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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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Commission file number 0-17189
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KOLL REAL ESTATE GROUP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 02-0426634
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
4343 VON KARMAN AVENUE
NEWPORT BEACH, CALIFORNIA 92660
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(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
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The number of shares of Class A Common Stock outstanding at November 1, 1995
were 47,412,587.
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KOLL REAL ESTATE GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I -- Financial Information:
Item 1 -- Financial Statements
Introduction to the Financial Statements........... 3
Balance Sheets --
December 31, 1994 and September 30, 1995........... 4
Statements of Operations --
Three Months and Nine Months Ended September 30,
1994 and 1995...................................... 5
Statements of Cash Flows --
Nine Months Ended September 30, 1994 and 1995...... 6
Notes to Financial Statements...................... 7
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 12
PART II -- Other Information:
Item 1 -- Legal Proceedings.................................. 15
Item 6 -- Exhibits and Reports on Form 8-K................... 16
SIGNATURE.................................................................. 16
</TABLE>
2
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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,
and the current year's previously issued Quarterly Reports on Form 10-Q.
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.
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KOLL REAL ESTATE GROUP, INC.
BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
December 31, September 30,
1994 1995
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<S> <C> <C>
ASSETS
Cash and cash equivalents (including restricted
cash of 7.5 and 2.7, respectively) $ 20.5 $ 5.2
Real estate held for development or sale 42.7 38.5
Operating properties, net 10.2 8.9
Land held for development 325.8 332.7
Other assets 23.8 15.8
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$423.0 $401.1
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities $ 31.8 $ 8.8
Senior debt -- 16.1
Subordinated debentures 152.9 167.8
Other liabilities 92.8 79.7
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Total liabilities 277.5 272.4
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Stockholders' equity:
Series A Preferred Stock .4 .4
Class A Common Stock 2.3 2.4
Capital in excess of par value 230.5 230.4
Deferred proceeds from stock issuance (1.6) (1.5)
Minimum pension liability (2.0) (2.0)
Accumulated deficit (84.1) (101.0)
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Total stockholders' equity 145.5 128.7
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$423.0 $401.1
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</TABLE>
See the accompanying notes to financial statements.
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KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1995 1994 1995
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<S> <C> <C> <C> <C>
REVENUES:
Asset Sales $ 4.9 $ 3.6 $ 8.4 $ 12.9
Operations 3.5 3.2 8.2 6.0
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8.4 6.8 16.6 18.9
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COSTS OF:
Asset Sales 4.8 3.1 8.3 10.9
Operations 3.1 2.8 7.6 7.5
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7.9 5.9 15.9 18.4
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Gross operating margin .5 .9 .7 .5
General and administrative expenses 2.0 1.8 6.5 5.9
Interest expense 4.7 5.9 13.7 16.8
Other expense (income), net .5 8.9 1.2 6.2
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Loss from continuing operations before
income taxes (6.7) (15.7) (20.7) (28.4)
Provision (benefit) for income taxes (2.3) (7.2) (7.1) (11.5)
------ ------ ------ ------
Loss from continuing operations (4.4) (8.5) (13.6) (16.9)
Gain on disposition of discontinued
operation, net of income taxes -- -- .7 --
------ ------ ------ ------
Net loss $ (4.4) $(8.5) $(12.9) $(16.9)
------ ------ ------ ------
------ ------ ------ ------
Earnings (loss) per common share:
Continuing operations $ (.10) $(.18) $ (.32) $(.36)
Discontinued operations -- -- .02 --
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Net loss per common share $ (.10) $(.18) $ (.30) $(.36)
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</TABLE>
See the accompanying notes to financial statements.
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KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(12.9) $(16.9)
Adjustments to reconcile to cash used by
operating activities:
Depreciation and amortization .9 .9
Non-cash interest expense 13.3 15.4
Asset revaluations -- 7.5
Gains on sales (.1) (2.0)
Gain on disposition of discontinued operation (.7) --
Proceeds from asset sales, net 7.9 12.2
Investments in real estate held for development
or sale (3.2) (10.5)
Investments in land held for development (7.5) (6.9)
Decrease in other assets 1.8 5.0
Decrease in accounts payable, accrued and
other liabilities (7.1) (36.1)
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Cash used by operating activities (7.6) (31.4)
Cash flows from investing activities:
Sale of short-term investments, net 18.7 --
Proceeds from disposition of discontinued operation 1.0 --
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Cash provided by investing activities 19.7 --
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Cash flows from financing activities:
Borrowings of senior debt -- 20.3
Repayments of senior debt (7.0) (4.2)
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Cash provided (used) by financing activities (7.0) 16.1
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Net increase (decrease) in cash and cash equivalents 5.1 (15.3)
Cash and cash equivalents -- beginning of period 21.8 20.5
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Cash and cash equivalents -- end of period $26.9 $ 5.2
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</TABLE>
See the accompanying notes to financial statements.
6
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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, and the current year's previously issued Quarterly Reports
on Form 10-Q.
NOTE 2 -- LOSS PER COMMON SHARE
The weighted average number of common shares outstanding for both the
three and nine month periods ended September 30, 1994 was 43.3 million
shares. The weighted average number of common shares outstanding for each of
the three and nine month periods ended September 30, 1995 was 47.3 million
and 47.0 million, 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 agencies for a Local Coastal Plan
("LCP") for wetlands restoration and residential development of up to 3,300
homes at Bolsa Chica, which was unanimously approved 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. The project still requires 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.
In July 1995, the Company was informed that the Ports of Long Beach and
Los Angeles and various federal and state agencies expected to enter into a
Memorandum of Agreement ("MOA") specifying the terms under which the various
agencies would grant mitigation credits, which are needed by the Ports to
expand their facilities, in exchange for Ports' funds to be used for
restoration, maintenance and monitoring of the wetlands in the Bolsa Chica
lowlands. Consistent with the objectives of the MOA, the Company
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announced that it had entered into an agreement with the American Land
Conservancy, a nonprofit conservation organization, to sell approximately 930
acres of its 1,200-acre Bolsa Chica property, representing substantially all
of the Company's lowland ownership at the site. Confidentiality arrangements
prevent the Company from releasing the price of the proposed sale. While the
agreement between the Company and the American Land Conservancy has expired,
discussions are continuing. However, there can be no assurance that a new
agreement will be entered into or that any transaction will be completed.
The ability of the Company to complete any such transaction would be subject
to substantial contingencies, including: (i) 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; (ii) Coastal Commission
approval of (a) the Ports' Master Plan amendments, including the amount of
mitigation credits to be granted in exchange for the Ports funding a $62
million wetlands restoration escrow account and (b) a wetlands restoration
plan for Bolsa Chica; and (iii) the American Land Conservancy securing
sufficient funds to complete the proposed transaction.
Under the 3,300 unit LCP which was approved by the Orange County Board
of Supervisors, the Company is committed to restoring the wetlands at Bolsa
Chica provided that state and federal agencies approve development of up to
900 homes in the lowlands. On November 3, 1995 the staff of the California
Coastal Commission released its report on the Bolsa Chica LCP. The
Commission's staff report recommends various modifications to the County's
LCP, which are unacceptable to both the County of Orange and the Company.
Due to the volume of the 261 page staff report and the fact that it was
released only eight business days before the scheduled hearing, the County of
Orange, which is the Coastal Commission applicant for the LCP, has determined
that more time is required to adequately address and refute the various
erroneous statements and infeasible recommendations made in the staff report.
The County has therefore requested a continuance of the Coastal Commission's
hearing to the Commission's next Southern California meeting in January 1996.
If the Coastal Commission approves the 3,300 unit LCP in January 1996,
the Company expects to commence infrastructure construction on the mesa in
1997. 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, among other things, violations
of the California Environmental Quality Act and violations of the California
Government Code planning and zoning laws. The plaintiffs in
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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. The Company and the County of Orange believe these lawsuits are
without merit and are vigorously defending them.
In the event that the County approved LCP is modified by the Coastal
Commission to materially reduce the number of residential units below 3,300,
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 and could
also impair the Company's ability to secure municipal bond financing for
infrastructure improvements necessary to develop Bolsa Chica.
NOTE 4 -- DEBT
SENIOR DEBT
In February 1995, the Company borrowed $15.5 million under a letter of
credit and reimbursement agreement with Nomura Asset Capital Corporation
("Nomura") which was used along with $6.5 million of restricted cash to
settle litigation with Abex Inc. and Wheelabrator Technologies Inc. As of
September 30, 1995, approximately $5 million was available under a
construction loan agreement with Nomura to fund infrastructure construction
at the Company's Rancho San Pasqual (formerly Eagle Crest) project.
The Company also borrowed $4.8 million under a construction loan
agreement with Bank of Boston during the nine months ended September 30, 1995
and applied $4.2 million in proceeds from sales of residential homes at the
Company's Wentworth By The Sea project in New Hampshire to satisfy required
prepayments, resulting in an outstanding balance of $.6 million as of
September 30, 1995. On November 2, 1995, the Company sold all of its
interest in the Wentworth residential land to its development manager for
$4.1 million in cash plus the buyer's prepayment of amounts outstanding under
the Bank of Boston credit agreement, which terminated this credit facility.
Cash payments for interest on senior debt were approximately $.4 million
and $.9 million for the nine months ended September 30, 1994 and 1995,
respectively.
9
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SUBORDINATED DEBT
Subordinated debt was comprised of the following (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1994 1995
------------ -------------
<S> <C> <C>
Senior subordinated debentures $123.0 $ 138.2
Subordinated debentures 30.7 34.5
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Total face amount 153.7 172.7
Less unamortized discount (6.2) (5.7)
Plus accrued interest 5.4 .8
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$152.9 $167.8
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</TABLE>
NOTE 5 -- INCOME TAXES
The Internal Revenue Service ("IRS") has completed its examinations of
the tax returns of the Company and its consolidated subsidiaries, including
formerly affiliated entities, for the years ended December 31, 1989, 1990 and
1991. With respect to each examination, the IRS has proposed material audit
adjustments. The Company disagrees with the positions taken by the IRS and
has filed a protest with the IRS to vigorously contest the proposed
adjustments. After review of the IRS's proposed adjustments, the Company
estimates that, if upheld, the adjustments could result in Federal tax
liability, before interest, of approximately $17,000,000 (net of amounts
which may be payable by former affiliates pursuant to tax sharing agreements)
and a disallowance of up to $83,000,000 of recognized net operating loss
carryforwards. The Company has not determined the extent of potential
accompanying state tax liability adjustments should the proposed IRS
adjustments be upheld. The Company's protest was filed on August 11, 1995 and
has not yet been considered by the IRS Appeals Division. Management currently
believes that the IRS's positions will not ultimately result in any material
adjustments to the Company's financial statements. Therefore, the Company has
not made any adjustments to its existing reserves for any prospective tax
liability or adverse tax consequence at this time. The Company is prepared
to pursue all available administrative and judicial appeal procedures with
regard to this matter and the Company is advised that its dispute with the
IRS could take up to five years to resolve.
Cash payments for federal, state and local income taxes were
approximately $.4 million and $.2 million for the nine months ended September
30, 1994 and 1995, respectively. Tax refunds received were $.8 million and
$.4 million for the nine months ended September 30, 1994 and 1995,
respectively.
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NOTE 6 -- COMMITMENTS AND CONTINGENCIES
As described in the Company's Form 10-K for the year ended December 31,
1994, the United States Environmental Protection Agency ("EPA") has
designated Universal Oil Products ("UOP"), among others, as a Potentially
Responsible Party ("PRP") with respect to an area of the Upper Peninsula of
Michigan (the "Torch Lake Site") under the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"). UOP is allegedly the successor in interest to one of the
companies that conducted mining operations in the Torch Lake area and an
affiliate of Allied Signal Inc., a predecessor of the Company. The Company
has not been named as a PRP at the site. However, Allied Signal has, through
UOP, asserted a contractual indemnification claim against the Company for all
claims that may be asserted against UOP by EPA or other parties with respect
to the site. EPA has proposed a clean-up plan which would involve covering
certain real property both contiguous and non-contiguous to Torch Lake with
soil and vegetation in order to address alleged risks posed by copper
tailings and slag at an estimated cost between $6 and $7.5 million. EPA
estimates that it has spent between $3 and $4 million to date in performing
studies of the site. Under CERCLA, EPA could assert claims against the Torch
Lake PRP's, including UOP, to recover the cost of these studies, the cost of
all remedial action required at the site, and natural resources damages. An
earlier settlement in principle with EPA staff pursuant to which UOP would
pay $1.7 million in exchange for a release similar to those normally granted
by EPA in such circumstances was rejected by certain other governmental
authorities in July 1993. Settlement negotiations between the Company, on
behalf of UOP, and EPA resumed shortly thereafter. In June 1995, EPA
proposed a CERCLA settlement pursuant to which UOP would pay approximately
$2.9 million in exchange for a limited covenant by EPA not to sue UOP in the
future. The Company, without admission of any obligation to UOP, has since
determined to vigorously defend UOP's position that the EPA's proposed
clean-up plan is unnecessary and inconsistent with the requirements of CERCLA
given that the EPA's own Site Assessment and Record of Decision found no
immediate threat to human health. In the Company's view the proposed
remediation costs would be in excess of any resulting benefits.
11
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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 residential, retail, office and industrial
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 development 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
and could also impair the Company's ability to secure municipal bond
financing for infrastructure improvements at Bolsa Chica. 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
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such properties and upon the availability of sources of financing for
carrying and developing such properties.
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 nine months ended September 30, 1995, the Company generated
an aggregate of approximately $12.2 million in cash from asset sales,
principally through the sale of wharfage rights in Coronado, California, the
sale of industrial property in Murrieta, California and sales of residential
homes at its Wentworth By The Sea project in New Hampshire ("Wentworth"),
before utilizing approximately $4.2 million of Wentworth proceeds to make
required prepayments of senior debt. At September 30, 1995 the Company's
unrestricted cash and cash equivalents aggregated $2.5 million and restricted
cash of $2.7 million was available to fund infrastructure improvements at the
Company's Rancho San Pasqual (formerly Eagle Crest) project. On November 2,
1995, the Company sold all of its residential property at Wentworth for
approximately $4.1 million in cash plus the buyer's prepayment of $.6 million
of bank debt and assumption of other related liabilities. The Company
continues to own the Wentworth marina, which is being actively marketed
for sale.
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 to
the Company until the Bolsa Chica project approvals are obtained, the Company
will continue to be dependent primarily on real estate asset sales, existing
financing arrangements (see Note 4) and cash and cash equivalents on-hand to
fund project development and general and administrative costs during 1995.
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FINANCIAL CONDITION
SEPTEMBER 30, 1995 COMPARED WITH DECEMBER 31, 1994
The $15.3 million decrease in cash and cash equivalents primarily
reflects the funding of project development costs during the nine months
ended September 30, 1995, as well as other activity presented in the
Statements of Cash Flows. Restricted cash of $2.7 million at September 30,
1995 reflects funds deposited into an escrow account, as required under the
construction loan agreement with Nomura, to be used solely for funding
infrastructure costs at the Company's Rancho San Pasqual residential project
in San Diego County.
The $8.0 million decrease in other assets primarily reflects the March
1995 collection of a note receivable from AV Partnership, equity in net
losses from AV Partnership during the pre-sales phase, the reclassification
of a note receivable to real estate held for development or sale upon
acquisition of title to industrial property in Ontario, California and the
refund of a deposit upon termination of a purchase contract for property
adjacent to the Bolsa Chica site.
The $23.0 million decrease in accounts payable and accrued liabilities
primarily reflects the February 1995 payment of $22 million to settle the
Abex litigation.
Senior debt of $16.1 million reflects the February 1995 borrowing of
$15.5 million under a letter of credit and reimbursement agreement with
Nomura to settle the Abex litigation discussed above and $.6 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 project.
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 SEPTEMBER 30, 1995 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1994
The $1.3 million decrease in asset sales revenues from $4.9 million in
1994 to $3.6 million in 1995 and the related decrease in the costs of asset
sales from $4.8 million in 1994 to $3.1 million in 1995 principally reflects
reduced residential sales at Wentworth, partially offset by the September
1995 sale of a leasehold interest in Grand Caribe Island in Coronado,
California and residential sales at the Company's Oceanside Hills project.
The decrease in revenues from operations from $3.5 million in 1994 to $3.2
million in 1995 primarily reflects lower revenues from golf operations due to
the September 1994 sale of the Company's Wentworth golf course.
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The change in other expense (income), net from $.5 million of expense in 1994
to $8.9 million of expense in 1995 primarily reflects $7.5 million in asset
revaluation losses on the Company's Wentworth project and the golf course at
Rancho San Pasqual (formerly Eagle Crest) to reflect estimated net realizable
values.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1994
The $4.5 million increase in asset sales revenues from $8.4 million in
1994 to $12.9 million in 1995 and the increase in the related costs of asset
sales from $8.3 million in 1994 to $10.9 million in 1995 principally reflects
the March 1995 sale of industrial property in Murrieta, California and the
May 1995 sale of wharfage rights in Coronado, California. The decrease in
revenues from operations from $8.2 million in 1994 to $6.0 million in 1995
primarily reflects an absence of revenues from the Wentworth golf course
which was sold in September 1994 and lower revenues from the Company's
domestic development business.
The increase in interest expense from $13.7 million in 1994 to $16.8
million in 1995 principally reflects higher outstanding balances of
subordinated debentures and senior debt during 1995.
The change in other expense (income), net from $1.2 million of expense
in 1994 to $6.2 million of income for 1995 primarily reflects $7.5 million in
asset revaluation losses on the Company's Wentworth project and the golf
course at Rancho San Pasqual to reflect estimated net realizable values,
partially offset by non-recurring income from reductions in excess
environmental reserves due to favorable governmental agency rulings in 1995.
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
"Item 3 -- Legal Proceedings" in the Company's Annual Report on Form
10-K for the Year Ended December 31, 1994 is incorporated herein by this
reference. See also Notes 5 and 6 of Notes to Financial Statements set forth
above in Part I -- Item 1.
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ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.1 Amendment to Construction Loan Agreement dated as of September 12,
1995 between the Registrant, Signal Landmark and Nomura Asset
Capital Corporation ("Nomura").
4.2 Amendment to Letter of Credit and Reimbursement Agreement dated as
of September 12, 1995 between the Registrant and Nomura.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
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 November 14, 1995 /s/ RAYMOND J. PACINI
----------------------------- ----------------------------------------
RAYMOND J. PACINI
Executive Vice President --
Chief Financial Officer
16
<PAGE>
FIRST AMENDMENT
TO CONSTRUCTION LOAN AGREEMENT
THIS FIRST AMENDMENT TO CONSTRUCTION LOAN AGREEMENT (this "Amendment")
is made as of September 12, 1995, by and among Koll Real Estate Group, Inc.,
a Delaware corporation ("KREG"), Signal Landmark, a California corporation
("Signal" and, collectively with KREG, the "Borrower") and Nomura Asset
Capital Corporation, a Delaware corporation (together with its successors and
assigns, the "Lender").
WHEREAS, Borrower and the Lender have entered into that certain
Construction Loan Agreement, dated as of December 20, 1995, and whereas the
terms of such agreement were modified by that certain Modification to
Construction Loan Agreement, dated as of April 5, 1995 (as so modified, the
"Loan Agreement").
WHEREAS, Borrower and the Lender now desire to amend the Loan Agreement,
upon the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing, the terms and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrower and the
Lender agree to amend the Loan Agreement as follows:
1. Section 1.1 of the Loan Agreement is hereby amended by adding the
following definitions:
"APPROVED BUDGET" shall mean the budget for Construction Costs for
the Eagle Crest Project approved by the Lender pursuant to this Agreement.
"CATEGORY" shall mean each of the scope of work categories set
forth in the Approved Budget, which categories may include, by way of example
and without limitation: Off-Site Improvements, On-Site Common Area
Improvements, On-Site Grading, Bonds, City, County and Utility Fees, Soil
Engineering Fees,and Architectural and other Engineering Fees, and
Contingency.
"CONTRACTOR" shall mean Koll Construction Company.
<PAGE>
"CONSTRUCTION COSTS" shall mean the actual costs incurred by
Borrower in connection with the construction of any Infrastructure (but in no
event including build-out costs of residential home units) including all
capitalized soft costs which are allowable under GAAP.
"CONSTRUCTION FUNDS" shall have the meaning assigned to such term
in Section 6.2(f) hereof.
"CONSTRUCTION PLANS" shall mean the plans and specifications for
the Eagle Crest Project approved by the Lender pursuant to this Agreement.
"DEVELOPMENT MANAGER" shall mean Akins Eagle Crest, Inc.
"ENGINEER" shall mean the City Engineer of the City of Escondido,
California or other independent construction inspector approved by the Lender
in its sole and absolute discretion.
2. Section 1.1 of the Loan Agreement is hereby amended by inserting the
following definitions in lieu of the definitions set forth for such terms in
the Loan Agreement:
"DRAW" shall mean each disbursement requested by Borrower to be
made by the Lender pursuant to the terms of this Agreement.
"DRAW FEE" shall have the meaning set forth in Section 2.2(b)
hereof.
"EAGLE CREST SECURITIES ACCOUNT" shall mean that certain securities
account # 324-141517, established with Wells Fargo Bank, N.A. in the name of
the Lender, as secured party, which, together with the KREG Securities
Account is the subject of the Securities Account Agreement, as amended.
"INFRASTRUCTURE" shall mean infrastructure improvements to real
property, including, without limitation, road, walkways, sewers, storm
drains, water mains, community walls and landscaping and all improvements for
the Eagle Crest Project set forth on the Construction Plans.
"NACC SHARE" shall mean, (i) from and after the date hereof, eighty
percent (80%) of all Net Cash Proceeds from each and every Permitted
2
<PAGE>
Sale; and (ii) from and after six months from the date hereof, ninety percent
(90%) of all Net Cash Proceeds from each and every Permitted Sale.
3. Section 2.1 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
Section 2.1 DISBURSEMENT PROCEDURES.
(a) DISBURSEMENT REQUESTS. The Loan proceeds (which in the aggregate
shall not exceed $5,000,000) shall be disbursed on a Category by Category
basis in accordance with the Approved Budget and subject to the terms and
conditions hereof solely for the purposes of funding Eagle Crest Project
Construction Costs. Draws shall be funded only upon Borrower's written
request in the form attached hereto as Exhibit G-1 (a "Disbursement Request")
showing all costs which Borrower intends to fund with such Draw, itemized in
such detail as the Lender may reasonably require, accompanied in each case by
(i) an Application and Certificate for Payment (AIA Documents G702 and G703)
or other document acceptable to the Lender containing certifications of the
Contractor and the Engineer, that construction which has been competed as of
the date of the Disbursement Request has been completed in accordance with
the Construction Plans, (ii) invoices and lien releases satisfactory to the
Lender, including, in any event, partial lien releases executed by each
contractor and subcontractor who has received any payment for work performed,
and (iii) all other documents and information reasonably required by the
Lender. Disbursement Requests shall be submitted in duplicate no less than
five (5) Business Days prior to the date of the requested Draw, and shall not
be submitted more often than monthly. Notwithstanding anything to the
contrary contained herein, except as provided in clause (c) below, in no
event shall the Lender have any obligation to fund a Draw with respect to any
Category if such Draw, when taken in the aggregate with all prior Draws would
exceed the amount originally set forth in the Approved Budget for such
Category. Further, notwithstanding anything herein to the contrary, the
Lender may, in its absolute discretion, fund Draws from time to time, in the
absence of a Disbursement Request, to pay the Lender fees and interest on the
Loan and to make payments reasonably deemed advisable by the Lender to
protect the Collateral Property, the Bolsa Chica Project or the Lender's
interests under any Loan Document or any LOC Document and to fulfill any
obligation of Borrower hereunder, including under Section 13.3 that Borrower
has not timely fulfilled.
3
<PAGE>
(b) MANNER OF DISBURSEMENT. The Lender may fund any Draw by wire
transfer, or check payable to Borrower, or on a voucher basis, or by check
payable jointly to Borrower and any contractor, subcontractor or other
claimant, or by any other means reasonably selected by the Lender.
(c) COST-OVERRUNS AND COST SAVINGS.
(i) In the event that, at any time and for any reason, the actual
cost (the "Actual Cost") reasonably estimated by the Lender or Borrower to be
required to complete all matters included in any Category in the Approved
Budget exceeds the amount allocated to that Category in the Approved Budget
(the "Approved Cost"), Borrower shall immediately notify the Lender and
shall, within thirty (30) days after it learns of the cost overrun, do one or
more of the following:
(1) provide satisfactory evidence to the Lender that Borrower
has previously paid the amount of the Actual Cost in excess of the
Approved Cost (the "Excess Cost") with funds from a source other than
the Loan;
(2) reallocate sufficient funds to such Category from funds
allocated to "contingency" in the Approved Budget; provided, however,
that the Lender's consent to any such reallocation shall be required
(which consent shall not be unreasonably withheld, conditioned or
delayed) unless the reallocated funds were originally transferred to
"Contingency" from cost savings pursuant to this Agreement; or
(3) deposit an amount equal to the Excess Cost in an interest-
bearing account (the "Overrun Account") from which withdrawals may be
made only with the consent of the Lender (which consent shall not be
unreasonably withheld, conditioned or delayed), or otherwise provide
the Lender with reasonable assurance that sufficient Net Cash Proceeds
will be available from Permitted Sales to allow Borrower to pay for
such cost overruns.
The Lender shall have no obligation to fund further Draws until
Borrower has paid or otherwise provided for the cost overrun as required above.
Amounts deposited by Borrower in the Overrun Account for any Category shall
4
<PAGE>
be disbursed by the Lender prior to the disbursement of any remaining Loan
proceeds for such Category.
(iii) COST SAVINGS. Upon completion of and disbursement
for all matters within any Category in the Approved Budget, any remaining
undisbursed amounts allocated to that Category shall be reallocated to the
"Contingency" Category and thereafter be available for disbursement in
accordance with the terms of this Agreement.
(d) RETAINAGE. As to each item in the Approved Budget designated
thereon as being subject to retainage, the Lender shall fund Draws for such
item in the amount of 90% of the costs of such item properly incurred and
substantiated by Borrower during the course of construction, with a retainage
of 10% of the total cost of work then completed. All amounts so retained
shall be disbursed upon satisfaction of all conditions to the final Draw;
provided, however, that Borrower may require the Lender to release a portion
of such retainage to any subcontractor that has fully performed under each
and all of its contracts relating to the Eagle Crest Project if all of the
following conditions precedent have been satisfied:
(i) Engineer shall have certified in writing to the Lender that
all of the work provided for in the applicable subcontract(s) has been
completed in accordance with the Construction Plans, and that all supplies to
be delivered by such subcontractor have been delivered;
(ii) The Contractor or the Development Manager and/or the
subcontractor shall have supplied the Lender with full and complete waivers
and lien releases in statutory form of all mechanics' lien claims in form and
substance reasonably satisfactory to the Lender and the title company;
(iii) Such subcontractor shall have completed all work and
supplied all materials it was obligated to complete and supply; and
(iv) Contractor, Development Manager and the Lender shall have
approved the work completed by such subcontractor, such approval not to be
unreasonably withheld, conditioned or delayed.
(e) OFFSITE MATERIALS. In the event that any Disbursement Request
includes the cost of materials stored at a location other than the Eagle Crest
5
<PAGE>
Project ("Offsite Materials"), such Disbursement Request shall include each of
the following:
(i) evidence that the Offsite Materials have been segregated from
other materials in the facility where held and have been appropriately marked to
indicate Borrower's ownership thereof and the Lender's security interest
therein; and
(ii) evidence that the Offsite Materials are insured as required
hereunder.
(f) WAIVER OF DISBURSEMENT CONDITIONS. Unless the Lender otherwise agrees
in writing, the funding by the Lender of any Draw with the knowledge that any
condition to such Draw is not fulfilled shall constitute a waiver of such
condition only with respect to the particular Draw made, and such condition
shall continue to be a condition to all further Draws until fulfilled.
4. Section 2.2(b) of the Loan Agreement is hereby deleted in its entirety and
replaced with the following Sections 2.2(b) and (c):
(b) AMENDMENT FEE. Concurrently with the execution and delivery of
the First Amendment to Loan Agreement, KREG shall pay to the Lender an Amendment
Fee equal to Thirty Thousand Dollars ($30,000).
(c) AMENDED DRAW FEES. Concurrently with the execution and delivery
of the First Amendment to Loan Agreement, KREG shall pay to the Lender a Draw
Fee equal to Seventy-Five Thousand Dollars ($75,000). KREG shall pay a second
Draw Fee equal to Seventy-Five Thousand Dollars ($75,000) together with the
first Disbursement Request made after an aggregate of Five Million Dollars have
been disbursed (and repaid) pursuant to the terms hereof.
5. Section 2.4 of the Loan Agreement is hereby amended by adding the following
at the end of such Section:
"In the event that SBC elects to sell all or any portion of the
Bolsa Chica Project to the American Land Conservancy, or any other purchaser
thereof, then the Lender shall permit such sale provided that Net Proceeds
therefrom are (i) sufficient to repay any and all amounts then outstanding
under the LOC Documents and the Loan Documents and (ii) actually applied to
the repayment of such amounts. In the event that all amounts then
outstanding hereunder are so repaid,
6
<PAGE>
Borrower shall nonetheless be entitled to draw an amount equal to $10,000,000
minus all amounts previously disbursed pursuant to the terms hereof
(provided, further, that in no event shall the total amount outstanding
hereunder exceed $5,000,000 at any time)."
6. Section 6.2 of the Loan Agreement is hereby amended by deleting subsections
6.2(f) and 6.2(g) and replacing them with the following:
(f) APPROVED BUDGET AND CONSTRUCTION REQUIREMENTS.
(i) The Lender shall have received and approved the Approved
Budget and the Construction Plans, together with any modifications or change
orders thereto, which approval shall not be unreasonably withheld conditioned or
delayed.
(ii) No stop notice or similar notice shall have been asserted
against the Eagle Crest Project which has not been released.
(iii) The Lender shall be satisfied, based on its own inspections
or other reliable information, that the development of the Eagle Crest Project
is progressing satisfactorily and in conformance with all applicable laws and
other requirements.
(iv) The Lender shall have received, at Borrower's sole expense,
in form and substance satisfactory to the Lender, from the Title Company all
endorsements to the Title Policy as the Lender may reasonably require,
including, without limitation, CLTA Form 122 (priority of advances).
(g) ADDITIONAL REQUIREMENTS FOR DRAWS SUBSEQUENT TO DISBURSEMENT OF THE
INITIAL DRAW PROCEEDS. KREG shall have the right to re-Draw up to an
additional $5,000,000 in the aggregate (after an aggregate of $5,000,000 of
Initial Draw Proceeds have been disbursed in accordance with Section 2.4 and
provided that such Initial Draw Proceeds have theretofore been repaid and no
Event of Default has occurred hereunder or under any of the LOC Documents)
for Eagle Crest Project Construction Costs, if and only if: (1) the Initial
Draw Proceeds, together with all interest, fees and other charges thereon
have been repaid in full and no Event of Default has occurred and is
continuing under the Loan Documents or the LOC Documents; (2) no fewer than
eighty (80) home sites at the Eagle Crest Project have been sold in
accordance with the terms and conditions
7
<PAGE>
hereof; (3) not more than two hundred (200) home sites at the Eagle Crest
Project have been sold in total; and (4) all matters relating to the Henley
Facilities Audit have been satisfactorily resolved or no Assessment
(including, without limitation, any Assessment resulting from the Henley
Facilities Audit) has been made, filed, or otherwise assessed against KREG,
any of its Affiliates, the Collateral, or any of the property, assets or
revenues of KREG.
7. Section 8.2 of the Loan Agreement is hereby amended by adding the following
language after the word "liabilities)" in the tenth line of such Section:
"other than up to $30,000,000 for actual Bolsa Chica development
costs incurred since January 1, 1995 (which costs may be included in
the calculation of Signal's assets and liabilities for purposes of
calculating the Minimum Net Worth Amount)"
8. Section 8.6 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
8.6 USE OF REMAINING NET CASH PROCEEDS; COMPLETION OF EAGLE CREST PROJECT
INFRASTRUCTURE.
(a) Signal agrees that it shall allocate and apply any and all Net
Cash Proceeds resulting from any Permitted Sale remaining after the proper
payment and application of the NACC Share in accordance with the terms hereof,
to the payment of Construction Costs in connection with the construction of the
Eagle Crest Project Infrastructure.
(b) Borrower covenants and agrees that it shall complete construction
(or cause the completion of construction) of the Eagle Crest Project
Infrastructure on or before the Maturity Date.
9. Section 9.1 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
9.1 PROHIBITION AGAINST FUNDAMENTAL CHANGES. Signal and its Subsidiaries
will not enter into any transaction of sale, transfer, merger, consolidation or
amalgamation of its ownership interests, or (except with respect to any Exempt
Guarantors which are Subsidiaries) liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution). Signal and its Subsidiaries will not
acquire any business or assets from, or capital stock of, or be a party to any
acquisition of,
8
<PAGE>
any Person except for (a) purchases of non-real property inventory and other
assets to be used in the ordinary course of business, (b) Investments
permitted under the Securities Account Agreement or Section 9.4 hereof, and
(c) purchases of real property or companies involved in the development,
entitlement or construction of residential housing, provided, however, that
such purchases shall be made through special purpose Subsidiaries and shall
not exceed $2,5000,000 per year in the aggregate. Subject to Signal's right
to effect a Permitted Sale in accordance with Section 13.13 hereof, Signal
and its Subsidiaries will not engage in any Assets Sales, in one transaction
or a series of transactions, whether to Affiliates of Signal or otherwise;
provided, however, that Signal or its Subsidiaries may engage in Asset Sales
with respect to (i) any non-real property inventory or other assets sold or
disposed of in the ordinary course of business; (ii) obsolete or worn-out
property, tools or equipment no longer used or useful in its business so long
as the amount thereof sold in any single fiscal year by Signal shall not have
a fair market value in excess of $50,000 in aggregate; or (iii) assets (other
than the Collateral Property, the Bolsa Chica Stock, the Bolsa Chica Project
or other Collateral) having an aggregate value of $5,000,000 or less per year
as to any one transaction or series of transactions; provided, however, that
the proceeds of any such sales are either applied to the repayment of the
Loan Amount and/or the Reimbursement Amount or are otherwise used by Signal
for the development of the Collateral Property or the Bolsa Chica Project;
further, Signal or SBC shall have the right to sell or to grant an option to
acquire up to fifty acres of the wetland portion of the Bolsa Chica Project
to Fieldstone Company (which owns property adjacent to the Bolsa Chica
Project) and to use any proceeds therefrom as part of a mitigation credit in
connection with the implementation of the Wetlands Restoration Plan required
as a condition to securing the entitlements of the Bolsa Chica Project and
the certification of the Environmental Impact Report for the Bolsa Chica
Project by the Orange County Board of Supervisors. Notwithstanding anything
to the contrary herein or in the other Loan Documents or the LOC Documents,
in the event that Signal fails to obtain any forecast entitlements or
approvals or satisfy any development targets or cash flow forecasts with
respect to the Collateral Properties and the Bolsa Chica Project, all as set
forth and projected on EXHIBIT C hereto, then ninety percent (90%) of the Net
Cash Proceeds from any and all Asset Sales of Signal and each of its
Subsidiaries shall be deposited into the Securities Account.
10. Section 9.3(f) of the Loan Agreement is hereby deleted in its entirety and
replaced with the following Sections 9.3(f) and (g):
9
<PAGE>
(f) Indebtedness incurred by a Subsidiary of KREG in connection with
the acquisition of a company involved in the development, entitlement or
construction of residential housing or commercial projects or in connection
with a Quick Flip Transaction, or an Asset Purchase Transaction permitted
hereunder; provided that such Indebtedness is expressly non-recourse to KREG,
Signal and the Guarantors and is not secured by any of the Collateral or the
Bolsa Chica Project and provided further that the Lender shall have consented
to the incurrence of such Indebtedness, which consent shall not be
unreasonably withheld, conditioned or delayed; and
(g) Indebtedness in connection with build-to-suit transactions incurred
by KREG Operating Company or its Subsidiaries, including guarantees of
completion made in connection with such build-to-suit transactions; provided
that the Indebtedness resulting from such build-to-suit transactions does not
in the aggregate exceed $20,000,000.
11. Section 9.6 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following
9.6 USE OF LOAN PROCEEDS. The amounts funded hereunder shall be used
solely for the purpose of paying for Construction Costs incurred by Signal
and approved by the Lender, which approval shall not be unreasonably
withheld, conditioned, or delayed, in connection with the construction of the
Eagle Crest Project Infrastructure. KREG and Signal agree that the Loan is a
"construction loan" as used in Section 6323(c)(2) of the Code.
12. Section 13.13 of the Loan Agreement is hereby deleted in its entirety
and replaced with the following:
13.13 RELEASE OF CERTAIN COLLATERAL. Signal will from time to time
during the term of the Loan have the right to sell (i) home sites at the
Eagle Crest Project in accordance with a disposition plan approved by the
Lender for not less than:
(1) $53,000 in Net Cash Proceeds per individual Product I lot (77
lots total);
(2) $53,000 in Net Cash Proceeds per individual Product II lot (126
lots total);
10
<PAGE>
(3) $40,000 in Net Cash Proceeds per individual Product III lot (136
lots total);
(4) $30,000 in Net Cash Proceeds per individual Product IV lot (109
lots total); and
(5) $120,000 in Net Cash Proceeds per individual Custom Lot (20 lots
total);
(which lots are set forth in the existing subdivision plans therefor), (ii)
the golf course at the Eagle Crest Project for not less than $7,000,000 in
Net Cash Proceeds and (iii) the Fairbanks Highlands Project for not less than
$7,000,000 in Net Cash Proceeds (any of the foregoing shall be referred to
herein as a "PERMITTED SALE"). Signal and the Lender contemplate that the
real property that is the subject of any such Permitted Sale shall be
Released from the Lien of the Mortgage encumbering such Collateral Property.
Provided that the NACC Share of Net Cash Proceeds resulting from each and
every Permitted Sale is delivered to the Lender or deposited into the
Securities Account as required under this Agreement, the Securities Account
Agreement, and the LOC Documents, the Lender agrees to execute a request for
partial reconveyance and deliver such request for partial reconveyance to the
Trustee for any portion of the Collateral Properties so sold, upon the sale
of such portion of the Collateral Properties to a bona fide third party
purchaser or to a KGT Affiliate or special purpose Subsidiary as permitted by
the terms hereof. Upon receipt of such partial release request and prior to
recording any partial release, Trustee shall obtain from Signal and deliver
to the Lender: (i) a copy of the preliminary closing statement for the
applicable Permitted Sale (with a copy of the final closing statement to
follow as soon as available after the closing of such Permitted Sale); and
(ii) a completed partial release request for execution by the Lender. The
Lender shall have no obligation to execute a partial release request with
respect to any portion of the Collateral Properties unless and until that
portion of sale proceeds relating thereto which are required to be delivered
to the Lender hereunder or under the LOC Documents have been so delivered to
the Lender. Notwithstanding the foregoing, KREG and Signal agree that if at
any time KREG or Signal obtains knowledge of any Federal tax lien or
Assessment (including, without limitation, any tax lien or Assessment in
connection with the Henley Facilities Audit), then KREG and Signal shall
immediately notify the Lender thereof telephonically and in writing. In no
event shall any otherwise Permitted Sales be permitted, and all pending
Permitted Sales shall be stayed, immediately upon KREG's or Signal's
knowledge of any Federal tax lien or Assessment (including, without
limitation, any tax lien
11
<PAGE>
or Assessment in connection with the Henley Facilities Audit) until such time as
the Lender, in its sole and absolute discretion, agrees in writing to permit
further Permitted Sales to occur.
13. The Lender shall agree to execute a letter, in substantially the form of
Exhibit K attached hereto.
14. Exhibit G to the Loan Agreement is hereby deleted in its entirety and
replaced with Exhibit G-1 attached hereto.
15. In addition to those expenses set forth in Section 13.3 of the Loan
Agreement, KREG agrees to pay or reimburse the Lender for paying: (a) all
reasonable out-of-pocket expenses of the Lender and any servicer of the Loan
(including, without limitation, the reasonable fees, charges and
disbursements of Skadden, Arps, Slate, Meagher & Flom, counsel to the Lender,
in connection with the negotiation, preparation, execution and delivery of
this Amendment) and the Lender's due diligence in connection with the
Collateral Properties; (b) all reasonable out-of-pocket travel and third
party due diligence expenses of the Lender and any servicer (including the
reasonable fees, charges and disbursements of counsel to the Lender and such
servicer ) in connection with the preparation, negotiation, review and
execution of any documents required pursuant hereto or to the Loan Documents;
and (c) all reasonable costs and expenses of the Lender and such servicer
(including reasonable counsel fees, charges and disbursements) in connection
with any Default and any enforcement or collection proceedings resulting
therefrom, including, without limitation, in connection with any bankruptcy,
insolvency, liquidation, reorganization, moratorium or other similar
proceedings involving KREG, Signal or the Guarantors or a "workout" of the
Loan.
16. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute but one and the same instrument and any
of the parties hereto may execute this Amendment by signing any such
counterpart.
17. Except as expressly amended hereby, the Loan Agreement shall continue
unmodified and remain in full force and effect.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date and year first above written.
KOLL REAL ESTATE GROUP, INC.,
a Delaware corporation
By: /s/ RAYMOND J. PACINI
_____________________________
Raymond J. Pacini
Chief Financial Officer and
Executive Vice President
SIGNAL LANDMARK,
a California corporation
By: /s/ RAYMOND J. PACINI
_____________________________
Raymond J. Pacini
Chief Financial Officer and
Executive Vice President
NOMURA ASSET CAPITAL CORPORATION
a Delaware corporation
By: /s/ RICHARD A. MAGNUSON
_____________________________
Richard A. Magnuson
Vice President
13
<PAGE>
EXHIBIT G-1
FORM OF DISBURSEMENT REQUEST
G-1
<PAGE>
EXHIBIT K
FORM OF SURETY LETTER
G-2
<PAGE>
FIRST AMENDMENT TO
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
THIS FIRST AMENDMENT TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT (this
"Amendment") is made as of September 12, 1995, by and between Koll Real Estate
Group, Inc., a Delaware corporation ("KREG") and Nomura Asset Capital Corpora-
tion, a Delaware corporation (together with its successors and assigns, "NACC").
WHEREAS, KREG and NACC have entered into that certain Letter of Credit and
Reimbursement Agreement, dated as of December 20, 1994 (the "Loan Agreement").
WHEREAS, KREG and NACC now desire to amend the Loan Agreement, upon the
terms and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing, the terms and conditions
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, KREG and NACC agree to amend the
Loan Agreement as follows:
1. Section 1.1 of the Loan Agreement is hereby amended by inserting the
following definitions in lieu of the definitions set forth for such terms in the
Loan Agreement:
"EAGLE CREST SECURITIES ACCOUNT" shall mean that certain securities
account # 324-141517, established with Wells Fargo Bank, N.A. in the name of
NACC, as secured party, which, together with the KREG Securities Account is the
subject of the Securities Account Agreement, as amended.
"INFRASTRUCTURE" shall mean infrastructure improvements to real
property, including, without limitation, road, walkways, sewers, storm drains,
water mains, community walls and landscaping and all improvements for the Eagle
Crest Project set forth on the "Construction Plans" (as such term is defined in
the Construction Loan Agreement).
"NACC SHARE" shall mean, (i) from and after the date hereof, eighty
percent (80%) of all Net Cash Proceeds from each and every Permitted
<PAGE>
Sale; and (ii) from and after six months from the date hereof, ninety percent
(90%) of all Net Cash Proceeds from each and every Permitted Sale.
2. Section 7.4 of the Loan Agreement is hereby amended by:
(a) deleting the phrase in the fifth line of such section which reads:
"eighty percent (80%) of all Net Cash Proceeds from such permitted sale (the
"NACC SHARE")" and inserting in its place the phrase "the NACC Share"; and
(b) adding the following at the end of such Section:
"In the event that SBC elects to sell all or any portion of the Bolsa
Chica Project to the American Land Conservancy, or any other purchaser thereof,
then NACC shall permit such sale provided that Net Cash Proceeds therefrom are
(i) sufficient to repay any and all amounts then outstanding under the Loan
Documents and the Construction Loan Documents and (ii) actually applied to the
repayment of such amounts."
3. Section 10.3 of the Loan Agreement is hereby amended by deleting subsection
10.3 (f).
4. Section 12.2 of the Loan Agreement is hereby amended by adding the
following language after the word "liabilities" in the fourth line of such
Section:
"(other than up to $30,000,000 for actual Bolsa Chica development
costs incurred since January 1, 1995 (which costs may be included in
the calculation of Signal's assets and liabilities for purposes of
calculating the Minimum Net Worth Amount))"
5. Section 12.6 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
12.6 USE OF REMAINING NET CASH PROCEEDS; COMPLETION OF EAGLE CREST PROJECT
INFRASTRUCTURE.
(a) KREG shall cause Signal to allocate and apply any and all Net
Cash Proceeds resulting from any Permitted Sale remaining after the proper
payment and application of the NACC Share in accordance with the terms hereof,
to the payment of "Construction Costs" (as such term is defined in the
Construc-
2
<PAGE>
tion Loan Agreement) in connection with the construction of the Eagle Crest
Project Infrastructure.
(b) KREG covenants and agrees that it shall complete construction (or
cause the completion of construction) of the Eagle Crest Project Infrastructure
on or before the Maturity Date of the Construction Loan.
6. Section 13.1(c) of the Loan Agreement is hereby modified by deleting clause
(v) thereof and replacing it with the following:
"(v) any other assets (other than the Collateral or the Bolsa Chica Project)
having an aggregate value of $5,000,000 or less per year; provided, however,
that the proceeds of any such sales are either applied to the repayment of the
Construction Loan and/or the Repayment Amount or are otherwise used by Signal
for the development of the Collateral Property or the Bolsa Chica Project."
7. Section 13.3(h) of the Loan Agreement is hereby deleted in its entirety and
replaced with the following Sections 13.3(h):
"(h)(i) Indebtedness incurred by a Subsidiary of KREG in connection with
the acquisition of a company involved in the development, entitlement or con-
struction of residential housing or commercial projects or in connection with a
Quick Flip Transaction, or an Asset Purchase Transaction permitted hereunder;
provided that such Indebtedness is expressly non-recourse to KREG, Signal and
the Guarantors and is not secured by any of the Collateral or the Bolsa Chica
Project and provided further that NACC shall have consented to the incurrence of
such Indebtedness, which consent shall not be unreasonably withheld, conditioned
or delayed; and (ii) Indebtedness in connection with build-to-suit transactions
incurred by KREG Operating Company or its Subsidiaries, including guarantees of
completion made in connection with such build-to-suit transactions; provided
that the Indebtedness resulting from such build-to-suit transactions does not in
the aggregate exceed $20,000,000."
8. In addition to those expenses set forth in Section 17.5 of the Loan Agree-
ment, KREG agrees to pay or reimburse NACC for paying: (a) all reasonable out-
of-pocket expenses of NACC and any servicer of the Loan (including, without
limitation, the reasonable fees, charges and disbursements of Skadden, Arps,
Slate, Meagher & Flom, counsel to NACC, in connection with the negotiation,
preparation, execution and delivery of this Amendment) and NACC's due diligence
in connection with the Collateral Properties; (b) all reasonable out-of-
3
<PAGE>
pocket travel and third party due diligence expenses of NACC and any servicer
(including the reasonable fees, charges and disbursements of counsel to NACC
and such servicer ) in connection with the preparation, negotiation, review
and execution of any documents required pursuant hereto or to the Loan
Documents; and (c) all reasonable costs and expenses of NACC and such
servicer (including reasonable counsel fees, charges and disbursements) in
connection with any Default and any enforcement or collection proceedings
resulting therefrom, including, without limitation, in connection with any
bankruptcy, insolvency, liquidation, reorganization, moratorium or other
similar proceedings involving KREG, Signal or the Guarantors or a "workout"
of the Loan.
9. This Amendment may be executed in any number of counterparts, all of which
taken together shall constitute but one and the same instrument and any of the
parties hereto may execute this Amendment by signing any such counterpart.
10. Except as expressly amended hereby, the Loan Agreement shall continue
unmodified and remain in full force and effect.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date and year first above written.
KOLL REAL ESTATE GROUP, INC.,
a Delaware corporation
By: /s/ RAYMOND J. PACINI
_____________________________
Raymond J. Pacini
Chief Financial Officer and
Executive Vice President
NOMURA ASSET CAPITAL CORPORATION
a Delaware corporation
By: /s/ RICHARD A. MAGNUSON
_____________________________
Richard A. Magnuson
Vice President
5
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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0
0
<OTHER-SE> 127
<TOTAL-LIABILITY-AND-EQUITY> 401
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<INCOME-TAX> (11)
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<NET-INCOME> (17)
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</TABLE>
