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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998
COMMISSION FILE NUMBER: 0-15925
CAPITAL PACIFIC HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
4100 MACARTHUR BLVD., SUITE 200
NEWPORT BEACH, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
95-2956559
(IRS EMPLOYER IDENTIFICATION NUMBER)
92660
(ZIP CODE)
(714) 622-8400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT:
COMMON STOCK $.10 PAR VALUE
(TITLE OF EACH CLASS)
THE AMERICAN STOCK EXCHANGE
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
At May 1, 1998, the aggregate market value of the voting stock held by
persons other than the directors, executive officers and principal shareholders
filing Schedules 13D of the Registrant was $13,125,401 as determined by the
closing price on the American Stock Exchange. The basis of this calculation does
not constitute a determination by the Registrant that all of its principal
shareholders, directors and executive officers are affiliates as defined in Rule
405 under the Securities Act of 1933.
At May 1, 1998, there were 14,305,511 shares of Common Stock outstanding.
Part III incorporates certain information by reference to the Registrant's
definitive proxy statement to be filed with the Commission no later than June
26, 1998.
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PART 1
ITEM 1. BUSINESS
GENERAL
Capital Pacific Holdings, Inc., together with its subsidiaries (the
"Company") is one of the leading builders in Southern California; Las Vegas,
Nevada; Austin, Texas; and Phoenix, Arizona where it builds and sells homes
targeted to entry level and move-up buyers. The Company has recently expanded
its operating strategy to encompass the development of commercial and mixed-use
projects, as well as ownership of existing commercial properties. Since 1975,
the Company has built and sold nearly 10,000 homes in California in Orange, Los
Angeles, San Diego and Riverside counties. Since 1969, Capital Pacific Homes,
Inc., a wholly owned subsidiary that was acquired by the Company in 1993 (known
at that time as Durable Homes, Inc.), has built and sold in excess of 8,000
homes, principally in Las Vegas, but also in Laughlin, Nevada. Since 1992, Clark
Wilson Homes, Inc. ("Clark Wilson"), a wholly owned subsidiary that was acquired
by the Company in 1994 (the "Clark Wilson Acquisition"), has built and sold in
excess of 1,500 homes, principally in Austin, Texas. Since 1995, the Company has
built and sold nearly 300 homes in Phoenix, Arizona. During the fiscal year
ended February 28, 1998, the Company, (including unconsolidated joint ventures)
closed 969 home and lot sales at an average home sales price of $233,000
(including 282 homes closed in California at an average sales price of $404,000,
208 homes closed in Nevada at an average sales price of $161,000, 343 homes
closed in Texas at an average sales price of $157,000 and 76 homes closed in
Arizona at an average sale price of $142,000). The Company currently conducts
its operations under various names, including the name Capital Pacific Homes in
Nevada and Arizona and Clark Wilson Homes in Texas.
In August 1992, Capital Pacific Homes, Inc., a Delaware corporation,
acquired control of J.M. Peters Company, Inc. ("J.M. Peters") in a $47.25
million purchase (the "Acquisition") from the Resolution Trust Corporation
("RTC"). Capital Pacific Homes, Inc. was merged with and into the Company
effective December 30, 1994. In August, 1995, the Company changed its name to
Capital Pacific Holdings, Inc. and changed its stock ticker symbol on the
American Stock Exchange ("AMEX") from "JMP" to "CPH."
Effective as of October 1, 1997, the Company consummated an equity and
restructuring transaction whereby the Company and certain of its subsidiaries
transferred to a newly formed limited liability company known as Capital Pacific
Holdings, LLC ("CPH LLC") substantially all of their respective assets and CPH
LLC assumed all the liabilities of 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. At February 28, 1998,
CPH LLC had total assets of $250 million and a net worth of $91 million. 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
either within CPH LLC or through newly formed project specific entities. 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 its
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.
STRATEGY
The Company's long-term strategy includes the following key elements:
(1) Maintaining diversity in its geographic markets. The Company
believes that geographic market diversification is a key element in
achieving long-term stability and growth. While the Company has no
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specific plans to expand outside the Nevada, Texas, Arizona and Southern
California markets, it may consider expansion to other markets in the
future.
(2) Diversifying its product. The Company builds homes targeted for
all price segments, from entry level buyers to the semi-custom luxury
market move-up buyers, so that it is able to deliver well-priced homes to a
broad segment of its potential customer base. Within Texas, Nevada and
Arizona, the Company serves the entry level as well as move-up markets.
Within Southern California, the Company has products targeted toward second
and third time move-up buyers, as well as the million dollar luxury market.
This product diversification enables the Company to better adapt to
changing market conditions.
(3) Enhancing the Company's capital base and sources of financial
liquidity. In addition to the equity and restructuring transaction
described above, the Company has diversified sources of financing and will
continue to pursue new financing alternatives in the future. In May, 1994,
the Company accessed the public debt capital markets through the sale of
$100 million of 12 3/4% Senior Notes ("Notes") including 790,000 warrants
to purchase common stock (the "Offering"). The proceeds from the offering
were used to repay certain debt of the Company, acquire certain properties
and for general working capital purposes. Effective upon the completion of
the October 1, 1997 equity and restructuring transaction, the obligations
under the Notes were transferred to CPH LLC. The Company also currently has
a $45 million recourse and a $45 million non-recourse secured line of
credit with a bank to provide additional flexibility. The Company's Nevada,
Texas and Arizona operations have established non-recourse construction
lines of credit totaling $30, $37 and $10 million, respectively. Credit
facilities in place at February 28, 1998 totalled $167 million, of which
$37 million was outstanding. The Company intends to maintain, through CPH
LLC, its traditional lending relationships as a source of liquidity to the
extent permitted by the indenture (the "Indenture") to which the Notes are
subject. The Company believes this financing strategy allows orderly growth
and greater flexibility to react quickly to changing market conditions. The
Company also utilizes joint ventures within its operations as a source of
financing and risk management. At February 28, 1998, the Company had two
joint ventures with IHP Investment Fund I, (an advisor to the State of
California Public Employees Retirement System ("CalPERS") and two with
affiliates of CHF. The Company has successfully completed several projects
and closed many homes utilizing this strategy in the past.
(4) Controlling costs and maintaining operational efficiency. The
Company has job cost, warranty tracking and construction scheduling systems
and other quality controls to control costs and to reduce the effect of
certain risks inherent in the home-building industry. These systems and
controls enable the Company to monitor and improve its efficiencies.
(5) Minimizing inventory risk. The Company tries to carefully manage
its land and inventory risk in a variety of ways. The Company monitors its
supply of owned, optioned and controlled land to maintain an adequate
pipeline of building lots in each of its markets while avoiding excess land
holdings. The Company prefers to purchase entitled land, typically in
parcels of only 50 to 250 lots, and makes use of options, seller financing
and joint ventures, when available, to reduce its capital commitment and
exposure to risks. "Entitled" land is generally defined as land that has
received all necessary land use approvals for residential development from
the appropriate state, county and local governments, including any required
tract maps and subdivision approvals. The Company generally tries to limit
its speculative building by commencing construction only after some sales
have been made and prefers to limit each construction phase to 10-15 units.
The Company generally purchases and holds land in amounts sufficient to
support home production and sales over a 24 to 48 month period in
California, and in amounts sufficient to support home production and sales
over an 18 to 36 month period in Nevada, Texas and Arizona.
(6) Commercial and mixed-use development. The Company has recently
expanded its operating strategy to encompass the development of commercial
and mixed-use projects, as well as investing in existing commercial
properties. In addition, the Company owns two office facilities from which
it conducts its California and Nevada operations and leases available space
to third parties. This strategy
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enables the Company to take advantage of unique opportunities in selected
infill projects and also provides a measure of diversification within the
real estate development arena.
GEOGRAPHIC MARKETS
At February 28, 1998, the Company owned lots in various stages of
development with respect to approximately 52 projects, including 18 projects
located in the Orange, Los Angeles and Riverside Counties of Southern
California, 11 projects located in Las Vegas, Nevada, 19 projects located in
Austin, Texas and 4 projects located in Phoenix, Arizona. The Company is
currently selling homes in 47 of these projects. The Company's homes currently
range in size from 1,284 to 6,287 square feet in Southern California, from 1,149
to 3,878 square feet in Nevada, from 810 to 4,500 square feet in Texas and from
1,248 to 3,679 square feet in Arizona. The Company's homes are currently priced
from $280,000 to $1,393,000, in Southern California, from $110,000 to $300,000
in Nevada, from $69,000 to $284,000 in Texas and from $102,000 to $313,000 in
Arizona.
The following table sets forth the estimated number of homes under
construction and lots owned, under option and controlled as of February 28,
1998:
ESTIMATED NUMBER OF HOUSING UNITS THAT COULD BE
CONSTRUCTED ON LAND CONTROLLED AS OF FEBRUARY 28, 1998(a)
<TABLE>
<CAPTION>
HOMES UNDER LOTS LOTS UNDER LOTS
REGION CONSTRUCTION(B) OWNED OPTION(C) CONTROLLED(D) TOTAL
------ --------------- ----- ---------- ------------- -----
<S> <C> <C> <C> <C> <C>
Southern California................. 129 450 -- 3,655 4,234
Nevada.............................. 96 561 75 265 997
Texas............................... 131 279 500 -- 910
Arizona............................. 13 199 -- 104 316
--- ----- --- ----- -----
TOTAL..................... 369 1,489 575 4,024 6,457
=== ===== === ===== =====
</TABLE>
- ---------------
(a) Based upon current management estimates, which are subject to change.
(b) Including completed model homes.
(c) Lots under option represent lots under rolling option contracts within
existing projects. There can be no assurance that the Company will actually
acquire any lots under option.
(d) Controlled home sites include those properties for which the Company has
entered into a variety of contractual relationships including non-binding
letters of intent, binding purchase agreements with customary conditions
precedent and similar arrangements. There can be no assurance that the
Company will actually acquire any such properties.
DEVELOPMENTS IN PROCESS -- CALIFORNIA
The following table sets forth certain information regarding projects under
development in California during fiscal year 1998.
<TABLE>
<CAPTION>
NAME AND TOTAL UNITS UNITS AVG.
LOCATION OF UNITS REMAINING CLOSED IN PRICE OF START OF
PROJECT PLANNED 2/28/98 FY 1998 HOMES(A) CONSTRUCTION
----------- ------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
WHOLLY-OWNED:
The Courts
Palmia/Mission Viejo
Orange County 180 6 50 $ 180,000 FY95
Fullerton
Fullerton
Orange County 143 61 33 471,500 FY96
Newport Coast
Irvine
Orange County 37 37 -- N/A(b) FY99
</TABLE>
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<TABLE>
<CAPTION>
NAME AND TOTAL UNITS UNITS AVG.
LOCATION OF UNITS REMAINING CLOSED IN PRICE OF START OF
PROJECT PLANNED 2/28/98 FY 1998 HOMES(A) CONSTRUCTION
----------- ------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
The Villas
Palmia/Mission Viejo
Orange County 171 3 60 239,000 FY96
Rancho Serrano
Temecula
Riverside County 120 1 15 225,000 FY94
Cozumel
La Quinta
Riverside County 86 56 8 427,500 FY94
Cayman
La Quinta
Riverside County 40 10 8 290,000 FY94
Antigua Custom Lots
La Quinta
Riverside County 73 45 -- 195,000 N/A
Mulholland Park
Tarzana
Los Angeles County 108 61 18 1,172,000 FY96
Mulholland Park
Custom Lots
Tarzana
Los Angeles County 14 5 1 471,500 N/A
Lake Hills
Corona
Riverside County 56 1 7 217,500 FY96
Vista Collection
Corona
Riverside County 12 -- 9 147,500 FY97
</TABLE>
<TABLE>
Harbor Ridge
<S> <C> <C> <C> <C> <C>
San Clemente
Orange County 124 44 36 388,000 FY96
Walnut Estates
Walnut
Los Angeles County 16 9 7 593,000 FY97
Calabasas -- Carrera
Calabasas
Los Angeles County 66 3 -- N/A(c) N/A
----- --- ---
Subtotal Wholly-owned 1,246 342 252
----- --- ---
JOINT VENTURES:
Harbor View
San Clemente
Orange County 92 -- 1 329,000 FY95
Grand Coto Estates
Coto de Caza
Orange County 93 64 29 625,000 FY98
MPE Partners
Tarzana
Los Angeles County 51 45 6 1,172,000 FY98
Rancho Palos Verdes
Los Angeles County 79 79 -- N/A(b) FY99
Dana Point
Orange County 49(d) 49 -- N/A(b) FY99
----- --- ---
Subtotal Joint Ventures 364 237 36
----- --- ---
TOTALS 1,610 579 288
===== === ===
</TABLE>
- ---------------
(a) Represents average price of homes closed for projects with units for sale on
February 28, 1998, and estimated average price for other projects.
(b) The design development process for this project is not sufficiently advanced
to identify a specific average.
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(c) As of February 28, 1998, the Company has not finalized its plans for the
remaining lots. As such, the average selling prices have not been
established.
(d) The Company is in the process of entitling the property for development as
49 single family residences. There can be no assurances that such
entitlements will be obtained.
DEVELOPMENTS IN PROCESS -- NEVADA
The following table sets forth certain information regarding projects under
development in Nevada during fiscal year 1998.
<TABLE>
<CAPTION>
NAME AND TOTAL UNITS UNITS AVG.
LOCATION OF UNITS REMAINING CLOSED IN PRICE OF START OF
PROJECT PLANNED 2/28/98 FY 1998 HOMES(A) CONSTRUCTION
----------- ------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
The Falls at
Hidden Canyon
North Las Vegas
Clark County 241 1 26 $119,000 FY95
Country Meadows
Las Vegas
Clark County 99 7 30 129,500 FY96
Arbor Grove
Las Vegas
Clark County 165 127 38 131,000 FY98
Talon Pointe
Las Vegas
Clark County 111 111 -- 325,000 FY98
Kew Gardens
Las Vegas
Clark County 70 48 22 303,000 FY97
Altezza
Las Vegas
Clark County 36 16 7 286,000 FY96
Courtney Ranch
Las Vegas
Clark County 56 6 28 139,000 FY96
Palatine Hills
Las Vegas
Clark County 135(b) 96 20 230,000 FY96
Country Lane
Las Vegas
Clark County 228 116 36 130,000 FY95
Crestmont
Las Vegas
Clark County 112 112 -- 163,000 FY99
Meritage
Las Vegas
Clark County 92(c) 92 -- 260,000 FY99
Other projects 1 -- 1 N/A N/A
----- --- ---
TOTALS 1,346 732 208
===== === ===
</TABLE>
- ---------------
(a) Represents average price of homes closed for projects with units for sale on
February 28, 1998, and estimated average price for other projects.
(b) The Company has purchased 89 lots in the Palatine Hills project, and holds
options on 46 lots for the remainder of the project. There can be no
assurance that the Company will actually acquire such remaining lots within
the option term.
(c) The Company has purchased 63 lots in the Meritage project, and holds options
on 29 lots for the remainder of the project. There can be no assurance that
the Company will actually acquire such remaining lots within the option
term.
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DEVELOPMENTS IN PROCESS -- TEXAS
The following table sets forth certain information about projects under
development in Texas as of February 28, 1998.
<TABLE>
<CAPTION>
UNITS
NAME AND TOTAL REMAINING UNITS AVG.
LOCATION OF UNITS AT CLOSED IN PRICE OF START OF
PROJECT PLANNED DECEMBER 28, 1998 FY 1998 HOMES(A) CONSTRUCTION
----------- ------- ------------------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Cat Hollow
Round Rock
Williamson County 289 130 30 $155,000 FY94
Circle C Ranch
Austin
Travis County 152 19 29 158,000 FY93
Cypress Creek
Cedar Park
Williamson County 69 3 12 159,000 FY94
Ranch at Cypress
Cedar Park
Williamson County 102 17 17 146,000 FY94
Springbrook
Round Rock
Travis County 389 132 34 146,000 FY96
Lake Pointe North
Austin
Travis County 49 18 9 216,000 FY96
The Settlement
Round Rock
Williamson County 35 -- 1 116,000 FY94
Travis Country
Austin
Travis County 237 110 54 179,000 FY96
Onion Creek
Austin
Travis County 55 31 13 259,000 FY96
Lake Point South
Austin
Travis County 34 1 6 197,000 FY96
Wildflower
Austin
Travis County 167 101 66 83,000 FY97
Lake Point 50
Austin
Travis County 168 135 33 178,000 FY96
Lake Point 60
Austin
Travis County 18 5 12 197,000 FY96
Lake Point 70
Austin
Travis County 40 30 10 216,000 FY96
Lake Point 80
Austin
Travis County 19 15 4 257,000 FY96
Meadows of Brushy Creek
Round Rock
Williamson County 68 42 12 194,000 FY96
Forest Creek
Round Rock
Williamson County 36 36 -- 199,000 FY98
Steiner Ranch
Austin
Travis County 81 81 -- N/A(b) FY98
Other Projects 60 4 55(c) N/A(b) FY99
----- --- ---
TOTALS 2,068 910 397
===== === ===
</TABLE>
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- ---------------
(a) Represents average price of homes closed for projects with units for sale on
February 28, 1998, and estimated average price for other projects.
(b) As of February 28, 1998, the Company has not finalized its plans for the
remaining lots. As such, average selling prices have not been established.
(c) Includes 54 lot closings in fiscal 1998.
DEVELOPMENTS IN PROCESS -- ARIZONA
The following table sets forth certain information about projects under
development in Arizona during fiscal year 1998.
<TABLE>
<CAPTION>
NAME AND TOTAL UNITS UNITS AVG.
LOCATION OF UNITS REMAINING AT CLOSED IN PRICE OF START OF
PROJECT PLANNED FEBRUARY 28, 1998 FY 1998 HOMES(A) CONSTRUCTION
----------- ------- ------------------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Wildflower
Chandler
Maricopa County 132 -- 4 $121,000 FY96
San Marcos
Chandler
Maricopa County 79 40 37 159,000 FY97
Ambrosia at Amberlea
Phoenix
Maricopa County 101 4 26 82,000 FY96
Scottsdale Vista Estates
Scottsdale
Maricopa County 54 27 9 318,000 FY96
Fairview Crossings
Glendale
Maricopa County 141 141 -- 120,000 FY99
--- --- --
TOTALS 507 212 76
=== === ==
</TABLE>
- ---------------
(a) Represents average price of homes closed for projects with units for sale on
February 28, 1998, and estimated average price for other projects.
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JOINT VENTURES
The Company conducts its home-building operations as either wholly-owned
projects or through joint ventures in which the joint venture partner typically
provides more than a majority of the capital and/or financing required for the
project. The Company has utilized joint ventures in order to increase access to
sources of capital, financing and quality sites. The Company expects to continue
to utilize joint ventures in the future on a selective basis, taking into
account other available sources of financing, project risk and the potential
return to the Company.
At February 28, 1998, the Company's joint ventures were as follows:
<TABLE>
<CAPTION>
UNITS
REMAINING
TOTAL UNITS UNITS CLOSED AT
PLANNED IN FY98 2/28/98
----------- ------------ ---------
<S> <C> <C> <C>
JMP Harbor View -- Orange County............. 92 1 0
Grand Coto Estates, LP -- Orange County...... 93 29 64
M.P.E. Partners, LP -- Los Angeles
County(a).................................. 51 6 45
RPV Associates, LLC -- Los Angeles
County(b).................................. 79 0 79
CPH Dana Point, LLC -- Orange County(c)...... 49 0 49
--- -- ---
364 36 237
=== == ===
</TABLE>
Subsequent to February 28, 1998, the Company entered into four new joint
ventures in California effected through the formation of additional LLC's
similar in structure to the CPH LLC. These new joint ventures include a 31 acre
oceanfront mixed-use site in Huntington Beach, a 440 acre residential parcel in
Vista and two office buildings in Orange County with total square footage of
approximately 109,000. Each of these additional LLC's enables the Company to
preserve its existing capital, while mitigating project-level risk.
(a) In fiscal year 1998, the Company established a joint venture with an advisor
to CalPERS to develop 51 lots in the Company's Mulholland Park Project,
previously owned solely by the Company.
(b) In fiscal year 1998, the Company entered into a new joint venture which
purchased and plans to develop 79 homes on 132 acres of coastal bluff
property in the city of Rancho Palos Verdes, California.
(c) In fiscal year 1998, the Company entered into a new joint venture which
purchased 25 acres of ocean view property in the city of Dana Point,
California and plans to entitle and develop 49 homes.
LAND ACQUISITION
The Company typically tries to purchase and hold land in California in
amounts sufficient to support home production and sales over a 24 to 48 month
period. The Company also tries to maintain an additional 18 month supply of
entitled land through options and other means. The Company typically purchases
or options entitled land in Nevada, Texas and Arizona in amounts sufficient to
support home production and sales over an 18 month to 36 month period. The
Company does not acquire and hold land for speculative investment.
The Company typically considers numerous factors when analyzing the
suitability of land for acquisition and development including, but not limited
to: proximity to existing developed areas; population growth patterns;
availability of existing community services (i.e., utilities, schools and
transportation); employment growth rates; anticipated absorption rates for new
housing; and the estimated cost of development.
The Company tries to avoid speculative building by constraining project
phase sizes, and entitlement risks by acquiring entitled land when practicable
and acquiring lots through the use of options, development agreements and joint
ventures with lot owners, when appropriate. Additionally, by forming strategic
alliances with partners, the Company has been able to obtain access to
additional capital and construction financing to spread project risk, which
allows the Company to minimize the risk of holding property and to preserve its
capital. To date, the Company's alliances have been conducted through joint
ventures.
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Subsequent to February 28, 1998, the Company has completed the acquisition
of four separate projects as follows:
<TABLE>
<CAPTION>
TOTAL
PROJECT UNITS
NAME LOCATION PLANNED
------- -------- -------
<S> <C> <C>
Bradfield Village Buda, Texas 208
Fox Crossing Chandler, Arizona 104
Mountain Creek Pflugerville, Texas 319(1)
Walnut Grove North Las Vegas, Nevada 265(2)
</TABLE>
- ---------------
(1) Including 244 lots under option.
(2) Including 208 lots under option.
Construction is expected to begin on each of the above projects during
fiscal 1999.
PRODUCT DESIGN
The Company has received numerous industry design awards for its homes and
developments. The Company's homes are noted for their innovative design,
attention to detail and quality construction. Most recently, three of the
Company's Mulholland Park homes won awards for national design, as chosen by the
American Institute of Architects. By emphasizing the right product designs, the
Company has also been able to build brand loyalty while attempting to reduce
warranty costs. In many markets, resales of the Company's homes include the
Company's name as a sign of quality construction and design.
The Company contracts with a number of outside architects, designers,
engineers, consultants and subcontractors. While some of the Company's employees
are involved in various stages of the design process, the Company believes that
the use of third parties for the production of the final design, engineering and
construction reduces its costs, increases design innovation and quality, and
reduces the risks of liability associated with the design and construction
process. The Company monitors the work of outside architects, designers and
engineers through consultants and employees of the Company. The Company believes
it is critical to coordinate the design process with the construction and sales
and marketing efforts of the Company to ensure an appropriate balance between
market responsiveness, design innovation, construction effectiveness and
quality.
The Company creates architectural variety within its projects by offering
numerous models, floorplans, and exterior styles in an effort to enhance home
values by creating diversified neighborhood looks within its projects.
Generally, the Company selects the exterior finishes of its homes. The Company
offers homebuyers the opportunity to engage interior design consultants to
personalize the interior of their homes. Such services are offered at an
additional cost to buyers through the Company's wholly owned subsidiary, Newport
Design Center ("Newport Design"), or the services may be provided through the
homebuyer's own consultants.
DEVELOPMENT AND CONSTRUCTION
The Company acts as the general contractor for the construction of its
projects. Virtually all construction work for the Company is performed by
subcontractors. The Company's consultants and employees coordinate the
construction of each project and the activities of subcontractors and suppliers,
and subject their work to quality and cost controls and compliance with zoning
and building codes. Subcontractors typically are retained on a phase-by-phase
basis to complete construction at a fixed price. Agreements with the Company's
subcontractors are generally entered into after competitive bidding on a project
by project basis. The Company has established relationships with a large number
of subcontractors and is not dependent to any material degree upon the services
of any one subcontractor and believes that, if necessary, it can generally
retain sufficient qualified subcontractors for each aspect of construction. The
Company believes that conducting its operations in this manner enables it not
only to readily and efficiently adapt to changes in housing demand, but also to
avoid fixed costs associated with retaining construction personnel.
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The Company typically develops its projects in several phases generally
averaging approximately 10-15 homes per phase. From market studies, the Company
determines the number of homes to be built in the first phase, the appropriate
price range for the market and other factors. The first phase of home
construction is typically small to reduce risk while the Company measures
consumer demand. Construction generally does not begin until some sales have
occurred, except for construction of model homes. Subsequent phases are
generally not started until 50% to 75% of the homes in the previous phase have
been sold. Sales prices in the second phase are then adjusted to reflect market
demand as evidenced by sales experience in the first phase. With each subsequent
phase, the Company continues to accumulate market data which, along with
information such as time of year, the local labor situation and the availability
of materials and supplies, enables the Company to determine the pricing, timing
and size of subsequent phases. Although the time required to complete a phase
varies from development to development depending on the above factors, the
Company typically completes construction of a phase within one of its California
developments in approximately six to eight months for larger homes and four to
five months for smaller homes and within its Nevada, Texas and Arizona
developments within three to four months.
SALES AND MARKETING
The Company typically builds, furnishes and landscapes model homes for each
project and maintains on-site sales offices, which are usually open seven days a
week. Management believes that model homes play a particularly important role in
the Company's marketing efforts. Consequently, the Company expends a significant
effort in creating an attractive atmosphere at its model homes. Interior
decorations vary among the Company's models and are carefully selected based
upon the lifestyles of targeted buyers. Structural changes in design from the
model homes generally are not permitted, but homebuyers may select various
optional construction and design amenities.
The Company normally sells all of its homes through Company sales
representatives who typically work from the sales offices located either at the
model homes or at sales centers used in each subdivision. When appropriate, the
Company also uses cooperative brokers to sell its homes. Company sales
representatives are available to assist prospective buyers by providing them
with floor plans, price information and tours of model homes, and to assist them
with the selection of options and upgrades. Sales representatives attend
periodic meetings at which they are provided with information regarding other
products in the area, the variety of financing programs available, construction
schedules and marketing and advertising plans.
The Company generally opens an on-site sales office before the construction
of the model homes is completed. This on-site sales office is utilized as a
temporary sales centers to commence the sales process to potential customers.
Potential homebuyers may reserve a home by submitting a refundable deposit (a
reservation deposit) usually ranging from $500 to $20,000 and executing a
reservation document. The Company then conducts preliminary research concerning
the credit status of the potential homebuyer in order to "pre-qualify" the
homebuyer. Once the prospective homebuyer has been "pre-qualified" and there is
a strong indication that the homebuyer will qualify for a mortgage (although
final loan approval is still pending), the homebuyer must then convert the
reservation deposit to an "earnest money deposit" and complete a purchase
contract for the purchase of their home. The Company attempts to keep its
contract cancellation rate low by attempting to pre-qualify prospective
homebuyers and by allowing homebuyers to customize their homes at an early point
in the purchase process. When home purchase contracts are canceled, damages are
usually limited to a percentage of the purchase price of the home and may be
less pursuant to applicable law or to the terms of the purchase contract. The
Company generally determines whether to seek to obtain such damages on a
case-by-case basis. When home purchase contracts are canceled, the Company is
usually able to identify alternate homebuyers.
The Company makes extensive use of advertising and promotional resources,
including newspaper, radio, television and magazine advertisements, brochures,
direct mail and the placement of strategically located sign boards in the
immediate areas of its projects. Because the Company usually offers multiple
projects within a market area, it is able to utilize regional advertising that
highlights all of the Company's projects within that same market area. All
advertising materials and brochures are designed through the Company's
wholly-owned subsidiary, Creative Design & Media in California, Nevada and
Arizona and in-house in Texas.
11
<PAGE> 12
The Company has established a highly sophisticated website on the Internet.
The website address is http://www.cph-inc.com. The Company utilizes the Internet
through its website address to augment its advertising and promotional
activities. To the Company's knowledge, it is one of only a few homebuilders
with virtual reality houses on its website.
The Company provides flooring and other amenities and upgrades to its
homebuyers in California through its wholly-owned subsidiary, Newport Design,
and through its other design centers in Nevada and Texas.
OPERATING DATA
The following table shows new home deliveries, net new orders and average
sales prices for each of the last three fiscal years for each of the Company's
operations, including unconsolidated joint ventures:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
New homes delivered:
California.................................... 192 266 246
Texas......................................... 272 346 343
Nevada........................................ 547 299 208
Arizona....................................... 48 171 76
-------- -------- --------
Subtotal................................... 1,059 1,082 873
Unconsolidated Joint Ventures (Calif.)........ 115 31 36
-------- -------- --------
Total................................. 1,174 1,113 909
======== ======== ========
Net new orders.................................. 1,182 1,039 919
======== ======== ========
Average sales price:
California (excluding joint ventures)......... $211,000 $310,000 $370,000
California (including joint ventures)......... 283,000 324,000 404,000
Texas......................................... 144,000 163,000 157,000
Nevada........................................ 135,000 143,000 161,000
Arizona....................................... 123,000 111,000 142,000
Combined (excluding joint ventures)........... 154,000 188,000 217,000
Combined (including joint ventures)........... 176,000 193,000 233,000
</TABLE>
BACKLOG AND INVENTORY
The Company typically pre-sells homes prior to and during construction
through home purchase contracts requiring earnest money deposits or through
reservation documents requiring reservation deposits. Generally, reservation
deposits are refundable, but home purchase contracts are not cancelable unless
the customer is unable to sell their existing home, qualify for financing or
under certain other circumstances. A home sale is placed in backlog status upon
execution of such a contract or reservation and receipt of an earnest money
deposit or reservation deposit and is removed when such contracts or
reservations are canceled as described above or the home purchase escrow is
closed.
12
<PAGE> 13
The following table shows backlog in units and dollars at the end of each
of the last three fiscal years for each of the Company's operations, including
unconsolidated joint ventures:
<TABLE>
<CAPTION>
ENDING BACKLOG
-------------------------------------------------------------
FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
------------------ ------------------ -----------------
UNITS ($000S) UNITS ($000S) UNITS ($000S)
------ -------- ------ -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
California.................... 140 $43,200 98 $51,900 122 $ 75,000
Texas......................... 165 26,200 159 24,400 200 30,700
Nevada........................ 64 8,900 78 12,600 41 7,100
Arizona....................... 71 8,600 31 4,400 13 2,200
--- ------- --- ------- --- --------
Total.................... 440 $86,900 366 $93,300 376 $115,000
=== ======= === ======= === ========
</TABLE>
The following table shows net new orders (sales made less cancellations and
credit rejections), homes closed and ending backlog relating to sales of the
Company's homes and homes under contract or reservation for each quarter since
the beginning of fiscal year 1997. The Company's backlog at any given time is a
good indicator of the number of units that will be closed in the four to six
months following such date:
<TABLE>
<CAPTION>
ENDING BACKLOG
NET NEW HOMES -----------------
ORDERS CLOSED UNITS ($000S)
------- ------ ----- --------
<S> <C> <C> <C> <C>
Fiscal Year 1998
1st Quarter........................... 238 154 450 113,500
2nd Quarter........................... 228 199 479 133,700
3rd Quarter........................... 201 229 451 139,200
4th Quarter........................... 252 327 376 115,000
----- -----
Total Fiscal Year 1998........ 919 909
===== =====
Fiscal Year 1997
1st Quarter........................... 376 252 564 $120,000
2nd Quarter........................... 240 332 472 93,800
3rd Quarter........................... 225 279 418 89,600
4th Quarter........................... 198 250 366 93,300
----- -----
Total Fiscal Year 1997........ 1,039 1,113
===== =====
</TABLE>
MORTGAGE COMPANY
The Company established mortgage operations in California through its
wholly owned subsidiary Capital Pacific Mortgage, Inc. during fiscal year 1996.
The Company offers mortgage broker services to certain of its homebuyers through
Capital Pacific Mortgage, Inc. The Company also offers mortgage broker services
to certain of its Texas homebuyers through Fairway Financial Company,
established in fiscal year 1995.
HOMEOWNER WARRANTY
The Company provides homeowners with a limited warranty on the terms of
which the Company will correct for a limited period deficiencies listed in the
homeowner warranty manual. The warranty does not, however, include items that
are covered by manufacturer's warranties (such as appliances and air
conditioning) or items that are not installed by employees or contractors of the
Company (such as flooring installed by an outside contractor employed by the
homeowner). The Company also provides certain Nevada and Texas homebuyers with
policies issued by third-parties that extend protection beyond the Company's
warranty period. Statutory requirements in the states in which the Company does
business may grant to homebuyers rights in addition to those provided by the
Company.
13
<PAGE> 14
COMPETITION
The home-building industry is highly competitive. In each of the markets in
which it operates, the Company competes in terms of location, design, quality
and price with numerous other residential builders, including large national and
regional firms, some of which have greater financial resources than the Company.
As the Company enters and until it develops a reputation in a new market area,
the Company can expect to face even more significant competitive pressures. In
certain markets, the Company may from time to time engage in redesigns of
product and/or make changes in existing model homes to make the Company's
product more competitive. Such redesigns and/or changes may cause the Company to
incur additional expenses and/or to write-off previous investments in such
design or model homes.
REGULATION
The housing industry is subject to increasing environmental, building,
zoning and real estate sales regulations by various federal, state and local
authorities. Such regulations affect home building by specifying, among other
things, the type and quality of building materials that must be used, certain
aspects of land use and building design, as well as the manner in which the
Company conducts sales activities and otherwise deals with customers.
The Company must increasingly obtain the approval of numerous government
authorities which regulate such matters as land use and level of density, the
installation of utility services, such as water and waste disposal, and the
dedication of acreage for open space, parks, schools and other community
purposes. If such authorities determine that existing utility services will not
adequately support proposed development, building moratoriums may be imposed. As
a result, the Company devotes an increasing amount of time to evaluating the
impact of governmental restrictions imposed upon a new residential development.
Furthermore, as local circumstances or applicable laws change, the Company may
be required to obtain additional approvals or modifications of approvals
previously obtained. Such increasing regulation has resulted in a significant
increase in time between the Company's initial acquisition of land and the
commencement and completion of its developments.
EMPLOYEES
As of April 30, 1998, the Company employed 229 persons full-time, compared
to 217 persons at April 30, 1997. Of these, 31 were in executive positions, 42
were engaged in sales activities, 75 in project management activities and 81 in
administrative and clerical activities. None of the Company's employees is
represented by a union and the Company considers its employee relationships to
be good.
RAW MATERIALS
All of the raw materials and most of the components used in the Company's
business are readily available in the United States. Most are standard items
carried by major suppliers. However, a rapid increase in the number of homes
started could cause shortages in the availability of such materials, thereby
leading to delays in the delivery of homes under construction. In addition,
increases in the price of lumber and other materials have a negative impact on
margins. In order to maintain its quality standards while providing a product at
good value, the Company has used and will under appropriate market circumstances
consider the further use of alternative materials, such as metal studs and
framing in some of its projects.
ITEM 2. PROPERTIES
The Company owns two office facilities and leases other facilities in
California, Nevada, Texas and Arizona. The Company owns its principal offices,
which are located at 4100 MacArthur Blvd., Suite 200, Newport Beach, California
92660, where the Company occupies approximately 20,000 out of a total 45,000
square feet of space available. The majority of the remaining office space is
leased to third parties.
14
<PAGE> 15
The Company also owns a 19,800 square foot office building in Las Vegas,
Nevada. Approximately 10,000 square feet are used as the principal offices of
the Company in Nevada. The majority of the remaining office space is leased to
third parties.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine claims and litigation arising in the
ordinary course of its business. The legal responsibility and financial impact
with respect to such litigation cannot be presently ascertained.
The Company is involved in a well publicized dispute with the owners of
several homes and homeowners' associations in the Orange County project known as
Niguel Summit and with adjacent homeowners. Prior to the Acquisition, J.M.
Peters constructed the homes in Niguel Summit in 1988. The Company has been
named as one of several defendants in a largely consolidated litigation
concerning damage to residences precipitated by excessive amounts of rainfall as
a result of recent El Nino conditions. The Company believes that it has adequate
insurance, good defenses to the claims and valid cross-complaints against the
original developer, subcontractors and consultants which, on a combined basis,
are projected to prevent any material adverse effect to the Company arising from
such litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the American Stock Exchange (AMEX)
under the Symbol "CPH." The following table sets forth the quarterly high and
low sales prices for the Common Stock for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1998
Fourth Quarter.............................................. $4.00 $2.13
Third Quarter............................................... 3.94 2.69
Second Quarter.............................................. 3.81 2.63
First Quarter............................................... 2.94 1.88
FISCAL 1997
Fourth Quarter.............................................. 3.25 2.63
Third Quarter............................................... 2.88 2.13
Second Quarter.............................................. 3.88 2.44
First Quarter............................................... 3.94 3.19
</TABLE>
Payment of dividends is within the discretion of the Company's Board of
Directors and holders of shares of Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available therefore. The Company has no present intention to pay dividends, but
rather intends to retain any earnings. The covenants in the Indenture have
restrictions on permissible dividend payments to the Company from Capital
Pacific Holdings, LLC. There can be no assurance that such limit may not become
more restrictive as the result of any future losses of Capital Pacific Holdings,
LLC. During the last three years, no dividends have been paid.
On May 1, 1998, the Company had approximately 1,000 beneficial holders of
its Common Stock.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial information of the Company is
presented for the fiscal years ended February 28, 1998, February 28, 1997,
February 29, 1996, February 28, 1995 and February 28, 1994. The selected
financial information and other data should be read in conjunction with the
Company's audited Consolidated Financial Statements and the notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, both of which are included elsewhere in this report. Certain
reclassifications have been made to the prior years balances to conform to the
current year presentation.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND
OPERATING DATA)
LAST DAY OF FEBRUARY
-------------------------------------------------------
1994 1995 1996 1997 1998
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales of homes and land..................................... $91,066 $143,089 $168,679 $216,549 $191,098
Cost of sales............................................... 73,348 112,152 144,079 183,557 162,966
Impairment loss on real estate assets....................... -- -- -- -- 8,000
------- -------- -------- -------- --------
Gross margin................................................ 17,718 30,937 24,600 32,992 20,132
Selling, general and administrative......................... 12,322 22,314 22,895 30,282 24,744
------- -------- -------- -------- --------
Income (loss) from operations............................. 5,396 8,623 1,705 2,710 (4,612)
------- -------- -------- -------- --------
Income from unconsolidated joint ventures................... -- -- 1,560 259 764
Interest and other income, net.............................. -- -- 920 900 1,391
Minority interest(1)........................................ (4,332) (5,883) (1,080) 192 (469)
Interest expense............................................ (418) -- -- -- --
Provision for litigation judgment........................... -- (1,950) -- -- --
------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary items... 646 790 3,105 4,061 (2,926)
Income tax expense (benefit)................................ -- 216 503 539 (735)
------- -------- -------- -------- --------
Income (loss) before extraordinary items.................... 646 574 2,602 3,522 (2,191)
Extraordinary items:
Extraordinary gain for debt retired at less than face
value, net of taxes..................................... 4,268 3,075 -- -- --
------- -------- -------- -------- --------
Net income (loss)........................................... $ 4,914 $ 3,649 $ 2,602 $ 3,522 $ (2,191)
======= ======== ======== ======== ========
Net income (loss) per common share:(2)
Before extraordinary items.................................. $ .04 $ .04 $ .17 $ .23 $ (.15)
Extraordinary items......................................... .30 .20 -- -- --
------- -------- -------- -------- --------
Net income (loss) per share................................. $ .34 $ .24 $ .17 $ .23 $ (.15)
======= ======== ======== ======== ========
Weighted average shares..................................... 14,488 14,995 14,995 14,995 14,795
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT THE LAST DAY OF FEBRUARY
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate projects....................................... $105,696 $167,807 $227,194 $233,562 $192,347
Total assets............................................... 121,954 215,175 266,508 271,918 251,655
Notes payable.............................................. 34,709 29,391 63,929 73,474 36,714
Senior Unsecured Notes Payable............................. -- 100,000 100,000 100,000 100,000(3)
Minority interest.......................................... 13,959 3,524 2,894 360 30,061(3)
Stockholders' equity....................................... 55,594 60,744 63,346 66,868 63,050(3)
OPERATING DATA (IN UNITS):
Homes closed............................................... 404 824(4) 1,174 1,113 909
Homes contracted for....................................... 478 835(5) 1,182 1,039 919
Homes in backlog........................................... 305 432 440 366 376
</TABLE>
- ---------------
(1) Includes the minority interest share of earnings of the CPH LLC from October
1, 1997 forward.
(2) Reflects per share amounts on both a basic and diluted basis. See Note 1 to
the Consolidated Financial Statements.
(3) At February 28, 1998, minority interest includes $29.8 million of capital in
CPH LLC attributable to CHF. At February 28, 1998, CPH LLC had total capital
accounts of $91.4 million and was the sole obligor for the balance of the
$100 million Senior Unsecured Notes Payable.
(4) Excludes homes closed by Clark Wilson for the six month period prior to the
Clark Wilson Acquisition.
(5) Excludes 116 homes in Clark Wilson's backlog at August 31, 1994 (prior to
the Clark Wilson acquisition).
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 and the
demand for housing; 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 past three fiscal years. 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 the exclusion of the $8,000,000 non-cash
charge recorded in the third quarter of fiscal 1998, and are used throughout
this discussion for comparative purposes wherever the phrase "pro forma" is
utilized.
RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------
FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
--------------------- --------------------- ---------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL PRO FORMA
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales of homes and land........... $168,679 $213,374 $216,549 $227,750 $191,098 $214,093
Cost of sales..................... 144,079 183,507 183,557 194,296 170,966 181,614
-------- -------- -------- -------- -------- --------
Gross margin.................. $ 24,600 $ 29,867 $ 32,992 $ 33,454 $ 20,132 $ 32,479
======== ======== ======== ======== ======== ========
</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 7 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.
FISCAL 1998 (YEAR ENDED FEBRUARY 28, 1998) COMPARED TO FISCAL 1997 (YEAR ENDED
FEBRUARY 28, 1997):
The Company reported a net loss of $2.2 million, or $0.15 per share, in
fiscal 1998, as compared to net income of $3.5 million, or $0.23 per share, in
fiscal 1997, due primarily to the $8 million non-cash charge discussed above.
Sales of homes and land including unconsolidated joint ventures were $214.1
million for fiscal 1998 compared to $227.8 million for fiscal 1997. This
decrease is due to a decrease in total home closings from 1,113 in fiscal 1997
to 909 in fiscal 1998, including 31 and 36 homes, respectively, closed in
unconsolidated joint ventures. As an offset to the decreased closing activity,
the Company's average sales price per unit has increased to $233,000 in fiscal
1998 from $193,000 in fiscal 1997, a 20.7% increase.
18
<PAGE> 19
The decrease in closings and the resultant decrease in sales was primarily
due to the effect, prior to the restructuring discussed above, of constraints in
both the bank lines and bond indenture which limited construction starts and
sale releases in the past several quarters. In addition, the level of closings
was negatively impacted by the unusually wet winter in California precipitated
by the El Nino weather phenomenon. Due primarily to the non-cash charge of $8
million, the Company's actual gross margin on home and lot closings decreased to
10.5% for fiscal 1998 as compared to 15.2% for fiscal 1997. However, the
Company's pro forma gross margin on home and lot closings improved to 15.2%
during fiscal 1998 as compared to 14.7% in fiscal 1997.
Selling, general and administrative expense of $24.7 million for fiscal
1998 decreased $5.5 million or 18.3% as compared to fiscal 1997. As a percentage
of revenue, selling, general and administrative expense decreased from 14.0% in
fiscal 1997 to 12.9% for 1998. This relationship is impacted positively by the
Company's ongoing cost containment efforts and adversely by the effect of lower
revenues during fiscal 1998.
Income from unconsolidated joint ventures increased from $259,000 in fiscal
1997 to $764,000 in fiscal 1998, due to both the higher unit closings and higher
margins experienced in the Company's current joint ventures.
Interest and other income increased from $900,000 to $1,391,000, primarily
as a result of increased activity in the Company's mortgage broker operations.
Minority interest of $469,000 for fiscal 1998 primarily represents the
share of the New LLC's income attributable to CHF since October 1, 1997.
Interest incurred was $20.4 million in fiscal 1998, as compared to $21.6
million in fiscal 1997, while interest included in cost of sales was $14.3
million during fiscal 1998, as compared to $18.7 million in fiscal 1997.
The Company has recorded a net income tax benefit of $735,000 for fiscal
1998 reflecting the generation of a deferred income tax benefit during the year
offset by current income taxes payable.
FISCAL 1997 (YEAR ENDED FEBRUARY 28, 1997) COMPARED TO FISCAL 1996 (YEAR ENDED
FEBRUARY 29, 1996)
The Company recorded net income of $3.5 million in fiscal 1997 or $0.23 per
share, compared to net income of $2.6 million, or $0.17 per share, for fiscal
1996. These results were due to the factors described below.
Sales of homes and land including unconsolidated joint ventures were $227.8
million for fiscal 1997 compared to $213.4 million for fiscal 1996. Revenues
from housing sales for fiscal 1997 increased by 28.4% to $216.5 million from
$168.7 million in fiscal year 1996; the revenues figures for housing sales for
fiscal 1997 and fiscal 1996 do not include closings from the unconsolidated
joint ventures. This revenue increase was due to an increase in the average
sales price during the fiscal year. Home closings for fiscal 1997 were 1,113
(which includes 31 homes closed in unconsolidated joint ventures) compared to
1,174 homes (which includes 115 homes closed in unconsolidated joint ventures)
for fiscal 1996, a decrease of 61 homes which, nevertheless, resulted in an
increase in total revenue.
Selling, general and administrative expenses for fiscal year 1997 of $30.3
million increased $7.4 million over fiscal 1996. This increase was primarily due
to the increased number of projects being marketed in California and Texas.
Minority interest for fiscal 1997 of $(192,000) decreased $1,272,000 from
fiscal 1996. This decrease was due to a reduced number of consolidated joint
venture home closings in fiscal year 1997. For fiscal 1997, consolidated joint
venture closings totaled 17 units versus the 75 units closed in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements are for the acquisition,
development, construction, marketing and overhead of its projects. The need to
stage the acquisition and use of raw materials such as land and
19
<PAGE> 20
finished lots and the need, on certain projects, to construct community
facilities ahead of the start of home construction requires homebuilders such as
the Company to commit working capital for longer periods than many traditional
manufacturing companies. When building inventory, the Company uses substantial
amounts of cash that are generally obtained from borrowings, available cash flow
from operations and partners' contributions to joint ventures.
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 February 28, 1998, CPH LLC has in place several credit
facilities totaling $167 million (the "Facilities") with various bank lenders
(the "Banks"), of which $37 million was outstanding. The Facilities are secured
by liens on various completed or under construction homes and lots held by CPH
LLC. 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 February 28, 1998,
CPH LLC was in compliance with these covenants. The Facilities also define
certain events that constitute events of default. As of February 28, 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 CPH LLC. 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 proceeds are projected to provide sufficient available liquidity, when
combined with additional financing permitted under the Indenture, joint ventures
and cash flow from operations, to fund the CPH LLC's current and projected
acquisition, development and construction activities. 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 these bank facilities based on various measures of
the financial performance of the CPH LLC. Subject to such restrictions, the bank
facilities will be available to augment cash flow from operations and joint
venture financing to fund the 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.
INTEREST RATES AND INFLATION
The long-term impact of inflation on the Company is manifested in increased
land prices, land development, construction and overhead costs balanced by
increased sales prices.
The Company generally contracts for land significantly before development
and sales efforts begin and, accordingly, to the extent land acquisition costs
are fixed, increases or decreases in the sales prices of homes may affect the
Company's profits. Since the sales prices of homes are fixed at the time of sale
and the Company generally sells its homes prior to commencement of construction,
any inflation of construction costs in excess of those anticipated may result in
lower gross margins. The Company generally attempts to minimize that effect by
entering into fixed-price contracts with its subcontractors and material
suppliers for specified periods of time, which generally do not exceed one year.
Housing demand, in general, is adversely affected by increases in interest
costs, as well as materials and other costs. Interest rates, the length of time
that land remains in inventory and the proportion of inventory that is financed
affect the Company's interest costs. If the Company is unable to duplicate its
past ability to raise sales prices enough to compensate for higher costs, or if
mortgage interest rates increase significantly, affecting prospective buyers'
ability to adequately finance a home purchase, the Company's revenues, gross
20
<PAGE> 21
margins and net income would be adversely affected. Increases in sales prices,
whether the result of inflation or demand, may affect the ability of prospective
buyers to afford a new home.
ASSET IMPAIRMENT CHARGES
In connection with the restructuring and recapitalization of the Company
discussed above, management completed a process of reevaluating and revising the
Company's business plan, including its plans for the development of its various
projects. As a result of this analysis, it was determined that certain of the
Company's projects would require an impairment charge when evaluated in
accordance with SFAS No. 121. In addition, management determined that certain
warranty-related reserves should be adjusted. Therefore, during the third
quarter of fiscal 1998, the Company recorded a non-cash charge of $8 million.
Operating results during fiscal year 1997 were adversely affected by asset
impairment charges totaling $2.3 million related to the write-off of operational
start up costs for the Company's operations in Arizona, the write-off of certain
redesign and materials costs previously capitalized to certain low margin
projects in Nevada and the write-off of certain other costs.
YEAR 2000 COMPLIANCE
The Company has assessed the vulnerability of its computer systems to the
"Year 2000 issue" and the cost of addressing Year 2000 compliance. Modifications
and replacements of computer systems, primarily the replacement of computer
software, to attain Year 2000 compliance have begun, and the Company expects to
attain Year 2000 compliance and institute appropriate testing of its
modifications and replacements before the Year 2000 date change. Presently, the
Company does not believe that Year 2000 compliance will result in material
expenditures by the Company, nor does the Company anticipate the Year 2000 issue
will have direct material adverse effects on the business operations or
financial performance of the Company. There can be no assurance, however, that
the Year 2000 issue will not adversely affect the Company and its business,
including through an adverse effect on general economic conditions.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130 "Reporting Comprehensive Income" ("FAS 130") and Statement No.
131 "Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). Both FAS 130 and 131 are required to be adopted by the Company for the
year ended February 28, 1999. The Company believes the adoption of these
statements will not have a material impact on its consolidated financial
statements.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CAPITAL PACIFIC HOLDINGS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Public Accountants................. 23
Consolidated Balance Sheets as of February 28, 1997 and
February 28, 1998...................................... 28
Consolidated Statements of Operations for the years ended
February 29, 1996, February 28, 1997 and February 28,
1998................................................... 29
Consolidated Statements of Stockholders' Equity for the
years ended February 29, 1996, February 28, 1997 and
February 28, 1998...................................... 30
Consolidated Statements of Cash Flows for the years ended
February 29, 1996, February 28, 1997 and February 28,
1998................................................... 31
Notes to Consolidated Financial Statements................ 32
</TABLE>
22
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Capital Pacific Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Capital Pacific
Holdings, Inc. (a Delaware corporation) and subsidiaries as of February 28, 1997
and February 28, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended February 28, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of certain Joint Ventures (Notes 1 and 4), which statements represent
total assets and total revenues of 1 and 1 percent at February 29, 1996, 1 and 1
percent at February 28, 1997, and 1 and 1 percent at February 28, 1998,
respectively, of the consolidated totals. Those statements were audited by other
auditors whose reports have been furnished to us and our opinion, insofar as it
relates to the amounts included for those entities, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Capital Pacific Holdings, Inc. and subsidiaries as of
February 28, 1997 and February 28, 1998, and the results of their operations and
their cash flows for each of the three years in the period ended February 28,
1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
May 13, 1998
23
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
To the Partners
Grand Coto Estates, L.P.
We have audited the balance sheet of Grand Coto Estates, L.P., a California
limited partnership (the "Partnership"), as of December 31, 1997, and the
related statements of operations, partners' capital and cash flows for the year
then ended (not presented separately herein). These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Grand Coto Estates, L.P. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
February 16, 1998
24
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
To the Partners
M.P.E. Partners, L.P.
We have audited the balance sheet of M.P.E. Partners, L.P., a California
limited partnership (the "Partnership"), as of December 31, 1997, and the
related statements of operations, partners' capital and cash flows for the
period March 14, 1997 (inception) through December 31, 1997 (not presented
separately herein). These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of M.P.E. Partners, L.P. as of
December 31, 1997, and the results of its operations and its cash flows for the
period March 14, 1997 (inception) through December 31, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
February 13, 1998
25
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
To the Partners
JMP Canyon Estates, L.P.
We have audited the balance sheet of JMP Canyon Estates, L.P., a California
limited partnership (the "Partnership"), as of December 31, 1996, and the
related statements of operations, partners' capital and cash flows for the years
ended December 31, 1996 and 1995 (not presented separately herein). These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JMP Canyon Estates, L.P. as
of December 31, 1996, and the results of its operations and its cash flows for
the years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
February 28, 1997
26
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
To the Partners
JMP Harbor View, L.P.
We have audited the balance sheet of JMP Harbor View, L.P., a California
limited partnership (the "Partnership"), as of December 31, 1996, and the
related statements of operations, partners' capital and cash flows for the years
ended December 31, 1996 and 1995 (not presented separately herein). These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JMP Harbor View, L.P. as of
December 31, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
February 28, 1997
27
<PAGE> 28
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1997 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents................................... $ 11,434 $ 4,328
Restricted cash............................................. 1,417 1,361
Accounts and notes receivable............................... 4,801 26,191
Real estate projects........................................ 233,562 192,347
Property, plant and equipment............................... 7,746 7,857
Investment in and advances to unconsolidated joint
ventures.................................................. 1,588 6,762
Prepaid expenses and other assets........................... 11,370 12,809
-------- --------
Total assets...................................... $271,918 $251,655
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 31,216 $ 21,830
Notes payable............................................... 73,474 36,714
Senior unsecured notes payable.............................. 100,000 100,000
-------- --------
Total liabilities................................. 204,690 158,544
-------- --------
Minority interest........................................... 360 30,061
-------- --------
Stockholders' equity:
Common stock, par value $.10 per share; 30,000,000 shares
authorized; 14,995,000 and 14,305,511 issued and
outstanding, respectively.............................. 1,500 1,500
Additional paid-in capital................................ 211,888 211,888
Accumulated deficit....................................... (146,520) (148,711)
Treasury stock............................................ -- (1,627)
-------- --------
Total stockholders' equity........................ 66,868 63,050
-------- --------
Total liabilities and stockholders' equity........ $271,918 $251,655
======== ========
</TABLE>
See accompanying notes to financial statements.
28
<PAGE> 29
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Sales of homes and land................................. $168,679 $216,549 $191,098
Cost of sales........................................... 144,079 183,557 162,966
Impairment loss on real estate assets................... -- -- 8,000
-------- -------- --------
Gross margin.......................................... 24,600 32,992 20,132
Selling, general and administrative expenses............ 22,895 30,282 24,744
-------- -------- --------
Income (loss) from operations......................... 1,705 2,710 (4,612)
Income from unconsolidated joint ventures............... 1,560 259 764
Interest and other income, net.......................... 920 900 1,391
Minority interest....................................... (1,080) 192 (469)
-------- -------- --------
Income (loss) before income taxes..................... 3,105 4,061 (2,926)
Provision (benefit) for income taxes.................... 503 539 (735)
-------- -------- --------
Net income (loss)..................................... $ 2,602 $ 3,522 $ (2,191)
======== ======== ========
Net income (loss) per common share:................... $ 0.17 $ 0.23 $ (0.15)
======== ======== ========
Weighed average number of common shares............... 14,995 14,995 14,795
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
29
<PAGE> 30
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 28, 1998
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL
-------------------- PAID-IN (ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT) STOCK TOTAL
---------- ------ ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, February 28, 1995................... 14,995,000 $1,500 $211,888 $(152,644) $ -- $60,744
Net income................................. -- -- -- 2,602 -- 2,602
---------- ------ -------- --------- ------- -------
BALANCE, February 29, 1996................... 14,995,000 1,500 211,888 (150,042) -- 63,346
Net income................................. -- -- -- 3,522 -- 3,522
---------- ------ -------- --------- ------- -------
BALANCE, February 28, 1997................... 14,995,000 1,500 211,888 (146,520) -- 66,868
Repurchase of common stock................. (689,489) -- -- -- (1,627) (1,627)
Net loss................................... -- -- -- (2,191) -- (2,191)
---------- ------ -------- --------- ------- -------
BALANCE, February 28, 1998................... 14,305,511 $1,500 $211,888 $(148,711) $(1,627) $63,050
========== ====== ======== ========= ======= =======
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 31
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 2,602 $ 3,522 $ (2,191)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Depreciation and amortization.......................... 1,390 1,876 1,685
Changes in Assets and Liabilities:
(Increase) decrease in accounts and notes
receivable........................................ (603) (380) (21,390)
(Increase) decrease in real estate projects.......... (57,109) (6,368) 41,215
(Increase) decrease in prepaid expenses and other
assets............................................ (2,013) (1,131) (1,383)
Increase (decrease) in accounts payable and accrued
liabilities....................................... 14,823 (5,123) (9,386)
Equity in earnings of unconsolidated joint ventures.... (1,560) (259) (764)
Minority interest...................................... 1,080 (192) 469
-------- --------- --------
Net cash provided by (used in) operating
activities........................................ (41,390) (8,055) 8,255
-------- --------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment....................... (1,269) (2,937) (1,796)
Decrease (increase) in investments in and advances to
unconsolidated joint ventures.......................... 3,195 1,373 (4,410)
-------- --------- --------
Net cash provided by (used in) investing
activities........................................ 1,926 (1,564) (6,206)
-------- --------- --------
FINANCING ACTIVITIES:
Proceeds from notes payable............................... 131,572 143,596 129,169
Principal payments of notes payable....................... (98,949) (134,051) (165,929)
Capital contributions (distributions) to minority
interest, net.......................................... (1,710) (2,342) 29,232
Repurchase of common stock................................ -- -- (1,627)
-------- --------- --------
Net cash provided by (used in) financing
activities........................................ 30,913 7,203 (9,155)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (8,551) (2,416) (7,106)
CASH AND CASH EQUIVALENTS, beginning of period.............. 22,401 13,850 11,434
-------- --------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 13,850 $ 11,434 $ 4,328
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH AND NON-CASH ACTIVITIES:
Cash paid during the year for interest.................... $ 17,939 $ 22,640 $ 19,800
Cash paid during the year for income taxes................ 1,479 540 --
Debt assumed by consolidated partnership for land
contributed............................................ 1,915 -- --
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 32
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Company Organization and Operations
Capital Pacific Holdings, Inc., together with its subsidiaries, (the
"Company") conducts business under various names, including the name Capital
Pacific Homes in Nevada and Arizona and Clark Wilson Homes in Texas.
Effective as of October 1, 1997, the Company consummated an equity and
restructuring transaction whereby the Company and certain of its subsidiaries
transferred to a newly formed limited liability company known as Capital Pacific
Holdings, LLC ("CPH LLC") substantially all of their respective assets and CPH
LLC assumed all the liabilities of 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. At February 28, 1998,
CPH LLC had $250 million in assets and a net worth of $91 million. 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 either
within CPH LLC or through newly formed project specific entities. 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 its
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.
The Company is a regional builder with operations throughout selected
metropolitan areas of Southern California, Nevada, Texas and Arizona.
Approximately 53, 16, 26 and 5 percent of the Company's total revenues
(including the unconsolidated joint ventures) were in California, Nevada, Texas
and Arizona, respectively, for the year ended February 28, 1998. Economic
conditions in the Southern California areas of the Company's operations have
recently improved dramatically. There can be no assurances that such
improvements will continue in the future.
The Company has recently expanded its operating strategy to encompass the
development of commercial and mixed-use projects, as well as ownership of
existing commercial properties.
The Company's business, and the markets which it serves in California,
Nevada, Texas and Arizona, are affected by local, national and world economic
conditions and events, in particular by the level of mortgage interest rates and
consumer confidence. The Company cannot predict whether mortgage interest rates
will be at levels attractive to prospective homebuyers. If interest rates
increase, in particular mortgage interest rates, the Company's operating results
could be adversely impacted.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period.
Significant estimates include projected revenues and costs of projects, which
impact the allocation of costs to homes sold. Actual results could differ from
estimated amounts.
32
<PAGE> 33
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Principles of Consolidation and Minority Interest in Joint Ventures
The consolidated financial statements for fiscal 1998 include the accounts
of the Company, wholly owned subsidiaries and certain majority owned joint
ventures, as well as the accounts of CPH LLC, including the capital accounts of
CPH LLC totaling $91.4 million, $29.8 million of which is required to be
presented as minority interest in the accompanying consolidated balance sheets.
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 (See Note 4) are accounted for on the
equity method. All significant intercompany balances and transactions have been
eliminated in consolidation.
Effective upon the closing date of the purchase transaction with San
Jacinto, Peters Ranchland Company, Inc., a wholly owned subsidiary of the
Company, as general partner, entered into four limited partnership agreements
("Joint Ventures") with IHP Investment Fund I, L.P. ("IHP") (an advisor to the
State of California Public Employees Retirement System ("CalPERS")), as the
limited partner to pursue the development of various real properties of the
Company, with such properties transferred to the Joint Ventures concurrently
with the closing. Peters Ranchland Company, Inc. and IHP each had a 50% interest
in each Joint Venture. The financial statements of the Joint Ventures have been
consolidated herein. As of February 28, 1998, home building operations of these
Joint Ventures have been completed and all homes sold.
Two additional partnerships with IHP (J.M.P. Canyon Estates, L.P. and
J.M.P. Harbor View L.P.), were entered into during fiscal 1995 and have been
constructing homes and had closings in fiscal years 1996, 1997 and 1998. These
two projects were completed in fiscal 1997 and fiscal 1998, respectively. In
fiscal year 1997, the Company entered into an additional partnership with IHP,
Grand Coto Estates, L.P. In fiscal 1998, the Company entered into another
partnership with IHP, M.P.E. Partners, L.P. and entered into two additional
joint ventures with an affiliate of CHF, RPV Associates, LLC and CPH Dana Point,
LLC. All of these partnerships and joint ventures are accounted for on the
equity method of accounting and are not consolidated.
Long-Lived Assets
Effective February 29, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identified intangibles to be held and used be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable based on the
estimated future cash flows (undiscounted and without interest charges). SFAS
No. 121 also requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less costs to sell. The effect of adoption was not material to the
Company's financial statements.
Property and Equipment
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives of three to thirty years using the straight-line method.
Total property and equipment was $7,746,000 and $7,857,000 (net of accumulated
depreciation of $3,817,000 and $4,757,000, respectively) as of February 28, 1997
and February 28, 1998, respectively.
Real Estate Projects
All direct and indirect land costs, offsite and onsite improvements and
applicable interest and carrying charges are capitalized to real estate projects
under development. Capitalized costs are included in cost and expenses as real
estate is sold; direct marketing costs are expensed in the period incurred. Land
and land
33
<PAGE> 34
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
development costs are accumulated by project and are allocated to individual
phases using the relative sales value method.
Prior to February 29, 1996, each real estate project was carried at the
lower of its cost or its estimated net realizable value. SFAS No. 121 changed
the method of valuing long-lived assets, including real estate projects, whereby
long-lived assets that are expected to be held and used in operations are to be
carried at the lower of cost or, if impaired, the fair value of the asset,
rather than the net realizable value. Long-lived assets to be disposed of should
be reported at the lower of carrying amount or fair value less cost to sell. For
purposes of applying SFAS 121, real estate under development is considered to be
held for use whereas finished units are considered assets to be disposed of. In
evaluating long-lived assets held for use, a review for impairment loss is
triggered if the sum of the expected future cash flows (undiscounted and without
interest charge) is less than the carrying amount of the asset. Various
assumptions and estimates are used to determine fair value in determining the
amount of any impairment loss including, among others, estimated costs of
construction, development and direct marketing, sales absorption rates,
anticipated sales prices and carrying costs. The calculation of the impairment
loss is based on estimated future cash flows which are calculated to include an
appropriate return and interest. The estimates used to determine the impairment
adjustment can change in the near term as the economy in the Company's key areas
change.
In connection with the restructuring and recapitalization of the Company
discussed above, management completed a process of reevaluating and revising the
Company's business plan, including its plans for the development of its various
projects. As a result of this analysis, it was determined that certain of the
Company's projects would require an impairment charge when evaluated in
accordance with SFAS No. 121. In addition, management determined that certain
warranty-related reserves should be adjusted. Therefore, during the third
quarter of fiscal 1998, the Company recorded a non-cash charge of $8 million.
Operating results during fiscal year 1997 were adversely affected by asset
impairment charges totaling $2.3 million related to the write-off of operational
start up costs for the Company's operations in Arizona, the write-off of certain
redesign and materials costs previously capitalized to certain low margin
projects in Nevada and the write-off of certain other costs.
Revenue Recognition
The Company's accounting policies follow specific provisions of the
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate," which specifies minimum down payment requirements, financing terms
and certain other requirements for sales of real estate.
Income from sales is recognized when title has passed, the buyer has met
minimum down payment requirements and the terms of any notes received by the
Company satisfy continuing investment requirements. At the time of sale,
accumulated costs are relieved from real estate projects and charged to cost of
sales on a relative sales value basis.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, which requires the liability
method of accounting for income taxes.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, short-term
investments which have a maturity of 90 days or less from the date of purchase
are considered cash equivalents.
34
<PAGE> 35
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock Options
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation." Under SFAS No. 123, companies have the option to implement a fair
value-based accounting method or continue to account for employee stock options
and stock purchase plans using the intrinsic value based method of accounting as
prescribed by Accounting Principles Board (APB) Opinion No. 25 "Accounting for
Stock Issued to Employees." Entities electing to remain under APB Opinion No. 25
must make pro forma disclosures of net income or loss and earnings per share as
if the fair value based method of accounting defined in SFAS No. 123 had been
applied. The Company has adopted the disclosure requirements of SFAS No. 123 and
will continue accounting for stock options under APB Opinion No. 25. The Company
has not issued any employee stock options or shares under stock purchase plans
which are currently outstanding.
Net Income Per Common Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which was adopted by the Company on February 28,
1998. Net income (loss) per common share is based upon the weighted average
number of common shares outstanding for the period. The effect of stock options
and warrants was not dilutive in all years presented, and thus basic and diluted
income (loss) per common share are the same.
Reclassifications
Certain reclassifications have been made to certain prior year balances in
order to conform with the current year presentation.
2. RESTRICTED CASH
The Company has restricted cash totaling $1,417,000 and $1,361,000 as of
February 28, 1997 and February 28, 1998, respectively. Included in these amounts
for fiscal 1997 and 1998 is $500,000, which is held as collateral for the
Company's bonding obligations. The balance of restricted cash consists of
deposits to various municipalities, banks, and utilities to guarantee future
performance of development obligations.
3. REAL ESTATE PROJECTS
Real estate projects consist of the following at February 28, 1997 and
February 28, 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Land and improvements under construction............... $186,172 $168,216
Completed residential homes............................ 30,038 10,249
Completed model homes.................................. 17,352 13,882
-------- --------
$233,562 $192,347
======== ========
</TABLE>
Total interest costs incurred during the years ended February 29, 1996,
February 28, 1997 and February 28, 1998 were $18,261,000, $22,640,000 and
$20,411,000, respectively, all of which was initially capitalized.
35
<PAGE> 36
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company is a general partner and has a 50 percent or less ownership in
seven unconsolidated entities at February 28, 1998. The Company's investments in
and advances to unconsolidated entities are as follows at February 28, 1997 and
February 28, 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Bay Hill Escrow.......................................... $ 183 $ 20
JMP Canyon Estates, L.P.................................. 393 500
JMP Harbor View , L.P.................................... 49 628
Grand Coto Estates, L.P.................................. 963 982
M.P.E. Partners, L.P..................................... -- 3,500
RPV Associates, LLC...................................... -- 1,125
CPH Dana Point, LLC...................................... -- 7
------- -------
$ 1,588 $ 6,762
======= =======
</TABLE>
The Company uses the equity method of accounting for its investments in
these unconsolidated 50 or less percent-owned entities. The accounting policies
of the entities are substantially the same as those of the Company.
Following is summarized, unaudited combined financial information for the
unconsolidated entities at February 28, 1997 and February 28, 1998 (in
thousands):
ASSETS
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Cash..................................................... $ 386 $ 452
Real estate projects..................................... 9,337 64,865
Other assets............................................. 604 2,113
------- -------
$10,327 $67,430
======= =======
</TABLE>
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Accounts payable and other liabilities................... $ 6,926 $ 8,974
Equity
The Company............................................ 1,112 3,213
Others................................................. 2,289 55,243
------- -------
3,401 58,456
------- -------
$10,327 $67,430
======= =======
</TABLE>
INCOME STATEMENT
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Sales of homes and land....................... $44,695 $11,201 $23,667
Interest and other income, net................ (71) 425 351
------- ------- -------
44,624 11,626 24,018
------- ------- -------
Costs and expenses............................ 38,981 10,627 20,293
------- ------- -------
Net income.................................... $ 5,643 $ 999 $ 3,725
======= ======= =======
</TABLE>
36
<PAGE> 37
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE
Notes payable consist of the following at February 28, 1997 and February
28, 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Promissory notes collateralized by deeds of trust,
including interest varying from 9.5 percent to prime
plus one percent....................................... $ 3,680 $ --
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 inventories on a non-recourse basis............. 32,233 24,709
Notes payable to bank, including interest at prime with
the term of the commitment reducing commencing December
1, 1998 secured by certain real estate inventories on a
recourse basis......................................... 35,656 11,736
Contingent promissory note payable to previous owner of
Clark Wilson........................................... 1,905 --
Other.................................................... -- 269
------- -------
$73,474 $36,714
======= =======
</TABLE>
At February 28, 1997 and February 28, 1998, the aggregate carrying value of
assets collateralizing the above notes was $179,941,000 and $148,520,000,
respectively.
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 February 28, 1998, CPH LLC has in place several credit
facilities with contingent availabilities totaling $167 million (the
"Facilities") with various bank lenders (the "Banks"), of which $37 million was
outstanding. The Facilities are secured by liens on various completed or under
construction homes and lots held by CPH LLC. 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 February 28, 1998, CPH LLC was in compliance with
these covenants. The Facilities also define certain events that constitute
events of default. As of February 28, 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 the CPH LLC. 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.
During the years ended February 29, 1996, February 28, 1997 and February
28, 1998, the highest month-end balance on notes payable was $70,171,000,
$83,152,000 and $73,305,000, respectively, and the weighted average outstanding
balance was $48,162,000, $78,041,000 and $54,310,000, respectively. The weighted
average interest rates on notes payable during the years ended February 29,
1996, February 28, 1997 and February 28, 1998, were 10.8 percent, 9.3 percent
and 8.9 percent, respectively. The weighted average interest rates on notes
payable at February 29, 1996, February 28, 1997 and February 28, 1998, were 9.3
percent, 9.4 percent and 8.9 percent, respectively.
37
<PAGE> 38
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aggregate scheduled principal maturities of notes payable are as
follows (in thousands):
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28,
1998
------------
<S> <C>
Fiscal years ending:
1999................................................... $16,983
2000................................................... --
2001................................................... 6,231
2002................................................... 13,500
-------
TOTAL.................................................. $36,714
=======
</TABLE>
6. SENIOR UNSECURED NOTES PAYABLE; WARRANTS
In May, 1994, the Company issued $100 million principal amount of its
12 3/4 percent Senior Notes due May 1, 2002 (the "Notes"). In connection with
the issuance of the Notes, the Company issued 790,000 warrants to purchase the
Company's common stock at a price of $3.30 per share, all of which are fully
exercisable until 2004. Interest is due and payable on May 1 and November 1 of
each year. The Notes are not redeemable at the option of CPH LLC prior to May 1,
1999. Thereafter, the Notes will be redeemable at 106.375% of their principal
amount, declining ratably to par on and after May 1, 2001, plus accrued
interest.
The obligations associated with the Notes have been transferred to CPH LLC.
CPH LLC will be obligated to make an offer to purchase 10% of the outstanding
principal balance of the Notes at a purchase price equal to 100% of the
principal amount, plus accrued interest, in the event there are two consecutive
fiscal quarters that the CPH LLC's Consolidated Tangible Net Worth (as defined)
is less than $37 million. The Notes also contain certain restrictive covenants,
which, among other things, limit the incurrence of additional indebtedness, the
payment of dividends, the ability to create liens, make restricted payments (as
defined) and the ability to enter into certain transactions with affiliates. As
of February 28, 1998 CPH LLC was in compliance with these covenants and was not
required to make any such offer.
At February 28, 1998, unamortized bond issuance cost was $3.5 million, net
of accumulated amortization of $2.3 million, which is being amortized over the
term of the Notes utilizing the effective interest rate method. Unamortized bond
issuance cost is included in prepaid expenses and other assets in the
accompanying consolidated balance sheets.
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended February 29, 1996, February 28, 1997 and February 28, 1998 (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- -------
<S> <C> <C> <C>
Current
Federal.......................................... $365 $351 $ 150
State............................................ 138 188 215
---- ---- -------
503 539 365
---- ---- -------
Deferred........................................... -- -- (1,100)
---- ---- -------
Provision (benefit) for income taxes............... $503 $539 $ (735)
==== ==== =======
</TABLE>
38
<PAGE> 39
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The deferred income tax benefit at February 28, 1997 and February 28, 1998
results from the following temporary differences between financial and tax
reporting (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----- ------- -------
<S> <C> <C> <C>
Accrued expenses................................ $ 120 $ (79) $ 104
Construction period expenses.................... (746) (1,482) 923
Depreciation.................................... (52) (99) (53)
Built-in losses................................. -- -- (2,542)
Net operating loss carryforward................. -- 190 257
Decrease in valuation allowance................. 678 1,470 2,411
----- ------- -------
$ -- $ -- $ 1,100
===== ======= =======
</TABLE>
The components of the Company's deferred income tax asset (liability) as of
February 28, 1997 and February 28, 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Accrued expenses......................................... $ 491 $ 595
Construction period expenses............................. 849 1,772
Depreciation............................................. (57) (110)
Built-in losses.......................................... 6,681 4,139
Net operating loss carryforward.......................... 731 988
Valuation allowance...................................... (8,695) (6,284)
------- -------
$ -- $ 1,100
======= =======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
A reconciliation of the income tax provision (benefit) computed at the
federal statutory rate and the income tax benefit for financial reporting
purposes for the years ended February 29, 1996, February 28, 1997 and February
28, 1998, are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory rate.......................... 34% 34% 34%
State income taxes, net of federal tax benefit.......... 3 3 3
Alternative minimum tax................................. -- -- (5)
Franchise tax liability................................. -- -- (7)
Utilization of net operating loss carryforward.......... (21) (24) --
--- --- --
16% 13% 25%
=== === ==
</TABLE>
8. REPURCHASE OF COMMON STOCK
During the third quarter of fiscal 1998, the New LLC repurchased 1,015,000
shares of the Company's common stock which were issued to Roger Nix, the
previous owner of Durable Homes, Inc. ("Durable"), a wholly owned subsidiary of
the Company operating in Nevada, in connection with the Company's acquisition of
Durable in 1993, and distributed such shares to the Company and CHF in
proportion to their respective ownership percentages in the New LLC.
Accordingly, 689,489 shares were distributed to the Company and are being held
as treasury stock. As a result, the number of outstanding shares of the Company
has been reduced from 14,995,000 to 14,305,511. The foregoing distribution is
subject to adjustment based on contractual arrangements between the Company and
CHF.
39
<PAGE> 40
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, the Company has announced a stock repurchase program whereby
up to 500,000 additional shares of the Company's outstanding common stock may be
repurchased. As of February 28, 1998, an insignificant number of shares had been
repurchased under this program.
9. STOCK OPTION PLAN
Effective February 28, 1995, the Board of the Corporation approved the 1995
Stock Incentive Plan (the "1995 Plan"). The 1995 Plan permits a committee
designated by the Board of the Corporation to make awards to key employees and
directors of the Company and its subsidiaries. Subject to various restrictions,
awards could be in the form of stock options, restricted or unrestricted stock,
stock appreciation rights or a combination of the above. The maximum number of
shares or share equivalents that may be awarded under the 1995 Plan is
1,500,000. No awards have been made under the 1995 Plan.
10. RELATED PARTY TRANSACTIONS
Commitment fees totaling $132,000 and $534,000 were paid to joint venture
partners and capitalized to the real estate being developed during fiscal 1997
and 1998, respectively. These capitalized fees are included in cost of sales as
the units are sold.
In fiscal 1997, the Company contributed cash of $761,000 to an
unconsolidated joint venture with CalPERS. In fiscal 1998, the Company
contributed an aggregate of $2,925,000, including $215,000 of cash, to
unconsolidated joint ventures.
The Company has made advances to unconsolidated joint ventures for
construction. The balance of advances at February 28, 1997 and 1998 was $885,000
and $3,552,000, respectively. This amount is included in investment in and
advances to unconsolidated joint ventures on the consolidated balance sheet.
During fiscal 1996, 1997 and 1998, the Company recognized $1,254,000,
$555,000 and $3,135,000 in construction overhead income on joint ventures.
11. COMMITMENTS AND CONTINGENCIES
General
Approximately $36,528,000 and $28,447,000 of performance bonds were
outstanding at February 28, 1997 and February 28, 1998, respectively. The
estimated cost to complete the development work related to the performance bonds
are $17,970,000 and $14,989,000 at February 28, 1997 and February 28, 1998,
respectively. The beneficiaries of these bonds are certain municipalities. CPH
LLC has an outstanding letter of credit totaling $472,000 to ensure performance
on certain agreements as of February 28, 1997 and February 28, 1998. CPH LLC has
pledged a certificate of deposit in a like amount as collateral for the
obligation under the letter of credit which is included in restricted cash.
40
<PAGE> 41
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CPH LLC has entered into agreements to lease certain office equipment and
facilities under operating leases which expire at various dates through fiscal
year 2003. The facility leases generally provide that CPH LLC shall pay property
taxes, insurance and other items. Minimum payments under noncancelable leases at
February 28, 1998, are as follows:
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28,
FISCAL YEARS ENDING: 1998
-------------------- ------------
<S> <C>
1999................................................. $ 438
2000................................................. 237
2001................................................. 190
2002................................................. 170
2003................................................. 139
------
Total $1,174
======
</TABLE>
Total rent expense was $415,000, $493,000 and $338,000 for the years ended
February 29, 1996, February 28, 1997 and February 28, 1998, respectively.
As discussed in Notes 1 and 4, CPH LLC is a general partner in several
joint venture partnerships. As a general partner, CPH LLC is liable for all
debts of the partnerships without limitation to the respective partnership
interest.
Dividends
No dividends were declared or paid for the years ended February 29, 1996,
February 28, 1997 and February 28, 1998.
Legal Proceedings
The Company is involved in routine claims and litigation arising in the
ordinary course of its business, including a well publicized dispute in Orange
County. Although the legal responsibility and financial impact with respect to
such claims and litigation cannot be presently ascertained, the Company does not
believe that these matters will result in the payment by the Company, giving
consideration to any applicable insurance proceeds or contributions by other
parties, that, in the aggregate, would be material in relation to the financial
position of the Company. It is reasonably possible that the estimate of reserves
provided for by the Company with respect to such claims and litigation could
change in the near term and such change could be material.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate:
Cash and Equivalents -- The carrying amount is a reasonable estimate
of fair value. These assets primarily consist of short term investments and
demand deposits.
Notes Payable to Banks -- These notes payable mature in two to three
years. The rates of interest paid on the notes approximate the current
rates available for secured real estate financing with similar terms and
maturities.
Contingent Promissory Note Payable -- This note is payable based on
performance of the entity acquired. The carrying amount is a reasonable
estimate of fair value.
41
<PAGE> 42
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Trust Deed Notes Payable -- These notes are primarily for purchase
money deeds of trust on land acquired. These notes generally have
maturities ranging from one to two years. The rates of interest paid on
these notes approximate the current rates available for secured real estate
financing with similar terms and maturities.
Senior Unsecured Notes Payable Due 2002 -- This issue is not publicly
traded on a major exchange. Consequently, the fair value of this issue is
based on a trade closest to the year ended February 28, 1998.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
AT FEBRUARY 28, 1997 AT FEBRUARY 28, 1998
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and equivalents.................. $ 11,434 $ 11,434 $ 4,328 $ 4,328
Financial Liabilities:
Notes payable......................... 67,889 67,889 36,714 36,714
Trust deed notes payable.............. 3,680 3,680 -- --
Senior unsecured notes payable........ 100,000 100,000 100,000 108,000
Promissory note payable............... 1,905 1,905 -- --
</TABLE>
13. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the years ended February 28, 1997
and February 28, 1998 is as follows (in thousands except for per share data):
<TABLE>
<CAPTION>
QUARTER
---------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1998:
Sales of homes and land......... $34,956 $46,114 $47,722 $62,306 $191,098
Gross margin.................... 6,735 8,190 (1,970)(a) 7,177 20,132
Net income (loss)............... $ 1,063 $ 1,424 $(5,173)(a) $ 495 $ (2,191)
======= ======= ======= ======= ========
Net income (loss) per common
share........................ $ 0.07 $ 0.09 $ (0.35) $ 0.03 $ (0.15)
======= ======= ======= ======= ========
1997:
Sales of homes and land......... $46,292 $64,251 $50,996 $55,010 $216,549
Gross margin.................... 7,170 8,966 8,365 8,491 32,992
Net income...................... $ 327 $ 2,066 $ 940 $ 189 $ 3,522
======= ======= ======= ======= ========
Net income per common share..... $ 0.02 $ 0.14 $ 0.06 $ 0.01 $ 0.23
======= ======= ======= ======= ========
</TABLE>
- ---------------
(a) Includes $8,000 non-cash charge for impairment loss on real estate assets.
14. SUBSEQUENT EVENTS
Subsequent to February 28, 1998, the Company, together with its financial
partners, has invested approximately $41 million in four new joint ventures and
CPH LLC has invested approximately $5 million in four new residential
development projects.
42
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference to the
Company's definitive proxy statement to be filed with the Commission no later
than June 26, 1998 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
Company's definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
Company's definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
Company's definitive Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements. The following Consolidated Financial Statements,
together with the Notes thereto and Independent Auditors' Report
thereon, are included in Part II, Item 8 of this report.
CAPITAL PACIFIC HOLDINGS, INC.
Reports of Independent Public Accountants
Consolidated Balance Sheets as of February 28, 1997 and February 28, 1998
Consolidated Statements of Operations for the years ended February 29,
1996, February 28, 1997 and February 28, 1998
Consolidated Statements of Stockholders' Equity for the years ended
February 29, 1996, February 28, 1997 and February 28, 1998
Consolidated Statements of Cash Flows for the years ended February 29,
1996, February 28, 1997 and February 28, 1998
Notes to Consolidated Financial Statements
2. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Second Restated Certificate of Incorporation of the
Registrant.
3.2 Certificate of Amendment to the Second Restated Certificate
of Incorporation of the Registrant.
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.3 Second Restated Certificate of Incorporation of the
Registrant, as Amended.
3.4 Second Amended and Restated Bylaws of the Registrant.
4.1 See the Articles of Incorporation and Bylaws of the
Registrant (Exhibits 3.1-3.4) and the Indenture and related
agreements (Exhibits 10.1-10.6).
10.1 Indenture agreement by and between Capital Pacific Holdings,
Inc., as Issuer; Durable Homes, Inc., J.M. Peters Nevada,
Inc., and Peters Ranchland, Inc., as Guarantors, and United
States Trust Company of New York, as Trustee, dated as of
May 13, 1994 (Incorporated by reference to Exhibit 10.15 of
the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1994).
10.2 Warrant Agreement by and between Capital Pacific Holdings,
Inc., and United States Trust Company of New York, Warrant
Agent, dated as of May 13, 1994 (Incorporated by reference
to Exhibit 10.16 of the Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1994).
10.3 Warrant Registration Rights Agreement by and between Capital
Pacific Holdings, Inc., and Morgan Stanley & Co.
Incorporated dated as of May 13, 1994 (Incorporated by
reference to Exhibit 10.17 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1994).
10.4 Notes Registration Rights Agreement by and between Capital
Pacific Holdings, Inc., and Morgan Stanley & Co.
Incorporated dated as of May 13, 1994 (Incorporated by
reference to Exhibit 10.18 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1994).
10.5 Second Supplemental Indenture dated as of September 10, 1997
to the Indenture agreement dated as of May 13, 1998.
10.6 Third Supplemental Indenture, dated as of October 1, 1997 to
the Indenture agreement dated as of May 13, 1994, as
amended.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
99.1 Amended and Restated Limited Liability Company agreement
(Incorporated by reference to Exhibit 99.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended August 31, 1997).
99.2 Investment and Stockholder agreement (Incorporated by
reference to Exhibit 99.2 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended August 31, 1997).
99.3 Registration Rights agreement (Incorporated by reference to
Exhibit 99.3 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended August 31, 1997).
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the year ended
February 28, 1998.
44
<PAGE> 45
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, in the City of Newport
Beach, State of California, on May 28, 1998.
CAPITAL PACIFIC HOLDINGS, INC.
By /s/ HADI MAKARECHIAN
------------------------------------
Hadi Makarechian
Chairman of the Board
and Chief Executive Officer
Date: May 28, 1998
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Hadi Makarechian and Steven O. Spelman, Jr., and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for each person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments to
this report on Form 10-K, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully and to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue of the powers herein granted.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ------------
<C> <S> <C>
/s/ HADI MAKARECHIAN Chairman of the Board and Chief May 28, 1998
- -------------------------------------------------- Executive Officer
Hadi Makarechian
/s/ DALE DOWERS Director, President and Chief May 28, 1998
- -------------------------------------------------- Operating Officer
Dale Dowers
/s/ STEVEN O. SPELMAN, JR. Vice President and Chief May 28, 1998
- -------------------------------------------------- Financial Officer
Steven O. Spelman, Jr.
/s/ WILLIAM FUNK Director May 28, 1998
- --------------------------------------------------
William Funk
/s/ KARL KAISER Director May 28, 1998
- --------------------------------------------------
Karl Kaiser
/s/ ALLAN L. ACREE Director May 28, 1998
- --------------------------------------------------
Allan L. Acree
</TABLE>
45
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- --------- ----------- ----------
<S> <C> <C>
3.1 Second Restated Certificate of Incorporation of the
Registrant.
3.2 Certificate of Amendment to the Second Restated Certificate
of Incorporation of the Registrant.
3.3 Second Restated Certificate of Incorporation of the
Registrant, as amended.
3.4 Second Amended and Restated Bylaws of the Registrant.
4.1 See the Articles of Incorporation and Bylaws of the
Registrant (Exhibits 3.1 -- 3.4) and the Indenture and
related agreements (Exhibits 10.1 -- 10.6).
10.1 Indenture agreement by and between Capital Pacific Holdings,
Inc., as Issuer; Durable Homes, Inc., J.M. Peters Nevada,
Inc., and Peters Ranchland, Inc., as Guarantors, and United
States Trust Company of New York, as Trustee, dated as of
May 13, 1994 (Incorporated by reference to Exhibit 10.15 of
the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1994).
10.2 Warrant Agreement by and between Capital Pacific Holdings,
Inc., and United States Trust Company of New York, Warrant
Agent, dated as of May 13, 1994 (Incorporated by reference
to Exhibit 10.16 of the Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1994).
10.3 Warrant Registration Rights Agreement by and between Capital
Pacific Holdings, Inc., and Morgan Stanley & Co.
Incorporated dated as of May 13, 1994 (Incorporated by
reference to Exhibit 10.17 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1994).
10.4 Notes Registration Rights Agreement by and between Capital
Pacific Holdings, Inc., and Morgan Stanley & Co.
Incorporated dated as of May 13, 1994 (Incorporated by
reference to Exhibit 10.18 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1994).
10.5 Second Supplemental Indenture dated as of September 10, 1997
to the Indenture agreement dated as of May 13, 1998.
10.6 Third Supplemental Indenture, dated as of October 1, 1997 to
the Indenture agreement dated as of May 13, 1994, as
amended.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
99.1 Amended and Restated Limited Liability Company agreement
(Incorporated by reference to Exhibit 99.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended August 31, 1997).
99.2 Investment and Stockholder agreement (Incorporated by
reference to Exhibit 99.2 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended August 31, 1997).
99.3 Registration Rights agreement (Incorporated by reference to
Exhibit 99.3 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended August 31, 1997).
</TABLE>
<PAGE> 1
EXHIBIT 3.1
SECOND RESTATED
CERTIFICATE OF INCORPORATION
OF
CAPITAL PACIFIC HOLDINGS, INC.
(formerly known as J.M. Peters Company, 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 Second 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. The
undersigned further certifies that this Second Restated Certificate of
Incorporation only restates and integrates and does not further amend the
provisions of the Corporation's original Certificate of Incorporation as
theretofore amended and restated, and that there is no discrepancy between those
provisions and the provisions of this Second Restated Certificate of
Incorporation.
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.
<PAGE> 2
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.
4th. The aggregate number of shares which the Corporation shall have
authority to issue is Thirty Million (30,000,000), all of which shall be shares
of common voting stock of $.10 par value (the "Common 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. Holders
of the Common Stock shall not be entitled to any preemptive or other
subscription rights.
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.
- 2 -
<PAGE> 3
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 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.
- 3 -
<PAGE> 4
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.
10th. The Corporation reserves the right to amend, alter or repeal any
provisions contained in this Second 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 3rd day of July,
1996.
/s/ DALE DOWERS
-----------------------------------------
DALE DOWERS
Chief Executive Officer
- 4 -
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO
THE SECOND RESTATED
CERTIFICATE OF INCORPORATION
OF
CAPITAL PACIFIC HOLDINGS, INC.
(a Delaware corporation)
THE UNDERSIGNED, Hadi Makarechian and Marquis L. Cummings, do hereby
certify that:
1. They are the Chairman of the Board and Secretary, respectively,
of Capital Pacific Holdings, Inc., a Delaware corporation (the "Corporation");
and
2. Article FOURTH of the Corporation's Second Restated Certificate
of Incorporation is hereby deleted in its entirety and the following inserted
in lieu thereof:
"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"),
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 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 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."
<PAGE> 2
3. This Certificate of Amendment was duly adopted by the Board of
Directors of the Corporation and approved by the holders of a majority of the
outstanding shares of stock of each class entitled to vote thereon in
accordance with the requirements of Section 242 of the Delaware General
Corporation Law.
4. IN WITNESS WHEREOF, the undersigned have signed this certificate this
25th day of July, 1997 and hereby affirm and acknowledge under penalty of
perjury that the filing of this Certificate of Amendment is the act and deed of
the Corporation.
/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
ATTEST:
/s/ Marquis L. Cummings
- ---------------------------
Marquis L. Cummings
Secretary
-2-
<PAGE> 3
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"CAPITAL PACIFIC HOLDINGS, INC.", FILED IN THIS OFFICE ON THE EIGHTH DAY OF
JULY, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL] /s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8017930
DATE: 07-08-96
<PAGE> 1
EXHIBIT 3.3
SECOND RESTATED
CERTIFICATE OF INCORPORATION
OF
CAPITAL PACIFIC HOLDINGS, INC.,
AS AMENDED
(formerly known as J.M. Peters Company, 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 Second 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. The
undersigned further certifies that this Second Restated Certificate of
Incorporation only restates and integrates and does not further amend the
provisions of the Corporation's original Certificate of Incorporation as
theretofore amended and restated, and that there is no discrepancy between
those provisions and the provisions of this Second Restated Certificate of
Incorporation.
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.
<PAGE> 2
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.
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"), 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 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 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.
- 2 -
<PAGE> 3
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 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.
- 3 -
<PAGE> 4
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.
10th. The Corporation reserves the right to amend, alter or repeal any
provisions contained in this Second 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 25th day of July,
1997.
/s/ HADI MAKARECHIAN
----------------------------------------
HADI MAKARECHIAN
Chairman of the Board
- 4 -
<PAGE> 1
EXHIBIT 3.4
SECOND AMENDED AND RESTATED BYLAWS
OF
CAPITAL PACIFIC HOLDINGS, INC.
(A Delaware Corporation)
JUNE 26, 1996
ARTICLE I
STOCKHOLDERS
Section 1. PLACE OF HOLDING ANNUAL MEETINGS. Annual meetings of the
stockholders shall be held at the principal office of the Corporation in Newport
Beach, California, or at such other place or places within or without the State
of Delaware as the directors shall from time to time determine.
Section 2. ANNUAL ELECTION OF DIRECTORS. The annual meeting of
stockholders for the election of directors and the transaction of other
business shall be held following the end of the fiscal year, at such time and on
such day as designated by the Board of Directors and stated in the notice of the
meeting. At each annual meeting, the stockholders entitled to vote shall, by
plurality vote, elect the members of the Board of Directors then standing for
election, and then may transact such other corporate business as shall be stated
in the notice of the meeting.
Failure to hold the annual meeting at the designated time shall not work a
dissolution of the Corporation.
Section 3. VOTING. Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and in accordance with the
provisions of these Bylaws shall be entitled to one (1) vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder. Except
where a date shall have been fixed as the record date for the determination of
the stockholders of the Corporation entitled to vote, as hereinafter provided in
Section 4 of Article VI, no share of stock shall be voted on at any election for
directors which shall have been transferred on the books of the Corporation
within twenty (20) days next preceding such election. All elections shall be had
and all questions decided by plurality vote except as otherwise provided by the
Certificate of Incorporation and/or by the laws of the State of Delaware. Voting
by ballot shall not be required for any corporate action other than the election
of directors, except as otherwise provided by the Delaware General Corporation
Law.
<PAGE> 2
Section 4. QUORUM. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting shall constitute a
quorum for the transaction of business.
Section 5. ACTION WHICH MAY BE TAKEN WITHOUT MEETING. Any action
that may be taken at a meeting of the stockholders may be taken without a
meeting if authorized by a writing signed by all of the holders of shares who
would be entitled to vote at a meeting for such purpose, and filed with the
Secretary of the Corporation.
Section 6. ADJOURNMENT OF MEETINGS. If less than a quorum shall be
in attendance at any time for which the meeting shall have been called, the
meeting may, after a lapse of at least half an hour, be adjourned from time to
time by a majority of the stockholders present or represented and entitled to
vote thereat, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 7. SPECIAL MEETINGS: HOW CALLED. Special meetings of the
stockholders for any purpose or purposes may be called by the President or
Secretary, and shall be called upon a request in writing therefor, stating the
purpose or purposes thereof, delivered to the President or Secretary, signed by
a majority of the directors or by fifty-one percent (51%) in interest of the
stockholders entitled to vote, or by resolution of the directors.
Section 8. NOTICE OF STOCKHOLDERS' MEETINGS. Written or printed
notice, stating the place, date and time of the meeting, and the general nature
of the business to be considered, shall be delivered personally by the Secretary
or mailed, postage prepaid, to each stockholder entitled to vote thereat at his
last known post office address, at least ten (10) but not more than sixty (60)
days before the meeting. Notice by mail shall be deemed to be given when
deposited in the United States mail, postage prepaid. The notice of a special
meeting shall in all instances state the purpose or purposes for which the
meeting is called. If any action is proposed to be taken which would, if taken,
entitle stockholders to receive payment for their shares of stock, the notice
shall include a statement of that purpose and to that effect. If a meeting is
adjourned to another time, not more than thirty days hence, and/or to another
place, and if an announcement of the adjourned time and/or place is made at the
meeting, it shall not be necessary to give notice of the adjourned meeting
unless the directors, after adjournment, fix a new record date for the adjourned
meeting.
2
<PAGE> 3
Section 9. STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place where the
meeting is to be held during the whole time thereof and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list required
by this section or the books of the Corporation, or to vote at any meeting of
stockholders.
Section 10. CONDUCT OF MEETING. Meetings of the stockholders shall
be presided over by one of the following officers in the order of seniority and
if present and acting: the Chairman of the Board, the Chief Executive Officer,
the Vice-Chairman of the Board, the President, the Treasurer, a Vice-President,
or, if none of the foregoing is in office and present and acting, by a chairman
to be chosen by the stockholders. The Secretary of the Corporation, or in his
absence, an Assistant Secretary, shall act as secretary of every meeting, but if
neither the Secretary nor an Assistant Secretary is present, the Chairman of the
meeting shall appoint a secretary of the meeting.
Section 11. INSPECTORS AND JUDGES. The directors, in advance of any
meeting will appoint one or more inspectors of election or judges of the vote,
as the case may be, to act at the meeting or any adjournment thereof and make a
written report thereof. If an inspector or inspectors or judge or judges are not
appointed, the person presiding at the meeting will appoint one or more
inspectors or judges. In case any person who may be appointed as an inspector or
judge fails to appear or act, the vacancy may be filled by appointment made by
the directors in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector or judge, before entering upon the discharge
of his duties, shall take and sign an oath faithfully to execute the duties of
inspector or judge at such meeting with strict impartiality and according to the
best of his ability. The inspectors or judges shall determine the number of
shares of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judges shall make a report in writing of any challenge, question or matter
determined by him or them and execute a certificate of any fact found by him or
them.
3
<PAGE> 4
ARTICLE II
DIRECTORS
Section 1. NUMBER: ELECTION AND TERM OF OFFICE. A director need not
be a stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors of the Corporation will be not fewer than
three (3) nor more than nine (9), the total number to be fixed from time to time
by the Board of Directors. No decrease in the number of directors will have the
effect of shortening the term of an incumbent director. Except as provided
herein, directors will be elected at the annual meeting of stockholders for such
year, or at a special meeting of stockholders called for purposes that include
the election of directors. Each director, except in case of death, resignation,
retirement, disqualification or removal, will serve until the next meeting at
which directors are elected and thereafter until his successor has been elected
and has qualified.
Section 2. QUORUM. A majority of the directors shall constitute a
quorum for the transaction of business, except when a vacancy or vacancies
prevents such majority, whereupon a majority of the directors in office shall
constitute a quorum, provided, that such majority shall constitute at least
one-third of the whole Board. If at any meeting of the board there shall be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time until a quorum is obtained, and no further notice thereof need be
given other than by announcement at said meeting which shall be so adjourned.
Section 3. FIRST MEETING. The directors named in the Amended and
Restated Certificate of Incorporation of the Corporation shall hold their first
meeting for the purpose of organization and the transaction of business, at such
time and place as may be fixed by consent in writing of a majority of the
directors.
Section 4. ELECTION OF OFFICERS. At the first meeting or at any
subsequent meeting called for the purpose, the directors shall elect a
President, a Treasurer, a Secretary, and such other officers as may be deemed
necessary, who need not be directors. Such officers shall hold office until
their successors have been elected and have qualified.
Section 5. REGULAR MEETINGS. Regular meetings of the directors may
be held without notice at such places and times as shall be determined from time
to time by resolution of the directors.
Section 6. SPECIAL MEETINGS: HOW CALLED; NOTICE. Special meetings of
the Board may be called by the President or by the Secretary or by any director
on two (2) days' notice to each director.
4
<PAGE> 5
Section 7. PLACE OF MEETING. The directors may hold their meetings
and have one or more offices, and keep the books of the Corporation, outside the
State of Delaware, at any office or offices of the Corporation or at any other
place as they may from time to time by resolution determine; provided, however
that certified copies of the Certificate of Incorporation and Bylaws and all
amendments thereto, and a stock ledger or duplicate stock ledger (revised
annually), or a statement setting out the name and address of the custodian
thereof, shall be kept at the principal office in California.
Section 8. CHAIRMAN OF THE MEETING. The Chairman of the Board, if
any and if present and acting, shall preside at all meetings. Otherwise, the
President, if any and if present and acting, or any other director chosen by the
Board, shall preside.
Section 9. REMOVAL OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or Bylaws, any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
shares entitled to vote at an election of directors.
Section 10. GENERAL POWERS OF DIRECTORS. The business and affairs of
the Corporation shall be managed by the Board of Directors. In addition to the
powers and authority expressly conferred upon it by these Bylaws, the Board of
Directors may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by law, by any legal agreement among stockholders, by
the Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
Section 11. SPECIFIC POWERS OF DIRECTORS. Without prejudice to such
general powers, it is hereby expressly declared that the directors shall have
the following powers, to-wit:
(1) To adopt and alter a common seal of the Corporation.
(2) To make and change regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
(3) To purchase or otherwise acquire for the Corporation any
property, rights, or privileges which the Corporation is authorized to acquire.
(4) To pay for any property purchased for the Corporation either
wholly or partly in money, stock, bonds, debentures, or other securities of the
Corporation.
(5) To borrow money and to make and issue notes, bonds, and other
negotiable and transferable instruments, mortgages, deeds of trust, and trust
agreements, and to do every act and thing necessary to effectuate the same.
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(6) To remove any officer for cause or summarily without cause,
and in their discretion from time to time, to devolve the powers and duties of
any officer upon any other person for the time being.
(7) To appoint and remove or suspend such subordinate officers,
agents or factors as they may deem necessary and to determine their duties and
fix, and from time to time change, their salaries or remuneration, and to
require security as and when they think fit.
(8) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, agents and factors.
(9) To determine who shall be authorized on the Corporation's
behalf to make and sign bills, notes, acceptances, endorsements, checks,
releases, receipts, contracts and other instruments.
(10) To determine who shall be entitled to vote in the name and
behalf of the Corporation upon, or to assign and transfer, any shares of stock,
bonds, or other securities of other corporations held by this Corporation.
(11) To delegate any of the powers of the Board in relation to the
ordinary business of the Corporation to any standing or special committee, or to
any officer or agent (with power to sub-delegate), upon such terms as they think
fit.
(12) To call special meetings of the stockholders for any purpose
or purposes.
Section 12. COMPENSATION OF DIRECTORS. Directors may receive such
compensation for their services as directors as may from time to time be fixed
by vote of the Board of Directors. A director may also serve the Corporation in
a capacity other than that of director and receive compensation, as determined
by the Board of Directors, for services rendered in such other capacity.
Section 13. VOTE REQUIRED FOR ACTION. Except as otherwise provided
in these Bylaws and by the Delaware General Corporation Law, the act of a
majority of the directors present at a meeting at which a quorum is present at
the time shall be the act of the Board of Directors.
Section 14. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the
Board of Directors, or members of any committee designated by the Board of
Directors, may participate in a meeting of the Board or of such committee by
means of conference telephone or similar communications equipment through which
all persons participating in the meeting can hear and speak with each other.
Participation in a meeting pursuant to this Section 14 shall constitute presence
in person at such meeting.
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Section 15. ACTION BY DIRECTORS WITHOUT A MEETING. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any action which may be taken at a meeting of a committee of directors may be
taken without a meeting if a written consent thereto shall be signed by all the
directors, or all of the members of the committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of the Board or the
committee. Such consent shall have the same force and effect as a unanimous vote
of the Board of Directors or the committee.
ARTICLE III
COMMITTEES
Section 1. The Board of Directors may, by resolution or resolutions
passed by a majority of the whole board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation, which,
to the extent provided in such resolution or resolutions or in these Bylaws,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation and may have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
No such committee, however, shall have the power or authority to
amend the Certificate of Incorporation, to adopt an agreement of merger or
consolidation, to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, to recommend
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or to amend the Bylaws of the Corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Section 2. The committees shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
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<PAGE> 8
ARTICLE IV
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents as determined
and designated by the Board of Directors, a Secretary, a Treasurer, and one or
more Assistant Secretaries, which Assistant Secretaries may be designated by the
Chairman of the Board, and one or more Assistant Treasurers, as may be
determined by the Board of Directors. The Board of Directors may from time to
time create and establish the duties of such other officers and elect or provide
for the appointment of such other officers as it deems necessary for the
efficient management of the Corporation, but the Corporation shall not be
required to have at any time any officers other than a President, Secretary, and
a Treasurer. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
Section 2. ELECTION AND TERM. All officers shall be elected by the
Board of Directors and shall serve at the will of the Board of Directors and
until their successors have been elected and have qualified or until the earlier
of their death, resignation, removal or retirement.
Section 3. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation will be served thereby.
Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
call to order meetings of the stockholders and of the Board of Directors, and
shall act as chairman of such meetings except as may otherwise be provided by
the Board of Directors. The Chairman of the Board shall perform such other
duties and have such other powers as the Board of Directors may determine from
time to time.
Section 5. PRESIDENT. In the absence of the Chairman of the Board,
the President shall perform the duties and exercise the powers specified in
these Bylaws of the Chairman. The President shall perform such other duties and
have such other powers as the Board of Directors may determine from time to
time.
Section 6. VICE PRESIDENTS. A Vice President shall in the absence or
disability of the President, or at the direction of the President, perform the
duties and exercise the powers, whether such duties and powers are specified by
these Bylaws or otherwise, of the President. If the Corporation has more than
one Vice President, the one so designated by the Board of Directors shall act in
lieu of the President. Vice Presidents shall perform whatever duties and have
whatever powers the Board of Directors may determine from time to time.
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Section 7. SECRETARY. The Secretary shall be responsible for causing
there to be maintained accurate records of the acts and proceedings of all
meetings of stockholders and directors. He shall have authority to give all
notices required by law or these Bylaws. He shall be responsible for the custody
of the corporate books, records, contracts, and other documents. The Secretary
may affix the corporate seal to any lawfully executed documents requiring it and
shall sign instruments as may require his signature. The Secretary shall
perform such other duties and have such other powers as the Board of Directors
may determine from time to time.
Section 8. TREASURER. The Treasurer shall be responsible for the
custody of all funds and securities belonging to the Corporation and for the
receipt, deposit or disbursement of such funds and securities under the
direction of the Board of Directors. The Treasurer shall cause full and true
accounts of all receipts and disbursements to be maintained and shall make such
reports of the same to the Board of Directors and President upon request. The
Treasurer shall perform such other duties and have such other powers as the
Board of Directors may determine from time to time. In the absence of a
Treasurer elected by the Board of Directors to serve these purposes, the
Secretary shall fulfill the duties of Treasurer.
Section 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretary and Assistant Treasurer (or if there be more than one of
either such officer, the one so designated by the Board of Directors) shall, in
the absence of disability, or at the direction, of the Secretary or the
Treasurer, respectively, perform the duties and exercise the powers, whether
such duties and powers are specified in these Bylaws or otherwise, of those
offices. Each Assistant Secretary and Assistant Treasurer shall perform such
other duties and have such other powers as the Board of Directors may determine
from time to time, and each Assistant Secretary may affix the corporate seal to
all corporate documents and attest the signature of any officer of the
Corporation.
Section 10. SALARIES. The salaries of all corporate officers and
agents shall be fixed from time to time as may be authorized by the Board of
Directors. No officer shall be prevented from receiving such salary by reason of
being a director.
ARTICLE V
RESIGNATIONS: FILLING OF VACANCIES:
INCREASE OR DECREASE OF DIRECTORS
Section 1. RESIGNATIONS. Any director, member of a committee or
other officer may resign at any time. Such resignations shall be made in writing
and shall take effect at the time specified therein, and, if no time be
specified, at the time of its receipt
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by the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective.
Section 2. FELLING OF VACANCIES. If the office of any director,
member of a committee, or other officer becomes vacant, the remaining directors
in office, though less than a quorum, by a majority vote, may appoint any
qualified person to fill such vacancy, who shall hold office for the unexpired
term and until his successor shall be duly chosen.
Section 3. INCREASE IN NUMBER OF DIRECTORS. The Board of Directors
may elect or appoint any qualified person or persons to the Board if the number
of directors is increased as provided in Section 1 of Article II of these
Bylaws. Any director elected or appointed as provided in this Section 3 shall
hold office until the next meeting of the stockholders called for the purpose of
electing directors and until a successor is elected and qualified.
ARTICLE VI
CAPITAL STOCK
Section 1. CERTIFICATE OF STOCK. Certificates of stock, numbered and
with the seal of the Corporation affixed, signed by the President or Vice
President, and the Treasurer or Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the Corporation. When such
certificates are signed by a transfer agent, or an assistant transfer agent, or
by a transfer clerk acting on behalf of the Corporation and a registrar, the
signatures of such officers may be facsimiles. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent, or registrar at
the date of issue.
Section 2. LOST CERTIFICATES. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss of any such
certificate or the issuance of such new certificate.
Section 3. TRANSFER OF SHARES. Subject to the restrictions contained
in the Certificate of Incorporation, the shares of stock of the Corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or lead representatives, and upon such transfer
the old certificates shall be
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surrendered to the Corporation by the delivery thereof to the person in charge
of the stock and transfer books and ledgers or to such other person as the
directors may designate, by whom they shall be canceled, and new certificates
shall thereupon be issued. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the Corporation shall be made on
the stock ledger of the Corporation by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duty executed and filed with
the Secretary of the Corporation or with a transfer agent or a registrar, if
any, and on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon.
Upon surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, the Corporation shall issue a
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. SETTING OF RECORD DATE. The Board of Directors may fix in
advance a date, not exceeding sixty (60) days nor fewer than ten (10) days
preceding the date of any meeting of stockholders or the date for the payment of
any dividend, or the date for the allotment of rights, or the date when any
change or conversion of or exchange of capital stock shall go into effect, as a
record date for the determination of the stockholders entitled to receive
payment of any such dividends, or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion, or exchange of
capital stock, and in such cases such stockholders only as shall be stockholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting, or to receive payment of such dividends, or to receive such
allotment of rights, or to exercise such rights, as the case may be, not
withstanding any transfer of any stock on the books of the Corporation after any
such record date fixed as aforesaid.
Section 5. DIVIDENDS. Subject to the provisions of the Certificate
of Incorporation, if any, and the laws of the State of Delaware, the directors
may declare dividends upon the capital stock of the Corporation as and when they
deem expedient. Before declaring any dividend there may be set apart out of any
funds of the Corporation available for dividends such sum or sums as the
directors from time to time in their discretion think proper for working capital
or as a reserve fund to meeting contingencies or for equalizing dividends or for
such other purposes as the directors shall think conducive to the interest of
the Corporation.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. CORPORATE SEAL. The corporate sea] shall be circular in
form and shall contain such words as shall be determined by the Board of
Directors. Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall
commence on March 1, and shall end the last day of February of each succeeding
year.
Section 3. PRINCIPAL OFFICE. The principal office of the Corporation
shall be established and maintained at 3501 Jamboree Road, Suite 200, Newport
Beach, California 92660. The Corporation may have branch offices at such place
or places within or without the State of Delaware as the directors shall from
time to time determine.
Section 4. CHECKS, DRAFTS, NOTES. All checks, drafts or other orders
for the payment of money, notes, or other evidences of indebtedness issued in
the name of the Corporation shall be signed by such officer or officers, agent
or agents, of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 5. NOTICE. Whenever any notice is required by these Bylaws
to be given, personal notice is not meant unless expressly so stated; and,
unless otherwise provided in these Bylaws, any notice so required shall be
deemed to be sufficient if given by depositing the same in a post office box in
a sealed post-paid wrapper addressed to the person entitled thereto at his last
known post office address, and such notice shall be deemed to have been given on
the day of such mailing. Stockholders not entitled to vote shall not be entitled
to receive notice of any meeting except as otherwise provided by statute.
Section 6. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of these Bylaws, a waiver thereof in writing, signed
by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice. In addition,
attendance of a person at a meeting of stockholders shall constitute a waiver of
notice of such meeting, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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Section 7. RELATED PARTY TRANSACTIONS. All transactions between the
Corporation and its affiliates must be on terms no less favorable to the
Corporation than terms with unaffiliated parties for similar transactions. All
such transactions that are not in the ordinary course of the Corporation's
business must be approved by a majority of the Corporation's directors not
affiliated with any parent corporation of the Corporation, or any of such parent
corporation's subsidiaries, or employed by the Corporation, and who do not have
a financial interest in the transaction.
ARTICLE VIII
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS. The Corporation shall
indemnify and hold harmless any person (an "Indemnified Person") who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director of the Corporation, or is or was
serving at the request of the Corporation as a director of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Any person (an "Indemnified Person") who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he IS or was a director of the Corporation, or is or was
serving at the request of the Corporation as a director of another corporation,
partnership, joint venture, trust or other enterprise shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity pursuant to the applicable provisions of the Delaware
General Corporation Law.
Section 2. INDEMNIFICATION OF OFFICERS AND OTHERS. The Board of
Directors shall have the power to cause the Corporation to provide to officers,
employees and agents of the Corporation all or any part of the right to
indemnification and other rights of the type provided under Sections 1, 5 and 11
of this Article VIII (subject to
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the conditions, limitations and obligations specified therein), upon a
resolution to that effect identifying such officers, employees or agents (by
position or name) and specifying the particular rights provided, which may be
different for each of the officers, employees and agents identified. Each
officer, employee or agent of the Corporation so identified shall be an
"Indemnified Person" for purposes of the provisions of this Article VIII.
In the event a director of the Corporation is also an officer of the
Corporation and/or a Subsidiary (as defined below), such director shall have the
night to indemnification and other rights of the type provided under Sections 1,
5 and 11 of this Article VIII (subject to the conditions, limitations and
obligations specified herein and therein) with regard to amounts actually and
reasonably incurred by such person by reason of the fact that he is or was an
officer of the Corporation and/or the Subsidiary, and such person shall be
deemed to be an "Indemnified Person" for purposes of this Article VIII.
Section 3. SUBSIDIARIES. The Board of Directors shall have the power
to cause the Corporation to provide to any director, officer, employee or agent
of this Corporation who also is a director, officer, trustee, general partner,
employee or agent of a Subsidiary (as defined below), all or any part of the
right to indemnification and other rights of the type provided under Sections 1,
5 and 11 of this Article VIII (subject to the conditions, limitations and
obligations specified therein), with regard to amounts actually and reasonably
incurred by such person by reason of the fact that he is or was a director,
officer, trustee, general partner, employee or agent of the Subsidiary. The
Board of Directors shall exercise such power, if at all, through a resolution
identifying the person or persons to be indemnified (by position or name) and
the Subsidiary (by name or other classification), and specifying the particular
rights provided, which may be different for each of the directors, officers,
employees and agents identified. Each person so identified shall be an
"Indemnified Person" for purposes of the provisions of this Article VIII. As
used in this Article VIII, "Subsidiary" shall mean (i) another corporation,
joint venture, trust, partnership or unincorporated business association more
than twenty percent (20%) of the voting capital stock or other voting equity
interest of which was, at or after the time the circumstances giving rise to
such action, suit or proceeding arose, owned, directly or indirectly, by the
Corporation, or (ii) a nonprofit corporation which receives its principal
financial support from the Corporation or its subsidiaries.
Section 4. DETERMINATION. Notwithstanding any judgment, order,
settlement, conviction or plea in any action, suit or proceeding of the kind
referred to in Section 1 of this Article VIII, an Indemnified Person shall be
entitled to indemnification as provided in such Section 1 unless a determination
that such Indemnified Person is not entitled to such indemnification (because of
the conditions and limitations imposed in Section 1) shall be made (i) by the
Board of Directors by a majority vote or consent of a quorum consisting of
directors who are not seeking the benefits of such indemnification; or (ii) if
such quorum is not obtainable, or even if obtainable if a quorum of such
disinterested directors so directs, in a written opinion by independent legal
counsel (which counsel may be the outside legal counsel regularly employed or
retained by the Corporation); or (iii) if a
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quorum cannot be obtained under (i) above and in the absence of a written
opinion by independent legal counsel, by majority vote or consent of a committee
duly designated by the Board of Directors (in which designation interested
directors may participate), consisting solely of one or more directors who are
not seeking the benefit of such indemnification. Provided, however, that
notwithstanding any determination pursuant to the preceding sentence, if such
determination shall have been made at a time that the members of the Board of
Directors, so serving when the events upon which such Indemnified Person's
liability has been based occurred, no longer constitute a majority of the
members of the Board of Directors, then such Indemnified Person shall
nonetheless be entitled to indemnification as set forth in such Section 1 unless
the Company shall carry the burden of proving, in an action before any court of
competent jurisdiction, that such Indemnified Person is not entitled to
indemnification because of the conditions and limitations imposed in Section 1.
Section 5. ADVANCES. Expenses (including, but not limited to,
attorneys' fees and disbursements, court costs, and expert witness fees)
incurred by the Indemnified Person in defending any action, suit or proceeding
of the kind described in Section 1 hereof shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as set forth
herein. The Corporation shall promptly pay the amount of such expenses to the
Indemnified Person, but in no event later than ten (10) days following the
Indemnified Person's delivery to the Corporation of a written request for an
advance pursuant to this Section 5, together with a reasonable accounting of
such expenses, provided, that the Indemnified Person shall undertake and agree
to repay to the Corporation any advances made pursuant to this Section 5 if it
shall be determined pursuant to Section 4 that the Indemnified Person is not
entitled to be indemnified by the Corporation for such amounts. The Corporation
shall make the advances contemplated by this Section 5 regardless of the
Indemnified Person's financial ability to make repayment. Any advances and
undertakings to repay pursuant to this Section 5 shall be unsecured and
interest-free.
Section 6. NON-EXCLUSIVITY; CONTINUING BENEFITS. The indemnification
provided by this Article VIII shall not be deemed exclusive of any other rights
to which a person seeking indemnification may be entitled under any provision of
the Certificate of Incorporation, or any Bylaw, agreement, vote of the
Corporation's stockholders or disinterested directors or otherwise, both as to
actions in his official capacity and as to actions in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent of the Corporation, as the case may be, and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 7. INSURANCE. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, trustee, general partner,
employee or agent of another corporation, nonprofit corporation, joint venture,
trust, partnership, unincorporated
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business association or other enterprise, against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article VIII.
Section 8. SECURITY. The Corporation may designate certain of its
assets as collateral, provide self-insurance or otherwise secure its obligations
under this Article VIII, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this Article VIII, as the Board of Directors deem appropriate.
Section 9. AMENDMENT. Any amendment to this Article VIII which
limits or otherwise adversely affects the right of indemnification or other
rights of any Indemnified Person hereunder shall, as to such Indemnified Person,
apply only to claims, actions, suits or proceedings based on actions, events or
omissions (collectively, "Post Amendment Events") occurring after such amendment
and after delivery of notice of such amendment to the Indemnified Person so
affected. Any Indemnified Person shall, as to any claim, action, suit or
proceeding based on actions, events or omissions occurring prior to the date of
receipt of such notice, be entitled to the right of indemnification and other
rights under this Article VIII to the same extent as had such provisions
continued as part of the Bylaws of the Corporation without such amendment. This
Section 9 cannot be altered, amended or repealed in a manner effective as to any
Indemnified Person (except as to Post Amendment Events) without the prior
written consent of such Indemnified Person.
Section 10. AGREEMENTS. The provisions of this Article VIII shall be
deemed to constitute an agreement between the Corporation and each person
entitled to indemnification hereunder. In addition to the rights provided in
this Article VIII, the Corporation shall have the power, upon authorization by
the Board of Directors, to enter into an agreement or agreements providing to
any person who is or was a director, officer, employee or agent of the
Corporation indemnification rights substantially similar to those provided in
this Article VIII.
Section 11. SUCCESSORS. For purposes of this Article VIII, the terms
"the Corporation" or "this Corporation" shall include any corporation, joint
venture, trust, partnership or unincorporated business association which is the
successor to all or substantially all of the business or assets of this
Corporation, as a result of merger, consolidation, sale, liquidation or
otherwise, and any such successor shall be liable to the persons indemnified
under this Article VIII on the same terms and conditions and to the same extent
as this Corporation.
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Section 12. ADDITIONAL INDEMNIFICATION. In addition to the specific
indemnification rights set forth herein, the Corporation shall indemnify each of
its directors and officers to the full extent permitted by action of the Board
of Directors without stockholder approval under the Delaware General Corporation
Law or other laws of the State of Delaware as in effect from time to time.
ARTICLE IX
AMENDMENTS
Section 1. POWER TO AMEND BYLAWS. These Bylaws may be altered,
amended or repealed from time to time, and new Bylaws may be made and adopted by
action of the stockholders or by action of the Board of Directors, at any
regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors (if notice of
such alteration, amendment, repeal or adoption of new Bylaws be contained in the
notice of such special meeting).
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EXHIBIT 10.5
================================================================================
CAPITAL PACIFIC HOLDINGS, INC.,
as Issuer
CAPITAL PACIFIC HOMES, INC.,
J.M. PETERS NEVADA, INC.,
and PETERS RANCHLAND, INC.,
as Guarantors
and
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
================================================================================
Second Supplemental Indenture
Dated as of September 10, 1997
to
Indenture
Dated as of May 13, 1994
================================================================================
<PAGE> 2
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of September 10, 1997 among
CAPITAL PACIFIC HOLDINGS, INC. (formerly known as J.M. Peters Company, Inc.), a
Delaware corporation (the "Company"), CAPITAL PACIFIC HOMES, INC. (formerly
known as Durable Homes, Inc.), a Nevada corporation, J.M. PETERS NEVADA, INC.,
a Delaware corporation, and PETERS RANCHLAND, INC., a Delaware corporation, as
Guarantors (each a "Guarantor" and, collectively, the "Guarantors") and UNITED
STATES TRUST COMPANY OF NEW YORK, a New York banking corporation, as Trustee
under the Indenture dated as of May 13, 1994 (the "Indenture").
WHEREAS, Section 9.01(8) of the Indenture provides that the Company when
authorized by a resolution of its Board of Directors, each Guarantor, when
authorized by a resolution of its board of directors or any committee of such
board of directors duly authorized to act under the Indenture, and the Trustee
may amend or supplement the Indenture without notice to or the consent of any
Holder if the change does not materially adversely affect the rights of any
Holder; and
WHEREAS, the Company has determined to amend Section 5.01(i) of the
Indenture to provide that a successor to the Company may be a partnership, a
limited liability company, an association, a trust, or any other entity
organized and validly existing under the laws of the United States of America;
and
WHEREAS, all things necessary to make this Second Supplemental Indenture a
valid, binding and legal instrument supplemental to the Indenture have been
performed.
NOW, THEREFORE, THIS INDENTURE WITNESSETH: that in order to amend the
Indenture and in consideration of the premises, and in consideration of the sum
of One Dollar by the Trustee to the Company paid, receipt whereof is hereby
acknowledged, the Company hereby agrees and provides, for the equal and
proportionate benefit of the respective Holders, as follows:
ARTICLE ONE
AMENDMENT TO INDENTURE
SECTION 1. Pursuant to Section 9.01(8) of the Indenture, the Company
hereby amends Section 5.01(i) of the Indenture by amending said Section 5.01(i)
to read in its entirety as follows:
Section 5.01(i). "The Company or such Guarantor, as the case may be, shall
be the continuing Person, or the Person (if other than the Company or such
Guarantor, as the
<PAGE> 3
case may be) formed by such consolidation or into which the Company or such
Guarantor, as the case may be, is merged or that acquired or leased such
property and assets of the Company or such Guarantor, as the case may be,
shall be a corporation, a partnership, a limited liability company, an
association, a trust or any other organization or entity organized and
validly existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture in form reasonably suitable to the Trustee, executed
and delivered to the Trustee, all of the obligations of the Company or such
Guarantor, as the case may be, on all of the Securities or such Guarantor's
Subsidiary Guarantee, as the case may be, under this Indenture;"
ARTICLE TWO
MISCELLANEOUS PROVISIONS
SECTION 2. Subject to the amendments provided for in this Second
Supplemental Indenture, the capitalized terms used herein and defined in the
Indenture shall, for all purposes of this Second Supplemental Indenture, have
the meanings specified in the Indenture.
SECTION 3. The recitals of fact contained in this Second Supplemental
Indenture shall be taken as the statements of the Company and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity of this Second Supplemental Indenture.
SECTION 4. The titles of the several Articles of this Second Supplemental
Indenture shall not be deemed to be any part hereof.
SECTION 5. This Second Supplemental Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture be duly executed, all as of the date first written
above.
CAPITAL PACIFIC HOLDINGS, INC.,
as Issuer
By: /s/ HADI MAKARECHIAN
-----------------------------
Name: Hadi Makarechian
Title: Chairman of the Board
Attest: /s/ DALE DOWERS
------------------------------
Name: Dale Dowers
Title: Chief Executive Officer
-2-
<PAGE> 4
CAPITAL PACIFIC HOMES, INC.,
as Guarantor
By: /s/ HADI MAKARECHIAN
-----------------------------
Name: Hadi Makarechian
Title: Chairman of the Board
Attest: /s/ DALE DOWERS
---------------------------------
Name: Dale Dowers
Title: Vice Chairman of the Board
PETERS RANCHLAND, INC.,
as Guarantor
By: /s/ HADI MAKARECHIAN
-----------------------------
Name: Hadi Makarechian
Title: Chairman of the Board
Attest: /s/ DALE DOWERS
---------------------------------
Name: Dale Dowers
Title: Chief Executive Officer
J.M. PETERS NEVADA, INC.,
as Guarantor
By: /s/ HADI MAKARECHIAN
-----------------------------
Name: Hadi Makarechian
Title: Chairman of the Board
Attest: /s/ DALE DOWERS
---------------------------------
Name: Dale Dowers
Title: Vice Chairman of the Board
UNITED STATES TRUST COMPANY
OF NEW YORK,
as Trustee
By: /s/ MARGARET M. CIESMELEWSKI
------------------------------
Name: Margaret W. Ciesmelewski
Title: Assistant Vice President
Attest: /s/ ROBERT F. LEE
------------------------------
Name: Robert F. Lee
Title: Assistant Secretary
-3-
<PAGE> 1
EXHIBIT 10.6
================================================================================
CAPITAL PACIFIC HOLDINGS, INC.,
AS ISSUER
CAPITAL PACIFIC HOMES, INC.,
J.M. PETERS NEVADA, INC.,
AND PETERS RANCHLAND, INC.,
AS GUARANTORS,
CAPITAL PACIFIC HOLDINGS, LLC,
AND
UNITED STATES TRUST COMPANY OF NEW YORK,
AS TRUSTEE
- --------------------------------------------------------------------------------
THIRD SUPPLEMENTAL INDENTURE
DATED AS OF OCTOBER 1, 1997
TO
INDENTURE
DATED AS OF MAY 13, 1994
AS AMENDED
================================================================================
<PAGE> 2
THIS THIRD SUPPLEMENTAL INDENTURE, dated as of October 1, 1997 among
CAPITAL PACIFIC HOLDINGS, INC. (formerly known as J. M. Peters Company, Inc.), a
Delaware corporation (the "Company"), CAPITAL PACIFIC HOMES, INC. (formerly
known as Durable Homes, Inc.), a Nevada corporation, J.M. PETERS NEVADA, INC., a
Delaware corporation, and PETERS RANCHLAND, INC., a Delaware corporation, as
Guarantors (each a "Guarantor" and, collectively, the "Guarantors"), CAPITAL
PACIFIC HOLDINGS, LLC, a newly organized limited liability company validly
existing under the laws of Delaware (the "New LLC") and UNITED STATES TRUST
COMPANY OF NEW YORK, a' New York banking corporation, as Trustee under the
Indenture dated as of May 13, 1994 as amended (the "Indenture").
WHEREAS, Section 9.01(2) of the Indenture provides that the Company when
authorized by a resolution of its Board of Directors, each Guarantor, when
authorized by a resolution of its board of directors or any committee of such
board of directors duly authorized to act under the Indenture, and the Trustee
may amend or supplement the Indenture without notice to or the consent of any
Holder to comply with the provisions of Article Five thereof; and
WHEREAS, the Company, the Guarantors and certain other parties have
entered into an Investment and Stockholders Agreement dated as of September 29,
1997, pursuant to which, among other things, the Company and the Guarantors will
transfer substantially all of their respective property and assets to the New
LLC; and
WHEREAS, under the provisions of Section 5.01 of the Indenture, such a
transfer of property and assets is permitted if the acquiror of such property
and assets is a limited liability company duly organized under the laws of
Delaware and expressly assumes by a supplemental indenture all of the
obligations of the Company and the Guarantors on all of the Securities and the
Subsidiary Guarantees (as defined in the Indenture); and
WHEREAS, in compliance with Section 5.01 of the Indenture, the New LLC is
willing to assume pursuant to this Third Supplemental Indenture all such
obligations of the Company and the Guarantors on all of the Securities and the
Subsidiary Guarantees (as defined in the Indenture); and
WHEREAS, all things necessary to make this Third Supplemental Indenture a
valid, binding and legal instrument supplemental to the Indenture have been
performed.
NOW, THEREFORE, THIS INDENTURE WITNESSETH: that in order to amend the
Indenture and in consideration of the premises, and in consideration of the sum
of One Dollar by the Trustee to the Company paid, receipt whereof is hereby
acknowledged, the New LLC, the Company and the Guarantors hereby agree and
provide, for the equal and proportionate benefit of the respective Holders, as
follows:
<PAGE> 3
ARTICLE ONE
AMENDMENT TO INDENTURE
SECTION 1.01 Assumption. Pursuant to Section 5.01(i) of the Indenture,
the New LLC hereby expressly assumes all of the obligations of the Company and
the Guarantors on all of the Securities and all of the Subsidiary Guarantees (as
defined in the Indenture) under the Indenture, as amended.
SECTION 1.02 Substitution. Pursuant to Section 5.02 of the Indenture, the
New LLC hereby succeeds to and is substituted for and may henceforth exercise
every right and power of the Company under the Indenture.
ARTICLE TWO
MISCELLANEOUS PROVISIONS
SECTION 2.01 Certain Terms. Subject to the amendments provided for in this
Third Supplemental Indenture, the capitalized terms used herein and defined in
the Indenture shall, for all purposes of this Third Supplemental Indenture, have
the meanings specified in the Indenture.
SECTION 2.02 Recitals. The recitals of fact contained in this Third
Supplemental Indenture shall be taken as the statements of the Company and the
Trustee assumes no responsibility for the correctness of the same. The Trustee
makes no representations as to the validity of this Third Supplemental
Indenture.
SECTION 2.03 Titles. The titles of the several Articles of this Third
Supplemental Indenture shall not be deemed to be any part hereof.
SECTION 2.04 Counterparts. This Third Supplemental Indenture may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
[SIGNATURES ON FOLLOWING PAGES]
- 2 -
<PAGE> 4
SIGNATURES TO THE THIRD SUPPLEMENTAL INDENTURE
IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental
Indenture be duly executed, all as of the date first written above.
CAPITAL PACIFIC HOLDINGS, INC.,
as Issuer
By: /s/ HADI MAKARECHIAN
----------------------------
Name: Hadi Makarechian
Title: Chairman
Attest: /s/ [SIG]
-------------------------
Name:
Title: Vice President
CAPITAL PACIFIC HOMES, INC.,
as Guarantor
By: /s/ HADI MAKARECHIAN
----------------------------
Name: Hadi Makarechian
Title: Chairman
Attest: /s/ [SIG]
-------------------------
Name:
Title: Vice President
PETERS RANCHLAND, INC.,
as Guarantor
By: /s/ HADI MAKARECHIAN
----------------------------
Name: Hadi Makarechian
Title: Chairman
Attest: /s/ [SIG]
-------------------------
Name:
Title: Vice President
J.M. PETERS NEVADA, INC.,
as Guarantor
By: /s/ HADI MAKARECHIAN
----------------------------
Name: Hadi Makarechian
Title: Chairman
Attest: /s/ [SIG]
-------------------------
Name:
Title: Vice President
-3-
<PAGE> 5
CAPITAL PACIFIC HOLDINGS, L.L.C.
By: CAPITAL PACIFIC HOLDINGS,
INC., Managing Member
By: /s/ HADI MAKARECHIAN
----------------------------------
Name: Hadi Makarechian
Title: Chairman
Attest: /s/ [SIG]
-------------------------------
Name:
Title: Vice President
UNITED STATES TRUST
COMPANY OF NEW YORK
as Trustee
By: /s/ [SIG]
-------------------------------
Name: Margaret M.
Title: Assistant Vice President
Attest: /s/ CHRISTINE C. COLLINS
-------------------------------
Name: Christine C. Collins
Title: Assistant Vice President
-4-
<PAGE> 6
OFFICER'S CERTIFICATE
Pursuant to Sections 5.01, 9.01(2), 11.03(i) and 11.04 of the Indenture
dated as of May 13, 1994 (the "Indenture") among Capital Pacific Holdings, Inc.
(the "Company"), Capital Pacific Homes, Inc., J.M. Peters Nevada, Inc., Peters
Ranchland, Inc. (collectively, the "Guarantors") and United States Trust Company
of New York (the "Trustee"), the undersigned officers of the Company do hereby
certify, on behalf of the Company and in connection with the Third Supplemental
Indenture of even date herewith (the "Supplemental Indenture") among such
parties and Capital Pacific Holdings, LLC (the "New LLC"), to the Trustee that:
(i) attached hereto as Exhibit A is a true, correct and complete copy
of the resolutions duly adopted by the Boards of Directors of the Company and
each of the Guarantors authorizing the execution, delivery and performance of
the Supplemental Indenture, which resolutions have not been amended, modified,
rescinded or revoked and are in full force and effect on the date hereof;
(ii) the undersigned have examined a copy of the Indenture, the
Supplemental Indenture, the Investment and Stockholder Agreement dated September
29, 1997 (the "Investment Agreement") and the resolutions attached hereto;
(iii) the undersigned have made such examination as is necessary for the
undersigned to express the opinions set forth herein;
(iv) the undersigned have read the conditions precedent provided for in
the Indenture relating to the execution of the Supplemental Indenture by the
Trustee and such conditions precedent have been complied with;
(v) immediately after giving effect to the transactions (the
"Transactions") contemplated by the Investment Agreement, no Default or Event of
Default (as such terms are defined in the Indenture) shall have occurred or be
continuing;
(vi) immediately after giving effect to the Transactions on a pro forma
basis, the New LLC shall have a Consolidated Tangible Net Worth (as such term is
defined in the Indenture) equal to or greater than the Consolidated Tangible Net
Worth of the Company immediately prior to such transaction;
(vii) immediately after giving effect to the Transactions on a pro forma
basis, the New LLC would be able to incur at least $1.00 of additional
Indebtedness (as such term is defined in the Indenture) pursuant to the first
paragraph of Section 4.03 of the Indenture;
(viii) attached hereto as Exhibit B is the arithmetic computations
demonstrating compliance with Sections 5.01(iii) and (iv) of the Indenture; and
(ix) pursuant to the Investment Agreement upon consummation of the
Transactions, the New LLC shall acquire substantially all of the property and
assets of the Company and the Guarantors (as an entirety or substantially as an
entirety); the New LLC is a limited liability company organized and validly
existing under the laws of the State of Delaware; by the Supplemental Indenture,
the New LLC expressly assumes all of the obligations of the Company and the
Guarantors on all of the Securities and the Subsidiary Guarantees (as such terms
are defined in the Indenture) under the Indenture.
<PAGE> 7
IN WITNESS WHEREOF, the undersigned have duly executed this Certificate
this 1st day of October, 1997.
/s/ HADI MAKARECHIAN
------------------------------------
Name: Hadi Makarechian
Title: Chairman of the Board
Capital Pacific Holdings, Inc.
/s/ DALE DOWERS
------------------------------------
Name: Dale Dowers
Title: Chief Executive Officer & President
Capital Pacific Holdings, Inc.
Page - 2 -
<PAGE> 8
EXHIBIT A
AUTHORIZING RESOLUTIONS OF
THE COMPANY AND EACH GUARANTOR
<PAGE> 9
ACTION BY UNANIMOUS WRITTEN CONSENT OF THE
BOARD OF DIRECTORS OF
CAPITAL PACIFIC HOLDINGS, INC.
The undersigned, being all of the duly elected and acting members of the
board of directors of Capital Pacific Holdings, Inc., a Delaware corporation
(the "Corporation"), in accordance with the authority contained in Section
141(f) of the Delaware General Corporation Law, do hereby consent to, adopt and
approve the following resolutions without a meeting with the intention that
such actions will have the same force and effect as if taken by a vote of the
directors at a meeting duly called and held:
APPROVAL OF THIRD SUPPLEMENTAL INDENTURE
WHEREAS, the Corporation has entered into that certain indenture (the
"Indenture") by and among Capital Pacific Homes, Inc., J.M. Peters Nevada, Inc.
and Peters Ranchland, Inc. (collectively, the "Guarantors"), the Corporation,
as Issuer, and United States Trust Company of New York, as trustee (the
"Trustee"), dated as of May 13, 1994, as amended (the "Indenture"); and
WHEREAS, the board of directors has been presented with an amendment to
the Indenture in the form of a Third Supplemental Indenture (the "Supplement"),
a draft of which has been filed with this covenant as Exhibit A and is attached
hereto and made a part hereof
NOW THEREFORE, BE IT RESOLVED, that the form, terms and provisions of the
Supplement, to be entered into among the Guarantors, the Issuer and the Trustee
be, and they hereby are, in all respects, authorized and approved; and
RESOLVED, FURTHER, that any officer of the Corporation be, and each of
them hereby is, authorized in the name of the corporation and on its behalf, to
execute and deliver the Supplement and any and all other documents or
agreements ancillary thereto with such changes thereto as shall be governed by
the officer or officers executing the same, such approval to be conclusively
evidenced by his or their execution thereof.
RATIFICATION OF PRIOR ACTS
RESOLVED, that any and all actions heretofore taken by any officer or
director of the Corporation in connection with any and all actions authorized in
the foregoing resolutions be, and they hereby are, in all respects, ratified,
affirmed and approved.
GENERAL AUTHORIZATION
RESOLVED, that any officer of the Corporation be, and each of them hereby
is, authorized, empowered and directed to take all such further action and to
execute, deliver and perform all such further agreements, documents,
certificates and other instruments in the name
<PAGE> 10
and on behalf of the Corporation, take all action as they deem necessary or
advisable in order to fully carry out and perform any and all matters
authorized in the foregoing resolutions, and such execution, delivery and
performance of such agreements, documents, certificates and other instruments
and such other actions shall be deemed to be, and hereby are, adopted and
ratified by this action of the board of directors.
This Action by Unanimous Written Consent may be executed in multiple
counterparts, each of which shall be an original, but all of which, taken
together, shall constitute one and the same document.
IN WITNESS WHEREOF, the undersigned have caused this action to be
effective as of this 1st day of October, 1997.
/s/ HADI MAKARECHIAN
------------------------------------
Hadi Makarechian
/s/ DALE DOWERS
------------------------------------
Dale Dowers
/s/ WILLIAM A. FUNK
------------------------------------
William A. Funk
/s/ ALLAN ACREE
------------------------------------
Allan Acree
/s/ KARL KAISER
------------------------------------
Karl Kaiser
-2-
<PAGE> 11
ACTION BY UNANIMOUS WRITTEN CONSENT OF THE
BOARD OF DIRECTORS OF
CAPITAL PACIFIC HOMES, INC.
The undersigned, being all of the duly elected and acting members of the
board of directors of Capital Pacific Homes, Inc., a Nevada corporation (the
"Corporation"), do hereby consent to, adopt and approve the following
resolutions without a meeting with the intention that such actions will have
the same force and effect as if taken by a vote of the directors at a meeting
duly called and held:
APPROVAL OF THIRD SUPPLEMENTAL INDENTURE
WHEREAS, the Corporation has entered into that certain indenture (the
"Indenture") by and among Capital Pacific Holdings, Inc. (the "Issuer"), the
Corporation, Peters Ranchland, Inc., and J.M. Peters Nevada, Inc.
(collectively, the "Guarantors"), and United States Trust Company of New York,
as trustee (the "Trustee"), dated as of May 13, 1994, as amended (the
"Indenture"); and
WHEREAS, the board of directors has been presented with an amendment to
the Indenture in the form of a Third Supplemental Indenture (the "Supplement"),
a draft of which has been filed with this consent as Exhibit A and is attached
hereto and made a part hereof.
NOW THEREFORE, BE IT RESOLVED, that the form, terms and provisions of the
Supplement, to be entered into among the Guarantors, the Issuer and the Trustee
be, and they hereby are, in all respects, authorized and approved; and
RESOLVED, FURTHER, that any officer of the Corporation be, and each of them
hereby is, authorized in the name of the Corporation and on its behalf, to
execute and deliver the Supplement and any and all other documents or
agreements ancillary thereto with such changes thereto as shall be approved by
the officer or officers executing the same, such approval to be conclusively
evidenced by his or their execution thereof.
RATIFICATION OF PRIOR ACTS
RESOLVED, that any and all actions heretofore taken by any officer or
director of the Corporation in connection with any and all actions authorized
in the foregoing resolutions be, and they hereby are, in all respects, ratified
affirmed and approved.
GENERAL AUTHORIZATION
RESOLVED, that any officer of the Corporation be, and each of them hereby
is, authorized, empowered and directed to take all such further action and to
execute, deliver and perform all such further agreements, documents,
certificates and other instruments in the name and on behalf of the
Corporation, take all action as they deem necessary or advisable in order to
fully carry out and perform any and all matters authorized in the foregoing
resolutions, and
<PAGE> 12
such execution, delivery and performance of such agreements, documents,
certificates and other instruments and such other actions shall be deemed to
be, and hereby are, adopted and ratified by this action of the board of
directors.
This Action by Unanimous Written Consent may be executed in multiple
counterparts, each of which shall be an original, but all of which, taken
together, shall constitute one and the same document.
IN WITNESS WHEREOF, the undersigned have caused this action to be
effective as of this 1st day of October, 1997.
/s/ HADI MAKARECHIAN
-------------------------------------
Hadi Makarechian
/s/ DALE DOWERS
-------------------------------------
Dale Dowers
/s/ MARQUIS L. CUMMINGS
-------------------------------------
Marquis L. Cummings
/s/ SCOTT COLER
-------------------------------------
Scott Coler
/s/ JAMES A. ROHRIG
-------------------------------------
James A. Rohrig
<PAGE> 13
ACTION BY UNANIMOUS WRITTEN CONSENT OF THE
BOARD OF DIRECTORS OF
J.M. PETERS NEVADA, INC.
The undersigned, being all of the duly elected and acting members of the
board of directors of J.M. Peters Nevada, Inc., a Delaware corporation (the
"Corporation"), in accordance with the authority contained in Section 141(f) of
the Delaware General Corporation Law, do hereby consent to, adopt and approve
the following resolutions without a meeting with the intention that such
actions will have the same force and effect as if taken by a vote of the
directors at a meeting duly called and held:
APPROVAL OF THIRD SUPPLEMENTAL INDENTURE
WHEREAS, the Corporation has entered into that certain indenture (the
"Indenture") by and among Capital Pacific Holdings, Inc. (the "Issuer"), the
Corporation, Capital Pacific Homes, Inc. and Peters Ranchland, Inc.
(collectively, the "Guarantors"), and United States Trust Company of New York,
as trustee (the "Trustee"), dated as of May 13, 1994, as amended (the
"Indenture"); and
WHEREAS, the board of directors has been presented with an amendment to
the Indenture in the form of a Third Supplemental Indenture (the "Supplement"),
a draft of which has been filed with this consent as Exhibit A and is attached
hereto and made a part hereof.
NOW THEREFORE, BE IT RESOLVED, that the form, terms and provisions of the
Supplement, to be entered into among the Guarantors, the Issuer and the Trustee
be, and they hereby are, in all respects, authorized and approved; and
RESOLVED, FURTHER, that any officer of the Corporation be, and each of
them hereby is, authorized in the name of the Corporation and on its behalf, to
execute and deliver the Supplement and any and all other documents or
agreements ancillary thereto with such changes thereto as shall be approved by
the officer or officers executing the same, such approval to be conclusively
evidenced by his or their execution thereof.
RATIFICATION OF PRIOR ACTS
RESOLVED, that any and all actions heretofore taken by any officer or
director of the Corporation in connection with any and all actions authorized
in the foregoing resolutions be, and they hereby are, in all respects,
ratified, affirmed and approved.
GENERAL AUTHORIZATION
RESOLVED, that any officer of the Corporation be, and each of them hereby
is, authorized, empowered and directed to take all such further action and to
execute, deliver and perform all such further agreements, documents,
certificates and other instruments in the name
<PAGE> 14
and on behalf of the Corporation, take all action as they deem necessary or
advisable in order to fully carry out and perform any and all matters authorized
in the foregoing resolutions, and such execution, delivery and performance of
such agreements, documents, certificates and other instruments and such other
actions shall be deemed to be, and hereby are, adopted and ratified by this
action of the board of directors.
This Action by Unanimous Written Consent may be executed in multiple
counterparts, each of which shall be an original, but all of which, taken
together, shall constitute one and the same document.
IN WITNESS WHEREOF, the undersigned have caused this action to be
effective as of this 1st day of October, 1997.
/s/ HADI MAKARECHIAN
------------------------------------
Hadi Makarechian
/s/ DALE DOWERS
------------------------------------
Dale Dowers
/s/ MARQUIS L. CUMMINGS
------------------------------------
Marquis L. Cummings
/s/ SCOTT COLER
------------------------------------
Scott Coler
/s/ JAMES A. ROHRIG
------------------------------------
James A. Rohrig
-2-
<PAGE> 15
ACTION BY UNANIMOUS WRITTEN CONSENT OF THE
BOARD OF DIRECTORS OF
PETERS RANCHLAND, INC.
The undersigned, being all of the duly elected and acting members of the
board of directors of Peters Ranchland, Inc., a Delaware corporation (the
"Corporation"), in accordance with the authority contained in Section 141(f) of
the Delaware General Corporation Law, do hereby consent to, adopt and approve
the following resolutions without a meeting with the intention that such
actions will have the same force and effect as if taken by a vote of the
directors at a meeting duly called and held:
APPROVAL OF THIRD SUPPLEMENTAL INDENTURE
WHEREAS, the Corporation has entered into that certain indenture (the
"Indenture") by and among Capital Pacific Holdings, Inc. (the "Issuer"), the
Corporation, Capital Pacific Homes, Inc., and J.M. Peters Nevada, Inc.
(collectively, the "Guarantors"), and United States Trust Company of New York,
as trustee (the "Trustee"), dated as of May 13, 1994, as amended (the
"Indenture"); and
WHEREAS, the board of directors has been presented with an amendment to
the Indenture in the form of a Third Supplemental Indenture (the "Supplement"),
a draft of which has been filed with this consent as Exhibit A and is attached
hereto and made a part hereof.
NOW THEREFORE, BE IT RESOLVED, that the form, terms and provisions of the
Supplement, to be entered into among the Guarantors, the Issuer and the Trustee
be, and they hereby are, in all respects, authorized and approved; and
RESOLVED, FURTHER, that any officer of the Corporation be, and each of
them hereby is, authorized in the name of the Corporation and on its behalf, to
execute and deliver the Supplement and any and all other documents or
agreements ancillary thereto with such changes thereto as shall be approved by
the officer or officers executing the same, such approval to be conclusively
evidenced by his or their execution thereof.
RATIFICATION OF PRIOR ACTS
RESOLVED, that any and all actions heretofore taken by any officer or
director of the Corporation in connection with any and all actions authorized
in the foregoing resolutions be, and they hereby are, in all respects, ratified
affirmed and approved.
GENERAL AUTHORIZATION
RESOLVED, that any officer of the corporation be and each of them hereby
is, authorized, empowered and directed to take all such further action and to
execute, deliver and perform all such further agreements, documents,
certificates and other instruments in the name
<PAGE> 16
and on behalf of the Corporation, take all action as they deem necessary or
advisable in order to fully carry out and perform any and all matters
authorized in the foregoing resolutions, and such execution, delivery and
performance of such agreements, documents, certificates and other instruments
and such other actions shall be deemed to be, and hereby are, adopted and
ratified by this action of the board of directors.
This Action by Unanimous Written Consent may be executed in multiple
counterparts, each of which shall be an original, but all of which, taken
together, shall constitute one and the same document.
IN WITNESS WHEREOF, the undersigned have caused this action to be
effective as of this 1st day of October, 1997.
/s/ HADI MAKARECHIAN
-------------------------------
Hadi Makarechian
/s/ DALE DOWERS
-------------------------------
Dale Dowers
/s/ MARQUIS L. CUMMINGS
-------------------------------
Marquis L. Cummings
/s/ ROBIN KOENEMANN
-------------------------------
Robin Koenemann
-2-
<PAGE> 17
EXHIBIT B
ARITHMETIC COMPUTATIONS DEMONSTRATING
COMPLIANCE WITH SECTIONS 5.01(iii) AND (iv) OF THE INDENTURE
<PAGE> 18
Exhibit B to the Officer's Certificate
(a) 5.01 (iii) Test 30-Sep-97
- --------------------------------------------------------------------------------
Pre-Transaction
Consolidated Tangible Net Worth
Net Worth @ 8/31/97 69,353,000
"Minus" Intangible Assets 5,341,938
------------------------------------------------------------
Consolidated Tangible Net Worth 74,694,938
Post-Transaction
Consolidated Tangible Net Worth
Adjusted Net Worth @ 8/31/97 91,363,000 Note (A)
"Minus" Intangible Assets 5,341,936
------------------------------------------------------------
Adjusted Consolidated Tangible Net Worth 96,694,938
96,694,938 is greater than 74,694,938
- --------------------------------------------------------------------------------
(b) 5.01 (iv) Test (4.03)
- --------------------------------------------------------------------------------
(I) Consolidated Interest Coverage Ratio > 2.0 to 1
Adjusted Consolidated Net Income 3,614
"Plus" Consolidated Interest Expense 4,796
"Plus" Income Tax Expense 1,229
"Plus" Depreciation and Amortization 2,051
-----------------------------------------------------------------
Consolidated EBITDA 11,690
Cash Interest Expense 30
"Plus" Capitalized Interest Expense 21,320
"Minus" Interest Amortized in Cost of Sales (16,554)
-----------------------------------------------------------------
Consolidated Interest Incurred 4,796
Consolidated EBITDA 11,690
"Divided by" Consolidated Interest incurred 4,796
-----------------------------------------------------------------
Consolidated Interest Coverage Ratio 2.44 to 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(II) Ratio of Indebtedness to Consolidated Tangible Net Worth < 2.5 to 1
Indebtedness of the Company and Restricted Subsidiaries
Bank One 36,641,686
Amresco 15,309,528
NationsBank 7,011,642
1st American Bank 591,722
Independent Landing Corp 5,615,029
Howard Hughes Properties 1,770,027
Bond Debt 100,000,000
-----------------------------------------------------------------
Indebtedness of the Company and Restricted
Subsidiaries 166,939,934
Consolidated Tangible Net Worth
Adjusted Net Worth @ 8/31/97 91,353,000 Note (A)
"Minus" Intangible Assets (5,341,938)
-----------------------------------------------------------------
Consolidated Tangible Net Worth 86,011,062
Total Indebtedness 166,939,934
"Divided by" Consolidated Tangible Net Worth 86,011,062
-----------------------------------------------------------------
Indebtedness to Consolidated Tangible Net Worth Ratio 1.94 to 1
- --------------------------------------------------------------------------------
Note (A): Equity Pro-Forma Pro-Forma
31-Aug-97 Adjustments Equity
-----------------------------------------------------------------
Total Stockholders Equity 69,383,000 22,000,000 91,363,000
-----------------------------------------------------------------
<PAGE> 19
30-Sep-97
Based on 1997 Audited financials and 1st, 2nd Qtr 1998 unaudited.
The following includes 3rd, 4th Qtrs 1997, 1st and 2nd Qtr 1998
Adjusted Consolidated Net Income 3,614
Income Tax Expense 1,229
Depreciation and Amortization 2,051
Interest Expense 30
Capitalized Interest Expense 21,320
Interest Amortized in Cost of Sales 16,554
Indebtedness of the Company @ 8/31/97
Bank One 36,641,686
Amresco 15,309,828
NationsBank 7,011,642
1st American Bank 591,722
Independent Lending Corp 5,615,029
Howard Hughes Properties 1,770,027
Bond Debt 100,000,000
-----------
Total Indebtedness of the Company 166,939,934
Stockholders Equity @ 8/31/97 69,353,000
Proforma Adjustments 22,000,000
Intangible Assets @ 8/31/97 (5,341,938)
----------
Consolidated Tangible Net Worth @ 8/31/97 86,011,062
Chief Financial Officer
/s/ MARC CUMMINGS
--------------------------
Marc Cummings
Vice President
Controller /s/ WALT SCHLUETER
--------------------------
Walt Schlueter
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
CAPITAL PACIFIC HOLDINGS, LLC, a Delaware Limited Liability Corporation
CAPITAL PACIFIC HOMES, INC., a Nevada Corporation
PETERS RANCHLAND COMPANY, INC., a Delaware Corporation
J.M. PETERS NEVADA, INC., a Delaware Corporation
NEWPORT DESIGN CENTER., a California Corporation
BAY HILL ESCROW, INC., a California Corporation
CAPITAL PACIFIC MORTGAGE, INC., a Delaware Corporation
CAPITAL PACIFIC ARIZONA, INC., a Delaware Corporation
CAPITAL PACIFIC HOMES OF ARIZONA, INC., a Delaware Corporation
CLARK WILSON HOMES, INC., a Texas Corporation
CAPITAL PACIFIC HOMES, INC., a Delaware Corporation
FAIRWAY FINANCIAL COMPANY, a Texas Corporation
PARKLAND ESTATES, INC., a Delaware Corporation
J.M. PETERS CALIFORNIA, INC., a Delaware Corporation
CREATIVE DESIGN & MEDIA, INC., a Delaware Corporation
CPHDP, LLC, a Delaware Limited Liability Corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
Capital Pacific Holdings, Inc.
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-63511) of Capital Pacific Holdings, Inc. (formerly J.M. Peters
Company, Inc.) of our report dated February 16, 1998 on the financial statements
of Grand Coto Estates, L.P. as of December 31, 1997 and for the year then ended,
and our report dated February 13, 1998 on the financial statements of M.P.E.
Partners, L.P. as of December 31, 1997 and for the period March 14, 1997
(inception) through December 31, 1997, and our report dated February 28, 1997 on
the financial statements of J.M.P. Canyon Estates, L.P. as of December 31, 1996
and for the years ended December 31, 1996 and 1995, and our report dated
February 28, 1997 on the financial statements of J.M.P. Harbor View, L.P. as of
December 31, 1996 and for the years ended December 31, 1996 and 1995, with
respect to the consolidated financial statements and schedules of Capital
Pacific Holdings, Inc. and Subsidiaries included in this Annual Report (Form
10-K) for the year ended February 28, 1998.
ERNST & YOUNG LLP
Newport Beach, California
May 27, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Capital Pacific Holdings, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated May 13, 1998, included in this Form 10-K into
Capital Pacific Holdings, Inc.'s previously filed Form S-3 Registration
Statement No. 33-63511.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Arthur Andersen LLP
Orange County, California
May 27, 1998
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<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
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