SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 1-10153
HOMEFED CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 33-0304982
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
529 East South Temple, Salt Lake City, Utah 84102
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(Address of principal executive offices) (Zip Code)
(801) 521-1066
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
On November 9, 1998, there were 10,000,000 outstanding shares of the
Registrant's Common Stock, par value $.01 per share.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HomeFed Corporation and Subsidiaries
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
(Dollars in thousands, except par value)
--------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Land and real estate held for development $ 5,886 $ 9,964
Cash and cash equivalents 11,286 4,195
Restricted cash 1,126 1,073
Investments 78 75
Deposits and other assets 456 462
--------------- ---------------
TOTAL $ 18,832 $ 15,769
=============== ===============
LIABILITIES
Note payable to Leucadia Financial Corporation $ 19,545 $ 26,085
Accounts payable and accrued liabilities 506 423
--------------- ---------------
Total liabilities 20,051 26,508
--------------- ---------------
COMMON STOCK SUBSCRIPTION
Advance under common stock subscription from
Leucadia Shareholders' Trust 5,000 -
--------------- ---------------
STOCKHOLDERS' DEFICIT
Common Stock, $.01 par value;
100,000,000 shares authorized;
10,000,000 shares outstanding 100 100
Additional paid-in capital 346,919 339,904
Accumulated deficit (353,238) (350,743)
--------------- ---------------
Total stockholders' deficit (6,219) (10,739)
--------------- ---------------
TOTAL $ 18,832 $ 15,769
=============== ===============
</TABLE>
See notes to interim consolidated financial statements.
2
<PAGE>
HomeFed Corporation and Subsidiaries
Consolidated Statements of Operations
For the periods ended September 30, 1998 and 1997
(Dollars in thousands, except per share amounts)
(Unaudited)
----------------------------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Month Period Ended Month Period Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales of residential properties $ 3,969 $ 1,841 $ 4,860 $ 3,120
Cost of sales 3,840 1,877 4,734 3,152
---------- ---------- ---------- ----------
Gross profit (loss) 129 (36) 126 (32)
Interest expense relating to Leucadia
Financial Corporation 684 766 2,236 2,208
General and administrative expenses 262 128 567 459
Management fees to Leucadia Financial
Corporation 14 17 44 63
---------- ---------- ---------- ----------
Loss from operations (831) (947) (2,721) (2,762)
Other income - net 117 56 251 133
---------- ---------- ---------- ----------
Loss before income taxes (714) (891) (2,470) (2,629)
Income tax expense (8) (9) (25) (29)
---------- ---------- ---------- ----------
Net loss $ (722) $ (900) $ (2,495) $ (2,658)
========== ========== ========== ==========
Basic loss per common share: $ (0.07) $ (0.09) $ (0.25) $ (0.27)
========== ========== ========== ==========
Diluted loss per common share: $ (0.07) $ (0.09) $ (0.25) $ (0.27)
========== ========== ========== ==========
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE>
HomeFed Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Deficit
For the nine months ended September 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
___________________________________________________________
<TABLE>
<CAPTION>
Common
Stock Additional Total
$.01 Par Paid-In Accumulated Stockholders'
Value Capital Deficit Deficit
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $ 100 $ 339,904 $ (347,166) $ (7,162)
Net loss (2,658) (2,658)
---------- ---------- ---------- ----------
Balance, September 30, 1997 $ 100 $ 339,904 $ (349,824) $ (9,820)
========== ========== ========== ==========
Balance, January 1, 1998 $ 100 $ 339,904 $ (350,743) $ (10,739)
Contribution of capital
resulting from restruc-
turing of note payable to
Leucadia Financial
Corporation 7,015 7,015
Net loss (2,495) (2,495)
---------- ---------- ---------- ----------
Balance, September 30, 1998 $ 100 $ 346,919 $ (353,238) $ (6,219)
========== ========== ========== ==========
</TABLE>
See notes to interim consolidated financial statements.
4
<PAGE>
HomeFed Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
____________________________________________
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,495) $ (2,658)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Accrued interest added to note payable to
Leucadia Financial Corporation 475 2,208
Changes in operating assets and liabilities:
Land and real estate held for development 4,078 2,862
Deposits and other assets 6 120
Accounts payable and accrued liabilities 83 (241)
Decrease (increase) in restricted cash (53) 13
---------- ----------
Net cash provided by operating activities 2,094 2,304
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments (3) (3)
---------- ----------
Net cash used in investing activities (3) (3)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Advance under common stock subscription from
Leucadia Shareholders' Trust 5,000 -
---------- ----------
Net cash provided by financing activities 5,000 -
---------- ----------
Net increase in cash 7,091 2,301
Cash and cash equivalents, beginning of period 4,195 1,809
---------- ----------
Cash and cash equivalents, end of period $ 11,286 $ 4,110
========== ==========
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies. The unaudited
interim consolidated financial statements, which reflect all
adjustments (consisting only of normal recurring items) that
management believes are necessary to present fairly the
financial position, results of operations and cash flows,
should be read in conjunction with the audited consolidated
financial statements for HomeFed Corporation ("HomeFed" or the
"Company") for the year ended December 31, 1997 which are
included in the Company's Annual Report on Form 10-K for such
year (the "1997 10-K"). Results of operations for interim
periods are not necessarily indicative of annual results of
operations. The consolidated balance sheet at December 31,
1997 was derived from the Company's audited consolidated
financial statements in the 1997 10-K, and does not include all
disclosures required by generally accepted accounting
principles for annual financial statements.
Certain amounts from prior periods have been reclassified to be
consistent with the 1998 presentation.
2. Chapter 11 Bankruptcy and Plan of Reorganization. On July 3,
1995, the Company emerged from Chapter 11 Bankruptcy
protection pursuant to its court approved plan of
reorganization (the "Plan"). The Plan was principally
funded by a $20,000,000 convertible note issued to
Leucadia Financial Corporation ("LFC"), an indirect
wholly-owned subsidiary of Leucadia National Corporation
("Leucadia") and by LFC's purchase of 2,700,000 newly
issued $.01 par value common shares ("Common Stock") of
the Company for $810,000.
Also under the Plan, general unsecured creditors, principally
the holders of the Company's convertible subordinated
debentures, received 1,500,000 shares of Common Stock valued by
the Bankruptcy Court at $.30 per share; LFC, as the largest
debenture holder, received 1,417,986 of the 1,500,000 shares.
As a result of shares received as a general unsecured creditor
and shares purchased as described above, LFC owned
approximately 41.2% of the Company's Common Stock through
August 14, 1998. On August 14, 1998, LFC transferred its shares
to Leucadia; on the same date, Leucadia transferred ownership
of the shares to a trust for the benefit of those persons who
were Leucadia's shareholders as of August 25, 1998 ("the LUK
Trust").
The Company's Restated Certificate of Incorporation contains
certain transfer restrictions with respect to the Company's
stock. Generally, such provisions restrict a person's ability
to accumulate 5% or more of the Company's Common Stock, as well
as the ability of a 5% stockholder to acquire additional shares
of Common Stock, in each case, after giving effect to numerous
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<PAGE>
rules of attribution, aggregation and calculation. In addition,
pursuant to the Plan, the Company is prohibited from issuing
additional shares of stock until July 3, 1999.
3. Earnings Per Share. Basic loss per share of Common Stock for
all periods presented was calculated by dividing the net
loss by the 10,000,000 shares of Common Stock issued on
July 3, 1995.
Diluted loss per share of Common Stock was calculated as
described above. The number of shares used to calculate diluted
loss per share was 10,000,000 for the periods ended September
30, 1998 and 1997. The calculation of diluted loss per share
does not include Common Stock equivalents of 45,351,015 and
54,400,000, for the three-month periods ended September 30,
1998 and 1997, respectively, and 51,350,525 and 53,441,352, for
the nine-month periods ended September 30, 1998 and 1997,
respectively, which are antidilutive.
4. Related Party Transactions.
(a) Amended Loan Agreement. As of August 14, 1998, the
Company and LFC entered into an Amended and Restated Loan
Agreement, pursuant to which the Company and LFC amended the
original loan agreement dated July 3, 1995 and restructured the
Company's outstanding 12% Secured Convertible Note due 2003
("Original Note") held by LFC. The restructured note, dated
August 14, 1998 (the "Restructured Note"), has a principal
amount of approximately $26,462,380 (reflecting the original
$20,000,000 principal balance of the Original Note, together
with additions to principal resulting from accrued and unpaid
interest thereon to the date of the restructuring, as allowed
under the terms of the Original Note), extends the maturity
date from July 3, 2003 to December 31, 2004, reduces the
interest rate from 12% to 6% and eliminates the convertibility
feature of the Original Note. Interest only on the Restructured
Note is paid quarterly and all unpaid principal is due on the
maturity date. During the nine months ended September 30, 1998,
the Company paid to LFC approximately $1,761,000 in interest on
the Original Note and the Restructured Note. Also during this
period, interest of approximately $377,000 was not paid and was
added to the principal balance of the Original Note, and
interest of approximately $98,000 was not paid and was added to
the principal balance of the Restructured Note.
As a result of the restructuring of the Original Note, the
Restructured Note was recorded at fair value and the
approximate $7,015,000 difference between such amount and the
carrying value of the Original Note was reflected as additional
paid-in capital. The $7,015,000 difference between the fair
value of the Restructured Note and the carrying value of the
Original Note will be amortized over the term of the
Restructured Note using the interest method.
7
<PAGE>
(b) Stock Purchase Agreements. As of August 14, 1998,
the Company entered into a Stock Purchase Agreement (the
"August Stock Purchase Agreement") with Leucadia, pursuant to
which the Company agreed to sell 37,056,112 additional shares
of its Common Stock to Leucadia to increase Leucadia's interest
to 87.5% for an aggregate purchase price of $6,670,000. Upon
the signing of the August Stock Purchase Agreement, Leucadia
advanced to the Company $5,000,000 of the total purchase price
and assigned the August Stock Purchase Agreement to the LUK
Trust. The advanced portion of the purchase price is refundable
to the LUK Trust in the event the closing of the August Stock
Purchase Agreement does not occur. The August Stock Purchase
Agreement provides that the balance of the purchase price will
be paid at the closing and that the closing will occur on or
after July 5, 1999, subject to the satisfaction of certain
conditions.
As of October 20, 1998, the Company entered into a second Stock
Purchase Agreement with Leucadia (the "October Stock Purchase
Agreement"), pursuant to which the Company agreed to sell
9,501,714 additional shares of Common Stock to Leucadia for an
aggregate purchase price of $1,710,300 to increase Leucadia's
and the LUK Trust's aggregate interest to 89.6%, subject to
certain adjustments, and Leucadia advanced the $1,710,300 to
the Company. Leucadia has assigned the October Stock Purchase
Agreement to the LUK Trust. If the closing of the October
Stock Purchase Agreement does not occur, the $1,710,300 advance
is refundable to the LUK Trust. The October Stock Purchase
Agreement provides that the closing will occur on or after July
5, 1999, subject to the satisfaction of certain conditions.
(c) Development Agreement. As of August 14, 1998, the
Company entered into a Development Management Agreement
("Development Agreement") with an indirect subsidiary of
Leucadia that owns certain real property located in the City of
San Marcos, County of San Diego, California, to develop a
master-planned residential project on such property. The
project, known as San Elijo Hills, is intended to be developed
into a community of approximately 3,400 homes over the next ten
years. The Development Agreement provides that the Company
will act as the development manager with responsibility for the
overall management of the project, including arranging
financing for the project, marketing and sales activity, and
acting as the construction manager. The Development Agreement
provides for the Company to receive a profit participation,
after providing for certain obligations relating to the project,
and fee income for project management and marketing services based on
the revenues derived from the project.
(d) Otay Land Company, LLC. As of October 14, 1998, the
Company and Leucadia formed Otay Land Company, LLC ("Otay Land
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<PAGE>
Company"). The Company contributed $10,000,000 as capital and
Leucadia contributed $10,000,000 as a preferred interest. The
Company will act as the manager of Otay Land Company. Otay Land
Company has acquired, for approximately $19,500,000,
approximately 4,800 acres of land which is part of a 25,000
acre project located south of San Diego, California, known as
Otay Ranch.
All proceeds raised by Otay Land Company shall be distributed
to the Company and Leucadia in the following order of
priority: (i) to pay Leucadia an annual minimum
cumulative preferred return of 10% on all preferred
capital contributed by Leucadia; (ii) to pay Leucadia an
annual cumulative preferred return of 2% on all preferred
capital provided by Leucadia, but payable only out of and
to the extent there are profits; (iii) to repay all
preferred capital provided by Leucadia; and (iv) any
remaining funds are to be distributed to the remaining
members in accordance with their capital accounts.
(e) Administrative Services Agreement. Pursuant to an
Administrative Services Agreement dated March 1, 1996, as
amended (the "Administrative Services Agreement"), LFC provides
administrative services to the Company for an annual fee,
payable in monthly installments. The Administrative Services
Agreement provides that LFC and the Company will negotiate in
good faith to determine such annual fee. The Company and LFC
have agreed that the fee to be paid to LFC for the one year
periods beginning March 1, 1997 and 1998 will be $68,274 and
$56,101, respectively. The Administrative Services Agreement
will terminate on March 1, 1999; provided, however, that LFC
may terminate the Administrative Services Agreement prior to
March 1, 1999, upon 30 days written notice, if the Company and
LFC are unable to reach an agreement regarding the compensation
to be paid to LFC for any period.
(f) Silverwood Project. On February 27, 1998, the Company
purchased 19 lots at the Silverwood project from LFC for a
purchase price of $500,000.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze the
consolidated financial condition, liquidity and capital resources
and results of operations of Homefed Corporation (the "Company").
This analysis should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's 1997 10-K.
General
The Company is a holding company primarily engaged in the
investment in and development of residential real estate projects.
Previously, the Company has been engaged in real estate projects in
Northern California, through its wholly-owned subsidiaries HomeFed
Communities, Inc. and HomeFed Resources Corporation, which have
entered into contracts with local builders and developers to
provide construction, marketing and management services. As
discussed below, in the third and fourth quarters of 1998 the
Company entered into new real estate projects in Southern
California.
As of August 14, 1998, the Company entered into a Development
Management Agreement ("Development Agreement") with an indirect
subsidiary of Leucadia that owns certain real property located in
the City of San Marcos, County of San Diego, California, to develop
a master-planned residential project on such property. The project,
known as San Elijo Hills, is intended to be developed into a
community of approximately 3,400 homes over the next ten years.
The Development Agreement provides that the Company will act as the
development manager with responsibility for the overall management
of the project, including arranging financing for the project,
marketing and sales activity, and acting as the construction
manager. The Development Agreement provides for the Company to
receive a profit participation, after providing for certain
obligations relating to the project, and fee income for project
management and marketing services based on the revenues derived
from the project.
As of October 14, 1998, the Company and Leucadia formed Otay
Land Company, LLC ("Otay Land Company"); the Company will act as
its manager. Otay Land Company has acquired approximately 4,800
acres of land which is part of a 25,000 acre project located south
of San Diego, California, known as Otay Ranch.
Liquidity and Capital Resources
For the nine-month period ended September 30, 1998,
net cash was provided by operating activities, principally from
sales of residential properties.
10
<PAGE>
As of August 14, 1998, the Company and LFC entered
into an Amended and Restated Loan Agreement, pursuant to which the
Company and LFC amended the original Loan Agreement dated July 3,
1995 and restructured the Company's outstanding 12% Secured
Convertible Note due 2003 ("Original Note") held by LFC. The
restructured note, dated August 14, 1998 (the "Restructured Note"),
is in the principal amount of approximately $26,462,380 (reflecting
the original $20,000,000 principal balance of the Original Note,
together with additions to principal resulting from accrued and
unpaid interest thereon to the date of the restructuring, as allowed
under the terms of the Original Note), extends the maturity date
from July 3, 2003 to December 31, 2004, reduces the interest rate
from 12% to 6% and eliminates the convertibility feature of the
Original Note. Interest only on the Restructured Note is paid
quarterly and all unpaid principal is due on the date of maturity.
During the nine months ended September 30, 1998, the Company paid
to LFC approximately $1,761,000 in interest on the Original Note and
the Restructured Note. Also during this period, interest of
approximately $377,000 was not paid and was added to the principal
balance of the Original Note and interest of approximately $98,000
was not paid and was added to the principal balance of the
Restructured Note.
As more fully described in the 1997 10-K, in October 1996 the
Company granted options to The Forecast Group (Registered Trade
Name), L.P. ("The Forecast Group") to purchase certain lots at
the Paradise Valley project for a total purchase price of $5,781,950.
The option with respect to 81 of these lots (the "Unit 4 Option")
and the option with respect to the remaining 75 lots (the "Unit 3
Option") became exercisable in 1997. The Unit 3 Option was not
exercised and expired on May 1,1998. The unexercised portion of
the Unit 4 Option, which covers 20 lots, expires on December 7, 1998.
If exercised in its entirety, the Company would receive an
aggregate of $3,610,656, less closing costs, pursuant to the sales
of the lots covered by the Unit 4 Option. As of September 30, 1998,
the Company received $2,719,136, less closing costs, for the sale
of 61 lots covered by the Unit 4 Option. If the remainder of the
Unit 4 Option is exercised, 20 lots would be sold for $891,520,
less closing costs, on December 7, 1998. It is uncertain whether
the remainder of the Unit 4 Option will be exercised.
The Company has accepted a purchase offer for the 75 lots
previously covered by the Unit 3 Option. This offer is subject to
certain conditions, including the performance of due diligence by
the purchaser. While the Company anticipates that these conditions
will be satisfied and that the property will be sold during the
fourth quarter of 1998 for approximately $2,250,000, less closing
costs, there can be no assurance that the closing will occur.
On February 27, 1998, the Company purchased 19 lots at the
Silverwood project from LFC for a purchase price of $500,000.
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On July 31, 1998, the Company sold its entire 97 lot interest
in the Silverwood project to Southfork Partnership ("Southfork")
for $3,033,000, less closing costs. As a result of this sale,
Southfork also assumed the Company's liability to two California
school districts under cost sharing agreements.
As of August 14, 1998, the Company entered into a Stock
Purchase Agreement (the "August Stock Purchase Agreement") with Leucadia,
pursuant to which the Company agreed to sell 37,056,112 additional
shares of its Common Stock to Leucadia to increase Leucadia's interest
to 87.5% for an aggregate purchase price of $6,670,000. Upon
the signing of the August Stock Purchase Agreement, Leucadia
advanced to the Company $5,000,000 of the total purchase price
and assigned the August Stock Purchase Agreement to the LUK
Trust. The advanced portion of the purchase price is refundable
to the LUK Trust in the event the closing of the August Stock
Purchase Agreement does not occur. The August Stock Purchase
Agreement provides that the balance of the purchase price will
be paid at the closing and that the closing will occur on or
after July 5, 1999, subject to the satisfaction of certain
conditions.
As of October 20, 1998, the Company entered into a second Stock
Purchase Agreement with Leucadia (the "October Stock Purchase
Agreement"), pursuant to which the Company agreed to sell
9,501,714 additional shares of Common Stock to Leucadia for an
aggregate purchase price of $1,710,300 to increase Leucadia's
and the LUK Trust's aggregate interest to 89.6%, subject to
certain adjustments, and Leucadia advanced the $1,710,300 to
the Company. Leucadia has assigned the October Stock Purchase
Agreement to the LUK Trust. If the closing of the October
Stock Purchase Agreement does not occur, the $1,710,300 advance
is refundable to the LUK Trust. The October Stock Purchase
Agreement provides that the closing will occur on or after July
5, 1999, subject to the satisfaction of certain conditions.
As of October 14, 1998, the Company and Leucadia formed
Otay Land Company, LLC The Company contributed $10,000,000
as capital and Leucadia contributed $10,000,000 as a preferred
interest. The Company will act as the manager of Otay Land
Company. Otay Land Company has acquired, for approximately
$19,500,000, approximately 4,800 acres of land which is part
of a 25,000 acre project located south of San Diego, California,
known as Otay Ranch.
All proceeds raised by Otay Land Company shall be distributed
to the Company and Leucadia in the following order of priority:
(i) to pay Leucadia an annual minimum cumulative preferred return
of 10% on all preferred capital contributed by Leucadia; (ii) to
pay Leucadia an annual cumulative preferred return of 2% on all
preferred capital provided by Leucadia, but payable only out of
and to the extent there are profits; (iii) to repay all preferred
capital provided by Leucadia; and (iv) any remaining funds are to
be distributed to the remaining members in accordance with their
capital accounts.
12
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Results of Operations
Sales of residential properties increased in the three and
nine-month periods ended September 30, 1998, as compared to the
same periods in 1997, as a result of the sale of the Company's
interest in the Silverwood project during 1998.
The increase of cost of sales in the three and nine-month
periods ended September 30, 1998, as compared to the same periods
in 1997, reflects the increased level of sales and value of land
sold. Gross profit percentages reflect the mix of residential
properties sold.
Interest expense reflects the interest due on the Original Note
and the Restructured Note to LFC of approximately $684,000 and
$2,236,000 for the three and nine-month periods ended September 30,
1998, respectively, of which approximately $1,761,000 was paid by
the Company and approximately $377,000 was not paid and was added
to the principal balance of the Original Note, and interest of
approximately $98,000 was not paid and was added to the principal
balance of the Restructured Note. Interest expense for the three
and nine-month periods ended September 30, 1997 reflects the interest
due on the Original Note to LFC of approximately $766,000 and $2,208,000,
respectively, which was not paid and was added to the principal
balance of the Original Note.
General and administrative expenses increased in the three and
nine-month periods ended September 30, 1998 as a result of the
Company's increased operating activities in connection with the San
Elijo Hills project.
Income tax expense for all periods presented principally
relates to state franchise taxes. The Company has not recorded
federal income tax benefits for its operating losses due to the
uncertainty of sufficient future taxable income which is required
in order to record such tax benefits.
The Year 2000 Issue
The Company believes that it will not incur any material
additional expenses to modify computer hardware or software due to
the upcoming change in the century. However, the year 2000 issue
may affect other entities with which the Company transacts
business. The Company is in the process of assessing whether third
parties with whom it has material relationships are year 2000
compliant. At this time, the Company cannot predict the effect of
the year 2000 issue on such entities.
Cautionary Statement for Forward-Looking Information
Statements included in this Management's Discussion and
Analysis of Financial Condition and Results of Operations may
contain forward-looking statements. Such forward-looking statements
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are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such statements may
relate, but not be limited, to projections of revenues, income or
loss, capital expenditures, the expected development schedule of
existing real estate projects, plans for growth and future
operations, financing needs, as well as assumptions relating to the
foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or
quantified. When used in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the words
"estimates", "expects", "anticipates", "forecasts", "plans",
"intends" and variations of such words and similar expressions are
intended to identify forward-looking statements that involve risks
and uncertainties. Future events and actual results could differ
materially from those set forth in, contemplated by or underlying
the forward-looking statements.
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PART II. OTHER INFORMATION
Item 5. Other Information
If the Company does not receive notice at its principal office
on or before February 19, 1999 of a stockholder proposal for
consideration at the 1999 Annual Meeting of Stockholders, the
proxies named by the Company's Board of Directors with respect to
that meeting shall have discretionary voting authority with respect
to such proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report.
10.1 Stock Purchase Agreement dated as of October 20,
1998 between the Company and Leucadia National
Corporation
10.2 Amended and Restated Limited Liability Company
Agreement of Otay Land Company, LLC, dated as of
October 14, 1998, between the Company and Leucadia
National Corporation
27 Financial Data Schedule
(b) A current report on Form 8-K was filed on August 28,
1998 to report Item--1 Changes in Control of
Registrant, and Item--5 Other Events.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
HOMEFED CORPORATION
/s/ Corinne A. Maki
-------------------------------
CORINNE A. MAKI, Treasurer
(Authorized Signatory and
Principal Financial and
Accounting Officer)
Date: November 16, 1998
16
<PAGE>
INDEX TO EXHIBITS
Exhibits
10.1 Stock Purchase Agreement dated as of October 20, 1998
between the Company and Leucadia National Corporation.
10.2 Amended and Restated Limited Liability Company Agreement
of Otay Land Company, LLC, dated as of October 14, 1998,
between the Company and Leucadia National Corporation.
27 Financial Data Schedule.
17
STOCK PURCHASE AGREEMENT
BETWEEN
HOMEFED CORPORATION
AND
LEUCADIA NATIONAL CORPORATION
Dated as of October 20, 1998
<PAGE>
TABLE OF CONTENTS
Page
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . 2
II. PURCHASE OF SECURITIES. . . . . . . . . . . . . . . 2
2.1. Purchase of Securities. . . . . . . . . . . . 2
2.2. Anti-dilution . . . . . . . . . . . . . . . . 2
III. PURCHASE PRICE AND PAYMENT. . . . . . . . . . . . . 2
3.1. Amount of Purchase Price. . . . . . . . . . . 2
3.2. Payment of Purchase Price . . . . . . . . . . 3
IV. THE COMPANY'S REPRESENTATIONS AND WARRANTIES. . . . 3
4.1. Organization. . . . . . . . . . . . . . . . . 3
4.2. Due Authorization . . . . . . . . . . . . . . 3
4.3. Authorized and Outstanding Shares of Capital
Stock . . . . . . . . . . . . . . . . . . 4
4.4. Authorization and Issuance of Securities. . . 4
4.5. Subsidiary Organizations. . . . . . . . . . . 4
4.6. No Other Rights . . . . . . . . . . . . . . . 4
4.7. No Conflicts. . . . . . . . . . . . . . . . . 4
4.8. No Consents . . . . . . . . . . . . . . . . . 5
4.9. Litigation. . . . . . . . . . . . . . . . . . 5
V. LUK's REPRESENTATIONS AND WARRANTIES. . . . . . . . 5
5.1. Organization. . . . . . . . . . . . . . . . . 5
5.2. Due Authorization . . . . . . . . . . . . . . 6
5.3. No Conflicts. . . . . . . . . . . . . . . . . 6
5.4. LUK's Investment Intention. . . . . . . . . . 6
5.5. Access to Data. . . . . . . . . . . . . . . . 7
VI. COVENANTS . . . . . . . . . . . . . . . . . . . . . 7
6.1. Tax Compliance. . . . . . . . . . . . . . . . 7
6.2. Registration Rights . . . . . . . . . . . . . 7
VII. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . 7
7.1. Conditions Precedent to Obligations of LUK. . 7
7.2. Conditions Precedent to Obligations of the
Company . . . . . . . . . . . . . . . . . 8
i
<PAGE>
VIII.CLOSING . . . . . . . . . . . . . . . . . . . . . . 9
8.1. Closing Date . . . . . . . . . . . . . . . . . 9
8.2. Liquidated Damages . . . . . . . . . . . . . . 9
8.3. Specific Performance . . . . . . . . . . . . . 10
IX. SECURITIES LAW MATTERS. . . . . . . . . . . . . . . 10
9.1. Legends . . . . . . . . . . . . . . . . . . . 10
X. INDEMNIFICATION AND EXPENSES. . . . . . . . . . . . 10
10.1. Indemnification by the Company . . . . . . . 10
10.2. Indemnification by LUK . . . . . . . . . . . 10
XI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 11
11.1. Notices. . . . . . . . . . . . . . . . . . . 11
11.2. Binding Effect; Benefits . . . . . . . . . . 12
11.3. Waiver . . . . . . . . . . . . . . . . . . . 12
11.4. Amendment. . . . . . . . . . . . . . . . . . 13
11.5. Assignability. . . . . . . . . . . . . . . . 13
11.6. Applicable Law . . . . . . . . . . . . . . . 13
11.7. Section and Other Headings . . . . . . . . . 13
11.8. Severability . . . . . . . . . . . . . . . . 13
11.9. Counterparts . . . . . . . . . . . . . . . . 13
ii
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of October 20, 1998,
between HomeFed Corporation, a Delaware corporation having
an office at 529 East South Temple, Salt Lake City, Utah
84012 (the "Company"), and Leucadia National Corporation, a
New York corporation having an office at 315 Park Avenue
South, New York, New York 10010 ("LUK").
W I T N E S S E T H:
WHEREAS, the Company emerged from bankruptcy under
the United States Bankruptcy Code, pursuant to a plan of
reorganization (the "Plan") that became effective on July 3,
1995 (the "Effective Date"); and
WHEREAS, the Plan prohibits the Company from
issuing any additional shares of stock prior to the fourth
anniversary of the Effective Date; and
WHEREAS, approximately 41% of the issued and
outstanding common stock, par value $.01 per share of the
Company (the "Common Stock") is owned by a Trust for the
benefit of the shareholders of record of LUK as of August
25, 1998 (the "LUK Shareholders Trust"); and
WHEREAS, on August 14, 1998, LUK and the Company
entered into a Stock Purchase Agreement (the "August
Agreement") pursuant to which LUK or its assignee will
purchase from the Company and the Company will sell to LUK
(or its assignee), an additional 37,056,112 shares of Common
Stock (the "August Shares") subject to certain conditions,
after July 5, 1999; and
WHEREAS, the August Agreement was assigned by LUK
to the LUK Shareholders Trust; and
WHEREAS, upon the terms and conditions hereinafter
provided, the Company has agreed to issue and sell to LUK
(or its assignee) shares of its Common Stock, and LUK has
agreed to purchase such shares upon the terms and conditions
hereinafter provided;
NOW, THEREFORE, in consideration of the premises and
the covenants hereinafter contained, it is agreed as
follows:
1
<PAGE>
I. DEFINITIONS
References to this "Agreement" shall mean this Stock
Purchase Agreement, including all amendments, modifications
and supplements and any exhibits or schedules to any of the
foregoing, and shall refer to this Agreement as the same may
be in effect at the time such reference becomes operative.
The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole,
including the schedules and exhibits hereto, as the same may
from time to time be amended or supplemented, and not to any
particular section, subsection or clause contained in this
Agreement.
II. PURCHASE OF SECURITIES
2.1. Purchase of Securities. Upon the terms and
subject to the conditions set forth in this Agreement, on
the Closing Date (as defined herein) the Company shall
issue, sell and deliver to LUK, and LUK shall purchase from
the Company 9,501,714 shares of Common Stock (the
"Securities").
2.2. Anti-dilution. Subject to the provisions of
Section 7.2(c) hereof, if the Company issues additional
shares of Common Stock (other than the August Shares to be
issued to the LUK Shareholders Trust) to any party other
than LUK, the number of shares of Common Stock constituting
the Securities shall be increased so that the Securities
purchased on the Closing Date (including the August Shares
and the Common Stock owned by the LUK Shareholders Trust)
will give LUK, together with the LUK Shareholders Trust, an
89.6% interest in the Company on a fully diluted basis.
III. PURCHASE PRICE AND PAYMENT
3.1. Amount of Purchase Price. The aggregate purchase
price for the Securities (the "Purchase Price") shall be
$1,710,300; provided, however, that if the number of shares
constituting the Securities to be purchased under this
Agreement results in the percentage share ownership in the
Company of LUK, together with the LUK Shareholders Trust,
being below 89.6% pursuant to Section 7.2(c), the Purchase
Price shall be reduced proportionately based on a per share
price of $.179 per share.
3.2. Payment of Purchase Price. (a) On the date
hereof, LUK shall advance the entire Purchase Price to the
Company.
2
<PAGE>
(b) Upon the terms and subject to the conditions
set forth in this Agreement, on the Closing Date the Company
shall deliver to LUK the Securities issued in the name of
LUK or such other person or persons as LUK shall direct.
(c) Payment of the Purchase Price shall be made by
wire transfer of immediately available funds into an account
designated by the Company.
IV. THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company makes the following representations and
warranties to LUK, each and all of which shall survive the
execution and delivery of this Agreement and the Closing (as
defined herein) hereunder:
4.1. Organization. The Company has been duly
incorporated and is validly existing as a corporation in
good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its
properties and to conduct its business as currently being
and as proposed to be conducted. The Company is qualified
as a foreign corporation to transact business in California
and in any other jurisdiction where it is required to be so
qualified, except where the failure to be so qualified would
not have a material adverse effect on the condition,
financial or otherwise, or the results of operations,
business or business prospects of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect").
4.2. Due Authorization. The Company has the requisite
corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the
Company and, assuming that this Agreement has been duly
executed and delivered by LUK, constitutes a legal, valid
and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as rights
to indemnity hereunder may be limited by federal or state
securities laws and except as enforceability may be limited
by bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization and similar laws relating to or
affecting creditors' rights generally and general principles
of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.3. Authorized and Outstanding Shares of Capital
Stock. The authorized capital stock of the Company consists
of one hundred million (100,000,000) shares of Common Stock,
of which ten million (10,000,000) shares currently are
issued and outstanding as of the date hereof. No
subscription, warrant, option or other right to purchase or
acquire any shares of any class of capital stock of Company
3
<PAGE>
or securities convertible into such capital stock (other
than the August Shares) is authorized or outstanding, and
other than this Agreement there is no commitment of Company
to issue any such shares, warrants, options or other such
rights or securities (other than the August Shares). After
giving effect to the issuance of the August Shares and the
Securities pursuant to this Agreement, an aggregate of
56,557,826 shares of Common Stock will be outstanding, of
which the Securities, together with the August Shares and
the other shares of Common Stock beneficially owned by the
LUK Shareholders Trust, will represent approximately 89.6%
of the outstanding shares of Common Stock, unless the number
of shares constituting the Securities is reduced pursuant to
Section 7.2(c) hereof.
4.4. Authorization and Issuance of Securities. The
issuance of the Securities has been duly authorized and,
upon delivery to LUK of certificates therefor against
payment in accordance with the terms hereof, the Securities
will have been validly issued and fully paid and non-asses-
sable, free and clear of all pledges, liens, encumbrances
and preemptive rights.
4.5. Subsidiary Organizations. Each subsidiary of the
Company has been duly organized and is validly existing and
in good standing under the laws of the State of California,
has corporate power and authority to own, lease and operate
its properties and to conduct its business as currently
being and as proposed to be conducted and is not required to
be qualified as a foreign entity to transact business in any
jurisdiction. All of the issued and outstanding capital
stock of each such subsidiary has been duly authorized and
validly issued, is fully paid and nonassessable and is owned
directly by the Company.
4.6. No Other Rights. The issuance of the Securities
is not subject to preemptive or other similar rights.
4.7. No Conflicts. Neither the Company nor any of its
subsidiaries is in violation of its charter or in default in
the performance or observance of any material obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which the Company or any of its
4
<PAGE>
subsidiaries is a party or by which it or any of them may be
bound, or to which any of the property or assets of the
Company or any of its subsidiaries is subject, the effect of
which default in performance or observance would have a
Material Adverse Effect. None of the execution and delivery
of this Agreement will conflict with or constitute a breach
of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries
pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or
by which it or any of them may be bound, or to which any of
the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any
violation of the provisions of the certificate of
incorporation or by-laws of the Company or any applicable
law, administrative regulation or administrative or court
decree.
4.8. No Consents. No authorization, approval or
consent of, or filing with, any court or governmental
authority or agency is necessary or required in connection
with the sale of the Securities hereunder or under the
certificate of incorporation of the Company or the
execution, delivery or performance of this Agreement or the
Restated Certificate of Incorporation.
4.9. Litigation. There is no action, suit or
proceeding before or by any court or governmental agency or
body, domestic or foreign, now pending or, to the best
knowledge of the Company, threatened, against or affecting
the Company or any of its subsidiaries, which is reasonably
likely to have a Material Adverse Effect. There is no
action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now
pending or, to the best knowledge of the Company,
threatened, which would materially and adversely affect the
consummation of the transactions contemplated by this
Agreement.
V. LUK's REPRESENTATIONS AND WARRANTIES
LUK makes the following representations and warranties
to the Company, each and all of which shall survive the
execution and delivery of this Agreement and the Closing
hereunder:
5.1. Organization. LUK has been duly incorporated and
is validly existing as a corporation in good standing under
the laws of the State of New York with corporate power and
authority to own, lease and operate its properties and to
conduct its business as currently being and as proposed to
be conducted and to enter into and perform its obligations
under this Agreement. LUK is qualified as a foreign
corporation to transact business in each jurisdiction where
it is required to be so qualified, except where the failure
to be so qualified would not have a material adverse effect
on the business, financial condition or results of operation
of LUK and its subsidiaries taken as a whole.
5.2. Due Authorization. LUK has the requisite
corporate power and authority to enter into this Agreement
and consummate the transactions contemplated hereby. This
5
<PAGE>
Agreement and the transactions contemplated hereby have each
been duly authorized, executed and delivered by LUK, and
this Agreement constitutes a legal, valid and binding
agreement of the Company, enforceable against LUK in
accordance with its terms, except as rights to indemnity
hereunder may be limited by federal or state securities laws
and except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, moratorium,
reorganization and similar laws relating to or affecting
creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in
a proceeding in equity or at law).
5.3. No Conflicts. LUK is not in violation of its
certificate of incorporation or in default in the
performance or observance of any material obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which LUK is a party or by which
it may be bound, or to which any of the property or assets
of LUK or any of its subsidiaries is subject, the effect of
which default in performance or observance would have a
material adverse effect on the condition, financial or
otherwise, or the results of operations, business or
business prospects of LUK and its subsidiaries considered as
one enterprise. The execution and delivery of this
Agreement will not conflict with or constitute a breach of,
or default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets
of LUK or any of its subsidiaries pursuant to any contract,
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which LUK or any of its
subsidiaries is a party or by which it or any of them may be
bound, or to which any of the property or assets of LUK or
any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the certificate
of incorporation or by-laws of LUK or any applicable law,
administrative regulation or administrative or court decree.
5.4. LUK's Investment Intention. LUK represents and
warrants that it is purchasing the Securities for its own
account, for investment purposes and not with a view to the
distribution thereof, except in compliance with the
provisions of the Securities Act of 1933, as amended (the
"Act"). LUK agrees that it will not, directly or
indirectly, offer, transfer, sell, assign, pledge,
hypothecate or otherwise dispose of any of the Securities
(or solicit any offers to buy, purchase, or otherwise
acquire or take a pledge of any of the Securities), except
in compliance with the Act and the rules and regulations
thereunder.
5.5. Access to Data. LUK has had an opportunity to
discuss the Company's business, management, and financial
affairs with its management and to review the Company's
records and facilities, and LUK is relying for purposes of
6
<PAGE>
this Agreement upon its own due diligence review of the
Borrower, not on any representation or warranty of the
Borrower other than as expressly set forth in this
Agreement.
VI. COVENANTS
6.1. Tax Compliance. The Company shall pay all trans-
fer, excise or similar taxes in connection with the
issuance, sale, delivery or transfer by the Company to LUK
of the Securities and shall save LUK and any other holder of
the Securities harmless without limitation as to time
against any and all liabilities with respect to such taxes.
The Company shall not be responsible for any taxes in
connection with the transfer of the Securities by the holder
thereof. The obligations of Company under this Section 6.1
shall survive the payment, prepayment or redemption of the
Securities and the termination of this Agreement.
6.2. Registration Rights. At any time after the date
hereof, upon the written request of LUK that the Company
effect the registration under the Act (which shall be a
shelf registration if requested by LUK) of all or part of
the shares of Common Stock (including the Securities upon
their issuance) owned or to be owned by LUK (including any
affiliate of LUK or any trust for the benefit of LUK's
shareholders) and specifying the intended method or methods
of disposition thereof, the Company shall cooperate with LUK
and effect the registration under the Act of such shares as
soon as practicable after receipt of such request.
VII. CONDITIONS PRECEDENT
7.1. Conditions Precedent to Obligations of LUK. The
obligation of LUK to purchase the Securities and to
consummate the transactions contemplated by this Agreement
is subject to the following conditions:
(a) LUK shall have been furnished with certificates
(dated the Closing Date and in form and substance reasonably
satisfactory to LUK) executed by an officer of the Company
certifying that (i) all representations and warranties of
the Company to LUK contained herein are true and correct in
all material respects as of the Closing Date, with the same
force and effect as if made as of the Closing Date; (ii) the
Company shall have performed and complied in all material
respects with the covenants and provisions of this Agreement
required to be performed or complied with by it, on or prior
to the Closing Date; and (iii) after giving effect to the
sale of Securities contemplated hereby, the Company will not
7
<PAGE>
be in default under or breach of any material contract,
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which the Company or any of its
subsidiaries is a party.
(b) LUK's receipt of certificates representing the
Securities registered in LUK's name or in the name of such
persons as LUK shall direct.
(c) LUK's receipt of a copy of the Company's
certificate of incorporation, certified as of a recent date
by the Secretary of State of the State of Delaware, and a
copy of the by-laws, certified by the Secretary or Assistant
Secretary of the Company as true and correct;
(d) LUK's receipt of governmental certificates or
telegrams evidencing that the Company is organized and in
good standing in the State of Delaware;
(e) LUK's receipt of a certificate stating that the
Development Management Agreement, dated August 14, 1998
between the Company and Provence Hills Development Company
LLC (the "Development Management Agreement"), is in full
force and effect on the Closing Date and that neither party
to such agreement has given notice of termination to the
other party to such agreement.
7.2. Conditions Precedent to Obligations of the
Company. The obligation of the Company to issue the
Securities pursuant to this Agreement is subject to the
following conditions:
(a) The Company shall have been furnished with
certificates (dated the Closing Date and in form and
substance reasonably satisfactory to the Company) executed
by an officer of LUK certifying that (i) all representations
and warranties of LUK to the Company contained herein are
true and correct in all material respects as of the Closing
Date, with the same force and effect as if made as of the
Closing Date; and (ii) LUK shall have performed and complied
in all material respects with the covenants and provisions
of this Agreement required to be performed or complied with
by it, on or prior to the Closing Date.
(b) The Company shall have been furnished with an
opinion of Weil, Gotshal & Manges LLP dated the Closing Date
to the effect that the issuance of the Securities pursuant
to this Agreement (taken together with the issuance of the
August Shares) shall not result in the application of any
limitations under Section 382 or Section 383 of the Internal
Revenue Code of 1986, as amended (the "Code"), on the use
of the Tax Benefits (as defined in the Company's Restated
Certificate of Incorporation); provided, however, that if
the Company fails to receive the foregoing opinion, the
Company will be obligated to deliver such lesser number of
8
<PAGE>
shares under Article 2 hereof, which number shall constitute
the Securities under this Agreement, (taken together with
the issuance of the August Shares) as shall result in
increases calculated under Sections 382(g)(1)(A) and (B) of
the Code aggregating 49.8 percentage points during the
applicable "testing period" as defined in Section 382 of the
Code culminating on the Closing Date, and the Company shall
be furnished with an opinion of Weil, Gotshal & Manges LLP
to the effect that the issuance of the Securities (as so
adjusted) pursuant to this Agreement shall not result in the
application of any Section 382 limitation on the use of the
Tax Benefits.
VIII. CLOSING
8.1. Closing Date. (a) The closing of the sale and
purchase of the Shares provided for in Article III hereof
(the "Closing") shall take place at the offices of Weil,
Gotshal & Manges LLP, New York, New York at 10:00 a.m. (New
York City time) (or at such time and at such place as the
parties may designate) on the second business day following
the date on which each of the conditions specified in
Article VII hereof has been fulfilled (or waived by the
party entitled to waive that condition), provided that in no
event shall the Closing take place prior to July 5, 1999.
The date on which the Closing occurs is referred to in this
Agreement as the "Closing Date".
(b) In the event that LUK fails to close because the
conditions set forth in Section 7.1 have not been satisfied,
the Company shall repay to LUK an amount equal to the
Purchase Price delivered to the Company on the date of this
Agreement pursuant to Section 3.2 of this Agreement, plus
interest on such Purchase Price, which shall accrue at the
rate of 6% per annum from the date of deposit of the
Purchase Price with the Company through the date such
Purchase Price is repaid to LUK.
(c) In the event that the Purchase Price is reduced
pursuant to Section 3.1 hereof, the Company shall repay to
LUK at the Closing an amount equal to the difference between
the Purchase Price advanced to the Company on the date of
this Agreement and the reduced Purchase Price. If this
payment is not made at the Closing, the Company interest
shall accrue on such amount at the rate of 6% per annum from
the Closing Date through the date such payment is made to
LUK.
8.2. Liquidated Damages. If the Company fails to
deliver the Securities at the Closing (other than as a
result of the exercise of its rights under Section 7.2
hereof), then the Company shall be required to repay the
Purchase Price to LUK and, at LUK's option, the Company
shall either (i) repurchase the shares of Common Stock owned
by LUK at 200% of the fair market value for such shares as
of the Closing Date, but not less than a price per share of
9
<PAGE>
$1; or (ii) pay LUK $2,000,000. The Company and LUK agree
that the payment obligation contained in the foregoing
sentence is an integral part of the transactions
contemplated by this Agreement and constitute liquidated
damages and not a penalty. If the Company fails to pay such
amount to LUK, then the Company shall pay the costs and
expenses (including reasonable legal fees and expenses) in
connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment,
together with interest on the amount of any unpaid fee at
the publicly announced prime rate of Chase Manhattan Bank
from the Closing Date to the date of prepayment.
8.3. Specific Performance. The parties hereto
acknowledge that irreparable damage would result if this
Agreement were not specifically enforced, and they therefore
consent that the rights and obligations of the parties under
this Agreement, including the Company's obligation to sell
the Securities to LUK, may be enforced by a decree of
specific performance issued by a court of competent
jurisdiction. Such remedy shall, however, not be exclusive
and shall be in addition to any other remedies which any
party may have under this Agreement or otherwise.
IX. SECURITIES LAW MATTERS
9.1. Legends. Unless the Securities are the subject
of an effective registration statement, each certificate
representing the Securities shall bear a legend
substantially in the following form:
"THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") OR
ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFEC-
TIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION THEREFROM."
X. INDEMNIFICATION AND EXPENSES
10.1. Indemnification by the Company. The Company
agrees to indemnify, defend and hold LUK and its respective
officers, directors, employees, agents and controlling
persons (collectively, the "LUK Indemnitees") harmless from
and against any and all expenses, losses, claims, damages
and liabilities which are incurred by or threatened against
the LUK Indemnitees, or any of them, including, without
limitation, reasonable attorneys' fees and expenses, caused
by, or in any way resulting from or relating to the
10
<PAGE>
Company's breach of any of the representations, warranties,
covenants or agreements of the Company set forth in this
Agreement.
10.2. Indemnification by LUK. LUK agrees to
indemnify, defend and hold harmless the Company and its
respective officers, directors, employees, agents, partners
and controlling persons (collectively, the "Company
Indemnitees") harmless from and against any and all
expenses, losses, claims, damages and liabilities which are
incurred by or threatened against the Company Indemnitees,
or any of them, including, without limitation, reasonable
attorneys' fees and expenses, caused by, or in any way
resulting from or relating to LUK's breach of any of the
representations, warranties, covenants or agreements of LUK
set forth in this Agreement.
XI. MISCELLANEOUS
11.1. Notices. Whenever it is provided herein that
any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served
upon any of the parties by another, or whenever any of the
parties desires to give or serve upon another any such
communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or
other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or by regis-
tered or certified mail, return receipt requested, postage
prepaid, or by telecopy and confirmed by telecopy answerback
addressed as follows:
If to Company at:
HomeFed Corporation
529 East South Temple
Salt Lake City, Utah 84012
Attn: Corinne A. Maki
Telecopy Number: (801) 524-1761
With a copy to:
Pillsbury Madison & Sutro LLP
101 West Broadway
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Suite 1800
San Diego, California 92101-8219
Attn: K. Michael Garrett
Telecopy Number: (619) 236-1995
If to LUK at:
Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
Attn: Joseph S. Steinberg, President
Telecopy Number: (212) 598-3245
with a copy to:
Weil, Gotshal & Manges, LLP
767 Fifth Avenue
New York, New York 10153
Attn: Stephen E. Jacobs
Telecopy Number: (212) 310-8007
or at such other address as may be substituted by notice
given as herein provided. The giving of any notice required
hereunder may be waived in writing by the party entitled to
receive such notice. Every notice, demand, request, con-
sent, approval, declaration or other communication hereunder
shall be deemed to have been duly given or served on the
date on which personally delivered, with receipt acknowl-
edged, telecopied and confirmed by telecopy answerback, or
three (3) business days after the same shall have been
deposited with the United States mail.
11.2. Binding Effect; Benefits. Except as otherwise
provided herein, this Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and
their respective successors, transferees and permitted
assigns. Except as expressly set forth herein, nothing in
this Agreement, express or implied, is intended or shall be
construed to give any person other than the parties to this
Agreement or their respective successors, transferees or
permitted assigns any legal or equitable right, remedy or
claim under or in respect of any agreement or any provision
contained herein.
11.3. Waiver. Either party hereto may by written
notice to the other (a) extend the time for the performance
of any of the obligations or other actions of the other
party under this Agreement; (b) waive compliance with any of
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the conditions or covenants of the other party contained in
this Agreement; and (c) waive or modify performance of any
of the obligations of the other party under this Agreement.
Except as provided in the preceding sentence, no action
taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of either
party, shall be deemed to constitute a waiver by the party
taking such action, of compliance with any representations,
warranties, covenants or agreements contained herein. The
waiver by either party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a
waiver of any preceding or succeeding breach and no failure
by either party to exercise any right or privilege hereunder
shall be deemed a waiver of such party's rights or
privileges hereunder or shall be deemed a waiver of such
party's rights to exercise the same at any subsequent time
or times hereunder.
11.4. Amendment. This Agreement may be amended,
modified or supplemented only by a written instrument
executed by LUK and the Company.
11.5. Assignability. Neither this Agreement nor any
right, remedy, obligation or liability arising hereunder or
by reason hereof shall be assignable by Company. Neither
this Agreement nor any right, remedy, obligation or
liability arising hereunder or by reason hereof shall be
assignable by LUK without the prior written consent of the
Company; provided, however, that without the consent of the
Company LUK may assign this Agreement and any or all rights
or obligations hereunder (including, without limitation,
LUK's rights to purchase the Securities and LUK's rights to
seek indemnification hereunder) to any affiliate of LUK or
to any trust for the benefit of LUK's shareholders,
including the LUK Shareholders Trust. Upon any such
permitted assignment, the references in this Agreement to
LUK shall also apply to any such assignee unless the context
otherwise requires; provided, however, that the conditions
set forth in Section 7.2 shall continue to apply to LUK.
11.6. Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York.
11.7. Section and Other Headings. The section and
other headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or
interpretation of this Agreement.
11.8. Severability. In the event that any one or more
of the provisions contained in this Agreement shall be
determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforce-
ability of any such provision or provisions in every other
respect and the remaining provisions of this Agreement shall
not be in any way impaired.
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11.9. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to
be an original and all of which together shall be deemed to
be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
HOMEFED CORPORATION
By: /s/ Timothy M. Considine
----------------------------
Name: Timothy M. Considine
Title: Chairman of the Board
LEUCADIA NATIONAL CORPORATION
By: /s/ Joseph A. Orlando
----------------------------
Name: Joseph A. Orlando
Title: Vice President and
Chief Financial Officer
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
OTAY LAND COMPANY, LLC
Limited Liability Company Agreement of OTAY LAND
COMPANY,LLC (the "LLC") dated as of October 14, 1998 among
HOMEFED CORPORATION ("HFC") and LEUCADIA NATIONAL
CORPORATION ("LUK," and collectively, the "Members").
W I T N E S E T H :
WHEREAS, the Members desire to enter into this
amended and restated Agreement (the "LLC Agreement") to
establish their respective rights and obligations with
respect to the LLC;
NOW, THEREFORE, in consideration of the premises
and the mutual covenants and provisions hereinafter
contained, the Members hereby agree as follows:
ARTICLE I
ORGANIZATIONAL AND OTHER MATTERS
SECTION 1.01. Formation; Admission. The LLC has
been organized under the provisions of the Limited Liability
Company Act of the State of Delaware (the "LLCA") by filing
a Certificate of Formation with the Secretary of State of
the State of Delaware. Each of HFC and LUK has been
admitted to the LLC as a Member. All Members are required
to hold an interest in the LLC; any failure to hold such an
interest shall result in immediate termination of one's
membership in the LLC.
SECTION 1.02. Name. The name of the LLC shall be
OTAY LAND COMPANY, LLC and the business of the LLC shall be
conducted under such name.
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SECTION 1.03. Principal Office. The principal
office of the LLC shall be at 529 East South Temple, Salt
Lake City, Utah 84102, or such other place as may from time
to time be determined.
SECTION 1.04. Term. The LLC shall commence on
the date of filing of the Certificate of Formation and shall
continue until terminated as provided in this Agreement or
in the Certificate of Formation, as each such document may
be amended from time to time.
SECTION 1.05. Limited Liability. Except as
otherwise provided by the LLCA, the debts, obligations and
liabilities of the LLC, whether arising in contract, tort or
otherwise, shall be the debts, obligations and liabilities
solely of the LLC, and the Members shall not be obligated
personally for any of such debts, obligations or liabilities
solely by reason of being a Member.
ARTICLE II
PURPOSE AND POWERS
SECTION 2.01. Purpose of the LLC. Except as may
be restricted by this Agreement, the LLC may carry on any
lawful business, purpose or activity permitted by the LLCA.
SECTION 2.02. Powers of the LLC. The LLC shall
have the power to do any and all acts reasonably necessary,
appropriate, proper, advisable, incidental or convenient to
or for the furtherance of the purpose and business described
herein and for the protection and benefit of the LLC.
ARTICLE III
FUNDING CONTRIBUTIONS
SECTION 3.01. Funding Contributions. An initial
investment of $10,000,000 in the LLC has been made by HFC
("Capital"). Any additional investments in the LLC to be
made by HFC shall be treated as additional Capital. An
initial investment of $1,000 in the LLC has been made by LUK
("Preferred Capital"). Any additional investments in the
LLC to be made by LUK shall be treated as additional
Preferred Capital. Preferred Capital contributed by LUK
shall be entitled to receive a preferred return pursuant to
Article IV hereof.
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SECTION 3.02. Capital Accounts. The LLC shall
maintain for each Member a separate Capital Account.
SECTION 3.03. No Interest. Except as otherwise
expressly provided in this Agreement, no interest shall be
paid by the LLC on contributions of either Capital or
Preferred Capital, balances in the Members' Capital Accounts
or any other funds contributed to the LLC or distributed or
distributable by the LLC under this Agreement.
SECTION 3.04. No Withdrawal; Return of
Contributions. No Member shall have the right to withdraw
any portion of such Member's Capital Account without the
consent of LUK. Except as required by the LLCA, no Member
shall be personally liable to any other Member for the
return of any capital or any additions thereto, it being
agreed that any return of capital as may be made from time
to time shall be made soley from the assets of the LLC and
only in accordance with the terms hereof.
ARTICLE IV
DISTRIBUTIONS AND ALLOCATIONS
SECTION 4.01. Distribution of Profits. All
proceeds received by the LLC and available for distribution
shall be distributed as follows, in the following order of
priority:
(i) to pay LUK an annual minimum cumulative
preferred return of 10% on all Preferred Capital
provided by LUK;
(ii) to pay LUK an annual minimum cumulative
preferred return of 2% on all Preferred Capital
provided by LUK; provided that this 2% return shall be
payable by the LLC only out of and to the extent of
profits;
(iii) to repay all Preferred Capital provided by
LUK, it being understood that upon payment in full of
the preferred returns pursuant to (i) and (ii) above
and repayment in full of all Preferred Capital the
interest in the LLC represented by such Preferred
Capital shall be extinguished; and
(iv) any remaining funds will be distributed to
the remaining Member or Members in accordance with
their capital accounts.
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SECTION 4.02. Allocation of Profits and Losses.
Profits and losses of the LLC shall be allocated among the
Members in accordance with applicable federal tax laws.
ARTICLE V
MANAGEMENT OF THE LLC
SECTION 5.01. Management. Subject to Sections
5.02 and 5.03 hereof, the management of the business and
affairs of the LLC shall be vested in the "Manager" who
shall be selected by the unanimous vote of all Members;
provided that for so long as an interest in the LLC
represented by Preferred Capital (a "Preferred Capital
Interest") shall be outstanding and held by LUK, LUK shall
select the Manager. The initial Manager of the LLC selected
by LUK shall be HFC. The Manager shall have the power to do
any and all acts necessary or convenient for the furtherance
of the purpose of the LLC described in this Agreement,
including all powers, statutory or otherwise, possessed by
members of a limited liability company under the LLCA. For
so long as LUK shall hold a Preferred Capital Interest in
the LLC, only LUK shall have the power to remove the Manager
of the LLC. Cheryl C. Dearden is hereby designated as an
authorized person, within the meaning of the LLCA, to
execute, deliver and file the Certificate of Formation and
any amendments and/or restatements thereof required by law.
SECTION 5.02. Authorized Officers. The Members
may elect by a unanimous vote officers with such titles as
the Members deem appropriate; provided that for so long as
LUK shall hold a Preferred Capital Interest in the LLC, LUK
shall select the officers of the LLC. The initial officers
of the LLC shall be:
Paul Borden President
Erin Ruhe Treasurer and Secretary
Patrick Bienvenue Vice President
Joseph A. Orlando Vice President
Philip M. Cannella Vice President
The foregoing officers shall serve in such office until
removed and replaced by the unanimous vote of all Members.
SECTION 5.03. Limitations on Management.
Notwithstanding anything else to the contrary contained in
this Agreement, the unanimous vote of all Members shall be
required to authorize (i) any borrowing by the LLC and (ii)
the encumbrance of any assets of the LLC.
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SECTION 5.04. Liability of Members;
Indemnification.
(a) To the fullest extent permitted by the laws
of Delaware, the LLC (i) shall indemnify and hold harmless
LUK and its respective officers, directors and shareholders
for so long as LUK holds a preferred capital interest in the
LLC, and (ii) may indemnify and hold harmless each Member
and its respective officers, directors, shareholders,
members or partners, and each officer of the LLC (each of
the parties listed in (i) and (ii), an "Indemnitee"), from
and against any and all losses, claims, demands, costs,
damages, liabilities (joint or several), expenses of any
nature (including reasonable attorneys' fees and
disbursements), judgments, fines, settlements and other
amounts ("Damages") arising from any and all claims,
demands, actions, suits or proceedings, whether civil,
criminal, administrative or investigative, in which an
Indemnitee may be involved, or threatened to be involved, as
a party or otherwise, arising out of or incidental to the
business of the LLC, regardless of whether an Indemnitee
continues to be a Member or an officer, director, share-
holder, member or partner of such Member at the time any
such liability or expense is paid or incurred, except for
any Damages based upon, arising from or in connection with
any act or omission of an Indemnitee committed without
authority granted pursuant to this Agreement or in bad faith
or otherwise constituting willful misconduct.
(b) Expenses (including reasonable attorneys'
fees and disbursements) incurred in defending any claim,
demand, action, suit or proceeding, whether civil, criminal,
administrative or investigative, subject to Section 5.04(a)
hereof, may be paid (or caused to be paid) by the LLC in
advance of the final disposition of such claim, demand,
action, suit or proceeding upon receipt of an undertaking by
or on behalf of the Indemnitee to repay such amount if it
shall ultimately be determined, by a court of competent
jurisdiction from which no further appeal may be taken or
the time for any appeal has lapsed (or otherwise, as the
case may be), that the Indemnitee is not entitled to be
indemnified by the LLC as authorized hereunder or is not
entitled to such expense reimbursement.
(c) The indemnification provided by Section
5.04(a) hereof shall be in addition to any other rights to
which an Indemnitee may be entitled under any agreement or
unanimous vote of the Members, as a matter of law or
otherwise, both (i) as to action in the Indemnitee's
capacity as a Member or as an officer, director,
shareholder, member or partner of a Member, and (ii) as to
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action in another capacity, and shall continue as to an
Indemnitee who has ceased to serve in such capacity and
shall inure to the benefit of the heirs, successors,
assigns, administrators and personal representatives of the
Indemnitee.
(d) Any indemnification hereunder shall be
satisfied only out of the assets of the LLC, and the Members
shall not be subject to personal liability by reason of
these indemnification provisions.
(e) An Indemnitee shall not be denied indemni-
fication in whole or in part under Section 5.04(a) hereof
because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this
Agreement.
(f) No Member shall be liable, in damages or
otherwise, to the LLC or any other Member for nay act or
omission performed or omitted to be performed by it in good
faith pursuant to the authority granted to such Member this
Agreement of the LLCA.
ARTICLE VI
TRANSFER OF MEMBERSHIP INTERESTS
Transfer Restrictions. No transfer, except with
the unanimous consent of the Members, of all or any portion
of a Member's interest in the LLC shall be permitted;
provided that LUK may transfer its interest in the LLC to
any subsidiary of LUK.
ARTICLE VII
DISSOLUTION AND LIQUIDATION
SECTION 7.01. Bankruptcy. The LLC shall be
dissolved and its affairs shall be wound up upon the
Bankruptcy (as defined below) of the LLC or any Member;
provided, however, that upon the occurrence of any such
event, a majority in interest of the Members may, within 90
days thereafter, agree to continue the business of the LLC,
upon all of the terms and provisions of this Agreement. For
purposes of this Agreement, "Bankruptcy" means (i) the
filing of a voluntary petition seeking liquidation,
reorganization, arrangement or readjustment, in any form, of
debts under title 11 of the United States Code, as amended
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(the "Bankruptcy Code") (or corresponding provisions of
future laws) or any other federal, state or foreign
insolvency law, or the filing of an answer consenting to or
acquiescing in any such petition; (ii) the making of any
assignment for the benefit of creditors or the admission in
writing of the inability to pay debts as they mature; or
(iii) the expiration of 60 days after the filing of an
involuntary petition under the Bankruptcy Code (or
corresponding provisions of future laws) seeking an
application for the appointment of a receiver, or an
involuntary petition seeking liquidation, reorganization,
arrangement or readjustment of debts under any other
federal, state or foreign insolvency law, unless the same
shall have been vacated, set aside or stayed within such
60-day period.
SECTION 7.02. Effect of Dissolution. Upon
dissolution, subject to the Members' right to elect to
continue the business of the LLC pursuant to Section 7.01
hereof, the LLC shall cease carrying on its business but
shall not terminate until the winding up of the affairs of
the LLC is completed, the assets of the LLC shall have been
distributed as provided below and a Certificate of
Cancellation of the LLC under the LLCA has been filed with
the Secretary of State of the State of Delaware.
SECTION 7.03. Liquidation Upon Dissolution. Upon
the dissolution of the LLC, subject to the Members' right to
elect to continue the business of the LLC pursuant to
Section 7.01 hereof, sole and plenary authority to
effectuate the liquidation of the assets of the LLC shall be
vested (a) in LUK for so long as LUK's Preferred Capital
interest in the LLC shall remain outstanding, and if such
Preferred Capital interest shall have been extinguished, (b)
in HFC, which party shall have full power and authority to
sell, assign and encumber any and all of the LLC's assets
and to wind up and liquidate the affairs of the LLC in an
orderly and business-like manner. The proceeds of
liquidation of the assets of the LLC distributable upon a
dissolution and winding up of the LLC shall be applied in
the following order of priority:
(i) first, to the creditors of the LLC,
including creditors who are Members, in the order of
priority provided by law, in satisfaction of all
liabilities and obligations of the LLC (of any nature
whatsoever, including, without limitation, fixed or
contingent, matured or unmatured, legal or equitable,
secured or unsecured), whether by payment or the making
of reasonable provision for payment thereof; and
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(ii) thereafter, in accordance with the
provisions of Article IV hereof.
SECTION 7.04. Winding Up and Certificate of
Cancellation. The winding up of the LLC shall be completed
when all of its debts, liabilities, and obligations have
been paid and discharged or reasonably adequate provision
therefor has been made, and all of the remaining property
and assets of the LLC have been distributed to the Members.
Upon the completion of the winding up of the LLC, a
Certificate of Cancellation of the LLC shall be filed with
the Secretary of State of the State of Delaware.
ARTICLE VIII
AMENDMENT
Amendment Procedures. This Agreement may be
amended or modified only by a written instrument executed by
each Member. In addition, the terms or conditions hereof
may be waived by a written instrument executed by the party
waiving compliance.
ARTICLE IX
MISCELLANEOUS
Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to
be an original, but all of which shall constitute one and
the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have
entered into this Agreement as of the date first written
above.
HOMEFED CORPORATION
By: /s/ Paul J. Borden
-------------------------------
Name: Paul J. Borden
Title: President
LEUCADIA NATIONAL CORPORATION
By: /s/ Joseph S. Steinberg
-------------------------------
Name: Joseph S. Steinberg
Title: President
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 11,286
<SECURITIES> 78
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,832
<CURRENT-LIABILITIES> 0
<BONDS> 19,545
0
0
<COMMON> 100
<OTHER-SE> (6,319)
<TOTAL-LIABILITY-AND-EQUITY> 18,832
<SALES> 4,860
<TOTAL-REVENUES> 5,111
<CGS> 4,734
<TOTAL-COSTS> 4,734
<OTHER-EXPENSES> 611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,236
<INCOME-PRETAX> (2,470)
<INCOME-TAX> (25)
<INCOME-CONTINUING> (2,495)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,495)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
