<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1993 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-9586
THE CENTENNIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
33-0242912
(I.R.S. Employer Identification No.)
282 SOUTH ANITA DRIVE, ORANGE, CALIFORNIA 92668
(Address of principal executive office) (Zip Code)
(714) 634-9200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
Indicate the number of shares of stock of
the registrant outstanding:
26,195,675* SHARES OF COMMON STOCK AS OF NOVEMBER 1, 1993.
* Net of 423,330 shares of stock held in treasury.
<PAGE>
<TABLE>
THE CENTENNIAL GROUP, INC. (Debtor-in-Possession)
Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
<CAPTION>
September 30, June 30,
1993 1993
<S> <C> <C>
ASSETS
Properties under development and held for
investment or sale (notes 2, 3 and 4) $ 124,713 $ 123,943
Cash and cash equivalents 2,506 3,710
Short-term investments --- 1,000
Accounts and note receivable, net 370 345
Due from affiliates, net 724 724
Property and equipment, net of accumulated
depreciation of $1,363 and $1,335 as of
September 30, 1993 and June 30, 1993,
respectively 1,115 1,143
Other assets 416 350
_________ _________
Total assets $ 129,844 $ 131,215
_________ _________
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES NOT SUBJECT TO COMPROMISE:
Notes payable $ 43,271 $ 43,278
Notes payable and amounts due to affiliates 10,653 10,652
Accrued interest on notes and bonds payable 12,803 11,739
Accrued real estate taxes payable 9,647 8,936
Accounts payable and other accrued liabilities 2,447 3,700
_________ _________
Subtotal 78,821 78,305
_________ _________
<PAGE>
Consolidated Balance Sheets (Unaudited)
(Continued)
<CAPTION>
September 30, June 30,
1993 1993
<S> <C> <C>
LIABILITIES SUBJECT TO COMPROMISE:
Notes payable $ 15,386 $ 15,377
Other amounts due to affiliates 259 259
Accrued interest payable 7,902 7,854
Accounts payable and other accrued liabilities 4,012 3,993
_________ _________
Subtotal 27,559 27,483
_________ _________
Total liabilities 106,380 105,788
_________ _________
MINORITY INTEREST 3,152 3,157
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000
shares authorized; no shares issued or outstanding
Common stock, $.01 par value; 50,000,000
shares authorized; issued and
outstanding 26,619,005 shares at
at September 30, 1993 and June 30, 1993 266 266
Additional paid-in capital 136,312 136,312
Accumulated deficit (113,756) (111,798)
Treasury stock at cost; 423,330 shares at
September 30, 1993 and June 30, 1993 (2,510) (2,510)
_________ _________
Total stockholders' equity 20,312 22,270
_________ _________
Total liabilities, minority interest
and stockholders' equity $ 129,844 $ 131,215
_________ _________
<PAGE>
THE CENTENNIAL GROUP, INC. (Debtor-in-Possession)
Consolidated Statements of Operations (Unaudited)
For the three months ended September 30, 1993 and 1992
(dollars in thousands, except per share data)
<CAPTION>
1993 1992
<S> <C> <C>
REVENUES
Sales of:
Development and operating
properties $ --- $ 198
Single-family homes 144 163
Construction --- 144
Interest 31 95
Rental, fee and other 257 299
_________ _________
Total revenues 432 899
_________ _________
COSTS AND EXPENSES:
Cost of sales:
Development and operating
properties --- 220
Single-family homes 165 175
Construction expenses --- 56
Property operating expenses 125 156
Provision for losses on real
estate investments --- 5,100
Selling, general and
administrative (note 2) 967 997
Real estate taxes (note 1) 281 189
Interest expense (notes 1 and 4) 845 305
_________ _________
Total costs and expenses 2,383 7,198
_________ _________
<PAGE>
Consolidated Statements of Operations (Unaudited)
For the three months ended September 30, 1993 and 1992
(dollars in thousands, except per share data)
<CAPTION>
1993 1992
<S> <C> <C>
Loss before income taxes and
minority interest $ (1,951) $ (6,299)
Minority interest in earnings --- 8
_________ _________
Loss before income taxes (1,951) (6,307)
Income tax expense 7 8
_________ _________
Net loss $ (1,958) $ (6,315)
_________ _________
Net loss per common
share (note 1) $ (.07) $ (.24)
_________ _________
Weighted average shares
outstanding 26,195,675 26,195,675
<PAGE>
THE CENTENNIAL GROUP, INC. (Debtor-in-Possession)
Consolidated Statements of Stockholders' Equity (Unaudited)
(dollars in thousands)
<CAPTION>
Additional Total
Common Paid-in Accumulated Treasury Stockholder's
Stock Capital Deficit Stock Equity
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993 $ 266 $ 136,312 $(111,798) $ (2,510) $ 22,270
Net loss --- --- (1,958) --- (1,958)
_________ _________ _________ _________ _________
Balance, September 30, 1993 $ 266 $ 136,312 $(113,756) $ (2,510) $ 20,312
_________ _________ _________ _________ _________
<PAGE>
THE CENTENNIAL GROUP, INC. (Debtor-in-Possession)
Consolidated Statements of Cash Flows (Unaudited)
For the three months ended September 30, 1993 and 1992
(dollars in thousands)
<CAPTION>
September 30, September 30,
1993 1992
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net proceeds from sales of property $ 144 $ 362
Construction revenues, fees and rents received 214 275
Interest received 33 95
Other income received 1 34
Property development costs paid (22) (574)
Principal reductions on seller provided financing
secured by properties --- (85)
Interest paid (100) (580)
Other payments to suppliers and payroll costs paid (2,472) (1,174)
Income taxes paid --- ---
_________ _________
Net cash used by operating activities (2,202) (1,647)
_________ _________
CASH FLOW FROM INVESTING ACTIVITIES:
Collections (increase) on other non-trade receivables 9 (19)
Cash received from short-term investments 1,000 ---
Cash received from (advanced to) affiliates --- 108
Cash received from other assets 1 1
Purchase of property and equipment --- (2)
_________ _________
Net cash flows from investing activities 1,010 88
_________ _________
<PAGE>
Consolidated Statements of Cash Flows (Unaudited) (Continued)
For the three months ended September 30, 1993 and 1992
(dollars in thousands)
<CAPTION>
September 30, September 30,
1993 1992
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new notes payable $ --- $ 94
Principal payments on notes payable (7) (6)
Proceeds from notes payable to affiliates --- 261
Cash distributions to minority interest (5) (5)
_________ _________
Net cash flows provided from
(used by) financing activities (12) 344
_________ _________
Net decrease in cash and cash equivalents (1,204) (1,215)
Cash and cash equivalents at beginning of period 3,710 6,901
_________ _________
Cash and cash equivalents at end of period $ 2,506 $ 5,686
_________ _________
<PAGE>
Consolidated Statements of Cash Flows (Unaudited) (Continued)
For the three months ended September 30, 1993 and 1992
(dollars in thousands)
<CAPTION>
September 30, September 30,
1993 1992
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
Net loss $ (1,958) $ (6,315)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 75 82
Amortization of note payable discounts 10 82
Provision for losses on real estate investments --- 5,100
Provision for uncollectible accounts 6 ---
Minority interest in earnings --- 9
Increase in properties under development and
held for investment or sale (817) (2,347)
Increase in other receivables, net (40) (452)
Increase in other assets (68) (187)
Decrease in seller provided financing, net --- (85)
Increase in accrued interest payable 1,112 1,841
Increase in accrued real estate taxes payable 711 694
Decrease in accounts payable and accrued liabilities (1,233) (84)
Increase in notes and amounts due to affiliates --- 15
_________ _________
Net cash used by operating activities $ (2,202) $ (1,647)
_________ _________
</TABLE>
<PAGE>
THE CENTENNIAL GROUP, INC. (Debtor-in-Possession)
Notes to Consolidated Financial Statements (Unaudited)
For September 30, 1993 and June 30, 1993
1. GENERAL
In the opinion of management, the unuaudited financial
information reflects all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation thereof.
The results of operations for the three months ended September
30, 1993 and 1992 are not necessarily indicative of those
expected for a full year. Information pertaining to the three-
month periods ended September 30, 1993 and 1992 is unaudited and
condensed inasmuch as it does not include all related footnote
disclosures.
The condensed consolidated financial statements do not include
all information and footnotes necessary for fair presentation of
financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. Notes
to consolidated financial statements included in Form 10-K for
the year ended June 30, 1993 on file with the Securities and
Exchange Commission, provide additional disclosures and a further
description of accounting policies. The following notes refer to
certain properties by number. These numbers correspond to
property numbers used in the Company's Form 10-K for the year
ended June 30, 1993.
Net Loss Per Share
Net loss per common share is computed based on the weighted
average number of common shares outstanding during the periods
presented reduced by the average number of shares of stock held
in treasury. Employee stock options were not included in the
loss per share computation as the effect would have been
antidilutive.
Reclassifications
Certain amounts in the June 30, 1993 and September 30, 1992
consolidated financial statements have been reclassified to
conform with the September 30, 1993 presentation.
Nonaccrued Interest and Taxes
Effective July 1, 1993, the Company ceased accruing real
estate taxes and interest on debt secured by its Property Nos. 5,
15, 16 and 23. This accounting treatment was considered
appropriate since the Company is in the final stages of
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negotiations to execute deeds-in-lieu of foreclosures or consent
to lift of stay motions to allow the lenders to foreclose on
these properties in full satisfaction of their debt and the
repayment of these taxes and interest is considered improbable.
The total of nonaccrued interest and real estate taxes on these
four properties during the three months ended September 30, 1993
was $751,000 and $205,000, respectively.
2. REORGANIZATION PROCEEDINGS UNDER CHAPTER 11
As a result of its deteriorating liquidity position and to
avoid the loss of certain of its properties through foreclosure,
The Centennial Group, Inc. ("CGI") filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Central District of
California on December 13, 1991. The petition did not include
any of the operating subsidiaries of CGI. However, one of CGI's
subsidiaries, Arizona Commercial Property Development, Inc.
("ACPDI") had previously filed a voluntary petition for relief
under Chapter 11 with the United States Bankruptcy Court for the
District of Arizona on February 20, 1991. In Feburary 1993, the
Bankruptcy Court granted ACPDI's motion to dismiss its Chapter 11
proceedings. ACPDI filed this motion because of the lack of any
significant remaining equity in any of ACPDI's assets.
Under Chapter 11, ongoing foreclosure proceedings and
enforcement of other claims against a debtor in existence prior
to the filing of the petition are stayed while the debtor
operates its business as debtor-in-possession and formulates its
plan of reorganization under the jurisdiction and supervision of
the Bankruptcy Court. However, creditors holding secured claims
against a debtor may file motions with the Bankruptcy Court for
relief from the automatic stay. Such motions for relief from
stay may be granted by the Bankruptcy Court for a number of
reasons. Certain secured creditors of CGI and ACPDI have filed
motions for relief from stay and have been granted such relief by
the Bankruptcy Courts.
During CGI's bankruptcy proceedings, creditors of CGI holding
notes secured by Property No. 6 and another creditor holding
notes secured by the Property No. 23 filed motions for relief
from stay. CGI executed agreements with these creditors through
Bankruptcy Court approved stipulations which provided for
consensual reliefs from stay in the event CGI had not confirmed a
plan of reorganization prior to August 1993. On December 14,
1994, one of the creditors holding a note secured by a junior
trust deed on Property No. 6 completed its foreclosure of the
property. As of the date of this report, the creditor holding
notes secured by Property No. 23 had not yet completed its
foreclosure. Two other creditors of ACPDI and CGI holding notes
secured by Property Nos. 11 and 13 have also filed motions for
relief from stay which were consented to by ACPDI and CGI and/or
- 11 -
approved by the Bankruptcy Court. The creditor on Property No.
11 completed its foreclosure on April 5, 1993 while the creditor
on Property No. 13 is proceeding with its foreclosure process.
Management believes that the "Allowance for Losses on Real Estate
Investments" as of September 30, 1993, is sufficient to absorb
any losses which have or will be incurred as a result of
foreclosures on all of the properties discussed above.
CGI filed a plan of reorganization and disclosure statement
with the Bankruptcy Court on April 1, 1993 and has filed two
subsequent amendments thereto (the "Plan"). Generally, a debtor
operating under Chapter 11 has the exclusive right to file a plan
of reorganization for 120 days after the commencement of a case
and up to 180 days to solicit acceptances thereto. CGI's
exclusivity period to file a plan was extended to and expired on
December 7, 1992. As a result, any party in interest may now
file a competing plan of reorganization with the Bankruptcy
Court, although no competing plan has been filed as of the date
of this report. A hearing was held on September 13, 1993 at
which time the Bankruptcy Court approved the adequacy of the
disclosure statement. As a result, CGI is now proceeding with
soliciting acceptances of the Plan by its creditors. Another
hearing had been scheduled for December 8, 1993, at which time
the Bankruptcy Court was to have considered the confirmation of
the Plan. This confirmation hearing has been postponed until
February 23, 1994.
The Plan which was filed by CGI provides for 32 separate
classes of secured creditors and unsecured creditors and
stockholders. In general, the Plan provides for the extension of
the maturity dates of notes payable secured by real estate until
up to seven years after the effective date of the Plan and for
the adjustment of the interest rates on certain notes to a fixed
rate equal to three percentage points over the yield on seven
year United States Treasury Bonds as of the confirmation date of
the Plan, if approved. Interest will generally be payable in
quarterly installments. Since the repayment terms of this debt
has been proposed to be modified by the Plan, these creditors are
considered to be impaired by the Plan. As of September 30, 1993,
only property Nos. 5, 6, 13 and 23 were expected to be lost in
foreclosure pursuant to the Plan. Property Nos. 15, 16 and 22
which are owned by CGI's subsidiaries were also expected to be
lost in foreclosure. As discussed below, management now believes
that the loss of additional properties is now likely; however,
the September 30, 1993 financial statements have not been
adjusted to reflect such change in expectations. The Plan also
provides for three separate classes of unsecured claims: settled
claims under $25,000 are to be paid on or before the effective
date of the Plan while the remaining unsecured creditors, both
affiliated and non-affiliated, who comprise the remaining
classes, will be paid in quarterly installments with interest at
7% per annum. The Company will not be required to make the
- 12 -
quarterly payments unless its cash on hand is equal to a twelve
month reserve for future operations. However, in any event, the
Company will be required to make minimum annual payments of
$1,000,000 by December 31, 1994 and $2,000,000 each year
thereafter until 1997 when any remaining unpaid balance is due.
All pre-petition unsecured creditors are considered impaired
under the Plan. The Company's stockholders are not impaired
pursuant to the Plan.
As a part of its Plan, the Company, offered for sale and
issuance to the beneficial owners of common stock of the Company
as of July 15, 1993, and other accredited investors, up to
$35,000,000 in "Certificates of Participation" in nonrecourse
note proceeds from notes to be issued by the Company and secured
by mortgages on certain of its real estate assets. The proceeds
from this offering were principally to be used to payoff existing
debt and establish interest and tax payment reserves for the
properties to be encumbered and also, to a lesser extent, to
provide the Company with some unrestricted working capital. The
new notes were to mature December 31, 1996 and bear interest at
25% per annum and were to provide for quarterly interest payments
equal to 10% per annum with the balance of accruing interest
payable at maturity or upon early payoff. An offering memorandum
was distributed in late September 1993 to all holders of record
of the Company's common stock as of July 15, 1993. The offering
memorandum provided that at least $2,000,000 in subscriptions to
the offering were to be received by the Company or all
subscriptions received would be returned to the investors. This
offering was pursued by the Company until early January 1994 when
it became apparent that insufficient proceeds were being raised
to justify continuing incurring the costs associated with the
offering. As a result, management terminated the offering and
returned the proceeds which had been received.
As discussed above, the Company has been soliciting the
acceptance of the Plan by its creditors. All impaired classes of
creditors are entitled to vote for or against the Plan. If the
Plan is rejected by one or more impaired classes of creditors,
the Plan or modifications thereof may still be confirmed by the
Bankruptcy Court if the Court determines, among other
requirements, that the Plan does not discriminate unfairly and is
fair and equitable with respect to the rejecting class or classes
of creditors impaired by the Plan. The Company intends to
request such a determination (commonly referred to as a "cram-
down") if the Plan or modifications thereof is not accepted by
all of the impaired classes of creditors.
In the event that CGI is unable to obtain approval for the
Plan or modifications thereof, it is likely that the Chapter 11
case could be dismissed or a trustee could be appointed to
liquidate the assets of the Company. Additionally, even if the
Plan is approved, CGI must be successful in raising a substantial
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amount of cash from property sales, joint ventures or from other
sources or face the loss of one or more of its properties to
foreclosure beyond those discussed above. The consolidated
financial statements of the Company as of September 30, 1993
contemplated the successful approval of the Plan and receipt of a
substantial amount of cash from the certificate of participation
offering proceeds, property sales, joint ventures or from other
sources.
Since the certificate of participation offering has now been
terminated, the prospects for the Company to generate sufficient
cash to retain all of its remaining properties have been
substantially reduced. As a result, the loss of Property Nos. 3
and 4 in foreclosure now appears likely. Approximately $12.0
million of the Stockholder's Equity reflected on September 30,
1993 Consolidated Balance Sheet is based on the carrying values
of these properties and a charge to earnings in this amount will
be required if these properties are lost in foreclosure.
As discussed above, the Plan and the Consolidated Balance
Sheet of the Company as of September 30, 1993 contemplated the
loss of Property Nos. 5, 6, 13, 15, 16, 22 and 23 in foreclosure
and the retention or near term sale of Property Nos. 1, 2, 3, 4,
7, 9, 10, 17, 18, 19, 20 and 21. The Company could be liable for
deficiency judgements totalling up to $2.5 million on the
properties expected to be lost in foreclosure. The Company's net
carrying value in excess of secured debt on Property Nos. 2, 3, 4
and 7 totalled approximately $25.8 million while the net carrying
value in excess of secured debt on the remaining properties
expected to be retained totalled approximately $700,000. The
carrying values of Property Nos. 2 and 7 assumes that these
properties will be sold in subdivided parcels over several years.
The Company has been able to place a number of parcels at these
two properties in escrow to be sold since September 30, 1993;
however, only two of the transactions have actually been
consummated as of the date of this report.
In connection with CGI's bankruptcy proceedings, certain
creditors have submitted claims to the Bankruptcy Court for
amounts which the Company disputes and which have either not been
recorded in the consolidated financial statements or have been
recorded at amounts less than the claims submitted. Certain of
these claims are discussed in note 5. As of the date of this
report, the Company had reached tentative agreements with two of
the largest of such claims, including the Daniel's class action
litigation, for a combined total of approximately $4.8 million.
The Company had not recorded any provisions or accruals to cover
these settlements as of September 30, 1993. CGI intends to
contest the balance of these disputed claims in the Bankruptcy
Court (or other courts as applicable).
- 14 -
During the quarters ended September 30, 1993 and 1992, CGI
paid $193,000 and $247,000, respectively, in fees to
professionals in connection with the bankruptcy proceedings and
was billed $133,000 and $113,000, respectively, for professional
services related to the bankruptcy proceedings. These charges
have been included in general and administrative expense in the
consolidated statements of operations. CGI has not incurred any
other material expenses directly associated with the bankruptcy
proceedings during these periods.
As discussed above, under Chapter 11, enforcement of certain
claims against CGI in existence prior to the filing of the
petitions were stayed until a reorganization plan is approved.
Unsecured and undersecured claims which have been stayed by the
bankruptcy proceedings are reflected as "Liabilities Subject to
Compromise" in the accompanying consolidated balance sheets as of
September 30, 1993 and June 30, 1993.
3. CARRYING VALUE OF ASSETS
As discussed in note 1, the Company anticipates that a portion
of several of its properties may be liquidated at current
depressed market values or lost in foreclosure. Management
believed that the Company's allowance for losses as of September
30, 1993 was sufficient to cover losses which were expected to be
incurred as a result of the anticipated sales and foreclosures of
properties; however, the allowance for losses on real estate
investments did not reflect possible losses which might be
incurred as a result of foreclosure of Property Nos. 2, 3, 4 and
7 or losses which might be incurred if the Company were forced to
liquidate a substantial amount of its property in a short period.
As discussed in note 1, events occurring subsequent to September
30, 1993 have changed management's expectations and it now
appears likely that Property Nos. 3 and 4 will be lost in
foreclosure and that an additional $12.0 million provision for
losses will be recorded on these properties.
The amount of cash which the Company is able to generate from
property sales and and other sources will have a significant
impact on the level of success of the Company's proposed plan of
reorganization. In the event the Company is unable to generate
adequate cash, additional properties are likely to be lost in
foreclosure. The nature and extent of changes in the Company's
business operations and financial position caused by the
bankruptcy proceedings, the Company's cash position and future
economic and real estate market conditions are still subject to
numerous uncertainties. The outcome of these uncertainties could
result in the loss of certain properties through foreclosure or
the Company being required to sell the majority of all of its
real estate assets below current carrying values. The
consolidated financial statements do not reflect all adjustments
which might result from the outcome of these uncertainties.
- 15 -
4. PROPERTIES UNDER DEVELOPMENT AND HELD FOR INVESTMENT OR SALE
Properties under development and held for investment or sale
consist of the following:
September 30, June 30,
1993 1993
(dollars in thousands)
Development and income-producing
property:
Land and offsite improvements
under development and held
for investments or sale:
Owned by the Company $ 202,643 $ 201,756
Owned by consolidated joint
venture 8,644 8,551
_________ _________
Subtotal 211,287 210,307
Operating properties, net of
accumulated depreciation and
amortization of $1,629,000 and
$1,581,000 as of September 30, 1993
and June 30, 1993, respectively 5,056 5,104
Single-family home projects 304 466
_________ _________
Subtotal 216,647 215,877
Less provision for losses on
real estate investments (91,934) (91,934)
_________ _________
Total $ 124,713 $ 123,943
_________ _________
Capitalized interest is expensed to "Cost of Property Sold" as
the Company sells properties. Interest incurred, capitalized and
expensed for the three months ended September 30, 1993 is
summarized as follows:
(dollars in
thousands)
Interest capitalized, June 30, 1993 $ 63,958
Interest incurred and capitalized 395
Interest expensed (included in Cost of
Property Sold) (11)
_________
Interest capitalized, September 30, 1993 $ 64,342
_________
- 16 -
5. CONTINGENCIES
As of September 30, 1993, a subsidiary of the Company was
contingently liable for $6,156,000 in performance bonds. During
the quarter ended September 30, 1993, the Company's bonding
company drew upon $1,000,000 of letters of credit issued on
behalf of the Company to cover development costs incurred by the
bonding company. As of September 30, 1993, over 62% of the work
required under these bonds had been completed, leaving an
estimated cost of completion of approximately $2.4 million. More
than $1,500,000 of these costs to complete relates to property
owned by an unrelated financial institution who acquired the
property through foreclosure from a developer which has filed for
protection under Chapter 11 of the United States Bankruptcy Code.
This developer had indemnified the Company against any losses
resulting from these bonds when it acquired the property from the
Company. The Company could be required to complete this work in
which event it would be difficult for the Company to recover the
costs. The Company has indemnified the Principals for any
liability or losses incurred by them as a result of any personal
guarantees of Company indebtedness or as a result of their
secondary liability for Company indebtedness as former general
partners of certain predecessor partnerships consolidated into
the Company. This indemnification could be secured by certain of
the Company's properties; however, it was unsecured at September
30, 1993 and cannot be secured without Bankruptcy Court approval.
Certain of the Company's subsidiaries are general partners in
various partnerships. As general partners, these subsidiaries
could be subject to unlimited liability for the obligations and
actions of these partnerships. One of these partnerships,
Centennial Real Estate Investment Fund ("CREIF"), filed a
petition with the United States Bankruptcy Court in Phoenix,
Arizona, to seek protection under Chapter 11 of the federal
bankruptcy laws. CREIF's principal creditor who held a
$2,218,000 note secured by a deed of trust on CREIF's principal
asset, a shopping center in Gilbert, Arizona, has foreclosed on
the shopping center and has commenced legal action against CCI
for collection of an asserted deficiency of approximately
$1,600,000. The Company disputes the amount of deficiency and
does not believe it will suffer a material loss from this legal
action.
In November 1991, ACPDI lost its Val Vista/Broadway,
Southern/Higley and Island Galleria properties in foreclosure by
a single lender. The principal and accrued interest balances on
the note secured by these properties were $5,977,000 and
$1,062,000, respectively, at the time of foreclosure. The
properties were also encumbered by $350,000 in accrued real
estate taxes. The lender has filed a claim with the Bankruptcy
Court in CGI's bankruptcy proceedings for a deficiency judgement
in the amount of $4,740,000. The Company disputes this amount
- 17 -
and intends to contest the claim. The Company and its
subsidiaries have accrued approximately $3,700,000 to cover this
contingency and the potential deficiency related to the North
Pima Center foreclosure discussed below.
In November 1990, ACPDI lost its North Pima Center property in
foreclosure. This property was a 69,000 square foot neighborhood
shopping center and automotive center in Tucson, Arizona which
had experienced significant vacancy problems because of depressed
market conditions. The carrying value of the property at the
time of foreclosure was approximately $6,455,000. Upon
foreclosure, ACPDI charged the difference between the property's
cost basis and the debt secured by the property, which totaled
approximately $4,104,000 plus $204,000 in other accrued
liabilities against its allowance for losses on real estate
investments, which had been recorded in prior years. No revenues
were recorded in connection with this transaction. The lender
had commenced legal action against CGI for an asserted $933,000
deficiency plus other costs resulting from the foreclosure prior
to the commencement of CGI's bankruptcy proceedings.
Subsequently, the lender has filed an amended claim with the
Bankruptcy Court in CGI's bankruptcy proceedings in the amount of
$504,000.
As discussed in note 1, several creditors have submitted
claims to the Bankruptcy Court for substantial amounts which have
not been accrued in the consolidated financial statements and
which CGI intends to contest. The Bankruptcy Court may
ultimately determine that some of these claims are valid.
Legal proceedings also include a class action complaint
against the Company and other persons, including certain
officer/directors of the Company. The complaint alleges, among
other things, violations of state and federal securities laws and
breach of fiduciary duties in connection with the consolidation
of the Company in 1987. As discussed in note 2 to the financial
statements, the Company has reached a tentative settlement
agreement with the plaintiffs in the case, however, the agreement
is still being documented and will require the approval of the
State Court in which the action has been filed. The Company has
not recorded any provision for the settlement of this case
pursuant to the tentative agreement.
- 18 -
THE CENTENNIAL GROUP, INC. AND SUBSIDIARIES (Debtor-in-
Possession)
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following discussion compares operating results for the
three months ended September 30, 1993 and 1992. As a result of a
continuing lack of any substantial property sales caused by
depressed conditions in the real estate industry and the
Company's continued downsizing, revenues decreased from $899,000
during the three months ended September 30, 1992 to $432,000
during the three months ended September 30, 1993. These
depressed levels of revenues and the $5,100,000 provision for
losses on real estate investments during the the three months
ended September 30, 1992 were the principal reasons that the
Company incurred net losses during the three months ended
September 30, 1993 and 1992 of $1,958,000 and $6,315,000,
respectively.
Reference is made to Item 7. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
included in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1993 on file with the Securities and
Exchange Commission.
Gross profits, as used in the following discussions, represent
gross revenues less selling expenses less costs directly
associated with the asset sold or the services performed. Gross
profits have not been reduced by general and administrative costs
of the Company or its subsidiaries.
The following discussions refer to certain properties by
number. These numbers correspond to property numbers used in the
Company's Form 10-K for the fiscal year ended June 30, 1993.
REAL ESTATE DEVELOPMENT
There was only one sale of development and operating property
during the three months ended September 30, 1992 while there were
no sales of development and operating property consummated during
the three months ended September 30, 1993. The Company believes
that this lack of sales is principally the result of the shortage
of available financing and/or capital for the real estate
industry coupled with concerns of other developers about certain
unresolved entitlement issues involving the Company's properties
and real estate market conditions in general.
The prior year sale involved the Company's Property No. 14
which was zoned for residential purposes and consisted of
approximately 9.6 acres. The cash transaction generated revenues
- 19 -
of $198,000, net of selling expenses of $22,000, and resulted in
a loss of $22,000. The Company applied $116,000 of its
previously recorded allowance for losses against the cost basis
of this property at the time of the sale.
Although the Company has had minimal sales activity during the
past two years, it has continued its efforts to obtain zoning and
other entitlement changes approvals on a number of its Sacramento
area properties. The Company was successful during fiscal 1993
in obtaining approvals for zoning changes which will allow the
Company to develop an auto mall at its Property No. 2. As a
result of this approval, the Company was able to close escrow in
December 1993 on an additional 8.5 acres of the property as the
second part of a staged transaction with two auto dealerships
(See note 3 to the Company's consolidated financial statements as
of June 30, 1993 included with the Company Form 10-K as of that
same date). The Company also closed escrow on an additional 6.4
acres of this property in January 1994 to the same individuals.
The Company was also successful in obtaining certain zoning
changes on a portion of its Property No. 7 in August 1993 and was
subsequently able to place approximately 65 acres of this
property into two separate sales escrows which are scheduled to
be consummated in the quarter ending March 31, 1994. The Company
is hopeful that these transactions will general additional
activity at these properties. Although these developments are
encouraging, there can be no assurance that the escrows which
have not yet closed will ever close or that any additional
transactions will be consummated. Additionally, the transactions
discussed above are not expected to generate any significant cash
flow to the Company due to required debt payments and development
costs. Finally, the Company continues to experience issues and
delays in its efforts to obtain entitlement changes on its
remaining Sacramento properties. Until such time as economic
conditions improve and/or these entitlement changes can be
obtained, the Company believes the marketability of these
remaining properties will continue to be impaired.
HOMEBUILDING
The following table summarizes selected financial data of the
Company's residential construction activities:
Three Months Ended
September 30,
1993 1992
(dollars in thousands)
Sales of single-family homes $ 144 $ 163
Gross profit (loss) (21) (12)
Gross profit (loss) percentage (14.6)% (7.4)%
Units sold 1 1
- 20 -
Both of the units sold during the first quarters of fiscal
1994 and 1993 were at the Company's single family home project in
Fontana, California. The current losses have resulted from
reduced sales prices caused by depressed market conditions as
well as increased carrying and marketing costs on the units sold.
CONSTRUCTION
The Company earned $144,000 in construction revenues related
to its Lancaster project infrastructure contracts during the
three months ended September 30, 1992. Gross profits of $88,000,
were recorded on these revenues. The gross profit margin in
fiscal 1993 resulted from the settlement of certain disputed
costs for an amount less than that which had previously been
accrued. No comparable revenues were earned during the three
months ended September 30, 1993.
INTEREST INCOME
Interest income decreased from $95,000 during the three months
ended September 30, 1992 to $31,000 during the three months ended
September 30, 1993. The decrease in interest income is
principally due to a decrease in the average balance of interest
bearing deposits during fiscal 1994 as well as a decline in
average interest rates.
RENTAL, FEE AND OTHER INCOME
A breakdown of rental, fee and other income is shown below:
Three Months Ended
September 30,
1993 1992
(dollars in thousands)
Fee income $ 73 $ 66
Rental and other income 184 233
_________ _________
Total $ 257 $ 299
_________ _________
Fee income represents consulting fees earned from public
partnerships in which Centennial Capital, Inc. or CMIF, Inc. are
general partners, loan origination fees, property management fees
and brokerage fees. The decrease in rental and other income from
fiscal 1993 to fiscal 1994 is attributable to increased vacancy
at Property No. 20 and the receipt of a non-recurring $32,000
legal settlement in fiscal 1993.
- 21 -
PROVISION FOR LOSSES ON REAL ESTATE INVESTMENTS
The Company increased its allowance for losses on real estate
investments by $5,100,000 during the three months ended September
30, 1992. The Company recorded this provision to reserve certain
development and carrying costs incurred during the quarter on
properties whose value has not clearly increased and to reflect
additional anticipated losses on two of the Company's properties
whose near-term disposition appeared probable as a result of
negotiations with lenders and a potential buyer. There was no
comparable provision recorded during the three months ended
September 30, 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The following table summarizes the significant components of
these expenses:
Three Months Ended
September 30,
1993 1992
(dollars in thousands)
Number of employees 29 42
Square footage under lease 1,599 5,544
Selling, general and administrative
expenses:
Salaries and related expenses $ 430 $ 667
Rent and facilities expenses 65 79
Legal fees 313 181
Insurance 86 100
Depreciation 29 34
Expense recoveries from affiliates (101) (132)
Auto and travel 28 32
Accounting and audit fees 39 69
Investor mailings 39 2
Overhead capitalized to development
properties (31) (107)
Other 70 72
_________ _________
$ 967 $ 997
_________ _________
The Company has continued to reduce its general and
administrative costs through staff reductions, downsizing
facilities and the reduction of certain executive officers'
compensation. Legal fees during the three months ended September
30, 1993 and 1992 include $133,000 and $113,000, respectively, in
insolvency counsel fees. Other legal fees have increased
substantially during fiscal 1994 due to litigation involving
- 22 -
certain claims submitted in the bankruptcy proceedings as well as
fees associated with the "Certificates of Participation"
offering.
REAL ESTATE TAXES
Real estate tax expense increased from $189,000 for the three
months ended September 30, 1992 to $281,000 for the three months
ended September 30, 1993, while total real estate taxes incurred
increased by $150,000 as a result of late charges being assessed
on unpaid balances. The change in total real estate taxes
incurred is summarized as follows:
Three Months Ended
September 30,
1993 1992
(dollars in thousands)
Real estate tax expense $ 281 $ 189
Real estate taxes capitalized
to properties under development 386 533
Real estate taxes not accrued
(See note 1) 205 ---
_________ _________
Total real estate taxes incurred $ 872 $ 722
_________ _________
The decreased amount of taxes capitalized is due to the
declining level of development activities being conducted by the
Company due to the lack of available capital.
INTEREST EXPENSE
Although interest expense increased from $305,000 for the
three months ended September 30, 1992 to $845,000 for the three
months ended September 30, 1993, total interest incurred actually
declined slightly. The change in expense resulted from differing
accrual and capitalization treatments during the two periods
which are summarized as follows:
- 23 -
Three Months Ended
September 30,
1993 1992
(dollars in thousands)
Interest expense $ 845 $ 305
Interest capitalized to
properties under development 395 1,702
Interest not accrued
(See note 1) 751 ---
_________ _________
Total Interest incurred $ 1,991 $ 2,007
_________ _________
LIQUIDITY AND CAPITAL RESOURCES
Introduction
As discussed in note 2 to the consolidated financial
statements, CGI is operating under Chapter 11 of the United
States Bankruptcy Code.
The following paragraphs discuss the liquidity and capital
resources of CGI, ACPDI, CEI and the other subsidiaries of CGI
separately since the ability of the Company to transfer capital
between the companies in the consolidated group has been severely
restricted by the bankruptcy proceedings. Reference is made to
the consolidating balance sheet included below which shows the
assets and liabilities of each group separately.
CGI
CGI was in default on substantially all of its secured notes
payable as a result of payments which were past due immediately
prior to CGI's filing of its voluntary petition for relief under
Chapter 11. A number of CGI's secured creditors had commenced
foreclosure proceedings which were stayed by the bankruptcy
proceedings. However, as discussed previously, these and other
creditors already have filed or may file motions in the future
with the Bankruptcy Court to have such stays lifted. Two
properties have already been lost in foreclosure, including
Property No. 6 which was lost on December 14, 1993 (see note 2 to
the consolidated financial statements). CGI has presently
stopped making payments on all of its debt secured by real estate
assets except for debt secured by operating properties and by
CGI's corporate headquarters. However, CGI will be required to
resume making payments at various times in the future as part of
its proposed Plan which has been filed with the Bankruptcy Court.
Interest is accruing at the rate of approximately $504,000 per
month pursuant to existing note terms and will accrue at the rate
- 24 -
of approximately $209,000 pursuant to the restructured terms
proposed in the Plan on CGI's remaining notes payable secured by
real estate assets after the anticipated foreclosures on Property
Nos. 5, 6, 13 and 23.
In addition to note payments, CGI has suspended making
virtually all of its real property tax payments. Therefore, it
will also be necessary for CGI to resume making real property tax
payments in the future as a part of its Plan. Real property
taxes are currently accruing at the rate of approximately
$277,000 per month on CGI's properties and will decline to
$184,000 after the anticipated foreclosures and estimated
assessment valuation appeals.
As previously discussed, CGI has continued to reduce its
general and administrative overhead. Based on current reduced
levels, these expenses are still expected to require the outlay
of approximately $125,000 per month before legal and professional
fees. The amount of ongoing legal and professional fees cannot
be reasonably forecasted at this time due to the uncertainties
created by the bankruptcy proceedings; however, these costs could
be significant.
In order to enhance the value and marketability of CGI's
properties, CGI intends to continue seeking certain entitlements
and to continue using consultants on certain projects. CGI's
ability to incur such costs will be limited by the amount of
capital resources it presently has or is able to generate in the
future.
As of September 30, 1993, CGI had $2.2 million in unrestricted
cash. CGI's cash had decreased to $949,000 as of January 31,
1994. CGI's principal potential capital resources include the
sale or joint venture of properties, new debtor-in-possession
financing, and the repayment of amounts due from certain
affiliated entities, including CEI. As previously discussed,
market conditions, delays in obtaining entitlements and the lack
of financing for CGI's potential customers have severely
restricted the ability of the Company to sell property in the
near term. CGI has engaged in preliminary discussions with
certain parties regarding joint ventures and/or debtor-in-
possession financing; however, none of these discussions are
ongoing as of the date of this report. The amount and timing of
cash generated from the sources discussed above will have a
significant impact on the success of the Company's proposed Plan.
Based upon current cash flow forecasts, the Company's cash will
be completely depleted by the fourth quarter of fiscal 1994 if no
net cash is generated from the property sales, joint ventures or
other sources. If the Company's cash is completely depleted, it
could be forced to liquidate its assets and it is unlikely that
the proceeds from such liquidation will be sufficient to repay
all of the Company's liabilities.
- 25 -
ACPDI
ACPDI's capital resources are extremely limited. As of
September 30, 1993 it had only $5,000 in cash. It is anticipated
that approximately $1,120,000 of its $1,344,000 carrying value of
properties under development and held for investment or sale will
be lost through foreclosures or deed in lieu of foreclosure
transactions. The note payable, accrued interest and accrued
real estate taxes on the properties anticipated to be lost are
$1,821,000, $732,000 and $243,000, respectively. ACPDI's
receivables are not expected to be converted to cash in the near
term. It is expected that ACPDI's remaining assets will be
liquidated and that its remaining creditors will receive only a
partial recovery, if any, of their debt. Three creditors holding
notes payable secured by real estate with combined principal and
interest balances of $1,831,000 may have recourse against CGI for
deficiencies after they complete their foreclosures.
CEI
As of September 30, 1993, CEI had $63,000 in unrestricted
cash. Its $317,000 in receivables are principally comprised of
non-current refundable utility deposits. Thus, CEI's only
significant potential source of cash in the near term is from the
sale of property. However, the combined current market values of
CEI's Lancaster and Bakersfield projects are currently estimated
to have declined to the point that CEI has minimal, if any,
equity in the properties. Accordingly, as of September 30, 1993,
CEI's only probable source of cash in the near term was from the
sale of its 2 remaining homes at its Fontana project and its
custom homesite in San Juan Capistrano. Both of the Fontana
homes closed escrow subsequent to September 30, 1993. The San
Juan Capistrano homesite was also sold for $150,000 subsequent to
September 30, 1993.
CEI's principal capital requirements are interest and taxes on
its Lancaster and Bakersfield projects and general and
administrative expenses which are currently averaging
approximately $27,000 per month. CEI has suspended making
interest and tax payments on its Lancaster and Bakersfield
projects and is presently negotiating with the lenders to execute
deeds in lieu of foreclosure in complete satisfaction of the
debt. If these lenders elect to do so, they may pursue judicial
foreclosure proceedings and sue CEI for deficiencies.
OTHER SUBSIDIARIES
CGI's other subsidiaries include a joint venture which has
negotiated an extension of a $1.4 million note payable secured by
the Property No. 9 until April 1994. This joint venture does not
have sufficient capital resources to repay the note when it
matures; however, it is in the final negotiation stages to sell a
- 26 -
large portion of the property and, if consummated, the sale would
provide cash to repay the loan. The other subsidiaries in this
group all expected to have sufficient resources to fund their
operations other than the potential contingent claims disclosed
in note 5 to the consolidated financial statements.
OTHER INFORMATION
During the three months ended September 30, 1993, the
principal sources of cash for the Company were as follows:
$144,000 in proceeds from home sales; $1,000,000 in proceeds from
the liquidation of short-term investments; and $214,000 in
construction revenues, fees and rents. The principal uses of
cash for the Company were: $100,000 in interest payments; and
$2,472,000 in construction, property operating costs and general
and administrative costs. The $1,000,000 proceeds from the
liquidation of short-term investments were paid to the Company's
bonding company for the work they performed in connection with
performance bonds which they had issued on behalf of the Company.
See note 5 to the consolidated financial statements.
The Company's principal sources of capital during the past
several years have been cash generated from the sale of
development property and funds generated from the refinance or
extension of existing debt as it matured. As discussed above,
the Company believes that the increasing scarcity of financing
available to the real estate industry has restricted the
Company's ability to generate cash from the sale of development
property in the near term. Other less significant sources of
cash for the Company include the sale of single-family homes in
Fontana, interest income on short-term investments, cash on hand
and fee income.
- 27 -<PAGE>
<TABLE>
CONSOLIDATING BALANCE SHEETS
September 30, 1993
(Unaudited)
(in thousands)
<CAPTION>
ELIM- CONSOLIDATED
CGI ACPDI CEI OTHERS INATIONS TOTALS
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Properties under
development and
held for
investment or sale $ 101,652 $ 1,344 $ 17,005 $ 4,712 $ --- $ 124,713
Cash and cash
equivalents 2,211 5 63 227 --- 2,506
Short-term
investments --- --- --- --- --- ---
Accounts and notes
receivable 50 1 307 12 --- 370
Due from affiliates 560 57 --- 107 --- 724
Intercompany
receivables 3,718 --- --- 8,972 (12,690)a ---
Investment in
subsidiaries 5,475 --- --- 56 (5,531)b ---
Other assets 1,417 4 75 35 --- 1,531
Deferred income tax
benefits --- --- --- 1,362 (1,362)c ---
_________ _________ _________ _________ _________ _________
Total assets $ 115,083 $ 1,411 $ 17,450 $ 15,483 $ (19,583) $ 129,844
_________ _________ _________ _________ _________ _________
- 28 -<PAGE>
CONSOLIDATING BALANCE SHEETS (Unaudited) (Continued)
September 30, 1993
<CAPTION>
ELIM- CONSOLIDATED
CGI ACPDI CEI OTHERS INATIONS TOTALS
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS EQUITY
LIABILITIES NOT
SUBJECT TO
COMPROMISE:
Secured notes
payable $ 36,281 $ --- $ 5,578 $ 1,412 $ --- $ 43,271
Secured notes
payable to
affiliate 11 --- 10,591 51 --- 10,653
Accrued interest
on secured notes 12,451 --- 298 54 --- 12,803
Accrued real
estate taxes
payable 8,800 300 438 109 --- 9,647
Accounts payable
and other accrued
liabilities 2,140 47 128 126 --- 2,441
Income taxes payable
(refundable) 21 2 (386) 369 --- 6
Intercompany
payables 1 --- 1,166 1,674 (2,841)a ---
Deferred income
taxes 1,362 --- --- --- (1,362)c ---
_________ _________ _________ _________ _________ _________
Subtotal 61,067 349 17,813 3,795 (4,203) 78,821
_________ _________ _________ _________ _________ _________
- 29 -<PAGE>
CONSOLIDATING BALANCE SHEETS (Unaudited) (Continued)
September 30, 1993
<CAPTION>
ELIM- CONSOLIDATED
CGI ACPDI CEI OTHERS INATIONS TOTALS
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES SUBJECT
TO COMPROMISE:
Notes payable
(undersecured) 13,565 1,821 --- --- --- 15,386
Other amounts due
to affiliates 259 --- --- --- --- 259
Accrued interest
payable 7,170 732 --- --- --- 7,902
Accrued real
estate taxes
payable --- --- --- --- --- ---
Accounts payable
and other accrued
liabilities 4,008 4 --- --- --- 4,012
Intercompany
payables 8,700 1,149 --- --- (9,849)a ---
_________ _________ _________ _________ _________ _________
Subtotal 33,702 3,706 --- --- (9,849)a 27,559
_________ _________ _________ _________ _________ _________
Minority Interest --- --- --- 3,183 (31)b 3,152
Stockholders'
equity 20,314 (2,644) (363) 8,505 (5,500)b 20,312
Total
liabilities and
stockholders'
equity $ 115,083 $ 1,411 $ 17,450 $ 15,483 $ (19,583) $ 129,844
_________ _________ _________ _________ _________ _________
a. Eliminates intercompany receivables and payables. b. Eliminates investment in
subsidiaries. c. Reclassifies deferred tax benefits as reductions in deferred tax
liability.
- 30 -<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material developments have occurred regarding ongoing legal
proceedings since the Company filed its Form 10-K for the year
ended June 30, 1993 other than those discussed below:
SHIRLEY DANIELS, ET AL. VS. THE CENTENNIAL GROUP, INC. ET AL.
SUPERIOR COURT COUNTY OF ORANGE, STATE OF CALIFORNIA, CASE NO. 52
67 08 ("DANIELS I"). In June, 1987, a class action complaint was
filed against CGI and certain of its subsidiaries, Ronald R.
White, John B. Joseph, E.F. Hutton & Company, Inc., PaineWebber
Inc., Valuation Research Corporation and predecessor entities
owned by White and Joseph (collectively, the "Defendants"). The
action was brought on behalf of a class of persons or entities
who were limited partners in certain predecessor publicly-held
real estate partnerships as of April 30, 1987, the record date
for limited partners of the limited partnerships who were
entitled to consent to the consolidation of these predecessor
publicly-held limited partnerships and several entities owned by
White and Joseph in June 1987 (the "Consolidation"). The
plaintiffs alleged that the defendants violated various state and
federal securities laws and breached fiduciary duties in
connection with the Consolidation and the solicitation of
consents for the Consolidation.
In the action, the plaintiffs sought to recover compensatory
and punitive damages in unspecified amounts. They also sought
recission and invalidation of the Consolidation and the
imposition of a constructive trust upon the shares of CGI
distributed to White and Joseph, the imposition of a constructive
trust upon all fees, commissions and the other monies paid by the
Company to defendants E.F. Hutton & Company, Inc. and PaineWebber
Inc., and reimbursement to the predecessor publicly-held real
estate partnerships for all expenses incurred in connection with
the consent solicitation and the Consolidation.
The Defendants answered the Plaintiff's complaint, and denied
any liability to the plaintiffs. The plaintiffs made four
motions for an order certifying the case as a class action. Each
of these motions was denied by the Superior Court. Following the
denial of its fourth motion, the plaintiffs filed an appeal from
this decision with the Court of Appeal. The Court of Appeal
subsequently reversed the Superior Court ruling denying the
motion for class certification. On January 5, 1994, the Superior
Court issued an order, which certified the action as a class
action.
- 31 -
In recent months, the parties have conducted extensive
settlement negotiations. As a result of these negotiations,
defendants Valuation Research Corporation, E.F. Hutton & Company,
Inc. and PaineWebber, Inc. reached a separate settlement with the
plaintiffs. In addition, the remaining defendants, including
CGI, Joseph and White (hereinafter, collectively, the "Centennial
Defendants") have now reached a prospective settlement with the
plaintiffs.
By the terms of the this prospective settlement, Centennial
Community Developers, Inc. and Centennial Capital, Inc. shall
assign for the benefit of the plaintiff class their claims in the
CGI Chapter XI bankruptcy proceeding in the approximate amount of
$3,325,000, and (2) White and Joseph shall assign for the benefit
of the plaintiff class their "stock appreciation rights" in the
common stock received by them as a result of the Consolidation.
Pursuant to the terms of the prospective settlement, if the
Centennial stock received by White and Joseph in the
Consolidation increases in price to a value above $1.50 per
share, the plaintiffs will receive 50% of any such increase
between $1.51 and $5.00 per share.
Settlement of the action will be subject to the Superior Court
entering a judgment approving the settlement terms following
notice of the settlement to members of the class and a hearing to
determine whether the settlement should be approved.
The parties are currently completing the documentation of the
prospective settlement, and procedures for notifying the members
of the class of the settlement terms, and scheduling the hearing
referred to above have not yet been finalized.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Reference in made to Note 2 to the consolidated financial
statements on page 11.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
- 32 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
NONE
(b) Reports on Form 8-K.
NONE
- 33 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE CENTENNIAL GROUP, INC.
By: /s/Ronald R. White February 23, 1994
_________________________ _________________
Ronald R. White Date
Chairman of the Board,
President
By: /s/Joel H. Miner February 23, 1994
_________________________ _________________
Joel H. Miner Date
Chief Financial Officer,
Vice President
</TABLE>
