<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from __________ to __________.
Commission file number: 0-20418
KENNEDY-WILSON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4364537
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
530 WILSHIRE BOULEVARD, SUITE 101,
SANTA MONICA, CALIFORNIA 90401-1422
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 314-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held
by non-affiliates of the registrant on March 28, 1997 based on the closing price
reported on The National Market of such stock on such date was approximately
$4,000,000.
Registrant's Common Stock outstanding at March 28, 1997 was
1,146,272 shares.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's proxy
statement for its 1997 Annual Meeting of Stockholders, to be held on April 28,
1997, are incorporated by reference into Part III as set forth herein.
<PAGE> 2
KENNEDY-WILSON, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
_________
<TABLE>
<CAPTION>
CAPTION PAGE
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<S> <C> <C>
Part I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . 6
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 8
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . 31
Part III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . 31
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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ITEM 1. BUSINESS
GENERAL: Kennedy-Wilson, Inc. (the "Company") was founded in 1977 and
incorporated in Delaware in 1992. Operations are principally conducted through
its wholly owned operating subsidiaries, Kennedy-Wilson International, a
California corporation, and K-W Properties, a California corporation and its
wholly owned subsidiaries. The Company's principal executive offices are
located at 530 Wilshire Boulevard, Suite 101, Santa Monica, California 90401,
and its telephone number is (310) 314-8400.
The Company provides real estate marketing and brokerage services
through its centrally-controlled international marketing network, primarily for
financial institutions, developers and government agencies. The Company has
offices in the Santa Monica, San Francisco, New York, Tokyo, Hong Kong and
Jakarta. Since 1977 the Company has sold over $4 billion of residential,
commercial, hotel and resort properties.
COMMERCIAL BROKERAGE: The Company's commercial business concentrates
on single-seller sealed bid sales and private placement sales of commercial
properties. The division opened offices in New York and Jakarta in 1996, which
in addition to the Company's Tokyo and Hong Kong offices, will provide greater
access to the investment communities in Asia and the eastern U.S.
AUCTION-MARKETING: The auction-marketing method as employed by the
Company consists of a broad range of services necessary to complete the sale of
properties, including market research and analysis, design and implementation
of a specific marketing plan and, a professionally managed auction and closing
service. Auction-marketing provides real property owners with an opportunity to
sell their holdings on one established auction date, thereby increasing
liquidity and avoiding long-term carrying costs. In addition to real estate,
the Company has successfully used its auction-marketing methods for selling
broadband airwaves, personal property, industrial equipment and notes
collateralized by real estate.
REAL ESTATE ACQUISITIONS: K-W Properties, a wholly owned subsidiary,
acquires, renovates and disposes of residential and income producing real
estate. These transactions generally arise as an offshoot of the Company's
normal marketing business as clients frequently want to sell property quickly
and with certainty rather than to take the time for an auction or other
marketing program. The Company may, depending on the availability of its
capital and assessment of risk, form partnerships with third parties to acquire
the residential projects. The holding period for residential projects are
generally less than one year, while income properties are typically held over
one year.
NOTE ACQUISITIONS: The Company, through its subsidiary KWP Financial,
purchases discounted note receivable portfolios, typically from governmental
agencies. The Company then either settles the notes for cash, restructures
them to performing status, or initiates foreclosure proceedings on these assets
secured by real estate.
JOINT VENTURES: The Company has in the past entered into, and
anticipates that in the future it will continue to enter into, various joint
ventures with regard to its real estate marketing services and acquisition
activities. Historically in joint ventures, the Company has been responsible
for providing its standard real estate marketing services and the Company's
joint venture partner has been responsible for identifying properties to be
sold, preparing due diligence materials and providing certain sales personnel;
See Note 6.
LICENSING: The Company sold its Australian subsidiary in 1995 to a
related party and, as part of such sale, granted a license to the entity to use
the Kennedy-Wilson International name in Australia and New Zealand. The
Company terminated this agreement in 1996 due to lower than expected profits.
BACKLOG: At December 31, 1996, commissions subject to completion of
sales totaled approximately $459,000, compared to approximately $738,000 at
December 31, 1995. Additionally, as of December 31, 1996, the Company had
executed marketing agreements on properties having an estimated aggregate gross
value of real estate sales of approximately $143 million. This compares to
approximately $213 million as of December 31, 1995.
3
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COMPETITION: The real estate brokerage and auction-marketing industry
within which the Company operates is both highly fragmented and highly
competitive. The Company faces significant competition and must compete with
other auction companies, and conventional residential and commercial real
estate brokers. Several of these real estate brokerage companies are
significantly larger than the Company, possess greater financial resources and
compete with the Company directly in the auction market.
REGULATION: The Company's real estate marketing operations are subject
to various regulations at the Federal, State and local levels as well as the
national level in various countries. The Company, through one of its officers,
must be licensed as a real estate broker in each state in which the Company
operates. State governmental bodies, such as the Department of Real Estate in
California, regulate the operations of the Company conducted under its various
real estate brokerage licenses. Company personnel performing certain
functions in the real estate marketing process must be licensed real estate
salespersons and must work under the supervision of the Company's officer/
broker of record. In certain jurisdictions in which the Company operates and
as allowed by applicable law, the Company associates with real estate brokers
licensed in such jurisdictions. The Company believes that it is in substantial
compliance with all material licensing requirements in all states and countries
in which licenses are required and in which the Company operates.
In various states including California, governmental entities license
individual auctioneers and administer various regulations governing the
activities of auctioneers. The Company believes that it is in substantial
compliance with all material licensing requirements in all states in which
licenses are required and in which the Company operates.
INSURANCE: The Company currently maintains errors and omissions,
directors' and officers' liability, property, casualty and workers'
compensation insurance, with policy limits which the Company believes are
adequate. The Company periodically reviews and revises such limits.
EMPLOYEES: At March 21, 1997, the Company employed approximately 54
full-time and 2 part-time persons compared with 52 full-time and 31 part-time
persons at March 21, 1996. None of the Company's employees are represented by
a collective bargaining agent.
ITEM 2. PROPERTIES
The executive and administrative offices of the Company are located at
530 Wilshire Boulevard, Suite 101, Santa Monica, California, and consist of
approximately 9,000 square feet in a four story office building which the
Company purchased for investment purposes in April 1995.
The Company also leases space for its regional and branch offices.
These facilities aggregate approximately 6,000 square feet, with an annual
aggregate base rental of approximately $227,000. The leases expire within the
next five years. The Company believes that it will be able to renew any
expiring leases or obtain suitable office space to replace such leased
facilities, as necessary, without any material increase in the Company's rental
costs. As described in Item 1 hereof, the Company acquires and disposes of
income producing property in the ordinary course of its business.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings generally
incidental to its business and routine. While the ultimate disposition of
these ordinary proceedings is not presently determinable, the Company's
management believes that the outcome of these proceedings will not have a
material adverse effect on the Company and such proceedings, individually or
collectively, are not material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Certificate of Incorporation was amended to effect a
reduction in the number of authorized shares of common stock. This amendment
was approved at a Special Meeting of Stockholders held on November 19, 1996.
5
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol: KWIC. The following table sets forth the high and low closing sale
prices of the Company's Common Stock as reported in the Nasdaq National Market,
adjusted for a one-for-ten reverse stock split effective November 21, 1995:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995-
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . 17-1/2 8-3/4
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . 12-1/2 7-1/2
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . 11-7/8 5
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . 8-1/8 5
1996-
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . 6 5
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . 10 5-1/8
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . 9-3/4 8-1/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . 10-3/4 8-1/4
1997-
First Quarter (through March 28, 1997) . . . . . . . . . . . 12 9-3/4
</TABLE>
As of March 28, 1997, there were 89 holders of record and
approximately 1200 beneficial holders of the Company's Common Stock. Since
the completion of the Company's initial public offering in August 1992, no
dividends have been declared by the Company.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company
as of and for each of the five fiscal years ended December 31, 1996. The data
set forth below should be read in conjunction with the Consolidated Financial
Statements and related Notes to Consolidated Financial Statements appearing
elsewhere herein and Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . $31,967 $ 20,610 $38,647 $25,910 $22,740
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . $28,376 $ 33,752 $37,589 $26,722 $22,320
Income (loss) from operations . . . . . . . . . . . . . . . . . . $ 3,591 $(13,142) $ 1,058 $ (812) $ 420
Net income (loss) (pro forma in 1992 )(1) . . . . . . . . . . . . $ 3,531 $(13,186) $ 1,010 $ (813) $ 201
Net income (loss) per common share (pro forma in 1992(1)(2)) . . $ 2.69 $ (9.40) $ 0.70 $ (0.60) $ 0.20
Weighted average common shares outstanding (pro forma in 1992
(2)(3)) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,312 1,403 1,406 1,415 1,208
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $51,114 $37,651 $37,014 $32,231 $26,870
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . $40,732 $29,706 $15,995 $11,924 $ 5,607
Total stockholders' equity . . . . . . . . . . . . . . . . . . . $10,382 $ 7,945 $21,019 $20,307 $21,263
</TABLE>
___________
(1) Statement of Operations data has been adjusted for 1992 to provide for
income taxes (assuming a 40% effective combined federal and state tax
rate) as if K-W International had not been an S Corporation during a
portion of such year.
(2) Adjusted assuming the issuance of the Company's Common Stock in
exchange for 100% of K-W International had occurred on January 1, 1992.
(3) Adjusted for the 10 for 1 reverse stock split.
7
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Years ended December 31, 1996, 1995 and 1994
Commissions decreased 10% to $5.9 million in 1996 from $6.5 million in
1995 as a result of a decrease in residential auction-marketing, both in number
of auctions and value of properties sold and a decline in commission rates due
to competitive pressures. In addition, commissions decreased in 1995 compared
to 1994 due to the 1995 disposition of a portion of the Company's Commercial
Brokerage Division, including European operations, and the separate sale of the
Company's Australian subsidiary. These dispositions are reflective of the
Company's decision to narrow its focus and concentrate on its already
successful operations in California and Asia. In connection with this
determination, during 1996, the Company opened an office in New York to expand
its commercial brokerage business and further emphasize single seller sealed
bid sales and private placement sales.
Sales of residential real estate increased 86% in 1996 compared with
1995 as a result of the sale of three condominium projects in 1996 totaling
approximately $19.7 million. This compares to sales of residential real estate
of $10.6 million in 1995 from the sale of four condominium projects, which
represented a decline from the 1994 sale of five projects. Cost of residential
real estate sold related to these sales increased 58% to $16.5 million in 1996
compared to $10.5 million in 1995 and $15.1 million in 1994. In addition,
cost of sales as a percentage of revenue decreased to 84% in 1996 from 99% in
1995 and 92% from 1994.
Gain on sale of commercial real estate in the amount of $1.5 million
for 1996 consists of the sale of one commercial property. In 1994 the Company
also sold a commercial property, for a net gain of $3 million. There were no
commercial property sales in 1995, See Note 5.
Gain on restructured notes receivable in the amount of $3.1 million in
1996 reflects the Company's increased expansion in the acquisition and
disposition of non-performing and under-performing real estate collateralized
note receivable portfolios. The notes are typically purchased at a substantial
discount from government agencies. See Item 1 and Note 4 for further
discussion.
Commission and marketing expenses decreased 40% in 1996 to $1.6
million from $2.6 million in 1995, which in turn decreased from $6.1 million in
1994. In addition, commission and marketing expenses decreased as a
percentage of commissions revenue due to the lower costs associated with
commercial brokerage compared with auctions.
Compensation and related expenses decreased by 20% in 1996 from 1995
and 23% in 1995 from 1994 due to the reduced number of employees resulting
from the 1995 sale of a portion of the Company's Commercial Brokerage Division
and Australian subsidiary.
General and administrative expense decreased 46% in 1996 compared to
1995 and also decreased 23% in 1995 as compared with 1994 primarily due to the
1995 sale of the Company's Commercial Brokerage Division and Australian
subsidiary. Also, in 1995 the Company moved from approximately 25,000 square
feet of leased space into approximately 7,000 square feet in a building it
owns.
In 1995, the Company sold a portion of its Commercial Brokerage
Division, including European operations, and its Australian subsidiary. As a
result, the Company took a non-cash charge of $6,000,000 to reflect costs
associated with these actions. See Note 11 for further discussion of the
restructuring.
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LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash and cash equivalents at December 31,
1996 of $1.9 million, plus expected cash generated from ongoing real estate
marketing operations, continued sales of real estate owned, collections from
notes receivable, as well as the working capital line of credit, will provide
the Company with sufficient resources to fund its present and reasonably
foreseeable operations. The Company has not historically required major capital
expenditures to support its marketing operations. However, the Company
believes that its ability to make advances to its clients' marketing budgets
provides a competitive advantage. The Company's liquidity may in the future be
adversely affected by lower commission rates, or increased contributions to
marketing budgets, caused by competition from other marketing companies.
Liquidity could also be adversely affected by the Company's ability to sell
real estate it has acquired.
As discussed in Note 9 and 10, the Company is obligated under various
notes payable and mortgages payable, which are secured by notes receivable and
real estate held for sale. Approximately $1.9 million of notes payable and
$2.1 million of mortgages are due in 1997. The Company anticipates that these
amounts will be repaid from proceeds from the sale of the related collateral.
As discussed in Note 18, in February 1997, the Company acquired
approximately 89,000 shares of its common stock from a former officer and
director. The terms required an initial payment of $200,000 (which has been
paid), plus two additional payments of approximately $370,000 each on April 30,
1997 and September 30, 1997. The Company expects to be able to meet these
future obligations from cash generated from operations.
To the extent the Company engages in additional strategic investments,
including real estate and note portfolio acquisitions, the Company may need to
obtain third party financing which could include bank financing or the public
sale or private placement of debt or equity securities. The Company has
historically been successful in arranging the required financing for its
investment activities. The increase in 1996 in its acquisition line of credit
to $8 million, and the bank financing obtained for 1996 acquisitions, supports
the Company's belief that it should be able to continue to secure the capital
resources necessary to fund its investments. (See Notes 8,9 and 10 of Notes to
Consolidated Financial Statements).
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
KENNEDY-WILSON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
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Page
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Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 12
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . 13
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 . . . . 14
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . 15
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Kennedy-Wilson, Inc. and Subsidiaries
Santa Monica, California
We have audited the accompanying consolidated balance sheets of
Kennedy-Wilson, Inc. and subsidiaries (the "Company"), as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. Our audits also included the financial statement schedule listed in
the Index at Item 14. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Kennedy-Wilson, Inc. and
subsidiaries at December 31, 1996 and 1995, and the results of its operations
and cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 14, 1997
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KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,901,000 $ 2,192,000
Cash - restricted 396,000 179,000
Accounts receivable 994,000 1,745,000
Notes receivable 13,787,000 235,000
Real estate held for sale 28,800,000 31,919,000
Investments in affiliates and partnerships 3,803,000 38,000
Other assets 1,433,000 1,343,000
----------- -----------
TOTAL ASSETS $51,114,000 $37,651,000
=========== ===========
LIABILITIES:
Accounts payable $ 893,000 $ 1,084,000
Accrued expenses and other liabilities 2,211,000 3,051,000
Accrued expense - related parties - 97,000
Notes payable 8,195,000 -
Notes payable - related parties - 250,000
Borrowing under lines of credit 8,917,000 775,000
Mortgage notes payable 20,516,000 24,449,000
----------- -----------
Total liabilities 40,732,000 29,706,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 500,000 shares authorized, none issued - -
Common stock $.01 par value; shares authorized; 2,000,000 in 1996
and 20,000,000 in 1995, issued and outstanding; 1,235,599
in 1996 and 1,400,599 in 1995 12,000 14,000
Additional paid-in capital 21,638,000 22,730,000
Accumulated deficit (11,268,000) (14,799,000)
----------- -----------
Total stockholders' equity 10,382,000 7,945,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $51,114,000 $37,651,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994
---------- ------------ ----------
<S> <C> <C> <C>
REVENUES:
Commissions $5,873,000 $6,468,000 $15,832,000
Commissions - related parties - 89,000 158,000
Mortgage brokerage fees - 64,000 564,000
Sales of residential real estate 19,743,000 10,631,000 16,495,000
Equity in income of partnerships 178,000 138,000 1,393,000
Gain on sale of commercial real estate 1,454,000 - 2,965,000
Gain on restructured notes receivable 3,057,000 160,000 25,000
Rental income, net 1,467,000 642,000 -
Sales of assets and subsidiary - 1,926,000 -
Other income 195,000 492,000 1,215,000
---------- ------------ ----------
31,967,000 20,610,000 38,647,000
---------- ------------ ----------
OPERATING EXPENSES:
Commissions and marketing expenses 1,560,000 2,617,000 6,073,000
Auction-marketing expenses, net - related parties - 12,000 53,000
Cost of residential real estate sold 16,523,000 10,488,000 15,147,000
Cost of residential real estate sold - related parties 209,000 122,000 -
Compensation and related expenses 4,726,000 5,883,000 7,648,000
General and administrative 3,126,000 5,800,000 7,138,000
Depreciation and amortization 268,000 623,000 895,000
Interest expense 1,964,000 1,472,000 635,000
Cost of assets and subsidiary sold - 735,000 -
Restructuring charge - 6,000,000 -
---------- ------------ ----------
28,376,000 33,752,000 37,589,000
---------- ------------ ----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME 3,591,000 (13,142,000) 1,058,000
PROVISION FOR INCOME TAXES 60,000 44,000 48,000
---------- ------------ ----------
NET INCOME (LOSS) $3,531,000 ($13,186,000) $1,010,000
========== ============ ==========
Net income (loss) per common share $2.69 ($9.40) $0.70
========== ============ ==========
Weighted average common shares outstanding 1,312,379 1,402,858 1,406,279
========== ============ ==========
</TABLE>
See notes to consolidated financial statements.
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KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Accumulated
------------------- Additional Accumulated Translation
Shares Amount Paid in Capital Deficit Accumulated Total
------------------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 1,412,972 $14,000 $23,143,000 $ (2,623,000) $(227,000) $ 20,307,000
Foreign currency translation adjustment - - - 59,000 59,000
Issuance of common stock 6,233 - 119,000 - - 119,000
Repurchase of common stock (14,106) - (476,000) - - (476,000)
Net income - - - 1,010,000 - 1,010,000
---------- ------- --------------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1994 1,405,099 14,000 22,786,000 (1,613,000) (168,000) 21,019,000
Foreign currency translation adjustment - - - - 168,000 168,000
Issuance of common stock 500 - 6,000 - - 6,000
Repurchase of common stock (5,000) - (62,000) - - (62,000)
Net loss - - - (13,186,000) - (13,186,000)
---------- ------- --------------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1995 1,400,599 14,000 22,730,000 (14,799,000) - 7,945,000
Repurchase of common stock (165,000) (2,000) (1,092,000) - - (1,094,000)
Net income - - 3,531,000 - 3,531,000
---------- ------- --------------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1996 1,235,599 $12,000 $21,638,000 $(11,268,000) $ 0 $ 10,382,000
========== ======= =============== ============= =========== ============
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 15
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
------------ ------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,531,000 $ (13,186,000) $ 1,010,000
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 268,000 623,000 895,000
Equity in income in partnerships (178,000) (139,000) (1,393,000)
Distribution from partnerships 20,000 1,293,000 1,441,000
Gains on sales of real estate (1,454,000) (20,000) (2,965,000)
Gains on sales of assets, subsidiary and partnership - (1,543,000) -
Restructuring charge - 6,000,000 -
Change in assets and liabilities:
Cash - restricted (217,000) 718,000 1,834,000
Accounts receivable - other 751,000 3,706,000 (2,099,000)
Other assets (720,000) (560,000) (1,639,000)
Accounts payable (191,000) (335,000) (993,000)
Accrued expenses and other liabilities (937,000) 222,000 (381,000)
------------ ------------- -----------
Total adjustments (2,658,000) 9,965,000 (5,300,000)
------------ ------------- -----------
Net cash used in operating activities 873,000 (3,221,000) (4,290,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment (197,000) (160,000) (184,000)
Dispositions furniture, fixtures and equipment 559,000 24,000 148,000
Purchases and additions to Real Estate Held for Sale (21,341,000) (31,150,000) (11,506,000)
Proceeds from Sales of Real Estate Held for Sale 25,914,000 10,631,000 11,317,000
Purchases of notes receivable (13,552,000) 235,000 -
Sales of assets, subsidiary and partnership - 6,437,000 -
Investment in partnerships (3,607,000) (139,000) (4,779,000)
------------ ------------- -----------
Net cash used in investing activities (12,224,000) (14,122,000) (5,004,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock - 6,000 119,000
Repayment of capital lease obligations - (61,000) (126,000)
Issuance of Mortgage Notes Payable 26,577,000 28,879,000 10,013,000
Repayment of Mortgage Notes Payable (30,510,000) (12,040,000) (8,403,000)
Borrowings under Lines of Credit 15,345,000 - -
Repayment of Lines of Credit (7,453,000) - -
Borrowings under Notes Payable 10,128,000 1,925,000 4,961,000
Repayment of Notes Payable (1,933,000) (4,861,000) (1,000,000)
Repurchase of Common Stock (1,094,000) (62,000) (476,000)
------------ ------------- -----------
Net cash provided by (used in) financing activities 11,060,000 13,786,000 5,088,000
------------ ------------- -----------
Effect of Exchange Rate Changes on Cash - 150,000 59,000
------------ ------------- -----------
Net increase (decrease) in cash (291,000) (3,407,000) (4,147,000)
Cash, beginning of period 2,192,000 5,599,000 9,746,000
------------ ------------- -----------
Cash, end of period $ 1,901,000 $ 2,192,000 $ 5,599,000
============ ============= ===========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 16
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Year Ending December 31,
-------------------------------------------
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
CASH PAID DURING THE YEAR FOR:
Interest, net of capitalized interest of $57,000 in 1996,
$606,000 in 1995 and $549,000 in 1994,
respectively.............................................. $2,113,000 $1,373,000 $626,000
Income taxes................................................... $ 34,000 $ 33,000 $ 43,000
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 17
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Kennedy-Wilson, Inc. is a Delaware corporation which was incorporated
in 1992. Kennedy-Wilson, Inc. and its wholly owned subsidiaries (the "Company")
provide real estate marketing services throughout the United States, and Asia,
primarily to financial institutions, developers and government agencies. The
Company also acquires, renovates and resells residential and commercial real
estate; invests in non-performing note receivable portfolios; and invests in
various real estate partnerships.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries and partnerships in which the Company
has a controlling interest. For foreign operations, assets and liabilities
are translated at year-end exchange rates, and income statement items are
translated at average exchange rates prevailing during the year. All
significant intercompany transactions have been eliminated.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Investment in Partnerships
The Company accounts for investments in partnerships with a
non-controlling interest of 50% or less under the equity method.
Revenue Recognition
Commissions are generally recognized when all services to be provided
by the Company have been performed and title to real property has passed from
the seller to the buyer. Residential real estate sales revenue and gains on
sale of commercial property are recognized at the close of escrow. Gains on
notes receivable are recognized ratably upon receipt of cash or a restructured
note including a significant cash component.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock and common
stock equivalents outstanding during the periods.
The weighted average number of common shares used to compute net income
(loss) per share (restated for the 10 for 1 reverse stock split) was 1,312,379,
1,402,858, and 1,406,279 for the years ended December 31, 1996, 1995 and 1994,
respectively.
17
<PAGE> 18
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Cash and Cash Equivalents
Cash consists of cash and all highly liquid investments purchased with
maturities of three months or less.
Long Lived Assets
During 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. Among other provisions, the
statement changed current accounting practices for the evaluation of impairment
of long-lived assets. The adoption did not have a material effect on the
Company's financial statements.
Fair Value of Financial Instruments:
Cash, Accounts Receivable and Accounts Payable - The carrying amounts
approximate fair value because of the short maturities of these instruments.
Bank Line of Credit - The carrying amounts approximate fair value
because of the short maturity and because the interest varies with the prime
rate. See Note 8.
Notes Receivable and Notes Payable - The carrying amounts approximate
fair value because of the short term nature of these instruments. See Notes 4
and 9.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist
primarily of accounts and notes receivable, and cash and cash equivalents.
Credit risk is generally diversified due to the large number of entities
composing the Company's customer base and their geographic dispersion. The
Company performs ongoing credit evaluations of its customers. Cash and cash
equivalents are invested in insured financial institutions. However, certain
accounts contain balances in excess of the insured limits.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 balances
to conform with the 1996 presentation.
NOTE 2 - CASH - RESTRICTED
Restricted cash as of December 31, 1996 and 1995 of $396,000 and
$179,000, respectively, consists of funds received from clients in connection
with marketing contracts. Such funds are held in separate trust accounts at
financial institutions, and are restricted for the purposes of satisfying
expenses incurred in connection with each marketing contract.
NOTE 3 - ACCOUNTS RECEIVABLE
Included in accounts receivable are marketing advances. Certain
marketing advances are collateralized by security interests in the real estate
marketed by the Company.
18
<PAGE> 19
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 4 - NOTES RECEIVABLE
The notes receivable balance was $13.8 million at December 31, 1996
and $235,000 at December 31, 1995. Notes receivable consists primarily of
non-performing loan portfolios acquired from government agencies. The notes
are typically secured by real estate, UCC-1 filings, or are guaranteed by the
borrowers.
During 1996, the Company purchased four portfolios of non-performing
loans for approximately $13.5 million. The Company secured cash settlements in
the amount of approximately $3.7 million, and restructured notes receivable in
the amount of $1.9 million.
Gains are recognized when notes receivable are settled for cash, or
are restructured to performing status along with a substantial cash payment by
the borrowers. In 1996, the Company recognized a gain on notes receivable
transactions of approximately $3.1 million, compared to $160,000 in 1995.
NOTE 5 - REAL ESTATE HELD FOR SALE
Real estate held for sale is comprised of commercial and residential
properties stated at cost plus additional capital improvements less accumulated
depreciation and amortization of $588,000 and $412,000 at December 31, 1996 and
1995 respectively.
Real estate held for sale includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Commercial properties:
- ----------------------
530 Wilshire Blvd., Santa Monica, California - 47,000 square foot office
building................................................................... $7,853,000 $7,902,000
10301 Pico, Los Angeles, California - 50,000 square foot office
building................................................................... 4,112,000 4,208,000
2730 Wilshire Blvd., Santa Monica, California - 56,000 square foot office
building and 16 apartment units............................................ - 7,251,000
1131 Wilshire Blvd., Santa Monica, California - 20,000 square foot office
building................................................................... 2,873,000 -
1304 15th St. Santa Monica, California - 37,000 square foot office building.... 4,437,000 -
150 E. Colorado, Pasadena, California - 61,000 square foot office building..... 5,808,000 -
----------- -----------
25,083,000 19,361,000
Residential properties:
- -----------------------
Vista Waikoloa, Waikoloa, HI - 7 and 40 condominium remaining at December 31,
1996 and 1995, respectively................................................ 1,494,000 7,328,000
Villa Del Este, Corona Del Mar, California - 14 condominium units.............. 2,223,000 -
Westborough Court, San Francisco, California - 42 condominium units
and 95 lots................................................................ - 3,291,000
Kiowa Gardens, Brentwood, California - 9 condominium units..................... - 1,773,000
Cathedral Hill Vistas, San Francisco, California - 1 condominium unit.......... - 166,000
----------- -----------
3,717,000 12,558,000
----------- -----------
$28,800,000 $31,919,000
=========== ===========
</TABLE>
19
<PAGE> 20
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
All real estate held for sale at December 31, 1996, except for Vista
Waikoloa, are collaterized by certain mortgage loans (See Note 10 - Mortgage
notes payable). Commercial buildings and improvements are depreciated on the
straight line method over the estimated useful lives as follows:
Building - 39 years
Tenant Improvement - shorter of lease term or useful life
ranging from 2 to 5 years
Depreciation expense was $535,000, $412,000 and $433,000, for 1996, 1995 and
1994, respectively. These amounts are included in the Statement of Operations
in Rental Income, Net.
Gain on the sale of commercial property is recognized upon the
transfer of title and is included in the Company's revenues, net of the related
cost basis.
Sales of residential properties are also recognized upon the transfer
of title. The net sales price of residential properties is included in
revenue, and the related cost is included in cost of residential real estate
sold.
NOTE 6 - INVESTMENTS IN AFFILIATES AND PARTNERSHIPS
Investments in affiliates and partnerships consists primarily of the following:
In December 1996 the Company acquired a 50% interest in a joint venture
("Hilltop Colony, LLC") that owns a 114 unit condominium project in Los Angeles
for $600,000. The total investment at December 31, 1996 was $667,000, and is
accounted for under the equity method.
In November 1996 the Company acquired a 25% interest in a joint venture
("Downtown Properties, LLC") with a related party, that owns two commercial
properties with approximately 515,000 square feet of rental space, located in
downtown Los Angeles for $2,570,000. The total investment at December 31, 1996
was $2,679,000, and is accounted for under the equity method.
Summarized financial data of the joint venture is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
BALANCE SHEET
Assets:
Cash and cash equivalents $ 463,000
Receivable 32,000
Real Estate 28,748,000
------------
Total assets $ 29,243,000
============
Liabilities and Partner's Capital
Accounts payable and accrued liabilities 173,000
Mortgage payable 18,354,000
------------
Total liabilities 18,527,000
Partners' capital
Kennedy Wilson 2,679,000
Other partners 8,037,000
Total partners' capital 10,716,000
------------
Total liabilities and capital $ 29,243,000
============
</TABLE>
20
<PAGE> 21
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Year Ended
STATEMENT OF OPERATIONS December 31, 1996
-----------------
<S> <C>
Revenues $ 1,013,000
Expenses 564,000
-----------------
Net Income $ 449,000
=================
Net Income Allocation:
Kennedy Wilson 112,000
Other partners 337,000
-----------------
$ 449,000
=================
</TABLE>
In November 1996 the Company also acquired a 25% interest in a joint
venture ("Ski Monarch, LLC") with a related party, that owns a ski resort and
hotel located near Crested Butte, Colorado for $440,000. The total investment
at December 31, 1996 was $454,000, and is accounted for under the equity
method.
In addition, the Company had various interests in other joint ventures
of approximately $3,000 and $38,000 at December 31,1996 and 1995, respectively,
which are accounted for under the equity method.
In 1995, the Company sold its 50% general partnership interest in Realty
Holdings of America for an aggregate sales price of $4,575,000. The Company's
basis in the partnership was approximately $4,200,000 and after costs
associated with the sale the Company recognized a gain of approximately
$350,000.
NOTE 7 - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1995
---------- -----------
<S> <C> <C>
Office furniture and equipment........................... $ 917,000 $1,096,000
Leasehold improvements................................... 176,000 262,000
Equipment under capital leases........................... - 98,000
---------- -----------
1,093,000 1,456,000
Less accumulated depreciation and amortization,
(including $94,000 of accumulated depreciation
on equipment under capitalized leases at
December 31, 1995)..................................... (735,000) (928,000)
Prepaid Insurance, Taxes & Commissions................... 353,000 242,000
Loan Fees................................................ 226,000 -
Deposits................................................. 179,000 201,000
Acquisition & Organization Costs........................ 117,000 81,000
Other.................................................... 200,000 291,000
---------- -----------
$1,433,000 $ 1,343,000
========== ===========
</TABLE>
Furniture, fixtures and equipment are depreciated over a 5 year useful life, on
the straight line method.
Capitalized costs, which include acquisition and organization cost, loan fees
and deferred expenses are being amortized over a period of between 12 and 18
months.
21
<PAGE> 22
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 8 - BORROWINGS UNDER LINES OF CREDIT
In 1996, the Company entered into a loan agreement that provides the
Company with a $10.0 million credit facility (the "facility") which includes up
to $8.0 million in an acquisition facility and $2.0 million in an unsecured
working capital facility. The acquisition facility is secured by existing real
estate owned by the Company and the actual availability under the facility is
limited based on the equity in such real estate. Proceeds from the sale of
such secured real estate are used to pay down the acquisition facility. The
outstanding balance at December 31, 1996 was approximately $8.5 million, of
which $7.5 million was for the acquisition facility and $1 million was for the
working capital facility. The facilities bear interest at the prime rate plus
1%, which was 9.25% at December 31, 1996. The working capital facility will
be due in full in June 1997 and the acquisition facility will be due in full in
18 months from the date of each advance. Approximately, 2.7 million will be
paid in 1997 and 5.8 million in 1998.
The Company had a revolving line of credit of $4 million with a bank
which had a balance of $3,961,00 at December 31, 1994 and which expired and was
paid in full in 1995.
The Company's Japanese subsidiary has unsecured lines of credit
aggregating approximately $500,000 under which $419,000 in borrowings were
outstanding at December 31, 1996. These borrowings bear interest at rates from
1.9% to 2.6% per annum.
NOTE 9 - NOTES PAYABLE
Notes payable were incurred primarily in connection with the acquisition
of notes receivable, (see Note 4), and included the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
------------- ----------
<S> <C> <C>
Note payable, 10% fixed interest payable monthly, due in full March 1,
1998, secured by notes receivable of $3,857,000.......................... $ 2,867,000 -
Note payable, variable interest based on the Prime Rate plus 2%, payable
monthly, 10.25% at December 31, 1996, due in full December 31, 1997,
secured by notes receivable of $1,917,000................................ 1,330,000
Note payable, variable interest based on LIBOR plus 4.25%, payable
monthly, 9.78% at December 31, 1996, due in full May 25, 1998,
secured by notes receivable of $5,016,000................................ 3,998,000 -
------------- ----------
$ 8,195,000 $ 0
============= ==========
</TABLE>
Principal is paid down monthly based on a percentage of cash
collections on the note receivable. The percentage of cash flow paid out
ranges from 88% to 90%. Principal balances are estimated to be paid in full
during 1997.
22
<PAGE> 23
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 10 - MORTGAGE NOTES PAYABLE
Mortgage notes payable include the following
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Commercial properties:
Mortgage note payable, 7.9% fixed interest,
principal and interest payable monthly due
February 1, 2003, collateralized by
530 Wilshire Blvd................................ $ 5,924,000 $ --
Mortgage note payable, variable interest based
on the Prime Rate plus 2%, 10.5% at December 31,
1995, principal and interest payable monthly,
due February 5, 1996, collateralized by
530 Wilshire Blvd ............................... -- 5,387,000
Mortgage note payable, variable interest based
on the weekly average of secondary market
interest rate on 6-month CD rounded upwards
to the nearest one-eighth of one percentage
point (0.125%), 8.1% at December 31, 1996
and 8.375% at December 31, 1995, due April 1,
2003, collateralized by 10301 Pico Blvd........... 2,798,000 2,863,000
Mortgage note payable, variable interest based on
Prime Rate plus 1.5%, 10% at December 31, 1995
December 31, 1995, paid January 22, 1996,
collateralized by 10301 Pico Blvd................. -- 600,000
Mortgage note payable, 10.25% fixed rate, interest
payable monthly, due April 30, 1996,
collateralized by 2730 Wilshire Blvd.............. -- 5,100,000
Mortgage note payable, variable interest based on
LIBOR, 7.7% at December 31, 1996, principal and
interest payable monthly, due August 1, 2001,
collateralized by 1131 Wilshire Blvd.............. 2,009,000 --
Mortgage note payable, variable interest based
on LIBOR, 7.7% at December 31, 1996, principal
and interest payable monthly, due September 1,
2003, collateralized by 1304 15th Street.......... 3,133,000 --
Mortgage note payable, variable interest based on
LIBOR plus 4%, 9.5% at December 31, 1996 principal
and interest payable monthly, due October 31,
1999, collateralized by equity in Plaza Centre
Group Inc........................................ 1,125,000 --
Mortgage note payable, variable interest based on
LIBOR plus 3.75%, 9.4% at December 31, 1996,
principal and interest payable monthly, due
December 1, 2001, collateralized by
150 E. Colorado ................................. 3,850,000 --
----------- -----------
18,839,000 13,950,000
Residential properties:
Mortgage note payable, variable interest based on
Prime Rate plus 1.5%, 10% at December 31, 1995
interest added to balance monthly, principal
payments of $116 to $154 per square foot as real
estate collateral (condominium units) are sold,
due December 22, 1996, collateralized by
Vista Waikoloa................................... -- 6,222,000
Mortgage note payable, variable interest based on
Prime Rate plus 1.5%, interest payable monthly,
10% at December 31, 1996, due September 15, 1997,
collateralized by Villa Del Este.................. 1,677,000 --
Mortgage note payable, variable interest based on
Prime Rate plus 1.55%, 10% at December 31, 1995
interest added to balance monthly, principal
payments equal to 95% of the net proceeds as
real estate collateral (condominium units) are
sold, due September 21, 1996, collateralized
by Westborough Court............................. -- 2,253,000
Mortgage note payable, variable interest based on
LIBOR plus 4%, 9.66% at December 31, 1995
interest added to balance monthly, principal
payments equal to the net proceeds as real estate
collateral (condominium units and lots) are sold,
due September 21, 1996, with a 50% profit
participation from sales of condominium units,
collateralized by Westborough Court............... -- 770,000
Mortgage note payable, variable interest based on
Prime Rate plus 2%, 10.5% at December 31 1995
interest added to balance monthly, principal
payments equal to 85% of the gross sale price as
real estate collateral (condominium units) are
sold, due May 1, 1996, collateralized
by Kiowa Gardens.................................. -- 1,254,000
----------- -----------
1,677,000 10,499,000
$20,516,000 $24,449,000
=========== ===========
</TABLE>
All of the mortgage notes payable are secured by deeds of trust on the
respective real estate properties (See Note 5 - Real Estate Held for Sale).
Aggregate maturities of mortgage notes payable through 2001 are:
1997-$2,137,000, 1998-$587,000, 1999-$922,000, 2000-$321,000, 2001-$5,836,000
and $10,714,000 thereafter.
23
<PAGE> 24
Note 11 - Restructuring Program and Sale of Assets
Net loss for the year ended December 31, 1995 includes charges
relating to a restructuring program designed to redirect the Company's
resources and improve operating profitability. Included in the Consolidated
Statements of Operations for the year ended December 31, 1995 are restructuring
charges of $6.0 million, primarily related to the write off of goodwill and
certain assets, as well as the accrual of certain lease termination costs.
In 1995, the Company sold the operations and certain assets of its
Commercial Brokerage Division to The Greenwich Group, L.L.C. ("TGG"), a
Company formed by the senior managers of such Division, in exchange for
approximately $1.9 million and $100,000 option which the Company exercised
during 1996. TGG, and its subsidiaries, acquired the Division's fixed assets
in the Company's New York, Chicago, Washington, European and Santa Monica
offices. In addition, TGG acquired existing marketing agreements for certain
commercial and hotel property sales which the Company was marketing. The
Company's lease obligations for the New York, Chicago, Washington, London and
other European offices as well as for certain equipment were assigned to TGG in
connection with this transaction. The sale proceeds have been included as "Sale
of assets and subsidiary" and the net book value of the assets sold of
$753,000 included as "Cost of assets and subsidiary sold" in the Consolidated
Statement of Operations.
Also in 1995, the Company sold the stock of its Australian
subsidiary to the senior managers of that entity in exchange for $31,000,
forgiveness by the Australian subsidiary of all intercompany receivable from
the Company (approximately $20,000) and the assurance that all liabilities of
the subsidiary would be paid by the subsidiary. The sale proceeds of
approximately $51,000 have been included as "Sales of Assets and Subsidiary"
and the net book value of the assets sold of $(18,000) as "Costs of Assets and
Subsidiary Sold" in the Consolidated Statement of Operations.
Note 12 - Related Party Transactions
During 1996, 1995 and 1994, the Company's auction-marketing division
conducted marketing programs for certain non-consolidated partnerships managed
by K-W Properties, a wholly owned subsidiary of the Company.
The Company paid the spouse of one of its officers/major stockholders
fees of $16,000, $52,000, and $64,000 for 1996, 1995, and 1994, respectively,
for performing certain graphic design services in connection with the printing
of sales catalogues and brochures by the Company.
In 1996, the Company entered into two joint ventures with related
parties, who are affiliated with Goodwin Gaw, one of the Company's Managing
Directors, a member of the Board of Directors, and a significant stockholder,
See Note 6.
In 1996, the firm of Kulik, Gottesman & Mouton was paid a total of
$277,000 in attorney fees. In addition, Kent Mouton, a partner in the firm and
a member of the Company's Board of Directors, was paid a total of $25,000 in
director's fees for 1996.
24
<PAGE> 25
In 1995, the Company borrowed $250,000 from William J. McMorrow and
Lewis A. Halpert, current officers and directors and Kenneth V. Stevens a
former officer and director. Proceeds from such loan were used to purchase
Kiowa Gardens, a 9 unit condominium project in Brentwood, California for $2
million. The Company also invested $250,000 in equity. The note payable
required the Company to pay a participation of up to 50% of the project's
profits and the related third party loan fees and costs. This note payable was
repaid in 1996 from excess proceeds from sales of condominium units after the
required payments on the construction loan. The Company believes that the
terms of this loan were equal to or better than terms that would have been
available to the Company through an independent third party. This borrowing
was reviewed and approved by disinterested members of the Company's Board of
Directors. During 1996, the Company accrued a profit participation of $209,000
which was paid.
In 1995, the Company borrowed $400,000 from William J. McMorrow, Lewis
A. Halpert, Richard Mandel, current officers and directors, William R.
Stevenson and Kenneth V. Stevens, former officers and directors (the
"Principals"). Proceeds from such loan were used to purchase Cathedral Hill
Vistas, a 20 unit condominium project in San Francisco, California for $2.6
million. The note payable required the Company to pay a participation of up to
25% of the project's profits and the interest at the Principals' cost of funds
plus 2%, as well as the related third party loan fees and costs. A profit
participation of $122,000 was recorded as cost of real estate sold-related
parties during 1995.
The principal amount of this note payable was repaid in 1995, from
proceeds from sales of condominium units after the construction loan was paid
in full. The Company believes that the terms of this loan were equal to or
better than terms that would have been available to the Company through an
independent third party. This borrowing was reviewed and approved by
disinterested members of the Company's Board of Directors. During 1995, the
Company paid and capitalized loan fees and interest totaling $69,000 and
accrued a profit participation of $122,000, of which $25,000 was paid in 1995
and the remaining balance in 1996.
During 1995, a director received a $12,500 consulting fee from the
Company for services performed in connection with evaluating various entity
structures suitable for the Company's income property investments.
During 1994, one of the Company's directors received a $10,000
consulting fee from the Company for services performed in connection with the
Company's acquisition of a 10% interest in a mortgage company.
25
<PAGE> 26
NOTE 13 - INCOME TAXES
The following summarizes the effect of deferred income tax items and the
impact of "temporary differences" between amounts of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws.
Temporary differences and carry-forwards which give rise to deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
DEFERRED INCOME TAX DEFERRED INCOME TAX
----------- ----------- ----------- -----------
Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Prepaid expenses $ -- $ (100,000) $ -- $ (266,000)
Accrued reserves 490,000 -- 592,000 --
State taxes 20,000 -- -- --
Deferred auction marketing expenses 42,000 -- 51,000 --
Deferred Gain on Sale of Asset -- (691,000) -- (1,200,000)
Depreciation 612,000 -- -- --
Charitable contribution carryover 31,000 -- -- --
Federal net operating loss carryover 3,035,000 -- 2,206,000 --
State net operating loss carryover 480,000 -- -- --
Overseas operating loss carryover -- -- 442,000 --
----------- ----------- ----------- -----------
Sub-total 4,710,000 (791,000) 3,291,000 (1,466,000)
----------- ----------- ----------- -----------
Valuation allowance (3,919,000) -- (1,825,000) --
Total $ 791,000 $ (791,000) $ 1,466,000 $(1,466,000)
=========== =========== =========== ===========
</TABLE>
The provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current:
Federal -- --
State $60,000 $44,000 $48,000
------- ------- -------
60,000 44,000 48,000
Deferred -- -- --
------- ------- -------
Total provision $60,000 $44,000 $48,000
======= ======= =======
</TABLE>
26
<PAGE> 27
A reconciliation of the statutory federal income tax rate with the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------- ----------- -----------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Tax computed at statutory rate $ 1,200,000 $ -- $ 340,000
State income tax, net of federal income tax benefit 40,000 44,000 48,000
Loss on disposition of foreign subsidiary (1,189,000) -- --
Utilization of net operating loss carry forward -- -- (340,000)
Permanent adjustments 47,000 -- --
Valuation allowance (38,000) -- --
----------- ----------- -----------
Provision for income taxes $ 60,000 $ 44,000 $ 48,000
=========== =========== ===========
</TABLE>
As of December 31, 1996, the Company had federal net operating loss
carryover of approximately $8,924,000 and state net operating loss carryover of
approximately $4,746,000. The federal net operating loss carryover expires in
2009 through 2011, and the state net operating loss carryover expires in three
to five years.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
Minimum rental commitments, net of sublease income, as of December 31,
1996 under the non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING Net Operating
DECEMBER 31, Leases
----------
<S> <C>
1997 ................................ $ 624,000
1998 ................................ 504,000
1999 ................................ 442,000
2000 ................................ 432,000
2001 ................................ 432,000
Thereafter .......................... 31,000
----------
Minimum lease payments .......... $2,465,000
==========
</TABLE>
Approximately $431,000 is due the Company in years 1997 through 2001
under sublease agreements.
Rental expense amounted to $300,000, $800,000 and $1.4 million for the
years ended December 31, 1996, 1995 and 1994, respectively. Rental expense will
increase by $252,000 per year as a result of the lease executed pursuant to the
sale of the 530 Wilshire property in March 1997. See Note 18.
Employment Agreements
The Company has entered into employment agreements with its principal
officers which provide for annual base compensation in the aggregate amount of
$925,000 and expire at various dates through December 1998. The employment
agreements provide for the payment of an annual bonus based upon the achievement
of certain agreed-upon earnings objectives.
The Company also has employment agreements with various other
non-officer employees which provide for minimum annual compensation of $614,000
in total, and expiring at various dates through December 1998.
27
<PAGE> 28
Litigation
The Company is currently a defendant in certain routine litigation
arising in the ordinary course of business. It is management's opinion that the
outcome of these actions will not have a material effect on the financial
position or results of operations of the Company.
Note 15 - Stock Option Plans and Warrants
The Company currently has three option plans: the 1992 Incentive Stock
Plans ("Plan A"), the 1992 Nonstatutory Stock Plan ("Plan B"), and the 1992
Non-Employee Director Stock Option Plan ("Plan C"). In May 1992, the
Company authorized 140,000 shares of stock under these plans. Plan A permits
the granting of options to employees and directors, Plan B permits the granting
of options to employees, directors and consultants, and Plan C permits the
granting of options to non-employee directors. Plan B is inactive and has no
options granted. Under Plan A, options are granted for common stock at the
fair market value at the time the options were granted. Under Plan C, each
director, upon being elected to the Board of Directors, shall automatically be
granted the option to purchase 2,500 shares at the fair market value at the
date of grant. In addition, the director shall be granted the option to
purchase an additional 100 shares at the fair market value, upon being
re-elected. Vesting for Plan A is determined by a Committee of the Board of
Directors of the Company (the " Committee") appointed by the Board of
Directors. Options under Plan C become exercisable on the first anniversary
of the date of the initial grant, but only if the recipient continues to serve
as a director for at least one year from the date of the initial grant. The
options under Plan A may be exercised for a period of up to five years from the
grant date. Under Plan C, each option expires on the earlier of the tenth
anniversary of the date of grant or ninety days after the date the individual
ceases to be a director of the Company, whichever comes firsts.
Details of activity under the plans for the years ended December 31,
1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
Outstanding Exercise Price
Stock Options Options Per Share
------------- ----------- ----------------
<S> <C> <C>
Balance, January 1, 1994 96,040 $ 70.00 - $ 5.00
Granted 19,500 $ 35.00 - $16.25
Forfeited (18,880) $ 70.00 - $38.75
-------
Balance, December 31, 1994 96,660 $ 70.00 - $ 5.00
Granted 12,700 $ 8.13 - $ 5.00
Forfeited (79,030) $ 70.00 - $18.75
-------
Balance, December 31, 1995 30,330 $ 70.00 - $ 5.00
Granted 30,100 $ 8.38 - $ 5.13
Forfeited (5,340) $ 70.00
-------
Balance, December 31, 1996 55,090 $ 70.00 - $ 5.00
=======
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
Weighted Average Remaining Range of Exercise
-------------------------- -----------------
Contractual Life Price
---------------- -----
<S> <C>
4 $ 5.00 - $ 5.75
5 $ 8.38 - $ 9.25
3 $16.25 - $70.00
</TABLE>
The fair value of the stock options granted during 1996 was $74,348.
The fair value of each stock grant is estimated using the Black-Scholes option
pricing model with the following assumptions: using the yield on a 5 year
treasury note as the risk-free interest rate; no dividend yield; expected life
of five years; and using historical cost for the volatility. The total number
of stock option shares exercisable at December 31, 1996 was 12,239.
The Company accounts for the plans in accordance with Accounting
Principles Board Opinion Number 25, under which no compensation cost has been
recognized for the stock option awards. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date, consistent with the method of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock Based Compensation, the effect
on the Company's net income and earnings per share would have been immaterial.
Note 16 - Reverse Stock Split
In 1995, at a Special Meeting of the Stockholders, an amendment to
the Company's Certificate of Incorporation effecting a one-for-ten reverse
stock split (the "Reverse Split") was approved. Effective upon such amendment,
each outstanding share automatically became one-tenth of a share. In 1996 the
number of authorized shares was also reduced by a one-for-ten ratio through an
amendment to the Company's Certificate of Incorporation. All historical share
and per share amounts have been retroactively restated to reflect the Reverse
Split.
Note 17 - Employee Profit Sharing Plan
The Company maintains a profit sharing plan covering all full time
employees over the age of 21, who have completed three months of service prior
to January 1 and July 1 of each year. Contributions to the profit sharing plan
are made solely at the discretion of the Company's Board of Directors. No
contributions were made for the years ended December 31, 1996, 1995 and 1994.
In addition, the Company has a qualified profit sharing plan under
provisions of Section 401(k) of the Internal Revenue Code. Under this plan,
participants are able to make salary deferral contributions of up to 10% of
their total compensation, up to a specified maximum. The 401(k) plan also
includes provisions which authorize the Company to make discretionary
contributions. During 1996 and 1995 the Company made matching contributions
of $19,000 and $24,000, respectively to this plan. The Company made no
contributions in 1994.
Note 18 - Subsequent Events
In January 1997, the Company purchased a 20,000 square feet office
building in Santa Ana, California for $1.3 million. The purchase was financed
in part by a mortgage in the amount of $1.2 million.
In February 1997, the Company acquired approximately 89,000 shares of
its common stock from a former officer and director in a private transaction
for approximately $940,000. Per the terms of the agreement, an initial
payment of $200,000 was made on February 28, 1997, (the "Closing Date") with
additional payments of $370,000 due on April 30, 1997 and July 30, 1997. If
payments are not made on the designated dates, interest shall accrue from the
Closing Date, at a rate of 10% per annum. The terms of the agreement also
include a termination of employment and mutual release provision.
29
<PAGE> 30
In February 1997, the Company initiated foreclosure proceedings
against the borrower of one of the Company's notes receivable which is secured
by a first trust deed with a face value of $5 million, on a commercial property
in Orange County. No loss is expected to be incurred on this transaction.
In March 1997, the Company sold the 530 Wilshire Blvd. property in
which it currently resides, for approximately $9.5 million. The Company has
executed a lease agreement to remain in its current location, which obligates
it for rental payment of approximately $21,000 per month through the year 2001.
The Company expects to recognize a gain on this transaction.
30
<PAGE> 31
EXHIBIT 22.1
KENNEDY-WILSON, INC.
LIST OF SUBSIDIARIES
STATE OR OTHER
--------------
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the Directors and Executive Officers of the
Company will be set forth in the Company's definitive proxy statement
which is to be filed pursuant to Regulation 14A within 120 days after
the Company's fiscal year ended December 31, 1996, and such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to Executive Compensation will be set forth in
the Company's definitive proxy statement which is to be filed pursuant
to Regulation 14A within 120 days after the end of the Company's
fiscal year ended December 31, 1996, and such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to Security Ownership of Certain Beneficial
Owners and Management will be set forth in the Company's definitive
proxy statement which is to be filed pursuant to Regulation 14A within
120 days after the end of the Company's fiscal year ended December 31,
1996, and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to Certain Relationships and Related Transactions
will be set forth in the Company's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end
of the Company's fiscal year ended December 31, 1996, and such
information is incorporated herein by reference.
31
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) Financial Statements. Reference is made to the Index to Financial
Statements and Schedules in Item 8 hereof.
(2) Financial Statement Schedules.
SCHEDULE III - REAL ESTATE OWNED S-1
Supplemental financial statement schedules not listed above
are omitted because either they are not applicable, not
required or because the information required is included in
the consolidated financial statements, including the notes
thereto.
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Certificate of Incorporation of registrant, as amended to
date.
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-46978) and incorporated herein by this reference.)
4.1 Form of Common Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1
(Registration No. 33-46978) and incorporated herein by this
reference.)
10.1 1992 Incentive and Nonstatutory Stock Option Plan (filed as
Exhibit 4 to the Company's Registration Statement on Form
S-8 (Registration No. 33-73324) and incorporated herein by
this reference.)
10.2 Employment Agreement by and between the Registrant and
William J. McMorrow (filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Registration No.
33-46978) and incorporated herein by this reference.)
Third Amendment to Employment Agreement dated March 31,
1995 by and between the Registrant and William J. McMorrow.
(filed as Exhibit 10.38 of the Company's 1994 Annual Report
on Form 10-K and incorporated herein by this reference).
Fourth Amendment to Employment Agreement dated as of
January 1, 1996 by and between the Registrant and William
J. McMorrow.
10.3 The Registrant's Employees' Profit Sharing Plan and Trust,
as amended (filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (Registration No.
33-46978) and incorporated herein by this reference.)
10.4 1992 Non-employee Director Stock Option Plan (filed as
Exhibit 10.26 to the Company's Registration Statement on
Form S-1 (Registration No. 33-46978) and incorporated
herein by this reference.)
10.5 Office Lease dated September 9, 1991 by and between the
Registrant and Barclay Cerci Investment Company (filed as
Exhibit 10.16 to the Company's Registration Statement on
Form S-1 (Registration No. 33-46978) and incorporated
herein by this reference.)
10.6 Indemnification Agreement dated August 13, 1992 by and
among the Registrant, Kennedy-Wilson, Inc., a California
corporation, William J. McMorrow, William R. Stevenson,
Lewis A. Halpert and Kenneth V. Stevens (filed as Exhibit
10.27 to the Company's Registration Statement on Form S-1
(Registration No. 33-46978) and incorporated herein by this
reference.)
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.7 Form of Stock Option Agreement under the Registrant's 1992 Incentive
and Nonstatutory Stock Option Plan. (filed as Exhibit 10.23 of the
Company's 1992 Annual Report on Form 10-K and incorporated herein by
this reference).
10.8 Form of Stock Option Agreement under the Registrant's 1992
Non-employee Director Stock Option Plan. (filed as Exhibit 10.24 of the
Company's 1992 Annual Report on Form 10-K and incorporated herein by
this reference).
10.9 Employment Agreement dated as of January 1, 1997 by and between the
Registrant and Richard Mandel.
10.10 Loan Agreement dated March 12, 1996 by and between the Registrant and
East-West Bank.
10.11 Assignment and Assumption Agreement, dated as of December 8, 1995, by
and among Kennedy-Wilson RHA Holding Company, Inc. and Farallon U.S.
Realty L.L.C. (filed as Exhibit 4.01 of the Company's Current Report on
Form 8-K dated December 15, 1995 and incorporated herein by this
reference).
22.1 List of Subsidiaries of the Registrant.
27 Financial Data Schedule
</TABLE>
(b) Current Reports on Form 8-K.
None.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
KENNEDY-WILSON, INC.
Date: March 28, 1997
By: /s/WILLIAM J. McMORROW
------------------------------------
William J. McMorrow
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- -----
<S> <C> <C>
/s/WILLIAM J. McMORROW Chairman of the Board and Chief Executive Officer (Principal March 28, 1997
-------------------------------- Executive Officer)
William J. McMorrow
/s/FREEMAN A. LYLE Executive Vice President, Chief Financial Officer and Secretary March 28, 1997
-------------------------------- (Principal Financial and Accounting Officer)
Freeman A. Lyle
/s/LEWIS A. HALPERT Executive Managing Director and Director March 28, 1997
--------------------------------
Lewis A. Halpert
/s/GOODWIN GAW Managing Director and Director March 28, 1997
--------------------------------
Goodwin Gaw
/s/RICHARD A. MANDEL Managing Director and Director March 28, 1997
--------------------------------
Richard A. Mandel
/s/DONALD F. KENNEDY Co-Founder and Director March 28, 1997
--------------------------------
Donald F. Kennedy
/s/DONALD B. PRELL Director March 28, 1967
--------------------------------
Donald B. Prell
/s/WILLIAM H. ELLIOTT Director March 28, 1997
- ----------------------------------
William H. Elliott
/s/KENT MOUTON Director March 28, 1997
- ----------------------------------
Kent Mouton
</TABLE>
34
<PAGE> 35
KENNEDY-WILSON, INC.
SCHEDULE OF REAL ESTATE OWNED
For Year Ending December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
------------------------- -----------------------
Building and Carrying
Encumbrance Land Improvements Improvements Costs
----------- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Commercial properties:
530 Wilshire Blvd., Santa Monica, California -
47,000 square foot office building....................... $ 5,924,000 $ 1,939,000 $ 5,775,000 $ 602,000 --
10301 Pico, Los Angeles, California -
50,000 square foot office building....................... 2,798,000 1,060,000 2,783,000 339,000 139,000
1131 Wilshire Blvd., Santa Monica, California -
20,000 square foot office building....................... 2,009,000 906,000 1,939,000 52,000 --
1304 15th St. Santa Monica, California -
37,000 square foot office building....................... 3,133,000 2,374,000 2,039,000 39,000 --
150 E. Colorado, Pasadena, California -
61,000 square foot office building....................... 4,975,000 1,515,000 4,095,000 198,000 --
----------- ----------- ------------ ----------- --------
Sub-total ............................ 18,839,000 7,794,000 16,631,000 1,230,000 139,000
Residential properties:
Vista Waikoloa, Waikoloa, HI - ........................... -- -- 1,297,000 197,000 --
7 remaining units of the original 40.....................
Villa Del Este, Corona Del Mar, California - ............. 1,677,000 -- 2,169,000 53,000 --
14 condominium units.....................................
----------- ----------- ----------- ----------- --------
Sub-total ............................ 1,677,000 -- 3,466,000 250,000 --
Total ................................ $20,516,000 $ 7,794,000 $20,097,000 $ 1,480,000 $139,000
=========== =========== =========== =========== ========
Balance at beginning of period .......................... $32,331,000
Additions during period:
Acquisitions ..................................... 20,615,000
Improvements ..................................... 726,000
Other: ........................................... -- 21,341,000
----------
Deductions during period:
Disposition of real estate sold .................. 24,162,000
Other: ........................................... -- 24,162,000
---------- -----------
Balance at close of period .............................. $29,510,000
</TABLE>
KENNEDY-WILSON, INC.
SCHEDULE OF REAL ESTATE OWNED
For Year Ending December 31, 1996
<TABLE>
<CAPTION>
Gross Amounts At Which Carried
Close of Period
-------------------------------------
Buildings and Accumulated Date of Date of
Land Improvements Total Depreciation Construction Acquisition
---------- ------------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial properties:
530 Wilshire Blvd.,
Santa Monica, California -
47,000 square foot office building...... $1,939,000 $ 6,377,000 $ 8,316,000 $(463,000) 1991 4/24/95
10301 Pico, Los Angeles, California -
50,000 square foot office building..... 1,060,000 3,261,000 4,321,000 (209,000) 1980 8/27/94
1131 Wilshire Blvd., Santa Monica,
California - 20,000 square foot
office building........................ 906,000 1,991,000 2,897,000 (24,000) 1981 8/6/96
1304 15th St. Santa Monica, California -
37,000 square foot office building..... 2,374,000 2,078,000 4,452,000 (14,000) 1972 10/2/96
150 E. Colorado, Pasadena, California -
61,000 square foot office building..... 1,515,000 4,293,000 5,808,000 -- 1980 11/5/96
---------- ----------- ----------- ---------
Sub-total .......... 7,794,000 18,000,000 25,794,000 (710,000)
Residential properties:
Vista Waikoloa, Waikoloa, HI - seven
remaining units of the original
40 units............................... -- 1,494,000 1,494,000 n/a 1990-1991 12/22/95
Villa Del Este, Corona Del Mar,
California - 14 condominium units...... -- 2,222,000 2,222,000 n/a 1991
---------- ----------- ----------- ---------
Sub-total .......... -- 3,716,000 3,716,000 --
Total .............. $7,794,000 $21,716,000 $29,510,000 $(710,000
========== =========== =========== =========
</TABLE>
35
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------ ----------- ----
<S> <C>
3.1 Certificate of Incorporation of registrant, as amended to
date.
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-46978) and incorporated herein by this reference.)
4.1 Form of Common Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1
(Registration No. 33-46978) and incorporated herein by this
reference.)
10.1 1992 Incentive and Nonstatutory Stock Option Plan (filed as
Exhibit 4 to the Company's Registration Statement on Form
S-8 (Registration No. 33-73324) and incorporated herein by
this reference.)
10.2 Employment Agreement by and between the Registrant and
William J. McMorrow (filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Registration No.
33-46978) and incorporated herein by this reference.)
Third Amendment to Employment Agreement dated March 31,
1995 by and between the Registrant and William J. McMorrow.
(filed as Exhibit 10.38 of the Company's 1994 Annual Report
on Form 10-K and incorporated herein by this reference).
Fourth Amendment to Employment Agreement dated as of
January 1, 1996 by and between the Registrant and William
J. McMorrow.
10.3 The Registrant's Employees' Profit Sharing Plan and Trust,
as amended (filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (Registration No.
33-46978) and incorporated herein by this reference.)
10.4 1992 Non-employee Director Stock Option Plan (filed as
Exhibit 10.26 to the Company's Registration Statement on
Form S-1 (Registration No. 33-46978) and incorporated
herein by this reference.)
10.5 Office Lease dated September 9, 1991 by and between the
Registrant and Barclay Cerci Investment Company (filed as
Exhibit 10.16 to the Company's Registration Statement on
Form S-1 (Registration No. 33-46978) and incorporated
herein by this reference.)
10.6 Indemnification Agreement dated August 13, 1992 by and
among the Registrant, Kennedy-Wilson, Inc., a California
corporation, William J. McMorrow, William R. Stevenson,
Lewis A. Halpert and Kenneth V. Stevens (filed as Exhibit
10.27 to the Company's Registration Statement on Form S-1
(Registration No. 33-46978) and incorporated herein by this
reference.)
10.7 Form of Stock Option Agreement under the Registrant's 1992
Incentive and Nonstatutory Stock Option Plan. (filed as Exhibit
10.23 of the Company's 1992 Annual Report on Form 10-K and
incorporated herein by this reference).
10.8 Form of Stock Option Agreement under the Registrant's 1992
Non-employee Director Stock Option Plan. (filed as Exhibit
10.24 of the Company's 1992 Annual Report on Form 10-K and
incorporated herein by this reference).
10.9 Employment Agreement dated as of January 1, 1997 by and
between the Registrant and Richard Mandel.
10.10 Loan Agreement dated March 12, 1996 by and between the
Registrant and East-West Bank.
10.11 Assignment and Assumption Agreement, dated as of
December 8, 1995, by and among Kennedy-Wilson RHA
Holding Company, Inc. and Farallon U.S. Realty L.L.C.
(filed as Exhibit 4.01 of the Company's Current Report
on Form 8-K dated December 15, 1995 and incorporated
herein by this reference).
22.1 List of Subsidiaries of the Registrant.
24.1 Consent of Independent Accountant
27 Financial Data Schedule
</TABLE>
36
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
KENNEDY-WILSON, INC.
ARTICLE I: NAME
The name of the Corporation is Kennedy-Wilson, Inc.
ARTICLE II: DEFINITIONS
For purposes of this Certificate of Incorporation, the following terms
shall have the meanings indicated, and all capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to such terms in Section
203(c) of the Delaware General Corporation Law, as in effect on the date
hereof:
(A) "Board" shall mean the Board of Directors of
the Corporation.
(B) "Business Combination" shall have the meaning
ascribed to it in Section 203(c)(3) of the Delaware General
Corporation Law; provided, however, that for purposes hereof the term
"interested stockholder" appearing therein shall have the meaning
ascribed to it in Article II(E) hereof.
(C) "Disinterested Shares" shall mean the shares
of Voting Stock of the Corporation held by Persons other than an
Interested Stockholder, and each reference herein to a percentage or
portion of the Disinterested Shares shall refer to such percentage or
portion of the votes entitled to be cast by the holders of such
Disinterested Shares.
(D) "Independent Directors" shall mean the
members of the Board who were directors of the Corporation prior to
any Person becoming an Interested Stockholder or were recommended for
election or elected to succeed such directors by a majority of such
directors.
(E) "Interested Stockholder" shall mean any
Person (other than the Corporation and any direct or indirect
majority-owned subsidiary of the Corporation) that (1) is the Owner of
5% or more of the outstanding Voting Stock, or (2) is an Affiliate or
Associate of the Corporation and was the Owner of 5% or more of the
outstanding Voting Stock at any time within the three-year
<PAGE> 2
period immediately prior to the date on which it is sought to be
determined whether such Person is an Interested Stockholder, or (3) is
an Affiliate or Associate of a Person described in (1) or (2)
preceding; provided, however, that the term "Interested Stockholder"
shall not include (i) any Person who (a) owned shares in excess of the
5% limitation set forth herein as of the first date upon which shares
of Voting Stock of the Corporation are held of record or beneficially
by more than one hundred (100) stockholders and continued to own
shares in excess of such 5% limitation or would have owned such shares
but for action by the Corporation or (b) acquired such shares from a
Person described in (a) above by gift, inheritance or in a transaction
in which no consideration was exchanged; or (ii) any Person whose
ownership of shares in excess of the 5% limitation set forth herein is
the result of action taken solely by the Corporation, provided that
such Person shall be an Interested Stockholder if thereafter such
Person acquires additional shares of Voting Stock except as a result
of further corporate action not caused, directly or indirectly, by
such Person. For the purpose of determining whether a Person is an
Interested Stockholder, (1) the Voting Stock deemed to be outstanding
shall include stock deemed to be owned by the Person through
application of Section 203(c)(8) of the Delaware General Corporation
Law, except that the Voting Stock deemed to be outstanding shall not
include any other unissued stock of the Corporation which may be
issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise,
and (2) a Person engaged in business as an underwriter of securities
shall not be deemed to own any Voting Stock acquired through such
Person's participation in good faith in a firm commitment underwriting
until the expiration of 40 days after the date of such acquisition.
(F) "Voting Stock" shall mean stock of the
Corporation of any class or series entitled to vote generally in the
election of directors of the Corporation, and each reference herein to
a percentage or portion of shares of Voting Stock shall refer to such
percentage or portion of the votes entitled to be cast by the holders
of such shares.
ARTICLE III: REGISTERED OFFICE
The address of the registered office of the Corporation in the
State of Delaware is the Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of Kent and the name of its registered agent at that address
is The Corporation Trust Company.
2
<PAGE> 3
ARTICLE IV: PURPOSE
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE V: AUTHORIZED CAPITAL STOCK
SECTION 1. Number of Authorized Shares. The Corporation shall
be authorized to issue two classes of shares of stock to be designated,
respectively, "Common Stock" and "Preferred Stock"; the total number of shares
of all classes of stock that the Corporation shall have authority to issue is
Twenty-Five Million (25,000,000) shares, consisting of Twenty Million
(20,000,000) shares of Common Stock, par value $.01 per share, and Five Million
(5,000,000) shares of Preferred Stock, par value $.01 per share.
SECTION 2. Common Stock. All shares of Common Stock shall be
of one class without series and shall be denominated "Common Stock."
SECTION 3. Preferred Stock. Shares of Preferred Stock may be
issued from time to time in one or more series. Shares of Preferred Stock that
are redeemed, purchased or otherwise acquired by the Corporation may be
reissued except as otherwise provided by law. The Board is hereby authorized
to fix or alter the designations, powers and preferences, and relative,
participating, optional or other rights, if any, and qualifications,
limitations or restrictions thereof, including, without limitation, dividend
rights (and whether dividends are cumulative), conversion rights, if any,
voting rights (including the number of votes, if any, per share, as well as the
number of members, if any, of the Board or the percentage of members, if any,
of the Board each class or series of Preferred Stock may be entitled to elect),
rights and terms of redemption (including sinking fund provisions, if any),
redemption price and liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, and to increase or decrease the number of shares of any
such series subsequent to the issuance of shares of such series, but not below
the number of shares of such series then outstanding. Notwithstanding the
foregoing, the Board shall have no power to alter the rights of any shares of
Preferred Stock then outstanding.
SECTION 4. Distributions Upon Liquidation. In the event of
any dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other
3
<PAGE> 4
liabilities of the Corporation, the holders of each series of Preferred Stock
shall be entitled to receive, out of the net assets of the Corporation, an
amount for each share of such series of Preferred Stock equal to the amount
fixed and determined by the Board in the resolution or resolutions creating
such series and providing for the issuance of such shares, and no more, before
any of the assets of the Corporation shall be distributed or paid over to the
holders of shares of Common Stock. After payment in full of said amounts to
the holders of Preferred Stock of all series, the remaining assets and funds of
the Corporation shall be divided among and paid to the holders of shares of
Common Stock. If, upon such dissolution, liquidation or winding up, the assets
of the Corporation distributable as aforesaid among the holders of Preferred
Stock of all series shall be insufficient to permit full payment to them of
said preferential amounts, then such assets shall be distributed ratably among
such holders of Preferred Stock in proportion to the respective total amounts
which they shall be entitled to receive as provided in this Section 4.
ARTICLE VI: ANNUAL MEETINGS OF STOCKHOLDERS
The annual meeting of stockholders shall be held at such time,
on such date and at such place (within or without the State of Delaware) as
provided in the Bylaws of the Corporation. Subject to any requirement of
applicable law, the books of the Corporation may be kept outside the State of
Delaware at such place or places as may be designated from time to time by the
Board or in the Bylaws of the Corporation. Elections of directors need not be
by written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE VII: CALL OF SPECIAL MEETINGS OF
STOCKHOLDERS
Special meetings of stockholders of the Corporation for any
purpose or purposes may be called at any time by a majority of the members of
the Board of Directors or by a committee of the Board of Directors which has
been duly designated by the Board of Directors and whose power and authority,
as provided in a resolution by the Board of Directors or in the Bylaws of the
Corporation, includes the power to call such meetings, but such special
meetings of stockholders of the Corporation may not be called by any other
Person or Persons or in any other manner; provided, however, that if a proposal
requiring stockholder approval is made by or on behalf of an Interested
Stockholder or a director who is an Affiliate or Associate of an Interested
Stockholder, or if an Interested Stockholder otherwise seeks action requiring
stockholder approval, then the affirmative vote of a majority
4
<PAGE> 5
of the Independent Directors shall also be required to call a special meeting
of stockholders for the purpose of considering such proposal or obtaining such
approval; and provided further that if and to the extent that any special
meeting of stockholders may be called by any other Person or Persons specified
in any certificate of designations filed under Section 151(g) of the Delaware
General Corporation Law (or its successor statute as in effect from time to
time), then such special meeting may also be called by the Person or Persons,
in the manner, at the times and for the purposes so specified.
ARTICLE VIII: NUMBER OF DIRECTORS
The number of directors that shall constitute the whole Board
shall be as specified in the Bylaws of the Corporation, as the same may be
amended from time to time. Notwithstanding the foregoing, during any period in
which the holders of any one or more series of Preferred Stock, voting as a
class, shall be entitled to elect a specified number of directors by reason of
dividend arrearages or other contingencies giving them the right to do so, then
and during such time as such right continues, (A) the then otherwise authorized
number of directors shall be increased by such specified number of directors
and the holders of shares of such series of Preferred Stock, voting as a class,
shall be entitled to elect such specified number of directors in accordance
with the procedure set forth in the resolution or resolutions of the Board
creating such series and providing for the issuance of such shares and (B) each
such additional director shall serve until his or her successor shall be
elected and shall qualify, or until his or her right to hold such office
terminates pursuant to the resolution or resolutions of the Board creating such
series of Preferred Stock and providing for the issuance of shares of such
series, whichever occurs earlier. Whenever the holders of shares of such
series of Preferred Stock are divested of such right to elect directors
pursuant to the resolution or resolutions of the Board creating such series and
providing for the issuance of such shares, the terms of office of all directors
elected by the holders of such series of Preferred Stock pursuant to such
rights, or elected to fill any vacancies resulting from the death, resignation
or removal of directors so elected by the holders of such series, shall
forthwith terminate and the authorized number of directors shall be reduced
accordingly.
ARTICLE IX: STOCKHOLDER ACTION BY WRITTEN CONSENT
Any election of directors or other action by the stockholders
of the Corporation must be effected at an annual or special meeting of
stockholders and may not be effected by written consent without a meeting.
5
<PAGE> 6
ARTICLE X: ELECTION OF DIRECTORS
SECTION 1. Classified Board. Except to the extent otherwise
provided in any certificate of designations filed under Section 151(g) of the
Delaware General Corporation Law (or its successor statute as in effect from
time to time), the Board of Directors shall be and is divided into three
classes, Class I, Class II and Class III. Such classes shall be as nearly
equal in number of directors as reasonably possible. Each director shall serve
for a term ending on the third annual meeting following the annual meeting at
which such director was elected, provided, however, that the directors first
elected to Class I shall serve for a term ending on the annual meeting date
next following the end of calendar year 1992, the directors first elected to
Class II shall serve for a term ending on the second annual meeting date next
following the end of calendar year 1992, and the directors first elected to
Class III shall serve for a term ending on the third annual meeting date next
following the end of calendar year 1992. The foregoing notwithstanding, each
director shall serve until his successor shall have been duly elected and
qualified unless he shall resign, become disqualified or shall otherwise be
removed.
At each annual election, the directors chosen to succeed those
whose terms then expire shall be of the same class of the directors they
succeed unless, by reason of any intervening changes in the authorized number
of directors, the designated board shall designate one or more directorships
whose term then expires as directorships of another class in order more nearly
to achieve equality of number of directors among the classes. If a director
dies, resigns or is removed, the director chosen to fill the vacant
directorship shall be of the same class as the director he or she succeeds,
unless, by reason of any previous changes in the authorized number of
directors, the Board shall designate such vacant directorship as a directorship
of another class in order more nearly to achieve equality in the number of
directors among the classes.
Notwithstanding the rule that the three classes shall be as
nearly equal in number of directors as reasonably possible, in the event of any
change in the authorized number of directors, each director then continuing to
serve as such shall nevertheless continue as a director of the class of which
he is a member until the expiration of his current term or his prior death,
resignation or removal. If any newly created directorship may, consistently
with the rule that the three classes shall be as nearly equal in number of
directors as reasonably possible, be allocated to one of two or more classes,
the Board shall allocate it to that of the available classes whose term of
office is due to expire at the earliest date following such allocation.
6
<PAGE> 7
Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may, unless the Board
of Directors determines otherwise, only be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director; provided, however, that if the holders of any class or classes of
stock or series thereof are entitled to elect one or more directors, vacancies
and newly created directorships of such class or classes or series may only be
filled by a majority of the directors elected by such class or classes or
series thereof then in office, or by a sole remaining director so elected.
SECTION 2. Stockholder Nominees. Nominations by stockholders
of persons for election to the Board shall be made only in accordance with the
procedures set forth in the Bylaws of the Corporation.
SECTION 3. Removal. Subject to the rights of the holders of
any series of Preferred Stock then outstanding, any director, or the entire
Board, may be removed from office only for cause at any time, and only by the
affirmative vote of the holders of a majority of the shares of Voting Stock
then outstanding; provided, however, that if a proposal to remove a director is
made by or on behalf of an Interested Stockholder or a director who is an
Affiliate or Associate of an Interested Stockholder, then such removal shall
also require the affirmative vote of the holders of a majority of the
Disinterested Shares then outstanding.
ARTICLE XI: BUSINESS COMBINATIONS
SECTION 1. Vote Required for Certain Business Combinations.
In addition to any affirmative vote required by applicable law or any other
provision of this Certificate of Incorporation or specified in any agreement,
and in addition to any voting rights granted to or held by the holders of
Common Stock of any series of Preferred Stock, the approval or authorization of
any Business Combination that has not been approved in advance by a majority of
the Independent Directors shall require the affirmative vote of the holders of
not less than 66-2/3% of the Disinterested Shares then outstanding.
SECTION 2. Determination of Compliance. A majority of the
Independent Directors shall have the power and duty to determine, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article XI, including, without limitation, (A)
whether a Person is an Interested Stockholder; (B) the number of shares of
Voting Stock owned by any Person,
7
<PAGE> 8
(C) whether a Person is an Affiliate or Associate of another Person, (D)
whether a proposed transaction is a Business Combination and (E) whether a
Business Combination shall have been approved in advance by a majority of the
Independent Directors; and any such determination made in good faith by a
majority of the Independent Directors shall be conclusive and binding for all
purposes of this Article XI.
ARTICLE XII: LIABILITY AND INDEMNIFICATION
To the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (the "Delaware
Law"), a director of the Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. The Corporation shall indemnify, in the manner and to the fullest
extent permitted by the Delaware Law, any person (or the estate of any person)
who is or was a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the Corporation, and whether civil, criminal,
administrative, investigative or otherwise, by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise. The
Corporation may indemnify, in the manner and to the fullest extent permitted by
the Delaware Law, any person (or the estate of any person) who is or was a
party to, or is threatened to be made a party to, any threatened, pending or
completed action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was an employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The Corporation may, to the fullest extent
permitted by the Delaware Law, purchase and maintain insurance on behalf of any
such director, officer, employee or agent against any liability which may be
asserted against such person. To the fullest extent permitted by the Delaware
Law, the indemnification provided herein shall include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement and, in the
manner provided by the Delaware Law, any such expenses may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit
the right of the Corporation to indemnify any other person for any such
expenses to the fullest extent permitted by the Delaware Law, nor shall it be
deemed exclusive of any other rights to which any person seeking
indemnification from the
8
<PAGE> 9
Corporation may be entitled under any agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
No repeal or modification of the foregoing paragraph shall
adversely affect any right or protection of a director of the Corporation
existing by virtue of the foregoing paragraph at the time of such repeal or
modification.
ARTICLE XIII: AMENDMENT OF CORPORATE DOCUMENTS
SECTION 1. Certificate of Incorporation. In addition to any
affirmative vote required by applicable law or any other provision of this
Certificate of Incorporation or specified in any agreement, and in addition to
any voting rights granted to or held by the holders of Common Stock or any
series of Preferred Stock, any alteration, amendment, repeal or rescission (any
"Change") of any provision of this Certificate of Incorporation must be
approved by a majority of the directors of the Corporation then in office and
by the affirmative vote of the holders of a majority of the Voting Stock then
outstanding; provided, however, that: (A) if any such Change relates to any
Article other than Articles I, III or VI hereof, such Change must also be
approved either (i) by a majority of the authorized number of directors and, if
one or more Interested Stockholders exist, by a majority of the Independent
Directors, or (ii) by the affirmative vote of the holders of not less than 80%
of the shares of Voting Stock then outstanding; and (B) if any such Change is
proposed by or on behalf of an Interested Stockholder or a director who is an
Affiliate or Associate of an Interested Stockholder, such Change must also be
approved by the affirmative vote of the holders of a majority of the
Disinterested Shares then outstanding. Subject to the foregoing, the
Corporation reserves the right to alter, amend, repeal or rescind any provision
contained in this Certificate of Incorporation in any manner now or hereafter
prescribed by law.
SECTION 2. Bylaws. In addition to any affirmative vote
required by applicable law and any voting rights granted to or held by the
holders of Common Stock or of any series Preferred Stock, any Change of any
provision of the Bylaws of the Corporation must be approved either (A) by a
majority of the authorized number of directors and, if one or more Interested
Stockholders exist, by a majority of the Independent Directors, or (B) by the
affirmative vote of the holders of not less than 80% of the shares of Voting
Stock then outstanding and, if the Change is proposed by or on behalf of an
Interested Stockholder or a director who is an Affiliate or Associate of an
Interested Stockholder, by the affirmative vote of the
9
<PAGE> 10
holders of a majority of the Disinterested Shares then outstanding. Subject to
the foregoing, the Board shall have the power to make, alter, amend, repeal or
rescind the Bylaws of the Corporation.
ARTICLE XIV: CONSTITUENCIES
The Board of Directors, when evaluating any proposed
transaction that would result in a person or entity becoming an Interested
Stockholder or an Interested Stockholder increasing his ownership of capital
stock of the Corporation, or any transaction or any proposed transaction with
another party which would constitute a Business Combination if the other party
to the transaction were an Interested Stockholder, shall, in connection with
the exercise of its judgment in determining what is in the best interests of
the Corporation and its stockholders, give due consideration to all relevant
factors, including without limitation, the independence and integrity of the
Corporation's operations, the social, economic and environmental effects on the
stockholders, employees, customers, suppliers and other constituents of the
Corporation and its subsidiaries and on the communities in which the
Corporation and its subsidiaries operate or are located or in which they serve.
ARTICLE XV: APPRAISAL RIGHTS
To the maximum extent permissible under Section 262 of the
Delaware General Corporation Law, the stockholders of the Corporation shall be
entitled to the statutory appraisal rights provided therein, notwithstanding
any exception otherwise provided therein, with respect to any transaction
described in Article XI involving the Corporation which requires the
affirmative vote of the holders of not less than 66-2/3% of the Disinterested
Shares then outstanding.
ARTICLE XVI: Incorporator
The name and mailing address of the incorporator of the
Corporation is:
Alan D. Wallace
2950 31st Street
Santa Monica, California 90405
The undersigned, being the incorporator hereinbefore named, for
the purpose of forming a corporation to do business both within and without the
State of Delaware, and in pursuance of the Delaware General Corporation Law,
does make and file this Certificate.
/s/Alan D. Wallace
------------------------------
Alan D. Wallace
Incorporator
10
<PAGE> 11
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "KENNEDY-WILSON, INC.", FILED IN THIS OFFICE ON THE TWENTIETH DAY
OF NOVEMBER, A.D. 1995, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE
NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/EDWARD J. FREEL
-----------------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
2292670 8100 AUTHENTICATION: 7718904
DATE:
[ILLEGIBLE]
<PAGE> 12
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF KENNEDY-WILSON, INC.
KENNEDY-WILSON, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "corporation"),
hereby certifies:
FIRST: That the Board of Directors of the Corporation, at a
special meeting held on October 2, 1995, unanimously adopted a resolution
declaring it advisable that the Certificate of Incorporation of the Corporation
be amended as follows:
That Section 1 of Article V of the Certificate of
Incorporation be amended to read in its entirety as follows:
SECTION 1. Number of Authorized Shares. The Corporation shall be
authorized to issue two classes of shares of stock to be designated,
respectively, "Common Stock" and "Preferred Stock"; the total number
of shares of all classes of stock that the Corporation shall have
authority to issue is Twenty-Five Million (25,000,000) shares
consisting of Twenty Million (20,000,000) shares of Common Stock, par
value $.01 per share, and Five Million (5,000,000) shares of Preferred
Stock, par value $.01 per share. Upon the amendment of this Article,
each ten of the outstanding shares of Common Stock of the Corporation
of the par value of $.01 shall be reverse split into one share of
Common Stock of the Corporation of the par value of $.01; provided,
however that no fractional shares shall be issued and in lieu thereof
the Corporation shall purchase for cash any such fractional interest
resulting from the reverse split.
<PAGE> 13
SECOND: That the stockholders of the Corporation have
approved the foregoing amendment in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, KENNEDY-WILSON, INC. has caused this
Certificate of Amendment to be executed and attested to by the undersigned
officers of the Corporation this 20th day of November, 1995.
KENNEDY-WILSON, INC.
By: /s/ William J. McMorrow
-----------------------------------
William J. McMorrow, Chairman
of the Board
[CORPORATE SEAL]
ATTEST:
/s/ Randall G. Dotemoto
- ----------------------------------
Randall G. Dotemoto, Secretary
<PAGE> 14
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "KENNEDY-WILSON, INC.", FILED IN THIS OFFICE ON THE NINETEENTH DAY OF
NOVEMBER, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
2292670 8100 AUTHENTICATION: 8200123
960338226 DATE: 11-19-96
<PAGE> 15
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/19/1996
950338226 - 2292670
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF KENNEDY-WILSON, INC.
KENNEDY-WILSON, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies:
FIRST: That the Board of Directors of the Corporation, at a special
meeting held on September 30, 1996, unanimously adopted a resolution declaring
it advisable that the Certificate of Incorporation of the Corporation be
amended as follows:
That the first sentence of Section 1 of Article V of the Certificate of
Incorporation be amended to read in its entirety as follows:
"The Corporation shall be authorized to issue two classes of shares of
stock to be designated, respectively, "Common Stock" and "Preferred
Stock"; the total number of shares of all classes of stock that the
Corporation shall have authority to issue is two Million Five Hundred
thousand (2,500,000) shares consisting of Two Million (2,000,000)
shares of Common Stock, par value $.01 per share, and Five Hundred
thousand (500,000) shares of Preferred Stock, par value $.01 per
share."
SECOND: That the stockholders of the Corporation have approved the
foregoing amendment in accordance with Section 242 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, KENNEDY-WILSON, INC. has caused this Certificate of
Amendment to be executed and attested to by the
<PAGE> 16
undersigned officers of the Corporation this 19th day of November, 1996.
KENNEDY-WILSON, INC.
By: /s/ William J. McMorrow
-------------------------------
William J. McMorrow,
Chairman of the Board
[CORPORATE SEAL]
ATTEST:
/s/ FREEMAN A. LYLE
- --------------------------
Freeman A. Lyle, Secretary
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
as of the 1st day of January, 1997, by and between KENNEDY-WILSON, INC., a
Delaware corporation, with its principal office located in Santa Monica,
California (the "Company"), and RICHARD MANDEL, an individual ("Employee").
RECITALS:
A. Company is a diversified real estate company, whose activities
include real estate brokerage activities and auction-marketing services, and
which operates its business throughout the United States and the world.
B. Employee is an experienced executive in the real estate
brokerage and investment industry who has been employed as an executive with
Company since 1993.
C. Company desires to continue to employ Employee and Employee
desires to continue to be employed by Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties herein, the parties hereby agree as follows:
1. Employment. Company hereby employs Employee and
Employee hereby accepts employment to perform the duties described in Section 2
below, on the terms, conditions and covenants set forth in this Agreement.
2. Services Provided to the Company. During the term of
this Agreement, Employee shall devote one hundred percent (100%) of his working
hours in the employ of the Company, of Kennedy-Wilson International, a
California corporation ("KWI California") or Company's other subsidiaries
(collectively referred to herein as the Companies") to advance the business and
welfare of the Companies. Employee shall be President, Kennedy-Wilson
Commercial during the term hereof, and shall have such powers and duties as may
from time to time be prescribed by the Chairman and Chief Executive Officer of
the Company, which duties may, in the Company's reasonable discretion, be
changed in any legal manner from time to time. Additionally, Employee is
presently serving (and shall continue to serve for the remainder of the term
hereof at the request and in the discretion of the Company) as a director of
the Company. The duties of Employee shall include, without limitation, moving
to the greater New York Metropolitan Area no later than January 1, 1997, to
open a New York office of the Company, and to
<PAGE> 2
promote, develop and manage the business of the Tokyo, Hong Kong and Indonesia
offices (covering all of the Company's activities throughout Asia as well as
West Coast and New York offices) under the direction of the Company's senior
management. Employee shall provide the Companies with the benefit of his best
judgment and efforts in performing his duties hereunder. Employee shall be
based in Company's New York office for the entire term of this Agreement and
the performance of the Employee's duties hereunder. Employee shall report to
the Chairman and Chief Executive Officer unless and until otherwise directed by
the Company.
3. Term. Employee shall be employed by the Company
pursuant to this Agreement for a term (the "Term") beginning on January 1, 1997
and continuing through to, and terminating at the close of business on December
31, 1998 (unless earlier terminated pursuant to Section 11).
4. Commitment to the Company.
(a) During the Term, Employee shall not be
involved, individually or as an employee, principal, officer, general partner,
director or shareholder, in any real estate development activities without
first obtaining the consent and approval of a majority of the Company's Board
of Directors. The limitation contained in this Section 4 shall not apply,
however, to the ownership of no more than one percent (1%) of the capital stock
of any publicly held corporation or to participation in real estate development
activities as a limited partner. For purposes of this Section 4, Employee
shall be deemed the owner of any interests held by Employee, Employee's spouse,
or any other unemancipated minor member of Employee's family.
(b) Employee shall, at all times during the Term,
strictly adhere to and comply with all of Company's policies, rules and
procedures as they currently exist and as they may be changed by the Company.
Employee agrees that to the best of his ability and experience he will at all
times loyally and conscientiously perform all of the duties and obligations
required of him expressly or by implication by the terms of this Agreement.
5. Compensation to Employee. During the Term, the
Company shall pay to Employee compensation, subject to such deductions and
withholdings as Company may from time to time be required to make pursuant to
applicable law, governmental regulation or order (the "Compensation") and
Employee agrees to accept such Compensation as payment in full for all services
rendered by him to or for the benefit of the Companies in any capacity, as
provided in this Section 5.
(a) Employee shall be paid an annual salary equal
to $225,000 per annum, payable on such basis as is the normal pay-
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<PAGE> 3
ment pattern of the Company, not to be less frequently than monthly;
(b) Employee will be eligible for a discretionary
salary review on or about January 1, 1998, based on his performance in fiscal
1997;
(c) Effective January 1, 1997, the Company shall
grant to Employee under the Company's 1992 Incentive and Non-Statutory Stock
Option Plan non-transferable incentive and non-statutory options to purchase an
aggregate of 10,000 shares of Common Stock at an exercise price equal to the
price of the Common Stock on the date the grant of such options are approved on
such terms and subject to such conditions as are set forth in the Stock Option
Agreement between the Company and Employee. The Company shall also grant
non-transferable incentive or non-statutory options to purchase an aggregate of
shares of common stock on December 31, 1997 in the following amounts based on
the "Net Profits" of Kennedy-Wilson Commercial:
"10,000 options at $2,000,000 "net profit" for 1997
prorated to 20,000 options at $3,000,000 "net
profits" for 1997."
The Company shall also grant non-transferable incentive or non-statutory
options to purchase an aggregate of shares of Common Stock on December 31, 1998
in the following amounts based on "net profits" of Kennedy-Wilson Commercial:
"5,000 options at $2,000,000 "net profit" for 1998
prorated to 15,000 options at $4,000,000 "net
profits" for 1998."
The shares of Common Stock options are at an exercise price equal to the
price of the Common Stock on the date of such grant and subject to such
conditions as are set forth in the Stock Option Agreement between the Company
and the Employee. Employee acknowledges that all such option grants are
subject to formal award by a committee of the Company's Board of Directors.
(d) In addition to the foregoing, Employee shall
be entitled to an annual incentive award based on the "net profits" of the
Kennedy-Wilson Commercial as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
$0 to $3,000,000 net profit 12-1/2% Bonus
$3,000,001 to $5,000,000 net profit 15% Bonus
$5,000,001 and over net profit 20% Bonus
</TABLE>
"Net Profits" shall mean the gross revenue realized by Kennedy-Wilson
Commercial during the applicable fiscal year less costs and expenses properly
charged to such gross revenue according to generally acceptable accounting
principles as determined in the
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<PAGE> 4
commercially reasonable judgment of Company's Chief Financial Officer,
including without limitation Employee's salary and benefits, and the salaries,
bonuses and benefits of all employees of the Commercial Division, and a charge
for general corporate overhead.
6 . Expenses. Employee shall be entitled to reimbursement from
the Company for any out-of-pocket expenses, including travel expenses
(excluding all personal automobile expenses) incurred by Employee in the
ordinary course of providing his services hereunder. Such reimbursement shall
be made by the Company within thirty (30) days after receipt of a statement
therefor from Employee setting forth in reasonable detail the expenses for
which reimbursement is requested, accompanied by customary documentation
evidencing such expenses.
(a) Employee shall be entitled to reimbursement for the
actual reasonable costs incurred in relocating to New York from Tokyo,
including moving costs, airfare, and room and board during the move for
Employee's family. Additionally, Company shall pay directly or reimburse
Employee for two months rental of an apartment at the Bristol Plaza in New York
City, and $12,000 for closing costs and associated fees for acquired real
estate for Employee's personal and family residence.
(b) Company shall provide Employee with consulting
services of a Big 6 Accounting firm to structure personal tax issues of
Employee arising under this Agreement. Annual cost of such tax advice shall
not exceed $1,500 per annum.
(c) In addition to the foregoing, Company will reimburse
Employee, or pay directly, for the following expenses:
(1) Car allowance of $500 per month;
(2) Initiation fees for a Country Club
membership of up to $40,000 based on Club
selection subject to Employee using his best
efforts to secure a junior membership and
Company and Employee agreeing on the terms of
how Company will provided the initiation fee
following Employee's selection of a Country
Club and a review of such Country Club's
membership rules, and provided, that monthly
dues and assessments will be the
responsibility of Employee, and employee will
arrange to have the certificate of membership
rest in the name of Kennedy-Wilson
International; and
(3) Four weeks paid vacation time in each of
calendar years 1997 and 1998.
7. Staff. The New York office of the Company shall be staffed
and operated in accordance with the budget and guidelines established by the
Chairman and Chief Executive Officer from time to time.
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<PAGE> 5
8. Insurance Coverage and Benefits. During the Term, the Company
will provide Employee with coverage under the major medical, hospital and other
insurance programs maintained by the Company for its other employees generally.
In addition, Employee shall receive during the Term all other Company-provided
benefits which are, from time to time, made available by the Company to its
officers, including without limitation, the K-W Profit Sharing and 401(K) Plan,
to the extent the Company elects to make contributions to such Plan from time
to time.
9. Non-Competition Covenant.
(a) During the Term hereof and, only in the event of
Employee's voluntary resignation during the Term, for period of three (3) years
thereafter, Employee will not, directly or indirectly:
(1) in any manner induce, attempt to induce, or
assist others to induce or attempt to induce any employee, partner, joint
venturer, independent contractor, agent or customer of the Company to terminate
its, his or her association with the Company, or do anything to interfere with
the relationship between the Company and such person or entity or other persons
or entities dealing with the Company; or
(2) in any capacity (whether as an individual,
promoter, proprietor, general partner, joint venturer, employee, agent,
consultant, director, officer, manager, shareholder or otherwise) work for, act
as a consultant or advisor to, own any interest in, or otherwise be connected
in any manner with the ownership, management, operation or control of
(collectively, "Associated With"), any person or entity which, at any time
during the Term, engages in the same businesses or similar businesses engaged
in by the Company during the Term, including without limitation the real estate
auction-marketing business, without the consent of the Board of Directors of
the Company. Employee acknowledges that the Company's existing services are
marketed internationally and that its business plans include marketing
throughout the entire world either directly or through others. Accordingly,
the restrictions in this Section 9 shall extend to operations in any part of
the world, during the Term thereof.
(b) Nothing in this Section 9 shall restrict Employee
from owning not more than one percent (1%) of the outstanding shares of any
class of securities of a publicly-held issuer subject to the public reporting
requirements of the Securities Exchange Act of 1934, as amended, or any limited
partner interest in a limited partnership or similar passive investment
interest so long as the nature of such investment prevents, pursuant to
applicable law, Employee's control of the management of the issuer of such
investment interest.
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<PAGE> 6
(c) The parties hereto intend that the covenants and
agreements contained in this Section 9 shall be deemed to be a series of
separate covenants and agreements, one for each and every country, county,
state, city and other jurisdiction in the world with respect to which the
Company's business has been or is hereafter carried on. If any of the
foregoing is determined by any court of competent jurisdiction to be invalid or
unenforceable by reason of such agreement extending for too great a period of
time or over too great a geographical area, or by reason of its being too
extensive in any other respect, such agreement shall be interpreted to extend
only over the maximum period of time and geographical area and to the maximum
extent enforceable, all as determined by such court in such action. Any
determination that any provision hereof is invalid or unenforceable, in whole
or in part, shall have no effect on the validity or enforceability of any
remaining provision hereof.
(d) Notwithstanding the foregoing, nothing herein shall
prevent Employee, following the termination of his employment or the end of the
Term, whichever is later, from being Associated With any person or entity
engaged in any real estate activities or matters other than real estate auction
activities or other activities which constitute a primary line of business of
the Company at the time of such termination. Employee represents and warrants
that he is not restricted or prohibited in any way from entering into this
Agreement or performing services hereunder at any time, whether by
non-competition, covenant, or otherwise, and shall indemnify, defend and hold
the Company harmless from and against any damages, claims, costs (including
attorneys' fees) or liabilities as a result of the incorrectness of such
representation and warranty.
10. Confidential and proprietary Information. Employee recognizes
that he will occupy a position of trust with respect to business information of
a confidential or proprietary nature which is the property of the Companies and
which has been and will be imparted to him from time to time in the course of
the performance of his duties under this Agreement. Employee agrees that:
(a) he shall not at any time, whether during the Term or
thereafter, use, divulge or disclose directly or indirectly any confidential or
proprietary information of the Companies to any person, except that he may use
and disclose to other Company personnel such confidential and proprietary
information in the course of the performance of his duties hereunder or when
legally required to do so in connection with any pending litigation or
administrative inquiry; and
(b) he shall return promptly upon the termination of this
Agreement or otherwise upon the request of the Company any and all copies of
any documentation or materials containing any confidential or proprietary
information of the Companies.
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<PAGE> 7
For purposes of this Agreement, the term "confidential or
proprietary information" of the Companies shall include all information which
is owned by the Companies and which is not at the time publicly available or
generally known to persons engaged in businesses similar to that of the
Companies, including practices, procedures and methods and other facts relating
to the business of the Companies; practices, procedures and methods and other
facts related to sales, marketing, advertising, promotions, financial matters,
clients, client lists or the Companies and similar information of a
confidential and proprietary nature. Employer agrees that his breach of this
Section 10 will cause irreparable harm to the Company. Employee agrees that
the remedy at law for any breach by him of this Section 10 will be inadequate
and, in addition to any other remedy available to the Company, the Company
shall be entitled to injunctive relief for any actual or threatened breach of
this Section 10 without proof that any actual damages have been caused by such
breach, and without any need to post bond or similar security.
11. Termination.
(a) This Agreement and Employee's employment by
the Companies shall terminate upon the death or incapacity of Employee.
Incapacity shall mean the inability to perform the services due hereunder for a
consecutive ninety (90) calendar day period.
(b) This Agreement and Employee's employment by
the Companies may also be terminated by the Company:
(1) in the event of a material breach of
this Agreement by Employee which is not corrected within ten (10) days after
the Company's written notice of the material breach to Employee where such
material breach can be cured immediately or, if such material breach cannot be
corrected within ten (10) days of such notice, Employee fails to diligently and
continually pursue a correction which is effected as soon as possible; provided
that the Company shall be deemed to have waived its right to terminate Employee
pursuant to this Section 11(b) (1) with respect to any particular material
breach by Employee if Employee cures such material breach, even after the
10-day cure period for material breaches that can be cured immediately or the
extended period for material breaches not able to be immediately cured, prior
to the Company acting to terminate Employee; and
(2) for cause which shall mean only
Employee's violation of criminal law, material wrongful act or omission,
malfeasance or gross negligence which causes or can reasonably be anticipated
to cause material damage to the business or reputation of the Companies.
(c) This Agreement may also be terminated by
mutual agreement in writing by the Company and Employee.
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<PAGE> 8
(d) This Agreement may be terminated by Employee
at any time, provided that such termination shall have the effect set forth in
Section 11(e) below.
(e) Termination of this Agreement pursuant to
this Section 11 shall not relieve Employee of his obligations to comply with
Section 10 hereof, which provisions shall survive the termination of this
Agreement. If and only if, Employee resigns due to the Company's material
breach of this Agreement which is not corrected within ten (10) days after the
Employee's written notice of the breach to the Company, then Employee shall be
relieved of his obligations under Section 10 hereof. If Employee resigns for
any other reason then his obligations under Section 10 hereof will continue to
apply. Upon the termination of this Agreement by the Company pursuant to
Section 11(b) or upon the resignation of Employee during the Term other than
following an uncured material breach by the Company hereunder, any further
compensation to Employee shall terminate on the date this Agreement is so
terminated by the Company or Employee resigns and Employee shall be entitled to
receive only the Compensation that he has accrued but is unpaid as of the date
of termination. In all other cases, Employee, or his estate, will receive all
salary, bonuses and fringe benefits (or if such fringe benefits cannot be
provided pursuant to the terms of the applicable plans, comparable benefits)
due hereunder and remaining to be paid during the Term in the ordinary course,
provided that the payment of fringe or comparable benefits shall be subject to
the availability of such benefits following Employee's termination of
employment at no additional cost above what was previously being paid by the
Company. Employee agrees to cooperate with the Company to provide for a smooth
transition upon Employee's termination.
12. General Provisions.
(a) Notices. Any notice to be given pursuant to
this Agreement shall be in writing and, in the absence of receipted hand
delivery, shall be deemed duly given when mailed, if the same shall be sent by
certified or registered mail, return receipt requested, or by a nationally
recognized overnight courier and the mailing date shall be deemed the date from
which all time periods pertaining to a date of notice shall run. Notices shall
be addressed to the parties at the following addresses:
If to the Company, to: Kennedy-Wilson, Inc.
530 Wilshire Boulevard
Suite 101
Santa Monica, CA 90401
Attention: Chairman and
Chief Executive Officer
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<PAGE> 9
If to Employee, to: Mr. Richard Mandel
c/o Mandel Family
15 Yale Terrace
Cranford, NJ 07016
With a copy to: Lenard H. Mandel, Esq.
White & Case
1155 Avenue of the Americas
New York, NY 10036
Either party can change its address for receipt or notices by a notice given in
accordance with the foregoing.
(b) Successors and Assigns. This Agreement shall
be binding upon and shall inure to the benefit of the Company and any
successors whether by merger, consolidation, transfer of substantially all
assets or similar transaction, and it shall be binding upon and shall inure to
the benefit of Employee and his heirs and legal representatives. This
Agreement is personal to Employee and shall not be assignable by Employee.
(c) Waiver of Breach. The waiver by the Company
or Employee of a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent breach by the other.
(d) Entire Agreement/Modification. This
Agreement shall constitute the entire agreement between the parties hereto with
respect to the subject matter hereof, and shall supersede all previous oral and
written and all contemporaneous oral negotiations, commitments, agreements and
understandings relating hereto. Any modification of this Agreement shall be
effective only if it is in writing and signed by the parties to this Agreement.
(e) Severability. Any provision of this
Agreement which is deemed invalid, illegal or unenforceable in any jurisdiction
shall, as to that jurisdiction and subject to this paragraph be ineffective to
the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provisions of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction. If any covenant should be deemed
invalid, illegal or unenforceable because its scope is considered excessive,
such covenant shall be modified so that the scope of the covenant is reduced
only to the minimum extent necessary to render the modified covenant valid,
legal and enforceable.
(f) Counterparts. This Agreement may be executed
in a number of identical counterparts, each of which shall be deemed an
original for all purposes.
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<PAGE> 10
(g) Attorneys' Fees. If any action be commenced
(including an appeal thereof) to enforce any of the provisions of this Agreement
or to enforce a judgment, whether or not such action is prosecuted to judgment
("Action") , the unsuccessful party therein, shall pay all costs incurred by
the prevailing party therein, including reasonable attorneys' fees and costs,
court costs and reimbursements for any other expenses incurred in connection
therewith. The right to recover post-judgment attorneys' fees and costs shall
not be deemed waived if not included in any judgment, shall survive the final
judgment in any Action, and shall not be deemed merged into such judgment.
This Section 12 (g) shall survive the termination of this Agreement.
(h) Choice of Law. This Agreement is entered
into in California and the parties stipulate that the validity of this
Agreement and the interpretation and performance of all of its terms shall be
governed by and construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
"EMPLOYEE:
/s/RICHARD MANDEL
---------------------------------------
RICHARD MANDEL
"Company"
KENNEDY-WILSON, INC.,
a Delaware corporation
By: /s/WILLIAM J. MCMORROW
------------------------------------
William J. McMorrow
Chairman and Chief Executive
Officer
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<PAGE> 1
EXHIBIT 10.10
LOAN AGREEMENT
THIS LOAN AGREEMENT is entered into as of March 12, 1996 by
KENNEDY-WILSON, INC., a Delaware corporation ("Borrower"), and EAST-WEST BANK, a
California banking corporation ("Lender").
ARTICLE I
DEFINITIONS
"Acquisition Facility" has the meaning set forth in Section 2.1.
"Approved Commercial Property" means either an Initial Deed of Trust
Property or an office, retail or industrial property which has been approved by
Lender pursuant to the applicable terms of Article III.
"Approved Property" means either an Approved Commercial Property or an
Approved Residential Property.
"Approved Residential Property" means either an Initial Stock Pledge
Property or apartments or developments of single-family residences or planned
units which have been approved by Lender pursuant to the applicable terms of
Article III.
"Authorized Representative" means a person designated by the
applicable entity and approved by Lender for the purpose of certifying and
taking all other actions necessary or which Lender may deem desirable under
this Agreement or the other Loan Documents.
"Borrowing Base" means the aggregate of the following: (1) with
respect to each Approved Property owned by Borrower on which Lender has a lien
pursuant to the Deed of Trust, the positive difference between (a) 85% of the
value of each Approved Property as determined by Lender's most recent appraisal
made in accordance with Section 5.13 and (b) the aggregate amount of monetary
liens encumbering such Approved Property (but not including any lien in favor
of Lender) ; and (2) with respect to each Approved Property owned by a Pledged
Corporation, 50% of the shareholders' equity of such Pledged Corporation
outstanding from time to time as calculated in accordance with generally
accepted accounting principles, but in no event may the aggregate amount of
Loans made on the basis of the stock of the Pledged Corporations exceed the
lesser of (A) 50% of the aggregate amount of all Loans outstanding at any time
and (B) $1,800,000. Notwithstanding the foregoing, the amount which may be
included in the Borrowing Base with respect to an Approved Property which was
acquired with the proceeds of a Loan but which became an Approved Property
subsequent to such
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<PAGE> 2
acquisition, shall be limited to (1) if Lender has a lien on such Approved
Property pursuant to the Deed of Trust, the positive difference between (a) 85%
of the value of the Approved Property as determined by Lender's most recent
appraisal made in accordance with Section 5.13 and (b) the sum of (A) the
aggregate amount of monetary liens encumbering such Approved Property (but not
including any lien in favor of Lender) and (B) the amount of the Loan
outstanding which was made to acquire such Approved Property; and (2) if such
Approved Property is owned by a Pledged Corporation, 50% of the shareholders'
equity of such Pledged Corporation outstanding from time to time as calculated
in accordance with generally accepted accounting principles, less the amount of
the Loan outstanding which was made to acquire such Approved Property.
"Commitment Termination Date" means June 1, 1997, as such date may be
extended in accordance with Section 2.8 below.
"Deed of Trust" means individually or collectively, as applicable, (a)
the Deed of Trust, Security Agreement, Assignment of Leases and Rents and
Fixture Filing executed by Borrower, as trustor, for the benefit of Lender, as
beneficiary, entered into concurrently with the execution and delivery of this
Agreement; and (b) any other deed of trust executed pursuant to the terms of
this Agreement from time to time of which Lender is the beneficiary.
"Environmental Indemnity" means the Environmental Indemnity executed
by Borrower and the Guarantors for the benefit of Lender pursuant to this
Agreement.
"Event of Default" has the meaning set forth in Article VI of this
Agreement.
"Guaranty" means the Guaranty executed by the Guarantors guaranteeing
the repayment of the Loans.
"Guarantors" means K-W International and K-W Properties.
"Hazardous Materials" means (i) any chemical, compound, material,
mixture or substance that is now or may later be defined or listed in, or
otherwise classified pursuant to, any Hazardous Materials Law as a "hazardous
substance", "hazardous material", "hazardous waste", "extremely hazardous
waste", "acutely hazardous waste", "radioactive waste", "infectious waste",
"biohazardous waste", "toxic substance", "pollutant", "toxic pollutant",
"contaminant" as well as any formulation not mentioned herein intended to
define, list, or classify substances by reason of deleterious properties such
as ignitability, corrosivity, reactivity, carcinogenicity, toxicity,
reproductive toxicity "EP toxicity," or "TCLP toxicity"; (ii) petroleum,
natural gas, natural gas liquids, liquified natural gas, synthetic gas usable
for fuel (or mixtures of natural gas and such synthetic gas) and ash
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<PAGE> 3
produced by a resource recovery facility utilizing a municipal solid waste
stream, and drilling fluids, produced waters and other wastes associated with
the exploration, development or production of crude oil, natural gas, or
geothermal resources; (iii) "hazardous substance" as defined in Section
25281(f) of the California Health and Safety Code; (iv) "waste" as defined in
Section 13050(d) of the California Water Code (v) asbestos in any form; (vi)
urea formaldehyde foam insulation; (vii) transformers or other equipment which
contain dielectric fluid containing levels of polychlorinated biphenyls (PCBs)
in excess of fifty (50) parts per million; (viii) radon; and (ix) any other
chemical, material, or substance that, because of its quantity, concentration,
or physical or chemical characteristics, exposure to which is limited or
regulated for health and safety reasons by any governmental authority, or which
poses a significant present or potential hazard to human health and safety or
to the environment if released into the workplace or the environment.
"Hazardous Materials Laws" means all present and future federal, state
and local laws, ordinances, regulations, permits, guidance documents, policies,
decrees, orders and any other requirements, whether statutory, regulatory or
contractual, of governmental authorities relating to health, safety, the
environment or the use, handling, disposal or transportation of any Hazardous
Materials (including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation
Recovery Act, the Clean Water Act, the Clean Air Act, and the applicable
provisions of the California Health and Safety Code and the California Water
Code, as each such statute may from time to time be amended, and the rules,
regulations, and guidance documents promulgated pursuant to any such statute).
"Initial Deed of Trust Properties" means the properties set forth
under such heading on Exhibit "A" to this Agreement.
"Initial Properties" means the Initial Deed of Trust Properties and
the Initial Stock Pledge Properties.
"Initial Stock Pledge Properties" means the properties set forth under
such heading on Exhibit "A" to this Agreement.
"K-W International" means Kennedy-Wilson International, a California
corporation, a wholly-owned subsidiary of Borrower.
"K-W Properties" means K-W Properties, a California corporation, a
wholly-owned subsidiary of Borrower.
"Loan Documents" means this Agreement, the Note, the Deed of Trust,
the Environmental Indemnity, the Stock Pledge Agreement, the Guaranty and all
documents, agreements and instruments executed or otherwise delivered for the
purpose of evidencing or securing the
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<PAGE> 4
Loans, whether delivered concurrently with the delivery of this Agreement or
later.
"Loan" or "Loans" means, respectively, a single advance or the
aggregate amount of advances of credit made by Lender to Borrower under this
Agreement.
"Loan Request" means a request for a disbursement of the Loan in the
form of Exhibit "B" to this Agreement.
"Note" means the Promissory Note in the principal amount of $6,000,000
made by Borrower, as maker, and payable to the order of Lender, as payee, which
evidences the Loans.
"Payment Date" has the meaning set forth in Section 2.2.
"Permits" means all permits, licenses, operating authorizations,
certificates, variances, waivers, approvals or other authorizations of any kind
issued or granted by any governmental authority which are required in
connection with (a) the lawful and proper operation and maintenance of the
Approved Properties; and (b) any existing use of the Approved Properties.
"Permitted Encumbrances" has the meaning set forth in Section 4.8.
"Pledged Corporation" means an affiliate or a subsidiary of Borrower
which owns an Approved Property and whose shares have been pledged to Lender
pursuant to the Stock Pledge Agreement.
"Potential Event of Default" means an event which, with the giving of
notice or the lapse of time, or both, would become an Event of Default.
"Prime Rate" means the variable rate of interest established by Bank
of America from time to time as its "prime rate" or "reference rate." Each
change in the Prime Rate shall be effective as of the opening of business on
the date announced as the effective date of any change in the Prime Rate. If
Bank of America shall discontinue stating or publishing its "prime" or
"reference" rate, Lender shall select a comparable rate in its place.
"Property Laws" means (a) all zoning, building, environmental and
other laws, ordinances, rules, regulations, and restrictions of any
governmental authority, including, without limitation, the Americans with
Disabilities Act to the extent applicable, the Subdivision Map Act and those
relating to the presence of asbestos and/or hazardous wastes, (b) any building
permits or any conditions, easements, rights-of -way, covenants, restrictions
of record or any recorded or unrecorded agreement affecting or concerning the
Approved Properties, including, without limitation, planned development
permits, condominium declarations and any owner
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<PAGE> 5
participation, development or regulatory agreements with any governmental
authority and (c) requirements of insurance companies or similar organizations,
affecting the operation and use of the Approved Properties or consummation of
the transactions contemplated by the Loan Documents.
"Release Collateral" has the meaning set forth in Section 2.7.
"Release Date" has the meaning set forth in Section 2.7.
"Sale" or "Sold" means, with respect to the whole or any part of an
applicable property or any interest of Borrower or a Pledged Corporation in the
same, (a) any direct or indirect sale, conveyance, assignment, transfer,
exchange or other disposition of such property or interest; (b) any contract
sale or installment sale of such property or interest; or (c) any long-term
ground lease of such property or interest.
"Stock Pledge Agreement" means individually or collectively, as
applicable, (a) the Stock Pledge Agreement executed by K-W Properties
concurrently with the execution and delivery of this Agreement pledging the
stock of certain subsidiaries of K-W Properties; and (b) any other stock pledge
agreement executed pursuant to the terms of this Agreement from time to time of
which Lender is the secured party.
"Tangible Net Worth" means total shareholder equity (as defined by
generally accepted accounting principles), less (a) all intangible assets,
including, without limitation, goodwill, and (b) all notes or accounts
receivable from any affiliate of Borrower or any officer of Borrower or any of
Borrower's affiliates.
"Title Policies" means the title insurance policy required to be
delivered pursuant to Section 3. 5 (c) (i) and any subsequent title insurance
policy delivered to Lender in connection with Lender's lien under the Deed of
Trust on an Approved Property.
"Working Capital Facility" has the meaning set forth in Section 2.1.
ARTICLE II
LOANS
2.1 The Loans. Lender agrees, on the terms and conditions set
forth in this Agreement, to make Loans available to Borrower from the date of
this Agreement to the Commitment Termination Date and to maintain any such
Loans outstanding on the Commitment Termination Date until they are required to
be repaid pursuant to Section 2.3 below. The aggregate amount of Loans
outstanding at any time shall not exceed the lesser of (a) the amount of
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<PAGE> 6
$6,000,000 and (b) the Borrowing Base. An amount of the Loans not greater than
$1,000,000 may be used only for the working capital needs of K- W International
(the "Working Capital Facility"). An amount of the Loans not greater than
$5,000,000 may be used only for the acquisition of interests in real property
by Borrower or an affiliate of Borrower (the "Acquisition Facility"). Borrower
and Lender intend the Loans to be revolving and as such, until the Commitment
Termination Date and otherwise within the limits set forth in this Agreement,
Borrower may borrow, repay and reborrow the Loans. After the Commitment
Termination Date, Borrower will not have the right to borrow, and Lender will
not make, any new Loans, but will maintain any Loans outstanding on the
Commitment Termination Date until such Loans are required to be repaid pursuant
to Section 2.3 below.
2.2 Interest and Fees.
(a) The aggregate amount of Loans outstanding from time
to time shall bear interest at the rate which is the sum of the Prime Rate and
one percent per annum. On (i) the first day of the month following the month
in which any Loan is disbursed and on the first day of each month after such
date and (ii) with respect to the principal amount so due, on the date on which
any principal amount is due under this Agreement (each a "Payment Date") ,
Borrower shall pay to Lender the amount of interest which shall have accrued
during the calendar month (or portion of such calendar month, as applicable)
immediately preceding such Payment Date.
(b) Borrower shall on the date of this Agreement pay
Lender a loan fee in the amount of $45,000.
(c) Interest payable under this Agreement shall be
calculated on the basis of a 360-day year and the actual number of days
elapsed.
2.3 Principal Repayment.
(a) Borrower shall repay the principal amount of the
Loans as follows:
(i) unless the maturity date of the Working
Capital Facility is extended as provided in Section 2.8 below, the entire
principal amount of the Working Capital Facility shall be due and payable,
together with all accrued but unpaid interest thereon, on or before June 1,
1997.
(ii) the principal amount of each Loan made as a
part of the Acquisition Facility shall be due and payable, together with all
accrued but unpaid interest thereon, as follows:
(A) with respect to any Loan made to
acquire any commercial property, irrespective of whether such commercial
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<PAGE> 7
property is an Approved Commercial Property, on or before the date which is 18
months from the date on which such Loan was made; and
(B) with respect to any Loan made to
acquire any residential property, irrespective of whether such residential
property is an Approved Residential Property, on or before the date which is 12
months from the date on which such Loan was made.
(b) Borrower shall prepay the principal amount of each
Loan made pursuant to the Acquisition Facility, together with all accrued but
unpaid interest thereon, (i) with respect to each commercial property acquired
with such Loan, irrespective of whether such commercial property is an Approved
Commercial Property, upon the Sale of such commercial property; and (ii) with
respect to each residential property acquired with such Loan, irrespective of
whether such residential property is an Approved Residential Property, (A) the
Sale of such residential property if such property is sold in one unit or (B)
on the date of the Sale of each unit of such residential property in an amount
to be agreed upon for such unit by Lender and Borrower upon the making of the
Loan for such residential property if less than the entire residential property
is Sold. The amounts to be repaid upon the sale of units of the Initial Stock
Pledge Properties are set forth on Exhibit "C" to this Agreement.
(c) To the extent not already payable in accordance with
this Section 2.3 (or payable earlier in accordance with the Loan Documents) ,
all principal, accrued but unpaid interest and any other amounts outstanding
under the Loan Documents shall be due and payable in full on the date of the
maturity of the last Loan outstanding under this Agreement.
(d) If at any time (i) the aggregate principal amount of
all Loans outstanding exceeds the lesser of $6,000,000 or the Borrowing Base,
(ii) the aggregate amount of Loans outstanding under the Working Capital
Facility exceeds $1,000,000, (iii) the aggregate amount of Loans outstanding
under the Acquisition Facility exceeds $5,000,000 or (iv) the aggregate amount
of Loans made with respect to the stock of the Pledged Corporations exceeds the
lesser of 50% of the aggregate amount of all Loans outstanding or $1,800,000,
then Borrower shall immediately prepay the Loans (together with accrued
interest on the amount prepaid) in the amount of such excess.
(e) Borrower may prepay any portion of the Loans on any
Payment Date. So long as no Event of Default or Potential Event of Default has
occurred and is continuing, Borrower may designate the Loan or Loans to which
any prepayment is to be applied.
2.4 Manner of Payment. All payments received by Lender later than
1:00 p.m. (Los Angeles time) shall be considered received on the following
business day. Receipt of a check for any payments in
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<PAGE> 8
and of itself shall not constitute payment. Subject to Section 2.3 (e), Lender
may apply any payments made pursuant to the terms of this Agreement and the
other Loan Documents in such order as it shall determine in its sole and
absolute discretion.
2.5 Evidence of Debt.
(a) Borrower's indebtedness resulting from all Loans made
from time to time shall be evidenced by the Note.
(b) The books and accounts of Lender shall be conclusive
evidence, absent manifest error, of the amounts of all Loans, repayments,
interest, fees and other charges advanced, due, outstanding or paid pursuant to
this Agreement.
2.6 Overdue Payments. Except as otherwise expressly provided in
this Agreement, any amount payable under this Agreement or any other Loan
Document which is not paid when due (whether as a result of maturity,
acceleration or otherwise) shall bear interest, payable on demand, at a rate
equal to the sum of the Prime Rate plus five percent per annum.
2.7 Release of Liens. At the request of Borrower, on any Release
Date, Lender shall release liens securing the Loans on specified collateral
("Release Collateral") subject to and upon compliance with all of the following
terms and conditions:
(a) no Event of Default or Potential Event of Default
shall have occurred and be continuing;
(b) Borrower shall have given to Lender at least 10 days'
prior written notice of its desire to effect the release of specified Release
Collateral, which notice shall designate (i) the Release Collateral and (ii) a
date (the "Release Date"), not less than 10 nor more than 30 days after the
date of such notice, as the date upon which the release is to be effected;
(c) Lender is satisfied the amount of the Loans
outstanding immediately following the proposed release and any accompanying
payment will not be greater than the lesser of (i) $6,000,000 and (ii) the
amount of the Borrowing Base; and
(d) on or prior to the Release Date, Borrower shall have
complied with such requirements as Lender may reasonably establish in
connection with the release of the Release Collateral, including: (i) if Lender
so requires, furnishing to Lender endorsements to one or more of its Title
Policies, which endorsements shall insure that the insurance provided by the
Title Policies so endorsed shall not be impaired by the release of such Release
Collateral; and (ii) payment to Lender of all of its costs and expenses,
including any legal, recording and title fees incurred in connection with the
release.
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2.8 Extension of Commitment Termination Date and Maturity of
Working Capital Facility. Lender agrees to extend the Commitment Termination
Date and the maturity date of the Working Capital Facility as set forth in
Section 2.3(a)(i) above, subject to Lender's receipt, not later than May 1,
1997, of written notice from Borrower requesting such extension to a date not
later than June 1, 1998 subject, however, to satisfaction of all of the
following conditions not later than June 1, 1997 (the "Extension Date"):
(a) all covenants and obligations of Borrower and the
Guarantors under this Agreement or any of the other Loan Documents shall have
been performed and all representations and warranties contained in this
Agreement shall be true as of the Extension Date;
(b) no Event of Default or Potential Event of Default
shall have occurred and be continuing;
(c) Lender shall have determined to its satisfaction that
no material adverse change has occurred in the (i) net operating income or
sales, as applicable, of the Approved Properties; (ii) physical and economic
condition of the Approved Properties; or (iii) business, financial condition
and management of Borrower, the Guarantors or the Pledged Corporations;
(d) Borrower shall have executed and delivered to Lender
an amendment to this Agreement or other documents satisfactory to Lender
evidencing such extension;
(e) Borrower shall have delivered to Lender such other
documents and assurances as Lender shall require, including, without
limitation, if requested by Lender, an endorsement to the Title Policies, at
Borrower's expense, assuring Lender that the extension will not affect the
priority of Lender's lien on any Approved Properties encumbered by the Deed of
Trust;
(f) Borrower shall have paid to Lender an extension fee
in the amount to be determined by Lender; and all of Lender's costs and
expenses, including any legal, recording and title fees incurred in connection
with the extension; and
(g) between the date of this Agreement and the Extension
Date, either (i) no Loan shall have ever been made under the Working Capital
Facility; or (ii) all Loans made under the working Capital Facility shall have
been repaid and no amounts shall be outstanding under the Working Capital
Facility for a period of not less than 30 consecutive days.
ARTICLE III
LOAN ADVANCES, APPROVALS AND CONDITIONS TO LENDING
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3.1 Requests for Loans. A request for a Loan shall be in writing
in the form of the Loan Request attached as Exhibit "B" to this Agreement.
Borrower shall not request a Loan more than once per week. Borrower shall not
request a Loan sooner than 45 days before the Loan is to be made if such Loan
is to be the initial Loan relating to a property which is proposed to be an
Approved Property, and not sooner than 10 days before the Loan is to be made if
no property is required to be considered for approval as an Approved Property
in connection with such Loan.
3.2 Lender Evaluation. In order to determine if a property is an
Approved Property, Lender shall perform its customary underwriting procedures
for making loans secured by real property, including, without limitation:
(a) an audit of the revenues, expenses, net operating
income and other financial performance of the property;
(b) a review of the occupancy, tenants and leases of the
property;
(c) a review of appraisal, engineering and environmental
inspections and reports, including the physical nature and attributes of the
property, the construction and state of repair and appearance and any potential
environmental problems;
(d) a market analysis, including review of the location
of the property, and all matters relating to continued economic viability of
such property and existing or potential competition;
(e) a review of Borrower's management and improvement
plans for the property; and
(f) legal due diligence, including review of the state of
title as disclosed by preliminary reports and related documents.
Borrower agrees to cooperate with Lender and to furnish to Lender at Borrower's
expense all documents and reports and information which Lender may require in
order to conduct and complete its evaluation of each property proposed by
Borrower to be an Approved Property.
3.3 Approval or Disapproval.
(a) Lender will (subject to Borrower's submission of the
materials and other information required by this Agreement and Borrower's
continued full cooperation in connection with Lender's evaluation) perform and
conclude its evaluation of a property within 30 days after receipt of a Loan
Request (the "Evaluation Period"). The approval or disapproval of any property
shall be within Lender's sole and absolute discretion and is subject, among
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<PAGE> 11
other things, to compliance by Borrower with the provisions of this Agreement
and review and approval by Lender's Senior Loan Committee. If Lender shall not
have approved a property as an Approved Property before the expiration of the
Evaluation Period, such property shall be deemed not approved.
(b) Notwithstanding any other provision of this
Agreement:
(i) no property may be an Approved Commercial
Property if it requires construction or otherwise does not have a valid
certificate of occupancy or similar occupancy permit or if such property is of
a specialized or single-purpose nature and not readily adaptable to general
office, retail or industrial uses;
(ii) no property may be an Approved Residential
Property if it requires construction or otherwise does not have a valid
certificate of occupancy or similar occupancy permit, except that Lender may
approve planned-unit or tract-housing properties involving the sale of units
whose construction is not less than 90% complete if Borrower submits a
completion plan satisfactory to Lender; and
(iii) Lender will not approve a property to be an
Approved Property if the priority of Lender's lien on such property pursuant to
the Deed of Trust is to be other than first or second.
(c) If Lender shall have approved a property as an
Approved Property but Borrower shall not have qualified (including satisfaction
of all conditions precedent) for disbursement of, and shall not have
consummated disbursement of, the initial Loan for such Approved Property within
120 days after Lender has notified Borrower that such property has become an
Approved Property, then, at Lender's election, such property shall cease to be
an Approved Property until Lender shall have conducted such re-evaluations and
re-audits of such property on a current basis, as Lender may require and shall
have re-approved such property as an Approved Property as provided above
(Lender retaining the right, upon such re-evaluation and re-audit, not to
re-approve such property). Regardless of whether Borrower thereafter requests
any further Loans, the approval by Lender of any Loan requested by Borrower
shall obligate Borrower to promptly and diligently fulfill any conditions to
such Loan that were not fulfilled or waived by Lender at the time such Loan was
made.
3.4 Approved Properties. Following Lender's underwriting review
and approval by Lender's Senior Loan Committee, Lender shall notify Borrower of
the conditions precedent to a property's becoming an Approved Property and the
disbursement of a Loan or Loans with respect to such property.
3.5 Conditions to Initial Loan. Lender's obligation to make
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the initial Loan shall be subject to the satisfaction of the conditions
precedent set forth in this Section 3.5 not later than March 31, 1996.
(a) Loan Documents. Lender shall have received the
following originally executed Loan Documents, in form and substance
satisfactory to Lender:
(i) this Agreement, the Note, the Deed of Trust,
the Environmental Indemnity, the Stock Pledge Agreement together with the
applicable original shares of each Pledged Corporation and stock powers
endorsed in blank and the Guaranty; and
(ii) one or more UCC-1 financing statements.
(b) Borrower and Guarantors. Lender shall have received
the following concerning Borrower and each Guarantor, in form and substance
satisfactory to Lender: (i) a copy of each such person's bylaws certified to be
true and complete by such person's Authorized Representative; (ii) a copy of
each such person's articles of incorporation and any amendments, certified by
the California Secretary of State; (iii) a recent good-standing certificate
regarding each such person issued by the California Secretary of State; (iv) a
certificate of each such person's Authorized Representative, including a copy
of resolutions, indicating that each such person is authorized to execute and
deliver the Loan Documents to which such person is a party and to perform its
obligations under such Loan Documents; (v) a certificate with respect to the
incumbency and signature of each such person's Authorized Representative; and
(vi) such other documents as Lender shall reasonably request with respect to
any such person's existence and authorization.
(c) The Initial Properties. Lender shall have received
the following concerning the Initial Deed of Trust Properties and Initial Stock
Pledge Properties, as applicable, in form and substance satisfactory to Lender:
(i) (A) an ALTA Extended Coverage Policy of Title
Insurance with such endorsements as Lender may require, issued by a title
insurer approved by Lender, insuring the Deed of Trust to be a second-priority
lien on the Initial Deed of Trust Properties, in an insured amount acceptable
to Lender, free and clear of all liens, encumbrances, conditions, restrictions
and other exceptions to title except for Permitted Encumbrances, and otherwise
in form and content satisfactory to Lender; and (B) copies of the current
owner's policies of title insurance insuring each Pledged Corporation's
ownership of its Initial Stock Pledge Property;
(ii) a recent "as built" survey of each of the
Initial Properties prepared and certified to Lender pursuant to ALTA and ACSM
standards by a surveyor or engineer satisfactory to
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Lender and in any event depicting dimensions, building and other details
required by Lender or which may be necessary to insure that there are no
encroachments (on or off such Initial Deed of Trust Property) , building code
or zoning violations or other physical violations of Property Laws affecting
any such Initial Deed of Trust Property or other physical defects affecting
marketability or insurability of any Initial Deed of Trust Property;
(iii) appraisals satisfactory to Lender by Lender's
appraiser or another appraiser approved by Lender showing the current value of
the Initial Properties;
(iv) recent environmental audit reports prepared
by a consultant acceptable to Lender showing the absence of Hazardous Materials
on or about the Initial Properties;
(v) evidence that the Initial Properties comply
with all Property Laws and Borrower has obtained all Permits necessary for the
ownership, maintenance and operation of the Initial Properties, including,
without limitation, a valid certificate of occupancy for each Initial Deed of
Trust Property;
(vi) evidence that the insurance required by
Section 2.11 of the Deed of Trust is in effect and that insurance from
insurers, in amounts and of kinds satisfactory to Lender is in effect with
respect to the Initial Stock Pledge Properties;
(vii) if requested by Lender, with respect to each
of the Initial Deed of Trust Properties, copies of the all of the leases of
space; a current rent roll; operating statements showing the revenues, expenses
and net operating income for the shorter of three years or the period of
Borrower's ownership; any projections requested by Lender; and a budget for
capital expenditures;
(viii) with respect to each of the Initial Stock
Pledge Properties, a sales plan, including sales materials, prices and
anticipated absorption, for the units in such Initial Stock Pledge Property;
any projections requested by Lender; and a budget for capital expenditures;
(ix) evidence that the Initial Properties do not
lie within flood hazard areas;
(x) an engineering or inspection report from an
engineer or inspector satisfactory to Lender of the structural and mechanical
details and other physical attributes of the improvements of the Initial
Properties;
(xi) evidence that no litigation, investigation or
like matter is pending or threatened by or before any court, regulatory agency
or investigative body contesting or seeking to limit, affect or impair any
Permit or which might otherwise have a
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material adverse affect on any Initial Property or Borrower's or any Pledged
Corporation's ability to own or operate any Initial Property;
(xii) copies of all of the loan documents relating
to financing secured by a lien on any Initial Property;
(xiii) with respect to each Pledged Corporation, the
articles of incorporation, bylaws and a recent good-standing certificate; and
such financial statements of a recent date as Lender shall request.
(d) Other Conditions Precedent. Lender shall have
received the following, in form and substance satisfactory to Lender:
(i) the results of a search of the California
Secretary of State's UCC records concerning Borrower and the Guarantors;
(ii) such financial statements of Borrower and the
Guarantors and Borrower's affiliates as Lender shall require;
(iii) an opinion of counsel to Borrower and the
Guarantors satisfactory to Lender concerning the existence and power of
Borrower and the Guarantors, the due authorization, execution, delivery and
enforceability of the Loan Documents and such other matters as Lender shall
require;
(iv) a loan fee in the amount of $45,000 and the
payment of all of Lender's costs of closing the Loan, including, without
limitation, appraisal, legal, title, recording, inspection, investigation,
escrow and filing costs; and
(v) such other documents, agreements,
certificates and assurances as Lender shall require.
3.6 Conditions to All Loans. Lender's obligation to make any Loan
(including the initial Loan) is subject to all of the following conditions
precedent:
(a) Lender shall not have previously made a Loan in the
week in which Borrower is proposing a Loan to be made;
(b) the Loan shall be in an amount not less than $100,000
;
(c) the Loan, when aggregated with all outstanding Loans,
shall not exceed the amount set forth in Section 2.1 above;
(d) there shall exist no Event of Default or Potential
Event of Default;
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<PAGE> 15
(e) Lender is satisfied that no material adverse change
in the business or financial condition or management of Borrower, the
Guarantors, any Pledged Corporation or any Approved Property has occurred;
(f) no Approved Property has suffered any material damage
by fire or other casualty and no condemnation, adverse zoning or usage change
proceedings have been commenced or threatened;
(g) all of the representations and warranties given by
Borrower and the Guarantors in the Loan Documents shall be deemed to have been
made on each date that a Loan is made and such representations and warranties
shall be true on such date; and
(h) no law, regulation, ordinance, moratorium, injunctive
proceeding, restriction or similar matter has been enacted, adopted or
threatened by any federal, state or local government or any board, authority,
commission, agency or department asserting jurisdiction over the subject matter
if the result of such law, regulation, ordinance, moratorium, injunctive
proceeding, restriction or like matter would have the effect, in Lenders's
reasonable judgment, of materially and adversely affecting the expected
benefits to be gained by Borrower or any Pledged Corporation, as applicable, in
connection with any Approved Property or by Lender in connection with the Loans
for any reason, including, without limitation, Borrower's or any Pledged
Corporation's being prohibited or delayed in converting any Approved Properties
to uses other than their present use or otherwise.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower makes the representations and warranties set forth in this
Article IV to Lender.
4.1 Existence. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of Delaware. Each Guarantor and
each Pledged Corporation is a corporation duly organized, validly existing and
in good standing under the laws of California.
4.2 Power. Borrower and each of the Guarantors has all necessary
corporate power to enter into the Loan Documents to which each is a party and
perform its obligations under such Loan Documents.
4.3 Enforceability of Loan Documents. The Loan Documents to which
Borrower is a party have been duly executed and delivered by
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<PAGE> 16
Borrower and are the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms. The
Guaranty and Environmental Indemnity have been duly executed and delivered by
the Guarantors and are the legal, valid and binding obligations of the
Guarantors, enforceable against the Guarantors in accordance with their
respective terms. The Stock Pledge Agreement has been duly executed and
delivered by K-W Properties and is the legal, valid and binding obligation of
K-W Properties, enforceable against K-W Properties in accordance with its terms.
4.4 Approvals. (a) Borrower, the Guarantors and the Pledged
Corporations have obtained all material approvals, licenses, exemptions and
other authorizations from, and has accomplished all material filings,
registrations and qualifications with, all applicable governmental authorities
that are necessary for the transaction of their business; (b) Borrower and each
Pledged Corporation have obtained all Permits necessary to the ownership,
occupation, operation and maintenance of the Approved Properties; and (c) no
authorization or approval or other action by, and no notice to or filing with
any governmental authority or regulatory body is required for the due
execution, delivery and performance by Borrower or the Guarantors of the Loan
Documents to which it is any of them is a party.
4.5 No Conflict. Borrower's execution and delivery of, and its
performance of its obligations under, the Loan Documents to which it is a party
do not and will not conflict with (a) any (i) contractual or legal restriction
or obligation, or (ii) court or regulatory order, binding on or affecting
Borrower, or (b) any restriction contained in any of Borrower's constituent or
governing documents.
4.6 Pending Litigation or Other Proceedings. There is no pending
or, to the knowledge of Borrower, threatened action, proceeding or
investigation before any court, governmental agency or arbitrator against or
affecting Borrower, any Guarantor, any Pledged Corporation, any Approved
Property or any of Borrower's other assets which, if decided adversely to
Borrower, would materially and adversely affect the financial condition of
Borrower, such Guarantor, such Pledged Corporation or of any of Borrower's
assets, including, without limitation, any Approved Property, or would
materially and adversely affect the present or future ability of Borrower to
perform its obligations under the Loan Documents to which it is a party.
4.7 Solvency. None of Borrower, any Guarantor or any Pledged
Corporation is insolvent and none of them will be rendered insolvent by the
transactions contemplated by the Loan Documents. After giving effect to such
transactions, none of Borrower, any Guarantor or any Pledged Corporation will
be left with an unreasonably small amount of capital with which to engage in
its
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business or undertakings, nor will Borrower, any Guarantor or any Pledged
Corporation have intended to incur, or believe that it has incurred, debts
beyond its ability to pay such debts as they mature.
4.8 No Liens. There are no material liens or encumbrances upon or
with respect to any Approved Property except the liens of property taxes and
assessments which are not yet due and payable and the liens and encumbrances
shown, in the case of Approved Properties owned by Borrower, on the Title
Policies, or in the case of Approved Properties owned by Pledged Corporations,
on the Pledged Corporations' owners' policies of title insurance (the
"Permitted Encumbrances").
4.9 Title. Borrower and the Pledged Corporations, as applicable,
have good, marketable-and indefeasible title to the Approved Properties which
they purport to own, free and clear of all material encumbrances except the
Permitted Encumbrances. The Deed of Trust, when properly recorded in the
Official Records of the county where the relevant Approved Property is located,
together with the Uniform Commercial Code financing statement executed by
Borrower in connection with the security interest granted pursuant to the Deed
of Trust, when properly filed with the California Secretary of State, will
create, respectively, (a) a valid, perfected second-priority lien on the "Real
Property" (as defined in the Deed of Trust), subject only to Permitted
Encumbrances, and (b) a valid, perfected second-priority security interest in
the "Personal Property" (as defined in the Deed of Trust) to the extent such a
lien may be perfected by such a filing, subject only to Permitted Encumbrances.
The Deed of Trust, as it may be modified from time to time in connection with
the encumbrance of additional Approved Properties, or any other deed of trust
delivered pursuant to this Agreement in connection with the encumbrance of
additional Approved Properties, when properly recorded in the Official Records
of the county where such additional Approved Property is located, together with
any Uniform Commercial Code financing statements executed by Borrower in
connection with the delivery of such modification or additional deed of trust,
when properly filed with the California Secretary of State, will create,
respectively, (a) a valid and perfected lien on the real property encumbered by
the Deed of Trust, as modified, or such additional deed of trust, of the
priority shown in the Title Policy or any endorsement delivered in connection
with such modification or additional deed of trust, subject only to Permitted
Encumbrances, and (b) a valid and perfected security interest in the personal
property encumbered by the Deed of Trust, as modified, or such additional deed
of trust, of the same priority as the lien on the related real property to the
extent such a lien may be perfected by such a filing, subject only to
Permitted Encumbrances. Except for any Permitted Encumbrance or any lien which
has been "insured around" to the satisfaction of Lender, there are no liens or
claims for work, labor or materials affecting any Approved
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<PAGE> 18
Property. The Permitted Encumbrances do not materially adversely impair
Borrower's or the relevant Pledged Corporation's, as applicable, current use
and operation of any of any Approved Property or otherwise materially adversely
impair Borrower's ability to perform any of its obligations under the Loan
Documents.
4.10 Taxes.
(a) Borrower, the Guarantors and the Pledged Corporations
have filed all required federal, state and local tax returns. Borrower, the
Guarantors and the Pledged Corporations have paid all federal, state and local
taxes due (including any interest and penalties) other than taxes being
promptly and actively contested in good faith and by appropriate proceedings.
Borrower, the Guarantors and the Pledged Corporations have established and are
maintaining adequate reserves for tax liabilities (including contested
liabilities) in accordance with generally accepted accounting principles.
(b) Borrower and the Pledged Corporations have paid and
discharged all installments for the payment of "Impositions" (as defined in the
Deed of Trust) due to date, and all other material taxes, levies, maintenance
charges, utilities charges or any other governmental or private assessment or
charge, imposed against, affecting or relating to the each Approved Property
other than those which have not become due, together with any fine, penalty,
interest or cost for non-payment pursuant to such returns or pursuant to any
assessments received by it.
4.11 Laws.
(a) Borrower, the Guarantors and the Pledged Corporations
are in material compliance with all laws, regulations and court orders
applicable to them and their business, including all state and federal
securities laws.
(b) Each Approved Property complies in all material
respects with all Property Laws affecting such Approved Property. Neither
Borrower nor any Pledged Corporation has received any written notification or
threat of any actions or proceedings regarding the noncompliance or
nonconformity of any Approved Property with Property Laws or Permits, nor are
Borrower or any Pledged Corporation otherwise aware of any such pending actions
or proceedings.
4.12 Liability for Hazardous Materials. Except as disclosed in the
documents set forth on Exhibit "D" to this Agreement, neither Borrower nor any
Pledged Corporation has any liability, contingent or otherwise, under any
Hazardous Materials Law or with respect to any activity involving Hazardous
Materials on or about any Approved Property.
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4.13 Hazardous Materials Activity. Except as disclosed in the
documents set forth on Exhibit "D" to this Agreement, there exists no activity
involving Hazardous Materials on or about any Approved Property in violation of
any Hazardous Materials Law and Borrower or any Pledged Corporation has not
caused or, to the knowledge of Borrower, permitted to occur any condition which
may cause a release of any Hazardous Materials in violation of any Hazardous
Materials Law on or about any Approved Property. Borrower is not aware of any
occurrence or condition on any real property adjoining or in the vicinity of
any Approved Property that could cause such Approved Property to be classified
as "border-zone property" under the provisions of California Health and Safety
Code, Sections 25220 et seq. or any related regulation, or to be otherwise
subject to any restrictions on the ownership, occupancy, transferability or use
of such Approved Property under any Hazardous Materials Laws.
4.14 Hazardous Materials Laws. Except as disclosed in the
documents set forth on Exhibit I'D" to this Agreement, none of Borrower, any
Pledged Corporation or, to the knowledge of Borrower, any other party, has been
or is involved in operations at any Approved Property which could reasonably be
expected to lead to (a) the imposition of liability on Borrower or the
applicable Pledged Corporation under any Hazardous Materials Law, or on any
subsequent or former owner of such Approved Property, or (b) the creation of a
lien on such Approved Property under any Hazardous Material Law. Neither
Borrower nor any Pledged Corporation has permitted any tenant or occupant of
any Approved Property to engage in any activity that could reasonably be
expected to impose a claim or liability under any Hazardous Material Law on
such tenant or occupant, on Borrower, any Pledged Corporation or on any other
subsequent or former owner of such Approved Property.
4.15 No Option or Other Rights. No option to purchase, right of
first refusal or similar right exists with respect to any Approved Property.
4.16 Insurance. Borrower has complied with all of the requirements
of Section 2.11 of the Deed of Trust with respect to insurance. The Approved
Properties owned by the Pledged Corporations are insured in substantial
compliance with the terms of Section 2.11 of the Deed of Trust.
4.17 Encroachments. None of the improvements located on any
Approved Property encroach upon the property of any other person nor lie
outside of the boundaries and building restriction lines of such Approved
Property and no improvement located on property adjoining such Approved
Property lies within the boundaries of or in any way encroaches upon such
Approved Property.
4.18 Independent Unit. (a) Each Approved Property is an independent
unit which does not rely on any drainage, sewer,
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access, parking, structural or other facilities located on any property not
included in such Approved Property or on public or utility easements for the
fulfillment of any zoning, building code or other requirement of any
governmental authority that has jurisdiction over such Approved Property; (b)
Borrower, directly or indirectly, has the right to use all amenities,
easements, public or private utilities, parking, access routes or other items
necessary or currently used for the operation of each Approved Property; (c)
all public utilities are available at the boundaries of each Approved Property
in sufficient quantities to support the ordinary use of such Approved Property;
and (d) each Approved Property is either (i) contiguous to or (ii) benefits
from an irrevocable unsubordinated easement permitting access from such
Approved Property to a physically open, dedicated public street, and has all
necessary permits for ingress and egress. No building or other improvement not
located on any Approved Property relies on any part of such Approved Property
to fulfill any zoning requirements, building code or other governmental or
municipal requirements for structural support or to furnish to such building or
improvement any essential building systems or utilities.
4.19 No Contractual Defaults. There are no material defaults by
Borrower or any Pledged Corporation or, to Borrower's knowledge, by any former
owner or any other person under any material contract to which Borrower or any
Pledged Corporation is a party relating to any Approved Property, including,
without limitation, any management, rental, service, supply, security,
maintenance or similar contract. None of Borrower or any Pledged Corporation
or, to Borrower's knowledge, any former owner has received notice or has any
knowledge of any existing circumstances in respect of which it could receive
any notice of default or breach in respect of any material contracts affecting
or concerning any Approved Property.
4.20 Non-Foreign Person. Section 1445 of the Internal Revenue Code
provides that a transferee of a United States real property interest must
withhold tax if the transferor is a foreign person. To inform Lender that the
withholding of tax is not required upon the disposition of a United States real
property interest by Borrower, Borrower certifies the following:
(a) Borrower is not a non-resident alien, a foreign
corporation, foreign partnership, foreign trust, or foreign estate (as those
terms are defined in the Internal Revenue Code and Income Tax Regulations);
(b) Borrower's United States taxpayer identification
number is 95-4364537; and
(c) Borrower's office address is 530 Wilshire Blvd.,
Suite 101, Santa Monica, California 90401.
Borrower understands that Lender may disclose this certification to
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the Internal Revenue Service and that any false statement contained in this
certification could be punished by fine, imprisonment, or both.
4.21 Financial Position. The financial statements and all
financial data delivered to Lender relating to Borrower, the Guarantors, the
Pledged Corporations and the Approved Properties are true, correct and complete
in all material respects. Such financial statements fairly present the
financial position of the parties or properties who are their subjects as of
the dates indicated. No material adverse change has occurred in such financial
position since the date of such financial statements, and, except for the
Loans, Borrower has incurred no indebtedness since the date of any such
statements.
4.22 Disclosure. None of Borrower's representations or warranties
contained in this Agreement or any other document, certificate or written
statement furnished to Lender by or on behalf of Borrower, any Guarantor or any
Pledged Corporation contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained in
this Agreement or in such other document, certificate or written statement
(when taken in their entirety) not misleading. There is no fact known to
Borrower which materially or adversely affects the business, operations, assets
or condition (financial or otherwise) of Borrower, any Guarantor, any Pledged
Corporation or any Approved Property which has not been disclosed in this
Agreement or in another written statement delivered to Lender by Borrower.
4.23 ERISA. Borrower has not incurred any material accumulated
funding deficiency within the meaning of ERISA, and has not incurred any
material liability to the Pension Benefit Guaranty Company ("PBGC") in
connection with any employee benefit plan subject to the provisions of ERISA or
other class of benefit that PBGC has elected to insure.
ARTICLE V
COVENANTS
While any obligation of Borrower under the Loan Documents remains
outstanding, Borrower shall comply with the following covenants.
5.1 Organization and Status of Borrower. Borrower shall, and
shall cause each of its subsidiaries to, maintain its corporate existence and
all licenses and permits relating thereto in good standing in every
jurisdiction in which the nature of its business makes qualification necessary
or where failure to qualify would have a material adverse effect on its
financial condition or the performance of its obligations under the Loan
Documents.
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5.2 Compliance with Laws. Borrower shall, and shall cause each of
its subsidiaries to, remain in compliance in all material respects with all
laws and requirements applicable to its business, including all applicable
federal and state securities laws, and obtain all authorizations, consents,
approvals, orders, licenses, exemptions from, and accomplish all filings or
registrations or qualifications with, any governmental agency that are
necessary for the transaction of its business.
5.3 Compliance with Requirements. Borrower shall, and shall cause
each Pledged Corporation to, comply with all Property Laws affecting or
relating to any Approved Property, and obtain and maintain all necessary
Permits with respect to each of the Approved Properties.
5.4 Governmental Approvals. Borrower shall deliver to Lender from
time to time at Lender's request, in form and substance satisfactory to Lender,
evidence that Borrower and each Pledged Corporation has complied with all
applicable laws, ordinances, regulations and other requirements of any
governmental agency relating to the Approved Properties, including, without
limitation, all Permits and Property Laws, and that all consents and approvals
of any governmental agency required as of the date of such request have been
regularly and finally received with respect to any Approved Property.
5.5 Books and Records. Borrower shall, and shall cause each of
its subsidiaries to, maintain full and complete books of account and other
records reflecting the results of its operations and the operations of each
Approved Property, in accordance with generally accepted accounting principles
applied on a consistent basis, and permit Lender and its agents, at all
reasonable times and from time to time, to inspect and copy any such books and
records.
5.6 Maintenance of Approved Parcels. Borrower shall, and shall
cause each Pledged Corporation to, maintain each of the Approved Properties in
good condition and repair; take precautions against the occurrence of damage
thereto; and not permit any waste with respect to any Approved Property.
5.7 Notice of Certain Matters. Borrower shall give notice to
Lender, promptly upon learning thereof, of each of the following:
(a) any litigation or claim of any kind affecting or
relating to any Approved Property and involving an amount in excess of $50,000;
and any litigation or claim of any kind that might subject Borrower to
liability in excess of $100,000, whether covered by insurance or not;
(b) any material dispute between Borrower or any Pledged
Corporation and any governmental agency relating to any Approved Property;
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(c) any threat or commencement of proceedings in
condemnation or eminent domain relating to any Approved Property;
(d) any trade name hereafter used by Borrower or any
change in Borrower's principal place of business;
(e) the occurrence of any Event of Default or Potential
Event of Default and Borrower's plans for curing same;
(f) the existence of any lien or encumbrance other than a
Permitted Encumbrance on any Approved Property;
(g) the existence of any "reportable event" as defined in
ERISA; and
(h) any other event or condition causing a material
adverse change in the financial condition of Borrower, any Guarantor or any
Pledged Corporation.
5.8 Leases. Upon Lender's request, Borrower shall promptly
deliver to Lender copies of any lease of all or any portion of any Approved
Property now or later executed.
5.9 Further Assurances. Borrower shall execute and acknowledge
(or cause to be executed and acknowledged) and deliver to Lender all documents,
and take all actions, required by Lender from time to time to confirm the
rights created or now or hereafter intended to be created under the Loan
Documents and the transactions contemplated thereunder, to maintain, protect,
perfect and further the validity, priority and enforceability of the Loan
Documents and all liens on any Approved Property or other collateral for
Borrower's obligations under the Loan Documents, to subject to the Loan
Documents any property intended by the terms of any Loan Document to be covered
by such Loan Documents.
5.10 Taxes. Borrower shall, and shall cause each of its
subsidiaries to, pay and discharge all taxes, assessments and governmental
charges or levies imposed on it, on its income or profits or on any of its
property prior to the date on which penalties attach thereto.
5.11 Net Worth. Borrower's Tangible Net Worth at December 31, 1995
shall not be less than $8,200,000. Borrower shall maintain a Tangible Net
Worth in each calendar quarter thereafter of not less than $9,500,000.
5.12 Information.
(a) Borrower shall deliver the following information to
Lender:
(i) as soon as available and in any event not later
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than 90 days following the end of each fiscal year of Borrower, a consolidated
and consolidating balance sheet of Borrower as of the end of such year and
consolidated and consolidating statements of income, shareholders' equity and
cash flow of Borrower for such year, setting forth in each case in comparative
form corresponding consolidated and consolidating figures from the preceding
fiscal year and certified in accordance with generally accepted accounting
principles by independent certified public accountants satisfactory to Lender,
together with Borrower's report to the Securities and Exchange Commission on
Form 1OK;
(ii) as soon as available and in any event within
60 days after the end of each of the first three quarters of each fiscal year
of Borrower, a consolidated and consolidating balance sheet of Borrower as of
the end of such quarter and the related consolidated and consolidating
statement of income of Borrower for such quarter and the portion of Borrower's
fiscal year ended at the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding portion of Borrower's
previous fiscal year, all certified (subject to normal year-end adjustments) as
to fairness of presentation and preparation in accordance with generally
accepted accounting principles by the chief financial officer of Borrower,
together with Borrower's report to the Securities and Exchange Commission on
Form 10Q;
(iii) simultaneously with delivery of each set of
financial statements referred to in Sections 5.12(a) (i) and (ii) above, a
certificate of the chief financial officer of Borrower stating whether there
exists on the date of such certificate any Event of Default or Potential Event
of Default, setting forth the details thereof and the action that Borrower is
taking or proposes to take with respect thereto;
(iv) as soon as available and in any event within
30 days after the end of each calendar quarter, (i) an operating statement for
each Approved Commercial Property, showing revenues, operating expenses and net
operating income for each such property for such quarter and that portion of
the calendar year ended at the end of such quarter, setting forth in
comparative form the figures for the corresponding portion of the previous
calendar year; and (ii) a rent roll for each Approved Commercial Property as of
the end of such quarter, in each case together with a certificate signed by
Borrower's chief financial officer stating that such statements and rent rolls
fairly present the information required;
(v) as soon as available and in any event within
30 days after the end of each calendar month, (A) with respect to each Approved
Residential Property in which units are being sold, a report concerning the
sales of units during such month; and (B) a report of the existence and amounts
of outstanding liens against the Approved Properties as of the end of such
month; and
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(vi) such other information concerning Borrower,
the Guarantors, the Pledged Corporations and the Approved Properties, as Lender
shall reasonably request.
(b) If Borrower fails to furnish promptly any information
or report required by Section 5.12 (a) above or any other person fails to
furnish promptly any information or report required by any other provision of
any of the Loan Documents, or if Lender reasonably determines such reports to
be unacceptable, Lender may elect (in addition to exercising any other right or
remedy it has under the Loan Documents) to make an audit of all the books and
records of Borrower, the Guarantors and the Pledged Corporations and to prepare
the information or report which Borrower failed to deliver. Such audit shall
be performed and such information or report shall be prepared by an independent
firm of certified public accountants to be selected by Lender. Borrower shall
pay all expenses of the audit and other related services.
5.13 Appraisals. Borrower, upon reasonable notice and during
regular business hours, shall make the Approved Properties it owns, and shall
cause the Pledged Corporations to make the Approved Properties owned by the
Pledged Corporations, available to Lender and Lender's agents for inspection
and appraisal from time to time. Borrower shall pay for the cost of one such
appraisal of each Approved Property annually.
5.14 Escrow. Borrower shall, and shall cause its subsidiaries and
affiliates to, exercise its good faith efforts to use Lender's escrow services
department for all sales of, or units in, its properties when such use would be
reasonably convenient to the parties to the escrow.
ARTICLE VI
EVENTS OF DEFAULT
6.1 Events of Default. The occurrence of any of the following
shall be an "Event of Default":
(a) Borrower's failure to pay when due any installment of
principal or interest under this Agreement or any other sum required to be
paid by the terms of any Loan Document;
(b) Borrower's failure to observe or perform its
obligations under Section 2.5(a) of the Deed of Trust or to maintain the
insurance required to be maintained under Section 2.11 of the Deed of Trust,
the occurrence of any "Transfer" (as defined in the Deed of Trust) in violation
of Section 2.14 of the Deed of Trust or the failure of Borrower to cooperate in
making any Approved Property available for inspections or "Tests and Studies"
(as defined in the Deed of Trust) in violation of the provisions of
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Section 2.16 of the Deed of Trust or available for appraisals in violation of
Section 5.13 above;
(c) the failure of Borrower, within 30 days following
written notice from Lender, to observe or perform any covenant or other
agreement contained in any Loan Document (other than the covenants or
agreements referred to above in Sections 6.1(a) and (b)); provided, however,
that the notice and 30-day grace period set forth above shall be applicable
only to a failure to observe or perform any covenant or other agreement which
is reasonably susceptible of being cured; provided further, that should
Borrower be unable to cure its failure within such 30-day period despite
beginning to cure such failure promptly after receipt of notice and prosecuting
such attempt diligently during such 30-day period, the cure period shall be
extended an additional 30 days so long as Borrower continues diligently to
prosecute the cure during such additional period;
(d) any written representation, warranty or financial
statement given by Borrower or any Guarantor shall have been untrue in any
material respect when given;
(e) the occurrence of a default under any of the Loan
Documents and the failure of any such default to be cured during the permitted
time, if any, for such cure;
(f) Borrower, any Guarantor or any Pledged Corporation
shall be unable or shall admit in writing its inability to pay its debts when
due, or shall make an assignment for the benefit of creditors; or any of them
shall apply for or consent to the appointment of any receiver, trustee or
similar officer for such person or for all or any substantial part of such
person's property; or any of them shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debts, dissolution, liquidation, or similar
proceedings relating to such person under the laws of any jurisdiction;
(g) if a receiver, trustee or similar officer shall be
appointed for Borrower, any Guarantor or any Pledged Corporation, or for all or
any substantial part of any such person's property without the application or
consent of such person, and such appointment shall continue undischarged for a
period of 60 days (whether or not consecutive); or any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation or
similar proceedings shall be instituted (by petition, application or otherwise)
against any such person and shall remain undismissed for a period of 60 days
(whether or not consecutive);
(h) any Approved Property or all or any material part of
the assets of Borrower, any Guarantor or any Pledged Corporation
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shall become subject to attachment, execution or judicial seizure (whether by
enforcement of money judgment, by writ or warrant of attachment, or by any
other process) in an amount greater than $25,000;
(i) Borrower or any Pledged Corporation, as applicable,
shall be in default in the payment of any indebtedness or the performance of
any other obligation secured by a lien on any Approved Property and such
default is not cured within the time, if any, specified for such a cure in any
applicable agreement; and
(j) any of the Loan Documents shall cease to be a valid,
binding and enforceable obligation of the person purported to be bound; or the
lien of the Deed of Trust or any Loan Document securing any of Borrower's
obligations shall cease to be a valid, enforceable and perfected lien on the
property it purports to encumber of the priority intended by Lender at the time
such property was encumbered; or Borrower shall assert such cessation or
failure in writing.
7.2 Remedies upon Default. Upon the occurrence of any Event of
Default, Lender may, at its option, do any of the following:
(a) terminate its obligation to make any Loans;
(b) declare the principal of all amounts owing under the
Loan Documents, together with all accrued interest thereon and all other
amounts owing in connection therewith, to be immediately due and payable,
regardless of any other specified maturity or due date, without notice of
default, presentment or demand for payment, notice or demand of any kind, and
without the necessity of prior recourse to any security; provided, that any
Event of Default with respect to Borrower described in Sections 7.1(f) or (g)
shall automatically, without declaration or other action on Lender's part,
cause all such amounts to be immediately due and payable without notice or
demand;
(c) if the Event of Default may be cured by the payment
of money, Lender may (but shall not be obligated) to make such payment from its
own funds; provided, that the making of such payment by Lender shall not be
deemed to cure such Event of Default, and that the same shall not be cured
unless and until Borrower reimburses Lender for such payment. If Lender
advances its own funds for such purposes, the funds advanced shall be
considered advances under the Note and shall be secured by the applicable Loan
Documents, notwithstanding that such advances may cause the total amount
advanced under this Agreement to exceed the aggregate face amount of the Note
or the amount committed to be advanced pursuant to this Agreement; and
(d) exercise any of its rights under the Loan Documents,
including the right to foreclose on any security, and exercise any
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other rights with respect to any security, whether under the Loan Documents or
as provided by law, all in such order and in such manner as Lender in its sole
discretion may determine.
7.3 Cumulative Remedies; No Waiver. Lender's remedies under the
Loan Documents are cumulative and shall be in addition to all rights and
remedies provided by law or in equity from time to time. The exercise by
Lender of any right or remedy shall not constitute a cure or waiver of any
default, nor invalidate any notice of default or any act done pursuant to any
such notice, nor prejudice Lender in the exercise of any other right or remedy.
No waiver by Lender of any default shall be implied from any omission by Lender
to take action on account of such default if such default persists or is
repeated. No express waiver by Lender of any default shall affect any default
other than the default expressly waived, and any such express waiver shall be
operative only for the time and to the extent of any Loan Document shall be
construed as a waiver of any subsequent breach of the same covenant, term or
condition. Lender's consent to or approval of any act by Borrower requiring
further consent or approval shall not be deemed to waive or render unnecessary
Lender's consent to or approval of any subsequent act.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices. Any notice, demand or request required under this
Agreement shall be given in writing at the addresses set forth below by
personal service; telecopy; overnight courier; or registered or certified,
first class mail, return receipt requested.
If to Borrower:
Kennedy-Wilson, Inc.
530 Wilshire Blvd., Suite 101
Santa Monica, California 90401
Attention: William J. McMorrow
Fax No.: (310) 314-8514
If to Lender:
East-West Bank
415 Huntington Drive
San Marino, California 91108
Attention: Donald Chow or Kathleen Kwan
Fax No.: (818) 441-3035
Such addresses may be changed by notice to the other parties given in the same
manner as required above. Any notice, demand or request shall be deemed
received as follows: (i) if sent by personal service, at the time such personal
service is effected;
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(ii) if sent by telecopy, upon the sender's receipt of a confirmation
report generated by the sender's telecopier indicating receipt by the
recipient's telecopier; (iii) if sent by overnight courier, on the business day
immediately following deposit with the overnight courier; and (iv) if sent by
mail, 48 hours following deposit in the mail.
8.2 Governing Law. All questions with respect to the construction
of this Agreement and the rights and liabilities of the parties to this
Agreement shall be governed by the laws of the State of California.
8.3 Binding on Successors. This Agreement shall inure to the
benefit of, and shall be binding upon, the successors and assigns of each of
the parties to this Agreement.
8.4 Attorneys' Fees.
(a) Borrower shall reimburse Lender for all reasonable
attorneys' fees, costs and expenses, incurred by Lender in connection with the
enforcement of Lender's rights under this Agreement and each of the other Loan
Documents, including, without limitation, reasonable attorneys' fees, costs and
expenses for trial, appellate proceedings, out-of-court negotiations, workouts
and settlements or for enforcement of rights under any state or federal
statute, including, without limitation, reasonable attorneys' fees, costs and
expenses incurred to protect Lender's security and attorneys' fees, costs and
expenses incurred in bankruptcy and insolvency proceedings such as (but not
limited to) seeking relief from stay in a bankruptcy proceeding. The term
"expenses" means any expenses incurred by Lender in connection with any of the
out-of-court, or state, federal or bankruptcy proceedings referred to above,
including, without limitation, the fees and expenses of any appraisers,
consultants and expert witnesses retained or consulted by Lender in connection
with any such proceeding.
(b) Lender shall also be entitled to its attorneys' fees,
costs and expenses incurred in any post-judgment proceedings to collect and
enforce the judgment. This provision is separate and several and shall survive
the merger of this Agreement into any judgment on this Agreement.
8.5 Counterparts. This Agreement may be executed in any number of
original counterparts, each of which shall be deemed an original, but all of
which when taken together shall constitute one instrument. The original
signature page of any counterpart may be detached from such counterpart and
attached to any other counterpart identical to such counterpart (except having
additional signature pages executed by other parties to this Agreement) without
impairing the legal effect of any such signature(s).
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8.6 Entire Agreement. This Agreement and the other Loan Documents
constitute the entire agreement and understanding between the parties in
respect of the subject matter of this Agreement and supersede all prior
agreements and understandings with respect to such subject matter, whether oral
or written.
8.7 Waivers. Waiver by Lender of any term, covenant or condition
under this Agreement or the Loan Documents, or of any default by Borrower under
this Agreement or the Loan Documents, or any failure by Lender to insist upon
strict performance by Borrower of any term, covenant or condition contained in
this Agreement or the Loan Documents, shall be effective or binding on Lender
only if made in writing by Lender; no such wavier shall be implied from any
omission by Lender to take action with respect to any such term, covenant,
condition or default. No express written waiver by Lender of any term,
covenant, condition or default shall affect any other term, covenant, condition
or default or cover any other time period than the application of any such
term, covenant or condition to the matter as to which a waiver has been given
or the default or time period specified in such express waiver. This Agreement
may be amended only by an instrument in writing signed by the parties to this
Agreement.
8.8 Severability. If any part of this Agreement is declared
invalid for any reason, such shall not affect the validity of the rest of the
Agreement. The other parts of this Agreement shall remain in effect as if this
Agreement had been executed without the invalid part. The parties declare that
they intend and desire that the remaining parts of this Agreement continue to
be effective without any part or parts that have been declared invalid.
8.9 Relationship; Indemnity; No Third Parties Beneficiaries.
(a) The relationship of Borrower and Lender under the
Loan Documents is, and shall at all times remain, solely that of borrower and
lender; and Lender neither undertakes nor assumes any responsibility or duty to
Borrower or to any third party with respect to any Approved Property.
Notwithstanding any other provision of the Loan Documents: (i) Lender is not,
and shall not be construed as, a partner, joint venturer, alter-ego, manager,
controlling person or other business associate or participant of any kind of
Borrower and Lender does not intend ever to assume such status; (ii) Lender's
activities in connection with the Loan Documents shall not be "outside the
scope of the activities of a lender of money" within the meaning of California
Civil Code Section 3434, as amended or recodified from time to time, and
Lender does not intend ever to assume any responsibility to any person for the
quality, suitability, safety or condition of any Approved Property; and (iii)
Lender shall not be deemed responsible for or a participant in any acts,
omissions or decisions of Borrower. Lender shall not be directly or indirectly
liable or responsible for any loss, claim, cause of action, liability,
indebtedness, damage or
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injury of any kind or character to any person or property arising from the
occupancy or use of, any Approved Property, whether caused by or arising from:
(i) any defect in any building, structure, grading, fill, landscaping or other
improvements on any Approved Property or in any on-site or off-site
improvement or other facility therein or thereon; (ii) any act or omission of
Borrower or any of Borrower's agents, employees, independent contractors,
licensees or invitees; (iii) any accident on or about any Approved Property or
any f ire, flood or other casualty or hazard thereon unless such event shall
occur after Lender has completed a foreclosure on an Approved Property and
neither Borrower nor any affiliate of Borrower is the then owner, either legal
or beneficial, of such Approved Property and no act or omission of Borrower
shall in any way be related to such event; (iv) the failure of Borrower, any of
Borrower's licensees, employees, invitees, agents, independent contractors or
other representatives to maintain any Approved Property in a safe condition;
and (v) any nuisance made or suffered on any part of any Approved Property
unless such event shall occur after Lender has completed a foreclosure on such
Approved Property and neither Borrower nor any affiliate of Borrower is the
then owner, either legal or beneficial, of such Approved Property and no act or
omission of Borrower shall in any way be related to such event.
(b) Borrower indemnifies and agrees to hold Lender
harmless from any damages resulting from any construction of the relationship
of the parties to this Agreement other than as set forth above due to the
actions, admissions or statements of Borrower. Lender is under no obligation
to supervise, inspect or inform Borrower or any third party of any aspect of
the work of construction or any other matter referred to in this Agreement.
Any inspection or review made by Lender is made for the purpose of determining
whether or not the obligations of Borrower under this Agreement are being
properly discharged; and neither Borrower nor any third party shall be entitled
to rely upon any such inspection or review.
(c) This Agreement is made and entered into for the sole
protection and benefit of Lender and Borrower. All conditions of the
obligations of Lender to make advances under this Agreement are imposed solely
and exclusively for the benefit of Lender and may be freely modified by Lender
with the concurrence of Borrower or waived by Lender in whole or in part at any
time if in its sole discretion it deems it advisable to do so. No person other
than Borrower shall have standing to require Lender to make any Loan advances
or to be a beneficiary of this Agreement or of any of the advances to be made
under this Agreement.
8.10 Expenses. Borrower shall pay promptly all costs, charges, and
expenses incurred by Lender in connection with the Loan, including, without
limitation, commitment fees, loan fees, service charges, title charges, tax and
lien service charges, costs
31
<PAGE> 32
of inspection, costs of consulting engineers, recording fees, processing fees,
appraisal fees, attorneys' fees, real property taxes and assessments and
insurance premiums, and any fees in consideration of Lender's commitment to
provide the Loan.
EAST-WEST BANK, a California banking
corporation
By: /s/DONALD CHOW
--------------------------------
Donald Chow, Senior Vice
President
KENNEDY-WILSON, INC., a Delaware
corporation
BY: /s/WILLIAM J. MCMORROW
--------------------------------
William J. McMorrow, President
32
<PAGE> 33
SCHEDULE OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Initial Deed of Trust and Initial Stock Pledge Properties
Exhibit B Form of Loan Request
Exhibit C Unit Repayment Amounts for Initial Stock Pledge Properties
Exhibit D List of Documents Disclosing Soil Contamination at 2730 Wilshire Blvd.
</TABLE>
<PAGE> 34
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT is entered into as of April
24, 1996 by KENNEDY-WILSON, INC. , a Delaware corporation ("Borrower") , and
EAST-WEST BANK, a California banking corporation ("Lender").
RECITALS
A. Borrower and Lender entered into the Loan Agreement dated as
of March 12, 1996 (the "Loan Agreement") in which Lender agreed to make a loan
to Borrower of up to $6, 000, 000. The Loan Agreement was amended by a letter
agreement between Borrower and Lender dated March 29, 1996.
B. Borrower and Lender desire to amend the Loan Agreement
further.
AGREEMENT
1. Amendment. The Loan Agreement is amended by deleting the
"and" at the end of Section 7. 1 (i) , replacing the period at the end of
Section 7.1(j) with "; and" and adding the following as Section 7.1(k):
(k) an "Event of Default" (as defined in the Deed of Trust dated
as of April 24, 1996 between Borrower and Lender) shall have occurred
and be continuing.
2. Full Force. Other than as set forth above, all provisions of
the Loan Agreement remain unmodified and in full force and effect.
EAST-WEST BANK, a California banking
corporation
By: /s/DONALD CHOW
-------------------------------------
Donald Chow, Senior Vice
President
KENNEDY-WILSON, INC., a Delaware
corporation
By: /s/WILLIAM J. MCMORROW
--------------------------------------
William J. McMorrow, President
<PAGE> 35
THIRD AMENDMENT TO LOAN DOCUMENTS
AND CONFIRMATION OF GUARANTY
THIS THIRD AMENDMENT TO LOAN DOCUMENTS is entered into as of October
___, 1996 by KENNEDY-WILSON, INC., a Delaware corporation ("Borrower"),
KENNEDY-WILSON INTERNATIONAL, a California corporation ("KWI") , K-W
PROPERTIES, a California corporation ("KWP," and together with KWI, the
"Guarantors") , and EAST-WEST BANK, a California banking corporation
("Lender").
RECITALS
A. Borrower and Lender entered into a Loan Agreement dated as of
March 12, 1996 in which Lender agreed to provide a credit facility in the
amount of $6,000,000 to Borrower for working capital and acquisition purposes
(as modified as provided in the next sentence, the "Loan Agreement") . The Loan
Agreement was amended by the letter agreement between Borrower and Lender dated
March 29, 1996, and the Second Amendment to Loan Agreement dated April 24, 1996
between Borrower and Lender. All terms used in this Amendment without being
defined are have the meanings given them in the Loan Agreement.
B. The Loans are evidenced by the Note. The performance of
Borrower's obligations under the Loan Agreement and Note is secured by the Deed
of Trust which was recorded on March 27, 1996 as Instrument No. 96-480603 in
the Official Records of Los Angeles County. The Deed of Trust currently
encumbers three properties located in Los Angeles County.
C. Borrower and Lender desire to enter into this Amendment to
increase the amount of Loans available to Borrower under the Loan Documents and
to make other modifications to the Loan Documents, all on the terms and
conditions set forth in this Amendment.
AMENDMENT
1. Amendment to Loan Agreement. The Loan Agreement is amended as
follows:
(a) On the effective date of this Amendment, Lender shall
release the lien of the Stock Pledge Agreement on all "Collateral" (as defined
in the Stock Pledge Agreement) , Lender shall no longer accept stock in Pledged
Corporations as collateral security for the Loans and the Borrowing Base shall
include only collateral encumbered pursuant to the Deed of Trust. Accordingly,
the terms "Initial Stock Pledge Properties," "Pledged Corporation" and "Stock
Pledge Agreement" are deleted from the Loan Agreement.
(b) The definition of "Borrowing Base" is deleted and
restated as follows:
<PAGE> 36
"Borrowing Base" means the positive difference between (a) 85%
of the value of each Approved Property as determined by Lender's most
recent appraisal made in accordance with Section 5.13 and (b) the
aggregate amount of monetary liens encumbering such Approved Property
(but not including any lien in favor of Lender) ; provided, however,
that the amount which may be included in the Borrowing Base with
respect to an Approved Property which was acquired with the proceeds
of a Loan but which became an Approved Property subsequent to such
acquisition, shall be limited to the positive difference between (a)
85% of the value of the Approved Property as determined by Lender's
most recent appraisal made in accordance with Section 5.13 and (b) the
sum of (A) the aggregate amount of monetary liens encumbering such
Approved Property (but not including any lien in favor of Lender) and
(B) the amount of the Loan outstanding which was made to acquire such
Approved Property.
(c) The amount "$6,000,000" stated in clause (a) of
Section 2.1, Section 2.3(d) (i) and in Section 2.7(c) shall be "$8,000,000" and
the amount "$5,000,000" stated in the third sentence of Section 2.1 and in
Section 2.3(d) (iii) shall be "$7,000,000."
(d) The third sentence of Section 2.1 is deleted and
restated as follows: "An amount of the Loans not greater than $7,000,000 may be
used only for the acquisition of interests in real property by Borrower or an
affiliate of Borrower or for such other purposes as Lender shall approve at the
time of making a Loan (the 'Acquisition Facility')."
(e) A subsection (C) shall be added to Section 2.3(a)
(ii) as follows: "with respect to any Loan not included within subsections 2.3
(a) (ii) (A) or (B) above, at such time as Lender shall specify at the time of
making the Loan."
2. Amendment to Note. The principal amount of the Note is
$8,000,000.
3. Confirmation of Guaranty. Guarantors acknowledge that they
have reviewed the Loan Documents, as amended by this Amendment and the
Amendment to Deed of Trust of this date between Borrower and Lender and they
are aware that the amount available to be borrowed by Borrower under the Loan
Agreement is being increased from $6,000,000 to $8,000,000. Guarantors agree
to guaranty the increased amount in accordance with the terms of the Guaranty,
that the waivers, acknowledgements and other agreements are applicable to such
increased amount and that the Guaranty remains in full force and effect,
enforceable against Guarantors in accordance with its terms.
4. Full Force and Effect. Borrower represents that it has no
rights of setoff relating to or defenses against payment of the
<PAGE> 37
Loans in accordance with the terms of the Loan Agreement and, except as
provided in this Amendment, the Loan Documents remain unmodified and in full
force and effect.
5. Entire Agreement. This Amendment constitutes the entire
agreement and understanding among the parties with respect to the subject
matter of such amendment and supersedes all prior agreements and understandings
with respect to such subject matter, whether oral or written.
EAST-WEST BANK, a California banking
corporation
By: /s/DONALD CHOW
-------------------------------------------
Donald Chow, Senior Vice
President
KENNEDY-WILSON, INC., a Delaware
corporation
By: /s/WILLIAM J. MCMORROW
-------------------------------------------
William J. McMorrow, President
KENNEDY-WILSON INTERNATIONAL, a
California corporation
By: /s/WILLIAM J. MCMORROW
-------------------------------------------
William J. McMorrow
President
K-W PROPERTIES, a California
corporation
By: /s/WILLIAM J. MCMORROW
-------------------------------------------
William J. McMorrow
Vice President
<PAGE> 38
FOURTH AMENDMENT TO LOAN DOCUMENTS
AND CONFIRMATION OF GUARANTY
THIS FOURTH AMENDMENT TO LOAN DOCUMENTS is entered into as of November
___, 1996 by KENNEDY-WILSON, INC., a Delaware corporation ("Borrower"),
KENNEDY-WILSON INTERNATIONAL, a California corporation ("KWI"), K-W PROPERTIES,
a California corporation ("KWP," and together with KWI, the "Guarantors"), and
EAST-WEST BANK, a California banking corporation ("Lender").
RECITALS
A. Borrower and Lender entered into a Loan Agreement dated as of
March 12, 1996 in which Lender agreed to provide a credit facility in the
amount of $6,000,000 to Borrower for working capital and acquisition purposes
(as modified as provided in the next sentence, the "Loan Agreement"). The Loan
Agreement was amended by the letter agreement between Borrower and Lender dated
March 29, 1996, the Second Amendment to Loan Agreement dated April 24, 1996
between Borrower and Lender and the Third Amendment to Loan Documents and
Confirmation of Guaranty dated as of October ___, 1996. All terms used in this
Amendment without being defined have the meanings given them in the Loan
Agreement.
B. The Loans are evidenced by the Note. The performance of
Borrower's obligations under the Loan Agreement and Note is secured by the Deed
of Trust, which was recorded on March 27, 1996 as Instrument No. 96-480603 in
the Official Records of Los Angeles County. The Deed of Trust currently
encumbers three properties located in Los Angeles County.
C. Borrower and Lender desire to enter into this Amendment to
increase the amount of Loans available to Borrower under the Loan Documents and
to make other modifications to the Loan Documents, all on the terms and
conditions set forth in this Amendment.
AMENDMENT
1. Amendment to Loan Agreement. The Loan Agreement is amended as
follows:
(a) The amount "$8,000,000" stated in clause (a) of
Section 2.1, Section 2.3(d)(i) and in Section 2.7(c) shall be "$8,500,000" and
the amount "$7,000,000" stated in the third sentence of Section 2.1 and in
Section 2.3(d)(iii) shall be "$7,500,000."
(b) The third sentence of Section 2.1 is deleted and
restated as follows: "An amount of the Loans not greater than $7,500,000 may be
used only for the acquisition of interests in real property by Borrower or an
affiliate of Borrower or for such
-1-
<PAGE> 39
other purposes as Lender shall approve at the time of making a Loan (the
'Acquisition Facility')."
2. Amendment to Note. The principal amount of the Note is
$8,500,000.
3. Confirmation of Guaranty. Guarantors acknowledge that they
have reviewed the Loan Documents, as amended by this Amendment and the
Amendment to Deed of Trust of this date between Borrower and Lender and they
are aware that the amount available to be borrowed by Borrower under the Loan
Agreement is being increased from $8,000,000 to $8,500,000. Guarantors agree
to guaranty the increased amount in accordance with the terms of the Guaranty,
that the waivers, acknowledgements and other agreements are applicable to such
increased amount and that the Guaranty remains in full force and effect,
enforceable against Guarantors in accordance with its terms.
4. Negative Pledge. Borrower acknowledges that the aggregate
amount of Loans currently outstanding exceeds the Borrowing Base and that
Lender is in the process of taking a lien on property located in Hawaii owned
by Borrower's affiliate, Vista Waikoloa Group (the "Hawaii Property"), as well
as two office properties located at 1131 Wilshire Blvd. and 1304 15th Street in
Santa Monica (the Hawaii Property and such office properties, collectively, the
"Property"). Borrower agrees, except in the ordinary course of selling units
in the Vista Waikoloa Property, not to transfer, sell, encumber, lease, pledge,
mortgage or permit a lien to exist on any of the Property. Borrower further
agrees on November 30, 1996 to repay the Loans in accordance with Section
2.3(d)(i) of the Loan Agreement if on such date the aggregate amount of Loans
outstanding exceeds the Borrowing Base.
5. Other Amendments. All of the other Loan Documents are
modified as necessary to reflect the modifications to the Loan Agreement and
Note. All references in any of the Loan Documents to "Loan Agreement," "Note,"
or otherwise shall be to the Note and Loan Agreement as modified hereby,
including to the Loan Agreement and Note in their increased principal amount.
6. Full Force and Effect. Borrower represents that it has no
rights of setoff relating to or defenses against payment of the Loans in
accordance with the terms of the Loan Agreement and, except as provided in this
Amendment, the Loan Documents remain unmodified and in full force and effect.
7. Entire Agreement. This Amendment constitutes the entire
agreement and understanding among the parties with respect to the subject
matter of such amendment and supersedes all prior
-2-
<PAGE> 40
agreements and understandings with respect to such subject matter, whether oral
or written.
EAST-WEST BANK, a California banking
corporation
By: /s/DONALD CHOW
-------------------------------------------
Donald Chow, Senior Vice
President
KENNEDY-WILSON, INC., a Delaware
corporation
By: /s/WILLIAM J. MCMORROW
-------------------------------------------
William J. McMorrow, President
KENNEDY-WILSON INTERNATIONAL, a
California corporation
By: /s/WILLIAM J. MCMORROW
-------------------------------------------
William J. McMorrow, President
K-W PROPERTIES, a California
corporation
By: /s/William J. McMorrow
--------------------------------------------
William J. McMorrow
Vice President
-3-
<PAGE> 41
FIFTH AMENDMENT TO LOAN DOCUMENTS
AND CONFIRMATION OF GUARANTY
THIS FIFTH AMENDMENT TO LOAN DOCUMENTS is entered into as of January
30, 1997 by KENNEDY-WILSON, INC., a Delaware corporation ("Borrower"),
KENNEDY-WILSON INTERNATIONAL, a California corporation ("KWI"), K-W PROPERTIES,
a California corporation ("KWP," and together with KWI, the "Guarantors"), and
EAST-WEST BANK, a California banking corporation ("Lender").
RECITALS
A. Borrower and Lender entered into a Loan Agreement dated as of
March 12, 1996 in which Lender agreed to provide a credit facility in the
amount of $6,000,000 to Borrower for working capital and acquisition purposes
(as modified as provided in the next sentence, the "Loan Agreement"). The Loan
Agreement was amended by the letter agreement between Borrower and Lender dated
March 29, 1996, the Second Amendment to Loan Agreement dated April 24, 1996
between Borrower and Lender, the Third Amendment to Loan Documents and
Confirmation of Guaranty dated as of October 1, 1996 and the Fourth Amendment
to Loan Documents and Confirmation of Guaranty dated as of November 5, 1996.
All terms used in this Amendment without being defined have the meanings given
them in the Loan Agreement.
B. The Loans are evidenced by the Note. The performance of
Borrower's obligations under the Loan Agreement and Note is secured by the Deed
of Trust, which was recorded on March 27, 1996 as Instrument No. 96-480603 in
the Official Records of Los Angeles County. The Deed of Trust currently
encumbers two properties located in Los Angeles County.
C. Borrower and Lender desire to enter into this Amendment to
increase the amount of Loans available to Borrower under the Loan Documents and
to make other modifications to the Loan Documents, all on the terms and
conditions set forth in this Amendment.
AMENDMENT
1. Amendment to Loan Agreement. The aggregate amount of credit
available under the Loan Agreement and Note shall increase from the present
$8,500,000 to $10,000,000 as follows: the amount of the Working Capital
Facility shall increase from its present $1,000,000 to $2,000,000 and shall be
an unsecured loan such that the Borrowing Base shall have no relevance to the
amount of the Working Capital Facility available to the Borrower; and the
Acquisition Facility shall be increased from its present $7,500,000 to
$8,000,000. The availability of the Acquisition Facility shall continue to be
subject to the amount of the Borrowing Base and all of the other existing terms
of the Loan
-1-
<PAGE> 42
Agreement, as amended below. In furtherance of the foregoing, the Loan
Agreement is specifically amended as follows:
(a) The first four sentences of Section 2.1 are deleted
and restated as follows:
"Lender agrees, on the terms and conditions set forth in this
Agreement, to make Loans available to Borrower from the date of this
Agreement to the Commitment Termination Date and to maintain any such
Loans outstanding on the Commitment Termination Date until they are
required to be repaid pursuant to Section 2.3 below. The aggregate
amount of Loans outstanding at any time shall not exceed $10,000,000.
An amount of the Loans not greater than $2,000,000 may be used only
for the working capital needs of K-W International (the 'Working
Capital Facility'). An amount of the Loans not greater than the
lesser of (a) $8,000,000 and (b) the Borrowing Base may be used only
for the acquisition of interests in real property by Borrower or an
affiliate of Borrower (the 'Acquisition Facility')."
(b) Section 2.3(d) is deleted and restated as follows:
"If at any time (i) the aggregate principal amount of all Loans
outstanding exceeds the amount of $10,000,000, (ii) the aggregate
amount of Loans outstanding under the Working Capital Facility exceeds
$2,000,000, or (iii) the aggregate amount of Loans outstanding under
the Acquisition Facility exceeds the lesser of $8,000,000 and the
Borrowing Base, then Borrower shall immediately prepay the Loans
(together with all interest accrued on the amount prepaid) in the
amount of such excess."
(c) Section 2.7(c) is deleted and restated as follows:
"Lender is satisfied that the aggregate amount of Loans outstanding
under the Acquisition Facility immediately following the proposed
release and any accompanying payment will not be greater than the
lesser of (i) $8,000,000 and (ii) the amount of the Borrowing Base;
and"
-2-
<PAGE> 43
(d) The provisions of Article III shall continue to apply
to Borrower's application for a Loan and Lender's disbursement of such a Loan
from the Acquisition Facility. Lender will make a Loan under the Working
Capital Facility within three business days of Borrower's delivery of a written
request for such Loan and a certification that upon Lender's making such Loan
(i) no more than $2,000,000 will be outstanding under the Working Capital
Facility and (ii) no Potential Event of Default or Event of Default has
occurred and is continuing or would occur by reason of Lender's making such
Loan. Section 3.6 will remain applicable to all Loans made under bot the
Working Capital Facility and the Acquisition Facility.
(e) The following is added as Section 5.15:
"Borrower shall not, and shall not permit its subsidiaries to, create,
incur or suffer to exist any unsecured 'Indebtedness' (as defined
below) other than amounts owing to Lender under the Working Capital
Facility. 'Indebtedness' means (a) all indebtedness for borrowed
money or for the deferred purchase price of property or services, and
(b) all obligations of Borrower or any of its subsidiaries directly or
indirectly to guarantee any unsecured Indebtedness, invest in any
person or entity for the purpose of assuring the payment of any
unsecured Indebtedness of that person or otherwise assure a creditor
of the payment of any unsecured Indebtedness of any person or entity."
2. Amendment to Note.
(a) The principal amount of the Note is $10,000,000.
(b) The first sentence of Section 2 of the Note is
deleted and restated as follows:
"Repayment of that portion of this Note which evidences 'Loans'
outstanding under the 'Acquisition Facility' (as both are defined in
the Loan Agreement) is secured by a Deed of Trust, Security Agreement,
Assignement of Leases and Rents and Fixture Filing (the 'Deed of
Trust') of this date executed by Maker for the benefit of Payee
encumbering certain real property, and by other security evidenced by
agreements, financing statements, instruments and documents executed
concurrently with this Note or from
-3-
<PAGE> 44
time to time after this date executed and
delivered by or on behalf of Maker to Payee."
3. Working Capital Facility Cleanup. Borrower acknowledges that
Section 2.8(g) of the Loan Agreement provides that one of the conditions to
Lender's agreement to extend the term of the Working Capital Facility, which
matures on June 1, 1997, is that before the Extension Date all Loans made under
the Working Capital Facility shall have been repaid and no amounts shall be
outstanding under the Working Capital Facility for a period of not less than 30
consecutive days.
4. Confirmation of Guaranty. Guarantors acknowledge that they
have reviewed and consent to the terms of the Loan Documents, as amended by
this Amendment and the Third Modification of Deed of Trust and Loan Documents
of this date between Borrower and Lender and they are aware that the amount
available to be borrowed by Borrower under the Loan Agreement is being
increased to $10,000,000. Guarantors agree to guaranty the increased amount in
accordance with the terms of the Guaranty, that the waivers, acknowledgements
and other agreements are applicable to such increased amount and that the
Guaranty remains in full force and effect, enforceable against Guarantors in
accordance with its terms.
5. Other Amendments. All of the other Loan Documents are
modified as necessary to reflect the modifications to the Loan Agreement and
Note. All references in any of the Loan Documents to "Loan Agreement," "Note,"
or otherwise shall be to the Note and Loan Agreement as modified hereby,
including to the Loan Agreement and Note in their increased principal amount.
6. Full Force and Effect. Borrower represents that it has no
rights of setoff relating to or defenses against payment of the Loans in
accordance with the terms of the Loan Agreement and, except as provided in this
Amendment, the Loan Documents remain unmodified and in full force and effect.
7. Entire Agreement. This Amendment constitutes the entire
agreement and understanding among the parties with respect to the subject
matter of such amendment and supersedes all prior agreements and understandings
with respect to such subject matter, whether oral or written.
8. Loan Fee and Expenses. In consideration of the increased
amount of credit made available under the Loan Agreement by Lender and Lender's
modification of the Loan Documents by this Amendment, Borrower shall pay to
Lender a loan and modification fee in the amount of $10,000. Such fee has been
earned in full by Lender, shall not be applied to the principal amount of any
Loans outstanding and is nonrefundable. Borrower further agrees, on Lender's
demand, to pay all costs and expenses incurred by Lender in connection with
this Amendment and the investigation and approval of any assets proposed by
Borrower to
-4-
<PAGE> 45
be Approved Properties, whether or not Lender grants such approval, including
without limitation, the fees and related costs of Lender's legal counsel, the
cost of obtaining increased amounts of title insurance and any endorsements to
the Title Policies necessitated or deemed desirable by Lender in connection
with this Amendment or Lender's acceptance of any additional Approved
Properties and all appraisal, title, recording, inspection, engineering and
related costs. Borrower authorizes Lender, if Lender so elects, to pay the
amount of such fee and such costs to itself by making a Loan under the Loan
Agreement for such amounts.
EAST-WEST BANK, a California banking
corporation
By: /s/DONALD CHOW, SENIOR VICE
----------------------------------------------
Donald Chow, Senior Vice
President
KENNEDY-WILSON, INC., a Delaware
corporation
By: /s/WILLIAM J. MCMORROW
----------------------------------------------
William J. McMorrow, President
KENNEDY-WILSON INTERNATIONAL, a
California corporation
By: /s/WILLIAM J. MCMORROW
----------------------------------------------
William J. McMorrow, President
K-W PROPERTIES, a California
corporation
By: /s/WILLIAM J. MCMORROW
----------------------------------------------
William J. McMorrow
Vice President
-5-
<PAGE> 46
SIXTH AMENDMENT TO LOAN DOCUMENTS
AND CONFIRMATION OF GUARANTY
THIS SIXTH AMENDMENT TO LOAN DOCUMENTS AND CONFIRMATION OF GUARANTY is
entered into as of February 3, 1997 by KENNEDY-WILSON, INC., a Delaware
corporation ("Borrower"), KENNEDY-WILSON INTERNATIONAL, a California
corporation ("KWI"), K-W PROPERTIES, a California corporation ("KWP"), and
WESTBOROUGH COURT GROUP, INC., a California corporation ("WCG," and together
with KWI and KWP, the "Guarantors"), and EAST-WEST BANK, a California banking
corporation ("Lender").
RECITALS
A. Borrower and Lender entered into a Loan Agreement dated as of
March 12, 1996 in which Lender agreed to provide a credit facility in the
amount of $6,000,000 to Borrower for working capital and acquisition purposes
(as modified as provided in the next sentence, the "Loan Agreement"). The Loan
Agreement was amended by the letter agreement between Borrower and Lender dated
March 29, 1996, the Second Amendment to Loan Agreement dated April 24, 1996
between Borrower and Lender, the Third Amendment to Loan Documents and
Confirmation of Guaranty dated as of October 1, 1996, the Fourth Amendment to
Loan Documents and Confirmation of Guaranty dated as of November 5, 1996 and
the Fifth Amendment to Loan Documents and Confirmation of Guaranty dated as of
January 30, 1997. All terms used in this Amendment without being defined have
the meanings given them in the Loan Agreement.
B. The Loans are evidenced by the Note. The performance of
Borrower's obligations under the Loan Agreement and Note is secured by the Deed
of Trust, which was recorded on March 27, 1996 as Instrument No. 96-480603 in
the Official Records of Los Angeles County. The Deed of Trust currently
encumbers two properties located in Los Angeles County.
C. Borrower and Lender desire to enter into this Amendment to
modify certain terms of the Loan Agreement.
AMENDMENT
1. Calculation of Borrowing Base. Lender may, from time to time
in its absolute discretion, agree to include in the Borrowing Base collateral
security other than Approved Properties. The terms upon which Lender accepts
such collateral security and the amount which it contributes to the Borrowing
Base shall be subject to agreement between Lender and Borrower at the time such
collateral security is accepted by Lender. As of the date of this Sixth
Amendment, Lender is accepting the following collateral security upon the
following terms:
-1-
<PAGE> 47
(a) Concurrently with Borrower's execution and delivery
of this Amendment, KWP is executing and delivering a Stock Pledge Agreement to
pledge all of the issued and outstanding stock of Wilshire & 7th Properties,
Inc. ("W7PI"), Monarch Investors, Inc. ("MII") and K- W Hilltop, Inc. ("KWHI").
Also concurrently, W7PI is executing and delivering a Security Agreement
encumbering its limited liability company interest in Downtown Properties, LLC;
MII is executing and delivering a Security Agreement encumbering its limited
liability company interest in Ski Monarch, LLC; and KWHI is executing and
delivering a Security Agreement encumbering its limited liability company
interest in Hilltop Colony, LLC. For each limited liability company referred
to above, these security interests shall contribute to the Borrowing Base the
amount which is the product of (i) the percentage interest in such limited
liability company of the corporate member granting a security interest in such
limited liability company times (ii) 50% of the positive amount, if any,
derived by subtracting the liabilities of each such limited liability company
from the appraised value of the real property assets owned by such limited
liability company as determined by Lender from time to time.
(b) Also concurrently with Borrower's execution and
delivery of this Amendment, Vista Waikoloa Group, Inc. ("VWGI") is executing
and delivering a Security Agreement encumbering its right to receive certain
proceeds. Such security interest shall contribute to the Borrowing Base 85% of
the positive amount, if any, derived by subtracting the liabilities of VWGI
from the appraised value of the real property assets owned by VWGI as
determined by Lender from time to time.
(c) WCGI has executed and delivered a security Agreement
granting to Lender a security interest in a secured promissory note. Such
security interest shall contribute to the Borrowing Base 50% of the principal
amount of such promissory note outstanding from time to time.
2. Unsecured Debt. Borrower acknowledges that the amounts
outstanding under the Note which represent Loans under the Working Capital
Facility are unsecured debt of Borrower and, notwithstanding the Note's
evidencing both secured and unsecured debt, the enforcement of such unsecured
debt is not subject to the restrictions of California's antideficiency or
one-action laws, including, without limitation, Code of Civil Procedure
Sections 580a, 580b, 580d or 726.
3. Confirmation of Guaranty. Guarantors acknowledge that they
have reviewed and consent to the terms of the Loan Documents, as amended by all
amendments thereto, including as amended by this Sixth Amendment, and they are
aware that the amount available to be borrowed by Borrower under the Loan
Agreement has been increased to $10,000,000. Guarantors agree to guaranty the
increased amount in accordance with the terms of the Guaranty, that the
waivers, acknowledgements and other agreements
-2-
<PAGE> 48
are applicable to such increased amount and that the Guaranty remains in full
force and effect, enforceable against Guarantors in accordance with its terms.
4. Other Amendments. All of the other Loan Documents are
modified as necessary to reflect the modifications to the Loan Agreement. All
references in any of the Loan Documents to "Loan Agreement" shall be to the
Loan Agreement as modified hereby.
5. Full Force and Effect. Borrower represents that it has no
rights of setoff relating to or defenses against payment of the Loans in
accordance with the terms of the Loan Agreement and, except as provided in this
Amendment, the Loan Documents remain unmodified and in full force and effect.
6. Entire Agreement. This Amendment constitutes the entire
agreement and understanding among the parties with respect to the subject
matter of such amendment and supersedes all prior agreements and understandings
with respect to such subject matter, whether oral or written.
7. Loan Fee and Expenses. Borrower agrees, on Lender's demand, to
pay all reasonable costs and expenses incurred by Lender in connection with
this Amendment, the additional security being provided to Lender concurrently
with this Amendment, investigation and approval of any assets proposed by
Borrower to be Approved Properties, whether or not Lender grants such approval,
including without limitation, the fees and related costs of Lender's legal
counsel, the cost of obtaining increased amounts of title insurance and any
endorsements to the Title Policies necessitated or deemed desirable by Lender
in connection with this Amendment or Lender's acceptance of any additional
Approved Properties and all appraisal, title, recording, inspection,
engineering and related costs. Borrower authorizes Lender, if Lender so
elects, to pay the amount of such fee and such costs to itself by making a Loan
under the Loan Agreement for such amounts.
EAST-WEST BANK, a California
banking corporation
By: /s/DONALD CHOW
----------------------------------------------
Donald Chow, Senior Vice
President
(Signatures continued on next page)
-3-
<PAGE> 49
(Signatures continued from next page)
KENNEDY-WILSON, INC., a Delaware
corporation
By: /s/WILLIAM J. MCMORROW
------------------------------------------------
William J. McMorrow, President
KENNEDY-WILSON INTERNATIONAL, a
California corporation
By: /s/WILLIAM J. MCMORROW
------------------------------------------------
William J. McMorrow, President
K-W PROPERTIES, a California
corporation
By: /s/WILLIAM J. MCMORROW
------------------------------------------------
William J. McMorrow
Vice President
WESTBOROUGH COURT GROUP, INC., a
California corporation
By: /s/WILLIAM J. MCMORROW
------------------------------------------------
-4-
<PAGE> 1
EXHIBIT 22.1
KENNEDY-WILSON, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Name Incorporation
---- ---------------
<S> <C>
11743 Kiowa Partners Corporation California
453 Barrington Property Group, Inc. Delaware
Edinger Business Centre Group, Inc. California
K-W Capital Corporation California
K-W Hilltop, Inc. California
K-W Properties California
Kennedy-Wilson International California
Kennedy-Wilson International of New York, Inc. New York
Kennedy-Wilson Japan K.K. Japan
Kennedy-Wilson Hong Kong Ltd. Hong Kong
Kennedy-Wilson RHA Holding Company, Inc. Delaware
Kuhio Group, Inc. California
KW Properties I California
KWP Financial I California
KWP Financial II California
KWP Financial III California
Monarch Investors, Inc. California
Plaza Centre Group, Inc. California
VDE Corona Group, Inc. California
Vista Waikoloa Group, Inc. California
Westborough Court Group, Inc. California
Wilshire & 7th Properties, Inc. California
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERE TO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,297,000
<SECURITIES> 0
<RECEIVABLES> 14,781,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 34,036,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 51,114,000
<CURRENT-LIABILITIES> 3,104,000
<BONDS> 37,628,000
0
0
<COMMON> 12,000
<OTHER-SE> 10,370,000
<TOTAL-LIABILITY-AND-EQUITY> 51,114,000
<SALES> 31,967,000
<TOTAL-REVENUES> 0
<CGS> 18,292,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,120,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,964,000
<INCOME-PRETAX> 3,591,000
<INCOME-TAX> 60,000
<INCOME-CONTINUING> 3,531,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,531,000
<EPS-PRIMARY> 2.69
<EPS-DILUTED> 2.69
</TABLE>
