<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996 COMMISSION FILE NUMBER 0-18694
CATELLUS DEVELOPMENT
CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2953477
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 MISSION STREET
SAN FRANCISCO, CALIFORNIA 94105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(415) 974-4500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
As of July 15, 1996, there were 74,508,125 issued and outstanding shares of
the registrant's common stock, $.01 par value per share.
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<PAGE>
CATELLUS DEVELOPMENT CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet at June 30, 1996 and December 31, 1995............... 2
Consolidated Statement of Operations for the three months and
six months ended June 30, 1996 and 1995........................................ 3
Consolidated Statement of Cash Flows for the six months ended
June 30, 1996 and 1995......................................................... 4
Notes to Consolidated Financial Statements...................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................ 8
PART II. OTHER INFORMATION..................................................................... 18
SIGNATURES...................................................................................... 19
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
(Unaudited)
<S> <C> <C>
Assets
Properties .......................................... $1,196,676 $1,191,679
Less accumulated depreciation ....................... (197,743) (184,228)
---------- ----------
998,933 1,007,451
Other assets and deferred charges.................... 46,763 44,530
Notes receivable .................................... 5,196 7,550
Accounts receivable, less allowances ................ 10,930 10,330
Cash and cash equivalents ........................... 17,891 27,743
---------- ----------
Total ..................................... $1,079,713 $1,097,604
========== ==========
Liabilities and stockholders' equity
Mortgage and other debt ............................. $ 463,503 $ 496,180
Accounts payable and accrued expenses ............... 36,944 33,913
Deferred credits and other liabilities .............. 37,585 34,367
Deferred income taxes ............................... 97,222 90,270
---------- ----------
Total liabilities ......................... 635,254 654,730
---------- ----------
Commitments and contingencies (Note 9)
Stockholders' equity
Preferred stock .................................. 322,500 322,500
Common stock - 74,504 and 72,967 shares issued at
June 30, 1996 and December 31, 1995 ............ 745 730
Paid-in capital .................................. 198,445 196,525
Accumulated deficit .............................. (77,231) (76,881)
---------- ----------
Total stockholders' equity ....................... 444,459 442,874
---------- ----------
Total ..................................... $1,079,713 $1,097,604
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Rental revenues.................................................. $ 30,780 $ 26,833 $ 60,052 $ 53,731
Property operating costs......................................... (12,074) (9,956) (23,359) (18,848)
Gain on sales of property........................................ 13,927 1,625 17,014 7,199
Equity in earnings of joint ventures............................. 1,856 2,409 3,246 4,352
Management and development fee income............................ 410 576 813 983
General and administrative expense............................... (1,997) (2,570) (4,057) (6,439)
Interest expense................................................. (10,841) (6,687) (21,780) (13,140)
Depreciation and amortization.................................... (7,432) (6,811) (15,104) (13,864)
Litigation, environmental and restructuring...................... - (603) 900 (1,534)
Other, net....................................................... 265 458 64 1,780
------- -------- -------- --------
Income before income taxes....................................... 14,894 5,274 17,789 14,220
Income taxes..................................................... 6,077 2,131 7,258 5,719
------- -------- -------- --------
Net income....................................................... 8,817 3,143 10,531 8,501
Preferred stock dividends.................................... 5,953 5,953 11,906 11,906
------- -------- -------- --------
Net income (loss) applicable to common stockholders.......... $ 2,864 $ (2,810) $ (1,375) $ (3,405)
======= ======== ======== ========
Net income (loss) per share of common stock.................. $ 0.04 $ (0.04) $ (0.02) $ (0.05)
======= ======== ======== ========
Average number of common shares outstanding.................. 74,501 72,967 73,877 72,967
======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $10,531 $ 8,501
Non-cash items included in net income:
Depreciation and amortization......................................... 15,104 13,864
Deferred income taxes................................................. 6,953 5,192
Amortization of deferred loan fees and other costs.................... 1,635 1,311
Equity in earnings of joint ventures.................................. (3,246) (4,352)
Cost of land sold..................................................... 25,242 1,869
Gain on sale of investment and other properties....................... (4,706) -
Other--net............................................................ 2,386 2,294
Changes in operating assets and liabilities.............................. (2,803) (2,861)
------- -------
Net cash provided by operating activities................................... 51,096 25,818
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................................... (28,765) (27,359)
Distributions from/contributions to joint ventures, net.................. 3,704 2,638
Net proceeds from sale of investment and other properties................ 7,459 -
Reduction in short-term investments and
restricted cash........................................................ - 35,067
------- -------
Net cash (used in) provided by investing activities........................ (17,602) 10,346
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings............................................................... 13,655 48,173
Repayment of borrowings.................................................. (45,141) (50,353)
Dividends paid........................................................... (11,906) (11,906)
Proceeds from issuance of common stock................................... 46 -
------- -------
Net cash used in financing activities...................................... (43,346) (14,086)
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................ (9,852) 22,078
Cash and cash equivalents at beginning of period............................ 27,743 16,920
------- -------
Cash and cash equivalents at end of period.................................. $17,891 $38,998
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized).................................. $20,324 $11,397
Income taxes.......................................................... $ 355 $ 245
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1. DESCRIPTION OF BUSINESS
Headquartered in San Francisco, Catellus Development Corporation (the
Company) is a full service real estate company that manages and develops real
estate for its own account and others. The Company's portfolio of industrial,
retail, residential and office projects, undeveloped land and joint venture
interests are located in major markets in California and 10 other states. The
Company's operating properties consist primarily of industrial facilities, along
with a number of office and retail buildings located in California, Arizona,
Illinois, Texas, Colorado and Oregon. The Company also has substantial
undeveloped land holdings primarily in these same states.
NOTE 2. INTERIM FINANCIAL DATA
The accompanying consolidated financial statements should be read in
conjunction with the Company's 1995 Annual Report on Form 10-K/A as filed with
the Securities and Exchange Commission. In the opinion of management, the
accompanying financial information includes all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows for the interim periods.
NOTE 3. EARNINGS PER SHARE
Net income (loss) per share of common stock is computed by dividing net
income (loss), after reduction for preferred stock dividends, by the weighted
average number of shares of common stock outstanding during the period. Fully
diluted earnings per share amounts have not been presented because assumed
conversion of the Series A and Series B preferred stock would be anti-dilutive
for all relevant periods.
NOTE 4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes $7.5 million of proceeds from a June
1996 ground lease sale. These funds are being held in a separate cash account
at a title company in order to preserve the Company's option of reinvesting the
proceeds on a tax deferred basis.
NOTE 5. ACQUISITION
In March 1996, the Company acquired The Akins Companies (Akins), a
residential real estate company involved in home building, community development
and project management services, primarily in Southern California. Akins was
acquired in exchange for 1,528,421 shares of the Company's common stock in a
transaction that qualifies for the pooling of interest method of accounting.
However, prior year financial statements have not been restated because Akins is
not material to the financial position, results of operations or cash flows of
the Company.
5
<PAGE>
NOTE 6. MORTGAGE AND OTHER DEBT
Mortgage and other debt at June 30, 1996 and December 31, 1995 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
First mortgage loan - Prudential $263,250 $267,260
First mortgage loans 71,551 70,770
Intermediate term loans - secured 55,473 71,800
Construction loans - secured 41,730 52,851
Assessment district bonds 21,574 23,283
Term loan - unsecured 7,000 7,000
Other loans 2,925 3,216
-------- --------
Total mortgage and other debt $463,503 $496,180
======== ========
Due in one year $112,249 $ 85,094
======== ========
</TABLE>
Interest costs relating to mortgage and other debt for the three months
ended June 30, 1996 and 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
Gross interest incurred $11,140 $12,299 $22,344 $ 24,513
Interest capitalized (299) (5,612) (564) (11,373)
------- ------- ------- --------
Interest expense $10,841 $ 6,687 $21,780 $ 13,140
======= ======= ======= ========
</TABLE>
NOTE 7. PROPERTIES
Net book value by property type at June 30, 1996 and December 31, 1995
consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Income producing properties:
Industrial buildings $273,031 $ 279,838
Office buildings 111,259 113,095
Retail buildings 84,040 84,595
Land development 318,937 317,727
Land leases 6,648 10,069
-------- ----------
793,915 805,324
-------- ----------
Land holdings:
Developable properties 164,942 150,339
Natural resources 1,784 1,788
Properties held for sale 70,172 84,232
-------- ----------
236,898 236,359
-------- ----------
Other (including proportionate share
of joint venture's net deficits of
$39,386 and $41,066) (31,880) (34,232)
-------- ----------
$998,933 $1,007,451
======== ==========
</TABLE>
6
<PAGE>
NOTE 8. INCOME TAXES
The Company's effective tax rate for the six months ended June 30, 1996 was
40.8%, a 0.6% increase over the Company's 40.2% rate for 1995 due to the effect
of state income taxes.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of legal actions arising in the ordinary
course of business. While the Company cannot predict with certainty the final
outcome of these proceedings, considering the substantial legal defenses
available, management believes that none of these actions, when finally
resolved, will have a material adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.
Inherent in the operations of the real estate business is the possibility
that environmental pollution conditions may relate to properties owned or
previously owned. The Company may be required in the future to take action to
correct or reduce the environmental effects of prior disposal or release of
hazardous substances by third parties, the Company, or its corporate
predecessors. Future environmental costs are difficult to estimate due to such
factors as the unknown magnitude of possible contamination, the unknown timing
and extent of the corrective actions which may be required, the determination of
the Company's liability in proportion to other responsible parties, and the
extent to which such costs are recoverable from insurance.
Costs of environmental remediation incurred in connection with operating
properties and properties previously sold are expensed. At June 30, 1996,
management estimates that future costs for remediation of identified or
suspected environmental contamination which will be treated as an expense will
be approximately $13.7 million, and has provided a reserve for that amount. It
is anticipated that such costs will be incurred over the next ten years.
Management also estimates that similar costs relating to the Company's
properties to be developed or sold may range from $14 million to $40 million.
These amounts will be capitalized as components of development costs when
incurred, which is anticipated to be over a period of twenty years, or will be
deferred and charged to cost of sales when the properties are sold. These
estimates were developed based on extensive reviews which took place over
several years based upon then prevailing law and identified site conditions.
Because of the breadth of its portfolio, the Company is unable to review
extensively each property on a regular basis. Such estimates are not precise
and are always subject to the availability of further information about the
prevailing conditions at the site, the future requirements of regulatory
agencies and the availability of other parties to pay some or all of such costs.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Form 10-K/A.
OVERVIEW
Historically, the aggregate costs of holding and operating the Company's
real estate assets and paying preferred stock dividends have exceeded revenue
from property operations, development and management activities. In addition,
the Company's cash requirements have been increased by the funds necessary to
support the predevelopment and entitlement efforts for its major land
development projects. The resulting cash flow deficits have been funded by
borrowings, the issuance of preferred stock and the sale of assets sufficient to
meet the Company's overall cash requirements.
As described further under Liquidity and Financial Resources, the Company's
short term financial goal is to eliminate the deficits resulting from interest,
preferred stock dividends and leasing costs exceeding income from property
operations, development and management activities by the fourth quarter of
1996. To do this, the Company has taken the following steps:
. In October 1995, the Company began the process of substantially increasing
its asset sales activity, with the primary focus on its non-strategic land
assets. Sale proceeds will be applied to a combination of debt reduction,
in order to reduce interest costs, and reinvestment in activities that
could generate increased operating earnings. Sales totaling $22.9 million
closed in the first half of 1996 and the Company has now sold $70 million
of non-strategic land in the nine months following the announcement of its
goal.
. The Company closed $20.7 million of development property land sales in the
second quarter of 1996. This included the $13.2 million May 1996 sale of a
four acre parcel at Los Angeles Union Station to the Metropolitan Water
District.
. During the second quarter of 1996, the Company reduced its total debt by a
net $27.6 million. This net reduction represents the difference between
$37.4 million of principal reductions on existing borrowings and $9.8
million of new borrowings which funded the construction of pre-leased
industrial buildings and other development. Total net debt reduction since
the beginning of 1995 through the second quarter of 1996 is $67.1 million
($114.8 million in debt repayment less $47.7 million of new borrowings.) It
is expected that the debt service on new borrowings will be covered by the
cash flow from the completed buildings; therefore, the Company's future
operations should be improved by the interest savings on these principal
reductions.
. The Company continues to place a greater emphasis on increasing its
development and fee development businesses. During the first six months of
1996, the Company commenced construction on approximately 1,123,000 square
feet of new development, and signed leases for new development totaling
639,000 square feet for which construction will commence in the second half
of 1996. In March 1996, the Company acquired The Akins Companies to better
position itself to pursue existing residential development opportunities on
certain of its land holdings, as well as to pursue fee development
opportunities on land not currently owned by the Company.
. The Company also continues to place a greater emphasis on increasing its
third party management business. In January 1996, the Company announced a
five-year contract to manage the non-railroad real estate assets for the
Burlington Northern Santa Fe Corporation.
8
<PAGE>
. The Company has an ongoing strategy to undertake a review of its major land
development projects with the goal of increasing profitability, minimizing
up front capital requirements and shortening the time required to develop
the properties. As a result of these reviews, decisions are made to attempt
to modify certain of the entitlements or to abandon or sell properties that
management believes can not be developed in a reasonable time frame. It is
management's expectation that these decisions will both accelerate the time
frame in which the projects will be developed and minimize the up front
cash requirements associated with development.
The Company's long-term financial goal is to increase its return on
stockholders' equity. In order to accomplish this, the Company will continue
with the revenue enhancement and cost reduction initiatives discussed above and
will seek opportunities to reduce its capital commitment to projects through
joint ventures, where the Company would seek financial partners to participate
in some of its more capital intensive businesses. In addition, as the Company
completes the above programs, it will evaluate opportunities to increase
stockholder returns through strategic reinvestment and/or stock repurchases,
including the redemption and/or conversion of outstanding preferred stock.
RESULTS OF OPERATIONS
Comparison of six months ended June 30, 1996 and 1995
The more significant changes in rental revenue and property operating costs
are summarized below (in millions):
<TABLE>
<CAPTION>
CHANGE
--------------------
PROPERTY
RENTAL OPERATING
REVENUE COSTS
------- ---------
<S> <C> <C>
Industrial buildings $ 1.7 $ 1.5
Retail buildings 1.4 1.1
Office buildings 0.1 (0.1)
Other income producing properties 3.4 2.1
Land holdings (0.3) (0.1)
----- -----
Total change $ 6.3 $ 4.5
===== =====
</TABLE>
Of the increase in revenue from industrial buildings, $1.1 million was
attributable to five new buildings totaling 655,000 square feet that were
completed in late 1995 and 1996. Operating costs for the industrial portfolio
increased due, in part, to new buildings completed and higher overhead and
maintenance and repairs. The increase in revenue and costs for retail buildings
was due to the fact that the East Baybridge shopping center, completed in late
1994, was more fully leased in the first half of 1996 than in 1995. Rental
revenue and costs for the Company's office portfolio was comparable to the same
period in 1995.
The increase in revenue and costs from other income producing properties
resulted in large part from the Company's December 31, 1995 announcement that it
would discontinue the practice of capitalizing revenue and operating costs (as
well as interest expense) for Mission Bay and certain other properties because
the related entitlements are not complete and development has not commenced.
Rental revenue and property operating cost increases attributable to these
properties were $3.0 million and $1.6 million, respectively, in the first half
1996.
The Company completed sales of non-strategic land assets totaling $22.9
million in the first six months of 1996. The Company sold $70 million of non-
strategic land during the nine months following the announcement of its goal to
sell $100 million of non-strategic land assets by December 31, 1996. In
addition, the Company sold $28.2 million of other assets during the first half
of 1996. At June 30, 1996, the Company had contracts
9
<PAGE>
outstanding for the sale of an additional $32.4 million of non-strategic land
assets and $11.7 million of other assets.
The Company recognized $3.2 million in income from its joint ventures in
the first six months of 1996, and received $3.7 million cash distributions
related to income during the period. Joint venture earnings decreased $1.1
million from the first six months of 1995. The decrease consists principally of
lower land sales in 1996 by a joint venture.
During 1995, the Company experienced significant staff reductions and
realignment of responsibilities. In connection with these changes, the Company
refined its overhead allocation to more closely align certain common costs with
the underlying activity. This had the result of increasing property operating
costs and reducing general and administrative expense in 1996 when compared to
1995.
Interest expense increased $8.6 million primarily as a result of
discontinuing the practice of capitalizing interest on Mission Bay and certain
other properties as described above. During the first half of 1995, the Company
capitalized $11.4 million of interest compared to $.6 million in the first half
of 1996. However, total interest incurred was $2.2 million lower in the first
half of 1996 compared to the same period in 1995 due to net debt reduction in
the first half of 1996 and late 1995.
Litigation, environmental and restructuring costs decreased $2.4 million.
The $.9 million income in the first half of 1996 represents monies received from
settlement proceeds in an environmental matter, with no offsetting costs being
incurred. The $1.5 million expense in the first half of 1995 represents actual
costs incurred in regard to operating properties.
Other, net decreased $1.7 million primarily as a result of lower interest
income of $1.4 million and $.6 million of costs incurred in regard to the
acquisition of the Akins Companies on March 15, 1996 (see Note 5.)
Comparison of three months ended June 30, 1996 and 1995
The more significant changes in rental revenue and property operating costs
are summarized below ( in millions):
<TABLE>
<CAPTION>
CHANGE
---------------------
PROPERTY
RENTAL OPERATING
REVENUE COSTS
-------- ---------
<S> <C> <C>
Industrial buildings $ 1.0 $ 0.8
Retail buildings 1.0 0.7
Office buildings 0.3 (0.5)
Other income producing properties 1.7 1.1
Land holdings (0.1) -
----- -----
Total change $ 3.9 $ 2.1
===== =====
</TABLE>
Of the increase in revenue from industrial buildings, $681,000 was
attributable to four new buildings totaling 638,000 square feet that were
completed during the last twelve months. Operating costs for the industrial
portfolio increased due to new buildings completed and higher overhead and
maintenance and repairs. The increase in revenue and costs for retail buildings
was primarily due to the fact that the East Baybridge shopping center, completed
in late 1994, was more fully leased in the second quarter of 1996 than in the
second quarter of 1995. Rental revenue for the Company's office portfolio
increased $339,000 due to increased occupancy. In addition, the Company's
operating costs for its office portfolio decreased $452,000 due to a one-time
$900,000 property tax reassessment in 1995 of a building.
10
<PAGE>
The increase in revenue and costs from other income producing properties
resulted in large part from the Company's December 31, 1995 announcement that it
would discontinue the practice of capitalizing revenue and operating costs (as
well as interest expense) for Mission Bay and certain other properties because
the related entitlements are not complete and development has not commenced.
Rental revenue and property operating cost increases attributable to these
properties were $1.5 million and $.8 million, respectively, in the second
quarter 1996.
The Company completed sales of non-strategic land assets totaling $16.6
million in the second quarter of 1996. In addition, the Company sold $28.2
million of other assets during the second quarter of 1996. At the end of the
second quarter of 1996, the Company had contracts outstanding for the sale of an
additional $32.4 million of non-strategic land assets and $11.7 million of other
assets.
The Company recognized $1.9 million in income from its joint ventures in
the second quarter of 1996, and received $3.7 million cash distributions related
to income during the quarter. Joint venture earnings decreased $.6 million from
the second quarter of 1995. The decrease consists principally of lower land
sales by a joint venture.
During 1995, the Company experienced significant staff reductions and
realignment of responsibilities. In connection with these changes, the Company
refined its overhead allocation to more closely align certain common costs with
the underlying activity. This had the result of increasing property operating
costs and reducing general and administrative expense in 1996 when compared to
1995.
Interest expense increased $4.2 million primarily as a result of
discontinuing the practice of capitalizing interest on Mission Bay and certain
other properties as described above. During the second quarter of 1995, the
Company capitalized $5.6 million of interest compared to $.3 million in the
second quarter of 1996. However, total interest incurred was $1.2 million lower
in the second quarter of 1996 compared to the same period in 1995 due to net
debt reduction in the first half of 1996 and late 1995.
Litigation, environmental and restructuring improved $.6 million due to
lower environmental costs incurred in regard to operating properties.
Other, net decreased $.2 million primarily as a result of lower interest
income.
LIQUIDITY AND FINANCIAL RESOURCES
Historically, the aggregate cash requirements associated with fixed charges
and leasing costs have exceeded the Company's operating income from recurring
sources. The Company has relied primarily on proceeds from asset sales to meet
the resulting operating deficits. The Company is focused on improving operating
income through the development and operation of new buildings, the reduction of
property and administrative costs, and the expansion of management and
development activities. Additionally, the Company intends to reduce the level
of fixed charges by applying proceeds from planned asset sales to pay down debt
and the conversion of preferred stock to common stock.
The following table (in thousands) summarizes the Company's income
(deficit) from property operations, development and management activities after
adjustment for general and administrative expense, fixed charges and leasing
costs. The Company believes that this presentation is meaningful in order to
understand its progress in achieving its goal of eliminating the indicated
deficits by the fourth quarter of 1996.
11
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1996 1995 1996 1995
--------- ---------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Property operations, development and
management activities
Rental revenues $ 30,780 $ 26,833 $ 60,052 $ 53,731
Property operating costs (12,074) (9,956) (23,359) (18,848)
Distributions from joint ventures, net 3,704 1,174 3,704 2,637
Management and development fee income 410 576 813 983
Gain on sale of development properties 6,568 - 6,568 -
-------- -------- -------- --------
29,388 18,627 47,778 38,503
-------- -------- -------- --------
General and administrative expenses (1,997) (2,570) (4,057) (6,439)
-------- -------- -------- --------
Fixed charges - interest and dividends
Total interest costs, net of
interest income (10,785) (11,460) (21,580) (22,362)
Preferred dividends (5,953) (5,953) (11,906) (11,906)
Add back non-cash components of
interest expense 930 748 1,746 1,456
-------- -------- -------- --------
(15,808) (16,665) (31,740) (32,812)
-------- -------- -------- --------
Leasing costs
Depreciation on tenant improvements (1,636) (1,670) (3,490) (3,540)
Amortization of lease commissions (774) (617) (1,409) (1,263)
-------- -------- -------- --------
(2,410) (2,287) (4,899) (4,803)
-------- -------- -------- --------
Income (deficit) from property
operations, development and management
activities after adjustment for general
and administrative expense, fixed
charges and leasing costs $ 9,173 $ (2,895) $ 7,082 $ (5,551)
======== ======== ======== ========
</TABLE>
Cash flow from operating activities
Cash provided by operating activities reflected in the statement of cash
flows in the first six months of 1996 and 1995 was $51.1 million and $25.8
million. The increase in 1996 is primarily attributable to higher cash
generated from land sales and lower general and administrative costs partially
offset by the increase in interest expense.
Cash generated from sales of non-strategic land was $17.4 million and $8.8
million in the first six months of 1996 and 1995. In addition, cash from sales
of development properties was $20.4 million during the first six months of 1996.
Cash paid for interest, net of amount capitalized, increased from $11.4
million for the six month period in 1995 to $20.3 million for 1996. This
increase resulted from the discontinuance of capitalizing interest on Mission
Bay and certain other projects as described above. It is anticipated that the
level of sales (and the related gain or loss) realized by the Company will vary
significantly from quarter to quarter, depending on market conditions, book
value of assets sold and other factors.
12
<PAGE>
Cash flow from investing activities
Net cash flow used for investing activities reflected in the statement of
cash flows decreased $27.9 million from 1995 to 1996. The decrease in 1996 is
primarily attributable to the fact that 1995 includes a conversion of short-term
commercial paper and government securities into cash and cash equivalents of
$35.1 million and an increase in capital expenditures of $1.4 million. This was
partially offset by $7.5 million in proceeds from the sale of investment and
other properties and a $1.1 million increase in net distributions from joint
ventures. Capital expenditures totaling $28.8 million and $27.4 million in the
first six months of 1996 and 1995 include capitalized interest and property
taxes totaling $.6 million and $12.6 million. As of June 30, 1996, the Company
has 1,562,000 square feet of development under construction and 639,000 square
feet under contract, but not yet started.
Cash flow from financing activities
Net cash used for financing activities reflected in the statement of cash
flows for the first six months of 1996 was $43.3 million compared to $14.1
million for the 1995 period. This net increase of $29.2 million is the result
of principal reductions on existing borrowings above the recurring amortization
repayments in accordance with the corporate goal of reducing debt, offset by
borrowings attributable to increased development activity.
At June 30, 1996, the Company had total outstanding debt of $463.5 million,
of which 76% was non-recourse to the Company and secured by the underlying
property, 22% was recourse to the Company and also secured by underlying
property, and 2% was unsecured. During the next twelve months, $112.2 million of
debt matures consisting of construction financing, term loans or first mortgage
loans. All such debt is expected to be extended, refinanced, converted into
permanent loans or repaid.
Capital Commitments
At June 30, 1996, the Company had $14.5 million in capital expenditure
commitments.
Cash balances and available borrowings
At June 30, 1996, cash and cash equivalents totaled $17.9 million, $7.5
million of which is on deposit with a title company (see Note 4 to Financial
Statements). On July 25, 1996, the Company executed two new secured term loan
lines of credit totaling $44 million. The Company is also in the process of
negotiating a single, larger credit line that will allow more flexible and
simplified construction funding, liquidity funding and administration than the
currently existing five credit lines. It is expected that this credit line will
be in place by the end of 1996. Consequently, on July 1 and July 10, 1996 the
Company did not renew the revolving portion of two of its construction
facilities available for new projects. Funds are available for the completion of
existing development projects. At June 30, 1996, the Company had available $91.6
million under its construction facilities ($18.3 million after July 10, 1996),
$.5 million under its secured term loan facilities ($44.5 million after July 25,
1996), and $48 million under its unsecured revolving facility.
The Company's short-term liquidity requirements will essentially be
provided from three sources: operating income from recurring sources, proceeds
from land sales, and development and management fee income. As indicated above,
the Company has available a $48 million unsecured revolving line of credit and
various construction lines of credit. Additionally, the Company will utilize
third party borrowing for development projects to the extent practical.
On July 29, 1996 the Company announced a call for partial redemption of its
$3.75 Series A Cumulative Convertible Preferred Stock. A total of 950,000 shares
of the Series A Preferred Stock have been called out of the 3,449,999 shares
outstanding as of July 15, 1996. The date fixed for redemption is September 13,
1996. The redemption price will be $52.625 per share of Preferred Stock plus
accrued and unpaid dividends to the redemption date. Maximum cash needed to fund
a full redemption of all shares called is approximately $50 million. The Company
would fund this requirement from a combination of the following sources; (1)
monies available, as noted above, from its $44.5 million secured term loan
facilities; (2) cash proceeds from
13
<PAGE>
recent non-strategic land sales, and; (3) monies available, as noted above, from
the $48 million unsecured line of credit.
Long-term liquidity requirements will be met from the sources indicated
above, with anticipated improved operating results from recurring sources due to
planned debt reductions, as discussed previously.
ENVIRONMENTAL MATTERS
Many of the Company's properties are in urban and industrial areas and may
have been leased to or previously owned by commercial and industrial tenants
which may have discharged hazardous materials. The Company incurs on-going
environmental remediation costs, including clean-up costs, consulting fees for
environmental studies and investigations, monitoring costs, and legal costs
relating to clean-up, litigation defense and the pursuit of responsible third
parties. Costs incurred in connection with operating properties and properties
previously sold are expensed. At June 30, 1996, management has provided a
reserve of $13.7 million for such costs. These costs are expected to be
incurred over an estimated ten-year period, with a substantial portion incurred
over the next five years.
Costs incurred for properties to be sold are deferred and will be charged
to cost of sales when the properties are sold. Costs relating to undeveloped
properties are capitalized as part of development costs. At June 30, 1996, the
Company's estimate of its potential liability for identified environmental costs
relating to properties to be developed or sold ranged from $14 million to $40
million. These costs generally will be capitalized as they are incurred, over
the course of the estimated development period of approximately 20 years.
Environmental costs capitalized for the first six months of 1996 and 1995
totaled $1.1 million and $.7 million.
While the Company or outside consultants have evaluated the environmental
liabilities associated with most of the Company's properties, any evaluation
necessarily is based upon then prevailing law and identified site conditions.
The Company monitors its exposure to environmental costs on a regular basis.
Although an unexpected event could have a material impact on the results of
operations for any period, the Company does not believe that such costs for
identified liabilities will have a material adverse effect on its financial
condition.
RISK FACTORS
It is the Company's belief that this quarterly report on Form 10-Q may
contain statements which, to the extent that they are not recitations of
historical fact, may constitute "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934. All forward looking statements involve risks and
uncertainties. Any forward looking statements in this document are intended to
be subject to the safe harbor protection provided by Section 27A and 21E.
Factors that most typically impact the Company's operating results include (i)
changes in general economic conditions in regions in which the Company's
projects are located, (ii) the availability and cost of capital and project
financing, (iii) the receipt of government approvals and entitlements for
development projects, (iv) land and building material costs, (v) supply and
demand for office, industrial and residential space, (vi) competition from other
property managers, (vii) liability for environmental remediation at the
Company's properties, (viii) ability to sell non-strategic land assets, and (ix)
ability to increase development fees. For discussions identifying other
important factors that could cause actual results to differ materially from
those anticipated in the forward looking statements, see the Company's
Securities and Exchange Commission filings; "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of this Form 10-Q and
the Company's Form 10-K/A for the year ended December 31, 1995, and Note 9 to
the Consolidated Financial Statements included in Form 10-Q and Note 15 to the
Consolidated Financial Statements included in the Company's Form 10-K/A for the
year ended December 31, 1995.
14
<PAGE>
ADDITIONAL INFORMATION
The Company believes that the following additional information is helpful
in understanding its property operations, development and sales activities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
1996 1995 1996 1995
---------- -------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
PROPERTY OPERATING INCOME BY PROPERTY TYPE/(1)/
(IN THOUSANDS)
Income producing properties
Industrial buildings $10,206 $10,032 $20,443 $20,275
Office buildings 4,273 3,481 8,622 8,414
Retail buildings 2,364 2,091 4,455 4,144
Land development 774 456 1,568 797
Ground leases 1,836 1,484 3,411 2,864
------- ------- ------- -------
19,453 17,544 38,499 36,494
------- ------- ------- -------
Land holding costs
Developable properties (156) 2 (575) (67)
Natural resources (134) (207) (319) (490)
Properties held for sale (457) (462) (912) (1,054)
------- ------- ------- -------
(747) (667) (1,806) (1,611)
------- ------- ------- -------
Total $18,706 $16,877 $36,693 $34,883
======= ======= ======= =======
</TABLE>
(/1)/ Represents rental revenue less property operating costs.
<TABLE>
<CAPTION>
NET DEBT
DEBT NEW (REDUCTION) END OF
DEBT REDUCTION (IN MILLIONS) REPAYMENT BORROWINGS ADDITION PERIOD DEBT
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Debt at January 1, 1995 $530.6
1995 $ 68.5 $34.0 $(34.5) 496.1
First quarter 1996 8.9 3.9 (5.0) 491.1
Second quarter 1996 37.4 9.8 (27.6) 463.5
------- ----- ------
Program to date $ 114.8 $47.7 $(67.1)
======= ===== ======
</TABLE>
15
<PAGE>
Additional Information -- continued
<TABLE>
<CAPTION>
AS OF OR FOR THE
--------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
---------- ---------- ------------ ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
DEVELOPMENT (IN SQUARE FEET)
Construction and completion
Under construction, beginning of period 985,425 604,854 640,028 337,136
Construction starts 777,711 - 1,123,108* 267,718
Completion (201,000) (37,000) (201,000) (37,000)
---------- -------- ---------- --------
Under construction, end of period 1,562,136 567,854 1,562,136 567,854
========== ======== ========== ========
Development under contract, not started 639,000 - 639,000* -
========== ======== ========== ========
* 1996 Development (signed leases and construction
starts) 1,762,108
==========
SALES (IN THOUSANDS)
Closed sales
Non-strategic land $ 16,646 $ 3,507 $ 22,866 $ 11,722
Development properties 20,678 - 20,678 -
Ground leases 7,500 - 7,500 -
---------- ------- ---------- --------
Total $ 44,824 $ 3,507 $ 51,044 $ 11,722
========== ======= ========== ========
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
BACKLOG - SALES UNDER CONTRACT
Non-strategic land $32,417 $23,585
Developed properties /(1)/ 11,678 13,600
Ground leases - 7,500
------- -------
Total $44,095 $44,685
======= =======
</TABLE>
/(1)/ Represents a 343,000 square foot industrial building currently under
construction.
16
<PAGE>
ADDITIONAL INFORMATION -- CONTINUED
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
BUILDINGS OWNED AND LEASING STATISTICS
(IN THOUSANDS)
(AT QUARTER-END)
Industrial buildings
Square feet owned 11,625 11,022
Square feet leased 11,288 10,549
Percent leased 97.1% 95.7%
Office buildings
Square feet owned 1,682 1,687
Square feet leased 1,532 1,537
Percent leased 91.1% 91.1%
Retail buildings
Square feet owned 928 840
Square feet leased 868 742
Percent leased 93.5% 88.3%
Land development /(1)/
Square feet owned 1,240 100
Square feet leased 1,093 100
Percent leased 88.1% 100.0%
Total
Square feet owned 15,476 13,649
Square feet leased 14,781 12,928
Percent leased 95.5% 94.7%
</TABLE>
/(1)/ Increase due to the inclusion of Mission Bay which was previously
excluded due to capitalization of revenue and expenses.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 22, 1996,
stockholders voted with respect to the election of directors and the 1996
Performance Award Plan:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED
------------ ---------- ----------
<S> <C> <C> <C>
1. Election of Directors
---------------------
Joseph F. Alibrandi 68,618,473 - 408,297
Daryl J. Carter 68,607,310 - 419,460
Christine Garvey 68,600,194 - 426,576
Nelson C. Rising 68,635,561 - 391,209
Joseph R. Seiger 68,634,309 - 392,461
Jacqueline R. Slater 68,634,557 - 392,213
Thomas M. Steinberg 64,316,545 - 4,710,225
Tom C. Stickel 68,632,516 - 394,254
Beverly Benedict Thomas 68,609,784 - 416,986
2. 1996 Performance Award Plan 51,038,407 9,206,873 957,465
---------------------------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. 10.43 1996 Performance Award Plan
Exhibit No. 27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K filed July 31, 1996; Report filed under Item 5
to describe partial redemption of the Company's Series A Cumulative Convertible
Preferred Stock.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Catellus
Development Corporation has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CATELLUS DEVELOPMENT CORPORATION
Date: 8/14/96 By: /s/ Stephen P. Wallace
------- ---------------------------
Stephen P. Wallace
Senior Vice President and
Chief Financial Officer
Date: 8/14/96 By: /s/ Paul A. Lockie
------- --------------------------
Paul A. Lockie
Vice President and Controller
19
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.43 1996 Performance Award Plan
27 Financial Data Schedule
(Article 5 of Regulation S-X)
</TABLE>
20
<PAGE>
EXHIBIT 10.43
CATELLUS DEVELOPMENT CORPORATION
1996 Performance Award Plan
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
SECTION 1. Purpose................................................. 1
SECTION 2. Definitions; Rules of Construction...................... 1
SECTION 3. Eligibility............................................. 4
SECTION 4. Awards.................................................. 4
SECTION 5. Shares of Stock and Share Units Available Under Plan.... 7
SECTION 6. Award Agreements........................................ 9
SECTION 7. Adjustments; Change of Control; Acquisitions............ 11
SECTION 8. Administration.......................................... 15
SECTION 9. Non-Employee Director Options........................... 16
SECTION 10. Amendment and Termination of this Plan.................. 18
SECTION 11. Miscellaneous........................................... 18
</TABLE>
i
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
1996 PERFORMANCE AWARD PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit the Corporation's stockholders by
encouraging high levels of performance by individuals who contribute to the
success of the Corporation and its Subsidiaries and to enable the Corporation
and its Subsidiaries to attract, motivate, retain and reward talented and
experienced individuals. This Plan is also intended to enable the Corporation to
attract, motivate and retain experienced and knowledgeable independent directors
through the benefits provided under Section 9.
SECTION 2. Definitions; Rules of Construction.
(a) Defined Terms. The terms defined in this Section shall have the following
meanings for purposes of this Plan:
"Award" means an award granted pursuant to Section 4 or Section 9.
"Award Agreement" means an agreement described in Section 6 or Section 9 entered
into between the Corporation and a Participant, setting forth the terms and
conditions of an Award granted to a Participant.
"Beneficiary" means a person or persons (including a trust or trusts) validly
designated by a Participant or, in the absence of a valid designation, entitled
by will or the laws of descent and distribution, to receive the benefits
specified in the Award Agreement and under this Plan in the event of a
Participant's death.
"Board of Directors" or "Board" means the Board of Directors of the Corporation.
"Cash-Based Awards" means Awards, as described in Section 4(a)(5), that, if
paid, must be paid in cash and that are neither denominated in nor have a value
derived from the value of, nor an exercise or conversion privilege at a price
related to, shares of Stock.
"Change of Control" is defined in Section 7(c).
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means the Committee described in Section 8.
"Corporation" means Catellus Development Corporation.
1
<PAGE>
"Employee" means any employee (whether or not also a director) of the
Corporation or any of its Subsidiaries, but excludes, in the case of an
Incentive Stock Option, an Employee of any Subsidiary that is not a "subsidiary
corporation" of the Corporation as defined in Code Section 424(f).
"EPS" means earnings per common share on a fully diluted basis determined by
dividing (i) net earnings, less dividends on preferred stock of the Corporation
by (ii) the weighted average number of common shares and common share
equivalents outstanding.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time.
"Executive Officer" means executive officer as defined in Rule 3b-7 under the
Exchange Act, provided that, if the Board has designated the executive officers
of the Corporation for purposes of reporting under the Exchange Act, the
designation shall be conclusive for purposes of this Plan.
"Fair Market Value" means the average of the closing prices of the relevant
security for the five trading days immediately preceding the applicable date as
reported on the composite tape of New York Stock Exchange issues (or, if the
security is not so listed, the principal national stock exchange on which the
security is then listed or, if the security is not listed on any national stock
exchange, such other reporting system as shall be selected by the Committee).
The Committee shall determine the Fair Market Value of any security that is not
publicly traded using criteria as it shall determine, in its sole discretion, to
be appropriate for the valuation.
"For Cause" means (i) the continued failure by the Participant to substantially
perform his or her duties with the Corporation or a Subsidiary (other than any
such failure resulting from his or her incapacity due to physical or mental
illness), or (ii) the engaging by the Participant in conduct which is materially
injurious to the Corporation, monetarily or otherwise, in either case as
determined by the Committee.
"Insider" means any person who is subject to Section 16(b) of the Exchange Act.
"Net Cash Flow" means cash and cash equivalents derived from either (i) net cash
flow from operations or (ii) net cash flow from operations, financings and
investing activities, as determined by the Committee at the time an Award is
granted.
"Non-Employee Director" means a member of the Board of Directors of the
Corporation who is not also an Employee.
"Officer" means any officer (whether or not also an employee) of the Corporation
or any of its Subsidiaries, but excludes, in the case of an Incentive Stock
Option, an Officer of any Subsidiary that is not a "subsidiary corporation" of
the Corporation as defined in Code Section 424(F).
"Option" means a Nonqualified Stock Option or an Incentive Stock Option, as
described in Section 4(a)(1) or (2).
2
<PAGE>
"Participant" means any Employee, any Officer or any Non-Employee Director who
is granted an Award pursuant to this Plan that remains outstanding.
"Performance-Based Awards" is defined in Section 4(b).
"Performance Goal" means EPS or ROE or Net Cash Flow or Total Stockholder
Return, and "Performance Goals" means any combination thereof.
"QDRO" means a qualified domestic relations order as defined in Section 414(p)
of the Code or Title I, Section 206(d)(3) of the Employee Retirement Income
Security Act of 1974, as amended from time to time (to the same extent as if
this Plan was subject thereto), or the applicable rules thereunder.
"ROE" means consolidated net income of the Corporation (less preferred
dividends) divided by the average consolidated common stockholders equity.
"Rule 16b-3" means Rule 16b-3 under Section 16 of the Exchange Act, as amended
from time to time.
"Share-Based Awards" means Awards, as described in Sections 4(a)(1) through (4),
that are payable or denominated in or have a value derived from the value of, or
an exercise or conversion privilege at a price related to, shares of Stock.
"Share Units" means the number of units under a Share-Based Award that is
payable solely in cash or is actually paid in cash, determined by reference to
the number of shares of Stock by which the Share-Based Award is measured.
"Stock" means shares of Common Stock of the Corporation, par value $.01 per
share, subject to adjustments made under Section 7 or by operation of law.
"Stock Trading Price" means the average of the closing prices of the relevant
security for 30 consecutive days as reported on the composite tape of New York
Stock Exchange issues (or, if the security is not so listed, the principal
national stock exchange on which the security is then listed or, if the security
is not listed on any national stock exchange, such other reporting system as
shall be selected by the Committee) . The Committee shall determine the Stock
Trading Price of any security that is not publicly traded using criteria as it
shall determine, in its sole discretion, to be appropriate for the valuation.
"Subsidiary" means, as to any person, any corporation, association, partnership,
joint venture or other business entity of which 50% or more of the voting stock
or other equity interests (in the case of entities other than corporations) is
owned or controlled (directly or indirectly) by that entity, or by one or more
of the Subsidiaries of that entity, or by a combination thereof.
"Total Stockholder Return" means, with respect to the Corporation or other
entities (if measured on a relative basis), the (i) change in the market price
of its common stock (as
3
<PAGE>
quoted in the principal market on which it is traded as of the beginning and
ending of the period) plus dividends and other distributions paid, divided by
(ii) the beginning quoted market price, all of which is adjusted for any changes
in equity structure including, but not limited to, stock splits and stock
dividends.
(b) Financial and Accounting Terms. Except as otherwise expressly provided or
the context otherwise requires, financial and accounting terms, including terms
defined herein as Performance Goals, are used as defined for purposes of, and
shall be determined in accordance with, generally accepted accounting principles
and as derived from the audited consolidated financial statements of the
Corporation, prepared in the ordinary course of business.
(c) Rules of Construction. For purposes of this Plan and the Award Agreements,
unless otherwise expressly provided or the context otherwise requires, the terms
defined in this Plan include the plural and the singular, and pronouns of either
gender or neuter shall include, as appropriate, the other pronoun forms.
SECTION 3. Eligibility.
Any one or more Awards may be granted to any Employee or any Officer who is
designated by the Committee to receive an Award. Non-Employee Directors shall
not be eligible to receive any Awards except for the Nonqualified Stock Options
granted automatically without action of the Committee under the provisions of
Section 9.
SECTION 4. Awards.
(a) Type of Awards. The Committee may grant any of the following types of
Awards, either singly, in tandem or in combination with other Awards:
(1) Nonqualified Stock Options. A Nonqualified Stock Option is an Award in
the form of an option to purchase Stock that is not intended to comply with the
requirements of Code Section 422. Unless the Committee provides otherwise, and
such provision is reflected in the Award Agreement, the exercise price of each
Nonqualified Stock Option granted under this Plan shall be not less than the
Fair Market Value of the Stock on the date that the Option is granted. All
Nonqualified Stock Options granted at an exercise price not less than Fair
Market Value on the date of grant shall be treated as Performance-Based Awards
subject to the applicable restrictions of Section 4(b).
(2) Incentive Stock Options. An Incentive Stock Option is an Award in the
form of an option to purchase Stock that is intended to comply with the
requirements of Code Section 422 or any successor section of the Code. The
exercise price of each Incentive Stock Option granted under this Plan shall be
not less than the Fair Market Value of the Stock on the date that the Option is
granted; provided, however, that the exercise price of any Incentive Stock
Option granted to a Participant who owns more than 10% of the total combined
voting power of all classes of stock of the Corporation or any Subsidiary shall
not be less than 110% of such Fair Market Value. In addition, the Committee
shall include such
4
<PAGE>
other terms of any Incentive Stock Option as it deems necessary or desirable to
qualify the Option as an incentive stock option under the provisions of Section
422 of the Code. To the extent that the aggregate "fair market value" of Stock
with respect to which one or more incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000, taking into
account both Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Corporation or
of other entities referenced in Code Section 422(d)(1), the Options shall be
treated as Nonqualified Stock Options. All Incentive Stock Options granted at an
exercise price not less than Fair Market Value on the date of grant shall be
treated as Performance-Based Awards subject to the applicable restrictions of
Section 4(b).
(3) Stock Appreciation Rights. A Stock Appreciation Right is an Award in
the form of a right to receive, upon surrender of the right, but without other
payment, an amount based on appreciation in the value of Stock over a base price
established in the Award, payable in cash, Stock or such other form or
combination of forms of payout, at times and upon conditions (which may include
a Change of Control), as may be approved by the Committee. Unless the Committee
provides otherwise, and such provision is reflected in the Award Agreement, the
minimum base price of a Stock Appreciation Right granted under this Plan shall
be not less than the lowest of the Fair Market Value of the underlying Stock on
the date the Stock Appreciation Right is granted or, in the case of a Stock
Appreciation Right related to an Option (whether already outstanding or
concurrently granted), the exercise price of the related Option. All Stock
Appreciation Rights granted at a base price not less than Fair Market Value on
the date of grant shall be treated as Performance-Based Awards subject to the
applicable restrictions under Section 4(b).
(4) Other Share-Based Awards. The Committee may from time to time grant
Awards under this Plan that provide Participants with Stock or the right to
purchase Stock, or provide other incentive Awards (including, but not limited
to, phantom stock or units, performance stock or units, bonus stock, dividend
equivalent units, or similar securities or rights) that have a value derived
from the value of, or an exercise or conversion privilege at a price related to,
or that are otherwise payable in shares of Stock. The Awards shall be in a form
determined by the Committee, provided that the Awards shall not be inconsistent
with the other express terms of this Plan. Awards under this Section 4(a)(4) to
Executive Officers that are either granted or become vested, exercisable or
payable based on attainment of one or more of the Performance Goals shall only
be granted as Performance-Based Awards under Section 4(b). Restricted stock may
not be issued under this Plan.
(5) Cash-Based Awards. Cash-Based Awards are Awards that provide
Participants with the opportunity to earn a cash payment based upon the level of
performance of the Corporation relative to one or more Performance Goals
established by the Committee for an award cycle of more than one but not more
than five years. For each award cycle, the Committee shall determine the size of
the Awards, the Performance Goals, the performance targets as to each of the
Performance Goals, the level or levels of achievement necessary for award
payments and the weighting of the Performance Goals, if more than one
Performance Goal is applicable. Cash-Based Awards to Executive Officers that are
either granted or
5
<PAGE>
become vested, exercisable or payable based on attainment of one or more
Performance Goals shall only be granted as Performance-Based Awards under
Section 4(b).
(b) Special Performance-Based Awards. Without limiting the generality of the
foregoing, any of the type of Awards listed in Section 4(a) may be granted as
awards that satisfy the requirements for "performance-based compensation" within
the meaning of Code Section 162(m) ("Performance-Based Awards"), the grant,
vesting, exercisability or payment of which depends on the degree of achievement
of the Performance Goals relative to preestablished targeted levels for the
Corporation on a consolidated basis. Notwithstanding anything contained in this
Section 4(b) to the contrary, any Option or Stock Appreciation Right with an
exercise price or a base price not less than Fair Market Value on the date of
grant shall be subject only to the requirements of clauses (1) and (3)(A) below
in order for such Awards to satisfy the requirements for Performance-Based
Awards under this Section 4(b) (with such Awards hereinafter referred to as a
"Qualifying Option" or a "Qualifying Stock Appreciation Right", respectively).
With the exception of any Qualifying Option or Qualifying Stock Appreciation
Right, an Award that is intended to satisfy the requirements of this Section
4(b) shall be designated as a Performance-Based Award at the time of grant.
(1) Eligible Class. The eligible class of persons for Awards under this
Section 4(b) shall be all Employees and Officers.
(2) Performance Goals. The performance goals for any Awards under this
Section 4(b) (other than Qualifying Options and Qualifying Stock Appreciation
Rights) shall be, on an absolute or relative basis, one or more of the
Performance Goals. The specific performance target(s) with respect to
Performance Goal(s) must be established by the Committee in advance of the
deadlines applicable under Code Section 162(m) and while the performance
relating to the Performance Goal(s) remains substantially uncertain.
(3) Individual Limits.
(A) Share-Based Awards. The maximum number of shares of Stock or Share
Units that are issuable under Options, Stock Appreciation Rights or other Share-
Based Awards (described under Section 4(a)(4)) that are granted as Performance-
Based Awards during any calendar year to any Participant under this Plan shall
not exceed 1,000,000, either individually or in the aggregate, subject to
adjustment as provided in Section 7. Awards that are cancelled during the year
shall be counted against this limit to the extent required by Code Section
162(m).
(B) Cash-Based Awards. The aggregate amount of compensation to be
paid to any Participant under this Plan in respect of Cash-Based Awards that are
granted during any calendar year as Performance-Based Awards shall not exceed
$2,000,000.
(4) Committee Certification. Before any Performance-Based Award under this
Section 4(b) (other than Qualifying Options and Qualifying Stock Appreciation
Rights) is paid, the Committee must certify in writing by resolution or
otherwise) that the applicable Performance Goal(s) and any other material terms
of the Performance-Based Award were
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satisfied; provided, however, that a Performance-Based Award may be paid without
regard to the satisfaction of the applicable Performance Goal in the event of a
Change of Control as provided in Section 7(b).
(5) Terms and Conditions of Awards; Committee Discretion to Reduce
Performance Awards. The Committee shall have discretion to determine the
conditions, restrictions or other limitations, in accordance with the terms of
this Plan and Code Section 162(m), on the payment of individual Performance-
Based Awards under this Section 4(b). To the extent set forth in an Award
Agreement, the Committee may reserve the right to reduce the amount payable in
accordance with any standards or on any other basis (including the Committee's
discretion), as the Committee may impose.
(6) Adjustments for Material Changes. In the event of (i) a change in
corporate capitalization, a corporate transaction or a complete or partial
corporate liquidation, or (ii) any extraordinary gain or loss or other event
that is treated for accounting purposes as an extraordinary item under generally
accepted accounting principles, or (iii) any material change in accounting
policies or practices affecting the Corporation and/or the Performance Goals or
targets, then, to the extent any of the foregoing events (or a material effect
thereof) was not anticipated at the time the targets were set, the Committee may
make adjustments to the Performance Goals and/or targets, applied as of the date
of the event, and based solely on objective criteria, so as to neutralize, in
the Committee's judgment, the effect of the event on the applicable Performance-
Based Award.
(7) Interpretation. Except as specifically provided in this Section 4(b),
the provisions of this Section 4(b) shall be interpreted and administered by
the Committee in a manner consistent with the requirements for exemption of
Performance-Based Awards granted to Executive Officers as "performance-based
compensation" under Code Section 162(m) and regulations and other
interpretations issued by the Internal Revenue Service thereunder.
(c) Maximum Term of Awards. No Award that contemplates exercise or conversion
may be exercised or converted to any extent, and no other Award that defers
vesting, shall remain outstanding and unexercised, unconverted or unvested more
than ten years after the date the Award was initially granted.
SECTION 5. Shares of Stock and Share Units Available Under Plan.
(a) Aggregate Share Limit. The maximum number of shares of Stock that may be
issued pursuant to all Share-Based Awards (including Incentive Stock Options) is
4,000,000, subject to adjustment as provided in this Section 5 or Section 7.
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(b) Aggregate Share Unit Limit. The maximum number of Share Units that may be
paid pursuant to all Share-Based Awards is 4,000,000, subject to adjustment as
provided in this Section 5 or Section 7. Notwithstanding the foregoing, if a
Share-Based Award paid or payable in Share Units satisfies the requirements for
an exclusion from the definition of a derivative security under Rule 16a-1 (c)
that does not require that the Award be made under a Rule 16b-3 plan, the Share
Units that may be paid under the Award shall not be counted against the Share
Unit limit of this Section 5(b).
(c) Reissue of Shares and Share Units. Any unexercised, unconverted or
undistributed portion of any expired, cancelled, terminated or forfeited Award,
or any alternative form of consideration under an Award that is not paid in
connection with the settlement of an Award or any portion of an Award, shall
again be available for Award under Section 5(a) or 5(b), as applicable, whether
or not the Participant has received benefits of ownership (such as dividends or
dividend equivalents or voting rights) during the period in which the
Participant's ownership was restricted or otherwise not vested. Shares of Stock
that are issued pursuant to Awards and subsequently reacquired by the
Corporation pursuant to the terms and conditions of the Awards shall be
available for reissuance under the Plan. If the Corporation withholds shares of
Stock pursuant to Section 5(g), the number of shares that would have been
deliverable with respect to an Award but that are withheld may in effect not be
issued but the aggregate number of shares issuable with respect to the
applicable Award shall be reduced by the number of shares withheld and such
shares shall be available for additional Awards under this Plan.
(d) Interpretive Issues. Additional rules for determining the number of shares
of Stock or Share Units authorized under this Plan may be adopted by the
Committee, as it deems necessary or appropriate.
(e) Treasury Shares; No Fractional Shares. The Stock which may be issued
(which term includes Stock reissued or otherwise delivered) pursuant to an Award
under this Plan may be treasury or authorized but unissued Stock or Stock
acquired, subsequently or in anticipation of a transaction under this Plan, in
the open market or in privately negotiated transactions to satisfy the
requirements of this Plan. No fractional shares shall be issued but fractional
interests may be accumulated. The Committee, however, may determine that cash,
other securities, or other property will be paid or transferred in lieu of any
fractional share interests.
(f) Consideration. The Stock issued under this Plan may be issued (subject to
Section 11(d) for any lawful form of consideration, the value of which equals
the par value of the Stock or such greater or lesser value as the Committee,
consistent with Sections 11(d), 4(a)(1), 4(a)(2) and 4(a)(3), may require.
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(g) Purchase or Exercise Price; Withholding. The exercise or purchase price
(if any) of the Stock issuable pursuant to any Award and any withholding
obligation under applicable tax laws shall be paid in cash or, subject to the
Committee's express authorization and the restrictions, conditions and
procedures the Committee may impose, any one or combination of (i) cash, (ii) a
check payable to the order of the Corporation, (iii) the delivery of shares of
Stock, provided that any such shares used in payment shall have been owned by
the Participant at least six months prior to the date of exercise, (iv) a
reduction in the amount of Stock or other amounts otherwise issuable or payable
pursuant to such Award, (v) notice and third party payment in such manner as may
be authorized by the Committee, or (vi) the delivery of a promissory note, or
other obligation for the future payment in money, the terms and conditions of
which shall be determined (subject to Section 11(d) by the Committee. In the
case of a payment by the means described in clause (iii) or (iv) above, the
Stock to be so delivered or offset shall be determined by reference to the Fair
Market Value of the Stock on the date as of which the payment or offset is made.
(h) Cashless Exercise. The Committee may permit the exercise of the Award and
payment of any applicable withholding tax in respect of an Award by delivery of
written notice, subject to the Corporation's receipt of a third party payment in
full in cash for the exercise price and the applicable withholding prior to
issuance of Stock, in the manner and subject to the procedures as may be
established by the Committee.
SECTION 6. Award Agreements.
Each Award under this Plan shall be evidenced by an Award Agreement in a form
approved by the Committee setting forth, in the case of Share-Based Awards, the
number of shares of Stock or Share Units, as applicable, subject to the Award,
and the price (if any) and term of the Award and, in the case of Performance-
Based Awards, the applicable Performance Goals. The Award Agreement shall also
set forth (or incorporate by reference) other material terms and conditions
applicable to the Award as determined by the Committee consistent with the
limitations of this Plan.
(a) INCORPORATED Provisions. Award Agreements shall be subject to the terms of
this Plan and shall be deemed to include the following terms, unless the
Committee in the Award Agreement otherwise (consistent with applicable legal
considerations) provides:
(1) NONASSIGNABILITY: The Award shall not be assignable nor transferable,
except (i) by will or by the laws of descent and distribution, or (ii) pursuant
to a QDRO or any other exception to transfer restrictions expressly permitted by
the Committee and set forth in the Award Agreement (or an amendment thereto)
and, in the case of Awards intended to satisfy the conditions of Rule 16b-3,
permitted under Rule 16b-3 (or, in the case of Awards not intended to satisfy
the conditions of Rule 16b-3, as may be not inconsistent with the issue of
Awards under this Plan that do satisfy the conditions of Rule 16b-3) or (iii) in
the case of Awards constituting Incentive Stock Options, as permitted by the
Code. The restrictions on exercise and transfer shall not be deemed to prohibit,
to the extent permitted by the Committee, (a) transfers without consideration
for estate and financial planning purposes, notwithstanding that the inclusion
of such transfer authority may render the particular Awards
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ineligible for the benefits of Rule 16b-3, nor, (b) in the case of
Participants who are not Section 16 persons, transfers to such other persons or
in such other circumstances as the Committee may in the Award Agreement
expressly permit. During the lifetime of a Participant the Award shall be
exercised only by such Participant or by his or her guardian or legal
representative, except as expressly otherwise provided consistent with the
foregoing transfer restrictions. The designation of a Beneficiary hereunder
shall not constitute a transfer prohibited by the foregoing provisions.
(2) Rights as Stockholder: A Participant shall have no rights as a holder
of Stock with respect to any unissued securities covered by an Award until the
date the Participant becomes the holder of record of these securities. Except as
provided in Section 7, no adjustment or other provision shall be made for
dividends or other stockholder rights, except to the extent that the Award
Agreement provides for dividend equivalents or similar economic benefits.
(3) Withholding: The Participant shall be responsible for payment of any
taxes or similar charges required by law to be withheld from an Award or an
amount paid in satisfaction of an Award and these obligations shall be paid by
the Participant on or prior to the payment of the Award. In the case of an Award
payable in cash, the withholding obligation shall be satisfied by withholding
the applicable amount and paying the net amount in cash to the Participant. In
the case of an Award paid in shares of Stock, a Participant shall satisfy the
withholding obligation as provided in Section 5(g).
(4) Option Holding Period: Subject to the authority of the Committee under
Section 7, a minimum six-month period shall elapse between the date of initial
grant of any Option and the sale of the underlying shares of Stock, and the
Corporation may impose legend and other restrictions on the Stock issued on
exercise of the Options to enforce this requirement.
(b) Other Provisions. Award Agreements may include other terms and conditions
as the Committee shall approve including, but not limited to, the following:
(1) Termination of Employment: A provision describing the treatment of an
Award in the event of the retirement, disability, death or other termination of
a Participant's employment with or services to the Company, including any
provisions relating to the vesting, exercisability, forfeiture or cancellation
of the Award in these circumstances, subject, in the case of Performance-Based
Awards, to any applicable requirements for "performance-based compensation"
under Code Section 162(m).
(2) Vesting; Effect of Termination; Change of Control: Any other terms
consistent with the terms of this Plan as are necessary and appropriate to
effect the Award to the Participant including, but not limited to, the vesting
provisions, any requirements for continued employment, any other restrictions or
conditions (including performance requirements) of the Award, and the method by
which (consistent with Section 7) the restrictions or conditions lapse, and the
effect on the Award of a Change of Control.
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(3) Replacement and Substitution: Any provisions permitting or requiring
the surrender of outstanding Awards or securities held by the Participant in
whole or in part in order to exercise or realize rights under or as a condition
precedent to other Awards, or in exchange for the grant of new or amended Awards
under similar or different terms.
(4) Reloading. Any provisions for successive or replenished Awards
including, but not limited to, reload Options.
(5) Termination of Benefits. A provision that any and all unexercise&
Awards and all rights under this Plan of a Participant who received such Award
(or his or her designated Beneficiary or legal representative) and the exercise
or vesting thereof, shall be forfeited if, prior to the time of such exercise,
the Participant shall (i) be employed by a competitor of, or shall be engaged in
any activity in competition with, the Corporation without the Corporation's
consent, (ii) divulge without the Corporation's consent any secret or
confidential information belonging to the Corporation, (iii) engage in any other
activities which would constitute grounds for termination For Cause or (iv) be
terminated For Cause.
(c) Contract Rights, Forms and Signatures. Any obligation of the Corporation
to any Participant with respect to an Award shall be based solely upon
contractual obligations created by this Plan and an Award Agreement. No Award
shall be enforceable until the Award Agreement or a receipt has been signed by
the Participant and on behalf of the Corporation by an Executive Officer (other
than the recipient) or his or her delegate. By executing the Award Agreement or
receipt, a Participant shall be deemed to have accepted and consented to the
terms of this Plan and any action taken in good faith under this Plan by and
within the discretion of the Committee, the Board of Directors or their
delegates. Unless the Award Agreement otherwise expressly provides, there shall
be no third party beneficiaries of the obligations of the Corporation to the
Participant under the Award Agreement.
SECTION 7. Adjustments; Change of Control; Acquisitions.
(a) Adjustments. If there shall occur any recapitalization, stock split
(including a stock split in the form of a stock dividend), reverse stock split,
merger, combination, consolidation, or other reorganization or any extraordinary
dividend or other extraordinary distribution in respect of the Stock (whether in
the form of cash, Stock or other property), or any split-up, spin-off,
extraordinary redemption, or exchange of outstanding Stock, or there shall occur
any other similar corporate transaction or event in respect of the Stock, or a
sale of substantially all the assets of the Corporation as an entirety, then the
Committee shall, in the manner and to the extent, if any, as it deems
appropriate and equitable to the Participants and consistent with the terms of
this Plan, and taking into consideration the effect of the event on the holders
of the Stock:
(1) proportionately adjust any or all of
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(A) the number and type of shares of Stock and Share Units which
thereafter may be made the subject of Awards (including the specific maximum
numbers of shares of Stock or Share Units set forth elsewhere in this Plan),
(B) the number, amount and type of shares of Stock, other property,
Share Units or cash subject to any or all outstanding Awards,
(C) the grant, purchase or exercise price, or conversion ratio of any
or all outstanding Awards, or of the Stock, other property or Share Units
underlying the Awards,
(D) the securities, cash or other property deliverable upon exercise
or conversion of my or all outstanding Awards,
(E) subject to Section 4(b), the performance targets or standards
appropriate to any outstanding Performance-Based Awards, or
(F) any other terms as are affected by the event; or
(2) subject to any applicable limitations in the case of a transaction to
be accounted for as a pooling of interests under generally accepted accounting
principles, provide for
(A) an appropriate and proportionate cash settlement or distribution,
or
(B) the substitution or exchange of any or all outstanding Awards, or
the cash, securities or property deliverable on exercise, conversion or vesting
of the Awards.
Notwithstanding the foregoing, in the case of an Incentive Stock Option, no
adjustment shall be made which would cause this Plan to violate Section 424(a)
of the Code or any successor provisions thereto, without the written consent of
the Participant adversely affected thereby. The Committee may act prior to an
event described in this paragraph (a) (including at the time of an Award by
means of more specific provisions in the Award Agreement) if deemed necessary or
appropriate to permit the Participant to realize the benefits intended to be
conveyed by an Award in respect of the Stock in the case of an event described
in paragraph (a).
(b) Change of Control. The Committee may, in the Award Agreement, provide for
the effect of a Change of Control on an Award. Such provisions may include, but
are not limited to, any one or more of the following with respect to any or all
Awards: (i) the specific consequences of a Change of Control on the Awards; (ii)
a reservation of the Committee's right to determine in its discretion at any
time that there shall be full acceleration or no acceleration of benefits under
the Awards; (iii) that only certain or limited benefits under the Awards shall
be accelerated; (iv) that the Awards shall be accelerated for a limited time
only; or (v) that acceleration of the Awards shall be subject to additional
conditions precedent (such as a termination of employment following a Change of
Control).
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In addition to any action required or authorized by the terms of an Award, the
Committee may take any other action it deems appropriate to ensure the equitable
treatment of Participants in the event of or in anticipation of a Change of
Control including, but not limited to, any one or more of the following with
respect to any or all Awards: (i) the acceleration or extension of time periods
for purposes of exercising, vesting in, or realizing gain from, the Awards; (ii)
the waiver of conditions on the Awards that were imposed for the benefit of the
Corporation; (iii) provision for the cash settlement of the Awards for their
equivalent cash value, as determined by the Committee, as of the date of the
Change of Control; or (iv) such other modification or adjustment to the Awards
as the Committee deems appropriate to maintain and protect the rights and
interests of Participants upon or following the Change of Control. The Committee
also may accord any Participant a right to refuse any acceleration of
exercisability, vesting or benefits, whether pursuant to the Award Agreement or
otherwise, in such circumstances as the Committee may approve.
Notwithstanding the foregoing provisions of this Section 7(b) or any provision
in an Award Agreement to the contrary, (i) in no event shall the Committee be
deemed to have discretion to accelerate or not accelerate or make other changes
in or to any or all Awards, in respect of a transaction, if such action or
inaction would be inconsistent with or would otherwise frustrate the intended
accounting for a proposed transaction as a pooling of interests under generally
accepted accounting principles; and (ii) if the vesting of any Award to any
Insider is accelerated to a date that is less than six months after the date of
the Award, the Committee may prohibit a sale of the underlying Stock (other than
a sale by operation or law in exchange for or through conversion into other
securities) until the expiration of such six-month period, and the Corporation
may impose legend and other restrictions on the Stock to enforce this
prohibition.
(c) Change of Control Definition. For purposes of this Plan, a "Change of
Control" of the Corporation shall be deemed to have occurred upon the happening
of any of the following events:
(1) the acquisition or holding, other than in or as a result of a
transaction approved by the Continuing Directors (as defined in paragraph (ii)
below) of the Corporation, by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (an "Acquiror") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 25% or more of the combined voting power of the then
outstanding shares of Stock and other stock of the Corporation entitled to vote
generally in the election of directors, but excluding for this purpose:
(A) any such acquisition (or holding) by the California Public
Employees' Retirement System ("CalPERS"), which as of the date hereof holds
approximately 41% of the issued and outstanding Stock of the Corporation, or
while CalPERS is the beneficial owner of shares having a greater percentage of
such combined voting power than the shares held by the Acquiror;
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(B) any such acquisition (or holding) by the Corporation or any of its
Subsidiaries, or any employee benefit plan (or related trust) of the Corporation
or such Subsidiaries; or
(C) any such acquisition (or holding) by any corporation with respect
to which, following such acquisition, more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Stock and other voting
securities of the Corporation immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to such
acquisition, of the then outstanding shares of Stock of the Corporation and of
the combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors;
(2) individuals who, as of the date hereof constitute the Board (the
"Continuing Directors") cease for any reason to constitute at least a majority
of the Board, provided that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the stockholders of
the Corporation, was approved by a vote of at least a majority of the persons
then comprising the Continuing Directors shall be considered a Continuing
Director, but excluding, for this purpose, any such individual whose initial
election as a member of the Board is in connection with an actual or threatened
"election contest" relating to the election of the directors of the Corporation
(as such term is used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
(3) approval by the stockholders of the Corporation of (A) a
reorganization, merger or consolidation of the Corporation, with respect to
which in each case all or substantially all of the individuals and entities who
were the respective beneficial owners of the common stock or voting securities
of the Corporation immediately prior to such reorganization, merger or
consolidation will not, immediately following such reorganization, merger or
consolidation, beneficially own, directly and indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the corporation or other entity
resulting from such reorganization, merger or consolidation, or (B) a complete
liquidation or dissolution of the Corporation, or (C) the sale or other
disposition of all or substantially all of the assets of the Corporation.
(d) Business Acquisitions. Awards may be granted under this Plan on the terms
and conditions as the Committee considers appropriate, which may differ from
those otherwise required by this Plan, to the extent necessary to reflect a
substitution for or assumption of stock incentive awards held by employees of
other entities who become employees of the Corporation or a Subsidiary as the
result of a merger of the employing entity with, or the acquisition of the
property or stock of the employing entity by, the Corporation or a Subsidiary,
directly or indirectly.
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SECTION 8. Administration.
(a) Committee Authority and Structure. This Plan and all Awards granted under
this Plan shall be administered by the Compensation and Benefits Committee of
the Board or such other committee of the Board as may be designated by the Board
and constituted so as to permit this Plan to comply with the disinterested
administration requirements of Rule 16b-3 under the Exchange Act and the
"outside director" requirement of Code Section 162(m). The members of the
Committee shall be designated by the Board. A majority of the members of the
Committee (but not fewer than two) shall constitute a quorum. The vote of a
majority of a quorum or the unanimous written consent of the Committee shall
constitute action by the Committee.
(b) Selection and Grant. The Committee shall have the authority to determine
the Employees and Officers (if any) to whom Awards will be granted under this
Plan, the type of Award or Awards to be made, and the nature, amount, pricing,
timing, and other terms of Awards to be made to any one or more of these
individuals, and to establish the installments (if any) in which such Awards
shall become exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events of termination
or reversion of such Awards, subject to the terms of this Plan.
(c) Construction and Interpretation. The Committee shall have the power to
interpret and administer this Plan and Award Agreements, and to adopt, amend and
rescind related rules and procedures. All questions of interpretation and
determinations with respect to this Plan, the number of shares of Stock, Stock
Appreciation Rights, or units or other Awards granted, and the terms of any
Award Agreements, the adjustments required or permitted by Section 7, and other
determinations hereunder shall be made by the Committee and its determination
shall be final and conclusive upon all parties in interest. In the event of any
conflict between an Award Agreement and any non-discretionary provisions of this
Plan, the terms of this Plan shall govern.
(d) Express Authority (and Limitations on Authority) to Change Terms of
Awards. Without limiting the Committee's authority under other provisions of
this Plan (including Sections 7 and 10), but subject to any express limitations
of this Plan (including under Sections 7 and 10), the Committee shall have the
authority to accelerate the exercisability or vesting of an Award, to extend the
term or waive early termination provisions of an Award (subject to the maximum
ten-year term under Section 4(b)), to cancel, modify or waive the Corporation's
rights with respect to an Award or restrictive conditions of an Award (including
forfeiture conditions), to modify, discontinue, suspend, or terminate any or all
outstanding Awards held by Employees or Officers, with or without adjusting any
holding period or other terms of the Award, in any case in such circumstances as
the Committee deems appropriate. The Committee may not, however, reduce by
amendment the exercise or purchase price of an outstanding award.
(e) Rule 16b-3 Conditions; Bifurcation of Plan. It is the intent of the
Corporation that this Plan and Share-Based Awards hereunder satisfy and be
interpreted in a manner, that, in the case of Participants who are or may be
Insiders, satisfies any applicable requirements of
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Rule 16b-3, so that these persons will be entitled to the benefits of Rule 16b-3
or other exemptive rules under Section 16 under the Exchange Act and will not be
subjected to avoidable liability thereunder as to Awards intended to be entitled
to the benefits of Rule 16b-3. Notwithstanding anything to the contrary in this
Plan, the provisions of this Plan may at any time be bifurcated by the Board or
the Committee in any manner so that certain provisions of this Plan or any Award
Agreement intended (or required in order) to satisfy the applicable requirements
of Rule 16b-3 are only applicable to Insiders and to those Awards to Insiders
intended to satisfy the requirements of Rule 16b-3
(f) Delegation and Reliance. The Committee may delegate to the officers or
employees of the Corporation the authority to execute and deliver those
instruments and documents, to do all acts and things, and to take all other
steps deemed necessary, advisable or convenient for the effective administration
of this Plan in accordance with its terms and purpose, except that the Committee
may not delegate any discretionary authority to grant or amend an Award or with
respect to substantive decisions or functions regarding this Plan or Awards as
these relate to the material terms of Performance-Based Awards to Executive
Officers or to the timing, eligibility, pricing, amount or other material terms
of Awards to Insiders. In making any determination or in taking or not taking
any action under this Plan, the Board and the Committee may obtain and may rely
upon the advice of experts, including professional advisors to the Corporation.
No director, officer, employee or agent of the Corporation shall be liable for
any such action or determination taken or made or omitted in good faith.
(g) Exculpation and Indemnity. Neither the Corporation nor any member of the
Board of Directors or of the Committee, nor any other person participating in
any determination of any question under this Plan, or in the interpretation,
administration or application of this Plan, shall have any liability to any
person for any action taken or not taken in good faith under this Plan or for
the failure of an Award (or action in respect of an Award) to satisfy Code
requirements as to incentive stock options or to realize other intended tax
consequences, to qualify for exemption or relief under Rule 16b-3 or to comply
with any other law, compliance with which is not required on the part of the
Corporation.
SECTION 9. Non-Employee Director Options.
(a) Participation. Awards under this Section 9 shall be nondiscretionary,
shall be made only to Non-Employee Directors and shall be evidenced by Award
Agreements setting forth the terms and conditions in this Section 9 and in
Sections 6(a)(1), 6(a)(2), 6(a)(3), 6(a)(4) and 6(b)(5).
(b) Annual Option Grants.
(1) Initial Award. After approval of this Plan by the stockholders of the
Corporation, if any person who is not then an officer or employee of the Company
shall become a director of the Corporation, there shall be granted automatically
to such person (without any action by the Board or Committee) a Nonqualified
Stock Option (the date of grant of which shall be the date such person takes
office) to purchase 5,000 shares of Stock.
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(2) Subsequent Annual Awards. Immediately following the annual
stockholders meeting in each year during the term of this Plan there shall be
granted automatically (without any action by the Committee or the Board) a
nonqualified Stock Option (the date of grant of which shall be such date) to
each Non-Employee Director then continuing in office to purchase 5,000 shares of
Stock.
(3) Maximum Number of Shares. A Non-Employee Director shall not receive
more than one Nonqualified Stock Option under this Section 9 in any calendar
year.
(c) Option Price. The purchase price per share of the Stock covered by each
Option granted under this Section 9 shall be 100% of the Fair Market Value of
the Stock on the date of grant. The exercise or purchase price of the Stock
issuable pursuant to any Option granted under this Section and any withholding
obligation under applicable tax laws shall be paid in cash or any one or
combination of (i) cash, (ii) a check payable to the order of the Corporation,
(iii) the delivery of shares of Stock, provided that any such shares used in
payment shall have been owned by the Participant at least six months prior to
the date of exercise or (iv) notice and third party payment to the Corporation
prior to any issue of Stock and otherwise in accordance with all applicable
legal requirements in such manner as may be authorized by the Committee for all
Participants. In the case of a payment by the means described in clause (iii)
above, the Stock to be so delivered shall be determined by reference to the Fair
Market Value of the Stock on the date as of which the payment is made.
(d) Option Period and Exercisability. Each Option granted under this Section 9
and all rights or obligations thereunder shall expire ten years after the date
of grant and shall be subject to earlier termination as provided below. Each
Option granted under this Section 9 shall become exercisable as to 25% of the
Option shares when the Stock Trading Price of the Stock equals 125% or more of
the exercise price, as to 50% of the Option shares when the Stock Trading Price
of the Stock equals 150% or more of the exercise price, as to 75% of the Option
shares when the Stock Trading Price of the Stock equals 175% or more of the
exercise price, and as to the entire Option when the Stock Trading Price of the
Stock equals 200% or more of the exercise price. Notwithstanding the foregoing,
the entire Option shall become exercisable on the eighth anniversary of the date
of grant.
(e) Termination of Directorship. If a Non-Employee Director's services as a
member of the Board of Directors terminate by reason of death, disability (the
inability of the Non-Employee Director to continue to perform his or her duties
as determined by the Committee) or retirement, an Option granted pursuant to
this Section held by such Participant shall immediately become and shall remain
fully exercisable for one year after the date of such termination or until the
expiration of the stated term of such Option, whichever first occurs. If a Non-
Employee Director's services as a member of the Board of Directors terminate for
any other reason, any portion of an Option granted pursuant to this Section 9
which is not then exercisable shall terminate and any portion of such Option
which is then exercisable may be exercised for three months after the date of
such termination or until the expiration of the stated term whichever first
occurs.
17
<PAGE>
(f) Adjustments. Options granted under this Section 9 shall be subject to
adjustment as provided in Section 7, but only to the extent that (i) such
adjustment and the Committee's actions in respect thereof satisfy applicable
criteria under Rule 16b-3 in respect of the disinterested administration of this
Plan, (ii) such adjustment in the case of a Change of Control is effected
pursuant to the terms of a reorganization agreement approved by stockholders of
the Corporation, and (iii) such adjustment is consistent with adjustments to
Options held by persons other than Executive Officers or directors of the
Corporation.
(g) Acceleration Upon a Change of Control. Upon the occurrence of a Change of
Control, each Option granted under this Section 9 shall become and shall remain
fully exercisable for one year after the date of such Change of Control or until
the expiration of the stated term of such Option, whichever first occurs;
provided, however, that none of the Options granted under this Section 9 shall
be accelerated to a date that is less than six months after the date of grant of
such Option. To the extent that any Option granted under this Section 9 is not
exercised prior to (i) a dissolution of the Corporation or (ii) a merger or
other corporate event that the Corporation does not survive, and no provision is
(or consistent with the provisions of this Section 9 can be) made for the
assumption, conversion, substitution or exchange of the Option, the Option shall
terminate upon the occurrence of such event.
(h) Limitations on Amendments. The provisions of this Section 9 with respect
to the amount, purchase price and timing of Options and the eligibility
requirements shall not be amended more than once every six months (other than as
may be necessary to conform to any applicable changes in the Code or the rules
thereunder), unless such amendment would be consistent with the provisions of
Rule 16b-3(c)(2)(ii)(or any successor provision).
SECTION 10. Amendment and Termination of this Plan.
The Board of Directors may at any time amend, suspend or discontinue this Plan,
subject to any stockholder approval that may be required under applicable law.
The Committee may at any time alter or amend any or all Award Agreements under
this Plan in any manner that would be authorized for a new Award under this Plan
including, but not limited to, any manner set forth in Section 8(d) (subject to
any applicable limitations thereunder). Notwithstanding the foregoing, no such
action by the Board or the Committee shall, in any manner adverse to a
Participant other than as expressly permitted by the terms of an Award
Agreement, affect any Award then outstanding and evidenced by an Award Agreement
without the consent in writing of the Participant or a Beneficiary who has
become entitled to an Award.
SECTION 11. Miscellaneous.
(a) Unfunded Plans. This Plan shall be unfunded. Neither the Corporation nor
the Board of Directors nor the Committee shall be required to segregate any
assets that may at any time be represented by Awards made pursuant to this Plan.
Neither the Corporation, the Committee, nor the Board of Directors shall be
deemed to be a trustee of any amounts to be paid or securities to be issued
under this Plan. To the extent that a Participant, Beneficiary
18
<PAGE>
or other person acquires a right to receive payment pursuant to any Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Corporation.
(b) Rights of Employees and Officers.
(1) No Right to an Award. Status as an Employee or an Officer shall not be
construed as a commitment that any one or more Awards will be made under this
Plan to an Employee or Officer or to Employees or Officers generally. Status as
a Participant shall not entitle the Participant to any additional Award.
(2) No Assurance of Employment. Nothing contained in this Plan (or in any
other documents related to this Plan or to any Award) shall confer upon any
Employee or Participant any right to continue in the employ or other service of
the Corporation or any Subsidiary or constitute any contract (of employment or
otherwise) or limit in any way the right of the Corporation or any Subsidiary to
change a person's compensation or other benefits or to terminate the employment
of a person with or without cause, but, nothing contained in this Plan or any
document related hereto shall adversely affect any independent contractual right
of such person without his or her consent thereto.
(c) Effective Date; Duration. This Plan has been adopted by the Board of
Directors of the Corporation. This Plan shall become effective upon and shall be
subject to the approval of the stockholders of the Corporation. This Plan shall
remain in effect until any and all Awards under this Plan have been exercised,
converted or terminated under the terms of this Plan and applicable Award
Agreements. Notwithstanding the foregoing, no Award may be granted under this
Plan after March 19, 2006. Any Award granted prior to such date may be amended
after such date in any manner that would have been permitted prior to such date,
except that no such amendment shall increase the number of shares subject to,
comprising or referenced in such Award.
(d) Compliance with Laws. This Plan, Award Agreements, and the grant,
exercise, conversion, operation and vesting of Awards, and the issuance and
delivery of shares of Stock and/or other securities or property or the payment
of cash under this Plan, Awards or Award Agreements, are subject to compliance
with all applicable federal and state laws, rules and regulations (including,
but not limited to, state and federal insider trading, registration, reporting
and other securities laws and federal margin requirements) and to such approvals
by any listing, regulatory or governmental authority as may, in the opinion of
counsel for the Corporation, be necessary or advisable in connection therewith.
Any securities delivered under this Plan shall be subject to such restrictions
(and the person acquiring such securities shall, if requested by the
Corporation, provide such evidence, assurance and representations to the
Corporation as to compliance with any thereof) as the Corporation may deem
necessary or desirable to assure compliance with all applicable legal
requirements.
(e) Applicable Law. This Plan, Award Agreements and any related documents and
matters shall be governed in accordance with the laws of the State of
California, except as to matters of Federal law.
19
<PAGE>
(f) Non exclusivity of Plan. Nothing in this Plan shall limit or be deemed to
limit the authority of the Corporation, the Board or the Committee to grant
awards or authorize any other compensation, with or without reference to the
Stock, under any other plan or authority.
(g) Severability. In case any provision in this Plan shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality and enforceability
of the remaining provisions, or of such provision in any other jurisdiction,
shall not in any way be affected or impaired thereby.
(h) Rule 16b-3 Transition Period Provisions. During the transition period in
respect of Rule 16b-3, any derivative security the grant of which is intended
to be exempt from Rule 16b-3 shall not be transferable other than as permitted
by former Rule 16b-3(d)(ii); the exercise price or other consideration for any
exempt grant or Award shall conform to any additional time and price limitations
under former Rule 16b-3; and, except with respect to nondiscretionary Awards to
Non-Employee Directors under Section 9, no member of the Board of Directors who
is not an Employee or Officer of the Corporation shall be eligible for any Award
under this Plan.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 17,891
<SECURITIES> 0
<RECEIVABLES> 18,515
<ALLOWANCES> 2,389
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,196,676
<DEPRECIATION> 197,743
<TOTAL-ASSETS> 1,079,713
<CURRENT-LIABILITIES> 0
<BONDS> 463,503
0
322,500
<COMMON> 745
<OTHER-SE> 121,214
<TOTAL-LIABILITY-AND-EQUITY> 1,079,713
<SALES> 51,044
<TOTAL-REVENUES> 116,119
<CGS> 34,030
<TOTAL-COSTS> 76,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 702
<INTEREST-EXPENSE> 21,780
<INCOME-PRETAX> 17,789
<INCOME-TAX> 7,258
<INCOME-CONTINUING> 10,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,531
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
