Lease Agreement

LEASE AGREEMENT


This Lease Agreement ("Agreement") is entered into as of August 3, 2005 (the "Effective Date") by and between Arizona Pacific Materials, an Arizona limited liability company ("APM") and CalMat Co., a Delaware Corporation, dba Vulcan Materials Company, Western Division ("Vulcan").


RECITALS


A. APM owns in fee simple the real property more particularly described as Parcel 1 on Attachment A, attached hereto and incorporated herein by reference.


B. APM maintains a special land use permit ("State Permit") from the Arizona State Land Department for the surface estate of certain real property located adjacent to the Property more particularly described as Parcel 2 on Attachment A ("Parcel 2 or the Mineral Estate"). APM owns all of the mineral materials on Parcel 2, including basalt, cinders, sand, gravel and other inert materials and has the right to access and mine these mineral materials from the Mineral Estate pursuant to the State Permit.


C. APM holds a Contract for the Sale of Mineral Materials with the Phoenix Field Office, Bureau of Land Management, United States Department of the Interior dated November 30, 2004 ("BLM Contract"), pursuant to the Materials Act of 1947 and that part of 43 C.F.R. ss. 3600, et seq., regarding non-competitive contracts. The BLM Contract involves real property belonging to the United States of America and more particularly described as Parcel 3 on Attachment A.


D. For purposes of this Agreement, the area comprised of Parcels 1, 2 and 3, excluding the Leased Property, shall sometimes be referred to herein as the "APM Property."


E. Vulcan desires to lease a portion of Parcel 1 more particularly described on the "Site Plan" to be approved by Vulcan and APM in accordance with Section 4(b) below (the "Leased Property") for the purpose of operating a hot mix asphalt plant ("Asphalt Plant"). If desired by Vulcan, a ready mix batch plant ("Ready Mix Plant") may be operated on an extension to the Leased Property as described below.


F. Vulcan desires to use the mineral materials, including basalt, cinders, sand, gravel and other inert materials (the "Mineral Products") produced by APM from the Mineral Estate and the BLM Contract for use in the Asphalt Plant and the Ready Mix Plant.


G. APM desires to lease the Property to Vulcan for the above-described purposes and to sell Mineral Products to Vulcan.


AGREEMENT


NOW THEREFORE, in consideration of the promises and the mutual agreements, covenants, and provisions contained in this Agreement, APM and Vulcan agree and declare as follows:


1. GRANT. APM hereby leases and grants to Vulcan the sole and exclusive lease and use of the Leased Property. APM shall lease and let the Leased Property exclusively to Vulcan. During the term of the Agreement, Vulcan shall have the right to conduct all operations necessary and incident to its installation and operation of the Asphalt Plant, to purchase Mineral Products from APM pursuant to the terms of this Agreement and to have such access to the Leased Property as it reasonably requires to carry out its permitted activities hereunder, and to do all other things within the Leased Property appropriate to the foregoing and not in violation of the terms hereof or of any other applicable law. Vulcan shall also have the right of ingress and egress over the Leased Property and the adjacent lands of APM in connection with


the purposes stated herein. APM also grants to Vulcan the right to extend and modify the Leased Property to accommodate the Ready Mix Plant at any time during the term of this Agreement. Vulcan's decision to install the Ready Mix Plant will be accomplished by an amendment to this Agreement by APM and Vulcan modifying the Site Plan (in accordance with Section 4(b)) to include additional acreage and to correspondingly increase the Property Rent (described in Section 3(c)(i)) on a pro-rata basis per the additional acreage.


2. TERM, RENEWAL AND EFFECTIVE DATE.


(a) TERM. This Agreement shall be for a term of five years commencing on the effective date hereof.


(b) RENEWAL Vulcan may renew this Agreement for two (2) five year periods by sending written notice of its election to renew to APM not less than ninety (90) days prior to the expiration of any term of this Agreement.


3. RENT, PLANTS, MINERAL PRODUCTS AND PAYMENTS.


(a) ASPHALT PLANT AND READY MIX PLANT. Vulcan shall be solely responsible for all aspects of the acquisition, installation, operation and maintenance of the Asphalt Plant. Vulcan shall have the right, but not the obligation, to install and operate the Ready Mix Plant on the modified Leased Premises during the term of this Agreement, and in such event, Vulcan shall be solely responsible for all aspects of the acquisition, installation, operation and maintenance of the Ready Mix Plant.


(b) MINERAL PRODUCT. Each 12 month period that this Agreement is in effect, commencing on the Effective Date, APM guarantees, warrants and represents that it will produce not less than 250,000 tons of Mineral Products which will meet or exceed the written specifications set forth by Vulcan and delivered to APM. Consequently, Vulcan agrees to accept and purchase at least 250,000 tons per year of Mineral Products derived from the Mineral Estate and the BLM Contract. Subject to subsection 3(c)(ii) below, if APM produces more than 250,000 tons of Mineral Products, Vulcan shall have the right, but not the obligation to purchase such materials in accordance with this Agreement. The Mineral Products shall strictly conform to Vulcan's standards and specifications for the Asphalt Plant and, if applicable, the Ready Mix Plant.


(c) CONSIDERATION.


(i) PROPERTY RENT. Vulcan shall pay APM the sum of Two Thousand Five Hundred Dollars ($2,500.00) each month that this Agreement is in effect. The rental payment shall be delivered to APM on the first day of each such month and shall not be deemed overdue until ten (10) days following written notice from APM. Rent for partial months at the inception or the termination of this Agreement shall be prorated.


(ii) TONNAGE ROYALTY. Vulcan agrees to purchase from APM, at the rate of XXXXX ($XXX) per ton ("Purchase Price"), all of the Mineral Products necessary for Vulcan to operate its Asphalt Plant and if applicable, the Ready Mix Plant. The amount of Mineral Products purchased by Vulcan shall not be less than the 250,000 tons per year referenced above. If Vulcan determines that APM is unable to provide Vulcan with sufficient quantities of materials, Vulcan may obtain any additional minerals and aggregates from outside sources. For the life of the Agreement and all extensions, any deliveries of Mineral Products ordered by Vulcan and delivered and/or picked up by a Vulcan client shall be counted towards fulfillment of Vulcan's guaranteed 250,000 annual minimum requirement and will be billed by APM to Vulcan at the Purchase Price.


(iii) HOPPER LOADING FEE. APM shall provide sufficient and suitable front-end loaders and other necessary machinery and operators to provide the Mineral Product deliveries described herein to the hoppers designated by Vulcan at the Asphalt Plant and, if applicable, the Ready Mix Plant.


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Vulcan shall pay APM Twenty Five Cents ($.25) for each ton of Mineral Product delivered to the hoppers pursuant to this Agreement (the "Hopper Loading Fee").


(iv) ADJUSTMENTS. Beginning with the first (1st) anniversary of the Effective Date, and on every anniversary thereafter throughout the term of this Agreement and any renewal term (the "Adjustment Dates"), the Purchase Price and Hopper Loading Fee may be reviewed and adjusted by APM. The adjustment shall be based upon the Producer Price Index for Sand and Gravel, Western Region, Mountain, (Product Code 1442-38) (Base year 1982-100), published by the United States Department of Labor, Bureau of Labor Statistics ("PPI"), which is published for the month of December, 2005 ("Base PPI"). The PPI published for the month, which is three (3) months prior to the month in which the Adjustment Date in question occurs ("Adjustment PPI") shall be used in determining the amount of the adjustment. If adjusted, the Purchase Price and Hopper Loading Fee for each one (1) year period commencing with an Adjustment Date shall be the result of multiplying $XXXX (in the case of the Purchase Price) and $0.25 (in the case of the Hopper Loading Fee) by a fraction, the numerator of which is the Adjustment PPI and the denominator of which is the Base PPI, provided that in no event shall the Purchase Price or Hopper Loading Fee be increased by more than three percent (3%) above the amount payable during, the period immediately preceding the Adjustment Date or be less than the amount payable during the period immediately preceding the Adjustment Date. Should the Bureau of Labor Statistics discontinue the publication of the PPI, or publish the PPI less frequently, or alter the PPI in some other manner, then APM and Vulcan shall agree on a substitute index or substitute procedure which reasonably reflects and monitors sand and gravel producer prices. Before any adjustment is implemented, APM will review said adjustments with Vulcan at least 60 days prior to any price change.


(v) PREFERENTIAL PRICING. In the event APM sells Mineral Product to any third parties unrelated to Vulcan during the term of this Agreement, the price that APM charges such third parties for the Mineral Product shall be no less than five percent (5%) greater than the then existing Purchase Price.


(d) PAYMENTS.


(i) PAYMENT AND DELIVERY. At the end of each month that this Agreement is in effect, APM shall deliver to Vulcan an invoice comprised of each Vulcan Statement and the APM Statement for the prior month less any Preferential Pricing reductions pursuant to Section 3(c)(v). The invoice shall be due and payable by Vulcan to APM within 30 days of Vulcan's receipt thereof. Interest will accrue at the rate of 1.5% per month if the invoice is not timely paid.


All payments required hereunder may be mailed to APM's mailing address of c/o Western Power & Equipment, 6407-B Northeast 117th Avenue, Vancouver, WA 98662 or to any single depository as the parties may instruct. The delivery or the deposit in the mail of any payment hereunder on or before the due date thereof shall be deemed timely payment hereunder.


(ii) CALCULATION. Payments for Mineral Products delivered to the Asphalt Plant shall be calculated in the following manner: The Purchase Price shall be determined by the actual weight of Mineral Products ordered by Vulcan and delivered to the Asphalt Plant and, if applicable, the Ready Mix Plant. Each delivery shall be weighed in Vulcan's production scales located on the Leased Property and shall be recorded in Vulcan's records. Vulcan shall deliver APM a statement detailing the weight of Mineral Products used in production at the Asphalt Plant for each day of operation during the term of this Agreement (each a "Vulcan Statement"),


Payments for Mineral Products delivered to Vulcan's off-Property facilities or customers shall be calculated in the following manner: Vulcan's or its agents' trucks picking up Mineral Product shall be weighed on APM's truck scales located adjacent to the Property. APM shall keep daily summary sheets detailing the total weight of Mineral Products ordered by Vulcan and delivered to Vulcan's off Property facilities or customers each day. At the end of each month, APM shall submit an invoice to Vulcan based on APM's summary sheets for that month (each an "APM Statement").


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4. USE OF PROPERTY AND SITE.


(a) USE OF PROPERTY. Vulcan agrees that the Leased Property shall be used only for the purposes contemplated in the Agreement.


(b) SITE PLAN. Prior to Vulcan commencing construction of the Asphalt Plant, Vulcan shall prepare a site plan delineating the exterior boundaries of the Leased Property and the location and specifications of the Asphalt Plant and related improvements and equipment ("Site Plan") and shall submit the Site Plan to APM for approval, which approval shall not be unreasonably withheld. Within ten (10) days after receipt of the Site Plan, APM shall deliver written notice to Vulcan specifying that it agrees to the Site Plan or that it has suggested changes to the Site Plan, in which case such notice shall specifically detail any requested changes. If APM requests changes, the parties shall promptly meet and work together in good faith to agree on the Site Plan, Vulcan shall then resubmit the Site Plan to APM and the parties shall follow the same procedure s ...