<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1996
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
KOLL REAL ESTATE GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6749 02-0426634
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
4343 VON KARMAN AVENUE, NEWPORT BEACH, CALIFORNIA 92660
(714) 833-3030
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
RAYMOND J. PACINI
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Koll Real Estate Group, Inc.
4343 Von Karman
Newport Beach, CA 92660
714-833-3030
(Name and address, including zip code, of agent for service)
--------------------------
COPIES TO:
GREGORY W. PRESTON, ESQ.
ROBERT I. NEWTON, ESQ.
McDermott, Will & Emery
1301 Dove Street
Newport Beach, CA 92660-2444
telephone (714) 851-0633
facsimile (714) 851-9348
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: SECURITIES
WILL BE DISTRIBUTED TO EXCHANGING DEBENTUREHOLDERS, COMMON AND PREFERRED
STOCKHOLDERS OF KOLL REAL ESTATE GROUP, INC. (THE "COMPANY") AND TO CERTAIN
FINANCIAL ADVISORS UPON CONSUMMATION OF THE EXCHANGE OFFER AND CAPITAL STOCK
COMBINATION TRANSACTIONS DESCRIBED IN THIS REGISTRATION STATEMENT.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.05 per share
("Common Stock") to be offered in exchange
for 12% Senior Subordinated Pay-In-Kind
Debentures due March 15, 2002 ("Senior
Debentures")................................. 9,359,208 (2) (2) (2)
Common Stock to be offered in exchange for 12%
Subordinated Pay-In-Kind Debentures due March
15, 2002 ("Subordinated Debentures")......... 1,169,901 (3) (3) (3)
Common Stock to be issued in the Capital Stock
Combination described in this Registration
Statement upon the reclassification and
consolidation of outstanding shares of Series
A Convertible Redeemable Preferred Stock
("Preferred Stock").......................... 680,516(4) (5) (5) (5)
Common Stock to be issued in the Capital Stock
Combination described in this Registration
Statement upon the reclassification and
consolidation of outstanding shares of Class
A Common Stock............................... 489,385(4) (6) (6) (6)
Common Stock to be issued in payment of
financial advisory services.................. 107,636(7) (8) (8) (8)
Total shares of Common Stock to be issued under
this Registration Statement.................. 11,806,646(9) $40,411(9)
</TABLE>
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(1) The shares of Common Stock offered hereby are on a post-Capital Stock
Combination and post-Reverse Stock Split basis as described in this
Registration Statement.
(2) For the purpose of calculating the registration fee in connection with the
Common Stock offered hereby in exchange for Senior Debentures, the aggregate
value of the shares of Common Stock has been computed in accordance with
Rule 457(f) by calculating the aggregate value of the Senior Debentures, on
the basis of the average of the bid and asked price of the Senior Debentures
($.645 per $1.00 face amount) in the over-the-counter market on February 12,
1997. The resulting aggregate value of $100,152,679 was then multiplied by
1/33 of one percent to arrive at a registration fee for the shares of Common
Stock offered in exchange for the Senior Debentures equal to $30,349.
(3) For the purpose of calculating the registration fee in connection with the
Common Stock offered hereby in exchange for Subordinated Debentures, the
aggregate value of the shares of Common Stock has been computed in
accordance with Rule 457(f) by calculating the aggregate value of the
Subordinated Debentures, on the basis of the average of the bid and asked
price of the Subordinated Debentures ($.325 per $1.00 face amount) in the
over-the-counter market on February 18, 1997. The resulting aggregate value
of $12,612,962 was then multiplied by 1/33 of one percent to arrive at a
registration fee for the shares of Common Stock offered in exchange for the
Subordinated Debentures equal to $3,822.
(4) Includes such presently indeterminate number of shares of Common Stock as
may be sold by the Exchange Agent in payment of fractional shares in
connection with the Reverse Stock Split described in the Registration
Statement.
(5) For the purpose of calculating the registration fee in connection with the
Common Stock to be issued hereby upon the reclassification of all
outstanding shares of Preferred Stock pursuant to the Capital Stock
Combination and Reverse Stock Split described in this Registration
Statement, the aggregate value of the shares of Common Stock has been
computed in accordance with Rule 457(f) by calculating the aggregate value
of the currently outstanding shares of Preferred Stock, on the basis of the
average of the high and low prices per share of the Preferred Stock
($.265625) as reported on NASDAQ-NMS on February 18, 1997. The resulting
aggregate value of $10,329,260 was then multiplied by 1/33 of one percent to
arrive at a registration fee for the shares of Common Stock deemed to be
issued with respect to the outstanding shares of Preferred Stock pursuant to
the Capital Stock Combination equal to $3,130.
(6) For the purpose of calculating the registration fee in connection with the
Common Stock to be issued hereby upon the reclassification of all
outstanding shares of Class A Common Stock pursuant to the Capital Stock
Combination and Reverse Stock Split described in this Registration
Statement, the aggregate value of the shares of Common Stock has been
computed in accordance with Rule 457(f) by calculating the aggregate value
of the currently outstanding shares of Class A Common Stock, on the basis of
the average of the high and low prices per share of the Class A Common Stock
($.171876) as reported on NASDAQ-NMS on February 18, 1997. The resulting
aggregate value of $8,411,312 was then multiplied by 1/33 of one percent to
arrive at a registration fee for the shares of Common Stock deemed to be
issued with respect to the outstanding shares of Class A Common Stock
pursuant to the Capital Stock Combination equal to $2,549.
(7) Includes such presently indeterminate number of shares of Common Stock,
currently estimated to equal 107,636, on a post Capital Stock Combination
and Reverse Stock Split basis, as are issuable pursuant to the exercise of
warrants described in this Registration Statement to be issued in payment of
financial advisory services in connection with the Recapitalization
described in this Registration Statement. Such shares are expected to be
reoffered by the financial advisors within the next two (2) years pursuant
to Rule 415. The exact number of shares issuable upon exercise of such
warrants is equal to that number of shares which have an aggregate market
value equal to $1,850,000 based upon the 20-day average trading price
immediately following the consummation of the Recapitalization described in
this Registration Statement. Such shares include 33,955 shares of Common
Stock currently held at record by Libra Invest & Trade Ltd. ("Libra") for
the benefit of the Company pursuant to a custody agreement between Libra and
the Company and such number of newly issued shares of Common Stock necessary
to satisfy the terms of the warrants.
(8) For the purpose of calculating the registration fee in connection with the
Common Stock to be issued in payment of financial advisory fees upon
exercise of the warrants to be issued to the respective financial advisors,
the aggregate value of the shares of Common Stock has been computed based on
the market value of such shares as described in such warrants. The resulting
aggregate value of $1,850,000 was then multiplied by 1/33 of one percent to
arrive at a registration fee for the shares of Common Stock to be issued
pursuant to the warrants in payment of financial advisory fees and reoffered
by such financial advisor hereunder equal to $561.
(9) The aggregate registration fee of $40,411 was calculated by adding the
registration fees calculated pursuant to notes (2), (3), (5), (6) and (8)
above.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
LOCATION IN
FORM S-4 ITEM NO. AND CAPTION PROXY STATEMENT/PROSPECTUS
- -------------------------------------------------------------------------- ----------------------------------------------------
<C> <C> <S> <C>
A. Information About the Transaction
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.......................... Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ AVAILABLE INFORMATION; TABLE OF CONTENTS
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................. SUMMARY; INTRODUCTION; RISK FACTORS
4. Terms of the Transaction............................ SUMMARY--The Recapitalization;
SUMMARY--The Exchange Offers and Related Consent
Solicitations; SUMMARY--The Plan; THE COMPANY
RECAPITALIZATION; THE EXCHANGE OFFERS; THE PLAN;
SHARES SUBJECT TO FUTURE SALE BY FINANCIAL
ADVISORS; DESCRIPTION OF THE COMMON STOCK;
POSSIBLE ACCOUNTING TREATMENTS
5. Pro Forma Financial Information..................... SUMMARY--Selected Historical and Pro Forma Financial
Data; UNAUDITED HISTORIC AND PRO FORMA CONSOLI-
DATED FINANCIAL STATEMENTS
6. Material Contacts with the Company Being Acquired... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters..... SHARES SUBJECT TO FUTURE SALE BY FINANCIAL ADVISORS
8. Interests of Named Experts and Counsel.............. Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3 Registrants......... Not Applicable
11. Incorporation of Certain Information by Reference... Not Applicable
12. Information with Respect to S-2 or S-3
Registrants....................................... Not Applicable
13. Incorporation of Certain Information by Reference... Not Applicable
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants............................ SUMMARY--The Company; BUSINESS AND PROPERTIES OF THE
COMPANY; LEGAL PROCEEDINGS; MARKET PRICE AND
DIVIDENDS ON THE COMPANY'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS; SELECTED FINANCIAL
DATA; MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS;
BUSINESS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION IN
FORM S-4 ITEM NO. AND CAPTION PROXY STATEMENT/PROSPECTUS
- -------------------------------------------------------------------------- ----------------------------------------------------
AND PROPERTIES OF THE COMPANY--Principal
Properties; INDEX TO FINANCIAL STATEMENTS AND SUP-
PLEMENTARY DATA
<C> <C> <S> <C>
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies........... Not Applicable
16. Information with Respect to S-2 or S-3 Companies.... Not Applicable
17. Information with Respect to Companies Other Than S-3
or S-2 Companies.................................. Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations
are to be Solicited
(1) Date, Time and Place Information................ Cover Page of Prospectus; INTRODUCTION; THE COMPANY
ANNUAL MEETING; PLAN SOLICITATION-VOTING PROCE-
DURES
(2) Revocability of Proxy........................... THE COMPANY ANNUAL MEETING-Proxy Solicitation; PLAN
SOLICITATION--VOTING PROCEDURES-Withdrawal of
Ballots; Revocation
(3) Dissenters' Rights of Appraisal................. Not Applicable
(4) Persons Making the Solicitation................. THE COMPANY ANNUAL MEETING-- Proxy Solicitation
(5) (i) Interest of Certain Persons in Matters to be
Acted Upon.................................. EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY;
EXECUTIVE COMPENSATION; PROPOSAL NO. 6 ELECT SLATE
OF DIRECTORS TO RECONSTITUTE THE BOARD OF
DIRECTORS
(ii) Voting Securities and Principal Holders
Thereof........................................ SECURITY OWNERSHIP OF CERTAIN BENEFICIAL INTEREST
HOLDERS AND MANAGEMENT
(6) Vote Required for Approval...................... THE COMPANY ANNUAL MEETING
(7) (i) Directors and Executive Officers............ EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY;
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS;
EXECUTIVE COMPENSATION
(ii) Executive Compensation......................... EXECUTIVE COMPENSATION
(iii) Certain Relationships and Related
Transactions.................................. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
</TABLE>
<PAGE>
PROXY STATEMENT/PROSPECTUS
AND DISCLOSURE STATEMENT
KOLL REAL ESTATE GROUP, INC.
OFFER TO EXCHANGE ALL OUTSTANDING 12% SENIOR SUBORDINATED PAY-IN-KIND DEBENTURES
DUE MARCH 15, 2002 ("SENIOR DEBENTURES")
FOR 9,359,208 SHARES OF COMMON STOCK, PAR VALUE $0.05 PER SHARE ("COMMON
STOCK"); AND
OFFER TO EXCHANGE ALL OUTSTANDING 12% SUBORDINATED PAY-IN-KIND DEBENTURES
DUE MARCH 15, 2002 ("SUBORDINATED DEBENTURES")
FOR 1,169,901 SHARES OF COMMON STOCK PAR VALUE $0.05 PER SHARE (COLLECTIVELY THE
"EXCHANGE OFFERS")
THE ISSUANCE OFFERS, ALL WITHDRAWAL RIGHTS WITH RESPECT THERETO, AND THE
CONSENT SOLICITATIONS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN STANDARD TIME ON
MAY , 1997 (THE "EXPIRATION DATE"), UNLESS EXTENDED, CONSENTS MAY BE REVOKED
AT ANY TIME PRIOR TO (BUT NOT AFTER) THE EXPIRATION DATE.
------------------------
ISSUANCE OF 680,516 SHARES OF COMMON STOCK
TO ALL HOLDERS OF SERIES A CONVERTIBLE PREFERRED STOCK ("PREFERRED STOCK")
AND 489,385 SHARES OF COMMON STOCK TO ALL HOLDERS OF CLASS A COMMON STOCK
("CLASS A COMMON STOCK") UPON THE
RECLASSIFICATION AND COMBINATION OF PREFERRED STOCK AND CLASS A COMMON STOCK
INTO ONE CLASS OF STOCK TO BE DESIGNATED "COMMON STOCK" (THE "CAPITAL STOCK
COMBINATION")
------------------------
SOLICITATION OF PROXIES FOR THE ANNUAL MEETING OF STOCKHOLDERS OF KOLL REAL
ESTATE GROUP, INC.
(THE "COMPANY") TO BE HELD ON MAY , 1997 TO:
(i) ratify the Exchange Offers; (ii) approve amendments to the
Company's Restated Certificate of Incorporation (the "Restated
Certificate") to approve the Capital Stock Combination and to
effect a one for one hundred (1:100) reverse stock split (the
"Reverse Stock Split") of the Common Stock immediately following
the completion of the Capital Stock Combination, (iii) approve
amendments to the Restated Certificate and to the Company's
Amended Bylaws (the "Bylaws") to eliminate the provisions
providing for the Company's Board of Directors (the "Board") to be
classified into three classes and to remove all supermajority
voting provisions and certain other restrictive provisions; (iv)
elect ten (10) directors to reconstitute the declassified Board;
(v) ratify the appointment of Deloitte & Touche LLP as independent
auditors; and (vi) transact such other business as may properly
come before the Annual Meeting.
------------------------
SOLICITATION OF ACCEPTANCES OF A PLAN OF
REORGANIZATION (THE "PLAN") OF KOLL REAL ESTATE GROUP, INC.
THE PLAN SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, PACIFIC STANDARD TIME, ON
THE EXPIRATION DATE, UNLESS EXTENDED. A HOLDER OF SENIOR DEBENTURES,
SUBORDINATED DEBENTURES, PREFERRED STOCK OR COMMON STOCK IS ENTITLED TO VOTE
ON THE PLAN, REGARDLESS OF WHETHER SUCH HOLDER TENDERS IN AN EXCHANGE OFFER,
AND SUCH HOLDER OR A HOLDER OF OTHER CLAIMS AGAINST OR EQUITY INTERESTS IN THE
COMPANY IMPAIRED UNDER THE PLAN MAY REVOKE ITS ACCEPTANCE OF THE PLAN AT ANY
TIME PRIOR TO THE COMMENCEMENT BY THE COMPANY OF A JUDICIAL PROCESS TO CONFIRM
THE PLAN. THE COMPANY'S BOARD OF DIRECTORS HAS NOT, AT THIS TIME, APPROVED A
JUDICIAL PROCESS.
------------------------
THESE TRANSACTIONS AND THE SECURITIES OFFERED HEREBY ARE SUBJECT TO CERTAIN
MATERIAL RISKS DESCRIBED HEREIN. SEE "RISK FACTORS" BEGINNING ON PAGE 31 OF THIS
PROSPECTUS.
------------------------
NEITHER THESE TRANSACTIONS NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THESE
TRANSACTIONS OR THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus and Disclosure Statement is March
, 1997.
<PAGE>
CERTAIN CAPITALIZED TERMS USED HEREIN ARE DEFINED ELSEWHERE AND AN INDEX OF
ALL DEFINED TERMS IS SET FORTH ON PAGE 13 HERETO.
This Proxy Statement, Prospectus and Disclosure Statement (collectively
referred to herein as the "Prospectus") relates to the solicitation of
acceptances to the proposed recapitalization (the "Recapitalization") of Koll
Real Estate Group, Inc., a Delaware corporation (the "Company"), through either
(i) the proposed Exchange Offers, the Capital Stock Combination and the Reverse
Stock Split; or (ii) through obtaining an order of the Court confirming the Plan
which contains, generally, the same elements as the foregoing. The Company has
proposed the Recapitalization, after substantial negotiations with
representatives of the Debenture Holders' Committee, in order to deleverage the
Company's capital structure, primarily through the exchange of Common Stock for
all of the outstanding Senior Debentures and Subordinated Debentures held by
non-Affiliates of the Company (collectively, the "Outstanding Debentures"). The
Company believes such deleveraging will permit it to obtain financing on more
favorable terms, which financing would facilitate the growth of the Company's
business, including, but not limited to, the commercial and residential real
estate development business and development of its Bolsa Chica project. See
"Business and Properties of the Company." If the Recapitalization is not
consummated, the Company believes that its current leveraged capital structure
will cause the Company to incur substantially higher costs with respect to any
such necessary financing.
In addition, unless exchanged for Common Stock, the aggregate principal
amount of the Outstanding Debentures will increase from approximately $206
million outstanding as of March 15, 1997, to approximately $368 million on the
July 15, 2002 maturity date. The Company's financial advisors, Houlihan Lokey
Howard & Zukin ("HLHZ"), have assisted the Company in preparing an analysis
which indicates that the Company would need to earn a compounded return of
greater than 30% per annum on the free cashflow generated by the Company's
assets between 1997 and 2002 in order to fully pay the face amount of the Senior
Debentures and Subordinated Debentures at maturity in 2002. See "Liquidation
Analysis." As an alternative to waiting until the 2002 maturity date, the
Company engaged in extensive negotiations with representatives of the Debenture
Holders' Committee and its financial advisors, Rothschild, Inc. ("Rothschild"),
in order to develop a proposal to exchange the Outstanding Debentures for Common
Stock. Based on the current valuation prepared by the Company with the
assistance of HLHZ, holders of Senior Debentures would receive Common Stock
worth $0.532 per $1.00 of principal amount outstanding on March 15, 1997 and
holders of Subordinated Debentures would receive Common Stock worth
approximately $0.266 per $1.00 of principal amount outstanding on March 15, 1997
if they accept the Exchange Offers.
The Exchange Offers are conditioned upon the acceptance and tender of at
least 90% of the principal amount of Outstanding Debentures (the "90% Requisite
Exchange Acceptance"). If the 90% Requisite Exchange Acceptance is not obtained,
the Company will consider effecting the Recapitalization by seeking a Court
order confirming the Plan. Representatives of the Debenture Holders' Committee,
whose members hold approximately 70% of the Outstanding Debentures, have
indicated to the Company that they intend to support the Exchange Offers and the
Plan.
Also, without the Recapitalization, concerns about the Company's financial
strength will continue to adversely affect the Company's commercial and
residential development business opportunities. Of particular concern to the
Company's current and prospective client base, is the consistent reporting of
quarterly losses which are primarily a result of the interest expense associated
with the Outstanding Debentures. In addition to lost commercial and residential
development opportunities, the Company has experienced problems with its ability
to attract and retain key commercial and residential development team personnel
due to the negative impact on competing for new business which has resulted from
the Company's continued reporting of losses. Therefore, the Company believes
that the Recapitalization will substantially enhance its current and prospective
business opportunities by eliminating the financial concern and confusion that
the Outstanding Debentures have caused.
2
<PAGE>
Set forth below are the major components of the proposed Recapitalization
which are described in greater detail in "The Company's
Recapitalization--Description of the Recapitalization."
- EXCHANGE OFFERS FOR THE COMPANY'S OUTSTANDING DEBENTURES. Upon the terms
set forth in this Prospectus and in the accompanying materials, the
Company is offering to exchange:
56 shares of Common Stock, on a post-Capital Stock Combination and a
post-Reverse Stock Split basis, for each $1,000 principal amount of the
Senior Debentures outstanding as of March 15, 1997, without accrued and
unpaid interest after March 15, 1997; and
28 shares of Common Stock, on a post-Capital Stock Combination and a
post-Reverse Stock Split basis, for each $1,000 principal amount of the
Subordinated Debentures outstanding as of March 15, 1997, without accrued
and unpaid interest after March 15, 1997.
No fractional shares of Common Stock will be issued in the Exchange
Offers. See "The Exchange Offers--Treatment of Fractional Shares."
If the Company does not receive valid tenders of at least the 90%
Requisite Exchange Acceptance, the Company currently intends to consider a
variety of alternatives, including, but not limited to (i) securing
financing from new equity or debt sources, (ii) forming joint ventures
with other homebuilders in exchange for equity or debt capital, (iii)
selling options to other homebuilders to acquire land parcels at Bolsa
Chica currently owned by the Company, (iv) pursuing the Recapitalization
through the Plan if the Company receives the Requisite Plan Acceptances,
or (v) pursuing other alternative strategic transactions. Any of the above
alternatives (other than pursuing the Plan) may result in a lower recovery
of asset values by the Company and its current securityholders than is
likely to occur if the Recapitalization is consummated.
The Exchange Offers are subject to certain conditions contained in this
Prospectus. For additional information regarding the Exchange Offers and
the conditions applicable thereto, see "The Exchange Offers."
- SOLICITATION OF CONSENTS OF HOLDERS OF OUTSTANDING
DEBENTURES. Concurrently with the Exchange Offers, the Company is
soliciting the consents of holders of the Outstanding Debentures (the
"Consent Solicitations") to certain amendments to the respective
indentures (the "Indentures"). Holders of the Outstanding Debentures who
accept the Exchange Offers must consent to the Proposed Amendments which,
if effected, will be binding upon all holders retaining Outstanding
Debentures, whether or not such holders consented to the adoption of such
amendments. For additional information regarding the Consent
Solicitations, see "Proposed Amendments to Indentures."
The applicable record date (the "Record Date") for purposes of determining
the holders of Outstanding Debentures entitled to vote in the Consent
Solicitations and the holders of (i) Outstanding Debentures, (ii) Preferred
Stock, (iii) Class A Common Stock, and (iv) liquidated non-Contingent Claims
entitled to vote on the Plan is March , 1997. The record date for purposes of
determining the holders of Preferred Stock and Class A Common Stock are entitled
to vote at the Annual Meeting is March , 1997 (the "Annual Meeting Record
Date").
It is important that the holders of the Company's outstanding debt and
equity securities (other than unexercised warrants) and the holders of other
claims against the Company read and carefully consider the matters described in
this Prospectus, including, without limitation, all of the factors set forth
under the heading "Risk Factors," and that such holders respond promptly.
After the distribution of Common Stock as part of the Recapitalization or in
connection with the Plan as described herein, (assuming 100% of the Outstanding
Debentures are exchanged for Common Stock), the exchanging holders of the
Outstanding Debentures will own 90% of the Common Stock and voting power of the
Company, and the current holders of Preferred Stock and Class A Common Stock on
a post-
3
<PAGE>
Capital Stock Combination and post-Reverse Split basis will own an aggregate of
10% of such Common Stock and voting power of the Company. See "Risk Factors" and
"The Company Recapitalization-- Purposes and Certain Results of the
Recapitalization."
Set forth below are charts which reflect the issuance/exchange of securities
of the Company pursuant to the Recapitalization:
In the Exchange Offer:
[GRAPHIC]
In the Capital Stock Combination:
[GRAPHIC]
In the Reverse Stock Split:
[GRAPHIC]
4
<PAGE>
Set forth below are charts which reflect the voting power of the Company,
assuming a 100% acceptance rate for the Exchange Offers and the approval of the
Capital Stock Combination and Reverse Stock Split. The chart does not assume
exercise of warrants and outstanding options. (See "The Company
Recapitalization--Description of the Recapitalization--Amendment to Stock Option
Plan").
Prior to Recapitalization:
[GRAPHIC]
After Recapitalization:
[GRAPHIC]
5
<PAGE>
Consummation of the Exchange Offers is subject to certain conditions which
may be waived or amended by the Company in whole or in part at any time and from
time to time in the Company's sole discretion. See "The Exchange
Offers--Conditions of the Exchange Offers."
The Company reserves the right to amend, modify or supplement the Exchange
Offers, the Consent Solicitations and the solicitation of acceptances of the
Plan (the "Plan Solicitation") prior to their respective expiration dates. The
Company also reserves the right to cancel the Exchange Offers, the Consent
Solicitations and the Plan Solicitation at any time prior to their respective
expiration dates. The Company will give the holders of Outstanding Debentures,
Preferred Stock and Common Stock and holders of other Impaired Claims and
Interests under the Plan notice of any amendments, modifications or supplements
as may be required by applicable law. See "The Exchange Offers
General--Expiration Date; Extensions; Amendments" and "The Plan." Neither the
holders of the Company's debt securities nor the holders of the Company's equity
securities will have appraisal rights in connection with the Recapitalization or
the Plan, including the Exchange Offers or the Capital Stock Combination.
This Prospectus relates to an aggregate of approximately 11,806,646 shares
of Common Stock on a post-Capital Stock Combination and Reverse Stock Split
basis which consist of (i) an estimated maximum of 9,359,208 shares of Common
Stock issuable to the tendering holders of Senior Debentures; (ii) an estimated
maximum of 1,169,901 shares of Common Stock issuable to the tendering holders of
Subordinated Debentures; (iii) an estimated additional 680,516 shares of Common
Stock issuable to holders of Preferred Stock pursuant to the Capital Stock
Combination and the Reverse Stock Split; (iv) an estimated additional 489,385
shares of Common Stock issuable to holders of Class A Common Stock pursuant to
the Capital Stock Combination and the Reverse Stock Split; and (v) the Advisor
Warrants and an indeterminate number of Warrant Shares which are subject to
future sale hereunder for the accounts of financial advisors currently estimated
to be approximately 107,636 shares of Common Stock as described in this
Prospectus under the heading "Shares Subject to Future Sale by Financial
Advisors."
The Board has determined that the Recapitalization is in the best interest
of the Company and its securityholders and recommends that (i) the holders of
the Outstanding Debentures accept the Exchange Offers and grant the consents to
the Proposed Amendments; (ii) the Plan be approved by the holders of the
Outstanding Debentures, holders of the Preferred Stock, holders of the Common
Stock and holders of liquidated non-Contingent Claims under the Plan; and (iv)
the holders of the Preferred Stock and Common Stock approve the proposed
Recapitalization transactions and the other matters being considered at the
Annual Meeting upon which they are entitled to vote.
REPRESENTATIVES OF THE DEBENTURE HOLDERS' COMMITTEE HAVE INDICATED TO THE
COMPANY THAT THEY INTEND TO SUPPORT THE RECAPITALIZATION (INCLUDING THE PLAN IF
NECESSARY) AND THAT THEY INTEND TO EXCHANGE THEIR OUTSTANDING DEBENTURES, TO
CONSENT TO THE PROPOSED AMENDMENTS AND TO VOTE IN FAVOR OF THE PLAN. AS OF THE
RECORD DATE, MEMBERS OF THE DEBENTURE HOLDERS' COMMITTEE HELD APPROXIMATELY 70%
OF THE OUTSTANDING PRINCIPAL AMOUNT OF THE OUTSTANDING DEBENTURES AND
APPROXIMATELY 33% AND 13%, RESPECTIVELY, OF THE PREFERRED STOCK AND CLASS A
COMMON STOCK. IN ADDITION, THE HOLDER OF APPROXIMATELY 30.5% AND 11.5%,
RESPECTIVELY, OF THE PREFERRED STOCK AND CLASS A COMMON STOCK HAS INDICATED TO
THE COMPANY THAT IT INTENDS TO SUPPORT THE RECAPITALIZATION (INCLUDING THE PLAN,
IF NECESSARY).
THE EXCHANGE OFFERS, CONSENT SOLICITATIONS, CAPITAL STOCK COMBINATION,
REVERSE STOCK SPLIT, PLAN SOLICITATION, PROXY SOLICITATION AND OTHER OFFERS
BEING MADE HEREBY ARE NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT VOTES OR
TENDERS FROM, HOLDERS IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFERS, CONSENT
SOLICITATIONS, CAPITAL STOCK COMBINATION, REVERSE STOCK
6
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SPLIT, PLAN SOLICITATION, PROXY SOLICITATION AND SUCH OTHER OFFERS WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFERS, CONSENT SOLICITATIONS,
CAPITAL STOCK COMBINATION, PLAN SOLICITATION, PROXY SOLICITATION AND OTHER
OFFERS BEING MADE HEREBY OTHER THAN THOSE CONTAINED HEREIN. IF GIVEN OR MADE,
ANY SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
EACH HOLDER OF OUTSTANDING DEBENTURES, PREFERRED STOCK AND COMMON STOCK AND
EACH OTHER HOLDER OF CLAIMS OR EQUITY INTERESTS UNDER THE PLAN SHOULD CONSULT
WITH ITS OWN LEGAL, BUSINESS, FINANCIAL AND TAX ADVISORS AS TO ANY MATTERS
CONCERNING THE EXCHANGE OFFERS, THE CONSENT SOLICITATIONS, THE CAPITAL STOCK
COMBINATION, THE REVERSE STOCK SPLIT, THE PROXY SOLICITATION, THE PLAN
SOLICITATION AND THE RECAPITALIZATION TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
------------------------
SINCE NO JUDICIAL PROCESS HAS BEEN COMMENCED, THIS PROSPECTUS HAS NOT BEEN
APPROVED BY ANY COURT WITH RESPECT TO ADEQUACY OF INFORMATION. HOWEVER, IF A
JUDICIAL PROCESS IS SUBSEQUENTLY COMMENCED AND AN ORDER FOR RELIEF IS ENTERED,
THE COMPANY WILL PROMPTLY SEEK AN ORDER OF SUCH COURT THAT THE SOLICITATION OF
CONSENTS TO THE PLAN BY MEANS OF THIS PROSPECTUS WAS IN COMPLIANCE WITH
APPLICABLE LAW.
------------------------
The Company's Class A Common Stock and Preferred Stock is quoted on the
National Association of Securities Dealers, Inc. Automatic Quotation National
Market System ("NASDAQ NMS"). The Company has filed an application for the
inclusion of the shares of Common Stock to be issued pursuant to this Prospectus
and which have not previously been approved for inclusion on NASDAQ NMS. There
can be no assurance that the shares of Common Stock to be issued and which have
not been previously approved for quotation on NASDAQ NMS will be accepted for
such quotation. The Company expects that, after the consummation of the Exchange
Offers, the trading market for any Outstanding Debentures not tendered will be
extremely limited, if any market exists for the trading thereof. See "Risk
Factors--Certain Consequences to Non-Tendering Holders of Outstanding
Debentures" and "The Exchange Offers-- Effects of Consummation of Exchange
Offers on Non-Tendering Holders of Outstanding Debentures." However, the Company
expects that the liquidity of the Common Stock will be enhanced following
consummation of the Recapitalization.
Neither the delivery of this Prospectus nor any sale hereunder shall, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to the date hereof, or that there has been no change
in the affairs of the Company as of such date.
------------------------
THIS PROSPECTUS IS FIRST BEING SENT TO THE HOLDERS OF THE COMPANY'S
OUTSTANDING DEBENTURES, PREFERRED STOCK AND CLASS A COMMON STOCK ON MARCH ,
1997.
EXCHANGE AGENT AND INFORMATION AGENT
[Mellon Bank, N.A.] will act as Exchange Agent for the Exchange Offers (the
"Exchange Agent") and as ballot agent for the Plan Solicitation with respect to
the holders of Outstanding Debentures, the Preferred Stock, the Common Stock,
and the holders of claims and interests under the Plan. All correspondence in
connection with the Exchange Offers, Consent Solicitations or Plan Solicitation,
7
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including the Letter of Transmittal/Consent Solicitation and Plan Ballots (each
a "Letter of Transmittal"), should be addressed to the Exchange Agent as set
forth on the back cover page hereof. The Exchange Agent will also serve as proxy
agent with respect to the Annual Meeting.
Georgeson & Company, Inc. has been appointed as Information Agent for the
Exchange Offers, Consent Solicitations, the Annual Meeting and the Plan
Solicitation (the "Information Agent"). All inquiries relating to the Exchange
Offers, Consent Solicitation, the Annual Meeting and the Plan Solicitation
should be directed to the Information Agent at the address and telephone number
set forth on the back cover page hereof.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004
and at the following Regional Offices of the Commission: Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60621-2511; and New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material may also be obtained at prescribed
rates from the Public Reference Section of the Commission at its principal
office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004
or from the Commission's Website at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities offered by this
Prospectus. This Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a complete description of the matter involved, and each such statement is
qualified in its entirety by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected and copied at the
principal offices of the Commission in Washington, D.C. without charge, and
copies of the material contained therein may be obtained from the Commission
upon payment of prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering will be deemed to be incorporated by reference in
and will be a part of this Prospectus from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference into this Prospectus will be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference into this Prospectus modifies or
supersedes such statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE RELATING TO THE COMPANY
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE
WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF
THIS PROSPECTUS IS DELIVERED, UPON THE REQUEST OF SUCH PERSON, A COPY OF ANY OR
ALL OF THE DOCUMENTS WHICH ARE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS,
OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS).
8
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TABLE OF CONTENTS
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EXCHANGE AGENT AND INFORMATION AGENT......................................................................... 7
AVAILABLE INFORMATION........................................................................................ 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................................................. 8
INDEX OF CERTAIN DEFINED TERMS............................................................................... 13
SUMMARY...................................................................................................... 15
The Company................................................................................................ 15
The Recapitalization....................................................................................... 15
The Exchange Offers and Related Consent Solicitations...................................................... 18
Tendering and Consenting Procedures for Exchange Offers and Consent Solicitations.......................... 19
The Company Annual Meeting................................................................................. 21
The Plan................................................................................................... 21
Appraisal Rights........................................................................................... 27
Summary Selected Historical and Pro Forma Financial Data................................................... 27
Market Prices of the Company's Common Stock and Dividends Paid............................................. 30
RISK FACTORS................................................................................................. 31
THE COMPANY RECAPITALIZATION................................................................................. 39
Background of the Recapitalization......................................................................... 39
Description of the Recapitalization........................................................................ 40
Purposes and Certain Results of Recapitalization........................................................... 41
Operations After the Recapitalization...................................................................... 41
Material Federal Income Tax Consequences................................................................... 42
Determinations and Recommendations of the Board of Directors............................................... 42
Determinations and Recommendations of the Debenture Holders' Committee..................................... 42
THE EXCHANGE OFFERS.......................................................................................... 43
General.................................................................................................... 43
Expiration Date; Extensions; Amendments.................................................................... 43
Proposed Amendments........................................................................................ 44
Procedure for Tendering Outstanding Debentures and Giving Consents......................................... 45
Book-Entry Transfer Procedures............................................................................. 48
Guaranteed Delivery Procedures............................................................................. 48
Acceptance of Outstanding Debentures, Delivery of Common Stock............................................. 48
Treatment of Fractional Shares............................................................................. 49
Withdrawal Rights.......................................................................................... 49
Revocation of Consents; Defective Tenders.................................................................. 50
No Payments on Tendered Debentures......................................................................... 50
Conditions of the Exchange Offers.......................................................................... 50
Exchange Agent............................................................................................. 52
Information Agent.......................................................................................... 52
Effects of Consummation of Exchange Offers on Non-Tendering Holders of Outstanding Debentures.............. 52
PROPOSED AMENDMENTS TO INDENTURES............................................................................ 52
Proposed Amendments to Outstanding Debentures.............................................................. 53
THE COMPANY ANNUAL MEETING................................................................................... 54
Proxy Solicitation......................................................................................... 55
PROPOSAL NO. 1 APPROVAL OF EXCHANGE OFFERS (INCLUDING THE ISSUANCE OF SHARES OF COMMON STOCK)................ 57
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PROPOSAL NO. 2 AMENDMENT OF ARTICLES FOURTH, FIFTH AND SIXTH OF RESTATED CERTIFICATE OF INCORPORATION TO
EFFECT A COMBINATION OF THE CLASS A COMMON STOCK AND PREFERRED STOCK AND TO EFFECT A ONE FOR ONE HUNDRED
(1:100) REVERSE STOCK SPLIT OF THE OUTSTANDING COMBINED COMMON STOCK....................................... 58
PROPOSAL NO. 3 AMENDMENT OF ARTICLES EIGHTH AND THIRTEENTH OF THE RESTATED CERTIFICATE AND ARTICLES III AND
XI OF THE BYLAWS TO DELETE CLASSIFIED BOARD AND SUPERMAJORITY VOTING PROVISIONS............................ 61
PROPOSAL NO. 4 AMENDMENT OF ARTICLES NINTH AND THIRTEENTH OF THE RESTATED CERTIFICATE AND ARTICLES II AND XI
OF THE BYLAWS TO DELETE SUPERMAJORITY VOTING PROVISIONS APPLICABLE TO SPECIAL MEETINGS AND TO PERMIT
STOCKHOLDERS TO CALL SPECIAL MEETINGS OF STOCKHOLDERS...................................................... 63
PROPOSAL NO. 5 AMENDMENT OF ARTICLE TENTH OF THE RESTATED CERTIFICATE TO DELETE PROHIBITION OF STOCKHOLDER
ACTION BY WRITTEN CONSENT AND SUPERMAJORITY VOTING PROVISIONS APPLICABLE THERETO........................... 64
PROPOSAL NO. 6 ELECT SLATE OF DIRECTORS TO RECONSTITUTE THE BOARD OF DIRECTORS............................... 65
PROPOSAL NO. 7 RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS............................................. 66
OTHER MATTERS................................................................................................ 66
THE PLAN..................................................................................................... 66
Brief Explanation of Reorganization under the Code......................................................... 66
Treatment of Unclassified Claims........................................................................... 67
Classification and Treatment of Claims and Interests Under the Plan........................................ 68
Means for Implementation of the Plan....................................................................... 71
Distributions Under the Plan............................................................................... 72
Summary of Other Provisions of the Plan.................................................................... 73
Intended Actions During the Chapter 11 Case................................................................ 75
Confirmation Standards..................................................................................... 76
Confirmation of the Plan Without Acceptance by All Voting Classes.......................................... 77
Alternatives to Confirmation and Consummation of the Plan.................................................. 79
PLAN SOLICITATION--VOTING PROCEDURES......................................................................... 80
General.................................................................................................... 80
Record Date................................................................................................ 80
Voting Expiration Date; Extensions; Amendments............................................................. 80
Voting Procedures and Other Requirements................................................................... 81
Beneficial Interest Holders................................................................................ 82
Agreements Upon Furnishing Ballots......................................................................... 85
Method of Delivery of Ballots.............................................................................. 85
Withdrawal of Ballots; Revocation.......................................................................... 85
Waivers of Defects, Irregularities, Etc.................................................................... 86
SHARES SUBJECT TO FUTURE SALE BY FINANCIAL ADVISORS.......................................................... 87
HISTORIC AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS................................................................................................. 88
SELECTED FINANCIAL DATA...................................................................................... 91
PROJECTIONS OF CERTAIN FINANCIAL DATA OF THE COMPANY......................................................... 93
PROJECTED FINANCIAL DATA--THE EXCHANGE OFFERS.............................................................. 94
PROJECTED FINANCIAL DATA--THE PLAN......................................................................... 96
POSSIBLE ACCOUNTING TREATMENTS............................................................................... 98
LIQUIDATION ANALYSIS......................................................................................... 98
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DESCRIPTION OF THE COMMON STOCK.............................................................................. 105
MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.................. 105
DESCRIPTION OF OUTSTANDING DEBENTURES........................................................................ 106
Terms...................................................................................................... 106
Optional Redemption........................................................................................ 107
Change of Control.......................................................................................... 107
Subordination.............................................................................................. 107
Certain Covenants.......................................................................................... 108
Successor Company.......................................................................................... 109
Defaults and Certain Rights on Default..................................................................... 109
Amendment, Supplement, Waiver.............................................................................. 110
Transfer................................................................................................... 111
Defeasance................................................................................................. 111
Concerning the Trustees.................................................................................... 111
Governing Law.............................................................................................. 111
Certain Definitions........................................................................................ 112
BUSINESS AND PROPERTIES OF THE COMPANY....................................................................... 115
Business................................................................................................... 115
Principal Properties....................................................................................... 115
Environmental and Regulatory Matters....................................................................... 118
Corporate Indemnification Matters.......................................................................... 118
Employees.................................................................................................. 119
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995........................... 119
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 120
General.................................................................................................... 120
Liquidity and Capital Resources............................................................................ 120
Financial Condition........................................................................................ 121
Results of Operations...................................................................................... 122
LEGAL PROCEEDINGS............................................................................................ 124
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY.............................................................. 125
EXECUTIVE COMPENSATION....................................................................................... 127
Summary Compensation Table................................................................................. 127
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Value................... 128
Executive Retirement and Savings Program................................................................... 128
Compensation of Directors.................................................................................. 129
Employment Agreements...................................................................................... 132
Committee Interlocks and Insider Participation............................................................. 132
Report of the Compensation Committee....................................................................... 132
Stock Price Performance Comparison......................................................................... 135
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL INTEREST HOLDERS AND MANAGEMENT..................................... 136
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................... 138
License and Non-Competition Agreements..................................................................... 138
Construction Management Agreements......................................................................... 138
Service Agreements......................................................................................... 138
Sublease Agreements........................................................................................ 138
Development Fees........................................................................................... 138
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Joint Business Opportunity Agreement....................................................................... 139
Director Resignation and Termination of Stock Pledge....................................................... 139
Note Receivable............................................................................................ 139
Other Transactions......................................................................................... 140
MATERIAL FEDERAL INCOME TAX CONSEQUENCES..................................................................... 140
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFERS TO HOLDERS OF OUTSTANDING DEBENTURES.................. 140
General.................................................................................................... 140
Federal Income Tax Consequences of the Exchange Offers to Holders of Preferred Stock....................... 142
Federal Income Tax Consequences of the Exchange Offers to Holders of Class A Common Stock.................. 142
Backup Withholding and Information Reporting............................................................... 142
Federal Income Tax Consequences of the Exchange Offers to the Company; Cancellation of Indebtedness
Income................................................................................................... 142
FEDERAL INCOME TAX CONSEQUENCES OF PLAN...................................................................... 143
LEGAL MATTERS................................................................................................ 144
EXPERTS...................................................................................................... 144
INDEX TO AUDITED HISTORIC FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................ F-1
APPENDIX A................................................................................................... A-1
</TABLE>
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INDEX OF CERTAIN DEFINED TERMS
Set forth below are certain defined terms used in this Prospectus the
definitions for which are indicated herein and in Appendix A hereto.
<TABLE>
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Administrative Claim.................................................................................... A-3
Advisor Warrants........................................................................................ 87
Affiliate............................................................................................... A-3
Allowed Administrative Claim............................................................................ A-3
Allowed Claim........................................................................................... A-3
Allowed Interest........................................................................................ A-3
Amended Indentures...................................................................................... 34
Annual Meeting Proposals................................................................................ 21
Annual Meeting Record Date.............................................................................. 3
Auditor Proposal........................................................................................ 55
Ballot.................................................................................................. 27
Beneficial Interest Holders............................................................................. 81
Best Interests Test..................................................................................... 76
Board................................................................................................... 1
Board Election Proposal................................................................................. 54
Board Proposal.......................................................................................... 54
Book-Entry Transfer..................................................................................... 48
Book-Entry Transfer Facilities.......................................................................... 48
Book-Entry Transfer Facility............................................................................ 48
Bylaws.................................................................................................. 1
Capital Stock Combination............................................................................... 1
Capital Stock Combination and Reverse Split Proposal.................................................... 54
Case.................................................................................................... 21
Cash.................................................................................................... A-4
Claim................................................................................................... A-4
Class................................................................................................... A-4
Class A Common Stock.................................................................................... 1
Code.................................................................................................... 21
Commencement Date....................................................................................... 19
Commission.............................................................................................. 8
Common Stock............................................................................................ 1
Company................................................................................................. 2
Confirmation Date....................................................................................... A-4
Confirmation Order...................................................................................... A-4
Consent Solicitations................................................................................... 3
Contested Claim or Interest............................................................................. A-4
Contingent.............................................................................................. A-5
Court................................................................................................... A-5
Creditor................................................................................................ A-5
Debenture Holders' Committee............................................................................ 15
Distribution Record Date................................................................................ 72
Effective Date.......................................................................................... A-5
Eligible Institution.................................................................................... 45
Equity Holder........................................................................................... A-5
Exchange Act............................................................................................ 8
Exchange Agent.......................................................................................... 7
Exchange Offers......................................................................................... 1
</TABLE>
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Exchange Offers Proposal................................................................................ 54
Expiration Date......................................................................................... 19
Future Shares........................................................................................... 35
HLHZ.................................................................................................... 2
Impaired................................................................................................ A-5
Impaired Securities..................................................................................... 72; A-5
Indentures.............................................................................................. 3
Information Agent....................................................................................... 8
Interest................................................................................................ A-5
IRS..................................................................................................... 32
Letter of Transmittal................................................................................... 8
Master Ballot........................................................................................... 27
Merger.................................................................................................. 39
MWE..................................................................................................... 15
NASDAQ NMS.............................................................................................. 7
Notice of Guaranteed Delivery........................................................................... 48
Outstanding Debentures.................................................................................. 2
Plan.................................................................................................... 1
Plan Solicitation....................................................................................... 6
Preferred Stock......................................................................................... 1
Projections............................................................................................. 38
Proposed Amendments..................................................................................... 16
Prospectus.............................................................................................. 2
Proxy................................................................................................... 21
Recapitalization........................................................................................ 2
Record Date............................................................................................. 3
Record Holder........................................................................................... 19
Registration Statement.................................................................................. 8
Requisite Acceptance Condition.......................................................................... 50
90% Requisite Exchange Acceptances...................................................................... 2
Requisite Claims Acceptances............................................................................ 26
Requisite Consents...................................................................................... 18
Requisite Interest Acceptances.......................................................................... 26
Requisite Plan Acceptances.............................................................................. 26
Restated Certificate.................................................................................... 1
Reverse Stock Split..................................................................................... 1
Rothschild.............................................................................................. 2
Rules................................................................................................... 21
Securities Act.......................................................................................... 8
Senior Debentures....................................................................................... 1
Solicitation Materials.................................................................................. 27
Special Meetings Proposal............................................................................... 54
Subordinated Debentures................................................................................. 1
Tax Claim............................................................................................... A-6
Trustees................................................................................................ 53
Unimpaired.............................................................................................. A-7
Unliquidated............................................................................................ A-7
Voting Expiration Date.................................................................................. 80
Warrant Shares.......................................................................................... 87
WGM..................................................................................................... 15
Written Consent Proposal................................................................................ 54
</TABLE>
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SUMMARY
THE FOLLOWING SUMMARY IS INTENDED ONLY TO HIGHLIGHT CERTAIN INFORMATION
CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY THE MORE DETAILED INFORMATION, THE FINANCIAL STATEMENTS, INCLUDING
THE NOTES THERETO AND THE PRO FORMA INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS, THE APPENDICES HERETO, AND THE OTHER DOCUMENTS REFERENCED HEREIN.
CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS
PROSPECTUS, AND AN INDEX OF SUCH DEFINED TERMS IS SET FORTH ON PAGE 13 HERETO.
THE COMPANY
Koll Real Estate Group, Inc. is a real estate holding company with
properties principally in Southern California. The principal activities of the
Company and its consolidated subsidiaries include: (i) obtaining zoning and
other entitlements for land it owns and improving the land for residential
development; (ii) single and multi-family residential construction in Southern
California; and (iii) providing commercial, industrial, retail and residential
real estate 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, Phoenix, Seattle, Shanghai, China and Taipei, Taiwan. Once the
residential land owned by the Company 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 executive offices are located at 4343 Von Karman Avenue,
Newport Beach, California 92660; telephone number (714) 833-3030.
THE RECAPITALIZATION
DESCRIPTION OF DEBENTURE HOLDERS' COMMITTEE PROCESS. In February 1996, the
Company engaged HLHZ and McDermott, Will & Emery ("MWE") to act as its financial
and legal advisors, respectively. In August 1996, in order to pursue the
Company's stated strategic objective to evaluate alternatives to deleverage the
Company's capital structure, the Company commenced negotiations with
representatives of a restricted group of holders, who, as of the Record Date,
hold approximately 70% of the Outstanding Debentures (the "Debenture Holders
Committee"). In May 1996, the Debenture Holders' Committee retained Rothschild
and Weil, Gotshal & Manges L.L.P. ("WGM") as its financial and legal advisors,
respectively. The proposed Recapitalization is the result of extensive
negotiations and is supported by the representatives of the Debenture Holders'
Committee who have indicated their intention to accept the Exchange Offers and
to vote in favor of the Plan. Unless exchanged for Common Stock, the aggregate
principal amount of the Outstanding Debentures will increase from approximately
$206 million as of March 31, 1997, to approximately $368 million on the March
15, 2002 maturity date. The Company's financial advisors have assisted the
Company in preparing an analysis which indicates that the Company would need to
earn a compounded return of greater than 30% per annum on the free cashflow
generated by the Company's assets between 1997 and 2002 in order to fully pay
the face amount of the Senior Debentures and Subordinated Debentures at maturity
in 2002. As an alternative to waiting until the 2002 maturity date, the Company
has engaged in extensive negotiations with the Debenture Holders' Committee and
its financial advisors in order to develop a proposal to exchange the
Outstanding Debentures for Common Stock. Based on the current valuation prepared
by the Company with the assistance of HLHZ, which is subject to the assumptions
detailed in the Prospectus, holders of Senior Debentures would receive Common
Stock worth approximately $0.532 per $1.00 of principal amount outstanding on
March 15, 1997 and holders of Subordinated Debentures would receive Common Stock
worth approximately $0.266 per $1.00 of principal amount outstanding on March
15, 1997 if they accept the Exchange Offers. If the 90% Requisite Exchange
Acceptance is not obtained, the Company will consider other alternatives,
including effecting the Recapitalization by seeking a Court order confirming the
Plan. The representatives of the Debenture Holders' Committee, whose members
hold approximately 70% of the Outstanding Debentures
15
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and approximately 33% and 13%, respectively, of the Preferred Stock and Class A
Common Stock, have indicated that they intend to support the Plan. In addition,
the holder of 30.5% and 11.5%, respectively, of the Preferred Stock and Class A
Common Stock has indicated to the Company that it intends to approve the Plan.
DESCRIPTION OF RECAPITALIZATION. The proposed Recapitalization consists of
the major elements summarized below. The Company is seeking to exchange all of
the Outstanding Debentures for Common Stock pursuant to the Exchange Offers and
is seeking acceptances of the Plan from the holders of the Outstanding
Debentures, Preferred Stock, Class A Common Stock and the holders of other
Impaired Claims and Interests. If the Company does not receive the 90% Requisite
Exchange Acceptances but does receive the Requisite Plan Acceptances (as
described below in "Summary-Plan-Plan Acceptances"), the Company may, but
reserves the right not to use such acceptances to obtain a Court order
confirming the Plan. See "Summary--The Plan" and "The Plan."
The Recapitalization and the securities offered hereby are subject to
certain material risks and other factors which should be considered in
connection therewith. See "Risk Factors."
EXCHANGE OFFERS FOR THE OUTSTANDING DEBENTURES AND RELATED CONSENT
SOLICITATIONS. Pursuant to the Exchange Offers being made hereby, as more fully
described herein under "The Exchange Offers," the Company is offering to
exchange (i) 56 shares of Common Stock, on a post-Capital Stock Combination and
a post-Reverse Stock Split basis, for each $1,000 in principal amount of the
Senior Debentures outstanding as of March 15, 1997, without subsequent accrued
and unpaid interest; and (ii) 28 shares of Common Stock, on a post-Capital Stock
Combination and a post-Reverse Stock Split basis, for each $1,000 in principal
amount of Subordinated Debentures outstanding as of March 15, 1997, without
subsequent accrued and unpaid interest. Tendering holders of Outstanding
Debentures will not receive payment of, and waive all rights and claims to,
accrued and unpaid interest on the Outstanding Debentures tendered for exchange.
No fractional shares of Common Stock will be issued in the Exchange Offers. See
"The Exchange Offers--Treatment of Fractional Shares." Concurrently with the
Exchange Offers, the Company is soliciting the consent of the holders of the
Outstanding Debentures to certain amendments to the Indentures (the "Proposed
Amendments"). See "Proposed Amendments to Indentures."
CONSENT SOLICITATION WITH RESPECT TO THE OUTSTANDING
DEBENTURES. Concurrently with the making of the Exchange Offers, the Company is
soliciting from the holders of the Outstanding Debentures their consents to the
Proposed Amendments to remove certain restrictive covenants under the Indentures
in the event all Outstanding Debentures are not exchanged pursuant to the
Exchange Offers. See "Proposed Amendments to Indentures."
CAPITAL STOCK COMBINATION AND REVERSE STOCK SPLIT. As part of the
Recapitalization, the Company is recommending to the holders of Class A Common
and Preferred Stock that they approve proposals at the Annual Meeting, which
among other things, approve an amendment to the Restated Certificate in order to
effect the Capital Stock Combination and to effect the Reverse Stock Split.
Pursuant to the Capital Stock Combination, all classes and series of capital
stock will be reclassified and combined into one class of capital stock
designated "Common Stock." Each outstanding share of Preferred Stock will be
reclassified to be one and three quarter (1.75) shares of Common Stock and each
outstanding share of Class A Common Stock will be reclassified to be one (1)
share of Common Stock. Immediately following such reclassification and
combination, pursuant to the Reverse Stock Split each outstanding share of
Common Stock will be reverse split on a one for one hundred (1:100) basis. After
the Capital Stock Combination, the Common Stock will have the same rights,
preferences and privileges that the Class A Common Stock had prior to the
Capital Stock Combination.
Representatives of the Debenture Holders' Committee, whose members hold
approximately 33% and 13%, respectively, of the Preferred Stock and Class A
Common Stock have indicated to the Company that they intend to approve the
Capital Stock Combination and the Reverse Stock Split. In addition, the holder
16
<PAGE>
of 30.5% and 11.5%, respectively, of the Preferred Stock and Class A Common
Stock has indicated to the Company that it intends to approve the Capital Stock
Combination and the Reverse Stock Split. No fractional shares of Common Stock
will be issued pursuant to the Capital Stock Combination and/or Reverse Stock
Split. See "The Company Annual Meeting--Proposal No. 2."
AMENDMENT OF STOCK OPTION PLAN. As part of the Recapitalization, the
Company's 1993 Stock Option/Stock Issuance Plan (the "1993 Plan") will be
amended effective upon the consummation of the Recapitalization to reduce the
aggregate number of shares of Common Stock that may be issued under the 1993
Plan, on a post-Capital Stock Combination and post-Reverse Stock Split basis, to
751,449 shares of Common Stock, representing 6% of the Company's fully diluted
equity. The holders of all outstanding options previously issued under the 1993
Plan have agreed to the cancellation of such options. See "The Company
Recapitalization--Description of the Recapitalization--Amendment of Stock Option
Plan."
THE PLAN. As described above, if the Company receives the Requisite Plan
Acceptances, the Company may, but expressly reserves the right not to, effect
the Recapitalization by seeking a judicial confirmation of the Plan. See
"Summary--The Plan" and "The Plan."
PURPOSES OF THE RECAPITALIZATION. The proposed Recapitalization, whether
achieved pursuant to the Exchange Offers and the Annual Meeting Proposals or
pursuant to the Plan, is primarily intended to deleverage the Company's capital
structure in order to maximize realization of the Company's asset values and the
growth of its business. As an alternative to waiting until the Debentures
maturity date in 2002, the Company engaged in extensive negotiations with
representatives of the Debenture Holders' Committee and its financial advisors
in order to develop a proposal to exchange the Outstanding Debentures for Common
Stock. Based on the current valuation prepared by the Company with the
assistance of HLHZ, holders of Senior Debentures would receive Common Stock
worth approximately $0.532 per $1.00 of principal amount outstanding on March
15, 1997 and holders of Subordinated Debentures would receive Common Stock worth
approximately $0.266 per $1.00 of principal amount outstanding on March 15, 1997
if they accept the Exchange Offers. If the 90% Requisite Exchange Acceptance is
not obtained, the Company will consider effecting the Recapitalization by
seeking a Court order confirming the Plan. Representatives of the Debenture
Holders' Committee, whose members hold approximately 70% of the Outstanding
Debentures and approximately 33% and 13%, respectively, of the Preferred Stock
and Class A Common Stock, have indicated that they intend to support the Plan.
In addition, the holder of 30.5% and 11.5%, respectively, of the Preferred Stock
and Class A Common Stock has indicated to the Company that it intends to approve
the Plan. The Company believes that such deleveraging will permit it to obtain
financing on more favorable terms, which financing would facilitate the growth
of the Company's business, including, but not limited to, the commercial and
residential real estate development business and the development of its Bolsa
Chica project. If the Recapitalization is not consummated, the Company believes
the Company's current leveraged capital structure will cause the Company to
incur substantially higher costs with respect to any such necessary financing,
which will negatively impact the realization of asset values and will limit the
Company's growth. In addition, concern about the Company's continued reporting
of operating losses will continue to adversely affect the Company's commercial
and residential development business opportunities. Of particular concern to the
Company's current and prospective client base, is the consistent reporting of
quarterly losses which are primarily a result of the interest expense associated
with the Outstanding Debentures. In addition to lost commercial development
opportunities, the Company has experienced problems with its ability to attract
and retain key commercial and residential development team personnel due to
their concern as to the ability of the Company to compete for new business.
Therefore, the Company believes that the Recapitalization will substantially
enhance its current and prospective business opportunities by eliminating the
financial concern and confusion that the Outstanding Debentures have caused. See
"The Company Recapitalization--Purposes of the Recapitalization." The
Recapitalization will have an important impact on the Company and on the current
holders of the Preferred Stock, Common Stock and Outstanding Debentures,
including a significant dilution of the
17
<PAGE>
beneficial ownership interests and voting power of current holders of the
Preferred Stock and Common Stock. See "Risk Factors--Dilution; Shares Eligible
for Future Sales."
DETERMINATIONS AND RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF THE
COMPANY. The Board has determined that (i) the Recapitalization is in the best
interests of the Company and its security holders; (ii) it is in the best
interests of the Company and its security holders to solicit acceptances of the
Plan to be implemented if and at such time as the Board deems it may be in the
best interests of the Company and its security holders and other holders of
claims against or interests in the Company to commence a judicial process to
effect the Plan, including in the event that the Recapitalization is not
consummated through the Exchange Offers and the Annual Meeting Proposals; and
(iii) it is in the best interests of the Company and its security holders that
the Annual Meeting Proposals be approved. The Board also recommends that (i) the
holders of the Outstanding Debentures accept the Exchange Offers; (ii) the
holders of the Outstanding Debentures grant the consents to the Proposed
Amendments; (iii) the holders of the Outstanding Debentures, the Preferred Stock
and Class A Common Stock and holders of other Impaired Claims and Interests
approve the Plan; and (iv) the holders of the Preferred Stock and Class A Common
Stock approve the Annual Meeting Proposals.
DETERMINATIONS AND RECOMMENDATION OF THE DEBENTURE HOLDERS'
COMMITTEE. Representatives of the members of the Debenture Holders' Committee,
constituting approximately 70% of the Outstanding Debentures and approximately
33% and 13%, respectively, of the Preferred Stock and Class A Common Stock, have
indicated to the Company that they intend to support the Recapitalization. The
Company has been informed by the representatives of the Debenture Holders'
Committee that their decision to support the Recapitalization was based upon,
among other things, their determination that (i) the consideration to be
received by the holders of Outstanding Debentures will provide such holders with
a significant equity interest in the Company, (ii) the value of the Company will
be enhanced by the Recapitalization, and (iii) the Company will have greater
opportunities in the event the Company is deleveraged as a result of the
Recapitalization.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES. The federal income tax
consequences to the Company and holders of the Company's securities as a result
of the transactions occurring as part of and in connection with the
Recapitalization or the Plan may be material. Neither the Company nor its tax
counsel is expressing any opinion with respect to these tax consequences. The
tax consequences to holders of the Company's securities depend on the type of
security held and the resolution of various uncertain issues. See "Material
Federal Income Tax Consequences" and "Risk Factors--Tax Matters."
THE EXCHANGE OFFERS AND RELATED CONSENT SOLICITATIONS
GENERAL. Pursuant to the Exchange Offers, the Company is offering to
exchange (i) 56 shares of Common Stock, on a post-Capital Stock Combination and
a post-Reverse Stock Split basis, for each $1,000 principal amount of Senior
Debentures, outstanding as of March 15, 1997, without subsequent accrued and
unpaid interest and 28 shares of Common Stock, on a post-Capital Stock
Combination and a post-Reverse Stock Split basis, for each $1,000 principal
amount of Subordinated Debentures, outstanding as of March 15, 1997, without
subsequent accrued and unpaid interest. Tendering holders of Outstanding
Debentures will not receive payment of, and waive all rights and claims to,
accrued and unpaid interest on all Outstanding Debentures tendered for exchange.
See "The Exchange Offers--Payments on Outstanding Debentures."
CERTAIN CONDITIONS TO EXCHANGE OFFERS. The Exchange Offers are conditioned
on, among other things, the 90% Requisite Exchange Acceptances and receipt by
the Company of consents to the Proposed Amendments representing more than 50% of
the outstanding principal amount of each of the Senior Debentures and the
Subordinated Debentures (the "Requisite Consents"). The Exchange Offers are also
conditioned on approval of the Plan and the Annual Meeting Proposals described
below and upon the Company's final determination to accept any tendered
Outstanding Debentures pursuant to the Exchange
18
<PAGE>
Offers and its determination not to pursue the Recapitalization by seeking
confirmation of the Plan. The Company may waive certain of the conditions to the
Exchange Offers, in whole or in part, at any time and from time to time in its
sole discretion. See "The Exchange Offers--Conditions of the Exchange Offers."
EFFECTS OF CONSUMMATION OF EXCHANGE OFFERS ON NON-TENDERING HOLDERS OF
OUTSTANDING DEBENTURES. The successful completion of the Exchange Offers will
have certain adverse consequences to holders of Outstanding Debentures who do
not tender in the Exchange Offers. See "Risk Factors--Certain Consequences to
Non-Tendering Holders of Outstanding Debentures." IN ORDER FOR THE
RECAPITALIZATION TO BE CONSUMMATED WITHOUT RESORT TO THE PLAN, HOLDERS OF AT
LEAST 90% OF THE OUTSTANDING PRINCIPAL AMOUNT OF THE OUTSTANDING DEBENTURES MUST
TENDER IN THE EXCHANGE OFFERS. If the Company does not receive the 90% Requisite
Exchange Acceptances, but does receive the Requisite Plan Acceptances, the
Company may, but reserves the right not to, effect the Recapitalization by
seeking a judicial confirmation of the Plan. See "Risk Factors--Certain
Consequences to Non-Tendering Holders of Outstanding Debentures." See also "The
Exchange Offers--Effects of Consummation of Exchange Offers on Non-Tendering
Holders of Outstanding Debentures" and "Proposed Amendments to Outstanding
Debentures of the Company."
The Company is soliciting the Requisite Consents to the Proposed Amendments
which, if obtained, will eliminate certain of the restrictive covenants
contained in the Indentures. The provisions to be eliminated include the
restrictive covenants prohibiting the Company from paying cash dividends on its
capital stock or purchasing or redeeming capital stock or certain subordinated
obligations for consideration other than capital stock, and restrictive
covenants prohibiting the Company from entering into certain transactions with
related entities.
CONSENTS REQUIRED TO ADOPT THE PROPOSED AMENDMENTS. In order for the
Proposed Amendments to be effective, the Company must receive the Requisite
Consents from holders of at least a majority in outstanding principal amount of
the Senior Debentures and Subordinated Debentures, respectively, held by persons
other than the Company or its Affiliates. As of the Record Date, approximately
$165 million aggregate principal amount of the Senior Debentures and
approximately $41 million aggregate principal amount of the Subordinated
Debentures, respectively, were outstanding and not owned by the Company or its
Affiliates. The Exchange Offers are conditioned on the Company receiving the
Requisite Consents. Notwithstanding the foregoing, if the Requisite Consents are
not received by the Company, but 90% Requisite Exchange Acceptances are
received, the Company reserves the right to waive this condition and accept all
Outstanding Debentures tendered in the Exchange Offers even if the holders
thereof did not grant consents to the Proposed Amendments, and such holders will
receive the same consideration as if they had granted such consents.
TENDERING AND CONSENTING PROCEDURES FOR EXCHANGE OFFERS AND CONSENT
SOLICITATIONS
COMMENCEMENT AND EXPIRATION DATES. Holders of Outstanding Debentures who
wish to tender in the Exchange Offers, may do so beginning on March , 1997
(the "Commencement Date"). The expiration date for the Exchange Offers and the
Consent Solicitations is 12:00 midnight, Eastern Standard time, May , 1997
subject to extension by the Company in its sole discretion (the "Expiration
Date"). If the period for the Exchange Offers or the Consent Solicitations is
extended, the Expiration Date with respect to that specific offer or
solicitation shall be the last date to which that specific offer or solicitation
has been extended. The Company may extend one or more of such offers and
solicitations independently of the other offers and solicitations, subject to
certain limitations. See "The Exchange Offers--Expiration Date; Extensions;
Amendments." With respect to tendering Outstanding Debentures and voting on the
Consent Solicitations, the term "Record Holder" means any person in whose name
the Outstanding Debentures were registered on the books of the Company on the
Record Date.
HOW TO TENDER, CONSENT AND APPROVE. Holders wishing to tender Outstanding
Debentures in the Exchange Offers and to consent to the Proposed Amendments
should (i) complete and sign the applicable Letter of Transmittal or a copy
thereof, and have the signature thereon guaranteed if required by the
19
<PAGE>
instructions thereto and mail or deliver such Letter of Transmittal, together
with certificates representing the Outstanding Debentures and any other required
documents, to the Exchange Agent at its address set forth on the back cover page
of this Prospectus; or (ii) request its broker, dealer, commercial bank, trust
company or other nominee to effect the transaction for it. See "The Exchange
Offers--Procedure for Tendering Outstanding Debentures and Giving Consents." The
tendering of Outstanding Debentures pursuant to the Exchange Offers will not
constitute an acceptance or rejection of the Plan. Holders of Outstanding
Debentures, Preferred Stock and Class A Common Stock wishing to vote to approve
the Plan should follow the procedures described in "Plan Solicitation--Voting
Procedures." Holders of Outstanding Debentures will not be obligated to pay any
brokerage commissions or solicitation fees in connection with the Exchange
Offers.
WITHDRAWAL RIGHTS AND REVOCATION. Tenders of Outstanding Debentures may be
withdrawn (i) at any time until 12:00 midnight, Eastern Standard time, on the
Expiration Date, and (ii) for any period of time required by applicable law
following the public announcement of a waiver of a Requisite Acceptance
Condition with respect to the Exchange Offers. Outstanding Debentures which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof promptly after withdrawal, rejection of tender or termination of
the Exchange Offers. A Record Holder who has delivered a consent to the Proposed
Amendments may effectively revoke such consent by filing written notice with the
Exchange Agent at any time prior to (but not after) the date and time of
delivery of Requisite Consents effecting the Proposed Amendments. See "The
Exchange Offers--Withdrawal Rights," "The Exchange Offers--Revocation of
Consents."
ACCEPTANCE OF OUTSTANDING DEBENTURES AND DELIVERY OF COMMON STOCK. Subject
to the satisfaction or waiver of all conditions of the Exchange Offers and to
any extension or termination of the Exchange Offers, the Company will accept on
or promptly after the Expiration Date all Outstanding Debentures validly
tendered (and not withdrawn) on or prior to 12:00 midnight, Eastern Standard
time, on the Expiration Date. Shares of Common Stock will be issued, in exchange
for the Outstanding Debentures accepted in the Exchange Offers, promptly after
acceptance of such Outstanding Debentures. See "The Exchange Offers--General."
SPECIAL PROCEDURE FOR BENEFICIAL OWNERS AND GUARANTEED DELIVERY
PROCEDURES. Any beneficial owner whose Outstanding Debentures are registered in
the name of a Record Holder and who wish to tender in the Exchange Offers or
consent to the Proposed Amendments should contact the Record Holder promptly and
instruct such Record Holder to tender or consent on behalf of the beneficial
owner. If such beneficial owner wishes to tender or consent on its own behalf,
it must (i) in the case of a tender, prior to completing and executing the
Letter of Transmittal and delivering the Outstanding Debentures, either make
appropriate arrangements to register ownership of the Outstanding Debentures in
such beneficial owner's name or obtain from the Record Holder a properly
completed bond power (a power of attorney authorizing the beneficial owner,
rather than the Record Holder, to legally transfer the Outstanding Debentures);
and (ii) in the case of a consent, obtain a proxy from the registered holder
authorizing the beneficial owner to act with respect to the Outstanding
Debentures on behalf of such registered holder. A transfer of record ownership
may take considerable time and, depending when such transfer is requested, may
not be accomplished prior to the Expiration Date.
Holders of Outstanding Debentures who wish to tender their Outstanding
Debentures and (i) whose Outstanding Debentures are not immediately available,
or (ii) who cannot deliver their Outstanding Debentures and Letter of
Transmittal to the Exchange Agent on or prior to the Expiration Date, must
tender their Outstanding Debentures according to the guaranteed delivery
procedures set forth in "The Exchange Offers--Guaranteed Delivery Procedures."
Financial institutions which are participants in certain book-entry transfer
facility systems may effect delivery of Outstanding Debentures to the Exchange
Agent by book-entry transfer according to the procedures set forth in "The
Exchange Offers--Book-Entry Transfer Procedures."
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<PAGE>
THE COMPANY ANNUAL MEETING
DATE, TIME AND PLACE OF ANNUAL MEETING. The Annual Meeting of Stockholders
will be held at a.m. Eastern Standard time, on May , 1997 at
unless postponed or adjourned. Only holders of record of the Class A Common
Stock and Preferred Stock at the close of business on the Annual Meeting Record
Date are entitled to notice of, and to vote at, the Annual Meeting.
PURPOSE OF THE ANNUAL MEETING. The purpose of the Annual Meeting is to
consider and vote upon the following proposals: (i) ratification of the Exchange
Offers, (ii) amendments to the Restated Certificate to effect the Capital Stock
Combination and the Reverse Stock Split, (iii) amendments to the Restated
Certificate and the Bylaws to eliminate the provisions providing for the Board
to be classified into three classes and to remove all supermajority voting
provisions and certain other restrictive provisions contained in the Restated
Certificate and Bylaws, (iv) election of directors to reconstitute the
declassified Board; (v) ratification of the selection of Deloitte & Touche LLP
as the Company's independent auditors; and (vi) approval of such other matters
as may properly come before the Annual Meeting, including to adjourn the Annual
Meeting under certain circumstances (collectively, the "Annual Meeting
Proposals"). The current directors, executive officers and their respective
Affiliates own less than one percent (1%) of the outstanding Class A Common
Stock and less than one percent (1%) of the outstanding Preferred Stock,
respectively, as of the Annual Meeting Record Date. Representatives of the
Debenture Holders' Committee, whose members hold approximately 33% and 13%,
respectively, of the Preferred Stock and Class A Common Stock have indicated to
the Company that they intend to approve the foregoing proposals. In addition,
the holder of 30.5% and 11.5%, respectively, of the Preferred Stock and Class A
Common Stock has indicated to the Company that it intends to approve the
foregoing proposals. For more information regarding the votes needed to approve
each of the Annual Meeting Proposals, see "The Company Annual Meeting Proxy
Solicitation."
The solicitation of acceptances of the Plan from the holders of Preferred
Stock and Class A Common Stock is being conducted pursuant to separate ballots
and is described under "The Plan--Plan Solicitation--Voting Procedures." As a
result, approval of the Plan is not being considered at the Annual Meeting.
HOW TO VOTE FOR THE ANNUAL MEETING PROPOSALS. A holder of Class A Common
Stock or Preferred Stock wishing to vote for the Annual Meeting Proposals upon
which such holder is entitled to vote should either (i) complete and sign the
enclosed proxy (the "Proxy") and mail or deliver such Proxy to the Exchange
Agent at the address set forth on the back cover of this Prospectus; or (ii)
request its broker, dealer, commercial bank, trust company or other nominee to
vote on its behalf. Holders may also vote their shares of Class A Common Stock
or Preferred Stock in person at the Annual Meeting. Stockholders who have
executed and returned a Proxy may revoke it at any time before it is voted by
returning a Proxy bearing a later date, by giving written notice of revocation
to the Secretary of the Company or by attending the Annual Meeting and voting in
person. See "The Company Annual Meeting--Proxy Solicitation."
THE PLAN
As one if its alternatives, the Company may commence a chapter 11 case
("Case") by filing a voluntary petition for relief under chapter 11, Title 11 of
the United States Code (the "Code") if the Company receives the Requisite Plan
Acceptances. In connection therewith, section 1126(b) of the Code and Rule
3018(b) of the Federal Rule of Bankruptcy Procedure (the "Rules") allows the
Company to solicit votes for the Plan prior to actual commencement of the Case.
Under Section 1126(b) of the Code, a holder of a claim or equity interest that
has accepted or rejected a plan of reorganization before the commencement of a
Case will be deemed to have accepted or rejected the plan for purposes of
confirmation of such plan under chapter 11 of the Code if the solicitation of
such acceptance or rejection was in compliance with any applicable
non-bankruptcy law, rule or regulation governing the adequacy of disclosure in
connection with such solicitation, or if there is not any such law, rule or
regulation, if such acceptance or rejection was solicited after disclosure to
such holder of adequate information as defined in
21
<PAGE>
section 1125(a) of the Code. Section 1125(a) defines adequate information as
information of a kind and in sufficient detail that would enable a hypothetical
reasonable investor typical of holders of claims and interests to make an
informed judgment about a plan of reorganization. The Company believes that this
Prospectus complies with the requirements of section 1126(b) (including
compliance with the Securities Act and the Exchange Act) for purposes of
solicitation of acceptances, although there can be no assurance that the Court
will reach the same conclusion. See "Risk Factors." For instructions on how to
vote on the Plan see "Plan Solicitation--Voting Procedures."
The Plan would generally give effect to the same transactions contemplated
by the Recapitalization. This Plan Solicitation is being conducted at this time
to obtain the Requisite Plan Acceptances. In the event the Requisite Plan
Acceptances are obtained, the Company may elect to seek relief under chapter 11
of the Code and to use such Requisite Plan Acceptances to obtain confirmation of
the Plan as promptly as practicable. If the Company commences a Case and files
the Plan with the Court, the Company will promptly seek to obtain an order of
the Court finding that the Plan Solicitation was in compliance with applicable
non-bankruptcy laws, rules or regulations governing the adequacy of disclosure
or, if there is not any such law, rule or regulation, was made after disclosure
of adequate information as defined in the Code, and therefore, that holders of
Impaired Claims and Interests that have accepted or rejected the Plan pursuant
to this Plan Solicitation are deemed to have accepted or rejected the Plan for
purposes of confirmation of the Plan under chapter 11 of the Code.
The Company believes that it will have the best opportunity to complete the
Recapitalization and to confirm the Plan if the Requisite Plan Acceptances are
obtained prior to the commencement of a Case. In addition, the Company believes
that the prior acceptance of the Plan would minimize disputes during a Case
concerning the reorganization of the Company and would therefore shorten the
time required to complete the Recapitalization, reduce the expenses of the
proceedings and minimize the disruption of the Company's business that would
likely result from a protracted and contested Case. If the Company was forced to
commence a Case without prior receipt of the Requisite Plan Acceptances, the
Company believes that there is a substantial risk that the Recapitalization
would not be accomplished and that such Case would be protracted, costly and
disruptive to the operations of the Company's business.
The Plan designates nine (9) separate Classes of Claims and Interests. The
following table summarizes the classification and treatment of the various
Classes of Claims and Interests under the Plan. The following description is
qualified in its entirety by reference to the detailed provisions of the Plan
set forth in Appendix A to the Prospectus. Also, see "The Plan" for a more
detail summary of the Plan.
<TABLE>
<CAPTION>
CLASS DESCRIPTION STATUS TREATMENT UNDER THE PLAN
- -------------- ------------------------- --------------------------- ---------------------------------------------
<S> <C> <C> <C>
Unclassified Administrative Claims Unimpaired; deemed to have Holders will be paid in full in Cash on the
accepted the Plan Effective Date or upon such other terms as
may be agreed upon by the holder and the
Company or upon order of the Court; provided
that if the Claim is incurred in the ordinary
course of business, such Administrative
Claims will be paid or performed when due in
accordance with the terms and conditions of
the particular agreements governing them.
Unclassified Priority Tax Claims Unimpaired; deemed to have Holders will be paid in Cash on the Effective
accepted the Plan Date (or such later date on which such Claim
becomes an Allowed Claim), or the Company may
elect to pay holders of an Allowed Tax Claim
deferred cash payments in equal quarterly
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
CLASS DESCRIPTION STATUS TREATMENT UNDER THE PLAN
- -------------- ------------------------- --------------------------- ---------------------------------------------
installments, with interest, over a period
not to exceed six years after the date of
assessment of such Tax Claim, of a value, as
of the Effective Date, equal to the Allowed
amount of such Tax Claim, or holders will
retain unaltered their legal, equitable and
contractual rights; provided that such
Priority Tax Claims arise out of the IRS
Dispute (as defined below).
<S> <C> <C> <C>
Class 1 Priority Claims Unimpaired; deemed to have Holders will be paid in full in Cash to the
accepted the Plan extent such Claims are due on the Effective
Date unless the holder and the Company agree
to a different treatment. Any such Claims not
due and owing on the Effective Date will be
paid in full in Cash when due.
Class 2 Secured Claims Unimpaired; deemed to have Holders will retain unaltered their legal,
accepted the Plan equitable and contractual rights, or, at the
option of the Company, such Claims will be
treated in any other manner so that they will
otherwise be rendered Unimpaired. To the
extent not previously paid, any accrued and
unpaid interest due on the Secured Claims
will be paid in Cash on the Effective Date.
Class 3 Unliquidated or Unimpaired; deemed to have Holders will retain unaltered their legal,
Contingent Claims accepted the Plan equitable and contractual rights. The rights
of a holder of a Class 3 Claim, including
payment, if any, will be determined in the
manner in which the amount of such Claim and
the rights of the holder of such Claim would
have been resolved or adjudicated if a Case
had not been commenced.
Class 4 Affiliates' Claims Impaired; while deemed to Holders will receive no distributions and
have rejected the Plan, retain no property under the Plan.
this Class is expected to
vote in favor of the Plan
Class 5 General Unsecured Claims, Impaired; entitled to vote Provided that holders of Claims in Class 6
including liquidated non- and holders of Interests in Classes 7 and 8
Contingent Claims and vote to accept the Plan, holders will receive
Claims of Holders of their pro rata share of 9,359,208 shares of
Senior Debentures Common Stock so that collectively holders of
Class 5 Claims will hold 80% of the
outstanding shares of the Common Stock of the
Company on the
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
CLASS DESCRIPTION STATUS TREATMENT UNDER THE PLAN
- -------------- ------------------------- --------------------------- ---------------------------------------------
Effective Date. If Class 6, 7, or 8 fail to
accept the Plan, the subordination provisions
in the Senior Debenture Indenture will be
enforced and any distribution due such
rejecting Class of Claims or Interests under
the Plan will be distributed pro rata to the
holders of Class 5 Claims.
<S> <C> <C> <C>
Class 6 Claims of Holders Impaired; entitled to vote Provided holders of Class 6 Claims accept the
of Subordinated Plan, holders will receive their pro rata
Debentures share of 1,169,901 shares of Common Stock so
that collectively holders of Class 6 Claims
will hold 10% of the outstanding shares of
the Common Stock of the Company on the
Effective Date. If holders of Class 6 Claims
fail to accept the Plan, such holders will
receive no distributions nor will they retain
any property under the Plan. The
distributions which would otherwise be made
to holders of Allowed Class 6 Claims will be
made to the holders of Allowed Claims in
Class 5.
Class 7 Interests of Holders Impaired; entitled to vote Provided that holders of Class 7 Interests
of Preferred Stock vote to accept the Plan, and after giving
effect to the Capital Stock Combination and
the Reverse Stock Split, holders will be
deemed to hold on a one and three quarter for
one (1.75:1) basis Common Stock. After the
dilutive effect of the distribution of Common
Stock as provided under the Plan,
collectively holders of Preferred Stock will
hold approximately 5.8% of the outstanding
shares of the Common Stock of the Company on
the Effective Date. If holders of Class 7
Interests fail to accept the Plan, such
holders will receive no distributions nor
will they retain any property under the Plan.
The distributions which would otherwise be
made to holders of Allowed Class 7 Interests
will be made to the holders of Allowed Claims
in Class 5.
Class 8 Interests of Holders Impaired; entitled to vote Provided that holders of Class 8 Interests
of Class A Common Stock vote to accept the Plan, and after giving
effect to the Capital Stock Combination and
the Reverse Stock Split, holders of will be
deemed to hold on a one for one
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
CLASS DESCRIPTION STATUS TREATMENT UNDER THE PLAN
- -------------- ------------------------- --------------------------- ---------------------------------------------
(1:1) basis Common Stock. After the dilutive
effect of the distribution of Common Stock as
provided under the Plan, collectively holders
of Allowed Class 8 Interests will hold
approximately 4.2% of the outstanding shares
of the Common Stock of the Company on the
Effective Date. If holders of Class 8
Interests fail to accept the Plan, such
holders will receive no distributions nor
will they retain any property under the Plan.
The distributions which would otherwise be
made to the holders of Allowed Class 8
Interests will be made to the holders of
Allowed Claims in Class 5.
<S> <C> <C> <C>
Class 9 Interests of Holders Impaired; deemed to have Holders will receive no distributions and
of Warrants rejected the Plan retain no property under the Plan.
</TABLE>
25
<PAGE>
MEANS OF IMPLEMENTATION OF THE PLAN. The Plan provides that certain
transactions must occur on the Effective Date, or as soon as practicable
thereafter, including (i) the adoption and filing of amendments to the Company's
Restated Certificate, (ii) the adoption of amendments to the Company's Restated
Bylaws, (iii) the effectuation of the Capital Stock Combination, (iv) the
effectuation of the Reverse Stock Split, (vi) the issuance of authorized Common
Stock, and (vii) the execution of an amended Company stock option plan.
OTHER SIGNIFICANT PROVISIONS IN THE PLAN
- Distributions of Common Stock to holders of Outstanding Debentures will be
based upon the principal amount of Outstanding Debentures as of the
Petition Date plus accrued interest through the Petition Date.
- Except as otherwise expressly provided, the Plan provides for a discharge
and broad release of the Company from all Claims and causes of action
which are held by holders of Impaired Claims against and Impaired
Interests in the Company.
- The Plan provides for the release by the Company of the present and former
directors and officers of the Company for certain claims related to their
respective employment or service with the Company.
- The Plan provides for the assumption of all executory contracts and
unexpired leases of the Company, except for those expressly rejected by
the Company.
- The Plan provides that fractional shares of Common Stock that would be
distributable on the basis of the Reverse Stock Split or distributions of
the Common Stock on account of Allowed Claims will not be issued or
distributed.
- The Plan provides for the amendment or modification of the Plan under
certain circumstances, and the right to withdraw the Plan anytime prior to
the entry of the Court order confirming the Plan.
PLAN ACCEPTANCE. All holders of Claims in an Unimpaired Class are
conclusively presumed under the Code to have accepted the Plan. All holders (as
of the Record Date) of Claims in an Impaired Class (except Classes 4 and 9) are
entitled to vote on the Plan. A Class of Claims will be found to have accepted
the Plan if votes to accept are cast by the holders of at least two-thirds in
amount and more than one-half in number of Claims of such Class that vote on the
Plan (the "Requisite Claims Acceptances"). Holders of Impaired Interests will be
found to have accepted the Plan if votes to accept are cast by the holders of at
least two-thirds in amount of outstanding Preferred Stock and Class A Common
Stock that vote on the Plan (the "Requisite Interest Acceptances," and together
with the Requisite Claims Acceptances, the "Requisite Plan Acceptances").
Representatives of the Debenture Holders' Committee, whose members hold
approximately 70% of the Outstanding Debentures and approximately 33% and 13%,
respectively of the Preferred Stock and Class A Common Stock, have indicated
that they intend to support the Plan. In addition, the holder of 30.5% and
11.5%, respectively, of the Preferred Stock and Class A Common Stock has
indicated to the Company that it intends to approve the Plan. Any Class (other
than Class 4 but including Class 9) not receiving or retaining anything under
the Plan will be deemed to have rejected the Plan. Because only votes for or
against the Plan are counted, an abstention or a failure to vote will not be
counted for purposes of determining acceptance or rejection of the Plan by any
Class of Claims or Interests. Therefore, the Plan could be approved by any Class
of Claims by holders with significantly less than two-thirds in amount and
one-half in number of Claims in such Class and by any Class of Interests by
holders with significantly less than two-thirds in amount of Interests in such
Class. ACCORDINGLY, IT IS IMPORTANT THAT ALL HOLDERS OF IMPAIRED CLAIMS AND
IMPAIRED INTERESTS, INCLUDING HOLDERS OF OUTSTANDING DEBENTURES, PREFERRED STOCK
AND CLASS A COMMON STOCK, VOTE ON THE PLAN. A VALID TENDER PURSUANT TO AN
EXCHANGE OFFER WILL NOT CONSTITUTE ACCEPTANCE OF THE PLAN.
26
<PAGE>
Even if all Classes of Impaired Claims and Impaired Interests vote to accept
the Plan, the Plan might not be confirmed by the Court. See "Risk
Factors--Considerations Relating to the Filing of the Case-- Risk of
Non-Confirmation of the Plan."
CONFIRMATION OF THE PLAN. If the Company decides to seek to implement the
Plan by commencing a case under the Code, the Company will promptly request that
the Court hold a confirmation hearing as promptly as practicable (including a
determination that the Plan Solicitation was in compliance with section 1126(b)
of the Code), upon such notice to parties in interest as is required by the Code
and the Court. Parties in interest, including all holders of Impaired Claims and
Interests, will receive notice of the date and time fixed by the Court for the
Confirmation Hearing. Section 1128(b) of the Code provides that any party in
interest may object to confirmation of the Plan. The Court will also establish
procedures for the filing and service of objections to confirmation of the Plan.
See "The Plan--Confirmation Standards."
BINDING EFFECT. If the Plan is confirmed by the Court, each holder of a
Claim or Interest in an Impaired Class will receive the same consideration as
other holders of Claims or Interests in such Impaired Class, whether or not such
holder voted to accept the Plan. Moreover, upon confirmation, the Plan will be
binding upon all holders regardless of whether or not such holders voted to
accept the Plan. For example, if the Plan is confirmed, 100% of each issue of
Outstanding Debentures will be exchanged for shares of Common Stock.
VOTING PROCEDURES. The Company will not hold a meeting to vote on the Plan.
Rather, except for holders of Affiliates' Claims which the Company will cause to
support the Plan, the Company is soliciting acceptances of the Plan by means of
"Ballots" and "Master Ballots." Holders of Outstanding Debentures, Preferred
Stock, Class A Common Stock and liquidated non-Contingent Claims should read
this Prospectus, with the Plan, the form of Ballot and or Master Ballot, as
applicable (collectively the "Solicitation Materials"), in their entirety before
voting on the Plan. Any holder of Impaired Claims or Impaired Interests who
wishes to vote with respect to the Plan should complete, sign and return the
applicable Ballot or Master Ballot and check the box entitled "Accepts the Plan"
or "Rejects the Plan," as appropriate. Except as provided on the applicable
Ballot or Master Ballot, the applicable duly completed Ballot or Master Ballot
must be mailed or delivered to the Exchange Agent at the address listed on the
back cover of this Prospectus. Unless extended by the Company, Ballots and
Master Ballots must be received no later than 12:00 midnight, Eastern Standard
Time, on May , 1997. Any beneficial owner whose securities were registered or
held of record in the name of his broker, dealer, commercial bank, trust
company, savings and loan or other nominee and who wishes to vote on the Plan,
but who does not have a Ballot, should contact such nominee and request a Ballot
from such nominee and return a completed Ballot to such nominee. In the event
that the Court determines that the Solicitation Materials were not transmitted
to substantially all Impaired Creditors and holders of Preferred Stock and Class
A Common Stock, the Court could void the Plan Solicitation or require further
solicitation or resolicitation. For more detail instructions on how to vote on
the Plan see "Plan Solicitation--Voting Procedures."
Under appropriate written notice, votes on the Plan may be revoked as
described herein at any time prior to the earlier of (i) the commencement by the
Company of the Case, and (ii) the Record Date, as well as in certain other
circumstances. See "Plan Solicitation Voting--Procedures--Withdrawal of Ballots
and Revocation."
APPRAISAL RIGHTS
No appraisal rights are available to holders of the Company's Outstanding
Debentures, Preferred Stock or Class A Common Stock in connection with the
Exchange Offers or the Capital Stock Combination or Reverse Stock Split.
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below is selected financial data of the Company and its
consolidated subsidiaries. The following information should be read in
conjunction with (i) the Company's financial statements and notes thereto
contained in this Prospectus commencing on Page F-1; and (ii) the Unaudited pro
forma consolidated financial information contained in this Prospectus under the
heading "The Company Recapitalization--Unaudited Pro Forma Consolidated
Financial Information."
27
<PAGE>
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO
1992 1993 1994 1995 1996 FORMA(H)
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments
(a).............................................. $ 41.6 $ 43.5 $ 13.0 $ 4.9 $ 2.1 $ 16.0
Total assets (a)................................... 486.1 436.0 414.0 272.4 272.2 261.1
Senior bank debt (b)............................... 65.4 7.0 -- 16.6 7.1 --
Project debt....................................... -- -- -- -- 12.5 12.5
Subordinated debentures (b)........................ 165.1 134.9 152.9 173.2 195.9 19.6
Total stockholders' equity (c)..................... $ 149.6 $ 163.5 $ 145.5 $ 29.6 $ 1.1 $ 160.1
Fully diluted shares outstanding at end of period
(g).............................................. 86.4 91.4 102.5 102.4 102.4 11.4
Book value per fully diluted share................. $ 1.73 $ 1.79 $ 1.42 $ .29 $ .01 $ 14.04
STATEMENT OF OPERATIONS DATA:
Revenues (d),(e)................................... $ 28.3 $ 16.7 $ 21.4 $ 34.0 $ 44.8 $ 44.8
Loss from continuing operations (e),(f)............ (41.9) (20.1) (18.7) (116.9) (28.9) (8.5)
Net income (loss) (f).............................. (38.4) 14.3 (18.0) (116.9) (28.9)
Per common share:
Loss from continuing operations (c),(e),(f)........ (1.44) (.24) (.43) (2.48) (.60) $ (.85)
Net income (loss) (f),(g).......................... $ (1.32) $ .17 $ (.41) $ (2.48) $ (.60)
Weighted average shares outstanding (g).............. 29.0 83.0 43.8 47.1 48.3 10.8
</TABLE>
- ------------------------
(a) The decrease in total assets at December 31, 1993 is primarily due to the
disposition of the Company's investment in Deltec Panamerica S.A. ("Deltec")
and the sale of Lake Superior Land Company ("Lake Superior"). The decrease
in total assets and cash, cash equivalents and short-term investments at
December 31, 1994 is primarily attributable to the funding of project
development costs and general and administrative expenses, as well as funds
deposited into a restricted cash account to secure a $25 million letter of
credit facility related to the Abex litigation. The decreases in cash, cash
equivalents and short term investments at December 31, 1995 and 1996 are
primarily attributable to the funding of project development and
infrastructure costs and general and administrative expenses, partially
offset by sales of real estate held for development or sale. The decrease in
total assets at December 31, 1995 is primarily due to the asset revaluation
of Bolsa Chica and the decrease in cash described above.
(b) The decrease in debt at December 31, 1993 reflects principal repayments on
senior bank debt and the exchange of subordinated debentures in connection
with the sale of Lake Superior and the issuance of 3.4 million shares of
Class A Common Stock of the Company to Libra. The increase in debt at
December 31, 1995 reflects borrowings under new credit agreements to settle
the Abex litigation and construct infrastructure improvements at Rancho San
Pasqual. The decrease in senior bank debt at December 31, 1996 reflects
principal repayments in excess of borrowings for construction of
infrastructure improvements at Rancho San Pasqual. The increase in project
debt at December 31, 1996 reflects borrowings from banks for build-to-suit
projects.
(c) The increase in equity at December 31, 1993 primarily reflects net income
for the year then ended. The decrease in equity at December 31, 1995
reflects the net loss for the year then ended, including the asset
revaluation of Bolsa Chica. The decrease in equity at December 31, 1996
reflects the net loss for the year then ended, primarily due to interest
expense on subordinated debentures.
28
<PAGE>
(d) The decrease in 1993 revenues is principally due to a decrease in land sales
and the absence of revenues from a hotel disposed of in 1992, partially
offset by revenues from the Eagle Crest Golf Course which opened in May
1993, and development fees generated by the business acquired from The Koll
Company in September 1993. The increase in 1995 revenues is due to an
increase in land sales and Wentworth By The Sea residential and marina
sales. The increase in 1996 revenues reflects the sale of residential lots
and the Eagle Crest Golf Course at Rancho San Pasqual, the formation of the
Fairbanks Highlands joint venture and the sale of resort/residential lots in
Michigan.
(e) Amounts have been reclassified to present Lake Superior and Deltec as
discontinued operations.
(f) The loss from continuing operations for the year ended December 31, 1993
reflects lower interest expense related to lower debt outstanding, as well
as nonrecurring income of $3 million received upon termination of a put
option agreement with Abex Inc. and a $2 million insurance reimbursement
related to costs incurred in 1992. Net income and net income per common
share for 1993 reflect gains on the dispositions of Lake Superior and Deltec
and an extraordinary gain on debt extinguishment. The loss from continuing
operations, net loss and loss per common share for the year ended December
31, 1995 reflect approximately $121.1 million of charges related to
write-downs of real estate properties, including Bolsa Chica. The loss from
continuing operations, net loss and loss per common share for the year ended
December 31, 1996 is primarily the result of noncash interest charged on the
subordinated debentures.
(g) In July 1992, approximately 19.7 million shares of Class A Common Stock and
42.5 million shares of Series A Preferred Stock were issued in connection
with the merger of a subsidiary of Henley Properties with and into the
Henley Group. The Preferred Stock is not included in the loss per share
calculations except for 1993 since the effect is antidilutive. In December
1993, the Company issued 3.4 million shares of its Common Stock in exchange
for all of Libra's approximately $10.6 million in aggregate principal amount
plus accrued interest of Subordinated Debentures issued by the Company. The
1993 earnings per share calculation includes these newly issued shares,
along with the Preferred Stock and stock options outstanding. In November
1994, the Company issued 2.0 million shares (along with warrants for the
purchase of an additional 2.0 million shares) of its Class A Common Stock in
connection with the acquisition of the Kathryn G. Thompson Company. The
1994, 1995 and 1996 amounts reflect conversion of 1.2 million, an additional
1.0 million and an additional 1.4 million shares, respectively of Preferred
Stock to Class A Common Stock.
(h) The Pro Forma amounts reflect December 31, 1996 historical amounts, giving
effect to (i) the February 14, 1997 sale of the Bolsa Chica lowlands, (ii)
the issuance of Common Stock to holders of Senior Subordinated and
Subordinated Debentures pursuant to the Exchange Offers (assuming only the
minimum 90% are tendered), including the resulting extraordinary gain on
extinguishment of debt of approximately $57.7 million, net of income taxes
(See "Historic and Unaudited Pro Forma Consolidated Financial Statements")
and (iii) the Capital Stock Combination and Reverse Stock Split described in
this Prospectus.
29
<PAGE>
MARKET PRICES OF THE COMPANY'S COMMON STOCK AND DIVIDENDS PAID
The following tables set forth information with respect to bid quotations
for the Class A Common Stock of the Company for the periods indicated as
reported by NASDAQ. These quotations are interdealer prices without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First Quarter................................................................ $ .531 $ .313
Second Quarter............................................................... .250 .156
Third Quarter................................................................ .250 .156
Fourth Quarter............................................................... .250 .125
1995
First Quarter................................................................ $ .500 $ .344
Second Quarter............................................................... .469 .313
Third Quarter................................................................ .594 .344
Fourth Quarter............................................................... .469 .250
1994
First Quarter................................................................ $ .531 $ .250
Second Quarter............................................................... .406 .125
Third Quarter................................................................ .344 .188
Fourth Quarter............................................................... .625 .281
</TABLE>
The number of holders of record of the Company's Class A Common Stock as of
December 31, 1996 was approximately 25,000. The Company has not paid any cash
dividends on its Class A Common Stock to date, nor does the Company currently
intend to pay regular cash dividends on the Class A Common Stock. Such dividend
policy is and will continue to be subject to prohibitions on the declaration or
payment of dividends contained in debt agreements of the Company.
30
<PAGE>
RISK FACTORS
RETENTION OF OUTSTANDING DEBENTURES (UPON COMPLETION OF THE EXCHANGE OFFERS)
AND ACQUISITION OF THE COMMON STOCK (BY TENDERING IN THE EXCHANGE OFFERS OR
APPROVING THE CAPITAL STOCK COMBINATION) ARE SUBJECT TO A NUMBER OF MATERIAL
RISKS INCLUDING THOSE ENUMERATED BELOW, EACH OF WHICH SHOULD BE CAREFULLY
CONSIDERED BY HOLDERS OF THE OUTSTANDING DEBENTURES, PREFERRED STOCK AND CLASS A
COMMON STOCK. HOLDERS OF OUTSTANDING DEBENTURES AND HOLDERS OF PREFERRED STOCK
AND CLASS A COMMON STOCK SHOULD CAREFULLY CONSIDER, AMONG OTHER MATTERS
DISCUSSED IN THIS PROSPECTUS, THE FOLLOWING INFORMATION AND CONSIDERATIONS PRIOR
TO DETERMINING WHETHER TO TENDER OUTSTANDING DEBENTURES, GRANT CONSENTS AND/OR
APPROVE THE PLAN AND/OR APPROVE THE CAPITAL STOCK COMBINATION. IN ADDITION,
HOLDERS OF IMPAIRED CLAIMS AND INTERESTS SHOULD CAREFULLY CONSIDER, AMONG OTHER
MATTERS DISCUSSED IN THIS PROSPECTUS, THE FOLLOWING INFORMATION AND
CONSIDERATIONS PRIOR TO VOTING ON THE PLAN, AND HOLDERS OF THE COMPANY'S VOTING
SECURITIES SHOULD ALSO CAREFULLY CONSIDER, AMONG OTHER MATTERS DISCUSSED IN THIS
PROSPECTUS, SUCH CONSIDERATIONS PRIOR TO VOTING ON THE PLAN, VOTING AT THE
ANNUAL MEETING PROPOSALS OR GRANTING A PROXY WITH RESPECT THERETO.
RISK FACTORS APPLICABLE TO HOLDERS OF OUTSTANDING DEBENTURES, PREFERRED STOCK
AND/OR COMMON STOCK.
SPECIAL FACTORS. For a discussion of the reasons for the Recapitalization,
including the Exchange Offers, and the benefits of completing the
Recapitalization at this time, see "The Company Recapitalization--Background of
the Recapitalization--Purposes and Certain Results of the Recapitalization."
FINANCIAL CONDITION OF THE COMPANY. As described below under the headings
"The Company Recapitalization--Background of the Recapitalization--Purposes and
Certain Results of the Recapitalization," the Company's capital structure is
currently highly leveraged primarily due to the $205.7 million aggregate
outstanding principal amounts of the Outstanding Debentures as of March 15,
1997. If the Outstanding Debentures remain outstanding until their respective
March 15, 2002 maturity dates, the Company will incur approximately $162.8
million in additional debt with respect to the Outstanding Debentures, resulting
in approximately $368.5 million in outstanding principal amount at maturity.
Given this highly leveraged capital structure, the Company believes it may not
be able to obtain financing on favorable terms, which financing is necessary for
the Company to maximize the realization of asset values and to grow its
business, including, but not limited to, the commercial real estate development
business and the development of its Bolsa Chica project. While the Company
believes the Recapitalization will allow the Company to obtain the necessary
financing on more favorable terms, the Company does not currently have any
commitments to provide such financing in the event the Recapitalization is
effected and there can be no assurance that such financing will be available to
the Company.
FAILURE TO RECEIVE 90% REQUISITE EXCHANGE ACCEPTANCES; FAILURE TO CONSUMMATE
THE RECAPITALIZATION. In order to effect the Recapitalization, other than
through the filing and confirmation of the Plan, it is necessary for the Company
to receive the 90% Requisite Exchange Acceptances and the Requisite Consents.
These percentages may not be attained and, therefore, the Company may not be
able to effectuate the Recapitalization. The Company's financial advisors have
assisted the Company in preparing an analysis which indicates that the Company
would need to earn a compounded return of greater than 30% per annum on the free
cashflow generated by the Company's assets between 1997 and 2002 in order to
fully satisfy the face amount of the Senior Debentures and Subordinated
Debentures at maturity in 2002. As an alternative to waiting until the 2002
maturity, the Company has engaged in extensive negotiations with the Debenture
Holders' Committee and its financial advisors in order to effect a current
exchange of the Outstanding Debentures for Common Stock. Based on the current
valuation prepared by the Company with the assistance of HLHZ, holders of Senior
Debentures would receive Common Stock worth approximately $0.532 per $1.00 of
principal amount outstanding on March 15, 1997 and holders of Subordinated
Debentures would receive Common Stock worth approximately $0.266 per $1.00 of
principal amount outstanding on March 15, 1997 if they accept the Exchange
Offers. If the 90% Requisite Exchange Acceptance is not obtained, the Company
will consider effecting the Recapitalization by seeking a Court order confirming
the Plan. Under such circumstances, if the holders of Preferred Stock as a
class, holders
31
<PAGE>
of Class A Common Stock as a class or holders of Subordinated Debentures as a
class, as the case may be, have not approved the Plan, then under the terms of
the Plan, such respective holders of the disapproving class will have such
respective claims or interests cancelled and they will receive no property or
distributions in exchange. See "Risk Factors--Additional Risks to Holders of
Outstanding Debentures--Possible Effect of Non-Acceptance of Recapitalization on
Holders of Subordinated Debentures," "Risk Factors-- Additional Risk Factors
Applicable to Holders of Preferred and Class A Common Stock--Possible Effect of
Non-Approval of Capital Stock Combination, Reverse Stock Split and the Plan by
Holders of Preferred Stock and Class A Common Stock," "Risk
Factors--Considerations Relating to Filing a Case--Non-Acceptance of the Plan"
and "The Plan--Confirmation of the Plan Without Acceptance by All Voting
Classes." Representatives of the Debenture Holders' Committee, whose members
hold approximately 70% of the Outstanding Debentures and approximately 33% and
13%, respectively, of the Preferred Stock and Class A Common Stock, have
indicated that they intend support the Plan. In addition, the holder of 30.5%
and 11.5%, respectively, of the Preferred Stock and Class A Common Stock has
indicated to the Company that it intends to approve the Plan. If the
Recapitalization is not consummated, the Company is also likely to incur
substantially higher costs and less favorable terms with respect to the
necessary financing described above. The Company will also continue to
experience the negative effect on its development business caused by the
continued reporting of operating losses which are primarily a result of interest
expense associated with the Outstanding Debentures, and continue to experience
problems in attracting and retaining key commercial and residential development
team personnel due to concerns as to the ability of the Company to compete for
new business. Accordingly, the Company may pursue alternative restructuring
transactions which may be less favorable to the Company's current
securityholders than the Recapitalization.
POTENTIAL NASDAQ DELISTING IF CAPITAL STOCK COMBINATION AND REVERSE STOCK
SPLIT ARE NOT APPROVED. The Class A Common Stock and Preferred Stock are
currently listed on NASDAQ NMS. On November 6, 1996, the Board of Directors of
Nasdaq Stock Market, Inc. approved changes to further strengthen both the
quantitative and qualitative standards for issuers listed on NASDAQ. The new
standards require final approval by the Securities and Exchange Commission
before they go into effect. Under the new standards, a company with a stock
trading at less than $1.00 for more than thirty (30) days could have that stock
delisted after an additional ninety (90) day period if the price does not
increase above $1.00. The consequences of delisting could include a substantial
reduction in the liquidity of the Class A Common Stock and Preferred Stock due
to the lack of an active trading market. Both the Preferred Stock and Class A
Common Stock currently have per-share trading prices below the $1.00 minimum.
The Capital Stock Combination and Reverse Stock Split would cause an increase in
the per share trading price of the Common Stock above the $1.00 minimum and
would eliminate the Preferred Stock. However, if the Capital Stock Combination
and Reverse Stock Split are not effected, the Preferred Stock and Class A Common
Stock are in risk of being delisted from the NASDAQ NMS.
TAX MATTERS. The federal income tax consequences to the Company and holders
of its securities as a result of the transactions occurring as part of and in
connection with the Recapitalization are material. See "Material Federal Income
Tax Consequences."
The Company is appealing to the Internal Revenue Service ("IRS") regarding
material audit adjustments proposed by the IRS for tax years ended December 31,
1989, 1990 and 1991. The Company is prepared to pursue all available
administrative and judicial appeal procedures with regard to these matters. The
Company has been advised that resolution of these disputes with the IRS could
take up to five years. If and to the extent that the Company is ultimately
unsuccessful in eliminating these proposed adjustments, the Company may be
liable for tax deficiencies. Satisfaction of such deficiencies could reduce
certain tax attributes (such as net operating losses) which would otherwise be
available to offset taxable income or gain, or otherwise have an adverse impact
on the Company's financial position.
32
<PAGE>
OPERATIONS AFTER THE RECAPITALIZATION. While the proposed Recapitalization
is expected to reduce financial leverage, there can be no assurance that
liquidity problems will not occur sometime in the future. In addition, no
assurances can be given that operations of the Company following consummation of
the Recapitalization necessarily will be profitable. See "Risk Factors--Real
Estate Industry and Development Activities." In addition, the market prices of
the Company's securities in the future may be affected by factors not within the
control of the Company, including, without limitation, public statements from
securities analysts and others concerning the Company's operations and
prospects.
USE OF DEBT FINANCING. The Company is currently subject to the risks
normally associated with debt financing, including the risk that the Company
will have insufficient cash available to meet required payments of principal and
interest. If the Recapitalization is effected, these risks will remain, although
to a lesser extent, because the Company intends to pursue additional debt
financing in order to obtain funds necessary to continue its business. As a
result of the Company's use of indebtedness and leverage, including the use of
debt to finance development and acquisitions and the use of variable rate
financing, the cumulative effect of the risks associated with borrowing is
greater than that of each of these risks considered individually. In addition,
if properties are mortgaged to secure payment of indebtedness and the Company is
unable to meet mortgage payments or if certain other events of default occur,
such properties could be foreclosed upon by, or otherwise transferred to, the
mortgagee with a consequent loss of income and asset value to the Company.
RISK OF RISING INTEREST RATES. The Company has incurred and expects in the
future to incur variable rate mortgage indebtedness in connection with its
operations. An increase in interest rates would increase the interest on
variable rate indebtedness, and could have an adverse effect on net income and
funds available for distribution to stockholders. Additionally, rising interest
rates could have an adverse impact on the trading price of the Company's
outstanding capital stock as potential purchasers may demand a higher annual
yield from an investment in response to such higher rates.
REAL ESTATE INDUSTRY AND DEVELOPMENT ACTIVITIES. While the Company believes
that its properties have significant potential future value, its business is
subject to a number of factors which could adversely affect such values. These
factors include the availability of adequate financing on commercially
reasonable terms and cash flow from operations, delays in obtaining zoning and
regulatory approvals, and litigation or appeals of regulatory approvals. 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 residential lots and housing generally and the supply of competitive
products. Real estate properties and real estate joint venture interests do not
constitute liquid assets and, at any given time, it may be difficult to sell a
particular property or interest for an appropriate price. The depressed
condition of the California's economy in the first half of this decade 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.
REGULATORY APPROVAL. Before the Company can develop a property, it must
obtain a variety of discretionary approvals from local and state governments, as
well as the federal government in certain circumstances, with respect to such
matters as zoning, grading, architecture and environmental matters. The approval
process is often a lengthy and complex procedure requiring, among other things,
the submission of development plans and reports and presentations at public
hearings. Because of the provisional nature of these approvals and the concerns
of various environmental and public interest groups, the approval process can be
delayed by litigation and appeals challenging development rights previously
granted to the Company. Accordingly, the ability of the Company to develop
properties and realize income from such projects could be delayed or prevented
due to difficulties in obtaining necessary governmental approvals. After the
Recapitalization or implementation of the Plan, the Company will
33
<PAGE>
continue to be subject to such appeals processes, including the litigation
challenging the approved development plans with respect to its principal asset,
the Bolsa Chica property, a large undeveloped coastal property approximately 35
miles south of downtown Los Angeles. See "Business and Properties of the
Company--Legal Proceedings."
ENVIRONMENTAL MATTERS. The Company's business activities and properties are
subject to a variety of environmental regulations under federal, state and local
laws. While the Company believes that it conducts its businesses in an
environmentally acceptable manner and that it is in compliance with applicable
laws and regulations, claims against the Company have been made in the past and
may be made against the Company in the future seeking to impose liability for
alleged environmental violations.
HOLDING COMPANY STRUCTURE. The Company is a holding company. Claims of
creditors, including trade creditors, of the subsidiaries will generally have
priority as to the assets of such subsidiaries over the claims of the Company
and its security holders. In addition, substantially all of the Company's
operating income and cash flow will be generated by its subsidiaries. In order
to make cash interest payments on its direct liabilities the Company will have
to rely on dividends or loans from its subsidiaries to generate the funds for
such payments. The ability of such subsidiaries to pay such dividends is subject
to applicable state laws and is subject to senior debt contractual restrictions.
ABSENCE OF DIVIDENDS. The Company does not anticipate paying cash dividends
to its stockholders after the Recapitalization or in the foreseeable future. To
the extent that contractual provisions permit the payment of dividends at some
future date, the Company's dividend policy will be reviewed from time to time by
the Board in light of the Company's earnings and financial position and such
other business considerations as the Board considers relevant. In this regard,
because the Company is a holding company, it will have to rely on dividends from
its subsidiaries to generate the funds for any payment of dividends on the
capital stock of the Company. The ability of such subsidiaries to pay dividends
is subject to applicable state laws and may be subject to contractual
restrictions.
CERTAIN ANTI-TAKEOVER EFFECTS. Certain provisions of the Restated
Certificate and the By-Laws will not continue if the Annual Meeting Proposals
with respect thereto are approved or the Plan is effected. These provisions
include classification of the Board, prohibition on stockholder action by
written consent and requirements that the affirmative vote of at least 80% of
the Company's outstanding voting stock approve certain actions, including an
increase in the size of the Board, the removal of directors for cause or the
amendment of any such anti-takeover provisions. These provisions were intended
to provide stability and continuity for the Company and if removed, may have the
effect of increasing the risk of an acquisition of control of the Company in a
transaction not approved by the Board. However, these risks may be decreased by
the capital structure resulting from the Recapitalization due to the resulting
deleveraging and greater concentration of ownership.
ADDITIONAL RISK FACTORS APPLICABLE TO HOLDERS OF OUTSTANDING DEBENTURES
CERTAIN CONSEQUENCES TO NON-TENDERING HOLDERS OF OUTSTANDING DEBENTURES. If
the Recapitalization is consummated without the Plan, any holders of remaining
Outstanding Debentures who do not accept the Exchange Offers may lose the
benefit of certain restrictive provisions in the Indentures that are intended to
provide protection to the holders thereof. See "Proposed Amendments to the
Indentures." Further, because the number of holders of Outstanding Debentures
and the outstanding principal amount of the Outstanding Debentures after the
consummation of the Recapitalization will be substantially reduced, the trading
market will likely become even more limited. These events are likely to have a
material adverse effect on the liquidity and market price of any remaining
Outstanding Debentures following consummation of the Recapitalization.
EFFECT OF DELAY IN CONSUMMATION OF THE EXCHANGE OFFERS ON OUTSTANDING
DEBENTURES. The Company will execute amended Indentures (the "Amended
Indentures") effectuating the Proposed Amendments after receipt of the Requisite
Consents from the Outstanding Debentures. Although the Amended Indentures will
not become operative until consummation of the Exchange Offers, after execution
of the
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Amended Indentures, the Requisite Consents will be irrevocable. While the period
of time between execution of the Amended Indentures and the consummation of all
of the Exchange Offers may be short, it is possible that such time period could
be substantial due to the conditions that must be satisfied prior to
consummation of the Exchange Offers. See "The Exchange Offers--Conditions to the
Exchange Offers."
POSSIBLE EFFECT OF NON-ACCEPTANCES OF RECAPITALIZATION ON HOLDERS OF
SUBORDINATED DEBENTURES. Under certain circumstances the holders of Subordinated
Debentures could have their interests cancelled in the Recapitalization and
receive no consideration. This could occur if insufficient Outstanding
Debentures are tendered to the Company pursuant to the Exchange Offers such that
the 90% Requisite Acceptances are not received by the Company. As a result, the
Company could elect to proceed with a Case and seek judicial confirmation of the
Plan. Under such circumstances, if the holders of Subordinated Debentures have
not approved the Plan as a class, the Plan provides that the Subordinated
Debentures will be cancelled and the holders of Subordinated Debentures will
receive no property or distributions in exchange. See "Risk
Factors--Considerations Relating to the Filing of a Case," and "The Plan--
Confirmation of the Plan Without Acceptance by All Voting Classes."
ADDITIONAL RISK FACTORS APPLICABLE TO HOLDERS OF PREFERRED AND CLASS A COMMON
STOCK
POSSIBLE EFFECT OF NON-APPROVAL OF CAPITAL STOCK COMBINATION, REVERSE STOCK
SPLIT AND THE PLAN BY HOLDERS OF PREFERRED STOCK AND CLASS A COMMON
STOCK. Under certain circumstances the holders of shares of Preferred Stock and
Class A Common Stock could have their shares cancelled in the Recapitalization
and receive no consideration. This could occur if the holders of Preferred Stock
and Class A Common Stock voting as separate classes do not approve the Capital
Stock Combination and Reverse Stock Split. As a result, the Company could elect
to proceed with a Case and seek Court confirmation of the Plan. Under such
circumstances, if the holders of Preferred Stock or Class A Common Stock have
not approved the Plan, then the outstanding shares of BOTH Preferred Stock and
Class A Common Stock would be cancelled and the holders of such shares would
receive no property or distributions in exchange. See "Risk Factors--
Confirmation of the Plan Without Acceptance by All Voting Classes."
OWNERSHIP INTERESTS, ABILITY TO ELECT DIRECTORS, AND BENEFITS TO CERTAIN
PARTIES. After the various issuances of Common Stock as part of the
Recapitalization, assuming a 100% acceptance of the Exchange Offers, the current
holders of Outstanding Debentures, will have aggregate ownership of
approximately 90% of the Common Stock and voting power of the Company. In
addition, current holders of Preferred Stock will have ownership of
approximately 5.8% of the Common Stock and of the then combined voting power of
the Company, and the current holders of Class A Common Stock will own the
remaining 4.2% of the Common Stock and voting power. Because the Company's
Restated Certificate does not provide for cumulative voting in the election of
directors, the current holders of Outstanding Debentures will be in a position,
if acting together, effectively to elect all of the Company's directors. See
"The Company Recapitalization--Purposes and Certain Results of
Recapitalization."
DILUTION; SHARES ELIGIBLE FOR FUTURE SALES. The issuance of the Common
Stock as part of the Recapitalization will result in significant dilution of the
beneficial ownership interests and voting power of the current holders of the
Company's Preferred and Class A Common Stock. As of the date of this Prospectus,
approximately 38.9 million shares of the Company's Preferred Stock and 48.9
million shares of the Company's Class A Common Stock were outstanding (excluding
1.4 million shares held in treasury). A substantial number of shares of Common
Stock could potentially be offered for sale in the public market in the future
(the "Future Shares"). The Future Shares consist of shares of Common Stock that
may be offered for sale pursuant to (i) registration statements prepared by the
Company, (ii) Rule 144 under the Securities Act or other applicable exemptions,
and (iii) the Warrant Shares subject to issuance and resale by the financial
advisors. See "Shares Subject to Future Sale by Financial Advisors." There is no
way of knowing with any certainty what number, if any, of Future Shares will be
actually offered for sale in the public market in the future. Sales of
substantial amounts of Future Shares in the public market, and the perception by
investors, investment professionals and others of the possibility that such
sales may occur,
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could adversely affect the market price of the Common Stock (as well as the
ability of the Company to raise capital in the public markets at times and at
prices favorable to the Company). There is a risk that if substantial amounts of
Future Shares are offered for sale and there is an insufficient number of buyers
willing to purchase such shares, the market price of the Common Stock may
decrease.
CERTAIN COMPETITION AGREEMENTS. The Company and certain of its subsidiaries
have amended certain agreements with Donald M. Koll, the Chairman of the Board
and Chief Executive Officer of the Company, which amendments modify an existing
license to use the "Koll" name and certain non-compete provisions upon the
occurrence of certain conditions following the Recapitalization. Pursuant to
such amendments, upon consummation of the Recapitalization and the occurrence of
certain specified events thereafter, Mr. Koll would be released from currently
existing covenants not to compete with the Company and its subsidiaries and upon
such release, the Company and its subsidiaries would be obligated to change
their respective names to delete all usage of the name "Koll." See "Certain
Relationships and Related Transactions."
CONSIDERATIONS RELATING TO THE FILING OF A CASE.
CONSIDERATIONS RELATING TO ANY FUTURE BANKRUPTCY OF THE
COMPANY. Consummation of the Plan may have significant consequences in the
event of a subsequent bankruptcy for holders of Outstanding Debentures and
liquidated non-Contingent Claims. Since holders of Outstanding Debentures and
liquidated non-Contingent Claims will receive Common Stock under the Plan, such
holders will have only an equity interest in the Company. Consequently, in any
subsequent bankruptcy case, such holders' Interests would rank in priority below
all holders of Claims.
EFFECT ON OPERATIONS. The Company's operations are conducted through its
subsidiaries. Since the subsidiaries are not parties to the Plan and will not
file Cases in connection with the Plan, the Company believes that the Plan
Solicitation and the subsequent commencement of a Case will not materially
adversely affect the subsidiaries' relationships with customers, employees and
suppliers, given that the subsidiaries can demonstrate sufficient liquidity to
continue to operate their businesses and provided that the Company can
demonstrate a likelihood of success for the Recapitalization in a reasonably
short time frame. The Company believes that Plan Solicitation offers the most
expeditious means to complete the Recapitalization.
It is possible that, despite the belief and intent of the Company, the Plan
Solicitation or any subsequent commencement of the Case could adversely affect
the relationships between the subsidiaries and their customers, employees and
suppliers. There is a risk that, due to uncertainty about the Company's future,
(i) employees may be distracted from performance of their duties or more easily
attracted to competitors or other career opportunities; (ii) customers may seek
alternative sources of supply or require financial assurances of future
performance; and (iii) suppliers may restrict ordinary credit terms and require
financial assurances of performance.
POSSIBLE INVALIDATION OF THE SOLICITATION BY THE COURT. Section 1126(b) of
the Code provides that the holder of a claim or equity interest who accepts or
rejects a plan of reorganization before the commencement of a Case is deemed to
have accepted or rejected such plan under the Code so long as the solicitation
of such acceptance was made in accordance with applicable law governing the
adequacy of disclosure in connection with such solicitation, or, if such law
does not apply, such acceptance was solicited after disclosure of "adequate
information" as defined in section 1125(a)(1) of the Code. This Prospectus is
being presented to all holders of Impaired Claims against and Interests in the
Company, except for the holders of Affiliates' Claims in order to satisfy the
requirements of section 1126(b) of the Code.
Even if the Requisite Plan Acceptances are received from each Impaired
Class, the Court may find that the holders of Claims and Interests in Impaired
Classes have not validly accepted the Plan if the Court determines that the Plan
Solicitation did not comply with the requirements of section 1126(b) of the Code
and the applicable Rules. In such an event, the Company may seek to resolicit
votes on the Plan, but confirmation of the Plan could be delayed and possibly
jeopardized. The Company believes (i) that the Plan Solicitation is being
conducted in accordance with applicable law and section 1125(a)(1) of the Code
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and therefore complies with the requirements of section 1126(b) of the Code and
applicable Rules, and (ii) that each duly executed Ballot and Master Ballot will
be in compliance with applicable provisions of the Code and Rules. However,
there can be no assurance that the Court will reach the same conclusions. See
"The Plan--Confirmation of the Plan."
CLASSIFICATION IN TREATMENT OF CLAIMS AND INTERESTS. Section 1122 of the
Code requires that the Plan classify the Claims of the Company's Creditors and
the Interests of its Equity Holders. The Code also provides that, except for
certain Claims classified for administrative convenience, the Plan may place a
Claim or Interest of a Creditor or Equity Holder in a particular Class only if
such Claim or Interest is substantially similar to the other Claims or Interests
of such class. The Company believes that all Claims and Interests have been
appropriately classified in the Plan. The Company believes separate
classification of the unsecured claims of holders of Unliquidated or Contingent
Claims, General Unsecured Claims and Subordinated Debentures is appropriate. The
separate classification for Unliquidated or Contingent Claims is necessary
because of the nature of such claims. Specifically, such classification will
allow for the Recapitalization of the Company in the quickest and least costly
manner. Moreover, the separate classification recognizes the prospect of
contractual subordination to which the holders of Senior Debentures and
Subordinated Debentures are subject. To the extent that the Court finds that a
different classification is required for the Plan to be confirmed, the Company
presently anticipates that it would seek (i) to modify the Plan to provide for
whatever reasonable classification might be required for confirmation, and (ii)
to use the acceptances received from any Creditor or Equity Holder pursuant to
the solicitation for the purposes of obtaining the approval of the Class or
Classes for which such Creditor or Equity Holder ultimately is deemed to be a
member. Any such reclassification of Creditors or Equity Holders, although
subject to notice and hearing requirements in the Code, could adversely affect
the Class in which such Creditor or Equity Holder was initially a member, or any
other Class under the Plan, by changing the composition of such Class and a vote
required for approval of the Plan. There can be no assurance that the Court,
after finding that a classification was inappropriate and in requiring a
reclassification, would approve the Plan based on such reclassification. Except
to the extent that modification of classification in the Plan adversely affects
the treatment of a Creditor or Equity Holder and requires resolicitation, the
Company will, in accordance with the Code and the Rules, seek a determination by
the Court that acceptance by any Creditor or Equity Holder of the Plan pursuant
to the solicitation will constitute a consent to the Plans' treatment of such
Creditor or Equity Holder regardless of the Class as to which such Creditor or
Equity Holder is ultimately deemed to be a member.
The Code also requires that the Plan provide the same treatment for each
claim or interest of a particular class unless the holder of the particular
claim or interest agrees to a less favorable treatment of its claim or interest.
The Company believes it has complied with requirements of equal treatment. To
the extent that the Court finds that the Plan does not satisfy such requirements
the Court could deny confirmation of the Plan if the creditors or equity holders
affected do not otherwise consent to the treatment afforded to them under the
Plan.
Issues or disputes relating to classification and/or treatment could result
in a delay in the confirmation and consummation of the Plan and could increase
the risk that the Plan will not be consummated.
RISK OF NON-CONFIRMATION OF THE PLAN. Section 1129 of the Code, which sets
forth the requirements for confirmation of a plan of reorganization, requires,
among other things, a finding by a Court that the confirmation of a plan is not
likely to be followed by the need for further financial reorganization, that all
claims and interests have been classified in compliance with the provisions of
section 1122 of the Code and that under the plan, holders of claims and equity
interests within impaired classes receive or retain cash or property of a value,
as of the date the plan becomes effective, that is not less than the value such
holders would receive or retain if the debtor were liquidated under the Code.
See "The Plan--Confirmation of the Plan."
There can be no assurance that the Court will conclude that these tests and
other requirements of section 1129 of the Code have been met with respect to the
Plan. If the Plan is filed, there can be no assurance that modifications thereof
would not be required for confirmation, or that such modifications
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would not require a resolicitation of votes on the Plan. The Company believes
that if the Plan is confirmed, it would not be followed by an immediate need for
further financial reorganization and that holders of Claims and Interests in any
Impaired Class will receive or retain value that is significantly greater than
the value such holders would receive or retain if the Company were liquidated
under the Code. See "The Plan--Confirmation of the Plan." However, there can be
no assurance that the Court will reach the same conclusions.
Confirmation and effectiveness of the Plan is also subject to certain
conditions being satisfied on or prior to the Effective Date. No assurances can
be given that these conditions will be satisfied or waived or that any necessary
consent, including the Requisite Plan Acceptances from each Impaired Class, will
be obtained.
NONACCEPTANCE OF THE PLAN--CONFIRMATION UNDER SECTION 1129(B) OF THE
CODE. In the event any Impaired Class of Claims or Interests rejects the Plan,
the Court, pursuant to section 1129(b) of the Code, may nevertheless confirm the
Plan at the Company's request if at least one Impaired Class of Claims or
Interests has accepted the Plan (with such acceptance being determined without
including the acceptance of any "insider" in such Class) and, as to each
Impaired Class which has not accepted the Plan, the Court determines that the
Plan "does not discriminate unfairly" and is "fair and equitable" with respect
to such Impaired Class. In the event Classes 6, 7 or 8 do not vote to accept the
Plan, the Company intends (and the Plan so provides) to seek confirmation of the
Plan under section 1129(b) provisions with respect to such rejecting Class or
Classes. Under such circumstances, the subordination provisions of the Senior
Debenture Indenture will be strictly construed and the holders of such rejecting
Class or Classes will retain no property nor receive any distributions under the
Plan. Any distributions otherwise due such rejecting Class or Classes will be
given to the holders of Class 5 Claims. See "The Plan--Confirmation Without
Acceptance of All Impaired Classes."
The Company believes that it will meet the requirements of section 1129(b)
of the Code with respect to the Plan; however, there can be no assurance that
the Court will reach the same conclusion.
PROJECTIONS INHERENTLY UNCERTAIN. The "Projections of Certain Financial
Data of the Company" set forth on page 91 of this Prospectus (the
"Projections"), were developed by the Company and its financial advisors in
connection with the planning and development of the Recapitalization and the
development of the Plan and illustrate the estimated effects of the Plan and
certain related transactions on the results of operations and financial position
of the Company and its subsidiaries for the periods indicated. The Projections
are qualified by the introductory paragraphs thereto and the accompanying
assumptions and must be read in conjunction with such introductory paragraphs
and assumptions which constitute an integral part of the Projections. The
Projections assume that all aspects of the Plan will be successfully implemented
on the terms outlined in this Prospectus. The Projections were not prepared with
a view towards public disclosure or compliance with the published guidelines of
the American Institute of Certified Public Accountants regarding financial
projections, nor have they been presented in lieu of pro forma historical
financial information and, accordingly, are not intended to comply with Rule
11-03 of Regulation S-X. Neither the independent auditors for the Company nor
any other independent auditors have examined, reviewed, compiled or performed
any procedures with respect to these projections and, accordingly, do not
express an opinion or any other form of assurance on them and assume no
responsibility for them. These Projections are based upon a variety of
assumptions and the Company's future operating results are subject to and likely
to be affected by a number of factors, including significant economic,
regulatory and competitive uncertainties and the availability of financing, all
which are beyond the control of the Company. There can be no assurance that the
Projections (which are only estimates) will be realized and actual results may
vary materially from those shown. Because the Projections are subject to
significant uncertainties and are based upon assumptions that may not prove to
be correct, holders of Impaired Claims and Interests are cautioned not to place
undue reliance on these Projections. The Projections should not be relied on for
any purpose other than in considering whether to vote to accept or reject the
Plan. See "Projections of Certain Financial Data of the Company" and "The
Plan--Feasibility" for certain additional considerations regarding the
Projections.
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THE COMPANY RECAPITALIZATION
BACKGROUND OF THE RECAPITALIZATION. The Company originally issued the
Outstanding Debentures in 1989 to its affiliate, The Henley Group, Inc. ("Henley
Group"). The Outstanding Debentures were then publicly distributed to Henley
Group stockholders in 1992 prior to a merger (the "Merger") by and among the
Company (then originally known as Henley Properties, Inc.), HP Merger Co. and
Henley Group pursuant to which Henley Group became a wholly owned subsidiary of
the Company. The Outstanding Debentures were issued in the respective principal
amounts of $127.52 million of Senior Debentures and $31.8 million of
Subordinated Debentures. Interest on the Outstanding Debentures is currently
payable, and historically has been paid, "in kind" through the issuance of
additional Senior and Subordinated Debentures, respectively. As of March 15,
1997, there was an aggregate of $205.7 million in principal amount of the
Outstanding Debentures of which amount $164.6 million and $41.1 million,
respectively, was attributable to the Senior Debentures and Subordinated
Debentures. If the Outstanding Debentures remain outstanding until their March
15, 2002 maturity date, the Company will incur approximately $162.8 million in
additional debt with respect to the Outstanding Debentures, resulting in
approximately $368.5 million in outstanding principal amount of the Outstanding
Debentures at maturity. Upon maturity, the Outstanding Debentures are payable in
shares of Common Stock, valued at the fair market value based on a 20-day
average closing price, provided that such price is not less than $0.50 per
share. The Company's financial advisors have assisted the Company in preparing
an analysis which indicates that the Company would need to earn a compounded
return of greater than 30% per annum on the free cashflow generated by the
Company's assets between 1997 and 2002 in order to fully pay the face amount of
the Senior Debentures and Subordinated Debentures at maturity in 2002. As an
alternative to waiting until the 2002 maturity date, the Company engaged in
extensive negotiations with representatives of the Debenture Holders' Committee
and its financial advisors in order to develop a proposal to exchange the
Outstanding Debentures for Common Stock. Based on the current valuation prepared
by the Company with the assistance of HLHZ, holders of Senior Debentures would
receive Common Stock worth approximately $0.532 per $1.00 of principal amount
outstanding on March 15, 1997 and holders of Subordinated Debentures would
receive Common Stock worth approximately $0.266 per $1.00 of principal amount
outstanding on March 15, 1997 if they accept the Exchange Offers. If the 90%
Requisite Exchange Acceptance is not obtained, the Company will consider
effecting the Recapitalization by seeking a Court order confirming the Plan.
Representatives of the Debenture Holders' Committee, whose members hold
approximately 70% of the Outstanding Debentures, have indicated to the Company
that they intend to support the Exchange Offers and the Plan if the 90%
Requisite Exchange Acceptance are not obtained.
As discussed below, the Outstanding Debentures have created a highly
leveraged capital structure which is restricting the Company's ability to obtain
financing on favorable terms, which financing is necessary for the Company to
maximize the growth of its business, including, but not limited to, its
commercial and residential real estate development business and development of
its Bolsa Chica project. In addition, concern about the Company's financial
strength has adversely affected the Company's commercial development business
opportunities. Of particular concern to the Company's current and prospective
client base, has been the consistent reporting of quarterly losses which are
primarily a result of the interest expense associated with the Outstanding
Debentures. In addition to lost commercial development opportunities, the
Company has experienced problems with its ability to attract and retain key
commercial and residential development team personnel due to their concern as to
the ability of the Company to compete for new business. Therefore, the Company
believes that the Recapitalization will substantially enhance its current and
prospective business opportunities by eliminating the financial concern and
confusion that the Outstanding Debentures have caused. Commencing in August
1996, in order to pursue the Company's stated strategic objective to evaluate
alternatives to deleverage the Company's capital structure in order to address
the above described concerns, the Company began negotiations with
representatives of the Debenture Holders' Committee. The proposed
Recapitalization is the result of those negotiations and is supported by the
Company and the representatives of the Debenture Holders' Committee and their
financial advisors who urge all holders of Outstanding Debentures to tender
their Outstanding Debentures pursuant to the Exchange Offers and to vote in
favor of the Plan.
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DESCRIPTION OF THE RECAPITALIZATION. The proposed Recapitalization consists
of the major elements summarized below. The Company is seeking to exchange all
of the Outstanding Debentures for Common Stock pursuant to the Exchange Offers
and is seeking acceptances of the Plan from the holders of the Outstanding
Debentures, Preferred Stock, Common Stock and the holders of other Impaired
Claims and Interests. If the Company does not receive the 90% Requisite Exchange
Acceptances but does receive the Requisite Plan Acceptances (as described below
in "Summary--Plan--Plan Acceptances"), the Company may, but reserves the right
not to, seek judicial relief and use such acceptances to obtain confirmation of
the Plan. See "Summary--The Plan" and "The Plan."
EXCHANGE OFFERS FOR THE OUTSTANDING DEBENTURES. As of March 15, 1997,
$162.8 million and $41.1 million in principal amount of the Senior Debentures
and Subordinated Debentures, respectively, were outstanding and held by persons
other than the Company and its Affiliates. Pursuant to the Exchange Offers, the
Company is offering to exchange (i) 56 shares of Common Stock, on a post-Capital
Stock Combination and a post-Reverse Stock Split basis, for each $1,000
principal amount of Senior Debentures, outstanding as of March 15, 1997, without
subsequent accrued and unpaid interest, and (ii) 28 shares of Common Stock, on a
post-Capital Stock Combination and a post-Reverse Stock Split basis, for each
$1,000 principal amount of Subordinated Debentures, outstanding as of March 15,
1997, without subsequent accrued and unpaid interest. Tendering holders of
Outstanding Debentures will not receive payment of, and will waive all rights
and claims to, accrued and unpaid interest on all Outstanding Debentures
tendered for exchange. See "The Exchange Offers." See "The Exchange
Offers--Treatment of Fractional Shares."
CONSENT SOLICITATION WITH RESPECT TO THE OUTSTANDING
DEBENTURES. Concurrently with the making of the Exchange Offers, the Company is
soliciting from the holders of the Outstanding Debentures their consents to the
Proposed Amendments to remove certain restrictive covenants under the Indentures
in the event all Outstanding Debentures are not exchanged in the
Recapitalization. See "Proposed Amendments to Indentures."
CAPITAL STOCK COMBINATION AND REVERSE STOCK SPLIT. As part of the
Recapitalization, the Company is recommending to the holders of Class A Common
and Preferred Stock that they approve proposals at the Annual Meeting, which
among other things, approve an amendment to the Restated Certificate in order to
effect the Capital Stock Combination and to effect the Reverse Stock Split.
Pursuant to the Capital Stock Combination, all classes and series of capital
stock would be reclassified and combined into one class of capital stock
designated "Common Stock." Each outstanding share of Preferred Stock will be
reclassified to be one and three quarter (1.75) shares of Common Stock and each
outstanding share of Class A Common Stock will be reclassified to be one (1)
share of Common Stock. Immediately following such reclassification and
combination, pursuant to the Reverse Stock Split each outstanding share of
Common Stock will be reverse split on a one for one hundred (1:100) basis. After
the Capital Stock Combination, the Common Stock will have the same rights,
preferences and privileges that the Class A Common Stock had prior to the
Capital Stock Combination. Representatives of the Debenture Holders' Committee,
whose members hold approximately 33% and 13%, respectively, of the Preferred
Stock and Class A Common Stock have indicated to the Company that they intend to
approve the Capital Stock Combination and the Reverse Stock Split. In addition,
the holder of 30.5% and 11.5%, respectively, of the Preferred Stock and Class A
Common Stock has indicated to the Company that it intends to approve the Capital
Stock Combination and the Reverse Stock Split. No fractional shares of Common
Stock will be issued pursuant to the Capital Stock Combination and/or Reverse
Stock Split. See "The Company Annual Meeting--Proposal No. 2."
AMENDMENT OF STOCK OPTION PLAN. In connection with the Recapitalization,
the Company will amend the 1993 Plan to (i) provide that only shares of the
Company's Common Stock, rather than both Common Stock and Preferred Stock (which
are being converted into Common Stock upon consummation of the Capital Stock
Combination) shall be issuable under the 1993 Plan, and (ii) reduce the
aggregate number of shares that may be issued under the 1993 Plan from 7,500,000
shares of the Company's Preferred Stock
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and 7,500,000 shares of the Company's Common Stock (as determined on a
pre-Capital Stock Combination and pre-Reverse Stock Split basis) to 751,449
shares of the Company's Common Stock (as determined on a post-Capital Stock
Combination and post-Reverse Stock Split basis) which would represent 6% of the
Company's equity on a fully diluted basis. Except for such amendments, the 1993
Plan will continue to function in the same manner as prior to the
Recapitalization, except that appropriate adjustments will be made to the 1993
Plan to reflect the changes in the Company's capital structure upon consummation
of the Recapitalization.
In addition, and in connection with such amendments to the 1993 Plan, each
of the current holders of outstanding options granted under the 1993 Plan have
agreed to cancel their existing outstanding options to purchase an aggregate of
(i) 6,275,000 shares of the Company's Common Stock, and (ii) 6,275,000 shares of
the Company's Preferred Stock as determined on a pre-Capital Stock Combination
and pre-Reverse Stock Split basis, which would approximate 12% of the Company's
equity on a fully diluted basis. The Company currently intends to grant new
options to purchase an aggregate of 751,449 shares of the Company's Common
Stock, as determined on a post-Capital Stock combination and post-Reverse Stock
Split basis. The exercise price per share of the Company's Common Stock for each
such newly granted option will be equal to the average of the per share trading
price of the Company' Common Stock on NASDAQ for the first 20 trading day period
commencing immediately following the consummation of the Recapitalization. Such
newly granted options will vest, subject to the 1993 Plan's existing option
vesting provisions, over a three year period with 40%, 30% and 30% vesting on
each of the first, second and third anniversaries, respectively, of the
consummation of the Recapitalization. Upon consummation of the Recapitalization,
the shares issuable under such newly granted options will represent 6% of the
Company's fully diluted equity.
THE PLAN. As described above, if the Company receives the Requisite Plan
Acceptances, the Company may, but expressly reserves the right not to, effect
the Recapitalization by seeking a judicial confirmation of the Plan. See
"Summary The Plan" and "The Plan."
PURPOSES AND CERTAIN RESULTS OF RECAPITALIZATION. The proposed
Recapitalization, whether achieved pursuant to the Exchange Offers and the
Annual Meeting Proposals or pursuant to the Plan, is intended to deleverage the
Company's capital structure for the reasons described above.
The following table sets forth the beneficial ownership of the Common Stock
which management estimates will be held by classes of current security holders
of the company, assuming the effectiveness of the Recapitalization, including
the acceptance of the Exchange Offers by 100% of the holders of Outstanding
Debentures and approval and effectiveness of the Reverse Stock Split and Capital
Stock Combination.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
FOLLOWING
CLASS OF CURRENT SECURITY RECAPITALIZATION PERCENT OF CLASS
- -------------------------------------------------- ------------------------ ----------------
<S> <C> <C>
Senior Debentures................................. 9,359,208 80.0%
Subordinated Debentures........................... 1,169,901 10.0%
Preferred Stock................................... 680,516 5.8%
Common Stock...................................... 489,385 4.2%
</TABLE>
OPERATIONS AFTER THE RECAPITALIZATION. If the Recapitalization is
consummated, the Company currently anticipates that it will continue to pursue
its operations and strategic goals, including to (i) obtain new financing for
development of the Bolsa Chica mesa; (ii) successfully defend against litigation
challenging Coastal Commission approval of the Bolsa Chica project; (iii)
complete the secondary permitting for development of the Bolsa Chica mesa; (iv)
commence infrastructure construction on the Bolsa Chica mesa in the fourth
quarter of 1997; and (v) continue the growth of its commercial development
business on a national and international basis. There can be no assurance that
the Company will accomplish, in whole or in part, all or any of these strategic
goals.
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<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES. DUE TO CERTAIN OF THE TAX
CONSEQUENCES OF THE TRANSACTIONS TO BE ACCOMPLISHED PURSUANT TO THE
RECAPITALIZATION OR THE PLAN, AND THE POSSIBLE EFFECT A SECURITY HOLDER'S
PARTICULAR SITUATION MAY HAVE ON SUCH TAX CONSEQUENCES, HOLDERS OF OUTSTANDING
DEBENTURES, PREFERRED STOCK, CLASS A COMMON STOCK AND ALL OTHER CLASSES OF
CLAIMS OR INTERESTS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR PARTICIPATION IN
THE RECAPITALIZATION OR THE PLAN. SEE "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES."
DETERMINATIONS AND RECOMMENDATIONS OF THE BOARD OF DIRECTORS. The Board has
determined that (i) the Recapitalization is in the best interests of the Company
and its securityholders, (ii) it is in the best interests of the Company and its
securityholders to solicit pre-petition acceptances of the Plan, to be
implemented in the event that the Recapitalization is not consummated, provided
that at such time the Board deems it in the best interests of the Company and
its securityholders to file a petition, and (iii) it is in the best interests of
the Company and its securityholders that the Annual Meeting Proposals be
approved. The Board also recommends that (i) the holders of the Outstanding
Debentures accept the Exchange Offers, and grant consents to the Proposed
Amendments, (ii) the holders of the Outstanding Debentures, Preferred Stock and
Class A Common Stock and holders of other claims or equity interests Impaired
under the Plan approve the Plan, and (iii) the holders of the Common Stock and
the Preferred Stock entitled to vote approve the Annual Meeting Proposals. In
arriving at its decision, the Board considered, among other things, the
following factors:
1. The Board's familiarity with the Company's business, operations and
financial condition and its future prospects, including the current cost of
capital as a result of its leveraged capital structure, the continued
reporting of operating losses and the resulting loss of business
opportunities;
2. The fact that consummation of the Recapitalization would
substantially deleverage the Company's capital structure which the Board
believes would allow the Company to obtain financing on more favorable terms
which is necessary for the Company to maximize realization of asset values
and the growth of its business, including, but not limited to, its
commercial and residential real estate development business and the
development of the Bolsa Chica property;
3. The fact that confirmation of the Plan, if necessary and approved by
the Board, would generally give effect to the same transactions as the
Recapitalization through a judicial proceeding; and
4. Presentations by the Company's management and its financial and
legal advisors.
Based on the foregoing, the Board determined that the Recapitalization was
in the best interests of the Company and its securityholders and decided to
recommend approval of all elements of the Recapitalization. Each of the
foregoing factors supported the Board's determination, and the Board did not
assign relative weight to any of the foregoing factors.
DETERMINATIONS AND RECOMMENDATIONS OF THE DEBENTURE HOLDERS' COMMITTEE. The
representatives of the Debenture Holders' Committee have indicated to the
Company that they support the Recapitalization and intend to vote in favor of
it. The representatives of the Debenture Holders' Committee recommend that all
holders of Outstanding Debentures vote to accept the Recapitalization. The
Debenture Holders' Committee's decision to support the Recapitalization and to
recommend that all holders of Outstanding Debentures vote to accept the
Recapitalization was based upon, among other things, its determination that (i)
the consideration to be received by the holders of Outstanding Debentures will
provide such holders with a significant equity interest in the Company, (ii) the
value of the Company will be significantly enhanced by the Recapitalization, and
(iii) the Company will have substantially greater financing and development
opportunities in the event the Company is deleveraged.
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<PAGE>
THE EXCHANGE OFFERS
GENERAL. As of March 15, 1997, $164.6 million and $41.1 million in
principal amount of Senior Debentures and Subordinated Debentures, respectively,
were outstanding and held by persons other than the Company and its Affiliates.
Upon the terms and subject to the conditions of the Exchange Offers, the Company
is offering to exchange (i) 56 shares of Common Stock, on a post-Capital Stock
Combination and a post-Reverse Stock Split basis, for each $1,000 principal
amount of Senior Debentures, outstanding as of March 15, 1997, without
subsequent accrued and unpaid interest, and (ii) 28 shares of Common Stock, on a
post-Capital Stock Combination and a post-Reverse Stock Split basis, for each
$1,000 principal amount of Subordinated Debentures, outstanding as of March 15,
1997, without subsequent accrued and unpaid interest. Tendering holders of
Outstanding Debentures will not receive payment of, and waive all rights and
claims to, accrued and unpaid interest on all Outstanding Debentures tendered
for exchange. No fractional shares of Common Stock will be issued in the
Exchange Offers. See "The Exchange Offers--Treatment of Fractional Shares."
Copies of this Prospectus and the Letter of Transmittal are being sent to the
Record Holders and to all known beneficial holders of the Outstanding
Debentures. If all of the Outstanding Debentures are exchanged pursuant to the
Exchange Offers, the Company will be required to issue a total of 9,359,208
shares of Common Stock in payment for the tendered Outstanding Debentures.
The Company shall be deemed to have accepted validly tendered Outstanding
Debentures in the Exchange Offers and validly delivered consents in the Consent
Solicitations when, as and if, the Company has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders of Outstanding Debentures for the purposes of receiving the
shares of Common Stock from the Company. Subject to the satisfaction of the
conditions set forth below under "Conditions of the Exchange Offers," the
Company will accept on or promptly after the Expiration Date, all Outstanding
Debentures validly tendered (and not withdrawn) on or prior to 12:00 midnight,
Eastern Standard Time, on the Expiration Date. The shares of Common Stock will
be delivered in exchange for the Outstanding Debentures accepted in the Exchange
Offers promptly after acceptance.
Holders of Outstanding Debentures who tender in the Exchange Offers will not
be required to pay brokerage commissions or fees, or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Outstanding Debentures pursuant to Exchange Offers. The Company will
pay all charges and expenses, other than any applicable income/capital gains
taxes, in connection with the Exchange Offers.
The background and purpose of the Exchange Offers are discussed under "The
Company Recapitalization--Background of the Recapitalization" and "Purposes and
Certain Results of the Recapitalization."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS. The Expiration Date is 12:00
midnight, Eastern Standard Time on May , 1997, unless the Company, in its sole
discretion (as limited by applicable law), extends the Exchange Offers or
Consent Solicitations, in which case the Expiration Date shall be the latest
date to which the Exchange Offers or the Consent Solicitation is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m. Eastern Standard Time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that the Company is extending the Exchange Offers or Consent
Solicitations, as the case may be, for a specified period of time or on a daily
basis until 12:00 midnight, Eastern Standard Time, on the date on which the
Requisite Consents have been received or on which a specified percentage of
Outstanding Debentures has been tendered, as applicable. Any such notice shall
also include disclosure of the approximate principal amount of Outstanding
Debentures theretofore validly tendered pursuant to the Exchange Offers and not
properly withdrawn. If the Exchange Offers are extended, the Company may, but
shall not be required to, postpone or adjourn the Annual Meeting. See "The
Company Annual Meeting-- Proxy Solicitation."
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<PAGE>
The Company expressly reserves the right to (i) delay accepting any consents
or Outstanding Debentures, to extend the Exchange Offers or Consent
Solicitation, or to terminate the Exchange Offers or Consent Solicitations and
not accept consents or Outstanding Debentures not previously accepted if any of
the conditions set forth herein under "Conditions of the Exchange Offers" shall
not have been satisfied and shall not have been waived by the Company, by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent, (ii) amend at any time, or from time to time, the terms of any of the
Exchange Offers or Consent Solicitations in any manner, and (iii) modify the
form or amount of the consideration to be paid pursuant to the Exchange Offers,
provided that any such modified consideration will be provided to all tendering
holders of Outstanding Debentures, even if they tendered their Outstanding
Debentures in the Exchange Offers prior to the modification, and provided
further that no increase or decrease in the amount of Outstanding Debentures
being sought or in the consideration offered in the Exchange Offers will be
made, unless such Exchange Offers will remain open for at least ten (10)
business days from the date that notice of such increase or decrease is first
publicized, sent or given to the holders of Outstanding Debentures. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by public announcement thereof. If the terms of any of
the Exchange Offers are amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose any such
amendment in a manner reasonably calculated to inform the holders of Outstanding
Debentures of such amendment and the Company will extend the Exchange Offers or
Consent Solicitations, as the case may be, for a period which the Company in its
discretion deems appropriate, depending upon the significance of the amendment
and the manner of disclosure to holders of the Outstanding Debentures, if the
Exchange Offers or Consent Solicitation would otherwise expire during such
period. During any such delay or extension, all Outstanding Debentures
previously tendered and not accepted for exchange or withdrawn will remain
subject to the Exchange Offers (including the right to withdraw tendered
Outstanding Debentures as set forth under "Withdrawal Rights" below) and may be
accepted for exchange by the Company. The rights reserved by the Company in this
paragraph are in addition to its rights set forth under "Conditions of the
Exchange Offers."
Without limiting the manner in which the Company may choose to make a public
announcement of any extension, amendment or termination of the Exchange Offers
or Consent Solicitations, the Company shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement.
PROPOSED AMENDMENTS. In order to effect a valid tender of the Outstanding
Debentures, tendering holders of Outstanding Debentures are required to consent
to the Proposed Amendments in respect of the Senior Debentures or Subordinated
Debentures, as applicable. The Exchange Offers are conditioned upon the Company
obtaining the Requisite Consents. The Company may, in its sole discretion, waive
this condition and reserves the right to accept Outstanding Debentures tendered
in the Exchange Offers even if the Requisite Consents are not obtained,
provided, if such condition is waived, holders of Outstanding Debentures
tendered in the Exchange Offers will receive the same consideration whether or
not they granted consents to the Proposed Amendments.
For the Proposed Amendments to become effective with respect to the
Outstanding Debentures, holders (other than the Company and its affiliates) of
not less than a majority of the aggregate principal amount of the Senior
Debentures and Subordinated Debentures, respectively, must grant Consents with
respect thereto and such valid and unrevoked consents must have been delivered
to the Exchange Agent. As of March 15, 1997, $164.6 million aggregate principal
amount of Senior Debentures and $41.1 million aggregate principal amount of
Subordinated Debentures, respectively, was outstanding and owned by persons
other than the Company and its affiliates. Subject to the conditions set forth
in the Indentures, upon the Company's receipt of the Requisite Consents to the
Proposed Amendments, the Company will cause such consents to be delivered to the
appropriate persons as promptly as possible and the Amended Indentures will be
executed and delivered immediately thereafter, provided, however, that the
provisions of the Amended Indentures will not become operative until the
Exchange Offers are consummated.
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<PAGE>
Only a Record Holder of the Outstanding Debentures can effectively consent
to the Proposed Amendments. See "Procedure for Tendering Outstanding Debentures
and Giving Consents" for information concerning tendering procedures for persons
who are not Record Holders. No transfer of Outstanding Debentures on the
register for such Outstanding Debentures prior to the Expiration Date therefore
will have the effect of revoking any consent theretofore given by the Record
Holder of such Outstanding Debentures, and such consent will remain valid unless
revoked by the person in whose name the Outstanding Debentures are then
registered on the register for the Outstanding Debentures. Such revocation will
become effective only if the Exchange Agent receives the notice of revocation
before the Expiration Date. See "Revocation of Consents; Defective Tenders"
below. As set forth below under "Withdrawal Rights," the withdrawal of
Outstanding Debentures in accordance with the procedures set forth thereunder
will not effect revocation of a Consent.
PROCEDURE FOR TENDERING OUTSTANDING DEBENTURES AND GIVING CONSENTS. The
acceptance by a holder of Outstanding Debentures of an Exchange Offer pursuant
to one of the procedures set forth below will constitute an agreement between
the holder and the Company in accordance with the terms and subject to the
conditions set forth in this Prospectus and in the Letter of Transmittal.
A holder of Outstanding Debentures electing to tender Outstanding Debentures
in the Exchange Offers and, with respect to Outstanding Debentures, to consent
to the Proposed Amendments should either (i) complete and sign the Letter of
Transmittal or a facsimile thereof, and have the signature thereon guaranteed if
required by the instructions thereof and mail or otherwise deliver such Letter
of Transmittal, or such facsimile, together with certificates representing the
Outstanding Debentures and any other required documents, to the Exchange Agent
at its address set forth on the back cover of the Prospectus, or (ii) request
its broker, dealer, commercial bank, trust company or other nominee to effect
the transaction for it. A holder of Outstanding Debentures who wishes to vote on
the Plan or a holder of Outstanding Debentures who wishes to consent to the
Proposed Amendments with respect to Outstanding Debentures but not tender his
Outstanding Debentures in the Exchange Offers should follow only the
instructions for consenting to the Proposed Amendments and voting on the Plan.
For the additional procedures necessary to vote on the Plan, see "Plan
Solicitation--Voting Procedures."
NO LETTERS OF TRANSMITTAL AND NO OUTSTANDING DEBENTURES SHOULD BE SENT TO
THE COMPANY OR TO THE TRUSTEE UNDER EITHER OF THE INDENTURES.
All signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Outstanding Debentures tendered pursuant thereto are tendered (i) by
a Record Holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the relevant Letter of
Transmittal, or (ii) for the account of an Eligible Institution (as defined
below). If Outstanding Debentures are registered in the name of a person other
than the signer of a Letter of Transmittal or a notice of withdrawal, as the
case may be, then the Outstanding Debentures must be endorsed by the registered
holder, or be accompanied by a written instrument or instruments of transfer or
exchange in form satisfactory to the Company duly executed by the registered
holder, and in the case of a Letter of Transmittal, must also be accompanied by
a properly completed form of Consent from the Record Holder with respect to the
Proposed Amendments for Outstanding Debentures (unless this requirement is
waived by the Company) with signature guaranteed by an Eligible Institution (as
defined below). If signatures on a Letter of Transmittal are required to be
guaranteed, such guarantees must be by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc. ("NASD"), or by a commercial bank, trust company, credit union or savings
association having an office in the United States (each of which is an "Eligible
Institution").
THE METHOD OF DELIVERY OF THE OUTSTANDING DEBENTURES AND ALL OTHER REQUIRED
DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER OF THE
OUTSTANDING DEBENTURES, BUT, IF SUCH DELIVERY IS EFFECTED BY MAIL, IT IS
RECOMMENDED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN
45
<PAGE>
RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE AS TO ASSURE DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE.
Unless the Outstanding Debentures being tendered are deposited with the
Exchange Agent prior to the Expiration Date (accompanied by a properly completed
Letter of Transmittal and any other documents required by the Letter of
Transmittal), or tendered pursuant to the guaranteed delivery procedures or
book-entry transfer procedures set forth below, the Company may, at its option,
reject such tender. In addition, if the Company receives the 90% Requisite
Exchange Acceptances, then the Company reserves the right to accept all properly
tendered Outstanding Debentures whether or not, with respect to Outstanding
Debentures, the holder thereof has granted the applicable Consent. Issuance of
shares of Common Stock in exchange for Outstanding Debentures will be made only
against deposit of the tendered Outstanding Debentures. If less than the entire
principal amount of any Outstanding Debentures evidenced by a submitted
certificate is tendered, the tendering holder should fill in the principal
amount tendered in the appropriate box on the Letter of Transmittal with respect
to the deposit being made, but only to the extent of the principal amount of
Outstanding Debentures being tendered. The Exchange Agent will then return to
the tendering holder (unless otherwise requested by the holder under "Special
Delivery Instructions" in the relevant Letter of Transmittal), as promptly as
practicable following the Expiration Date, Outstanding Debentures in principal
amount equal to the portion of such delivered Outstanding Debentures not
tendered. The entire principal amount of Outstanding Debentures deposited with
the Exchange Agent will be deemed to have been tendered, unless otherwise
indicated.
Holders who are the registered holders of Outstanding Debentures and who
seek to tender Outstanding Debentures, but who were not the Record Holders of
such Outstanding Debentures on the Record Date, should (i) obtain the
information relating to, and signature of, such Record Holder on the "Consent of
Record Holder" section of the Letter of Transmittal with signatures guaranteed
by an Eligible Institution, or (ii) obtain and include with the Letter of
Transmittal a properly completed proxy from the Record Holder, with signatures
on the proxy guaranteed by an Eligible Institution. Any beneficial owner whose
Outstanding Debentures are registered or held of record in the name of its
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender its Outstanding Debentures in the Exchange Offers and, with respect to
Outstanding Debentures, to grant its consent in the Consent Solicitation should
(i) contact such registered holder promptly and instruct such holder to tender
on its behalf, or (ii) if such beneficial owner wishes to tender on its own
behalf, such beneficial owner must, prior to completing and executing the Letter
of Transmittal and delivering its Outstanding Debentures, either make
appropriate arrangements to register ownership of the Outstanding Debentures in
such beneficial owner's name or obtain a properly completed bond power (a power
of attorney authorizing the beneficial owner, rather than the registered holder,
to transfer legally the Outstanding Debentures) from the registered holder and,
in addition, a beneficial owner of Outstanding Debentures must then also follow
the procedures described in the first sentence of this paragraph. The transfer
of record ownership of Outstanding Debentures may take considerable time and,
depending on when such transfer is requested, may not be accomplished prior to
the Expiration Date.
Holders of Outstanding Debentures who do not tender their Outstanding
Debentures and who wish to vote on the Plan and/or who wish to consent to the
Proposed Amendments with respect to Outstanding Debentures should complete the
Letter of Transmittal (which will serve as the form of consent and/or ballot) in
accordance with the instructions thereto and return it promptly to the Exchange
Agent, who will transmit it to the Company.
If a holder of Outstanding Debentures desires to tender Outstanding
Debentures pursuant to an Exchange Offer, but is unable to locate the
Outstanding Debentures to be tendered, such holder should write to or telephone
the trustee under the applicable Indentures at about procedures for obtaining
replacement Outstanding Debentures and/or arranging for indemnification. In the
case of the Senior Debentures, the trustee is First Trust National Association
at First Trust Center, 180 East Fifth Street, St. Paul, Minnesota, 55101,
attention: Corporate Trust Department. In the case of the Subordinated
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<PAGE>
Debentures, the Trustee is The Bank of New York, 101 Barclay Street, Floor 21W,
New York, New York, 10286, attention: Corporate Trust Trustee Administration.
Each tendering holder of Outstanding Debentures must complete the Substitute
Form W-9 provided in the Letter of Transmittal and either (i) provide his
correct taxpayer identification number (social security number, for individuals)
and certify that the taxpayer identification number provided is correct (or that
such holder is awaiting a taxpayer identification number) and that (A) the
holder of Outstanding Debentures has not been notified by the IRS that he is
subject to backup withholding as a result of failure to report all interest or
dividends or (B) the IRS has notified the holder that he is no longer subject to
backup withholding, or (ii) provide an adequate basis for exemption from backup
withholding. Holders of Outstanding Debentures who do not satisfy these
conditions may be subject to a $50 (or greater) penalty imposed by the IRS and
may be subject to backup withholding (as discussed below). Exempt holders of
Outstanding Debentures (including, among others, corporations and certain
foreign individuals) are not subject to these requirements if they
satisfactorily establish their status as such. Certain foreign holders of
Outstanding Debentures may be required to provide a Form W-8, Form 1001 or Form
4224 in order to avoid or reduce withholding tax.
By tendering Outstanding Debentures pursuant to the Exchange Offers, a
holder of Outstanding Debentures that does not comply with the conditions
described in the preceding paragraph authorizes the Exchange Agent, the Company
or its paying agents, as the case may be, to sell shares of Common Stock
withheld in an amount sufficient to enable it to satisfy its backup or other
withholding obligations.
Pursuant to the backup withholding provisions of federal income tax law,
unless the conditions described above are satisfied, the Exchange Agent, the
Company or their paying agents, as the case may be, will withhold a number of
shares of Common Stock otherwise to be delivered to a tendering holder of
Outstanding Debentures pursuant to the Exchange Offers such that the proceeds
from the sale of the shares so withheld will enable the Exchange Agent or the
Company, as the case may be, after selling such shares so withheld, to remit the
appropriate amount of backup withholding due to the IRS. Upon any such sale, the
Exchange Agent or the Company, as the case may be, will be entitled to seek
reimbursement for the costs, fees or expenses of such sale incurred by it.
Alternatively, the Exchange Agent or the Company, as the case may be, may
require such a holder of Outstanding Debentures to remit a payment (in cash or
certified check) sufficient to cover the holder's backup withholding tax
liability prior to the release of any shares of Common Stock withheld from such
holder. Any shares of Common Stock sold pursuant to this paragraph shall be
treated for tax reporting purposes as if they were delivered to the exchanging
holder of Outstanding Debentures and sold on its behalf. Backup withholding is
applied at a 31% rate. Amounts paid as backup withholding do not constitute an
additional tax and generally will be credited against the holder's federal
income tax liabilities. Different withholding rates and rules may apply in the
case of certain foreign holders of Outstanding Debentures.
All questions as to the form of all documents and the validity (including
time or receipt), eligibility, acceptance and withdrawal of tendered Outstanding
Debentures will be determined by the Company, in its sole discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders not in proper form or the acceptance of
which would, in the opinion of the Company's counsel, be unlawful. The Company
also reserves the absolute right, subject to applicable law, to waive any of the
conditions of the Exchange Offers (other than the condition that all applicable
requirements of the Trust Indenture Act of 1939, as amended, have been satisfied
and that the Registration Statement shall be effective and no stop order shall
be issued by the Commission with respect thereto, which conditions may not be
waived by the Company) or any defect or irregularity in the tender of any of the
Outstanding Debentures; provided that the Company will not waive the Requisite
Acceptance Condition with respect to the Exchange Offers without making a public
announcement thereof and permitting the withdrawal of Outstanding Debentures
tendered pursuant to the Exchange Offers to the extent required by applicable
law. Neither the Company, the Exchange Agent, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will
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<PAGE>
incur any liability for failure to give any such notification. Any Outstanding
Debentures received by the Exchange Agent that are not properly tendered and as
to which irregularities have not been cured or waived will be returned by the
Exchange Agent to the appropriate tendering holder of Outstanding Debentures as
soon as practicable. The Company's interpretation of the terms and conditions of
the Exchange Offers (including the Letter of Transmittal and the instructions
thereto) will be final and binding on all parties.
BOOK-ENTRY TRANSFER PROCEDURES. The Exchange Agent will establish an
account with respect to the Senior Debentures and an account with respect to the
Subordinated Debentures at each of The Depository Trust Company [and the Midwest
Securities Trust Company] (each a "Book-Entry Transfer Facility" and
collectively, the "Book-Entry Transfer Facilities") within two business days
after the commencement date of the Exchange Offers. Any financial institution
that is a participant in either of the Book-Entry Transfer Facilities' systems
may make book-entry delivery of Outstanding Debentures into the Exchange Agent's
account at a Book-Entry Transfer Facility. However, although delivery of
Outstanding Debentures may be effected through a timely confirmation of
book-entry transfer at such a Book-Entry Transfer Facility ("Book-Entry
Transfer"), the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must be transmitted to
and received by the Exchange Agent at its address set forth on the back cover of
this Prospectus prior to the Expiration Date, or the guaranteed delivery
procedures described below must be complied with. Delivery of documents to a
Book-Entry Transfer Facility in accordance with such facility's procedures does
not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES. If a holder of Outstanding Debentures
desires to tender Outstanding Debentures and the holder's Outstanding Debentures
are not immediately available or time will not permit the holder's Outstanding
Debentures or other required documents to reach the Exchange Agent before the
Expiration Date, or such holder cannot complete the procedure for Book-Entry
Transfer, a tender may be effected if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed notice of guaranteed delivery (by
telegram, facsimile transmission, mail or hand delivery) substantially in
the form provided by the Company which (i) includes the duly executed
Consent of the Record Holder of tendered Outstanding Debentures or is
accompanied by such a Consent with respect to Outstanding Debentures (unless
in either case the Company has otherwise received the 90% Requisite Exchange
Acceptances), and (ii) sets forth the name and address of the holder and the
amount and type of Outstanding Debentures tendered, states that the tender
is being made thereby and guarantees that within five (5) NASDAQ trading
days after the execution date of the notice of guaranteed delivery, all
tendered Outstanding Debentures, in proper form for transfer (or a
Book-Entry Transfer confirmation) together with the Letter of Transmittal
(or facsimile thereof) and any other documents required by such Letter of
Transmittal, will be deposited by the Eligible Institution with the Exchange
Agent (the "Notice of Guaranteed Delivery"); and
(c) all tendered Outstanding Debentures, as well as all other documents
required by the Letter of Transmittal, shall be received by the Exchange
Agent within five NASDAQ trading days after the execution of the Notice of
Guaranteed Delivery.
A consent to the Proposed Amendments with respect to Outstanding Debentures
delivered in connection with a Notice of Guaranteed Delivery will be effective
upon receipt thereof by the Exchange Agent regardless of whether or when the
certificates for the tendered Outstanding Debentures, an executed Letter of
Transmittal and the other required documents are received.
ACCEPTANCE OF OUTSTANDING DEBENTURES, DELIVERY OF COMMON STOCK. The
acceptance for exchange and payment of Outstanding Debentures validly tendered
and not withdrawn and the delivery of shares of
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Common Stock will be made as promptly as practicable after the Expiration Date.
The Company, however, expressly reserves the right to delay acceptance of any of
the Outstanding Debentures or terminate the Exchange Offers and not accept for
exchange any Outstanding Debentures not theretofore accepted if any of the
conditions set forth under "Conditions of the Exchange Offers" shall not have
been satisfied or waived by the Company. For purposes of the Exchange Offers,
the Company will be deemed to have accepted for exchange validly tendered
Outstanding Debentures if, as and when the Company gives oral or written notice
thereof to the Exchange Agent. Subject to the terms and conditions of the
Exchange Offers, the delivery of shares of Common Stock for Outstanding
Debentures accepted pursuant to an Exchange Offer, will be made by the Exchange
Agent as soon as practicable after receipt of such notice. The Exchange Agent
will act as agent for the tendering holders of Outstanding Debentures for the
purposes of receiving shares of Common Stock from the Company and transmitting
such shares to the tendering holders. Tendered Outstanding Debentures not
accepted for exchange by the Company, if any, will be returned without expense
to the tendering holder as promptly as practicable following the Expiration
Date.
All tendering holders of Outstanding Debentures, by execution of the Letter
of Transmittal (or facsimile thereof), waive any right to receive notice of
acceptance of the Outstanding Debentures for exchange.
TREATMENT OF FRACTIONAL SHARES. No fractional shares of Common Stock will
be issued to tendering holders of Outstanding Debentures in the Exchange Offers.
Instead, whenever a fraction of a share of Common Stock would otherwise be
issuable to an exchanging holder of Outstanding Debentures, the Exchange Agent
will round down to the nearest whole share.
WITHDRAWAL RIGHTS. Tenders of Outstanding Debentures are irrevocable,
except that tendered Outstanding Debentures may be withdrawn (a) at any time
prior to 12:00 midnight, Eastern Standard Time on the Expiration Date, and (b)
for any period of time required by applicable laws following public announcement
of a waiver of the Requisite Acceptance Condition (as defined under "Conditions
of the Exchange Offers") in respect of the Exchange Offers. Holders of
Outstanding Debentures who wish to exercise their right of withdrawal must give
notice of withdrawal in writing or by telegram, telex or facsimile transmission,
which notice must be timely received by the Exchange Agent at its address set
forth on the back cover page of this Prospectus. Any such notice of withdrawal
must specify the name of the person who tendered the Outstanding Debentures to
be withdrawn and the principal amount of Outstanding Debentures to be withdrawn.
If Outstanding Debentures have been delivered to the Exchange Agent identified
in another manner, the name of the registered holder and the serial numbers of
the particular Outstanding Debentures to be so withdrawn must also be furnished
to the Exchange Agent prior to the physical release of the withdrawn Outstanding
Debentures. If Outstanding Debentures have been tendered pursuant to the
procedures for Book-Entry Transfer, any notice of withdrawal must specify the
name and number of the account at the appropriate Book-Entry Transfer Facility
to be credited with the withdrawn Outstanding Debentures. Any notice of
withdrawal must be signed by the registered holder of Outstanding Debentures in
the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the ownership of the Outstanding Debentures.
Any permitted withdrawals of tenders of Outstanding Debentures may not be
rescinded, and any Outstanding Debentures withdrawn will thereafter be deemed
not validly tendered for purposes of the Exchange Offers; however, withdrawn
Outstanding Debentures may be re-tendered by following one of the procedures
described herein at any time on or prior to the Expiration Date. Withdrawal of
Outstanding Debentures will not effect a revocation of a consent. See
"Revocation of Consents; Defective Tenders" below.
All questions as to validity, form and eligibility (including time of
receipt) of the notice of withdrawal will be determined by the Company in its
sole discretion, which determination will be final and binding. None of the
Company, the Exchange Agent, the Information Agent, or any other person will be
under any
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duty to give notification of any defects or irregularities in any notice of
withdrawal or will incur any liability for failure to give any such
notification.
REVOCATION OF CONSENTS; DEFECTIVE TENDERS. Any Record Holder of Outstanding
Debentures who has delivered a consent to the Proposed Amendments may
effectively revoke such consent by filing written notice with the Exchange Agent
at any time prior to (but not after) the date and time of delivery of Requisite
Consents effecting the Proposed Amendments with respect to the Outstanding
Debentures. The Company reserves the right to contest the validity of any such
revocations. A purported notice of revocation which is not received by the
Exchange Agent in a timely fashion will not be effective to revoke a consent
previously given.
NO PAYMENTS ON TENDERED DEBENTURES. Tendering holders of Outstanding
Debentures will not receive payment of principal due or accrued but unpaid
interest on such tendered Outstanding Debentures and will waive their right to
receive such payments.
CONDITIONS OF THE EXCHANGE OFFERS. Notwithstanding any other provisions of
the Exchange Offers, the Company will not be required to accept any Outstanding
Debentures tendered for exchange and may terminate or amend the Exchange Offers
as provided herein if any of the following conditions shall not be satisfied:
(a) Holders of at least 90% in aggregate principal amount of the
Outstanding Debentures shall have validly tendered and not withdrawn such
Outstanding Debentures pursuant to the Exchange Offers prior to the
Expiration Date and the holders of more than 50% in aggregate principal
amount of the Outstanding Debentures shall have given and not revoked their
consents to the Proposed Amendments (the "Requisite Acceptance Condition");
(b) Prior to the Expiration Date, (i) the holders of at least a majority
of the combined voting power of the Class A Common Stock and Preferred Stock
entitled to vote with respect to the Exchange Offers present (in person or
by proxy) at the Annual Meeting, shall have approved the Exchange Offers
Proposal, (ii) a majority of the Class A Common Stock and Preferred Stock,
each voting separately as a class with respect to the Capital Stock
Combination and the Reverse Split, present (in person or by proxy) at the
Annual Meeting, shall have approved the Capital Stock Combination and
Reverse Split Proposal, and (iii) the holders of Class A Common Stock and
Preferred Stock shall have approved the other Annual Meeting Proposals as
described in this Prospectus;
(c) There shall not have been instituted or threatened before any Court
or governmental agency, authority or body or any arbitrator any action or
proceeding (i) challenging the exchange of Outstanding Debentures or the
issuance of shares of Common Stock in exchange therefor pursuant to the
Exchange Offers, or (ii) in the sole judgment of the Company, otherwise
materially adversely affecting the transactions contemplated by the
Recapitalization or the contemplated benefits of the Recapitalization to the
Company;
(d) There shall not have been proposed or enacted any statute or other
legislation, rule or regulation, and no action shall have been taken by any
governmental authority, which would or might, in the sole judgment of the
Company, prohibit, restrict or delay consummation of the Recapitalization or
materially impair the contemplated benefits of the Recapitalization to the
Company;
(e) There shall not exist, in the sole judgment of the Company, any
other actual or threatened legal impediment to the exchange by the Company
of the Outstanding Debentures or to the issuance of the shares of Common
Stock in exchange therefor pursuant to the Exchange Offers or any other
circumstances that would materially adversely affect the transactions
contemplated by the Exchange Offers or the contemplated benefits of the
Exchange Offers to the Company;
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(f) There shall not have occurred, in the sole judgment of the Company,
(i) any general suspension of trading in, or limitation on prices for,
securities listed on NASDAQ NMS; or (ii) a declaration of a banking
moratorium or any suspension of payments in respect of the banks in the
United States (whether or not mandatory); or (iii) a commencement of a war,
armed hostilities or other international or national emergency directly or
indirectly involving the United States; or (iv) any significant change in
the United States or any other currency exchange rates or a suspension of,
or limitation on, the markets therefor (whether or not mandatory); or (v)
any limitation (whether or not mandatory) by any governmental authority on,
or any other event having reasonable likelihood of affecting, the extension
of credit by banks or other lending institutions in the United States; or
(vi) in the sole judgment of the Company, a material acceleration or
worsening of any of the foregoing;
(g) All applicable requirements of the Trust Indenture Act of 1939, as
amended, shall have been satisfied;
(h) The Common Stock to be issued shall have been registered under the
Securities Act, there shall not be issued and in effect a stop order issued
by the Commission with respect to the Registration Statement and issuance of
the foregoing;
(i) There shall not have occurred or be likely to occur an event
affecting the business or financial affairs of the Company and its
subsidiaries or the Exchange Offers which, in the sole judgment of the
Company, would or might prohibit, restrict or delay the consummation of the
Exchange Offers or materially impair the contemplated benefits of the
Exchange Offers to the Company or otherwise result in consummation of the
Exchange Offers not being in the best interests of the Company; and
(j) The Company shall have reached a final determination to accept the
tendered Outstanding Debentures pursuant to the Exchange Offers and not to
pursue the Recapitalization by seeking confirmation of the Plan.
If any of the foregoing conditions shall not be satisfied, the Company may
(i) terminate the Exchange Offers and return all Outstanding Debentures tendered
pursuant to such terminated Exchange Offers to exchanging holders of Outstanding
Debentures, (ii) extend the Exchange Offers and retain all tendered Outstanding
Debentures until the final Expiration Date for the extended Exchange Offers, or
(iii) waive the unsatisfied conditions with respect to the Exchange Offers,
other than the conditions referred to in paragraphs (b)(ii), (g) and (h) above,
which may not be waived by the Company with respect to the Exchange Offers, and
provided that the Company will not waive the condition referred to in paragraph
(a) above with respect to the Exchange Offers without making a public
announcement thereof and permitting the withdrawal of Outstanding Debentures
tendered pursuant to the Exchange Offers to the extent required by applicable
law.
All the foregoing conditions, except for the conditions in paragraphs
(b)(ii), (g) and (h) above, are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
conditions and may be waived by the Company (other than as stated in the
preceding paragraph), in whole or in part, at any time and from time to time, in
the sole discretion of the Company. The failure by the Company at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
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EXCHANGE AGENT. [Mellon Bank, N.A.] will act as Exchange Agent for the
Exchange Offers. All correspondence in connection with the Exchange Offers and
the Letter of Transmittal should be addressed to the Exchange Agent as follows:
<TABLE>
<S> <C>
By Mail, Hand or By Facsimile:
Overnight Courier:
Telephone:
[INSERT ADDRESS]
</TABLE>
INFORMATION AGENT. Georgeson & Company Inc. will act as Information Agent
for the Exchange Offers. All inquiries relating to the Exchange Offers should be
directed to the Information Agent at the address and telephone number set forth
below.
<TABLE>
<S> <C>
By Mail, Hand or Telephone:
Overnight Courier:
GEORGESON & COMPANY, INC.
WALL STREET PLAZA
88 PINE STREET, 30TH FLOOR
NEW YORK, NY 10005
</TABLE>
EFFECTS OF CONSUMMATION OF EXCHANGE OFFERS ON NON-TENDERING HOLDERS OF
OUTSTANDING DEBENTURES. The completion of the Exchange Offers may have
significant adverse consequences for the holders of untendered Outstanding
Debentures. Generally, a security with a smaller outstanding principal amount
available for trading may command a lower price than that of a comparable
security with a greater outstanding principal amount, and thus as a result of
the Exchange Offers the price which may be commanded for the untendered
Outstanding Debentures could be adversely affected. In addition, because the
number of holders of Outstanding Debentures after consummation of the
Recapitalization will be extremely limited, it is unlikely that there will be
any active trading in the untendered Outstanding Debentures. Moreover, upon
effectiveness of the Proposed Amendments numerous provisions that were intended
to provide protection to the holders of the Outstanding Debentures will be
deleted. As a result, the adoption of the Proposed Amendments may have a
material adverse effect on the value of the Outstanding Debentures. See
"Proposed Amendments to Indentures."
NO APPRAISAL RIGHTS ARE AVAILABLE TO HOLDERS OF THE COMPANY'S OUTSTANDING
DEBENTURES, PREFERRED STOCK OR CLASS A COMMON STOCK IN CONNECTION WITH THE
EXCHANGE OFFERS.
PROPOSED AMENDMENTS TO INDENTURES
The Company is soliciting consents to the Proposed Amendments from holders
of Outstanding Debentures whether or not they desire to tender their Outstanding
Debentures pursuant to the Exchange Offers. In order to approve the Proposed
Amendments to the respective Indentures described below, the consent of the
Record Holders of at least a majority of the aggregate principal amount of the
then outstanding Senior Debentures and Subordinated Debentures, respectively,
which are not owned by the Company or its affiliates, is required. As of the
date hereof, $165 million aggregate principal amount of Senior Debentures and
$41 million aggregate principal amount of Subordinated Debentures, respectively,
are issued and outstanding and owned by persons other than the Company and its
affiliates. Only Record Holders of the Outstanding Debentures may consent to the
Proposed Amendments. The Proposed Amendments will become operative when the
Exchange Offers are consummated, and thereupon any non-tendering holders of
Outstanding Debentures will be bound by the Proposed Amendments regardless of
whether they consented to the Proposed Amendments. See "The Exchange
Offers--Effects of Consummation of Exchange Offers on Non-Tendering Holders of
Outstanding Debentures."
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All holders of Outstanding Debentures should carefully consider the effects
of the Proposed Amendments before determining whether to consent or to withhold
consent to the Proposed Amendments and whether or not to tender into the
Exchange Offer. The Company is seeking elimination of certain restrictive
covenants in the Indentures through the adoption of the Proposed Amendments. A
discussion of the effects on the holders of Outstanding Debentures if each of
these provisions is eliminated is set forth below.
PROPOSED AMENDMENTS TO OUTSTANDING DEBENTURES. The discussion below is
qualified in its entirety by reference to the Indentures relating to the Senior
Debentures and the Subordinated Debentures. Capitalized terms used and not
otherwise defined herein have the meanings given to them in the respective
Indentures.
If the Requisite Consents are received by the Company, the Proposed
Amendments to Indentures will be implemented by the execution of the Amended
Senior Indenture and the Amended Subordinated Indenture upon certification to
the respective Indenture trustees (the "Trustees") that the Company has obtained
Requisite Consents of holders of the Senior Debentures and/or Subordinated
Debentures, but will not become effective until consummation of the applicable
Exchange Offer.
ELIMINATION OF RESTRICTIVE COVENANTS. The Proposed Amendments include the
elimination of certain restrictive covenants found in the Indentures under the
captions "Limitation on Restricted Payments" (Section 4.03) and "Limitation on
Transactions with Affiliates" (Section 4.06 of the Senior Debenture Indenture
and Section 4.07 of the Subordinated Debenture Indenture). The first Proposed
Amendments would delete the provisions of Section 4.03 in each of the
Indentures, which currently provide as follows:
"The Corporation shall not, and shall not permit any Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any
distribution on its Capital Stock or to the Holders of its Capital Stock
(except dividends or distributions payable to the Corporation or a wholly
owned Subsidiary), (ii) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Corporation, or (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than the acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within
one year of the date of acquisition). Notwithstanding the foregoing, the
Corporation may purchase or redeem shares of any class of Capital Stock or
any Debt of the Corporation by exchange for, or out of the proceeds of the
substantially concurrent sale of, shares of its Capital Stock."
If the above described Proposed Amendments are approved and these covenants
are eliminated, the Company and its subsidiaries will be permitted to make such
payments and take such actions, regardless of the total amount of such payments,
which could lead to a reduction in the amount of cash that the Company has
available to make any required payments on the Outstanding Debentures.
The next Proposed Amendments would delete in their entirety the respective
provisions of Section 4.06 of the Senior Debenture Indenture and Section 4.07 of
the Subordinated Debenture Indenture each of which currently provide as follows:
"The Corporation shall not, and shall not permit any Subsidiary to,
conduct any business or enter into any transaction or series of similar
transactions (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate (other than a
wholly owned Subsidiary) unless the terms of such business, transaction or
series of transactions are (i) set forth in writing, and (ii) as favorable
to the Corporation or such Subsidiary as terms that would be obtainable at
the time for a comparable transaction or series of similar transactions in
arm's-length dealings with an unrelated third person. This Section shall not
be construed to prohibit payment by the Corporation or a Subsidiary of
compensation to officers, directors or employees of the Corporation or such
Subsidiary for services rendered in such capacity."
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If the above described Proposed Amendments are approved and these covenants
are eliminated, the Company will no longer be obligated to take the steps, and
will no longer be subject to the limitations, outlined above when entering into
certain transactions with related entities.
THE COMPANY ANNUAL MEETING
An Annual Meeting of Stockholders of the Company will be held at
on May , 1997 at a.m. Eastern Standard Time, for the
following purposes:
1. To consider and act upon a proposal to ratify the terms of the
Exchange Offers, including the issuance of shares of Common Stock pursuant
to the Exchange Offers, (the "Exchange Offers Proposal");
2. To consider and act upon a proposal to amend Articles Fourth, Fifth
and Sixth of the Restated Certificate, subject to the consummation of the
Recapitalization, to provide for a combination of the Class A Common Stock
and Preferred Stock, to provide for a one for one hundred (1:100) reverse
stock split of the outstanding combined Common Stock and to provide for 18
million authorized shares of Common Stock following such combination (the
"Capital Stock Combination and Reverse Split Proposal");
3. To consider and act upon a proposal to amend the Restated
Certificate and Bylaws, subject to the consummation of the Recapitalization,
to delete provisions of Articles Eighth and Thirteenth of the Restated
Certificate and Articles III and XI of the Bylaws currently providing for
(i) the Board to be classified into three classes with staggered terms, (ii)
an 80% supermajority vote of the shares of outstanding capital stock of the
Company entitled to vote in elections of directors in order to change the
authorized number of directors by vote of stockholders, (iii) a similar 80%
supermajority vote in order to remove any director for cause, and (iv) a
similar 80% supermajority vote in order to amend or repeal any of the above
described provisions of the Restated Certificate or Bylaws; and to increase
the size of the Board from seven (7) to ten (10) members, subject to the
consummation of the Recapitalization (the "Board Proposal");
4. To consider and act upon a proposal to amend the Restated
Certificate and Bylaws, subject to the consummation of the Recapitalization,
to delete provisions of Articles Ninth and Thirteenth of the Restated
Certificate and Article XI of the Bylaws which currently provide that an 80%
supermajority vote of the shares of the outstanding capital stock of the
Company entitled to vote in elections of directors is required to amend or
repeal any provisions of Article Ninth of the Restated Certificate or
Article II, Section 3 of the Bylaws applicable to special meetings of the
stockholders of the Company and to amend Article Ninth of the Restated
Certificate and Article II, Section 3 of the Bylaws to permit stockholders
representing at least ten percent (10%) of outstanding shares of capital
stock of the Company entitled to vote in the election of directors to call a
special meeting of the Company's stockholders. (the "Special Meetings
Proposal");
5. To consider and act upon a proposal to amend the Restated
Certificate, subject to the consummation of the Recapitalization, to delete
provisions of Article Tenth of the Restated Certificate which currently
prohibit stockholders of the Company from acting by written consent and
which require an 80% supermajority vote of the shares of the outstanding
capital stock of the Company entitled to vote in elections of directors to
amend or repeal such provisions (the "Written Consent Proposal");
6. To consider and act upon a proposal to elect a slate of director
nominees to reconstitute the declassified Board and serve until the next
annual meeting of stockholders and until their respective successors are
elected and qualified or, in the event the Recapitalization is not
consummated, to elect directors to serve until the expiration of the terms
of their respective classes and until their respective successors are
elected and qualified (the "Board Election Proposal");
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7. To ratify the Company's selection of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending December 31, 1997
(the "Auditor Proposal"); and
8. To transact such other business as may properly come before the
Annual Meeting or any postponements or adjournments thereof.
PROXY SOLICITATION.
GENERAL. This Prospectus is furnished to stockholders of the Company's
Class A Common Stock and Preferred Stock in connection with the solicitation of
proxies by and on behalf of the Board for use at the Annual Meeting, and at any
postponements or adjournments thereof. The approximate date on which this
Prospectus and accompanying form of Proxy is first being mailed to stockholders
is [March ], 1997.
A holder of Class A Common Stock or Preferred Stock wishing to vote for the
Annual Meeting Proposals upon which such holder is entitled to vote should
either (i) complete and sign the enclosed Proxy and mail or deliver such Proxy
to the Exchange Agent at one of the addresses set forth on the back cover of
this Prospectus; or (ii) request its broker, dealer, commercial bank, trust
company or other nominee to vote on its behalf. Holders may also vote their
shares of Class A Common Stock or Preferred Stock in person at the Annual
Meeting. Holders of such Class A Common Stock or Preferred Stock of record whose
purchase is registered after the Annual Meeting Record Date and who wish to vote
on the Annual Meeting Proposals must arrange with their seller to receive a
proxy from the holder of such Class A Common Stock or Preferred Stock of record
on the Annual Meeting Record Date.
Proxies, in the form attached, are being solicited by the Board for use at
the Annual Meeting. The persons named as proxies were selected by the Board and
are officers of the Company. Proxies may be revoked by a stockholder prior to
exercise by filing with the Secretary of the Company a written instrument
revoking the same or a duly executed proxy bearing a later date. In addition, a
stockholder who attends the Annual Meeting may vote shares personally and
thereby revoke any prior proxy at that time. All shares represented by valid
proxies received pursuant to this solicitation, and not subsequently revoked,
will be voted as provided in the proxy.
If immediately prior to the commencement of the Annual Meeting (or any
adjourned session thereof) it appears that all of the conditions to consummation
of the Exchange Offers (other than those conditions to be satisfied at the
Annual Meeting) have not been or will not be satisfied or waived, or if the
Exchange Offers or Consent Solicitations are extended as a result of material
amendments thereto, the Board of Directors may postpone or adjourn the Annual
Meeting until such time as the conditions are satisfied or waived, or until just
prior to any extended Expiration Date of the Exchange Offers and Consent
Solicitations, as the case may be. The Company's Bylaws permit the Annual
Meeting to be adjourned by the vote of a majority of the shares represented
either in person or by proxy at the Annual Meeting, whether or not a quorum is
present.
The expense of preparing, printing and mailing this Prospectus and the
proxies solicited hereby will be borne by the Company. In addition to the use of
the mails, proxies may be solicited by officers, directors and regular employees
of the Company, without extra remuneration, in person, by telephone, telegraph
or otherwise. The Company will also request brokerage firms, nominees,
custodians and fiduciaries to forward proxy materials to the beneficial owners
of shares held of record and will reimburse such persons for their reasonable
out-of-pocket expenses in connection therewith. The Company has engaged
Georgeson & Company Inc. to serve as "Information Agent" for the
Recapitalization. In connection with such arrangement, Georgeson & Company Inc.
will also solicit proxies on behalf of the Company. See "The Exchange
Offers--Information Agent" herein. The Company estimates that the total cost to
the Company of this proxy solicitation will be approximately $ .
THE HOLDERS OF PREFERRED STOCK AND/OR CLASS A COMMON STOCK ARE NOT ENTITLED
TO ANY APPRAISAL RIGHTS IN CONNECTION WITH THE MATTERS SUBMITTED FOR THEIR
APPROVAL.
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STOCKHOLDER PROPOSALS. It is presently contemplated that the next annual
meeting of stockholders will be held in May, 1998. Stockholders may submit
proposals on matters appropriate for stockholder action at the Company's annual
meetings consistent with regulations adopted by the Securities and Exchange
Commission and the Bylaws. Proposals to be considered for inclusion in the
Company's proxy statement relating to the 1998 annual meeting must be received
by the Company at its principal executive offices not later than December 16,
1997. Proposals should be directed to the attention of the Secretary, Koll Real
Estate Group, Inc., 4343 Von Karman Avenue, Newport Beach, California 92660.
VOTE REQUIRED FOR APPROVAL. The Recapitalization must be consummated in
order for the following Annual Meeting Proposals to become effective: Capital
Stock Combination and Reverse Split Proposal, Board Proposal, Special Meetings
Proposal, Written Consent Proposal, and the expanded director nominees in the
Board Election Proposal. Stockholder approval of the various proposals is
required as follows: (i) the Capital Stock Combination and Reverse Split
Proposal and the Auditor Proposal at the Annual Meeting will each require the
affirmative vote of the holders of at least a majority of the outstanding shares
of Class A Common Stock entitled to vote, present (in person or by proxy) at the
Annual Meeting, in order to be approved; (ii) the Board Proposal, the Special
Meetings Proposal and the Written Consent Proposal at the Annual Meeting will
require the affirmative vote of the holders of at least 80% of the outstanding
shares of Class A Common Stock entitled to vote, whether or not present (in
person or by proxy) at the Annual Meeting, in order to be approved; (iii) the
Capital Stock Combination and Reverse Split Proposal will also require the
affirmative vote of the holders of a majority of the outstanding shares of
Preferred Stock, present (in person or by proxy) at the Annual Meeting, and
voting separately as a class, in order to be approved; and (iv) the Board
Election Proposal will require the affirmative vote of the holders of at least a
plurality of the outstanding shares of Class A Common Stock entitled to vote,
present (in person or by proxy) at the Annual Meeting, voted for each director
nominee in order for each such nominee to be elected. Representatives of the
Debenture Holders' Committee, whose members hold approximately 33% and 13%,
respectively, of the Preferred Stock and Class A Common Stock have indicated to
the Company that they intend to approve the foregoing proposals. In addition the
holder of 30.5% and 11.5%, respectively, of the Preferred Stock and Class A
Common Stock has indicated to the Company that it intends to approve the
foregoing proposals.
The Company is seeking approval of the Exchange Offer Proposal from the
holders of a majority of the outstanding shares of Class A Common Stock, present
(in person or by proxy) at the Annual Meeting, and voting separately as a class,
and from the holders of a majority of the outstanding shares of Preferred Stock,
present (in person or by proxy) at the Annual Meeting, and voting separately as
a class. HOWEVER, PURSUANT TO THE DELAWARE GENERAL CORPORATION LAW AND THE
COMPANY'S RESTATED CERTIFICATE AND BYLAWS, SUCH APPROVALS ARE NOT REQUIRED FOR
THE COMPANY TO CONSUMMATE THE EXCHANGE OFFERS. IF SUCH APPROVALS ARE NOT
OBTAINED AT THE ANNUAL MEETING, THE COMPANY IN ITS SOLE DISCRETION MAY STILL
CONSUMMATE THE EXCHANGE OFFERS.
The presence, in person or by proxy, of a majority of the outstanding shares
of the Company's Class A Common Stock entitled to vote is necessary to
constitute a quorum to transact business at the Annual Meeting with respect to
the Board Election Proposal and the Auditors Proposal. The presence, in person
or by proxy, of a majority of the outstanding shares of Class A Common Stock and
Preferred Stock, respectively, is necessary to transact business at the Annual
Meeting with respect to the Capital Stock Combination and Reverse Split Proposal
and the Exchange Offers Proposal. In addition,the presence (in person or by
proxy) of the holders of at least 80% of the outstanding shares of Class A
Common Stock will be necessary to transact business at the Annual Meeting with
respect to the Board Proposal, the Special Meetings Proposal and the Written
Consent Proposal, however, in the event only 80% of such shares are present (in
person or by proxy) at the Annual Meeting, the affirmative vote of 100% of such
shares which are present would then be required to approve the Board Proposal,
the Special Meetings Proposal and the Written Consent Proposal. Those shares
present (in person or by proxy), including shares as to which authority to vote
on an Annual Meeting Proposal is withheld, shares abstaining as to any Annual
Meeting
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Proposal and broker non-votes (where a broker submits a proxy but does not have
authority to vote a customer's shares on one or more matters) on any Annual
Meeting Proposal, will be considered present at the Annual Meeting for purposes
of establishing a quorum.
With respect to each of the Annual Meeting Proposals, neither shares as to
which authority to vote has been withheld (to the extent withheld) nor broker
non-votes will be considered affirmative votes. With respect to each of the
Annual Meeting Proposals, (i) abstentions on any Annual Meeting Proposal,
pursuant to Delaware law, will be considered present and entitled to vote and
thus will have the effect of a vote against such Annual Meeting Proposal, and
(ii) broker non-votes will be considered not entitled to vote on such Annual
Meeting Proposal and thus will not be counted in determining whether such Annual
Meeting Proposal has received the requisite votes.
PERSONS ENTITLED TO VOTE AT THE ANNUAL MEETING. The Board has fixed the
close of business on March , 1997 as the Annual Meeting Record Date for the
determination of stockholders entitled to receive notice of and to vote at the
Annual Meeting. Only holders of record of the Company's Class A Common Stock and
Preferred Stock, at the close of business on the Annual Meeting Record Date,
will be entitled to notice of, and to vote at, the Annual Meeting. At the close
of business on the Annual Meeting Record Date, the Company had outstanding
48,938,543 shares of Class A Common Stock and 38,886,626 shares of Preferred
Stock, respectively, not including 1,425,805 shares of Class A Common Stock held
by the Company as treasury stock. Each share of Class A Common Stock is entitled
to one (1) vote on all matters which may come before the Annual Meeting for
which shares of Class A Common Stock are entitled to vote and each share of
Preferred Stock is entitled to one (1) vote on all matters which may come before
the Annual Meeting for which shares of Preferred Stock are entitled to vote.
ACTION TO BE TAKEN UNDER PROXY. All proxies in the accompanying form that
are properly executed and returned will be voted at the Annual Meeting and any
postponements or adjournments thereof in accordance with the specifications
thereon or, if no specifications are made, will be voted:
(i) For approval of the terms of the Exchange Offer Proposal;
(ii) For approval of the Capital Stock Combination and Reverse Stock
Split Proposal;
(iii) For approval of the Board Proposal;
(iv) For approval of the Special Meetings Proposal;
(v) For approval of the Written Consent Proposal;
(vi) For approval of each of the director nominees as described in the
Board Election Proposal; and
(vii) For approval of the Auditor Proposal.
The Board of Directors knows of no matters, other than those stated above,
to be presented and considered at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting, or any postponements or
adjournments thereof, it is the intention of the persons named in the enclosed
proxy to vote such proxy in accordance with their judgment on such matters. The
persons named in the enclosed proxy may also vote such proxy to adjourn the
Annual Meeting.
PROPOSAL NO. 1
APPROVAL OF EXCHANGE OFFERS (INCLUDING THE
ISSUANCE OF SHARES OF COMMON STOCK)
The Board has adopted a resolution approving the Exchange Offers pursuant to
which the Company is offering to exchange Common Stock for Outstanding
Debentures. See "The Company Recapitalization" and "The Exchange Offers." The
purpose of the Exchange Offers is to deleverage the Company's capital structure
in order to allow the Company to obtain financing on terms more favorable to the
Company, which financing would facilitate the growth of the Company's business,
including, but not limited to, the
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commercial real estate development business and the development of the Bolsa
Chica property. While the Company does not currently have any commitments to
provide the necessary financing in the event the Exchange Offers are
consummated, the Company believes the resulting deleveraged capital structure
will put the Company in a stronger position to obtain such favorable terms
financing. Failure to consummate the Exchange Offers, however, will continue the
Company's leveraged financial condition and increase the Company's debt by
approximately $162.8 million by the maturity date of the Outstanding Debentures
on March 15, 2002, resulting in approximately $368.5 million in outstanding
principal amount of the Outstanding Debentures at maturity. Under such
circumstances, the Company believes it will incur substantially higher costs
with respect to any such financing, which will negatively impact realization of
asset values and the Company's growth, and, accordingly, may pursue financial
restructuring transactions which may be more unfavorable to the Company's
current securityholders than the Recapitalization. See "Risk Factors" and "The
Plan."
If the Exchange Offers are consummated and 100% of the Outstanding
Debentures are exchanged for Common Stock (assuming the conversion of all
outstanding shares of Preferred Stock pursuant to the Capital Stock Combination
proposed below), the holders of Outstanding Debentures will hold 90% of the
voting power of the Company's outstanding capital stock and, if acting together,
will be able to control all matters put before the Company's stockholders for a
vote, including the election of directors. See "The Exchange Offers," "Risk
Factors."
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NO. 1
PROPOSAL NO. 2
AMENDMENT OF ARTICLES FOURTH, FIFTH AND SIXTH OF RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT A COMBINATION OF THE CLASS A COMMON STOCK AND PREFERRED
STOCK AND TO EFFECT A ONE FOR ONE HUNDRED (1:100) REVERSE STOCK SPLIT OF THE
OUTSTANDING COMBINED COMMON STOCK
The Board has adopted a resolution setting forth, and declaring the
advisability of, the Capital Stock Combination and Reverse Split Proposal, which
proposes amendments to Articles Fifth and Sixth of the Restated Certificate to
(i) effect a combination of the Class A Common Stock and Preferred Stock and to
effect a one for one hundred (1:100) reverse stock split of the outstanding
shares of combined Common Stock, and (ii) to provide that the authorized Common
Stock shall consist of 18 million shares of Common Stock.
If the Capital Stock Combination and Reverse Split Proposal are approved, no
fractional shares of Common Stock will be issued as a result of the Capital
Stock Combination and Reverse Stock Split. Instead, the Exchange Agent will
aggregate all such fractional shares of Common Stock that would otherwise result
from the Capital Stock Combination and Reverse Stock Split and will sell such
aggregated fractional shares of Common Stock, rounded to the nearest whole
share, as whole shares, in an orderly manner. Upon completion of such sales,
stockholders who would otherwise have held such fractional shares of Common
Stock as a result of the Reverse Stock Split, will receive in lieu thereof, the
cash proceeds from such sales (without interest) in amounts proportionate to the
fractional shares of Common Stock which such stockholders would otherwise have
held.
The purpose of the Capital Stock Combination and Reverse Split Proposal is
to adjust the Company's capital structure to permit the Company to issue Common
Stock to the holders of the Outstanding Debentures pursuant to the Exchange
Offers without dramatically increasing the number of shares of Common Stock
outstanding. In order to successfully induce the holders of the Outstanding
Debentures to accept the Exchange Offers, the number of outstanding shares of
the Company's Capital Stock must be reduced to establish a higher price per
share, to create greater liquidity for the Common Stock and to eliminate certain
preferences currently held by the Preferred Stock over the Common Stock. If the
Capital Stock Combination and Reverse Split Amendments are approved and filed,
the recapitalized Preferred Stock will no longer be entitled to the rights,
preferences and privileges provided in Article Sixth of the
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Restated Certificate, including any dividend preference which would result if
the "Conversion Rate" defined in Article Sixth, Section (b) (vi) of the Restated
Certificate were to be adjusted pursuant to the Restated Certificate to provide
for a Conversion Rate greater than a one (1) share of Class A Common Stock for
one (1) Share of Preferred Stock (the Conversion Rate is currently on a one (1)
for one (1) basis) and the "Liquidation Preference" defined in Article Sixth,
Section (b)(iii), which currently provides for a $.75 per share of Series A
Preferred Stock Liquidation Preference. However, if the Capital Stock
Combination and Reverse Stock Split is effected, the recapitalized Preferred
Stock will receive the right to vote in all matters put before the Company's
stockholders for a vote, including the election of directors. The Preferred
Stock currently is not entitled to vote on any matters, except those required by
law.
If the Capital Stock Combination and Reverse Split Proposal is approved and
the Recapitalization is consummated, the Restated Certificate will be amended to
provide that the text of Article Fourth, Article Fifth, Section (b) and of
Article Sixth of the Restated Certificate will be deleted in their respective
entireties and replaced with the following language:
Article Fourth "FOURTH: The Corporation shall have the authority to issue
one class of stock. The total number of shares of stock which the
Corporation shall have the authority to issue is 18 million shares of
Common Stock, par value $0.05 per share (the "Common Stock")."
Article Fifth "(b) Effective upon the filing of this amendment to the
Restated Certificate of Incorporation, the Class A Common Stock, Class B
Common Stock and Series A Convertible Preferred Stock shall be
reclassified and combined to create one class and series of stock
designated "Common Stock." Effective immediately upon the filing of this
amendment to the Restated Certificate of Incorporation, each outstanding
share of Class A Common Stock shall be automatically reclassified to be
one (1) share of Common Stock and each outstanding share of Series A
Convertible Preferred Stock shall be automatically reclassified to be one
and three quarter (1.75) shares of Common Stock. Effective on the date of
the filing of this amendment to the Restated Certificate of
Incorporation, and immediately following the effectiveness of the
combination of the Class A Common Stock, Class B Common Stock and Series
A Preferred Stock, the resulting outstanding shares of Common Stock shall
be reverse split so that each 100 shares of outstanding Common Stock
shall be automatically reclassified into one share of Common Stock. The
Company shall not issue, and no stockholder of the Company shall be
deemed to hold, fractional shares of Common Stock as a result of the
above described capital stock combination and reverse stock split.
Instead, the Exchange Agent will aggregate all such fractional shares of
Common Stock that would otherwise result from the above described capital
stock combination and reverse stock split and sell such aggregated shares
of Common stock, rounded to the nearest whole share, as whole shares, in
an orderly manner. Upon completion of such sales, stockholders who would
otherwise have held such fractional shares of Common Stock, will receive
in lieu thereof, the cash proceeds from such sales (without interest) in
amounts proportionate to the fractional shares of Common Stock which such
stockholders would otherwise have held. The designations and the powers,
preferences and rights, and qualifications, limitations or restrictions
thereof, of each share of Common Stock shall be governed by the
following:
(i) Identical Rights. All shares of Common Stock shall be identical and
shall entitle the holders thereof to the same rights and privileges.
(ii) Voting Rights. On all matters submitted to the Corporation's
stockholders, the holders of Common Stock shall be entitled to one
vote per share.
(iii) Dividend Rights. When and as dividends or other distributions are
declared, whether in cash, in property or in securities of the
Corporation, the holders of shares of Common Stock shall be
entitled to share equally, share for share, in such dividends or
distributions.
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(iv) Stock Splits. If the Corporation shall in any manner subdivide,
split or combine the outstanding shares of Common Stock, each share
of outstanding Common Stock shall be proportionately subdivided,
split or combined.
(v) No Charge. The issuance of certificates representing shares of
Common Stock in exchange for outstanding certificates of Class A
Common Stock or Series A Preferred Stock shall be made without
charge to the holders of such certificates, PROVIDED that the
Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involving the issuance and
delivery of any certificate in a name other than that of the holder
of record of such shares of Class A Common Stock or Series A
Preferred Stock exchanged."
Article Sixth "SIXTH: Intentionally Omitted."
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FAILURE TO CONSUMMATE THE RECAPITALIZATION. If the Recapitalization is not
consummated for any reason (including the failure of the Plan to be confirmed by
a Court in the event of a judicial filing), the Capital Stock Combination and
Reverse Split Proposal shall not be deemed to have been approved and the
foregoing amendments to the Restated Certificate will NOT become effective.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NO. 2
PROPOSAL NO. 3
AMENDMENT OF ARTICLES EIGHTH AND THIRTEENTH
OF THE RESTATED CERTIFICATE AND ARTICLES III AND XI OF THE BYLAWS
TO DELETE CLASSIFIED BOARD AND SUPERMAJORITY VOTING PROVISIONS
The Board has adopted a resolution setting forth, and declaring the
advisability of, the Board Proposal, which proposes amendments to the Restated
Certificate and Bylaws to delete the certain provisions in Article Eighth and
Article Thirteenth of the Restated Certificate and Articles III and XI of the
Bylaws which currently provide for (i) the Board to be classified into three
classes with staggered terms, (ii) an 80% supermajority vote of the shares of
outstanding capital stock of the Company entitled to vote in elections of
directors in order to change the authorized number of directors by vote of the
Company's stockholders, (iii) a similar 80% supermajority vote in order to
remove any director for cause, and (iv) a similar 80% supermajority vote in
order to amend any of the above described provisions of the Restated Certificate
or Bylaws.
GENERAL. The Company currently has a classified Board of Directors. The
Company's directors serve in three separate classes, each such class being
elected for alternating three-year terms. The Bylaws currently authorize the
Company to have a Board of Directors with a maximum of fifteen (15) directors
and a minimum of five (5) directors among its three classes, and provide that
the authorized number of directors may be fixed from time to time by duly
adopted resolution of the Board or the stockholders. The size of the Board is
currently fixed at seven (7) directors. There are currently six (6) directors
and one (1) vacancy on the Board. The vacancy resulted from the resignation of
Ms. Thompson. Messrs. Koll and Hegness have terms which expired in 1996, Messrs.
Wirta and Ellis have terms expiring at the Annual Meeting, and Messrs. Talbot
and Vitulli have terms expiring at the annual meeting of stockholders in 1998.
See "Executive Officer and Directors of the Company" for information concerning
the Company's current directors.
PRINCIPAL EFFECT. The principal effect of the Board Proposal will be as
follows:
(i) Each director of the Company will serve for only a one-year term,
rather than a three-year term. As a result, at each annual meeting of
stockholders beginning with the May 1997 annual meeting, the Company's
stockholders will be asked to elect (or re-elect, as the case may be) a full
slate of directors to the Board;
(ii) The number of directors will be fixed at ten (10) and may be
changed from time to time by a resolution of the Board or by the vote of a
majority of shares of capital stock of the Company entitled to vote (rather
than 80%);
(iii) Any director may be removed, with or without cause, by the vote of
a majority of shares of capital stock of the Company entitled to vote
(rather than only for cause by 80%); and
(iv) The provisions of Articles Eighth and Thirteenth of the Restated
Certificate and Articles III and XI of the Bylaws may be amended by the vote
of the holders of a majority (rather than 80%) of the Company's capital
stock entitled to vote.
In light of changed circumstances in recent years and the anticipated
ownership structure of the Company following consummation of the
Recapitalization, the classified Board provisions and
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supermajority voting provisions of the Restated Certificate and Bylaws are
unnecessary and may inadvertently work against the best interests of the Company
and its stockholders. The Company adopted the classified Board and supermajority
voting provisions under circumstances materially different from those facing the
Company today. The classified Board structure was intended to increase the
likelihood of continuity and experience among Board members and to make the
Company less likely to face coercive takeover tactics which the Company is not
likely to face after the Recapitalization given the above described changed
circumstances. Moreover, there are other provisions available to defend against
such threats. The Company's Restated Certificate provides the Board of Directors
with broad discretion to issue shares of preferred stock, in one or more series,
having such terms, provisions and rights (including special voting rights) as
the Board may determine. However, it should be noted that the removal of the
supermajority voting provisions will allow the holders of only a majority of the
combined voting power with respect to all of the Company's outstanding voting
securities subsequently to adopt amendments to the Restated Certificate which
would alter, amend or repeal the provisions of Article Eighth of the Restated
Certificate and Article III of the Bylaws. Under Delaware law, any such
amendments would first have to be approved by the Board.
The Board Proposal is not the result of, or in response to, any specific
effort to accumulate the Company's securities or to obtain control of the
Company by means of a merger, tender offer, solicitation in opposition to
management or otherwise.
IMPLEMENTATION. If the Board Proposal is approved and the Recapitalization
is consummated, the Restated Certificate and Bylaws will be amended to provide
that the text of Article Eighth, Sections (a), (b), (c), and (d) of the Restated
Certificate and of Article III, Sections 2 and 10 of the Bylaws will be deleted
in their respective entireties and replaced with the following language:
Restated Certificate Article Eighth "(a) The number of directors of the
Corporation shall be determined from time to time in the manner described in
the Bylaws. Each director shall serve for a term ending on the next annual
meeting following the meeting at which such director was elected, or on such
later date as such director's successor shall have been elected and
qualified."
Restated Certificate Article Eighth "(b) Newly created directorship
resulting from any increase in the number of directors and any vacancies on
the Board of Directors resulting from death, resignation, disqualification,
removal or other cause shall be filled by the affirmative vote of a majority
of the remaining directors then in office, even if less than a quorum of the
Board of Directors, or by a sole remaining director. Any director elected in
accordance with the preceding sentence shall hold office until the next
annual meeting of stockholders and until such director's successor shall
have been duly elected and qualified. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director."
Restated Certificate Article Eighth "(c) Any director may be removed from
office, with or without cause, by the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors
(the "Voting Stock"), voting together as a single class."
Restated Certificate Article Eighth "(d) Intentionally Omitted."
Bylaws Article III "Section 2. NUMBER, ELECTION AND TERMS. The authorized
number of directors may be determined from time to time by a vote of a
majority of the then authorized number of directors or by the affirmative
vote of a majority of the voting power of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class; provided, however, that
such number initially shall be ten (10). Except as otherwise provided in the
Certificate of Incorporation, newly created directorships resulting from any
increase in the number of directors and any vacancies on the Board resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then
in
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office, even if less than a quorum of the Board, or by a sole remaining
director. Any director elected in accordance with the preceding sentence
shall hold office until the next Annual Meeting and until such director's
successor shall have been duly elected and qualified. No decrease in the
number of directors constituting the Board shall shorten the term of any
incumbent director."
Bylaws Article III "Section 10. REMOVAL OF DIRECTORS. Subject to the rights
of any series or class of Common Stock or Preferred Stock, any director may
be removed from office, with or without cause, by the affirmative vote of a
majority of the voting power of all shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class."
In addition to the above deleted and replaced language, if the Board
Proposal is approved, Article Thirteenth of the Restated Certificate will be
amended to delete the following language:
"...Notwithstanding the foregoing and anything contained in this Restated
Certificate of Incorporation to the contrary, Section 3 ("Special Meetings")
of Article II ("Meetings of Stockholders") of the Bylaws, Section 2
("Number, Election and Terms") or Section 10 ("Removal of Directors") of
Article III ("Directors") of the Bylaws, or the final sentence of Article XI
("Amendments") of the Bylaws shall not be amended or repealed, and no
provision inconsistent with any thereof shall be adopted, without the
affirmative vote of the holders of at least 80% of the voting power of the
Voting Stock, voting together as a single class. Notwithstanding anything
contained in this Restated Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 80% of the voting power of the
Voting Stock, voting together as a single class, shall be required to amend
or repeal, or adopt any provision inconsistent with, any provision of this
Article Twelfth."
and Article XI of the Bylaws will be amended to delete the following language:
"...Notwithstanding the preceding sentence, the affirmative vote of holders
of at least 80% of the voting power of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class, shall be required to amend
or repeal, or adopt any provisions inconsistent with, Section 3 of Article
II of these By-laws, Section 2 or Section 10 of Article III of these
By-laws, or this sentence."
FAILURE TO CONSUMMATE THE RECAPITALIZATION. If the Recapitalization is not
consummated for any reason (including the failure of the Plan to be confirmed by
a Court in the event of a judicial filing), the Board Proposal shall not be
deemed to have been approved and the Board will not be reconstituted as set
forth in Proposal No. 6 below and the foregoing amendments to the Restated
Certificate and Bylaws will NOT become effective.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NO. 3
PROPOSAL NO. 4
AMENDMENT OF ARTICLES NINTH AND THIRTEENTH OF THE RESTATED
CERTIFICATE AND ARTICLES II AND XI OF THE BYLAWS TO DELETE SUPERMAJORITY
VOTING PROVISIONS APPLICABLE TO SPECIAL MEETINGS AND TO
PERMIT STOCKHOLDERS TO CALL SPECIAL MEETINGS OF STOCKHOLDERS
The Board has adopted a resolution setting forth, and declaring the
advisability of, the Special Meetings Proposal, which proposes amendments to
delete the provisions of Articles Ninth and Thirteenth of the Restated
Certificate and Article XI of the Bylaws which currently provide that an 80%
supermajority vote of the shares of the outstanding capital stock of the Company
entitled to vote in elections of directors is required to amend or repeal any
provisions of Article Ninth of the Restated Certificate or Article II, Section 3
of the Bylaws, which provisions also generally provide that special meetings of
the Company's stockholders, except as otherwise required by law, can only be
called by the Board or by the Company's Chief Executive Officer pursuant to
resolutions approved by the Board. The Special Meetings Proposal also proposes
to amend Article Ninth of the Restated Certificate and Article II,
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Section 3 of the Bylaws, to permit the holders of capital stock of the Company
representing at least ten percent (10%) of the outstanding shares of capital
stock of the Company entitled to vote in the election of directors to call a
special meeting of the Company's stockholders.
As discussed above, in light of the changed circumstances in recent years
and the anticipated ownership structure of the Company following consummation of
the Recapitalization, the supermajority voting provisions applicable to
amendments of the special meeting provisions contained in the Restated
Certificate and Bylaws are unnecessary, may inadvertently work against the best
interests of the Company and its stockholders and deletion of such provisions
should not materially affect the Company's vulnerability to coercive takeover
tactics.
If the Special Meetings Proposal is approved, the Restated Certificate will
be amended to provide that the text of Article Ninth of the Restated Certificate
be deleted in its entirety and replaced with the following language:
Restated Certificate Article "Ninth: Special meetings of stockholders may be
called either (i) by the Board of Directors or by the Chief Executive
Officer, pursuant to a resolution approved by a majority of the then
authorized number of directors of the Corporation (as determined in
accordance with the Bylaws), or (ii) by holders of capital stock of the
Company representing at least ten percent (10%) of the outstanding shares of
capital stock of the Company entitled to vote in the election of directors."
and the Bylaws will be amended to provide that the text of Article II,
Section 3 of the Bylaws will be deleted in its entirety and replaced with the
following language:
"Special meetings of stockholders, unless otherwise provided by law, may be
called at any time by the Board pursuant to a resolution adopted by a
majority of the then authorized number of directors (as determined in
accordance with Section 2 of Article III of these By-laws), by the Chief
Executive Officer or by holders of capital stock of the Company representing
at least ten percent (10%) of the outstanding shares of capital stock of the
Company entitled to vote in the election of directors. Any such call must
specify the matter or matters to be acted upon at such meeting and only such
matter or matters shall be acted upon thereat."
In addition to the above deleted and replaced language as part of the
Special Meetings Proposal, Article Thirteenth of the Restated Certificate will
also be amended to delete the following language:
"...Section 3 ("Special Meetings") of Article II of the Bylaws..."
and Article XI of the Bylaws will be amended to delete the following language:
"...Section 3 of Article II of these Bylaws..."
FAILURE TO CONSUMMATE THE RECAPITALIZATION. If the Recapitalization is not
consummated for any reason (including the failure of the Plan to be confirmed by
a Court in the event of a judicial filing), the Special Meeting Proposal shall
not be deemed to have been approved and the foregoing amendments to the Restated
Certificate will NOT become effective.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NO. 4
PROPOSAL NO. 5
AMENDMENT OF ARTICLE TENTH OF THE RESTATED CERTIFICATE TO DELETE
PROHIBITION OF STOCKHOLDER ACTION BY WRITTEN CONSENT AND SUPERMAJORITY
VOTING PROVISIONS APPLICABLE THERETO
The Board has adopted a resolution setting forth, and declaring the
advisability of the Written Consent Proposal, which proposes an amendment to
delete the provisions of Article Tenth of the Restated Certificate which
currently prohibit the stockholders from acting by written consent without a
meeting and
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require an 80% supermajority vote of the shares of outstanding capital stock of
the Company entitled to vote in elections of directors in order to amend or
repeal the provisions of Article Tenth.
As discussed above, in light of the changed circumstances in recent years
and the anticipated ownership structure of the Company following consummation of
the Recapitalization, the provisions of Article Tenth of the Restated
Certificate are unnecessary, may inadvertently work against the best interests
of the Company and its stockholders and the deletion of such provisions should
not materially affect the Company's vulnerability to coercive takeover tactics.
If the Written Consent Proposal is approved, the Restated Certificate will
be amended to provide for the text of Article Tenth is to be deleted in its
entirety and replaced with the following language: "Tenth: Intentionally
Omitted."
FAILURE TO CONSUMMATE THE RECAPITALIZATION. If the Recapitalization is not
consummated for any reason (including the failure of the Plan to be confirmed by
a Court in the event of a judicial filing), the Written Consent Proposal shall
not be deemed to have been approved and the foregoing amendments to the Restated
Certificate and Bylaws will NOT become effective.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NO. 5
PROPOSAL NO. 6
ELECT SLATE OF DIRECTORS TO
RECONSTITUTE THE BOARD OF DIRECTORS
The Board currently consists of Donald M. Koll (Chairman), Harold A. Ellis,
Jr., Paul C. Hegness, J. Thomas Talbot, Marco Vitulli and Ray Wirta. Under the
Restated Certificate and Bylaws, the Board is divided into three classes with
each class having a term of three years.
If the Recapitalization is consummated and the Board Proposal is approved
and implemented, the Company is seeking to reconstitute its Board pursuant to
the Board Election Proposal and to elect an expanded ten (10) member Board with
each director serving for one year terms. Upon recommendation of the Nominating
Committee, the Board has nominated incumbent Directors, Messrs. Koll, Talbot,
Vitulli, Wirta, and as new directors, James J. Gaffney, Robert J. Gagalis, John
D. Sanford, Phillip R. Burnaman II, Richard Schuler and P. John Wickser II, each
to serve until the next Annual Meeting of Stockholders and until their
successors are elected and qualified. If any nominee should be unavailable for
election at the Annual Meeting, the proxies will be voted for the election of
such other person as may be recommended by the Board.
If the Recapitalization is not consummated, however, the Board Proposal will
not be deemed to have been approved or implemented and the classified Board will
continue. In such event, the Company is seeking to elect and the Board has
nominated Messrs. Koll and Hegness to serve for terms expiring at the annual
meeting of stockholders in 1999 and Messrs. Wirta and Ellis for terms expiring
at the annual meeting of stockholders in 2000.
Information about the nominees for election as directors and incumbent
directors, including biographical and employment information is set forth in
this Prospectus under the headings "Executive Officers and Directors of the
Company," "Executive Compensation" and "Security Ownership of Certain Beneficial
Owners and Management." Those incumbent directors whose terms as directors have
not otherwise expired have agreed to resign from the Board effective upon the
election of the director nominees.
FAILURE TO CONSUMMATE THE RECAPITALIZATION. If the Recapitalization is not
consummated for any reason (including the failure of the Plan to be confirmed by
a Court in the event of a judicial filing) the foregoing expansion and
reconstitution of the Board will NOT occur pursuant to the Board Election
Proposal and only the incumbent directors referred to above will be deemed
nominated or elected.
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THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE DIRECTOR NOMINEES
DESCRIBED IN PROPOSAL NO. 6
PROPOSAL NO. 7
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The stockholders of the Company are being asked to consider a proposal to
ratify the selection of Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year ending December 31, 1997. Deloitte & Touche LLP
served as the Company's auditors for the fiscal years ended December 31, 1992
through December 31, 1996. Representatives of Deloitte & Touche LLP are not
expected to attend the Annual Meeting.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NO. 7
OTHER MATTERS
The Board of Directors is not aware of any other matter that may properly
come before the Annual Meeting. If any other matter not mentioned in this
Prospectus is property brought before the Annual Meeting, the persons named in
the enclosed form of proxy will have discretionary authority to vote all proxies
with respect thereto in accordance with their judgment and applicable law.
STOCKHOLDERS ARE URGED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN
THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE
APPRECIATED.
THE PLAN
BRIEF EXPLANATION OF REORGANIZATION UNDER THE CODE. Chapter 11 is the
principal business reorganization chapter of the Code. Pursuant to chapter 11, a
debtor attempts to reorganize its business for the benefit of its creditors,
stockholders, and other parties-in-interest. In furtherance of this goal, the
Code provides that a debtor may continue to operate its business and remain in
possession of its property as a "debtor in possession" unless the Court orders
the appointment of a trustee. Also, upon the filing of a petition for
reorganization under chapter 11, section 362 of the Code generally provides,
among other things, for an automatic stay of all attempts to collect
pre-petition claims from the debtor or otherwise interfere with its property or
business. Except as otherwise ordered by the Court, the automatic stay remains
in full force and effect until confirmation of a plan of reorganization.
The consummation of a plan of reorganization is the principal objective of a
chapter 11 reorganization case. The plan sets forth the means for satisfying the
holders of claims against and interests in the debtor. Confirmation of a plan of
reorganization by the Court makes the plan binding upon the debtor, any issuer
of securities under the plan, any person acquiring property under the plan, and
any creditor, equity security holder or general partner of the debtor. Subject
to certain limited exceptions, the confirmation order discharges the debtor from
any debt that arose prior to the date of confirmation of the plan and
substitutes therefor the obligations specified under the confirmed plan. If the
Company does not receive the 90% Requisite Exchange Acceptances and Requisite
Consents, but does receive the Requisite Plan Acceptances from each Class of
Impaired Claims and Interests, the Board may decide to file a voluntary petition
for reorganization under chapter 11 of the Code. HOWEVER, THE COMPANY EXPRESSLY
RESERVES THE RIGHT, IN ITS SOLE AND ABSOLUTE DISCRETION, TO NOT COMMENCE THE
CHAPTER 11 CASE, EVEN IF IT RECEIVES THE REQUISITE PLAN ACCEPTANCES.
The Plan provides specified distributions to the various Classes of holders
of Claims against and Interests in the Company. The Company believes the Plan
provides consideration to all Classes of Creditors and Equity Holders that
reflects an appropriate resolution of their Claims against and Interests
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in the Company taking into account the differing nature and priority (including
applicable contractual subordination) of such Claims and Interests.
The Court must find, however, that a number of statutory tests have been met
before it may confirm the Plan. See "Confirmation Standards." Many of these
tests are designed to protect the interests of holders of Claims and Interests
who do not vote to accept the Plan but who will be bound by the provisions of
the Plan if it is confirmed by the Court.
THE FOLLOWING IS A SUMMARY OF CERTAIN OF THE MORE SIGNIFICANT MATTERS TO
OCCUR EITHER PURSUANT TO OR IN CONNECTION WITH CONFIRMATION OF THE PLAN, A COPY
OF WHICH ACCOMPANIES THIS PROSPECTUS AS APPENDIX A AND TO WHICH REFERENCE SHOULD
BE MADE FOR A FULL STATEMENT OF ITS TERMS. THIS SUMMARY ONLY HIGHLIGHTS CERTAIN
SUBSTANTIVE PROVISIONS OF THE PLAN AND IS NOT, NOR IS IT INTENDED TO BE, A
COMPLETE DESCRIPTION OF, OR A SUBSTITUTE FOR, A FULL AND COMPLETE READING OF THE
PLAN, WHICH ALL HOLDERS OF CLAIMS AND INTERESTS ARE URGED TO REVIEW CAREFULLY.
THE PLAN, IF CONFIRMED, WILL BE BINDING UPON THE COMPANY AND ALL HOLDERS OF
CLAIMS AND INTERESTS. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE PLAN. IN ADDITION, REPRESENTATIVES OF HOLDERS OF A SIGNIFICANT AMOUNT
(ESTIMATED AT APPROXIMATELY 70%) OF THE OUTSTANDING DEBENTURES HAVE EXPRESSED AN
INTENT TO VOTE IN FAVOR OF THE EXCHANGE AND THE PLAN.
For a discussion of certain risks associated with the Plan and the
transactions contemplated thereunder, see the section titled "Risk Factors." You
are also urged to consult your counsel about the Plan and its effect on your
legal rights before voting. IN THE OPINION OF THE COMPANY, THE TREATMENT OF
CREDITORS AND EQUITY HOLDERS UNDER THE PLAN CONTEMPLATES A GREATER RECOVERY THAN
THAT WHICH IS LIKELY TO BE ACHIEVED UNDER THE LIQUIDATION OF THE COMPANY UNDER
THE CODE. ACCORDINGLY, THE COMPANY BELIEVES THAT CONFIRMATION OF THE PLAN WOULD
BE IN THE BEST INTERESTS OF ALL CREDITORS AND EQUITY HOLDERS AND RECOMMENDS THAT
YOU VOTE TO ACCEPT THE PLAN.
The Plan defines two significant dates--the Confirmation Date and the
Effective Date. The Confirmation Date is the date on which the Court enters the
Confirmation Order on its docket, within the meaning of Rules 5003 and 9021. The
Effective Date (I.E., the date on which the Plan will be consummated) is the
date selected by the Company that will not be more than ten Business Days
following the date in which the conditions specified in Section 8.2 of the Plan
have been satisfied or waived.
TREATMENT OF UNCLASSIFIED CLAIMS. The Code does not require classification
of certain priority claims against a debtor. In this case, these unclassified
claims include Administrative Claims and Tax Claims.
1. ADMINISTRATIVE CLAIMS. An Administrative Claim is any actual and
necessary cost or expense incurred during the pendency of the Company's chapter
11 case. These Claims include, without limitation, (a) any actual and necessary
costs and expenses of (i) preserving the estate, (ii) operating the business
during the chapter 11 case, (iii) managing, preserving or selling of assets
during the chapter 11 case, and (iv) administering, prosecuting or defending
claims by or against the Company and for making distributions under the Plan;
(b) any indebtedness or obligations incurred or assumed by the Company as a
debtor in possession in connection with the conduct of its business or for the
acquisition or lease of property or for the rendition of services; (c) any
allowances of compensation or reimbursement of expenses of professionals
retained by the Company to the extent allowed by a Final Order; and (d) any fees
or charges assessed against the estate under Chapter 123 of Title 28 of the
United States Code. Pursuant to the Plan, each holder of an Administrative Claim
that is an Allowed Claim will receive cash equal to the unpaid portion of such
Allowed Administrative Claim on the Effective Date (or such later date on which
such Claim becomes an Allowed Claim). However, any Administrative Claim
representing a liability incurred in the ordinary course of business by the
Company during the chapter 11 case, including in its capacity as a
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debtor in possession, will be paid by the Company in the ordinary course of
business and in accordance with the terms and conditions of the particular
transaction and any agreements relating thereto.
2. TAX CLAIMS. A Tax Claim is that portion of any Claim for unpaid taxes
which is entitled to priority in right of payment under section 507(a)(7) of the
Code. The Company anticipates that it will be current on its tax obligations at
the time it commences its chapter 11 case. In the event, however, that there are
tax obligations as of the Petition Date, each holder of a Tax Claim that holds
an Allowed Claim will receive cash equal to the unpaid portion of such Allowed
Tax Claim on the Effective Date (or such later date on which such Claim becomes
an Allowed Claim), except that the Company may elect to pay such holder of an
Allowed Tax Claim deferred cash payments in equal quarterly installments, with
interest, over a period in each case not to exceed six years after the date of
assessment of such Tax Claim, of a value, as of the Effective Date, equal to the
allowed amount of such Tax Claim.
Notwithstanding the above treatment of Allowed Tax Claims, the Company is
appealing to the IRS regarding material audit adjustments proposed by the IRS
for the tax years ended December 31, 1989, 1990 and 1991. The Company is
prepared to pursue all available administrative and judicial appeal procedures
with regard to this matter. The Company has been advised that resolution of this
dispute with the IRS could take up to five years. Under the Plan, the rights of
the IRS and the amount of any such Claim will be resolved or adjudicated as if
the Case had not been commenced. Any Claim in connection therewith will survive
the Effective Date and the Consummation of the Plan as if the chapter 11 case
had not been commenced, and will not be discharged pursuant to Section 9.1 of
the Plan and section 1141 of the Code.
CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN. The
Code requires that the Plan classify the Claims of the Company's Creditors and
the Interests of its Equity Holders. The Code also provides that the Plan may
place a Claim or Interest of a Creditor or Equity Holder in a particular Class
only if such Claim or Interest is substantially similar to the other Claims or
Interests of such Class. The Company believes that its Claims and Interests have
been appropriately classified in the Plan. The Company believes separate
classification of the unsecured Claims of the holders of Unliquidated or
Contingent Claims, General Unsecured Claims and Subordinated Debentures is
appropriate. The separate classification for Unliquidated or Contingent Claims
is necessary because of the nature of such Claims. This will allow for the
recapitalization of the Company in the quickest and least costly manner.
Moreover, the separate classification recognizes the potential for contractual
subordination to which the holders of Senior Debentures and Subordinated
Debentures are subject. To the extent that the Court finds a different
classification is required for the Plan to be confirmed, the Company would seek
(i) to modify the Plan to provide for whatever reasonable classification might
be required for confirmation, and (ii) to use the acceptances received from any
Creditor or Equity Holder pursuant to this solicitation for the purpose of
obtaining the approval of the Class or Classes of which such Creditor or Equity
Holder ultimately is deemed to be a member. Any such reclassification of
Creditors or Equity Holders, although subject to the notice and hearing
requirements of the Code, could adversely affect the Class in which such
Creditor or Equity Holder was initially a member, or any other Class under the
Plan, by changing the composition of such Class and the vote required for
approval of the Plan. There can be no assurance that the Court, after finding
that a classification was inappropriate and requiring a reclassification, would
approve the Plan based upon such reclassification. Except to the extent that
modification of classification in the Plan adversely affects the treatment of a
Creditor or Equity Holder and requires resolicitation, the Company will, in
accordance with the Code and the Rules, seek a determination by the Court that
acceptance by any Creditor or an Equity Holder of the Plan pursuant to this
solicitation will constitute a consent to the Plan's treatment of such Creditor
or Equity Holder regardless of the Class to which such Creditor or Equity Holder
is ultimately deemed to be a member.
The Code also requires that the Plan provide the same treatment for each
Claim or Interest of a particular Class unless the holder of a particular Claim
or Interest agrees to a less favorable treatment of its Claim or Interest. The
Company believes it has complied with the requirements of equal treatment. To
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the extent that the Court finds that the Plan does not satisfy such
requirements, the Court could deny Confirmation of the Plan if the Creditors or
Equity Holders affected do not otherwise consent to the treatment afforded them
under the Plan.
Classes that are Impaired under the Plan are entitled to vote to accept or
reject the Plan. As a general matter, a Class of Claims or Interests is
considered to be "unimpaired" under a plan of reorganization if (i) the plan
does not alter the legal, equitable and contractual rights of the holders of
such Claims or Interests, or (ii) the plan provides for full cash satisfaction
of such Claims or Interests. Under the Code, holders of Claims in the Unimpaired
Classes are conclusively presumed to have accepted the Plan. Holders of Claims
or Interests which do not receive or retain anything under the Plan are deemed
to have rejected the Plan requiring Confirmation pursuant to Section 1129(b) of
the Code.
The following Classes of Claims are Unimpaired under the Plan and,
therefore, the holders of such Claims are not entitled to vote on the Plan:
Administrative Claims and Tax Claims (see "Treatment of Administrative and
Priority Claims")
Class 1--Priority Claims
Class 2--Secured Claims
Class 3--Unliquidated or Contingent Claims
The following Classes of Claims and Interests are Impaired under the Plan
and, therefore, the holders of such Claims and Interests are entitled to vote on
the Plan:
Class 5--General Unsecured Claims
Class 6--Claims of Holders of Subordinated Debentures
Class 7--Interests of Holders of Preferred Stock
Class 8--Interests of Holders of Class A Common Stock
The holders of Affiliates' Claims do not receive or retain anything under
the Plan and although they are deemed to reject the Plan, the Company will cause
the holders of such Claims to support the Plan. The holders of warrants will not
receive or retain anything under the Plan and are deemed to reject the Plan.
Subsequent to the filing by the Company of its chapter 11 case, the Court
will determine whether sufficient votes to accept the Plan have been obtained
from the holders of Claims and Interests in each Impaired Class. An Impaired
Class of Claims will be determined to have accepted the Plan if votes to accept
the Plan are cast by the holders of at least two-thirds of the dollar amount and
more than one-half in number of Claims in such Class that have voted on the
Plan. An Impaired Class of Interests will be determined to have accepted the
Plan if votes to accept the Plan are cast by the holders of at least two-thirds
in amount of Interests in such Class that have voted on the Plan.
The Plan divides Claims against the Company into six classes and puts
Interests in the Company into three Classes. Distributions will be made to
persons holding Claims and Interests in various Classes as described below.
CLASS 1--PRIORITY CLAIMS. Class 1 consists of all Priority Claims excluding
Tax Claims. The Company estimates that on the Effective Date, Priority Claims
will be approximately $ . Under the Plan, all Allowed Priority Claims, to
the extent then due and owing, will be paid in full in Cash on the Effective
Date unless the holder of such Claims and the Company agree to a different
treatment. Any Allowed Priority Claims not due on the Effective Date will be
paid in full in Cash when such Claims become due. Class 1 Claims are Unimpaired
and holders of Class 1 Claims are not entitled to vote on the Plan.
CLASS 2--SECURED CLAIMS. Class 2 consists of each Claim secured by a
security interest in or lien upon property of the Company, including, but not
limited to, other Claims secured by (i) mortgages or trust deeds on real
property, (ii) mechanics' or materialmen's liens, (iii) security deposits, or
(iv) liens on miscellaneous personal property such as office furniture,
telephone systems, copiers and mailing equipment. Each Class 2 Secured Claim
will be treated for all purposes of the Plan and under the Code as a
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separate Subclass of Class 2. Unless otherwise agreed to by the parties, either
(a) the legal, equitable and contractual rights of each holder of an Allowed
Claim in any Subclass of Class 2 will be unaltered by the Plan, or (b) at the
option of the Company, any Allowed Claim in any Subclass of Class 2 will be
treated in any other manner that will result in such Allowed Claim being deemed
Unimpaired. To the extent not previously paid, any accrued and unpaid interest
due on the Secured Claims will be paid in cash on the Effective Date. Class 2
Claims are Unimpaired and holders of such Class 2 Claims are not entitled to
vote on the Plan.
CLASS 3--UNLIQUIDATED OR CONTINGENT CLAIMS. Class 3 consists of all Claims
of holders of Unliquidated or Contingent Claims, including but not limited to,
Litigation Claims. The legal, equitable and contractual rights of the holders of
Class 3 Claims will not be affected by the Plan. Class 3 Claims will survive the
discharge provided for in Section 9.1 of the Plan and section 1141 of the Code
and the rights of a holder of such Claim, including payment, if any, will be
determined in the manner in which the amount of such Claim and the rights of the
holder of such Claim would have been resolved or adjudicated if the chapter 11
case had not been commenced. Class 3 Claims are Unimpaired and holders of Class
3 Claims are not entitled to vote on the Plan.
CLASS 4--AFFILIATES CLAIMS. Class 4 consists of all Net Claims of
Affiliates. The holders of Allowed Net Claims in Class 4 will receive no
distributions nor retain any property under the Plan on account of their Allowed
Net Claims. Although, such holders are deemed to have rejected the Plan, the
Company will cause such holders to accept the Plan.
CLASS 5--GENERAL UNSECURED CLAIMS. Class 5 consists of all general
unsecured Claims of Creditors against the Company, however arising, and not
included in any other Class in the Plan or otherwise provided for in the Plan,
including, but not limited to, liquidated non-Contingent Claims, Senior
Debentures, and Claims for damages resulting from the rejection of leases or
executory contracts. On the Effective Date, the Company anticipates that Allowed
Class 5 Claims will aggregate approximately $ , of which $164.6 million
relate to the Claims of holders of the Senior Debentures. Provided Classes 6, 7
and 8 accept the Plan, without regard to the subordination provisions in the
Senior Debenture Indenture but giving effect to the rights of Senior Debt, each
holder of an Allowed Claim in Class 5 will receive its pro rata share of
9,359,208 shares of Common Stock so that collectively holders of Class 5 Claims
will hold 80% of the outstanding shares of the Common Stock of the Company on
the Effective Date. If Class 6, 7, or 8 fail to accept the Plan, the Plan will
be automatically amended pursuant to Article V of the Plan. As a result, the
holders of the Senior Debentures will enforce the subordination provisions of
the Senior Debenture Indenture with respect to such rejecting Class of Claims
and/or Interests and any distribution due such rejecting Class of Claims or
Interests under the Plan will be given to the holders of Class 5 Claims. Class 5
Claims are Impaired; consequently, such holders are entitled to vote on the
Plan.
CLASS 6--CLAIMS OF HOLDERS OF SUBORDINATED DEBENTURES. Class 6 consists of
all Claims of holders of Subordinated Debentures. On the Effective Date, the
Company anticipates that Allowed Class 6 Claims will aggregate approximately
$41.1 million. Provided that holders of Subordinated Debentures vote to accept
the Plan, each holder of an Allowed Class 6 Claim will receive its pro rata
share of 1,169,901 shares of Common Stock so that collectively holders of Class
6 Claims will hold 10% of the outstanding shares of the Common Stock of the
Company on the Effective Date. If holders of Class 6 Claims fail to accept the
Plan, the holders of Allowed Claims in Class 6 will receive no distributions nor
will they retain any property under the Plan. The distributions which would
otherwise have been made to holders of Allowed Class 6 Claims will be made to
holders of Allowed Claims in Class 5. Class 6 Claims are Impaired; consequently,
such holders are entitled to vote on the Plan.
CLASS 7--INTERESTS OF HOLDERS OF PREFERRED STOCK. Class 7 consists of all
Interests of holders of Preferred Stock. Provided that holders of Class 7
Interests vote to accept the Plan, after giving effect to the Capital Stock
Combination and the Reverse Stock Split, each holder of an Allowed Interest in
Class 7 will be
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deemed to hold on a one and three quarter for one (1.75:1) basis Common Stock.
After the dilutive effect of the distribution of Common Stock under the Plan,
collectively holders of Allowed Class 7 Interests will hold 5.8% of the
outstanding shares of the Common Stock of the Company on the Effective Date. If
holders of Class 7 Interests fail to accept the Plan, such holders will receive
no distributions nor will they retain any property under the Plan. The
distributions which would otherwise have been made to the holders of Allowed
Class 7 Interests will be made to the holders of Allowed Claims in Class 5.
Class 7 Interests are Impaired; consequently, such holders are entitled to vote
on the Plan.
CLASS 8--INTERESTS OF HOLDERS OF CLASS A COMMON STOCK. Class 8 consists of
all Interests of holders of Class A Common Stock. Provided that holders of Class
8 Interests vote to accept the Plan, after giving effect to the Capital Stock
Combination and the Reverse Stock Split, each holder of an Allowed Interest in
Class 8 will be deemed to hold on a one for one (1:1) basis Common Stock. After
the dilutive effect of the distribution of Common Stock under the Plan,
collectively holders of Allowed Class 8 Interests will hold 4.2% of the
outstanding shares of the Common Stock of the Company on the Effective Date. If
holders of Class 8 Interests fail to accept the Plan, such holders will receive
no distributions nor will they retain any property under the Plan. The
distributions which would otherwise have been made to holders of Allowed Class 8
Interests will be made to holders of Allowed Claims in Class 5. Class 8
Interests are Impaired; consequently, such holders are entitled to vote on the
Plan.
CLASS 9--INTERESTS OF HOLDERS OF WARRANTS. Class 9 consists of all
Interests of Holders of warrants. The warrants have an exercise price of $.25
per share, and are exercisable over a ten year period ending in 2004, vesting in
equal installments over five years. After giving effect to the Reverse Stock
Split, the exercise price would be $25.00. Consequently, the warrants have no
economic value and, consequently, will be cancelled on the Effective Date. Class
9 Interests are Impaired. Because holders of Class 9 Interests will receive no
distributions and will retain no property under the Plan, such holders are
deemed to have rejected the Plan and are not entitled to vote on the Plan.
Distributions of Common Stock to holders of Outstanding Debentures will be
based upon the principal amount of the Outstanding Debentures as of the Petition
Date plus interest accrued through the Petition Date at the applicable
non-default interest rate.
MEANS FOR IMPLEMENTATION OF THE PLAN. On or prior to the Effective Date
(except as otherwise indicated), the following actions will be effectuated:
AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BY-LAWS. The Code requires
that upon the confirmation of a plan of reorganization a debtor's charter
documents must contain certain provisions including a provision prohibiting the
issuance of non-voting equity securities. To comply with this requirement and to
effect certain other changes, including the Capital Stock Combination and the
Reverse Stock Split and the authorization of 18 million shares of Common Stock,
the Plan provides that the Company will file its Restated and Amended
Certificate of Incorporation with the office of the Secretary of State of the
State of Delaware in the form of Exhibit 1 attached to the Plan. The Plan also
provides for the adoption of the Amended and Restated By-Laws in the form of
Exhibit 2 attached to the Plan.
CAPITAL STOCK COMBINATION. To the extent necessary to effectuate the Plan,
the Company will effect the Capital Stock Combination whereby the Class A Common
Stock, Class B Common Stock (none of which is outstanding), and Preferred Stock
will be combined into one (1) class and series designated "Common Stock."
Pursuant to the Capital Stock Combination each share of outstanding Preferred
Stock will be reclassified to be one and three quarter (1.75) shares of Common
Stock and each outstanding share of Class A Common Stock will be reclassified to
be one share of Common Stock. The Common Stock will have the same rights as the
Class A Common Stock had prior to the Capital Stock Combination.
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REVERSE STOCK SPLIT. To the extent necessary to effectuate the Plan, the
Company will effect a one for one hundred (1:100) reverse stock split of the
outstanding Common Stock immediately following the Capital Stock Combination.
CANCELLATION OF SECURITIES AND AGREEMENTS. The Company will cancel all the
Outstanding Debentures, the Class A Common Stock, the Class B Common Stock (none
of which is outstanding), the Preferred Stock and the warrants. In addition, the
Senior Debenture Indenture and the Subordinated Debenture Indenture will be
cancelled and will have no further force and effect.
ISSUANCE OF NEW SECURITIES. The Company will issue 11,772,691 shares of
Common Stock.
SUBORDINATION. Provided that Classes 6, 7 and 8 vote to accept the Plan,
the classification and manner of satisfying all Claims and Interests and the
respective distributions and treatments under the Plan do not give effect to the
contractual, legal and equitable subordination rights of the holders of Senior
Debentures; however, such rights have been agreed to be settled, compromised and
released under the Plan. Accordingly, without limitation, the distributions to
the holders of Claims in Class 6 and the Interests in Classes 7 and 8 will not
be subject to levy, garnishment, attachment or other legal process by the
holders of Senior Debentures. The Confirmation Order will permanently enjoin,
effective as of the Effective Date, all persons and entities from enforcing or
attempting to enforce any such contractual, legal and equitable subordination
rights compromised and settled under the Plan. For a description of the
contractual subordination provisions of the Senior Debentures and the
Subordinated Debentures, see "Description of Outstanding Debentures."
EXEMPTION FROM SECURITIES REGISTRATION. The shares of Common Stock issued
pursuant to the Plan will be issued pursuant to the exemption from securities
registration contained in section 1145 of the Code.
DISTRIBUTIONS UNDER THE PLAN. The Plan provides that the Company may
designate an entity or entities to serve as the Exchange Agent to distribute all
the property to be distributed under the Plan.
GENERAL. Distributions to holders of Allowed Claims will be made at the
addresses set forth on the respective proofs of claim filed by such holders or,
if no such proof of claim has been required to be filed, at the address of the
holder of such Claim as indicated on the records of the Company. Distributions
on account of Claims that are Allowed as of the Effective Date and are entitled
to receive distributions under the Plan will be made on the Effective Date.
Distributions to holders of Senior Debentures will be made on the Effective Date
or as soon as practicable thereafter. Provided holders of Subordinated
Debentures vote to accept the Plan, distributions to such holders will be made
on the Effective Date or as soon as practicable thereafter. Provided that
holders of Preferred Stock and Class A Common Stock vote to accept the Plan,
distributions will be made upon presentment to the Exchange Agent of
certificates evidencing such Preferred Stock and Class A Common Stock.
DISTRIBUTION RECORD DATE. As of the close of business on May , 1997 (the
"Distribution Record Date"), the respective transfer registers for the Senior
Debentures, Subordinated Debentures, Preferred Stock and Class A Common Stock
(collectively, "Impaired Securities") as maintained by the Company, the
respective Indenture Trustees, or their respective agents, will be closed and
the transfers of the Impaired Securities, or any interest therein, will be
prohibited. The Exchange Agent will have no obligation to recognize the transfer
of any Impaired Securities occurring after the Distribution Record Date and will
be entitled to recognize and deal only with those holders of record as of the
close of business on the Distribution Record Date.
SURRENDER OF INSTRUMENTS--DEBENTURE HOLDERS. As a condition to
participation under the Plan, each holder of Senior Debentures and Subordinated
Debentures, provided that Class 6 voted to accept the Plan, that desires to
receive the Common Stock to be distributed on account of an Allowed Claim based
on such debenture will have to surrender its Outstanding Debentures to the
Company, or its designee, and execute and deliver such other documents as are
necessary. If a holder does not surrender the Outstanding
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Debentures or provide an affidavit that such debenture was lost, in a form
acceptable to the Company, within one year of the Effective Date, then no
distribution will be made to such holder whose Allowed Claim is based on such
Outstanding Debentures. Such holder will be deemed to forfeit all rights under
the Plan.
UNCLAIMED DISTRIBUTIONS. If any Allowed Claim holders' distribution is
returned to the Exchange Agent as undeliverable, no further distributions will
be made to that holder unless and until the Exchange Agent is notified in
writing of the holder's then-current address. Undeliverable distributions will
remain in the possession of the Exchange Agent. If the person is located within
one year of the Effective Date, then the securities will be distributed to such
person; otherwise, the securities will become the property of and will be
released to the Company.
FRACTIONAL SHARES. Fractional shares of Common Stock resulting from the
Capital Stock Combination or Reverse Stock Split and the exchange of Outstanding
Debentures for Common Stock will be dealt with as follows:
CAPITAL STOCK COMBINATION AND REVERSE STOCK SPLIT. If the Capital Stock
Combination or Reverse Stock Split creates a fraction of a share of
Common Stock, holders of an Allowed Class 7 or 8 Interest, respectively,
will not receive or be deemed to hold any fractional shares. All
fractional shares which would otherwise have been created by the Reverse
Stock Split will be aggregated and after the Effective Date, the shares
will be sold in the market by the Exchange Agent and the net proceeds
thereof disbursed pro rata to the holders of Allowed Class 7 and 8
Interests based upon the fraction of the shares each holder would have
been entitled to receive or would have been deemed to hold had the
Company authorized the issuance of fractional shares.
DEBENTURE EXCHANGE. Whenever any distribution of a fraction of a share of
Common Stock to any holder of a Senior Debenture or Subordinated
Debenture would otherwise be called for, the actual distribution will
reflect a rounding down of the fraction to the nearest whole share.
MISCELLANEOUS DISTRIBUTION PROVISIONS. In connection with the Plan, to the
extent applicable, the Exchange Agent will comply with all tax withholding and
reporting requirements imposed on it by any governmental unit, and all
distributions pursuant to the Plan will be subject to such withholding and
reporting requirements.
SUMMARY OF OTHER PROVISIONS OF THE PLAN.
LIMITED RELEASE OF DIRECTORS, OFFICERS AND EMPLOYEES. The Plan provides for
the release by the Company of the present and former directors and officers of
the Company from certain claims related to their respective employment or
service with the Company. The releases extend to claims by or through the
Company other than (i) in respect to any loan, advance or similar payment of the
Company to any such person; (ii) in respect of any contractual obligation owed
by such person to the Company; or (iii) to the extent based upon or attributable
to such person gaining a personal profit to which such person was not legally
entitled, including, without limitation, profits made from the purchase or sale
of equity securities of the Company which are recoverable by the Company
pursuant to section 16(b) of the Exchange Act. The Company does not believe that
there are circumstances which would give rise to valid claims against such
officers or directors.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. The Plan provides
that the obligations of the Company to indemnify any person serving at any time
on or prior to the Effective Date as one of its directors, officers or employees
by reason of such person's service in such capacity, to the extent provided in
the Company's constituent documents or by written agreement or Delaware law,
will be treated as executory contracts that are assumed by the Company as of the
Effective Date. Accordingly, such indemnification obligations will survive
unimpaired and unaffected by entry of the Confirmation Order,
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irrespective of whether the indemnification is owed for an act or event
occurring before or after the filing of the chapter 11 case.
RELEASES OF CLAIMS. The Plan provides that on the Effective Date, in
consideration for the treatment accorded to the holders of Impaired Claims and
Interests under the Plan, each holder of such Impaired Claim or Interest will be
deemed to have released the Company from any and all causes of action and
claims, whether based on tort, fraud or contract, which they individually or
collectively possess.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES. Under the Code, the Company may
assume or reject executory contracts and unexpired leases. As a general matter,
an "executory contract" has been determined to be a contract under which
material performance (other than solely the payment of money) remains to be made
by each party. On the Effective Date, all executory contracts and unexpired
leases of the Company will be deemed assumed in accordance with the provisions
and requirements of section 365 and 1123 of the Code, except those executory
contracts and unexpired leases that (i) have been rejected by order of the
Court, (ii) are the subject of a motion to reject pending on the Effective Date,
(iii) are identified on a list to be filed with the Court on or before the
Confirmation Date, as to be rejected, or (iv) are rejected pursuant to the terms
of the Plan. All proofs of claims with respect to Claims arising from rejection
must be filed with the Court within the time set by any Final Order rejecting an
executory contract or unexpired lease or thirty (30) days after the Confirmation
Date. Any Claims not filed within such time will be forever barred from being
asserted against the Company. All such Claims will be treated as General
Unsecured Claims in Class 5.
Contracts or leases entered into after the Petition Date will be performed
by the Company in the ordinary course of business. Without limiting the
generality of the foregoing, the agreements set forth on Exhibit 4 of the Plan
will be deemed assumed immediately prior to the Effective Date:
RETENTION OF JURISDICTION BY THE COURT. Under the terms of the Plan, the
Court will retain jurisdiction in the following instances notwithstanding entry
of the Confirmation Order or the occurrence of the Effective Date. The Court
will retain exclusive jurisdiction over the reorganization proceedings relating
to the Company for the purposes of making determinations of (i) allowance,
disallowance, determination, liquidation, classification, estimation,
establishment of priority or status of any Claim, including Administrative
Claims, and the resolution of objections to the allowance of Claims; (ii) all
matters related to the assumption, assignment and assumption or rejection of any
executory contract or unexpired lease to which the Company is a party or to
which the Company may be liable; (iii) payments due under the Plan and
performance of the provisions of the Plan; (iv) all pending applications,
motions, adversary proceedings and contested or litigated matters; (v) such
orders as may be necessary or appropriate to implement or consummate the
provisions of the Plan and all agreements or documents created in connection
with the Plan or this Prospectus; (vi) all controversies arising in connection
with the Plan and other matters provided for in the Confirmation Order; (vii)
any injunctions or orders necessary or appropriate to restrain interference by
any entity with consummation or enforcement of the Plan; (viii) such orders as
may be appropriate in the event the Confirmation Order is stayed, revised,
revoked, modified or vacated: (ix) any other matter that may arise in connection
with or relate to the Plan, this Prospectus, the Confirmation Order or any
document created in connection with the Plan or Prospectus; and (x) all other
matters not inconsistent with the Code.
RESOLUTION OF CONTESTED CLAIMS AND INTERESTS. With respect to holders of
Unimpaired Claims, their legal, equitable and contractual rights will be
unaltered by the Plan. Consequently, it is anticipated that any disputes with
respect to such Claims will be resolved outside of the chapter 11 case. All
Unliquidated or Contingent Claims, including current litigation against the
Company will be unaffected by the chapter 11 case and will remain subject to all
legal and equitable defenses of the Company. Nothing under the Plan will affect
the Company's rights, including, but not limited to, all rights in respect of
legal and equitable defenses to or setoffs or recoupments against such
Unimpaired Claims, except as expressly provided in the Plan.
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After the Confirmation Date, only the Company will have the authority to
file objections to Claims and Interests or settle, compromise, withdraw or
litigate to judgment objections to Claims and Interests. As of the Confirmation
Date, the Company can settle or compromise Contested Claims and Contested
Interests without Court approval. The Company reserves the right to ask the
Court to estimate any contingent Contested Claim or Interest. The estimated
amount will be either the allowed amount or a maximum limitation on such Claim
or Interest, as determined by the Court. If the estimated amount constitutes a
maximum limitation, the Company can pursue a supplemental proceeding to object
to the payment of such Claim or Interest.
DISCHARGE. Except as specifically provided for in the Plan, the Company
will, upon Consummation, be discharged from all Impaired Claims and Impaired
Interests arising prior to the Confirmation Date of the Plan. The effect of
discharging an Impaired Claim or Impaired Interest is to release the Company in
full from any obligations to make payments with respect to such Impaired Claim
or Impaired Interest, other than those specifically provided by the Plan, and to
prohibit any collection efforts by the holder of the Impaired Claim or Impaired
Interest.
BINDING EFFECT. The provisions of the Plan, if confirmed, will bind all
Creditors and Equity Holders regardless of whether they accept the Plan. The
distributions provided for in the Plan will be in exchange for and in complete
satisfaction, discharge and release of all Impaired Claims against and Impaired
Interests in the Company or any of its assets or properties, including any
Impaired Claim or Impaired Interest accruing after the Petition Date and prior
to the Confirmation Date. All holders of Impaired Claims and Interests will be
precluded from asserting any Claim against the Company or its assets or
properties or other interests in the Company based on any transaction or other
activity of any kind that occurred prior to the Confirmation Date, except to the
extent such Claim is Unimpaired and reinstated pursuant to the Plan or as
otherwise provided in the Plan.
MODIFICATION OF THE PLAN. Amendments to the Plan may be made by the Company
either before or after the Petition Date. Any amendments or modifications to the
Plan made after the Petition Date and before or after the Confirmation Date
shall be made in accordance with the provisions of section 1127 of the Code and
the Rules.
At all times, but except as otherwise discussed herein in the event of a
cram down, the Company reserves the right in its sole discretion not to file the
Plan, or, if it files the Plan, to withdraw the Plan at any time prior to
confirmation, in which case the Plan will be deemed to be null and void. In such
an event, nothing contained in the Plan will be deemed to constitute a waiver or
release of any claims by or against the Company or any other person or to
prejudice in any manner the rights of the Company or any other person.
INTENDED ACTIONS DURING THE CHAPTER 11 CASE. In addition to seeking
Confirmation of the Plan, during the pendency of the chapter 11 case, the
Company intends to seek relief from the Court as to various matters, certain of
which are described below. While the Company believes each of the requests, if
granted, would facilitate its chapter 11 case, there can be no assurance that
the Court will grant any such relief.
PROVISIONS FOR EMPLOYEES. The Company believes that salaries or wages, as
the case may be, accrued vacation, health benefits, severance benefits and
similar employee benefits should be unaffected by the filing of the chapter 11
case. The Company intends to seek the approval of the Court, immediately upon
commencement of the chapter 11 case, to honor payroll checks outstanding as of
the Petition Date, to permit employees to utilize their paid vacation time which
was accrued prior to the filing and to continue paying medical benefits under
the applicable health plans. There can be no assurance, however, that any
necessary approval will be obtained. Employee claims and benefits not paid or
honored, as the case may be, prior to the Consummation of the Plan, will be paid
or honored upon Consummation or as soon thereafter as such payment or other
obligation becomes due or payable. Employee benefit claims that accrue prior to
the Petition Date will receive unimpaired treatment under the terms of the Plan.
The
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Company also intends to leave unaltered all other legal, equitable and
contractual rights of employees under its employment and severance policies and
agreements, compensation and benefit plans and all other agreements, contracts
and programs applicable to its employees.
CASH MANAGEMENT. The Company believes it would be disruptive to the
operations of its subsidiaries if it were forced to significantly change or
uncouple its consolidated cash management system upon the commencement of the
chapter 11 case. The Company intends to seek the approval of the Court
immediately upon commencement of the chapter 11 case to maintain its
consolidated cash management system. The relief the Company intends to seek from
the Court will provide that the subsidiaries of the Company would be granted
Allowed Administrative Claims equal to the net cash upstreamed to the Company,
if any, by such subsidiaries through the consolidated cash management system
during the chapter 11 case.
RETENTION OF PROFESSIONALS. The Company intends to seek Court approval for
the retention of certain "Professionals" to represent or assist the Company in
the chapter 11 case. With the Court's approval, the Company will employ
McDermott, Will & Emery and Morris, Nichols, Arsht & Tunnell as its attorneys,
and Deloitte & Touche LLP as its independent auditors.
INSURANCE PROGRAMS. The Company intends to seek the authority to maintain
and continue its insurance programs, including workers' compensation, as such
programs are presently administered.
THE SUBSIDIARIES OF KOLL REAL ESTATE GROUP, INC. ARE NOT PARTIES TO THE PLAN
AND WILL NOT FILE A CASE AS PART OF THE PLAN. ACCORDINGLY, THE SUBSIDIARIES
INTEND TO CONTINUE TO OPERATE THEIR BUSINESSES IN THE ORDINARY COURSE AND PAY
THEIR TRADE AND OTHER CREDITORS IN FULL.
CONFIRMATION STANDARDS. Section 1129 of the Code requires that a plan of
reorganization be proposed in good faith and disclose certain relevant
information regarding payments due and the nature of compensation to insiders.
The Company believes it has satisfied these requirements and will seek a ruling
to that effect from the Court in connection with Confirmation of the Plan.
BEST INTERESTS TEST. Section 1129(a)(7) of the Code requires that even if
the Plan is accepted by each Impaired Class of Claims and Interests, in order to
confirm the Plan, the Court must independently determine that either each member
of an Impaired Class of Claims or Interests has accepted the Plan or that the
Plan will provide such non-accepting member a recovery that has a value at least
equal to the value of the distribution that each such member would receive if
the Company was liquidated under chapter 7 of the Code (the "Best Interests
Test"). If all members of an Impaired Class of Claims or Interests accept the
Plan, the Best Interests Test would not apply with respect to that Class. Based
on the foregoing, the Best Interests Test will be applicable only to the holders
of Impaired Claims against and Interests in the Company of Classes which do not
accept the Plan.
To determine what holders of each Impaired Class of Claims and Interests
would receive if the Company was liquidated, the Court must determine the dollar
amount that would be generated from a liquidation of the Company's assets and
properties in the context of a chapter 7 liquidation case. Secured Claims and
the costs and expenses of a liquidation case or resulting from an original
chapter 11 case would be paid in full from the liquidation proceeds before the
balance of those proceeds would be made available to pay pre-petition unsecured
Claims and Interests.
Under chapter 7, absent subordination in accordance with Section 510 of the
Code, the rule of absolute priority of distributions would apply. Under that
rule, no junior creditor would receive any distribution until the Allowed Claims
of all senior creditors are paid in full, and no holder of an Interest would
receive any distribution until the Allowed Claims of all creditors are paid in
full.
After consideration of the effect that chapter 7 liquidation proceedings
would have on the ultimate proceeds available for distribution to the holders of
Impaired Claims and Interests, including (i) the increased costs and expenses of
liquidation under chapter 7 arising from fees payable to a trustee in
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bankruptcy and professional advisors to such trustee, (ii) the erosion in value
of assets in the context of the expeditious liquidation required under chapter 7
and the "forced sale" atmosphere that would prevail, (iii) the adverse effects
on the salability of business segments that could result from the probable
departure of key employees and the loss of customers, (iv) the costs
attributable to the time value of money resulting from what is likely to be a
more protracted proceeding than if the Plan is confirmed (because of the time
required to liquidate the assets of the Company, resolve claims and related
litigation and prepare for distributions), and (v) the application of the rule
of absolute priority (as described in the immediately preceding paragraph), the
Company has determined that confirmation of the Plan will provide each holder of
a Claim or Interest in an Impaired Class with a substantially greater recovery
than such holder would receive pursuant to a liquidation of the assets of the
Company and its subsidiaries under chapter 7 of the Bankruptcy Code.
The Liquidation Analysis for the Company is set forth on page 99 of this
Prospectus. The Company substantially completed the Liquidation Analysis by
February 20, 1997 and the Company is not aware of any events subsequent to such
date which would materially impact the Liquidation Analysis.
The Company's estimate of the liquidation value of the assets of the Company
and its subsidiaries that is set forth in the Liquidation Analysis for the
purpose of providing the Company's Creditors and Equity Holders with an estimate
of the amount of the net liquidation proceeds that would result upon the
hypothetical liquidation of the Company. HLHZ was selected by the Company to
assist the Company in preparing the Liquidation Analysis because of its
experience in valuing businesses in connection with various types of
transactions. A description of the procedures followed and the material
assumptions and qualifications made in connection with the analysis are set
forth under the headings "Projected Financial Data--The Plan" and "The
Liquidation Analysis" of this Prospectus. There can be no assurance, however,
that such assumptions will be accepted by the Court.
FEASIBILITY. The Court must also determine that the Plan is feasible and is
not likely to be followed by liquidation or further reorganization of the
Company. To determine whether the Plan meets this requirement, the Company has
analyzed its ability to meet its obligations under the Plan. This analysis
includes a forecast of financial performance of the reorganized Company. Such
forecast, together with the underlying assumptions, is set forth on page 94 of
this Prospectus entitled "Projections of Certain Financial Data of the Company."
Based upon such forecast, the Company believes that it will have the financial
capability to satisfy its obligations following the Effective Date. Accordingly,
the Company will seek a ruling to that effect in connection with the
Confirmation of the Plan.
PLAN ACCEPTANCE. The Code requires, subject to certain exceptions, that the
Plan be accepted by all Impaired Classes of holders of Claims and Interests. The
Company may, however, request Confirmation of the Plan even though some Impaired
Classes have not accepted the Plan. See "Confirmation of the Plan Without
Acceptance by All Voting Classes."
The Code provides that acceptances obtained prior to the filing of a
petition will be effective in a chapter 11 case only if the pre-petition
solicitation of the acceptances complied with applicable non-bankruptcy law
governing the adequacy of disclosure or, if there is no such applicable
non-bankruptcy law, "adequate information" as defined under the Code. This
Prospectus is furnished in connection with the solicitation. The Company intends
to use the ballots received pursuant to this solicitation to confirm the Plan
once it has filed its chapter 11 case. The Company believes that this
solicitation complies with such applicable non-bankruptcy law and otherwise
contains "adequate information" and will seek appropriate findings from the
Court in this regard.
CONFIRMATION OF THE PLAN WITHOUT ACCEPTANCE BY ALL VOTING CLASSES. The
requirements for acceptance of the Plan by Impaired Classes are described under
"Classification and Treatment of Claims and Interests under the Plan." The Code
also provides a procedure by which the Plan may be confirmed despite the non-
acceptance of one or more Impaired Classes. This procedure is known as a "cram
down." If less than all of
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the Impaired Classes accept the Plan, the Plan may nevertheless be confirmed by
the Court under section 1129(b) of the Code, so long as at least one Impaired
Class has affirmatively voted to accept the Plan, ignoring for this purpose any
acceptance by insiders of the debtor as defined under the Code. To obtain
Confirmation pursuant to section 1129(b) of the Code, the Company must
demonstrate to the Court that, as to each non-accepting Class, the Plan "does
not discriminate unfairly" and is "fair and equitable" with respect to that
Class. In general, it would be determined that the Plan did not discriminate
unfairly if, among other things, a dissenting Class is treated substantially
equally with respect to other Classes of equal rank, taking into account for
this purpose the effect of applicable subordination rights. The Company believes
that the Plan does not discriminate unfairly against any Class. The Code
establishes different "fair and equitable" tests for Secured Creditors,
Unsecured Creditors and Equity Holders as follows:
1. SECURED CREDITORS. A secured creditor in a dissenting class of
secured claims must retain the lien(s) securing its claim and receive under
the plan cash payments that have a present value at least equal to such
creditor's allowed secured claim, or otherwise receive the "indubitable
equivalent" of the value of the interest in property upon which it holds a
lien.
2. UNSECURED CREDITORS. An unsecured creditor in a dissenting class of
unsecured claims must receive or retain under the plan (i) property of a
value at least equal to the amount of its allowed claim, or (ii) the holders
of the claims or equity interests junior to the claims of the dissenting
class of unsecured creditors must neither receive nor retain any property
under the plan on account of such junior claim or interest.
3. EQUITY HOLDERS. An equity holder must receive and retain under the
plan, property of a value equal to (i) the greatest of the allowed amount of
any fixed liquidation preference to which such holder is entitled, any fixed
redemption price to which such holder is entitled, or the value of such
interest, or (ii) the holder of any interest that is junior to the interests
of such class must neither receive nor retain any property under the plan on
account of such junior interest.
The Company intends to seek Confirmation of the Plan under section 1129(b)
of the Code, to the extent applicable, in view of the deemed rejection by Class
9. In the event that Class 6, Class 7 or Class 8 do not vote to accept the Plan,
the Plan will be automatically amended as set forth in Article V therein, and
the Company intends to seek Confirmation of the Plan, as amended, under section
1129(b) of the Code. Furthermore, the Company reserves the right to modify the
Plan in accordance with Section 13.4 of the Plan.
There can be no assurance that any Class of Creditors or Equity Holders will
accept the Plan or that, in the absence of such acceptance, the Company would be
able to use the provisions of section 1129(b) of the Code to confirm the Plan.
The Company believes that the Plan meets the standards of section 1129(b) with
respect to the deemed rejection of Class 9. In the event that Classes 6, 7 or 8
do not vote to accept the Plan, the Company intends (and the Plan so provides)
to seek confirmation of the Plan under the section 1129(b) provisions with
respect to such rejecting Class or Classes. Under such circumstances, the
subordination provisions of the Senior Debenture Indenture will be strictly
construed and the holders of such rejecting Class or Classes will retain no
property nor receive any distributions under the Plan. Any distributions
otherwise due such rejecting Class will be given to the holders of Class 5
Claims. The Company believes that the Plan meets the requirements of section
1129(b) with respect to Classes 6, 7 and 8, if such procedure becomes necessary.
However, the use of the section 1129(b) provisions by the Company on any of the
Impaired Classes, other than Class 9, could result in litigation which could
delay the Confirmation of the Plan.
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ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN.
If the Company commences the chapter 11 case and the Plan is not
subsequently confirmed by the Court and consummated, the alternatives include
(i) confirmation of an alternative plan of reorganization under chapter 11 of
the Code, or (ii) liquidation of the Company under chapter 7 of the Code.
ALTERNATIVE PLANS OF REORGANIZATION. If the Plan is not confirmed, the
Company (or, if the Company's exclusive period in which to file a plan of
reorganization has expired or is terminated by the Court, any other party in
interest) could attempt to formulate a different plan of reorganization. Such a
plan might involve either a reorganization and continuation of the Company's
business or an orderly liquidation of its assets. In either scenario, creditors
or other parties in interest could have an enhanced opportunity to influence the
course of the proceeding and the structure and substance of the Company's
ultimate reorganization or liquidation.
With respect to an alternative plan, the Company and its financial advisors
have explored various other alternatives in connection with the formulation and
development of the Plan. In a liquidation under chapter 11, the Company's assets
could be sold in an orderly fashion over a more extended period of time than in
a liquidation under chapter 7, potentially resulting in somewhat greater (but
indeterminate) recoveries. Although preferable to a chapter 7 liquidation, the
Company believes that any alternative under chapter 11 is a much less attractive
alternative to Creditors and holders of Preferred Stock and Class A Common Stock
than the Plan because of the greater recovery provided for by the Plan.
LIQUIDATION UNDER CHAPTER 7. If no plan of reorganization is confirmed (and
in certain other circumstances), the Company's chapter 11 case may be converted
to a case under chapter 7 of the Code, pursuant to which a trustee would be
elected or appointed to liquidate the assets of the Company for distribution to
Creditors in accordance with the priorities established by the Code. A
discussion of the potential effects that a chapter 7 liquidation would have on
the recovery of holders of Claims and Interests is set forth under "Liquidation
Analysis." In a liquidation, the assets of the Company would be sold in exchange
for cash, securities or other property, which would then be distributed to
Creditors. In contrast to the Plan (or an alternative reorganization under
chapter 11 of the Code) in which Creditors would receive equity securities of
the Company and would be subject to the risks associated with holding such
securities, in a liquidation Creditors might receive cash or other assets which
are not subject to those risks. See "Risk Factors." However, the Company
believes that liquidation under chapter 7 would result in significantly smaller
distributions (and, as to certain Classes, no distributions) as compared to
those provided for in the Plan. In addition, a chapter 7 liquidation is likely
to result in substantial litigation and delays in ultimate distributions to
Creditors. In the event of a chapter 7 liquidation, the Company believes that
there would not be sufficient assets to make any distribution to the holders of
the Subordinated Debentures, the Preferred Stock and the Class A Common Stock.
See "Liquidation Analysis" and "Confirmation Standards Best Interest Tests."
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PLAN SOLICITATION--VOTING PROCEDURES
GENERAL
The Company upon the terms and subject to the conditions set forth herein,
is soliciting an acceptance of the Plan from each holder that was a beneficial
owner as of the Record Date of: Senior Debentures, Subordinated Debentures,
liquidated non-Contingent Claims, Preferred Stock and Class A Common Stock. This
Prospectus together with the accompanying forms of Ballot and Master Ballot,
pre-addressed postage-paid envelope and other materials (the "Solicitation
Materials"), are being furnished to (i) registered holders of Senior Debentures
and Subordinated Debentures (I.E., holders whose respective names (or the names
of whose nominees) appear as of the Record Date on the securityholder lists
maintained by the applicable registrar pursuant to the applicable Indenture or,
if applicable, who are listed as participants in a clearing agency's security
position listing); (ii) record holders of Preferred Stock and Class A Common
Stock (I.E., holders whose respective names (or the names of whose nominees)
appear as of the Record Date on the Company's securityholder lists or, if
applicable, who are listed as participants in a clearing agency's security
position listing); and (iii) holders of liquidated non-Contingent Claims.
Registered or record holders may include brokerage firms, commercial banks,
trust companies or other nominees. IF SUCH PERSONS OR ENTITIES DO NOT HOLD FOR
THEIR OWN ACCOUNT, THEY SHOULD PROVIDE COPIES OF THIS PROSPECTUS AND THE
APPROPRIATE SOLICITATION MATERIALS TO THEIR CUSTOMERS AND TO BENEFICIAL INTEREST
HOLDERS FOR WHOSE ACCOUNT THEY HOLD. A Beneficial Interest Holder is a holder of
a beneficial interest in a Claim, Preferred Stock or Common Stock which entitles
such holder to rights or benefits of ownership even though such holder may not
be the holder of record at the Record Date. Securities owned beneficially would
include not only securities held by such Beneficial Interest Holder for its own
benefit in its own name, but would also include securities held by others for
such Beneficial Interest Holder's benefit, such as securities held by banks or
other custodians, brokers (whether in such Beneficial Interest Holder's name,
the nominee's name or "street name"), executors, administrators or trustees,
guardians, attorneys-in-fact, officers of a corporation, general partners of a
partnership or other persons acting in a fiduciary or representative capacity.
ANY BENEFICIAL INTEREST HOLDER WHO HAS NOT RECEIVED THIS PROSPECTUS AND A BALLOT
SHOULD CONTACT HIS, HER OR ITS BROKERAGE FIRM OR NOMINEE, OR THE INFORMATION
AGENT AT THE ADDRESS AND/OR TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS
PROSPECTUS. IN THE EVENT THAT THE COURT DETERMINES THAT THE SOLICITATION
MATERIALS WERE NOT TRANSMITTED TO SUBSTANTIALLY ALL IMPAIRED CREDITORS AND
IMPAIRED EQUITY HOLDERS, THE COURT COULD VOID THE PLAN SOLICITATION OR REQUIRE A
FURTHER PLAN SOLICITATION OR RESOLICITATION.
RECORD DATE
Consistent with the provisions of Rule 3018, the Company has fixed
p.m., Eastern Standard Time, on March , 1997 as the time and date for
determining which holders of Claims and Interests are eligible to vote on the
Plan pursuant to the procedures set forth herein.
VOTING EXPIRATION DATE; EXTENSIONS; AMENDMENTS
THE PLAN SOLICITATION PURSUANT TO THIS PROSPECTUS WILL EXPIRE ON May ,
1997. TO BE COUNTED, BALLOTS AND, WHEN APPROPRIATE, MASTER BALLOTS MUST BE
RECEIVED BY 12:00 MIDNIGHT, EASTERN STANDARD TIME, ON MAY , 1997 (THE "VOTING
EXPIRATION DATE"), UNLESS THE COMPANY, IN ITS SOLE DISCRETION, EXTENDS OR WAIVES
THE PERIOD DURING WHICH BALLOTS AND MASTER BALLOTS WILL BE ACCEPTED BY THE
COMPANY, IN WHICH CASE THE TERM "VOTING EXPIRATION DATE" FOR SUCH PLAN
SOLICITATION SHALL MEAN THE LAST TIME AND DATE TO WHICH SUCH PLAN SOLICITATION
IS EXTENDED. IN THE EVENT THAT THE Court COURT DETERMINES THAT THE PERIOD OF THE
PLAN SOLICITATION WAS NOT LONG ENOUGH FOR BENEFICIAL INTEREST HOLDERS TO
CONSIDER THE SOLICITATION MATERIALS, THE
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COURT COULD VOID THE PLAN SOLICITATION OR REQUIRE A FURTHER PLAN SOLICITATION OR
RESOLICITATION.
Except to the extent the Company so determines or as permitted by the Court,
Ballots and Master Ballots received after the Voting Expiration Date will not be
accepted or counted by the Company in connection with the Company's request for
Confirmation of the Plan.
The Company expressly reserves the right, at any time or from time to time,
to extend the period during which the Plan Solicitation is open. During any
extension of the Plan Solicitation, all Ballots and Master Ballots previously
given will remain subject to all the terms and conditions of the Plan
Solicitation, including the revocation rights specified herein. To extend the
Voting Expiration Date, the Company will notify the Exchange Agent of any
extension by oral or written notice and will make a public announcement thereof,
each at any time prior to a.m. Eastern Standard Time, on the next Business
Day after the previously scheduled Voting Expiration Date. Without limiting the
means by which the Company may choose to make any public announcement, the
Company will not have any obligation, unless otherwise required by law, to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a news release through the Dow Jones News Service. There can be
no assurance that the Company will exercise its right to extend the Plan
Solicitation period for the receipt of Ballots and Master Ballots.
The Company expressly reserves the right to amend, at any time and from the
time to time, the terms of the Plan Solicitation or the Plan (subject to
compliance with the requirements of section 1127 of the Code and the Rules). If
the Company makes a material change in the terms of the Plan Solicitation or the
Plan, or if it waives a material conditions, the Company will disseminate
additional solicitation materials and will extend the Plan Solicitation, in each
case to the extent required by law.
VOTING PROCEDURES AND OTHER REQUIREMENTS
PERSONS ENTITLED TO VOTE. The following Classes of Claims and Interests are
Impaired under the Plan and all holders of such Claims or Interests in such
Classes as of the Record Date are entitled to vote to accept or reject the Plan
upon the terms and subject to the conditions set forth herein and in the Plan:
Class 5--General Unsecured Claims
Class 6--Claims of Holders of Subordinated Debentures
Class 7--Interests of Holders of Preferred Stock
Class 8--Interests of Holders of Class A Common Stock
To be entitled to vote to accept or reject the Plan, a holder of Senior
Debentures, Subordinated Debentures, liquidated non-Contingent Claims, Preferred
Stock or Class A Common Stock must be the Beneficial Interest Holder of such
security or other Claims on the Record Date, regardless of whether such Claims,
Preferred Stock or Class A Common Stock are held of record on the Record Date in
such holder's name or in the name of such holder's broker, dealer, commercial
bank, trust company or other nominee. For purposes of determining whether the
requisite number of acceptances is received to approve the Plan, only votes
which are cast at the direction of Beneficial Interest Holders in accordance
with the procedures set forth herein may be counted.
As described below, the Company is soliciting both Ballots and Master
Ballots. Ballots are to be used by the beneficial owners of the Company's debt,
equity securities, and liquidated non-Contingent Claims (the "Beneficial
Interest Holders"), regardless of whether such Beneficial Interest Holders are
also record holders or hold through record holders. Master Ballots are to be
used by holders of record of Senior Debentures, Subordinated Debentures,
Preferred Stock, or Class A Common Stock that are not Beneficial Interest
Holders. A record holder which holds Senior Debentures, Subordinated Debentures,
Preferred Stock, or Class A Common Stock on behalf of one or more Beneficial
Interest Holders should collect
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completed Ballots from such Beneficial Interest Holders and should complete a
Master Ballot reflecting the votes of such Beneficial Interest Holders, as
indicated on their respective Ballots.
VOTING PROCEDURES. Holders of Senior Debentures, liquidated non-Contingent
Claims, Subordinated Debentures, Preferred Stock, or Class A Common Stock are
requested to complete an appropriate Ballot and, when appropriate, Master
Ballot, in accordance with the instructions set forth thereon and the procedures
set forth below and in the Plan.
BENEFICIAL INTEREST HOLDERS
Any Beneficial Interest Holder of Claims or Interests can vote on the Plan
through a nominee by following these instructions:
1. Provide all the applicable information on the Ballot in accordance
with the instructions set forth thereon.
2. Indicate acceptance or rejection of the Plan by checking either the
box entitled "Accepts the Plan" or "Rejects the Plan" set forth on the
Ballot.
3. Sign and date the Ballot and provide your name and mailing address
if different from the printed address which appears on the Ballot or if no
preprinted address appears on the Ballot. If you are completing the Ballot
on behalf of another entity, indicate the name of such entity, your
relationship with such entity and/or the capacity in which you are signing.
4. (a) If you hold Senior Debentures, Subordinated Debentures,
Preferred Stock, or Class A Common Stock in "street name" through a
brokerage firm, bank, trust company or other source, return the Ballot to
the nominee as promptly as possible so that the nominee may complete and
submit a Master Ballot prior to the Voting Expiration Date. If no
pre-addressed, postage-paid envelope was enclosed, contact the Information
Agent for instructions.
(b) If you are both the Beneficial Interest Holder and the record
holder of Claims or Interests, return the Ballot directly to the Exchange
Agent in the enclosed pre-addressed envelope so that it will be received
prior to the Voting Expiration Date.
BROKERAGE FIRMS, BANKS AND OTHER NOMINEES. A brokerage firm which is the
registered or record holder of Senior Debentures, Subordinated Debentures,
Preferred Stock, or Class A Common Stock for a Beneficial Interest Holder can
vote on behalf of such Beneficial Interest Holder by (i) distributing a copy of
this Prospectus, all appropriate Ballots and other Solicitation Materials to
such Beneficial Interest Holder for execution; (ii) collecting all such
completed and executed Ballots; (iii) completing a Master Ballot compiling the
votes and other information from the Ballots collected; and (iv) transmitting
such Master Ballot to the Exchange Agent on or before the Voting Expiration
Date. A proxy intermediary acting on behalf of a brokerage firm or bank may
follow the procedures outlined in the preceding sentence to vote on behalf of
such Beneficial Interest Holder.
Each brokerage firm, bank, or other nominee which submits a Master Ballot
must retain all Ballots submitted to it by Beneficial Interest Holders for
disclosure to the Court, if so ordered.
Any Ballot submitted to a brokerage firm, proxy intermediary or other
nominee will not be counted until such nominee properly completes and delivers
to the Exchange Agent a corresponding Master Ballot that reflects such
Beneficial Interest Holder's vote. Any record holder which is also a Beneficial
Interest Holder of Senior Debentures, liquidated non-Contingent Claims,
Subordinated Debentures, Preferred Stock, and Class A Common Stock should, with
respect to such security, either (i) return a Ballot to the Exchange Agent, or
(ii) prepare and retain a Ballot and include the information from such Ballot on
the Master Ballot submitted to the Exchange Agent.
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<PAGE>
HOLDERS MAY RECEIVE MULTIPLE MAILINGS CONTAINING BALLOT(S), ESPECIALLY IF
HOLDERS OWN SENIOR DEBENTURES, SUBORDINATED DEBENTURES, PREFERRED STOCK, OR
CLASS A COMMON STOCK IN STREET NAME THROUGH MORE THAN ONE BROKER, BANK OR OTHER
NOMINEE. A BENEFICIAL INTEREST HOLDER WHO HOLDS (I) SENIOR DEBENTURES, (II)
SUBORDINATED DEBENTURES, (III) PREFERRED STOCK, OR (IV) CLASS A COMMON STOCK
THROUGH MORE THAN ONE BROKER, BANK OR OTHER NOMINEE MUST SO DISCLOSE ON EACH
BALLOT SUCH HOLDER COMPLETES AND MUST CAST THE SAME VOTE ON THE PLAN ON EACH
BALLOT SUCH HOLDER COMPLETES. A BENEFICIAL INTEREST HOLDER'S VOTE EITHER TO
ACCEPT OR TO REJECT THE PLAN WILL BE COUNTED ONLY ONCE FOR EACH CLASS OF CLAIMS
HELD BY THE HOLDER, REGARDLESS OF THE NUMBER OF RECORD HOLDERS THROUGH WHICH
SUCH CLAIMS ARE HELD. BY EXECUTING A BALLOT A HOLDER CERTIFIES, AMONG OTHER
THINGS, THAT, TO THE EXTENT APPLICABLE, SUCH HOLDER HAS DISCLOSED ANY
BIFURCATION OF BENEFICIAL OWNERSHIP OF SENIOR DEBENTURES, SUBORDINATED
DEBENTURES, PREFERRED STOCK, AND CLASS A COMMON STOCK AND THAT SUCH HOLDER HAS
CAST THE SAME VOTE ON ANY MULTIPLE BALLOTS FOR HOLDINGS IN A SINGLE CLASS OF
CLAIMS OR CLASS OF INTERESTS. THE NAMES OF ALL BROKER-DEALERS OR OTHER
INTERMEDIARIES OR PERSONS WHO HOLD SENIOR DEBENTURES, SUBORDINATED DEBENTURES,
PREFERRED STOCK, OR CLASS A COMMON STOCK FOR A BENEFICIAL INTEREST HOLDER SHOULD
BE INDICATED ON THE BALLOTS. AUTHORIZED SIGNATORIES (OTHER THAN BROKERAGE FIRMS
AND OTHER PARTICIPANTS) SHOULD SUBMIT SEPARATE BALLOTS FOR EACH BENEFICIAL
INTEREST HOLDER FOR WHOM THEY ARE VOTING.
OTHER. If a Ballot is signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations, or others acting in a
fiduciary or representative capacity, such persons should indicate such capacity
when signing in accordance with the procedures set forth under "Certifications"
below and, unless otherwise determined by the Company, must submit proper
evidence satisfactory to the Company of authority to so act on behalf of a
Beneficial Interest Holder.
The Company, in its sole discretion, may waive any defect in any Ballot or
Master Ballot at any time, either before or after the close of voting, and
without notice. Except as provided below, unless the Ballot or Master Ballot
being furnished is timely submitted to the Exchange Agent on or prior to the
Voting Expiration Date together with any other documents required by such Ballot
or Master Ballot, as the case may be, the Company may, in its sole discretion,
reject such Ballot or Master Ballot as invalid and, therefore, decline to
utilize it in connection with seeking Confirmation of the Plan by the Court.
In the event a Claim or Interest is disputed or designated under section
1126(e) of the Code, any vote to accept or reject the Plan cast with respect to
such Claim or Interest will not be counted for purposes of determining whether
the Plan has been accepted or rejected, the Court orders otherwise.
CERTIFICATIONS. FOR PURPOSES OF DETERMINING WHETHER THE REQUISITE NUMBER OF
ACCEPTANCES IS RECEIVED TO APPROVE THE PLAN, ONLY VOTES WHICH ARE CAST BY OR AT
THE DIRECTION OF BENEFICIAL INTEREST HOLDERS OF SENIOR DEBENTURES, LIQUIDATED
NON-CONTINGENT CLAIMS, SUBORDINATED DEBENTURES, PREFERRED STOCK, AND CLASS A
COMMON STOCK MAY BE COUNTED. By executing and returning a Ballot, a person or
entity (i) will certify to the Court and the Company that either (a) such person
or entity is the Beneficial Interest Holder of the Claims or securities being
voted or (b) such person or entity is an authorized signatory for someone or
some entity who or which is a Beneficial Interest Holder of the Claims or
securities being voted; (ii) will certify to the Court and the Company that such
person or entity (or in the case of an authorized signatory, the Beneficial
Interest Holder) has received a copy of this Prospectus and Solicitation
Materials and will acknowledge that the Plan Solicitation is being made pursuant
to the terms and conditions set forth therein; (iii) will certify to the record
holder, the Court and the Company (or in the case of an authorized signatory,
such authorized signatory) that either (a) such person or entity has not
submitted any other Ballots for such Class of Claims, as the case may be, held
in other accounts or other registered names or (b) such person or entity has
disclosed on each Ballot completed by such person or entity the existence of
Claims in the same Class held in other accounts, or other registered names and
the submission of other Ballots for such Claims; (iv) will certify to the record
holder, the Court and the Company that such person or entity has cast the same
vote on every multiple Ballot completed by such person or entity with respect to
holdings in a single Class of Claims; and (v) will request that such person or
entity (or in the case of an
83
<PAGE>
authorized signatory, the Beneficial Interest Holder) be treated as the record
holder of such securities for purposes of voting on the Plan.
A brokerage firm or other nominee which is a registered holder will prepare,
execute and deliver a Master Ballot to the Exchange Agent to reflect the votes
of the Beneficial Interest Holders it represents. By executing and returning a
Master Ballot, such nominee (i) will certify to the Court and the Company that
(a) such nominee has received a copy of this Prospectus, Ballot and other
Solicitation Materials and has delivered the same to the Beneficial Interest
Holders listed thereon by such nominee, (b) such nominee has received a
completed and signed Ballot from each such Beneficial Interest Holder, (c) such
nominee is the registered holder of the securities being voted, (d) such nominee
has been authorized by each such Beneficial Interest Holder to vote on the Plan,
and (e) the Beneficial Interest Holder has certified to such nominee that such
Beneficial Interest Holder has not submitted any other Ballots for such Class of
Claims held in other accounts or other registered names, or, if held in other
accounts or registered names, that the Beneficial Interest Holder has certified
to such nominee that such Beneficial Interest Holder has cast the same vote for
such Class of Claims, and such nominee will disclose such other accounts or
registered holders and such other Ballots; (ii) will request that such nominee
be treated as the Beneficial Interest Holder of the securities for purposes of
voting on the Plan, unless otherwise authorized by the Court; (iii) will
disclose (a) the number of such Beneficial Interest Holders, (b) the respective
principal amounts of Senior Debentures and/or Subordinated Debentures owned, or
the number of shares held, as the case may be, by each such Beneficial Interest
Holder, (c) each Beneficial Interest Holder's respective vote concerning the
Plan, (d) the customer account or other identification number for each such
Beneficial Interest Holder; and (iv) will agree to maintain Ballots returned by
Beneficial Interest Holders (whether properly completed or defective) for
disclosure to the Court if so ordered.
BALLOTS. A separate form of Ballot and, when applicable, Master Ballot, is
to be used for each Class of Impaired Claims and Equity Interests. The Ballots
are color-coded as follows:
<TABLE>
<CAPTION>
BALLOT
CLASS DESCRIPTION COLOR
- --------- -------------------------------------------------------------------------- ---------
<S> <C> <C>
Class 5: Senior Debentures......................................................... White
Class 5: All general Unsecured Claims, other than Senior Debentures................ Green
Class 6: Subordinated Debentures................................................... Yellow
Class 7: Preferred Stock........................................................... Blue
Class 8: Common Stock.............................................................. Gray
</TABLE>
Holders of Claims and Interests should take care to use the correct
Ballot(s) in voting on the Plan. See "Incomplete Ballots." If any Ballots are
damaged or lost, or if a holder has any questions concerning the voting
instructions, it may contact the Information Agent at the address or telephone
number listed on the back cover of this Prospectus.
VOTING MULTIPLE CLAIMS AND EQUITY INTERESTS. EACH BENEFICIAL INTEREST
HOLDER WHICH HOLDS CLAIMS OR INTERESTS IN MORE THAN ONE CLASS IS REQUIRED TO
VOTE SEPARATELY WITH RESPECT TO EACH CLASS IN WHICH SUCH BENEFICIAL INTEREST
HOLDER HOLDS CLAIMS OR INTERESTS.
A separate ballot of the appropriate form should be used to vote on the Plan
with respect to each Impaired Class of Claims or Interests. Votes must be made
on the appropriate Ballot in order to be counted. A Beneficial Interest Holder's
vote on the Plan will be counted only once for each Class of Claims or Interests
held by the holder, regardless of the number of ballots submitted for such
class.
A holder may not split its vote within a Class of Impaired Claims or
Interests. If a holder of Claims or Interests in more than one Class executes
one or more Ballots for only one such Class, such holder's vote will count as a
vote only once with respect to such Class and will not count as a vote with
respect to any Claims or Interests in other Classes held by such holder.
84
<PAGE>
INCOMPLETE BALLOTS. It is important that all holders of Impaired Claims and
Interests vote to accept or reject the Plan, because under the Code, for
purposes of determining whether the requisite acceptances have been received by
an Impaired Class of Claims or Interests, the vote will be tabulated based on
the ratio of accepting holders of Impaired Claims and/or Interests to all voting
holders of Impaired Claims and/or Interests. Therefore, it is possible that the
Plan could be approved by any Impaired Class of Claims with the affirmative vote
of significantly less than two-thirds in amount and one-half in number of the
entire Class of Claims, or by holders of Interests with the affirmative vote of
significantly less than two-thirds in amount of the shares of Preferred Stock
and Common Stock. Failure by a holder of an Impaired Claim or Interest to submit
a properly executed Ballot or Master Ballot (as appropriate) or to indicate
acceptance or rejection of the Plan in accordance with the instructions set
forth thereon and the procedures set forth herein shall be deemed to constitute
an abstention by such holder with respect to a vote regarding the Plan, unless
cured or waived. Abstentions as a result of failing to submit a properly
executed Ballot or Master Ballot (when appropriate) or failing to indicate a
vote either for acceptance or rejection of the Plan will not be counted as votes
for or against the Plan. The Company, in its sole discretion, may waive any
defect in any Ballot or Master Ballot at any time, either before or after the
close of voting, and without notice. No assurance can be given, however, that
the Court will recognize any such wavier.
AGREEMENTS UPON FURNISHING BALLOTS
The delivery of a Ballot or Master Ballot indicating a vote to accept the
Plan by a holder of an Impaired Claim or Interest pursuant to the procedures set
forth above will constitute an agreement between such holder and the Company to
accept (i) all the terms of, and conditions to, this Plan Solicitation, and (ii)
all the terms of the Plan.
METHOD OF DELIVERY OF BALLOTS
The method of delivery of Ballots and Master Ballots to be delivered to the
Exchange Agent is at the election and risk of each holder of Claims and/or
Interests. Except as otherwise provided herein, such delivery will be deemed
made only when actually received by the Exchange Agent. Instead of effecting
delivery by mail, it is recommended that such holders use an overnight or hand
delivery service or telecopy promptly followed by overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Ballots or Master Ballots should be sent to the Company, any
indenture trustee, or the Company's financial or legal advisors.
WITHDRAWAL OF BALLOTS; REVOCATION
Any holder of Senior Debentures, liquidated non-Contingent Claims,
Subordinated Debentures, Preferred Stock, and Class A Common Stock who has
delivered a valid Ballot or Master Ballot, as appropriate, voting on the Plan
may withdraw such vote by delivery of a written notice of withdrawal to the
Exchange Agent at any time prior to the earlier of (i) the commencement by the
Company of the chapter 11 case, or (ii) the Voting Expiration Date. Thereafter,
Ballots or Master Ballots may be revoked only with the approval of the Court.
Votes cast pursuant to a Master Ballot may be withdrawn or modified on an
individual Beneficial Interest Holder basis. In the case where more than one
timely, properly completed Ballot or Master Ballot relating to a particular
Class of Claims or Interests held by a particular holder is received, only the
Ballot or Master Ballot, as the case may be, which bears the latest date will be
counted for purposes of determining the vote.
A notice of withdrawal, to be valid, must (i) contain the description of the
Claim or Interest to which it relates and the aggregate principal amount or
number of shares, as the case may be, represented by such Claim or Interest,
(ii) be signed by the holder of such Claim or Interest in the same manner as the
original Ballot or Master Ballot, (iii) contain a certification that the
withdrawing party was the Beneficial Interest Holder of the Claim and/or
Interest on the Record Date and possesses the right to withdraw the vote
85
<PAGE>
sought to be withdrawn, and (iv) be received by the Exchange Agent in a timely
manner as described above. Prior to the filing of the Plan, the Company intends
to consult with the Exchange Agent to determine whether any withdrawals of
Ballots were received. The Company expressly reserves the absolute right to
contest the validity of any such withdrawals of Ballots. See "Waivers of
Defects, Irregularities, Etc."
Unless otherwise determined by the Company or directed by the Court, a
purported notice of withdrawal of a Ballot or Master Ballot which is not
received in a timely manner by the Exchange Agent will not be effective to
withdraw a previously furnished Ballot or Master Ballot.
THE COMPANY WILL PAY ALL REASONABLE AND CUSTOMARY COSTS, FEES AND EXPENSES
RELATING TO THE PLAN SOLICITATION, INCLUDING WITHOUT LIMITATION, MAILING AND
HANDLING COSTS OF BROKERS, DEALERS, COMMERCIAL BANKS, TRUSTEES, INDENTURE
TRUSTEES AND OTHER NOMINEES. THE COMPANY WILL NOT PAY ANY INCENTIVE OR
ACCEPTANCE FEES IN CONNECTION WITH THE PLAN SOLICITATION.
REQUESTS FOR INFORMATION OR ADDITIONAL COPIES OF THIS PROSPECTUS, BALLOTS OR
MASTER BALLOTS SHOULD BE DIRECTED TO THE INFORMATION AGENT.
WAIVERS OF DEFECTS, IRREGULARITIES, ETC.
Unless otherwise directed by the Court, all questions as to the validity,
form, eligibility (including time of receipt), acceptance and revocation or
withdrawal of Ballots or Master Ballots will be determined by the Company in its
sole discretion, which determination shall be final and binding. The Company
reserves the absolute right to reject any and all Ballots or Master Ballots not
in proper form, the acceptance of which, in the opinion of the Company or its
counsel, would not be in accordance with the provisions of the Code. The Company
further reserves the right to waive any defects or irregularities or conditions
of delivery as to any particular Ballot, unless otherwise directed by the Court.
The Company's interpretation of the terms and conditions of the Plan (including
the Ballot or Master Ballot and the respective voting instructions thereto),
unless otherwise directed by the Court, shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
deliveries of Ballots or Master Ballots must be cured within such time as the
Company (or the Court) determines. Neither the Company nor any other person or
entity will be under any duty to provide notification of defects or
irregularities with respect to deliveries of Ballots or Master Ballots nor will
any of them incur any liabilities for failure to provide such notification.
Unless otherwise directed by the Court, delivery of such Ballots or Master
Ballots will not be deemed to have been made until such irregularities have been
cured or waived. Ballots or Master Ballots previously furnished (and as to which
any irregularities have not theretofore been cured or waived) will not be
counted.
86
<PAGE>
SHARES SUBJECT TO FUTURE SALE BY FINANCIAL ADVISORS
The Company has agreed to issue warrants (the "Advisor Warrants") in payment
of financial advisory fees due to HLHZ and Rothschild for services provided in
connection with the Recapitalization. The issuance of the Advisor Warrants is
contingent upon the consummation of the Recapitalization. The Advisor Warrants
and the underlying shares of Common Stock to be issued upon exercise thereof
(the "Warrant Shares") are being registered as part of the Recapitalization. The
Advisor Warrants will be exercisable for no additional consideration for a
period of two (2) years following their issuance. When issued, the Advisor
Warrants will be exercisable for that number of shares of Common Stock which has
a market value equal to $1,100,000 in the case of HLHZ and $750,000 in the case
of Rothschild as determined by the 20-day average per share closing price of the
Common Stock immediately following consummation of the Recapitalization. It is
currently expected that the Advisor Warrants will be exercised by HLHZ and
Rothschild and the Warrant Shares so acquired will be sold for the accounts of
such financial advisors within two (2) years of the effective date of the
registration statement filed with the Commission in connection with the
Recapitalization of which this Prospectus is a part. Neither HLHZ nor Rothschild
is currently a record or beneficial owner of any shares of the Company's capital
stock.
The Warrant Shares issuable upon exercise of the Advisor Warrants shall
consist of (i) 33,955 shares of Common Stock, on a post-Capital Stock
Combination and post-Reverse Stock Split basis, currently held of record by
Libra Invest & Trade Ltd. ("Libra") for the benefit of the Company pursuant to a
custody agreement between Libra and the Company; and (ii) such currently
indeterminate number of newly issued shares of Common Stock as is necessary to
satisfy the exercise of the Advisor Warrants pursuant to the terms thereof. The
Company believes that Libra is not currently, and after the consummation of the
Recapitalization, will not be a record or beneficial owner of any shares of the
Company's capital stock other than those described above.
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<PAGE>
HISTORIC AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The pro forma financial statements set forth below as of and for the year
ended December 31, 1996 give effect to the Recapitalization pursuant to the
Exchange Offers as if it had occurred at the beginning of the period. The pro
forma adjustments are based upon currently available information and certain
assumptions that management of the Company believes are reasonable under current
circumstances. The accompanying historic and unaudited pro forma statement of
operations does not reflect the extraordinary gain on extinguishment of debt
resulting from the Exchange Offer.
KOLL REAL ESTATE GROUP, INC.
HISTORIC AND UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------------
BOLSA
LOWLAND EXCHANGE AS
HISTORICAL SALE(A) OFFER(B) ADJUSTED
---------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents......................... $ 2.1 $ 13.9 $ -- $ 16.0
Restricted cash................................... .2 -- -- .2
Real estate held for development or sale.......... 25.2 -- -- 25.2
Land held for development......................... 223.5 (25.0) -- 198.5
Other assets...................................... 21.2 -- -- 21.2
---------- --------- ------------- ----------
$ 272.2 $ (11.1) $ -- $ 261.1
---------- --------- ------------- ----------
Accounts payable and accrued liabilities.......... $ 11.7 (4.0) -- 7.7
Senior bank debt.................................. 7.1 (7.1) -- --
Project debt...................................... 12.5 -- -- 12.5
Subordinated debentures........................... 195.9 -- (176.3)(b) 19.6
Other liabilities................................. 43.9 17.3(d) 61.2
---------- --------- ------------- ----------
Total liabilities........................... 271.1 (11.1) (159.0) 101.0
---------- --------- ------------- ----------
Stockholders' equity:.............................
Series A Preferred Stock........................ .4 -- (.4)(c) --
Class A Common Stock............................ 2.4 -- (1.9)(b)(c) .5
Capital in excess of par value.................. 229.2 -- 103.6 (b)(c 332.8
Deferred proceeds from stock issuance........... (.4) -- -- (.4)
Minimum pension liability....................... (.6) -- -- (.6)
Accumulated deficit............................. (229.9) -- 57.7(b) (172.2)
---------- --------- ------------- ----------
Total stockholders' equity........................ 1.1 -- 159.0 160.1
---------- --------- ------------- ----------
$ 272.2 (11.1) $ -- $ 261.1
---------- --------- ------------- ----------
---------- --------- ------------- ----------
</TABLE>
- ------------------------
(a) To reflect the sale of the Bolsa Chica lowlands, at net book value, which
occurred on February 14, 1997, and the subsequent payment of senior bank
debt and certain liabilities.
(b) To reflect the issuance of Common Stock in exchange for $176.3 million of
Outstanding Debentures (assuming only the minimum 90% are tendered) and the
resulting extraordinary gain on extinguishment of debt, net of the related
impact on deferred taxes.
(c) To reflect conversion of all outstanding shares of Preferred Stock to Common
Stock pursuant to the Capital Stock Combination and the Reverse Stock Split
of 1 share for each 100 shares of all existing issued and outstanding shares
of Common Stock.
(d) To reflect the write-off of deferred tax assets due to limitations on
utilization of net operating losses.
88
<PAGE>
KOLL REAL ESTATE GROUP, INC.
HISTORIC AND UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------
PRO FORMA ADJUSTMENTS
HISTORICAL EXCHANGE OFFER AS ADJUSTED
----------- ----------------------- -----------
<S> <C> <C> <C>
Revenues:
Asset Sales................................................. $ 33.6 $ 33.6
Operations.................................................. 11.2 11.2
----------- -----
44.8 44.8
----------- -----
Costs of:
Asset Sales................................................. 30.2 30.2
Operations.................................................. 10.0 10.0
----------- -----
40.2 40.2
----------- -----
Gross operating margin...................................... 4.6 4.6
General and administrative expenses (b)....................... 9.6 9.6
Interest expense.............................................. 24.9 $ (20.4)(a) 4.5
Other expense (income), net................................... (1.1) (1.1)
----------- ------ -----
Income (loss) from continuing operations before income
taxes....................................................... (28.8) 20.4 (8.4)
Income tax expense (benefit).................................. .1 -- .1
----------- ------ -----
Loss from continuing operations............................... $ (28.9) $ 20.4 $ (8.5)
----------- ------ -----
----------- ------ -----
</TABLE>
- ------------------------
(a) To reflect the reduction of interest expense resulting from the Exchange
Offers (assuming only the minimum 90% of Outstanding Debentures are
tendered).
(b) Pro forma adjustments do not reflect any eliminations of non-recurring
general and administrative expenses and non-recurring other expense of $2.5
million and $1.5 million, respectively, related to the Bolsa lowland sale
and the Exchange Offer.
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<PAGE>
HISTORIC AND UNAUDITED PRO FORMA CAPITALIZATION OF THE COMPANY
The table below sets forth the capitalization of the Company and its
subsidiaries as of December 31, 1996. The Pro Forma financial information set
forth below gives effect to the Exchange Offers as of December 31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
---------------------------------------------
PRO FORMA ADJUSTMENTS
---------------------
BOLSA
LOWLAND EXCHANGE
HISTORICAL SALE(A) OFFER PRO FORMA
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN MILLIONS)
Senior bank debt (b).............................. $ 7.1 $ (7.1) $ -- $ --
Project debt (b).................................. 12.5 12.5
Outstanding Debentures (b)........................ 195.9 (176.3)(c) 19.6
Stockholders' equity (d):
Series A (convertible redeemable nonvoting)
Preferred Stock, $.01 par value, 42,505,504
shares authorized, 38,886,626 (historical) and
no (pro forma) shares outstanding............... 0.4 (0.4)(e) --
Class A Common Stock, $.05 par value, 625,000,000
shares authorized, 48,938,543 (historical) and
10,753,739 (pro forma) shares outstanding....... 2.4 (1.9) )(e) 0.5
Class B (convertible nonvoting) common Stock, $.05
par value, 25,000,000 shares authorized, no
shares outstanding.............................. -- -- --
Capital in excess of par value.................... 229.2 103.6( )(e) 332.8
Deferred proceeds from stock issuance............. (.4) (.4)
Minimum pension liability......................... (.6) (.6)
Accumulated deficit............................... (229.9) 57.7( )(e) (172.2)
--------- --------- --------- ---------
Total Stockholders' Equity...................... 1.1 -- 159.0 160.1
--------- --------- --------- ---------
Total capitalization.............................. $ 216.6 $ (7.1) $ (17.3) $ 192.2
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(a) To reflect repayment of senior bank debt following the sale of the Bolsa
Chica lowlands, at net book value, in February 1997.
(b) See Note 6 of Notes to Audited Historic Financial Statements.
(c) To reflect the issuance of Common Stock in exchange for $176.3 million of
Outstanding Debentures (assuming only the minimum 90% are tendered) and the
resulting extraordinary gain on extinguishment of debt, net of the related
impact on deferred taxes.
(d) See Note 12 of Notes to Audited Historic Financial Statements.
(e) To reflect conversion of all outstanding shares of Preferred Stock to Common
Stock pursuant to the Capital Stock Combination and the Reverse Stock Split
of 1 share for each 100 shares of all existing issued and outstanding shares
of Common Stock.
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<PAGE>
SELECTED FINANCIAL DATA
Set forth below is selected financial data of the Company and its
consolidated subsidiaries. The following information should be read in
conjunction with the financial statements contained in the Company's Annual
Report for the year ended December 31, 1996 and notes thereto (which are
included herein by reference) and in conjunction with the Unaudited pro forma
consolidated financial information contained in this Prospectus. See "The
Company Recapitalization--Unaudited Pro Forma Condensed Consolidated Financial
Information."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996 PRO FORMA(H)
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments (a)............................... $ 41.6 $ 43.5 $ 13.0 $ 4.9 $ 2.1 $ 16.0
Total assets (a)................................ 486.1 436.0 414.0 272.4 272.2 261.1
Senior bank debt (b)............................ 65.4 7.0 -- 16.6 7.1 --
Project debt.................................... -- -- -- -- 12.5 12.5
Subordinated debentures (b)..................... 165.1 134.9 152.9 173.2 195.9 19.6
Total stockholders' equity (c).................. $ 149.6 $ 163.5 $ 145.5 $ 29.6 $ 1.1 $ 160.1
Fully diluted shares outstanding at end of
period (g).................................... 86.4 91.4 102.5 102.4 102.4 11.4
Book value per fully diluted share.............. $ 1.73 $ 1.79 $ 1.42 $ .29 $ .01 $ 14.04
STATEMENT OF OPERATIONS DATA:
Revenues (d),(e)................................ $ 28.3 $ 16.7 $ 21.4 $ 34.0 $ 44.8 $ 44.8
Loss from continuing operations (e),(f)......... (41.9) (20.1) (18.7) (116.9) (28.9) (8.5)
Net income (loss) (f)........................... (38.4) 14.3 (18.0) (116.9) (28.9)
Per common share:
Loss from continuing operations (c),(e),(f)..... (1.44) (.24) (.43) (2.48) (.60) $ (.85)
Net income (loss) (f),(g)....................... $ (1.32) $ .17 $ (.41) $ (2.48) $ (.60)
Weighted average shares outstanding (g)......... 29.0 83.0 43.8 47.1 48.3 10.8
</TABLE>
- ------------------------
(a) The decrease in total assets at December 31, 1993 is primarily due to the
disposition of the Company's investment in Deltec Panamerica S.A. ("Deltec")
and the sale of Lake Superior Land Company ("Lake Superior"). The decrease
in total assets and cash, cash equivalents and short-term investments at
December 31, 1994 is primarily attributable to the funding of project
development costs and general and administrative expenses, as well as funds
deposited into a restricted cash account to secure a $25 million letter of
credit facility related to the Abex litigation. The decreases in cash, cash
equivalents and short term investments at December 31, 1995 and 1996 are
primarily attributable to the funding of project development and
infrastructure costs and general and administrative expenses, partially
offset by sales of real estate held for development or sale. The decrease in
total assets at December 31, 1995 is primarily due to the asset revaluation
of Bolsa Chica and the decrease in cash described above.
(b) The decrease in debt at December 31, 1993 reflects principal repayments on
senior bank debt and the exchange of subordinated debentures in connection
with the sale of Lake Superior and the issuance of 3.4 million shares of
Class A Common Stock of the Company to Libra. The increase in debt at
December 31, 1995 reflects borrowings under new credit agreements to settle
the Abex litigation and construct infrastructure improvements at Rancho San
Pasqual. The decrease in senior bank debt at December 31, 1996 reflects
principal repayments in excess of borrowings for construction of
infrastructure improvements at Rancho San Pasqual. The increase in project
debt at December 31, 1996 reflects borrowings from banks for build-to-suit
projects.
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<PAGE>
(c) The increase in equity at December 31, 1993 primarily reflects net income
for the year then ended. The decrease in equity at December 31, 1995
reflects the net loss for the year then ended, including the asset
revaluation of Bolsa Chica. The decrease in equity at December 31, 1996
reflects the net loss for the year then ended, primarily due to interest
expense on subordinated debentures.
(d) The decrease in 1993 revenues is principally due to a decrease in land sales
and the absence of revenues from a hotel disposed of in 1992, partially
offset by revenues from the Eagle Crest Golf Course which opened in May
1993, and development fees generated by the business acquired from The Koll
Company in September 1993. The increase in 1995 revenues is due to an
increase in land sales and Wentworth By The Sea residential and marina
sales. The increase in 1996 revenues reflects the sale of residential lots
and the Eagle Crest Golf Course at Rancho San Pasqual, the formation of the
Fairbanks Highlands joint venture and the sale of resort/residential lots in
Michigan.
(e) Amounts have been reclassified to present Lake Superior and Deltec as
discontinued operations.
(f) The loss from continuing operations for the year ended December 31, 1993
reflects lower interest expense related to lower debt outstanding, as well
as nonrecurring income of $3 million received upon termination of a put
option agreement with Abex Inc. and a $2 million insurance reimbursement
related to costs incurred in 1992. Net income and net income per common
share for 1993 reflect gains on the dispositions of Lake Superior and Deltec
and an extraordinary gain on debt extinguishment. The loss from continuing
operations, net loss and loss per common share for the year ended December
31, 1995 reflect approximately $121.1 million of charges related to
write-downs of real estate properties, including Bolsa Chica. The loss from
continuing operations, net loss and loss per common share for the year ended
December 31, 1996 is primarily the result of noncash interest charged on the
subordinated debentures.
(g) In July 1992, approximately 19.7 million shares of Class A Common Stock and
42.5 million shares of Series A Preferred Stock were issued in connection
with the merger of a subsidiary of Henley Properties with and into the
Henley Group. The Preferred Stock is not included in the loss per share
calculations except for 1993 since the effect is antidilutive. In December
1993, the Company issued 3.4 million shares of its Common Stock in exchange
for all of Libra's approximately $10.6 million in aggregate principal amount
plus accrued interest of Subordinated Debentures issued by the Company. The
1993 earnings per share calculation includes these newly issued shares,
along with the Preferred Stock and stock options outstanding. In November
1994, the Company issued 2.0 million shares (along with warrants for the
purchase of an additional 2.0 million shares) of its Common Stock in
connection with the acquisition of the Kathryn G. Thompson Company. The
1994, 1995 and 1996 amounts reflect conversion of 1.2 million, an additional
1.0 million and an additional 1.4 million shares, respectively of Preferred
Stock to Common Stock.
(h) The Pro Forma amounts reflect December 31, 1996 historical amounts, giving
effect to (i) the February 1997 sale of the Bolsa Chica lowlands, (ii) the
issuance of Common Stock to holders of Senior Subordinated and Subordinated
Debentures pursuant to the Exchange Offers (assuming only the minimum 90%
are tendered), including the resulting extraordinary gain on extinguishment
of debt of approximately $57.7 million, net of income taxes (see "Historic
and Unaudited Pro Forma Consolidated Financial Statements"), and (iii) the
Capital Stock Combination and Reverse Stock Split described in this
Prospectus.
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<PAGE>
PROJECTIONS OF CERTAIN FINANCIAL DATA OF THE COMPANY
Set forth below are projections of certain financial data that illustrate
the estimated effects of the Recapitalization and certain related transactions,
as effected pursuant to (i) the Exchange Offers and related transactions, or
(ii) the Plan, on the results of operations and financial position of the
Company and subsidiaries for the periods indicated. The Projections are
presented for the effectuation of the Recapitalization pursuant to the Exchange
Offers or pursuant to the Plan. For purposes of these projections, the
Recapitalization and certain related transactions are assumed to be effective as
of June 30, 1997 pursuant to (i) the Exchange Offers and related transactions,
and (ii) the Plan. The projections set forth below were developed by the Company
and its financial advisors in June 1996 in connection with the planning,
development and negotiation of its proposed Recapitalization. [subject to
updating] The material assumptions underlying the projections which constitute
an integral part of the projections are set forth immediately following such
projections and should be carefully reviewed along with the information set
forth under "Risk Factors" with an understanding that these risks and
uncertainties include, but are not limited to, litigation or appeals of
regulatory approvals (including pending litigation challenging the California
Coastal Commission's approval of the Company's Bolsa Chica project), and
availability of adequate capital, financing and cash flow. In addition, future
values may be adversely affected by increases in property taxes, increases in
the costs of labor and materials and other development risks such as the demand
for housing generally and the supply of competitive products. 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
projections also should be read in conjunction with the Audited Historical
Financial Statements and Unaudited Pro Forma Consolidated Financial Statements
of the Company and subsidiaries included elsewhere in this Prospectus. See
"Index to Financial Statements and Supplementary Data" and "Unaudited Pro Forma
Consolidated Financial Statements."
The following projected financial information was not prepared with a view
towards public disclosure or compliance with the published guidelines of the
American Institute of Certified Public Accountants regarding financial
projections, nor have they been presented in lieu of pro forma historical
financial information and, accordingly, are not intended to comply with Rule
11-03 of Regulation S-X. Neither the independent accountants for the Company nor
any other independent auditors have examined, reviewed, compiled or performed
any procedures with respect to these projections and, accordingly, do not
express an opinion or any other form of assurance on them and assume no
responsibility for them. The projected information necessarily makes numerous
assumptions as set forth below and the Company's future operating results are
subject to and likely to be affected by a number of factors, including timely
resolution of the pending Bolsa Chica litigation, industry performance, general
business and economic conditions, taxes, and other matters, many of which are
beyond the Company's control. The Company believes that while all of its
assumptions are reasonable, such projected information and assumptions are not
necessarily indicative of current values or future performance, which may be
significantly less favorable or more favorable than as reflected in the
projected information and assumed by the Company in its preparation of such
information. Although the projected information represents the best estimate of
the Company (for which the Company believes it has a reasonable basis as of the
time of the preparation thereof) of the results of operations of the Company, it
represents only an estimate, and actual results may vary considerably from the
projected information included herein. Consequently, the inclusion of the
projections herein is not a representation by the Company or its financial
advisors that the projections will be realized. Because the projections are
subject to significant uncertainties and are based upon assumptions that may not
prove to be correct, holders of Impaired Claims and Interests are cautioned not
to place undue reliance on these projections. The projections should not be
relied on for any purpose other than in considering whether to vote to accept or
reject the Plan. The Company does not intend to update or otherwise revise these
projections to reflect circumstances existing after the date of this Prospectus
or to reflect the occurrence of any other events, even in the event that the
assumptions underlying the projections are shown to be in error (including if
the projections become false by reason of subsequent events), except as may be
required by applicable law prior to the Confirmation Date of the Plan.
93
<PAGE>
KOLL REAL ESTATE GROUP, INC.
PROJECTED FINANCIAL DATA--THE EXCHANGE OFFERS(A)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
HISTORIC PROJECTED
----------- ------------------------------------------
1996 1997 1998 1999 2000
----------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments.............. $ 2.1 $ 19.7 $ 77.7 $ 135.0 $ 196.9
Total assets (b)............................................... 272.2 241.0 243.1 236.6 231.5
Senior bank debt (b)........................................... 7.1 -- -- -- --
Project debt................................................... 12.5 -- -- -- --
Subordinated debentures........................................ 195.9 22.0 -- -- --
Total stockholders' equity (c)................................. 1.1 153.0 158.7 173.3 182.3
Fully diluted shares outstanding at end of year................ 102.4 11.4 11.4 11.4 11.4
Book value per fully diluted share............................. .01 13.42 13.92 15.20 15.99
Statement of Operations Data:
Revenues (a)(d)................................................ 44.8 85.0 85.4 111.2 105.5
Costs of sale.................................................. 40.2 70.0 71.9 86.7 86.6
Income (loss) from continuing operations....................... (28.9) (18.8) 5.7 14.6 9.0
Extraordinary Gain on extinguishment of debt................... -- 69.4 -- -- --
Net income (loss) (c).......................................... (28.9) 50.6 5.7 14.6 9.0
Per common share:
Income (loss) from continuing operations....................... (.60) (.64) .53 1.35 .83
Net income (loss).............................................. (.60) 1.71 .53 1.35 .83
Weighted average shares outstanding.............................. 48.3 29.6 10.8 10.8 10.8
</TABLE>
- ------------------------
(a) The above financial projections are based on the assumption that the
Recapitalization and certain related transactions are effective as of June
30, 1997 pursuant to the Exchange Offers and related transactions and not
pursuant to the Plan. The Company has prepared the Financial Projections
based on generally accepted accounting principles. In addition, the Company
has assumed in the above financial projections that cash flow generated by
its current assets is reinvested in new projects that earn a 15% annual rate
of return.
(b) The Bolsa Chica lowlands were sold for $25 million in February 1997, with a
portion of the proceeds utilized to repay remaining senior bank debt and
certain liabilities.
(c) The net income (loss), net income (loss) per share and total stockholders'
equity reflect the projected gain on the retirement of the Outstanding
Debentures, net of taxes of $16.1 million (due to limitations on utilization
of net operating losses).
(d) Projected revenues for the year ended December 31, 1997 include
approximately $31.8 million from the sale of build-to-suit projects.
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<PAGE>
ASSUMPTIONS
BOLSA CHICA--Infrastructure construction on the Bolsa Chica mesa is assumed
to begin during the fourth quarter of 1997, assuming timely resolution of
outstanding litigation.
The projection assumes a Revolving Construction Loan Facility of $25 million
is established during the second half of 1997. Funds are borrowed as needed to
maintain zero cash balance. Interest expense is calculated at a rate of 10.0%
based on the estimated maximum average balance outstanding, which is based on an
average of the prior year's ending balance and the current year's maximum
potential draw. An unused line fee of 0.5% is also assumed.
Sales revenues and costs of sales, including participation in home builder
profits are projected as follows [subject to updating]:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales..................................................... -- 25.0 67.0 85.0 70.0
Costs of Sales............................................ -- 25.0 60.0 76.0 74.0
--- --- --- --- ---
-- -- 7.0 9.0 (4.0)
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
RANCHO SAN PASQUAL--Residential lots at Rancho San Pasqual are projected to
be sold on a timely basis to homebuilders which have rolling options, or in
comparable transactions. Historic and projected sales revenues for 1996, 1997
and 1998 amount to $10.1 million, $11.3 million and $1.8 million, respectively.
COMMERCIAL DEVELOPMENT BUSINESS--The commercial development business is
assumed to achieve 10% fee revenue growth and 4% annual expense growth in years
after 1996.
GENERAL AND ADMINISTRATIVE EXPENSES--Recurring general and administrative
expenses are projected to grow at a 5% annual rate from 1997 through 2000 and
held constant thereafter.
OTHER LIABILITIES--Payments on other liabilities are assumed to be [$4.7]
million, $1.9 million, $8.0 million, and $.5 million respectively for the years
of 1997, 1998, 1999 and 2000.
TAX ATTRIBUTES--Utilization of net operating losses and certain other tax
attributes is assumed to be limited under IRS Section382 as a result of the
Recapitalization. The annual limitation calculation assumes a value of the old
loss corporation of approximately $20.0 million (the approximate recent stock
market value) times the long-term tax-exempt bond rate of 5.48% (for February
1997), for an annual limitation of $1.1 million per annum. Net income and
stockholders' equity reflect the write-off of $16.1 million of deferred tax
assets as a result of the limitations.
See "Risk Factors--Tax Matters" for a discussion of a pending dispute
between the Company and the IRS which, if decided adversely to the Company,
could affect the Company's tax attributes under the Recapitalization.
95
<PAGE>
KOLL REAL ESTATE GROUP, INC.
PROJECTED FINANCIAL DATA--THE PLAN(A)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
PROJECTED
HISTORIC ------------------------------------------
1996 1997 1998 1999 2000
----------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments....................... $ 2.1 $ 19.7 $ 78.9 $ 154.6 $ 233.2
Total assets (b)........................................................ 272.2 217.5 203.0 232.8 262.3
Senior bank debt (b).................................................... 7.1 -- -- -- --
Project debt............................................................ 12.5 -- -- -- --
Subordinated debentures................................................. 195.9 -- -- -- --
Total stockholders' equity (c).......................................... 1.1 191.1 213.2 245.9 275.7
Fully diluted shares outstanding at end of year......................... 102.4 12.6 12.6 12.6 12.6
Book value per fully diluted share...................................... .01 15.17 16.92 19.52 21.88
Statement of Operations Data:
Revenues (a)(d)......................................................... 44.8 85.0 85.4 111.4 108.5
Costs of sale........................................................... 40.2 70.0 57.9 68.5 68.4
Income (loss) from continuing operations................................ (28.9) (17.6) 22.1 32.7 29.8
Extraordinary gain on extinguishment of debt............................ -- 95.0 -- -- --
Net income (loss) (c)................................................... (28.9) 77.4 22.1 32.7 29.8
Per common share:
Income (loss) from continuing operations................................ (.60) (.59) 1.87 2.77 2.53
Net income (loss) (c)................................................... (.60) 2.58 1.87 2.77 2.53
Weighted average shares outstanding....................................... 48.3 30.0 11.8 11.8 11.8
</TABLE>
- ------------------------
(a) The above financial projections are based on the assumption that the
Recapitalization and certain related transactions are effective as of June
30, 1997 pursuant to the Plan. The Company based the above projections on
its financial position as of December 31, 1996, adjusted to take into
account the effects of the Recapitalization and certain related transactions
assumed to close as of June 30, 1997. The above projections have been
prepared using the principles required by the American Institute of
Certified Public Accountants' Statement of Position 90-7, FINANCIAL
REPORTING BY ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE ("FRESH
START ACCOUNTING"). The Company has prepared the Financial Projections based
on generally accepted accounting principles as such rules and practices are
applied to the real estate industry. In addition, the Company has assumed in
the above financial projections that cash flow generated by its current
assets is reinvested in new projects that earn a 15% annual rate of return.
(b) The Bolsa Chica lowlands were sold for $25 million in February 1997, with a
portion of the proceeds utilized to repay remaining senior bank debt and
certain liabilities. The decrease in total assets at December 31, 1997
reflects the write-down of land held for development pursuant to the
application of fresh start accounting.
(c) The Net income (loss), net income (loss) per share and total stockholders
equity reflect the projected gain on the retirement of the Outstanding
Debentures.
(d) Projected revenues for the year ended December 31, 1997 include
approximately $31.8 million from the sale of build-to-suit projects.
96
<PAGE>
ASSUMPTIONS
BOLSA CHICA--Infrastructure construction on the Bolsa Chica mesa is assumed
to begin during the fourth quarter of 1997, assuming timely resolution of
outstanding litigation, which management believes will not have a significant
financial impact on the project.
The projection assumes a Revolving Construction Loan Facility of $25 million
is established during the second half of 1997. Funds are borrowed as needed to
maintain zero cash balance. Interest expense is calculated at a rate of 10.0%
based on the estimated maximum average balance outstanding, which is based on an
average of the prior year's ending balance and the current year's maximum
potential draw. An unused line fee of 0.5% is also assumed.
Sales revenues and costs of sales, including participation in home builder
profits are projected as follows [subject to updating]:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Sales..................................................... -- 25.0 67.0 85.0 70.0
Costs of Sales............................................ -- 25.0 60.0 76.0 74.0
--- --- --- --- ---
-- -- 7.0 9.0 (4.0)
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
RANCHO SAN PASQUAL--Residential lots at Rancho San Pasqual are projected to
be sold on a timely basis to homebuilders which have rolling options, or in
comparable transactions. Historic and projected sales revenues for 1996, 1997
and 1998 amount to $10.1 million, $11.3 million and $1.8 million, respectively.
COMMERCIAL DEVELOPMENT BUSINESS--The commercial development business is
assumed to achieve 10% fee revenue growth and 4% annual expense growth in years
after 1996.
GENERAL AND ADMINISTRATIVE EXPENSES--Recurring general and administrative
expenses are projected to grow at a 5% annual rate from 1997 through 2000 and
held constant thereafter.
OTHER LIABILITIES--Payments on other liabilities are assumed to be [$4.7]
million, $1.9 million, $8.0 million, and $.5 million respectively for the years
of 1997, 1998, 1999 and 2000.
TAX ATTRIBUTES--Unless the Company elects out, IRC 382 provides for certain
reductions of tax attributes for a corporation which undergoes an ownership
change in connection with a Case. See "Material Federal Income Tax Consequences
Federal Income Tax Consequences of Plan."
See also "Risk Factors--Tax Matters" for a discussion of a pending dispute
between the Company and the IRS which, if decided adversely to the Company,
could affect the Company's tax attributes under the Plan.
97
<PAGE>
POSSIBLE ACCOUNTING TREATMENTS
The Company proposes to account for the Recapitalization, assuming holders
of the Senior Debentures and Subordinated Debentures exchange 90% or more of the
Outstanding Debentures and related accrued interest, by recording the shares of
Common Stock issued at the agreed-upon value for all Outstanding Debentures
tendered; any difference between the value of such shares issued and the related
outstanding debt balance will result in the recognition of an extraordinary gain
on extinguishment of debt. The Company will continue to report its historical
Accumulated Deficit balance (net of the extraordinary gain referred to above) in
stockholders' equity. As discussed in "Material Federal Income Tax Consequences
of the Exchange Offers; Cancellation of Indebtedness--Income Limitation on Net
Operating Losses" herein, certain net operating loss carryforwards ("NOLS") will
become unusable as a result of the Recapitalization through the Exchange Offers,
resulting in the write-off of the related deferred tax assets. With the
consummation of the Recapitalization through the Exchange Offers, no adjustment
to the net realizable values of assets and liabilities, other than to the
deferred tax assets discussed above, is required.
In the event that the Company seeks judicial confirmation of the Plan, the
Company proposes to account for the exchange of shares of Common Stock for
Outstanding Debentures using the principles of fresh start accounting pursuant
to Statement of Position 90-7 ("FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE"). Pursuant to such principles, in
general, the Corporation's assets (principally the Bolsa Chica property) and
liabilities will be revalued to their fair market values. The aggregation of any
adjustments to the asset and liability accounts will be recorded as adjustments
to results of operations. Additionally, the difference between the value of
shares issued and the related outstanding debt balance will result in the
recognition of an extraordinary gain on extinguishment of debt. The Company will
recast its balance sheet based on the aforementioned revalued assets and
liabilities, and restate retained earnings to zero. As discussed below in
"Federal Income Tax Consequences of Plan," under judicial confirmation of the
Plan there will be no loss of available NOLS.
LIQUIDATION ANALYSIS
Pursuant to section 1129(a)(7) of the Bankruptcy Code (the "best interest
test"), the Bankruptcy Court must determine that each nonaccepting Holder of an
Impaired Claim or Impaired Interest will receive or retain property of a value
as of the Effective Date of the Plan at least equal to the amount such Holder
would receive or retain on account of such Claim or Interest if the Company were
liquidated under chapter 7 of the Bankruptcy Code (a "Liquidation"). In applying
the best interest test, the Bankruptcy Court will ascertain the hypothetical
distributions in a Liquidation to Secured Creditors, holders of priority Claims,
general unsecured Creditors and Equity Interest Holders. In such analysis, the
Court will take into account applicable structural and contractual subordination
rights among Creditors, as well as give effect to valid liens and security
interests held by certain Creditors. Hypothetical distributions to Creditors and
Equity Holders would then be determined based upon rules of "absolute priority"
established by the Bankruptcy Code as more fully described below. The Court will
compare these hypothetical chapter 7 liquidation distributions with the
distributions offered to each class of Impaired Claims or Impaired Interests
under the Plan to determine if the Plan satisfies the best interest test set
forth in section 1129(a)(7) of the Bankruptcy Code.
The Company believes that the value of the property to be distributed or
retained by each holder of an Impaired Claim and Impaired Interest under the
Plan exceeds the value, if any, the Holder would receive in a Liquidation and
thus believes that the requirements of the best interest test are satisfied. In
order to arrive at that judgment, the Company, with the assistance of Houlihan
Lokey, estimated and compared the theoretical returns to each holder of an
Impaired Claim and Impaired Interest under a hypothetical Liquidation with those
under the Plan. The results of such analysis are set forth below.
It should be noted that underlying this analysis are a number of estimates
and assumptions which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control or
98
<PAGE>
otherwise not accurately predictable by the Company. Moreover, there can be no
assurance that the values assumed in the following analysis would be realized if
in fact the Company was liquidated. Accordingly, while the analysis that follows
is necessarily presented with numerical specificity, if the Company's assets
were in fact liquidated, the actual liquidation proceeds would likely vary from
the amounts set forth below and no representation or warranty can be, or is
being made with respect to the proceeds that could be received in an actual
chapter 7 liquidation of the Company. The Liquidation valuations have been
prepared solely for purposes of permitting the comparison required by section
1129(a)(7) of the Bankruptcy Code and do not represent a value that may be
appropriate for any other purpose. Nothing contained in these valuations is
intended to be or constitutes a concession or admission of the Company for any
other purpose.
LIQUIDATION ANALYSIS
The following principal assumptions and considerations were used to prepare
the liquidation analysis:
ESTIMATED LIQUIDATION PROCEEDS. The Company is a real estate development
company with properties, located principally in Southern California, in various
stages of development. The business of the Company is conducted through
subsidiaries. The principal assets of the Company consist of the stock of the
subsidiaries. For purposes of the liquidation analysis, it is assumed that the
properties owned by the Company, which are held in the Company's subsidiaries,
would be sold on a going concern basis, and that the other assets of the
Company, which are not material in aggregate, would be sold in a liquidation
sale over the period described below. It is believed that the sales of
subsidiaries assets would result in greater proceeds to the Company than
liquidating the stock of the individual subsidiaries. There can be no assurance,
however, that any asset sales could be consummated. Further, the Company did not
solicit inquiries with respect to an acquisition of the Company or any of its
businesses or assets. The following information and factors, not listed in order
of importance, were, among others, considered by the Company in estimating the
proceeds which might be received from the sale of the properties owned, or
businesses being operated, by the Company:
(a) The Company's historical financial statements, relevant historical
operating information and projected financial and operating performance,
including financial information for the twelve-month period ended
December 31, 1996 and projections through December 31, 2003 (the
"Projections").
(b) Valuations of properties comparable to those held by the Company and
market valuations of public companies in similar businesses as the
Company.
(c) Bids received by the Company for certain of the Company's properties.
(d) The primary characteristics of the properties owned by the Company, as
well as the Company's development expertise, operating advantages and
disadvantages, and other relevant aspects of their business.
(e) The limited base of potential buyers for the Company's primary asset,
310 acres of undeveloped land known as Bolsa Chica.
(f) The potential impact of a chapter 7 proceeding upon potential buyers'
pricing strategies.
(g) The relative timing of potential sales of the Company's assets.
(h) The liabilities and obligations of the Company's subsidiaries.
In estimating the liquidation proceeds and applying the foregoing factors
and considerations to make such estimates, both the general economic and real
estate environment in Southern California and the current status of the
Company's assets were considered. As has been described in detail in this
Prospectus, the Company has been adversely impacted by a prolonged downturn in
the California real estate markets
99
<PAGE>
and delays in receiving the entitlements necessary to develop the Bolsa Chica
property. These factors have had a significant adverse affect upon the Company's
revenues and operating income. These factors would also likely adversely affect
the price which could be realized in a near-term disposition of the Company's
assets. In addition, this analysis includes estimates related to the
acceleration of certain unliquidated and contingent claims that might be
triggered by a chapter 7 liquidation.
IMPACT OF CHAPTER 7 UPON SUBSIDIARY OPERATIONS AND VALUES. A decision to
liquidate the Company under chapter 7 could cause the withdrawal of, or delay in
receiving, development capital for certain of the Company's properties held in
various subsidiaries. In addition, in the event of a chapter 7 proceeding by the
Company, as a result of the co-obligation of certain of the subsidiaries on a
portion of the Company's indebtedness and other factors, it is likely that some
or all of the subsidiaries would be required to commence cases under the
Bankruptcy Code. Any such filings would further result in substantial
uncertainty and in disruption of the operating businesses, including a potential
loss of management. A potential lack of liquidity, combined with poor industry
conditions and the adverse effect of the commencement of bankruptcy cases by the
subsidiaries, could lead to further reductions in operating performance and,
subsequently, less realizable value to creditors and stockholders of the Company
from the ultimate disposition of such subsidiaries. The following analysis
considers such effects through the assumption that potential acquirors of the
Company's assets would require higher rates of return as a result of such
factors.
NATURE AND TIMING OF THE LIQUIDATION PROCESS. Under section 704 of the
Bankruptcy Code, a chapter 7 trustee must, among other duties, collect and
convert the property of the debtor's estate to cash and close the estate as
expeditiously as is compatible with the best interests of the parties in
interest. Solely for purposes of preparing this liquidation analysis, (a) the
liquidation was assumed to commence in January 1997, (b) the Company's assets
were assumed to be sold during the 12-month period ending in January 1998 (the
"Liquidation Period") and (c) distributions from the liquidations were assumed
to be made in their entirety in January 1999 (the "Liquidation Distribution
Date"). Depending upon actual circumstances, the 12-month Liquidation Period or
24 month Liquidation Distribution Date could be significantly longer or, while
the Company believes it unlikely, shorter. In this connection, it should be
noted that bankruptcy proceedings involving the subsidiaries, the necessity for
the determination and satisfaction of claims at the subsidiary level prior to
any distribution of liquidation proceeds to the Company, the potential for
inter-company and inter-creditor claims disputes and the likelihood of
significant contingent and other claims and related litigation could
substantially delay both the sale of some or all subsidiaries and the ultimate
distribution of the proceeds of asset liquidations to the Company's Creditors
and Interest Holders.
While for purposes of this analysis the Liquidation Period is assumed to
begin approximately six months before the Effective Date of the Plan, the
Company does not expect any material events to occur over this time frame that
will significantly impact this analysis, with the exception of the sale of the
Lowlands. This analysis has been adjusted to reflect the sale of the Lowlands,
which occurred in February 1997, and is discussed in more detail below.
LIQUIDATION TAX LIABILITIES. As members of the consolidated tax group, each
subsidiary of the Company is jointly liable with the Company for federal tax
liabilities, including liabilities that arise from the disposition of the
subsidiaries themselves. As such, the proceeds available for distribution to
holders of Claims against and Interests in the Company are assumed to be reduced
by the tax obligations expected to be triggered by the sale of the subsidiaries
in the liquidation whether such obligations are triggered at the Company or
subsidiary level. After considering the tax basis of each asset and the
application of $282 million of available net operating loss carryforwards
(assuming $147 million of such net operating loss carryforwards are disallowed
as a result of the ongoing Internal Revenue Service audit for the Company's 1989
through 1991 tax years), the Company estimates no tax liability as a result of
the disposition of the assets of the subsidiaries.
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<PAGE>
DISTRIBUTION; ABSOLUTE PRIORITY. Prior to distribution of any proceeds to
creditors at the Company level, claims and obligations of the subsidiaries to
the extent not assumed in the particular subsidiary sale transactions themselves
would have to be paid. For purposes of this liquidation analysis it has been
assumed that no Claims will be assumed by the buyers of the Company's respective
subsidiaries and thus will be paid at the subsidiary level out of the proceeds
of subsidiary sales and prior to any distribution to the Creditors of the
Company. Under a chapter 7 liquidation, all Secured Claims would be satisfied
from the proceeds of the collateral securing such Claims before any such
proceeds would be distributed to the Holders of Unsecured Claims. To the extent
that proceeds remain after satisfaction of all Secured Claims, Administrative
Claims and Priority Claims, the following analysis assumes the application of
the rule of absolute priority of distributions with respect to the remaining
proceeds of the Company. Under that rule, no junior Creditor receives any
distribution until all senior Creditors are paid in full. As such, and as a
result of applicable contractual subordination provisions, no distributions
would be made to holders of the Subordinated Debentures until all "senior
indebtedness" (as defined in the applicable indenture), including the Senior
Debentures, were paid in full.
PRIMARY ASSUMPTIONS USED TO VALUE THE COMPANY'S PRINCIPAL ASSETS UNDER A PLAN
AND A HYPOTHETICAL LIQUIDATION.
The following section details, on an asset by asset basis, the major
assumptions that were used to value the Company's principal assets under the
Plan and Liquidation scenarios.
BOLSA CHICA--MESA.
In a Plan, it is assumed that outstanding litigation is resolved in a timely
manner and infrastructure construction on the Bolsa Chica mesa (the "Mesa")
begins during the fourth quarter of 1997. This scenario also assumes a $25
million Revolving Construction Loan Facility is established in the second half
of 1997 at a 10% interest rate with funds borrowed as needed to maintain a zero
cash balance. The present value of the Mesa in a Plan is equal to the Company's
projected cash flows from this project, discounted at a 15% rate.
Based on conversations with local real estate experts, and after considering
various factors such as the additional government approvals that are required
before the Mesa can be developed and, the prospect of continued litigation
related to, or appeals of, regulatory approvals (e.g., the pending litigation
challenging the California Coastal Commission's approval of the Company's Bolsa
Chica project), the estimated present value of the proceeds to be received for
the Mesa in a Liquidation scenario is equal to approximately 54% of the
estimated present value of the property in a Plan.
BOLSA CHICA--LOWLANDS.
In February 1997, the Company sold approximately 880 lowland acres (the
"Lowlands") to the California State Lands Commission for $25 million. The
proceeds from the Lowlands sale were used to repay the $6.6 million balance on
the Nomura Loan and reduce other outstanding liabilities by approximately $4.0
million. The remaining portion of the proceeds is currently held in the
Company's cash account.
RANCHO SAN PASQUAL.
In a Plan, the estimated value of Rancho San Pasqual is based on
management's estimate of the cash flows that will be generated by the sale of
residential lots which are projected to be sold on a timely basis to
homebuilders with rolling options, or in comparable transactions, discounted at
a 15% rate.
The accelerated time frame under Chapter 7 for disposition may have an
adverse effect on realized value in a Liquidation. Consequently, in a
Liquidation scenario, it is estimated that the Company realizes a present value
equal to its projected cash receipts from Rancho San Pasqual, discounted at a
25% rate.
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FAIRBANKS
A subsidiary of the Company recently formed a joint venture with a prominent
Southern California homebuilder through which Fairbanks, a 390 acre residential
property in North San Diego County, California, will be developed. The estimated
value of Fairbanks in a Plan scenario is based on the approximately $7.2 million
in cash flows projected to be received by the Company as a result of the
development of the project in 1998 through 2000, discounted at 15%.
The decision to liquidate the Company's interest in Fairbanks under chapter
7 of the Bankruptcy Code would likely result in the Company selling its rights
to certain future cash flows generated by the joint venture. In a Liquidation
scenario, it is estimated that the Company realizes a present value equal to its
projected cash receipts from Fairbanks, discounted at a 25% rate.
THE COMMERCIAL DEVELOPMENT BUSINESS
In a Plan, the Commercial Development Business is assumed to achieve 10%
annual revenue growth and 4% annual expense growth in years after 1996. The
value of the Commercial Development Business in a Plan is estimated to be equal
to four times the selected representative EBITDA level for this business which
is equal to the average of the 1996 actual and 1997 projected EBITDA.
In a Liquidation scenario, the Commercial Development Business is estimated
to have no value as it is assumed that the Commercial Development Business could
not be sold in an expedited time frame due to the sensitivity of this business
to (1) access to capital to finance new projects and (2) the business
relationships of the personnel employed in the Commercial Development Business,
whom would likely choose to terminate their employment in a Liquidation
scenario.
GENERAL AND ADMINISTRATIVE EXPENSES
In a Plan scenario, recurring general and administrative expenses ("G&A
Expenses") are projected to grow at a 5% annual rate from 1997 through 2000 and
held constant thereafter. The estimated G&A Expenses necessary to manage the
Company's current asset base is equal to approximately four times the Company's
actual G&A expenses in fiscal year 1996.
In a Liquidation scenario, it is assumed that the Company does not retain
any full-time general and administrative-related personnel. As a result,
additional general unsecured claims related to employee severance packages would
result from a chapter 7 liquidation. Employee severance packages are estimated
to approximate $1.5 million based on contractual obligations.
LIQUIDATION-RELATED EXPENSES
In the Liquidation scenario, it is assumed that asset disposition fees and
expenses would aggregate approximately 3% of estimated gross liquidation
proceeds.
BASIC ADMINISTRATION EXPENSES
In both the Plan and Liquidation scenarios, the proceeds that would be
available to the holders of the Claims and Interests would be reduced by
administrative expenses. Administrative expenses in a Plan scenario would
include expenses related to counsel, financial advisors, accountants and other
professionals. Administrative expenses in a Liquidation scenario would include
similar expenses, as well as expenses related to a trustee (including financial
advisors and accountants retained by the trustee). Administrative expenses are
estimated to aggregate $3.0 million in both the Plan and the Liquidation
scenario.
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The following table details the computation of liquidation proceeds:
LIQUIDATION PROCEEDS COMPUTATION
($ IN 000S)
<TABLE>
<S> <C>
Hypothetical gross liquidation proceeds(a)......................... $ 96,603
LESS: Chapter 7 basic administration costs......................... 3,000
LESS: Payment of taxes............................................. 0
---------
Liquidation value available for distribution to creditors and
equity interest holders of the Company........................... $ 93,603
---------
---------
</TABLE>
(a) Hypothetical net liquidation proceeds, as estimated by the Company. The
hypothetical net liquidation proceeds includes interest on cash balances
during the Liquidation Period at an assumed pretax rate of 4% per annum and
reflects the estimated value of the assets available to creditors and equity
interest holders of the Company after the payment of specific claims at each
of the Company's individual Subsidiaries, including: (i) disposition-related
costs, (ii) taxes, (iii) severance payments, and (iv) liabilities at each
subsidiary.
COMPARISON OF ESTIMATED DISTRIBUTION
The table below sets forth a comparison of the estimated distributions to
Holders of Impaired Claims and Equity Interests under the Plan with the
estimated recoveries of such Holders in a chapter 7 liquidation of the Company
after giving effect to all contractual subordination provisions and the
corporate structure of the Corporation and its Subsidiaries. The comparison
should be read in conjunction with all other information set forth under
"LIQUIDATION ANALYSIS."
COMPARISON OF ESTIMATED DISTRIBUTION
($IN 000S)
<TABLE>
<CAPTION>
CASH
AVAILABLE FOR NET PRESENT VALUE
DISTRIBUTION OF CHAPTER 7 ESTIMATED PLAN ESTIMATED
DESCRIPTION OF CLAIMS/EQUITY APPROXIMATE IN LIQUIDATION PERCENTAGE PERCENTAGE
INTERESTS(A) CLAIM AMOUNT CHAPTER 7(B) RECOVERY(B) RECOVERY(C)
- ------------------------------------- ------------ -------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
Liquidation proceeds available for
distribution....................... $ 93,603
Class 3--Unliquidated or Contingent
Claims(d).......................... $ 17,217 $ 11,151 57.9% 100.0%
Class 5--General Unsecured Claims
(e)................................ $ 172,992 $ 82,452 42.6% 61.4%
Class 6--Subordinated Debentures..... $ 41,138 $ 0 0.0% greater than 0%(f)
Class 7--Preferred Stock............. NA $ 0 0.0% greater than 0%(f)
Class 8--Class A Common Stock........ NA $ 0 0.0% greater than 0%(f)
Class 9--Warrants(g)................. NA $ 0 0.0% 0.0%
</TABLE>
- ------------------------
(a) For purposes of the liquidation analysis, claims and interests have been
grouped together in accordance with rules of absolute priority under the
Bankruptcy Code which the Company believes would be applied in a
Liquidation. For this purpose, the Company has assumed that, except for the
contractual subordination provisions applicable to the Subordinated
Debentures, no claims would be subject to subordination at the Company
level.
(b) Cash amount in aggregate after the application of a present value discount.
Percentage shown in the table as Net Present Value of Chapter 7 Estimated
Liquidation Percentage Recovery is the quotient of the present value of the
available liquidation proceeds divided by the estimated amount of claims in
such class. The resulting percentage has been discounted back to its net
present value as of January 1,
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1997 (the date on which the Liquidation Period is assumed to begin) from
January 1, 1999 (the assumed Liquidation Distribution Date) applying a
discount rate of 5.8%
(c) Amount shown in the table as Plan Estimated Percentage Recovery is the
quotient of the cash plus the assumed value of the equity securities to be
distributed to all holders of claims in such class under the Plan divided by
the estimated amount of claims. It should be noted that depending on general
market conditions and other factors prevailing at the relevant times the
equity securities may trade at a price other than that which was assumed for
purposes of this analysis. Accordingly, no representation can be, or is
being, made with respect to whether the percentage recoveries shown in the
table above will actually be realized by the holder of claims in any
particular class under the Plan.
(d) In a Liquidation Scenario, certain unliquidated or contingent liabilities
are assumed to be accelerated. In the Plan, these liabilities are assumed to
be satisfied in the ordinary course of business, in a Liquidation, they are
assumed to be pari passu with the General Unsecured Claims, except for
Senior Debt as such term is defined in the Senior Debenture Indenture, which
must be paid in full before General Unsecured Claims. It should be noted
that underlying the $17.2 million claim shown above are a number of
estimates and assumptions which are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control or
otherwise not accurately predictable by the Company. Moreover, should the
unliquidated or contingent claims be higher than estimated, the recourse
available to certain other classes of claims would be lower than those shown
above.
(e) Includes the Senior Debentures and liquidated and non-contingent liabilities
of the Company.
(f) Assuming acceptance of the Plan by each Impaired Class and Interest entitled
to vote thereon, under the Plan, these Holders will receive New Common
Stock.
(g) The Warrants are deemed to have no economic value and, consequently, will be
canceled on the Effective Date. Class 9 Interests are impaired; because
holders of Class 9 Interests will receive no distributions and will retain
no property under the Plan, such holders are deemed to have rejected the
Plan and are not entitled to vote on the Plan.
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DESCRIPTION OF THE COMMON STOCK
Subject to the prior rights of the holders of any Preferred Stock which may
be issued and outstanding from time to time, the holders of Common Stock will be
entitled to receive dividends from funds of the Company legally available
therefor, when, as and if declared by the Board and will be entitled to share
ratably in all of the assets of the Company available for distribution to
holders of Common Stock upon the liquidation, dissolution, or winding up of the
affairs of the Company. Holders of the Common Stock will not have any
preemptive, subscription, redemption or conversion rights. Holders of the Common
Stock will be entitled to one vote per share on all matters which they will be
entitled to vote upon at meetings of stockholders or upon actions taken by
written consent pursuant to Delaware law. The holders of Common Stock will not
have cumulative voting rights, which means that the holders of more than 50% of
such outstanding shares can elect all of the directors of the Company. All of
the shares of Common Stock to be issued upon the consummation of the
Recapitalization will be fully paid and nonassessable. No dividends have been
paid to holders of the capital stock of the Company since the inception of the
Company, and no dividends are anticipated to be declared or paid in the
foreseeable future. The transfer agent and registrar for the Common Stock will
be [Mellon Bank, N.A., P.O. Box 44, Pittsburgh, Pennsylvania 15230].
MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S
COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The following tables set forth information with respect to bid quotations
for the Common Stock of the Company for the periods indicated as reported by
NASDAQ. These quotations are interdealer prices without retail markup, markdown
or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First Quarter............................................ $ .531 $ .313
Second Quarter........................................... .250 .156
Third Quarter............................................ .250 .156
Fourth Quarter........................................... .250 .125
1995
First Quarter............................................ $ .500 $ .344
Second Quarter........................................... .469 .313
Third Quarter............................................ .594 .344
Fourth Quarter........................................... .469 .250
1994
First Quarter............................................ $ .531 $ .250
Second Quarter........................................... .406 .125
Third Quarter............................................ .344 .188
Fourth Quarter........................................... .625 .281
</TABLE>
The number of holders of record of the Company's Common Stock as of December
31, 1996 was approximately 25,000. The Company has not paid any cash dividends
on its Common Stock to date, nor does the Company currently intend to pay
regular cash dividends on the Common Stock. Such dividend policy is and will
continue to be subject to prohibitions on the declaration or payment of
dividends contained in debt agreements of the Company.
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<PAGE>
DESCRIPTION OF OUTSTANDING DEBENTURES
The Senior Debentures were issued under the Senior Indenture between the
Company and First Trust National Association, as trustee (the "Senior Trustee"),
which is incorporated by reference as an exhibit to the Registration Statement
which this prospectus is a part, to which exhibit reference is hereby made. The
Subordinated Debentures were issued under the Subordinated Indenture between the
Company and The Bank of New York, as trustee (the "Subordinated Trustee" and,
together with the Senior Trustee, the "Trustees"), which is incorporated by
reference as an exhibit to the Registration Statement which this prospectus is a
part, to which exhibit reference is hereby made. The Indentures were qualified
under the Trust Indenture Act of 1939. The following summaries of certain
provisions of the Indentures and the Outstanding Debentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the Indentures and the Outstanding Debentures, including the definitions
therein of terms not defined herein. Certain terms used in this section are
defined at the end of this section under the heading "Certain Definitions."
TERMS. The Outstanding Debentures bear interest at 12% per annum from March
15, 1992, payable semiannually in arrears on March 15 and September 15 of each
year, commencing September 15, 1992, to the persons who are registered holders
thereof at the close of business on the March 1 or September 1 immediately
preceding such Interest payment Date. The Outstanding Debentures mature on March
15, 2002.
Subject to the conditions set forth below, the Company at any time, at its
option and in its sole discretion, in lieu of paying some or all of any payment
of interest on the Senior Debentures or the Subordinated Debentures, as the case
may be, in cash: (a) issue additional Senior Debentures (the "Secondary Senior
Debentures") or Subordinated Debentures (the "Secondary Subordinated
Debentures"), as the case may be, in an aggregate principal amount equal to the
amount of cash interest not paid on the last day of the Interest Period; (b)
issue shares of Common Stock having a Fair Market Value on the date of such
issuance equal to the amount of cash interest not paid on the last day of the
Interest Period; or (c) issue a combination of Secondary Senior Debentures or
Secondary Subordinated Debentures, as the case may be, and Common Stock having a
combined aggregate principal amount (in the case of the Secondary Senior
Debentures or Secondary Subordinated Debentures) and Fair Market Value on the
date of such issuance (in the case of the Common Stock) equal to the amount of
cash interest not paid on the last day of the Interest Period. In the event of
any such issuance of Secondary Senior Debentures, Secondary Subordinated
Debentures and/or shares of Common Stock in lieu of cash interest, the Company
may at its option pay cash in lieu of issuing Secondary Senior Debentures or
Secondary Subordinated Debentures in any denomination of less than $100 and/or
in lieu of issuing fractional shares of Common Stock. Notwithstanding the
foregoing, the Company may not issue any shares of Common Stock in lieu of cash
interest at any time unless (i) no Default under the Indenture pursuant to which
such interest is being paid shall have occurred and then be continuing, and (ii)
the Fair Market Value of the Common Stock on the date of such issuance exceeds
$.50 per share.
If, but only if, (i) no Default under the Indenture pursuant to which such
principal is being paid shall have occurred and then be continuing, and (ii) the
Fair Market Value of the Common Stock on the date of issuance exceeds $.50 per
share and, then the Company may, but only at the final maturity of the
respective Outstanding Debentures, pay some or all of the principal amount of
such Outstanding Debentures by issuing shares of Common Stock having a Fair
Market Value on the date of such issuance equal to the amount of principal not
paid in cash.
Interest on the Outstanding Debentures will be computed on the basis of a
360-day year of twelve 30-day months. Principal and interest is payable at the
offices of the respective Trustees, but, at the option of the Company, interest
may be paid by check (or, at the Company's option, additional debentures or
stock) mailed to the registered holders at their registered addresses. The
Outstanding Debentures are transferable and exchangeable at the offices of their
respective Trustees and were issued in fully registered
106
<PAGE>
form, without coupons, in denominations of $1,000 and any integral multiple
thereof, and in denominations of $100 and integral multiples thereof less than
$1,000, except for additional Outstanding Debentures issued in lieu of cash
payments of interest, which have been issued in smaller denominations. However
Outstanding Debentures issued upon any transfer or exchange are issued in (i)
the same denomination as the Outstanding Debentures transferred or exchanged,
(ii) denominations of $1,000 or integral multiples of $1,000, with a single
Outstanding Debenture in an amount less than $1,000 if necessary to effectuate
the transfer or exchange, or (iii) such other denominations as may be authorized
by the Company for purposes of transfer or exchange.
OPTIONAL REDEMPTION. The Company may redeem all or any of the Outstanding
Debentures for cash at any time at 100% of the aggregate principal amount of the
Outstanding Debentures outstanding plus accrued interest to but excluding the
redemption date upon 30 days' prior written notice to all holders thereof.
CHANGE OF CONTROL. If a majority of the board of directors of the Company
were to be comprised of individuals other than Continuing Directors (such event
being referred to herein as a "Change of Control" and the date on which any such
event occurs being referred to herein as the "Change of Control Date"), then the
Company would be required to notify the holders of Outstanding Debentures in
writing of such occurrence and will be required to make an offer to redeem (the
"Change of Control Offer") such securities on the last day of its fiscal quarter
following the change of Control Date (the "Change of Control Payment Date") for
cash at 101% of the principal amount of Outstanding Debentures then outstanding
plus accrued interest to but excluding the Change of Control Payment Date.
SUBORDINATION. All indebtedness evidenced by the Outstanding Debentures is
subordinated in right of payment, as set forth in the respective Indentures, to
the prior payment in full of all Senior Debt of the Company.
"Senior Debt" is defined for purposes of each of the Indentures to include
as (i) any and all amounts payable by the Company or any Subsidiary under or in
respect of (1) with respect to the Subordinated Debentures, the Senior
Debentures, (2) indebtedness of the Company for money borrowed, (3) express
written guaranties of the Company of debt of any other person, and (4)
indebtedness evidenced by notes, debentures, bonds or other instruments of
indebtedness for the payment of which the Company is responsible or liable, by
guaranties or otherwise, in each of cases (1), (2), (3) or (4) whether now or
hereafter existing; and (ii) modifications, renewals, extensions, refinancings,
replacements and fundings of any such amounts, indebtedness, obligations or
guaranties; unless, in any of clauses (i) or (ii) above, in the instrument
creating or evidencing such indebtedness or pursuant to which the same is
outstanding it is provided that such amounts, indebtedness, obligations or
guaranties, or such modifications, renewals, extensions or refundings thereof,
are not superior in right of payment to the Outstanding Debentures.
Notwithstanding anything to the contrary in the foregoing, Senior Debt does not
include (a) the Senior Debentures (provided, however, that for purposes of the
Subordinated Debentures, the Senior Debentures are included in the definition of
Senior Debt), (b) the Subordinated Debentures, (c) any accounts payable or other
Debt of the Company or any Subsidiary to trade creditors created, incurred,
assumed or guaranteed by the Company in the ordinary course of business in
connection with obtaining goods, materials or services, (d) amounts payable on
any indebtedness or other obligations to any employee or Affiliate of the
Company or any Subsidiary (except for any Debt evidenced by any debt securities
of the Company purchased by such an employee or Affiliate after such debt
securities have been registered and sold under the Securities Act of 1933, as
amended, to a Person who is not an Affiliate of the Company or any Subsidiary,
provided that such debt securities rank senior in right of payment to the
Outstanding Debentures and the issuance of such debt securities was permitted to
be incurred under the Indentures), (i) any liability for federal, state, local
or other taxes owed or owing by The Company, or (f) any indebtedness or other
obligations created incurred, assumed or guaranteed by the Company which by the
terms of the document or instrument by which it is created provides that it is
subordinate in right of
107
<PAGE>
payment, with respect to the Senior Debentures, to any other indebtedness or
other obligation of the company or any Subsidiary or, with respect to the
Subordinated Debentures, to the Senior Debentures.
Only indebtedness of the Company which is Senior Debt (as defined in each
Indenture) ranks senior to the securities issued under such Indenture in
accordance with the provisions of such Indenture.
The Company may not pay principal of, premium, if any, or interest on the
Outstanding Debentures, other than in additional debentures or in shares of
Common Stock, and may not repurchase, redeem or otherwise retire any Outstanding
Debentures (collectively, "pay the Outstanding Debentures") if (i) any Senior
Debt is not paid when due, or (ii) any other default on Senior Debt occurs and
is continuing that then permits holders of such Senior Debt to accelerate its
maturity in accordance with its terms unless, in either case, the default has
been cured or waived or such Senior Debt has been paid in full.
The holders of Senior Debt may (a) renew, compromise, extend, accelerate or
otherwise change the time of payment, or any other terms, of any existing or
future Senior Debt, (b) increase or decease the rate of interest payable thereon
or on any part thereof, (c) exchange, enforce, waive or release any security
therefor, (d) apply such security and direct the order or manner of sale thereof
in such manner such holders may at their discretion determine, (e) release the
Company or any guarantor of such Senior Debt from liability, and (f) make
optional future advances of Senior Debt to the Company, all without the consent
of or notice to, and without affecting the liabilities and obligations of, the
parties to the Indentures or the holders of Outstanding Debentures.
Upon any distribution or payment to creditors of the Company in a
liquidation, dissolution, winding up or reorganization of the Company of any
kind or character and whether voluntary or involuntary or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company, to its property or to its creditors as such or in an assignment for the
benefit of creditors or any marshalling of assets and liabilities of the
Company, the holders of Senior Debt will be entitled to receive payment in full
before the holders of the Outstanding Debentures being subordinated thereto are
entitled to receive any payment. Upon an event of default under either Indenture
(other than any event of default as a result of the bankruptcy of the Company),
the respective Trustee thereunder or the holders of the securities seeking to
accelerate such Outstanding Debentures must give the Representative of the
holders of the Senior Debt 10 days' prior written notice before accelerating
such Outstanding Debentures.
By reason of such subordination provisions contained in the Indentures, in
the event of insolvency, creditors of the Company who are holders of Senior Debt
may recover more, ratably, than the holders of Outstanding Debentures being
subordinated thereto and creditors of the Company who are not holders of Senior
Debt or the Outstanding Debentures being subordinated thereto may recover less,
ratably, than holders of Senior Debt and may recover more, ratably, than the
holders of Outstanding Debentures. In addition, in the event of insolvency,
holders of Senior Debentures may recover more, ratably, than the holders of
Subordinated Debentures.
CERTAIN COVENANTS.
LIMITATION ON RESTRICTED PAYMENTS. The Company may not, and may not permit
any Subsidiary to, directly or indirectly, (i) declare or pay any dividend or
make any distribution on its Capital Stock or to the holders of its Capital
Stock (except dividends or distributions payable to the Company or a wholly
owned Subsidiary), (ii) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company, or (iii) purchase, repurchase, redeem,
decease or otherwise acquire or retire for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any Subordinated
Obligations (other than the acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition).
Notwithstanding the foregoing, the Company may purchase or redeem shares of any
class of Capital Stock or any Debt of the Company by exchange for, or out of the
proceeds of the substantially concurrent sale of, shares of its Capital Stock.
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LIMITATION ON ISSUANCE OF CERTAIN SUBORDINATED DEBT. The Subordinated
Indenture provides that the Company may not issue, assume, guarantee, incur or
otherwise become liable, directly or indirectly, for any Debt subordinate or
junior in ranking in any respect to the Senior Debentures but senior in ranking
to the Subordinated Debentures.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Indentures currently
provide that the Company may not, and may not permit any Subsidiary to, conduct
any business or enter into any transaction or series of similar transactions
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate (other than a wholly owned
Subsidiary) unless the terms of such business, transaction or series of
transactions are (i) set forth in writing, and (ii) as favorable to the Company
or such Subsidiary as terms that would be obtainable at the time for a
comparable transaction or series of similar transactions in arm's-length
dealings with an unrelated third person. The Indentures further provide,
however, that this restriction shall not be construed to prohibit payment by the
Company or a Subsidiary of compensation to officers, directors or employees of
the Company or such Subsidiary for services rendered in such capacity.
SUCCESSOR COMPANY. The Company may not consolidate with or merge with or
into, or convey, transfer or lease all or substantially all its assets to,
another Person unless (i) the resulting, surviving or transferee Person is a
Person organized and existing under the laws of the United States, any state
thereof or the District of Columbia and such entity assumes by supplemental
indenture all the obligations of the Company under the Outstanding Debentures
and the Indentures, (ii) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture comply with the Indentures,
(ii) the resulting, surviving or transferee Person shall have Consolidated Net
Worth after giving effect to such transaction which is not less than the
Consolidated Net Worth of the Company prior to such transaction, and (iv)
immediately after giving effect to such transaction, no Default has occurred and
is continuing.
DEFAULTS AND CERTAIN RIGHTS ON DEFAULT. An "Event of Default" occurs under
each Indenture if: (a) the Company fails to make any payment of principal or
premium, if any, when due thereunder upon stated maturity, upon redemption, upon
declaration or otherwise; (b) the Company fails to make any payment of interest
(in cash or, as otherwise permitted thereunder) when due, or fails to make
payment of any other amount thereunder when due, and such default continues for
a period of 30 days; (c) the Company or any Subsidiary thereof fails to comply
with any other term, condition, provision, covenant or obligation contained
therein or required thereunder, or contained in or required under the securities
issued thereunder or any other instrument or agreement required thereunder, and
such failure continues for a period of 30 days after (i) its occurrence, in the
event the President, any Managing Director or any Vice President of the Company
or any Subsidiary thereof knew or had reason to know of such failure, or (ii)
notice to the Company from the Trustee or the Required Holders; (d) the Company
or any Subsidiary thereof or any Joint Venture (i) applies for or consents to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property,
(ii) admits in writing its inability to pay its debts as such debts become due,
(iii) makes a general assignment for the benefit of its creditors, (iv)
commences or consents to proceedings under the federal Bankruptcy Code (as now
or thereafter in effect), (v) files a petition to take advantage of any other
law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debtors, (vi) fails to controvert in a timely
manner, or acquiesces in writing to, any action filed against the Company or any
Subsidiary thereof or any Joint Venture in an involuntary case under such
Bankruptcy Code, (vii) fails to pay its debts generally as they come due, or
(viii) takes any corporate action for the purpose of effecting any of the
foregoing; (e) a proceeding or case is commenced, without the application or
consent of the Company or any Subsidiary thereof or any Joint Venture in any
Court of competent jurisdiction, seeking (i) the liquidation, reorganization,
dissolution, winding-up or composition or readjustment of debts of the Company
or any Subsidiary thereof or any Joint Venture, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like for the Company or any
Subsidiary thereof or any Joint Venture or of all
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or any substantial part of its respective assets, or any substantial part of its
respective assets, or (iii) similar relief in respect of the Company or any
Subsidiary thereof or any Joint Venture under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts and
any such case or proceedings shall not be dismissed or withdrawn or released,
vacated or fully bonded within 60 days thereafter; (f) such of the property of
the Company or any Subsidiary thereof or any Joint Venture shall have been
condemned, seized or appropriated as shall, in the opinion of the Required
Holders, have a material adverse effect on the ability of the Company to pay its
obligations under the securities issued thereunder; (g) any final action is
taken by any governmental or other regulatory authority having jurisdiction over
the Company or any Subsidiary thereof or any Joint Venture which will have a
material adverse effect on the ability of the Company to repay its obligations
under the securities issued thereunder; (h) any breach, default or event of
default shall occur under any other indenture, credit or loan agreement or other
agreement or instrument under which indebtedness for borrowed money of the
Company or any Subsidiary thereof or any Joint Venture (or any obligation of the
Company or any Subsidiary thereof or any Joint Venture under any agreement for
the issuance of a letter or letters of credit) shall have occurred, and shall
(i) relate to the failure to pay principal within any applicable grace period
after final maturity, or (ii) result in the acceleration of Debt of the Company
or any Subsidiary thereof or any Joint Venture, if the total amount of such Debt
unpaid or accelerated exceeds $10,000,000 in aggregate amounts.
If an Event of Default (other than certain events of bankruptcy, insolvency
or reorganization) occurs and is continuing with respect to the Senior Indenture
or the Subordinated Indenture, the relevant Trustee or the holders of 25% in
principal amount of the outstanding Senior Debentures or Subordinated
Debentures, respectively, may declare the principal and the accrued but unpaid
interest on all such Senior Debentures or Subordinated Debentures, as the case
may be, to be due and payable. Notwithstanding the foregoing, upon an Event of
Default (other than certain events of bankruptcy, insolvency or reorganization)
of the Company, the applicable Trustee or the holders electing to accelerate
must give the Representative of the holders of the Senior Debt 10 days' prior
written notice before acceleration. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Outstanding Debentures will
IPSO FACTO become and be immediately due and payable without any declaration or
other act on the part of the Trustees or any holders of the securities. Under
certain circumstances, the holders of a majority in principal amount of the
outstanding Senior Debentures or Subordinated Debentures may rescind any such
acceleration with respect to such series of securities and its consequences.
Subject to the provisions of each Indenture relating to the duties of the
Trustee in case of an Event of Default thereunder should occur and be
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under the relevant Indenture at the request or direction of any
of the holders of the applicable securities unless such holders have offered to
the Trustee reasonable indemnity or security against any loss or expense.
Subject to such provisions for security or indemnification and certain
limitations contained in each Indenture, the holders of a majority in principal
amount of the applicable securities at the time outstanding have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the relevant Trustee or exercising any trust or power conferred on
such Trustee.
AMENDMENT, SUPPLEMENT, WAIVER. Subject to certain exceptions, each
Indenture may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the relevant Senior Debentures or
Subordinated Debentures then outstanding thereunder, and any past default or
compliance with any provision may be waived with the consent of the holders of
at least a majority in principal amount of the relevant Senior Debentures or
Subordinated Debentures then outstanding. However, without the consent of each
holder of an Outstanding Debenture affected thereby, no amendment may, among
other things: (i) reduce the amount of Outstanding Debentures whose holders must
consent to any amendment; (ii) reduce the rate of or extent the time for payment
of interest on any Outstanding Debenture; (iii) reduce the principal of or
extend the fixed maturity of any Outstanding
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Debenture; (iv) reduce the premium payable upon redemption of any Outstanding
Debenture; (v) change the currency or consideration for payment of any
Outstanding Debenture; (vi) change the subordination provisions of the relevant
Indenture in any manner which adversely affects the rights of any holder of
Outstanding Debentures; or (vii) amend the sections of the relevant Indenture
relating to waiver of past defaults, rights of holders to receive payment and
amendments of such Indenture. Without the consent of any holder of the
Outstanding Debentures, the Company and the relevant Trustee may amend or
supplement the relevant Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the relevant Indenture, to provide for
uncertificated Outstanding Debentures in addition to or in place of certificated
Outstanding Debentures so long as such uncertificated Outstanding Debentures are
in registered form for purposes of the Code, to add guarantees with respect to
the Outstanding Debentures or to reflect the release of guarantees in accordance
with the terms of the Indentures, to add to the covenants of the Company for the
benefit of the holders of Outstanding Debentures or to surrender any right or
power herein conferred upon the Company to make any change that does not
adversely affect the rights of any holder of the Outstanding Debentures or to
comply with any requirement of the SEC in connection with the qualification of
the Indentures under the TIA. No amendment may be made to the subordination
provisions of either Indenture that adversely affects the rights of any holder
of Senior Debt then outstanding unless the holders of such Senior Debt (as
required pursuant to the terms of such Senior Debt) consent to such change.
TRANSFER. The Outstanding Debentures were issued in registered form and are
transferable only upon the surrender of such securities being transferred for
registration of transfer.
DEFEASANCE. The Indentures provide that the Company at any time may
terminate all of its obligations under the Outstanding Debentures and the
Indentures ("legal defeasance"), except for certain obligations, including ones
respecting the defeasance trust and obligations to register the transfer or
exchange of the Outstanding Debentures, to replace mutilated, destroyed, lost or
stolen Outstanding Debentures and to maintain agencies in respect of the
Outstanding Debentures. Subject to the conditions described below, the Company
at any time may terminate its obligations under the covenants described under
"Description of the Outstanding Debentures--Certain Covenants" ("covenant
defeasance"). Legal defeasance and/or covenant defeasance may be made with
respect to one series of the Outstanding Debentures and not the other.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the series of Outstanding Debentures with
respect to which such defeasance was made may not be accelerated because of an
Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the series of Outstanding Debentures with respect
to which such defeasance was made may not be accelerated by reference to the
covenants described under "Description of the Outstanding Debentures--Certain
Covenants."
In order to exercise either defeasance option under either Indenture, the
Company must irrevocably deposit in trust (the "defeasance trust") with the
Trustee under the respective Indenture money of U.S. Government Obligations for
the payment of principal and interest on the respective Outstanding Debentures
to redemption or maturity, as the case may be, and must comply with certain
other conditions.
CONCERNING THE TRUSTEES. First Trust National Association is to be the
Trustee under the Senior Indenture and was appointed by the Company as Registrar
and Paying Agent with regard to the Senior Debentures. The Bank of New York is
the Trustee under the Subordinated Indenture and was appointed by the Company as
Registrar and Paying Agent with regard to the Subordinated Debentures.
GOVERNING LAW. Each Indenture provides that it will be governed by the laws
of the State of New York.
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CERTAIN DEFINITIONS. The following definitions apply to the foregoing
description of the Outstanding Debentures:
"Affiliate" of any Person means (i) any Person which, directly or
indirectly, is in control of, is controlled by or is under common control with
such Person, or (ii) any Person who is a director or officer (A) of such Person
or (B) of any Person described in clause (i) above who is in control of such
Person. For purposes of this definition, control of a Person means the power,
direct or indirect, to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
Without limiting the generality of the foregoing, beneficial ownership of 20% or
more of the voting common equity (on a fully diluted basis) or warrants to
purchase such equity (whether or not currently exercisable) of a Person shall in
any event be deemed to be control of such Person.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles, and the stated maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock, including any preferred stock.
"Closing Date" means the date of the issuance of the Outstanding Debentures
to the initial holders thereof.
"Consolidated Net Worth" means at any time, for any specified Person or
Persons, on a consolidated basis, that amount by which total assets, excluding
goodwill and other intangible assets, exceeds total liabilities, on a
consolidated basis, all determined in accordance with generally accepted
accounting principles.
"Continuing Directors" means the numbers of the Company's Board as of March
15, 1992 and any other director of the Company whose nomination or election to
the Board was approved by a majority of the Continuing Directors then in office.
"Debt" means with respect to any Person, without duplication: (i) all
obligations of such Person for borrowed money; (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments; (iii)
all Capital Lease Obligations of such Person; (iv) all obligations of such
Person issued or assumed as the deferred purchase price of property, any
conditional sale obligation and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business); (v) all obligations of such Person issued or contracted for as
payment in consideration of the purchase by such Person of the stock or
substantially all of the assets of other Persons or a merger or consolidation to
which such Person was a party; (vi) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or a
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in clause (i),
(ii), (iii), (iv), or (v) of this definition) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (vii) all
obligations of the type referred to in clauses (i) through (vi) of this
definition of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable as obligor,
guarantor or otherwise; or (xiii) all obligations of the type referred to in
clauses (i) through (vii) of this definition of other Persons
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secured by any lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligations so secured.
"Default" means any event which is, or after notice or passage of time or
both would be, an event of default under the respective Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of a share of Common Stock on any date means the average
of the daily closing prices per share of Common Stock for the 20 consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such
date (appropriately adjusted to reflect any stock split, stock dividend,
subdivision, combination, reclassification or other extraordinary dividend or
distribution with respect to the Common Stock having a record date or effective
date on or after the commencement of such 20-Trading Day period and prior to the
close of business on the date of determination of such Fair Market Value). The
closing price for each day shall be the last sale price, regular way, as
reported in the principal national securities exchange on which the Common Stock
is listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then
in use. The term "Trading Day" shall mean a day on which at least 10,000 shares
of Common Stock were traded on any national securities exchanges or in the
over-the-counter market. Notwithstanding the foregoing, the Fair Market Value of
the Common Stock shall be deemed to be less than $.50 per share in the event
that either (i) on the date of determination of Fair Market Value, the Common
Stock is not listed or admitted to trading on any national securities exchange
or reported by NASDAQ or such other system then in use, or (ii) there are fewer
than 20 Trading Days within the 40 Business Days, or fewer than five (5) Trading
Days within the 10 Business Days, immediately preceding the date of
determination of Fair Market Value.
"Interest Payment Dates" means the dates on which interest payments on the
Outstanding Debentures are due, as set forth therein.
"Interest Period" means each six-month period ending on an Interest Payment
Date.
"Joint Venture" means any partnership, joint venture or similar entity in
which the Company or any of its Subsidiaries owns or controls any interest.
"Legal Holiday" is a Saturday, Sunday or a day on which banking institutions
are not required to be open in the States of New York and Connecticut. If a
payment date with respect to the Outstanding Debentures is a Legal Holiday,
payment is made on the next succeeding day that is not a Legal Holiday, and no
interest accrues for the intervening period. If a regular record date with
respect to the Outstanding Debentures is a Legal Holiday, the record dates
affected.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the relevant Trustee. The counsel may be an employee of or counsel
to the Company or the Trustee.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Representative" means the bank agent, indenture trustee or other trustee,
or other agent or representative for the holders of Senior Debt.
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"Required Holders" means, under each Indenture, holders of at least 51% in
aggregate principal amount of the then outstanding securities issued thereunder.
"Subordinated Obligations" means (i) any Debt of the Company (other than the
Outstanding Debentures) which is not Senior Debt of the Company, and (ii) any
preferred stock of the Company.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
capital stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, or (ii) one or more Subsidiaries;
PROVIDED, HOWEVER, that the term "Subsidiary" shall not include Henley Holdings
Two, Inc. or any corporation that has no assets as determined in accordance with
generally accepted accounting principles consistently applied, and PROVIDED,
FURTHER, that a Joint Venture shall constitute a Subsidiary if such Joint
Venture is required to be treated as a Subsidiary pursuant to the definition
herein.
"Trustee" means the party named as such in the respective Indenture until a
successor replaced it and, thereafter, means the successor.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged, or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clause (i) or (ii) are not callable or redeemable at the option of the issuer
thereof.
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BUSINESS AND PROPERTIES OF THE COMPANY
BUSINESS. The Company is a real estate development company with properties
principally in Southern California. The principal activities of the Company and
its consolidated subsidiaries include: (i) obtaining zoning and other
entitlements for land it owns and improving the land for residential
development; (ii) single and multi-family residential construction in Southern
California; and (iii) providing commercial, industrial, retail and residential
real estate 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, Phoenix, Seattle, Shanghai, China and Taipei, Taiwan. Once the
residential land owned by the Company 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
intends to consider additional real estate acquisition and joint venture
opportunities; however, the Company's immediate strategic goals are to (i)
obtain new financing for development of the Bolsa Chica mesa; (ii) successfully
defend against the litigation challenging the California Coastal Commission's
approval of the Bolsa Chica project; (iii) complete the secondary permitting for
development of the Bolsa Chica mesa; (iv) commence infrastructure construction
on the Bolsa Chica mesa in the fourth quarter of 1997; (v) continue the growth
of the Company's commercial development business on a national and international
basis; and (vi) complete the Recapitalization to deleverage the Company's
capital structure. There can be no assurance that the Company will accomplish,
in whole or in part, all or any of these strategic goals.
The Company's executive offices are located at 4343 Von Karman Avenue,
Newport Beach, California 92660 (telephone: (714) 833-3030).
PRINCIPAL PROPERTIES. The Company's principal executive offices are located
in Newport Beach, California. The Company and each of its subsidiaries believe
that their properties are generally well maintained, in good condition and
adequate for their present and proposed uses. The inability to renew any
short-term real property lease would not be expected to have a material adverse
effect on the Company's results of operations.
The principal properties of the Company and its subsidiaries, which are
owned in fee unless otherwise indicated, are as follows:
<TABLE>
<CAPTION>
PROPERTY LOCATION ACRES PRESENT OR PLANNED USE
- ---------------------------- -------------------------- --------- --------------------------------------
<S> <C> <C> <C>
Newport Beach* Newport Beach, CA -- Headquarters
Bolsa Chica Huntington Beach, CA 310 Oceanfront residential community
Rancho San Pasqual Escondido, CA 650 Residential community
Fairbanks Highlands** San Diego, CA 390 Residential community
Aliso Viejo** Aliso Viejo, CA 230 Residential community
Michigan Land Upper Peninsula, MI 1,100 Resort/residential lots
Signal Hill Signal Hill, CA 3 Commercial/industrial land and
distribution facility
PetsMart Phoenix, AZ 20 Corporate headquarters
EDS*** Allen, TX 14 Office/distribution center
</TABLE>
- ------------------------
* Leased
** Minority interest in partnership or limited liability company
*** Majority interest in partnership
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The following sections describe the Company's principal properties.
BOLSA CHICA. The Bolsa Chica property is the principal property in the
Company's portfolio. Following completion of the Company's recent sale of
approximately 880 lowland acres of its Bolsa Chica property to the State of
California on February 14, 1997, as described below, the Company owns
approximately 310 acres of the 1,600 acres of undeveloped Bolsa Chica land,
approximately 1,200 acres of which will be devoted to the restoration, creation
and preservation of wetlands, open space, parks and trails. Bolsa Chica is
located adjacent to the Pacific Ocean in northwestern Orange County, California.
Bolsa Chica is bordered on the north and east by residential development, to the
south by open space and residential development, and to the west by the Pacific
Coast Highway and the Bolsa Chica State Beach. Bolsa Chica is one of the last
large undeveloped coastal properties in Southern California, and is located
approximately 35 miles south of downtown Los Angeles.
The planned community at Bolsa Chica is expected to offer a broad mix of
home choices, including single-family homes, townhomes and condominiums at a
wide range of prices. In December 1994, the Orange County Board of Supervisors
unanimously approved a Local Coastal Program ("LCP") for up to 3,300 units of
residential development and a wetlands restoration plan for this property. The
3,300-unit LCP provides for development of up to 2,500 homes on the mesa (high
ground) portion of the property and up to 900 homes on the lowland portion of
the property, not to exceed 3,300 homes in the aggregate. The related
Development Agreement was unanimously approved by the Orange County Board of
Supervisors in April 1995. The California Coastal Commission approved the LCP in
January 1996 subject to suggested modifications. These suggested modifications
were approved by the Orange County Board of Supervisors in June 1996, and on
July 11, 1996 the California Coastal Commission certified the LCP for the
Company's Bolsa Chica property.
On February 14, 1997, the Company completed the sale of approximately 880
lowland acres owned by the Company at Bolsa Chica to the California State Lands
Commission for $25 million, and will, therefore, forego opportunities to develop
up to 900 homes in the lowland. Under an interagency agreement among various
state and federal agencies, these agencies have agreed to restore the Bolsa
Chica lowlands utilizing escrowed funds from the Ports of Los Angeles and Long
Beach. A reserve of $1.5 million has been included in the Company's Balance
Sheet as of December 31, 1996, with respect to potential costs payable by the
Company under agreements negotiated with the State Lands Commission and certain
oil field operators regarding environmental clean-up at the Bolsa Chica
lowlands. See Note 5 to "Audited Historic Financial Statements." In connection
with the lowlands sale, the Company paid $833,333 of these costs at closing,
leaving a reserve balance of $700,000 on its financial statements for potential
additional clean-up costs.
The Company is now pursuing the secondary permitting process for the mesa
through the County of Orange in order to implement the approved development plan
for up to 2,500 homes. This process is currently expected to be completed in the
fourth quarter of 1997. The Company expects, subject to its ability to obtain
financing on a commercially reasonable and timely basis, and subject to
obtaining the secondary permits, to commence infrastructure construction on the
mesa in the fourth quarter of 1997. However, due to certain 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 start of construction could be delayed. In this regard,
on March 6, 1996 and March 11, 1996, two lawsuits were filed against the Coastal
Commission, the Company and other Bolsa Chica landowners as real parties in
interest, alleging that the Coastal Commission's approval of the LCP is not in
compliance with the Coastal Act and other statutory requirements. These lawsuits
seek to set aside the approval of the Bolsa Chica project and are currently
scheduled to be tried in April 1997. Given the recent sale of the Bolsa Chica
lowlands described above, the primary issues which were the subject of this
litigation have been eliminated. Furthermore, the plaintiffs in one of these
lawsuits have informed the Company that given the sale of the lowlands, they
will work with the Company in an effort to resolve the remaining issues of their
lawsuit. The Company believes that the remaining litigation issues which
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challenge development of the Bolsa Chica mesa are without merit. Furthermore,
the Company does not believe that these lawsuits will be successful in
permanently preventing the Company from completing the Bolsa Chica project,
however, there can be no assurance in this regard or that these suits will not
result in delays.
Realization of the Company's investment in Bolsa Chica will 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. See Notes 2 and 5 to "Audited Historic Financial
Statements."
RANCHO SAN PASQUAL (FORMERLY EAGLE CREST). In the City of Escondido in San
Diego County, approximately 30 miles north of downtown San Diego, the Company is
developing an 850-acre, gated community consisting of 580 residential lots
surrounding an 18-hole championship golf course which the Company operated from
May 1993 to June 1996. The Company sold its Eagle Crest Golf Course at Rancho
San Pasqual in June 1996, to a nationally recognized owner/operator of high-end
daily fee golf courses and private country clubs for $6.1 million. On-going
infrastructure construction was partially financed in 1995 and 1996 with a major
financial institution which provided a total of $10 million in construction
loans for the project. During the year ended December 31, 1996, the Company
completed sales of 218 residential lots at Rancho San Pasqual to four
homebuilders for gross proceeds aggregating approximately $10.1 million. These
four homebuilders have rolling options which if exercised would result in the
sale of an additional 230 lots over the next eighteen (18) months for aggregate
gross proceeds approximating $10.4 million. Under loan agreements with Nomura
Asset Capital Corporation, the Company utilized 90% of such sales proceeds and
proceeds from formation of the Fairbanks Highlands joint venture described
below, along with 50% of the net proceeds from Rancho San Pasqual assessment
district reimbursements, to prepay approximately $18.2 million of outstanding
senior bank debt during the year ended December 31, 1996. As of December 31,
1996, the Company had fully utilized its availability under the construction
loan.
FAIRBANKS HIGHLANDS. This property consists of approximately 390 acres near
the communities of Fairbanks Ranch and Rancho Santa Fe in the northern part of
the City of San Diego. In December 1995 the Company received approval of a
vesting tentative map from the City of San Diego's City Council. The approved
plan includes 93 single-family residential lots averaging 1.34 acres each and
approximately 215 acres of open space. In December 1996, the Company formed a
joint venture with a major homebuilder to develop this property. Under the terms
of the joint venture agreement, the Company contributed its land to the venture
at market value of $7.6 million in exchange for an initial cash payment of $4
million, a preferred return on its $3.6 million capital contribution and a
continuing partnership interest in the venture. The Company's partner will
manage the day-to-day operations of the venture, provide all construction
financing and expects to build the majority of the homes at the site.
ALISO VIEJO. Through a subsidiary, the Company owns a 49% general
partnership interest in a 230-acre project, planned for approximately 1,200
single family residential units in southern Orange County. The property is well
located, within close proximity to transportation infrastructure, employment
centers and other attractions, including the Orange County (John Wayne) Airport
(approximately 15 miles), the San Joaquin Hills Transportation Corridor (a
quarter mile) and Laguna Beach (approximately 10 minutes). Homes are now offered
for sale at seven of twelve planned communities, and a total of 254 homes have
been sold and 58 homes were in escrow as of February 9, 1997. However, due to a
significant shortfall in sales during 1995 versus forecast, the financial
structure of the partnership and the significant amount of participating
mortgages with preference to the Company's equity interest, the Company does not
expect to receive a financial return from this partnership and established a
reserve in 1995 as discussed below in Note 3 to "Audited Historic Financial
Statements."
OTHER PROPERTIES. The Company owns land zoned for commercial/industrial use
in Signal Hill, California, and resort/residential property in Michigan. These
properties are currently held for sale, subject
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to market conditions. A portion of the Signal Hill property has been improved
with a 45,000 square foot distribution building, which is currently in escrow
and scheduled to be sold during March 1997. In addition, during 1996, the
Company acquired property in Phoenix, Arizona and Allen, Texas and is
constructing a corporate headquarters facility and office/distribution center,
respectively, on a build-to-suit basis. The Company has contracted for the sale
of each of these buildings, which sales are expected to close in the third
quarter of 1997.
PROPERTY DISPOSITIONS. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a description of the
Company's property dispositions during 1994, 1995 and 1996.
ENVIRONMENTAL AND REGULATORY MATTERS. Before the Company can develop a
property, it must obtain a variety of discretionary approvals from local and
state governments, as well as the federal government in certain circumstances,
with respect to such matters as zoning, subdivision, grading, architecture and
environmental matters. The entitlement approval process is often a lengthy and
complex procedure requiring, among other things, the submission of development
plans and reports and presentations at public hearings. Because of the
provisional nature of these approvals and the concerns of various environmental
and public interest groups, the approval process can be delayed by withdrawals
or modifications of preliminary approvals and by litigation and appeals
challenging development rights. Accordingly, the ability of the Company to
develop properties and realize income from such projects could be delayed or
prevented due to litigation challenging recently obtained governmental
approvals.
As more fully described above, in July 1996, the California Coastal
Commission certified Orange County's residential development plan for Bolsa
Chica. The Company now has the necessary primary approvals to proceed with
development of up to 2,500 homes on the Bolsa Chica mesa. Secondary approvals of
the details of the development plan, such as tentative tract maps and grading
approvals from the County of Orange's planning staff, as well as a master
coastal development permit from the County of Orange, must still be obtained.
Nevertheless, the approval process for the Bolsa Chica property remains subject
to the litigation described above, and there can be no assurance that such
litigation will not result in delays.
The Company has expended and will continue to expend significant financial
and managerial resources to comply with environmental regulations and local
permitting requirements. Although the Company believes that its operations are
in general compliance with applicable environmental regulations, certain risks
of unknown costs and liabilities are inherent in developing and owning real
estate. However, the Company does not believe that such costs will have a
material adverse effect on its business, financial condition or results of
operations, including the potential remediation expenditures proposed in
connection with certain indemnity obligations discussed below in "Corporate
Indemnification Matters."
CORPORATE INDEMNIFICATION MATTERS. The Company and its predecessors have,
through a variety of transactions effected since 1986, disposed of several
assets and businesses, many of which are unrelated to the Company's current
operations. By operation of law or contractual indemnity provisions, the Company
may have retained liabilities relating to certain of these assets and
businesses, including certain tax liabilities. See Note 8 to "Audited Historic
Financial Statements." Many of such liabilities are supported by insurance or by
indemnities from certain of the Company's predecessors and currently or
previously affiliated companies. The Company believes its balance sheet reflects
adequate reserves for these matters.
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
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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 of $6.2
million. EPA estimates that it has spent approximately $3.9 million to date in
performing studies of the site. Under CERCLA, EPA could assert claims against
the Torch Lake PRPs, including UOP, to recover the cost of these studies, the
cost of all remedial action required at the site, and natural resources damages.
In June 1995, EPA proposed a CERCLA settlement pursuant to which UOP would pay
between $2.6 and $3.3 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 determined to vigorously defend UOP's position that the EPA's proposed
cleanup 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.
EMPLOYEES. As of December 31, 1996 the Company and its subsidiaries had
approximately 125 employees.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. Certain of the foregoing information as well as certain information set
forth in "Legal Proceedings" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is forward looking in nature and
involves risks and uncertainties that could significantly impact the ability of
the Company to achieve its currently anticipated goals and objectives. These
risks and uncertainties include, but are not limited to, litigation or appeals
of regulatory approvals (including pending litigation challenging the California
Coastal Commission's approval of the Bolsa Chica project) and availability of
adequate capital, financing and cash flow. In addition, future values may be
adversely affected by 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. 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL. The principal activities of the Company include: (i) obtaining
zoning and other entitlements for land it owns and improving the land for
residential development; (ii) single and multi-family residential construction
in Southern California; and (iii) 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, Phoenix, Seattle, Shanghai, China and Taipei, Taiwan. Once the
residential land owned by the Company 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
intends to consider additional real estate acquisition and joint venture
opportunities; however, the Company's immediate strategic goals are to (i)
obtain new financing for development of the Bolsa Chica mesa; (ii) successfully
defend against the litigation challenging the California Coastal Commission's
approval of the Bolsa Chica project; (iii) complete the secondary permitting for
development of the Bolsa Chica mesa; (iv) commence infrastructure construction
on the Bolsa Chica mesa in the fourth quarter of 1997; (v) continue the growth
of the Company's commercial development business on a national and international
basis; and (vi) complete the Exchange Offer to deleverage the Company's capital
structure. There can be no assurance that the Company will accomplish, in whole
or in part, all or any of these strategic goals.
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 litigation or appeals of regulatory
approvals and availability of adequate capital, financing and cash flow. In
addition, future values may be adversely affected by 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. 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. However, over the past year, the number of potential purchasers and
capital sources interested in Southern California residential properties appears
to have increased.
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.
During the year ended December 31, 1996, the Company borrowed $8.7 million
under its construction loan agreement with Nomura Asset Capital Corporation
("Nomura") to fund infrastructure improvements at its Rancho San Pasqual golf
and residential community in San Diego county. During the year ended December
31, 1996, the Company also completed sales of 218 residential lots at Rancho San
Pasqual to four homebuilders for gross proceeds aggregating approximately $10.1
million. These four homebuilders have rolling options which if exercised would
result in the sale of an additional 230 lots over the next eighteen (18) months
for aggregate gross proceeds approximating $10.4 million. In June 1996, the
Company sold its Eagle Crest Golf Course at Rancho San Pasqual to a nationally
recognized owner/ operator of high-end daily fee golf courses and private
country clubs for $6.1 million. After paying termination related costs to the
operator of the golf course and closing costs, the Company realized net proceeds
of approximately $5 million. During 1996, the Company also formed a joint
venture to develop
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the Fairbanks Highlands property. Under the terms of the joint venture
agreement, the Company contributed its land to the venture at market value of
$7.6 million in exchange for an initial cash payment of $4 million, a preferred
return on its $3.6 million capital contribution and a continuing partnership
interest in the venture. The Company's partner will manage the day-to-day
operations of the venture, provide all construction financing and expects to
build the majority of the homes at the site. Under loan agreements with Nomura,
the Company utilized 90% of such sales and joint venture proceeds, along with
50% of the net proceeds from Rancho San Pasqual assessment district
reimbursements, to prepay approximately $18.2 million of outstanding senior bank
debt during the year ended December 31, 1996. As of December 31, 1996, the
Company had fully utilized its availability under the construction loan. On
February 18, 1997, the Company repaid the remaining balance of its senior bank
debt with a portion of the proceeds from the sale of the Bolsa Chica lowlands
and the Nomura credit facility was terminated.
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 asset revaluations and non-cash interest expense on the
Company's subordinated debentures, the Company's capital expenditures for
project development and infrastructure are significant. The Company will
continue to be dependent primarily on real estate asset sales, and cash and cash
equivalents on-hand to fund project development costs for Bolsa Chica and
general and administrative expenses during 1997. Following completion of the
sale of the Bolsa Chica lowlands in February 1997 and utilization of $6.6
million to repay Nomura, the Company's cash balance exceeded $15 million. The
Company is also seeking new financing for development of Bolsa Chica and
implementing the Recapitalization to deleverage the Company's capital structure.
FINANCIAL CONDITION.
DECEMBER 31, 1996 COMPARED WITH DECEMBER 31, 1995. The $2.8 million
decrease in cash and cash equivalents primarily reflects spending for Bolsa
Chica project development costs, and general and administrative expenses,
partially offset by approximately $3.6 million in proceeds from land sales at
the Company's resort/residential property in Michigan during the year ended
December 31, 1996, as well as other activity presented in the Statement of Cash
Flows. Restricted cash of $.2 million at December 31, 1996 reflects funds
remaining in escrow accounts for funding certain infrastructure costs at Rancho
San Pasqual.
The $2.9 million decrease in real estate held for development or sale
primarily reflect the sales of residential lots at Rancho San Pasqual, formation
of the Fairbanks Highlands joint venture and the disposition of Oceanside Hills,
partially offset by construction costs for build-to-suit projects in Signal
Hill, California, Phoenix, Arizona and Allen, Texas. The Company has contracted
for these buildings to be sold upon completion of construction in the first
quarter, third quarter and third quarter, respectively, of 1997.
The $4.8 million decrease in operating properties reflects the June 1996
sale of the Eagle Crest Golf Course at Rancho San Pasqual.
The $4.3 million increase in other assets primarily reflects the Company's
$3.6 million joint venture interest in Fairbanks Highlands.
The $6.8 million increase in accounts payable and accrued liabilities
primarily reflects accruals related to the sale of the Bolsa Chica lowlands and
the Recapitalization, along with contractor payments on build-to-suit projects.
The $9.5 million decrease in senior bank debt reflects net prepayments on
the Nomura loans, resulting primarily from sales of 218 residential lots and the
Eagle Crest Golf Course at Rancho San Pasqual and
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formation of the Fairbanks Highlands joint venture, partially offset by
construction borrowings during the year ended December 31, 1996.
The $12.5 million increase in project debt reflects borrowings from banks
for the three build-to-suit projects discussed above by subsidiaries of the
Company. The Company has entered into purchase and sale agreements for the sale
of each building upon completion.
The $9.0 million decrease in other liabilities primarily reflects a $4.3
million decrease in accrued pensions and benefits and a $4.2 million decrease
related to the disposition of the Company's interest in the Oceanside Hills
partnership. See Note 7 to "Audited Historic Financial Statements."
DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1994. Cash and cash
equivalents aggregated $4.9 million at December 31, 1995 compared with $13.0
million at December 31, 1994. The decrease in cash and cash equivalents
primarily reflects continued investments in Bolsa Chica and Rancho San Pasqual
along with general and administrative expenses, partially offset by proceeds
from asset sales, as well as other activity presented in the Statements of Cash
Flows. Restricted cash of $2.5 million at December 31, 1995 reflects funds
deposited into escrow accounts for funding infrastructure costs at Rancho San
Pasqual. Restricted cash of $7.5 million at December 31, 1994 reflects funds on
deposit to secure a $25 million letter of credit facility arranged to finance
the settlement of the Abex litigation described above. See Notes 6 and 8 to
"Audited Historic Financial Statements."
The $5.6 million decrease in real estate held for development or sale is
primarily due to the sale of all residential property at Wentworth, offset by
investments in Rancho San Pasqual infrastructure. The $4.5 million decrease in
operating properties, net is primarily due to the sale of the Wentworth marina
in December 1995.
The $105.8 million decrease in land held for development reflects the
revaluation of the Bolsa Chica property resulting primarily from management's
decision in the fourth quarter of 1995 (following approval of additional funding
by the Ports) to make completing the sale of the lowlands to a public agency a
strategic goal of the Company, along with updated estimates of future cash flows
for the mesa portion of the project reflecting recent market conditions.
The $6.9 million decrease in other assets primarily reflects the March 1995
collection of a note receivable from AV Partnership, 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 $23.2 million decrease in accounts payable and accrued liabilities
primarily reflects the $22 million settlement of the Abex litigation in February
1995. See Notes 6 and 8 to "Audited Historic Financial Statements."
The $16.6 million increase in senior bank debt reflects the borrowing of
$15.5 million to fund the Abex settlement and $1.1 million of net borrowings to
fund infrastructure construction at Rancho San Pasqual. See Note 8 to "Audited
Historic Financial Statements."
The $39.4 million decrease in other liabilities primarily reflects the
recognition of $25.4 million of deferred tax benefits and a reduction of $10.0
million of other tax liabilities during 1995.
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.
1996 COMPARED WITH 1995. The $10.1 million increase in asset sales revenues
from $23.5 million in 1995 to $33.6 million in 1996 and the related $8.6 million
increase in costs of asset sales from $21.6 million in 1995 to $30.2 million in
1996 primarily reflect the sale of the residential lots and Eagle Crest Golf
Course at Rancho San Pasqual, formation of the Fairbanks Highlands joint venture
and sales of resort/ residential lots in Michigan during the year ended December
31, 1996. These increases were partially offset
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by the absence in 1996 of Wentworth residential sales as a result of the sale of
the entire Wentworth project in the fourth quarter of 1995. The $1.5 million
improvement in gross margin on asset sales primarily reflects gains on sales of
Michigan lots, partially offset by the absence in 1996 of the gains on sales of
the Coronado wharfage rights and leasehold interest in 1995.
The $.7 million and $1.0 million increases in revenues and gross margin,
respectively, from operations primarily reflect higher revenues in the Company's
commercial development business during the year ended December 31, 1996,
partially offset by the absence of Wentworth marina revenues throughout 1996 and
the sale of the Eagle Crest Golf Course in June 1996.
The $1.9 million increase in general and administrative expenses primarily
reflects costs incurred in connection with the Recapitalization and the sale of
the Bolsa Chica lowlands.
The $2.3 million increase in interest expense from $22.6 million in 1995 to
$24.9 million in 1996 principally reflects compounded noncash interest on the
Company's Senior Debentures and Subordinated Debentures.
The $4.2 million decrease in other expense, net primarily reflects the
absence in 1996 of a $3.0 million reserve recorded in 1995 related to the
Company's investment in AV Partnership, and a decrease in accrued pensions and
benefits approximating $4.3 million, primarily due to termination of certain
group annuity contracts for the pension plan of a discontinued operation,
partially offset by a $1.5 million reserve for environmental clean up costs for
the Bolsa Chica lowlands.
The benefit for income taxes for the year ended December 31, 1996 has been
offset by a corresponding valuation allowance.
1995 COMPARED WITH 1994. The $12.6 million increase in revenues from $21.4
in 1994 to $34.0 in 1995 and the increase in cost of sales from $20.2 million in
1994 to $31.9 million in 1995 was primarily due to the sale of residential
property and the marina at Wentworth, along with the sale of industrial property
in Murietta, California, and the sale of wharfage rights in Coronado,
California.
The write-down of real estate properties of $121.1 million in 1995 reflects
the valuation adjustments recorded to reflect current estimates of net
realizable value for the Company's Bolsa Chica property as well as the Wentworth
project and the golf course at Rancho San Pasqual. See Note 5 to "Audited
Historic Financial Statements."
The change in other expense (income), net from $2.1 million of expense in
1994 to $3.1 million of expense for 1995 primarily reflects a loss reserve of
approximately $3 million related to the Company's investment in AV Partnership.
See Note 3 to "Audited Historic Financial Statements."
The improvement in provision (benefit) for income taxes of $25.2 million
primarily reflects the benefit related to the write-down of real estate
properties. See Note 8 to "Audited Historic Financial Statements."
1994 COMPARED WITH 1993. The $4.7 million increase in revenues from $16.7
million in 1993 to $21.4 million in 1994 and the increase in cost of sales from
$16.3 million in 1993 to $20.2 million in 1994 were both principally related to
operations of the domestic real estate development business acquired from The
Koll Company in September 1993, as well as residential home sales and the golf
course sale at the Company's Wentworth By The Sea project during 1994, offset by
the absence in 1994 of the Company's November 1993 sale of two office buildings
in La Jolla, California.
The decrease in interest expense from $24.4 million in 1993 to $19.4 million
in 1994 reflects both the reductions in outstanding subordinated debt in
connection with the Libra transaction in December 1993 and prepayments of senior
bank debt principally during 1993. See Note 6 to "Audited Historic Financial
Statements."
The change in other expense (income), net from $2.4 million of income in
1993 to $2.1 million of expense for 1994 primarily reflects nonrecurring income
of $3.0 million received in August 1993 in
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connection with the termination of a put option agreement with Abex a former
subsidiary of The Henley Group, Inc., and a $2.0 million insurance reimbursement
received in February 1993, offset by $.7 million of carrying costs related to
the two La Jolla office buildings sold in November 1993.
The gain on disposition of discontinued operations, net of income taxes in
1994 reflects the receipt of cash for the February 1994 termination of the
contingent payment provision of a December 1993 agreement with Libra whereby the
Company exchanged its Lake Superior Land Company subsidiary for approximately
$42.4 million face amount of the Company's Senior Debentures held by Libra and
other consideration. See Note 3 to "Audited Historic Financial Statements."
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. Certain of the foregoing information is forward looking in nature and
involves risks and uncertainties that could significantly impact the ability of
the Company to achieve its currently anticipated goals and objectives. These
risks and uncertainties include, but are not limited to, litigation or appeals
of regulatory approvals (including pending litigation challenging the California
Coastal Commission's approval of the Bolsa Chica project) and availability of
adequate capital, financing and cash flow. In addition, future values may be
adversely affected by increases in property taxes, increases in the costs of
labor and materials and other development risks such as the demand for housing
generally and the supply of competitive products. 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.
LEGAL PROCEEDINGS
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 (the "Court"). Although the lawsuits differed in the particular
issues they raised, generally they each alleged, among other things, violations
of the California Environmental Quality Act and violations of the California
Government Code planning and zoning laws. One lawsuit, which was brought by the
school districts, has been settled with an agreement regarding school fees to be
paid to the plaintiff districts. In the other "environmental lawsuit," the
plaintiffs did not seek monetary damages, but instead asked the Court to set
aside the approval of the Bolsa Chica project. In February 1996, the Court ruled
on the "environmental lawsuit," rejecting all but one of the arguments, and
requiring an additional 45-day public review and comment period regarding the
tidal inlet portion of the wetlands restoration plan, which was completed in the
second quarter of 1996. The County reapproved the plan without change in June
1996 and the Court approved a judgment dismissing the lawsuit on January 24,
1997.
On March 6, 1996 and March 11, 1996 two lawsuits were filed against the
Coastal Commission, the Company and other Bolsa Chica landowners as real parties
in interest, alleging that the Coastal Commission's approval of the 3,300-unit
LCP is not in compliance with the Coastal Act and other statutory requirements.
These lawsuits seek to set aside the approval of the Bolsa Chica project and are
currently scheduled to be tried in April 1997. Given the recent sale of the
Bolsa Chica lowlands described above, the primary issues which were the subject
of this litigation have been eliminated. Furthermore, the plaintiffs in one of
these lawsuits have informed the Company that given the sale of the lowlands,
they will work with the Company in an effort to resolve the remaining issues of
their lawsuit. The Company believes that the remaining litigation issues which
challenge development of the Bolsa Chica mesa are without merit. Furthermore,
the Company does not believe that these lawsuits will be successful in
permanently preventing the Company from completing the Bolsa Chica project,
however, there can be no assurance in this regard or that these suits will not
result in delays. See also "Business and Properties of the Company--
Environmental and Regulatory Matters, and --Corporate Indemnification Matters."
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EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
Certain of the executive officers of the Company are also executive officers
of The Koll Company and its affiliates. Accordingly, they will devote less than
all of their working time to the businesses of the Company. Set forth below is
information with respect to each executive officer, director and director
nominee of the Company.
<TABLE>
<CAPTION>
NAME AND TITLE AGE* BUSINESS EXPERIENCE
- -------------------------------------- ----- -------------------------------------------------------------------
<S> <C> <C>
Donald M. Koll ....................... 63 Chairman of the Board of the Company since March 1993 and Chief
Chairman of the Board Executive Officer since October 1996. Managing Director--President
and Chief Executive Officer and Director of the Company prior to July of 1992. Chairman of the
Board and Chief Executive Officer of Koll (general contracting and
international real estate development since prior to 1992) and
Chairman of the Board of Koll Management Services, Inc., also known
as Koll Real Estate Services ("KRES") (real estate management)
since prior to 1992. Also a Director of Fidelity National
Financial, Inc. since March 1995. Mr. Koll's director class will be
up for election in connection with the Company's 1997 Annual
Meeting.
Ray Wirta ............................ 52 Director of the Company since March 1993. Chief Executive Officer
Director of the Company from March 1993 until October 1996. President and
Chief Operating Officer of Koll since prior to 1992. Vice Chairman
of the Board and Chief Executive Officer of KRES since prior to
1992. Mr. Wirta's director class will be up for election in
connection with the Company's 1997 Annual Meeting.
Harold A. Ellis ...................... 65 Director of the Company since August 1993. Managing Partner of
Director Ellis Partners, Inc., a real estate asset management and consulting
firm since 1992. Chairman and Chief Executive Officer of Grubb &
Ellis Company, a diversified real estate service company prior to
1992. Mr. Ellis's director class will be up for election in
connection with the Company's 1997 Annual Meeting.
Paul C. Hegness ...................... 49 Director of the Company since March 1993. Partner in the law firm
Director of Good, Wildman, Hegness & Walley since prior to 1992. Also a
Director of Walter Foster Publishing, a publisher and marketer of
art instructional materials. Mr. Hegness's director class will be
up for election in connection with the Company's 1997 Annual
Meeting.
J. Thomas Talbot ..................... 61 Director of the Company since August 1993. Owner of The Talbot
Director Company, an investment and asset management company since prior to
1992. Chief Executive Officer of HAL, Inc., the parent company of
Hawaiian Airlines prior to 1992. Also a Director of The Baldwin
Company, a developer of residential real estate; The Hallwood
Group, Inc., a corporate rescue firm; Showbiz Pizza Time, Inc., a
restaurant chain; and Fidelity National Financial, Inc., a title
company. Mr. Talbot's term expires in 1998.
</TABLE>
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<TABLE>
<CAPTION>
NAME AND TITLE AGE* BUSINESS EXPERIENCE
- -------------------------------------- ----- -------------------------------------------------------------------
Marco F. Vitulli ..................... 62 Director of the Company since March 1993. President of Vitulli
Director Ventures, Ltd., a real estate development, investment management
and consulting services company since prior to 1992. Also, Chairman
of Elk River Enterprises, a lumber company, and Director of Pope
Resources, a land, timber, mineral and recreational properties
company. Mr. Vitulli's term expires in 1998.
<S> <C> <C>
Richard M. Ortwein ................... 55 President of the Company since October 1993. President, Southern
President California Division of Koll from prior to 1992. Executive Vice
President of KRES from prior to 1992, and Director of KRES from
1992 to March 1994.
Raymond J. Pacini .................... 41 Executive Vice President and Secretary of the Company since 1993;
Executive Vice President, Chief Chief Financial Officer and Treasurer of the Company since June of
Financial Officer, Treasurer and 1992. Managing Director of the Company prior to June of 1992.
Secretary Executive Vice President and Chief Financial Officer of KRES from
March to November 1993.
Philip R. Burnaman II ................ 37 A Managing Director and head of New York Proprietary Trading Desk
Director Nominee of ING Barings (U.S.) Capital Corp., which is a subsidiary of the
ING Group, an Amsterdam-based banking, investment banking and
insurance institution since 1994. Whole loan commercial mortgage
trader of Citicorp Securities prior to 1992 until 1994.
James J. Gaffney ..................... 56 President and Chief Executive Officer of General Aquatics, Inc.
Director Nominee (formerly known as KDI Corp.). Director of Insilco Corp. and C.R.
Anthony. Former Chief Executive Officer or Chairman of the
following: International Tropic-Cal, Brown Jordan Company,
Meyercord Company and Washington Industries. Also, former Vice
President of a subsidiary of Unocal, and former Executive Vice
President of Finance of General Refractories Company.
Robert J. Gagalis .................... 42 Chief Financial Officer and Treasurer of Wheelabrator Technologies,
Director Nominee Inc., an environmental services company since January 1997.
Formerly served Wheelabrator Technologies as Vice-President
Finance, Director of Corporate Development and Staff Vice President
of Corporate Development.
John D. Sanford ...................... 43 Senior Vice President, Chief Financial Officer and Treasurer of WMX
Director Nominee Technologies, Inc., since January 1997. Member of the Executive
Committee and Management Committee of WMX Technologies. Executive
Vice President and Chief Financial Officer of Wheelabrator
Technologies, Inc., from prior to 1992 until 1997.
Richard Schuler ...................... [ ] [Bio to come]
Director Nominee
P. John Wickser II ................... [ ] [Bio to come]
Director Nominee
</TABLE>
- ------------------------
* As of January 31, 1997
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table summarizes the compensation
paid during the previous three fiscal years to the Chief Executive Officer and
the Company's other executive officers whose salary and bonus during 1996
exceeded $100,000 (the "Named Executives") for services in all capacities to the
Company.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------------------------
------------------------------------- 1993
OTHER RESTRICTED PLAN ALL
ANNUAL STOCK OPTIONS OTHER
SALARY BONUS COMPENSATION AWARD (# OF COMPENSATION
NAME AND PRINCIPAL POSITION ($)(1) ($) ($) ($) SHARES) ($)
- --------------------------------- ------------ ------------ -------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald M. Koll .................. 1996 330,200 275,000(3) -- -- -- --
Chairman of the Board and 1995 325,000 -- -- -- -- --
Chief Executive Officer 1994 325,000 -- -- -- -- --
Ray Wirta ....................... 1996 103,750(2) 125,000(3) -- -- -- --
Former Chief Executive 1995 225,000 -- -- -- -- --
Officer 1994 225,000 -- -- -- -- --
Richard Ortwein ................. 1996 359,600 250,000(3) 13,841(5) -- -- --
President 1995 359,858 -- -- -- -- --
1994 274,197 18,500 -- -- -- --
--
Raymond J. Pacini ............... 1996 268,000 100,000(3) -- -- -- 76,725(6)
Executive Vice President 1995 268,000 200,000(4) -- -- -- --
and Chief Financial 1994 268,000 150,000 -- -- -- --
Officer
</TABLE>
- ------------------------
(1) Includes auto allowance and amounts electively deferred by each Named
Executive under the Company's 401(k) Savings and Profit Sharing Plan. Mr.
Koll and Mr. Wirta are also executive officers of The Koll Company and its
affiliates and accordingly devote less than all of their working time to the
Company's business matters.
(2) Reduced to $95,000 per year effective April 1, 1996 and to $0 effective
October 1, 1996 to reflect a reduction in his day-to-day involvement with
the Company in view of his commitment to devote a greater percentage of his
time to the business of an affiliate of the Company. Effective October 1,
1996, Mr. Wirta receives a consulting fee equivalent to $50,000 per year.
(3) Bonuses for 1996 were paid following the closing of the Bolsa Chica lowlands
sale in February 1997.
(4) In the first quarter of 1996, Mr. Pacini voluntarily elected to defer
consideration of his 1995 bonus given the Company's liquidity situation. In
September 1996, the Compensation Committee of the Company's Board of
Directors approved Mr. Pacini's bonus for accomplishments during 1995, which
was paid following the closing of the Bolsa Chica lowlands sale in February
1997.
(5) Partnership distributions.
(6) Reflects a one-time payment representing Mr. Pacini's pro-rata share of
assets distributed from a trust in connection with termination of the
Company's Executive Retirement and Savings Program.
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUE. The following table sets forth information for each Named
Executive with regard to the aggregate stock options exercised during the 1996
fiscal year, and stock options held as of December 31, 1996. On December 31,
1996, options exercisable by the Named Executives were for 2,400,000 shares,
2,000,000 shares, 2,400,000 shares and 2,200,000 shares under options granted to
Messrs. Koll, Wirta, Ortwein and Pacini, respectively. No stock appreciation
rights were exercised by the Named Executives during the 1996 fiscal year, nor
did such individuals hold any stock appreciation rights at the end of such
fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
VALUE UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED REALIZED OPTIONS/SARS OPTIONS/SARS
NAME ON EXERCISE (#) ($)(1) AT FY-END AT FY-END ($)(2)
- ------------------------------------ --------------- ------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Donald M. Koll...................... -- -- 2,400,000 --
Ray Wirta........................... -- -- 2,000,000 --
Richard Ortwein..................... -- -- 2,400,000 --
Raymond J. Pacini................... -- -- 2,200,000 $ 27,490
</TABLE>
- ------------------------
(1) Market value of underlying securities on exercise date, minus the exercise
price.
(2) Based upon market value of $.1250 for the Class A Common Stock and $.28125
for the Preferred Stock as of December 31, 1996 less the aggregate exercise
price payable for such shares. Includes the value of the 2,400,000 shares,
2,000,000 shares, 2,400,000 shares and 2,200,000 shares subject to currently
exercisable options by Messrs. Koll, Wirta, Ortwein and Pacini,
respectively.
EXECUTIVE RETIREMENT AND SAVINGS PROGRAM
The Company maintains two retirement benefit programs, one of which was
terminated in 1996: a tax-qualified defined benefit pension plan which was
available generally to all employees (the "Pension Plan") and the Retirement and
Savings Program, a non-qualified supplemental benefit plan pursuant to which
retirement benefits were provided to executive officers and other eligible key
management employees who were designated by the Compensation Committee, which
determined the service recognized under the program in calculating a
participant's vested interest and retirement income (the "Supplemental Plan"
and, together with the Pension Plan the "Retirement Program"). As of December
31, 1993, all benefits under the Pension Plan were frozen, and no further
compensation or years of service will be taken into account for additional
benefit accrual purposes, under the Pension Plan. The Supplemental Plan was
terminated effective November 15, 1996 through the distribution of assets held
in trust to the beneficiaries of the Supplemental Plan in exchange for the
beneficiaries release of all claims to any future benefits under the
Supplemental Plan.
The following table shows as of the date the Pension Plan was frozen the
total estimated annual benefits payable under the Retirement Program in the form
of a 50% joint and survivor annuity to hypothetical participants upon retirement
at normal retirement age, in the compensation and years-of-service categories
indicated in the table.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS
ANNUALIZED -----------------------------------------------
AVERAGE 10 YEARS 20 YEARS 30 YEARS 40 YEARS
EARNINGS OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ 100,000 $ 15,000 $ 30,000 $ 45,000 $ 60,000
200,000 30,000 60,000 90,000 120,000
400,000 60,000 120,000 180,000 240,000
</TABLE>
The years of service recognized under the Retirement Program generally
included all service with the Company and its subsidiaries and their
predecessors. The only credited years of service to the Named Executives as of
the date the Pension Plan was frozen were seven years to Mr. Pacini.
Compensation
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<PAGE>
recognized under the Retirement Program generally included a participant's base
salary (including any portion deferred) and annual bonus compensation.
COMPENSATION OF DIRECTORS. The non-employee directors of the Company are
entitled to receive cash compensation and compensation pursuant to the plans
described below.
CASH COMPENSATION. Non-employee directors of the Company receive
compensation of $30,000 per year, with no additional fees for attendance at
Board or committee meetings. Messrs. Ellis, Hegness and Vitulli were paid an
additional $10,000, $20,000 and $7,000, respectively, for consulting services
rendered during 1996. Employee directors are not paid any fees or additional
compensation for service as members of the Board or any of its committees. All
directors are reimbursed for expenses incurred in attending Board and committee
meetings. Pursuant to the Deferred Compensation Plan for Non-Employee Directors,
a non-employee director may elect, generally prior to the commencement of any
calendar year, to have all or any portion of the director's compensation for
such calendar year credited to a deferred compensation account. Amounts credited
to the director's account will accrue interest based upon the average quoted
rate for ten-year U.S. Treasury Notes. Deferred amounts will be paid in a lump
sum or in installments commencing on the first business day of the calendar year
following the year in which the director ceases to serve on the Board, or of a
later calendar year specified by the director.
1993 STOCK OPTION/STOCK ISSUANCE PLAN. The Company's 1993 Stock
Option/Stock Issuance Plan (the "1993 Plan") contains three separate equity
incentive programs in which members of the Board may be eligible to participate:
(i) a Discretionary Option Grant Program, under which eligible non-employee
members of the Board, along with officers, key employees and consultants, may be
granted options to purchase shares of Preferred Stock and Class A Common Stock,
(ii) a Director Fee Program, under which each non-employee member of the Board
may elect to apply all or any portion of his or her annual retainer fee
(currently $30,000) to the acquisition of unvested shares of Preferred Stock or
Class A Common Stock, and (iii) an Automatic Option Grant Program, under which
option grants will be made to non-employee members of the Board.
Options granted under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code or non-statutory options not intended to satisfy such
requirements. All grants under the Automatic Option Grant Program will be
non-statutory options.
No individual participating in the 1993 Plan may be granted stock options or
separately exercisable stock appreciation rights for more than 5,000,000 shares
of Class A Common Stock and Preferred Stock in the aggregate over the term of
the 1993 Plan.
PLAN ADMINISTRATION. The Discretionary Option Grant Program is administered
by the Compensation Committee of the Board, which is comprised of two or more
non-employee Board members appointed by the Board. The Compensation Committee,
as "Plan Administrator," has complete discretion (subject to the express
provisions of the 1993 Plan) to authorize stock option grants. All grants under
the Automatic Option Grant and Director Fee Programs are made in strict
compliance with the express provisions of those programs, and no administrative
discretion is exercised by the Plan Administrator with respect to the grants or
stock issuances made under those programs.
DISCRETIONARY OPTION GRANT PROGRAM. The principal features of the
Discretionary Option Grant Program may be summarized as follows:
The exercise price per share of the Preferred Stock or Class A Common Stock
subject to a stock option will not be less than 100% of the fair market value
per share of that security on the grant date. No option will have a maximum term
in excess of ten years measured from the grant date. The Plan Administrator has
complete discretion to grant options (i) which are immediately exercisable for
vested shares, (ii) which are immediately exercisable for unvested shares
subject to the Company's repurchase
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<PAGE>
rights, or (iii) which become exercisable in installments for vested shares over
the optionee's period of service. Non-employee members of the Board who serve as
Plan Administrator are not eligible to participate in the Discretionary Option
Grant Program.
The exercise price may be paid in cash or in shares of Preferred Stock or
Class A Common Stock valued at fair market value on the exercise date. The
option may also be exercised for vested shares through a same-day sale program
pursuant to which the purchased shares are to be sold immediately and a portion
of the sale proceeds applied to the payment of the exercise price for those
shares on the settlement date.
Any option held by the optionee at the time of cessation of service will
normally not remain exercisable beyond the limited period designated by the Plan
Administrator (not to exceed 36 months) at the time of the option grant. During
that period, the option will generally be exercisable only for the number of
shares in which the optionee is vested at the time of cessation of service. For
purposes of the 1993 Plan, an individual will be deemed to continue in service
for so long as that person performs services on a periodic basis for the Company
or any parent or subsidiary corporations, whether as an employee, a non-employee
member of the Board or an independent consultant or advisor.
The Plan Administrator has complete discretion to extend the period
following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after the optionee's
actual cessation of service.
Any unvested shares of Preferred Stock and Class A Common Stock are subject
to repurchase by the Company, at the original exercise price paid per share,
upon the optionee's cessation of service prior to vesting in those shares. The
Plan Administrator has complete discretion in establishing the vesting schedule
for any such unvested shares and has full authority to cancel the Company's
outstanding repurchase rights with respect to those shares in whole or in part
at any time.
The optionee is not to have any stockholder rights with respect to the
option shares until the option is exercised and the exercise price is paid for
the purchased shares. Options are not assignable or transferable other than by
will or by the laws of inheritance following the optionee's death, and the
option may, during the optionee's lifetime, be exercised only by the optionee.
The Plan Administrator may grant options with stock appreciation rights.
Stock appreciation rights provide the holders with the right to surrender their
options for an appreciation distribution from the Company equal in amount to the
excess of (i) the fair market value of the vested shares of Preferred Stock or
Class A Common Stock subject to the surrendered option over (ii) the aggregate
exercise price payable for such vested shares. Such appreciation distribution
may, in the discretion of the Plan Administrator, be made in cash or in shares
of the Preferred Stock or Class A Common Stock.
DIRECTOR FEE PROGRAM. Under the Director Fee Program, each individual
serving as a non-employee Board member is eligible to elect to apply all or any
portion of the annual retainer fee otherwise payable in cash to such individual
(currently $30,000) to the acquisition of unvested shares of Preferred Stock
and/or Class A Common Stock. The non-employee Board member must make the stock
election prior to the start of the calendar year for which the election is to be
in effect. On the first trading day in January of the calendar year for which
the election is in effect, the portion of the retainer fee subject to such
election will be applied to the acquisition of the selected shares of Preferred
Stock and/or Class A Common Stock by dividing the elected dollar amount by the
closing selling price per share of Preferred Stock or Class A Common Stock (as
the case may be) on that trading day. The issued shares will be held in escrow
by the Company until the individual vests in those shares. The non-employee
Board member will have full stockholder rights, including voting and dividend
rights, with respect to all issued shares held in escrow on his or her behalf.
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<PAGE>
Upon completion of each calendar quarter of Board service during the year
for which the election is in effect, the non-employee Board member will vest in
one-fourth of the issued shares, and the stock certificate for those shares will
be released from escrow. Immediate vesting in all the issued shares will occur
in the event the individual dies or becomes disabled during his or her period of
Board service or certain changes in control or ownership of the Company are
effected during such period. Should the Board member cease service prior to
vesting in one or more quarterly installments of the issued shares, then those
installments will be forfeited, and the individual will not be entitled to any
cash payment from the Company with respect to the forfeited shares.
In 1996 no shares were received in lieu of the cash retainer fee.
AUTOMATIC OPTION GRANT PROGRAM. Under the Automatic Option Grant Program
which will be terminated if the Recapitalization is consummated, each individual
who was serving as a non-employee Board member on November 29, 1993 (the
"Effective Date") was automatically granted a non-statutory option to purchase
125,000 shares of Preferred Stock and a non-statutory option to purchase 125,000
shares of Class A Common Stock. In addition, each individual who first becomes a
non-employee Board member on or after the Effective Date, whether through
election by the Company's stockholders or appointment by the Board, will be
automatically granted at the time of such election or appointment a
non-statutory option to purchase 125,000 shares of Preferred Stock and a
non-statutory option to purchase 125,000 shares of Common Stock. However, no
non-employee Board member who has previously been in the employ of the Company
or any parent or subsidiary corporation will be eligible to receive these
automatic stock option grants.
Each option granted under the Automatic Option Grant Program is subject to
the following terms and conditions:
(1) The exercise price per share of the Preferred Stock or Class A
Common Stock subject to an automatic option grant will be equal to 100% of
the fair market value per share of that security on the automatic option
grant date.
(2) Each option will have a maximum term of ten years measured from the
grant date.
(3) Each option will be immediately exercisable for all the option
shares, but any purchased shares will be subject to repurchase by the
Company at the exercise price paid per share. Each option will vest, and the
Company's repurchase right will lapse as to (i) 40% of the option shares
upon the optionee's completion of one year of Board service measured from
the automatic grant date, and (ii) the remaining option shares in two equal
and successive annual installments over the optionee's period of continued
Board service, with the first such installment to vest two years after the
automatic option grant date.
(4) The option will remain exercisable for a six-month period following
the optionee's cessation of Board service for any reason other than death or
permanent disability. Should the optionee die while holding an automatic
option grant, then such option will remain exercisable for a twelve-month
period following the optionee's death and may be exercised by the personal
representative of the optionee's estate or the person to whom the grant is
transferred by the optionee's will or the laws of inheritance. In no event,
however, may the option be exercised after the expiration date of the option
term. During the applicable exercise period, the option may not be exercised
for more than the number of shares (if any) in which the optionee is vested
at the time of cessation of Board service.
(5) Should the optionee die or become permanently disabled while serving
as a Board member, then the shares of the Preferred Stock and Class A Common
Stock subject to any automatic option grant held by that optionee will
immediately vest in full, and those vested shares may be purchased at any
time within the twelve-month period following the date of the optionee's
cessation of Board service.
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<PAGE>
(6) The shares subject to each automatic option grant will vest in full
upon the occurrence of certain changes in control or ownership of the
Company, as explained in more detail below in the subsection entitled
Option/Vesting Acceleration.
(7) Upon the successful completion of a hostile tender offer for
securities possessing more than 50% of the combined voting power of the
Company's outstanding securities, each automatic option grant which has been
outstanding for at least six months may be surrendered to the Company for a
cash distribution per surrendered option share in an amount equal to the
excess of (i) the highest price per share of the Preferred Stock or Class A
Common Stock paid in such tender offer over (ii) the exercise price payable
for such share.
(8) The remaining terms and conditions of the option will in general
conform to the terms described above for option grants made under the
Discretionary Option Grant Program and will be incorporated into the option
agreement evidencing the automatic option grant.
FINANCIAL ASSISTANCE. The Plan Administrator may institute a loan program
in order to assist one or more optionees in financing their exercise of
outstanding options under the Discretionary Option Grant Program. The form in
which such assistance is to be made available (including loans or installment
payments) and the terms upon which such assistance is to be provided will be
determined by the Plan Administrator. However, the maximum amount of financing
provided any individual may not exceed the amount of cash consideration payable
for the issued shares plus all applicable Federal, state and local income and
employment taxes incurred in connection with the acquisition of the shares. Any
such financing may be subject to forgiveness in whole or in part, at the
discretion of the Plan Administrator, over the individual's period of service.
EMPLOYMENT AGREEMENTS. The Company has entered into employment agreements
with each of Messrs. Koll, Ortwein and Pacini with respect to an employment term
commencing upon the closing of the Recapitalization and ending three (3) years
thereafter. Under the employment agreements each of Messrs. Koll, Ortwein and
Pacini has agreed to serve in their current capacities as the Company's Chief
Executive Officer, President and Chief Financial Officer, respectively, at their
current base salaries. The employment agreements provide that if an officer is
terminated without cause (as defined) during such three (3) year period, the
officer shall receive a severance payment equal to his current annual salary for
twelve (12) months plus the amount of his most recent annual bonus for the prior
fiscal year, and any unvested stock options shall immediately become 100%
vested. The employment agreements also provide for bonuses payable upon
completion of the Recapitalization. Given the significance to the Company of
completing the Recapitalization, the Compensation Committee has approved bonuses
of [$ , $ , $ , and $ ] payable upon completion of the
Recapitalization to Messrs. Koll, Wirta, Ortwein and Pacini, respectively. These
bonuses are intended to (i) retain these individuals during the pendency of the
Recapitalization; (ii) incentivize the completion of the Recapitalization on a
timely basis; and (iii) to reward these individuals for their substantial
efforts during the past several years, which efforts have been necessary
prerequisites to completing the Recapitalization.
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The Compensation Committee,
and its members are named below. No member of the Compensation Committee was at
any time during the 1996 fiscal year or at any other time an officer or employee
of the Company. No executive officer of the Company serves as a member of the
board of directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee. Good, Wildman, Hegness & Walley, a law firm with which
Mr. Hegness is a senior partner, provides legal services to the Company.
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND STOCK PRICE
PERFORMANCE COMPARISON GRAPH SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL AND
SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL
132
<PAGE>
STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER
THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES EXCHANGE ACT OF 1934, AND
SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
REPORT OF THE COMPENSATION COMMITTEE. The overall objectives of the Company
compensation program are to attract and retain the best possible executive
talent, to motivate these executives to achieve the goals inherent in the
Company's business strategy, to maximize the link between executive and
stockholder interests through an equity based plan and to recognize individual
contributions as well as overall business results.
The key elements of the Company's executive compensation program consist of
fixed compensation in the form of base salary, and variable compensation in the
forms of annual incentive compensation and stock options. An executive officer's
annual base salary represents the fixed component of his total compensation;
however, variable compensation is intended to comprise a substantial portion of
an executive's total annual compensation. The Compensation Committee also takes
into account the fact that executives may also provide services to, and receive
compensation from, other entities. In addition, while the elements of
compensation described below are considered separately, the Compensation
Committee takes into account the full compensation package afforded by the
Company to the individual, including any pension benefits, supplemental
retirement benefits, insurance and other benefits, as well as the programs
described below.
BASE SALARIES. Base salaries for executive officers are determined by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for executive talent
including, where appropriate, a comparison to base salaries for comparable
positions at other companies, and to historical levels of salary paid by the
Company and its predecessors. Current base salaries for the Company's executive
officers are at or below the 75th percentile of the compensation data surveyed
during the first quarter of 1994. Since then, the only executive officer salary
increase granted was to Mr. Ortwein in order to bring his salary closer to
comparable levels.
Salary adjustments are based on a periodic evaluation of the performance of
the Company and of each executive officer, and also take into account new
responsibilities as well as changes in the competitive market place. The
Compensation Committee, where appropriate, also considers non-financial
performance measures.
ANNUAL INCENTIVE COMPENSATION AWARDS. The variable compensation payable
annually to executive officers is intended to consist principally of annual
incentive compensation awards, based on various factors, including both
corporate and individual performance, established by the Compensation Committee
each fiscal year. The executive officer bonuses for 1996 were paid upon
completion of the Bolsa Chica lowlands sale in February 1997 in recognition of
such officers' accomplishments during 1996, particularly with respect to
obtaining the California Coastal Commission's approval of the Bolsa Chica
project and progress made towards the ultimate sale of the lowlands.
OTHER INCENTIVE COMPENSATION. Participation of executives in equity-based
compensation programs is reviewed annually, and awards under such programs,
primarily in the form of stock option grants under the Company's 1993 Stock
Option/Stock Issuance Plan, are made periodically to the executives. Each option
grant is designed to align the interests of the executive with those of the
stockholders and provide each individual with a significant incentive to manage
the Company from the perspective of an owner with an equity stake in the
business. The number of shares subject to each option grant is based upon the
executive's tenure, level of responsibility and relative position in the
Company. The Compensation Committee has established certain general guidelines
in making option grants to the executives in an attempt to target a fixed number
of option shares based upon the individual's position with the Company and his
existing holdings of options. However, the Company does not adhere strictly to
these guidelines and will vary the size of the option grant made to each
executive officer as it feels the circumstances warrant. In connection with the
Recapitalization, the Compensation Committee approved the grant of
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<PAGE>
options effective upon the consummation of the Recapitalization equivalent to
2.5%, .5%, 1.5% and 1.5% of the Company's fully diluted equity to Messrs. Koll,
Wirta, Ortwein and Pacini, respectively. The price of such options will be
determined by the 20-day average closing price following completion of the
Recapitalization. Each grant allows the executive to acquire shares of the
Company's stock at a fixed price per share (the market price on the grant date)
over a specified period of time (up to 10 years). The options vest in periodic
installments over a three-year period, generally contingent upon the executive
officer's continued employment with the Company, provided, that if the executive
is terminated without cause, such options shall immediately become 100% vested.
Accordingly, the option will generally provide a return to the executive only if
he remains in the Company's employ and the market price of the Common Stock and
Preferred Stock appreciates over the option term.
CEO COMPENSATION. The base salary established for the Company's current and
former Chief Executive Officer, Messrs. Koll and Wirta, respectively, reflects
the Committee's policy to maintain a relative level of stability and certainty
with respect to the CEO's base salary from year to year. In setting the CEO's
base salary, the Committee sought to accomplish three objectives: provide a
level of base salary competitive to that paid to other chief executive officers
in the industry (recognizing that Messrs. Koll and Wirta are each an executive
officer of affiliate companies and accordingly devote less than all of their
working time to the Company's business matters), maintain internal comparability
and have their base salary play a less central role in their overall
compensation package by reason of the option grants made to them in lieu of a
more substantial increase in their level of base salary. The CEO's current base
salary is below the average of the surveyed compensation data for similarly
situated chief executive officers in the industry. The CEO's bonus for 1996 was
paid upon completion of the Bolsa Chica lowlands sale in February 1997 in
recognition of such officer's accomplishments during 1996, particularly with
respect to obtaining the California Coastal Commission's approval of the Bolsa
Chica project and progress made towards the ultimate sale of the lowlands.
TAX LIMITATION. The cash compensation to be paid to each of the Company's
executive officers for the 1995 fiscal year is not expected to exceed the
$1,000,000 limit on the tax deductibility of such compensation imposed under
federal tax legislation enacted in 1993. In addition, the Company's 1993 Plan
imposes a limit on the maximum number of shares of the Company's common and
preferred stock for which any one participant may be granted stock options over
the remaining term of the plan. Any compensation deemed paid to an executive
officer upon the exercise of an outstanding option under the 1993 Plan will
qualify as performance-based compensation which will not be subject to the
$1,000,000 limitation. No other changes to the Company's executive compensation
programs will be made as a result of the new limitation until final Treasury
Regulations are issued with respect to such limitation.
The Compensation Committee
of the Board of Directors:
J. Thomas Talbot, Chairman
Harold A. Ellis, Jr.
Paul C. Hegness
Marco F. Vitulli
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STOCK PRICE PERFORMANCE COMPARISON. The following graph illustrates the
return during the past five years that would have been realized on December 31
of each year (assuming reinvestment of dividends) by an investor who invested
$100 on December 31, 1991 in each of (i) the Company's Class A Common Stock,
(ii) the Media General Composite Market Value Index ("Media General Index"), and
(iii) the Wilshire Real Estate Securities Index of Real Estate Operating
Companies ("Real Estate Index") which consists of 12 real estate operating and
development companies.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
THE COMPANY, REAL ESTATE INDEX AND MEDIA GENERAL INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE COMPANY REAL ESTATE INDEX MEDIA GENERAL INDEX
<S> <C> <C> <C>
12/31/91 $100.00 $100.00 $100.00
12/31/92 $36.36 $90.61 $104.00
12/31/93 $63.64 $108.18 $119.39
12/31/94 $68.19 $102.10 $118.39
12/31/95 $45.45 $125.34 $153.50
12/31/96 $18.18 $171.55 $185.38
</TABLE>
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL INTEREST HOLDERS AND MANAGEMENT
The following table sets forth, as of December 31, 1996, the name and
address of each person believed to be a beneficial interest holder of more than
5% of the Common Stock, the number of shares beneficially owned and the
percentage so owned. Except as set forth below, management knows of no person
who, as of December 31, 1996, owned beneficially more than 5% of the Company's
outstanding Class A Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS BENEFICIAL INTEREST HOLDER BENEFICIAL OWNERSHIP CLASS(1)
- ------------------------------------- -------------------------------------- ----------------------- -------------
<S> <C> <C> <C>
Class A Common Stock................. Bridge Partners, L.P. 17,518,200 shares(2) 28.8(2)
115 East Putnam Avenue
Greenwich, CT 06830
Class A Common Stock................. Wheelabrator Technologies Inc. 5,097,207 shares(3) 9.8(3)
Liberty Lane
Hampton, NH 03842
Class A Common Stock................. Asher B. Edelman 3,477,700 shares(4) 6.6(4)
717 Fifth Avenue
New York, NY 10022
Class A Common Stock................. Mentor Partners, L.P. 3,162,500 shares(5) 6.1(5)
500 Park Avenue
New York, NY 10022
Class A Common Stock................. Merrill Lynch & Co., Inc. 2,851,692 shares(6) 5.6(6)
World Financial Center
North Tower
250 Vesey Street
New York, NY 10281
</TABLE>
- ------------------------
(1) These percentages are calculated assuming the conversion of all securities
convertible within 60 days into the Company's Class A Common Stock which are
held by the individual beneficial interest holder of more than 5% listed in
the table above, but not those held by others.
(2) According to Schedule 13D dated July 14, 1995 filed jointly with the
Securities and Exchange Commission (the "SEC") by Mr. John W. Gildea
("Gildea"), Carson Street Partners, Inc. ("Carson"), and Bridge Partners,
L.P. ("Bridge"). Carson is the sole general partner of Bridge and has the
power to vote and dispose of shares. Gildea is the Chairman of the Board of
Directors, Chief Executive Officer, President and controlling stockholder of
Carson. As a result, Gildea and Carson may be deemed to be the indirect
beneficial interest holders of the shares held by Bridge, a partnership
whose general partner is controlled by Gildea. Gildea disclosed that through
Bridge and Carson, as of that date, he was the beneficial interest holder of
17,518,200 shares of Class A Common Stock, as to which he had sole voting
and dispositive power. This number includes 11,878,800 shares of Preferred
Stock which shares are generally nonvoting and are currently convertible
into shares of the Class A Common Stock on a share-for-share basis.
(3) According to the Company's records, including shares held by wholly-owned
subsidiaries. This number includes 3,339,198 shares of Preferred Stock which
shares are generally nonvoting and are currently convertible into shares of
the Class A Common Stock on a share-for-share basis.
(4) According to Schedule 13D (Amendment No. 1) dated December 5, 1996 filed
jointly with the SEC by Mr. Asher B. Edelman; Edelman Value Partners, L.P.;
Edelman Value Fund, Ltd.; and A.B. Edelman Management Company, Inc.
(collectively, "Edelman"). Edelman is the beneficial owner of 3,477,700
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shares of Preferred Stock which shares are generally non-voting and are
currently convertible into shares of the Class A Common Stock on a
share-for-share basis.
(5) According to Schedule 13D (Amendment No. 3) dated October 31, 1996. Mentor
Partners, L.P. is the beneficial owner of an aggregate of 3,162,500 shares,
including 530,000 shares of Class A Common Stock and 2,632,500 shares of
Preferred Stock which shares are generally non-voting and are currently
convertible into shares of the Class A Common Stock on a share-for-share
basis.
(6) According to Schedule 13G dated February 11, 1994 filed jointly with the SEC
by Merrill Lynch & Co., Inc. and Merrill Lynch Pierce, Fenner & Smith
Incorporated (collectively "Merrill"). Merrill beneficially owns an
aggregate of 2,851,692 shares, including 957,246 shares of Class A Common
Stock and 1,894,446 shares of Preferred stock which shares are generally
non-voting and are currently convertible into shares of the Class A Common
Stock on a share-for-share basis.
Information about the beneficial ownership of the Common Stock as of
December 1, 1996 by each nominee, director, executive officer named in the
Summary Compensation Table, and all directors and executive officers of the
Company as a group is set forth below:
<TABLE>
<CAPTION>
SHARES OF CLASS A PERCENT OF
NAME OF BENEFICIAL INTEREST HOLDER COMMON STOCK(1) CLASS(2)
- --------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Donald M. Koll(3).............................................. 2,436,701 4.7
Ray Wirta(4)................................................... 2,040,000 4.0
Harold A. Ellis, Jr.(5)........................................ 293,263 *
Paul C. Hegness(5)............................................. 360,571 *
J. Thomas Talbot(5)............................................ 252,000 *
Marco F. Vitulli(5)............................................ 371,000 *
Richard Ortwein(3)............................................. 2,407,340 4.7
Raymond J. Pacini(6)........................................... 2,223,434 4.3
Directors and Executive Officers as a group (8 persons
including the above named).................................... 10,384,309 17.6
</TABLE>
- ------------------------
(1) Except as otherwise indicated in the notes below, the persons indicated have
sole voting and investment power with respect to shares listed. In addition
to the specific shares indicated in the following footnotes, this column
includes shares held directly and shares subject to stock options which are
currently exercisable.
(2) These percentages are calculated assuming the conversion of all securities
convertible within 60 days into Class A Common Stock, which are held by the
executive officer or director listed above but not those held by others.
Asterisks indicate beneficial ownership of 1% or less of the class.
(3) Includes vested options to purchase 1,200,000 shares each of Class A Common
Stock and Series A Convertible Preferred Stock granted pursuant to the
Company's 1993 Stock Option/Stock Issuance Plan and which options are
subject to certain restrictions on disposition.
(4) Includes vested options to purchase 1,000,000 shares each of Class A Common
Stock and Preferred Stock granted pursuant to the Company's 1993 Stock
Option/Stock Issuance Plan and which options are subject to certain
restrictions on disposition.
(5) Includes 2,000 shares of Common Stock granted pursuant to the Company's
Restricted Stock Plan for Non-Employee Directors, and vested options to
purchase 125,000 shares each of Class A Common Stock and Preferred Stock
granted pursuant to the Company's Automatic Option Grant Program which
shares and options are subject to certain restrictions on disposition.
(6) Includes vested options to purchase 1,100,000 shares each of Class A Common
Stock and Series A Convertible Preferred Stock granted pursuant to the
Company's 1993 Stock Option/Stock Issuance Plan which options are subject to
certain restrictions on disposition.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LICENSE AND NON-COMPETITION AGREEMENTS. The Company and certain of its
subsidiaries have amended certain agreements with Donald M. Koll, the Chairman
of the Board and Chief Executive Officer of the Company, which agreements
include a license to use the "Koll" name and which contain certain non-compete
provisions. Pursuant to such amendments, upon consummation of the
Recapitalization, and the occurrence of any one of the following (i) the
resignation of Mr. Koll as an officer and director of the Company after the
first anniversary of the Recapitalization, (ii) the resignation of Mr. Koll as
an officer and director of the Company at any time following the consummation of
the Recapitalization in the event the Board duly resolves to authorize any sale
of all or substantially all of the properties or interests in the properties of
the Company, any merger or consolidation of the Company with any other entity,
other than a merger or consolidation in which the Company will control the
merged or consolidated entity, any dissolution of the Company, any cessation of
a present operation of the Company or any other extraordinary corporate
transaction involving properties or interests in property of the Company, (iii)
the removal of Mr. Koll from his positions as an officer or director of the
Company, or (iv) the failure to elect Mr. Koll to such offices at any future
meeting of stockholders held after consummation of the Recapitalization, Mr.
Koll will be released from currently existing covenants not to compete with the
Company, the Company and its subsidiaries will be obligated to change their
respective names to delete all usage of the name "Koll" and any officer,
director or employee of the Company who thereafter leaves the Company to join
Mr. Koll, The Koll Company or its affiliates, will be released from any
liability for such actions.
CONSTRUCTION MANAGEMENT AGREEMENTS. In 1993, the Company entered into a
construction management agreement with Koll Construction, a wholly owned
subsidiary of The Koll Company, for demolition of bunkers at Bolsa Chica. In
1995, the Company also entered into a construction management agreement with
Koll Construction for infrastructure construction at Rancho San Pasqual. In
1996, the Company entered into a general contractor agreement with Koll
Construction in conjunction with a build-to-suit project for a third party
corporate office building in Nevada. During 1994, 1995 and 1996, the Company
incurred fees aggregating approximately $100,000, $500,000 and $1.7 million,
respectively, to Koll Construction in consideration for these services and
related reimbursements.
SERVICE AGREEMENTS. In September 1993, the Company entered into a Financing
and Accounting Services Agreement to provide The Koll Company with financing,
accounting, billing, collections and other related services until 30 days' prior
written notice of termination is given by one company to the other. Fees earned
for the years ended December 31, 1994, 1995 and 1996 were approximately
$400,000, $100,000 and $100,000, respectively.
The Company also entered into a Management Information Systems and Human
Resources Services Agreement in September 1993 with Koll Management Services,
Inc., also known as Koll Real Estate Services ("KRES"), a company approximately
14% owned by a subsidiary of The Koll Company. Under this agreement, KRES
provides computer programming, data organization and retention, record keeping,
payroll and other related services until 30 days' prior written notice of
termination is given by one company to the other. Fees and related
reimbursements incurred were approximately $200,000 for each of the years ended
December 31, 1994, 1995 and 1996.
SUBLEASE AGREEMENTS. In September 1993, the Company entered into an annual
Sublease Agreement with The Koll Company to sublease a portion of The Koll
Company affiliate's office building located in Newport Beach, California. The
Company also entered into lease agreements on a month-to-month basis, which were
terminated in 1996, for office space in Northern California and San Diego,
California with KRES. Combined lease costs on these leases were approximately
$400,000 for each of the years ended December 31, 1994, 1995 and 1996.
DEVELOPMENT FEES. For the years ended December 31, 1994, 1995 and 1996, the
Company earned fees of approximately $3.5 million, $2.7 million and $1.9
million, respectively, for real estate development and
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disposition services provided to partnerships in which The Koll Company and
certain directors and officers of the Company have an ownership interest. In
addition, the Company paid $300,000 to, and received $100,000 from Koll
Construction for services provided to each other in conjunction with two
separate development service transactions for the year ended December 31, 1994.
The Company paid $100,000 and $400,000 to Koll Construction for construction
services in the years ended December 31, 1995 and 1996, respectively.
JOINT BUSINESS OPPORTUNITY AGREEMENT. The Company and The Koll Company
entered into an agreement to jointly develop business opportunities in the
Pacific Rim effective February 1, 1994. Effective February 1, 1995 The Koll
Company assigned its interests under this agreement to KRES. Under the terms of
the agreement, the Company and KRES share on a 50% - 50% basis all costs and
expenses incurred in connection with identifying and obtaining business
opportunities and will share in all revenues generated from any such
opportunities on a 50% - 50% basis. The Company's share of net loss was
$200,000, $300,000 and $100,000 for the years ended December 31, 1994, 1995 and
1996, respectively. Service contracts entered into under this agreement in 1995
included construction services from Koll Construction, for which the venture
paid $100,000 to Koll Construction for services rendered for each of the years
ended December 31, 1995 and 1996. In February 1997, KRES notified the Company
that it plans to terminate the venture effective March 5, 1997, and its interest
will be adjusted accordingly.
In March 1995, the Company and The Koll Company entered into an agreement to
jointly develop commercial development business opportunities in Mexico. Under
the terms of the agreement, the Company and The Koll Company share on a 50% -
50% basis all costs and expenses incurred in connection with identifying and
obtaining business opportunities and will share in all revenues generated from
such opportunities on a 50% - 50% basis. The Company's share of such net costs
and expenses was approximately $300,000 and $100,000 for the ten months ended
December 31, 1995 and for the year ended December 31, 1996, respectively. During
the first quarter of 1996, the Company determined that, given current economic
conditions in Mexico, it could more efficiently service opportunities in Mexico
from its offices in California and Dallas and closed its Mexico City office. The
Koll Company informed the Company that effective March 1, 1996 it would no
longer fund costs and expenses related to the pursuit of commercial development
opportunities in Mexico, and The Koll Company's interest was diluted
accordingly.
Effective April 1, 1994, the Company and KRES entered into an agreement to
combine operations in the Northwest Region in order to become a full service
real estate company in that region. This agreement was terminated effective June
30, 1996. Operating profits and losses were split on a 50% - 50% basis at the
end of each calendar year or portion thereof. The Company's share of profits was
approximately $500,000, $600,000 and $200,000 for the nine months ended December
31, 1994, the year ended December 31, 1995, and the six months ended June 30,
1996, respectively.
DIRECTOR RESIGNATION AND TERMINATION OF STOCK PLEDGE. In December of 1995,
the Company accepted pledges of all of the Common Stock and warrants convertible
into the Common Stock of the Company owned by Ms. Kathryn G. Thompson as
security against any potential construction liability which could be asserted
against the Company as a result of the 1994 acquisition by the Company of
Kathryn G. Thompson Company and in exchange for the Company releasing Ms.
Thompson from a covenant to maintain insurance with respect to such potential
liability. Ms. Thompson resigned as a director of the Company, and as an officer
of certain wholly-owned subsidiaries of the Company effective November 1, 1996.
Ms. Thompson received compensation of $300,000 during each of the years ended
December 31, 1995 and 1996, for her services rendered as an officer of these
subsidiaries. In connection with her resignation, Ms. Thompson received a
release from certain non-competition covenants and the stock pledge agreement
described above.
NOTE RECEIVABLE. In December 1994, the Company entered into a promissory
note agreement to lend up to $6 million to AV Partnership (See Note 3 to the
Audited Historic Financial Statements). The note,
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<PAGE>
secured principally by an interest in AV Partnership, bore interest on the
outstanding balance at 12% per annum. The note balance of $2 million as of
December 31, 1994 was included in other assets and was repaid along with
additional advances on March 15, 1995, the maturity date.
OTHER TRANSACTIONS. See Notes 3, 8 and 9 of the Audited Historic Financial
Statements for descriptions of other transactions and agreements with Koll,
Libra, Abex and WTI.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
This discussion does not address the foreign, state or local tax
consequences of the transactions to be accomplished pursuant to the
Recapitalization or Plan, nor does it address the tax consequences to taxpayers
subject to special treatment under the federal income tax laws (including
dealers in securities, foreign persons, life insurance companies, tax-exempt
organizations, financial institutions and taxpayers subject to the alternative
minimum tax). The discussion below is limited to the Company and those persons
who hold the Outstanding Debentures, Preferred and Common Stock as capital
assets within the meaning of Section 1221 of the Code and who also will hold the
newly issued or reclassified/combined Common Stock as capital assets.
DUE TO THE UNCERTAINTY CONCERNING CERTAIN OF THE TAX CONSEQUENCES OF THE
TRANSACTIONS TO BE ACCOMPLISHED PURSUANT TO THE RECAPITALIZATION OR THE PLAN,
AND THE POSSIBLE EFFECT A SECURITY HOLDER'S PARTICULAR SITUATION MAY HAVE ON
SUCH TAX CONSEQUENCES, HOLDERS OF OUTSTANDING DEBENTURES, SERIES A PREFERRED
STOCK, CLASS A COMMON STOCK AND ALL OTHER CLASSES OF CLAIMS OR INTERESTS ARE
ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR PARTICIPATION IN THE
RECAPITALIZATION OR THE PLAN.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFERS
TO HOLDERS OF OUTSTANDING DEBENTURES
GENERAL. The exchange of Outstanding Debentures for Common Stock will
generally constitute a recapitalization. Except as discussed below under
"Accrued Interest and Discount on Outstanding Debentures," a holder generally
will not be allowed to recognize any gain or loss it may realize on the
exchange. A holder's tax basis in the Common Stock received in the exchange
will, immediately after the exchange, equal the holder's aggregate tax basis in
the Outstanding Debentures exchanged therefor (less any portion of such tax
basis which is attributable to previously unpaid interest or original issue
discount ("OID") on the Outstanding Debentures). The holding period for the
Common Stock received in the exchange will generally include the period during
which the Outstanding Debentures were held.
ACCRUED INTEREST AND ORIGINAL ISSUE DISCOUNT ON OUTSTANDING
DEBENTURES. Under Section 354(a)(2)(B) of the Code, the general rule regarding
nonrecognition of gain or loss in a recapitalization will not apply to the
portion, if any, of the Common Stock deemed to be received in exchange for
previously unpaid interest (including OID) on the Outstanding Debentures which
has accrued after the holder acquired the Outstanding Debentures. If a portion
of the Common Stock is deemed to be received in payment of accrued interest (or
OID), the amount of such interest payment should be equal to the fair market
value of such portion of the Common Stock.
The Internal Revenue Service, in a recent Technical Advice Memorandum, has
privately ruled that a holder of indebtedness is not entitled to recognize a
loss to the extent the amount of accrued but unpaid OID exceeds the amount of
OID deemed paid in a recapitalization. Although this ruling is not binding, it
represents the position the Internal Revenue Service would be expected to take
in any audit involving an analogous transaction.
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As no Treasury regulation or other relevant guidance has been issued under
Section 354(a)(2)(B), it is unclear whether or to what extent the Common Stock
will be considered to be issued in payment of previously accrued but unpaid
interest (or OID) on the Outstanding Debentures. The legislative history of
Section 354(a)(2)(B) indicates, however, that if the Plan explicitly allocates
the value of the Common Stock between the principal amount of the Outstanding
Debentures and accrued interest (or OID) on the Outstanding Debentures, both the
Company and the holders should utilize that allocation for federal income tax
purposes. The Plan provides that the Common Stock generally will be applied
first to the stated amount of the Outstanding Debentures, with only the excess
over such principal amount applied to accrued interest (or OID). However, there
can be no assurance that the Internal Revenue Service will agree with this
allocation. Consequently, holders should consult their own tax advisors on this
issue. Moreover, holders should be aware that the resolution of this issue will
affect the determination of a holder's tax basis and holding period for the
Common Stock.
SALE OR EXCHANGE OF COMMON STOCK. Generally, if Common Stock is sold or
exchanged (including in a redemption or retirement), the disposing holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale or exchange and the holder's tax basis in the Common Stock.
Except as provided in the recapture or market discount rules (each discussed
below), any gain or loss on the sale or exchange of Common Stock will be capital
gain or loss, provided the Common Stock is held as a capital asset. Any capital
gain or loss recognized on the sale or exchange of Common Stock will be
long-term gain or loss if the Common Stock was held for more than one year
(including the period during which the holder held Outstanding Debentures if the
Common Stock is not treated as received in payment of accrued interest or OID)
as of the time of its disposition.
Common Stock received in exchange for Outstanding Debentures will be subject
to the recapture rules of IRC Section 108(e)(7). Under this provision, when
Common Stock is sold or exchanged (including in certain nonrecognition
transactions), a portion of the gain recognized (if any) will be treated as
depreciation recapture and taxed to the holder at the rates applicable to
ordinary income.
A holder's initial tax basis and holding period in Common Stock acquired in
the Plan will be determined as discussed in "Federal Income Tax Consequences of
Plan," below.
MARKET DISCOUNT. Any gain realized on the exchange of Outstanding
Debentures, and any gain realized upon the sale or redemption of Common Stock,
may be affected by the "market discount" provisions of the Code. Market discount
is defined as the excess of a bond's "stated redemption price at maturity" over
the holder's tax basis in such bond immediately after its acquisition. The
market discount provisions generally require a holder of a bond acquired at a
market discount to recognize as ordinary interest income any gain realized on
the disposition of such bond to the extent of the "accrued market discount" on
such bond at the time of disposition. In addition, if a holder of a bond
acquired at a market discount receives a partial principal payment prior to
maturity, that payment may be treated as ordinary income to the extent of the
accrued market discount on the bond at the time the payment is received. These
rules will not apply to the extent the holder has made an election to include
market discount in income as it accrues.
The Code provides that "under regulations" (which have not yet been issued),
accrued market discount on a market discount bond is not recognized as ordinary
income at the time of the bond's disposition if the disposition occurs in a
"nonrecognition transaction," including a recapitalization. Instead, accrued
market discount on a market discount bond disposed of in a nonrecognition
transaction is converted into accrued market discount on the property received
in the transaction if that property qualifies as a market discount bond. If the
property received is not a market discount bond, accrued market discount on the
old market discount bond is treated as ordinary income on the disposition of the
property received in exchange therefor.
Under the market discount rules, holders of Outstanding Debentures with
accrued market discount may have been required to defer the deduction of a
portion of the interest on any indebtedness incurred or
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maintained to purchase or carry their Outstanding Debentures. Any interest
expense which has been deferred by holders of Outstanding Debentures who
participate in the exchange may be claimed to the extent such holders recognize
gain (including accrued interest income or OID) in the exchange. The balance of
such deferred deductions will be deductible on disposition of the Common Stock
received in the exchange.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFERS TO HOLDERS OF
PREFERRED STOCK. The exchange of Preferred Stock for Common Stock will
constitute a nontaxable recapitalization. As such, holders of Preferred Stock
will not be allowed to recognize any gain or loss they may realize on the
exchange. A holder's tax basis in the Common Stock received in the exchange will
equal its basis in the Preferred Stock surrendered in exchange therefor. The
holding period for the Common Stock received in the exchange will include the
period during which the holder held the Preferred Stock surrendered in the
exchange.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFERS TO HOLDERS OF CLASS A
COMMON STOCK. Holders of Class A Common Stock immediately prior to the
Recapitalization will not recognize any income, gain or loss for federal income
tax purposes as a result of the Recapitalization.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Under the "backup
withholding" provisions of federal income tax law, unless the conditions
described in the next sentence are satisfied and except in the case of certain
foreign persons, the Exchange Agent, the Company or their paying agents, as the
case may be, will be required to withhold (i) a number of shares of Common Stock
having a fair market value equal to 31 percent of the amount deemed to be
received by a tendering holder of Outstanding Debentures in exchange for accrued
interest (or OID) on the Outstanding Debentures, (ii) 31 percent of any
dividends paid on the Common Stock and, under certain circumstances, (iii) 31%
of any proceeds realized on any redemption or retirement of the Common Stock.
Backup withholding will not apply to a payment if the payee either (i) provides
his taxpayer identification number to the payor and certifies under penalties of
perjury that such number is correct (or that he is awaiting a taxpayer
identification number) and that (A) the payee has not yet been notified by the
Internal Revenue Service that he is subject to backup withholding as a result of
a failure to report all interest or dividends or (B) the Internal Revenue
Service has notified the payee that he is no longer subject to backup
withholding, or (ii) provides an adequate basis for an exemption. Therefore,
unless an exemption exists and is proved in a satisfactory manner, (i) each
tendering holder should complete and sign the Substitute Form W-9 provided in
the applicable Letter of Transmittal, and (ii) each holder of Common Stock
should, when requested, provide the Exchange Agent, the Company or their paying
agents, as the case may be, with a Form W-9 to provide the information and
certification necessary to prevent backup withholding. Backup withholding is not
an additional tax. Rather, any amount paid as backup withholding will be
creditable against the holder's income tax liability.
The Company will, where required, report to the holders of the Common Stock
and to the Internal Revenue Service the amount of any dividends paid on the
Common Stock in each calendar year and the amounts of tax withheld, if any, with
respect to such payments.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFERS TO THE COMPANY;
CANCELLATION OF INDEBTEDNESS INCOME. Consummation of the Exchange Offers will
reduce the amount of the Company's outstanding indebtedness. A debtor generally
realizes income for federal income tax purposes when his debt is canceled in
exchange for an amount less than its adjusted issue price. Therefore, if the
aggregate fair market value of the Common Stock distributed to tendering holders
of the Outstanding Debentures is less than the adjusted issue price of such
Outstanding Debentures, the Company would generally recognize cancellation of
indebtedness income. Under the Code, however, income will not be recognized as a
result of a cancellation of indebtedness to the extent the amount of debt
canceled does not exceed the amount by which the debtor is insolvent. Insolvency
is defined for this purpose as the excess of the debtor's liabilities over the
fair market value of its assets immediately before the discharge of
indebtedness. The Code also provides, however, that if a debtor's insolvency
enables it to avoid recognizing income on account of a
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cancellation of indebtedness, the debtor must generally reduce its tax
attributes (such as net operating losses and the basis of assets) by an amount
equal to the amount of debt canceled. These rules apply on an entity-by-entity
basis; therefore, the Company's subsidiaries will not be required to reduce
their separate tax attributes.
The Company does not expect to pay any current federal income taxes from any
discharge of indebtedness resulting from the Recapitalization because the
Company believes that the total amount of indebtedness to be discharged will not
exceed the amount by which the Company is insolvent immediately before the
discharge of indebtedness plus the anticipated losses from operations in 1997.
However, no assurance can be given with respect to the accuracy of the Company's
assessment. Further, no assurance can be given that the Internal Revenue Service
will agree with this assessment. If the total amount of indebtedness canceled in
the Recapitalization were to exceed the amount by which the Company is insolvent
immediately before the cancellation of indebtedness and projected losses from
operations in 1997, the Company may recognize income in the amount of such
excess.
Even if the Company does not recognize income due to the cancellation of
indebtedness in the Recapitalization, its net operating losses for the current
and preceding years would be reduced and/or eliminated and other tax attributes
(such as the basis of assets) could be reduced.
LIMITATION ON NET OPERATING LOSSES. Section 382 of the Code will limit the
Company's use of its net operating losses (and may limit the Company's use of
certain built-in losses recognized within a 5-year period) after the
Recapitalization if the Recapitalization constitutes an "ownership change." An
ownership change will occur if the percentage of the Company's stock by value
held by certain persons (including creditors who exchange debt for stock) is
increased by more than 50 percentage points over a three-year testing period.
The Recapitalization will cause an ownership change. When the ownership change
occurs, the Company's annual use of its net operating losses (and possibly
certain built-in losses) will be limited to the value of the Corporation's
equity immediately before the ownership change multiplied by the "long-term
tax-exempt rate," which is published monthly by the Internal Revenue Service.
The long-term tax-exempt rate for ownership changes occurring in February 1997,
is 5.48%.
The Company expects that it will have built-in gains at the time of the
Recapitalization. The Section 382 limitation which would otherwise apply to the
Company for any tax year following the Recapitalization will be increased by the
amount of any built-in gains recognized during such year.
FEDERAL INCOME TAX CONSEQUENCES OF PLAN
Unless a corporation "elects out," an exception to the general rules of
Section 382 of the Code provides that the rules described in the preceding
paragraph will not apply if the increase in ownership occurs in a case under the
Bankruptcy Code and if the shareholders and certain "qualifying creditors" of
the corporation before such increase occurs own at least 50 percent of the
corporation's stock after such increase. When this exception to the general rule
applies, the corporation is required to reduce its net operating losses by the
amount of interest accrued on any debt exchanged for stock in the bankruptcy
proceeding during the year of the proceeding and the three prior taxable years.
To the extent the net operating losses have been reduced by this interest, the
attribute reduction of Section 108(b) does not apply. In addition, if another
ownership change occurs within two years, the corporation's use of its net
operating losses would be disallowed in its entirety.
If a corporation "elects out" of Section 382(l)(5), the general rules of
Section 382 apply. However, in determining the limitation placed on the
corporation's annual use of its net operating losses under those general rules,
Section 382(l)(6) provides that the value of the equity of the corporation
immediately before the ownership change is deemed to include the increase in the
value of the corporation's equity resulting from any surrender or cancellation
of creditors' claims in the bankruptcy proceeding.
143
<PAGE>
THE FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED EXCHANGE OFFERS AND
OTHER TRANSACTIONS CONTEMPLATED BY THE RECAPITALIZATION AND THE PLAN ARE
COMPLEX. THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF OUTSTANDING DEBENTURES,
SERIES A PREFERRED STOCK OR COMMON STOCK IN LIGHT OF SUCH HOLDER'S PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH SUCH HOLDER SHOULD CONSULT WITH
SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF
THE TRANSACTIONS CONTEMPLATED BY THE RECAPITALIZATION AND THE PLAN, INCLUDING
THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon by McDermott, Will & Emery, Newport Beach, California.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996,
and the related statements of operations, cash flows and changes in
stockholder's equity for each of the three years in the period ended December
31, 1996, have been audited by Deloitte & Touche LLP, independent auditors, as
indicated in their report dated February 18, 1997, and have been included in
this Prospectus in reliance upon such report given upon the authority of said
firm as experts in accounting and auditing.
144
<PAGE>
INDEX TO AUDITED HISTORIC FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Independent Auditor's Report............................................................................. F-2
Audited Historic Financial Statements.................................................................... F-3
Notes to Audited Historic Financial Statements........................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
of Koll Real Estate Group, Inc.:
We have audited the accompanying balance sheets of Koll Real Estate Group,
Inc. as of December 31, 1996 and 1995, and the related statements of operations,
cash flows and changes in stockholders' equity for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Koll Real Estate Group, Inc.
at December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
The Company carries its real estate properties at cost, net of impairment
losses. As discussed in Note 2, the estimation process is inherently uncertain
and relies to a considerable extent on future events and market conditions. As
discussed in Note 5, the development of the Company's Bolsa Chica project is
dependent upon various governmental approvals and various economic factors.
Accordingly, the amount ultimately realized from such project may differ
materially from the current estimate of fair value.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 18, 1997
F-2
<PAGE>
KOLL REAL ESTATE GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
1995 1996
--------- ---------
DECEMBER 31,
--------------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Cash and cash equivalents...................................................................... $ 4.9 $ 2.1
Restricted cash................................................................................ 2.5 .2
Real estate held for development or sale....................................................... 28.1 25.2
Operating properties, net...................................................................... 4.8 --
Land held for development...................................................................... 220.0 223.5
Other assets................................................................................... 16.9 21.2
--------- ---------
$ 277.2 $ 272.2
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities................................................... $ 4.9 $ 11.7
Senior bank debt........................................................................... 16.6 7.1
Project debt............................................................................... -- 12.5
Subordinated debentures.................................................................... 173.2 195.9
Other liabilities.......................................................................... 52.9 43.9
--------- ---------
Total liabilities........................................................................ 247.6 271.1
--------- ---------
Commitments and Contingencies
Stockholders' equity:
Series A (convertible redeemable nonvoting) Preferred Stock--$.01 par value; 42,505,504
shares authorized; 40,290,735 and 38,886,626 shares outstanding, respectively............ .4 .4
Class A (voting) Common Stock--$.05 par value; 625,000,000 shares authorized; 47,534,472
and 48,938,543 shares outstanding, respectively.......................................... 2.4 2.4
Class B (convertible nonvoting) Common Stock--$.05 par value; 25,000,000 shares authorized
and no shares outstanding................................................................ -- --
Capital in excess of par value............................................................. 229.9 229.2
Deferred proceeds from stock issuance...................................................... (1.1) (.4)
Minimum pension liability.................................................................. (1.0) (.6)
Accumulated deficit........................................................................ (201.0) (229.9)
--------- ---------
Total stockholders' equity............................................................... 29.6 1.1
--------- ---------
$ 277.2 $ 272.2
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to financial statements.
F-3
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
(IN MILLIONS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
Asset sales........................................................................ $ 11.1 $ 23.5 $ 33.6
Operations......................................................................... 10.3 10.5 11.2
--------- --------- ---------
21.4 34.0 44.8
--------- --------- ---------
Costs of:
Asset sales........................................................................ 10.7 21.6 30.2
Operations......................................................................... 9.5 10.3 10.0
--------- --------- ---------
20.2 31.9 40.2
--------- --------- ---------
Gross operating margin............................................................... 1.2 2.1 4.6
General and administrative expenses.................................................. 8.7 7.7 9.6
Interest expense..................................................................... 19.4 22.6 24.9
Write-down of real estate properties................................................. -- 121.1 --
Other expense (income), net.......................................................... 2.1 3.1 (1.1)
--------- --------- ---------
Loss from continuing operations before income taxes.................................. (29.0) (152.4) (28.8)
Provision (benefit) for income taxes................................................. (10.3) (35.5) .1
--------- --------- ---------
Loss from continuing operations...................................................... (18.7) (116.9) (28.9)
Discontinued operations:
Gain on disposition, net of income taxes of $.3.................................... .7 -- --
--------- --------- ---------
Net loss............................................................................. $ (18.0) $ (116.9) $ (28.9)
--------- --------- ---------
--------- --------- ---------
Earnings (loss) per common share:
Continuing operations.............................................................. $ (0.43) $ (2.48) $ (.60)
Discontinued operations............................................................ 0.02 -- --
--------- --------- ---------
Net loss per common share............................................................ $ (0.41) $ (2.48) $ (.60)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See the accompanying notes to financial statements.
F-4
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................................... $ (18.0) $ (116.9) $ (28.9)
Adjustments to reconcile net loss to cash used by operating activities:
Depreciation and amortization.................................................... 1.2 1.2 1.2
Non-cash interest expense........................................................ 18.0 20.5 23.2
Write-down of real estate properties............................................. -- 121.1 --
Gains on asset sales............................................................. (.4) (1.9) (3.4)
Gains on dispositions of discontinued operations................................. (.7) -- --
Proceeds from asset sales, net................................................... 10.5 22.5 31.5
Investments in real estate held for development or sale.......................... (6.1) (18.2) (20.4)
Investment in land held for development.......................................... (9.9) (7.8) (3.5)
Decrease (increase) in other assets.............................................. (.6) 11.9 (5.5)
Decrease in accounts payable, accrued and other liabilities...................... (9.7) (61.8) (2.7)
Other, net....................................................................... (.1) -- .4
--------- --------- ---------
Cash used by operating activities.............................................. (15.8) (29.4) (8.1)
--------- --------- ---------
Cash flows from investing activities:
Sale of short-term investments..................................................... 21.7 -- --
Proceeds from disposition of discontinued operation................................ 1.0 -- --
Acquisitions....................................................................... (1.2) (.3) --
--------- --------- ---------
Cash provided (used) by investing activities................................... 21.5 (.3) --
--------- --------- ---------
Cash flows from financing activities:
Borrowings of senior bank debt..................................................... -- 21.6 8.7
Repayments of senior bank debt..................................................... (7.0) (5.0) (18.2)
Borrowings of project debt......................................................... -- -- 12.5
Use of restricted cash............................................................. -- 10.0 2.3
Deposits of restricted cash........................................................ (7.5) (5.0) --
--------- --------- ---------
Cash provided (used) by financing activities................................... (14.5) 21.6 5.3
--------- --------- ---------
Net decrease in cash and cash equivalents............................................ (8.8) (8.1) (2.8)
Cash and cash equivalents--beginning of year......................................... 21.8 13.0 4.9
--------- --------- ---------
Cash and cash equivalents--end of year............................................... $ 13.0 $ 4.9 $ 2.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
See the accompanying notes to financial statements.
F-5
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DEFERRED
CAPITAL PROCEEDS
IN EXCESS FROM MINIMUM
PREFERRED COMMON OF PAR STOCK PENSION ACCUMULATED
STOCK STOCK VALUE ISSUANCE LIABILITY DEFICIT TOTAL
-------- -------- --------- --------- --------- ------------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994............ $ .4 $ 2.2 $ 230.0 $ (1.5) $ (1.5) $ (66.1) $163.5
Net Loss......................... -- -- -- -- -- (18.0) (18.0)
Minimum pension liability........ -- -- -- -- (.5) -- (.5)
Valuation adjustment to deferred
proceeds from stock issuance... -- -- .1 (.1) -- -- --
Issuance of stock related to
acquisition.................... -- .1 .4 -- -- -- .5
--- --- --------- --------- --------- ------------- ------
Balance December 31, 1994.......... .4 2.3 230.5 (1.6) (2.0) (84.1) 145.5
Net loss......................... -- -- -- -- -- (116.9) (116.9)
Minimum pension liability........ -- -- -- -- 1.0 -- 1.0
Valuation adjustment to deferred
proceeds from stock issuance... -- -- (.5) .5 -- -- --
Conversion of preferred to
common......................... -- .1 (.1) -- -- -- --
--- --- --------- --------- --------- ------------- ------
Balance December 31, 1995.......... .4 2.4 229.9 (1.1) (1.0) (201.0) 29.6
Net loss......................... -- -- -- -- -- (28.9) (28.9)
Minimum pension liability........ -- -- -- -- .4 -- .4
Valuation adjustment to deferred
proceeds from stock issuance... -- -- (.7) .7 -- -- --
--- --- --------- --------- --------- ------------- ------
Balance December 31, 1996.......... $ .4 $ 2.4 $ 229.2 $ (.4) $ (.6) $ (229.9) $ 1.1
--- --- --------- --------- --------- ------------- ------
--- --- --------- --------- --------- ------------- ------
</TABLE>
See the accompanying notes to financial statements.
F-6
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS
NOTE 1--FORMATION AND BASIS OF PRESENTATION
The principal activities of Koll Real Estate Group, Inc. and its
consolidated subsidiaries (the "Company", formerly known as The Bolsa Chica
Company and Henley Properties Inc.) include: (i) obtaining zoning and other
entitlements for land it owns and improving the land for residential
development; (ii) single and multi-family residential construction in Southern
California; and (iii) providing commercial, industrial, retail and residential
real estate 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, Phoenix, Seattle, Shanghai, China and Taipei, Taiwan. Once the
residential land owned by the Company 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.
On December 31, 1989, The Henley Group, Inc. separated its business into two
public companies through a distribution to its Class A and Class B common
stockholders of all of the common stock of a newly formed Delaware corporation
to which The Henley Group, Inc. had contributed its non-real estate development
operations, assets and related liabilities. The new company was named The Henley
Group, Inc. ("Henley Group") immediately following the distribution. The
remaining company was renamed Henley Properties Inc. ("Henley Properties") and
consisted of the real estate development business and assets of Henley Group,
including its subsidiary Signal Landmark.
On July 16, 1992, a subsidiary of Henley Properties merged with and into
Henley Group (the "Merger") and Henley Group became a wholly owned subsidiary of
Henley Properties. In the Merger, Henley Properties, through its Henley Group
subsidiary, received net assets having a book value as of July 16, 1992 of
approximately $45.3 million, consisting of approximately $103.6 million of
assets, including $58.3 million of cash and a 44% interest in Deltec Panamerica
S.A. ("Deltec"), and $58.3 million of liabilities. In connection with the
Merger, Henley Properties was renamed The Bolsa Chica Company.
On September 30, 1993, a subsidiary of The Bolsa Chica Company acquired the
domestic real estate development business and related assets of The Koll
Company. In connection with this acquisition, The Bolsa Chica Company was
renamed Koll Real Estate Group, Inc.
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain amounts have been reclassified to
conform with the current year presentation.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
REAL ESTATE
Real estate held for development and land held for development (real estate
properties) are carried at cost net of impairment losses based on undiscounted
cash flows. Real estate held for sale is carried at cost, net of impairment
losses and selling costs based on undiscounted cash flows. The estimation
process involved in the determination of fair value is inherently uncertain
since it requires estimates as to future
F-7
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
events and market conditions. Such estimation process assumes the Company's
ability to complete development and dispose of its real estate properties in the
ordinary course of business based on management's present plans and intentions.
Economic, market, environmental and political conditions may affect management's
development and marketing plans. In addition, the implementation of such
development and marketing plans could be affected by the availability of future
financing for development and construction activities. Accordingly, the ultimate
fair values of the Company's real estate properties are dependent upon future
economic and market conditions, the availability of financing, and the
resolution of political, environmental and other related issues.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of" ("SFAS 121"), which requires an impaired asset (real property or
intangible) to be written down to fair value. If an impairment occurs, the fair
value of an asset for purposes of SFAS 121 is deemed to be the amount a willing
buyer would pay a willing seller for such asset in a current transaction. As
required, the Company adopted SFAS 121 during the quarter ended March 31, 1996
which did not have any effect on its financial statements. Any potential future
revaluation of the Bolsa Chica property that could result if a recapitalization
is implemented by the Company would be based on the facts and circumstances at
that time.
The cost of sales of multi-unit projects is generally computed using the
relative sales value method, with direct construction costs and property taxes
accumulated by phase, using the specific identification method. Interest cost is
capitalized to real estate projects during their development and construction
period.
Operating properties are generally depreciated utilizing the straight-line
method over estimated lives ranging principally from 5 to 7 years. Accumulated
depreciation amounted to $1.1 million and $1.0 million at December 31, 1995 and
1996, respectively.
INTANGIBLE ASSETS
Goodwill, which represents the difference between the purchase price of a
business acquired in 1993 and the related fair value of net assets acquired, is
amortized on a straight-line basis over 15 years. Goodwill of $7.9 million and
$7.3 million as of December 31, 1995, and 1996, respectively, is included in
other assets. The carrying value of goodwill is reviewed periodically based on
projected cash flows to be received from related operations over the remaining
amortization period of the goodwill. If such projected cash flows were less than
the carrying value of the goodwill, the difference would be charged to
operations.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company accounted for the cost of post-retirement benefits other than
pensions, which are primarily health care related, during each employee's active
working career under a plan which was frozen in 1993. As of December 31, 1995,
and 1996, the accrued unfunded costs totaled $1.3 million and $.9 million,
respectively.
INCOME TAXES
The Company accounts for income taxes on the liability method. Deferred
income taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities, using enacted tax rates in
effect in the years in which these differences are expected to reverse.
F-8
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF REVENUES
Sales are recorded using the full accrual method when title to the real
estate sold is passed to the buyer and the buyer has made an adequate financial
commitment. When it is determined that the earning process is not complete,
income is deferred using the installment, cost recovery or percentage of
completion methods of accounting.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") which required the Company to adopt disclosure
provisions for stock-based compensation effective January 1, 1996. The standard
defines a fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation is measured at the grant
date based on the fair value of the award and is recognized over the service
period, which is usually the vesting period. This standard encourages rather
than requires adoption of the fair value method of accounting for employee
stock-based transactions. Companies are permitted to continue to account for
such transactions under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," but will be required to disclose in
a note to the financial statements pro forma net income and net income per share
as if the new method of accounting had been applied. The Company has elected to
continue to apply APB Opinion No. 25 in its financial statements and no pro
forma disclosure was required as of and for the year ended December 31, 1996.
EARNINGS PER COMMON SHARE
The weighted average numbers of common shares outstanding for the years
ended December 31, 1994, 1995 and 1996 were 43.8 million, 47.1 million, and 48.3
million, respectively. The Series A Preferred Stock, as well as outstanding
stock options are not included in the loss per share calculation for each year
because the effect is antidilutive. The earnings per share calculations include
the effect of 2.0 million shares of Class A Common Stock issued on November 9,
1994, in connection with the acquisition of the Kathryn G. Thompson Company
(Note 3). The 1994, 1995 and 1996 earnings per share calculations reflect the
conversion of 1.2 million shares, an additional 1.0 million shares, and an
additional 1.4 million shares, respectively, of Series A Preferred Stock to an
equal number of shares of Class A Common Stock.
NOTE 3--ACQUISITIONS AND DISPOSITIONS
In November 1994, the Company acquired the stock of Kathryn G. Thompson
Company ("KGTC") and related assets. The principal activities of the acquired
business are residential real estate development and homebuilding, focusing on
the entry-level and first time move-up market segments. The principal project of
the acquired business is a 49% general partnership interest in a 230-acre
project planned for approximately 1,200 residential units in Aliso Viejo in
southern Orange County ("AV Partnership"). In connection with the acquisition,
the Company paid $1.2 million in cash and a $.5 million note, issued 2 million
shares of Class A Common Stock and warrants to purchase an additional 2 million
shares. The Company guaranteed approximately $4.8 million of capital
contribution notes related to the Aliso Viejo partnership interest, which notes
are primarily payable out of positive net cash flow to be generated by the
partnership interest and are not due until the earlier of the completion of the
project or April 1999. In addition, in November 1994, Ms. Kathryn G. Thompson,
who was appointed as a director of the Company,
F-9
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS AND DISPOSITIONS (CONTINUED)
entered into a covenant not to compete with the Company with respect to real
estate development, subject to certain limited exceptions. Ms. Thompson resigned
as an officer and director of the Company effective November 1, 1996. In
conjunction with her resignation, the covenant of Ms. Thompson was released.
Summarized financial information of AV Partnership is presented below at
December 31, 1995 and 1996 and for the years then ended (in millions):
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Balance Sheet Data:
Total assets........................................................ $ 111.9 $ 102.5
Total project debt and other liabilities............................ 107.9 110.5
----------- -----------
Partners' capital................................................... $ 4.0 $ (8.0)
----------- -----------
----------- -----------
Statement of Operations Data:
Revenues............................................................ $ -- $ 44.3
Expenses............................................................ (4.1) (55.3)
----------- -----------
Net loss............................................................ $ (4.1) $ (11.0)
----------- -----------
----------- -----------
</TABLE>
The Company uses the equity method to account for its investment in AV
Partnership and accordingly, the statement of operations includes a $.1 million
loss for the period from the acquisition date through December 31, 1994, and
losses of $2.0 million and $1.2 million, respectively, for the years ended
December 31, 1995 and 1996. Due to a significant shortfall in sales during 1995
versus forecast, the financial structure of the partnership and the significant
amount of participating mortgages with preference to the Company's equity
interest, the Company does not expect to receive a financial return from this
partnership and in 1995 reserved for its guaranty of $4.8 million of capital
contribution notes. The liability relating to the guaranteed capital
contribution notes, including accrued interest, for this partnership of $4.8
million and $6.0 million at December 31, 1995 and 1996, respectively, are
included in other liabilities.
In December 1993, the Company completed a transaction with Libra whereby it
exchanged the Company's Lake Superior Land Company subsidiary for approximately
$42.4 million in aggregate face amount of Senior Subordinated Debentures held by
Libra, and net cash proceeds to be generated by Libra's periodic sale of up to
approximately 3.4 million shares of the Company's Class A Common Stock held by
Libra through a series of transactions to be effected in an orderly manner. The
Company also completed a separate transaction with Libra in December 1993,
whereby the Company exchanged approximately 3.4 million newly issued shares of
its Class A Common Stock for approximately $10.6 million in aggregate face
amount of Subordinated Debentures held by Libra. The shares issued to Libra were
deposited in a custodial account for periodic sale in accordance with
instructions from the Company. In February 1994, the Company received $1 million
in cash from Libra in exchange for the immediate termination of a contingent
payment provision of the December 1993 transaction with Libra.
F-10
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--REAL ESTATE HELD FOR DEVELOPMENT OR SALE
Real estate held for development or sale consists of the following at
December 31 (in millions):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Residential.................................................................. $ 26.3 $ 12.4
Commercial/industrial........................................................ 1.8 12.8
--------- ---------
$ 28.1 $ 25.2
--------- ---------
--------- ---------
</TABLE>
NOTE 5--LAND HELD FOR DEVELOPMENT
Following completion of the Company's sale of approximately 880 lowland
acres of its Bolsa Chica property to the State of California on February 14,
1997 as described below, land held for development consists of approximately 310
acres 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 planned community at Bolsa Chica is expected to offer a broad mix of
home choices, including single-family homes, townhomes and condominiums at a
wide range of prices. In December 1994, the Orange County Board of Supervisors
unanimously approved a Local Coastal Program ("LCP") for up to 3,300 units of
residential development and a wetlands restoration plan for this property. The
3,300-unit LCP provides for development of up to 2,500 homes on the mesa (high
ground) portion of the property and up to 900 homes on the lowland portion of
the property, not to exceed 3,300 homes in the aggregate. The related
Development Agreement was unanimously approved by the Orange County Board of
Supervisors in April 1995. The California Coastal Commission approved the LCP in
January 1996 subject to suggested modifications. These suggested modifications
were approved by the Orange County Board of Supervisors in June 1996, and on
July 11, 1996 the California Coastal Commission certified the LCP for the
Company's Bolsa Chica property.
On February 14, 1997, the Company completed the sale of approximately 880
lowland acres owned by the Company at Bolsa Chica to the California State Lands
Commission for $25 million and will, therefore, forego opportunities to develop
900 homes in the lowland. Under an interagency agreement among various state and
federal agencies, these agencies have agreed to restore the Bolsa Chica lowlands
utilizing escrowed funds from the Ports of Los Angeles and Long Beach. A reserve
of $1.5 million has been included in other liabilities as of December 31, 1996,
with respect to potential costs payable by the Company under agreements
negotiated with the State Lands Commission and certain oil field operators
regarding environmental clean-up at the Bolsa Chica lowlands. In connection with
the lowlands sale, the Company paid $833,333 of these costs at closing, leaving
a reserve balance of $700,000 on its financial statements for potential
additional clean-up costs.
The Company is now pursuing the secondary permitting process for the mesa
through the County of Orange in order to implement the approved development plan
for up to 2,500 homes. This process is currently expected to be completed in the
fourth quarter of 1997. The Company expects, subject to its ability to obtain
financing on a commercially reasonable and timely basis, and subject to
obtaining the secondary permits, to commence infrastructure construction on the
mesa in the fourth quarter of 1997. However, due to certain 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 start of construction could be delayed. In this regard,
on January 13, 1995, two lawsuits
F-11
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--LAND HELD FOR DEVELOPMENT (CONTINUED)
challenging the Orange County Board of Supervisors' approval of the Bolsa Chica
project were filed in Orange County Superior Court (the "Court"). Although the
lawsuits differed in the particular issues they raised, generally they each
alleged, among other things, violations of the California Environmental Quality
Act and violations of the California Government Code planning and zoning laws.
One lawsuit, which was brought by the school districts, has been settled with an
agreement regarding school fees to be paid to the plaintiff districts. In the
other "environmental lawsuit", the plaintiffs did not seek monetary damages, but
instead asked the Court to set aside the approval of the Bolsa Chica project. In
February 1996, the Court ruled on the "environmental lawsuit", rejecting all but
one of the arguments, and requiring an additional 45-day public review and
comment period regarding the tidal inlet portion of the wetlands restoration
plan, which was completed in the second quarter of 1996. The County reapproved
the plan without change in June 1996. On January 24, 1997 this lawsuit was
dismissed by the Court. In filing the judgement, the Court ruled that the County
had fulfilled all requirements for approval of the Bolsa Chica development
plans, without the Court requiring any change to the plans.
In addition, on March 6, 1996 and March 11, 1996 two lawsuits were filed
against the Coastal Commission, the Company and other Bolsa Chica landowners as
real parties in interest, alleging that the Coastal Commission's approval of the
LCP is not in compliance with the Coastal Act and other statutory requirements.
These lawsuits seek to set aside the approval of the Bolsa Chica project, and
are currently scheduled to be tried in April 1997. Given the recent sale of the
Bolsa Chica lowlands described above, the primary issues which were the subject
of this litigation have been eliminated. Furthermore, the plaintiffs in one of
these lawsuits have informed the Company that given the sale of the lowlands,
they will work with the Company in an effort to resolve the remaining issues of
their lawsuit. The Company believes that the remaining litigation issues which
challenge development of the Bolsa Chica mesa are without merit. Furthermore,
the Company does not believe that these lawsuits will be successful in
permanently preventing the Company from completing the Bolsa Chica project,
however, there can be no assurance in this regard or that these suits will not
result in delays.
In 1995, in accordance with Statement of Financial Accounting Standard No.
67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects"
("SFAS 67"), the Company carried real estate properties, including Bolsa Chica,
at the lower of cost or net realizable value, with net realizable value defined
as the undiscounted estimated future cash flows from the project. As of December
31, 1995, the Company's review of the current estimated cash flows for Bolsa
Chica indicated that a reserve of approximately $113.6 million was required to
adjust the carrying value of Bolsa Chica to its then estimated net realizable
value of $220 million pursuant to SFAS 67. The valuation reserve primarily
reflects management's decision in the fourth quarter of 1995 (following the
approval of additional funding by the Ports) to make completing the sale of the
lowlands to a government agency a strategic goal of the Company, along with
updated estimates of future cash flows for the mesa portion of the project
reflecting recent market conditions. During 1995, the Southern California
residential real estate market continued to decline, affecting estimated sale
pricing, housing mix and number of units planned. The Company's decision in 1995
to pursue a sale of the lowlands was expected to, and subsequently has, resulted
in the elimination of up to 900 units previously planned in the lowlands, which,
in turn, resulted in a significant reduction as of December 31, 1995 in
projected future cash flows previously anticipated from the Bolsa Chica project.
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.
F-12
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--DEBT
SENIOR BANK DEBT
In December 1994, the Company entered into a letter of credit and
reimbursement agreement with Nomura Asset Capital Corporation ("Nomura") to fund
payment of the settlement of the Abex litigation in excess of $7.5 million to be
funded by the Company. In February 1995, the Company paid an aggregate of $22
million to settle the litigation, of which $15.5 million was funded by
borrowings under the letter of credit and reimbursement agreement and the
balance of $6.5 million from restricted cash. Since this financing agreement was
solely for the purpose described above, no additional funds are available under
this facility. The Company repaid $8.4 million of such borrowings during 1996.
In December 1994, the Company also entered into a construction loan agreement
with Nomura to partially fund infrastructure construction at Rancho San Pasqual,
the Company's golf/residential property in San Diego County. The Company
borrowed $1.3 million and $8.7 million during 1995 and 1996, respectively, under
this loan agreement. As required under the construction loan agreement, the
Company deposited $5 million into an escrow account in January 1995 to be used
solely for the funding of infrastructure construction costs at Rancho San
Pasqual, of which $2.5 million was included in restricted cash on December 31,
1995. The Company repaid $.2 million and $9.8 million of borrowings under the
construction loan agreement during 1995 and 1996, respectively.
The remaining borrowings outstanding as of December 31, 1996 under the
letter of credit and reimbursement agreement were principally secured by a deed
of trust on Rancho San Pasqual and a pledge and security interest in the
Company's interest in Fairbanks Highlands, LLC, a joint venture with Taylor
Woodrow Homes, Inc. formed on December 6, 1996, along with a pledge of the stock
of Signal Bolsa Corporation. Amounts outstanding under the letter of credit and
reimbursement agreement bear interest at 30 Day LIBOR plus 4%, which was 9.69%
as of December 31, 1996. The agreements initially required principal prepayments
equal to 80% of the net proceeds from any sales at Rancho San Pasqual, Fairbanks
Highlands, and principal prepayments equal to 50% of the net proceeds from
Rancho San Pasqual assessment district reimbursements. After March 12, 1996, the
agreements require principal repayments equal to 90% of the net proceeds from
any sales at Rancho San Pasqual, Fairbanks Highlands and Bolsa Chica. The
agreements contain certain restrictive covenants that limit, among other things,
(i) the incurrence of indebtedness, (ii) the making of investments and (iii) the
creation or incurrence of liens on existing and future assets of the Company.
The agreements also contain various financial covenants and events of default
customary for such agreements. In December 1996, the Company exercised its
option to extend the initial maturity date under the loans from December 20,
1996 to December 22, 1997. On February 18, 1997 the outstanding Nomura loan
balance was fully repaid with a portion of the proceeds from the sale of the
Bolsa Chica lowlands and the loan agreements were terminated.
In December 1994, the Company entered into a $6.5 million construction loan
agreement with the Bank of Boston, principally secured by resort and residential
property in New Hampshire ("Wentworth"). The Company borrowed $4.8 million under
this loan agreement and applied $4.2 million in proceeds from sales of
residential homes from Wentworth to satisfy required prepayments, resulting in
an outstanding balance of $.6 million on November 2, 1995, when 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 the outstanding balance
under the Bank of Boston credit agreement, which terminated this credit
facility.
F-13
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--DEBT (CONTINUED)
PROJECT DEBT
During 1996, the Company entered into several contracts to develop and
construct commercial properties on a build-to-suit basis. Subsidiaries of the
Company have entered into three construction loan agreements aggregating $31.9
million, which have been guaranteed by the parent, to finance these projects. As
of December 31, 1996, a total of $12.5 million was drawn and $19.4 million was
available under these construction loan agreements. The loans bear interest at
prime plus .75% or 30-day LIBOR +2% and have maturity dates between June and
August 1997.
In addition, as of December 31, 1996, one development project is owned by an
unconsolidated partnership in which a subsidiary of the Company is the general
partner. The partnership has entered into a construction loan agreement for $3.5
million, which has also been guaranteed by the parent. Under this construction
loan agreement, $1.3 million was drawn and $2.2 million was available as of
December 31, 1996.
SUBORDINATED DEBENTURES
Immediately prior to the July 1992 Merger, Henley Group distributed to its
stockholders among other consideration (the "Distribution"), in respect of each
share of its outstanding common stock (the "Henley Group Common Stock"): (i)
$6.00 aggregate principal amount of the Company's 12% Senior Subordinated
Pay-In-Kind Debentures due March 15, 2002 (the "Senior Subordinated
Debentures"); and (ii) $1.50 aggregate principal amount of the 12% Subordinated
Pay-In-Kind Debentures due March 15, 2002 (the "Subordinated Debentures", and
together with the Senior Subordinated Debentures, the "Debentures").
Approximately $159.4 million aggregate principal amount of the Debentures were
distributed in the Distribution and approximately $43.8 million aggregate
principal amount of the Debentures were retained by the Company's Henley Group
subsidiary in the Merger.
The Debentures were comprised of the following as of December 31 (in
millions):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Senior Subordinated Debentures............................................. $ 138.2 $ 155.3
Subordinated Debentures.................................................... 34.6 38.8
--------- ---------
Total face amount........................................................ 172.8 194.1
Less unamortized discount.................................................. (5.6) (5.0)
Plus accrued interest...................................................... 6.0 6.8
--------- ---------
$ 173.2 $ 195.9
--------- ---------
--------- ---------
</TABLE>
The Debentures give the Company the right to pay interest in-kind, in cash
or, subject to certain conditions, in the Company's common stock. It is
currently anticipated that interest on the Debentures will be paid in-kind. The
Debentures, which are due March 15, 2002, do not require any sinking fund
payments and may be redeemed by the Company at any time in cash only, or at
maturity in cash or stock, subject to certain conditions. The Debentures
prohibit the payment of any dividends or other distributions on the Company's
equity securities.
In November 1996, representatives of certain holders of the Debentures
indicated to the Company that they intend to support a de-leveraging of the
Company's capital structure through a voluntary exchange of the Debentures for
equity (the "Exchange Offer"). Under the proposed Exchange Offer,
F-14
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--DEBT (CONTINUED)
Senior-Subordinated holders and Subordinated holders would, subject to the
successful completion of the Exchange Offer, receive 56 shares and 28 shares,
respectively, (after consolidation of the preferred and common stock and the
proposed reverse split discussed below) for each $1,000 of principal amount
outstanding as of March 15, 1997, after taking into account the next scheduled
"in-kind" interest payment. The solicitation of Debentureholders, as well as
stockholder approval, will not commence until the Securities and Exchange
Commission ("SEC") completes its review of a registration statement to be filed
by the Company with the SEC in February 1997, and the entire
solicitation/exchange offer process is not expected to be completed prior to
June 1997.
A 100% acceptance rate for the Exchange Offer would result in 90% of the
Company's equity, in the form of newly issued shares of common stock, being held
by the Debentureholders (approximately 80% by Senior-Subordinated and 10% by
Subordinated). The remaining 10% of the Company's equity would be owned, in the
aggregate, by current preferred and common stockholders (approximately 5.8% by
preferred stockholders and 4.2% by common stockholders). A condition to closing
the Exchange Offer will be that a minimum of 90% of the of the face amount
outstanding of the Debentures are tendered to the Company. The Company expects
to solicit the consent of its common and preferred stockholders to the Exchange
Offer and to the consolidation of the preferred and common stock into a single
class of common stock, through the issuance of 1.75 shares of Common Stock for
each outstanding share of Preferred Stock. In addition, all stockholders will be
asked to approve a one for one hundred (1:100) reverse stock split, and the
common stockholders will be asked to elect six new directors who have been
nominated by a committee of the Debentureholders and to elect four of the
Company's existing directors to be nominated by the Company.
At December 31, 1996 the estimated aggregate fair value of the Company's
Debentures was within a range of approximately $105 million to $115 million
based on quotes from certain bond traders making a market in the Debentures.
However, due to the low trading volume and illiquid market for the Debentures,
such quotes may not be meaningful indications of value. The carrying amount for
all other debt of the Company approximates market primarily as a result of
floating interest rates.
INTEREST
The Company made cash payments for interest on senior bank debt of $1.4
million, $1.4 million and $1.5 million for the years ended December 31, 1994,
1995 and 1996, respectively.
NOTE 7--OTHER LIABILITIES
Other liabilities were comprised of the following as of December 31 (in
millions):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Net deferred tax liabilities (Note 8)........................................ $ 10.0 $ 10.0
Other tax liabilities (Note 8)............................................... 4.5 4.5
Accrued pensions and benefits................................................ 10.7 5.6
Guaranty of capital contribution notes....................................... 4.8 6.0
Accrued indemnity obligations................................................ 18.7 17.8
Majority interest and other liabilities of consolidated partnership.......... 4.2 --
--------- ---------
$ 52.9 $ 43.9
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--OTHER LIABILITIES (CONTINUED)
During 1996, the Company terminated certain group annuity contracts for the
pension plan of a discontinued operation, and experienced favorable investment
returns on pension assets, resulting in a significant decrease in accrued
pensions and benefits.
NOTE 8--INCOME TAXES
The tax effects of items that gave rise to significant portions of the
deferred tax accounts are as follows for the years ended December 31 (in
millions):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Real estate held for development or sale and operating properties
(due to asset revaluations and interest capitalized for tax
purposes).......................................................... $ 33.4 $ 13.8
Accruals not deductible until paid................................... 6.6 6.1
Net operating loss carryforwards..................................... 64.7 94.1
Other................................................................ 1.7 .4
Valuation allowance.................................................. (59.2) (71.3)
--------- ---------
$ 47.2 $ 43.1
--------- ---------
--------- ---------
Deferred tax liabilities:
Land held for development, (principally due to accounting for a prior
business combination, partially offset by the asset revaluation in
1995)................................................................ $ 55.0 $ 51.2
Other................................................................ 2.2 1.9
--------- ---------
$ 57.2 $ 53.1
--------- ---------
--------- ---------
</TABLE>
Net deferred tax liabilities at December 31, 1996 are comprised entirely of
state net deferred tax liabilities.
At December 31, 1996, the Company had available tax net operating loss
carryforwards of approximately $282 million which expire in the years 2004
through 2011 if not utilized. The Internal Revenue Code (the "Code") imposes an
annual limitation on the use of loss carryforwards upon the occurrence of an
"ownership change" (as defined in Section 382 of the Code). Such an ownership
change occurred in connection with the Merger in 1992. As a result,
approximately $23 million of the Company's net operating loss carryforwards will
generally be limited to the extent that Henley Properties and its subsidiaries
recognize certain gains in the five-year period following the ownership change
which ends July 16, 1997. Additionally, the use of the Company's net operating
loss carryforwards will be further limited if the Exchange Offer is completed.
F-16
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--INCOME TAXES (CONTINUED)
The following is a summary of the income tax provision (benefit) applicable
to losses from continuing operations for the years ended December 31 (in
millions):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Income Tax Provision (Benefit):
Current................................................... $ (.3) $(10.1) $ .1
Deferred.................................................. (10.0) (25.4) --
------ ------ ------
$(10.3) $(35.5) $ .1
------ ------ ------
------ ------ ------
</TABLE>
Cash payments for federal, state and local income taxes were approximately
$.6 million, $.3 million and $.2 million for the years ended December 31, 1994,
1995 and 1996, respectively. Tax refunds received for the years ended December
31, 1994, 1995 and 1996 were approximately $.8 million, $.4 million and $.2
million, respectively.
The principal items accounting for the difference in taxes on income
computed at the statutory rate and as recorded are as follows for the years
ended December 31 (in millions):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Benefit for income taxes at statutory rate........................ $ (10.2) $ (53.3) $ (10.1)
State income taxes, net........................................... (.1) .6 (.1)
Increase in valuation allowance................................... -- 28.3 12.1
Reduction in other tax liabilities................................ -- (10.0) --
All other items, net.............................................. -- (1.1) (1.8)
--------- --------- ---------
$ (10.3) $ (35.5) $ .1
--------- --------- ---------
--------- --------- ---------
</TABLE>
TAX SHARING AGREEMENTS
Henley Group and Abex, a former subsidiary of Henley Group whose stock was
distributed to stockholders of Henley Group in July 1992, entered into a tax
sharing agreement in 1992 prior to the Distribution to provide for the payment
of taxes for periods during which Henley Group and Abex were included in the
same consolidated group for federal income tax purposes, the allocation of
responsibility for the filing of tax returns, the cooperation of the parties in
realizing certain tax benefits, the conduct of tax audits and various related
matters.
1989-1992 INCOME TAXES. The Company is generally charged with
responsibility for all of its federal, state, local or foreign income taxes for
this period and, pursuant to the tax sharing agreement with Abex, all such taxes
attributable to Henley Group and their consolidated subsidiaries, including any
additional liability resulting from adjustments on audit (and any interest or
penalties payable with respect thereto), except that Abex is generally charged
with responsibility for all such taxes attributable to it and its subsidiaries
for 1990-1992. In addition, under a separate tax sharing agreement between
Henley Group and a former subsidiary of Henley Group, Fisher Scientific
International Inc. ("Fisher"), Fisher is generally charged with responsibility
for its own income tax liabilities for this period.
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
F-17
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--INCOME TAXES (CONTINUED)
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 million (net of amounts which may be payable by former
affiliates pursuant to tax sharing agreements). The IRS proposed adjustments, if
upheld, could also result in a disallowance of up to $147 million of available
net operating loss carryforwards, of which none are recognized, after
consideration of the valuation allowance, as of December 31, 1996. 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 in August 1995 and is still being 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. 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.
PRE-1989 INCOME TAXES. Under tax sharing agreements with WTI and Abex, the
parties are charged with sharing responsibility for paying any increase in the
federal, state or local income tax liabilities (including any interest or
penalties payable with respect thereto) for any consolidated, combined or
unitary tax group which included WTI, Henley Group or any of their subsidiaries
for tax periods ending on or before December 31, 1988. Under the agreements, the
Company was charged with the responsibility for paying $25 million, plus amounts
payable with respect to liabilities which are attributable to certain of the
Company's subsidiaries. The Company's $25 million limitation amount was accrued
in the Company's financial statements in December 1989, and following payments
made in the first quarter of 1993, $22 million remained as of December 31, 1994.
In January 1993, the IRS completed its examination of the Federal tax returns of
WTI for the periods May 1986 through December 1988 and asserted a material
deficiency relating to the tax basis of a former subsidiary of WTI. WTI, Abex
and the Company disagreed with the position taken by the IRS and WTI filed a
petition with the U.S. Tax Court. In March 1994, prior to the June 1994 trial
date, WTI and the IRS entered into a Stipulation of Settlement that resulted in
a tax payable together with interest of approximately $72 million.
In April 1994, the Company contested the alleged obligation and asserted
various defenses to making any payment under these agreements and Abex and WTI
filed suit in Delaware Chancery Court ("the Court") against the Company seeking,
among other things, declaratory relief, specific performance, and monetary
damages for the Company's alleged failure to pay approximately $21 million
claimed to be owed pursuant to tax sharing agreements entered into in 1988 and
1989, plus pre-judgment interest and attorneys' fees. The Company vigorously
defended its position with respect to the nonpayment of the alleged tax sharing
obligation, filing suit in the Supreme Court of the state of New York against
WTI and Abex. In December 1994, the Court decided against the Company, prompting
the Company to file an appeal in January 1995. In February 1995, the Company
entered into an agreement with WTI and Abex to settle both state actions in
order to avoid the ongoing cost of litigation. Under the terms of the
settlement, the Company paid an aggregate of $22 million, of which $15.5 million
was funded by borrowings under a financing agreement with a major financial
institution (Note 6) and $6.5 million was funded by the Company's restricted
cash. The Company also settled other disputes with Abex as described in Note 9.
F-18
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--COMMITMENTS AND CONTINGENCIES
Pursuant to a 1992 transition agreement, amended in March 1993, each of Abex
and the Company provided to the other certain administrative support services
until March 31, 1994. The amendment provided for the Company to pay $.5 million
quarterly for such services and for the termination of the New Hampshire
facilities lease on March 31, 1993. Accordingly, the Company reimbursed Abex
approximately $1.8 million for the year ended December 31, 1993. Fees accrued
but not paid in the fourth quarter of 1993 and the first quarter of 1994
totaling $1.0 million were waived by Abex in connection with the February 1995
settlement with Abex described in Note 8.
LEGAL PROCEEDINGS
See Note 5 for a discussion of certain litigation relating to the Orange
County Board of Supervisors' and California Coastal Commission's approvals of
the Bolsa Chica project.
There are various other lawsuits and claims pending against the Company and
certain subsidiaries. In the opinion of the Company's management, ultimate
liability, if any, will not have a material adverse effect on the Company's
financial condition or results of operations.
CORPORATE INDEMNIFICATION MATTERS
The Company and its predecessors have, through a variety of transactions
effected since 1986, disposed of several assets and businesses, many of which
are unrelated to the Company's current operations. By operation of law or
contractual indemnity provisions, the Company has retained liabilities relating
to certain of these assets and businesses. Many of such liabilities are
supported by insurance or by indemnities from certain of the Company's
predecessor and currently or previously affiliated companies. The Company
believes its balance sheet reflects adequate reserves for these matters.
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 of $6.2 million. EPA estimates
that it has spent approximately $3.9 million to date in performing studies of
the site. Under CERCLA, EPA could assert claims against the Torch Lake PRPs,
including UOP, to recover the cost of these studies, the cost of all remedial
action required at the site, and natural resources damages. In June 1995, EPA
proposed a CERCLA settlement pursuant to which UOP pay approximately between
$2.6 and $3.3 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
determined to vigorously defend UOP's position that the EPA's proposed cleanup
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.
F-19
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--RELATED PARTY TRANSACTIONS
CONSTRUCTION MANAGEMENT AGREEMENTS
In 1993, the Company entered into a construction management agreement with
Koll Construction, a wholly owned subsidiary of The Koll Company, for demolition
of bunkers at Bolsa Chica. In 1995, the Company also entered into a construction
management agreement with Koll Construction for infrastructure construction at
Rancho San Pasqual. In 1996, the Company entered into a general contractor
agreement with Koll Construction in conjunction with a build-to-suit project for
a third-party corporate office building in Nevada. During 1994, 1995 and 1996
the Company incurred fees aggregating approximately $100 thousand, $500 thousand
and $1.7 million, respectively, to Koll Construction in consideration for these
services and related reimbursements.
SERVICE AGREEMENTS
In September 1993, the Company entered into a Financing and Accounting
Services Agreement to provide The Koll Company with financing, accounting,
billing, collections and other related services until 30 days' prior written
notice of termination is given by one company to the other. Fees earned for the
years ended December 31, 1994, 1995 and 1996 were approximately $400 thousand,
$100 thousand and $100 thousand, respectively.
The Company also entered into a Management Information Systems and Human
Resources Services Agreement in September 1993 with Koll Management Services,
Inc., also known as Koll Real Estate Services ("KRES"), a company approximately
14% owned by a subsidiary of The Koll Company. Under this agreement, KRES
provides computer programming, data organization and retention, record keeping,
payroll and other related services until 30 days' prior written notice of
termination is given by one company to the other. Fees and related
reimbursements incurred were approximately $200 thousand for each of the years
ended December 31, 1994, 1995 and 1996.
SUBLEASE AGREEMENTS
In September 1993, the Company entered into an annual Sublease Agreement
with The Koll Company to sublease a portion of The Koll Company affiliate's
office building located in Newport Beach, California. The Company also entered
into lease agreements on a month-to-month basis, which were terminated in 1996,
for office space in Northern California and San Diego, California with KRES.
Combined lease costs on these leases were approximately $400 thousand for each
of the years ended December 31, 1994, 1995, and 1996, respectively.
DEVELOPMENT FEES
For the years ended December 31, 1994, 1995, and 1996 the Company earned
fees of approximately $3.5 million, $2.7 million, and $1.9 million respectively,
for real estate development and disposition services provided to partnerships in
which The Koll Company and certain directors and officers of the Company have an
ownership interest. In addition, the Company paid approximately $300 thousand
to, and received $100 thousand from Koll Construction for services provided to
each other in conjunction with two separate development service transactions for
the year ended December 31, 1994. The Company paid $100 thousand and $400
thousand to Koll Construction for construction services in the years ended
December 31, 1995 and 1996, respectively.
F-20
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--RELATED PARTY TRANSACTIONS (CONTINUED)
JOINT BUSINESS OPPORTUNITY AGREEMENT
The Company and The Koll Company entered into an agreement to jointly
develop business opportunities in the Pacific Rim effective February 1, 1994.
Effective February 1, 1995 The Koll Company assigned its interests under this
agreement to KRES. Under the terms of the agreement, the Company and KRES share
on a 50%-50% basis all costs and expenses incurred in connection with
identifying and obtaining business opportunities and will share in all revenues
generated from any such opportunities on a 50%-50% basis. The Company's share of
net loss was approximately $200 thousand, $300 thousand and $100 thousand for
the years ended December 31, 1994, 1995 and 1996, respectively. Service
contracts entered into under this agreement in 1995 included construction
services from Koll Construction, for which the venture paid approximately $100
thousand to Koll Construction for services rendered for each of the years ended
December 31, 1995 and 1996. In February 1997, KRES notified the Company that it
plans to terminate the venture effective March 5, 1997, and its interest will be
adjusted accordingly.
In March 1995, the Company and The Koll Company entered into an agreement to
jointly develop commercial development business opportunities in Mexico. Under
the terms of the agreement, the Company and The Koll Company share on a 50%-50%
basis all costs and expenses incurred in connection with identifying and
obtaining business opportunities and will share in all revenues generated from
such opportunities on a 50%-50% basis. The Company's share of such net costs and
expenses was approximately $300 thousand and $100 thousand for the ten months
ended December 31, 1995, and for year ended December 31, 1996, respectively.
During the first quarter of 1996, the Company determined that, given current
economic conditions in Mexico, it could more efficiently service opportunities
in Mexico from its offices in California and Dallas and closed its Mexico City
office. The Koll Company informed the Company that effective March 1, 1996 it
would no longer fund costs and expenses related to the pursuit of commercial
development opportunities in Mexico, and The Koll's Company interest was diluted
accordingly.
Effective April 1, 1994, the Company and KRES entered into an agreement to
combine operations in the Northwest Region in order to become a full service
real estate company in that region. This agreement was terminated effective June
30, 1996. Operating profits and losses were split on a 50%-50% basis at the end
of each calendar year or portion thereof. The Company's share of profits was
approximately $500 thousand, $600 thousand and $200 thousand for the nine months
ended December 31, 1994, the year ended December 31, 1995, and the six months
ended June 30, 1996, respectively.
STOCK PLEDGE BY DIRECTOR
In December of 1995, the Company accepted pledges of all of the common stock
and warrants convertible into the common stock of the Company owned by Ms.
Kathryn G. Thompson as security against any potential construction liability
which could be asserted against the Company as a result of the 1994 acquisition
by the Company of KGTC and in exchange for the Company releasing Ms. Thompson
from a covenant to maintain insurance with respect to such potential liability.
Ms. Thompson resigned as a director of the Company and as an officer of certain
wholly-owned subsidiaries of the Company effective November 1, 1996. Ms.
Thompson received compensation of $300,000 during each of the years ended
December 31, 1995 and 1996 for her services rendered as an officer of these
subsidiaries. In connection with her resignation, Ms. Thompson received a
release from certain non-competition covenants and a release of the stock pledge
described above.
F-21
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO AUDITED HISTORIC FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--RELATED PARTY TRANSACTIONS (CONTINUED)
OTHER TRANSACTIONS
See Notes 3, 8 and 9 for descriptions of other transactions and agreements
with Koll, Libra, Abex and WTI.
NOTE 11--RETIREMENT PLANS
The Company has noncontributory defined benefit retirement plans covering
substantially all employees of the Company prior to September 30, 1993 who had
completed one year of continuous employment. The benefit accrual for all
participants was terminated on December 31, 1993. In November 1996, the assets
held in trust under the Company's supplemental and executive retirement plan
were paid to participants in exchange for each participant's release of any
future benefit claims under this plan, resulting in termination of the executive
plan and the curtailment gain recorded in 1996. Net periodic pension cost for
the years ended December 31 consisted of the following (in millions):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Service cost................................................ $ -- $ -- $ --
Interest cost............................................... .5 .5 .5
Actual return on assets..................................... .1 (1.4) (.8)
Net amortization and deferral............................... (.5) 1.0 .4
Gain on curtailment......................................... -- -- (.3)
------ ------ ------
Net periodic pension cost (income).......................... $ .1 $ .1 $ (.2)
------ ------ ------
------ ------ ------
</TABLE>
The funded status and accrued pension cost at December 31, 1995 and 1996 for
defined benefit plans were as follows (in millions):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested...................................................................... $ (6.9) $ (5.3)
Nonvested................................................................... -- --
--------- ---------
Accumulated benefit obligation................................................ $ (6.9) $ (5.3)
--------- ---------
--------- ---------
Projected benefit obligation.................................................. $ (6.9) $ (5.3)
Plan assets at fair value..................................................... 5.9 5.0
--------- ---------
Projected benefit obligation in excess of plan assets......................... (1.0) (.3)
Unrecognized net loss......................................................... 1.0 .7
Adjustment required to recognize additional minimum liability................. (1.0) (.7)
--------- ---------
Accrued pension cost.......................................................... $ (1.0) $ (.3)
--------- ---------
--------- ---------
</TABLE>
The development of the projected benefit obligation for the plans at
December 31, 1994, 1995, and 1996 is based on the following assumptions: a
discount rate of 7%, and an expected long-term rate of return on assets of 9%.
Assets of the plans are invested primarily in stocks, bonds, short-term
securities and cash equivalents.
F-22
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--CAPITAL STOCK
COMMON STOCK
Under its restated certificate of incorporation, the Company has authority
to issue up to 750 million shares of common stock, par value $.05 per share,
subject to approval of the Board of Directors (the "Board"), of which 625
million shares of Class A Common Stock and 25 million shares of Class B Common
Stock are initially authorized for issuance and an additional 100 million shares
may be issued in one or more series, and have such voting powers or other rights
and limitations as the Board may authorize. During 1994, 1995 and 1996, 1.2
million, an additional 1.0 million, and an additional 1.4 million shares,
respectively, of Series A Preferred Stock were converted into an equal number of
shares of Class A Common Stock.
In December 1993 the Company issued 3.4 million shares of its Class A Common
Stock in exchange for all of Libra's approximately $10.6 million in aggregate
principal amount of Subordinated Debentures plus accrued interest. In connection
with the Company's sale of Lake Superior Land Company to Libra, the net cash
proceeds from the sale of 3.4 million shares of Class A Common Stock held by
Libra will be forwarded to the Company. The estimated amount of proceeds to be
received from such sale is reflected in the equity section of the balance sheet
as deferred proceeds from stock issuance.
In November 1994 the Company issued 2 million shares of its Class A Common
Stock and warrants for the purchase of an additional 2 million shares in
connection with the acquisition of the Kathryn G. Thompson Company. The warrants
have an exercise price of $.25, are exercisable over a ten year period, vest in
equal installments over five years and are subject to certain cancellation
rights of the Company.
Under the Company's Indentures for the Debentures (Note 6), the Company is
prohibited from purchasing shares of its common stock.
PREFERRED STOCK
Under its restated certificate of incorporation, the Company has authority
to issue 150 million shares of preferred stock, par value $.01 per share, in one
or more series, with such voting powers and other rights as authorized by the
Board. Effective July 16, 1992, in connection with the Merger, the Board
authorized approximately 42.5 million shares of Series A Preferred Stock, which
have a liquidation preference of $.75 per share, participate in any dividend or
distribution paid on the Class A Common Stock on a share for share basis, and
have no voting rights, except as required by law (Notes 1 and 2).
The Series A Preferred Stock is redeemable at the Company's option, on 30
days' notice given at any time after the second anniversary of issuance, at the
liquidation preference of $.75 per share, in cash or generally in shares of
Class A Common Stock. Each share of the Series A Preferred Stock is convertible
at the holder's option, at any time after the second anniversary of issuance,
generally into one share of Class A Common Stock. Since the Series A Preferred
Stock became convertible in July 1994, approximately 3.6 million shares have
been converted into an equal number of shares of Class A Common Stock.
NOTE 13--STOCK PLANS
1993 STOCK OPTION/STOCK ISSUANCE PLAN
The 1993 Stock Option/Stock Issuance Plan ("1993 Plan") was approved at the
1994 Annual Meeting of Stockholders as the successor equity incentive program to
the Company's 1988 Stock Plan. Outstanding options under the 1988 Stock Plan
were incorporated into the 1993 Plan upon its approval. Under the 1993
F-23
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--STOCK PLANS (CONTINUED)
Plan, 7.5 million shares each (including 3 million shares each originally
authorized under the 1988 Stock Plan) of Series A Preferred Stock and Class A
Common Stock were reserved for issuance to officers, key employees and
consultants of the Company and its subsidiaries and the non-employee members of
the Board. Options generally become exercisable for 40% of the option shares
upon completion of one year of service and become exercisable for the balance in
two equal annual installments thereafter.
The 1993 Plan includes an automatic option grant program, pursuant to which
each individual serving as a non-employee Board member on the November 29, 1993
effective date of the 1993 Plan received an option grant for 125,000 shares each
of Series A Preferred Stock and Class A Common Stock with an exercise price of
$.4063 per share, equal to the fair market value of the underlying securities on
the grant date. Each individual who first joins the Board as a non-employee
director after such effective date will receive a similar option grant. Of the
shares subject to each option, 40% will vest upon completion of one year of
Board service measured from the grant date, and the balance will vest in two
equal annual installments thereafter. Each automatic grant will have a maximum
term of 10 years, subject to earlier termination upon the optionee's cessation
of Board service.
Each non-employee Board member may also elect to apply all or any portion of
his or her annual retainer fee to the acquisition of shares of Series A
Preferred Stock or Class A Common Stock which vest incrementally over the
individual's period of Board service during the year for which the election is
in effect. During the year ended December 31, 1994, 126,856 shares were issued
under this provision. No shares were issued under this provision during 1995 or
1996.
F-24
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--STOCK PLANS (CONTINUED)
A summary of the status of the Company's stock option plans for the three
years ended December 31, 1996, follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PRICE PER SHARE
---------------------- ------------------------
CLASS A SERIES A CLASS A SERIES A
COMMON PREFERRED COMMON PREFERRED
OPTIONS OUTSTANDING STOCK STOCK STOCK STOCK
- ------------------------------------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1993......................... 6,350,000 6,350,000 .23 - .41 .14 - .41
Granted................................. -- -- -- --
Exercised............................... -- -- -- --
Cancelled............................... -- -- -- --
---------- ---------- ----------- -----------
December 31, 1994......................... 6,350,000 6,350,000 .23 - .41 .14 - .41
Granted................................. -- -- -- --
Exercised............................... -- -- -- --
Cancelled............................... (75,000) (75,000) .41 .41
---------- ---------- ----------- -----------
December 31, 1995......................... 6,275,000 6,275,000 $ .23 - .41 $ .14 - .41
Granted................................. -- -- -- --
Exercised............................... -- -- -- --
Cancelled............................... -- -- -- --
---------- ---------- ----------- -----------
December 31, 1996......................... 6,275,000 6,275,000 $ .23 - 41 $ .14 - 41
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Options exercisable at December 31,
1996.................................... 6,275,000 6,275,000 $ .23 - 41 $ .14 - 41
Options available at December 31, 1996.... 1,098,144 1,225,000
</TABLE>
In connection with the Exchange Offer, the outstanding options set forth
above will be cancelled and new options comprising 6% of the Company's fully
diluted equity will be granted based on the average trading price for 20-days
following completion of the Exchange Offer.
F-25
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of quarterly financial information for 1995 and
1996 (in millions, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL YEAR
--------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
1996
Revenues (a)................................. $ 2.7 $ 16.0 $ 6.4 $ 19.7 $ 44.8
Cost of sales (a)............................ 2.5 14.3 5.2 18.2 40.2
Loss from continuing operations.............. (7.9) (6.7) (7.6) (6.7) (28.9)
Net loss..................................... (7.9) (6.7) (7.6) (6.7) (28.9)
Loss per common share........................ (.17) (.14) (.16) (.14) (.60)
Weighted average common shares
outstanding (b)............................ 47.7 48.0 48.5 48.9 48.3
1995
Revenues (c)................................. $ 6.4 $ 5.7 $ 6.8 $ 15.1 $ 34.0
Cost of sales (c)............................ 7.3 5.2 5.9 13.5 31.9
Loss from continuing operations (d).......... (5.7) (2.6) (8.5) (100.1) (116.9)
Net loss (d)................................. (5.7) (2.6) (8.5) (100.1) (116.9)
Loss per common share........................ (.12) (.06) (.18) (2.11) (2.48)
Weighted average common shares
outstanding (b)............................ 46.6 47.0 47.3 47.5 47.1
</TABLE>
- ------------------------
(a) The Company recorded revenues and cost of sales of approximately $10.1
million from residential lot sales at Rancho San Pasqual primarily during
the second and fourth quarters. In addition, the second quarter includes the
sale of the Eagle Crest golf course at Rancho San Pasqual, and the fourth
quarter includes the sale of Fairbanks Highlands as a result of the
formation of a joint venture in which the Company has a continuing interest.
(b) The Series A Preferred Stock is not included in the calculation of weighted
average shares outstanding because the effect is antidilutive.
(c) The Company recorded revenues and cost of sales of approximately $8.0
million and $8.1 million, respectively, in the fourth quarter of 1995 from
the sale of residential land and the marina at its Wentworth By The Sea
project in New Hampshire.
(d) The Company recorded asset revaluations of $7.5 million and $116.6 million,
which were partially offset by income tax benefits of $2.6 million and $24.0
million, respectively, in the third and fourth quarters of 1995.
F-26
<PAGE>
APPENDIX A
PREPACKAGED PLAN OF REORGANIZATION
A-1
<PAGE>
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
<TABLE>
<S> <C>
In re
Chapter 11
KOLL REAL ESTATE
GROUP, INC. Case No. 97-
Honorable
Debtor. Bankruptcy Judge
</TABLE>
PREPACKAGED PLAN OF REORGANIZATION
OF KOLL REAL ESTATE GROUP, INC.
A-2
<PAGE>
PREPACKAGED PLAN OF REORGANIZATION
OF KOLL REAL ESTATE GROUP, INC.
ARTICLE I
DEFINITIONS
Unless the context otherwise requires, the following terms shall have the
following meanings when used in initially capitalized form in the Plan. Such
meanings shall be equally applicable to both the singular and plural forms of
such terms. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to the Plan as a whole and not to any particular section,
subsection, or clause contained in the Plan unless the context requires
otherwise. Whenever from the context it appears appropriate, each term stated in
either the singular or the plural includes the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender include the
masculine, feminine and the neuter. Any term used in initially capitalized form
in the Plan that is not defined herein but that is used in the Bankruptcy Code
or the Bankruptcy Rules shall have the meaning assigned to such term in the
Bankruptcy Code or the Bankruptcy Rules.
ADMINISTRATIVE CLAIM means a Claim for payment of an administrative expense
of a kind specified in section 503(b) of the Bankruptcy Code and referred to in
section 507(a)(1) of the Bankruptcy Code, including, without limitation, the
actual, necessary costs and expenses incurred after the commencement of the
Reorganization Case of preserving the Estate and operating the business of the
Debtor, including wages, salaries or commissions for services, compensation for
legal and other services and reimbursement of expenses awarded under section
330(a) or 331 of the Bankruptcy Code, certain retiree benefits under section
1114(e)(2) of the Bankruptcy Code, and all fees and charges assessed against the
Estate under section 1930 of Chapter 123 of Title 28, United States Code.
AFFILIATE means with respect to the Debtor, any corporation, partnership or
other entity which, directly or indirectly, controls, is controlled by or is
under common control with the Debtor, excluding natural persons. With respect to
any entity other than the Debtor, a governmental unit or a natural person,
affiliate means any corporation, partnership, association or other entity which,
directly or indirectly, controls, is controlled by or is under common control
with such entity. For purposes of this definition, the term "control" means the
ownership of more than 20% of the beneficial or voting interest in the
corporation or other entity referred to herein.
ALLOWED ADMINISTRATIVE CLAIM means all or that portion of any
Administrative Claim which (a) has been allowed by a Final Order, (b) was
incurred by the Debtor in the ordinary course of business during the
Reorganization Case, or (c) relates to any payment for retiree benefits required
to be made before the Plan is confirmed, pursuant to section 1114(e)(2) of the
Bankruptcy Code.
ALLOWED CLAIM means that portion of any Claim, other than an Administrative
Claim or a Contested Claim, (a) as to which, on or prior to the Bar Date, (i) no
proof of claim has been filed with the Court and (ii) the liquidated
non-Contingent amount of which is scheduled by the Debtor pursuant to the
Bankruptcy Code as undisputed, (b) as to which a proof of claim has been filed
in a liquidated non-Contingent amount with the Court on or prior to the Bar
Date, provided that (i) no objection to the allowance of such Claim or motion to
expunge or limit recovery of such Claim has been interposed or (ii) if such
objection or motion has been filed, such objection or motion has been overruled
by a Final Order, or such Claim has been otherwise allowed by a Final Order, and
(c) a Claim against the Debtor that is allowed (i) in any contract, instrument,
or other agreement entered into in connection with the Plan, or (ii) pursuant to
the terms of the Plan.
ALLOWED INTEREST means that portion of any Interest, other than a contested
Interest, of record held prior to the Effective Date, as to which, (a) no
objection to the allowance of such Interest or motion to expunge or limit
recovery of such Interest has been interposed or (b) if such objection or motion
has been
A-3
<PAGE>
filed, such objection or motion has been overruled by a Final Order, or such
Interest has been otherwise allowed by a Final Order.
AMENDED AND RESTATED BYLAWS means the Amended and Restated Bylaws of the
Reorganized Debtor which shall be substantially in the form set forth in Exhibit
2.
AMENDED AND RESTATED CERTIFICATE means the Amended and Restated Certificate
of Incorporation of the Reorganized Debtor which shall be substantially in the
form set forth in Exhibit 1.
BANKRUPTCY CODE means chapter 11, Title 11 of the United States Code, 11
U.S.C. Section 101 ET SEQ., as amended.
BANKRUPTCY RULES means the Federal Rules of Bankruptcy Procedure, as
amended, promulgated under 28 U.S.C. Section 2075 and the local rules of
practice and procedure of the Court, as applicable, from time to time in the
Reorganization Case.
BAR DATE means the date set by the Court as the last date for filing proofs
of Claims against and Interests in the Debtor, and with respect to Claims
arising from the rejection of executory contracts or unexpired leases, the
earlier of the date set forth in the order rejecting such executory contract or
unexpired lease or thirty (30) days after the Confirmation Date.
BUSINESS DAY means any day except Saturday, Sunday or any other day on
which commercial banks in Los Angeles, California are authorized by law to be
closed for business.
CAPITAL STOCK COMBINATION means the combination of the Class A Common
Stock, Class B Common Stock (none of which is outstanding), and Preferred Stock
into one (1) combined class and series (the "Capital Stock Combination")
designated "Common Stock" and having the same rights that the Class A Common
Stock had prior to the Capital Stock Combination.
CASH means cash and cash equivalents.
CLAIM means a claim against the Debtor, whether or not asserted, as defined
in section 101(5) of the Bankruptcy Code.
CLASS means a category of holders of Claims or Interests as classified in
Article III of the Plan pursuant to section 1123(a)(1) of the Bankruptcy Code.
CLASS A COMMON STOCK means all the outstanding Class A Common Stock, par
value $0.05 per share, of the Company.
COMMON STOCK means the 11,772,691 shares of the Reorganized Debtor's new
common stock having a par value of $0.05 per share being issued pursuant to the
Plan.
COMPANY means Koll Real Estate Group, Inc., a Delaware corporation.
CONFIRMATION DATE means the date on which the Court enters the Confirmation
Order.
CONFIRMATION ORDER means the order confirming this Plan pursuant to section
1129 of the Bankruptcy Code.
CONSUMMATION means the occurrence of the Effective Date.
CONTESTED CLAIM OR INTEREST means any Claim or Interest against which the
Debtor or the Reorganized Debtor, as the case may be, or any other party in
interest, has filed an objection to the allowance of such Claim or Interest or a
motion to expunge or limit the recovery of such Claim or Interest and which
objection or motion has not been withdrawn or overruled by a Final Order.
A-4
<PAGE>
CONTINGENT means a Claim is contingent as to liability if the debt is one
which the debtor may be called upon to pay only upon the occurrence or happening
of an extrinsic event which will trigger the liability of the debtor to the
alleged creditor.
COURT means the United States Bankruptcy Court for the District of
Delaware, or such other court that exercises jurisdiction over the
Reorganization Case, including the United States District Court of the District
of Delaware to the extent reference of the Reorganization Case is withdrawn.
CREDITOR means any holder of a Claim.
DEBTOR means the Company, when acting in its capacity as representative of
the Estate.
DEBENTURE HOLDERS' COMMITTEE MEANS THE GROUP OF RESTRICTED HOLDERS OF THE
OUTSTANDING DEBENTURES ORGANIZED PRIOR TO THE PETITION DATE TO NEGOTIATE WITH
THE COMPANY REGARDING THE RECAPITALIZATION.
DELAWARE GENERAL CORPORATION LAW MEANS TITLE 8 OF THE DELAWARE CODE, AS NOW
IN EFFECT OR HEREAFTER AMENDED.
DISTRIBUTION RECORD DATE means , 1997.
EFFECTIVE DATE means a date selected by the Reorganized Debtor that is no
more than ten (10) Business Days following the date on which all conditions to
consummation set forth in Section 8.2 of the Plan have been satisfied or waived.
ESTATE means the bankruptcy estate of the Company created by section 541 of
the Bankruptcy Code upon the commencement of the Reorganization Case.
EXCHANGE AGENT means the entity or entities designated pursuant to Section
7.2 of the Plan to make distributions under the Plan.
EQUITY HOLDER means a holder of an Interest.
FINAL ORDER means an order or judgment entered by the Court or any other
court exercising jurisdiction over the subject matter and the parties (i) that
has not been reversed, stayed, modified or amended, (ii) as to which no appeal,
certiorari proceeding, reargument, or other review or rehearing has been
requested or is still pending, and (iii) as to which the time for filing a
notice of appeal or petition for certiorari shall have expired.
IMPAIRED means a Claim or Interest that is impaired within the meaning of
section 1124 of the Bankruptcy Code.
IMPAIRED SECURITIES means collectively the Outstanding Debentures,
Preferred Stock and Class A Common Stock.
INDENTURE TRUSTEES means the trustee under the Indenture dated July 15,
1992 governing the Senior Debentures and the Indenture dated July 15, 1992
governing the Subordinated Debentures.
INTEREST means the rights of the owners of the issued and outstanding
shares of any class of stock of the Debtor or the rights of the owners of
warrants issued by the Debtor.
LITIGATION CLAIMS means all Claims against the Company asserted under
lawsuits or complaints which are pending as of the commencement of the
Reorganization Case in state or federal court.
MANAGEMENT STOCK OPTION PLAN means the Company's 1993 Stock Option/Stock
Issuance Plan.
OUTSTANDING DEBENTURES means collectively the Senior Debentures and the
Subordinated Debentures.
A-5
<PAGE>
OTHER CLASS 5 CLAIMS means all Allowed Claims in Class 5 other than those
relating to the Senior Debentures.
PETITION DATE means the date on which the Company files its chapter 11
bankruptcy petition.
PLAN means this Prepackaged Plan of Reorganization, together with any
exhibits or schedules attached hereto, as they may be amended, modified or
supplemented by the Debtor from time to time in accordance with the provisions
set forth herein, in the Bankruptcy Code and in the Bankruptcy Rules.
PREFERRED STOCK means all of the outstanding Series A Convertible
Redeemable Preferred Stock of the Company.
PRIORITY CLAIM means a Claim for an amount entitled to priority under
section 507(a) of the Bankruptcy Code, other than an Administrative Claim or a
Tax Claim.
PROSPECTUS means the Proxy Statement/Prospectus and Disclosure Statement of
the Company dated , 1997.
NET CLAIM means the amount owed to Affiliates, after allowing for the set
off of the respective Affiliates' Claims owed to the Debtor.
RECAPITALIZATION means the capital restructuring of the Company whereby all
Senior Debentures and Subordinated Debentures are exchanged for Common Stock of
the Reorganized Debtor.
REORGANIZATION CASE means the Debtor's case under chapter 11 of the
Bankruptcy Code.
REORGANIZED DEBTOR means the Debtor on and after the Confirmation Date, and
the entity that shall succeed to all of the rights and obligations of the Debtor
under the Plan.
REVERSE STOCK SPLIT means the one for one hundred (l:100) reverse stock
split of the outstanding Common Stock to be effected by the Debtor immediately
following the Capital Stock Combination.
SECURED CLAIM means any Claim of a creditor secured by a valid, perfected
and enforceable lien on any property of the Estate, but only to the extent such
Claim constitutes a secured claim under section 506 or 1111(b) of the Bankruptcy
Code.
SENIOR DEBENTURE INDENTURE means the Indenture dated July 15, 1992
governing the Senior Debentures.
SENIOR DEBENTURES means all of the outstanding 12% Senior Subordinated
Pay-In-Kind Debentures due March 15, 2002.
SENIOR DEBT means Senior Debt as defined in the Senior Debenture Indenture
and the Subordinated Debenture Indenture.
SUBCLASS means a category of holders of Claims or Interests within a Class.
SUBORDINATED DEBENTURES means all of the outstanding 12% Subordinated
Pay-In-Kind Debentures due March 15, 2002.
SUBORDINATED DEBENTURE INDENTURE means the Indenture dated July 15, 1992
governing the Subordinated Debentures.
TAX CLAIM means a Claim for an amount entitled to priority under section
507(a)(7), 507(a)(8) and 502(i) of the Bankruptcy Code, other than a Claim for a
penalty.
A-6
<PAGE>
UNIMPAIRED means a Claim or Interest that is not impaired within the
meaning of section 1124 of the Bankruptcy Code.
UNLIQUIDATED means if the amount of the Claim cannot be ascertained by a
mere computation, based on the terms of the obligation or on some other accepted
standard.
Unless otherwise specified herein, any reference to an entity as a holder of
a Claim or Interest includes that entity's successors, assigns, and affiliates.
ARTICLE II
TREATMENT OF UNCLASSIFIED ADMINISTRATIVE AND TAX CLAIMS
2.1 ADMINISTRATIVE CLAIMS. Unless otherwise agreed to by the parties, each
holder of an Allowed Administrative Claim shall receive cash equal to the unpaid
portion of such Allowed Administrative Claim on the later of (a) the Effective
Date, and (b) the date on which such Claim becomes an Allowed Administrative
Claim; PROVIDED, HOWEVER, that Administrative Claims that represent liabilities
incurred by the Debtor in the ordinary course of its business during the
Reorganization Case shall be paid in the ordinary course of business and in
accordance with any terms and conditions of any agreements relating thereto.
2.2 TAX CLAIMS. On the Effective Date, each holder of a Tax Claim (a)
shall be paid cash in an amount equal to the amount of its Allowed Claim, or
shall be paid on account of its Allowed Claim on such other terms as have been
or may be agreed to between such holder and the Debtor, or (b) shall receive on
account of its Allowed Claim deferred cash payments, in equal quarterly
installments over a period not exceeding six years after the date of assessment
of such Tax Claim, of a value, as of the Effective Date, equal to the amount of
such Allowed Claim. The amount of any Tax Claim that is not an Allowed Claim,
and the rights of the holder of such Claim, if any, to payment in respect
thereof shall (a) be determined in the manner in which the amount of such Claim
and the rights of the holder of such Claim would have been resolved or
adjudicated if the Reorganization Case had not been commenced, (b) survive the
Effective Date and the consummation of the Plan as if the Reorganization Case
had not been commenced, and (c) not be discharged pursuant to Section 9.1 of the
Plan and section 1141 of the Bankruptcy Code.
ARTICLE III
CLASSIFICATION OF CLAIMS AND INTERESTS
This classification of Claims and Interests is made for purposes of voting
on the Plan and making distribution hereunder and for ease of administration
hereof. A Claim or Interest shall be deemed classified in a particular Class
only to the extent that the Claim or Interest qualifies within the description
of that Class.
3.1 CLASS 1--PRIORITY CLAIMS. Class 1 consists of all Priority Claims, not
otherwise treated as unclassified in Article II above.
3.2 CLASS 2--SECURED CLAIMS. Class 2 consists of each Claim secured by a
security interest in or lien upon property of the Company, including, but not
limited to, Claims secured by (i) mortgages or trust deeds on real property,
(ii) mechanics' or materialmen's liens, (iii) security deposits, or (iv) liens
on miscellaneous personal property such as office furniture, telephone systems,
copiers and mailing equipment. Each Class 2 Secured Claim shall be treated for
all purposes of the Plan and under the Bankruptcy Code as a separate Subclass of
Class 2.
3.3 CLASS 3--UNLIQUIDATED OR CONTINGENT CLAIMS. Class 3 consists of all
Claims of holders of Unliquidated or Contingent Claims, including but not
limited to, Litigation Claims.
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3.4 CLASS 4--AFFILIATES' CLAIMS. Class 4 consists of all Net Claims of
Affiliates.
3.5 CLASS 5--GENERAL UNSECURED CLAIMS. Class 5 consists of all general
unsecured Claims of Creditors against the Company, however arising, and not
included in any other Class in the Plan or otherwise provided for in the Plan,
including (i) Senior Debentures, and (ii) Claims for damages resulting from the
rejection of leases or executory contracts.
3.6 CLASS 6--SUBORDINATED DEBENTURES. Class 6 consists of all Claims of
holders of Subordinated Debentures.
3.7 CLASS 7--PREFERRED STOCK. Class 7 consists of all Interests of holders
of Preferred Stock.
3.8 CLASS 8--CLASS A COMMON STOCK. Class 8 consists of all Interests of
holders of Class A Common Stock.
3.9 CLASS 9--WARRANTS. Class 9 consists of all Interests of holders of
outstanding warrants.
ARTICLE IV
TREATMENT OF CLASSES UNDER THE PLAN
SUMMARY
<TABLE>
<CAPTION>
CLASS STATUS
- --------------------------------------------------------------------- ------------------------------------
<S> <C>
Class 1--Priority Claims Unimpaired; deemed to have accepted
the Plan
Class 2--Secured Claims Unimpaired; deemed to have accepted
the Plan
Class 3--Unliquidated or Contingent Claims Unimpaired; deemed to have accepted
the Plan
Class 4--Affiliates' Claims Impaired; while such claimants
deemed to have rejected the Plan,
the Company shall cause such
holders to support the Plan
Class 5--General Unsecured Claims Impaired; entitled to vote
Class 6--Claims of Holders of Subordinated Debentures Impaired; entitled to vote
Class 7--Interests of Holders of Preferred Stock Impaired; entitled to vote
Class 8--Interests of Holders of Class A Common Stock Impaired; entitled to vote
Class 9--Interests of Holders of Warrants Impaired; deemed to have rejected
the Plan
</TABLE>
4.1 PRIORITY CLAIMS. Class 1 Claims are Unimpaired. Unless otherwise
agreed to by the parties, each holder of an Allowed Claim in Class 1 shall be
paid the allowed amount of such Claim in full in cash on the later of (a) the
Effective Date, and (b) the date such Claim becomes an Allowed Claim.
4.2 SECURED CLAIMS. Class 2 Claims are Unimpaired. Unless otherwise agreed
to by the parties, either (a) the legal, equitable and contractual rights of
each holder of an Allowed Claim in any Subclass of Class 2 shall be unaltered by
the Plan, or (b) at the option of the Debtor, any Allowed Claim in any Subclass
of Class 2 shall be treated in any other manner that will result in such Allowed
Claim being
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deemed Unimpaired under section 1124 of the Bankruptcy Code. To the extent not
previously paid, any accrued and unpaid interest due on the Secured Claims will
be paid in Cash on the Effective Date.
4.3 UNLIQUIDATED OR CONTINGENT CLAIMS. Class 3 Claims are Unimpaired. The
legal, equitable and contractual rights of the holders of Class 3 Claims shall
not be affected by the Plan, Class 3 Claims shall survive the discharge provided
for in Section 9.1 of the Plan and section 1141 of the Bankruptcy Code, and the
rights of a holder of such Claim and the rights of such holder of such Claim to
payment, if any, in respect thereof shall be determined in the manner in which
the amount of such Claim and the rights of the holder of such Claim would have
been resolved or adjudicated if the Reorganization Case had not been commenced.
4.4 AFFILIATES' CLAIMS. Class 4 Claims are Impaired. The holders of
Allowed Net Claims, if any, in Class 4 shall receive no distributions nor retain
any property under the Plan on account of such Allowed Net Claims.
4.5 GENERAL UNSECURED CLAIMS. Class 5 Claims are Impaired. In the event
Classes 6, 7 and 8 accept the Plan, on the Effective Date, without regard to the
subordination provisions in the Senior Debenture Indenture but giving effect to
the rights of Senior Debt, each holder of an Allowed Claim in Class 5 shall
receive its pro rata share of 9,359,208 shares of Common Stock so that
collectively Class 5 Claims shall hold 80% of the outstanding shares of the
Common Stock of the Reorganized Debtor on the Effective Date. If Class 6, 7, or
8 fails to accept the Plan, the holders of the Senior Debentures shall enforce
the subordination provisions of the Senior Debenture Indenture with respect to
such rejecting Class of Claims and/or Interests and the Plan shall be deemed
automatically amended pursuant to Article V.
4.6 SUBORDINATED DEBENTURES. Class 6 Claims are Impaired. Subject to
Article V, on the Effective Date, each holder of an Allowed Claim in Class 6
shall receive its pro rata share of 1,169,901 shares of Common Stock so that
collectively Class 6 Claims shall hold 10% of the outstanding shares of the
Common Stock of the Reorganized Debtor on the Effective Date.
4.7 PREFERRED STOCK. Class 7 Interests are Impaired. Subject to Article V,
on the Effective Date, after giving effect to the Capital Stock Combination and
the Reverse Stock Split, each holder of an Allowed Interest in Class 7 shall be
deemed to hold on a one and three quarter for one (1.75:1) basis Common Stock.
4.8 CLASS A COMMON STOCK. Class 8 Interests are Impaired. Subject to
Article V, on the Effective Date, after giving effect to the Capital Stock
Combination and the Reverse Stock Split, each holder of an Allowed Interest in
Class 8 shall be deemed to hold on a one for one (1:1) basis Common Stock.
4.9 WARRANTS. Class 9 Interests are Impaired. On the Effective Date, all
outstanding warrants shall be cancelled.
4.10 ACCRUAL OF INTEREST. Distributions of Common Stock to holders of
Outstanding Debentures will be based upon the principal amount of the
Outstanding Debentures as of the Petition Date plus interest accrued through the
Petition Date at the applicable non-default rate.
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ARTICLE V
REALLOCATION OF DISTRIBUTIONS FOR NONCONSENSUAL CONFIRMATION
5.1 HOLDERS OF SUBORDINATED DEBENTURES FAIL TO ACCEPT THE PLAN. In the
event that the holders of Allowed Claims in Class 6 shall, as a Class, fail to
accept the Plan as set forth in Section 6.3 of the Plan, then (a) the Plan shall
be deemed automatically amended without further action by the Debtor such that
(i) the distributions which would otherwise have been made in accordance with
Section 4.6 of the Plan shall be made to holders of Allowed Claims in Class 5,
(ii) the holders of Allowed Claims in Class 6 shall receive no distributions nor
retain any property under the Plan on account of such Allowed Claims, (iii) the
existing Subordinated Debentures held by holders of Class 6 Allowed Claims shall
be deemed to be cancelled, and (iv) such holders shall be deemed to have
rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code; and (b)
the Debtor shall seek to confirm the Plan as so automatically amended pursuant
to this Article, in accordance with section 1129(b) of the Bankruptcy Code.
5.2 HOLDERS OF PREFERRED STOCK FAIL TO ACCEPT THE PLAN. In the event that
the holders of Allowed Interests in Class 7 shall, as a Class, fail to accept
the Plan as set forth in Section 6.3 of the Plan, then (a) the Plan shall be
deemed automatically amended without further action by the Debtor such that (i)
the Common Stock which would otherwise have been retained by the holders of the
Preferred Stock in accordance with Section 4.7 of the Plan shall be delivered by
the Exchange Agent to holders of Allowed Claims in Class 5, (ii) the holders of
Allowed Interests in Class 7 shall receive no distributions nor retain any
property under the Plan on account of such Allowed Interests, (iii) the
Preferred Stock held by holders of Allowed Interests in Class 7 shall be deemed
to be cancelled and, (iv) such holders shall be deemed to have rejected the Plan
pursuant to section 1126(g) of the Bankruptcy Code; and (b) the Debtor shall
seek to confirm the Plan as so automatically amended pursuant to this Article,
in accordance with section 1129(b) of the Bankruptcy Code.
5.3 HOLDERS OF CLASS A COMMON STOCK FAIL TO ACCEPT THE PLAN. In the event
that the holders of Allowed Interests in Class 8 shall, as a Class, fail to
accept the Plan as set forth in Section 6.3 of the Plan, then (a) the Plan shall
be deemed automatically amended without further action by the Debtor such that
(i) the Common Stock which would otherwise have been retained by the holders of
the Class A Common Stock in accordance with Section 4.8 of the Plan shall be
delivered by the Exchange Agent to holders of Allowed Claims in Class 5, (ii)
the holders of Allowed Interests in Class 8 shall receive no distributions nor
retain any property under the Plan on account of such Allowed Interests, (iii)
the Class A Common Stock held by holders of Allowed Interests in Class 8 shall
be deemed to be cancelled, and (iv) such holders shall be deemed to have
rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code; and (b)
the Debtor shall seek to confirm the Plan as so automatically amended pursuant
to this Article, in accordance with section 1129(b) of the Bankruptcy Code.
ARTICLE VI
ACCEPTANCE OR REJECTION OF THE PLAN
6.1 UNIMPAIRED CLASSES. The Allowed Claims in Classes 1, 2 and 3 are
Unimpaired under the Plan and the holders of such Allowed Claims are
conclusively presumed to have accepted the Plan.
6.2 IMPAIRED CLASSES TO VOTE ON PLAN. The Allowed Claims in Classes 5 and
6 and the Allowed Interests in Classes 7 and 8 are Impaired; consequently, the
holders in such Classes are entitled to vote to accept or reject the Plan. The
holders of Allowed Interests in Classes 4 and 9 are conclusively presumed to
have rejected the Plan. The Company shall cause the holders of Class 4 Claims
(which it controls) to support the Plan.
6.3 ACCEPTANCE BY IMPAIRED CLASSES. An Impaired Class of Claims shall have
accepted the Plan if the Plan is accepted by the holders (other than any holder
designated under section 1126(e) of the
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<PAGE>
Bankruptcy Code) that hold at least two-thirds (2/3) in amount and more than
one-half (1/2) in number of the Allowed Claims of such Class that have voted to
accept or reject the Plan. An Impaired Class of Interests shall have accepted
the Plan if the Plan is accepted by the holders (other than any holder
designated under section 1126(e) of the Bankruptcy Code) that hold at least
two-thirds (2/3) in amount of the Allowed Interests of such Class that have
voted to accept or reject the Plan.
6.4 NONCONSENSUAL CONFIRMATION/CRAMDOWN. In the event that any Impaired
Class of Claims or Class of Interests shall fail to accept the Plan in
accordance with Section 1129(a)(8) of the Bankruptcy Code, the Debtor reserves
the right to (i) seek to have the Court confirm the Plan in accordance with
Section 1129(b) of the Bankruptcy Code, or (ii) modify the Plan in accordance
with Section 13.6 of the Plan.
ARTICLE VII
MEANS FOR IMPLEMENTATION OF THE PLAN
7.1 CONTINUED CORPORATE EXISTENCE AND VESTING OF ASSETS IN THE REORGANIZED
DEBTOR. The Debtor shall, as a Reorganized Debtor, continue to exist after the
Effective Date as a separate corporate entity, with all powers of a corporation
under the laws of the State of Delaware and without prejudice to any right to
alter or terminate such existence (whether by merger or otherwise) under such
applicable state law. Except as otherwise expressly provided in the Plan on the
Confirmation Date, the Reorganized Debtor shall be vested with all of the
property of the Estate free and clear of all claims, liens, encumbrances,
charges and other interests of creditors and equity security holders, and may
operate its businesses free of any restrictions imposed by the Bankruptcy Code
or by the Court, including, without limitation, any contracts or leases entered
into or assumed by the Debtor after the Petition Date; PROVIDED, HOWEVER, that
the Reorganized Debtor shall continue as a debtor in possession under the
Bankruptcy Code until the Effective Date, and, thereafter, the Reorganized
Debtor may operate its business free of any restrictions imposed by the
Bankruptcy Code or the Court.
7.2 EXCHANGE AGENT. The Debtor may designate an entity or entities to
serve as Exchange Agent to distribute all the property to be distributed under
the Plan, including, without limitation, the delivery of the Common Stock in
exchange for the Outstanding Debentures and as replacement for the Preferred
Stock and Class A Common Stock.
7.3 PLAN IMPLEMENTATION STEPS. On or as soon as practicable after the
Effective Date (unless otherwise expressly indicated), the following actions
shall be effectuated in the following sequential order:
(a) AMENDMENTS TO CERTIFICATE OF INCORPORATION. The Reorganized Debtor
shall file its Amended and Restated Certificate with the office of the
Secretary of State of the State of Delaware in accordance with Section 103
of the Delaware General Corporation Law. The Amended and Restated
Certificate will, among other things, provide (to the extent necessary to
effectuate the terms of the Plan) for (i) the prohibition of the issuance of
non-voting equity securities, (ii) the authorization of 18 million shares of
Common Stock, (iii) the Reverse Stock Split, (iv) the Capital Stock
Combination, (v) the elimination of the provisions providing for the
Company's Board of Directors to be classified into three classes with
staggered terms, (vi) the removal of all supermajority voting provisions,
and (vii) the elimination of the provisions prohibiting stock holders from
acting by written consent.
(b) AMENDMENTS TO BYLAWS. The Reorganized Debtor shall adopt and effect
the Amended and Restated Bylaws which shall provide for, among other things,
(i) the elimination of the provisions providing for the Company's Board of
Directors to be classified into three classes with staggered terms, and (ii)
the removal of all supermajority voting provisions.
(c) CAPITAL STOCK COMBINATION. To the extent necessary to effectuate the
Plan, the Reorganized Debtor shall effect the Capital Stock Combination
whereby the Class A Common Stock, Class B
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<PAGE>
Common Stock (none of which is outstanding), and Preferred Stock are
combined into one (1) class and series designated "Common Stock" having the
same rights that the Class A Common Stock had prior to the Capital Stock
Combination. Pursuant to the Capital Stock Combination, each share of
outstanding Preferred Stock will be reclassified to be one and three quarter
(1.75) shares of Common Stock and each outstanding share of Class A Common
Stock will be reclassified to be one share of Common Stock.
(d) REVERSE STOCK SPLIT. To the extent necessary to effectuate the Plan,
the Reorganized Debtor shall effect the Reverse Stock Split.
(e) DELIVERY OF AUTHORIZED SHARES. The Reorganized Debtor shall deliver
the shares of Common Stock authorized for issuance to the Exchange Agent for
delivery to the holders of Allowed Claims and Allowed Interests in
accordance with the Plan.
(f) DEBENTURE EXCHANGE. The Exchange Agent shall deliver to holders of
Outstanding Debentures and Other Class 5 Claims, Common Stock in accordance
with the Plan.
(g) STOCK OPTION PLAN. The Reorganized Debtor shall execute an amendment
to the Management Stock Option Plan which shall be substantially in the form
attached as Exhibit 3.
7.4 EXCHANGE OF PREFERRED AND COMMON STOCK. Subject to Article V, upon
presentment of certificates evidencing Preferred Stock and Class A Common Stock,
the Exchange Agent shall deliver to holders thereof, Common Stock.
7.5 CANCELLATION OF SECURITIES AND AGREEMENTS. On the Effective Date, all
Outstanding Debentures, Class A Common Stock, Class B Common Stock (none of
which is outstanding), Preferred Stock and warrants shall be cancelled. Also, on
the Effective Date, the Senior Debenture Indenture and the Subordinated
Debenture Indenture shall be cancelled.
7.6 DIRECTORS. After giving effect to the Amended and Restated Certificate
and the Amended and Restated Bylaws, there shall be a declassification of the
Board of Directors of the Company. The Reorganized Debtor's Board of Directors
shall be comprised of ten (10) directors, four (4) of whom are present directors
of the Company and six (6) of whom shall be designated by the Debenture Holders'
Committee in consultation with the Debtor. The names of the present directors
and director nominees are set forth in the Prospectus. Any changes from that set
forth in the Prospectus shall be disclosed at or prior to the hearing to
consider confirmation of the Plan. All such directors shall be deemed elected,
and those directors not continuing in office shall be deemed removed therefrom,
effective on the Effective Date, pursuant to the Confirmation Order. Such
directors' tenure and the manner of selection of new directors shall be as
provided in the Amended and Restated Certificate and the Amended and Restated
Bylaws.
7.7 OFFICERS. On the Effective Date, the existing officers of the
Reorganized Debtor shall be retained and shall remain as officers and shall
continue to serve until such time as they may resign, be removed or be replaced.
7.8 EMPLOYMENT CONTRACTS. From and after the Effective Date, the
Reorganized Debtor may enter into employment contracts with its respective
officers, agents or employees.
7.9 SECTION 1145. The shares of Common Stock issued pursuant to the Plan
shall be issued pursuant to the exemption from securities registration contained
in section 1145 of the Bankruptcy Code.
7.10 CORPORATE ACTION. The adoption of the Amended and Restated
Certificate, the Amended and Restated Bylaws, the selection of directors and
officers for the Reorganized Debtor, the issuance and distribution of the Common
Stock, execution and delivery of all contracts, leases, instruments, releases,
and other agreements related to any of the foregoing; and the other matters
provided for under the Plan involving the corporate action to be taken by or
required of the Reorganized Debtor shall be deemed to have occurred and be
effective as provided herein, and shall be authorized and approved in all
respects
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without any requirement of further action by stockholders or directors of the
Debtor or Reorganized Debtor.
7.11 SOURCES OF CASH FOR PLAN DISTRIBUTION. All Cash necessary for the
Reorganized Debtor to make payments pursuant to the Plan shall be obtained from
existing Cash balances, under existing debt agreements, the operations of the
Debtor or Reorganized Debtor, or from the sale of fractional shares of Common
Stock as described in Section 13.4(a) of the Plan. The Reorganized Debtor may
also make such payments using Cash received from its subsidiaries in the
ordinary course of its business, either by way of advances or dividends.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 CONDITIONS TO CONFIRMATION. It is a condition to confirmation of the
Plan that the Confirmation Order include provisions:
(a) authorizing the Reorganized Debtor to adopt and file the Amended and
Restated Certificate;
(b) authorizing the Reorganized Debtor to adopt and effect the Amended
and Restated Bylaws;
(c) authorizing the Capital Stock Combination;
(d) authorizing the Reverse Stock Split;
(e) authorizing the Reorganized Debtor to issue authorized shares of
Common Stock and to deliver such shares to the Exchange Agent;
(f) authorizing and directing the Exchange Agent to deliver the Common
Stock to holders of Other Class 5 Claims, the Outstanding Debentures, the
Preferred Stock and the Class A Common Stock in accordance with the Plan and
to sell aggregated fractional shares and to distribute the proceeds in
accordance with Section 13.4 of the Plan;
(g) authorizing the Reorganized Debtor to amend and assume the
Management Stock Option Plan;
(h) giving effect to the releases set forth in Section 9.4 of the Plan;
(i) giving effect to the injunction set forth in Section 9.5 of the
Plan;
(j) authorizing all of the other transactions contemplated by the Plan
in order to effectuate the Plan; and
(k) making the provisions of the Confirmation Order non-severable and
mutually dependent.
8.2 CONDITIONS TO CONSUMMATION. The Confirmation Order shall contain the
provisions set forth in Section 8.1 of the Plan and the Confirmation Order shall
have become a Final Order before the Plan will be consummated.
8.3 WAIVER OF CONDITIONS. The Debtor may waive any condition set forth in
this Article VIII at any time, without notice, without leave of or order of the
Court, and without any formal action other than proceeding to consummate the
Plan.
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ARTICLE IX
EFFECTS OF PLAN CONFIRMATION
9.1 DISCHARGE. Except as otherwise expressly provided in the Plan, the
confirmation of the Plan shall (i) bind all holders of Claims and Interests,
whether or not they accept the Plan, and (ii) discharge and release, pursuant to
section 1141(d)(1) of the Bankruptcy Code, the Debtor effective immediately from
any Claim, Interest or any "debt" (as that term is defined in section 101(12) of
the Bankruptcy Code) that arose or was incurred before the Confirmation Date,
and completely extinguish the Debtor's and the Reorganized Debtor's liability in
respect thereof, including, without limitation, any liability of a kind
specified in section 502(g) of the Bankruptcy Code, regardless of whether: (a) a
proof of the Claim or Interest was filed, or the Interest or Claim was scheduled
by the Debtor, (b) the Claim or Interest is an Allowed Claim or Allowed
Interest, as the case may be, or (c) the holder of such Claim or Interest voted
to accept or reject, or abstained from voting on, the Plan. In addition, except
as otherwise provided in the Plan, confirmation of the Plan pursuant to the
Confirmation Order acts as a discharge and release, effective as of the
Confirmation Date, as to each holder of a Claim or Interest receiving or
entitled to receive any distribution under the Plan in respect of any direct or
indirect right, Claim or Interest such holder had or may have had against or in
the Debtor. On and after the Confirmation Date, as to every discharged Claim and
Interest, every holder of a Claim and Interest shall be precluded from asserting
against the Debtor or the Reorganized Debtor or its assets or properties any
further Claim or Interest based on any document or instrument or act, omissions,
transaction or other activity of any kind or nature that occurred prior to the
Confirmation Date.
9.2 RETENTION OF CAUSES OF ACTION/RESERVATION OF RIGHTS.
(a) Nothing contained in the Plan or the Confirmation Order shall be
deemed to be a waiver or relinquishment of any rights or causes of action
that the Debtor or the Reorganized Debtor may have currently or which the
Reorganized Debtor may choose to assert on behalf of the Estate under any
provision of the Bankruptcy Code or any similar applicable non-bankruptcy
law, including, without limitation, (i) the avoidance of any transfer by or
obligation of the Company or the Debtor or (ii) the turnover of any property
to the Estate, all of which are expressly reserved by the Plan.
(b) Nothing contained in the Plan or the Confirmation Order shall be
deemed to be a waiver or relinquishment of any claim, cause of action, right
of setoff, or other legal or equitable defense which the Company had
immediately prior to the Petition Date, against or with respect to any Claim
left unaltered or Unimpaired by the Plan. The Reorganized Debtor shall have,
retain, reserve and be entitled to assert all such claims, causes of action,
rights of setoff and other legal or equitable defenses which it had
immediately prior to the Petition Date fully as if the chapter 11 case had
not been commenced; and all of the Reorganized Debtor's legal and equitable
rights respecting any Claim left unaltered or Unimpaired by the Plan may be
asserted after the Confirmation Date to the same extent as if the chapter 11
case had not been commenced.
9.3 POST-CONSUMMATION EFFECT OF EVIDENCES OF CLAIMS OR
INTERESTS. Outstanding Debentures, stock certificates and other evidences of
Claims against or Interests in the Debtor shall, effective upon the Effective
Date, represent only the right to participate in the distributions contemplated
by the Plan.
9.4 RELEASE. Except as otherwise expressly provided in the Plan, on the
Effective Date, in consideration for, or as part of, the treatment accorded to
the holders of Claims and Interests under the Plan, each holder of a Claim or
Interest against or in the Debtor shall be deemed to have released the Debtor
from any and all causes of action and claims, in law or in equity, whether based
on tort, fraud, contract or otherwise, which they individually or collectively
theretofore or thereafter possessed or may possess.
9.5 LIMITED RELEASE OF DIRECTORS, OFFICERS AND EMPLOYEES. As of the
Effective Date, the Debtor shall be deemed to have waived and released its
present and former directors, officers and employees from any
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and all claims of the Debtor (including claims which the Debtor or Debtor in
Possession otherwise has legal power to assert, compromise or settle in
connection with its chapter 11 case) arising on or prior to the Effective Date;
PROVIDED HOWEVER, that this provision shall not operate as a waiver or release
of any claim (i) in respect to any loan, advance or similar payment by the
Debtor to any such person, (ii) in respect of any contractual obligation owed by
such person to the Debtor, or (iii) or to the extent based upon or attributable
to such person gaining in fact a personal profit to which such person was not
legally entitled, including, without limitation, profits made from the purchase
or sale of equity securities of the Debtor which are recoverable by the Debtor
pursuant to section 16(b) of the Securities Exchange Act of 1934, as amended.
9.6 TERM OF INJUNCTIONS OR STAYS. Unless otherwise provided, all
injunctions or stays provided for in the Reorganization Case pursuant to section
105 or 362 of the Bankruptcy Code or otherwise in effect on the Confirmation
Date shall remain in full force and effect until the Effective Date.
9.7 EXCULPATION. Neither the Company, the Reorganized Debtor nor any of
their respective officers, directors, employees, advisors, agents or
representatives shall have or incur any liability to any holder of a Claim or
Interest for any act or omission in connection with or arising out of their
solicitation of votes on or their administration of the Plan or the property to
be distributed under the Plan except for any liabilities which may arise under
the statutes or regulations administered by the Securities and Exchange
Commission or from willful misconduct or gross negligence, and, in all respects,
shall be entitled to rely upon the advice of counsel with respect to their
duties and responsibilities under the Plan.
ARTICLE X
CONTESTED CLAIMS AND CONTESTED INTERESTS
10.1 OBJECTIONS TO CLAIMS AND INTERESTS. The Debtor may object to the
allowance of Claims or Interests filed with the Bankruptcy Court. From and after
the Effective Date, the Reorganized Debtor, or any entity chosen by the
Reorganized Debtor, shall have the exclusive responsibility for reviewing and
objecting to the allowance of Claims and Interests. All objections shall be
litigated to a Final Order; PROVIDED, HOWEVER, that the Debtor or the
Reorganized Debtor, as the case may be, may compromise and settle any objections
to Claims or Interests, subject to the approval of the Court, and may seek Court
estimation of Contested Claims or Contested Interests pursuant to section 502(c)
of the Bankruptcy Code.
10.2 DISTRIBUTIONS. At such time as a Contested Claim or Contested
Interest becomes an Allowed Claim or Allowed Interest, in whole or in part, the
holder of such Claim or Interest shall receive the property that would have been
distributed to such holder under the Plan if such Allowed Claim or Allowed
Interest was an Allowed Claim or Allowed Interest on the Effective Date. Such
distributions shall be made as soon as practicable after the date that the order
or judgment of the Court allowing such Claim or Interest becomes a Final Order.
ARTICLE XI
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
11.1 ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES. On the
Effective Date, and to the extent permitted by applicable law all executory
contracts and unexpired leases of the Debtor shall be assumed in accordance with
the provisions of section 365 and section 1123 of the Bankruptcy Code, excluding
(a) any and all executory contracts or unexpired leases which are the subject of
separate motions filed pursuant to section 365 of the Bankruptcy Code by the
Debtor prior to the commencement of the hearing on confirmation of the Plan, (b)
such contracts or leases as are listed on any "Schedule of Rejected Executory
Contracts and Unexpired Leases" filed by the Debtor on or before entry of the
Confirmation Order, all of which contracts or leases shall be deemed rejected
pursuant to the provisions of section 365
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and section 1123 of the Bankruptcy Code, and (c) any and all executory contracts
or unexpired leases rejected prior to entry of the Confirmation Order.
Contracts or leases entered into after the Petition Date will be performed
by the Reorganized Debtor in the ordinary course of business. Without limiting
the generality of the foregoing, the agreements set forth on Exhibit 4 attached
hereto will be deemed assumed immediately prior to the Effective Date in
accordance with the provisions and requirements of sections 365 and 1123 of the
Bankruptcy Code.
11.2 CLAIMS BASED ON REJECTION OF EXECUTORY CONTRACTS OR UNEXPIRED
LEASES. Any Claims arising out of the rejection of contracts or leases must be
filed with the Court within the time set by any Final Order rejecting an
executory contract or unexpired lease or 30 days after the Confirmation Date.
Any Claims not filed within such time will be forever barred from assertion
against the Debtor or Reorganized Debtor, its estate and property. Unless
otherwise ordered by the Bankruptcy Court or provided in this Plan, all such
Claims for which proofs of Claim are required to be filed will be treated as
General Unsecured Claims.
11.3 INDEMNIFICATION OBLIGATIONS. Notwithstanding any provision of the
Plan to the contrary, the obligations of the Company or the Debtor to indemnify
its present and former directors, controlling persons, officers, affiliates,
employees, advisors or agents against any obligations pursuant to its Amended
and Restated Certificate, Amended and Restated Bylaws, applicable state law or
specific agreement, or any combination of the foregoing, shall survive
confirmation of the Plan, remain unaffected thereby, and not be discharged,
irrespective of whether indemnification is owed in connection with an event
occurring before or after the Petition Date.
ARTICLE XII
RETENTION OF JURISDICTION
12.1 RETENTION OF JURISDICTION. Notwithstanding the entry of the
Confirmation Order or the Effective Date having occurred, the Court shall retain
jurisdiction to (a) determine any Contested Claims, (b) determine requests for
payment of Claims entitled to priority under section 507(a)(1) of the Bankruptcy
Code, including compensation of and reimbursement of expenses of parties
entitled thereto, (c) resolve controversies and disputes regarding
interpretation and implementation of the Plan, (d) enter orders in aid of the
Plan, including, without limitation, appropriate orders (which may include
contempt or other sanctions) to protect the Debtor and the Reorganized Debtor,
(e) modify the Plan pursuant to Section 13.6 of the Plan, (f) determine any and
all applications, adversary proceedings and contested or litigated matters
pending on the Effective Date, (g) allow, disallow, estimate, liquidate or
determine any Claim or Interest and to enter or enforce any order requiring the
filing of any such Claim before a particular date, (h) determine any and all
pending applications for the rejection or disaffirmance of executory contracts
or leases, or for the assignment of assumed executory contracts and leases, and
to hear and determine, and if need to be liquidate, any and all Claims arising
therefrom, (i) determine any actions or controversies arising under or in
connection with the Plan, the Prospectus, the Confirmation Order, or any
contract, instrument, release, or other agreement created in connection with the
Plan or the Prospectus, (j) enter and implement orders as are necessary or
appropriate if the Confirmation Order is for any reason modified, stayed,
reversed, revoked or vacated, and (k) enter a final decree closing the
Reorganization Case.
12.2 FAILURE OF COURT TO EXERCISE JURISDICTION. If the Court abstains from
exercising or declines to exercise jurisdiction, or is otherwise without
jurisdiction over any matter arising out of the Reorganization Case, including
the matters set forth in this Article XII, this Article shall not prohibit or
limit the exercise of jurisdiction by any other court having competent
jurisdiction with respect to such matter.
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<PAGE>
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 DISTRIBUTION RECORD DATE. As of the close of business on the
Distribution Record Date, the respective transfer registers for each of the
Impaired Securities in Classes 5, 6, 7 and 8 as maintained by the Debtor, the
respective Indenture Trustees, or their respective agents, shall be closed and
the transfers of Impaired Securities, or any interest therein, will be
prohibited. Moreover, the Exchange Agent shall have no obligation to recognize
the transfer of any Impaired Securities in such Classes occurring after the
Distribution Record Date, and shall be entitled for all purposes herein to
recognize and deal only with those holders of record as of the close of business
on the Distribution Record Date.
13.2 SURRENDER OF INSTRUMENTS--DEBENTURE HOLDERS. As a condition to
participation under the Plan, each holder of an Outstanding Debenture evidencing
a Claim that desires to receive the Common Stock to be distributed on account of
an Allowed Claim based on such debenture shall surrender such debenture to the
Reorganized Debtor, or its designee, and shall execute and deliver such other
documents as are necessary to effectuate the Plan. If such debenture is not
surrendered and the holder does not provide an affidavit that such debenture was
lost, and any other required documents, all in form and substance satisfactory
to the Reorganized Debtor, within years of the Effective Date, then no
distribution will be made to such holder whose Allowed Claim is based on such
debenture. Such holder shall be deemed to forfeit all rights under the Plan.
13.3 UNCLAIMED DISTRIBUTIONS. If any holder of Outstanding Debentures
entitled to Common Stock directly from the Exchange Agent under the Plan cannot
be located on the Effective Date, such securities shall be set aside and
maintained by the Exchange Agent. If such person is located within years of
the Effective Date, such securities shall be distributed to such person. If such
person cannot be located within years of the Effective Date, any such
securities shall become the property of and shall be released to the Reorganized
Debtor; PROVIDED, HOWEVER, that nothing contained in this Plan shall require the
Reorganized Debtor to attempt to locate such person.
13.4 FRACTIONAL SHARES.
(a) CAPITAL STOCK COMBINATION AND REVERSE STOCK SPLIT. If the Capital
Stock Combination or the Reverse Stock Split creates a fraction of a share
of Common Stock, holders of an Allowed Class 7 or 8 Interest, respectively,
shall not receive or be deemed to hold any fractional shares. All fractional
shares which would otherwise have been created by the Capital Stock
Combination or the Reverse Stock Split shall be aggregated and after the
Effective Date, such shares shall be sold in the market by the Exchange
Agent and the net proceeds thereof disbursed pro rata to the holders of
Allowed Class 7 and 8 Interests based upon the fraction of the shares each
holder would have been entitled to receive or would have been deemed to hold
had the Company authorized the issuance of fractional shares.
(b) DEBENTURE EXCHANGE. Whenever any distribution of a fraction of a
share of Common Stock to any holder of an Allowed Class 5 or 6 Claim would
otherwise be called for, the actual distribution shall reflect a rounding
down of such fraction to the nearest whole share.
13.5 RETIREE BENEFITS. On and after the Effective Date, pursuant to
section 1129(a)(13) of the Bankruptcy Code, the Reorganized Debtor shall
continue to be obligated to pay all retiree benefits, as that term is defined in
section 1114 of the Bankruptcy Code, and shall continue to pay such retiree
benefits as they become due at the level established at any time prior to
confirmation of the Plan pursuant to subsection (e)(1)(B) or (g) of section
1114, for the duration of the period the Debtor has obligated itself to provide
such benefits.
13.6 MODIFICATION OF PLAN. The Debtor reserves the right, in accordance
with the Bankruptcy Code, to amend or modify the Plan prior to the entry of the
Confirmation Order. After the entry of the Confirmation Order, the Reorganized
Debtor may, upon order of the Court, amend or modify the Plan in accordance with
section 1127(b) of the Bankruptcy Code, or remedy any defect or omission or
reconcile any inconsistency in the Plan in such manner as may be necessary to
carry out the purpose and intent of the Plan.
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<PAGE>
13.7 WITHDRAWAL OF PLAN. The Debtor reserves the right, at any time prior
to the entry of the Conformation Order, to revoke and withdraw the Plan. If the
Debtor revokes or withdraws the Plan under this section, or if entry of the
Confirmation Order does not occur, then the Plan shall be deemed null and void.
In that event, nothing contained in the Plan shall be deemed to constitute a
waiver or release of any Claims by or against or any Interests in the Debtor or
to prejudice in any manner the rights of the Debtor in any further proceedings
involving the Debtor.
13.8 TAX PROVISIONS. Pursuant to section 1146(c) of the Bankruptcy Code,
the issuance, transfer or other exchange of a security, or the making or
delivery of an instrument of transfer under the Plan, shall not be taxed under
any state or local law imposing a stamp tax or similar tax.
13.9 PAYMENT DATES. Whenever any payment to be made under the Plan is due
on a day other than a Business Day, such payment will instead by made, without
interest, on the next Business Day.
13.10 HEADINGS. The headings used in this Plan are inserted for
convenience only and neither constitute a portion of the Plan nor in any manner
affect the provisions of the Plan.
13.11 SUCCESSORS AND ASSIGNS. The rights, benefits and obligations of any
person or entity named or referred to in the Plan shall be binding upon, and
shall inure to the benefit of, the heir, executor, administrator, successor or
assign of such person.
13.12 PAYMENT OF STATUTORY FEES. All fees payable pursuant to section 1930
of Title 28 of the United States Code, as determined by the Bankruptcy Court at
the hearing pursuant to section 1128 of the Bankruptcy Code, shall be paid on or
before the Effective Date.
13.13 GOVERNING LAW. Except to the extent that the Bankruptcy Code, the
Bankruptcy Rules or other federal law is applicable, the rights, duties and
obligations arising under the Plan shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware.
Dated: , 1997
Newport Beach, California
KOLL REAL ESTATE GROUP, INC.
By:
--------------------------------------
Name: Raymond J. Pacini
Title: Executive Vice President and
Chief Financial Officer
Robert J. Dehney, Esq.
MORRIS, NICHOLS, ARSHT & TUNNELL
By:
--------------------------------------
Attorneys for Debtor and
Debtor-in-Possession
Brian S. Hucker, P.C., Esq.
Gregory W. Preston, Esq.
McDERMOTT, WILL & EMERY
By:
--------------------------------------
Attorneys for Debtor and
Debtor-in-Possession
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<PAGE>
EXHIBIT 1
[TO BE FILED]
A-19
<PAGE>
EXHIBIT 2
[TO BE FILED]
A-20
<PAGE>
EXHIBIT 3
[TO BE FILED]
A-21
<PAGE>
EXHIBIT 4
[TO BE FILED]
A-22
<PAGE>
Letters of Transmittal, Master Ballots, Ballots and Proxies should be sent
by the respective holders of Outstanding Debentures, Preferred Stock, Common
Stock, Impaired Claims and Impaired Interests or by the respective broker,
dealer, commercial bank, trust company or other nominee of such entities, to the
Exchange Agent at the address set forth below:
The Exchange Agent:
[MELLON BANK, N.A.]
By Facsimile:
By Mail, Hand () -
or Overnight Courier: Telephone:
[Insert Address] () -
Any questions or requests for assistance with respect to the Exchange
Offers, Consent Solicitation, Annual Meeting or the Plan or requests for
additional copies of this Prospectus, the Letter of Transmittal, Master Ballots,
Ballots or Proxies may be directed to the Information Agent at its address or
telephone number set forth below. Holders of Outstanding Debentures, Preferred
Stock or Common Stock may also contact their broker, dealer, commercial bank,
trust company or other nominee, as applicable concerning the Exchange Offers,
Consent Solicitation, Annual Meeting or the Plan.
THE INFORMATION AGENT:
Georgeson & Company, Inc.
Wall Street Plaza
88 Pine Street
30th Floor
New York, NY 10005
(___) ___-____ (collect)
Call Toll Free (800) ___-____
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article FIFTEENTH(b)(1) of the Amended Certificate of Incorporation of the
Registrant requires the Registrant to indemnify directors and officers to the
fullest extent permitted by the Delaware General Corporation Law ("DGCL"). The
effect of the DGCL is summarized as follows:
(a) The DGCL permits a corporation to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a director,
or officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, the person had no reasonable cause to believe the
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation,
and with respect to any criminal action or proceeding, that the person had
reasonable cause to believe that the conduct was unlawful.
(b) The DGCL permits a corporation to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b) above, or
in defense of any claim, issue or matter therein, the DGCL provides that the
director, officer, employee or agent shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by that person
in connection therewith.
(d) The DGCL also provides that any indemnification under paragraphs (a)
and (b) above (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct
set forth in paragraphs (a) and (b) above. Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there
II-1
<PAGE>
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that that person is not entitled to be
indemnified by the corporation as authorized by the DGCL. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by or
granted pursuant to the DGCL shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The rights of indemnification or advancement of expenses described above are
not exclusive of any other rights of indemnification to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of shareholders
or disinterested directors or otherwise.
The Registrant has directors' and officers' liability insurance coverage
which insures directors and officers of the Registrant and its subsidiaries
against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits
<TABLE>
<C> <S>
3.01 Restated Certificate of Incorporation of the Registrant, incorporated
by reference to Exhibit 3.01 to the Registrant's Annual Report on
Form 10-K for 1992.
3.02 Amended By-Laws of the Registrant, incorporated by reference to
Exhibit 3.02 to the Registrant's Annual Report on Form 10-K for 1992.
4.01 Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3.01).
4.02 Amended By-Laws of the Registrant (filed as Exhibit 3.02).
4.03 Indenture dated as of July 15, 1992 for 12% Senior Subordinated
Pay-In-Kind Debentures Due March 15, 2002 ("Senior Subordinated
Debentures"), issued by the Registrant in the aggregate principal
amount of $127,550,000, incorporated by reference to Exhibit 4.08 to
the Registrant's Annual Report on Form 10-K for 1992.
4.04 Indenture dated as of July 15, 1992 for 12% Subordinated Pay-In-Kind
Debentures Due March 15, 2002, ("Subordinated Debentures"), issued by
the Registrant in the aggregate principal amount of $75,688,000,
incorporated by reference to Exhibit 4.09 to the Registrant's Annual
Report on Form 10-K for 1992.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
4.05 Form of Senior Subordinated Debentures (included in Exhibit 4.03).
4.06 Form of Subordinated Debentures (included in Exhibit 4.04).
5.01 Legal Opinion of McDermott, Will & Emery with respect to the legality
of the securities being issued.**
10.01 Tax Sharing Agreement dated as of December 18, 1989, between the
Registrant and The Henley Group, Inc. ("Henley Group"), incorporated
by reference to Exhibit 10.03 to the Registrant's Annual Report on
Form 10-K for 1989.
10.02 Tax Sharing Agreement dated as of December 15, 1988, between
Wheelabrator Technologies, Inc. (formerly The Wheelabrator Group,
Inc.) ("WTI") and the Registrant ("WTI Tax Sharing Agreement"),
incorporated by reference to Exhibit 10.02 to Amendment No. 3 on Form
8 to the Registrant's Registration Statement on Form 10.
10.02A Amendment No. 1 to WTI Tax Sharing Agreement dated February 14, 1994,
incorporated by reference to Exhibit 10.02A to the Registrant's
Annual Report on Form 10-K for 1993.
10.03 1993 Stock Option/Stock Issuance Plan, incorporated by reference to
Exhibit 10.03A to the Registrant's Annual Report on Form 10-K for
1993.
10.04 Deferred Compensation Plan for Non-Employee Directors of the
Registrant, incorporated by reference to Exhibit 10.14 to the
Registrant's Registration Statement on Form 10.
10.05 Retirement Plan for Non-Employee Directors of the Registrant,
incorporated by reference to Exhibit 10.15 to the Registrant's
Registration Statement on Form 10.
10.06 Retirement Plan of the Registrant, incorporated by reference to
Exhibit 10.16 to Amendment No. 3 on Form 8 to the Registrant's
Registration Statement on Form 10.
10.06A Amendment to Retirement Plan of the Registrant dated December 8,
1993, incorporated by reference to Exhibit 10.07A to the Registrant's
Annual Report on Form 10-K for 1993.
10.07 The Koll Company 401(k) Plus Plan and Trust Agreement dated July 1,
1989 under which the Registrant elected to participate as an employer
effective as of October 1, 1993, incorporated by reference to Exhibit
10.08 to the Registrant's Annual Report on Form 10-K for 1993.
10.08 Restated Environmental Matters Agreement dated as of July 28, 1989,
among a predecessor to the Registrant, Allied-Signal, New Hampshire
Oak, Fisher Scientific Group Inc. ("Fisher Group") and the
Registrant, incorporated by reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1989 as amended by the Assignment, Assumption and Indemnification
Agreement dated as of December 21, 1989, among the Registrant, Henley
Group, New Hampshire Oak, Fisher Group, WTI and Allied-Signal,
incorporated by reference to Exhibit 10.21 to the Registrant's Annual
Report on Form 10-K for 1989.
10.09 Environmental Expenditures Agreement dated as of July 28, 1989, among
the Registrant, WTI, New Hampshire Oak and Fisher Group, incorporated
by reference to Exhibit 10(b) to the Registrant's quarterly report on
Form 10-Q for the quarter ended June 30, 1989 as amended by
Assignment and Assumption Agreement dated as of January 1, 1990,
among the Registrant, Henley Group, New Hampshire Oak, Fisher Group,
WTI and Henley Holdings, Inc., incorporated by reference to Exhibit
10.22 to the Registrant's Annual Report on Form 10-K for 1989.
10.10 Transition Agreement dated as of July 16, 1992 ("Transition
Agreement"), among the Registrant, Henley Group and Abex Inc.,
incorporated by reference to Exhibit 10.14 to the Registrant's Annual
Report on Form 10-K for 1992.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
10.10A Amendment to Transition Agreement dated April 1, 1993, incorporated
by reference to Exhibit 10.12A to the Registrant's Annual Report on
Form 10-K for 1993.
10.11 Tax Sharing Agreement dated as of June 10, 1992, between Henley Group
and Abex Inc., incorporated by reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-K for 1992.
10.12 Conditional Guarantee dated as of July 9, 1992, among the Registrant,
Abex Inc., Henley Group and Allied-Signal, incorporated by reference
to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for
1992.
10.13 Reimbursement Agreement dated as of July 16, 1992, among the
Registrant, Henley Group and Abex Inc., incorporated by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for
1992.
10.14 Pension Agreement dated as of July 16, 1992, among the Registrant,
Henley Group and Abex Inc., incorporated by reference to Exhibit
10.18 to the Registrant's Annual Report on Form 10-K for 1992.
10.15 Stock Purchase Agreement ("Stock Agreement") dated December 17, 1993
between the Registrant, certain of its subsidiaries and Libra Invest
& Trade Ltd. ("Libra") incorporated by reference to Exhibit 10.19 to
the Registrant's Annual Report on Form 10-K for 1993.
10.15A Amendment No. 1 to the Stock Agreement dated as of February 15, 1994,
incorporated by reference to Exhibit 10.19A to the Registrant's
Annual Report on Form 10-K for 1993.
10.16 Exchange Agreement dated December 17, 1993, between the Registrant
and Libra, incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for 1993.
10.17 Financing and Accounting Services Agreement dated as of September 30,
1993 between the Registrant and The Koll Company, incorporated by
reference to Exhibit 10.21 to the Registrant's Annual Report on Form
10-K for 1993.
10.18 Management Information Systems and Human Resources Services Agreement
dated as of September 30, 1993 between the Registrant and Koll
Management Services, Inc., incorporated by reference to Exhibit 10.22
to the Registrant's Annual Report on Form 10-K for 1993.
10.19 License Agreement dated September 30, 1993 between the Registrant,
The Koll Company and Mr. Donald M. Koll, incorporated by reference to
Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
10.20 Amendment to License Agreement dated September 30, 1993 between the
Registrant and Mr. Donald M. Koll.**
10.21 Sublease Agreement dated September 30, 1993 between the Registrant
and the Koll Company, incorporated by reference to Exhibit 10.24 to
the Registrant's Annual Report on Form 10-K for 1993.
10.22 Netting Agreement dated as of October 1, 1993 between a subsidiary of
the Registrant and an executive officer of the Registrant, together
with a schedule identifying five (5) substantially identical
documents not filed therewith, incorporated by reference to Exhibit
10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
10.23 Agreement of Limited Partnership dated as of October 1, 1993 between
a subsidiary of the Registrant and an executive officer of the
Registrant, together with a schedule identifying five (5)
substantially identical documents not filed therewith, incorporated
by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.
10.24 Agreement Respecting Vesting of Rights dated as of October 1, 1993
between a subsidiary of the Registrant and an executive officer of
the Registrant, together with a schedule identifying five (5)
substantially identical documents not filed therewith, incorporated
by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.
10.25 Promissory Note Agreement dated April 29, 1995 between the Registrant
and AV Partnership, incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
10.26 Koll Asia Pacific Development Services Amended and Restated Pacific
Rim Joint Business Opportunity Agreement, incorporated by reference
to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
10.27 Bargain Purchase and Sale Agreement and Escrow Instructions between a
Subsidiary of the Registrant and the State of California, acting by
and through the State Lands Commission, incorporated by reference to
Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for
1996.
10.28 Employment Agreement between the Registrant and Mr. Donald M. Koll.**
10.29 Employment Agreement between the Registrant and Mr. Richard M.
Ortwein.**
10.30 Employment Agreement between the Registrant and Mr. Raymond J.
Pacini.**
10.31 Consulting Agreement between the Registrant and Mr. Ray Wirta.**
21.01 Subsidiaries of the Registrant, incorporated by reference to Exhibit
21.01 to the Registrant's Annual Report on Form 10-K for 1996.
23.01 Consent of McDermott, Will & Emery (included in opinion filed as
Exhibit 5.01).**
23.02 Consent of Deloitte & Touche, LLP.*
24.01 Power of Attorney (included on page II-8).
27.01 Financial Data Schedule, incorporated by reference to Exhibit 27.01
to the Registrant's Annual Report on Form 10-K for 1996.
99.01 Form of Proxy for Class A Common Stock.*
99.02 Form of Proxy for Series A Convertible Preferred Stock.*
99.03 Form of Letter of Transmittal for exchange of the 12% Senior
Subordinated Pay-In-Kind Debentures due March 15, 2002.**
99.04 Form of Letter of Transmittal for exchange of the 12% Subordinated
Pay-In-Kind due March 15, 2002.**
99.05 Forms of Master Ballots.**
99.06 Forms of Ballots.**
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change in such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Company's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-6
<PAGE>
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
See Item 20 hereof for the Registrant's undertaking with respect to
indemnification.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Newport
Beach, State of California, on February 20, 1997.
KOLL REAL ESTATE GROUP, INC.
By: /s/ RAYMOND J. PACINI
--------------------------------------
Raymond J. Pacini
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
We, the undersigned officers and directors of Koll Real Estate Group, Inc.,
do hereby constitute and appoint Richard M. Ortwein and Raymond J. Pacini, and
each of them, our true and unlawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby, ratifying and confirming all
that said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------------------- ------------------------------------------ ----------------------
<C> <S> <C>
/s/ DONALD M. KOLL Chairman of the Board and
------------------------------------- Chief Executive Officer February 20, 1997
(Donald M. Koll) (Principal Executive Officer)
/s/ RAYMOND J. PACINI Executive Vice President and Chief
------------------------------------- Financial Officer (Principal Financial February 20, 1997
(Raymond J. Pacini) and Accounting Officer)
/s/ RAY WIRTA
------------------------------------- Director February 20, 1997
(Ray Wirta)
/s/ HAROLD A. ELLIS, JR.
------------------------------------- Director February 20, 1997
(Harold A. Ellis, Jr.)
/s/ PAUL C. HEGNESS
------------------------------------- Director February 20, 1997
(Paul C. Hegness)
/s/ J. THOMAS TALBOT
------------------------------------- Director February 20, 1997
(J. Thomas Talbot)
/s/ MARCO F. VITULLI
------------------------------------- Director February 20, 1997
(Marco F. Vitulli)
</TABLE>
II-8
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Koll Real Estate
Group, Inc. on Form S-4 of our report dated February 18, 1997, and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
Deloitte & Touche LLP
Costa Mesa, California
February 20, 1997
<PAGE>
PRELIMINARY PROXY MATERIAL
FOR INFORMATION OF SECURITIES AND EXCHANGE COMMISSION ONLY
KOLL REAL ESTATE GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY __, 1997
The undersigned hereby authorizes and appoints Messrs. Donald M. Koll and
Raymond J. Pacini and each of them, as proxies with full power of
substitution in each, to vote all shares of Class A Common Stock, par value
$.05 per share, of Koll Real Estate Group, Inc. (the "Company") held of
record on March __, 1997 by the undersigned at the Annual Meeting of
Stockholders to be held at 10:00 a.m., local time, on May __, 1997, at
_____________________, Delaware, and at any adjournments or postponements
thereof, on all matters that may properly come before said meeting.
This proxy when properly executed will vote (i) as directed on the reverse
side, or, in the absence of such direction, this proxy will voted FOR
Proposals 1 through 7 and (ii) in accordance with the judgment of the proxies
upon other matters that may properly come before said meeting or any
adjournments or postponements thereof.
PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
(continued on reverse side)
The Board of Directors recommends a vote FOR Proposal 1.
PROPOSAL 1 - Approval and adoption of the Exchange Offer proposal which
provides for the exchange by the Company of up to all 12% Senior Subordinated
Pay-In-Kind Debentures Due March 15, 2002 ("Senior Debentures") and up to
all 12% Subordinated Pay-In-Kind Debentures Due March 15, 2002 outstanding as
of March 15, 1997 for shares of the Company's Common Stock equal to 90% of
the Company's outstanding Common Stock, on a post-Capital Stock Combination
and Reverse Stock Split basis (as described in Proposal 2).
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR Proposal 2.
PROPOSAL 2 - Approval and adoption of the Capital Stock Combination and
Reverse Stock Split Proposal which provides for the amendment of Articles
Fourth, Fifth and Sixth of the Company's Restated Certificate of
Incorporation in order to (i) effect a reclassification and combination of
the Company's Class A Common Stock, Class B Common Stock and Series A
Convertible Preferred Stock ("Preferred Stock") into one class and series of
stock in which each outstanding share of Class A Common Stock will be
reclassified to be one (1) share of Common Stock and each outstanding share
of Preferred Stock will be reclassified to be one and three quarter (1:75)
shares of Common Stock ("Capital Stock Combination") and (ii) immediately
following the Capital Stock Combination to effect a reverse stock split
<PAGE>
of each resulting outstanding share of Common Stock on a one for one hundred
(1:100) basis (the "Reverse Stock Split").
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR Proposal 3.
PROPOSAL 3 - Approval and adoption of the Board Proposal which provides for
the amendment of Articles Eighth and Thirteenth of the Company's Restated
Certificate of Incorporation and Articles III and XI of the Company's Bylaws
to (i) delete the classified Board of Directors (ii) to increase the size of
the Board of Directors from seven (7) to ten (10) members (iii) to delete the
80% supermajority vote requirement to change the number of directors by
stockholder vote, (iv) to delete the 80% supermajority vote requirement to
remove any director for cause and to permit directors to be removed with or
without cause and (v) to delete the 80% supermajority vote requirement to
amend any of the above described provisions contained in the Company's
Restated Certificate of Incorporation or Bylaws.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR Proposal 4.
PROPOSAL 4 - Approval and adoption of the Special Meetings Proposal which
provides for amendments to Articles Ninth and Thirteenth of the Company's
Restated Certificate and Articles II and XI of the Company's Bylaws to (i)
delete the 80% supermajority vote requirements to amend or repeal any
provisions of Article Ninth of the Company's Restated Certificate of
Incorporation and Article II, Section 3 of the Company's Bylaws regarding the
power to call special meetings of the Company's stockholders (ii) to delete
the provisions contained in Article Ninth of the Company's Restated
Certificate of Incorporation and Article II, Section 3 of the Company's
Bylaws which provide that only the Board of Directors or the Company's Chief
Executive Officer can call such special meetings and (iii) to permit the
holders of capital stock of the Company representing at least ten percent
(10%) of the outstanding shares of capital stock of the Company entitled to
vote in the election of directors to call a special meeting of the Company's
stockholders.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR Proposal 5.
PROPOSAL 5 - Approval and adoption of the Written Consent Proposal which
provides for an amendment to Article Tenth of the Company's Restated
Certificate of Incorporation to (i) delete the prohibition on stockholders
acting by written consent without a meeting and (ii) delete the 80%
supermajority vote requirement to amend the provisions of Article Tenth of
the Company's Restated Certificate of Incorporation.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
The Board of Directors recommends a vote FOR each director nominee described
in Proposal 6.
PROPOSAL 6 -- In the event the Recapitalization is consummated, election of
each director nominee described in the Board Election Proposal with terms
expiring at the Annual Meeting in 1998:
/ / FOR each / / WITHHOLD NOMINEES: Donald M. Koll, J. Thomas Talbot,
nominee AUTHORITY Marco Vitulli, Ray Wirta, [James Casney, Robert
listed to vote for Gagalis or John Kehoe, John Sanford, Buck
each nominee Burnamen, Rick Schuler and John Wickser].
listed
(Instructions: To withhold authority to vote
for any individual nominee, write the nominee's
name on the space provided below)
______________________________________________
In the event the Recapitalization is not consummated, election of Messrs.
Koll and Hegness to serve until the Annual Meeting of Stockholders in 1999
and of Messrs. Wirta and Ellis to serve until the Annual Meeting of
Stockholders in 2000.
/ / FOR each / / WITHHOLD NOMINEES: Donald M. Koll, Paul C. Hegness,
nominee AUTHORITY Ray Wirta and Harold A. Ellis.
listed to vote for
each nominee
listed
(Instructions: To withhold authority to vote
for any individual nominee, write the nominee's
name on the space provided below)
______________________________________________
The Board of Directors recommends a vote FOR Proposal 7.
PROPOSAL 7 -- Approval and adopt the Auditor Proposal which provides for the
ratification and appointment of Deloitte & Touche LLP as independent auditors
for the fiscal year ending December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
Signature(s) should correspond exactly with the name(s) as shown above. Where
stock is registered jointly in the names of two or more persons, ALL should
sign. If this proxy is submitted by a corporation or partnership, it should
be executed in the full corporate or
<PAGE>
partnership name by a duly authorized person. When signing in fiduciary or
representative capacity (as attorney, corporate officer, etc.), give your full
title as such.
EXECUTION OF THIS PROXY BY A STOCKHOLDER WILL REVOKE ANY AND ALL PRIOR
PROXIES GIVEN BY SUCH STOCKHOLDER WITH RESPECT TO THE ANNUAL MEETING.
Dated: ___________________, 1997
______________________________________
Signature(s) of Stockholder(s)
______________________________________
Signature(s) of Stockholder(s)
<PAGE>
PRELIMINARY PROXY MATERIAL
FOR INFORMATION OF SECURITIES AND EXCHANGE COMMISSION ONLY
KOLL REAL ESTATE GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY __, 1997
The undersigned hereby authorizes and appoints Messrs. Donald M. Koll and
Raymond J. Pacini and each of them, as proxies with full power of
substitution in each, to vote all shares of Series A Convertible Preferred
Stock of Koll Real Estate Group, Inc. (the "Company") held of record on March
__, 1997 by the undersigned at the Annual Meeting of Stockholders to be held
at 10:00 a.m., local time, on May __, 1997, at _____________________,
Delaware, and at any adjournments or postponements thereof, on all matters
that may properly come before said meeting.
This proxy when properly executed will vote (i) as directed on the reverse
side, or, in the absence of such direction, this proxy will be voted FOR
Proposals 1 and 2 and (ii) in accordance with the judgment of the proxies
upon other matters that may properly come before said meeting or any
adjournments or postponements thereof.
PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
(continued on reverse side)
The Board of Directors recommends a vote FOR Proposal 1.
PROPOSAL 1 - Approval and adoption of the Exchange Offer proposal which
provides for the exchange by the Company of up to all 12% Senior Subordinated
Pay-In-Kind Debentures Due March 15, 2002 ("Senior Debentures") and up to
all 12% Subordinated Pay-In-Kind Debentures Due March 15, 2002 outstanding as
of March 15, 1997 for shares of the Company's Common Stock equal to 90% of
the Company's outstanding Common Stock, on a post-Capital Stock Combination
and Reverse Stock Split basis (as described in Proposal 2).
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR Proposal 2.
PROPOSAL 2 - Approval and adoption of the Capital Stock Combination and
Reverse Stock Split Proposal which provides for the amendment of Articles
Fourth, Fifth and Sixth of the Company's Restated Certificate of
Incorporation in order to (i) effect a reclassification and combination of
the Company's Class A Common Stock, Class B Common Stock and Series A
Convertible Preferred Stock ("Preferred Stock") into one class and series of
stock in which each outstanding share of Class A Common Stock will be
reclassified to be one (1) share of Common Stock and each outstanding share
of Preferred Stock will be reclassified to be one and three quarter (1:75)
shares of Common Stock ("Capital Stock Combination") and (ii) immediately
following the Capital Stock Combination to effect a reverse stock split
<PAGE>
of each resulting outstanding share of Common Stock on a one for one hundred
(1:100) basis (the "Reverse Stock Split").
/ / FOR / / AGAINST / / ABSTAIN
Signature(s) should correspond exactly with the name(s) as shown above. Where
stock is registered jointly in the names of two or more persons, ALL should
sign. If this proxy is submitted by a corporation or partnership, it should
be executed in the full corporate or partnership name by a duly authorized
person. When signing in fiduciary or representative capacity (as attorney,
corporate officer, etc.), give you full title as such.
EXECUTION OF THIS PROXY BY A STOCKHOLDER WILL REVOKE ANY AND ALL PRIOR
PROXIES GIVEN BY SUCH STOCKHOLDER WITH RESPECT TO THE ANNUAL MEETING.
Dated: ___________________, 1997
______________________________________
Signature(s) of Stockholder(s)
______________________________________
Signature(s) of Stockholder(s)
