-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CNOCFOtIzQkwmm4aP2lFnuKrfH+13AEZaIDaE3w2IpRI0qgeZ4gDuU0RdtZHTSts 4d7dkbhGRpyAIRLPk39jKg== 0000898430-96-001226.txt : 19960409 0000898430-96-001226.hdr.sgml : 19960409 ACCESSION NUMBER: 0000898430-96-001226 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960405 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER VENTURES INC CENTRAL INDEX KEY: 0000729365 STANDARD INDUSTRIAL CLASSIFICATION: LESSORS OF REAL PROPERTY, NEC [6519] IRS NUMBER: 940594733 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18858 FILM NUMBER: 96544877 BUSINESS ADDRESS: STREET 1: 3633 E INLAND EMPIRE BLBD STREET 2: STE 850 CITY: ONTARIO STATE: CA ZIP: 91764-4922 BUSINESS PHONE: 9094838500 MAIL ADDRESS: STREET 1: 3633 E INLAND EMPIRE BLVD STREET 2: STE 850 CITY: ONTARIO STATE: CA ZIP: 91764-4922 FORMER COMPANY: FORMER CONFORMED NAME: KAISER RESOURCES INC DATE OF NAME CHANGE: 19931101 FORMER COMPANY: FORMER CONFORMED NAME: KAISER STEEL RESOURCES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: KAISER STEEL CORP/DE/NEW DATE OF NAME CHANGE: 19881130 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER: 0-18858 KAISER VENTURES INC. (Exact name of registrant as specified in its charter) DELAWARE 94-0594733 - -------------------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer of incorporation or organization Identification No.) 3633 E. INLAND EMPIRE BLVD. SUITE 850 ONTARIO, CA 91764 ----------------------------- (Address of principal executive offices and zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (909) 483-8500 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK ($.03 PAR VALUE) ----------------------------- (Title of class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes No X ---- ---- At March 22, 1996, the aggregate market value of the registrant's Common Stock, $.03 par value, held by non-affiliates of the registrant was $58,933,034. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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 --- --- At March 22, 1996, 10,503,594 shares of the registrant's Common Stock, $.03 par value, were outstanding, including 136,919 shares deemed outstanding but reserved for issuance to the general unsecured creditors of Kaiser Steel Corporation. DOCUMENTS INCORPORATED BY REFERENCE: The Company's Proxy Statement for the 1996 Annual Meeting of Stockholders is incorporated into Part III of this Form 10-K. TABLE OF CONTENTS TO FORM 10-K ------------------------------ PART I Item 1. BUSINESS......................................... 1 Item 2. PROPERTIES....................................... 23 Item 3. LEGAL PROCEEDINGS................................ 25 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................... 29 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................... 30 Item 6. SELECTED FINANCIAL DATA.......................... 31 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 32 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...... 39 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........... 39 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 40 Item 11. EXECUTIVE COMPENSATION.......................... 40 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................. 40 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.. 40 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................. 41
i PART I SOME OF THE STATEMENTS IN THIS FORM 10-K REPORT CONTAIN FORWARD-LOOKING INFORMATION WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER FROM THOSE PROJECTED IN THESE FORWARD LOOKING STATEMENTS AS A RESULT OF FACTORS SUCH AS THE 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 AND THE DISCOVERY OF UNANTICIPATED ENVIRONMENTAL CONDITIONS ON ANY OF THE COMPANY'S PROPERTIES. ITEM 1. BUSINESS GENERAL Kaiser Ventures Inc. ("Kaiser" or the "Company", which shall be deemed to include its wholly owned subsidiaries unless otherwise provided herein) is an emerging asset development company based in Southern California pursuing projects that involve water resources, property redevelopment and solid waste management. As the reorganized successor to Kaiser Steel Corporation ("KSC"), the Company has substantial water and land assets formerly used in KSC's steel making operations, including: (i) a 50.88% ownership interest in Fontana Union Water Company ("Fontana Union"); (ii) approximately 715 acres of the former KSC steel mill site (the "Mill Site Property"); and (iii) the 11,350-acre idle iron ore mine in the California desert (the "Eagle Mountain Site") which includes the associated 460 acre town of Eagle Mountain ("Eagle Mountain Townsite"). The Company is seeking to maximize the profitability and utilization of these assets by developing long-term projects. Two related interests include the Company's approximately 72% percent interest in Mine Reclamation Corporation ("MRC"), the Company seeking to permit a rail haul municipal solid waste landfill at a portion of the Eagle Mountain Site and an approximately 10.6% interest in Penske Motorsports, Inc. ("PMI"), a public company that owns motorsports complexes in Brooklyn, Michigan and Nazareth, Pennsylvania and related businesses and is developing and constructing a motorsports complex on approximately 460 acres of the former KSC steel mill. In addition, the Company's financial position is enhanced by approximately $117,000,000 of federal net operating loss tax carryforwards ("NOLs") which arose through the KSC bankruptcy reorganization and which are expected to reduce most of the Company's federal tax liability in the foreseeable future. The Company also has approximately $16,000,000 of California net operating loss carryforwards as of December 31, 1995. The federal NOL's expire over a period from year 2000 through 2010 while the California NOL's expire in year 1997 and 2000. The Company's business strategy is to capitalize on its development assets by structuring long-term projects primarily through the use of joint ventures and long-term leases. This strategy enables the Company to minimize its capital investment, reduce its risk, and benefit from the operational expertise of its strategic partners or lessees. The Company will continue to focus on its existing projects, management skills and asset base while seeking additional growth opportunities, primarily through strategic joint ventures or acquisitions. While this is the Company's general philosophy, the Company may choose to become more directly involved in a particular project, when appropriate or if the Company believes its active participation will enhance long term shareholder value. 1 To support the development of its current long-term projects and assets, the Company is also engaged in a number of interim activities including short-term property rentals, the operation of water and sewer treatment facilities and the sale of recyclable materials existing on the Mill Site Property. These interim activities have historically generated a material portion of the Company's revenues and enabled the Company to remain profitable in each full fiscal year since emerging from the KSC bankruptcy. The Company anticipates a decline in these revenues as long-term, on-going projects are developed. WATER RESOURCES Background. Municipalities in Southern California traditionally have depended on the availability of water from Northern California and the Colorado River for significant portions of their water supply. Heavy usage of and competing demands for these traditional sources, however, have decreased the reliability of these non-local sources and forced municipalities to seek alternative water supplies. As a result, local Southern California water resources continue to become increasingly important and valuable. The Company, through a wholly-owned subsidiary, Fontana Water Resources, Inc. ("FWR"), owns 50.88% of Fontana Union, a mutual water company, which was a primary source of water for KSC's former steel making operations. Fontana Union owns adjudicated and unadjudicated water rights to produce water from four distinct surface and subsurface sources of water near Fontana, California, including: (i) adjudicated surface and streambed flows from the Lytle Creek area of the San Gabriel Mountains; (ii) adjudicated rights to the Chino Basin subsurface aquifer; (iii) adjudicated rights to the Rialto Basin subsurface aquifer; and (iv) unadjudicated rights to a subsurface aquifer accessed by Well No. 22. Kaiser's ownership of Fontana Union entitles the Company to receive all of its proportionate share of Fontana Union's water which total's approximately 34,000 acre feet per year (an acre foot equals approximately 325,000 gallons). In addition, when other shareholders of Fontana Union do not take their annual proportionate shares, the unclaimed water for each year from those shareholders is divided pro rata among those shareholders that do take such water. Currently, the Company's pro rata interest in unclaimed water raises its effective overall share from 50.88% to approximately 55.53%. The Company expects this supplemental source of water to be reduced or eliminated as minority shareholders who do not currently utilize all their water begin to use, sell or lease their water interests. Lease to Cucamonga County Water District. In 1989, the Company leased its shares of Fontana Union stock to Cucamonga County Water District ("Cucamonga Water"), a water district with an "A" credit rating from Moody's Investor Services. Under the terms of the 102-year take-or-pay lease (the "Fontana Union Lease"), Cucamonga Water is required to pay the Company for all of the Company's share of the agreed upon quantity of water at a rate of 68.13% of the Metropolitan Water District of Southern California's (the "MWD") rate for untreated, non-interruptible water as available through Chino Basin Municipal Water District. Because of the 102-year lease agreement, the Company does not consolidate the accounts of Fontana Union for financial reporting purposes. Cucamonga Water is entitled to receive all of the Company's proportionate share of water. On a quarterly basis, Cucamonga Water pays for its proportionate share of the agreed upon annual quantities regardless of fluctuations in actual water flows and actual receipt and use of water. Substantially all costs of producing the water are borne by Cucamonga Water. Under the Fontana Union Lease, the Company and Cucamonga Water agreed that the gross annual quantity of Fontana Union water from all sources, except the annual Chino Basin agricultural pool transfer (which has averaged around 4,000 acre 2 feet per year and for which the Company accrues revenues for its share in the 4th quarter), is approximately 34,000 acre feet or approximately 8,500 acre feet per quarter. This fixed quantity is based on the historical average of water available from the applicable water sources according to over 80 years of records. Based on the Fontana Union Lease formula, the Company's gross revenues in 1995 totaled approximately $4,974,000. The Company employed a consulting organization in its search for a lessee of its Fontana Union shares. The consulting agreement calls for a commission payment of 5.42% of each payment received by the Company. The Company's future lease revenue increases are primarily dependent upon any adjustments in the MWD water rates upon which the lease rate is calculated. The MWD rate established for untreated, non-interruptible water is based on a number of factors, including the MWD need for funds to finance capital improvements and to cover large fixed overhead costs. The MWD water rate has increased an average of approximately 9.42% per year over the last 35 years. Recent rate increases, effective July 1 each year, have been 12.7% in 1991, 21.2% in 1992, 18.2% in 1993, and 5.3% in 1994 and 5.1 % in 1995. Past rate increases are not necessarily reflective of future rate increases by MWD. On July 1, 1995, MWD implemented its previously announced changed rates and a new rate structure. As a result of these changes, the Cucamonga Lease rate increased by up to approximately 5.1% if the Cucamonga Lease is interpreted, as the Company asserts, to include all the changed rates and items implemented by MWD which must be paid, in order to receive untreated, non-interruptible water from MWD. Cucamonga Water disputes the Company's interpretation of the Cucamonga Lease. The Company is continuing its efforts to reach a resolution of this dispute with Cucamonga Water. If such efforts are unsuccessful, litigation will be commenced against Cucamonga Water. Cucamonga Water has, to date, paid its obligations under the Cucamonga Lease on a timely basis, but at a level that reflects a 2.7% rate increase as opposed to the 5.1% increase that the Company maintains it is entitled to receive under the Fontana Union Lease. Pursuant to the Fontana Union Lease, if any of the Fontana Union water sources become sufficiently contaminated as to be unusable after treatment and/or blending, Cucamonga Water is not obligated to pay for the quantities of available but unusable water. The Company is not aware of any significant contamination with respect to any water source at the present time. In addition, if any of Fontana Union's water rights are challenged by a third party, the Company and Cucamonga Water are obligated to share the costs of defending such challenge. Cucamonga Water also has an option to purchase the Company's Fontana Union shares in the year 2041, at a price generally based upon a multiple of 15 times the then current annual lease payment, as well as the right to purchase such shares for $1.00 in the year 2092. The Fontana Union shares and the Fontana Union Lease are currently pledged as collateral for the Company's $20,000,000 revolving-to-term credit facility. The Company views the Fontana Union Lease as a mature, stable asset with its primary variable being future MWD water rate changes. Accordingly, the Company, in a continuing effort to maximize shareholder value, regularly evaluates various alternatives with respect to the Fontana Union Lease. These alternatives include, but are not limited to, retention, sale, securitization and monetization of the Fontana Union Lease. 3 PROPERTY REDEVELOPMENT MILL SITE PROPERTY Background. From 1948 through 1983, KSC operated a steel mill in Southern California near the junction of the Interstate 10 and Interstate 15 freeways. Located approximately 45 miles east of Los Angeles in one of the nation's fastest growing areas, the Mill Site Property is served by two major railroads, the Santa Fe and the Southern Pacific, and is situated three miles northeast of the Ontario International Airport. The Mill Site Property consists of four distinct parcels of land: the Central Mill Site (originally approximately 600 acres), the South Mill Site (approximately 290 acres), the West End Property (approximately 240 acres) and the Valley Boulevard Property (approximately 42 acres). As discussed in more detail below, approximately 460 acres of the Central Mill Site Property are now owned by The California Speedway Corporation, a wholly owned subsidiary of Penske Motorsports, Inc. ("PMI"). The map on the following page illustrates the location of these four parcels along with currently planned projects for portions of these parcels. The Mill Site Property has its own water rights supply, originally 2,930 acre feet per year, that is entirely distinct from the Company's interest in Fontana Union. A portion of these water rights are being sold as a part of a settlement of litigation and other claims with an adjoining landowner, and another portion was contributed with the property now owned by The California Speedway Corporation. See "Part I, Item 3. Legal Proceedings" in this Form 10-K Report. The Company anticipates making substantial expenditures in 1996 in connection with the redevelopment of the Mill Site Property. See "Part I, Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations." Development of Central Mill Site. The Central Mill Site Property is debt free. Until mid-1995, the Company rented portions of the Central Mill Site property and related buildings to a variety of short-term tenants, including light manufacturing, recycling, storage and film production operations. The Company also provided railroad switching services for these tenants and currently operates a water supply and treatment facility. However, with the development of the motorsports complex, the West Valley Materials Recovery Facility and Transfer Station and other redevelopment projects as discussed in more detail below, these uses have been phased out. A few identified portions of the Central Mill Site contain hazardous material and are subject to a Consent Order with the California Environmental Protection Agency as discussed in "Environmental" below. Motorsports Complex Penske Transaction. As discussed in more detail below, through a series of transactions, including an initial public offering, the Company acquired approximately a 10.6% interest in PMI for its contribution to PMI of approximately 460 acres of the Central Mill Site Property on which The California Speedway ("TCS") is being built. During 1995, the Company continued its efforts to pursue the development and construction of a motorsports complex on the Central Mill Site Property. On November 22, 1995, the Company entered into an Organization Agreement with PSH Corp., a newly formed Delaware corporation, and Penske Speedways Holding Corp. (now called and herein after referred to a as "PMI"), also a newly formed Delaware corporation, consummating the transactions generally described in the Company's and Penske Speedway, Inc.'s., April, 1994 Development Agreement. Pursuant to the terms of the Organization Agreement, Kaiser contributed all of the issued and outstanding stock in its wholly-owned subsidiary, Speedway Development Corporation, to PMI, in exchange for preferred shares of stock which were 4 [MAP OF KAISER'S MILL SITE PROPERTY] [Map illustrating property owned by the Company in San Bernardino County, California] 5 convertible into a fifteen percent (15%) common stock ownership interest in PMI. At the time of contribution, Speedway Development Corporation owned approximately 460 acres of the Company's Central Mill Site Property on which TCS is being built, plus 475 acre feet of annual water rights as tenants in common with the Company. The preferred stock in PMI paid no dividends and was to be automatically converted to common stock upon the occurrence of the earlier of the following events: the first day of the calendar month in which the first scheduled spectator race event is held at The California Speedway; if either PMI, Penske Speedways, Inc. or The California Speedway Corporation initiated a public offering; or April, 1998. In addition, until conversion of the preferred stock, the Company was paid an annual management fee of $650,000 in quarterly installments. As discussed below, PMI has just completed its initial public offering. Concurrent with the November 22, 1995 transactions discussed above, Speedway Development Corporation through a series of transactions, was then merged into one of PMI's indirectly wholly owned subsidiaries, The California Speedway Corporation, a Delaware corporation. As a result of these transactions, PMI (then called Penske Speedways Holding Corp.) directly and indirectly owned the following principal assets: (i) one hundred percent (100%) of the stock of Penske Speedway, Inc. which owns and operates Michigan International Speedway ("MIS"), in Brooklyn, Michigan; (ii) one hundred percent (100%) of the stock of The California Speedway Corporation, the developer of The California Speedway; (iii) one hundred percent (100%) of the stock of Motorsports International Corp. ("MIC"), a motorsports apparel and memorabilia company; (iv) approximately eighty four percent (84%) of the stock of Pennsylvania International Raceway, Inc. which owns and operates the Nazareth Motor Speedway ("Nazareth"); and (v) approximately two (2) percent of the stock of North Carolina Motor Speedway, Inc. which owns the North Carolina Motor Speedway, Inc., Rockingham, North Carolina. As discussed below, subsequent to this transaction, PMI, purchased all of the outstanding stock of Competition Tire West and Competition Tire South, distributors of Goodyear racing tires in the mid-west and southern regions of the United States. In addition, on November 22, 1995, Facilities Investment Inc., a wholly-owned subsidiary of International Speedway Corporation, a public company traded on the OTC market, acquired a 20% interest in the parent of PMI, PSH Corp., for in excess of $14 million. With the conversion of the Company's preferred stock into common stock, but prior to the public offering discussed below, the effective ownership of PMI was Penske Performance, Inc. with 68%, Facilities Investments with 17% and the Company with 15%. PMI, through it subsidiaries, promoted a total of eight major racing events at MIS and Nazareth in 1995 and expects to promote a total of nine racing events at MIS and Nazareth in 1996. Of the eight events in 1995, six were stock car races, five of which were sanctioned by ("NASCAR"), and two were IndyCar ("IndyCar") races sanctioned by Championship Auto Racing Teams, Inc. ("CART"). NASCAR events promoted by Penske Speedways Holding Corp., included two NASCAR races associated with the Winston Cup Series professional stock car racing circuit (the "Winston Cup") and two races associated with the NASCAR Busch Grand National Series (the "Busch Grand National"). Initial Public Offering and Recapitalization. On January 29, 1996, PMI filed a Form S-1 Registration Statement with the Securities and Exchange Commission (Registration No. 333-692), which registration statement was declared effective on March 26, 1996. PMI registered 3,737,500 shares of its common stock at $24.00 per share with approximately $89,690,000 (gross) raised with the underwriter's over-allotment being exercised in full (the "Offering"). Trading in PMI's stock commenced on March 27, 1996, under the symbol "SPWY" on the NASDAQ Stock Market's National Market. Prior to the Offering, PMI which changed its name from Penske Speedways Holding Corp. effected a recapitalization (the 6 "Recapitalization"), pursuant to which (i) MIS changed its name from Penske Speedway, Inc. to Michigan International Speedway, Inc.; (ii) MIS conveyed to PMI all of its shares of capital stock of its subsidiary corporations (Nazareth, The California Speedway and MIC); (iii) PMI increased its authorized common stock to 50.0 million shares and effected a 91.575 to one share split of its 100,000 outstanding shares of common stock; (iv) James E. Williams, an original investor in Nazareth, after the stock split exchanged his 2,557 shares (approximately 15% of the issued and outstanding shares of common stock) of Nazareth for 92,500 shares of common stock of PMI; (v) the Company's preferred stock in PMI automatically converted into 1,373,625 shares of common stock; (vi) Roger S. Penske repaid approximately $1.5 million owed to Competition Tire West; and (vii) PMI purchased the outstanding capital stock of Competition Tire West and Competition Tire South, distributors of Goodyear racing tires in the mid- west and southern regions of the United States, for approximately $10.8 million comprised of $6.3 million in cash and $4.5 million in promissory notes payable to the selling stockholders of Competition Tire. After giving effect to the foregoing transactions, but prior to the commencement of the Offering, the effective beneficial ownership of the common stock of PMI was as follows: Penske Corporation owned 67.3%, ISC owned 16.8%, the Company owned 14.9% and James E. Williams owned 1.0%. After completion of the Offering, including the exercise in full of the over- allotment granted to the underwriter's of the Offering, the ownership of PMI is approximately as follows: PSH Corp. 59.9%; public shareholders 28.8%; the Company 10.6% and James E. Williams .7%. The chart on the following page illustrates the corporate structure of PMI immediately after the Offering. Shareholders Agreement and Registration Rights Agreement. PSH Corp., PMI and the Company entered into a Shareholders Agreement (as amended, the "Shareholders Agreement"). The Shareholders Agreement provides that if PSH Corp. desires to transfer any shares of capital stock of PMI for consideration to an unrelated third party, PSH Corp. must first offer such shares to the Company on the same terms and conditions as the proposed transfer. The Shareholders Agreement also provides that if the Company desires to transfer any shares of capital stock of PMI for consideration to an unrelated third party, the Company must first offer such shares to PSH Corp. at a price equal to the average of the NASDAQ National Market closing price of PMI's shares for the previous thirty calendar days. If the non-transferring party is PSH Corp., then ISC has the right to purchase such shares on the same terms and conditions as the proposed transfer. If ISC elects not to purchase such shares, then PSH Corp. has the right to purchase such shares on the same terms and conditions as the proposed transfer. In either case, if the non-transferring party elects not to purchase such shares, then the transferring party may transfer its shares to the unrelated third party. Under certain circumstances, the Company may distribute a portion of the shares of PMI's common stock that it owns to certain of its shareholders, free from the right of first refusal. Under the Registration Rights Agreement between PMI and the Company, PMI has granted incidental rights to the Company, subject to certain limitations, each time PMI files a registration statement in connection with the sale of its common stock. The Shareholders Agreement also provides that PSH Corp. will vote its PMI shares in the election of directors for one nominee of the Company to the Board of Directors of PMI. Finally, under the terms of the Shareholders Agreement, PMI will continue to pay the Company a fee of $162,125 per quarter during 1996 and through the first quarter of 1997. 7 CHART [Chart illustrating the corporate structure and ownership of Penske Motorsports, Inc. after the Offering] PMI will use the proceeds being raised by the Offering for the repayment of outstanding indebtedness and a substantial portion of the costs related to the construction of TCS. 8 Organization Agreement. The November 22, 1995 Organization Agreement contains among other things, the terms and conditions pursuant to which the Company acquired its ownership interest in PMI. See "Item 1. Business - Motorsports Complex - Penske Transaction" above. Pursuant to the Organization Agreement, the Company has certain continuing indemnification obligations including one with respect to various environmental matters. The Organization Agreement also grants to PMI a right of first refusal to participate in any transaction or opportunity that directly relates to the conduct or ownership of a motorsports complex that comes to the Company, PSH Corp. or an affiliate of either, excluding ISC. Construction of The California Speedway. The Company owns substantial land adjacent and in close proximity to TCS. However, the Company is not responsible for the construction and operation of TCS. Total estimated construction costs for TCS are approximately $75 million. See the map on page 5 of this Form 10-K Report illustrating the Company's ownership of property. PMI expects to complete the construction of The California Speedway in early 1997. The Company has already received a sanction from CART for a 1997 IndyCar event at The California Speedway. In addition, PMI has obtained NASCAR's conditional commitment to enter into negotiations with PMI for a single Winston Cup event to be conducted at TCS upon its expected completion in 1997. PMI expects to obtain the NASCAR sanction for the 1997 season. Each of CART's and NASCAR's respective obligations are conditioned upon TCS being ready for the 1997 racing season. The California Speedway will consist of a two mile, tri-oval track similar to the MIS facility. Current plans call for The California Speedway to have 68,000 grandstand seats to which PMI expects to add 24,000 grandstands seats by the year 2002. PMI has received the necessary governmental approvals for these additional seats as well as approval for a total capacity of 107,000 spectators. In addition to its grandstand seats, The California Speedway is expected to have 71 terrace suites, 55 chalets, and 12 grandstand pavilions and other amenities. In addition, TCS will also include a 10,000 square foot, one-story administration building housing corporate offices for TCS. Adjacent to the administration building will be an 18,000 square foot maintenance building, offices and a sign shop which will also include an above-ground fueling station for maintenance vehicles. Current plans call for a total of 33,166 parking spaces surrounding The California Speedway as well as 100 spaces for bus parking. The California Speedway could also accommodate a future Metrolink station in the northeastern portion of the parking area, along the Atkinson Topeka & Santa Fe rail line adjacent to The California Speedway, which is a passenger rail line connecting the area with downtown Los Angeles. Competition. As noted above, TCS is designed for premier stock car and IndyCar race events, together with complementary supporting races. The only similar competing race event in Southern California is the annual Long Beach Grand Prix, an IndyCar race on a temporary street circuit in Long Beach, California. There is no permanent oval race course for NASCAR Winston Cup events or IndyCar events in Southern California. Currently, the nearest such events are held in Phoenix, Arizona at a one mile oval speedway or at two road courses in Northern California. There have been and continue to be numerous attempts by other parties to develop permanent speedways to serve the large Southern California market. Currently, projects have been announced for sites in the Coachella Valley, Long Beach, Lake Elsinore, San Jose and Victorville, California. None of 9 these announced California projects is believed to be as advanced in the permitting and development work as TCS. To the Company's knowledge none of these announced projects has any commitments from NASCAR or IndyCar for race events. Finally, to a certain extent, TCS will compete with other professional sports and family entertainment venues in Southern California for spectators' entertainment dollars. The Mill Site MRF Background. In 1989, the California legislature enacted legislation, AB 939, which currently requires all municipalities to recycle or divert 25% of their solid waste streams from landfills by the year 1995 and 50% by the year 2000. Municipalities are exploring and implementing a number of alternatives in order to comply with this new legislation, including source reduction, waste minimization, waste-to-energy projects, composting of green waste and curbside recycling. Another alternative is the transportation of solid waste to an independent or municipally-owned materials recovery facility ("MRF"), which will separate recyclable materials for either storage or sale to a variety of users. The commercial feasibility of this industry has not yet been fully demonstrated, as evidenced by the fact that it is the Company's understanding that only a few of the limited number of existing MRFs in the nation are believed to be currently profitable. However, a number of MRFs are planned or under construction throughout the United States. The Company believes that the enactment of AB 939, the continuing favorable public response to recycling and more favorable pricing for recyclable products should continue to improve the economics of MRFs in California since MRFs represent a viable alternative for municipalities to assist them in complying with this new legislation and with public demands for recycling. Kaiser-Burrtec Joint Venture. In response to this potential market opportunity, the Company and Burrtec Waste Industries, Inc. ("Burrtec"), a local waste hauler, have entered into a joint venture agreement (the "MRF Joint Venture") to construct and operate a proposed rail-served regional solid waste transfer station and MRF, which would be located on approximately 30 acres of the Central Mill Site (the "Mill Site MRF"). All necessary state and local permits (except construction permits) for the Mill Site MRF have been granted. During much of 1995, the MRF Joint Venture and San Bernardino County were in discussions concerning the construction of a waste transfer station capable of initially handling up to 2,000 tons per day of non-hazardous municipal waste. While the MRF Joint Venture did not enter into an agreement with San Bernardino County due to policy changes by the County, the MRF Joint Venture is still pursuing the possibility of building one or more phases of the proposed transfer station and MRF. Under the terms of the MRF Joint Venture, the costs of developing, constructing and operating each phase at the Mill Site MRF are to be shared equally between the Company and Burrtec. The Company, however, is solely responsible for the environmental remediation for that portion of the Central Mill Site where the Mill Site MRF is to be located. Limited portions of this property contain hazardous material and are subject to a Consent Order with the California Environmental Protection Agency. See "Environmental" below. The Company is currently in the process of remediating the MRF Site, except for about two acres containing the tar pits area, in anticipation that one or more phases of the MRF will soon be built. If the MRF Joint Venture delays or abandons the Mill Site MRF, certain of the Company's remediation expenditures for this property may be delayed until an alternative redevelopment project is implemented. The Company has received approval from the California Environmental Protection Agency, Department of Toxic Substances ("DTSC") of an action plan for complete remediation of this 10 site. See also "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." The MRF Joint Venture does not intend to proceed with construction of the project until its business plan is substantiated by: (a) the procurement of the waste stream contracts or commitments necessary to support operation of the first phase of the Mill Site MRF; (b) the projected economics for the project are acceptable; and (c) there is available financing. The MRF Joint Venture will likely seek third party financing for one or more phases of the Mill Site MRF. Competition. Although other entities have proposed to develop MRFs which would serve the same geographic area as that of the Mill Site MRF, the Company believes that none of them has yet completed the permitting process. Western Waste Industries, an integrated waste management company, has indicated its intention to construct a MRF on land it owns approximately three miles from the Company's Mill Site Property. Western Waste has entered into a contract with the City of Ontario to construct and operate such facility. The Company believes that no draft EIR or other land use application has been filed for this site. Speedway Business Park and NAPA Lots In 1995, the Company completed the process of subdividing into finished lots approximately 60 acres adjacent to the motorsports complex. These lots are called the Speedway Business Park. It is anticipated that business and research facilities associated with motor vehicles will have an interest in leasing or buying these lots. Other industrial and commercial uses unrelated to the automotive industry could also be accommodated on these lots. Based on the current development schedule, it is anticipated that these lots will be available for lease or sale to prospective users beginning in the fourth quarter of 1996. Also adjoining TCS and the Mill Site MRF are approximately 31 acres of undeveloped property which are being developed into four industrial zoned, rail served lots ranging in size from 5 to 11.3 acres. These lots, called the "Napa Lots," were separately subdivided from the motorsports complex and the Speedway Business Park. A new road providing access to a public street for these finished lots, TCS and the MRF site is currently under construction. It is currently anticipated that the Napa Lots will be available for sale or lease in the third quarter of 1996. A number of potential users have expressed an interest in the Napa Lots. Other Development Activities In addition to the above projects, it is expected that the balance of the Mill Site Property, will be redeveloped for light industrial and commercial uses, as described below. To further encourage development of the Mill Site Property, the Company and the San Bernardino County Economic Development Department jointly sought and obtained the designation of the Mill Site Property as a Recycling Market Development Zone ("RMDZ"). RMDZ's are intended to create incentives to attract businesses that recycle or utilize recycled products. A number of potential users of recyclables have contacted the Company about the possibility of locating on the Napa Lots as a result of RMDZ incentives. In addition, the MRF may act as magnet for these types of businesses by providing a consistent stream of raw feed stock through its recycling activities. West End and Valley Boulevard Properties. In 1989 and 1990, the Company entered into joint venture agreements with Lusk Ontario Industrial Partners II, a California limited partnership, whose 11 general partner was The Lusk Company (collectively "Lusk"), with respect to the West End Property and the Valley Boulevard Property. The Company and Lusk were equal partners. For each property, Lusk funded on behalf of the respective joint ventures 100% of the property acquisition and related costs. In July, 1994, the Company, through a wholly owned subsidiary, Kaiser Steel Land Development, Inc., purchased the properties out of the Lusk Joint Ventures and settled any and all existing and potential joint venture liabilities (including pending capital call obligations of approximately $12,000,000) for a total consideration of $15,000,000. The Company paid approximately $9,000,000 in cash at closing and Lusk carried back $6,000,000 pursuant to a promissory note secured, solely, by a first deed of trust on the properties. The principal amount of the note accrues interest at 1.5% over the prime rate. Principal payments of $60,000 plus accrued interest are to be made quarterly with a balloon payment due on the fourth anniversary of the note, July 28, 1998. See also "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-K Report. Neither property has any known material environmental remediation requirements, and both can be readily cleared for redevelopment. The Company believes that the West End Property, portions of which are currently being leased to a variety of short-term tenants, could be redeveloped in a variety of ways, either directly or through joint ventures, as a modern industrial and commercial park once economic conditions become more favorable. The land could also be used for equity ventures. However, development of the West End Property will involve substantial expenditures for infrastructure improvement. South Mill Site. The South Mill Site consists of approximately 290 acres and is debt free. This property was used by KSC primarily as a storage area for slag, a non-hazardous, rock-like byproduct of iron and steel production. Although the slag is being removed and sold by a third party contractor and is producing a current revenue stream for the Company, the amount of slag is such that it is unlikely to be cleared in less than 10 years. In addition, the northeastern end of the South Mill Site property, which is free of slag, currently contains the Company's sewage and wastewater treatment plants. The sewer treatment plant is discussed in more detail below. The Company's hazardous treatment plant was closed in mid-1994 in connection with the expiration of the Company's contract to treat the waste of an adjacent property owner. These uses have historically provided the Company with interim revenues and positive cash flow while waiting to begin redevelopment of the property. Further, approximately up to 30 acres in the southeast end of this property contains hazardous material and is subject to the Consent Order with the California Environmental Protection Agency as discussed in "Environmental" below. Though the Company is exploring uses of the property that may not require the complete removal of the slag, definitive redevelopment of this entire property is likely to be delayed until most or all of the slag is removed and any required remediation is completed. Sewer Services. The Company currently provides sanitary sewer services to California Steel Industries, Inc. ("CSI") from its sewage treatment plant located on the northeastern end of the South Mill site property for a monthly fee of $17,000. Beginning in August, 1996 the monthly payment will be increased by the annual increase in the consumer price index. CSI is also obligated to pay a substantial portion of the operating costs of the sewer treatment plant. In addition, pursuant to a Sewer Services Agreement, the Company has agreed to provide sanitary sewer treatment services for the wastewater generated by the property owned by The California Speedway Corporation. In consideration for such services, The California Speedway Corporation has agreed to pay the Company an annual fee of $88,800 in quarterly installments beginning in April, 1997, adjusted annually by increases in the consumer price index. The agreement also grants an option to The California Speedway Corporation to purchase the Company's wastewater treatment facility if (i) the Company terminates the Sewer Services Agreement; (ii) the Company discontinues providing sewer 12 treatment services; (iii) the Company desires to sell or lease the sewer treatment facility to a third party; (iv) PMI becomes a public company (even though PMI is a public company, it has not, to date, exercised its right to purchase the sewer treatment facility). Sewer services may be discontinued by the Company upon the occurrence of other events. In addition, after the fifth anniversary of the Sewer Services Agreement and upon prior written notice by the Company to The California Speedway Corporation, the Company may terminate the Sewer Services Agreement for good and valid business reasons exercised in good faith. ENVIRONMENTAL The operation of a steel mill by the Company's predecessor, KSC, resulted in known contamination of limited portions of the Company's Mill Site Property. The Company is subject to a 1988 consent order (the "Consent Order") with the DTSC which requires the Company to investigate and remediate hazardous materials on the Mill Site Property. Under the current Consent Order, the phased remediation scheduled is to be completed by September, 1998 unless an extension is obtained from the DTSC. During 1995, the Company undertook substantial activities with regard to environmental matters. After unanimous approval in May, 1995 by the San Bernardino County Board of Supervisors of the environmental impact report and land use approvals necessary for the construction of TCS, the Company focused its efforts on completing the environmental remediation necessary for TCS. Among other items, during 1995 the Company completed the installation of a cap on approximately 13 acres in the by-products area of the former steel mill and installation of a vapor extraction system for the same area as required by the DTSC. Upon the completion of the required remedial work, the Company achieved a major milestone on September 26, 1995, when the DTSC delivered to the Company a letter stating that no further remedial action was necessary (except for certain ongoing maintenance and monitoring obligations) for the property within Operable Unit No. 2. The property within Operable Unit No. 2 includes most, but not all, of the property to be used for TCS. Limited portions of the remaining TCS property require some additional remediation and site cleanup work which the Company has nearly completed. The Company's cost for these required remediation and site cleanup activities for 1995 totaled approximately $7.5 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 and "Legal Proceedings - Environmental Insurance Litigation" in Part I, Item 3 of this Form 10-K Report for additional information. As a result of these environmental remediation activities, the Company was able to close its transaction with Penske for the development of TCS on November 22, 1995. See "Part I. Item 1 - Business - Motorsports Complex." Pursuant to the terms of the Organization Agreement with PMI, Kaiser has a continuing obligation to indemnify MIS and The California Speedway Corporation against potential environmental liabilities associated with the pre-existing condition of the TCS property upon the closing of the Penske transaction. The Company currently estimates that its remediation costs for the balance of its land will be between $14,000,000 and $24,000,000, depending upon which approved remediation alternatives are eventually selected. This range assumes a capping alternative can be used for the east slag pile remediation unit of the Central Mill Site. Although environmental investigations have been conducted on the Mill Site Property and are ongoing, there can be no assurance that the actual amount of environmental remediation expenditures 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 remediation costs through redevelopment of the property, primarily in connection with specific redevelopment projects or joint ventures. The Company has provided certain financial assurances to the DTSC in connection with anticipated remediation activities, the primary one being the dedication of $3,432,400 of Kaiser's line of 13 credit to the DTSC in the event the Company fails to timely undertake and complete certain of its responsibilities under the Consent Order. See Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." The West End and Valley Boulevard Properties do not have any known environmental problems and are not subject to the Consent Order. Additionally, the Company is completing a DTSC approved closure plan for a former tenant that is in bankruptcy. Since the former tenant has not been able to fully perform its closure obligations with respect to the property it leased from the Company, the Company, as landowner, will be required to do so. To date, the Company's remediation and related costs have generally been reimbursed by guaranties provided by two individuals associated with the former tenant. The remaining remediation cost will be reimbursed up to the available amount under the performance guarantees of approximately $125,000. The Company is also cleaning up approximately seven acres of the Central Mill Site on which a tenant operated a scrap metal yard. This tenant filed for bankruptcy in December, 1995. Total remediation costs for this seven acre site are currently estimated to be $1 million. It is unknown at this time how much of the Company's expenditures will be recoverable by the Company. While the Company has monitored certain groundwater wells in the past, the DTSC requested and the Company intends to implement a supplemental groundwater investigation system. The Company is currently discussing with the DTSC the scope and duration of the supplemental groundwater investigation. The Company has settled certain 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 Water. In 1995, the Company contributed 18,000 acre feet of its water in storage thus satisfying the first 18 years of its obligation. For more detailed information see "Item 3. Legal Proceedings - Groundwater Remediation Settlement Agreement." In May 1989, the Company filed a lawsuit in San Francisco County Superior Court against over eighty insurance companies which had provided comprehensive general liability coverage to KSC since its inception in 1941. The lawsuit sought a declaratory judgment that future costs of groundwater cleanup and other environmental cleanup costs are covered under the insurance policies and reimbursement for the costs already incurred. During 1995, the Company was able to reach a settlement with all the major defendants resulting in the Company reporting net settlement payments (net of all litigation expenses and third party obligations) totaling approximately $12.5 million. Payment of the final installment of the settlement proceeds is scheduled for the end of April, 1996. See "Part I, Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations." The Company is also involved, from time-to-time, in legal proceedings concerning environmental matters. In February, 1996, the City of Ontario, California served a complaint on the Company alleging that the Company is liable for environmental contamination of one of its municipal wells. See "Part I, Item 3. Legal Proceedings." EAGLE MOUNTAIN TOWNSITE The Eagle Mountain Townsite, which is owned debt free by Kaiser and which covers approximately 460 acres, consists of more than 300 houses (of which approximately 100 have been renovated for current occupancy), a water supply and sewage treatment system, an office building, machine shops, school facilities and other structures. 14 The Company's wholly owned subsidiary, Kaiser Eagle Mountain, Inc., operates the Eagle Mountain Townsite. When the Eagle Mountain Iron Ore Mine was operational, the Eagle Mountain Townsite provided housing for mine employees and their families. The Company currently leases a portion of the Eagle Mountain Townsite to a private company which operates a minimum security prison for the State of California. In order to redevelop the Eagle Mountain Townsite, the Company is preparing and will soon file a Specific Plan with the County of Riverside. The Townsite Specific Plan is included in the processing of the Landfill Project. If the land exchange with the United States Bureau of Land Management (the "BLM") is completed (see page 21 "Proposed BLM Land Exchange" in this Form 10-K Report), the Eagle Mountain Townsite will expand to approximately 1,100 acres. OTHER REDEVELOPMENT OPPORTUNITIES Other Property Ownership and Development. The Company owns a number of real estate parcels and mineral deposits in the California desert, including an active iron ore mine leased to a third party (the "Silver Lake Mine"), and improved and unimproved property at Lake Tamarisk, an unincorporated community located approximately eight miles from the Eagle Mountain site. MUNICIPAL SOLID WASTE MANAGEMENT LANDFILL PROJECT Background. Many of Southern California's current landfills are located in urban areas and often are old, unlined, and lack current environmental safeguards. Furthermore, it is becoming increasingly expensive and difficult to permit and open new landfills or to expand existing landfills in urban areas due to political opposition and stringent government regulations, including recent federal regulations. The Company believes that Southern California will begin to face a shortage of safe, permitted landfill capacity in the future. However, the anticipated shortage in landfill capacity that was predicted in the 1980's and early 1990's has not developed as quickly as originally anticipated because several regional landfills were expanded and a number of other landfills are seeking to expand their permitted capacity. In addition, the anticipated life of many existing landfills also increased because of better landfill management techniques and reduced waste tonnage due to recycling and the California recession. The Eagle Mountain Landfill Site. The Company's 11,350-acre Eagle Mountain Site, located in the remote California desert approximately 200 miles east of Los Angeles, consists of three large open pit mines, the Eagle Mountain Townsite and a 52-mile private rail line that accesses the site. The Company has leased approximately 8,300 acres of the idled mine site and the rail line to MRC for development of a rail-haul solid-waste landfill (the "Landfill Project"). As discussed in more detail below, effective as of January 1, 1995, the Company, through a wholly-owned subsidiary, Eagle Mountain Reclamation, Inc. ("EMR"), became a 70% shareholder in MRC and through subsequent investments in MRC, is currently an approximately 72% shareholder in MRC. In anticipation of Southern California's ultimate need for new environmentally safe landfill capacity, the Company and MRC in 1988 began the planning and permitting for a 20,000 ton per day rail-haul, non-hazardous solid waste landfill at Kaiser's Eagle Mountain Site. The Company believes that the Eagle Mountain Site has many unique attributes which make it particularly well-suited for a rail-haul, solid waste landfill, including: 15 . the Eagle Mountain Site is located in a sparsely populated remote desert area; . the largest of the mine site's three pits, which is two miles long, three-quarters of a mile wide and 1,500 feet deep, has the capacity to receive over 500 million tons of non-hazardous solid waste, which is approximately a 75 year capacity; . MRC's state-of-the-art landfill design, including its multiple liner system, is engineered to meet or exceed all current state and federal environmental regulations; . Kaiser's existing 52-mile rail line links the site to Southern California's existing rail transportation network; . approximately 9 million cubic yards of clay-like tailings, environmentally suitable for use as part of the required landfill liner, and approximately 120 million tons of washed gravel, suitable for use as daily landfill cover, already exist on the Eagle Mountain Site; . the arid desert location, which receives an average of less than five inches of rain a year and has a high moisture evaporation rate, significantly reduces the amount of leachate anticipated at the landfill and thus provides a natural environmental safeguard; . the Landfill Project will reclaim portions of the Eagle Mountain property disturbed by the mining operation, eventually returning the area to its original mountainous contour. Current plans for operation of the landfill anticipate that non-hazardous household solid waste will initially be delivered to MRFs and transfer facilities throughout Southern California by municipalities and independent waste haulers. Recyclable and hazardous materials will be separated at these facilities, and the remaining non-hazardous solid waste will be transported, primarily by rail, in closed and locked containers to the Eagle Mountain landfill. MRC currently anticipates that the landfill's initial operations, depending upon the level of disposal fees, could commence with a minimum of approximately 3,500 tons of solid waste per day. Founding and Ownership of MRC. MRC was formed in 1982 by waste industry professionals to address the anticipated solid waste disposal problem in Southern California. In order to utilize Kaiser's Eagle Mountain Site, the Company, through its subsidiary Kaiser Eagle Mountain, Inc., entered into a lease with MRC in 1988 for the development of the Landfill Project (the "MRC Lease"). In 1990, a subsidiary of Browning Ferris Industries ("BFI"), purchased a 50% interest in MRC. BFI provided a majority of MRC's funding subsequent to its initial investment, which resulted in BFI becoming the majority owner of MRC. As of August 1, 1994, the ownership of MRC was restructured as part of BFI's withdrawal from MRC. As part of the restructuring, BFI returned to MRC all of its common and preferred stock in MRC and paid off all of MRC's outstanding bank indebtedness in the amount of approximately $10,400,000 leaving MRC substantially debt free. In addition, BFI provided MRC with funds in excess of $5,000,000 to be used to fund ongoing development activities. BFI also agreed to leave in place certain financial assurances associated with the permits that had been granted to MRC through August 1, 1996. However, BFI will be indemnified first by MRC and then by the Company should BFI incur any loss due to a call on the financial assurances. Acquisition by the Company of Majority Ownership Interest in MRC and Financial Status. After a series of discussions, MRC and the Company entered into a Stock Acquisition Agreement dated January 16 13, 1995 pursuant to which the Company, through a wholly owned subsidiary, EMR, agreed to acquire common stock in MRC representing a 70% ownership interest. This transaction was consummated on February 2, 1995, but was effective as of January 1, 1995. In exchange for the ownership interest, the MRC Lease was amended to eliminate MRC's obligation to pay minimum rent. In addition, MRC forgave all current contingent non-recourse obligations, including $1,500,000 in prepaid rent and approximately $1,500,000 in other obligations the Company would have had to repay MRC out of future royalties. With the acquisition of the equity interest in MRC, the Company is taking a more active role in the permitting of the Landfill Project and in assisting MRC, as appropriate, in raising the funds necessary to complete the permitting process. The Landfill Project is dependent upon MRC's efforts to raise additional equity capital. Neither the Company nor any subsidiary of the Company has any obligation to invest funds in MRC. However, the Company in June, 1995 made a commitment, subject to certain conditions, to provide funding to MRC, in an amount of up to approximately $5.25 million over two years. The first stage of funding, a $3.2 million private placement to existing MRC shareholders, officers and directors was fully subscribed and completed in the Fall of 1995. The Company invested $1.84 million in 1995 and an additional $592,000 in January, 1996 as a component of the first stage of funding. MRC is currently engaged in another private placement to its existing shareholders, officers and directors seeking to raise an additional $2.8 million. The Company through EMR intends to purchase up to approximately $2.1 million of the stock in the private placement. Even if $2.8 million is raised through the current private placement, additional funds will be necessary to complete the permitting process. MRC continues to pursue financing from other prospective investors as well as other means of raising funds or commitments such as the sale of capacity rights, air space or disposal agreements. MRC Lease. In connection with the reorganization of MRC, the MRC Lease was amended effective July 29, 1994, and again amended effective January 1, 1995, with the Company's acquisition of a 70% interest in MRC. Under the terms of the MRC Lease, as amended to date, MRC is responsible for substantially all project costs and activities, including landfill design, permitting, construction and operation. MRC has also agreed to indemnify the Company against claims arising from MRC's activities, including any environmental damage that may be caused to the leased property by MRC's operations. The MRC Lease also provides, among other things that: (i) the Company must give MRC notice of any proposed sale of its interest in the Eagle Mountain property, and MRC has a right of first refusal to purchase such interest under certain circumstances; (ii) the Company and MRC may not participate in another project that employs a railroad in connection with the storage or disposal of solid waste in counties surrounding the landfill; and (iii) MRC has certain rights to terminate the MRC Lease including: (a) upon the Company's default under the terms of the MRC Lease; (b) upon 180 days notice at any time during the six month period immediately following the receipt of all the necessary permits for the Landfill Project (prior to the July 1994 amendment, once all the permits were received, MRC also became obligated to pay minimum rent to the Company for the balance of the term of the 100 year lease); and (c) at any time upon two year's notice. The Company maintains and may exercise all rights it has under the MRC Lease, including the right to re-acquire through its subsidiary, Kaiser Eagle Mountain, Inc., the Landfill Project. In the event the Company reacquires the Landfill Project, depending upon the circumstances, such as upon MRC's default due to lack of funds, the non-BFI shareholders at the time of the July, 1994 amendment shall have the right to continue in the project in some manner. 17 The MRC Lease was again amended as of January 1, 1996. The amendment reduced the amount of land that MRC leases from the Company by approximately 50%. MRC continues to lease from the Company all the real property necessary for the Project. Lease Economics. Until January 1, 1995, MRC paid to the Company a minimum monthly rent. This rent was $200,000 per month during 1994 and was originally scheduled to increase to $300,000 a month in December 1995. However, in conjunction with the Company's acquisition of its equity interest in MRC, the MRC Lease was amended effective January 1, 1995, to eliminate the minimum monthly rent. The elimination of the minimum monthly rent did not change the future royalty payments due the Company upon the commencement of landfill operations. Once the landfill is operational, the Company will receive, as landlord of the Eagle Mountain Site, the greater of (i) a royalty of $2.00 per ton of waste received; or (ii) a royalty payment calculated as a designated percentage of the landfill tipping fees charged by MRC. The future royalty payment paid to the Company by MRC is based on MRC's gross collections, which are basically equivalent to the tipping fees to be charged by MRC at the landfill. In calculating gross collections, MRC may deduct certain items, including any federal or state fees, the host fees paid to Riverside County and other charges imposed or required to be collected at the landfill. Certain other revenues are also excluded from the definition of gross collections, including any MRC revenue from salvage, recycling or reclamation operations or from the disposal of waste from certain areas near the Landfill Project. In addition to the royalty payment, the Company will receive an additional $0.15 royalty for every ton of waste transported to the landfill on the Company's 52-mile rail line. The following table illustrates the royalty payment formula set forth in the MRC Lease. Monthly Average % Fee Net # Days Royalty = Daily X Payable to X Tipping X in Payment Tonnage Kaiser Fee Per Ton Operation
AVERAGE DAILY TONNAGE/1/ TIPPING FEE PERCENTAGE PAYABLE TO KAISER - ------------------------- -------------------------------------------------- 0 - 3,500 10.0% on all tonnage during applicable month 3,501 - 4,999 10.0% on first 3,500 tons; 15.0% on balance during applicable month 5,000 - 8,999 15.0% on all tonnage during applicable month 9,000 - 20,000 18.5% on all tonnage during applicable month
/1/ Determined over the number of operating days in a calendar month. The Company's revenues under the MRC Lease will be directly affected by the amount of tonnage accepted at the Landfill Project and the applicable tipping fees charged for such tonnage. The amount of tonnage depends upon MRC's ability to obtain contracts with municipalities and waste haulers for the receipt, transfer and disposal of solid waste. MRC has not, to date, obtained any contract for the transfer or disposal of solid waste, although MRC is undertaking limited marketing efforts to seek such contracts. However, there are no assurances that MRC will be able to secure contracts for sufficient waste tonnage to make the Landfill Project successful. Disposal costs consist principally of tipping fees and transportation costs associated with the hauling of waste to the landfill. Tipping fees currently vary widely among landfills, partly as a result of real and perceived landfill capacity shortages in areas, pending closure deadlines and partly as a result of increased costs of construction, operation and/or closure. Tipping fees do not include transportation 18 costs which may vary significantly depending upon such factors as distance to the landfill and method of handling the waste. It is unknown at this time if disposal costs in Southern California will sufficiently increase as to make the Eagle Mountain Landfill attractive to those controlling the disposal of waste. See the discussion on Disposal Fees below. Government Regulation/Permitting. Solid waste landfills are subject to stringent federal, state and local environmental regulations. These regulations, among other things, require upgraded or new composite landfill liners, leachate collection and treatment, groundwater and methane gas monitoring, stricter siting and location criteria, closure requirements and financial assurances (such as a surety bond) from the owner or operator. The Eagle Mountain Landfill is designed to meet or exceed these requirements. In order to construct and operate the Landfill Project, MRC will be required to obtain numerous government permits and approvals relating to such matters as land use compatibility, groundwater protection, air quality emissions, habitat protection, and rodent, pest and litter controls. The process for obtaining these permits and approvals is often difficult, expensive and time-consuming, particularly because the siting of landfills is a highly political issue and often draws opposition from environmental groups and local residents. Through the first half of 1994, MRC was making substantial progress in obtaining the necessary permits to commence construction of the Landfill Project. As of June 1, 1994, MRC had received 17 of the required 20 permits and two more of the permits were in draft form and were anticipated to be soon issued. However, as discussed in detail below, all the permits were suspended or voided due to the adverse outcome of litigation involving the environmental impact report/environmental impact statement for the Landfill Project approved by Riverside County in 1992. By way of background, before any significant regulatory permit may be granted relating to the construction and operation of the Landfill Project, an environmental impact report/environmental impact statement (an "EIR") must be certified and approved by the appropriate regulatory agencies. In October 1992, the Riverside County Board of Supervisors approved the EIR for the Landfill Project and MRC's local land use applications. Legal challenges to the certification of the EIR were mounted in late 1992 by a number of individuals, a conservation group and Eagle Crest Energy Company ("ECEC"), formerly known as Eagle Mountain Energy Company, which is a potential competitor for the use of a portion of the Landfill Project site. In July 1994, the San Diego County Superior Court issued its decisions on the challenges to the EIR for the Landfill Project. Of the more than seventy (70) areas of concern initially raised by the plaintiffs in the cases, the Court announced that it had eight (8) areas of concern in which the EIR was deficient, thus requiring corrective action. With regard to the challenges initiated by opponents the Court concluded, in sum, that: (i) the town of Eagle Mountain should have been included in the EIR together with an analysis of the environmental impacts associated with its growth; (ii) the EIR should have evaluated the cumulative impacts of the Eagle Mountain townsite and the Landfill Project; (iii) there was insufficient evidence to support the EIR conclusion that the proposed mitigation measures for the desert tortoise will be effective; (iv) there was insufficient documentation and ability of the public to comment on possible seismic activity and the ability of the landfill's liner system to withstand seismic activity; (v) there was insufficient documentation in the record to support the EIR's conclusion that the air quality, biological resources, and other areas of potential concern (i.e., the "wilderness experience") associated with or a part of the Joshua Tree National Monument would not be significantly impacted; (vi) the Level One Contaminant Survey 19 conducted by the BLM on the Eagle Mountain property should have been disclosed to the public prior to the certification of the EIR, (even though subsequent investigations confirmed the absence of any hazardous materials); and (vii) the cumulative impacts of ECEC's proposed hydro-electric project together with the Landfill Project should have been considered in the EIR. The Court also concluded that the public should have been informed of Riverside County's opposition to ECEC's proposed project for purposes of public comment. Accordingly, since the EIR was determined to be inadequate in several areas, a new EIR will be required. The Court did conclude that the Development Agreement among the Company, MRC and Riverside County was valid and that the EIR's discussion of MRFs was adequate. As discussed below, these two points were appealed by one of the Landfill Project's opponents but such appeal was unsuccessful. As a result of the Court's determinations, the Court set aside and declared void the Riverside County Board of Supervisors' EIR certification and all Riverside County approvals rendered in connection with the EIR certification. The Court ordered activities related to the development of the landfill suspended and directed the preparation of a new final environmental impact report in compliance with applicable law and the Court's conclusions. MRC and the Company disagreed with many of the Court's conclusions and initially took steps to appeal the decisions, but later withdrew their appeal to focus their efforts on re-permitting the Landfill Project. In March 1995, MRC initiated the necessary repermitting process by filing its land use applications with Riverside County. MRC has been diligently pursuing the preparation of a new EIR and environmental impact statement ("EIS"). Given the additional work that is required it is currently estimated that completion of the permitting of the Landfill Project will be delayed until at least late 1997 while new environmental information is assembled, a new EIR/EIS is prepared, the necessary EIR/EIS reviews and approvals are sought and the permitting process completed. It is anticipated that a draft of the new EIR/EIS will be circulated for review in the second quarter of 1996. The current permitting process has proceeded at a pace slower than previously anticipated for, among other reasons, the two furloughs of Federal government workers (the Bureau of Land Management and National Park Service employees) resulting in delays in the receipt of comments on the EIR/EIS and additional studies requested by the National Park Service. There is no assurance that the new EIR will receive the necessary approvals, including approval by the Riverside County Board of Supervisors. In addition, there is no assurance that, even if the new EIR is ultimately certified and all necessary permits are received, there will not be new legal challenges that would further delay the construction and operation of the Landfill Project. Given the legal challenges that have occurred to date, and the controversies that generally surround landfill projects, future legal challenges are likely. Two aspects of the litigation involving the EIR that were on appeal have now been resolved. ECEC had appealed the denial of its request for an award of attorneys' fees, but dropped such appeal in 1995. In addition, the conservation group opposed to the Landfill Project appealed the Court's determination that the EIR's discussion about MRF's was adequate and that the Development Agreement was valid. The group contended that the Development Agreement was invalid because MRC was not the current owner of all the land to be used in the Project. On February 16, 1996, the California Court of Appeals announced its decision upholding the trial court's ruling in these two matters, thus ruling in favor of MRC and against the conservation group. There is other litigation and regulatory actions affecting the Landfill Project which are described in more detail in "Item 3. Legal Proceedings" of this Form 10-K Report. There can be no assurance that all necessary permits or approvals will be obtained or that they will be obtained within the time periods estimated by MRC or the Company. In addition, any approvals and 20 permits obtained may be subject to future legal challenges, revocation, modification or failure to renew, under various circumstances. Proposed BLM Land Exchange. Of the approximately 11,350 acres located at the Eagle Mountain site, the Company currently owns 1,800 acres in fee and has various possessory mining claims with respect to the remaining 9,550 acres. In addition, the Company owns in fee approximately 3,200 acres along the 52-mile railroad right-of-way. The major remaining portion of the Company's railroad right-of-way consists of various private leases and an operating grant from the BLM. In conjunction with the landfill permitting process, the Company plans to transfer to the BLM approximately 2,800 acres of Kaiser-owned property along the railroad right-of-way, which property has been identified as prime desert tortoise habitat, in exchange for fee ownership of approximately 3,500 acres of land within the Landfill Project area. Specifically, the Company will receive fee ownership of various non-fee mining interests currently held by the Company near the large open pits. After extensive review and analysis, in October 1993, the BLM issued its Record of Decision approving the land exchange with the Company. The decision of the BLM approving the land exchange was challenged by the filing of appeals with the Interior Board of Land Appeals ("IBLA"), the agency having immediate appellate jurisdiction over the BLM's decision. However, as discussed in more detail below, in March, 1995, the BLM announced that it would join in Riverside County's additional environmental review, and requested that the IBLA remand the decision on appeal for further agency action. An additional discussion of the appeals is found in the "Legal Proceedings - Litigation" section of this report. In a separate but related action to the land exchange, the Company and the BLM also entered into discussions with respect to the extension of the Company's right-of-way to use the railroad, a right-of-way for an existing road and the transfer to the Company of property rights with respect to land at the Eagle Mountain Townsite. All issues with respect to the right-of-way were also resolved as a part of the BLM's Record of Decision. The BLM issued a new 36 mile right-of-way for the Kaiser railroad and a new joint right-of-way for the Eagle Mountain road and its extension to Kaiser and the Metropolitan Water District of Southern California. These right-of-way grants were also appealed to the Interior Bureau of Land Appeals ("IBLA"). The Record of Decision also approved the termination of the reversionary interest with respect to approximately 460 acres within the Eagle Mountain Townsite. This portion of the Record of Decision was also appealed to the IBLA. See "Item 3. Legal Proceedings - Litigation." On March 10, 1995, the BLM announced that it would join with Riverside County's new environmental review by preparing a new or supplemental EIS for the proposed land exchange. This additional review put the land exchange on hold pending completion of the new environmental review process. In its press release announcing its decision, the BLM stated that years of analysis and review had been completed prior to the BLM's approval of the land exchange and that the BLM believed that the document prepared in connection with the proposed exchange remains reliable. However, the BLM noted that new environmental data may be generated by the County on the proposed landfill and that the BLM believed it beneficial to the public to take part in the additional environmental review. Concurrent with this announcement, the BLM requested that the IBLA remand the Record of Decision for further agency action which request was later granted by the IBLA, rendering the appeals moot. On March 22, 1995, the Federal Energy Regulatory Commission ("FERC") announced that it was lifting what is known as the Section 24 reservation asserted by ECEC on many of the Federal lands that are the subject of the pending land exchange. This Section 24 reservation has been vacated except for approximately 47 acres. This means a major impediment to the land exchange was substantially 21 eliminated. However, ECEC continues to assert that it will have the power of eminent domain over the Project in the event it is granted a license by FERC to construct its hydro-electric project. ECEC remains an opponent to the Project. Competition. The solid waste disposal industry is highly competitive with a few large, integrated waste management firms and a significant number of smaller, independent operators. The success of the Landfill Project depends largely upon MRC's ability to secure solid waste disposal contracts from municipalities and waste haulers in this highly competitive environment. The ability of MRC to secure such waste disposal contracts is predicated upon a number of factors including, but not limited to, MRC's ability to (i) charge disposal fees comparable to those of its competitors; (ii) provide financial and environmental safeguards against potential liability; (iii) provide sufficient long-term capacity; and (iv) commence operations prior to the expansion of existing landfills or the opening of other large capacity, rail-haul landfills. Currently, there are over 20 major existing municipal solid waste landfills in Southern California serving the same geographic area as that proposed by the Landfill Project (primarily Los Angeles, Orange, Riverside and San Bernardino Counties). While a number of Southern California landfills are scheduled to close in the next several years as they reach capacity, several of them, including El Sobrante Landfill in Riverside County and Puente Hills in Los Angeles County, are in the process of expanding the permitted capacities of their existing facilities. In addition, several new landfills are being proposed, including a 12,500-ton per day landfill in Los Angeles County at Elsmere Canyon. The Company is also currently aware of at least two other enterprises seeking to develop rail-haul, solid waste disposal facilities which would be located in Southern California and would compete directly with the Landfill Project. These proposed cut-and-fill landfills include: (i) a landfill to be developed in a desert site in San Bernardino County by Rail Cycle of Los Angeles, a joint venture between Waste Management, Inc. and the Santa Fe Railway Company, Inc.; and (ii) Mesquite Regional Landfill to be developed in Imperial County by a partnership including Western Waste Industries and SP Environmental Systems, Inc., an affiliate of the Southern Pacific Transportation Company. Both projects are being developed by well established waste management companies which control significant waste streams in Southern California as a result of their waste hauling businesses. Both California rail haul projects received certification of their respective EIR, in late 1995. Given the need to submit a new EIR/EIS for the Project, these projects may be considered further along in the permitting process than MRC. Like the Landfill Project, both projects face opposition. Competition also extends to rail-haul landfills in the states of Arizona, Utah and Washington. In Utah, East Carbon Development Corp. operates a rail-haul landfill capable of receiving waste from Southern California and it is actively marketing its services to waste generators in Southern California. In addition, BFI, the former majority shareholder of MRC, operates a landfill in La Paz County, Arizona, with planned rail access, which will compete for Southern California waste. To a lesser extent, the Landfill Project will also compete with alternatives to landfills, such as recycling and "waste-to-energy" projects. Disposal Fees. While the Company believes that it will take several years for MRC's projected disposal fees to be aligned at competitive levels with other urban landfills, it also currently believes that the advantages afforded by the Eagle Mountain site should enable it, in the long term, to compete effectively with both existing and other proposed landfills. Within the last year, there has been a general reduction in disposal or "tipping fees" in several areas of Southern California. The reduction in tipping fees was accelerated with the bankruptcy of Orange County, California. As a means of generating 22 revenue, Orange County reduced its tipping fee to out-of-county trash from $38.50 to as low as $18.00 per ton depending upon the length of the time commitment. Trash generated within Orange County still pays approximately $38.50 per ton tipping fee. Riverside County recently proposed adopting a two tier tipping fee structure. The tipping fee would be $30.00 for direct haul to a landfill and $25.00 if the waste is processed through a transfer station or materials recycling facility. Facing the loss of waste from its system, San Bernardino County is considering dropping its tipping fee from $35.50 per ton to $32.00, $31.00, $30.00 and $29.00 per ton with five (5), ten (10) and fifteen (15) year commitments, respectively. Management believes that the advantages afforded by the Eagle Mountain site should enable it, in the long term, to compete effectively with both existing and other proposed landfills. In addition, the success of the Project depends upon the development of the anticipated shortage in landfill capacity in Southern California over the next several years. However, there is no assurance that the Company is currently able or will be able to compete effectively with anticipated landfill space and pricing competition or that other forms of competition will not result. EMPLOYEES As of March 22, 1996, Kaiser had 25 full-time and 3 part-time employees. In addition, as of March 22, 1996, MRC, the Company's subsidiary had 5 full-time employees and 1 part-time employee. ITEM 2. PROPERTIES OFFICE FACILITIES The Company's principal offices are located at 3633 East Inland Empire Boulevard, Suite 850, Ontario, California 91764. The Company leases approximately 7,500 square feet in Ontario, California, pursuant to a lease agreement expiring in August, 1999. The Company also maintains offices on the Mill Site Property, at the Eagle Mountain site and in Denver, Colorado. MRC leases an office in Palm Desert, California for a term that expires in August, 1997, and maintains an office at the Eagle Mountain Site. EAGLE MOUNTAIN, CALIFORNIA The Kaiser Eagle Mountain idle iron ore mine and the adjoining Eagle Mountain Townsite are located in Riverside County, approximately ten miles northwest of Desert Center, California. Desert Center is located on Interstate 10 between Indio and Blythe. The heavy duty maintenance shops, and electrical power distribution system have been kept substantially intact since the 1982 shutdown. The Company also owns several buildings, a water distribution system, a sewage treatment facility, and related infrastructure. The Eagle Mountain Townsite includes more than 300 single family homes, approximately 100 of which have been renovated and are currently in use. Most of the houses in use are leased to Management and Training Corporation ("MTC") for use in conjunction with a permitted 500-bed community-custody facility operated under a contract with the California Department of Corrections. Utilization of the remaining houses and related facilities will require additional renovation activities plus approval by Riverside County of a Townsite Specific Plan. In and around the Eagle Mountain area the Company has various possessory mining claims on 9,555 acres and holds 1,800 acres in fee simple. In addition, the Company and BLM are working toward a land exchange. See "Part I, Item 1. Business" with respect to the proposed land transfer between the Company and the BLM. 23 The Company owns six deep water wells, of which two are currently being used, and two booster pump stations that serve the Eagle Mountain mine and townsite. RAILROAD To transport ore from the Eagle Mountain mine to the mill site (see below), KSC constructed a 52-mile heavy duty rail line connecting the mine to the main Southern Pacific rail line at Ferrum, California. The Company owns in fee approximately 10% of the 52-mile railroad right-of-way. The major remaining portion of the railroad right-of-way consists of various private leases and an operating right-of-way from the BLM. As a part of its Record of Decision the BLM issued a new railroad right-of-way to the Company. However, with the recent decision of the BLM to reconsider its Record of Decision, the new railroad right-of-way is currently considered still pending. The railroad is included in the lease to MRC for the Landfill Project. See "Part I, Item 1. Business." FONTANA, CALIFORNIA With the acquisition of approximately 460 acres by The California Speedway Corporation for the construction of TCS, the Company now owns approximately 715 acres near Fontana, California. All of the Company's property is debt free with the exception of the West End and Valley Boulevard parcels which total approximately 282 acres. The West End and Valley Boulevard parcels are subject to an outstanding note with an approximate principal balance of $5,400,000. Located on the Mill Site Property is extensive infrastructure; including, water, wastewater and sewage treatment facilities, and several single-story office, storage and industrial buildings. However, all the buildings previously on the Central Mill Site Property have been demolished as part of the development of TCS. The Company has historically had a number of short-term lease arrangements with unaffiliated entities for portions of this property. There is one active deep water well on the property, with capacity significantly in excess of the current water needs for the property. Another deep water well formerly owned by the Company is located on the property acquired by The California Speedway Corporation, although it was taken out of service due to the development of TCS. It is anticipated that the Company's water well currently used on the Central Mill Site will be taken out of service and a third party will provide water to users of the Mill Site Property. However, even with a third party providing water, the well may still be used for irrigation purposes. See "Part I, Item 1. Business." The Company originally had adjudicated water rights to extract 2,930 acre-feet of water per year for use on the property. However, the Company as part of the transaction with PMI and the Company's agreement to sell a portion of these water rights to California Steel Industries, Inc. ("SCI"), an adjoining landowner, in connection with the proposed settlement of certain disputes and litigations with such company, the Company will own the following water rights associated with the Mill Site Property: (i) 525 annual acre feet; (ii) 475 annual acre feet as tenants in common with The California Speedway Corporation which has the right of first use; and (ii) 630 acre feet in common with CSI, with CSI having the first right of use through June 30, 2204 and the Company thereafter having the first right of use. See "Item 3. Legal Proceedings." In addition, the Company currently has rights to approximately 5,000 acre-feet of water in storage, effective as of December, 1995. Pursuant to a settlement agreement reached with the California Regional Water Quality Control Board in 1993, the Company is obligated to contribute 1,000 acre feet of water per year for 25 years for the purposes of a regional de-salter project. In 1995, the Company contributed 18,000 acre feet of water in storage which satisfies the Company's obligation under the settlement agreement for the next 18 years. See "Item 3. Legal Proceedings." Further, the DTSC has determined that limited portions of the property require environmental remediation. The Company is working with the DTSC to remediate the impacted areas. As discussed in 24 "Item 1. Business - Environmental," the Company undertook significant remediation activities in 1995. The major environmentally impacted areas of the property on which TCS is being built were remediated in 1995. The remedial action plan for the tar pits area has been approved and the remedial action plan for the area known as the upper Chemwest facility was also approved. As a result of the Company's experience in remediating the limited portion of the motorsports complex requiring remediation, the Company is evaluating other alternatives for the remediation of the remaining impacted areas of its property. See "Item 1. Business." LAKE TAMARISK, CALIFORNIA Lake Tamarisk is an unincorporated community located two miles northwest of Desert Center, California and approximately 8 miles from the Eagle Mountain mine. This community has 150 improved lots situated around two recreational lakes and a nine-hole golf course. With 70 homes and a 150-space mobile home park, the community has an average year-round population in excess of 150. Lake Tamarisk Development Corporation ("LTDC"), a wholly-owned subsidiary of the Company, owns 77 improved lots including one residential structure. LTDC also owns a 240-acre parcel of unimproved land across the highway from the main entrance to Lake Tamarisk. OTHER REAL ESTATE PROPERTIES The Company owns numerous small land parcels and iron ore deposits in the high desert area of Southern California, including the Silver Lake Mine west of Baker, California and 190 acres near Afton Canyon. FONTANA UNION WATER COMPANY The Company, through a wholly owned subsidiary, owns 7,632 5/8 shares or approximately 51% of the outstanding stock of Fontana Union, a California mutual water company. These shares entitle the Company (or its lessee) to receive, at cost, its proportionate share of Fontana Union's water. Fontana Union owns surface and groundwater rights in the Fontana, California area with annual average production of approximately 38,000 acre-feet (including currently approximately 4,000 acre feet relating to the annual Chino Basin agricultural pool transfer). The Company's shares of Fontana Union stock are currently leased to the Cucamonga County Water District. The Fontana Union shares and the lease of such shares to Cucamonga County Water District are currently pledged as collateral for the Company's $20,000,000 revolving-to-term credit facility. See "Item 1. Business - Water Resources." The Company is currently in a rate dispute with Cucamonga Water. See "Item 3. Legal Proceedings." ITEM 3. LEGAL PROCEEDINGS The Company, in the normal course of its business, is involved in various claims and legal proceedings. Except for those matters described below, management believes these matters will not have a material adverse effect on Kaiser's business or financial condition. Significant legal proceedings, including those which may have a material adverse effect on the Company's business or financial condition, are summarized as follows: LITIGATION Eagle Mountain EIR Litigation. This litigation involved three separate legal challenges to the EIR for the Landfill Project certified by the Riverside County Board of Supervisors in October, 1992. These 25 cases were heard in the San Diego Superior Court. This litigation and its impact on MRC and the Company are discussed in detail in "Part I, Item 1. Business - Municipal Solid Waste Management - Landfill Project - Government Regulation/Permitting" starting on page 15 of this Form 10-K Report. The Court's decisions have required MRC to prepare a new EIR. The litigation is still considered technically outstanding as the San Diego Superior Court retains jurisdiction to determine if the new EIR complies with its rulings. MRC and the Company initially appealed the Court's decisions, but withdrew such appeals to focus its efforts on re-permitting the Landfill Project. One of the plaintiffs appealed and later withdrew its appeal of the denial of its request for the award of attorneys fees. Another one of the plaintiffs, National Parks and Conservation Association, appealed the trial court's conclusion that the discussion of MRF in the EIR was adequate and that the Development Agreement was valid. On February 16, 1996, the California Court of Appeals (Case No. D022183 - Superior Court No. 662907) announced its decision upholding the trial court's rulings on these matters resolving these issues in MRC's favor. BLM Land Exchange. As discussed in more detail in "Item 1. Business," the BLM issued, in October 1993, its Record of Decision approving the proposed BLM/Kaiser land exchange. Sixteen parties appealed the BLM's decision to the IBLA. These were generally the same parties that were involved in the litigation before the San Diego Superior Court over the EIR for the Landfill Project. In sum, the appealing parties argued that the federal EIS was deficient on the same grounds as determined by the San Diego Superior Court. However, these appeals were rendered moot when in March 1995, the BLM announced that it would join with Riverside County in completing a new EIR/EIS for the proposed Eagle Mountain landfill and land exchange and the IBLA returned the BLM's record of decision for further agency action. Another of the items in contention was whether ECEC would take action to block the land exchange due to its position that the withdrawal of the land by the BLM does not affect its subsequently filed power site reservation for its proposed hydro-electric pump storage project. On March 22, 1995, the Federal Energy Regulatory Commission ("FERC") announced that it would grant the BLM's request to vacate the power site reservation on all the lands involved in the proposed land exchange except for approximately 47 acres. Finally, while not directly a part of the BLM land exchange dispute, MRC and the Company will continue to take appropriate actions to oppose the license application ECEC filed with FERC for the construction and operation of a proposed hydro-electric pump storage project that would utilize a significant portion of the Company's Eagle Mountain Site. However, due to the nature of the FERC process, it may be a substantial period of time before MRC's and the Company's objections are considered by FERC. California Steel Industries, Inc. ("CSI"). In mid-1994, the Company and California Steel Industries, Inc. ("CSI") reached a tentative settlement of all their disputes. The Company and KSC Recovery, Inc., (the successor to the bankruptcy estate of Kaiser Steel Corporation) have been in an adversarial relationship for a number years with CSI. In 1984, CSI purchased approximately 340 acres of land together with the rolling and finishing steel mills of Kaiser Steel Corporation ("KSC"). The disputes include, among others, the ownership of certain water rights associated with the Mill Site Property and the groundwater remediation agreement the Company reached with the California Regional Water Quality Control Board. CSI has also been asserting a substantial claim for environmental liabilities and resulting property damage against the KSC bankruptcy estate managed by KSC Recovery, Inc. In the context of the bankruptcy proceedings, CSI asserted that the Company was liable for alleged environmental contamination of the property it acquired from KSC. CSI has generally been unsuccessful to date in these efforts. 26 Due to the complexity of the issues involved, it took a substantial period of time to document the tentative settlement in 1994. The final settlement agreement was executed by all the parties in November, 1995 with all the approvals and contingencies to consummating the settlement agreement obtained and satisfied by year-end. The closing documents and consideration are currently held in escrow pending final distribution. The settlement with CSI is generally in accordance with the terms previously disclosed. All claims for environmental liability against the Company and KSC Recovery, Inc., are resolved with CSI receiving a $27,500,000 unsecured Class 4A claim in the KSC Recovery, Inc. bankruptcy estate. The allowance of such a claim did not have a financial impact on the Company. The Company is selling to CSI a portion of certain water rights associated with the Mill Site Property. These annual water rights, which the Company currently owns are different from and unrelated to the water rights represented by the Fontana Union stock leased to Cucamonga Water. Under the terms of the settlement, the Company is selling to CSI rights to 1,300 acre feet of water for $3,250,000. An additional 630 acre feet of water will be considered "jointly owned" by CSI and the Company. CSI will have the first right to use such water for the next nine years. Starting in July 2004, the Company will have the first right to use such water. The Company will receive compensation for CSI's use of all or any portion of the annual rights to this 630 acre feet of water. The Company is also selling to CSI the majority of the Company's discharge units into the regional non-reclaimable wastewater line, and is entering into a services agreement pursuant to which the Company provides sanitary sewer services to CSI. See "Part I, Item 1,. Business - Sewer Services" for a more detailed discussion of the sewer services provided to CSI. Finally, under the terms of settlement, the Company will pay to CSI the equivalent of one-third (1/3) of any net sums it may collect in settlements or by judgments in the Company's litigation against its former general casualty and property insurance carriers after deducting: (i) all expenses, fees and costs associated with such litigation up to $5,000,000; (ii) the costs of defending against CSI's various claims up to $850,000; and (iii) the Company's receipt of the first $5,200,000 of any proceeds. As noted in "Item 1 - Business - Environmental" the Company has successfully settled such litigation. Warburton Litigation. The Company and KSC were named as cross-defendants in certain litigation in the U.S. Federal District Court for the District of Northern California (Case No. C-93-1114 CW) commenced by IMACC Corporation ("IMACC") against Dorothy Warburton ("Warburton") and others seeking a determination of liability, contribution and indemnification for the costs of environmental remediation for two sites that had been used at one time by IMACC in conjunction with its barrel reconditioning business. Warburton is the owner of the sites in question. At one time, KSC, through a wholly owned subsidiary, owned the business now operated by IMACC. Certain other Warburton family defendants are claiming that they should be indemnified by KSC's subsidiary or by the Company for actions they took while officers of the KSC subsidiary. The total damages claimed are unknown although the clean-up costs for the two sites are presently estimated to range from $5,500,000 to approximately $8,000,000 (approximately $5,000,000 less than previously estimated). The Company through its bankruptcy and reorganization has already settled any liability it may have had with IMACC and state environmental regulators for the applicable sites. In addition, under a previous agreement with IMACC, IMACC is to defend, indemnify and hold the Company harmless from any such liability. IMACC has been defending this lawsuit on behalf of the Company. The Company currently believes it has numerous defenses in the litigation, as well as 27 indemnification coverage from IMACC, therefore, no provision for any potential loss has been made in the accompanying financial statements. Asbestos Claims. The Company along with KSC are currently named in approximately nine active asbestos litigation suits. The Company and KSC have been previously named in other asbestos suits but for various reasons those suits are not currently being pursued. Most of the plaintiffs alleged that they worked in ship yards in the Oakland/San Francisco, California area and that KSC was in some manner associated with one or more shipyards or has successor liability from another "Kaiser" entity. Most of these lawsuits are third party premises claims and involve multiple defendants claiming injury resulting from exposure to asbestos. The Company anticipates that it will be named as a defendant in additional asbestos lawsuits. All of the complaints are non- specific. As such it is not practical at this time to determine the true nature and extent of the claims against the Company and KSC. To date, several, but not all, of the plaintiffs have agreed that they will not personally pursue the Company, but they have been granted the right to pursue the Company's insurance coverage, to the extent there is coverage. The Company currently believes that it does have insurance coverage for at least a portion of the claims and has tendered these suits for defense. The Company also currently believes that it has various defenses to these claims, including the discharge granted to it in connection with KSC's bankruptcy reorganization. However, this is an evolving area of the law and the factual discovery with respect to these lawsuits was just recently commenced. City of Ontario Litigation. On February 27, 1996, the City of Ontario, California served on the Company a complaint filed in San Bernardino County Superior Court (City of Ontario v. Kaiser Ventures Inc., et al.; Case No. RCV 17334). In sum, the complaint alleges that a plume or plumes containing organic carbon, dissolved solids and mercury originating from the Company's Mill Site Property due to activities of KSC and/or a former tenant of the Mill Site Property have impacted one of the City of Ontario's water wells. Ontario seeks reimbursement for remedial costs, replacement of the allegedly impacted well and replacement or improvement or refurbishment of related facilities. The Company has just commenced investigating the allegations and will aggressively undertake defense of this lawsuit. INSURANCE COVERAGE LITIGATION In 1989 the Company initiated litigation against a number of insurance companies which had provided comprehensive general liability coverage to KSC seeking, among other things, the costs of environmental remediation. This lawsuit was successfully settled with the principal insurance carrier defendants in 1995. For a more detailed explanation of this litigation see "Item 1. Business - Property Redevelopment - Environmental." BANKRUPTCY CLAIMS The Company's predecessor, KSC, was in reorganization under Chapter 11 of the United States Bankruptcy Code from February 1987 until November 1988. Pursuant to the KSC Plan of Reorganization (the "KSC Plan"), the Company has established a subsidiary, KSC Recovery, which is engaged in the process of pursuing certain legal actions on behalf of the former creditors of KSC and handling the remaining administrative duties of the KSC bankruptcy estate, including claims resolution. All litigation and bankruptcy administration costs are borne by KSC Recovery, which maintains a cash reserve from previous litigation and other recoveries to fund anticipated ongoing litigation and administration costs. The major remaining claims in the bankruptcy estate were resolved in 1995, including the CSI claim discussed above. Resolution of these claims will allow for a distribution of cash and stock to the unsecured creditors of the KSC bankruptcy estate in the second quarter of 1996. 28 Consistent with KSC Recovery's role as an agent of the former KSC creditors, the Company's consolidated statements of operations and cash flows do not reflect any of KSC Recovery's activities. From time-to-time, various other environmental and similar types of claims, such as the asbestos litigation mentioned above, that relate to KSC pre- bankruptcy activities are asserted against KSC and the Company. In connection with the KSC Plan, the Company, as the reorganized successor to KSC, was discharged from all liabilities that may have arisen prior to confirmation of the KSC Plan, except as otherwise provided by the KSC Plan and by law. Although the Company believes that in general all pre-petition claims were discharged under the KSC Plan, in the event any of these claims or other similar claims are ultimately determined to survive the KSC bankruptcy, it could have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Not applicable. 29 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock commenced trading on the NASDAQ National Market System in the fourth quarter of 1990 under the symbol "KSRI." In June, 1993, Kaiser changed its name to Kaiser Resources Inc. and symbol to "KRSC." Most recently, the Company changed its name, in June 1995, to Kaiser Ventures Inc., but its trading symbol remained the same. The following table sets forth the high and low reported sale prices of the Company's Common Stock for the periods indicated, as reported on the NASDAQ National Market System.
LOW HIGH ------- ------- 1995: Fourth quarter..... $ 9.13 $13.00 Third quarter...... $ 6.38 $ 9.75 Second quarter..... $ 6.25 $ 8.00 First quarter...... $ 5.25 $ 8.25 1994: Fourth quarter..... $ 5.50 $ 8.50 Third quarter...... $ 6.50 $12.00 Second quarter..... $10.50 $15.50 First quarter...... $14.25 $17.50
As of March 22, 1996, there were 2,973 holders of record of the Company's Common Stock. As of March 22, 1996 the Company held 136,919 shares that are deemed outstanding but reserved for issuance to the former general unsecured creditors of KSC pursuant to the KSC Plan. A substantial portion of the shares reserved for the benefit of the KSC general unsecured creditors were distributed in 1995, and effective as of March 15, 1996. The Company has neither declared nor paid any cash dividends on its Common Stock since emerging from the KSC bankruptcy in November 1988 and does not intend to declare dividends on its Common Stock in the foreseeable future. Any future decisions by the Company to pay cash dividends will depend upon its growth, profitability, financial condition and other factors the Board of Directors may deem relevant. The Company presently intends to retain its earnings to finance the development and expansion of its business and for use in connection with future acquisitions. 30 ITEM 6. SELECTED FINANCIAL DATA The information presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, related notes and other financial information included herein.
SELECTED STATEMENT OF INCOME DATA FOR THE YEARS ENDED DECEMBER 31: 1995 1994 1993 1992 1991 ------------ ------------- ------------- ------------ ------------ Total revenues........................... $11,108,000 $12,471,000 $10,591,000 $ 9,944,000 $ 8,635,000 Costs and expenses....................... 8,071,000 8,611,000 8,144,000 7,789,000 7,367,000 ----------- ----------- ----------- ----------- ----------- Income from operations................... 3,037,000 3,860,000 2,447,000 2,155,000 1,268,000 Net interest expense (income)............ 587,000 (173,000) (466,000) (341,000) (494,000) ----------- ----------- ----------- ----------- ----------- Income before income tax provision and extraordinary loss.................. 2,450,000 4,033,000 2,913,000 2,496,000 1,762,000 Taxes currently payable.................. --- 125,000 50,000 --- --- Deferred tax expense..................... 721,000 --- --- --- --- Deferred tax expense credited to equity.. 335,000 1,621,000 1,171,000 1,027,000 677,000 ----------- ----------- ----------- ----------- ----------- Income before extraordinary loss......... 1,394,000 2,287,000 1,692,000 1,469,000 1,085,000 Extraordinary loss (net of taxes)........ --- 2,233,000 --- --- --- ----------- ----------- ----------- ----------- ----------- Net income............................... $ 1,394,000 $ 54,000 $ 1,692,000 $ 1,469,000 $ 1,085,000 =========== =========== =========== =========== =========== Earnings per share Before extraordinary loss............. $.13 $.21 $.16 $.14 $.11 After extraordinary loss.............. $.13 $.01 $.16 $.14 $.11 Weighted average number of shares outstanding....................... 10,671,665 10,671,154 10,604,122 10,176,367 10,109,450 SELECTED BALANCE SHEET DATA AS OF DECEMBER 31:....................... 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- Cash, cash equivalents and short-term investments.................. $10,937,000 $ 6,829,000 $15,922,000 $ 8,110,000 $ 9,111,000 Working capital.......................... 9,014,000 2,433,000 13,020,000 9,679,000 9,936,000 Total assets............................. 94,703,000 81,578,000 74,676,000 66,162,000 63,715,000 Long-term debt........................... 5,342,000 5,700,000 --- --- --- Long-term environmental remediation reserves................... 6,931,000 1,667,000 1,799,000 6,006,000 6,107,000 Stockholders' equity..................... 68,697,000 66,802,000 66,664,000 57,751,000 55,194,000
(1) The deferred tax expense credited to equity represents taxes that are recorded by the Company for financial reporting purposes, but are not payable due to the Company's utilization of Net Operating Loss ("NOL") benefits from losses arising prior to and through the KSC bankruptcy. Although the amount of this benefit is not included in net income, stockholders' equity is increased in an amount equal to the NOL tax benefit reported. NOL carryforwards at December 31, 1995, were approximately $117,000,000 and $16,000,000, for federal and California income tax purposes, respectively. 31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Kaiser Ventures Inc. ("Kaiser" or the "Company") is an emerging asset development company pursuing projects and activities related to water resources, property redevelopment and solid waste management. The Company's long-term emphasis is on the development of its principal assets: (i) a 50.88% interest in Fontana Union Water Company ("Fontana Union"), a mutual water company; (ii) approximately 750 acres of the former Kaiser Steel Corporation ("KSC") steel mill site (the "Mill Site Property"); and (iii) the 11,350 acre idle iron ore mine in the California desert (the "Eagle Mountain Site"), which includes the associated 460 acre town of Eagle Mountain ("Eagle Mountain Townsite"). During 1995, the Company recognized revenues primarily from the lease of its interest in Fontana Union and from the redevelopment of its Eagle Mountain Townsite. In November, 1995, the Company completed a transaction with Penske Motorsports, Inc. ("PMI") whereby a subsidiary of PMI, The California Speedway Corporation, acquired approximately 460 acres of the Central Mill Site Property for the development of a motorsports complex in exchange for a 15% interest in PMI (which currently is 10.6% after the Offering). Since such transaction, PMI has become a public company. The Company is also pursuing other related longer-term growth opportunities on the balance of its Mill Site Property, including the development of a joint venture of a transfer station and materials recycling facility on the Mill Site Property ("Mill Site MRF"); and the redevelopment of industrial and commercial parcels of land adjoining The California Speedway and the Mill Site MRF. See "Item 1. Business" for additional information concerning these projects. As previously disclosed in it's 1995 Form 10-Q Reports, the Company, in January, 1995, acquired a 70% interest in Mine Reclamation Corporation ("MRC"), the developer of the Eagle Mountain Landfill Project (the "Landfill Project") (see "Item 1. Business"). Concurrent with this acquisition, MRC and the Company amended the MRC Lease to terminate the minimum monthly rent payments by MRC to the Company. Consequently, the Company did not receive any rent payments from MRC during 1995 nor will it in the future until commencement of operations at the Landfill Project. The transaction was treated as a purchase, and the assets acquired and liabilities assumed were recorded at their fair market value. In addition, the Company decided in June, 1995 to provide up to approximately $5.25 million in equity or other funding to MRC. The Company's funding of MRC will be in stages over the next two years and will be subject to periodic review by the Company's Board of Directors. The first stage of funding was a private placement involving the Company and several other MRC shareholders, who jointly agreed to provide up to $3.2 million in equity to MRC in order to support the continued permitting and development of the Landfill Project through mid-1996. The Company's share of the first stage funding was $2,432,000 of which $1,840,000 was funded during 1995 and $592,000 during January, 1996. The Company's current ownership interest in MRC is approximately 72%. The Company and other MRC shareholders agreed, during the first quarter of 1996, to a second private placement to provide up to an additional $2.8 million to MRC, of which the Company's maximum share is $2.1 million. The second private placement will support the continued permitting and development of the Landfill Project through the end of 1996. While the Company has made the decision to invest up to approximately $5.25 million in equity in MRC, the Company is not obligated to provide additional funding to MRC beyond its current commitments. The Company is consolidating MRC for financial statement purposes. 32 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 County Water District ("Cucamonga Water"). Property redevelopment revenues primarily reflect housing rental income, aggregate 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"). Joint venture revenues reflect Kaiser's income related to those equity investments (primarily PMI) and joint ventures which the Company accounts for under the equity method. Prior to 1995, waste management revenues reflected the minimum lease payments under MRC's 100-year lease in connection with the Landfill Project. 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, water and wastewater treatment service revenues, revenues from the sale of recyclable materials and other miscellaneous interim activities. However, excluding the one-time $2.2 million gain on the sale of water rights to CSI, the revenues generated by interim activities were substantially diminished in 1995 as a result of the development of The California Speedway. SUMMARY OF REVENUE SOURCES Due to the development 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 may not be meaningful for developing an overall understanding of the Company. Therefore, the Company believes it is important to evaluate the trends in the components of its revenues as well as the recent developments regarding its long-term ongoing and interim revenue sources. See "Part I, Item 1. Business" for a discussion of recent material events affecting the Company's revenue sources. RESULTS OF OPERATIONS ANALYSIS OF RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND 1994 An analysis of the significant components of the Company's resource revenues for the year ended December 31, 1995 and 1994 follows:
YEAR ENDED DECEMBER 31, ---------------------------------------- 1995 1994 % INC. (DEC) ----------- ---------- ------------- ONGOING OPERATIONS Water resource $4,974,000 $4,820,000 3% Property redevelopment 998,000 1,052,000 (5%) Joint venture 162,000 --- 100% Waste management --- 2,400,000 (100%) ---------- ---------- ---- TOTAL ONGOING OPERATIONS 6,134,000 8,272,000 (26%) ---------- ---------- ----
33
YEAR ENDED DECEMBER 31, --------------------------------------------- 1995 1994 % INC. (DEC) ------------- ------------- ------------- INTERIM ACTIVITIES Lease and royalty 1,450,000 1,250,000 16% Service 419,000 1,875,000 (78%) Sale of water rights to CSI 2,200,000 --- 100% Miscellaneous 905,000 1,074,000 (16%) ----------- ----------- --- TOTAL INTERIM ACTIVITIES 4,974,000 4,199,000 18% ----------- ----------- --- TOTAL RESOURCE REVENUES $11,108,000 $12,471,000 (11%) =========== =========== === REVENUES AS A PERCENTAGE OF TOTAL RESOURCE REVENUES: Ongoing operations 55% 66% Interim activities 45% 34% ----------- ----------- TOTAL RESOURCE REVENUES 100% 100% =========== ===========
Resource Revenues. Total resource revenues for 1995 were $11,108,000, as compared to $12,471,000 for 1994. Revenues from ongoing operations declined 26% during the year to $6,134,000 from $8,272,000 in 1994, while revenues from interim activities increased 18% to $4,974,000 from $4,199,000 in 1994. Revenues from ongoing operations as a percentage of total revenues decreased to 55% in 1995 from 66% in 1994; however, excluding the non-recurring gain on the sale of water rights to CSI, ongoing operations represented 69% of total revenues. Ongoing Operations. Water lease revenues under the Company's 102-year take- or-pay lease with Cucamonga Water were $4,974,000 during 1995 as compared to $4,820,000 for 1994. The 3% increase in water revenues during the year reflects the July, 1995 5.1% increase in water rates of The Metropolitan Water District of Southern California ("MWD") offset by a small decline, from 56.11% in 1994 to 55.53% in 1995, in the Company's effective interest in Fontana Union. As previously disclosed, the expected decline in the Company's effective interest in Fontana Union is due to an increase in the number of Fontana Union shareholders taking water. However, the Company's effective interest in Fontana Union's water cannot fall below its equity interest of 50.9%. MWD, effective July 1, 1995, implemented changed rates and a changed rate structure which has resulted in a continuing lease interpretation dispute with Cucamonga Water regarding the extent of the MWD rate increase. The total amount of lease payments in dispute as of December 31, 1995 is approximately $80,000. Property redevelopment revenues were $998,000 for 1995 as compared to $1,052,000 for 1994. The 5% reduction from 1994 primarily represents lower aggregate and rocks sale revenues at Eagle Mountain. Joint venture revenue increased 100% to $162,000 as a result of the project service fee due from PMI. There were no waste management revenues during 1995 compared to $2,400,000 in 1994 as a result of the Company's acquisition of a 70% equity interest in MRC effective January 1, 1995, and the elimination of MRC's minimum monthly rent payments to the Company. Elimination of the maximum monthly rent payments will not, however, affect the payments due the Company upon the commencement of landfill operations. Interim Activities. Revenues from interim activities for 1995 were $4,974,000 as compared to $4,199,000 for 1994. As noted above, the 18% increase in revenues from interim activities in 1995 is primarily attributable to the $2.2 million gain on the sale of water rights to CSI and higher scrap revenues being partially offset by lower levels of service revenues under the amended Services Agreement with 34 CSI and lower miscellaneous revenues. It is anticipated that in 1996, these revenues will substantially decrease because of both the non-recurring nature of the sale of water rights to CSI and the development of The California Speedway. Resource Operating Costs. Resource operating costs are those costs directly related to the resource revenue sources. Total resource operating costs for 1995 declined to $3,870,000 from $5,155,000 in 1994. Operations and maintenance costs for 1995 were $1,496,000 compared to $1,970,000 for 1994. The 24% decrease in 1995 operations and maintenance costs was primarily due to lower expenses associated with the reduced levels of services being provided to CSI and lower property taxes at the mill site. Administrative support expenses for 1995 decreased 25% to $2,374,000 from $3,185,000 for 1994. The decrease was primarily due to non-recurring environmental cleanup costs in 1994 relating to two mill site tenants that went out of business and lower legal expenses. Corporate General and Administrative Expenses. Corporate general and administrative expenses for 1995 increased 22% to $4,201,000 from $3,456,000 for 1994. The increase was due primarily to expenses related to the departure of the Company's President and CEO and the resulting management realignment. Net Interest Expense (Income). Net interest expense for 1995 was $587,000, compared with net interest income of $173,000 in 1994. The fluctuation was due primarily to lower average cash balances on hand during 1995 and interest expense on the $6.0 million note issued as part of the purchase of properties from the Lusk Joint Ventures in July, 1994. Income and Income Tax Provision. The Company recorded income before income tax provision of $2,450,000 for 1995, a 39% decrease from the $4,033,000 recorded in 1994. A provision for income taxes of $1,056,000 was recorded in 1995 as compared with $1,746,000 in 1994. All of the income tax provision in 1995 and over 90% of the tax provision in 1994 are not currently payable due primarily to utilization of the Company's net operating loss carryforwards ("NOL's"). Consequently, pretax income is an important indicator of the Company's performance. Income Before Extraordinary Loss. For 1995, the Company reported income before extraordinary loss of $1,394,000, or $.13 per share, a decrease of 39% from the $2,287,000, or $.21 per share, reported for 1994. UMWA Extraordinary Loss (Net of Taxes). As previously disclosed, the Company, together with Kaiser Coal and KSC Recovery, settled all outstanding claims with the UMWA Combined Benefit Fund and 1992 Benefit Trust in 1994. The Company's share of the settlement was $3,788,000. As a result, for 1994 the Company recorded an extraordinary loss (net of taxes) of $2,233,000. Net Income. For 1995, the Company reported net income after extraordinary items of $1,394,000, or $.13 per share, a 26 fold increase from the $54,000, or $.01 per share, reported for 1994. ANALYSIS OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 An analysis of the significant components of the Company's resource revenues for the years ended December 31, 1994 and 1993 follows:
YEAR ENDED DECEMBER 31, ---------------------------------------- 1994 1993 % INC. (DEC) ----------- ----------- ------------ ONGOING OPERATIONS Water resources $4,820,000 $4,263,000 13% Property redevelopment 1,052,000 920,000 14% Waste management 2,400,000 1,300,000 85% ---------- ---------- TOTAL ONGOING OPERATIONS 8,272,000 6,483,000 28% ---------- ----------
35
YEAR ENDED DECEMBER 31, -------------------------------------------- 1994 1993 % INC. (DEC) ------------- ------------ ------------- INTERIM ACTIVITIES Lease and royalty 1,250,000 1,025,000 22% Service 1,875,000 2,676,000 (30%) Miscellaneous 1,074,000 407,000 164% ----------- TOTAL INTERIM ACTIVITIES 4,199,000 4,108,000 2% ----------- ----------- TOTAL RESOURCE REVENUES $12,471,000 $10,591,000 18% =========== =========== REVENUES AS A PERCENTAGE OF TOTAL RESOURCE REVENUES: Ongoing operations 66% 61% Interim activities 34% 39% ----------- ----------- TOTAL RESOURCE REVENUES 100% 100% =========== ===========
Resource Revenues. Total resource revenues for 1994 were $12,471,000 as compared to $10,591,000 for 1993. For 1994, revenues from ongoing operations increased 28% to $8,272,000 from $6,483,000 in 1993, while revenues from interim activities increased 2% to $4,199,000 from $4,108,000 in 1993. Revenues from ongoing operations as a percentage of total revenues amounted to 66% in 1994 as compared to 61% in 1993. Ongoing Operations. Water lease revenues under the Company's 102-year take- or-pay lease with Cucamonga Water were $4,820,000 during 1994 as compared to $4,263,000 for 1993. The Fontana Union Lease was amended in July 1993, retroactive to January 1, 1993, in order to establish fixed quantities of water for most of the water resources upon which the Fontana Union Lease is based. As a result, revenues for 1994 and 1993 reflect the fixed quantities in the amended Fontana Union Lease. The 13% increase in water revenues for 1994 primarily reflects the 5.3% and 18.2% increases in water rates of MWD, that were implemented in July 1994 and July 1993, respectively. These rate increases were partially offset by a decline in the Company's effective interest in Fontana Union from 57.95% in 1993 to 56.11% in 1994. Property redevelopment revenues for this time period were $1,052,000 for 1994 compared to $920,000 for 1993. The 14% increase reflects increased tenant rental income and aggregate/rock sales at Eagle Mountain. Waste management revenues increased 85% during 1994 to $2,400,000 from $1,300,000 for 1993 as MRC's minimum lease payments increased from $100,000 to $200,000 per month in December 1993. Interim Activities. Revenues from interim activities for 1994 were $4,199,000 as compared to $4,108,000 for 1993. The 2% increase in revenues from interim activities in 1994 over 1993 is primarily attributable to higher miscellaneous revenues associated with property tax refunds for the Mill Site Property and other receipts from KSC Recovery plus additional tenant rental income from the West End and Valley Boulevard properties ("Lusk Properties") that were purchased from the joint ventures between Kaiser and The Lusk Company ("Lusk Joint Ventures") in July 1994 ("Lusk Purchases") being partially offset by lower service revenues from CSI under the tentative settlement agreement. Resource Operating Costs. Operations and maintenance costs for 1994 were $1,970,000 compared to $2,167,000 for 1993. The 9% decrease in 1994 was due primarily to a reduction in expenses associated with the CSI Services Agreement, better cost controls and better utilization of manpower. 36 Administrative support expenses for 1994 increased by 26% to $3,185,000 from $2,524,000 for 1993 due primarily to environmental cleanup costs at the Mill Site Property related to two interim tenants who went out of business and higher legal expenses related both to the MRC settlement with Browning Ferris Industries ("BFI") and to regulatory and litigation proceedings involving the Federal Energy Regulatory Commission with regard to Eagle Crest Energy Company's ("ECEC") proposed hydro-electric project on the Company's Eagle Mountain property. Corporate General and Administrative Expenses. Corporate general and administrative expenses for 1994 at $3,456,000 were consistent with the $3,453,000 in expenses reported for 1993. Net Interest Income (Expense). Net interest income for 1994 was $173,000, compared with $466,000 for 1993. The 63% decrease in net interest income in 1994 was primarily due to the purchase of properties from the Lusk Joint Ventures in July 1994, which involved the payment of approximately $9,000,000 of cash and the issuance of a $6,000,000 note. Income and Income Tax Provision. The Company recorded income before income tax provision of $4,033,000 for 1994, a 38% increase over the $2,913,000 recorded for 1993. A provision for income taxes of $1,746,000, before extraordinary loss, was recorded in 1994 as compared with $1,221,000 in 1993. Over 90% of the income tax provisions in 1994 and 1993 are not payable due primarily to utilization of the Company's net operating loss carryforwards ("NOL's"). Income Before Extraordinary Items. For 1994, the Company reported $2,287,000 of income before an extraordinary loss or $.21 per share, an increase of 35% over the $1,692,000 or $.16 per share reported for 1993. UMWA Extraordinary Loss (Net of Taxes). As discussed above, the Company settled all outstanding claims with the UMWA Combined Benefit Fund and 1992 Benefit Trust in 1994 and recorded an extraordinary loss (net of taxes) of $2,233,000, which was comprised of the $3,788,000 settlement amount plus settlement expenses of $150,000 less tax benefits of $1,705,000. Net Income. As a result of the extraordinary loss described above, the Company reported net income after extraordinary items of $54,000, or $.01 per share, for 1994, a decrease from the $1,692,000 or $.16 per share reported for 1993. LIQUIDITY AND CAPITAL RESOURCES Cash, Cash Equivalents and Short Term Investments. The Company defines cash equivalents as highly liquid debt instruments with original maturities of 90 days or less. Cash and cash equivalents increased $7,658,000 to $10,863,000 at December 31, 1995 from $3,205,000 at December 31, 1994. Included in cash and cash equivalents at December 31, 1995 is $2,309,000 held solely for the benefit of MRC. The Company also had short-term investments, comprised of treasury bills and certificates of deposit, of $74,000 at December 31, 1995, compared with $3,624,000 at December 31, 1994. Total cash and cash equivalents plus short-term investments showed an increase of $4,108,000 in 1995 to $10,937,000 due primarily to the receipt of approximately $13,823,000 in proceeds from the environmental insurance litigation settlements and by the recording of $2,309,000 in cash from the acquisition of MRC being partially offset by the $3,778,000 United Mine Workers of America ("UMWA") settlement payment and the expenditure of $7,457,000 for environmental remediation and site clearance at the Mill Site Property. Working Capital. During 1995, current assets increased $11,236,000 to $21,078,000 while current liabilities increased $4,655,000 to $12,064,000. The increase in current assets resulted primarily from 37 the $4,108,000 increase in cash and cash equivalents plus short-term investments discussed above plus the $3,661,000 due from CSI for the sale of water rights and sewer discharge units under the Settlement Agreement and the remaining $2,701,000 due under the environmental insurance litigation settlements. The increase in current liabilities resulted primarily from $3,938,000 in obligations arising from the Company's environmental insurance litigation settlement proceeds, $1,608,000 in accounts payable and accrued liabilities relating to MRC and increases in accounts payable relating to the environmental remediation at the Mill Site Property. Offsetting these increases is the reduction due to the UMWA settlement payment. As a result, working capital increased during 1995 by $6,581,000 to $9,014,000 at December 31, 1995. Real Estate. Real Estate declined $21.8 million during 1995 primarily because of Kaiser's contribution of $22.5 million of land to PMI in return for preferred stock in PMI (see "Item 1. Business"). In addition, since the environmental insurance litigation settlements received during 1995 were intended to cover both the cost of remediating the Company's Mill Site property as well as any future environmental claims, the Company has recorded approximately $7.0 million of the net settlement proceeds received as a reimbursement of current and prior year capitalized environmental remediation costs. The remaining $5.5 million of net settlement proceeds was recorded as a reserve for future environmental remediation. Finally, since Kaiser has begun to develop the Napa Street, Speedway Business Park and West Valley MRF portions of its Mill Site property (see "Item 1. Business"), the carrying value of these properties have been reclassified as real estate under development. Investments. The increase in investment in Penske Motorsports, Inc. is primarily related to the Company's contribution of land to PMI in return for preferred stock in PMI. Other Assets. The increase in other assets is primarily related to capitalized landfill permitting and development costs for MRC. Long-term Debt. As of December 31, 1995, the Company had $5,342,000 in long- term debt associated with the note the Company issued as part of the purchase of properties from the Lusk Joint Ventures in July 1994. The Company has no outstanding borrowings under its $20.0 million revolving-to-term credit facility at December 31, 1995. Long-term Liabilities. The increase in other long-term liabilities is primarily due to the recording of $5.5 million of net proceeds received from the environmental insurance settlements as a reserve for future environmental remediation. In addition, the Company recorded $721,000 in deferred tax liabilities during 1995. Minority Interest and Other Liabilities. At December 31, 1995, the Company recorded $948,000 of minority interest relating to MRC in which the Company had approximately a 72% equity interest. Contingent Liabilities. The Company has contingent liabilities more fully described in the notes to the financial statements. Capital Resources. The Company expects that its current cash balances and short-term investments together with: (a) cash provided from operating activities; (b) proceeds from the CSI and environmental insurance litigation settlements; and (c) amounts available under its $20,000,000 revolving-to-term credit facility (less $339,000 in reductions in the borrowing base and $3,432,000 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 the development of its long-term projects. To the extent that additional capital 38 resources are required, such capital will be raised through bank borrowings, partnerships, joint venture arrangements, additional equity or asset sale or monetization. The Company expects to commit, in 1996, a total of approximately $14.6 million for capital projects of which approximately $7.0 million will be for required environmental remediation, $4.6 million will be for real estate improvement and development of certain parcels at the Company's Mill Site Property, $2.6 million will be for supporting MRC's landfill permitting and development, and $400,000 at Eagle Mountain for the Specific Plan and BLM Land Exchange. Further, in January 1995, the Company acquired a 70% interest in MRC. See "Item 1. Business" for additional information concerning the acquisition. The transaction was treated as a purchase and the assets acquired and liabilities assumed were recorded at their fair market value. Subsequent to the acquisition, the Company has invested $2,384,000 in equity in MRC and now owns approximately 72% of MRC. Although neither the Company nor any of its subsidiaries has any obligation to invest funds in MRC, the Company may, in the future, provide additional funding to MRC. Other than as discussed above, it is not possible, at this time, to estimate what level of future funding, if any, might be provided to MRC. Because the Company is not obligated to invest funds in MRC, the Company's exposure to any operating losses of MRC will be limited to the amount of any funds invested by the Company in MRC. IMPROVED CASH FLOW FROM USE OF NET OPERATING LOSS TAX CARRYFORWARDS Due to the Company's status as successor to KSC and its use of KSC-related NOLs, income taxes actually paid by the Company are substantially less than the income tax provision reported in its financial statements. The tax benefit associated with the utilization of these NOLs is reflected as an increase to stockholders' equity rather than as an increase to net income. 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 December 31, 1995, are estimated to be approximately $117,000,000 for federal purposes and $16,000,000 for California purposes. The federal NOLs expire in varying amounts over a period from year 2000 to 2010 while the California NOLs expire in year 1997 and 2000. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Please see Item 14 of this Form 10-K Report for financial statements and supplementary data. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 39 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference from the Executive Compensation Section of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders (the "1996 Proxy Statement"), a definitive copy of which will be filed within 120 days of December 31, 1995. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the Executive Compensation Section of the 1996 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the Security Ownership of Principal Shareholders and Management Section of the 1996 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 40 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following financial statements and financial schedules are filed as a part of this report:
Page ---- (1) Financial Statements -------------------- Report of Independent Auditors................................ 51 Consolidated Balance Sheets................................... 52 Consolidated Statements of Income............................. 54 Consolidated Statements of Cash Flows......................... 55 Consolidated Statements of Changes in Stockholders' Equity.... 56 Notes to Consolidated Financial Statements.................... 57 (2) Financial Statement Schedules ----------------------------- II Valuation and Qualifying Accounts and Reserves............ 71
All other schedules are omitted because they are not required, are inapplicable, or the information is included in the Consolidated Financial Statements or Notes thereto. (b) Reports on Form 8-K. The following reports on Form 8-K have been filed during the last quarter of the period covered by this Form 10-K Report to the date of this report. (1) Announcement of the consummation of a transaction between the Company and Penske Speedways Holding, Corp. dated November 22, 1995. (c) Exhibits. The following exhibits are filed as part of this Form 10-K: 41 EXHIBIT INDEX
PAGE NUMBER IN EXHIBIT SEQUENTIAL NUMBERING NUMBER DOCUMENT DESCRIPTION SYSTEM - ---------- ----------------------------------------------------- -------------------- 2.1 Second Amended Joint Plan of Reorganization as Modified, as filed with the United States Bankruptcy Court for the District of Colorado on September 9, 1988, incorporated by reference from Exhibit 2.1 of the Company's Form 10-K Report for the year ended December 31, 1988. 2.2 Second Amended Joint Plan of Reorganization Modification, as filed with the United States Bankruptcy Court on September 26, 1988, incorporated by reference from Exhibit 2.2 of the Company's Form 10-K Report for the year ended December 31, 1988. 2.3 United States Bankruptcy Court Order dated October 4, 1988, confirming the Second Amended Joint Plan of Reorganization as Modified, incorporated by reference from Exhibit 2.3 of the Company's Form 10-K Report for the year ended December 31, 1988. 4.1 Restated Certificate of Incorporation of Kaiser Steel Corporation filed with the Secretary of State of Delaware on November 17, 1988, incorporated by reference from Exhibit D(i) to the Company's Form 8-A dated November 21, 1988. 4.1.1 Certificate of Amendment to Restated Certificate of Incorporation of Kaiser Steel Resources, Inc. filed with the Delaware Secretary of State on October 2, 1990, incorporated by reference from the Company's Form 8-K Report dated September 18, 1990. 4.1.2 Certificate of Amendment to Restated Certificate of Incorporation of Kaiser Steel Resources, Inc. changing the Corporation's name to Kaiser Resources Inc., filed with the Delaware Secretary of State on June 14, 1993, incorporated by reference from Exhibit 4.1.2 of the Company's Form 10-K Report for the year ended December 31, 1993. 4.1.3 Certificate of Amendment to Restated Certificate of Incorporation of Kaiser Resources Inc. changing the Corporation's name to Kaiser Ventures Inc., filed with the Delaware Secretary of State on June 19, 1995. 4.2 Amended and Restated Bylaws of Kaiser Steel Resources, Inc., effective March 22, 1989, incorporated by reference from Exhibit 3.2 of the Company's Form 10-K Report for the year ended December 31, 1989.
42 EXHIBIT INDEX - (CONTINUED)
PAGE NUMBER IN EXHIBIT SEQUENTIAL NUMBERING NUMBER DOCUMENT DESCRIPTION SYSTEM - ---------- ----------------------------------------------------- -------------------- 4.2.1 Amendment to Amended and Restated Bylaws of Kaiser Steel Resources, Inc., effective November 18, 1991, incorporated by reference from Exhibit 3.2.1 of the Company's Form 10-K Report for the year ended December 31, 1991. 10.1 Lease Entered Into Between Kaiser Eagle Mountain, Inc., and Mine Reclamation Corporation, dated November 30, 1988, incorporated by reference from Exhibit 10.1 of the Company's Form 10-K Report for the year ended December 31, 1988. 10.1.1 First Amendment dated December 18, 1990, to Lease dated November 30, 1990 between Kaiser Eagle Mountain, Inc. and Mine Reclamation Corporation, incorporated by reference from the Company's Form 8-K Report dated December 18, 1990. 10.1.2 Second Amendment dated July 29, 1994, to Lease dated November 30, 1990, between Kaiser Eagle Mountain, Inc. and Mine Reclamation Corporation, incorporated by reference from Exhibit 4 of the Company's Form 10-Q Report for the period ending June 30, 1994. 10.1.3 Third Amendment dated January 29, 1995, but effective as of January 1, 1995, to Lease dated November 30, 1990, between Kaiser Eagle Mountain, Inc. and Mine Reclamation Corporation, incorporated by reference from Exhibit 10.1.3 of the Company's Form 10-K Report for the year ended December 31, 1994. 10.1.4 Fourth Amendment dated effective January 1, 1996, between Kaiser Eagle Mountain, Inc. and Mine Reclamation Corporation. 10.1.5 Settlement Agreement dated June 30, 1994, by and among Mine Reclamation Corporation, Browning-Ferris Industries, Inc., BFI Riverside, Inc., BFI California, Inc., Kaiser Eagle Mountain, Inc., and Kaiser Resources Inc., incorporated by reference by the Company's Form 10-Q Report for the period ending June 30, 1994. 10.1.6 Stock Acquisition Agreement between Eagle Mountain Reclamation, Inc. and Mine Reclamation Corporation dated January 13, 1995, incorporated by reference from Exhibit 10.1.5 of the Company's Form 10-K Report for the year ended December 31, 1994.
43 EXHIBIT INDEX - (CONTINUED)
PAGE NUMBER IN EXHIBIT SEQUENTIAL NUMBERING NUMBER DOCUMENT DESCRIPTION SYSTEM - ---------- ----------------------------------------------------- -------------------- 10.2. Dissolution Agreement among Lusk-Kaiser Fontana Joint Venture, Kaiser Steel Resources, Inc., The Lusk Company, Service Mortgage Company and Lusk Ontario Industrial Partners II, effective September 30, 1992, incorporated by reference from Exhibit 10.2.4 of the Company's Form S-2 (Registration No. 33-56234). 10.2.1 Option Agreement dated July 22, 1994, among Kaiser Resources Inc., Kaiser Steel Land Development, Inc., The Lusk Company, The Lusk Ontario Industrial Partners II, Ltd., Kaiser-Lusk West Joint Venture, and Kaiser- Lusk Valley Boulevard Joint Venture, incorporated by reference from Exhibit 3 of the Company's Form 10-Q Report for the period ending June 30, 1994. 10.2.2 Dissolution Agreement among Lusk-Kaiser West End Joint Venture, Kaiser Resources Inc., The Lusk Company, Service Mortgage Company and Lusk-Ontario Industrial Partners II, dated July 31, 1994, incorporated by reference from Exhibit 10.2.7 of the Company's Form 10-K Report for the year ended December 31, 1994. 10.2.3 Dissolution Agreement among Lusk-Kaiser Valley Boulevard Joint Venture, Kaiser Resources Inc., The Lusk Company, Service Mortgage Company and Lusk-Ontario Industrial Partners II, dated July 31, 1994, incorporated by reference from Exhibit 10.2.7 of the Company's Form 10-K Report for the year ended December 31, 1994. 10.3 Eagle Mountain Lease Between Management and Training Corporation and Kaiser Steel Corporation, dated November 16, 1987, incorporated by reference from Exhibit 10.4 of the Company's Form 10-K Report for the year ended December 31, 1988. 10.3.1 First Amendment dated July 1, 1990, to Lease between Management and Training Corporation and Kaiser Steel Resources, Inc., incorporated by reference from Exhibit 10.3.1 of the Company's Form 10-K Report for the year ended December 31, 1990. 10.3.2 Second Amendment dated November 16, 1992, to Lease dated November 16, 1987 between Management and Training Corporation and Kaiser Steel Resources, Inc., incorporated by reference from Exhibit 10.3.2 of the Company's Form S-2 Registration No. 33-56234). 10.4 Richard E. Stoddard Employment Agreement dated effective January 1, 1996.
44 EXHIBIT INDEX - (CONTINUED)
PAGE NUMBER IN EXHIBIT SEQUENTIAL NUMBERING NUMBER DOCUMENT DESCRIPTION SYSTEM - ---------- ----------------------------------------------------- -------------------- 10.5 Gerald A. Fawcett Employment Agreement, dated effective January 1, 1996. 10.7 Metallic Reclamation Slag Processing and Marketing Agreement between Kaiser Steel Resources, Inc. and Harsco Corporation, Heckett Division, dated April 20, 1992, incorporated by reference from Exhibit 10.7.1 of the Company's Form S-2 (Registration No. 33-56234). 10.8 Lease Agreement between American Trading Estate Properties, Landlord and Kaiser Resources Inc., Tenant, dated June 6, 1994, incorporated by reference from Exhibit 10.8 of the Company's 10-K Report for the year ended 1994. 10.9 Environmental Agreement, State of California, Health and Welfare Agency, Department of Health Services, Consent Order Health and Safety Code Sections 205, 25355.1(a)(B), 25355.5(a)(C), dated August 22, 1988, incorporated by reference from Exhibit 10.14 of the Company's Form 10-K Report for the year ended December 31, 1988. 10.10 Environmental Agreement, California Regional Water Quality Control Board, Santa Ana Region, Cleanup and Abatement Order No. 87-121, dated August 26, 1987, incorporated by reference from Exhibit 10.15 of the Company's Form 10-K Report for the year ended December 31, 1988. 10.10.1 Environmental Agreement, California Regional Water Quality Control Board, Santa Ana Region, Cleanup and Abatement Order No. 91-40, dated March 11, 1991, incorporated by reference from Exhibit 10.11.1 of the Company's Form S-2 (Registration No. 33-56234). 10.10.2 Settlement Agreement between Kaiser Resources Inc. and California Regional Water Quality Control Board, Santa Ana Region, dated October 21, 1993, incorporated by reference from Exhibit 10.11.2 of the Company's Form 10-K Report for the year ended December 31, 1993. 10.11 Lease of Corporate shares of Fontana Union Water Company coupled with Irrevocable Proxy between Kaiser Resources Inc. and Cucamonga County Water District dated July 1, 1993, incorporated by reference from Exhibit 1 to Form 10-Q dated June 30, 1993. 10.12 Assignment from Kaiser Steel Resources, Inc. to KSC Recovery, Inc., dated December 29, 1989, incorporated by reference from Exhibit 10.20 of the Company's Form 10-K Report for the year ended December 31, 1989.
45 EXHIBIT INDEX - (CONTINUED)
PAGE NUMBER IN EXHIBIT SEQUENTIAL NUMBERING NUMBER DOCUMENT DESCRIPTION SYSTEM - ---------- ----------------------------------------------------- -------------------- 10.13 Amended, Restated and Substituted Kaiser Steel Resources, Inc. 1989 Stock Plan, incorporated by reference from the Company's Proxy Statement for the Special Meeting of Stockholders held on October 2, 1990. 10.14 Kaiser Steel Resources, Inc. 1992 Stock Option Plan, as amended, incorporated by reference from Exhibit 10.16 of the Company's Form S-2 (Registration No. 33-56234). 10.15 Kaiser Ventures Inc. 1995 Stock Option Plan. 10.16 Joint Venture Agreement for Inland Empire Resource Recovery, incorporated by reference from Exhibit 10.17 of the Company's Form 10-K Report for the year ended December 31, 1991. 10.17 Third Amended Plan of Reorganization of Fontana Union Water Company dated September 26, 1990, incorporated by reference from Exhibit 10.18 of the Company's Form S-2 (Registration No. 33-56234). 10.18 Settlement Agreement among Fontana Union Water Company, Kaiser Steel Resources, Inc., San Gabriel Valley Water Company and Cucamonga County Water District dated February 7, 1992, incorporated by reference from Exhibit 10.19 of the Company's Form S-2 (Registration No. 33-56234). 10.19 Mining Lease between Kaiser Steel Resources, Inc. and Levand Steel and Supply Corporation/K.D. Mining and Consulting Co. effective January 2, 1993, incorporated by reference from Exhibit 10.20 of the Company's Form S-2 (Registration No. 33-56234). 10.20 Organization Agreement, dated November 22, 1995 by and among PSH Corp., Kaiser Ventures Inc. and Penske Motorsports, Inc. (f/k/a Penske Speedway Holdings Corp.), incorporated by reference from Exhibit 10.23 of the Company's 8-K Report dated November 22, 1995. 10.20.1 First Amendment to Organization Agreement dated March 21, 1996, by and among PSH Corp., Kaiser Venture Inc., and Penske Motorsports, Inc. 10.21 Shareholders Agreement, dated November 22, 1995 by and among PSH Corp., Kaiser Ventures Inc. and Penske Motorsports, Inc. (f/k/a Penske Speedway Holdings Corp.) incorporated by reference from Exhibit 10.24 of the Company's 8-K Report dated November 22, 1995.
46 EXHIBIT INDEX - (CONTINUED)
PAGE NUMBER IN EXHIBIT SEQUENTIAL NUMBERING NUMBER DOCUMENT DESCRIPTION SYSTEM - ---------- ----------------------------------------------------- -------------------- 10.21.1 First Amendment to Shareholders Agreement, dated March 21, 1996, between Penske Motorsports, Inc. and Kaiser Ventures Inc. 10.22 Water Rights Agreement, dated November 21, 1995 by and among Kaiser Ventures Inc., Kaiser Inc. and The California Speedway Corporation (successor by merger to Speedway Development Corporation). 10.23 Access Agreement, dated as of November 22, 1995 by and among Kaiser Ventures Inc., Kaiser Land Development, Inc. and The California Corporation. 10.24 Sewer Services Agreement, dated as of November 22, 1995 between Kaiser Ventures Inc. and The California Speedway Corporation (successor by merger to Speedway Development Corporation). 10.25 Revolving Credit and Term Loan Agreement between Fontana Water Resources, Inc. and Union Bank, dated September 30, 1994, (Excluding the exhibits), incorporated by reference from Exhibit 10.21 of the Company's Form 10-K Report for the year ended December 31, 1994. 10.25.1 Guaranty executed by Kaiser Resources Inc. in favor of Union Bank, dated September 30, 1994, incorporated by reference from Exhibit 10.21.1 of the Company's Form 10-K Report for the year ended December 31, 1994. 10.26 Settlement Agreement among Kaiser Resources Inc., KSC Recovery, Inc., Kaiser Coal Corporation, the UMWA Combined Benefit Fund and the UMWA 1992 Benefit Plan dated December 1, 1994, incorporated by reference from Exhibit 10.22 of the Company's 10-K Report for the year ended December 31, 1994. 21 The Company has nine active subsidiaries. Fontana Water Resources, Inc., Kaiser Eagle Mountain, Inc., Kaiser Steel Corporation, Kaiser Steel Land Development, Inc., Kaiser Waste Treatment, Inc., Kaiser Recycling Corporation, Kaiser Reclamation, Inc., Speedway Development Corp. and KSC Recovery, Inc. are incorporated under the laws of the State of Delaware. Lake Tamarisk Development Corporation is incorporated under the laws of the State of California. 23 Consent of Ernst & Young LLP. 24 Power of Attorney (included in the signature page).
47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 1, 1996 KAISER VENTURES INC. By: /s/ Richard E. Stoddard ------------------------------ Name: Richard E. Stoddard -------------------------- Title: Chief Executive Officer and ---------------------------------- Chairman of the Board ---------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. (Power of Attorney) 48 Each person whose signature appears below constitutes and appoints RICHARD E. STODDARD and GERALD A. FAWCETT as his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURE TITLE DATE - -------------------------------- ------------------------------ ------------- 1. Principal Executive Officer /s/ Richard E. Stoddard Chief Executive Officer and April 1, 1996 - -------------------------------- Chairman of the Board Richard E. Stoddard 2. President /s/ Gerald A. Fawcett President and Chief Operating April 1, 1996 - -------------------------------- Officer Gerald A. Fawcett 3. Principal Financial and Accounting Officer /s/ James F. Verhey Sr. Vice President Finance and April 1, 1996 - -------------------------------- Chief Finance Officer James F. Verhey
49
SIGNATURE TITLE DATE - ------------------------------ -------- ------------- 4. Directors /s/ Cass D. Alvin Director April 1, 1996 - ------------------------------ Cass D. Alvin /s/ Ronald E. Bitonti Director April 1, 1996 - ------------------------------ Ronald E. Bitonti /s/ Kenneth R. Casey Director April 1, 1996 - ------------------------------ Kenneth R. Casey /s/ Todd G. Cole Director April 1, 1996 - ------------------------------ Todd G. Cole /s/ Elmer W. Johnson Director March 30, 1996 - ------------------------------ Elmer W. Johnson /s/ Reynold C. MacDonald Director April 1, 1996 - ------------------------------ Reynold C. MacDonald /s/ William J. Morgan Director April 1, 1996 - ------------------------------ William J. Morgan /s/ Charles E. Packard Director April 1, 1996 - ------------------------------ Charles E. Packard /s/ Thomas S. Rabone Director April 1, 1996 - ------------------------------ Thomas S. Rabone /s/ Lyle B. Stevenson Director April 1, 1996 - ------------------------------ Lyle B. Stevenson /s/ Marshall F. Wallach Director April 1, 1996 - ------------------------------ Marshall F. Wallach
50 REPORT OF INDEPENDENT AUDITORS Board of Directors Kaiser Ventures Inc. We have audited the accompanying consolidated balance sheets of Kaiser Ventures Inc. (the "Company") as of December 31, 1995 and 1994, and the related consolidated statements of income, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kaiser Ventures Inc. at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Riverside, California February 9, 1996 51 KAISER VENTURES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31
1995 1994 ------------ ------------ ASSETS Current Assets Cash and cash equivalents.............. $10,863,000 $ 3,205,000 Short-term investments................. 74,000 3,624,000 Accounts receivable and other, net of allowance for doubtful accounts of $414,000 and $156,000, respectively......................... 10,141,000 3,013,000 ----------- ----------- Total current assets................. 21,078,000 9,842,000 ----------- ----------- Real Estate Land and improvements.................. 21,715,000 51,103,000 Real estate under development.......... 7,564,000 --- ----------- ----------- Total real estate...................... 29,279,000 51,103,000 ----------- ----------- Investment in Penske Motorsports, Inc. ... 22,991,000 250,000 Investment in Fontana Union Water Company.................................. 16,108,000 16,046,000 Other Assets Landfill permitting and development.... 1,660,000 --- Buildings and equipment (net).......... 2,433,000 2,706,000 Other assets and investments........... 1,154,000 1,631,000 ----------- ----------- Total other assets..................... 5,247,000 4,337,000 ----------- ----------- Total Assets.............................. $94,703,000 $81,578,000 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 52 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31
1995 1994 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable....................... $ 4,324,000 $ 1,170,000 Accrued liabilities.................... 7,500,000 5,999,000 Current portion of long-term debt...... 240,000 240,000 ----------- ----------- Total current liabilities.......... 12,064,000 7,409,000 ----------- ----------- Long-term Liabilities Deferred tax liabilities............... 721,000 --- Groundwater remediation reserve........ 1,431,000 1,667,000 Environmental remediation reserve...... 5,500,000 --- Long-term debt......................... 5,342,000 5,700,000 ----------- ----------- Total long-term liabilities........ 12,994,000 7,367,000 ----------- ----------- Total liabilities.................. 25,058,000 14,776,000 ----------- ----------- Minority Interest and Other Liabilities... 948,000 --- Commitments and Contingencies Stockholders' Equity Common stock, par value $.03 per share, authorized 13,333,333 shares; issued and outstanding 10,470,614 and 10,437,362, respectively........... 314,000 313,000 Capital in excess of par value......... 60,256,000 59,756,000 Retained earnings since November 15, 1988.................................. 8,127,000 6,733,000 ----------- ----------- Total stockholders' equity............. 68,697,000 66,802,000 ----------- ----------- Total Liabilities and Stockholders' Equity................................... $94,703,000 $81,578,000 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 53 KAISER VENTURES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31
1995 1994 1993 ----------- ------------ ------------ RESOURCE REVENUES Ongoing Operations Water resource......................$ 4,974,000 $ 4,820,000 $ 4,263,000 Property redevelopment.............. 998,000 1,052,000 920,000 Joint venture....................... 162,000 --- --- Waste management.................... --- 2,400,000 1,300,000 ----------- ----------- ----------- Total ongoing operations.......... 6,134,000 8,272,000 6,483,000 ----------- ----------- ----------- Interim Activities Lease and royalty................... 1,450,000 1,250,000 1,025,000 Service............................. 419,000 1,875,000 2,676,000 Sale of water rights................ 2,200,000 --- --- Miscellaneous....................... 905,000 1,074,000 407,000 ----------- ----------- ----------- Total interim activities.......... 4,974,000 4,199,000 4,108,000 ----------- ----------- ----------- Total resource revenues........... 11,108,000 12,471,000 10,591,000 ----------- ----------- ----------- RESOURCE OPERATING COSTS Operations and maintenance................ 1,496,000 1,970,000 2,167,000 Administrative support expenses........... 2,374,000 3,185,000 2,524,000 ----------- ----------- ----------- Total resource operating costs.... 3,870,000 5,155,000 4,691,000 ----------- ----------- ----------- INCOME FROM RESOURCES...................... 7,238,000 7,316,000 5,900,000 Corporate general and administrative expenses................................ 4,201,000 3,456,000 3,453,000 ----------- ----------- ----------- INCOME FROM OPERATIONS..................... 3,037,000 3,860,000 2,447,000 Net interest expense (income)............. 587,000 (173,000) (466,000) ----------- ----------- ----------- INCOME BEFORE INCOME TAX PROVISION AND EXTRAORDINARY LOSS................... 2,450,000 4,033,000 2,913,000 Income tax provision Currently payable................... --- 125,000 50,000 Deferred tax expense................ 721,000 --- --- Deferred tax expense credited to equity......................... 335,000 1,621,000 1,171,000 ----------- ----------- ----------- INCOME BEFORE EXTRAORDINARY LOSS........... 1,394,000 2,287,000 1,692,000 EXTRAORDINARY LOSS (NET OF INCOME TAXES OF $1,705,000)..................... --- 2,233,000 --- ----------- ----------- ----------- NET INCOME.................................$ 1,394,000 $ 54,000 $ 1,692,000 =========== =========== =========== EARNINGS PER SHARE BEFORE EXTRAORDINARY LOSS.......................$ .13 $ .21 $ .16 =========== =========== =========== EARNINGS PER SHARE AFTER EXTRAORDINARY LOSS.......................$ .13 $ .01 $ .16 =========== =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING.............................. 10,671,665 10,671,154 10,604,122
The accompanying notes are an integral part of the consolidated financial statements. 54 KAISER VENTURES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31
1995 1994 1993 ------------- ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................$ 1,394,000 $ 54,000 $ 1,692,000 Provision for income tax which is credited to equity........................ 335,000 38,000 1,171,000 Deferred tax expense....................... 721,000 --- --- Depreciation and amortization.............. 436,000 430,000 346,000 Extraordinary loss accrued but not paid.... --- 3,938,000 --- Gain on sale of assets..................... (2,200,000) (10,000) --- Allowance for doubtful accounts............ 258,000 (148,000) 246,000 Changes in assets: Accounts receivable and other............. (755,000) 456,000 417,000 Changes in liabilities: Current liabilities....................... (3,140,000) (876,000) 909,000 Long-term groundwater remediation costs... (236,000) (132,000) (1,332,000) ----------- ----------- ------------ Net cash flows from operating activities... (3,187,000) 3,750,000 3,449,000 ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Short-term investments and marketable securities............................... 3,550,000 6,418,000 (10,042,000) Net impact of MRC acquisition.............. 1,538,000 --- --- Capital expenditures....................... (7,319,000) (2,900,000) (1,565,000) Investment in Penske Motorsports, Inc. .... (309,000) (250,000) --- Investment in Fontana Union Water Co....... (62,000) --- --- Purchase of Lusk Joint Venture Properties................................ --- (8,814,000) --- Other investments.......................... (184,000) (100,000) (123,000) ----------- ----------- ------------ Net cash flows from investing activities... (2,786,000) (5,646,000) (11,730,000) ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock................... 166,000 46,000 6,051,000 Principal payments on note payable......... (358,000) (60,000) --- Net environmental insurance proceeds....... 13,823,000 --- --- Payment of loan fees....................... --- (765,000) --- ----------- ----------- ------------ Net Cash Flows from Financing Activities.... 13,631,000 (779,000) 6,051,000 ----------- ----------- ------------ NET CHANGES IN CASH AND CASH EQUIVALENTS.... 7,658,000 (2,675,000) (2,230,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 3,205,000 5,880,000 8,110,000 ----------- ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR....$10,863,000 $ 3,205,000 $ 5,880,000 =========== =========== ============
The accompanying notes are an integral part of the consolidated financial statements. 55 KAISER VENTURES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CAPITAL IN COMMON STOCK EXCESS OF RETAINED TREASURY -------------------------- SHARES AMOUNT PAR VALUE EARNINGS STOCK TOTAL ----------------------------------------------------------------------------------- Balance at December 31, 1992...... 9,909,596 $297,000 $52,473,000 $4,988,000 $(7,000) $57,751,000 Provision for income tax, credited to equity......... --- --- 1,171,000 --- --- 1,171,000 Retirement of treasury stock... (2,333) --- (7,000) --- 7,000 --- Issuance of shares of common stock............... 520,699 16,000 6,035,000 --- --- 6,051,000 Net Income..................... --- --- --- 1,691,000 --- 1,691,000 ---------- --------- ----------- ---------- -------- ----------- Balance at December 31, 1993...... 10,427,962 313,000 59,672,000 6,679,000 --- 66,664,000 ---------- --------- ----------- ---------- -------- ----------- Provision for income tax, credited to equity......... --- --- 38,000 --- --- 38,000 Issuance of shares of common stock............... 9,400 --- 46,000 --- --- 46,000 Net Income..................... --- --- --- 54,000 --- 54,000 ---------- --------- ----------- ---------- -------- ----------- Balance at December 31, 1994...... 10,437,362 313,000 59,756,000 6,733,000 --- 66,802,000 ---------- --------- ----------- ---------- -------- ----------- Provision for income tax, credited to equity......... --- --- 335,000 --- --- 335,000 Issuance of shares of common stock............... 33,252 1,000 165,000 --- --- 166,000 Net Income..................... --- --- --- 1,394,000 --- 1,394,000 ---------- --------- ----------- ---------- -------- ----------- Balance at December 31, 1995...... 10,470,614 $314,000 $60,256,000 $8,127,000 $ --- $68,697,000 ========== ========= =========== ========== ======== ===========
The accompanying notes are an integral part of the consolidated financial statements. 56 KAISER VENTURES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS On November 16, 1988, the Company began operations as Kaiser Steel Resources, Inc. upon the successful completion of the reorganization of Kaiser Steel Corporation ("KSC") under Chapter 11 of the Bankruptcy Code. The Company has changed its name twice since reorganization in June 1993 and 1995, to Kaiser Resources Inc. and to Kaiser Ventures Inc. ("Kaiser" or the "Company"), respectively. The Company's business focuses on the long-term development of its principal assets including water resources, land and waste management assets. The development of these assets is financed primarily through joint venture and long-term lease arrangements. Ongoing operations refer to those revenue resources which the Company is developing over the long-term while interim activities refer to those revenue resources which are temporary or short-term in nature and which are earned while the Company is evaluating the appropriate long-term use of the asset or property. At December 31, 1995, the Company's long-term projects include: (i) a 50.88% interest in Fontana Union Water Company ("Fontana Union"), a mutual water company; (ii) an approximately 15.0% (now approximately 10.6%) interest in Penske Motorsports, Inc. ("PMI") which is currently developing The California Speedway on the Company's Mill Site Property; (iii) the remaining 715-acres of the former Kaiser Steel Corporation ("KSC") steel mill site (the "Mill Site Property"). On the remaining Mill Site Property, the Company is pursuing a joint venture for the development of a transfer station and materials recycling facility ("Mill Site MRF"). The Company is also planning the development of industrial and commercial parcels of land adjoining these two projects discussed above. In addition, the Company owns the 11,350 acre idle iron ore mine in the California desert (the "Eagle Mountain Site"), which includes the associated 460 acre town of Eagle Mountain ("Eagle Mountain Townsite") where the Company's approximately 72% owned subsidiary, Mine Reclamation Corporation ("MRC"), is developing the proposed Eagle Mountain Landfill Project (the "Landfill Project"). The Company's consolidated financial statements include the following significant entities: Fontana Water Resources, Inc., Kaiser Steel Land Development, Inc., Eagle Mountain Reclamation, Inc., Lake Tamarisk Development Corporation, Kaiser Eagle Mountain, Inc. and Mine Reclamation Corporation. See Note 2 below for additional information concerning the Company's subsidiaries. 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 County Water District ("Cucamonga"). Property redevelopment revenues primarily reflect housing rental income, aggregate 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"). Joint venture revenues reflect Kaiser's share of income for those equity investments (primarily PMI) and joint ventures which the Company accounts for under the equity method. Prior to 1995, waste management revenues reflected the minimum lease payments under MRC's 100-year lease in connection with the Landfill Project. (See Note 5.) 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, water and wastewater 57 treatment service revenues, revenues from the sale of recyclable materials and other miscellaneous interim activities. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF FINANCIAL STATEMENT PRESENTATION The stated value of the assets and liabilities of the Company were carried forward from those of KSC except as adjusted in reorganization. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all wholly-owned subsidiaries and majority owned investments, except as specified below. Intercompany accounts and transactions have been eliminated. Fontana Union Water Company ("Fontana Union"). The Company, through its wholly-owned subsidiary Fontana Water Resources, Inc. ("FWR"), owns 50.88% of Fontana Union, a mutual water company, which entitles the Company to its proportionate share of Fontana Union Water. The Company has effectively transferred its control in Fontana Union to Cucamonga Water pursuant to a 102- year lease of its Fontana Union shares ("Fontana Union Lease") which the Company entered into in March 1989 and which was amended in 1989, 1992 and 1993. The investment in Fontana Union is recorded on the cost method. (See Note 9). KSC Recovery, Inc. ("KSC Recovery"). The Company's wholly-owned subsidiary, KSC Recovery, Inc., acts solely as an agent for KSC's former creditors in pursuing bankruptcy related adversary litigation and administration of the KSC bankruptcy estate. All costs of the adversary litigation and bankruptcy administration are borne by KSC Recovery and funded by proceeds of litigation settlements and other recoveries. Consistent with KSC Recovery's agency role, the activity of KSC Recovery is not included in Kaiser's financial statements, however, it is included in the consolidated tax return. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with original maturities of 90 days or less to be cash equivalents. The Company maintains its cash balances with high quality financial institutions. SHORT TERM INVESTMENTS The Company's short term investments include treasury bills and certificates of deposit with maturities within one year which management classifies as "held to maturity." These debt securities are carried on the balance sheet at the lower of cost or market. As cost approximates market, there are no unrealized gains or losses. REAL ESTATE In accordance with FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (FASB 121); the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the 58 carrying amounts of those assets. There has been no requirement to record impairment losses on the Company's assets under FASB 121. The Company capitalizes, as incurred, development costs and certain qualifying remediation costs for environmental contamination. Capitalized remediation costs include those costs, net of recoveries, that enhance or improve the condition of the property as compared with the condition when acquired as a result of the reorganization. Interest and property taxes related to real estate under development are capitalized during periods of development. INVESTMENT IN PENSKE MOTORSPORTS, INC. The Company accounts for its investment in Penske Motorsports, Inc. under the equity method of accounting. DEFERRED COSTS Included in other assets are deferred loan fees of $761,000 incurred in 1994, which are being amortized over the life of the related loan on a straight-line basis. Amortization of these deferred loan fees, which is included in net interest expense (income) was $77,000 and $18,000 for 1995 and 1994, respectively. BUILDINGS AND EQUIPMENT Buildings and equipment are stated on the cost basis. Depreciation is provided on the straight line method over the estimated useful lives of the respective assets. REVENUE RECOGNITION Revenues are recognized when the Company has completed the earnings process and an exchange transaction has taken place. INCOME TAXES The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary timing differences between the financial statement and tax bases of assets and liabilities at the applicable enacted tax rates. PER SHARE AMOUNTS Earnings per share is computed based on the weighted average number of common stock and common stock equivalents (including stock options) outstanding during each period. STOCK OPTIONS The Company accounts for its stock compensation arrangements under the provisions of APB 25, "Accounting for Stock Issued to Employees" and intends to continue to do so. 59 FINANCIAL STATEMENT PRESENTATION AND RECLASSIFICATIONS The Company has reclassified certain amounts in its Consolidated Financial Statements for the years ended in 1993 and 1994 in order to conform with the 1995 presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3. ACCOUNTS RECEIVABLE Accounts receivable as of December 31 consisted of the following:
1995 1994 ------------ ----------- California Steel Industries............. $ 3,661,000 $ --- Environmental insurance settlement proceeds............................... 2,701,000 --- Cucamonga County Water District......... 1,710,000 1,679,000 Other................................... 2,483,000 1,334,000 ----------- ---------- 10,555,000 3,169,000 Allowance for doubtful accounts......... (414,000) (156,000) ----------- ---------- Total.............................. $10,141,000 $3,013,000 =========== ==========
NOTE 4. INVESTMENT IN PENSKE MOTORSPORTS, INC. On November 22, 1995, the Company entered into an Organization Agreement with, among other parties, Penske Speedways Holding Corp., (now called "PMI"), a newly formed Delaware corporation, consummating the transactions generally described in the Company's and Penske Speedway, Inc.'s, Development Agreement entered into by the parties in April, 1994. As of December 31, 1995, PMI directly and indirectly owned the following principal assets: (i) one hundred percent (100%) of the stock of Penske Speedway, Inc. which owns and operates Michigan International Speedway ("MIS"), in Brooklyn, Michigan; (ii) one hundred percent (100%) of the stock of The California Speedway Corporation, the developer of The California Speedway; (iii) one hundred percent (100%) of the stock of Motorsports International Corp., a motorsports apparel and memorabilia company; (iv) approximately eighty four percent (84%) of the stock of Pennsylvania International Raceway, Inc. which owns and operates the Nazareth Motor Speedway ("Nazareth"); and (v) approximately two (2) percent of the stock of North Carolina Motor Speedway, Inc. which owns the North Carolina Motor Speedway, Inc., Rockingham, North Carolina. With Kaiser's conversion of its preferred stock of PMI into common stock of PMI, the effective ownership of PMI was Penske Performance, Inc. with 68%, Facilities Investments with 17% and the Company with 15%. Prior to this transaction, Kaiser was to be paid a fee of $650,000 per year. On January 29, 1996, Penske Speedways Holding Corp. 60 filed an S-1 Registration Statement with the Securities and Exchange Commission. (See Note 17. Subsequent Event.) A condensed balance sheet of PMI as of December 31, 1995 follows: Current Assets............................ $ 8,458,000 Property and Equipment.................... 61,009,000 Other Assets.............................. 3,788,000 ----------- Total Assets......................... $73,255,000 =========== Current Liabilities....................... $15,664,000 Other Liabilities......................... 1,454,000 Deferred taxes............................ 9,115,000 Minority Interest......................... 1,210,000 Stockholders' Equity...................... 45,812,000 ----------- Total Liabilities and Stockholders' Equity.............................. $73,255,000 ===========
NOTE 5. MINE RECLAMATION CORPORATION The Company, in January, 1995, acquired a 70% interest in Mine Reclamation Corporation ("MRC"), the developer of the Eagle Mountain Landfill Project. Concurrent with this acquisition, MRC and the Company amended the MRC Lease to terminate the minimum monthly rent payments by MRC to the Company. Consequently, the Company did not receive any rent payments from MRC during 1995 nor will it in the future until commencement of operations at the Landfill Project. The transaction which was insignificant to the financial position and total assets of the Company has been treated as a purchase, and the assets acquired and liabilities assumed were recorded at their fair market value. In June 1995, the Company's Board of Directors committed to provide up to approximately $5.25 million in equity or other funding to MRC. The Company's funding of MRC will be in stages over the next two years and will be subject to periodic review by the Company's Board of Directors. The Company's current ownership interest in MRC is approximately 72%. While the Company has made the decision to invest up to approximately $5.25 million in equity in MRC, the Company is not obligated to provide additional funding to MRC beyond its current commitments. MRC will need additional capital to successfully complete the permitting and development process. NOTE 6. BUILDINGS AND EQUIPMENT (NET) Buildings and equipment (net) as of December 31 consisted of the following:
1995 1994 ----------- ------------ Buildings and structures................ $ 2,063,000 $ 2,383,000 Machinery and equipment................. 1,557,000 1,910,000 ----------- ----------- 3,620,000 4,293,000 Accumulated depreciation................ (1,187,000) (1,587,000) ----------- ----------- Total.............................. $ 2,433,000 $ 2,706,000 =========== ===========
61 NOTE 7. ACCRUED LIABILITIES Accrued liabilities as of December 31 consisted of the following:
1995 1994 ----------- ----------- Environmental insurance settlement costs... $ 3,938,000 $ --- Groundwater remediation costs.............. 300,000 90,000 Coal Industry Retiree Health Benefit Act of 1992 Settlement.................... --- 3,838,000 Compensation and related employee costs.... 1,460,000 848,000 Other...................................... 1,802,000 1,223,000 ----------- ----------- Total................................. $ 7,500,000 $ 5,999,000 =========== ===========
NOTE 8. ENVIRONMENTAL REMEDIATION RESERVE In May 1989, the Company filed a lawsuit in San Francisco County Superior Court in California against over eighty insurance companies which had provided comprehensive general liability coverage to KSC since its inception in 1941. During 1995, the Company was able to reach settlements with all the major defendants resulting in the Company receiving net settlement payments (net of all expenses and third party obligations) totaling approximately $12.5 million. These settlements were intended to cover both the cost of remediating the Company's Mill Site Property, as well as any future environmental claims except for certain personal injury asbestos claims. The Company has recorded $7.0 million of the net settlement proceeds as a reimbursement of current and prior year remediation costs and the remaining $5.5 million of net proceeds as a reserve for future environmental remediation expenditures. (See Note 13.) NOTE 9. LONG-TERM DEBT As of December 31, 1995, long-term debt consisted of a $5,582,000 note, which includes the current portion of $240,000 secured by a first trust deed issued to The Lusk Company as part of the Company's purchase of property from the Lusk Joint Ventures. This note is payable in quarterly payments of $60,000 plus interest at the Bank of America prime rate plus 1.5% (10% at December 31, 1995) with all remaining principal and accrued and unpaid interest due and payable on July 28, 1998. The Company, through FWR, has a 9-year, $20,000,000 revolving-to-term credit facility with Union Bank at floating interest rates and collateralized by the Company's shares of Fontana Union and the lease of those shares to Cucamonga Water. At December 31, 1995, there were no loans outstanding under the credit facility. The borrowing base available under the credit facility is limited to the discounted present value of a five year projection of future payments under the Fontana Union Lease, as defined in the credit facility agreement. Under the borrowing base calculations, the maximum amount available was $19,661,000 as of December 31, 1995. In an agreement with the DTSC, dated December 15, 1995, the Company has reserved $3,432,000 of the available amount as financial assurance that certain environmental remediation work is performed on limited sections of the Mill Site property. Total interest expense incurred in 1995 and 1994 was $625,000 and $263,000, respectively. No interest expense was incurred in 1993. 62 NOTE 10. STOCKHOLDERS' EQUITY COMMON STOCK OUTSTANDING At December 31, 1995 and 1994, Kaiser Resources Inc. common stock has a par value of $0.03 and 13,333,333 authorized shares, of which 10,470,614 and 10,437,362 were outstanding, respectively. In November 1988, 10,000,000 shares of common stock (after giving effect for a 3 for 1 reverse stock split that took place in 1990) were issued pursuant to the KSC Plan of Reorganization. As of December 31, 1995, 682,662 of these shares are being held for the benefit of the former general unsecured creditors of the predecessor company pending the resolution of disputed bankruptcy claims. The final resolution of these claims will result in the final allocation of the held shares among the unsecured creditor group, which presents no liability to the Company. For financial reporting purposes these shares have been considered issued and outstanding. In February 1993, the Company completed a stock offering of 2,000,000 shares of its common stock, including 500,000 shares sold by the Company and 1,500,000 shares sold by its two principal stockholders. After the Company's proportionate share of costs of approximately $100,000 incurred in connection with the stock offering, the Company realized net proceeds from the stock offering of approximately $6,000,000. STOCK OPTION AND STOCK GRANT PROGRAMS In October 1990, the Company's stockholders approved the Amended, Restated and Substituted Kaiser Steel Resources, Inc. 1989 Stock Plan (the "1989 Stock Plan"). The 1989 Stock Plan provided for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock or deferred stock awards. Certain options granted under the 1989 Stock Plan are still outstanding. No compensation expense was incurred by the Company during 1995, 1994 and 1993. In June 1995, the Company's stockholders approved the 1995 Stock Plan. The 1995 Stock Plan provides for the grant of incentive stock options and non- qualified stock options. The 1995 Stock Option Plan is administered by the Board of Directors. The 1995 Plan is a three-year Plan with years running from July 1 to June 30. Each July 1, an amount equal to 2% of the Company's shares outstanding became available to support grants of stock options to employees during that year. At the end of each plan year, reserved plan shares not made subject to stock options revert to normal unissued share status. Grants are generally established at fair market value of the Company's common stock on the date of the grant and the exercise thereof may extend for up to 10 years with various vesting schedules. In addition, under the 1995 Stock Plan, each director when first elected to the Board shall automatically be granted options for 5,000 common stock shares. Each non-employee director who is re-elected or serving an unexpired term as a member of the Board at an annual meeting of holders of stock of the Company will be automatically granted an additional 1,500 stock options. These options have an exercise price equal to the fair market value of the Company's Common Stock on the date of the grant. 63 The following is a summary of the Stock Plans' activities:
OUTSTANDING OPTIONS -------------------------- RESERVED PRICE PER SHARES NUMBER SHARE --------- ------- --------------- Balance at December 31, 1992 180,947 279,236 $ 3.00 - 17.58 Additional shares reserved... 226,107 --- --- Granted...................... (291,200) 291,200 $12.55 - 13.64 Exercised.................... --- (10,699) $12.70 - 13.64 -------- ------- Balance at December 31, 1993 115,854 559,737 $ 3.00 - 17.58 Additional shares reserved... 204,259 --- --- Granted...................... (155,000) 155,000 $ 8.05 - 16.85 Exercised.................... --- (9,400) $ 3.00 - 9.20 -------- ------- Balance at December 31, 1994 165,113 705,337 $ 3.00 - 17.58 Additional shares reserved... 209,102 --- --- Granted...................... (182,000) 182,000 $ 5.83 - 7.00 Forfeitures.................. 7,374 (7,374) --- -------- ------- Exercised.................... --- (17,801) $ 3.00 - 7.00 -------- ------- Balance at December 31,1995 199,589 862,162 $ 3.00 - 17.58 ======== =======
As of December 31, 1995, 594,447 options of the 862,162 granted remain vested and unexercised under the 1989, 1992 and 1995 stock plans. In 1988, the Company granted stock options totaling 533,333 shares with a nominal exercise price to certain of its officers as part of the emergence from bankruptcy reorganization. These options became 50% vested at the date of grant with the remaining options ratably vesting through June 1, 1991. As of December 31, 1995, 169,999 of these options remain vested and unexercised. NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION During 1995, in connection with the contribution of the 460 acres to Penske Motorsports, Inc., the Company reclassified $22.5 million of land to investment in Penske Motorsports, Inc. The Company paid interest during 1995 and 1994 of $607,000 and $144,000, respectively. There was no interest paid in 1993. In 1994, non-cash investing activities included a $6,000,000 note payable as part of the Company's purchase of properties owned by the Lusk Joint Ventures. NOTE 12. INCOME TAXES The income tax provisions for the years ended December 31, 1995, 1994 and 1993 are composed of the following: 64
1995 1994 1993 ----------- ------------ ---------- Current tax expense: Federal........................... $ --- $ 92,000 $ 37,000 State............................. --- 33,000 13,000 ----------- ----------- ---------- --- 125,000 50,000 ----------- ----------- ---------- Deferred tax expense credited to equity: Federal........................... --- 1,371,000 990,000 State............................. 335,000 250,000 181,000 ----------- ----------- ---------- 335,000 1,621,000 1,171,000 ----------- ----------- ---------- Deferred tax expense: Federal........................... --- --- --- State............................. 721,000 --- --- ----------- ----------- ---------- 721,000 --- --- ----------- ----------- ---------- Tax benefit of extraordinary item (Note 13): Current tax benefit: Federal........................... --- (92,000) --- State............................. --- (30,000) --- ----------- ----------- ---------- --- (122,000) --- ----------- ----------- ---------- Deferred tax benefit credited to equity: Federal........................... --- (1,339,000) --- State............................. --- (244,000) --- ----------- ----------- ---------- --- (1,583,000) --- ----------- ----------- ---------- $1,056,000 $ 41,000 $1,221,000 =========== =========== ==========
In accordance with SFAS 109, the tax benefits of all deductible temporary differences and loss carryforwards that existed at the date of a reorganization must be credited directly to additional paid-in capital when the initial recognition of these benefits occurs subsequent to the reorganization. There were no income taxes paid in 1995. Income taxes paid in 1994 and 1993 were $272,000 and $138,000, respectively. Deferred tax liabilities (assets) are comprised of the following as of December 31, 1995 and 1994:
1995 1994 ------------- ------------- Land held for development............... $ 4,744,000 $ 9,705,000 Investment in Fontana Union............. 6,440,000 6,440,000 Investment in Penske Motorsports Inc.... 9,031,000 --- Joint venture losses.................... --- 453,000 Depreciation............................ 103,000 135,000 ------------ ------------ 20,318,000 16,733,000 ------------ ------------ Groundwater remediation................. (695,000) (665,000) Bankruptcy Estate interest income....... --- (569,000) Insurance Proceeds...................... (5,098,000) --- Investment in MRC....................... (1,837,000) --- Accounts receivable reserve............. (166,000) (63,000) Other................................... (1,219,000) (271,000) Loss carryforwards...................... (45,912,000) (45,020,000) ------------ ------------ (54,927,000) (46,588,000) ------------ ------------ Deferred tax asset valuation allowance.. 35,330,000 29,855,000 ------------ ------------ $ 721,000 $ --- ============ ============
As indicated above, the net change in the valuation allowance was $5,475,000 in 1995. 65 A reconciliation of the effective income tax rate to the federal statutory rate, for financial reporting purposes, is as follows:
1995 1994 1993 ----- ----- ----- Federal statutory rate.................... 34.0% 34.0% 34.0% Increase resulting from state tax, net of federal benefit....................... 6.1 6.1 6.1 Other..................................... 3.0 3.0 1.8 ---- ---- ---- 43.1% 43.1% 41.9% ==== ==== ====
The consolidated Net Operating Loss ("NOL") carryforwards available for federal income tax purposes as of December 31, 1995, are approximately $117,000,000 and will expire over a period from year 2000 through 2010. The amount of NOL carryforwards available for California state tax purposes is approximately $16,000,000 as of December 31, 1995. During 1993, the California Legislature amended the tax code relative to the generation and use of NOL carryforwards available for California state tax purposes. This legislation, among other changes, reduced the NOL carryforwards from 15 years to 5 years. Therefore, the Company's NOL carryforwards available for California state tax purposes now expire in year 1997 and 2000. In addition, there are certain limitations as to the future annual use of NOLs if 50% or more of the stock of the Company changes ownership. The Company also has approximately $5,256,000 of investment tax credit carryforwards available. The credits will expire in the years 1996 through 2000 and can be utilized only after the NOL is exhausted. NOTE 13. EXTRAORDINARY LOSS During the first quarter of 1994, the Company learned that it may be responsible for the payment of premiums levied pursuant to the Coal Industry Retiree Health Benefit Act of 1992 (the "Coal Act"). This legislation not only imposes liability for premiums on companies currently in the coal mining industry, but also on companies and their successors that were in the coal mining industry. Prior to 1985, coal mines were operated to support the Company's steel making operations. In December 1994, the Company reached an agreement settling all outstanding and future claims under which the Company paid $3,778,000 plus expenses. The settlement was recorded as an extraordinary loss of $2,233,000 (net of tax benefits of $1,705,000). NOTE 14. LEASED ASSETS AND SIGNIFICANT CUSTOMERS LONG-TERM LEASES The Company has long-term lease agreements with Cucamonga Water pursuant to the Fontana Union Lease (Note 1), Management Training Corporation ("MTC") and California Steel Industries ("CSI"). Minimum lease payments expected to be received by the Company through the next five years are as follows:
YEAR ENDING FONTANA UNION CSI SERVICE DECEMBER 31 LEASE MTC LEASE AGREEMENT TOTAL - -------------- ------------- --------- ------------- ----------- 1996 $5,079,000 $704,000 $204,000 $5,987,000 1997 $5,310,000 $704,000 $102,000 $6,116,000 1998 $5,577,000 $616,000 $ --- $6,193,000 1999 $5,862,000 $ --- $ --- $5,862,000 2000 $6,139,000 $ --- $ --- $6,139,000
66 The net book values of Fontana Union and Eagle Mountain at December 31, 1995 were $16,108,000 and $9,082,000, respectively. Only a portion of Eagle Mountain is being utilized for the MTC Lease. SIGNIFICANT CUSTOMERS The Company received substantial portions of its revenue from the following customers:
YEAR ENDING FONTANA UNION CSI SERVICE DECEMBER 31 LEASE MTC LEASE AGREEMENT TOTAL - -------------- ------------- --------- ------------- ----------- 1995 $4,974,000 $699,000 $ 416,000 $ --- 1994 $4,820,000 $694,000 $1,859,000 $2,400,000 1993 $4,263,000 $687,000 $2,652,000 $1,300,000
NOTE 15. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL CONTINGENCIES The Company currently estimates that as of December 31, 1995, its remediation costs for the balance of its land will be between $14,000,000 and $24,000,000, depending upon which approved remediation alternatives are eventually selected. The Company anticipates recovery of these costs through redevelopment of the property, primarily in connection with specific redevelopment projects or joint ventures. The West End and Valley Boulevard Properties do not have any known environmental problems and are not subject to the 1988 Consent Order with the California Environmental Protection Agency, Department of Toxic Substances Control ("DTSC"). Although extensive environmental investigations have been conducted on the site and are ongoing, there can be no assurance that the actual amount of environmental remediation expenditures will not substantially exceed those currently anticipated or that additional areas of contamination may not be identified. (See Note 8.) 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 Water. In 1995, the Company contributed 18,000 acre feet of its water in storage thus satisfying the first 18 years of its obligation. The Company remains contingently liable for any impacts the groundwater plume may have on water wells owned by third parties. Recently the City of Ontario, California 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. PENSION PLANS The Company currently sponsors a voluntary qualified 401(k) savings plan and a nonqualified pension plan, available to all full-time employees. Participants may make contributions of up to 10% of their compensation with the Company matching one-half of each participant's contribution up to 6% of compensation. The non-qualified plan mirrors the qualified 401(k) plan. 67 Total expense relative to these plans for the years ended December 31, 1995, 1994 and 1993, was $170,000, $139,000 and $131,000, respectively. LETTERS OF CREDIT At December 31, 1995, the Company had guaranteed letters of credit outstanding on its behalf to third parties totaling $420,000. These letters of credit were issued for reclamation activities performed at two idled coal properties, on behalf of and at the expense of the KSC bankruptcy estate. NOTE 16. LEGAL PROCEEDINGS Significant legal proceedings which may have a significant direct financial impact on the Company are summarized as follows: BANKRUPTCY ADVERSARY LITIGATION The Company's predecessor, KSC, was in reorganization under Chapter 11 of the United States Bankruptcy Code from February 1987 until November 1988. Pursuant to the KSC Plan of Reorganization, the Company has established a subsidiary, KSC Recovery, Inc. ("KSC Recovery") see Note 1, which was engaged in the process of pursuing certain legal actions on behalf of the former creditors of KSC and handling the remaining administrative duties of the KSC bankruptcy estate, including claims resolution. In 1994, KSC Recovery, the Company and California Steel Industries, Inc., ("CSI") a major unsecured claimant in the KSC bankruptcy, reached a tentative global settlement of all outstanding litigations, including those before the bankruptcy court. In 1995, the Company and CSI entered into definitive Settlement documents and all conditions to the Settlement were satisfied by December 31, 1995.As a part of the settlement, the Company sold to CSI certain water rights and discharge units associated with the Company's mill site property for in excess of $3,000,000. In addition, the Company will pay to CSI in the future the equivalent of one third (1/3) of any net sums it may collect in settlements or by judgments in the Company's litigation against its former general casualty and property insurance carriers related primarily to environmental remediation claims after the Company's receipt of the first $5,200,000 of any proceeds (net of expenses, fees and costs). As a result of this settlement, the Company recognized a gain of $2,200,000 in 1995. All remaining major claims in the KSC bankruptcy were settled in 1995 which will allow for a future distribution of stock and cash in accordance with the Plan of Reorganization. All litigation and bankruptcy administration costs are borne by KSC Recovery, which maintains a cash reserve from previous litigation and other recoveries to fund anticipated ongoing litigation and administration costs. From time-to-time, various other environmental and similar types of claims such as injury or death from asbestos exposure that relate to KSC pre-bankruptcy activities are asserted against the Company and/or KSC Recovery. In connection with the KSC Plan of Reorganization, the Company, as the reorganized successor to KSC, was discharged from all liabilities that may have arisen prior to confirmation of the KSC Plan of Reorganization, except as otherwise provided by the plan or by law. Although the Company believes there is no ongoing contamination from its activities and that all pre-petition environmental claims (such as the CSI claims, and other similar claims) were discharged under the KSC Plan of Reorganization, in the event any of these claims are ultimately determined to survive the KSC bankruptcy, it could have a material adverse effect on the Company. 68 OTHER LITIGATION In addition, the Company, in the normal course of its business, is involved in various claims and legal proceedings. Management believes these matters will not have a material adverse effect on Kaiser's business or financial condition. NOTE 17. SUBSEQUENT EVENT On March 26, 1996, the Form S-1 Registration Statement, filed by PMI with the Securities and Exchange Commission on January 29, 1996, went effective with the offering of 3,737,500 shares of common stock at a price of $24.00 per share which raised approximately $89,690,000 (gross). The effect of the offering was to decrease the Company's ownership in PMI to approximately 10.6%. At the $24.00 per share offering price the Company's 1,373,625 shares of common stock in PMI, had a value of $32,967,000. 69 NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ---------- ---------- 1995 Resource revenues......................... $1,999,000 $2,150,000 $2,089,000 $ 4,870,000 Income from operations.................... $ 237,000 $ 243,000 $ 291,000 $ 2,266,000 Income before income tax provision........ $ 88,000 $ 86,000 $ 108,000 $ 2,168,000 Net income................................ $ 50,000 $ 49,000 $ 62,000 $ 1,233,000 Earnings per share........................ $ .00 $ .00 $ .01 $ .12 1994 Resource revenues......................... $2,944,000 $2,848,000 $3,302,000 $ 3,377,000 Income from operations.................... $ 781,000 $ 882,000 $1,105,000 $ 1,092,000 Income before income tax provision and extraordinary loss........................ $ 889,000 $ 998,000 $1,146,000 $ 1,000,000 Income before extraordinary loss.......... $ 504,000 $ 566,000 $ 650,000 $ 567,000 Extraordinary loss (net of taxes)......... --- --- --- $ 2,233,000 Net income (loss)......................... $ 504,000 $ 566,000 $ 650,000 $(1,666,000) Earnings (loss) per share Before extraordinary loss................. $ 0.05 $ 0.05 $ 0.06 $ 0.05 After extraordinary loss.................. $ 0.05 $ 0.05 $ 0.06 $ (0.15) 1993 Resource revenues......................... $2,167,000 $2,475,000 $2,638,000 $ 3,311,000 Income from operations.................... $ 405,000 $ 595,000 $ 684,000 $ 763,000 Income before income tax provision........ $ 521,000 $ 713,000 $ 792,000 $ 887,000 Net income................................ $ 296,000 $ 404,000 $ 448,000 $ 544,000 Earnings per share........................ $ .03 $ .04 $ .04 $ .05
70 KAISER VENTURES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BALANCE AT CHARGED TO DEDUCTIONS BEGINNING COSTS AND FROM BALANCE AT CLASSIFICATION OF PERIOD EXPENSES RESERVES (A) END OF PERIOD - ------------------------------------- ---------- --------- ------------ ------------- YEAR ENDED DECEMBER 31, 1995 - ----------------------------- Allowance for losses in collection of current accounts receivable....... $156,000 $343,000 $ 85,000 $414,000 ======== ======== ======== ======== YEAR ENDED DECEMBER 31, 1994 - ---------------------------- Allowance for losses in collection of current accounts receivable....... $314,000 $149,000 $307,000 $156,000 ======== ======== ======== ======== YEAR ENDED DECEMBER 31, 1993 - ---------------------------- Allowance for losses in collection of current accounts receivable....... $ 68,000 $276,000 $ 30,000 $314,000 ======== ======== ======== ========
(A) Amount charged off during the year. 71
EX-4.1.3 2 CERTIFICATE OF AMENDMENT DATED 6/19/95 EXHIBIT 4.1.3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION * * * * * * * * KAISER RESOURCES INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of KAISER RESOURCES INC., resolutions were duly adopted setting forth a proposed amendment to the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is a follows: RESOLVED, That the Certificate of Incorporation of this corporation be amended by changing the First Article thereof so that, as amended said Article shall be and read as follows: "FIRST: The name of corporation is KAISER VENTURES INC." SECOND: That thereafter, pursuant to resolution of its Board of Directors, the annual meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, SAID KAISER RESOURCES INC., has caused this certificate to be signed by Daniel N. Larson, its President and attested by Terry L. Cook, its Secretary this 19th day of June, 1995. /s/ Daniel N. Larson -------------------- By: Daniel N. Larson, President ATTEST: /s/ Terry L. Cook - ----------------- By: Terry L. Cook, Secretary EX-10.1.4 3 FOURTH AMENDMENT TO LEASE EXHIBIT 10.1.4 FOURTH AMENDMENT TO LEASE This FOURTH AMENDMENT TO LEASE ("AMENDMENT") is made and entered into effective the 1st day of January, 1996, by and between Kaiser Eagle Mountain, Inc., a Delaware corporation ("KEM") and Mine Reclamation Corporation, a California corporation ("MRC"). RECITALS -------- A. KEM and MRC are parties to that certain Lease dated November 30, 1988, as amended by that certain First Amendment to Lease dated December 18, 1990, as further amended by that certain Second Amendment to Lease dated July 29, 1994 and as further amended by that certain Third Amendment to Lease dated January 30, 1995 (the "Lease", as amended, being referred to herein as the "LEASE"), pursuant to which KEM leased to MRC certain real property located in San Bernardino County, California which is commonly known as part of KEM's Eagle Mountain Mine for the purposes of, developing, permitting constructing and operating a solid waste municipal landfill. B. MRC and KEM desire, by this Amendment, to reduce the amount of land being leased by MRC from KEM. NOW, THEREFORE, it is agreed as follows: 1. REDUCTION OF AMOUNT OF PROPERTY LEASE. KEM and MRC agree, that commencing as of January 1, 1996, the real property leased from KEM by MRC shall be reduced in amount and shall be the real property described in Exhibit "A" attached hereto and incorporated herein by this reference and MRC shall have no further rights of any nature or kind in the property previously leased from KEM except for the property described in Exhibit "A." MRC shall continue to lease all real property specified in the Lease as set forth in Exhibit "A" upon the terms and conditions of the Lease. The reduction in the amount of land leased from KEM shall not reduce in any respect the rent, royalty payments, or other amounts due KEM under the terms of the Lease. 2. NO OTHER CHANGES. Except as otherwise expressly amended or modified by the terms of this Amendment, the terms of the Lease shall remain unchanged, ad in full force and affect. 3. FURTHER COOPERATION. KEM and MRC shall execute, notarize and deliver to the other party any document that may be required to carry out the intent and purpose of this Agreement. 4. HEADINGS. The captions or headings of sections and paragraphs in this Amendment are for convenience and reference only and are not to be interpreted as controlling, or affecting the subject matter contained thereunder. 5. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be an original of this Amendment for all purposes, and all of which together shall constitute one and the same instrument. 1 6. GOVERNING LAW. This Amendment shall be governed by and construed accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties have executed this Amendment and made it effective on the date first written above. MINE RECLAMATION CORPORATION KAISER EAGLE MOUNTAIN, INC. a California corporation a Delaware corporation By: /s/ Richard A. Daniels By: /s/ Gerald A. Fawcett ---------------------- --------------------- Its: President and CEO Its: President ---------------------- --------------------- The undersigned hereby confirms its previous guaranty of Landlord's performance with respect to the Lease and all amendments thereto, and agrees to be bound by the provisions of the Lease and amendments (including those contained in this Amendment) which expressly apply to the undersigned. KAISER VENTURES INC. a Delaware corporation By: /s/ Gerald A. Fawcett --------------------- Its: President -------------------- 2 EXHIBIT "A" LEGAL DESCRIPTION NOT ATTACHED WILL BE FURNISHED TO THE SEC UPON REQUEST 3 EX-10.4 4 EMPLOYMENT AGREEMENT OF RICHARD E. STODDARD EXHIBIT 10.4 EMPLOYMENT AGREEMENT OF RICHARD E. STODDARD THIS EMPLOYMENT AGREEMENT is made and entered into effective January 15, 1996 by and between Richard E. Stoddard ("EMPLOYEE") and Kaiser Ventures Inc. ("KAISER"). RECITALS A. Employee is currently employed by Kaiser as its Chairman of the Board pursuant to that certain employment letter dated February 28, 1994. B. Kaiser desires to expand Employee's duties and responsibilities by appointing him Chief Executive Officer of the Corporation. As of November 28, 1995, all officers of the Corporation began to report directly to Employee. C. The intent of this Agreement is to set forth the current agreement and understanding of Employee and Kaiser with regard to Employee's continued employment by Kaiser. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT, POSITIONS AND DUTIES. Kaiser hereby continues the employment of Employee upon the terms and conditions set forth in this Agreement. Employee's positions with Kaiser shall be Chief Executive Officer and Chairman of the Board of Directors. Employee shall have the responsibilities and duties normally incident to such positions, including, but not limited to, those duties and responsibilities set forth in Exhibit "A" attached hereto and incorporated herein by this reference and such other duties and responsibilities as may be reasonably assigned to him from time-to-time by Kaiser's Board of Directors. Employee agrees to devote his full business time and attention to the discharge of his duties and responsibilities under this Agreement. 2. TERM. Subject to the provisions for termination hereinafter provided, the term of Employee's employment shall commence as of January 15, 1996, and shall terminate on January 15, 1999, unless extended as provided in Paragraph 10. 3. BASE SALARY. Retroactive to February 1, 1995, Employee's annual base salary shall be Two-Hundred Eighty Thousand Dollars ($280,000) per year. Notwithstanding the foregoing, the Board of Directors may in good faith and in its reasonable discretion may elect to cause the Corporation to issue to Employee restricted stock with a value of up to Forty Thousand Dollars ($40,000) per year in lieu of cash compensation provided that subsequent to the date of this Agreement there are no material adverse changes in the tax and securities laws during the year preceding any proposed grant of restricted stock pertaining to or affecting Employee's receipt, taxation, sale or transfer of restricted stock. In the event of any material adverse change in the tax or securities laws pertaining to Employee's receipt, taxation, sale or transfer of restricted stock as reasonably determined in good faith by Employee or Kaiser, Employee and Kaiser 1 shall in good faith discuss any changes that may be appropriate or necessary in connection with any grant of restricted stock to Employee. For 1996, as a part of Employee's annual base salary the Board has elected to issue to Employee Forty Thousand Dollars ($40,000) of restricted stock in lieu of Forty Thousand Dollars ($40,000) cash compensation. In the event that any restricted stock is issued to Employee as a part of his annual base salary, the value of such restricted stock at the time of its grant shall be counted as base salary in the calculation of any bonus that may be awarded to Employee. For all other purposes, any such stock shall be treated as salary for the calculation of any benefits based upon an employee's salary as may be required by law or any benefit plan. Prior to the first meeting of the Board of Directors in any calendar year, the Compensation and Benefits Committee of the Board will review Employee's salary and report its recommendations for any revision to the full Board at such meeting. Employee's annual base salary shall be adjusted effective as of January 1 of each year, commencing January 1, 1997, by the increase in the consumer price index over the prior applicable year utilizing the Consumer Price Index for Urban Wage Earners and Clerical Workers, U.S. City Average, All Items, published by the Bureau of Labor Statistics of the United Stated Department of Labor. The entire Board of Directors has final responsibility for the review, approval or disapproval of any revisions to Employee's annual base salary. 4. ANNUAL BONUS. In addition to his base salary, Employee shall be entitled to participate in the bonus program of Kaiser applicable to senior executives as it may be amended from time to time. The timing, size and/or amount of any bonus awarded to Employee during the term of this Agreement will be determined in accordance with the process set forth in paragraph 3 above for the annual base salary review and based upon the bonus program developed from time to time by the Compensation and Benefits Committee and approved by the Board of Directors. The bonus for any year, if any, will be determined based upon such review. The Board of Directors may award in good faith and in its reasonable discretion up to fifty percent (50%) of any bonus in restricted stock provided that subsequent to the date of this Agreement there are no material adverse changes in the tax and securities laws pertaining to or affecting Employee's receipt, taxation, sale or transfer of restricted stock. In the event of any material adverse change in the tax or securities laws during the year preceding any proposed grant of restricted stock pertaining to Employee's receipt, taxation, sale or transfer of restricted stock as reasonably determined in good faith by Employee or Kaiser, Employee and Kaiser shall in good faith discuss any changes that may be appropriate or necessary in connection with any grant of restricted stock to Employee 5. STOCK OPTIONS AND OTHER STOCK RELATED INCENTIVES. Employee shall be eligible for the grant of incentive stock options, non-qualified stock options and other forms of stock related incentives from time-to-time in the discretion of the Stock Option Committee of the Board of Directors. The timing, size and amount of any future stock options or other stock related incentives will be determined generally in accordance with the process used to determine the award of any bonus to Employee. The grant and exercise of the stock options and other stock related incentives shall generally be subject to and governed by the terms of Kaiser's 1995 Stock Option Plan or any similar or successor plan. However, the Stock Option Committee may award stock options, restricted or other stock related incentives outside the 1995 Stock Option Plan in its discretion. 2 For 1996, the Stock Option Committee has awarded to Employee stock options for 50,000 shares pursuant to the 1995 Stock Option Plan. 6. OTHER BENEFITS. Employee will be entitled to participate in all benefits provided by Kaiser to its employees and to senior executives in accordance with and subject to Kaiser's polices and procedures as they may exist from time-to-time, including, but not limited to, medical and dental insurance, life insurance, 401(k) savings plan, any pension plan, deferred compensation plan, education and seminar reimbursement, car allowance, and reimbursement of reasonable expenses for company business. Employee shall be entitled to four (4) weeks of paid vacation per year. 7. RESTRICTED STOCK. Any restricted stock issued by Kaiser in lieu of cash payments in connection with Employee's base salary or any bonus, shall be subject to the terms and conditions of a mutually agreed upon stock restriction agreement which may provide, among other things, for the forfeiture of such stock in phases if Employee should voluntarily terminate his employment with Kaiser within a certain period of time. The restricted stock granted as part of Employee's 1996 salary shall vest on January 15, 1997. The restricted stock granted as a part of Employee's 1995 bonus shall vest 50% on January 15, 1997 and 50% on January 15, 1998, and as otherwise provided in the stock restriction agreement for each grant. 8. DEDUCTIONS. Applicable federal and state income taxes, social security contributions (FICA), Medicare contributions, medical insurance premiums and any other appropriate or customary deductions shall withheld from any compensation paid to Employee by Kaiser. 9. CHANGE OF CONTROL. If Kaiser is sold or merged with another company, or all or a substantial portion of all of the principal assets of the Kaiser (as determined on a cumulative basis from the date of this Agreement) are sold or transferred to shareholders or third parties or more than twenty-five percent (25%) of the outstanding capital stock of the Company is acquired by another person or persons acting as a group (any of these events being a "Change of Control"), and if thereafter without Employee's prior consent, there shall be: a. Any involuntary termination of Employee's employment (other than for cause, death or disability); b. Any material reduction in Employee's positions, responsibilities, including reporting responsibilities, or authority, including title, responsibilities or authority as it may be increased from time-to-time; c. The assignment to Employee of duties inconsistent with Employee's positions immediately prior to a Change in Control or as the same may be increased from time-to-time after a Change in Control; d. Any assignment to a location unacceptable to Employee; 3 e. Any failure to provide Employee with compensation and benefits on terms at least as favorable as those enjoyed by Employee under this Agreement immediately prior to a Change in Control, or the taking of any action that would materially reduce any of Employee's compensation and benefits in effect at the time of the Change in Control; f. Any requirement that Employee travel in performance of his duties on behalf of Kaiser for a substantially greater period of time during any year than was required of him during the year preceding the year in which the Change of Control occurred; g. Any failure of Kaiser's Board of Directors to nominate Employee for election as a member of Kaiser's Board of Directors and to elect him as Chairman, as the case may be, at the expiration of Employee's then existing term of office then, at Employee's option, exercisable within ninety (90) days of the date Employee knew, or should have known exercising reasonable care, of the occurrence of any of the foregoing events and the expiration of any applicable cure period, Employee shall have the right to terminate his employment by written notice to Kaiser, and on the date of such termination Kaiser will pay Employee an amount equal to one year's annual base salary (based on Employee's then current base salary) payable in one lump sum or, at Employee's option, over such period of time not to exceed twelve (12) months. In addition, for a period of one (1) year following Employee's termination of employment as provided herein, Employee will continue to receive all benefits afforded to him prior to the Change of Control at Kaiser's expense. Furthermore, options to acquire shares of Kaiser stock, restricted stock or any other stock related incentive will immediately and fully vest, notwithstanding any other applicable vesting schedule. After such termination, Employee shall be entitled, for a period of two years, to exercise his stock options as to all such shares. This provision shall take precedence over any contrary provision in any standard stock option agreement. The parties acknowledge that Kaiser is evaluating this provision which may lead to an amendment of this provision to more closely align shareholders and management's financial interests, but any such revision shall be mutually agreeable to Kaiser and Employee. 10. TERMINATION OF EMPLOYMENT. a. TERMINATION WITHOUT CAUSE OR EXTENSION OF EMPLOYMENT. In the ------------------------------------------------------ event Kaiser elects to terminate Employee's employment without cause (as defined below) during the term of this Agreement or in the event Kaiser or Employee elect for any reason not to continue Employee's employment for at least one year after the scheduled expiration of this Agreement, then Kaiser agrees to pay Employee an amount equal to one year's annual base salary (based on your then current annual base salary). In the event neither party notifies the other in writing prior to January 15, 1998, that Employee's services will not continue beyond the scheduled term of this Agreement, the term of this Agreement will be automatically extended for one (1) additional year. After such termination or failure to continue employment, Employee shall be entitled, for a period of 4 two years to exercise his stock options as to any then vested, including any options within one year of termination or failure to continue employment, notwithstanding any other applicable provision contained in any option agreement. In addition to the foregoing related to stock options, with respect to any restricted stock or other stock related incentives, Employee shall continue to vest in such securities for a period of one year following termination or failure to continue Employee's employment as provided herein. b. TERMINATION FOR CAUSE. If Kaiser elects to terminate Employee's ---------------------- employment for cause (as defined below), Employee's employment will terminate on the date fixed for termination by Kaiser and thereafter Kaiser will not be obligated to pay Employee any additional compensation, other than the compensation due and owing up to the date of termination. After such termination, Employee shall be entitled, for a period of ninety (90) days, to exercise any stock options or other stock related incentives that are vested as of the date of termination. c. DEFINITION OF CAUSE. "CAUSE" for the purposes of this Agreement -------------------- shall mean any of the following: i. Willful breach by Employee of any provision of this Agreement, provided, however, if the breach is not a material breach, Kaiser shall give Employee written notice of such breach and Employee shall have thirty (30) days in which to cure such breach. No written notice or cure period shall be required in the event of a willful and material breach of this Agreement by Employee; ii. Gross negligence or dishonesty in the performance of Employee's duties or responsibilities hereunder; iii. Engaging in conduct or activities or holding any position that materially conflicts with the interest of, or materially interferes with Employee's duties and responsibilities to Kaiser or its Affiliates; or iv. Engaging in conduct which is materially detrimental to the business of Kaiser or its affiliates. d. WRITTEN AGREEMENT. This Agreement may be terminated at any ----------------- time upon the parties mutual written agreement. 11. CONFIDENTIALITY a. EMPLOYEE'S OBLIGATIONS. Employee agrees that (a) except as ---------------------- provided in this Agreement Employee shall maintain the confidential nature of any Proprietary Information received or acquired by him, and (b) Employee shall use such Proprietary Information solely for the purpose of meeting his obligations under this Agreement and not in connection with any other business or activity. "PROPRIETARY INFORMATION" means all oral, written or recorded information about or related to the Kaiser or any of its Affiliates or its or their technology, assets, liabilities, or business, whether acquired before or after the date hereof, and regardless of the manner in which it is acquired, together with any documents or other materials prepared by Employee which 5 contain or reflect such information. After termination of employment upon demand of Kaiser, Employee agrees to return or destroy any and all materials containing any Proprietary Information. b. KAISER'S OBLIGATIONS. Kaiser agrees that it shall maintain the -------------------- confidential nature of any confidential information pertaining to Employee, except such disclosures as requested by law. c. LIMITATIONS ON CONFIDENTIAL OBLIGATIONS AND USE RESTRICTIONS. ------------------------------------------------------------ The restrictions in Paragraphs 11(a) and (b) above do not apply to information which the disclosing party can demonstrate (i) is then in the public domain by acts not attributable to such disclosing party or (ii) is hereafter received on an unrestricted basis by such disclosing party from a third party source who, to such disclosing party's knowledge after due inquiry, is not and was not bound by confidentiality obligations to Kaiser or any Affiliate thereof (in the case of Paragraph 11(a)) or to Employee (in the case of Paragraph 11(b)). In addition, Employee and Kaiser are permitted to disclose any Proprietary Information as necessary in the defense or prosecution of any legal action. d. ACTIONS IF DISCLOSURE REQUIRED. If Employee is required by law ------------------------------- to make any disclosure otherwise prohibited hereunder, such party shall use its best efforts to provide the other with prompt prior notice where possible so that (a) the other party (with the reasonable cooperation of the party required to make such disclosure) may seek an appropriate protection order or other remedy and/or (b) the parties can seek in good faith to agree on the appropriate scope and approach to disclosure. If a protective order or other remedy is not obtained, the party required to make such disclosure may furnish only that portion of information protection hereby which it is legally compelled to disclose and shall use its reasonable efforts to obtain confidential treatment for all information so disclosed. e. INJUNCTION. Each party agrees that remedies at law may be ----------- inadequate to protect against breach of this Paragraph 10, and hereby agrees to the granting of injunctive relief without proof of actual damage. 12. MISCELLANEOUS. a. ENTIRE AGREEMENT; AMENDMENTS. This Agreement states the entire ----------------------------- understanding and agreement between the parties with respect to its subject matter and may only be amended by a written instrument duly executed by Employee and Kaiser. b. ASSIGNMENT. This Agreement and the rights and obligations of ----------- Employee may not be sold, transferred, assigned, pledged or hypothecated by Employee. c. NON-WAIVER. Failure to insist upon strict compliance with any ----------- provision of this Agreement or the waiver of any specific event of non- compliance shall not be deemed to be or operate as a waiver of such provision or any other provision hereof or any other event of non-compliance. 6 d. BINDING EFFECT. This Agreement shall be binding upon and inure --------------- to the benefit of Kaiser, its successors and assigns and, Employee's heirs, successors, and legal or personal representatives. e. HEADINGS. The headings throughout this Agreement are for --------- convenience only and shall in no way be deemed to define, limit, or add to the meaning of any provision of this Agreement. f. CONTEXT. Whenever required by the context, the singular shall -------- include the plural, the plural the singular, and one gender such other gender as is appropriate. g. NOTICES. All notices, request, demands, consents and other -------- communications hereunder shall be transmitted in writing and shall be deemed to have been duly given when hand delivered or sent by certified United States mail, postage prepaid, with return by certified requested, addressed to the parties as follows: Kaiser Ventures Inc. 3633 E. Inland Empire Blvd., Suite 850 Ontario, CA 91764 Richard E. Stoddard 1111 Crestridge Drive Littleton, CO 80121 h. COSTS. In the event any party hereto is successful in whole or ------ in part in any action taken to enforce the provisions of this Agreement, the prevailing party shall be reimbursed all costs incurred in such legal action including reasonable attorney's fees in such action. i. SEVERABILITY. If any provision or clause of this Agreement, as ------------- applied to any party or circumstances shall be adjudged by a court to be invalid or unenforceable, said adjudication shall in no manner effect any other provision of this Agreement, the application of such provision to any other circumstances or the validity or enforceability of this Agreement. j. DEFINITION OF AFFILIATE. The term "AFFILIATE" for purposes of ------------------------ this Agreement shall mean any person or entity now or hereafter in control, controlled by or in common control with Kaiser. It shall also include any direct or indirect subsidiary of such Corporation and any company in which Kaiser has more than a ten percent (10%) ownership interest. k. GOVERNING LAW. This Agreement shall be governed by and -------------- construed in accordance with the laws of the State of California. 7 IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement to be effective as of the day and year first written above not withstanding the actual date of signature. "EMPLOYEE" RICHARD E. STODDARD /s/ Richard E. Stoddard -------------------------------- Richard E. Stoddard "KAISER" KAISER VENTURES INC. By: /s/ Lyle B. Stevenson ------------------------------ Lyle B. Stevenson, Chairman of the Compensation and Benefits Committee By: /s/ James F. Verhey ----------------------------- James F. Verhey, Senior Vice President-Finance 8 SCHEDULE "A" Richard E. Stoddard Chairman of the Board of Directors and Chief Executive Officer This position will report to the Board of Directors. RESPONSIBILITIES: This position has total responsibility for ever facet of the strategy, planning, operation, project implementation, performance and direction of Kaiser Ventures Inc. and all its subsidiaries. Within this framework of ultimate responsibility, Mr. Stoddard has delegated certain operational and implementation duties to the President and Chief Operating Officer. Shown below are strategic functions which will remain under the direct control of Mr. Stoddard as Chairman and CEO. . Corporate planning and strategy. . Determination of the direction and goals of the Company. . Future growth opportunity decisions. . Development of all project exit strategies. . Major corporate financial or other resource commitments. . All phases of investor relations. . Relationships with major shareholders. . All phases of the corporation's legal strategy, including compliance with laws and regulations. . Outside auditor performance and relationships. . Corporate accounting policies and financial reporting responsibilities. . Corporate financing strategy and fiscal accountability. . Major joint venture partner relations. . Major negotiations on behalf of the corporation. . Financial analysis and modeling of corporate opportunities. . Political lobbying at the Federal and State level. . Public relations and corporate participation policy. . Establishment of policies for the conduct of the Company's business. . Oversee the implementation of corporate policy. . As chairman, conduct the meetings and business of the Board of Directors. . Implement the decisions of the Board of Directors. 9 EX-10.5 5 EMPLOYMENT AGREEMENT OF GERALD A. FAWCETT EXHIBIT 10.5 EMPLOYMENT AGREEMENT OF GERALD A. FAWCETT THIS EMPLOYMENT AGREEMENT is made and entered into effective January 15, 1996 by and between Gerald A. Fawcett ("EMPLOYEE") and Kaiser Ventures Inc. ("KAISER"). RECITALS A. Employee is currently employed by Kaiser as its Executive Vice President. B. Kaiser desires to expand Employee's duties and responsibilities by appointing him President and Chief Operating Officer of the Corporation. C. The intent of this Agreement is to set forth the current agreement and understanding of Employee and Kaiser with regard to Employee's continued employment by Kaiser. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EMPLOYMENT, POSITIONS AND DUTIES. Kaiser hereby continues the employment of Employee upon the terms and conditions set forth in this Agreement. Employee's positions with Kaiser shall be President and Chief Operating Officer reporting to the Chief Executive Officer. Employee shall have the responsibilities and duties normally incident to such positions, including, but not limited to, those duties and responsibilities set forth in Exhibit "A" attached hereto and incorporated herein by this reference and such other duties and responsibilities as may be reasonably assigned to him from time-to-time by Kaiser's Chief Executive Officer. Employee agrees to devote his full business time and attention to the discharge of his duties and responsibilities under this Agreement. 2. TERM. Subject to the provisions for termination hereinafter provided, the term of Employee's employment shall commence as of January 15, 1996, and shall terminate on January 15, 1998. 3. BASE SALARY. Employee's annual base salary shall be Two-Hundred Thousand Dollars ($200,000) per year. Notwithstanding the foregoing, the Board of Directors may in good faith and in its reasonable discretion may elect to cause the Corporation to issue to Employee restricted stock with a value of up to Forty Thousand Dollars ($40,000) per year in lieu of cash compensation provided that subsequent to the date of this Agreement there are no material adverse changes in the tax and securities laws pertaining to or affecting Employee's receipt, taxation, sale or transfer of restricted stock. In the event of any material adverse change in the tax or securities laws during the year preceding any proposed grant of restricted stock pertaining to Employee's receipt, taxation, sale or transfer of restricted stock as reasonably determined in good faith by Employee or Kaiser, Employee and Kaiser shall in good faith discuss any changes that may be appropriate or necessary in connection with any grant of restricted stock to Employee. For 1996, as a part of Employee's annual base salary the Board has elected to issue to Employee Forty Thousand Dollars ($40,000) of restricted stock in 1 lieu of Forty Thousand Dollars ($40,000) cash compensation. In the event that any restricted stock is issued to Employee as a part of his annual base salary, the value of such restricted stock at the time of its grant shall be counted as base salary in the calculation of any bonus that may be awarded to Employee. For all other purposes, any such stock shall be treated as salary for the calculation of any benefits based upon an employee's salary as may be required by law or any benefit plan. Prior to the first meeting of the Board of Directors in any calendar year, the Compensation and Benefits Committee of the Board will review Employee's salary and report its recommendations for any revision to the full Board at such meeting. Employee's annual base salary shall be adjusted effective as of January 1 of each year, commencing January 1, 1997, by the increase in the consumer price index over the prior applicable year utilizing the Consumer Price Index for Urban Wage Earners and Clerical Workers, U.S. City Average, All Items, published by the Bureau of Labor Statistics of the United Stated Department of Labor. The entire Board of Directors has final responsibility for the review, approval or disapproval of any revisions to Employee's annual base salary. 3. ANNUAL BONUS; ELIMINATION OF EAGLE MOUNTAIN BONUS. In addition to his base salary, Employee shall be entitled to participate in the bonus program of Kaiser applicable to senior executives as it may be amended from time to time. The timing, size and/or amount of any bonus awarded to Employee during the term of this Agreement will be determined in accordance with the process set forth in paragraph 2 above for the annual base salary review and based upon the bonus program developed from time to time by the Compensation and Benefits Committee and approved by the Board of Directors. The bonus for any year, if any, will be determined based upon such review. Pursuant to previous agreements and understanding with Employee, Employee was entitled to receive a bonus upon the permitting of the Eagle Mountain landfill project. Employee and Kaiser agree that such bonus provisions are hereby terminated and Employee shall no longer have the contractual right to receive a bonus upon the permitting of the Eagle Mountain landfill. 4. STOCK OPTIONS AND OTHER STOCK RELATED INCENTIVES. Employee shall be eligible for the grant of incentive stock options, non-qualified stock options and other forms of stock related incentives from time-to-time in the discretion of the Stock Option Committee of the Board of Directors. The timing, size and amount of any future stock options or other stock related incentives will be determined generally in accordance with the process used to determine the award of any bonus to Employee. The grant and exercise of the stock options and other stock related incentives shall generally be subject to and governed by the terms of Kaiser's 1995 Stock Option Plan or any similar or successor plan. However, the Stock Option Committee may award stock options, restricted or other stock related incentives outside the 1995 Stock Option Plan in its discretion. For 1996, the Stock Option Committee has awarded to Employee stock options for 10,000 shares pursuant to the 1995 Stock Option Plan. 5. OTHER BENEFITS. Employee will be entitled to participate in all benefits provided by Kaiser to its employees and to senior executives in accordance with and subject to Kaiser's polices and procedures as they may exist from time-to-time, including, but not limited to, medical and dental insurance, life insurance, 401(k) savings plan, any pension plan, deferred 2 compensation plan, education and seminar reimbursement, car allowance, and reimbursement of reasonable expenses for company business. Employee shall be entitled to four (4) weeks of paid vacation per year. 6. RESTRICTED STOCK. Any restricted stock issued by Kaiser in lieu of cash payments in connection with Employee's base salary or any bonus, shall be subject to the terms and conditions of a mutually agreed upon stock restriction agreement which may provide, among other things, for the forfeiture of such stock in phases if Employee should voluntarily terminate his employment with Kaiser within a certain period of time. In addition to any other rights to vest in such stock, the restricted stock granted as part of Employee's 1996 annual base salary shall vest on January 15, 1997. 7. DEDUCTIONS. Applicable federal and state income taxes, social security contributions (FICA), Medicare contributions, medical insurance premiums and any other appropriate or customary deductions shall withheld from any compensation paid to Employee by Kaiser. 8. SALARY MAKE-UP PAYMENT. In recognition of Employee's services to Kaiser in 1995 beyond those scheduled to be performed by Employee, Employee shall receive a salary make-up payment of Thirty Nine Thousand Dollars ($39,000). 9. CHANGE OF CONTROL. If Kaiser is sold or merged with another company, or all or a substantial portion of all of the principal assets of the Kaiser (as determined on a cumulative basis from the date of this Agreement) are sold or transferred to shareholders or third parties or more than twenty-five percent (25%) of the outstanding capital stock of the Company is acquired by another person or persons acting as a group (any of these events being a "Change of Control"), and if thereafter without Employee's prior consent, there shall be: a. Any involuntary termination of Employee's employment (other than for cause, death or disability); b. Any material reduction in Employee's positions, responsibilities, including reporting responsibilities, or authority, including title, responsibilities or authority as it may be increased from time-to-time; c. The assignment to Employee of duties inconsistent with Employee's positions immediately prior to a Change in Control or as the same may be increased from time-to-time after a Change in Control; d. Any assignment to a location unacceptable to Employee; e. Any failure to provide Employee with compensation and benefits on terms at least as favorable as those enjoyed by Employee under this Agreement immediately prior to a Change in Control, or the taking of any action that would materially reduce any of Employee's compensation and benefits in effect at the time of the Change in Control; 3 f. Any requirement that Employee travel in performance of his duties on behalf of Kaiser for a substantially greater period of time during any year than was required of him during the year preceding the year in which the Change of Control occurred; then, at Employee's option, exercisable within ninety (90) days of the date Employee knew, or should have known exercising reasonable care, of the occurrence of any of the foregoing events and the expiration of any applicable cure period, Employee shall have the right to terminate his employment by written notice to Kaiser, and on the date of such termination Kaiser will pay Employee an amount equal to one year's annual base salary (based on Employee's then current base salary) payable in one lump sum or, at Employee's option, over such period of time not to exceed twelve (12) months. In addition, for a period of one (1) year following Employee's termination of employment as provided herein, Employee will continue to receive all benefits afforded to him prior to the Change of Control at Kaiser's expense. Furthermore, options to acquire shares of Kaiser stock, restricted stock or any other stock related incentive will immediately and fully vest, notwithstanding any other applicable vesting schedule. After such termination, Employee shall be entitled, for a period of two years, to exercise his stock options as to all such shares. This provision shall take precedence over any contrary provision in any standard stock option agreement. The parties acknowledge that Kaiser is evaluating this provision which may lead to an amendment of this provision to more closely align shareholders and management's financial interests, but any such revision shall be mutually agreeable to Kaiser and Employee. 10. TERMINATION OF EMPLOYMENT. a. TERMINATION WITHOUT CAUSE. In the event Kaiser elects to -------------------------- terminate Employee's employment without cause (as defined below) during the term of this Agreement, then Kaiser agrees to pay Employee an amount equal to one year's annual base salary (based on your then current annual base salary). After such termination Employee shall be entitled, for a period of two years to exercise his stock options as to any then vested, including any options within one year of termination or failure to continue employment, notwithstanding any other applicable provision contained in any option agreement. In addition to the foregoing, with respect to any restricted stock or other stock related incentives, Employee shall continue to vest in such securities for a period of one year following termination or failure to continue Employee's employment as provided herein. b. TERMINATION FOR CAUSE. If Kaiser elects to terminate ---------------------- Employee's employment for cause (as defined below), Employee's employment will terminate on the date fixed for termination by Kaiser and thereafter Kaiser will not be obligated to pay Employee any additional compensation, other than the compensation due and owing up to the date of termination. After such termination, Employee shall be entitled, for a period of ninety (90) days, to exercise any stock options or other stock related incentives that are vested as of the date of termination. c. DEFINITION OF CAUSE. "CAUSE" for the purposes of this -------------------- Agreement shall mean any of the following: 4 i. Willful breach by Employee of any provision of this Agreement, provided, however, if the breach is not a material breach, Kaiser shall give Employee written notice of such breach and Employee shall have thirty (30) days in which to cure such breach. No written notice or cure period shall be required in the event of a willful and material breach of this Agreement by Employee; ii. Gross negligence or dishonesty in the performance of Employee's duties or responsibilities hereunder; iii. Engaging in conduct or activities or holding any position that materially conflicts with the interest of, or materially interferes with Employee's duties and responsibilities to Kaiser or its Affiliates; or iv. Engaging in conduct which is materially detrimental to the business of Kaiser or its affiliates. d. WRITTEN AGREEMENT. This Agreement may be terminated at ------------------ any time upon the parties mutual written agreement. 11. CONFIDENTIALITY a. EMPLOYEE'S OBLIGATIONS. Employee agrees that (a) except as ---------------------- provided in this Agreement Employee shall maintain the confidential nature of any Proprietary Information received or acquired by him, and (b) Employee shall use such Proprietary Information solely for the purpose of meeting his obligations under this Agreement and not in connection with any other business or activity. "PROPRIETARY INFORMATION" means all oral, written or recorded information about or related to the Kaiser or any of its Affiliates or its or their technology, assets, liabilities, or business, whether acquired before or after the date hereof, and regardless of the manner in which it is acquired, together with any documents or other materials prepared by Employee which contain or reflect such information. After termination of employment upon demand of Kaiser, Employee agrees to return or destroy any and all materials containing any Proprietary Information. b. KAISER'S OBLIGATIONS. Kaiser agrees that it shall maintain -------------------- the confidential nature of any confidential information pertaining to Employee, except such disclosures as requested by law. c. LIMITATIONS ON CONFIDENTIAL OBLIGATIONS AND USE RESTRICTIONS. ------------------------------------------------------------ The restrictions in Paragraphs 11(a) and (b) above do not apply to information which the disclosing party can demonstrate (i) is then in the public domain by acts not attributable to such disclosing party or (ii) is hereafter received on an unrestricted basis by such disclosing party from a third party source who, to such disclosing party's knowledge after due inquiry, is not and was not bound by confidentiality obligations to Kaiser or any Affiliate thereof (in the case of Paragraph 11(a)) or to Employee (in the case of Paragraph 11(b)). In addition, Employee and Kaiser are permitted to disclose any Proprietary Information as necessary in the defense or prosecution of any legal action. 5 d. ACTIONS IF DISCLOSURE REQUIRED. If Employee is required by ------------------------------- law to make any disclosure otherwise prohibited hereunder, such party shall use its best efforts to provide the other with prompt prior notice where possible so that (a) the other party (with the reasonable cooperation of the party required to make such disclosure) may seek an appropriate protection order or other remedy and/or (b) the parties can seek in good faith to agree on the appropriate scope and approach to disclosure. If a protective order or other remedy is not obtained, the party required to make such disclosure may furnish only that portion of information protection hereby which it is legally compelled to disclose and shall use its reasonable efforts to obtain confidential treatment for all information so disclosed. e. INJUNCTION. Each party agrees that remedies at law may be ----------- inadequate to protect against breach of this Paragraph 11, and hereby agrees to the granting of injunctive relief without proof of actual damage. 12. MISCELLANEOUS. a. ENTIRE AGREEMENT; AMENDMENTS. This Agreement states the ----------------------------- entire understanding and agreement between the parties with respect to its subject matter and may only be amended by a written instrument duly executed by Employee and Kaiser. b. ASSIGNMENT. This Agreement and the rights and obligations of ----------- Employee may not be sold, transferred, assigned, pledged or hypothecated by Employee. c. NON-WAIVER. Failure to insist upon strict compliance with any ----------- provision of this Agreement or the waiver of any specific event of non- compliance shall not be deemed to be or operate as a waiver of such provision or any other provision hereof or any other event of non-compliance. d. BINDING EFFECT. This Agreement shall be binding upon and --------------- inure to the benefit of Kaiser, its successors and assigns and, Employee's heirs, successors, and legal or personal representatives. e. HEADINGS. The headings throughout this Agreement are for --------- convenience only and shall in no way be deemed to define, limit, or add to the meaning of any provision of this Agreement. f. CONTEXT. Whenever required by the context, the singular shall -------- include the plural, the plural the singular, and one gender such other gender as is appropriate. g. NOTICES. All notices, request, demands, consents and other -------- communications hereunder shall be transmitted in writing and shall be deemed to have been duly given when hand delivered or sent by certified United States mail, postage prepaid, with return by certified requested, addressed to the parties as follows: Kaiser Ventures Inc. 3633 E. Inland Empire Blvd., Suite 850 Ontario, CA 91764 6 Gerald A. Fawcett 11633 Holmes Yucaipa, Ca 92399 h. COSTS. In the event any party hereto is successful in whole ------ or in part in any action taken to enforce the provisions of this Agreement, the prevailing party shall be reimbursed all costs incurred in such legal action including reasonable attorney's fees in such action. i. SEVERABILITY. If any provision or clause of this Agreement, ------------- as applied to any party or circumstances shall be adjudged by a court to be invalid or unenforceable, said adjudication shall in no manner effect any other provision of this Agreement, the application of such provision to any other circumstances or the validity or enforceability of this Agreement. j. DEFINITION OF AFFILIATE. The term "AFFILIATE" for purposes of ------------------------ this Agreement shall mean any person or entity now or hereafter in control, controlled by or in common control with Kaiser. It shall also include any direct or indirect subsidiary of such Corporation and any company in which Kaiser has more than a ten percent (10%) ownership interest. k. GOVERNING LAW. This Agreement shall be governed by and -------------- construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement to be effective as of the day and year first written above not withstanding the actual date of signature. "EMPLOYEE" GERALD A. FAWCETT /s/ Gerald A. Fawcett --------------------- Gerald A. Fawcett "KAISER" KAISER VENTURES INC. By: /s/ Lyle B. Stevenson ------------------------- Lyle B. Stevenson, Chairman of the Compensation and Benefits Committee By: /s/ James F. Verhey ------------------------- James F. Verhey, Senior Vice President-Finance 7 SCHEDULE "A" GERALD A. FAWCETT PRESIDENT & CHIEF OPERATING OFFICER Position shall report directly to the C.E.O. RESPONSIBILITIES: - ----------------- . Day-to-day management issues, performance, and operational decisions at all locations and MRC. . Administrative issues, performance, decisions at all locations and MRC. . Personnel issues. . Budget preparation and budget performance. . Control capital expenditures. . Oversee capital projects. . Implementation of specific strategic decisions and corporate policy. . Operational purchases and asset sales. . Operational legal issues, i.e. contracts, leases, agreements, disputes, etc. . Employee and community communications. . Retiree communications and relations. . Kaiser-Burrtec joint venture issues, including the MRF. . Local cities and county relations. . Local political relations and communication. . Interaction with various agency and regulatory bodies. . Tenant, vendor, and contractor issues, all locations. . Marketing MRC. . Conflict resolution, all locations, internal and external. . Political campaign contributions. . Charitable donations. . Employee participation in community and business organizations, memberships. . Employee training and education. . Fill in for C.E.O. when necessary. . Other duties as directed by the C.E.O. 8 EX-10.15 6 KAISER VENTURES INC. 1995 STOCK OPTION PLAN EXHIBIT 10.15 KAISER VENTURES INC. 1995 STOCK OPTION PLAN
SECTION CONTENTS PAGE - ------- -------- ---- 1. General Purpose of Plan; Definitions 1 2. Administration 3 3. Stock Subject to Plan 4 4. Eligibility 5 5. Stock Options 5 6. Stock Appreciation Rights 9 7. Restricted Stock 10 8. Deferred Stock Awards 12 9. Transfer, Leave of Absence, etc. 13 10. Amendments and Termination 13 11. Unfunded Status of Plan 14 12. General Provisions 14 13. Effective Date of Plan 15
KAISER VENTURES INC. 1995 STOCK OPTION PLAN SECTION 1. General Purpose of Plan; Definitions. ------------------------------------ The name of this plan is the Kaiser Ventures Inc. 1995 Stock Option Plan (the "Plan"). The purpose of the Plan is to enable Kaiser Ventures Inc. (the "Company") and its Subsidiaries to retain and attract executives and other key employees, non-employee directors and consultants who contribute to the Company's success by their ability, ingenuity and industry, and to enable such individuals to participate in the long-term success and growth of the Company by giving them a proprietary interest in the Company. For purposes of the Plan, the following terms shall be defined as set forth below: a. "Board" means the Board of Directors of the Company as it may be ----- comprised from time to time. b. "Cause" means a felony conviction of a participant or the failure of a ----- participant to contest prosecution for a felony, willful misconduct, dishonesty or intentional violation of a statute, rule or regulation, any of which, in the judgment of the Company, is harmful to the business or reputation of the Company. c. "Code" means the Internal Revenue Code of 1986, as amended from time to ---- time, or any successor statute. 2 d. "Committee" means the Committee referred to in Section 2 of the Plan. If --------- at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Board, unless the Plan specifically states otherwise. e. "Consultant" means any person performing services for the Company or any ---------- Parent Corporation or Subsidiary of the Company and who is not (i) an employee of the Company or any Parent Corporation or Subsidiary of the Company or (ii) a Non-Employee Director. f. "Company" means Kaiser Ventures Inc., a corporation organized under the ------- laws of the State of Delaware (or any successor corporation). g. "Deferred Stock" means an award made pursuant to Section 8 below of the -------------- right to receive stock at the end of a specified deferral period. h. "Disability" means permanent and total disability as determined by the ---------- Committee. i. "Disinterested Person" shall have the meaning set forth in Rule 16b- -------------------- 3(c)(2)(i) as promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, or any successor definition adopted by the Commission. j. "Early Retirement" means retirement, with consent of the Committee at the ---------------- time of retirement, from active employment with the Company and any Subsidiary or Parent Corporation of the Company. k. "Fair Market Value" of Stock on any given date shall be determined by the ----------------- Committee as follows: (a) if the Stock is listed for trading on one of more national securities exchanges, or is traded on the Nasdaq Stock Market, the average of the bid and ask prices for the Stock on the principal such exchange or the Nasdaq Stock Market for the five business days prior to and including the date in question, or if such Stock shall not have been traded on such principal exchange on any such date, the last reported sales price on such principal exchange or the Nasdaq Stock Market on the first day prior thereto on which such Stock was so traded; or (b) if the Stock is not listed for trading on a national securities exchange or the Nasdaq Stock Market, but is traded in the over-the- counter market, including the Nasdaq System, closing bid price for such Stock on the date in question, or if there is no such bid price for such Stock on such date, the closing bid price on the first day prior thereto on which such price existed; or (c) if neither (a) or (b) is applicable, by any means fair and reasonable by the Committee, which determination shall be final and binding on all parties. l. "Incentive Stock Option" means any Stock Option intended to be and ---------------------- designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code. m. "Non-Employee Director" means any member of the Board who is not an --------------------- employee of the Company, any Parent Corporation or Subsidiary. n. "Non-Qualified Stock Option" means any Stock Option that is not an -------------------------- Incentive Stock Option, and is intended to be and is designated as a "Non-Qualified Stock Option." o. "Normal Retirement" means retirement from active employment with the ----------------- Company and any Subsidiary or Parent Corporation of the Company on or after age 60. 3 p. "Parent Corporation" means any corporation (other than the Company) in an ------------------ unbroken chain of corporations ending with the Company if each of the corporations (other than the Company) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. q. "Restricted Stock" means an award of shares of Stock that are subject to ---------------- restrictions under Section 7 below. r. "Retirement" means Normal Retirement or Early Retirement. ---------- s. "Stock" means the Common Stock, $.03 par value per share, of the Company. ----- t. "Stock Appreciation Right" means the right pursuant to an award granted ------------------------ under Section 6 below to surrender to the Company all or a portion of a Stock Option in exchange for an amount equal to the difference between (i) Fair Market Value, as of the date such Stock Option or such portion thereof is surrendered, of the shares of Stock covered by such Stock Option or such portion thereof, and (ii) the aggregate exercise price of such Stock Option or such portion thereof. u. "Stock Option" means any option to purchase shares of Stock granted ------------ pursuant to Section 5 below. v. "Subsidiary" means any corporation (other than the Company) in an ---------- unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. SECTION 2. Administration. -------------- The Plan shall be administered by the Board of Directors or by a Committee of not less than three, or if allowed by Rule 16b-3 or any successor rule, two Disinterested Persons, who shall be appointed by the Board of Directors of the Company and who shall serve at the pleasure of the Board. The Committee shall have the power and authority to grant to eligible employees or Consultants, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, or (iv) Deferred Stock awards. In particular, the Committee shall have the authority: (i) to select the officers and other key employees of the Company and its Subsidiaries and other eligible persons to whom Stock Options, Stock Appreciation Rights, Restricted Stock and/or Deferred Stock awards may from time to time be granted hereunder; (ii) to determine whether and to what extent Incentive Stock Options, Non- Qualified Stock Options, Stock Appreciation Rights, Restricted Stock and/or Deferred Stock awards, or a combination of the foregoing, are to be granted hereunder; (iii) to determine the number of shares to be covered by each such award granted hereunder; (iv) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, any restriction on any Stock Option or other 4 award and/or the shares of Stock relating thereto), which authority shall be exclusively vested in the Committee (and not the Board) for purposes of establishing performance criteria used with Restricted Stock and Deferred Stock awards; and (v) to determine whether, to what extent and under what circumstances Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of the participant. The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. The Committee may delegate its authority to officers of the Company for the purpose of selecting employees who are not officers of the Company for purposes of (i) above. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants. SECTION 3. Stock Subject to Plan. --------------------- (a) The total number of shares of Stock reserved and available for distribution under the Plan other than pursuant to Section 5(k) shall be 2% of the number of shares of Stock outstanding on July 1, 1995; provided, however, that on July 1, 1996 and July 1, 1997, such number shall be increased by a number equal to 2% of the number of shares of Stock outstanding on such date; and provided further that any shares of Stock not subject to issuance pursuant to outstanding Stock Options as of June 30, 1996 and 1997, respectively, shall not be available for issuance pursuant to Stock Options granted after the close of the period ending on the respective June 30. For purposes of the preceding sentence, common stock of the Company (excluding Treasury shares) shall be included when calculating the number of shares of stock outstanding on a given date. Notwithstanding the foregoing, the total number of shares reserved and available for distribution under the Plan pursuant to Incentive Stock Options granted hereunder shall be 625,000, subject to any adjustment which may be made under the following paragraph. Such shares may consist, in whole or in part, of authorized and unissued shares. If during the year during which shares of Stock initially become subject to Stock Options, the shares of Stock cease to become subject to Stock Options, the shares of Stock may become subject to Stock Options again under the Plan, but only during such year. For purposes of the preceding sentence, the term year shall mean the period beginning on July 1 and ending on June 30 of the following year. In addition to the shares of Stock reserved and available for distribution under the Plan as described in the preceding paragraph, the total number shares of Stock reserved and available for distribution under the Plan shall include such additional Stock as to which Stock Options are granted pursuant to Section 5(k). (b) Subject to paragraph (b)(iv) of Section 6 below, if any shares that have been optioned cease to be subject to Stock Options, or if any shares subject to any Restricted Stock or Deferred Stock award granted hereunder are forfeited or such award otherwise terminates without a payment being made to the participant, such shares shall again be available for distribution in connection with future awards under the Plan, subject to the provisions of Section 3(a) above, but only during the year during which shares of Stock initially become subject to such Stock Options, Restricted Stock or Deferred Stock awards. (c) In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, other change in corporate structure affecting the Stock, or spin-off or other distribution of assets to shareholders, such substitution or adjustment shall be made in the aggregate number of shares reserved for issuance 5 under the Plan, in the number and option price of shares subject to outstanding options granted under the Plan, and in the number of shares subject to Restricted Stock or Deferred Stock awards granted under the Plan as may be determined to be appropriate by the Committee, in its sole discretion, provided that the number of shares subject to any award shall always be a whole number. Such adjusted option price shall also be used to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right associated with any Option. SECTION 4. Eligibility. ----------- Officers, other key employees of the Company and Subsidiaries, Non-Employee Directors, and Consultants who are responsible for or contribute to the management, growth and/or profitability of the business of the Company and its Subsidiaries are eligible to be granted Stock Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock awards under the Plan. Except for Non-Employee Directors, whose participation in the Plan shall be limited as provided in paragraph (k) of Section 5, the optionees and participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of shares covered by each award. SECTION 5. Stock Options. ------------- Any Stock Option granted under the Plan shall be in such form and upon such terms and conditions as the Committee may from time to time approve. In addition, subject to the restrictions contained in this Plan and applicable law, the Committee shall have the authority to modify the terms and conditions of any previously granted Stock Option. The Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. No Options shall be granted under the Plan after June 30, 1998. The Committee shall have the authority to grant any optionee Incentive Stock Options, Non-Qualified Stock Options, or both types of options (in each case with or without Stock Appreciation Rights). To the extent that any option does not qualify as an Incentive Stock Option, it shall constitute a separate Non- Qualified Stock Option. Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify either the Plan or any Incentive Stock Option under Section 422 of the Code. The preceding sentence shall not preclude any modification or amendment to an outstanding Incentive Stock Option, whether or not such modification or amendment results in disqualification of such Option as an Incentive Stock Option, provided the optionee consents in writing to the modification or amendment. Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable. (a) Option Price. The option price per share of Stock purchasable under a ------------ Stock Option shall be determined by the Committee at the time of grant. In no event shall the option price per share of Stock purchasable under a Non- Qualified Stock Option be less than 85% of the Fair Market Value of the Stock on the date of the grant of the option or, in the case of an Incentive Stock Option, less than 100% of such Fair Market Value. If an employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of 6 the Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such employee, the option price shall be no less than 110% of the Fair Market Value of the Stock on the date the option is granted. (b) Option Term. The term of each Stock Option shall be fixed by the ----------- Committee, but no Incentive Stock Option shall be exercisable more than ten years after the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such employee, the term of such option shall be no more than five years from the date of grant. (c) Exercisability. Stock Options shall be exercisable at such time or times -------------- as determined by the Committee at or after grant. In the event that the Committee does not determine the time at which a Stock Option shall be exercisable, such Stock Option shall be exercisable one year after the date of grant. If the Committee provides, in its discretion, that any option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time. Notwithstanding anything contained in the Plan to the contrary, the Committee may, in its discretion, extend or vary the term of any Stock Option or any installment thereof, whether or not the optionee is then employed by the Company, if such action is deemed to be in the best interests of the Company. Notwithstanding anything contained in the Plan to the contrary, unless the Stock Option agreement or employment agreement of an individual receiving a Stock Option provides otherwise, any Stock Option granted under this Plan shall be exercisable in full, without regard to any installment exercise or vesting provisions, for a period specified by the Company, but not to exceed sixty (60) days prior to the occurrence of any of the following events: (i) dissolution or liquidation of the Company other than in conjunction with a bankruptcy of the Company or any similar occurrence; (ii) any merger, consolidation, acquisition, separation, reorganization, or similar occurrence, where the Company will not be the surviving entity; or (iii) the transfer of a material portion of or substantially all of the assets of the Company or 51% or more of the outstanding stock of the Company. The grant of an option pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. (d) Method of Exercise. Stock Options may be exercised in whole or in part at ------------------ any time during the option period by giving written notice of exercise to the Company specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price, either by check, or by any other form of legal consideration deemed sufficient by the Committee and consistent with the Plan's purpose and applicable law, including promissory notes or a properly executed exercise notice together with irrevocable instructions to a broker acceptable to the Company to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price. As determined by the Committee at the time of grant or exercise, in its sole discretion, payment in full or in part may also be made in the form of unrestricted Stock already owned by the optionee or, in the case of the exercise of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock subject to an award hereunder (based, in each case, on the Fair Market Value of the Stock on the date the option is exercised, as determined by the Committee), provided, however, that, in the case of an Incentive Stock Option, the right to make a payment in the form of already owned shares may be authorized only at the time the option is granted, and provided further that in the event payment is made in the form of shares of Restricted Stock or a Deferred Stock award, the optionee will receive a portion of the option shares in the form of, and in an amount equal to, the Restricted Stock or Deferred Stock award tendered as payment by the optionee. If the terms of an option so permit, an optionee may elect to pay all or part of the option exercise price by having the Company withhold from the shares of Stock that would otherwise be issued upon exercise that number of shares of Stock having a Fair Market Value equal to the aggregate option exercise price for the shares with respect to which such election is made. No shares of Stock shall be issued until full payment therefor has been made. An optionee shall 7 generally have the rights to dividends and other rights of a shareholder with respect to shares subject to the option when the optionee has given written notice of exercise, has paid in full for such shares, and, if requested, has given the representation described in paragraph (a) of Section 12. (e) Non-transferability of Options. No Stock Option shall be transferable by ------------------------------ the optionee otherwise than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee, unless such transfer would not disqualify the Option under Rule 16b-3. (f) Termination by Death. If an optionee's employment by the Company and any -------------------- Subsidiary or Parent Corporation terminates by reason of death, the Stock Option may thereafter be immediately exercised, to the extent then exercisable, by the legal representative of the estate or by the legatee of the optionee under the will of the optionee, for a period of three years from the date of such death or until the expiration of the stated term of the option, whichever period is shorter. (g) Termination by Reason of Disability. If an optionee's employment by the ----------------------------------- Company and any Subsidiary or Parent Corporation terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to Disability, but may not be exercised after three years from the date of such termination of employment or the expiration of the stated term of the option, whichever period is the shorter. In the event of termination of employment by reason of Disability, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option. (h) Termination by Reason of Retirement. If an optionee's employment by the ----------------------------------- Company and any Subsidiary or Parent Corporation terminates by reason of Retirement, any Stock Option held by such optionee may thereafter be exercised to the extent it was exercisable at the time of such Retirement, but may not be exercised after three years from the date of such termination of employment or the expiration of the stated term of the option, whichever period is the shorter. In the event of termination of employment by reason of Retirement, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option. (i) Other Termination. Unless otherwise determined by the Committee, if an ----------------- optionee's employment by the Company and any Subsidiary or Parent Corporation terminates for any reason other than death, Disability or Retirement, the Stock Option shall thereupon terminate, except that, if the optionee is involuntarily terminated without Cause by the Company and any Subsidiary or Parent Corporation, the option may be exercised to the extent it was exercisable at such termination for the lesser of three months or the balance of the option's term in the case of an Incentive Stock Option, or the lesser of three years or the balance of the option's term in the case of a Non-Qualified Stock Option. In the event of termination of employment by reason of Retirement, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option. (j) Annual Limit on Incentive Stock Options. The aggregate Fair Market Value --------------------------------------- (determined as of the time the Stock Option is granted) of the Common Stock with respect to which an Incentive Stock Option under this Plan or any other plan of the Company and any Subsidiary or Parent Corporation is exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. (k) Non-Employee Directors. Each Non-Employee Director shall be entitled to ---------------------- Stock Options only as provided in this paragraph (k). Each Non-Employee Director who, on or after the Plan's effective 8 date, is elected, reelected or serving an unexpired term as a member of the Board, shall automatically be granted Stock Options as follows: (i) One-Time Initial Grant. Each Non-Employee Director shall, after the ---------------------- Plan's effective date and on the date such Non-Employee Director is first elected to the Board, be automatically granted a Stock Option to purchase 5,000 shares of Stock at an option price per share equal to 100% of the Fair Market Value of a share of Stock on the date of such grant. Such Stock Option shall become exercisable six months after the date of grant. No more than one such Stock Option may be granted to a Non-Employee Director, regardless of the number or sequence of his or her terms as a member of the Board. (ii) Annual Grant. Each Non-Employee Director who is reelected or serving ------------ an unexpired term as a member of the Board at an annual meeting of holders of stock of the Company occurring after the Plan's effective date and prior to January 1, 1999 shall, as of the date of such annual meeting, be automatically granted a Stock Option to purchase 1,500 shares of Stock at an option price per share equal to 100% of the Fair Market Value of a share of Stock on the date of such grant. Notwithstanding the foregoing, if less than eleven calendar months have elapsed since the preceding annual meeting, the number of shares as to which such Stock Option shall be granted shall be determined by multiplying the number of full calendar months which have elapsed since the preceding annul meeting by 125. Each such Stock Option shall become exercisable six months after the date of grant. Any person who is first elected as a director at an annual meeting of shareholders shall, at such meeting, receive the initial Stock Option grant of 5,000 shares described in subparagraph (i) above and not the 1,500 share Stock Option provided in this subparagraph (ii). All such Stock Options shall be designated as Non-Qualified Options and shall be subject to the same terms and provisions as are then in effect with respect to granting of Non-Qualified Options to officers and key employees of the Company, except that (i) the term of each such Stock Option shall expire on the earlier of three years after the date on which the optionee ceases to be a director and ten years after the date of grant, and (ii) no Stock Appreciation Rights may be granted any Non-Employee Director under this Paragraph (k) or in any manner under this Plan. Subject to the foregoing, all provision of this Plan not inconsistent with the forgoing shall apply to Stock Options granted to Non- Employee Directors. The maximum number of shares as to which Stock Options may be granted to any Non-Employee Director under this Plan shall be 15,000 shares. SECTION 6. Stock Appreciation Rights. ------------------------- (a) Grant and Exercise. Except as set forth in paragraph (k) of Section 5, ------------------ Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under the Plan. In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of the option. A Stock Appreciation Right or applicable portion thereof granted with respect to a given Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option, except that a Stock Appreciation Right granted with respect to less than the full number of shares covered by a related stock Option shall not be reduced until the exercise or termination of the related Stock Option exceeds the number of shares not covered by the Stock Appreciation Right. A Stock Appreciation Right may be exercised by an optionee, in accordance with paragraph (b) of 9 this Section 6, by surrendering the applicable portion of the related Stock Option. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in paragraph (b) of this Section 6. Stock Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised. (b) Terms and Conditions. Stock Appreciation Rights shall be subject to -------------------- such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, including the following: (i) Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate shall be exercisable in accordance with the provisions of Section 5 and this Section 6 of the Plan. (ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to receive up to, but not more than, an amount in cash or shares of Stock equal in value to the excess of the Fair Market Value of one share of Stock over the option price per share specified in the related option multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form of payment. (iii)Stock Appreciation Rights shall be transferable only when and to the extent that the underlying Stock Option would be transferable under Section 5 of the Plan. (iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Section 3 of the Plan on the number of shares of Stock to be issued under the Plan, but only to the extent of the number of shares issued or issuable under the Stock Appreciation Right at the time of exercise based on the value of the Stock Appreciation Right at such time. (v) A Stock Appreciation Right granted in connection with an Incentive Stock Option may be exercised only if and when the market price of the Stock subject to the Incentive Stock Option exceeds the exercise price of such Option. SECTION 7. Restricted Stock. ---------------- (a) Administration. Shares of Restricted Stock may be issued either alone -------------- or in addition to other awards granted under the Plan. The Committee shall determine the officers, key employees and Consultants of the Company and Subsidiaries to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, the time or times within which such awards may be subject to forfeiture, and all other conditions of the awards. The Committee may also condition the grant of Restricted Stock upon the attainment of specified performance goals. The provisions of Restricted Stock awards need not be the same with respect to each recipient. (b) Awards and Certificates. The prospective recipient of an award of ----------------------- shares of Restricted Stock shall not have any rights with respect to such award, unless and until such recipient has executed an agreement evidencing the award and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the then applicable terms and conditions. (i) Each participant shall be issued a stock certificate in respect of shares of Restricted Stock awarded under the Plan. Such certificate shall be registered in the name of the participant, 10 and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such award, substantially in the following form: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Kaiser Ventures Inc. 1995 Stock Option Plan and an Agreement entered into between the registered owner and Kaiser Ventures Inc. Copies of such Plan and Agreement are on file in the offices of Kaiser Ventures Inc., 3633 East Island Empire Blvd., Suite 850, Ontario, CA 91764." (ii) The Committee shall require that the stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock award, the participant shall have delivered a stock power, endorsed in blank, relating to the Stock covered by such award. (c) Restrictions and Conditions. The shares of Restricted Stock awarded --------------------------- pursuant to the Plan shall be subject to the following restrictions and conditions: (i) Subject to the provisions of this Plan and the award agreement, during a period set by the Committee commencing with the date of such award (the "Restriction Period"), the participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock awarded under the Plan. In no event shall the Restriction Period be less than one (1) year. Within these limits, the Committee may provide for the lapse of such restrictions in installments where deemed appropriate. (ii) Except as provided in paragraph (c)(i) of this Section 7, the participant shall have, with respect to the shares of Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the shares and the right to receive any cash dividends. The Committee, in its sole discretion, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested in additional shares of Restricted Stock (to the extent shares are available under Section 3 and subject to paragraph (f) of Section 12). Certificates for shares of unrestricted Stock shall be delivered to the grantee promptly after, and only after, the period of forfeiture shall have expired without forfeiture in respect of such shares of Restricted Stock. (iii) Subject to the provisions of the award agreement and paragraph (c)(iv) of this Section 7, upon termination of employment for any reason during the Restriction Period, all shares still subject to restriction shall be forfeited by the participant. (iv) In the event of special hardship circumstances of a participant whose employment is terminated (other than for Cause), including death, Disability or Retirement, or in the event of an unforeseeable emergency of a participant still in service, the Committee may, in its sole discretion, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to such participant's shares of Restricted Stock. (v) Notwithstanding the foregoing, unless the Restricted Stock Award or employment agreement of an individual receiving a Restricted Stock Award provides otherwise, the restrictions and conditions of a Restricted Stock Award shall lapse for a period specified by the Company, but not to exceed sixty (60) days prior to the occurrence of any of the 11 following events: (i) dissolution or liquidation of the Company other than in conjunction with a bankruptcy of the Company or any similar occurrence; (ii) any merger, consolidation, acquisition, separation, reorganization, or similar occurrence, where the Company will not be the surviving entity; or (iii) the transfer of a material portion of or substantially all of the assets of the Company or 51% or more of the outstanding stock of the Company. The grant of a Restricted Stock Award pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments, reclassification, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. SECTION 8. Deferred Stock Awards. --------------------- (a) Administration. Deferred Stock may be awarded either alone or in -------------- addition to other awards granted under the Plan. The Committee shall determine the officers, key employees and Consultants of the Company and Subsidiaries to whom and the time or times at which Deferred Stock shall be awarded, the number of Shares of Deferred Stock to be awarded to any participant or group of participants, the duration of the period (the "Deferral Period") during which, and the conditions under which, receipt of the Stock will be deferred, and the terms and conditions of the award in addition to those contained in paragraph (b) of this Section 8. The Committee may also condition the grant of Deferred Stock upon the attainment of specified performance goals. The provisions of Deferred Stock awards need not be the same with respect to each recipient. (b) Terms and Conditions. -------------------- (i) Subject to the provisions of this Plan and the award agreement, Deferred Stock awards may not be sold, assigned, transferred, pledged or otherwise encumbered during the Deferral Period. In no event shall the Deferral Period be less than one (1) year. At the expiration of the Deferral Period (or Elective Deferral Period, where applicable), share certificates shall be delivered to the participant, or his legal representative, in a number equal to the shares covered by the Deferred Stock award. (ii) Amounts equal to any dividends declared during the Deferral Period with respect to the number of shares covered by a Deferred Stock award will be paid to the participant currently or deferred and deemed to be reinvested in additional Deferred Stock or otherwise reinvested, all as determined at the time of the award by the Committee, in its sole discretion. (iii)Subject to the provisions of the award agreement and paragraph (b)(iv) of this Section 8, upon termination of employment for any reason during the Deferral Period for a given award, the Deferred Stock in question shall be forfeited by the participant. (iv) In the event of special hardship circumstances of a participant whose employment is terminated (other than for Cause) including death, Disability or Retirement, or in the event of an unforeseeable emergency of a participant still in service, the Committee may, in its sole discretion, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all of the remaining deferral limitations imposed hereunder with respect to any or all of the participant's Deferred Stock. (v) A participant may elect to further defer receipt of the award for a specified period or until a specified event (the "Elective Deferral Period"), subject in each case to the Committee's approval and to such terms as are determined by the Committee, all in its sole discretion. 12 Subject to any exceptions adopted by the Committee, such election must generally be made prior to completion of one half of the Deferral Period for a Deferred Stock award (or for an installment of such an award). (vi) Each award shall be confirmed by, and subject to the terms of, a Deferred Stock agreement executed by the Company and the participant. SECTION 9. Transfer, Leave of Absence, etc. ------------------------------- For purposes of the Plan, the following events shall not be deemed a termination of employment: (a) a transfer of an employee from the Company to a Parent Corporation or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or from one Subsidiary to another; (b) a leave of absence, approved in writing by the Committee, for military service or sickness, or for any other purpose approved by the Company if the period of such leave does not exceed ninety (90) days (or such longer period as the Committee may approve, in its sole discretion); and (c) a leave of absence in excess of ninety (90) days, approved in writing by the Committee, but only if the employee's right to reemployment is guaranteed either by a statute or by contract, and provided that, in the case of any leave of absence, the employee returns to work within 30 days after the end of such leave. SECTION 10. Amendments and Termination. -------------------------- The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made (i) which would impair the rights of an optionee or participant under a Stock Option, Restricted Stock or other Stock-based award theretofore granted, without the optionee's or participant's consent, or (ii) which without the approval of the stockholders of the Company would cause the Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of the Code or any other regulatory requirements. Further, the provision in Section 5(k) of the Plan may not be amended more than once every six months, other than to comply with changes in the Code, the Employee Retirement Income Security Act of 1974, or the rules thereunder. Notwithstanding the foregoing, no Stock Options shall be granted under the Plan after June 30, 1998, except as provided in paragraph (k)(ii) of Section 5. The Committee may amend the terms of any award or option theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any holder without his or her consent except to the extent authorized under the Plan. The Committee may also substitute new Stock Options for previously granted options, including previously granted options having higher option prices. SECTION 11. Unfunded Status of Plan. ----------------------- The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a participant or optionee by the Company, nothing contained herein shall give any such participant or optionee any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments in lieu of or with respect to awards hereunder, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan. 13 SECTION 12. General Provisions. ------------------ (a) The Committee may require each person purchasing shares pursuant to a Stock Option under the Plan to represent to and agree with the Company in writing that the optionee is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for shares of Stock delivered under the Plan pursuant to any Restricted Stock, Deferred Stock or other Stock-based awards shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (b) Subject to paragraph (d) below, recipients of Restricted Stock, Deferred Stock and other Stock-based awards under the Plan (other than Stock Options) are not required to make any payment or provide consideration other than the rendering of services. (c) Nothing contained in this Plan shall prevent the Board of Directors from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor shall it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time. (d) Each participant shall, no later than the date as of which any part of the value of an award first becomes includible as compensation in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements and the Company and Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. With respect to any award under the Plan, if the terms of such award so permit, a participant may elect by written notice to the Company to satisfy part or all of the withholding tax requirements associated with the award by (i) authorizing the Company to retain from the number of shares of Stock that would otherwise be deliverable to the participant, or (ii) delivering to the Company from shares of Stock already owned by the participant, that number of shares having an aggregate Fair Market Value equal to part or all of the tax payable by the participant under this Section 12(d). Any such election shall be in accordance with, and subject to, applicable tax and securities laws, regulations and rulings. (e) At the time of grant, the Committee may provide in connection with any grant made under this Plan that the shares of Stock received as a result of such grant shall be subject to a repurchase right in favor of the Company, pursuant to which the participant shall be required to offer to the Company upon termination of employment for any reason any shares that the participant acquired under the Plan, with the price being the then Fair Market Value of the Stock or, in the case of a termination for Cause, an amount equal to the cash consideration paid for the Stock, subject to such other terms and conditions as the Committee may specify at the time of grant. The Committee may, at the time of the grant of an award under the Plan, provide the Company with the right to repurchase, or require the forfeiture of, shares of Stock acquired pursuant to the Plan by any participant who, at any time within two years after termination of employment with the Company, directly or indirectly competes with, or is employed by a competitor of, the Company. 14 (f) The reinvestment of dividends in additional Restricted Stock (or in Deferred Stock or other types of Plan awards) at the time of any dividend payment shall only be permissible if the Committee (or the Company's chief financial officer) certifies in writing that under Section 3 sufficient shares are available for such reinvestment (taking into account then outstanding Stock Options and other Plan awards). SECTION 11. Effective Date of Plan. ---------------------- The Plan shall be effective on the date it is approved by a vote of the holders of a majority of the Stock present and entitled to vote at a meeting of the Company's shareholders. 15
EX-10.20.1 7 FIRST AMENDMENT TO ORGANIZATION AGREEMENT DATED 3/21/96 EXHIBIT 10.20.1 March 21, 1996 Kaiser Ventures Inc. 3633 E. Inland Empire Blvd. Suite 850 Ontario, CA 91764 Gentlemen: This letter serves to acknowledge the agreement of the parties hereto with respect to the amendment of certain terms and conditions of the Organization Agreement (the "Organization Agreement"), dated as of November 22, 1995, by and ---------------------- among PSH Corp., a Delaware corporation, Kaiser Ventures Inc. (formerly known as Kaiser Resources Inc.), a Delaware corporation, and Penske Motorsports, Inc. (formerly known as Penske Speedways Holding Corp.), a Delaware corporation (the "Corporation"). ----------- The parties hereto agree that, on the date that the Securities and Exchange Commission declares effective the Registration Statement (No. 333-692) filed by the Corporation, the Organization Agreement will automatically be amended by deleting Sections 5.3, , 8.2, 8.3 and 8.10(a) in their entirety from the Organization Agreement, and that such Sections will have no further force or effect whatsoever. In addition, Section 8.1 of the Organization Agreement is also deleted in its entirety and Section 8.1 replaced with the following: 8.1 Information. In addition to any information that is provided to a ----------- member of the Board of Directors of the Corporation or a member of the Board of Directors of each of the Corporation's direct or indirect subsidiaries, the Corporation will (so long as Kaiser holds any Preferred Stock or more than 2% of the outstanding common stock of the Corporation) cooperate with Kaiser to provide Kaiser with such information which is reasonably necessary to enable Kaiser to timely file its reports required under the Securities Exchange Act of 1934, as amended; provided, however, that in no event will Kaiser release or publicly disclose any such information without either (i) the written consent of the Corporation, which consent will not be unreasonably withheld, or (ii) the prior public release of such information by the Corporation. Kaiser Ventures Inc. March 21, 1996 Page 2 Except as expressly modified hereby, the other provisions of the Organization Agreement will continue in full force and effect in accordance with the terms thereof. Very truly yours, PSH CORP. By: /s/ Rich Peters -------------------------- Its: President -------------------------- PENSKE MOTORSPORTS, INC. By: /s/ Rich Peters -------------------------- Its: President -------------------------- AGREED AND ACCEPTED: KAISER VENTURES INC. By: /s/ Richard E. Stoddard --------------------------------- Title: Chief Executive Officer and Chairman of the Board ------------------------- Date: March 21, 1996 ------------------------------- EX-10.21.1 8 FIRST AMEND. TO SHAREHOLDERS AGMT. WITH A REGIS. RIGHTS AGMT. EXHIBIT 10.21.1 FIRST AMENDMENT TO SHAREHOLDERS AGREEMENT This First Amendment to Shareholders Agreement (this "First Amendment"), dated --------------- as of March 21, 1996, by and among PSH Corp., a Delaware corporation ("Penske"), ------ Kaiser Ventures Inc., (formerly known as Kaiser Resources Inc.), a Delaware corporation ("Kaiser"), and Penske Motorsports, Inc., (formerly known as Penske ------ Speedways Holding Corp.), a Delaware corporation (the "Corporation"). ----------- Capitalized terms used herein but not otherwise defined will have the meanings set forth in the Shareholders Agreement (as defined below). WHEREAS, Penske, Kaiser and the Corporation entered into a Shareholders Agreement (the "Shareholders Agreement"), dated November 22, 1995, pursuant to ---------------------- which the Shareholders (i) set forth terms and conditions of certain options to purchase or sell shares of Stock and certain restrictions on the transfer of ownership and control of shares of Stock and (ii) provided for continuity and order in the control, management and operation of the Corporation and otherwise defined the respective rights, duties and obligations of and between the Corporation and the Shareholders; and WHEREAS, the Shareholders and the Corporation desire to amend the Shareholders Agreement as set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the covenants and agreements herein contained, the parties hereto agree as follows: 1. NEW SECTION 1. Upon the Effective Date (as defined below), Sections 1.1 through 1.8 of the Shareholders Agreement are deleted in their entirety and replaced with the following: 1.1 SALE OR OTHER DISPOSITION. A Shareholder who wishes to sell, transfer or otherwise dispose of all or part of its ownership interest in the Corporation for consideration to a third Person shall first give the other Shareholder at least thirty (30) days advance written notice of its desire to do so. The notice shall identify the amount of the ownership interest to be sold or otherwise transferred and the name, address and phone number of the proposed transferee, if there is an identified proposed transferee, and if Penske is the proposed selling Shareholder, the price for such ownership interest. The ownership interest specified in the notice may thereafter be sold or transferred only upon strict compliance with this Agreement. Notwithstanding the foregoing, upon the occurrence of a breach or default of a material provision of this Agreement or the Organization Agreement, which remains uncured for a period of sixty (60) days following receipt of notice of default from the non-defaulting party to the defaulting party, the ownership interest of the non-defaulting party may be transferred or disposed of without compliance with Sections 1.1 through 1.6 of this Agreement and the defaulting party shall continue to be bound by the terms of this Agreement. 1.2 TRANSFERS TO AFFILIATES AND PLEDGE TO SECURE LOAN. Subject to Kaiser's restrictions on transfers to its shareholders as set forth in Section 1.4 below, but notwithstanding Section 1.1, any Shareholder may transfer all or any portion of its Stock to an Affiliate provided such Affiliate becomes a party to this Agreement. For purposes of this Section 1.2, the shareholders of Kaiser shall not be considered Affiliates of Kaiser. In addition, there shall be no restrictions on a Party pledging its Stock to secure a bonafide third person loan; provided, however, the documents evidencing any such pledge shall be subject to the rights of the non- pledging Party under this Agreement and the Organization Agreement. After compliance with the terms of this Agreement, if applicable, and any other express agreement of the Shareholders, a Shareholder shall be free to sell or otherwise transfer for consideration its Stock to a third Person, subject only to compliance with applicable federal and state securities laws. 1.3 OPTION TO PURCHASE. (a) For a period of thirty (30) days (the "Original Period") after a --------------- Party receives the notice specified in Section 1.1 above (the "Non-Selling ----------- Party"), the Non-Selling Party (or the Non-Selling Party's permitted ----- designee) shall have the first option to purchase all, and only all, of the ownership interest offered for sale or other disposition, which option shall be exercised by it, if at all, by giving written notice to the selling Shareholder on or before thirty (30) calendar days after the receipt of the Section 1.1 notice. The sales terms (other than purchase price and the form of payment of the purchase price) for any ownership interest to be purchased by the Non-Selling Party shall be the same terms as set forth in the notice of proposed sale, except that, (i) if the Non- Selling Party is Penske, then the purchase price for any ownership interest to be purchased by Penske shall be the average of the closing prices for shares of the Corporation's publicly traded Common Stock, as reported in the Wall Street Journal or, if the Wall Street Journal is not then available, then such other publication which regularly quotes the closing prices for the Corporation's publicly traded stock, for the thirty (30) calendar days preceding the date on which the Section 1.1 notice of proposed sale is received (the "Original Kaiser Sale Price"), or (ii) if -------------------------- the Non-Selling Party is Kaiser, then the purchase price for any ownership interest to be purchased by Kaiser as set forth in the notice provided for in Section 1.1. The purchase price shall be payable by the Non-Selling Party in cash at closing of the sale. If no closing date for the sale is specified in the Section 1.1 notice, the closing shall occur no later than sixty (60) days after receipt by the Non-Selling Party of the notice required by Section 1.1. Should there be multiple Non-Selling Parties, each Non-Selling Party shall have the first option to purchase that percentage of the ownership interest offered for sale equal to the percentage of its ownership interest in the stock of the Corporation owned by all the Non- Selling Parties immediately prior to the date of the notice specified in Section 1.1 above. This procedure will continue until there are no ownership interests available for sale or disposition existing for which options shall not have been exercised by Non-Selling Parties. (b) If the Non-Selling Party elects not to exercise its option to purchase the offered ownership interest or fails to timely elect to exercise its option to purchase, the selling Shareholder who has given notice of its desire to sell its ownership interest may, for a three (3) month period beginning at the end of the thirty (30) day period specified in Section 1.3(a), sell the specified ownership interest subject to this Section 1.3; provided, however, that, since -2- the ownership interest may not have been registered under the Securities Act of 1933, as amended (the "Act"), and is a "restricted security" as --- defined in Rule 144 under the Act, the ownership interest may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act or pursuant to an exemption from registration under the Act, the availability of which is to be established to the reasonable satisfaction of the Corporation. If the selling Shareholder fails to sell its ownership interest within the three (3) month period described in the preceding sentence upon the terms set forth in the notice of proposed transfer, such ownership interest or the specified part thereof shall thereafter again be subject to the right of first refusal procedures set forth in this Agreement and, if there is a change in the price, the number of shares proposed to be sold or a material change in the other terms of the proposed sale, the right of first refusal procedures in this Agreement shall again be applicable subject to the following sentence. If Kaiser is the selling Shareholder and Kaiser proposes to transfer the offered ownership interest to any third Person offeree other than the offeree identified in the notice given pursuant to Section 1.1, or if no offeree is identified in such notice, then when such offeree becomes known to Kaiser, Kaiser shall notify the Non-Selling Party in writing within ten (10) business days after it receives the offer (in each case, the "Subsequently Known Offeree"). Such notice shall contain the -------------------------- same information required under Section 1.1 and the price for such offered ownership interest or part thereof. If the Subsequently Known Offeree or an Affiliate of the Subsequently Known Offeree engages in the promoting or marketing of motorsports or motorsports related activities (collectively the "Motorsports Business"), the purchase by such Subsequently Known -------------------- Offeree shall be conditioned on a right of first refusal whereby the Non- Selling Party (or its designee) for a period of ten (10) business days from receipt of written notice of such Subsequently Known Offeree's intent to purchase may elect to purchase the offered ownership interest. It is understood that if Kaiser provides notice of a Subsequently Known Offeree during the Original Period then nothwithstanding anything herein to the contrary, the purchase price at which the Non-Selling Party can purchased the offered ownership interest shall be the Original Kaiser Sale Price. During such period, the Non-Selling Party (or its designee) shall have the option to purchase the offered ownership interest at a price equal to the price and on the terms set forth in the notice provided by Kaiser pursuant to this Section 1.3(b). After the ten (10) business day option period, if applicable, for any Subsequently Known Offeree engaged in the Motorsports Business, Kaiser may sell its ownership interest or the specified portion thereof to the Subsequently Known Offeree strictly in compliance with the terms set forth in such written notice. In the event the ownership interest or specified portion thereof is not sold within a two (2) month period following the expiration of the ten (10) business day option period, if applicable, described in the preceding sentence upon the terms set forth in the notice of the proposed transfer, such ownership interest or the specified portion thereof shall thereafter again be subject to the right of first refusal procedures set forth in this Agreement and if there is a change in the price, the number of shares proposed to be sold or a material change in the other terms of the proposed sale, the right of first refusal procedures in this Agreement shall again be applicable. -3- 1.4 TRANSFERS TO KAISER SHAREHOLDERS. Beginning January 1, 1999, if, after complying with Section 1 of this Agreement, Kaiser proposes to make a distribution or otherwise transfer all or part of the ownership interest in the Corporation to shareholders of Kaiser, Kaiser will make such distribution or transfer subject to the following conditions: (a) Kaiser may not distribute in any one transaction less than fifty percent (50%) of the total ownership interest held by Kaiser at any one time; (b) if, upon receipt of such distribution or other transfer of ownership interest, a Kaiser shareholder will own or control, directly or indirectly, in excess of five percent (5%) of the total ownership interest of the Corporation held by Kaiser at such time (a "Significant ----------- Shareholder") then, such Significant Shareholder shall take such ownership ----------- interest subject to Penske's right of first refusal (and, if applicable, Facility Investments, Inc. ("FII") and International Speedway Corporation --- ("ISC") as depicted in a November 22, 1995 letter agreement (the "Letter --- ------ Agreement") among FII, ISC, Penske and the Corporation) described in this --------- Section 1, and such shareholder shall agree in writing to be bound by the terms and conditions of this Section 1 and the Letter Agreement; and (c) no such distribution or transfer will be for less than 100 shares per shareholder of the Corporation's common stock. 1.5 LEGEND ON CERTIFICATES. To effectuate this Agreement, all Shareholders shall deliver to the Corporation each certificate evidencing its ownership interest owned and the Corporation shall affix a legend on the face of each certificate which shall read substantially as follows: "Ownership, assignment, sale, transfer or other disposition of this certificate or any certificate issued in lieu thereof, is subject to the restrictions contained in an agreement dated effective the _____ day of ______ 199_, between Penske Motorsports, Inc. (f/k/a Penske Speedways Holding Corp.), and certain of the shareholders of Penske Motorsports, Inc., as amended, a copy of which agreement, as amended, is on file in the office of the Corporation." 1.6 FUTURE ISSUANCES OF CERTIFICATES. All future certificates evidencing an ownership interest represented by said certificates shall be subject to this Agreement. Each Shareholder hereto agrees that any additional ownership interest in the Corporation it may acquire, including any ownership interest which it may have the option or right to acquire, shall be subject to this Agreement. The Corporation agrees that any certificate it may issue to any present or future owner of the ownership entity shall bear the legend set forth in Section 1.5, and that it will require every future owner of an ownership interest to agree to be bound by the Agreement and sign an appropriate execution page thereto." 2. VOTING AGREEMENT. Upon the Effective Date, Section 2.1 of the Shareholders Agreement is deleted in its entirety and replaced with the following: -4- 2.1 KAISER BOARD SEAT. So long as Kaiser holds outstanding shares of the Corporation's issued and outstanding Common Stock equal to or greater than five (5) percent of the total issued and outstanding shares of Common Stock of the Corporation and Penske owns outstanding shares of common stock of the Corporation, Penske shall vote all of its stock in favor of electing a single Kaiser nominee to the Board of Directors of the Corporation. Penske and Kaiser agree that they shall extend the term of the voting agreement provided in this Section 2.1 for an additional ten (10) years at least six (6) months prior to the tenth anniversary of the Effective Date of this Amendment. 3. CERTAIN OPERATING MATTERS. Upon the Effective Date, Sections 3.1 through Sections 3.3 of the Shareholders Agreement are deleted in their entirety and Section 3.4 of the Shareholders Agreement is renumbered to be Section 3.1. The following provisions are added to Article III of the Shareholders Agreement: 3.2 PAYMENTS. The Corporation hereby agrees to pay to Kaiser an amount equal to $650,000 (the "Final Payment"), which Final Payment, along with amounts previously paid to Kaiser, represent payment in full to Kaiser for tenant relocation, site planning matters and other similar types of items (collectively, the "Project Charges"). The Final Payment shall not bear --------------- interest. Kaiser and Penske agree and acknowledge that the total amount paid for Project Charges equals $1,137,500, inclusive of the Final Payment and, upon payment of the Final Payment, Kaiser will be entitled to no other Project Charges. The Final Payment will be payable quarterly in four installments of $162,500 commencing on the date three months after the date of this Agreement and continuing every 90 days thereafter until paid in full. 3.3. REGISTRATION RIGHTS AGREEMENT. Penske and Kaiser shall cause the Corporation to enter into a registration rights agreement with Kaiser in the form attached as Exhibit A to this First Amendment. --------- 4. EFFECTIVE DATE. The provisions of this First Amendment shall not take effect unless and until the occurrence of the Effective Date, which shall be the effective date of the Corporation's Registration Statement on Form S-1, Registration Number 333-692 (the "Effective Date"). At the Effective Date, the -------------- Shareholders Agreement shall be automatically amended without any further action by any Person as provided herein. If the Effective Date has not occurred by December 31, 1996, then this Agreement shall be automatically void. 5. OTHER PROVISIONS SURVIVE. The term "Agreement" as used in the Shareholders Agreement shall hereafter mean the Shareholders Agreement as amended by this First Amendment and shall continue in full force and effect in accordance with the terms thereof and hereof and until the Effective Date, if ever this Agreement shall have no force or effect. 6. GOVERNING LAW. This Agreement shall be construed under and governed by the laws of the State of Delaware. -5- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PENSKE MOTORSPORTS, INC. By: /s/ Rich Peters ---------------------------- Title: President ------------------------- KAISER VENTURES, INC. By: /s/ Terry L. Cook ----------------------------- Title: Senior Vice President and General Manager --------------------------- PSH CORP. By: /s/ Rich Peters ----------------------------- Title: President --------------------------- -6- EXHIBIT A REGISTRATION RIGHTS AGREEMENT ----------------------------- EXHIBIT A REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement (this "Agreement") is made as of March --------- __ , 1996 between Penske Motorsports, Inc., a Delaware corporation (the "Company") and Kaiser Ventures Inc., a Delaware corporation ("Kaiser"). ------- ------ WHEREAS, the Company, Kaiser and PSH Corp., a Delaware corporation ("Penske"), are parties to a Shareholders Agreement, dated November 22, 1995 ------ (the "Shareholders Agreement"), which the parties agreed to amend pursuant to a ---------------------- First Amendment to Shareholders Agreement, dated March __, 1996 (the "First ----- Amendment"). - --------- WHEREAS, pursuant to the First Amendment, Kaiser agreed to certain modifications to the Shareholders Agreement in consideration for, among other things, the entering into of this Agreement. WHEREAS, the Company is willing to grant certain registration rights to Kaiser with respect to the 1,373,625 shares of Common Stock of the Company, $.01 per value share (the "Shares"), as set forth herein. ------ Unless otherwise provided in this Agreement, capitalized terms used in this Agreement will have the meanings set forth in paragraph 8 hereof. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and Kaiser agree as follows: 1. PIGGYBACK REGISTRATION RIGHTS. ----------------------------- (a) RIGHT TO PIGGYBACK. If the Company proposes to register any of its ------------------ common stock under the Securities Act of 1933, as amended (the "Securities ---------- Act"), in connection with a firm commitment underwritten public offering of its common stock for cash, and the registration form to be used may be used for the registration of Registrable Securities (as defined below) ("Piggyback --------- Registration"), the Company will give written notice to Kaiser of its intention - ------------ to effect such a registration and will include in such registration all Registrable Securities with respect to which the Company has received a written request from Kaiser for inclusion therein within 15 days after the receipt of the Company's notice, subject to subparagraph 1(c) below. (b) PIGGYBACK EXPENSES. The Registration Expenses (as defined below) of ------------------ Kaiser will be paid by the Company in a Piggyback Registration. (c) PRIORITY ON REGISTRATIONS. If the managing underwriters of the ------------------------- Piggyback Registration determined in their sole but good faith discretion and advise the Company in writing that in their reasonable opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company will include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Securities requested by Kaiser to be included in such registration and (iii) third, other securities requested to be included in such registration. (d) REMEDIES. Kaiser will not seek an injunction restraining or otherwise -------- delaying any Piggyback Registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement. (e) AVAILABILITY OF DOCUMENTS. The Company shall furnish to Kaiser such ------------------------- number of copies of prospectuses, including preliminary prospectuses, reasonably necessary to conform with the requirements of the Securities Act, and such other documents as Kaiser may reasonably request, to facilitate the disposition of the Registrable Securities being sold by Kaiser upon exercise of the Piggyback Registration rights contained in this Agreement. (f) BLUE SKY COMPLIANCE. The Company shall use its reasonable efforts to ------------------- register and qualify securities covered by the Piggyback Registration rights contained in this Agreement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of the securities covered by the Piggyback Registration; provided, however, that the Company will not be required to qualify as a foreign corporation or to take any action which would subject it to the service of process in such state or jurisdiction, other than as to matters and transactions relating to the offer and sale of the offered securities, in any jurisdiction where it is not now so subject. 2. HOLDBACK AGREEMENTS. Kaiser agrees not to effect any sale, transfer or ------------------- other distribution (including sales pursuant to Rule 144 or Rule 144A) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, for the period commencing seven days prior to and ending on the first to occur of the (i) one year anniversary of the effective date of any Piggyback Registration in which Registrable Securities are included (except as part of such underwritten registration) or (ii) the date on which any similar lock-up imposed upon the Company in such registration terminates, unless the underwriters managing the registered public offering otherwise agree. 3. CONDITIONS OF OBLIGATION TO REGISTER SHARES. The obligations of the ------------------------------------------- Company under this Agreement are subject to the following conditions: (a) The Company will not be required to include any Registrable Securities in a Piggyback Registration unless Kaiser accepts, in writing, the terms of the underwriting as agreed upon between the Company and the underwriters selected by the Company. If Kaiser does not accept the terms of the underwriting as agreed upon between the Company and the underwriter, Kaiser shall withdraw. (b) Kaiser will cooperate with the Company in connection with the preparation of the registration statement, and for so long as the Company is obligated to file and keep effective the registration statement, will provide to the Company, in writing, for use in the registration statement, all information regarding Kaiser as may be necessary to enable the Company to prepare the registration statement and prospectus covering the Registrable Securities, to maintain 2 the currency and effectiveness thereof and otherwise to comply with all applicable requirements of law in connection therewith. (c) During such time as Kaiser may be engaged in a distribution of Registrable Securities, such holder will comply with Rules 10b-7 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and ------------ pursuant thereto, Kaiser will, among other things, cause to be furnished to each broker through whom Registrable Securities may be offered, or to the offeree if an offer is not made through a broker, such copies of the prospectus covering the Registrable Securities and any amendment or supplement thereto and documents incorporated by reference therein as may be required by law and Kaiser shall not bid for or purchase any shares of the Company or attempt to induce any other person to purchase any securities of the Company other than as permitted under Exchange Act. 4. CERTAIN LIMITATION ON FUTURE RIGHTS. From and after the date of this ----------------------------------- Agreement, the Company shall not enter into any agreement with any other holder or prospective holder of any securities of the Company providing for the grant to any such prospective holder of Piggyback Registration rights unless such agreement includes the substantial equivalent of (a) Section 1(c) of this Agreement as a term of such agreement and in such section, the agreement provides that Kaiser will have a priority with respect to Piggyback Registration superior to any other holder of securities of the Company, excluding, in all cases, the Company, and (b) Section 2 of this Agreement as a term of such agreement. 5. REGISTRATION EXPENSES. --------------------- (a) All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company (all such expenses being herein called "Registration Expenses"), will be borne --------------------- as provided in this Agreement. (b) To the extent Registration Expenses are not required to be paid by the Company, Kaiser will pay those Registration Expenses allocable to the registration of its securities so included, and any Registration Expenses not so allocable will be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of the securities to be so registered. 6. INDEMNIFICATION. --------------- (a) The Company agrees to indemnify, to the extent permitted by law, Kaiser, its officers, directors, counsel and each Person who controls Kaiser (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged 3 omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by Kaiser for use therein or by Kaiser's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished Kaiser with a sufficient number of copies of the same. In connection with an underwritten offering, the Company will indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of Kaiser. (b) In connection with any registration statement in which Kaiser is participating, Kaiser will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify the Company, its directors, officers, counsel, accountants and each Person who controls the Company (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by Kaiser. (c) Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and will survive the transfer of securities. 7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. Kaiser may not ------------------------------------------- participate in any registration hereunder which is underwritten unless it (a) agrees to sell its securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, 4 indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 8. DEFINITIONS. ----------- "Person" means any individual, corporation, partnership, limited liability ------ company, limited liability partnership, firm, joint venure, association, joint- stock company, trust or unincorporated organization. "Registrable Securities" means (i) the Shares and (ii) any Common Stock ---------------------- issued or issuable with respect to the securities referred to in clause (i) by way of a stock dividend, stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 or Rule 144A under the Securities Act (or any similar rule then in force). 9. TERMINATION. This Agreement shall automatically terminate and be of no ----------- further force or effect upon the first to occur of (i) Kaiser's failure to participate in two firm commitment underwritten public offerings in which Piggyback Registration rights were offered to it and there was no material restriction on the number of Registrable Securities proposed to be registered on behalf of the Company, or (ii) the tenth anniversary date of this Agreement 10. MISCELLANEOUS. ------------- (a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the ---------------------- provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and Kaiser. (b) SUCCESSORS AND ASSIGNS. This Agreement and the respective rights and ---------------------- obligations hereunder shall not be assigned by either party except with the prior written consent of the non-assigning party, which consent shall be subject to the sole discretion of the non-assigning party. (c) SEVERABILITY. Whenever possible, each provision of this Agreement ------------ will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. (d) COUNTERPARTS. This Agreement may be executed simultaneously in two or ------------ more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement. 5 (e) DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are -------------------- inserted for convenience only and do not constitute a part of this Agreement. (f) GOVERNING LAW. The corporate law of Delaware will govern all issues ------------- concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity and interpretation of this Agreement and the exhibits and schedules hereto will be governed by the internal law, and not the law of conflicts, of Michigan. (g) NOTICES. All notices, demands or other communications to be given or ------- delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable express courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demand and other communications will be sent to the addresses indicated below: To: Penske Motorsports, Inc. 13400 Outer Drive West Detroit, Michigan 48239 Attention: President With a copy to: Robert H. Kurnick, Jr. c/o Penske Auto Centers, Inc. 3270 W. Big Beaver Road, Suite 130 Troy, Michigan 48084 To: Kaiser Ventures Inc. 3633 E. Inland Empire Boulevard Suite 850 Ontario, California 91764 Attention: President With a copy to: Terry Cook c/o Kaiser Ventures Inc. 3633 E. Inland Empire Boulevard Suite 850 Ontario, California 91764 or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. * * * * * 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PENSKE MOTORSPORTS, INC. By: ------------------------------------- Its: ---------------------------------- KAISER VENTURES INC. By: ------------------------------------- Its: ---------------------------------- 7 EX-10.22 9 WATER RIGHTS AGREEMENTS EXHIBIT 10.22 WATER RIGHTS AGREEMENT This WATER RIGHTS AGREEMENT ("Agreement") is entered into as of November 21, 1995, by and between KAISER VENTURES INC. ("Kaiser") and SPEEDWAY DEVELOPMENT CORPORATION ("SDC") with reference to the following facts: RECITALS A. From 1942 until 1983, Kaiser Steel Corporation operated a large steel production and processing facility on approximately 2,000 acres of land near Fontana, California, owned by Kaiser Steel Corporation (the "Fontana Property"). Concurrently with the execution of this Agreement, Kaiser is conveying and transferring to SDC by grant deed approximately 470 acres of the Fontana Property, as specifically described in Exhibit "A" attached hereto and incorporated herein by this reference (the "SDC Property") and an interest in certain water rights as more specifically described herein and subject to the terms and conditions described herein. B. Pursuant to the judgment (the "1978 Judgment") in Chino Basin Municipal ------------------------ Water District v. City of Chino, et al., San Bernardino Superior Court, Case No. - ---------------------------------------- RCV 51010 (the "Water Case"), non-agricultural overlying rights to the beneficial use of 2,930.274 acre-feet of water annually from the safe yield of the Chino groundwater basin were decreed to Kaiser as set forth at page 60, line 9 of Exhibit "D" to the 1978 Judgment (the "Water Rights"). The Water Rights are more specifically described in Section II.B.8 and Exhibits "D" and "G" of the 1978 Judgment. Kaiser is now completing negotiations with California Steel Industries, Inc. ("CSI") which will recognize the ownership by CSI of a portion of these Water Rights and interests therein, but without interference with Kaiser's ability to make and perform this Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. GRANT OF AN INTEREST IN WATER RIGHTS. In connection with the conveyance to SDC of the approximately 470 acres described in Exhibit "A," Kaiser hereby conveys, transfers and assigns to SDC an undivided right in 475 acre-feet annually of the Water Rights, which 475 acre-feet annually shall be held by Kaiser and SDC and their respective successors and assigns, as tenants in common, and used in accordance with the terms of this Agreement, and referred to herein as the "Joint Water Rights." The term "annually" means the period from July 1 through June 30 (hereinafter "Water Year"). Such Joint Water Rights shall not be subject to partition, provided that if this clause is not enforceable, it shall not invalidate this Agreement and shall not limit the priority of the use rights with respect to the Joint Water Rights as set forth in Paragraph 2 below. 2. PRIORITY OF USE. SDC shall have the first right and priority to the use of the Joint Water Rights for use on the SDC Property, and for the activities thereon. To the extent, in any given Water Year, that SDC does not make such use of the Joint Water 1 Rights, Kaiser shall have the right to the use of all or any unused portion of the Joint Water Rights, or to store such water for its account that year pursuant to the carry-over provisions of the 1978 Judgment, or under a storage agreement with the Chino Basin Watermaster. 3. WATER RIGHTS DEFINED BY 1978 JUDGMENT. The Water Rights, and the Joint Water Rights which are part thereof, are subject to the provisions of the 1978 Judgment, which defines and limits their use. Nothing in this Agreement is intended to change or modify the nature or use of such rights in a manner inconsistent with the 1978 Judgment. However, Kaiser represents that it is familiar with the 1978 Judgment, and to the best of its knowledge such Judgment does not constitute a bar or impediment to the implementation of this Agreement. 4. AGENCY AGREEMENT. The parties contemplate that all or a portion of the Joint Water Rights may be assigned by the parties to the San Gabriel Valley Water Company ("Water Company") by an agency agreement pursuant to Section 6 of Exhibit "G" to the 1978 Judgment, to exercise such rights to provide water service to the lands of the parties. The agency agreement shall provide that the Water Company will pay a percentage that is currently anticipated to be at least 90% of the then-current replenishment charge for the Chino Basin for such amount of the Joint Water Rights that it delivers. To the extent that the Joint Water Rights or any portion thereof are used to supply the SDC land, the Water Company shall make such payments to SDC or its successors or assigns. To the extent that the Joint Water Rights or any portion thereof are used for Kaiser land, (i.e., that part of the Fontana Property presently owned by Kaiser, its subdivisions or affiliates, less the approximate 470 acres being conveyed to SDC) the Water Company shall make such payments to Kaiser or its successors or assigns. Any unused Water made available under the agency agreement shall accrue to the account of Kaiser as water carried-over or stored under the 1978 Judgment, and no compensation shall be due to SDC. 5. EXTRACTION OF JOINT WATER RIGHTS. If the Joint Water Rights are not assigned to the Water Company pursuant to Paragraph 4 hereof, they may be pumped from wells located on the property of either party, pursuant to a separate Waste Facilities Cooperation Agreement between the parties. This provision shall not be deemed to require SDC or its successors or assigns to construct any new wells on its land or to maintain any Kaiser wells except as may be provided in the Water Facilities Cooperation Agreement. To the extent that such Joint Water Rights are exercised from wells located on the property of the other party, the party pumping the water acts as a limited purpose agent of the other solely for the foregoing purpose. 6. NOTIFICATION TO WATERMASTER AND INTERVENTION IN WATER CASE. The parties shall provide the Chino Basin Watermaster with a copy of this Agreement, and shall direct that 475 acre-feet annually of Kaiser's Water Rights shall be held jointly by Kaiser and SDC as tenants in common, to be used in accordance with the terms hereof, and that the Watermaster records shall be modified accordingly. SDC shall also undertake such proceedings as may be necessary to intervene in the Water Case, and to be bound by the terms of the Judgment therein, A copy of any agency agreement with the Water Company shall also be filed with the Watermaster. 2 7. AMENDMENT. This Agreement cannot be modified except by written document signed by all of the parties. 8. CHOICE OF LAWS. This Agreement shall in all respects be interpreted, enforced, and governed by and under the internal laws of the State of California. 9. INTERPRETATION OF WATER RIGHTS AGREEMENT. The language of this Agreement shall be construed as a whole according to a fair meaning, and not strictly for or against any of the parties. 10. ATTORNEY'S FEES. In the event that either of the parties breaches this Agreement, the breaching party or parties shall pay each prevailing party all costs of any action or proceeding for damages and/or enforcement, including reasonable attorney's fees and costs. 11. INTEGRATION. This Agreement is part of the Grant Deed for the SDC Property. This Agreement constitutes the final and complete agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior or contemporaneous negotiations, premises, covenants, agreement or representations concerning matters directly, indirectly or collaterally related to the subject matter of this Agreement. 12. ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties, and their subsidiaries and affiliates. In the case of SDC, the terms successors and assigns shall include but not be limited to NationsBank, N.A., the lenders who are or will be parties to the credit agreement and all related documents that supply funding for the California Speedway Project, and the entities who may take through them by foreclosure or by deed in lieu of foreclosure proceedings. 13. COUNTERPARTS. This Agreement may be executed in counterparts by the parties and shall become effective and binding at such time as all of the parties have signed a counterpart of this Water Rights Agreement. 14. REPRESENTATIONS AND WARRANTIES. Kaiser represents and warrants to SDC as follows: (a) Kaiser is the legal and beneficial owner of the water rights to be transferred as described herein to SDC under this Agreement, and such rights are not subject to any lien, charge, option, mortgage, deed of trust, security interest or other encumbrance or any other type of preferential arrangement, except as provided in the 1978 Judgment or herein; (b) Kaiser has full power and authority, and has taken all action necessary, to execute and deliver this agreement and any and all other documents required or permitted to be executed or delivered by it in connection with this Agreement and to fulfill its obligations under, and to consummate the transactions contemplated by, this Agreement, and to its knowledge no governmental authorizations or other authorizations or consents (except as contemplated hereby) are required in connection therewith; (c) this Agreement constitutes the legal, valid and binding obligation of Kaiser, enforceable against Kaiser in accordance with its terms, subject to 3 bankruptcy, insolvency, and other laws pertaining to creditors' rights; (d) to the best of Kaiser's knowledge, the water available under the SDC Property is of a quality currently suitable for irrigation purposes; and (e) the water represented by the Joint Water Rights currently may be legally used by SDC for irrigation purposes on the SDC Property. 15. FURTHER ASSURANCES. The parties will promptly execute such additional agreements, instruments and other documents, and take such further actions, as may be reasonable or desirable in order to effect the purposes and intent of this Agreement. WHEREFORE, the parties hereto have executed this Water Rights Agreement as of the date and year set forth above. "KAISER" KAISER VENTURES INC. By: /s/ Daniel N. Larson --------------------------------- Daniel N. Larson, President and Chief Executive Officer "SDC" SPEEDWAY DEVELOPMENT CORPORATION By: /s/ Lee R. Redmond III --------------------------------- Lee R. Redmond III, Vice President 4 EX-10.23 10 ACCESS AGREEMENT (THE CA SPEEDWAY PROPERTY) EXHIBIT 10.23 ACCESS AGREEMENT (THE CALIFORNIA SPEEDWAY PROPERTY) This ACCESS AGREEMENT ("Agreement") is made and entered into effective as of November 21, 1995 by and among KAISER VENTURES INC. ("Kaiser"), KAISER STEEL LAND DEVELOPMENT, INC. ("Development") and THE CALIFORNIA SPEEDWAY CORPORATION ("TCSC"). RECITALS A. Kaiser, PSH Corp., and Penske Speedways Holding Corp. have entered into that certain Organization Agreement dated of even date herewith (the "Organization Agreement"). Pursuant to the terms of the Organization Agreement, certain real property as described on Exhibit "A" attached hereto and incorporated herein by this reference (the "TCS Property") will be transferred to Speedway Development Corporation ("SDC") which corporation will be immediately acquired by TCSC through a series of transactions. B. Development is a wholly owned subsidiary of Kaiser and is the owner of certain property west of the San Sevaine Flood Control Channel generally known as the "West End Property" as illustrated on Exhibit "B" attached hereto and incorporated herein by this reference. C. There are and will be various points of ingress and egress to the TCS Property. However, the Parties pursuant to this Agreement desire to clarify the access the TCS Property will or may have from its western boundary. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. CONSTRUCTION OF NAPA STREET. Kaiser hereby agrees to undertake and complete the timely construction of Napa Street in accordance with the Planned Development and Conditions of Development for the TCS Property and the property known as the Speedway Business Park as approved by the San Bernardino County Board of Supervisors on May 2, 1995 and the construction plans of The California Speedway in effect as of the date of this Agreement. The Parties acknowledge and agree that Napa Street will be the principal and may ultimately be the only point of ingress and egress to and from the western border of the TCS Property. Consistent with the foregoing Planned Development and Conditions of Development, upon completion Napa Street will be dedicated to San Bernardino County as a public street and right-of-way. The Parties acknowledge that the cost of the construction of Napa Street and related improvements has been allocated among and shall be paid by Kaiser, Kaiser Steel Land Development, Inc., Inland Empire Resource Recovery, Inc. and TCS in accordance with the formula and sharing arrangement set forth in Schedule 1 attached hereto and incorporated herein by this reference. 2. GATE 8 ACCESS. Kaiser and Development have granted to TCSC a temporary non-exclusive easement for the benefit of the TCS Property for the use of the existing Gate 8 point of ingress and egress from Etiwanda Boulevard, all as more particularly described in the Grants of Easement (Gate 8 Access), attached hereto as Exhibit "B" and incorporated herein by this reference. 1 3. ALTERNATIVE ACCESS IF GATE 8 IS NOT AVAILABLE. If Napa Street is constructed and there is an abandonment of the existing Gate 8 access by Kaiser and Development due to development of the West End Property, and if there is an internal road system constructed in the West End Property which could reasonably be extended to provide access across the San Sevaine Flood Control Channel to the TCS Property without material disruption to the development of the West End Property, Development agrees that upon TCS's request, Development will grant to TCS one permanent non-exclusive easement for ingress and egress to the TCS Property through the constructed road system in accordance with a route mutually selected by the Parties. TCS shall be responsible for all incremental or special costs associated with extending the constructed road system to the TCS Property, including, but not limited to, the costs of the fair market value of the land (as shall be mutually agreed upon by the Parties) necessary for the land extension, design, permitting, construction and maintenance. If the Parties cannot agree on the fair market value of the land, the determination shall be made by a qualified independent appraiser selected by the Parties, with the Parties sharing the cost of the appraisal. 4. HAUL ROAD EASEMENT. Kaiser agrees to in good faith seek to provide an easement for the benefit of TCS Property along the haul road that currently originates at San Bernardino Avenue (also known as Fourth Street) and generally parallels the east side of the San Sevaine Flood Control Channel as illustrated on Exhibit "B" attached hereto and incorporated herein by this reference. In the event Kaiser is able to provide such easement and if NAPA Street has been constructed and improved and open for six (6) months, Kaiser shall not be required to provide the Gate 8 easement as described in Paragraph 2 or the alternative access, if available, as described in Paragraph 3 of this Agreement if Kaiser has determined that the redevelopment of its property requires the termination of the Gate 8 easement or the alternative access. The Parties acknowledge that Kaiser is not guaranteeing that ultimately it will be able to provide such "Haul Road" easement but Kaiser will in good faith take reasonable actions to provide such easement. All third party costs to obtain such an easement, such as surveying, recording, legal and other similar fees and costs and all improvements to and maintenance (caused by TCSC or its invitees) of the haul road shall be at the expense of TCSC. Sums associated with environmental remediation activities at the haul road that may be required to provide the easement to TCS shall be the responsibility of Kaiser and the provisions of (S)9.1, (S)9.4(a) and (S)11.2 of the Organization Agreement shall be applicable to Kaiser's obligations hereunder. 5. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the earlier of the following to occur: a. the fiftieth (50th) anniversary of this Agreement, assuming the "Haul Road" easement has not been recorded; b. the dedication of Napa Street as a public street and right-of- way which is open for six (6) months, and the grant and recordation of another permanent easement for ingress and egress over the West End Property by Kaiser and/or Development to TCSC, as provided in Paragraph 3; 2 c. the dedication of Napa Street as a public street and right-of- way which is open for six (6) months, and the grant and recordation of a permanent easement for ingress and egress along the haul road or a substantially similar route by Kaiser to TCSC, as provided in Paragraph 4; d. the dedication of Napa Street as a public street and right-of- way which is open for six (6) months, the termination of the Gate 8 easements as provided in Exhibit "B" hereof, and after Kaiser's good faith efforts, there is no recordation of a permanent haul road easement for the benefit of the TCS Property, as provided in Paragraph 4 prior to the expiration of ten (10) years after the termination of the Gate 8 easements; or e. the mutual written agreement of the Parties hereto. 6. NOTICE. Any demand, consent or notice required or permitted to be given hereunder shall be in writing, shall be given by personal delivery or by certified U.S. mail, return receipt requested, addressed to Kaiser, Development or to TCSC at their respective addresses given below, and shall be effective on receipt (or if rejected, shall be effective and deemed received on the date of rejection). Either Party may by notice to the other specify a different address in the United States for notice purposes. IF TO TCSC: The California Speedway Corporation 3633 East Inland Empire Blvd., Suite 850 Ontario, CA 91764 Attention: Les Richter WITH A COPY TO: Penske Corporation 13400 Outer Drive, West Detroit, Michigan 48239 Attention: Lawrence N. Bluth, Esq. IF TO KAISER: Kaiser Ventures Inc. 3633 East Inland Empire Blvd., Suite 850 Ontario, California 91764 Attention: Daniel N. Larson WITH A COPY TO: Kaiser Ventures Inc. 3633 East Inland Empire Blvd., Suite 850 Ontario, California 91764 Attention: Terry L. Cook, Esq. IF TO DEVELOPMENT Kaiser Steel Land Development, Inc. 3633 East Inland Empire Blvd., Suite 850 Ontario, California 91764 Attention: Daniel N. Larson WITH A COPY TO: Kaiser Ventures Inc. 3633 East Inland Empire Blvd., Suite 850 Ontario, California 91764 Attention: Terry L. Cook, Esq. 3 7. WAIVER. No failure or delay of a Party in the exercise of a right given hereunder to such Party shall constitute a waiver thereof nor shall any single or partial exercise of any such right constitute a waiver of any other or further exercise thereof, or of any other right. No waiver by Kaiser or TCSC of any provision hereof shall be deemed a waiver of any other provision or of any subsequent breach of the same provision. 8. ATTORNEY'S FEES. In the event there is any dispute concerning the terms of this Agreement, or the performance of any Party pursuant to the terms of this Agreement, and any Party retains counsel for the purpose of enforcing any of the provisions of this Agreement, or asserting the terms of this Agreement in defense of any suit or arbitration proceeding filed against said Party, the prevailing Party in such a dispute shall be entitled to recover, in addition to any other remedy to which such Party may be entitled, all of its reasonable costs and reasonable attorney's fees incurred in connection with the dispute, irrespective of whether or not a lawsuit or arbitration proceeding is actually commenced or prosecuted to conclusion. 9. CHOICE OF LAW. This Agreement shall be governed by the laws of the State of California. 10. FURTHER COOPERATION. Each Party shall take such further steps and sign or cause to be signed such further documents or instruments as may be necessary from time-to-time to achieve the purposes of this Agreement. 11. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the exhibits hereto and the Organization Agreement state the entire agreement and understanding of the subject of this Agreement and supersedes all prior understanding and agreement, if any. This Agreement may not be amended or modified except by a subsequent written document executed by the Parties. In the event of a conflict between this Agreement and the Organization Agreement, the provisions of the Organization Agreement shall prevail. This Agreement shall not be deemed to relieve Kaiser, PSH Corp., or PSHC of their respective responsibilities under the Organization Agreement. 12. DISPUTE RESOLUTION. If any dispute arises relating to the interpretation or performance of this Agreement which the Parties are unable to resolve between themselves, they agree to use the following as their sole method of resolving the dispute: (a) Kaiser and TCSC agree to jointly select a judicial officer who is affiliated with the Judicial Arbitration and Mediation Service, or such other equivalent organization as Kaiser Development and TCSC may mutually select, to act as the trier of fact and judicial officer in such dispute resolution; (b) If Kaiser and TCSC are unable to agree upon a particular judicial officer, then the decision shall be made by the chief executive officer of the Judicial Arbitration and Mediation Service, after consulting with Kaiser and TCSC; (c) Kaiser and TCSC shall have the same rights of discovery as if the dispute were being resolved in the Superior Court of the State of California. However, the judicial officer 4 shall, on his own motion, or the request of either Kaiser or TCSC, have the authority to extend or reduce the time periods therefor; and, (d) The judicial officer serving hereunder shall be designated as a referee under the provisions of Title VIII, Chapter 6 of the California Code of Civil Procedure (Sections 638 through 645. 1, inclusive). Payment for the services of the judicial officer and the rights and procedure of appeal, and/or other review of the decision, shall be made as provided in such sections. The Parties acknowledge and agree that the aforementioned method of dispute resolution shall relate only to disputes with respect to the interpretation or performance of any provision of this Agreement and shall not apply to the enforcement of any provision with respect to which there is no dispute over interpretation or performance or with respect to which any previous dispute over interpretation or performance has been resolved. 13. SUCCESSOR AND ASSIGN. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Parties hereto. 14. HEADING. The headings used in this Agreement are for convenience and reference only and they shall not be considered a part of this Agreement and shall not affect its interpretation. 15. CONTEXT. Whenever required by the context, the singular shall include the plural, the plural the singular, and gender shall include such other gender as is appropriate. 16. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed an original, but all of such counterparts shall constitute one and the same instrument. IN WITNESS THEREOF, this Access Agreement has been executed as of the date first set forth above. "KAISER" KAISER VENTURES INC. By: /s/ Daniel N. Larson ----------------------------------- Daniel N. Larson President & Chief Executive Officer "DEVELOPMENT" KAISER STEEL LAND DEVELOPMENT, INC. By: /s/ Daniel N. Larson ----------------------------------- Daniel N. Larson President & Chief Executive Officer 5 "TCSC" THE CALIFORNIA SPEEDWAY CORPORATION By: /s/ Walter Czarnecki ------------------------------ Walter P. Czarnecki, President 6 EX-10.24 11 SEWER SERVICES AGREEMENT EXHIBIT 10.24 SEWER SERVICES AGREEMENT DATED AS OF NOVEMBER 21, 1995 BETWEEN KAISER VENTURES INC. AND SPEEDWAY DEVELOPMENT CORPORATION SEWER SERVICES AGREEMENT THIS SEWER SERVICES AGREEMENT ("Agreement") is made and entered into as of November 21, 1995 between KAISER VENTURES INC., a Delaware corporation ("Kaiser"), and SPEEDWAY DEVELOPMENT CORPORATION, a California corporation ("SDC"). (Kaiser and SDC are sometimes referred to herein individually as a "Party" or collectively as "Parties"). RECITALS A. Kaiser and its wholly owned subsidiaries are currently the owners of approximately 1200 acres of land located in San Bernardino County, California that is the site of the former Kaiser Steel Corporation steel mill (the "Kaiser Property"). B. Kaiser is currently the owner of a sanitary sewer treatment facility, associated land and assets (collectively the "Sewer Treatment Facility") that serves the Kaiser Property and the property adjacent thereto currently owned by California Steel Industries, Inc. ("CSI"). C. SDC will acquire approximately 470 acres of the Kaiser Property as more specifically described in Exhibit "A" attached hereto and incorporated herein by this reference (the "TCS Property"). D. In connection with a contemplated motorsports complex to be developed and operated on the TCS Property, SDC desires to acquire from Kaiser a long term commitment for sanitary sewer treatment services to the TCS Property from the Sewer Treatment Facility and Kaiser is willing to provide sanitary sewer treatment services through the Sewer Treatment Facility for the benefit of the TCS Property upon the terms and conditions set forth in this Agreement. E. In addition to the provision of sanitary sewer services, SDC desires to acquire an option to purchase the Sewer Treatment Facility and Kaiser is willing to grant to SDC such an option upon the terms and conditions set forth in this Agreement. F. At of the date of this Agreement, Kaiser will own, directly or indirectly, an interest in SDC. G. This Agreement is entered into in connection with that certain Organization Agreement by and among Kaiser, Penske Speedways Holdings Corp. (the "Corporation") and PSH Corp. ("Penske") dated November 21, 1995 (the "Organization Agreement"). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. SEWER SERVICES. Subject to the terms and conditions of this Agreement, for the term of this Agreement Kaiser agrees to treat sanitary sewage for the benefit of the TCS Property through the Sewer Treatment Facility. 1 2. LIMITATION ON DISCHARGES. Discharges originating on the TCS Property of any nature or kind into the sanitary sewer system by SDC and any tenants, occupants or others on or using the TCS Property sewer system and related facilities that are prohibited or limited as described in the "General Prohibitions and Limitations on Discharges" attached hereto as Schedule "A" and incorporated herein by this reference or elsewhere in this Agreement, shall not be discharged into the sanitary sewer system. SDC shall be responsible for any improper discharges by SDC and any tenants, occupants or others on the TCS Property into the sanitary sewers on the TCS Property and for all fines, costs, damages, expenses and liabilities which result therefrom. 3. TERM. The term of this Agreement shall begin on the date hereof and shall terminate on December 31, 2015 unless sooner terminated as provided herein. 4. PAYMENTS. (a) Annual Charge and Adjustments. In payment for all sewer treatment ----------------------------- services furnished to SDC, commencing April 1, 1997, SDC shall pay to Kaiser $88,800 annually, plus the annual CPI Increase specified in Paragraph 4(d) below, payable in equal quarterly installments; provided, however, the total annual payments due Kaiser for 1997 shall be pro rated and therefore total $66,600 for such year. Such quarterly installments shall be due on January 1, April 1, July 1, and October 1 of each year, with the first such quarterly payment due on April 1, 1997. The first CPI Increase shall be made effective as of January 1, 1997, and as of January 1 of each year thereafter as provided in Paragraph 4(d) below. The foregoing annual rate assumes that: (i) CSI continues to receive and pay for sewer treatment services from the Sewer Treatment Facility in accordance with that certain Amended Services Agreement between Kaiser and CSI dated effective January 1, 1995, or pursuant to a similar agreement on substantially similar terms and conditions; (ii) the peak flows into the Sewer Treatment Facility from the TCS Property shall not exceed 1.77 million gallons per day during an Event Week, as defined below; and (iii) the flows into the Sewer Treatment Plant from the TCS Property during non-Event Weeks do not exceed an average of 0.05 million gallons per day. An "Event Week" shall mean the week in which a major racing event occurs on the TCS Property through the completion of the last racing event which would include rain days. The Parties shall negotiate in good faith a new annual rate for sewer treatment services in the event (x) CSI no longer receives sewer treatment services and/or the resulting effluent from the Sewer Treatment Facility in an amount substantially equal to those historically provided or taken; or (y) the total payments made by CSI to Kaiser (which shall include the treatment service charges and reimbursed costs and cost sharing) are materially less than those specified in the Amended Services Agreement or a substantially similar agreement; or (z) the flows into the Sewer Treatment Plant from the TCS Property exceed the maximums specified herein. (b) Manner of Payments. All amounts payable by SDC to Kaiser ------------------- hereunder shall be paid without deduction or offset, at Kaiser's address for notice hereunder or as Kaiser may otherwise direct in writing. (c) Interest. All late payments shall accrue interest at the rate -------- of twelve percent (12%) per annum until paid in full. 2 (d) CPI Adjustment. The term "CPI Increase" means the product --------------- obtained by multiplying the annual sewer treatment services charge as it may be adjusted from time-to-time as a result of previous CPI Increases or other mutually agreed upon increases by a fraction, the numerator of which is the Index, as defined below, published nearest but prior to the January 1 of each year beginning January 1, 1997 and the denominator of which is the Index published nearest but prior to January 1, 1996. The first CPI Adjustment shall be as of January 1, 1997. As used herein the term "Index" refers to the Consumer Price Index for Urban Wage Earners and Clerical Workers, Los Angeles/Anaheim/Riverside area, All Items, 1982-1984 equals 100, published by the Bureau of Labor Statistics of the United States Department of Labor. If the Index is discontinued or revised during the term of this Agreement, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would have been obtained had the Index not been discontinued or revised. 5. PAYMENT FOR IMPROVEMENTS. The Parties acknowledge that SDC contemplates the development, construction and operation of a motorsports complex on the TCS Property. SDC shall pay all costs and expenses for, or associated with, the development, construction and improvements to the sewer system and related facilities serving the TCS Property and shall pay for all improvements necessary to the Sewer Treatment Facility that may be necessary from time-to-time to treat the sanitary sewer flows from the TCS Property. However, the Parties acknowledge that others will use or have the benefit of the sewer system and related facilities on the TCS Property and that such other users may be required to pay SDC a fair portion of the costs associated with the construction and maintenance of the sewer system on TCS's Property as a condition of such usage. SDC acknowledges and agrees that Kaiser and others are paying their applicable share of the sewer system and improvements to the Sewer Treatment Facility to be made at the time of the construction of the motorsports complex for the benefit of the Kaiser land known as the MRF parcel, Napa lots and the Speedway Business Park. Kaiser acknowledges and agrees that contracts for such system usage will contain a "Limitation on Discharges" provision substantially comparable to Paragraph 2 of this Agreement except the reference to SDC shall be changed to the applicable party using the system. In the event a party advances any sums for the payment of improvements or upgrades that are payable by the other party, that party shall fully reimburse the party seeking reimbursement for such amounts within thirty (30) days of substantiated billing. Kaiser shall make no advance, absent an emergency, without the prior written consent of SDC, which consent will not be unreasonably withheld. 6. TAXES. Any taxes, fees, charges and assessments that may be imposed by a governmental entity or quasi governmental entity on: (i) any upgrades or improvements to the Sewer Treatment Facility directly related to providing sewer treatment service to the TCS Property; and (ii) the flows or discharges attributable to the TCS Property shall be paid by SDC. Any such taxes, fees, charges and/or assessments may be paid directly by SDC or, if paid by Kaiser, SDC shall pay such substantiated amounts within thirty (30) days of billing by Kaiser. SDC may in good faith challenge any such taxes, fees, charges and assessments that may be imposed by a governmental entity or a quasi-governmental entity provided that suitable financial assurances are provided to Kaiser and/or the entity imposing or seeking to impose the tax, fee, charge or assessment for the full payment thereof together with interest and possible penalties on the amount in dispute. 3 7. MAINTENANCE OF FACILITIES. SDC shall be responsible for all maintenance and repair of the sanitary sewers and related facilities located within TCS Property for the benefit of the TCS Property and must obtain Kaiser's approval, which will not be unreasonably withheld, for additional connections or discharges to such sanitary sewers beyond those contemplated in the construction plans for The California Speedway in effect as of the date of this Agreement or the Planned Development for the TCS Property and the Speedway Business Park as approved by the San Bernardino County Board of Supervisors on May 2, 1995. Other persons may be responsible to Kaiser and to SDC for the services required to maintain and repair the sanitary sewers and related facilities located within the TCS Property with SDC's prior written consent, and Kaiser's prior written consent if required by the first sentence of this paragraph. Kaiser shall be responsible for the maintenance and repair of the Sewer Treatment Facility unless extraordinary maintenance or repairs are as a result of SDC's uncured violation of this Agreement. 8. OPERATIONAL MATTERS AND PROBLEMS. (a) Operation Problems. In the event of an operational problem ------------------ involving the Sewer Treatment Facility or the sewer system on SDC's Property, either Party may notify the other Party's on-site operating management. If the situation is not corrected within forty-eight (48) hours following such notification, Kaiser or SDC, as the case may be, following notice to the other, may take any actions which are necessary to insure compliance with applicable permit, statutory, or regulatory or contractual requirements, including, without limitation, expending such sums as are reasonably necessary to achieve such compliance. In the event that either Party would suffer substantial damage by reason of such a problem prior to the expiration of the foregoing forty-eight (48) hour notice period, either Party shall be entitled to take whatever immediate actions are necessary in order to protect its respective systems, property, or personnel. To the extent possible, notice of such immediate actions must be given prior to taking such actions. All costs expended by a Party for the purpose of curing the other Party's default as provided herein shall be for the other Party's account. (b) Notification Procedures. SDC shall adhere to such reasonable ----------------------- procedures as Kaiser may specify for notifying Kaiser's designated personnel of Event Weeks, unusual occurrences or potentially dangerous conditions arising in the conduct of operations which may affect the Sewer Treatment Facility or sewer treatment services. (c) Cooperation. The Parties shall at all times cooperate with each ----------- other with regard to the subject matter addressed by this Agreement. To that end, the Parties agree that they will exchange the names and the phone numbers of personnel to be contacted on a 24-hour-per-day basis. It is also recognized that it is essential that any upset, disruption or unusual occurrence in the sewer system or the Sewer Treatment Facility be communicated to the other Party at the earliest possible time. The Parties will communicate as far ahead of time as possible concerning planned or suspected trouble in the sewer system or Sewer Treatment Facility. SDC and Kaiser shall comply with the reasonable directions of each other as to the nature and scope of their respective operations which affect, directly or indirectly, the sewer treatment services being provided. (d) Reasonable Rules of Operation. Kaiser may establish such ----------------------------- reasonable rules pertaining to the other Party's discharges as may be required to properly operate the Sewer 4 Treatment Facility and provide sewer treatment services. SDC and Kaiser shall cooperate with each other in developing and complying with all such rules so as to ensure the safest and most trouble-free operation of such system for the benefit of all users of the Sewer Treatment Facility. 9. SERVICE OF OTHERS. The Parties acknowledge that the Sewer Treatment Facility may be used to provide lawful sewer treatment services for the Kaiser Property and the property currently owned by CSI. However, except as otherwise expressly provided herein with respect to the TCS Property, nothing in this Agreement shall obligate Kaiser to provide sewer treatment services directly to any such purchaser or lessee of the Kaiser Property or shall make any such purchaser or lessee a third party beneficiary of this Agreement. Kaiser shall have the right to furnish sewer treatment services for the benefit of the Kaiser Property and to third parties on properties in the vicinity of the TCS Property or the Kaiser Property, and to have access to and right to use upon reasonable notice and without charge, all sewer utility easements reserved in the TCS Property or the Kaiser Property for this purpose, if in accordance with applicable permits, laws and the terms of this Agreement and/or the Organization Agreement. In addition and in furtherance of the foregoing, SDC shall grant to Kaiser, without charge, reasonable easements in or across the TCS Property, in order to provide sewer treatment services provided such easements and/or use do not materially interfere with the development or operation of The California Speedway as a motorsports complex. SDC acknowledges that Kaiser currently provides sewer treatment services to CSI and will provide sewer treatment services to the areas of the Kaiser Property known as the NAPA lots, the Speedway Business Park and the MRF parcel. Subsequent to the date of this Agreement, SDC and the Corporation shall have the right to review and approve in writing any new sewer services agreement utilizing the Sewer Treatment Facility, which approval shall not be unreasonably withheld. SDC and the Corporation shall review and make a determination on any proposed sewer treatment services agreement within twenty-one (21) days of their receipt of the proposed agreement. The proposed agreement shall be deemed acceptable if SDC and the Corporation fail to object or comment on the proposed agreement with the twenty-one (21) day period. 10. LIMITATION OF LIABILITY. Kaiser shall not be liable to SDC for failure to furnish sewer treatment services to the TCS Property in accordance with this Agreement if the failure results from: (i) acts of God; (ii) strikes, lockouts or other labor disputes; (iii) the making of repairs, alterations or improvements not arising out of the willful misconduct or negligence of Kaiser or other owner or occupants of the Kaiser Property; (iv) inability to secure a proper supply of utilities, labor or services after making reasonable efforts to obtain such; (v) a prohibited or limited discharge is made into the sewer treatment system from the TCS Property in violation of this Agreement; (vi) the receipt of insufficient influent into the Sewer Treatment Facility; (vii) any other cause beyond Kaiser's reasonable control (each of the items (i)-(vii) a "Force Majeure Event"); (viii) lawful termination of this Agreement; (ix) Kaiser no longer being able to legally provide such service; (viii) Kaiser is required to make a material unreimbursed expenditure to provide or to continue to provide such service to the TCS Property; or (x) the default of SDC, under the terms of this Agreement. Kaiser shall use reasonable efforts to remedy any Force Majeure Event, provided that Kaiser shall have no obligation to resolve any labor dispute except on terms acceptable to it in its reasonable discretion. 5 11. LIMITATION ON DAMAGES. Under no circumstances whatsoever shall Kaiser be liable to SDC or any third party for loss of profits or any other consequential damages caused by Kaiser's failure to furnish sewer services with respect to the TCS Property in accordance with the terms of this Agreement. If the sewer treatment services to be furnished by Kaiser to SDC are rationed by governmental authority, public utility or other entity, Kaiser may apportion such sewer treatment service among the users of the Sewer Treatment Facility in any reasonable manner without liability to the others. 12. INSURANCE. SDC and Kaiser, at their own expense, shall maintain, during the term of this Agreement, at a minimum the following policies of insurance in such amounts as is each Party's ordinary and customary business practice: i. Commercial General Liability in a total aggregate amount, including excess or umbrella coverage of not less than $5,000,000 ii. Automobile and Property Damage Liability with not less than $1,000,000 combined single limit iii. Worker's Compensation and Employer's Liability Insurance Kaiser and SDC shall, upon demand, provide the other Party with proof of the coverage required in this Paragraph 12. Said policies, other than the worker's compensation and employer's liability policies, shall name each other as additional insureds and provide that such policies shall not be cancelled except upon thirty (30) days prior written. All insurance is to be provided with insurers with a current AM Best's rating of no less than A,VII, unless otherwise mutually approved. All insurance is to be placed with an insurer admitted in the State of California. Subject to the Organization Agreement, Kaiser and TCS each hereby releases from liability and waives any rights of recovery against the other and the shareholders, directors, officers, employees, attorneys, contractors, agents and affiliates of the other, for any loss arising out of the acts or omission of a Party in connection with the matters covered by the Agreement for: (a) personal injury or property damage on, in or about the TCS Property or the Kaiser Property; or (b) out of the ownership, use, occupancy or maintenance of the TCS Property or the Kaiser Property, but only to the extent the loss is covered by insurance. Each Party shall give notice to its insurance carriers that the foregoing mutual release and waiver is contained in this Agreement. 13. SEWER SERVICE CONDITIONED UPON MAINTENANCE OF ALL PERMITS. Kaiser's obligation to provide sewer treatment services hereunder is expressly conditioned on, among other things, Kaiser's ability to maintain or obtain, as applicable, necessary permits, consents, certificates or contractual entitlements for its operations in connection therewith, and upon Kaiser obtaining authority from the agencies or other entities involved to serve the TCS Property using Kaiser's or SDC's permits, consents, certificates and entitlements, as the case may be. In addition, Kaiser's obligation to provide sewer treatment services is expressly conditional upon: (i) receipt of certain minimum sanitary flows which are necessary to maintain the operation of the Sewer Treatment Facility; (ii) Kaiser not being required to make any material unreimbursed expenditure, which remains unreimbursed or for which it has no separate written agreement for its payment, in connection with the Sewer Treatment Facility in order to continue to provide 6 sewer treatment services to the TCS Property; and (iii) there is no material adverse change in the laws and/or regulatory system governing or applicable to Kaiser providing sewer treatment services to the TCS Property after the date of this Agreement, which would include any determination that Kaiser must operate the sewer treatment plant as a regulated utility. Kaiser shall in good faith take reasonable action to maintain or obtain, as applicable, all necessary permits, consents, certificates and entitlements in connection with the Sewer Treatment Facility, but Kaiser shall not be required to make a material, unreimbursed expenditure in order to maintain or obtain any of the foregoing. SDC shall provide reasonable cooperation and assistance to Kaiser, as requested by Kaiser, to maintain or obtain all necessary permits, consents, certificates and entitlements for the sewer system and the Sewer Treatment Facility. For purposes of this Agreement, a material unreimbursed expenditure shall mean any expenditure or cumulative expenditures related to a particular item in excess of fifty thousand dollars ($50,000). 14. COMPLIANCE WITH APPLICABLE LAWS. Both Kaiser and SDC shall comply with all applicable statutes, regulations, rules and ordinances regarding water quality and hazardous or toxic waste, substances, or materials, and any other applicable statutes, regulations, rules and ordinances regarding the environment (collectively, "Environmental Laws"), as well as with the terms of all permits, governmental authorizations and the like applying to the Parties' usage of the sanitary sewer services supplied hereunder. Each Party (the "Indemnifying Party") hereby agrees to indemnify, defend, protect and hold harmless the other Party from all claims, liabilities, damages, fines, costs of remedial action, civil penalties, attorneys fees, consulting fees, and the like ("Losses"), on account of or resulting from any claim or liability arising from any violation by the Indemnifying Party of any Environmental Law or permit that pertains to or includes the sanitary sewer system, sanitary sewer treatment services and the Sewer Treatment Facility; provided, however nothing herein shall be construed to limit the indemnities provided in the Organization Agreement or Losses that may be imposed under applicable law. Each Party agrees to provide contemporaneous notice of any such reportable release to a governmental authority to the other where such release occurs with respect to or in connection with any services or utilities provided hereunder. 15. ACQUISITION OF THE SEWER TREATMENT FACILITY. (a) Right of First Refusal. Subsequent to the date of this Agreement, ---------------------- SDC or its successor shall have the right of first refusal or option to purchase the Wastewater Treatment Facility, should Kaiser: (i) elect to terminate the Sewer Services Agreement for the TCS Property; (ii) discontinue sewer treatment services to the TCS Property; or (iii) desire to sell or lease the Sewer Treatment Facility to a third party. Such right of first refusal or option may only be exercised by SDC if it is compliance with the terms of this Agreement and if Penske, the Corporation and any direct or indirect affiliate of Penske (as those terms are defined in the Organization Agreement) is in compliance with all material terms and provisions of the Organization Agreement and all other agreements referred to therein in which any such entity is a party. The purchase price shall be for cash at the fair market value thereof as determined below, less twenty five percent (25%) of the fair market value, and the closing on such purchase shall take place no later than ninety (90) days after notice of exercise is given. The Sewer Treatment Facility shall be sold free and clear of any financial liens and encumbrances, or other liens or 7 encumbrances that might materially interfere with the operation of the facility as historically conducted or contemplated by The California Speedway construction plans other than those liens and encumbrances found to be acceptable to SDC and Penske. Kaiser shall also transfer to the purchaser any and all governmental permits and licenses, which can lawfully be transferred, associated with the Sewer Treatment Facility and/or the assets and shall grant to the purchaser perpetual easements upon Kaiser's Property, then in existence, to permit the purchaser to operate and maintain the Sewer Treatment Facility and the assets for the benefit of the TCS Property as then conducted or contemplated in the TCS construction plans. If SDC (a successor or a subsidiary of SDC) purchases the Sewer Treatment Facility, SDC shall continue to offer to serve and to serve all existing or proposed users of sewer treatment service provided by the Sewer Treatment Facility in accordance with any written agreement for the provision of such services then in effect which has been approved by SDC as provided in Paragraph 9 of this Agreement. SDC acknowledges that it may need to seek certain approvals and permits or make modifications to the Sewer Treatment Facility upon a change in ownership. The fair market value of the Sewer Treatment Facility, shall be determined as follows: (1) Subject to the provisions of Paragraph 15(d) of this Agreement, if Kaiser receives a bona fide third party offer that it desires to accept for the sale or lease of the Sewer Treatment Facility, permits, the fair market value for the Sewer Treatment Facility and the associated assets shall be the price, terms and conditions as offered by the proposed purchaser or lessee; provided, however, the purchase price to SDC shall be less the twenty five percent (25%) discount referenced in Paragraph 15(a) above. SDC shall have thirty (30) days from the receipt of such notice to elect to exercise its right of first refusal assuming SDC is in compliance with the terms of this Agreement and Penske and its direct and indirect affiliates are in compliance with all the material terms and conditions of the Organization Agreement or any other material agreement referenced therein applicable to Kaiser. In the event SDC fails to exercise its right of first refusal as provided herein or SDC or Penske or its direct or indirect affiliates is not in compliance with the material terms and conditions of this Agreement, the Organization Agreement or any material agreement reference therein applicable to Kaiser, then Kaiser shall be free to sell or lease the Sewer Treatment Facility and its assets to the proposed purchaser or lessee subject to outstanding agreements regarding sewer service, including the Sewer Services Agreement with SDC. If SDC exercises its right of first refusal, but fails to consummate the purchase or lease as a result of SDC's fault, SDC's right of first refusal shall terminate and shall no longer be applicable. (2) In the event there is no third party offer, fair market value shall be determined by the fair market value of the Sewer Treatment Facility and its associated assets as an operating facility as determined by an independent appraiser, familiar with the permitting, construction and operation of a sewer treatment facility, mutually selected by Kaiser and Penske Speedways Holding Corp.; provided, however, the purchase price to SDC shall be less the twenty five percent (25%) discount referenced in Paragraph 15(a) above. If the parties are unable to mutually select an independent appraiser, an independent appraiser familiar with the permitting, construction and operation of sewer treatment facilities in Southern California, shall be selected by the American Arbitration Association, Los Angeles, California. The costs of any arbitration and of the independent appraiser shall be borne equally by Kaiser and Penske Speedways Holding Corp. 8 In determining fair market value by appraisal, "Fair Market Value" shall be based upon the "as is" "where is" condition and location of the Sewer Treatment Facility as an operating facility less the value or, if greater, the depreciated cost of any improvements to the Sewer Treatment Facility funded by the Corporation or any subsidiary of the Corporation. (b) Option to Purchase. Subsequent to the fifth (5th) anniversary of ------------------ this Agreement, SDC (or its successor) shall have the option at any time thereafter to purchase the Sewer Treatment Facility at fair market value as determined in Paragraph 16(a) above; provided, however, the purchase price shall be less the twenty five percent (25%) discount referenced in Paragraph 16(a) above; provided, however, SDC shall: (i) continue to offer and provide sewer treatment service in accordance with written contracts to existing users; and (ii) offer and provide sewer treatment service to the Kaiser Land on reasonable terms that does not then receive sewer treatment service to the extent that: (x) such service may be legally provided; (y) such service will not materially interfere with the services then being provided by the Sewer Treatment Facility to the TCS Property; and/or (z) SDC will not be required to make a material unreimbursed expenditure to provide such service. (c) Option to Purchase if a Public Company. In the event the --------------------------------------- Corporation becomes a Public Company as defined in Paragraph 8.3 of the Organization Agreement prior to the fifth (5th) anniversary of this Agreement, SDC (or its successor) shall have the option to at any time to acquire the Sewer Treatment Facility at fair market value as determined in Paragraph 15(a) above; provided, however, the purchase price shall be less the twenty five percent (25%) discount referenced in Paragraph 15(a) above; and further more provided, however, SDC shall: (i) continue to offer and provide sewer service in accordance with written contracts then in existence; and (ii) offer and provide sewer service to the Kaiser Property that does not then receive sewer service to the extent that: (y) such service will not materially interfere with the services then being provided by the sewer facility to the TCS Property; or (z) SDC will not be required to make a material unreimbursed expenditure to provide such service. Notwithstanding the foregoing, such option shall not be effective if Kaiser determines in good faith that for legal or regulatory reasons that the Sewer Treatment Facility will not be able to serve existing and future users of such services associated with the Kaiser Property. In such event, and assuming SDC still desires to exercise the option provided in this Paragraph 15(c), Kaiser and SDC (or its successor) will in good faith negotiate for the sale of the Sewer Treatment Facility which will accommodate Kaiser 's concerns. For example, it may be necessary for Kaiser to continue to own a significant interest in the Sewer Treatment Facility but SDC could own the controlling interest. (d) Restrictions on Transfer. Notwithstanding anything contained ------------------------- herein, Kaiser shall not voluntarily sell, lease or transfer the Sewer Treatment Facility for a period of five (5) years from the date hereof without SDC's prior written consent, except a transfer to a wholly owned subsidiary of Kaiser as permitted in Paragraph 27 of this Agreement, which subsidairy shall take subject to the provisions of this Agreement. 16. DEFAULT. (a) The occurrence of any one or more of the following events shall constitute a default ("Default") hereunder: 9 (i) The failure by SDC or Kaiser to make when due any payment required of it as provided herein, if such failure continues for a period of ten (10) days after written notice thereof by Kaiser to SDC or SDC to Kaiser, as applicable. (ii) The failure by Kaiser or SDC to perform or observe any covenant or condition of this Agreement to be performed or observed by such Party, if such failure continues for a period of thirty (30) calendar days after written notice thereof from either Party to the defaulting Party; provided, however, that if the nature of the obligation is such that a period of more than thirty (30) days is reasonably required for cure, then there shall be no Default so long as such Party commences the cure within the thirty (30) day period and thereafter diligently pursues it to completion. (iii) The filing by or against Kaiser or SDC of a petition to have such Party adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against such Party, the same is dismissed within sixty (60) days); or the appointment of a trustee or receiver to take possession of, or the attachment or other judicial seizure of, substantially all of such Party's assets or a portion of the Sewer Treatment Facility, as the case may be, if the right to take possession or the seizure is not terminated within sixty (60) days. (iv) An uncured default under a material provision of the Organization Agreement by Penske, the Corporation or any direct or indirect subsidiary of the Corporation shall be deemed a default by SDC under this Agreement. (v) An uncured default under a material provision of the Organization Agreement by Kaiser shall be deemed a default by Kaiser under this Agreement. 17. REMEDIES. If a Default by either Party occurs, the non-defaulting Party may, at any time thereafter, with or without notice (except for notices required by law) or demand and without limiting such non-defaulting Party in the exercise of any other right or remedy: (i) Terminate this Agreement; and/or (ii) Pursue any other remedy now or hereafter available to such non-defaulting Party. 18. ADVANCEMENT OF FUNDS, ETC. If either Kaiser or SDC, after notice from the other Party, fails to make a payment or perform any other act required hereunder (whether or not a Default has occurred), the notifying Party may make such payment or perform such other act to the extent such Party may reasonably deem desirable. The defaulting Party shall reimburse the non-defaulting Party on demand for any costs (including reasonable attorneys' fees) the non- defaulting Party incurs in connection therewith. No such action by the non- defaulting Party shall cure or waive the other Party's default. 19. TERMINATION. In addition to any other right of termination provided in this Agreement, this Agreement shall terminate upon: (a) Expiration of the term specified in Paragraph 3; 10 (b) Exercise of the termination rights set forth in Paragraph 18 arising out of a Party's Default; (c) By Kaiser at any time upon one year's prior written notice to SDC after the fifth (5th) anniversary of this Agreement for a good and valid business reason exercised in good faith; and (d) Written notice by Kaiser to SDC, for any of the reasons specified in Paragraph 13; provided, however, Kaiser shall provide as much advanced notice as reasonable possible to SDC upon a termination under this Paragraph 19(d). 20. COOPERATION IF THERE IS CONNECTION TO A MUNICIPAL SEWER SYSTEM. In the event of the termination of this Agreement and Kaiser (or its successor) or SDC (or its successor) is not furnishing sewer treatment services to CSI, the Kaiser Property, or the TCS Property, the Parties agree to work in good faith to share and use the existing sewer facilities and the sewer system in such a manner so as to connect with a municipal sewer system at a cost as minimal as reasonably possible. 21. NOTICE. Any demand, consent or notice required or permitted to be given hereunder shall be in writing, shall be given by personal delivery or by certified U.S. mail, return receipt requested, addressed to Kaiser or to SDC at their respective addresses given below, and shall be effective on receipt (or if rejected, shall be effective and deemed received on the date of rejection). Either Party (or its permitted successor) may by notice to the other specify a different address in the United States for notice purposes. IF TO SDC: Speedway Development Corp. 3633 East Inland Empire Blvd., Suite 850 Ontario, CA 91764 Attention: President WITH A COPY TO: Penske Corporation 13400 Outer Drive, West Detroit, Michigan 48239 Attention: Vice President & General Counsel IF TO KAISER: Kaiser Ventures Inc. 3633 East Inland Empire Blvd., Suite 850 Ontario, California 91764 Attention: President WITH A COPY TO: Kaiser Ventures Inc. 3633 East Inland Empire Blvd., Suite 850 Ontario, California 91764 Attention: Vice President & General Counsel 22. WAIVER. No waiver by Kaiser or SDC of any provision hereof shall be deemed a waiver of any other provision or of any subsequent breach of the same provision. The 11 acceptance of any payment hereunder by Kaiser or SDC shall not be a waiver of any preceding breach by the other of any provision hereof, other than the failure of SDC or Kaiser to pay the particular payment so accepted, regardless of Kaiser's or SDC's knowledge, as the case may be, of the preceding breach at the time of acceptance. 23. ATTORNEY'S FEES. In the event there is any dispute concerning the terms of this Agreement, or the performance of any Party pursuant to the terms of this Agreement, and any Party retains counsel for the purpose of enforcing any of the provisions of this Agreement, or asserting the terms of this Agreement in defense of any suit or arbitration proceeding filed against said Party, the prevailing Party in such a dispute shall be entitled to recover, in addition to any other remedy to which such Party may be entitled, all of its reasonable costs and reasonable attorney's fees incurred in connection with the dispute, irrespective of whether or not a lawsuit or arbitration proceeding is actually commenced or prosecuted to conclusion. 24. CHOICE OF LAW. This Agreement shall be governed by the laws of the State of California. 25. GOOD FAITH. Except where this Agreement permits a Party to act or refuse to act in its sole discretion, in exercising their rights and performing their obligations with respect to this Agreement, each Party shall act reasonably and shall cooperate in good faith and fair dealing toward one another, so that to the purpose of this Agreement can be obtained. 26. ASSIGNMENT. Kaiser shall have the right to any time to assign this Agreement and transfer all duties and obligations associated with this Agreement to a wholly owned subsidiary provided such subsidiary is also the sole owner of the Sewer Treatment Facility and provided further that Kaiser shall continue to remain liable for the performance of Kaiser's contractual obligations hereunder until a sale of the Sewer Treatment Facility to a third party after compliance with the right of first refusal procedures specified in Paragraph 16(a) of this Agreement. The Parties acknowledge that it is currently contemplated that SDC (or its successor) will construct and operate TCS on the TCS Property. Without Kaiser's prior written consent, which it will not unreasonably withheld, SDC (or its successor) shall have no authority to assign its rights in this Agreement without a sale or other transfer of the entire TCS Property or that portion of the TCS Property not encumbered by a California Department of Toxic Substances Control Covenant to Restrict Use of Real Property, except to the holder of the deed of trust (or its beneficiary) for the TCS Property not encumbered by a DTSC Convenant to Restrict Use of Real Property or to the purchaser of that TCS Property as a result of a foreclosure sale or a deed in lieu of foreclosure. 27. FURTHER COOPERATION. Each Party shall take such further steps and sign or cause to be signed such further documents or instruments as may be necessary from time-to-time to achieve the purposes of this Agreement. IN WITNESS THEREOF, this Services Agreement has been executed as of the date first set forth above. 12 "KAISER" KAISER VENTURES INC. By: /s/ Daniel N. Larson --------------------------------------- Daniel N. Larson President and Chief Executive Officer "SDC" SPEEDWAY DEVELOPMENT CORPORATION By: /s/ Lee R. Redmond III --------------------------------------- Lee R. Redmond III, Vice President 13 SCHEDULE "A" TO SEWER SERVICES AGREEMENT BETWEEN KAISER VENTURES INC. AND SPEEDWAY DEVELOPMENT CORPORATION NOT ATTACHED WILL BE FURNISHED TO THE SEC UPON REQUEST 14 EX-23 12 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos.E33-51116, 33-39557, 33-39556 and 33-00000) pertaining to the Kaiser Steel Resources, Inc. 1992 Stock Option Plan, the Kaiser Steel Resources, Inc. 1989 Officer Bonus Program, the Amended, Restated and Substituted Kaiser Steel Resources, Inc. 1989 Stock Plan, and the Kaiser Ventures Inc. 1995 Stock Option Plan, respectively, of Kaiser Ventures Inc. of our report dated February 9, 1996, with respect to the consolidated financial statements and schedules of Kaiser Ventures Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1995. ERNST & YOUNG LLP Riverside, California April 3, 1996 EX-27 13 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 10,863,000 0 10,141,000 0 0 21,078,000 0 0 94,703,000 12,064,000 5,342,000 0 0 314,000 68,383,000 94,703,000 0 11,108,000 0 3,870,000 4,201,000 0 587,000 2,450,000 0 1,394,000 0 0 0 1,394,000 .13 .13
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