FEE SAND AND GRAVEL LEASE
THIS FEE SAND AND GRAVEL LEASE (this "Lease") is made
and is effective as of October 21, 1996 by and between the
parties hereinafter named, for the term and upon and under the
terms and conditions hereinafter set forth.
. Parties. The parties to this Lease, and their
addresses for all purposes hereof, are: (a) LESSOR: Valco Inc.,
whose address is 200 South 17th Street, Rocky Ford, Colorado
81067; and (b) LESSEE: Continental Materials Corporation, whose
address is 225 West Wacker Drive, Suite 1800, Chicago, Illinois
60606.
. Grant of Lease.
() Lessor represents and warrants that it is the
owner in fee of certain lands situated in Pueblo County,
Colorado, more particularly described on Exhibit A attached
hereto (the "Lands"). Within the Lands are located certain plant
site improvements. The plant site improvements, together with
the parcel of land on which they are located, are referred to
herein as the "Improved Real Property." The Improved Real
Property is more fully described in the Acquisition Agreement (as
defined below) between the parties executed concurrently with
this Lease. In addition, there are water rights appurtenant to
the Lands. Pursuant to the terms of that certain Acquisition
Agreement of even date herewith between Lessor and Lessee (the
"Acquisition Agreement"), the Improved Real Property and the
water rights that are appurtenant to the Lands and to the
Improved Real Property, respectively, are being sold by Lessor to
Lessee. The Lands, excluding the Improved Real Property and the
appurtenant water rights, but together with the sand and gravel
reserves, other minerals, overburden, topsoil, loose rock or any
combination thereof on or contained within the Lands or formed in
association therewith and any portion or part of any earth, rock,
or other material that may be attached, combined with, or
constitute a part thereof ("Leased Sand and Gravel"), to the
extent that any of the foregoing occur and are found between the
surface and top of the uppermost underlying shale formation (the
"Leased Strata"), are the subject of this Lease and are
hereinafter referred to together as the "Property." The Property
also shall include all sand and gravel reserves, other minerals,
overburden, top soil, loose rock or any combination thereof in,
on and under all land or interests owned or claimed by Lessor
contiguous or appurtenant to the Property and located within the
same strata as the Leased Strata.
() For and in consideration of the payment of the
Minimum Royalty (as defined in Paragraph 6), the Production
Royalty (as defined in Paragraph 5) and the covenants herein
agreed to be paid and performed by Lessee, and subject to the
terms and conditions hereof, Lessor hereby grants, leases and
lets the Property exclusively unto Lessee, its successors and
permitted assigns, to have and to hold the same for the term
hereof, and warrants the title to the same, subject to the
Permitted Exceptions which are contained in Exhibit 2(b), unto
Lessee, its successors, and permitted assigns against all those
who may claim the same by and through the Lessor, its successors
and assigns, and further warrants that except as stated
hereinafter in Paragraph 7, there are no, and during the term of
this Lease Lessor will not create any outstanding non-operating
interests in the Property (such as overriding royalty interests)
or liens on the Property securing obligations of Lessor or its
affiliates that are not subordinated to this Lease. Lessee will
not during the term of this Lease create any non-operating
interests in the Property (such as overriding royalty interests).
() Lessor reserves unto itself, its successors and
assigns, Lessor's reversionary interest in the Property, together
with the royalties reserved herein, the estates in all minerals
and all deposits other than the Leased Sand and Gravel, and all
other estates and interests in the Property that are not the
subject of this Lease or the subject of the concurrent sale of
the Improved Real Property and the appurtenant water rights.
() In connection with and as a part of the leasehold
interests hereby granted, Lessee shall have and may exercise, the
following rights with respect to the Property: (i) the right to
conduct operations for exploring, developing and mining the
Leased Sand and Gravel, performing such exploration, development
and mining in any manner deemed necessary or convenient by
Lessee, whether by surface or other mining methods; (ii) the
right to stockpile and store on or within the Lands or
permanently to remove from the Lands, sell, use and dispose of
the Leased Sand and Gravel, including sand and gravel contained
in existing dumps or piles on the Lands, (iii) the right to
construct and operate on the Lands, if and solely to the extent
that the same are permitted uses, asphalt plants and concrete
plants, (iv) the right, subject to any provisions herein on
commingling, to stockpile sand and gravel on the Lands from other
sites without incurring royalties on subsequent removal or use of
same from the Lands; (v) the right to use the Lands for
processing plants, scale houses, sales offices, crushing and
screening plants, washing and settling facilities, and storage of
related equipment, to the extent permitted by applicable
government regulations; (vi) such rights of access for personnel,
equipment, supplies, utilities and water as may be necessary or
convenient for the conduct of Lessee's operations on the Lands,
including access upon and across any other intervening or
contiguous land owned or controlled by Lessor or over which
Lessor may have dominion or control; and (vii) the right to mine,
extract, sort, process, mix, convert to marketable concrete or
other products ("Aggregate Products"), or otherwise prepare for
market and to market and sell the Leased Sand and Gravel,
together with such other rights as are related to or incidental
to the exercise of the foregoing rights. As used herein, the
term Leased Sand and Gravel includes Aggregate Products and the
term Aggregate Products includes Leased Sand and Gravel and all
other commercial products containing Leased Sand and Gravel
located in the Leased Strata or produced from the Leased Sand and
Gravel. Notwithstanding the foregoing, provided that Lessee pays
the Minimum Royalty during each Lease Year (as defined in
Paragraph 3) or period, Lessee shall not be obligated in any
Lease Year or period to conduct operations for exploring,
developing or mining the Leased Sand and Gravel or to produce or
remove any Aggregate Product on or from the Property, but if
Lessee does not conduct sand and gravel mining operations for a
period of at least six months in any Lease Year (beginning with
the first Lease Year), then the Production Royalty Rate (as
defined in Paragraph 5) for the next Lease Year in which Lessee
conducts operations and the Minimum Royalty for the next Lease
Year shall be adjusted by the Pueblo Inflation Factor (as defined
in Paragraph 5) or by the PPI Factor (as defined below),
whichever would result in the higher Production Royalty Rate or
Minimum Royalty, as applicable. The "PPI Factor" will be the
percentage increase or decrease in the Producer Price Index
#1442-58 [Construction gravel-Western Region-Mountain sub-region]
(indexed at June 1982 = 100) for the Lease Year during which no
such substantial Sand and Gravel mining operations were
conducted.
. Term. The Term of this Lease shall commence on
the date first written above and, unless sooner terminated either
by Lessor or by Lessee in accordance with Paragraph 12, shall be
perpetual; provided, however, that if the foregoing grant
(including any options contained in this Lease) shall violate any
so-called rule against perpetuities now or at any time
hereinafter in effect, then the term of this Lease shall be for
one hundred (100) years or such shorter term as to make this
Lease non-violative of the rule against perpetuities, subject to
Lessee's right to renew and extend the term for such additional
periods on the same terms and conditions set forth herein as
Lessee may elect. Except with respect to Production Royalty and
Minimum Royalty calculations, in which calendar years are used,
references hereinafter to a "year" of the Lease shall be deemed
to be references to a "Lease Year," which is hereby defined to be
a calendar year of 365 days (366 days in leap years). The first
Lease period shall commence on the date first written above and
shall end on December 31, 1996. The first Lease Year shall begin
on January 1, 1997 and shall end on December 31, 1997. The dates
of beginning and ending of each subsequent Lease Year shall be
reckoned in the same manner.
. Representations.
Lessee makes the following representations to
Lessor.
() Lessee is a corporation duly formed, validly
existing and in good standing under the laws of the State of
Delaware and is authorized to conduct business in the State of
Colorado.
() Lessee has the requisite power and authority
to enter into and perform its obligations under this Lease.
() The person or persons executing this Lease on
behalf of Lessee are duly authorized by Lessee to do so.
() Lessee is not in violation of any law,
regulation, license, permit, or order, which violation would
prevent, hinder or delay the transfer to Lessee of any licenses
or permits necessary to the performance of Lessee's obligations
under the Lease.
. Production Royalty.
() Lessee shall pay to Lessor a quarterly
production royalty (the "Production Royalty") at the initial rate
of $0.37 per ton (the "Production Royalty Rate") of Leased Sand
and Gravel produced and removed from the Property or contained in
Aggregate Products produced and removed from the Property (herein
sometimes referred to as "Production"). Prior to the beginning
of the Lease term, Lessor was producing a total of fourteen
Aggregate Products, which are listed in Exhibit 5(a), attached
hereto and made a part hereof. Lessee may, subject to the
provisions hereof, cease producing one or more Aggregate Products
or add Aggregate Products to the list of Aggregate Products on
Exhibit 5(a).
() The amount of Leased Sand and Gravel produced
and removed from the Property shall be determined on the basis of
certifiable scale tickets. The amounts of Leased Sand and Gravel
contained in Aggregate Products produced and removed from the
Property, whether commercially measured by weight or volume,
shall be determined by Lessee by calculation of the weight of
Leased Sand and Gravel in representative samples.
() The initial Production Royalty Rate of $0.37
per ton shall apply during calendar year 1996, which shall be the
initial base year, and during calendar year 1997. The first
adjustment of the Production Royalty Rate will be made at the end
of calendar year 1997 to determine the Production Royalty Rate
for calendar year 1998. Beginning with calendar year 1998, and
each calendar year thereafter, at the beginning of the calendar
year, the Production Royalty Rate shall be adjusted upward or
downward for a "Pueblo Inflation Factor," as hereinafter
provided, but shall never be less than $0.37 per ton.
() As indicated above, but subject to the last
sentence of Paragraph 2(d), the Production Royalty Rate shall be
adjusted for calendar year 1998 and each calendar year thereafter
for the "Pueblo Inflation Factor" which shall be determined in
the following manner:
() The total tonnage of Production, the
total net sales price and the average net sales price per ton,
F.O.B. Lessor's Pueblo, Colorado plants, received with respect to
each of Lessor's thirteen existing Aggregate Products sold to
third parties during the period from January 1, 1996 to the date
of this Lease are set forth on Exhibit 5(d)(i) attached hereto.
Lessee shall have the right to audit such data. The average net
sales price per ton for calendar 1996 (weighted by actual sales,
determined on a product-by-product basis, by Lessor and Lessee in
1996) shall be deemed to be the 1996 initial base year average
net sales price per ton for each of the Aggregate Products.
() At the end of calendar year 1997, Lessee
shall calculate and furnish to Lessor the total tonnage of
Production, the total net sales price and the average net sales
price per ton, F.O.B. the Pueblo, Colorado plants, received with
respect to each of the same fourteen existing Aggregate Products
during calendar year 1997. The average net sales price per ton
thus determined (weighted by actual sales, determined on a
product-by-product basis, by Lessee during such year) shall be
deemed to be the 1997 average net sales price per ton for each of
the Aggregate Products.
() The calendar year 1998 Production Royalty
Rate shall be increased or decreased by the percentage increase
or decrease in the average net sales price for the preceding
calendar year (calendar year 1997) as compared with the previous
preceding calendar year (the 1996 base year) and shall be
determined by calculating an escalation factor (the "Pueblo
Inflation Factor") as follows: The total net sales revenue
received for all Aggregate Products during the preceding calendar
year (1997) shall be divided by the total net sales revenue that
would have been received for all Aggregate Products in the
preceding calendar year (1997) at the 1996 base year average net
sales prices per ton. The Pueblo Inflation Factor thus
determined shall then be multiplied by the Production Royalty
Rate in effect in the preceding year (calendar year 1997) to
determine the new Production Royalty Rate for the next year
(calendar year 1998).
() At the end of each subsequent calendar
year the Production Royalty Rate for the next calendar year shall
be determined in like manner, using actual production tonnages
and average net sales prices per ton for the calendar year just
ended for comparison with actual production tonnages for the year
just ended, as if they had been sold at the average net sales
prices for the preceding calendar year. The manner and method of
calculation is set forth in an illustration using hypothetical
figures for calendar years 1996, 1997, 1998 and 1999, which is
attached hereto as Exhibit 5(d)(iv).
() In the calculation of average net sales
prices no amounts of any Production sold to or used by Lessee or
any affiliate of Lessee shall be included.
() Neither the cessation of production and
removal of any Aggregate Product listed on Exhibit 5(a) nor the
production and removal of any new Aggregate Product not listed on
Exhibit 5(a), nor the resumption of production, sale and removal
of any Aggregate Product that Lessee has ceased to produce, sell,
and remove from the Property shall affect the Production Royalty
Rate retroactively, but any such cessation, addition or
resumption shall result in a recalculation of the tonnages and
average net sales prices for the years that would otherwise be
affected thereby in such a manner as to eliminate the effect of
such cessation on the calculation of the Production Royalty Rate
for future years and/or to bring the addition or resumption into
the Production Royalty Rate calculation for future years.
() In no event shall the adjustment of the
Production Royalty Rate result in a Production Royalty Rate less
than $0.37 per ton.
() Production Royalty shall continue to be
payable until either the Agreed Sand and Gravel Reserves within
the Property stated in Paragraph 6 below, have been produced and
removed from the Property and Production Royalty thereon paid, or
the sum of the amount of Leased Sand and Gravel produced and
removed from the Property and the remaining number of tons of
Leased Sand and Gravel on which Lessee has paid Minimum Royalty
equals the Agreed Sand and Gravel Reserves within the Property,
after which time Lessee shall have the right of election to
continue mining operations on the Property hereunder free of
either Minimum Royalty or Production Royalty or to terminate the
Lease as provided in Paragraph 12(b)(2).
() Payment of the Production Royalty shall be
made quarterly within thirty days after the end of each calendar
quarter for Production occurring during such calendar quarter.
Lessee shall be entitled to a credit against Production Royalty
due for such quarter in the amount of the Minimum Royalty paid as
provided in Paragraph 6, below. Each Production Royalty payment
shall be accompanied by a statement showing weights of the Leased
Sand and Gravel produced and removed from the Property or
contained in Aggregate Products produced and removed from the
Property during the calendar quarter, together with a calculation
of the amount of Production Royalty for the calendar quarter and
the amount of deduction therefrom for Minimum Royalty previously
paid. On the thirtieth day following the end of each calendar
year Lessee shall provide Lessor with a statement showing
calculations of the amounts of Production during the calendar
year and Production Royalty paid on such Production, together
with a statement showing amounts of Minimum Royalty paid and
credited against Production Royalty for the calendar year. If no
written objection is made by Lessor to the correctness of the
calendar year statement within one hundred twenty (120) days from
the date thereof, such statement, absent fraud, shall be
conclusively deemed to be correct and such Production Royalty
payment deemed sufficient and complete.
() In case of any dispute or question as to the
ownership of any royalty interest payment or any part thereof, to
be made by Lessee under this Lease, Lessee may deposit the
disputed amounts in escrow until the dispute is finally resolved.
() All payments due hereunder shall be payable
to Lessor and may be made by check, draft, wire or electronic
funds transfer sent or delivered to Lessor on or before the date
the same is due.
() Use of Scale. Quantities of the Leased Sand
and Gravel that are removed from the Property will be measured as
follows. Lessee shall maintain a scale or scales which are
certified by the State of Colorado, over which all Leased Sand
and Gravel removed from the Property shall be weighed, and shall
keep accurate records of all weights of such Leased Sand and
Gravel, including date and time when weighed, and including empty
weights of the trucks or other vehicles transporting such Leased
Sand and Gravel, and a reasonable identification of such
vehicles, which records shall be available for inspection by
Lessor at all reasonable times during business hours upon
twenty-four hours advance notice. If the Leased Sand and Gravel
on which royalties are due are mixed with other materials prior
to weighing (for example, in case of mixing gravel with asphalt
or water and Portland cement prior to removal) then an
appropriate deduction from the weight of the mixed materials
shall be made for the weight of the materials added; provided,
however, no deduction shall be made for the normal amount of
water contained in the Leased Sand and Gravel. Similarly, the
weight of materials brought onto the property by Lessee and mixed
with the Leased Sand and Gravel, such as asphalt, sand, gravel or
sand and gravel from other sites, may be deducted from the
weights of the Leased Sand and Gravel, provided that Lessee
establishes procedures, including methods of identification and
segregation of such materials and the maintenance of separate
stockpiles of such materials, and keeps records to substantiate
the same to enable accurate deductions of weight therefor. There
shall be no requirement to weigh mixed concrete exiting the
Property in trucks and sold by volume, but Lessee shall calculate
the weight of materials in such mixed concrete on which royalties
are due based on the weight of such materials in representative
samples of mixed concrete.
() Records to be Kept. In addition to records
ordinarily maintained by commercial sand and gravel operators
Lessee shall keep accurate records of quantities, nature and
weights of the Leased Sand and Gravel removed from the Property
and materials added to the Leased Sand and Gravel removed from
the Property, which records shall be available for inspection by
Lessor at all reasonable times during business hours upon
twenty-four hours advance notice. Lessee shall be permitted to
make the adjustments for materials added based upon total
materials added to those on which royalties are due over the
course of a quarter, rather than making an individual record and
calculation on each vehicle load.
() Retention of Records. Records for each Lease
Year shall be kept for ten years and may be destroyed after the
end of each such ten-year period.
() Audit; Cost. Lessor may cause an annual
audit of Lessee's books and records to be made by an independent
auditor selected by Lessor for purposes of verifying the amount
of royalties due to Lessor. All reasonably necessary records
shall be made available to Lessor or its agents for such
purposes. The fees of the auditor shall be paid by Lessor,
unless an understatement of the royalties properly due to Lessor
in excess of five percent (5%) of the amount of the royalties
reported occurs (giving effect to any agreement or determination
pursuant to paragraphs (m) or (n) below, as applicable), in which
event Lessee shall pay the fees of the auditor.
() Within ten (10) days after Lessor's audit is
completed, Lessor shall deliver a copy of Lessor's audit to
Lessee, together with a statement demanding payment of the amount
of royalties that Lessor's audit indicates were properly due and
payable for the calendar year in question ("Lessor's Statement").
If Lessee agrees with the amount of royalties demanded by Lessor
in Lessor's Statement, then Lessee shall promptly pay Lessor the
difference between the amount of royalties demanded by Lessor for
such calendar year and the amount of royalties previously paid by
Lessee for such calendar year pursuant to this Paragraph 5 (or if
Lessor's audit indicates an overpayment, Lessor shall promptly
refund the excess to Lessee). If Lessee does not agree with the
amount of royalties demanded by Lessor in Lessor's Statement,
then Lessor and Lessee shall attempt to resolve such dispute
within ten (10) days after Lessee receives Lessor's Statement.
If Lessor and Lessee cannot reach agreement within such ten (10)
day period, then either Lessor or Lessee may demand that the
matter be resolved by arbitration. Within fourteen (14) days
after any such demand, the parties shall select a mutually
acceptable arbitrator to resolve the dispute. If the parties
cannot agree upon a mutually acceptable arbitrator within such
fourteen (14) day period, then Lessor's independent auditor and
Lessee's independent auditor shall select the arbitrator within
ten (10) days thereafter, and the arbitrator selected by the
independent auditors shall determine the amount of royalties
payable by Lessee to Lessor in the manner set forth below. If
Lessor's and Lessee's independent auditors cannot agree upon an
arbitrator, then the parties shall apply to the American
Arbitration Association for the appointment of an arbitrator
within five (5) days after the expiration of the foregoing ten
(10) day period.
() Once the arbitrator is selected or appointed,
then as soon thereafter as practicable but in any case within
fourteen (14) days, the arbitrator shall select either Lessor's
determination of the amount of royalties payable for such
calendar year as contained in Lessor's Statement or Lessee's
calculation of the royalties payable for such calendar year as
determined under this Paragraph 5. The arbitrator's selection
shall be rendered in writing to both Lessor and Lessee and shall
be final and binding upon them. The party whose determination of
the amount of royalties payable is not chosen shall pay the costs
of the arbitrator.
() Promptly after receipt of the arbitrator's
decision, Lessee shall pay the additional amount of royalties, if
any, due to Lessor.
. Minimum Royalty.
() Lessee agrees to pay Lessor as minimum
royalty (the "Minimum Royalty") each calendar year the sum of
$300,000. The Minimum Royalty for a calendar year shall be
payable in that calendar year in four equal installments on
January 1, April 1, July 1, and October 1 or the first business
day immediately succeeding such dates. Minimum Royalty paid at
the beginning of a calendar quarter shall be deemed an advance
upon, and credited against the Production Royalty that would be
payable at the end of that calendar quarter. Lessee shall be
entitled to recoup such Minimum Royalty paid by direct deduction
of the amount paid for the calendar quarter from Production
Royalty that would otherwise be payable for the same calendar
quarter. The amount by which Minimum Royalty paid at the
beginning of any calendar quarter exceeds the amount of
Production Royalty that would otherwise have been payable on
Production in that calendar quarter, (the "Excess Minimum
Royalty") shall be carried forward and shall offset Production
Royalty otherwise payable on Production in the next and
subsequent calendar quarters; provided, however, that no Excess
Minimum Royalty paid during any calendar year shall be carried
forward beyond the end of such calendar year. The Minimum
Royalty for 1996 shall be prorated for the portion of the
calendar year covered by this Lease. The Minimum Royalty for
calendar year 1997 shall be $300,000. For calendar year 1998 and
each succeeding year the Minimum Royalty shall, subject to
Paragraph 2(d), be adjusted by the Pueblo Inflation Factor, as
determined pursuant to Paragraph 5, but in no calendar year shall
the Minimum Royalty be less than $300,000. The Minimum Royalty
shall continue to be payable until Lessee has paid royalties
(Minimum Royalty and/or Production Royalty) on the total agreed
sand and gravel reserves on the Property (the "Agreed Sand and
Gravel Reserves") of fifty (50) million tons of 2,000 pounds,
each; provided, however, that if Lessor does not acquire from the
State of Colorado the property legally described on Exhibit
6(a)(1) (the "State Property") in exchange for the property owned
by Lessor (and leased hereunder) and legally described on Exhibit
6(a)(2) (the "Valco Exchange Property") on or before the second
anniversary of the date hereof pursuant to that certain exchange
transaction presently being negotiated with the State of Colorado
(the "Exchange Transaction"), the "Agreed Sand and Gravel
Reserves" shall be reduced by 700,000 tons to a total of 49.3
million tons. For this purpose the Minimum Royalty amount for
each calendar year shall be deemed to be the equivalent of
810,811 tons of Leased Sand and Gravel (202,703 tons of Leased
Sand and Gravel per calendar quarter). The number of tons
adopted herein as the amount of the Agreed Sand and Gravel
Reserves will apply notwithstanding any event, occurrence or
condition, including but not limited to, any event of force
majeure, except as provided in Paragraphs 12(b)(3) and 12(b)(4)
below.
() Lessor agrees to use all reasonable efforts
to complete the Exchange Transaction prior to the second
anniversary of the date hereof. Upon completion of the Exchange
Transaction, the parties shall execute an amendment to this Lease
which will add the State Property to the Property and delete the
Valco Exchange Property from the Property. Lessor agrees that,
at the time the State Property is added to the Property, the
State Property shall not be subject to any lien, encumbrance,
covenant, condition, restriction, right-of-way, easement or other
matter affecting title other than the Permitted Exceptions.
() The parties acknowledge that the Property
does not presently include the property described on Exhibit
6(b)(1) attached hereto (the "Quiet Title Property"). Lessor
agrees to commence a quiet title action with respect to the Quiet
Title Property (the "Quiet Title Action"), promptly after the
execution of this Lease and to complete the Quiet Title Action
prior to the third anniversary of the date hereof. Upon
completion of the Quiet Title Action, the parties shall execute
an amendment to this Lease which will add the Quiet Title
Property to the Property. Lessor agrees that, at the time the
Quiet Title Property is added to the Property, the Quiet Title
Property shall not be subject to any lien, encumbrance, covenant,
condition, restriction, right-of-way, easement or other matter
affecting title other than the Permitted Exceptions.
() If Lessor does not complete the Quiet Title
Action within such three year period, the Agreed Sand and Gravel
Reserves shall be reduced by the total number of tons of Agreed
Sand and Gravel Reserves reasonably estimated by Lessee to be
located on or under the Quiet Title Property.
. Helmsing, Nelson and Fountain Encumbrances.
Lessor represents and warrants that portions of
the Lands are encumbered by notes and deeds of trust with respect
to three parcels, denominated the Helmsing parcel, the Nelson
parcel, and the Fountain parcel. A legal description of each
parcel is attached hereto as Exhibits 7(1), 7(2), and 7(3). The
total amount of the encumbrances against the three parcels does
not, and during the term of this Lease will not, exceed $150,000.
Lessor agrees to indemnify, defend and hold Lessee harmless
against any claim or demand whatsoever that is or may be brought
against Lessee for or on account of the outstanding indebtedness,
the notes, or the deeds of trust. Any claim or demand by any or
all of the holders of the foregoing notes and deeds of trust
shall be treated as a Third Party Claim (as defined in Paragraph
10) and Lessor's indemnification and other obligations described
in Paragraph 10 shall extend to any such claim or demand.
. Operations.
() Lessor shall not take any action which
interferes in any material respect with Lessee's operations
pursuant to its interest in this Lease.
() By executing this Lease Lessee agrees to
conduct its operations hereunder in a good, safe and minerlike
manner and in compliance in all material respects with all
applicable laws, regulations, licenses, permits and orders of any
governmental entity relating to (1) operations on the Property,
(2) the marketing of any product thereof, or (3) labor relations
in connection with such operations or marketing, including, but
not limited to, all laws, regulations, permits, bonds, orders and
required governmental consents pertaining to mining operations,
mined land reclamation, local land use regulation, and
environmental regulation and control. Lessee shall be deemed to
be in compliance with governmental regulations and orders while
Lessee is contesting any alleged or cited noncompliance in good
faith in circumstances in which Lessor's interest is not
jeopardized. Lessee may bring asphalt onto the Property for
recycling, but no asphalt shall be buried or disposed of on the
Property.
() The Minimum Royalty and Production Royalty
set forth above shall be deemed full payment to Lessor for any
damages to the surface of the Property or the Leased Strata which
may be caused by Lessee's operations hereunder, if and so long as
Lessee conducts its operations in a reasonable and prudent manner
and reasonably maintains the plant site improvements on the
Property.
() Use of Water.
() Lessee shall have the right to initiate,
appropriate and devote to its own use such water rights as are
necessary for Lessee's operations; provided, however, that Lessee
shall at all times comply with the provisions of applicable state
law.
() In addition, Lessee shall be entitled to
utilize on the Property the appurtenant water rights acquired by
purchase from Lessor pursuant to the Acquisition Agreement
concurrently with this Lease for existing wells, gravel pit
wells, ditches, flumes, pipelines, ponds, reservoirs, water and
water rights. Lessee acknowledges and agrees that Lessee shall
be solely responsible for obtaining new substitute supply plans
or extending existing substitute supply plans or for obtaining
court decreed plans for augmentation of all groundwater wells and
sand and gravel pit wells and maintaining the well permits
therefor. Upon termination of this Lease, Lessee shall be in
compliance with all applicable laws, regulations, orders,
permits, substitute supply plans, plans for augmentation, and
court decrees affecting the use of water on the Property. Prior
to any termination of the Lease, Lessee shall have provided, to
the satisfaction of the Colorado State Engineer, the Division
Engineer for Water Division No. 2 and the water court for Water
Division No. 2, as evidenced by a decreed plan or plans for
augmentation, for the ongoing requirements, if any, for water for
augmentation, exchange, or other like purposes on the Property
after termination of the Lease.
() If this Lease is terminated for any reason,
subject to payment of royalties, Lessee may remove all stockpiled
Leased Sand and Gravel and Aggregate Products from the Property
within twelve months after such termination. All such items not
removed within twelve months shall, at Lessor's option, become
the property of Lessor.
() Lessor shall take no action, directly or
indirectly, which would cause or encourage the loss or
restriction of Lessee's right under applicable governmental
regulations to mine and remove Leased Sand and Gravel from the
Property in the maximum quantity available from the Property,
provided that this subparagraph shall not limit Lessor's right to
terminate this Lease for default.
. Taxes and Encumbrances.
() All property and other taxes assessed against
the Property shall be paid when due by Lessor except that Lessee
shall pay property taxes when due on the surface estate of the
Improved Real Property. Lessee shall be responsible for and pay
when due any mineral production tax and any tax assessed against
the personal property, improvements or fixtures hereafter placed
on the Property by Lessee. All taxes for 1996 and the final
Lease Year of the term shall be prorated, as applicable, based on
the actual number of days in each such Lease Year that Lessee is
in possession or control of the Property pursuant to the terms of
this Lease. Notwithstanding the foregoing, Lessee shall be
responsible for property and other taxes assessed against the
Property which accrue after the transfer of the Property to
Lessee pursuant to Sections 12(b)(5) or 13 below.
() Each party (the "Paying Party") shall have
the right, but not the obligation, at any time to pay on behalf
of the other party (the "Defaulting Party") any tax or to satisfy
and remove any lien on the Property in the event of default of
payment or other obligation by the Defaulting Party and the
Paying Party shall be entitled to reimbursement of amounts paid
together with an interest charge at the rate of 12% per annum or
the highest rate allowed by law, whichever is less, which
amounts, including amounts for interest shall be added to any
amounts of money payable to Paying Party or deducted from any
amounts of money payable to Defaulting Party under the terms
hereof.
. Indemnification.
() Indemnification by Lessee. Lessee will
indemnify, defend, and hold Lessor, its directors, officers,
representatives, employees, and agents harmless from and against
any and all claims, actions, suits, demands, assessments,
judgments, losses, liabilities, damages, costs and expenses
(including interest, penalties, attorneys' fees, accounting fees,
and investigation costs (collectively "liabilities") resulting or
arising from, relating to or incurred in connection with: (1) any
failure of Lessee to pay, perform, and discharge any obligation
of Lessee under this Lease, any environmental liabilities arising
from operations or activities (of Lessee or third parties) during
the term hereof, ongoing and final reclamation obligations, and
water augmentation requirements, (2) any breach of any
representation of warranty of Lessee contained herein or in any
other document delivered to Lessor in connection herewith, (3)
any breach of any covenant of Lessee contained herein or in any
other document delivered to Lessor in connection herewith, and
(4) injury to or death of persons or for damage to property
resulting from the Lessee's negligence. Nothing contained in
this Lease will exculpate Lessee from any liability to Lessor or
to any other person or entity that it has or may have under state
or federal law or under common law.
() Indemnification by Lessor. Lessor will
indemnify, defend, and hold Lessee, its affiliates, and their
respective directors, officers, representatives, employees, and
agents harmless from and against any and all liabilities
resulting or arising from, relating to, or incurred in connection
with: (1) any failure of Lessor to pay, perform or discharge any
of Lessor's obligations under the Lease, any environmental
liabilities arising from operations or activities (of Lessor and,
if Lessor had knowledge prior to the date hereof, of third
parties) prior to the date hereof, (2) any breach of any
representation or warranty of Lessor contained herein or in any
other document delivered by Lessor in connection herewith, (3)
any breach of any covenant of Lessor contained herein or in any
other document delivered by Lessor in connection herewith, and
(4) injury to or death of persons or for damage to property
resulting from Lessor's negligence. Nothing contained in this
Lease will exculpate Lessor from any liability to Lessee or to
any other person or entity that it has or may have under any
state or federal law or under common law.
() Promptly after any party receives notice of
any claim, the commencement of any suit, action or proceeding, or
the imposition of any penalty or assessment by a third party in
respect of which indemnity may be sought hereunder (a "Third
Party Claim") and such party intends to seek indemnity hereunder,
such party will give prompt written notice of such Third Party
Claim to the other party, but the failure of such party to give
such notice promptly shall not relieve the other party from its
obligations under this Paragraph except to the extent, if any,
that such failure materially prejudices the ability of the
indemnifying party to defend such Third Party Claim.
() The indemnifying party will have the right to
control the defense, compromise, or settlement of the Third Party
Claim with its own counsel (reasonably satisfactory to the
indemnified party) if the indemnifying party delivers written
notice to the indemnified party within seven days following the
indemnifying party's receipt of notice of the Third Party Claim
from the indemnified party acknowledging its obligation to
indemnify the indemnified party (which acknowledgment may include
a reservation by the indemnifying party concerning the obligation
of the indemnifying party to indemnify the indemnified party for
the Third Party Claim, other than costs of defense); provided,
however, that the indemnifying party will not enter into any
settlement of any Third Party Claim which would impose any
obligation or other liability on the part of the indemnified
party if such liability or obligation (1) requires more than the
payment of a liquidated sum or (2) is not covered by the
indemnification provided to the indemnified party hereunder. In
its defense, compromise, or settlement of any Third Party Claim,
the indemnifying party will timely provide the indemnified party
with such information with respect to such defense, compromise,
or settlement as the indemnified party may request, and will not
assume any position or take any action that would impose an
obligation of any kind on, or restrict the actions of, the
indemnified party. The indemnified party will be entitled (at
the indemnified party's expense) to participate in the defense by
the indemnifying party of any Third Party Claim with its own
counsel.
() In the event that the indemnifying party does
not undertake the defense, compromise, or settlement of a Third
Party Claim in accordance with subparagraph (d) the indemnified
party will have the right to control the defense or settlement of
such Third Party Claim with counsel of its choosing; provided,
however, that the indemnified party will not settle or compromise
any such Third Party Claim without the indemnifying party's prior
written consent, unless (1) the terms of such settlement or
compromise release the indemnified party or the indemnifying
party from any and all liability with respect to the Third Party
Claim or (2) the indemnifying party will not have acknowledged
its obligations to indemnify the indemnified party with respect
to such Third Party Claim in accordance with this Paragraph. The
indemnifying party will be entitled (at the indemnifying party's
expense) to participate in the defense of any Third Party Claim
with its own counsel.
() Any indemnifiable claim hereunder that is not
a Third Party Claim will be asserted by the indemnified party by
promptly delivering notice thereof to the indemnifying party. If
the indemnifying party does not respond to such notice within 60
days after its receipt, it will have no further right to contest
the validity of the claim.
. Assignment.
() Except for an assignment or sublease pursuant
to Paragraph 11(b), below, there shall be no assignment or
subleasing by Lessee except to a person or entity who has
demonstrated to Lessor's reasonable satisfaction such person or
entity's general business reputation and that such person or
entity possesses knowledge, experience and competence in the
business of sand and gravel mining. Any assignment or sublease
of this Lease to a non-affiliated third party must apply as to
the entire leasehold interest of Lessee. No partial mortgage,
assignment or sublease or mortgage, assignment or sublease of
undivided interests or retention or reservation of overriding
royalties will be recognized by Lessor; and the effect, if any,
of any such transactions will be strictly and only as between the
parties thereto, and outside the terms of this Lease, and no
dispute between parties to any such transactions shall operate to
relieve Lessee from performance of any terms or conditions hereof
or to postpone the time therefor. A partial mortgage, assignment
or sublease shall not deprive Lessor of any of its benefits under
this Lease. Furthermore, no mortgage, assignment, or sublease of
this Lease will be valid as against Lessor unless the mortgagee,
assignee, or sublessee has executed an agreement, reasonably
satisfactory to Lessor in form and substance, to the effect that
the mortgagee, assignee, or sublessee, as the case may be, agrees
that it is responsible for performance of Lessee's obligations
under this Lease (or, as to a mortgagee only, that the
mortgagee's interests in the Lease are fully subordinate to the
rights of Lessor). Furthermore, no mortgage, assignment or
sublease shall be effective upon the Lessor until the mortgaging,
assigning or subleasing party has given written notice and copies
of the mortgage, assignment or sublease documents to the Lessor.
Subject to Paragraph 11(d) below, Lessor may assign, convey,
sell, mortgage, pledge or otherwise dispose of Lessor's
reversionary interest and/or Lessor's reserved royalty and other
interests in the Property or any portion thereof with ninety (90)
days prior notice to Lessee.
() Lessee may assign this Lease to an assignee
or sublessee that is controlled by Lessee and who assumes all the
obligations of the Lease and any provisions of the Acquisition
Agreement adopted herein, and may sublease this Lease to any
wholly-owned subsidiary of Lessee, and such subsidiary may
further sublease the leasehold interest to any other subsidiary
of Lessee, provided that Lessor's approval shall not be required
and provided further that Lessee shall remain primarily liable
and responsible for the full performance of all provisions of the
Lease by such assignee or sublessee. If Lessee assigns this
Lease to any such assignee or sublessee that is controlled by
Lessee or to any wholly-owned subsidiary of Lessee, then any
transfer, other disposition, or change in any other fact or
circumstances such that Lessee ceases to control such assignee or
sublessee or wholly-owned subsidiary shall be treated as an
assignment of this Lease and shall therefore be subject to the
provisions of Paragraph 11(a).
() In addition to the applicable requirements of
subparagraph (a) above Lessee may assign this lease to an
assignee or sublessee who is an entity that is incorporated or
organized under the laws of one of the United States and whose
consolidated net worth is certified to Lessor by an independent
accounting firm to be at least $25 million, under general
accounting principles, in which case Lessee shall be released of
all of its obligations hereunder.
() Lessor will not sell its reversionary
interest or its reserved royalty or other interest in the
Property (an "Interest") without first complying with the
provisions set forth in this Paragraph 11(d). Lessor will give
Lessee thirty (30) days advance notice that it desires to sell an
Interest. The notice will state the nature of the Interest and
the minimum purchase price (the "Minimum Price") proposed by
Lessor. If Lessee makes an offer to purchase the Interest, then
Lessee will have sixty (60) days from the date of its offer to
pay for the Interest at the Minimum Price. In the event of any
breach by Lessee in the payment for the Interest, Lessor shall
have available to it the remedy of specific performance in
addition to any damages that it may incur, and Lessor shall have
no further obligations under this Paragraph 11(d) with respect to
any proposed sale of any Interest of Lessor in the Property. If
Lessee fails to give the notice within the 30-day period referred
to above, then Lessor shall be free to sell the Interest at no
less than the Minimum Price for a period of six months after the
expiration of the period within which Lessee could have made the
offer. The provisions of this Paragraph 11(d) do not apply to
(i) any bona fide pledge of Lessor's interest in this Lease and
any transfer arising in connection with such pledge; provided
that such pledgee and/or transferee shall take subject to the
provisions of this Lease, including the right of first refusal
under this Paragraph 11(d) as to reconveyances by the pledgee or
the pledgee's successors or assigns, or (ii) any sale or other
disposition of any of Lessor's Interest in the Property to Tom
Brubaker or Reid Jones, any sibling of Tom Brubaker, any
shareholder of Lessor holding not less than 5% of Lessor's shares
for a period of at least one year, or any spouse or descendant of
any of the foregoing, or to any trust or estate created for the
benefit of any of the foregoing, or to any entity controlled by
any of the foregoing. In any event, Lessor agrees that any sale
or other disposition of any of Lessor's Interest in the Property
shall not materially and adversely affect Lessee's interest in
this Lease.
() If Lessee mortgages its leasehold estate,
such mortgage shall be subordinate to the interest of Lessor in
the Property. Lessor agrees to enter into such agreements with
the mortgagee or holder of the deed of trust as shall be
reasonably acceptable to Lessor including, without limitation,
providing estoppel certificates to such mortgagee or holder of a
deed of trust and/or making such amendments or modifications to
this Lease as may be reasonably acceptable to Lessor, provided
that such amendments or modifications are reasonable and
customarily required in similar financings and do not affect the
financial or economic terms of this Lease or otherwise materially
and adversely affect Lessor's interest in the Property or this
Lease.
. Termination, Condemnation and Force Majeure.
() Termination by Lessor.
(1) Termination by Lessor for Lessee's
default. Failure by Lessee to perform or comply with any of the
terms or conditions of this Lease, including provisions
concerning timeliness of payments, shall not automatically
terminate this Lease nor render the Lease null and void; but in
case of such default, Lessor may notify Lessee in writing
specifying the nature and particulars of such default, and Lessee
shall have a period of 30 days after receipt of such notice in
which to cure such default and if such default shall not have
been cured within such time, Lessor may, but shall not be
required to elect to terminate this Lease by giving written
notice to Lessee, provided, however, that if the default is other
than a payment default and cannot practically be corrected within
said 30-day period and Lessee has commenced corrective action and
is making all practical prompt efforts to correct the same, the
30-day period shall be extended for so long as is reasonably
required to correct the default, but not longer than ninety (90)
days. Lessor shall have the right to elect to enforce the Lease
and seek money damages or any other remedy available at law or in
equity rather than to terminate the Lease for default.
(2) Contemporaneously with the execution and
delivery of this Lease, the parties have executed that certain
Option to Purchase Agreement (the "Option Agreement"), a copy of
which is attached hereto as Exhibit 12(a)(2). The Option
Agreement grants to Lessor the right to purchase the Improved
Real Property and the improvements then existing on the Improved
Real Property on the terms and subject to the conditions
contained in the Option Agreement in the event this Lease is
terminated by Lessor as a result of a default by Lessee.
() Termination by Lessee.
() Default by Lessor. If Lessor fails to
perform or comply with any of the terms or conditions of this
Lease, or breaches any representation or warranty made by Lessor
in Lessee shall have the right to give Lessor written notice to
correct any such default within 30 days of such written notice.
In the event such default is not corrected within such period,
the Lessee may cure the default at Lessor's expense or in the
event Lessor fails to reimburse Lessee within ten (10) days of
Lessor's receipt of invoices itemizing such expenses, by set-off
against any moneys owed by Lessee to Lessor herein. If Lessor's
breach or default is such as practically to prevent Lessee from
mining and removing Leased Sand and Gravel under this Lease,
Lessee shall have the right to terminate this Lease by written
notice upon termination of the 30-day period; provided, however,
that if the default cannot be practically corrected within the
30-day period and Lessor has commenced corrective action and is
making all practical and prompt efforts to correct same, the
30-day period shall be extended for so long as is reasonably
required to correct the default, but not longer than ninety (90)
days, and during and for such period the minimum royalty
obligation will be suspended. Lessee shall also have such other
rights and remedies available at law or in equity.
() Payment of Royalty. This Lease may be
terminated by Lessee pursuant to Paragraph 5(e) upon thirty (30)
days' written notice to Lessor.
() Total Condemnation. If during the Term
Lessee's right under this Lease to mine and remove Leased Sand
and Gravel or remove, mine or produce Aggregate Products is
completely denied as the result of a condemnation, Lessee may
elect to (i) terminate this Lease in which case Lessee shall be
released of all of its obligations hereunder and shall assign its
claims against the condemning authority arising from the
condemnation (other than claims for costs of removal of
equipment) to Lessor, or (ii) continue this Lease, in which case
Lessor shall assign all of its claims against the condemning
authority arising from the condemnation to Lessee. For purposes
of this subparagraph 12(b)(3) and subparagraph 12(b)(4), a
"condemnation" is intended to mean a judicial proceeding
initiated by a governmental authority, or a private right of
condemnation under the constitution of the State of Colorado, and
is not intended to include a change in governmental regulation or
a change in the manner in which such governmental regulation is
interpreted or enforced, even if any such change has the same
effect as a condemnation.
(4) Partial Condemnation. If during the
Term Lessee's right under the Lease to mine and remove Leased
Sand and Gravel or remove, mine or produce Aggregate Products is
partially denied as the result of a condemnation, an equitable
adjustment to the remaining Agreed Sand and Gravel Reserves shall
be made, which may have the effect of adjusting the remaining
aggregate Minimum Royalty and aggregate Production Royalty due
hereunder; provided, however, that in the event of a partial
condemnation the annual Minimum Royalty rate of payments (for as
long as they continue to be due in the context of the adjusted
Agreed Sand and Gravel Reserves) and the Production Royalty Rate
shall not be adjusted as a result thereof. Any condemnation
award received in connection with a partial condemnation of the
Property shall be divided as follows: (a) Lessor shall receive
the lesser of (i) the condemnation award or (ii) the net present
value (using a six percent (6%) discount rate) of the future
royalties that would have been paid under this Lease with respect
to the portion of the Property condemned, determined by
multiplying the Production Royalty Rate in effect at the time the
condemnation award is paid times the Agreed Sand and Gravel
Reserves reasonably attributable to the portion of the Property
so condemned (using for this purpose the Gravel Reserve Estimate
prepared by GSA Resources in August, 1996) that remain on the
portion of the Property condemned (the "Production Award"); and
(b) Lessee shall receive the remainder, if any, of the
condemnation award. In the event the total condemnation award is
less than the Production Award (the "Condemnation Deficit"), then
Lessee shall pay the difference to Lessor in one payment upon the
expiration of this Lease (the "Additional Compensation"). The
Additional Compensation due and payable upon the expiration of
this Lease shall be determined by multiplying (y) the Production
Royalty Rate in effect at the time of expiration of this Lease by
(z) the result obtained by dividing the Condemnation Deficit by
the Production Royalty Rate in effect at the time of the
condemnation. The calculation of the present value of the
Production Award shall be based upon the number of years
(beginning with the date on which the condemnation award is paid)
that it would have taken to deplete the Agreed Sand and Gravel
Reserves attributable to the condemned portion of the Property
(using the annual Minimum Royalty). An example of the
calculation of the Condemnation Deficit is attached hereto as
Exhibit 12(b)(4). In no event will the Lessor be compensated for
more than 50,000,000 tons or such lesser amount as adjusted in
accordance with Section 6(a), Section 6(d,) Section 18 and/or
this Section 12(b)(4) whether in the form of Minimum Royalty,
Production Royalty, Production Award or Additional Compensation
or any combination thereof.
Notwithstanding the foregoing, as to any
portion of the Property that is condemned and at the time of the
condemnation all of the Agreed Sand and Gravel Reserves on such
portion of the Property have been removed or extracted, then the
condemnation award with respect to such portion of the Property
shall be divided between the parties as follows: (a) Lessor
shall receive the portion of the award attributable to the fee
simple interest in such portion of the Property (as if such
property were not improved) and (b) Lessee shall receive the
portion of the award relating to any improvements then existing
on such portion of the Property.
(5) Force Majeure. If during the term
Lessee's right under the Lease to mine and remove Leased Sand and
Gravel or remove, mine or produce Aggregate Products is
materially diminished or reduced as a result of any Force Majeure
Event, and such diminishment or reduction is or is reasonably
expected to be permanent (as to which the burden of proof shall
be Lessee's), Lessee's obligations under this Lease shall
continue; provided, however, that Lessee shall have the option to
purchase the Property on the terms and determined as provided in
Paragraph 13 below (except that the purchase price shall be equal
to 100% of the net present value (determined using a six percent
(6%) discount rate) of the future royalties to be paid under the
Lease) such option to be exercised by Lessee's written notice to
Lessor. Upon Lessee's acquisition of the Property, this Lease
shall terminate.
For purposes of this Lease, the term "Force
Majeure Event" shall mean any of the following: any material
change in government regulations or the manner in which such
government regulations are interpreted or enforced; Lessee's
inability to obtain required permits or approvals after
commercially reasonable efforts; any other event beyond Lessee's
reasonable control including, without limitation, any order,
decree, or direction by any governmental law, executive order,
rule, regulation, or request enacted or promulgated under color
of authority; by scarcity or inability to obtain equipment,
material, power or fuel; by strike or lockout with respect to a
supplier or other third party upon which Lessee depends and can
not reasonably be substituted, or industrial disturbance; or by
any act of God (including, without limitation, lightning,
earthquake, fire, storm, flood, or washout).
() Except in the case of a termination of this
Lease under Paragraph 12(b)(5), upon the termination of this
Lease, Lessee shall surrender possession of the Property to
Lessor, shall execute and deliver to Lessor a recordable written
release of all of Lessee's right, title and interest in this
Lease. Upon request by Lessor and at its expense, Lessee shall
also use its best efforts to obtain transfers of all existing
licenses and permits issued for the Property and held in Lessee's
name upon the same terms and conditions as set forth in the
existing documents. In the case of a termination pursuant to
Paragraph 12(b)(5), Lessor shall convey the Property to Lessee by
special warranty deed (subject to the title exceptions shown in
the title policy delivered to Lessee pursuant to the Acquisition
Agreement and other matters as may have arisen as a result of
Lessee's operations on the Property during the term hereof.
() Upon termination of this Lease for any
reason, in addition to any liability of one party to the other
arising from such termination, Lessee shall be responsible for
compliance with applicable laws and regulations relating to
Lessee's operations on the Property, including mining operations,
mined land reclamation, local land use regulation, water
augmentation and environmental regulation and control; subject,
however, to Lessor's obligations for periods prior to the
commencement of the term of this Lease for compliance with all
such laws and regulations, except laws and regulations (and
attendant obligations) relating to mined land reclamation and
water augmentation. Lessor shall grant Lessee reasonable access
to the Property to carry out post-termination reclamation or
other activities that may be required or permitted to be
performed by Lessee after termination.
. Net Worth Covenant. If, during the term of this
Lease, () the consolidated net worth of Lessee falls below $15
million, and () such net worth remains below $15 million for a
period of six months Lessor, provided that Lessor is not in
material default under the Lease or, being in default, has failed
to cure as provided in Paragraph 12(b)(1), shall have the right
(the "Put Right") to require Lessee to purchase the Property at a
price equal to 105% of the net present value (determined using a
six percent (6%) discount rate) of the future royalties to be
paid under this Lease determined by multiplying the Production
Royalty Rate that is in effect at the time the Put Right is
exercised times the Agreed Sand and Gravel Reserves less the
number of tons of Leased Sand and Gravel on which Minimum Royalty
and Production Royalty have been paid prior to the closing of the
Put Right (an example of the foregoing is attached as Exhibit
13). The term "net worth" as used herein means the consolidated
net worth under general accounting principles of Continental
Materials Corporation. Upon request (but not more often than
annually) of Lessor, Lessee will cause its outside accounting
firm (presently Coopers & Lybrand, L.L.P.) to certify to Lessor
that Lessee is in compliance with this net worth covenant.
Lessor, at its cost, shall have the right to have an independent
public accounting firm verify such certification; provided,
however, that such firm shall keep confidential all information
discovered in such verification process except the result of its
determination that there is or is not compliance with this net
worth covenant. Transfer of title under this Paragraph shall be
by special warranty deed (subject to the title exceptions shown
in the title policy delivered to Lessee pursuant to the
Acquisition Agreement and such other matters as may have arisen
as a result of Lessee's operations on the Property during the
term hereof) to be delivered at closing within thirty days (30)
after notice by Lessor of its election to exercise the Put Right.
. Notices. Any notice required or permitted to be
given hereunder shall be deemed properly given as provided in the
Acquisition Agreement.
. Reclamation. Rules and Regulations of the
Colorado Division of Minerals and Geology, the Mined Land
Reclamation Board and the Mined Land Reclamation Office, or their
successors, for reclamation of mined land will apply where
applicable to the Property. Variations or waivers may be
granted, accepted or agreed to only with Lessor's approval which
shall not be unreasonably withheld.
. Inspection. During business hours and upon three
(3) business days advance notice to Lessee, Lessor, or its duly
authorized agent shall be and hereby is authorized to go on the
Property and to examine, inspect and survey the same. All
conveniences necessary for said inspection or survey shall be
furnished to Lessor, or its agent, by Lessee, at Lessor's
expense; provided, however, that Lessor's exercise of the rights
reserved herein shall not unreasonably interrupt or interfere
with Lessee's operations on the Property.
. Maps. Lessor, at its own expense and with three
(3) business days advance notice to Lessee, may authorize an
engineer or surveyor duly licensed by the State of Colorado,
together with a mapping party of not more than three persons, to
come onto the Property once each year for the purpose of
preparing a map of the workings herein authorized to be made.
The mapping party shall enter and remain on the Property at its
own risk and Lessor shall indemnify and hold Lessee harmless
against any claim for personal injury or property damage to said
mapping party or otherwise arising as a result of said mapping
visits to the Property. Said map shall be of a scale of not less
than 100 feet to the inch, showing vertical and horizontal
dimensions of all excavations, fills, stockpiles, and other
disturbances of the surface, by means of accurate contour lines
(not more than five-foot interval) or cross-sections, all to be
correctly related to a base line which is properly located in
relation to known section lines; said map to show county,
section, township and range, the North point, the scale to which
the map is drawn with an explanatory legend, and the certificate
of the engineer or surveyor as to its accuracy. The engineer or
surveyor shall show clearly upon said map the cubic yards of
material displaced and removed by operations since the previous
survey, map and report. A copy of said map shall be delivered to
Lessee not later than thirty days after its preparation. If
Lessee causes such a map or similar map to be prepared
periodically or from time to time for Lessee's purposes, Lessee
shall provide a copy of such map to Lessor within thirty days
after its preparation, without charge therefor. Lessee shall
also provide Lessor a copy of Lessee's annual report to the
Colorado Division of Minerals and Geology or successor agency,
within 30 days after filing said report.
. East Mining Property Survey Adjustment. Lessee
may, at its expense, cause a survey to be conducted for the east
portion of the Property at any time during the one-year period
following the date hereof for the purpose of confirming its right
to mine the full amount of the Agreed Sand and Gravel Reserves.
If the survey indicates a decrease or an increase in the amount
of minable Agreed Sand and Gravel Reserves (based solely on a
change in the outside boundaries of the Property, determined on a
parcel by parcel basis) in excess of three percent (3%), then the
amount of the remaining Agreed Sand and Gravel Reserves shall be
adjusted to reflect such impairment or increase; provided,
however, that in the case of an increase, the Agreed Sand and
Gravel Reserves shall only be increased to the extent that the
additional reserves in tons exceeds the dollar cost of the survey
divided by .37.
. Other Minerals Not Covered by this Lease. In the
event other minerals are found on the Property below the Leased
Strata, Lessor reserves the right to lease the Property for the
removal of such minerals but Lessee shall not be required to
forego or delay Lessee's operations under this Lease for the
removal of Leased Sand and Gravel and any operations conducted by
or for Lessor for the removal of such minerals shall be
subordinated to Lessee's operations and shall not unreasonably
interrupt or interfere with the operations of Lessee on the
Property.
. Insurance. Lessee shall obtain and maintain
during the term hereof workers' compensation insurance;
employer's liability insurance with minimum limits of not less
than $1,000,000 each accident; automobile liability insurance
with minimum limits of not less than $1,000,000 combined single
limit per occurrence; and general liability insurance with
minimum limits of not less than $1,000,000 single limit per
occurrence. The general liability insurance shall cover Lessee,
Lessee's agents, employees, and contractors and, shall name
Lessor as an additional insured.
. Binding Effect. This Lease and all its terms,
conditions and stipulations shall extend to and be binding on all
successors and permitted assigns of the parties.
. Interest on Unpaid Amounts. Interest at the prime
rate plus three points shall be payable on all amounts payable
under this Lease from and after the date on which such amounts
are due until they are paid in full. The prime rate shall be the
prime rate quoted by the Wall Street Journal on the date the
amount is due and payable.
. Governing Law; Venue. This Lease and its
interpretation and all disputes pertaining thereto (other than
disputes to be settled by arbitration pursuant to subparagraphs
5(l) through (o), above) or to any issue in respect of the
performance or non-performance of this Lease shall be governed by
the laws and decisions of courts of the State of Colorado. Any
action or proceeding at law or in equity by a party against
another party to this Lease may be brought in any District Court
in which venue is proper under the Colorado Rules of Civil
Procedure, notwithstanding that venue may also be proper in the
District Court for another county.
. Attorneys' Fees. Except as otherwise provided
herein in connection with the provisions of this Lease regarding
indemnification of parties, in any action or proceeding at law or
in equity by a party against another party to this Lease, the
prevailing party shall be entitled to reasonable attorneys' fees
and expenses.
. Depletion Allowance. The parties acknowledge that
all payments made pursuant to Paragraphs 5 and 6 of this Lease
are in the form of royalties and not lease, rent or production
payments. Further, the parties acknowledge that the Leased Sand
and Gravel which are the subject of this Lease are natural
resources which are the subject of a tax deduction of a
reasonable allowance for depletion of such materials, which
presently requires an equitable apportionment between the Lessor
and Lessee.
. Memorandum for Recording. Simultaneous with the
execution of this Lease the parties have executed a memorandum
for recording ("Memorandum for Recording"). Either party may
record the Memorandum for Recording but neither party shall
record this Lease without the prior written consent of the other.
. Construction of Document. The parties do not
intend that this Lease be characterized as a sale of real
property. However, if any court of competent jurisdiction should
characterize this Lease as a sale of real property, then the
parties intend that, upon such event, this Lease should be
treated as a mortgage, pursuant to which Lessee has granted to
Lessor a lien on the Property. In such event, the parties agree
to record an additional Memorandum for Recording containing the
necessary information to cause such Memorandum for Recording to
be effective as a mortgage.
IN WITNESS WHEREOF, the undersigned have executed this
Lease on the day and year first above written.
LESSOR:
VALCO INC.
By:/s/Thomas E. Brubaker
Thomas E. Brubaker
President
ATTEST:
By:____________________________
Name:__________________________
Its:___________________________
LESSEE:
CONTINENTAL MATERIALS CORPORATION
By:/s/ Joseph J. Sum
Joseph J. Sum
Vice President and Chief Financial
Officer
ATTEST:
By:____________________________
Name:__________________________
Its:___________________________
STATE OF COLORADO )
) ss.
COUNTY OF _________ )
Acknowledged before me this 21st day of October, 1996,
by Thomas E. Brubaker and ______________, the President and
__________________, respectively, of Valco Inc.
WITNESS my hand and official seal.
My commission expires:__________________________.
[SEAL] ____________________________
Notary Public
____________________________
Address:
____________________________
____________________________
STATE OF COLORADO )
) ss.
COUNTY OF _________ )
Acknowledged before me this 21st day of October, 1996,
by Joseph J. Sum and ______________, the Vice President and Chief
Financial Officer and __________________ , respectively, of
Continental Materials Corporation.
WITNESS my hand and official seal.
My commission expires:__________________________.
[SEAL] ____________________________
Notary Public
____________________________
Address:
____________________________
____________________________