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 March 31, 1999
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
(Exact name of registrant as specified in its charter)
Delaware 33-0304982
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1903 Wright Place, Suite 220, Carlsbad, California 92008
(Address of principal executive offices) (Zip Code)
(760) 918-8200
(Registrant's telephone number, including area code)
N/A
(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 May 13, 1999, 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
March 31, 1999 and December 31, 1998
(Dollars in thousands, except par value)
----------------------------------------
March 31, December 31,
1999 1998
--------- -----------
(Unaudited)
ASSETS
Land and real estate held for development $ 23,090 $ 4,636
Cash and cash equivalents 4,015 3,120
Restricted cash 1,320 1,127
Investment in Otay Land Company, LLC -- 10,125
Other investments -- 79
Deposits and other assets 247 164
--------- ---------
TOTAL $ 28,672 $ 19,251
========= =========
LIABILITIES
Note payable to Leucadia Financial Corporation $ 20,320 $ 19,736
Accounts payables and accrued liabilities 1,051 802
--------- ---------
Total liabilities 21,371 20,538
--------- ---------
MINORITY INTEREST 10,000 --
--------- ---------
COMMON STOCK SUBSCRIPTION
Advance under common stock subscription 6,710 6,710
--------- ---------
STOCKHOLDERS' DEFICIT
Common Stock, $.01 par value;
100,000,000 shares authorized; 100 100
10,000,000 shares outstanding
Additional paid-in capital 346,919 346,919
Accumulated deficit (356,428) (355,016)
--------- ---------
Total stockholders' deficit (9,409) (7,997)
--------- ---------
TOTAL $ 28,672 $ 19,251
========= =========
See notes to interim consolidated financial statements.
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HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended March 31, 1999 and 1998
(In thousands, except per share amounts)
(Unaudited)
--------------------------------------------------
1999 1998
---- ----
Sales of residential properties $ 2,250 $ 891
Cost of sales 2,218 894
------- -------
Gross profit (loss) 32 (3)
Provision for losses on real estate investments 255 --
Interest expense relating to Leucadia Financial Corporation 584 772
General and administrative expenses 575 131
Management fees to Leucadia Financial Corporation 74 17
------- -------
Loss from operations (1,456) (923)
Other income - net 52 70
------- -------
Loss before income taxes (1,404) (853)
Income tax expense (8) (9)
------- -------
Net loss $(1,412) $ (862)
======= =======
Basic loss per common share $ (0.14) $ (0.09)
======= =======
Diluted loss per common share $ (0.14) $ (0.09)
======= =======
See notes to interim consolidated financial statements.
3
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in
Stockholders' Deficit For the three
months ended March 31, 1999 and 1998
(In thousands)
(Unaudited)
-------------------------------------
Common
Stock Additional Total
$.01 Par Paid-In Accumulated Stockholders'
Value Capital Deficit Deficit
--------- ---------- ----------- -------------
Balance, January 1, 1998 $ 100 $ 339,904 $(350,743) $ (10,739)
Net loss (862) (862)
--------- --------- --------- ---------
Balance, March 31, 1998 $ 100 $ 339,904 $(351,605) $ (11,601)
========= ========= ========= =========
Balance, January 1, 1999 $ 100 $ 346,919 $(355,016) $ (7,997)
Net loss (1,412) (1,412)
--------- --------- --------- ---------
Balance, March 31, 1999 $ 100 $ 346,919 $(356,428) $ (9,409)
========= ========= ========= =========
See notes to interim consolidated financial statements.
4
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash
Flows For the three months ended
March 31, 1999 and 1998
(In thousands)
(Unaudited)
------------------------------------
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,412) $ (862)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Provision for losses on real estate investments 255 --
Accrued interest added to note payable to Leucadia Financial Corporation 584 --
Changes in operating assets and liabilities:
Land and real estate held for development 1,545 324
Deposits and other assets (83) 237
Accounts payable and accrued liabilities 120 52
Decrease (increase) in restricted cash (193) 3
------- -------
Net cash provided by (used in) operating activities 816 (246)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in other investments 79 (1)
------- -------
Net cash provided by (used in) investing activities 79 (1)
------- -------
Net increase (decrease) in cash and cash equivalents 895 (247)
Cash and cash equivalents, beginning of period 3,120 4,195
------- -------
Cash and cash equivalents, end of period $ 4,015 $ 3,948
======= =======
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. 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 for the year
ended December 31, 1998 which are included in the Company's Annual Report
on Form 10-K, as amended by Form 10-K/A, for such year (the "1998 10-K").
Results of operations for interim periods are not necessarily indicative of
annual results of operations. The consolidated balance sheet at December
31, 1998 was derived from the Company's audited consolidated financial
statements in the 1998 10-K, and does not include all disclosures required
by generally accepted accounting principles for annual financial
statements.
During the first quarter of 1999, the limited liability company agreement
governing Otay Land Company, LLC ("Otay Land Company") was amended and as a
result, the Company now has the ability to control Otay Land Company.
Accordingly Otay Land Company has been included in the Company's
consolidated financial statements. The Company previously had accounted for
this investment under the equity method of accounting; the noncash effects
on the Consolidated Statements of Cash Flows are a decrease in the
investment in Otay Land Company of $10,125,000 and an increase in minority
interest of $10,000,000.
2. In 1992, the Company filed for bankruptcy protection under Chapter 11 of
the United States Bankruptcy Code. The Company emerged from bankruptcy in
1995 pursuant to a plan of reorganization (the "Plan"). Leucadia Financial
Corporation ("LFC"), an indirect wholly-owned subsidiary of Leucadia
National Corporation ("Leucadia"), principally funded the Plan by
purchasing a $20,000,000 principal amount, 12% secured convertible note due
2003 (the "Convertible Note") and 2,700,000 shares of newly issued common
stock, par value $.01 per share ("Common Stock") of the Company. In
addition, LFC received 1,417,986 shares of Common Stock of the Company
under the Plan. These shares, together with the shares LFC purchased,
constituted 41.2% of the issued and outstanding Common Stock of the Company
following the bankruptcy.
3. In August 1998, in connection with the stock purchase agreements and
development management agreement referred to below, the Company and LFC
entered into an Amended and Restated Loan Agreement, pursuant to which the
Company and LFC restructured the outstanding Convertible Note held by LFC.
The Restructured Note has a principal amount of approximately $26,462,000
(reflecting the original $20,000,000 principal balance of the Convertible
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 Convertible 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 Convertible Note. Interest
only on the Restructured Note is paid quarterly and all unpaid principal is
due on the maturity date. During the three- month period ended March 31,
1999, interest of approximately $391,000 was accrued on the Restructured
Note; this amount was paid to LFC in April 1999. As a result of the
restructuring of the Convertible Note, the Restructured Note was recorded
at fair value and the approximately $7,015,000 difference between such
amount and the carrying value of the Convertible 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 Convertible
Note will be amortized as interest expense over the term of the
Restructured Note using the interest method. Approximately $193,000 was
amortized as interest expense during the three-month period ended March 31,
1999.
4. In August and October 1998, in connection with the execution of the
development management agreement for San Elijo Hills and the restructuring
of the Convertible Note, Leucadia entered into agreements to purchase, on
or after July 5, 1999, an additional 46,557,826 shares of Common Stock for
aggregate consideration of $8,380,000. In 1998, Leucadia irrevocably
transferred all of the Common Stock that it
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beneficially owned, together with the stock purchase agreements, to a trust
(the "Leucadia Trust") formed for the benefit of Leucadia shareholders of
record as of August 25, 1998 (the "Trust Beneficiaries"). The Leucadia
Trust currently holds the 41.2% of the Company's issued and outstanding
Common Stock that LFC acquired under the Plan, together with the stock
purchase agreements. Upon consummation of the purchases under these stock
purchase agreements, the Leucadia Trust will beneficially own 89.6% of the
issued and outstanding Common Stock of the Company. Pursuant to the terms
of the agreement governing the Leucadia Trust, the Leucadia Trust will
terminate on the earlier of: (i) the date when all of the Company's Common
Stock and any rights remaining under the stock purchase agreements have
been distributed to the Trust Beneficiaries or (ii) December 31, 2001. The
Company has been advised that, as promptly as practicable following the
purchase of Common Stock under the two stock purchase agreements and the
effectiveness of a registration statement to be filed with the Securities
and Exchange Commission, the Leucadia Trust intends to distribute to its
beneficial holders all of the Company's Common Stock then owned by the
Leucadia Trust.
5. 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 outstanding for the periods.
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 1999 and 1998. The calculation of diluted loss per share
does not include Common Stock equivalents of 46,557,826 and 54,400,000 for
1999 and 1998, respectively, which are antidilutive.
6. As of October 14, 1998, the Company and Leucadia formed Otay Land Company.
The Company initially contributed $10,000,000 as capital and Leucadia
contributed $10,000,000 as a preferred capital interest. The Company also
contributed $125,000 as capital in 1998 and $450,000 during the three-month
period ended March 31, 1999. The Company is 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 22,900 acre project
located south of San Diego, California, known as Otay Ranch. Distributions
of net income from this investment first will be paid to Leucadia until it
has received an annual cumulative preferred return of 12% on, and repayment
of, its preferred investment. Any remaining funds are to be distributed to
the Company.
7. Pursuant to administrative services agreements, LFC provides administrative
services to the Company, including providing the services of two of the
Company's three executive officers. Effective March 1, 1999, the Company
and LFC entered into a new three year administrative services agreement
pursuant to which the Company will pay LFC an administrative fee of
$296,101 for the first annual period, with the fee for subsequent annual
periods to be negotiated. Fees paid by the Company to LFC totaled $74,000
for the three-month period ended March 31, 1999.
The Company rents office space and furnishings from a subsidiary of
Leucadia for a monthly amount equal to its share of the Leucadia
subsidiary's cost for such space and furnishings. For the three months
ended March 31, 1999, the Company accrued $37,000 in rental expense,
related to space provided by Leucadia or its affiliates, to the Leucadia
subsidiary.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations.
The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's 1998 10-K.
Liquidity and Capital Resources
For the three-month period ended March 31, 1999, net cash was provided by
operating activities, principally from sales of residential properties. For the
three-month period ended March 31, 1998, net cash was used in operating
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activities principally to fund interest and general and administrative expenses.
The Company's principal sources of funds are dividends or borrowings from its
subsidiaries, any fee income earned from the San Elijo Hills project and amounts
receivable and advanced pursuant to the stock purchase agreements described
herein. The Company is dependent upon the cash flow, if any, from the sale of
real estate and management fees in order to pay its expenses, including debt
service payments.
The Company expects that its cash on hand, together with cash generated from lot
sales and the remaining purchase price due pursuant to the August 1998 stock
purchase agreement described above, will be sufficient to meet its cash flow
needs for the foreseeable future. However, the Company's ability to fund the
cost of providing services required under the Development Management Agreement
for San Elijo Hills after 1999 will depend significantly upon the receipt of
fees under the development agreement as described below. If at any time in the
future the Company's cash flow is insufficient to meet its then current cash
requirements, the Company could sell real estate projects held for development
or seek to borrow funds. However, any additional financing from an unaffiliated
party cannot be collateralized by any of the Company's assets without LFC's
consent. Accordingly, the Company may be unable to obtain financing from sources
other than LFC or its affiliates.
The Development Agreement provides that the Company will receive certain fees in
connection with the project. These fees consist of marketing and management
service fees, are based on a fixed percentage of gross revenues received in
respect of the project and are expected to cover the Company's cost of providing
these services. In addition, the Development Agreement provides for payment of a
success fee under certain circumstances to the Company based on the net cash
flow from the project (as determined in accordance with the Development
Agreement), subject to a maximum success fee; the timing of the payment of any
success fee prior to the conclusion of the project will be at the discretion of
the project owner.
In order to determine net cash flow for purposes of calculating the success fee,
all cash expenditures of any nature whatsoever, including land development
costs, current period operating costs, indebtedness either collateralized by the
project (approximately $34,900,000 at March 31, 1999) or owed by the project's
owner to Leucadia (approximately $37,300,000 at March 31, 1999) (collectively,
"Indebtedness") will be deducted from total revenues received from the project.
The Company is entitled to receive payments out of net cash flow, up to the
aggregate amount of the Indebtedness, with the balance of the net cash flow (if
any) to be paid equally to the Company and the project owner. There can be no
assurance that the Company will receive any success fee for this project. The
Company believes that any success fee that it may receive will be all of the net
income the Company may earn as a result of its participation in the San Elijo
Hills project pursuant to the Development Agreement.
As of August 14, 1998, the Company and LFC restructured the original Convertible
Note held by LFC and the related loan agreement. The Restructured Note is in the
principal amount of approximately $26,462,000, 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 Convertible Note. Interest only on
the Restructured Note is paid quarterly and all unpaid principal is due on the
date of maturity. During the three-month period ended March 31, 1999, the
Company accrued $391,000 in interest on the Restructured Note, which was paid to
LFC on April 14, 1999.
In the first quarter of 1999, the Company sold the remaining 75 residential lots
at the Paradise Valley project for $2,250,000, less closing costs. The Company
has certain continuing obligations with respect to this project, including the
obligation to construct a recreation center. The Company estimates that
construction of the recreation center for the Paradise Valley Community will be
completed at a cost of approximately $1,100,000. This obligation is
collateralized by a $1,000,000 collateralized letter of credit. The Company
anticipates construction of the recreation center will begin in 1999.
In February 1999, one of the Company's consolidated partnerships placed
approximately $197,000 on deposit with a financial institution in Salt Lake
City, Utah to secure a standby letter of credit. The letter of credit was
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issued to guaranty the partnership's obligation to complete landscape,
irrigation and fencing improvements at the Paradise Valley project.
In connection with an indemnity agreement to a third party surety, a subsidiary
of the Company is required to maintain either a minimum net worth of $5,000,000
and a minimum cash balance of $400,000 or provide an irrevocable letter of
credit to such third party. Based upon current estimates, the amount of the
letter of credit required to satisfy this obligation would be approximately
$460,000. The Company has not elected to deliver this letter of credit, although
it may choose to do so in the future if it determines that the minimum net worth
requirement restricts its operating flexibility.
In October 1998, the Company and Leucadia formed Otay Land Company, LLC. Through
March 31, 1999, the Company invested $10,575,000 as capital and Leucadia
invested $10,000,000 as a preferred capital interest. The Company is the manager
of Otay Land Company. In 1998, Otay Land Company purchased approximately 4,800
acres of land that is part of a 22,900 acre project located south of San Diego,
California, known as Otay Ranch, for approximately $19,500,000. Distributions of
net income from this investment first will be paid to Leucadia until it has
received an annual cumulative preferred return of 12% on, and repayment of, its
preferred investment. Any remaining funds are to be distributed to the Company.
Results of Operations
Sales of residential properties increased in the three-month period ended March
31, 1999 as compared to the same period in 1998, as a result of the sale of the
remaining 75 residential lots in the Paradise Valley project in 1999. Cost of
sales recorded during these periods reflects the level of sales activity.
The provision for losses on real estate investments includes $225,000 reflecting
an increase in the Company's estimated cost to complete the recreational center
for the Paradise Valley Community.
Interest expense for 1999 reflects $391,000 due and subsequently paid to LFC on
the Restructured Note and $193,000 resulting from the amortization of a portion
of the difference between the fair value of the Restructured Note and the
carrying value of the Convertible Note. Interest expense for 1998 reflects
interest of $772,000 due on the Convertible Note which was paid by the Company.
General and administrative expenses increased in 1999 as compared to 1998 due to
the increased operating activities in connection with the San Elijo Hills
project and Otay Ranch project, including opening an office in Carlsbad,
California.
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 is continuing to conduct a review of its computerized systems to
determine how its systems would be affected by the Year 2000 issues. The Company
has engaged a consultant to review certain of its computerized systems and their
Year 2000 compliance. Additionally, the Company is assessing all material third
parties with which the Company has material relationships to determine their
compliance with Year 2000 issues. The Company is seeking confirmation that all
such third parties are or will be Year 2000 compliant and expects such inquiry
to be completed by the fourth quarter of 1999.
To date the Company has not incurred any material expenses in its Year 2000
compliance efforts. No additional significant costs are anticipated and no other
information technology projects have been deferred as a result of Year 2000
issues.
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With respect to outside parties that could affect the Company's business as a
result of Year 2000 problems, the Company believes that the most likely problems
would arise because of isolated instances of shortages of supplies. However, the
Company's suppliers are major businesses which it believes will be Year 2000
compliant. The Company has not developed a formal contingency plan but believes
there are adequate alternative suppliers which the Company could use in the
event that one of its suppliers was unable to provide supplies needed in its
operations. The Company believes that in the most reasonably likely worst case,
it would experience only a short-term problem causing a temporary disruption of
business. However, there can be no assurance that this belief will be correct or
that there will not be a material adverse effect on the Company's financial
condition or results of operations.
Cautionary Statement for Forward-Looking Information
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Interim Operations may contain forward-looking
statements. Such forward-looking statements are made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements may relate, but are not limited, to projections of revenues, income
or loss, capital expenditures, plans for growth and future operations (including
Year 2000 compatibility), competition and regulation as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be predicted or quantified. When
used in this Management's Discussion and Analysis of Financial Condition and
Results of Interim Operations, the words "estimates", "expects", "anticipates",
"believes", "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. The factors that could cause actual results to
differ materially from those suggested by any such statements include, but are
not limited to, those discussed or identified from time to time in the Company's
public filings, including general economic and market conditions, changes in
domestic laws, regulations and taxes, changes in competition and pricing
environments, regional or general changes in asset valuation, the occurrence of
significant natural disasters, prevailing interest rate levels, the difficulty
in identifying hardware and software that may not be Year 2000 compliant, the
lack of success of third parties to adequately address the year 2000 issue, and
changes in the composition of the Company's assets and liabilities through
acquisitions or divestitures. Undue reliance should not be placed on these
forward-looking statements, which are applicable only as of the date hereof. The
Company undertakes no obligation to revise or update these forward-looking
statements to reflect events or circumstances that arise after the date of this
Management's Discussion and Analysis of Financial Condition and Results of
Interim Operations or to reflect the occurrence of unanticipated events.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of March 31, 1999, among HomeFed Corporation
and Leucadia National Corporation.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
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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: May 17, 1999
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INDEX TO EXHIBITS
Exhibits
- --------
10.1 Amended and Restated Limited Liability Company Agreement of Otay
Land Company, LLC, dated as of March 31, 1999, among HomeFed
Corporation and Leucadia National Corporation.
27.1 Financial Data Schedule.
13
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 March 31, 1999 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.
SECTION 1.03. Principal Office. The principal
office of the LLC shall be at 529 East South Temple, Salt
NYFS04...:\30\76830\0194\570\AGR0128V.00E
<PAGE>
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.
SECTION 3.02. Capital Accounts. The LLC shall maintain for each
Member a separate Capital Account.
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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.
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.
3
<PAGE>
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 majority vote of the Members. However,
the Manager may be removed by any Member for cause. The initial Manager of the
LLC 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. 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
majority vote officers with such titles as the Members deem appropriate. 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
Curt Noland Vice President
The foregoing officers shall serve in such office until removed and replaced by
the majority vote of the 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.
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
4
<PAGE>
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, shareholder, 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 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.
5
<PAGE>
(e) An Indemnitee shall not be denied indemnification 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 (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,
6
<PAGE>
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
(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
7
<PAGE>
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]
8
<PAGE>
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 A. Orlando
----------------------------------
Name: Joseph A. Orlando
Title: Vice 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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 4,015
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,672
<CURRENT-LIABILITIES> 0
<BONDS> 20,320
0
0
<COMMON> 100
<OTHER-SE> (9,409)
<TOTAL-LIABILITY-AND-EQUITY> 28,672
<SALES> 2,250
<TOTAL-REVENUES> 2,302
<CGS> 2,218
<TOTAL-COSTS> 2,218
<OTHER-EXPENSES> 649
<LOSS-PROVISION> 255
<INTEREST-EXPENSE> 584
<INCOME-PRETAX> (1,404)
<INCOME-TAX> 8
<INCOME-CONTINUING> (1,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,412)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
