<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1997
REGISTRATION NO. 333-39131
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CATELLUS DEVELOPMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2953477
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
201 MISSION STREET
SAN FRANCISCO, CALIFORNIA 94105
(415) 974-4500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
KATHLEEN SMALLEY, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
CATELLUS DEVELOPMENT CORPORATION
201 MISSION STREET
SAN FRANCISCO, CALIFORNIA 94105
(415) 974-4500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S AGENT FOR SERVICE)
---------------
COPIES TO:
JAMES R. UKROPINA, ESQ. ROBERT K. MONTGOMERY, ESQ.
STEPHANIE I. SPLANE, ESQ. GIBSON, DUNN & CRUTCHER LLP
O'MELVENY & MYERS LLP 2029 CENTURY PARK EAST, SUITE 4000
275 BATTERY STREET, SUITE 2600 LOS ANGELES, CALIFORNIA 90067
SAN FRANCISCO, CALIFORNIA 94111 (310) 552-8500
(415) 984-8700
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be used
in connection with a United States and Canadian offering of the shares of
Common Stock (the "U.S. Prospectus") and one to be used in connection with a
concurrent international offering of the shares of Common Stock (the
"International Prospectus" and, together with the U.S. Prospectus, the
"Prospectuses"). The International Prospectus will be identical to the U.S.
Prospectus except that it will have a different front cover page. The
alternate front cover page for the International Prospectus included herein
has been labeled "Alternate Cover Page for International Prospectus."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued November , 1997
16,500,000 Shares
Catellus Development Corporation
COMMON STOCK
-----------
OF THE SHARES OF COMMON STOCK OFFERED HEREBY, 13,200,000 ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND
3,300,000 ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA
BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE SHARES
OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE SELLING STOCKHOLDER.
SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE
ANY PROCEEDS FROM THE SALE OF THE SHARES BEING OFFERED HEREBY. THE
COMPANY'S COMMON STOCK IS LISTED ON THE NEW YORK, PACIFIC AND CHICAGO
STOCK EXCHANGES UNDER THE SYMBOL "CDX." ON NOVEMBER 24, 1997, THE
REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE WAS $18 PER SHARE.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREIN FOR CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
-------- -------------- --------------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total(3)............................. $ $ $
</TABLE>
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(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Expenses associated with the offering, estimated at $1,000,000, are
payable by the Company.
(3) The Selling Stockholder has granted to the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 2,475,000 additional Shares at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Selling Stockholder will be $ , $ and $ ,
respectively. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as, and if accepted by
the Underwriters named herein, and subject to approval of certain legal matters
by Gibson, Dunn & Crutcher LLP, counsel for the Underwriters. It is expected
that delivery of the Shares will be made on or about December , 1997, at the
offices of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment
therefor in immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
BANCAMERICA ROBERTSON STEPHENS
EVEREN SECURITIES, INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
November , 1997
<PAGE>
[Header reads: "Catellus Development - Diverse Capabilities and
Resources." Below header is an operations chart naming the three
main operations of the Company: Income-Producing Properties,
Development and Fee Services. Beneath this chart is additional text
reading ". . . with Strategic Geographic Presence." Then appears a map
of the United States with California highlighted and with the
locations of the Company's developable land supply and income-
producing properties marked.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE>
[GATEFOLD]
[The Company's logo is in center. In the upper left hand quadrant, under the
heading "Income-Producing Properties, are photographs of certain of the
Company's industrial buildings (under "Industrial" caption); an office project
(under "Office" caption), and a retail center (under "Retail" caption). In the
lower left hand quadrant, under the heading "Fee Services", are photographs of
the Metropolitan Transportation Authority's headquarters at Union Station (under
"Fee Development" caption, a typical land lease property under management
(under "Fee Management" caption) and the Metropolitan Water District
headquarters under construction at Union Station (also under "Fee Development"
caption). On the right half of page under the heading "Development", are
additional photographs: industrial construction photographs (under "Residential"
caption); and a photograph of a mixed-use project (Union Station in Los Angeles
under the "Mixed-Use" caption).]
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING
STOCKHOLDER OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH
PERSON TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 4
Incorporation of Certain Documents by Reference.......................... 4
Prospectus Summary....................................................... 5
Statement Regarding Forward-Looking Disclosure........................... 14
Risk Factors............................................................. 14
Use of Proceeds.......................................................... 17
Common Stock Price Range and Dividend Policy............................. 18
Capitalization........................................................... 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 34
Management............................................................... 50
Certain Transactions..................................................... 56
Principal and Selling Stockholders....................................... 57
Description of Capital Stock............................................. 61
Underwriters............................................................. 62
Legal Matters............................................................ 65
Experts.................................................................. 65
Index to the Financial Statements ....................................... F-1
</TABLE>
----------------
CERTAIN STATEMENTS CONTAINED UNDER "PROSPECTUS SUMMARY," "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," AND "BUSINESS," INCLUDING, WITHOUT LIMITATION, THOSE CONCERNING
THE COMPANY'S OPERATING STRATEGY, ITS EXPANSION PLANS, ECONOMIC PERFORMANCE
AND FINANCIAL CONDITION CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
AND SECTION 21E OF THE SECURITIES AND EXCHANGE ACT OF 1934 (THE "EXCHANGE
ACT"). BECAUSE SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS."
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-3, including amendments
thereto, under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all information contained in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is
made to the Registration Statement and exhibits and schedules to the
Registration Statement. Statements contained herein concerning the provisions
of any documents are not necessarily complete, and in each instance reference
is made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports and other information with the
Commission. The Registration Statement, including exhibits and schedules
thereto, as well as the reports, proxy statements and other information filed
by the Company with the Commission can be inspected without charge at the
Public Reference Room of the Commission's principal office at Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549, and at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, NY 10048, and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such
material can also be obtained at proscribed rates from the public reference
section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549. Electronic filings made through the electronic data
gathering analysis and retrieval system are also publicly available through
the Commission's Web Site (http:\\www.sec.gov). The Company's securities are
listed on the New York Stock Exchange (the "NYSE"). Reports, proxy and
information statements and other information concerning the Company can be
inspected at the offices of the NYSE, 20 Broad Street, New York, NY 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission by the
Company are hereby incorporated by reference in this Prospectus:
(1) Annual report on Form 10-K for the fiscal year ended December 31, 1996.
(2) Quarterly report on Form 10-Q for the fiscal quarter ended March 31,
1997.
(3) Quarterly report on Form 10-Q for the fiscal quarter ended June 30,
1997.
(4) Quarterly report on Form 10-Q for the fiscal quarter ended September
30, 1997.
(5) The description of the Common Stock, par value $0.01 per share (the
"Common Stock") of the Company contained in its Registration Statement
on Form 10 dated July 18, 1990.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of the offering made hereby, shall be deemed incorporated
by reference herein and to be a part hereof from the date of filing such
reports and documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statements so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the above documents (excluding exhibits) may be obtained upon
request without charge from the Company, Attention: Investor Relations
Department, 201 Mission Street, San Francisco, CA 94105; Telephone: (415) 974-
4500.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus is presented on the assumption that the over-allotment option
granted to the Underwriters has not been exercised. As used herein, the term
"Company" refers to Catellus Development Corporation and its subsidiaries.
THE COMPANY
Catellus Development Corporation (the "Company") is a diversified real estate
operating company with a large portfolio of income-producing properties and
developable land. The Company engages in a broad range of development
activities including industrial, residential and major mixed-use projects; has
17.7 million square feet of income-producing properties; and believes it has
one of the largest portfolios of developable land in the western United States.
Management believes the Company's developable land, once entitled and approved,
is capable of supporting up to an estimated: 28.0 million square feet of
industrial space; 11.6 million square feet of research and development ("R&D"),
biotech and office space; 21,000 residential units; 9.5 million square feet of
central business district ("CBD") office space; and 1.5 million square feet of
retail/entertainment space. Approximately 77% of the income-producing
properties and over 62% of its total commercial development potential by square
footage are located in California. Management believes that the Company's
diversity in real estate business lines, product types, capabilities, income-
producing properties and developable land assets differentiates it from other
public real estate companies. Moreover, the Company is a traditional
corporation rather than a real estate investment trust ("REIT"); thus it can
reinvest its earnings, and it has greater flexibility to aggressively pursue
new opportunities without the need to raise additional equity capital as
frequently as a REIT.
The Company was originally formed to conduct the non-railroad real estate
activities of the Santa Fe Pacific Corporation and was spun-off to stockholders
in 1990. The Company's railroad heritage has given it a diverse base of
developable properties located near transportation corridors in major urban
areas. Over time, these properties have proven suitable for a variety of
product types (industrial, retail, office and residential), with the larger
land sites most suitable for large-scale, mixed-use projects. Management
believes that these in-fill locations offer the opportunity for attractive
returns and reduce the market risks associated with new development.
Starting in the third quarter of 1994, the Company began assembling a new,
entrepreneurial and experienced management team focused on developing a new
strategic plan for the Company. The Company has built a well-rounded team of
over 40 professionals with a wide-ranging set of core competencies in
development, including entitlement experience, land-use planning, design,
construction, leasing, real estate finance and asset management. This group of
professionals has individual real estate experience ranging from 10 to 25
years.
The new strategic plan implemented in 1995 was designed to improve the
capital structure and eliminate the historic operating deficits of the Company;
to optimize the value of the Company's portfolio and increase existing revenue
streams; and to capitalize on core competencies by expanding the Company's
activities outside of its existing asset base. In implementing this strategy,
the Company has:
. Increased EBDDT (earnings before depreciation, deferred taxes and non-
recurring items) from $14.7 million in 1994 to $25.9 million in 1996,
which represents a growth rate of 32.8% compounded annually, and
increased EBDDT from $15.8 million to $44.1 million, or 179%, from the
nine months ended September 30, 1996 to the same period in 1997.
5
<PAGE>
. Improved its financial flexibility by repaying debt and eliminating its
preferred stock through redemptions and forced conversions. As a result,
the ratio of debt and preferred stock to total market capitalization
declined from 66.6% at December 31, 1994 to 20.3% at September 30, 1997,
while the Company's fixed charge ratio (earnings before interest, taxes,
depreciation and amortization, adjustments to the carrying value of
property and preferred stock dividends to total interest costs and
preferred stock dividends) increased from 1.01:1 in 1994 to 1.70:1 in
1996 and 2.29:1 for the nine months ended September 30, 1997.
. Sold $167.0 million of non-strategic assets from January 1, 1995 through
September 30, 1997, using the proceeds to pay down a portion of its
existing debt and fund new development. In addition, at September 30,
1997, the Company had $66.6 million of such assets under contract or
option for sale.
. Expanded the volume of industrial construction starts from 381,000 square
feet in 1994, to 792,000 in 1995 and 3.3 million in 1996, and expects to
exceed the 1996 level in 1997.
. Increased its core competencies across a wide range of real estate
activities and, through its March 1996 acquisition of The Akins Companies
(which now operates as Catellus Residential Group), further augmented and
diversified its core development capabilities. The Akins Companies, a
diversified residential real estate company, has developed more than
10,000 homes throughout Southern California since 1950.
STRATEGY
The Company intends to focus on increasing EBDDT by continuing to develop its
significant land portfolio, by opportunistically acquiring new properties or
businesses to support additional development, and by continuing to provide
third-party fee development and management services. In addition, the Company
will continue to focus on increasing cash flow from its portfolio of income-
producing assets. In the future, the Company will continue to assess the
feasibility of entering into complementary lines of business and refining or
reconfiguring its existing portfolio to take account of its experience,
opportunities presented and changing market conditions. The key elements of the
Company's current strategy are discussed below.
DEVELOPMENT OPPORTUNITIES IN EXISTING LAND PORTFOLIO
The Company's existing developable land portfolio, once entitled and
approved, can support an estimated 50.5 million square feet of new commercial
development (approximately 33.2 million square feet of which is already
entitled and approved) and an estimated 21,000 residential units. In 1998 and
1999, the Company expects to increase its industrial and residential activity
further and to expand office, R&D and urban entertainment development in
connection with its major mixed-use projects. The Company believes its
development capabilities and experience with a variety of major real estate
product types allows it to optimize the value of its development projects. The
chart below summarizes the estimated development potential of the Company's
current land holdings (including recent and pending acquisitions) as of October
30, 1997:
<TABLE>
<CAPTION>
R&D, BIOTECH RETAIL/
INDUSTRIAL & OFFICE CBD OFFICE ENTERTAINMENT RESIDENTIAL
---------- ------------ ---------- ------------- ---------------
(IN SQUARE FEET) (LOTS OR UNITS)
<S> <C> <C> <C> <C> <C>
Industrial Land.......... 26,940,000 -- -- -- --
Residential Land (1)..... -- -- -- -- 16,464
Mixed-Use Projects
Mission Bay (San Fran-
cisco, California)..... -- 5,000,000 -- 850,000 4,600
Pacific Commons (Fre-
mont, California) (2).. 1,000,000 6,624,000 -- 250,000 --
Union Station (Los Ange-
les, California)....... -- -- 6,450,000 50,000 --
Santa Fe Depot (San Die-
go, California)........ -- -- 3,000,000 300,000 --
---------- ---------- --------- --------- ------
Total................... 27,940,000 11,624,000 9,450,000 1,450,000 21,064
========== ========== ========= ========= ======
Entitled and Approved
(3).................. 23,360,000 -- 9,450,000 350,000 6,554
Entitlements/Approvals
In Progress.......... 4,580,000 11,624,000 -- 1,100,000 14,510
</TABLE>
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(1) Some of these potential lots/units are not yet owned by the Company (or a
joint venture of the Company) but are pending acquisitions or subject to
options. See "Business--Development--Residential" for detail.
(2) Although entitled, certain additional approvals need to be obtained. See
"Business--Development--Mixed-Use Projects--Pacific Commons, Fremont, CA."
(3) Entitled means having the necessary discretionary local government
approvals to proceed with development.
6
<PAGE>
ACQUISITION OF NEW DEVELOPMENT PROPERTIES
The Company believes that its diverse capabilities and access to capital
provide it with a competitive advantage in identifying and acquiring additional
development opportunities. The Company focuses on markets with strong job
growth and real estate supply/demand dynamics. Recent acquisitions include:
. Talega Valley--a 3,470-acre residential land development project located in
San Clemente, California purchased for $31.1 million in a joint venture with
Starwood Capital and Standard Pacific Corporation. Planned development, upon
completion of entitlements and approvals, includes up to 4,965 homes and
supporting amenities.
. Stapleton Business Park--a 294-acre land site adjacent to the Stapleton
Airport in Denver, Colorado purchased for $9.25 million. Development
potential for this land, upon completion of entitlements and approvals, is
up to an estimated 3.4 million square feet of warehouse/distribution and
light industrial space.
. Northern California Industrial and Residential Land Sites--a 27.3-acre
industrial site in Oakland (including 13.4 acres currently under
development) purchased for $5.1 million with a development potential of up
to an estimated 550,000 square feet. Development of 277,000 square feet on
this site began in the third quarter of 1997. The Company also purchased a
13.5-acre land site adjacent to its existing 51-acre flex-tech site
(including 9.6 acres currently under development) located in Richmond,
California for $2.9 million. Development potential for this 13.5 acre site,
upon completion of entitlements and approvals, is up to an estimated 227,000
square feet of light industrial space. In addition, the Company has an
option to acquire a 220-acre site capable, upon completion of entitlements
and approvals, of supporting up to an estimated 1,000 residential units in
Hercules.
. Southern California Industrial and Residential Land Sites--an 8-acre 47-lot
housing development in Spinnaker Bay in the Long Beach Marina district and a
96-lot land site in Carlsbad. The Company has contracted to purchase a 62.1-
acre land site located in Mira Loma, California for $6.4 million. This
purchase of fully entitled land, upon completion of approvals, is estimated
to have development potential of up to 1.4 million square feet of light
industrial space. There can be no assurance that the Company will actually
acquire this property.
DEVELOPMENT AND FEE SERVICES
The diverse capabilities of its management team provide the Company with an
opportunity to export skills to third parties. Management believes that its
development and fee service business allows it to both facilitate development
of its own assets through sales to end-users under design-build contracts, as
well as provide services to landowners which can result in future development
opportunities. The Company has over 17,000 ground leases under management.
7
<PAGE>
OPERATIONS
The Company's operations consist of three principal business lines: income-
producing properties, development (including industrial, mixed-use and
residential) and fee services. In addition, the Company owns approximately
784,000 acres of desert land. The Company believes that the combination of
income-producing properties and development activities allows it to benefit
from the more stable cash flow of income-producing properties and, at the same
time, to pursue higher-yielding, yet more volatile, development activities.
Since 1995, the Company has aggressively pursued development and fee service
activities to augment the income generated by its income-producing properties,
as illustrated by the following charts:
1995 1997(2)
(in millions)
Income-producing Properties(1) $78.0 $93.1
Development Activities and
Fee Services(1) $ 0.2 $19.8
- --------
(1) Operating income before corporate overhead, interest, depreciation, taxes
and other expenses.
(2) Twelve months--October 1, 1996 through September 30, 1997.
INCOME-PRODUCING PROPERTIES
As of September 30, 1997, the Company's income-producing portfolio consisted
of over 17.7 million square feet of space and various other assets, such as
5,300 acres of ground leases and interests in several commercial joint
ventures. The portfolio's product types are as follows: 14.0 million square
feet of industrial buildings, 1.6 million square feet of suburban and CBD
office space, 928,000 square feet of power centers and neighborhood retail, and
approximately 1.2 million square feet of interim-use buildings and operating
properties located on its mixed-use development projects. The Company also
currently has over 1.2 million square feet of industrial space under
construction, which will be added to its portfolio over the next year. The
Company's income-producing portfolio is well-leased with the average occupancy
of the portfolio at 97% as of September 30, 1997.
8
<PAGE>
The following chart represents the percentage of property operating income,
by product type, of the Company's income-producing portfolio for the nine
months ended September 30, 1997:
PROPERTY OPERATING INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Industrial: 53%
Retail: 10%
Office: 17%
Land Development(1): 5%
Land Leases: 7%
Equity in Earnings
of Joint Ventures: 8%
- --------
(1) This category represents interim income-producing uses of properties
intended for mixed-use development.
INDUSTRIAL DEVELOPMENT
The Company believes it is one of the largest owners of developable,
industrial land in the western United States, with land holdings that, once
entitled and approved, would support the development of an estimated 27.0
million square feet of new buildings. Since the change of management in 1994,
the Company has increased its development activities from starts of 381,000
square feet in 1994 to 3.3 million square feet in 1996 and expects to exceed
the 1996 level in 1997.
The Company develops industrial product both on a build-to-suit and a
speculative basis while pursuing a wide range of exit strategies for this
product in order to increase returns and reduce risk. These strategies include
the sale of finished or partially finished pads, the construction and sale of
completed buildings and the retention of buildings in the Company's portfolio.
MIXED-USE DEVELOPMENT PROJECTS
The Company's land portfolio includes four major mixed-use development sites
in California that would support over an estimated 23.5 million square feet of
additional development plus 4,600 residential units:
. Mission Bay (San Francisco) -- approximately 300-acre project adjacent
to downtown San Francisco, next to the planned San Francisco Giants
ballpark and surrounding the proposed expansion campus for the
University of California at San Francisco. Development proposed on the
Company's portion of this project, once entitled and approved, would
include up to: 4,600 residential units, 5.0 million square feet of
office, R&D and biotech space, 850,000 square feet of
retail/entertainment product and a 500-room hotel.
9
<PAGE>
. Pacific Commons (Fremont) -- the largest planned business park in the
Silicon Valley on an 840-acre site owned by the Company in the City of
Fremont. The Company currently has over 614,000 square feet of R&D,
industrial and warehouse space under construction at Pacific Commons.
Upon completion of the approval process, the Company proposes to develop
an additional 7.9 million square feet of office, corporate campus,
retail, R&D and light industrial space.
. Union Station (Los Angeles) -- a 43-acre project owned by the Company in
downtown Los Angeles which is entitled for an additional 6.5 million
square feet of office space, with the flexibility to substitute other
uses, such as retail and housing. The Company is currently constructing,
pursuant to a design-build contract, a 500,000 square-foot office
building adjacent to Union Station.
. Santa Fe Depot (San Diego) -- a 14-acre site owned by the Company near
the waterfront in downtown San Diego currently entitled for 3.3 million
square feet of office and retail space.
RESIDENTIAL DEVELOPMENT
As part of its strategic plan to enhance core competencies and capitalize on
improving residential markets in California, the Company acquired The Akins
Companies in 1996, which now operates as Catellus Residential Group ("CRG").
Management believes that this acquisition enables it to pursue residential
opportunities on its existing land holdings to optimize the value of those
holdings. As of September 30, 1997, the Company owned or had under option to
purchase property capable, when entitled and approved, of supporting
approximately 21,000 residential housing units (16,464 on residential projects
and 4,600 at Mission Bay), 76% of which are located in California.
During 1996, CRG sold 204 houses (27 owned by consolidated joint ventures,
108 by unconsolidated joint ventures in which the Company holds an interest and
69 located in residential developments managed by the Company for third
parties) and 293 lots (155 owned by the Company and 138 located in residential
developments managed by the Company for third parties) and, through a joint
venture, began construction on 220 apartment units. For the first nine months
of 1997, CRG sold 205 houses (38 owned by consolidated joint ventures, 70 by
unconsolidated joint ventures in which the Company holds an interest and 97
located in residential developments managed by the Company for third parties).
The Company expects to increase its residential development activity in 1998.
FEE MANAGEMENT SERVICES
In addition to development and management of its own assets, the Company
engages in fee development and management for third parties. In 1996, the
Company generated approximately $3.4 million in net fees from these activities
and approximately $4.4 million in net fees in the first nine months of 1997.
Current fee development and management services provided by the Company are:
management of over 17,000 ground leases and 120,000 permits in the real
property portfolio of the Burlington Northern Santa Fe Railroad ("BNSF"),
preparation of an inventory of non-railroad real estate assets of the Canadian
Pacific Railroad, fee development of the 500,000-square-foot corporate
headquarters for the Metropolitan Water District at Union Station in Los
Angeles and management of the Metropolitan Transportation Authority's corporate
headquarters and transit plaza also at Union Station.
DESERT LAND RESOURCES
The Company, through the Catellus Resources Group, owns approximately 784,000
acres of desert land, located primarily in the Mojave Desert. In order to
facilitate the disposition of this acreage, the Company is exploring the
potential for agricultural, mineral, water, telecommunications, energy and
waste management uses for these properties. The Company is also exploring
opportunities to sell or to exchange portions of such land with government
agencies and other entities. See "Business--Catellus Resources Group
Portfolio."
10
<PAGE>
GEOGRAPHIC PRESENCE
The Company's properties are located primarily throughout the western United
States, concentrated most heavily in California. The majority of its properties
are in ten of the top twenty "Favored Investment Markets Forecast" for real
estate, as cited by the Urban Land Institute's 1997 Real Estate Forecast: Mid-
Year Outlook ("1997 ULI Forecast"). The Company's California assets are
strategically concentrated in the state's largest metropolitan areas: San
Francisco, Los Angeles, San Jose/Silicon Valley, Orange County and San Diego,
each of which, according to the 1997 ULI Forecast, is ranked in the top twenty
metropolitan areas in the U.S. for investment potential. In the U.S. Census
Bureau's (the "Census") latest population study, it was projected that most of
the western states are expected to enjoy 25% or more population growth by 2025,
and five of these are expected to show growth of over 50%. California's
population base is forecasted in the Census to grow over 60%, from 31.6 million
people in 1995 to 49.3 million in 2025, more than any other state in the U.S.
The 1997 Economic Report of the Governor of the State of California (the
"Governor's Report") reported that 1996 job growth in California was 2.8%
versus 2% for the nation as a whole (the fastest pace of job creation for
California since 1989) and is expected to continue to outpace the nation for
the next two years. Personal income levels in California, according to the
Governor's Report, also exceeded the national levels in 1996, increasing 6.5%
as compared to the nation's 5.5% increase. This employment and income growth is
being driven primarily by the entertainment, high technology, manufacturing and
services sectors of California's economy. The Company believes that these
economic indicators show that California has entered into a recovery period
from the recent recession and should experience economic growth for the
foreseeable future.
11
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered
United States offering....................... 13,200,000 shares
International offering....................... 3,300,000 shares
Total...................................... 16,500,000 shares
Common Stock Outstanding After the Offer-
ing(1)....................................... 106,488,153 shares
Use of Proceeds............................... No proceeds will be received by
the Company.
New York, Pacific and Chicago Stock Exchange
Symbol....................................... CDX
</TABLE>
- --------
(1) As of September 30, 1997. Does not reflect 6,510,159 shares of Common Stock
issuable upon the exercise of options. A total of 2,239,841 additional
shares of Common Stock are reserved for issuance under the Company's stock
option plans. See Note 13 to Consolidated Financial Statements.
12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- -------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Rental revenue.................................... $ 99,183 $ 102,828 $ 115,886 $ 86,020 $ 95,127
Rental revenue, property operating costs and joint
venture earnings ................................ $ 73,814 $ 78,004 $ 82,471 $ 61,612 $ 72,242
Gain on development property sales................ $ -- $ 953 $ 15,623 $ 9,315 $ 7,006
Net earnings (loss) applicable to common stock-
holders(1)....................................... $ (26,260) $ (56,815) $ 1,894 $ (5,172) $ 15,719
Net earnings (loss) per share of common stock..... $ (0.36) $ (0.78) $ 0.03 $ (0.07) $ 0.16
Average number of common shares outstanding....... 72,967 72,967 74,947 74,251 97,702
OTHER OPERATING DATA:
EBDDT(2).......................................... $ 14,665 $ 18,254 $ 25,852 $ 15,804 $ 44,059
Annual fixed charges(3)........................... $ 72,533 $ 73,129 $ 67,550 $ 50,255 $ 35,707
Debt and preferred stock to total market capital-
ization(4)....................................... 66.6% 65.6% 46.8% 50.5% 20.3%
Capital expenditures(5)........................... $ 73,900 $ 68,523 $ 115,338 $ 62,049 $ 148,031
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total properties, net..................... $ 1,007,451 $ 1,024,102 $ 1,106,772
Total assets.............................. $ 1,097,604 $ 1,123,118 $ 1,206,261
Mortgage and other debt................... $ 496,180 $ 496,742 $ 563,641
Preferred Stock........................... $ 322,500 $ 274,428 $ --
Total stockholders' equity................ $ 442,874 $ 422,453 $ 441,908
</TABLE>
- --------
(1) Includes charges of $24.1 million in 1994 and $102.4 million in 1995 to
adjust the carrying value of certain properties. The 1995 charge included
$84.8 million resulting from the Company's decision to terminate the 1991
Development Agreement for its Mission Bay project in San Francisco. See
Note 6 to Consolidated Financial Statements included in this Prospectus for
further discussion.
(2) The Company uses a supplemental performance measure along with net earnings
(loss) to report its operating results. This measure, Earnings Before
Depreciation and Deferred Taxes (EBDDT), is not a measure of operating
results or cash flows from operating activities as defined by generally
accepted accounting principles. Additionally, EBDDT is not necessarily
indicative of cash available to fund cash needs and should not be
considered as an alternative to cash flows as a measure of liquidity.
However, the Company believes that EBDDT provides relevant information
about its operations and is necessary, along with net earnings (loss), for
an understanding of its operating results.
Depreciation, amortization and deferred income taxes are excluded from EBDDT
as they represent non-cash charges. Gains on the sale of non-strategic land
and other assets, adjustments to the carrying value of property, premiums on
the redemption of preferred stock and restructuring costs, conversion of
debenture costs and extraordinary expense related to early retirement of
debt represent non-operating, unusual and/or nonrecurring items and are
therefore excluded from EBDDT. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(3) Represents interest incurred (See Note 3 to the Company's Consolidated
Financial Statements) plus preferred stock dividends.
(4) Represents the ratio of total debt plus the face value of preferred stock
to equity market capitalization (based on the number of common shares
outstanding at the end of the period indicated and the closing stock price
for each respective period) plus total debt and preferred stock.
(5) Represents expenditures for commercial and residential development for
projects to be developed and sold or held for rental.
13
<PAGE>
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This Prospectus (including the documents incorporated by reference herein)
contains "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, and the Company intends
that such forward-looking statements be subject to the safe harbor protection
provided thereby. These forward-looking statements include the plans and
objectives of management for future operations, including plans and objectives
relating to the future economic performance of the Company. The forward-
looking statements may be identified by use of forward-looking terminology,
such as "may," "believe," "intend," "will," "expect," "anticipate,"
"estimate," "continue" or the negative thereof or other variations thereon or
comparable terminology. The Company's actual operating results and financial
condition could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth
under "Risk Factors" and elsewhere in this Prospectus.
RISK FACTORS
The following risk factors should be considered carefully in conjunction
with the other information contained in this Prospectus or incorporated by
reference herein in evaluating the Company and its business before purchasing
the Common Stock offered hereby.
GENERAL REAL ESTATE INVESTMENT RISKS
As a real estate development and management company, the Company is subject
to certain risks generally incident to the development, ownership and
management of real property. These risks include the cyclical nature of real
estate markets; changes in general economic, business and credit conditions,
including interest rate levels and availability of financing; applicable
federal, state, and local regulations; changes in availability and cost of
insurance; increases in the costs of labor and materials; material shortages;
strikes; changes in market rental rates; competition for tenants; the
bankruptcy or insolvency of tenants; and potential liability under
environmental and other laws. In addition, the Company and its predecessors
have owned some of the properties in its portfolio for many years and acquired
properties in a variety of ways, including by railroad land grants. The
Company has not obtained title insurance on all of the properties in its
portfolio, and some properties may be subject to limitations on or challenges
to the Company's title. Real estate investments are relatively illiquid and,
therefore, the ability of the Company to vary its portfolio quickly in
response to changes in economic or other conditions is limited. Further,
certain significant expenditures, including property taxes, maintenance costs,
mortgage payments, insurance costs and related charges must be made throughout
the period of ownership of real property regardless of whether the real
property is producing any income.
DEVELOPMENT RISKS
Any existing or future development activities of the Company will entail
certain risks, including the expenditure of funds on and devotion of
management's time to projects which may not come to fruition; the risk that
development or redevelopment costs of a project may exceed original estimates,
possibly making the project uneconomic; the risk that occupancy rates and
rents at a completed project will be less than anticipated or that there will
be vacant space at the project; the risk that expenses at a completed
development will be higher than anticipated; and the risk that permits and
other governmental approvals will not be obtained. In addition, the Company's
real estate development activities require significant capital expenditures.
The Company will be required to obtain funds for its capital expenditures and
operating activities through cash flow from operations, property sales or
financings. There can be no assurances that funds available from cash flow,
property sales and financings will be sufficient to fund the Company's
required or desired capital expenditures for development. If the Company were
unable to obtain sufficient funds, it might have to defer or otherwise limit
certain development activities. In addition, any new development or any
rehabilitation of older projects can require compliance with new building
codes and other regulations, including the Americans with Disabilities Act.
The Company cannot estimate the cost of complying with such codes and
regulations, and such costs can make a new project or some otherwise desirable
uses of an existing project uneconomic.
14
<PAGE>
ENTITLEMENTS AND APPROVALS
Before the Company can develop property, it must obtain a variety of
approvals (entitlements) from local governments with respect to such matters
as zoning, subdivision, architectural design, environmental and other issues.
The Company must also obtain a variety of approvals from state and federal
governments with respect to issues that may include environmental issues,
issues related to special status species, issues related to the public trust,
and others. Because of the discretionary nature of these approvals and
concerns which may be raised by various governmental officials, public
interest groups and other interested parties during both the approval and
development process, the Company's ability to develop properties and realize
income from its projects could be delayed, reduced or eliminated.
LEASING RISK
The Company is subject to the risk that, upon the expiration of leases for
space located in its properties, leases may not be renewed by existing
tenants, the space may not be re-leased to new tenants or the terms of renewal
or re-leasing (including the cost of required renovations or concessions to
tenants) may be less favorable to the Company than current lease terms. A
tenant from time to time may experience a down-turn in its business which may
cause the loss of the tenant or may weaken its financial condition, and result
in the tenant's failure to make rental payments when due, result in a
reduction in percentage rent receivable with respect to retail tenants or
require a restructuring that might reduce cash flow from the lease. In
addition, a tenant of any of the Company's properties may seek the protection
of bankruptcy, insolvency, or similar laws, which could result in the
rejection and termination of such tenant's lease and thereby cause a reduction
in the cash flow available to the Company. Although the Company has not
experienced material losses from tenant bankruptcies, no assurance can be
given that tenants will not file for bankruptcy or similar protection in the
future or, if any tenants file, that they will affirm their leases or continue
to make rental payments in a timely manner.
DEPENDENCE ON CALIFORNIA MARKET
The Company presently conducts most of its business in California.
Consequently, the Company's results of operations are dependent in part on
economic and other conditions in California which are beyond the Company's
control. During the early and mid-1990's, the California economy was
particularly affected by the recession, resulting in reduced demand for
commercial and industrial space and lower selling prices and rental rates.
Management believes that the California economy is now in a recovery phase.
There can be no assurance, however, that management's belief regarding the
recovery of the California economy will prove to be correct or that California
will not be affected by a recession in the future. If management's assumption
is incorrect or if a future recession in the California economy occurs, the
Company's financial results in the future could be adversely affected.
NATURAL DISASTERS
Natural disasters, such as earthquakes, floods or fires, or unexpected
climactic conditions, such as unusually heavy or prolonged rain, particularly
in California, where the Company's assets are concentrated, may have an
adverse impact on the ability of the Company to develop its properties and
realize income from its projects.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws and
regulations covering the discharge of hazardous materials into the
environment, or otherwise relating to the protection of the environment. Under
such laws, a current or previous owner or operator of real property may be
liable for the cost of removal of hazardous materials from such property or
the remediation of contaminated properties. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible
for, the presence of such hazardous materials. Because the Company owns (or
the Company or its corporate predecessors affiliated with railroad operators
have in the past owned) properties in urban and industrial areas, and the
Company and its corporate
15
<PAGE>
predecessors have historically leased many of its properties to commercial and
industrial tenants whose activities may have resulted in discharges onto such
properties, the Company incurs ongoing environmental remediation costs and is
subject from time to time to environmental actions by governmental entities
and private parties. Under existing environmental laws, the Company may be
responsible for all or part of the costs of the clean-up of sites at which
hazardous materials have been released, regardless of whether the Company was
responsible for the release. While the Company or outside consultants have
evaluated the environmental liabilities associated with most of the Company's
properties, any evaluation is necessarily based upon then prevailing law, site
conditions and the use of sampling methodologies. In addition, many of the
Company's properties are in the early stages of development, and the
environmental studies and investigations which have been performed are
preliminary. It is possible that significant unknown costs and liabilities may
arise in the future relating to these properties and that certain development
projects may be significantly impeded, delayed or cancelled as a result of
associated remediation costs. Although there can be no assurance, the Company
does not believe that the costs relating to known environmental issues will
have a material adverse effect on its business or financial condition or
results of operations. See "Business--Environmental Matters" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Environmental Matters."
LEVERAGE
The Company has in the past and may in the future have a significant amount
of indebtedness. At September 30, 1997, the Company had total consolidated
debt of approximately $563.6 million. In order to finance its development
activities, the Company expects to incur additional indebtedness in the
future. The ability of the Company to meet its debt service obligations will
be dependent upon its future performance, which in turn will be subject to
general economic and California real estate market conditions and to
financial, competitive, business and other factors including factors beyond
the Company's control. If the Company is at any time unable to generate
sufficient cash flow from operations to service its debt, it may be required
to sell assets or to refinance all or a portion of its debt. There can be no
assurance that the Company would be able to sell sufficient assets or effect a
refinancing on terms that are favorable or acceptable to the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on a small number of executive officers for
significant contributions. If the Company is unable to retain this group or to
find comparable replacements, the loss of their services could have an adverse
effect on the Company's financial condition and results of operations.
COMPETITION
The real estate industry is generally fragmented and characterized by
significant competition. Numerous developers, owners of office and retail
properties and managers compete with the Company in seeking properties for
acquisition, development and management opportunities, tenants, and purchasers
for homes and for non-strategic assets. There are competitors in each area in
which the Company operates which have greater capital resources than the
Company. There can be no assurance that the existence of such competition will
not have a material adverse effect on the Company's business, operations and
cash flow.
JOINT VENTURE RISKS
The Company has direct or indirect equity interests in various joint
ventures. A joint venture may involve special risks associated with the
possibility that (i) the venture partner at any time may have economic or
business interests or goals that are inconsistent with those of the Company,
(ii) the venture partner may take actions contrary to the instructions or
requests of the Company or contrary to the Company's policies or objectives
with respect to its real estate investments or (iii) the venture partner could
experience financial difficulties. Actions by the Company's venture partners
may have the result of subjecting property owned by the joint venture to
liabilities in excess of those contemplated by the terms of the joint venture
agreement or have
16
<PAGE>
other adverse consequences. In its role as a general partner of certain joint
ventures, the Company may be jointly or severally liable for the debts and
liabilities of the joint ventures. The Company may not be able to control
decisions made by its joint ventures. See "Business--Income-Producing
Properties--Joint Ventures" and "Business--Development--Joint Ventures."
SHARES AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the
prevailing market price of the Common Stock from time to time. Sales of
substantial amounts of Common Stock (including shares issued upon the exercise
of stock options) or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock. See "Principal
and Selling Stockholders." The Selling Stockholder and the Company and certain
of its directors and officers who own Common Stock have agreed not to offer,
sell, contract to sell, or otherwise dispose of any Common Stock or securities
exercisable for, convertible into or exchangeable for any such securities, for
a period of 180 and 90 days, respectively, after the closing of the Offering
without the prior written consent of Morgan Stanley & Co. Incorporated other
than, in the case of the Company, the issuance of options under existing stock
option plans and the issuance of Common Stock upon the exercise of options
under such plans. In addition, if the Company files a registration statement
in connection with a public offering for cash, the Selling Stockholder may
request that its securities be included in such registration statement subject
to certain volume limitations. See "Underwriters."
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has fluctuated substantially
over the last several years. There can be no assurance that the market price
of the Common Stock will not continue to fluctuate significantly. Future
announcements concerning the Company or its competitors, quarterly variations
in operating results, commencement of new development projects, changes in
earnings estimates by analysts or changes in accounting policies, among other
factors, could cause the market price of the Common Stock to fluctuate
substantially. In addition, stock markets have experienced extreme price and
volume volatility in recent years, particularly with respect to the stocks of
real estate companies. This volatility has had a substantial effect on the
market prices of securities of many public companies for reasons frequently
unrelated to the operating performance of the specific companies. These broad
market fluctuations could adversely affect the market price of the Common
Stock. See "Common Stock Price Range and Dividend Policy."
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the shares
offered by the Selling Stockholder. See "Principal and Selling Stockholders."
17
<PAGE>
COMMON STOCK PRICE RANGE AND DIVIDEND POLICY
The Company's Common Stock is listed on the NYSE, the Pacific Stock Exchange
and the Chicago Stock Exchange under the symbol "CDX." The following table
sets forth for the periods indicated the high and low sale prices of the
Company's Common Stock as reported by Bloomberg Financial Markets:
<TABLE>
<CAPTION>
COMMON STOCK PRICE
-----------------------
HIGH LOW
--------- ---------
<S> <C> <C>
Year ended December 31, 1995
First Quarter................................. $ 6 1/8 $ 5 1/8
Second Quarter................................ 6 7/8 5 5/8
Third Quarter................................. 6 7/8 6 1/8
Fourth Quarter................................ 6 5/8 5 3/8
Year ended December 31, 1996
First Quarter................................. 8 1/4 5 7/8
Second Quarter................................ 10 7 3/4
Third Quarter................................. 10 1/2 8 1/8
Fourth Quarter................................ 11 1/2 9 1/2
Year ended December 31, 1997
First Quarter................................. 16 5/8 11 1/8
Second Quarter................................ 18 3/8 13 5/8
Third Quarter................................. 21 7/16 18 3/16
Fourth Quarter (through November 24, 1997).... 22 16 5/16
</TABLE>
A recent reported last sale price of the Company's Common Stock on the NYSE
is set forth on the cover page of this Prospectus. As of November 24, 1997,
there were approximately 33,000 holders of record of the Company's Common
Stock.
The Company has never declared or paid any cash dividends on its Common
Stock. The Company intends to retain any earnings to support operations and to
finance development projects and does not intend to pay cash dividends on the
Common Stock in the foreseeable future.
18
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization as of September
30, 1997.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS)
<S> <C>
Mortgage and Other Debt
First mortgage loans.................................. $ 319,218
Secured revolving credit line (1)..................... 176,100
Unsecured revolving credit line (2)................... --
Construction loans and other (3)...................... 68,323
----------
Total Mortgage and other debt, including current
portion............................................ 563,641
----------
Stockholders' Equity
Common Stock, $0.01 par value, 150,000,000 shares au-
thorized;
106,488,153 shares issued and outstanding (4)...... 1,065
Preferred Stock, 50,000,000 shares authorized; none
outstanding.......................................... --
Additional paid-in capital............................ 474,225
Accumulated deficit................................... (33,382)
----------
Total stockholders' equity.......................... 441,908
----------
Total capitalization................................ $1,005,549
==========
</TABLE>
- --------
(1) At September 30, 1997, the Company had $75.7 million available under a
$265 million credit facility.
(2) At September 30, 1997, the Company had $25.0 million available under an
unsecured credit facility.
(3) At September 30, 1997, the Company had $13.8 million available under
construction loan facilities.
(4) Excludes 6,510,159 shares of Common Stock issuable upon exercise of
options outstanding as of September 30, 1997, at a weighted average
exercise price of $8.303 per share, and 2,239,841 shares reserved for
issuance under the Company's stock option plans.
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Company's consolidated financial statements and notes thereto and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this Prospectus. The statement of
operations data for the years ended December 31, 1994, 1995 and 1996 and the
balance sheet data as of December 31, 1995 and 1996 are derived from the
consolidated financial statements included elsewhere in this Prospectus, which
have been audited by Price Waterhouse LLP. The statement of operations data
for the years ended December 31, 1992 and 1993 and the balance sheet data as
of December 31, 1992, 1993 and 1994 are derived from consolidated financial
statements not included in this Prospectus, which have also been audited by
Price Waterhouse LLP. The statement of operations data for the nine-month
periods ended September 30, 1996 and 1997 and the balance sheet data as of
September 30, 1997 are derived from the unaudited consolidated financial
statements included elsewhere in this Prospectus that have been prepared on
the same basis as the audited consolidated financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for such periods. These historical results
are not necessarily indicative of the results to be expected in the future and
results for interim periods are not necessarily indicative of results for the
entire year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Income-producing proper-
ties
Rental revenue......... $96,496 $107,625 $ 99,183 $102,828 $115,886 $86,020 $95,127
Property operating
costs................. (37,670) (38,708) (29,609) (30,650) (39,408) (28,868) (28,848)
Equity in earnings
(losses) of joint ven-
tures, net............ (1,991) 1,878 4,240 5,826 5,993 4,460 5,963
------- -------- -------- -------- -------- ------- -------
56,835 70,795 73,814 78,004 82,471 61,612 72,242
------- -------- -------- -------- -------- ------- -------
Development activities
and fee services
Gain on development
property sales........ -- -- -- 953 15,623 9,315 7,006
Development and manage-
ment fee income, net.. 1,733 2,260 2,151 1,924 3,432 1,995 4,377
Equity in earnings
(losses) of joint ven-
tures, net............ (25) (60) 3,742 1,209 758 (42) 1,507
Land holding costs,
net................... (2,161) (872) (4,891) (3,871) (3,724) (2,918) (834)
------- -------- -------- -------- -------- ------- -------
(453) 1,328 1,002 215 16,089 8,350 12,056
------- -------- -------- -------- -------- ------- -------
Interest expense........ (53,221) (43,959) (24,671) (25,757) (42,521) (32,316) (30,034)
Depreciation and amorti-
zation................. (29,437) (31,117) (28,577) (27,990) (30,561) (22,654) (23,038)
General and administra-
tive expense........... (12,876) (13,143) (14,818) (10,924) (8,019) (5,718) (8,242)
Gain on non-strategic
land and other asset
sales.................. 40,204 33,165 13,307 32,789 24,405 11,775 4,628
Adjustment to carrying
value of property (1).. -- (32,500) (24,100) (102,400) -- -- --
Litigation, environmen-
tal and restructuring
costs.................. (1,888) (12,637) (2,854) (961) 1,093 950 1,142
Other, net.............. 3,221 (25,292) 3,091 2,504 (19) 439 45
------- -------- -------- -------- -------- ------- -------
Earnings (loss) before
income taxes and
extraordinary expense.. 2,385 (53,360) (3,806) (54,520) 42,938 22,438 28,799
Income tax (expense)
benefit................ (1,208) 8,008 1,359 21,518 (17,537) (9,155) (11,727)
------- -------- -------- -------- -------- ------- -------
Net earnings (loss) be-
fore extraordinary ex-
pense.................. 1,177 (45,352) (2,447) (33,002) 25,401 13,283 17,072
Extraordinary expense
related to early re-
tirement of debt, net
of income tax benefit
(2).................... -- (7,401) -- -- -- -- --
------- -------- -------- -------- -------- ------- -------
Net earnings (loss).... 1,177 (52,753) (2,447) (33,002) 25,401 13,283 17,072
Preferred stock divi-
dends................. -- (16,132) (23,813) (23,813) (22,173) (17,121) (1,353)
Premium on redemption
of preferred stock.... -- -- -- -- (1,334) (1,334) --
------- -------- -------- -------- -------- ------- -------
Net earnings (loss)
applicable to common
stockholders.......... $ 1,177 $(68,885) $(26,260) $(56,815) $ 1,894 $(5,172) $15,719
======= ======== ======== ======== ======== ======= =======
Net earnings (loss) per
share of common stock:
Before extraordinary
expense............... $ 0.02 $ (0.87) $ (0.36) $ (0.78) $ 0.03 $ (0.07) $ 0.16
Extraordinary expense
(2)................... -- (0.10) -- -- -- -- --
------- -------- -------- -------- -------- ------- -------
Net earnings (loss) per
share after
extraordinary
expense............... $ 0.02 $ (0.97) $ (0.36) $ (0.78) $ 0.03 $ (0.07) $ 0.16
======= ======== ======== ======== ======== ======= =======
Average number of com-
mon shares outstand-
ing................... 53,976 70,834 72,967 72,967 74,947 74,251 97,702
======= ======== ======== ======== ======== ======= =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
EBDDT (3)............... $(8,406) $(9,530) $14,665 $18,254 $ 25,852 $15,804 $ 44,059
Buildings owned (square
feet) (4).............. 14,183 13,367 13,609 14,168 16,448 16,252 17,742
Leased percentage....... 90.4% 94.9% 95.0% 95.1% 96.1% 95.2% 97.0%
Annual fixed charges
(5).................... $82,558 $85,684 $72,533 $73,129 $ 67,550 $50,225 $ 35,707
Debt and preferred stock
to total market
capitalization (6)..... 70.89% 63.56% 66.56% 65.63% 46.81% 50.52% 20.32%
Capital expenditures
(7).................... $87,902 $61,060 $73,900 $68,523 $115,338 $62,049 $148,031
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------ SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total properties, net... $1,129,634 $1,091,832 $1,087,119 $1,007,451 $1,024,102 $1,106,772
Total assets............ $1,208,887 $1,373,827 $1,207,363 $1,097,604 $1,123,118 $1,206,261
Mortgage and other
debt................... $ 887,185 $ 663,764 $ 530,641 $ 496,180 $ 496,742 $ 563,641
Preferred Stock......... $ -- $ 322,500 $ 322,500 $ 322,500 $ 274,428 $ --
Total stockholders' eq-
uity................... $ 145,923 $ 525,949 $ 499,689 $ 442,874 $ 422,453 $ 441,908
</TABLE>
- --------
(1) The Company took charges of $32.5 million in 1993, $24.1 million in 1994
and $102.4 million in 1995 to adjust the carrying value of certain
properties. The 1995 charge included $84.8 million resulting from the
Company's decision to terminate the 1991 Development Agreement for its
Mission Bay Project in San Francisco. See Note 6 to Consolidated Financial
Statements included in this Prospectus for further discussion.
(2) Net income in 1993 reflects extraordinary expense of $7.4 million, net of
income tax benefit, relating to a redemption premium paid to a lender and
write-off of deferred financing costs on the Company's $388.2 million
first mortgage loan.
(3) The Company uses a supplemental performance measure along with net
earnings (loss) to report its operating results. This measure, EBDDT, is
not a measure of operating results or cash flows from operating activities
as defined by generally accepted accounting principles. Additionally,
EBDDT is not necessarily indicative of cash available to fund cash needs
and should not be considered as an alternative to cash flows as a measure
of liquidity. However, the Company believes that EBDDT provides relevant
information about its operations and is necessary, along with net earnings
(loss), for an understanding of its operating results.
Depreciation, amortization and deferred income taxes are excluded from
EBDDT as they represent non-cash charges. Gains on the sale of non-
strategic land and other assets, adjustments to the carrying value of
property, premiums on the redemption of preferred stock, restructuring
costs, conversion of debenture costs and extraordinary expense related to
early retirement of debt represent non-operating, unusual and/or
nonrecurring items and are therefore excluded from EBDDT. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Earnings Before Depreciation and Deferred Taxes."
(4) Prior to 1996, square feet owned excluded approximately 1.1 million square
feet of existing buildings, primarily at Mission Bay.
(5) Represents interest incurred (See Note 3 to the Company's Consolidated
Financial Statements) plus preferred stock dividends.
(6) Represents the ratio of total debt plus the face value of preferred stock
to equity market capitalization (based on the number of common shares
outstanding at the end of the period indicated and the closing stock price
for each respective period) plus total debt and preferred stock.
(7) Represents expenditures for commercial and residential development for
projects to be developed and sold or held for rental.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
The following discussion contains forward-looking statements. The Company's
actual results may differ significantly from those projected in the forward-
looking statements. Factors that might cause future actual results to differ
materially from the Company's recent results or those projected in the
forward-looking statements include, but are not limited to, those discussed in
"Risk Factors" and below. The Company assumes no obligation to update the
forward-looking statements or such factors.
OVERVIEW
In the second half of 1994, the Company began building a new senior
management team and undertook a number of steps designed to eliminate
operating deficits, restructure the organization, enhance its core
competencies, improve its capital structure and sell non-productive land
assets. In particular, the Company:
. Sold $167.0 million of non-strategic assets from January 1, 1995 through
September 30, 1997, using the proceeds to pay down a portion of its
existing debt and fund new development.
. Increased development activity with industrial construction starts of
381,000 square feet in 1994, 792,000 square feet in 1995 and 3.3 million
square feet in 1996, and expects to exceed the 1996 level in 1997.
. Acquired The Akins Companies (now Catellus Residential Group), an
established residential developer located in Southern California, to
position the Company to pursue residential development opportunities.
. Completed a series of redemption calls for all outstanding preferred
shares, eliminating approximately $24 million in annual preferred stock
dividend payments. A total of $25.8 million of preferred stock was
redeemed and $296.7 million was converted into common equity.
. Decreased the Company's ratio of debt and preferred stock to total
market capitalization from 66.6% at December 31, 1994 to 20.3% at
September 30, 1997.
. Improved operating results with EBDDT (earnings before depreciation and
deferred taxes) increasing from $14.7 million in 1994 to $18.3 million
in 1995, $25.9 million in 1996 and $44.1 million for the nine months
ended September 30, 1997.
The Company intends to focus on increasing EBDDT by continuing to increase
the development of its significant land portfolio, opportunistically acquiring
new properties or businesses to support additional development, and by
providing third-party fee development and management services. In addition,
the Company will continue to focus on increasing cash flow from its portfolio
of income-producing assets. Capital to fund this planned growth is expected to
come from operations, sales of non-strategic assets and debt. In the future,
the Company will continue to assess the feasibility of entering into
complementary new lines of business and refining or reconfiguring its existing
portofolio to take account of its experience, opportunities presented and
changing market conditions.
Although the Company has a large portfolio of income-producing properties
that provides stable operating results, the Company's earnings from period to
period will be affected by the nature and timing of sales of development
property and non-strategic assets. Many of the Company's projects require a
lengthy process to complete the development cycle before they are sold.
Additionally, sales of non-strategic assets are difficult to predict and are
generally subject to lengthy negotiations and contingencies that need to be
resolved prior to closing. These factors tend to "bunch" income in particular
periods rather than producing a more even pattern throughout the year. In
addition, gross margins may vary significantly as the mix of property varies.
The cost basis of the properties sold varies because (i) a number of
properties have been owned for many decades; (ii) some properties were
acquired within the last ten to fifteen years; and (iii) properties are owned
in various geographical locations.
22
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
Income-Producing Properties. Rental revenue and property operating costs for
the Company's income-producing properties for the nine-month periods ended
September 30, 1996 and 1997 are summarized below:
<TABLE>
<CAPTION>
RENTAL REVENUES PROPERTY OPERATING COSTS
-------------------------- --------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1996 1997 DIFFERENCE 1996 1997 DIFFERENCE
------- ------- ---------- ------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Industrial buildings...... $41,156 $49,010 $7,854 $10,307 $10,586 $279
Office buildings.......... 21,373 21,830 457 9,107 9,419 312
Retail buildings.......... 9,966 10,029 63 3,273 2,942 (331)
Land development.......... 7,670 8,441 771 5,359 5,226 (133)
Land leases............... 5,855 5,817 (38) 822 675 (147)
------- ------- ------ ------- ------- ----
$86,020 $95,127 $9,107 $28,868 $28,848 $(20)
======= ======= ====== ======= ======= ====
</TABLE>
Building square footage owned, square footage leased and occupancy are as
follows:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
(IN THOUSANDS,
EXCEPT PERCENTAGES)
<S> <C> <C>
Industrial buildings
Square feet owned...................................... 12,411 13,963
Square feet leased..................................... 11,998 13,675
Percent leased......................................... 96.7% 97.9%
Office buildings
Square feet owned...................................... 1,682 1,620
Square feet leased..................................... 1,484 1,542
Percent leased......................................... 88.2% 95.2%
Retail buildings
Square feet owned...................................... 928 928
Square feet leased..................................... 871 862
Percent leased......................................... 93.8% 92.9%
Land development(1)
Square feet owned...................................... 1,231 1,231
Square feet leased..................................... 1,127 1,135
Percent leased......................................... 91.6% 92.2%
Total
Square feet owned...................................... 16,252 17,742
Square feet leased..................................... 15,480 17,214
Percent leased......................................... 95.2% 97.0%
</TABLE>
- --------
(1) This category represents interim income-producing uses of properties
intended for mixed-use development.
The increase in revenue from industrial buildings is primarily attributable
to the net addition of eight buildings totaling approximately 1.6 million
square feet that were added to the portfolio since October 1996. Approximately
$5.9 million of the increase was attributable to base rents for the new
buildings, approximately $0.6 million was attributable to higher tenant pass-
through charges associated with the new construction and approximately $1.2
million was a result of increases in rental rates and tenant pass-through
charges under existing leases.
Rental revenue for the Company's office portfolio increased by $0.5 million
for the nine months ending September 30, 1997, compared to the same period in
1996, primarily because of higher rental rates and occupancy
23
<PAGE>
for the nine months ending September 30, 1997. Operating costs for office
buildings increased by $0.3 million, primarily as a result of higher utility
costs and property taxes.
The $0.3 million decrease in property operating costs for the retail
buildings was primarily due to a reduction in property tax assessments.
The $0.8 million increase in rental revenue from the land development
portfolio resulted from higher occupancies and expense recoveries at these
properties.
The decrease in revenues and expenses from land leases from the nine months
ending September 30, 1996 as compared to the same period in 1997 is primarily
attributable to the sale of a land lease in mid-1996.
In total, property operating costs were lower for the nine months ended
September 30, 1997 as compared to the same period in 1996 because of lower
overhead costs associated with property operations and lower insurance
premiums.
Income-producing joint venture earnings, net, increased by $1.5 million
primarily because of higher occupancies and room rates in certain hotel joint
ventures and higher occupancy and lower interest expense for an apartment
building joint venture.
Development Activities and Fee Services. Gain on development property sales
was $9.3 million in the nine months ending September 30, 1996 compared to $7.0
million for the same period in 1997, summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1996 1997 DIFFERENCE
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
COMMERCIAL SALES:
Sales................................................ $27,428 $24,607 $(2,821)
Cost of sales........................................ 18,113 18,703 590
------- ------- -------
Gain............................................... 9,315 5,904 (3,411)
------- ------- -------
RESIDENTIAL SALES:
Sales................................................ -- 23,645 23,645
Cost of sales........................................ -- 22,543 22,543
------- ------- -------
Gain............................................... -- 1,102 1,102
------- ------- -------
Total gain on development property sales......... $ 9,315 $ 7,006 $(2,309)
======= ======= =======
</TABLE>
The 1996 results include an approximate $5.0 million gain from the sale of a
4.2-acre site to the Metropolitan Water District at Los Angeles Union Station.
The 1997 results include a $2.2 million gain from the sale of a 279,000-
square-foot industrial building in La Mirada, California. Residential sales in
1997 are from the Company's residential group which was formed in March 1996.
There were no residential sales for the nine months ended September 30, 1996.
The Company expects there will be significant variability in income
generated from its development activities.
24
<PAGE>
Following is a summary of development property sales under contract but not
closed as of September 30, 1996 and 1997:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Commercial................................................. $ 11,678 $ 13,924
Residential (lot and unit sales)
Joint venture projects (1)............................... $ 21,215 $ 45,720
Management projects (2).................................. $ 16,953 $ 24,241
</TABLE>
- --------
(1) The amounts shown are 100% of the gross sales price; the Company is
entitled to receive a share of net profits from these joint ventures
ranging from 25% to 75%.
(2) The amounts shown are 100% of the gross sales price; the Company receives
a fee based on the sales of these units, which averages 5% of revenues.
Development and management fee income, net, increased by $2.4 million for
the nine months ending September 30, 1997 compared to the same period in 1996.
This increase came primarily from an increase in management fees from
management contracts signed in 1996 and higher development fees from a
construction project at Los Angeles Union Station that began in June 1996.
Equity in earnings of development joint ventures increased by $1.5 million
for the nine months ended September 30, 1997 compared to the same period in
1996. The increase is primarily attributable to a 1997 property sale from a
land development joint venture and to higher residential joint venture
earnings.
The reduction in losses from land holding costs, net, for the nine months
ended September 30, 1997 compared to the same period in 1996 is primarily
attributable to sales of properties and property tax refunds.
Other Items on the Statement of Operations. Interest expense was $2.3
million lower in the nine months ended September 30, 1997 as compared to the
same period in 1996 primarily as a result of an increase in capitalized
interest related to higher development activity in 1997.
Following is a summary of interest incurred for the nine months ended
September 30, 1996 and 1997:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
1996 1997 DIFFERENCE
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total interest incurred............................ $33,134 $34,354 $ 1,220
Interest capitalized............................... (818) (4,320) (3,502)
------- ------- -------
Interest expensed.................................. $32,316 $30,034 $(2,282)
======= ======= =======
</TABLE>
General and administrative expense increased by $2.5 million for the nine
months ended September 30, 1997 compared to the same period in 1996 primarily
because of an increase in the Company's overall activities.
The decrease in gain on sales of non-strategic land and other property from
the nine months ended September 30, 1996 as compared to the same period in
1997 is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1996 1997 DIFFERENCE
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales................................................ $43,300 $19,122 $(24,178)
Cost of sales........................................ 31,525 14,494 (17,031)
------- ------- --------
Gain............................................... $11,775 $ 4,628 $ (7,147)
======= ======= ========
</TABLE>
25
<PAGE>
In 1995, the Company began an accelerated program of selling non-strategic
assets, with the proceeds intended to pay down a portion of existing debt and
fund new development. From 1995 through September 30, 1997, the Company sold
$167.0 million of non-strategic assets. In addition, at September 30, 1997,
$66.6 million of such assets were under contract or option for sale. Because
of the diminishing amount of such assets in the Company's portfolio, the
Company expects future sales of non-strategic assets to be substantially lower
than the levels in the recent past.
Preferred Stock Dividends. Preferred stock dividends declined by $15.8
million from the nine months ended September 30, 1996 compared to the same
period in 1997 as a result of the preferred stock calls. During 1996, the
Company commenced a series of calls for redemption of its outstanding
preferred stock. As a result of these calls, during 1996, a total of 453,326
Series A preferred shares were converted into 2,501,783 common shares and
508,113 Series A preferred shares were redeemed at a cost of approximately
$26.7 million. In 1997, a total of 2,480,671 shares of Series A Preferred
Stock and all of the Series B Preferred Stock were converted into 29,001,469
shares of Common Stock, with 7,889 shares of Series A Preferred Stock redeemed
at a cost of approximately $440,000. With the completion of these preferred
stock calls in June 1997, the Company has no remaining outstanding preferred
stock.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 TO 1996
Income-Producing Properties. Rental revenue and property operating costs for
the Company's income-producing properties for the years ended December 31,
1995 and 1996, respectively, are summarized below:
<TABLE>
<CAPTION>
RENTAL REVENUES PROPERTY OPERATING COSTS
---------------------------- --------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- --------------------------
1995 1996 DIFFERENCE 1995 1996 DIFFERENCE
-------- -------- ---------- ------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Industrial buildings.... $ 50,716 $ 55,865 $ 5,149 $11,193 $14,014 $2,821
Office buildings........ 28,662 28,407 (255) 12,179 12,661 482
Retail buildings........ 11,364 13,215 1,851 2,941 4,376 1,435
Land development (1).... 4,886 10,589 5,703 3,308 7,252 3,944
Land leases............. 7,200 7,810 610 1,029 1,105 76
-------- -------- ------- ------- ------- ------
$102,828 $115,886 $13,058 $30,650 $39,408 $8,758
======== ======== ======= ======= ======= ======
</TABLE>
- --------
(1) This category represents interim income-producing uses of properties
intended for mixed-use development.
Of the increase in revenue from industrial buildings, $3.3 million was
attributable to eleven new buildings totaling 1.7 million square feet that
were completed in late 1995 and 1996. Revenues also increased $1.2 million as
a result of higher tenant pass-through charges associated with the new
construction and higher operating costs. Operating costs for the industrial
portfolio increased, in part, because of new buildings completed and higher
overhead, maintenance and repairs.
Rental revenue for the Company's office portfolio decreased $0.3 million
because of a decrease in occupancy, primarily in one building, compared to the
same period in 1995. As of the end of 1996, a majority of this office space
had been leased. Revenue and costs for retail buildings increased primarily
because a 117,000-square-foot building leased to Kmart was acquired in
December 1995 at the East Baybridge shopping center.
26
<PAGE>
The increase in revenue and costs from land development properties resulted,
in large part, from determination by the Company at the end of 1995, that
Mission Bay and certain other properties no longer qualify for the
capitalization of interest expense. As a result, incremental revenue and
operating costs from interim uses, which had previously also been capitalized
to the project, were included in the consolidated statement of operations
effective January 1, 1996. Rental revenue and property operating cost
increases attributable to Mission Bay and other such properties were $6.1
million and $3.3 million, respectively, in 1996.
Development Activities and Fee Services. Gain on development property sales
increased from $953,000 in 1995 to $15.6 million in 1996, summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 DIFFERENCE
------ ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
COMMERCIAL SALES:
Sales................................................. $3,224 $40,525 $37,301
Cost of sales......................................... 2,271 26,709 24,438
------ ------- -------
Gain................................................ 953 13,816 12,863
------ ------- -------
RESIDENTIAL SALES:
Sales................................................. -- 21,945 21,945
Cost of sales......................................... -- 20,138 20,138
------ ------- -------
Gain................................................ -- 1,807 1,807
------ ------- -------
Total gain on development property sales.......... $ 953 $15,623 $14,670
====== ======= =======
</TABLE>
The significant increase in gain on development property sales is
attributable to improved industrial development activity ($24.1 million),
residential sales activity resulting from the acquisition of The Akins
Companies ($21.9 million) and the sale of the Metropolitan Water District site
at the Company's Los Angeles Union Station project ($13.2 million).
Development and management fee income, net, increased to $3.4 million during
1996 from $1.9 million in 1995. This increase was primarily from "design
build" fee income for the 500,000-square-foot Metropolitan Water District's
corporate headquarters at Los Angeles Union Station, residential development
fee income and fees under various management contracts.
Other Items on the Statement of Operations. Total interest incurred was $3.9
million lower in 1996 compared to 1995 because of debt reduction in 1996 and
late 1995. However, during 1996, the Company capitalized $2.9 million of
interest compared to $23.6 million in 1995 because Mission Bay and certain
other properties no longer qualified for capitalization of interest. As a
result, interest expense increased $16.8 million.
In late 1994, the Company experienced significant staff reductions and
realignment of responsibilities. In connection with these changes, the Company
refined its general and administrative expense allocation to align certain
common costs more closely with the underlying activities. This change in
allocations had the result of increasing property operating costs and
decreasing general and administrative expense in 1996 when compared to 1995.
In 1995, the Company began an accelerated program of selling non-strategic
assets, with the proceeds intended to pay down a portion of its existing debt
and fund new development. In connection with this program, the Company
completed sales totaling $62.2 million resulting in gains of $32.8 million in
1995 compared to completed sales of $85.7 million and gains of $24.4 million
in 1996.
27
<PAGE>
In 1995, the Company took a $102.4 million charge to adjust the carrying
value of certain properties, where the carrying costs exceeded what management
expected to recover through future operations and ultimate sale of such
properties. This charge included $84.8 million resulting from the Company's
decision to terminate the 1991 Development Agreement for its Mission Bay
project in San Francisco.
Litigation, environmental and restructuring costs decreased $2.1 million.
The $1.1 million income in 1996 represents monies received from settlement
proceeds in environmental matters, with no offsetting costs being incurred.
The $1.0 million expense in 1995 represents actual environmental costs
incurred in regard to operating properties, partly offset by income resulting
from the settlement of litigation in favor of the Company.
Other, net, decreased by $2.5 million in 1996 as a result of lower interest
income.
As discussed above, the Company completed a preferred stock call in
September 1996. As a result, a charge of $1.3 million for the premium on that
redemption was recognized in 1996. No preferred stock calls occurred in 1995.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 TO 1995
Income-Producing Properties. Rental revenue and property operating income
for the Company's income-producing properties for the years ended December 31,
1994 and 1995, respectively, are summarized below:
<TABLE>
<CAPTION>
RENTAL REVENUES PROPERTY OPERATING COSTS
--------------------------- --------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- --------------------------
1994 1995 DIFFERENCE 1994 1995 DIFFERENCE
------- -------- ---------- ------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Industrial buildings..... $50,650 $ 50,716 $ 66 $11,837 $11,193 $ (644)
Office buildings......... 29,619 28,662 (957) 11,220 12,179 959
Retail buildings......... 7,339 11,364 4,025 2,315 2,941 626
Land development (1)..... 4,161 4,886 725 3,200 3,308 108
Land leases.............. 7,414 7,200 (214) 1,037 1,029 (8)
------- -------- ------ ------- ------- ------
$99,183 $102,828 $3,645 $29,609 $30,650 $1,041
======= ======== ====== ======= ======= ======
</TABLE>
- --------
(1) This category represents interim income-producing uses of properties
intended for mixed-use development.
The increase in revenue for industrial buildings came primarily from six new
buildings totaling 532,000 square feet which were completed in 1995 and in the
fourth quarter of 1994; this increase was partially offset by reduced rentals
from existing properties. Operating costs for the industrial portfolio
decreased because of the overhead reductions described below. Rental revenue
for the Company's office portfolio decreased primarily because of the
expiration of an above-market lease in one building and a reduction in
occupancy from 96% at the end of 1994 to 92% at the end of 1995. In addition,
the Company's operating costs for its office portfolio increased $1 million
because of increased property taxes resulting from the reassessment of a
building. The increase in revenue and costs for retail buildings was primarily
due to the completion of the East Baybridge shopping center in late 1994.
Income-producing joint venture earnings increased $1.6 million. The increase
consists principally of significantly improved operating results from a hotel
joint venture.
Development Activities and Fee Services. The Company sold $3.2 million of
development property in 1995 which resulted in a gain of $1.0 million in 1995.
No sales of development property occurred in 1994.
Equity in earnings of development joint ventures decreased $2.5 million in
1995, primarily because of decreased land sales from one joint venture.
28
<PAGE>
Property operating costs associated with land holdings (primarily property
taxes and overhead) decreased because of the sale of $62.2 million of non-
strategic land assets and lower overhead.
Other Items on the Statement of Operations. Interest expense increased $1.1
million, representing the net effect of additional borrowings to fund the
Company's development activity, offset by a reduction in interest rates in
1995 as compared to 1994.
General and administrative costs decreased $3.9 million in 1995 because of
staff reductions. Gross salaries, wages and benefits expense decreased $5.1
million and computer expenses decreased $1.0 million. These decreases were
offset by a lower level of capitalization of overhead costs to development
projects.
The Company completed sales of non-strategic land and other assets totaling
$62.2 million in 1995 compared to $53.8 million in 1994. Related gains
increased to $32.8 million in 1995 versus $13.3 million in 1994. This increase
was in connection with the Company's non-strategic land sales program
announced in 1995.
Adjustment to carrying value of property in 1995 was $102.4 million compared
to $24.1 million in 1994. In 1995, the Company took a $102.4 million charge to
adjust the carrying value of certain properties for which the carrying costs
exceeded what management expected to recover through the future operations and
ultimate sale of such properties. This included $84.8 million resulting from
the Company's decision to terminate the 1991 Development Agreement for its
Mission Bay project in San Francisco.
Litigation, environmental and restructuring costs decreased $1.9 million
from 1994 to 1995. This was primarily attributable to the recognition of $3.1
million in restructuring charges in 1994 with no comparable amount in 1995,
offset by higher charges for environmental costs in 1995.
EARNINGS BEFORE DEPRECIATION AND DEFERRED TAXES
The Company uses a supplemental performance measure along with net earnings
(loss) to report its operating results. This measure, EBDDT, is not a measure
of operating results or cash flows from operating activities as defined by
generally accepted accounting principles. Additionally, EBDDT is not
necessarily indicative of cash available to fund cash needs and should not be
considered as an alternative to cash flows as a measure of liquidity. However,
the Company believes that EBDDT provides relevant information about its
operations and is necessary, along with net earnings (loss), for an
understanding of its operating results.
Depreciation, amortization and deferred income taxes are excluded from EBDDT
as they represent non-cash charges. Gains on the sale of non-strategic land
and other assets, adjustments to the carrying value of property, premiums on
the redemption of preferred stock and restructuring costs represent non-
operating, unusual and/or nonrecurring items and are therefore excluded from
EBDDT. EBDDT is reconciled to net earnings (loss), as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net earnings (loss) applicable
to common stockholders........ $(26,260) $(56,815) $ 1,894 $(5,172) $15,719
Depreciation and amortization.. 28,577 27,990 30,561 22,654 23,038
Deferred income taxes.......... (1,545) (22,532) 16,468 8,763 9,930
Gain on non-strategic land and
other asset sales............. (13,307) (32,789) (24,405) (11,775) (4,628)
Adjustment to carrying value of
property...................... 24,100 102,400 -- -- --
Premium on redemption of pre-
ferred stock.................. -- -- 1,334 1,334 --
Restructuring costs............ 3,100 -- -- -- --
-------- -------- ------- ------- -------
Earnings before depreciation
and deferred taxes........... $ 14,665 $ 18,254 $25,852 $15,804 $44,059
======== ======== ======= ======= =======
Average number of common shares
outstanding................... 72,967 72,967 74,947 74,251 97,702
======== ======== ======= ======= =======
</TABLE>
29
<PAGE>
The $28.3 million increase in EBDDT for the nine-month period ended Septem-
ber 30, 1996 compared to the same period in 1997 was primarily because of a
reduction in preferred stock dividends and improved results from income-pro-
ducing assets.
The $7.6 million increase in EBDDT from 1995 to 1996 was primarily because
of an increase in gain on development property sales, improved operating
results from income-producing assets and a decrease in general and
administrative expenses, all of which were partially offset by higher interest
expense in 1996 because of the decision to cease capitalizing interest on the
Mission Bay project.
The $3.6 million increase in EBDDT from 1994 to 1995 was primarily because
of improved operating results from income-producing assets and a decrease in
general and administrative expense, partially offset by increases in interest
expense and other items.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES
Cash provided by operating activities reflected in the statement of cash
flows for the nine-month periods ended September 30, 1996 and 1997 was $75.9
million and $44.3 million, respectively. This $31.6 million decrease is
primarily because of a $37.4 million increase in 1997 expenditures for
development of residential properties developed for sale. For the nine months
ended September 30, 1997, the Company started construction on 79 residential
units and completed 64 units compared to 50 starts and 5 completions for the
same period in 1996.
Cash provided by operating activities reflected in the statement of cash
flows for the years ended December 31, 1994, 1995 and 1996 was $60.4 million,
$102.2 million and $111.1 million, respectively. The increase from 1995 to
1996 is primarily the result of a significant increase in development property
and non-strategic land sales, offset by an increase in interest expense and
increased capital expenditures for properties developed to be sold. The
increase from 1994 to 1995 is primarily because of a higher level of non-
strategic land sales and lower general and administrative costs.
Cash generated from sales of non-strategic land and development property was
$53.4 million and $50.1 million for the nine-month periods ended September 30,
1996 and 1997, respectively, and $28.0 million, $58.4 million and $113.1
million for the years ended December 31, 1994, 1995 and 1996, respectively.
Cash generated from rental operations increased principally because of the
addition of new buildings.
CASH FLOW FROM INVESTING ACTIVITIES
Net cash used in investing activities reflected in the statement of cash
flows for the nine-month periods ended September 30, 1996 and 1997 increased
$71.5 million, primarily because of an increase of $46.6 million in capital
expenditures and $15.9 million in joint venture contributions. As shown below,
the increase in capital expenditures is primarily a result of higher
development activity in 1997. Additionally, during 1997 the Company
contributed $11.2 million to a joint venture which acquired the 3,470-acre
Talega Valley land development project in San Clemente, California. The
venture expects to develop up to 4,965 residential lots in a master planned
community.
Net cash used in investing activities reflected in the statement of cash
flows for the years ended December 31, 1994, 1995 and 1996 decreased $59
million from 1994 to 1995 and increased $33.7 million from 1995 to 1996. The
decrease in 1995 resulted primarily from the conversion of short-term
commercial paper and government securities into cash, offset by lower cash
generated by the sale of other assets. The increase in 1996 resulted primarily
from a decrease in short-term investments and restricted cash.
30
<PAGE>
Capital expenditures reflected in the statement of cash flows as investing
activities represent expenditures for projects the Company intends to hold for
its own account and included the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Construction and building improve-
ments................................. $ 31.2 $ 14.8 $ 32.8 $ 27.0 $ 56.3
Property acquisitions.................. 1.2 9.3 12.3 12.3 14.4
Predevelopment......................... (0.9) 3.7 11.1 5.0 10.4
Infrastructure and other............... 12.0 9.6 11.4 2.8 10.0
Capitalized interest and property tax-
es.................................... 26.5 26.1 2.2 1.1 3.7
------- ------- ------- ------ ------
$ 70.0 $ 63.5 $ 69.8 $ 48.2 $ 94.8
======= ======= ======= ====== ======
</TABLE>
Construction and building improvements--relates primarily to development of
new industrial properties held for lease and improvements to existing
buildings. Industrial development activity is summarized below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ---------------------
1994 1995 1996 1996 1997
-------- -------- ---------------- --------- ----------
(IN SQUARE FEET)
<S> <C> <C> <C> <C> <C>
Construction and comple-
tion
Under construction,
beginning of period.. 307,000 337,136 641,128 641,128 2,286,961
Construction starts... 381,136 791,846 3,259,308 1,812,308 1,252,000(1)
Completion............ (351,000) (487,854) (1,613,475) (986,525) (1,727,961)
-------- -------- ---------- --------- ----------
Under construction,
end of period...... 337,136 641,128 2,286,961 1,466,911 1,811,000(1)
======== ======== ========== ========= ==========
</TABLE>
- --------
(1) Includes 626,000 square feet of "design build" development for third party
land owners.
As of September 30, 1997, the Company had 1.8 million square feet under
construction, of which approximately 905,000 square feet is expected to be
completed by year-end. Of the 1.8 million square feet under construction, 1.2
million square feet will be added to the Company's portfolio.
Property Acquisitions--during the second quarter of 1997, the Company began
the process of actively identifying and acquiring development sites beyond its
historic land holdings. Following is a summary of the more significant 1997
acquisitions related to industrial development activities:
. In September 1997, the Company acquired 294 acres of land in Denver,
Colorado for $9.25 million: plans call for development of primarily
warehouse/distribution space.
. In September 1997, the Company acquired 27.3 acres of land in Oakland,
California for $5.1 million: plans call for development of light
industrial and warehouse/distribution space.
Predevelopment--relates to amounts incurred in obtaining entitlements for
the Company's major mixed-use projects. The increase in 1996 as compared to
1995, and for the nine months ended September 30, 1997 compared to the same
period in 1996 primarily relates to activity at the Mission Bay and Pacific
Commons projects.
Infrastructure and other--primarily represents infrastructure costs incurred
in connection with the Company's major mixed-use and development projects. The
increase for the nine months ended September 30, 1997 compared to the same
period in 1996 primarily relates to the Pacific Commons and Woodridge,
Illinois projects.
Capitalized interest and property taxes--represents construction period
interest and property taxes capitalized to the Company's development projects.
The decrease from the year ended December 31, 1995 to 1996 is primarily
related to the Company's decision to cease capitalizing interest on the
Mission Bay project in 1995.
31
<PAGE>
CASH FLOW FROM FINANCING ACTIVITIES
Net cash from financing activities reflected in the statement of cash flows
increased by $100.8 million for the first nine months of 1997 compared to the
same period in 1996. This increase is primarily because of a $63.2 million
increase in net borrowings used to finance development projects and a $38.3
million decrease in preferred stock dividends and costs of preferred stock
redemptions in the first nine months of 1997 as compared to the same period in
1996.
As of September 30, 1997, the Company had total outstanding debt of $563.6
million, of which 61.9% was non-recourse to the Company and secured by certain
property of the Company, 37.7% was recourse to the Company and also secured by
certain property, and 0.4% was unsecured. During the next twelve months,
approximately $36 million of debt matures, consisting of construction
financing, term loans or first mortgage loans. All maturing debt is expected
to be repaid upon sale of the property securing it, extended, refinanced or
repaid.
CAPITAL COMMITMENTS
As of September 30, 1997, the Company had approximately $26.9 million in
total commitments for capital expenditures. These commitments are primarily to
fund the construction of industrial development projects, predevelopment costs
and re-leasing costs.
CASH BALANCES, AVAILABLE BORROWINGS AND CAPITAL RESOURCES
As of September 30, 1997, the Company had $17.3 million in cash and cash
equivalents, including $2.2 million in restricted cash representing proceeds
from a June 1997 development property sale. The restricted cash is 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. In
September 1997, the Company modified its secured revolving credit line to
increase the maximum commitment from $240 million to $265 million. At
September 30, 1997, the Company had available $75.7 million under its modified
secured revolving credit facility, $1.9 million under its development
construction facility, $11.9 million under its residential construction
facilities, and $25 million under an unsecured line of credit.
The Company's short- and long-term liquidity and capital resources
requirements will essentially be provided from three sources: ongoing
operating income from rental properties, proceeds from development, non-
strategic and other asset sales, and fee services income. As noted above, a
secured revolving line of credit, an unsecured line of credit, a construction
line of credit, and residential construction loan facilities are available to
the Company for meeting liquidity requirements. The Company currently
estimates the debt requirements relating to its planned development activities
will exceed the current commitment under existing debt facilities. The Company
believes it will be able to obtain the additional required debt capacity to
complete its planned development activities.
Debt covenants. Certain loan agreements contain restrictive financial
covenants, the most restrictive of which require the maximum funded debt to
net worth ratio not to exceed 0.75:1, require stockholders' equity to be no
less than $400 million, and require that the Company maintain certain
specified financial ratios. In addition, certain agreements restrict the total
leverage for the Company. The Company was in compliance with all such
covenants at September 30, 1997.
Income taxes. At December 31, 1996, the Company's deferred tax liability
consisted of deferred tax assets totaling $121.4 million and deferred tax
liabilities of $228.1 million. Deferred tax assets included $14.3 million
relating to net operating loss carryforwards ("NOLs") of $40.2 million. The
Company has NOLs of $16.3 million, $16.9 million, $6.5 million, $0.3 million
and $0.2 million which expire in 2006, 2007, 2008, 2009 and 2011 (none of the
Company's NOLs is scheduled to expire in 2010). The Company's other deferred
tax assets of $107.0 million relate primarily to differences between book and
tax basis of properties. These deferred tax assets are not subject to
expiration and will likely be realized at the time of taxable dispositions of
the properties.
32
<PAGE>
Deferred tax liabilities in excess of deferred tax assets are often associated
with the same property, with the result that the deferred tax asset will
likely be realized in a taxable disposition, without regard to other taxable
income. The Company believes it is more likely than not that it will realize
the benefit of its deferred tax assets, and that no valuation allowance is
required. In making this determination, the Company considered: the nature of
its deferred tax assets (and liabilities); the amounts and expiration dates of
its NOLs; the historical levels of taxable income; the significant unrealized
appreciation of its properties, including properties likely to be sold during
the NOL carryforward periods; and its ability in many cases to control the
timing of property sales in order to assure that deferred tax assets will be
offset by deferred tax liabilities or realized appreciation.
The Company believes that a significant portion of its NOLs will be used to
reduce tax payments for 1997. The Company may commence paying federal tax for
1998. The ultimate amount of federal tax payments, if any, would depend on the
Company's taxable income.
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
that 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. As of September 30, 1997, management has
provided a reserve of $12.9 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 September 30,
1997, the Company's estimate of its potential liability for identified
environmental costs relating to properties to be developed or sold ranged from
$12.6 million to $38.4 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 during the nine-month
period ended September 30, 1997 totaled $3.6 million. For the years ended
December 31, 1995 and 1996, the Company capitalized $1.7 million and $2.8
million of such costs, respectively.
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
position, results of operations or cash flows.
33
<PAGE>
BUSINESS
The Company is a diversified real estate operating company with a large
portfolio of income-producing properties and developable land. The Company
engages in a broad range of development activities including industrial,
residential and major mixed-use projects; has 17.7 million square feet of
income-producing properties; and believes it has one of the largest portfolios
of developable land, once entitled and approved, in the western United States.
Management believes the Company's developable land, once entitled and
approved, is capable of supporting up to an estimated: 28.0 million square
feet of industrial space; 11.6 million square feet of R&D, biotech and office
space; 21,000 residential units; 9.5 million square feet of CBD office space;
and 1.5 million square feet of retail/entertainment space. Approximately 77%
of the income-producing properties and over 62% of its total commercial
development potential by square footage are located in California. Management
believes that the Company's diversity in real estate business lines, product
types, capabilities, income-producing properties and developable land assets
differentiates it from other public real estate companies. Moreover, the
Company is a traditional corporation rather than a REIT; thus, it can reinvest
its earnings, and it has greater flexibility to aggressively pursue new
opportunities without the need to raise additional equity capital as
frequently as a REIT.
The Company was originally formed to conduct the non-railroad real estate
activities of the Santa Fe Pacific Corporation and was spun-off to
stockholders in 1990. The Company's railroad heritage has given it a diverse
base of developable properties located near transportation corridors in major
urban areas. Over time, these properties have proven suitable for a variety of
product types (industrial, retail, office and residential), with the larger
land sites most suitable for large-scale mixed-use projects. Management
believes that these in-fill locations offer the opportunity for attractive
returns and reduce the market risks associated with new development.
Starting in the third quarter of 1994, the Company began assembling a new,
entrepreneurial and experienced management team focused on developing a new
strategic plan for the Company. The Company has built a well-rounded team of
over 40 professionals with a wide ranging set of core competencies in
development, including entitlement experience, land-use planning, design,
construction, leasing, real estate finance and asset management. This group of
professionals has individual real estate experience ranging from 10 to 25
years.
The new strategic plan implemented in 1995 was designed to improve the
capital structure and eliminate the historic operating deficits of the
Company; to optimize the value of the Company's portfolio and increase
existing revenue streams; and to capitalize on core competencies by expanding
the Company's activities outside of its existing asset base. In implementing
this strategy, the Company has:
. Increased EBDDT (earnings before depreciation, deferred taxes and non-
recurring items) from $14.7 million in 1994 to $25.9 million in 1996,
which represents growth of 32.8% compounded annually, and increased
EBDDT from $15.8 million to $44.1 million, or 179%, from the nine months
ended September 30, 1996 to the same period in 1997.
. Improved its financial flexibility by repaying debt and eliminating its
preferred stock through redemptions and forced conversions. As a result,
the ratio of debt and preferred stock to total market capitalization
declined from 66.6% at December 31, 1994 to 20.3% at September 30, 1997,
while the Company's fixed charge ratio (earnings before interest, taxes,
depreciation and amortization and preferred stock dividends to total
interest costs, adjustments to the carrying value of property and
preferred stock dividends) increased from 1.01:1 in 1994 to 1.70:1 in
1996 and 2.29:1 for the nine months ended September 30, 1997.
. Sold $167.0 million of non-strategic assets from January 1, 1995 through
September 30, 1997, using the proceeds to pay down a portion of its
existing debt and fund new development. In addition, at September 30,
1997, the Company had $66.6 million of such assets under contract or
option for sale.
. Expanded the volume of industrial construction starts from 381,000
square feet in 1994 to 792,000 in 1995 and 3.3 million in 1996, and
expects to exceed the 1996 level in 1997.
. Increased its core competencies across a wide range of real estate
activities and, through its March 1996 acquisition of The Akins
Companies, which now operates as Catellus Residential Group ("CRG"),
further augmented and diversified its core development capabilities. The
Akins Companies, a diversified residential real estate company, has
developed more than 10,000 homes throughout Southern California since
1950.
34
<PAGE>
The Company's principal office is located at 201 Mission Street, San
Francisco, California 94105; its telephone number at that location is (415)
974-4500.
STRATEGY
The Company intends to focus on increasing EBDDT by continuing to develop
its significant land portfolio, by opportunistically acquiring new properties
or businesses to support additional development, and by continuing to provide
third-party fee development and management services. In addition, the Company
will continue to focus on increasing cash flow from its portfolio of income-
producing assets. In the future, the Company will continue to assess the
feasibility of entering into complementary new lines of business and refining
or reconfiguring its existing portfolio to take account of its experience,
opportunities presented and changing market conditions.
DEVELOPMENT OPPORTUNITIES IN EXISTING LAND PORTFOLIO
The Company's existing developable land portfolio, once entitled and
approved, can support an estimated 50.5 million square feet of new commercial
development (approximately 33.2 million square feet of which is already
entitled and approved) and an estimated 21,000 residential units. In 1998 and
1999, the Company expects to increase its industrial and residential activity
further and to expand office, R&D and urban entertainment development in
connection with its major mixed-use projects. The chart below summarizes the
estimated development potential of the Company's current land holdings
(including recent and pending acquisitions) as of October 30, 1997:
POTENTIAL DEVELOPMENT SUPPLY FROM EXISTING LAND PORTFOLIO
<TABLE>
<CAPTION>
R&D BIOTECH RETAIL/
INDUSTRIAL & OFFICE CBD OFFICE ENTERTAINMENT RESIDENTIAL
---------- ----------- ---------- ------------- ---------------
(IN SQUARE FEET) (LOTS OR UNITS)
<S> <C> <C> <C> <C> <C>
Industrial Land......... 26,940,000 -- -- -- --
Residential Land(1)..... -- -- -- -- 16,464
Mixed-Use Projects
Mission Bay (San Fran-
cisco, California).... -- 5,000,000 -- 850,000 4,600
Pacific Commons (Fre-
mont, California)(2).. 1,000,000 6,624,000 -- 250,000 --
Union Station (Los An-
geles, California).... -- -- 6,450,000 50,000 --
Santa Fe Depot (San Di-
ego, California)...... -- -- 3,000,000 300,000 --
---------- ---------- --------- --------- ------
Total................... 27,940,000 11,624,000 9,450,000 1,450,000 21,064
========== ========== ========= ========= ======
Entitled and Approved
(3).................... 23,360,000 -- 9,450,000 350,000 6,554
Entitlements/Approvals
In Progress............ 4,580,000 11,624,000 -- 1,100,000 14,510
</TABLE>
- --------
(1) Some of these potential lots/units are not yet owned by the Company or a
joint venture of the Company but are pending acquisitions or subject to
options. See "Development -- Residential" for detail.
(2) Although entitled, certain additional approvals need to be obtained. See
"Mixed-Use Projects--Pacific Commons, Fremont, CA."
(3) Entitled means having the necessary discretionary local government
approvals to proceed with development.
ACQUISITION OF NEW DEVELOPMENT PROPERTIES
The Company believes that its diverse capabilities and access to capital
provide it with a competitive advantage in identifying and acquiring
additional development opportunities. The Company focuses on markets with
strong job growth and real estate supply/demand dynamics. Recent acquisitions
include:
. Talega Valley--a 3,470-acre residential land development project located in
San Clemente, California purchased for $31.1 million in a joint venture
with Starwood Capital and Standard Pacific Corporation. Planned development
upon completion of entitlements and approvals includes up to 4,965 homes
and supporting amenities.
. Stapleton Business Park--a 294-acre land site adjacent to the Stapleton
Airport in Denver, Colorado purchased for $9.25 million. Development
potential for this land, upon completion of entitlements and approvals, is
up to an estimated 3.4 million square feet of warehouse/distribution and
light industrial space.
. Northern California Industrial and Residential Land Sites--a 27.3-acre
industrial site in Oakland purchased for $5.1 million with a development
potential of up to an estimated 550,000 square feet. Development of 277,000
square feet on this site began in the third quarter of 1997. The Company
also purchased a 13.5-acre land site adjacent to its existing 51-acre-flex-
tech site (including 9.6 acres currently under development) located in
Richmond, California for $2.9 million. Development potential for this 13.5
acre site, upon completion of entitlements and approvals , is up to an
estimated 227,000 square feet of light industrial space.In addition, the
Company has an option to acquire a 220-acre site capable, upon completion
of entitlements and approvals, of supporting up to an estimated 1,000
residential units in Hercules.
35
<PAGE>
. Southern California Residential Sites--an 8-acre 47-lot housing development
in Spinnaker Bay in the Long Beach Marina district and a 96-lot land site in
Carlsbad. The Company has contracted to purchase a 62.1-acre land site
located in Mira Loma, California for $6.4 million. This purchase of fully
entitled land, upon completion of approvals, is estimated to have
development potential of up to 1.4 million square feet of light industrial
space. There can be no assurance that the Company will actually acquire this
property.
GEOGRAPHIC PRESENCE
The Company's properties are located primarily throughout the western United
States, concentrated most heavily in California. The majority of its properties
are in ten of the top twenty "Favored Investment Markets Forecast" for real
estate, as cited by the 1997 ULI Forecast. The Company's California assets are
strategically concentrated in the state's largest metropolitan areas: San
Francisco, Los Angeles, San Jose/Silicon Valley, Orange County and San Diego,
each of which, according to the 1997 ULI Forecast, is ranked in the top twenty
metropolitan areas in the U.S. for investment potential. In the Census' latest
population study, it was projected that most of the western states are expected
to enjoy 25% or more population growth by 2025, and five of these are expected
to show growth of over 50%. California's population base is forecasted in the
Census to grow over 60%, from 31.6 million people in 1995 to 49.3 million in
2025, more than any other state in the U.S. The Governor's Report reported that
1996 job growth in California was 2.8% versus 2.0% for the nation as a whole
(the fastest pace of job creation for California since 1989) and is expected to
continue to outpace the nation for the next two years. Personal income levels
in California according to the Governor's Report also exceeded the national
levels in 1996, increasing 6.5% as compared to the nation's 5.5% increase. This
employment and income growth is being driven primarily by the entertainment,
high technology, manufacturing and services sectors of California's economy.
The Company believes that these economic indicators show that California has
entered into a recovery period from the recent recession and should experience
economic growth for the foreseeable future.
OPERATIONS
The Company's operations consist of three principal business lines: income-
producing properties, development (industrial, mixed-use, and residential) and
fee services. In addition, the Company owns approximately 784,000 acres of
desert land. The Company believes that the combination of income-producing
properties and development activities allows it to benefit from the more stable
cash flow of its income-producing properties and, at the same time, to pursue
higher-yielding, yet more volatile, development activities. Since 1995, the
Company has aggressively pursued development and fee service activities to
augment the income generated by its income-producing properties. The tables
below provide information on the Company's income-producing assets, development
assets and other land holdings.
INCOME-PRODUCING PROPERTIES
The following table provides information on the Company's income-producing
properties:
<TABLE>
<CAPTION>
NUMBER OF
PROPERTIES SQUARE FEET OWNED PROPERTY OPERATING INCOME(1)
-------------------------- --------------------------- -------------------------------
AS OF YEAR ENDED
AS OF AS OF DECEMBER 31, AS OF DECEMBER 31, NINE MONTHS
DECEMBER 31, SEPTEMBER 30, ------------- SEPTEMBER 30, --------------- ENDED SEPTEMBER
1996 1997 1995 1996 1997 1995 1996 30, 1997
------------ ------------- ------ ------ ------------- ------- ------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial.............. 53 55 11,424 12,606 13,963 $39,523 $41,851 $38,424
Office.................. 14 13 1,687 1,683 1,620 16,483 15,746 12,411
Retail.................. 12 12 957 928 928 8,423 8,839 7,087
Land development (2).... 4 4 100 1,231 1,231 1,578 3,337 3,215
Land leases............. 54 55 -- -- -- 6,171 6,705 5,142
Equity in earnings of
joint ventures......... -- -- -- -- -- 5,826 5,993 5,963
--- --- ------ ------ ------ ------- ------- -------
Total.................. 137 139 14,168 16,448 17,742 $78,004 $82,471 $72,242
=== === ====== ====== ====== ======= ======= =======
</TABLE>
- --------
(1) Property operating income represents rental revenue less property operating
costs.
(2) This category represents interim income-producing uses of properties
intended for mixed-use development.
36
<PAGE>
Leasing. The following tables summarize leasing statistics for the Company's
income-producing properties:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------- SEPTEMBER 30,
1994 1995 1996 1997
------ ------ ------ -------------
(SQUARE FEET IN THOUSANDS)
<S> <C> <C> <C> <C>
Industrial Buildings
Square feet owned....................... 10,985 11,424 12,606 13,963
Square feet leased...................... 10,432 10,945 12,345 13,675
Percent leased.......................... 95.0% 95.8% 97.9% 97.9%
Office Buildings
Square feet owned....................... 1,687 1,687 1,683 1,620
Square feet leased...................... 1,618 1,553 1,460 1,542
Percent leased.......................... 95.9% 92.1% 86.7% 95.2%
Retail Buildings
Square feet owned....................... 837 957 928 928
Square feet leased...................... 777 883 874 862
Percent leased.......................... 92.8% 92.3% 94.2% 92.9%
Land Development(1)
Square feet owned....................... 100 100 1,231 1,231
Square feet leased...................... 100 100 1,129 1,135
Percent leased.......................... 100.0% 100.0% 91.7% 92.2%
Total
Square feet owned....................... 13,609 14,168 16,448 17,742
Square feet leased...................... 12,927 13,481 15,808 17,214
Percent leased.......................... 95.0% 95.1% 96.1% 97.0%
</TABLE>
- --------
(1) This category represents interim income-producing uses of properties
intended for mixed-use development.
Lease Expirations. The following table summarizes the lease expirations in
the total portfolio for the fourth quarter of 1997 and thereafter:
<TABLE>
<CAPTION>
FOURTH
QUARTER
1997 1998 1999 2000 2001 2002 2003 2004 2005 THEREAFTER
------- ----- ----- ----- ----- ----- ---- ----- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent................. 8.1% 8.1% 9.5% 9.5% 14.9% 14.8% 3.9% 6.1% 5.8% 19.3%
Square feet (in thou-
sands)................. 1,397 1,400 1,629 1,634 2,567 2,543 672 1,054 991 3,327
</TABLE>
Of the 1.4 million leased square feet that is scheduled to expire in the
fourth quarter of 1997, approximately 365,000 square feet represent month-to-
month leases.
DEVELOPMENT
The following table shows (in acres and by book value) the Company's
developable properties as of December 31, 1995, December 31, 1996 and
September 30, 1997.
<TABLE>
<CAPTION>
ACRES CATELLUS NET BOOK VALUE
--------------------- -----------------------------
AS OF
DECEMBER AS OF
31, AS OF DECEMBER 31, AS OF
----------- SEPT. 30, ------------------- SEPT. 30,
1995 1996 1997 1995 1996 1997
----- ----- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Major Mixed Use Projects.. 1,156 1,171 1,134 $ 317,727 $ 323,134 $ 334,714
Industrial Development.... 1,671 1,838 1,984 76,170 93,783 86,952
Retail and Office
Development and Other
Land..................... 6,086 1,209 1,161 59,647 61,902 39,654
Residential Properties.... 550 1,955 1,993 14,522 44,939 74,276
----- ----- ----- --------- --------- ---------
Total................... 9,463 6,173 6,272 $ 468,066 $ 523,758 $ 535,596
===== ===== ===== ========= ========= =========
</TABLE>
37
<PAGE>
Joint Ventures. The Company's development joint venture portfolio consists
of various land and residential development partnerships. The following table
sets forth the income the Company received from these joint ventures in the
periods presented.
<TABLE>
<CAPTION>
COMPANY'S SHARE OF INCOME
(LOSS)
--------------------------------
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
----------------- SEPT. 30,
1995 1996 1997
--------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land development............................. $ 1,209 $ (39) $ 945
Residential development...................... -- 797 562
--------- ------- ---------
Total...................................... $ 1,209 $ 758 $ 1,507
========= ======= =========
</TABLE>
OTHER LAND HOLDINGS
The table below shows (by acres and in book value) land held by the Company
for other uses as of December 31, 1995, December 31, 1996 and September 30,
1997.
<TABLE>
<CAPTION>
ACRES CATELLUS NET BOOK VALUE
----------------------- ----------------------------------
AS OF DECEMBER AS OF AS OF
31, SEPT. DECEMBER 31, AS OF
--------------- 30, ----------------------- SEPT. 30,
1995 1996 1997 1995 1996 1997
------- ------- ------- -------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Resource Group Portfo-
lio.................... 833,844 789,899 784,395 $ 1,788 $ 2,299 $ 3,695
Properties Held For
Sale................... 11,863 41,323 23,270 84,232 37,223 30,772
------- ------- ------- -------- -------- --------
Total................. 845,707 831,222 807,665 $ 86,020 $ 39,522 $ 34,467
======= ======= ======= ======== ======== ========
</TABLE>
INCOME-PRODUCING PROPERTIES
INDUSTRIAL
At September 30, 1997, the Company's industrial income-producing portfolio
included 55 properties with 174 buildings and aggregating 14.0 million square
feet. At September 30, 1997, these buildings were 97.9% leased. At September
30, 1997, the Company also had 1.8 million square feet under construction and
leases signed for an additional 109,000 square feet to be constructed in the
remainder of 1997 and 1998.
The Company completed new industrial buildings totaling 1.7 million square
feet in late 1995 and 1996, resulting in property operating income for the
industrial portfolio increasing from $39.5 million in 1995 to $41.9 million in
1996. In late 1994 and 1995, the Company completed 532,000 square feet of new
buildings. The resulting increase in property operating income was partially
offset by reduced rentals from existing properties. The following table
summarizes property operating income for the industrial portfolio:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income from Industrial Properties.... $38,813 $39,523 $41,851 $38,424
</TABLE>
38
<PAGE>
The following table summarizes the Company's industrial buildings by region
as of September 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
BUILDINGS PROPERTIES SQUARE FEET
--------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Arizona.................................. 12 5 1,194
Northern California...................... 23 5 2,307
Southern California...................... 125 36 8,202
Illinois................................. 4 1 791
Oklahoma and Kansas...................... 4 4 406
Texas.................................... 6 4 1,063
--- --- ------
Total.................................... 174 55 13,963
=== === ======
</TABLE>
The following table summarizes the lease expirations in the industrial
portfolio for the fourth quarter of 1997 and thereafter:
<TABLE>
<CAPTION>
FOURTH
QUARTER
1997 1998 1999 2000 2001 2002 2003 2004 2005 THEREAFTER
------- ---- ----- ----- ----- ----- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent................ 5.9% 6.7% 9.9% 9.8% 15.2% 15.4% 3.9% 6.7% 6.6% 19.9%
Square feet (in thou-
sands)................ 810 913 1,352 1,346 2,082 2,105 529 911 899 2,728
</TABLE>
Of the 810,000 of leased square feet that is scheduled to expire in the
fourth quarter of 1997, 51% are located in Southern California, 36% are
located in Arizona and the balance spread throughout the portfolio.
Approximately 346,000 square feet of the 810,000 square feet expiring in the
fourth quarter represent month-to-month leases.
OFFICE
At September 30, 1997, the Company's office income-producing portfolio
included 13 properties consisting of 25 buildings and aggregating
approximately 1.6 million square feet. At September 30, 1997, this portfolio
was 95.2% leased. The Company's most significant office projects are the South
Bay Center in San Jose, California (424,192 square feet) and the Railway
Exchange Building in Chicago, Illinois (374,929 square feet).
The Company experienced a decrease in property operating income from office
buildings in 1996, relating primarily to an increase in vacancy in the Railway
Exchange Building in Chicago, Illinois. The decrease from 1994 to 1995 was
also related primarily to the Railway Exchange Building, as an increase in
property taxes and the replacement of a major tenant with tenants paying lower
rates caused the building to contribute less to office property operating
income in 1995 than in 1994. The following table summarizes property operating
income for the office portfolio:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income from Office Properties......... $18,399 $16,483 $15,746 $12,411
</TABLE>
The following table summarizes the Company's office property by region as of
September 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
BUILDINGS PROPERTIES SQUARE FEET
--------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Northern California...................... 10 3 525
Southern California...................... 12 7 573
Illinois................................. 2 2 466
Oregon................................... 1 1 56
--- --- -----
Total.................................... 25 13 1,620
=== === =====
</TABLE>
39
<PAGE>
The following table summarizes the lease expirations in the office portfolio
for the fourth quarter of 1997 and thereafter:
<TABLE>
<CAPTION>
FOURTH
QUARTER
1997 1998 1999 2000 2001 2002 2003 2004 2005 THEREAFTER
------- ---- ---- ---- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent................. 4.6% 7.6% 10.4% 7.0% 21.2% 25.5% 6.9% 3.3% 0.0% 13.5%
Square feet (in thou-
sands)................. 70 117 161 108 327 393 107 51 0 208
</TABLE>
Of the 70,000 square feet of lease space that is scheduled to expire in the
fourth quarter of 1997, 65% of such space is located in Southern California,
27% in Northern California and the balance spread throughout the portfolio,
and approximately 12,000 square feet of such space represent month-to-month
leases.
RETAIL
At September 30, 1997, the Company's retail income-producing portfolio
included 12 properties consisting of 24 buildings and aggregating 928,000
square feet. At September 30, 1997, the retail portfolio was 92.9% leased. The
Company's retail properties are located primarily in Northern and Southern
California, with one complex in each of Colorado and Oregon. The largest
retail project, East Baybridge Center, is located on 40 acres near San
Francisco in the cities of Emeryville and Oakland. The 269,000-square-foot
Phase I of this project opened in mid-1994 and was pre-leased to such national
retailers as Home Depot, Sportmart, OfficeMax, Safeway's Pak 'n Save, and
CompUSA. A 117,000-square-foot building for Kmart was added to the center in
late 1995.
Property operating income for the Company's retail building portfolio rose
from $8.4 million in 1995 to $8.8 million in 1996 because of the addition of
the Kmart building at the East Baybridge Center. Operating income increased by
$3.4 million from 1994 to 1995 primarily because of the completion of the East
Baybridge Center in late 1994. The following table summarizes property
operating income for the retail portfolio:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income from Retail Properties......... $ 5,024 $ 8,423 $ 8,839 $7,087
</TABLE>
The following table summarizes the Company's retail portfolio by region as
of September 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
BUILDINGS PROPERTIES SQUARE FEET
--------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Northern California...................... 9 3 460
Southern California...................... 12 7 330
Colorado................................. 1 1 100
Oregon................................... 2 1 38
--- --- ---
Total.................................. 24 12 928
=== === ===
</TABLE>
The following table summarizes the lease expirations in the retail portfolio
for the fourth quarter of 1997 and thereafter:
<TABLE>
<CAPTION>
FOURTH
QUARTER
1997 1998 1999 2000 2001 2002 2003 2004 2005 THEREAFTER
------- ---- ---- ---- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent................. 3.7% 7.6% 4.0% 13.6% 7.9% 2.8% 4.1% 10.5% 0.6% 45.2%
Square feet (in thou-
sands)................. 32 66 34 117 68 24 35 90 5 391
</TABLE>
Of the 32,000 square feet expiring in the fourth quarter of 1997, 56% is
located in Southern California and the balance spread across the rest of the
portfolio, and approximately 7,000 square feet of such space represent month-
to-month leases.
40
<PAGE>
LAND LEASES
At September 30, 1997, the Company's land lease portfolio consisted of 5,342
acres subject to primarily long-term leases. Property operating income for the
land lease portfolio has remained stable since 1994, as illustrated in the
table below:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income from Land Leases................ $ 6,377 $ 6,171 $ 6,705 $5,142
</TABLE>
The following table summarizes the Company's land leases by region as of
September 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF
LEASES ACRES
--------- -----
<S> <C> <C>
Arizona...................................................... 4 16
Northern California.......................................... 5 24
Southern California.......................................... 45 5,297
Texas........................................................ 1 5
--- -----
Total...................................................... 55 5,342
=== =====
</TABLE>
In November 1997, the Company entered into a letter of intent to acquire a
large portfolio consisting primarily of land leases valued at approximately
$65 million in the aggregate. The acquisition, if consummated, would not be
consummated until sometime in 1998, and there can be no assurances that the
acquisition will be consummated.
JOINT VENTURES
The Company has direct or indirect equity interests in five income-producing
joint ventures, ranging from 25% to 72%. These joint ventures provided cash
distributions to the Company of $6.6 million for the nine months ended
September 30, 1997 and equity in earnings of $6.0 million for the same period.
The Company is engaged in discussions concerning the possible sale of certain
joint venture interests. As of September 30, 1997, the Company owns joint
venture interests in the following income-producing properties in addition to
its joint venture interests in development properties described under "--
Development--Joint Ventures":
<TABLE>
<CAPTION>
EQUITY IN EARNINGS
(LOSSES)
--------------------------
NINE MONTHS
YEAR ENDED ENDED
NO. OF OWNERSHIP DECEMBER 31, SEPTEMBER 30,
TYPE VENTURES SIZE INTEREST 1996 1997
---- -------- ----------------- --------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Hotel................... 2 1,939 rooms 25-50% $6,739 $5,785
Office.................. 1 205,000 sq. ft. 67% (568) 80
Apartments.............. 1 387 units 50% (178) 98
Furniture Mart.......... 1 1,200,000 sq. ft. 72% -- --
------ ------
$5,993 $5,963
====== ======
</TABLE>
DEVELOPMENT
INDUSTRIAL
The Company intends to continue expanding industrial development activity.
Approximately 2,059 acres of the Company's industrial land in 17 separate
locations would, once entitled and approved, support the development of up to
28 million square feet of industrial development.
Through the first nine months of 1997, the Company commenced construction on
1.3 million square feet of new industrial development and completed
approximately 1.7 million square feet of industrial construction. In addition,
the Company recently acquired Stapleton Business Park in Denver, Colorado and
industrial properties
41
<PAGE>
in Northern California. As of September 30, 1997, the Company had 1.8 million
square feet under construction and had signed leases for 109,000 square feet
of new industrial development. The Company intends to seek additional build-
to-suit opportunities and to engage in speculative development when
advantageous to do so in light of local market conditions.
The following table summarizes selected industrial development properties by
location as of October 30, 1997:
<TABLE>
<CAPTION>
SQUARE FEET OF
ACRES ENTITLEMENTS
----- --------------
(IN MILLIONS)
<S> <C> <C>
Southern California
Anaheim.............................................. 2.2 0.1
City of Industry..................................... 18.8 0.4
La Mirada (held in joint venture).................... 20.3 0.4
Mira Loma(1)......................................... 62.1 1.4
Ontario.............................................. 246.6 3.9
Rancho Cucamonga(2).................................. 32.6 0.6
Santa Fe Springs..................................... 8.1 0.2
Northern California
Richmond............................................. 54.8 0.7
Fremont(3)........................................... 65.7 1.0
Oakland.............................................. 13.9 0.3
------- ----
Total in California................................. 525.1 9.0
------- ----
Chicago, Illinois
International Centre, Woodridge...................... 379.3 4.7
Romeoville........................................... 140.5 2.0
Dallas, Texas
Coppell.............................................. 171.6 2.9
Garland.............................................. 59.9 1.2
Denver, Colorado(2)................................... 294.2 3.4
Phoenix, Arizona...................................... 214.3 3.6
Oklahoma City, Oklahoma............................... 274.5 1.2
------- ----
Total outside of California......................... 1,534.3 19.0
------- ----
Total............................................... 2,059.4 28.0
======= ====
</TABLE>
- --------
(1) Represents properties which the Company does not currently own but for
which it has entered into contractual relationships to acquire, such as
letters of intent, purchase agreements with customary conditions
precedent, option agreements and other similar arrangements. There can be
no assurance the Company will actually acquire these properties.
(2) Entitlements are in progress.
(3) The acreage at Fremont represents the estimated industrial development at
the Company's 840-acre mixed-use project, Pacific Commons in Fremont. The
remainder of the developable acreage at Pacific Commons will be research
and development facilities, flex-tech, office and retail.
Because entitlement depends on discretionary government decisions as well as
the results of a variety of predevelopment studies undertaken at various
points in the planning for a project, there can be no assurances that the
potential square feet of entitlements will in fact be received or if received,
will permit timely development in the light of market conditions.
42
<PAGE>
For 1997, the Company expects to exceed the level of construction starts in
1996. The following table summarizes the Company's industrial development
activities during the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------ SEPTEMBER 30,
1994 1995 1996 1997
-------- -------- ---------- -------------
(IN SQUARE FEET)
<S> <C> <C> <C> <C>
Under construction, begin-
ning of period............ 307,000 337,136 641,128 2,286,961
Construction starts........ 381,136 791,846 3,259,308 1,252,000(1)
Completion................. (351,000) (487,854) (1,613,475) (1,727,961)
-------- -------- ---------- ----------
Under construction, end of
period.................... 337,136 641,128 2,286,961 1,811,000(1)
======== ======== ========== ==========
</TABLE>
- --------
(1) Includes 626,000 square feet of "design build" development for third-party
land owners.
The following table summarizes the Company's sales of industrial development
property in the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- SEPTEMBER 30,
1994 1995 1996 1997
-------------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales.................................. $ -- $ 3,224 $ 40,525 $24,607
Cost of Sales.......................... -- 2,271 26,709 18,703
------ ------- -------- -------
Gain................................. $ -- $ 953 $ 13,816 $ 5,904
====== ======= ======== =======
</TABLE>
MIXED-USE PROJECTS
The Company's land portfolio includes four major mixed-use development
sites, which include development for residential, office, retail and
entertainment purposes.
Mission Bay, San Francisco, CA. The Company owns 166.9 acres of property in
San Francisco adjacent to downtown, which is part of an approximately 300-acre
mixed-use development project known as Mission Bay. The balance of the project
is primarily owned by several public entities. The current proposed
development for Mission Bay includes up to:
. 6,000 residential units, of which 4,600 may be developed by the Company;
. a 2.65 million square-foot research campus for the University of
California at San Francisco ("UCSF") to be developed by UCSF;
. 5.0 million square feet of private office, research and development and
biotech space surrounding the UCSF campus;
. 850,000 square feet of retail, including a 350,000 square-foot
retail/entertainment center adjacent to the planned San Francisco Giants
ballpark; and
. a 500-room hotel.
The Mission Bay development would provide additional residential and office
units in San Francisco. Information compiled by the Rosen Consulting Group
shows that over the past two years, apartment vacancy rates in San Francisco
have dropped as low as 1.1% and have averaged less than 2.2%. Rosen's compiled
information also shows that San Francisco CBD office vacancy rates declined
from 7.1% at the end of 1996 to 5.3% at the end of the second quarter of 1997.
In September 1996, the Mayor of San Francisco forwarded to various city
agencies a non-binding conceptual framework for the development of an
approximately 65-acre portion ("Mission Bay North") of the project, with a
request that the agencies work diligently to make progress on the proposal.
This portion of the
43
<PAGE>
project begins at the terminus of the I-280 freeway and runs on either side of
King Street up to the planned site of the new Giants ballpark. In July 1997,
the Mayor of San Francisco forwarded to various city agencies a non-binding,
conceptual framework for the development of the remainder of the Mission Bay
project ("Mission Bay South"). Mission Bay South is bordered by Mission Bay
North to the north, Mariposa Street to the south, Seventh Street to the west,
and the San Francisco Bay to the east. As proposed in the Mayor's letters, the
Company's land in the overall Mission Bay project would support up to: 4,300
market-rate housing units, 300 affordable housing units, 5.0 million square
feet of office, R&D and biotech space, 350,000 square feet of entertainment
retail, 500,000 square feet of neighborhood- and community-supporting retail
and a 500-room hotel. As presently proposed, incremental property taxes
generated by the project will be available to finance infrastructure.
The Mission Bay project will be developed around the new 2.65-million-
square-foot biotech/research expansion campus for UCSF, which will be
developed by developers (which may include the Company) selected by UCSF. The
proposed development also includes 1,400 affordable housing units to be built
by other developers. The Mission Bay South conceptual framework is conditioned
upon a number of contingencies, including the negotiation of an agreement
between the Company and The Regents of the University of California ("The
Regents") to locate the UCSF expansion campus at Mission Bay South. In
September 1997, the Company entered into such an agreement with The Regents to
locate the UCSF expansion campus on a portion of Mission Bay South (29.3 acres
of which would be donated by the Company and 13.3 acres of which would be
contributed by the City of San Francisco). The obligations of both parties
under this agreement are subject to a number of conditions, including a review
of the property. There can be no assurances that these conditions will be
satisfied.
The entitlement process for all of Mission Bay is underway and will continue
into 1998. There can be no assurances that the necessary entitlements will be
obtained for the project, or that the timing or scope of entitlements, if
obtained, will coincide with market conditions. It is not feasible to estimate
project development costs until entitlements have been obtained.
Currently, the 166.9-acre portion of the project owned by the Company
contains approximately 1.1 million square feet of income-producing buildings
and approximately twenty land leases. The buildings, as of September 30, 1997,
were 92% occupied. These operating assets are merely interim uses of the
property and are not expected to be part of any final project. Rental revenue
from the buildings at Mission Bay was $4.5 million during 1996, resulting in
property operating income of $3.2 million. Rental revenue from the land leases
was approximately $1.6 million during 1996, resulting in property operating
income of $600,000.
Pacific Commons, Fremont, CA. Pacific Commons, which management believes is
the largest planned business park in Silicon Valley, consists of 840 acres
adjacent to I-880 sixteen miles north of San Jose. Market demand for
industrial, warehouse, flex-tech, R&D and campus office space in the Silicon
Valley area is strong as vacancy rates for all product types have dropped
since the end of 1996. Information compiled by Rosen Consulting Group
indicates that during the first six months of 1997, warehouse vacancy dropped
from 4.7% to 1.5%; industrial vacancy went from 4.4% to 1.7%; office vacancy
dropped from 18.7% to 11.1%; and R&D fell from 5.2% to 4.2%, taking the
overall vacancy rate for the area from 5.6% at the end of 1996 to 3.3% as of
June 30, 1997.
In late 1996, the Company received the necessary entitlements from the City
of Fremont for 8.5 million square feet of development, including 8.25 million
square feet of R&D, light industrial, warehouse/distribution, and corporate
campus space, as well as 250,000 square feet of retail space. The initial
phase of development at Pacific Commons is underway on 78 acres, including
238,000 square feet of R&D and light industrial buildings started during the
third quarter of 1997 and the 376,000-square-foot Office Depot building
started at the end of 1996. These 78 acres have the potential for an estimated
additional 574,000 square feet of development.
The Company is currently working with the City of Fremont and various
federal, state, and local agencies to address the impact of the rest of the
proposed Pacific Commons development on wetlands and special status species.
Based on the results of the predevelopment species and wetland surveys, in the
second quarter of 1997, the Company and the City of Fremont filed a modified
application for a permit to undertake the proposed development
44
<PAGE>
activities, including a mitigation proposal for the project. Discussions with
various federal and state agencies concerning the mitigation measures
necessary for the site are continuing and the amount of additional area that
will ultimately be available for development will be identified as these
discussions proceed in coming months. There can be no assurances that the
necessary government approvals will be obtained for the development of the
remainder of the park, or that the timing of entitlements, if obtained, will
meet marketing needs.
Union Station, Los Angeles, CA. The Company currently owns approximately 43
acres surrounding and including the historic Los Angeles Union Station.
Located in downtown Los Angeles, Union Station is a transport hub, with Amtrak
rail service, commuter rail lines serving the surrounding five-county region
(Metrolink), and Los Angeles' growing subway and surface light rail systems.
In 1996, the City of Los Angeles awarded the Company an entitlement package
permitting seven million square feet of office development with the
flexibility to substitute other uses such as office, hotel, sports and
entertainment facilities and housing. As part of this development, in 1996,
the Company sold a 4.2-acre portion to the Metropolitan Water District and
entered into a design-build contract to build its new headquarters facility.
The sale generated proceeds of $13.2 million, a gain of $5.0 million and a
commission to build the facility. The Company has commenced construction of
the 500,000-square-foot, 12-story headquarters facility, which is scheduled
for completion in late 1998, with occupancy to occur in 1999.
Santa Fe Depot, San Diego, CA. The Company owns approximately 14 acres near
the waterfront in downtown San Diego, California, including Santa Fe Depot.
The site is served daily by Amtrak, a commuter rail line (Coaster), and San
Diego's growing trolley system. The site is currently entitled for a mixture
of office, hotel, retail and housing development. Management is reevaluating
the approved specific plan in light of current and projected market
conditions, and is cooperating with the U.S. Navy, the Port Commission of San
Diego, and San Diego City and County agencies on a master plan for the entire
North Embarcadero portion of the waterfront. An adjacent site is also one of
three under consideration for a new baseball stadium for the San Diego Padres,
which may require reevaluation of the specific plan, and in turn could require
additional entitlements. There can be no assurances that any necessary
entitlements will be obtained, or that the timing of entitlements, if
obtained, will meet marketing needs.
RESIDENTIAL
As part of its efforts to enhance core compentencies and capitalize on
opportunities in the California residential market, in March 1996 the Company
acquired The Akins Companies ("Akins"), a residential real estate company
consisting of a diversified group of entities involved in home-building,
community development and project management services. Since 1950, Akins has
developed more than 10,000 homes throughout Southern California.
The acquired business, now called the Catellus Residential Group ("CRG"),
develops the Company's residential land, as well as projects previously
started by Akins, and will undertake new development activities. CRG will also
develop residential housing at the Company's mixed-use projects. In the past,
Akins relied primarily on project management services and joint ventures to
develop its properties. CRG has moved away from project management and joint
ventures in favor of ownership of development projects; however, it has
continued and will continue to consider individual joint venture
opportunities. The Company, through a joint venture, recently acquired Talega
Valley, a 3,470 acre residential land development project located in San
Clemente, California. The Company also has an option to acquire a 220-acre
residential site in Hercules, California.
CRG includes three divisions: Community Development, which identifies and
develops large-scale residential communities in prime housing markets;
Merchant Housing, which designs, builds and markets a variety of for-sale
products, from entry-level to estate homes; and Urban Housing, which develops
and markets affordable rental and for-sale housing, primarily within high-
density urban areas, as well as institutional housing such as faculty and
student housing for universities, and is pursuing opportunities in military
housing as described below.
45
<PAGE>
In April, 1997, CRG, along with a proposed co-investor, responded to a
Department of Defense ("DOD") Request for Proposal ("RFP") for the
rehabilitation and construction of approximately 2,600 housing units at Fort
Carson, Colorado. The DOD considers up-to-date housing with amenities critical
to recruiting and retaining qualified personnel in the all-volunteer military,
and the Fort Carson project is the first RFP under an overall DOD program to
rehabilitate or construct 300,000 housing units for military personnel. The
Department of the Army ("DOA") has indicated that CRG and its proposed co-
investor are the "apparent selected offeror" for the Fort Carson project. CRG
is continuing its discussions with the DOA, but there can be no assurance that
these discussions will culminate in a contract award to CRG and its proposed
co-investor.
The rehabilitation and development of military housing is a new development
opportunity for the Company. CRG may respond to future RFPs for additional
projects under this program. There can be no assurances that CRG will be
awarded any contracts as a result of its responses to future RFPs.
The following table summarizes the Company's residential properties as of
September 30, 1997:
<TABLE>
<CAPTION>
TOTAL LOTS
OWNERSHIP/ TOTAL WITH
PROFIT TOTAL ENTITLED ENTITLEMENTS
PROJECT & LOCATION INTEREST ACRES UNITS/LOTS LOTS IN PROGRESS
------------------ ---------- ----- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Lakeside - Buena Park, Cal-
ifornia.................... 100% 70 350 350 --
Talega - San Clemente, Cal-
ifornia.................... 33% 3,470 4,965 2,405 2,560
Tracy - California.......... 100% 450 2,400 -- 2,400
Foothill Glen - Union City,
California................. 100% 35 102 102 --
Bridgecourt Apartments -
Emeryville, California..... 50% 2 220 220 --
Signature Collection - New-
port Beach, California..... 50% 24 29 29 --
Vidorra - Tustin, Califor-
nia........................ 50% 26 122 122 --
Vista Ladera - Stevenson
Ranch, California.......... 50% 9 45 45 --
Ridgemoor - Rowland
Heights, California ....... 25% 91 169 169 --
Ocean Bluffs - Carlsbad,
California................. 100% 31 96 96 --
Spinnaker Bay - Long Beach,
California................. 100% 8 47 47 --
Stockton - California....... 100% 398 800 -- 800
Chino Hills - California
(1)........................ 100% 279 215 -- 215
Shriners - San Francisco,
California (1)............. 50% 5 84 -- 84
La Quinta - California
(1)........................ 100% 40 201 201 --
Meadowlark - Huntington
Beach, California (1)...... 100% 48 345 -- 345
Oak Creek - Irvine, Cali-
fornia (1)................. 100% 45 104 104 --
Westbluffs - Playa del Rey,
California (1)............. 100% 44 121 -- 121
Hercules, California (1) ... 100% 220 1,000 -- 1,000
Fort Carson - Colorado
Springs, CO (1) ........... 90% 598 2,664 2,664 --
Clodine - Texas............. 100% 877 2,100 -- 2,100
Oakcliff - Texas............ 100% 110 285 -- 285
--- ----- ------ ----- -----
Total..................... 6,880 16,464 6,554 9,910
===== ====== ===== =====
</TABLE>
- --------
(1) Represents properties which the Company does not currently own but for
which it has entered into contractual relationships to acquire, such as
letters of intent, purchase agreements with customary conditions
precedent, option agreements and other similar arrangements. There can be
no assurance the Company will actually acquire these properties.
Sales. The following table summarizes the Company's sales of residential
development property, which include finished lots and housing units, for the
periods presented:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales............................ $ -- $ -- $ 21,945 $23,645
Cost of Sales.................... -- -- 20,138 22,543
------- ------- --------- -------
Gain........................... $ -- $ -- $ 1,807 $ 1,102
======= ======= ========= =======
</TABLE>
46
<PAGE>
JOINT VENTURES
The Company has direct or indirect equity interests in various land and
residential development partnerships.
<TABLE>
<CAPTION>
EQUITY IN EARNINGS
(LOSSES)
--------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
TYPE 1996 1997
---- ------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Residential development........................ $ 796 $ 562
Land development............................... (38) 945
----- ------
$ 758 $1,507
===== ======
</TABLE>
FEE DEVELOPMENT AND MANAGEMENT SERVICES
DEVELOPMENT SERVICES
The Company is currently the developer on a design-build basis, in
partnership with Charles Pankow Builders, for the Metropolitan Water District
headquarters facility, for which it receives a fee. The Company intends to
pursue additional design-build opportunities when available to develop
relationships with other entities and to generate fees.
MANAGEMENT SERVICES
The Company currently provides services to BNSF, which owns one of the
nation's largest railroads, and Canadian Pacific Railroad, one of Canada's
largest railroads. The Company's wholly-owned subsidiary, Catellus Management
Corporation ("CMC"), provides management and disposition services for BNSF's
real property assets, which include approximately 17,000 leases located in 27
states and two Canadian provinces. CMC also manages BNSF's existing portfolio
of approximately 120,000 permits and handles BNSF's issuance of new permits.
CMC is currently preparing an inventory of all of Canadian Pacific's non-
railroad real estate assets. The Catellus Residential Group also generates
management fees in regards to its joint venture developments and third party
arrangements. The Company uses a proprietary management system that tracks
title and leases and provides site plan mapping and imaging data for each of
the properties under management.
CATELLUS RESOURCES GROUP PORTFOLIO
The Company owns approximately 784,000 acres of land in the Southern
California desert regions of Los Angeles, Kern, San Bernardino, Riverside and
Imperial Counties. These desert properties are the result of the historical
land grants to the Southern Pacific Railroad. Because of its location, lack of
contiguity among parcels and other factors, this land is not currently
suitable for traditional development activities. As a result, a new division
of the Company, Catellus Resources Group, was created in 1995 to explore the
potential for agricultural, mineral, water, telecommunication, energy, and
waste management uses for this property.
Upon completion of its initial assessment of the properties, Catellus
Resources Group has identified several opportunities for the property,
including sale opportunities to private and public buyers and a variety of
commercial, parkland, conservation and special use projects. Catellus
Resources Group will continue to pursue efforts to sell or to exchange the
land with various governmental agencies and other entities. A total of
approximately 343,000 acres of the Company's desert land fall into categories
designated for acquisition by the federal government as wilderness, national
preserve or habitat conservation. There can be no assurances that any of these
prospects or opportunities will materialize or be realized by the Company.
47
<PAGE>
RVL, INC.
In 1997, the Company formed a wholly-owned subsidiary, RVL, Inc., to make
passive investments in limited liability companies formed for the purpose of
acquiring, at a discounted price, properties requiring environmental
remediation, performing the necessary remediation and reselling the remediated
properties. RVL owns passive interests in two such limited liability
companies, Remediation Enterprises, LLC ("Remediation") and Restoration
Venture, LLC ("Restoration"). Remediation, Restoration and their subsidiaries
expect to acquire properties only after extensive investigation designed to
characterize the environmental problems and quantify the costs of remediation,
and after obtaining appropriate insurance for overruns in the remediation
budget. Between formation and September 30, 1997, the Company has contributed
$4.6 million in cash and property with a book value of approximately $1.0
million to RVL.
A limited liability company formed by Remediation and Restoration, Hercules,
LLC, acquired the Pacific Refinery at Hercules, California in September 1997.
The Company has entered into an agreement to provide entitlement services to
Hercules, LLC in return for an option to buy the property once defined
remediation work is completed.
This investment represents a new field and a new area of investment for the
Company. There can be no assurances that the managing member of Remediation
and Restoration will manage the business successfully, that environmental
problems will be accurately characterized, or that insurance will be available
or adequate to cover remediation budget overruns. Any of these contingencies
could result in the loss of some or all of the Company's investment in RVL.
ENVIRONMENTAL MATTERS
Various federal, state, and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect the Company's operations and costs.
See "Risk Factors--Environmental Matters" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Environmental
Matters." Such regulations can increase the cost of planning, designing,
developing, managing and maintaining the Company's properties. The Company has
expended and will continue to expend significant financial and managerial
resources to comply with environmental regulations and local permitting
requirements. 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, identified site
conditions and sampling methodologies. In addition, many of the Company's
properties are in the early stages of development, and the environmental
studies and investigations which have been performed are preliminary. It is
possible that significant unknown costs and liabilities may arise in the
future relating to these properties and that certain development projects may
be significantly delayed, modified, or canceled as a result of associated
remediation costs. In addition, other properties presently or formerly owned
by the Company or its corporate predecessors have required or may require
remediation. Although there can be no assurance, the Company does not believe
that such costs will have a material adverse effect on its business, financial
condition or results of operations.
LITIGATION
The Company, its subsidiaries and other related companies are named
defendants in several lawsuits arising from normal business activities, are
named parties in certain governmental proceedings (including environmental
actions) and are the subject of various environmental remediation orders of
local governmental agencies arising in the ordinary course of its business.
While the outcome of these lawsuits or other proceedings against the Company
and the cost of compliance with any governmental order cannot be predicted
with certainty, management does not expect any of these matters to have a
material adverse effect on the business, financial condition or liquidity of
the Company.
48
<PAGE>
COMPETITION
Real estate markets are regional, and levels of competition vary by market.
The Company encounters significant competition for leasing and sales of real
estate in each of its market areas, but no one competitor is dominant. The
Company is not dependent on any one customer for a significant portion of its
revenues.
EMPLOYEES, CONTRACTORS AND CONSULTANTS
At September 30, 1997, the Company had 344 employees, including 56 employees
of Catellus Management Corporation and 121 employees of Catellus Residential
Group. The Company engages third parties to manage multi-tenant properties and
properties in locations which are not in close proximity to the Company's
regional or field offices. In addition, the Company engages outside
consultants such as architects and design firms in connection with its pre-
development activities. The Company also employs third party contractors on
development projects for infrastructure and building construction and retains
consultants to assist it in a variety of areas at the project level and at the
corporate level for efforts like strategic planning.
49
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Nelson C. Rising....................... 56 President, Chief Executive Officer and Director
Stephen P. Wallace..................... 43 Senior Vice President and Chief Financial Officer
Timothy J. Beaudin..................... 38 Senior Vice President Property Operations
Ira E. Yellin.......................... 57 Senior Vice President Southern California Development
Kathleen Smalley....................... 39 Senior Vice President, General Counsel and Secretary
Paul A. Lockie......................... 38 Vice President and Controller
Jacqueline R. Slater................... 45 Chairman of the Board
Joseph F. Alibrandi.................... 68 Director
Daryl J. Carter........................ 42 Director
Richard D. Farman...................... 62 Director
Christine Garvey....................... 51 Director
William M. Kahane...................... 49 Director
Donald J. McNamara..................... 44 Director
Leslie D. Michelson.................... 46 Director
Thomas M. Steinberg.................... 41 Director
Beverly Benedict Thomas................ 54 Director
</TABLE>
Additional information concerning the business background of each executive
officer and director of the Company is set forth below:
MR. RISING has served as President and Chief Executive Officer and a
Director of the Company since September 1994. For more than five years prior
to joining the Company, Mr. Rising was a Senior Partner with Maguire Thomas
Partners, a Los Angeles-based commercial developer with projects in Southern
California, Dallas and Philadelphia.
MR. WALLACE was elected as Senior Vice President and Chief Financial Officer
in July 1995. Mr. Wallace was previously the Senior Vice President and Chief
Financial Officer at Castle & Cooke Homes, Inc. from May 1993. Before that Mr.
Wallace served as the Chief Financial Officer at A.M. Homes in Newport Beach,
California, and before that he was a Partner at Arthur Andersen LLP.
MR. BEAUDIN was elected Senior Vice President Property Operations in January
1996. Before this appointment, Mr. Beaudin served as Vice President Property
Operations since February 1995. For more than five years before that, Mr.
Beaudin served as Senior Vice President--Managing Officer of the Financial
Services Group at CB Commercial Real Estate Group, a national real estate
brokerage firm.
MR. YELLIN joined the Company in February 1996 as the Senior Vice President,
Southern California Development. For more than five years before joining the
Company, Mr. Yellin served as President of the Yellin Company, a Los Angeles
real estate investment, development and management company involved primarily
in the acquisition, restoration and redevelopment of historic buildings in the
Historic Core of Downtown Los Angeles.
MS. SMALLEY joined the Company as Senior Vice President, General Counsel and
Secretary on January 1, 1997. For more than five years before joining the
Company, Ms. Smalley was General Counsel and Investment Manager of Crow Family
Holdings, an investment management company that manages assets, including real
estate and related businesses, throughout the United States and abroad. During
1996 and 1997, Ms. Smalley held an appointment to Harvard Law School, where
she lectured in real estate transactions.
MR. LOCKIE joined the Company as Vice President and Controller in February
1996. Before joining the Company, Mr. Lockie served as the Chief Financial
Officer for Kimball Small Properties, Inc. ("KSP"), a San Jose, California
real estate development and management company, since 1987.
50
<PAGE>
MS. SLATER has served as Chairman of the Board of Directors of the Company
since May 1997 and as a Director of the Company since February 1993. From 1995
to the present, Ms. Slater has served as Managing Director, The Chase
Manhattan Bank and President, Chase Commercial Mortgage Securities Corp.,
responsible for commerical real estate securitization (CMBS). From 1990 to
1995, she was Managing Director, responsible successively for commerical real
estate restructuring and loan and REO (real estate owned) sales.
MR. ALIBRANDI has served as a Director of the Company since May 1989. From
1985 to the present, Mr. Alibrandi has served as Chairman of Whittaker
Corporation, a diversified company with business activities in the aerospace
and communications field. From 1974 to 1994 and from 1996 to the present, he
has also served as Chief Executive Officer of Whittaker Corporation. Mr.
Alibrandi is currently a director of Whittaker Corporation, Jacobs Engineering
Group, Burlington Northern Santa Fe Corporation, Bank of America NT & SA,
BankAmerica Corporation, and NewMed Corporation.
MR. CARTER has served as a Director of the Company since May 1995. From 1992
to the present, Mr. Carter has served as Co-Chairman of Carter Primo
Chesterton, L.P., a real estate investment management company. From 1990 to
1992, he was President of Carter Property Company, a real estate asset
management company. From 1985 to 1990, he served as Vice President of
Westinghouse Credit Corporation, a real estate investment company.
MR. FARMAN has served as a Director of the Company since May 1997. He has
been President, Chief Operating Officer and Director of Pacific Enterprises,
an energy services company, since 1993. From 1993 to 1995, he was Chief
Executive Officer of Southern California Gas Company, a subsidiary of Pacific
Enterprises. From 1989 to 1993, he served as Chairman and Chief Executive
Officer of Southern California Gas Company.
MS. GARVEY has served as a Director of the Company since May 1995. From
April, 1997 to the present, Ms. Garvey has served as Group Executive Vice
President, Commercial Real Estate Services Group of Bank of America NT&SA.
From 1992 to March 1997, Ms. Garvey has served as Executive Vice President,
Corporate Real Estate, Other Real Estate Owned ("OREO"), Sales and Property
Management of Bank of America NT & SA. From 1991 to 1992, she was Vice
President (OREO Division) of Security Pacific National Bank. From 1986 to
1991, she was Senior Vice President (Manager, Corporate Real Estate
Department) of Wells Fargo Bank.
MR. KAHANE has served as a Director of the Company since May 1997. From 1992
to the present, Mr. Kahane has served as Managing Partner of Milestone
Partners Limited, an investment banking and financial advisory company, and
Chief Investment Officer of Robert H. Burns Holdings Ltd., a private
investment company. Mr. Kahane is a director (advisory) of Yue-Sai Kan
Cosmetics, and a director of Robert H. Burns Holdings Ltd. and Robert H. Burns
Ventures Ltd.
MR. McNAMARA has served as a Director of the Company since May 1997. From
1988 to the present, Mr. McNamara has served as the Chairman of The Hampstead
Group, an investment company founded by Mr. McNamara. He is also Chairman of
Bristol Hotel Company and is a director of Felcor Suite Hotels and Malibu
Entertainment Worldwide, Inc.
MR. MICHELSON has served as a Director of the Company since May 1997. From
1988 to the present, Mr. Michelson has served as Chairman and Chief Executive
Officer of Value Health Sciences, Inc., an applied health services research
firm. He is also a director of G&L Realty, Inc.
MR. STEINBERG has served as a Director of the Company since June 1994. From
1997 to the present, Mr. Steinberg has served as President of Tisch Family
Interests, which manages and supervises various investments for members of the
Laurence A. Tisch and Preston R. Tisch families. From 1991 until 1997, he
served as Managing Director of Tisch Family Interests.
MS. THOMAS has served as a Director of the Company since March 1995. From
1995 to the present, Ms. Thomas has served as Vice President of UT Strategies
Inc., a public affairs firm. From 1991 to 1995, she was Assistant Treasurer of
the State of California. From 1984 to 1991, she was a Partner of Unger Thomas,
a development consulting firm.
51
<PAGE>
OTHER KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Carl S. Akins......... 49 Chairman, Catellus Residential Group
Bruce K. Akins........ 46 President, Catellus Residential Group
Glen E. Allen......... 41 Vice President, Construction Services
Ted R. Antenucci...... 33 Vice President, Industrial Development Midwest
Daniel P. Arian....... 32 Vice President, Retail/Entertainment Development
Martha Buxton......... 50 Vice President, Entitlements & Acquisitions
Vice President, Construction, Southern California
Timothy B. Carey...... 39 Development
Syl L. Egan........... 56 Senior Vice President, Northern California
Construction, Catellus Residential Group
David B. Friedman..... 40 President, Catellus Resources Group
Frank E. Fullerton.... 51 Senior Vice President, Construction, Catellus
Residential Group
Douglas J. Gardner.... 46 Vice President, Southern California Development
Jaime L. Gertmenian... 31 Vice President, Human Resources/Administration
William R. Hamilton... 50 Vice President, Southern California Development
Christopher M. Hawke.. 38 Senior Vice President, Northern California Merchant
Housing Division, Catellus Residential Group
Susan Herald.......... 51 Vice President, Assistant General Counsel
Stephen R. Koch....... 47 Vice President, Finance
Stephen L. Kuptz...... 38 Executive Vice President, Urban Housing Division,
Catellus Residential Group
Bruce T. Lehman....... 45 Executive Vice President, Merchant Housing
Division, Catellus Residential Group
Don D. Little......... 42 Vice President, Industrial Development Northwest
Anthony J. Manos...... 36 Vice President, Industrial Development Southwest
Donald M. Parker...... 53 Vice President Bay Area Development
Patrick B. Patterson.. 38 Senior Vice President & Chief Financial Officer,
Catellus Residential Group
Ana M. Perez.......... 38 Vice President, Asset Management
Terri L. Riker........ 39 Vice President, Property Operations
Vice President and Chief Financial Officer, Bay
Douglas Stimpson...... 41 Area Development
Karen Spargo.......... 49 Senior Vice President, Sales & Marketing, Catellus
Residential Group
Timothy L. Unger...... 50 Executive Vice President, Community Development,
Catellus Residential Group
</TABLE>
Additional information concerning the business background of certain other
key employees of the Company is set forth below:
MR. CARL AKINS has served as Chairman of Catellus Residential Group since
its formation in March 1996. Before joining the Company, Mr. Akins served as
Chairman of The Akins Companies, a Southern California real estate development
company specializing in home-building, community development and fee
management. Carl Akins is the brother of Bruce Akins.
MR. BRUCE AKINS has served as President of Catellus Residential Group since
its formation in March 1996. Before joining the Company, Mr. Akins served as
President of The Akins Companies, a Southern California real estate
development company specializing in home-building, community development and
fee management. Bruce Akins is the brother of Carl Akins.
MR. ALLEN joined the Company in March 1996 as Vice President, Southern
California Industrial Development and was promoted to Vice President,
Construction Services in June 1997. Before joining the Company, Mr. Allen
served as Vice President of Arvida Company, a large-scale mixed-use planned
community developer for over six years. Prior to 1992, he was Vice President
of Development at The Koll Company, a national real estate development firm.
52
<PAGE>
MR. ANTENUCCI has served as Vice President of Midwest Industrial Development
and Senior Vice President of CMC since joining the Company in October 1995.
Prior to joining the Company, Mr. Antenucci was Vice President of Real Estate
for Omnitrax, one of the largest shortline operators in the United States.
From 1986 to 1993, Mr. Antenucci was Vice President/Industrial Specialist at
CB Commercial, a national real estate brokerage firm.
MR. ARIAN has served as Vice President Retail/Entertainment Development at
the Company since April 1997. Prior to joining the Company, Mr. Arian was
Director Entertainment Properties Development with Forest City Enterprises, a
publicly held real estate development company based in Cleveland, Ohio.
MS. BUXTON currently serves as Vice President, Acquisitions & Entitlements
for the Company's Bay Area Development Group, a position she was promoted to
in January 1996. She joined the Company as Project Director Bay Area
Development in August 1995. Prior to that, she served as an independent
consultant to the Company for a year.
MR. CAREY joined the Company in July 1996 as Vice President Construction,
Southern California Development. Prior to joining the Company, Mr. Carey
served as Vice President of the New Water Street Corporation in New York City,
a corporation dedicated to the redevelopment of 55 Water Street and as Project
Director, Administration for JLW Project Management Services, Inc., a division
of Jones Lang Wootton USA. For five years prior to that, he was Tenant
Improvements Manager with Maguire Thomas Partners, a Los Angeles-based
commercial real estate development firm.
MR. EGAN has served as Senior Vice President Construction for Catellus
Residential Group's Northern California Division since October 1996. Prior to
joining the Company, Mr. Egan served as Senior Vice President Operations for
Greystone Homes, an Orange County, California homebuilder and Vice President
Construction for the Mission Viejo Company, another Southern California
homebuilder.
DR. FRIEDMAN has served as President of Catellus Resources Group since
February 1996. For more than five years before joining the Company, Dr.
Friedman was an Associate attorney and Partner in the Los Angeles law firm of
Tuttle & Taylor with an emphasis on environmental matters and representing,
among other clients, major agriculture and resource interests and was a
consultant specializing in California economic development research.
MR. FULLERTON has served as Senior Vice President Construction at Catellus
Residential Group since its formation in March 1996. Before that, Mr.
Fullerton served as an executive at The Akins Companies, a Southern California
real estate development company specializing in homebuilding, community
development and fee management.
MR. GARDNER joined the Company in September 1997 as Vice President Southern
California Development. For more than the previous eight years, Mr. Gardner
was a partner with Maguire Partners, a Los Angeles-based commercial real
estate developer.
MS. GERTMENIAN has been with the Company since October 1995 and currently
serves as Vice President of Human Resources and Administration. For four years
prior to joining the Company, Ms. Gertmenian worked in human resources and
administration at CB Commercial Real Estate Group, a national real estate
services firm.
MR. HAMILTON joined the Company in March 1996 as Vice President Southern
California Development. For more than five years prior to joining the Company,
Mr. Hamilton was a Vice President with MCA Development Company, the real
estate arm of MCA, Inc. He was a core member of the team that developed
Universal CityWalk in Los Angeles.
MR. HAWKE has served as Senior Vice President Merchant Housing Division in
Catellus Residential Group's Northern California Division since August 1997.
Mr. Hawke formerly served as an executive in both the Northern and Southern
California offices of the William Lyon Homes, Inc.
53
<PAGE>
MS. HERALD joined the Company in October 1997 as Vice President Assistant
General Counsel. Prior to that, she was an attorney with McCutchen, Doyle,
Brown & Enersen. From 1990 to 1994, she served as Senior Counsel of Stanford
University.
MR. KOCH joined the Company as Vice President, Finance in May 1997. For more
than five years prior to joining the Company, Mr. Koch was a partner at AMB
Corporate Real Estate Advisors, a real estate investment advisory firm, in San
Francisco.
MR. KUPTZ has served as Executive Vice President of the Company's Urban
Housing Division since joining the Company in June 1995. Prior to joining the
Company, Mr. Kuptz was Managing Director of Sentre Partners, a real estate
management, investment and development firm located in San Diego, California.
MR. LEHMAN has served as Executive Vice President Merchant Housing Division
at Catellus Residential Group since its formation in March 1996. For seven
years before joining the Company, Mr. Lehman held executive positions at The
Akins Companies, a Southern California real estate development company
specializing in homebuilding, community development and fee management.
MR. LITTLE joined the Company in July 1996 as Vice President of Northwest
Industrial Development. For ten years before joining the Company, Mr. Little
was Senior Vice President/Division Manager at Koll Real Estate Group, a real
estate development group in Northern California.
MR. MANOS joined the Company as Vice President Southwest Industrial
Development in June 1997. For more than five years prior to joining the
Company, Mr. Manos served as Vice President, Marketing and Leasing for Los
Angeles-based Watson Land Company, one of Southern California's largest
developers of industrial real estate.
MR. PARKER was elected Vice President Bay Area Development in March 1994.
From August 1993 to November 1994, Mr. Parker was the Executive Director of
the Alameda Reuse and Redevelopment Authority for the conversion of the naval
air station. For more than twelve years before that, Mr. Parker was a partner
and project director of the Marina Village Mixed-Use Community in Alameda,
California.
MR. PATTERSON has served as Senior Vice President and Chief Financial
Officer of Catellus Residential Group since its formation in March 1996. Prior
to that, Mr. Patterson served as Chief Financial Officer at Avalon Properties,
Inc., a public real estate investment trust. Prior to joining Avalon, Mr.
Patterson served as Chief Financial Officer and Partner in the Northeast
Division of Trammell Crow Residential.
MS. PEREZ has served as Vice President Asset Management since March 1996.
Before joining the Company, Ms. Perez was Vice President Asset Management with
Prudential Real Estate Investors in Los Angeles.
MS. RIKER joined the Company in September 1997 as Vice President Property
Operations. Prior to that, she served as Director of Client Relations for
Westmark Realty Advisors LLC, an investment advisory subsidiary of CB
Commercial Real Estate Group, Inc. and as Senior Vice President Project
Marketing and Management for CB Commercial Management Services Group. Before
that she was President and Chief Executive Officer of Sempre Investment
Advisors, Inc., a real estate investment management firm in Colorado. From
1988 to 1994, she served as Real Estate Investment Officer with the California
Public Employees' Retirement System in Sacramento, California.
MR. STIMPSON has served as Vice President & Chief Financial Officer, Bay
Area Development Group since March 1996. From 1992 to 1996, Mr. Stimpson
served as Vice President Finance for the Company.
54
<PAGE>
MS. SPARGO has served as Senior Vice President Sales and Marketing at
Catellus Residential Group since its formation in March 1996. For more than
five years prior to joining the Company, Ms. Spargo held numerous top-level
sales and marketing positions at The Akins Companies, a Southern California
real estate development company, specializing in home building, community
development and fee management.
MR. UNGER has served as Executive Vice President Community Development
Division at Catellus Residential Group since its formation in March 1996. For
more than five years prior to joining the Company, Mr. Unger was principal of
homebuilding company, Rockfield Development Corporation.
55
<PAGE>
CERTAIN TRANSACTIONS
Ms. Garvey is an executive officer and Mr. Alibrandi is a director of Bank
of America NT & SA ("Bank of America"). During 1996, the Company and its
subsidiaries had banking relationships with Bank of America. Such
relationships, pursuant to which funds are deposited with and borrowed from
Bank of America on terms which the Company believes are competitive,
reasonable and customary, have continued in 1997 and may continue in the
future. The total amount paid by the Company and its subsidiaries to Bank of
America during 1996 pursuant to such arrangements was approximately
$6,607,545. Such amount includes interest, commitment fees and other banking
fees paid to Bank of America as principal and/or in its capacity as agent for
other lenders participating in the syndicate, together with certain third-
party expenses incurred by Bank of America which were reimbursed by the
Company. In addition, BancAmerica Robertson Stephens, one of the
Representatives (see "Underwriters") is an affiliate of Bank of America.
BancAmerica Robertson Stephens is receiving customary underwriters fees and
expenses for its participation in the offering of Common Stock made hereby.
Ms. Slater is an executive officer of The Chase Manhattan Bank, N.A. ("Chase
Manhattan"). During 1996, the Company and its subsidiaries had banking
relationships with Chase Manhattan. Such relationships, pursuant to which
funds were deposited with, and borrowed from, Chase Manhattan on terms which
the Company believes were competitive, reasonable and customary, terminated on
October 28, 1996. The total amount paid by the Company and its subsidiaries to
Chase Manhattan in interest and fees during 1996 pursuant to such arrangements
was approximately $367,534. The Company also repaid approximately $50,000,000
in principal during 1996. No matters involving Chase Manhattan were presented
to the Board or the Finance Committee during 1996 or 1997.
Mr. Alibrandi is a director of BNSF. The Company, BNSF and BNSF's
subsidiaries, Santa Fe Pacific Corporation ("SFP") and The Atchison, Topeka
and Santa Fe Railway Company ("ATSF") and their respective affiliates, have
entered into agreements from time to time as described below:
Leases. ATSF leases approximately 1,080 square feet of office space from
the Company for which it paid the Company $28,063 in 1996. SFP and ATSF
also previously leased approximately 250,000 square feet of office space in
Chicago from the Company under a lease which expired in April 1995. In
1996, the Company performed its annual final reconciliation of the
estimated and actual common area maintenance billings for 1995. Following
that reconciliation, the Company credited SFP and ATSF $177,348 relating to
these billings.
Property Management Agreements. In December 1995, CMC, a wholly owned
subsidiary of the Company, entered into a Management Agreement with BNSF in
which CMC agreed to act as exclusive management and selling agent for
BNSF's non-railroad property located in 27 states and two Canadian
provinces. The BNSF Management Agreement terminates on December 31, 2000,
subject to cancellation by BNSF with 90 days prior written notice and the
payment of a termination fee. In 1996, CMC earned $6,547,288 for fees and
commissions under the BNSF Management Agreement. In November 1996, CMC
entered into a contract with a term of four years and two months to manage
BNSF's existing portfolio of approximately 100,000 permits and to handle
BNSF's issuance of new permits. The Company earned $125,000 under the BNSF
Permit Management Agreement in 1996.
Mr. Yellin, an executive officer of the Company, through the Yellin Company,
indirectly owns 9.8% of Bradbury Associates, L.P., a limited partnership,
which owns the Bradbury Building. The Company leases 21,425 square feet of
space in the Bradbury Building in downtown Los Angeles pursuant to an Office
Lease dated November 22, 1996 ("Lease"). The Company moved its Southern
California headquarters to that site in March 1997. The Company believes that,
notwithstanding the involvement of a corporate officer, the Lease was entered
into on terms which are commercially reasonable, fair to the Company, and
comparable to the terms of leases of other properties which would have been
available to the Company. The Lease has been unanimously approved by the Board
of Directors.
56
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table and accompanying footnotes set forth certain information
regarding beneficial ownership, unless otherwise indicated, of the Company's
Common Stock as of September 30, 1997 (i) by each person known by the Company
to be the beneficial owner of more than 5% of any class of the Company's
capital stock, (ii) by each of the directors of the Company, (iii) by each of
the executive officers of the Company and (iv) by all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY STOCK BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OF OFFERING
------------------ SHARES ------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED(2) NUMBER PERCENT
- ------------------------ ---------- ------- ---------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Principal Stockholders
California Public Employees' Retirement
System....................................... 37,757,250 35.5% 16,500,000 21,257,250 20.0%
Fidelity Management & Research Company(3)..... 5,996,600 5.6% -- 5,996,600 5.6%
Harris Associates, L.P.(4).................... 5,895,183 5.5% -- 5,895,183 5.5%
Directors
Joseph F. Alibrandi(5)(6)..................... 13,255 * -- 13,255 *
Daryl J. Carter(6)(7)......................... 8,731 * -- 8,731 *
Richard D. Farman(6).......................... 995 * -- 995 *
Christine Garvey(6)(7)........................ 9,871 * -- 9,871 *
William M. Kahane(6).......................... 995 * -- 995 *
Donald J. McNamara(6)......................... 995 * -- 995 *
Leslie D. Michelson(6)........................ 497 * -- 497 *
Nelson C. Rising(8)(9)........................ 855,487 * -- 855,487 *
Jacqueline R. Slater(6)(10)................... 11,871 * -- 11,871 *
Thomas M. Steinberg(6)(11).................... 38,922 * -- 38,922 *
Beverly Benedict Thomas(6)(12) ............... 8,139 * -- 8,139 *
Executive Officers
Stephen P. Wallace(13)........................ 265,401 * -- 265,401 *
Timothy J. Beaudin(14)........................ 109,199 * -- 109,199 *
Ira Yellin(15)................................ 75,000 * -- 75,000 *
All directors and executive officers as a
group
(14 persons)(16)............................. 1,399,358 * -- 1,399,358 *
</TABLE>
- -------
* Less than one percent.
(1) Beneficial and percentage ownership are determined in accordance with
applicable Commission rules.
(2) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full, California
Public Employees' Retirement System ("CalPERS") will sell an additional
2,475,000 shares of Common Stock and the number of shares and the percent
of Common Stock to be beneficially owned will be 18,782,250 and 17.6%,
respectively.
(3) Based on information contained in a Schedule 13F filed with the Commission
for the quarter ended June 30, 1997. Fidelity Management & Research
Company's address is 82 Devonshire Street, Boston, MA 02109-3614.
(4) Based on information contained in a Schedule 13F filed with the Commission
for the quarter ended June 30, 1997. Harris Associates, L.P.'s address is
2 North LaSalle Street, Suite 500, Chicago, IL 60602-3190.
(5) Includes (i) 384 shares of Common Stock beneficially owned by Mr.
Alibrandi and (ii) 10,000 shares of Common Stock that may be acquired upon
the exercise of options exercisable within 60 days of September 30, 1997.
(6) Reported holdings include vested stock units credited under the Amended
and Restated 1996 Performance Award Plan. The directors have been credited
with stock units ranging in amount from 497 to 2,871 stock units pursuant
to the terms of the Plan. Directors do not have voting power or investment
power pursuant to the stock units but bear an economic risk and benefit
equivalent to stock ownership because the units convert on a one-for-one
basis into Common Stock following termination of service as a director.
57
<PAGE>
(7) Includes 7,000 shares of Common Stock that may be acquired upon exercise
of options exercisable within 60 days of September 30, 1997.
(8) Includes (i) 850,000 shares of Common Stock that may be acquired upon
exercise of options exercisable within 60 days of September 30, 1997 and
(ii) 5,097 shares of Common Stock held for the benefit of Mr. Rising by
the Trustee of the Profit Sharing & Savings Plan and Trust.
(9) Mr. Rising is also the Chief Executive Officer of the Company.
(10) Includes (i) 5,650 shares of Common Stock beneficially owned by Ms.
Slater and (ii) 3,750 shares of Common Stock that may be acquired upon
the exercise of options exercisable within 60 days of September 30, 1997.
(11) Includes (i) 4,998 shares of Common Stock beneficially owned by Mr.
Steinberg, (ii) 7,961 shares of Common Stock held by and for a charitable
remainder unitrust of which Mr. Steinberg is the trustee, (iii) 16,824
shares of Common Stock held in a joint account by Mr. Steinberg and (iv)
8,000 shares of Common Stock that may be acquired upon the exercise of
options exercisable within 60 days of September 30, 1997. Mr. Steinberg
disclaims beneficial ownership of the 7,961 shares of Common Stock held
by the trust and the 16,824 shares of Common Stock held in the joint
account.
(12) Includes 7,000 shares of Common Stock that may be acquired upon the
exercise of options exercisable within 60 days of September 30, 1997.
(13) Includes (i) 262,478 shares of Common Stock that may be acquired upon
exercise of options exercisable within 60 days of September 30, 1997 and
(ii) 2,923 shares of Common Stock held for the benefit of Mr. Wallace by
the Trustee of the Profit Sharing & Savings Plan and Trust.
(14) Includes (i) 104,160 shares of Common Stock that may be acquired upon
exercise of options exercisable within 60 days of September 30, 1997 and
(ii) 5,039 shares of Common Stock held for the benefit of Mr. Beaudin by
the Trustee of the Profit Sharing & Savings Plan and Trust.
(15) Includes 75,000 shares of Common Stock that may be acquired upon the
exercise of options exercisable within 60 days of September 30, 1997.
(16) Includes 1,333,988 shares of Common Stock that may be acquired upon the
exercise of options exercisable within 60 days of September 30, 1997 and
13,849 shares of Common Stock held by the Trustee of the Profit Sharing &
Savings Plan and Trust.
In 1989, Bay Area Real Estate Investment Associates, L.P. ("BAREIA"), a
limited partnership in which the Selling Stockholder, CalPERS, held a 99.8%
interest and was the sole limited partner, was formed to hold CalPERS'
interest in the Company. On December 29, 1989, BAREIA purchased 19.9% of the
Common Stock of the Company and a convertible debenture of the Company in the
principal amount of $75 million, which BAREIA subsequently converted into
approximately 19 million shares of Common Stock on January 14, 1993 at which
time it also purchased approximately 1.4 million shares of Series A Preferred
Stock. On November 14, 1995, BAREIA was dissolved and CalPERS became the sole
holder of approximately 30 million shares of Company Common Stock and
approximately 1.4 million shares of Series A Preferred Stock which since has
been converted into Common Stock. At that time, BAREIA, the Company and two
other principal stockholders were parties to a Registration Rights Agreement
(see "--Registration Rights Agreement") and a stockholders' agreement (the
"Stockholders' Agreement") and there was a separate, related agreement between
BAREIA and the Company. Pursuant to the Stockholders' Agreement, BAREIA was
entitled to nominate, and the other stockholders agreed to vote for, a number
of nominees to the Board of Directors of the Company proportionate to BAREIA's
stock ownership and BAREIA was entitled to designate one-half of the members
of the Company's Nominating Committee. Under a letter agreement dated November
14, 1995, the Stockholders' Agreement and the separate agreement between
BAREIA and the Company were terminated and CalPERS (then the sole remaining
shareholder of the Company out of the original parties to the Stockholders'
Agreement) and the Company agreed to continue to be bound by the terms of the
Registration Rights Agreement.
Following termination of the Stockholders' Agreement and the related
agreement between BAREIA and the Company, CalPERS no longer had contractual
rights to designate directors of the Company. However, representatives of
CalPERS and its consultants have continued from time to time to attend and
participate in certain discussions occuring at meetings of the Board of
Directors and certain of its committees, and have continued to
58
<PAGE>
have access to management of the Company and to information concerning the
Company and its plans, budgets, strategies, operations and consultants'
reports, which is available to Directors, including project level information.
In addition, on occasion, CalPERS has offered its advice and the Company has
sought the views of CalPERS concerning certain matters, including policy
matters, executive compensation matters, the assignment of responsibilities
among Board members and the selection of the Board chairman. In 1997, CalPERS
also offered suggestions as to the process of selection of nominees, and the
identification of nominees, for positions as directors of the Company, and a
representative of CalPERS participated in meetings of a special selection
committee of the Board and prospective candidates for positions as directors.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement, CalPERS may require the
Company on up to four occasions to file a registration statement under the
Securities Act so long as such registration covers not less than 20% of the
Registrable Securities (as defined below) held by CalPERS (or a lesser
percentage if the aggregate offering price after subtraction of underwriting
discounts and commissions would exceed $40 million). Pursuant to the
Registration Rights Agreement, the Company shall bear all expenses, other than
underwriting discounts and commissions, incurred in connection with the
registrations. Pursuant to the Registration Rights Agreement, following the
completion of this Offering, CalPERS may request three additional demand
registrations.
CalPERS also may request that the Company file a registration statement on
Form S-3 (which may be a shelf registration if the Company so consents) if the
aggregate sale price of the registrable securities will be at least $25
million and the Company has not during the preceding twelve month period
already effected two registrations for CalPERS. In addition, if at any time
the Company proposes to register any Common Stock or other Company securities
under the Securities Act in connection with a public offering of such
securities solely for cash, CalPERS has the right to request that any of its
Registrable Securities be included in such registration statement, subject to
certain volume limitations. Registrations pursuant to the procedures
summarized in this paragraph are not counted against CalPERS' right to require
up to three demand registrations in the future.
Under the Registration Rights Agreement, the term "Registrable Securities"
includes 37,488,082 of the 37,757,250 shares of Common Stock currently held by
CalPERS (of which 16,500,000 Registrable Securities are offered hereby
(18,975,000 Registrable Securities if the over-allotment option is exercised
in full)), and any Common Stock issued as a dividend or other distribution in
connection with such shares of Common Stock which are Registrable Securities
and shares of any class of capital stock purchased by CalPERS pursuant to a
private placement if that class of stock is publicly traded at the time
registration is requested. Shares of Common Stock cease to be classified as
Registrable Securities once such shares have been registered under the
Securities Act, distributed pursuant to Rule 144 of the Securities Act, or
otherwise transferred without restriction upon subsequent transfer, or if such
shares cease to be outstanding. The registration rights may be transferred by
CalPERS to a transferee or assignee of Registrable Securities if such
securities remain restricted under the Securities Act and the assignee or
transferee agrees to be bound by the terms of the Registration Rights
Agreement.
Additionally, under the Registration Rights Agreement, CalPERS and the
Company have also agreed to indemnify each other against certain civil
liabilities, including certain liabilities under the Securities Act.
59
<PAGE>
OPTIONS HELD BY CERTAIN OFFICERS
The following table sets forth the options held by certain officers as of
September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS VALUE OF VESTED VALUE OF UNVESTED
NAME GRANT DATE AWARDED SHARES ($) (1) SHARES ($) (2)
- ---- ---------- --------- --------------- -----------------
<S> <C> <C> <C> <C>
Nelson C. Rising......... 07/27/94 350,000 3,968,125 --
07/27/94 350,000 3,968,125 --
11/29/95 300,000 923,438 2,770,313(4)
12/04/96 1,000,000 -- 8,237,500(5)
Stephen P. Wallace....... 07/24/95 330,000 2,637,250 1,318,625(3)
01/30/96 170,000 492,469 1,477,406(4)
12/04/96 500,000 -- 4,118,750(5)
Timothy J. Beaudin....... 02/10/95 50,000 418,750 209,375(3)
02/10/95 50,000 418,750 209,375(3)
01/30/96 150,000 434,531 1,303,594(5)
12/04/96 250,000 -- 2,059,375(5)
Ira E. Yellin............ 02/01/96 300,000 848,438 2,545,313(4)
12/04/96 100,000 -- 823,750(5)
</TABLE>
- --------
(1) Assuming a market price of $18.3125 per share less the exercise price.
(2) Assuming a market price of $18.3125 per share less the exercise price.
(3) Subject to time and performance vesting, whereby 33- 1/3% of the option
becomes exercisable on each anniversary of the grant date, limited by the
achievement of certain price levels for the Company's Common Stock. All
price levels have been achieved.
(4) Subject to time and performance vesting, whereby 25% of the option becomes
exercisable on each anniversary of the grant date, limited by the
achievement of certain price levels for the Company's Common Stock. All
price levels have been achieved.
(5) Subject to time and performance vesting, whereby 25% of the option becomes
exercisable on each anniversary after the grant date, limited by the
achievement of certain price levels for the Company's Common Stock. One
price level for the Common Stock has not yet been achieved.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Company's authorized capital stock consists of 200 million shares, of
which 150 million are shares of Common Stock, and 50 million shares are
preferred stock, par value $.01, issuable in series (the "Preferred Stock").
As of September 30, 1997, 106,488,153 shares of Common Stock and no shares of
Preferred Stock were outstanding.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation"),
which is included as an exhibit to the Registration Statement of which this
Prospectus is a part and by the provisions of the applicable law.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including election of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Board with respect to any series of Preferred Stock, the holders of Common
Stock will exclusively possess all voting power. All outstanding shares of
Common Stock are fully paid and non-assessable.
The Certificate of Incorporation does not provide for cumulative voting for
the election of directors. Subject to any preferential rights of any
outstanding series of Preferred Stock designated by the Board from time to
time, the holders of Common Stock will be entitled to such dividends as may be
declared from time to time thereon by the Board from funds available therefor.
Upon a liquidation of the Company, the holders of Common Stock are entitled to
receive pro rata all assets of the Company available for distribution to all
holders of Common Stock.
PREFERRED STOCK
Pursuant to the Certificate of Incorporation, the Board of Directors is
empowered, without approval of the stockholders, to cause shares of Preferred
Stock to be issued in one or more series, and to determine the number of
shares of each series and the rights, preferences and limitations of each
series. Among the specific matters that may be determined by the Board are:
the annual rate of dividends; the redemption price, if any; the terms of a
sinking or purchase fund, if any; the amount payable in the event of any
voluntary liquidation, dissolution or winding up of the affairs of the Company
and conversion rights, if any. The Board cannot issue any Preferred Stock
which has any voting rights, other than the right to elect directors in the
event of a default in the payment of dividends or as required by law.
NO PREEMPTIVE RIGHTS
No holder of any of the capital stock of the Company of any class will have
any preemptive right to subscribe to any securities of the Company of any kind
or class.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Chicago Trust
Company of New York.
61
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, BancAmerica Robertson Stephens, EVEREN
Securities, Inc. and NationsBanc Montgomery Securities, Inc. are acting as
U.S. Representatives, and the International Underwriters named below for whom
Morgan Stanley & Co. International Limited, Merrill Lynch International,
BancAmerica Robertson Stephens, EVEREN Securities, Inc. and NationsBanc
Montgomery Securities, Inc. are acting as International Representatives, have
severally agreed to purchase, and the Selling Stockholder has agreed to sell
to them, severally, the respective number of shares of Common Stock set forth
opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated...............................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..............
BancAmerica Robertson Stephens..................................
EVEREN Securities, Inc..........................................
NationsBanc Montgomery Securities, Inc..........................
----------
Subtotal...................................................... 13,200,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited......................
Merrill Lynch International.....................................
BancAmerica Robertson Stephens..................................
EVEREN Securities, Inc..........................................
NationsBanc Montgomery Securities, Inc..........................
----------
Subtotal...................................................... 3,300,000
----------
Total....................................................... 16,500,000
==========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the U.S. Underwriters' over-allotment option described below)
if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly,
any Shares or distribute any prospectus relating to the Shares outside the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares
62
<PAGE>
or distribute any prospectus relating to the Shares in the United States or
Canada or to any United States or Canadian Person. With respect to any
Underwriter that is a U.S. Underwriter and an International Underwriter, the
foregoing representations and agreements (i) made by it in its capacity as a
U.S. Underwriter apply only to it in its capacity as a U.S. Underwriter and
(ii) made by it in its capacity as an International Underwriter apply only to
it in its capacity as an International Underwriter. The foregoing limitations
do not apply to stabilization transactions or to certain other transactions
specified in the Agreement between U.S. and International Underwriters. As
used herein, "United States or Canadian Person" means any national or resident
of the United States or Canada, or any corporation, pension, profit-sharing or
other trust or other entity organized under the laws of the United States or
Canada or of any political subdivision thereof (other than a branch located
outside the United States of any United States or Canadian Person), and
includes any United States or Canadian branch of a person who is otherwise not
a United States or Canadian Person. All shares of Common Stock to be purchased
by the Underwriters under the Underwriting Agreement are referred to herein as
the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed. The per share price of any
Shares sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented that it has not offered or sold, and
has agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made.
Each International Underwriter has further agreed to send to any dealer who
purchases from it any of the Shares a notice stating in substance that, by
purchasing such Shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any of
such Shares in any province or territory of Canada or to, or for the benefit
of, any resident of any province or territory of Canada in contravention of
the securities laws thereof and that any offer or sale of Shares in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such Shares a notice containing substantially the same statement as is
contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of Shares to the International Underwriters, will not offer or sell,
any Shares to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each International Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by
63
<PAGE>
purchasing such Shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, any of such Shares, directly or
indirectly, in Japan or to or for the account of any resident thereof except
for offers or sales to Japanese International Underwriters or dealers and
except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or other Underwriters or to
certain dealers. After the initial offering of the shares of Common Stock, the
offering price and other selling terms may from time to time be varied by the
Representatives.
Pursuant to the Underwriting Agreement, the Selling Stockholder has granted
to the U.S. Underwriters an option, exercisable for 30 days from the date of
this Prospectus, to purchase up to an aggregate of 2,475,000 additional shares
of Common Stock at the public offering price set forth on the cover page
hereof, less underwriting discounts and commissions. The U.S. Underwriters may
exercise such option to purchase solely for the purpose of covering over-
allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding
table bears to the total number of shares of Common Stock set forth next to
the names of all U.S. Underwriters in the preceding table.
The Common Stock is listed on the New York Stock Exchange, the Pacific Stock
Exchange and the Chicago Stock Exchange under the symbol "CDX."
The Company and certain of its directors and officers who beneficially own
shares of Common Stock have agreed that, for a period of 90 days from the date
of this Prospectus, and the Selling Stockholder has agreed that, for a period
of 180 days from the date of this Prospectus, they will not, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend or otherwise transfer or dispose of
any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock (provided that such shares or securities are
either now owned by such party or are hereafter acquired prior to or in
connection with the offering of the shares of Common Stock offered hereby) or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of shares of Common Stock or such other securities,
in cash or otherwise, other than (x) the Shares, (y) the issuance by the
Company (A) of options or shares of Common Stock upon the exercise of options
granted under the Company's stock option plans or the exercise of a warrant or
the conversion of a security, in each case as outstanding on the date of this
Prospectus of which the Underwriters have been advised in writing and (B) of
stock units to directors (which units, subject to certain vesting
requirements, convert into shares of Common Stock upon termination of service)
granted under the Company's employee and non-employee director stock option
plans (z) with respect to the Selling Stockholder, if the Company files a
registration statement in connection with a public offering for cash, the
Selling Stockholder may request that its securities be included in such
registration statement, subject to certain volume limitations contained in the
Registration Rights Agreement.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the offering, if
64
<PAGE>
the syndicate repurchases previously distributed Common Stock in transactions
to cover syndicate short positions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price
of the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Within the past year, Morgan Stanley & Co. Incorporated was paid a fee for
providing certain advice to the Selling Stockholder with respect to its
investment in the Company.
Christine Garvey, Group Executive Vice President of Bank of America, and
Joseph F. Alibrandi, a director of Bank of America, are directors of the
Company. BancAmerica Robertson Stephens, one of the Representatives, is an
affiliate of Bank of America. Bank of America is also the lead agent for the
Company's $265 million secured and $25 million unsecured credit facilities.
See "Certain Transactions."
NationsBank of Texas, N.A., an affiliate of NationsBanc Montgomery
Securities, Inc., one of the Representatives, is the lender for the Company's
$25.0 million secured construction line of credit. At September 30, 1997,
there was $7.6 million outstanding under this credit facility.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon for the
Company by O'Melveny & Myers LLP, and certain legal matters relating to the
offering will be passed upon for the Selling Stockholder by Kayla J. Gillan,
Esq., General Counsel of the Selling Stockholder and by Jones, Day, Reavis &
Pogue, special counsel for the Selling Stockholder. Certain legal matters
relating to the offering will be passed upon for the Underwriters by Gibson,
Dunn & Crutcher LLP.
EXPERTS
The financial statements as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
65
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Stockholders' Equity............................. F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Summarized Quarterly Results (Unaudited)................................... F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Catellus Development Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Catellus Development Corporation and its subsidiaries at December 31, 1996 and
1995 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. The financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
San Francisco, California
February 12, 1997
F-2
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (IN THOUSANDS)
Properties............................... $1,191,679 $1,235,440 $1,335,742
Less accumulated depreciation............ (184,228) (211,338) (228,970)
---------- ---------- ----------
1,007,451 1,024,102 1,106,772
Other assets and deferred charges........ 44,530 50,547 48,527
Notes receivable......................... 7,550 11,924 16,937
Accounts receivable, less allowance...... 10,330 12,965 16,711
Restricted cash.......................... -- -- 2,181
Cash and cash equivalents................ 27,743 23,580 15,133
---------- ---------- ----------
Total.................................. $1,097,604 $1,123,118 $1,206,261
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage and other debt.................. $ 496,180 $ 496,742 $ 563,641
Accounts payable and accrued
expenses................................ 33,913 54,178 44,610
Deferred credits and other liabilities... 34,367 43,007 39,435
Deferred income taxes.................... 90,270 106,738 116,667
---------- ---------- ----------
Total liabilities...................... 654,730 700,665 764,353
---------- ---------- ----------
Commitments and contingencies (Note 14)
Stockholders' equity
Preferred stock......................... 322,500 274,428 --
Common stock............................ 730 770 1,065
Paid-in capital......................... 196,525 197,709 474,225
Accumulated deficit..................... (76,881) (50,454) (33,382)
---------- ---------- ----------
Total stockholders' equity............. 442,874 422,453 441,908
---------- ---------- ----------
Total................................ $1,097,604 $1,123,118 $1,206,261
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME-PRODUCING PROPERTIES
Rental revenue.............. $ 99,183 $102,828 $115,886 $ 86,020 $ 95,127
Property operating costs.... (29,609) (30,650) (39,408) (28,868) (28,848)
Equity in earnings of joint
ventures, net.............. 4,240 5,826 5,993 4,460 5,963
-------- -------- -------- -------- --------
73,814 78,004 82,471 61,612 72,242
-------- -------- -------- -------- --------
DEVELOPMENT ACTIVITIES AND
FEE SERVICES
Gain on development property
sales...................... -- 953 15,623 9,315 7,006
Development and management
fee income, net............ 2,151 1,924 3,432 1,995 4,377
Equity in earnings (losses)
of joint ventures, net..... 3,742 1,209 758 (42) 1,507
Land holding costs, net..... (4,891) (3,871) (3,724) (2,918) (834)
-------- -------- -------- -------- --------
1,002 215 16,089 8,350 12,056
-------- -------- -------- -------- --------
Interest expense............. (24,671) (25,757) (42,521) (32,316) (30,034)
Depreciation and amortiza-
tion........................ (28,577) (27,990) (30,561) (22,654) (23,038)
General and administrative
expense..................... (14,818) (10,924) (8,019) (5,718) (8,242)
Gain on non-strategic land
and other asset sales....... 13,307 32,789 24,405 11,775 4,628
Adjustment to carrying value
of property................. (24,100) (102,400) -- -- --
Litigation, environmental and
restructuring costs......... (2,854) (961) 1,093 950 1,142
Other, net................... 3,091 2,504 (19) 439 45
-------- -------- -------- -------- --------
EARNINGS (LOSS) BEFORE INCOME
TAXES....................... (3,806) (54,520) 42,938 22,438 28,799
-------- -------- -------- -------- --------
Income tax (expense) benefit
Current..................... (186) (1,014) (1,069) (392) (1,797)
Deferred.................... 1,545 22,532 (16,468) (8,763) (9,930)
-------- -------- -------- -------- --------
1,359 21,518 (17,537) (9,155) (11,727)
-------- -------- -------- -------- --------
NET EARNINGS (LOSS)......... (2,447) (33,002) 25,401 13,283 17,072
Preferred stock divi-
dends.................... (23,813) (23,813) (22,173) (17,121) (1,353)
Premium on redemption of
preferred stock.......... -- -- (1,334) (1,334) --
-------- -------- -------- -------- --------
NET EARNINGS (LOSS)
APPLICABLE TO COMMON
STOCKHOLDERS............... $(26,260) $(56,815) $ 1,894 $ (5,172) $ 15,719
======== ======== ======== ======== ========
Net earnings (loss) per
share of common stock...... $ (0.36) $ (0.78) $ 0.03 $ (0.07) $ 0.16
======== ======== ======== ======== ========
Average number of common
shares outstanding......... 72,967 72,967 74,947 74,251 97,702
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------- -------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ --------- ------- ------ -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 6,450 $ 322,500 72,967 $ 730 $244,151 $(41,432)
Series A preferred
stock dividends...... -- -- -- -- (12,938) --
Series B preferred
stock dividends...... -- -- -- -- (10,875) --
Net loss.............. -- -- -- -- -- (2,447)
------ --------- ------- ------ -------- --------
Balance at December 31,
1994................... 6,450 322,500 72,967 730 220,338 (43,879)
Series A preferred
stock dividends...... -- -- -- -- (12,938) --
Series B preferred
stock dividends...... -- -- -- -- (10,875) --
Net loss.............. -- -- -- -- -- (33,002)
------ --------- ------- ------ -------- --------
Balance at December 31,
1995................... 6,450 322,500 72,967 730 196,525 (76,881)
Redemption of Series A
preferred stock...... (508) (25,406) -- -- (1,334) --
Conversion of Series A
preferred stock...... (453) (22,666) 2,502 25 22,641 --
Series A preferred
stock dividends...... -- -- -- -- (11,298) --
Series B preferred
stock dividends...... -- -- -- -- (10,875) --
Exercise of stock
options and other.... -- -- 1,559 15 2,050 1,026
Net earnings.......... -- -- -- -- -- 25,401
------ --------- ------- ------ -------- --------
Balance at December 31,
1996................... 5,489 274,428 77,028 770 197,709 (50,454)
Redemption of Series A
preferred stock
(unaudited).......... (8) (395) -- -- (69) --
Conversion of Series A
preferred stock
(unaudited).......... (2,481) (124,033) 13,696 137 123,896 --
Conversion of Series B
preferred stock
(unaudited).......... (3,000) (150,000) 15,306 153 149,847 --
Series B preferred
stock dividends
(unaudited).......... -- -- -- -- (1,353) --
Exercise of stock
options and other
(unaudited).......... -- -- 458 5 4,195 --
Net earnings
(unaudited).......... -- -- -- -- -- 17,072
------ --------- ------- ------ -------- --------
Balance at September 30,
1997 (unaudited)....... -- $ -- 106,488 $1,065 $474,225 $(33,382)
====== ========= ======= ====== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- -------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss)......... $ (2,447) $ (33,002) $ 25,401 $ 13,283 $ 17,072
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating
activities:
Depreciation and
amortization............... 28,577 27,990 30,561 22,654 23,038
Deferred income taxes....... (1,667) (22,392) 16,468 8,764 9,930
Amortization of deferred
loan fees and other costs.. 2,940 2,743 4,799 2,562 2,218
Equity in earnings (losses)
of joint ventures.......... (7,982) (7,035) (6,751) (4,418) (7,470)
Operating
contributions/distributions
of joint ventures, net. ... 2,193 8,332 10,235 7,941 8,177
Cost of non-strategic land
and development properties
sold....................... 17,683 23,716 84,276 35,986 43,855
Gain on sales of other
assets..................... (3,033) -- (4,746) (4,706) (1,600)
Expenditures for development
properties................. -- (2,761) (41,978) (11,209) (48,619)
Litigation recovery......... -- (6,450) -- -- --
Adjustment to carrying value
of property................ 24,100 102,400 -- -- --
Other, net.................. 3,963 8,674 2,842 2,123 1,834
Change in assets and
liabilities:
Accounts and notes
receivable................. (2,248) 1,306 (9,681) (332) (9,758)
Other assets and deferred
charges.................... (8,014) (5,652) (13,444) (8,811) (74)
Accounts payable and accrued
expenses................... 3,145 850 12,341 7,050 2,814
Other....................... 3,155 3,483 754 5,004 2,878
--------- --------- --------- -------- ---------
Net cash provided by
operating activities........ 60,365 102,202 111,077 75,891 44,295
--------- --------- --------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........ (69,998) (63,516) (69,747) (48,171) (94,781)
Tenant improvements......... (3,902) (2,246) (3,613) (2,669) (4,631)
Net proceeds from sale of
other assets............... 21,109 -- 8,969 7,459 2,623
Contributions to joint
ventures................... (1,807) -- -- -- (15,910)
Reduction (investment) in
short-term investments and
restricted cash............ (35,067) 35,067 -- -- (2,181)
--------- --------- --------- -------- ---------
Net cash used in investing
activities.................. (89,665) (30,695) (64,391) (43,381) (114,880)
--------- --------- --------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings.................. 328,408 99,013 222,052 58,200 117,588
Repayment of borrowings..... (462,002) (135,884) (224,470) (52,220) (48,393)
Dividends paid.............. (24,145) (23,813) (23,067) (18,011) (5,975)
Redemption of preferred
stock...................... -- -- (26,739) (26,739) (471)
Contributions/distributions
of minority partners....... -- -- 1,201 -- (3,976)
Proceeds from issuance of
common stock............... -- -- 174 149 3,365
Stock issuance costs........ (55) -- -- -- --
Investment in restricted
cash used for reduction of
debt....................... 67,410 -- -- -- --
Redemption premium on early
retirement of debt......... (10,000) -- -- -- --
--------- --------- --------- -------- ---------
Net cash provided by (used
in) financing activities.... (100,384) (60,684) (50,849) (38,621) 62,138
--------- --------- --------- -------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS... (129,684) 10,823 (4,163) (6,111) (8,447)
Cash and cash equivalents at
beginning of year........... 146,604 16,920 27,743 27,743 23,580
--------- --------- --------- -------- ---------
Cash and cash equivalents at
end of year................. $ 16,920 $ 27,743 $ 23,580 $ 21,632 $ 15,133
========= ========= ========= ======== =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year
for:
Interest (net of amount
capitalized)............... $ 22,895 $ 23,208 $ 39,144 $ 29,819 $ 27,490
Income taxes................ $ 324 $ 444 $ 1,009 $ 868 $ 699
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
Catellus Development Corporation (the Company) is a diversified real estate
operating company, with a large portfolio of income-producing properties and
developable land, that manages and develops real estate for its own account
and others. The Company's portfolio of industrial, residential, retail and
office projects, undeveloped land and joint venture interests are located in
major markets in California and 10 other states. The Company's income-
producing 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.
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 was not material to the financial position, results of
operations or cash flows of the Company. Concurrent with this acquisition,
Akins changed its legal name to Catellus Residential Group (Residential Group)
and commenced development of certain of the Company's residential land
holdings, projects previously started by Akins and new development activities
on properties owned by others.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation--The accompanying consolidated financial
statements include the accounts of the Company, its wholly-owned subsidiaries
and investees over 50% owned which are controlled by the Company. All other
investees are accounted for using the equity method.
Unaudited interim financial information--The consolidated financial
statements as of and for the nine-month periods ended September 30, 1996 and
1997 are unaudited but, in the opinion of management, include all adjustments,
consisting only of normal recurring accruals necessary for a fair presentation
of the results for such periods. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of results to be
expected for the full fiscal year.
Revenue recognition--Rental revenue, in general, is recognized when due from
tenants; however, revenue from leases with rent concessions or fixed
escalations is recognized on a straight-line basis over the initial term of
the lease. Direct costs of negotiating and consummating a lease are deferred
and amortized over the initial term of the related lease.
The Company recognizes revenue from the sale of properties using the accrual
method. Sales not qualifying for full recognition at the time of sale are
accounted for under the percentage-of-completion method. In general, specific
identification is used to determine the cost of sales. Estimated future costs
to be incurred by the Company after completion of each sale are included in
cost of sales.
Cash and cash equivalents and restricted cash--The Company considers all
highly liquid investments with a maturity of three months or less at time of
purchase to be cash equivalents. Restricted cash at September 30, 1997
represents proceeds from a June 1997 development property sale. The restricted
cash is being held in a separate cash account at a title company in order to
preserve the Company's options of reinvesting the proceeds on a tax deferred
basis.
Financial instruments--The cost bases of the Company's notes receivable and
debt approximate fair value, based upon current market rates for commercial
real estate loans of similar risks and maturities.
Property and deferred costs--Real estate is stated at the lower of cost or
estimated fair value. For operating properties and properties held for long-
term investment, a write-down to estimated fair value is recognized when
F-7
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
a property's estimated undiscounted future cash flow, before interest charges,
is less than its book value. For properties held for sale, a write-down to
estimated fair value is recorded when the Company determines that the carrying
cost exceeds the estimated selling price, less cost to sell. This evaluation
is made by management on a property by property basis. The evaluation of fair
value and future cash flows from individual properties requires significant
judgment; it is reasonably possible that a change in estimate could occur.
The Company capitalizes construction and development costs. Costs associated
with financing or leasing projects are also capitalized and amortized over the
period benefited by those expenditures.
Depreciation is computed using the straight-line method. Buildings and
improvements are depreciated using lives of between 20 and 40 years. Tenant
improvements are depreciated over the primary terms of the leases (generally
3-15 years), while furniture and equipment are depreciated using lives ranging
between 3 and 10 years.
Maintenance and repair costs are charged to expense as incurred, while
significant improvements, replacements and major renovations are capitalized.
Allowance for uncollectible accounts--Accounts receivable are net of an
allowance for uncollectible accounts totaling $1.8 million, $2.4 million and
$2.1 million (unaudited) at December 31, 1995 and 1996 and September 30, 1997,
respectively.
Environmental costs--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. Costs relating to undeveloped land are capitalized as part
of development costs. Costs incurred for properties to be sold are deferred
and charged to cost of sales when the properties are sold.
The Company maintains a reserve, included in the caption "deferred credits
and other liabilities", for known, probable costs of environmental remediation
to be incurred in connection with operating properties and properties
previously sold. This reserve was $13.8 million, $13.6 million and $12.9
million (unaudited) at December 31, 1995 and 1996 and September 30, 1997. When
there is a legal requirement for environmental remediation of developable
land, the Company will accrue for the estimated cost of remediation and
capitalize that amount. Where there is no legal requirement for remediation,
costs will be capitalized, as incurred, as part of the project costs.
Restructuring costs--The Company implemented a major restructuring in
November 1994 to refocus the Company and to improve the Company's long-term
cash position. This restructuring, which was implemented in 1995, resulted in
a $3.1 million nonrecurring operating expense in 1994.
Income taxes--Income taxes are recorded based on the future tax effects of
the difference between the tax and financial reporting bases of the Company's
assets and liabilities. In estimating future tax consequences, expected future
events are considered except for potential income tax law or rate changes.
Net earnings (loss) per share--Net earnings (loss) per share of common stock
is computed by dividing net earnings (loss), after reduction for preferred
stock dividends and premium on redemption of preferred stock, by the weighted
average number of shares of common stock and equivalents 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. Net earnings (loss) per share of
common stock would have been $(.02), $(.32) and $.24 for the years ended
December 31, 1994, 1995 and 1996 and $.12 (unaudited) and $.16 (unaudited) for
the nine-month periods ended September 30, 1996 and 1997 had the conversions
discussed in Note 13 occurred at the beginning of each period.
F-8
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported amounts
of revenue and expenses. Actual results could differ from those estimates.
Reclassifications--Rental revenue and certain other prior year amounts have
been reclassified to conform with the current year financial statement
presentation.
New Accounting Standards--In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (Statement 128). Statement 128 is effective for financial
statements issued after December 15, 1997 and simplifies the current standards
for computing earnings per share. The Company anticipates that adoption of
Statement 128 will not result in disclosures that are materially different
than those contained herein. The Company plans to adopt Statement 128 in the
fourth quarter of 1997.
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
and No. 131, "Segment Reporting". Both standards are effective for fiscal
years beginning after December 15, 1997. The Company plans to adopt these
standards in the first quarter of 1998 and does not expect that they will have
a material effect on its financial position or results of operations.
NOTE 3. MORTGAGE AND OTHER DEBT
Mortgage and other debt at December 31, 1995 and 1996 and September 30, 1997
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
First mortgage loan, interest at an average rate of 8.71%,
due at various dates through March 1, 2004 (a)............... $267,260 $259,063 $253,011
Secured revolving credit line, interest variable (7.434% at
September 30, 1997), due November 1, 1998 (b)................ -- 118,600 176,100
First mortgage loans, interest at 7.625% to 10.05%, due at
various dates through March 1, 2009 (c)...................... 70,770 67,249 66,207
Assessment district bonds, interest at 6.218% to 8.7%, due at
various dates through April 10, 2021 (d)..................... 23,283 21,012 18,341
Residential construction loans, interest variable (9.5% to
9.75% at
September 30, 1997), due at various dates through May 22,
1998(e)...................................................... -- 10,105 20,099
Term loan, secured, interest variable (7.313% at September 30,
1997), due August 1, 2002 (f)................................ 14,400 9,000 12,965
Secured promissory note, interest at prime plus 1.0% (9.5% at
September 30, 1997), due November 1, 1998 (g)................ -- 6,160 8,330
Construction loans, interest variable (7.533% at September 30,
1997), due May 20, 1998 (h).................................. 52,851 5,028 7,612
Intermediate secured term loans............................... 57,400 -- --
Term loan, unsecured, interest variable....................... 7,000 -- --
Other loans, interest at 4.6% to 8.0%, due at various dates
through
December 31, 1999............................................ 3,216 525 976
-------- -------- --------
$496,180 $496,742 $563,641
======== ======== ========
</TABLE>
- --------
(a) This loan with The Prudential Insurance Company of America is
collateralized by certain of the Company's operating properties and by an
assignment of rents generated by the underlying properties. This loan has
a penalty if paid prior to maturity.
F-9
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(b) On October 28, 1996, the Company entered into an agreement for a $240
million credit line which replaced six existing credit lines or term
facilities. On September 15, 1997 the credit line was expanded by an
additional $25 million to $265 million, subject to the underlying
borrowing base. This credit line is used to fund the Company's
development projects, interim capital requirements and to provide working
capital for general corporate purposes. At September 30, 1997, $75.7
million was available for future borrowings. The credit line is
collateralized by certain of the Company's operating properties, an
assignment of rents generated by the underlying properties and certain
land holdings.
(c) These first mortgage loans are collateralized by certain of the Company's
operating properties and by an assignment of rents generated by the
underlying properties. A majority of these loans have penalties if paid
prior to maturity.
(d) The assessment district bonds are issued through local municipalities to
fund the construction of public infrastructure and improvements which
benefit the Company's properties. These bonds are secured by certain of
the Company's properties.
(e) The Company's residential construction loans are used to finance
development projects and are secured by the related land and
improvements. The Residential Group and certain joint venture partners
have guaranteed $6.1 million of these borrowings. At September 30, 1997,
$11.9 million was available for future borrowings under these residential
construction loans.
(f) This secured term loan is collateralized by an operating property and by
an assignment of rents generated by the underlying property.
(g) This promissory note was used to finance a land purchase for a
residential development project and is secured by a deed of trust.
(h) In July 1995, the Company entered into a $25 million revolving
construction line of credit which was available to fund new development
in twelve states in the Southwest. In July 1996, the Company opted not to
renew the revolving function of this facility in anticipation of closing
the credit facility discussed in (b) above. As of September 30, 1997, one
construction project was financed under the line which is secured by the
related land and improvements and by an assignment of rents generated by
the underlying property. At September 30, 1997 $1.9 million was available
for future borrowings under this facility.
As of September 30, 1997, the Company had a $25 million unsecured revolving
line of credit which matures May 1, 1998. There have been no advances under
this credit facility and, as of September 30, 1997, the entire $25 million was
available for future borrowings.
Certain loan agreements contain restrictive financial covenants. The most
restrictive of which allows for a maximum funded debt to net worth not to
exceed 75%, require stockholders' equity to be no less than $400 million, and
that the Company maintain certain specified financial ratios. In addition,
certain agreements restrict the level of total leverage for the Company. The
Company was in compliance with all such covenants at September 30, 1997.
The maturities of mortgage and other debt outstanding as of September 30,
1997 are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
--------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Fourth quarter 1997........................................... $ 8,077
1998.......................................................... 226,380
1999.......................................................... 8,969
2000.......................................................... 10,118
2001.......................................................... 10,414
2002.......................................................... 65,004
Thereafter.................................................... 234,679
--------
$563,641
========
</TABLE>
F-10
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest costs relating to mortgage and other debt for the years ended
December 31, 1994, 1995, and 1996 and for the nine-month periods ended
September 30, 1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total interest incurred......... $48,720 $49,316 $45,377 $33,134 $34,354
Interest capitalized............ (24,049) (23,559) (2,856) (818) (4,320)
------- ------- ------- ------- -------
Interest expensed............... $24,671 $25,757 $42,521 $32,316 $30,034
======= ======= ======= ======= =======
</TABLE>
NOTE 4. INCOME TAXES
The income tax expense (benefit) reflected in the consolidated statement of
operations differs from the amounts computed by applying the federal statutory
rate of 35% to earnings (loss) before income taxes as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax expense (benefit) at
statutory rate................................ $(1,332) $(19,082) $15,028
Increase (decrease) in taxes resulting from:
State income taxes, net of federal impact...... 72 (2,460) 2,441
Other.......................................... (99) 24 68
------- -------- -------
$(1,359) $(21,518) $17,537
======= ======== =======
</TABLE>
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities and for operating loss and tax credit carryforwards. Significant
components of the Company's net deferred tax liability as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liability:
Involuntary conversions (condemnations) of property........... $91,226 $ 90,074
Capitalized interest and taxes................................ 93,135 89,119
Like-kind property exchanges.................................. 20,169 22,392
Investments in partnerships................................... 16,599 20,544
Other......................................................... 5,219 5,999
------- --------
226,348 228,128
------- --------
Deferred tax assets:
Operating loss carryforwards.................................. 13,257 14,345
Intercompany transaction (prior to spin-off).................. 16,522 16,332
Capitalized rent.............................................. 23,194 23,469
Adjustment to carrying value of property...................... 63,376 46,026
Depreciation and amortization................................. 7,028 8,897
Environmental reserve......................................... 4,687 4,633
Other......................................................... 8,014 7,688
------- --------
136,078 121,390
Deferred tax assets valuation allowance....................... -- --
------- --------
136,078 121,390
------- --------
Net deferred tax liability.................................... $90,270 $106,738
======= ========
</TABLE>
F-11
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1994 and 1996, the Company generated net operating loss carryforwards
of $0.3 million and $0.2 million for tax purposes which expire in 2009 and
2011. Deferred income tax expense was reduced to reflect the future benefit of
these amounts.
NOTE 5. JOINT VENTURE INVESTMENTS
The Company has investments in a variety of unconsolidated real estate-
oriented joint ventures that are involved in both operation of income
producing properties and development of various other projects. At December
31, 1996, these joint venture investments included two hotels, one office
building, a 900,000-square-foot trade mart center for the contract and home
furnishing industries, an apartment complex and other projects in the early
stages of development.
The Company guarantees a portion of the debt and interest of certain of its
joint ventures. At December 31, 1996 and September 30, 1997, these guarantees
totaled $11.9 million and $16.6 million (unaudited), respectively.
The condensed combined balance sheets and statement of operations of these
unconsolidated joint ventures, along with the Company's proportionate share,
are summarized as follows:
<TABLE>
<CAPTION>
COMBINED PROPORTIONATE SHARE
--------------------------------- ---------------------------------
DECEMBER 31, DECEMBER 31,
------------------ SEPTEMBER 30, ------------------ SEPTEMBER 30,
1995 1996 1997 1995 1996 1997
-------- -------- ------------- -------- -------- -------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Income-producing
properties:
Property............ $240,797 $233,150 $226,687 $110,610 $107,656 $105,010
Other............... 23,828 26,506 25,374 10,700 13,134 12,988
Development projects:
Property............ 18,679 62,720 107,208 1,860 4,461 32,596
Other............... 20,714 15,647 2,946 4,011 1,627 974
-------- -------- -------- -------- -------- --------
Total............. $304,018 $338,023 $362,215 $127,181 $126,878 $151,568
======== ======== ======== ======== ======== ========
Liabilities and
venturers' deficit:
Income-producing
properties:
Notes Payable....... $396,090 $401,266 $408,363 $161,940 $161,748 $160,968
Other............... 18,952 18,984 14,007 6,116 5,957 4,640
Development projects:
Notes Payable....... -- 8,525 19,984 -- 144 12,153
Other............... 733 376 2,554 191 87 540
-------- -------- -------- -------- -------- --------
Total
liabilities...... 415,775 429,151 444,908 168,247 167,936 178,301
-------- -------- -------- -------- -------- --------
Venturers' deficit
Income-producing
properties........... (150,417) (160,594) (170,309) (46,746) (46,915) (47,610)
Development projects.. 38,660 69,466 87,616 5,680 5,857 20,877
-------- -------- -------- -------- -------- --------
(111,757) (91,128) (82,693) (41,066) (41,058) (26,733)
-------- -------- -------- -------- -------- --------
Total liabilities
and venturers'
deficit.......... $304,018 $338,023 $362,215 $127,181 $126,878 $151,568
======== ======== ======== ======== ======== ========
</TABLE>
F-12
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's proportionate share of venturers' deficit is an aggregate
amount for all ventures. Because the Company's ownership percentage differs
from venture to venture, and certain ventures have accumulated deficits while
others have accumulated equity, the Company's percentage of venturers' deficit
is not reflective of the Company's ownership percentage of the ventures.
<TABLE>
<CAPTION>
COMBINED PROPORTIONATE SHARE
-------------------------------------------- ---------------------------------------
NINE MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------- ----------------------- ---------------
1994 1995 1996 1996 1997 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Income-producing
properties............ $123,509 $127,678 $134,144 $102,618 $107,498 $31,275 $33,356 $35,527 $26,361 $28,029
Development projects... 15,301 5,735 49,235 12,099 31,095 5,666 2,054 9,516 241 8,612
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
138,810 133,413 183,379 114,717 138,593 36,941 35,410 45,043 26,602 36,641
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
Expenses
Income-producing
properties............ 115,708 118,670 122,964 94,993 95,580 27,035 27,530 29,534 21,901 22,066
Development projects... 13,362 5,018 45,256 11,712 29,444 1,924 845 8,758 283 7,105
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
129,070 123,688 168,220 106,705 125,024 28,959 28,375 38,292 22,184 29,171
-------- -------- -------- -------- -------- ------- ------- ------- ------- -------
Net earnings before
income tax............ $ 9,740 $ 9,725 $ 15,159 $ 8,012 $ 13,569 $ 7,982 $ 7,035 $ 6,751 $ 4,418 $ 7,470
======== ======== ======== ======== ======== ======= ======= ======= ======= =======
</TABLE>
The Company had a loan outstanding to one of its joint ventures in the
amount of $1.7 million at December 31, 1995. During 1996, the Company
converted this note to equity in the joint venture.
NOTE 6. PROPERTY
Net book value by property type at December 31, 1995 and 1996 and September
30, 1997 consisted of the following :
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Income-producing properties:
Industrial buildings................ $ 279,838 $ 291,608 $ 356,362
Office buildings.................... 113,095 108,184 104,850
Retail buildings.................... 84,595 86,070 83,944
Land development.................... 317,727 323,134 334,714
Land leases......................... 10,069 6,627 8,299
---------- ---------- ----------
805,324 815,623 888,169
---------- ---------- ----------
Land holdings:
Developable properties.............. 150,339 200,624 200,882
Natural resources................... 1,788 2,299 3,695
Properties held for sale............ 84,232 37,223 30,772
---------- ---------- ----------
236,359 240,146 235,349
---------- ---------- ----------
Other (including proportionate share
of joint ventures' net deficits of
$41,066, $41,058 and $26,733)........ (34,232) (31,667) (16,746)
---------- ---------- ----------
$1,007,451 $1,024,102 $1,106,772
========== ========== ==========
</TABLE>
F-13
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1994 and 1995, the Company took charges of $24.1 million and $102.4
million to adjust the carrying value of certain properties. The 1995 charge
included $84.8 million resulting from the Company's decision to terminate the
1991 Development Agreement for its Mission Bay project in San Francisco. The
revised carrying value of the Mission Bay project represented management's
best estimate of its fair value, assuming the Company is successful in re-
entitling the property. During 1996, the Company took a charge of $9.9 million
to cost of sales relating to non-strategic land assets identified for sale.
During the first nine months of 1997, the Company took a charge of $1.4
million (unaudited) to cost of sales relating to development projects.
NOTE 7. LEASES
The Company, as lessor, has entered into noncancelable operating leases
expiring at various dates through 2039. Rental revenue under these leases
totaled $102.3 million in 1994, $106.8 million in 1995, $118.7 million in 1996
and $88.2 million (unaudited) and $96.9 million (unaudited) for the nine-month
periods ended September 30, 1996 and 1997. Included in this revenue are
rentals contingent on lessee's operations of $2.8 million in 1994, $2.1
million in 1995, $2.7 million in 1996 and $2.0 million (unaudited) and $2.4
million (unaudited) for the nine-month periods ended September 30, 1996 and
1997. Future minimum rental revenue under existing noncancelable operating
leases as of September 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
--------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Fourth quarter 1997........................................... $ 20,540
1998.......................................................... 84,224
1999.......................................................... 74,886
2000.......................................................... 65,348
2001.......................................................... 53,867
2002.......................................................... 41,926
Thereafter.................................................... 383,460
--------
$724,251
========
</TABLE>
The book value of the Company's properties under operating leases or held
for rent are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Buildings.................................. $501,030 $527,190 $574,035
Land and improvements...................... 164,492 173,828 210,146
-------- -------- --------
665,522 701,018 784,181
Less accumulated depreciation.............. (172,934) (197,586) (213,947)
-------- -------- --------
$492,588 $503,432 $570,234
======== ======== ========
</TABLE>
F-14
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company, as lessee, has entered into noncancelable operating leases
expiring at various dates through 2023. Rental expense under these leases
totaled $2.8 million in 1994, $1.7 million in 1995, $1.6 million in 1996 and
$1.3 million (unaudited) and $1.8 million (unaudited) for the nine-month
periods ended September 30, 1996 and 1997. Future minimum lease payments as of
September 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
--------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Fourth quarter 1997........................................... $ 599
1998.......................................................... 2,187
1999.......................................................... 2,019
2000.......................................................... 1,314
2001.......................................................... 1,046
2002.......................................................... 728
Thereafter.................................................... 2,183
-------
$10,076
=======
</TABLE>
NOTE 8. REVENUES AND DIRECT COSTS BY ACTIVITY
Revenues and related costs exclusive of depreciation and amortization for the
years ended December 31, 1994, 1995 and 1996 and for the nine-month periods
ended September 30, 1996 and 1997, are summarized by activity as follows:
<TABLE>
<CAPTION>
PROPERTY EXCESS
OPERATING (DEFICIT) OF
COSTS OR REVENUES
REVENUES COSTS OF SALES OVER COSTS
-------- -------------- ------------
(IN THOUSANDS)
DECEMBER 31, 1994
<S> <C> <C> <C>
INCOME-PRODUCING PROPERTIES:
Industrial buildings................ $ 50,650 $11,837 $38,813
Office buildings.................... 29,619 11,220 18,399
Retail buildings.................... 7,339 2,315 5,024
Land development.................... 4,161 3,200 961
Land leases......................... 7,414 1,037 6,377
Equity in earnings of joint
ventures........................... 4,240 -- 4,240
-------- ------- -------
103,423 29,609 73,814
-------- ------- -------
DEVELOPMENT ACTIVITIES AND FEE SERVIC-
ES:
Development and management fees..... 5,705 3,554 2,151
Equity in earnings of joint
ventures........................... 3,742 -- 3,742
Land holdings....................... 5,249 10,140 (4,891)
-------- ------- -------
14,696 13,694 1,002
-------- ------- -------
$118,119 $43,303 $74,816
======== ======= =======
</TABLE>
F-15
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PROPERTY EXCESS
OPERATING (DEFICIT) OF
COSTS OR REVENUES
REVENUES COSTS OF SALES OVER COSTS
-------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
DECEMBER 31, 1995
INCOME-PRODUCING
PROPERTIES:
Industrial buildings.... $ 50,716 $ 11,193 $39,523
Office buildings........ 28,662 12,179 16,483
Retail buildings........ 11,364 2,941 8,423
Land development........ 4,886 3,308 1,578
Land leases............. 7,200 1,029 6,171
Equity in earnings of
joint ventures......... 5,826 -- 5,826
-------- -------- -------
108,654 30,650 78,004
-------- -------- -------
DEVELOPMENT ACTIVITIES AND
FEE SERVICES:
Commercial property
sales.................. 3,224 2,271 953
Development and
management fees........ 4,674 2,750 1,924
Equity in earnings of
joint ventures......... 1,209 -- 1,209
Land holdings........... 5,240 9,111 (3,871)
-------- -------- -------
14,347 14,132 215
-------- -------- -------
$123,001 $ 44,782 $78,219
======== ======== =======
DECEMBER 31, 1996
INCOME-PRODUCING
PROPERTIES:
Industrial buildings.... $ 55,865 $ 14,014 $41,851
Office buildings........ 28,407 12,661 15,746
Retail buildings........ 13,215 4,376 8,839
Land development........ 10,589 7,252 3,337
Land leases............. 7,810 1,105 6,705
Equity in earnings of
joint ventures......... 5,993 -- 5,993
-------- -------- -------
121,879 39,408 82,471
-------- -------- -------
DEVELOPMENT ACTIVITIES AND
FEE SERVICES:
Commercial property
sales.................. 40,525 26,708 13,817
Residential property
sales.................. 21,945 20,139 1,806
Development and
management fees........ 11,945 8,513 3,432
Equity in earnings of
joint ventures......... 758 -- 758
Land holdings........... 4,874 8,598 (3,724)
-------- -------- -------
80,047 63,958 16,089
-------- -------- -------
$201,926 $103,366 $98,560
======== ======== =======
</TABLE>
F-16
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PROPERTY EXCESS
OPERATING (DEFICIT) OF
COSTS OR REVENUES
REVENUES COSTS OF SALES OVER COSTS
-------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
SEPTEMBER 30, 1996 (UNAUDITED)
INCOME-PRODUCING PROPERTIES:
Industrial buildings................. $ 41,156 $10,307 $30,849
Office buildings..................... 21,373 9,107 12,266
Retail buildings..................... 9,966 3,273 6,693
Land development..................... 7,670 5,359 2,311
Land leases.......................... 5,855 822 5,033
Equity in earnings of joint
ventures............................ 4,460 -- 4,460
-------- ------- -------
90,480 28,868 61,612
-------- ------- -------
DEVELOPMENT ACTIVITIES AND FEE
SERVICES:
Commercial property sales............ 27,428 18,113 9,315
Residential property sales........... -- -- --
Development and management fees...... 7,805 5,810 1,995
Equity in earnings of joint
ventures............................ (42) -- (42)
Land holdings........................ 3,651 6,569 (2,918)
-------- ------- -------
38,842 30,492 8,350
-------- ------- -------
$129,322 $59,360 $69,962
======== ======= =======
SEPTEMBER 30, 1997 (UNAUDITED)
INCOME-PRODUCING PROPERTIES:
Industrial buildings................. $ 49,010 $10,586 $38,424
Office buildings..................... 21,830 9,419 12,411
Retail buildings..................... 10,029 2,942 7,087
Land development..................... 8,441 5,226 3,215
Land leases.......................... 5,817 675 5,142
Equity in earnings of joint
ventures............................ 5,963 -- 5,963
-------- ------- -------
101,090 28,848 72,242
-------- ------- -------
DEVELOPMENT ACTIVITIES AND FEE
SERVICES:
Commercial property sales............ 24,607 18,703 5,904
Residential property sales........... 23,645 22,543 1,102
Development and management fees...... 9,251 4,874 4,377
Equity in earnings of joint
ventures............................ 1,507 -- 1,507
Land holdings........................ 2,942 3,776 (834)
-------- ------- -------
61,952 49,896 12,056
-------- ------- -------
$163,042 $78,744 $84,298
======== ======= =======
</TABLE>
F-17
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. SALES
As part of its development activities, the Company constructs and sells
commercial and residential properties. In addition, based on management's
assessment of the maximum value to be derived from its various real estate
holdings, the Company sells certain operating properties, land parcels and
other assets.
The Company's asset sales consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ ---------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DEVELOPMENT PROPERTIES:
Commercial sales.................... $ -- $ 3,224 $ 40,525 $27,428 $24,607
Commercial cost of sales............ -- 2,271 26,709 18,113 18,703
------- ------- -------- ------- -------
Gain.............................. -- 953 13,816 9,315 5,904
------- ------- -------- ------- -------
Residential sales................... -- -- 21,945 -- 23,645
Residential cost of sales........... -- -- 20,138 -- 22,543
------- ------- -------- ------- -------
Gain.............................. -- -- 1,807 -- 1,102
------- ------- -------- ------- -------
Total gain on development prop-
erty sales..................... -- 953 15,623 9,315 7,006
------- ------- -------- ------- -------
NON-STRATEGIC LAND AND OTHER ASSETS:
Non-strategic land:
Sales............................... 32,298 62,199 76,553 35,800 16,347
Cost of sales....................... 22,024 29,410 56,894 28,731 13,319
------- ------- -------- ------- -------
Gain.............................. 10,274 32,789 19,659 7,069 3,028
------- ------- -------- ------- -------
Other:
Sales............................... 21,472 -- 9,125 7,500 2,775
Cost of sales....................... 18,439 -- 4,379 2,794 1,175
------- ------- -------- ------- -------
Gain.............................. 3,033 -- 4,746 4,706 1,600
------- ------- -------- ------- -------
Total non-strategic land and other
assets
Sales............................... 53,770 62,199 85,678 43,300 19,122
Cost of sales....................... 40,463 29,410 61,273 31,525 14,494
------- ------- -------- ------- -------
Gain.............................. 13,307 32,789 24,405 11,775 4,628
------- ------- -------- ------- -------
TOTAL
Sales............................... 53,770 65,423 148,148 70,728 67,374
Cost of sales....................... 40,463 31,681 108,120 49,638 55,740
------- ------- -------- ------- -------
Gain.............................. $13,307 $33,742 $ 40,028 $21,090 $11,634
======= ======= ======== ======= =======
</TABLE>
F-18
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. LITIGATION, ENVIRONMENTAL AND RESTRUCTURING COSTS
Litigation, environmental and restructuring costs are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1994 1995 1996 1996 1997
------- ------- ------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Litigation recovery..................... $ -- $ 6,450 $ -- $ -- $ --
Environmental (expense) recovery, net... 246 (7,411) 1,093 950 1,142
Restructuring costs..................... (3,100) -- -- -- --
------- ------- ------ ----- -------
$(2,854) $ (961) $1,093 $ 950 $ 1,142
======= ======= ====== ===== =======
</TABLE>
Environmental costs charged to operations, including amounts charged to cost
of sales, for 1994, 1995 and 1996 totaled $4.6 million, $8.1 million and $1.1
million, respectively, and $1.1 million (unaudited) and $.1 million
(unaudited) for the nine-month periods ended September 30, 1996 and 1997.
Environmental costs capitalized in 1994, 1995 and 1996 were $1.2 million, $1.7
million and $2.8 million, respectively, and $2.0 million (unaudited) and $3.6
million (unaudited) for the nine-month periods ended September 30, 1996 and
1997.
See further discussion regarding litigation and environmental matters at
Note 14.
NOTE 11. OTHER, NET
Other income (expense) is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ ---------------
1994 1995 1996 1996 1997
------ ------- ------- ------- ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income...................... $3,739 $ 3,769 $ 1,212 $ 1,118 $ 576
All other, net....................... (648) (1,265) (1,231) (679) (531)
------ ------- ------- ------- ------
$3,091 $ 2,504 $ (19) $ 439 $ 45
====== ======= ======= ======= ======
</TABLE>
NOTE 12. EMPLOYEE BENEFIT AND STOCK OPTION PLANS
The Company has a profit sharing and savings plan for all employees. Funding
consists of employee contributions along with matching and discretionary
contributions by the Company. Total expense for the Company under this plan
was $0.6 million, $0.2 million and $0.4 million in 1994, 1995 and 1996 and
$0.3 million (unaudited) and $0.6 million (unaudited) for the nine-month
periods ended September 30, 1996 and 1997.
The Company has various plans through which employees may purchase common
stock of the Company.
The Incentive Stock Compensation Plan (Substitute Plan) was adopted to
provide substitute awards to employees whose awards under certain plans of the
former parent company, Santa Fe Pacific Corporation (SFP), were forfeited as a
result of the Company's spin-off from SFP in 1990. The number of shares,
exercise price and expiration dates of these awards were set so the
participant retained the full unrealized potential value of the original SFP
grant. Options became exercisable after March 5, 1992 and expire from 1996
through 1999.
The Company also has four stock option plans under which the Board of
Directors may grant options to purchase up to 8,750,000 shares of common stock
(Stock Option Plan, 1995 Stock Option Plan, Amended and Restated Executive
Stock Option Plan and 1996 Performance Award Plan). The exercise price of
options granted under these plans is generally the fair market value of the
common stock on the date of grant. Options generally
F-19
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
are exercisable no earlier than six months from the date of grant and expire
ten years after the date of grant. All options granted to date are exercisable
(a) in installments on a cumulative basis at a rate of 25% each year
commencing on the first anniversary of the date of grant, (b) in increments
based on stock price performance benchmarks, or (c) in increments based on a
combination of stock price performance benchmarks and time vesting
requirements.
The Company also has various plans through which non-employee directors may
purchase common stock of the Company.
Under the Amended and Restated Executive Stock Option Plan, each non-
employee director was automatically granted an option, upon initial election
to the Board of Directors, to purchase 5,000 shares of common stock at a price
of 127.63% of the fair market value on the date of grant, increasing 5% on
each anniversary of the grant date commencing on the sixth anniversary. These
options are exercisable in installments on a cumulative basis at a rate of 20%
each year. No further options may be granted to non-employee directors under
this plan.
Under the 1996 Performance Award Plan, each non-employee director is
automatically granted an option to purchase 5,000 shares of common stock upon
initial election to the Board of Directors and annually thereafter during his
or her term of service. The exercise price of these options is the fair market
value of the common stock on the date of grant and the options are exercisable
based upon stock price performance benchmarks.
In addition, under the 1996 Performance Award Plan, each non-employee
director may elect to defer receipt of his or her annual retainer fee until
termination of board service and to acquire stock rather than receive the cash
retainer at a purchase price equal to 90% of the fair market value of the
common stock on the date of deferral.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (Statement 123) requires use of option valuation models
that were developed for use in valuing publicly traded stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net earnings (loss) and earnings (loss) per
share is required by Statement 123 and has been determined as if the Company
had accounted for its employee stock options under the fair value method. The
weighted-average fair value of options granted during 1996 and 1995 were $3.30
and $2.34. The fair value of options granted was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted-
average assumptions for 1995 and 1996, respectively: risk-free interest rates
of 6.11% and 5.82%; zero percent dividend yields; volatility factors of the
expected market price of the Company's common stock of 30.77% and 29.56%, and
a weighted-average expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable measure of the fair value of its employee stock options.
F-20
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows (in thousands, except earnings
(loss) per share information):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
-------- -----
<S> <C> <C>
Pro forma net earnings (loss) applicable to common
stockholders............................................. $(57,074) $ 671
======== =====
Pro forma earnings (loss) per share....................... $ (0.78) $0.01
======== =====
</TABLE>
A summary of the Company's stock option activity, and related information is
as follows (in thousands, except exercise price information):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1994 1995 1996
----------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-
beginning of year...... 1,495 $11.69 1,779 $10.69 2,877 $ 9.84
Granted................. 2,106 $ 7.25 1,305 $ 6.04 4,189 $ 8.85
Exercised............... -- -- -- -- (68) $ 7.15
Expired................. (1,822) $12.25 (207) $14.51 -- --
Forfeited............... -- -- -- -- (637) $10.81
------ ----- -----
Outstanding-
end of year............ 1,779 $10.69 2,877 $ 9.84 6,361 $ 8.13
====== ===== =====
Exercisable at end of
year................... 169 $10.15 277 $ 9.08 404 $ 7.32
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$5.58 to $16.53. The weighted-average remaining contractual life of those
options is 8.78 years.
NOTE 13. CAPITAL STOCK
The Company has authorized the issuance of 150 million shares of $.01 par
value common stock. As of December 31, 1995 and 1996 and September 30, 1997,
the Company had 72,967,236, 77,028,099 and 106,488,153 shares issued and
outstanding. The Company has reserved 8,750,000 shares of common stock
pursuant to various compensation programs.
Prior to September 1996, the Company had outstanding 3,449,999 shares of
$3.75 Series A Cumulative Convertible Preferred Stock (Series A preferred
stock) and 3,000,000 shares of $3.625 Series B Cumulative Convertible
Exchangeable Preferred Stock (Series B preferred stock). The Series A
preferred stock had an annual dividend of $3.75 per share and a stated value
of $50 per share. The Series A preferred stock was convertible into common
stock at a price of $9.06 per common share and was also redeemable, at the
Company's option, at any time after February 16, 1996, at $52.625 per share.
The Series B preferred stock had an annual dividend of $3.625 per share and a
stated value of $50 per share. The Series B preferred stock was convertible
into common stock at a price of $9.80 per common share and was also
redeemable, at the Company's option, at any time after November 15, 1996, at
$52.5375 per share.
During 1996, the Company commenced a series of calls for redemption of its
outstanding preferred stock. As a result of these calls, during 1996, 453,326
Series A preferred shares were converted into 2,501,783 common shares and
508,113 Series A preferred shares were redeemed at a cost of approximately
$26.7 million. In 1997
F-21
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2,480,671 shares of Series A preferred stock and all of the Series B preferred
stock were converted into 29,001,469 shares of common stock, with 7,889 shares
of Series A preferred stock redeemed at a cost of approximately $440,000. With
the completion of these calls in June 1997, the Company has no remaining
outstanding preferred stock.
NOTE 14. COMMITMENTS AND CONTINGENCIES
As of September 30, 1997, the Company has outstanding standby letters of
credit and surety bonds in the amount of $21 million in favor of local
municipalities or financial institutions to guarantee performance on real
property improvements or financial obligations.
The Company, as a partner in certain joint ventures, has made certain
financing guarantees (Note 5).
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 liability may arise from the ownership, or previous
ownership, of real properties 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 because of 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
that of responsible parties, and the extent to which such costs are
recoverable from insurance.
At September 30, 1997, management estimates that future costs for
remediation of identified or suspected environmental contamination on
operating properties and properties previously sold approximate $12.9 million,
and has provided a reserve for that amount. It is anticipated that such costs
will be incurred over the next ten years with a substantial portion incurred
over the next five years. Management also estimates that similar costs
relating to the Company's properties to be developed or sold may range from
$12.6 million to $38.4 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. The Company's estimates were developed based on
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.
In April 1991, a lawsuit was brought against the Company alleging breach of
contract for a finder's fee in connection with an August 1990 sale of land in
Fremont, California. On November 1, 1993, the jury returned a verdict in favor
of the plaintiff and made an award of approximately $440,000 which, together
with pre-judgment interest, totaled approximately $600,000. Additionally, the
jury awarded approximately $7.7 million in punitive damages for what it found
was the Company's bad faith denial of an alleged contract. While the Company
was vigorously pursuing an appeal, it recognized an expense of $8.3 million in
the 1993 consolidated statement of operations. In December 1995, the Company
reached a settlement with the plaintiff and $7.5 million of the expense was
reversed in the 1995 consolidated statement of operations.
F-22
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
SUMMARIZED QUARTERLY RESULTS (UNAUDITED)
The Company's earnings (loss) and cash flow are determined to a large extent
by property sales. Sales and net earnings have fluctuated significantly from
quarter to quarter, as evidenced by the following summary of unaudited
quarterly consolidated results of operations. Property sales fluctuate from
quarter to quarter, reflecting general market conditions and the Company's
intent to sell property when it can obtain attractive prices. Cost of sales
may also vary widely because it is determined by the Company's historical cost
basis in the underlying land.
<TABLE>
<CAPTION>
1995 1996
------------------------------------------------- --------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------------ ------------- ------------ -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME-PRODUCING
PROPERTIES:
Rental revenue......... $ 25,408 $ 25,360 $ 26,139 $ 25,921 $ 28,034 $ 29,380 $ 28,606 $ 29,866
Property operating
costs................. (6,458) (7,810) (7,478) (8,904) (8,987) (9,928) (9,953) (10,540)
DEVELOPMENT ACTIVITIES
AND FEE SERVICES:
Gain on development
property sales........ -- -- -- 953 -- 6,569 2,746 6,308
Development and
management fee income,
net................... 407 576 589 352 403 410 1,182 1,437
Gain on non-strategic
land and other asset
sales.................. 5,574 1,626 1,702 23,887 3,087 7,358 1,330 12,630
Interest expense........ (6,453) (6,687) (6,413) (6,204) (10,939) (10,841) (10,536) (10,205)
General and
administrative
expense................ (3,869) (2,570) (2,783) (1,702) (2,060) (1,997) (1,661) (2,301)
Depreciation and
amortization........... (7,053) (6,810) (6,766) (7,361) (7,672) (7,432) (7,550) (7,907)
Net earnings (loss)..... $ 5,358 $ 3,143 $ 2,756 $(44,259) $ 1,714 $ 8,817 $ 2,752 $ 12,118
=========== ============ ============ ======== ======== ======== ======== ========
Net earnings (loss) per
common share........... $ (0.01) $ (0.04) $ (0.04) $ (0.69) $ (0.06) $ 0.04 $ (0.05) $ 0.09
=========== ============ ============ ======== ======== ======== ======== ========
EBDDT(1)............... $ 4,160 $ 4,290 $ 3,664 $ 6,140 $ 1,521 $ 8,716 $ 5,567 $ 10,048
=========== ============ ============ ======== ======== ======== ======== ========
<CAPTION>
1997
---------------------------------------
FIRST SECOND THIRD
------------ ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME-PRODUCING
PROPERTIES:
Rental revenue......... $ 30,805 $ 31,421 $ 32,901
Property operating
costs................. (9,056) (10,045) (9,747)
DEVELOPMENT ACTIVITIES
AND FEE SERVICES:
Gain on development
property sales........ 484 3,154 3,368
Development and
management fee income,
net................... 719 1,435 2,223
Gain on non-strategic
land and other asset
sales.................. 3,640 418 570
Interest expense........ (9,794) (10,205) (10,035)
General and
administrative
expense................ (2,615) (2,701) (2,926)
Depreciation and
amortization........... (7,476) (7,723) (7,839)
Net earnings............ $ 5,109 $ 5,685 $ 6,278
=========== ============ ============
Net earnings per common
share.................. $ 0.05 $ 0.06 $ 0.06
=========== ============ ============
EBDDT(1)............... $ 10,563 $ 16,297 $ 17,199
=========== ============ ============
</TABLE>
- -------
(1) The Company uses a supplemental performance measure along with net
earnings (loss) to report its operating results. This measure, Earnings
Before Depeciation and Deferred Taxes (EBDDT), is not a measure of
operating results or cash flows from operating activities as defined by
generally accepted accounting principles. Additionally, EBDDT is not
necessarily indicative of cash available to fund cash needs and should not
be considered as an alternative to cash flows as a measure of liquity.
However, the Company believes that EBDDT provides relevant information
about its operations and is necessary, along with net earnings (loss), for
an understanding of its operating results.
Depreciation, amortization and deferred income taxes are excluded from EBDDT
as they represent non-cash charges. Gains on the sale of non-strategic land
and other assets, adjustments to the carrying value of property, premiums on
the redemption of preferred stock and restructuring costs represent non-
operating, unusual and/or nonrecurring items and are therefore excluded from
EBDDT.
F-23
<PAGE>
[Header reads "Mixed-Use Development." Aerial photographs of California
mixed-use development project sites are dispersed on page: Mission Bay in San
Francisco with downtown San Francisco skyline and the Mission Bay project area
outlined (with caption "Mission Bay, San Francisco, CA"), Union Station in Los
Angeles with downtown Los Angeles and the Union Station project area outlined
(with caption "Union Station, Los Angeles, CA"), Santa Fe Depot in San Diego
with downtown San Diego in left of photo and project area outlined (with caption
"Santa Fe Depot, San Diego"), Pacific Commons in Fremont with project area
outlined (with caption "Pacific Commons, Fremont, CA").]
<PAGE>
[CATELLUS LOGO]
<PAGE>
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following are the actual and estimated expenses incurred in connection
with the registration and sale of the Shares.
<TABLE>
<S> <C>
SEC Registration Fees........................................... $ 99,015
NASD Fees....................................................... 30,500
Legal Fees and Expenses......................................... 285,000
Accountants' Fees and Expenses.................................. 90,000
Blue Sky Expenses............................................... 15,000
Printer's Fees.................................................. 250,000
Miscellaneous................................................... 230,485
-----------
Total......................................................... $ 1,000,000
===========
</TABLE>
- --------
* All amounts are estimated except for the Commission registration fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides in general that
a Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any suit or proceeding because such person is
or was a director, officer, employee or agent of the corporation or was
serving, at the request of the corporation, as a director, officer, employee
or agent of another corporation, against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such suit or proceeding if such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Similar indemnity, but only for expenses
(including attorneys' fees) actually and reasonably incurred, may be provided
in connection with an action or suit by or in the right of a corporation,
provided that such person acted in good faith and in a manner such person
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification may be made in respect of any claim as to which
such person has been adjudged to be liable to the corporation unless and only
to the extent that a court shall have determined, upon application, that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
Section 102(b)(7) of the Delaware General Corporation Law provides generally
that a corporation may include a provision in its certificate of incorporation
which eliminates or limits the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision may not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived an improper personal
benefit. The Company has included provisions of the foregoing type in Article
5 of its Amended and Restated Certificate of Incorporation.
The Company maintains directors and officers liability insurance coverage
for its directors and officers providing coverage for damages, judgments,
settlements, defense costs, charges and expenses incurred by reason of any
actual or alleged breach of duty, error, misstatement, misleading statement or
omission done or made in their capacities as directors and/or officers of the
Company.
II-1
<PAGE>
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Amendment
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement among the Company, the Selling
Stockholder and the Underwriters
3.1 Form of Restated Certificate of Incorporation of the Company (1)
3.1A Amendment to Restated Certificate of Incorporation of the
Registrant (2)
4.1 Form of stock certificate representing Common Stock (1)
5.1 Opinion of O'Melveny & Myers LLP, as to legality of Common Stock
to be sold
23.1 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
*23.2 Consent of Price Waterhouse LLP
*24 Powers of Attorney (included in signature pages)
*27 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
(1) Incorporated by reference to Exhibit of the same number of the
Registration Statement on Form 10 (Commission File No. 0-18694) as filed
with the Commission on July 18, 1990 ("Form 10")
(2) Incorporated by reference to Exhibit of the same number on the Form 10-K
for the year ended December 31, 1993.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance of Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rules 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under this
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) as asserted by such director,
officer or controlling
II-2
<PAGE>
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN
FRANCISCO, STATE OF CALIFORNIA, ON THIS 24TH DAY OF NOVEMBER, 1997.
CATELLUS DEVELOPMENT CORPORATION
(REGISTRANT)
/s/ Nelson C. Rising
By: _________________________________
Nelson C. Rising
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
Principal Executive Officer:
<S> <C> <C>
President and Chief
/s/ Nelson C. Rising Executive Officer, November 24,
- -------------------------------- Director 1997
NELSON C. RISING
Principal Financial Officer:
Senior Vice
/s/ Stephen P. Wallace President and Chief November 24,
- -------------------------------- Financial Officer 1997
STEPHEN P. WALLACE
Principal Accounting Officer:
Vice President and
/s/ Paul A. Lockie Controller November 24,
- -------------------------------- 1997
PAUL A. LOCKIE
Director
Joseph F. Alibrandi* November 24,
- -------------------------------- 1997
JOSEPH F. ALIBRANDI
Director
Daryl J. Carter* November 24,
- -------------------------------- 1997
DARYL J. CARTER
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
Director
Richard D. Farman* November 24,
- ------------------------------- 1997
RICHARD D. FARMAN
Director
Christine Garvey* November 24,
- ------------------------------- 1997
CHRISTINE GARVEY
Director
William M. Kahane* November 24,
- ------------------------------- 1997
WILLIAM M. KAHANE
Director
Donald J. McNamara* November 24,
- ------------------------------- 1997
DONALD J. MCNAMARA
Director
Leslie D. Michelson* November 24,
- ------------------------------- 1997
LESLIE D. MICHELSON
Chairman and
Jacqueline R. Slater* Director November 24,
- ------------------------------- 1997
JACQUELINE R. SLATER
Director
Thomas M. Steinberg* November 24,
- ------------------------------- 1997
THOMAS M. STEINBERG
Director
Beverly Benedict Thomas* November 24,
- ------------------------------- 1997
BEVERLY BENEDICT THOMAS
By:/s/ Stephen P. Wallace
-------------------------------
STEPHEN P. WALLACE
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued November , 1997
16,500,000 Shares
Catellus Development Corporation
COMMON STOCK
-----------
OF THE SHARES OF COMMON STOCK OFFERED HEREBY, 3,300,000 ARE BEING OFFERED
INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND 13,200,000 ARE BEING OFFERED INITIALLY IN THE UNITED
STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." ALL OF
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE SELLING
STOCKHOLDER. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY
WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF THE SHARES BEING
OFFERED HEREBY. THE COMPANY'S COMMON STOCK IS LISTED ON THE NEW
YORK, PACIFIC AND CHICAGO STOCK EXCHANGE UNDER THE SYMBOL "CDX."
ON NOVEMBER 24, 1997, THE REPORTED LAST SALE PRICE OF THE COMMON
STOCK ON THE NEW YORK STOCK EXCHANGE WAS $18 PER SHARE.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREIN FOR CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
-------- -------------- --------------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total(3)............................. $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Expenses associated with the offering, estimated at $1,000,000, are
payable by the Company.
(3) The Selling Stockholder has granted to the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 2,475,000 additional Shares of Common Stock at the price to
public less underwriting discounts and commissions for the purpose of
covering over-allotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions and proceeds to Selling Stockholder will be $ , $ and
$ , respectively. See "Underwriters."
-----------
The shares are offered, subject to prior sale, when, as, and if accepted by
the Underwriters named herein, and subject to approval of certain legal matters
by Gibson, Dunn & Crutcher LLP, counsel for the Underwriters. It is expected
that delivery of the Shares will be made on or about December , 1997, at the
offices of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment
therefor in immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH INTERNATIONAL
BANCAMERICA ROBERTSON STEPHENS
EVEREN SECURITIES, INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
November , 1997
<PAGE>
GD&C DRAFT OF 11/21/97
16,500,000 SHARES
CATELLUS DEVELOPMENT CORPORATION
COMMON STOCK, PAR VALUE $0.01 PER SHARE
UNDERWRITING AGREEMENT
NOVEMBER 25, 1997
<PAGE>
November 25, 1997
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
BancAmerica Robertson Stephens
EVEREN Securities, Inc.
NationsBanc Montgomery Securities, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Merrill Lynch International
BancAmerica Robertson Stephens
EVEREN Securities, Inc.
NationsBanc Montgomery Securities, Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
California Public Employees' Retirement System, a governmental employee
pension fund which is a unit of the State and Consumer Services Agency of the
State of California (the "SELLING SHAREHOLDER"), a shareholder of Catellus
Development Corporation, a Delaware corporation (the "COMPANY"), proposes to
sell to the several Underwriters (as defined below), an aggregate of 16,500,000
shares of the Common Stock $0.01 par value, of the Company (the "FIRM SHARES").
It is understood that, subject to the conditions hereinafter stated,
13,200,000 Firm Shares (the "U.S. FIRM SHARES") will be sold to the several
U.S. Underwriters named in Schedule I hereto (the "U.S. UNDERWRITERS") in
connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and 3,300,000 Firm Shares (the "INTERNATIONAL SHARES") will be
sold to the several International Underwriters named in Schedule II hereto (the
"INTERNATIONAL UNDERWRITERS") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, BancAmerica Robertson Stephens,
EVEREN Securities, Inc. and NationsBanc Montgomery Securities, Inc. shall act
as
<PAGE>
representatives (the "U.S. REPRESENTATIVES") of the several U.S.
Underwriters, and Morgan Stanley & Co. International Limited, Merrill Lynch
International, BancAmerica Robertson Stephens, EVEREN Securities, Inc. and
NationsBanc Montgomery Securities, Inc. shall act as representatives (the
"INTERNATIONAL REPRESENTATIVES") of the several International Underwriters.
The U.S. Underwriters and the International Underwriters are hereinafter
collectively referred to as the "UNDERWRITERS."
The Selling Shareholder also proposes to issue and sell to the several
U.S. Underwriters not more than an additional 2,475,000 shares of the Common
Stock, $0.01 par value, of the Company (the "ADDITIONAL SHARES") if and to the
extent that the U.S. Representatives shall have determined to exercise, on
behalf of the U.S. Underwriters, the right to purchase such Additional Shares
granted to the U.S. Underwriters in Section 3 hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "SHARES."
The shares of Common Stock, $0.01 par value, of the Company to be outstanding
after giving effect to the sales contemplated hereby are hereinafter referred
to as the "COMMON STOCK."
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-3 (File No. 333-39131)
relating to the Shares. The registration statement contains two prospectuses
to be used in connection with the offering and sale of the Shares: (i) the
U.S. prospectus, to be used in connection with the offering and sale of Shares
in the United States and Canada to United States and Canadian Persons, and (ii)
the international prospectus, to be used in connection with the offering and
sale of Shares outside the United States and Canada to persons other than
United States and Canadian Persons. The international prospectus is identical
to the U.S. prospectus except for the outside front cover page. The
registration statement as amended at the time it becomes effective, including
the information (if any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the Securities Act of 1933,
as amended (the "SECURITIES ACT"), is hereinafter referred to as the
"REGISTRATION STATEMENT;" the U.S. prospectus and the international prospectus
in the respective forms first used to confirm sales of Shares are hereinafter
collectively referred to as the "PROSPECTUS." If the Company has filed an
abbreviated registration statement to register additional shares of Common
Stock pursuant to Rule 462(b) under the Securities Act (the "RULE 462
REGISTRATION STATEMENT"), then any reference herein to the term "REGISTRATION
STATEMENT" shall be deemed to include such Rule 462 Registration Statement.
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the
knowledge of the Company, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue
2
<PAGE>
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Registration Statement or
the Prospectus based upon (A) information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein or (B) information relating to the Selling
Shareholder furnished to the Company by the Selling Shareholder
expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital stock
of each subsidiary of the Company have been duly and validly authorized
and issued, are fully paid and non-assessable and are owned directly by
the Company or indirectly through one of its subsidiaries, free and clear
of all adverse claims.
(e) Each of the joint venture partnerships or limited liability
companies in which the Company has a controlling interest, as disclosed in
the Prospectus (the "Joint Ventures"), has been duly formed and is validly
existing and in good standing under the laws of its state of organization,
with power and authority to own, lease and operate its properties and to
conduct the business in which it is engaged. Each Joint Venture is duly
qualified or registered as a foreign limited partnership or limited
liability company to transact business in each jurisdiction in which such
qualification or registration is required, whether by reason of the
ownership or leasing of property or the conduct of
3
<PAGE>
business, except where the failure so to qualify or be registered would
not have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(f) This Agreement has been duly authorized, executed and delivered
by the Company.
(g) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(h) The shares of Common Stock (including the Shares to be sold by
the Selling Shareholder) outstanding on the date hereof have been duly
authorized and are validly issued, fully paid and non-assessable.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not
contravene (A) any provision of law applicable to the Company, (B) the
certificate of incorporation or by-laws of the Company, (C) any agreement
or other instrument binding upon the Company or any of its subsidiaries,
except for the contravention of any agreement which would not, singly or
in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole or (D) any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary. No consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares and except
those which have been obtained or waived prior to the date hereof.
(j) There has not occurred any material adverse change or, to the
knowledge of the Company, any development involving a prospective material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries,
taken as a whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement).
(k) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company
or any of its subsidiaries is subject that are required to be described in
the Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described or
filed as required.
4
<PAGE>
(l) The preliminary prospectus issued November 7, 1997 and filed as
part of the registration statement complied when so filed in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(n) With respect to each of the properties owned by the Company or
one of its subsidiaries, whether such property is an income-producing
property or held for development, sale, lease or for any other purpose
(the "Properties"), (i) the Company or one of its subsidiaries has good
and valid fee simple title to the land underlying the Properties and good
and valid title to the improvements thereon and all other assets that are
required for the operation of the Properties in the manner in which they
are currently operated, subject, however, to existing mortgages on such
Properties, to utility easements serving such Properties, to liens of ad
valorem taxes not delinquent as of the Closing Date or which are being
contested in good faith, to zoning and similar governmental land use
matters affecting such Properties that are consistent with the current
uses of such Properties, to statutory liens not due and payable as of the
Closing Date or which are being contested in good faith, to title matters
that may be material in character, amount or extent but which do not
materially interfere with the use or proposed use of the Properties or
otherwise materially impair the business operations being conducted or
proposed to be conducted thereon, to service marks and trade names used in
connection with such Properties, to the ownership by others of certain
items of equipment and other items of personal property that are used in
conduct of business operations at such Properties and to other defects or
irregularities in title which do not interfere in any material respect
with the ordinary conduct of the business of the Company and its
subsidiaries, taken as a whole, and which neither singly or in the
aggregate would have a material adverse effect on the Company and its
subsidiaries, taken as a whole; (ii) all liens, charges, encumbrances,
claims, or restrictions on or affecting any of the Properties and the
assets of the Company which are required to be disclosed in the Prospectus
are disclosed therein; (iii) any real property and buildings held under
lease by the Company or one of its subsidiaries are held by them under
valid, subsisting and enforceable leases except to the extent the failure
of such leases to be valid, subsisting or enforceable would not, singly or
in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole; (iv) no person has an option or right of
first refusal to purchase all or part of any Property or any interest
therein, except for options and rights of first refusal which, if
exercised, would not singly or in the aggregate have a material adverse
effect on the Company and its
5
<PAGE>
subsidiaries, taken as a whole; (v) each of the Properties complies with
all applicable codes, laws and regulations (including, without
limitation, building and zoning codes, laws and regulations and laws
relating to access to the Properties), except if and to the extent
disclosed in the Prospectus and except for such failures to comply that
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; and (vi) the Company has no knowledge of
any pending or threatened condemnation proceedings, zoning change, or
other similar proceeding or action that will affect the size of, use of,
improvements on, construction on or access to any of the Properties,
except such proceedings or actions as are disclosed in the Prospectus or
that would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(o) The Company and its subsidiaries (i) are in compliance with all
applicable foreign, federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or hazardous
or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL
LAWS"), (ii) have received all permits, licenses or other approvals
required of them under applicable federal and state health and safety laws
and regulations and Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of
any such permit, license or approval, except where such noncompliance,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses
or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(p) Except as disclosed in the Prospectus, there are no costs or
liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(q) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement.
(r) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, intellectual
property licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names currently employed by them in connection with the
business now operated by them, and neither the Company nor any of its
subsidiaries have received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which,
singly or in the aggregate, would have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
6
<PAGE>
(s) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, or, to the knowledge of the Company, is
imminent.
(t) Price Waterhouse LLP, who have certified certain financial
statements in the Registration Statement, whose report appears in the
Prospectus, are independent public accountants as required by the
Securities Act and the rules and regulations of the Commission thereunder
during the periods covered by the financial statements on which they
reported contained in the Prospectus.
(u) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
re engaged; and neither the Company nor any of its subsidiaries has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business at a
cost that would not, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.
(v) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, except for those certificates, authorizations and permits the
non-possession of which would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole, and neither the Company nor any subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate,
would have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; and
(iii) access to assets is permitted only in accordance with management's
general or specific authorization.
(x) The Company and its subsidiaries have filed all federal, state,
and local income tax returns which have been required to be filed and have
paid all taxes required to be paid and any other assessment, fine or
penalty levied against it, to the extent that any of the foregoing is due
and payable, except, in all cases, for any such tax, assessment, fine or
penalty that is being contested in good faith (and except in any case in
which the failure to so file or pay would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole).
7
<PAGE>
(y) The financial statements (including the notes thereto) included
in the Registration Statement and the Prospectus present fairly the
financial position of the Company at the respective dates indicated and
the results of operations for the respective periods specified, and except
as otherwise stated in the Registration Statement, said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis. The
supporting schedules included in the Registration Statement present fairly
the information required to be stated therein. The financial information
and data included in the Registration Statement and the Prospectus present
fairly the information included therein and have been prepared on a basis
consistent with that of the books and records of the respective entities
presented therein.
(z) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders,
customers, suppliers or contractors of the Company, on the other hand,
which is required to be described in the Prospectus which is not so
described.
(aa) Neither the Company nor any director, officer, agent, employee
or other person associated with or acting on behalf of the Company has
used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(bb) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
2. Representations and Warranties of the Selling Shareholder. The
---------------------------------------------------------
Selling Shareholder represents and warrants to and agrees with each of the
Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered
by the Selling Shareholder.
(b) The execution and delivery by the Selling Shareholder of, and the
performance by the Selling Shareholder of its obligations under, this Agreement
and the Custody Agreement signed by the Selling Shareholder and First Chicago
Trust Company of New York, the Company's transfer agent, as Custodian, relating
to the deposit of the Shares to be sold by the Selling Shareholder (the
"CUSTODY AGREEMENT") will not contravene (i) any provision of law applicable to
the Selling Shareholder, assuming the accuracy of the Company's representations
contained in Sections 1(a) and (b) above, (ii) any statutes governing the
organization and operation of the Selling Shareholder, (iii) any agreement or
other instrument binding upon the Selling Shareholder, except for the
contravention of any agreement which would not,
8
<PAGE>
singly or in the aggregate, have a material adverse effect on the Selling
Shareholder or (iv) any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Selling Shareholder. Assuming
the accuracy of the Company's representations contained in Section 1(a)
above, no consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance by the
Selling Shareholder of its obligations under this Agreement or the Custody
Agreement, except such as may be required by the securities or Blue Sky laws
of the various states in connection with the offer and sale of the Shares and
except those which have been obtained or waived prior to the date hereof.
(c) The Selling Shareholder has, and on the Closing Date will have,
valid title to the Shares and the legal right and power, and all
authorization and approval required by law, to enter into this Agreement and
the Custody Agreement and to sell, transfer and deliver the Shares.
(d) The Custody Agreement has been duly authorized, executed and
delivered by the Selling Shareholder and is a valid and binding agreement of
the Selling Shareholder.
(e) Delivery of the Shares by the Selling Shareholder pursuant to
this Agreement will pass title to such Shares free and clear of any security
interests, claims, liens, equities and other encumbrances.
3. Agreements to Sell and Purchase. The Selling Shareholder hereby
-------------------------------
agrees to sell to the several Underwriters, and each Underwriter, upon the
basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agrees, severally and not jointly, to
purchase from the Selling Shareholder at U.S.$____ a share (the "PURCHASE
PRICE") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) set forth in Schedules I and II
hereto opposite the name of such Underwriter.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Selling Shareholder
agrees to sell to the U.S. Underwriters the Additional Shares, and the U.S.
Underwriters shall have a one-time right to purchase, severally and not
jointly, up to 2,475,000 Additional Shares at the Purchase Price. If the U.S.
Representatives, on behalf of the U.S. Underwriters, elect to exercise such
option, the U.S. Representatives shall so notify the Selling Shareholder and
the Company in writing not later than 30 days after the date of this
Agreement, which notice shall specify the number of Additional Shares to be
purchased by the U.S. Underwriters and the date on which such shares are to
be purchased. Such date may be the same as the Closing Date (as defined
below) but not earlier than the Closing Date nor later than ten business days
after the date of such notice. The Additional Shares may be purchased as
provided in Section 5 hereof solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees,
severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate
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fractional shares as the U.S. Representatives may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as
the number of U.S. Firm Shares set forth in Schedule I hereto opposite the
name of such U.S. Underwriter bears to the total number of U.S. Firm Shares.
The Company and the Selling Shareholder hereby agree that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, they will not, during the period ending 90 days after the date
of the Prospectus, with respect to the Company, and 180 days after the date
of the Prospectus, with respect to the Selling Shareholder, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder,
(B) the issuance by the Company of options or shares of Common Stock upon the
exercise of options granted under the Company's employee and non-employee
director stock option plans or the exercise of a warrant or the conversion of
a security, in each case as outstanding on the date hereof of which the
Underwriters have been advised in writing, (C) the issuance by the Company of
stock units to directors (which units, subject to certain vesting
requirements, convert into shares of Common Stock upon termination of
service) granted under the Company's employee and non-employee director stock
option plans or (D) with respect to the Selling Shareholder, if the Company
files a registration statement in connection with a public offering for cash,
the Selling Shareholder may request that its securities be included in such
registration statement, subject to certain volume and other limitations
contained in that certain Registration Rights Agreement, dated as of December
29, 1989, among the Company, the Selling Shareholder and certain other
parties thereto. In addition, the Selling Shareholder agrees that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of
the Underwriters and except as set forth in the immediately preceding
sentence, it will not, during the period ending 180 days after the date of
the Prospectus, make any demand for, or exercise any right with respect to,
the registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.
4. Terms of Public Offering. The Company and the Selling Shareholder
------------------------
are advised by you that the Underwriters propose to make a public offering of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company and the
Selling Shareholder are further advised by you that the Shares are to be
offered to the public initially at U.S.$____ a share (the "PUBLIC OFFERING
PRICE") and to certain dealers selected by you at a price that represents a
concession not in excess of U.S.$____ a share under the Public Offering
Price, and that any Underwriter may allow, and such dealers may reallow, a
concession, not in excess of U.S.$____ a share, to any Underwriter or to
certain other dealers.
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5. Payment and Delivery. Payment for the Firm Shares to be sold by the
--------------------
Selling Shareholder shall be made to the Selling Shareholder in Federal or
other funds immediately available in New York City against delivery of such
Firm Shares for the respective accounts of the several Underwriters at 10:00
a.m., New York City time, on December [2], 1997, or at such other time on the
same or such other date, not later than December [9], 1997 as shall be
designated in writing by you. The time and date of such payment are
hereinafter referred to as the "CLOSING DATE."
Payment for any Additional Shares shall be made to the Selling
Shareholder in Federal or other funds immediately available in New York City
against delivery of such Additional Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on the date specified
in the notice described in Section 3 or at such other time on the same or on
such other date, in any event not later than January 9, 1998, as shall be
designated in writing by the U.S. Representatives. The time and date of such
payment are hereinafter referred to as the "OPTION CLOSING DATE."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes
payable in connection with the transfer of the Shares to the Underwriters
duly paid, against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
-------------------------------------------
Selling Shareholder to sell the Shares to the Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the
Closing Date are subject to the condition that the Registration Statement shall
have become effective not later than 5:30 P.M. (New York City time) on the date
hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by
any "nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act; and
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(ii) there shall not have occurred any change, or, to the
knowledge of the Company, any development involving a prospective change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company on behalf of the Company, to the effect set forth in Section 6(a)(i)
above and to the effect that the representations and warranties of the
Company contained in this Agreement are true and correct as of the Closing
Date and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date. (c) The Underwriters shall have
received on the Closing Date an opinion of O'Melveny & Myers LLP, outside
counsel for the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated and is validly
existing in good standing under the laws of the State of Delaware, with
corporate power to own its property, to conduct its business as described in
the Prospectus and to enter into the Underwriting Agreement, and to perform
its obligations under the Underwriting Agreement;
(ii) each corporation listed on Schedule III hereto as a
significant subsidiary of the Company (each a "Significant Subsidiary") has
been duly incorporated and is validly existing in good standing under the
laws of the jurisdiction of its incorporation, with corporate power to own
its property and to conduct its business as described in the Prospectus;
(iii) the Company is qualified as a foreign corporation to do
business in the States listed on Schedule IV hereto and is in good standing
in each of those States;
(iv) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Prospectus;
(v) the Shares have been duly authorized by all necessary
corporate action on the part of the Company and are validly issued, fully
paid and nonassessable;
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(vi) the outstanding shares of the capital stock of each
Significant Subsidiary have been duly authorized by all necessary corporate
action on the part of such Significant Subsidiary, are validly issued, fully
paid and nonassessable, and are owned of record by the Company;
(vii) holders of the Common Stock of the Company are not
entitled to any preemptive right to subscribe for any additional shares of
Common Stock under the Company's Certificate of Incorporation or Bylaws;
(viii) the execution, delivery and performance of the
Underwriting Agreement have been duly authorized by all necessary corporate
action on the part of the Company and the Underwriting Agreement has been
duly executed and delivered by the Company;
(ix) the statements in the Prospectus under the captions
"Principal and Selling Shareholders--Registration Rights Agreement and
"Description of Capital Stock," in each case insofar as such statements
constitute summaries of the legal matters or documents referred to therein,
fairly present the information called for by Form S-3 and fairly summarize
the matters referred to therein;
(x) the Company's execution and delivery of, and the
performance of its obligations on or prior to the date of this opinion under,
the Underwriting Agreement will not (a) violate any provision of the
Certificate of Incorporation or Bylaws of the Company; (b) violate, breach or
result in a default under, any existing obligation of or restriction on the
Company under any agreement listed as an exhibit to the Company's most recent
annual report on Form 10-K (each a "Material Agreement") or (c) breach or
otherwise violate any existing obligation of or restriction on the Company
under any judgment, order or decree of any California or federal court or
governmental authority binding on the Company and identified to such counsel
in an officer's certificate from the Company;
(xi) no order, consent, permit or approval of any California
or federal governmental authority that such counsel has, in the exercise of
customary professional diligence, recognized as applicable to the Company or
to transactions of the type contemplated by the Underwriting Agreement is
required on the part of the Company for the execution and delivery of, and
performance of its obligations on or prior to the date hereof under, the
Underwriting Agreement, except for such as have been obtained under the
Securities Act and such as may be required under applicable blue sky or state
securities laws;
(xii) the execution and delivery by the Company of, and the
performance by the Company of its obligations on or prior to the date hereof
under, the Underwriting Agreement do not violate any California or federal
13
<PAGE>
statute or regulation that such counsel has, in the exercise of customary
professional diligence, recognized as applicable to the Company or to the
transactions of the type contemplated by the Underwriting Agreement, except
that such counsel need express no opinion regarding any federal securities
laws, blue sky or state securities laws or the provisions of Section 9 of the
Underwriting Agreement, except as otherwise expressly stated in such
counsel's opinion;
(xiii) the Company is not an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended; and
(xiv) such counsel is of the opinion that the Registration
Statement and Prospectus, on the date of effectiveness of the Registration
Statement (except for financial statements and schedules and other financial
and statistical data included therein as to which such counsel need not
express any opinion) appeared on their face to comply as to form in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
In connection with such counsel's participation in the preparation of the
Registration Statement and the Prospectus, such counsel may state that it has
not independently verified the accuracy, completeness or fairness of the
statements contained or incorporated therein, and may state that the
limitations inherent in the examination made by such counsel and the knowledge
available to such counsel are such that such counsel is unable to assume, and
does not assume, any responsibility for such accuracy, completeness or fairness
(except as otherwise specifically stated in clause (xi) above). However, on
the basis of such counsel's review of the Registration Statement and the
Prospectus and such counsel's participation in conferences in connection with
the preparation of the Registration Statement and Prospectus, and relying as to
matters of fact and materiality to a large extent upon opinions of officers and
other representatives of the Company, such counsel shall state that it does not
believe that the Registration Statement, considered as a whole as of the
effective date of the Registration Statement, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and that
such counsel does not believe that the Prospectus, considered as a whole as of
the date of such opinion, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. However, such counsel need express no opinion or belief as to the
financial statements and other financial information contained in the
Registration Statement or the Prospectus.
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(d) The Underwriters shall have received on the Closing Date an
opinion of (1) Kayla J. Gillan, Esq., General Counsel of the Selling
Shareholder, with respect to paragraphs (i), (ii), (iii) and (iv) below and
(2) Jones, Day, Reavis & Pogue, special counsel for the Selling Shareholder,
with respect to paragraph (v) below, each dated the Closing Date, to the
effect that:
(i) this Agreement has been duly authorized, executed and
delivered by the Selling Shareholder;
(ii) the execution and delivery by the Selling Shareholder
of, and the performance by the Selling Shareholder of its obligations under,
this Agreement and the Custody Agreement will not contravene (i) any
provision of law applicable to the Selling Shareholder, assuming the accuracy
of the Company's representations contained in Sections 1(a) and (b) of the
Agreement, (ii) any statutes governing the organization and operation of the
Selling Shareholder, (iii) to the best of such counsel's knowledge, any
agreement or other instrument binding upon the Selling Shareholder, except
for the contravention of any agreement which would not, singly or in the
aggregate, have a material adverse effect on the Selling Shareholder or (iv)
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Selling Shareholder. Assuming the accuracy of
the Company's representations contained in Section 1(a) of the Agreement, no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Selling
Shareholder of its obligations under this Agreement or the Custody Agreement,
except such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Shares and except
those which have been obtained or waived prior to the date hereof
(iii) the Selling Shareholder has valid title to the Shares
and the legal right and power, and all authorization and approval required by
law, to enter into this Agreement and the Custody Agreement and to sell,
transfer and deliver the Shares;
(iv) the Custody Agreement has been duly authorized,
executed and delivered by the Selling Shareholder and is a valid and binding
agreement of the Selling Shareholder; and
(v) assuming that the Underwriters are "protected
purchasers" (as defined under Section 8-303 of the New York Commercial Code),
upon delivery of the certificates for any Shares to be sold against payment
therefor, the Underwriters will acquire title to such Shares, free and clear
of any security interest or "adverse claims" within the meaning of Section 8-
102 of the New York Commercial Code.
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(e) The Underwriters shall have received on the Closing Date an
opinion of Gibson, Dunn & Crutcher LLP, counsel for the Underwriters, dated
the Closing Date, covering the matters referred to in Sections 6(c)(v),
6(c)(viii), 6(c)(ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and as to the statements in the Prospectus
under "Underwriters") and 6(c)(xiv) above.
With respect to Section 6(c)(xiii) above, O'Melveny & Myers LLP and
Gibson, Dunn & Crutcher LLP may state that their opinion and belief are based
upon their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification, except as specified.
The opinions of O'Melveny & Myers LLP and Kayla J. Gillan, Esq. and
Jones, Day, Reavis & Pogue described in Sections 6(c) and 6(d) above shall be
rendered to the Underwriters at the request of the Company or the Selling
Shareholder, as the case may be, and shall so state therein.
(f) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to the
Underwriters, from Price Waterhouse LLP, independent public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus; provided that the letter delivered on the
Closing Date shall use a "cut-off date" not earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain officers and directors of the
Company relating to sales and certain other dispositions of shares of Common
Stock or certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date.
The several obligations of the U.S. Underwriters to purchase Additional
Shares hereunder are subject to the delivery to the U.S. Representatives on
the Option Closing Date of such documents as they may reasonably request with
respect to the good standing of the Company, the due authorization and
issuance of the Additional Shares and other matters related to the issuance
of the Additional Shares.
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7. Covenants of the Company. In further consideration of the
------------------------
agreements of the Underwriters herein contained, the Company covenants with
each Underwriter as follows:
(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to you
and each other Underwriter such number of conformed copies of the
Registration Statement (without exhibits thereto) as you may reasonably
request, and to furnish to you in New York City, without charge, prior to
10:00 a.m. New York City time on the business day next succeeding the date of
this Agreement and during the period mentioned in Section 7(c) below, as many
copies of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, and to file with the Commission within the applicable
period specified in Rule 424(b) under the Securities Act any prospectus
required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by an
Underwriter or dealer, any event shall occur or condition exist as a result
of which it is necessary to amend or supplement the Prospectus in order to
make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion
of counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to the
dealers (whose names and addresses you will furnish to the Company) to which
Shares may have been sold by you on behalf of the Underwriters and to any
other dealers upon request, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the Prospectus
is delivered to a purchaser, be misleading or so that the Prospectus, as
amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request, provided, however, that in connection therewith the Company will not
be required to qualify as a foreign corporation or execute a general consent
to service of process in any jurisdiction.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the twelve-
month period ending December 31, 1998 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
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8. Expenses. Whether or not the transactions contemplated in this
--------
Agreement are consummated or this Agreement is terminated, the Company agrees
to pay or cause to be paid all expenses incident to the performance of its
and the Selling Shareholder's obligations under this Agreement, including:
(i) the fees, disbursements and expenses of the Company's counsel, the
Company's accountants and counsel for the Selling Shareholder in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of
the Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies thereof
to the Underwriters and dealers, in the quantities hereinabove specified,
(ii) all costs and expenses related to the transfer and delivery of the
Shares to the Underwriters, including any transfer or other taxes payable
thereon, (iii) the cost of printing or producing any Blue Sky or Legal
Investment memorandum in connection with the offer and sale of the Shares
under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 7(d) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) the cost of printing certificates representing
the Shares, (vi) the costs and charges of any transfer agent, registrar or
depositary and (vii) all other costs and expenses incident to the performance
of the obligations of the Company hereunder for which provision is not
otherwise made in this Section. It is understood, however, that except as
provided in this Section, Section 9 entitled "Indemnity and Contribution,"
and the last paragraph of Section 11 below, the Underwriters will pay all of
their costs and expenses, including fees and disbursements of their counsel,
stock transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
The provisions of this Section shall not supersede or otherwise affect any
agreement that the Company and the Selling Shareholder may otherwise have for
the allocation of such expenses among themselves.
9. Indemnity and Contribution.
--------------------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or
caused by any omission or
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alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
Notwithstanding anything to the contrary contained above, the foregoing
indemnity agreement with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at
or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such losses, claims, damages or liabilities,
unless such failure is the result of noncompliance by the Company with
Section 7(a) hereof.
(b) The Selling Shareholder agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to the
Selling Shareholder furnished in writing by or on behalf of the Selling
Shareholder expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Selling Shareholder, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or the Selling Shareholder
within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
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supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 9(a), 9(b) or 9(c), such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party and
any others the indemnifying party may designate in such proceeding and shall
pay the fees and disbursements of such counsel related to such proceeding. In
any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel
or (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in respect of the legal expenses of
any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, (ii) the fees and expenses of more than one separate firm (in
addition to any local counsel) for the Company, its directors, its officers
who sign the Registration Statement and each person, if any, who controls the
Company within the meaning of either such Section and (iii) the fees and
expenses of more than one separate firm (in addition to any local counsel)
for the Selling Shareholder and all persons, if any, who control the Selling
Shareholder within the meaning of either such Section, and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any
such separate firm for the Underwriters and such control persons of any
Underwriters, such firm shall be designated in writing by Morgan Stanley &
Co. Incorporated. In the case of any such separate firm for the Company, and
such directors, officers and control persons of the Company, such firm shall
be designated in writing by the Company. In the case of any such separate
firm for the Selling Shareholder and such control persons of the Selling
Shareholder, such firm shall be designated in writing by the Selling
Shareholder. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the
20
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indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(e) To the extent the indemnification provided for in
Section 9(a), 9(b) or 9(c) is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such paragraph, in
lieu of indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party or parties on the
other hand from the offering of the Shares or (ii) if the allocation provided
by clause 9(e)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause 9(e)(i) above but also the relative fault of the
indemnifying party or parties on the one hand and of the indemnified party or
parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. Notwithstanding the foregoing, as between
the Company and the Selling Shareholder, contribution shall be in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other in
connection with the actions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Selling Shareholder on the one hand and the Underwriters on the other
hand in connection with the offering of the Shares shall be deemed to be in
the same respective proportions as the net proceeds from the offering of the
Shares (before deducting expenses) received in the aggregate by the Company
and the Selling Shareholder and the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate Public Offering
Price of the Shares. The relative fault of the parties hereto shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or
21
<PAGE>
alleged omission to state a material fact relates to information supplied by
the Company, the Selling Shareholder or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Underwriters' respective
obligations to contribute pursuant to this Section 9 are several in
proportion to the respective number of Shares they have purchased hereunder,
and not joint.
(f) The Company, the Selling Shareholder and the Underwriters agree that
it would not be just or equitable if contribution pursuant to this Section 9
were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that
does not take account of the equitable considerations referred to in Section
9(e). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, (i) no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages that such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission and (ii) the Selling Shareholder shall not be required to contribute
any amount in excess of the proceeds received by the Selling Shareholder from
the sale of the Shares pursuant to this Agreement exceeds the amount of any
damages that the Selling Shareholder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this Section
9 and the representations, warranties and other statements of the Company and
the Selling Shareholder contained in this Agreement shall remain operative
and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Selling Shareholder or any person
controlling the Selling Shareholder, or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
(h) The provisions of this Section 9 shall not supersede or otherwise
affect any agreement that the Company and the Selling Shareholder may
otherwise have for the allocation of indemnification and contribution
obligations among themselves.
22
<PAGE>
10. Termination. This Agreement shall be subject to termination by
-----------
notice given by you to the Company, if (a) after the execution and delivery
of this Agreement and prior to the Closing Date (i) trading generally shall
have been suspended or materially limited on or by, as the case may be, any
of the New York Stock Exchange, the American Stock Exchange, the National
Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or
any calamity or crisis that, in your judgment, is material and adverse and
(b) in the case of any of the events specified in clauses 10(a)(i) through
10(a)(iv), such event, singly or together with any other such event, makes
it, in your judgment, impracticable to market the Shares on the terms and in
the manner contemplated in the Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall become
--------------------------------------
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number
of Firm Shares set forth opposite their respective names in Schedules I and
II bears to the aggregate number of Firm Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as you
may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed
to purchase pursuant to this Agreement be increased pursuant to this Section
11 by an amount in excess of one-ninth of such number of Shares without the
written consent of such Underwriter. If, on the Closing Date, any Underwriter
or Underwriters shall fail or refuse to purchase Firm Shares and the
aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares to be purchased,
and arrangements satisfactory to you, the Company and the Selling Shareholder
for the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholder. In any
such case either you, the Company or the Selling Shareholder shall have the
right to postpone the Closing Date, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may
be effected. If, on the Option Closing Date, any Underwriter or Underwriters
shall fail or refuse to purchase Additional Shares and the aggregate number
of Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase
23
<PAGE>
Additional Shares or (ii) purchase not less than the number of Additional
Shares that such non-defaulting Underwriters would have been obligated to
purchase in the absence of such default. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company or the Selling
Shareholder to comply with the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company or the Selling Shareholder
shall be unable to perform its obligations under this Agreement, the Company
will reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the reasonable fees and disbursements of their counsel) reasonably
incurred by such Underwriters in connection with this Agreement or the offering
contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more
------------
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the internal laws of the State of New York.
[the remainder of this page is intentionally left blank]
24
<PAGE>
14. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
CATELLUS DEVELOPMENT CORPORATION
By:
--------------------------------------
Nelson C. Rising
President and Chief Executive Officer
CALIFORNIA PUBLIC EMPLOYEES'
RETIREMENT SYSTEM
By:
--------------------------------------
David J. Gilbert
Senior Investment Officer
25
<PAGE>
Accepted as of the date hereof:
MORGAN STANLEY & CO. INCORPORATED
MERRILL LYNCH & CO.
BANCAMERICA ROBERTSON STEPHENS
EVEREN SECURITIES, INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
Acting severally on behalf of themselves and the
several Underwriters named on Schedule I hereto
By: Morgan Stanley & Co. Incorporated
By:
----------------------------------
Bryan W. Andrzejewski
Vice President
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
MERRILL LYNCH INTERNATIONAL
BANCAMERICA ROBERTSON STEPHENS
EVEREN SECURITIES, INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
Acting severally on behalf of themselves and the
several Underwriters named on Schedule II hereto
By: Morgan Stanley & Co. International Limited
By:
----------------------------------
Bryan W. Andrzejewski
Attorney-in-Fact
26
<PAGE>
SCHEDULE I
U.S. UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
- ------------ ---------------------
Morgan Stanley & Co. Incorporated
Merrill Lynch & Co.
BancAmerica Robertson Stephens
EVEREN Securities, Inc.
NationsBanc Montgomery Securities, Inc.
--------------
Total U.S. Shares............... 13,300,000
==============
13,300,000
<PAGE>
SCHEDULE II
INTERNATIONAL UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
- ------------ ---------------------
Morgan Stanley & Co.
International Limited
Merrill Lynch International
BancAmerica Robertson Stephens
EVEREN Securities, Inc.
NationsBanc Montgomery Securities, Inc.
--------------
Total International Shares...... 13,300,000
==============
<PAGE>
SCHEDULE III
SIGNIFICANT SUBSIDIARIES
Catellus Management Corporation
Catellus Residential Group, Inc.
RVL, Inc.
SF Pacific Properties Inc.
<PAGE>
SCHEDULE IV
STATES WHERE QUALIFIED TO DO BUSINESS
Arizona
Arkansas
California
Colorado
Illinois
Iowa
Kansas
Louisiana
Nevada
New Mexico
Oklahoma
Oregon
Texas
Utah
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER FOR OFFICERS AND DIRECTORS]
November 25, 1997
Morgan Stanley & Co. Incorporated
Merrill Lynch & Co.
BancAmerica Robertson Stephens
EVEREN Securities, Inc.
NationsBanc Montgomery Securities, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Merrill Lynch International
BancAmerica Robertson Stephens
EVEREN Securities, Inc.
NationsBanc Montgomery Securities, Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") and Morgan Stanley & Co. International Limited ("MSIL")
propose to enter into an Underwriting Agreement (the "Underwriting Agreement")
with Catellus Development Corporation, a Delaware corporation (the "Company")
and California Public Employee Retirement System, a governmental employee
pension fund, providing for the public offering (the "Public Offering") by the
several Underwriters, including Morgan Stanley and MSIL (the "Underwriters"),
of 16,500,000 shares (the "Shares") of the Common Stock, $0.01 par value, of
the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 90 days after the date of the final
prospectus relating to the Public Offering (the "Prospectus"), (1) offer,
pledge, sell, contract to sell, sell any
<PAGE>
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock,
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (a) transactions relating
to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering or (b) transfers of
shares of Common Stock, either during the undersigned's lifetime or on death,
(i) by will or the laws of descent and distribution or (ii) to the
undersigned's ancestors, descendants or spouse, or to any custodian or trustee
for the benefit of the undersigned or the undersigned's ancestors, descendants
or spouse, whether by gift or for value; provided that any such transferee of
such shares of Common Stock in this subsection (b) agrees to be bound by the
terms of this lock-up agreement.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
_________________________
(Name)
_________________________
_________________________
(Address)
2
<PAGE>
November
24th
1 9 9 7
143,379-25
286309
Catellus Development Corporation
201 Mission Street
San Francisco, CA 94105
Ladies and Gentlemen:
We have acted as counsel to Catellus Development Corporation, a
Delaware corporation (the "Company"), in connection with the registration under
the Securities Act of 1933, as amended (the "Securities Act"), by the Company of
an aggregate of 16,500,000 shares of the Company's Common Stock, $0.01 par value
(the "Shares").
In our capacity as such counsel, we have examined originals or copies of
those corporate and other records and documents we considered appropriate. We
also have examined the registration statement on Form S-3 filed by the Company
with the Securities and Exchange Commission (the "Commission") for purposes of
registering the Shares under the Securities Act (the "Registration Statement").
We have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals and the conformity with originals of
all documents submitted to us as copies and the authenticity of the originals of
such copies. As to relevant factual matters, we have relied upon, among other
things, oral or written statements and representations of officers and other
representatives of the Company and others.
The law covered by this opinion is limited to the present federal law
of the United States and the present Delaware General Corporation Law. We
express no opinion as to the laws of
<PAGE>
Page 2 - Catellus Development Corporation - November 24, 1997
any other jurisdiction and no opinion regarding the statutes, administrative
decisions, rules, regulations or requirements of any county, municipality,
subdivision or local authority of any jurisdiction.
On the basis of such examination, our reliance upon the assumptions in
this opinion and our consideration of those questions of law we considered
relevant, and subject to the limitations and qualifications in this opinion, we
are of the opinion that the Shares have been duly authorized by all necessary
corporate action on the part of the Company and are legally issued, fully paid
and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement and to the reference to our firm under
the heading "LEGAL MATTERS" in the Registration Statement.
Respectfully submitted,
O'Melveny & Myers LLP
