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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 March 31, 2000 Commission File Number 0-18858
KAISER VENTURES INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-0594733
------------------------------- -------------------
(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
---
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
---
On May 2, 2000, the Company had 6,355,153 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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PART I
FORWARD-LOOKING STATEMENTS.................................................... 1
INTRODUCTION
BUSINESS UPDATE............................................................... 2
Item 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................. 6
Item 2. FINANCIAL STATEMENTS................................................. 12
CONSOLIDATED BALANCE SHEETS.......................................... 13
CONSOLIDATED STATEMENTS OF OPERATIONS................................ 15
CONSOLIDATED STATEMENTS OF CASH FLOWS................................ 16
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY............ 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................... 18
PART II
Item 1. LEGAL PROCEEDINGS.................................................... 19
Item 2. CHANGES IN SECURITIES................................................ 20
Item 3. DEFAULTS UPON SENIOR SECURITIES...................................... 20
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.................... 20
Item 5. OTHER INFORMATION.................................................... 21
Item 6. EXHIBITS AND REPORTS ON FORM 8-K..................................... 21
SIGNATURES......................................................................... 23
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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, 1999, as filed with the Securities and Exchange
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 Executive Vice President-
Administration, 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 10-K Report since the information contained herein is often an update of the
information in such reports.
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KAISER VENTURES INC. AND SUBSIDIARIES
PART I
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 press
release, 10-K, Annual Report to Stockholders, 10-Q or 8-K Report of the Company
or the Company's website, 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. Forward-looking
statements include, without limitation, any statement that forecasts, indicate,
anticipate or imply future results, performance, events or achievements. When
used or incorporated by reference in this 10-Q Report or in other written or
oral statements, the words "anticipate," "believe," "estimate," "expect,"
"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 federal, state, and local
laws and regulations on the Company's development activities; the impact of
weather on the Company's environmental clean-up related 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; the failure, in whole or in part of the Company's
business plans to, develop, sell or otherwise deal with any major asset of the
Company such as the failure to sell the Company's Mill Site real estate on terms
substantially similar to the terms proposed in the Ontario Ventures I, LLC
transaction; the success of any material litigation involving the Company and
its projects such as legal challenges to the completed federal land exchange for
the proposed Eagle Mountain landfill project or the threatened litigation
against the Company and current and past members of the Board of Directors in
connection with the purchase by the Company of a substantial number of shares of
Company stock from the New Kaiser Voluntary Employees' Beneficiary Association
and the Pension Benefit Guaranty Corporation; and/or the impact of competition
on the marketing of the Eagle Mountain landfill project. The risks included
herein are not exhaustive. Other sections of this 10-Q Report include
additional factors that could adversely impact the Company and its projects.
Readers are cautioned not to put undue reliance on forward-looking statements as
a prediction of future actual results. 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 1999 Form 10-K Report, as amended, for
background information and a complete understanding as to material developments
and risks concerning the Company.
1
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KAISER VENTURES INC. AND SUBSIDIARIES
INTRODUCTION
BUSINESS UPDATE
General
Kaiser Ventures Inc. ("Kaiser" or the "Company", including its wholly-owned
subsidiaries unless otherwise provided herein) is an asset development company
pursuing project opportunities and investments in water resources, property
redevelopment, and solid waste management. The Company's current emphasis is on
its remaining principal assets: (i) a 53.71% interest in Fontana Union Water
Company ("Fontana Union"), a mutual water company; (ii) approximately a 75%
interest in Mine Reclamation Corporation ("MRC"), the developer of the Eagle
Mountain Landfill Project (the "Landfill Project"); (iii) the 9,144 acre idle
iron ore mine in the California desert (the "Eagle Mountain Site"), which
includes the associated 1,100 acre town of Eagle Mountain ("Eagle Mountain
Townsite") and the land leased to MRC for the Landfill Project; (iv) a 50% joint
venture interest in the West Valley MRF ("WVMRF"), a transfer station and
recycling facility located on land acquired from the Company; and (v)
approximately 634 acres (gross) of the former Kaiser Steel Corporation ("KSC")
steel mill site (the "Mill Site Property"), most of which is currently in escrow
under a sales contract
Investment in Fontana Union Water Company
The Company, through a wholly-owned subsidiary, Fontana Water Resources,
Inc., currently owns approximately 53.71% of the capital stock of Fontana Union,
a mutual water company. In March 2000, the Company purchased additional shares
in Fontana Union which increased its ownership interest from 50.88% to 53.71%.
The original 50.88% ownership interest in Fontana Union is leased to Cucamonga
pursuant to a 102-year take-or-pay lease expiring in 2092 (the "Cucamonga
Lease"). The newly purchased shares are not leased to Cucamonga under the terms
of the Cucamonga Lease. Currently, the Company's pro rata interest in unclaimed
water raises its effective interest in Fontana Union to 56.13%. 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, the parties were not able to negotiate a new
substitute rate. As a result, the Superior Court ordered that, since the parties
were at an impasse, the new substitute rate was to be resolved by a reference
proceeding as required by the terms of the Cucamonga Lease. The reference
proceeding commenced during the week of February 28, 2000. After the conclusion
of all the testimony, the reference judge ordered the parties to each submit a
final brief (which have been submitted) and the holding of final oral argument
on May 15, 2000. A decision in the matter is anticipated within approximately 60
days after the final oral argument. There can be no assurance that the Company
will be successful in this portion of the rate dispute litigation with
Cucamonga.
MWD is again in the process of evaluating and considering a major rate
restructuring. Several alternatives are being proposed. It is anticipated that
MWD will discontinue its current rate system and adopt a new rate system in
2000.
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KAISER VENTURES INC. AND SUBSIDIARIES
There is a proposed settlement that addresses the litigation commenced by the
Company's wholly owned subsidiary, Fontana Water Resources, Inc., against San
Bernardino County with regard to water quality and quantity concerns arising
from San Bernardino County's Mid-Valley Sanitary Landfill and its proposed
expansion. The proposed settlement is still subject to completion of the final
documentation and the approval of the San Bernardino County Board of
Supervisors.
The Mill Site Property
Sale of the Mill Site Property. The Company still owns approximately 634
acres (gross) of the former Kaiser Steel Corporation mill site. 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 Property 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 Buyer will provide environmental insurance coverage and other
financial assurance mechanisms related to the known and unknown environmental
obligations and risks associated with the property being sold. In addition, the
Purchase Agreement provides that, to the extent possible, the Company's Consent
Order with the California Department of Toxic Substances Control ("DTSC") will
be terminated and that the Buyer will enter into a new Consent Order with the
DTSC. The Buyer is currently negotiating a new Consent Order with the DTSC.
Recently, the DTSC has raised new procedural issues with regard to the closure
of the environmental remediation at this former mill site. This, among other
reasons, could cause a delay in the completion of Buyer's due diligence and of
the anticipated closing of the sale of the property.
As previously disclosed, the Buyer is a new entity formed by LandBank
Environmental Properties, LLC ("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. It is currently anticipated that a new entity will be
formed in which LandBank, the Knowlton Group and one or more other companies
will become members and that such new entity will ultimately be the buyer of the
real estate if it closes. The Buyer has currently identified and is working
with Catellus Development Corporation as its most likely additional development
and financial partner.
The transaction is subject to extensive due diligence and a number of
contingencies. The Buyer, along with Catellus Development Corporation, have been
engaged in, and continue to undertake, extensive due diligence with respect to
the property, including, among other things, environmental, geo-technical,
development, construction, and market matters. The Buyer may terminate the
transaction for any reason prior to the close of its due diligence period. The
Purchase Agreement has been amended to allow Buyer additional time in which to
conduct its due diligence and to complete its negotiations with the DTSC. The
contingency period has been extended into the second 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 is currently
scheduled to close in the Summer of 2000. In addition, 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 under the current terms set forth in the
Purchase Agreement.
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KAISER VENTURES INC. AND SUBSIDIARIES
Assuming that the Mill Site Property transaction closes on its current or
substantially similar terms, the Company intends to provide for a distribution
of cash to all stockholders. For additional information, please see Part I.
Item 1. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Section 3. Business Outlook" and Item 5. "Other
Information."
Rancho Cucamonga Parcel. The Company is continuing to negotiate for the
sale of the remaining 37 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.
Environmental. During the first quarter of 2000 the Company continued its
environmental remediation activities. A significant amount of time is also
being spent in assisting the proposed Buyer of the Mill Site Property in its due
diligence regarding the known environmental conditions at the former steel mill
site, in dealing with the DTSC and in reviewing and commenting on Buyer's
proposed environmental financial assurances such as the proposed insurance
policies, performance bonds and a fixed-price remediation contract. Of
particular significance, on May 2, 2000, the DTSC accepted the results of a
field test of a solidification remediation alternative for the tar pits located
on a parcel owned by the Company. By accepting the results of the field test,
the DTSC tentatively concluded that solidification is an acceptable means of
addressing the primary environmental concern associated with the tar pits
parcel. However, because the DTSC's conclusion is tentative, there can be no
assurance that a capping strategy will be ultimately approved for the tar pits
parcel.
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 approximately 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 city of Ontario. However, with the closure of the Spadra regional
landfill located in Pomona operated by the Los Angeles Sanitation District in
April 2000, the West Valley MRF has begun to receive additional waste from the
cities of Claremont, Chino, Chino Hills and Pomona.
Given the current volumes of waste being handled by the West Valley MRF,
construction of Phase 2 of the West Valley MRF is underway. Phase 2 would
expand the processing capacity of the West Valley MRF from approximately 2,000
tons per day to approximately 3,5000 tons per day. Phase 2 involves
constructing an approximately 80,000 square foot addition to the existing
facilities, the acquisition and installation of certain related equipment,
including rolling stock, and the rehabilitation and relocation of the certain
existing equipment. The estimated cost of the expansion is currently
approximately $9.5 million. It is anticipated that the expansion will be
completed by no later than the end of 2000.
Like Phase 1, much of the financing for Phase 2 is anticipated to be
obtained through the issuance and sale of $8,5000,000 in California Pollution
Control Financing Authority Variable Rate Demand Solid Waste Disposal Revenue
Bonds (the "Bonds"). The West Valley MRF has been approved to receive such
financing. This anticipated tax-exempt financing will be secured by a pledge and
lien on loan payments made by the West Valley MRF, LLC and funds that may be
drawn on an irrevocable direct pay letter of credit issued by Union Bank of
California. Like the Phase 1 financing, the Company and Burrtec will each be
liable for 50% of the principal and interest on the Bonds in the event of their
default. Closing on this tax-exempt financing is anticipated by the end of
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KAISER VENTURES INC. AND SUBSIDIARIES
May 2000. The balance of the necessary construction funds of approximately $1
million will be funded out of the cash West Valley MRF, LLC has on hand.
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 75%.
Landfill Project Litigation. During 1999 a number of events occurred with
regard to the Landfill Project that ultimately resulted in the Landfill
Project's receipt of its last major permit. These events included, but were not
limited to: the May 2000 Court of Appeal decision completely reversing the San
Diego Superior Court's prior adverse decision on the Landfill Project's
environmental impact report; the rejection by the California Supreme Court in
July 2000, of a request by Landfill Project opponents to review and overturn the
Court of Appeal's decision; the Interior Board of Land Appeal's ("IBLA")
decision in September 2000 upholding the decision of the U.S. Bureau of Land
Management ("BLM") to engage in a land exchange with the Company; the completion
of the federal land exchange in October 2000; and the issuance of the facilities
permit, the last major permit for the Landfill Project, by the California
Integrated Waste Management Board in December 1999.
Despite these successes in 1999, opposition to the Landfill Project
continues. Subsequent to the completion of the federal land exchange, two
lawsuits were filed challenging the land exchange and requesting its reversal.
To date, no immediate injunctive relief has been sought. These two lawsuits
generally involve the same parties that were the plaintiffs in the unsuccessful
state environmental impact report litigation and the unsuccessful appeals before
the IBLA. It is anticipated that these two lawsuits filed in the Federal
District Court located in Riverside, California will be consolidated. The
litigation is in its preliminary stages.
Marketing of the Landfill Project and Competition. With the Landfill
Project's receipt of its last major permit in December 1999, MRC renewed its
efforts with regard to making rail-haul landfills a reality and in marketing the
Landfill Project to both private and public municipal waste entities. As
previously disclosed, in the fourth quarter of 1999 the Los Angeles Sanitation
District (the "District") 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 the competing Mesquite Regional
Landfill Project. Given this public statement, and the current status of
private waste industry, MRC has focused its marketing activities on the
District. During the first quarter, MRC had several discussions concerning a
possible transaction with the District. These discussions are currently
continuing on a regular basis. The Company is aware that the Mesquite Regional
Landfill Project, a competing rail haul project, is also having discussions with
potential customers, including the District. The competition represented by
Mesquite and other landfill alternatives has and will continue to impact MRC's
discussions with the District. While discussions are currently ongoing between
the District and MRC, there is no assurance that such discussions will
ultimately lead to an agreement with the District with regard to the Landfill
Project or the timing or terms of any agreement if one is ultimately negotiated.
Risks. As is discussed in more detail in the Company's 1999 Form 10-K
Report, there are numerous risks associated with MRC and the Landfill Project
which must be overcome to achieve the financing,
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KAISER VENTURES INC. AND SUBSIDIARIES
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, the current legal challenges
involving the completed federal land exchange, and the controversies that
generally surround landfill projects, continuing 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. As discussed above, the competition represented by
the Mesquite project may materially adversely impact the chances of the Landfill
Project's success and will affect the terms and conditions in which a possible
transaction could be completed. There is no assurance that the Landfill Project
will be ultimately operational, or of the timing or the terms of any transaction
involving the Landfill Project.
Item 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Section 1: Operating Results
General
As discussed above, Kaiser Ventures Inc. ("Kaiser" or the "Company") is an
asset development company pursuing project opportunities and investments in
water resources, property redevelopment, and solid waste management.
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 at the Mill Site Property,
including water and waste water treatment revenues; 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 reflect Kaiser's share of income related to those
equity investments (i.e., PMI through March 31, 1999) and joint ventures (i.e.,
West Valley MRF) which the Company accounts for under the equity method.
Interim Activities
Revenues from interim activities are generated from various sources
primarily related to the Mill Site Property. Significant components of 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 have declined materially as the
redevelopment 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.
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KAISER VENTURES INC. AND SUBSIDIARIES
Therefore, the Company believes it is important to evaluate the trends in each
components of its revenue sources 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 March 31, 2000 and 1999
An analysis of the significant components of the Company's resource
revenues for the quarters ended March 31, 2000 and 1999 follows:
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2000 1999 % Inc. (Dec)
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Ongoing Operations
Water resource................................... $1,155,000 $1,180,000 (2%)
Property redevelopment........................... 386,000 356,000 8%
Income (loss) from equity method
investments
Penske Motorsports Inc.................... --- (329,000) N/A
West Valley MRF, LLC...................... 329,000 --- N/A
---------- ---------- --------
Total ongoing operations..................... 1,870,000 1,207,000 55%
---------- ---------- --------
Interim Activities
Lease, service and other......................... 87,000 67,000 30%
---------- ---------- --------
Total resource revenues...................... $1,957,000 $1,274,000 54%
========== ========== ========
Revenues as a Percentage of Total
Resource Revenues:
Ongoing operations............................... 96% 95%
Interim activities............................... 4% 5%
---------- ----------
Total resource revenues...................... 100% 100%
========== ==========
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Resource Revenues. Total resource revenues for the first quarter of 2000
were $1,957,000, compared to $1,274,000 for 1999. Revenues from ongoing
operations increased 55% for the quarter to $1,870,000 from $1,207,000 in 1999,
and revenues from interim activities increased 30% to $87,000 from $67,000 in
1999. Revenues from ongoing operations as a percentage of total revenues
increased to 96% in 2000 from 95% in 1999.
Ongoing Operations. Water lease revenues under the Company's 102-year
take-or-pay lease with Cucamonga were $1,155,000 during the first quarter of
2000 compared to $1,180,000 for 1999. The 2% decrease in water revenues during
the quarter reflects an increase in the number of Fontana Union shareholders
taking water, which reduced the Company's effective interest in Fontana Union
from 57.33% to 56.13%.
Property redevelopment revenues were $386,000 for 2000 compared to $356,000
for 1999. The 8% increase from 1999 is primarily the result of a 36% increase
in iron ore royalty revenues ($21,000).
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KAISER VENTURES INC. AND SUBSIDIARIES
Income (loss) from equity method investments increased by $658,000 due to
equity income from the WVMRF of $329,000 recorded for the first quarter of 2000
compared to an equity loss of $329,000 recorded for PMI in 1999.
Interim Activities. Revenues from interim activities for the first quarter
of 2000 were $87,000 compared to $67,000 for 1999. The 30% increase in revenues
from interim activities in 2000 is attributable to the sale of miscellaneous
assets located at Eagle Mountain ($10,000) and an increase in net railroad
switching revenues at the Mill Site ($10,000).
Resource Operating Costs. Resource operating costs are those costs
directly related to the resource revenue sources. Total resource operating costs
for the first quarter of 2000 increased to $721,000 from $615,000 in 1999.
Operations and maintenance costs for 2000 were $209,000 compared to $218,000 for
1999. The 4% decrease in 2000 operations and maintenance costs was primarily due
to lower maintenance and supplies costs for buildings and equipment at the Mill
Site ($9,000). Administrative support expenses for the first quarter of 2000
increased 29% to $512,000 from $397,000 for 1999. This increase was primarily
due to an increase in outside legal costs associated with the CCWD lease rate
dispute ($110,000) in 2000.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the first quarter of 2000 decreased 5% to $843,000
from $882,000 for 1999. The decrease is primarily due to lower payroll and
related expenses ($18,000) and lower professional and outside consulting
expenses ($21,000).
Net Interest Income (Expense). Net interest income for the first quarter
of 2000 was $108,000 compared to net interest expense of $319,000 in 1999. The
change was due primarily to: (a) a decrease in interest expense ($272,000)
associated with long term debt which was fully paid-off in December 1999; (b) an
increase in interest income ($123,000) due to higher cash and investment
balances; and (c) a decrease in loan fee amortization expense ($33,000).
Pre-Tax Loss and Income Tax Provision. The Company recorded income before
income tax provision of $501,000 for the first quarter of 2000, versus a loss of
$542,000 recorded in 1999. An income tax provision of $201,000 was recorded in
the first quarter of 2000 compared with a $215,000 tax benefit in 1999, based on
taxable income or loss for the respective periods.
Net Income (Loss). For first quarter of 2000, the Company reported a net
income of $300,000, or $.05 per share, versus a net loss of $327,000, or $.03
per share, reported for 1999.
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 decreased $4,871,000 to $9,815,000 at
March 31, 2000 from $14,686,000 at December 31, 1999. Included in cash and cash
equivalents is $2,918,000 and $3,474,000 held solely for the benefit of MRC at
March 31, 2000 and December 31, 1999, respectively. The decrease in cash and
cash equivalents is primarily due to: (a) the payment of $3,640,000 for 1999
income taxes; (b) $1,150,000 in capital expenditures; (c) $654,000 used to
purchase 424 additional shares of Fontana Union Water Company stock; and (d)
payment of $249,000 in environmental remediation costs. These decreases were
partially offset by equity funding from the MRC minority partners of $416,000
and the issuance of common stock relating to the exercise of stock options of
$455,000.
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KAISER VENTURES INC. AND SUBSIDIARIES
Working Capital. During the first quarter of 2000, current assets
decreased $5,502,000 to $11,554,000 while current liabilities decreased
$4,644,000 to $7,242,000. The decrease in current assets resulted primarily from
the $4,871,000 decrease in cash and cash equivalents, most of which was used to
pay income taxes, and a $631,000 decline in net accounts receivable. The
decrease in current liabilities resulted primarily from the payment of income
taxes and decreases in liabilities associated with the permitting of the Eagle
Mountain landfill and environmental remediation at the Mill Site. Included in
current liabilities as of March 31, 2000 is $568,000 in accounts payable and
accrued liabilities relating to MRC. As a result, working capital decreased
during the first quarter of 2000 by $858,000 to $4,312,000 at March 31, 2000.
Real Estate. Real Estate increased $89,000 during the first quarter of
2000 due to continuing redevelopment of the Mill Site properties.
Investments. There was a $329,000 increase in the Company's investment in
the WVMRF during the first quarter of 2000 due to the Company's recording of its
equity share of income during the period. The $504,000 increase in the Company's
investment in FUWC is due to the purchase of 424 shares of FUWC stock from
Western Water Company during the quarter. The purchase price of these 424 shares
was $654,000 in cash, partially reduced by the elimination of a commission
liability of $150,000 due to Western Water Company. This purchase raised the
Company's equity ownership in FUWC from 50.88% to 53.77%.
Other Assets. The increase in other assets ($798,000) is primarily related
to: (a) capitalized landfill permitting and development costs incurred by MRC
($915,000) and capital improvements at Eagle Mountain ($37,000). These increases
were partially offset by an increase in accumulated depreciation as of March 31,
2000 ($107,000) and a decrease in notes receivable ($27,000).
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 $15.8 million and
$26.2 million, depending both upon the ultimate extent of the environmental
remediation and clean-up effort involved and which approved remediation
alternatives are eventually selected.
As of March 31, 2000, the total short-term and long-term environmental
liabilities including remediation reflected on the Company's balance sheet were
approximately $26.2 million, the high end of the probable range of future
remediation and other environmental costs, which declined from the $26.4 million
as of December 31, 1999. The decrease is a result of approximately $218,000 in
remediation and other environmental costs incurred in the first quarter of 2000
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. In addition, under the terms of the proposed
sale of virtually all the Mill Site Property, all environmental liabilities,
with limited exceptions, will be assumed by the buyer of the property.
Long-term Liabilities. The $309,000 decrease in other long-term
liabilities is primarily due to the reduction of the environmental remediation
liability as a result of $218,000 in environmental remediation undertaken during
the first quarter of 2000 and a decrease of $91,000 in other long term
liabilities.
9
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
Minority Interest and Other Liabilities. As of March 31, 2000, the Company
has recorded $5,188,000 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 is recognizing significant revenues and income from these
investments. The Company anticipates revenues from these projects and
investments to increase moderately 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 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 currently 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 around 8%
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. Therefore, the terms of the Cucamonga Lease require the parties to
seek to negotiate in good faith a new substitute rate. If the parties are unable
to agree on a substitute rate, the matter is to be resolved by reference, a form
of private trial similar to arbitration. Before and after the trial, there were
sporadic attempts to resolve the litigation and negotiate a new substitute rate.
However, since the parties were not able to reach a resolution of the matter,
the matter will be determined as a result of a reference proceeding as required
under the terms of the Cucamonga Lease. The reference proceeding commenced
during the week of February 28, 2000. After the conclusion of all the testimony
in the proceeding, the court asked for further briefing and scheduled a final
oral argument which is currently scheduled for May 15, 2000. A decision from the
judge is expected within 60 days thereafter.
With regard to the Company's investment in Fontana Union, the Company
purchased, in March 2000, an additional 424 shares of Fontana Union from Western
Water Company for approximately $504,000. This purchase raised the Company's
equity ownership in FUWC from 50.88% to 53.77%. The price per share reflects a
substantial minority discount and also reflects the resolution of a legal
dispute between the seller of the shares and the Company. The purchase of these
additional shares,
10
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
which are not covered by the take-or-pay lease with Cucamonga, will assist in
protecting the Company's effective interest in Fontana Union, which is utilized
in calculating the revenue under the take-or-pay lease with Cucamonga.
In regard to the WVMRF, the most significant factor affecting the Company's
future equity income from the WVMRF is the expansion of the facility's capacity
from 2,000 to 3,500 tons per day. This expansion, which will cost approximately
$9.5 million and is anticipated to be completed in the fall of 2000, will
increase the processing facility by an additional 80,000 square feet and will
provide for additional materials recovery sorting capacity. The success of this
expansion will depend heavily on the continuing closures of local landfills
(such as the Sparda Landfill closed in April 2000), and the future construction,
if any, of competing facilities. The Company received approval in April 2000,
for the issuance of $8.5 million of tax exempt financing for the expansion from
the California Pollution Control Financing Authority.
The Company has historically spent a significant amount of capital in the
development of its two other major project and investment opportunities: the re-
permitting of the Eagle Mountain Landfill by MRC, the Company's 75% owned
subsidiary, and the redevelopment of approximately 634 acres (gross) of the
Company's Mill Site Property. As a result of the litigation successes,
completion of the federal land exchange, and the Landfill Project's receipt of
its last major permit, MRC is accelerating its efforts to make rail-haul
landfills a reality and to market the Landfill Project to both public and
private municipal waste entities. MRC has had meetings with several
governmental agencies about the possibility of participating in the Landfill
Project through the purchase of air or capacity rights or other similar
arrangements. These entities include, but are not limited to, the Los Angeles
Sanitation District. In fourth quarter of 1999, the Los Angeles Sanitation
District 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 the competing Mesquite Regional 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.
In regard to the redevelopment of approximately 634 acres (gross) of the
Mill Site Property, the Company completed the entitlement and permits process
for a substantial portion of the property in April 1999, for a variety of
possible commercial, industrial and recreational uses. In the fourth quarter of
1999, the Company entered into a contract to sell substantially all of its
remaining Mill Site Property to Ontario Ventures I, LLC. Due to the extensive
amount of due diligence and the number of contingencies involved, it is
currently estimated that if this transaction is consummated, it will close in
the Summer of 2000. Based on this potential sale the Company is not currently
spending significant capital on the Mill Site. Should this transaction
ultimately fail to be consummated, it is anticipated that the Company would have
to spend approximately $2.5 million for required environmental remediation and
approximately $500,000 for real estate entitlement and improvement expenditures
over the remainder of 2000. The $2.5 million to be spent in 2000 for required
environmental remediation is a component of the approximately $16-26 million
estimate to complete all remaining required remediation for the Mill Site
Property. As previously disclosed, the Company recorded, in 1999, a write-down
to net realizable value on the Mill Site property in anticipation of this or a
similar transaction closing. As a result, the Company does not anticipate
recognizing a significant gain or loss on the sale of the Mill Site Property.
Assuming that the Mill Site Property sale transaction closes on its current
or substantially similar terms, the Company intends to provide for a
distribution of cash to all shareholders of a per share amount at least equal to
the per share contingent real estate payment to be made to the New Kaiser
Voluntary Employees' Beneficiary Association and the Pension Benefit Guaranty
Corporation in connection with the Company's purchase of a substantial amount of
their shares in the Company in November 1999.
11
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
Based upon the current terms of the proposed transaction with Ontario
Ventures I, LLC, this could be up to $1.10 per share.
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 December 31, 1999, a total of $18.5 million
has been raised by MRC, with Kaiser contributing approximately $14.0 million of
that amount. The Company's 1999 advances approximated $3.0 million out of a
total funding of $4.0 million. The Company has also approved advances to MRC
totaling $1.8 million for 2000, which together with the minority shareholders
advances are anticipated to fund MRC through December 31, 2000.
Capital Resources. The Company expects that its current cash balances and
short-term investments together with: (a) cash provided from operating
activities; (b) 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 may
commit, in 2000, a total of approximately $5.4 million for capital projects and
investments. To the extent that additional capital resources are required, such
capital will be raised through bank borrowings, 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 NOLs, if any, has historically been reflected as an
increase to stockholders' equity rather than as an increase to net income. 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
March 31, 2000, are estimated to be approximately $35 million for federal
purposes. These federal NOLs expire in varying amounts over a period from year
2006 to 2013.
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.
Item 2. FINANCIAL STATEMENTS
(Remainder of this Page Intentionally Left Blank)
12
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................... $ 9,815,000 $ 14,686,000
Accounts receivable and other, net of allowance for
doubtful accounts of $83,000 and $90,000,
respectively........................................ 1,347,000 1,978,000
Deferred tax assets 285,000 285,000
Note receivable......................................... 107,000 107,000
----------- ------------
11,554,000 17,056,000
----------- ------------
Investment in Fontana Union Water Company.................. 16,612,000 16,108,000
----------- ------------
Investment in West Valley MRF.............................. 3,338,000 3,009,000
----------- ------------
Real Estate
Land and improvements................................... 8,543,000 8,543,000
Real estate held for sale............................... 38,909,000 38,820,000
----------- ------------
47,452,000 47,363,000
----------- ------------
Other Assets
Note Receivable......................................... 673,000 700,000
Deferred tax assets..................................... 577,000 577,000
Landfill permitting and development..................... 16,715,000 15,800,000
Buildings and equipment (net)........................... 2,735,000 2,805,000
Other assets............................................ 7,000 27,000
----------- ------------
20,707,000 19,909,000
----------- ------------
Total Assets............................................... $99,663,000 $103,445,000
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
13
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable....................................... $ 854,000 $ 887,000
Income taxes payable................................... --- 3,501,000
Accrued liabilities.................................... 3,888,000 4,998,000
Environmental remediation.............................. 2,500,000 2,500,000
----------- ------------
7,242,000 11,886,000
----------- ------------
Long-term Liabilities
Deferred gain on sale of real estate................... 724,000 724,000
Accrued liabilities.................................... 1,213,000 1,305,000
Environmental remediation.............................. 23,651,000 23,868,000
----------- ------------
25,588,000 25,897,000
----------- ------------
Total Liabilities......................................... 32,830,000 37,783,000
----------- ------------
Minority Interest......................................... 5,188,000 4,772,000
----------- ------------
Commitments and Contingencies
Stockholders' Equity
Common stock, par value $.03 per share, authorized
13,333,333 shares; issued and outstanding
6,363,953 and 6,316,853 respectively............... 191,000 189,000
Capital in excess of par value......................... 49,198,000 48,745,000
Retained earnings...................................... 12,256,000 11,956,000
----------- ------------
Total Stockholders' Equity................................ 61,645,000 60,890,000
----------- ------------
Total Liabilities and Stockholders' Equity................ $99,663,000 $103,445,000
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three Months Ended March 31
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Resource Revenues
Ongoing Operations
Water resource........................................... $1,155,000 $ 1,180,000
Property redevelopment................................... 386,000 356,000
Income (loss) from equity method investments
Penske Motorsports Inc............................... --- (329,000)
West Valley MRF, LLC................................. 329,000 ---
---------- -----------
Total ongoing operations........................... 1,870,000 1,207,000
---------- -----------
Interim Activities
Lease, service and other................................. 87,000 67,000
---------- -----------
Total resource revenues............................ 1,957,000 1,274,000
---------- -----------
Resource Operating Costs
Operations and maintenance..................................... 209,000 218,000
Administrative support expenses................................ 512,000 397,000
---------- -----------
Total resource operating costs..................... 721,000 615,000
---------- -----------
Income from Resources........................................... 1,236,000 659,000
Corporate general and administrative expenses.................. 843,000 882,000
---------- -----------
Income (Loss) from Operations................................... 393,000 (223,000)
Net interest (income) expense.................................. (108,000) 319,000
---------- -----------
Income (Loss) before Income Tax Provision....................... 501,000 (542,000)
Income tax provision (benefit)................................. 201,000 (215,000)
---------- -----------
Net Income (Loss)............................................... $ 300,000 $ (327,000)
========== ===========
Basic Income (Loss) Per Share................................... $ .05 $ (.03)
========== ===========
Diluted Income (Loss) Per Share................................. $ .04 $ (.03)
========== ===========
Basic Weighted Average Number of Shares Outstanding............. 6,346,000 10,695,000
Diluted Weighted Average Number of Shares Outstanding........... 6,747,000 10,808,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Three Months Ended March 31
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss)................................... $ 300,000 $ (327,000)
(Income) loss from equity method investments........ (329,000) 329,000
Deferred tax (benefit) expense...................... --- (222,000)
Depreciation and amortization....................... 127,000 135,000
Allowance for doubtful accounts..................... (7,000) (49,000)
Changes in assets:
Receivables and other........................... 637,000 312,000
Changes in liabilities:
Current liabilities............................. (851,000) 130,000
Income taxes payable............................ (3,501,000) ---
Long-term accrued liabilities................... (92,000) (198,000)
----------- ----------
Net cash flows from operating activities............ (3,716,000) 110,000
----------- ----------
Cash Flows from Investing Activities
Minority interest and other liabilities............. 416,000 393,000
Note receivable collections......................... 27,000 25,000
Investment in Fontana Union Water Co................ (654,000) ---
Capital expenditures................................ (1,150,000) (692,000)
Environmental remediation expenditures.............. (249,000) (577,000)
----------- ----------
Net cash flows from investing activities............ (1,610,000) (851,000)
----------- ----------
Cash Flows from Financing Activities
Issuance of common stock............................ 455,000 128,000
----------- ----------
Net cash flows from financing activities............ 455,000 128,000
----------- ----------
Net Changes in Cash and Cash Equivalents............... (4,871,000) (613,000)
Cash and Cash Equivalents at Beginning of Year......... 14,686,000 3,409,000
----------- ----------
Cash and Cash Equivalents at End of Quarter............ $ 9,815,000 $2,796,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the Three Months Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Capital In
--------------------------------- Excess of Retained
Shares Amount Par Value Earnings Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 6,316,853 $ 189,000 $ 48,745,000 $ 11,956,000 $ 60,890,000
Issuance of shares of
Common stock............. 47,100 2,000 453,000 --- 455,000
Net Income................... --- --- --- 300,000 300,000
--------- --------- ------------ ------------ ------------
Balance at March 31, 2000 6,363,953 $ 191,000 $ 49,198,000 $ 12,256,000 $ 61,645,000
========= ========= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The unaudited, consolidated financial statements as of March 31, 2000 and
for the three month periods ended March 31, 2000 and 1999, 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, 1999. 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 March 31, 2000,
and results of operations and cash flows for the three month periods ended March
31, 2000 and 1999.
Note 2. CUCAMONGA LEASE
The Company, through a wholly-owned subsidiary, Fontana Water Resources,
Inc., leases most of its 53.71% 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 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 has been submitted to a reference process, which
is a private trial much like arbitration. The reference proceeding commenced
during the week of February 28, 2000. After the conclusion of all the testimony
in the proceeding, the court asked for further briefing and scheduled a final
oral argument which is currently scheduled for May 15, 2000. A decision from the
judge is expected within 60 days thereafter. 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 March 31, 2000 is
approximately $2,735,000.
Note 3. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 1999, the Company issued $61,000 of
common stock for the payment of bonuses. The Company has not issued any common
stock for the payment of bonuses during 2000.
18
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
Note 4. 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 $15.8 million and
$26.2 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 has 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 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. In
September 1998, the Company contributed an additional 7,000 acre feet of its
water in storage. This additional contribution of water completed all of the
Company's obligations under the terms of the settlement agreement approximately
20 years ahead of schedule. 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. The
Company believes sufficient amounts have been accrued for this contingency if it
should arise.
PART II
Item 1. LEGAL PROCEEDINGS
As discussed in the Company's Form 10-K Report for 1999, the Company is
engaged in certain claims and litigation. There were no material developments
in any legal proceeding in the first quarter of 2000 except as noted below:
Eagle Mountain Landfill Project Litigation. In January 2000, the second of
two lawsuits was filed challenging the validity of the completed land exchange
between the U.S. Bureau of Land Management and the Company. National Parks and
Conservation Association v. Bureau of Land Management, et al. (United States
District Court for the Central District of California, Riverside Division, Case
No. EDCV-00-0041 VAX (JWJx)). It is anticipated that this case will be
consolidated with the case filed in December 1999. The same general opponents
that lost the appeal before the IBLA have brought these
19
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
latest legal challenges. In sum, plaintiffs argue that the land exchange should
be reversed because the BLM failed to comply with the National Environmental
Policy Act and the Federal Land Management Policy Act. The Company believes the
challenges are 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 1999 10-K Report.
Cucamonga Litigation. In 1996, the Company initiated legal action against
Cucamonga as a result of dispute over the amount owed to the Company under the
terms of its lease of Fontana Union Water stock to Cucamonga. Since the parties
were unable to negotiate a new substitute rate, the Cucamonga Lease requires
that the matter be resolved in a reference proceeding. A reference proceeding
is in effect a private trial. During the week of February 28, 2000, all the
testimony in the reference proceeding was presented. The judge requested
further briefing and a final oral argument which is currently scheduled for May
15, 2000. The decision in the matter is anticipated within approximately 60
days following the closing argument. For more additional information, please
see "Introduction - Business Update - Investment in Fontana Union Water
Company."
Willow Creek Shareholder Litigation. In December 1999, the Company was
served with a complaint challenging and seeking damages in connection with a
transaction completed on November 22, 1999, pursuant to which the Company
purchased a substantial portion of its common stock from The New Kaiser
Voluntary Employees' Beneficiary Association ("VEBA") and the Pension Benefit
Guaranty Corporation ("PBGC"). Willow Creek Capital Partners, L.P. a Delaware
limited partnership; and Willow Creek Offshore, v. Kaiser Ventures Inc. et al.
(United States District Court, Northern District of California, Case No. C99
5188 SBA). A shareholder of the Company initiated the litigation, but the matter
was not a class action lawsuit. On March 9, 2000, this federal lawsuit was
voluntarily dismissed, without prejudice, by the plaintiffs. It is the Company's
understanding that the plaintiffs intend to file a new lawsuit in California
State Court, although, to the Company's knowledge, no new lawsuit has been filed
as of the date of this 10-Q Report.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On May 10, 2000, the Company held its annual meeting of stockholders.
The only actions taken by the stockholders were a vote on the election
of seven directors for the Company for the ensuing year and on the
Company's 2000 Stock Plan. The stockholders re-elected the current
seven members of the Board of Directors. The vote on each nominee to
the Board was as follows:
20
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
----------------------------------------------------------------
Election to the Board of Votes
Directors Votes for Votes For Withheld
----------------------------------------------------------------
----------------------------------------------------------------
Ronald E. Bitonti 4,090,567 917,249
----------------------------------------------------------------
Todd G. Cole 4,091,121 916,695
----------------------------------------------------------------
Gerald A. Fawcett 3,933,148 1,074,668
----------------------------------------------------------------
Reynold C. MacDonald 4,087,653 920,163
----------------------------------------------------------------
Charles E. Packard 4,091,453 916,363
----------------------------------------------------------------
Richard E. Stoddard 4,091,553 916,263
----------------------------------------------------------------
Marshall F. Wallach 4,115,393 892,423
----------------------------------------------------------------
While the Company's 2000 Stock Plan was approved by a majority of the
shareholders specifically voting on the Plan, it was not approved by the
required vote of a majority of the shares represented in person and by proxy at
the meeting. Accordingly, the 2000 Stock Plan failed to be approved by less
than 60,000 votes. The vote on the 2000 Stock Plan was as follows:
---------------------------------------------------------------------------
Votes For Votes Against Abstained/1/ Broker Non-Votes/1/
---------------------------------------------------------------------------
2,445,038 1,083,769 409,578 1,069,431
---------------------------------------------------------------------------
/1/ Abstentions and broker "non-votes" (i.e., shares held by a broker or
nominee as to which instructions have not been received from the beneficial
owners or persons entitled to vote as to a particular proposal) are counted
as shares that are present and entitled to vote for purposes of determining
the presence of a quorum. Abstentions and broker "non-votes" have the same
effect as votes against the proposal.
Item 5. OTHER INFORMATION
A. See the "Introduction" section of this Form 10-Q Report.
B. Assuming that the Mill Site Property sale transaction to Ontario
Ventures I, LLC (or any other party) closes on its current or
substantially similar terms, the Company intends to provide for a
distribution of cash to all shareholders of a per share amount at
least equal to the per share contingent real estate payment to be
made to the New Kaiser Voluntary Employees' Beneficiary
Association and the Pension Benefit Guaranty Corporation in
connection with the Company's purchase of a substantial amount of
their shares in the Company in November 1999. Based upon the
current terms of the proposed transaction with Ontario Ventures I,
LLC, this could be up to $1.10 per share. The closing of the Mill
Site Property sale transaction will also initiate the process by
the Company's Board of Directors of designing the overall
corporate strategy to best allow shareholders to realize maximum
after tax value from the Company's projects.
21
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
--------
Exhibit 10.1 - Tenth Amendment to Purchase and Sale Agreement and
Joint Escrow Instructions among Kaiser Ventures Inc., Kaiser Steel
Land Development, Inc. and Ontario Ventures I, LLC dated April 20,
2000.
Exhibit 27 - Financial Data Schedule for first quarter 10-Q.
B. Reports on Form 8-K.
--------------------
None.
(Remainder of this Page Intentionally Left Blank)
22
<PAGE>
KAISER VENTURES INC. AND SUBSIDIARIES
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: May 11, 2000 /s/ James F. Verhey
-------------------
James F. Verhey
Principal Financial Officer
23
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 10 TO
-------------------
PURCHASE AND SALE AGREEMENT AND
-------------------------------
JOINT ESCROW INSTRUCTIONS
-------------------------
THIS AMENDMENT NO. 10 TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW
INSTRUCTIONS (this "Amendment") is made and entered into and effective as of
---------
April 20, 2000, by and between KAISER VENTURES INC., a Delaware corporation and
KAISER STEEL LAND DEVELOPMENT INC., a Delaware corporation (collectively,
"Seller"), and ONTARIO VENTURES I, LLC, a Delaware limited liability company
- -------
("Buyer").
- -------
RECITALS
--------
A. WHEREAS, Buyer and Seller have entered into that certain Purchase
and Sale Agreement and Joint Escrow Instructions dated as of October 19, 1999 as
amended by that certain Amendment No. 1 to Purchase and Sale Agreement and Joint
Escrow Instructions and Side Letter Agreement dated as of November 2, 1999, by
that certain Amendment No. 2 to Purchase and Sale Agreement and Joint Escrow
Instructions and Side Letter Agreement dated as of November 12, 1999, by that
certain Amendment No. 3 to Purchase and Sale Agreement and Joint Escrow
Instructions and Side Letter Agreement dated as of November 19, 1999, by that
certain Amendment No. 4 to Purchase and Sale Agreement and Joint Escrow
Instructions and Side Letter Agreement dated as of November 30, 1999, by that
certain Amendment No. 5 to Purchase and Sale Agreement and Joint Escrow
Instructions And Side Letter Agreement dated as of February 4, 2000, and by that
certain Amendment No. 6 to Purchase and Sale Agreement and Joint Escrow
Instructions And Side Letter Agreement dated as of March 6, 2000, by that
certain Amendment No. 7 to Purchase and Sale Agreement and Joint Escrow
Instructions and Side Letter dated as of March 10, 2000, and by that certain
Amendment No. 8 to Purchase and Sale Agreement and Joint Escrow Instructions and
Side Letter dated as of March 13, 2000, and by that certain Amendment No. 9 to
Purchase and Sale Agreement and Joint Escrow Instructions and Side Letter dated
as of March 14, 2000 (collectively, the "Purchase Agreement"); and
------------------
B. WHEREAS, Buyer and Seller desire to again amend and the Purchase
Agreement and Side Letter Agreement, as more particularly set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Buyer and Seller
hereby agree as follows:
AGREEMENT
---------
1. Amendments. The Purchase Agreement and Side Letter Agreement are
----------
hereby amended as follows:
A. The "Contingency Date" (as defined in Section 1.11 of the Purchase
----------------
Agreement) shall be extended further to May 12, 2000. On or prior to
May 12, 2000, Buyer shall have exercised its right to terminate Escrow pursuant
to Section 4.7 of the Purchase Agreement with respect to all contingencies
except the DTSC Issues (defined below), or such right to terminate Escrow shall
be deemed waived by Buyer. On or prior to May 12, 2000, Seller shall have
exercised its right to
<PAGE>
terminate Escrow pursuant to Section 4.8 of the Purchase Agreement, or such
right to terminate Escrow shall be deemed waived by Seller.
If the DTSC Issues (as defined below) have not been resolved (as
herein described) and approved by Buyer on or prior to May 12, 2000, then the
Contingency Date shall be extended automatically to May 19, 2000 solely with
respect to Buyer's approving or disapproving the DTSC Issues provided that the
May 12 Deposit is timely made as provided in Paragraph B below. As used in
this Amendment, the term "DTSC Issues" means the DTSC's determination of the
-----------
nature and scope of any material closure requirements for any RCRA units
identified on the Real Property, the CSI Property and the Speedway Property, as
more particularly set forth in the three following memoranda: (i) a memorandum
from Kathy San Miguel to Files via Robert M. Senga, Unit Chief dated April 13,
2000; (ii) a memorandum from Kathy San Miguel to Files via Robert M. Senga, Unit
Chief dated April 10, 2000; and (iii) a memorandum from Thomas M. Seckington to
Greg Holmes dated April 12, 2000 and Buyer's approval or disapproval of the
impact of such requirements on the Property, the IT Contract and the Insurance
Policies. The foregoing DTSC Issues shall be deemed to be "resolved" upon
Buyer's receipt of a letter or memorandum from the DTSC to Buyer which sets
forth the DTSC's final characterization of the nature and scope of the material
closure requirements for all defined RCRA units which must be assumed and
performed by Buyer following the Close of Escrow. Buyer shall thereafter have
the right to approve of the manner in which such requirements have been
incorporated into the final Consent Order and the impact of such requirements on
the Property, including, without limitation, the IT Contract and the insurance
policies. Buyer's approval shall be given or withheld, in Buyer's sole and
absolute discretion, on or before the earlier of the fifth (5th) business day
after Buyer's receipt of the letter described above or the Contingency Date (as
it may have been extended pursuant to this paragraph). If Buyer timely
determines that the DTSC Issues have not been resolved as provided above and
approved by Buyer, then Buyer shall have the right to terminate Escrow in
accordance with Section 4.7 of the Purchase Agreement. Buyer's failure to
notify Seller and Escrow Holder on or prior to the earlier of the fifth (5th)
business day after Buyer's receipt of the letter described above or the
Contingency Date (as it may have been extended pursuant to this paragraph) of
Buyer's election to terminate Escrow in accordance with Section 4.7 of the
Purchase Agreement based upon the DTSC Issues shall constitute a waiver of
Buyer's right to terminate the Purchase Agreement pursuant to Section 4.7 based
upon the DTSC Issues.
B. As consideration for the extension of the Contingency Date,
concurrent with the execution of this Amendment, Buyer shall deliver to Escrow
Holder a nonrefundable deposit in the amount of Fifty Thousand Dollars ($50,000)
(the "April 20 Deposit"), which April 20 Deposit shall be released to Seller as
----------------
set forth in Section 3.1.2 of the Purchase Agreement. If the DTSC Issues have
not been resolved and approved on or prior to May 12, 2000 and Escrow has not
been terminated by Buyer or Seller pursuant to their respective rights in
Article 4 of the Purchase Agreement, then on May 12, 2000, Buyer shall deliver
to Escrow Holder a refundable deposit in the amount of Fifty Thousand Dollars
($50,000) (the "May 12 Deposit"), which deposit shall be held by Escrow Holder
--------------
as provided in Section 3.1.2 of the Purchase Agreement. If the Contingency Date
is extended to May 19, 2000 pursuant to Paragraph A above and Buyer does not
exercise its right to terminate Escrow on or prior to the extended Contingency
Date based upon the DTSC Issues, then Buyer shall deliver to Escrow Holder on
May 19, 2000 a nonrefundable deposit in the amount of (i) One Hundred Thousand
Dollars ($100,000) if Buyer and DTSC have reached an agreement on a final
Consent Order for the former Kaiser Steel Mill, or (ii) Two Hundred Thousand
Dollars ($200,000) if Buyer and DTSC have not reached agreement on a final
Consent Order for the former Kaiser Steel Mill by such date (either sum
2
<PAGE>
shall be herein referred to as the "Final Deposit"). The May 12 Deposit and the
-------------
Final Deposit shall be released to Seller as provided in Section 3.1.2 below.
Whether the DTSC and Buyer have agreed upon a final Consent Order shall be
evidenced by (x) a letter executed and delivered by the DTSC stating that the
DTSC is willing to execute an attached Consent Order, without any change,
modification or any contingency, subject only to Buyer or its permitted assignee
taking title to the Real Property, and (y) a letter from Buyer to Seller stating
that Buyer or its permitted assignee will execute and deliver the Consent Order
attached to the DTSC's letter without any change, modification or amendment or
any contingency other than Buyer or its permitted assignee taking title to the
Real Property.
C. The "Closing Date" (as defined in Section 1.9 of the Purchase
------------
Agreement) shall be revised to mean June 29, 2000, unless Buyer and Seller
mutually agree to an earlier date.
D. Notwithstanding any other provision of this Amendment, in the
event the DTSC Issues are resolved and approved of or disapproved of on or prior
to May 12, 2000, then the Contingency Date shall not be extended beyond May 12,
2000. In such case, if the Purchase Agreement is not terminated by Buyer or
Seller in accordance with Article 4 thereof on or prior to May 12, 2000, the
Final Deposit shall be delivered to Escrow Holder together with the May 12
Deposit, and the Closing Date shall be revised to be one business day earlier
for each business day prior to May 19, 2000 that the DTSC Issues are resolved
and approved of.
E. Section 3.1.2 of the Purchase Agreement is hereby revised to read
in full as follows:
3.1.2 Disposition of Deposit. To date, Buyer has delivered to
----------------------
Escrow Holder, which has in turn released to Seller, the total sum of
Two Hundred Fifty Thousand Dollars ($250,000.00), which is the sum of
Seventy-Five Thousand Dollars ($75,000.00) which was released to
Seller on December 17, 1999, the sum of Seventy-Five Thousand Dollars
($75,000.00) which was released to Seller on February 4, 2000, and
the sum of One Hundred Thousand Dollars ($100,000.00) which was
released to Seller on March 13, 2000 (collectively, the "Initial
-------
Deposit"). Any portion of the Initial Deposit, the April 20 Deposit,
-------
the May 12 Deposit, and the Final Deposit which has been released to
Seller prior to the termination of the Agreement shall be retained by
Seller and become non-refundable to Buyer, so long as Seller has not
materially defaulted, including, without limitation, by not delivering
the Deed. Notwithstanding the foregoing, the May 12 Deposit shall be
retained by Escrow Holder until (a) the termination of Escrow by Buyer
based upon the unresolved DTSC Issues, in which case the May 12
Deposit and all interest thereon shall be returned to Buyer promptly
following such termination, or (b) Buyer's waiver or approval of the
DTSC Issues, in which case the May 12 Deposit and all interest thereon
shall be delivered to Seller together with the Final Deposit.
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 Initial Deposit, the entire April 20
Deposit, the entire May 12 Deposit, and, if required to be delivered
to Escrow Holder pursuant to this Agreement, the entire Final Deposit
(including all interest accrued on each of them prior to delivery to
Seller) shall constitute liquidated damages pursuant to Section 6.2
below. In the event this Agreement is terminated by reason of
Seller's material default or the Close of Escrow fails to occur by
reason of Seller's material default hereunder, the entire Initial
Deposit, the entire April 20 Deposit, the
3
<PAGE>
entire May 12 Deposit, and, if delivered to Escrow Holder pursuant to
this Agreement, the entire Final Deposit (including all interest
accrued on each of them prior to delivery to Seller) shall be returned
to Buyer. Upon the Close of Escrow, the entire Deposit, the entire
April 20 Deposit, the entire May 12 Deposit and the entire Final
Deposit (including all interest thereon) shall be credited towards the
payment of the Purchase Price.
F. As used in any other provision of the Purchase Agreement that is
not expressly modified by this Amendment, the term "Deposit" shall refer to the
-------
Initial Deposit, the April 20 Deposit, the May 12 Deposit and the Final Deposit
and any interest which has accrued thereon.
G. Section 4.7 of the Agreement is hereby replaced with the
following:
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; provided, however that following May
-------- -------
12, 2000, Buyer shall have the right, exercisable in Buyer's sole and
absolute discretion, to terminate this Agreement only based upon the DTSC
Issues, in accordance with Section 4.9 below. 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,
Seller shall retain any portion of the Initial Deposit and the April 20
Deposit which has been released to Seller prior to the date of such
termination, the May 12 Deposit shall be returned to Buyer, Escrow shall be
canceled, Seller and Buyer shall each pay one-half (1/2) of all Title
Company and Escrow cancellation fees, 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.
H. Section 4.8 of the Purchase Agreement is hereby revised to read
in full as follows:
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 but in no event later than May
12, 2000, to terminate this Agreement, in which event the Seller shall
retain any portion of the Initial Deposit and the April 20 Deposit
which has been released to Seller prior to the termination of the
Agreement as set forth in Section 3.1.2 hereof. Notwithstanding
anything to the contrary, with respect to the following railroad
obligation only, Buyer shall only be obligated to assume Kaiser
Venture Inc.'s guaranty of and the obligation of Kaiser Recycling
Corporation ("KRC") to "provide space for a rail storage yard
---
sufficient to meet the needs of the Company," as required by Section
2.2(A) of the Members Operating Agreement of West Valley MRF, LLC
("MRF") dated as of June 19, 1997 in accordance with and to the extent
----
of the matters set forth below in this Section. Such agreement is as
follows: (a) MRF must use the Tar Pits Parcel for rail storage
purposes to the extent set forth below; (b) Buyer will, without
charge, grant to MRF through Escrow at the Close of Escrow, a
nonexclusive easement, to be used by MRF to the extent the Tar Pits
Parcel is
4
<PAGE>
not available for MRF's rail storage purposes, drafted by Buyer to MRF
(but MRF shall pay any recording costs), KRC, or Seller granting to
MRF the nonexclusive right to use the existing rail tracks on Parcel 5
of the Land (APN No. 229-291-29) for MRF's rail storage purposes (x)
for a storage period not exceeding 48 hours, except that on weekends
and holidays such period shall be extended to 72 hours, (y) for
storage of rail cars being delivered to or picked up from MRF, and (z)
for an aggregate use at any one time not to exceed one and one-half
(1-1/2) trains (hereinafter called "Rail Storage"), all subject to the
------------
conditions set forth below (the "Existing Track Easement"), (c) Buyer
-----------------------
shall, without charge, through Escrow at the Close of Escrow, grant to
MRF a new, nonexclusive blanket easement pursuant to which MRF may, at
its sole cost and expense, construct on such portions of the area of
said Parcel 5 of the Land on which there is no existing track as Buyer
may reasonably approve, additional railroad track to be used for Rail
Storage or spur line purposes, subject to the conditions set forth
below (the "Additional Track Easement"), so long as such tracks are
-------------------------
(aa) in a location reasonably approved by Buyer or its assigns after
consultation with the MRF, (bb) available for use by Buyer and its
assignees if not in use by or necessary for the operations of MRF, and
(cc) are consistent with any and all rights granted to any party prior
to the date of notification by MRF to Buyer or its assigns that MRF
intends to construct such additional railroad track, including,
without limitation, rights granted to Speedway Development Corporation
or The California Speedway Corporation; and (d) Buyer shall, without
charge, through Escrow at the Close of Escrow, grant to MRF, subject
to the easement granted for the San Sevaine Channel, and subject to
there being property which satisfies the condition set forth in this
(d), a nonexclusive easement to construct (at MRF's sole cost and
expense) additional railroad track to be used for Rail Storage or spur
line purposes, subject to the conditions described below (the "San
---
Sevaine Track Easement"), so long as Buyer and its assigns may use
----------------------
such track if not in use by or necessary for the operations of MRF.
Such easement shall only be used to the extent that the ultimate
location and construction of the San Sevaine Channel is such that
there exists, after such location and construction, a portion of the
Land which lies east of the San Sevaine Channel and west of the
---- ----
easterly boundary of the Land. Buyer (at its cost) and Seller (at its
cost) shall negotiate in good faith the final form of each of such
above-referenced easements on or prior to May 12, 2000.
Buyer shall have the right to establish reasonable rules for the use
and conduct of operations of the railroad and on the rail storage
facilities, including provisions to ensure that no activity or
construction undertaken by MRF shall cause Buyer or its assigns to
incur any out-of-pocket third party cost or expense.
At such time as the MRF begins to use any easement for Rail Storage,
Buyer shall request that CSI and The California Speedway agree to
increase the size of the Rail Transportation Committee to include a
representative of the MRF.
With respect to the Additional Track Easement and the San Sevaine
Track Easement, such easements shall provide that they will not be
exercised and used by the MRF if it is commercially reasonable to use
the Tar Pits Parcel for Rail Storage. The Parties agree that it shall
be commercially unreasonable, among other things, to require the
remediation of the Tar Pits Parcel in a manner other than the use of a
capping strategy. In addition, Buyer and the MRF shall in good faith
determine the final location of the additional track and
5
<PAGE>
switches to be constructed pursuant to the exercise of the rights
granted pursuant to the Additional Track Easement and/or the San
Sevaine Track Easement. Other than providing the Existing Track
Easement, the Additional Track Easement and the San Sevaine Channel
Easement, Buyer shall have no obligation to grant or convey any other
real property or interest therein to Seller, the MRF or KRC pursuant
to Section 2.2 (A).
Seller hereby agrees that in no event shall Buyer assume any
obligation of Seller or any related entity to expend money pursuant to
any agreement relating to the MRF for any capital or operational cost
relating to the rail operations of the MRF. Buyer shall have no
obligation to contribute, grant or convey any other real property or
interest therein to MRF or KRC pursuant to such Section 2.2(A).
I. Section 6.2. of the Purchase Agreement is hereby revised to read
in full as follows:
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 SELLER SHALL RETAIN ANY PORTION OF THE INITIAL DEPOSIT, THE APRIL
20 DEPOSIT, THE MAY 12 DEPOSIT AND/OR THE FINAL DEPOSIT ALREADY
RELEASED TO SELLER 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.
6
<PAGE>
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.
SLM TLC
----------------- ----------------
Buyer's Initials Seller's Initials
J. The Purchase Agreement and the Side Letter are hereby amended to
provide that the date by which Buyer and Seller shall negotiate in reasonable
good faith to finalize the remaining provisions of Exhibits E, G, K, L, M, M-I,
Q, Y and CC and attach them to the Purchase Agreement shall be May 12, 2000. In
addition, Buyer and Seller shall negotiate in reasonable good faith to finalize
the following new and revised Exhibits on or prior to May 12, 2000: (i) Exhibit
F (to replace existing Exhibit F), (ii) Exhibit H (to replace existing Exhibits
H and U), (iii) Exhibit J (to replace existing Exhibit J), (iv) Exhibit O (to
replace existing Exhibit O), (v) Exhibit P (to replace existing Exhibit P), (vi)
Exhibit R (to replace existing Exhibit R), (vii) Exhibit S (to replace existing
Exhibit S), (viii) Exhibit V (to replace existing Exhibit V), (ix) Exhibit W (to
replace existing Exhibit W), (x) Exhibit Z (to replace existing Exhibit Z), (xi)
Exhibits AA and BB (to replace existing Exhibits AA and BB), and (xii) a new
Exhibit EE, which shall set forth the form of any agreement between Buyer and
KVI, KRC, WVRT and West Valley MRF, LLC regarding certain environmental and
other covenants and indemnities affecting the Tar Pits Parcel, the Household
Hazardous Waste Parcel and the MRF Parcel. During the time between the date
hereof and May 12, 2000, the Parties shall diligently and in reasonable good
faith attempt to finalize such Exhibits, and new and revised Exhibits. In the
event that all of such Exhibits, and such new and revised Exhibits are not so
agreed upon on or prior to May 12, 2000, then either Buyer or Seller may
terminate the Purchase Agreement, in which event the provisions of Section 4.7
thereto shall apply as if Buyer had terminated the Purchase Agreement and thus,
any portion of the Initial Deposit and the April 20 Deposit theretofore released
to Seller shall not be refunded to Buyer.
K. Section 4.9 of the Purchase Agreement is hereby amended by
extending the date by which Buyer and Seller shall negotiate in good faith to
finalize the IT Contract and performance bond therefor or each of the Insurance
Policies so that they are acceptable to Seller to May 12, 2000 (or May 19, 2000,
in the event that the DTSC Issues remain unresolved and not approved or
disapproved on May 12, 2000 and the Contingency Date is extended to May 19,
2000). If all of such Insurance Policies, the IT Contract and the performance
bond therefor are not so agreed upon on or prior to such date, then either Buyer
or Seller may terminate the Purchase Agreement, in which event the provisions of
Section 4.7 thereto shall apply as if Buyer had terminated the Purchase
Agreement and thus, any portion of the Initial Deposit and the April 20 Deposit
theretofore released to Seller shall not be refunded to Buyer.
L. Section 4.1 of the Purchase Agreement is hereby amended to
provide that: (i) Buyer has received an updated Survey from Seller and an
updated PTR from the Title Company; (ii) Seller shall have until and including
May 1, 2000 to notify Buyer of Seller's election to cure or not cure any title
and survey objections set forth in any objection letters delivered by Buyer to
Seller on or before April 27, 2000; and (iii) if Seller cannot or refuses to
cure any title or survey objections set forth in any objection letters delivered
by Buyer to Seller on or before April 27, 2000, Buyer shall have the right to
terminate the Agreement and to cancel Escrow by delivering written notice to
Seller and Escrow Holder on or prior to May 12, 2000, in which case the
Parties' rights shall be as set forth in Section 4.7 of the
7
<PAGE>
Agreement as if Buyer had terminated the Purchase Agreement and thus any portion
of the Initial Deposit and the April 20 Deposit theretofore released to Seller
shall not be refunded to Buyer. Unless Seller elects otherwise, in no event
shall Seller be required to cure any title objection other than a monetary
encumbrance, as provided in Section 4.1 of the Purchase Agreement.
2. No Other Amendments. Except as expressly amended hereby, the Purchase
-------------------
Agreement is unchanged and in full force and effect.
3. Counterparts. This Amendment may be executed in counterparts, each of
------------
which shall be an original and all of which taken together shall constitute the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the dates written below.
Buyer: ONTARIO VENTURES I, LLC, a Delaware limited
- -----
liability company
By: LandBank Environmental Properties, LLC,
a Delaware limited liability company, its
Manager
By: LandBank, Inc., a Delaware corporation,
its managing member
By: /s/ Stuart L. Miner
---------------------------------------
Date Executed: 4/25/00 Its: Vice President
------------ --------------------------------------
Seller: KAISER VENTURES INC., a Delaware corporation
- ------
By: /s/ Terry L. Cook
-------------------------------------------
Date Executed: 4/25/00 Its: Executive Vice President
------------ ------------------------------------------
KAISER STEEL LAND DEVELOPMENT INC., a Delaware
corporation
By: /s/ Terry L. Cook
------------------------------------------
Date Executed: 4/25/00 Its: Vice President
------------ -----------------------------------------
8
<PAGE>
RECEIVED AND ACCEPTED THIS ____ DAY OF_____________, 2000.
ESCROW HOLDER:
CHICAGO TITLE INSURANCE COMPANY
By:____________________________
Its:___________________________
9
<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 MARCH
31, 2000 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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,815,000
<SECURITIES> 0
<RECEIVABLES> 1,347,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,554,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 99,663,000
<CURRENT-LIABILITIES> 7,242,000
<BONDS> 0
0
0
<COMMON> 191,000
<OTHER-SE> 61,454,000
<TOTAL-LIABILITY-AND-EQUITY> 99,663,000
<SALES> 0
<TOTAL-REVENUES> 1,957,000
<CGS> 0
<TOTAL-COSTS> 721,000
<OTHER-EXPENSES> 843,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (108,000)
<INCOME-PRETAX> 501,000
<INCOME-TAX> 201,000
<INCOME-CONTINUING> 300,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 300,000
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.04
</TABLE>
