meetings or
any proposed telephone conferences. Seller shall have the right to be present at
any such meetings or on any such telephone conferences.
4.5 Remediation Requirements. Commencing on the Execution Date, Buyer
------------------------
shall, at Buyer's sole expense, use diligent efforts to determine the
remediation requirements applicable to the Real Property and the Adjacent
Property. Without limiting the foregoing, Buyer shall review all Environmental
Laws applicable to the Real Property and the Adjacent Property. Buyer and its
consultants/representatives shall be permitted to independently contact
governmental agencies to discuss Buyer's remediation plans for the Real
Property. Buyer shall give Seller forty-eight (48) hours' written notice of any
proposed meetings or any proposed telephone conferences and Seller shall have
the right to be present at any such meetings or on any such telephone
conferences.
4.6 Adjacent Property. Seller acknowledges that Buyer desires to
-----------------
review any and all available reports, files, documents and other information
regarding the environmental and physical condition of the Adjacent Property, in
order for Buyer to fully evaluate the potential remediation methods that will or
may be required to remediate the Real Property and the Tar Pits Property
pursuant to Article 10 below and to assume Seller's obligations under the
Adjacent Property Indemnification and Other Agreements pursuant to Section
10.3.3, below. In addition to making available to Buyer copies of all reports,
files, documents and other information in Seller's possession or reasonable
control and which Seller can reasonably retrieve regarding the Adjacent Property
and which are not subject to the attorney-client privilege, attorney-work
product privilege, or any other privilege (subject to the requirements of
Section 4.3.8 hereof), Seller shall use commercially reasonable efforts to
obtain any information reasonably requested by Buyer regarding the environmental
or physical condition of the Adjacent Property. In
11
<PAGE>
addition, Seller agrees to use commercially reasonable efforts to obtain the
permission of the owners of the Adjacent Property to any proposed inspections or
investigations of such Adjacent Property by Buyer or its consultants, including
any invasive drilling, sampling or other inspections deemed reasonably necessary
by Buyer. Buyer acknowledges that Seller may be unable to obtain access for
Buyer or its consultants to the Adjacent Property or to obtain permission for
Buyer or its consultants to investigate the Adjacent Property.
4.7 Termination by Buyer Prior to Contingency Date. Buyer shall have
----------------------------------------------
the right, exercisable in Buyer's sole and absolute discretion at any time on or
prior to the Contingency Date, to terminate this Agreement for any reason or no
reason whatsoever. If Buyer shall, on or prior to the Contingency Date, deliver
written notice of termination of this Agreement to Seller and Escrow Holder,
then this Agreement shall terminate, Escrow shall be canceled, Seller and Buyer
shall each pay one-half ( 1/2) of all Title Company and Escrow cancellation
fees, Buyer shall be entitled to the return of all of the Deposit, and Buyer and
Seller shall have no further obligations to each other hereunder, except as
otherwise expressly set forth herein. In that event, Buyer shall return to
Seller all documents delivered to Buyer at the request of Seller. Buyer's
failure to deliver written notice of Buyer's election to terminate this
Agreement in accordance with this Section 4.7 shall constitute a waiver of
Buyer's right to disapprove any matters set forth in this Article 4, except as
expressly provided in Section 4.1, above.
4.8 Termination by Seller. If Buyer disapproves any of (i) the
---------------------
Adjacent Property Indemnification and Other Agreements or (ii) the Permits or
(iii) any of the Other Assumed Obligations and Liabilities, then Seller shall
have the right, within fourteen (14) days after Buyer gives notice of such
disapproval, to terminate this Agreement, in which event the Parties' rights
shall be as set forth in Section 4.7 hereof.
4.9 Other Approvals. Within fourteen (14) days after the Execution
---------------
Date, Buyer shall deliver to Seller copies of the IT Contract and bond and
drafts of each of the Insurance Policies. The Parties shall work together in
good faith to revise such documents as needed so they are acceptable to Seller.
If such documents are not finalized by forty-five (45) days after delivery, then
either Party may terminate this Agreement, in which event the Parties' rights
shall be as set forth in Section 4.7 hereof.
4.10 Approval of Financial Condition. Within fourteen (14) days from
-------------------------------
the Execution Date, Buyer shall provide to Seller the following information: (i)
a Balance Sheet and Income Statement and schedule of off-book liabilities for
LandBank; (ii) a Balance Sheet for Knowlton; (iii) publicly available financial
information for ITG; (iv) the name of the bonding company for the bond referred
to in Section 4.9 hereof; and (v) the name of the insurance company which will
issue the Insurance Policies. Within fourteen (14) days after receipt of such
information, Seller, in its sole and absolute discretion, shall approve or
disapprove such information. If Seller disapproves such information, Buyer shall
have fourteen (14) days within which to provide additional information or
substitute companies for Seller's further consideration. If Seller has not
approved all of such information by the end of such second fourteen (14) day
period, then this Agreement shall be terminated in which event the Parties'
rights shall be as set forth in Section 4.7 hereof. Buyer shall give Seller
prompt notice of any material change in the information provided pursuant to
this Section 4.10.
12
<PAGE>
5. Escrow. The last Party to give notice that the conditions to the
------
Execution Date for this Agreement have been met shall immediately deliver to
Escrow Holder and the other Party a fully executed copy of this Agreement. The
Parties shall execute such additional instructions as may be reasonably
requested by Escrow Holder; provided, however, that any such additional
-------- -------
instructions shall not supersede this Agreement and in any event this Agreement
shall control unless otherwise provided in a writing executed by both Parties
hereto.
5.1 Closing. The Closing shall be conducted through Escrow on the
-------
Closing Date, unless otherwise agreed in writing by Buyer and Seller.
5.2 Conditions Precedent to Buyer's Obligations. Buyer's obligations
-------------------------------------------
to close Escrow shall be conditioned on the fulfillment of each of the following
conditions on the date herein specified and in any event prior to the Closing
Date. Upon the Close of Escrow, all conditions set forth herein shall be deemed
to have been either satisfied or waived. Seller shall cause the conditions set
forth in this Section 5.2 which are within its control to be satisfied and shall
use commercially reasonable efforts to cause the conditions set forth in this
Section 5.2 which are not within its control to be satisfied.
5.2.1 This Agreement has not been terminated pursuant to any
provision hereof.
5.2.2 Seller has deposited or caused to be deposited, into Escrow
the Deed, duly executed and acknowledged by Seller, conveying the Real Property
to Buyer subject only to (i) the Approved Title Conditions, (ii) real property
taxes and assessments affecting the Real Property not delinquent as of the
Closing Date, including, but not limited to, the lien of any supplemental taxes
levied after the Close of Escrow, (iii) any New Exceptions approved by Buyer or
caused by Buyer, and (iv) such other exceptions to title as Buyer may expressly
and specifically approve in writing between the date hereof and the Closing
Date.
5.2.3 Title Company is committed to deliver to Buyer the Title
Policy as of the Close of Escrow. Seller shall deliver to Title Company such
instruments, documents, releases and instructions as Title Company may
customarily require in order to issue the Title Policy.
5.2.4 Except as disclosed in Exhibit U, Seller has terminated any
---------
leases or other contracts affecting the use or occupancy of any portion of the
Real Property, pursuant to arrangements whereby the occupants are to be off the
Real Property on or before January 1, 2000, except for that certain agreement
with Heckett-Multiserve, for slag mining and processing, which shall have been
revised by Seller and Heckett-Multiserve as provided in Exhibit Z hereto.
---------
5.2.5 There has been no material adverse change in the physical
condition of the Real Property since the Contingency Date.
5.2.6 Seller has delivered to Escrow Holder a Bill of Sale and
the License Agreement, each duly executed by Seller.
5.2.7 Seller has delivered to Escrow Holder a certificate of non-
foreign status, duly executed by Seller.
13
<PAGE>
5.2.8 Seller has delivered to Escrow Holder an "Omnibus
-------
Assignment and Assumption Agreement" in the form of Exhibit P attached hereto,
- ----------------------------------- ---------
duly executed by Seller, pursuant to which (i) Seller assigns to Buyer all of
Seller's Permits (to the extent such Permits can be assigned to Buyer) and
Adjacent Property Indemnification and Other Agreements and the Other Assumed
Liabilities and Obligations not disapproved by Buyer prior to the Contingency
Date, (ii) Seller delegates to Buyer all of Seller's obligations under each such
Permit and Adjacent Property Indemnification and Other Agreement and the Other
Assumed Liabilities and Obligations, and (iii) Buyer assumes each delegated
liability and obligation.
5.2.9 Seller has delivered to Escrow Holder a certificate, duly
executed by Seller, certifying that Seller is authorized to enter into this
Agreement, consummate the transactions contemplated hereby, perform its
obligations hereunder and execute and deliver any and all documents necessary or
appropriate to accomplish the foregoing.
5.2.10 Seller has delivered to Escrow Holder certified resolutions
of the Boards of Directors of each Seller authorizing all of the transactions
contemplated by this Agreement.
5.2.11 Seller has delivered to Escrow Holder an incumbency
certificate with respect to those officers of Seller executing any documents or
instruments in connection with the transactions contemplated herein.
5.2.12 The conveyance of the Real Property shall not violate the
California Subdivision Map Act.
5.2.13 Seller's representations and warranties set forth in
Article 7 of this Agreement are true and correct in all material respects: (i)
as of the time made, (ii) on the Closing Date, and (iii) as of the Close of
Escrow, as if made on each of the dates thereof, and Seller has duly performed
each and every undertaking and agreement to be performed by it pursuant to the
terms of this Agreement as of the Close of Escrow; provided, however, that if
-------- -------
there has been a change in circumstances so that a representation or warranty is
no longer correct, then Seller may, at its election, provide an indemnification
in form and substance acceptable to Buyer against such changed circumstance, in
which case this condition of Closing shall be deemed satisfied. Provided,
further, that in the event that an event occurs which would cause Seller's
representations and warranties set forth in Sections 7.2 or 7.11 to be untrue,
and such event does not involve a lawsuit against Seller which Seller could have
reasonably avoided such as by taking a reasonable action or making a payment,
and Seller has no control over such event, then Buyer shall have the right to
terminate this Agreement within fourteen (14) days after learning the specifics
of such event, in which case Seller shall cause the Deposit to be refunded to
Buyer and Seller shall reimburse Buyer for all of its out-of-pocket expenses
incurred to the date of termination in connection with the within transaction,
but Seller shall not be deemed to be in breach of this Agreement.
5.2.14 Seller shall have terminated any rights of first refusal of
The California Speedway Corporation at a discounted price and/or rights to
approve or disapprove sales of the sewer treatment facility or reached such
other agreement with respect to the sewer
14
<PAGE>
treatment facility as may be acceptable to Buyer, or the sewer treatment
facility shall have been deleted from the Real Property in accordance with the
terms hereof.
5.3 Conditions Precedent to Seller's Obligations. Seller's
--------------------------------------------
obligations to close Escrow shall be conditioned on the fulfillment of each of
the following conditions on the date herein specified and in any event prior to
the Closing Date. Buyer shall cause the conditions set forth in this Section 5.3
which are within its control to be satisfied, and shall use commercially
reasonable efforts to cause the conditions set forth in this Section 5.3 which
are not within Buyer's control to be satisfied.
5.3.1 This Agreement has not been terminated pursuant to any
provision hereof.
5.3.2 Buyer has deposited into Escrow the Purchase Price in Cash
Equivalent, together with such additional sums as may be required to pay Buyer's
share of Escrow and closing costs and expenses as adjusted by the net prorations
and credits hereunder for disbursement as provided herein.
5.3.3 Buyer has delivered to Escrow Holder original counterparts
of the Bill of Sale, the License, the Omnibus Assignment and Assumption
Agreement, the Deed of Trust (as hereinafter defined) and the Deed, duly
executed by Buyer and acknowledged, where appropriate.
5.3.4 Buyer has delivered to Escrow Holder the binders for the
Insurance Policies, to be effective as of the Close of Escrow.
5.3.5 Buyer has delivered to Escrow Holder: (a) a duplicate
original of the IT Contract in the form of Exhibit Q attached hereto, duly
---------
executed by ITG and Buyer; and (b) a performance and completion bond for the
work to be performed by ITG on which Seller is a named obligee with Buyer to
have the primary right to enforce the bond and Seller to have enforcement rights
if (i) Buyer fails to exercise its enforcement rights at least fifteen (15) days
prior to the expiration of the bond, or (ii) within sixty (60) days after Seller
has given notice to Buyer to exercise its rights under the bond if Buyer has
failed to exercise such rights within such sixty (60) days, or (iii) if Buyer is
in Default (as hereinafter defined).
5.3.6 Buyer has delivered to Escrow Holder a certificate
certifying that Buyer is authorized to enter into this Agreement, consummate the
transactions contemplated hereby, perform its obligations hereunder and execute
and deliver any and all documents necessary or appropriate to accomplish the
foregoing.
5.3.7 Buyer has delivered to Escrow Holder certified resolutions
of the Members of Buyer authorizing all of the transactions contemplated by this
Agreement.
5.3.8 Buyer has delivered to Escrow Holder an incumbency
certificate with respect to those officers of Buyer executing any documents or
instruments in connection with the transactions contemplated herein.
15
<PAGE>
5.3.9 Buyer's representations and warranties in this Agreement
are true and correct in all material respects: (i) as of the time made, (ii) on
the Closing Date, and (iii) as of the Close of Escrow, as if made on each of the
dates thereof, and Buyer has duly performed each and every undertaking and
agreement to be performed by it as of the Closing Date hereunder, and there has
been no material change in the financial condition of any of the parties
approved in Section 4.10 hereof.
5.4 Actions by Escrow Holder. When Escrow Holder has received all
------------------------
documents and funds identified in this Article 5 and has received written
notification from Buyer and Seller that all conditions to closing to be
satisfied outside of Escrow have been satisfied or waived, then, and only then,
Escrow Holder shall promptly and concurrently:
5.4.1 Disburse all funds deposited with Escrow Holder by Buyer
and Seller as follows:
5.4.1.1 Deduct all items chargeable to the account of
Seller pursuant hereto;
5.4.1.2 Disburse the balance of the Purchase Price to
Seller promptly upon the Close of Escrow;
5.4.1.3 Disburse the premiums for the Insurance Policies to
the applicable insurance companies;
5.4.1.4 Disburse the premium for the Title Policy to Title
Company; and
5.4.1.5 Disburse such other closing costs as may be
required.
5.4.2 Cause the following documents to be recorded in the
following order: (i) the Deed; (ii) the Deed of Trust; then (iii) any other
documents which the parties hereto may mutually direct in writing to be recorded
in the Official Records; obtain conformed copies of all recorded documents for
distribution to the Parties; and cause applicable documentary or realty transfer
taxes to be paid on the Property.
5.4.3 Direct the Title Company to issue the Title Policy to
Buyer.
5.4.4 Deliver to each Party fully executed originals of any
documents (or copies thereof) deposited into Escrow by the other Party pursuant
hereto, and deliver the duplicate IT Contract, the original performance and
completion bond, and the original binders for the Insurance Policies to Seller.
5.5 Payment of Closing Costs. Seller shall pay the cost of the Survey
------------------------
and the premium for a standard CLTA owner's policy of title insurance, one-half
(1/2) of all Escrow and recording and filing fees incurred in connection with
the documents to be delivered or recorded hereunder, and all applicable
documentary and realty transfer taxes. Buyer shall pay the costs of the Title
Policy and any endorsement thereto not paid for by Seller pursuant to the
foregoing sentence and one-half (1/2) of all Escrow and recording and filing
fees incurred in connection with
16
<PAGE>
the documents to be delivered or recorded hereunder. Each Party shall pay its
own attorneys' fees and costs. Seller and Buyer shall each pay one-half (1/2)
of any other closing expenses not expressly set forth above as allocated to one
Party.
5.6 Prorations. Subject to the other provisions of this Section 5.6,
----------
rents, property taxes, utility charges and service agreements for the Real
Property shall be prorated as of 11:59 p.m. on the day immediately preceding the
Close of Escrow. Not less than five (5) business days prior to the Closing Date,
Escrow Holder shall submit to Buyer and Seller for their approval a tentative
prorations schedule showing the categories and amounts of all prorations
proposed. Prior to the Closing Date, the parties shall approve a final
prorations schedule which shall be prepared by Escrow Holder prior to the
Closing Date and upon approval, the parties shall deliver the same to Escrow
Holder. If, within six (6) months following the Close of Escrow, either Party
discovers that the prorations statement is not accurate for any reason, it shall
notify the other Party of such inaccuracy and the Parties shall promptly make
any adjustment required. Neither Party shall be obligated to adjust any
prorations after such six (6) month period.
5.6.1 Property Taxes. All real and personal property and ad
--------------
valorem taxes, if any, whether payable in installments or not, including but not
limited to, all supplemental taxes attributable to the period prior to the Close
of Escrow for the tax year in which the Close of Escrow occurs, shall be
prorated to the Close of Escrow, based on the latest available tax rate and
assessed valuation. If the amount of any installment of real property taxes is
not known as of the Close of Escrow, then a proration shall be made by the
Parties based on a reasonable estimate of the real property taxes applicable to
the Real Property and the Parties shall adjust the proration when the actual
amount becomes known upon the written request of either Party made to the other.
All bonds or special assessments against the Real Property which relate to
Mello-Roos or other improvement districts shall be paid by Seller. All other
assessments shall be prorated as of the Close of Escrow.
5.6.2 Utility Charges. All utility charges shall be prorated as
---------------
of the Close of Escrow and Seller shall obtain a final billing therefor. All
utility security deposits, if any, shall be retained by Seller.
5.6.3 Service Contracts. All amounts payable under service
-----------------
contracts which will continue in effect following the Close of Escrow shall be
prorated as of the Close of Escrow.
5.7 Possession. Seller shall deliver exclusive possession of the
----------
Property to Buyer, free and clear of any tenants or other occupants other than
those identified in Section 5.2.4, as of 6:00 p.m. on the date of the Close of
Escrow. Notwithstanding this provision, Seller shall, upon written request, be
permitted access to, and the right to copy, during normal business hours, the
books and records transferred to Buyer as part of the Property. In the event
that Buyer desires to destroy such books and records, it shall give Seller
fourteen (14) days' notice thereof and Seller, at its sole expense, shall have
the right to retrieve or copy such books and records.
6. Remedies on Default.
-------------------
17
<PAGE>
6.1 Default by Seller. IN THE EVENT THAT CLOSE OF ESCROW SHALL FAIL
-----------------
TO OCCUR BY REASON OF A DEFAULT BY SELLER, BUYER SHALL BE ENTITLED TO ELECT ONE
OF THE FOLLOWING REMEDIES: (i) TO IMMEDIATELY TERMINATE THIS AGREEMENT UPON SUCH
DEFAULT AND TO OBTAIN THE PROMPT RETURN OF THE DEPOSIT, AND ALL INTEREST EARNED
THEREON, AND TO BE PAID BY SELLER THE SUM OF ONE MILLION DOLLARS ($1,000,000) AS
LIQUIDATED DAMAGES (THE PARTIES ACKNOWLEDGING THAT IT WOULD BE IMPRACTICAL OR
EXTREMELY DIFFICULT TO FIX ACTUAL DAMAGES); OR (ii) TO OBTAIN EQUITABLE RELIEF,
INCLUDING THE RIGHT TO SEEK SPECIFIC PERFORMANCE OF THIS AGREEMENT.
BUYER AND SELLER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTOOD THE
PROVISION OF THIS SECTION 6.1 AND BY THEIR INITIALS BELOW AGREE TO BE BOUND BY
ITS TERMS.
/s/ SLM /s/ RES
------------- -------------
Buyer's Initials Seller's Initials
6.2 Default by Buyer. IN THE EVENT THAT BUYER FAILS IN THE PERFORMANCE
----------------
OF ANY OF ITS OBLIGATIONS HEREUNDER FOLLOWING THE CONTINGENCY DATE BUT PRIOR TO
THE CLOSE OF ESCROW, OR IN THE EVENT THAT THE CLOSE OF ESCROW SHALL FAIL TO
OCCUR BY REASON OF A DEFAULT IN BUYER'S OBLIGATIONS HEREUNDER, THE PARTIES AGREE
THAT IT WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT TO FIX, PRIOR TO SIGNING
THIS AGREEMENT, THE ACTUAL DAMAGES WHICH WOULD BE SUFFERED BY SELLER IF BUYER
FAILS TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT. THEREFORE, IN THE EVENT
THAT THE CLOSE OF ESCROW SHALL FAIL TO OCCUR BY REASON OF A DEFAULT IN BUYER'S
OBLIGATIONS HEREUNDER, SELLER SHALL BE ENTITLED, AS ITS SOLE AND EXCLUSIVE
REMEDY FOR SUCH DEFAULT, TO IMMEDIATELY TERMINATE THIS AGREEMENT UPON SUCH
DEFAULT, IN WHICH CASE THE AGGREGATE SUM OF THREE HUNDRED FIFTY THOUSAND DOLLARS
($350,000) SHALL BE DELIVERED TO SELLER (THE DEPOSIT TO BE PROMPTLY DELIVERED BY
ESCROW HOLDER AND THE BALANCE TO BE DELIVERED WITHIN THREE (3) BUSINESS DAYS BY
BUYER) AS LIQUIDATED DAMAGES AND BUYER SHALL NOT BE ENTITLED TO RECOVER ANY OF
ITS DUE DILIGENCE EXPENSES PURSUANT TO ARTICLE 4 ABOVE. THE PARTIES ACKNOWLEDGE
THAT THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR
PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTION 3275 OR 3369, BUT IS
INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL
CODE SECTIONS 1671, 1676, AND 1677. THE PARTIES HAVE SET FORTH THEIR INITIALS
BELOW TO INDICATE THEIR AGREEMENT WITH THE LIQUIDATED DAMAGES PROVISION
CONTAINED IN THIS SECTION. SELLER WAIVES ALL OTHER REMEDIES AGAINST BUYER FOR
BUYER'S FAILURE TO CLOSE ESCROW, INCLUDING ANY RIGHT TO SPECIFIC PERFORMANCE
UNDER CALIFORNIA CIVIL CODE SECTION 1680 OR ANY OTHER APPLICABLE LAW. IN THE
EVENT THAT THE ADDITIONAL AMOUNT OWED BY BUYER PURSUANT TO THIS SECTION 6.2 IS
NOT
18
<PAGE>
PAID WHEN DUE, IT SHALL THEREAFTER ACCRUE INTEREST AT THE RATE OF TEN PERCENT
(10%) PER ANNUM UNTIL PAID IN FULL AND SELLER SHALL HAVE THE RIGHT TO COLLECT
FROM BUYER REASONABLE COLLECTION COSTS INCLUDING REASONABLE ATTORNEYS' FEES AND
COSTS.
BUYER AND SELLER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTOOD THE
PROVISIONS OF THIS SECTION 6.2 AND BY THEIR INITIALS BELOW AGREE TO BE BOUND BY
ITS TERMS.
/s/ SLM /s/ RES
-------------- ----------------
Buyer's Initials Seller's Initials
7. Seller's Representations and Warranties. Seller hereby makes the
---------------------------------------
following representations and warranties to Buyer:
7.1 Due Authorization, Etc. Each Seller is a duly organized and
----------------------
validly existing corporation under the laws of the State of Delaware, is in good
standing therein, with full power and authority to carry on its business as
currently conducted and where conducted. This Agreement and all agreements,
instruments and documents herein provided to be executed or to be caused to be
executed by Seller on or before the Close of Escrow will be duly authorized,
executed and delivered by and binding upon Seller enforceable in accordance with
its terms; and Seller will have authority to enter into this Agreement and
consummate the transactions herein provided. Seller is authorized to do business
in the State of California.
7.2 Actions, Suits and Proceedings. Other than as set forth on
------------------------------
Exhibit R attached hereto, Seller has not (i) received notice of any outstanding
- ---------
violation of or been charged with the violation of any material legal
requirement, restriction, condition, covenant or agreement affecting the Real
Property or the marketing, construction, development, use, operation,
maintenance or management of the Real Property which has not been cured, and
(ii) been served in any unresolved litigation relating to the Real Property or
the marketing, construction, development, use, operation, maintenance or
management of the Real Property. Other than as set forth in Exhibit R, Seller
---------
has no actual knowledge of any actions, suits, claims or proceedings,
governmental or otherwise, pending or threatened against the Real Property or
any portion thereof
7.3 No Impediments to Performance. Other than as set forth on
-----------------------------
Exhibit S attached hereto, Seller is not a party to any material certificate,
- ---------
instrument, contract, deed of trust, mortgage, indenture, agreement, covenant or
other restriction, and there is no provision in Seller's charter, bylaws or
partnership agreement, or any judgment, order, writ, injunction, or decree of
any court, governmental body or arbitrator, which would prohibit or otherwise be
breached or violated by the entering into, execution, delivery or performance by
Seller of this Agreement or the consummation of the transactions contemplated
hereby.
7.4 No Brokers. Other than as set forth on Exhibit T hereto, there
---------- ---------
are no claims for brokerage commissions, finder's fees or similar compensation
in connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by
19
<PAGE>
or on behalf of Seller. Other than as set forth on Exhibit T hereto, as of the
---------
Execution Date, Seller covenants, represents and warrants that it has not
entered into any listing agreement(s) or other brokerage agreements with any
real estate broker or salesperson with respect to the Real Property and it shall
not do so without Buyer's prior written consent, which may be withheld in
Buyer's sole and absolute discretion.
7.5 Disclosures. Buyer and Seller acknowledge that Seller is required
-----------
to disclose if the Real Property lies within the following natural hazard areas
or zones: (i) a special flood hazard area designated by the Federal Emergency
Management Agency (California Civil Code Section 1102.17); (ii) an area of
potential flooding (California Government Code Section 8589.4); (iii) a very
high fire hazard severity zone (California Government Code Section 51183.5);
(iv) a wild land area that may contain substantial forest fire risks and hazards
(Public Resources Code Section 4136); (v) an earthquake fault zone (Public
Resources Code Section 2621.9); or (vi) a seismic hazard zone (Public Resources
Code Section 2694). Buyer and Seller acknowledge that Seller has employed the
services of Vista Environmental (which, in such capacity is herein called
"Natural Hazard Expert") to examine the maps and other information specifically
- ----------------------
made available to the public by government agencies for the purpose of enabling
Seller to fulfill its disclosure obligations with respect to the natural hazards
referred to in California Civil Code Section 1102.6c(a) and to report the result
of its examination to Buyer and Seller in writing. The written report prepared
by the Natural Hazard Expert regarding the results of its examination fully and
completely discharges Seller from its disclosure obligations referred to herein,
and, for the purpose of this Agreement, the provisions of Civil Code Section
1102.4 regarding the non-liability of each of Seller for errors or omissions not
within its personal knowledge shall be deemed to apply and the Natural Hazard
Expert shall be deemed to be an expert, dealing with matters within the scope of
its expertise with respect to the examination and written report regarding the
natural hazards referred to above. Seller shall not have any responsibility for
matters not actually known to Seller. In addition, Seller has disclosed, to the
extent it has actual knowledge, all material issues regarding the Real Property
and the environmental condition of the Adjacent Property, including those
involving environmental conditions and asserted environmental claims, and those
contained in privileged documents. Buyer acknowledges that certain pre-October
4, 1988 documents are contained in boxes which are not well-indexed and which
Buyer will have to review at its expense.
7.6 Contracts. Other than as set forth on Exhibit U attached hereto,
--------- ---------
there are no service, maintenance, employment, supply, management or other
agreements affecting the Property, either oral or written, which will remain in
effect after the Close of Escrow. Notwithstanding the foregoing, it shall not be
a default hereunder if Seller has in good faith failed to disclose one or more
of such agreements so long as no one such agreement has a post Close of Escrow
obligation of more than Five Thousand Dollars ($5,000) and all of such foregoing
agreements in the aggregate do not have a post Close of Escrow obligation of
more than Twenty-Five Thousand Dollars ($25,000).
7.7 Leases. Other than as set forth on Exhibit V attached hereto, to
------ ---------
Seller's actual knowledge, there are no leases, licenses or other agreements
permitting the use or occupancy of the Real Property, which will remain in
effect after the Close of Escrow. Other than as set forth on Exhibit V attached
---------
hereto, to Seller's actual knowledge there are no persons
20
<PAGE>
entitled to use or occupy the Real Property or any portion thereof by reason of
any easements by prescription or necessity.
7.8 Bankruptcy. Subject to the last sentence in this Section 7.8,
----------
Seller has not: (a) made a general assignment for the benefit of creditors; (b)
filed any voluntary petition in bankruptcy or suffered the filing of an
involuntary petition by its creditors; (c) suffered the appointment of a
receiver to take possession of all or substantially all of its assets; or (d)
suffered the attachment or judicial seizure of all, or substantially all, of its
assets. Buyer acknowledges that, in 1987, Seller (which was then known as Kaiser
Steel Corporation) filed a voluntary Petition for Reorganization under Chapter
11 of the United Bankruptcy Code and the Order of the United States Bankruptcy
Court approving Seller's Plan of Reorganization was entered on the docket on
October 4, 1988.
7.9 No Other Agreements to Convey. Except as set forth on Exhibit W
----------------------------- ---------
hereof, Seller has not granted any person any right to acquire all or any
portion of the Property, including, without limitation, any development, mineral
or air rights relating to the Property.
7.10 Tax Bills. The copies of the real property tax bills listed on
---------
Exhibit X attached hereto, are true, accurate and complete copies of all tax
- ---------
bills received by Seller within the past three (3) years for the Real Property.
7.11 No Actions. Except as disclosed in Exhibit R attached hereto,
---------- ---------
Seller has no actual knowledge of: (a) any condemnation, pending or threatened,
of the Real Property or any portion thereof, including any right of access to
the Real Property; (b) any government plans for public improvements that might
result in a special assessment against the Real Property; (c) any underground or
above-ground storage tanks on the Real Property not previously disclosed to
Buyer in writing or referenced in the records previously made available to
Buyer; or (d) any pending or threatened change in the zoning of the Real
Property.
7.12 No Approvals Needed. Except for approval by the respective Boards
-------------------
of Directors of each of Seller and Buyer and the approval of The California
Speedway Corporation with respect to the sewer treatment facility, the sale of
the Real Property and the performance of Seller's obligations hereunder are not
subject to any requirement to obtain any approval of any governmental agency or
third party.
7.13 Documents, Files and Records. The files, records and other
----------------------------
documents delivered or made available to Buyer pursuant to Section 4.3 above
are, to Seller's actual knowledge, complete and accurate in all material
respects as of the date prepared and have not been modified or amended by any
confidential or proprietary document or information which was not provided or
made available by Seller.
7.14 Truck Stop Approvals. The approximately 75.6 acre portion of the
--------------------
Real Property referred to by Seller as the "Truck Stop Sales and Service" parcel
has been entitled by San Bernardino County pursuant to a CUP issued by San
Bernardino County permitting use as a 1,300 stall truck stop.
7.15 CALTRANS Approval. All documents necessary for consideration of
-----------------
the Etiwanda interchange project on I-10 have been submitted to CALTRANS and
other
21
<PAGE>
applicable agencies, and the preliminary design of the interchange improvements
will be approved by CALTRANS prior to the Contingency Date.
8. Buyer's Representations and Warranties.
--------------------------------------
8.1 Due Authorization, Etc. Buyer is a duly organized and validly
----------------------
existing limited liability company under the laws of the State of Delaware, in
good standing therein, and has full power and authority to carry on its business
as currently conducted and where conducted. Buyer is authorized to do business
in the State of California. This Agreement and all agreements, instruments and
documents herein provided to be executed by Buyer on or before the Close of
Escrow will be duly authorized, executed and delivered by and binding upon Buyer
enforceable in accordance with its terms; and Buyer will have authority to enter
into this Agreement and consummate the transactions herein provided.
8.2 No Impediments To Performance. Buyer is not a party to any
-----------------------------
material certificate, instrument, contract, deed of trust, mortgage, indenture,
agreement, covenant or other restriction, and there is no provision in Buyer's
formation documents or regulations, or any judgment, order, writ, injunction, or
decree of any court, governmental body or arbitrator, which would prohibit or
otherwise be breached or violated by the entering into, execution, delivery or
performance by Buyer of this Agreement or the consummation of the transactions
contemplated hereby.
8.3 Broker. There are no claims for brokerage commissions, finder's
------
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
Buyer, including, without limitation, any arrangement or agreement between Buyer
and Jeffrey Tamkin, Tamkin Investments Inc. or any entity owned or related to
either of them.
8.4 Bankruptcy. Buyer has not: (a) made a general assignment for the
----------
benefit of creditors; (b) filed any voluntary petition in bankruptcy or suffered
the filing of an involuntary petition by its creditors; (c) suffered the
appointment of a receiver to take possession of all or substantially all of its
assets; or (d) suffered the attachment or judicial seizure of all, or
substantially all, of its assets.
8.5 Financial Abilities of Buyer. Buyer has evaluated and is familiar
----------------------------
with the potential magnitude of remediation of Hazardous Substances
contamination at, under, above, adjacent and/or emanating to or from the Real
Property and the Tar Pits Property and has access to the financial resources
necessary to purchase the Property pursuant to this Agreement and to carry out
such remediation of Hazardous Substances according to all applicable Laws and to
timely perform all other obligations assumed by Buyer under this Agreement.
8.6 Health & Safety Code. Buyer acknowledges that Seller's
--------------------
disclosures hereunder satisfy Seller's disclosure obligations under Section
25359.7 of the California Health & Safety Code.
9. Survival of Warranties; Notice. The representations, warranties and
------------------------------
covenants made by Seller and Buyer in Articles 7 and 8 of this Agreement shall
survive the Close of Escrow and the recordation of the Deed for a period of
thirty-six (36) months, and any action for
22
<PAGE>
a breach of any representation, warranty or covenant must be filed and served
within thirty-nine (39) months from the date of recordation of the Deed. If
either Party learns that a representation or warranty made by the other Party is
not true or correct in any material respect, it shall give prompt notice thereof
to the other Party and such other party shall have a reasonable opportunity to
cure; provided, however, that either the giving of such notice or the failure to
-------- -------
do so shall not excuse the Party which made the untrue or incorrect
representation or warranty. If Buyer learns prior to the Close of Escrow that
any representation, warranty or covenant of Seller is incorrect, in any material
respect and does not give notice of such fact to Seller in accordance with this
Article 9, then Buyer shall be deemed to have waived any and all claims or
remedies for such breach or inaccuracy.
10. Environmental Covenants; Insurance. This Article 10 shall survive the
----------------------------------
Close of Escrow and the recordation of the Deed.
10.1 Property Condition. Buyer acknowledges that: (a) the Real
------------------
Property and the Adjacent Property were formerly used for Steel Mill Operations
and, subsequent to active Steel Mill Operations, by a number of tenants and
other occupants; and (b) Hazardous Substances were placed, may have spilled,
leaked, seeped or entered onto or under the ground, air, water or groundwater
and Hazardous Substances may still be present at, under, above or adjacent to
and/or emanating to or from the Real Property and/or other real property in the
vicinity of the Real Property (including, without limitation, the Adjacent
Property). Buyer acknowledges that, following the Close of Escrow, Buyer shall
have the obligation to investigate, remove, remediate, monitor and clean up such
Hazardous Substances as provided more specifically in this Article 10. Seller
may have the right to cause Apollo Wood Recycling ("Apollo") to remove,
------
remediate and clean up certain Hazardous Substances located on a portion of the
Real Property. If Seller elects to pursue Apollo, Seller agrees to use
reasonable efforts to cause Apollo to perform such activities. If Seller does
not elect to pursue Apollo, Seller shall assign to Buyer the right to pursue
Apollo. Any recovery from Apollo shall incur to the benefit of Buyer (provided,
however, that Seller shall first recover its reasonable attorneys' fees and
costs incurred in connection with such recovery). If such testing occurs prior
to the Close of Escrow, Seller and Buyer shall each pay one-half (1/2) of the
costs of any testing required to pursue Apollo. Nothing herein shall be deemed
to excuse Apollo from any obligations it may have with respect to the Real
Property.
10.2 Pre-Closing Activities.
----------------------
10.2.1 Agency Specific Approval/Agreement. Seller and Buyer shall
----------------------------------
use commercially reasonable efforts (which shall continue, if necessary, after
the Close of Escrow) to induce the DTSC to join Buyer as a party to the Consent
Order, and, if possible, to release Seller from the Consent Order. Buyer shall
post its own financial assurances with the DTSC and shall join with Seller in
requesting that DTSC substitute Buyer's financial assurances for those given to
DTSC by Seller.
10.2.2 Remediation Activities. Following the Execution Date and
----------------------
prior to the Close of Escrow, Seller shall continue to operate any soil and/or
groundwater treatment systems operating at the Real Property and the Adjacent
Property, if applicable. Prior to the Close of Escrow, Seller shall remove from
the Real Property, transport and dispose of or
23
<PAGE>
otherwise lawfully manage all Hazardous Substances stored in containers on the
Real Property. Seller shall also continue to perform such remediation at the
Real Property as may be required by applicable Agencies.
10.2.3 Meetings with Governmental Agencies. Following the
-----------------------------------
Execution Date and prior to the Close of Escrow, Buyer shall have the right to
contact Agencies regarding Buyer's proposed cleanup activities and development
plans for the Real Property. Buyer shall provide Seller with forty-eight (48)
hours' written notice prior to any proposed meeting or proposed telephone
conference with such Agencies. However, at Buyer's request, Seller shall arrange
all such meetings or telephone conferences as Buyer shall reasonably require for
such purpose. Seller shall have the right to be present at any such meetings or
on any such telephone conferences.
10.2.4 Correspondence with Governmental Agencies. From and after
-----------------------------------------
the Execution Date and so long as this Agreement remains in effect, and so long
as there is no Default as defined in Section 10.9 hereof, Seller and its
affiliates and subsidiaries and each of their employees, agents and
representatives (collectively, the "Seller Parties") shall refrain from any
--------------
communications or discussions with any Agency or any third party, and from
taking any other action, which could result in any Agency requesting or
requiring Buyer or the owner of the Real Property or the Adjacent Property to
take, perform or cease any activity on or with respect to the Real Property or
the Adjacent Property, except for any activities which may be ongoing or
required as of the Execution Date (including, but not limited to, reasonable
activities associated with draft remediation action plans on file with the
Agencies as of the Execution Date), which activities shall be terminated as of
the Close of Escrow. The Seller Parties shall deliver a copy of any and all
notices and correspondence received from any Agency to Buyer within two (2)
business days after receipt thereof. Seller acknowledges that, as an inducement
to providing the indemnities in Section 10.3.3, below, Buyer is relying on
Seller's covenant and agreement to permit Buyer to complete all aspects of the
Corrective Action, including any communications with applicable Agencies.
10.3 Post-Closing Activities.
-----------------------
10.3.1 Environmental Liabilities and Obligations. Upon the Close
-----------------------------------------
of Escrow, Buyer shall assume and indemnify and defend Seller and its past,
current and future officers, directors, employees and affiliates ("Seller
------
Parties") as provided in Section 10.3.4 from all Environmental Liabilities and
- -------
Obligations as set forth herein. As used herein, the term "Environmental
-------------
Liabilities and Obligations" shall mean any known or unknown liability,
- ---------------------------
obligation (including, without limitation, any obligation to investigate,
monitor, test, report to an Agency, remediate or clean up or any obligation
under a permit, order or agreement), claim, action, proceeding, expense, cost
(including, without limitation, any expense and cost incurred or associated with
the investigation, handling, containment, characterization, disposal, treatment,
stabilization and/or neutralization of Hazardous Substances, as well as the cost
and expense of site management, preparing and finalizing remedial action plans
and scopes of work, worker safety costs, security costs, attorneys fees and
costs, consulting fees and costs, engineering fees and costs, contractor fees
and costs, laboratory costs, financial assurance costs, and licensing,
permitting and other similar costs and expenses), fee, tax, assessment, fine, or
penalty, agency oversight damage, loss, financial assurance, whether incurred by
a Party or claimed by any third
24
<PAGE>
party (including, without limitation, any Agency), arising out of or relating to
any actual, alleged or threatened placement, presence, existence, discharge,
release, emission, spill or past, present or future migration of Hazardous
Substances at, under, above and/or emanating from the Real Property and/or the
Tar Pits Property or any such placement, discharge, release, emission, spill or
migration from a source other than the Real Property onto the Real Property
and/or the Tar Pits Property, of any Hazardous Substances, except for the
------ ---
Excluded Liabilities (as hereinafter defined). In addition, without limiting the
foregoing, the Environmental Liabilities and Obligations shall also expressly
include the assumption of Seller's obligations pursuant to the Consent Order and
applicable Laws and the Adjacent Property Indemnifications and Other Agreements
except to the extent disapproved by Buyer prior to the Contingency Date.
10.3.2 As used herein, the term "Excluded Liabilities" shall
--------------------
mean: (a) any such liabilities and obligations arising from or related to
environmental conditions at the Real Property or the Adjacent Property (during
the time it was owned by Seller) which were intentionally concealed from Buyer
by Seller and of which Buyer had no knowledge prior to the Close of Escrow; (b)
any liabilities and obligations for remediation of Hazardous Substances which
were removed from the Real Property or the Adjacent Property and were disposed
of off-site, including, without limitation, at landfills or other recycling or
disposal facilities, prior to the Close of Escrow; (c) fines or penalties
assessed against Seller for acts and omissions occurring prior to the Close of
Escrow (provided, however, that Buyer does not act so as to induce the
-------- -------
imposition of such fines and penalties unless Buyer's acts were compelled by
law and except to the extent such fines or penalties may be covered by the
Insurance Policies); (d) damages and liabilities caused by Seller's breach of
this Agreement; (e) liabilities for personal injury, including death and
disability, occurring prior to the Close of Escrow caused to employees,
contractors, invitees or guests or any other persons at or from the Real
Property or the Adjacent Property, other than those for which the Buyer is
responsible under the Entry Permit, to the extent that such liabilities arise as
a result of a failure of any contractor of Seller to maintain the insurance
which such contractor was obligated to maintain pursuant to such contractor
contract with Seller or to the extent that such liabilities are alleged by an
employee or former employee of Seller; (f) any liabilities or obligations
arising solely from the SAWPA Plume, the Ontario Litigation or the Mushegain
Litigation, as those matters are described more fully in Exhibit L attached
---------
hereto; and (g) any contractual liabilities of Seller other than those
specifically assumed by Buyer in this Agreement. Seller and Buyer shall, if
commercially reasonable, seek to obtain insurance policies which cover some or
all of the Excluded Liabilities.
10.3.3 Remediation of Property. Buyer shall assume, undertake,
-----------------------
satisfy, discharge and timely perform all Environmental Liabilities and
Obligations whether existing or first occurring before, on or after the Close of
Escrow and whether or not known or unknown as of the Close of Escrow. Without
limiting the generality of the foregoing, the following rights, covenants and
obligations shall govern the Parties following the Close of Escrow:
10.3.3.1 Corrective Action. Buyer shall, at its sole risk
-----------------
and expense (subject to the provisions of Section 10.7 hereof), timely perform
all Corrective Action (as hereinafter defined) for all Hazardous Substances
present on, under or at or emanating from the Real Property and/or on, under or
at or emanating from the Tar Pits Property (including ongoing continuing
operations and maintenance obligations) or at any location to which the
Hazardous Substances may have migrated from the Real Property and/or the Tar
Pits Property.
25
<PAGE>
As used herein, "Corrective Action" means investigation, stabilization,
-----------------
response, monitoring, operations, maintenance, active remediation, passive
remediation and risk assessment or any combination thereof in such a manner as
to achieve the remediation standards required by the rules, regulations,
policies, agreements or orders as they may change from time to time
(collectively, "Requirements") of applicable Agencies or applicable Laws.
------------
Corrective Action shall be deemed completed when an Agency issues an NFA Letter
with respect to the Real Property and/or Tar Pits Property or otherwise
determines that an NFA Letter is not required for the Real Property or the Tar
Pits Property. Corrective Action shall expressly exclude any Corrective Action
related to or arising from the Excluded Liabilities. Buyer's obligations under
this Section 10.3.3.1 shall be limited to the performance of any Corrective
Action necessary to meet the requirements of the Agency having jurisdiction over
the Corrective Action or by applicable Laws; provided, however, that Seller
shall reimburse Buyer for the cost and expense of remediating the Tar Pits
Property as provided in Section 10.7 hereof.
10.3.3.2 Seller's Non-Participation. Following
--------------------------
the Close of Escrow, Seller shall have no right to participate in the
remediation of the Real Property by Buyer except (i) with respect to the Tar
Pits Property if no capping remedial action plan is permitted; or (ii) upon
Buyer's Default (as hereinafter defined); or (iii) in connection with Seller's
enforcement of the performance bond or the IT Contract. Buyer shall keep Seller
reasonably informed of the progress of each Corrective Action being performed or
planned at the Real Property, the Tar Pits Property and any other remediation,
by delivering written status reports to Seller at least once every two (2)
months.
10.3.4 Indemnification by Buyer. Except only for the
------------------------
Excluded Liabilities, Buyer agrees to indemnify, hold harmless and defend the
Seller Parties from and against any and all Environmental Liabilities and
Obligations, Other Assumed Obligations and Liabilities (as defined in Section
10.6 below), and for and against any and all liabilities, penalties, fines,
suits, claims, demands, actions, losses, damages, expenses, investigation and
remediation costs (including, but not limited to, laboratory, handling,
transportation, containment, neutralization, disposal, capping and other similar
costs), operation and maintenance costs, financial assurance costs, Agency costs
(including, but not limited to, permitting, licensing, hazardous waste taxes and
oversight costs), causes of action, proceedings, judgments, executions and
reasonable costs of any kind or nature whatsoever (including reasonable
attorneys', consultants', engineers' and contractors' fees) in connection with,
arising out of or related to: (a) any Corrective Action; (b) compliance or
noncompliance with any Requirements; (c) the existence of any threat to health,
safety or the environment under any Laws, or the presence or alleged presence or
release of any Hazardous Substances on, under, at or from the Real Property or
the Tar Pits Property; (d) Buyer and ITG's compliance or non compliance with any
Law; (e) the breach of this Agreement or any Exhibit attached hereto and
incorporated herein by Buyer (which includes, but is not limited to, the breach
of any liability and/or obligation of Seller assumed by Buyer); and (f) any
breach of the IT Contract or the performance and completion bond, as defined in
Section 10.4 below. Any indemnification and defense to be provided pursuant to
this Section 10.3.4 shall be conducted in accordance with the procedures set
forth in Section 14.1, below.
10.3.5 Seller's Responsibility. Following the Close of
-----------------------
Escrow, Seller shall refrain from any communications or discussions with any
Agency or any third party (other
26
<PAGE>
than communications or discussions relating to the Excluded Liabilities) and
from taking any other action which could result in any Agency requesting or
requiring Buyer or the owner of the Real Property to take, perform or cease any
activity on or with respect to the Property except communications (which shall
be made jointly with Buyer) relating to remediation of the Tar Pits Property.
Seller and Buyer shall give notice to DTSC and each other Agency with which
Seller has been in communications within the past twelve (12) months regarding
the Real Property and/or the Tar Pits Property that further communications
should be addressed to Buyer (although Seller may be copied on such notices),
and shall so refer any such communications. Seller shall deliver any and all
notices and correspondence received from any Agency to Buyer within two (2)
business days after receipt thereof. Seller acknowledges that the covenants and
agreements of Seller set forth herein are a material inducement to the
agreements of Buyer set forth herein. The provisions of this Section 10.3.5
shall be suspended during any period in which Buyer is in Default (as
hereinafter defined) or if Seller takes action to enforce the terms of the
performance and completion bond or the IT Contract.
10.3.6 Indemnification by Seller. Seller agrees to
-------------------------
indemnify, hold harmless and defend the Buyer Parties from and against any and
all liabilities, penalties, fines, suits, claims, demands, actions, losses,
damages, expenses, investigation and remediation costs (including, but not
limited to, laboratory, handling, transportation, containment, neutralization,
disposal, capping and other similar costs, operation and maintenance costs,
financial assurance costs, Agency costs (including, but not limited to,
permitting, licensing, hazardous waste taxes and oversight costs), causes of
action, proceedings, judgments, executions and reasonable costs of any kind or
nature whatsoever (including reasonable attorneys', consultants', engineers' and
contractors' fees) in connection with arising out of or related to any Excluded
Liabilities. Any indemnification and defense to be provided pursuant to this
Section 10.3.6 shall be conducted in accordance with the procedures set forth in
Section 14.1, below.
10.4 IT Contract. As an inducement to execute this Agreement, Seller
-----------
is relying upon, and hereby approves and consents to, Buyer's retention of ITG
or any one or more of its affiliates or subsidiaries as the "Consultant" for the
----------
Corrective Action at or near the Real Property and/or the Tar Pits
Property pursuant to a fixed-priced contract between Buyer and ITG (the
contract, together with the lien and completion bond issued to secure
performance thereof, are collectively, the "IT Contract"), the form of which
-----------
shall be attached hereto as Exhibit Q. Seller shall be an express third party
---------
beneficiary of the IT Contract and an obligee of the performance bond as
provided in Section 5.3.5 hereof. Before the Consultant first commences any
Corrective Action at or near the Real Property and/or the Tar Pits Property, the
Consultant shall be required to maintain the insurance policies required in
Section 15 of the IT Contract (collectively, "Consultants' Insurance") and
----------------------
shall deliver to Seller copies of certificates evidencing the Consultants'
Insurance and shall add Buyer and Seller as additional insureds to any
automobile liability policy, umbrella insurance policy, or CGL insurance policy
maintained by the Consultant. The Consultant's liability to Buyer and Seller
shall be contractually limited as provided in the IT Contract. The Consultant
may purchase a separate insurance policy for its obligations under the IT
Contract.
27
<PAGE>
10.5 Required Insurance.
------------------
10.5.1 Upon the Close of Escrow, Buyer shall add Seller as a
named insured under insurance policies providing coverage that is substantively
identical to that provided in the following policies (collectively, the
"Insurance Policies"):
------------------
10.5.1.1 The Real Estate Pollution Policy in the form
of Exhibit I, with minimum policy limits of Five Million Dollars ($5,000,000)
---------
and a fifteen (15) year reporting period;
10.5.1.2 The Full Occurrence CGL Policy in the form
of Exhibit G, with minimum policy limits of Fifty Million Dollars ($50,000,000);
---------
10.5.1.3 The Remediation Project Policy in the form of
Exhibit J, with minimum policy limits in an amount equal to one hundred percent
- ---------
(100%) of the contract price of the fixed-price contract between Buyer and ITG
pursuant to Section 10.4 above; and
10.5.1.4 The Contingent Transportation Insurance Policy
in the form of Exhibit E, within minimum policy limits of Five Million Dollars
---------
($5,000,000.00).
10.5.2 Terms of Insurance. Buyer shall pay the full policy
------------------
premiums for each of the Insurance Policies and endorsements thereto at or prior
to the Close of Escrow. Each of the Insurance Policies shall be placed through
Buyer's proprietary insurance program with a carrier rated A.M. Best A+,VIII or
better (which entities shall be approved by Seller as provided in Section 4.10
hereof). The Insurance shall provide that any post issuance modifications or
terminations of the policies shall require the consent of Seller.
10.5.3 Deductibles. Buyer shall be solely responsible for the
-----------
payment of any deductibles under the Insurance Policies.
10.5.4 Additional Coverage. At its sole cost and expense,
-------------------
Seller may increase the liability limits under the Insurance Policies.
10.6 Other Assumed Obligations and Liabilities. In addition, to
-----------------------------------------
Buyer's assumption as of the Close of Escrow of all Environmental Liabilities
and Obligations, except to the extent disapproved by Buyer prior to the
Contingency Date, Buyer shall assume and perform all of Seller's obligations and
liabilities with respect to the Real Property and Other Assets, including, but
not limited to, those associated with the sewer treatment plant and the railroad
as more specifically described in Exhibit U attached hereto (hereinafter
---------
collectively "Other Assumed Obligations and Liabilities").
-----------------------------------------
10.7 Tar Pits Property. Seller is currently seeking to amend the
-----------------
current remedial action plan with the DTSC for the Tar Pits Property to a
capping remedial action plan as opposed to the current removal and disposal. In
the event Seller elects, or an Agency requires, a removal and disposal strategy
for the Tar Pits Property instead of a capping strategy, Seller shall pay the
incremental cost of the removal and disposal remediation alternative over the
capping remediation alternative. Seller shall have the right to elect the
removal and disposal
28
<PAGE>
strategy by giving written notice to Buyer at any time prior to the commencement
of the capping of the Tar Pits Property of its desire to cause a removal and
disposal strategy for the Tar Pits Property. Buyer shall join with Seller in
seeking DTSC approval for such a capping remedial action plan. Buyer agrees that
if a capping plan is approved by DTSC, Buyer will use reasonable efforts to
complete such capping within eighteen (18) months after such plan is approved by
DTSC or within such shorter time period as may be required by the DTSC.
10.8 Deed Restriction. Buyer agrees that Seller's deed to Buyer and
----------------
Buyer's deed to future owners of the property shall contain the restriction
set forth in Exhibit Y attached hereto.
---------
10.9 Default by Buyer. Buyer shall be deemed to have defaulted in
----------------
its obligations (a "Default") and agreements set forth in Section 10.3.3.1
-------
hereof if all work included in the definition of Corrective Action other than
----- ----
long-term monitoring, maintenance or like tasks has not been completed on the
---
Real Property and/or the Tar Pits Property and all of the following events
---
occur:
a. An Agency seeks in a written notice to have Seller perform
Corrective Action with respect to the Real Property or the
Tar Pits Property; and
b. Seller gives Buyer written notice of the Agency's written
notice; and
c. Buyer fails to respond to the Agency and commence taking the
appropriate action within thirty (30) days from the date of
receipt of such notice or commences taking such action but
thereafter fails to diligently prosecute such action to
completion to the satisfaction of the Agency; and
d. As a result of Buyer's failure to respond to such Agency
notice, Seller is required to expend money to perform
Corrective Action;
or, in the alternative, if Buyer is in default under the IT Contract and the
time to cure has expired.
Only the obligations of Buyer pursuant to Section 10.3.3.1 hereof
shall be secured by a deed of trust (the "Deed of Trust") in the form of Exhibit
------------- -------
AA hereto.
- --
If a Default occurs as defined in this Section 10.9, then Seller shall
have the right to either (a) recover from Buyer the costs expended by Seller in
performing such Corrective Action, or (b) exercise its rights under the Deed of
Trust. The Deed of Trust provides, inter alia, that Seller shall subordinate
the lien thereof to the lien of any financing obtained by Buyer in connection
with the acquisition, remediation, or development of the Property, which
financing shall not exceed a loan to value ratio of seventy percent (70%). Such
financing shall not provide for a security interest in the escrow account
referred to below nor shall such financing modify the terms of the escrow
instructions referred to below.
Buyer shall provide Seller with a copy of each draw request submitted
to any construction and/or remediation lender. Buyer shall obtain a performance
and completion bond
29
<PAGE>
from each contractor performing Corrective Action whose contract or contracts
total is in excess of Five Hundred Thousand Dollars ($500,000).
Until such date as all work included in the definition of Corrective
Action other than long-term monitoring, maintenance or like tasks has been
----------
completed, as Buyer conveys any portion of the Real Property to an unrelated
third party, it shall deposit into an escrow account established at Commerce
Escrow Company, located at 1545 Wilshire Boulevard, Suite 600, Los Angeles,
California 90017, telephone (213) 484-0855, and facsimile (213) 484-0417
pursuant to the escrow instructions attached hereto as Exhibit BB a portion of
----------
the net proceeds received upon such conveyance equal to (i) Fourteen Million
Dollars ($14,000,000) minus (ii) all reasonable and reasonably documented
-----
amounts expended by Buyer to third parties after the Close of Escrow and prior
to the date of such conveyance for or in connection with Corrective Action;
multiplied by (iii) a fraction, the numerator of which is the number of acres so
conveyed and the denominator of which is 440. Seller shall have a security
interest in and first lien on the escrow account pursuant to the security
documents attached as Exhibit CC hereto.
----------
Provided Buyer is not in Default, Buyer may use all of the money in
such escrow for the costs of performing Corrective Action at any time in Buyer's
reasonable discretion, subject to the terms of the Agreements, the Consent Order
and/or applicable Law.
Buyer shall give notice to Seller quarterly of: (i) the existence of
any contracts for the sale of any portion of the Real Property; (ii) any sales
which have closed escrow and the number of acres conveyed; (iii) the amount
deposited into the escrow upon such sale; and (iv) the unspent balance of said
Fourteen Million Dollars ($14,000,000).
Failure of Buyer to make the deposit in accordance with this Section
10.9 shall constitute a Default under this Section 10.9.
In the event that Seller is dissolved as a matter of law and has not
assigned its rights as beneficiary under the Deed of Trust to an active entity
in a document recorded in the Official Records of San Bernardino County,
California and given notice of such assignment to Buyer by certified mail, then
---
the Deed of Trust shall automatically be null and void and of no force or effect
and the trustee thereunder shall reconvey the lien thereof upon receipt of an
affidavit from Buyer setting forth such facts and stating that Buyer has given
Seller at least fifteen (15) days' notice of the facts set forth in the
affidavit. Buyer and Seller each hereby waive any claims either of them may
have against the trustee by reason of its reconveyance of the Deed of Trust in
accordance with the provisions of this Section 10.9. The nullity of the Deed of
Trust shall not be deemed to make the obligations secured by the Deed of Trust
null and void.
11. As-Is. EXCEPT AS EXPRESSLY SET FORTH TO THE CONTRARY HEREIN, THE
-----
PROPERTY IS SOLD BY SELLER TO BUYER ON AN "AS-IS WHERE-IS" BASIS WITH NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, EITHER ORAL OR
WRITTEN, MADE BY SELLER OR ANY AGENT OR REPRESENTATIVE OF SELLER WITH RESPECT TO
THE PHYSICAL OR STRUCTURAL CONDITION OF THE PROPERTY OR WITH RESPECT TO THE
EXISTENCE OR ABSENCE OF PETROLEUM, HAZARDOUS SUBSTANCES OR POLLUTION CONDITIONS
AT, UNDER, ADJACENT TO AND/OR EMANATING TO OR FROM THE
30
<PAGE>
PROPERTY OR THE GROUND WATER THEREUNDER OR WITH RESPECT TO THE COMPLIANCE OF THE
PROPERTY OR ITS OPERATION WITH ANY LAWS, ORDINANCES OR REGULATIONS OF ANY
GOVERNMENT OR OTHER BODY, OR CONCERNING THE COST OR TIME NECESSARY TO COMPLETE
THE REMEDIATION OF POLLUTION CONDITIONS ON THE PROPERTY. BUYER ACKNOWLEDGES AND
AGREES THAT, EXCEPT AS EXPLICITLY STATED IN THIS AGREEMENT, SELLER HAS NOT MADE
AND DOES NOT MAKE ANY REPRESENTATIONS, WARRANTIES, OR COVENANTS OF ANY KIND OR
CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
HABITABILITY, TENANTABILITY OR SUITABILITY FOR COMMERCIAL PURPOSES,
MERCHANTABILITY, OR FITNESS OF THE PROPERTY FOR A PARTICULAR PURPOSE, ALL OF
WHICH WARRANTIES SELLER HEREBY EXPRESSLY DISCLAIMS. BUYER EXPRESSLY ASSUMES AT
CLOSING ALL ENVIRONMENTAL LIABILITIES AND OBLIGATIONS (SUBJECT TO THE PROVISIONS
OF SECTION 10.7 HEREOF) WITH RESPECT TO THE PROPERTY AND THE TAR PITS PROPERTY
AND OTHER ASSUMED OBLIGATIONS AND LIABILITIES AND BUYER ON ITS OWN BEHALF AND ON
BEHALF OF ITS DIRECT AND INDIRECT SUCCESSORS, ASSIGNS AND TRANSFEREES OF ALL OR
ANY PORTION OF THE PROPERTY, RELEASES THE SELLER PARTIES FROM THE SAME, WHETHER
SUCH LIABILITY IS IMPOSED BY STATUTE, REGULATION, DERIVED FROM COMMON LAW, OR BY
CONTRACT, INCLUDING, BUT NOT LIMITED TO LIABILITIES ARISING UNDER ANY
ENVIRONMENTAL LAWS.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THIS RELEASE EXTENDS
TO ANY AND ALL CLAIMS, CAUSES OF ACTION, RIGHTS, LIABILITIES AND REMEDIES UNDER,
BASED UPON OR PURSUANT TO THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION
AND LIABILITY ACT OF 1980, 42 U.S.C. (S) 9601 et seq. ("CERCLA"), AS AMENDED BY
THE SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT OF 1986 (42 U.S.C. (S) 9613),
AS THE SAME MAY BE FURTHER AMENDED, ENACTED OR REPLACED BY ANY SIMILAR OR
COMPARABLE STATE, FEDERAL OR LOCAL LAW, RULE OR REGULATION.
BUYER HEREBY ACKNOWLEDGES THAT IT HAS READ AND IS FAMILIAR WITH THE
PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542 ("SECTION 1542") WHICH IS SET
------------
FORTH BELOW:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
BY INITIALING BELOW, BUYER HEREBY WAIVES THE PROVISIONS OF SECTION
1542 SOLELY IN CONNECTION WITH THE MATTERS WHICH ARE THE SUBJECT OF THE
FOREGOING WAIVERS AND RELEASES EXCEPT THAT BUYER DOES NOT WAIVE THE PROVISIONS
---
OF SECTION 1542 WITH RESPECT TO ANY MATERIAL ENVIRONMENTAL CONDITION OF THE REAL
PROPERTY OR THE ADJACENT PROPERTY KNOWN TO SELLER AND NOT DISCLOSED TO BUYER OR
31
<PAGE>
ANY MATERIAL BREACH OF ARTICLE 7 HEREOF, OR ANY FAILURE BY SELLER TO DISCLOSE
ANY ADJACENT PROPERTY INDEMNIFICATION AND OTHER AGREEMENTS WHICH IMPACT THE USE
OR DEVELOPMENT OF THE PROPERTY OR FOR WHICH BUYER IS ALLEGED TO HAVE OBLIGATIONS
OR LIABILITY.
/s/ SLM /s/ RES
---------------- -----------------
Buyer's Initials Seller's Initials
12. Obligations Retained by Seller. Without limiting Seller's
------------------------------
obligations with respect to the Excluded Liabilities in Article 10 hereof,
Seller shall also retain the following obligations following the Close of
Escrow:
12.1 Employees of Seller. Seller shall retain all obligations
-------------------
relating to its existing or past employee relationships. Buyer shall have no
obligation to offer employment to, employ, or compensate the employees of Seller
who currently perform duties at or concerning the Real Property, and all
notifications to federal, state, or local governments concerning the effects of
the sale of the Real Property upon employees shall be the responsibility of
Seller.
12.2 Litigation Matters. Seller shall defend itself and the Real
------------------
Property and, if required, Buyer or its successors and assigns, against any
claims or causes of action raised with respect to the SAWPA Plume, the Ontario
Litigation and/or the Mushegian Litigation, as each are more fully described in
Exhibit O attached hereto; provided, however, that in the event that such claims
- ---------
or causes of action are coupled with unrelated claims or causes of action
against Buyer, then Buyer shall pay a reasonably prorated portion of the defense
costs.
13. Casualty and Condemnation. Casualty and condemnation occurrences
-------------------------
prior to the Close of Escrow will have the following results:
13.1 Casualty. If, prior to the Close of Escrow, all or any portion
--------
of the Improvements on the Land are damaged or destroyed by an insured event,
Buyer shall purchase the Property without any reduction in the Purchase Price on
account of any diminishment of value resulting from such damage or destruction.
If, prior to the Close of Escrow, all or any portion of the Improvements on the
Land are damaged or destroyed by an uninsured event, Buyer shall have the right
(a) to purchase the Real Property without any reduction in the Purchase Price on
account of any diminishment of value resulting from such damage or destruction,
or (b) to terminate this Agreement. Buyer shall make such election by delivering
written notice to Seller within ten (10) business days after receiving written
notice of such damage or destruction. Buyer's failure to deliver notice of its
election within such ten (10) day period shall constitute Buyer's election of
alternative described in clause (b) hereof. In the event Buyer cannot or does
not terminate the Agreement pursuant to this Section 13.1, Buyer shall be
entitled at the Close of Escrow to an assignment by Seller to Buyer of Seller's
right, title and interest in and to any insurance proceeds arising out of such
damage or destruction.
13.2 Condemnation. If, prior to the Close of Escrow, all or any
------------
material portion of the Real Property is taken or proposed to be taken by
eminent domain, Buyer shall have the right (a) to purchase the Real Property
which has not been condemned without any
32
<PAGE>
reduction in the Purchase Price on account of any diminishment of value
resulting from such taking, or (b) to terminate this Agreement. For purposes of
this Agreement, a "material" portion of the Real Property shall be deemed to be
taken or proposed to be taken if it would cost in excess of Two Hundred Fifty
Thousand Dollars ($250,000) to repair or replace the remaining portion of the
Real Property. In the event Buyer elects not to terminate this Agreement
pursuant to this Section 13.2, or in the event that a non-material portion of
the Real Property is taken or proposed to be taken by eminent domain, then this
Agreement shall remain in full force and effect and Buyer shall be entitled at
the Close of Escrow to an assignment of any condemnation awards arising out of
such taking. Prior to the Closing Date, Buyer and Seller shall jointly
prosecute, at Buyer's expense, any claim for an award with respect to a taking
of the Real Property, which claim shall not be compromised or settled without
Buyer's consent.
13.3 Early Termination. Upon any termination of this Agreement
-----------------
pursuant to this Article 13, Buyer shall promptly be refunded the entire Deposit
and any interest accrued thereon (less all Title Company and Escrow cancellation
fees), and the Parties shall have no other rights or obligations under this
Agreement, except that Buyer's indemnification obligations under the Entry
Permit shall survive the termination of this Agreement.
14. Indemnification. To the extent not otherwise provided for herein, and
---------------
not including any matter which is the subject of Article 10 hereof, Buyer and
Seller (each, an "Indemnitor") shall indemnify, defend and hold the other Party
-----------
and the other Party's current, past and future affiliates, officers, directors,
shareholders, members, managers, employees, representatives, agents,
consultants, counsel and contractors (each, an "Indemnitee") harmless from and
-----------
against any and all obligations, liabilities, claims, liens, encumbrances,
losses, damages, assessments, interest, costs, expenses and agency actions that
result from any claims made by any person or any entity with respect to the
purchase and sale of the Real Property or any portion thereof based on the
representations, agreements, promises or acts of the Indemnitor or any of its
affiliates, subsidiaries, agents, representatives or employees, including,
without limitation, any claims by Tamkin Capital Partners, Jeffrey H. Tamkin or
any of their affiliated companies, entities or individuals. Each indemnity
provided for under this Agreement shall cover the costs and expenses of the
Indemnitee, including, without limitation, reasonable attorneys' fees and
expenses, related to any claims, actions, suits, proceedings or judgments
incident to any of the matters covered by such indemnity. Each Party shall
cooperate fully with the other to make available to each other any books,
records, documents, or other pertinent information within its control which is
necessary or pertinent to the defense of any claims, except for any such books,
records, documents, or other pertinent information, which are protected by any
attorney-client privilege, attorney-work product privilege or other privilege.
Buyer and Seller hereby agree that notwithstanding the reference herein to
Tamkin Capital Partners, Jeffrey H. Tamkin and related parties, neither Buyer
nor Seller believes that any Tamkin party has any valid claims arising out of
its own actions regarding any Tamkin party and the Real Property.
14.1 Indemnification Procedures.
--------------------------
14.1.1 Notice of Claim. With respect to any request for
---------------
indemnification made under this Agreement (whether under this Article 14 or
Article 10 hereof), the Indemnitee shall give the Indemnitor written notice
thereof (together with a copy of any claim, process or other legal pleading)
promptly after becoming aware of such claim; provided, however, that the
-------- -------
33
<PAGE>
failure of any Indemnitee to give notice as provided in this Section 14.1.1
shall not relieve any Indemnitor of its indemnification obligations except to
the extent that such Indemnitor is actually prejudiced by such failure to give
notice. Such notice shall describe such claim in reasonable detail. Nothing in
this Section 14.1 shall be deemed to prevent a Party from making a claim under
any available insurance policy, in addition to pursuing indemnification as set
forth in this Section 14.1.
14.1.2 Defense of Claim. An Indemnitor, at such Indemnitor's
----------------
own expense and through counsel chosen by such Indemnitor (which counsel shall
be reasonably acceptable to the Indemnitee), may, but shall have no obligation
to, elect to defend any claim (whether under this Article 14 or Article 10
hereof). If an Indemnitor elects to defend a claim, then, within ten (10)
business days after receiving notice of such claim (or sooner, if the nature of
such claim so requires), such Indemnitor shall notify the Indemnitee of its
intent to do so, and such Indemnitee shall cooperate in the defense of such
claim (and pending such notice and assumption of defense, an Indemnitee may take
such steps to defend against such claim as, in such Indemnitee's good faith
judgment, are appropriate to protect its interests). Such Indemnitor shall pay
such Indemnitee's reasonable out-of-pocket expenses incurred in connection with
such cooperation. Such Indemnitor shall keep the Indemnitee reasonably informed
as to the status of the defense of such claim. After notice from an Indemnitor
to an Indemnitee of its election to assume the defense of a claim, such
Indemnitor shall not be liable to such Indemnitee under Article 10 and/or
Article 14 for any legal or other expenses subsequently incurred by such
Indemnitee in connection with the defense thereof other than those expenses
referred to in the preceding sentence; provided, however, that such Indemnitee
-------- -------
shall have the right to employ one law firm as counsel, together with a separate
local law firm in each applicable jurisdiction (if necessary) ("Separate
--------
Counsel"), to represent such Indemnitee in any action or group of related
- -------
actions (which firm or firms shall be reasonably acceptable to the Indemnitor)
if, in such Indemnitee's reasonable judgment at any time, either a conflict of
interest between such Indemnitee and such Indemnitor exists in respect of such
claim, or there may be defenses available to such Indemnitee which are different
from or in addition to those available to such Indemnitor and the representation
of both parties by the same counsel would be inappropriate, and in that event:
(a) the reasonable fees and expenses of such Separate Counsel shall be paid by
such Indemnitor (it being understood, however, that the Indemnitor shall not be
liable for the expenses of more than one Separate Counsel (excluding local
counsel) with respect to any claim (even if against multiple Indemnitees)); and
(b) each of such Indemnitor and such Indemnitee shall have the right to conduct
its own defense in respect of such claim. If any Indemnitor elects not to defend
against a claim, or fails to notify an Indemnitee of its election as provided in
this Section 14.1.2 within the period of ten (10) business days described above,
the Indemnitee may defend, compromise and settle such claim and shall be
entitled to indemnification hereunder (to the extent permitted by this
Agreement). Notwithstanding the foregoing, the Indemnitor shall not, without the
prior written consent of the Indemnitee (which consent shall not be unreasonably
withheld, conditioned or delayed), settle or compromise any claim or consent to
the entry of any judgment unless (x) there is no finding or admission of any
violation of law or any violation of the rights of any person and no effect on
any other claims that may be made against the Indemnitee and (y) the sole relief
provided is monetary damages that are paid in full by the Indemnitor.
34
<PAGE>
15. Miscellaneous.
-------------
15.1 Entire Agreement; Modification. This Agreement constitutes the
------------------------------
entire Agreement between the Parties hereto pertaining to the subject matter
hereof and supersedes all prior negotiations, agreements and understandings of
the Parties with respect to the subject matter hereof. All exhibits referred to
in this Agreement are attached and incorporated by this reference. This
Agreement may not be amended or otherwise changed except by a writing executed
by both Parties.
15.2 Confidentiality. From the Execution Date until the Close of
---------------
Escrow, Buyer agrees that the terms and conditions of this Agreement and any
information concerning the Property obtained either from Seller or through other
third parties shall be used solely for the purpose of evaluating the Property.
Unless and until Buyer has completed the acquisition of the Real Property, such
information shall be kept confidential by Buyer and its advisors, except as
necessary to develop, sell and finance the Real Property and to perform its
obligations pursuant to this Agreement. Seller understands that Buyer may need
to disclose the such information or portions thereof to those of Buyer's
directors, officers, employees, agents, advisors, attorneys, accountants,
consultants, lenders, investment bankers, investment partners and financial
advisors (collectively, "Representatives") who need to know such information for
---------------
the purpose of evaluating or financing Buyer's acquisition of the Property or in
connection with obtaining the Insurance Policies, and also to developers in
connection with Buyer's evaluation of the feasibility of Buyer's proposed
development of the Real Property. Prior to any such disclosure, however, Buyer
shall inform such Representatives and developers of the confidential nature of
such information, and such Representatives of Buyer and developers shall agree
to be bound by this statement of confidentiality and not to disclose such
information to any other person. Buyer has also agreed to be responsible for any
breach of this statement of confidentiality by Buyer or its Representatives. In
the event that Buyer or any of its Representatives become legally compelled to
disclose any of such information, Buyer and its Representatives shall provide
Seller with prompt prior written notice of such requirements so that Seller may
seek a protective order or other appropriate remedy and/or waive compliance with
the terms of this statement of confidentiality. In the event that Buyer fails to
complete the acquisition of the Property, Buyer and its Representatives will
promptly return to Seller all of such written information which has been
provided to Buyer and its Representatives will destroy all copies of any
analysis, compilations, studies or other documents prepared by Buyer or for its
use containing or reflecting any such information. Buyer acknowledges that
Seller is a publicly traded company and is required to publicly disclose certain
material information.
15.3 Further Assurances. Each Party hereto shall from and after the
------------------
date hereof execute and acknowledge and deliver such further instruments and
perform such additional acts as any other Party may reasonably request to
effectuate the intent of this Agreement; provided, however, that no such request
--------- --------
may require any Party to make any material expenditure.
15.4 Notices. Any notices, demands or other communications required
-------
or permitted to be given by any provision of this Agreement or which any Party
may desire to give the other shall be given in writing, delivered personally or
sent by certified mail, postage pre-paid, facsimile, or by Federal Express or
similar generally recognized delivery service
35
<PAGE>
regularly providing proof of delivery, addressed to a Party or Escrow Holder, at
the addresses set forth below, or to such other address as said Party or Escrow
Holder may hereafter or from time to time designate by written notice to the
other Party and Escrow Holder.
<TABLE>
<CAPTION>
To Seller: With a copy to:
--------- --------------
<S> <C>
Kaiser Ventures Inc. Kaiser Ventures Inc.
Kaiser Steel Land Development Inc. Steel Land Development Inc.
3633 Inland Empire Blvd. 3633 Inland Empire Blvd.
Suite 850 Suite 850
Ontario, CA 91764 Ontario, CA 91764
Attn.: Lee R. Redmond III Attn.: Terry Cook
Telephone: (909) 483-8508 Telephone: (909) 483-8511
Telecopier: (909) 944-6605 Telecopier: (909) 944-6605
To Buyer: With a copy to:
-------- --------------
Ontario Ventures I, LLC Tuttle & Taylor, A Law Corporation
c/o LandBank Environmental Properties, LLC 355 South Grand Avenue
141 Union Boulevard 40th Floor
Suite 330 Los Angeles, CA 90071-3102
Lakewood, CO 80228 Attn.: Timi A. Hallem/Thomas I. Dupuis
Attn.: Stuart L. Miner Telephone: (213) 683-0607
Telephone: (303) 763-8500 Telecopier: (213) 683-0225
Telecopier: (303) 763-5700
and to:
------
The Knowlton Group
1445 Canterbury Drive
Salt Lake City, UT 84108
Attn.: Hooper Knowlton
Telephone: (801) 582-5347
Telecopier: (801) 583-8939
To Escrow Holder:
----------------
Chicago Title Company
560 East Hospitality Lane
San Bernardino, CA 92408
Attn.: _____________________
Telephone: (909) 884-0448
Telecopier: (909) ____________
</TABLE>
A copy of any notice, demand or other communication given to or by
Escrow Holder by or to either Party shall be given to the other Party at the
same time. Notice by United States Postal Service or delivery service as
provided herein shall be considered given on the
36
<PAGE>
earlier of the date on which said notice is actually received by the Party to
whom such notice is addressed, or as of the date of delivery, whether accepted
or refused, established by the United States Postal service return receipt or
such overnight carrier's proof of delivery, as the case may be. Any such notice
given by facsimile shall be deemed given upon receipt of the same by the Party
to which it is addressed, provided that such facsimile was received between the
hours of 8:00 a.m. and 5:00 p.m. local time of the recipient of the facsimile on
a business day. Receipt of a facsimile at any other time will be deemed received
on the next business day.
15.5 Computation of Time. All references to a period of "days" shall
-------------------
mean calendar days unless otherwise specifically set forth herein. If the last
day for any period or any date pursuant to this Agreement is a weekend or
holiday, such last day or date shall automatically be deemed to be the next
succeeding business day. A day shall be construed to be a business day if banks
are open for business on that day in the county in which the Real Property is
located.
15.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and bear the signature of each Party on a separate counterpart,
each of which when so executed and delivered shall be deemed an original but all
of which taken together shall constitute but one and the same instrument.
15.7 Time of the Essence. Seller and Buyer hereby acknowledge and
-------------------
agree that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof and that failure to timely perform
any of the terms, conditions, obligations or provisions hereof by either Party
shall constitute a material breach of and a non-curable (but waivable) default
under this Agreement by the Party so failing to perform.
15.8 Binding Effect; Assignment. This Agreement shall be binding
--------------------------
upon and inure to the benefit of Seller and Buyer and their respective
successors and assigns. Subject to Seller's review and approval of financial
information concerning Buyer, LandBank, Knowlton, IT and the issuer of the
insurance policies and provider of the IT Contract bond (as provided in Section
4.10 hereof) pursuant to Section 5.3.10, Seller expressly consents to the
assignment of Buyer's rights, interest and obligations under this Agreement to a
related entity subject to Seller's approval of such entity (which may not be
unreasonably withheld, delayed or conditioned), provided that Buyer delivers to
Seller, at least ten (10) business days prior to the Closing Date, a written
agreement signed by Buyer and its assignee pursuant to which such assignee
assumes Buyer's rights, interest and obligations hereunder. Upon any such
assignment, Buyer shall be released from any further obligations hereunder.
15.9 Enforcement Costs. Should either Party institute any action or
-----------------
proceeding to enforce any provision of this Agreement, or for damages by reason
of an alleged breach of any provision of this Agreement, or for a declaration of
rights hereunder, the prevailing Party in such action, on trial or appeal, shall
be entitled to receive from the other Party all costs and expenses of such
action or proceeding, including reasonable attorneys', consultants' and
engineers' fees incurred by the prevailing Party in connection with such action
or proceeding. Such costs and expenses shall include, without limitation,
attorneys', consultants' and engineers' fees, costs and expenses incurred in
trial, on appeal and in post-judgment motions, garnishment, levy and debtor and
third party examinations, discovery, and bankruptcy proceedings.
37
<PAGE>
15.10 Waivers. No Party shall be deemed to have waived any right
-------
which such Party has under this Agreement, unless this Agreement expressly
provides a period of time within which such right may be exercised and such
period has expired, or unless such Party has expressly waived the same in
writing or unless this Agreement specifies that a waiver shall be deemed to have
occurred. Except as otherwise provided herein, the waiver by either Party of a
right, claim or default by the other Party hereunder shall not be deemed to be a
waiver of any other right, claim or default, or any subsequent default of the
same kind. No waiver of a condition shall limit either Party's liability for a
breach of this Agreement.
15.11 No Third Party Beneficiary. Except as otherwise expressly set
--------------------------
forth herein, no term or provision of this Agreement or the exhibits hereto is
intended to or shall be for the benefit of any person or entity not a party
hereto, and no such other person or entity shall have any right or cause of
action hereunder, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any Party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over and against any Party to this Agreement.
15.12 Governing Law. The Parties hereto expressly agree that this
-------------
Agreement shall be governed by, interpreted under, and construed and enforced in
accordance with the laws of the State of California without the application of
its choice of law rules.
15.13 Construction. Headings at the beginning of each paragraph and
------------
subparagraph are solely for the convenience of the Parties and are not a part of
the Agreement. Whenever required by the context of this Agreement, the singular
shall include the plural and the masculine shall include the feminine and vice
versa. This Agreement shall not be construed as if it had been prepared by one
of the Parties, but rather as if both Parties had prepared the same. Unless
otherwise indicated, all references to paragraphs and subparagraphs are to this
Agreement. All exhibits referred to in this Agreement are attached and
incorporated by this reference. In the event the date on which Buyer or Seller
is required to take any action under the terms of this Agreement is not a
business day, the action shall be taken on the next succeeding business day.
15.14 Partial Invalidity. If any term or provision of this
------------------
Agreement or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each such term and provision of this Agreement shall be valid and
be enforced to the fullest extent permitted by Law.
38
<PAGE>
15.15 Cumulative Remedies. No remedy conferred upon a Party in this
-------------------
Agreement is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law, in
equity or by statute (except as otherwise expressly herein provided).
15.16 Side Letter. The side letter attached hereto as Exhibit DD is
----------- ----------
incorporated into and made part of this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
39
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the dates written below.
SELLER: KAISER VENTURES INC., a Delaware
- ------- corporation
Date Executed: October 19, 1999 By: /s/ Richard E. Stoddard
---------------- ----------------------------
Its: President and CEO
-------------------------
KAISER STEEL LAND DEVELOPMENT INC., a
Delaware Corporation
Date Executed: October 19, 1999 By: /s/ Richard E. Stoddard
---------------- --------------------------
Its: President
--------------------------
Buyer: ONTARIO VENTURES I, LLC, a Delaware
- ----- limited liability company
By: LANDBANK ENVIRONMENTAL
PROPERTIES, LLC, a Delaware limited
liability company
By: LandBank, Inc., a Delaware
corporation, its managing member
Date Executed: October 19, 1999 By: /s/ Stuart L. Miner
---------------- ----------------------
Its: /s/ Principal
------------------
RECEIVED AND ACCEPTED THE DAY OF , 1999.
------ -------------
CHICAGO TITLE INSURANCE
COMPANY, AS ESCROW HOLDER
By:
---------------------------------
Its:
------------------------------
40
<PAGE>
LIST OF EXHIBITS
----------------
<TABLE>
<CAPTION>
<S> <C> <C>
A Map of Real Property and Adjacent Property Recital A
B Adjacent Property Description (S) 1.1
C Bill of Sale (S) 1.4
D List of Cases (S) 1.5
E Contingent Transportation Insurance Policy (S) 1.12
F Deed (S) 1.14
G Full Occurrence CGL Policy (S) 1.21
H Adjacent Property Indemnification and Other Agreements (S) 4.3.4
I License Agreement (S) 1.33
J List of Permits (S) 1.34
K Real Estate Pollution Policy (S) 1.38
L Remediation Project Policy (S) 1.40
M Road Easement (S) 4.1
N Entry Permit (S) 4.2
O Litigation Files (S) 4.3.5
P Omnibus Assignment and Assumption Agreement (S) 5.2.8
Q IT Contract (S) 5.3.5
R Actions, Suits and Proceedings (S) 7.2
S Impediments to Seller's Performance (S) 7.3
T Schedule of Brokers (S) 7.4
U Contracts Affecting the Property (S) 7.6
V Leases Affecting the Property (S) 7.7
W Other Rights in the Property (S) 7.9
X Property Tax Bills (S) 7.10
Y Deed Restriction (S) 10.8
Z Heckett-Multiserve Terms (S) 5.2.4
AA Deed of Trust (S) 10.9
BB Escrow Instructions (S) 10.9
CC Security Documents (S) 10.9
DD Side Letter (S) 15.16
</TABLE>
41
<PAGE>
Exhibits Available Upon Request
===============================
to the Securities & Exchange Commission
=======================================
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FROM THE
SEPTEMBER 30, 1999 FORM 10-Q REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 56,737,000
<SECURITIES> 0
<RECEIVABLES> 1,894,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,631,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 187,274,000
<CURRENT-LIABILITIES> 14,244,000
<BONDS> 16,750,000
0
0
<COMMON> 321,000
<OTHER-SE> 124,258,000
<TOTAL-LIABILITY-AND-EQUITY> 187,274,000
<SALES> 0
<TOTAL-REVENUES> 44,071,000
<CGS> 0
<TOTAL-COSTS> 1,982,000
<OTHER-EXPENSES> 2,754,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 757,000
<INCOME-PRETAX> 38,578,000
<INCOME-TAX> 9,624,000
<INCOME-CONTINUING> 28,954,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,954,000
<EPS-BASIC> 2.71
<EPS-DILUTED> 2.67
</TABLE>
