<PAGE> 1
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 May 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 001-09911
CAPITAL PACIFIC HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2956559
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4100 MacArthur Blvd., Suite 200, Newport Beach, CA 92660
- -------------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(949) 622-8400
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) 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 XX No
-- --
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class and Title of Shares Outstanding as of
Capital Stock July 1, 1998
---------------------------- ------------------------
Common Stock, $.10 Par Value 14,305,511
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CAPITAL PACIFIC HOLDINGS, INC.
INDEX TO FORM 10-Q
Page
----
Part I - Financial Information:
Item 1 - Financial Statements
Consolidated Balance Sheets --
May 31, 1998 and February 28, 1998 3
Consolidated Statements of Income for the
Three Months Ended May 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
Three Months Ended May 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of Results
of Operations and Financial Condition 8-11
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K 12
2
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PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS May 31, February 28,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 5,460 $ 4,328
Restricted cash 1,640 1,361
Accounts and notes receivable 13,070 26,191
Real estate projects 207,209 192,347
Property, plant and equipment 7,729 7,857
Investment in and advances to unconsolidated
joint ventures 7,627 6,762
Prepaid expenses and other assets 12,007 12,809
-------- ---------
Total assets $254,742 $ 251,655
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 20,014 $ 21,830
Notes payable 41,521 36,714
Senior unsecured notes payable 100,000 100,000
-------- ---------
Total liabilities 161,535 158,544
-------- ---------
Minority Interest 29,817 30,061
-------- ---------
Stockholders' equity:
Common stock, par value $.10 per share,
30,000,000 shares authorized; 14,305,511 shares
issued and outstanding 1,500 1,500
Additional paid-in capital 211,888 211,888
Accumulated deficit (148,371) (148,711)
Treasury stock (1,627) (1,627)
-------- ---------
Total stockholders' equity 63,390 63,050
-------- ---------
Total liabilities and stockholders' equity $254,742 $ 251,655
======== =========
</TABLE>
See accompanying notes to financial statements.
3
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CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
May 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Sales of homes and land $28,292 $34,956
Cost of sales 24,853 28,221
------- -------
Gross margin 3,439 6,735
Income from unconsolidated joint ventures 1,393 (10)
Interest and other income, net 322 153
Selling, general and administrative expenses (4,546) (5,635)
Minority Interest (166) --
------- -------
Income before income taxes 442 1,243
Provision for income taxes 102 180
------- -------
Net income $ 340 $ 1,063
======= =======
Net income per common share $ 0.02 $ 0.07
======= =======
Weighted average number of common shares 14,306 14,995
======= =======
</TABLE>
See accompanying notes to financial statements.
4
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CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
three months ended
May 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 340 $ 1,063
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in restricted cash (279) 58
Depreciation and amortization 428 409
(Increase) decrease in real estate projects (14,862) 4,473
Decrease in receivables, prepaid expenses
and other assets 13,735 105
Decrease in accounts payable and
accrued liabilities (1,816) (8,720)
Minority interest 166 --
------- -------
Net cash provided by (used in) operating
activities (2,288) (2,612)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (112) (994)
Distributions to minority interest (410) --
Decrease (increase) in investment in and advances
to unconsolidated joint ventures (865) (138)
------- -------
Net cash provided by (used in) investing
activities (1,387) (1,132)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on notes payable, net 4,807 (169)
------- -------
Net cash provided by (used in) financing
activities 4,807 (169)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,132 (3,913)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,328 11,434
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,460 $ 7,521
======= =======
</TABLE>
See accompanying notes to financial statements.
5
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CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The unaudited financial statements presented herein have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements, and notes thereto, included in the Form 10-K/A for the fiscal year
ended February 28, 1998, of Capital Pacific Holdings, Inc. (the "Company"). In
the opinion of management, the financial statements presented herein include all
adjustments (which are solely of a normal recurring nature) necessary to present
fairly the Company's financial position and results of operations. The results
of operations for the three month period ended May 31, 1998, are not necessarily
indicative of the results that may be expected for the year ending February 28,
1999. The consolidated financial statements for the first quarter of fiscal 1999
include the accounts of the Company, wholly owned subsidiaries and certain
majority owned joint ventures, as well as the accounts of Capital Pacific
Holdings, LLC ("CPH LLC") of which the Company owns a majority interest. The
accompanying consolidated balance sheets (See Note 3), include the capital
accounts of CPH LLC totaling $92 million, $30 million of which is required to be
presented as minority interest. The consolidated financial statements for prior
periods include only the accounts of the Company, wholly owned subsidiaries and
certain majority owned joint ventures. All other investments are accounted for
on the equity method. All significant intercompany balances and transactions
have been eliminated in consolidation.
2. Reclassifications
Certain items in prior period financial statements have been
reclassified in order to conform with current year presentation.
3. Company Organization and Operations
The Company is a regional builder and developer with operations
throughout selected metropolitan areas of Southern California, Nevada, Texas
and Arizona. The Company builds and sells homes targeted to entry-level and
move-up buyers, and has recently expanded its operating strategy to encompass
the acquisition and development of commercial and mixed-use projects, as well
as ownership of existing commercial properties.
Effective as of October 1, 1997, the Company consummated an equity and
restructuring transaction whereby the Company and certain of its subsidiaries
transferred CPH LLC substantially all of their respective assets and CPH LLC
assumed all the liabilities to the Company and its subsidiaries. Immediately
thereafter, a newly formed unaffiliated investment company, California Housing
Finance, L.P. ("CHF"), contributed to the capital of CPH LLC the sum of $30
million in cash and acquired a 32.07% interest in CPH LLC. The Company, together
with its subsidiaries, has a 67.93% interest in CPH LLC. Subject to adjustment
and exceptions under certain circumstances, CHF has the same interest in all
future business of the Company, all of which will be conducted
6
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either within CPH LLC or through newly formed project specific entities. At May
31, 1998, CPH LLC had $253 million in assets and a net worth of $92 million. The
Company is the sole managing member of CPH LLC and expects that it will be the
sole managing member of any newly formed project specific entity. The Company
maintains certain licenses and other assets as is necessary to fulfill its
obligations as managing member. The Company and its subsidiaries perform their
respective management functions for CPH LLC pursuant to management agreements
which include provisions for the reimbursement of Company and subsidiary costs,
a management fee and indemnification by CPH LLC.
References to the Company are, unless the context indicates otherwise, also
references to CPH LLC. At the current time, all material financing transactions
and arrangements are incurred either by CPH LLC or by certain newly formed
project specific entities.
4. Notes Payable
Notes payable at May 31, 1998 and February 28, 1998, are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
May 31, February 28,
1998 1998
-------- -----------
<S> <C> <C>
Notes payable to banks, including interest
varying from prime to prime plus two percent,
maturing between May 31, 1998 and April 30, 1999
secured by certain real estate projects on a
non-recourse basis $27,873 $24,709
Notes payable to banks, including interest at prime
with the terms of the commitment reducing
commencing December 1, 1998, secured by certain
real estate projects on a recourse basis 13,648 11,736
Other -- 269
------- -------
$41,521 $36,714
======= =======
</TABLE>
5. Net Income Per Common Share
Net Income per common share is based upon the weighted average number of
common shares outstanding for the period. The dilutive effective of the
Company's outstanding warrants did not impact net income per common share in the
quarters ended May 31, 1998 and 1997.
6. Common Stock Repurchase Program
The Company has announced a stock repurchase program whereby up to
500,000 of the Company's outstanding common stock may be repurchased. As of May
31, 1998, less than 150,000 shares have been repurchased under this program.
7
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements in the financial discussion and analysis by management
contain "forward-looking" information (as defined in the Private Securities
Litigation Reform Act of 1995 and within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
as amended) that involves risk and uncertainty, including projections and
assumptions regarding the business environment in which the Company operates.
Actual future results and trends may differ materially depending on a variety of
factors, including the Company's successful execution of internal performance
strategies; changes in general national and regional economic conditions, such
as levels of employment, consumer confidence and income, availability to
homebuilders of financing for acquisitions, development and construction,
availability to homebuyers of permanent mortgages, interest rate levels, the
demand for housing and office space; commercial lease rates; supply levels of
land, labor and materials; difficulties in obtaining permits or approvals from
governmental authorities; difficulties in marketing homes; regulatory changes
and weather (including El Nino) and other environmental uncertainties;
competitive influences; and the outcome of pending and future legal claims and
proceedings.
RESULTS OF OPERATIONS -- GENERAL
The following table illustrates the actual and pro forma results of the
Company's operations for the three months ended May 31, 1997 and 1998. The pro
forma results have been adjusted to reflect the inclusion of the operating
results of the Company's unconsolidated joint ventures, including the portion
attributable to the Company's joint venture partners, and are used throughout
this discussion for comparative purposes wherever the phrase "pro forma" is
utilized. This pro forma information is presented because the results of the
joint ventures is becoming more significant to the Company's overall results of
operations, and the pro forma results are more reflective of the volume of
business being managed by the Company.
RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
MAY 31, 1997 MAY 31, 1998
-------------------- -------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Sales of homes and land $34,956 $35,254 $28,292 $37,679
Cost of sales 28,221 28,496 24,853 31,798
------- ------- ------- -------
Gross margin $ 6,735 $ 6,758 $ 3,439 $ 5,881
======= ======= ======= =======
</TABLE>
As is noted in footnote 1 to the financial statements presented herein, the
Company is reporting its results on a consolidated basis with the results of CPH
LLC. References to the Company in this Item 2 are, unless the context indicates
otherwise, also references to CPH LLC. At the current time, all material
financing transactions and arrangements are incurred either by CPH LLC or by
certain newly formed project specific entities.
Since the financial restructuring in October 1997, the Company, together
with its financial partners, has invested over $80 million in seven new joint
ventures. The Company typically is required to fund a small percentage of the
capital requirements of each joint venture, which amount is included in
investments in and advances to unconsolidated joint ventures in the Company's
consolidated balance sheets.
8
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The following table summarizes the joint ventures established since the
financial restructuring:
<TABLE>
<CAPTION>
Date
Description Closed Location Total Invested
----------- ------ -------- --------------
<S> <C> <C> <C>
Residential Development 12/97 Dana Point, CA $10 Million
Residential Development 3/98 Vista, CA $ 2 Million
Mixed Use 4/98 Huntington Beach, CA $26 Million
Commercial Office Bldg. 4/98 Newport Beach, CA $ 4 Million
Commercial Office Bldg. 5/98 Costa Mesa, CA $ 9 Million
Commercial Office Bldg. 6/98 Laguna Hills, CA $ 8 Million
Residential Development 6/98 Monarch Beach, CA $25 Million
</TABLE>
FIRST THREE MONTHS OF FISCAL 1999 COMPARED TO FIRST THREE MONTHS OF FISCAL 1998:
The Company reported net income of $340,000, or $0.02 per share, in the first
quarter of fiscal 1999, as compared to net income of $1.1 million, or $0.07 per
share, in the first quarter of fiscal 1998.
Sales of homes and land including unconsolidated joint ventures were $37.7
million for the first quarter of fiscal 1999 compared to $35.2 million for the
first quarter of fiscal 1998. This increase is due to the fact that the
Company's average sales price per unit has increased to $245,000 in the first
quarter of fiscal 1999 from $224,000 in the first quarter of fiscal 1998. Total
home closings decreased slightly from 154 in the first quarter of fiscal 1998 to
152 in the first quarter of fiscal 1999, including 1 and 9 homes, respectively,
closed in unconsolidated joint ventures.
The level of closings was negatively impacted by the unusually wet winter in
California precipitated by the El Nino weather phenomenon. The Company's actual
gross margin on home and lot closings decreased to 12.2 % for the first quarter
of fiscal 1999 as compared to 19.3% for the first quarter of fiscal 1998. The
Company's pro forma gross margin of home and lot closings was 15.6 % during the
first quarter of fiscal 1999 as compared to 19.2% for the first quarter of
fiscal 1998. The decrease in gross margin was primarily due to a shift in the
mix of home closings between quarters, primarily along geographical lines. In
particular, the number of home closings in the higher-margin Southern California
market decreased from 48 homes in the first quarter of fiscal 1998 to 26 homes
in the first quarter of fiscal 1999.
Selling, general and administrative expense of $4.5 million for the first
quarter of fiscal 1999 decreased $1.1 million or 19.3 % as compared to the first
quarter of fiscal 1998. As a percentage of revenue, selling, general and
administrative expense remained consistent at 16.1 % between quarters.
Income from unconsolidated joint ventures increased from a loss of $10,000 in
the first quarter of fiscal 1998 to income of $1.4 million, due to both the
higher unit closings and higher margins experienced in the Company's current
joint ventures.
Interest and other income increased from $153,000 to $322,000 primarily as a
result of increased activity in the Company's mortgage broker operations.
Minority interest of $166,000 for fiscal 1999 represents the share of CPH
LLC's income attributable to CHF.
Interest incurred was $4.5 million in the first quarter of fiscal 1999, as
compared to $5.2 million in the first quarter of fiscal 1998, while interest
included in cost of sales was $2.1 million during the first quarter of fiscal
1999, as compared to $3.3 million in the first quarter of fiscal 1998.
9
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OPERATING DATA
The following table shows new home deliveries, net new orders and average
sales prices for each of the Company's operations, including unconsolidated
joint ventures:
THREE MONTHS
ENDED
-------------------
MAY 31, MAY 31,
1997 1998
-------- --------
New homes delivered:
California 47 17
Texas 49 68
Nevada 39 48
Arizona 18 10
-------- --------
Subtotal 153 143
Unconsolidated Joint
Ventures (California) 1 9
-------- --------
Total 154 152
======== ========
Net new orders 238 196
======== ========
Average sales price:
California $400.000 $646,000
Texas 157,000 160,000
Nevada 149,000 163,000
Arizona 100,000 166,000
Combined 224,000 245,000
The following table shows backlog in units and dollars at May 31, 1998 and
1997 for each of the Company's operations, including unconsolidated joint
ventures:
ENDING BACKLOG
-------------------------------------
MAY 31, 1997 MAY 31, 1998
--------------- --------------
UNITS ($000s) UNITS ($000s)
----- -------- ----- --------
California 142 $ 66,900 122 $ 72,300
Texas 206 30,200 233 39,400
Nevada 70 11,500 43 8,700
Arizona 32 4,900 22 4,100
--- -------- ---- --------
Total 450 $113,500 420 $124,500
=== ======== ==== ========
LIQUIDITY AND CAPITAL RESOURCES
At the current time, all material financing transactions and arrangements are
incurred either by CPH LLC or by certain newly formed project specific entities.
As of May 31, 1998, CPH LLC has in place several credit facilities totaling $165
million (the "Facilities") with various bank lenders (the "Banks"), of which
$41.5 million was outstanding. The Facilities are secured by liens on various
completed or under construction homes and lots held by CPH LLC and such project
entities. Pursuant to the Facilities, CPH LLC is subject to certain covenants,
which require, among other things, the maintenance of a consolidated liabilities
to net worth ratio, minimum liquidity, minimum net worth and loss limitations,
all as defined in the documents that evidence the Facilities. At May 31, 1998,
CPH LLC was in compliance with these covenants. The Facilities also define
certain events that constitute events of default. As of May 31, 1998, no such
event had occurred. Commitment fees are payable annually on some of the
Facilities.
Homebuilding activity is being financed out of CPH LLC cash, bank financing,
and the existing joint ventures, including joint ventures with institutional
investors, including CHF, the investor in
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CPH LLC. Commercial acquisitions and development activities are typically
financed through third party financing and bank debt. The Company anticipates
that it will continue to utilize both third party financing and joint ventures
to cover financing needs in excess of internally generated cash flow.
In May, 1994 the Company completed the sale of $100 million of 12 3/4% Senior
Notes including 790,000 warrants to purchase common stock. The proceeds from the
offering were used to repay certain debt of the Company, acquire certain
properties and for general working capital and construction purposes. The
obligations associated with the Senior Notes have been transferred from the
Company to CPH LLC.
The Indenture contains restrictions on the incurring of indebtedness which
affect the availability of the Facilities based on various measures of the
financial performance of CPH LLC. Subject to such restrictions, the Facilities
will be available to augment cash flow from operations and joint venture
financing to fund CPH LLC's operations.
Management expects that cash flow generated from operations and from
additional financing permitted by the terms of the Indenture will be sufficient
to cover the debt service and to fund CPH LLC's current development and
homebuilding activities for the reasonably foreseeable future.
11
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PART II -- OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit
Number Description Method of Filing
------- ----------- ----------------
3.1 Third Restated Certificate of Filed with this document
Incorporation of the Registrant
3.2 Second Amended and Restated Previously filed
By laws of the Registrant
(Incorporated by reference to
Exhibit 3.4 of the Registrant's
Annual Report on Form 10-K
for the fiscal year ended
February 28, 1998.)
27 Financial Data Schedule Filed with this document
(b) Reports on Form 8-K
None Filed
12
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SIGNATURES
Pursuant to the requirements 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.
CAPITAL PACIFIC HOLDINGS, INC.
Date: July 15, 1998 By: /s/ HADI MAKARECHIAN
---------------------------------
Hadi Makarechian, Chairman of the
Board and Chief Executive Officer
Date: July 15, 1998 By: /s/ STEVEN O. SPELMAN, JR.
-------------------------------------
Steven O. Spelman, Jr., Vice
President and Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit
Number Description Method of Filing
------- ----------- ----------------
3.1 Third Restated Certificate of Filed with this document
Incorporation of the Registrant
3.2 Second Amended and Restated Previously filed
By laws of the Registrant
(Incorporated by reference to
Exhibit 3.4 of the Registrant's
Annual Report on Form 10-K
for the fiscal year ended
February 28, 1998.)
27 Financial Data Schedule Filed with this document
<PAGE> 1
EXHIBIT 3.1
THIRD RESTATED
CERTIFICATE OF INCORPORATION
OF
CAPITAL PACIFIC HOLDINGS, INC.
The undersigned, being duly authorized by the Board of Directors of
Capital Pacific Holdings, Inc., a corporation originally organized under the
name of J.M. Peters Company, Inc. by virtue of a Certificate of Incorporation
filed with the Secretary of State of Delaware on February 19, 1993 (the
"Corporation"), hereby certifies that this Third Restated Certificate of
Incorporation has been adopted by the Board of Directors of the Corporation in
accordance with the provisions of Section 245 of the General Corporation Law of
the State of Delaware for the purpose of restating the Corporation's original
Certificate of Incorporation as theretofore amended and restated and as further
amended as of the date of this Third Restated Certificate of Incorporation in
accordance with Section 242 of the General Corporation Law of the State of
Delaware.
The undersigned, for the purposes of forming a corporation pursuant to
Section 101 of the Delaware General Corporation Law, hereby certify that:
1st. The name of the Corporation is CAPITAL PACIFIC HOLDINGS, INC.
2nd. The location of the registered office of the Corporation within the
State of Delaware is at 1013 Centre Road, City of Wilmington, County of New
Castle 19805. The resident agent at this address is Corporation Service Company.
3rd. The Corporation may engage in any lawful activity without
limitation.
<PAGE> 2
4th. The total number of shares of capital stock that the Corporation
shall have authority to issue is Thirty Million (30,000,000) shares of Common
Stock, par value $.10 per share (the "Common Stock"), Thirty Million
(30,000,000) shares of Non-Voting Common Stock, par value $.10 per share (the
"Non-Voting Stock"), and Five Million (5,000,000) shares of Preferred Stock, par
value $.01 per share (the "Preferred Stock").
A holder of record of one or more shares of the Common Stock shall have
one (1) vote on any matter submitted to a stockholder vote for each share of the
Common Stock held. Holders of the Common Stock are entitled to the entire voting
power, all dividends declared, and all assets of the corporation upon
liquidation, subject to the rights of the holders of the Non-Voting Common Stock
and the Preferred Stock to such voting power, dividends, and assets upon
liquidation. Holders of the Common Stock shall not be entitled to any preemptive
or other subscription rights.
The Non-Voting Common Stock may be issued from time to time pursuant to
a resolution or resolutions of the Board of Directors. The holders of
outstanding Non-Voting Common Stock shall not be entitled to vote on any matter
unless expressly required by applicable law. The holders of Non-Voting Common
Stock are entitled to receive dividends declared and, in the event of the
liquidation of the Corporation, the holders of outstanding Non-Voting Common
Stock shall be entitled to be paid out of the assets of the Corporation, after
payment to the holders of the outstanding Preferred Stock of the amount to which
they are entitled, the balance of such assets according to their respective
rights and on a parity with the Common Stock according to the number of shares
held. Holders of shares of Non-Voting Common Stock are not entitled to
preemptive or other subscription rights with respect to any shares or other
securities of the Corporation which may be issued. In all respects, except
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<PAGE> 3
voting rights, holders of Non-Voting Common Stock shall have the same
preferences, limitations and relative rights as the holders of Common Stock.
The Preferred Stock may be issued from time-to-time in one or more
classes or series pursuant to a resolution or resolutions adopted by the Board
of Directors. The Board of Directors of the Corporation shall have full and
complete authority by resolution from time to time, to establish one or more
series and to fix, determine and vary the voting rights, designations,
preferences, qualifications, privileges, limitations, options, conversion rights
and other special rights of each series, including but not limited to, dividend
rates and manner of payment, preferential amounts payable upon voluntary or
involuntary liquidation, voting rights, conversion rights, redemption prices,
terms and conditions and sinking fund and stock purchase prices, terms and
conditions.
5th. The members of the governing board of the Corporation shall be
styled "directors" and the number thereof shall not be less than three (3) nor
more than nine (9), the exact number to be fixed by resolution of the Board of
Directors of the Corporation, provided that the number so fixed by the Directors
may be increased or decreased from time to time.
6th. The capital stock and the holders thereof, after the amount of the
subscription price has been paid in, shall not be subject to any assessment to
pay the debts of the Corporation or for any other purpose.
7th. The Corporation is to have perpetual existence.
8th. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make, alter amend and rescind the By-Laws of the Corporation,
to fix the amount to be reserved as working capital, to fix the times
for the declaration and
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<PAGE> 4
payment of dividends, and to authorize and cause to be executed
mortgages and liens upon the real and personal property of the
Corporation.
In order to promote the interests of the Corporation and to
encourage the utilization of the Corporation's lands and other property,
to sell, assign, transfer, lease and in any lawful manner dispose of
such portions of said property as the Board of Directors shall deem
advisable, and to use and apply the funds received in payment therefor
to the surplus account for the benefit of the Corporation, or to the
payment of dividends, or otherwise; and further provided that the
capital stock shall not be decreased except in accordance with the laws
of the State of Delaware.
9th. The personal liability of a director of the Corporation to the
Corporation or its stockholders for damages for breach of fiduciary duty as a
director shall be limited to an amount not exceeding said director's
compensation for services as a director during the twelve-month period
immediately preceding such breach, (the "Liability Amount"), except that a
director's liability shall not be limited for (i) any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) any actions in violation of Section 174 of the Delaware General
Corporation Law or (iv) any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the full extent permitted by law, except as to
the Liability Amount.
For purposes of this Article 9, the Liability Amount shall not involve
amounts received as reimbursement for expenses, or for services as an officer,
employee or agent.
Any repeal or modification of all or any portion of the provisions of
this Article by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
-4-
<PAGE> 5
10th. The Corporation reserves the right to amend, alter or repeal any
provisions contained in this Third Restated Certificate of Incorporation in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders or directors herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned duly authorized officer of the
Corporation has hereunto affixed his signature and seal this 26th day of June,
1998.
/s/ HADI MAKARECHIAN
-----------------------------
HADI MAKARECHIAN
Chief Executive Officer
-5-
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