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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] AMENDMENT TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended
December 31, 1999 Or
[_] AMENDMENT TO TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period
from to
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Commission file number: 1-10153
HOMEFED CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 33-0304982
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1903 Wright Place
Suite 220
Carlsbad, California 92008
(760) 918-8200
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x].
Based on the average bid and asked prices of the Registrant's Common Stock as
published by the OTC Bulletin Board Service as of March 17, 2000, the aggregate
market value of the Registrant's Common Stock held by non-affiliates was
approximately $31,323,500 on that date.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [x] No [_]
As of March 17, 2000, there were 56,807,826 outstanding shares of the
Registrant's Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement, to be filed with the
Commission for use in connection with the 2000 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Form 10-K.
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NY2:\874722\09\76830.0194
<PAGE>
PART I
Item 1. Business.
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THE COMPANY
Introduction
HomeFed Corporation ("HomeFed" or the "Company") was incorporated in
Delaware in 1988. The Company is engaged, directly and through subsidiaries, in
the investment in and development of residential real estate projects in the
State of California. The principal executive office of the Company is located at
1903 Wright Place, Suite 220, Carlsbad, California 92008.
The Company's development projects consist of two master planned
communities located in San Diego County, California: San Elijo Hills, and a
portion of the larger Otay Ranch planning area.
As development manager for these projects, the Company is responsible
for the completion of a wide range of activities, including design engineering,
grading raw land, constructing public infrastructure such as streets, utilities
and public facilities, and finishing individual lots for home sites or other
facilities. The Company will develop its communities in phases to allow the
Company flexibility to sell finished lots to suit market conditions and to
enable it 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.
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, often involving a number of different
governmental jurisdictions and agencies, challenges through litigation,
considerable risk and expense, and substantial delays. Unless and until the
requisite entitlements are received and substantial work has been commenced in
reliance upon such 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.
Current Development Projects
San Elijo Hills. In August 1998, the Company entered into a
Development Management Agreement (the "Development Agreement") with San Elijo
Hills Development Company, LLC, an indirect subsidiary of Leucadia National
Corporation (together with its subsidiaries, "Leucadia") that owns certain real
property located in the City of San Marcos, in San Diego County, California.
Pursuant to the Development Agreement, this project, which is known as San Elijo
Hills, will be a master-planned community of approximately 3,400 homes and
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apartments as well as commercial properties expected to be completed during the
course of the next ten years. As a result of the recertification of its
environmental impact report, San Elijo Hills is fully entitled. The Company is
the development manager of this project with responsibility for the overall
management of the project, including, among other things, preserving existing
entitlements and obtaining any additional entitlements required for the project,
arranging financing for the project, coordinating marketing and sales activity,
and acting as the construction manager. The Development Agreement provides that
the Company will participate in the net profits of the project, and that the
Company will receive fees for the field overhead, management and marketing
services it is to provide, based on the revenues of the project. For additional
information, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this Report.
During the first quarter of 2000, 189 residential sites in two
neighborhoods were sold to builders for aggregate net consideration of
$20,770,000. Three neighborhoods, consisting of 296 residential sites, are under
contract for sale for aggregate consideration of $45,100,000. While the Company
expects that some of these neighborhoods will close during 2000, these contracts
are subject to various closing conditions and termination rights if the closing
conditions are not satisfied. Therefore, no assurances can be given that any of
these sales under contract will occur. Two additional neighborhoods, consisting
of approximately 252 residential sites, comprise the balance of the seven
neighborhoods presented for sale in 1999.
An additional 6 neighborhoods, consisting of 987 residential sites,
have been presented for sale during the first quarter 2000.
Otay Ranch. On October 14, 1998, the Company and Leucadia formed Otay
Land Company, LLC (the "Otay Land Company") for the purpose of purchasing 4,800
non-adjoining acres of land located within the larger 22,900-acre Otay Ranch
master planned community south of San Diego, California. Otay Land Company
acquired this land for $19,500,000. The Company has contributed $11,300,000 as
capital and Leucadia has contributed $10,000,000 as a preferred capital
interest; the Company will act as development manager of this project.
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 the Company,
an inability to coordinate with other developers could adversely affect the
Company's 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." The Company has entered into an option agreement
to sell 85 acres of developable land for a sales price of $4,100,000. The
Company has received a non-refundable payment of $500,000 for this option, which
is scheduled to expire in December 2000, subject to extension. The Company has
not yet determined whether it will develop or sell the remaining developable
land and, accordingly, it does not yet know the nature or extent of the
entitlements or approvals that may be necessary.
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
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other owners lack sufficient acreage of mitigation land. The Company expects to
have substantially more mitigation land than it would need to develop its
property at this project. A market for the Company's open space mitigation land
exists among buyers in the San Diego County Region. The Company believes that a
market for this land is likely to develop within the larger Otay Ranch
development area as well.
The Company continues to evaluate how best to maximize the value of
this investment. The Company believes its current cash resources will be
sufficient for property maintenance, management and marketing costs pending its
determination of how to proceed with this project. Until the Company determines
its objectives, and, if necessary, secures additional entitlements and
coordinates its development activities with other developers, the Company cannot
predict when, or if, any revenues will be derived from this project.
Other Projects
Paradise Valley. The Company owns two clustered housing development
sites, which are under contract to be sold for anticipated net proceeds of
$1,450,000, and a school site at the Paradise Valley project, a community
located in Fairfield, California. The school site (which is subject to a
purchase option held by the local school district) and clustered housing
development sites have a combined book value at December 31, 1999 of $2,500,000.
The Company has certain continuing obligations with respect to this
project, including the obligation to construct a recreation center. Construction
of this recreation center began during 1999 and is expected to cost
approximately $1,200,000. Cash of $1,000,000 was deposited in an escrow account
that is being drawn upon as the recreation center is being completed. At
December 31, 1999, $868,000 remained in escrow.
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 the Company operates. Competition among
real estate developers and development projects is determined by the location of
the real estate, the market appeal of the development master plan, and the
developer's ability to build, market and deliver project segments on a timely
basis. Residential developers sell to homebuilders, who compete based on
location, price, market segmentation, product design and reputation.
Government Regulation
The residential real estate development industry is subject to
increasing environmental, building, zoning and real estate regulations that are
imposed by various federal, state and local authorities. In developing a
community, the Company must obtain the approval of numerous governmental
agencies regarding such matters as permitted land uses, housing density, the
installation of utility services (such as water, sewer, gas, electric, telephone
and cable television) and the dedication of acreage for open space, parks,
schools and other community purposes. Regulations affect homebuilding by
specifying, among other things, the type and quality of building material that
must be used, certain aspects of land use and building design and 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 the Company's ability to complete its projects, significantly
increase the costs of doing so or drive potential customers to purchase
competitors' products.
3
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Environmental Compliance
Environmental laws may cause the Company to incur substantial
compliance, mitigation and other costs, may restrict or prohibit development in
certain areas and may delay completion of the Company's development projects. To
date, environmental laws have not had a material adverse effect on the Company,
and management is not currently aware of any environmental compliance matters
that would have a material adverse effect on the Company. Delays arising from
compliance with environmental laws and regulations could adversely affect the
Company's ability to complete its projects, significantly increase the costs of
doing so or drive potential customers to purchase competitors' products.
Relationship with Leucadia; Administrative Services Agreement
Since emerging from bankruptcy in 1995, administrative services and
managerial support have been provided to HomeFed by a subsidiary of Leucadia.
Leucadia funded HomeFed's bankruptcy plan by purchasing stock and debt of the
Company. For additional information, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
In 1999, Leucadia completed the distribution of HomeFed Common Stock
to shareholders of Leucadia. As a result, Joseph S. Steinberg, Chairman of the
Board of HomeFed, and Ian M. Cumming, a director of HomeFed, together with their
respective family members (excluding trusts for the benefit of Mr. Steinberg's
children) beneficially own approximately 12.7% and 13.9%, respectively, of the
outstanding Common Stock. Mr. Steinberg is also President and a director of
Leucadia and Mr. Cumming is Chairman of the Board of Leucadia. At March 13,
2000, they each beneficially owned (together with their respective family
members but excluding trusts for the benefit of Mr. Steinberg's children)
approximately 17.9% and 16.4%, respectively, of Leucadia's outstanding common
shares.
Under the current administrative services agreement, which extends
through February 28, 2002, Leucadia provides the services of Mr. Paul J. Borden,
HomeFed's President, and Ms. Corinne A. Maki, HomeFed's Treasurer and Secretary,
in addition to various administrative functions. Mr. Borden and Ms. Maki each
are officers of Leucadia or its subsidiaries. The annual fee paid to Leucadia
under this agreement aggregated $296,000, payable monthly, through February 29,
2000. The parties are currently negotiating the annual fee to be paid under this
agreement commencing March 1, 2000.
Item 2. Properties.
- -------------------
The Company owns approximately 20 acres at the Paradise Valley project
and approximately 4,800 non-adjoining acres at the Company's Otay Ranch project,
as described under Item 1 - "Business." Land held for development and sale has
an aggregate book value of $23,707,000 at December 31, 1999.
The Company's corporate headquarters are located at 1903 Wright
Place, Suite 220, Carlsbad California 92008 in part of an office building
sub-leased from Leucadia for a monthly amount equal to its share of Leucadia's
cost for such space and furnishings. The agreement pursuant to which the space
and furnishings are provided extends through February 28, 2005 (coterminous with
Leucadia's occupancy of the space) and provides for a monthly rental of $15,865,
effective March 1, 2000.
Item 3. Legal Proceedings.
- --------------------------
The Company is not a party to legal proceedings other than ordinary,
routine litigation, incidental to its business or not material to the Company's
consolidated financial position or results of operations.
4
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Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
The following matters were submitted to a vote at the Company's 1999
Annual Meeting of stockholders held on December 14, 1999.
a) Election of Directors.
Number of Shares
For Withheld
Patrick D. Bienvenue.............................. 42,409,438 560,538
Paul J. Borden................................... 42,703,040 266,936
Timothy M. Considine.............................. 42,702,241 267,735
Ian M. Cumming.................................... 42,702,899 267,077
Michael A. Lobatz................................. 42,408,850 561,126
Joseph S. Steinberg............................... 42,701,501 268,475
b. Approval of the Company's 1999 Stock Incentive Plan.
For........................................................... 39,079,482
Against....................................................... 3,002,942
Abstentions................................................... 887,550
Broker non-votes.............................................. --
c. Ratification of PricewaterhouseCoopers LLP, as independent auditors for the
year ended December 31, 1999.
For........................................................... 42,792,079
Against....................................................... 88,240
Abstentions................................................... 89,656
Broker non-votes.............................................. --
Item 10..Executive Officers of the Registrant.
- ----------------------------------------------
As of March 17, 2000, the executive officers of the Company, their
ages, the positions held by them and the periods during which they have served
in such positions are as follows:
Name Age Position with HomeFed Office Held Since
- ---- --- --------------------- -----------------
Paul J. Borden 51 President 1998
Corinne A. Maki 43 Secretary and Treasurer 1995
Curt R. Noland 43 Vice President 1998
The officers serve at the pleasure of the board of directors of
HomeFed.
The recent business experience of our executive officers 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.
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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 Corporation,
a subsidiary of Leucadia, 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 20 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.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
- --------------------------------------------------------------------------------
Matters.
- --------
The following table sets forth certain information concerning the
market price of the Company's Common Stock for each quarterly period within the
two most recent fiscal years.
High Low
---- ---
Year ended December 31, 1998
First Quarter $ .3125 $ .0625
Second Quarter .3125 .03125
Third Quarter .3125 .0100
Fourth Quarter .4375 .03125
Year ended December 31, 1999
First Quarter $ .3000 $ .03125
Second Quarter .7500 .03125
Third Quarter 1.0000 .0100
Fourth Quarter 1.0000 .1500
Year ended December 31, 2000
First Quarter (through March 17, 2000) $ .8300 $ .5200
The Company's Common Stock is traded in the over-the-counter market.
The Company's Common Stock is not listed on any stock exchange, and price
information for the Common Stock is not regularly quoted on any automated
quotation system. The prices 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,
and may not necessarily represent actual transactions. On March 17, 2000, the
closing bid price for the Company's Common Stock was $.77 per share. As of this
date, there were 14,047 stockholders of record. The Company did not declare
dividends on its Common Stock during 1998 or 1999 and it does not anticipate
that it will pay dividends for the foreseeable future.
The Company's Common Stock does not currently meet the minimum
requirements for listing on a national securities exchange or inclusion on the
Nasdaq Stock Market. If the Company's Common Stock becomes eligible to be listed
or included on the Nasdaq Stock Market, the Company will consider its
alternatives with respect to the trading market for the Company's Common Stock.
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The transfer agent for the Company's Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
Item 6. Selected Financial Data.
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The following selected financial data have been summarized from the
Company's consolidated financial statements and are qualified in their entirety
by reference to, and should be read in conjunction with, such consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," contained in Item 7 of this Report.
Effective September 20, 1999, Otay Land Company is included in the Company's
consolidated financial statements; previously this investment had been accounted
for under the equity method. Certain amounts for prior periods have been
reclassified to be consistent with the 1999 presentation.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Sales of residential properties $ 2,600 $ 5,752 $ 4,011 $ 8,988 $ 9,422
Gross profit (loss) (36) 38 (37) (464) 426
Interest expense 2,404 2,828 2,997 3,063 1,458
Loss from operations (6,458) (4,545) (3,864) (6,424) (2,435)
Reorganization items-expense -- -- -- -- (1,924)
Loss before extraordinary item (7,282) (4,481) (3,577) (6,297) (4,161)
Extraordinary item:
Extinguishment of debt - bankruptcy -- -- -- -- 108,881
Net earnings (loss) (7,282) (4,481) (3,577) (6,297) 104,720
Per share:
Basic earnings (loss) per common share:
Loss before extraordinary item $ (0.22) $ (0.45) $ (0.36) $ (0.63) $ (0.42)
Extraordinary item -- -- -- -- 10.89
--------- --------- --------- --------- ---------
Net earnings (loss) $ (0.22) $ (0.45) $ (0.36) $ (0.63) $ 10.47
========= ========= ========= ========= =========
Diluted earnings (loss) per common share:
Loss before extraordinary item $ (0.22) $ (0.45) $ (0.36) $ (0.63) $ (0.09)
Extraordinary item -- -- -- -- 3.35
--------- --------- --------- --------- ---------
Net earnings (loss) $ (0.22) $ (0.45) $ (0.36) $ (0.63) $ 3.26
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ----------- ---------- ----------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Land and real estate held for development and sale $ 23,707 $ 5,008 $ 10,408 $ 14,284 $ 23,015
Total assets 27,528 19,415 16,213 17,847 27,797
Notes payable to Leucadia Financial Corporation 20,552 19,736 26,085 23,877 26,996
Other notes payable -- -- -- -- 126
Stockholders' deficit (7,107) (8,205) (10,739) (7,162) (865)
Shares outstanding 56,558 10,000 10,000 10,000 10,000
Book value per common share $ (0.13) $ (0.82) $ (1.07) $ (0.72) $ (0.09)
</TABLE>
Basic earnings (loss) per common share was calculated using
32,577,357 weighted shares outstanding for 1999 and 10,000,000 shares
outstanding for 1998, 1997, 1996 and 1995. Book value per common share was
calculated using 56,557,826 shares outstanding for 1999 and 10,000,000 shares
outstanding for 1998, 1997, 1996 and 1995.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
The purpose of this section is to discuss and analyze the Company's
consolidated financial condition, liquidity and capital resources and results of
operations. This analysis should be read in conjunction with the consolidated
financial statements and related notes which appear elsewhere in this report.
Liquidity and Capital Resources
For the year ended December 31, 1999, net cash was used in operating
activities, principally to fund the San Elijo Hills project and Otay Ranch
project. For the years ended December 31, 1998 and 1997, net cash was provided
by operating activities, principally from sales of real estate. The Company's
principal sources of funds are dividends or borrowings from its subsidiaries and
any fee income earned from the San Elijo Hills project. The Company is dependent
upon the cash flow, if any, from the sale of real estate and management fees in
order to pay its expenses, including debt service payments.
The Company expects that its cash on hand, together with cash
generated from sales at its Paradise Valley project, will be sufficient to meet
its cash flow needs for the foreseeable future. However, the Company's ability
to provide services required under the Development Agreement will depend
significantly upon the receipt of fees under the Development Agreement as
described below. If at any time in the future the Company's cash flow is
insufficient to meet its then current cash requirements, the Company could sell
real estate projects held for development or seek to borrow funds. However,
because all of the Company's assets are pledged to Leucadia to collateralize its
$26,462,000 borrowing from Leucadia, it may be unable to obtain financing at
favorable rates from sources other than Leucadia.
Effective September 20, 1999, Otay Land Company has been included in
the Company's consolidated financial statements. Prior to its consolidation, the
Company invested $850,000 and $10,125,000 in 1999 and 1998, respectively.
In July 1999 (pursuant to stock purchase agreements entered into in
1998), the Company issued an aggregate of 46,557,826 shares of Common Stock for
aggregate consideration of $8,380,400, of which $6,710,300 was advanced in 1998.
As a result of such issuance, the Company's outstanding Common Stock increased
to 56,557,826 shares.
Under the Development Agreement, the Company is responsible for the
overall management of the San Elijo Hills project, including arranging
financing, coordinating marketing and sales activity, and acting as construction
manager. The Development Agreement provides that the Company will receive
certain fees in connection with the project. These fees consist of marketing,
field overhead and management service fees. These fees are based on a fixed
percentage of gross revenues of the project, less certain expenses allocated to
the project, and are expected to cover the Company's cost of providing services
under the Development Agreement. During the first quarter of 2000, the Company
received $878,000 in fees under the Development Agreement. The Development
Agreement also provides for a success fee to the Company 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 the Company prior to the
conclusion of the project will be at the discretion of the project owner. The
project owner's obligation or ability to purchase bonds providing infrastructure
financing to the San Elijo Hills project could adversely affect the timing of
the payment of any success fee.
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 ($31,483,000 at December 31, 1999, which is
non-interest bearing), or owed by the project's owner to Leucadia ($64,853,000
at December 31, 1999) (collectively, "Indebtedness"). As a success fee, the
Company is entitled to receive payments out of net cash flow, if any, up to the
aggregate amount of the Indebtedness. The balance of the net cash flow, if any,
will be paid to the Company 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 the Indebtedness. There can be no assurance, however, that the Company
will receive any success fee at all for this project. The Company believes that
any success fee that it may receive will be its principal source of net income
8
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earned through its participation in the San Elijo Hills project pursuant to the
Development Agreement.
As of December 31, 1999, the Company owed $26,462,000 principal
amount to Leucadia. This amount is payable on December 31, 2004 and bears
interest at 6% per year. This obligation is reflected in the consolidated
balance sheet, net of debt discount, at $20,552,000 as of December 31, 1999.
During the year ended December 31, 1999, the Company paid to Leucadia $1,588,000
in interest. In addition, Leucadia has invested $10,000,000 as a preferred
capital interest in Otay Land Company, LLC, a consolidated subsidiary of the
Company. Distributions of net income, if any, from Otay Land Company 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 the Company.
During 1999, the Company sold the remaining 75 residential lots and
one clustered housing site at its Paradise Valley project for net proceeds of
$2,487,000. In 1998, the Company sold 61 residential lots at the Paradise Valley
project for net proceeds of $2,612,000. In 1999, the Company entered into a
contract to sell its two remaining clustered housing sites at Paradise Valley
for aggregate net proceeds of $1,450,000. This sale is expected to close during
the first half of 2000. The Company has certain continuing obligations with
respect to this project, including the obligation to construct a recreation
center. Construction of this recreation center began during 1999 and is expected
to cost $1,200,000. Cash of $1,000,000 was deposited in an escrow account that
is being drawn upon as the recreation center is being completed. At December 31,
1999, $868,000 remained in escrow.
In connection with an indemnity agreement to a third party surety
entered into in 1990 in connection with the construction of infrastructure
improvements in a development located in La Quinta, California., a subsidiary of
the Company is required to maintain a minimum net worth of $5,000,000 and a
minimum cash balance of $400,000. Failure to meet both of these requirements
would trigger the subsidiary's obligation to provide an irrevocable letter of
credit of approximately $460,000 based upon current estimates. The subsidiary
currently meets the minimum cash balance requirement.
As of December 31, 1999, the Company has net operating loss
carryovers ("NOLs") of $275,584,000 available to reduce its future federal
income tax liabilities and NOLs of $34,480,000 available to reduce its 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, the Company expects to pay federal income tax at a rate of
20% during future periods, even if these NOLs are available to reduce regular
taxable income.
Results of Operations
Sales of residential properties decreased in 1999 as compared to
1998. In 1999, the Company sold 75 lots and one clustered housing development
site at the Paradise Valley project, while in 1998, the Company sold 97 lots in
the Company's Silverwood project and 61 lots at the Paradise Valley project.
Sales of residential properties increased in 1998 as compared to 1997 due to the
greater proportion of lot sales in 1998, with 82 lots and two finished homes
sold in the Paradise Valley project in 1997.
Land and real estate held for development and sale is carried at the
lower of cost or fair value less costs to sell. The provision for losses for the
years ended December 31, 1999, 1998 and 1997 reflect the Company's estimates to
reduce the carrying value of real estate investments to fair value and, for the
years ended December 31, 1999 and 1998, includes $335,000 and $119,000,
respectively, for estimated additional costs to build the Paradise Valley
recreational center. 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.
9
<PAGE>
Interest expense for all years presented primarily reflects the
interest due on indebtedness to Leucadia, including interest of $377,000 for
1998 and $2,208,000 for 1997, which was not paid and was added to the principal
balance of the obligation. Interest expense for 1999, 1998 and 1997 also
reflects interest of $1,588,000, $2,162,000 and $789,000, respectively, due to
Leucadia, which was paid by the Company. Interest expense also includes $
816,000 and $ 289,000 for 1999 and 1998, respectively, for amortization of debt
discount related to the indebtedness due to Leucadia.
The increase in general and administrative expenses in 1999 and 1998
reflects approximately $2,504,000 and $618,000, respectively, in 1999 and 1998
of increased costs for operating expenses attributable to the San Elijo Hills
project and Otay Ranch project.
Income tax expense for all years presented relates to state franchise
taxes. The Company has not recognized any income tax benefit for its operating
losses due to the uncertainty of sufficient future taxable income which is
required in order to recognize these tax benefits.
Inflation
The Company, 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 the Company's
revenues. In addition, higher mortgage interest rates may significantly affect
the affordability of permanent mortgage financing to prospective purchasers.
High inflation also increases the Company's costs of labor and materials. The
Company would attempt to pass through to its customers any increases in its
costs through increased selling prices. To date, high or low rates of inflation
have not had a material adverse effect on the Company's results of operations.
However, there is no assurance that high or low rates of inflation will not have
a material adverse impact on the Company's future results of operation.
Interest Rates
The Company's 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 the
Company's revenues, gross margins and profitability.
Cautionary Statement for Forward-Looking Information
Statements included in this Report may contain forward-looking
statements. Such forward-looking statements are made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements may relate, but are not limited, to projections of revenues, income
or loss, capital expenditures, plans for growth and future operations,
competition and regulation as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted or quantified. When used in this Report, the
words "estimates", "expects", "anticipates", "believes", "plans", "intends" and
variations of such words and similar expressions are intended to identify
forward-looking statements that involve risks and uncertainties. Future events
and actual results could differ materially from those set forth in, contemplated
by or underlying the forward-looking statements. The factors that could cause
actual results to differ materially from those suggested by any such statements
include, but are not limited to, those discussed or identified from time to time
in the Company's public filings, including changes in general economic and
market conditions, changes in domestic laws and government regulations or
requirements, changes in real estate pricing environments, regional or general
changes in asset valuation, demographic and economic changes in the United
States generally and California in particular, increases in real estate taxes
and other local government fees, significant competition from other real estate
developers and homebuilders, decreased consumer spending for housing, delays in
10
<PAGE>
construction schedules and cost overruns, availability and cost of land,
materials and labor, increased development costs beyond the Company's control,
damage to properties or condemnation of properties, the occurrence of
significant natural disasters, the inability to insure certain risks
economically, the adequacy of loss reserves, changes in prevailing interest rate
levels, and changes in the composition of the Company's assets and liabilities
through acquisitions or divestitures. Undue reliance should not be placed on
these forward-looking statements, which are applicable only as of the date
hereof. The Company undertakes no obligation to revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date of this Report or to reflect the occurrence of unanticipated events.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
- -------------------------------------------------------------------
The Company does not have material market risk exposures.
Item 8. Financial Statements and Supplementary Data.
- ----------------------------------------------------
Financial Statements and supplementary data required by this Item 8
are set forth at the pages indicated in Item 14(a) below.
Item 9. Disagreements on Accounting and Financial Disclosure.
- -------------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
The information to be included under the caption "Nominees for
Election as Directors" in HomeFed's definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A of the 1934
Act in connection with the 2000 annual meeting of stockholders of HomeFed (the
"Proxy Statement") is incorporated herein by reference. In addition, reference
is made to Item 10 in Part I of this Report.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Based solely upon a review of the copies of such forms
furnished to the Company and written representations from the Company's
executive officers, directors and greater than 10% beneficial shareholders, the
Company believes that during the year ended December 31, 1999, all persons
subject to the reporting requirements of Section 16(a) filed the required
reports on a timely basis.
Item 11. Executive Compensation.
- --------------------------------
The information to be included under the caption "Executive
Compensation" in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
The information to be included under the caption "Present Beneficial
Ownership of Common Stock" in the Proxy Statement is incorporated herein by
reference.
11
<PAGE>
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The information to be included under the caption "Executive
Compensation - Certain Relationships and Related Transactions" in the Proxy
Statement is incorporated herein by reference.
12
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- --------------------------------------------------------------------------
<TABLE>
<S> <C>
(a)(1) Financial Statements
Report of Independent Accountants F-1
Consolidated Balance Sheets at F-2
December 31, 1999 and 1998
Consolidated Statements of F-3
Operations for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes F-4
in Stockholders' Deficit for the
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash F-5
Flows for the years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements F-7
(a)(2) Financial Statement Schedules
</TABLE>
Schedules are omitted because they are not required or are not
applicable or the required information is shown in the
financial statements or notes thereto
(b) Reports on Form 8-K.
None.
(c) Exhibits
2.1 Amended Disclosure Statement to the Company's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to
Exhibit 2.1 to the Company's current report on Form 8-K dated June 14,
1995).
2.2 The Company's Fourth Amended Plan of Reorganization Dated July 15, 1994
(incorporated by reference to Exhibit 2.2 to the Company's current
report on Form 8-K dated June 14, 1995).
2.3 Order Modifying and Confirming the Company's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to
Exhibit 2.3 to the Company's current report on Form 8-K dated June 14,
1995).
3.1 Restated Certificate of Incorporation, as restated July 3, 1995 of the
Company (incorporated by reference to Exhibit 3.1 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1995).
3.2 By-laws of the Company as amended through December 14, 1999.
13
<PAGE>
10.1 Loan Agreement dated July 3, 1995 between the Company and Leucadia
Financial Corporation ("LFC") and Form of 12% Secured Convertible Note
due July 3, 2003 (incorporated by reference to Exhibit 10.2 to the
Company's quarterly report on Form 10-Q for the quarter ended September
30, 1995).
10.2 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.3 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.4 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.5 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.6 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.7 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.8 Real Estate Purchase Agreement and Escrow Instructions between
Southfork Partnership and Northfork Communities (incorporated by
reference to Exhibit 10.1 to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1998).
10.9 Purchase and Sale Agreement and Escrow Instructions, dated as of
September 21, 1999, by and between Paradise Valley Communities No. 1
and Western Pacific Housing, Inc. (incorporated by reference to Exhibit
10 to the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1999).
10.10 Amended and Restated Loan Agreement between the Company and LFC, dated
as of August 14, 1998 (incorporated by reference to Exhibit 10.2 to the
Company's report on Form 8-K dated August 14, 1998).
10.11 Development Management Agreement between the Company and Provence Hills
Development Company, LLC, dated as of August 14, 1998 (incorporated by
reference to Exhibit 10.3 to the Company's report on Form 8-K dated
August 14, 1998).
14
<PAGE>
10.12 Stock Purchase Agreement between the Company and Leucadia National
Corporation, dated as of August 14, 1998 (incorporated by reference to
Exhibit 10.1 to the Company's report on Form 8-K dated August 14,
1998).
10.13 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of September 20, 1999, between the Company and
Leucadia National Corporation (incorporated by reference to Exhibit
10.16 to the Company's Registration Statement on Form S-2 (No.
333-79901) (the "Registration Statement").
10.14 Stock Purchase Agreement, dated as of October 20, 1998, between the
Company and Leucadia National Corporation (incorporated by reference to
Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended
September 30, 1998).
10.15 Administrative Services Agreement, dated as of March 1, 1999, between
LFC, the Company, HomeFed Resources Corporation and HomeFed
Communities, Inc. (incorporated by reference to Exhibit 10.14 to the
Company's report on Form 10-K for the year ended December 31, 1998).
10.16 Transitional Management Agreement, dated as of August 14, 1998, by and
between HomeFed and Accretive Investments, LLC (incorporated by
reference to Exhibit 10.17 to the Registration Statement).
10.17 Option and Purchase Agreement and Escrow Instructions, dated as of
October 15, 1999, by and between Otay Land Company, LLC and Lakes
Kean Argovitz Resorts-California, LLC.
10.18 First Amendment to Option and Purchase Agreement and Escrow
Instructions, dated as of December 8, 1999, by and between Otay Land
Company, LLC and Lakes Kean Argovitz Resorts-California, LLC.
10.19 Second Amendment to Option and Purchase Agreement and Escrow
Instructions, dated as of December 14, 1999, by and between Otay Land
Company, LLC and Lakes Kean Argovitz Resorts-California, LLC.
10.20 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. (incorporated by
reference to Exhibit 10.15 to the Registration Statement).
21 Subsidiaries of the Company.
27 Financial Data Schedule.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HOMEFED CORPORATION
Date: March 29, 2000 By /s/ CORINNE A. MAKI
------------------------------
Corinne A. Maki
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 29, 2000 By /s/ JOSEPH S. STEINBERG
-----------------------------------
Joseph S. Steinberg, Chairman
of the Board and Director
Date: March 29, 2000 By /s/ PAUL J. BORDEN
------------------------------
Paul J. Borden, President and
Director (Principal Executive
Officer)
Date: March 29, 2000 By /s/ CORINNE A. MAKI
---------------------
Corinne A. Maki
Secretary and Treasurer
(Principal Financial and Accounting
Officer)
Date: March 29, 2000 By /s/ PATRICK D. BIENVENUE
--------------------------
Patrick D. Bienvenue, Director
Date: March 29, 2000 By /s/ TIMOTHY CONSIDINE
-----------------------
Timothy Considine, Director
Date: March 29, 2000 By /s/ IAN M. CUMMING
-------------------
Ian M. Cumming, Director
Date: March 29, 2000 By /s/ MICHAEL A. LOBATZ
-----------------------
Michael A. Lobatz, Director
16
<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 present fairly, in all material respects, the financial position
of HomeFed Corporation and Subsidiaries (the "Company") as of December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States 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 our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 7, 2000
Salt Lake City, Utah
F-1
NY2:\888898\03\76830.0194
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(Dollars in thousands, except par value)
1999 1998
--------- ---------
ASSETS
- ------
Land and real estate held for development and sale $ 23,707 $ 5,008
Cash and cash equivalents 2,795 3,120
Restricted cash 868 1,127
Investment in Otay Land Company, LLC -- 9,917
Other investments -- 79
Deposits and other assets 158 164
--------- ---------
TOTAL $ 27,528 $ 19,415
========= =========
LIABILITIES
- -----------
Note payable to Leucadia Financial Corporation $ 20,552 $ 19,736
Recreation center liability 970 875
Accounts payable and accrued liabilities 1,905 299
--------- ---------
Total liabilities 23,427 20,910
--------- ---------
COMMITMENTS AND CONTINGENCIES
- -----------------------------
MINORITY INTEREST 11,208 --
- ----------------- --------- ---------
COMMON STOCK SUBSCRIPTION
- -------------------------
Advance under common stock subscription -- 6,710
--------- ---------
STOCKHOLDERS' DEFICIT
- ---------------------
Common stock, $.01 par value,
100,000,000 shares authorized;
56,557,826 and 10,000,000 shares outstanding 566 100
Additional paid-in capital 354,833 346,919
Accumulated deficit (362,506) (355,224)
--------- ---------
Total stockholders' deficit (7,107) (8,205)
--------- ---------
TOTAL $ 27,528 $ 19,415
========= =========
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, 1999, 1998 and 1997
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Sales of residential properties $ 2,600 $ 5,752 $ 4,011
Cost of sales 2,636 5,714 4,048
------- ------- -------
Gross profit (loss) (36) 38 (37)
Provision for losses on real estate investments 365 425 153
Interest expense relating to Leucadia Financial Corporation 2,404 2,828 2,997
General and administrative expenses 3,357 1,192 597
Management fees to Leucadia Financial Corporation 296 138 80
------- ------- -------
Loss from operations (6,458) (4,545) (3,864)
Equity in losses from Otay Land Company, LLC (779) (208) --
Other income - net 259 312 319
------- ------- -------
Loss before income taxes and minority interest (6,978) (4,441) (3,545)
Income tax expense (24) (40) (32)
------- ------- -------
Loss before minority interest (7,002) (4,481) (3,577)
Minority interest (280) -- --
------- ------- -------
Net loss (7,282) $(4,481) $(3,577)
======= ======= =======
Basic loss per common share ($ 0.22) $ (0.45) $ (0.36)
======= ======= =======
Diluted loss per common share ($ 0.22) $ (0.45) $ (0.36)
======= ======= =======
</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, 1999, 1998 and 1997
(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, 1997 $ 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)
Issuance of 46,557,826 shares of
Common Stock 466 7,914 8,380
Net loss (7,282) (7,282)
------ ---------- ----------- ---------
Balance, December 31, 1999 $ 566 $ 354,833 $ (362,506) $ (7,107)
====== ========== =========== =========
</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, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,282) $ (4,481) $ (3,577)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for losses on real estate investments 365 425 153
Minority interest 280 -- --
Accrued interest added to notes payable to
Leucadia Financial Corporation -- 377 2,208
Amortization of debt discount on notes
payable to Leucadia Financial Corporation 816 289 --
Equity in losses from Otay Land Company, LLC 779 208 --
Changes in operating assets and liabilities:
Land and real estate held for development and sale 1,912 4,591 3,723
Deposits and other assets 6 298 136
Recreation center liability 95 119 --
Accounts payable and accrued liabilities 1,546 572 (265)
Decrease (increase) in restricted cash 259 (54) 12
-------- -------- --------
Net cash provided by (used in) operating activities (1,224) 2,344 2,390
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Contributions to Otay Land Company, LLC (850) (10,125) --
Decrease (increase) in other investments 79 (4) (4)
-------- -------- --------
Net cash used in investing activities (771) (10,129) (4)
-------- -------- --------
</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, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Proceeds received from the sale of Common Stock 1,670 -- --
Advance under Common Stock subscription from
Leucadia Shareholder Trust -- 6,710 --
------- ------- -------
Net cash provided by financing activities 1,670 6,710 --
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (325) (1,075) 2,386
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 3,120 4,195 1,809
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,795 $ 3,120 $ 4,195
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest (net of amounts capitalized) $ 1,588 $ 2,162 $ 789
======= ======= =======
Cash paid for income taxes $ 44 $ 28 $ 31
======= ======= =======
</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"), Otay
Land Company, LLC ("Otay Land 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.
During the third quarter of 1999, the limited liability agreement
governing Otay Land Company was amended and as a result, the Company now has the
ability to control Otay Land Company. Accordingly, effective September 20, 1999,
Otay Land Company has been included in the Company's consolidated financial
statements. The Company previously had accounted for this investment under the
equity method of accounting; the noncash effects on the consolidated financial
statements were a decrease in the investment in Otay Land Company of $9,988,000,
an increase in minority interest of $10,928,000 and an increase in land and real
estate held for development and sale of $20,976,000.
Certain amounts for prior periods have been reclassified to be
consistent with the 1999 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 held in escrow to
fund the building of a recreation center at the Paradise Valley project.
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>
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,
--------------------------------
1999 1998
----------- -----------
Paradise Valley $ 2,522,000 $ 5,008,000
Otay Ranch 21,185,000 --
----------- -----------
Total $23,707,000 $ 5,008,000
=========== ===========
No interest was capitalized in land and real estate held for
development and sale during 1999 and 1998.
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 Leucadia Financial Corporation
("LFC"), a subsidiary of Leucadia National Corporation ("Leucadia") 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>
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 $816,000 and $289,000
was amortized to interest expense during 1999 and 1998, respectively. The
carrying amount of this Restructured Note, net of debt discount, was $20,552,000
and $19,736,000 at December 31, 1999, and 1998, respectively.
Interest accrued during 1998 and 1997 of $377,000, and $2,208,000,
respectively, was not paid and was added to the principal balance. Additional
interest of $1,588,000, $2,162,000 and $789,000 accrued during 1999, 1998 and
1997, respectively, was paid by the Company.
4. 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.
The Company and its wholly-owned subsidiaries have NOL carryforwards
available for federal income tax purposes of $275,584,000 as of December 31,
1999, including the NOLs reattributed to the Company from HomeFed Bank and its
subsidiaries. These carryforwards were generated during 1985-1999 and expire
during 2000-2019. For state income tax purposes, available NOLs as of December
31, 1999 total $34,480,000 and expire in 2000-2014.
At December 31, the net deferred tax asset consisted of the following:
1999 1998
------------- -------------
NOL carryforwards $ 99,402,000 $ 95,789,000
Land basis 1,799,000 3,081,000
Other 31,000 28,000
------------- -------------
101,232,000 98,898,000
Valuation allowance (101,232,000) (98,898,000)
------------- -------------
$ 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
$2,334,000, $3,197,000 and $76,100,000 in 1999, 1998 and 1997, respectively.
5. PROVISION FOR LOSSES ON REAL ESTATE INVESTMENTS
For the years ended December 31, 1999, 1998 and 1997, the Company
recorded losses of $365,000, $425,000 and $153,000, respectively, due to the
revaluation of the residential properties and the increase in estimates to build
the recreation center at the Paradise Valley project.
F-9
<PAGE>
6. EARNINGS PER SHARE
Basic loss per share of Common Stock for 1999 was calculated by
dividing net loss by 32,577,357 weighted shares of Common Stock outstanding.
Basic loss per share of Common Stock for 1998 and 1997 was calculated by
dividing net loss by 10,000,000 shares of Common Stock.
Diluted loss per share of Common Stock were calculated as described
above. The number of shares used to calculate diluted loss per share was
32,577,357, 10,000,000 and 10,000,000 for each of the years ended December 31,
1999, 1998 and 1997, respectively. The calculation of diluted loss per share
does not include Common Stock equivalents of 49,647,893 and 54,073,383 for 1998
and 1997, respectively, which are antidilutive.
7. COMMITMENTS AND CONTINGENCIES
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.
Failure to meet both of these requirements would trigger Homefed Communities'
obligation to provide 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. Homefed Communities
currently meets the minimum cash balance requirement.
8. 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, 1999,
the Company paid to LFC approximately $1,588,000 in interest on the Restructured
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 $1,105,000 has been amortized to date
($816,000 in 1999).
(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,
in 1998 Leucadia advanced to the Company $6,710,000 of the total purchase price.
The balance of the purchase price was paid at the closing on July 8, 1999. In
1998, Leucadia assigned the Stock Purchase Agreements to the Leucadia Trust. In
1999, the Leucadia Trust distributed to its beneficial holders all of the
Company's Common Stock owned by the Trust and the Trust was terminated.
F-10
<PAGE>
8. 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 has contributed $11,300,000 as
capital and Leucadia has contributed $10,000,000 as a preferred capital
interest. 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.
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 1999, 1998 and 1997 were $296,000,
$138,000, and $80,000, 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
parties are currently negotiating the fee for the annual period beginning March
1, 2000.
The Company's corporate headquarters is located at 1903 Wright Place,
Suite 220, Carlsbad, California in part of an office building sub-leased from a
subsidiary of Leucadia for a monthly amount equal to its share of the Leucadia
subsidiary's cost for such space and furnishings. The agreement pursuant to
which the space and furnishings are provided extends through February 28, 2005
(coterminous with Leucadia's occupancy of the space) and provides for a monthly
rental of $15,865 effective March 1, 2000.
9. 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-11
<PAGE>
10. STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK
Under the HomeFed Corporation 1999 Stock Incentive Plan, the Company
may grant stock options, stock appreciation rights and restricted shares of the
Company's stock to directors, certain of its officers and key employees and
certain officers and key employees of any subsidiary corporation, parent
corporation or affiliated corporation (as defined in the Plan) of the Company.
The Plan provides that up to one million shares of Common Stock may be acquired
pursuant to the exercise of options or rights or issued as restricted stock. The
exercise price of any incentive stock option issued under the Plan is required
to be not less than the fair market value per share at the date the option is
granted. Options may be granted from time to time at the discretion of the Board
of Directors and will vest over periods of one to five years from the grant
date. The aggregate number of shares with respect to which options, rights or
shares of restricted stock may be granted under the Plan to any grantee in any
one taxable year is 300,000. No stock options, appreciation rights or shares of
restricted stock were granted in 1999.
On March 8, 2000 options to purchase an aggregate of 150,000 shares of
Common Stock were granted to eligible participants under the Plan at an exercise
price of $.75 per share and an aggregate of 250,000 shares of restricted stock
were issued to eligible participants under the Plan.
F-12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Exemption
Number Description Indication
- ------ ----------- ----------
<S> <C> <C>
2.1 Amended Disclosure Statement to the Company's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to
Exhibit 2.1 to the Company's current report on Form 8-K dated June 14,
1995).
2.2 The Company's Fourth Amended Plan of Reorganization Dated July 15, 1994
(incorporated by reference to Exhibit 2.2 to the Company's current
report on Form 8-K dated June 14, 1995).
2.3 Order Modifying and Confirming the Company's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to
Exhibit 2.3 to the Company's current report on Form 8-K dated June 14,
1995).
3.1 Restated Certificate of Incorporation, as restated July 3, 1995 of the
Company (incorporated by reference to Exhibit 3.1 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1995).
3.2 By-laws of the Company as amended through December 14, 1999.
10.1 Loan Agreement dated July 3, 1995 between the Company and Leucadia
Financial Corporation ("LFC") and Form of 12% Secured Convertible Note
due July 3, 2003 (incorporated by reference to Exhibit 10.2 to the
Company's quarterly report on Form 10-Q for the quarter ended September
30, 1995).
10.2 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.3 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.4 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.5 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.6 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.7 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 the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
E-1
<PAGE>
10.8 Real Estate Purchase Agreement and Escrow Instructions between
Southfork Partnership and Northfork Communities (incorporated by
reference to Exhibit 10.1 to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1998).
10.9 Purchase and Sale Agreement and Escrow Instructions, dated as of
September 21, 1999, by and between Paradise Valley Communities No. 1
and Western Pacific Housing, Inc. (incorporated by reference to Exhibit
10 to the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1999).
10.10 Amended and Restated Loan Agreement between the Company and LFC, dated
as of August 14, 1998 (incorporated by reference to Exhibit 10.2 to the
Company's report on Form 8-K dated August 14, 1998).
10.11 Development Management Agreement between the Company and Provence Hills
Development Company, LLC, dated as of August 14, 1998 (incorporated by
reference to Exhibit 10.3 to the Company's report on Form 8-K dated
August 14, 1998).
10.12 Stock Purchase Agreement between the Company and Leucadia National
Corporation, dated as of August 14, 1998 (incorporated by reference to
Exhibit 10.1 to the Company's report on Form 8-K dated August 14,
1998).
10.13 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of September 20, 1999, between the Company and
Leucadia National Corporation (incorporated by reference to Exhibit
10.16 to the Company's Registration Statement on Form S-2 (No.
333-79901) (the "Registration Statement").
10.14 Stock Purchase Agreement, dated as of October 20, 1998, between the
Company and Leucadia National Corporation (incorporated by reference to
Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended
September 30, 1998).
10.15 Administrative Services Agreement, dated as of March 1, 1999, between
LFC, the Company, HomeFed Resources Corporation and HomeFed
Communities, Inc. (incorporated by reference to Exhibit 10.14 to the
Company's report on Form 10-K for the year ended December 31, 1998).
10.16 Transitional Management Agreement, dated as of August 14, 1998, by and
between HomeFed and Accretive Investments, LLC (incorporated by
reference to Exhibit 10.17 to the Registration Statement).
10.17 Option and Purchase Agreement and Escrow Instructions, dated as of
October 15, 1999, by and between Otay Land Company, LLC and Lakes
Kean Argovitz Resorts-California, LLC.
10.18 First Amendment to Option and Purchase Agreement and Escrow
Instructions, dated as of December 8, 1999, by and between Otay Land
Company, LLC and Lakes Kean Argovitz Resorts-California, LLC.
10.19 Second Amendment to Option and Purchase Agreement and Escrow
Instructions, dated as of December 14, 1999, by and between Otay Land
Company, LLC and Lakes Kean Argovitz Resorts-California, LLC.
10.20 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. (incorporated by
reference to Exhibit 10.15 to the Registration Statement).
21 Subsidiaries of the Company.
27 Financial Data Schedule.
</TABLE>
E-2
EXHIBIT 3.2
-----------
AMENDED AND RESTATED
BYLAWS OF
HOMEFED CORPORATION
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at such places within or without the State of
Delaware as may from time to time be designated by the board of directors and
specified in the notice of meeting.
Section 2. Annual Meeting. A meeting of the stockholders of the corporation
for the election of directors and for the transaction of any other business of
the corporation as may properly come before the meeting shall be held annually
at such date and time as the board of directors shall determine.
Section 3. Special Meetings. Special meetings of the stockholders shall be
called only by a majority of the board of directors.
Section 4. Notice of Meetings. Written notice stating the place, day and
hour of each meeting and the general purpose or purposes for which such meeting
is called shall be delivered not less than ten nor more than sixty days before
the date of such meeting, either personally or by mail to each stockholder of
record entitled to vote at such meeting.
Section 5. Fixing Date for Determination of Stockholders of Record.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the board of directors and which record date shall not be more
than 60 nor less than 10 days before the date of such meeting. If no record date
is fixed by the board of directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on that day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a
76830.0194
<PAGE>
meeting, when no prior action by the board of directors is required, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the board of directors
and prior action by the board of directors is required by the General
Corporation Law of the State of Delaware, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the board of
directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the board of directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
Section 6. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the stock of the corporation shall make, at least
ten days before each meeting of the stockholders, a complete list arranged in
alphabetical order of the stockholders entitled to vote at such meeting, or any
adjournment thereof. Such list shall include the address of and the number of
shares held by each stockholder, and shall be subject to inspection by any
stockholder at any time during usual business hours for a period of at least ten
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not so specified in the notice of the meeting, at the place where the meeting
is to be held. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any stockholder
during the whole time of the meeting. The original stock transfer books shall be
the only prima facie evidence as to who are the stockholders entitled to examine
such list or transfer books or to vote at any meeting of stockholders.
Section 7. Quorum. Except as otherwise provided by law or the corporation's
Restated Certificate of Incorporation, a quorum for the transaction of business
at any meeting of stockholders shall consist of the holders of record of a
majority of the issued and outstanding shares of the capital stock of the
corporation entitled to vote at the meeting, present in person or by proxy. If
there be no such quorum, the holders of a majority of such shares so present or
represented may adjourn the meeting from time to time, without further notice,
until a quorum shall have been obtained. When a quorum is once present it is not
broken by the subsequent withdrawal of any stockholder.
2
<PAGE>
Section 8. Organization. Meetings of stockholders shall be presided over by
the chairman of the board, if any, or if none or in the chairman's absence, the
president, if any, or if none or in the president's absence, a vice-president,
if any, or if none or in the absence of a vice-president, by a chairman to be
chosen by the board of directors. The secretary of the corporation, or in the
secretary's absence an assistant secretary, shall act as secretary of every
meeting, but if neither the secretary nor an assistant secretary is present, the
presiding officer of the meeting shall appoint any person present to act as
secretary of the meeting.
Section 9. Voting; Proxies; Required Vote.
(a) At each meeting of stockholders, every stockholder shall be
entitled to vote in person or by proxy appointed by instrument in writing,
subscribed by such stockholder or by such stockholder's duly authorized
attorney-in-fact (but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period), and, unless
the Restated Certificate of Incorporation provides otherwise, shall have one
vote for each share of stock entitled to vote registered in the name of such
stockholder on the books of the corporation on the applicable record date fixed
pursuant to these Bylaws. At all elections of directors the voting may but need
not be by ballot and a plurality of the votes cast there shall elect. Except as
otherwise required by law or the Restated Certificate of Incorporation, any
other action shall be authorized by a majority of the votes cast.
(b) Any action required or permitted to be taken at any meeting of
stockholders may, except as otherwise required by law or the Restated
Certificate of Incorporation, be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of record of the issued and outstanding capital
stock of the corporation having a majority of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, and the writing or writings are filed with the
permanent records of the corporation. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
Section 10. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors may appoint one or more persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. If the board of directors so appoints one or more such
inspectors, that appointment shall not be altered at the meeting. If inspectors
of election are not so appointed, the chairman of the board or the president
shall make such appointment at the meeting. In case any person appointed as
inspector fails to appear or fails or refuses to act, the vacancy may be filled
by appointment by the board of directors in advance of the meeting or at the
meeting by the chairman of the board or the president.
Each inspector, if any, before entering upon the discharge of his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The duties of such inspector shall
3
<PAGE>
include: determining the number of shares of stock outstanding and the voting
power of each share, the shares of stock represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all stockholders.
Section 11. Advance Notice.
In order to properly submit any business to an annual meeting of
stockholders, a stockholder must give timely notice in writing to the Secretary
of the Corporation of such stockholder's intention to present such business. To
be considered timely, a stockholder's notice must be delivered, either in person
or by United States certified mail, postage prepaid, and received at the
principal executive office of the Corporation, not less than one hundred twenty
(120) days prior to the first anniversary date of the Corporation's proxy
statement in connection with the last Annual Meeting or if no Annual Meeting was
held in the previous year, not less than a reasonable time, as determined by the
Board of Directors, prior to the date of the applicable Annual Meeting.
Each notice to the Secretary shall set forth (i) the name and address
of the stockholder and his or her nominees, (ii) a representation that the
stockholder is entitled to vote at such meeting, indicating the number of shares
owned of record and beneficially by such stockholder, together with a statement
that such stockholder intends to appear in person or by proxy at the meeting to
present such proposal or proposals, (iii) a description of the proposal or
proposals to be presented, including the complete text of any resolutions to be
presented at the meeting and the reasons for conducting such business at the
meeting and (iv) any material interest of the stockholder in the business to be
submitted at the meeting. In addition, the stockholder shall promptly provide
any other information reasonably requested by the Corporation.
The presiding officer of the meeting may, if the facts warrant,
determine that a proposal was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective proposal shall be disregarded.
Notwithstanding the foregoing provisions of this Section 11, a
stockholder who seeks to have any proposal included in the Corporation's proxy
statement shall comply with applicable state law and the requirements of the
rules and regulations promulgated by the Securities and Exchange Commission.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of its board of directors.
4
<PAGE>
Section 2. Qualification; Number; Term; Remuneration.
(a) Each director shall be at least 18 years of age. A director need
not be a stockholder, a citizen of the United States, or a resident of the State
of Delaware. The number of directors constituting the entire board shall be
three (3), or such larger number up to seven (7) as may be fixed from time to
time by action of the stockholders or board of directors, one of whom may be
selected by the board of directors to be its chairman. The use of the phrase
"entire board" herein refers to the total number of directors which the
corporation would have if there were no vacancies.
(b) Directors who are elected at an annual meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal.
(c) Directors may be paid their expenses, if any, of attendance at
each meeting of the board of directors and may be paid a fixed sum for
attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 3. Annual Meeting. Following the annual meeting of stockholders,
the newly elected board of directors shall meet for the purpose of the election
of officers and the transaction of such other business as may properly come
before the meeting. Such meeting may be held without notice immediately after
the annual meeting of stockholders at the same place at which such stockholders'
meeting is held.
Section 4. Regular Meetings. Regular meetings of the board of directors
shall be held at such times and at such places within or without the State of
Delaware as the board of directors shall fix by resolution. No notice shall be
required for regular meetings for which the time and place has been fixed by
resolution.
Section 5. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the chairman of the board, the president or
one-third of the directors. The persons authorized to call special meetings of
the board of directors may fix any place as the place for holding any special
meeting of the board of directors called by such persons.
Section 6. Telephonic Meetings. Members of the board of directors may
participate in meetings by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other. Such participation shall constitute presence in person but
shall not constitute attendance for the purpose of compensation pursuant to
Section 2(c) of this Article.
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Section 7. Notice of Meetings. A notice of the place, date and time and the
purpose or purposes of each meeting of the board of directors shall be given to
each director by mailing the same at least two days before the meeting, or by
telegraphing or telephoning the same or by delivering the same personally not
later than the day before the day of the meeting.
Section 8. Quorum. Except as otherwise provided by law, a majority of the
entire board shall constitute a quorum. A majority of the directors present,
whether a quorum is present, may adjourn a meeting from time to time to another
time and place without notice.
Section 9. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors.
Section 10. Action Without a Meeting. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors, and the writing is filed with the minutes of proceedings
of the board of directors.
Section 11. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the corporation addressed to the chairman
of the board or the president. Unless otherwise specified therein, such
resignation shall take effect upon receipt thereof by the chairman of the board
or the president.
Section 12. Newly Created Directorships and Vacancies. Any vacancies on the
board of directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled by the
affirmative vote of a majority of directors then in office, although less than a
quorum, or by the sole remaining director, or, in the event of the failure of
the directors or the sole remaining director so to act, by the stockholders at
the next annual meeting which occurs after the expiration of a 90-day period
commencing on the day the vacancy is created. Directors so chosen shall hold
office for a term expiring at the next annual meeting of stockholders. A
director elected to fill a vacancy by reason of an increase in the number of
directorships may be elected by a majority vote of the directors then in office,
although less than a quorum of the board of directors, to serve until the next
annual meeting of stockholders. No decrease in the number of directors
constituting the board of directors shall shorten the term of any incumbent
director.
Section 13. Organization. At all meetings of the board of directors, the
chairman of the board, if any, or if none or in the chairman's absence or
inability to act the president, or in the president's absence or inability to
act any vice-president who is a member of the board of directors, or in such
vice-president's absence or inability to act a chairman chosen by the directors,
shall preside. The secretary of the corporation shall act as secretary at all
meetings of the board of directors when present, and, in the secretary's
absence, the presiding officer may appoint any person to act as secretary.
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ARTICLE III
COMMITTEES OF THE BOARD
Section 1. Membership and Authorities. The board of directors may, by
resolution adopted by the affirmative vote of a majority of the full board,
designate one or more directors to constitute an Executive Committee or such
other committees as the board of directors may determine, each of which
committees to the extent provided in such resolution or resolutions or in these
Bylaws shall have and may exercise all the powers of the board of directors in
the management of the business and affairs of the corporation, except in those
cases where the authority of the board of directors is specifically denied to
the Executive Committee or such other committee or committees by law or these
Bylaws.
Section 2. Conduct of Business. Each committee may determine the procedural
rules for meeting and conducting its business and shall act in accordance
therewith, except as otherwise provided herein or required by law. Adequate
provision shall be made for notice to members of all meetings; a majority of the
members shall constitute a quorum unless the committee shall consist of one or
two members, in which event one member shall constitute a quorum; and in each
case where a quorum is present, all matters shall be determined by a majority
vote of the members present.
Section 3. Minutes of Meetings. Each committee designated by the board of
directors shall keep regular minutes of its proceedings and report the same to
the board of directors when required.
Section 4. Vacancies. Unless otherwise restricted by law, the board of
directors may designate one or more of its members as alternate members of any
committee who may replace any absent or disqualified member at any meeting of
such committee. The board of directors shall have the power at any time to fill
vacancies in, to change the membership of and to dissolve any committee.
Section 5. Telephonic Meetings. Members of any committee designated by the
board of directors may participate in a meeting of such committee by means of
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other. Such participation shall
constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 2(c) of this Article.
Section 6. Action Without Meeting. Unless otherwise restricted by law or
these Bylaws, any action required or permitted to be taken at any meeting of any
committee designated by the board of directors may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the committee.
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ARTICLE IV
OFFICERS
Section 1. Positions. The officers of the corporation shall be a president,
one or more vice presidents, a secretary and a treasurer, each of whom shall be
elected by the board of directors. The board of directors may also designate the
chairman of the board as an officer. The president shall be the chief executive
officer unless the board of directors designates the chairman of the board as
chief executive officer. The offices of the secretary and treasurer may be held
by the same person, and a vice president may also be either the secretary or the
treasurer. The board of directors may designate one or more vice presidents as
executive vice president, first vice president or senior vice president. The
board of directors may also elect, or authorize the appointment of, such other
officers as the business of the corporation may require. The officers shall have
such authority and perform such duties as are described in these Bylaws and/or
as the board of directors may from time to time authorize or determine. In the
absence of action by the board of directors, the officers shall also have such
powers and duties as generally pertain to their respective offices.
Section 2. Chairman of the Board. The chairman of the board of directors,
if there be one, shall preside at all meetings of the board of directors and
shall have such other powers and duties as may from time to time be assigned by
the board of directors.
Section 3. President and Chief Executive Officer. The president shall be
the chief executive officer of the corporation (unless the chairman of the
board, if any, has been so designated by the board of directors), and shall have
such duties as customarily pertain to that office. The president shall have
general management and supervision of the property, business and affairs of the
corporation and over its other officers; may appoint and remove assistant
officers and other agents and employees, other than officers referred to in
Section 1 of this Article; and may execute and deliver in the name of the
corporation powers of attorney, contracts, bonds and other obligations and
instruments.
Section 4. Vice-President. A vice-president may execute and deliver in the
name of the corporation contracts and other obligations and instruments
pertaining to the regular course of the duties of said office, and shall have
such other authority as from time to time may be assigned by the board of
directors or the president.
Section 5. Treasurer. The treasurer shall in general have all duties
incident to the position of treasurer and such other duties as may be assigned
by the board of directors or the president.
Section 6. Secretary. The secretary shall in general have all the duties
incident to the office of secretary and such other duties as may be assigned by
the board of directors or the president.
Section 7. Assistant Officers. Any assistant officer shall have such powers
and duties of the officer such assistant officer assists as such officer or the
board of directors shall from time to time prescribe.
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Section 8. Election and Term of Office. The officers of the corporation
shall be elected annually at the first meeting of the directors held after each
annual meeting of the stockholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until his successor shall have been duly elected and
qualified or until his death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not by
itself create any contractual rights to employment. The board of directors may
authorize the corporation to enter into an employment contract with any officer,
but no such contract shall impair the right of the board of directors to remove
any officer at any time in accordance with Section 7 of this Article IV.
Section 9. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the corporation will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contract rights, if any, of the person so removed.
Section 10. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by a majority
vote of the board of directors for the unexpired portion of the term.
Section 11. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors.
ARTICLE V
CONTRACTS, CHECKS AND DEPOSITS
Section 1. Contracts. To the extent permitted by applicable law, the
Restated Certificate of Incorporation or these Bylaws, the board of directors
may authorize any officer, employee or agent of the corporation to enter into
any contract or execute and deliver any instrument in the name of, and on behalf
of, the corporation. Such authority may be general or confined to specific
instances.
Section 2. Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by one or more officers, employees or agents of
the corporation in such manner as shall from time to time be determined by the
board of directors.
Section 3. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in any
duly authorized depositories as the board of directors may select.
ARTICLE VI
BOOKS AND RECORDS
Section 1. Location. The books and records of the corporation may be kept
at such place or places within or outside the State of Delaware as the board of
directors or the
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respective officers in charge thereof may from time to time determine. The
record books containing the names and addresses of all stockholders, the number
and class of shares of stock held by each and the dates when they respectively
became the owners of record thereof shall be kept by the secretary as prescribed
in the Bylaws and by such officer or agent as shall be designated by the board
of directors.
Section 2. Addresses of Stockholders. Notices of meetings and all other
corporate notices may be delivered personally or mailed to each stockholder at
the stockholder's address as it appears on the records of the corporation.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Subject to the terms of this Section 1,
certificates representing shares of stock of the corporation shall be in such
form as shall be determined by the board of directors. So long as the
restrictions set forth in Part B of Article 4 of the Restated Certificate of
Incorporation shall not have lapsed, all share certificates representing shares
of capital stock of the corporation shall bear a conspicuous legend as follows:
"THE TRANSFER OF THE SECURITIES REPRESENTED
HEREBY IS SUBJECT TO RESTRICTIONS PURSUANT TO
PART B OF ARTICLE 4 OF THE RESTATED CERTIFICATE
OF INCORPORATION OF HOMEFED CORPORATION
REPRINTED IN ITS ENTIRETY ON THE BACK OF THIS
CERTIFICATE."
Certificates representing shares of stock of the corporation shall be
signed by the chairman of the board of directors or the president or vice
president, and by the treasurer or an assistant treasurer or the secretary or an
assistant secretary, and shall be sealed with the corporate seal or a facsimile
thereof. The signatures of such officers upon a certificate may be facsimiles if
the certificate is manually signed on behalf of a transfer agent or a registrar
other than the corporation itself or one of its employees. In the event that one
of the officers signing the certificates ceases to hold his position with the
corporation, the certificates may nevertheless be used as if he were still in
office. Each certificate for shares of stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the number of shares and date of issue, shall be entered in the
stock transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be cancelled, and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in the case of a lost, stolen or
destroyed certificate, a new certificate may be issued therefor upon such terms
and indemnity to the corporation as the board of directors may prescribe.
Section 2. Transfer of Shares. Subject to the restrictions on transfer
provided in the Restated Certificate of Incorporation, a transfer of shares of
stock of the corporation shall
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be made only on its stock transfer books, and authority for such transfer shall
be given only by the holder of record thereof or by his legal representative,
who shall furnish proper evidence of such authority, or by his attorney
thereunto duly authorized by power of attorney duly executed and filed with the
corporation. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of stock stand
on the books of the corporation shall be deemed by the corporation to be the
owner thereof for all purposes. Notwithstanding the foregoing, any transfer of
shares of stock of the corporation shall be subject to the transfer restrictions
contained in the Restated Certificate of Incorporation.
ARTICLE VIII
FISCAL YEAR, ANNUAL AUDIT
The fiscal year of the corporation shall end on the thirty-first day
of December of each year. The corporation shall be subject to an annual audit as
of the end of its fiscal year by independent public accountants appointed by,
and responsible to, the board of directors. The appointment of such accountants
shall be subject to annual ratification by the stockholders.
ARTICLE IX
DIVIDENDS
Subject to applicable law, the Restated Certificate of Incorporation
and these Bylaws, the board of directors may, from time to time, declare, and
the corporation may pay, dividends on the outstanding shares of stock of the
corporation.
ARTICLE X
CORPORATE SEAL
The corporate seal of the corporation shall be in such form as the
board of directors shall prescribe.
ARTICLE XI
AMENDMENTS
These Bylaws may be adopted, amended or repealed by the affirmative
vote of the holders of at least two-thirds of the total votes eligible to be
cast at a legal meeting of the stockholders or by a resolution adopted by a
majority of the directors then in office.
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EXHIBIT 10.17
-------------
OPTION AND PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
BY AND BETWEEN
OTAY LAND COMPANY, LLC
("Owner")
and
LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA, LLC
("Optionee")
NY2:\890364\01\76830.0194
<PAGE>
OPTION AND PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
This OPTION AND PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
("Agreement") is made and effective as of October 15, 1999 ("Effective Date"),
by and between OTAY LAND COMPANY, LLC, a Delaware limited liability company
("Owner"), and LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA, LLC, a Delaware limited
liability company, ("Optionee"), with reference to the facts set forth below.
RECITALS
A. Owner owns certain real property containing approximately
eighty-six (86) acres located in the County of San Diego, State of California,
more particularly described in Exhibit "A" attached hereto and incorporated
herein ("Property").
B. Optionee desires to enter into this Agreement to obtain an option
to purchase the Property from Owner on the terms and conditions set forth below.
Owner has agreed to grant to Optionee an option to purchase the Property on the
terms and conditions set forth below. Owner and Optionee acknowledge and agree
that the following facts are true and correct: (a) the amount of the Option
Payments (as defined below) has been specifically negotiated by the parties in
view of all relevant facts and circumstances existing on the Effective Date, (b)
the amount of the Option Payments will not put Optionee under economic
compulsion to exercise the Option (as defined below), and (c) this Agreement
exposes Owner to the risk of changes in market conditions if Optionee does not
elect to exercise the Option and Owner is required to remarket the Property.
NOW, THEREFORE, in consideration of the recitals set forth above, the
mutual agreements set forth herein and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
set forth below.
Article 1
DEFINED TERMS
Unless the context otherwise provides, the following terms have the
meanings set forth below.
1.1 Agreement. The term "Agreement" means this Option and Purchase
Agreement and Escrow Instructions executed between Owner and Optionee.
1.2 ALTA Standard Title Policy and ALTA Extended Title Policy. The
term "ALTA Standard Title Policy" means the American Land Title Association
("ALTA") owner's policy of title insurance with western regional exceptions
(ALTA Standard) (or its CLTA equivalent) to be issued by the Title Company (as
<PAGE>
defined below) upon the Close of Escrow pursuant to the terms of this Agreement.
The term "ALTA Extended Title Policy" means the ALTA owner's additional coverage
policy of title insurance, Form B, which Optionee may request in lieu of the
ALTA Standard Title Policy in accordance with the provisions of Section 4.2.2 of
this Agreement.
1.3 Business Day. The term "Business Day" means any day other than a
Saturday or Sunday or legal holiday in the State of California.
1.4 Cash. The term "Cash" means (i) currency of the United States of
America, (ii) cashier's check(s) currently dated and payable to Escrow Agent or
Owner, as required under this Agreement, drawn and paid through a California
banking institution, tendered to Escrow Agent or Owner, as required under this
Agreement at least one additional Business Day before funds are required to be
available in Escrow or (iii) an amount credited by wire transfer into Escrow
Agent's or Owner's bank account as required under this Agreement.
1.5 Close of Escrow. The term "Close of Escrow" means the
consummation of the purchase of the Property by Optionee from Owner and the
recordation of Owner's Grant Deed (as defined below) in accordance with the
terms and provisions of this Agreement.
1.6 Closing Date. The term "Closing Date" means the date on which the
closing will be held as described in Section 3.2 of this Agreement.
1.7 Districts. The term "Districts" shall have the meaning set forth
in Section 5.7 below.
1.8 Effective Date. The term "Effective Date" means the date in the
first paragraph of this Agreement.
1.9 Environmental Laws. The term "Environmental Laws" means any
federal, state or local laws, ordinances, codes, statutes, regulations,
administrative rules, policies and orders, and other authority, existing on the
Effective Date, which classify, regulate, list or define Hazardous Materials.
1.10 Escrow. The term "Escrow" means the escrow to be opened by
Escrow Agent pursuant to the terms of this Agreement.
1.11 Escrow Agent. The term "Escrow Agent" means Chicago Title
Company, 925 "B" Street, San Diego, California 92101.
1.12 Feasibility Period. The term "Feasibility Period" means the
period beginning on October 15, 1999, and ending on December 15, 1999, during
which time Optionee shall have the right to conduct its investigations and
studies of the Property in accordance with Section 4.1 below.
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<PAGE>
1.13 Governmental Action. The term "Governmental Action" means (a)
any order of a court of competent jurisdiction, and/or (b) any enactment of any
Governmental Agencies (as defined below) by the initiative/referendum process or
otherwise, affecting the Property either directly or indirectly including, but
not limited to: limitation on the number of building, grading or other permits
that can be issued during any given time period or imposition of obligations or
conditions in connection with the issuance of such permits, declaration of
policy, resolution, ordinance, statute, regulation, the enforcement of any
condition or agreement between Owner and any Governmental Agency or any other
enactment of any Governmental Agency and irrespective of whether the orders or
enactments listed immediately above contain the words "moratorium", "moratoria"
or similar words.
1.14 Governmental Agencies. The term "Governmental Agencies" means
any local, city, county, state and/or federal governmental or quasi-governmental
agencies, authorities or regulatory bodies, administrative agencies, community
facilities districts or other Districts, and any public or private utility
companies having jurisdiction over the Property.
1.15 Governmental Approvals. The term "Governmental Approvals" means
all agreements, entitlements, permits, licenses and other approvals that may be
required with respect to the Property.
1.16 Hazardous Materials. The term "Hazardous Materials" shall mean
any toxic or hazardous substance, material or waste or any pollutant or
contaminant or infectious or radioactive material which as of the Effective Date
is regulated under any Environmental Laws.
1.17 Notice of Approval. The term "Notice of Approval" means the
notice to be delivered to Owner if Optionee approves of its feasibility studies
during the Feasibility Period.
1.18 Notice of Disapproval. The term "Notice of Disapproval" means
the notice to be delivered to Owner if Optionee disapproves of its feasibility
studies during the Feasibility Period.
1.19 Option. The term "Option" shall mean the option to purchase the
Property granted by Owner to Optionee pursuant to this Agreement.
1.20 Option Expiration Date. The term "Option Expiration Date" means
December 15, 2000, subject to extension as provided in Section 2.3.1, upon which
the Option shall terminate unless previously exercised in accordance with this
Agreement.
1.21 Option Payments. The term "Option Payments" means collectively
the First Option Payment (as hereinafter defined) and the Second Option Payment
(as hereinafter defined), as set forth in Section 2.2.
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<PAGE>
1.22 Optionee. The term "Optionee" means LAKES KEAN ARGOVITZ
RESORTS-CALIFORNIA, LLC, a Delaware limited liability company, or any assignee
permitted under Section 11.1 below.
1.23 Optionee's Agents. The term "Optionee's Agents" means the
agents, representatives, officers, employees, contractors and licensees of
Optionee and their successors and assigns.
1.24 Owner. The term "Owner" means Otay Land Company, LLC, a Delaware
limited liability company.
1.25 Owner Hazardous Materials Report. The term "Owner Hazardous
Materials Report" means the environmental reports made available to Optionee as
part of the Property Documents.
1.26 Prime. The term "Prime" means the rate announced from time to
time by Bank of America, N.T.&S.A. ("Bank of America") as its prime or reference
rate. If Bank of America ceases to announce a prime, the prime lending rate of
an equivalent lending institution selected by Owner will be substituted
therefor.
1.27 Preliminary Report. The term "Preliminary Report" means the
preliminary report to be issued by the Title Company with respect to the
Property.
1.28 Property. The term "Property" means the real property that is
the subject of this Agreement described in Exhibit "A" attached hereto and
incorporated herein.
1.29 Property Documents. The term "Property Documents" means the
documents relating to the Property made available to Optionee, including those
listed on Schedule "1" attached hereto and incorporated herein.
1.30 Purchase Price. The term "Purchase Price" means the purchase
price to be paid by Optionee to Owner for the purchase of the Property as
determined pursuant to Article 2 of this Agreement.
1.31 Title Company. The term "Title Company" shall mean and refer to
Chicago Title Company, 925 "B" Street, San Diego, California 92101.
Article 2
GRANT OF OPTION
2.1 Grant of Option. Owner hereby grants to Optionee the exclusive
option (the "Option") to purchase the Property upon the terms and conditions set
forth herein.
2.2 Option Payments. The Option is granted in consideration of the
mutual covenants and agreements contained herein, including Optionee's payment
to Owner of the Option Payments set forth in this Section.
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<PAGE>
2.2.1 First Option Payment. On the Effective Date, Optionee shall
deliver to Owner Cash in the amount of Fifty Thousand Dollars ($50,000.00) (the
"First Option Payment"). If Optionee timely delivers a Notice of Disapproval to
Owner, Owner shall return the First Option Payment to Optionee and this
Agreement shall terminate as provided in Section 3.3 below.
2.2.2 Second Option Payment. If Optionee delivers a Notice of
Approval, on or before the expiration of the Feasibility Period, Optionee shall
deliver to Owner additional Cash in the amount of Four Hundred Fifty Thousand
Dollars ($450,000.00) (the "Second Option Payment"). If Optionee does not timely
deliver the Second Option Payment, this Agreement and the Option shall terminate
as provided in Section 3.3 below.
2.2.3 Option Payments Earned Upon Delivery. Optionee acknowledges
and agrees that the Optionee's Option Payments constitute consideration to Owner
for the agreement of Owner to (a) enter into this Agreement with Optionee, (b)
not sell the Property to other parties while this Agreement is in effect, and
(c) subject to Optionee's properly exercising the Option, sell the Property to
Optionee on the terms and conditions and for the Purchase Price set forth in
this Agreement. Except as otherwise expressly provided in Section 3.3, the
Option Payments shall be fully earned by Owner upon delivery thereof and
non-refundable to Optionee, but the Option Payments actually made by Optionee
shall be applicable to the Purchase Price if Optionee properly exercises the
Option and the Close of Escrow occurs.
2.3 Exercise of Option. Optionee may exercise the Option at any time
prior to 5:00 p.m. California time on the Option Expiration Date by (i)
delivering to Owner and Escrow Agent written notice of exercise of the Option
and (ii) delivering to Escrow the balance of the Purchase Price as provided in
Section 2.4 below and the documents required by Section 3.4.1 below. If Optionee
fails to timely exercise the Option pursuant to the terms of this Agreement, the
Option shall terminate and Owner shall be entitled to retain the Option Payments
and any Extension Payments (as defined below) as consideration for the granting
of the Option to Optionee.
2.3.1 Extension of Option Expiration Date. Optionee will have the
right to extend the Option Expiration Date by up to eighteen (18) periods of one
(1) month each (each such extension shall be referred to as an "Extension") by
delivering to Owner, at least five (5) Business Days prior to the Option
Expiration Date, written notice thereof and an extension payment (the "Extension
Payment") in an amount equal to Sixty Thousand Dollars ($60,000.00) for each
Extension. Each Extension Payment shall be fully earned by Owner upon delivery
thereof as consideration for the extension of the Option Expiration Date and
shall be non-refundable to Optionee except as expressly provided in Section 3.3.
Any Extension Payments made by Optionee shall not be applicable to the Purchase
Price. Notwithstanding the foregoing, if the Close of Escrow does not occur or
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<PAGE>
is delayed due to Owner's default, then Optionee will not be required to pay any
Extension Payment for the period of delay in the Close of Escrow caused by such
default.
2.4 Purchase Price. Upon Optionee's timely exercise of the Option in
accordance with Section 2.3 above, Owner shall be obligated to sell the Property
to Optionee, and Optionee shall be obligated to purchase the Property, on the
terms and conditions set forth in this Agreement. The Purchase Price shall be
Four Million One Hundred Thousand Dollars ($4,100,000). Not later than one (1)
Business Day prior to the Close of Escrow, Optionee shall deposit into Escrow
Cash in an amount equal to the balance of the Purchase Price (i.e., the Purchase
Price less the amounts of any Option Payments made by Optionee), together with
an amount sufficient to cover all of Optionee's closing costs, fees and charges.
Article 3
ESCROW; CLOSING; DELIVERIES
3.1 Escrow. Upon Optionee's exercise of the Option, the parties shall
promptly thereafter deliver to Escrow Agent three (3) fully executed
counterparts of this Agreement for use as escrow instructions and Escrow Agent
shall execute the consent of Escrow Agent which appears at the end of this
Agreement and deliver a fully executed original of this Agreement and the
consent to Owner and Optionee.
3.2 Closing Date. The Close of Escrow ("Closing Date") shall occur on
the date which is five (5) Business Days after the date Optionee exercises the
Option in accordance with this Agreement.
3.3 Termination Based on Failure to Close by the Closing Date or
Otherwise. Time is of the essence of each and every provision and each
obligation of this Agreement. If Escrow fails to close by the Closing Date or if
this Agreement is otherwise terminated for any reason other than Optionee's or
Owner's default, then, except for any indemnity obligations of Optionee under
this Agreement, the obligations of Optionee under Sections 5.3, 5.5, 13.11 and
13.20 of this Agreement and the obligations of Owner under Section 13.11 of this
Agreement, which shall survive the termination of this Agreement, the respective
rights, duties and obligations of Optionee and Owner under this Agreement shall
forthwith terminate without further liability. The parties shall immediately
thereafter sign such instructions and other instruments as may be necessary to
effect the cancellation of this Escrow, and each party shall pay its respective
share (if any) of Escrow cancellation charges as provided in Section 8.5. Upon
cancellation due to no fault of Optionee pursuant to Sections 4.1, 4.2, 4.3 or
12.1, subject to Section 5.3 below, Escrow Agent shall immediately return the
funds, if any, less applicable cancellation charges, and documents to the
parties that furnished them and Owner shall return the Option Payments to
Optionee. However, Optionee will not be entitled to a refund of any Extension
Payments unless this Agreement is terminated due to Owner's default including
any default under the last sentence of Section 4.2.1 or pursuant to Section
4.2.4 (Representations and Warranties of Owner). Optionee will not be entitled
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to reimbursement for any costs, expenses, losses or damages incurred by Optionee
in connection with Optionee's proposed use or development of the Property,
whether prior to or subsequent to the execution hereof, and Owner will not be
required to make any other payment to Optionee for alleged lost profits,
interest or otherwise. Optionee waives and releases any claim it may now or
hereafter have against Owner for such reimbursements or, payments.
3.4 Deliveries to Escrow Agent.
3.4.1 Optionee's Deliveries. At least one (1) Business Day
immediately preceding the Closing Date, unless a different date for delivery is
required under the terms of this Agreement, Optionee shall deliver to Escrow
Agent each of the items described below.
(a) Purchase Price. Cash in an amount equal to the balance
of the Purchase Price as set forth in Section 2.4.
(b) Prorations, Fees and Costs. The amounts, if any,
required of Optionee under Article 8 of this Agreement and any other amounts
required to be paid by Optionee prior to or on the Close of Escrow under this
Agreement.
(c) Documents. Executed counterparts of the Covenant (as
defined in Section 5.8) and of any other documents required to be executed under
the terms of this Agreement.
3.4.2 Owner's Deliveries. At least one (1) Business Day
immediately prior to the Closing Date, unless an earlier date for delivery is
required under the terms of this Agreement, Owner shall deliver to Escrow Agent
each of the items described below.
(a) Grant Deed. A grant deed substantially in the form of
Exhibit "B" attached hereto and incorporated herein ("Grant Deed").
(b) Certificate of Non-Foreign Status. A transferor's
certificate of non-foreign status attached to this Agreement as Exhibit "C"
("FIRPTA Certificate") properly executed by Owner and a California Form 590-RE
("Form 590").
(c) Documents. Executed counterparts of the Covenant (as
defined in Section 5.8) and of any other documents required to be executed under
the terms of this Agreement.
3.5 Dating Documents. Escrow Agent shall date any of the documents
deposited into Escrow under Sections 3.4.1 and 3.4.2 above as of the date of the
Close of Escrow.
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Article 4
APPROVAL OF FEASIBILITY PERIOD AND
CONDITIONS PRECEDENT TO CLOSE OF ESCROW
4.1 Feasibility Period. During the Feasibility Period, Optionee may
analyze the feasibility of the acquisition, ownership, use and development of
the Property. Optionee shall be solely responsible for any and all costs
incurred by Optionee in connection with its review and/or investigations of the
matters set forth in this Section. Owner shall allow Optionee to inspect and
copy at Owner's office any and all reports, studies and documents relating to
the Property that Owner may have in its actual possession (other than internally
prepared marketing materials and other proprietary, confidential or privileged
information) including the Property Documents described in Schedule "1" attached
hereto and incorporated herein. Optionee acknowledges and agrees that Owner is
making no representations or warranties regarding the accuracy, completeness or
sufficiency of any such materials and that Optionee will rely solely on its
review and investigation thereof. Optionee shall, subject to the requirements
set forth in Section 5.5 below, conduct such independent investigations, studies
and tests as it deems necessary or appropriate concerning Optionee's proposed
use, sale, development and/or the suitability of the Property for Optionee's
intended purposes. Owner at no cost to Owner agrees to reasonably cooperate with
Optionee in connection with such studies and investigations. Such investigations
may include, without limitation, investigations concerning the status of
existing entitlements and approvals, if any, and the need for and availability
of additional permits, licenses, entitlements or other approvals for development
of the Property, investigations regarding the existence of any Hazardous
Materials or any threatened or endangered species or archaeological artifacts,
soils and geological conditions, the imposition or increase of any fees, charges
or exactions by any Governmental Agencies, investigations regarding obligations
to construct improvements or other facilities and/or to provide subdivision
security in connection therewith and such economic feasibility and marketing
studies as Optionee deems appropriate.
4.1.1 Approval or Disapproval of Feasibility Studies. If Optionee
approves of its feasibility studies during the Feasibility Period, Optionee
shall deliver Notice of Approval and the Second Option Payment to Owner prior to
the expiration of the Feasibility Period. If Optionee gives written Notice of
Approval of its investigations during its Feasibility Period, then Optionee will
be deemed to have acknowledged that Optionee has conducted all investigations,
reviewed the status of all existing and proposed entitlements and performed all
analysis necessary to Optionee's decision to purchase the Property and has
approved of such review and investigations and satisfied itself as to all
aspects of the Property, including, without limitation, the matters described
above. If, for any reason, Optionee determines, in its reasonable discretion,
that it is not feasible for Optionee to purchase the Property, Optionee may
terminate this Agreement by delivering written Notice of Disapproval to Owner
prior to the expiration of the Feasibility Period. The failure of Optionee to
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deliver such Notice of Disapproval to Owner prior to the expiration of the
Feasibility Period shall be deemed to be Optionee's approval of its feasibility
studies, in which case Owner shall be entitled to payment of the Second Option
Payment and to retain the First Option Payment. If Optionee delivers the Notice
of Disapproval on or before the expiration of the Feasibility Period, this
Agreement shall terminate in accordance with Section 3.3 above.
4.2 Conditions Precedent to Optionee's Obligations. The following are
conditions precedent to Optionee's obligation to purchase the Property:
4.2.1 Preliminary Report. Optionee may review and approve or
disapprove, in its sole discretion, the Preliminary Report on or before 5:00
p.m. on or before the date that is twenty (20) days after the receipt by
Optionee. If, prior to the Close of Escrow, the Title Company issues a
supplemental preliminary report ("Supplemental Report") showing new title
exceptions affecting the Property, Optionee shall have five (5) Business Days
after receipt of the Supplemental Report to review and approve any such new
exceptions, which approval shall not be unreasonably withheld with respect to
any Supplemental Reports received after the Feasibility Period. Optionee shall
be deemed to have approved any exceptions shown in the Preliminary Report and/or
any such new exceptions shown in any Supplemental Report if it does not deliver
written notice of disapproval to Owner during the applicable period set forth
above in this Section. If Optionee timely disapproves any exceptions shown on
the Preliminary Report or any new exceptions shown in a Supplemental Report,
Owner shall have five (5) Business Days to elect to cure any such exceptions by
delivering written notice to Optionee. If Owner does not deliver written notice
that it will cure such disapproved exceptions within such time period, Owner
shall be deemed to have elected not to cure such items. If Owner does not elect
to cure any such disapproved items, Optionee shall have (i) two (2) Business
Days after delivery of any notice from Owner of its election not to so cure such
items or (ii) seven (7) Business Days after delivery of Optionee's notice of
disapproval to Owner to either elect to waive its prior disapproval or to
terminate this Agreement. If Optionee so elects to terminate this Agreement,
then this Agreement shall terminate as provided in Section 3.3 above. Any title
exceptions shown in the Preliminary Report and any exceptions shown in any
Supplemental Report which are approved or deemed to be approved by Optionee
shall be referred to as the "Permitted Exceptions." Owner agrees that it will
not voluntary impose or create any exceptions to title that will be binding upon
the Property after the Close of Escrow and will materially and adversely affect
Optionee's proposed use and development of the Property unless Owner agrees to
remove the same on or before the Close of Escrow.
4.2.2 Conveyance of Title. The Title Company shall be committed
to issue an ALTA Standard Title Policy or, if requested by Optionee, an ALTA
Extended Title Policy (subject to the conditions set forth below) ("Title
Policy"), with the liability in an amount equal to the Purchase Price of the
Property subject to:
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(a) standard printed exceptions contained in the Title
Policy;
(b) all county and city taxes, assessments, special taxes
and bonds which are a lien not yet due and payable,
(c) all covenants, conditions, restrictions, easements,
reservations, rights, rights of way, encumbrances and other items shown on the
Preliminary Report or any Supplemental Report which are Permitted Exceptions;
(d) the Covenant and all matters shown on the Grant Deed;
and
(e) title exceptions caused by the acts and omissions of
Optionee.
Optionee agrees that its receipt of the Title Policy will fully
satisfy any express or implied warranty by Owner as to the condition of title to
the Property, and, if there are any title exceptions or defects, including
liens, encumbrances, covenants, conditions, reservations, restrictions,
rights-of-way or easements, which constitute a defect in title, Optionee shall
look solely to the remedies available under the Title Policy, and Owner shall
have no responsibility or liability therefor. If Optionee requests an ALTA
Extended Title Policy, Optionee shall be solely responsible for satisfying all
conditions to the issuance of the ALTA Extended Title Policy, including
obtaining any necessary survey, and for paying the premiums charged to issue the
ALTA Extended Title Policy in excess of the premiums for an ALTA Standard Title
Policy. In addition, Optionee's election to obtain an ALTA Extended Title Policy
shall in no way delay the Closing Date. If, for any reason, Title Company does
not commit to issue to Optionee an ALTA Extended Title Policy on the Closing
Date, then this Section 4.2.2 shall be deemed satisfied so long as Title Company
is committed to issue to Optionee an ALTA Standard Title Policy. After the
Feasibility Period, Optionee does not have the right to terminate this Agreement
as a result of any items appearing in any ALTA report, survey or inspection.
4.2.3 Agreement Upon Road Alignments. On or before the expiration
of the Feasibility Period, Optionee and Owner shall have agreed upon two (2)
alternate alignments for a road easement to be reserved by Owner in the Grant
Deed (the "Road Alignments") and upon a configuration of the Road Alignments to
facilitate vehicle entry into Optionee's parking facilities for its proposed
future casino operations, including structuring turn lanes, lights,
intersections, traffic configurations and other aspects of the Road Alignments
to maximize reasonable access for such vehicles ("Access Improvements"). The
road easement will be exclusive except that Optionee may use the road easement
for purposes that do not interfere with use of the road by Owner and its
invitees, successors and assigns and, if the road becomes a public road, such
easement shall be exclusive except to the extent the County of San Diego allows
other uses. Optionee will be solely responsible for obtaining approvals for and
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paying the costs of any Access Improvements. As depicted on Exhibit "A-1"
attached hereto and incorporated herein, the road easement area will contain
approximately 8.5 acres. Owner will have the right to construct the road, at no
expense to Optionee (except that Optionee shall be responsible for the cost of
the Access Improvements, any other improvements that provide access to the
Property and any other costs to accommodate Optionee's use or development of the
Property) to County of San Diego requirements and specifications and shall
reserve in the Grant Deed an easement for road, utility and related purposes,
including the right to construct, install, repair, maintain and replace the road
and related utilities. In addition, Optionee agrees that Owner shall have the
right to require Optionee to convey a new road easement within the Road
Alignments or fee title to the property within the road easement to the County
for road purposes, in which case for no additional consideration, Optionee will
promptly execute and deliver any documents reasonably necessary to effect such
conveyance. Upon agreement on the Road Alignments and the Access Improvements,
the parties shall execute an amendment to this Agreement setting forth the legal
description of the Road Alignments and a description of the Access Improvements.
If the parties are unable to reach agreement on the Road Alignments and/or the
Access Improvements during the Feasibility Period, then either party may
terminate this Agreement by delivering written notice to the other as provided
in Sections 4.2.5 and 4.3.4.
4.2.4 Representations and Warranties of Owner. All of the
representations and warranties of Owner contained in Section 6.7 shall be true
and accurate in all material respects as of the Close of Escrow and shall
survive the Close of Escrow for the period provided in Section 6.7.
4.2.5 Owner's Performance. Owner shall not be in default under
the terms and conditions of this Agreement.
4.2.6 Failure to Satisfy Conditions Precedent. The conditions set
forth in this Section 4.2 are for Optionee's benefit and can only be waived by
Optionee. If the conditions precedent set forth in this Section and Section 4.3
are neither satisfied nor waived by the Closing Date, and provided that Optionee
is not then in default under this Agreement, Optionee may terminate Escrow and
this Agreement by giving written notice of termination to Owner and Escrow
Agent. The Close of Escrow under this Agreement by Optionee constitute
satisfaction of the conditions precedent set forth above.
4.3 Conditions Precedent to Owner's Obligations. The following are
conditions precedent to Owner's obligation to close Escrow:
4.3.1 Optionee's Performance. Optionee shall not be in default
under the terms and conditions of any written agreements between Owner and
Optionee relating to the Property and all of Optionee's representations and
warranties under Section 6.6 below shall be true and correct as of the Close of
Escrow in all material respects.
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4.3.2 Agreement on Road Alignments. Optionee and Owner shall have
agreed upon the Road Alignments and the Access Improvements on or before the
expiration of the Feasibility Period.
4.3.3 Failure to Satisfy Conditions Precedent. The conditions set
forth in this Section 4.3 are for Owner's benefit and can only be waived by
Owner. If the conditions precedent set forth in Sections 4.2 and 4.3, are
neither satisfied nor waived by the Closing Date, Owner may terminate the Escrow
and this Agreement by giving a written notice of termination to Optionee and
Escrow Agent. Owner's inability to satisfy any of the conditions precedent set
forth in Sections 4.2 (other than Section 4.2.5) and 4.3 as specified above by
the Closing Date shall not be considered a breach of this Agreement. If Owner is
unable to satisfy any such conditions precedent and if Optionee is not then in
default under this Agreement, Optionee will be entitled, as its only remedy, to
elect not to exercise the Option and obtain a refund of its Optionee's Option
Payments (and, only to the extent provided in Section 3.3, any Extension
Payments) pursuant to Section 3.3, and Optionee will not, under any
circumstances, be entitled to any other reimbursement or to any other payment or
compensation from Owner except as expressly provided in Section 10.1 in the
event of a default by Owner.
Article 5
COVENANTS AND AGREEMENTS
5.1 No Concern. Escrow Agent shall have no concern with, and no
liability or responsibility for, this Article.
5.2 Additional Escrow Instructions. Optionee and Owner shall execute
any additional escrow instructions not inconsistent with the terms of this
Agreement that are reasonably required by Escrow Agent.
5.3 Assignment of Plans and Reports. If Escrow fails to close for any
reason, then all materials delivered by Owner to Optionee, and all feasibility
studies, economic reports, marketing studies, maps, surveys, environmental
reports, civil and soil engineering reports, site plans, plans and
specifications relating to the Property, and all other plans, reports and other
documents or work relating to the Property (collectively, the "Plans and
Reports") prepared by or on behalf of Optionee shall be deemed assigned to
Owner, without consideration or expense to Owner and shall be delivered to Owner
by Optionee as a condition to the return of the Option Payments to Optionee, if
applicable, within ten (10) days thereafter. If requested by Owner, Optionee,
within three (3) Business Days of Owner's request, shall execute an assignment
of the Plans and Reports. Notwithstanding the provisions of this Section 5.3,
Optionee shall be entitled to retain copies of all of the Plans and Reports.
5.4 Possession. Possession of the Property shall be transferred to
Optionee upon the Close of Escrow.
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5.5 Entry Onto Property.
5.5.1 Right to Enter. Provided Optionee has delivered to Owner a
certificate of insurance satisfying the requirements set forth in Section 5.5.3
below, during the Feasibility Period, Optionee and Optionee's Agents shall have
the right to enter onto the Property at reasonable times for the purpose of
conducting investigations and inspections deemed necessary by Optionee, except
as provided below. After expiration of the Feasibility Period, if this Agreement
is still in effect, and provided Optionee has delivered to Owner a certificate
of insurance satisfying the requirements set forth in Section 5.5.3 below and
gives Owner written notice of any such entry at least two (2) Business Days in
advance, Optionee and Optionee's Agents shall have the right to enter on to the
Property at reasonable times for the purpose of conducting investigations and
inspections deemed necessary by Optionee; provided, however, that other than
initial site reconnaissance, Optionee shall not conduct any investigation,
inspection or test on the Property without prior notice to Owner of the
investigation, inspection or test to be undertaken (including, without
limitation, with respect to any hazardous substance invasive testing, a written
plan for the testing program) and Owner's prior written approval, which approval
will not be unreasonably withheld, except as provided below. If Owner does not
respond to Optionee's request within three (3) Business Days after receipt, then
Optionee may send a second notice, and Owner's failure to disapprove in writing
the request within two (2) Business Days after receipt of such second notice
shall be deemed to constitute Owner's approval of the investigation, inspection
or test described on the written notice to Owner. Optionee's notice may include
a plan of extended and continual entry onto the Property to perform its due
diligence studies which notice will describe the activities and work Optionee
will perform. If Owner approves of such plan, Owner shall not then require a
separate notice of any entry thereafter made in accordance with such plan. If
such notice of extended entry does not clearly indicate the dates of any
specific activity, then Optionee shall deliver a notice specifying the dates and
type of investigation activity prior to any entry upon the Property in
connection with such activity. Optionee shall provide to Owner, promptly upon
receipt thereof, a copy of all written reports or other documents relating to
the investigation or inspection or test of the Property. Optionee shall (a)
perform all work permitted under this Agreement in a safe and professional
manner; (b) not allow any dangerous or hazardous condition created by Optionee
or Optionee's Agents to exist; (c) comply with all applicable laws and
governmental regulations and any instruction deemed reasonably necessary by
Owner; (d) obtain all permits required to be obtained by any Governmental
Agencies and pay any fees, costs, charges and expenses in connection with the
issuance of such permits; and (e) not interfere with Owner's activities and
cooperate and coordinate its activities with Owner's activities. Owner shall
have the right to have a representative accompany Optionee and its Agents at all
times while on the Property. Optionee acknowledges that the Property may contain
environmentally sensitive areas and natural hazards relating to undeveloped
lands (including steep terrain and dangerous animals). Optionee shall be solely
responsible for any damage to such sensitive areas and assumes the risk of such
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natural hazards. In addition to the consents required above, any investigation,
inspection or test (whether occurring during or after the Feasibility Period)
which physically alters or changes the conditions of the Property or that may
adversely affect any environmentally sensitive areas or endangered or threatened
species within the Property shall be subject to Owner's prior written approval,
which approval may be withheld in Owner's sole and absolute discretion. If the
transaction contemplated by this Agreement does not close, Owner shall have the
option to require Optionee, forthwith after termination of this Agreement, at
its sole cost and expense, repair any damage to the Property caused by Optionee
or its Agents. If Optionee fails to repair any such damage to the satisfaction
of Owner, and such failure continues for ten (10) days after written notice
thereof from Owner, then Owner may perform such repair on behalf of Optionee
without any liability to Optionee for any loss or damage by reason therefor, and
upon completion, Optionee shall pay Owner's costs for making such repairs plus
ten percent (10%) of such costs for overhead. Any amounts due hereunder shall
include interest from the date of notice thereof to Optionee of the costs
incurred by Owner at the rate of Prime plus two percent (2%) per annum, but in
no event shall the interest rate exceed the maximum rate allowed by law.
5.5.2 Indemnity of Owner. Optionee shall indemnify, protect,
defend (with legal counsel reasonably acceptable to Owner) and hold Owner, its
development manager and their past, present and future employees, officers,
directors, agents, representatives, members, managers, shareholders and
affiliates and their respective successors and assigns ("Owner's Indemnitees")
harmless from any and all claims, actions, costs, expenses, damages and
liabilities relating to Optionee's or Optionee's Agents' entry onto the Property
(including, but not limited to, claims of mechanics liens and attorneys' fees)
and from and against all costs, attorneys' fees, expenses and liabilities
incurred in connection with such claims or any actions or proceedings brought
thereon and any costs or expenses, including attorneys' fees, incurred by Owner
in connection with the enforcement of this indemnification provision. Optionee's
covenants in this Section shall survive the termination of this Agreement and
shall be binding on Optionee until such time as an action against Owner is
absolutely barred by the applicable statute of limitations.
5.5.3 Insurance. Optionee shall maintain, with insurance
companies acceptable to Owner, the following insurance: Worker's Compensation
Insurance as required by law and Employer's Liability Insurance; Comprehensive
General Liability or Commercial General Liability insurance (occurrence form
only; not claims made or modified occurrence form), with limits of not less than
Two Million Dollars ($2,000,000) combined single limit and not less than Two
Million Dollars ($2,000,000) on a general aggregate basis, for bodily injury,
death and property damage; and business automobile coverage with limits of at
least Two Million Dollars ($2,000,000) per occurrence and aggregate. Each policy
of insurance shall name Owner and its members as additional insureds. Further,
each policy of insurance shall state that such policy is primary and
noncontributing with any insurance carried by Owner or its members. Such policy
shall contain a provision that the naming of the additional insured shall not
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negate any right the additional insured would have had as a claimant under the
policy if not so named and shall contain severability of interest and
cross-liability clauses. A certificate, together with certified copies of all
endorsements to the policy required to evidence the coverage which is to be
obtained hereunder, shall be delivered to Owner prior to any entry onto the
Property. The certificate shall expressly provide that no less than thirty (30)
days prior written notice shall be given Owner in the event of any material
alteration to or cancellation of the coverages evidenced by said certificate. A
renewal certificate for each of the policies required in this Section shall be
delivered to Owner not less than thirty (30) days prior to the expiration date
of the term of such policy. Any policies required by the provisions of this
Section may be made a part of a blanket policy of insurance with a "per project,
per location endorsement" so long as such blanket policy contains all of the
provisions required herein and does not reduce the coverage, impair the rights
of the other party to this Agreement or negate the requirements of this
Agreement.
5.6 No Public Report Optionee represents and warrants that it is an
experienced and sophisticated buyer represented by legal counsel and not in need
of consumer protection offered by a Public Report pursuant to California
Business and Professions Code Section 11018.2. Optionee acknowledges that Owner
will not obtain a Public Report in conjunction with the sale of the Property to
Optionee and waives any right of rescission arising out of the absence of a
Public Report.
5.7 Public Facilities Financing Districts. Optionee acknowledges that
the Property is subject to the lien of special taxes imposed by Chula Vista City
School District Community Facilities District No. 1, Chula Vista Elementary
School District Community Facilities District No. 1 and City of Chula Vista
Assessment District 90-2 (such districts and any other existing districts shall
be collectively referred to as the "Districts"). Prior to the Effective Date,
Optionee has executed a Notice of Special Tax in the form of Exhibit "D"
attached hereto and incorporated herein. Subject to Optionee's right to
disapprove any exceptions shown in a Supplemental Report pursuant to Section
4.2.1, any other such Districts are formed, Owner shall have the right to
require Optionee to execute any Notices of Special Tax prepared by Owner and
Optionee shall within three (3) Business Days after receipt therefrom execute
such Notice of Special Tax.
5.8 Right to Approve Development. Owner will retain certain property
located adjacent to the Property ("Adjacent Property"). Owner shall have the
right to approve any improvements Optionee proposes to construct within five
hundred (500) feet of the boundary line between the Property and any Adjacent
Property, which approval shall not be unreasonably withheld or delayed.
Similarly, Optionee shall have the right to approve any improvements proposed to
be constructed by Owner within five hundred (500) of the boundary line between
the Property and the Adjacent Property (other than improvements relating to the
road described in Section 4.2.3), which approval shall not be unreasonably
withheld or delayed. Optionee acknowledges that Owner intends to improve all or
part of the Adjacent Property with estate homes with an aggregate density not
greater than five (5) homes per acre or more and Optionee hereby approves of any
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such improvements on the Adjacent Property. Without limiting Owner's approval
rights under this Section, Owner acknowledges that Optionee intends to improve a
portion of the Property with a gambling casino, parking and related facilities.
Upon the Close of Escrow, a covenant running with the land ("Covenant") in the
form of Exhibit "F" attached hereto and incorporated herein executed and
acknowledged by Owner and Optionee shall be recorded against the Property and
the Adjacent Property.
5.9 Changes to Physical Condition. Except as contemplated by Section
5.8, so long as this Agreement is in effect, Owner will not make any changes to
the physical condition of the Property that would materially and adversely
affect Optionee's proposed use and development of the Property without
Optionee's consent.
Article 6
REPRESENTATIONS AND WARRANTIES
6.1 Optionee's Independent Investigations Regarding the Property. By
its execution of this Agreement, Optionee acknowledges that it has made or will
make its own independent investigations as deemed necessary or appropriate
concerning the use, sale, development or suitability for development of the
Property and the status of any Governmental Approvals for the Property. Except
as otherwise specifically provided in Section 6.7 of this Agreement, Optionee is
relying solely on its own investigations and not on any representations made by
Owner. Optionee acknowledges that Owner has made no representations regarding
any development potential of the Property, the physical condition of the
Property, the status of any existing, pending or future entitlements and/or the
necessity or existence of any fees, dedications, charges or costs associated
with the development or marketing of the Property or future regulations relating
to the Property or whether any approvals or permits may be required or granted
or, if granted, whether such approvals or permits may be subject to reversal by
reason of challenges thereto by private parties or Governmental Agencies. If any
of the matters investigated by Optionee changes after the Feasibility Period or
new regulations or requirements of Governmental Agencies are imposed or there is
a challenge or reversal of any approvals or permits previously obtained,
Optionee will not be entitled to rescind this Agreement or its purchase of any
portion of the Property or to a return of its Option Payments.
6.2 As-Is Purchase. Optionee is relying solely upon its own
inspection, investigation and analyses of the foregoing matters in entering into
this Agreement and, except for the express representations and warranties of
Owner set forth in Section 6.7, is not relying in any way upon any
representations, statements, agreements, warranties, studies, reports,
descriptions, guidelines or other information or material furnished by Owner or
its representatives, whether oral or written, express or implied, of any nature
whatsoever regarding any such matters. Optionee further acknowledges and agrees
that the Property Documents and other documents or information provided by Owner
to Optionee are being made available to Optionee for informational purposes
only, and, Owner is making no representations or warranties regarding such
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Property Documents, other documents or other information, including, without
limitation, the accuracy or completeness of any information contained therein.
Optionee will acquire the Property, if at all, on the Close of Escrow in its
then "As-Is" state and condition, without representation by Owner or its
representatives as to any matter, whether or not expressly mentioned herein.
Optionee, by its execution of this Agreement, represents and covenants that
Optionee will, during the Feasibility Period, satisfy itself as to the condition
of the Property and their suitability for the development purposes intended by
Optionee. No patent or latent condition affecting the Property in any way,
whether or not known or discoverable or hereafter discovered (collectively, the
"Property Conditions"), shall give Optionee the right to obtain a refund of its
Option Payments or affect its obligation to purchase the Property or any other
obligation contained in this Agreement, nor shall give rise to any right of
damages, specific performance, rescission or otherwise against Owner. Optionee
acknowledges that Owner only recently acquired the Property pursuant to an
estate sale administered by the Probate Court and has very limited information
regarding the Property.
6.3 Governmental Approvals. Optionee acknowledges that in entering
into this Agreement it is relying solely upon its own investigations regarding
any requirements for Governmental Approvals and not upon any representations
made by Owner. Owner makes no representation or warranties regarding the
development and/or use of the Property or any part thereof. Optionee has sole
responsibility for processing approvals and constructing improvements on the
Property. Owner has not obtained, and by accepting the Optionee's Option
Payments hereunder, Owner is not warranting that it has and will have obtained,
any governmental permits or other approvals for the development of the Property.
All expenses and responsibility associated with obtaining any Governmental
Approvals shall be the sole responsibility of Optionee. If Optionee fails to
obtain any Governmental Approvals required for development of the Property,
Optionee will not be entitled to rescind this Agreement, to the return of its
Option Payments or to reimbursement for any costs or expenses incurred by
Optionee in connection with Optionee's investigations or development of the
Property, whether prior or subsequent to the execution hereof, and Owner will
not, under any circumstances, make any other payment to Optionee for alleged
lost profits or otherwise. Optionee hereby waives and absolutely releases any
claim it may now or hereafter have against Owner for such reimbursements or
payments. Without limiting the generality of the foregoing, Optionee will not
have the right to any such payment because of Optionee's inability to obtain
construction or permanent financing for any Property, or by reason of any claim
under the doctrine of impossibility of performance.
6.4 Investigations Regarding Districts. Optionee shall make its own
investigations regarding the formation of any pending Districts or any Districts
formed prior to the Close of Escrow that may affect the Property and the
improvements that may be constructed under such Districts.
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6.5 Natural Hazard Disclosure Act. Prior to the Closing Date, Owner
shall provide Optionee with a Natural Hazard Disclosure Statement ("Natural
Hazard Disclosure Statement") in substantially the form attached hereto as
Exhibit "E" and incorporated herein by this reference pursuant to the Natural
Hazard Disclosure Act, California Government Code Sections 8589.3, 8589.4, and
51183.5, and California Public Resources Code Sections 2621.9, 2694, and 4136,
and any successor statutes or laws (collectively, the "Act"), provided that if,
as of the Close of Escrow, the Act does not require delivery of the Natural
Hazards Disclosure Statement to Optionee, then Owner shall have no obligations
under this Section. Optionee acknowledges and agrees that nothing contained in
the Natural Hazard Disclosure Statement shall release Optionee from its
obligation to fully investigate the condition of the Property, including,
without limitation, whether the Property is located in any natural hazard areas
and that Optionee has the expertise to perform such investigations and has
agreed to do so under the terms of this Agreement. Optionee further acknowledges
and agrees that the matters set forth in the Natural Hazard Disclosure Statement
may change on or prior to the Close of Escrow and that Owner has no obligation
to update, modify, or supplement the Natural Hazard Disclosure Statement. The
provision of the Natural Hazard Disclosure Statement to Optionee shall not be
deemed or construed to limit the scope or effect of Optionee's waiver under
Section 6.9 or the provisions contained in this Article. Optionee shall be
solely responsible for preparing and delivering its own Natural Hazard
Disclosure Statement to subsequent prospective purchasers of the Property.
6.6 Optionee's Representations and Warranties. In addition to any
other representations and warranties of Optionee hereunder, Optionee makes the
following representations and warranties to Owner. Such representations and
warranties shall be true and correct as of the Effective Date and on the Closing
Date, and shall survive the Close of Escrow. Optionee agrees to indemnify,
defend and hold Owner harmless from and against any losses, costs, damages and
expenses (including, but not limited to, reasonable attorneys' fees and costs)
incurred by Owner to the extent arising from any material breach by Optionee of
its representations and warranties set forth in this Section 6.6.
6.6.1 Ownership of Optionee. The sole members of Lakes Kean
Argovitz Resorts-California, LLC are Lakes Gaming Inc. ("Lakes Gaming") and Kean
Argovitz Resorts, Inc. ("Resorts"). Kevin Kean and Jerry Argovitz own one
hundred percent (100%) of the stock of Resorts and control the management of
Resorts. Lakes is a publicly traded company listed on NASDAQ. Neither Kevin
Kean, Jerry Argovitz nor any of the officers or directors of Lakes Gaming (i)
have been convicted of a felony, (ii) are under indictment or, to their
knowledge, under investigation by any governmental authority for fraud or other
activities that would constitute a felony or (iii) are prohibited from doing
business in any state as a result of past activities.
6.6.2 Optionee's Authority. Optionee is a duly organized and
validly existing limited liability company formed under the laws of the State of
Delaware and duly qualified to transact business in the State of California. The
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entry by Optionee into the transaction contemplated by this Agreement and the
performance by Optionee of all of its obligations in connection herewith have
been duly and validly authorized by all necessary action(s), are in accordance
with applicable law and are not in violation of Optionee's articles of formation
or operating agreement. This Agreement and all additional documents delivered in
connection with this Agreement have been duly and validly executed and delivered
to Optionee and constitute the legal, valid and binding obligations of Optionee.
Each individual signing this Agreement on behalf of Optionee represents and
warrants to Owner that he or she has authority to do so.
6.7 Owner's Representations and Warranties. For purposes of this
Section, the term "actual knowledge" of Owner or any other similar term shall
mean the actual knowledge of R. Randy Goodson and Paul Borden without
investigation or inquiry or duty of investigation or inquiry. These two
representatives of Owner are the primary two officers of Owner involved in the
acquisition of the Property and the management and ownership of the Property for
Owner. Such individuals are making such representations and warranties on behalf
of Owner in their capacities as officers of Owner and not in their individual
capacities and, as a result, Owner (and not such individuals) shall be liable in
the event of a breach of such representations. Such representations and
warranties shall be true and correct as of the Effective Date and, unless Owner
provides Optionee with written notice of any change in such representations and
warranties, on the Closing Date, and shall survive the Closing Date only for a
period of one year. If Owner gives Optionee notice of any change in the
representations and warranties prior to the Close of Escrow, and if Optionee
nevertheless elects to proceed with the Close of Escrow, Optionee shall be
deemed to have waived any and all claims and other rights against Owner with
respect to the matters described in such notice. Owner will give Optionee notice
of any such change no later than the later of (i) five (5) Business Days prior
to the Closing Date or (ii) one (1) Business Day after Owner obtains actual
knowledge of such change. Any and all claims and other rights relating to any
actual or alleged breach of the representations and warranties contained in this
Section shall be deemed fully waived and released on the date which is one (1)
year after the Closing Date except to the extent any such claims or rights are
set forth in an action brought by Optionee against Owner no later than one (1)
year after the Closing Date. Subject to the foregoing time limitation on claims,
Owner agrees to indemnify, defend and hold Optionee harmless from and against
any losses, costs, damages and expenses (including, but not limited to,
reasonable attorneys' fees and costs) incurred by Optionee to the extent
resulting from any material breach by Owner of Owner's representations and
warranties set forth in this Section 6.7.
6.7.1 Pending Actions or Proceedings. Except as disclosed in the
Property Documents or this Agreement, Owner has no actual knowledge of (i) any
claims, actions, suits, condemnation actions or other proceedings pending or
threatened by any person or entity, or (ii) any violations of any law, statute,
governmental regulation or requirement that, in either case, may materially and
adversely affect the Property.
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6.7.2 No Agreements. To Owner's actual knowledge, there are no
agreements, leases, occupancy agreements, rights of first refusal, or options to
purchase that will be binding upon the Property after the Close of Escrow,
except as disclosed in the Property Documents or in the Preliminary Report or
otherwise included as part of the Permitted Exceptions.
6.7.3 Hazardous Materials. To Owner's actual knowledge, no party
has caused or permitted, any generation, location, transportation, storage,
treatment, discharge, disposal or release of any Hazardous Materials upon or
under the Property in violation of any Environmental Laws, except as disclosed
in the Property Documents or in this Agreement.
6.7.4 Owner's Authority. Owner is a duly organized and validly
existing limited liability company formed under the laws of the State of
Delaware, duly qualified to transact business in the State of California. The
entry by Owner into the transaction contemplated by this Agreement and the
performance by Owner of all of its obligations in connection herewith have been
duly and validly authorized by all necessary action(s), are in accordance with
applicable law and are not in violation of Owner's operating agreement or other
relevant agreements. This Agreement and all additional documents delivered in
connection with this Agreement have been duly and validly executed and delivered
to Optionee and constitute the legal, valid and binding obligations of Owner.
6.7.5 Title Defects. To Owner's actual knowledge, there are no
defects in Owner's title to the Property, except as disclosed in the Property
Documents or in the Preliminary Report or otherwise included as part of the
Permitted Exceptions.
6.8 Hazardous Materials.
6.8.1 Hazardous Materials Report. By its execution of this
Agreement, Optionee acknowledges its receipt of the Owner Hazardous Materials
Report. Optionee acknowledges and agrees that the Owner Hazardous Materials
Report is provided by Owner for informational purposes only, that Owner does not
make any representations or warranties as to the accuracy or completeness of the
Owner Hazardous Materials Report.
6.8.2 Optionee's Independent Review. Optionee shall conduct its
own investigations and studies of the Property as it deems necessary or
appropriate to determine the presence or absence of Hazardous Materials on or
within the Property. Optionee for itself and Optionee's Agents hereby (a) agrees
that Optionee is relying solely on its own investigation of the Property
covering the effect of any Hazardous Materials that may be on or within the
Property, whether disclosed by such investigations or not (collectively, the
"Hazardous Materials Effects") and (b) assumes the risk of any and all
liabilities, claims, demands, suits, judgments, losses, damages, expenses
(including, without limitation, attorneys' fees) and other obligations arising
out of or incurred in connection with the Hazardous Materials Effects, if any.
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6.9 Assumption of Risks, Release and Indemnity. To the maximum extent
permitted by law, Owner and Owner's Indemnitees shall not be liable for any
loss, damage, injury or claim of any kind or character to any person or property
arising from or caused by: (a) the Property Conditions, the Property, the
development or use of the Property, and/or the construction, use or sale of
improvements on the Property; (b) the design, construction, engineering or other
work with respect to the Property provided or performed by or caused by or
attributed to Owner or Owner's Indemnitees either before or after the Effective
Date and/or the Close of Escrow, including any defects therein; (c) a violation
or alleged violation by Optionee, its employees or agents of any law now or
hereinafter enacted; (d) any slope failure or subsurface geologic or groundwater
condition; (e) the design, construction, engineering or other work with respect
to the Property provided or performed by or caused by or attributable to
Optionee or Optionee's Agents either before or after the Close of Escrow,
including any defect therein; (f) the application of the principles of strict
liability with respect to any act or omission by Optionee or Optionee's Agents
in connection with the Property; (h) the delivery of the Natural Hazards
Disclosure Statement; (i) any other cause whatsoever in connection with
Optionee's use of the Property or Optionee's performance or breach under this
Agreement; and (j) any Hazardous Materials Effects (collectively, the "Assumed
Risks"). Optionee, for itself and for the Optionee's Agents, hereby releases,
waives, discharges, covenants not to sue, indemnifies, protects, defends (with
legal counsel acceptable to Owner) and agrees to hold harmless Owner and Owner's
Indemnitees, and each of them, from and against any and all any liability, loss,
damage, injury, claim, cost and expense (including attorneys' fees and costs) of
any kind or character to any person or property arising from, related to or
caused by the Assumed Risks. The foregoing waiver and indemnity shall apply to
any claim or action brought by a private party or by a Governmental Agency under
any statute or common law now or hereinafter in effect. With respect to design,
construction methods, materials, locations and other matters for which Owner has
given or will give its approval, recommendation or other direction, the
foregoing waiver and indemnity shall apply irrespective of Owner's approval,
recommendation or other direction. Optionee agrees that the above waiver and
release extends to all claims of any nature and kind whatsoever, known or
unknown, suspected or unsuspected, and Optionee, for itself and for the
Optionee's Agents, waives the benefits of California Civil Code Section 1542,
which provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the releasee, which if known by him must have materially affected his
settlement with the debtor."
Notwithstanding anything to the contrary set forth in this Section, nothing
contained in this Section shall operate to relieve Owner or Owner's Indemnitees
from any loss, damage, injury or claim to the extent found by a court of
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competent jurisdiction to have been caused primarily by the active negligence or
willful misconduct of Owner or the Owner's Indemnitees (but the act or failure
to act of any consultant, contractor, or other agent or representative of Owner
or any Owner's Indemnitee other than an officer or employee of Owner shall not
be attributed to Owner or such Owner's Indemnitee).
Article 7
THE CLOSING
7.1 Close of Escrow. Escrow Agent shall close the Escrow on the
Closing Date by (i) filing for record the Covenant, the Grant Deed and such
other documents as may be necessary to procure the Title Policy and (ii)
delivering funds and documents as set forth in Article 9 WHEN AND ONLY WHEN each
of the conditions set forth below has been satisfied.
7.1.1 Funds and Instruments. All funds and instruments required
pursuant to Article 3 have been delivered to Escrow Agent.
7.1.2 Satisfaction of Conditions Precedent. Each of the
conditions precedent set forth in Article 4 has been, or upon such closing shall
be, satisfied as provided for in Article 4.
7.2 Recordation. Escrow Agent shall file the Grant Deed for
recordation in the Office of the County Recorder for San Diego County.
7.3 Earlier Closing. If all of the conditions set forth in Sections
7.1.1 and 7.1.2 become satisfied at a date earlier than the Closing Date, Escrow
Agent shall close the Escrow at such earlier date if Escrow Agent obtains the
consent of Optionee and Owner to do so.
Article 8
PRORATIONS, FEES AND COSTS
8.1 Thirty Day Month. Escrow Agent will prorate between the parties,
in cash, to the Close of Escrow, County, city and special district (if any) real
property taxes and assessments for the Property based on the latest information
available to Escrow Agent. All prorations and/or adjustments called for in this
Agreement are to be made on the basis of a thirty (30) day month, unless
otherwise specifically instructed in writing.
8.2 Supplemental Taxes. Any supplemental taxes arising on or after
the Close of Escrow shall be the sole responsibility of Optionee.
8.3 Owner's Fees and Costs. Owner shall pay (i) County Documentary
Transfer Tax in the amount Escrow Agent determines to be required by law, (ii)
the fee for the ALTA Standard Title Policy premium for the Property, (iii)
one-half of Escrow Agent's escrow fee and (iv) usual seller's document-drafting
and recording charges.
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8.4 Optionee's Fees and Costs. Optionee shall pay (i) one-half of
Escrow Agent's escrow fee, (ii) usual buyer's document-drafting and recording
charges, (iii) if Optionee has requested an ALTA insurance policy, the
difference between the cost of an ALTA Standard Title Policy and an ALTA
Extended Title Policy, (iv) the cost for the joint protection or ALTA Lender's
Title Policy, and (v) the fee for any surveys obtained by Optionee and any
endorsements requested by Optionee.
8.5 Escrow Cancellation Charges Due to a Default. If Escrow fails to
close due to either party's default, the defaulting party shall pay all Escrow
cancellation charges. If Escrow fails to close for any reason other than the
foregoing, Optionee and Owner shall each pay one-half (1/2) of any Escrow
cancellation charges. "Escrow cancellation charges" means all fees, charges and
expenses incurred by Escrow Agent, including all expenses incurred in connection
with issuance of the Preliminary Report and other title matters.
Article 9
DISTRIBUTION OF FUNDS AND DOCUMENTS
9.1 Deposit of Funds. All cash, if any, received hereunder by Escrow
Agent shall be, until the Close of Escrow unless earlier released pursuant to
the terms of this Agreement, kept on deposit in an interest bearing account
reasonably acceptable to Optionee and Owner.
9.2 Payment of Liens at Closing. At the Close of Escrow, Escrow Agent
shall pay, from funds to which Owner is entitled and from funds, if any,
deposited by Owner with Escrow Agent, to the obligees thereof all liens and
encumbrances other than those permitted by this Agreement to be shown in the
Title Policy.
9.3 Recorded Documents. Escrow Agent shall cause the County Recorder
of San Diego County to mail Owner's Grant Deed (and each other document which is
herein expressed to be, or by general usage is, recorded) after recordation, to
the grantee, beneficiary or person (i) acquiring rights under said document or
(ii) for whose benefit said document was acquired.
9.4 Unrecorded Documents. At the Close of Escrow, Escrow Agent shall
deliver by United States mail (or will hold for personal pickup, if requested)
one (1) copy of each nonrecorded document received under this Agreement by
Escrow Agent to the payee or person (i) acquiring rights under the document or
(ii) for whose benefit the document was acquired. Copies of any original
documents delivered to one party shall be delivered to the other party.
9.5 Payment of Funds at Closing. At the Close of Escrow, Escrow Agent
shall wire (i) to Owner's account, or order, in accordance with instructions of
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Owner, or shall hold for personal pickup, if requested, the Cash, plus any
proration or other credits to which Owner is be entitled less any appropriate
proration or other charges and (ii) to Optionee, or order, any excess funds
theretofore delivered to Escrow Agent by Optionee.
9.6 Conformed Copies. At the Close of Escrow, Escrow Agent shall
deliver to Owner a copy of the Owner's Grant Deed (conformed to show recording
date) and each document recorded to place title in the condition required by the
Agreement.
Article 10
REMEDIES
10.1 LIMITATION ON OPTIONEE'S REMEDIES. AS A MATERIAL INDUCEMENT AND
CONSIDERATION FOR OWNER TO ENTER INTO THIS AGREEMENT, OPTIONEE ACKNOWLEDGES AND
AGREES THAT IT IS BUYING THE PROPERTY FOR COMMERCIAL PURPOSES, THAT THE PROPERTY
IS NOT UNIQUE AND THAT THERE IS OTHER PROPERTY THAT IS AVAILABLE IN SAN DIEGO
COUNTY. ACCORDINGLY, OPTIONEE ACKNOWLEDGES AND AGREES THAT IF OWNER DEFAULTS IN
THE PERFORMANCE OF ANY OF ITS MATERIAL OBLIGATIONS UNDER THIS AGREEMENT,
OPTIONEE'S SOLE AND EXCLUSIVE REMEDY SHALL BE TO TERMINATE THIS AGREEMENT BY
WRITTEN NOTICE DELIVERED TO OWNER, RECEIVE A REFUND OF THE OPTION PAYMENTS AND
ANY EXTENSION PAYMENTS TOGETHER WITH INTEREST THEREON AT THE PRIME RATE, AND
RECOVER AN AMOUNT EQUAL TO OPTIONEE'S ACTUAL OUT OF POCKET COSTS IN CONNECTION
WITH ITS INVESTIGATIONS OF THE PROPERTY UP TO A MAXIMUM AMOUNT OF ONE HUNDRED
FIFTY THOUSAND DOLLARS ($150,000.00). OPTIONEE SHALL NOT BE ENTITLED UNDER ANY
CIRCUMSTANCES TO RECOVER ANY OTHER DAMAGES, INCLUDING LOST PROFITS RELATING TO
OPTIONEE'S PROPOSED DEVELOPMENT OF THE PROPERTY AND ANY OTHER COMPENSATORY OR
CONSEQUENTIAL DAMAGES, AND OPTIONEE HEREBY EXPRESSLY AND KNOWINGLY WAIVES ANY
AND ALL RIGHTS TO RECOVER ANY SUCH OTHER DAMAGES THAT MIGHT OTHERWISE EXIST,
INCLUDING ANY RIGHTS UNDER CALIFORNIA CIVIL CODE SECTION 3306. OPTIONEE FURTHER
EXPRESSLY AND KNOWINGLY WAIVES ANY AND ALL OTHER REMEDIES THAT MIGHT OTHERWISE
BE AVAILABLE AT LAW OR IN EQUITY AGAINST OWNER, INCLUDING, WITHOUT LIMITATION,
ANY AND ALL RIGHTS TO PURSUE AN ACTION AGAINST OWNER FOR SPECIFIC PERFORMANCE.
OPTIONEE SHALL NOT PREPARE, FILE OR RECORD A LIS PENDENS AGAINST THE PROPERTY IF
OWNER DEFAULTS IN THE PERFORMANCE OF ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT
AND EXPRESSLY WAIVES ANY AND ALL RIGHTS TO DO SO. OPTIONEE ACKNOWLEDGES THAT A
MATERIAL INDUCEMENT TO OWNER'S DECISION TO SELL THE PROPERTY TO OPTIONEE IS THE
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AGREEMENT OF OPTIONEE NOT TO IMPEDE OR INTERFERE WITH A SUBSEQUENT SALE OF THE
PROPERTY BY FILING AN ACTION FOR SPECIFIC PERFORMANCE AND/OR FILING A LIS
PENDENS AGAINST THE PROPERTY, AND THAT OWNER WILL BE DAMAGED IF OPTIONEE FAILS
TO COMPLY WITH THE REQUIREMENTS OF THIS SECTION. NOTWITHSTANDING THE FOREGOING,
IF THE CLOSE OF ESCROW DOES NOT OCCUR DUE TO OWNER'S DEFAULT, OPTIONEE MAY
ELECT, AS AN ALTERNATIVE TO THE REMEDY SET FORTH ABOVE, AS ITS SOLE AND
EXCLUSIVE REMEDY, TO SPECIFICALLY ENFORCE OWNER'S OBLIGATION TO EXECUTE AND
DELIVER THE GRANT DEED AND TO CONVEY THE PROPERTY TO OPTIONEE. OPTIONEE SHALL
NOT HAVE THE RIGHT TO SPECIFICALLY ENFORCE ANY OF OWNER'S OTHER OBLIGATIONS
UNDER THIS AGREEMENT REQUIRED TO BE PERFORMED PRIOR TO THE CLOSE OF ESCROW AND
SHALL NOT HAVE THE RIGHT TO RECOVER DAMAGES OF ANY KIND OR TO OBTAIN OTHER
EQUITABLE RELIEF, INCLUDING, WITHOUT LIMITATION, ANY EQUITABLE ADJUSTMENT TO THE
TERMS OF THE SALE OF THE PROPERTY, IN CONNECTION WITH ANY SUCH ACTION FOR
SPECIFIC PERFORMANCE. AS A CONDITION PRECEDENT TO OPTIONEE'S ELECTION TO PURSUE
AN ACTION FOR SPECIFIC PERFORMANCE, OPTIONEE SHALL HAVE FULLY PERFORMED ALL OF
OPTIONEE'S OBLIGATIONS AND MADE ALL DELIVERIES REQUIRED TO BE PERFORMED OR
DELIVERED ON OR BEFORE THE CLOSE OF ESCROW, INCLUDING WITHOUT LIMITATION,
DELIVERING TO ESCROW THE BALANCE OF THE PURCHASE PRICE AND ALL OTHER FUNDS
REQUIRED OF OPTIONEE ("CLOSING FUNDS") AND WITHOUT ASSERTING ANY EXCUSE OF
OPTIONEE'S PERFORMANCE DUE TO OWNER'S DEFAULT OR OTHERWISE; PROVIDED, HOWEVER,
IF OPTIONEE THEN HAS THE RIGHT TO ONE OR MORE EXTENSIONS PURSUANT TO SECTION
2.3.1, THEN OPTIONEE MAY PURSUE AN ACTION FOR SPECIFIC PERFORMANCE SO LONG AS
(i) OPTIONEE PROPERLY EXERCISES ITS EXTENSIONS AND FULLY PERFORMS ITS
OBLIGATIONS HEREUNDER, INCLUDING TIMELY PAYING DIRECTLY TO OWNER, OUTSIDE OF
ESCROW, CASH IN AN AMOUNT EQUAL TO EACH EXTENSION PAYMENT, (ii) OPTIONEE TIMELY
EXERCISES THE OPTION AND (iii) ON OR BEFORE THE CLOSING DATE, OPTIONEE FULLY
PERFORMS ALL OF OPTIONEE'S OTHER OBLIGATIONS AND MAKES ALL DELIVERIES, INCLUDING
DELIVERY OF THE CLOSING FUNDS, REQUIRED TO BE PERFORMED OR DELIVERED ON OR
BEFORE THE CLOSE OF ESCROW, ALL WITHOUT ASSERTING ANY EXCUSE OF OPTIONEE'S
PERFORMANCE. OPTIONEE ACKNOWLEDGES THAT OPTIONEE'S FULL PERFORMANCE OF ITS
OBLIGATIONS UNDER SECTIONS 2.3.1 AND 3.4.1 ABOVE IN EVERY DETAIL IS MATERIAL TO
OWNER, AND THEREFORE, IF OPTIONEE FAILS TO SATISFY ANY SUCH REQUIREMENTS, OWNER
SHALL BE ENTITLED TO AN IMMEDIATE DISMISSAL OF ANY SUCH ACTION AND AN IMMEDIATE
EXPUNGEMENT OF ANY LIS PENDENS; PROVIDED, HOWEVER, IF OWNER DOES NOT DELIVER THE
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GRANT DEED TO ESCROW AGENT WITHIN THREE (3) BUSINESS DAYS AFTER OWNER RECEIVES
NOTICE THAT OPTIONEE HAS DELIVERED THE CLOSING FUNDS TO ESCROW AGENT, ESCROW
AGENT SHALL AUTOMATICALLY AND WITHOUT FURTHER INSTRUCTIONS RETURN THE CLOSING
FUNDS TO OPTIONEE, AND SUCH ACTION SHALL NOT AFFECT OPTIONEE'S RIGHTS UNDER THIS
SECTION.
10.2 WAIVER OF PUNITIVE DAMAGES. OPTIONEE AND OWNER EACH WAIVE ANY
AND ALL RIGHTS AGAINST THE OTHER TO AN AWARD OF PUNITIVE DAMAGES WITH RESPECT TO
ANY DISPUTE BETWEEN THEM RELATING TO THIS AGREEMENT.
Article 11
ASSIGNABILITY; BANKRUPTCY
11.1 Assignment by Optionee. Optionee may not, voluntarily or by
operation of law, assign or otherwise transfer any of its rights or obligations
under this Agreement without obtaining the prior written consent of Owner, which
consent may be withheld by Owner in its sole, arbitrary and absolute discretion.
Any attempted assignment made in violation of this provision shall be null and
void. Notwithstanding the foregoing, Optionee may assign this Agreement to (i) a
wholly-owned subsidiary of Optionee or (ii) to a trust to be established
pursuant to guidelines of the United States Bureau of Indian Affairs solely for
the benefit of the Jamul Mission Indian Tribe, provided that Optionee gives
Owner prior written notice of such assignment and the assignee assumes all of
Optionee's obligations under this Agreement in a written assignment and
assumption agreement in favor of and acceptable to Owner.
11.2 Bankruptcy. If (a) all or substantially all of Optionee's assets
are placed in the hands of a receiver or trustee, and such receivership or
trusteeship continues for a period of thirty (30) days, (b) Optionee makes an
assignment for the benefit of creditors, (c) Optionee is adjudicated a bankrupt,
(d) Optionee institutes any proceeding under any law relating to bankruptcy
wherein Optionee seeks to be adjudicated a bankrupt, or to be discharged of its
debts, or to effect a plan of liquidation, composition or reorganization, (e) an
involuntary proceeding is filed against Optionee under any bankruptcy laws and
Optionee consents thereto or acquiesces therein by pleading or default or such
involuntary proceeding is not dismissed within ninety (90) days, or (f)
substantially all of Optionee's assets are attached or seized by judicial order
where such seizure is not discharged within thirty (30) days, then (i) Optionee
will be deemed to be in default hereunder, (ii) this Agreement, including,
without limitation, the right to purchase granted herein will not become an
asset in any of such proceedings, (iii) in addition to all other available
remedies, it will be lawful for Owner to declare this Agreement terminated, and
(iv) Optionee will have no further claim on the Property or hereunder or
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otherwise and no right to the return of its Option Payments or any other
payments or expenses incurred pursuant to this Agreement.
11.3 Assignment by Owner. Owner may, at any time, assign or otherwise
transfer its rights and obligations under this Agreement, provided Owner gives
Optionee prior written notice of such assignment and the assignee assumes all of
Owner's obligations under this Agreement in a written assignment and assumption
agreement in favor of and acceptable to Optionee. Alternatively, Owner shall
have the right to assign all of its interest under this Agreement, provided it
provides advance written notice to Optionee and Owner is not relieved of any of
its obligations under this Agreement during the term hereof or those obligations
that survive the Close of Escrow.
Article 12
CONDEMNATION
12.1 Eminent Domain. If, prior to the Close of Escrow, all of the
Property is taken or appropriated by any public or quasi-public authority under
the power of eminent domain or such an eminent domain action is threatened
pursuant to a resolution of intention to condemn filed by any public entity,
then Optionee may terminate this Agreement without further liability hereunder.
If there is a partial taking of the Property or the threatened partial taking
pursuant to a resolution of intention to condemn, and if such taking would
materially and adversely affect Optionee's ability to develop a gaming casino
and related parking facilities, then Optionee may elect to either (a) terminate
this Agreement and receive a refund of all of Optionee's Option Payments or (b)
purchase the Property without a reduction in the Purchase Price, in which case
Owner will assign to Optionee all condemnation proceeds attributable to the
condemnation of the Property. The parties acknowledge and agree that any such
partial taking of the Property would adversely affect the value of the remaining
portion of the Property.
12.2 Condemnation. As used in this Article, "condemnation", or
"condemned" or "taking" shall mean the exercise of, or intent to exercise, the
power of eminent domain, expressed in writing, as well as the filing of any
action or proceeding for such purpose, by any person, entity, body, agency or
authority having the right or power of eminent domain (the "condemning
authority" herein), and shall include a voluntary sale by Owner to any such
condemning authority, either under the threat of condemnation or while
condemnation proceedings are pending, and the condemnation shall be deemed to
occur in point of time upon the actual physical taking of possession pursuant to
the exercise of said power of eminent domain.
Article 13
GENERAL PROVISIONS
13.1 Construction of Agreement. The Agreement contained herein shall
not be construed in favor of or against either party, but shall be construed as
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if both parties prepared this Agreement. Optionee and Owner acknowledge that
they have been represented, or have had the opportunity to be represented, by
counsel of their own choice. Neither Optionee nor Owner is relying upon any
legal advice from the other party's counsel regarding the subject matter
thereof. Both parties acknowledge that they understand the terms and conditions
of this Agreement and the terms and conditions of all other documents and
agreements executed in connection herewith and that they sign the same freely.
Neither Optionee nor Owner shall deny the enforceability of any provision of
this Agreement or any of the other documents or agreements executed in
connection herewith on the basis that it did not have legal counsel or that it
did not understand any such term or condition. This Agreement and any
ambiguities or uncertainties contained in this Agreement shall be equally and
fairly interpreted for the benefit of and against all parties to this Agreement
and shall further be construed and interpreted without reference to the identity
of the party or parties preparing this document, it being expressly understood
and agreed that the parties hereto participated equally in the negotiation and
preparation of this Agreement or have had equal opportunity to do so.
Accordingly, the parties hereby waive the legal effect of California Civil Code
Section 1654 or any successor and/or amended statute which in part states that
in cases of uncertainty, the language of the contract should be interpreted most
strongly against the party who caused the uncertainty to exist.
13.2 Captions. The captions used in this Agreement are for
convenience only and are not a part of this Agreement and do not in any way
limit or amplify the terms and provisions hereof.
13.3 Governing Law. This Agreement and the documents in the forms
attached as exhibits hereto shall be governed by and construed under the
internal laws of the State of California without regard to choice of law rules.
This Agreement shall be deemed made and entered into in San Diego County.
13.4 Time of the Essence. Time is of the essence of each and every
provision of this Agreement and the Optionee, by execution of this Agreement,
specifically acknowledges the importance of observing each and every time period
in this Agreement.
13.5 Successors and Assigns. Subject to the restrictions and
prohibitions on assignment set forth in Article 11, each and all of the
covenants and conditions of this Agreement will inure to the benefit of and be
binding upon the successors in interest of Owner and the successors, heirs,
representatives and assigns of Optionee. As used in this Section, "successors"
means successors to the parties' interest in the Property, successors to all or
substantially all of the parties' assets, and successors by merger or
consolidation.
13.6 Remedies Cumulative. Except as expressly limited by this
Agreement, all rights, options and remedies of Owner contained in this Agreement
are cumulative, and no one of them is exclusive of the other, and Owner will
28
<PAGE>
have the right to pursue any one or all of such remedies or to seek damages or
specific performance in the event of any breach of the terms hereof by Optionee
or to pursue any other remedy or relief that may be provided by law or equity,
whether or not stated in this Agreement.
13.7 Waiver. No waiver by Owner or Optionee of a breach of any of the
terms, covenants or conditions of this Agreement by the other party will be
construed or held to be a waiver of any succeeding or preceding breach of the
same or any other term, covenant or condition herein contained. No waiver of any
default by Owner or Optionee under this Agreement will be implied from any
omission by the other party to take any action on account of the default if the
default persists or is repeated, and no express waiver will affect any default
other than as specified in the waiver. The consent or approval by either party
to or of any act by the other party requiring consent or approval does not waive
or render unnecessary consent or approval to or of any subsequent similar acts.
13.8 Attorney's Fees. If any action, arbitration, judicial reference
or other proceeding is instituted between Owner and Optionee in connection with
this Agreement, the losing party shall pay to the prevailing party a reasonable
sum for attorneys' and experts' fees and costs incurred in bringing or defending
such action or proceeding and/or enforcing any judgment granted therein, all of
which shall be deemed to have accrued upon the commencement of such action or
proceeding and shall be paid whether or not such action or proceeding is
prosecuted to final judgment. Any judgment or order entered in such action or
proceeding shall contain a specific provision providing for the recovery of
attorneys' fees and costs, separate from the judgment, incurred in enforcing
such judgment. The prevailing party shall be determined by the trier of fact
based upon an assessment of which party's major arguments or positions taken in
the proceedings could fairly be said to have prevailed over the other party's
major arguments or positions on major disputed issues. For the purposes of this
section, attorneys' fees shall include, without limitation, fees incurred in the
following: (1) post-judgment motions; (2) contempt proceedings; (3) garnishment,
levy, and debtor and third party examinations; (4) discovery; (5) any appeals;
and (6) bankruptcy proceedings. This Section is intended to be expressly
severable from the other provisions of this Agreement, is intended to survive
any judgment and is not to be deemed merged into the judgment.
13.9 Severability. If any phrase, clause, sentence, paragraph,
section, article or other portion of this Agreement is held by any court of
competent jurisdiction to be illegal, null or void or against public policy, the
remaining portions of this Agreement will not be affected thereby and will
remain in force and effect to the fullest extent permissible by law.
13.10 Gender and Number. In this Agreement (unless the context
requires otherwise), the masculine, feminine and neuter genders and the singular
and the plural include one another.
29
<PAGE>
13.11 No Real Estate Brokerage Commission. Owner shall not pay any
real estate, brokerage, finders or other commission or fee in connection with
the transaction contained in this Agreement. Each party hereby indemnifies,
protects, defends (with legal counsel acceptable to the other party) and holds
the other party free and harmless from and against any and all costs and
liabilities, including, without limitation, reasonable attorneys' fees, for
causes of action or proceedings that may be instituted by any broker, agent or
finder, licensed or otherwise, claiming through, under or by reason of the
conduct of such party in connection with this transaction.
13.12 Entire Agreement. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter of this
Agreement, and all prior and contemporaneous agreements, representations,
negotiations and understandings of the parties, oral or written, are hereby
superseded and are of no further force or effect and shall not be used to
interpret this Agreement. The foregoing sentence not affect the validity of any
instruments executed by the parties in the form of the exhibits attached to this
Agreement.
13.13 Notice and Payments. Any notice to be given or other document
to be delivered by any party to the other or others under this Agreement, and
any payments from Optionee to Owner, may be delivered in person to an officer of
any party, or may be deposited in the United States mail in the State of
California, duly certified or registered, return receipt requested, with postage
prepaid, or by Federal Express or other similar overnight delivery service, or
by facsimile, addressed to the party for whom intended, as follows:
To Owner at its Otay Land Company, LLC
business office: 1903 Wright Place, Suite 220
Carlsbad, CA 92008
Attn: Paul Borden, President
Facsimile No.: (760) 918-8200
Telephone No.: (760) 918-8210
With a copy to: Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, CA 92101
Attn: David M. Hymer, Esq.
Facsimile No.: (619) 645-5334
Telephone No.: (619) 699-2518
To Optionee at its Lakes Kean Argovitz Resorts-California, LLC
business office: c/o Kean Argovitz Resorts
11999 Katy Freeway, Suite 322
Houston, TX 77079
Attn: Jerry Argovitz
Facsimile No.: (281) 597-8480
Telephone No.: (281) 597-8779
30
<PAGE>
With a copy to: Lakes Gaming, Inc.
130 Chesire Lane
Minnetonka, MN 55305
Attn: Timothy Cope
Facsimile No.: (612) 449-7064
Telephone No.: (612) 449-9092
With a copy to: Kean Argovitz Resorts
2644 East Lakeshore Drive
Baton Rouge, LA 70808
Attn: Kevin Kean
Facsimile No.: (225) 388-9119
Telephone No.: (225) 388-9118
With a copy to: Duckor Spradling & Metzger
401 West A Street, Suite 2400
San Diego, CA 92101
Attn: Stephen A. Colley/Gary J. Spradling
Facsimile No.: (619) 236-6629
Telephone No.: (619) 231-3666
If to Escrow Chicago Title Company
Agent to: 925 "B" Street
San Diego, CA 92101
Attn: Shelva Molm
Facsimile No.: (619) 544-6250
Telephone No.: (619) 544-6229
Any party may from time to time, by written notice to the other, designate a
different address, which shall be substituted for the one above specified.
Unless otherwise specifically provided for in this Agreement, all notices,
payments, demands or other communications shall be in writing and shall be
deemed to have been duly given and received (i) upon personal delivery or (ii)
as of the third Business Day after mailing by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as set
forth above, or (iii) the immediately succeeding Business Day after timely
deposit with Federal Express or other equivalent overnight delivery system or
(iv) if sent by facsimile, upon confirmation if sent before 5:00 p.m. on a
Business Day or otherwise on the Business Day following confirmation of such
facsimile, and provided that notice is also sent on the same day by one of the
methods described above.
13.14 No Partnership or Joint Venture. Optionee and Owner expressly
acknowledge and agree that they are not joint venturers or partners, and do not
have fiduciary duties with respect to one another, in any manner whatsoever, in
connection with the acquisition, development or conveyance of the Property.
Nothing in this Agreement or any communication or other action between the
parties relating to the Property, is intended or shall be construed to create a
31
<PAGE>
joint venture, partnership or fiduciary relationship between Optionee and Owner
or their respective owners.
13.15 Modification. No modification, waiver, amendment, discharge or
change of this Agreement shall be valid unless it is in writing and signed by
the party against which the enforcement of such modification, waiver, amendment,
discharge or change is or may be sought.
13.16 No Warranties. Except as otherwise specifically provided
herein, neither Optionee nor Owner has made any representations, warranties or
agreement by or on behalf of either party to the other party as to any matters
concerning the Property. Each party waives any rights of rescission and all
claims for damages or the right to bring a suit for specific performance by
reason of any representation, warranty, or agreement, if any, not contained in
this Agreement.
13.17 Counterparts. This Agreement may be executed in counterparts,
each of which, when taken together, will constitute a fully executed original.
13.18 Exhibits and Schedules. All Exhibits and Schedules attached
hereto are incorporated herein by reference.
13.19 Not an Offer. Owner's delivery of unsigned copies of this
Agreement is solely for the purpose of review by the party to whom delivered,
and neither the delivery nor any prior communications between the parties,
whether oral or written, will in any way be construed as an offer by Owner, nor
in any way imply that Owner is under any obligation to enter the transaction
which is the subject of this Agreement. The signing of this Agreement by
Optionee constitutes an offer which will not be deemed accepted by Owner unless
and until Owner has signed this Agreement and delivered a duplicate original to
Optionee.
13.20 Confidentiality. Unless otherwise agreed to in writing by
Owner, Optionee will keep confidential the existence, terms and all other
matters relating to this Agreement and all documents, contracts, prices, plans,
specifications, strategies, marketing programs, financial statements, reports or
other information provided to, or generated by Owner relating to the Property
and will not disclose any such information to any person other than (i) those
employees and agents of Optionee who are actively and directly participating in
the evaluation of the Property, provided that any such disclosure shall be
limited to the information needed by such employees and agents to evaluate the
Property and any such employees and agents shall agree to maintain the
confidentiality of any such information, and (ii) the United States Bureau of
Indian Affairs to the extent required to comply with applicable legal
requirements. Optionee expressly covenants and agrees that it will not disclose
any code compliance, environmental or other regulatory matters to governmental
or other authorities without the express prior written approval by Owner unless
required by law, in which case Optionee shall immediately notify Owner thereof.
Upon any termination of this Agreement for any reason, Optionee will promptly
return to Owner copies of all documents or other information pertaining to the
32
<PAGE>
Property provided to Optionee by Owner, including, without limitation, the
Property Documents. The provisions of this Section will survive the Closing or
earlier termination of this Agreement. In addition to any other remedies
available to Owner at law or in equity, Owner will have the right to terminate
this Agreement in the event of any breach by Optionee under this Section, and
Optionee acknowledges that any such breach will be a material breach.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above-written.
OWNER: OPTIONEE:
OTAY LAND COMPANY, LLC, a LAKES KEAN ARGOVITZ RESORTS-
Delaware limited liability company CALIFORNIA, LLC, a Delaware
limited liability company
By: /s/ Paul J. Borden
------------------------------
Name: Paul J. Borden By: /s/ Jerry A. Argovitz
---------------------------- ------------------------------
Title: President Name: Jerry A. Argovitz
--------------------------- ----------------------------
Title: Director/Member
---------------------------
By: /s/ Kevin M. Kean
------------------------------
Name: Kevin M. Kean
----------------------------
Title: President
---------------------------
[SIGNATURES OF TWO APPROPRIATE
OFFICERS OR BOARD RESOLUTION
REQUIRED.]
33
<PAGE>
CONSENT OF ESCROW AGENT
The undersigned Escrow Agent hereby agrees to (i) accept the
foregoing Agreement, (ii) be escrow agent under said Agreement and (iii) be
bound by said Agreement in the performance of its duties as escrow agent;
provided, however, the undersigned shall have no obligations, liability or
responsibility under (i) this Consent or otherwise unless and until said
Agreement, fully signed by the parties, has been delivered to the undersigned or
(ii) any amendment to said Agreement unless and until the same shall be accepted
by the undersigned in writing.
DATED: CHICAGO TITLE COMPANY
----------------------- ("Escrow Agent")
By:
------------------------------------
Its:
--------------------------------
EXHIBIT 10.18
-------------
FIRST AMENDMENT TO OPTION AND
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
This FIRST AMENDMENT TO OPTION AND PURCHASE AGREEMENT AND ESCROW
INSTRUCTIONS ("Amendment") is made and effective as of December 8, 1999, by and
between OTAY LAND COMPANY, LLC, a Delaware limited liability company ("Owner"),
and LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA, LLC, a Delaware limited liability
company ("Optionee"), with reference to the facts set forth below.
RECITALS
A. Owner and Optionee entered into an Option and Purchase Agreement
and Escrow Instructions dated as of October 18, 1999 (the "Option Agreement"),
with respect to approximately eighty six (86) acres located in the County of San
Diego, California as more particularly described in the Option Agreement.
B. The parties desire to amend the Option Agreement on the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the recitals set forth above, the
mutual agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as set forth below.
1. Defined Terms. All terms with initial capital letters used herein
but not otherwise defined shall have the respective meanings set forth in the
Option Agreement.
2. Agreement Upon Road Alignment. Sections 4.2.3 and 4.3.2 of the
Option Agreement are hereby deleted in their entirety. Upon the Close of Escrow,
Owner will reserve in the Grant Deed a road easement in the location depicted in
Exhibit "A-1" attached to the Option Agreement (the "Road Alignment"). The road
easement will be exclusive except that Optionee may use the road easement for
purposes that do not interfere with the use of the road by Owner and its
invitees, successors and assigns and, if the road becomes a public road, such
easement shall be exclusive except to the extent the County of San Diego, allows
other uses. Owner will have the right to construct the road within the road
easement, at no expense to Optionee (except that Optionee will be responsible
for any improvements that provide access to the Property and any other cost to
accommodate Optionee's use or development of the Property), to County of San
Diego requirements and specifications and shall reserve in the Grant Deed an
easement for road, utility and related purposes, including the right to
construct, install, repair, maintain and replace the road and related utilities,
including a temporary easement for access and construction purposes over
portions of the Property adjacent to the road area. In addition, Optionee agrees
that Owner shall have the right to require Optionee to convey a new road
easement within the Road Alignment or fee title to the property within the Road
Alignment to the County for road purposes, in which case, for no additional
NY2:\891108\01\76830.0194
<PAGE>
consideration, Optionee will promptly execute and deliver any documents
reasonably necessary to effect such conveyance. Optionee shall have the right to
effectively relocate the road easement and the Road Alignment to another
location within the Property so long as (i) Optionee gives written notice to
Owner of such election prior to the earlier of the date Owner and its
consultants begin preparing improvement plans for the road or ten (10) Business
Days prior to the Close of Escrow, and, (ii) the new location of the road
easement and the Road Alignment is sufficient for construction of a public road
in accordance with County of San Diego, requirements and specifications. In such
event, the description of the road easement reserved in the Grant Deed will be
revised and Optionee agrees to execute and deliver to Owner any other documents
necessary to convey the road easement over the real property within the new
location of the Road Alignment to Owner. After the Close of Escrow, Optionee
will have no right to relocate the road easement.
3. Miscellaneous. This Amendment may be executed in counterparts,
each of which, taken together, shall constitute one fully executed original.
Except as expressly modified by this Amendment, the Option Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date set forth above.
OWNER: OPTIONEE:
OTAY LAND COMPANY, LLC, a LAKES KEAN ARGOVITZ RESORTS-
Delaware limited liability company CALIFORNIA, LLC, a Delaware
limited liability company
By: /s/ Paul J. Borden
------------------------------
Name: Paul J. Borden By: /s/ Jerry A. Argovitz
---------------------------- ------------------------------
Title: President Name: Jerry A. Argovitz
--------------------------- ----------------------------
Title: Member
---------------------------
By:
--------------------------
Name:
------------------------
Title:
-----------------------
2
EXHIBIT 10.19
-------------
SECOND AMENDMENT TO OPTION AND
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
This SECOND AMENDMENT TO OPTION AND PURCHASE AGREEMENT AND ESCROW
INSTRUCTIONS ("Amendment") is made and effective as of December 14, 1999, by and
between OTAY LAND COMPANY, LLC, a Delaware limited liability company ("Owner"),
and LAKES KEAN ARGOVITZ RESORTS-CALIFORNIA, LLC, a Delaware limited liability
company ("Optionee"), with reference to the facts set forth below.
RECITALS
A. Owner and Optionee entered into an Option and Purchase Agreement
and Escrow Instructions dated as of October 18, 1999, as amended on December 8,
1999 (the "Option Agreement"), with respect to approximately eighty six (86)
acres located in the County of San Diego, California as more particularly
described in the Option Agreement.
B. The parties desire to amend the Option Agreement on the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the recitals set forth above, the
mutual agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as set forth below.
1. Defined Terms. All terms with initial capital letters used herein
but not otherwise defined shall have the respective meanings set forth in the
Option Agreement.
2. Mitigation Property. Excluding the Property, Owner owns
approximately 3,278 acres located adjacent to or in the vicinity of the Property
in the area known as Proctor Valley within the County of San Diego County.
Portions of such property are designated as mitigation property (the "Mitigation
Property") under the Otay Ranch Phase 2 Resource Management Plan. Optionee has
advised Owner that Optionee intends to develop approximately forty (40) acres
within the Property (the "Development Property"). Owner agrees to allocate to
Optionee , for no additional consideration, up to five (5) acres of Mitigation
Property as necessary to mitigate the impacts of development of the Development
Property on certain endangered or threatened species or habitats. Such
allocation will be made by recordation of a conservation easement over such
Mitigation Property or by another method acceptable to the applicable
Governmental Agencies. In addition, subject to availability, Owner agrees to
allocate to Optionee additional Mitigation Property ("Additional Mitigation
Property") necessary to mitigate such impacts of development of the Development
Property in exchange for payment from Optionee to Owner, in Cash, of an amount
equal to Ten Thousand Dollars ($10,000) per acre. Prior to the Close of Escrow,
Optionee will notify Owner in writing of the amount of Mitigation Property
Optionee desires to have allocated to the Development Property. Optionee
acknowledges that Owner has the right to continue to market the Mitigation
Property for allocation to other parties and that Owner makes no representations
that any Additional Mitigation Property will be available to Optionee.
NY2:\890624\01\76830.0194
<PAGE>
3. Miscellaneous. This Amendment may be executed in counterparts,
each of which, taken together, shall constitute one fully executed original.
Except as expressly modified by this Amendment, the Option Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date set forth above.
OWNER: OPTIONEE:
OTAY LAND COMPANY, LLC, a LAKES KEAN ARGOVITZ RESORTS-
Delaware limited liability company CALIFORNIA, LLC, a Delaware
limited liability company
By: /s/ Paul J. Borden
------------------------------
Name: Paul J. Borden By: /s/ Jerry A. Argovitz
---------------------------- ------------------------------
Title: President Name: Jerry A. Argovitz
--------------------------- ----------------------------
Title: Member
---------------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
2
Exhibit 21
HomeFed Corporation
Subsidiaries as of December 31, 1999
Name State of Incorporation/Organization
HomeFed Communities, Inc California
HomeFed Resources Corporation California
Paradise Valley, LLC Delaware
Otay Land Company, LLC Delaware
NY2:\892787\01\76830.0194
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE ACCOMPANYING FORM 10-K AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,795
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,528
<CURRENT-LIABILITIES> 0
<BONDS> 20,552
0
0
<COMMON> 566
<OTHER-SE> (7,673)
<TOTAL-LIABILITY-AND-EQUITY> 27,528
<SALES> 2,600
<TOTAL-REVENUES> 2,859
<CGS> 2,636
<TOTAL-COSTS> 2,636
<OTHER-EXPENSES> 3,653
<LOSS-PROVISION> 365
<INTEREST-EXPENSE> 2,404
<INCOME-PRETAX> (6,978)
<INCOME-TAX> 24
<INCOME-CONTINUING> (7,002)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,282)
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
