Registration of Securities Issued in a Business-Combination Transaction — Form S-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-4 Registration of Securities Issued in a 161 822K
Business-Combination Transaction
2: EX-3.3 Certificate of Formation 1 5K
3: EX-21 Subsidiaries of Kaiser Ventures Inc 1 6K
4: EX-23.1 Consent of Ernst & Young LLP 1 5K
5: EX-99 Proxy Card 2 8K
S-4 — Registration of Securities Issued in a Business-Combination Transaction
Document Table of Contents
As filed with the Securities and Exchange Commission on July 16, 2001
File No._______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------------
KAISER VENTURES LLC
(Exact name of Registrant as specified in its charter)
[Enlarge/Download Table]
Delaware Applied For
----------------- ---------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification Number)
3633 E. Inland Empire Blvd., Suite 850
Ontario, California 91764
(909) 483-8500
(Address of Principal Executive Offices)
_____________________________
[Download Table]
Terry L. Cook Copies of communications sent to:
Executive Vice President Theodore E. Guth, Esq.
3633 E. Inland Empire Blvd., Suite 850 Guth | Christopher LLP
Ontario, California 91764 10866 Wilshire Boulevard, Suite 1250
(909) 483-8500 Los Angeles, California 90024
(Name and address of agent for service) (310) 474-8809
Approximate date of commencement of proposed sale to the public: As soon as
practicable.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_].
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
[Enlarge/Download Table]
====================================================================================================================================
Proposed Maximum
Amount Proposed Maximum Aggregate Amount of
to be Offering Price Offering Registration
Title of Securities to be Registered Registered/(1)/ Per Unit/(2)/ Price/(2)/ Fee
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Class A membership units 6,908,879 $2.90 $20,035,749 $5,009
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(1) The amount to be registered estimates the number of Class A membership units
of the Registrant that will be exchanged for shares of common stock of
Kaiser Ventures Inc. in the Conversion Proposal described in this
registration statement. Pursuant to Rule 416 of the Securities Act of 1933,
as amended (the "Securities Act"), this Registration Statement also covers
such additional securities as may become issuable pursuant to options and
warrants to purchase Class A membership units.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) based upon the market value of Kaiser Ventures
Inc.'s Common Stock as of July 10, 2001, of $12.90, less a distribution of
$10 per share. Kaiser Ventures Inc. is concurrently filing a proxy
statement which includes a filing fee on the $10 per share distribution.
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[insert logo]
3633 E. Inland Empire Blvd., Suite 850
Ontario, California 91764
________ __, 2001
To the stockholders of Kaiser Ventures Inc.:
You are cordially invited to an annual meeting of stockholders of Kaiser
Ventures Inc., which will be held at the Ontario Hilton, located at 700 North
Haven Avenue, Ontario, California 91764, on __________, 2001 at 9:00 A.M., local
time. At the annual meeting, you will be asked:
1. To elect seven directors to serve as members of the Board of Directors
of Kaiser Ventures Inc. until the next annual meeting or until their
successors are elected; and
2. To approve a Conversion Proposal providing for the conversion of
Kaiser Ventures Inc., referred to as Kaiser Inc., into a limited
liability company. This would be accomplished by merging the existing
corporation into Kaiser Ventures LLC, a newly-formed Delaware limited
liability company, under the terms of an Agreement and Plan of Merger
dated as of __________, 2001. Under the Conversion Proposal, you would
receive $10 in cash and one Class A Unit in the successor limited
liability company for each share of our Common Stock you own. The
Class A Units would not be traded on any securities market.
In the election of directors, the seven persons receiving the highest
number of "FOR" votes will be elected. Our Board of Directors unanimously
recommends that you vote "FOR" the election of the seven nominees proposed in
the enclosed Proxy Statement/Prospectus. If the Conversion Proposal is approved
the Board of Managers of Kaiser Ventures LLC will consist of Richard E.
Stoddard, Ronald E. Bitonti, Todd G. Cole, Gerald A. Fawcett and Marshall F.
Wallach.
In order to proceed with the Conversion Proposal, the holders of our
Common Stock must approve the related merger agreement. After evaluating other
alternatives, our Board of Directors has carefully considered the Conversion
Proposal and the related merger agreement and has unanimously determined that
they are in the best interests of the holders of our Common Stock. Our Board of
Directors believes that converting Kaiser into a limited liability company would
permit Kaiser to recognize a tax loss from MRC this year, to distribute
significant cash to our stockholders on a tax advantageous basis, to avoid the
double taxation generally imposed on future corporate income distributed to
investors and to deal more expeditiously with our remaining assets. If the
Conversion Proposal is not approved, our Board of Directors believes that the
amount of cash ultimately distributed will most likely be reduced. Our Board of
Directors unanimously recommends that you vote "FOR" the approval of the
Conversion Proposal described in the enclosed Proxy Statement/Prospectus.
You should carefully consider the risk factors relating to the
Conversion Proposal, the related merger and our business, which are described
beginning on page __ of the enclosed Proxy Statement/Prospectus.
Regardless of the number of shares you own or whether you plan to
attend the annual meeting, it is important that your shares be represented and
voted. If you hold any shares of Common Stock in "street name" by a broker, your
broker will only vote your shares upon receiving proper instructions with
respect to casting your vote. Abstentions, "withheld" votes, and broker "non-
votes" will not affect the election of directors but will have the same effect
as votes AGAINST the Conversion Proposal. Instructions for voting procedures are
inside.
Richard E. Stoddard
Chairman and Chief Executive Officer
The date of this Proxy Statement/Prospectus is ____ __, 2001. It is
first being mailed to our stockholders on or about _____ __, 2001.
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DRAFT
Kaiser Ventures Inc.
3633 E. Inland Empire Blvd., Suite 850
Ontario, California 91764
_______________________________
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD ON ___________ __, 2001
_______________________________
NOTICE IS HEREBY GIVEN that an annual meeting of stockholders of Kaiser
Ventures Inc. will be held at the Ontario Hilton, located at 700 North Haven
Avenue, Ontario, California 91764, on _____________, 2001, at 9:00 A.M., local
time, for the following purposes:
. To elect seven directors to serve as a member of the Board of
Directors of Kaiser Ventures Inc. until the next annual meeting or
until their successors are elected.
. To approve a Conversion Proposal providing for the conversion of
Kaiser into a limited liability company. This would be
accomplished by merging the existing corporation into Kaiser
Ventures LLC, a newly-formed Delaware limited liability company,
under the terms of an Agreement and Plan of Merger dated as of
__________, 2001. Under the Conversion Proposal, you would receive
$10 in cash and one Class A Unit in the successor limited
liability company for each share of our Common Stock you own. The
Class A Units would not be traded on any securities market.
. To transact any other business as may properly come before the
annual meeting or any adjournments or postponements of the
meeting.
Only holders of record of our Common Stock at the close of business on
____________, 2001 are entitled to receive notice of, and to vote at, the annual
meeting or any adjournments or postponements of the meeting. It is important
that you vote. You are cordially invited to attend the meeting. However, to
ensure that you are represented at the annual meeting, please complete, sign and
date the enclosed proxy card and return it as promptly as possible in the
enclosed postage-paid envelope. If you hold any shares of Common Stock in
"street name" by a broker, your broker will only vote your shares upon receiving
proper instructions with respect to casting your vote. You have the right to
revoke your proxy at any time before it is voted by giving us written notice of
revocation by mail or by facsimile, by submitting a subsequent proxy or by
voting in person at the annual meeting. If you indicate no instructions on your
proxy card with respect to a proposal, we will vote your shares "FOR" that
proposal.
Please review the Proxy Statement/Prospectus accompanying this Notice
carefully for information relating to these matters.
By Order of the Board of Directors.
Secretary
Terry L. Cook
Ontario, California
____________ __, 2001
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
KAISER VENTURES INC.
PROXY STATEMENT/PROSPECTUS
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INFORMATION CONCERNING SOLICITATION AND VOTING
-----------------------------
We are furnishing this Proxy Statement/Prospectus to you in connection
with our solicitation of proxies at the annual meeting. We are first mailing
this Proxy Statement/Prospectus and the accompanying form of proxy on or about
____________________, 2001.
Time, Place and Purposes
Kaiser Ventures Inc., referred to as Kaiser Inc., will hold its annual
meeting at the Ontario Hilton, located at 700 Haven Avenue, Ontario, California
91764, on _____________, 2001, at 9:00 A.M., local time. At the annual meeting,
we will ask you:
. To elect seven directors to serve as a member of our Board of
Directors until the next annual meeting or until their successors
are elected.
. To approve a Conversion Proposal providing for the conversion of
Kaiser Inc. into a limited liability company. This would be
accomplished by merging the existing corporation into Kaiser
Ventures LLC, a newly-formed Delaware limited liability company,
under the terms of an Agreement and Plan of Merger dated as of
__________, 2001. For ease of reference, we will refer to the
existing corporation as Kaiser Inc., and to the limited liability
company as Kaiser LLC. Under the Conversion Proposal, you would
receive $10 in cash and one Class A Unit in Kaiser LLC for each
share of Common Stock you own. The Class A Units would not be
traded on any securities market.
Although we are not aware of any other matters to be submitted to the
stockholders at the annual meeting, any other business which properly comes
before the meeting may be transacted at the meeting. Our bylaws require certain
advance notice of proposals and nominations. If other matters do properly come
before the meeting, the persons named in the enclosed proxy may vote on such
matters in accordance with their best judgment.
Record Date; Voting Rights; Votes Required for Approval
Our Board of Directors has fixed the close of business on _________,
2001 as the record date for determining the stockholders entitled to receive
notice of and to vote at the annual meeting. Only stockholders of record as of
the close of business on the record date will be entitled to vote at the annual
meeting.
We had ____________ shares of Common Stock outstanding and entitled to
vote as of the close of business on the record date. These shares are the only
securities that may be voted at the annual meeting. Each share is entitled to
one vote.
Holders of a majority of the issued and outstanding shares of Common
Stock, present in person or by proxy, will constitute a quorum for the
transaction of business at the annual meeting. The seven nominees for the Board
of Directors receiving the greatest numbers of votes at the meeting will be
elected to the seven director positions. The affirmative vote of a majority of
all outstanding shares of Common Stock is required to approve the Conversion
Proposal.
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Kaiser Inc.'s Board of Directors - Recommendation
Our Board of Directors unanimously recommends that you vote "FOR" the
nominees to be elected to the Board of Directors and "FOR" the Conversion
Proposal described in this Proxy Statement/Prospectus.
Voting and Revocation of Proxies
All shares represented by valid proxies that Kaiser receives before the
annual meeting will be voted at the annual meeting as specified in the proxy,
unless the proxy has been previously revoked. If no specification is made on a
proxy with respect to a proposal, the related shares will be voted "FOR" that
proposal. Unless you indicate otherwise, your proxy card also will confer
discretionary authority on the board-appointed proxies to vote the shares
represented by the proxy on any matter that is properly presented for action at
the annual meeting.
If you hold any shares of Common Stock in "street name" by a broker,
your broker may vote your shares on your behalf. However, your broker will only
vote your shares with respect to the Conversion Proposal upon receiving proper
instructions with respect to casting your vote. Please tell your broker how you
would like him or her to vote your shares. If you do not tell your broker how to
vote, your shares may not be voted by your broker. Abstentions, "withheld"
votes, and broker "non-votes" will not affect the election of directors but will
have the same effect as votes AGAINST the Conversion Proposal.
You have the right to revoke your proxy at any time before it is voted
by giving written notice of revocation to our Secretary by mail or by facsimile,
by submitting a subsequent later-dated proxy or by voting in person at the
annual meeting.
Costs of Solicitation
We will pay the expenses of printing, assembling and mailing this Proxy
Statement/Prospectus. In addition to the use of the mails, our directors,
officers or regular employees may solicit proxies without additional
compensation, except for reimbursement of actual expenses. They may do so using
the mails, in person, by telephone, by facsimile transmission or by other means
of electronic communication. We may also make arrangements with brokerage firms
and custodians, nominees and fiduciaries to forward proxy solicitation materials
to beneficial owners of Common Stock held of record by such persons as of the
record date. We will reimburse brokers, fiduciaries, custodians and other
nominees for out-of-pocket expenses incurred in sending these proxy materials
to, and obtaining instructions from, beneficial owners.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Class A Units to be distributed as a
result of the Conversion Proposal, or determined if this Proxy
Statement/Prospectus is truthful or complete. Any representation to the contrary
is a criminal offense. This Proxy Statement/Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities in any
jurisdiction where such an offer or solicitation would be illegal.
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KAISER VENTURES LLC
PROSPECTUS
-----------------------
Unless otherwise noted, (1) the term "Kaiser Inc." refers to Kaiser
Ventures Inc., (2) the term "Kaiser LLC" refers to Kaiser Ventures LLC, (3) the
terms "Kaiser," "we," "us," and "our," refer to the ongoing business operations
of our company and its subsidiaries, whether conducted in the form of Kaiser
Inc. or, if the Conversion Proposal is approved, Kaiser LLC, and (4) the terms
"Common Stock" and "stockholder(s)" refer to Kaiser Inc.'s common stock and the
holders of that stock, respectively.
-----------------------
This Proxy Statement/Prospectus forms a part of a Registration
Statement on Form S-4, which we have filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, for the purpose of
registering the Class A Units of Kaiser LLC to be issued to Kaiser Inc.
stockholders if the Conversion Proposal is adopted. We refer to that
Registration Statement, including its exhibits and any amendments, as the
"Registration Statement."
This Proxy Statement/Prospectus does not contain all the information in
the Registration Statement. Please review the Registration Statement for further
information with respect to Kaiser LLC and the Class A Units. See "Where you Can
Find More Information About Kaiser." For your convenience, this Proxy
Statement/Prospectus summarizes certain terms of the Class A Units, the Merger
Agreement between Kaiser Inc. and Kaiser LLC and the Operating Agreement of
Kaiser LLC. However, the legal rights of the parties would be governed by the
actual language of the Merger Agreement and the Kaiser LLC Operating Agreement,
copies of which are attached as Annex A and B, respectively, to this Proxy
Statement/Prospectus. Please review them carefully for a complete description of
the rights and obligations summarized in this Proxy Statement/Prospectus.
The information contained in this Proxy Statement/Prospectus concerning the
provisions of these and other documents is necessarily a summary, and for the
full terms of those agreements you should carefully read the copy of the
applicable document filed with the SEC or attached as an Annex to this Proxy
Statement/Prospectus.
Neither this transaction nor the Class A Units have been approved or
disapproved by the SEC. The SEC has not passed upon the fairness or merits of
the Conversion Proposal, nor upon the accuracy or adequacy of this Proxy
Statement/Prospectus. Any representation to the contrary is unlawful.
No person has been authorized to give any information or to make any
representation not contained or incorporated by reference in this Proxy
Statement/Prospectus. Any representation to the contrary is a criminal offense
and you should not rely on such information or representation. This Proxy
Statement/Prospectus does not constitute an offer to sell, or the solicitation
of an offer to purchase, any of the securities offered by this Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction to or
from any person to or from whom it is unlawful to make such offer or
solicitation of an offer, or proxy solicitation in such jurisdiction. Neither
the delivery of this Proxy Statement/Prospectus nor the issuance or sale of any
securities under it will, under any circumstances, create any implication that
there has not been any change in the information set forth or incorporated by
reference in this Proxy Statement/Prospectus since the date hereof.
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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained in this
Proxy Statement/Prospectus, statements in this Proxy Statement/Prospectus
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. In addition, other written or oral statements which constitute
forward-looking statements have been made and may be made in the future by
Kaiser Inc., Kaiser LLC or both.
You should not put undue reliance on forward-looking statements. We
have an obligation to update and disclose any material developments related to
information disclosed in this Proxy Statement/Prospectus through and including
the date of the annual meeting of stockholders, however, we undertake no
obligation to update or revise any forward-looking statements that are or may be
affected by developments which our management do not deem material. When used or
incorporated by reference in this Proxy Statement/Prospectus, the words
"anticipate," "estimate," "project" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements are based on
certain factors and assumptions about future risks and uncertainties, not all of
which are identified in this Proxy Statement/Prospectus. We believe that our
assumptions are reasonable. Nonetheless, it is likely that at least some of
these assumptions will not come true. Accordingly, our actual results will
probably differ from the outcomes contained in any forward-looking statement,
and those differences could be material. Factors that could cause or contribute
to those differences include, among others, the ones discussed below under "Risk
Factors," as well as those discussed in other places in this Proxy Statement
Prospectus and in our filings with the SEC. For example, our actual results
could materially differ from those projected as a result of factors including,
among others, Kaiser's inability to complete the anticipated sale of its Eagle
Mountain landfill project; litigation, including, among others, claims that
relate to Eagle Mountain and pre-bankruptcy activities of Kaiser Steel
Corporation, the predecessor of Kaiser, including, among others, asbestos
claims; insurance coverage disputes; the impact of federal, state, and local
laws and regulations on our permitting and development activities; competition;
the challenge, reduction or loss of any claimed tax benefits; and/or general
economic conditions in the United States and Southern California. Should one or
more of these risks, or any other risks, materialize, or should one or more of
our underlying assumptions prove incorrect, our actual results may vary
materially from those anticipated, estimated, expected or projected. In light of
the risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Proxy Statement/Prospectus will in fact transpire.
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SUMMARY
This summary only highlights selected information from this Proxy
Statement/Prospectus and does not contain all of the information that may be
important to you. You should read this entire Proxy Statement/Prospectus and its
appendices and the documents to which it refers. For a description of the
documents to which this Proxy Statement/Prospectus refers, see "Where You Can
Find More Information About Kaiser."
OUR COMPANY
General. We have historically operated as an asset development company
based in Southern California. We are the reorganized successor to Kaiser Steel
Corporation, referred to as Kaiser Steel, which was an integrated steel
manufacturer that filed for bankruptcy protection in 1987. Our principal assets
currently include:
. An approximately 80% ownership interest in Mine Reclamation, LLC,
(which we refer to as MRC), which has permitted a rail-haul
municipal solid waste landfill at a property called the Eagle
Mountain Site located in the California desert. This landfill is
currently subject to a contract for its sale to County District
No. 2 of Los Angeles County (which we refer to as the District)
for approximately $41 million;
. A 50% ownership interest in the West Valley Materials Recovery
Facility and Transfer Station, a transfer station and recycling
facility located on land acquired from Kaiser, which we refer to
as the West Valley MRF; and
. Approximately 5,400 additional acres owned or controlled by
Kaiser at the Eagle Mountain Site that are not included in the
pending sale to the District.
. Substantial cash and cash equivalents as a result of the sale of
certain of our past assets, including our ownership interest in
Fontana Union Water Company (which we refer to as Fontana Union)
for $87.5 million in March 2001.
Current Strategy. In September 2000, our Board of Directors approved a
strategy to maximize the cash distributed to stockholders. Under this strategy,
we have been seeking:
. To complete the sale of the landfill project at the Eagle
Mountain Site and to resolve the related outstanding federal land
exchange litigation. This sale is subject to the satisfaction of
numerous conditions. As a result, we cannot be sure that this
sale will close, although the closing is currently scheduled for
the end of third quarter of 2001. Even if the sale is completed,
we do not expect to receive any cash from the sale until the
related land exchange litigation matter is resolved favorably.
For additional information, see "Business--Eagle Mountain
Landfill Project and Pending Sale."
. To reduce the risk to Kaiser from outstanding environmental and
other similar types of liabilities;
. To continue to hold our 50% interest in West Valley MRF, which
pays cash distributions to Kaiser, until we believe its is
appropriate to maximize stockholder value for this asset through
a sale or other alternative transaction;
. To sell miscellaneous assets such as surplus property and mineral
interests in Southern California; and
. To further reduce our general and administrative expenses.
Consistent with this strategy, we have recently completed or entered
into the following transactions:
. MRC entered into an agreement to sell the landfill project at the
Eagle Mountain Site in August 2000. For additional information,
see "Business --Eagle Mountain Landfill Project and
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. We sold approximately 588 acres of the former Kaiser Steel mill
site property (which we refer to as the Mill Site Property) in
mid-August 2000 for $16 million in cash plus the assumption of
certain environmental liabilities. For additional information,
see "Business --Completed Transactions - Sale of Mill Site
Property."
. We sold approximately 37 additional acres of the Mill Site
Property in October 2000 for $3.8 million in cash. For additional
information, see "Business --Completed Transactions - Sale of
Rancho Cucamonga Parcel."
. We sold our interest in Fontana Union in March 2001 for $87.5
million in cash, plus approximately $2.5 million in additional
payments due under a related lease. For additional information,
see "Business - Completed Transactions - Fontana Union Stock
Sale."
. We purchased an insurance policy covering substantially all of
Kaiser's remaining historical environmental and asbestos risks
and anticipated litigation for the next 12 years for an aggregate
cost of approximately $6 million, of which KSC Recovery, Inc.,
Kaiser Steel's bankruptcy estate, paid $2 million and we paid
the balance of approximately $4 million.
Kaiser is a Delaware corporation. Our principal executive offices are
located at 3633 E. Inland Empire Blvd., Suite 850, Ontario, California 91764.
Our telephone number is (909) 483-8500.
GENERAL
Meeting Date; Time; and Location.............. ______________, 2001, 9:00
A.M., at the Ontario Hilton,
located at 700 North Haven
Avenue, Ontario, California
91764.
Quorum........................................ Holders of a majority of the
issued and outstanding shares
of Common Stock, present in
person or by proxy, will
constitute a quorum for the
transaction of business at the
annual meeting.
Record Date; Shares Entitled to Vote.......... _____________________, 2001.
Only stockholders as of the
close of business on the
record date will be entitled
to vote at the annual meeting.
We had _______ shares of
Common Stock outstanding and
entitled to vote as of the
close of business on the
record date. Each of those
shares is entitled to one vote
on each matter to come before
the meeting.
Voting Procedure.............................. After you read and consider
the information in this Proxy
Statement/Prospectus, mark
your proxy card fully with
respect to each matter, and
then mail your signed and
dated proxy card in the
enclosed return envelope as
promptly as possible. To make
sure you are represented at
the meeting, you should return
your proxy card whether or not
you plan to attend. If you
hold your shares in "street
name," you must instruct your
broker how you would like him
or her to vote your shares in
order for your shares to be
voted with respect to the
Conversion Proposal.
Abstaining from voting will
have no effect with regard to
the election of directors but
will have the same effect as a
vote AGAINST the Conversion
Proposal.
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MATTERS TO BE CONSIDERED AT THE MEETING
THE ELECTION OF DIRECTORS
------------------------- We will elect a board of seven
directors at our annual
meeting, all of the same class
and each serving a one year
term, or until their
successors have been duly
elected and qualified.
Our Board of Directors has
nominated Richard E. Stoddard,
Ronald E. Bitonti, Todd G.
Cole, Gerald A. Fawcett,
Reynold C. MacDonald, Charles
E. Packard and Marshall F.
Wallach for the seven
positions.
The seven nominees receiving
the greatest numbers of votes
at the meeting will be elected
to Kaiser Inc.'s Board of
Directors.
For more information, please
see "Election of Directors."
THE CONVERSION PROPOSAL
-----------------------
The Conversion Proposal..................... Under the Conversion Proposal,
Kaiser would be converted into
a Delaware limited liability
company by merging into Kaiser
LLC. See "The Conversion
Proposal--Questions and
Answers Related to the
Conversion Proposal" and
"--Summary of the Conversion
Proposal."
Reason for the Conversion Proposal.......... Our Board of Directors
believes that converting
Kaiser into a limited
liability company would permit
Kaiser to recognize a tax loss
from MRC this year, to
distribute significant cash to
our stockholders on a tax
advantageous basis, to avoid
the double taxation generally
imposed on future corporate
income distributed to
investors and to deal more
expeditiously with our
remaining assets. More
specifically, by converting to
a limited liability company
before December 31, Kaiser
would save an estimated $10.5-
$12.0 million in taxes in 2001
by capturing the significant
tax losses associated with
MRC. (Our actual tax savings
can only be determined after
the merger.) These tax savings
mean that we can increase the
cash distributed to our
stockholders by almost $2.00
per share. In addition, a
conversion should mean that
most of our stockholders will
be able to offset their tax
basis in each share of Common
Stock against the merger
consideration, with only the
difference taxed at capital
gains rates. See "The
Conversion Proposal--Federal
Income Tax of The Conversion
Proposal."
The Merger.................................. If the Conversion Proposal is
approved, Kaiser Inc. would
merge into Kaiser LLC pursuant
to the terms for the Agreement
and Plan of Merger dated as of
__________, 2001. A copy of
The Agreement and Plan of
Merger is attached as Annex A
to this Proxy
Statement/Prospectus.
Merger Consideration........................ In the conversion, you would
receive $10 in cash and one
Class A Unit (collectively, we
refer to this as the "merger
consideration") for each share
of currently outstanding
Common Stock. See "The
Conversion Proposal--Questions
and Answers Related to the
"Conversion Proposal" and
"--Summary of the Conversion
Proposal."
Effect of Conversion Proposal............... If the Conversion Proposal is
approved,
. Kaiser would become
a limited liability
company.
. The assets and
liabilities of
Kaiser LLC would be
the same as those of
Kaiser Inc., except
that the
stockholders of
Kaiser would have
received $10 in
cash, thereby
reducing
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Kaiser's cash position.
. The Board of Kaiser LLC
would be reduced to five
managers, Richard E.
Stoddard, Ronald E.
Bitonti, Todd G. Cole,
Gerald A. Fawcett and
Marshall F. Wallach, from
Kaiser Inc.'s seven
directors, and the
officers and other
employees of Kaiser LLC
would be the same as that
of Kaiser Inc., although
we expect to continue to
reduce staff as our
assets are sold.
. The holders of the Class
A Units (on a fully
diluted basis) would be
the same as the holders
of the Common Stock. The
only other ownership
interests in Kaiser LLC
would be nonvoting Class
B Units held by three
former managers of MRC.
These units would provide
only for cash payments of
approximately 2% of any
principal portion of the
sales price received by
MRC on the sale of the
Eagle Mountain landfill
project to the District.
The issuance of the Class
B Units is designed to
give the former
management of MRC
incentives to continue to
assist, as needed, to
close the sale of the
landfill project to the
District and collection
of the purchase price.
See "The Conversion
Proposal--Class B
Units").
. The Class A Units would
contain transfer
restrictions and would
not be traded on any
securities market.
. The remaining assets of
Kaiser LLC could be sold
without further approval
of the Class A Units or
Class B Units.
For more information, please see
"The Conversion Proposal--Summary
of the Conversion Proposal."
Risk Factors............................ The Conversion Proposal carries
certain risks, including, among
others, material transfer
restrictions on the trading of
Class A Units, the potential for
taxable income without cash
distributions and certain other tax
consequences. Kaiser would also
continue to be subject to its
current business risks. See
"The Conversion Proposal--Risk
Factors."
Rights of Members....................... Because Kaiser LLC is a limited
liability company rather than a
corporation, our Common Stock would
be exchanged for "membership units"
and the owners would be called
"members," not "stockholders."
Moreover, the rights of the members
would be governed by Kaiser LLC's
Operating Agreement, a copy of
which is attached as Annex B to
this Proxy Statement/Prospectus,
and Delaware law. For a summary of
some aspects of the Operating
Agreement, please see "The
Conversion Proposal--Comparison Of
Common Stock and Class A Units."
Trading and Transfer.................... The Common Stock is currently
traded on the Nasdaq Stock Market
under the symbol "KRSC." On July
10, 2001, the closing sales price
for Common Stock as reported on the
Nasdaq Composite Transactions
reporting system was $12.90 per
share. The Class A Units are not
traded on any securities market,
and would not be traded on any
securities market after the
conversion because of the
application of certain tax laws.
Accordingly, you cannot expect to
sell your Class A Units even if you
need liquidity. See "The Conversion
Proposal--Comparison Of Common
Stock And Class A Units--Transfer
Restrictions."
8
Tax Consequences........................ The Conversion Proposal would be a
taxable transaction. Among other
things, each stockholder will
generally recognize gain or loss
per share of Common Stock for
federal income tax purposes equal
to the difference between the tax
basis in that share of Common Stock
and the sum of $10 and the value of
a Class A Unit on the date of the
merger. See "The Conversion
Proposal--Federal Income Tax
Consequences of The Conversion
Proposal."
Votes Required.......................... A majority of all issued and
outstanding shares of Common Stock
entitled to vote is required to
approve the Conversion Proposal.
Appraisal Rights........................ You have certain rights under the
Delaware General Corporation Law
(the "DGCL") to dissent with regard
to the merger and to receive
payment in cash of the fair value
of your shares of Common Stock if
the merger contemplated by the
Conversion Proposal is completed.
These rights are called "appraisal
rights," and any shares for which
the appraisal rights are perfected
are called "Dissenting Shares."
Stockholders who wish to perfect
their appraisal rights must comply
with the procedures set forth in
Section 262 of the DGCL, the text
of which is set forth in Annex C to
this Proxy Statement/Prospectus,
and must not vote in favor of the
adoption of the merger agreement at
the annual meeting. See "Conversion
Proposal--Appraisal Rights." While
you pursue your appraisal rights at
your expense, you will not be
entitled to any part of the merger
consideration, including the cash
payment. Unless the dissenting
stockholder and Kaiser Inc. agree
on the fair cash value for the
Dissenting Shares, the Delaware
courts will ultimately determine
the fair cash value of
any Dissenting Shares. See
"The Conversion Proposal--Appraisal
Rights."
Recommendation.......................... Our Board of Directors has
unanimously approved and recommends
that you vote "FOR" the Conversion
Proposal. See "The Conversion
Proposal--Recommendation."
9
ITEM 1. ELECTION OF DIRECTORS
We will elect a board of seven directors for Kaiser Inc. at the annual
meeting, all of the same class and each serving a one year term, or until their
successors have been duly elected and qualified. The seven nominees receiving
the greatest numbers of votes at the meeting will be elected to the seven
director positions. Our Board of Directors recommends that you vote FOR each of
---
the nominees listed below.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Board of Directors' seven nominees named below, all of
whom are presently directors of Kaiser Inc. If any nominee is unable or declines
to serve as director at the time of the annual meeting, the proxies will be
voted for any nominee who is designated by Kaiser Inc.'s present Board of
Directors to fill the vacancy. If the Conversion Proposal is not approved, the
term of office of each person elected as a director will continue until the next
annual meeting of stockholders or until his successor has been elected and
qualified. If the Conversion Proposal is approved and the related merger
completed, the terms of these directors would end when Kaiser Inc. ceases to
exist upon the merger, and the Board of Managers of Kaiser Ventures LLC would
consist of Richard E. Stoddard, Ronald E. Bitonti, Todd G. Cole, Gerald A.
Fawcett and Marshall F. Wallach
Name Age Position with Kaiser
---- --- --------------------
Richard E. Stoddard 50 Chief Executive Officer, President
and Chairman of the Board
Ronald E. Bitonti 68 Director
Todd G. Cole 80 Director
Gerald A. Fawcett 68 Vice Chairman
Reynold C. MacDonald 82 Director
Charles E. Packard 57 Director
Marshall F. Wallach 58 Director
Richard E. Stoddard was appointed Chief Executive Officer of Kaiser Inc. in
June 1988, and has held that position and/or the position of Chairman of the
Board since such date. Prior to joining Kaiser Inc. in 1988, he was an attorney
in private practice in Denver, Colorado. Mr. Stoddard is Chairman of the Board
of Managers of MRC. He served on the Board of Directors of Penske Motorsports,
Inc. until it was acquired by International Speedway Corporation in July 1999.
Ronald E. Bitonti is Chairman of the Benefits Committee for the Kaiser's
Voluntary Employees' Beneficiary Association Trust, referred to as VEBA, and was
Chairman of the Reorganized Creditors' Committee formed during the Kaiser Steel
bankruptcy until dissolution of this committee in 1991. From 1985 to 1991, Mr.
Bitonti served as International Representative for the United Steelworkers of
America. Mr. Bitonti retired from Kaiser Steel in 1981 and has been a director
since November 1991.
Todd G. Cole was Chief Executive Officer of CIT Financial Corporation
before starting his present career as a consultant and corporate director. He
currently is President of Cole & Wilds Associates, Inc., a consulting company,
and serves on the Board of Directors of Avborne, Inc. (aircraft and component
overhaul), Hawaiian Airlines, Inc. (certificated air carrier), IB Net, Ltd.
(business-to-business internet services), Ionosphere, Inc. (automated resources
management) and 1Hemispher.com (bringing the benefits of the internet to small
business enterprises). Mr. Cole has been a director since November 1989.
10
Gerald A. Fawcett was President and Chief Operating Officer of Kaiser
Inc. from January 1996, until his retirement from full time duties on January
15, 1998. He was appointed to Kaiser Inc.'s Board on January 15, 1998, and
currently serves as Vice Chairman of the Board. Mr. Fawcett started his
employment with the former Kaiser Steel in 1951. He held various positions in
the steel company, and ultimately became division superintendent of the cold
rolled and coated products division. In 1988, after a five year consulting
business working with domestic and overseas steel industry clients, Mr. Fawcett
joined Kaiser Inc. as Senior Vice President and became Executive Vice President
in October 1989. He is also Vice Chairman of the Board of Managers of MRC.
Reynold C. MacDonald served as Chairman of the Board for Acme Metals
Company from 1986 until 1992 and continues with Acme as a member of its Board of
Directors. Acme is currently in a Chapter 11 bankruptcy proceeding. From 1983 to
1986, Mr. MacDonald was director of and consultant to Interlake, Inc., a metals
fabrication and materials handling company. He retired as Chairman and Chief
Executive Officer of Interlake in 1983. He also served as Director of ARAMARK
Group, Inc. from November 1988 to February 1999. He also was an employee of
Kaiser Steel from 1946 to 1963, with his last position being assistant general
superintendent of all of the mills. Mr. MacDonald has been a director since
November 1988.
Charles E. Packard has served as the Chief Operating Officer of
Greentrac.com since December 1999. Before that, from 1986 he served as a member
of its Board of Directors, Executive Vice President, and Chief Financial Officer
for the Arnel Development Company, a real estate investment, development, and
management company in Costa Mesa, California. Until taking the position with
Greentrac.com, Mr. Packard also served as Vice President and Chief Financial
Officer of Arnel Financial, where he supervised the financial and administrative
areas of 20 corporate entities. Mr. Packard is also on the Board of Directors of
CEC Properties, Inc., which is a publicly traded golf course development and
management company. Mr. Packard also serves on the Board of Directors of several
non-profit organizations. Mr. Packard has been a director since November 1991.
Marshall F. Wallach served as President of The Wallach Company, a
Denver, Colorado based investment banking firm from 1984 through April 2001. The
Wallach Company was sold to Keycorp on January 1, 2001. Since April 1, 2001, Mr.
Wallach has served as Chairman of the Board of The Wallach Company. Prior to
forming The Wallach Company, ___ Mr. Wallach managed the corporate finance
department and established the mergers and acquisitions department of Boettcher
& Company, a regional investment bank in Denver, Colorado. Mr. Wallach serves on
the boards of several non-profit organizations and privately-owned corporations.
He also serves on the Board of Directors of Tomkins, PLC. He has been a director
since November 1991.
11
ITEM 2. THE CONVERSION PROPOSAL
Questions and Answers Related to the Conversion Proposal
What does the Conversion Proposal mean for me?
---------------------------------------------
If the Conversion Proposal is approved, you would receive $10 in cash as well as
one Class A Unit for each of your shares of Common Stock.
Why are we doing this?
---------------------
The Conversion Proposal would permit us to recognize a tax loss from MRC this
year, to distribute significant cash to our stockholders on a tax advantageous
basis, to avoid the double taxation generally imposed on future corporate income
distributed to investors and to deal more expeditiously with our remaining
assets. More specifically, by converting to a limited liability company before
December 31, Kaiser will save an estimated $10.5-$12.0 million in taxes in 2001
by capturing the significant tax losses associated with MRC. (Our actual tax
savings can only be determined after the merger.) These tax savings mean that we
can increase the cash distributed to our stockholders by almost $2.00 per share.
In addition, a conversion should mean that most of our stockholders will be able
to offset their tax basis in each share of Common Stock against the merger
consideration, with only the difference taxed at capital gains rates.
How would the conversion work?
-----------------------------
Kaiser Inc. currently owns all of Kaiser LLC's Class A Units. If Kaiser Inc.
merges with Kaiser LLC:
. Kaiser LLC would survive the conversion, and Kaiser Inc. would cease to
exist.
. Each share of outstanding Common Stock would automatically convert into the
right to receive $10 in cash and one Class A Unit.
Kaiser LLC would have an operating agreement in lieu of Kaiser Inc.'s
certificate of incorporation and bylaws. A copy of the merger agreement and the
operating agreement are attached as Annexes A and B, respectively, to this Proxy
Statement/Prospectus.
Would Kaiser LLC's ownership differ substantially from that of Kaiser Inc.?
-------------------------------------------------------------------------
No. Upon the conversion, all of the outstanding Class A Units would be held by
our stockholders. Kaiser LLC, like Kaiser Inc., may issue additional Class A
Units or other securities without the approval of its members for a variety of
purposes, including, among others, future offerings to raise capital. Kaiser LLC
would also issue nonvoting Class B Units to three former managers of MRC. If the
Conversion Proposal is not approved, these Class B Units will not be issued and
the former MRC executives would be entitled to the same amounts as bonuses. See
"--Class B Units."
Would there be any changes in the management of Kaiser?
------------------------------------------------------
If the Conversion Proposal is approved, the directors and officers of Kaiser
Inc. would become the managers and officers of Kaiser LLC. However, the Board of
Managers would be reduced to five, from the current seven members of our Board
of Directors, and would consist of Richard E. Stoddard, Ronald E. Bitonti, Todd
G. Cole, Gerald A. Fawcett and Marshall F. Wallach. The indemnification and the
limitations of liability provisions of the Operating Agreement differ somewhat
from those in Kaiser Inc.'s current charter documents.
How would the conversion be effected?
------------------------------------
Kaiser Inc. and Kaiser LLC would file a certificate of merger with the Secretary
of State of the State of Delaware.
What other options did Kaiser consider?
--------------------------------------
Kaiser considered the following options:
. A sale of Kaiser to a third party
. A liquidation
. A share repurchase by Kaiser
. A cash dividend
Why did you not proceed with the other options considered?
---------------------------------------------------------
Among other reasons, we received no acceptable offers to acquire Kaiser that we
believed we could successfully close during 2001. Without the tax losses
triggered by the
12
conversion, we would have had less cash available for either a share repurchase
or a cash dividend, and, in addition, each alternative would have had
significantly worse tax consequences to our stockholders than the Conversion
Proposal. Liquidation offered no significant benefits over conversion and
created certain tax and other uncertainties.
What do I need to do now?
------------------------
After you read and consider the information in this document, mark your proxy
card to indicate your votes and then mail your signed and dated proxy card in
the enclosed return envelope as soon as possible, to ensure that your shares are
represented at the annual meeting. You should return your proxy card whether or
not you plan to attend the annual meeting.
Will my broker vote my shares for me if they are held in "street name?"
---------------------------------------------------------------------
Your broker will vote your shares in connection with the Conversion Proposal
only if you provide instructions on how to vote. Otherwise, your shares will not
be voted. Consequently, if you want your vote to be counted, please be sure to
provide instructions to your broker.
What do I need to do to get my Class A Units?
--------------------------------------------
You do not need to do anything now. If the Conversion Proposal is approved, your
Common Stock would be automatically converted into the right to receive the
merger consideration. Shortly after the completion of the merger, we would send
you a letter telling you how you would receive your cash and Class A Units.
Please do not send any stock certificates to us at this time.
------------------------------------------------------------
If approved, when do you expect to complete the conversion?
----------------------------------------------------------
We would complete the conversion as quickly as possible, probably within a few
days of the approval.
What are the tax ramifications to Kaiser stockholders?
-----------------------------------------------------
Generally our stockholders would pay capital gains taxes on any excess of the
value received in the merger over that stockholder's tax basis in the Common
Stock. For example, based upon the third-party expert's current estimate of the
value of a Class A Unit, for tax purposes, at $1.45/share and the $10 in cash
that would be distributed for each share of outstanding Common Stock, you would
pay capital gains taxes on any excess of the estimated $11.45 in value received
per share of Common Stock, for tax purposes, in the merger over your income tax
basis in your Common Stock. The actual value of a Class A Unit will be based on
the value at the time of the merger. In addition, you would receive a direct
allocation of the future losses and profits of Kaiser LLC. Your allocations of
income could exceed the amount of cash you receive. For certain of our
stockholders who are exempt from Federal income tax, some of the income from
Kaiser LLC may be considered "unrelated business taxable income." See
"Conversion Proposal--Federal Tax Consequences."
Who can help answer any questions I have?
----------------------------------------
If you have any questions, you should contact Terry L. Cook, General Counsel and
Corporate Secretary of Kaiser Inc. by telephone at (909) 483-8500 or by mail at
Kaiser Inc.'s principal executive offices, located at 3633 E. Inland Empire
Blvd., Suite 850, Ontario, California 91764.
13
Summary Of The Conversion Proposal
Kaiser would become a limited liability company through a conversion
of Kaiser Inc. into Kaiser LLC. The conversion would take place pursuant to the
Agreement and Plan of Merger, dated as of _________ __, 2001, a copy of which is
attached as Annex A to this Proxy Statement/Prospectus. In the conversion,
Kaiser LLC would be the surviving entity and would succeed to all of Kaiser
Inc.'s assets and liabilities by operation of Delaware law. As a result of the
Conversion Proposal,
. We would become a limited liability company, and Kaiser Inc. would not
continue as an entity;
. Kaiser LLC would have the same assets and liabilities as Kaiser Inc.,
except that Kaiser's cash position would be reduced as a result of the
$10 per share in cash distributed to our stockholders;
. The remaining assets of Kaiser could be sold without further approval
of the Class A Units;
. The ownership of Kaiser LLC would be the same as the ownership of
Kaiser Inc. (on a fully-diluted basis), except for certain nonvoting
Class B Units held by three former managers of MRC;
. Kaiser LLC would have a Board of Managers consisting of five managers,
all of whom are currently members as Kaiser Inc.'s Board of Directors;
. Kaiser LLC's officers would be the same as Kaiser Inc.'s officers and
have the same powers and duties, although the time commitment of
certain officers will be reduced over the next 12 months and we
expect to continue to reduce our staff as our assets are sold; and
. The Class A Units would contain transfer restrictions and not be
traded on any securities market.
Delaware law requires that we obtain the approval of our stockholders
to undertake the conversion and the related merger. If the Conversion Proposal
is approved and the merger is completed, each share of Common Stock will be
converted automatically into the right to receive $10 in cash and one Class A
Unit.
Treatment of Options and Warrants
Under the Conversion Proposal, each outstanding and unexercised option and
warrant to purchase shares of Common Stock (vested or unvested) immediately
prior to the merger would automatically be converted into the right to receive
the following:
. If the exercise price per share under the option or warrant is greater
than $10 per share, the option or warrant would be converted
automatically into the right to receive a new option or warrant to
purchase a number of Class A Units equal to the number of shares of
Common Stock subject to the original option or warrant. The exercise
price per Class A Unit would be equal to the exercise price per share
of Common Stock of the original option or warrant as of the merger
less $10 per share; the other terms and conditions of the option or
warrant would remain the same.
. If the exercise price per share under the option or warrant is equal
to or less than $10 per share, the option or warrant would be deemed
exercised and converted automatically into the right to receive, for
each share of Common Stock subject to the option or warrant, (a) cash
in an amount equal to $10 per share less the exercise price per share
of Common Stock of the original option or warrant and (b) one Class A
Unit.
Recommendation of Kaiser Inc.'s Board of Directors
Our Board of Directors believes that the conversion of Kaiser Inc. into
Kaiser LLC would permit us to recognize a tax loss from MRC this year, to
distribute significant cash to our stockholders on a tax advantageous basis, to
avoid the double taxation generally imposed on future corporate income
14
distributed to investors and to deal more expeditiously with our remaining
assets. More specifically, by converting to a limited liability company before
December 31, Kaiser will save an estimated $10.5-$12.0 million in taxes in 2001
by capturing the significant tax losses associated with MRC. (Our actual tax
savings can only be determined after the merger.) These tax savings mean that we
can increase the cash distributed to our stockholders by almost $2.00 per share.
In addition, our Board of Directors believes that a conversion should mean that
most of our stockholders will be able to offset their tax basis against the
distribution, with only the difference taxed at capital gains rates.
Our Board of Directors has determined that the Conversion Proposal is in
the best interest of the stockholders taking into account the anticipated tax
advantages offered by the Conversion Proposal described above as well as the
legal, financial and other issues involved in a potential conversion of Kaiser
into a limited liability company. In reaching its decision, our Board of
Directors considered, among others, the following factors:
. Kaiser's current and anticipated future contingent liabilities and
cash needs;
. tax planning opportunities and their timing, with the goal of
reasonably minimizing taxes paid by Kaiser Inc. and its stockholders;
. the anticipated timing of achieving maximum value for Kaiser Inc.'s
remaining assets which may be several years in the future;
. expenses, including, among other expenses, general administrative and
ongoing expenses, related to various alternatives;
. the legal and other risks that may be associated with various
alternatives;
. the timing of initiating and completing various alternatives; and
. the possible impacts of the various alternatives might have on the
trading in Kaiser Inc.'s stock.
Our Board of Directors considered a number of alternatives to the
Conversion Proposal such as
. A possible sale to a third party. Although a purchase by third party
at an acceptable price with appropriate financial backing would
probably have been the preferred option, we received no acceptable
offers that we believed we could successfully close during 2001.
. A liquidation. Liquidation offered no significant tax benefits over
the Conversion Proposal. In fact, it would have resulted in slightly
higher tax risk for everyone. Using a liquidating trust under a plan
of liquidation generally requires showing that the liquidating trust
is not carrying on any active businesses and that its assets are
expected to be completely distributed in two or three years. Since we
anticipate holding the West Valley MRF (an active business) for an
undefined period of time, and don't expect to receive the proceeds for
any sale of Eagle Mountain for three or four years, we were concerned
about the use of a liquidating trust. If this was challenged, it could
have created greater tax liabilities for Kaiser and for its
stockholders. In addition, we also considered the potential difficulty
of assigning some of our rights in certain critical contracts and
agreements to a liquidating trust. Finally, the limits on selling
interests in a liquidating trust are generally somewhat greater than
those on selling the Class A Units.
. A cash dividend of approximately $8. A dividend would have allowed
Kaiser to continue in its current form, but it would have brought
significantly worse tax consequences for the corporation and its
stockholders. Kaiser would incur higher taxes in 2001 and this would
likely have reduced the amount of any cash dividend to stockholders.
From most stockholders' point of view, a dividend would be taxed as
ordinary income, since the "return of capital" approach used for our
distribution last December is no longer available. And, after making a
cash dividend, Kaiser might not continue to meet the Nasdaq listing
requirements and might not trade as freely.
. A stock repurchase program. Finally, a share repurchase would also
have allowed Kaiser to continue in its current form, but would have
had significantly worse tax consequences for both Kaiser and its
stockholders. Kaiser would incur higher taxes in 2001, reducing the
cash available for a repurchase. Second, a share repurchase would be
treated as a dividend (with
15
higher tax rates and less ability to use the tax basis for our
stockholders) except for any individual stockholders who participate
on a "disproportionate basis" (i.e., their relative percentage
interest in Kaiser declined by at least 20%). Unfortunately, since we
believed that most of our stockholders would participate in any
repurchase, this test would have been difficult to meet.
Our Board of Directors has carefully considered the Conversion Proposal and
the related merger agreement and has unanimously determined that they are in the
best interests of the holders of our Common Stock. Our Board of Directors
unanimously recommends that you vote "FOR" the approval of the Conversion
Proposal described in the enclosed Proxy Statement/Prospectus.
Risk Factors
Like your interest in the Common Stock, the Class A Units are speculative
in nature and involve a high degree of risk. The first set of risk factors set
forth below are the primary risks associated with the Conversion Proposal and
the Class A Units. The second set of risk factors are the primary risks
associated with Kaiser's business and are not expected to be significantly
affected by an approval of the Conversion Proposal. However, because of the
restrictions on transferability, you might be unable to liquidate your Class A
Units if any of these or other risks materialize. Along with the other
information included in this Proxy Statement/Prospectus, you should carefully
consider the following risks and uncertainties, keeping in mind that they are
not the only ones that affect us. Additional risks, which we do not presently
consider material or of which we are not currently aware, may also adversely
affect us.
Certain Risk Factors Relating to the Conversion Proposal and the Class A Units
The Class A Units Are Subject To Transfer Restrictions and Will Not Be Traded In
a Public or Secondary Market
The Class A Units will be an illiquid and long-term investment. In order
for a limited liability company to obtain the federal income tax benefits of
being classified as a "partnership," its securities cannot be "publicly traded."
Under Section 7704 of the Internal Revenue Code of 1986, as amended, this means
that interests in the limited liability company cannot be (a) traded on an
established securities market, or (b) readily tradable on a secondary market (or
the substantial equivalent thereof). This section has generally been interpreted
to mean that no more than 2% of the total interests in the entity's capital or
profits may be transferred during any one tax year (subject to certain
exceptions). See "--Federal Income Tax Consequences of The Conversion Proposal."
As a result, there would not be a public or other market for any of the Class A
Units and the Kaiser LLC Operating Agreement contains significant transfer
restrictions on Class A Units to prevent any such market from developing,
including, among other restrictions, the right of Kaiser to refuse to authorize
and process transfers of Class A Units.
Because there would not be a public market for the Class A Units, you will
probably not be able to sell your Class A Units, and, therefore, you should not
expect to obtain any liquidity from the Class A Units until and unless the
remaining assets of Kaiser generate cash that is distributed to the holders of
Class A Units. As a result, you would be unlikely to be able to dispose of your
investment even if any of the risks associated with the Conversion Proposal or
Kaiser's business in general materialize. Furthermore, if you are able to sell
your Class A Units, the transfer restrictions on the Class A Units could
materially and adversely affect the price you receive for your Class A Units.
Kaiser is Not Obligated to Make Any Cash Distributions on the Class A Units
Kaiser LLC's Board of Managers would have the discretion to retain any
future operating profits for anticipated expenses and for any other business
purpose. Kaiser has not, and does not expect in the future, to pay regular cash
distributions or dividends. Instead, Kaiser anticipates continuing its current
policy of making distributions whenever, in the opinion of its Board, it has
sufficient cash to do so. However, Kaiser is not legally obligated to continue
that policy and in any case Kaiser may not generate any further cash to
distribute.
16
Distributing Cash to our Stockholders in the Conversion Reduces the Amount of
Cash Available to Kaiser Should Future Contingencies Arise
In the conversion, our stockholders will receive a cash distribution of
$10 per share of Common Stock, or an aggregate of approximately $66 million. As
a result, Kaiser will have less cash to fund its defense against existing or
future liability claims, satisfy any settlements or claims that are adversely
resolved, or improve, develop and market its remaining assets. Although we
believe that we have sufficiently reserved for known risks and our ongoing
working capital needs, should any of the risks identified in this Proxy
Statement/Prospectus, or any other unidentified contingencies, arise, we may not
have sufficient funds available to resolve these contingencies and maintain our
business operations. If any of these events should occur, we may not be able to
implement our future business strategy or effectively market our remaining
assets in an attempt to maximize stockholder value for these assets.
Holding Class A Units Creates the Potential for Excess Taxable Income
As in a partnership, Kaiser LLC's income and losses would be directly
attributable to its members for federal tax purposes. Consequently, you could
have tax liability that exceeds your share of any future distributions. In
general, under federal tax law, income and losses from Kaiser LLC will most
likely be treated as "passive" income or loss, subject to each member's
activities in Kaiser LLC. However, for certain of our stockholders who are
exempt from Federal income tax, some of the income from Kaiser LLC may be
considered "unrelated business taxable income." See "--Federal Income Tax
Consequences of the Conversion Proposal." Although we do not currently
anticipate that you will recognize tax liability in excess of your share of
future distributions, that could happen.
Appraisal Rights
Under applicable Delaware law, our stockholders would have the right to be
paid in cash for the fair value of their shares of Common Stock by perfecting
"appraisal rights." See "--Appraisal Rights." Although the payment of the $10
per share in cash would be delayed to dissenting stockholders until the
resolution of appraisal proceedings, which could take one or two years, we would
ultimately have to provide cash to properly dissenting stockholders in lieu of
the Class A Units. This would increase the need for cash distributions, and, if
too many of our stockholders perfect appraisal rights, we may be forced to
abandon the Conversion Proposal.
The Operating Agreement Contains Certain Anti-Takeover Provisions
Kaiser LLC would also continue other provisions already contained in the
Kaiser Inc. bylaws, such as advance notice for actions at meetings and
nominations, which could have similar effects. These provisions or others could
discourage, delay or prevent a third party from acquiring Kaiser LLC, even if
doing so might benefit Kaiser and its members. Kaiser LLC would be permitted to
issue additional Class A Units without the approval of its members, and could
use these additional units for a variety of purposes, including, among others,
future offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The ability to issue additional Class A Units could
render more difficult or discourage an attempt to obtain control of Kaiser by
means of a proxy contest, tender offer, merger or otherwise.
The Conversion Proposal Will Have Federal Income Tax Consequences to our
Stockholders
If the Conversion Proposal is approved and the merger is completed, you
will recognize gain or loss equal to the difference between your tax basis in
each share of Common Stock and the sum of $10 plus the fair market value of the
Class A Unit on the date of the merger. If the Conversion Proposal is approved
and you perfect your appraisal rights, you will recognize gain or loss equal to
the difference between your tax basis in each share of Common Stock and the cash
you receive upon the resolution of the appraisal proceedings. Kaiser Inc.
retained Duff & Phelps LLC to value the Class A Units as the date of the merger.
Based upon Duff & Phelps' preliminary appraisal of the fair market value of a
Class A Unit, for tax purposes, at $1.45/share, you would pay taxes on any
excess of the estimated $11.45 in value received per share of Common Stock, for
tax purposes, over your tax basis per share. Kaiser is obligated to report that
value to the former stockholders and to the Internal Revenue Service not later
than the end
17
of January 2002. See "--Federal Income Tax Consequences of the Conversion
Proposal--Consequences to Kaiser Inc. Stockholders."
Any gain or loss recognized by you as a result of the conversion will
most likely be characterized as long-term gain or loss if you have held the
Common Stock for more than one year as of the date of the effective time of the
conversion. If you have held the Common Stock for one year or less, any gain or
loss recognized by you will likely be characterized as a capital gain or loss,
which is taxed at a higher rate than long-term gains.
Depending on the results of operations of Kaiser LLC, its members could
be allocated taxable income but not receive corresponding cash distributions to
pay the associated tax liability. For certain of our stockholders who are
exempt from Federal income tax, some of the income from Kaiser LLC may be
considered "unrelated business taxable income." If Kaiser LLC recognizes a
taxable loss, the amount of loss from Kaiser LLC that may be recognized by a
member for any particular tax year could be limited to the amount of that
member's adjusted basis of his or her Class A Units. However, to the extent
there exists any disallowed loss for a particular period, the disallowed portion
of the loss may be carried forward to, and deducted by the member in, subsequent
tax years in which the member recognizes a taxable gain.
You should be aware that (for most stockholders) any tax losses from
Kaiser LLC will likely be subject to the At-Risk Rules and Passive Activity
Rules contained in the Internal Revenue Code. These rules generally delay the
ability of the taxpayer to deduct certain losses. You should consult with your
tax advisers as to the effect such rules might have on the outcome of your
individual tax return.
THE DISCUSSION OF FEDERAL INCOME TAX CONSIDERATIONS IN THIS PROXY
STATEMENT/PROSPECTUS DOES NOT ATTEMPT TO COMMENT ON ALL TAX MATTERS THAT MAY
AFFECT YOU. YOU SHOULD CONSULT YOUR OWN TAX ADVISERS WITH RESPECT TO THE TAX
CONSEQUENCES OF THE CONVERSION PROPOSAL TO YOU.
The Actual Tax Savings to Kaiser Inc. and the Tax Effect on its Stockholders
Which Result from the Conversion Proposal Could Vary Significantly from
Projected Tax Consequences
By converting to a limited liability company during 2001, Kaiser Inc.
expects to generate a tax loss estimated at $42-$47 million. This loss could be
used to offset the gain Kaiser Inc. recognized in 2001 from the sale of the
Fontana Union stock and would reduce the income taxes paid by Kaiser Inc. in
2001 by approximately $10.5-$12.0 million. Additionally, each stockholder will
pay capital gains taxes on any excess value received in the merger over that
stockholder's tax basis in the Common Stock.
Our Board of Directors retained Duff & Phelps to provide a valuation
opinion with respect to 1) the fair market value of the net assets of Kaiser, on
a controlling interest basis, immediately following the cash distribution and
before Kaiser's remaining net assets are distributed, for tax purposes, to the
stockholders of Kaiser in the form of Class A Units; and 2) the fair market
value of the Class A Units, on a nonmarketable minority interest basis as of the
date of the conversion, for tax purposes. Although Duff & Phelps has indicated a
preliminary fair market value for a Class A Unit, for tax purposes, at
$1.45/share, on a fully diluted, nonmarketable minority interest basis, the
actual value of the Class A Units will be determined at the time of the merger.
However, the Internal Revenue Service will not be bound by the Duff & Phelps'
valuation. As a result, the actual amount of your tax gain and Kaiser Inc.'s tax
savings, if any, could vary significantly from the anticipated tax effects of
the Conversion Proposal. If this should happen, Kaiser Inc. and its stockholders
may not derive the full benefit of the anticipated tax consequences from the
Conversion Proposal, if any benefit is derived at all. See "--Federal Income Tax
Consequences of the Conversion Proposal."
Certain Risks Factors Relating To Kaiser's Business
The following are the primary risks associated with Kaiser's ongoing
business and assets. The Conversion Proposal is not expected to significantly
affect these risks. Along with the other information included in this Proxy
Statement/Prospectus, you should carefully consider the following risks and
18
uncertainties, keeping in mind that they are not the only ones that affect us.
Additional risks, which we do not presently consider material or of which we are
not currently aware, may also adversely affect us.
The Solid Waste Management Industry is Capital Intensive
We have historically operated as an asset development company based in
Southern California. Our primary objective is the sale of our remaining assets
on favorable terms in order to maximize value for our stockholders. To
accomplish this, we work closely with operating companies in the solid waste
disposal industry to develop our assets and complete sale transactions. The
solid waste disposal industry is highly competitive, is consolidating and
requires significant amounts of capital for the development of new landfill,
transfer and recycling capacity as well as expanded operations. Additionally,
regulatory or technological developments relating to the environment often force
companies in the solid waste disposal industry to modify, supplement or replace
their equipment and facilities at a substantial cost.
If we or the entities on which we rely for development services or with
whom we anticipate negotiating sale transactions cannot fund their operating,
regulatory and acquisition cash needs from ordinary cash flow, capital from
outside sources will be needed to continue operations and keep pace with
competitors. The perception of the public and private financial markets of the
value of the waste management industry can fluctuate significantly. If the
financial markets do not view the industry favorably, Kaiser or entities upon
which we rely may not be available to obtain needed capital on reasonable (or
indeed any) terms. Under those circumstances, we may be unable to implement out
future business strategy or sell our remaining assets on favorable terms.
We Must Comply with a Wide Range of Regulations and Our Failure To Do So Will
Likely Adversely Affect Our Business
In the development and maintenance of our assets, we and other entities on
which we rely are subject to extensive, expensive and increasingly stringent
regulation by federal, state and local authorities. We and they must obtain and
maintain numerous local, state and federal governmental permits and consents. If
we or they do not strictly comply with these regulations, we or they could lose
a needed license, permit or consent or be subject to significant monetary fines.
If we or they should lose a license, permit or consent, or if a fine is assessed
for noncompliance, our business could be materially and adversely affected.
Examples of the wide ranging regulations which apply to the development and
maintenance of our assets include:
. Waste collection - local agencies require licenses to collection
vehicles and monitor truck safety, weight limitations and collection
time and frequency.
. Landfill activities (such as the Eagle Mountain landfill project) -
local and state authorities require permits and consents.
. Waste transfer, interim processing, resource recovery and disposal -we
and the entities on which we rely must comply with zoning and land use
restrictions.
. General - Air, noise and water pollution regulations may also affect
our business from time to time.
We Must Respond to Changes in Regulatory, Political and Legal Circumstances
There is considerable uncertainty in the regulatory framework in the
waste management industry, including, among other uncertainties, the legislative
status of principal environmental laws and the direction of implementing
regulations. We must constantly monitor and evaluate the regulatory, political
and legal landscape. However, we may not be successful in anticipating
developments that could harm our business and operations. If any of the
governmental agencies involved should change their policies or attitudes, we or
the operating entities on which we depend might have difficulty obtaining or
retaining required permits and consents. We cannot predict whether any relevant
governmental policies are likely to change, or whether and when the constantly
evolving attitudes towards solid waste management or other matters are likely to
negatively impact our business or operations. We cannot predict the extent to
which any legislation or regulation that may be enacted or enforced in the
future may negatively affect our business or operations, or the business or
operations of the operating companies within our industry. Even if we are able
to
19
anticipate changes in the future, we may not be able to respond to these
developments in a timely or efficient manner.
Our Pending Sale of Eagle Mountain Landfill Project May Not Close
We own approximately 80% of MRC, and we would expect to receive our
share of the $41 million sale price if the sale of the landfill project at Eagle
Mountain Site to the District closes. Although MRC has obtained all of the
required major permits for Eagle Mountain, the opportunity for litigation with
regard to the permitting process remains. For example, this project has been,
and continues to be, the subject of litigation relating to a completed federal
land exchange between Kaiser Eagle Mountain, Inc., a wholly-owned subsidiary of
Kaiser, and the U.S. Bureau of Land Management, BLM. This litigation has caused
and continues to cause substantial delay in the development of Eagle Mountain.
It could also delay or prevent the closing of the pending sale, or reduce the
ultimate purchase price if it closes.
The sale of the landfill project is also subject to the results of the
District's due diligence and satisfaction of numerous contingencies. The
contingencies include, among other things, obtaining the transfer of the
landfill project's permits to the District and obtaining all necessary consents
to the transaction. Additionally, other developments could delay or increase the
cost of the landfill, and this or other factors cause the sale to the District
not to occur. We expect the initial closing to occur by the end of the third
quarter of 2001, assuming that all conditions to closing are met or waived.
Kaiser has agreed to vote its interest in MRC in favor of the sale of the
landfill project to the District on its current terms. If the sale to the
District is not consummated, Kaiser will not receive any cash at this time for
its interest in MRC and MRC would be forced to re-solicit purchase interest in
the landfill project. This effort may not be successful, and even if successful,
any resulting sale may not be consummated in the near future or on favorable
terms.
If the conditions to the sale of the landfill project are met, $41
million would be deposited into an escrow account at the closing. Thirty-nine
million dollars of the purchase price would be released on the favorable
resolution of the litigation over the federal land exchange with BLM. Two
million dollars of the purchase price will be released from escrow upon the
later of (1) the release of the $39 million, or (2) the permitting approval of
the District's Puente Hills landfill for its remaining 10 years of capacity.
In the two outstanding litigation matters, the plaintiffs argue that
the land exchange should be reversed because the BLM failed to comply with the
National Environmental Policy Act and the Federal Land Management Policy Act. In
November 2000, the Ninth Circuit Court of Appeals announced a decision that may
have a material adverse impact on Kaiser's federal land exchange litigation and
the pending sale to the District. In Desert Citizens Against Pollution v.
Bisson, (Ninth Circuit Court of Appeals, Case No. 97-55429), the Court of
Appeals concluded, among other things, that the BLM did not properly value the
land being acquired by the competing Mesquite rail-haul landfill project and
ordered a reversal of the land exchange. The court concluded that the appraisal
should have considered the lands being acquired from the BLM as a landfill. The
court did not, however, determine the proper valuation of the exchanged lands.
The plaintiffs in Kaiser's federal land exchange litigation have amended their
respective complaints to include allegations that the appraisal used in Kaiser's
land exchange with the BLM is similarly defective. Although we originally
anticipated that the federal court would hold a trial or rule on summary
judgment motions in May 2001, we now expect that this original schedule will be
substantially delayed in light of the Court of Appeals' ruling in Bisson.
Kaiser, MRC, and the BLM are evaluating their options with regard to the
appraisal used in Kaiser's completed land exchange. See "Business--Legal
Proceedings--Eagle Mountain Landfill Project Land Exchange Litigation."
If the Sale of the Eagle Mountain Landfill Project does not Close, We May Not
Receive a Return on our Investment in MRC
Successful resolution of the federal land exchange litigation could
take a number of years. If MRC does not complete the sale of the landfill
project to the District, MRC will likely seek to re-solicit interest in the
purchase of the landfill project by other potential acquirors. If this occurs,
MRC will likely require substantial further investment by Kaiser and other
investors in MRC. Neither Kaiser or any other investor is under any obligation
to provide further financing to MRC. Therefore, we can make no assurance that
sufficient and suitable financing will be available to MRC in order to allow it
to continue to
20
pursue the landfill project and to resolve the federal litigation. If MRC is
unable to secure the necessary financing, it may be unable to resolve the
federal litigation and continue to pursue development of the landfill project.
Additionally, if the sale of the landfill project to the District is not closed,
MRC may be unable to sell the project to another purchaser on favorable terms,
if at all, and Kaiser may not receive any cash return on its investment in MRC.
We Would be Subject to Potential Liabilities Associated with Eagle Mountain Even
After a Sale
Under the sale contract with the District, Kaiser could have potential
liability for certain claims arising after the sale. If the sale to the District
does not close and MRC operates the landfill project, MRC may suffer various
adverse consequences if the landfill causes environmental damage, or if MRC does
not comply with applicable environmental and land use laws and regulations or
the terms of its permits and approvals. Under these circumstances, MRC could
suffer a variety of adverse consequences, including (among other things)
monetary penalties, an order requiring the curtailment or termination of its
operations, the revocation or denial of permits or other approvals necessary for
continued operation, liability for any environmental damage (including, among
other things, groundwater or soil contamination) at the project's site, and
criminal liability for MRC or its officers. Any of these consequences could have
substantial adverse effects on us, whether as the majority owner of MRC if the
sale is not completed or pursuant to contractual indemnities if the sale is
completed. Although we have purchased an insurance policy to cover most of these
contingent risks, that policy might not eliminate all of our risks and,
therefore, Kaiser could suffer significant adverse consequences if a claim is
brought against MRC.
We Depend on Our Key Personnel
Our continued and future success depends in large part on the continued
services of our senior management team comprised of Richard E. Stoddard, our
President and Chief Executive Officer, Terry L. Cook, our Executive Vice
President - Administration, General Counsel and Corporate Secretary, James F.
Verhey, our Executive Vice President - Finance and Chief Financial Officer,
Anthony Silva, our Vice President - Resource Development and Environmental
Services, and Paul E. Shampay, our Vice President - Finance. Our dependence on
these individuals is particularly acute, given the complex nature of our assets
and the importance of historical information. The loss of the services of these
senior managers, especially without advance notice, could materially and
adversely impact our business. However, the time commitment of particular
officers will be reduced over the next 12 months as part of our overall
operating strategy.
We Could be Affected by the Significant Competition in the Waste Management
Business
The waste management industry is highly competitive, with a few large,
integrated waste management firms and a significant number of smaller,
independent operators. The number of competitors has decreased, but their size
has greatly increased as a result of mergers and acquisitions of waste hauler
and management companies. Due to this increasing competition and industry
consolidation, there are fewer independent waste management operating companies
than in the past and, as a result, fewer potential buyers of our remaining
assets. If this reduction of industry operators negatively impacts our ability
to operate or sell our assets on favorable terms, we may be unable to meet our
stated goals and our operating results will likely be materially and adversely
affected.
General Economic Conditions Could Negatively Affect Our Business
Changes in general economic conditions in the United States and
Southern California could have a material adverse effect on our operating
results and are beyond our control.
Our Business Involves Significant Risks of Litigation
The rapidly developing and changing statutory and regulatory framework
in which we operate creates significant risks for Kaiser, including, among other
things, potentially large civil and criminal liabilities from violations of
environmental laws and regulations and liabilities to third parties for damages
arising from assets owned by Kaiser or services performed on our behalf by
others. Litigation, whether offensive or defensive, is often time-consuming and
expensive, even if we are ultimately successful.
21
Additionally, our failure to successfully defend against a claim could
materially and adversely affect our business. Upon consummation of the merger,
Kaiser LLC would become a party to all current or future claims or litigation
against Kaiser Inc. Some of these matters include:
Mill Site Property. The operation of a steel mill by our predecessor,
------------------
Kaiser Steel, resulted in the contamination of portions of the Mill Site
Property. Under the terms of the sale by Kaiser Inc. of approximately 588 acres
of the Mill Site Property to CCG Ontario LLC, CCG became responsible for future
investigation and remediation of the portion of Mill Site Property it purchased
as well as certain other environmental liabilities and risks at the Mill Site
Property. However, among other things, CCG did not assume any responsibility for
environmentally related litigation in progress as of the date of the closing of
the sale.
Although CCG's indemnification obligations to Kaiser are secured in
part by various performance bonds and insurance policies, Kaiser may still be
secondarily liable for those matters and in any case may be primarily
responsible for various past environmental indemnification, operations and
maintenance obligations with respect to the Mill Site Property. If Kaiser
suffers any losses as a result of any primary claims, and CCG fails to perform
its obligations, our business could be materially and adversely affected. For
more information, see "Business - Completed Transactions - Sale of Mill Site
Property." The insurance we purchased to mitigate these risks may not do so.
Asbestos Suits. In addition to the environmental claims and risks
--------------
associated with the Mill Site Property, there are similar risks and contingent
liabilities associated with properties historically owned or managed by Kaiser
Steel. We and Kaiser Steel's bankruptcy estate, KSC Recovery, are currently
named in approximately fifty (50) active asbestos lawsuits. Most of the
plaintiffs alleged that they were aboard Kaiser ships or worked in shipyards in
the Oakland/San Francisco, California area or Vancouver, Washington area in the
1940's and that Kaiser Steel and/or KSC Recovery were in some manner associated
with one or more shipyards or has successor liability for damages suffered by
the plaintiffs. There are also several claims involving other facilities, such
as the Mill Site Property and Eagle Mountain Townsite. These lawsuits are
third-party premises claims or involve claims based on injuries from exposure to
asbestos. The lawsuits often involve multiple defendants. We anticipate that we,
along with KSC Recovery, will be named as a defendant in additional asbestos
lawsuits. A number of large manufacturers and/or installers of asbestos and
asbestos-containing products have filed for bankruptcy over the past couple of
years, increasing the likelihood that additional suits will be filed. In
addition, the trend has been toward increasing trial damages and settlement
demands. Virtually all of the complaints against us are non-specific, but
involve allegations relating to pre-bankruptcy activities.
We currently believe that we have substantial insurance coverage for
many of the claims made to date and we have tendered these suits to appropriate
insurance carriers. Many, but not all, of the current asbestos claims are being
accepted for defense and indemnity purposes by insurance carriers, subject to a
reservation of rights. However, there is currently a dispute over the amount of
insurance coverage available to us and KSC Recovery. We and KSC Recovery are in
settlement negotiations with insurance carriers with regard to this coverage
dispute. Kaiser and KSC Recovery will likely be required to participate in some
manner in the payment of defense and indemnity costs for many of the claims with
the range of participation being from 0% to 100% depending upon the nature of
the claim and the timing as to the allegations of first exposure to asbestos.
The Risks We Face May Not be Covered by Our Insurance Policies
To attempt to minimize the risks associated with uninsured liabilities
(known or unknown), we purchased an insurance policy, effective as of June 30,
2001, that is designed to provide broad commercial general liability, pollution
legal liability, asbestos liability and contractual indemnity coverage for
Kaiser's ongoing and historical operations over and above Kaiser's existing
insurance policies. The policy has a twelve (12) year term and limits of
$50,000,000 in the aggregate for defense and indemnity, with no deductible or
self-insured retention. The policy is designed to provide coverage in excess of
Kaiser's previously existing and historic insurance policies; however, the terms
of this policy provide first dollar coverage for loss resulting from property
damage, personal injury, bodily injury, cleanup costs, or violations of
environmental law, to the extent that Kaiser's historic insurance policies are
not responsive to a loss.
22
Our management believes that this insurance policy provides for a broad
defense of claims that may be brought against Kaiser and provides a supplement
to our existing insurance coverage for Kaiser's known and/or potential
liabilities arising from pollution conditions or asbestos-related claims and for
contractual indemnity coverage for scheduled indemnity obligations of Kaiser
arising from, among other things, prior corporate transactions and real estate
sales. The aggregate cost for the policy is approximately $6 million, of which
KSC Recovery will pay $2 million and we will pay the balance of approximately $4
million. Based on the CCG transaction and the remediation activities we
undertook in 2000, we have reduced the environmental liability reserves on our
balance sheet.
Although we carry substantial insurance coverage, some risks are
uninsurable or not insurable on terms that we believe are economical. Our assets
and our business are subject to substantial risk of environmental maintenance
and remediation as mandated by federal and state laws. Governmental authorities
have the power to enforce compliance with all regulations, permits, consents and
licenses and violators are subject to injunctions or fines or both. In
additional, private individuals often also have the right to sue to enforce
compliance, and we are potentially subject to other risks as well. Although we
have insurance coverage by several insurance policies, these policies do not
guarantee we will be reimbursed for any damages that could result from any
insured risks. Insurance companies could dispute our coverage or become
insolvent. If our insurance does not cover a significant loss, our business will
likely be materially and adversely affected and we may be unable to distribute
any further assets.
Comparison Of Common Stock And Class A Units
Kaiser LLC would be a limited liability company. As a result, its
charter documents consist of a certificate of formation and an operating
agreement instead of a certificate of incorporation and bylaws. In general, the
operating agreement was drafted to mirror the terms, conditions and procedures
of Kaiser Inc.'s certificate of incorporation and bylaws and to provide holders
of Class A Units rights similar to those of our stockholders. However, as a
result of decisions made by our Board of Directors and the impact of applicable
law, these rights are not identical. Certain significant differences are
summarized below. However, you should also carefully read the full text of
Kaiser LLC's Operating Agreement, which is included as Annex B to this Proxy
Statement/Prospectus.
The following table compares certain characteristics of the Common
Stock and the Class A Units, and should be read in conjunction with the more
detailed information following as well as Kaiser LLC's Operating Agreement :
[Enlarge/Download Table]
Common Stock Class A Units
------------ -------------
Voting Rights One vote per share on all matters voted Same.
upon by stockholders. No cumulative
voting in the election of directors.
Number of Board Members Seven. Five.
Transfer Restrictions None. The Common Stock is registered Subject to significant transfer
with the SEC and traded on the Nasdaq restrictions. The Class A Units would be
Stock Market. registered with the SEC, but would not be
traded on any stock exchange or in any
secondary market. For a complete
description of the transfer restrictions
applicable to the Class A Units, see
"--Transfer Restrictions."
Conversion Not convertible. Same.
Rights upon Merger, None specified. The stockholders Same. The Operating Agreement
23
[Enlarge/Download Table]
Common Stock Class A Units
------------ -------------
Consolidation or have previously approved the sale of the specifically states that no approval of the members is
Reorganization remaining assets of Kaiser without required for the sale of the remaining assets of Kaiser.
further stockholder approval. However
the effectiveness of this is unclear
under Delaware law.
Capital Structure
Kaiser Inc.'s present capital structure consists of 13,333,333
authorized shares of Common Stock, $.03 par value. As of the record date,
________ shares of Common Stock were outstanding, including 136,919 shares
deemed outstanding for financial reporting purposes, but not yet distributed to
Class 4A unsecured creditors of the Kaiser Steel Corporation bankruptcy estate.
Kaiser LLC's capital structure would consist of Class A Units and Class
B Units. After the merger, approximately ________ Class A Units and 751,956
Class B Units would be outstanding. For a discussion of the Class B Units, see
"--Class B Units." Kaiser LLC could issue additional Class A Units without the
approval of the members and would be permitted to use these additional units for
a variety of purposes, including, among other things, future offerings to raise
additional capital, corporate acquisitions and employee benefit plans.
Voting Rights
Holders of Class A Units, like the holders of Common Stock:
. would be entitled to one vote per unit on all matters submitted to a
vote. (Holders of Class B Units would not be entitled to vote,
except as required by law.)
. would not be entitled to cumulate their votes in any elections.
. would be entitled to take actions by the written consent without a
meeting, except the election of managers.
No additional consent of Kaiser LLC's members would be required for any
sale or disposition, even if a sale or disposition involves substantially all of
Kaiser LLC's assets. This provision was included to save the costs of a proxy
solicitation seeking member consent.
Kaiser LLC's Operating Agreement provides that the Chief Executive
Officer, President, Secretary or any Assistant Secretary may call a special
meetings of members upon written request of a majority of the managers of Kaiser
LLC. These terms and conditions are substantially the same as those contained in
Kaiser Inc.'s bylaws.
Advance Notice Requirements for Business to be Conducted at any Annual or
Special Meeting
Kaiser LLC and Kaiser Inc. have the same terms, conditions and
procedures for bringing business before a meeting of members or stockholders, as
the case may be. These provisions may impede members' ability to bring matters
before a meeting or make nominations for managers at a meeting of members.
Business properly brought before an annual or special meeting of members may be
conducted at that meeting. To be properly brought before an annual or special
meeting, or for a member to nominate candidates for election as managers at an
annual or special meeting,
. nominations for the election of board members or other business must
be (a) specified in the notice of meeting given by the board; (b)
otherwise properly brought before the meeting by the board; or (c)
otherwise properly brought before the meeting by a member.
24
. the moving member must give timely written notice of the proposed
additional business or nomination to the Secretary of Kaiser LLC. The
moving member must deliver this notice, in proper form, to the
principal executive offices of Kaiser LLC as follows:
. if the member seeks to add an item to the agenda for an
annual meeting that is called for a date within 30 days of
the anniversary date of the previous annual meeting, the
moving member must deliver notice to Kaiser LLC`s Secretary
not less than 60 days nor more than 90 days prior to the
anniversary date;
. if the member seeks to add an item to the agenda for an
annual meeting that is called for a date that is not within
30 days of the anniversary date of the previous annual
meeting, the moving member must deliver notice to Kaiser
LLC's Secretary not later than the close of business on the
tenth day following the date on which notice of the date of
the meeting was mailed or public disclosure of the date of
the meeting was made, whichever occurs first; and
. in the case of a special meeting of the members called for
the purpose of electing managers, the moving member must
deliver notice to Kaiser LLC's Secretary not later than the
close of business on the tenth day following the date on
which notice of the date of the meeting was mailed or public
disclosure of the date of the meeting was made, whichever
occurs first.
For a moving member's notice to the Secretary to be in proper form, the
member must set forth, as to each matter:
. the name and address of the member who intends to make the nominations
or propose the business and, as the case may be, of the person or
persons to be nominated or of the business to be proposed;
. a representation that the member is a holder of record of Class A
Units entitled to vote at the meeting and, if applicable, intends to
appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice;
. if applicable, a description of all arrangements or understandings
between the member and each nominee and any other person or persons
pursuant to which the nomination(s) are to be made by the member;
. other information regarding each nominee or each matter of business to
be proposed by such member as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC had the
nominee been nominated or the matter been proposed by Kaiser LLC's
Board of Managers; and
. if applicable, the consent of each nominee to serve as manager of
Kaiser LLC if elected.
The Chairman of the annual or special meeting has the authority to
determine that the nomination of any person or other business was not properly
brought before the meeting. If the Chairman does so, that business would not
come before the meeting.
Transfer Restrictions
The Class A Units would not be listed on any stock exchange or market. In
order to capture what our Board of Directors believes to be valuable tax
savings, Kaiser LLC has been organized as a limited liability company taxed as a
partnership. To preserve this tax treatment, the Class A Units cannot be (a)
traded on an established securities market, or (b) readily tradable on a
secondary market. This section has generally been interpreted to mean that no
more than 2% of the total interests in the entity's capital or profits may be
transferred during any one tax year (subject to certain exceptions). To meet
this condition, the Kaiser LLC Operating Agreement provides that holders of the
Class A Units may not transfer those units unless the following conditions are
met:
25
. Kaiser LLC must receive written notice of the proposed transfer,
including the circumstances and details;
. Kaiser LLC may require an attorney's written opinion, in a form it
finds reasonably satisfactory, specifying the nature and circumstances
of the proposed transfer and, based on such facts, stating that the
proposed transfer would not be in violation of any of the registration
provisions of the Securities Act, or any applicable state securities
laws;
. Kaiser LLC must have received from the transferee (and any
transferee's spouse who might receive a community property interest in
the Class A Units) a written consent to be bound by all of the terms
and conditions of Kaiser LLC's operating agreement in form
satisfactory to Kaiser LLC;
. Kaiser LLC must be reasonably satisfied that the transfer could not
cause the termination of Kaiser LLC or otherwise materially affect the
tax treatment of Kaiser LLC in any way; and
. Kaiser LLC must be reimbursed upon request for its reasonable expenses
in connection with the transfer.
Kaiser LLC can refuse to permit any transfer if it believes that, as a
result of such transfer, individually or taken together with any other
transfers, Kaiser LLC could be treated as a publicly traded partnership under
the Internal Revenue Code, which would result in Kaiser LLC being taxed as a
corporation rather than a partnership. A transfer includes, without limitation,
a sale, pledge, or other transfer of or encumbrance on all or any part of a
Class A Unit.
Nasdaq Stock Market Delisting
Kaiser would delist the Common Stock from the Nasdaq Stock Market and
deregister the Common Stock under the Exchange Act immediately following the
effective time of the merger. Neither the Class A Units nor the Class B Units
would be listed on a national securities exchange or traded in the organized
over-the-counter market, but are anticipated to be registered under the Exchange
Act.
Distributions
Kaiser LLC's Board of Managers may elect in its discretion from time to
time to distribute cash or property to Kaiser LLC's members, except that no
distribution shall be made if, after giving effect to the distribution, Kaiser
LLC would not be able to pay its debts as they become due in the usual course of
business. All distributions shall be made to Kaiser LLC's members in proportion
to their ownership interest. Kaiser LLC intends to adhere to the current policy
of Kaiser by distributing cash to its members when not required for its needs
(as determined by its Board of Managers).
No Preemptive Rights
Holders of Class A Units, like the holders of Common Stock, are not
entitled to preemptive rights to subscribe to any class of securities that may
be issued by Kaiser LLC.
Board of Managers
Kaiser LLC would have a Board of Managers consisting of five members,
instead of the seven members of the Kaiser Inc. Board of Directors. We have
reduced the Board size in light of our smaller operations after the cash
distributions and our recent assets sales. If the Conversion Proposal is
approved, we expect that Kaiser LLC will adopt all of Kaiser Inc.'s procedures,
policies and compensation arrangements, except as specifically noted in this
Proxy Statement/Prospectus. In particular, Kaiser LLC does not intend to
maintain the stated Kaiser Inc. policy of mandatory retirement for directors at
age 72. As a result, information with respect to the Board of Directors, its
members, committees of the Board of Directors, the Kaiser's executive officers,
certain security ownership information, information regarding compensation,
compensation arrangements, and option grants and exercise is applicable to
Kaiser LLC as well as Kaiser Inc.
26
The Kaiser LLC Board of Managers would initially consist of Richard E.
Stoddard, Ronald E. Bitonti, Todd G. Cole, Gerald A. Fawcett and Marshall F.
Wallach, all of whom are currently members of the Kaiser Inc. Board of Mangers.
For information on these members of the Kaiser LLC Board of Managers, as well as
other information on compensation and other matters, please see "Election of
Directors", "Management" and "Security Ownership of Principal Stockholders."
Limitations on Liability and Indemnification of Directors, Managers, Officers
and Employees
After the Conversion, the indemnification of officers, directors and agents
of Kaiser LLC will be governed by the provisions of Delaware's Limited Liability
Company Act and the Operating Agreement. Unlike the DGCL, which contains certain
restrictions on a corporation's ability to indemnify its officers and directors
and does not allow indemnification of stockholders, Delaware's Limited Liability
Company Act permits a limited liability company to indemnify any member,
manager, or other person from any liability whatsoever. The primary difference
between the indemnification provisions contained in the Operating Agreement and
those contained in Kaiser Inc.'s bylaws arise from this greater flexibility
afforded by the law to an LLC. However, both the operating agreement and the
bylaws impose similar standards of good faith on those seeking indemnity
(referred to as an "indemnitee").
Kaiser LLC. Kaiser LLC's operating agreement provides that no manager,
----------
officer or employee will be liable to Kaiser LLC or to its members for any loss
unless the loss was caused by that person's fraud, deceit, gross negligence,
reckless or intentional misconduct, or a knowing violation of the law.
The operating agreement also includes provisions that require Kaiser LLC to
indemnify its managers, officers and employees for monetary damages and expenses
incurred in connection with any pending or threatened action, including, among
other actions, an action by or on behalf of Kaiser LLC, because of that person's
status or actions as a manager, officer or employee of Kaiser LLC. The operating
agreement also permits, but does not require, Kaiser LLC to indemnify any agent
of Kaiser LLC for his or her actions or status as an agent, on terms to be
determined by Kaiser LLC's managers at the time. Any person seeking
indemnification must have acted in good faith and in a manner he or she
reasonably believed to be consistent with Kaiser LLC's best interests and, in
the case of a criminal proceeding, he or she must have had no reasonable cause
to believe that the conduct was unlawful. Any person seeking indemnification
would be required to state that this standard of conduct had been met; in the
case of a manager or officer Kaiser LLC would then bear the burden of proving
that the standard had not been met if it seeks to deny indemnification.
Generally, Kaiser LLC would be required to provide indemnification whether
or not the indemnitee was found liable in the action against him or her.
However, Kaiser LLC would not indemnify any person for liability in connection
with (i) an action initiated by the indemnitee (other than an action brought by
the indemnitee against Kaiser LLC for the purpose of recovering under an
indemnification claim), (ii) willful misconduct, or conduct which is knowingly
fraudulent or deliberately dishonest, or (iii) conduct for which indemnification
is unlawful.
Kaiser Inc. Kaiser Inc.'s bylaws similarly limit the liability of its
----------
directors, officers, employees and agents. Kaiser Inc. is required to indemnify
its directors, officers, employees or agents for monetary damages or expenses
incurred in connection with any proceeding, other than one brought by or on
behalf of Kaiser Inc., if the indemnitee acted in good faith and in a manner he
or she reasonably believed to be consistent with Kaiser Inc.'s best interests
and, in the case of a criminal proceeding, he or she had no reasonable cause to
believe that the conduct was unlawful. Generally, Kaiser Inc. is required to
indemnify the indemnitee whether or not the indemnitee is found liable in the
action against him or her, so long as he or she met the standard of good faith
described above. However, in a case brought by or on behalf of Kaiser Inc., the
indemnitee is not entitled to indemnification if he or she is found liable in
the proceeding, even if he or she acted in good faith, unless the court allows
it.
Anti-Takeover Effects of Various Provisions of Delaware Law
Because Kaiser LLC is a limited liability company, Kaiser LLC would not be
subject to Section 203 of the DGCL. Section 203 imposes certain restrictions
that could prohibit or delay the accomplishment of mergers, sales or other
takeover or change-in-control attempts with respect to us.
27
However, the Conversion Proposal is proposed, in part, for the purpose of
facilitating the sale of Kaiser LLC's remaining assets. Therefore, we do not
believe that Kaiser LLC would benefit from the protection offered by Section
203, should it apply.
Kaiser Inc. is subject to Section 203. Subject to specific exceptions,
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless:
. the "business combination," or the transaction in which the
stockholder became an "interested stockholder," is approved by the
Board of Directors prior to the date the "interested stockholder"
attained that status;
. upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced (excluding those shares owned by
persons who are directors and also officers, and employee stock plans
in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or
. on or after the date a person became an "interested stockholder," the
"business combination" is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting
stock that is not owned by the "interested stockholder."
"Business combinations" include mergers, asset sales and other transactions
resulting in a financial benefit to the "interested stockholder." Subject to
various exceptions, an "interested stockholder" is a person who, together with
his or her affiliates and associates, owns, or within three years did own, 15%
or more of the corporation's outstanding voting stock.
Transfer Agent and Registrar
Computershare Trust Company, Inc is the Transfer Agent and Registrar for
the Common Stock and is expected to be the Transfer Agent and Registrar for the
Class A Units.
CLASS B UNITS
Background. Richard A. Daniels, Gary W. Johnson and Kay Hazen are former
----------
executives of MRC, who we will collectively refer to as the MRC Executives. Each
MRC Executive is entitled to receive contingent future payments upon the
completion of the sale of the Eagle Mountain landfill project based on the
amount of the proceeds from that sale. See "Business - Eagle Mountain Landfill
Project and Pending Sale." These incentive payments would total approximately 2%
of the cash received, or approximately $752,000 if MRC receives the currently
agreed upon price of $41 million.
The Class B Units would be issued to the MRC Executives to provide for
those incentive payments. Kaiser owns approximately 80% of MRC and controls its
management. Although the current contingent incentive payments are obligations
of MRC, as part of the Conversion Proposal, Kaiser LLC would take responsibility
for directly paying these contingent incentive payments. MRC would compensate
Kaiser for assuming this obligation.
The MRC Executives would receive the following number of Class B Units:
MRC Executive Class B Units
------------- -------------
Richard A. Daniels........................ 296,044
Gary W. Johnson........................... 244,452
Kay Hazen................................. 211,460
-------
TOTAL 751,956
28
Distributions. The Class B Units would be entitled to cash distributions if
-------------
and when MRC receives any principal portion of the sale proceeds from the
District in connection with the Eagle Mountain landfill project sale. The amount
of each distribution would be:
$1.00 x the principal portion of the purchase price payment (capped at $41
--------------------------------------------------------------------------
million)
-------
$41 million
Thus, the Class B Units would be entitled to an aggregate payment of
approximately $752,000 if MRC were to receive $41 million of proceeds from the
sale to the District. The payment would be proportionately smaller if the price
paid is reduced. The Class B Units are not entitled to any other distributions
or profits.
Voting rights. The Class B Units will not have any voting rights except as
-------------
required by law.
Restrictions on Transfer. The Class B Units are not transferable.
------------------------
Effect of Disapproval of the Conversion Proposal. If the Conversion
------------------------------------------------
Proposal is not approved, the Class B Units would not be issued. However, the
MRC Executives would still be entitled to receive the same cash as a bonus from
MRC upon MRC's receipt of the purchase price from the sale of the landfill
project to the District. Consequently, whether or not the Class B Units are
issued, the cash otherwise available for holders of the Common Stock or the
Class A Units would not change.
Conditions To The Conversion
Our Board of Directors retains the right to terminate the Conversion
Proposal and the related merger if it determines that the conversion is not in
the best interest of Kaiser. This could happen even if our stockholders approve
the Conversion Proposal. In particular, we may have to abandoned the Conversion
Proposal if we believe too many stockholders have elected appraisal rights.
Federal Income Tax Consequences Of The Conversion Proposal
Background and Purpose of Transaction
Kaiser Inc. currently owns all of Kaiser LLC's Class A Units. If Kaiser
Inc. merges with Kaiser LLC:
. Kaiser LLC would survive the conversion and Kaiser Inc. would cease to
exist.
. Kaiser LLC would succeed to all of the assets and liabilities of
Kaiser Inc.
. Each share of outstanding Common Stock would automatically convert
into the right to receive $10 in cash and one Class A Unit.
The Conversion Proposal would permit us to recognize a tax loss this year,
distribute significant cash to our stockholders on a tax advantageous basis,
avoid "double taxation" generally imposed on corporate income that is
distributed to investors and increase our flexibility in dealing with our
remaining assets.
Independent Tax Opinion
Kaiser's Board of Directors retained Ernst & Young LLP, independent public
accountants and Kaiser's independent auditors for more than two years, to pass
upon certain tax matters for Kaiser in connection with the Conversion Proposal.
Ernst & Young is a nationally recognized accounting firm with substantial
experience in tax matters in the merger context. Ernst & Young has and will
continue to receive compensation for its services in connection with the
Conversion Proposal at rates consistent with Kaiser's past payments. See
"MANAGEMENT-Board Matters-Independent Auditors." Ernst & Young's tax opinion
will be filed as an exhibit to this Proxy Statement/Prospectus prior to the
annual meeting and will be made available for inspection along with this Proxy
Statement/Prospectus and its related exhibits as set forth in the section
entitled "WHERE YOU CAN FIND MORE INFORMATION ABOUT KAISER."
In its examination of the federal income tax consequences of the Conversion
Proposal, Ernst & Young examined the merger agreement, Kaiser LLC's operating
agreement and other documents and records it deemed necessary or appropriate in
connection with rendering their opinion. In rendering its opinion, Ernst & Young
assumed that the Conversion Proposal would be consummated in accordance with the
provisions of the merger agreement and relied upon, without independent
verification or investigation, the truth and accuracy, as of the date given, of
the representations and warranties made by each of Kaiser Inc. and Kaiser LLC to
Ernst & Young. The opinions expressed by Ernst & Young represent that firm's
judgment with respect to the proper treatment of certain aspects of the
Conversion Proposal under the federal income tax laws of the United States based
upon the Internal Revenue Code of 1986, as amended, the Treasury Regulations
promulgated under that statute, certain rulings and other pronouncements of the
Internal Revenue Service, and certain judicial decisions. All of these statutes
and rulings are subject to change, retroactively and/or prospectively, and, if a
change occurs, the opinions rendered by Ernst & Young may be materially and
adversely affected. Furthermore, the opinions expressed by Ernst & Young
represents that firm's best judgment of how a court would rule if presented with
the issues upon which Ernst & Young opines, which opinions are not binding upon
either the Internal Revenue Service or any court. Therefore, neither Ernst &
Young nor Kaiser can give any assurance that a position taken in reliance on
Ernst & Young's tax opinions will not be challenged by the Internal Revenue
Service or rejected by a court of competent jurisdiction. Moreover, Ernst &
Young has disclaimed any undertaking to advise Kaiser or its stockholders of any
subsequent changes that may affect the tax opinions rendered by Ernst & Young.
Tax Benefits Associated with the Conversion Proposal.
By converting to a limited liability company during 2001, Kaiser Inc.
expects to generate a tax loss estimated at $42-$47 million. This loss would
offset the gain Kaiser Inc. recognized in 2001 from the sale of the Fontana
Union stock, and would reduce the income taxes paid by Kaiser Inc. in 2001 by a
projected amount of approximately $10.5-$12.0 million.
In contrast, if the Conversion is not completed, Kaiser Inc. would only
recognize a tax loss from MRC if the sale of the landfill project to the
District closes or some other recognition event occurs. Moreover, the amount of
the loss which would be recognized on the sale to the District would only be
$15-$20 million. If the MRC sale closes before December 31, 2001, this loss
would reduce Kaiser Inc.'s 2001 income taxes by only approximately $4.5-$6.0
million. However, if the closing of the MRC sale is
29
delayed beyond that date, the net value of the loss is expected to be further
reduced, because of a decrease in the present value of the loss. In addition,
since Kaiser is not expected to have significant profits from operations in
2002, and the ability to carryback any losses to 2001 would be limited, the
value of the loss to Kaiser from a sale in 2002 is expected to be further
reduced.
Consequences to Kaiser Inc.
Kaiser Inc.'s initial contribution of its assets to Kaiser LLC in exchange
for membership units will not be a taxable event to either Kaiser Inc. or Kaiser
LLC. However, as a result of the Conversion, Kaiser Inc. will be treated, for
tax purposes, as having liquidated and distributed all of its property to its
stockholders. Generally, federal tax law requires a liquidating corporation, as
construed for tax purposes only, to recognize gain or loss on the distribution
of property in a complete liquidation as if the property were sold to the
recipient at its fair market value. Thus, Kaiser Inc. will recognize gain or
loss equal to the difference between the fair market value of its assets (less
any related liabilities) and the adjusted tax basis of those assets. As
described below, Duff & Phelps has given Kaiser a preliminary indication that
the fair market value of our assets is less than our net tax basis in those
assets, thereby producing a loss for tax purposes. However, the actual value
must be based on the situation on the actual date of the Conversion, and this
could vary from the preliminary indication of value. If the final valuation
differs from preliminary data, the tax savings of Kaiser Inc. expected as part
of the Conversion would be affected, perhaps materially. You should also be
aware that the Internal Revenue Service will not be bound by Duff & Phelps'
valuation. As a result, the amount of any actual tax gain or loss could vary,
perhaps significantly, from the preliminary figure.
Consequences to Kaiser LLC
Because the contribution of assets by Kaiser Inc. to Kaiser LLC is not a
taxable event for Kaiser LLC, Kaiser LLC will assume Kaiser Inc.'s tax basis in
each asset. Provided that the transfer restrictions imposed on the Class A Units
satisfy certain requirements imposed by the Internal Revenue Code, Kaiser LLC
will be treated like a partnership for federal tax purposes and will not pay
federal income tax on its operations going forward. Instead, Kaiser LLC's
income, losses and credits will be allocated among the holders of Class A Units
(and to a limited degree, the Class B holders) for inclusion in their individual
income tax returns. Kaiser LLC would file annual information returns setting
forth names and addresses of each of its members, as well as each member's
distributive share of income, deductions, and credits.
Consequences to Kaiser Inc. Stockholders
Federal tax law provides that the amounts received by a stockholder in a
distribution, which is treated for tax purposes as a complete liquidation of a
corporation, are treated as full payment for the stockholder's stock. This means
that you will recognize gain or loss equal to the difference between the tax
basis in each of your shares of Common Stock and the sum of the fair market
value of the consideration you receive per share of Common Stock in the merger.
Based upon Duff & Phelps' preliminary estimate of the fair market value of a
Class A Unit, for tax purposes, at $1.45 per share, stockholders of Kaiser
should generally pay taxes on any excess of the estimated $11.45 in value
received per share of Common Stock, for tax purposes, in the merger. However, as
noted above, the relevant value will be that on the date of the Conversion,
which could vary from the preliminary indication of value. Kaiser would be
obligated to report the final appraised value to you not later than the end of
January 2002. However, the Internal Revenue Service will not be bound by Duff &
Phelps' valuation. As a result, the amount of any actual tax gain or loss could
vary, perhaps significantly, from the preliminary figure. See "--Valuation of
Assets and Class A Units."
Any gain or loss recognized by you on the Conversion will generally be
capital gains or losses, and should be treated as long term gain or loss if you
have held the Common Stock for at least one year at the time of the merger. This
may not apply to stockholders who acquired their Common Stock pursuant to the
exercise of stock options or other compensation arrangements with Kaiser Inc. or
who are not citizens or residents of the United States or who are otherwise
subject to special tax treatment under the Internal Revenue Code. Please consult
your own tax adviser.
Consequences to Members of Kaiser LLC
30
Assuming that the transfer restrictions imposed on the Class A Units
satisfy certain requirements imposed by the Internal Revenue Code, each member
of Kaiser LLC would be allocated (and be obligated to pay taxes on) his or her
share of any income, losses and credits of Kaiser LLC.
Depending on the operating results of Kaiser LLC, its members could be
allocated taxable income but not receive corresponding cash distributions to pay
the associated tax liability. For certain of our stockholders who are exempt
from Federal income tax, some of the income from Kaiser LLC may be considered
"unrelated business taxable income." If Kaiser LLC recognizes a taxable loss,
the amount of loss from Kaiser LLC that may be recognized by you in any
particular tax year could be limited to the amount of your adjusted basis of
your Class A Units. Any disallowed loss for a particular period would be carried
forward to, and may be deducted by you in, subsequent tax years in which you
have adjusted basis.
You should be aware that certain gains and losses generated inside
Kaiser LLC might be subject to the At-Risk Rules and Passive Activity Rules
contained in the Internal Revenue Code. These rules generally delay the ability
of the taxpayer to deduct certain losses. You should consult with your tax
advisers as to the effect such rules might have on the outcome of your
individual tax return.
The tax basis of each Class A Unit would initially be equal to the fair
market value of the Class A Unit on the date of the Conversion. The tax basis
would thereafter be increased by your distributive share of any Kaiser LLC
taxable income and any contributions you make to Kaiser LLC of cash or property
and decreased by your distributive share of any Kaiser LLC taxable loss and the
amount of any cash and/or property distributed to you by Kaiser LLC.
Restrictions on Transferability
In order to be treated as a partnership under the federal tax law, the
Kaiser LLC Operating Agreement contains restrictions on the transferability of
the Class A Units. Without these restrictions, Kaiser LLC could be treated as a
publicly traded partnership for federal tax purposes and taxed as a corporation
for federal income tax purposes. To avoid this result, the Class A Units must
not be either (a) traded on an established securities market, or (b) readily
tradable on a secondary market (or the substantial equivalent thereof). This
requirement has generally been interpreted to mean that no more than 2% of the
total interests in the entity's capital or profits may be transferred during any
one tax year (subject to certain exceptions). As a result, there will not be a
public or other market available to trade the Class A Units and the Kaiser LLC
Operating Agreement contains significant transfer restrictions on Class A Units
to prevent any such market from developing, including, among other restrictions,
the right of Kaiser to refuse to authorize or process transfers of Class A
Units. However, we expect to be able to allow private negotiated transactions as
long as they do not become the substantial equivalent of such a market.
Valuation of Kaiser's Common Stock and Class A Units
Kaiser's Board of Directors retained Duff & Phelps, as its independent
financial advisor, to determine the 1) the fair market value of the net assets
of Kaiser, on a controlling interest basis, immediately following the cash
distribution and before Kaiser's remaining net assets are distributed, for tax
purposes, to the stockholders of Kaiser in the form of Class A Units; and 2) the
fair market value of the Class A Units, on a nonmarketable minority interest
basis as of the date of the conversion, for tax purposes. Duff & Phelps is an
independent financial advisory firm with a national valuation practice. The
purpose of Duff & Phelps' valuation work is limited to the determination of 1)
the fair market value of the net assets of Kaiser as specified above, for tax
purposes in the liquidation of Kaiser Inc., and 2) the fair market value of the
merger consideration, which consists of the Class A Units and the cash
distribution, for tax purposes. The valuation methodologies used to determine
the fair market value of the merger consideration is not the same as individual
stockholders might use to value the Class A Units for other purposes. You should
consider the Duff & Phelps' valuation solely for the limited purpose of
determining the amount of taxable gain you could expect to receive upon
consummation of the conversion, and the amount of tax saving that Kaiser Inc.
could realize by liquidating this year. Duff & Phelps has not been retained to
determine whether or not the Conversion Proposal is fair to the stockholders,
and has no recommendation or opinion on that matter. Moreover, you should
carefully consider the information
31
contained in this Proxy Statement/Prospectus and its attachments when
determining whether to vote in favor of the Conversion Proposal.
Based on the information we provided to Duff & Phelps, and subject to
the limitations, assumptions and qualifications stated in its opinion, Duff &
Phelps has preliminarily indicated that 1) the fair market value of the net
assets of Kaiser, on a controlling interest basis, immediately following the
cash distribution and before Kaiser's remaining net assets are distributed, for
tax purposes, to the stockholders of Kaiser in the form of Class A Units is
reasonably stated in the amount of $2.34 per share and $15.53 million in the
aggregate, and 2) the fair market value of the Class A Units is reasonably
stated, for tax purposes, in the amount of $1.45 per Class A Unit, on a fully
diluted, nonmarketable minority interest basis. In rendering its final valuation
report, Duff & Phelps will rely upon, without independent verification or
investigation, the accuracy and completeness of the information available from
public sources or provided to Duff & Phelps by us. With respect to the forecasts
regarding our future financial and operating results, Duff & Phelps will assume,
without independent verification or investigation, that such forecasts and pro
forma information were prepared on bases reflecting the best currently available
information, estimates and judgments of our management and that the assumptions
underlying the forecasts and pro forma information were reasonable. Duff &
Phelps will not make or obtain any independent evaluations or appraisals of our
assets or liabilities. Duff & Phelps will rely, without independent verification
or investigation, on our financial statements and valuations provided by our
management. Duff & Phelps's valuation will be based upon its assessment of
general economic, financial and market conditions as they exist and could be
evaluated by Duff & Phelps as of the date of the conversion.
You should be aware that the actual value of the assets which will
affect your tax gain and Kaiser Inc.'s tax savings, if any, will be that on the
effective date of the Conversion. We are obligated to report to you the final
valuation not later than January 2002. However, the Internal Revenue Service
will not be bound by that valuation, even if based on Duff & Phelps' final
valuation report. As a result, the amount of any of your tax gain and Kaiser
Inc.'s tax savings, if any, could vary significantly from the preliminary
figure. If it does, you would have to pay taxes based on the figure as finally
determined.
THE ABOVE DISCUSSION OF FEDERAL INCOME TAX CONSIDERATIONS DOES NOT
ATTEMPT TO COMMENT ON ALL TAX MATTERS THAT MAY AFFECT KAISER INC., OUR
STOCKHOLDERS, KAISER LLC OR ITS MEMBERS, AS A RESULT OF THE CONVERSION PROPOSAL.
THE DISCUSSION ALSO DOES NOT CONSIDER VARIOUS TAX RULES OR LIMITATIONS
APPLICABLE TO PARTICULAR STOCKHOLDERS SUBJECT TO SPECIAL RULES, INCLUDING, AMONG
OTHERS, TAX EXEMPT ENTITIES, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS OR
BROKER-DEALERS, FOREIGN STOCKHOLDERS AND STOCKHOLDERS WHO DO NOT OWN THEIR
SHARES AS CAPITAL ASSETS. YOU SHOULD CONSULT YOUR OWN TAX ADVISERS WITH RESPECT
TO THE TAX CONSEQUENCES OF THE CONVERSION PROPOSAL TO YOU, PARTICULARLY WITH
RESPECT TO THE APPLICATION AND EFFECT OF TAX LAWS OF ANY STATE OR OTHER
JURISDICTION IN WHICH YOU ARE SUBJECT TO TAX AND THE EFFECT OF TAX LAWS OTHER
THAN INCOME TAX LAWS.
Vote Required
You may vote "FOR" or "AGAINST" the Conversion Proposal, or you may
abstain from voting on the Conversion Proposal. Approval of the Conversion
Proposal requires the affirmative vote by holders of Common Stock representing a
majority of the voting power entitled to vote on the Conversion Proposal. As a
result, abstentions and broker non-votes are effectively equivalent to votes
AGAINST the Conversion Proposal and the merger.
Appraisal Rights
You are entitled to appraisal rights under Section 262 of the DGCL in
connection with the Conversion Proposal. Among other things, if you wish to
perfect your appraisal rights, you must not vote in favor of the Conversion
Proposal. In addition, prior to the vote on the Conversion Proposal, you must
deliver a written demand to Kaiser for payment of the fair cash value of your
shares of Common Stock.
32
Unless you and Kaiser agree on the fair cash value per Dissenting Share, either
may request that the Delaware court determine the fair cash value of any
Dissenting Shares. The court, if appropriate, will make a finding as to the fair
cash value of a Dissenting Share and render judgment against Kaiser for its
payment with interest at such rate and from such date as the court considers
equitable. Fair cash value will be determined as of the day prior to the day of
the annual meeting and will be the amount which a willing seller and willing
buyer, not compelled to sell or buy, would accept or pay, but in no event will
the fair cash value exceed the amount demanded by the stockholder. In computing
this value, any appreciation or depreciation in market value resulting from the
transactions contemplated by the merger agreement will be excluded.
Dissenting Shares will not be converted into the right to receive the
merger consideration unless the holder of such shares fails to perfect or
otherwise loses the right to appraisal. If, after the effective time of the
merger, the holder fails to perfect or loses any such right to appraisal, each
of its Dissenting Shares will be automatically converted into the right to
receive consideration in the merger, as if the shares not been Dissenting
Shares.
This summary of your appraisal rights does not purport to be a complete
statement of the procedures to be followed if you wish to exercise any available
appraisal rights. For a complete statement of your appraisal rights, refer to
the full text of Section 262, which is attached as Annex C to this Proxy
Statement/Prospectus. The preservation and exercise of appraisal rights are
conditioned on strict adherence to the applicable provisions of Section 262.
Effect Of Disapproval Of The Conversion Proposal
If the Conversion Proposal is not approved or the merger is not
consummated, Kaiser would continue to conduct its business and operations in
corporate form substantially as they have been conducted prior to the date of
this Proxy Statement/Prospectus. Kaiser would intend to distribute or otherwise
make available to its stockholders most of its cash in excess of the reserves
reasonably required for current, future and contingent liabilities and/or other
cash needs, such as potential additional investments in MRC. However, the amount
and mechanism for any distribution would have to be reviewed to determine if
there is an alternative way to accomplish the same or similar tax advantages
offered by the Conversion Proposal.
33
PRICE RANGE OF COMMON STOCK
The Class A Units would not be publicly traded on any established
exchange or in any secondary market and would have certain restrictions on
transfer, as outlined elsewhere in this Proxy Statement/Prospectus. The Common
Stock is listed on the Nasdaq Stock Market under the symbol "KRSC." The
following table sets forth the high and low intra-day prices for the Common
Stock on the Nasdaq Composite Transactions reporting system for the periods
indicated. Following the conversion, the Common Stock would cease to be traded
on Nasdaq, and there would be no further market for such stock.
[Download Table]
Low High
--- ----
2001:
Third quarter (through __)................. $ $
Second quarter............................. $ 12.31 $ 12.94
First quarter.............................. $ 8.50 $ 12.94
2000:
Fourth quarter............................. $ 9.25 $ 13.69*
Third quarter.............................. $ 10.63 $ 13.50
Second quarter............................. $ 10.50 $ 14.25
First quarter.............................. $ 13.75 $ 16.06
1999:
Fourth quarter............................. $ 11.88 $ 16.75
Third quarter.............................. $ 12.13 $ 14.13
Second quarter............................. $ 8.13 $ 14.00
First quarter.............................. $ 8.00 $ 10.01
* Kaiser Inc. paid a $2.00 per share cash distribution to stockholders of
record as of December 13, 2000, which was treated as a non-taxable distribution
for most stockholders.
As of June 30, 2001, there were approximately 2,112 holders of record of
Common Stock. As of June 30, 2001, Kaiser 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.
DIVIDEND POLICY
Kaiser Inc. paid a $2.00 per share cash distribution to stockholders of
record as of December 13, 2000 as a non-taxable distribution to most
stockholders. Kaiser has not, and does not expect in the future, to pay regular
cash distributions or dividends. Instead, under its current policies, Kaiser has
been making distributions whenever, in the opinion of its Board, it has
sufficient cash to do so. However, Kaiser Inc. is not, and Kaiser LLC would not
be, legally obligated to continue that policy and in any case Kaiser may not
generate any further cash to distribute. As a result, Kaiser could retain any
future operating profits for anticipated expenses or any other business purpose.
34
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and
operating data for Kaiser as of and for the periods ended December 31,
1996, 1997, 1998 and 1999 and 2000, and as of and for the interim three-
month periods ended March 31, 2000 and 2001. The annual financial data
presented in this table have been derived from the audited consolidated
financial statements and related notes as of December 31, 2000 and 1999 and
for each of the three years in the period ended December 31, 2000 presented
in the "Financial" pages of this Proxy Statement/Prospectus. The interim
financial data presented in this table have been derived from the unaudited
consolidated financial statements and related notes presented in the
"Financial" pages of this Proxy Statement/Prospectus and which, in our
opinion, reflect all adjustments necessary for a fair presentation of the
financial position and the results of operations for these periods.
Operating results for the three months ended March 31, 2001 and 2000 are
not necessarily indicative of the results that may be expected for the
entire year ending December 31, 2001 and 2000.. You should read the
financial data below in conjunction with the audited and unaudited
consolidated financial statements and notes presented in the "Financial"
pages of this Proxy Statement/Prospectus, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as the
financial data appearing elsewhere in this Proxy Statement/Prospectus.
[Enlarge/Download Table]
Unaudited
---------------
Three Months Ended
Years Ended December 31, March 31,
----------------------------------------------------- --------------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
(financial data in thousands, except per share amounts)
Selected Statement of Income Data:
Total revenues................ $ 12,783 $ 7,082 $ 7,097 $ 49,516 $ 7,644 $ 1,409 $ 67,475
Costs and expenses............ 4,518 4,891 4,539 13,788 6,847 1,016 2,391
-------- -------- -------- -------- -------- ------- --------
Income from operations........ 8,265 2,191 2,558 35,728 797 393 65,084
Net interest (income)......... 819 672 1,083 498 (581) (108) (386)
-------- -------- -------- -------- -------- ------- --------
Income before income taxes.... 7,446 1,519 1,475 35,230 1,378 501 65,470
Taxes currently payable....... 92 43 12 8,364 33 7 6,700
Deferred tax expense
(benefit).................. 840 74 126 (3,211) (11,998) 194 10,761
Deferred tax expense
credited to equity......... 3,945 54 105 6,048 --- --- ---
-------- -------- -------- -------- -------- ------- --------
Net income.................... $ 2,569 $ 848 $ 1,232 $ 24,029 $ 13,343 $ 300 $ 48,009
======== ======== ======== ======== ======== ======= ========
Net income per share
Basic...................... $ 0.24 $ 0.08 $ 0.12 $ 2.35 $ 2.09 $ 0.05 $ 7.35
Diluted.................... $ 0.24 $ 0.08 $ 0.11 $ 2.31 $ 1.99 $ 0.04 $ 7.26
Selected Balance Sheet Data:
Cash, cash equivalents and
short-term investments..... $ 8,482 $ 4,330 $ 3,409 $ 4,686 $ 10,097 $ 9,815 $ 93,235
Working capital............... (1,240) (4,685) (2,487) 5,170 19,274 4,312 85,880
Total assets.................. 134,067 139,265 142,942 103,445 74,788 99,663 128,108
Long-term debt................ 8,102 8,982 13,750 --- --- --- ---
Long-term environmental
remediation reserves....... 26,466 24,673 24,465 23,868 4,490 23,651 4,481
Stockholders' equity.......... 81,448 86,204 87,838 60,890 59,474 61,645 108,915
Shares outstanding(1)......... 10,488 10,591 10,685 6,317 6,523 6,364 6,552
Book value per share.......... $ 7.77 $ 8.14 $ 8.22 $ 9.64 $ 9.12 $ 9.69 $ 16.62
-------------------------------
(1) Reflects the number of shares of Common Stock outstanding as of the last day
of the period reported.
35
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data
as of March 31, 2001 gives effect to the merger of Kaiser Inc. into Kaiser LLC
as of that date. The unaudited pro forma financial information presented below
is based on the assumptions and adjustments that we believe are reasonable and
which are described in the accompanying notes. The following pro forma financial
information is based on Kaiser Inc.'s historical results of operations and may
not be indicative of our future financial results of operations and should be
read in conjunction with the audited and unaudited consolidated financial
statements and notes presented in the "Financial" pages of this Proxy
Statement/Prospectus, the "Risk Factors" contained in this Proxy
Statement/Prospectus, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," as well as the financial data appearing
elsewhere in this Proxy Statement/Prospectus.
[Enlarge/Download Table]
As of March 31, 2001
(unaudited)
Pro Forma
Kaiser Inc. Adjustments Kaiser LLC
Historical for Conversion Pro Forma
--------------- --------------- ---------------
(financial data in thousands, except per share amounts)
Assets
Current Assets
Cash and cash equivalents.............. $ 93,235 $ (65,995)/(1)/ $ 27,240
Accounts receivable, net of allowance
for doubtful accounts of $83,000....... 487 --- 487
Note receivable........................ 323 --- 323
--------------- --------------- ---------------
94,045 (65,995) 28,050
--------------- ---------------- ---------------
Investment in West Valley MRF............... 3,917 --- 3,917
--------------- --------------- ---------------
Real Estate
Land and improvements.................. 8,303 --- 8,303
--------------- --------------- ---------------
Other Assets
Note receivable........................ 1,603 1,603
Landfill permitting and development.... 18,839 18,839
Buildings and equipment (net).......... 1,401 --- 1,401
--------------- --------------- ---------------
21,843 --- 21,843
--------------- --------------- ---------------
Total Assets................................ $ 128,108 $ (65,995) $ 62,113
=============== =============== ===============
---------------------------------
(1) In the conversion, $10 and one Class A Unit will be distributed in exchange
for each outstanding share of Common Stock. The pro forma cash distribution
reflected in the table is based on 6,552,100 shares of Common Stock outstanding
as of March 31, 2001 and the net cash distributed to holders of options with an
exercise price equal to or less than $10.
36
Pro Forma Unaudited Condensed Consolidated Balance Sheet
[Enlarge/Download Table]
As of March 31, 2001
(unaudited)
Pro Forma
Kaiser Inc. Adjustments Kaiser LLC
Historical For Conversion Pro Forma
--------------- --------------- ---------------
(financial data in thousands, except per share amounts)
Liabilities and Stockholders'/Members'
Equity
Current Liabilities
Accounts payable..................... $ 901 $ --- $ 901
Income taxes payable/(1)/............ 4,379 --- 4,379
Accrued liabilities.................. 2,885 --- 2,885
--------------- --------------- ---------------
8,165 --- 8,165
--------------- --------------- ---------------
Long-term Liabilities
Deferred gain on sale of real
estate............................ 669 --- 669
Accrued liabilities.................. 598 --- 598
Environmental remediation............ 4,481 --- 4,481
--------------- --------------- ---------------
5,748 --- 5,748
--------------- --------------- ---------------
Total Liabilities.......................... 13,913 --- 13,913
--------------- --------------- ---------------
Minority Interest.......................... 5,280 --- 5,280
--------------- --------------- ---------------
Commitments and Contingencies
Stockholders' Equity
Common stock......................... 196 (196)/(2)/ ---
Capital in excess of par value....... 53,107 (53,107)/(2)/ ---
Retained earnings.................... 55,612 (55,612)/(2)/ ---
--------------- --------------- ---------------
Total Stockholders' Equity................. 108,915 (108,915) ---
--------------- --------------- ---------------
Total Members' Equity...................... --- 42,920/(3)/ 42,920
--------------- --------------- ---------------
Total Liabilities and Stockholders'/
Members' Equity......................... $ 128,108 $ (65,995) $ 62,113
=============== =============== ===============
--------------------------------------
(1) No pro forma adjustment is reflected with respect to income tax liabilities
as of March 31, 2001 because, regardless of the conversion, Kaiser will be
obligated to pay income taxes accrued through the date of the consummation
of the conversion.
(2) Reflects the exchange of Common Stock for Class A Units in the merger, after
which stockholders' equity will be reclassified as members' equity.
(3) In the conversion, stockholders'/members' equity will be adjusted as
follows:
Beginning stockholders' equity............................. $108,915,000
Cash distributed to stockholders in merger................. (65,521,000)
Proceeds from options exercised............................ 1,689,000
Distribution on exercised options (2,163,000)
------------
Members' equity, as adjusted for the conversion............ $ 42,920,000
============
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Summary Background
Kaiser, including its wholly-owned subsidiaries has historically
operated as an asset development company based in Southern California. Kaiser is
the reorganized successor to Kaiser Steel Corporation, referred to as Kaiser
Steel, which was an integrated steel manufacturer that filed for bankruptcy
protection in 1987. In recent periods, Kaiser has sought to market and sell many
of its assets in order to implement its cash maximization strategy, designed to
maximize the cash distributed to our stockholders. Kaiser's principal assets
currently include: (i) an approximately 80% interest in MRC, the developer of
the Eagle Mountain landfill project, with the landfill project under contract to
be sold to the District for $41 million; (ii) a 50% joint venture interest in
the West Valley MRF, a transfer station and recycling facility located on land
acquired from Kaiser; and (iii) the approximately 9,144 acre Eagle Mountain
Site, which includes the associated 5,400 acre town of Eagle Mountain, the Eagle
Mountain Townsite, and the land leased to MRC for the landfill project. In
addition, Kaiser has a substantial cash position as a result of the sale of its
interest in Fontana Union on March 6, 2001, for $87.5 million. As of December
31, 2000, Kaiser Inc. had approximately $43 million in regular federal net
operating loss carryforwards, referred to as NOLs, however, due to gain realized
by Kaiser in the sale of its Fontana Union stock in March 2001, it is
anticipated that all of the existing NOLs will be utilized in the 2001 fiscal
year.
Future Plans
Kaiser has been developing the assets it received out of the Kaiser
Steel bankruptcy and then selling them at such time as Kaiser believes that it
can achieve optimum stockholder value for a particular project or asset. During
2000, Kaiser: (i) sold all but five acres of the Mill Site Property, at the
former Kaiser Steel mill site near Fontana; (ii) entered into an agreement to
sell the landfill project to the District upon satisfaction of certain closing
conditions; (iii) entered into an agreement for the sale of Kaiser's interest in
Fontana Union to Cucamonga; and (iv) paid a $2.00 cash distribution to its
stockholders.
Kaiser has been evaluating and continues to evaluate its future
strategy and business plan, as well as the timing and alternative means of
making its cash available to stockholders. The alternatives considered by
Kaiser's Board of Directors included, but were not limited to, a plan of
reorganization or dissolution, dividends, stock repurchases, a reformulation of
Kaiser Inc. into a different business form, one or more mergers, a sale of
Kaiser Inc., and/or other similar transactions. In evaluating competing
alternatives, our Board of Directors considered, among other factors:
. Kaiser's current and anticipated future contingent liabilities and
cash needs;
. tax planning opportunities and their timing, with the goal of
reasonably minimizing taxes paid both by Kaiser Inc. and its
stockholders;
. the anticipated timing of achieving maximum value for Kaiser's
remaining assets which may be several years in the future;
. expenses, including, among other expenses, general administrative
and ongoing expenses, related to any particular alternative;
. the legal and other risks that may be associated with any
particular alternative;
. the timing of initiating and completing any particular alternative;
and
. the possible impacts of any particular alternative may have on the
trading in Kaiser Inc.'s stock.
The above list is not intended to list every point that was considered
by Kaiser and its Board of Directors.
38
Eagle Mountain Landfill Project
Ownership Interest in MRC. In 1988, Kaiser entered into a 100-year
-------------------------
lease agreement with MRC. In 1990, a subsidiary of Browning Ferris Industries,
BFI, purchased a 50% interest in MRC and thereafter provided a majority of MRC's
subsequent funding, resulting in BFI becoming the majority owner of MRC. In
August 1994, BFI provided funds in excess of $5,000,000 to MRC to fund ongoing
development activities, withdrew from MRC and repaid MRC's outstanding bank
indebtedness.
In January 1995, through a wholly-owned subsidiary, Kaiser acquired a
70% ownership interest in MRC. As a result of subsequent investments, Kaiser
increased its indirect ownership interest in MRC to approximately 75% until
December 2000, when the investment subsidiary was merged with and into Kaiser
Inc., with Kaiser Inc. as the surviving entity. Since December 2000, Kaiser has
invested approximately $97,000 in MRC and contributed all of the economic
benefits in the MRC lease to MRC. Kaiser currently owns approximately 80% of the
Class B units and 100% of the Class A units of MRC as a result of these
subsequent investments and contribution.
Project Development Background. MRC is seeking to develop Kaiser's
------------------------------
former iron ore mine near Eagle Mountain, California into a large, regional
rail-haul, municipal solid waste landfill, referred to as the landfill project.
In December 1999, the landfill project received its last major permit necessary
to construct and operate a rail haul landfill. The landfill project is permitted
to receive a maximum of 20,000 tons per day of municipal solid waste for up to
88 years.
Sale of Landfill Project. In August 2000, MRC, entered into an
------------------------
Agreement For Purchase and Sale of Real Property and Related Personal Property
In Regard To The Eagle Mountain Sanitary Landfill Project and Joint Escrow
Instructions with the District for a sale price of $41 million. However, the
closing of the transaction is subject to the satisfaction of certain closing
conditions, including, among other conditions, satisfactory completion by the
District of its due diligence, obtaining all necessary consents for the transfer
of the landfill project's permits to the District and all necessary consents to
the transaction.
If these conditions are satisfied, upon closing, $39 million of the
total purchase price will be deposited into an escrow account and will be
released when the current federal litigation challenging the completed federal
land exchange between MRC and BLM is fully resolved. Interest will accrue on the
escrowed funds and, upon a successful outcome of the litigation at the Federal
District Court level, will be paid out to MRC on a quarterly basis. The
remaining $2 million of the purchase price will also be placed into an escrow
account upon closing and will be released upon the later of (1) the release of
the $39 million as described above or (2) the permitting approvals of the
District's Puente Hills landfill for its remaining 10 years of capacity. Receipt
of the purchase price, in whole or in part, if at all, could be delayed for a
substantial period of time pending satisfactory resolution of these
contingencies.
The District has undertaken and continues to conduct extensive due
diligence on the landfill project and is waiting for receipt of several items,
including, among other items, final land and right-of-way surveys. In addition,
the parties are negotiating the terms of various ancillary agreements such as
joint use agreements for access, utilities, and the Eagle Mountain railroad.
With the sale of the landfill project, Kaiser will continue to own and control
more than 5,400 acres in the Eagle Mountain area, including the Eagle Mountain
Townsite. The parties agreed to extend the initial closing date of the sale
transaction, and the transaction is currently scheduled to close by the end of
the third quarter of 2001. Interest began to accrue on $39 million of the
purchase price effective May 3, 2001. If the sale closes, upon satisfactory
resolution of the outstanding federal litigation relating to the land exchange,
MRC will be entitled to received the $39 million and accrued interest through
May 3, 2003.
The foregoing summary of the sale of the landfill project to the
District does not set forth all of the terms of the purchase agreement for that
transaction. You should refer to the Landfill Purchase Agreement, filed as an
exhibit to Kaiser Inc.'s second quarter 2000 10-Q Report and by Exhibit 10.1 to
Kaiser's first quarter 2001 10-Q Report, for the complete text of that
agreement. See also, "Business--Eagle Mountain Landfill Project and Pending
Sale."
Landfill Project Litigation. Currently, the pending litigation
---------------------------
involving the landfill project consists of two lawsuits filed in Federal
District Court located in Riverside County, California, challenging the
39
completed federal land exchange between MRC and BLM and requesting its reversal.
To date, no immediate injunctive relief has been sought. These two lawsuits
generally involve the same parties that were the plaintiffs in the unsuccessful
state environmental impact report litigation and the unsuccessful appeals before
the Interior Board of Land Appeals.
A decision in an unrelated case has the potential of having a material
adverse impact on the federal land exchange litigation and thus, the completion
of the landfill project and its pending sale to the District. In November 2000,
the Ninth Circuit U.S. Court of Appeals issued a decision that required the
reversal of the completed federal land exchange for the competing Mesquite
rail-haul landfill project. In that case, Desert Citizens Against Pollution v
Bisson, (Ninth Circuit Court of Appeals, Case No. 97-55429), the Court of
Appeals, among other things, determined that BLM did not properly value the land
being acquired by the developer of the landfill project. The Court concluded
that the appraisal should have considered the value of the land being acquired
as a potential landfill. The court did not establish what it thought should be
the proper value of the exchanged lands. The plaintiffs in Kaiser's federal land
exchange litigation have amended their respective complaints to assert that the
appraisal used to complete the federal land exchange between the BLM and Kaiser
is similarly defective. As a result of the amended complaints and several
pending motions, the original trial schedule has been significantly delayed.
Partly as a result of these delays, the MRC may not complete the pending sale of
the landfill project to the District on the previously anticipated time frame,
if at all. If the sale of the project is significantly delayed or not
accomplished, MRC may require additional financing from Kaiser, the other
investors in MRC and/or outside funding sources. At this time, although neither
Kaiser nor any other potential investor is obligated to make a further
investment in MRC, Kaiser Inc.'s Board of Directors has approved a budget under
which Kaiser may make future investments in MRC. However, Kaiser has the
discretion to direct the use of funds as it sees fits and is not obligated to
approve any future investment in MRC, should such an investment be necessary. If
MRC is unable to secure adequate financing it may be forced to abandon the
landfill project.
Risks. There are numerous risks and contingencies associated with the
-----
pending sale of the landfill project to the District. Kaiser can make no
assurance that the sale to the District will be completed or, if completed, that
the sale transaction will be completed on terms favorable to MRC and Kaiser. See
"The Conversion Proposal--Risk Factors--Certain Risks Relating to Kaiser's
Business--Our Pending Sale of Eagle Mountain Landfill Project May Not Close" and
"BUSINESS--Legal Proceedings -- Eagle Mountain Landfill Project Land Exchange
Litigation."
West Valley Materials Recovery Facility
Kaiser, through a wholly-owned subsidiary, and Burrtec Waste
Industries, Inc., also through a wholly-owned subsidiary, each own a fifty
percent (50%) interest in West Valley MRF, LLC, a limited liability company that
owns a materials recovery facility in Southern California. A materials recovery
facility sorts through municipal solid waste to recover items that may sold into
a commercial market such as paper, cardboard, glass and aluminum cans. Phase 1
of the West Valley MRF includes a 62,000 square foot building, sorting
equipment, and related facilities for waste transfer and recycling services
capable of process approximately 2,000 tons per day of non-hazardous commercial
and municipal solid waste.
Construction of Phase 2 of the West Valley MRF is substantially
complete and the facility is fully operational. Phase 2 expanded the processing
capacity of the West Valley MRF from approximately 2,000 tons per day to 3,500
tons per day. Phase 2 also involved constructing an approximately 80,000 square
foot addition to the existing facilities, the purchase and installation of
certain related equipment, including rolling stock, and the rehabilitation and
relocation of certain existing equipment. The estimated cost of the Phase 2
expansion is approximately $11 million.
Investment in Fontana Union
In March 2001, Kaiser completed the sale of its stock in Fontana Union,
a mutual water company, representing approximately 53.71% of Fontana Union's
total outstanding stock, to Cucamonga for $87.5 million. In addition, Kaiser
received approximately $2.5 million in payments under the lease of Fontana
40
Union shares to Cucamonga. With the sale of the Fontana Union interest, the
lease with Cucamonga was effectively terminated and the rate dispute litigation
between Kaiser and Cucamonga was settled.
In connection with the sale of Kaiser's ownership interest in Fontana
Union, Kaiser terminated its $30 million credit facility with Union Bank that
was secured by Fontana Union stock and the Cucamonga Lease.
The Mill Site Property
Kaiser retains ownership of only a five acre parcel at the Mill Site
Property, referred to as the Tar Pits Parcel. CCG is obligated to remediate this
parcel's environmental contamination pursuant to the terms of CCG's purchase
agreement for approximately 588 acres of the Mill Site Property from Kaiser in
August 2000. In that transaction, CCG assumed substantially all of Kaiser's
environmental liabilities associated with the property it purchased,
responsibility for remediating the Tar Pits Parcel and certain other
environmental liabilities and risks associated with the Mill Site Property.
Lake Tamarisk and Mining Properties
Lake Tamarisk is an incorporated community located two miles northwest
of Desert Center, California and approximately 8 miles from the Eagle Mountain
Site. Kaiser, through its wholly owned subsidiary, owns 77 improved lots
including one residential structure, and a 240 acre parcel of unimproved land
across the highway from the main entrance to Lake Tamarisk, collectively
referred to as the Lake Tamarisk Properties. On November 9, 2000, Kaiser entered
into a Purchase and Sale Agreement and Joint Escrow Instructions to sell the
Lake Tamarisk Properties for a gross purchase price of $1.75 million in cash. In
the first quarter of 2001, the potential buyer elected to terminate the purchase
contract. Kaiser is again marketing this property.
In February 2001, Kaiser completed its sale of its Silver Lake Mine
property, several other mining claims and properties and a 190 acre parcel near
Afton Canyon, California. Kaiser sold these assets for a gross sales price of
approximately $2 million, receiving $700,000 in cash at the closing and a
secured promissory note from the buyer payable over five years at 8% per annum
for the balance of the purchase price.
Operating Results
Primary Revenue Sources
Ongoing Operations. Kaiser's revenues from ongoing operations are
------------------
generally derived from the development of Kaiser's long-term projects. Revenues
from water resources represent payments under the lease of Kaiser's interest in
Fontana Union to Cucamonga. However, the lease with Cucamonga terminated in
March 2001, with the sale of Kaiser's interest in Fontana Union to Cucamonga.
Income from equity method investments reflect Kaiser's share of income related
to its investment in the West Valley MRF.
Interim Activities (net). Revenues from interim activities are
------------------------
generated from various sources. Significant components of interim activities
include water and waste water treatment revenues, rentals under short-term
tenant lease arrangements, royalty revenues from the sale of slag to outside
contractors, royalty revenues from the sale of recyclable revert materials and
other miscellaneous short-term activities at the Mill Site Property; housing
rental income, aggregate and rock sales and lease payments for the minimum
security prison at the Eagle Mountain Townsite; royalty revenues from iron ore
shipments from Kaiser's iron ore mine at the Silver Lake Mine, rentals under
short-term tenant lease arrangements, royalty revenues from the sale of slag to
outside contractors, royalty revenues from the sale of recyclable revert
materials and other miscellaneous short-term activities. Due to the interim
nature of these activities Kaiser is presenting these revenues net of their
related expenses. No revenues and expenses associated with the Mill Site
Property and only $39,000 of net revenues associated with the Silver Lake Mine
were recorded during 2001 due to the sales of these properties.
41
Summary of Revenue Sources
Due to the developmental nature of certain projects and Kaiser'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 Kaiser. Therefore, 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
"Business" for a discussion of recent material events affecting Kaiser's revenue
sources.
Results of Operations
Analysis of Results for the Quarters Ended March 31, 2001 and 2000
An analysis of the significant components of Kaiser's resource revenues
for the quarters ended March 31, 2001 and 2000 follows:
[Enlarge/Download Table]
2001 2000 % Inc. (Dec)
---- ---- ------------
Ongoing Operations
Gain on Sale of Fontana Union Stock........ $ 65,171,000 $ --- 100%
Water Resource............................. 295,000 1,155,000 (74%)
Gain on sale of California Mines........... 1,756,000 --- 100%
Deferred gain on Mill Site land sales...... 27,000 --- 100%
Income from equity method investment in
West Valley MRF, LLC....................... 257,000 329,000 (22%)
-------------- -------------- ----------
Total ongoing operations................... 67,506,000 1,484,000 4,449%
-------------- -------------- ----------
Interim Activities (net)
Lease, service and other................... (31,000) (75,000) 59%
--------------- --------------- ----------
Total resource revenues.................... $ 67,475,000 $ 1,409,000 4,692%
============== ============== ==========
Resource Revenues. Total resource revenues for the first quarter of
-----------------
2001 were $67,475,000, compared to $1,409,000 for 2000. Revenues from ongoing
operations increased 44 fold for the quarter to $67,506,000 from $1,484,000 in
2000, while the loss from interim activities (net of related expenses) declined
59% to $31,000 from $75,000 in 2000.
Ongoing Operations. During the first quarter of 2001, Kaiser sold its
------------------
investment in Fontana Union to Cucamonga (to whom the shares were leased under a
102 year lease) for $87.5 million, resulting in a gain of $65.2 million.
Included in the net gain of $65.2 million was the payment of $1.0 million to
management pursuant to Kaiser's Long-Term Transaction Incentive Program. Water
lease revenues under Kaiser's 102-year take-or-pay lease with Cucamonga were
$295,000 during the first quarter of 2001 compared to $1,155,000 for 2000. The
74% decrease in water lease revenues during the quarter reflects the sale of
Kaiser's investment in its Fontana Union stock in March 2001.
During the first quarter of 2001, Kaiser sold its California Mine
properties for $2.0 million, resulting in a gain of $1,756,000. Kaiser also
recognized deferred gain of $27,000 from the sales of certain Mill Site
properties in 1997 and 1999.
Income from equity method investments decreased by $72,000 to $257,000
due to lower equity income from the West Valley MRF during the first quarter of
2001 compared to $329,000 recorded for the same period 2000.
Interim Activities (net). Interim activities net of expenses for the
------------------------
first quarter of 2001 were a net expense of $31,000 compared to a net expense of
$75,000 for the same period in 2000. The 59% decrease in net interim expense in
2001 is primarily attributable to the termination of interim activities at the
Mill Site Property due to the sale to CCG in August 2000 ($67,000), and lower
net interim expense at Eagle Mountain ($16,000) being partially offset by lower
net operating revenue at the California Mines which were sold in early February
($37,000).
42
Resource Operating Costs. Resource operating costs are those costs
------------------------
directly related to the resource revenue. Total resource operating costs for the
first quarter of 2001 decreased to $42,000 from $173,000 in 2000. This decrease
was due to a decrease in the lease commission and outside legal costs associated
with the Cucamonga lease and related lease rate dispute ($130,000) due to the
sale of Kaiser's investment in its Fontana Union stock.
Corporate General and Administrative Expenses. Corporate general and
---------------------------------------------
administrative expenses for the first quarter of 2001 increased 178% to
$2,349,000 from $843,000 for 2000. The increase is primarily due to variable
stock option accounting ($1,155,000), a non-cash item, the exercise of
nonqualified stock options ($195,000) and higher professional and outside
consulting expense ($145,000). These items are not expected to recur in these
amounts, as a consequence, we anticipate our corporate general and
administrative expenses to continue to decrease as we sell our remaining assets.
Net Interest Income. Net interest income for the first quarter of 2001
-------------------
was $386,000 compared to $108,000 in 2000. The change was due primarily to: (a)
an increase in interest income ($263,000) due to higher cash and investment
balances and a decrease in interest expense ($15,000) associated with Kaiser's
$30,000,000 revolving-to-term credit facility with Union Bank which was
terminated prior to Kaiser's sale of its Fontana Union stock (the collateral for
the debt).
Pre-Tax Loss and Income Tax Provision. Kaiser recorded income before
-------------------------------------
income tax provision of $65,470,000 for the first quarter of 2001, versus
$501,000 recorded in 2000. An income tax provision of $17,461,000 was recorded
in the first quarter of 2001 compared to $201,000 for 2000.
Net Income. For first quarter of 2001, Kaiser reported a net income of
----------
$48,009,000, or $7.35 per share, versus $300,000, or $.05 per share, reported
for 2000.
Analysis of Results for the Years Ended December 31, 2000 and 1999
An analysis of the significant components of Kaiser's resource revenues
for the years ended December 31, 2000 and 1999 follows:
[Enlarge/Download Table]
2000 1999 % Inc. (Dec)
---- ---- ------------
Ongoing Operations
Water resource............................ $ 5,640,000 $ 5,228,000 8%
Gain on merger of Penske Motorsports into
International Speedway....................... --- 35,713,000 (100%)
Gain on sale of International Speedway
Common Stock................................. --- 6,575,000 (100%)
Income (loss) from equity method
Investments
Penske Motorsports Inc............... --- (329,000) 100%
West Valley MRF, LLC................. 1,651,000 910,000 81%
Mill Site land sales...................... 532,000 1,622,000 (67%)
-------------- -------------- -----------
Total ongoing operations.................. 7,823,000 49,719,000 (84%)
-------------- -------------- -----------
Interim Activities (net) .................... (179,000) (203,000) 12%
--------------- --------------- ----------
Total resource revenues................... $ 7,644,000 $ 49,516,000 (85%)
============== ============== -----------
Resource Revenues. Total resource revenues for 2000 were $7,644,000,
-----------------
compared to $49,516,000 for 1999. Revenues from ongoing operations decreased 84%
during the year to $7,823,000 from $49,719,000 in 1999, while the loss from
interim activities (net of related expenses) declined 12% to $179,000 from
$203,000 in 1999. This significant decrease from our record 1999 revenue levels
reflects the unusual non-recurring 1999 revenues relating to the Penske
Motorsports, Inc. / International Speedway Corporation merger and the subsequent
sale of International Speedway Common Stock
43
Ongoing Operations. Water lease revenues under Kaiser's 102-year take-
------------------
or-pay lease with Cucamonga were $5,640,000 during 2000 compared to $5,228,000
for 1999. This increase in water revenues primarily reflects an agreed upon
change in the Chino Basin Ag-Pool billing cycle from 12 months in arrears to
current year. As previously disclosed, Kaiser concluded the sale of its
investment in Fontana Union to Cucamonga in March 2001, at a gross sales price
of $87.5 million.
Income (loss) from equity method investments increased to $1,651,000
for 2000 from $581,000 for 1999. The increase of $1,070,000 reflects higher
equity income from the West Valley MRF ($741,000) and the discontinuance of
recording equity income (loss) from Penske Motorsports ($329,000), effective
April 1, 1999, due to the merger between International Speedway and Penske
Motorsports that was announced in May 1999.
During the third quarter of 1999, International Speedway consummated
its merger with Penske Motorsports, purchasing the 88% of Penske Motorsports'
Common Stock it did not already own for $50.00 per share. Kaiser received, under
the cash and stock election of 30% and 70%, respectively, $24.4 million in cash
and 1,187,407 shares of International Speedway Class A Common Stock. As a result
of the merger Kaiser recognized a gain of $35.7 million in 1999.
Subsequent to the merger of Penske Motorsports into International
Speedway, Kaiser commenced an orderly liquidation of its position in the Common
Stock of International Speedway. By the middle of November 1999, Kaiser had
completed the sale of its International Speedway Common Stock resulting in a
gain of $6.6 million.
Interim Activities (net). Interim activities net of expenses for 2000
------------------------
were a net expense of $179,000 compared to a net expense of $203,000 for 1999.
The 12% decrease in net interim expense in 2000 is primarily attributable to the
conclusion of interim activities at the Mill Site Property due to the sale to
CCG in August 2000 ($88,000) being mostly offset by higher net operating costs
at Eagle Mountain and the California Mines ($64,000).
Resource Operating Costs. Resource operating costs are those costs
------------------------
directly related to the ongoing resource revenue sources. Total resource
operating costs for 2000 decreased to $509,000 from $8,878,000 in 1999. The
principal reason for this decrease from 1999 was the then pending bulk sale of
virtually all the Mill Site Property to Ontario Ventures I, LLC, which required
Kaiser to record a write-down to net realizable value of $8,350,000 during 1999.
Other operating costs for 2000 were $509,000 compared to $528,000 for 1999. The
4% decrease in 2000 operating costs was primarily due to the sale of Kaiser's
investment in Penske Motorsports/International Speedway during 1999 ($25,000)
being partially offset by lower costs associated with water revenue ($6,000).
Corporate General and Administrative Expenses. Corporate overhead
---------------------------------------------
expenses for 2000 decreased 29% to $3,469,000 from $4,910,000 for 1999. The
decrease was due to lower compensation and related expenses ($214,000) and lower
professional and outside consulting expenses ($1,227,000). Most of the decrease
in professional and outside consulting expense was related to the VEBA/PBGC
share repurchase that was completed in November 1999, while the decrease in
compensation was related to staff reductions. In 2000, Kaiser incurred stock
based compensation expense of $2,224,000 related to the exercise of nonqualified
stock options. In addition, in recognition of Kaiser's possible future
alternatives and the adoption of a cash maximization strategy, in December 2000
Kaiser reduced the exercise price of option on all outstanding options by $2.00
in order to compensate for the $2.00 dividend per share cash distribution. This
repricing required Kaiser to change its stock option accounting policy and
account for all outstanding options under "variable plan accounting". This
resulted in Kaiser incurring an expense of $645,000 for 2000. Going forward,
Kaiser must revalue all outstanding options on a quarterly basis and record
either additional expense or a reduction to the previously recorded expense
based on positive or negative fluctuations, respectively, in the market price of
Kaiser's Common Stock.
Net Interest (Income) Expense. Net interest (income) expense for 2000
-----------------------------
was $581,000 of income compared to $498,000 of expense in 1999. The positive
increase ($1,079,000) was due primarily to significantly lower interest expense
on long-term debt ($1,245,000) being partially offset by lower interest income
from lower cash/investment balances ($166,000).
44
Income and Income Tax Provision. Kaiser recorded income before income
-------------------------------
tax provision of $1,378,000 for 2000, a 96% decrease from the $35,230,000
recorded in 1999. An income tax benefit of $11,965,000 was recorded in 2000 as
compared with an income tax provision of $11,201,000 in 1999. The income tax
benefit recorded in 2000 is a direct result of Kaiser's pending sale of its
investment in Fontana Union that created sufficient taxable income for Kaiser
Inc. to fully utilize its NOLs. Before 2000, Kaiser had historically recorded an
offsetting allowance or reserve with respect to a portion of its NOL asset to
take into account the potential that Kaiser would not generate sufficient gains
to use all of its NOLs. However, the income tax benefit derived from Kaiser's
sale of its interest in Fontana Union in 2000 enables Kaiser to use all of its
NOLs in existence prior to the adoption of the Conversion Proposal as an offset
against this gain.
Net Income. For 2000, Kaiser reported net income of $13,343,000, or
----------
$2.09 per share, a 44% decrease from the $24,029,000, or $2.35 per share,
reported for 1999.
Analysis of Results for the Years Ended December 31, 1999 and 1998
An analysis of the significant components of Kaiser's resource revenues
for the years ended December 31, 1999 and 1998 follows:
[Enlarge/Download Table]
1999 1998 % Inc. (Dec)
---- ---- ------------
Ongoing Operations
Water resource............................. $ 5,228,000 $ 5,201,000 1%
Gain on merger of Penske Motorsports 35,713,000 --- N/A
into International Speedway..............
Gain on sale of International Speedway 6,575,000 --- N/A
Common Stock.............................
Income (loss) from equity method
Investments
Penske Motorsports Inc............... (329,000) 1,903,000 N/A
West Valley MRF, LLC................. 910,000 40,000 2175%
Mill Site land sales...................... 1,622,000 --- N/A
-------------- -------------- --------
Total ongoing operations.................. 49,719,000 7,144,000 596%
-------------- -------------- --------
Interim Activities (net) ..................... (203,000) (47,000) (332%)
--------------- --------------- --------
...................Total resource revenues... $ 49,516,000 $ 7,097,000 598%
============== ============== ========
Resource Revenues. Total resource revenues for 1999 were $49,516,000,
-----------------
compared to $7,097,000 for 1998. Revenues from ongoing operations increased 598%
during the year to $49,719,000 from $7,144,000 in 1998, while the loss interim
activities (net) increased 332% to $203,000 from $47,000 in 1998. This
significant increase in 1999 revenue levels reflects the unusual non-recurring
on-going revenues related to the Penske Motorsports / International Speedway
merger and the subsequent sale of International Speedway Common Stock.
Ongoing Operations. Water lease revenues under Kaiser's 102-year take-
------------------
or-pay lease with Cucamonga were $5,228,000 during 1999 compared to $5,201,000
for 1998. The slight increase in water revenues primarily reflects an increase,
effective January 1, 1999, in Kaiser's effective interest in Fontana Union from
57.33% to 57.37%, due to a decline in the number of Fontana Union shareholders
taking water.
Income (loss) from equity method investments decreased to $581,000 for
1999 from $1,943,000 for 1998. The decrease of $1,362,000 reflects the
discontinuance of recording equity income from Penske Motorsports ($2,082,000)
effective April 1, 1999 due to the merger between International Speedway and
Penske Motorsports that was announced in May 1999, and an increase in the
reported
45
first quarter net loss of Penske Motorsports ($150,000) being partially offset
by an increase in equity income from the West Valley MRF ($870,000).
During the third quarter of 1999, International Speedway consummated
its merger with Penske Motorsports, purchasing the 88% of Penske Motorsports'
Common Stock it did not already own for $50.00 per share. Kaiser received, under
the cash and stock election of 30% and 70%, respectively, $24.4 million in cash
and 1,187,407 shares of International Speedway Class A Common Stock. As a result
of the merger Kaiser recognized a gain of $35.7 million in 1999.
Subsequent to the merger of Penske Motorsports into International
Speedway, Kaiser commenced an orderly liquidation of its position in the Common
Stock of International Speedway. By the middle of November 1999, Kaiser had
completed the sale of its International Speedway Common Stock resulting in a
gain of $6.6 million.
Interim Activities (net). Interim activities net of expenses for 1999
------------------------
were a net expense of $203,000 compared to a net expense of $47,000 for 1998.
The increase in net interim expense in 1999 is primarily attributable to the
lower revenues from tenant rental and services and from sales of metallics and
scrap at the Mill Site Property due to the continuing real estate redevelopment
activities ($386,000) being mostly offset by higher net revenues at Eagle
Mountain and the California Mines ($230,000).
Resource Operating Costs. Resource operating costs are those costs
------------------------
directly related to the ongoing resource revenue sources. Total resource
operating costs for 1999 increased to $8,878,000 from $560,000 in 1998. The
principal reason for this increase in 1999 was the then pending bulk sale of
virtually all the Mill Site Property to Ontario Ventures I, LLC, which required
Kaiser to record a write-down to net realizable value of $8,350,000 during 1999.
Other operating costs for 1999 were $528,000 compared to $560,000 for 1998. The
6% decrease in 1999 operating costs was primarily due to the sale of Kaiser's
investment in Penske Motorsports/International Speedway during 1999 ($78,000)
being partially offset by higher legal costs associated with water revenue
($46,000).
Corporate General and Administrative Expenses. Corporate overhead
---------------------------------------------
expenses for 1999 increased 23% to $4,910,000 from $3,979,000 for 1998. The
increase was due to higher compensation and related expenses ($424,000) and
higher professional and outside consulting expenses ($507,000). All of the
increase in professional and outside consulting expense was related to the
VEBA/PBGC share repurchase that was completed in November 1999.
Net Interest Expense. Net interest expense for 1999 was $498,000
--------------------
compared to $1,083,000 in 1998. The decrease was due primarily to higher
interest income from higher cash/investment balances from the proceeds of the
merger of Penske Motorsports into International Speedway and subsequent sale of
International Speedway Common Stock ($777,000) slightly offset by higher
interest expense ($192,000) associated with the additional long term debt from
January 1999 through early December 1999, when all of the outstanding debt was
paid-off.
Income and Income Tax Provision. Kaiser recorded income before income
-------------------------------
tax provision of $35,230,000 for 1999, a 23-fold increase from the $1,475,000
recorded in 1998. A provision for income taxes of $11,201,000 was recorded in
1999 as compared with $243,000 in 1998.
Net Income. For 1999, Kaiser reported net income of $24,029,000, or
----------
$.2.35 per share, a 19-fold increase from the $1,232,000, or $.12 per share,
reported for 1998.
Financial Position
Cash, Cash Equivalents and Short-Term Investments. Kaiser defines cash
-------------------------------------------------
equivalents as highly liquid debt instruments with original maturities of 90
days or less. Cash and cash equivalents increased $83,138,000 to $93,235,000 at
March 31, 2001 from $10,097,000 at December 31, 2000. Included in cash and cash
equivalents is $2,899,000 and $3,247,000 held solely for the benefit of MRC at
March 31, 2001 and December 31, 2000, respectively. The increase in cash and
cash equivalents is primarily due to: (a) the sale of Kaiser's Fontana Union
Stock ($81,783,000); (b) the sale of the California Mines for
46
$2.0 million of which $726,000 was cash at the closing; and (c) the issuance of
common stock relating to the exercise of stock options of $119,000.
Working Capital. During the first quarter of 2001, current assets
---------------
increased $70.6 million to $94 million, while current liabilities increased $4.1
million to $8.2 million. The increase in current assets resulted primarily from
the $83.1 million increase in cash and cash equivalents and a $10.7 million
decline in current deferred tax assets. The increase in current liabilities
resulted primarily from the recording of $4.4 million income taxes payable and
an increase in accounts payable ($600,000) being partially offset by the payment
of year-end accruals ($1.0 million). Included in current liabilities as of March
31, 2001 is $701,000 in accounts payable and accrued liabilities relating to
MRC. As a result, working capital increased during the first quarter of 2001 by
$66.5 million to $85.8 million at March 31, 2001.
Real Estate. Real estate decreased $240,000 during the first quarter
------------
of 2001 due to the sale of Kaiser's California mine properties.
Investments. There was a $257,000 increase in Kaiser's investment in
-----------
the West Valley MRF during the first quarter of 2001 due to Kaiser's recording
of its equity share of income during the period. The $16,612,000 decrease in
Kaiser's investment in Fontana Union is due to the sale of that investment
during the first quarter of 2001.
Other Assets. The decrease in other assets ($730,000) is primarily
------------
related to Kaiser's utilization of its long-term deferred tax assets ($2.2
million) and an increase in accumulated depreciation as of March 31, 2001
($69,000) being partially offset by increases in notes receivable due to the
sale of the California Mine Property ($1.0 million long term portion) and
capitalized landfill permitting and development costs incurred by MRC
($500,000).
Environmental Remediation. As of March 31, 2001, Kaiser estimated,
-------------------------
based upon current information, that its future environmental liability related
to certain matters not assumed by CCG in its purchase of the Mill Site Property
(August 2000), including, among other potential liabilities, groundwater and
other possible third party claims, would be approximately $4.5 million. Among
other things, Kaiser remains contingently liable for any impacts the elevated
total dissolved solid groundwater plume may have on previously existing water
wells owned by third parties.
Long-term Liabilities. The decrease in other long-term liabilities is
---------------------
primarily due to a decrease in accrued liabilities and environmental reserves
($133,000) and the recognition of deferred gains on real estate sales ($27,000).
Minority Interest and Other Liabilities. As of March 31, 2000, Kaiser
---------------------------------------
has recorded $5,280,000 of minority interest relating to the approximately 19%
ownership interest in MRC that Kaiser does not own.
Contingent Liabilities. Kaiser has contingent liabilities more fully
----------------------
described in the notes to the financial statements.
Business Outlook
The statements contained in this Business Outlook, as well as in the
Business Update, are based upon current operations and expectations. In addition
to the forward-looking statements and information contained elsewhere in this
Proxy Statement/Prospectus, these statements are forward-looking and, therefore,
actual results may differ materially.
Ongoing Operations. As noted above, Kaiser's revenues from ongoing
------------------
operations have, in the past, been generally derived from the development of
Kaiser's major long-term projects and investments. The development of a number
of these projects and investments, such as the 102-year take-or-pay lease with
Cucamonga, and the 50% equity ownership of the West Valley MRF, are essentially
complete and Kaiser has been recognizing significant revenues and income from
these investments. However, the revenues from ongoing operations will be
significantly reduced in 2001 as a result of Kaiser completing the sale of its
ownership interest in Fontana Union to Cucamonga. In addition, Kaiser continues
to
47
evaluate its remaining assets and investments in light of how to best provide
maximum value to its stockholders.
In regard to the West Valley MRF, the most significant factor affecting
Kaiser's future equity income from the West Valley MRF is the expansion of the
facility's capacity from 2,000 to 3,500 tons per day. The facility is
operational and its expansion, which cost approximately $11 million, is
substantially complete. The expansion enlarges the processing facility by an
additional 80,000 square feet and provides for additional materials recovery
sorting capacity. The ultimate success of this expansion will continue to depend
on the ability of the West Valley MRF to attract new customers and waste volumes
from the closure of local landfills such as the Spadra Landfill, which closed in
April 2000, and on the future construction of any competing facilities.
As part of our strategy, we intend to evaluate any potential offers to
purchase our interest in the West Valley MRF in light of our primary objective
of maximizing value for our stockholders. The West Valley MRF currently
generates sufficient cash flow to fund its cost of operations and does not
require additional investment by Kaiser to operate. Furthermore, the West Valley
MRF should generate sufficient cash distribution to Kaiser to cover Kaiser LLC's
foreseeable general and administrative costs.
Pending Sale of Eagle Mountain Landfill Project. In August 2000, MRC
-----------------------------------------------
entered into an agreement to sell the landfill project located at the Eagle
Mountain Site to the District. Under that agreement, MRC will receive $41
million for the landfill project if the conditions to closing are satisfied and
the sale transaction closes. The cash will be held in escrow pending the
resolution of certain additional contingencies, which are not expected to occur
for several years. The initial closing is currently scheduled to occur by the
end of the third quarter of 2001. However, the closing of this sale is subject
to, among other things, the results of the District's due diligence, obtaining
the transfer of the landfill project's permits to the District and obtaining all
necessary consents to the transaction.
If the sale transaction closes, upon closing, $39 million of the total
purchase price will be deposited into an escrow account and will be released
when the outstanding federal litigation related to MRC's federal land exchange
with BLM is fully and satisfactorily resolved. Interest on this $39 million
began accruing at the beginning of May 2001. Accrued interest on this portion of
the purchase price, for up to a two year period, will be paid out to MRC on a
quarterly basis beginning with a successful outcome of the federal litigation.
If the transaction closes, upon closing, the remaining $2 million of the
purchase price will also be placed into an escrow account and will be released
upon the later of (i) the release of the $39 million as described above, or (2)
the permitting approval of the District's Puente Hills landfill for its
remaining 10 years of capacity.
The District has been undertaking significant due diligence on the
landfill project and has the right to terminate the sale agreement if it is not
satisfied with the results of its due diligence. Additionally, the parties are
negotiating various ancillary agreements and a recently announced decision in an
unrelated case related to a federal land exchange to which BLM was a party could
potentially have a material adverse impact on the landfill project and its
pending sale. For additional information see " Business--Waste Management--Eagle
Mountain Landfill Project--Landfill Project Litigation."
Mill Site Property. The only remaining Mill Site Property owned by
------------------
Kaiser is an approximate five acre parcel referred to as the Tar Pits Parcel.
CCG is obligated to remediate the environmental contamination of this parcel
pursuant to the terms of CCG's purchase of approximately 588 acres of the Mill
Site Property from Kaiser in August 2000. As described elsewhere in this Proxy
Statement/Prospectus, in that purchase CCG assumed substantially all of Kaiser's
environmental liabilities associated with the purchased property as well as
certain other environmental liabilities and risks associated with the Mill Site
Property, including the remediation of the Tar Pits Parcel.
Sale of Miscellaneous Properties. In February 2001, Kaiser completed
--------------------------------
its sale of its Silver Lake Mine property, several other mining claims and
properties and a 190 acre parcel near Afton Canyon, California. The gross sales
price was $2 million with $700,000 to be received as a down payment and the
balance is to be represented by buyer's secured promissory note. The note is
payable over five years and accrues interest at the rate of 8% per annum.
48
Corporate Overhead. As the Kaiser divests its remaining assets, Kaiser
------------------
intends to further reduce its corporate staffing and overhead to reflect the
reduced requirements of its remaining operations and projects.
Capital Resources. After taking into account the cash distribution in
-----------------
connection with the Conversion Proposal, Kaiser expects that its current cash
balances and short-term investments together with cash provided from operating
activities and reserves set aside from Kaiser's sale of its investment in
Fontana Union will be sufficient to satisfy Kaiser's operating cash
requirements.
Improved Cash Flow from Use of Net Operating Loss Tax Carryforwards.
-------------------------------------------------------------------
Due to Kaiser's status as successor to Kaiser Steel for tax purposes and its use
of Kaiser Steel-related NOLs, income taxes actually paid by Kaiser are
substantially less than the income tax provision reported in its financial
statements. The tax benefit associated with the utilization of NOLs, if any, has
historically been reflected as an increase to stockholders' equity rather than
as an increase to net income. Kaiser 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 as of December 31, 2000 are estimated to be
approximately $43 million for federal purposes and $1 million for state
purposes. These federal NOLs expire in varying amounts over a period from year
2006 to 2013. In addition, if the sale of the landfill project to the District
closes in 2001, Kaiser expects that sale to generate a taxable loss in the range
of $15-$20 million. This loss could be used to offset the gain recognized from
Kaiser's sale of its Fontana Union stock and would reduce Kaiser's 2001 income
taxes by approximately $4.5-$6.0 million. If the Conversion Proposal is approved
and the merger is consummated during 2001, Kaiser expects to generate a tax loss
estimated at $42-$47 million for 2001. This loss would be used to offset the
gain Kaiser Inc. recognized in 2001 from the sale of the Fontana Union stock and
would reduce the income taxes paid by Kaiser Inc. in 2001 by approximately
$10.5-$12.0 million.
Cash Maximization Strategy
Kaiser has been developing the assets it received out of the Kaiser
Steel bankruptcy and then selling them at such time as Kaiser believes that it
can optimize stockholder value for a particular project or asset. During 2000,
Kaiser: (i) sold the balance of all of Kaiser's real estate at the former Kaiser
Steel Corporation mill site near Fontana, California, except for an approximate
five acre parcel; (ii) entered into an agreement to sell the landfill project to
the District, with Kaiser and the District working toward a closing on such
transaction; (iii) entered into an agreement for Kaiser's interest in Fontana
Union to Cucamonga which transaction was completed in March 2001; and (iv) paid
a $2.00 cash distribution to its stockholders.
In continuing this strategy, our current plans include seeking to
. Complete the sale of the landfill project at the Eagle Mountain Site
and to resolve the related outstanding federal land exchange
litigation. Even if the sale is completed in 2001, we do not expect to
receive any cash from the sale until the related litigation matters are
resolved favorably, which may take an additional three to four years.
. Reduce the risk to Kaiser from outstanding environmental and other
similar types of liabilities;
. Continue to hold our 50% interest in West Valley MRF, which pays cash
distributions to Kaiser, until an acceptable sale price can be
obtained;
. Sell miscellaneous assets such as surplus property and mineral
interests in Southern California; and
. Further reduce general and administrative expenses.
Kaiser's success in realizing these goals will determine the ultimate
value of the Class A Units. As members of Kaiser LLC, Kaiser's stockholders
would receive their proportionate share of any future cash distributions
resulting from the successful sales of Kaiser's remaining assets. The amount and
timing of any future cash distributions by Kaiser LLC will depend on many
factors, including (among others) the sale of the Eagle Mountain landfill
project, the ability of Kaiser to operate and ultimately to sell
49
its 50% interest in the West Valley MRF and the impact of Kaiser's other assets,
liabilities, and operating expenses. Although MRC has entered into a contract to
sell the Eagle Mountain landfill, this sale is subject to very significant
conditions; even if these conditions are satisfied, no cash would likely be
received by Kaiser for three or four years. In addition, Kaiser has not received
any offer for the West Valley MRF, and any ultimate value is therefore
uncertain. However, if Kaiser can meet its goals with respect to its other
assets and liabilities, and using a net cash contribution of $10 to $15 million
for the West Valley MRF, Kaiser LLC could be able to distribute approximately an
additional $8.00 - $10.00 in cash per Class A Unit over the next three to four
years. This would bring the projected total distributions, including the $2.00
distribution last December and the $10.00 distribution as part of the
conversion, to the equivalent of $20-22 per share.
This estimate is subject to substantial contingencies, which could
significantly raise or lower the actual future distributions. See "Conversion
Proposal--Risk Factors." In evaluating the Conversion Proposal, you should
consider time value of money as well as these risks, including the operational
and market risks for the West Valley MRF and the risk that the sale of the Eagle
Mountain landfill project may not close. In addition, the value of the Class A
Units may be affected by other matters, including (among others) discounts for
restrictions on liquidity and minority interest. Subject to certain limitations
and assumptions, the Class A Units have been preliminarily valued at $1.45 per
share for tax purposes. See "Conversion Proposal--Federal Income Tax
Consequences of the Conversion Proposal."
50
BUSINESS
Background
From 1942 through 1983, Kaiser Steel, an integrated steel manufacturer,
operated a steel mill in Southern California near the junction of the Interstate
10 and Interstate 15 freeways. The property on which the steel mill was located
is known as the Mill Site Property. Kaiser Steel filed for bankruptcy protection
in 1987, and Kaiser is the reorganized successor to certain of its assets. We
are now an asset development company whose principal assets currently include:
. Our interest (through our approximately 80% interest in MRC) in the
Eagle Mountain landfill, which is subject to a sale contract with the
District, but for which we do not expect to receive any net cash for
several years;
. Our 50% ownership interest in the West Valley MRF; and
. Approximately 5,400 acres at the Eagle Mountain Site that are not
included in the pending sale to the District.
We also have substantial cash and equivalents as a result of sales of certain
assets, including our ownership interest in Fontana Union for $87.5 million in
March 2001.
Business Strategy
In September 2000, our Board of Directors approved a strategy to
maximize the cash distributions to stockholders. Under this strategy, we have
been seeking:
. To complete the sale of the landfill project at the Eagle Mountain
Site and to resolve favorably the related outstanding federal land
exchange litigation. This sale is subject to the satisfaction of
numerous conditions. As a result, we cannot be sure that this sale
will close, although the closing is currently scheduled for the
end of third quarter of 2001. If the sale transaction is
completed, we do not expect to receive any substantial cash from
the sale until the related litigation matters are resolved. See
"--Eagle Mountain Landfill Project and Pending Sale ";
. To reduce the risk to Kaiser from outstanding environmental and
other similar types of liabilities;
. To continue to hold our 50% interest in West Valley MRF, which
pays cash distributions to Kaiser, until we believe we can
maximize stockholder value through a sale or other alternative
transaction;
. To sell miscellaneous assets such as surplus property and mineral
interests in Southern California; and
. To further reduce our general and administrative expenses.
Consistent with this strategy, we have recently entered into or
completed the following transactions:
. We sold approximately 588 acres of the Mill Site Property in
August 2000 for $16 million in cash plus the assumption of certain
environmental liabilities. See "--Completed Transactions --Sale of
Mill Site Property."
. MRC entered into an agreement with the District to sell the
landfill project at the Eagle Mountain Site for approximately $41
million. See "--Eagle Mountain Landfill Project and Pending Sale."
. We sold approximately 37 additional acres of the Mill Site
Property in October 2000 for $3.8 million in cash. See
"--Completed Transactions--Sale of Rancho Cucamonga Parcel."
51
. We sold our interest in Fontana Union in March 2001 for
$87.5 million in cash, plus approximately $2.5 million in
additional payments due under the related lease. See "-- Completed
Transactions --Fontana Union Stock Sale."
. We purchased an insurance policy covering substantially all of
Kaiser's remaining environmental and asbestos risks and
anticipated litigation for the next 12 years at an aggregate cost
of approximately $6 million, of which KSC Recovery paid the
remaining $2 million and we paid the balance of approximately $4
million. See "--Insurance Policy. "
Eagle Mountain Landfill Project And Pending Sale
Description of the Eagle Mountain Site
Kaiser's 9,144 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. In 1988, Kaiser leased approximately 4,654 acres of
the idled mine site and the rail line to MRC for development of a rail-haul
solid-waste landfill.
In 1988, in anticipation of Southern California's need for new
environmentally safe landfill capacity, MRC 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 landfill project has received all 20 of the
major permits and approvals required for siting, constructing, and operating the
landfill project. We believe that the Eagle Mountain site has many unique
attributes which make it particularly well-suited for a rail-haul, solid waste
landfill, including, among other attributes, its remote location, arid climate,
available and suitable materials for the proposed liner system and daily cover,
and rail access.
In 2000, Kaiser assigned all of the economic benefits of the lease to
MRC and the right to buy the landfill property for a total of $1.00. The MRC
Lease will terminate upon the sale of the landfill project to the District,
assuming the sale is completed. We presently own approximately 80% of MRC's
Class B Units and 100% of its Class A Units, and control MRC's management. We
initially acquired our interest in MRC in 1995, as a result of the withdrawal of
a subsidiary of Browning Ferris Industries, MRC's previous majority owner, after
an investment by Browning Ferris of approximately $40 million.
Pending Sale of the Landfill Project
In August 2000 MRC entered into an agreement to sell the landfill
project to the District for $41 million. Upon any closing, $39 million of the
total purchase price would be deposited into an escrow account. This money would
be released on the resolution of certain litigation contingencies relating to
the litigation challenging the completed federal land exchange. Interest would
accrue on this portion of the purchase price commencing on May 3, 2001 and would
be paid out to MRC on a quarterly basis beginning with a successful outcome of
the federal litigation at the Federal District Court level, which outcome would
be subject to appeal. The remaining $2 million of the purchase price would also
be placed into an escrow account upon closing and would be released upon the
later of (1) the release of the $39 million as described above or (2) the
permitting approvals of the District's Puente Hills landfill for its remaining
10 years of capacity. Receipt of the purchase price, in whole or in part, if at
all, is expected to be delayed for years pending satisfactory resolution of
these contingencies.
The sale of the landfill project is subject to the results of the
District's due diligence and satisfaction of numerous contingencies. The
contingencies include, but are not limited to, obtaining the transfer of the
landfill project's permits to the District and obtaining all necessary consents
to the transaction. We expect the initial closing to occur by the end of the
third quarter of 2001, assuming that all conditions to closing are met or
waived. Kaiser has agreed to vote its interest in MRC in favor of the sale of
the landfill project to the District on its current terms.
Current Status
52
Approval by Riverside County of the Landfill Project; Development
-----------------------------------------------------------------
Agreement. Between 1992 and 1995, MRC faced legal challenges to its application
---------
and receipt of regulatory permits and consents required to operate the landfill
project. In March, 1995, MRC re-initiated the necessary permitting process by
filing its land use applications with Riverside County and working with the
County and U.S. Bureau of Land Management, referred to as the BLM, in securing
the certification and approval of a new environmental impact report, or an EIR.
After extensive public comment, the new EIR was released to the public in
January, 1997, and received final approval from the Riverside Board of
Supervisors in September 1997.
As a part of the process of considering the landfill project, Kaiser
and MRC negotiated a Development Agreement with Riverside County. The
Development Agreement provides the mechanism by which MRC acquires long-term
vested land use rights for a landfill and generally governs the relationship
among the parties to the Agreement. The Development Agreement also addresses
such items as the duties and indemnification obligations to Riverside County;
the extensive financial assurances to be provided to Riverside County; the
reservation and availability of landfill space for waste generated within
Riverside County; and events of default and remedies, as well as a number of
other items. The initial term of the Development Agreement is fifty years,
although it may be extended to November 30, 2088, under certain conditions. The
Development Agreement allows landfill project to receive up to 20,000 tons per
day, 6 days a week, of non-hazardous municipal solid waste. However, during the
first ten years of operation the landfill owner is limited to 10,000 tons per
day of non-County waste plus the waste generated from within the County. After
ten years, the owner of the landfill may request an increase in its daily
tonnage.
We anticipate that the Development Agreement will be fully executed and
recorded just prior to the closing of the sale of the landfill project to the
District. Riverside County has approved the assumption of the Development
Agreement by the District as part of the sale of the landfill by MRC.
EIR Litigation and Appeal. After the September, 1997 approval of the
-------------------------
new EIR for the landfill project, litigation with respect to MRC's EIR
certification resumed. In February 1998, the San Diego County Superior Court
issued a final ruling with respect to the litigation before it on the EIR
certification. The court found that the EIR certification did not adequately
evaluate the landfill project's impact on the Joshua Tree National Park and the
threatened desert tortoise. MRC, Kaiser, and Riverside County appealed the
Superior Court's decision; opponents did not appeal any matter.
On May 7, 1999, the Court of Appeal announced its decision to
completely reverse the San Diego Superior Court's prior adverse decision. The
Court of Appeal's decision in effect reinstated the EIR certification and
reinstated the previous approval of the landfill project by Riverside County. In
June, 1999, opponents to the landfill project requested that the California
Supreme Court review and overturn the Court of Appeal's decision. In July, 1999,
the California Supreme Court declined to review the Court of Appeal's decision.
Federal Land Exchange and Land Exchange Litigation. In October, 1999,
--------------------------------------------------
Kaiser's wholly owned subsidiary, Kaiser Eagle Mountain, Inc., completed a land
exchange with the Bureau of Land Management, or BLM. The land exchange was a
prerequisite to completion of the permitting of the landfill project. Following
completion of the land exchange, two lawsuits were filed challenging it and
requesting its reversal. The plaintiffs argue that the land exchange should be
reversed because the BLM failed to comply with the National Environmental Policy
Act and the Federal Land Management Policy Act. In November 2000, the Ninth
Circuit Court of Appeals announced a decision that may have a material adverse
impact on Kaiser's federal land exchange litigation and the pending sale to the
District. In Desert Citizens Against Pollution v. Bisson, (Ninth Circuit Court
of Appeals, Case No. 97-55429), the Court of Appeals concluded, among other
things, that the BLM did not properly value the land being acquired by the
competing Mesquite rail-haul landfill project and ordered a reversal of the land
exchange. The court concluded that the appraisal should have considered the
lands being acquired from the BLM as a landfill. The court did not, however,
determine the proper valuation of the exchanged lands. The plaintiffs in
Kaiser's federal land exchange litigation have amended their respective
complaints to include allegations that the appraisal used in Kaiser's land
exchange with the BLM is similarly defective. Although we originally anticipated
that the federal court would hold a trial or rule on summary judgment motions in
May 2001, we now expect that this original schedule will be substantially
delayed in light of the
53
Court of Appeals' ruling in Bisson. Kaiser, MRC and the BLM are evaluating their
options with regard to the appraisal used in Kaiser's completed land exchange.
see "--Legal Proceedings --Eagle Mountain Landfill Project Land Exchange
Litigation."
Ongoing Considerations if the Sale is Not Completed
Successful resolution of the federal land exchange litigation could
take a number of years. If MRC does not complete the sale of the landfill
project to the District, MRC will likely require a substantial further
investment by Kaiser and other investors in MRC. We can make no assurance that
sufficient and suitable financing will be available to MRC in order to allow it
to continue to pursue the landfill project and to resolve the federal
litigation. If MRC continues to pursue development of the landfill, it will face
several financial and operational obstacles, including, among others, those
described under "Conversion Proposal--Risk Factors." Additionally, MRC has the
ability to decide not to pursue the continued development of the landfill
project, which would likely materially hinder the ability of MRC to sell the
landfill project on favorable terms, if at all.
Governmental Regulation/Permitting. In the development and maintenance
----------------------------------
of our assets, we and other entities on which we rely are subject to extensive,
expensive and increasingly stringent regulation by federal, state and local
authorities. Entities operating in this arena must obtain and maintain numerous
local, state and federal governmental permits and consents. Failure to comply
with these regulations could result in the lose of a needed license, permit or
consent or could result in significant monetary fines. Examples of the wide
ranging regulations which apply to the development and maintenance of our assets
include:
. Waste collection - local agencies require licenses to collection
vehicles and monitor truck safety, weight limitations and
collection time and frequency.
. Landfill activities (such as the Eagle Mountain landfill project)
- local and state authorities require permits and consents.
. Waste transfer, interim processing, resource recovery and disposal
- we and the entities on which we rely must comply with zoning and
land use restrictions.
. General - Air, noise and water pollution regulations may also
affect our business from time to time.
Competition. The waste management industry is highly competitive, with
-----------
a few large, integrated waste management firms and a significant number of
smaller, independent operators. The number of competitors has decreased, but
their size has greatly increased as a result of mergers and acquisitions of
waste hauler and management companies. Due to this increasing competition and
industry consolidation, there are fewer independent waste management operating
companies than in the past and, as a result, fewer potential buyers of our
remaining assets. If this reduction of industry operators negatively impacts our
ability to operate or sell our assets on favorable terms, we may be unable to
meet our stated goals and our operating results will likely be materially and
adversely affected. Currently, the Mesquite Regional Landfill is the only other
competing rail-haul project proposed in California. It is owned by Goldfields
Mining Corporation and its subsidiary, Arid Operations, Inc. and is to be
developed in Imperial County. The District has also entered into an agreement to
purchase the Mesquite Regional Landfill at a price and on terms substantially
similar to the sale of the landfill project by MRC to the District.
West Valley Materials Recovery Facility and Transfer Station
Background
West Valley MRF, LLC, was formed in June, 1997 by Kaiser Recycling
Corporation, a wholly-owned subsidiary of Kaiser, and West Valley Recycling &
Transfer, Inc., a wholly owned subsidiary Burrtec Waste Industries, Inc. This
entity was formed to construct and operate the materials recovery facility
referred to as the West Valley MRF. Under the terms of the parties' business
arrangements, Kaiser Recycling and Kaiser remain responsible for any
pre-existing environmental conditions and West Valley MRF is responsible for
environmental issues that may arise related to any future deposit or
54
release of hazardous substances. Kaiser and Burrtec have each given separate
performance guaranty agreements guarantying the prompt performance of their
respective subsidiary's obligations.
As part of our strategy, we intend to evaluate any potential offers to
purchase our interest in the West Valley MRF in light of our primary objective
of optimizing value for our stockholders. The West Valley MRF currently
generates sufficient cash flow to fund its cost of operations and does not
require additional investment by Kaiser to operate. Furthermore, the West Valley
MRF should generate sufficient cash distribution to Kaiser to cover Kaiser LLC's
foreseeable general and administrative costs. The balance of our cash after the
$10 per share distributed in connection with the Conversion Proposal is reserved
for various current and potential liabilities and anticipated cash needs, such
as additional investments in MRC.
Financing
Most of the financing for the West Valley MRF was obtained through the
issuance and sale of California Pollution Control Financing Authority tax exempt
bonds. Approximately $9,500,000 in bonds were issued in June 1997 (Phase 1), and
approximately $8,500,000 in bonds were issued in May 2000 (Phase 2), to finance
the West Valley MRF's construction and development. The interest rate for the
Bonds varies weekly. The rate for 2000 averages less than 4%. Bonds issued for
Phase 1 have a stated maturity date of June 1, 2012, and bonds issued for Phase
2 have a stated maturity date of June 1, 2030, although West Valley MRF is
required, pursuant to an agreement with Union Bank, to annually redeem a portion
of the Bonds on a stated schedule.
The bonds are secured by a pledge and lien on the loan payments made by
West Valley MRF and funds that may be drawn on an irrevocable direct pay letter
of credit issued by Union Bank of California, N.A. The bonds are backed by a
letter of credit issued by Union Bank. Kaiser and Burrtec have each severally
guaranteed fifty percent (50%) of the principal and interest on the bonds to
Union Bank in the event of a default by West Valley MRF. Under the terms of
Kaiser's guarantee for the West Valley MRF bonds, Union Bank's consent will be
required to effect the Conversion Proposal.
West Valley MRF and Union Bank have also executed a Reimbursement
Agreement that, among other things, sets the terms and conditions whereby West
Valley MRF:
. is required to repay Union Bank in the event of a draw under the
letter of credit;
. grants Union Bank certain security interests in the income and
property of West Valley MRF;
. agrees to a schedule for the redemption of the Bonds; and
. agrees to comply with certain financial and other covenants.
Kaiser and Kaiser Recycling have also provided environmental guaranty
agreements to Union Bank. Under these agreements, Kaiser and Kaiser Recycling
are jointly and severally liable for any liability that may be imposed on Union
Bank for pre-existing environmental conditions on the West Valley MRF's property
acquired from Kaiser Recycling that the West Valley MRF fails to timely address.
Competition
Burrtec owns and operates a materials recovery facility in Agua Mansa,
California. This facility is located approximately 15 miles from West Valley and
could compete, in very limited areas, for waste that might otherwise go to West
Valley. To date, the materials recovery facility in Agua Mansa has had little
impact on the West Valley's market for customers. In addition, other entities
have from time to time proposed to develop materials recovery facilities that
would serve the same broad geographic area as that served by West Valley.
However, Kaiser believes that none of them has yet completed the permitting
process.
Tar Pits Parcel
Currently, the only remaining property we own at the Mill Site Property
is an approximately 5 acre parcel known as the Tar Pits Parcel. Under our
agreement with West Valley MRF, we are obligated to
55
contribute the Tar Pits Parcel to West Valley MRF, at its option, upon the
environmental remediation of the property. CCG is obligated to remediate this
parcel's environmental contamination pursuant to the terms of CCG's purchase
agreement for approximately 588 acres of the Mill Site Property from Kaiser in
August 2000.
Eagle Mountain Townsite
Kaiser owns and operates the Eagle Mountain Townsite through a
wholly-owned subsidiary. The Eagle Mountain Townsite covers approximately 1,100
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. As part
of the District's purchase of the landfill project from MRC, the District will
acquire a substantial portion of this infrastructure. Kaiser currently leases a
portion of the Eagle Mountain Townsite to a private company that operates a
minimum security prison for the State of California. The lease for the private
prison currently expires on June 30, 2002.
When the Eagle Mountain iron ore mine was operational, the Eagle
Mountain Townsite provided housing for mine employees and their families.
Asbestos was and is contained in many of the buildings formerly used to house
mine employees and related piping. Other than environmental remediation
associated with this asbestos, Kaiser is not currently aware of any other
environmental remediation required at the Eagle Mountain Townsite that could
require Kaiser to expend substantial funds or that could lead to material
liability.
Other Kaiser Assets
Land adjacent to the Eagle Mountain Site
In and around the Eagle Mountain Townsite area, Kaiser has various
possessory mining claims of approximately 1,472 acres and holds approximately
8,636 acres in fee simple, including, among other smaller properties, the Eagle
Mountain Townsite. Approximately 4,654 acres of this property will be sold to
the District as a part of its purchase of the landfill project.
Kaiser owns six deep water wells, two of which are currently being
used, and two booster pump stations that serve the Eagle Mountain site and the
Eagle Mountain Townsite.
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, a wholly owned subsidiary of
Kaiser, owns 77 improved lots, including, among other lots, one residential
structure and a 240 acre parcel of unimproved land across the highway from the
main entrance to Lake Tamarisk.
Completed Transactions
Sale of Mill Site Property
In August, 2000 Kaiser sold approximately 588 acres at the Mill Site
Property to CCG. The purchase price consisted of (i) $16 million in cash, (ii)
CCG's assumption of all future investigation and remediation of the purchased
property, and (iii) various other environmental obligations and risks relating
to the Mill Site Property in general. CCG also provided environmental insurance
coverage and other financial assurance mechanisms related to the known and
unknown environmental obligations and risks associated with the purchased
property and other assumed environmental obligations.
56
Additionally, the terms of the sale require CCG to indemnify Kaiser for
most losses it may incur in connection with various of its past environmental
indemnification, operations and maintenance obligations with respect to the Mill
Site Property. CCG's indemnification obligations to Kaiser are secured, in part,
by:
. a performance bond for certain services for the remediation of the
Mill Site Property;
. a real estate environmental liability insurance policy with a
policy limit of $50 million;
. a remediation stop loss policy covering $15 million in cost
overruns for known remediation. The cost of this remediation was
estimated to be approximately $15 million; and
. a limited corporate guaranty of CCG's parent company, Catellus
Development Corporation, a New York Stock Exchange company.
However, despite these financial assurance mechanisms, Kaiser may
remain responsible for various past environmental indemnification, operations
and maintenance obligations with respect to the Mill Site Property. To the
extent Kaiser suffers any losses as a result of any indemnification claims, and
CCG fails to perform its obligations, or if Kaiser suffers losses as a result of
litigation beyond what is covered by insurance, Kaiser's business could be
materially and adversely affected. See "Conversion Proposal --Risk Factors."
Fontana Union Stock Sale
Kaiser previously owned 53.71% of the shares of Fontana Union, a mutual
water company which had been a primary local source of water for Kaiser Steel's
steel making operations. In March, 2001, Kaiser sold all of its shares in
Fontana Union to the Cucamonga County Water District and, in connection with the
sale, settled a dispute arising out of Kaiser's prior lease of certain of its
shares in Fontana Union. The purchase price for the shares was $87.5 million in
cash, plus $2.5 million in additional payments due under the lease, which was
terminated.
Sale of Rancho Cucamonga Parcel
In October 2000, Kaiser sold approximately 37 acres of the Mill Site
Property known as the Rancho Cucamonga Parcel to The California Speedway
Corporation. The gross cash sales price was approximately $3.8 million.
Other Sales
Silver Lake Mine, California. Kaiser sold the Silver Lake Mine, an
----------------------------
active iron ore mine, and other mining properties and approximately 190 acres
near Afton, California in February, 2001, for approximately $0.7 million in cash
and a buyer's promissory note for approximately $1.3 million. The note, which is
secured by the mine, carries interest at 8% per annum and is payable over five
years.
Employees
As of June 30, 2001, Kaiser had 13 full-time and 7 part-time employees.
In addition, as of June 30, 2001, MRC, of which Kaiser owns approximately 80%,
had 1 full-time employee and 1 part-time employee.
Principal Executive Office And Office Facilities
Kaiser maintains its principal offices at 3633 East Inland Empire
Boulevard, Suite 850, Ontario, California 91764. Kaiser will be a party to the
lease agreement for approximately 5,500 square feet in Ontario, California,
expiring in August 2002, and an office lease with MRC for an office in Palm
Desert, California, terminable on thirty days' notice.
Legal Proceedings
Kaiser is involved in various claims and legal proceedings in the
normal course of its business. Except for those matters described below, we
believe these matters will not have a material adverse
57
effect on Kaiser's business or financial condition. Significant legal
proceedings, including those which may have a material adverse effect on
Kaiser's business or financial condition, include:
Eagle Mountain Landfill Project Land Exchange Litigation
In October 1999, Kaiser's wholly-owned subsidiary, Kaiser Eagle
Mountain, Inc., completed a land exchange with the BLM. This completed land
exchange has been challenged in two separate federal lawsuits.
In January, 2000, Kaiser was named in a case challenging the land
exchange - National Parks and Conservation Association v. Bureau of Land
Management, et al. (United States District Court for the Central District of
California, Riverside Division, Case No. EDCV-00-0041 VAX (JWJx)). We expect
that both cases will be consolidated into one hearing. The plaintiffs argue that
the land exchange should be reversed because the BLM failed to comply with the
National Environmental Policy Act and the Federal Land Management Policy Act. In
November 2000, the Ninth Circuit Court of Appeals announced a decision that may
have a material adverse impact on Kaiser's federal land exchange litigation and
the pending sale to the District. In Desert Citizens Against Pollution v.
Bisson, (Ninth Circuit Court of Appeals, Case No. 97-55429), the Court of
Appeals concluded, among other things, that the BLM did not properly value the
land being acquired by the competing Mesquite rail-haul landfill project and
ordered a reversal of the land exchange. The court concluded that the appraisal
should have considered the lands being acquired from the BLM as a landfill. The
court did not, however, determine the proper valuation of the exchanged lands.
The plaintiffs in Kaiser's federal land exchange litigation have amended their
respective complaints to include allegations that the appraisal used in Kaiser's
land exchange with the BLM is similarly defective. Although we originally
anticipated that the federal court would hold a trial or rule on summary
judgment motions in May 2001, we now expect that this original schedule will be
substantially delayed in light of the Court of Appeals' ruling in Bisson.
Kaiser, MRC, and the BLM are evaluating their options with regard to the
appraisal used in Kaiser's completed land exchange.
Asbestos Suits
Kaiser, along with KSC Recovery (the Kaiser Steel Corporation
bankruptcy estate), are currently named in approximately fifty (50) active
asbestos lawsuits. Kaiser and KSC Recovery have been previously named in other
asbestos suits but for various reasons those suits are not currently being
pursued. Most of the plaintiffs allege that they were aboard Kaiser ships or
worked in shipyards in the Oakland/San Francisco, California area or Vancouver,
Washington area in the 1940's and that Kaiser and/or KSC Recovery were in some
manner associated with one or more shipyards or has successor liability.
In addition, there are several claims involving other facilities such
as the Mill Site Property. Most of these lawsuits are third party premises
claims claiming injury resulting from exposure to asbestos or asbestos
containing products and involve multiple defendants. Kaiser anticipates that it,
often along with KSC Recovery, will be named as a defendant in additional
asbestos lawsuits. A number of large manufacturers and/or installers of asbestos
and asbestos containing products have filed for bankruptcy over the past couple
of years, increasing the likelihood that additional suits will be filed against
Kaiser. In addition, the trend has been toward increasing trial damages and
settlement demands. Depending upon the nature of the claims and the year of
claimed exposure, Kaiser's percentage of exposure in these cases may range from
0 percent to 100 percent. However, as discussed in the section entitled "New
Insurance Policy" below, these risks are now covered by a newly purchased
insurance policy.
Virtually all of the complaints against Kaiser and Kaiser Recover are
non-specific, but involve allegations relating to pre-bankruptcy activities. To
date, several, but not all, of the plaintiffs have agreed that they will not
pursue Kaiser, but they have been granted the right to pursue Kaiser's insurance
coverage to the extent there is coverage. Kaiser currently believes that it does
have substantial insurance coverage for many of the claims and has tendered
these suits to appropriate insurance carriers. Many, but not all, of the current
asbestos claims are being accepted for defense and indemnity purposes by
insurance carriers, subject to a reservation of rights. However, there currently
is a dispute as to the amount of insurance coverage. Kaiser and KSC Recovery are
engaged in settlement negotiations
58
with insurance carriers with regard to the coverage dispute and Kaiser has
reserved for asbestos claims and related matters as a part of its environmental
reserves.
Kaiser also currently believes that it has various defenses to these
claims, including, among other defenses, the discharge granted to it in
connection with Kaiser Steel's bankruptcy reorganization. However, this is an
evolving area of the law and it is possible that the bankruptcy discharge will
not be recognized in many of the asbestos claims. Because the claims involve
pre-bankruptcy activities, the Kaiser Steel bankruptcy estate, through KSC
Recovery, has been incurring defense and settlement costs, which we expect will
be reimbursed in large part by insurance. If KSC Recovery is unable to fund
these expenses, whether from cash reserves or from insurance proceeds, we may be
obligated to fund these costs, which was part of the motivation for purchasing
the new insurance policy described below. See "--New Insurance Policy."
Bankruptcy Claims
KSC Recovery was formed for the primary purpose of pursuing certain
legal actions on behalf of the former creditors of Kaiser Steel and handling the
remaining administrative duties of the Kaiser Steel 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. Because of the minimum activities of the Kaiser Steel bankruptcy estate
at this time, the Bankruptcy Court terminated its supervision over the estate in
October 1996. However, the bankruptcy estate is reopened from time to time to
address certain litigation matters as they arise.
From time to time, various environmental and similar types of claims,
such as the environmental and asbestos litigation mentioned above that relate to
Kaiser Steel pre-bankruptcy activities, are asserted against KSC Recovery and
Kaiser. Excluding the asbestos claims, there were approximately four
environmental claims made in 2000, all of which were resolved through KSC
Recovery. Settlements ranged from zero to about $150,000 (in settlement of a $1
million late general unsecured creditor claim in the bankruptcy estate). In
connection with the Kaiser Steel plan of reorganization, Kaiser, as the
reorganized successor to Kaiser Steel, was discharged from all liabilities that
may have arisen prior to confirmation of the plan, except as otherwise provided
by the plan and by law. Although Kaiser believes that in general all
pre-petition claims were discharged under the Kaiser Steel bankruptcy plan, if
any of these claims or other similar claims are ultimately determined to survive
the Kaiser Steel bankruptcy, it could have a material adverse effect on Kaiser.
In particular, there is some question as to the validity of the discharge with
regard to particular claims, such as asbestos claims.
New Insurance Policy
Kaiser has purchased an insurance policy that is designed to provide
broad commercial general liability, pollution legal liability, and contractual
indemnity coverage for Kaiser's ongoing and historical operations. The policy
has a twelve (12) year term and limits of $50,000,000 in the aggregate for
defense and indemnity, with no deductible or self-insured retention. The policy
is designed to provide coverage in excess of Kaiser's existing and historic
insurance policies; however, to the extent that these other insurance policies
are not responsive to a loss, the newly-purchased policy will provide first
dollar coverage for a loss resulting from property damage, personal injury,
bodily injury, cleanup costs or violations of environmental laws. The policy
also provides for a broad defense of claims that are brought against Kaiser.
This policy will supplement existing insurance through additional
policy limits and provide coverage for uninsured aspects of Kaiser's current
insurance program, including, among others, uninsured gaps arising from
insurance company insolvencies, deductibles, or self-insured retentions. The
policy is specifically intended to provide additional coverage for Kaiser's
known and/or potential liabilities arising from pollution conditions or
asbestos-related claims. The policy also provides contractual indemnity coverage
for scheduled indemnity obligations of Kaiser arising from, e.g., prior
corporate transactions and real estate sales. The aggregate cost for this policy
was approximately $6 million, of which KSC Recovery paid $2 million and we paid
the balance of approximately $4 million.
59
MANAGEMENT
Executive Officers
Kaiser's current executive officers are:
Name Age Position with Kaiser
---- --- --------------------
Richard E. Stoddard 50 President, Chairman of the Board
and Chief Executive Officer
James F. Verhey 54 Executive Vice President - Finance
and Chief Financial Officer
Terry L. Cook 45 Executive Vice President -
Administration, General Counsel
and Corporate Secretary
Anthony Silva 38 Vice President Resource
Development and Environmental
Services
Paul E. Shampay 39 Vice President - Finance
Richard E. Stoddard's biographical information is set forth above under
"Election of Directors."
James F. Verhey joined Kaiser and was appointed Vice President -
Finance and Chief Financial Officer in August 1993, appointed Senior Vice
President-Finance in January 1996, and appointed Executive Vice President of
Kaiser in January 1998. In addition to his duties with Kaiser, Mr. Verhey was
appointed Vice President of Finance and Chief Financial Officer of Mine
Reclamation Corporation in February 1995. From July 1992 to joining Kaiser, Mr.
Verhey was the Chief Financial Officer of OESI Power Corp., a Portland, Oregon
based geothermal company. From June 1991 to July 1992, Mr. Verhey served as
President of Mithryn Energy, Inc. Mr. Verhey is a certified public accountant
and spent several years with Price Waterhouse in Los Angeles, California. As of
October 1, 1999, Mr. Verhey began working less than full time for Kaiser.
Terry L. Cook joined Kaiser and was appointed General Counsel and
Corporate Secretary in August 1993, became a Senior Vice President in January
1996, and was appointed Executive Vice President - Administration in January
2000. Mr. Cook was appointed General Counsel and Corporation Secretary of Mine
Reclamation Corporation in February 1995. Prior to joining Kaiser, Mr. Cook was
a partner in the Denver office of the national law firm McKenna & Cuneo
specializing in business, corporate, and securities matters. Prior to his
joining McKenna & Cuneo in July 1988, Mr. Cook was an attorney in private
practice as a partner in a Denver, Colorado law firm.
Anthony Silva was appointed Vice President Resource Development and
Environmental Services in January 1998. Prior to this position, from December
1993 to October 1996, Mr. Silva was Vice President and Managing Principal with
the Park Corporation, an environmental consulting and water resources firm
providing technical expertise and long-term strategic environmental planning to
industrial and oil and gas companies. Prior to 1993, he was also the National
Oil & Gas Exploration & Production Business Development Director for Delta
Environmental Consultants and the Exploration & Production Manager for an
independent oil and gas company. Mr. Silva serves on the Board of Directors for
the non-profit Environmental Professionals Organization, or EPO. Mr. Silva
recently served as a chairperson of the California Department of Toxic
Substances Control's Site Mitigation Update Advisory Group (Remedy
Selection/Standards Planning Subgroup), which was updating and improving the
California Health and Safety Code.
Paul E. Shampay was appointed Vice President, Finance in January 2000.
Mr. Shampay joined Kaiser in 1995, as Corporate Controller. Prior to joining
Kaiser, Mr. Shampay spent 11 years in various senior financial positions at
Rancon Financial Corporation, a syndicator of SEC registered limited
partnerships and regional commercial and residential real estate developer. Mr.
Shampay is a certified public accountant, certified management accountant, and
is certified in financial management.
60
Board Matters
Board and Committee Meetings
Kaiser's Board has an Audit Committee, a Human Relations Committee, and
a Finance Committee. Ad hoc committees are established from time-to-time by
Kaiser's Board. The Chief Executive Officer serves as an ex-officio member of
all committees.
The Audit Committee, currently composed of Messrs. Packard (Chairman),
MacDonald, and Bitonti, generally reviews the activities of Kaiser's independent
accountants and the results of the examination made by these professionals in
connection with Kaiser's financial statements and a review of internal
accounting controls. The Audit Committee held one meeting in 2000. A copy of the
Audit Committee Charter is attached as Annex D to this Proxy
Statement/Prospectus. In addition, our Board of Directors has determined that
all of the members of the Audit Committee are "independent," as defined by the
rules of the Nasdaq Stock Market.
The Human Relations Committee, which currently is composed of Messrs.
Cole (Chairman), Bitonti, Fawcett, and Packard, has general responsibility for
all employee compensation and benefit matters, including, among things,
recommendations to the full Board on compensation arrangements of officers and
directors, benefit plans, stock options and other stock related grants. The
Human Relations Committee held three meetings in 2000.
The Finance Committee, which is currently composed of Messrs. Wallach
(Chairman), Cole and MacDonald, has general responsibility for Kaiser's annual
operating budget and capital plan, changes in Kaiser's capital structure, and
Kaiser's credit facilities such as lines of credit, loans, and other forms of
indebtedness. The Finance Committee held four meetings in 2000.
Our Board of Directors does not have a standing committee to nominate
candidates to the Board. For purposes of establishing a slate of nominees for
the Annual Meeting, our Board of Directors established an ad hoc nominating
committee composed of Messrs. Cole (Chairman), MacDonald and Wallach. The ad hoc
nominating committee met once in 2000 in preparation for our 2000 annual
meeting.
Our Board of Directors held eleven meetings in 2000. All directors of
Kaiser attended at least 75% of the meetings of the Board and 75% of the
meetings of the committees on which they served during 2000.
Audit Committee Report
The Audit Committee reviews Kaiser's financial reporting
process on behalf of the Board of Directors. The Committee meets with
the independent auditors, with and without management present, to
discuss the results of their examinations, the evaluations of Kaiser's
internal controls, and the overall quality of Kaiser's financial
reporting. Management has the primary responsibility for the financial
statements and the reporting process, including the system of internal
controls. During the year ending December 31, 2000, the Audit Committee
consisted of Messrs. Packard (Chairman), MacDonald and Bitonti.
In this context, the Committee has met and held discussions
with management and the independent auditors. Management represented to
the Committee that Kaiser's financial statements were prepared in
accordance with generally accepted accounting principles, and the
Committee has reviewed and discussed the financial statements with
management and the independent auditors. The Committee discussed with
the independent auditors matters required to be discussed under
Statement on Auditing Standards No. 61 (Communication With Audit
Committees).
In addition, the Committee has discussed with the independent
auditors the auditors' independence from Kaiser and its management,
including the matters in the written disclosures
61
required by the Independence Standards Board Standard No. 1
(Independence Discussions With Audit Committees). The Committee
discussed with Kaiser's independent auditors the overall scope and
plans for their audit. The Committee reviewed the audit fees for the
annual audit and the fees charged for services rendered to Kaiser by
Ernst & Young LLP not included in the audit.
In reliance on the reviews and discussions to which reference
is made above, the Committee recommended to the Board of Directors, and
the Board of Directors has approved, that the audited financial
statements be included in Kaiser's Annual Report on Form 10-K for the
year ended December 31, 2000, for filing with the SEC. The Committee
and the Board of Directors also have selected Kaiser's independent
auditors.
February 1, 2001 AUDIT COMMITTEE
Mr. Charles E. Packard (Chairman)
Mr. Reynold C. MacDonald
Mr. Ronald E. Bitonti
Independent Auditors
Audit Fees. The aggregate fees billed through March 15, 2001 for
professional services rendered for the audit of Kaiser's annual financial
statements for the fiscal year ended December 31, 2000, and for the reviews of
the financial statements included in Kaiser's Quarterly Reports on Form 10-Q for
that fiscal year, were approximately $120,000 all of which was attributable to
Ernst & Young LLP.
All Other Fees. The aggregate fees billed through December 31, 2000 by
Ernst & Young LLP for services rendered to Kaiser, other than the services
described above under "Audit Fees" for the fiscal year ended December 31, 2000,
were approximately $383,000. These fees relate to tax and other activities in
support of Kaiser and include fees for audit related services of approximately
$21,000.
Attendance of Annual Meeting. A representative of Ernst & Young LLP is
expected to attend the annual meeting, will be afforded an opportunity to make a
statement if he or she desires to do so, and will be available to respond to
appropriate questions by stockholders.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Act of 1934, as amended, requires
Kaiser's directors and executive officers, and persons who own more than 10% of
the Common Stock, to file with the SEC initial reports of ownership and reports
of changes in ownership of Kaiser.
To Kaiser's knowledge, based solely on a review of copies of reports
provided by such individuals to Kaiser and written representations of certain
individuals that no other reports were required, during the fiscal year ended
December 31, 2000, all Section 16(a) filing requirements applicable to its
directors, officers, and greater than 10% beneficial owners were complied with
except as follows: (i) an amendment to Form 4 Report was filed to James F.
Verhey's Form 4 Report dated April 7, 2000, to reflect the sale of 2,000 shares
not reflected in his original Form 4 filing; and (ii) an amendment to Form 4
Report was filed to Todd Cole's Form 4 Report dated June 3, 2000, to reflect the
exercise of options for 1,688 shares in May 2000 that were not reflected in his
original Form 4 filing.
Director Compensation
Kaiser establishes director compensation ___ periodically by resolution
of its Board of Directors. Directors who are also employees of Kaiser receive no
fees for serving as directors. Effective at the Board's May 10, 2000 meeting,
our Board of Directors adopted a new compensation program for Board members that
was developed with assistance of a third party consultant. Currently, all
non-employee directors receive a fee of $1,000 (previously $750) for each board
or committee meeting attended in person and a $750 fee for telephonic meetings.
A $15,000 (previously $10,000) per year retainer is also paid to each
non-employee director. A non-employee director serving as a committee chairman
receives an additional $2,000 per year retainer (previously $1,000) plus a fee
of $1,000 per committee meeting. Attendance fees and chairman fees are also paid
for all temporary committees.
62
In addition, our Board of Directors has approved a stock incentive
compensation program for non-management members of the Board. The Board Stock
Plan is for no more than a total of 25,000 shares of Kaiser's Common Stock, with
no one member of the Board entitled to be issued more than 7,500 shares.
Pursuant to the Board Stock Plan, non-management members of the Board
were each issued 1,500 shares of restricted Common Stock, subject to vesting,
which vesting may be subject to acceleration. Out of the original 1,500 shares
granted to each non-management member of the Board, 750 shares vest on May 10,
2001, and 750 shares vest on May 10, 2002. Vesting may be accelerated under
certain circumstances. In addition, Kaiser may grant an additional 750 shares of
restricted Common Stock or Class A Units annually to each non-employee member of
the Board.
Prior to the adoption of the Board Stock Plan, under the terms of the
Kaiser Ventures Inc. 1995 Stock Plan, as amended, ("1995 Plan"), each
non-employee director received a grant of non-qualified stock options for 1,500
shares upon initially becoming a member of the Board. In addition, each
non-employee director was granted stock options for 750 shares at fair market
value as of each annual stockholders' meeting. The last grant of stock options
to non-management members of the Board was in June 1998, at an exercise price of
$11.80 per share.
All outstanding and unexercised options granted under the Board Stock
Plan (vested or unvested) will be exchanged in the merger on terms identical to
the terms of exchange for all other outstanding options. See "The Conversion
Proposal--Treatment of Options and Warrants."
Executive Compensation
Total Cumulative Five-Year Return On Common Stock Compared To Peer Group And To
Broad Market Index
The following graph and table compare the cumulative total return on
the Common Stock with the cumulative total return (including 100% reinvestment
of dividends, if any) for: (i) Kaiser, (ii) a peer group, and (iii) the Nasdaq
Market Index (U.S.). The chart covers the period from December 31, 1995 through
December 31, 2000.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
KAISER VENTURES INC.
[Enlarge/Download Table]
CRSP Total Returns Index for: 12/1995 12/1996 12/1997 12/1998 12/1999 12/2000
---------------------------- ------- ------- ------- ------- ------- -------
KAISER VENTURES, INC. 100.0 69.2 92.3 65.9 123.0 90.7
Nasdaq Stock Market (US Companies 100.0 123.0 150.7 212.5 394.8 237.4
Self-Determined Peer Group 100.0 106.7 112.9 117.7 118.6 25.4
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indices are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the .scal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/29/1995.
63
Prepared by CRSP (www.crsp.uchicago.edu), Center for Research in Security
Prices, Graduate School of Business, The University of Chicago. Used with
permission. All rights reserved.
COMPARISON OF CUMULATIVE TOTAL RETURNS
SINCE INCEPTION OF TRADING
AMONG KAISER VENTURES INC., NASDAQ STOCK MARKET
(U.S. COMPANIES) AND PEER GROUP
[Enlarge/Download Table]
CRSP Total Returns Index for: 10/1990 12/1992 12/1994 12/1996 12/1998 12/2000
---------------------------- ------- ------- ------- ------- ------- -------
KAISER VENTURES, INC. 100.0 400.0 178.6 257.1 244.6 336.8
Nasdaq Stock Market (US Companies 100.0 216.6 243.2 422.7 730.0 815.8
Self-Determined Peer Group 100.0 113.3 82.3 100.1 110.4 23.8
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indices are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the .scal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.0 on 10/16/1990. Prepared by
CRSP (www.crsp.uchicago.edu), Center for Research in Security Prices, Graduate
School of Business, The University of Chicago. Used with permission. All rights
reserved.
64
Summary Compensation Table
The following table sets for the annual and long-term compensation for
Kaiser's executive officers in the fiscal years of 1998, 1999 and 2000. After
the conversion, Kaiser expects to continue to compensate its executive officers
at a level and in a manner consistent with past practices. See "--Employment
contracts and Termination of Employment and Change-in-Control Arrangements."
[Enlarge/Download Table]
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------------------ ----------------------- ----------- -------------
Other
Annual Restricted Securities All Other
Name and Compen- Stock Underlying TIP Compen-
Principal Position Year Salary Bonus/(1)/ sation/(2)/ Awards Options Payouts/(3)/ sation/(4)/
------------------ ---- ------ ---------- ------------ ------ ------- ------------ -------------
Richard E. Stoddard 2000 $ 348,446 $ 315,000 $0 $0 $ 0 $ 21,569 $ 72,050
Chairman of the Board, 1999 $ 312,694 $ 312,694 $0 $0 0 $ 0 $ 38,657
President and CEO 1998 $ 302,120 $ 45,318 $0 $0 0 $ 0 $ 49,314
James F. Verhey 2000 $ 105,000 $ 68,250 $0 $0 $ 0 $ 8,628 $ 29,008
Exec. Vice President - 1999 $ 177,620 $ 177,620 $0 $0 0 $ 0 $ 21,058
Finance & CFO 1998 $ 193,592 $ 29,250 $0 $0 0 $ 0 $ 29,664
Lee R. Redmond, III(5) 2000 $ 85,078 $0 $0 $0 $ 0 $ 0 $289,682(6)
(Former) Sr. Vice 1999 $ 173,099 $ 86,550 $0 $0 0 $ 0 $ 19,975
President -
Real Estate 1998 $ 167,245 $ 16,725 $0 $0 0 $ 0 $ 26,765
Terry L. Cook 2000 $ 194,087 $ 173,250 $0 $0 $ 0 $ 12,941 $ 39,558
Executive Vice President, 1999 $ 173,099 $ 173,099 $0 $0 0 $ 0 $ 20,895
General Counsel and 1998 $ 167,245 $ 25,087 $0 $0 0 $ 0 $ 26,765
Secretary
Anthony Silva(7) 2000 $ 117,669 $ 64,809 $0 $0 $ 0 $ 6,471 $ 19,540
Vice President Resource 1999 $ 113,850 $ 74,003 $0 $0 25,000 $ 0 $ 12,831
Development & Envir. Svcs. 1998 $ 110,000 $ 22,000 $0 $0 25,000 $ 0 $ 11,470
Paul E. Shampay(8) 2000 $ 91,221 $ 45,500 $0 $0 $ 0 $ 4,131 $ 9,997
Vice President - Finance
(1) Bonuses are paid in January for the preceding calendar year.
(2) Does not include the dollar value of perquisites and other personal
benefits. The aggregate amount of perquisites and other personal benefits
received by each executive officer did not exceed the lesser of $50,000 or
10% of the total annual salary and bonus reported for such executive
officer.
(3) In September 2000, Kaiser adopted a long term transaction incentive plan
which is discussed in more detail under "--Incentive Compensation Plans."
(4) Officers of Kaiser are eligible to participate in Kaiser's 401(k) Savings
Plan, Money Purchase Plan and Supplemental Executive Retirement Plan
(collectively "Plans"). During 2000, Kaiser made contributions of $72,050
to the Plans for the account of Mr. Stoddard, $29,008 for the account of
Mr. Verhey, $39,558 for the account of Mr. Cook, $11,695 for the account of
Mr. Redmond, $19,540 for the account of Mr. Silva and $9,997 for the
account of Mr. Shampay. During 1999, Kaiser made contributions of $38,657
to the plans for the account of Mr. Stoddard, $21,058 for the account of
Mr. Verhey, $20,895 for the account of Mr. Cook, $19,975 for the account of
Mr. Redmond, and $12,831 for the account of Mr. Silva. During 1998, Kaiser
made contributions of $49,314 to the Plans for the account of Mr. Stoddard,
$29,664 for the account of Mr. Verhey, $26,765 for the account of Messrs.
Cook and Redmond, and $11,470 for the account of Mr. Silva.
(5) In August 2000, subsequent to the sale of the bulk of Kaiser's remaining
Mill Site Property, Mr. Redmond's employment with Kaiser was terminated.
(6) Includes severance of $277,987 paid to Mr. Redmond in 2000.
(7) Mr. Silva became an executive officer of Kaiser in January 1998.
(8) Mr. Shampay became an executive officer of Kaiser in January 2000.
65
Options
Kaiser made option grants to the Named Executive Officers in 2000,
subject to stockholder approval of the 2000 Stock Plan. The 2000 Stock Plan
failed to receive the requisite stockholder vote and thus, the conditional stock
options granted to the Named Executive Officers in 2000 were terminated.
The following table summarizes (1) options exercised during the fiscal
year ended December 31, 2000, by the executive officers named in the Summary
Compensation Table, (2) the value of their unexercised options (all of which
were and are exercisable) as of December 31, 2000, (3) the value of their
unexercised options, on a pro forma basis, as if the merger was consummated on
December 31, 2000, and (4) the merger consideration received in exchange for
unexercised in-the-money options, on a pro forma basis, as if the merger was
consummated on December 31, 2000:
[Enlarge/Download Table]
Pro Forma
Merger
Consideration
Pro Forma Received Upon
Value Of Number Of Conversion Of
Shares Number Of Unexercised Unexercised In-the-money
Acquired Unexercised In-The-money Out-Of-The- Options
On Value Options At Opt
NAme Exercise/(1)/ Realized 12/31/00 12/31/00/(2)/ 12/31/00/(3)/ CASH/UNITS/(4)/
==== -------------- -------- ----------- -------------- -------------- -------------------
Richard E. 209,500 $1,096,000 86,100 $ 1,000 62,350 $ 0/23,750
Stoddard
James F. Verhey 93,800 $ 328,000 70,000 $ 1,000 45,000 $ 0/25,000
Lee R. Redmond/(5)/ 126,000 $ 241,000 0 $ 0 0 $ 0/0
Terry L. Cook 75,000 $ 304,000 95,000 $ 39,000 45,000 $ 37,500/50,000
Anthony Silva 25,000 $ 104,000 37,000 $ 79,000 0 $ 78,100/37,000
Paul E. Shampay 0 $ 0 22,500 $ 53,000 0 $ 52,100/22,500
(1) In 2000, each officer surrendered shares for the payment of the
applicable stock option exercise price and related tax withholding
obligations. Thus, on a net basis the actual number of shares issued
to an officer was substantially less than the number reflected in
this column.
(2) Stock price as of December 31, 2000 was $10.03 per share (average of
bid and ask prices).
(3) Reflects the number of options to purchase Class A Units issued to
each officer in exchange for his options to purchase Common Stock
having an exercise price greater than $10 on a pro forma basis as if
the Conversion Proposal was consummated on December 31, 2000, . Each
new option to purchase Class A Units would have a strike price equal
to the difference between the strike price of the option to purchase
Common Stock and $10.
(4) Reflects the cash distributed and the Class A Units issued to each
officer in exchange for such officer's options to purchase Common
Stock having an exercise price equal to or less than $10 on a pro
forma basis as if the Conversion Proposal was effected on December
31, 2000, without taking into account any tax withholdings. In the
Conversion Proposal, each "in-the-money option" would be exchanged
for cash equal to the amount by which $10 exceeds the strike price of
the option and a Class A Unit.
(5) Mr. Redmond was separated from his employment with Kaiser in August
2000.
Incentive Compensation Plans
In September, 2000, Kaiser's Board approved a long-term transaction
incentive plan, referred to as the TIP, for executive officers of Kaiser to
provide an incentive to maximize proceeds from asset sales and stockholder
values. After the conversion, Kaiser expects to maintain the TIP without change
as an incentive to its executive officers. The TIP is a cash bonus pool whose
value generally depends upon the amount of cash ultimately available for
distribution to stockholders based on the price (net of expenses and taxes)
achieved in selling major assets of Kaiser and its operating expenses. The total
incentive pool will be equal to 5% of the cash or other amount received in
excess of approximately $92.3 million, or the threshold, which will be increased
to 10% of any amounts in excess of approximately $114.4 million, or
__________________
66
the target. Reaching the target would result in a TIP bonus pool of
approximately 1% of the realized values.
Based on predetermined individual thresholds and targets, Kaiser has
and will make interim payments of fifty percent of the incentive earned from the
sale of various assets or groups of assets and the interim payments will be paid
as each such asset is monetized. The final payment (after deducting all interim
payments) will be made upon the completion of the sale of Kaiser's principal
assets, or placement of assets into a liquidating trust or other similar
structure or arrangement. Any payment under the TIP is divided among the
participating executives based on individual participation percentages and the
executive's length of service after the adoption of the TIP Program. An
executive who voluntarily resigns will not receive any portion of the TIP
Program after his or her departure, and his or her percentage of the pool will
be divided among the other participating executives.
The amount payable under the TIP cannot be determined until the general
obligations and liabilities of Kaiser are satisfied or an adequate provision is
made therefor. The amount of actual interim TIP payments cannot be accurately
determined until the sales price (less related expenses and taxes) of any
particular asset or group of assets is determined.
The following table sets forth the total amount that would be earned by
various officers, including interim payments made (as of June 30, 2001) assuming
that (i) each officer remains with Kaiser throughout the period of the TIP; and
(ii) the cash available for distribution to the stockholders at then termination
of the TIP is equal to the target:
[Enlarge/Download Table]
Estimated Aggregate Payouts
Under Non-Stock Price-Based Plans
-------------------------------------------
Percentage Period Interim Payments Threshold Target Maximum
Interest in Until (as of June 30, ($) ($) ($)
Name Pool Payout 2001)
--------------------------------------------------------------------------------------------------------------------
Richard E. Stoddard 40%/(1)/ 2003/(2)/ 386,648/(3)/ 0/(4)/ $442,000 N/A/(5)/
James F. Verhey 16%/(1)/ 2003/(2)/ 154,660/(3)/ 0/(4)/ $176,800 N/A/(5)/
Terry L. Cook 24%/(1)/ 2003/(2)/ 231,989/(3)/ 0/(4)/ $265,200 N/A/(5)/
Anthony Silva 12%/(1)/ 2003/(2)/ 116,265/(3)/ 0/(4)/ $132,600 N/A/(5)/
Paul E. Shampay 8%/(1)/ 2003/(2)/ 77,330/(3)/ 0/(4)/ $ 88,400 N/A/(5)/
=============
100%
(1) The actual participation percentage of each executive in the TIP will be
adjusted up or down according to the number of months the executive is
employed or under contract with Kaiser during the term of the TIP.
Adjustment of the individual percentages will not change the size of the
total incentive pool.
(2) The right to earn the final payment under the TIP expires on the earliest
of: (i) the date of the sale of the last major asset; (ii) the placement of
assets in a liquidation trust or other similar arrangement; or (iii)
December 31, 2003. The right to earn interim payments under the TIP
primarily depends upon the sale of an asset or group of assets in an amount
that exceeds the threshold levels established for such item.
(3) Interim payments arising from sale of the balance of the Mill Site Property
and from the sale of Kaiser's Fontana Union stock to Cucamonga.
(4) If the amount realized is less than or equal to the applicable threshold for
each asset or the overall Company, no payment is due. The payment would
equal 5% of any amount over the applicable threshold until the applicable
target is reached.
(5) There is no maximum payable under the TIP program. The pool earned as a
result of achieving the applicable target would be increased by 10% of the
amount realized in excess of the applicable target.
Employment Contracts and Termination of Employment And Change-In-Control
Arrangements
As discussed below, Kaiser entered into employment agreements with its
executive officers to insure the availability of their services during the
critical period of asset sales and in connection with Kaiser's evaluation of
various alternatives and the implementation of any alternative Kaiser determines
to pursue. After the conversion, Kaiser will continue to be obligated to each
individual listed below and expects to maintain the current levels of
compensation and option grants and to continue the obligation to pay severance
and benefits as set forth in the various employment agreements of Kaiser's
executive officers.
Mr. Stoddard is employed pursuant to a seconded amended and restated
employment agreement dated as of September 19, 2000, which was subsequently
amended as of April 14, 2001. Mr. Stoddard has agreed to accept up to $40,000 of
his annual base salary in restricted Common Stock vesting over
67
the period of time established by the Board of Directors. Subject to the payment
of severance compensation, the agreement provides that Mr. Stoddard's employment
may be terminated at any time. In accordance with his past employment
agreements, and based upon the attainment of certain criteria as established by
the Board's Human Relations Committee, under his current employment agreement,
Mr. Stoddard may be awarded annual bonuses based upon his then-existing salary.
His base salary and bonuses may be a combination of cash and restricted stock
shares. In addition, under Mr. Stoddard's employment agreement, he is to be paid
a retention bonus in June 2003, equal to approximately 159% of the greater of
his annual base salary in June 2003, or his base annual salary in effect as of
September 19, 2000.
Messrs. Cook, Silva and Shampay also each entered into an amended and
restated employment agreement with Kaiser effective September 19, 2000, which
was subsequently amended as of April 14, 2001. Subject to the payment of
severance compensation, Kaiser may terminate any executive officer at anytime.
The Board has formally terminated Kaiser's historical annual bonus program,
although it reserves the right to grant bonuses in its sole discretion. Like Mr.
Stoddard, Mr. Cook is entitled to be paid a retention bonus in June 2003, and
Mr. Verhey is entitled to be paid a retention bonus in January 2002. Mr. Cook's
retention bonus is equal to approximately 76% of the greater of his annual base
salary in June 2003, or his annual base salary in effect as of September 19,
2000.
Mr. Verhey entered into an amended and restated employment agreement
with Kaiser effective September 19, 2000, which was subsequently amended as of
April 14, 2001. Among other things, the amendment provides for a reduced time
commitment to Kaiser if the Conversion Proposal is approved to approximately six
(6) days a month. The Board reserves the right to grant Mr. Verhey bonuses in
its sole discretion. Additionally, Mr. Verhey is entitled to be paid a
transition payment at the earlier of January 2, 2002 or upon his voluntary
termination, if such termination occurs after the approval of the Conversion
Proposal, in an amount equal to $155,000. If Mr. Verhey voluntarily terminates
his employment after the approval of the Conversion Proposal by the
stockholders, if it is approved, then Mr. Verhey will be entitled to continue to
receive employee benefits at levels and amounts consistent with the benefits
offered at the time of his termination for six months after the effective date
of his termination. Both Mr. Verhey and Kaiser are required to give the other
party 90 days' advance notice of any employment termination.
The September 19, 2000, amended and restated employment agreement of
each executive officer eliminated any "change or control" provisions contained
in the previous employment agreements. The current employment agreements of the
executive officers provide that upon an officer's termination of employment by
Kaiser for any reason other than for cause, including, among other reasons,
constructive termination, Kaiser is to pay such officer severance. Except as
noted below, an executive officer's severance is an amount equal to six months
then-current base salary, a pro rata portion of his bonus for the current year,
if any, plus one half of the individual's average annual bonus determined by the
average percentage of base salary of the bonus over the previous five years
prior to and including 2000 (or such lesser period for which the executive
participates in the annual bonus program) plus the acceleration of the payment
of any retention bonus not already paid to the officer. Severance is payable in
one lump sum or, at the executive's option, over such period as he or she may
determine. In addition, Kaiser will continue to pay his or her benefits for one
year. Should an executive officer voluntarily terminate his employment, Kaiser
will not be obligated to pay him or her any additional compensation, other than
the compensation due and owing up to the date of termination. The Chief
Executive Officer is entitled to one year of base-salary and bonus as part of
his severance compensation plus the acceleration of the payment of his retention
bonus, if not already paid at the time of termination. Neither Mr. Silva's nor
Mr. Shampay's employment agreement provides for a retention bonus, thus, they
each receive as severance one-year's then current base salary, a pro rata
portion of current bonus, if any, and one-year's average bonus that is
determined as described above. In addition, for purpose of severance pay, Mr.
Verhey's annual base salary is deemed not to be less than his base salary as of
September 30, 1999.
In 2000, Kaiser adopted a long term transaction incentive plan that
provides bonuses to Kaiser's executive officer if certain goals are achieved.
This bonus program is more particularly described above under "--Incentive
Compensation Plans."
As of January 6, 2000, Mr. Redmond entered into a Transition Employment
Agreement with Kaiser, which reflects a reduced time commitment to Kaiser and
his eventual separation from Kaiser. Accordingly, Mr. Redmond's salary was
reduced to $86,550 as of January 15, 2000, and his salary was
68
further reduced commensurate with his time commitment to Kaiser in connection
with his anticipated separation from Kaiser in August, 2000. As a result of the
real estate sale to CCG, Mr. Redmond was separated from Kaiser in August, 2000.
In connection with his separation from employment, Mr. Redmond received total
severance of $277,987 plus a continuation of his benefits for one year.
Set forth below is the annual base salary of Kaiser's Chief Executive
Officer and each of its other four most highly compensated executive officers as
of June 1, 2001:
NAME ANNUAL BASE SALARY
---- ------------------
Richard E. Stoddard $ 363,250
Terry L. Cook $ 201,828
Anthony Silva $ 121,958
James F. Verhey $ 123,000
Paul E. Shampay $ 94,185
Compensation Committee Interlocks and Insider Participation
During the year ending December 31, 2000, the Human Relations Committee
consisted of Messrs. Cole (Chairman), Bitonti, Fawcett and Packard. Mr. Fawcett
was President and Chief Operating Officer of Kaiser from January 1996, until his
retirement from full time duties on January 15, 1998. During 2000, Mr. Fawcett
received $60,000 as a base salary and a $30,000 bonus for his work on special
projects on behalf of Kaiser and for his work in connection with the Eagle
Mountain landfill project.
Human Relations Committee Report On Executive Compensation
Compensation Philosophy
-----------------------
The Human Relations Committee of the Board, referred to as the HR
Committee, is responsible for reviewing Kaiser's compensation policies and
programs and in evaluating and making recommendations to the Board regarding the
compensation of executive officers. It continues to be the goal of the HR
Committee to establish compensation packages for Kaiser's executive officers
that will enable Kaiser to attract and retain highly competent, highly motivated
individuals to serve as Kaiser's executive officers. It is also the goal of the
HR Committee to design these compensation packages so as to further the overall
corporate goal of providing substantial returns to stockholders. Accordingly,
Kaiser's compensation program is primarily designed to link most of an
executive's total compensation to the performance of Kaiser. It is recognized
that Kaiser, for its size, is unique in the types of projects it has and the
types of expertise necessary to develop and optimize the value of such assets.
Accordingly, Kaiser's success and the ability to realize optimum values for
stockholders from its assets and projects depend, to a significant extent, on
the performance and retention of its executive officers.
In keeping with these two broad goals, the HR Committee historically
structured compensation packages for all executive officers, including the Chief
Executive Officer, with three components:
. Base Salary. Base salary is primarily cash compensation in amounts
competitive with related compensation levels in similar companies.
This element provides a stable base for the other two compensation
components, both of which are designed to reward performance and
create longer-term incentives which are tied more closely to the
creation of stockholder value.
. Annual Bonus. Early in each year, the Board usually establishes a
list of identified corporate objectives for the year. In addition,
personal objectives are established for each executive officer for
the year. Annual bonuses reward individual executive officers for
their respective contributions in attaining Kaiser's objectives
for the year and in achieving their respective personal
objectives. The annual bonus may be in cash or cash and restricted
stock. However, Kaiser's historical annual bonus plan was
discontinued commencing in 2001, although discontinuance of the
annual bonus plan does not preclude incentive or bonus
compensation from being awarded by the Board of Directors.
. Long Term Incentive Compensation. This compensation component has
in the past consisted of stock option grants based upon corporate
and individual performance (except as incentives to accept offers
of employment), with the value and exercisability of the options
69
dependent upon continued service to Kaiser and increases in the
market price of the Common Stock. Through the use of stock option
programs, Kaiser sought to create long-term incentives for its
executive officers that reward them only if stockholder value
increases.
However, as discussed in more detail below, the compensation philosophy
and compensation arrangements for executive officers was modified in 2000.
Over the past several years, the HR Committee has employed third-party
consultants from time to time to assist it on various compensation matters,
including stock options, bonuses, and other incentives and the material terms of
employment agreements.
Measures of Performance
-----------------------
For 2000, in consultation with a third party consultant, Kaiser, upon
the recommendation of the HR Committee, adopted the following Executive
Incentive Bonus Plan for 2000:
INCENTIVE AWARD COMPETITIVE PRACTICE
TITLE TARGET % SALARY MAXIMUM % SALARY
----- -------------- -----------------
Chief Executive Officer 50% 100%
Executive Vice Presidents 40% 80%
Vice Presidents 35% 70%
In addition to the Chief Executive Officer, there are currently two
Executive Vice Presidents and two Vice Presidents covered by the Executive
Incentive Bonus Plan.
The implementation of the Executive Incentive Bonus Plan is as follows:
PERCENT OF
OBJECTIVE/CRITERIA BONUS TARGET
------------------ ------------
Achievement of major corporate objectives 40%/(1)/
Achievement of major individual objectives 20%/(1)/
Achievement of annual corporate financial targets 15%
Achievement of average stock price appreciation as 10%
measured in the 4/th/ quarter of the year over the
same period for the preceding year (based on
average of closing price)
Achievement of specific operational targets: 15%
________________
/(1)/ For Vice Presidents, corporate objectives are weighted 20% and
individual objectives 40%.
The HR Committee retains the discretion to review with the executive
officers the impact that extraordinary external circumstances and management's
role regarding such matters might have on the objectives/criteria.
As discussed in more detail below, the Board approved the HR
Committee's recommendation to discontinue Kaiser's usual annual Executive Bonus
Plan commencing in 2001.
Performance in 2000
-------------------
The year 2000 was an excellent year for Kaiser and its executive
officers. The Company's major accomplishments included: (i) purchasing an
additional approximately 3% of the stock in Fontana Union Water Company at a
very favorable price; (ii) completing the sale of approximately 588 acres of the
Mill Site property to CCG Ontario, LLC for $16 million in cash plus the
assumption of virtually all environmental liabilities and risks associated with
the property sold and well as certain other environmental liabilities and risks
associated with other portions of the mill site, with such environmental
70
liabilities and risks backed by substantial financial assurances in various
forms; (iii) Mine Reclamation entering into an agreement to sell the Eagle
Mountain landfill project for $41 million to the Los Angles Sanitation District;
(iv) completing the sale of the Ranch Cucamonga parcel at the mill site for $3.8
million; (v) entering into an agreement to sell Kaiser's interest in Fontana
Union Water Company for $87.5 million; and (vi) the distribution of $2.00 per
share on a tax free basis to most stockholders. In addition, the price of
Kaiser's stock remained relatively stable in a "bear" stock market atmosphere.
In recognition of these and other accomplishments, and in consideration of the
achievement of personal goals for each of the executive officer, the HR
Committee recommended and the Board approved cash bonuses as follows for 2000:
Executive Officer % Of Base Salary
----------------- ----------------
Richard E. Stoddard 90%
Terry L. Cook 75%
James F. Verhey 65%
Anthony Silva 55%
Paul E. Shampay 50%
Kaiser's Board also elected to provide merit raises to certain of the
Executive Officers at the beginning of 2000 of 1.5% to 10%, in addition to a
cost of living adjustment of 3%.
Compensation of the Chief Executive Officer for 2000
----------------------------------------------------
As described elsewhere in this proxy statement, Mr. Stoddard received a
base salary of $348,446 in 2000. Consistent with the evaluation of the other
executive officers of Kaiser and his achievements, the HR Committee awarded to
Mr. Stoddard a $315,000 cash bonus for 2000.
Section 162(m) of the Internal Revenue Code
-------------------------------------------
To date the HR Committee has made no decision on whether Kaiser should
adopt and implement with respect to the $1,000,000 compensation deduction cap
imposed by Section 162(m) of the Internal Revenue Code of 1986, as amended.
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction
to public companies for compensation over $1 million paid to the corporation's
chief executive officer and four other highly compensated executive officers. In
2000, the Chief Executive's Officer's total compensation, with the exercise of
stock options, exceeded the $1,000,000 level resulting in non-deductible
compensation totaling $264, 857.
Modification of Compensation Arrangements
-----------------------------------------
Two significant events occurred in 2000 which cause the HR Committee to
reevaluate and modify the compensation arrangement of the executive officers.
First, the stockholders that voted on the Company's proposed 2000 Stock Plan
under which stock options could continue to be granted to management and
directors was approved by 69% of the shares voting on the new stock plan.
However, largely because of abstentions and broker "non-votes" (i.e., shares
held by a broker or nominees as to which instructions have not been received
from the owners or persons entitled to vote as to a particular proposal) the
2000 Stock Plan failed to pass by less than 65,000 votes. Accordingly, the HR
Committee was left with the task of developing an alternative to the issuance of
stock options to serve as the long-term incentive for its executive officers.
The need to develop alternative solutions increased when Kaiser sought to sell
most of its Mill Site Property, its interest in Fontana Union Water Company and
the Eagle Mountain landfill.
As part of Kaiser's overall business strategy, the Board adopted a cash
maximization strategy that called for Kaiser to actively take the steps
reasonably necessary to : (i) consummate the sale of the landfill project to the
District, including resolving the outstanding federal litigation; (ii) take the
steps necessary to reduce or eliminate various liabilities; (iii) sell as
quickly as reasonable possible Kaiser's various miscellaneous assets; (iv) hold
Kaiser's remaining material assets while continuing to evaluate opportunities
for such assets; (v) reduce general and administrative expenses; and (vi)
implement management incentives for implementing this strategy. In this context,
the HR Committee developed, with the assistance on an outside third party
consultant, and the Board adopted, a long-term transaction
71
incentive plan referred to as TIP. See "--Incentive Compensation Plans.". The
TIP was adopted as an incentive to maximize proceeds from asset sales and cash
distributions to stockholders. It was also adopted as an alternative to the
proposed 2000 Stock Plan.
The TIP is a cash bonus pool whose amount depends upon the cash
ultimately available for distribution to stockholders from net proceeds of asset
sales (less sales expense and taxes and after payment of operating expenses).
The TIP provides for interim payments upon the sale of a particular asset or
group of assets of 50% of the ultimate contribution to the bonus pool from the
sale. The total incentive pool will be equal to approximately 5% of the cash
distributed to stockholders in excess of approximately $92.3 million (the
threshold), plus 10% of any amounts in excess of approximately $114.5 million
(the target). Reaching the target would result in a TIP bonus pool of
approximately 1% of the aggregate cash distributions to stockholders.
The HR Committee also recommended, and the Board approved, the
termination of the traditional annual Executive Bonus Plan. The elimination of
the annual bonus plan does not, however, preclude the HR Committee from
recommending, and the Board approving, incentive or bonus compensation in
addition to the TIP.
Implementation of Recommendations
---------------------------------
The HR Committee achieves implementation of Kaiser's executive officer
compensation philosophy through detailed recommendations to the full Board of
Directors. Executive officers who are also directors do not vote on executive
officer compensation matters. No current executive officer serves on the HR
Committee although Mr. Fawcett retired as President of Kaiser in January 1998,
and continues to serve as a part time employee of Kaiser for special projects.
He was appointed as a member of the HR Committee subsequent to Mr. Fawcett
becoming a member of the Board of Directors. Mr. Fawcett also continues to serve
on the Board of Directors of several subsidiaries of Kaiser.
Over the past several years, including in 2000, the HR Committee has
employed a third party consultant from time to time to assist it on various
compensation matters, including stock options, bonuses, and other incentives and
the material terms of employment agreements.
June 5, 2001 HUMAN RELATIONS COMMITTEE
Mr. Todd Cole (Chairman)
Mr. Ronald E. Bitonti
Mr. Gerald A. Fawcett
Mr. Charles E. Packard
72
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth, based upon the latest available filings
with the SEC (generally reporting ownership as of June 30, 2001), the number
of shares of Kaiser's Common Stock owned by each person known by Kaiser to
own of record or beneficially five percent (5%) or more of such stock. The
table does not include the 136,919 shares reserved but not yet distributed to
the Class 4A unsecured creditors of Kaiser Steel as of the record date, since
such shares are not yet deemed outstanding or eligible to vote.
The overall security ownership of the persons listed below will be
unaffected by the Conversion Proposal, except as specifically stated in the
footnotes to the accompanying table.
[Enlarge/Download Table]
Number of
Common Percent of
Shares Warrants Issued and
Beneficially Exercisable Outstanding
Owned Within 60- Total Shares Based
Name and Address of Without Days/(1)/ of Stock on Total
Beneficial Owner Warrants June 30, 2001 Interest/(1)/ Stock Interest/(2)/
------------------------------------------------------------------------------------------------------------------------------
Dimensional Fund Advisors, Inc./(3)/
1299 Ocean Avenue, 11th Floor 586,600 --- 586,600 9.1%
Santa Monica, CA 90401
Kaiser's Voluntary Employees' Beneficiary
Association Trust /(4)/ (VEBA) 656,987 460,000 1,116,987 16.2%
9810 Sierra Avenue, Suite A
Fontana, CA 92335
Willow Creek Capital Management/(5)/
17 East Sir Francis Drake Blvd., Suite 100 635,100 --- 635,100 9.9%
Larkspur, CA 94939
Ashford Capital Management, Inc./(6)/
3801 Kennett Pike, Bldg. B-107 459,100 --- 459,100 7.2%
Wilmington, DE 19807-2309
Arnold & S. Bleichroeder Advisers, Inc./(7)/
1345 Avenue of the Americas, 44/th/ Floor 365,000 --- 365,000 5.7%
New York, New York 10105
Pension Benefit Guaranty Corporation/(8)/
(PBGC) 407,415 285,260 692,675 10.3%
Pacholder Associates, Inc.
8044 Montgomery Road, Suite 382
Cincinnati, OH 45236
(1) This column includes warrants exercisable within 60 days of June 30,
2001, at $16.11 per share in the following amounts: VEBA - 460,000
shares; and PBGC - 285,260. The warrants expire September 30, 2004. The
VEBA and PBGC warrants will be exchanged in the merger for new warrants
to purchase 460,000 Class A Units and 285,260 Class A Units,
respectively, each with an exercise price of $6.11 per unit ($16.11
minus $10). The new warrants will expire on September 30, 2004. (These
warrants were initially issued with a strike price of $17.00 per share.
The initial strike price of these warrants was reduced by $.89 as a
result of a distribution to Kaiser stockholders in 2000).
(2) The percentage for each stockholder was determined as if all the
warrants specified in Note (1) above held by the stockholder, if any,
had been exercised by that particular stockholder.
(3) Based on a Schedule 13G, Dimensional Fund Advisors Inc. ("Dimensional"),
a registered investment advisor, furnishes investment advice to four
registered investment companies and serves as investment manager to
certain other commercial group trusts and separate accounts. These
investment companies, trusts and accounts are the "Funds." In its role
as investment advisor or manager, Dimensional possesses voting and/or
investment power over the securities of Kaiser. However, all shares are
owned by the Funds and Dimensional disclaims beneficial ownership of all
such shares.
(4) VEBA received its shares in Kaiser as a creditor of the Kaiser Steel
Corporation bankruptcy. VEBA acquired warrants in connection with the
purchase by Kaiser of Company stock owned by VEBA. See "Certain
Relationships and Related Transactions". VEBA's shares in Kaiser are
held in trust by Wells Fargo & Company.
(5) Based upon a Schedule 13G, Willow Creek Capital Management is a
registered investment advisor whose clients have the right to receive or
the power to direct the receipt of dividends from, or the proceeds from
the sale of, the various securities in which their assets are invested,
including Company stock. No individual client's holdings of stock in
Kaiser are more than 5% of the outstanding stock of Kaiser.
(6) Based upon a Schedule 13G, Ashford Capital Management, Inc. is an
institutional investment manager and advisor.
(7) Based upon a Schedule 13G, Arnold & S. Bleichroeder Advisers, Inc. is an
institutional investment manager and advisor.
73
(8) PBGC received its shares in Kaiser as a creditor of the Kaiser Steel
Corporation bankruptcy. PBGC acquired warrants in connection with the
purchase by Kaiser of Company stock owned by PBGC. See "Certain
Relationships and Related Transactions." Pacholder Associates, Inc. has
a contract with the PBGC pursuant to which it has full and complete
investment discretion with respect to the stock owned by PBGC, including
the power to vote such shares.
74
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS
This table below reflects the number of common shares beneficially
owned by the principal Executive Officers of Kaiser, the directors and all
directors and other officers as a group as of June 30, 2001, as well as the
number of options exercisable within 60 days of June 30, 2001. The overall
security ownership of the persons listed below will be unaffected by the
Conversion Proposal. For the ownership of Class B Units after the conversion,
please see "Conversion Proposal--Class B Units."
[Enlarge/Download Table]
Shares Percent of
Shares Underlying Issued and
Beneficially Options Outstanding
Owned, Exercisable Total Shares Based on
Without Within 60-Days of Stock Total Stock
Officers and Directors Options June 30, 2001/(1)/ Interest/(1)/ Interest/(1)/
-------------------------------------------------------------------------------------------------------------------------
Richard E. Stoddard, CEO, President & 77,723 86,100 163,823 2.5%
Chairman
Gerald A. Fawcett, Vice Chairman/(2)/ 60,078 110,000 170,078 2.6%
James F. Verhey, Executive Vice 17,035 70,000 87,035 1.3%
President - Finance & CFO
Terry L. Cook, Executive Vice President
- Administration, General Counsel & 17,966 95,000 112,966 1.7%
Corporate Secretary
Anthony Silva, Vice President Resource
Development & Environmental Services 4,785 37,000 41,785 *
Paul E. Shampay, Vice President - Finance --- 22,500 22,500 *
Ronald E. Bitonti, Director/(3)/ 4,146 7,500 11,646 *
Todd G. Cole, Director 6,500 14,000 20,500 *
Reynold C. MacDonald, Director 13,000 7,500 20,500 *
Charles E. Packard, Director 1,500 14,000 15,500 *
Marshall F. Wallach, Director 7,600 14,000 21,600 *
All officers and directors as a group 210,333 477,600 687,933 10.0%
(11 persons) /(1)/
-------------------------
* Less than one percent.
(1) Does not include 136,919 shares deemed outstanding for financial reporting
purposes, but not yet distributed to Class 4A unsecured creditors of the
Kaiser Steel Corporation bankruptcy estate. Percentage was determined as if
all the options listed in the column "Shares Underlying Options Exercisable
Within 60-Days of June 1, 2001," were exercised by the applicable
individual. All options are vested.
(2) Mr. Fawcett retired as President and Chief Operating Officer of Kaiser
effective January 15, 1998.
(3) Mr. Bitonti is Chairman of the VEBA Board of Trustees. He disclaims any
beneficial ownership interest in the shares beneficially owned by VEBA.
75
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
New Kaiser Employees' Voluntary Benefit Association, VEBA, is the
beneficial owner of a warrant to purchase 460,000 shares of Common Stock. VEBA
has claimed that the proposed treatment of its warrant in the Conversion
Proposal could violate the terms of that warrant. We do not believe that this
claim has any merit. However, because VEBA believes its rights may depend on the
future stock price of the Common Stock, both Kaiser and VEBA have agreed that
the rights of the VEBA under its warrant will not be changed or waived by (i)
any consent to or approval of the Conversion Proposal by either VEBA or any
director representing it, or (ii) any decision by VEBA to delay any potential
legal challenge until after the adoption and completion of the Conversion
Proposal.
LEGAL MATTERS
The validity of the Class A Units issued as a result of the Conversion
Proposal will be passed upon for us, as a condition to the merger becoming
effective, by Guth | Christopher LLP.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 2000 and 1999, and for each of the three
years in the period ended December 31, 2000, as set forth in their report, and
in their report on our financial statement schedules included in our Annual
Report on Form 10-K for the year ended December 31, 2000 which is incorporated
by reference. We have included our financial statements in this proxy statement
and elsewhere in the prospectus, and incorporated by reference our financial
statement schedules in reliance on Ernst & Young LLP's reports, given on their
authority as experts in accounting and auditing. Ernst & Young LLP will also
pass upon certain tax matters for Kaiser with respect to the Conversion
Proposal.
WHERE YOU CAN FIND MORE INFORMATION ABOUT KAISER
Kaiser Inc. files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy these reports and other
information at the public reference facilities maintained by the SEC at:
[Download Table]
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13/th/ Floor
450 Fifth Street, N.W. Suite 1400 New York, New York, 10048
Washington, D.C. 20549 Chicago, Illinois 60661-2511
You may also obtain copies of these documents by mail from the public
reference room of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-
0330 for further information on the public reference rooms. In addition, Kaiser
files reports and other information with the SEC electronically, and the SEC
maintains a web site located at http://www.sec.gov containing this information.
------------------
Kaiser's Common Stock is listed on the Nasdaq Stock Market and Kaiser's reports
and other information may also be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W., Washington, D.C. 20006.
Kaiser LLC has filed a registration statement on Form S-4 to register
with the SEC the Class A Units in Kaiser LLC that may be issued in the merger.
This Proxy Statement/Prospectus is a part of the Registration Statement.
Statements contained in this Proxy Statement/Prospectus as to the contents of
any contract or other document referred to in this document include all material
terms of the contracts or other documents but are not necessarily complete. In
each case, you should refer to the copy of the applicable contract or other
document filed as an exhibit to the Registration Statement.
76
The SEC allows Kaiser Inc. to incorporate certain information into this
Proxy Statement/Prospectus by reference to other information that has been filed
with the SEC. The information incorporated by reference is deemed to be part of
this Proxy Statement/Prospectus, except for any information that is superseded
by information in this Proxy Statement/Prospectus. The documents that are
incorporated by reference contain important information about the companies and
you should read this Proxy Statement/Prospectus together with any documents
incorporated by reference.
This Proxy Statement/Prospectus incorporates by reference the following
documents that have previously been filed with the SEC by Kaiser Inc.:
. Annual Report of Form 10-K for the year ended December 31, 2000;
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2001;
and
. Current Report on Form 8-K dated March 20, 2001.
In addition, Kaiser and Kaiser LLC incorporate by reference any
documents Kaiser Inc. may file under the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the annual meeting of Kaiser
stockholders.
77
KAISER VENTURES INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
[Download Table]
Page
----
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999............. F-3
Consolidated Statements of Income for the years ended December 31, 2000,
1999 and 1998........................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998..................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998.................................. F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidated Balance Sheet as of March 31, 2001 and December 31, 2000.... F-24
Unaudited Consolidated Statements of Income for the three months ended
March 31, 2001 and March 31, 2000....................................... F-25
Unaudited Consolidated Statements of Cash Flows for three months ended
March 31, 2001 and March 31, 2000....................................... F-26
Unaudited Consolidated Statements of Changes in Stockholders' Equity for
the three months ended March 31, 2001................................... F-27
Notes to Unaudited Consolidated Financial Statements..................... F-28
F-1
KAISER VENTURES INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
Board of Directors
Kaiser Ventures Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Kaiser
Ventures Inc. and subsidiaries (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of income, cash flows, and
stockholders' equity for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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. and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Riverside, California
January 18, 2001, except for
Note 20, as to which the date
is March 6, 2001
F-2
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
[Download Table]
2000 1999
----------- ------------
ASSETS
------
Current Assets
Cash and cash equivalents............................ $10,097,000 $ 14,686,000
Accounts receivable and other, net of allowance for
doubtful accounts of $83,000 and $90,000,
respectively........................................ 2,497,000 1,978,000
Deferred tax assets.................................. 10,699,000 285,000
Note receivable...................................... 107,000 107,000
----------- ------------
23,400,000 17,056,000
----------- ------------
Investment in Fontana Union Water Company............. 16,612,000 16,108,000
----------- ------------
Investment in West Valley MRF......................... 3,660,000 3,009,000
----------- ------------
Real Estate
Land and improvements................................ 8,543,000 8,543,000
Real estate held for sale............................ -- 38,820,000
----------- ------------
8,543,000 47,363,000
----------- ------------
Other Assets
Note receivable...................................... 589,000 700,000
Deferred tax assets.................................. 2,161,000 577,000
Landfill permitting and development.................. 18,354,000 15,800,000
Buildings and equipment (net)........................ 1,463,000 2,805,000
Other assets......................................... 6,000 27,000
----------- ------------
22,573,000 19,909,000
----------- ------------
Total Assets.......................................... $74,788,000 $103,445,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable..................................... $ 302,000 $ 887,000
Income taxes payable................................. -- 3,501,000
Accrued liabilities.................................. 3,824,000 4,998,000
Environmental remediation............................ -- 2,500,000
----------- ------------
4,126,000 11,886,000
----------- ------------
Long-term Liabilities
Deferred gain on sale of real estate................. 696,000 724,000
Accrued liabilities.................................. 722,000 1,305,000
Environmental remediation............................ 4,490,000 23,868,000
----------- ------------
5,908,000 25,897,000
----------- ------------
Total Liabilities..................................... 10,034,000 37,783,000
----------- ------------
Minority Interest..................................... 5,280,000 4,772,000
----------- ------------
Commitments and Contingencies
Stockholders' Equity
Common stock, par value $.03 per share, authorized
13,333,333 shares; issued and outstanding 6,522,700
and 6,316,853, respectively......................... 195,000 189,000
Capital in excess of par value....................... 51,676,000 48,745,000
Retained earnings.................................... 7,603,000 11,956,000
----------- ------------
Total Stockholders' Equity............................ 59,474,000 60,890,000
----------- ------------
Total Liabilities and Stockholders' Equity............ $74,788,000 $103,445,000
=========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the Years Ended December 31
[Download Table]
2000 1999 1998
------------ ----------- ----------
Resource Revenues
Ongoing Operations
Water resource........................ $ 5,640,000 $ 5,228,000 $5,201,000
Gain on merger of PMI into ISC........ -- 35,713,000 --
Gain on sale of ISC common stock...... -- 6,575,000 --
Income (loss) from equity method
investments
Penske Motorsports Inc............... -- (329,000) 1,903,000
West Valley MRF, LLC................. 1,651,000 910,000 40,000
Gain on Mill Site land sales.......... 532,000 1,622,000 --
------------ ----------- ----------
Total ongoing operations............ 7,823,000 49,719,000 7,144,000
------------ ----------- ----------
Interim Activities Net (Loss)......... (179,000) (203,000) (47,000)
------------ ----------- ----------
Total resource revenues............. 7,644,000 49,516,000 7,097,000
------------ ----------- ----------
Resource Operating Costs
Operating costs........................ 509,000 528,000 560,000
Write-down to net realizable value..... -- 8,350,000 --
------------ ----------- ----------
Total resource operating costs...... 509,000 8,878,000 560,000
------------ ----------- ----------
Income from Resources................... 7,135,000 40,638,000 6,537,000
Corporate General and Administrative
Expenses
Corporate overhead expenses, excluding
stock based compensation and stock
option repricing expenses............. 3,469,000 4,910,000 3,979,000
Stock based compensation expense....... 2,224,000 -- --
Stock option repricing expense......... 645,000 -- --
------------ ----------- ----------
6,338,000 4,910,000 3,979,000
------------ ----------- ----------
Income from Operations.................. 797,000 35,728,000 2,558,000
Net interest (income) expense.......... (581,000) 498,000 1,083,000
------------ ----------- ----------
Income before Income Tax Provision...... 1,378,000 35,230,000 1,475,000
Income tax provision
Currently payable..................... 33,000 8,364,000 12,000
Deferred tax expense (benefit)........ (11,998,000) (3,211,000) 126,000
Deferred tax expense credited to
equity............................... -- 6,048,000 105,000
------------ ----------- ----------
Net Income.............................. $ 13,343,000 $24,029,000 $1,232,000
============ =========== ==========
Basic Earnings Per Share................ $ 2.09 $ 2.35 $ .12
============ =========== ==========
Diluted Earnings Per Share.............. $ 1.99 $ 2.31 $ .11
============ =========== ==========
Basic Weighted Average Number of Shares
Outstanding............................ 6,394,000 10,226,000 10,664,000
Diluted Weighted Average Number of
Shares Outstanding..................... 6,699,000 10,386,000 10,840,000
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Years Ended December 31
[Download Table]
2000 1999 1998
------------ ------------ -----------
Cash Flows from Operating Activities
Net income.......................... $ 13,343,000 $ 24,029,000 $ 1,232,000
Provision for income tax which is
credited to equity................. -- 6,048,000 105,000
Income from equity method
investments........................ (1,651,000) (581,000) (1,943,000)
Deferred tax (benefit) expense...... (11,998,000) (3,211,000) 126,000
Depreciation and amortization....... 370,000 511,000 552,000
Stock based compensation expense.... 1,247,000 -- --
Stock option repricing.............. 645,000 -- --
Gain on merger of PMI into ISC...... -- (35,713,000) --
Gain on sale of ISC common stock.... -- (6,575,000) --
Write-down to net realizable value.. -- 8,350,000 --
Accelerated vesting of stock
options............................ 20,000 54,000 --
Mill Site deferred gain realized.... (28,000) -- --
Gain on sale of Mill Site Property.. (504,000) (1,622,000) --
Allowance for doubtful accounts..... (7,000) (213,000) 4,000
Changes in assets:
Receivable and other............... (512,000) 574,000 196,000
Changes in liabilities:
Current liabilities................ (902,000) 294,000 (361,000)
Income taxes payable............... (3,501,000) 3,501,000 --
Long-term accrued liabilities...... (429,000) (56,000) 111,000
------------ ------------ -----------
Net cash flows from (used in)
operating activities............... (3,907,000) (4,610,000) 22,000
------------ ------------ -----------
Cash Flows from Investing Activities
Minority interest................... 508,000 997,000 897,000
Proceeds from the sale of Mill Site
Property........................... 19,880,000 2,662,000 --
Collection of note receivable....... 111,000 75,000 456,000
Capital expenditures................ (4,076,000) (3,570,000) (4,480,000)
Environmental remediation
expenditures....................... (626,000) (1,808,000) (2,547,000)
Proceeds from the sale of ISC common
stock.............................. -- 63,552,000 --
Proceeds of the merger of PMI into
ISC................................ -- 24,419,000 --
Distribution from West Valley MRF... 1,000,000 450,000 --
Investment in Fontana Union Water
Co................................. (654,000) -- --
------------ ------------ -----------
Net cash flows from (used in)
investing activities............... 16,143,000 86,777,000 (5,674,000)
------------ ------------ -----------
Cash Flows from Financing Activities
Issuance of common stock............ 871,000 379,000 133,000
Repurchase of common stock.......... (12,772,000) -- --
Shareholder payment contingent upon
Mill Site real estate sale......... (4,924,000) -- --
Repurchase of common stock.......... -- (57,519,000) --
Borrowings under revolver-to-term
credit facility.................... -- 3,000,000 9,750,000
Principal payments on revolver-to-
term credit facility and note
payable............................ -- (16,750,000) (5,102,000)
Payment of loan fees................ -- -- (50,000)
------------ ------------ -----------
Net cash flows from (used in)
financing activities............... (16,825,000) (70,890,000) 4,731,000
------------ ------------ -----------
Net Changes in Cash and Cash
Equivalents.......................... (4,589,000) 11,277,000 (921,000)
Cash and Cash Equivalents at Beginning
of Year.............................. 14,686,000 3,409,000 4,330,000
------------ ------------ -----------
Cash and Cash Equivalents at End of
Year................................. $ 10,097,000 $ 14,686,000 $ 3,409,000
============ ============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the Years Ended December 31, 2000, 1999 and 1998
[Enlarge/Download Table]
Common Stock Capital In
--------------------- Excess of Retained
Shares Amount Par Value Earnings Total
---------- --------- ------------ ------------ ------------
Balance at December 31,
1997................... 10,591,240 $ 318,000 $ 74,342,000 $ 11,544,000 $ 86,204,000
Provision for income
tax, credited to
equity................ -- -- 105,000 -- 105,000
Issuance of shares of
common stock.......... 94,017 3,000 294,000 -- 297,000
Net Income............. -- -- -- 1,232,000 1,232,000
---------- --------- ------------ ------------ ------------
Balance at December 31,
1998................... 10,685,257 321,000 74,741,000 12,776,000 87,838,000
Repurchase of common
stock................. (4,424,501) (133,000) (32,537,000) (24,849,000) (57,519,000)
Issuance of shares of
common stock.......... 56,097 1,000 439,000 -- 440,000
Accelerated vesting of
stock options......... -- -- 54,000 -- 54,000
Net Income............. -- -- -- 24,029,000 24,029,000
---------- --------- ------------ ------------ ------------
Balance at December 31,
1999................... 6,316,853 189,000 48,745,000 11,956,000 60,890,000
Provision for income
tax, credited to
equity................ -- -- 6,048,000 -- 6,048,000
Issuance of shares of
common stock.......... 205,847 6,000 2,266,000 -- 2,272,000
Accelerated vesting of
stock options......... -- -- 20,000 -- 20,000
Repricing of stock
options............... -- -- 645,000 -- 645,000
Net Income............. -- -- -- 13,343,000 13,343,000
---------- --------- ------------ ------------ ------------
Balance at December 31,
2000................... 6,522,700 $ 195,000 $ 51,676,000 $ 7,603,000 $ 59,474,000
========== ========= ============ ============ ============
Shareholder payment
contingent upon Mill
Site real estate
sale.................. -- -- -- (4,924,000) (4,924,000)
Dividend............... -- -- -- (12,772,000) (12,772,000)
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
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.
At December 31, 2000, the Company's long-term emphasis is on the further
development of its principal assets: (i) a 53.71% interest in Fontana Union
Water Company ("Fontana Union"), a mutual water company, the sale of which
interest closed in March 2001 (See Note 20.); (ii) an 80% interest in Mine
Reclamation (now "Mine Reclamation, LLC"), the developer of the Eagle Mountain
Landfill Project (the "Landfill Project"); (iii) the 9,144 acre idle iron ore
mine in the California desert (the "Eagle Mountain Site"), which includes the
associated 1,100 acre town of Eagle Mountain ("Eagle Mountain Townsite") and
the land leased to Mine Reclamation for the Landfill Project; and (iv) a 50%
joint venture interest in the West Valley MRF ("WVMRF"), a transfer station and
recycling facility located on land acquired from the Company.
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., Kaiser Recycling Corporation, 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"). Income from
equity method investments reflect Kaiser's share of income related to those
equity investments (i.e., Penske Motorsports Inc. ("PMI") from April 1, 1996
through March 31, 1999) and, starting in 1998, a limited liability company
(i.e., WVMRF) which the Company accounts for under the equity method.
Interim Activities
Revenues from interim activities are generated from various sources.
Significant components of interim activities include water and waste water
treatment revenues, rentals under short-term tenant lease arrangements, royalty
revenues from the sale of slag to outside contractors, royalty revenues from
the sale of recyclable revert materials and other miscellaneous short-term
activities at the Mill Site; housing rental income, aggregate and rock sales
and lease payments for the minimum security prison at the Eagle Mountain
Townsite; royalty revenues from iron ore shipments from the Silver Lake Mine,
rentals under short-term tenant lease arrangements, royalty revenues from the
sale of slag to outside contractors, royalty revenues from the sale of
recyclable revert materials and other miscellaneous short-term activities. Due
to the interim nature of these activities the Company is presenting these
revenues net of their related expenses. Revenues and expenses associated with
these activities at the former KSC mill site near Fontana, California (the
"Mill Site"), and Silver Lake Mine have ceased due to the sales of these
properties. Total interim revenues for 2000, 1999, and 1998 were $1.7 million,
$1.9 million, and $2.5 million, respectively.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The stated value of the assets and liabilities of the Company was carried
forward from that of KSC except as adjusted in reorganization.
F-7
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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"). As of December 31, 2000, the
Company, owned 53.71% of Fontana Union, a mutual water company, which entitled
the Company to its proportionate share of Fontana Union water. The Company has
effectively transferred its control in Fontana Union to Cucamonga pursuant to a
102-year lease of its Fontana Union shares ("Cucamonga Lease") which the
Company entered into in March 1989, and which was amended in 1989, 1992 and
1993. Therefore, Kaiser receives no direct benefit from nor has any direct
exposure to the operations or financial performance of Fontana Union.
Consequently, Kaiser's investment in Fontana Union is recorded on the cost
method with revenues from the Cucamonga Lease being recorded on a current basis
pursuant to the terms and conditions of the Lease. (See Note 4.) On March 6,
2001, the Company closed on the sale of its interest to Cucamonga (See Note
20.).
KSC Recovery, Inc. ("KSC Recovery"). The Company's wholly-owned subsidiary,
KSC Recovery, Inc., which is governed and controlled by a Bankruptcy Court
approved Plan of Reorganization, acts solely as an agent for KSC's former
creditors in pursuing bankruptcy related adversary litigation and
administration of the KSC bankruptcy estate. Kaiser exercises no significant
control or influence over nor does Kaiser have any interest in the operations,
assets or liabilities of KSC Recovery except as provided by the terms of the
approved Plan of Reorganization. In addition, KSC Recovery's cash on hand and
potential future recoveries fund all costs and expenses of KSC Recovery.
Consequently, activity of KSC Recovery is not included in Kaiser's financial
statements; however, KSC Recovery is a member of the Kaiser consolidated group
for tax purposes and is therefore, included in the consolidated tax return.
Reclassification
Certain amounts in the prior years have been reclassified to conform to the
current year financial statement presentation.
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 and are
insured by the Federal Deposit Insurance Corporation up to $100,000 at each
institution.
Real Estate
In accordance with Financial Accounting Standards Board ("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 carrying amounts of those
assets.
During 2000, the Company sold the bulk of its remaining Fontana Mill Site
Property for $16 million in cash plus the assumption of virtually all known and
unknown environmental obligations and liabilities associated with the Mill Site
Property to CCG Ontario, LLC ("CCG"). Also during 2000, the Company sold its
Rancho Cucamonga Parcel to The California Speedway Corporation for $3.8
million.
Interest and property taxes related to real estate under development are
capitalized during periods of development.
F-8
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investment in West Valley MRF, LLC
The Company accounts for its investment in West Valley MRF, LLC, the owner
of WVMRF, under the equity method of accounting because of the Company's 50%
ownership interest.
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.
Earnings Per Share
The Company follows Statement No. 128, Earnings per Share (FASB 128) in
calculating basic and diluted earnings per share. Basic earnings per share
excludes the dilutive effects of options, warrants and convertible securities,
while diluted earnings per share includes the dilutive effects of claims on the
earnings of the Company.
Stock Options
The Company uses the intrinsic value method to account for its stock
compensation arrangements pursuant to the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents. The carrying amount approximates fair value
because of the short-term maturity of these instruments.
Receivables. The carrying amount approximates fair value because of the
short-term maturity of these instruments.
F-9
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. ACCOUNTS RECEIVABLE AND OTHER
Accounts receivable as of December 31 consisted of the following:
[Download Table]
2000 1999
---------- ----------
Cucamonga County Water District...................... $2,155,000 $1,680,000
Other................................................ 425,000 388,000
---------- ----------
2,580,000 2,068,000
Allowance for doubtful accounts...................... (83,000) (90,000)
---------- ----------
Total............................................ $2,497,000 $1,978,000
========== ==========
Note 4. CUCAMONGA LEASE
The Company leased its 53.71% ownership of the capital stock of Fontana
Union, a mutual water company, to Cucamonga pursuant to a take-or-pay lease
(the "Cucamonga Lease") that terminates in the year 2092. In 1996, the Company
instituted litigation against Cucamonga due to a dispute concerning the amount
payable to the Company pursuant to the terms of the Cucamonga Lease. The
dispute centers on the Company's assertion that either the MWD Rate in the
Cucamonga Lease was discontinued on July 1, 1995, or that the Lease Rate should
be interpreted to include all the changed rates and items implemented by
Metropolitan Water District of Southern California ("MWD") since July 1, 1995.
As of November 14, 2000, the Company entered into an Agreement for the sale of
its ownership interest in Fontana Union to Cucamonga for $87.5 million plus
approximately $2.5 million in payments under the Cucamonga Lease. The sale
closed on March 6, 2001 (See Note 20.). The sale resulted in settlement of the
rate dispute litigation with Cucamonga.
Note 5. INVESTMENTS
Investment in West Valley MRF, LLC
Effective June 19, 1997, Kaiser Recycling Corporation ("KRC") and West
Valley Recycling & Transfer, Inc. ("WVRT"), a subsidiary of Burrtec Waste
Industries, Inc. ("Burrtec"), which are equal members of West Valley MRF, LLC,
(a California limited liability company) entered into a Members Operating
Agreement which is substantially the equivalent of a joint venture agreement
but for a limited liability company. The construction and start up of the WVMRF
was completed during December 1997.
Pursuant to the terms of the MOA, KRC contributed approximately 23 acres of
Mill Site property on which the WVMRF was constructed while WVRT contributed
all of Burrtec's recycling business that was operated within Riverside County,
thereby entitling WVMRF to receive all revenues generated from this business
after the closing date.
Most of the financing for the projected cost of the WVMRF of approximately
$22,000,000, including reimbursement of most of the previously incurred
development costs of Burrtec and the Company, was obtained through the issuance
and sale of two California Pollution Control Financing Authority (the
"Authority") Variable Rate Demand Solid Waste Disposal Revenue Bonds (West
Valley MRF, LLC Project) Series 1997A and Series 2000A (the "Bonds"). The Bonds
are secured by an irrevocable letter of credit issued by Union Bank of
California, N.A. ("Union Bank"). The Bonds have stated maturity dates of June
1, 2012 for Series 1997A ($9.5 million) and June 1, 2030 Series 2000A ($8.5
million), although West Valley MRF, LLC is required, pursuant to its agreement
with Union Bank, to annually redeem a portion of the Bonds on a stated
schedule. Pursuant to a Guaranty Agreement with Union Bank, the Company and
Burrtec are each liable for fifty percent (50%) of the principal and interest
on the Bonds in the event of a default by the
F-10
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
West Valley MRF, LLC. WVMRF also has established a $2.0 million equipment line
of credit with Union Bank in order to refinance and purchase additional
equipment.
The Company is accounting for its investment in West Valley MRF, LLC under
the equity method.
On an unaudited basis, net revenues for the WVMRF for 2000 and 1999 were
$9.2 and $7.7 million, respectively. The Company's share of undistributed
equity in the earnings of WVMRF during 2000 and 1999 was $1,651,000 and
$910,000, respectively. The Company has received distributions of $1.0 million
and $500,000 during 2000 and 1999, respectively, from its investment in the
WVMRF. The condensed unaudited balance sheets of West Valley MRF, LLC as of
December 31, are as follows:
[Download Table]
2000 1999
----------- -----------
Current Assets...................................... $ 4,919,000 $ 3,699,000
Property and Equipment (net)........................ 16,380,000 10,806,000
Other Assets........................................ 7,760,000 2,168,000
----------- -----------
Total Assets.................................... $29,059,000 $16,673,000
=========== ===========
Current Liabilities................................. $ 4,437,000 $ 1,610,000
Other Liabilities................................... 1,184,000 249,000
CPCFA Bonds Payable................................. 16,635,000 9,200,000
Stockholders' Equity................................ 6,803,000 5,614,000
----------- -----------
Total Liabilities and Stockholders' Equity...... $29,059,000 $16,673,000
=========== ===========
Investment in Penske Motorsports, Inc.
Until the close of business July 26, 1999, the Company owned 1,627,923
shares, or approximately 11.73% of the common stock of PMI. The Company's
ownership interest in PMI was acquired as a result of: (i) its contribution in
November 1995, to PMI of approximately 480 acres, as adjusted, of the Central
Mill Site Property on which The California Speedway ("TCS") has been built; and
(ii) the subsequent sale of the Speedway Business Park, totaling approximately
54 acres to PMI in December 1996. Until the close of business on July 26, 1999,
PMI was traded on the NASDAQ National Market under the symbol "SPWY".
On July 26, 1999, ISC acquired all of the outstanding common stock of PMI.
ISC is a leading promoter of motorsports activities in the United States,
currently promoting more than 100 events annually. The Company received
approximately $24 million in cash and 1,187,407 shares of ISC Class A common
stock valued at approximately $57 million as of the date of the merger
resulting in a gain of $35.7 million. Subsequent to the merger of PMI into ISC,
the Company commenced an orderly liquidation of a portion of its position in
the common stock of ISC. By the middle of November 1999, the Company had
completed the sale of its ISC common stock resulting in a gain of $6.6 million.
The Company's average sales price for a share of ISC common stock was $53.52
during this orderly liquidation.
Note 6. MINE RECLAMATION CORPORATION
The Company, in January 1995, acquired a 70% interest in Mine Reclamation,
the developer of the Landfill Project. As a result of subsequent equity
fundings and purchases, the Company's ownership interest in Mine Reclamation as
of December 31, 2000, is approximately 80%. On August 9, 2000, MRC, entered
into that certain Agreement For Purchase and Sale of Real Property and Related
Personal Property In Regard To The Eagle Mountain Sanitary Landfill Project and
Joint Escrow Instructions ("Landfill Project Sale Agreement") with the
District. In summary, the Landfill Project (which includes the Company's
royalty
F-11
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
payments under the MRC Lease) is being sold for $41 million, with an initial
closing currently anticipated to occur, if closing does occur, in the second
quarter of 2001. However, payment of the purchase price will be delayed as
described in more detail below. The sale of the Landfill Project is subject to
the results of the District's due diligence and satisfaction of numerous
contingencies. The contingencies include, but are not limited to, obtaining the
transfer of the Landfill Project's permits to the District and obtaining all
necessary consents to the transaction. The Company agreed to vote its interest
in MRC in favor of the sale of the Landfill Project to the District on its
current terms.
Upon closing, $39 million of the total purchase price will be deposited into
an escrow account and will be released when litigation contingencies are fully
resolved. The litigation contingencies are the federal litigation challenging
the completed federal land exchange. Interest will accrue on this portion of
the purchase price commencing with the closing and will be paid out to Mine
Reclamation, LLC on a quarterly basis beginning with a successful outcome of
the federal litigation at the Federal District Court level. The remaining $2
million of the purchase price will also be placed into an escrow account upon
closing and will be released upon the later of (1) the release of the $39
million as described above or (2) the permitting approvals of the
District's Puente Hills landfill for its remaining 10 years of capacity.
Receipt of the purchase price, in whole or in part, if at all, could be delayed
for a substantial period of time pending satisfactory resolution of these
contingencies.
The District has been undertaking extensive due diligence on the Landfill
Project and has the right to terminate the Landfill Purchase Agreement if it is
not satisfied with the results of its due diligence. Due diligence is expected
to continue into 2001.
Note 7. NOTES RECEIVABLE
As of December 31, 2000, the Company has two notes receivable from McLeod
Properties, Fontana LLC (Budway Trucking, Inc.) totaling $696,000, of which
$107,000 has been included in current assets and the balance of $589,000, is
classified as a long term asset. The outstanding balance of the notes bears
interest at 10% per annum with quarterly payments of $26,700 plus accrued
interest with the remaining balance due October, 2004. The Company has agreed
to subordinate its notes receivable to a construction/permanent loan in order
to facilitate the construction of a building on the property.
Note 8. BUILDINGS AND EQUIPMENT (Net)
Buildings and equipment (net) as of December 31 consisted of the following:
[Download Table]
2000 1999
----------- -----------
Buildings and structures........................... $ 2,085,000 $ 2,095,000
Machinery and equipment............................ 1,929,000 3,427,000
----------- -----------
4,014,000 5,522,000
Accumulated depreciation........................... (2,551,000) (2,717,000)
----------- -----------
Total.......................................... $ 1,463,000 $ 2,805,000
=========== ===========
F-12
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. ACCRUED LIABILITIES--CURRENT
The current portion of accrued liabilities as of December 31 consisted of
the following:
[Download Table]
2000 1999
---------- ----------
Environmental insurance settlement liability.......... $1,313,000 $1,313,000
Compensation and related employee costs............... 974,000 1,371,000
Other................................................. 1,537,000 2,314,000
---------- ----------
Total............................................. $3,824,000 $4,998,000
========== ==========
Note 10. ENVIRONMENTAL REMEDIATION RESERVE
With the sale of approximately 588 acres of the Company's Mill Site Property
to CCG in August 2000, substantially all of the environmental liabilities
associated with that property were eliminated; thus, as a result of the sale
and the remediation work undertaken prior to the sale, the Company was able to
reduce its environmental remediation reserves by $21,252,000.
As of December 31, 2000, the Company estimates, based upon current
information, that its future environmental liability related to certain matters
not assumed by CCG in its purchase of the Mill Site Property, such as the
groundwater plume discussed below and other environmental related items,
including, but not linked to remediation at the Eagle Mountain Site, potential
third party property damage and bodily injury claims, would be approximately
$4.5 million. For example, the Company remains contingently liable for any
impacts the elevated total dissolved solid groundwater plume may have on
previously existing water wells owned by third parties. Below is a table
showing the activity in the remediation liability accounts for the years ended
December 31:
[Download Table]
2000 1999
------------ -----------
Beginning Estimated Liability................. $ 26,368,000 $28,270,000
Remediation Costs Eliminated on sale of
Mill Site Property........................... (21,252,000) --
Remediation Costs Incurred.................... (626,000) (1,902,000)
------------ -----------
Ending Estimated Liability.................... 4,490,000 26,368,000
Less: Current Portion......................... -- (2,500,000)
------------ -----------
Long-term Portion............................. $ 4,490,000 $23,868,000
============ ===========
See Note 18, "Commitments and Contingencies" for further information.
Note 11. LONG-TERM DEBT
As of December 31, 2000 and 1999, the Company had no outstanding borrowings
under the Company's $30,000,000 revolving-to-term credit facility with Union
Bank. The facility was cancelled prior to the closing of the sale of the
Company's Fontana Union Stock to Cucamonga.
Total interest expense incurred in 2000, 1999, and 1998 was $151,000,
$1,272,000, and $1,083,000, respectively.
F-13
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12. STOCKHOLDERS' EQUITY
Equity Transactions
During 2000, 1999 and 1998 the Company recorded transactions directly to
stockholders' equity other than changes resulting from net income or equity
transactions with shareholders. These transactions include deferred tax expense
credited to equity due to the utilization of the Company's reorganization NOL
carryforwards repricing of stock options, and the accelerated vesting of stock
options. These amounts for the years ended December 31, 2000, 1999 and 1998 are
as follows:
[Download Table]
2000 1999 1998
-------- ---------- --------
Deferred tax expense credited to equity....... $ -- $6,048,000 $105,000
Repricing of stock options.................... 645,000 -- --
Accelerated vesting of stock options.......... 20,000 54,000 --
-------- ---------- --------
$665,000 $6,102,000 $105,000
======== ========== ========
Common Stock Outstanding
At December 31, 2000 and 1999, Kaiser Ventures Inc. common stock has a par
value of $0.03 and 13,333,333 authorized shares, of which 6,522,700 and
6,316,853 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, 2000 and 1999, 136,919 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 November 1999, the Company purchased 2,730,950 and 1,693,551 shares of
its common stock from the New Kaiser Voluntary Employees' Beneficiary
Association (the "VEBA") and from the Pension Benefit Guaranty Corporation (the
"PBGC"), respectively. The VEBA and the PBGC were the Company's two largest
shareholders. The Company paid $13.00 per share in cash. In addition, the VEBA
and the PBGC will have certain limited participation rights in the future
success of the Company. As a result of the two sales of the Company's remaining
Mill Site Property during 2000, the Company made contingent payments equaling
approximately $1.11 per share. In addition, the VEBA and the PBGC received
five-year warrants to purchase 460,000 and 285,260 shares of the Company's
common stock, respectively. The warrants have an exercise price of $17.00 per
warrant.
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. During 2000 and 1999 the Company incurred $20,000 and
$54,000, respectively, of compensation expense associated with the accelerated
vesting of certain stock options. The Company incurred no compensation expense
during 1998.
In June 1995, the Company's stockholders approved the 1995 Stock Plan. The
1995 Stock Plan provides for the grant of incentive stock options, non-
qualified stock options, restricted stock and other stock related
F-14
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
incentives. In June 1996, the 1995 Stock Plan was amended to reserve up to
859,102 shares for issuance upon exercise of stock options, grants of stock and
other stock related incentives. As a result of the increase in the 1995 Stock
Plan reserve, the Company had 712,650 reserved shares as of December 31, 2000.
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.
In May 2000, the Company's proposed 2000 Stock Plan was not approved by the
shareholders of the Company thus no options were granted in 2000. The Company
in May 2000 granted to each non-employee director who was re-elected or serving
an unexpired term as a member of the Board a restricted stock award of 1,500
shares. The restrictions on these shares lapse equally on the first and second
anniversaries of the grants.
In December 2000, the Company declared and paid a cash distribution of $2.00
per share from the proceeds of the two Mill Site real estate sales in 2000. As
a result of this cash distribution, the Company reduced the exercise price on
all outstanding options by the $2.00 in order to mirror the $2.00 dividend per
share. This repricing required the Company to change to variable plan
accounting for its outstanding options, which resulted in the Company incurring
an expense of $645,000 for 2000. Going forward the Company must revalue all
outstanding options on a quarterly basis and record either additional expense
or a reduction to the previously recorded expense based on positive or negative
fluctuations, respectively, in the market price of the Company's common stock.
In 2000 the Company incurred stock based compensation expense of $2,224,000
related to the exercise of nonqualified stock options.
A summary of the status of the stock option grants under the Company's stock
plans as of December 31, 2000, 1999, and 1998 and activities during the years
ending on those dates is presented below:
[Enlarge/Download Table]
2000 1999 1998
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- --------- --------- --------- --------- ---------
Outstanding at beginning
of year ............... 1,330,961 $11.17 1,502,961 $11.33 1,471,161 $11.28
Granted................. -- -- 46,000 9.00 53,000 10.67
Exercised............... (608,301) 8.97 (60,000) 6.33 (21,200) 6.17
Forfeited............... (10,010) 3.00 (158,000) 13.96 -- --
--------- --------- ---------
Outstanding at end of
year................... 712,650 $10.51 1,330,961 $11.17 1,502,961 $11.33
========= ========= =========
Options exercisable at
year end .............. 712,650 $10.51 1,289,461 $11.22 836,837 $11.41
========= ========= =========
Weighted-average fair
value of options
granted during the
year................... $ N/A $ 2.54 $ 2.27
F-15
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about variable stock options
outstanding as of December 31, 2000:
[Download Table]
Options Exercisable and
Outstanding
Weighted-Average ------------------------
Remaining Weighted-Average
Range of Exercise Prices Life (years) Options Exercise Price
------------------------ ---------------- ------- ----------------
$3.00 to 7.50................ 4.0 116,750 $ 6.63
$7.51 to 15.58............... 3.8 595,900 $11.27
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
its plans. Accordingly, no compensation expense has been recognized for the
Company's stock-based compensation plans other than for compensation and
performance-based stock awards. Had compensation cost for the Company's stock
option plan been determined based upon the fair value at the grant date for the
awards under the plan consistent with the methodology prescribed under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, ("FAS 123"), the effect on the Company's net income and earnings
per share would have been adjusted to the pro forma amounts as indicated below:
[Download Table]
2000 1999 1998
----------- ----------- ----------
Net Earnings
As reported............................ $13,343,000 $24,029,000 $1,232,000
Pro forma.............................. $12,975,000 $23,650,000 $ 757,000
Earnings per share (Basic)
As reported............................ $ 2.09 $ 2.35 $ 0.12
Pro forma.............................. $ 2.03 $ 2.31 $ 0.07
Earnings per share (Diluted)
As reported............................ $ 1.99 $ 2.31 $ 0.11
Pro forma.............................. $ 1.94 $ 2.28 $ 0.07
The Company employed the Black-Scholes option-pricing model in order to
calculate the above reduction in net income and earnings per share. The effect
on net earnings for 2000, 1999, and 1998 is not necessarily representative of
the effect in future years. The following table describes the assumptions
utilized by the Black-Scholes option-pricing model and the resulting fair value
of the options granted:
[Download Table]
1999 1998
----- -----
Volatility................................................... 0.415 0.313
Risk-free interest rate...................................... 6.00% 6.00%
Expected life in years....................................... 2.28 2.05
Forfeiture rate.............................................. 0.00% 0.00%
Dividend yield............................................... 0.00% 0.00%
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, 2000, 3,333 of these options remain vested and unexercised.
F-16
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
[Download Table]
2000 1999 1998
----------- ----------- ----------
Numerator:
Net Income................................ $13,343,000 $24,029,000 $1,232,000
Numerator for basic earnings per share
-income available to common
stockholders............................. $13,343,000 $24,029,000 $1,232,000
Numerator for diluted earnings per share
-income available to common stockholders
......................................... $13,343,000 $24,029,000 $1,232,000
Denominator:
Denominator for basic earnings per share
-weighted-average shares................. 6,394,000 10,226,000 10,664,000
Effect of dilutive options.................. 305,000 160,000 176,000
----------- ----------- ----------
Denominator for diluted earnings per share
-adjusted weighted-average shares and
assumed conversions ....................... 6,699,000 10,386,000 10,840,000
=========== =========== ==========
Basic earnings per share.................... $ 2.09 $ 2.35 $ . 12
=========== =========== ==========
Diluted earnings per share.................. $ 1.99 $ 2.31 $ .11
=========== =========== ==========
For additional disclosures regarding the outstanding employee stock options
see Note 12.
The following table discloses the number of vested and outstanding options
during 2000, 1999, and 1998 that were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price of the common shares and, therefore, the effect would
be antidilutive.
[Download Table]
2000 1999 1998
------------- -------------- --------------
Number of antidilutive
options..................... 136,500 325,000 478,000
Range of option prices for
the antidilutive options.... $14.85-$15.58 $12.55-$17.58 $11.25-$17.58
Note 14. SALE OF MILL SITE PROPERTY
During 2000, the Company sold the bulk of its remaining Fontana Mill Site
Property for $16 million in cash plus the assumption of virtually all known and
unknown environmental obligations and liabilities associated with the Mill Site
Property to CCG. Also during 2000, the Company sold its Rancho Cucamonga Parcel
to The California Speedway Corporation for $3.8 million.
During 1999, the Company sold approximately 13 acres of its Napa Lots, a
portion of the Mill Site Property, in two all cash transactions; 7.8 acres to
Maas-Hansen Steel for $1,699,000, or $5.00 per square foot, and 5.2 acres to
D.T. Sari for $1,110,000, or $4.90 per square foot.
F-17
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 15. SUPPLEMENTAL CASH FLOW INFORMATION
As a result of the sale of the bulk of the Company's remaining Fontana Mill
Site Property to CCG, the Company eliminated $21.3 million in environmental
remediation liabilities.
The Company paid interest during 2000, 1999, and 1998 of $273,000,
$1,314,000, and $1,042,000, respectively.
Income taxes paid in 2000, 1999 and 1998 were $3,755,000, $4,863,000 and
$48,000, respectively.
As a result of the merger between PMI and ISC in July 1999, the Company's
investment in PMI was converted into $24.4 million of cash and $57.0 million of
ISC Class A common stock.
During 1999, the Company issued $62,000 of common stock for payment of 1997
bonuses. During 1998, the Company issued $142,000 of common stock for payment
of 1997 bonuses.
During 1999, the Company carried back a note receivable for $68,000 from
McLeod Properties, Fontana LLC (Budway Trucking, Inc.) from the sale of
approximately one-third of an acre of Mill Site Property.
The Company has not capitalized interest or property taxes during 2000,
1999, and 1998.
Note 16. INCOME TAXES
The income tax provisions for the years ended December 31, 2000, 1999 and
1998 are composed of the following:
[Download Table]
2000 1999 1998
------------ ----------- --------
Current tax expense (credit):
Federal.................................. $ -- $ 1,582,000 $ --
State.................................... 33,000 6,782,000 12,000
------------ ----------- --------
33,000 8,364,000 12,000
------------ ----------- --------
Deferred tax expense credited to equity:
Federal.................................. -- 6,048,000 105,000
State.................................... -- -- --
------------ ----------- --------
-- 6,048,000 105,000
------------ ----------- --------
Deferred tax expense (credit):
Federal.................................. (12,144,000) (1,000,000) --
State.................................... 146,000 (2,211,000) 126,000
------------ ----------- --------
(11,998,000) (3,211,000) 126,000
------------ ----------- --------
$(11,965,000) $11,201,000 $243,000
============ =========== ========
F-18
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
There are no deferred tax amounts recorded as a component of equity
subsequent to December 31, 1999, as all pre-reorganization NOLs have been
utilized. In accordance with FASB 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.
Deferred tax liabilities (assets) are comprised of the following as of
December 31, 2000 and 1999:
[Download Table]
2000 1999
------------ ------------
Land held for development....................... $ 1,911,000 $ --
Investment in Fontana Union..................... 6,392,000 6,392,000
Investment in PMI............................... -- --
Depreciation.................................... 114,000 116,000
------------ ------------
8,417,000 6,508,000
------------ ------------
Land held for development....................... -- (1,103,000)
Environmental remediation....................... (1,788,000) (523,000)
Investment in MRC............................... (1,822,000) (1,823,000)
Accounts receivable reserve..................... (33,000) (107,000)
State Taxes..................................... -- (2,306,000)
Other........................................... (2,200,000) (1,817,000)
Loss carryforwards.............................. (15,672,000) (14,055,000)
------------ ------------
(21,515,000) (21,734,000)
------------ ------------
Less: Deferred tax asset valuation allowance.... 238,000 14,364,000
------------ ------------
$(12,860,000) $ (862,000)
============ ============
The net change in the valuation allowance during 2000, 1999, and 1998 was a
reduction of $14,126,000, $10,635,000, and $759,000, respectively. The decrease
in the valuation allowance for 2000 was due to the anticipated utilization of
net operating loss carry forwards that shall occur during 2001 as a result of
the sale of the Fontana Union stock.
A reconciliation of the effective income tax rate to the federal statutory
rate, for financial reporting purposes, is as follows:
[Download Table]
2000 1999 1998
------ ----- -----
Federal statutory rate.............................. 34.0% 34.0% 34.0%
Increase resulting from state tax, net of federal
benefit............................................ 12.9 12.7 8.1
Federal Alternative Minimum Tax..................... -- 4.5 --
Other............................................... -- -- 1.5
Additional recognition of pre-reorganization
benefits........................................... -- 17.2 3.6
Decrease in post-reorganization valuation
allowance.......................................... (915.2) (40.5) --
Non taxable equity earnings......................... -- 3.9 (30.7)
------ ----- -----
(868.3%) 31.8% 16.5%
====== ===== =====
F-19
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The consolidated NOL carryforwards available for federal income tax purposes
as of December 31, 2000, are approximately $43,000,000 and will expire over a
period from year 2006 through 2013. The amount of NOL carryforwards available
for California state tax purposes as of December 31, 2000 are approximately
$1,000,000 and will expire in 2010. There may be certain limitations as to the
future annual use of NOLs if 50% or more of the stock of the Company changes
ownership.
Note 17. LEASED ASSETS AND SIGNIFICANT CUSTOMERS
Long-Term Leases
The Company has a long-term lease agreement with Management Training
Corporation ("MTC"). Minimum lease payments expected to be received by the
Company through the next five years are as follows:
[Download Table]
Year Ending MTC
December 31 Lease
----------- --------
2001........................................................... $390,000
2002........................................................... $ --
2003........................................................... $ --
2004........................................................... $ --
2005........................................................... $ --
The net book value of Eagle Mountain at December 31, 2000 was approximately
$8.9 million. 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:
[Download Table]
Year Ended Cucamonga MTC
December 31 Lease Lease
----------- ---------- --------
2000.................................................... $5,640,000 $780,000
1999.................................................... $5,228,000 $764,000
1998.................................................... $5,201,000 $729,000
Note 18. COMMITMENTS AND CONTINGENCIES
Environmental Contingencies
As discussed in Note 10 above, the Company estimates, based upon current
information, that its future remediation and other environmental costs,
including groundwater and other possible third party claims, is approximately
$4.5 million.
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 15% 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.
Total expense relative to these plans for the years ended December 31, 2000,
1999, and 1998 was $158,000, $156,000, and $191,000, respectively.
F-20
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Letters of Credit
At December 31, 2000, the Company had guaranteed a letter of credit
outstanding on its behalf to third parties totaling $120,000. This letter of
credit was issued for reclamation activities performed at an idled coal
property, on behalf of and at the expense of the KSC bankruptcy estate.
Note 19. LEGAL PROCEEDINGS
The Company, in the normal course of its business, is involved in various
claims and legal proceedings. A number of litigation matters previously
reported have settled and such settlements did not have a material adverse
impact on the Company's financial statements. 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
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
established a subsidiary, KSC Recovery, Inc., 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. All litigation and bankruptcy administration costs
are borne by KSC Recovery, Inc., which maintains a cash reserve from previous
litigation and other recoveries to fund anticipated ongoing litigation and
administration costs. All major remaining claims in the bankruptcy estate were
settled in 1995, with completion of one major settlement occurring in 1996.
Resolution of these claims allowed for a distribution of cash and stock to most
of the unsecured creditors of the KSC bankruptcy estate in the second quarter
of 1996. Consistent with KSC Recovery, Inc.'s role solely 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, Inc.'s activities. Because of
the minimum activities of the KSC bankruptcy estate, the Bankruptcy Court
terminated its supervision over the estate in October 1996. However, the
bankruptcy estate was recently reopened to address certain litigation matters.
From time-to-time, various other environmental and similar types of claims,
such as the environmental and asbestos litigation discussed above that relate
to KSC pre-bankruptcy activities are asserted against KSC Recovery, Inc. and
the Company. Excluding asbestos claims, there were approximately four
environmental claims resolved through the bankruptcy estate in 2000. 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, except as provided in the KSC Plan as allowed by
law 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.
Asbestos Suits. The Company along with KSC Recovery, Inc. are currently
named in approximately sixty (60) active asbestos lawsuits. The Company and KSC
Recovery, Inc. 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 were aboard Kaiser ships or worked in shipyards in
the Oakland/San Francisco, California area or Vancouver, Washington area in the
1940's and that the Company and/or KSC Recovery, Inc. were in some manner
associated with one or more shipyards or has successor liability. However,
there are several claims
F-21
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
involving other facilities such as the Mill Site Property. Most of these
lawsuits are third party premises claims claiming injury resulting from
exposure to asbestos and involve multiple defendants. The Company anticipates
that it, often along with KSC Recovery, Inc., will be named as a defendant in
additional asbestos lawsuits. A number of large manufactures and/or installers
of asbestos and asbestos containing products have filed for bankruptcy over the
past couple of years, increasing the likelihood that additional suits will be
filed. In addition, the trend has been toward increasing trial damages and
settlement demands. Virtually all of the complaints against the Company and KSC
Recovery, Inc. are non-specific, but involve allegations relating to pre-
bankruptcy activities. 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 substantial
insurance coverage for many of the claims and has tendered these suits to
appropriate insurance carriers. Many, but not all, of the current asbestos
claims are being accepted for defense and indemnity purposes by the insurance
carriers, subject to a reservation of rights. However, there currently is a
dispute as to the amount of insurance coverage. The Company and KSC Recovery,
Inc. are engaged in settlement negotiations with the insurance carriers with
regard to the coverage dispute. In addition, the Company has reserved for
asbestos claims and related matters as a part of its environmental reserves.
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 it
is possible that the bankruptcy discharge will not be recognized in many of the
asbestos claims. Because the claims involve pre-bankruptcy activities, the KSC
bankruptcy estate, through KSC Recovery, Inc. has been incurring defense and
settlement costs, which should in large part be reimbursed by insurance.
Note 20. SUBSEQUENT EVENTS
As of November 14, 2000, the Company entered into that certain Stock
Purchase Agreement and Joint Escrow Instructions pursuant to which the Company
agreed to sell its ownership interest in Fontana Union to Cucamonga for $87.5
million plus approximately $2.5 million in payments due under the lease with
Cucamonga through December 31, 2000. The Company solicited stockholder approval
of the Fontana Union Stock Sale pursuant to that certain Notice of Consent
Solicitation and Consent Solicitation Statement each dated January 5, 2001.
After stockholder approval of the proposed transaction in February 2001, the
Fontana Union Stock Sale was completed on March 6, 2001. Subsequent to the
closing of the sale, the Company paid approximately $4.6 million pursuant to
the commission agreement that the Company had executed in regard to finding a
lessee for its Fontana Union shares.
Effective February 1, 2001, the Company sold various mineral properties,
including the Silver Lake Mine, an active iron ore mine, for approximately $2.0
million. The Company received cash of approximately $700,000 in the transaction
with the balance of the purchase price represented by buyers' promissory note.
The principal balance of the promissory note accrues interest at the rate of 8%
per annum and is payable over a term of five years. The assets sold secure the
note.
F-22
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 21. QUARTERLY FINANCIAL DATA (Unaudited)
[Download Table]
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ----------- -----------
2000
Resource revenues............ $1,408,000 $1,593,000 $ 1,526,000 $ 3,117,000
Income (loss) from
operations.................. $ 393,000 $ 745,000 $ 283,000 $ (624,000)
Income (loss) before income
tax provision............... $ 501,000 $ 793,000 $ 449,000 $ (365,000)
Net income................... $ 300,000 $ 476,000 $ 269,000 $12,298,000
Earnings per share
Basic...................... $ 0.05 $ .07 $ 0.04 $ 1.93
Diluted.................... $ 0.04 $ .07 $ 0.04 $ 1.84
1999
Resource revenues............ $ 833,000 $1,269,000 $40,394,000 $ 7,020,000
Income (loss) from
operations.................. $ (223,000) $ 304,000 $39,254,000 $(3,607,000)
Income (loss) before income
tax provision............... $ (542,000) $ (30,000) $39,150,000 $(3,348,000)
Net (loss) income............ $ (327,000) $ (26,000) $29,307,000 $(4,925,000)
Earnings (loss) per share
Basic...................... $ (.03) $ .00 $ 2.77 $ (.39)
Diluted.................... $ (.03) $ .00 $ 2.73 $ (.39)
F-23
KAISER VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF
[Download Table]
March 31, December 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
------
Current Assets
Cash and cash equivalents........................... $ 93,235,000 $10,097,000
Accounts receivable and other, net of allowance for
doubtful accounts of $83,000....................... 487,000 2,497,000
Deferred tax assets................................. -- 10,699,000
Note receivable..................................... 323,000 107,000
------------ -----------
94,045,000 23,400,000
------------ -----------
Investment in Fontana Union Water Company............ -- 16,612,000
------------ -----------
Investment in West Valley MRF........................ 3,917,000 3,660,000
------------ -----------
Real Estate
Land and improvements............................... 8,303,000 8,543,000
------------ -----------
Other Assets
Note Receivable..................................... 1,603,000 589,000
Deferred tax assets................................. -- 2,161,000
Landfill permitting and development................. 18,839,000 18,354,000
Buildings and equipment (net)....................... 1,401,000 1,463,000
Other assets........................................ -- 6,000
------------ -----------
21,843,000 22,573,000
------------ -----------
Total Assets......................................... $128,108,000 $74,788,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable.................................... $ 901,000 $ 302,000
Income taxes payable................................ 4,379,000 --
Accrued liabilities................................. 2,885,000 3,824,000
------------ -----------
8,165,000 4,126,000
------------ -----------
Long-term Liabilities
Deferred gain on sale of real estate................ 669,000 696,000
Accrued liabilities................................. 598,000 722,000
Environmental remediation........................... 4,481,000 4,490,000
------------ -----------
5,748,000 5,908,000
------------ -----------
Total Liabilities.................................... 13,913,000 10,034,000
------------ -----------
Minority Interest.................................... 5,280,000 5,280,000
------------ -----------
Commitments and Contingencies
Stockholders' Equity
Common stock, par value $.03 per share, authorized
13,333,333 shares; issued and outstanding 6,552,087
and 6,522,700 respectively......................... 196,000 195,000
Capital in excess of par value...................... 53,107,000 51,676,000
Retained earnings................................... 55,612,000 7,603,000
------------ -----------
Total Stockholders' Equity........................... 108,915,000 59,474,000
------------ -----------
Total Liabilities and Stockholders' Equity........... $128,108,000 $74,788,000
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-24
KAISER VENTURES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
for the Three Months Ended March 31
[Download Table]
2001 2000
----------- ----------
Resource Revenues
Ongoing Operations
Gain on sale of FUWC............................... $65,171,000 $ --
Water resource..................................... 295,000 1,155,000
Gain on Sale of California Mines................... 1,756,000 --
Deferred gain on Mill Site land sales.............. 27,000 --
Income (loss) from equity method investment in the
West Valley MRF, LLC.............................. 257,000 329,000
----------- ----------
Total ongoing operations........................ 67,506,000 1,484,000
----------- ----------
Interim Activities Net Loss......................... (31,000) (75,000)
----------- ----------
Total resource revenues......................... 67,475,000 1,409,000
----------- ----------
Resource Operating Costs.............................. 42,000 173,000
----------- ----------
Income from Resources................................. 67,433,000 1,236,000
Corporate General and Administrative Expenses
Corporate overhead expenses, excluding stock based
compensation and stock option repricing expenses .. 999,000 843,000
Stock based compensation expense.................... 195,000 --
Stock option repricing expense...................... 1,155,000 --
----------- ----------
2,349,000 843,000
----------- ----------
Income from Operations................................ 65,084,000 393,000
Net interest income................................... (386,000) (108,000)
----------- ----------
Income before Income Tax Provision.................... 65,470,000 501,000
Income tax provision.................................. 17,461,000 201,000
----------- ----------
Net Income............................................ $48,009,000 $ 300,000
=========== ==========
Basic Income Per Share................................ $ 7.35 $ .05
=========== ==========
Diluted Income Per Share.............................. $ 7.26 $ .04
=========== ==========
Basic Weighted Average Number of Shares Outstanding... 6,535,000 6,346,000
Diluted Weighted Average Number of Shares
Outstanding.......................................... 6,612,000 6,747,000
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
KAISER VENTURES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Three Months Ended March 31
[Download Table]
2001 2000
------------ -----------
Cash Flows from Operating Activities
Net income......................................... $ 48,009,000 $ 300,000
(Income) from equity method investments............ (257,000) (329,000)
Gain on sale of FUWC Stock......................... (65,171,000) --
Gain on sale of California Mines................... (1,756,000) --
Deferred tax expense............................... 12,860,000 --
Stock based compensation expense................... 159,000 --
Stock option repricing............................. 1,155,000 --
Depreciation and amortization...................... 69,000 127,000
Allowance for doubtful accounts.................... -- (7,000)
Mill Site deferred gain realized................... (27,000) --
Changes in assets:
Receivables and other............................ 2,010,000 637,000
Changes in liabilities:
Current liabilities.............................. (461,000) (851,000)
Income taxes payable............................. 4,379,000 (3,501,000)
Long-term accrued liabilities.................... (124,000) (92,000)
------------ -----------
Net cash flows from operating activities........... 845,000 (3,716,000)
------------ -----------
Cash Flows from Investing Activities
Proceeds from the sale of FUWC Stock............... 81,783,000 --
Proceeds from the sale of the California Mines..... 726,000 --
Minority interest and other liabilities............ -- 416,000
Note receivable collections........................ 39,000 27,000
Investment in FUWC................................. -- (654,000)
Capital expenditures............................... (365,000) (1,150,000)
Environmental remediation expenditures............. (9,000) (249,000)
------------ -----------
Net cash flows from investing activities........... 82,174,000 (1,610,000)
------------ -----------
Cash Flows from Financing Activities
Issuance of common stock........................... 119,000 455,000
------------ -----------
Net cash flows from financing activities........... 119,000 455,000
------------ -----------
Net Changes in Cash and Cash Equivalents............. 83,138,000 (4,871,000)
Cash and Cash Equivalents at Beginning of Year....... 10,097,000 14,686,000
------------ -----------
Cash and Cash Equivalents at End of Quarter.......... $ 93,235,000 $ 9,815,000
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-26
KAISER VENTURES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the Three Months Ended March 31, 2001
[Download Table]
Common Stock Capital In
------------------ Excess of Retained
Shares Amount Par Value Earnings Total
--------- -------- ----------- ----------- ------------
Balance at December 31,
2000................... 6,522,700 $195,000 $51,676,000 $ 7,603,000 $ 59,474,000
Issuance of shares of
Common stock......... 29,387 1,000 1,431,000 -- 1,432,000
Net Income............ -- -- -- 48,009,000 48,009,000
--------- -------- ----------- ----------- ------------
Balance at March 31,
2001................... 6,552,087 $196,000 $53,107,000 $55,612,000 $108,915,000
========= ======== =========== =========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-27
KAISER VENTURES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
The unaudited, consolidated financial statements as of March 31, 2001 and
for the three month periods ended March 31, 2001 and 2000, as well as related
notes, should be read in conjunction with the audited consolidated financial
statements and related notes as of and for the year ended December 31, 2000. In
the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary (all of which are normal and/or recurring in
nature) to present fairly the Company's financial position at March 31, 2001,
and results of operations and cash flows for the three month periods ended
March 31, 2001 and 2000.
Reclassification
Certain amounts in the prior year have been reclassified to conform to the
current year financial statement presentation.
Note 2. CUCAMONGA LEASE
Effective March 6, 2001, the Company completed the sale of its approximately
53.71% ownership interest in the capital stock of Fontana Union Water Company
("FUWC") a mutual water company, to Cucamonga for $87.5 million. Included in
the net gain of $65.2 million was the payment of $1.0 million to management
pursuant to the Company's Long-Term Transaction Incentive Program. In addition,
the Company received approximately $2.5 million in payments under the lease of
FUWC shares to Cucamonga. Stockholder approval for the sale was obtained. With
the sale of the FUWC interest, the lease with Cucamonga was effectively
terminated and the rate dispute litigation between the Company and Cucamonga
was settled.
In connection with the sale of the Company's ownership interest in Fontana
Union, the Company terminated its $30 million credit facility with Union Bank
that was secured by Fontana Union stock and the Cucamonga Lease.
Note 3. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 2001, the Company sold its
California Mine Property for $2 million, $700,000 down and $1.3 million on a
note receivable secured by the real estate.
During the three months ended March 31, 2001 the Company had 44,833 stock
options exercised on a net basis. These transactions resulted in the Company
receiving 30,146 shares of its own common stock as payment for the purchase
price of the options and for the payment of income taxes.
Note 4. COMMITMENTS AND CONTINGENCIES
Environmental Contingencies. As of March 31, 2001, the Company estimates,
based upon current information, that its future environmental liability related
to certain matters not assumed by CCG Ontario, LLC in its purchase of the Mill
Site Property, including groundwater and other possible third party claims,
would be approximately $4.5 million. The Company remains contingently liable
for any impacts the elevated total dissolved solid groundwater plume may have
on water wells owned by third parties.
F-28
ANNEX A
AGREEMENT AND PLAN OF MERGER
of
KAISER VENTURES INC., a Delaware corporation
and
KAISER VENTURES LLC, a Delaware limited liability company
This Agreement and Plan of Merger (the "Agreement") is made as of ,
2001, between Kaiser Ventures Inc., a Delaware corporation ("KVI"), and Kaiser
Ventures LLC, a Delaware limited liability company ("KVLLC"), with reference to
the following facts:
A. The Board of Directors and stockholders of KVI have determined that
merging KVI into KVLLC would, among other things, permit KVI and its
stockholders to take advantage of certain tax planning strategies while
increasing KVI's flexibility in dealing with its assets;
B. Due in part to these advantages, the Board of Directors and stockholders
of KVI have determined that it is in the best interests of KVI and its
stockholders to merge KVI with and into KVLLC pursuant to the provisions of the
Delaware General Corporation Law and upon the terms and conditions hereinafter
set forth; and
C. The managers and members of KVLLC have determined that it is in the best
interests of KVLLC and its members to merge KVI with and into KVLLC pursuant to
the provisions of the Delaware Limited Liability Company Act and upon the terms
and conditions hereinafter set forth, which is intended to constitute a "plan of
liquidation" of KVI for federal income tax purposes.
NOW, THEREFORE, in consideration of the mutual premises contained herein,
the parties hereby agree as follows:
1. Merger of KVI into KVLLC. Pursuant to the provisions of the Delaware
General Corporation Law and the Delaware Limited Liability Company Act, KVI
shall be merged with and into KVLLC, and KVLLC shall be the surviving company
(the "Surviving Company") after the Effective Time of the merger (the
"Merger"). The effective time of the Agreement, and the time when the Merger
shall become effective, shall be as set out in the filing with the Secretary
for State for the State of Delaware (the "Effective Time"). The separate
existence of KVI shall cease at the Effective Time in accordance with the
provisions of the Delaware General Corporation Law and pursuant to the
provisions of the Delaware Limited Liability Company Act.
2. Operating Agreement; Managers and Officers; Capital Structure. The
Operating Agreement of KVLLC, as in force and effect immediately prior to the
Merger, shall continue to be the Operating Agreement of the Surviving Company
after the Effective Time. The directors of KVI immediately prior to the
Effective Time shall be the managers, and the officers of KVI shall be the
officers, of the Surviving Company after the Effective Time, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be. At the Effective Time, the Surviving
Company will have issued and outstanding Class A membership units (each a
"Class A Unit") and nonvoting Class B membership units (each a "Class B Unit").
3. Effect of Merger on Equity. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of KVI
common stock (the issued and outstanding shares of KVI Stock, the "KVI Stock"),
or any Class A Units or Class B Units, each share of KVI Stock, Class A Unit
and Class B Unit shall be converted or treated as set forth below:
3.1. KVI Common Stock. At the Effective Time, each outstanding share of
KVI Stock shall be automatically converted into the right to receive
$[10.00] in cash ("Cash Consideration") and one Class A Unit. Subject to
Section 3.4, at the Effective Time, all shares of KVI Stock shall
automatically be cancelled and retired and shall cease to exist or be
outstanding, and each holder of a certificate
A-1
representing any such shares of KVI Stock shall cease to have any rights
with respect thereto, except the right to receive the Cash Consideration
and one Unit for each share of KVI Stock. Any common stock of KVI held by
KVLLC will be cancelled.
3.2. KVI Options and Warrants. At the Effective Time, each outstanding
and unexercised option and warrant (each, a "Derivative Security") to
purchase shares of KVI Stock (whether vested or unvested) immediately prior
thereto shall cease to represent a right to acquire KVI Stock and shall
automatically be converted into the right to receive the following:
3.2.1. If the exercise price per share of a Derivative Security is
greater than the Cash Consideration, such Derivative Security shall be
converted automatically into the right to receive a new Derivative
Security to purchase, on the same terms and conditions as the original
Derivative Security, a number of Class A Units equal to the number of
shares of Common Stock subject to the original Derivative Security, but
with an exercise price per Class A Unit equal to the exercise price per
share of Common Stock of the original Derivative Security less the Cash
Consideration.
3.2.2. If the exercise price per share of a Derivative Security is
less than the Cash Consideration, such Derivative Security shall be
deemed exercised and converted automatically into the right to receive,
for each share of Common Stock subject to the Derivative Security, (a)
cash in an amount equal to the Cash Consideration less the exercise
price per share of Common Stock of the original Derivative Security and
(b) one Class A Unit.
At the Effective Time, all Derivative Securities of KVI shall
automatically be cancelled and retired and shall cease to exist or be
outstanding, and each holder of a certificate or agreement representing
any such Derivative Security shall cease to have any rights with
respect thereto, except the right to receive the consideration set
forth above.
3.3. KVLLC Units. At the Effective Time, each Class A Unit outstanding
prior to the Merger will be cancelled. Each Class B Unit outstanding prior
to the Merger will remain outstanding, unaffected by the Merger.
3.4. Shares of Dissenting KVI Stockholders. Notwithstanding anything in
this Agreement to the contrary, no issued and outstanding shares of KVI
Stock held by a person (a "Dissenting Stockholder") who objects to the
Merger and complies with all the provisions of Delaware law concerning the
right of holders of KVI Stock to dissent from the Merger and require
appraisal of their shares of KVI Stock ("Dissenting Shares") shall be
converted as described in Sections 3.1, but instead shall be converted into
the right to receive such consideration as may be determined to be due to
such Dissenting Stockholder pursuant to the laws of the State of Delaware
under Section 262 of the Delaware General Corporation Law (the "DGCL"). If,
after the Effective Time, a Dissenting Stockholder withdraws his or her
demand for appraisal or fails to perfect or otherwise loses his or her
right of appraisal, in any case pursuant to the DGCL, his or her shares of
KVI Stock shall be deemed to be converted as of the Effective Time into the
right to receive the consideration set forth under Section 3.1. KVI shall
not, without the prior written consent of KVLLC, make any payment with
respect to, or settle, offer to settle or otherwise negotiate, any such
demands.
4. Exchange of Certificates.
4.1. Exchange Procedure. As soon as reasonably practicable after the
Effective Time, KVLLC shall mail or otherwise deliver to each holder of
record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of KVI Stock (or, in the case
of Derivative Securities, any agreement representing those Securities)
(collectively, the "Certificates") (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Surviving Company and shall be in a form and have such other provisions as
the Surviving Company may reasonably specify) and (ii) instructions for use
A-2
in effecting the surrender of the Certificates in exchange for the
consideration set forth in Section 3. Upon surrender of a Certificate for
cancellation to the Surviving Company or to such other agent or agents as
may be appointed by the Surviving Company, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Surviving Company, the Surviving Company shall pay or
provide to the holder of such Certificate in exchange therefor the amount
of consideration into which the shares of KVI Stock theretofore represented
by such Certificate shall have been converted pursuant to Section 3, and
the Certificate so surrendered shall forthwith be cancelled. In the event
of a transfer of ownership of KVI Stock which is not registered in the
transfer records of KVI, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of such Certificate or establish to the satisfaction of
the Surviving Company such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 4.1, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the consideration, without interest, into which
the shares of KVI Stock theretofore represented by such Certificate shall
have been converted pursuant to this Section 4.1. No interest will be paid
or will accrue on the cash payable upon the surrender of any Certificate.
In the event a holder of KVI Stock is unable to deliver a Certificate
for cancellation and exchange, in addition to a duly executed letter of
transmittal, such stockholder shall deliver to the Surviving Company
(i) evidence reasonably satisfactory to the Surviving Company of the loss,
theft, destruction or mutilation of any Certificate, (ii) except in the
case of mutilation, an indemnity or security reasonably satisfactory to the
Company, and (iii) such other documents as may reasonably be required by
the Surviving Company.
4.2. No Further Ownership Rights in KVI Stock. All consideration paid
upon the surrender of Certificates in accordance with the terms of this
Section 4 shall be deemed to have been paid in full satisfaction of all
rights pertaining to the KVI Stock theretofore represented by such
Certificates, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Company of the KVI Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Company for any
reason, they shall be cancelled and exchanged as provided in this Section
4.
4.3. No Liability. None of KVI, KVLLC nor the Surviving Company shall be
liable to any person in respect of any consideration delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law. If any Certificates shall not have been surrendered prior to seven
years after the Effective Time (or immediately prior to such earlier date
on which any payment pursuant to this Section 4 would otherwise escheat to
or become the property of any governmental entity), the consideration in
respect of such Certificate shall, to the extent permitted by applicable
law, become the property of the Surviving Company, free and clear of all
claims or interests of any person previously entitled thereto.
5. Termination of Agreement. Notwithstanding the full adoption of this
Agreement, it may be terminated at any time prior to the Effective Time by (i)
written agreement approved by the Board of Directors of KVI and the managers
of KVLLC, or (ii) by either party without cause after , 2001.
6. Federal Income Tax Treatment.
The parties hereto intend that the Merger be treated, for federal income tax
purposes, as a tax-free contribution by KVI of certain of its assets to KVLLC
in exchange for Class A Units and the assumption of liabilities, if any, by
KVLLC under section 721 of the Internal Revenue Code of 1986, as amended (the
"Code"), followed by the distribution of such units and cash by KVI to its
shareholders in complete liquidation of KVI within the meaning of section 336
of the Code. Each party hereto shall prepare its tax returns, and shall not
take any action before or after the Effective Time that is inconsistent with,
the intended tax treatment of the Merger as described in the preceding
sentence.
7. Miscellaneous Provisions.
7.1. Entire Understanding; Modifications. This Agreement sets forth the
entire agreement and understanding of the parties hereto in respect to the
Transaction, and supersedes all prior written and oral agreements,
arrangements and understandings, and all contemporaneous oral agreements,
arrangements and understandings, relating to the subject matter hereof and
is not intended to confer upon any other person any rights or remedies
hereunder. There have been no representations or statements, oral or
written, that have been relied on by any party hereto, except those
expressly set forth in this Agreement. This Agreement may not be amended,
altered or modified except in a writing signed by both parties.
A-3
7.2. No Third Party Benefits. None of the provisions of this Agreement
shall be for the benefit of, or enforceable by, any third party
beneficiary.
7.3. Governing Law; Jurisdiction. This Agreement has been negotiated and
entered into in the State of Delaware, concerns a Delaware business and all
questions with respect to the Agreement and the rights and liabilities of
the parties will be governed by the laws of that state, regardless of the
choice of law provisions of Delaware or any other jurisdiction. Any and all
disputes between the parties which may arise pursuant to this Agreement
will be heard and determined before an appropriate federal or state court
located in Los Angeles, California. The parties hereto acknowledge that
such court has the jurisdiction to interpret and enforce the provisions of
this Agreement and the parties waive any and all objections that they may
have as to personal jurisdiction or venue in any of the above courts.
7.4. Rules of Construction.
7.4.1. Headings. The Article and Section headings in this Agreement
are inserted only as a matter of convenience, and in no way define,
limit, or extend or interpret the scope of this Agreement or of any
particular Article or Section.
7.4.2. Severability. The validity, legality or enforceability of the
remainder of this Agreement will not be affected even if one or more of
the provisions of this Agreement will be held to be invalid, illegal or
unenforceable in any respect.
7.5. Expenses. Except as may be awarded for damages as a result of any
breach of this Agreement or otherwise agreed in writing by the parties, the
parties hereto will each pay all of their own expenses incurred in
connection with the authorization, preparation, execution and performance
of this Agreement and the Transaction, including, without limitation, all
fees and expenses of their respective agents, representatives, counsel and
accountants.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
KAISER VENTURES INC.
By:
----------------------------------
Its:
KAISER VENTURES LLC
By:
----------------------------------
Its:
A-4
CERTIFICATE OF SECRETARY
OF
KAISER VENTURES INC.
The undersigned, being the Secretary of Kaiser Ventures Inc., a Delaware
corporation ("KVI"), does hereby certify that the foregoing Agreement and Plan
of Merger was approved in accordance with Section 264 of the Delaware General
Corporation Law by the holders of at least a majority of the outstanding stock
of KVI entitled to vote thereon, and that prompt written notice of the adoption
has been given to those stockholders who have not indicated their consent
thereto.
Dated: , 2001.
-------------------------------------
Terry L. Cook, Secretary
A-5
CERTIFICATE OF AUTHORIZED PERSON
OF
KAISER VENTURES LLC
The undersigned, being an authorized person of Kaiser Ventures LLC, a
Delaware limited liability company, does hereby certify that the foregoing
Agreement and Plan of Merger was approved in accordance with the Limited
Liability Company Agreement of said limited liability company and in accordance
with Section 18-302 of the Delaware Limited Liability Company Act.
Dated: , 2001.
-------------------------------------
Terry L. Cook, Authorized Person
A-6
ANNEX B
Operating Agreement
FOR
Kaiser Ventures llc
A DELAWARE LIMITED LIABILITY COMPANY
======================================
OPERATING AGREEMENT
FOR
Kaiser Ventures LLC
A Delaware Limited Liability Company
This Operating Agreement (the "Agreement") is made as of July 10, 2001,
with reference to the following facts:
A. On July 10, 2001, a Certificate of Formation (the "Certificate") for
Kaiser Ventures LLC (the "Company"), a limited liability company under the laws
of the State of Delaware, was filed with the Delaware Secretary of State. As of
July 10, 2001 Kaiser Ventures Inc., a Delaware corporation, ("KVI") contributed
$100 in exchange for 1 Unit. Capitalized terms are generally defined in
Schedule 0.
B. KVI wishes to adopt and approve an operating agreement for the Company to
establish its rights and responsibilities and to govern the Company's Members.
NOW, THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, KVI by this Agreement sets forth the operating agreement
for the Company under the laws of the State of Delaware.
1. ORGANIZATIONAL MATTERS
1.1. Formation. Pursuant to the Act, the Company was formed as a Delaware
---------
limited liability company under the laws of the State of Delaware by filing the
Certificate with the Delaware Secretary of State and entering into this
Agreement. The rights and liabilities of the Members shall be determined
pursuant to the Act and this Agreement. To the extent that the rights or
obligations of any Member are different by reason of any provision of this
Agreement than they would be in the absence of such provision, this Agreement
shall, to the extent permitted by the Act, control.
1.2. Name. The name of the Company shall be "Kaiser Ventures LLC." The
----
business of the Company may be conducted under that name or, upon compliance
with applicable laws, any other name that the Board deems appropriate or
advisable. The President shall file any fictitious name certificates and
similar filings, and any amendments thereto, that the Board considers
appropriate or advisable.
1.3. Term. The term of this Agreement shall be perpetual, unless sooner
----
terminated as hereinafter provided.
1.4. Office and Agent. The Company shall continuously maintain an office
----------------
and registered agent in the State of Delaware, as required by the Act. The
principal office of the Company shall be as determined by the Board (the
"Principal Office"). The Company also may have such offices, anywhere within
and without the State of Delaware, as the Board from time to time may determine
or the business of the Company may require. The registered agent shall be as
stated in the Certificate or as otherwise determined by the Board.
1.5. Addresses of the Members. The respective names and addresses of and
------------------------
numbers and classes of Units held by the Members are set forth on Exhibit A.
---------
The Company shall revise
-1-
Exhibit A from time to time as changes in the information on that Exhibit occur,
---------
and may engage a transfer agent or other party to maintain such list on its
behalf.
1.6. Purpose of Company. The purpose of the Company is to engage in any
------------------
lawful activity for which a limited liability company may be organized under the
Act.
1.7. Approval and Effect of Merger. Each Member hereby approves the
-----------------------------
merger of the Company with KVI, with the Company being the surviving entity (the
"Merger"), and this Agreement being the Operating Agreement of the surviving
entity. Upon the Effective Time of the Merger, each holder of Common Stock of
KVI will automatically be admitted as a Member of the Company, holding that
number of Units equal to the number of shares of KVI Common Stock held by such
person immediately prior to the Merger, and with a capital account equal to the
value of tax basis of the assets contributed by KVI divided by the number of
Class A Units issued in the Merger.
1.8. Approval of Sale of Substantially All of the Assets. The Company has
---------------------------------------------------
been formed with the expectation that the remaining assets of KVI will be sold
or otherwise disposed of in an orderly fashion as the Board deems reasonable.
Accordingly, no additional consent of the Members is required for any such sale
or disposition, even if such sale or disposition involves substantially all of
the assets of the Company.
2. UNITS
2.1. Units. The Membership Interest of each of the Members in the Company
-----
shall consist of a number of "Units." The Units will initially consist of Class
A Units (the "Class A Units") and, if the Company issues non-voting Class B
Units (the "Class B Units"), the Units will include Class A Units and Class B
Units.
2.2. Issuance of Units. Subject to compliance with all of the terms of
-----------------
this Agreement and applicable law, the Company may issue Units at any time and
from time to time for such consideration as may be approved by the Board. It is
currently anticipated that, prior to the consummation of the Merger, an
aggregate of approximately 752,000 Class B Units will be issued to Richard A.
Daniels, Gary W. Johnson and Kay Hazen, three former managers of MRC. Additional
classes of Units may be authorized by an amendment to this Agreement approved by
a Majority of the Members. No additional Class B Units may be issued.
3. CAPITAL CONTRIBUTIONS
3.1. Initial Capital Contributions. KVI has contributed $100 in cash for
-----------------------------
the Class A Units purchased by KVI. Upon issuance of Class B Units, each Class B
Member will initially have a capital account equal to zero.
3.2. Additional Capital Contributions. No Member shall be required to make
--------------------------------
any additional Capital Contributions except as set forth in a written
subscription agreement signed by that Member. No Member shall be entitled to
make any additional Capital Contributions unless approved by the Board.
Immediately following any additional Capital Contributions, the Capital Account
of the existing Members shall be adjusted (for book but not tax purposes) to
reflect the value ascribed to the newly issued Units.
-2-
3.3. Capital Accounts. The Company shall establish an individual Capital
----------------
Account for each Member. The Company shall determine and maintain each Capital
Account in accordance with Regulations Section 1.704-1(b)(2)(iv). If a Member
transfers all or a part of such Member's Membership Interest in accordance with
this Agreement, such Member's Capital Account attributable to the transferred
Membership Interest shall carry over to the new owner of such Membership
Interest pursuant to Regulations Section 1.704-1(b)(2)(iv)(1). Each Capital
Account shall consist of a Member's paid-in Capital Contribution(s) (whether in
cash, property, services or otherwise) (a) increased by such Member's allocated
share of Net Profits in accordance with Article 4 hereof, (b) decreased by such
Member's allocated share of Net Losses and distributions in accordance with
Article 4 hereof, and (c) adjusted as otherwise required in accordance with the
Code, Regulations and generally accepted accounting principles (to the extent
consistent with the Code and Regulations).
3.4. No Interest. No Member shall be entitled to receive any interest on
-----------
such Member's Capital Contributions.
3.5. No Right to Withdraw Capital. No Member shall be entitled to make
----------------------------
withdrawals from, or to receive repayment of, its Capital Account except as
expressly provided herein. Each Member shall look solely to the assets of the
Company, and no Member shall look to any other Member or to any Manager for the
return of its Capital Contributions or any amount in its Capital Account.
4. ALLOCATIONS OF NET PROFITS AND NET LOSSES
4.1. Allocation of Net Profits and Net Losses. Subject to the Regulatory
----------------------------------------
Allocations in Schedule I, Net Profits and Net Losses shall be allocated as
follows: During any year in which the Class B Units receive a distribution under
Section 5.2.1 hereof, the Class B Units will be allocated an amount of the Net
Profits for that year equal to the amount of such distribution, or if the
Company does not have Net Profits in that year equal to or greater than the
amount of such distribution, the Class B Units shall be allocated items of Gross
Income equal to the excess of the distribution over the Net Profits so
allocated. All other items of income, gain, loss, or deduction of the Company
will be allocated to the Class A Units according to their Percentage Interests.
4.2. Tax-Book Differences. For tax purposes, items will be allocated to
--------------------
the Members in the same manner as for book purposes, except that: (i) Code
Section 704(c) shall apply to the allocation of items of income, gain,
deduction, and loss related to contributed property having an adjusted federal
income tax basis at the time of contribution that differs from its fair market
value; and (ii) Regulations Section 1.704-1(b)(2)(iv)(f)(4) shall apply to the
items of income, gain, deduction, and loss related to property with a book value
adjusted pursuant to Regulations Section 1.704-1(b)(2)(iv)(f). In cases where
Code Section 704(c) or Regulations Section 1.704-1(b)(2)(iv)(f) applies, the
Members' Capital Accounts shall be adjusted in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g). In the event that the book value of property is
adjusted pursuant to Regulations Section 1.704-1(b)(2)(iv)(f), (i) the Members'
Capital Accounts shall also be adjusted as required by Regulations Section
1.704-1(b)(2)(iv)(f)(2) and (ii) thereafter, in applying the allocation
provisions of this Agreement for book purposes, the unrealized items reflected
in the Capital Account adjustments required by Regulations Section 1.704-
1(b)(2)(iv)(f)(2) shall be deemed to have been allocated to the Members pursuant
to such allocation provisions.
-3-
4.3. Obligations of Members to Report Consistently. The Members agree to
---------------------------------------------
be bound by the provisions of this Agreement in reporting their respective
shares of Company income and loss for income tax purposes.
4.4. Tax Elections. The Board may, in its sole discretion, cause the
-------------
Company to make any elections required or permitted to be made by the Company
under the Code and not otherwise expressly provided for in this Agreement,
including, without limitation, the election referred to in Code Section 754 and
corresponding provisions of state law; provided, however, that if the election
-------- -------
referred to in Code Section 754 and corresponding provisions of state law is
made, the Company shall not be required to make (and shall not be obligated to
bear the expenses of making) any accounting adjustment resulting from such
election in the information supplied to the Members, or if it provides such
adjustments the Membership shall have the right to charge the Members benefiting
from such election for the Company's reasonable expenses in making such
adjustments. Each of the Members will, upon request, supply the information
necessary to give proper effect to such election.
4.5. Variations in Percentage Interests. If the number of Units are
----------------------------------
increased or decreased by reason of the admission of a new Member or the
repurchase of a Member's Units, additional Capital Contributions or otherwise,
during any Fiscal Year, each item of income, gain, loss, deduction or credit of
the Company for such Fiscal Year shall be allocated among the Members by the
Board in accordance with any method permitted by Code Section 706(d) and the
applicable Regulations in order to take into account the Members' varying
Percentage Interests during the year.
5. DISTRIBUTIONS
5.1. Distribution of Assets by the Company. Subject to applicable law
-------------------------------------
and any limitations contained elsewhere in this Agreement, the Board may elect
in its discretion from time to time to distribute cash or property to the
Members, except that no distribution shall be made if, after giving effect to
the distribution, the Company would not be able to pay its debts as they become
due in the usual course of business.
5.2. Allocations of Distributions. Subject to Section 5.3, all
----------------------------
distributions shall be made as follows:
5.2.1. Class B Members. Within 45 days after MRC's receipt of any
---------------
Purchase Price Payment, the Company shall first distribute an amount per Class B
Unit outstanding equal to (a) $1.00 times (b) the Purchase Price Payment divided
by (c) $41,000,000 (the "Class B Distribution"); and
5.2.2. Class A Members Distributions to the Class A Members shall
---------------
be made in proportion to their Percentage Interests. If a Class B Distribution
is triggered under Section 5.2.1, then the Company shall make the Class B
Distribution before making any distribution to the Class A Members.
5.3. Persons to Receive Distribution. All distributions shall be made to
-------------------------------
the Persons who, according to the books and records of the Company, are the
holders of record of the Units in respect of which such distributions are made
on the record date for the distribution, which shall not be more than 60 days
prior to the distribution with respect to the Class A Units, and 45
-4-
days prior to the distribution with respect to Class B Units. Neither the
Company nor any Company Person shall incur any liability for making
distributions in accordance with this Section.
5.4. Form of Distribution. A Member, regardless of the nature of the
--------------------
Member's Capital Contribution, has no right to demand and receive any
distribution from the Company in any form other than money. No Member may be
compelled to accept from the Company a distribution of any asset in kind in lieu
of a proportionate distribution of money being made to other Members. A Member
may be compelled to accept a distribution of any asset in kind from the Company
to the extent that the percentage of the asset distributed to such Member is
equal to a percentage of that asset which is equal to the percentage in which
such Member shares in distributions from the Company.
5.5. Withholding on Distributions. Each Member agrees that the
----------------------------
Company may deduct and withhold amounts for tax or other obligations of such
Member on any amount distributed or allocated by the Company to such Member if
the Company believes in good faith that it is required by law to do so. Each
Member shall promptly furnish the Tax Matters Partner with an Internal Revenue
Service Form W-8 or W-9, as applicable. All amounts so withheld with respect to
such Member shall be treated as amounts distributed to such Person for all
purposes under this Agreement. In addition, the affected Member shall reimburse
the Company for any such amounts so withheld to the extent not deducted from a
distribution.
5.6. Return of Distributions. Except for distributions made in
-----------------------
violation of the Act or as expressly set forth in this Agreement or any other
written agreement executed by such Person, no Company Person shall be obligated
to return any distribution to the Company or pay the amount of any distribution
for the account of the Company or to any creditor of the Company. The amount of
any distribution returned to the Company by a Member or paid by a Member for the
account of the Company or to a creditor of the Company shall be added to the
account or accounts from which it was subtracted when it was distributed to the
Member.
6. MEMBERS
6.1. Admission of Additional Members. No additional Members shall be
-------------------------------
admitted unless approved by the Board. No additional Member shall become a
Member until such additional Member has made any required Capital Contribution
and has become a party to this Agreement.
6.2. Transactions with the Company. Subject to applicable law, a
-----------------------------
Company Person or Affiliate thereof has the same rights and obligations with
respect to a transaction with the Company as a Person who is not a Member.
6.3. Members Are Not Agents. Pursuant to Section and the Certificate,
----------------------
the management of the Company is vested in the Board. No Member, acting solely
in the capacity of a Member, is an agent of the Company nor can any Member in
such capacity bind or execute any instrument on behalf of the Company or render
the Company liable for any purpose.
6.4. Voting. At all Members' meetings, every holder of Class A Units
------
entitled to vote shall have the right to one vote for each Class A Unit
outstanding in his or her name on the records of the Company only to the extent
expressly provided in this Agreement or the Certificate, or as requested by the
Board. Such vote may be viva voce or by ballot. When a quorum is present and
---- ----
-5-
an action other than the election of Managers is to be taken by a vote of
Members, such action shall be authorized by a Voting Majority of the Members,
unless a greater vote is otherwise required by this Agreement or by law.
Managers shall be elected by a plurality of the votes cast by Class A Unit
Members at any election. No Class A Unit Member will be permitted to cumulate
votes at any election of Managers. The Class B Units will not have the right to
vote on, any matter except as required by law, but will receive notice of
Members' meetings and will be entitled to attend such meetings.
6.5. Meetings of Members.
-------------------
6.5.1. Place of Meetings. All meetings of Members shall be held
-----------------
either at the principal office of the Company or at any other place designated
by the Board.
6.5.2. Annual Meeting. The annual meeting of Members shall be held
--------------
at such time and on such date as the Board shall determine. At the meeting,
Managers shall be elected by the Class A Unit Members, and any other proper
business transacted.
6.5.3. Special Meetings. Special meetings of Members, for any
----------------
purpose whatsoever, may be called at any time by the Chief Executive Officer, if
any, or by the President if there is no Chief Executive Officer, or shall be
called by the Secretary or any Assistant Secretary upon written request (stating
the purpose for which the meeting is to be called) of a majority of the Board.
6.5.4. Notice of Meetings. Except as provided in Section 6.5.5
------------------
below, written notice (in the manner described in Section 6.5.5 below) of annual
and special meetings shall be sent to each Member entitled to attend such
meeting not less than ten (10) days nor more than sixty (60) days before the
date of the meeting, whether annual or special, and shall specify the place, the
day and the hour of such meeting, and the purpose or purposes of the meeting.
The notice of any meeting at which Managers are to be elected shall include the
name of any nominee or nominees who at the time of the notice, the Board intends
to present for election by the Class A Unit Members.
If any notice addressed to a Member at the address of that Member
appearing on the books of the Company is returned to the Company by the United
States Postal Service marked to indicate that the United States Postal Service
is unable to deliver the notice to the Member at that address, then all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available to the Member on written demand of the
Member at the principal executive office of the Company for a period of one (1)
year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
Members' meeting, executed by the Secretary, Assistant Secretary or any transfer
agent of the Company giving the notice, shall be prima facie evidence of the
giving of such notice.
6.5.5. Advance Notice Requirements for Member Proposals and Manager
------------------------------------------------------------
Nominations. At an annual meeting of the Members, only such business shall be
-----------
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, nominations for the election of
Managers or other business must be (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board; (b) otherwise
properly brought before the meeting by or at the direction of the Board; or (c)
otherwise properly brought before the meeting by a Class A Unit Member. For
business to be properly brought before an annual meeting by a Class A Unit
Member, or for a Class A Unit
-6-
Member to nominate candidates for election as Managers at an annual or special
meeting of the Members, the Class A Unit Member must have given timely notice
thereof in writing and in proper form to the Secretary of the Company. To be
timely, a Class A Unit Member's notice must be delivered, or mailed to and
received at the principal executive offices of the Company:
(a) in the case of an annual meeting that is called for a date
that is within 30 days before or after the anniversary date of
the immediately preceding annual meeting of Members, not less
than 60 days nor more than 90 days prior to such anniversary
date; and
(b) in the case of an annual meeting that is not called for a
date that is within 30 days before or after the anniversary date
of the immediately preceding annual meeting, or in the case of a
special meeting of the Members at which Managers will be elected,
not later than the close of business on the tenth day following
the date on which notice of the date of the meeting was mailed or
public disclosure of the date of the meeting was made, whichever
occurs first.
To be in proper form a Class A Unit Member's notice to the Secretary
shall set forth as to each matter: (i) the name and address of the Class A Unit
Member who intends to make the nominations or propose the business and, as the
case may be, of the person or persons to be nominated or of the business to be
proposed; (ii) a representation that the Class A Unit Member is a holder of
record of Class A Units entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (iii) if applicable, a description of all
arrangements or understandings between the Class A Unit Member and each nominee
and any other person or persons pursuant to which the nomination or nominations
are to be made by the member; (iv) such other information regarding each nominee
or each matter of business to be proposed by such Class A Unit Member as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the nominee been nominated,
or intended to be nominated, or the matter been proposed, or intended to be
proposed by the Board; and (v) if applicable, the consent of each nominee to
serve as Manager of the Company if so elected. Notwithstanding anything in this
Agreement to the contrary, no business shall be conducted at any annual meeting
or special meeting called for the purpose of electing Managers except in
accordance with the procedures set forth in this Section 6.5.5. The Chairman of
the annual meeting shall, if the facts warrant, determine and declare to the
meeting that the nomination of any person or other business was not properly
brought before the meeting and in accordance with the provisions of this Section
6.5.5, and if he or she should so determine, he or she shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted or the nomination of any person acknowledged.
A Class B Unit Member who is not also a Class A Unit Member is not
entitled to bring business before an annual or special meeting of the Members.
6.5.6. Adjourned Meetings and Notice Thereof. Any Members' meeting,
-------------------------------------
whether annual or special, and whether or not a quorum is present, may be
adjourned from time to time by the vote of a Voting Majority of the Members, but
in the absence of a quorum no other business may be transacted at any such
meeting. At the adjourned meeting, the Company may transact any business that
might have been transacted at the original meeting.
-7-
When any Members' meeting, either annual or special, is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting. Except as aforesaid, it shall not be necessary
to give any notice of an adjournment or of the business to be transacted at an
adjourned meeting, other than by announcement at the meeting at which such
adjournment is taken.
6.5.7. Quorum. The presence in person or by proxy of the holders of
------
a Majority shall constitute a quorum for the transaction of business, except as
otherwise provided by this Agreement or by law. The Members present at a duly
called or held meeting at which a quorum is initially present may continue to do
business until adjournment, notwithstanding the withdrawal of enough Members to
leave less than a quorum; provided that any action taken is approved by at least
--------
a majority of the Units required to constitute a quorum. Regardless of whether a
quorum is present, a Members' meeting may be adjourned as provided in Section
6.4.6 above.
6.5.8. Conduct of Business. The Chairman of the Board, or in the
-------------------
absence of the Chairman of the Board, the Vice Chairman of the Board or in the
absence of the Vice Chairman of the Board, the President shall call the meeting
of Members to order, and shall act as chairman of the meeting. The chairman of
any meeting of Members shall determine the order of business and the procedures
at the meeting, including such matters as the regulation of the manner of voting
and the conduct of business. The Secretary, or in the absence of the Secretary
the Assistant Secretary, of the Company shall act as Secretary of all meetings
of the Members, but in the absence of the Secretary or Assistant Secretary at
any meeting of the Members, the presiding officer may appoint any person to act
as secretary of the meeting.
6.6. Action Without Meeting. Any action, except the election of
----------------------
Manager s, which under the provisions of the Act may be taken at a meeting of
the Members, may be taken without a meeting if authorized by the written consent
of Members holding at least a Majority; provided, if any greater proportion of
voting power is required for such action at a meeting, then such greater
proportion of written consents shall be required.
6.7. Proxies. Every person entitled to vote at or execute consents in
-------
connection with a Members' meeting shall have the right to do so either in
person or by an agent or agents authorized by a written proxy executed by such
person or his duly authorized agent and filed with the Secretary of the Company;
provided that no such proxy shall be valid after the expiration of three (3)
years from the date of its execution, unless the Member executing it specifies
therein a longer period of time. A proxy shall be deemed executed if the
Member's name is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the Member or the Member's attorney-
in-fact. A proxy shall be irrevocable if it states that it is irrevocable and
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A Member may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by delivering a proxy in accordance
with applicable law bearing a later date to the Secretary of the Company.
6.8. List of Members. The Secretary of the Company or other officer or
---------------
agent who is in charge of the Unit ledger of the Company shall prepare and make,
at least ten (10) days before every Members' meeting, a complete list of the
Members entitled to vote at the meeting, or any adjournment of the meeting,
arranged in alphabetical order, and showing the address of each Member and the
number of Units registered in the name of each Member. Such list shall be open
to the examination of any Member, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, at the principal business
-8-
office of the Company. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
Member who is present. The Company's Unit ledger shall be the only evidence as
to who are the Members entitled to examine the Unit ledger, the Members entitled
to vote in person or by proxy at any meeting of the Members and the number of
Units held by each of them.
6.9. Questions Concerning Elections. The Board may, in advance of a
------------------------------
Members' meeting, or the presiding officer may, at such meeting, appoint one or
more inspectors to act at a Members' meeting or any adjournment. If appointed,
the inspectors shall determine the number of Units outstanding and the voting
power of each, the Units represented at the meeting, the existence of a quorum,
the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine challenges and questions arising in connection with
the right to vote, count and tabulate votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all Members.
7. MANAGEMENT AND CONTROL OF THE COMPANY.
7.1. Management of the Company by Board.
----------------------------------
7.1.1. Powers. Subject to limitations of the Certificate, this
Agreement and the Act as to actions to be authorized or approved by the Members,
and subject to the duties of Managers as prescribed by this Agreement, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Company shall be controlled by, the Board. Without
prejudice to such general powers, but subject to the same limitations, it is
hereby expressly declared that the Board shall have the following powers, to
wit:
First - To select and remove all the other officers, agents and
employees of the Company, prescribe such powers and duties for them as
may not be inconsistent with law, with the Certificate or this
Agreement and fix their compensation.
Second - To conduct, manage and control the affairs and business of
the Company, and to make such rules and regulations therefore not
inconsistent with law, with the Certificate or this Agreement, as they
may deem best.
Third - To fix and locate from time to time one or more subsidiary
offices of the Company within or without the State of Delaware, as
provided in Article I, Section 2, hereof; and to adopt, make and use a
company seal, and to prescribe the forms of certificates of Units, and
to alter the form of such seal and of such certificates from time to
time, as in their judgment they may deem best, provided such seal and
such certificates shall at all times comply with the provisions of
law.
Fourth - To authorize the issuance of Units of the Company from time
to time, upon such terms as may be lawful, in consideration of cash,
services rendered, personal property, real property, leases of real
property, or a combination thereof.
Fifth - To authorize the outstanding Units to be changed into or
exchanged for a different number or kind of Units or securities of the
Company through reorganization, recapitalization, reclassification,
dividend, split, reverse split or other similar transaction, so long
as an appropriate and proportionate adjustment is made in changed or
exchanged Units.
-9-
Sixth - To authorize the sale, contribution, transfer, assignment or
conveyance of the Company's interest in West Valley Materials Recovery
Facility and Transfer Station, MRC and/or other assets.
Seventh - To borrow money and incur indebtedness for the purposes of the
Company, and to cause to be executed and delivered therefore, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt and
securities therefore.
Eighth - To appoint one or more committees, each consisting of one or more
Managers (including the appointment of one or more Managers as alternates)
and to delegate to the executive committee and any other committee any of
the powers and authority of the Board in the management of the business and
affairs of the Company, including the authority to authorize the issuance
of equity, equity equivalent and/or debt securities, except that no
committee shall have the power to amend the Certificate, adopt an agreement
of merger or consolidation, recommend to the Members a dissolution, fill
vacancies on the Board or revocation of a dissolution, nor amend this
Agreement. Any executive committee shall be composed of two or more
Managers. Each committee and its members shall serve at the pleasure of
the Board, which may at any time change the members and powers of, or
discharge the committee. Unless the Board by resolution designates the
chairman of the committee, each committee shall elect its own chairman, who
shall be a member of such committee. The Chief Executive Officer, if any,
shall be an ex officio member of each committee.
7.1.2. Number and Qualification of Managers. The business of the Company
------------------------------------
shall be managed by or under the direction of a Board consisting of five (5)
Managers, each of whom shall be at least 18 years of age, but who need not be
Members nor residents of the State of Delaware. The number of Managers of the
Company may be fixed from time to time by resolution of the Board; provided,
however, that the number of Managers shall not be reduced so as to shorten the
term of any Manager in office. Each Manager, in his or her capacity as a
Manager, shall have no authority to act alone, but the Managers shall only act
as a Board (or a duly authorized committee thereof) as provided in this
Agreement.
7.1.3. Election and Term. Subject to the provisions of the Certificate and
-----------------
this Agreement, the Managers shall be elected at each annual meeting of Members,
but if any such annual meeting is not held, or the Managers are not elected
thereat, the Managers may be elected at any special meeting of Members held for
that purpose and all Managers shall hold office until their respective
successors are elected and qualified.
7.1.4. Resignation. A Manager may resign by written notice to the Company
-----------
or the Board. A Manager's resignation is effective upon its receipt or a later
time set forth in the notice of resignation. If the resignation of a Manager is
effective at a future time, the Board may elect a successor to take office when
the resignation becomes effective.
7.1.5. Removal. One or more Managers may be removed with or without
-------
cause by vote of the holders of a majority of the Units entitled to vote at an
election of Managers cast at a meeting of the Members called for that purpose.
-10-
7.1.6. Vacancies. Newly created seats on the Board resulting from an
---------
increase in the number of Managers, or vacancies occurring in the Board for any
reason, may be filled by a vote of the majority of the Managers then in office,
even if less than a quorum of Managers are present in person or in writing at
the Board meeting at which the new Manager is elected. A Manager elected to fill
a vacancy caused by resignation, death or removal shall be elected to hold
office for the unexpired term of his predecessor.
7.1.7. Place of Meeting. All meetings of the Board shall be held at the
----------------
principal business office of the Company or at any other place designated at any
time by resolution of the Board or by written consent of all members of the
Board.
7.1.8. Regular Meetings. Regular meetings of the Board or any committee
----------------
of the Board shall be held without notice at such places and times as the Board
or committee determines at least thirty (30) days before the meeting.
7.1.9. Special Meetings. Special meetings of the Board for any purpose or
----------------
purposes shall be called at any time by the Chief Executive Officer, if any, and
if there is no Chief Executive Officer, the President or, if he or she is absent
or unable or refuses to act, by two Managers. Special meetings of Board
committees may be called by the chairman of the committee or a majority of
committee members pursuant to this Section 7.1.9.
Written notice of the time and place of special meetings shall be delivered
personally to the Managers or sent to each Manager, but the notice need not
specify the business to be transacted at, nor the purpose of the meeting. Each
Manager shall receive two (2) days notice prior to the date of any special
meeting if the notice is given by mail, or 24 hours notice of the special
meeting if notice is given by any other means specified in Section 12.4. If
notice of a special meeting is given by mail and it is given less than four (4)
days prior to the date of the meeting, a confirming notice shall also be given
by one of the other means allowed pursuant to Section 12.4.
7.1.10. Notice of Adjournment. Notice of the time and place of holding an
---------------------
adjourned meeting of a Board meeting, either regular or special, shall be given
to absent Managers in the manner specified in Section 7.1.9 or in any other
manner constituting actual notice.
7.1.11. Quorum; Required Number for Approval. At all meetings of the Board
------------------------------------
or a committee of the Board a majority of the authorized number of Managers
shall be necessary and sufficient to constitute a quorum for the transaction of
business, except to fill vacancies in the Board as provided in Section 7.1.6,
and except to adjourn as provided in Section 7.1.12. Every act or decision done
or made by a majority of the Managers present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board or the committee, as
applicable.
7.1.12. Adjournment. A quorum of the Board may adjourn any Board meeting
-----------
to meet again at a stated day and hour; provided, however, that in the absence
-------- -------
of a quorum, a majority of the Managers present at any Board meeting, either
regular or special, may adjourn a Board meeting.
7.1.13. Fees and Compensation. Managers shall receive such compensation
---------------------
for their services as Managers as shall be determined from time to time by
resolution of the Board. Any Manager who serves the Company in any other
capacity as an officer, agent, employee or otherwise shall not receive
compensation therefore unless otherwise specifically authorized by the Board.
-11-
7.1.14. Telephonic Participation. Managers may participate in a Board or
------------------------
Board committee meeting by means of conference telephone or similar
communication equipment through which all persons participating in the meeting
can communicate with each other. Participation in a meeting pursuant to this
Section 7.1.14 constitutes presence in person at such meeting.
7.1.15. Action Without Meeting. Unless otherwise restricted by the
----------------------
Certificate or this Agreement, any action required or permitted to be taken at
any meeting of the Board or of any committee may be taken without a meeting if a
written consent thereto is signed by all members of the Board or of such
committee. Such written consent shall be filed with the minutes of the
proceedings of the Board or committee.
7.1.16. Advisory Managers. The Board from time to time may elect one or
-----------------
more persons to be advisory Managers who shall not, by such appointment, be
members of the Board. Advisory Managers shall be available from time to time to
perform special assignments specified by the Chief Executive Officer, if any, or
the President, to attend meetings of the Board upon invitation and to furnish
consultation to the Board. The period during which the title shall be held may
be prescribed by the Board. If no period is prescribed, the title shall be held
at the pleasure of the Board.
7.1.16.1. Procedures. The provisions of this Agreement relating to meetings
----------
of the Board shall apply to meetings of each committee, substituting the word
"committee" or "members of the committee" wherever the words "Board " or
"Managers" appear, unless the context requires otherwise. Subject to the
foregoing, the procedures for notice and conduct of meetings of each committee
shall be as prescribed by the Board or, in the absence of prescription by the
Board, as prescribed by the committee.
7.2. Officers.
--------
7.2.1. Officers. The officers of the Company, who need not be Managers,
--------
shall be a President, a Secretary, and a Chief Financial Officer. The Company
may also have, at the discretion of the Board, a Chief Executive Officer, one or
more Executive Vice Presidents, Senior Vice Presidents, Vice Presidents,
Assistant Secretaries, Assistant Treasurers, and one or more other officers, as
may be appointed in accordance with the provisions of Section 7.2.2. In
addition, the Board may appoint a Chairman and Vice Chairman of the Board. One
person may hold two or more offices. An officer need not be a Member, a resident
of the State of Delaware or citizen of the United States. The officers shall
exercise such powers and perform such duties as specified in this Agreement and
as shall be determined from time to time by the Managers, or, if no such duties
are specified, shall be as provided in Schedule II. In addition to the powers
and duties specifically prescribed for the respective officers, the Managers may
from time to time by resolution impose or confer upon any of the officers such
additional duties and powers as the Managers may see fit, and/or determine the
order of seniority among the officers. Any such resolution may be final, subject
only to further action by the Managers, or the resolution may grant such
discretion, as the Managers deems appropriate, to the Chairman of the Board or
to the President (or in his absence the Vice President serving in his place) to
impose or confer additional duties and powers and to determine the order of
seniority among officers. The Managers, the Chairman of the Board or the
President may designate any officer or officers to substitute for and assume the
duties, powers and authority of any absent officer or officers in any instances
not provided for above.
-12-
7.2.2. Election. The officers of the Company, except such officers as may
--------
be appointed in accordance with the provisions of Section 7.2.3 or Section
7.2.6, shall be chosen by the Board, subject to the rights, if any, of an
officer under any contract of employment.
7.2.3. Subordinate Officers. The Board may appoint such other officers as
--------------------
the business of the Company may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in this
Agreement or as the Board may from time to time determine.
7.2.4. Removal. Any officer may be removed, either with or without cause,
-------
by a majority of the Managers at the time in office, at any regular or special
meeting of the Board, or, except in case of an officer chosen by the Board, by
an officer upon whom such power of removal may be conferred by the Board. The
removal of an officer shall be without prejudice to his or her contractual
rights, if any.
7.2.5. Resignation. Any officer may resign at any time by giving written
-----------
notice to the Board or to the President, or to the Secretary of the Company. Any
such resignation shall take effect at the date of the receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
7.2.6. Vacancies. A vacancy in any office because of death, resignation,
---------
removal, disqualification or any other cause shall be filled in the manner
prescribed in this Agreement for regular appointments to such office.
7.3. General.
-------
7.3.1. Limited Liability. Except as required under the Act or as
-----------------
expressly set forth in this Agreement, no person shall be personally liable for
any debt, obligation or liability of the Company, whether that liability or
obligation arises in contract, tort or otherwise, solely by reason of being a
Company Person.
7.3.2. Performance of Duties; Liability of Company Persons. No Company
---------------------------------------------------
Person shall be liable to the Company or to any Member for any loss or damage
sustained by the Company or any Member if, (i) he or she shall have acted in
good faith and in a manner he or she reasonably believed was consistent with the
best interests of the Company, and (ii) if the Proceeding is a criminal
Proceeding, he or she had no reasonable cause to believe that his or her conduct
was unlawful. The Company shall not indemnify any Person if that Person's action
is finally adjudged to have been willful misconduct, knowingly fraudulent or
deliberately dishonest.
7.3.3. Devotion of Time. Except as required by any individual contract,
----------------
no Company Person is obligated to devote all of his or her time or business
efforts to the affairs of the Company, but shall devote such time, effort and
skill as he or she deems appropriate for the operation of the Company.
7.3.4. Competing Activities. Except as provided by any applicable
--------------------
individual contract, any Company Person (and their respective officers,
Managers, shareholders, partners, members, managers, agents and Affiliates) may
engage or invest in, independently or with
-13-
others, any business activity of any type or description, including those that
might be the same as or similar to the Company's business and that might be in
direct or indirect competition with the Company. Neither the Company nor any
Member shall have any right in or to such other ventures or activities or to the
income or proceeds derived therefrom. Except as provided by any applicable
individual contract, no Company Person shall be obligated to present any
investment opportunity or prospective economic advantage to the Company, even if
the opportunity is of the character that, if presented to the Company, could be
taken by the Company.
7.3.5. Payments to Company Persons. Except as specified in this Agreement
---------------------------
or as provided by a written agreement or otherwise approved by the Board, no
Company Person in his or her capacity as such is entitled to remuneration for
services rendered or for reimbursement for overhead expenses including, without
limitation, rent and general office expenses.
8. TRANSFER AND ASSIGNMENT OF INTERESTS
8.1. Transfer and Assignment of Interests.
------------------------------------
8.1.1. Class A Units. No Member shall be entitled to Transfer all or any
-------------
part of its Class A Units, unless all of the following conditions have been met:
(a) the Company shall have received written notice of the proposed Transfer,
setting forth the circumstances and details thereof; (b) the Company shall (at
its option) have received an attorney's written opinion, in a form reasonably
satisfactory to the Company, specifying the nature and circumstances of the
proposed Transfer, and based on such facts stating that the proposed Transfer
will not be in violation of any of the registration provisions of the Securities
Act of 1933, as amended, or any applicable state securities laws; (c) the
Company shall have received from the Transferee (and any Transferee's spouse if
such spouse might receive a community property interest in the Units) a written
consent to be bound by all of the terms and conditions of this Agreement in form
satisfactory to the Company; (d) the Company shall be reasonably satisfied that
the Transfer could not cause the termination of the Company or otherwise
materially affect the tax treatment of the Company in any way; (e) the Company
is reimbursed upon request for its reasonable expenses in connection with the
Transfer, and (f) the Transfer complies with all other applicable requirements
of this Agreement. The Company may refuse to allow any Transfer if it believes
that, as a result of such Transfer individually or taken together with any other
Transfers, the Company could be treated as a publicly traded partnership under
the Code. Similarly, upon the approval of the Board, the Company may repurchase
any outstanding Units with the consent of the holder, provided that it believes
that, as a result of such Transfer individually or taken together with any other
Transfers, the Company will not be treated as a publicly traded partnership
under the Code.
8.1.2. Class B Units. The Class B Unit Members may not Transfer Class B
-------------
Units or the right to receive any Class B Distribution.
8.2. Manner of Transfer or Assignment. Upon satisfaction of the
--------------------------------
conditions to Transfer of Class A Units set forth in this Agreement and by law,
upon delivery of the Class A Unit certificate to the Company, or its transfer
agent, duly endorsed for Transfer, the Company will cause an executed Class A
Unit certificate of like tenor to be delivered to each transferee.
-14-
8.3. Lost Unit Certificates. Upon receipt of (i) evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Unit certificate and (ii) except in the case of mutilation, an indemnity or
security reasonably satisfactory to the Company, the Company will promptly
execute and deliver a replacement Unit certificate of like tenor.
8.4. Effect of Non Compliance. Transfers or assignments in violation of
------------------------
this Article 8 shall be null and void ab initio. After the consummation of any
-- ------
transfer or assignment of any Class A Units in accordance with this Article 8,
the Membership Interest so transferred or assigned shall continue to be subject
to the terms and provisions of this Agreement and any further transfers or
assignments shall be required to comply with all the terms and provisions of
this Agreement.
8.5. Effective Date of Permitted Transfers. Any permitted transfer of all
-------------------------------------
or any portion of a Member's Class A Units shall be effective as of the date
upon which the requirements of Section 8.1 have been met.
8.6. Withdrawals, Resignations or Retirements. Except as required by law,
----------------------------------------
no Member may withdraw or resign.
9. ACCOUNTING, RECORDS, REPORTING BY MEMBERS
9.1.1. Books and Records. The books and records of the Company shall be
-----------------
kept, and the financial position and the results of its operations recorded in
accordance with the accounting methods followed for federal income tax purposes
for income allocation and distribution purposes. The books and records of the
Company shall reflect all the Company transactions and shall be appropriate and
adequate for the Company's business and such be maintained in accordance with
the requirements of applicable law. Each Member shall have rights of inspection
as required by applicable law.
9.2. Bank Accounts. The Chief Financial Officer shall maintain
-------------
Company funds in one or more separate bank accounts in the name of the Company,
and shall not permit Company funds to be commingled in any fashion with the
funds of any other Person.
9.3. Accounting Decisions and Reliance on Others. Subject to review
-------------------------------------------
by the Board, decisions as to accounting matters, except as otherwise
specifically set forth herein, shall be made by the Chief Financial Officer. The
Board may rely upon recommendations by the Chief Financial Officer or the advice
of the Company's accountants.
9.4. Tax Matters for the Company Handled by the Board and Tax Matters
----------------------------------------------------------------
Partner. The Board shall from time to time cause the Company to make such tax
-------
elections as the Board deems to be in the best interests of the Company and the
Members. The Tax Matters Partner, as defined in Code Section 6231, shall
represent the Company (at the Company's expense) in connection with all
examinations of the Company's affairs by tax authorities, including resulting
judicial and administrative proceedings, and shall expend Company funds for
professional services and costs associated therewith. The Tax Matters Partner
shall oversee the Company's tax affairs in the overall best interests of the
Company. Members holding a Majority may designate another Person to be Tax
Matters Partner at any time.
10. DISSOLUTION AND WINDING UP
-15-
10.1. Dissolution. The Company shall be dissolved, its assets shall be
-----------
disposed of, and its affairs wound up on the first to occur of the following
(each a "Dissolution Event"):
10.1.1. The happening of any event of dissolution specified in the
Certificate;
10.1.2. The entry of a decree of judicial dissolution pursuant to Section
18-802 of the Act; and
10.1.3. The vote by a Majority of the Class A Unit Members.
10.2. Certificate of Dissolution. As soon as possible following the
--------------------------
occurrence of any of the events specified in Section 10.1, the Board shall, and
if its fails to do so within 90 days, any Class A Unit Member may, cause to be
executed a Certificate of Dissolution in such form as shall be prescribed by the
Delaware Secretary of State and file the Certificate of Dissolution as required
by the Act.
10.3. Winding Up. Upon the occurrence of any event specified in Section
----------
10.1, the Company shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the claims
of its creditors. The Board (or if they cannot do so, any Class A Unit Member
may) shall be responsible for overseeing the winding up and liquidation of
Company, shall take full account of the liabilities and assets of the Company,
shall either cause its assets to be sold or distributed, and if sold as promptly
as is consistent with obtaining the fair market value thereof, shall cause the
proceeds therefrom, to the extent sufficient therefor, to be applied and
distributed as provided in Section 10.5. The Persons winding up the affairs of
the Company shall give written notice of the commencement of winding up by mail
to all known creditors and claimants whose addresses appear on the records of
the Company. The Persons winding up the affairs of the Company shall be entitled
to reasonable compensation for such services.
10.4. Distributions in Kind. Any non-cash asset distributed to one or
---------------------
more Members shall first be valued at its fair market value to determine the Net
Profit or Net Loss that would have resulted if such asset were sold for such
value, such Net Profit or Net Loss shall then be allocated pursuant to Article
4, and the Members' Capital Accounts shall be adjusted to reflect such
allocations. The amount distributed and charged to the Capital Account of each
Member receiving an interest in such distributed asset shall be the fair market
value of such interest (net of any liability secured by such asset that such
Member assumes or takes subject to). The fair market value of such asset shall
be determined by the Board or by the Members, or if any Member objects, by an
independent appraiser (any such appraiser must be recognized as an expert in
valuing the type of asset involved) selected by the Board or liquidating trustee
and approved by the Members.
10.5. Order of Payment of Liabilities upon Dissolution. After determining
------------------------------------------------
that all known debts and liabilities of the Company in the process of winding-
up, including, without limitation, debts and liabilities to Members who are
creditors of the Company, have been paid or adequately provided for, the
remaining assets shall be distributed to the Members in accordance with Article
5, after taking into account income and loss allocations for the Company's
taxable year during which liquidation occurs. Such liquidating distributions
shall be made by the end of the Company's taxable year in which the Company is
liquidated, or, if later, within ninety (90) days after the date of such
liquidation.
-6-
10.6. Compliance with Regulations. All payments to the Members upon the
---------------------------
winding up and dissolution of the Company shall be strictly in accordance with
the positive capital account balance limitation and other requirements of
Regulations Section 1.704-1 (b)(2)(ii)(d).
10.7. Limitations on Payments Made in Dissolution. Except as otherwise
-------------------------------------------
specifically provided in this Agreement, each Member shall be entitled to look
solely at the assets of the Company for the return of its positive Capital
Account balance and shall have no recourse for such Member's Capital
Contribution and/or share of Net Profits (upon dissolution or otherwise) against
the officers, or any other Member, except as provided in Article 11.
10.8. No Action for Dissolution. No Member has any interest in specific
-------------------------
property of the Company. Without limiting the foregoing, each Member irrevocably
waives any right that it may have to maintain any action for partition with
respect to the property of the Company. Except as expressly permitted in this
Agreement, a Member shall not take any voluntary action that directly causes a
Dissolution Event. The Members acknowledge that irreparable damage would be done
to the goodwill and reputation of the Company if any Member should bring an
action in court to dissolve the Company under circumstances where dissolution is
not provided for by Section 10.1. This Agreement has been drawn carefully to
provide fair treatment of all parties and equitable payment in liquidation of
the Company. Accordingly, except where the Members have failed to liquidate the
Company as required by this Article 10, each Member hereby waives and renounces
such Member's right to initiate legal action to seek the appointment of a
receiver or trustee to liquidate the Company or to seek a decree of judicial
dissolution of the Company on the ground that (a) it is not reasonably
practicable to carry on the business of the Company in conformity with the
Certificate or this Agreement, or (b) dissolution is reasonably necessary for
the protection of the rights or interests of the complaining Member.
11. INDEMNIFICATION AND INSURANCE
11.1. Indemnification of Indemnified Persons.
--------------------------------------
11.1.1. General. The Company shall indemnify any Indemnified Person
-------
against all Liabilities that he or she has actually and reasonably incurred or
paid in connection with a Proceeding described in paragraph 11.2.1, if he or she
(i) meets the standard of conduct described in paragraph 11.1.2, and (ii)
properly makes application for indemnification as described in paragraph 11.2.
The Board of Managers may, in its sole discretion, indemnify any other Person,
who is not an Indemnified Person, against all Liabilities that such Person has
actually and reasonably incurred or paid in connection with a Proceeding on
terms determined by the Board of Managers at that time, which terms may be less
favorable to the indemnitee than those described in the mandatory
indemnification provisions below.
11.1.2. Standard of Conduct. The Company shall only indemnify a Person
-------------------
if, in connection with his or her actions which are the subject of the
Proceeding, (i) he or she shall have acted in good faith and in a manner he or
she reasonably believed was consistent with the best interests of the Company,
and (ii) if the Proceeding is a criminal Proceeding, he or she had no reasonable
cause to believe that his or her conduct was unlawful. The Company shall not
indemnify any Person if that Person's action is finally adjudged to have been
willful misconduct, knowingly fraudulent or deliberately dishonest.
11.1.3. Burden of Proof. An Indemnified Person shall be conclusively
---------------
presumed to have met these standards of conduct unless a court of competent
jurisdiction finally determines
-17-
to the contrary. The Company shall bear the burden of proof of establishing by
clear and convincing evidence that such Indemnified Person failed to meet the
applicable standard of conduct. The termination of any Proceeding, whether by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that an Indemnified
Person did not meet the applicable standard of conduct.
11.1.4. Payment of Expenses. Expenses incurred by an Indemnified Person
-------------------
in connection with a Proceeding shall be paid by the Company in advance of the
final disposition of the Proceeding upon receipt of his or her written
undertaking to repay any advances if it is ultimately determined that he or she
is not entitled to be indemnified by the Company as authorized in this Article
11.
11.2. Application for Indemnification.
-------------------------------
11.2.1. Proceedings Covered. Any Person may apply for
-------------------
indemnification if he or she was or is a party to, or is threatened to be made a
party to, or otherwise becomes involved in, any Proceeding (including any
Proceeding by or in the right of the Company), in the case of an Indemnified
Person, because of his or her status as such, and in the case of any other
Person, because he or she is or was an agent of the Company. Except with the
consent of the Board of Managers or as provided in Section 11.3 with respect to
a Proceeding brought to establish or enforce a right to indemnification under
this Agreement, the Company will not be required to indemnify any Person,
including any Indemnified Person, with respect to a Proceeding or portion of a
Proceeding which that Person initiated or brought voluntarily and not by way of
defense.
11.2.2. Content of Application. The application for
----------------------
indemnification shall be in writing, shall state the basis for the claim for
indemnification, and shall include a copy of any notice or other document served
on or otherwise received by the Person making the application. The application
shall also contain a statement that the Person making the application has met
the applicable standard of conduct described in paragraph 11.1.2 and will comply
with the provisions of this Article 11.
11.2.3. Determination of Right to Indemnification. The
determination of whether or not to indemnify an Indemnified Person in connection
with any Proceeding shall be made by any of the following means:
(i) by the Managers, by a majority vote of a quorum
consisting of Managers who are not parties to the Proceeding; or
(ii) if no such quorum is obtainable or, even if
obtainable, a quorum of the disinterested Managers so directs, by independent
legal counsel in a written opinion; or
(iii) by the Members, by a vote of a Majority of
Members, whether or not constituting a quorum, who are not parties to the
Proceeding.
11.3. Enforcement of Indemnification Right. The right of an Indemnified
------------------------------------
Person to indemnification or an advance of Expenses as provided by this Article
11 shall be enforceable in any court of competent jurisdiction. Any
determination by the Managers, Members, or the Company's independent legal
counsel that indemnification or an advance is improper in the circumstances, or
any failure to make such a determination, shall not be a defense to the action
-18-
or create a presumption that the relevant standard of conduct has not been met.
An Indemnified Person's Expenses incurred in connection with any Proceeding
brought to enforce his or her right to indemnification shall also be indemnified
by the Company, regardless of the outcome, unless a court of competent
jurisdiction finally determines that each of the material assertions made by
such Indemnified Person in the Proceeding was not made in good faith or were
frivolous.
11.4. Limitations on Indemnification. No payments pursuant to this
------------------------------
Agreement shall be made by the Company if a court of competent jurisdiction
finally determines that any indemnification or advance of Expenses hereunder is
unlawful.
11.5. Insurance.
---------
11.5.1. General. The Company shall have the power to purchase and
-------
maintain insurance or other financial arrangement on behalf of any Person who is
or was a Company Person or an agent of the Company against any liability
asserted against such Person and incurred by such Person in any such capacity,
or arising out of such Person's status as a Company Person or agent, whether or
not the Company would have the power to indemnify such Person against such
liability under the provisions of this Article 11.
11.5.2. Company Right to Reimbursement. If a Person receives payment
------------------------------
from any insurance carrier, or from the plaintiff in any action against such
Person, with respect to indemnified amounts after payment of such indemnified
amounts have been made by the Company pursuant to this Article 11, such Person
shall reimburse the Company for the amount by which the sum of (i) the payment
by the insurance carrier or plaintiff and (ii) all payments by the Company to
such Person, exceeds such indemnified amounts. In making this calculation, any
insurance proceeds that are required to be reimbursed to the insurance carrier
under the terms of its insurance policy shall not be counted as payments to such
Person. In addition, upon payment of indemnified amounts under the terms and
conditions of this Agreement, the Company shall be subrogated to such Person's
rights against any insurance carrier with respect to such indemnified amounts
(to the extent permitted under such insurance policies). Such right of
subrogation shall be terminated upon receipt by the Company of the amount to be
reimbursed by such Person pursuant to the second sentence of this Section
11.5.3.
11.6. Other Terms of Indemnification.
------------------------------
11.6.1. Timing of Payments. Any indemnification or advance shall be
------------------
made promptly, but in any case no later than sixty (60) days after the Company
has received a written request for payment from the Indemnified Person seeking
indemnification, unless the Company has determined that he or she is not
entitled to indemnification hereunder.
11.6.2. Partial Indemnification. If an Indemnified Person is entitled
-----------------------
under any provision of this Article 11 to indemnification for a portion of his
or her Liabilities, but not for the total amount, the Company shall nevertheless
indemnify him or her for the portion of such Liabilities to which he or she is
entitled, except that no indemnification shall be given for Expenses in
connection with a Proceeding brought by the Company if he or she is found liable
on any portion of the claims in such Proceeding.
11.6.3. Indemnity Not Exclusive. The indemnification and advancement of
-----------------------
Expenses provided by this Article 11 shall not be exclusive of any other rights
to which any Indemnified
-19-
Person seeking indemnification or advancement of Expenses may be entitled under
any agreement, vote of Members, determination of the Board, or otherwise, both
as to action in such Indemnified Person's capacity as such and as to action in
another capacity while serving as an Indemnified Person. Any repeal or
modification hereof or thereof shall not affect any such rights then existing.
11.6.4. Heirs, Executors and Administrators. The indemnification and
-----------------------------------
advancement of Expenses provided by this Article 11 shall, continue as to an
Indemnified Person who is no longer acting in such capacity, and shall inure to
the benefit of his or her heirs, executors and administrators, unless otherwise
provided when authorized or ratified.
12. MISCELLANEOUS
12.1. Complete Agreement. This Agreement and any documents referred to
------------------
herein or executed contemporaneously herewith constitute the parties' entire
agreement with respect to the subject matter hereof and supersede all prior
written or oral agreements, representations, warranties, statements, promises
and understandings, and all contemporaneous oral agreements, representations,
warranties, statements, promises and understandings, with respect to the subject
matter hereof. To the extent that any provision of the Articles conflicts with
any provision of this Agreement, the Articles shall control.
12.2. Additional Documents. Each party hereto agrees to execute any and
--------------------
all further documents and writings and to perform such other actions which may
be or become necessary or expedient to effectuate and carry out this Agreement.
12.3. Record Date and Closing of Transfer Books. The Board may fix a time
-----------------------------------------
in the future as a record date for the determination of the Members entitled to
notice of and to vote at any Members' meeting or entitled to receive any
dividend or distribution, or any allotment of rights, or to exercise right in
respect of any other lawful action. The record date so fixed shall be not more
than sixty (60) days nor less than ten (10) days prior to the date of such
meeting nor more than sixty (60) days prior to any other action with respect to
the Class A Units, or more than forty-five (45) days prior to any Class B
Distribution. When a record date is so fixed, only Members of record on that
date are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution or allotment of rights, or to exercise the rights, as the
case may be, notwithstanding any transfer of any Units on the books of the
Company after the record date, except as otherwise provided in the Certificate,
this Agreement or the Act. A determination of Members of record entitled to
notice of or to vote at a Members' meeting shall apply to any adjournment of the
meeting, however, the Board may fix a new record date for the adjourned meeting.
The Company shall be entitled to recognize the exclusive right of a Person
registered on its books as the owner of a Unit for all purposes, including
notices, voting, consents, dividends and distributions, and shall not be bound
to recognize any other Person's equitable or other claim to interest in such
Unit, regardless of whether it has actual or constructive notice of such claim
or interest.
12.4. Delivery of Notices. All written notices to Members, Managers and
-------------------
Board committee members shall be given personally or by mail (registered,
certified or other first class mail, with postage pre-paid), addressed to such
person at the address designated by him or her for that purpose or, if none is
designated, at his or her last known address. Written notices to Managers or
Board committee members may also be delivered at his or her office on the
company's premises, if any, or by overnight carrier, telegram, telex, telecopy,
radiogram, cablegram, facsimile, computer transmission or similar form of
communication, addressed to the
-20-
address referred to in the preceding sentence. Notices given pursuant to this
Section 12.4 shall be deemed to be given when dispatched, or, if mailed, when
deposited in a post office or official depository under the exclusive care and
custody of the United States postal service. Notices given by overnight carrier
shall be deemed "dispatched" at 9:00 a.m. on the day the overnight carrier is
reasonably requested to deliver the notice. The Company shall have no duty to
change the written address of any Manager, Board committee member or Member
unless the Secretary receives written notice of such address change.
12.5. Waiver of Notice. Whenever notice is required to be given under
----------------
the Certificate, this Agreement or applicable law, a written waiver, signed by
the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a Person at a meeting shall
constitute a waiver of notice of such meeting, except where the Person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
12.6. Checks, Drafts, Evidences of Indebtedness. All checks, drafts or
-----------------------------------------
other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the Company, shall be signed or endorsed by
such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board or by a committee of the Board if so
authorized.
12.7. Contracts, How Executed. The Board may authorize any officer or
-----------------------
officers, agent or agents, to enter into any contract or execute any instrument
in the name and on behalf of the Company, and such authority may be general or
confined to specific instances; provided, however, unless the Board otherwise
-------- -------
directs by resolution, the Chief Executive Officer, if any, and the President,
and any Vice President, shall have the authority normally incident to their
respective office, to execute and deliver contracts on behalf of the Company in
the ordinary course of business. The Board may ratify or confirm the execution
of any contract or instrument.
12.8. Certificates of Units. A certificate or certificates for Units
---------------------
shall be issued to each Member when any such Units are fully paid up. All such
certificates shall be signed by the Chairman of the Board or a Vice Chairman of
the Board, or the President or a Vice President and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary. Any or all of
such signatures may be a facsimile. Every certificate authenticated by a
facsimile of a signature must be countersigned by a transfer agent or transfer
clerk, and be registered by an incorporated bank or trust company, either
domestic or foreign, as registrar of transfers, before issuance.
12.9. Representation of Interest in Other Corporations. The Chairman
------------------------------------------------
of the Board, the President, any Vice President, the Chief Financial Officer,
the Secretary or Assistant Secretary of the Company, or any other person
authorized by the Board, is authorized to vote, represent, and exercise on
behalf of the Company all rights incident to any and all interest in any other
corporation or corporations standing in the name of the Company. The authority
herein granted may be exercised either by such person directly or by any other
person authorized to do so by proxy or power of attorney duly executed by such
person having the authority.
12.10. Parties.
-------
12.10.1. No Third-Party Benefits. None of the provisions of this
-----------------------
Agreement shall be for the benefit of, or enforceable by, any third party.
-21-
12.10.2. Successors and Assigns. Except as provided herein to the
----------------------
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties, their respective successors and permitted assigns.
12.11. Disputes.
--------
12.11.1. Governing Law; Jurisdiction. This Agreement has been negotiated
---------------------------
and entered into in the State of Delaware, concerns a Delaware business and all
questions with respect to the Agreement and the rights and liabilities of the
parties will be governed by the laws of that state, regardless of the choice of
law provisions of Delaware or any other jurisdiction. Any and all disputes
between the parties which may arise pursuant to this Agreement not covered by
arbitration will be heard and determined before an appropriate federal or state
court located in Los Angeles, California. The parties hereto acknowledge that
such court has the jurisdiction to interpret and enforce the provisions of this
Agreement and the parties waive any and all objections that they may have as to
personal jurisdiction or venue in any of the above courts.
12.11.2. Arbitration as Exclusive Remedy. Except for actions seeking
-------------------------------
injunctive relief, which may be brought before any court having jurisdiction,
any claim arising out of or relating to (i) this Agreement, including its
validity, interpretation, enforceability or breach, or (ii) the relationship
between the parties (including its commencement and termination) whether based
on breach of covenant, breach of an implied covenant or intentional infliction
of emotional distress or other tort of contract theories, which are not settled
by agreement between the parties, shall be settled by arbitration in Los
Angeles, California by the Judicial Arbitration and Mediation Service. Each
party agrees that the arbitration provisions of this Agreement are its exclusive
remedy and expressly waives any right to seek redress in another forum. Each
party shall bear the fees of the arbitrator appointed by it, and the fees of the
neutral arbitrators shall be borne equally by each party during the arbitration,
but the fees of all arbitrators shall be borne by the losing party.
12.11.3. Waiver of Jury. WITH RESPECT TO ANY DISPUTE ARISING UNDER OR IN
--------------
CONNECTION WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, AS TO WHICH NO MEMBER
INVOKES THE RIGHT TO ARBITRATION HEREINABOVE PROVIDED, OR AS TO WHICH LEGAL
ACTION NEVERTHELESS OCCURS, EACH MEMBER HEREBY IRREVOCABLY WAIVES ALL RIGHTS IT
MAY HAVE TO DEMAND A JURY TRIAL, INCLUDING ITS CONSTITUTIONAL RIGHTS. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE MEMBERS AND EACH
MEMBER ACKNOWLEDGES THAT NONE OF THE OTHER MEMBERS NOR ANY PERSON ACTING ON
BEHALF OF THE OTHER PARTIES HAS MADE ANY REPRESENTATION OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE
MEMBERS EACH FURTHER ACKNOWLEDGE THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
THE MEMBERS EACH FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE
MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION.
-22-
12.11.4. Attorneys' Fees. In any dispute between the parties hereto or
---------------
their representatives concerning any provision of this Agreement or the rights
and duties of any person or entity hereunder, the party or parties prevailing in
such dispute shall be entitled, in addition to such other relief as may be
granted, to the attorneys' fees and court costs incurred by reason of such
litigation.
12.12. Waivers Strictly Construed. With regard to any power, remedy or right
--------------------------
provided herein or otherwise available to any party hereunder (i) no waiver or
extension of time shall be effective unless expressly contained in a writing
signed by the waiving party; and (ii) no alteration, modification or impairment
shall be implied by reason of any previous waiver, extension of time, delay or
omission in exercise, or by any other indulgence.
12.13. Rules of Construction.
---------------------
12.13.1. Headings and References. The Article and Section headings in
-----------------------
this Agreement are inserted only as a matter of convenience, and in no way
define, limit, or interpret the scope of this Agreement or of any particular
Article or Section. Unless otherwise specifically noted, any reference to an
Article or Section number refers to the corresponding Article or Section of this
Agreement.
12.13.2. Tense and Case. Throughout this Agreement, as the context may
--------------
require, references to any word used in one tense or case shall include all
other appropriate tenses or cases, and the term "including" means "including but
not limited to."
12.13.3. Severability. The validity, legality or enforceability of the
------------
remainder of this Agreement will not be affected even if one or more of the
provisions of this Agreement will be held to be invalid, illegal or
unenforceable in any respect.
12.13.4. Agreement Negotiated. The parties to this Agreement are
--------------------
sophisticated and have been represented by lawyers throughout this transaction
who have carefully negotiated the provisions hereof. Only the final executed
version of this Agreement may be admitted into evidence or used for any purpose,
and drafts of this Agreement shall be disregarded for all purposes.
12.14. Amendments or Alteration. Subject to the provisions of this
------------------------
Agreement, this Agreement may be made, adopted, amended, altered or repealed by
vote of the Majority of the Class A Unit Members or, subject to such right of
the holders of Units, by the Board; provided, however, that (a) no amendment
--------- -------
shall become effective without the written consent of any of the Members if such
amendment would amend this Section 12.14; and (b) without the specific written
consent of each Member affected thereby, no amendment shall reduce the Capital
Account of any Member, any Member's rights to distributions with respect
thereto, any Member's rights to withdraw from the Company, or increase that
Member's' obligations or decease the rights of a Class B Member. The Board
(without the action of Members) may modify Exhibit A hereto at any time and from
---------
time to time to reflect the admission or withdrawal of any Member, or the change
in any Member's Capital Contributions, or any changes in the Member's addresses,
all as contemplated by this Agreement.
[Remainder of this page intentionally left blank]
-23-
IN WITNESS WHEREOF, Kaiser Ventures Inc. has executed this Agreement,
effective as of the date written above.
Kaiser Ventures Inc.
By: /s/ Richard E. Stoddard
-----------------------------
Richard E. Stoddard
President and CEO
-24-
SCHEDULE 0
DEFINITIONS
When used in this Agreement, the capitalized terms shall have the meanings set
forth below or as set forth elsewhere in this Agreement):
"Act" means the Delaware Limited Liability Company Act, as the same may be
---
amended from time to time.
"Affiliate" means any individual, partnership, corporation, trust or other
---------
entity or association, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with, a
Member. The term "control," as used in the immediately preceding sentence,
means, with respect to a corporation or limited liability company, the right to
exercise, directly or indirectly, more than fifty percent (50%) of the voting
rights attributable to the controlled corporation or limited liability company
and, with respect to any individual, partnership, trust, other entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled entity.
"Agreement" means this Operating Agreement, as originally executed and as
---------
amended and/or restated from time to time.
"Board" means the Board of Managers elected from time to time in pursuant to
-----
Section 7.1.3.
"Capital Account" means with respect to any Member the capital account that the
---------------
Company establishes and maintains for such Member pursuant to Section 3.
"Capital Contribution" means the total value of cash and fair market value (as
--------------------
determined by the Board or as agreed upon by the Members under this Agreement)
of property (including promissory notes or other obligations to contribute cash
or property) or services contributed by Members.
"Capital Interests" means the ratio of each Member's Capital Account to the
-----------------
total of all Member's Capital Accounts at any time.
"Certificate" means the Certificate of Formation of the Company filed with the
-----------
Secretary of State of Delaware on July 9, 2001.
"Class A Unit Member" means a holder of Class A Units. A Class A Unit Member
-------------------
may also be a Class B Unit Member.
"Class A Units" have the meaning set forth in Section 2.1.
-------------
"Class B Unit Member" means a holder of Class B Units. A Class B Unit Member
-------------------
may also be a Class A Unit Member.
"Class B Units" have the meaning set forth in Section 2.1.
-------------
"Class B Distribution" has the meaning set forth in Section 5.2.1.
--------------------
-1-
"Code" means the Internal Revenue Code of 1986, as amended from time to time,
----
the provisions of succeeding law and, to the extent applicable, the Regulations.
"Company" means Kaiser Ventures LLC, a Delaware limited liability company.
-------
"Company Person" means a Member, Manager or officer of the Company.
--------------
"Dissolution Event" shall have the meaning ascribed to such term in Section
-----------------
10.1.
"Effective Time" shall be the date upon which the Merger shall become effective.
--------------
"Expenses" includes reasonable attorneys' fees, disbursements and retainers,
--------
court costs, transcript costs, fees of accountants, experts and witnesses,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness or
other participant in a Proceeding.
"Fiscal Year" means the Company's fiscal year, which shall be the calendar year.
-----------
"Indemnified Person" means a Manager, officer or employee of the Company.
------------------
"Liabilities" means (i) any Expenses and (ii) any other judgments, fines,
-----------
penalties, ERISA excise taxes, and amounts paid in settlement of any claim, in
connection with any Proceeding.
"Majority" means one or more Percentage Interests of Members that, taken
--------
together, exceed fifty percent (50%) of the aggregate of all Percentage
Interests of Units entitled to act on any matter; provided, however, that for
--------- -------
purposes of Section 10.1.3, "Majority" also requires more than fifty percent
----
(50%) of both the capital and profit interests in the Company (within the
meaning of such terms in Revenue Procedure 9446,1994-28 IRB 1) held by the
remaining Members.
"Manager" shall mean one or more managers who are designated from time to time
-------
as provided in Section 7.2.
"Member" means each Person who (a) is an initial signatory to this Agreement,
------
has been admitted to the Company as a Member in accordance with the Articles of
this Agreement or is an assignee who has become a Member in accordance with
Article 8 and (b) has not resigned, withdrawn, been expelled or had all of its
Units redeemed or transferred in accordance with this Agreement. The term
"Member" includes Class A Unit Members and, upon the issuance of Class B Units,
will include Class B Unit Members.
"Membership Interest" means a Member's entire interest in the Company or any
-------------------
portion thereof, including the right to receive information concerning the
business and affairs of the Company, and, with respect to the Class A Units, the
Member's, the right to vote on or participate in the management of the Company.
"Merger" shall have the meaning given to such term in Section 1.7.
------
-2-
"MRC" means Mine Reclamation, LLC.
---
"Net Profits" and "Net Losses" means the income, gain, loss, deductions and
----------- ----------
credits of the Company in the aggregate or separately stated, as appropriate,
determined in accordance with generally accepted accounting principles employed
under the method of accounting at the close of each Fiscal Year of the Company
on the Company's information tax return filed for federal income tax purposes.
"Percentage Interest" means, as of any date and with respect to each Member,
-------------------
that fraction, expressed as a percentage, having as its numerator the number of
Class A Units then held by such Member and having as its denominator the number
of Class A Units then held by all Members.
"Person" or "person" means an individual, general partnership, limited
------ ------
partnership, limited liability company, corporation, trust, estate, real estate
investment trust association or any other entity.
"Principal Office" means, at any time, the principal office as determined by the
----------------
Board.
"Proceeding" means any action, suit, arbitration, alternative dispute resolution
----------
mechanism, investigation, administrative hearing or other proceeding, whether
civil, criminal, administrative or investigative in nature, except a proceeding
initiated by a Person pursuant to Section 11.2.
"Regulations" means, unless the context clearly indicates otherwise, the
-----------
regulations currently in force from time to time as final or temporary that have
been issued by the U.S. Department of Treasury pursuant to its authority under
the Code, as it may be amended from time to time.
"Purchase Price Payment" means each actual cash payment, up to an aggregate of
----------------------
$41 million, received by MRC from County District No. 2 of Los Angeles County as
consideration for its purchase of landfill project located at the Eagle Mountain
Site in California.
"Tax Matters Partner" shall be ______________ or its successor as designated
-------------------
pursuant to Section 9.4.
"Transfer" means any sale, transfer, assignment, hypothecation, encumbrance or
--------
other disposition, whether voluntary or involuntary, whether by gift, bequest or
otherwise. In the case of a hypothecation, the Transfer shall be deemed to
occur both at the time of the initial pledge and at any pledgee's sale or a sale
by any secured creditor.
"Unit" has the meaning set forth in Section 2.1.
----
"Voting Majority" means one or more Percentage Interests of Members that, taken
---------------
together, exceed fifty percent (50%) of the aggregate voting power of all
Percentage Interests present in person or represented by proxy and entitled to
vote on a matter.
-3-
SCHEDULE I
1. Profits and Losses When Capital Accounts Exhausted. In compliance with
--------------------------------------------------
applicable Regulations, if there are Net Losses at any time when no Member's
Capital Account is positive, then (i) if there is any Member Nonrecourse Debt
outstanding, any Member Nonrecourse Deductions shall be specially allocated to
the Member(s) who bears the economic risk of loss with respect to that Member
Nonrecourse Debt in accordance with Regulations Section 1.704-2(i) and
Regulations Section 1.704-1(b), and (ii) all other deductions or losses shall be
allocated to the Members in accordance with their Percentage Interests.
Following any such allocations, except as otherwise provided in Regulation
Section 1 .704-2(i)(4) or 1.704-2(f), respectively, each Member who has a share
of any decrease in Member Minimum Gain (determined in accordance with
Regulations Section 1.704-2(i)(5)) or in Company Minimum Gain (determined in
accordance with Regulations Section 1.704-2(g)(2)) shall be specially allocated
items of Company income and gain for such Fiscal Year (and, if necessary,
subsequent Fiscal Years) in an amount equal to that portion of such Member's
share of such net decrease. Allocations pursuant to the previous sentence shall
be made in proportion to the amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in
accordance with (a) Regulations Section 1.704-2(i)(4) and 1.704-(j)(2) or (b)
Regulations 1 .704-2(f)(6) and 1 .704-(j)(2) as applicable. This provision is
intended to comply with the minimum gain chargeback requirements contained in
the Regulations and shall be interpreted consistently therewith.
2. No Adjusted Capital Account Deficit. Regardless of the other provisions of
-----------------------------------
this Agreement, no Member will be allocated any Net Losses to the extent it
would create or increase a deficit in that Member's Adjusted Capital Account at
the end of any Fiscal Year. Any Net Losses not allocated because of the
preceding sentence shall be allocated as if the Member(s) affected were not
Member(s). If, notwithstanding the prior sentence, any Member's Adjusted
Capital Account would be negative following a tentative allocation of Net Losses
and Net Profits under the other provisions of this Agreement, items of Company
income and gain shall be specially allocated to each such Member in an amount
and manner sufficient to eliminate that deficit.
3. Curative Allocations. The allocations set forth in this Schedule I (the
--------------------
"Regulatory Allocations") are intended to comply with the Regulations. To the
extent possible, the Members wish that the actual allocations made reflect what
would have happened without the effect of these Regulatory Allocations.
Therefore, except as prohibited by the Regulations, the Board shall make such
offsetting special allocations of Company income, gain, loss, or deduction in
whatever manner it determines appropriate so that, after such offsetting
allocations are made, a Member's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of this Agreement. In exercising its
discretion under this section, the Board shall take into account any future
Regulatory Allocations that, although not yet made, are likely to offset
previous Regulatory Allocations.
-4-
4. Definitions.
-----------
"Adjusted Capital Account" means, with respect to any Member, an amount
------------------------
equal to such Member's Capital Account plus (a) any amounts that such Member is
obligated to restore pursuant to any provision of this Agreement or is deemed to
be obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); plus (b) any Member Nonrecourse
Deductions or any Nonrecourse Deductions; and minus (c) the items described in
Regulations Sections 1.704-1 (b)(2)(ii)(d)(4), 1.704-1 (b)(2)(ii)(d)(5), and
1.704-1 (b)(2)(ii)(d)(6). This definition of Adjusted Capital Account is
intended to comply with Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Company Minimum Gain" has the meaning ascribed to the term "Partnership
--------------------
Minimum Gain" in Regulations Section 1.704-2(d).
"Member Nonrecourse Debt" has the meaning ascribed to the term "Partner
-----------------------
Nonrecourse Debt" in Regulations Section 1.704-2(b)(4).
"Member Minimum Gain" means an amount determined in accordance with
-------------------
Regulations Section 1.704-2(i)(3) with respect to each Member Nonrecourse Debt
equal to the Company Minimum Gain that would result if such Member Nonrecourse
Debt were treated as a Nonrecourse Liability (as defined in Regulations Section
1.704-2(b)(3)).
"Member Nonrecourse Deductions" means items of Company loss, deduction, or
-----------------------------
Code Section 705(a)(2)(B) expenditures that are attributable to Company
Nonrecourse Debt or to other liability owed to a Member for which no other
Member bears the economic risk of loss.
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
----------------------
1.704-2(b)(1), and shall also include items of Company loss or deduction
referable to such Member's share (determined in accordance with the Member's
Percentage Interest) of outstanding recourse liabilities owed by the Company to
non-Members for which no Member bears any economic risk of loss.
-5-
Schedule II
Officers
Chairman and Vice Chairman of the Board. The Chairman of the Board, if such
office is filled, shall be a Manager and shall preside at all Members' and Board
meetings. The Board may also appoint a Vice Chairman of the Board who shall
perform the duties of the Chairman of the Board in the absence of the Chairman
of the Board.
Chief Executive Officer. The Chief Executive Officer, if any, or the President,
as designated by the Board, shall be the chief executive officer of the Company
and shall have the general powers of supervision and management of the business
and affairs of the Company usually vested in the chief executive officer of a
corporation and shall see that all orders and resolutions of the Board are
carried into effect. In addition, the Chief Executive Officer shall carry out
such duties and responsibilities as may be assigned to him from time to time by
the Board. If no designation of chief executive officer is made, the President
shall be the chief executive officer. The Chief Executive Officer may delegate
to the other officers such of his or her authority and duties at such time and
in such manner as he or she deems advisable.
President. The President shall be the chief operating officer of the Company
and shall, subject to the supervision and control of the Board and the Chief
Executive Officer, if such position is filled, have general supervision,
direction and control of the operating affairs of the Company. The President
shall have such other powers and duties as shall be prescribed by the Board, the
Chief Executive Officer, if any, or this Agreement. The President may delegate
to the officers of the Company other than the Chairman of the Board or the Chief
Executive Officer, if any, such of his or her authority and duties at such time
and in such manner as he or she deems appropriate.
Vice Presidents. In the absence or disability of the President, the Vice
Presidents in order of their rank (executive, senior) as fixed by the Board or,
if not ranked, the Vice Presidents designated by the Board, shall perform all
the duties of the President, and when so acting shall have all the powers of,
and be subject to all restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board, the Chief Executive
Officer, if any, the President, or this Agreement.
Secretary. The Secretary shall keep, or cause to be kept, a book of minutes at
the principal business office or such other place as the Board may order, of all
meetings of the Board and Members, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice thereof given,
the names of those present at Managers' meetings, the number of shares present
or represented at Members' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the office of the Company
or at the principal business office of the Company's transfer agent, if a
transfer agent shall be appointed, a Unit ledger, or a duplicate Unit ledger,
showing the names of the Members and their addresses; the number and classes of
Units held by each; the number and date of certificates issued for the same; and
the number and date of cancellation of every certificate surrendered for
cancellation. The Secretary shall cause to be kept at the principal business
office of the Company a copy of its Certificate, a copy of this Agreement and
all amendments thereto, and a statement setting out the name of the custodian of
such Unit ledger or duplicate Unit ledger and the present and complete post
office address, including street and number, if any, where such Unit ledger or
duplicate Unit ledger is kept.
-6-
The Secretary shall give, or cause to be given, notice of all the meetings
of the Members and of the Board required by this Agreement to be given, and he
shall keep the seal of the Company in safe custody, and shall have such other
powers and perform such other duties as may be prescribed by the Board or this
Agreement.
Chief Financial Officer. The Chief Financial Officer shall also be the
treasurer of the Company, and he or she shall keep and maintain, or cause to be
kept and maintained, adequate and correct accounts of the properties and
business transactions of the Company, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, and capital. The books of
account shall at all times be open to inspection by any Manager.
The Chief Financial Officer shall deposit, or cause to be deposited,
all moneys and other valuables in the name and to the credit of the Company with
such depositories as may be designated by the Board. He shall disburse the funds
of the Company as may be ordered by the Board, shall render to the President and
Managers, whenever they request it, an account of all of his transactions as
Treasurer and of the financial condition of the Company, and shall have such
other powers and perform such other duties as may be prescribed by the Board or
this Agreement.
-7-
ANNEX C
TEXT OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262. APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
C-1
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand, as provided in this Proxy Statement/Prospectus. Within 10 days
after the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date or the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date or the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
C-2
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to
C-3
the corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
ANNEX D
AUDIT COMMITTEE CHARTER
Adopted April 14, 1997
The Audit Committee shall be composed of at least three (3) members, to be
appointed annually by the Board of Directors. The Audit Committee shall be made
up exclusively of outside directors.
The Audit Committee shall:
1. Oversee and approve the selection of the Corporation's independent
auditor;
2. Review on a periodic basis the independence of the Corporation's external
auditor, including the amount and scope of any consulting services provided by
the external auditor;
3. Oversee and review on a periodic basis the Corporation's internal
accounting and reporting procedures and controls;
4. Oversee and review the Corporation's public financial statements and
Securities and Exchange Commission filings;
5. Consider major accounting treatment issues and select and adopt, as
appropriate, accounting treatment standards and reporting methods for the
Corporation;
6. Consider major tax treatment issues and select and adopt, as appropriate,
tax treatment standards and reporting methods for the Corporation;
7. Review and work with the Corporation's officers in tax planning for the
Corporation;
8. Oversee and review the Corporation's compliance with Federal and state
securities laws and the Corporation's policies on insider trading; and
9. Undertake such other items and duties as may be expressly assigned or
delegated to the Audit Committee from time to time by resolution of the Board
of Directors.
D-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 18-108 of the Delaware Limited Liability Company Act provides that a
limited liability company may, and shall have the power to, indemnify and hold
harmless any member or manager or other person from and against any and all
claims and demands whatsoever, subject to such standards and restrictions, if
any, as are set forth in its limited liability agreement.
The Registrant's operating agreement provides that no manager, officer, or
member will be liable to Registrant or to its members for any loss unless the
loss was caused by that person's fraud, deceit, gross negligence, reckless or
intentional misconduct, or a knowing violation of the law. The operating
agreement also includes provisions that require the Registrant to indemnify its
managers, officers, and members for monetary damages and expenses incurred in
connection with any pending or threatened action, including, among other
actions, an action by or on behalf of the Registrant, because of that person's
status or actions as a manager, officer or member of the Registrant. The
operating agreement also permits, but does not require, the Registrant to
indemnify any agent of the Registrant for his or her actions or status as an
agent, on terms to be determined by the Registrant's managers at the time. Any
person seeking indemnification must have acted in good faith and in a manner he
or she reasonably believed to be consistent with the Registrant's best
interests and, in the case of a criminal proceeding, he or she had no
reasonable cause to believe that the conduct was unlawful. Any person seeking
indemnification would be required to state that this standard of conduct had
been met; in the case of a manager, officer, or member, the Registrant would
then bear the burden of proving that the standard had not been met if the
Registrant sought to deny indemnification. Generally, the Registrant would be
required to provide indemnification whether or not the indemnitee was found
liable in the action against him or her. However, the Registrant would not
indemnify any person for liability in connection with (i) an action initiated
by the indemnitee (other than an action initiated by an indemnitee against the
Registrant to enforce his or her indemnification rights), (ii) willful
misconduct, or conduct which is knowingly fraudulent or deliberately dishonest,
or (iii) conduct for which indemnification is unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to such provisions, the Registrant has been informed that in the
opinion of the SEC such indemnification is against public policy as expressed
in such Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See Index to Exhibits at pages II-4 through II-10.
ITEM 22. UNDERTAKINGS
a. Undertakings required by Item 512 of Regulation S-K
1. The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter with the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect
to reofferings by persons who may be deemed underwriters, in addition to
the information called for buy the other items of the applicable forms.
2. The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as part of an amendment
II-1
to the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
b. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonably grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Ontario, State of California, on this 16th day
of July 2001.
KAISER VENTURES LLC
By: /s/ Richard E. Stoddard
-------------------------------
Richard E. Stoddard
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard E. Stoddard as attorney-in-fact, with
power of substitution, in any and all capacities, to sign any and all
amendments and post-effective amendments to this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the SEC, hereby ratifying and confirming all that said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed below by the following persons in the capacities and on the
dates indicated.
[Enlarge/Download Table]
Signature Title Date
--------- ----- ----
/s/ Richard E. Stoddard President, Chief Executive Officer July 16, 2001
_________________________________ and Manager (Principal Executive
Richard E. Stoddard Officer)
/s/ James F. Verhey Chief Financial Officer and Vice July 16, 2001
_________________________________ President Finance and
James F. Verhey Administration (Principal Financial
and Accounting Officer)
/s/ Ronald E. Bitonti Manager July 16, 2001
_________________________________
Ronald E. Bitonti
/s/ Todd G. Cole Manager July 16, 2001
_________________________________
Todd G. Cole
/s/ Gerald A Fawcett Vice Chairman; Manager July 16, 2001
_________________________________
Gerald A Fawcett
/s/ Marshall F. Wallach Manager July 16, 2001
_________________________________
Marshall F. Wallach
II-3
EXHIBIT INDEX
Exhibit
Number Document Description
--------- ------------------------------------------------------------------
2.1 Second Amended Joint Plan of Organization as Modified, as filed
with the United States Bankruptcy Court for the District of
Colorado on September 19, 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.
2.4 Stock Purchase Agreement between Kaiser Ventures Inc. and the New
Kaiser Voluntary Employees' Beneficiary Association dated November
22, 1999, incorporated by reference from Exhibit 2.1 of the
Company's Form 8-K dated November 22, 1999.
2.5 Stock Purchase Agreement between Kaiser Ventures Inc. and Pension
Benefit Guaranty Corporation dated November 22, 1999, incorporated
by reference from Exhibit 2.2 of the Company's Form 8-K dated
November 22, 1999.
3.1 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.
3.1.1 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.
3.1.2 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.
3.1.3 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.
3.2 Amended and Restated Bylaws of Kaiser Ventures Inc., effective
January 6, 2000, incorporated by reference from Exhibit 3.2 of the
Company's Form 10-K Report for the year ended December 31, 1999.
3.3 Certificate of Formation of Kaiser Ventures LLC, filed with the
Delaware Secretary of State on July 10, 2001
3.4 Kaiser Ventures LLC Operating Agreement, effective as of July 10,
2001, incorporated by reference from Annex A to Kaiser Ventures
Inc.'s Schedule 14A, filed concurrently
II-4
Exhibit
Number Document Description
--------- ------------------------------------------------------------------
with this Registration Statement on Form S-4.
4.1. Stock Purchase Warrant between Kaiser Ventures Inc. and the New
Kaiser Voluntary Employees' Beneficiary Association dated November
22, 1999, incorporated by reference from Exhibit 4.1 of the
Company's Form 8-K dated November 22, 1999.
4.2 Stock Purchase Warrant between Kaiser Ventures Inc. and Pension
Benefit Guaranty Corporation dated November 22, 1999, incorporated
by reference from Exhibit 4.2 of the Company's Form 8-K dated
November 22, 1999.
4.3 Kaiser Ventures LLC Operating Agreement, effective as of July 10,
2001, incorporated by reference from Annex A to Kaiser Ventures
Inc.'s Schedule 14A, filed concurrently with this Registration
Statement on Form S-4.
5.1** Opinion of Guth | Christopher LLP, counsel to Kaiser Ventures LLC,
regarding the legality of the Class A Units being registered.
8.1** Tax opinion of Ernst & Young, LLP, tax accountants to Kaiser
Ventures Inc. and Kaiser Ventures LLC, regarding the federal
income tax consequences of the Conversion Proposal.
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,
incorporated by reference from Exhibit 10.1.4 of the Company's
Form 10-K Report for the year ended December 31, 1995.
10.1.5 Indemnification Agreement dated September 9, 1997 among Riverside
County, Mine Reclamation Corporation, Kaiser Eagle Mountain, Inc.
Eagle Mountain Reclamation, Inc. and Kaiser Ventures Inc,
incorporated by reference from Exhibit 10.1 of the Company's Form
10-Q Report for the period ended September 30, 1997.
10.1.6 Development Agreement to be executed upon consummation of federal
land exchange among Riverside County, Mine Reclamation
Corporation, Kaiser Eagle Mountain, Inc. Eagle Mountain
Reclamation, Inc. and Kaiser Ventures Inc., incorporated by
reference from Exhibit 10.2 of the Company's Form 10-Q Report for
the period ended September 30, 1997.
II-5
Exhibit
Number Document Description
--------- ------------------------------------------------------------------
10.1.7 Operating Agreement for Mine Reclamation, LLC dated June 1, 2000,
incorporated by reference from Exhibit 10.1.7 of the Company's
Form 10-K Report for the year ended December 31, 2000.
10.2 Agreement for Purchase and Sale of Real Property and Related
Personal Property in Regard to the Eagle Mountain Sanitary
Landfill Project and Joint Escrow Instructions between County
Sanitation District No. 2 of Los Angeles County and Mine
Reclamation, LLC incorporated by reference from Exhibit 10.3 of
the Company's Form 10-Q Report for the quarter ended June 30,
2000, incorporated by reference from Exhibit 10.2 of the Company's
Form 10-K Report for the year ended December 31, 2000.
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).
10.3.3 Third Amendment to Eagle Mountain Lease between Management and
Training Corporation and Kaiser Steel Resources, Inc. dated
November 16, 1997, incorporated by reference from Exhibit 10.3.3
of the Company's Form 10-K Report for the year ended December 31,
1998.
10.3.4 Fourth Amendment to Eagle Mountain Lease between Management and
Training Corporation and Kaiser Ventures Inc. dated February 1,
1999, incorporated by reference from Exhibit 10.3.4 of the
Company's Form 10-K Report for the year ended December 31, 1998.
10.4* Second Amended and Restated Employment Agreement between Kaiser
Ventures Inc. and Richard E. Stoddard dated as of September 19,
2000, incorporated by reference from Exhibit 10.4 of the Company's
Form 10-Q Report for the quarter ended September 30, 2000.
10.5* Employment Agreement between Kaiser Ventures Inc. and Gerald A.
Fawcett dated as of January 18, 1999, incorporated by reference
from Exhibit 10.5 of the Company's 10-K Report for the year ended
December 31, 1998.
10.6* Amended and Restated Employment Agreement between Kaiser Ventures
Inc. and Terry L. Cook dated as of September 19, 2000,
incorporated by reference from Exhibit 10.4 of the Company's Form
10-Q Report for the quarter ended September 30, 2000.
10.7* Transition Employment Agreement between Kaiser Ventures Inc., and
Lee R. Redmond dated as of January 6, 2000, incorporated by
reference from Exhibit 10.6 of the Company's 10-K Report for the
year ended December 31, 1999.
II-6
Exhibit
Number Document Description
--------- ------------------------------------------------------------------
10.8* Amended and Restated Employment Agreement between Kaiser Ventures
Inc. and Paul E. Shampay dated as of September 19, 2000,
incorporated by reference from Exhibit 10.6 of the Company's 10-Q
Report for the quarter ended September 30, 2000.
10.9* Amended and Restated Employment Agreement between Kaiser Ventures
Inc. and Anthony Silva dated as of September 19, 2000,
incorporated by reference from Exhibit 10.5 of the Company's Form
10-Q Report for the quarter ended September 30, 2000.
10.10* Amended and Restated Employment Agreement between Kaiser Ventures
Inc. and James F. Verhey dated as of September 19, 2000,
incorporated by reference Exhibit 10.3 of the Company's Form 10-Q
Report for the quarter ended September 30, 2000.
10.11 Lease Agreement between American Trading Estate Properties (now
known as Lord Baltimore Properties), Landlord and Kaiser Resources
Inc., Tenant, dated June 6, 1994, incorporated by reference from
Exhibit 10.8 of the Company's Form 10-K Report for the year ended
December 31, 1994.
10.11.1 Second Amendment to Lease Agreement between Lord Baltimore
Properties and Kaiser Ventures Inc. dated September 27, 1999.
10.12.2 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.
10.13 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.
10.13.1 Stock Purchase Agreement and Joint Escrow Instructions between
Kaiser Ventures Inc. and Cucamonga County Water District dated as
of November 14, 2000, incorporated by reference from Exhibit 10.7
of the Company's Form 10-Q Report for the quarter ended September
30, 2000.
10.14 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.
10.15 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.
10.16* 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).
10.17* Kaiser Ventures Inc. 1995 Stock Plan incorporated by reference
from Exhibit 10.15 of the Company's 10-K Report for the year ended
December 31, 1995.
10.17.1* First Amendment to Kaiser Ventures Inc. 1995 Stock Option Plan,
incorporated by reference from Exhibit 4.1.1 of the Company's Form
S-8 Registration Statement (Registration No. 333-17843).
II-7
Exhibit
Number Document Description
--------- ------------------------------------------------------------------
10.18* Long Term Transaction Incentive Plan adopted by the Company
effective September 19, 2000, incorporated by the reference from
Exhibit 10.1 of the Company's Form 10-Q Report for the quarter
ended September 30, 2000.
10.19* Board of Directors Stock Plan adopted May 10, 2000, incorporated
by reference from Exhibit 10.19 of the Company's Form 10-K Report
for the year ended December 31, 2000.
10.19.1* Form of Restricted Stock Agreement for Directors Stock Plan,
incorporated by reference from Exhibit 10.19.1 of the Company's
Form 10-K Report for the year ended December 31, 2000.
10.20 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.
10.21 Promissory Note of McLeod Properties, Fontana LLC, dated September
30, 1997 payable to the order of Kaiser Ventures Inc.,
incorporated by reference from Exhibit 10.3 of the Company's 10-Q
Report for the period ended September 30, 1997.
10.21.1 Guaranty Agreement of Budway Enterprises, Inc. and V.M. McLeod
dated September 30, 1997, incorporated by reference from Exhibit
10.3.1 of the Company's 10-Q Report for the period ended September
30, 1997.
10.21.2 Subordinated Deed of Trust, Assignment of Leases and Rents and
Security Agreement dated September 30, 1997 given by McLeod
Properties, Fontana LLC for the benefit of the Kaiser Ventures
Inc., incorporated by reference from Exhibit 10.3.2 of the
Company's Form 10-Q Report for the period ended September 30,
1997.
10.22 Members Operating Agreement dated June 19, 1997 between Kaiser
Recycling Corporation and West Valley Recycling & Transfer, Inc.,
incorporated by reference from Exhibit 10.1 of the Company's 10-Q
Report for the period ended June 30, 1997.
10.22.1 Performance Guaranty and Indemnification Agreement (KRC
Obligations) dated June 19, 1997 given by Kaiser Ventures Inc. for
the benefit of West Valley MRF, LLC and West Valley Recycling &
Transfer, Inc., incorporated by reference from Exhibit 10.1.1 of
the Company's 10-Q Report for the period ended June 30, 1997.
10.23 Loan Agreement dated as of June 1, 1997 between West Valley MRF,
LLC and California Pollution Control Financing Authority,
incorporated by reference from Exhibit 10.2 of the Company's 10-Q
Report for the period ended June 30, 1997.
10.23.1 Indenture Agreement dated as of June 1, 1997 between California
Pollution Control Financing Authority and BNY Western Trust
Company for the benefit of $9,500,000 California Pollution Control
Financing Authority Variable Rate Demand Solid Waste Disposal
Revenue Bonds (West Valley MRF, LLC Project) Series 1997A,
incorporated by reference from Exhibit 10.2.1 of the Company's
10-Q Report for the period ended June 30, 1997.
10.23.2 Remarketing Agreement dated as of June 1, 1997, and among West
Valley MRF, LLC and Westhoff, Cone & Holmstedt and Smith Barney,
Inc. with regard to $9,500,000 California Pollution Control
Financing Authority Variable Rate Demand Stock Waste
II-8
Exhibit
Number Document Description
---------- ------------------------------------------------------------------
Disposal Revenue Bonds (West Valley MRF, LLC Project) Series
1997A, incorporated by reference from Exhibit 10.3 of the
Company's 10-Q Report for the period ended June 30, 1997.
10.24 Reimbursement Agreement dated as of June 1, 1997 between West
Valley MRF, LLC and Union Bank of California, N.A., incorporated
by reference from Exhibit 10.4 of the Company's 10-Q Report for
the period ended June 30, 1997.
10.24.1 Guaranty and Mandatory DSR Agreement dated as of June 1, 1997
given by Kaiser Ventures Inc. and Kaiser Recycling Corporation for
the benefit of Union Bank of California, N.A., incorporated by
reference from Exhibit 10.4.1 of the Company's 10-Q Report for the
period ended June 30, 1997.
10.24.2 Environmental Compliance Agreement dated as of June 19, 1997
between West Valley MRF, LLC and Union Bank of California, N.A.,
incorporated by reference from Exhibit 10.5 of the Company's 10-Q
Report for the period ended June 30, 1997.
10.24.3 Environmental Guaranty Agreement dated as of June 19, 1997 given
by Kaiser Ventures Inc. and Kaiser Recycling Corporation for the
benefit of Union Bank of California, N.A., incorporated by
reference from Exhibit 10.5.1 of the Company's 10-Q Report for the
period ended June 30, 1997.
10.25 First Amendment and Restated Environmental Guaranty Agreement
between West Valley MRF, LLC and Union Bank of California dated
May 1, 2000, incorporated by reference from Exhibit 10.4 of the
Company's Form 10-Q Report for the period ended June 30, 2000.
10.25.1 Guaranty and Mandatory Deposit Agreement between West Valley MRF,
LLC and Union Bank of California, N.A. dated May 1, 2000,
incorporated by reference from Exhibit 10.4.1 of the Company's
Form 10-Q Report for the period ended June 30, 2000.
10.25.2 First Amendment and Restated Environmental Compliance Agreement
between West Valley MRF, LLC and Union Bank of California, N.A.
dated May 1, 2000, incorporated by reference from Exhibit 10.4.2
of the Company's Form 10-Q Report for the period ended June 30,
2000.
10.25.3 Reimbursement Agreement between West Valley MRF, LLC and Union
Bank of California, N.A. dated May 1, 2000, incorporated by
reference from Exhibit 10.4.3 of the Company's Form 10-Q Report
for the period ended June 30, 2000.
10.25.4 Loan Agreement between West Valley MRF, LLC and Union Bank of
California, N.A. dated May 1, 2000, incorporated by reference from
Exhibit 10.4.4 of the Company's Form 10-Q Report for the period
ended June 30, 2000.
10.25.5 Loan Guaranty between West Valley MRF, LLC and Union Bank of
California, N.A. dated May 1, 2000, incorporated by reference from
Exhibit 10.4.5 of the Company's Form 10-Q Report for the period
ended June 30, 2000.
10.26 Registration Rights Agreement among Kaiser Venture Inc. and the
New Kaiser Voluntary Employees' Beneficiary Association and
Pension Benefit Guaranty Corporation dated November 22, 1999,
incorporated by reference from Exhibit 10.1 of the Company's Form
8-K dated November 22, 1999.
II-9
Exhibit
Number Document Description
---------- ------------------------------------------------------------------
10.27 Contingent Payment Agreement between Kaiser Ventures Inc and the
New Kaiser Voluntary Employees' Beneficiary Association dated
November 22, 1999, incorporated by reference from Exhibit 10.2 of
the Company's Form 8-K dated November 22, 1999.
10.28 Contingent Payment Agreement between Kaiser Ventures Inc and
Pension Benefit Guaranty Corporation dated November 22, 1999,
incorporated by reference from Exhibit 10.3 of the Company's Form
8-K dated November 22, 1999.
10.29 Purchase and Sale Agreement and Joint Escrow Instructions among
Kaiser Ventures Inc., Kaiser Steel Land Development, Inc. and CCG
Ontario, LLC dated July 13, 2000, incorporated by reference from
Exhibit 10.1 of the Company's Form 10-Q Report for the period
ended June 30, 2000.
10.29.1 First Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions among Kaiser Ventures Inc., Kaiser Steel Land
Development, Inc. and CCG Ontario, LLC dated July 20, 2000,
incorporated by reference from Exhibit 10.1.1 of the Company's
Form 10-Q Report for the period ended June 30, 2000.
10.29.2 Second Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions among Kaiser Ventures Inc., Kaiser Steel Land
Development, Inc. and CCG Ontario, LLC dated July 27, 2000,
incorporated by reference from Exhibit 10.1.2 of the Company's
Form 10-Q Report for the period ended June 30, 2000.
10.29.3 Third Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions among Kaiser Ventures Inc., Kaiser Steel Land
Development, Inc. and CCG Ontario, LLC dated August 15, 2000,
incorporated by reference from Exhibit 10.1.3 of the Company's
Form 10-Q Report for the period ended June 30, 2000.
10.29.4 Purchase Agreement and Escrow Instructions between Kaiser Steel
Land Development, Inc. and The California Speedway Corporation
dated August 10, 2000, incorporated by reference from Exhibit
10.1.6 of the Company's Form 10-Q Report for the period ended
September 30, 2000.
21 Subsidiaries of Kaiser Ventures Inc. (all of which will become
subsidiaries of Kaiser Ventures LLC by operation of law in the
merger)
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2** Consent of Guth | Christopher LLP, counsel to Kaiser Ventures LLC
(included in Exhibit 5.1)
24 Power of Attorney (included on page II-3 to this Registration
Statement on Form S-4).
99 Proxy Card for Annual Meeting of Kaiser Venture Inc. stockholders,
incorporated by reference from Kaiser Ventures Inc.'s Schedule
14A, filed concurrently with this Registration Statement on Form
S-4.
* Indicates compensation plan, contract or arrangement.
** To be filed by amendment.
II-10
Dates Referenced Herein and Documents Incorporated by Reference
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