<PAGE>
This Form 10-Q consists of 14 sequentially numbered pages.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
--------------
Commission file number 0-17189
-------
KOLL REAL ESTATE GROUP, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 02-0426634
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
4343 Von Karman Avenue
Newport Beach, California 92660
---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 833-3030
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
----- -----
The number of shares of Class A Common Stock outstanding at May 1, 1995 were
46,763,746.
<PAGE>
KOLL REAL ESTATE GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
I N D E X
---------
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - Financial Information:
Item 1 - Financial Statements
Introduction to the Financial Statements............ 3
Balance Sheets -
December 31, 1994 and March 31, 1995................ 4
Statements of Operations -
Three Months Ended March 31, 1994 and 1995.......... 5
Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1995.......... 6
Notes to Financial Statements....................... 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 10
PART II - Other Information:
Item 1 - Legal Proceedings................................... 13
Item 6 - Exhibits and Reports on Form 8-K.................... 13
SIGNATURE............................................................. 14
</TABLE>
2
<PAGE>
KOLL REAL ESTATE GROUP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTRODUCTION TO THE FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by
Koll Real Estate Group, Inc. and its consolidated subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make the
information presented not misleading when read in conjunction with the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
The financial information presented herein reflects all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The results for interim periods are not necessarily
indicative of the results to be expected for the full year.
3
<PAGE>
KOLL REAL ESTATE GROUP, INC.
BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
------------ ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 13.0 $ 4.8
Short-term investments -- 5.6
Restricted cash 7.5 5.0
Real estate held for development or sale 42.7 40.6
Operating properties, net 10.2 10.1
Land held for development 325.8 328.0
Other assets 23.8 18.2
--------- ---------
$423.0 $412.3
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities $ 31.8 $ 8.6
Senior bank debt -- 16.0
Subordinated debentures 152.9 157.7
Other liabilities 92.8 90.2
--------- ---------
Total liabilities 277.5 272.5
--------- ---------
Stockholders' equity:
Series A Preferred Stock .4 .4
Class A Common Stock 2.3 2.3
Capital in excess of par value 230.5 230.2
Deferred proceeds from stock issuance (1.6) (1.3)
Minimum pension liability (2.0) (2.0)
Accumulated deficit (84.1) (89.8)
--------- ---------
Total stockholders' equity 145.5 139.8
--------- ---------
$423.0 $412.3
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1995
------ ------
<S> <C> <C>
REVENUES:
Asset Sales $ 1.1 $ 5.1
Operations 2.3 1.3
------ ------
3.4 6.4
------ ------
COSTS OF:
Asset Sales 1.1 5.1
Operations 2.1 2.2
------ ------
3.2 7.3
------ ------
Gross operating margin .2 (.9)
General and administrative expenses 2.6 2.1
Interest expense 4.4 5.3
Other expense (income), net .4 --
------ ------
Loss from continuing operations before
income taxes (7.2) (8.3)
Provision (benefit) for income taxes (2.5) (2.6)
------ ------
Loss from continuing operations (4.7) (5.7)
Gain on disposition of discontinued operations,
net of income taxes 0.7 --
------ ------
Net loss $(4.0) $(5.7)
------ ------
------ ------
Earnings (loss) per common share:
Continuing operations $(.11) $(.12)
Discontinued operations .02 --
------ ------
Net loss per common share $(.09) $(.12)
------ ------
------ ------
</TABLE>
See the accompanying notes to financial statements.
5
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4.0) $(5.7)
Adjustments to reconcile to cash used by operating activities:
Depreciation and amortization .3 .3
Non-cash interest expense 4.3 4.8
Gain on disposition of discontinued operation (.7) --
Proceeds from asset sales, net 1.1 4.9
Investments in real estate held for development or sale (.6) (2.2)
Investments in land held for development (2.6) (2.2)
Decrease in other assets 2.1 4.8
Decrease in accounts payable, accrued and
other liabilities (1.8) (25.8)
------ ------
Cash used by operating activities (1.9) (21.1)
------ ------
Cash flows from investing activities:
Purchase of short-term investments (.2) (5.6)
Proceeds from disposition of discontinued operation 1.0 --
------ ------
Cash provided (used) by investing activities .8 (5.6)
------ ------
Cash flows from financing activities:
Borrowings of senior bank debt -- 17.3
Repayments of senior bank debt (1.1) (1.3)
Withdrawal of restricted cash -- 7.5
Deposit of restricted cash -- (5.0)
------ ------
Cash provided (used) by financing activities (1.1) 18.5
------ ------
Net decrease in cash and cash equivalents (2.2) (8.2)
Cash and cash equivalents - beginning of period 21.8 13.0
------ ------
Cash and cash equivalents - end of period $19.6 $ 4.8
------ ------
------ ------
</TABLE>
See the accompanying notes to financial statements.
6
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements should be read in conjunction with
the Financial Statements and Notes thereto included in the Annual Report on Form
10-K of Koll Real Estate Group, Inc. (the "Company") for the year ended December
31, 1994.
NOTE 2 - LOSS PER COMMON SHARE
The weighted average number of common shares outstanding for the three
months ended March 31, 1994 and 1995 were 43.3 million shares and 46.6 million
shares, respectively. The Series A Preferred Stock is not included in the loss-
per-share calculations because the effect would be anti-dilutive.
NOTE 3 - LAND HELD FOR DEVELOPMENT
Land held for development consists of approximately 1,200 acres known as
Bolsa Chica located in Orange County, California, adjacent to the Pacific Ocean,
surrounded by the City of Huntington Beach and approximately 35 miles south of
downtown Los Angeles ("Bolsa Chica"). The Company is currently seeking approvals
from state and federal governmental entities for the 3,300 unit residential
development and wetlands restoration project approved for this site by the
Orange County Board of Supervisors in December 1994. The related development
agreement was unanimously approved by the Orange County Board of Supervisors in
April 1995, and the project remains subject to the approvals of the California
Coastal Commission and the U.S. Army Corps of Engineers. The Company, working
with various governmental, community and environmental groups, has developed a
quality master plan which reflects a 42% reduction in density (from 5,700 to
3,300 units) and a wetlands restoration plan to be funded by development of up
to 900 units in the lowlands. The Company therefore currently anticipates that
the remaining approvals will be secured on a timely basis. However, due to a
number of factors beyond the Company's control, including possible objections
of various environmental and so-called public interest groups that may be made
in legislative, administrative or judicial forums, the required approvals could
be delayed substantially; and there can be no assurance that the project will
receive final approvals as currently proposed. In this regard, on January 13,
1995, two lawsuits challenging the Orange County Board of Supervisors approval
of the Bolsa Chica project were filed in Orange County Superior Court. Although
the lawsuits differ in the particular issues they raise, generally they each
allege,
7
<PAGE>
among other things, violations of the California Environmental Quality Act and
violations of the California Government Code planning and zoning laws. The
plaintiffs in both actions are not seeking monetary damages, but are instead
asking the Court to set aside the approval of the Bolsa Chica project. The
plaintiffs in both lawsuits also seek attorneys' fees in unspecified amounts if
they prevail. Subject to these and other uncertainties inherent in the
entitlement process, the Company's goal is to obtain all material governmental
approvals in 1995 and to begin infrastructure construction in 1996, depending on
economic and market conditions.
The Company is engaged in continuing negotiations with various governmental
agencies regarding alternative proposals for wetlands restoration, which include
the possibility of the Company selling approximately 930 acres, which represents
substantially all of its lowlands property at Bolsa Chica. The ability of the
Company to complete any such sale is subject to substantial contingencies
including obtaining all final approvals from various governmental agencies for
development of up to 2,500 residential units on the Company's approximately 200
acres (and approximately 21 acres owned by third parties) on the Bolsa Chica
mesa. Therefore, there can be no assurance that these negotiations will result
in any transaction being completed. Under the 3,300 unit residential development
and wetlands restoration plan approved by the Orange County Board of
Supervisors, the Company is committed to restoring the wetlands at Bolsa Chica.
The Company believes that the approved plan is currently the only viable
alternative for wetlands restoration. However, during the ongoing entitlement
process for the Bolsa Chica project, the Company will continue to evaluate a
potential sale of the lowlands and any other viable alternative for restoring
the wetlands and accelerating development of this property. If the Company
accepts any such alternative which results in the number of residential units
being materially reduced below 3,300 units, a significant reduction in the book
value of the Bolsa Chica project currently reflected in the Company's financial
statements would result. Any such potential impact on the statement of
operations and stockholders' equity would be partially offset by a decrease in
deferred taxes. Realization of the Company's investment in Bolsa Chica will also
depend upon various economic factors, including the demand for residential
housing in the Southern California market and the availability of credit to the
Company and to the housing industry. While the December 1994 bankruptcy filing
by the County of Orange is not indicative of the state of the overall Orange
County economy, it appears to have had an adverse effect on residential real
estate.
8
<PAGE>
NOTE 4 - DEBT
SENIOR BANK DEBT
In February 1995, the Company borrowed $15.5 million under a letter of
credit and reimbursement agreement with Nomura Asset Capital Corporation which
was used along with $6.5 million of restricted cash to settle litigation with
Abex Inc. and Wheelabrator Technologies Inc.
The Company also borrowed $1.8 million under a construction loan agreement
with Bank of Boston during the three months ended March 31, 1995 and applied
$1.3 million in proceeds from sales of residential homes at the Company's
Wentworth By The Sea project in New Hampshire to satisfy required prepayments.
Cash payments for interest on senior bank debt were approximately $.1
million and $.3 million for the three month periods ended March 31, 1994 and
1995, respectively.
SUBORDINATED DEBT
Subordinated debt was comprised of the following (in millions):
<TABLE>
<CAPTION>
December 31, March 31
1994 1995
------------ --------
<S> <C> <C>
Senior subordinated debentures $123.0 $130.3
Subordinated debentures 30.7 32.6
------- ------
Total face amount 153.7 162.9
Less unamortized discount (6.2) (6.0)
Plus accrued interest 5.4 .8
------- ------
$152.9 $157.7
------- ------
------- ------
</TABLE>
NOTE 5 - INCOME TAXES
Cash payments for federal, state and local income taxes were approximately
$.3 million and $.1 million for the three months ended March 31, 1994 and 1995,
respectively. Tax refunds received were $.7 million and $.4 million for the
three months ended March 31, 1994 and 1995, respectively.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The principal activity of the Company is to obtain zoning and other
entitlements for land it owns and to improve the land for residential
development. Once the land is entitled, the Company may sell unimproved land to
other developers or investors; sell improved land to homebuilders; or
participate in joint ventures with other developers, investors or homebuilders
to finance and construct infrastructure and homes. The Company's principal
activities also include single and multi-family residential construction and
providing commercial, industrial, retail and residential development services to
third parties, including feasibility studies, entitlement coordination, project
planning, construction management, financing, marketing, acquisition,
disposition and asset management services on a national and international basis,
through its offices throughout California, and in Dallas, Denver, Mexico City,
Phoenix and Seattle. The Company intends to consider additional real estate
acquisition and joint venture opportunities; however, over the next year the
Company's principal objective is to maintain adequate liquidity to fully support
the Bolsa Chica project entitlement efforts.
Real estate held for development or sale and land held for development
(real estate properties) are carried at the lower of cost or estimated net
realizable value based on undiscounted cash flows. The Company's real estate
properties are subject to a number of uncertainties which can affect the future
values of those assets. These uncertainties include delays in obtaining zoning
and regulatory approvals, withdrawals or appeals of regulatory approvals and
availability of adequate capital, financing and cash flow. See "Item 1 -
Financial Statements: Note 3 - Land Held for Development" for a description of
Bolsa Chica, the Company's principal development project. In addition, future
values may be adversely affected by heightened environmental scrutiny,
limitations on the availability of water in Southern California, increases in
property taxes, increases in the costs of labor and materials and other
development risks, changes in general economic conditions, including higher
mortgage interest rates, and other real estate risks such as the demand for
housing generally and the supply of competitive products. While the December
1994 bankruptcy filing by the County of Orange is not indicative of the state of
the overall Orange County economy, it appears to have had an adverse effect on
residential real estate. Real estate properties do not constitute liquid assets
and, at any given time, it may be difficult to sell a particular property for an
appropriate price. The state of California's economy has had a negative impact
on the real estate market generally, on the availability of potential purchasers
for such properties and upon the availability of sources of financing for
carrying and developing such properties.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The principal assets in the Company's portfolio are residential land which
must be held over an extended period of time in order to be developed to a
condition that, in management's opinion, will ultimately maximize the return to
the Company. Consequently, the Company requires significant capital to finance
its real estate development operations. On February 6, 1995 the Company entered
into an agreement with Abex Inc. and Wheelabrator Technologies, Inc. which
settled litigation (the "Abex litigation") regarding certain tax sharing
agreements. Under the terms of the agreement, the Company paid an aggregate of
$22 million, $15.5 million of which was funded by borrowings under a financing
agreement with Nomura Asset Capital Corporation ("Nomura") and the balance of
$6.5 million was funded from restricted cash. During the first three months of
1995, Company asset sales generated an aggregate of approximately $4.9 million,
principally through the sale of industrial property in Murrieta, California and
sales of residential homes at its Wentworth By The Sea project in New Hampshire,
before utilizing approximately $1.3 million of Wentworth proceeds to make
required prepayments of senior bank debt. At March 31, 1995 the Company's
unrestricted cash, cash equivalents and short-term investments aggregated $10.3
million. Historically, sources of capital have included bank lines of credit,
specific property financings, asset sales and available internal funds. The
Company has reported losses since 1991, with the exception of 1993 results which
included gains on dispositions and extinguishment of debt, and expects to report
losses in the foreseeable future. While a significant portion of such losses is
attributable to non-cash interest expense on the Company's subordinated
debentures, the Company's capital expenditures for project development are
significant. Given the limited availability of capital for residential land
development under current conditions in the financial markets, the Company will
continue to be dependent primarily on real estate sales, existing financing
arrangements and cash, cash equivalents and short-term investments on-hand to
fund project development and general and administrative costs during 1995.
11
<PAGE>
FINANCIAL CONDITION
MARCH 31, 1995 COMPARED WITH DECEMBER 31, 1994
The $8.2 million decrease in cash and cash equivalents primarily reflects
purchases of short-term investments and the funding of project development costs
during the first quarter, as well as other activity presented in the Statements
of Cash Flows. Restricted cash of $5.1 million at March 31, 1995 reflects funds
deposited into an escrow account, as required under a construction loan
agreement with Nomura to be used solely for funding infrastructure costs at the
Company's Eagle Crest residential project in San Diego County.
The $5.6 million decrease in other assets primarily reflects the March 1995
collection of a note receivable from AV Partnership and the refund of a deposit
upon termination of a purchase contract for property adjacent to the Bolsa Chica
site.
The $23.2 million decrease in accounts payable and accrued liabilities
primarily reflects the February 1995 payment of $22 million to settle the Abex
litigation.
Senior bank debt of $16.0 million reflects borrowings of $15.5 million
during the three months ended March 31, 1995 under a letter of credit and
reimbursement agreement with Nomura to settle the Abex litigation discussed
above and $.5 million of net borrowings under a construction loan agreement with
Bank of Boston for development and construction of single-family homes at the
Company's Wentworth By The Sea project in New Hampshire.
RESULTS OF OPERATIONS
The nature of the Company's business is such that individual transactions
often cause significant fluctuations in operating results from year to year.
THREE MONTHS ENDED MARCH 31, 1995 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1994
The $4.0 million increase in revenues from asset sales of $1.1 million in
1994 to $5.1 million in 1995 and the increase in the related costs of sales from
$1.1 million in 1994 to $5.1 million in 1995 principally reflect an increase in
residential home sales at the Company's Wentworth By The Sea project during the
three months ended March 31, 1995, and the March 1995 sale of industrial
property in Murrieta, California. The decrease in revenues from operations from
$2.3 million in 1994 to $1.3 million in 1995 primarily reflects lower revenues
in the Company's domestic development business.
The increase in interest expense from $4.4 million in 1994 to $5.3 million
in 1995 principally reflects higher outstanding balances of subordinated
debentures and senior bank debt at March 31, 1995.
12
<PAGE>
The $.4 million decrease in other expense (income), net primarily reflects
non-recurring income from forgiveness of certain accrued liabilities in
connection with the February 1995 agreement to settle the Abex litigation.
The gain on disposition of discontinued operations, net of income taxes for
the 1994 period reflects the receipt of cash for the February 1994 termination
of the contingent payment provision of a December 1993 agreement with Libra
Invest & Trade Ltd. ("Libra") whereby the Company exchanged its Lake Superior
Land Company subsidiary for approximately $42.4 million face amount of the
Company's senior subordinated debentures held by Libra and other consideration.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
See "Item 3 - Legal Proceedings" in the Company's Annual Report on Form
10-K for the Year Ended December 31, 1994.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Promissory Note Agreement dated as of April 29, 1995 between the
Registrant and AV Partnership.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
KOLL REAL ESTATE GROUP, INC.
Date May 12, 1995 /s/ RAYMOND J. PACINI
------------- ------------------------------
RAYMOND J. PACINI
Executive Vice President -
Chief Financial Officer
14
<PAGE>
PROMISSORY NOTE
$4,000,000
Newport Beach, California
Dated: April 29, 1995
On or before June 1, 1995 ("Due Date"), for value
received, AV PARTNERSHIP, a California general partnership
("Maker"), promises to pay to KOLL REAL ESTATE GROUP, INC., a
Delaware corporation, ("Holder"), or order, at 4343 Von Karman
Avenue, Newport Beach, California 92660, the principal sum of
FOUR MILLION DOLLARS ($4,000,000.00), or so much of such sum as
may be advanced under this Note by any holder, with interest on
the principal sum from the date of each advance under the loan
until paid at the per annum rate of twelve and one-half percent
(12.5%) (the "Effective Rate").
Interest on funds advanced will be computed at the
Effective Rate based on a three hundred sixty-five (365) day year
and the actual number of days elapsed. Interest only will be due
and payable monthly on the first day of each and every month
following the date of this Note on funds advanced and continuing
to and including the Due Date, when the entire principal sum, or
so much thereof as may be actually outstanding on such date,
along with accrued but unpaid interest, shall be immediately due
and payable. Principal and interest shall be payable in lawful
money of the United States of America in immediately available
funds.
LATE CHARGE
In addition to the foregoing, if Maker shall fail to
make any payment of interest or principal, including the payment
due upon maturity, within ten (10) days after the date the same
is due and payable, a late charge equal to two percent (2%) of
the delinquent amount shall be immediately due and payable.
Maker willingly undertakes the obligation to pay such late charge
as additional consideration to persuade Holder to make the loan.
Maker acknowledges that any default in making payments when due
will result in Holder incurring additional expenses, in loss to
Holder of the use of the money due, and in frustration and
<PAGE>
disruption of Holder's arrangement of its financial affairs.
Maker acknowledges and represents that the late charge is not
intended to be a penalty, and shall be fully enforceable and
binding upon Maker to the same, full extent as each and all other
obligations of Maker hereunder.
ACCELERATION OF MATURITY
On the occurrence of any of the following, Holder shall
have the right to declare the entire balance of principal and
interest immediately due and payable in full: if there is a
failure to make any payment hereunder when due; or if the
undersigned (a) becomes insolvent, (b) defaults in payment of any
debt to Holder, (c) commits an act of bankruptcy, (d) suffers a
material adverse change of financial condition, (e) defaults any
note, loan, deed of trust or agreement with FS Equity Partners
III, L.P. which the undersigned fails to cure timely within the
grace period(s), if any, set forth in such document, or
(f) defaults on any note, loan, deed of trust or agreement with
any other person or entity if the default provides such person or
entity with a right to foreclose against any property owned by
Maker.
INTEREST AFTER MATURITY DATE
The total amount of principal and interest unpaid on
the maturity date stated above shall thereafter bear interest at
a rate of five percent (5%) per annum over the Effective Rate.
ADDITIONAL AGREEMENTS
Maker and its successors and assigns hereby consents to
renewals and extensions of time before, at, or after the maturity
hereof, and waive diligence, presentment, demand, and notice of
nonpayment, protest, notice of protest, and notice of every kind,
and waive the right to set up the defense of any statute of
limitations to any debt or obligation herein. Such waiver of
defenses shall be effective for the maximum period of time and to
the full extent permissible by law.
If this Note is not paid when due, Maker promises to
pay all costs and expenses of collection and reasonable
attorney's fees incurred by the Holder to enforce the terms of
2
<PAGE>
this Note, including those expenses and fees which may be
incurred in connection with the appointment of a receiver and all
appearances in bankruptcy or insolvency proceedings. In any
action brought under or arising out of this Note, Maker hereby
consents to the jurisdiction of any competent court within the
State of California and to service of process by any means
authorized by California law. The Holder shall at all times have
the right to proceed against any portion of the security for this
Note in such order and in such manner as the Holder may consider
appropriate without waiving any rights with respect to any such
security. Any delay or omission on the part of the Holder in
exercising any right herein shall not operate as a waiver of such
right or any other right under this Note. This Note may not be
terminated or amended orally, but only by a document in writing
signed by the Holder and Maker. This Note shall be governed by
and construed in accordance with laws of the State of California.
Upon receipt of evidence reasonably satisfactory to
Maker of the loss, theft, destruction or mutilation of this Note
and, in the case of loss, theft or destruction of this Note, upon
receipt of indemnity reasonably satisfactory to Maker from the
Holder hereof (except that if Payee is the Holder of this Note,
an indemnification from Payee shall be sufficient) or, in the
case of mutilation, upon surrender of the mutilated Note, the
Maker will make and deliver a new Note of like tenor in lieu of
this Note.
This Note shall be binding upon and shall inure to the
benefit of Maker, Holder, and their successors and assigns.
Notwithstanding anything herein to the contrary, the
Holder has made the loan evidenced by this Note on the basis of
and has not intended to charge, take or receive a usurious rate
of interest. If for any reason a court finds said rate to be
usurious, then the rate to be charged hereunder shall be reduced
to the highest rate then found to be permissible by said court,
and the remaining unpaid balance of this Note, together with the
accrued interest, shall become and be immediately due and payable
in full.
3
<PAGE>
The Maker of this Note acknowledges that the loan
evidenced by this Note was made or arranged by a real estate
broker.
MAKER:
AV PARTNERSHIP,
a California general partnership
By: AV Development Corporation,
a Delaware Corporation
Its General Partner
By: /s/ WILLIAM WARDLAW
---------------------------
William Wardlaw
President
By: Kathryn G. Thompson Company
a California corporation
Its General Partner
By: /s/ KATHRYN G. THOMPSON
---------------------------
Kathryn G. Thompson
Chairman of its Board of Directors
By: /s/ J. HAROLD STREET
---------------------------
J. Harold Street
Its President
By: RSB Investment, Inc.
a California corporation
Its General Partner
By: /s/ ROBERT S. BENNETT
---------------------------
Robert S. Bennett
President
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 379
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 412
<CURRENT-LIABILITIES> 0
<BONDS> 158
<COMMON> 2
0
0
<OTHER-SE> 138
<TOTAL-LIABILITY-AND-EQUITY> 412
<SALES> 5
<TOTAL-REVENUES> 6
<CGS> 5
<TOTAL-COSTS> 7
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (8)
<INCOME-TAX> (2)
<INCOME-CONTINUING> (6)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
