As filed with the Securities and Exchange Commission on September 22, 1999
Registration No. 333 - 79901
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
AMENDMENT NO. 3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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 Number)
PAUL J. BORDEN
1903 WRIGHT PLACE 1903 WRIGHT PLACE
SUITE 220 SUITE 220
CARLSBAD, CALIFORNIA 92008 CARLSBAD, CALIFORNIA 92008
(760) 918-8200 (760) 918-8200
(Address, including zip code and (Name, address, including zip code,
telephone number, including and telephone number, including
area code of registrant's area code, of agent for service)
principal executive offices)
Copies to:
STEPHEN E. JACOBS, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
(212) 310-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), please check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
--------------
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
--------------
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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449676 v. 29
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This information in this prospectus is not complete and may be changed. We may
not distribute these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion, dated September 22, 1999
PROSPECTUS
50,675,812 SHARES
HOMEFED CORPORATION
COMMON STOCK
o For each common share of Leucadia National
Corporation that you owned on August 25, 1998,
you will receive approximately 0.79 shares of
HomeFed common stock in the distribution.
o You will not have to pay for the HomeFed common
stock you receive, will not have to surrender any
Leucadia common shares, and will not have to take
any other action in order to receive the HomeFed
common stock.
o There will be no proceeds from the distribution.
HomeFed common stock is traded in the
over-the-counter market under the symbol "HFDC" and is not
listed on any stock exchange.
HOMEFED COMMON STOCK INVOLVES A HIGH DEGREE OF
RISK. PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
September 22, 1999.
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TABLE OF CONTENTS
PAGE
SUMMARY INFORMATION -- Q&A..................................................1
RISK FACTORS................................................................4
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION.........................13
USE OF PROCEEDS............................................................14
PRICE RANGE OF HOMEFED COMMON STOCK AND DIVIDEND INFORMATION...............14
CAPITALIZATION.............................................................15
SELECTED FINANCIAL DATA....................................................16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................................18
THE DISTRIBUTION...........................................................24
OUR COMPANY................................................................29
MANAGEMENT ................................................................34
CERTAIN TRANSACTIONS.......................................................36
DESCRIPTION OF HOMEFED COMMON STOCK........................................39
THE TRUST .................................................................42
VALIDITY OF SHARES.........................................................42
EXPERTS ...................................................................42
WHERE YOU CAN GET ADDITIONAL INFORMATION...................................42
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SUMMARY INFORMATION -- Q&A
WHO IS HOMEFED?
HomeFed invests in and develops residential real estate projects in California.
Its principal executive offices are located at 1903 Wright Place, Suite 220,
Carlsbad, California 92008 and its telephone number is (760) 918-8200.
WHAT IS BEING DISTRIBUTED?
50,675,812 shares of HomeFed common stock will be distributed, representing
approximately 89.6% of the 56,557,826 outstanding shares of HomeFed common
stock.
WHO IS ENTITLED TO THE DISTRIBUTION?
The HomeFed common stock will be distributed to you and other Leucadia National
Corporation shareholders. This means that if you held Leucadia common shares on
August 25, 1998, you will be entitled to a distribution, even if you do not own
any Leucadia common shares now or on the date of the distribution.
HOW MANY SHARES OF HOMEFED COMMON STOCK WILL I RECEIVE?
You will receive approximately 0.79 shares of HomeFed common stock for each
Leucadia common share you owned on August 25, 1998. You will not receive
fractional shares. If the number of shares issued to you would include a
fraction of a share, you will receive an amount in cash instead of the
fractional share.
DO I HAVE TO DO ANYTHING TO RECEIVE HOMEFED COMMON STOCK IN THE DISTRIBUTION?
No. You will not have to pay any money, surrender any Leucadia common shares or
do anything else in order to receive HomeFed common stock in the distribution.
WHO IS MAKING THE DISTRIBUTION?
The distribution is being made by a trust formed by Leucadia for your benefit,
as a Leucadia shareholder on August 25, 1998. The trust holds all of the
50,675,812 shares of HomeFed common stock to be distributed in the distribution.
The sole business of the trust is to hold this HomeFed common stock and to
distribute this HomeFed common stock to you and the other Leucadia shareholders.
HOW DID THE TRUST GET HOMEFED COMMON STOCK?
The trust acquired 4,117,986 shares of HomeFed common stock, agreements to
purchase an aggregate of 46,557,826 new shares of HomeFed common stock and the
$1,670,100 unpaid portion of the purchase price for these shares from Leucadia.
On July 8, 1999, the trust purchased the 46,557,826 new shares of HomeFed common
stock pursuant to these stock purchase agreements.
WHEN WILL THE DISTRIBUTION TAKE PLACE?
We will mail certificates for your shares of HomeFed common stock as soon as
possible after the date of this document.
WHY DIDN'T THE DISTRIBUTION TAKE PLACE IN AUGUST 1998?
Under the terms of HomeFed's bankruptcy plan of reorganization, which became
effective on July 3, 1995, HomeFed could not issue any stock under the stock
purchase agreements until after July 3, 1999. Therefore, a direct distribution
of HomeFed common stock to Leucadia shareholders in August 1998 was not
possible.
WHAT IS THE REASON FOR THE DISTRIBUTION?
The distribution is being made as part of a series of transactions to protect
HomeFed's significant tax benefits.
In August 1998, HomeFed needed equity financing to permit it to take advantage
of the opportunity to become development manager of San Elijo Hills, a real
estate development project in southern California owned by Leucadia. At that
time, Leucadia owned 41.2% of the HomeFed common stock, and was willing to
purchase additional HomeFed common stock. HomeFed was willing to sell HomeFed
common stock to Leucadia, so long as doing so did not jeopardize HomeFed's
significant net operating tax loss carryovers. The benefits of these tax
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loss carryovers could have been adversely affected if too large a change in
ownership of HomeFed common stock occurred at any time during any three-year
period. Leucadia agreed to increase its equity interest in HomeFed in a manner
that would not jeopardize HomeFed's tax benefits, so long as doing so did not
also restrict Leucadia's ability to issue and/or repurchase its own securities.
Under federal tax laws, as long as Leucadia owned HomeFed common stock, any
issuances or repurchases by Leucadia of its own shares would be treated as a
corresponding proportionate change in ownership of HomeFed common stock.
To accommodate these tax considerations, as well as the restrictions on our
ability to issue shares until after July 3, 1999, Leucadia contributed its
interests in HomeFed to the trust and distributed by dividend to Leucadia
shareholders all of the interests in the trust. As a result, transactions in
Leucadia's stock were unlinked from having any effect on HomeFed's tax benefits.
WHAT WILL HAPPEN TO THE TRUST AFTER THE DISTRIBUTION?
The trust agreement provides that the trust will terminate when the HomeFed
common stock is distributed to you and the other Leucadia shareholders.
WILL THE DISTRIBUTION BE TAXABLE?
No. The dividend by Leucadia of interests in the trust resulted in a taxable
dividend of $0.1426 for each Leucadia common share owned by you on August 25,
1998. The distribution of HomeFed common stock from the trust will not result in
any additional tax to you.
WILL LEUCADIA HAVE ANY RELATIONSHIP WITH HOMEFED FOLLOWING THE DISTRIBUTION?
Yes. Following the distribution, HomeFed and Leucadia will continue to have
relationships as a result of agreements entered into and facts existing prior to
the distribution. These include:
o Leucadia Financial Corporation, a subsidiary of Leucadia, is the
holder of HomeFed's $26,500,000 principal amount collateralized note,
which is carried in our financial statements at $20,300,000.
Accordingly, Leucadia Financial is HomeFed's principal creditor.
o Leucadia Financial provides administrative services to HomeFed,
including the services of HomeFed's President and its
Secretary/Treasurer.
o HomeFed is the development manager for the San Elijo Hills
residential real estate project. That project is owned by San Elijo
Hills Development Company, LLC, a subsidiary of Leucadia.
o San Elijo Hills Development Company has agreed to purchase or to
designate an affiliate, such as Leucadia, to purchase approximately
$66,100,000 of bonds to be issued by the City of San Marcos,
California Redevelopment Agency. These bonds will provide a
substantial portion of the financing that will be used to build
infrastructure and school facilities serving the San Elijo Hills
project.
o Leucadia is an investor in Otay Land Company, LLC, which became a
subsidiary of HomeFed effective March 31, 1999 and owns land in
southern California. Otay Land Company's net income, if any, will be
distributed only to Leucadia, until Leucadia has been paid back its
$10,000,000 preferred capital investment, together with a 12% return
on its investment. Until Leucadia has been paid in full, we will not
receive any distribution from Otay.
o Four of HomeFed's six directors are executive officers of Leucadia or
its subsidiaries, and two of these directors, Ian M. Cumming and
Joseph S. Steinberg, are directors and principal shareholders of
Leucadia. Mr. Cumming is also Chairman of Leucadia and Mr. Steinberg
is President of Leucadia.
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WILL HOMEFED PAY DIVIDENDS ON ITS STOCK?
No. HomeFed does not anticipate paying dividends in the foreseeable future.
WILL THE HOMEFED COMMON STOCK BE LISTED ON A STOCK EXCHANGE?
No. HomeFed common stock is not listed on a stock exchange. Trading in HomeFed
common stock takes place in the over-the-counter market. We cannot assure you
that an active trading market in the shares will develop after the distribution.
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RISK FACTORS
Owning our stock involves risks. You should carefully consider the
following risk factors, as well as the other information contained in this
prospectus. Additional risks not presently known to us or that we currently deem
immaterial also may impair our business operations. In addition, this prospectus
contains forward-looking statements that involve risks and uncertainties.
RISKS RELATING TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR INVESTORS TO EVALUATE OUR
BUSINESS.
HomeFed came out of bankruptcy in July 1995. As a result, we have a
limited operating history on which you can base your evaluation of our business
and prospects. We have been in the business of developing California real estate
since our founding in 1988. However, since August 1998 the focus of our business
has changed from the sale to homebuilders of developed and undeveloped lots in
bulk to the development of master planned communities. As a result, we expect
that our future revenues will be derived from management fees and profit
participations related to the development of master planned communities rather
than the sale of developed and undeveloped lots. However, we cannot assure you
that we will not engage in other activities or businesses that may be unrelated
to our current business.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO SUSTAIN LOSSES IN THE FUTURE.
We have had net losses since emerging from bankruptcy in 1995. For
the six-month period ended June 30, 1999, we had a net loss of approximately
$2,700,000 and for the year ended December 31, 1998, we had a net loss of
approximately $4,300,000. We had an accumulated deficit of approximately
$10,700,000 at June 30, 1999. After giving effect to the issuance of common
stock to the trust in July 1999, our accumulated deficit became approximately
$2,300,000.
OUR EXISTING DEBT MAY ADVERSELY AFFECT OUR FINANCIAL AND OPERATING FLEXIBILITY.
As of June 30, 1999, we had borrowed $26,500,000 from Leucadia
Financial. All of our assets are pledged to collateralize this borrowing. This
has important consequences for us, including:
o cash of approximately $1,600,000 per year from operations or other
sources will be required to make annual debt service payments prior
to maturity of this debt;
o our ability to borrow additional amounts for working capital, debt
service requirements, capital expenditures or acquisitions is
limited;
o our ability to capitalize on significant business opportunities may
be limited and our flexibility to react to changes in competitive
pressures and general economic conditions may be reduced;
o we could be at a competitive disadvantage with respect to less highly
leveraged companies with which we compete; and
o we may be more vulnerable in the event of a downturn in the economy
or a disruption in our business.
It is unlikely that we will be able to obtain additional financing at
favorable rates or at all from sources other than Leucadia Financial because all
of our assets are pledged to Leucadia Financial. If we cannot achieve operating
profitability or positive cash flows from operating activities, we may not be
able to meet our debt service or working capital requirements.
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THE LIMITED NATURE OF OUR OPERATION MEANS THAT A FAILURE OF EVEN ONE OF OUR
PROJECTS TO PERFORM ADEQUATELY CANNOT BE BALANCED BY RESULTS OF OTHER
OPERATIONS. THIS COULD HAVE AN ADVERSE EFFECT ON OUR RESULTS.
Our operations consist of three real estate development projects, San
Elijo Hills, Otay Ranch and Paradise Valley. The San Elijo Hills project is a
master planned community of approximately 3,400 homes and apartments, as well as
commercial properties located in the City of San Marcos, San Diego County,
California. Our Otay Ranch project consists of seven separate non-adjoining
parcels totaling 4,800 acres within the larger Otay Ranch master planned
community located south of San Diego. Our remaining interest in the Paradise
Valley project, a community located in Solano County, California, consists of
two clustered housing development sites and a school site totaling approximately
20 acres. We describe these projects more fully under the caption "Our Company."
We have not received any revenue from the San Elijo Hills and Otay
Ranch projects to date. The San Elijo Hills project is actively being developed.
As development manager of the San Elijo Hills project, we are entitled to
receive marketing, field overhead and management service fees from gross
revenues generated by the project. These fees are expected to cover our cost of
providing services to the project. San Elijo Hills has contracts to sell
approximately 735 lots to various builders. If these sales occur, we will
receive fees of approximately $4,389,000 for these services. These fees are
expected to cover our costs of providing the services to San Elijo Hills.
Through June 30, 1999, our costs for services rendered through that date have
been approximately $1,643,000. We expect that significant additional costs will
be incurred by us to provide continued services required under the development
agreement with respect to these lots. While we expect that some of these sales
will occur in 1999, we cannot assure you that any of these sales will actually
occur. We are also entitled to a success fee if this project generates
sufficient profits. We do not anticipate that we will be paid any success fee in
1999. The fees that we may earn from the San Elijo Hills project are described
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations." In October 1998, we acquired our interest in the
Otay Ranch project and are investigating how to develop this project. We do not
anticipate that the Otay Ranch project will generate revenues in 1999.
THE CONCENTRATION OF OUR OPERATIONS IN CALIFORNIA MAKES OUR BUSINESS SENSITIVE
TO CALIFORNIA DEMOGRAPHIC CHANGES AND ECONOMIC CONDITIONS.
Because our development activities consist exclusively of two
projects in southern California, our business depends to a significant degree on
relocation by Californians and residents of other states and countries to
southern California, in addition to other local market conditions. The
concentration of our business in southern California and the fact that the San
Elijo Hills project is our only project currently in development increase our
vulnerability to regional economic downturns or other events that have a
negative effect on our projects. A decline in the California economy could also
have an adverse effect on our financial condition.
FLUCTUATING OPERATING RESULTS MAY AFFECT THE MARKET PRICE OF OUR STOCK.
Because our real estate projects are long term in nature, our
business cycle does not correspond to our fiscal year or other reporting
periods. As a result, our fiscal year operating results are likely to vary from
period to period, even if we were to have a successful project operating as
planned, and could vary significantly over the life of any given project.
A community may generate strong operating results when first
presented for sale, whether because of local pent-up demand or other reasons.
However, during later periods over the life of the same community, periods of
weaker results may occur. In addition to external factors, our revenues and
earnings are affected by the volume and price of lots that we bring to market at
any given point in time, which reflect, in part, our strategy of developing
communities in phases. As a result, the timing and amount of revenues and
profits are subject to considerable variation and uncertainty. Because only our
San Elijo Hills
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project is in active development, its impact on our earnings and cash flow is
not and, in the future, may not be, balanced by results of other operations,
which could have a moderating effect on the variability of our results.
OUR CASH FLOW IS DEPENDENT UPON THE SUCCESS OF THE SAN ELIJO HILLS PROJECT.
As development manager of the San Elijo Hills project, we will
receive marketing, field overhead and management service fees from the project,
which are expected to cover our costs of providing services to this project. Our
ability to fund the cost of providing services to the San Elijo Hills project
after 1999 will depend significantly upon the receipt of fees under the San
Elijo Hills development agreement. If the project generates sufficient income,
we will also earn a success fee out of the project's net cash flow, up to a
maximum amount. All of this is described under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations." We
are dependent upon the cash flow, if any, generated by the San Elijo Hills
project as our principal source of funds in the future.
FAILURE TO OBTAIN FINAL ENVIRONMENTAL APPROVAL OF THE SAN ELIJO HILLS PROJECT
COULD AFFECT OUR RESULTS OF OPERATIONS.
The San Elijo Hills project is subject to final municipal and court
approvals of an environmental impact report. A draft of the report is under
review by the municipality. Pending finalization and approval of that report by
the municipality and the court, the project may be delayed or stopped. We cannot
predict when the municipality and the court will act on the report or whether
the report will be approved. If the report is not approved, the San Elijo Hills
project could be substantially delayed or operations could be permanently
closed, delaying or eliminating our fee income and/or profit participation from
the San Elijo Hills project. Because we have no other projects in active
development, if this happens, we could have difficulty meeting our debt service
and working capital requirements.
THE SAN ELIJO HILLS PROJECT'S LOCATION NEXT TO A LANDFILL AND RESOURCE RECOVERY
FACILITY MAY AFFECT THE PROFITABILITY OF THE PROJECT AND, AS A RESULT, FEES
PAYABLE TO US.
The San Elijo Hills community is located next to the San Marcos
Landfill and the North County Resource Recovery Facility. The landfill ceased
accepting waste on March 11, 1997 and its owner is preparing and processing a
landfill closure plan with regulatory agencies. The resource recovery facility
is not presently processing solid waste and the facility owner lacks a permit
from the city that would be needed to operate the facility. The owners of these
facilities will provide landscaping and gas collection measures for these sites.
We cannot assure you that the landscaping and gas collection measures will be
adequate to counteract any quality of life issues resulting from the project's
proximity to these sites. As a result, we cannot assure you that the presence of
the closed landfill or the unused facility will not have a negative effect on
sales of property at San Elijo Hills. A reduced ability to sell property at San
Elijo Hills would reduce the fees payable to us as development manager of that
project.
THE PROFITABILITY OF THE SAN ELIJO HILLS PROJECT, AND, AS A RESULT, FEES PAYABLE
TO US, COULD BE ADVERSELY AFFECTED BY THE OBLIGATION OF SAN ELIJO HILLS
DEVELOPMENT COMPANY, THE PROJECT OWNER, TO PURCHASE CITY OF SAN MARCOS
REDEVELOPMENT BONDS.
A substantial portion of the financing for both infrastructure and
school facilities serving the San Elijo Hills project is expected to be provided
by approximately $66,100,000 principal amount of bonds to be issued by the City
of San Marcos Redevelopment Agency. These bonds can be sold to the public; if
not, the project owner, which is a subsidiary of Leucadia, will be required to
purchase the bonds. The project owner may also designate an affiliate, which
could be Leucadia, to purchase the bonds. Approximately $37,000,000 of the
proceeds received from the issuance of the bonds will be used to reimburse the
project owner for project infrastructure and school site costs.
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If the public offering of these bonds is not successful and the
project owner is required to buy these bonds, we have no ability to control
whether the project owner will designate an affiliate to make the required
purchases. Leucadia has the sole ability to make this determination. If the
project owner buys these bonds, it is expected that the project owner will
borrow funds from Leucadia in order to finance the purchase. Under the terms of
the San Elijo Hills development agreement, all indebtedness to Leucadia in
connection with the project must be repaid before any success fee is paid to
HomeFed. As a result, the project's cash flow will be required to service the
additional debt to Leucadia and, until that additional debt is repaid, we will
not receive any success fee. This additional outlay of cash flow by the project
could have an adverse effect on our ability to service our existing debt and to
meet our working capital requirements.
THE FAILURE OF THE CITY OF SAN MARCOS TO ESTABLISH A COMMUNITY FACILITIES
DISTRICT FOR THE SAN ELIJO HILLS PROJECT COULD DELAY DEVELOPMENT OF THE PROJECT
AND ADVERSELY AFFECT ITS PROFITABILITY AND, AS A RESULT, FEES PAYABLE TO US.
The City of San Marcos has agreed to complete proceedings to
establish a Community Facilities District that will issue land secured public
bonds to finance public infrastructure improvements in the San Elijo Hills
project. These bonds are different from the redevelopment agency bonds referred
to above. We currently anticipate that the community facilities district will be
considered by the City of San Marcos in the fourth quarter of 1999 and, if
approved, will be formed and bonds will be authorized in the fourth quarter of
1999. If the City of San Marcos approves a district on terms that are not
acceptable to San Elijo Hills or delays beyond March 15, 2000 formation of the
district and authorization for these bonds, the profitability of the project
will be adversely affected because:
o development of the project would be significantly delayed;
o future lot prices could be reduced; and
o the project owner would not be able to deliver lots in
accordance with the terms of those contracts that require
the community facilities district be formed as
contemplated by those contracts. This could result in
reduction of the contract price, delays in the closing, or
the termination of these contracts
If the profitability of the project is reduced, or the timing of sales is
delayed, fees payable to us as development manager of the project could be
deferred, reduced or eliminated. This could have an adverse effect on our
ability to service our debt and to meet our working capital requirements.
FAILURE BY OTHER OWNERS OR DEVELOPERS TO DEVELOP THE LARGER OTAY RANCH PLANNING
AREA COULD AFFECT THE ULTIMATE PROFITABILITY OF OUR INVESTMENT IN OTAY LAND
COMPANY.
Our property in the larger Otay Ranch planning area consists of 1,200
acres of developable land and 3,600 acres of non-developable land. It is part of
the 22,900-acre master planned community being developed by several other
developers. If any or all of these other developers delay development of, or
fail to develop, their properties:
o we may be restricted in how we can market our property;
o the cost of development of our developable property may be
increased; or
o the development of our developable property may be delayed
or may become uneconomical.
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CONTROL OF HOMEFED BY TWO INDIVIDUALS WILL REDUCE OTHER STOCKHOLDERS' ABILITY TO
CONTROL OUR BUSINESS.
Following the distribution, Messrs. Ian M. Cumming and Joseph S.
Steinberg and their families and related trusts will, together, own
approximately 28.1% of our common stock. Accordingly, they may be able to elect
a majority of the directors and control our management and affairs. This will
reduce other stockholders' ability to control our business. In addition, Messrs.
Cumming and Steinberg are principal shareholders, directors and the Chairman and
President, respectively, of Leucadia.
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK.
We have not paid cash dividends on our common stock since emerging
from bankruptcy and do not anticipate paying cash dividends in the foreseeable
future. We intend to retain any cash flow to pay expenses, meet debt service
requirements and provide for the development and growth of our company.
WE CANNOT PREDICT WHETHER A LIQUID MARKET FOR OUR COMMON STOCK WILL DEVELOP
AFTER THE DISTRIBUTION, WHICH COULD ADVERSELY AFFECT YOUR ABILITY TO SELL OUR
COMMON STOCK.
Our common stock has been traded in the over-the-counter market, and
is listed on the OTC Bulletin Board under the symbol "HFDC." The market for our
common stock is very limited due to the low trading volume and our understanding
that no brokerage firms act as market makers for our stock. Since January 1,
1999, a total of 325,700 shares of our common stock were traded according to
Nasdaq Trading and Market Services. We cannot assure you that an active trading
market for our common stock will develop or, if an active market does develop,
the depth of the trading market for the common stock and whether or not it will
continue. As a result, the ability to buy and sell shares of our common stock
may be limited. Unless an orderly market in HomeFed common stock develops, the
price at which the stock trades may fluctuate significantly and may be higher or
lower than the price that would be expected for an established issue. The price
of HomeFed common stock will be determined in the marketplace and may be
influenced by many factors, including:
o the depth and liquidity of the market for HomeFed common
stock;
o developments affecting our business generally;
o our dividend policy;
o investor perception of our business and the real estate
development industry generally; and
o general economic and market conditions.
OUR ABILITY TO USE OUR NET OPERATING LOSS CARRYOVERS, AS WELL AS THE BENEFIT
FROM THESE LOSS CARRYOVERS, MIGHT BE LIMITED, WHICH COULD REDUCE THE MARKET
VALUE OF OUR COMMON STOCK.
At December 31, 1998, we had net operating loss carryovers of
approximately $266,245,000 available to reduce our future federal income tax
liabilities. Approximately $1,000,000 of these net operating loss carryovers
will expire if not used in 1999. If we earn taxable income that would permit us
to use our loss carryovers, the benefit to us may be reduced because we are
subject to the alternative minimum tax rate of 20%.
Our ability to use these loss carryovers could be lost if we were to
experience more than a 50% change in ownership over any three-year period, all
as defined and governed by Section 382 of the Internal Revenue Code. Although
the trust's purchase of HomeFed common stock and its distribution to you will
not result in a prohibited change in ownership for tax purposes, additional
future changes, when combined
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with the significant ownership change that occurred as a result of the trust's
purchase, could result in the application of the tax loss limitation rules. If
we were to lose the benefits of these loss carryovers, any future earnings and
cash resources would be materially and adversely affected.
RESTRICTIONS IN OUR CHARTER ON YOUR ABILITY TO BUY OUR COMMON STOCK COULD REDUCE
THE MARKET VALUE OF OUR COMMON STOCK.
In order to protect our tax loss carryovers, our common stock is
subject to transfer restrictions contained in our restated certificate of
incorporation. These restrictions are designed to stop anyone from becoming a
five percent stockholder, as that term is defined in federal treasury
regulations, without approval of our board of directors. If a stockholder
attempts to buy stock that would result in that stockholder becoming a five
percent stockholder without approval of the board of directors:
o the stock purchase will only be permitted to the extent
the buyer does not become a five percent stockholder;
o any additional shares that were intended to be purchased
will be sold; and
o the net proceeds from that sale will be used to repay the
attempted buyer for the purchase price for the shares that
were not permitted to be purchased.
This restriction could reduce the market value of our common stock.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND OUR TRANSFER RESTRICTIONS MIGHT
IMPEDE OR DISCOURAGE A THIRD-PARTY ACQUISITION OF OUR COMPANY, WHICH COULD
REDUCE THE MARKET VALUE OF OUR COMMON STOCK.
HomeFed is a Delaware corporation. Anti-takeover provisions of
Delaware law impose various impediments to the ability of a third party to
acquire control of our company, even if a change in control would be beneficial
to our existing stockholders. Our incorporation under Delaware law, as well as
the restrictions on transferability of our common stock contained in our
restated certificate of incorporation, could impede a merger, takeover or other
business combination involving our company or discourage a potential acquiror
from making a tender offer for our common stock. This could reduce the market
value of our common stock.
PROPERTY IN CALIFORNIA, SUCH AS OUR PROJECTS, IS AT RISK FROM EARTHQUAKES.
Although research on earthquake prediction has increased in recent
years, it cannot be predicted when and where an earthquake will occur. We do not
intend to obtain earthquake insurance for our projects unless required. An
earthquake could cause structural damage or destroy our projects, which could
have an adverse financial impact on us.
UNDER CALIFORNIA LAW WE COULD BE LIABLE FOR SOME CONSTRUCTION DEFECTS IN HOMES
BUILT ON LAND THAT WE DEVELOP.
California law imposes some liabilities on developers of land on
which homes are built. Although we do not expect to build homes ourselves, we
are involved in the planning and construction of infrastructure improvements and
grading of the entire site. Grading will include cuts, fills and the
construction of slopes. Future construction defect litigation could be based on
a strict liability theory based on our involvement in the project or it could be
related to infrastructure improvements or grading. We maintain insurance and
require that our contractors and home builders also maintain insurance. However,
we can not assure you that this insurance will be adequate to cover all risks.
9
<PAGE>
RISKS RELATING TO OUR INDUSTRY
OUR BUSINESS AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED BY REAL ESTATE,
ECONOMIC AND OTHER CONDITIONS GENERALLY.
The real estate industry can be volatile and is affected by changes
in national, global and local economic conditions. We may also be affected by
events such as employment levels, availability of financing, interest rates,
consumer confidence and the demand for housing and other types of construction.
We are subject to various risks, many of which are outside our control,
including:
o real estate market conditions both in southern California,
where our communities are located, and in areas where
potential customers reside;
o decreased consumer spending for housing;
o changing demographic conditions;
o competitive overbuilding;
o adverse weather conditions and natural disasters, such as
earthquakes, mudslides, landslides, hurricanes, tornadoes
and wildfires;
o delays in construction schedules and cost overruns;
o changes in government regulations or requirements;
o increases in real estate taxes and other local government
fees; and
o availability and cost of land, materials and labor.
A negative development caused by any of these factors could have a
material adverse effect on our financial condition.
OUR BUSINESS IS SENSITIVE TO INTEREST RATES AND THE ABILITY OF CONSUMERS TO
OBTAIN MORTGAGE FINANCING WHICH COULD REDUCE OUR REVENUES.
The builders who purchase land from us generally sell that land with
buildings or other improvements to purchasers of homes. The ability of these
ultimate buyers to finance their purchases is generally dependent on their
personal savings and availability of third party financing. As a result, demand
for housing and consequently, the land that we sell, will be adversely affected
by increases in interest rates, unavailability of mortgage financing, increasing
housing costs and unemployment levels. Levels of income and savings, including
retirement savings, available to home purchasers can be affected by declines in
the capital markets. If mortgage interest rates increase or the capital markets
decline or undergo a major correction, the ability of prospective buyers to
purchase homes will be adversely affected. This may affect our customers' sales
and have an adverse effect on our financial condition.
WE FACE SIGNIFICANT COMPETITION FROM OTHER REAL ESTATE DEVELOPERS AND
HOMEBUILDERS, WHICH MAY HAVE AN ADVERSE EFFECT ON OUR FINANCIAL CONDITION.
Our planned community development and other real estate operations
face substantial competition. Some of our current and potential competitors have
longer operating histories and greater financial, sales, marketing, technical
and other competitive resources. Competition may have an adverse effect on our
financial condition.
10
<PAGE>
INCREASED DEVELOPMENT COSTS BEYOND OUR CONTROL COULD ADVERSELY AFFECT OUR
PROFITABILITY.
Changes in development plans and specifications, delays due to
compliance with governmental requirements or imposition of fees not yet levied,
or other delays resulting from adverse weather, strikes or energy shortages,
shortages of material for construction, inflation, environmental, zoning, title
or other legal matters, as well as other unknown contingencies could cause
development costs to exceed the amounts produced by any project. In the event
that costs exceed funds available, our ability to complete development of
projects or to otherwise perform our commitments under development agreements
will depend upon our ability to supply additional funds. We cannot assure you
that we will have adequate funds available for that purpose. Because we are
largely funded by borrowings, any delays in development may have an adverse
impact on the cash flow and long-term success of HomeFed.
THE EXTENDED TIME FRAME FROM THE DATE OF AN INVESTMENT IN A PROJECT UNTIL ITS
EXPECTED PROFITABILITY MAKES OUR BUSINESS RISKY.
Our communities will be developed over time. Therefore, our medium-
and long-term profitability will be dependent on our ability to develop and
market our projects successfully. Committing the financial and managerial
resources to develop a community involves significant risks. Before a community
generates any revenues, material expenditures are required, among other things,
to obtain development approvals, to construct project infrastructure, recreation
centers, model homes and sales facilities and, where opportunities are suitable
and appropriate, to acquire land. It generally takes several years for a
community under development to achieve cumulative positive cash flow. We cannot
assure you that we will be able to successfully develop and market our
communities. An inability to develop and market our communities successfully and
to generate positive cash flows from these operations in a timely manner would
have an adverse effect on our ability to service debt and to meet our working
capital requirements.
UNINSURED LOSSES COULD CAUSE US TO LOSE ALL OR PART OF OUR INVESTMENT IN OUR
PROJECTS.
Insurance against certain risks, such as earthquakes and/or floods,
may be unavailable or only available at very high rates or in amounts that are
less than the full market value or replacement cost of our projects. In
addition, there can be no assurance that particular risks that are currently
insurable will continue to be insurable on an economical basis or that current
levels of coverage will continue to be available. If a loss occurs that is
partially or completely uninsured, we could lose all or part of our investment.
LAWS AND GOVERNMENTAL REGULATIONS MAY DELAY COMPLETION OF OUR PROJECTS AND
IMPOSE LIABILITY FOR HAZARDOUS MATERIALS PRESENT ON OUR PROPERTIES WHICH COULD
ADVERSELY AFFECT OUR PROFITABILITY.
Our business is subject to extensive federal, state and local
regulation. Governmental agencies have broad discretion in administering these
regulations, including "no growth" or "slow growth" policies. This can prevent,
delay or significantly increase the costs of our developments. Compliance with
environmental regulations may significantly increase the costs of our projects.
Various governmental approvals and permits are required throughout the
development process, and we cannot assure you that we will receive or will
receive in a timely fashion these approvals or permits. If we incur substantial
compliance costs or delays and other regulatory burdens this could have a
material adverse effect on our operations.
Various federal, state and local laws subject property owners or
operators to liability for the costs of removal or remediation of certain
hazardous substances released on a property. These laws often impose liability
without regard to whether the owner knew of, or was responsible for, the release
of the hazardous substances. Although we will try to become aware of any
environmental problem with regard to any property before committing to manage or
acquire it, the occurrence of health problems or other dangerous conditions
caused by other work on the property may only become apparent after a lengthy
period of time.
11
<PAGE>
As a result, we cannot assure you that there are no environmental risks with
respect to any properties that we own or manage. The presence of any of these
hazardous substances at one or more of our properties, and responsibility for
the removal or remediation of any substances, may result in significant cost to
us.
In addition, the construction of improvements on property that we own
or manage may be adversely affected by regulatory, administrative, enforcement
or requirements of local, state or federal agencies affecting the use of the
property for its intended purpose including, without limitation, habitat
conservation or the protection of threatened or endangered species of plants and
animals, and land use controls. Restrictions may also relate to air and water
quality standards, noise pollution and indirect environmental impacts, such as
increased motor vehicle activity. Changes in policies may result in substantial
delays or the imposition of new conditions or restrictions on the ability to
obtain permits and approvals for a project, which could have a material adverse
effect on our operations.
DAMAGE TO PROPERTY OR CONDEMNATION IS A RISK OF OWNING OR DEVELOPING PROPERTY.
During the term of a project, the property that we own or manage may
be damaged. We, or the project owner, could incur liability in connection with
the improvement of the property, or all or a portion of the property could
become subject to an eminent domain or inverse condemnation action.
12
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
The statements contained or incorporated by reference in this
prospectus that are not historical facts are "forward-looking statements," as
that term is defined in the Private Securities Litigation Reform Act of 1995.
These statements include all discussions of strategy as well as statements that
contain forward-looking expressions such as "believe," "estimate," "expect,"
"intend," "may," "will," "should," or "anticipate." In addition, from time to
time, we or our representatives have made or may make forward-looking
statements, orally or in writing. Furthermore, forward-looking statements may be
included in our filings with the SEC as well as in press releases or oral
presentations made by or with the approval of one of our authorized executive
officers.
We caution you to bear in mind that forward-looking statements, by
their very nature, involve assumptions and expectations and are subject to risks
and uncertainties. Although we believe that the assumptions and expectations
reflected in the forward-looking statements contained in this prospectus are
reasonable, no assurance can be given that those assumptions or expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from our expectations are disclosed in this
prospectus, including under the caption "Risk Factors." These factors include,
but are not limited to, the following:
o deteriorating general economic conditions in the United
States or in southern California, in particular, because
that is where our current projects are located,
o decreased consumer spending, particularly among those
consumers who drive sales by builders that comprise our
primary customer base, and
o increased competition from other developers, including
developers with more resources than we have.
All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by these factors and the cautionary statements contained
throughout this prospectus. Additional information on factors that may affect
the business and financial results can be found in our filings with the SEC. All
forward-looking statements should be considered in light of these risks and
uncertainties. We assume no responsibility to update forward-looking statements
made in this prospectus unless otherwise required by law.
13
<PAGE>
USE OF PROCEEDS
None of HomeFed, the trust formed for Leucadia shareholders, or
Leucadia will derive any proceeds from this distribution of HomeFed common
stock.
PRICE RANGE OF HOMEFED COMMON STOCK AND DIVIDEND INFORMATION
The following table sets forth for the periods indicated the high and
low sales price of HomeFed common stock.
<TABLE>
<CAPTION>
High Low
--------------------- ----------------------
<S> <C> <C>
Year ended December 31, 1997
First Quarter $ 0.50 $ 0.03125
Second Quarter 0.375 0.0625
Third Quarter 0.375 0.0625
Fourth Quarter 0.375 0.0625
Year ended December 31, 1998
First Quarter $ 0.3125 $ 0.0625
Second Quarter 0.3125 0.03125
Third Quarter 0.3125 0.01
Fourth Quarter 0.4375 0.03125
Year ended December 31, 1999
First Quarter $ 0.30 $ 0.03125
Second Quarter 0.625 0.03125
Third Quarter (through September 15, 1999) 1.00 0.01
</TABLE>
Our common stock is traded in the over-the-counter market under the
symbol "HFDC." The common stock is not listed on any stock exchange, and price
information is not regularly quoted on any automated quotation system. The
prices listed above are based on bid quotations, as published by the National
Association of Securities Dealers OTC Bulletin Board Service, and represent
interdealer prices without retail mark-up, mark-down or commission. These prices
may not necessarily represent actual transactions. As of September 15, 1999, the
last day on which transactions in HomeFed common stock were reported was
September 15, 1999. On September 15, 1999, the closing price for HomeFed common
stock was $0.625 per share. As of September 15, 1999, there were approximately
10,400 stockholders of record.
We have not declared dividends on the common stock during 1996, 1997,
1998 or 1999 and do not intend to pay dividends for the foreseeable future.
Our common stock does not currently meet the minimum requirements for
listing on a national securities exchange or inclusion in the Nasdaq Stock
Market.
The transfer agent for our common stock is American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
14
<PAGE>
CAPITALIZATION
The following table shows our capitalization at June 30, 1999. Actual
capitalization is shown together with capitalization as adjusted to show the
effect the sale of 46,557,826 additional shares of HomeFed common stock to the
trust on July 8, 1999 would have had if it had occurred on June 30, 1999. You
should read this table with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements included in
this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
-------------
Actual As Adjusted
------ -----------
(In thousands, except
per share amounts)
<S> <C> <C>
Debt:
Note payable................................................................. $ 20,129 $ 20,129
Advance under common stock subscription............................................ 6,710 --
Stockholders' deficit:
Common stock, $.01 par value; 100,000,000 shares authorized,
10,000,000 actual issued and outstanding,
56,557,826 issued and outstanding as adjusted................................ 100 566
Additional paid-in-capital................................................... 346,919 354,833
Accumulated deficit.......................................................... (358,393) (358,393)
------------ ------------
Total stockholders' deficit............................................ (11,374) (2,994)
------------ ------------
Total capitalization............................................... $ 15,465 $ 17,135
============ ============
Book value per share............................................................... $ (1.14) $ (0.05)
============ ============
</TABLE>
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data have been summarized from our
consolidated financial statements and are qualified in their entirety by
reference to, and should be read in conjunction with, these consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Certain amounts for the year ended
December 31, 1998 and the six months ended June 30, 1999 have been restated as
described in Note 1 of these consolidated financial statements.
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
June 30, Year Ended December 31,
----------------------------- --------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(Unaudited) (In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME
STATEMENT DATA:
Sales of residential and
commercial properties $ 2,250 $ 891 $ 5,752 $ 4,011 $ 8,988 $ 9,422 $ 4,484
Gross profit (loss) 32 (3) 38 (37) (464) 426 66
Interest expense 1,180 1,552 2,828 2,997 3,063 1,458 --
Loss from operations (2,728) (1,890) (4,545) (3,864) (6,424) (2,435) (3,020)
Reorganization items-
expenses -- -- -- -- -- (1,924) (1,424)
Loss before extraordinary
item (3,169) (1,773) (4,481) (3,577) (6,297) (4,161) (4,294)
Extraordinary item:
Extinguishment of debt -
bankruptcy -- -- -- -- -- 108,881 --
Net earnings (loss) (3,169) (1,773) (4,481) (3,577) (6,297) 104,720 (4,294)
Per share:
Basic earnings (loss) per
common share:
Loss before extraordinary
item $ (0.32) $ (0.18) $ (0.45) $ (0.36) $ (0.63) $ (0.42) $ (0.43)
Extraordinary item -- -- -- -- -- 10.89 --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) $ (0.32) $ (0.18) $ (0.45) $ (0.36) $ (0.63) $ 10.47 $ (0.43)
========= ========= ========= ========= ========= ========= =========
Diluted earnings (loss) per
common share:
Loss before extraordinary
item $ (0.32) $ (0.18) $ (0.45) $ (0.36) $ (0.63) $ (0.09) $ (0.43)
Extraordinary item -- -- -- -- -- 3.35 --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) $ (0.32) $ (0.18) $ (0.45) $ (0.36) $ (0.63) $ 3.26 $ (0.43)
========= ========= ========= ========= ========= ========= =========
(continued)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
At June 30, At December 31,
----------------- --------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------------- ------------ ------------ ------------- ------------ --------------
(Unaudited) (In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE
SHEET DATA:
Land and real estate held
for development and sale $ 2,531 $ 4,636 $ 9,652 $ 13,528 $ 22,069 $ 21,139
Total assets 16,497 19,043 15,457 17,091 26,851 23,387
Notes payable to Leucadia
Financial Corporation 20,129 19,736 26,085 23,877 26,996 1,199
Other notes payable - - - - 126 173
Stockholders' deficit (11,374) (8,205) (10,739) (7,162) (865) (106,845)
Shares outstanding 10,000 10,000 10,000 10,000 10,000 10,000
Book value per share $ (1.14) $ (0.82) $ (1.07) $ (0.72) $ (0.09) $ (10.68)
Basic earnings (loss) per common share and book value per common
share were calculated assuming the 10,000,000 shares of common stock issued on
July 3, 1995 were the only shares outstanding for all years presented. Book
value per common share calculations based upon the pre-effective date
outstanding shares are not meaningful.
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze HomeFed's
consolidated financial condition, liquidity and capital resources and results of
operations. You should read this discussion in conjunction with the consolidated
financial statements and related notes that are included in this prospectus.
LIQUIDITY AND CAPITAL RESOURCES
For the six-month periods ended June 30, 1999 and 1998, net cash was
used in operating activities, principally to fund interest and general and
administrative expenses.
For the years ended December 31, 1998, 1997 and 1996, net cash was
provided by operating activities, principally from sales of real estate. Our
principal sources of funds are dividends or borrowings from subsidiaries, fee
income that we may earn from the San Elijo Hills project and amounts received
pursuant to the stock purchase agreements with Leucadia described below. We are
dependent upon the cash flow, if any, from the sale of real estate and
management fees in order to pay expenses, including our debt service payments.
We expect that cash on hand, together with cash generated from lot
sales and the purchase price received under the stock purchase agreements with
Leucadia, which we describe below, will be sufficient to meet our cash flow
needs for the foreseeable future. However, our ability to provide services under
the San Elijo Hills development agreement after 1999 will depend significantly
upon our receipt of fees under that development agreement. If at any time in the
future our cash flow is insufficient to meet our cash requirements, we could
sell real estate projects held for development or seek to borrow funds. However,
because all of our assets are pledged to Leucadia Financial to collateralize our
$26,500,000 borrowing from Leucadia Financial, we may be unable to obtain
financing at favorable rates from sources other than Leucadia Financial.
In 1998, we agreed to sell additional HomeFed common stock to
Leucadia in connection with the development agreement and the restructuring of
our convertible note and related loan agreement with Leucadia Financial.
In August 1998, we entered into the development agreement with a
subsidiary of Leucadia that is the owner and master developer of San Elijo
Hills. Under this development agreement, we are the development manager of the
San Elijo Hills project, a master planned community to be sold in phases to home
builders for development of approximately 3,400 homes expected to be completed
over the next ten years. As development manager, we are responsible for the
overall management of the project, including arranging financing, coordinating
marketing and sales activity, and acting as construction manager. The
development agreement provides that we will receive certain fees in connection
with the project. These fees consist of marketing, field overhead and management
service fees. They are based on a fixed percentage of gross revenues of the
project, less certain expenses allocated to the project, and are expected to
cover our cost of providing services under the development agreement. The
development agreement also provides for a success fee to HomeFed out of the
project's net cash flow, if any, as described below, up to a maximum amount.
Whether the success fee, if it is earned, will be paid to HomeFed prior to the
conclusion of the project will be at the discretion of the project owner.
To determine "net cash flow" for purposes of calculating the success
fee, all cash expenditures of the project will be deducted from total revenues
of the project. Examples of "expenditures" for these purposes include land
development costs, current period operating costs and indebtedness, either
collateralized by the project, which were approximately $31,483,000 at June 30,
1999, or owed by the project's owner to Leucadia, which were approximately
$45,912,000 at June 30, 1999. As a success fee, we are entitled to receive
payments out of net cash flow, if any, up to the aggregate amount of
indebtedness that is either collateralized by the project or paid to Leucadia or
its affiliates, which was $77,395,000 at
18
<PAGE>
June 30, 1999. The balance of net cash flow, if any, will be paid to us and the
project owner in equal amounts. However, the amount of the success fee cannot be
more than 68% of net cash flow minus the amount of indebtedness. There can be no
assurance, however, that we will receive any success fee at all for this
project. We believe that any success fee that we may receive will be our
principal source of net income earned through our participation in the San Elijo
Hills project.
As of August 14, 1998, HomeFed and Leucadia Financial entered into a
new loan agreement that restructured the convertible note originally issued by
us in 1995 to fund our bankruptcy plan and the related loan agreement. The
restructured note:
o has a principal amount of approximately $26,500,000, which
includes additions to principal from accrued and unpaid
interest on the original note to the date of the
restructuring, as permitted under its terms;
o extends the maturity date from July 3, 2003 to December
31, 2004;
o reduces the interest rate from 12% to 6%; and
o eliminates the convertibility feature of the original
note.
We pay interest only on the restructured note on a quarterly basis. The
principal of the restructured note is not due to be repaid until December 31,
2004. During the year ended December 31, 1998, we paid Leucadia Financial
approximately $2,162,000 in interest on the original note and the restructured
note.
In August and October 1998, HomeFed entered into two stock purchase
agreements with Leucadia, pursuant to which we agreed to sell an aggregate of
46,557,826 additional shares of HomeFed common stock to Leucadia. The total
purchase price for these shares was $8,380,400. During 1998 Leucadia advanced to
us $6,710,300 of the total purchase price. This amount would have been
refundable if closings under the stock purchase agreements had not occurred. In
1998, Leucadia assigned the stock purchase agreements to the trust. On July 8,
1999, the trust purchased 46,557,826 shares of HomeFed common stock under the
stock purchase agreements and paid us the $1,670,100 balance of the purchase
price for these shares. The trust currently owns 50,675,812 shares of HomeFed
common stock, representing 89.6% of the outstanding HomeFed common stock. Under
the terms of the trust agreement, the trust is required to distribute all of the
HomeFed common stock that it owns as promptly as possible following this
purchase and the effectiveness of the registration statement of which this
prospectus forms a part. The 5,882,014 shares of HomeFed common stock currently
held by stockholders other than the trust represents approximately 10.4% of the
outstanding HomeFed common stock. After the distribution of stock by the trust,
Joseph S. Steinberg, a director of HomeFed and a director and President of
Leucadia, will beneficially own approximately 12.7%, and Ian M. Cumming,
Chairman of the Board of Directors of Leucadia, will beneficially own
approximately 13.9%, of the outstanding HomeFed common stock.
In 1998 and 1997, we entered into agreements pursuant to which we
sold 81 residential lots at the Paradise Valley project (described under "Our
Company -- Our Current Development Projects") for $3,611,000 ($2,719,000 in
1998), less closing costs. In the first quarter of 1999, we sold the remaining
75 residential lots at the Paradise Valley project for $2,250,000, less closing
costs. We have continuing obligations with respect to this project, including
the obligation to construct a recreation center. We estimate that construction
of the recreation center for the Paradise Valley community will be completed at
a cost of approximately $1,100,000. We have provided a $1,000,000 letter of
credit for this obligation, which is collateralized by a $1,000,000 deposit.
We anticipate that construction of the recreation center will begin in 1999.
In the third quarter of 1999, we sold one of our three clustered
housing development sites at the Paradise Valley project for $350,000, less
closing costs.
19
<PAGE>
In February 1999, one of HomeFed'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 issued
to guaranty the partnership's obligation to complete landscape, irrigation and
fencing improvements at the Paradise Valley project. The letter of credit
expired on August 6, 1999 and the cash of approximately $197,000 was deposited
in HomeFed's operating account.
In connection with an indemnity agreement to a third party surety, a
HomeFed subsidiary is required to (1) maintain a minimum net worth of $5,000,000
and a minimum cash balance of $400,000 or (2) provide an irrevocable letter of
credit. The HomeFed subsidiary entered into this indemnity agreement in 1990 in
connection with the construction of infrastructure improvements in a development
located in La Quinta, California. Based upon current estimates, the amount of
the letter of credit required to satisfy this obligation would be approximately
$460,000. We have not elected to deliver this letter of credit, although we may
choose to do so in the future if we determine that the minimum net worth
requirement restricts operating flexibility.
In October 1998, HomeFed and Leucadia formed Otay Land Company. We
are the manager of Otay Land Company. Through June 30, 1999, we invested
$10,850,000 as capital and Leucadia invested $10,000,000 as a preferred capital
interest. In 1998, Otay Land Company purchased approximately 4,800 acres of land
located south of San Diego, California, for approximately $19,500,000. We are
currently investigating how to develop this project to maximize profitability.
We believe our existing cash resources are sufficient to cover our anticipated
costs of our current maintenance, management and marketing activities at this
project. Distributions of net income, if any, 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 will be
distributed to HomeFed.
In February 1998, we purchased 19 lots at the Silverwood project
(described under "Our Company -- Our Current Development Projects") from
Leucadia Financial for a purchase price of $500,000. On July 31, 1998, we sold
all of the 97 lots we owned in the Silverwood project to Southfork Partnership
for $3,033,000, less closing costs.
As of December 31, 1998, we have net operating loss carryovers
("NOLs") of $266,245,000 available to reduce our future federal income tax
liabilities and NOLs of $32,305,000 available to reduce our future state income
tax liabilities. Most of these NOLs are not available to reduce federal
alternative minimum taxable income, which is currently taxed at the rate of 20%.
As a result, we expect to pay federal income tax at a rate of 20% during future
periods, even if our NOLs are available to reduce regular taxable income.
RESULTS OF OPERATIONS
Comparison of six-month periods ended June 30, 1999 and 1998
Sales of residential properties increased in the six-month period
ended June 30, 1999 compared to the same period in 1998. This increase resulted
from our 1999 sale of the remaining 75 residential lots in the Paradise Valley
project, compared to the sale of 20 residential lots in that project in 1998.
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 estimated cost to complete the recreational center
for the Paradise Valley community.
Interest expense for the three-month and six-month periods ended June
30, 1999 reflects $396,000 and $787,000, respectively, paid to Leucadia
Financial on the restructured note and $200,000 and $393,000, respectively,
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 the three-month
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and six-month periods ended June 30, 1998 reflects interest of $780,000 and
$1,552,000 due on the convertible note.
General and administrative expenses increased in both the three-month
and six-month periods ended June 30, 1999 as compared to the same periods in
1998 due to our increased operating activities in connection with the San Elijo
Hills project and the Otay Ranch project, including opening our office in
Carlsbad, California.
Income tax expense for all periods presented relates to state
franchise taxes. We have not recorded federal income tax benefits for our
operating losses because of the uncertainty that we will have sufficient future
taxable income required in order to recognize these tax benefits.
Comparison of annual periods ended December 31, 1998, 1997 and 1996
Sales of residential properties increased in 1998 as compared to
1997. In 1998, we sold 97 lots in the Silverwood project and 61 lots at the
Paradise Valley project, while in 1997, we sold only 82 lots and two finished
homes in the Paradise Valley project. Sales of residential properties decreased
in 1997 as compared to 1996 due to the greater proportion of lot sales in 1997,
with only two residential home sales, compared to the greater proportion of home
sales during 1996, when we sold 62 lots and 25 homes in the Paradise Valley
project and seven homes in another project.
Land and real estate held for development and sale is carried at the
lower of cost or fair value less costs to sell. The provisions for losses for
the years ended December 31, 1998, 1997 and 1996 reflect our estimates to reduce
the carrying value of real estate investments to this value. As a result of
recording write-downs of carrying values during each of the last three years,
gross profit (loss) upon sale has been insignificant. Actual cost of sales
recorded during these periods reflects the level of sales activity, as well as
provisions for losses.
Interest expense for all years presented primarily reflects the
interest due to Leucadia Financial on the restructured note and the convertible
note, including interest of $377,000 for 1998, $2,208,000 for 1997 and
$2,669,000 for 1996, which was not paid and was added to the principal balance
of the convertible note. Interest expense for 1998 and 1997 also reflects
interest of $2,162,000 and $789,000, respectively, due on the restructured note
and convertible note, which was paid by HomeFed. Interest of $385,000 was also
paid to Leucadia Financial on a construction loan in 1996.
The increase in general and administrative expenses in 1998 as
compared to 1997 reflects approximately $618,000 of increased costs for
operating expenses attributable to the San Elijo Hills project and Otay Ranch
project, including opening an office in Carlsbad, California.
The decrease in general and administrative expenses in 1997 compared
to 1996 reflects reduced professional fees, insurance costs and selling expenses
attributable to the Paradise Valley project, which was substantially completed
in 1996.
Income tax expense for all years presented relates to state franchise
taxes. HomeFed has not recognized any income tax benefit for its operating
losses in all years presented due to the uncertainty of sufficient future
taxable income required in order to recognize these tax benefits.
YEAR 2000
The year 2000 issue is the result of computerized systems being
written to store and process the year portion of dates using two digits rather
than four digits. As a consequence, date-sensitive systems may fail or produce
erroneous results on or before January 1, 2000 because the year 2000 will be
interpreted incorrectly.
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All of HomeFed's key software applications are purchased from
mass-market software companies, and, based on literature provided by software
manufacturers, we believe that this software is designed to be year 2000
compliant. Our computer hardware systems are generally new and designed to be
year 2000 compliant. We have engaged a consultant to test our systems to
determine their year 2000 compliance. If systems are found not to be year 2000
compliant, they will be either repaired or replaced. To date, we have incurred
costs of less than $5,000 in our year 2000 compliance efforts and do not
anticipate making material expenditures in the future.
Based upon our year 2000 risk assessment work performed thus far, we
believe the most likely year 2000 related failures would be related to a
disruption of materials and services or loss of data or plans provided by third
parties. We are assessing all third parties with which we have material
relationships to determine their compliance with year 2000 issues. We have begun
to contact suppliers with respect to their year 2000 compliance and expect this
inquiry to be completed by the fourth quarter of 1999. Although we do not expect
that these disruptions would have a material adverse effect on HomeFed's
financial condition or results of operations, we cannot assure you that our
belief is correct or that our risk assessments are, in fact, accurate. There can
be no assurance that our vendors, suppliers and other parties with whom we do
business will successfully resolve their own year 2000 problems, if any. In the
event of any such failures or other year 2000 failures, there can be no
assurance that there will not be a material adverse effect on HomeFed's
financial condition or results of operations.
INFLATION
HomeFed, as well as the real estate development and homebuilding
industry in general, may be adversely affected by inflation, primarily because
of either reduced rates of savings by consumers during periods of low inflation
or higher land and construction costs during periods of high inflation. Low
inflation could adversely affect consumer demand by limiting growth of savings
for down payments, ultimately affecting demand for real estate and our revenues.
In addition, higher mortgage interest rates may significantly affect the
affordability of permanent mortgage financing to prospective purchasers. High
inflation also increases our costs of labor and materials. We would attempt to
pass through to customers any increases in our costs through increased selling
prices. To date, high or low rates of inflation have not had a material adverse
effect on our results of operations. However, there is no assurance that high or
low rates of inflation will not have a material adverse impact on our future
results of operation.
INTEREST RATES
Our operations are interest-rate sensitive. Overall housing demand is
adversely affected by increases in interest costs. If mortgage interest rates
increase significantly, this may negatively impact the ability of a home buyer
to secure adequate financing. This could adversely affect our revenues, gross
margins and profitability.
PROPERTIES
Through our subsidiary, Otay Land Company, we own 4,800 acres of the
22,900-acre Otay Ranch master planned community, and we own approximately 20
acres at the Paradise Valley project, each as described under the heading "Our
Company -- Our Current Development Projects" and "-- Our Master Planned
Communities." Land held for development and sale has an aggregate book value of
approximately $23,334,000 at June 30, 1999.
Our corporate headquarters are located at 1903 Wright Place, Suite
220, Carlsbad California 92008 in part of an office building sub-leased from a
subsidiary of Leucadia. Our arrangements relating to this space are described
under the heading "Certain Transactions -- Office Space."
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LEGAL PROCEEDINGS
San Elijo Hills received the last of its required discretionary
governmental approvals in March 1998 and therefore, subject to the litigation
described below, became "fully entitled." In January 1997 the San Elijo Ranch
Final Subsequent Environmental Impact Report was certified by the City of San
Marcos. The report, required under the California Environmental Quality Act,
analyzes the potential environmental impact associated with the development of
the San Elijo Hills community. In a case named CARE v. City of San Marcos, et
al., Case No. N074070, brought in the San Diego Superior Court, the trial court,
by Citizens Against Rural Exploitation, Inc., the adequacy of the report was
challenged. The report was found to be adequate by the trial court and CARE
appealed this decision. In December 1998, the California Court of Appeal upheld
the lower court's ruling in all respects except one. The Court of Appeal found
that the analysis of the cumulative impact of traffic during the early phases of
development of the project was not adequate. The case was sent back to the trial
court to address the traffic issue. The trial court directed the City of San
Marcos to vacate its certification of the report, consider the cumulative impact
of traffic during the early phases of the project and recertify the report
before the approval of any future entitlements. On January 29, 1999, the owner
of San Elijo Hills and CARE entered into a settlement agreement. This settlement
enables project construction to proceed while recertification of the report is
under consideration. The City of San Marcos is in the process of revising the
report to consider the cumulative impact of traffic during the early phases of
the project development and anticipates hearings to consider the report
recertification in October of 1999. Thereafter, judicial confirmation of the
City's compliance with the Court of Appeal's decision will be requested. In May,
1999, two parties filed motions to vacate the part of the trial court's order
that allows development to proceed pending recertification of the report. The
first motion to vacate has been denied. The second motion to vacate was
withdrawn after a settlement with San Elijo Hills. Denial of the first motion
may be appealed. Development at San Elijo Hills is continuing pending
recertification of the report and any future legal proceedings. Although we are
not a party to this litigation, any disruption in the development of the San
Elijo Hills project as a result of this litigation could have a material adverse
effect on our future results of operations.
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THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
Background
In March 1998, Leucadia proposed that we become development manager
of Leucadia's San Elijo Hills project. However, to take advantage of this
opportunity, we determined that we would need to obtain equity financing and to
restructure our outstanding convertible note payable to Leucadia Financial. If
accomplished, these steps would provide funding and improved cash flow for us to
fulfill our obligations as development manager.
Our board of directors formed a special committee of directors
unaffiliated with Leucadia to consider this proposal from Leucadia. This
committee consisted of Mr. Considine and Dr. Lobatz. The Committee engaged
consultants to evaluate the development proposal, performed substantial due
diligence with respect to the proposal and negotiated with Leucadia the
development management agreement and Leucadia's agreement to make equity
financing available to HomeFed and to restructure the terms of HomeFed's
outstanding $20,000,000 convertible collateralized note payable to Leucadia
Financial. The special committee recommended that the board of directors approve
the development management agreement.
In August 1998, upon approval of the board of directors, with Mr.
Borden, a Leucadia Vice President as well as a HomeFed director, not voting,
HomeFed:
o agreed to sell 37,056,112 shares of HomeFed common stock
to Leucadia for $6,670,100 in cash pursuant to a stock
purchase agreement, dated August 14, 1998;
o entered into an amended and restated loan agreement with
Leucadia's subsidiary, Leucadia Financial, that
restructured HomeFed's outstanding secured convertible
note; and
o entered into the development management agreement for San
Elijo Hills with another subsidiary of Leucadia.
In October 1998, the board of directors approved a second stock
purchase agreement, dated October 20, 1998, pursuant to which HomeFed agreed to
sell an additional 9,501,714 shares of HomeFed common stock to Leucadia for
$1,710,300 in cash.
Structuring the Financing to Protect HomeFed's Tax Loss Carryovers
HomeFed has substantial tax loss carryovers available to offset
taxable income. Under Section 382 of the federal tax law, if changes in
ownership of HomeFed exceed a 50% change over any three-year period, use of
these tax losses would be limited. This would be material and adverse to us.
Under federal tax laws, contracts to acquire shares of HomeFed common stock
could be treated as ownership of the shares to be acquired, even before the
shares are issued. As a result, HomeFed and Leucadia concluded that it would be
prudent to assume that the shares to be acquired under stock purchase agreements
should be taken into account in determining changes in ownership of HomeFed
stock.
Before entering into the August 1998 agreement to purchase HomeFed
common stock, Leucadia owned 41.2% of the outstanding HomeFed common stock. The
number of shares of HomeFed common stock that could be purchased under the stock
purchase agreements without triggering tax law limitations was based upon the
share ownership of Leucadia and HomeFed in August 1998. Changes in ownership of
HomeFed and Leucadia stock after August 1998 could have resulted in too large a
change in ownership,
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thereby jeopardizing our ability to use our tax losses. We could rely upon the
transfer restrictions in our charter to limit the possibility of changes in
ownership of HomeFed stock. However, Leucadia was not willing to restrict its
issuance and/or repurchase of its own shares. Under federal tax regulations, as
long as Leucadia owned HomeFed common stock, transactions involving Leucadia's
shares would be treated as also being transactions in HomeFed common stock. When
combined with purchases of HomeFed common stock under the stock purchase
agreements, transactions in Leucadia shares could have resulted in too large a
change in HomeFed common stock ownership in too short a period of time.
Consequently, to retain flexibility to effect transactions involving Leucadia
shares and to avoid the risk associated with inadvertent transactions involving
Leucadia shares, Leucadia decided to make a distribution of the HomeFed common
stock and the stock purchase agreements and associated cash to Leucadia
shareholders in proportion to their interests in Leucadia.
Leucadia determined that, for tax purposes, a prompt distribution to
its shareholders of its entire interest in HomeFed was prudent:
o to eliminate the risk described above that transactions in
Leucadia's shares would result in limitations on HomeFed's
ability to use its own tax losses; and
o to minimize the risk that the value of HomeFed common
stock to be distributed and the taxes incurred by the
Leucadia shareholders attributable to this distribution
would increase as a result of a possible increase in the
value of HomeFed after announcement of the August 1998
transactions.
Timing of the Distribution; Dividend of the Interests in the Trust
Under our 1995 bankruptcy plan of reorganization, HomeFed could not
issue HomeFed common stock before July 3, 1999. Because of this, Leucadia
concluded that any distribution to Leucadia shareholders prior to the issuance
of HomeFed common stock under the stock purchase agreements was not feasible.
However, to implement the timely equity financing for HomeFed, while unlinking
transactions in Leucadia securities from any impact on HomeFed, Leucadia formed
a trust for the benefit of Leucadia shareholders and on August 14, 1998
transferred to the trust:
o 4,117,986 shares of HomeFed common stock held by Leucadia
at that time, which represented approximately 41.2% of the
HomeFed common stock then outstanding;
o the August 14, 1998 stock purchase agreement to purchase
37,056,112 shares of HomeFed common stock; and
o $1,670,100 for the unpaid portion of the purchase price
for the HomeFed common stock.
On August 25, 1998 Leucadia declared a dividend of beneficial
interests in the trust to Leucadia shareholders of record on August 25, 1998.
These trust interests:
o are not represented by any trust certificates;
o are not transferable except upon the death of the holder
of the trust interest;
o do not represent any equity interest in HomeFed;
o do not carry any right to vote any HomeFed common stock;
and
o are not entitled to dividends or interest.
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As a result of the August 25, 1998 dividend of interests in the trust
that owned all of Leucadia's interests in HomeFed, Leucadia was no longer
treated as the owner of any HomeFed common stock for tax purposes. Consequently,
transactions in Leucadia's securities no longer had any impact on determining
whether changes in the ownership of HomeFed common stock occur.
Under the terms of the trust agreement, Leucadia agreed to transfer
to the trust any rights to HomeFed common stock that it acquired prior to
November 11, 1998. Effective October 20, 1998, Leucadia and HomeFed entered into
the October stock purchase agreement providing for the purchase of an additional
9,501,714 shares of HomeFed common stock and Leucadia advanced to HomeFed the
$1,710,300 purchase price for these shares. Leucadia then transferred the
October stock purchase agreement to the trust.
On July 8, 1999, the trust purchased 46,557,826 shares of HomeFed
common stock pursuant to the August and October stock purchase agreements. The
sole business of the trust is to hold the 50,675,812 shares of HomeFed common
stock, which represent approximately 89.6% of the 56,557,826 outstanding shares
of HomeFed common stock.
Joseph A. Orlando, Vice President and Chief Financial Officer of
Leucadia, is the trustee of the trust; Ian M. Cumming and Joseph S. Steinberg,
directors of HomeFed and Leucadia, as well as the Chairman and President,
respectively, of Leucadia, have the power to direct voting of any HomeFed common
stock held by the trust.
NO FRACTIONAL SHARES
No fractional shares will be issued in the distribution. If the
number of shares of HomeFed common stock to which you would otherwise be
entitled includes a fraction of a share, you will receive the cash value of the
fractional share, based on the prevailing market price per share of HomeFed
common stock. Leucadia shareholders who own their stock in "street name" through
a broker or other nominee listed as the holder of record will have their
fractional shares handled according to the practices of the broker or nominee,
which may result in those shareholders receiving a price for their fractional
share interests that is higher or lower than the price paid by the trust to
shareholders of record.
EXPENSES
Expenses associated with the distribution to be paid by HomeFed are
expected to be approximately $172,000 in the aggregate.
CONDITIONS
The consummation of the distribution does not require the approval of
HomeFed's stockholders and is not contingent upon the occurrence of any event
except the effectiveness of the registration statement containing this
prospectus.
RELATIONSHIP WITH LEUCADIA AFTER THE DISTRIBUTION
Following the distribution, HomeFed and Leucadia will continue to
have a relationship as a result of agreements entered into and facts existing
prior to the distribution. These include:
o Leucadia Financial, a subsidiary of Leucadia, is the
holder of HomeFed's $26,500,000 principal amount
collateralized note. Accordingly, Leucadia Financial is
HomeFed's principal creditor.
o Leucadia Financial provides administrative services to
HomeFed, including the services of HomeFed's President and
its Secretary/Treasurer.
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o HomeFed acts as development manager for Leucadia's San
Elijo Hills residential real estate project.
o The Leucadia subsidiary that owns the San Elijo Hills
project has agreed to purchase or to designate an
affiliate to purchase approximately $66,100,000 of bonds
to be issued by the City of San Marcos, California
Redevelopment Agency. These bonds will provide a
substantial portion of the financing that will be used to
build infrastructure and school facilities serving the San
Elijo Hills project.
o Leucadia is an investor in Otay Land Company, a subsidiary
of HomeFed that owns land in southern California. Otay's
net income, if any, will be distributed only to Leucadia
until Leucadia has been paid back its $10,000,000
preferred capital investment, together with a 12% return
on its investment. Until Leucadia has been paid in full,
we will not receive any distribution from Otay.
o Four of HomeFed's six directors are executive officers of
Leucadia or its subsidiaries. Two directors, Messrs. Ian
M. Cumming and Joseph S. Steinberg, are directors,
principal shareholders and the Chairman and President,
respectively, of Leucadia.
FEDERAL INCOME TAX CONSEQUENCES
Following is a general discussion of certain United States federal
income tax consequences to the shareholders of Leucadia on August 25, 1998 in
connection with the formation of the trust and the distribution of the HomeFed
stock from the trust. This discussion is for general information and may not
apply in the specific circumstances of a particular shareholder. For purposes of
the following discussion, we have assumed that all interests are held by you as
capital assets.
Once beneficial ownership of the trust was distributed on August 25,
1998, you were treated as directly owning your share of the trust's assets for
federal income tax purposes. Consequently, the August distribution was treated,
for tax purposes, as a dividend to you of your share of the assets held by the
trust on that date. Similarly, the contribution to the trust by Leucadia on
October 20, 1998 of the October stock purchase agreement was treated for tax
purposes as a dividend on that date to you.
The amount of the dividend income equaled the value of the assets
that were treated as having been directly distributed to you, valued as of the
date distributed. Leucadia has advised HomeFed that, based on its calculation of
the aggregate value of these assets, the total dividend income attributable to
these transactions was $0.1426 for each Leucadia share that you owned of record
on August 25, 1998. In reaching this valuation, Leucadia considered the value of
the HomeFed common stock already owned, the stock purchase agreements, and the
underlying shares of HomeFed common stock , in each case as of the appropriate
valuation date.
The purchase of HomeFed common stock by the trust and the
distribution by the trust of its HomeFed common stock will not have any further
federal tax consequences for you, because, for tax purposes, you already are
treated as directly owning the trust's assets.
Tax Basis and Holding Period in Shares Acquired from the Trust
Leucadia has advised us that based upon Leucadia's valuation of the
assets in the trust, your tax basis in each share of HomeFed common stock
received from the trust would equal $0.179 per share. All of the HomeFed common
stock received by you from the trust will not all have the same holding period,
because the trust acquired these shares on two different dates. Your holding
period with respect to 8.13% of the HomeFed common stock received from the
trust, representing shares acquired by the trust on August 25, 1998, will be
considered to have commenced on August 26, 1998, while the holding period with
respect
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to the remaining 91.87% of those shares, representing shares acquired by
the trust on July 8, 1999, should commence on July 9, 1999.
You are urged to consult your own tax advisor.
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OUR COMPANY
INTRODUCTION
We invest in and develop residential real estate projects in the
State of California. This business is conducted directly and through
subsidiaries.
In 1992, we filed for bankruptcy protection under chapter 11 of the
United States Bankruptcy Code and emerged from bankruptcy in 1995 pursuant to a
plan of reorganization. Leucadia Financial principally funded the plan by
purchasing a $20,000,000 principal amount, 12% collateralized convertible note
due 2003 and 2,700,000 shares of newly issued HomeFed common stock. Leucadia
also received 1,417,986 shares of HomeFed common stock under the plan. These
shares, together with the shares Leucadia Financial purchased, constituted 41.2%
of the outstanding HomeFed common stock at the time we came out of bankruptcy.
OUR CURRENT DEVELOPMENT PROJECTS
HomeFed has been involved in the development of California real
estate since our founding in 1988. After emerging from bankruptcy, we were
engaged primarily in selling developed and undeveloped lots in bulk to
homebuilders in two development projects: Paradise Valley (which we describe
below) and Silverwood, a 135-acre development project located in the Granite Bay
area of greater Sacramento, California. While each of these projects was part of
a master planned community, we were not the master plan developer for either of
these projects. Substantially all of our development interests in Silverwood
were sold in July 1998 for approximately $3,033,000, less closing costs.
Paradise Valley
Paradise Valley is a community located in Solano County in the
northeast portion of the City of Fairfield, California. We originally owned
approximately one-third of this project, and the balance of the project was
owned by three unrelated development companies. Our holdings originally included
84 acres planned for four detached single-family residential sites, three
clustered housing (apartment building) development sites and a school site. We
built and sold 36 residential homes on two of the detached single-family
residential sites from 1995 to 1997. We then changed our marketing strategy, by
stopping our home building program in order to focus instead on sales of
improved and unimproved lots in bulk.
From 1996 to 1998, we sold 205 improved lots on the detached single
family residential sites at the Paradise Valley project for total cash
consideration of approximately $8,927,000. Sales of 61 of these lots closed in
1998 for aggregate consideration of $2,719,000, less closing costs. In February
1999, we sold the remaining 75 lots at the Paradise Valley project, all of which
were unimproved, for consideration of approximately $2,250,000, less closing
costs. In July 1999, we sold one of our three clustered housing development
sites at the Paradise Valley project for $350,000, less closing costs. We have
continuing obligations at Paradise Valley with respect to warranty liabilities
and the completion of a recreational facility that will become the property of
the Paradise Valley Homeowners' Association.
We continue to own two clustered housing development sites and a
school site at the Paradise Valley project. We are currently in discussions with
governmental authorities concerning the possibility of changing the project's
entitlements to permit development for uses other than clustered housing. Once
these discussions have been concluded, we will determine how best to market
these sites for sale, either as clustered housing, or as permitted under any
amended entitlements that we may receive. The school site, which is subject to a
purchase option held by the local school district, and the remaining two
clustered housing development sites have a combined book value at June 30, 1999
of approximately $2,258,000.
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Our Master Planned Communities
In 1998, we entered into the largest development projects in which we
have been involved since emerging from bankruptcy. These are our first projects
involving development of master planned communities: San Elijo Hills, for which
we are the development manager, and a portion of the larger Otay Ranch planning
area, where we own certain parcels and for which we are one of several
development managers.
For any master planned community, plans must be prepared that provide
for infrastructure, neighborhoods, commercial and industrial areas, educational
and other institutional or public facilities, as well as open space. Once
preliminary plans have been prepared, numerous governmental approvals, licenses,
permits and agreements, referred to as "entitlements," must be obtained before
development and construction may commence. In California, obtaining the
necessary entitlements for large residential developments and master planned
communities is an extended process, which can involve a number of different
governmental jurisdictions and agencies, considerable risk and expense, and
substantial delays. Unless and until the requisite entitlements are received and
substantial work has been commenced in reliance upon the entitlements, a
developer generally does not have any "vested rights" to develop a project. In
addition, as a precondition to receipt of building-related permits, master
planned communities such as San Elijo Hills typically are required in California
to pay impact and capacity fees, or to otherwise satisfy mitigation
requirements, based on governmental assessment of the effects of their projects
on the environment, including, among others, impact on infrastructure,
transportation, waste disposal, education and air quality of the communities.
The land development process for a master planned community entails a
range of activities, including design engineering, grading raw land,
constructing public infrastructure, including streets, utilities and public
facilities, and finishing individual lots. The developer arranges for the design
and the construction and installation by contractors and subcontractors of the
infrastructure in its master planned communities. The development process
results in graded construction sites for homes or other facilities. In our
master planned communities, we will coordinate home construction with commercial
development and installation of parks and recreational facilities. In this
process, we may contract with third parties to develop commercial zones, public
areas and recreational amenities, which may include shopping centers, schools,
libraries, community centers, parks, golf courses and other essential
facilities. It is our policy to retain control over the location and character
of non-residential properties, such as shopping centers and recreational
facilities, within our master planned communities. We will develop our
communities in phases to allow flexibility in selling finished lots to suit
market conditions and to enable us to create stable and attractive
neighborhoods. Consequently, at any particular time, the various phases of a
project will be in different stages of land development and construction.
San Elijo Hills. In August 1998, we entered into a development
management agreement with San Elijo Hills Development Company, a subsidiary of
Leucadia that owns real property located in the City of San Marcos, in San Diego
County, California. Under this development agreement, this project, known as San
Elijo Hills, will be a master planned community of approximately 3,400 homes and
apartments as well as commercial properties. We anticipate that the project will
be sold to builders in phases. The project is expected to be completed over the
course of the next ten years. Subject to recertification and judicial
confirmation of the San Elijo Ranch environmental impact report, San Elijo Hills
is fully entitled and the project is currently under development. We anticipate,
however, applying for additional entitlements to implement certain land use
changes. Failure to obtain these additional entitlements will not have a
material adverse effect on our business. As development manager of San Elijo
Hills, we are responsible for the overall management of the project. Our
responsibilities include:
o preserving existing entitlements;
o obtaining any additional entitlements required for the
project;
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o arranging financing for the project;
o coordinating sales and marketing activity; and
o acting as the construction manager.
The development agreement provides that we may be paid a portion of
the net profits of the project, as determined under the development agreement,
as well as fees for the project management, field overhead and marketing
services we are to provide, based on the revenues of the project. For a
description of the development agreement and determination of any success fee
under that agreement, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
San Elijo Hills has entered into agreements with five merchant
builders to sell approximately 735 residential lots, for total consideration of
not less than $104,000,000, subject to increase if some of the builders sell
homes above targeted prices. The prospective buyers have deposited a total of
$5,500,000 which is non-refundable assuming that San Elijo Hills delivers the
lots as agreed and other terms under the agreements are satisfied. Of this
amount, approximately $5,000,000 has been released to San Elijo Hills. These
agreements are subject to certain normal closing conditions, as well as
recordation of final subdivision maps, completion of grading, favorable
resolution of existing litigation of the project's environmental impact report
and, in some cases, formation of a community facilities district to finance
neighborhood improvements. While we expect that sales of some of these lots will
close during 1999, we cannot assure you that any of these sales will actually
occur.
Otay Ranch. Our subsidiary, Otay Land Company, owns seven
non-adjoining parcels comprising 4,800 acres located within the larger
22,900-acre Otay Ranch master planned community. The City of Chula Vista and the
County of San Diego have approved a general development plan for the larger
planning area. Although there is no minimum time within which implementation of
the general development plan must be completed, it is expected that full
development of the larger planning area will take decades. This general
development plan establishes land use goals, objectives and policies within the
larger planning area. Any development within the larger Otay Ranch master
planned community must be consistent with this general development plan. The
general development plan for the larger planning area contemplates home sites, a
golf-oriented resort and residential community, commercial retail centers, a
proposed university site and a network of infrastructure, including roads and
highways, a rail transportation system, park systems and schools. Actual
development of any of these will require that further entitlements and approvals
be obtained. Because the larger planning area will be developed by several
independent developers in addition to ourselves, an inability to coordinate with
other developers could adversely impact our development.
Of the 4,800 acres owned by Otay Land Company, 1,200 acres are
developable and 3,600 acres are zoned as various qualities of non-developable
"open space mitigation land." We have not yet determined how we will develop the
developable land and, accordingly, we do not yet know the nature or extent of
the entitlements or approvals necessary for our development. Under the general
development plan, approximately 1.2 acres of open space mitigation land must be
set aside for each 1.0 acre of developable land. Some owners of developable land
have adequate or excess mitigation land, while other owners lack sufficient
acreage of mitigation land. We have substantially more mitigation land than we
need to develop this project. A market for our open space mitigation land exists
among buyers in the San Diego County Region. We believe that a market for this
land is likely to develop within the larger Otay Ranch development area as well.
We continue to evaluate how best to maximize the value of this
investment. We believe our current cash resources will be sufficient for
property maintenance, management and marketing pending our determination of how
to proceed with this project. Until we determine our objectives, and, if
necessary,
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<PAGE>
secure additional entitlements and coordinate our development activities with
other developers, we cannot predict when, or if, any revenues will be derived
from this project.
COMPETITION
Real estate development is a highly competitive business. There are
numerous residential real estate developers and development projects operating
in the same geographic area in which we operate. Competition among real estate
developers and development projects is determined by a variety of factors,
including:
o the location of the real estate;
o the market appeal of the development master plan; and
o the developer's ability to build, market and deliver
project segments on a timely basis.
As a master developer, our customers are generally homebuilders, who compete
based on, location, price, market segmentation, product design, and reputation.
GOVERNMENT REGULATION
The residential real estate development industry is subject to
environmental, building, zoning and real estate regulations that are imposed by
various federal, state and local authorities. In developing a community, we must
obtain the approval of numerous governmental agencies regarding matters
including:
o permitted land uses;
o housing density;
o the installation of utility services such as water, sewer,
gas, electric, telephone and cable television; and
o the dedication of acreage for open space, parks, schools
and other community purposes.
Regulations affect homebuilding by specifying, among other things,
o the type and quality of building material that must be
used;
o certain aspects of land use and building design; and
o the manner in which homebuilders may conduct their sales,
operations, and overall relationships with potential home
buyers.
Furthermore, changes in prevailing local circumstances or applicable laws may
require additional approvals or modifications of approvals previously obtained.
Timing of the initiation and completion of development projects
depends upon receipt of necessary authorizations and approvals. Delays could
adversely affect our ability to complete projects, significantly increase the
costs of doing so or cause potential customers to purchase competitors'
products.
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ENVIRONMENTAL COMPLIANCE
Environmental laws may cause us to incur substantial compliance,
mitigation and other costs, may restrict or prohibit development in certain
areas and may delay completion of our development projects. To date,
environmental laws have not had a material adverse effect on us. Other than the
failure to have the San Elijo Hills environmental impact report recertified or a
judicial determination that a recertified report is not in compliance with court
orders, our management is not currently aware of any environmental compliance
matters that could have a material adverse effect on HomeFed. Delays arising
from compliance with environmental laws and regulations could adversely affect
HomeFed's ability to complete our projects, significantly increase the costs of
doing so or cause potential customers to purchase competitors' products.
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<PAGE>
MANAGEMENT
The following table sets forth information with respect to the
directors and executive officers and directors of HomeFed:
<TABLE>
<CAPTION>
Name Age Position with HomeFed Office Held Since
- ---- --- --------------------- -----------------
<S> <C> <C> <C>
Paul J. Borden 50 President and Director 1998
Corinne A. Maki 42 Secretary and Treasurer 1995
Curt R. Noland 43 Vice President 1998
Patrick D. Bienvenue 44 Director 1998
Timothy M. Considine 58 Chairman of the Board 1992
and Director
Ian M. Cumming 59 Director 1999
Michael A. Lobatz 50 Director 1995
Joseph S. Steinberg 55 Director 1998
</TABLE>
The officers serve at the pleasure of the board of directors of
HomeFed.
The recent business experience of our executive officers and
directors is summarized as follows:
Paul J. Borden. Mr. Borden has served as a director and President of
HomeFed since May 1998. Mr. Borden has been a Vice President of Leucadia since
August 1988, responsible for overseeing many of Leucadia's real estate
investments. Mr. Borden has also served as a Vice President of Leucadia
Financial Corporation, a subsidiary of Leucadia.
Corinne A. Maki. Ms. Maki, a certified public accountant, has served
as Treasurer of HomeFed since February 1995 and Secretary since February 1998.
Prior to that, Ms. Maki served as an Assistant Secretary of HomeFed since August
1995. Ms. Maki has also been a Vice President of Leucadia Financial, holding the
offices of Controller, Assistant Secretary and Treasurer since October 1992. Ms.
Maki has been employed by Leucadia since December 1991.
Curt R. Noland. Mr. Noland has served as Vice President of HomeFed
since October 1998. He spent the last 19 years in the land development industry
in San Diego County as a design consultant, merchant builder and a master
developer. From November 1997 until immediately prior to joining HomeFed, Mr.
Noland was employed by the prior development manager of San Elijo Hills and
served as Director of Development for San Elijo Hills. Prior to November 1997,
Mr. Noland was employed for eight years by Aviara, a 1,000-acre master planned
resort community in Carlsbad, California. He is also a licensed civil engineer
and real estate broker.
Patrick D. Bienvenue. Mr. Bienvenue has served as a director of
HomeFed since 1998 and has been President of Leucadia Financial since June 1998.
Since January 1996, Mr. Bienvenue has been President of Rosemary Beach Land
Company, a subsidiary of Leucadia and, from 1992 until December 1995 he was
President and Chief Executive Officer of Tourwest Inc., a property development
and investment company.
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<PAGE>
Timothy M. Considine. Mr. Considine has served as Chairman of the
Board and a director of HomeFed since 1992 and has been Managing Partner of
Considine and Considine, an accounting firm in San Diego, California, since
1969.
Ian M. Cumming. Mr. Cumming has served as a director of HomeFed since
May 1999 and has been a director and Chairman of Leucadia, a diversified
financial services holding company, since June 1978. He is also director of
Allcity Insurance Company, a property and casualty insurance company that is
approximately 90% owned by Leucadia, MK Gold, a precious metals mining company
that is approximately 46% owned by Leucadia and Skywest, Inc., a Utah-based
regional air carrier.
Michael A. Lobatz. Dr. Lobatz has served as a director of HomeFed
since February 1995 and has been a practicing physician in San Diego, California
since 1981.
Joseph S. Steinberg. Mr. Steinberg has served as a director of
HomeFed since August 1998. Mr. Steinberg has been President of Leucadia since
December 1978 and a director of Leucadia since January 1979. He is also director
of Allcity Insurance Company, MK Gold and Jordan Industries, Inc., a company
which owns and manages manufacturing companies, that is approximately 10% owned
by Leucadia.
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<PAGE>
CERTAIN TRANSACTIONS
From the time of HomeFed's emergence from chapter 11 bankruptcy
protection in July 1995 through August 25, 1998, Leucadia owned approximately
41.2% of HomeFed's outstanding common stock. Since August 25, 1998, the trust
has owned this 41.2% interest. On July 8, 1999 the trust increased its interest
in HomeFed common stock to 89.6% as described below. Under the terms of the
trust agreement, Mr. Joseph S. Steinberg, a director of HomeFed, as well as a
director and President of Leucadia and Mr. Ian M. Cumming, a director of
HomeFed, as well as Chairman of the Board of Leucadia, jointly have the right to
vote any shares of HomeFed common stock held by the trust.
Set forth below is information concerning agreements or relationships
between HomeFed and Leucadia and its subsidiaries.
DEVELOPMENT AGREEMENT
In March 1998, HomeFed's board of directors formed a special
committee of directors unaffiliated with Leucadia to consider a proposal from
Leucadia that HomeFed enter into an agreement to become development manager of
San Elijo Hills. The proposal included Leucadia's agreement to make equity
financing available to HomeFed and to restructure the terms of HomeFed's
outstanding $20,000,000 convertible collateralized note issued to Leucadia
Financial. This committee, consisting of Mr. Considine and Dr. Lobatz, engaged
consultants to evaluate the development proposal, performed substantial due
diligence with respect to the proposal, negotiated the structure of the
development proposal with Leucadia and recommended that the board of directors
approve the development management agreement.
In August 1998, upon approval of the board of directors, with Mr.
Borden, a Leucadia Vice President as well as a HomeFed director, not voting,
HomeFed entered into a development management agreement with a subsidiary of
Leucadia. Under this development agreement, HomeFed is the development manager
of the San Elijo Hills project. As development manager, HomeFed is responsible
for the overall management of the project, including arranging financing,
coordinating marketing and sales activity, and acting as construction manager.
The development agreement provides that HomeFed will receive certain fees in
connection with the project. These fees consist of marketing, field overhead and
management service fees, which are based on a fixed percentage of gross revenues
received by the project. The marketing and management service fees are expected
to cover HomeFed's cost of providing these services. In addition, the
development agreement provides for payment of a success fee to HomeFed in some
instances, based on the net cash flow from the project, as determined in the
development agreement, subject to a maximum success fee. Whether a success fee,
if it is earned, will be paid to HomeFed prior to the conclusion of the project
will be at the discretion of the project owner. To date, no money is payable to
HomeFed under the development agreement. We discuss the development agreement
further in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "The Distribution
- -- Reasons for the Distribution."
AMENDED LOAN AGREEMENT
HomeFed's chapter 11 plan of reorganization was funded principally by
the issuance of a $20,000,000 convertible note to Leucadia Financial. As of
August 14, 1998, in connection with the development agreement, HomeFed and
Leucadia Financial entered into an Amended and Restated Loan Agreement, pursuant
to which the original convertible note and the related loan agreement were
restructured. The restructured note, dated August 14, 1998, is in the principal
amount of approximately $26,500,000 including the principal amount of the
original note and additions to principal resulting from accrued and unpaid
interest, as allowed under the terms of the original note. The restructured 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 year ended December
31, 1998, HomeFed paid approximately $2,162,000 in interest on the original note
and the restructured note.
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<PAGE>
Interest of $787,000 was paid on the restructured note for the quarter ended
June 30, 1999. We discuss the amended loan agreement further in "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- --Liquidity and Capital Resources."
STOCK PURCHASE AGREEMENTS
In August and October 1998, HomeFed entered into two stock purchase
agreements with Leucadia. Under these agreements HomeFed agreed to sell a total
of 46,557,826 additional shares of common stock to Leucadia for a total purchase
price of $8,380,400 of which Leucadia advanced $6,710,300. In 1998, Leucadia
assigned the stock purchase agreements to the trust. On July 8, 1999, the trust
purchased the 46,557,826 additional shares of HomeFed common stock pursuant to
the stock purchase agreements and, as a result, the trust now owns 89.6% of the
outstanding HomeFed common stock. Under the terms of the trust agreement, the
trust is required to distribute all of the HomeFed stock that it owns as
promptly as possible following the stock purchases under the stock purchase
agreements and the effectiveness of the registration statement of which this
prospectus forms a part. The 5,882,014 shares of HomeFed common stock currently
held by stockholders other than the trust represent approximately 10.4% of the
outstanding HomeFed common stock. After the distribution of stock by the trust,
Mr. Joseph S. Steinberg will own 12.7%, and Mr. Ian M. Cumming will own
approximately 13.9%, of the outstanding HomeFed common stock. We discuss the
stock purchase agreements further in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "The Distribution -Reasons for the Distribution -- Background."
OTAY LAND COMPANY, LLC
In October 1998, HomeFed and Leucadia formed Otay Land Company.
Through June 30, 1999. HomeFed invested $10,850,000 as capital and Leucadia
invested $10,000,000 as a preferred capital interest. HomeFed 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. Net income, if
any, 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 paid to HomeFed. We discuss Otay
further in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources," "The Distribution --
Relationship with Leucadia after the Distribution" and "Our Company -- Our
Master Planned Communities -- Otay Ranch."
ADMINISTRATIVE SERVICES AGREEMENT
Since emerging from bankruptcy in 1995, administrative services and
managerial support have been provided to HomeFed by Leucadia Financial. Under
the current administrative services agreement, which extends through February
28, 2002, Leucadia Financial provides the services of Mr. Paul J. Borden,
HomeFed's President, and Ms. Corinne A. Maki, HomeFed's Treasurer and Secretary.
Mr. Borden and Ms. Maki each are officers of Leucadia Financial and Leucadia. We
pay Leucadia an annual fee under this agreement of $296,101, payable monthly,
through February 29, 2000. A portion of this fee is allocable to Leucadia's cost
of providing the services of Mr. Borden. No specific allocation has been made
for providing the services of Ms. Maki. Future fees will be negotiated after
that date. During 1998, we paid Leucadia $138,000 for the provision of
administrative services, including $80,000 attributable to Leucadia's cost of
providing Mr. Borden's services. We have paid to Leucadia Financial a total of
$148,000 in administrative fees for the six-month period ended June 30, 1999, of
which $120,000 is attributable to Leucadia's cost of providing Mr. Borden's
services.
SILVERWOOD
On February 27, 1998, HomeFed purchased 19 lots at the Silverwood
project from Leucadia Financial for a purchase price of $500,000. On July 31,
1998, HomeFed sold its entire 97 lot interest in the
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<PAGE>
Silverwood project for $3,033,000, less closing costs. We discuss Silverwood
further in "Management's Discussion and Analysis of Financial Condition and
Results of Operations --Liquidity and Capital Resources" and "Our Business --
Our Current Development Projects."
OFFICE SPACE
HomeFed 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 the space and furnishings. The agreement pursuant to which the space
and furnishings are provided extends for a 6-year period, which coincides with
the Leucadia subsidiary's occupancy of the space, and provides for a monthly
rental of $15,400. Since January 1, 1998, HomeFed has accrued $107,000 in rental
to the Leucadia subsidiary, of which $102,000 was paid through June 30, 1999.
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<PAGE>
DESCRIPTION OF HOMEFED COMMON STOCK
GENERAL
HomeFed's restated certificate of incorporation authorizes the
issuance of 100,000,000 shares of common stock. The following summary describes
the HomeFed common stock as of the date of this prospectus.
VOTING; DISTRIBUTION AND LIQUIDATION RIGHTS
Each valid holder of a share of HomeFed common stock is entitled to
one vote for each share held of record in accordance with applicable provisions
of Delaware law and HomeFed's Bylaws. The shares of HomeFed common stock are not
entitled to cumulative voting rights or to preemptive rights and are not subject
to redemption or assessment. Holders of each share of HomeFed common stock are
entitled to their proportionate share of any distributions to stockholders and
to receive their proportionate share of any dividends that may be declared by
the HomeFed board of directors out of funds legally available for this purpose.
Upon liquidation, dissolution or winding up of HomeFed, holders of HomeFed
common stock will be entitled to receive their proportionate share of assets of
HomeFed which are then legally available for distribution to stockholders. The
issued and outstanding shares of HomeFed common stock are validly issued, fully
paid and nonassessable.
TRANSFER RESTRICTIONS
Shares of HomeFed common stock are subject to certain transfer
restrictions stated in HomeFed's restated certificate of incorporation and in
each certificate representing HomeFed stock. These transfer restrictions will
remain in effect for a period of time that we call the "restriction period." The
restriction period runs until the earlier of:
o December 31, 2010;
o the repeal of Section 382 of the Internal Revenue Code;
and
o the beginning of a taxable year of HomeFed in which none
of the following may be carried forward by HomeFed or one
of its subsidiaries for tax purposes:
o operating loss carryovers;
o capital loss carryovers;
o general business credit carryovers; and
o alternative minimum tax credit carryovers and
foreign tax credit carryovers or "net
unrealized built-in loss" within the meaning of
Section 382 (all of which we call "tax
benefits").
Any attempted transfer of HomeFed common stock or any other securities of
HomeFed that would be treated as "stock" under applicable tax regulations during
the restriction period or pursuant to an agreement entered into during the
restriction period will be void to the extent that, as a result of the transfer
or a related series of transfers either:
o a person or group of persons would become a
five percent stockholder of HomeFed as
described in Treasury Regulation ss.
1.382-2T(g) and applicable attribution,
aggregation and calculation rules, or
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<PAGE>
o the percentage stock ownership interest, as
determined under applicable Treasury
Regulations, in HomeFed of any five percent
stockholder would be increased.
Any transfer of HomeFed stock in violation of these restrictions will not give
the transferee voting rights or the right to share in any dividends or
distributions on the shares transferred in violation.
A transfer of HomeFed stock will not be prohibited if the transferor
or the purported transferee obtains the approval of the HomeFed board of
directors. Our board of directors, as a condition of its approval, may require
an opinion of counsel that the transfer will not result in the application of
any Section 382 limitation on the use of the tax benefits. Accordingly, because
the HomeFed common stock owned by Leucadia, and subsequently the trust,
represented more than 5% of our common stock, our board of directors, based upon
opinions of tax counsel, approved the transfer to the trust of the stock and the
1998 contracts to buy more stock, as well as the distribution of HomeFed stock
by the trust to you.
If the HomeFed board of directors determines that any purported
transfer violated the transfer restrictions, then HomeFed may compel the
transferee to transfer the securities, together with any dividends or
distributions received, to an agent designated by the HomeFed board of directors
and the agent will effect the sale of the securities in one or more arm's length
transactions.
The sales proceeds will be applied:
o first to cover the agent's expenses;
o second, any remaining amounts will be paid to
the purported transferee up to the amount paid
for the securities by the purported transferee;
and
o third, any remaining amounts will be paid to
one or more charitable organizations in
accordance with HomeFed's restated certificate
of incorporation.
The transfer restrictions do not apply to acquisitions of HomeFed
securities directly from HomeFed.
LIMITATION OF LIABILITY
Our restated certificate of incorporation provides that none of our
directors shall be personally liable to us or our stockholders for monetary
damages for a breach of fiduciary duty as a director, except for liability:
o for breach of that person's duty of loyalty;
o for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law;
o for the payment of unlawful dividends and certain other
actions prohibited by Delaware corporate law; and
o for any transaction resulting in receipt by that person of
an improper personal benefit.
We maintain directors' and officers' liability insurance to provide
directors and officers with insurance coverage for losses arising from claims
based on breaches of duty, negligence, error and other wrongful acts. At
present, there is no pending litigation or proceeding, and we are not aware of
any threatened litigation or proceeding, involving any director or officer where
indemnification will be required or permitted under our restated certificate of
incorporation or our bylaws.
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<PAGE>
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
HomeFed is a Delaware corporation subject to Section 203 of the
Delaware General Corporation Law. This section provides in general that a
stockholder acquiring more than 15% but less than 85% of the outstanding voting
stock of a corporation subject to Section 203 (an "interested stockholder") may
not engage in certain business combinations as set forth in Section 203 with the
corporation for a period of three years after the date on which the stockholder
became an interested stockholder unless (i) prior to that date the corporation's
board of directors approved either the business combination or the transaction
in which the stockholder became an interested stockholder or (ii) the business
combination is approved by the corporation's board of directors and authorized
by a vote of at least 66 2/3% of the outstanding voting stock of the corporation
not owned by the interested stockholder. A "business combination" includes
mergers, asset sales and other transactions resulting in financial benefit to a
stockholder. Section 203 could prohibit or delay mergers or other takeover or
change of control attempts with respect to HomeFed and, accordingly, may
discourage attempts that might result in a premium over the market price for the
shares held by stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American
Stock Transfer & Trust Company.
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<PAGE>
THE TRUST
The following table sets forth the number of shares of HomeFed common
stock (1) owned by the trust as of the date of this prospectus, (2) to be
distributed by the trust in the distribution, and (3) to be owned by the trust
immediately following the distribution.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior Shares Owned
Name and Address to Offering to be Distributed After Offering
---------------- ----------- ----------------- --------------
<S> <C> <C> <C>
Trust under Trust Agreement, dated August 14, 1998, between 50,675,812 50,675,812 0
Joseph A. Orlando, as Trustee, and Leucadia National
Corporation, for the benefit of its shareholders
c/o Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
</TABLE>
VALIDITY OF SHARES
The validity of the common stock distributed hereby will be passed
upon for HomeFed by Weil, Gotshal & Manges LLP.
EXPERTS
The consolidated financial statements of HomeFed Corporation as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 and the financial statements of Otay Land Company, LLC as of
December 31, 1998 and for the period from inception (October 14, 1998) through
December 31, 1998 included in this prospectus have been included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in auditing and accounting.
WHERE YOU CAN GET ADDITIONAL INFORMATION
This prospectus constitutes a part of a registration statement on
Form S-2 filed by us with the SEC under the Securities Act of 1933, with respect
to the common stock that we are distributing in this prospectus. This prospectus
does not contain all the information that is contained in the registration
statement, some of which we are allowed to omit in accordance with the rules and
regulations of the SEC. We refer to the registration statement and to the
exhibits filed with the registration statement for further information with
respect to HomeFed. Copies of the registration statement and its exhibits are on
file at the offices of the SEC and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the SEC described below. Statements contained in this prospectus
concerning the provisions of documents are summaries of the material provisions
of those documents, and each of those statements is qualified in its entirety by
reference to the copy of the applicable document filed with the SEC. Since this
prospectus may not contain all of the information that you may find important,
you should review the full text of these documents.
We file annual, quarterly and current reports and other documents
with the SEC under the Securities Exchange Act of 1934, and we file reports,
proxy statements and other information with the SEC. You may read and copy any
of these reports, proxy statements, other documents or the registration
statement may be inspected and copied at the SEC's public reference facilities
at:
o Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549;
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<PAGE>
o Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and
o 7 World Trade Center, 13th Floor, New York, New York
10048.
Please call the SEC at 1-800-SEC-0330 for further information on
its public reference facilities. You can also get copies of these filings by
writing to the SEC Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, or on the World Wide Web through
commercial document retrieval services or at the SEC's Internet address at
"http://www.sec.gov."
The SEC allows us to "incorporate by reference" in this prospectus
reports that we file with them, which means that we can disclose important
information to you by referring you to those reports. Accordingly, we are
incorporating by reference in this prospectus our amended annual report on Form
10-K for the fiscal year ended December 31, 1998 and our amended quarterly
report on Form 10-Q for the quarter ended March 31, 1999 and our quarterly
report on Form 10-Q for the quarter ended June 30, 1999.
You may also request a free copy of any of our filings with the SEC,
other than documents that constitute exhibits to those filings, by writing or
telephoning us at the following address or phone number: Secretary, HomeFed
Corporation, 1903 Wright Place, Suite 220, Carlsbad, California 92008 (760)
918-8200.
YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ADDITIONAL OR DIFFERENT
INFORMATION. WE ARE OFFERING TO DISTRIBUTE SHARES OF COMMON STOCK ONLY IN
JURISDICTIONS WHERE THE DISTRIBUTION IS PERMITTED. THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY DISTRIBUTION OF COMMON STOCK.
43
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
FINANCIAL STATEMENTS OF HOMEFED CORPORATION
Report of Independent Accountants F-1
Consolidated Balance Sheets at December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the years ended December 31, 1998, F-3
1997 and 1996
Consolidated Statements of Changes in Stockholders' Deficit for the years ended F-4
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1998, F-5
1997 and 1996
Notes to Consolidated Financial Statements F-7
Consolidated Balance Sheets at June 30, 1999 (unaudited) and December 31, 1998 F-14
Consolidated Statements of Operations for the periods ended June 30, 1999 and F-15
1998 (unaudited)
Consolidated Statements of Changes in Stockholder's Deficit for the six months F-16
ended June 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the six months ended June 30, 1999 F-17
and 1998 (unaudited)
Notes to Unaudited Interim Consolidated Financial Statements F-18
FINANCIAL STATEMENTS OF OTAY LAND COMPANY, LLC
Report of Independent Accountants F-21
Balance Sheet at December 31, 1998 F-22
Statement of Operations from Inception (October 14, 1998) to December 31, 1998 F-23
Statement of Changes in Members' Capital for the Period from Inception (October F-24
14, 1998) to December 31, 1998
Statement of Cash Flows from Inception (October 14, 1998) to December 31, 1998 F-25
Notes to Financial Statements F-26
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<PAGE>
Balance Sheets at June 30, 1999 (unaudited) and F-29
December 31, 1998
Statements of Operations for the periods ended F-30
June 30, 1999 (unaudited)
Statement of Changes in Members' Capital for the F-31
six months ended June 30, 1999 (unaudited)
Statement of Cash Flows for the six months ended F-32
June 30, 1999 (unaudited)
Notes to Interim Financial Statements (Unaudited) F-33
</TABLE>
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of HomeFed Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows, after the restatement described in Note 1, present fairly, in all
material respects, the financial position of HomeFed Corporation (the "Company")
as of December 31, 1998 and 1997, and the results of their operations, changes
in stockholders' deficit and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers LLP
Salt Lake City, Utah
March 19, 1999, except for Note 1, Basis of Presentation, as to which the date
is September 21, 1999
F-1
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands, except par value)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ------------- ------------
<S> <C> <C>
Land and real estate held for development and sale $ 4,636 $ 9,652
Cash and cash equivalents 3,120 4,195
Restricted cash 1,127 1,073
Investment in Otay Land Company, LLC 9,917 -
Other investments 79 75
Deposits and other assets 164 462
------------- ------------
TOTAL $ 19,043 $ 15,457
============= ============
LIABILITIES
- -----------
Note payable to Leucadia Financial Corporation $ 19,736 $ 26,085
Accounts payable and accrued liabilities 802 111
------------- ------------
TOTAL LIABILITIES 20,538 26,196
------------- ------------
COMMITMENTS AND CONTINGENCIES
- -----------------------------
COMMON STOCK SUBSCRIPTION
- -------------------------
Advance under common stock subscription 6,710 -
------------- ------------
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 (355,224) (350,743)
------------- -------------
TOTAL STOCKHOLDERS' DEFICIT (8,205) (10,739)
------------- -------------
TOTAL $ 19,043 $ 15,457
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Sales of residential properties $ 5,752 $ 4,011 $ 8,988
Cost of sales 5,714 4,048 9,452
------------- ------------- ------------
Gross profit (loss) 38 (37) (464)
Provision for losses on real estate investments 425 153 1,583
Interest expense relating to Leucadia Financial
Corporation 2,828 2,997 3,054
Other interest expense - - 9
General and administrative expenses 1,192 597 1,171
Management fees to Leucadia Financial Corporation 138 80 143
------------- ------------- ------------
Loss from operations (4,545) (3,864) (6,424)
Equity in losses from Otay Land Company, LLC (208) - -
Other income - net 312 319 181
------------- ------------- ------------
Loss before income taxes (4,441) (3,545) (6,243)
Income tax expense (40) (32) (54)
------------- ------------- -------------
Net loss $ (4,481) $ (3,577) $ (6,297)
============= ============= =============
Basic loss per common share $ (0.45) $ (0.36) $ (0.63)
============ ============ ============
Diluted loss per common share $ (0.45) $ (0.36) $ (0.63)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Common
Stock Additional Total
$.01 Par Paid-in Accumulated Stockholders'
Value Capital Deficit Deficit
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 100 $ 339,904 $(340,869) $ (865)
Net loss (6,297) (6,297)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1996 100 339,904 (347,166) (7,162)
Net loss (3,577) (3,577)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 100 339,904 (350,743) (10,739)
Contribution of capital resulting from
restructuring of note payable to
Leucadia Financial Corporation 7,015 7,015
Net loss (4,481) (4,481)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 $ 100 $ 346,919 $(355,224) $ (8,205)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HomeFed Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (4,481) $ (3,577) $ (6,297)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for losses on real estate investments 425 153 1,583
Accrued interest added to notes payable to
Leucadia Financial Corporation 666 2,208 2,957
Equity in losses from Otay Land Company, LLC 208 - -
Changes in operating assets and liabilities:
Land and real estate held for development and sale 4,591 3,723 6,958
Deposits and other assets 298 136 366
Accounts payable and accrued liabilities 691 (265) (218)
Decrease (increase) in restricted cash (54) 12 20
------------- ------------- ------------
Net cash provided by operating activities 2,344 2,390 5,369
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in other assets - - 250
Contributions to Otay Land Company, LLC (10,125) - -
Distributions from joint ventures - - 7
Decrease (increase) in other investments (4) (4) 12
------------- ------------- ------------
Net cash provided by (used in) investing activities (10,129) (4) 269
------------- ------------- ------------
</TABLE>
(CONTINUED)
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HomeFed Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to notes payable to Leucadia Financing
Corporation $ - $ - $ 1,439
Repayments of notes payable to Leucadia Financing
Corporation - - (7,515)
Repayments of other notes payable - - (126)
Advance under common stock subscription 6,710 - -
------------ ------------ -------------
Net cash provided by (used in) financing activities 6,710 - (6,202)
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,075) 2,386 (564)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 4,195 1,809 2,373
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,120 $ 4,195 $ 1,809
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest (net of amounts capitalized) $ 2,162 $ 789 $ 492
============ ============ ============
Cash paid for income taxes $ 28 $ 31 $ 59
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying consolidated financial
statements include the accounts of HomeFed Corporation (the "Company"), and the
Company's wholly-owned subsidiaries, HomeFed Communities, Inc. ("HomeFed
Communities") and HomeFed Resources Corporation. The Company is engaged,
directly and through its subsidiaries, in the investment in and development of
residential real estate properties in California. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company accounts for its investment in Otay Land Company, LLC
("Otay Land Company"), under the equity method of accounting since the Company
has the ability to exert significant influence but does not control this
investment.
The consolidated financial statements have been restated to reflect
the accrual of a minority interest charge of $208,000 reflecting Leucadia
National Corporation's ("Leucadia") minimum preferred return in Otay Land
Company from its inception (October 1998) through December 31, 1998. In
addition, certain amounts for prior periods have been reclassified to be
consistent with the 1998 presentation.
LAND AND REAL ESTATE HELD FOR DEVELOPMENT AND SALE - Land and real
estate held for development and sale is carried at the lower of cost or fair
value less costs to sell. The cost of land and real estate held for development
and sale includes all expenditures incurred in connection with the acquisition,
development and construction of the property, including interest and property
taxes. Revenue from incidental operations relating specifically to property
under development is treated as a reduction of capitalized costs. Land costs
included in land and real estate held for development and sale are allocated to
lots based on relative fair values prior to development and are charged to cost
of sales at the time of sale.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include
short-term, highly liquid investments that are readily convertible to cash. The
majority of the Company's cash and cash equivalents are held by one financial
institution in Salt Lake City, Utah.
RESTRICTED CASH - Restricted cash consists of amounts reserved for
warranty obligations on homes sold and amounts reserved as collateral relating
to an outstanding standby letter of credit.
INVESTMENTS - Investments consist of liquid mutual fund accounts and
are carried at cost, which approximates market value.
REVENUE RECOGNITION - Revenue from the sale of real estate is
recognized at the time title is conveyed to the buyer at the close of escrow,
minimum down payment requirements are met, the terms of any notes received
satisfy continuing payment requirements, and there are no requirements for
continuing involvement with the properties. When it is determined that the
earning process is not complete, income is deferred using the installment, cost
recovery or percentage of completion methods of accounting, as appropriate.
ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect (i) the reported amounts of assets and
liabilities, (ii) the disclosure of contingent assets and liabilities at the
date of the financial statements and (iii) the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
PROVISIONS FOR LOSSES ON REAL ESTATE INVESTMENTS - Management
periodically assesses the recoverability of its real estate investments by
comparing the carrying amount of the investments with their fair value less
costs to sell. The process involved in the determination of fair value requires
estimates as to future events and market conditions. This estimation process
assumes the Company has the ability to complete development and dispose of its
real estate properties in the ordinary course of business based on management's
present plans and intentions. When management determines that the carrying value
of specific real estate investments should be reduced to properly record these
assets at fair value less costs to sell, this write-down is recorded as a charge
to current period operations.
CAPITALIZATION OF INTEREST AND REAL ESTATE TAXES - Interest and real
estate taxes attributable to land and home construction are capitalized and
added to the cost of those properties while the properties are being actively
developed.
2. LAND AND REAL ESTATE HELD FOR DEVELOPMENT AND SALE
A summary of land and real estate held for development and sale by
project follows:
December 31,
-----------------------------------
1998 1997
-------------- --------------
Paradise Valley $ 4,636,000 $ 7,265,000
Silverwood - 2,387,000
-------------- --------------
Total $ 4,636,000 $ 9,652,000
============== ==============
Interest capitalized in land and real estate held for development and
sale in 1996 was $26,000. No interest was capitalized in land and real estate
held for development and sale during 1998 and 1997.
All land and real estate held for development and sale is property in
California and is pledged as collateral under the Amended and Restated Loan
Agreement.
3. NOTES PAYABLE
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 ("Convertible Note") held by
LFC. The restructured note dated August 14, 1998 (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. The Restructured Note is collateralized by a perfected first priority
security interest in all assets of the borrower, whether now owned or hereafter
acquired. No principal payments are due under the Restructured Note until its
maturity date.
F-8
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. NOTES PAYABLE, continued:
As a result of the restructuring of the Convertible Note, the
Restructured Note was recorded at fair value and the approximate $7,015,000
difference between the fair value of the Restructured Note and the carrying
value of the Convertible Note was reflected as additional paid-in capital. This
difference will be amortized as interest expense over the term of the
Restructured Note using the interest method. Approximately $289,000 was
amortized to interest expense during 1998. The carrying amount of this
Restructured Note, net of this discount for fair value, was $19,736,000 at
December 31, 1998.
Interest accrued during the years ended December 31, 1998, 1997 and
1996 of $377,000, $2,208,000 and $2,669,000, respectively, was not paid and was
added to the principal balance. Additional interest of $2,162,000, and $789,000
accrued during 1998 and 1997, respectively, was paid by the Company.
4. INVESTMENT IN OTAY LAND COMPANY, LLC
On October 14, 1998, the Company and Leucadia formed Otay Land
Company for the purpose of purchasing 4,800 acres of land located within the
22,900-acre Otay Ranch planning area, located south of San Diego, California.
The Company initially contributed $10,000,000 as capital and Leucadia
contributed $10,000,000 as a preferred capital interest to Otay Land Company and
the Company contributed an additional $125,000 as capital in 1998; the Company
will act as development manager of this project.
The following table provides certain summarized data with respect to
Otay Land Company accounted for by the Company using the equity method of
accounting for the year ended December 31, 1998.
Assets $ 20,460,000
Liabilities 335,000
----------------
Net Assets $ 20,125,000
================
The Company's portion of the reported net assets $ 10,125,000
================
For information with respect to the priority of distributions from
Otay Land Company, see note 9(d).
5. INCOME TAXES
The income tax expense for all years presented principally relates to
state franchise taxes. The Company has not recognized any tax benefit from its
operating losses in all years presented.
In 1997, the Internal Revenue Service granted the Company a favorable
ruling on the Company's private letter ruling request and the Company received
permission to reattribute a portion of the net operating losses from HomeFed
Bank, F.S.B. ("HomeFed Bank") and its subsidiaries to the Company. The amount of
net operating loss ("NOL") carryforwards reattributed was approximately
$219,324,000.
F-9
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. INCOME TAXES, continued:
The Company and its wholly-owned subsidiaries have NOL carryforwards
available for federal income tax purposes of $266,245,000 as of December 31,
1998, including the NOLs reattributed to the Company by HomeFed Bank and its
subsidiaries. These carryforwards were generated during 1984-1998 and expire
during 1999-2018. For state income tax purposes, available NOLs as of December
31, 1998 total $32,305,000 and expire in 1999-2013.
At December 31, the net deferred tax asset consisted of the
following:
1998 1997
----------------- ----------------
NOL carryforwards $ 95,789,000 $ 89,623,000
Land basis 3,081,000 6,000,000
Other 28,000 78,000
----------------- ----------------
98,898,000 95,701,000
Valuation allowance (98,898,000) (95,701,000)
----------------- -----------------
$ 0 $ 0
================= ================
The valuation allowance has been provided on the total amount of the
deferred tax asset due to the uncertainty of future taxable income necessary for
realization of the deferred tax asset. The valuation allowance increased by
$3,197,000 and $76,100,000 in 1998 and 1997, respectively.
6. PROVISION FOR LOSSES ON REAL ESTATE INVESTMENTS
For the years ended December 31, 1998, 1997 and 1996, the Company
recorded a loss of $425,000, $153,000 and $1,583,000, respectively, due to its
decision not to complete the home development on the four detached single-family
residential sites at the Paradise Valley project as originally planned and due
to the revaluation of the other sites. The loss for each year was determined by
comparing the carrying value of the investment to its fair value less costs to
sell based on offers the Company has received and sales of comparable real
estate.
7. EARNINGS PER SHARE
Basic loss per share of Common Stock for all years presented were
calculated by dividing net loss by the 10,000,000 shares of Common Stock issued
on July 3, 1995.
Diluted loss per share of Common Stock were calculated as described
above. The number of shares used to calculate diluted loss per share was
10,000,000 for each of the years ended December 31, 1998, 1997 and 1996,
respectively. The calculation of diluted loss per share does not include Common
Stock equivalents of 49,647,893, 54,073,383 and 49,314,276, respectively, which
are antidilutive.
8. COMMITMENTS AND CONTINGENCIES
One of the Company's consolidated real estate partnerships placed
approximately $1,000,000 on deposit with a financial institution in Salt Lake
City, Utah to collateralize a standby letter of credit. The amount of the
deposit is included in restricted cash. The letter of credit was issued to
guaranty the partnership's obligation under a property development agreement to
construct a recreation center.
F-10
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. COMMITMENTS AND CONTINGENCIES, continued:
One of the Company's wholly-owned subsidiaries, HomeFed Communities,
must maintain a net worth of $5,000,000 and a cash balance of $400,000 in order
to ensure its ability to pay amounts which may become due under an indemnity
agreement with a third-party surety which provided security for certain
obligations of the partnership in which HomeFed Communities was a partner. If
HomeFed Communities does not meet these requirements, it must post an
irrevocable letter of credit in the amount of 50% of the face value of the bonds
issued by the surety. This letter of credit amount is currently estimated to be
approximately $460,000.
9. RELATED PARTY TRANSACTIONS
The Company has entered into the following related party transactions
with Leucadia and its subsidiary, LFC.
(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 outstanding Convertible Note held by LFC. The Restructured Note
has a principal amount of approximately $26,462,380 (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 year ended December 31, 1998,
the Company paid to LFC approximately $2,162,000 in interest on the Convertible
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 Convertible Note.
As a result of the restructuring of the Convertible 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 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 over the term of the Restructured Note using
the interest method. Approximately $289,000 was amortized as interest expense in
1998.
(b) Stock Purchase Agreements. In August and October 1998, the
Company entered into stock purchase agreements (the "Stock Purchase Agreements")
with Leucadia, pursuant to which the Company agreed to sell an aggregate of
46,557,826 additional shares of its Common Stock to Leucadia for an aggregate
purchase price of $8,380,000. In connection with the Stock Purchase Agreements,
Leucadia advanced to the Company $6,710,000 of the total purchase price, which
amount is refundable in the event the closing of the Stock Purchase Agreements
do not occur. The Stock Purchase Agreements provide 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. In 1998,
Leucadia assigned the Stock Purchase Agreements to the Leucadia Trust. Upon
consummation of the Stock Purchase Agreements, the Leucadia Trust will own 89.6%
of the Common Stock to be outstanding. The Company has been advised that,
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 owned by the Trust as
promptly as practicable.
F-11
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. RELATED PARTY TRANSACTIONS, continued:
(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 (as determined in
accordance with the Development Agreement), 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. 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. 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
22,900-acre project located south of San Diego, California, known as Otay Ranch.
All distributions 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
Company.
(e) Administrative Services Agreement. 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. Administrative fees paid to LFC in 1998, 1997 and 1996 were $138,000,
$80,000 and $143,000, respectively. 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.
The Company's corporate office is located at 1903 Wright Place, Suite
220, Carlsbad, California in an office building occupied and leased by a
subsidiary of Leucadia.
(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.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's material financial instruments include cash and cash
equivalents, restricted cash, investments and notes payable. In all cases, the
carrying amount of such financial instruments approximates their fair values. In
cases where quoted market prices are not available, fair values are based on
estimates using present value techniques.
F-12
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. SUBSEQUENT EVENTS
On February 2, 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
issued to guaranty the partnership's obligation to complete landscape,
irrigation and fencing improvements at the Paradise Valley project.
On February 23, 1999, one of the Company's consolidated partnerships
sold the remaining 75 residential lots at the Paradise Valley project for
$2,250,000, less closing costs.
F-13
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and December 31, 1998
(Dollars in thousands, except par value)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Land and real estate held for development and sale $ 2,531 $ 4,636
Cash and cash equivalents 2,205 3,120
Restricted cash 1,321 1,127
Investment in Otay Land Company, LLC 10,119 9,917
Other investments - 79
Deposits and other assets 321 164
--------------- --------------
TOTAL $ 16,497 $ 19,043
=============== ==============
LIABILITIES
- -----------
Note payable to Leucadia Financial Corporation $ 20,129 $ 19,736
Accounts payable and accrued liabilities 1,032 802
--------------- --------------
Total liabilities 21,161 20,538
--------------- --------------
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 (358,393) (355,224)
--------------- ---------------
Total stockholders' deficit (11,374) (8,205)
--------------- ---------------
TOTAL $ 16,497 $ 19,043
=============== ==============
</TABLE>
See Notes to interim consolidated financial statements.
F-14
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the periods ended June 30, 1999 and 1998
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Six
Month Period Ended Month Period Ended
June 30, June 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales of residential properties $ -- $ -- $ 2,250 $ 891
Costs 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 596 780 1,180 1,552
General and administrative expenses 609 174 1,177 305
Management fees to Leucadia Financial Corporation 74 13 148 30
------- ------- ------- -------
Loss from operations (1,279) (967) (2,728) (1,890)
Equity in losses from Otay Land Company, LLC (266) -- (523) --
Other income, net 50 64 102 134
------- ------- ------- -------
Loss before income taxes (1,495) (903) (3,149) (1,756)
Income tax expense (12) (8) (20) (17)
------- ------- ------- -------
Net loss $(1,507) $ (911) $(3,169) $(1,773)
======= ======= ======= =======
Basic loss per common share $ (0.15) $ (0.09) $ (0.32) $ (0.18)
======= ======= ======= =======
Diluted loss per common share $ (0.15) $ (0.09) $ (0.32) $ (0.18)
======= ======= ======= =======
</TABLE>
See Notes to interim consolidated financial statements.
F-15
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the six months ended June 30, 1999 and 1998
(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, 1998 $ 100 $ 339,904 $ (350,743) $ (10,739)
Net loss (1,773) (1,773)
------- ------------- ------------- -------------
BALANCE, JUNE 30, 1998 $ 100 $ 339,904 $ (352,516) $ (12,512)
======= ============= ============= =============
BALANCE, JANUARY 1, 1999 $ 100 $ 346,919 $ (355,224) $ (8,205)
Net loss (3,169) (3,169)
------- ------------- ------------- -------------
BALANCE, JUNE 30, 1999 $ 100 $ 346,919 $ (358,393) $ (11,374)
======= ============= ============= =============
</TABLE>
See Notes to interim consolidated financial statements.
F-16
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (3,169) $ (1,773)
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 393 -
Equity in losses from Otay Land Company, LLC 523 -
Changes in operating assets and liabilities:
Land and real estate held for development and sale 1,850 322
Deposits and other assets (157) 226
Accounts payable and accrued liabilities 230 12
Decrease (increase) in restricted cash (194) 2
------------- ------------
Net cash used in operating activities (269) (1,211)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Contributions to Otay Land Company, LLC (725) -
Decrease (increase) in other investments 79 (2)
------------- -------------
Net cash used in investing activities (646) (2)
-------------- -------------
Net decrease in cash and cash equivalents (915) (1,213)
Cash and cash equivalents, beginning of period 3,120 4,195
------------- ------------
Cash and cash equivalents, end of period $ 2,205 $ 2,982
============= ============
</TABLE>
See Notes to interim consolidated financial statements.
F-17
<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.
The Company's unaudited interim financial statements have been
restated to reflect the accrual of a minority interest charge of
$250,000 per quarter representing Leucadia National Corporation's
("Leucadia") minimum preferred return in Otay Land Company, LLC
("Otay Land Company") and to reflect Otay Land Company under the
equity method of accounting rather than the consolidation method of
accounting because Leucadia, although the minority member of Otay
Land Company, has certain approval rights which could, if exercised,
affect the Company's ability to control Otay Land Company. The
noncash effects on the consolidated financial statements are a
decrease in land of $20,803,000, a decrease in minority interest of
$10,000,000 and an increase in Investment in Otay Land Company, LLC
of $10,119,000. Effective September 20, 1999, the Company and
Leucadia amended the limited liability company agreement for Otay
Land Company to eliminate these approval rights and, as a result, the
Company has the ability to control Otay Land Company effective as of
September 20, 1999. Accordingly, Otay Land Company will be
consolidated in the Company's financial statements as of September
30, 1999.
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, 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 six-month
period ended June 30, 1999, interest of approximately $787,000 was
paid to LFC. 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
F-18
<PAGE>
Note will be amortized as interest expense over the term of the
Restructured Note using the interest method. Approximately $393,000
was amortized as interest expense during the six-month period ended
June 30, 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 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. Under the terms of the trust agreement,
the Leucadia Trust is required to distribute all of the Company's
Common Stock that it owns as promptly as practicable following the
purchase of Common Stock under the two stock purchase agreements and
the effectiveness of a registration statement filed with the
Securities and Exchange Commission.
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 $725,000
during the six-month period ended June 30, 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 $148,000 for the six-month
period ended June 30, 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 six months
ended June 30, 1999, the Company accrued $90,000 in rental expense,
related to space provided by Leucadia or its affiliates, to the
Leucadia subsidiary.
F-19
<PAGE>
8. On July 8, 1999, the Company received approximately $1,670,000 in
final payment of the common stock subscription and issued 46,557,826
shares of HomeFed Common Stock to the Leucadia Trust as described in
Note 4 above.
On July 15, 1999, the Company sold one of its three clustered housing
development sites at the Paradise Valley project for $350,000, less
closing costs. The book value of this site was approximately
$315,000.
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 issued to guaranty the partnership's obligation
to complete landscape, irrigation and fencing improvements at the
Paradise Valley project. This letter of credit expired on August 6,
1999 and the cash of approximately $197,000 was deposited in the
Company's operating account.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Otay Land Company, LLC
In our opinion, the accompanying balance sheet and the related statements of
operations, of members' capital and of cash flows present fairly, in all
material respects, the financial position of Otay Land Company, LLC (the
"Company") at December 31, 1998, and the results of its operations and its cash
flows for the period from inception (October 14, 1998) to December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/PRICEWATERHOUSECOOPERS LLP
Salt Lake City, Utah
March 19, 1999
F-21
<PAGE>
<TABLE>
<CAPTION>
Otay Land Company, LLC
Balance Sheet
- --------------------------------------------------------------------------------
DECEMBER 31,
1998
----------------
<S> <C>
ASSETS
Land held for development.......................................... $ 20,407,694
Cash and cash equivalents.......................................... 52,111
----------------
Total........................................................ $ 20,459,805
================
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable and accrued liabilities........................... $ 334,669
----------------
Total liabilities............................................ 334,669
----------------
MEMBERS' CAPITAL
Preferred capital (liquidation preference of $10,000,068).......... 10,000,068
Capital............................................................ 10,125,068
----------------
Total members' capital....................................... 20,125,136
----------------
Total liabilities and members' capital....................... $ 20,459,805
================
</TABLE>
F-22
<PAGE>
OTAY LAND COMPANY, LLC
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
PERIOD FROM INCEPTION
(OCTOBER 14, 1998)
TO DECEMBER 31, 1998
---------------------
OPERATING EXPENSES
General and administrative expenses.................. $ (10,883)
------------
Loss from operations........................... (10,883)
OTHER INCOME
Interest income...................................... 11,019
-----------
Net income..................................... $ 136
===========
F-23
<PAGE>
<TABLE>
<CAPTION>
OTAY LAND COMPANY, LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (OCTOBER 14, 1998) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PREFERRED
CAPITAL CAPITAL TOTAL
---------------- ---------------- ----------------
<S> <C> <C> <C>
Preferred capital contribution........................... $ 10,000,000 $ 10,000,000
Capital contribution..................................... $ 10,125,000 10,125,000
Net income for the period from inception
(October 14, 1998)
to December 31, 1998................................. 68 68 136
---------------- ---------------- ----------------
Total members' capital......................... $ 10,000,068 $ 10,125,068 $ 20,125,136
================ ================ ================
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
OTAY LAND COMPANY, LLC
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
PERIOD FROM INCEPTION
(OCTOBER 14, 1998)
TO DECEMBER 31, 1998
---------------------
<S> <C>
Cash flows from operating activities:
Net income....................................................................... $ 136
Adjustments to reconcile net income to net cash used in
operating activities:
Changes in operating assets and liabilities:
Land held for development............................................... (20,407,694)
Accounts payable and accrued liabilities................................ 334,669
----------------
Net cash used in operating activities............................... (20,072,889)
-----------------
Cash flows from financing activities:
Preferred capital contribution................................................... 10,000,000
Capital contribution............................................................. 10,125,000
----------------
Net cash provided by financing activities........................... 20,125,000
----------------
Net increase in cash and cash equivalents............................................ 52,111
Cash and cash equivalents, at inception (October 14, 1998)........................... -
----------------
Cash and cash equivalents, December 31, 1998......................................... $ 52,111
================
</TABLE>
F-25
<PAGE>
OTAY LAND COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND ORGANIZATION
Otay Land Company, LLC (the "Company") is a limited liability company
that was organized in October 1998 under terms of a Limited Liability
Company Agreement (the "Agreement"). The two Members of the Company
are HomeFed Corporation ("HomeFed") and Leucadia National Corporation
("LNC"). The Company is engaged in the investment in and development
of master-planned communities in Southern California.
LAND HELD FOR DEVELOPMENT
Land held for development is carried at the lower of cost or fair
value less costs to sell. The cost of land held for development
includes all expenditures incurred in connection with the acquisition
and development of the property, including interest and property
taxes, while the properties are being actively developed.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term, highly liquid
investments that are readily convertible to cash.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
PROVISIONS FOR LOSSES ON REAL ESTATE INVESTMENTS
Management periodically assesses the recoverability of its real
estate investments by comparing the carrying amount of the
investments with their fair value less costs to sell. The process
involved in the determination of fair value requires estimates as to
future events and market conditions. This estimation process assumes
the Company has the ability to complete development and dispose of
its real estate properties in the ordinary course of business based
on management's present plans and intentions. When management
determines that the carrying value of specific real estate
investments should be reduced to properly record these assets at fair
value less costs to sell, the write-down is recorded as a charge to
current period operations.
F-26
<PAGE>
OTAY LAND COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (continued)
- ----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
INCOME TAXES
The Company is not subject to income taxes; the individual members
are required to report their distributive share of the Company's
realized income, gain, loss, deductions or credits on their
respective income tax returns.
2. MEMBERS' CAPITAL
Each member of the Company contributed capital in order to gain an
interest in the Company. The two types of capital outlined in the
Agreement include ordinary capital and preferred capital, which are
held by HomeFed and LNC, respectively. As holder of the preferred
capital, LNC is entitled to the following distribution of profits, in
order of priority:
1. An annual minimum cumulative preferred return of 10% on
all preferred capital, of which there is $208,000 in
arrears as of December 31, 1998;
2. An annual minimum cumulative preferred return of 2% on all
preferred capital, provided that this shall be payable to
LNC only out of and to the extent of profits;
3. To repay all of the preferred capital provided by LNC;
4. Any remaining funds will be distributed to HomeFed.
According to the terms of the Agreement, the Manager of the Company
shall be selected by the unanimous vote of the Members; however, as
long as LNC holds preferred capital, LNC shall select the Manager. In
addition, as long as LNC holds preferred capital, only LNC may remove
the Manager of the Company. Currently, LNC has selected HomeFed to be
the Manager of the Company. The officers of the Company are to be
elected by a unanimous vote of the members; however, as long as LNC
holds preferred capital, it shall select the officers of the Company.
F-27
<PAGE>
<TABLE>
<CAPTION>
OTAY LAND COMPANY, LLC
BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1999 1998
----------------------- ----------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Land held for development $20,802,977 $20,407,694
Cash and cash equivalents 42,861 52,111
----------------------- ----------------------
Total assets $20,845,838 $20,459,805
======================= ======================
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable and accrued liabilities $ 18,325 $ 334,669
----------------------- ----------------------
Total liabilities 18,325 334,669
----------------------- ----------------------
Members' Capital:
Preferred capital (liquidation preference of $10,708,068) 10,000,068 10,000,068
Capital 10,827,445 10,125,068
----------------------- ----------------------
Total members' capital 20,827,513 20,125,136
----------------------- ----------------------
Total liabilities and members' capital $20,845,838 $20,459,805
======================= ======================
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
OTAY LAND COMPANY, LLC
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1999 1999
----------------------- -----------------------
<S> <C> <C>
OPERATING EXPENSES
General and administrative expenses $ (16,061) $ (23,501)
----------------------- -----------------------
Loss from operations (16,061) (23,501)
OTHER INCOME
Interest income 383 878
----------------------- -----------------------
Net loss $ (15,678) $ (22,623)
======================= =======================
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
OTAY LAND COMPANY, LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
PREFERRED
CAPITAL CAPITAL TOTAL
-------------------- -------------------- ----------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1999 $10,000,068 $10,125,068 $20,125,136
Capital contribution 725,000 725,000
Net loss (22,623) (22,623)
-------------------- -------------------- ----------------------
BALANCE, JUNE 30, 1999 $10,000,068 $10,827,445 $20,827,513
==================== ==================== ======================
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
OTAY LAND COMPANY, LLC
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX
MONTHS ENDED
JUNE 30,
1999
------------------------
<S> <C>
Cash flows from operating activities:
Net loss $ (22,623)
Adjustments to reconcile net loss to net cash used in
operating activities:
Changes in operating assets and liabilities:
Land held for development (395,283)
Accounts payable and accrued liabilities (316,344)
------------------------
Net cash used in operating activities (734,250)
------------------------
Cash flows from financing activities:
Capital contribution 725,000
------------------------
Net cash provided by financing activities 725,000
------------------------
Net decrease in cash and cash equivalents (9,250)
Cash and cash equivalents, January 1, 1999 52,111
------------------------
Cash and cash equivalents, June 30, 1999 $ 42,861
========================
</TABLE>
F-31
<PAGE>
OTAY LAND COMPANY, LLC
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND ORGANIZATION
Otay Land Company, LLC (the "Company") is a limited liability company
that was organized in October 1998 under terms of a Limited Liability
Company Agreement, as amended (the "Agreement"). The two members of
the Company are HomeFed Corporation ("HomeFed") and Leucadia National
Corporation ("LNC"). HomeFed serves as manager of the Company and may
only be removed for cause. The Company is engaged in the investment
in and development of master-planned communities in Southern
California.
The unaudited interim 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 financial statements for the Company for
the year ended December 31, 1998. Results of operations for interim
periods are not necessarily indicative of annual results of
operations. The balance sheet at December 31, 1998 was derived from
the Company's audited financial statements, and does not include all
disclosures required by generally accepted accounting principles for
annual financial statements.
LAND HELD FOR DEVELOPMENT
Land held for development is carried at the lower of cost or fair
value less costs to sell. The cost of land held for development
includes all expenditures incurred in connection with the acquisition
and development of the property, including interest and property
taxes, while the properties are being actively developed.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term, highly liquid
investments that are readily convertible to cash.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-32
<PAGE>
OTAY LAND COMPANY, LLC
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PROVISIONS FOR LOSSES ON REAL ESTATE INVESTMENTS
Management periodically assesses the recoverability of its real
estate investments by comparing the carrying amount of the
investments with their fair value less costs to sell. The process
involved in the determination of fair value requires estimates as to
future events and market conditions. This estimation process assumes
the Company has the ability to complete development and dispose of
its real estate properties in the ordinary course of business based
on management's present plans and intentions. When management
determines that the carrying value of specific real estate
investments should be reduced to properly record these assets at fair
value less costs to sell, the write-down is recorded as a charge to
current period operations.
INCOME TAXES
The Company is not subject to income taxes; the individual members
are required to report their distributive share of the Company's
realized income, gain, loss, deductions or credits on their
respective income tax returns.
2. MEMBERS' CAPITAL
Each member of the Company contributed capital in order to gain an
interest in the Company. The two types of capital outlined in the
Agreement include ordinary capital and preferred capital, which are
held by HomeFed and LNC, respectively. As holder of the preferred
capital, LNC is entitled to the following distribution of profits, in
order of priority:
1. An annual minimum cumulative preferred return
of 10% on all preferred capital, of which there
is $708,000 in arrears as of June 30, 1999;
2. An annual minimum cumulative preferred return
of 2% on all preferred capital, provided that
this shall be payable to LNC only out of and to
the extent of profits;
3. To repay all of the preferred capital provided
by LNC;
4. Any remaining funds will be distributed to
HomeFed.
F-33
<PAGE>
HOMEFED CORPORATION
50,675,812 SHARES
COMMON STOCK
---------------
PROSPECTUS
---------------
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by the registrant
in connection with this registration statement. All such expenses are estimates,
other than the filing fees payable to the SEC:
SEC registration fee $ 7,044
Printing 15,000
Accounting fees and expenses 12,000
Legal fees and expenses 135,000
Miscellaneous 2,956
--------------------
Total $ 172,000
====================
All amounts except the SEC registration fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is a Delaware corporation. Subsection (b) (7) of
Section 102 of the Delaware General Corporation Law (the "DGCL") enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director to the corporation or
its stockholders for monetary damages for violations of the director's fiduciary
duty, except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit. Article 8 of the Restated Certificate of Incorporation of the
Registrant (the "Restated Certificate") provides that, to the fullest extent
permitted by the DGCL, no director of the Registrant shall be personally liable
to the corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director.
Article 9 of the Restated Certificate provides for the
indemnification of directors and officers to the extent permitted by the DGCL.
Subsection (a) of Section 145 of the DGCL empowers a corporation to indemnify
any director or officer, or former director of officer, who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding provided that such director of officer
acted in good faith in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to any criminal action
or proceeding, provided further that such director or officer has no reasonable
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses
II-1
<PAGE>
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of such action or suit provided that such director or
officer acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such director of officer shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that despite the adjudication of liability but in view of all of the
circumstances of the case, such director of officer is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that (i) to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; and (ii) indemnification and advancement of expenses
provided for, by, or granted pursuant to, Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled. In
addition, Section 145 empowers the corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
II-2
<PAGE>
ITEM 16. EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1 Amended Disclosure Statement to HomeFed's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to
Exhibit 2.1 to HomeFed's current report on Form 8-K dated June 14,
1995).
2.2 HomeFed's Fourth Amended Plan of Reorganization Dated July 15, 1994
(incorporated by reference to Exhibit 2.2 to HomeFed's current report
on Form 8-K dated June 14, 1995).
2.3 Order Modifying and Confirming HomeFed's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to
Exhibit 2.3 to HomeFed's current report on Form 8-K dated June 14,
1995).
3.1 Restated Certificate of Incorporation, as restated July 3, 1995 of
HomeFed (incorporated by reference to Exhibit 3.1 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1995).
3.2 By-laws of HomeFed as amended through November 10, 1995 (incorporated
by reference to Exhibit 3.2 to HomeFed's quarterly report on Form
10-Q for the quarter ended September 30, 1995).
5 Opinion of Weil, Gotshal & Manges LLP as to the validity of the
securities offered hereby.*
10.1 Paradise Valley Unit 1 First Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.1 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.2 Paradise Valley Unit 2 First Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.2 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.3 Paradise Valley Unit 1 Second Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.3 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.4 Paradise Valley Unit 2 Second Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.4 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.5 Paradise Valley Unit 3 Option to Purchase Real Property and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.5 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
- ------------------------
* Previously filed.
II-3
<PAGE>
Exhibit
Number Description
- ------ -----------
10.6 Paradise Valley Unit 4 Option to Purchase Real Property and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.6 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.7 Real Estate Purchase Agreement and Escrow Instructions between
Southfork Partnership and Northfork Communities (incorporated by
reference to Exhibit 10.1 to HomeFed's quarterly report on Form 10-Q
for the quarter ended June 30, 1998).
10.8 Amended and Restated Loan Agreement between HomeFed and Leucadia,
dated as of August 14, 1998 (incorporated by reference to Exhibit
10.2 to HomeFed's current report on Form 8-K dated August 14, 1998).
10.9 Development Management Agreement between HomeFed and Provence Hills
Development Company, LLC, dated as of August 14, 1998 (incorporated
by reference to Exhibit 10.3 to HomeFed's current report on Form 8-K
dated August 14, 1998).
10.10 Stock Purchase Agreement between HomeFed and Leucadia, dated as of
August 14, 1998 (incorporated by reference to Exhibit 10.1 to
HomeFed's current report on Form 8-K dated August 14, 1998).
10.11 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of October 14, 1998, between HomeFed and
Leucadia National Corporation (incorporated by reference to Exhibit
10.12 to HomeFed's quarterly report on Form 10-Q for the quarter
ended September 30, 1998).
10.12 Stock Purchase Agreement, dated as of October 20, 1998, between
HomeFed and Leucadia (incorporated by reference to Exhibit 10.1 to
HomeFed's quarterly report on Form 10-Q for the quarter ended
September 30, 1998).
10.13 Administrative Services Agreement, dated as of March 1, 1999 between
Leucadia Financial, HomeFed, HomeFed Resources Corporation and
HomeFed Communities, Inc. (incorporated by reference to Exhibit 10.14
to HomeFed's annual report on Form 10-K for the year ended December
31, 1998).
10.14 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of March 31, 1999, among HomeFed and Leucadia
National Corporation (incorporated by reference to Exhibit 10.1 to
HomeFed's quarterly report on Form 10-Q for the quarter ended March
31, 1999).
10.15 Purchase and Sale Agreement and Joint Escrow Instructions, dated as
of September 30, 1998, by and between Paradise Valley Communities No.
1 and Richmond American Homes of California, Inc.
10.16 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of September 20, 1999, among HomeFed and
Leucadia National Corporation.
10.17 Transitional Management Agreement, dated as of August 14, 1998, by
and between HomeFed and Accretive Investments, LLC.
23.1 Consent of PricewaterhouseCoopers LLP.
II-4
<PAGE>
Exhibit
Number Description
- ------ -----------
23.2 Consent of Weil, Gotshal & Manges LLP (included in the opinion to be
filed as Exhibit 5 to this Registration Statement).*
24 Power of Attorney.*
99 Trust Agreement, dated August 14, 1998, between Leucadia National
Corporation for the benefit of its shareholders, and Joseph A.
Orlando, as Trustee.*
- ------------------------
* Previously filed.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-2 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Carlsbad, State of California, on this
21st day of September, 1999.
HOMEFED CORPORATION
By: /s/ CORINNE A. MAKI
--------------------------------------
Corinne A. Maki
Secretary and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the registrant and in the capacities indicated, on the date set forth above.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and Director September 21, 1999
- ---------------------------------------
(Timothy Considine)
* President and Director September 21, 1999
- --------------------------------------- (Principal Executive Officer)
(Paul J. Borden)
/s/ CORINNE A. MAKI Secretary and Treasurer September 21, 1999
- --------------------------------------- (Principal Financial and Accounting Officer)
(Corinne A. Maki)
* Director September 21, 1999
- --------------------------------------
(Patrick D. Bienvenue)
* Director September 21, 1999
- ---------------------------------------
(Ian M. Cumming)
* Director September 21, 1999
- ---------------------------------------
(Michael A. Lobatz)
* Director September 21, 1999
- ---------------------------------------
(Joseph S. Steinberg)
* By: /s/ CORINNE A. MAKI
---------------------------------
(Corinne A. Maki)
(Attorney-in-Fact)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2.1 Amended Disclosure Statement to HomeFed's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to
Exhibit 2.1 to HomeFed's current report on Form 8-K dated June 14,
1995).
2.2 HomeFed's Fourth Amended Plan of Reorganization Dated July 15, 1994
(incorporated by reference to Exhibit 2.2 to HomeFed's current report
on Form 8-K dated June 14, 1995).
2.3 Order Modifying and Confirming HomeFed's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to
Exhibit 2.3 to HomeFed's current report on Form 8-K dated June 14,
1995).
3.1 Restated Certificate of Incorporation, as restated July 3, 1995 of
HomeFed (incorporated by reference to Exhibit 3.1 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1995).
3.2 By-laws of HomeFed as amended through November 10, 1995 (incorporated
by reference to Exhibit 3.2 to HomeFed's quarterly report on Form
10-Q for the quarter ended September 30, 1995).
5 Opinion of Weil, Gotshal & Manges LLP as to the validity of the
securities offered hereby.*
10.1 Paradise Valley Unit 1 First Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.1 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.2 Paradise Valley Unit 2 First Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.2 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.3 Paradise Valley Unit 1 Second Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.3 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.4 Paradise Valley Unit 2 Second Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.4 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.5 Paradise Valley Unit 3 Option to Purchase Real Property and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.5 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
- ------------------------
* Previously filed.
II-8
<PAGE>
Exhibit
Number Description
- ------ -----------
10.6 Paradise Valley Unit 4 Option to Purchase Real Property and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.6 to HomeFed's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.7 Real Estate Purchase Agreement and Escrow Instructions between
Southfork Partnership and Northfork Communities (incorporated by
reference to Exhibit 10.1 to HomeFed's quarterly report on Form 10-Q
for the quarter ended June 30, 1998).
10.8 Amended and Restated Loan Agreement between HomeFed and Leucadia,
dated as of August 14, 1998 (incorporated by reference to Exhibit
10.2 to HomeFed's current report on Form 8-K dated August 14, 1998).
10.9 Development Management Agreement between HomeFed and Provence Hills
Development Company, LLC, dated as of August 14, 1998 (incorporated
by reference to Exhibit 10.3 to HomeFed's current report on Form 8-K
dated August 14, 1998).
10.10 Stock Purchase Agreement between HomeFed and Leucadia, dated as of
August 14, 1998 (incorporated by reference to Exhibit 10.1 to
HomeFed's current report on Form 8-K dated August 14, 1998).
10.11 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of October 14, 1998, between HomeFed and
Leucadia National Corporation (incorporated by reference to Exhibit
10.12 to HomeFed's quarterly report on Form 10-Q for the quarter
ended September 30, 1998).
10.12 Stock Purchase Agreement, dated as of October 20, 1998, between
HomeFed and Leucadia (incorporated by reference to Exhibit 10.1 to
HomeFed's quarterly report on Form 10-Q for the quarter ended
September 30, 1998).
10.13 Administrative Services Agreement, dated as of March 1, 1999 between
Leucadia Financial, HomeFed, HomeFed Resources Corporation and
HomeFed Communities, Inc. (incorporated by reference to Exhibit 10.14
to HomeFed's annual report on Form 10-K for the year ended December
31, 1998).
10.14 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of March 31, 1999, among HomeFed and Leucadia
National Corporation (incorporated by reference to Exhibit 10.1 to
HomeFed's quarterly report on Form 10-Q for the quarter ended March
31, 1999).
10.15 Purchase and Sale Agreement and Joint Escrow Instructions, dated as
of September 30, 1998, by and between Paradise Valley Communities No.
1 and Richmond American Homes of California, Inc.
10.16 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of September 20, 1999, among HomeFed and
Leucadia National Corporation
10.17 Transitional Management Agreement, dated as of August 14, 1998, by
and between HomeFed and Accretive Investments, LLC.
23.1 Consent of PricewaterhouseCoopers LLP.
II-9
<PAGE>
Exhibit
Number Description
- ------ -----------
23.2 Consent of Weil, Gotshal & Manges LLP (included in the opinion to be
filed as Exhibit 5 to this Registration Statement).*
24 Power of Attorney.*
99 Trust Agreement, dated August 14, 1998, between Leucadia National
Corporation for the benefit of its shareholders, and Joseph A.
Orlando, as Trustee.*
- ------------------------
* Previously filed.
II-10
Exhibit 10.15
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW
INSTRUCTIONS ("Agreement") is made and entered into as of September 30, 1998, by
and between PARADISE VALLEY COMMUNITIES NO. 1, a California general partnership
("Seller"), and RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., a Colorado
corporation ("Buyer"). Buyer and Seller are sometimes referred to herein
individually as a "Party" and collectively as the "Parties."
R E C I T A L S:
----------------
A. Seller owns certain real property in the City of
Fairfield (the "City"), County of Solano ("County"), State of California
("State"), together with all appurtenant improvements, rights, interests,
easements, tenements and estates, more fully described on Exhibit A (the "Real
Property"). The Real Property is comprised of 75, approximately 6,000 square
foot, single family residential lots (each a "Lot" and collectively, "Lots").
B. The Real Property and any personal property thereon or
therein are referred to collectively in this Agreement as the "Property."
C. Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, the Property, on the terms and conditions contained in
this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals,
the promises and covenants of the Parties in this Agreement and for other good
and valuable consideration, the receipt and sufficiency of which the Parties
acknowledge, the Parties agree as follows:
1. Definitions. Certain capitalized terms used in this Agreement have
the meanings defined below:
Approved or Approval means that with respect to any item or
matter for which approval by any Authorities is required, the Authorities have
voted to approve such item or matter and all applicable appeal periods for such
approval have expired without the filing of an appeal, or if an appeal has been
filed, that the appeal has been resolved on terms satisfactory to Buyer in its
sole and absolute discretion.
Assignment of Declarant's Rights means an assignment to
Buyer of all of Seller's rights as the "Declarant" under any declaration(s) of
covenants, conditions and restrictions described in the Preliminary Report in a
form satisfactory to Buyer, duly executed by Seller, acknowledged and in
recordable form.
522309 v. 1
<PAGE>
Authorities means governmental or quasi-governmental
agencies or authorities having any jurisdiction over the Property.
Buyer is defined in the first paragraph of this Agreement.
Closing means the date upon which the Grant Deed is
recorded in the Official Records of the County, title to the Property is
conveyed to Buyer, and possession of the Property is delivered to Buyer, in
accordance with the terms of this Agreement.
Closing Date means that date 15 days after the date Buyer
delivers to Seller and Escrow Holder the Approval Notice pursuant to Section
4.2.
Deposit means the sum of $100,000 delivered to Escrow
Holder pursuant to Section 3.2, and any interest earned thereon.
Escrow means the escrow established pursuant to this
Agreement through which the purchase and sale of the Property shall be
consummated.
Escrow Holder means Chicago Title Company, located at 604
Empire Street, Fairfield, California 94533.
Feasibility Date means the date which is forty five (45)
days from the Opening of Escrow.
Grant Deed means a grant deed to the Property in the form
of Exhibit B.
Hazardous Substance is defined on Exhibit C.
Opening of Escrow is the date on which Escrow is opened
under Section 3.1.
Parties and Party are defined in the first paragraph of
this Agreement.
Permitted Exceptions means general and special real
property taxes and assessments a lien not yet due and payable; and any other
liens, easements, encumbrances, covenants, conditions and restrictions of record
approved, or waived if a Disapproved Exception, by Buyer pursuant to Section
4.1, or created under the signature of Buyer.
Property is defined in the Recitals to this Agreement.
Purchase Price means the sum of $2,250,000.
Title Company means Chicago Title Company, located at 604
Empire Street, Fairfield, California 94533.
2
<PAGE>
Title Policy means a current ALTA Form B-1970 owner's title
insurance policy, with such other endorsements as Buyer may reasonably request,
in amount equal to the Purchase Price, insuring fee title to the Property vested
in Buyer, subject only to the Permitted Exceptions.
2. Purchase and Sale. On the Closing Date and subject to the terms
and conditions set forth herein, Seller hereby agrees to sell and convey to
Buyer, and Buyer hereby agrees to acquire and purchase from Seller, the
Property.
3. Escrow and Deposit.
3.1 Opening of Escrow. Within three (3) business days
following mutual execution of this Agreement by the Parties, the Parties shall
open an Escrow at the office of Escrow Holder by delivering an executed copy of
this Agreement to Escrow Holder. This Agreement shall constitute joint escrow
instructions to Escrow Holder. The Parties shall execute such additional
instructions not inconsistent with the provisions of this Agreement which may be
reasonably required by Escrow Holder and shall be bound by Escrow Holder's
general instructions; provided, however, that as between the Parties, if any
conflict between the provisions of this Agreement and the provisions of Escrow
Holder's general instructions exists or arises, then the provisions of this
Agreement shall control. Escrow Holder shall promptly notify Buyer and Seller in
writing of the date of the Opening of Escrow. Escrow Holder is designated the
"real estate reporting person" for purposes of Section 6045 of the Internal
Revenue Code of 1986, as amended and Treasury Regulation 1.6045-4, and any
instructions or settlement statement prepared by Escrow Holder shall so provide.
Escrow Holder shall be responsible for filing Form 1099-S with the Internal
Revenue Service.
3.2 Deposit.
(a) Upon the Opening of Escrow, Buyer shall deliver the
Deposit to Escrow Holder. Escrow Holder shall invest the Deposit as directed by
Buyer in writing; provided, however, that all monies invested shall be available
for withdrawal without penalty within one (1) business day. All interest earned
on the Deposit shall accrue for the benefit of Buyer and shall be added to and
comprise part of the Deposit.
(b) If by 5:00 p.m. Pacific Time on the Feasibility
Date, Buyer does not give Seller and Escrow Holder written notice of Buyer's
election to proceed with this Agreement ("Buyer's Approval Notice"), then Escrow
Holder shall immediately return the Deposit to Buyer, this Agreement and the
Escrow shall be terminated and neither party shall have any further obligation
to the other hereunder.
(c) If Buyer delivers Buyer's Approval Notice to Seller
and Escrow Holder, then the Deposit shall be (i) released to Seller by Escrow
Holder and thereafter shall be non-refundable to Buyer, except in the event of a
breach or default hereunder by Seller or the failure of any of the closing
conditions set forth in Section 9
3
<PAGE>
for any reason other than Buyer's failure to perform, and (ii) applied to the
Purchase Price at Closing.
(d) If the Closing fails to occur because of a breach
or default hereunder by Seller, then Seller shall return the Deposit to Buyer
immediately upon Buyer's demand, and Buyer shall be entitled to pursue all
remedies available to Buyer as set forth in Section 16.1 hereof.
4. Buyer's Inspections and Feasibility Investigations.
4.1 Title.
(a) Seller, at its sole cost and expense, shall deliver
to Buyer within three (3) days after the Opening of Escrow a Preliminary Report
of title to the Property, issued by the Title Company, together with legible
copies of all documents referenced therein as exceptions to title and a plot
plan for the Property showing all the locations of all recorded easements
("Preliminary Report"). Within twenty (20) days after Buyer's receipt of the
Preliminary Report, Buyer shall notify Seller in writing of Buyer's objections
to title, if any ("Disapproved Exceptions"). All monetary liens or encumbrances
(except for real property taxes not due) shall be deemed Disapproved Exceptions
and Seller shall be obligated to eliminate same on or prior to the Closing.
Seller shall use its good faith diligent efforts to cause the Title Company to
eliminate all other Disapproved Exceptions within ten (10) days after Seller
receives notice of the Disapproved Exceptions. If despite such efforts, Seller
is unable to eliminate such Disapproved Exceptions, Seller shall notify Buyer in
writing of same within ten (10) days after Seller receives notice of the
Disapproved Exceptions. If Seller is unable to expend further efforts and
otherwise eliminate such Disapproved Exceptions, then unless Buyer shall notify
Seller in writing on or before 5:00 p.m. Pacific Time on the Feasibility Date
that Buyer elects to waive its disapproval, Buyer shall be deemed to have
disapproved title, Escrow and this Agreement shall terminate, Escrow Holder
shall immediately return the Deposit to Buyer without any additional
instructions from Seller and Escrow Holder shall immediately return all other
documents, instruments and monies to the Party which deposited same, and the
Parties will have no further obligation to one another.
(b) Seller shall deliver title to the Property at
Closing subject only to the Permitted Exceptions. Any exceptions to title shown
on any supplement to the Preliminary Report that may be issued from time to time
by the Title Company shall be removed by Seller at or prior to Closing.
Alternatively, Seller shall cause the Title Company to endorse over such
exceptions at Closing pursuant to title endorsements satisfactory to Buyer,
unless such exceptions are expressly approved by Buyer in writing, or unless
such exceptions constitute Permitted Exceptions.
4.2 Feasibility Study. Upon execution of this Agreement by
the Parties, Seller shall promptly provide Buyer with complete copies of all
studies, reports, agreements, documents, surveys, plans, maps, permits and
entitlements in Seller's possession or control concerning the Property and its
improvement and development, and
4
<PAGE>
Seller shall instruct its engineers, architects, surveyors, marketing
consultants and other advisors and consultants, if any, to share any information
or knowledge they have concerning the Property with Buyer. Buyer shall have
until 5:00 p.m. Pacific Time on the Feasibility Date (the "Feasibility Period")
to review, in Buyer's sole and absolute discretion, the suitability of the
Property for Buyer's use and development and to obtain approval of this
Agreement from the Asset Management Committee of M.D.C. Holdings, Inc. (the
"Asset Management Committee"), and to deliver to Seller and Escrow Holder the
Buyer Approval Notice or, alternatively, written notice of Buyer's disapproval.
Failure by Buyer to give the Buyer Approval Notice by the end of the Feasibility
Period shall be deemed disapproval, and if Buyer so disapproves or is deemed to
disapprove, then Escrow and this Agreement shall terminate, Escrow Holder shall
immediately return the Deposit to Buyer without any additional instructions from
Seller and all other documents, instruments and monies to the Party which
deposited same, and the Parties will have not further obligation to one another.
4.3 Access. Seller grants to Buyer and Buyer's agents,
employees and consultants a nonexclusive license to enter upon the Property for
the purpose of allowing Buyer to conduct whatever soil and engineering tests,
feasibility studies, surveys and other examinations of the Property Buyer deems
appropriate. Buyer shall indemnify, defend and hold Seller free and harmless
from all loss or liability (including, without limitation, attorneys' fees)
arising solely and directly from such activities of Buyer and its agents and
employees upon the Property prior to Closing, and from all mechanic's,
materialmen's and other liens resulting solely and directly from any such
conduct of Buyer and its agents and employees; provided, however, that Buyer
shall have no liability for any loss or damage attributable to the acts or
omissions of Seller or Seller's agents, employees, invitees or licensees or
resulting from latent defects or Hazardous Substances within, on or adjacent to
the Property.
5. Closing; Deposit of Purchase Price.
5.1 The Closing shall occur on the Closing Date.
5.2 At least one (1) business day before the Closing Date,
Buyer shall deposit with Escrow Holder the amount equal to Purchase Price minus
the Deposit (the "Purchase Price Balance"), plus Buyer's share of closing costs
and prorations as provided in Section 6 below, in immediately available funds.
6. Closing Costs and Prorations.
6.1 Closing Costs. Seller shall pay all recording costs,
the cost of a standard CLTA title policy with regional endorsements, and all
documentary transfer taxes payable in connection with the purchase and sale of
the Property. Buyer shall pay all premiums for the Title Policy not paid by
Seller, including additional premiums for an ALTA extended coverage policy and
costs of additional endorsements and surveys. Buyer and Seller shall each pay
one-half (1/2) of all escrow fees in connection with the purchase and sale of
the Property. All other closing costs related to the transaction shall
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be paid by the parties in the manner consistent with customary practice for bulk
residential lot sales in the County. Escrow Holder shall notify Buyer and Seller
in writing of their respective shares of such costs at least three (3) business
days prior to the Closing Date.
6.2 Prorations. Real estate taxes and assessments shall be
prorated on the basis of the most recent tax statement for the Property as of
12:01 a.m. on the Closing Date, on the basis of a 365-day year. At least five
(5) business days prior to the Closing Date, Escrow Holder shall deliver to
Seller and Buyer a tentative proration schedule setting forth a preliminary
determination of prorations. If any information needed for the proration of any
item is not available, the parties shall re-prorate such item after Closing and
payment shall be made promptly to the party entitled thereto. After Closing,
Seller shall remain solely responsible for and shall promptly pay before
delinquency any real estate taxes and assessments for the Property relating to
periods prior to the Closing Date.
7. Deposits by Seller. No later than one (1) business day prior to
the Closing Date, Seller shall deposit with Escrow Holder:
(a) The Grant Deed duly executed by Seller,
acknowledged and in recordable form, subject only to the Permitted Exceptions.
At Buyer's option, the Deed may include the Assignment of Declarant's Rights.
(b) If requested by Buyer, an Assignment of Declarant's
Rights.
(c) An Assignment and Bill of Sale in the form attached
hereto as Exhibit D, duly executed by Seller ("Bill of Sale").
(d) Seller's Nonforeign Affidavit in the form attached
hereto as Exhibit E, duly executed by Seller ("Nonforeign Affidavit").
(e) Such other bills of sale, assignments and other
instruments of transfer or conveyance as Buyer may reasonably request or as may
be otherwise necessary to evidence and effect the sale, assignment, transfer,
conveyance and delivery of the Property to Buyer.
8. Deposits by Buyer. Prior to the Closing, Buyer shall deposit with
Escrow Holder the following:
(a) The Purchase Price Balance, plus Buyer's share of
closing costs and cash charges, in immediately available funds.
(b) Such other instruments or documents as may be
necessary to effect the sale, assignment, transfer, conveyance and delivery of
the Property to Buyer.
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9. Conditions to Closing.
9.1 Conditions to Buyer's Obligations. The Closing and
Buyer's obligation to purchase the Property are subject to the satisfaction of
the following conditions or Buyer's written waiver of such conditions on or
before the Closing Date. Buyer may waive in writing any or all of such
conditions in its sole and absolute discretion.
(a) Buyer shall have delivered Buyer's Approval Notice.
(b) Seller shall have performed all obligations to be
performed by Seller pursuant to this Agreement prior to Closing.
(c) Seller's representations, warranties and covenants
set forth herein shall be true and correct as of the Closing.
(d) The Title Company shall be committed to issue to
Buyer, as of the Closing Date, the Title Policy.
(e) There shall be no moratorium, prohibition or any
other measure, rule, regulation or restriction, including, without limitation,
any moratorium on the provision of or hook-up to public utilities, which was not
in force as of the date of this Agreement and whose effect would be to preclude
any inspections, or the issuance of any building or other permits, or
construction, sale and occupancy of single family homes on the Property as
contemplated by Buyer.
(f) There shall have been no material adverse changes
in the condition of the Property and there shall have been no material adverse
changes in the facts or circumstances concerning the Property and existing as of
the Feasibility Date.
9.2 Conditions to Seller's Obligations. The Closing and
Seller's obligation to consummate the transactions contemplated by this
Agreement are subject to the satisfaction of the following conditions or
Seller's written waiver of such conditions on or before the Closing Date. Seller
may waive in writing any or all of such conditions in its sole and absolute
discretion.
(a) Buyer shall have performed all obligations to be
performed by Buyer pursuant to this Agreement prior to Closing.
(b) Buyer's representations and warranties set forth
herein shall be true and correct as of the Closing.
10. Closing.
10.1 Escrow Holder's Actions. Upon the Closing Date, when
Escrow Holder holds the items required to be deposited by Seller and Buyer as
described above and Escrow Holder is prepared to issue and deliver to Buyer the
Title Policy, Escrow
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Holder is instructed and authorized to (i) record the Grant Deed in the Office
of County Recorder of the County, (ii) record the Assignment of Declarant's
Rights (if any, and if separate from the Grant Deed) in the Office of the County
Recorder of the County, (iii) pay any transfer taxes, (iv) instruct the County
Recorder to return the Grant Deed and the Assignment of Declarant's Rights (if
any) to Buyer, (v) disburse to Seller the Purchase Price Balance less Seller's
escrow and cash charges, (vi) disburse from funds deposited by Buyer amounts
toward payment of all items chargeable to the account of Buyer hereunder, and
disburse the balance of such funds, if any, to Buyer, and (vii) deliver to Buyer
the Bill of Sale, the Nonforeign Affidavit and the Title Policy.
10.2 Escrow Cancellation Charges. If the Closing does not
occur because of the default of a Party, the defaulting Party shall bear all
Escrow Cancellation Charges. If the Closing does not occur for any reason other
than the default of a Party, then Buyer and Seller shall each pay one-half (1/2)
of any Escrow Cancellation Charges. As used herein, "Escrow Cancellation
Charges" means all fees, charges and expenses incurred by Escrow Holder or third
parties engaged by Escrow Holder, as well as all expenses related to the
services of the Title Company in connection with the issuance of the Preliminary
Report and other title matters.
10.3 Conveyance and Possession. Upon Closing, Seller shall
convey title to the Property to Buyer, subject only to the Permitted Exceptions,
and Seller shall deliver to Buyer exclusive possession of the Property.
11. Representations and Warranties of Seller. Seller makes the
following representations and warranties to Buyer:
11.1 Seller owns the Property in fee simple absolute and
has good and marketable title to such Property, subject to no liens, claims or
encumbrances other than those disclosed in the Preliminary Report. Seller has
not alienated, encumbered, transferred, optioned, leased, assigned or otherwise
conveyed its interest or any portion of its interest in the Property or any
portion thereof except as set forth in the Preliminary Report, nor has Seller
entered into any agreement (other than this Agreement) so to do.
11.2 Seller is a general partnership duly formed, validly
existing and in good standing under the laws of the State of California. Seller
has full right, power and authority to enter into this Agreement and to perform
its obligations hereunder, and the persons executing this Agreement on behalf of
Seller have the right, power and authority to do so.
11.3 This Agreement constitutes the legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms, except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium and other principles relating to or limiting
the rights of contracting parties generally. Neither this Agreement nor the
consummation of any of the transactions contemplated hereby violates or shall
violate any provision of any agreement or document to which Seller is a
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party or to which Seller is bound. No consent from any third party is required
before the Property may be conveyed to Buyer.
11.4 The Property is not in violation, nor has been or is
currently under investigation for violation of any federal, state or local law,
ordinance or regulation relating to industrial hygiene, worker health and
safety, or to the environmental conditions in, at, on, under or about the
Property including, but not limited to, soil and groundwater conditions; the
Property has not been subject to a deposit of any Hazardous Substance; Seller
has not, nor to the best of Seller's knowledge has any third party, used,
generated, manufactured, stored or disposed in, at, on, under or about the
Property or transported to or from the Property any Hazardous Substance; to the
best of Seller's knowledge, there has been no discharge, migration or release of
any Hazardous Substance from, into, on, under or about the Property; and there
is not now, nor to the best of Seller's knowledge has there ever been, on or in
the Property underground storage tanks or surface impoundments, any
asbestos-containing materials or any polychlorinated biphenyls used in hydraulic
oils, electrical transformers or other equipment.
11.5 Seller is not in default under, and Seller has
received no notice that any event has occurred which with the giving of notice
or the passage of time, or both, would constitute a default under any contract,
transaction, bond, agreement, covenant, condition, restriction, lease, easement,
encumbrance or instrument pertaining to the Property.
11.6 There is no suit, action or arbitration, or legal,
administrative, or other proceeding or governmental investigation, formal or
informal, including but not limited to eminent domain or condemnation
proceeding, proceeding to establish a new assessment district or increase the
assessments imposed by an existing assessment district, or zoning change
proceeding, pending or threatened in writing, or any judgment, moratorium or
other government policy or practice which affects the Property or Buyer's
anticipated development of the Property.
11.7 There are no lawsuits, claims, suits, proceedings or
investigations pending or, to the best of Seller's knowledge, threatened against
or affecting Seller or any of the Property nor, to the best of Seller's
knowledge, is there any basis for any of the same, and there are no lawsuits,
suits or proceedings pending in which Seller is the plaintiff or claimant and
which relate to the Property. There is no action, suit or proceeding pending or,
to the best of Seller's knowledge, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement.
11.8 Except as set forth on Exhibit F attached hereto,
Seller has made no oral or written commitments or representations to, or
understandings or agreements with, any person, firm or entity, any adjoining
property owner or any Authority which would in any way be binding on Buyer or
would interfere with Buyer's ability to develop and improve the Property with a
residential development, and Seller shall not make or enter into any such
commitment, representations, understandings or agreements without Buyer's
written consent.
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11.9 Seller has disclosed to Buyer all information in
Seller's possession or known to Seller concerning the Property.
11.10 There are no liens (including without limitation,
mechanics' liens), claims, encumbrances, easements, covenants, conditions,
restrictions or other matters of record affecting title to the Property which
are not disclosed in the Preliminary Report, and except as disclosed in the
Preliminary Report, there are no special assessments (whether from an assessment
district, facilities district, or otherwise) against the Property nor has Seller
received any written notice of any special assessments being contemplated.
Seller is not aware of any other assessment districts or areas which are being
formed or contemplated.
11.11 A final subdivision map subdividing the Property into
75 Lots was recorded in the Official Records of the County on June 11, 1991 in
accordance with the Subdivision Map Act of the State of California.
11.12 To the best of Seller's knowledge, all grading and
other improvement work performed on or in or adjacent to the Property by,
through or under Seller has been performed in substantial accordance with the
plans and specifications approved by all applicable Authorities, in compliance
with all applicable laws, ordinances, and regulations, and in a good and
workmanlike manner, and to the best of Seller's knowledge, there are no defects
or liens affecting such grading or other improvement work. All improvements on
any of the Property comply in all material respects with all applicable
requirements of Authorities, and all laws, rules and regulations and building
codes in effect as of each Closing Date.
11.13 To Seller's knowledge, there are no endangered
species or protected natural habitat, flora or fauna located on the Property,
nor are there any areas of the Property that are or, under current law, could be
designated as wetlands.
11.14 Seller has not received any notice from any of
Seller's insurance carriers of any defects or inadequacies in the Property, or
any portion thereof, which would adversely affect the insurability of the
Property or the cost of any such insurance. There are no pending insurance
claims with respect to any portion of the Property.
11.15 Seller has no knowledge of any seismic safety
problems relating to the Property, any recent seismic activity affecting the
Property or any active fault bisecting, underlying or adjacent to the Property.
11.16 Neither Seller nor any entity or person that directly
or indirectly owns or controls Seller is bankrupt or insolvent under any
applicable Federal or state standard, or has filed an action for protection or
relief under any applicable bankruptcy or creditor protection statute which
action has not been dismissed, or has been threatened by creditors with an
involuntary application of any applicable bankruptcy or creditor protection
statute. Seller is not entering into the transactions described in this
Agreement with an intent to defraud any creditor or to prefer the rights of one
creditor over any
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other. Seller and Buyer have negotiated this Agreement at arms-length and the
consideration to be paid represents fair value for the assets to be transferred.
11.17 Neither this Agreement nor any of the Exhibits
hereto, nor any document, certificate, or statement referred to herein or
furnished by Seller to Buyer in connection with the transaction contemplated
herein (whether delivered prior to, simultaneously with, or subsequent to the
execution of this Agreement) contains any untrue statement of material fact or
omits to state a material fact in any way concerning the Property or otherwise
affecting or concerning the transactions contemplated hereby.
All representations, warranties and covenants of Seller in
this Agreement are made as of the date of this Agreement and as of the Closing
Date and shall survive the Closing and the recordation of the Grant Deed for the
lesser of (i) five years from the date hereof, or (ii) three years from the date
of the last close of escrow for the sale of a residence constructed within the
Property. It shall be a material default hereunder if Seller is unable to make
such representations and warranties truthfully as of the Closing Date.
12. Representations and Warranties of Buyer. Buyer makes the
following representations, warranties and covenants to Seller:
12.1 Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado and is
duly qualified to do business in the State of California. Subject to Buyer
obtaining approval of this Agreement by the Asset Management Committee, Buyer
has the right, power and authority to enter into this Agreement and to perform
its obligations hereunder, and the person(s) executing this Agreement on behalf
of Buyer have the right, power and authority to do so.
12.2 Subject to Buyer obtaining approval of this Agreement
by the Asset Management Committee, this Agreement constitutes the legal, valid
and binding obligation of Buyer enforceable against Buyer in accordance with its
terms, except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium and other principles relating to or limiting
the rights of contracting parties generally. This Agreement does not violate any
provision of any material agreement or document to which Buyer is a party or to
which Buyer is bound.
All representations and warranties of Buyer in this
Agreement are made as of the date of this Agreement and as of the Closing Date,
and shall survive the Closing and the recordation of the Grant Deed. It shall be
a material default if Buyer is unable to make such representations and
warranties truthfully as of the Closing Date.
13. "As-Is" Sale; Limited Representations and Warranties of Seller.
Except as expressly provided in this Agreement, Buyer acknowledges that Seller
does not make and has not made any warranties or representations, express or
implied, as to the Property's legal, physical and/or financial condition now or
in the future, or to the suitability of the Property for Buyer's intended
purposes. Buyer expressly acknowledges that no such
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representations have been made except as herein specifically provided.
Furthermore, Buyer confirms, acknowledges and agrees that no officer, director,
employee or representative of Seller or Seller's partners makes any express or
implied representation or warranty of any kind or nature whatsoever concerning
the Property. Except as herein provided, Buyer acknowledges that it is buying
the Property in an "As Is" and "with all faults" condition, based solely on
Buyer's own studies and investigations and the express representations,
warranties and covenants of Seller herein. Buyer further acknowledges, confirms
and agrees that any liability with respect of this Agreement and the
transactions contemplated herein shall result in the liability of Seller or
Seller's general partners only and not any individual officer, director,
employee or representative of Seller or Seller's partners. Buyer therefore
confirms, acknowledges and agrees that Buyer may seek recourse only against
Seller or Seller's general partners for any liability arising out of or in
connection with this Agreement and the transactions contemplated hereby.
14. Matters of Understanding.
14.1 Notification by Seller of Certain Matters. During the
period prior to the Closing Date, Seller shall promptly advise Buyer in writing
of any material adverse change in the condition of the Property, the occurrence
of any event or the discovery of any fact which would render any representation
or warranty of Seller to Buyer in this Agreement untrue or materially
misleading, and any written notice or other communication from any third person
alleging that the consent of such third person is or may be required in
connection with the transactions contemplated by this Agreement.
14.2 No Encumbrance, Etc. Seller shall not, directly or
indirectly, alienate, encumber, transfer, option, lease, assign, sell or convey
its interest or any portion of such interest in the Property or any portion
thereof so long as this Agreement is in force. Seller shall timely discharge,
prior to the Closing, any and all obligations relating to work performed on or
conducted at or materials delivered to the Property from time to time by Seller,
or at Seller's direction or on its behalf, in order to prevent the filing of any
claim or mechanic's lien with respect to such work or materials.
14.3 Processing of Approvals; Cooperation. From and after
the execution of this Agreement by the Parties, Buyer shall have the right, at
Buyer's sole cost and expense, to process all applications, plans, permits,
agreements, documents, and other instruments necessary or appropriate as
determined in Buyer's sole discretion to obtain all necessary authorizations and
entitlements from any applicable Authorities in order to construct single family
residences on the Property as contemplated by Buyer and to update the existing
improvement plans pertaining to the Property as required by the City
(collectively, the "Governmental Approvals"). As a matter of clarification, the
foregoing shall not permit Buyer to modify or amend the existing final
subdivision map recorded against the Property. Seller shall cooperate, and shall
cause its consultants, engineers, contractors, affiliates and lenders and any
other persons with an interest in the Property to cooperate, all at no cost to
Seller, with Buyer in connection with the processing of the Governmental
Approvals, including without limitation, cooperating in
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the defense of any legal challenge thereto, and executing any maps,
applications, permits, filings or other documents which are necessary or
appropriate.
14.4 Cost Sharing Agreement. Buyer acknowledges that Seller
has assumed certain obligations under that certain Paradise Valley
Infrastructure Cost Sharing Agreement dated October 20, 1989 ("Cost Sharing
Agreement") with Arcadia Homes and Winncrest Development. The Cost Sharing
Agreement provides for the completion of all infrastructure, common amenities,
landscaping and other similar items on parcels at the Paradise Valley project.
Seller shall remain responsible for, and agrees to complete in a timely manner,
all of Seller's obligations under the Cost Sharing Agreement, including, without
limitation, those obligations pertaining to or affecting the Property. Buyer
covenants and agrees to cooperate in, and not to interfere with, the full and
complete implementation of the Cost Sharing Agreement.
14.5 Street, Water and Sewer Line Reimbursements. Buyer
acknowledges that Seller is currently working with the City on reimbursements
for increasing the size of the streets and various water and sewer lines in the
Paradise Valley project. Any reimbursements for infrastructure, including the
water and sewer lines, constructed by or through Seller shall be the sole
property of Seller. Buyer agrees, at no cost or expense to Buyer, to cooperate
with and assist Seller in obtaining such reimbursements, including, without
limitation, applying for such reimbursements in Buyer's name as fee owner of the
Property upon Seller's request. Buyer, promptly after receipt, shall deliver
such reimbursement payments to Seller if they are received by Buyer after the
Closing. Similarly, any reimbursements for infrastructure or other improvements,
including water and sewer lines, constructed by or through Buyer shall be the
sole property of Buyer, and Seller, promptly after receipt, shall deliver such
reimbursement payments to Buyer if they are received by Seller after the
Closing.
14.6 Transfer of Entitlements. Seller shall cooperate with
Buyer and execute, deliver, acknowledge and record such documents, instruments
and certificates as Buyer may reasonably require to effect the transfer to Buyer
of any entitlements applicable to the Property from the City of Fairfield or any
other governmental or quasi-governmental authority or entity.
14.7 Confidentiality. The Parties hereto agree that they
shall maintain in confidence and not disclose any information regarding this
Agreement or the transaction contemplated hereby, including, without limitation,
the Purchase Price, without the prior written consent of the other Party to this
Agreement. The preceding sentence shall not prevent either Party from disclosing
the terms and conditions of this Agreement and any and all information regarding
the Property to the Parties' respective consultants, accountants and counsel,
and to governmental agencies, such as the Securities Exchange Commission, having
jurisdiction over either Party, or as may otherwise be required by law.
14.8 Status of Buyer as Declarant; Annexation of Lots. Upon
Closing, Seller shall record in the County and deliver to Buyer a certificate,
as required under
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Section 2.11 of that certain Master Declaration of Covenants, Conditions and
Restrictions of Paradise Valley, which was recorded in the Office of the County
Recorder of Solano County, State of California, on August 25, 1995, Serial No.
95-51486 ("CC&Rs"), designating Buyer as "Declarant," as defined in the CC&Rs,
with respect to the Property, provided, however, that prior to recording such
certificate, Seller shall deliver to Buyer an estoppel certificate signed by the
Association (as defined in the CC&Rs) stating that there is no default under the
CC&R's with respect to the Property or the Association. Buyer will undertake,
with Seller's reasonable cooperation, the responsibility of preparing
documentation for annexation of the Property under the CC&Rs and taking such
other steps, including, without limitation, obtaining from the California
Department of Real Estate a Subdivision Public Report pertaining to the sale of
Lots within the Property, as Buyer may determine to be necessary or appropriate
to effectively develop, market, improve and sell Lots.
14.9 Assumption of Liabilities. Upon the terms and subject
to the conditions contained in this Agreement, Buyer shall assume, effective as
of Closing, the rights and obligations of Seller arising from and after the
Closing under those documents to be set forth on Exhibit G by the Parties prior
to the Feasibility Date.
14.10 Recreational Facility. Pursuant to that certain
Development Agreement dated August 11, 1988, as amended, including, without
limitation, that certain Second Amendment dated November 3, 1994 (collectively,
the "Development Agreement"), Seller is obligated to construct a recreational
facility (the "Facility") for the use and benefit of the Paradise Valley
development, including, without limitation, the Property, upon the issuance of a
building permit for the 351st dwelling unit in the Paradise Valley development
(exclusive of any building permits for the NCROC project). Seller hereby agrees
to construct the Facility in accordance with the Development Agreement. Buyer
agrees to provide Seller with quarterly reports indicating the number of
closings in any given quarter to facilitate Seller's compliance with this
requirement.
14.11 Bonds. Immediately after Closing, Buyer shall deliver
to the City or the County, as applicable, bonds issued by a surety on behalf of
Buyer ("Buyer's Bonds"), in the same amounts and for the same purposes as those
landscaping bonds set forth on Exhibit H attached hereto ("Forecasts's Bonds")
previously posted by The Forecast Group, L.P. ("Forecast"), and Buyer shall use
its good faith diligent efforts to cause, within 90 days after the Closing, the
City or the County, as applicable, to accept Buyer's Bonds in place of
Forecast's Bonds and to release Forecast's Bonds. The foregoing obligation of
Buyer is an accommodation to Seller and shall in no way impose any liability on
Buyer in favor of Forecast.
15. Indemnities.
15.1 Indemnities of Buyer. Buyer agrees that it will
protect, indemnify, defend, and hold Seller harmless from and against all
actions, causes of action, suits, claims, costs, losses, penalties, damages,
liabilities and expenses of any kind whatsoever, including reasonable attorneys'
fees ("Claims"), based upon or arising out of: (i) any
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personal injury or property damage occurring on or about the Property after the
Closing Date or in connection with Buyer's or its agents' or independent
contractors' access to the Property prior to the Closing Date; (ii) the
construction and/or sale of residences on the Property by Buyer; and (iii)
Buyer's ownership, improvement or operation of the Property after the Closing
Date, but in all events, excluding any Claims to the extent arising from or
related to the acts or omissions of Seller, Forecast, any entities related to
Seller or Forecast, or the agents, employees, invitees or licensees of Seller or
Forecast, or from latent defects or Hazardous Substances within, on or adjacent
to the Property and existing prior to the Closing Date, or which are the subject
of Seller's indemnification below.
15.2 Indemnities of Seller. Seller agrees that it will
protect, indemnify, defend and hold Buyer harmless from and against all Claims
based upon or arising out of: (i) any personal injury or property damage
occurring on or about the Property prior to the Closing Date (except those
resulting from Buyer's access to the Property prior to the Closing Date); (ii)
any liability or obligation which Buyer is not obligated to assume under this
Agreement; (iii) the breach of any representation or warranty of Seller set
forth in this Agreement, and (iv) any loss or liability pertaining to, or
resulting from, the drainage system installed on the Tooby property, which is
adjacent to the eastern edge of the Property, including, without limitation, any
stoppage of construction on, or sales of, the Lots caused by such drainage
system or by any action or inaction by any governmental or quasi-governmental
agency with respect to such drainage system.
16. Damage or Destruction. If any damage or destruction to
any of the Property occurs prior to Closing, Seller shall immediately give Buyer
written notice of such damage or destruction, and Buyer shall have the option,
exercisable within ten (10) days thereafter either to (i) terminate the Escrow,
in which case Escrow Holder shall immediately return all documents, instruments
and monies to the Party which deposited the same and if the Deposit has been
released to Seller, Seller shall immediately return the Deposit to Buyer, or
(ii) accept the Property in its condition at that time, and receive an
assignment of all of Seller's rights to any insurance proceeds payable by reason
of such damage or destruction, with a reduction in the Purchase Price in the
amount of any insurance deductibles. If Buyer elects to proceed under clause
(ii) above, Seller shall not compromise, settle or adjust any such insurance
claims without Buyer's prior written consent.
17. Condemnation. If prior to the Closing all or any
portion of the Property is subject to an actual or threatened taking by a public
authority, by the power of eminent domain or otherwise, Buyer shall have the
right, exercisable by giving written notice to Seller within ten (10) days after
Buyer's receipt of written notice of such taking, either to (i) terminate the
Escrow, in which case Escrow Holder shall immediately return all documents,
instruments and monies to the Party which deposited the same, and if the Deposit
has been released to Seller, Seller shall immediately return the Deposit to
Buyer, or (ii) accept the Property in its then condition, and receive an
assignment of all of Seller's rights to any condemnation award payable by reason
of such taking. If Buyer
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elects to proceed under clause (ii) above, Seller shall not compromise, settle
or adjust any claims to such award without Buyer's prior written consent.
18. Remedies.
18.1 If Seller defaults hereunder, or the Closing does not
occur by reason of Seller's default hereunder which is not cured within ten (10)
days after Seller first has knowledge of such default, then Buyer shall be
entitled to pursue any remedies to which Buyer may be entitled under this
Agreement, at law and/or in equity, including without limitation the right to
specifically enforce this Agreement, to record a notice of pendency of action
against any of the Property and/or to pursue an action for damages.
18.2 BUYER AND SELLER AGREE THAT IN THE EVENT THE CLOSING
FAILS TO OCCUR BECAUSE OF BUYER'S DEFAULT, BREACH OR FAILURE TO PERFORM (NOT DUE
TO SELLER'S WRONGFUL ACTS OR OMISSIONS OR SELLER'S BREACH) HEREUNDER, THE
DAMAGES TO SELLER WOULD BE EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN,
AND THAT THEREFORE, THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES TO
SELLER, SUCH DAMAGES INCLUDING COSTS OF NEGOTIATING AND DRAFTING OF THIS
AGREEMENT, COSTS OF COOPERATING IN SATISFYING CONDITIONS TO CLOSING, COSTS OF
SEEKING ANOTHER BUYER UPON BUYER'S DEFAULT, OPPORTUNITY COSTS IN KEEPING THE
PROPERTY OUT OF THE MARKETPLACE, AND OTHER COSTS INCURRED IN CONNECTION
HEREWITH. ACCORDINGLY, BUYER AGREES THAT UPON BUYER'S RECEIPT OF NOTICE OF SUCH
DEFAULT OR BREACH FROM SELLER, WHICH NOTICE SHALL SPECIFY THE BREACH IN DETAIL,
AND FAILURE BY BUYER TO CURE SAID BREACH, DEFAULT OR FAILURE TO PERFORM WITHIN
FIFTEEN (15) DAYS AFTER RECEIPT OF SUCH NOTICE, AND CLOSING FAILS TO OCCUR
BECAUSE OF SUCH BREACH, DEFAULT OR FAILURE TO PERFORM, SELLER SHALL RETAIN THE
DEPOSIT AS LIQUIDATED DAMAGES, AS SELLER'S SOLE REMEDY IN THE EVENT OF ANY SUCH
MATERIAL BREACH OR DEFAULT BY BUYER HEREUNDER.
Initials of Buyer: /s/DK Initials of Seller: /s/PJB
19. Real Estate Brokerage Commission. Upon the Closing,
Buyer shall pay to Ray Goodson of Landcastle Real Estate and Financial Services
and Fred Harris of Marlin Land Sales (collectively, "Brokers") a total
commission equal to 3% of the Purchase Price pursuant to a separate agreement
between Buyer and Brokers. Seller and Buyer each represents and warrants to the
other that, except as described in the immediately preceding sentence, it has
not dealt with or been represented by any brokers or finders in connection with
the purchase and sale of the Property. Each Party shall indemnify and hold the
other free and harmless from and against all costs and liabilities including,
without limitation, attorneys' fees and the costs and expenses of litigation,
for causes of action or proceedings which may be instituted by any broker, agent
or finder, licensed or
16
<PAGE>
otherwise, claiming through, under or by reason of the conduct of the
indemnifying Party in connection with this transaction. The Parties further
agree that no broker shall be a party to or a third party beneficiary of this
Agreement or the Escrow, and that no consent of any broker shall be necessary
for any agreement, amendment or document with respect to the transaction
contemplated by this Agreement.
20. Miscellaneous.
20.1 Assignment. The Parties shall not be entitled to
assign this Agreement and their respective rights and obligations hereunder
without obtaining the other Party's prior written consent, which shall not be
unreasonably withheld. Notwithstanding the foregoing, each Party shall be
entitled to assign this Agreement and its rights and obligations hereunder
without obtaining the other Party's prior written consent to any entity which is
a subsidiary, parent or subsidiary of a parent of the assigning Party, provided
that the assigning Party shall not be released from its obligations hereunder by
reason of such assignment or delegation without the other Party's written
consent.
20.2 No Modifications. No addition to or modification of
any term or provision of this Agreement shall be effective unless set forth in
writing and signed by both Seller and Buyer.
20.3 Construction of Agreement. Each Party and attorneys
for each Party have participated in the drafting and preparation of this
Agreement. Therefore, the provisions of this Agreement shall not be construed in
favor of or against either Party, but shall be construed as if both Parties
equally prepared this Agreement.
20.4 Headings. The paragraph headings herein are used for
the purpose of convenience only and shall not be deemed to limit the subject of
the sections or paragraphs of this Agreement or be considered in their
construction. Unless otherwise specifically referring to another instrument or
document, references to "Sections" and "Subsections" refer to the Sections and
Subsections of this Agreement.
20.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
20.6 Time of the Essence. Time is of the essence of each
and every provision of this Agreement. Unless business days are expressly
provided for, all references to "days" herein shall refer to consecutive
calendar days. If the Closing Date or any other date or time period provided for
in this Agreement is or ends on a Saturday, Sunday or federal, state or legal
holiday, then such date shall automatically be extended to the next day which is
not a Saturday, Sunday or federal, state or legal holiday.
20.7 Successors and Assigns. Subject to the provisions of
Section 20.1, all of the provisions of this Agreement shall inure to the benefit
of and shall be binding upon the successors and assigns of the Parties.
17
<PAGE>
20.8 Further Assurances. Each of the Parties shall execute
and deliver any and all additional papers, documents, and other assurances, and
shall do any and all acts and things reasonably necessary in connection with the
performance of their obligations hereunder and to carry out the intent of this
Agreement. Without limiting the generality of the foregoing, Seller shall
cooperate with Buyer by executing such documents and providing to Buyer or the
appropriate regulatory agency such items as Buyer or the appropriate regulatory
agency may reasonably request, and Seller shall cooperate under any covenants,
conditions and restrictions affecting the Property so as to facilitate Buyer's
development of the Property, provided such cooperation entails no material
additional cost or expense to Seller.
20.9 No Waiver. The waiver by one Party of the performance
of any covenant, condition or promise, or of the time for performing any act,
under this Agreement shall not invalidate this Agreement nor shall it be
considered a waiver by such Party of any other covenant, condition or promise,
or of the time for performing any other act required, under this Agreement. The
exercise of any remedy provided in this Agreement shall not be a waiver of any
remedy provided by law, and the provisions of this Agreement for any remedy
shall not exclude any other remedies unless they are expressly excluded.
20.10 Severability. If any provision of this Agreement
shall become illegal, null or void or against public policy, for any reason, or
shall be held by any court of competent jurisdiction to be illegal, null or void
or against public policy, the remaining provisions of this Agreement shall not
be affected thereby and shall remain in force and effect to the full extent
permissible by law.
20.11 Gender and Number. In this Agreement, the masculine,
feminine and neuter genders and the singular and the plural include one another,
unless the context requires otherwise.
20.12 Entire Agreement. This Agreement constitutes the
entire agreement between the Parties pertaining to the subject matter hereof and
shall supersede all prior and contemporaneous agreements, representations,
negotiations and understandings of the Parties, oral or written. The foregoing
sentence shall in no way affect the validity of any instrument executed by the
Parties in the form of the exhibits attached to this Agreement.
20.13 Incorporation of Recitals and Exhibits. All recitals
set forth in and exhibits to this Agreement are incorporated herein by this
reference.
20.14 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which
together shall constitute one and the same instrument. The signature page of any
counterpart may be detached therefrom without impairing the legal effect of the
signature(s) thereon provided such signature page is attached to any other
counterpart identical thereto except having additional signature pages executed
by the other Party. Counterparts may be delivered by
18
<PAGE>
facsimile provided that original executed counterparts are delivered to the
recipient on the next business day following the telefacsimile transmission.
20.15 Attorneys' Fees. If any action or proceeding is
instituted to enforce or interpret any provision of this Agreement, the
prevailing Party therein shall be entitled to recover its attorneys' fees and
costs from the losing party.
20.16 Notices. Any notice to be given hereunder to either
Party or to Escrow Holder shall be in writing and shall be given either by
personal delivery (including express or courier service), or by facsimile with
confirmation of delivery, or by registered or certified mail, with return
receipt requested, postage prepaid and addressed as follows:
To Seller:
Paradise Valley Communities No. 1
c/o HomeFed Communities, Inc.
529 East South Temple
Salt Lake City, Utah 84102
Attention: Paul J. Borden
Telephone: 801/521-5400
Fax: 801/521-1060 and 212/598-3194
With copies to:
K. Michael Garrett, Esq.
Pillsbury, Madison & Sutro LLP
101 West Broadway, Suite 1800
San Diego, California 92101-8083
Telephone: 619/234-5000
Fax: 619/236-1995
To Buyer:
Richmond American Homes of California, Inc.
2280 Diamond Boulevard, Suite 500
Concord, California 94520
Attention: Mr. Drew Kusnick
Telephone: 925/687-1812
Fax: 925/687-4175
With copies to:
M.D.C. Holdings, Inc.
3600 South Yosemite, Suite 900
Denver, Colorado 80237
Attention: Carol Raznick, Esq.
Telephone: 303/773-1100
Fax: 303/773-2320
19
<PAGE>
and to:
Sidley & Austin
555 West Fifth Street
40th Floor
Los Angeles, California 90013
Attention: George M. Means, Esq.
Telephone: 213/896-6000
Fax: 213/896-6600
To Escrow Holder:
Chicago Title Company
604 Empire Street
Fairfield, California 94533
Attention: Terri Piper
Telephone: 707/427-2700
Fax: 707/425-4810
Any Party may, by written notice to the others and to
Escrow Holder, designate a different address which shall
be substituted for the one specified above. Any such notice shall be deemed to
have been delivered upon its receipt or upon the second attempt at delivery, as
evidenced by the regular records of the person or entity attempting delivery.
20.17 Relationship of Parties. The Parties agree that their
relationship is that of Seller and Buyer, respectively, and that nothing
contained herein shall make either Party the fiduciary of the other for any
purpose whatsoever, nor shall this Agreement be deemed to create any form of
business organization between the Parties, including without limitation a joint
venture or partnership, nor is either Party granted any right or authority to
assume or create any obligation or responsibility on behalf of the other Party,
nor shall either Party be in any way liable for any debt of the other.
20.18 Survival. The representations and warranties of the
Parties contained herein shall survive the Closing and the delivery of the Grant
Deed for the lesser of (i) five years from the date hereof, or (ii) three years
from the date of the last close of escrow for the sale of a residence
constructed within the Property. The agreements, covenants and indemnities of
the Parties herein which are meant to be performed or satisfied after Closing,
shall survive the Closing and the delivery of the Grant Deed.
20
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this
Agreement as of the date first written above.
SELLER:
PARADISE VALLEY COMMUNITIES NO. 1,
a California general partnership
By: HomeFed Communities, Inc.,
a California corporation
Its: General Partner
By: /s/ Paul J. Borden
-----------------------------------
Its: President
-----------------------------------
By:
-----------------------------------
Its:
-----------------------------------
RICHMOND AMERICAN HOMES OF CALIFORNIA, INC.,
a Colorado corporation
By: /s/ Drew Kusnick
-----------------------------------
Its: President
-----------------------------------
<PAGE>
Exhibit A - Real Property
Exhibit B - Grant Deed
Exhibit C - Hazardous Substances
Exhibit D - Assignment & Bill of Sale
Exhibit E - Nonforeign Affidavit
Exhibit F - Exclusions to Representations
Exhibit G - Assumption Documents
Exhibit H - Landscaping Bonds
<PAGE>
ACCEPTANCE BY ESCROW HOLDER:
Chicago Title Company hereby acknowledges that it has received a fully executed
counterpart of the foregoing Purchase and Sale Agreement and Joint Escrow
Instructions ("Agreement") and agrees to act as Escrow Holder under the
Agreement and to be bound by and perform the terms thereof as such terms apply
to Escrow Holder.
CHICAGO TITLE COMPANY
Dated: By:
------------------ -----------------------------------
Its:
-----------------------------------
<PAGE>
EXHIBIT A
REAL PROPERTY
All that real property situated in the City of Fairfield, County of Solano,
State of California, described as follows:
Lots 1 through 75, as shown on that certain map entitled: "Final Map of Paradise
Valley North Unit No. 3, being all of Parcel 4 as shown on the Parcel Map filed
in Book 34 of Parcel Maps, Page 8, Solano County Records", filed June 11, 1991
in the Office of the Recorder of Solano County in Book 60 of Maps, at Page 82,
Solano County Records, and as amended by that certain Certificate of Correction
for Subdivisions recorded September 23, 1991 in Book 1991 as Instrument No.
1991-00069160, Solano County Records.
APN's: 167-511-010 through 060; 167-511-080 through 340; 167-512-010 through
200; 167-513-010 through 140; 167-514-010 through 080
<PAGE>
EXHIBIT B
GRANT DEED
RECORDING REQUESTED BY,
AND WHEN RECORDED MAIL TO:
Richmond American Homes of
California, Inc.
2280 Diamond Boulevard, Suite 500
Concord, California 94520
Attention: Mr. Drew Kusnick
- -------------------------------------------------------------------------------
The undersigned grantor declares:
Documentary Transfer Tax not shown pursuant
to Section 11932 of the Revenue and
Taxation Code, as amended
County of Solano
- -------------------------------------------------------------------------------
GRANT DEED
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is
hereby acknowledged, PARADISE VALLEY COMMUNITIES NO. 1, a California general
partnership ("Grantor") hereby grants to RICHMOND AMERICAN HOMES OF CALIFORNIA,
INC., a Colorado corporation ("Grantee"), that certain real property
("Property") in the City of Fairfield, County of Solano, State of California,
which is more particularly described on Exhibit "A" attached hereto and
incorporated herein by this reference.
IN WITNESS WHEREOF, Grantor has caused this Grant Deed to be executed
as of the _____ day of ________________, 1998.
PARADISE VALLEY COMMUNITIES NO. 1,
a California general partnership
By: HomeFed Communities, Inc.,
a California corporation
Its: General Partner
By:
-----------------------------------
Its:
-----------------------------------
By:
-----------------------------------
Its:
-----------------------------------
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF _________ )
On ______________, 1998, before me, the undersigned, a Notary Public
in and for said State, personally appeared ______________________ and
_____________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) (is) (are) subscribed
to the within instrument and acknowledged to me that (he) (she) (they) executed
the same in (his) (her) (their) authorized capacity(ies), and that by (his)
(her) (their) signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------------
Notary Public in and for said State
<PAGE>
Document No. ________________
Recorded ____________________, 1998
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION NOT
BE MADE A PART OF THE PERMANENT RECORD IN THE OFFICE OF THE
COUNTY RECORDER (PURSUANT TO SECTION 11932 OF THE
CALIFORNIA REVENUE AND TAXATION CODE)
TO: Recorder
County of Solano
Request is made in accordance with the provisions of the
Documentary Transfer Tax Act that the amount of the tax due not be shown on the
original document which names:
Grantor: PARADISE VALLEY COMMUNITIES NO. 1, a California general
partnership
Grantee: RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., a Colorado
corporation
The property described in the accompanying document is located in the
County of Solano.
The amount of tax due on the accompanying document is $__________.
XX Computed on full value of property conveyed.
- ---------
Or computed on full value, less liens and encumbrances
remaining at the time of sale.
- ---------
---------------------------------
(Signature of Declarant or Agent)
---------------------------------
(Firm Name)
Note: After the permanent record is made, this form will be affixed to the
conveying document and returned with it.
<PAGE>
EXHIBIT C
HAZARDOUS SUBSTANCES
The term "Hazardous Substance" as used in this Agreement
shall include, without limitation, any substance, chemical, compound or mixture
which is (or which contains or is the decomposition product of any substance,
chemical compound, or mixture which is):
(1) a "Hazardous Substance", "Hazardous Material",
"Hazardous Waste", or "Toxic Substance" under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. ss.ss. 9601, et
seq., the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 1801, et
seq., or the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901, et
seq.;
(2) an "Extremely Hazardous Waste", a "Hazardous Waste", or
a "Restricted Hazardous Waste", under ss.ss. 25115, 25117 or 25122.7 of the
California Health and Safety Code, or is listed or identified pursuant
to ss.ss.25140 or 44321 of the California Health and Safety Code;
(3) a "Hazardous Material", "Hazardous Substance",
"Hazardous Waste", "Toxic Air Contaminant", or "Medical Waste" under ss.ss.
25281, 25316, 25501, 25501.1, 25023.2 or 39655 of the California Health and
Safety Code;
(4) "Oil" or a "Hazardous Substance" listed or identified
pursuant to ss.311 of the Federal Water Pollution Control Act, 33 U.S.C. ss.
1321, as well as any other hydrocarbonic substance or by-product;
(5) listed or defined as a "Hazardous Waste", "Extremely
Hazardous Waste", or an "Acutely Hazardous Waste" pursuant to Chapter 11 of
Title 22 of the California Code of Regulations;
(6) listed by the State of California as a chemical known
by the State to cause cancer or reproductive toxicity pursuant to ss. 25249.8(a)
of the California Health and Safety Code;
(7) a material which due to its characteristics or
interaction with one or more other substances, chemical compounds, or mixtures,
damages or threatens to damage, health, safety, or the environment, or is
required by any law or public agency to be remediated, including remediation
which such law or public agency requires in order for the property to be put to
any lawful purpose;
(8) any material the presence of which would require
remediation pursuant to the guidelines set forth in the State of California
Leaking Underground Fuel Tank Field Manual, whether or not the presence of such
material resulted from a leaking underground fuel tank;
(9) pesticides regulated under the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. ss.ss.136 et seq.;
<PAGE>
(10) asbestos, PCBs, and other substances regulated under
the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq.;
(11) any radioactive material including, without
limitation, any "source material", "special nuclear material", "by-product
material", "low-level wastes", "high-level radioactive waste", "spent nuclear
fuel" or "transuranic waste", and any other radioactive materials or radioactive
wastes, however produced, regulated under the Atomic Energy Act, 42 U.S.C.
ss.ss. 2011 et seq., the Nuclear Waste Policy Act, 42 U.S.C. ss.ss. 10101 et
seq., or pursuant to the California Radiation Control Law, California Health and
Safety Code ss.ss. 25800 et seq.
(12) industrial process and pollution control wastes,
whether or not "hazardous" within the meaning of the Resource Conservation and
Recovery Act, 42 U.S.C. ss.ss. 6901 et seq.;
(13) regulated under the Occupational Safety and Health
Act, 29 U.S.C. ss.ss.651 et seq., or the California Occupational Safety and
Health Act, California Labor Code ss.ss. 6300 et seq.; and/or
(14) regulated under the Clean Air Act, 42 U.S.C. ss.ss.
7401 et seq. or pursuant to Division 26 of the California Health and Safety
Code.
<PAGE>
EXHIBIT D
ASSIGNMENT & BILL OF SALE
This ASSIGNMENT AND BILL OF SALE (this "Bill of Sale") is
made as of ___________, 1998 by PARADISE VALLEY COMMUNITIES NO.1, a California
general partnership ("Assignor"), in favor of RICHMOND AMERICAN HOMES OF
CALIFORNIA, INC., a Colorado corporation ("Assignee"), pursuant to that certain
Purchase and Sale Agreement and Joint Escrow Instructions, by and between
Assignor and Assignee, dated _______, 1998 (the "Agreement"), concerning that
certain real property located in the City of Fairfield, County of Solano, State
of California and more particularly described on Exhibit A attached hereto and
incorporated herein (the "Property").
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
sufficiency of which are hereby acknowledged, Assignor hereby sells, conveys,
grants, delivers, transfers and assigns to Assignee, all of Assignor's right,
title and interest, free of any encumbrance or lien, in, to and under all
assets, rights and/or materials used, owned or held in connection with the use,
management, development or enjoyment of the Property, including, without
limitation: (i) any and all personal property in, on, or related to the
Property, (ii) all entitlements, permits, approvals, subdivision agreements and
other agreements relating to the development of the Property, (iii) all plans,
specifications, maps, surveys, drawings, reports and studies relating to the
Property and its development, (iv) all development rights benefitting the
Property, and (v) all rights to receive a reimbursement, credit or refund of any
deposits or fees paid in connection with the development of the Property.
Seller agrees that it will, at any time and from time to
time upon written request therefor, execute and deliver to Buyer any new or
confirmatory instruments and do and perform any other acts which Buyer may
reasonably request in order to fully transfer possession and control of, and
protect the rights of Buyer in, all the assets of Seller intended to be
transferred and assigned hereby.
<PAGE>
The provisions of this Assignment shall be binding upon and
shall inure to the benefit of the successors and assigns of Assignor and
Assignee, respectively.
PARADISE VALLEY COMMUNITIES NO. 1,
a California general partnership
By: HomeFed Communities, Inc.,
a California corporation
Its: general partner
By:
-----------------------------------
Its:
-----------------------------------
By:
-----------------------------------
Its:
-----------------------------------
<PAGE>
EXHIBIT E
NONFOREIGN AFFIDAVIT
Section 1445 of the Internal Revenue Code of 1986, as
amended, provides that a transferee of a U.S. real property interest must
withhold tax if the transferor is a foreign person. To inform the transferee
that withholding of tax is not required upon the disposition of a U.S. real
property interest by PARADISE VALLEY COMMUNITIES NO.1., a California general
partnership ("Transferor"), the undersigned certifies the following on behalf of
Transferor:
1. Transferor is not a foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are defined in the
Internal Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is
____________; and
3. Transferor's office address is
__________________________________.
Transferor understands that this certification may be
disclosed to the Internal Revenue Service by transferee and that any false
statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, I declare that I have examined
this certification and to the best of my knowledge and belief it is true,
correct, and complete. I further declare that I have authority to sign this
document on behalf of Transferor.
Dated: _______________, 1998 PARADISE VALLEY COMMUNITIES NO. 1,
a California general partnership
By: HomeFed Communities, Inc.,
a California corporation
Its: general partner
By:
-----------------------------------
Its:
-----------------------------------
By:
-----------------------------------
Its:
-----------------------------------
<PAGE>
EXHIBIT F
EXCLUSIONS FROM SELLER'S REPRESENTATIONS
<PAGE>
EXHIBIT G
ASSUMPTION DOCUMENTS
To be attached by the parties prior to the Feasibility Date
<PAGE>
EXHIBIT H
LANDSCAPING BONDS
Exhibit 10.16
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 September 20, 1999 among HOMEFED CORPORATION
("HFC") and LEUCADIA NATIONAL CORPORATION ("LUK," and collectively, the
"Members").
W I T N E S 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 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
<PAGE>
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.
All Capital contributed by HFC and Preferred Capital contributed by LUK shall
together constitute Funding Contributions.
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 solely from the assets of the LLC and only in
accordance with the terms hereof.
2
<PAGE>
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. The profits of the LLC are allocated 100% to HFC
after consideration of the distributions to LUK in Section 4.01(i) and (ii) and
the losses of the LLC will be allocated 100% to HFC until HFC's capital account
is exhausted, then to LUK until LUK's capital account is exhausted, then 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 majority vote of the Members. For
purposes of this Section 5.01, "majority vote" shall mean the vote of Members
who, at the time of such vote, shall have contributed a majority of the Funding
Contributions. However, the Manager may be removed by any Member for cause. For
purposes of this Section 5.01, "cause" shall mean any willful or reckless
failure to carry out its duties under this LLC Agreement. 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.
3
<PAGE>
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. [Intentionally omitted]
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, 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.
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(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.
(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 any 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
SECTION 6.01. 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
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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
(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.
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Article VIII
AMENDMENT
SECTION 8.01. 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
SECTION 9.01. 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/ Corinne A. Maki
--------------------------------
Name: Corinne A. Maki
Title: Secretary and Treasurer
LEUCADIA NATIONAL CORPORATION
By: /s/ Barbara L. Lowenthal
--------------------------------
Name: Barbara L. Lowenthal
Title: Vice President
8
Exhibit 10.17
This TRANSITIONAL MANAGEMENT AGREEMENT (the "Transitional Management
Agreement") entered as of August 14, 1998, by and between HomeFed Corporation, a
corporation organized and existing pursuant to the laws of the State of Delaware
("HFC"), and Accretive Investments, LLC, a limited liability company organized
and existing pursuant to the laws of the State of California ("Accretive").
RECITALS
--------
WHEREAS, San Elijo Ranch, Inc. ("San Elijo") through its wholly-owned
subsidiary Provence Hills Development Company, LLC, a Delaware limited liability
company ("Provence Hills") entered into a Development Management Agreement with
HomeFed Corporation ("HFC") dated as of August 14, 1998 (the "Development
Agreement") to, among other things, perform Development Services (such term
shall have the meaning set forth in the Development Agreement) and Construction
Management Services (such term shall have the meaning set forth in the
Development Agreement) with respect to 2,000 acres of undeveloped land located
in San Marcos, California owned by San Elijo ("Project");
WHEREAS, San Elijo and Accretive previously had entered into a
Management Agreement (the "Management Agreement"), dated July 17, 1997, pursuant
to which Accretive has performed certain management services for the Project
that will now be provided by HFC pursuant to the Development Agreement;
WHEREAS, it is intended that the Management Agreement will terminate
upon the effectiveness of this Agreement;
WHEREAS, pursuant to this Agreement, Accretive will provide transition
management services to HFC to facilitate a smooth transition of Accretive's
management responsibilities under the Management Agreement to HFC;
WHEREAS, Accretive is engaged in the business of managing the
development of undeveloped land in the State of California; and
WHEREAS, HFC desires to retain the services of Accretive on the terms
and conditions set forth in this Transitional Management Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements hereinafter contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Appointment of Transition Manager. HFC hereby appoints Accretive and
Accretive hereby accepts appointment, as transition manager of the Project with
the obligation and authority to direct, supervise and manage the development and
operation of the Project in accordance with the terms and conditions set forth
in this Transitional Management Agreement. Accretive will provide transition
management services to San Elijo through December 31, 1999, unless, at HFC's
request effective after December 31, 1998 (upon at least 10 days' prior written
notice to Accretive), Accretive is no longer to
76830.0194
<PAGE>
provide such transition management services for the Project. In such event,
through December 31, 1999, Accretive shall perform such advisory and consulting
services in connection with the Project as HFC may request and, in connection
therewith, Randy Goodson shall devote up to 50% of his business time and
attention as is necessary to the performance of Accretive's obligations under
this Transitional Management Agreement, in a manner that is consistent with
Accretive's past performance of such obligations under this Transitional
Management Agreement and the Management Agreement.
2. Independent Contractor Status. (a) HFC and Accretive acknowledge and
agree that (a) this Transitional Management Agreement establishes and
constitutes both the only relationship and the only agreement between HFC and
Accretive, (b) HFC and Accretive are not joint venturers or partners, (c)
Accretive is not, and shall not be deemed to be, an employee of HFC, (d) none of
Accretive's members, employees or agents is, or shall be deemed to be, an
employee of HFC, and (e) Accretive at all times shall be, and shall be deemed to
be, an independent contractor of HFC. Accretive represents and warrants to HFC
that neither it, nor any of its members, directors, employees or agents, shall
hold itself, or themselves, out to be anything other than an independent
contractor for HFC.
3. Accretive's Management Duties and Obligations. Unless otherwise
instructed by HFC, Accretive, as the transition manager of the Project, shall
have the obligation to perform or to assist or advise HFC with respect to any or
all of the following actions at the request of HFC:
(a) implementation of the plan of development in accordance with the
Development Agreement and specific plan amendments and negotiation of required
approvals from the City of San Marcos and other authorities;
(b) negotiation and documentation of a Redevelopment Agency Funding
Agreement;
(c) supervision of all litigation relating to the Project, including,
without limitation, those actions necessary to protect San Elijo's property and
other rights from the negative impacts related to the San Marcos landfill;
(d) negotiation of a full mitigation agreement and school fee credit
agreement with the San Marcos Unified School District, if appropriate;
(e) creation of an Assessment District to spread off-site development
costs to surrounding property owners;
(f) preparation of a Community Facilities District so San Elijo will
have the option to utilize the Community Facilities District as a financing
vehicle under favorable terms;
(g) negotiation with the United States Postal Service to create a
separate zip code for the Project, if appropriate;
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(h) arranging for the preparation, filing, modification and acceptance
of tentative and final parcel maps with and by the City of San Marcos;
(i) negotiation of an export permit to complement San Elijo's
prospective Aggregate Mining Permit and to facilitate the sale of crushed rock,
if appropriate;
(j) negotiation with the City of San Marcos and the County of San Diego
of an agreement, or agreements, to effect the closure and post-closure
landscaping of the landfill adjacent to the Project;
(k) supervision of all employees and contractors, negotiation of
employment and contractor agreements and submission of such agreements to HFC
for approval; provided, however, Accretive shall not hire any contractors or
employees without the prior written consent of a vice president or more senior
officer of San Elijo or HFC;
(l) compliance with all laws, codes, regulations and other requirements
of all federal, state and local authorities having jurisdiction over the
Project, provided, however, Accretive shall first promptly notify San Elijo and
HFC of all orders and notices received by Accretive from any authority having
jurisdiction over the Project assessing, or requiring an expenditure, in excess
of $5,000.00 and shall obtain the written consent of a vice-president or more
senior officer of San Elijo or HFC prior to making the expenditure or prior to
complying with such order or notice;
(m) not less than annually, having an insurance review conducted by an
insurance professional satisfactory to HFC and San Elijo to ensure that San
Elijo, Provence Hills and the Project are fully insured against all insurable
claims and liabilities which may arise from the development, management or
operation of the Project;
(n) collection of all accounts receivable relating to the Project;
(o) timely payment of all expenses, taxes and financial obligations
related to the Project, including, without limitation, payments due under the
Chapter 11 plan of San Elijo and all debt service; provided, however, that prior
to making any single expenditure, or the first of any series of expenditures
that in the aggregate shall be in excess of $10,000.00 within any thirty-day
period, Accretive shall obtain the written consent of a vice-president or more
senior officer of San Elijo or HFC;
(p) advertising, promotion, marketing and sale of the Project, and each
of the lots comprising the Project, at wholesale or retail;
(q) preparation and revision as needed of the Project's financial
projections and operating budgets;
(r) preparation of periodic written management reports of San Elijo for
the officers and directors of San Elijo and HFC; and
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(s) monthly review of all financial statements of San Elijo and
Provence Hills with periodic reports to the officers and directors of San Elijo
and HFC concerning such financial statements.
4. Professional Management Standards. Accretive shall use its best
good-faith efforts in developing, managing and operating the Project subject to
the direction of HFC.
5. Accretive's Compensation. (a) Except as provided in (b) below, HFC
shall pay to Accretive $25,000 per month for Accretive's services pursuant to
this Transitional Management Agreement.
(b) If, at HFC's request pursuant to this Transitional Management
Agreement, Accretive is not serving as transitional manager of the Project, but
is instead rendering consulting and advisory services to San Elijo in respect of
the Project, San Elijo shall pay to Accretive $12,500 per month. In addition, in
the sole discretion of the management of HFC, Accretive shall be eligible to
receive periodic bonuses. For example, HFC may, in its absolute sole discretion,
(i) pay Accretive an annual bonus in an amount between $150,000 and $300,000, if
Accretive is serving as the transitional manager of the Project in a manner that
is satisfactory to HFC in its sole discretion, and (ii) pay Accretive an annual
bonus in an amount up to $150,000, if Accretive is serving as a consultant and
advisor to the Project in a manner that is satisfactory to HFC in its sole
discretion. The foregoing examples are an indication of the possible annual
bonus that HFC may pay Accretive; such examples are not intended to limit the
amount of the annual bonus that HFC may in its sole discretion elect to pay
Accretive for outstanding services or to guarantee the payment of any bonus to
Accretive.
6. Accretive's Expenses. Accretive will have no obligation to advance
funds on HFC's or San Elijo's behalf in the performance of Accretive's duties
under this Agreement. Should Accretive wish to advance funds, HFC shall promptly
reimburse Accretive for all funds advanced on behalf of HFC and reasonable
expenses incurred by Accretive in performing its obligations pursuant to this
Transitional Management Agreement. Such reimbursable expenses may include
charges for travel, lodging, meals, report production, telecommunications and
special delivery charges. Such reimbursable expenses shall not include
Accretive's overhead expenses, including, but not limited to, Accretive's
payroll, or other employee compensation, rent, insurance expense or utility
expense, other than the employees, if any, that San Elijo or HFC requests that
Accretive employ.
7. Non-discrimination. Accretive shall not discriminate against any
employee or prospective employee of San Elijo or HFC because of race, creed,
color, national origin, disability, gender, sexual preference or any other
classification then protected by law.
8. Harassment. HFC does not condone or permit harassment, including,
but not limited to, sexual harassment, of or by any of its employees. Accretive
agrees that it shall immediately notify a vice-president or more senior officer
of HFC, both verbally
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and in writing, of any evidence of which Accretive becomes aware of any
harassment of or by any employee of San Elijo or HFC regardless of whether a
claim of harassment is made. Accretive shall coordinate the education and
training of all current and future employees of San Elijo and HFC regarding the
harassment policy of HFC and the conduct prohibited by such harassment policy.
9. Indemnification. Accretive hereby agrees to indemnify, pay for the
defense of and hold HFC harmless from all claims, investigations, suits,
judgments, penalties, interest, court costs, litigation expenses and attorneys'
fees (a) arising from Accretive's willful misconduct, negligence or bad-faith
performance under the terms of this Transitional Management Agreement, (b)
arising from any act or omission of Accretive or of its members, employees or
agents occurring outside the scope of their duties or responsibilities under
this Transitional Management Agreement, or (c) asserted, obtained or incurred by
any current or former member, employee or agent of Accretive (unless arising out
of the willful misconduct or negligence of HFC, or and of their officers,
directors, employees, shareholders or agents). HFC shall have the right to be
represented by the attorneys of its choice for which Accretive will pay.
HFC hereby agrees to indemnify, pay for the defense of, and hold
Accretive harmless from and against all claims, investigations, suits,
judgments, penalties, interest, court costs, litigation expenses and attorneys'
fees arising out of or in connection with the performance by Accretive of its
duties and obligations under this Transitional Management Agreement, unless (a)
arising from Accretive's willful misconduct, negligence, or bad-faith
performance of its duties and obligations under this Transitional Management
Agreement, (b) arising from any act or omission of Accretive occurring outside
of the scope of their duties and responsibilities under this Transitional
Management Agreement, or (c) asserted, obtained or incurred by a current or
former member, employee or agent of Accretive (unless arising out of the willful
misconduct or negligence of HFC, or its officers, directors, employees,
shareholders or agents). Accretive shall have the right to be represented by
attorneys appointed by HFC for which HFC will pay.
10. Termination. This Transitional Management Agreement may be
terminated at any time by either Accretive or HFC on three months' prior written
notice for any reason or for no reason at all. HFC, in its sole discretion, may
terminate this Transitional Management Agreement at any time without providing
Accretive with three months' prior written notice by providing Accretive with
written notice of immediate termination of this Transitional Management
Agreement and tendering to Accretive a check in the amount of $75,000, or, if
Accretive's monthly compensation under this Transitional Management Agreement is
reduced pursuant to Paragraph 5(b), a check in the amount of $37,500 (one-half
of the $75,000 termination fee). On termination, Accretive shall immediately (a)
deliver to HFC all monies, if any, without deduction, of HFC, (b) deliver to HFC
all books, records and other documents in its possession or control which relate
to the Project or to HFC. Accretive shall reasonably cooperate with HFC and San
Elijo after receipt of written notice of termination with respect to all
matters, including, without limitation, all governmental applications and
approvals and all matters relating to all outstanding or future lawsuits.
Accretive's obligation to
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cooperate shall continue even after termination has become effective. Accretive
shall be paid the reasonable value for its time and efforts required to
cooperate with HFC following termination of this agreement. If Accretive refuses
to reasonably cooperate, it shall pay to HFC all costs and expenses, including,
without limitation, attorneys' fees, incurred, in part or in whole, as a result
of Accretive's failure to cooperate with HFC.
11. Freedom to Conduct Other Business. Accretive expressly retains the
right to work on other matters and/or to work with entities other than HFC in
any capacity so long as such work does not interfere with any of Accretive's
obligations, duties or responsibilities pursuant to this Transitional Management
Agreement.
12. Assignment. Accretive shall not assign, or have the right to
assign, any of its rights under this Transitional Management Agreement and
Accretive shall not delegate its obligations, responsibilities or authority
pursuant to this Transitional Management Agreement, without the prior written
consent of a vice-president or more senior officer of HFC which consent shall be
in the sole discretion of HFC; provided, however, that Accretive may assign its
rights to payments due under this Transitional Management Agreement with the
prior written consent of HFC which consent may not be unreasonably withheld.
13. Notices. All notices or other communications required or permitted
pursuant to this Transitional Management Agreement shall be in writing and shall
be (a) telefaxed and personally delivered or (b) telefaxed and sent by
registered or certified mail, return receipt requested. If mailed, each notice
or communication shall be deemed received upon actual receipt after deposit in
the United States mail, postage prepaid, and addressed to the person to receive
such notice or communication at the following address:
To HFC: Corinne Maki
HomeFed Corporation
529 East South Temple
Salt Lake City, Utah 84102
Telefax: (801) 524-1751
with a copy to HFC's attorneys:
K. Michael Garrett
Pillsbury, Madison & Sutro LLP
101 West Broadway, Suite 1800
San Diego, CA 92101
Telefax: (619) 236-1995
with a copy to San Elijo: Paul Borden
c/o Leucadia National Corporation
315 Park Avenue South
New York, New York 10010
Telefax: (212) 598-4869
with a copy to San Elijo's attorneys:
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Michael Fraunces
Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, California 92101
Telefax: (619) 232-8311
To Accretive: R. Randy Goodson
Accretive Investments LLC
2111 Palomar Airport Road, Suite 250
Carlsbad, California 92009-1420
Telefax: (760) 431-8915
14. Entire Agreement. This Transitional Management Agreement contains
the entire agreement between and among Accretive and HFC and supersedes all
prior written and oral agreements between the parties with respect to the
subject matter hereof.
15. Successors and Assigns. Subject to Paragraph 12 above, this
Transitional Management Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective successors and assigns.
16. Counterparts. This Transitional Management Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which, together, constitute one instrument.
17. Interpretation and Governing Law. This Transitional Management
Agreement shall be construed according to its fair meaning as though no single
party drafted this Transitional Management Agreement. This Transitional
Management Agreement has been made and entered into and shall be construed,
interpreted and governed by the laws of the State of California without
reference to its choice of law rules.
18. Modifications. No modification of this Transitional Management
Agreement shall be effective unless set forth in writing and signed by the party
sought to be bound.
19. Attorneys' Fees. If any party hereto institutes any action or
proceeding to enforce any provision hereof or to recover damages for breach of
this Transitional Management Agreement, the prevailing party shall be entitled
to recover from the losing party reasonable attorneys' fees and disbursements
for services rendered to the prevailing party in such action or proceeding.
20. Change of Control. If R. Randy Goodson ceases to own, either in his
own name or beneficially, including trusts established for the benefit of his
immediate family, at least 50% of the outstanding equity interest in Accretive,
HFC may terminate this Transitional Management Agreement immediately without
giving the three months' prior written notice of termination, or without giving
the written notice of immediate termination or without tendering to Accretive
the payment otherwise required by paragraph 10 of this Transitional Management
Agreement.
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[Remainder of page intentionally left blank.]
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HOMEFED CORPORATION
By: /s/ Paul Borden
-------------------------------
Title: President
ACCRETIVE INVESTMENTS, LLC
By: /s/ Randy Goodson
-------------------------------
Title: Member
9
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this amended Registration Statement on Form S-2
of our report dated March 19, 1999, except for Note 1, Basis of Presentation, as
to which the date is September 21, 1999, relating to the financial statements of
HomeFed Corporation and Subsidiaries and our report dated March 19, 1999
relating to the financial statements of Otay Land Company, LLC, which appear in
such amended Registration Statement. We also consent to the reference to us
under the heading "Experts" in such amended Registration Statement.
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
September 21, 1999
NY2:\814289\01\HGB501!.DOC\76830.0194
